filings.toolsItem 8. Financial Statements and Supplementary Data.
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Item 8. Financial Statements and Supplementary Data.
CONSOLIDATED BALANCE SHEETS
| as of December 31 (in millions, except share information) | 2025 | 2024 | |||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | 1,966 | $ | 1,764 | |||||||
| Accounts receivable, net of allowance of $63 in 2025 and $71 in 2024 | 1,861 | 1,679 | |||||||||
| Inventories | 2,232 | 2,046 | |||||||||
| Prepaid expenses and other current assets | 813 | 753 | |||||||||
| Current assets of discontinued operations | — | 2,611 | |||||||||
| Total current assets | 6,872 | 8,853 | |||||||||
| Property, plant and equipment, net | 2,910 | 2,870 | |||||||||
| Goodwill | 4,929 | 5,275 | |||||||||
| Other intangible assets, net | 4,369 | 5,223 | |||||||||
| Operating lease right-of-use assets | 276 | 306 | |||||||||
| Other non-current assets | 699 | 755 | |||||||||
| Non-current assets of discontinued operations | — | 2,500 | |||||||||
| Total assets | $ | 20,055 | $ | 25,782 | |||||||
| Current liabilities: | |||||||||||
| Short-term debt | $ | 1 | $ | 2,126 | |||||||
| Current maturities of long-term debt and finance lease obligations | 2 | 626 | |||||||||
| Accounts payable | 999 | 968 | |||||||||
| Accrued expenses and other current liabilities | 1,968 | 1,861 | |||||||||
| Current liabilities of discontinued operations | — | 930 | |||||||||
| Total current liabilities | 2,970 | 6,511 | |||||||||
| Long-term debt and finance lease obligations, less current portion | 9,473 | 10,374 | |||||||||
| Operating lease liabilities | 223 | 243 | |||||||||
| Other non-current liabilities | 1,287 | 1,076 | |||||||||
| Non-current liabilities of discontinued operations | — | 554 | |||||||||
| Total liabilities | 13,953 | 18,758 | |||||||||
| Commitments and contingencies | |||||||||||
| Equity: | |||||||||||
| Common stock, $1 par value, authorized 2,000,000,000 shares, issued 683,494,944 shares in 2025 and 2024 | 683 | 683 | |||||||||
| Common stock in treasury, at cost, 169,213,617 shares in 2025 and 172,567,636 shares in 2024 | (10,873) | (11,059) | |||||||||
| Additional contributed capital | 6,368 | 6,421 | |||||||||
| Retained earnings | 13,705 | 14,929 | |||||||||
| Accumulated other comprehensive income (loss) | (3,754) | (4,010) | |||||||||
| Total Baxter stockholders’ equity | 6,129 | 6,964 | |||||||||
| Noncontrolling interests | (27) | 60 | |||||||||
| Total equity | 6,102 | 7,024 | |||||||||
| Total liabilities and equity | $ | 20,055 | $ | 25,782 |
The accompanying notes are an integral part of these consolidated financial statements.
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
| years ended December 31 (in millions, except per share data) | 2025 | 2024 | 2023 | ||||||||
| Net sales | $ | 11,244 | $ | 10,636 | $ | 10,360 | |||||
| Cost of sales | 7,865 | 6,652 | 6,210 | ||||||||
| Gross margin | 3,379 | 3,984 | 4,150 | ||||||||
| Selling, general and administrative expenses | 2,890 | 2,967 | 2,953 | ||||||||
| Research and development expenses | 518 | 590 | 518 | ||||||||
| Goodwill impairments | 485 | 425 | — | ||||||||
| Other operating expense (income), net | (206) | (12) | (28) | ||||||||
| Operating income (loss) | (308) | 14 | 707 | ||||||||
| Interest expense, net | 238 | 341 | 439 | ||||||||
| Other (income) expense, net | (41) | (38) | 26 | ||||||||
| Income (loss) from continuing operations before income taxes | (505) | (289) | 242 | ||||||||
| Income tax (benefit) expense | 395 | 37 | 61 | ||||||||
| Income (loss) from continuing operations | (900) | (326) | 181 | ||||||||
| Income (loss) from discontinued operations, net of tax | (57) | (312) | 2,482 | ||||||||
| Net income (loss) | (957) | (638) | 2,663 | ||||||||
| Less: Net income attributable to noncontrolling interests included in continuing operations | — | — | — | ||||||||
| Less: Net income attributable to noncontrolling interests included in discontinued operations | — | 11 | 7 | ||||||||
| Net income (loss) attributable to Baxter stockholders | $ | (957) | $ | (649) | $ | 2,656 | |||||
| Income (loss) from continuing operations per common share | |||||||||||
| Basic | $ | (1.75) | $ | (0.64) | $ | 0.36 | |||||
| Diluted | $ | (1.75) | $ | (0.64) | $ | 0.36 | |||||
| Income (loss) from discontinued operations per common share | |||||||||||
| Basic | $ | (0.12) | $ | (0.63) | $ | 4.89 | |||||
| Diluted | $ | (0.12) | $ | (0.63) | $ | 4.87 | |||||
| Net Income (loss) per common share | |||||||||||
| Basic | $ | (1.87) | $ | (1.27) | $ | 5.25 | |||||
| Diluted | $ | (1.87) | $ | (1.27) | $ | 5.23 | |||||
| Weighted-average number of shares outstanding | |||||||||||
| Basic | 513 | 510 | 506 | ||||||||
| Diluted | 513 | 510 | 508 |
The accompanying notes are an integral part of these consolidated financial statements.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
| years ended December 31 (in millions) | 2025 | 2024 | 2023 | ||||||||
| Income (loss) from continuing operations | $ | (900) | $ | (326) | $ | 181 | |||||
| Other comprehensive income (loss) from continuing operations, net of tax: | |||||||||||
| Currency translation adjustments, net of tax expense (benefit) of ($24) in 2025, $1 in 2024 and $(26) in 2023 | 160 | (648) | 301 | ||||||||
| Pension and other postretirement benefit plans, net of tax expense of $(17) in 2025, $(6) in 2024 and $(25) in 2023 | (28) | (19) | (92) | ||||||||
| Hedging activities, net of tax expense (benefit) of zero in 2025, $3 in 2024 and zero in 2023 | (2) | 12 | (1) | ||||||||
| Total other comprehensive income (loss) from continuing operations, net of tax | 130 | (655) | 208 | ||||||||
| Comprehensive income (loss) from continuing operations | (770) | (981) | 389 | ||||||||
| Income (loss) from discontinued operations, net of tax | (57) | (312) | 2,482 | ||||||||
| Other comprehensive income (loss) from discontinued operations | |||||||||||
| Currency translation adjustments, net of tax expense (benefit) of zero in 2025, $(7) in 2024 and $8 in 2023 | 137 | 187 | 97 | ||||||||
| Pension and other postretirement benefit plans, net of tax expense of $(3) in 2025, $3 in 2024 and $(2) in 2023 | (11) | (4) | (29) | ||||||||
| Total other comprehensive income from discontinued operations | 126 | 183 | 68 | ||||||||
| Comprehensive income (loss) from discontinued operations | 69 | (129) | 2,550 | ||||||||
| Comprehensive income (loss) | (701) | (1,110) | 2,939 | ||||||||
| Less: Net income attributable to noncontrolling interests | — | 11 | 7 | ||||||||
| Less: Other comprehensive income (loss) attributable to noncontrolling interests | — | (16) | (3) | ||||||||
| Comprehensive income (loss) attributable to Baxter stockholders | $ | (701) | $ | (1,105) | $ | 2,935 |
The accompanying notes are an integral part of these consolidated financial statements.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
| Baxter International Inc. stockholders' equity | ||||||||||||||||||||||||||||||||
| (in millions) | Common stock shares | Common stock | Common stock shares in treasury | Common stock in treasury | Additional contributed capital | Retained earnings | Accumulated other comprehensive income (loss) | Total Baxter stockholders' equity | Noncontrolling interests | Total equity | ||||||||||||||||||||||
| Balance as of January 1, 2023 | 683 | $ | 683 | 179 | $ | (11,389) | $ | 6,322 | $ | 14,050 | $ | (3,833) | $ | 5,833 | $ | 62 | $ | 5,895 | ||||||||||||||
| Net income (loss) | — | — | — | — | — | 2,656 | — | 2,656 | 7 | 2,663 | ||||||||||||||||||||||
| Other comprehensive income (loss) | — | — | — | — | — | — | 279 | 279 | (3) | 276 | ||||||||||||||||||||||
| Stock issued under employee benefit plans and other | — | — | (3) | 159 | 67 | — | — | 226 | — | 226 | ||||||||||||||||||||||
| Dividends declared on common stock | — | — | — | — | — | (592) | — | (592) | — | (592) | ||||||||||||||||||||||
| Balance as of December 31, 2023 | 683 | $ | 683 | 176 | $ | (11,230) | $ | 6,389 | $ | 16,114 | $ | (3,554) | $ | 8,402 | $ | 66 | $ | 8,468 | ||||||||||||||
| Net income (loss) | — | — | — | — | — | (649) | — | (649) | 11 | (638) | ||||||||||||||||||||||
| Other comprehensive income (loss) | — | — | — | — | — | — | (456) | (456) | (16) | (472) | ||||||||||||||||||||||
| Stock issued under employee benefit plans and other | — | — | (3) | 171 | 32 | — | — | 203 | — | 203 | ||||||||||||||||||||||
| Dividends declared on common stock | — | — | — | — | — | (536) | — | (536) | — | (536) | ||||||||||||||||||||||
| Change in noncontrolling interests | — | — | — | — | — | — | — | — | (1) | (1) | ||||||||||||||||||||||
| Balance as of December 31, 2024 | 683 | $ | 683 | 173 | $ | (11,059) | $ | 6,421 | $ | 14,929 | $ | (4,010) | $ | 6,964 | $ | 60 | $ | 7,024 | ||||||||||||||
| Net income (loss) | — | — | — | — | — | (957) | — | (957) | — | (957) | ||||||||||||||||||||||
| Other comprehensive income (loss) | — | — | — | — | — | — | 141 | 141 | — | 141 | ||||||||||||||||||||||
| Reclassification of other comprehensive income (loss) disposed in the Kidney Care separation | — | — | — | — | — | — | 115 | 115 | — | 115 | ||||||||||||||||||||||
| Stock issued under employee benefit plans and other | — | — | (4) | 186 | (53) | — | — | 133 | — | 133 | ||||||||||||||||||||||
| Dividends declared on common stock | — | — | — | — | — | (267) | — | (267) | — | (267) | ||||||||||||||||||||||
| Disposition of noncontrolling interest associated with the Kidney Care separation | — | — | — | — | — | — | — | — | (87) | (87) | ||||||||||||||||||||||
| Balance as of December 31, 2025 | 683 | $ | 683 | 169 | $ | (10,873) | $ | 6,368 | $ | 13,705 | $ | (3,754) | $ | 6,129 | $ | (27) | $ | 6,102 |
The accompanying notes are an integral part of these consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
| years ended December 31 (in millions) | 2025 | 2024 | 2023 | ||||||||
| Cash flows from operations | |||||||||||
| Net income (loss) | $ | (957) | $ | (638) | $ | 2,663 | |||||
| Less: Income (loss) from discontinued operations, net of tax | (57) | (312) | 2,482 | ||||||||
| Income (loss) from continuing operations | (900) | (326) | 181 | ||||||||
| Adjustments to reconcile net income (loss) to cash flows from operations: | |||||||||||
| Depreciation and amortization | 981 | 997 | 984 | ||||||||
| Net periodic pension and other postretirement costs | (32) | (28) | (29) | ||||||||
| Deferred income taxes | 77 | (262) | (256) | ||||||||
| Stock compensation | 117 | 114 | 115 | ||||||||
| Goodwill impairments | 485 | 425 | — | ||||||||
| Indefinite-lived asset impairments | 290 | 50 | — | ||||||||
| Other long-lived asset impairments | 27 | 44 | (11) | ||||||||
| Gain on early extinguishment of debt | (16) | — | — | ||||||||
| Other | 30 | 41 | 62 | ||||||||
| Changes in balance sheet items: | |||||||||||
| Accounts receivable, net | (132) | (35) | (38) | ||||||||
| Inventories | (119) | (201) | (128) | ||||||||
| Prepaid expenses and other current assets | 72 | (125) | (45) | ||||||||
| Accounts payable | 3 | 112 | 92 | ||||||||
| Accrued expenses and other current liabilities | 149 | 44 | 293 | ||||||||
| Other | (81) | (31) | (13) | ||||||||
| Cash flows from (used in) operations – continuing operations | 951 | 819 | 1,207 | ||||||||
| Cash flows from (used in) operations – discontinued operations | (106) | 200 | 519 | ||||||||
| Cash flows from (used in) operations | 845 | 1,019 | 1,726 | ||||||||
| Cash flows from investing activities | |||||||||||
| Capital expenditures | (513) | (446) | (432) | ||||||||
| Acquisitions of developed technology and investments | (9) | (14) | (4) | ||||||||
| Proceeds from sale of marketable equity securities | — | 34 | — | ||||||||
| Other investing activities, net | 58 | 16 | 26 | ||||||||
| Cash flows from (used in) investing activities - continuing operations | (464) | (410) | (410) | ||||||||
| Cash flows from (used in) investing activities - discontinued operations | 3,305 | (216) | 3,623 | ||||||||
| Cash flows from (used in) investing activities | 2,841 | (626) | 3,213 | ||||||||
| Cash flows from financing activities | |||||||||||
| Issuances of debt | 1,998 | — | — | ||||||||
| Increase in short term debt | — | 1,830 | — | ||||||||
| Repayments of debt | (5,489) | (2,657) | (2,634) | ||||||||
| Net (decreases) increases in debt with original maturities of three months or less | (300) | 296 | (301) | ||||||||
| Cash dividends on common stock | (348) | (590) | (586) | ||||||||
| Proceeds from stock issued under employee benefit plans | 30 | 71 | 95 | ||||||||
| Payments of contingent liabilities | (50) | — | — | ||||||||
| Other financing activities, net | (57) | (31) | (63) | ||||||||
| Cash flows from (used in) financing activities | (4,216) | (1,081) | (3,489) | ||||||||
| Effect of foreign exchange rate changes on cash, cash equivalents and restricted cash | 84 | (96) | 26 | ||||||||
| Increase (decrease) in cash, cash equivalents and restricted cash | (446) | (784) | 1,476 | ||||||||
| Cash, cash equivalents and restricted cash at beginning of year (1) | 2,414 | 3,198 | 1,722 | ||||||||
| Cash, cash equivalents and restricted cash at end of year (1) | 1,968 | 2,414 | 3,198 | ||||||||
| Less cash and cash equivalents of discontinued operations | — | 648 | 116 | ||||||||
| Cash, cash equivalents and restricted cash of continuing operations | $ | 1,968 | $ | 1,766 | $ | 3,082 |
(1) The following table provides a reconciliation of cash, cash equivalents and restricted cash amounts as shown in the consolidated statement of cash flows to the amount reported in the consolidated balance sheet as of December 31, 2025, 2024, and 2023:
| As of December 31 (in millions) | 2025 | 2024 | 2023 | ||||||||
| Cash and cash equivalents | $ | 1,966 | $ | 1,764 | $ | 3,078 | |||||
| Restricted cash included in prepaid expenses and other current assets | 2 | 2 | 4 | ||||||||
| Cash and cash equivalents of discontinued operations | — | 648 | 116 | ||||||||
| Cash, cash equivalents and restricted cash | $ | 1,968 | $ | 2,414 | $ | 3,198 |
The accompanying notes are an integral part of these consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1
| SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Nature of Operations
Baxter International Inc., through our subsidiaries (collectively, Baxter, we, our or us), provides a broad portfolio of essential healthcare products, including sterile intravenous (IV) solutions; infusion systems, administrative sets; parenteral nutrition therapies and surgical hemostat, sealant, and adhesion prevention products; connected care solutions and collaboration tools, including smart bed systems, patient monitoring systems and diagnostic technologies; respiratory health devices; advanced equipment for the surgical space, including operating room integration technologies, precision positioning devices and other accessories; injectable pharmaceuticals; inhaled anesthetics and drug compounding. These products are used by hospitals, nursing homes, rehabilitation centers, ambulatory surgery centers, doctors’ offices, kidney dialysis centers and patients at home under physician supervision. Our global footprint and the critical nature of our products and services play a key role in expanding access to healthcare in emerging and developed countries. Our business is comprised of three reportable segments: Medical Products & Therapies, Healthcare Systems & Technologies, and Pharmaceuticals which are described in Note 17.
On August 12, 2024, we entered into an Equity Purchase Agreement (EPA) with certain affiliates of Carlyle Group Inc. (Carlyle) to sell our Kidney Care business. That business, which is now known as Vantive Health LLC (Vantive) is comprised of our former Kidney Care segment. On January 31, 2025, we completed the sale of our Kidney Care business to Carlyle for an aggregate purchase price of $3.80 billion in cash, subject to certain closing cash, working capital and debt adjustments. After giving effect to certain adjustments, we received approximately $3.71 billion pre-tax cash proceeds at closing of the transaction with the net after tax proceeds of approximately $3.3 billion, prior to giving effect to certain post-closing adjustments. The financial position, results of operations and cash flows of our Kidney Care business, including the gain on sale of that business and the related cash proceeds received, are reported as discontinued operations in the accompanying consolidated financial statements, and our prior period results have been adjusted to reflect discontinued operations. See Note 2 for additional information.
Hurricane Helene
In September 2024, Hurricane Helene, which brought significant rain and extensive flooding to Western North Carolina, caused damage to certain of our assets at our North Cove facility in Marion, N.C. and disrupted operations at that facility. In response, we actively worked with customers, regulators and other stakeholders to manage inventory and minimize disruption to patient care as we worked towards resuming our North Cove manufacturing operations. The facility was fully operational by the end of the first quarter of 2025. In 2025, we recorded $133 million of pre-tax net charges related to remediation, air freight and other costs as a result of the damages caused by Hurricane Helene. In 2024, we recorded $110 million of pre-tax net charges related to damages caused by Hurricane Helene. This consisted of $44 million related to the write-off of damaged inventory and fixed assets as well as $317 million of remediation, idle facility, air freight and other costs offset by $251 million of insurance recoveries. These amounts were recorded as a component of cost of sales in the consolidated statements of income (loss) for the years ended December 31, 2025 and 2024.
Use of Estimates
The preparation of financial statements in conformity with U.S. Generally Accepted Accounting Principles (U.S. GAAP) requires us to make estimates and assumptions that affect the reported amounts and related disclosures in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.
Principles of Consolidation
The consolidated financial statements include the accounts of Baxter and our majority-owned subsidiaries that we control, after elimination of intra-company balances and transactions.
Revenue Recognition
Revenue is measured as the amount of consideration we expect to receive in exchange for transferring goods or providing services. A performance obligation is a promise in a contract to transfer a distinct good or service to the
customer and is the unit of account in the contract. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. Some of our contracts have multiple performance obligations. For contracts with multiple performance obligations, we allocate the contract’s transaction price to each performance obligation using our best estimate of the standalone selling price of each distinct good or service in the contract. Our global payment terms are typically between 30-90 days.
Our primary customers are hospitals, healthcare distribution companies and government agencies that purchase healthcare products on behalf of providers. Most of our performance obligations are satisfied at a point in time. This includes sales of our broad portfolio of essential healthcare products across our business segments. We earn revenues from sterile IV solutions; infusion systems and devices; parenteral nutrition therapies; inhaled anesthetics; generic injectable pharmaceuticals; surgical hemostat and sealant products; smart bed systems; patient monitoring and diagnostic technologies; respiratory health devices; and advanced equipment for the surgical space. For most of those offerings, our performance obligation is satisfied upon delivery to the customer. Shipping and handling activities are considered to be fulfillment activities and are not considered to be a separate performance obligation.
To a lesser extent, we enter into arrangements for which revenue may be recognized over time. For example, we lease medical equipment to customers under operating lease arrangements and recognize the related revenues on a monthly basis over the lease term. Our Healthcare Systems & Technologies segment includes connected care solutions and collaboration tools that are implemented over time. We recognize revenue for these arrangements over time or at a point in time depending on our evaluation of when the customer obtains control of the promised goods or services. We also earn revenue from contract manufacturing activities, which is recognized over time as the services are performed. Revenue is recognized over time when we are creating or enhancing an asset that the customer controls as the asset is created or enhanced or our performance does not create an asset with an alternative use and we have an enforceable right to payment for performance completed.
As of December 31, 2025, we had $8.50 billion of transaction price allocated to remaining performance obligations related to executed contracts with an original duration of more than one year, which are primarily included in the Medical Product & Therapies 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 25% of this amount as revenue in 2026, 25% in 2027, 15% in 2028, 15% in 2029, 10% in 2030 and the remainder thereafter.
Significant Judgments
Revenues from product sales are recorded at the net sales price, which includes estimates of variable consideration, primarily related to rebates and distributor chargebacks. These reserves are based on estimates of the amounts earned or to be claimed on the related sales and are included in accrued expenses and other current liabilities and as reductions of accounts receivable, net on the 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 in the years ended December 31, 2025, 2024 and 2023 related to performance obligations satisfied in prior periods was not material. Additionally, our contracts with customers often include promises to transfer multiple products and services to a customer. Determining whether products and services are considered distinct performance obligations that should be accounted for separately and determining the allocation of the transaction price may require significant judgment.
Practical Expedients
We apply a practical expedient to expense as incurred costs to obtain a contract with a customer when the amortization period would have been one year or less. We do not disclose the value of the transaction price that is allocated to unsatisfied performance obligations for contracts with an original expected length of less than one year. We have elected to use the practical expedient to not adjust the promised amount of consideration for the effects of a significant financing component if it is expected, at contract inception, that the period between when we transfer a promised good or service to a customer and when the customer pays for that good or service will be one year or less. Additionally, all taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction and collected from a customer are excluded from revenue.
Accounts Receivable and Allowance for Doubtful Accounts
In the normal course of business, we provide credit to our customers, perform credit evaluations of these customers and maintain reserves for potential credit losses. In determining the amount of the allowance for doubtful accounts, we consider, among other items, historical credit losses, the past-due status of receivables, payment histories, other customer-specific information, current economic conditions and reasonable and supportable future forecasts. Receivables are written off when we determine that they are uncollectible.
Shipping and Handling Costs
Shipping costs incurred to physically move product from our premises to the customer’s premises are classified as selling, general and administrative (SG&A) expenses. Handling costs, which are costs incurred to store, move and prepare products for shipment, are classified as cost of sales. Approximately $373 million in 2025, $382 million in 2024 and $358 million in 2023 of shipping costs were classified in SG&A expenses.
Cash, Cash Equivalents and Restricted Cash
Cash and cash equivalents include cash, certificates of deposit and money market and other short-term funds with original maturities of three months or less. Restricted cash represents cash balances restricted as to withdrawal or use and are included in prepaid expenses and other current assets on the consolidated balance sheets.
Inventories
Inventories are stated at the lower of cost or net realizable value determined by the first-in, first-out method. We review inventories on hand at least quarterly and record provisions for estimated excess, slow-moving and obsolete inventory, as well as inventory with a carrying value in excess of net realizable value.
Property, Plant and Equipment, Net
Property, plant and equipment are stated at cost. Depreciation expense is calculated using the straight-line method over the estimated useful lives of the related assets, which range from 20 to 50 years for buildings and improvements and from three to 15 years for machinery and equipment. Leasehold improvements are amortized over the life of the related facility lease (including any renewal periods, if appropriate) or the asset, whichever is shorter. We capitalize certain computer software and software development costs incurred in connection with developing or obtaining software for internal use. Capitalized software costs are included within machinery and equipment and are amortized on a straight-line basis over the estimated useful lives of the software, which generally range from three to five years.
Research and Development
Research and development (R&D) costs, including R&D acquired in transactions that are not business combinations, are expensed as incurred. Pre-regulatory approval contingent milestone obligations to counterparties in collaborative arrangements, which include acquired R&D, are expensed when the milestone is probable to be achieved. Contingent milestone payments made to such counterparties on or after regulatory approval are capitalized and amortized over the remaining useful life of the related product. Amounts capitalized for such payments are included in other intangible assets, net.
Acquired in-process R&D (IPR&D) is the value assigned to technology or products under development acquired in a business combination which have not received regulatory approval and have no alternative future use. Acquired IPR&D is capitalized as an indefinite-lived intangible asset. Development costs incurred after the acquisition are expensed as incurred. Upon receipt of regulatory approval of the related technology or product, the indefinite-lived intangible asset is accounted for as a finite-lived intangible asset and amortized on a straight-line basis over the estimated economic life of the related technology or product, subject to annual impairment reviews as discussed below. If the R&D project is abandoned, the indefinite-lived asset is charged to expense.
Collaborative Arrangements
We periodically enter into collaborative arrangements in the normal course of business. These collaborative arrangements take a number of forms and structures and are designed to enhance and expedite long-term sales
and profitability growth. These arrangements may provide for us to obtain commercialization rights to a product under development, and require us to make upfront payments, contingent milestone payments, profit-sharing, and/or royalty payments. We may be responsible for ongoing costs associated with the arrangements, including R&D cost reimbursements to the counterparty. See the Research and Development section of this note regarding the accounting treatment of upfront and contingent milestone payments. Any royalty and profit-sharing payments during the commercialization phase are expensed as cost of sales when they become due and payable.
Restructuring Charges
We record liabilities for costs associated with exit or disposal activities in the period in which the liability is incurred. Employee termination costs are primarily recorded when actions are probable and estimable. Costs for one-time termination benefits in which the employee is required to render service until termination in order to receive the benefits are recognized ratably over the future service period. Refer to the discussion below regarding the accounting for asset impairment charges.
Goodwill, Intangible Assets and Other Long-Lived Assets
Goodwill is initially measured as the excess of the purchase price over the fair value (or other measurement attribute required by U.S. GAAP) of acquired assets and liabilities in a business combination. Management performs an impairment test in the fourth quarter of each year, or whenever events or changes in circumstances indicate that the fair value of the reporting unit is more likely than not below its carrying amount. We have the option to assess goodwill for impairment by initially performing a qualitative assessment to determine whether it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount. If we determine that it is not more-likely-than-not that the fair value of a reporting unit is less than its carrying amount, then the quantitative goodwill impairment test is not required to be performed. If we determine that it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount, or if we do not elect the option to perform an initial qualitative assessment, we perform a quantitative goodwill impairment test. In the quantitative impairment test, we calculate the estimated fair value of the reporting unit. If the carrying amount of the reporting unit exceeds the estimated fair value, an impairment charge is recorded for the amount that its carrying amount, including goodwill, exceeds its fair value, limited to the total amount of goodwill allocated to that reporting unit. In a quantitative goodwill impairment test, the fair values of our reporting units are generally determined based on a discounted cash flow model (an income approach) and earnings multiples (a market approach). Significant assumptions in reporting unit fair value measurements generally include revenue growth rates, forecasted earnings before interest, taxes, depreciation and amortization (EBITDA) margins, discount rates, terminal growth rates and earnings multiples. Each of those assumptions can significantly affect the fair values of our reporting units.
Indefinite-lived intangible assets, such as IPR&D acquired in business combinations and certain trade names with indefinite lives, are subject to an impairment review annually in the fourth quarter and whenever indicators of impairment exist. We have the option to assess indefinite-lived intangible assets for impairment by first performing qualitative assessments to determine whether it is more-likely-than-not that the fair values of the indefinite-lived intangible assets are less than the carrying amounts. If we determine that it is more-likely-than-not that an indefinite-lived intangible asset is impaired, or if we elect not to perform an initial qualitative assessment, we then perform the quantitative impairment test by comparing the fair value of the indefinite-lived intangible asset with its carrying amount. If the carrying amount exceeds the fair value of the indefinite-lived intangible asset, we write the carrying amount down to the fair value.
We review the carrying amounts of long-lived assets used in operations, other than goodwill and intangible assets not subject to amortization, for potential impairment when events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In evaluating recoverability, we group assets and liabilities at the lowest level such that the identifiable cash flows relating to the group are largely independent of the cash flows of other assets and liabilities. We then compare the carrying amounts of the assets or asset groups with the related estimated undiscounted future cash flows. In the event an asset (or asset group) is not recoverable, an impairment charge is recorded as the amount by which the carrying amount of the asset (or asset group) exceeds its fair value.
Long-lived assets are classified as held for sale when certain criteria are met, including when management has committed to sell the asset, the asset is available for sale in its present condition and the sale is probable of being completed within one year of the balance sheet date. Assets held for sale are no longer depreciated or amortized and they are reported at the lower of their carrying amount or fair value less cost to sell.
See Note 4 for further information about impairments of goodwill and intangible assets recognized in the accompanying consolidated financial statements.
Investments in Debt and Equity Securities
Investments in debt securities classified as available-for-sale are measured at fair value with changes in fair value reported in other comprehensive (loss) income (OCI). Investments in marketable equity securities are classified as other non-current assets and are measured at fair value with gains and losses recognized in other (income) expense, net. We have elected to apply the measurement alternative to equity securities without readily determinable fair values. As such, our non-marketable equity securities are measured at cost, less any impairment, and are adjusted for changes in fair value resulting from observable transactions for identical or similar investments of the same issuer. Gains and losses on non-marketable equity securities are also recognized in other (income) expense, net. Noncontrolling investments in common stock or in-substance common stock are accounted for under the equity method if we have the ability to exercise significant influence over the operating and financial policies of the investee. We review our investments in debt and equity securities for impairment and adjust impaired investments to fair value through earnings, as required.
Income Taxes
Deferred taxes are recognized for the future tax effects of temporary differences between financial and income tax reporting based on enacted tax laws and rates. We maintain valuation allowances unless it is more-likely-than-not that the deferred tax asset will be realized. With respect to uncertain tax positions, we determine whether the position is more-likely-than-not to be sustained upon examination based on the technical merits of the position. Any tax position that meets the more-likely-than-not recognition threshold is measured and recognized in the consolidated financial statements at the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement. The liability relating to uncertain tax positions is classified as current in the consolidated balance sheets to the extent that we anticipate making a payment within one year. Interest and penalties associated with income taxes are classified in the income tax expense (benefit) line in the consolidated statements of income (loss).
Foreign Currency Translation
Cumulative translation adjustments (CTA) related to foreign operations are included in OCI. For foreign operations in highly inflationary economies, translation gains and losses are included in other (income) expense, net, and were not material in 2025, 2024 and 2023.
Derivatives and Hedging Activities
Derivative instruments are recognized as either assets or liabilities at fair value in the consolidated balance sheets and are classified as short-term or long-term based on the scheduled maturity of the instrument. We designate certain of our derivatives and foreign-currency denominated debt as hedging instruments in cash flow, fair value or net investment hedges.
For each derivative instrument that is designated and effective as a cash flow hedge, the gain or loss on the derivative is recorded in AOCI and then recognized in earnings consistent with the underlying hedged item. Cash flow hedges are classified in cost of sales and interest expense, net, and are primarily related to forecasted intra-company sales denominated in foreign currencies and forecasted interest payments on anticipated issuances of debt, respectively.
For each derivative instrument that is designated and effective as a fair value hedge, the gain or loss on the derivative is recognized immediately to earnings, and offsets changes in fair value attributable to a particular risk, such as changes in interest rates, of the hedged item, which are also recognized in earnings. Changes in the fair value of hedge instruments designated as fair value hedges are classified in interest expense, net, as they hedge the interest rate risk associated with certain of our fixed-rate debt.
We have designated certain of our Euro-denominated senior notes as hedges of our net investment in our European operations and, as a result, mark to spot rate adjustments on the outstanding debt balances are recorded as a component of AOCI.
For derivative instruments that are not designated as hedges, the change in fair value is recorded directly to other (income) expense, net.
If it is determined that a derivative or nonderivative hedging instrument is no longer highly effective as a hedge, we discontinue hedge accounting prospectively. Gains or losses relating to terminations of effective cash flow hedges generally continue to be deferred and are recognized consistent with the loss or income recognition of the underlying hedged transactions. However, if it is probable that the hedged forecasted transactions will not occur, any gains or losses would be immediately reclassified from AOCI to earnings. If we terminate a fair value hedge, an amount equal to the cumulative fair value adjustment to the hedged item at the date of termination is amortized to earnings over the remaining term of the hedged item. If we remove a net investment hedge designation, any gain or loss recognized in AOCI are not reclassified to earnings until we sell, liquidate, or deconsolidate the foreign investments that were being hedged.
Cash flows related to the settlement of derivative instruments designated as net investment hedges of foreign operations are classified in the consolidated statements of cash flows within investing activities. Cash flows for all other derivatives, including those that are not designated as a hedge, are classified in the same line item as the cash flows of the related hedged item, which is generally within operating activities.
New Accounting Standards
Recently issued accounting standards not yet adopted
In November 2024, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses, which requires disaggregated disclosure of certain expenses on an interim and annual basis in the notes to the financial statements. This standard is effective for annual consolidated financial statements for the year ending December 31, 2027 and for interim periods beginning in 2028. We are currently evaluating the impact of this new standard on our consolidated financial statements.
Recently adopted accounting pronouncements
As of January 1, 2025, we prospectively adopted ASU 2023-09, Income Taxes (Topic 740): Improvement to Income Tax Disclosures (ASU 2023-09), which requires (1) disclosure of specific categories in the rate reconciliation and (2) additional information for reconciling items that meet a quantitative threshold. Additionally, the amendment requires disclosure of certain disaggregated information about income taxes paid, income from continuing operations before income tax expense (benefit) and income tax expense (benefit). The standard became effective for our annual consolidated financial statements for the year ended December 31, 2025. See Note 13 for further information on these disclosures.
As of January 2024, we adopted ASU 2022-03, Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sales Restrictions, which (1) clarifies the guidance in Topic 820 on the fair value measurement of an equity security that is subject to contractual restrictions that prohibit the sale of an equity security and (2) requires specific disclosures related to such an equity security. The standard became effective for our annual consolidated financial statements for the year ended December 31, 2024 and for interim periods beginning in 2025. The impact of the adoption of this ASU did not have a material effect on our consolidated financial statements.
NOTE 2****DISCONTINUED OPERATIONS
A component of an entity is reported in discontinued operations after meeting the criteria for held-for-sale classification if the disposition represents a strategic shift that has (or will have) a major effect on the entity's operations and financial results. The consolidated financial statements reflect discontinued operations for two strategic actions, as described below.
Discontinued Operations - Kidney Care
On January 31, 2025, we completed the sale of our Kidney Care business to Carlyle for an aggregate purchase price of $3.80 billion in cash, subject to certain closing cash, working capital and debt adjustments. After giving effect to certain adjustments, we received approximately $3.71 billion pre-tax cash proceeds and recognized a pre-tax gain on the sale of $191 million ($111 million net of tax) at closing of the transaction. For the year ended
December 31, 2025, we recognized a pre-tax gain on sale of $97 million after final working capital and other adjustments.
We concluded that our Kidney Care business met the criteria to be classified as held-for-sale in August 2024. We analyzed the quantitative and qualitative factors relevant to the sale of our Kidney Care business, including its significance to our overall net income (loss), earnings (loss) per share, and net assets, and determined that those conditions for discontinued operations presentation had been met. As such, the financial position, results of operations and cash flows of that business are reported as discontinued operations in the accompanying condensed consolidated financial statements. Prior period amounts have been adjusted to reflect discontinued operations presentation.
Upon closing of the sale of the Kidney Care business, pursuant to the EPA, Baxter and Vantive entered into several agreements, including a Manufacturing and Supply Agreement (Kidney Care MSA), a Transition Services Agreement (Kidney Care TSA), a Long Term Master Services Agreement, a Distribution Agreement and certain other arrangements providing for short-term supply of saline products, and an Intellectual Property Agreement. Pursuant to the Kidney Care MSA, Baxter and the Kidney Care divested entities provide each other with certain dialysis-related products, other products, product components and fulfillment services for up to 10 years post-closing (with certain extension rights and early exit rights as provided therein). Pursuant to the Kidney Care MSA, our sales to Vantive are recognized in net sales in the consolidated statements of income (loss). Pursuant to the Kidney Care TSA, Baxter and the entities that were divested in connection with the Kidney Care sale (the Kidney Care divested entities) provide each other, on an interim basis, certain transitional services for up to 30 months post-closing (with certain extension rights and early exit rights as provided therein) to help ensure business continuity and help minimize disruptions to the operations of both parties post-closing. Services provided under the Kidney Care TSA include information technology applications and support, supply chain and certain other corporate and administrative services. Billings by us under the Kidney Care TSA are recorded in other operating income, net in the condensed consolidated statements of income. The costs to provide each respective service is recorded in the applicable expense category in the consolidated statements of income (loss).
In accordance with the EPA, we have agreed to indemnify Vantive for certain items, including taxes imposed on or with respect to the Kidney Care divested entities, for pre-closing tax periods. The net indemnification liability as of December 31, 2025 was $53 million. Further, in accordance with the EPA, Baxter recorded a contingent liability for payments to reimburse Vantive for qualifying capital expenditures of $133 million over a period of three years post sale. The contingent liability as of December 31, 2025 was $83 million based on payments made to date.
Certain of the business guarantees originally entered by us on behalf of the Kidney Care business were not released prior to the completion of the sale and remain outstanding. These legacy guarantees primarily relate to certain leases, performance contracts and ones to support regulatory requirements of the Kidney Care business. As of December 31, 2025, the total amount of Kidney Care business guarantees retained by us was approximately $35 million. Under terms of the EPA, Carlyle has agreed to indemnify us for any cost or expense, or payments made in the future under these arrangements.
Discontinued Operations - BioPharma Solutions
On September 29, 2023, we sold our BPS business to Advent International and Warburg Pincus (collectively, the buyers). Under the terms of the related Equity Purchase Agreement entered into with the buyers in May 2023, we were entitled to aggregate consideration of $4.25 billion, subject to adjustment for specified items. After giving effect to those adjustments, we received cash proceeds of $3.96 billion. We recognized a pre-tax gain on the sale of $2.88 billion ($2.59 billion net of tax), which represents the excess of (a) the $3.91 billion in net consideration received, consisting of (i) $3.96 billion in cash proceeds from the buyers, less (ii) $47 million in transaction costs, over (b) the sum of (i) the $840 million net book value of the BPS business upon the closing of the transaction and (ii) BPS's $181 million other comprehensive loss, which was reclassified to earnings.
The BPS business, provided contract manufacturing and development services, which include sterile fill-finish manufacturing and support services across clinical and commercial applications, primarily serving customers in the pharmaceutical industry. BPS was historically operated through our former, wholly-owned subsidiaries Baxter Pharmaceutical Solutions LLC, a Delaware limited liability company, and Baxter Oncology GmbH, a German limited liability company (collectively, the divested entities).
We concluded that our BPS business met the criteria to be classified as held-for-sale in May 2023. A component of an entity is reported in discontinued operations after meeting the criteria for held-for-sale classification if the
disposition represents a strategic shift that has (or will have) a major effect on the entity's operations and financial results. We analyzed the quantitative and qualitative factors relevant to the divestiture of our BPS business, including its significance to our overall net income (loss) and earnings (loss) per share, and determined that those conditions for discontinued operations presentation had been met. As such, the financial position, results of operations and cash flows of that business, including our gain from the sale of that business and the related cash proceeds received, are reported as discontinued operations in the accompanying consolidated financial statements. Prior period amounts have been adjusted to reflect discontinued operations presentation.
At closing of the transaction, Baxter Pharmaceutical Solutions LLC included a BPS manufacturing facility in Bloomington, Indiana and Baxter Oncology GmbH included a manufacturing facility in Halle Germany. Previously, Baxter Oncology GmbH included an additional manufacturing site in Bielefeld Germany that was not part of the BPS business and was transferred to another Baxter entity prior to closing of the divestiture. Accordingly, amounts related to the Bielefeld site continue to be presented as continuing operations in the accompanying consolidated financial statements.
At closing of the transaction, Baxter entered into a Transition Services Agreement (BPS TSA) and a Master Commercial Manufacturing and Supply Agreement (BPS MSA) with the divested entities. Pursuant to the BPS TSA, Baxter and the divested entities provided to each other specific transition services for a period of time post-closing to help ensure business continuity and minimize disruptions. Services provided under the BPS TSA include finance, information technology, human resources, integrated supply chain and certain other administrative services. Pursuant to the BPS MSA, the divested entities will provide development, manufacturing, regulatory and other related services for certain Baxter pharmaceutical products for up to five years post-closing (with certain extension rights as provided therein).
Results of Discontinued Operations and Assets and Liabilities of Discontinued Operations
The following table summarizes the major classes of line items included in income (loss) from discontinued operations, net of tax, for the years ended December 31, 2025, 2024 and 2023:
| Kidney Care | BioPharma Solutions | Total | |||||||||||||||||||||||||||||||||
| Year Ended December 31, | Year Ended December 31, | Year Ended December 31, | |||||||||||||||||||||||||||||||||
| (in millions) | 2025 | 2024 | 2023 | 2025 | 2024 | 2023 | 2025 | 2024 | 2023 | ||||||||||||||||||||||||||
| Net sales | $ | 352 | $ | 4,513 | $ | 4,453 | $ | — | $ | — | $ | 469 | $ | 352 | $ | 4,513 | $ | 4,922 | |||||||||||||||||
| Cost of sales | 226 | 2,812 | 3,628 | — | — | 216 | 226 | 2,812 | 3,844 | ||||||||||||||||||||||||||
| Gross margin | 126 | 1,701 | 825 | — | — | 253 | 126 | 1,701 | 1,078 | ||||||||||||||||||||||||||
| Selling, general and administrative expenses | 116 | 1,203 | 993 | — | — | 45 | 116 | 1,203 | 1,038 | ||||||||||||||||||||||||||
| Research and development expenses | 16 | 181 | 149 | — | — | 1 | 16 | 181 | 150 | ||||||||||||||||||||||||||
| Goodwill impairments | — | 430 | — | — | — | — | — | 430 | — | ||||||||||||||||||||||||||
| Other operating expense (income), net | — | (1) | — | — | — | — | — | (1) | — | ||||||||||||||||||||||||||
| Operating income (loss) | (6) | (112) | (317) | — | — | 207 | (6) | (112) | (110) | ||||||||||||||||||||||||||
| Interest expense, net | 13 | 13 | 3 | — | — | (1) | 13 | 13 | 2 | ||||||||||||||||||||||||||
| Other (income) expense, net | 7 | 10 | 25 | — | — | 1 | 7 | 10 | 26 | ||||||||||||||||||||||||||
| Income (loss) from discontinued operations before gain on disposition and income taxes | (26) | (135) | (345) | — | — | 207 | (26) | (135) | (138) | ||||||||||||||||||||||||||
| Gain on disposition | 97 | — | — | — | — | 2,882 | 97 | — | 2,882 | ||||||||||||||||||||||||||
| Income tax expense (benefit) | 128 | 177 | (95) | — | — | 357 | 128 | 177 | 262 | ||||||||||||||||||||||||||
| Income (loss) from discontinued operations, net of tax | (57) | (312) | (250) | — | — | 2,732 | (57) | (312) | 2,482 | ||||||||||||||||||||||||||
| Less: Net income attributable to noncontrolling interest included in discontinued operations | — | 11 | 7 | — | — | — | — | 11 | 7 | ||||||||||||||||||||||||||
| Net income (loss) attributable to Baxter stockholders included in discontinued operations | $ | (57) | $ | (323) | $ | (257) | $ | — | $ | — | $ | 2,732 | $ | (57) | $ | (323) | $ | 2,475 |
For the year ended December 31, 2025, settlement of certain net working capital adjustments made in accordance with the EPA and increased indemnification liabilities reduced the gain from sale of our Kidney Care business. For the years ended December 31, 2025 and 2024, SG&A expenses include $37 million and $261 million, respectively, of separation-related costs incurred in connection with the sale of our Kidney Care business. For the year ended December 31, 2023, SG&A expenses include $196 million and $17 million, respectively, of separation-related costs incurred in connection with the sale of our Kidney Care business and the sale of BPS, respectively.
The following table summarizes the carrying amounts of the major classes of assets and liabilities classified as discontinued operations in the consolidated balance sheets as of December 31, 2024:
| as of December 31 (in millions) | 2024 | ||||
| Cash and cash equivalents | $ | 648 | |||
| Accounts receivable, net of allowances | 942 | ||||
| Inventories | 821 | ||||
| Prepaid expenses and other current assets | 200 | ||||
| Current assets of discontinued operations | 2,611 | ||||
| Property, plant and equipment, net | 1,516 | ||||
| Goodwill | 265 | ||||
| Other intangible assets, net | 148 | ||||
| Operating lease right-of-use assets | 204 | ||||
| Other non-current assets | 367 | ||||
| Non-current assets of discontinued operations | 2,500 | ||||
| Assets of discontinued operations | $ | 5,111 | |||
| Current maturities of finance lease obligations | $ | 1 | |||
| Accounts payable | 344 | ||||
| Accrued expenses and other current liabilities | 585 | ||||
| Current liabilities of discontinued operations | 930 | ||||
| Long-term finance lease obligations, less current portion | 37 | ||||
| Operating lease liabilities | 173 | ||||
| Other non-current liabilities | 344 | ||||
| Non-current liabilities of discontinued operations | 554 | ||||
| Liabilities of discontinued operations | $ | 1,484 |
NOTE 3
| SUPPLEMENTAL FINANCIAL INFORMATION |
Allowance for Doubtful Accounts
The following table is a summary of changes in our allowance for doubtful accounts for the years ended December 31, 2025 and 2024.
| years ended December 31 (in millions) | 2025 | 2024 | 2023 | ||||||||
| Balance at beginning of period | $ | 71 | $ | 62 | $ | 50 | |||||
| Charged (released) to costs and expenses | (6) | 7 | 7 | ||||||||
| Write-offs | (5) | (8) | (4) | ||||||||
| Currency translation adjustments | 3 | 10 | 9 | ||||||||
| Balance at end of period | $ | 63 | $ | 71 | $ | 62 |
Inventories
| as of December 31 (in millions) | 2025 | 2024 | ||||||
| Raw materials | $ | 536 | $ | 510 | ||||
| Work in process | 369 | 266 | ||||||
| Finished goods | 1,327 | 1,270 | ||||||
| Inventories | $ | 2,232 | $ | 2,046 |
Prepaid Expenses and Other Current Assets
| as of December 31 (in millions) | 2025 | 2024 | ||||||
| Prepaid value added taxes | $ | 86 | $ | 167 | ||||
| Prepaid income taxes | 175 | 199 | ||||||
| Spare parts | 140 | 123 | ||||||
| Contract assets | 71 | 51 | ||||||
| Derivative assets | — | 8 | ||||||
| Other | 341 | 205 | ||||||
| Prepaid expenses and other current assets | $ | 813 | $ | 753 |
Property, Plant and Equipment, Net
| as of December 31 (in millions) | 2025 | 2024 | ||||||
| Land and land improvements | $ | 119 | $ | 115 | ||||
| Buildings and leasehold improvements | 1,402 | 1,301 | ||||||
| Machinery and equipment | 5,454 | 5,047 | ||||||
| Equipment on lease with customers | 375 | 467 | ||||||
| Construction in progress | 704 | 718 | ||||||
| Total property, plant and equipment, at cost | 8,054 | 7,648 | ||||||
| Accumulated depreciation | (5,144) | (4,778) | ||||||
| Property, plant and equipment, net | $ | 2,910 | $ | 2,870 |
Depreciation expense was $383 million in 2025, $372 million in 2024 and $394 million in 2023.
Other Non-Current Assets
| as of December 31 (in millions) | 2025 | 2024 | ||||||
| Deferred tax assets | $ | 200 | $ | 204 | ||||
| Non-current receivables, net | 50 | 50 | ||||||
| Contract assets | 76 | 82 | ||||||
| Capitalized implementation costs in hosting arrangements | 89 | 102 | ||||||
| Pension and other postretirement benefits | 66 | 56 | ||||||
| Investments | 103 | 109 | ||||||
| Other | 115 | 152 | ||||||
| Other non-current assets | $ | 699 | $ | 755 |
Accrued Expenses and Other Current Liabilities
| as of December 31 (in millions) | 2025 | 2024 | ||||||
| Common stock dividends payable | $ | 5 | $ | 87 | ||||
| Employee compensation and withholdings | 397 | 447 | ||||||
| Property, payroll and certain other taxes | 96 | 96 | ||||||
| Contract liabilities | 141 | 131 | ||||||
| Restructuring liabilities | 127 | 112 | ||||||
| Accrued rebates | 215 | 214 | ||||||
| Operating lease liabilities | 81 | 80 | ||||||
| Income taxes payable | 83 | 121 | ||||||
| Pension and other postretirement benefits | 39 | 39 | ||||||
| Other | 784 | 534 | ||||||
| Accrued expenses and other current liabilities | $ | 1,968 | $ | 1,861 |
Other Non-Current Liabilities
| as of December 31 (in millions) | 2025 | 2024 | ||||||
| Pension and other postretirement benefits | $ | 637 | $ | 678 | ||||
| Deferred tax liabilities | 245 | 103 | ||||||
| Long-term tax liabilities | 146 | 94 | ||||||
| Contingent payments related to acquisitions | 7 | 11 | ||||||
| Contract liabilities | 36 | 40 | ||||||
| Litigation and environmental reserves | 31 | 29 | ||||||
| Restructuring liabilities | 6 | 10 | ||||||
| Other | 179 | 111 | ||||||
| Other non-current liabilities | $ | 1,287 | $ | 1,076 |
Interest Expense, net
| years ended December 31 (in millions) | 2025 | 2024 | 2023 | ||||||||
| Interest costs | $ | 304 | $ | 421 | $ | 523 | |||||
| Interest costs capitalized | (14) | (13) | (15) | ||||||||
| Interest expense | 290 | 408 | 508 | ||||||||
| Interest income | (52) | (67) | (69) | ||||||||
| Interest expense, net | $ | 238 | $ | 341 | $ | 439 |
Other (Income) Expense, net
| years ended December 31 (in millions) | 2025 | 2024 | 2023 | ||||||||
| Foreign exchange (gains) losses, net | $ | 18 | $ | 25 | $ | 53 | |||||
| Change in fair value of marketable equity securities | (1) | (3) | (7) | ||||||||
| Pension and other postretirement benefit (gains) losses | (45) | (39) | (48) | ||||||||
| Gain on debt extinguishment | (16) | — | — | ||||||||
| Equity method investment impairment | 9 | — | — | ||||||||
| Non-marketable investment impairments | — | — | 34 | ||||||||
| Other, net | (6) | (21) | (6) | ||||||||
| Other (income) expense, net | $ | (41) | $ | (38) | $ | 26 |
Supplemental Cash Flow Information
Non-Cash Operating and Investing Activities
Purchases of property, plant and equipment included in accounts payable and accrued liabilities as of December 31, 2025, 2024 and 2023 was $74 million, $64 million and $58 million, respectively.
Other Supplemental Information
As discussed in Note 1, Summary of Significant Accounting Policies, we have elected to prospectively adopt the guidance in ASU 2023-09. The following table is a summary of income taxes paid by jurisdiction for the year ended December 31, 2025.
| year ended December 31 (in millions) | 2025 | ||||
| United States - federal | $ | 12 | |||
| United States - state and local | 12 | ||||
| Foreign | |||||
| Australia | 18 | ||||
| Canada | 25 | ||||
| Germany | 39 | ||||
| Other | 116 | ||||
| Total income taxes paid | $ | 222 |
The following table is a summary of interest paid for the years ended December 31, 2025, 2024 and 2023 and income taxes paid, in accordance with the guidance prior to the adoption of ASU 2023-09, for the years ended December 31, 2024 and 2023.
| years ended December 31 (in millions) | 2025 | 2024 | 2023 | ||||||||
| Interest paid, net of portion capitalized | $ | 303 | $ | 401 | $ | 484 | |||||
| Income taxes paid | $ | 223 | $ | 174 |
NOTE 4
| GOODWILL AND OTHER INTANGIBLE ASSETS, NET |
Goodwill
The following is a reconciliation of goodwill by business segment.
| (in millions) | Medical Products & Therapies | Healthcare Systems & Technologies | Pharmaceuticals | Total | |||||||||||||
| December 31, 2023 | $ | 1,241 | $ | 3,989 | $ | 563 | $ | 5,793 | |||||||||
| Impairments | — | (425) | — | (425) | |||||||||||||
| Currency translation and other | (56) | (14) | (23) | (93) | |||||||||||||
| December 31, 2024 | $ | 1,185 | $ | 3,550 | $ | 540 | $ | 5,275 | |||||||||
| Impairments | — | (485) | — | (485) | |||||||||||||
| Currency translation and other | 80 | 22 | 37 | 139 | |||||||||||||
| December 31, 2025 | $ | 1,265 | $ | 3,087 | $ | 577 | $ | 4,929 |
Goodwill Impairment
In connection with our annual goodwill impairment assessment in the fourth quarter of 2025, we recorded a $485 million goodwill impairment related to our Front Line Care reporting unit within our Healthcare Systems & Technologies segment. The reduction in value was primarily due to lower forecasted operating results, a higher discount rate and a lower terminal growth rate utilized in valuing this reporting unit which contributed to reduced expected future cash flows, as well as lower earnings multiples. The fair value of the Front Line Care reporting unit was determined based on a discounted cash flow model (an income approach) and earnings multiples (a market approach) based on the guideline public company method. Significant assumptions used in the determination of the fair values of our reporting units generally include revenue growth rates, forecasted EBITDA margins, discount rates, terminal growth rates and earnings multiples. The discounted cash flow model used to determine the fair value of our Front Line Care reporting unit reflected our most recent cash flow projections, a discount rate of 10.0% and a terminal growth rate of 3.0%. Our reporting unit fair value measurements are classified as Level 3 in the fair value hierarchy because they involve significant unobservable inputs. As of December 31, 2025, the carrying amount of goodwill for our Front Line Care reporting unit was $1.52 billion. No goodwill impairments were recorded for our remaining reporting units in connection with our annual goodwill impairment tests because the fair values of those reporting units exceeded their carrying amounts.
In connection with our annual goodwill impairment assessment in the fourth quarter of 2024, we recorded a $425 million goodwill impairment related to our Front Line Care reporting unit within our Healthcare Systems & Technologies segment. The reduction in value was primarily due to lower forecasted operating results and a lower terminal growth rate utilized in valuing this reporting unit which contributed to reduced expected future cash flows, as well as lower earnings multiples. The fair value of the Front Line Care reporting unit was determined based on a discounted cash flow model (an income approach) and earnings multiples (a market approach) based on the guideline public company method. Significant assumptions used in the determination of the fair values of our reporting units generally include revenue growth rates, forecasted EBITDA margins, discount rates, terminal growth rates and earnings multiples. The discounted cash flow model used to determine the fair value of our Front Line Care reporting unit reflected our most recent cash flow projections, a discount rate of 9.5% and a terminal growth rate of 3.25%. Our reporting unit fair value measurements are classified as Level 3 in the fair value hierarchy because they involve significant unobservable inputs. As of December 31, 2024, the carrying amount of goodwill for our Front Line Care reporting unit was $1.99 billion. No goodwill impairments were recorded for our remaining
reporting units in connection with our annual goodwill impairment tests because the fair values of those reporting units exceeded their carrying amounts.
Other Intangible Assets, Net
The following is a summary of our other intangible assets.
| Indefinite-lived intangible assets | |||||||||||||||||||||||
| (in millions) | Customer relationships | Developed technology, including patents | Trade Names | Other amortized intangible assets | Trade Names | In process Research and Development | Total | ||||||||||||||||
| December 31, 2024 | |||||||||||||||||||||||
| Gross other intangible assets | $ | 3,387 | $ | 3,131 | $ | 958 | $ | 86 | $ | 680 | $ | 107 | $ | 8,349 | |||||||||
| Accumulated amortization | (878) | (2,075) | (107) | (66) | — | — | $ | (3,126) | |||||||||||||||
| Other intangible assets, net | $ | 2,509 | $ | 1,056 | $ | 851 | $ | 20 | $ | 680 | $ | 107 | $ | 5,223 | |||||||||
| December 31, 2025 | |||||||||||||||||||||||
| Gross other intangible assets | $ | 3,393 | $ | 3,208 | $ | 953 | $ | 91 | $ | 390 | $ | 107 | $ | 8,142 | |||||||||
| Accumulated amortization | (1,095) | (2,434) | (172) | (72) | — | — | (3,773) | ||||||||||||||||
| Other intangible assets, net | $ | 2,298 | $ | 774 | $ | 781 | $ | 19 | $ | 390 | $ | 107 | $ | 4,369 |
Intangible asset amortization expense was $598 million in 2025, $625 million in 2024 and $590 million in 2023. The anticipated annual amortization expense for definite-lived intangible assets recorded as of December 31, 2025 is $568 million in 2026, $417 million in 2027, $405 million in 2028, $383 million in 2029 and $320 million in 2030.
Intangible Asset Impairments
Impairment of Indefinite-Lived Trade Name
In connection with our annual trade name impairment assessment in the fourth quarter of 2025, we recognized a pre-tax impairment charge of $290 million to reduce the carrying amount of the Welch Allyn trade name within our Healthcare Systems & Technologies segment, an indefinite-lived intangible asset, to its estimated fair value. The reduction in value was primarily due to lower forecasted revenues and margins which contributed to a lower royalty rate and reduced expected future cash flows. The intangible asset impairment charge is classified within cost of sales in the accompanying consolidated statements of income (loss) for the year ended December 31, 2025.
The fair value of the trade name intangible asset was determined using the relief from royalty method. Significant assumptions used in the determination of the fair value of the trade name intangible assets included revenue growth rates, a discount rate and a royalty rate. The relief from royalty model used in the determination of the fair value of our trade name intangible asset during 2025 reflected our most recent revenue projections, a discount rate of 9.0% and a royalty rate of 3.0%. Our trade name intangible asset fair value measurement is classified as Level 3 in the fair value hierarchy because it involves significant unobservable inputs.
Impairment of Indefinite-Lived Intangible Assets from Our Claris Acquisition
In connection with our annual IPR&D impairment assessment in the fourth quarter of 2024, we recognized a pre-tax impairment charge of $50 million to reduce the carrying amount of an IPR&D asset to its fair value. The reduction in value was primarily due to lower forecasted revenues and margins which contributed to reduced expected future cash flows. The intangible asset impairment charge is classified within research and development expenses in the accompanying consolidated statements of income (loss) for the year ended December 31, 2024. The fair value of the IPR&D asset was determined using the multi-period excess earnings method. Significant assumptions used in the determination of the fair value of the IPR&D asset included forecasted cash flows and the discount rate. The multi-period excess earnings model used in our determination of the fair value of the IPR&D asset reflected our most recent cash flow projections and a discount rate of 11%. Our IPR&D intangible asset fair value measurement is classified as Level 3 in the fair value hierarchy because it involves significant unobservable inputs.
NOTE 5
| DEBT AND CREDIT FACILITIES |
Debt Outstanding
At December 31, 2025 and 2024, we had the following debt outstanding:
| as of December 31 (in millions) | Effective interest rate as of December 31,2025¹ | 20251 | 20241 | |||||||||||
| Commercial paper | — | % | $ | — | $ | 300 | ||||||||
| 1.3% notes due 2025 | — | % | — | 625 | ||||||||||
| Delayed draw term loan due 2025 | — | % | — | 1,826 | ||||||||||
| 2.6% notes due 2026 | — | % | — | 749 | ||||||||||
| Term loan maturing 2027 | — | % | — | 1,643 | ||||||||||
| 7.65% debentures due 2027 | 7.7 | % | 5 | 5 | ||||||||||
| 1.915% notes due 2027 | 3.4 | % | 834 | 1,446 | ||||||||||
| 6.625% debentures due 2028 | 5.8 | % | 94 | 94 | ||||||||||
| 2.272% notes due 2028 | 2.4 | % | 1,246 | 1,245 | ||||||||||
| 1.3% notes due 2029 | 1.4 | % | 876 | 776 | ||||||||||
| 4.45% notes due 2029 | 4.2 | % | 298 | — | ||||||||||
| 3.95% notes due 2030 | 4.1 | % | 497 | 497 | ||||||||||
| 4.9% notes due 2030 | 4.6 | % | 695 | — | ||||||||||
| 1.73% notes due 2031 | 2.7 | % | 647 | 646 | ||||||||||
| 2.539% notes due 2032 | 2.6 | % | 1,542 | 1,541 | ||||||||||
| 5.65% notes due 2035 | 5.2 | % | 991 | — | ||||||||||
| 6.25% notes due 2037 | 6.3 | % | 266 | 266 | ||||||||||
| 3.65% notes due 2042 | 3.9 | % | 6 | 6 | ||||||||||
| 4.5% notes due 2043 | 4.6 | % | 256 | 256 | ||||||||||
| 3.5% notes due 2046 | 3.7 | % | 442 | 441 | ||||||||||
| 3.132% notes due 2051 | 3.2 | % | 743 | 743 | ||||||||||
| Finance leases and other | 4.8 | % | 38 | 21 | ||||||||||
| Total debt and finance lease obligations | 9,476 | 13,126 | ||||||||||||
| Short-term debt | (1) | (2,126) | ||||||||||||
| Current maturities of long-term debt and finance lease obligations | (2) | (626) | ||||||||||||
| Long-term debt and finance lease obligations | $ | 9,473 | $ | 10,374 |
1Book values include any discounts, premiums and adjustments related to hedging instruments and effective interest rates reflect amortization of those items.
Significant Debt Activity
In February 2025, we repaid $1.00 billion under our $1.64 billion five-year term loan facility maturing in 2026. In June 2025, we amended and restated this term loan facility in its entirety (as further described under "Credit Facilities" below).
In November 2025 we commenced cash tender offers for (i) any and all of our 2.6% senior unsecured notes due 2026 (the 2026 Notes) and (ii) a portion of our 1.915% senior unsecured notes due 2027 (the 2027 Notes) in an aggregate purchase price up to $600 million. The cash tender offers were settled in December 2025.
In December 2025, we issued $300 million of 4.45% senior notes due in 2029 (the 2029 Notes), $700 million of 4.9% senior notes due in 2030 (the 2030 Notes) and $1.00 billion of 5.65% senior notes due 2035 (the 2035 Notes and together with the 2029 Notes and the 2030 Notes, the Notes). The interest rate payable on each series of the Notes will be subject to adjustment from time to time if (1) Moody’s Investors Service, Inc. (Moody’s) or Standard & Poor’s Ratings Services (S&P) downgrades (or subsequently upgrades) the debt rating applicable to the Notes of a
series or (2) Moody’s or S&P ceases to rate the Notes of that series or fails to make a rating of the Notes of that series publicly available for reasons outside of our control, a “nationally recognized statistical rating organization” within the meaning of Section 3(a)(62) under the Exchange Act, selected by us as a replacement agency for Moody’s or S&P, downgrades (or subsequently upgrades), or discontinues, a rating of the Notes of that series. The indenture governing the Notes contains various covenants, which include limitations on our ability and the ability of certain of our subsidiaries to create, incur, assume or guarantee secured debt and our ability to merge or consolidate with any other entity or sell, transfer or lease all or substantially all of our properties and assets.
We used the proceeds from the Notes to fund the full repayment of the $750 million principal outstanding under the 2026 Notes (inclusive of the cash tender offer and the subsequent satisfaction and discharge with respect to the remaining 2026 Notes), the cash tender offer on the 2027 Notes in an aggregate purchase price of $600 million and repaid $645 million under the Term Loan Facility (as defined below and which was terminated in connection with this repayment). In connection with the completion of these transactions, we recognized a net pre-tax gain of $16 million from the early extinguishment of debt, which is included in other (income) expense, net in the consolidated statement of income (loss) for the year ended December 31, 2025.
In 2024, we repaid our $13 million 7.0% notes due 2024, $809 million 0.4% notes due 2024, $1.40 billion 1.322% notes due 2024, $300 million floating rate notes due 2024 and $130 million three-year term loan facility due 2024.
Credit Facilities
On June 11, 2025, we entered into an amended and restated U.S. Dollar-denominated term loan credit facility (the Term Loan Facility), which amended and restated in its entirety our prior term loan credit facility. Borrowings under the Term Loan Facility bore interest on the principal amount outstanding at either Term SOFR plus an applicable margin or a “base rate” plus an applicable margin. The Term Loan Facility, which has now been terminated, contained various covenants, including a maximum net leverage ratio. As discussed above in the Significant Debt Activity section, in December 2025 we repaid the outstanding balance under the Term Loan Facility at which time it was terminated.
On June 11, 2025, we entered into an amended and restated revolving credit facility (the Multicurrency Revolver), which amended and restated in its entirety our prior U.S. Dollar-denominated revolving credit facility and replaced our prior Euro-denominated revolving credit facility. Our Multicurrency Revolver has a maximum capacity of $2.20 billion and matures in 2030. Borrowings under the Multicurrency Revolver in U.S. dollars bear interest on the principal amount outstanding at either Term SOFR plus an applicable margin or a “base rate” plus an applicable margin. The Multicurrency Revolver contains various covenants, including a maximum net leverage ratio (which ratio was most recently increased for the four fiscal quarters ending December 31, 2025, March 31, 2026, June 30, 2026, and September 30, 2026 pursuant to a November 2025 amendment). Costs incurred in connection with the amendments to the Multicurrency Revolver (or its predecessor agreements) were not material. Borrowings in Euros are subject to a sublimit of $300 million. We may, at our option, seek to increase the aggregate commitment under the Multicurrency Revolver by up to $1.10 billion, which would result in a maximum aggregate commitment of up to $3.30 billion. There were no borrowings outstanding under the Multicurrency Revolver as of December 31, 2025 or 2024. Our commercial paper borrowing arrangements require us to maintain undrawn borrowing capacity under our Multicurrency Revolver for an amount at least equal to our outstanding commercial paper borrowings. Based on our covenant calculations as of December 31, 2025, we had capacity to draw approximately $1.79 billion under the Multicurrency Revolver.
On July 17, 2024, we entered into a credit agreement pursuant to which a group of banks provided us with senior unsecured term loans in an aggregate principal amount of up to $2.05 billion ("bridge facility"). Borrowings under the bridge facility were available in up to three drawings to fund (a) the refinancing of our 1.322% Senior Notes due November 29, 2024, our Floating Rate Notes due November 29, 2024, and certain borrowings under our existing term loan facility and (b) payment of certain U.S. tax liabilities arising from internal reorganization transactions related to the sale of our Kidney Care business. Borrowings under the bridge facility bore interest at a rate based on our long-term debt ratings in effect from time to time and the interest rate on any borrowings outstanding beyond December 31, 2024 would increase by 0.25%. We also incurred a ticking fee on undrawn commitments at a rate based on our long-term debt ratings in effect from time to time. The banks' funding commitments under the bridge facility terminated on December 31, 2024. In November 2024, we reduced the bridge facility capacity from $2.05 billion to $1.83 billion. Additionally, during the fourth quarter of 2025 we drew on the bridge facility to repay our 1.322% Senior Notes due November 29, 2024, our Floating Rate Notes due November 29, 2024 and the outstanding balance on our three-year term loan facility. There was $1.83 billion outstanding under this bridge
facility as of December 31, 2024. In January 2025, we used a portion of the approximately $3.3 billion of net after-tax cash proceeds from the sale of our Kidney Care business to repay the $1.83 billion outstanding under the bridge facility, at which time it was terminated.
We also maintain other credit arrangements, which totaled approximately $385 million and $412 million as of December 31, 2025 and 2024, respectively. There were no amounts outstanding under these arrangements as of December 31, 2025 and 2024.
As of December 31, 2025, we were in compliance with the financial covenants in the Multicurrency Revolver. The non-performance of any financial institution supporting any of the credit facilities would reduce the maximum capacity of these facilities by such institution’s respective commitment.
Commercial Paper
There was no commercial paper outstanding as of December 31, 2025. As of December 31, 2024, we had $300 million of commercial paper outstanding with a weighted-average interest rate of 4.78% and an original term of 45 days. In the first quarter of 2025, we repaid the $300 million balance outstanding as of December 31, 2024.
Future Debt Maturities
| as of and for the years ended December 31 (in millions) | Debt maturities | ||||
| 2026 | $ | — | |||
| 2027 | 841 | ||||
| 2028 | 1,342 | ||||
| 2029 | 1,180 | ||||
| 2030 | 1,200 | ||||
| Thereafter | 4,931 | ||||
| Total debt maturities1 | 9,494 | ||||
| Discounts, premiums, and adjustments relating to hedging instruments | (56) | ||||
| Total debt obligations1 | $ | 9,438 |
1 Excludes finance leases and other of $38 million as of December 31, 2025.
NOTE 6
| LEASES |
Lessee Activity
We have entered into operating and finance leases primarily for office, manufacturing, warehouse and R&D facilities, vehicles and equipment. Our leases have remaining terms from one to 37 years and some of those leases include options that provide us with the ability to extend the lease term for periods ranging from one to 10 years. Such options are included in the lease term when it is reasonably certain that the option will be exercised.
Certain of our leases include provisions for variable lease payments which are based on, but not limited to, maintenance, insurance, taxes, index escalations and usage-based amounts. For all asset classes, we have elected to apply a practical expedient to account for other services within lease contracts as components of the lease. We also have elected to apply a practical expedient for short-term leases whereby we do not recognize a lease liability and right-of-use asset for leases with a term of less than 12 months.
We classify our leases as operating or finance at the lease commencement date. Finance leases are generally those leases for which we will pay substantially all of the underlying asset’s fair value or will use the asset for all or a major part of its economic life, including circumstances in which we will ultimately own the asset. All other leases are operating leases. For finance leases, we recognize interest expense using the effective interest method and we recognize amortization expense on the right-of-use asset over the shorter of the lease term or the useful life of the asset. For operating leases, we recognize lease cost on a straight-line basis over the term of the lease.
Lease liabilities and right-of-use assets are recognized at the lease commencement date based on the present value of minimum lease payments over the lease term. We determine the present value of payments under a lease based on our incremental borrowing rate as of the lease commencement date. The incremental borrowing rate is equal to the rate of interest that we would have to pay to borrow on a collateralized basis over a similar term in an amount equal to the lease payments in a similar economic environment.
The components of lease cost for the years ended December 31, 2025, 2024 and 2023 were:
| (in millions) | 2025 | 2024 | 2023 | ||||||||||||||
| Operating lease cost | $ | 88 | $ | 89 | $ | 94 | |||||||||||
| Finance lease cost | |||||||||||||||||
| Amortization of right-of-use assets | 3 | 4 | 3 | ||||||||||||||
| Interest on lease liabilities | 1 | 1 | 1 | ||||||||||||||
| Variable lease cost | 40 | 54 | 45 | ||||||||||||||
| Lease cost | $ | 132 | $ | 148 | $ | 143 |
The following table contains supplemental cash flow information related to leases for the years ended December 31, 2025, 2024 and 2023:
| (in millions) | 2025 | 2024 | 2023 | ||||||||||||||
| Cash paid for amounts included in the measurement of lease liabilities: | |||||||||||||||||
| Operating cash flows from operating leases | $ | 102 | $ | 100 | $ | 115 | |||||||||||
| Operating cash flows from finance leases | 3 | 5 | 3 | ||||||||||||||
| Financing cash flows from finance leases | 1 | 2 | 1 | ||||||||||||||
| Right-of-use operating lease assets obtained in exchange for lease obligations | 36 | 64 | 66 | ||||||||||||||
| Right-of-use finance lease assets obtained in exchange for lease obligations | 4 | 1 | 15 |
Supplemental balance sheet information related to leases as of December 31, 2025 and 2024 include:
| (in millions) | 2025 | 2024 | |||||||||
| Operating leases | |||||||||||
| Operating lease right-of-use assets | $ | 276 | $ | 306 | |||||||
| Accrued expenses and other current liabilities | $ | 81 | $ | 80 | |||||||
| Operating lease liabilities | 223 | 243 | |||||||||
| Total operating lease liabilities | $ | 304 | $ | 323 | |||||||
| Finance leases | |||||||||||
| Property, plant and equipment, at cost | $ | 39 | $ | 33 | |||||||
| Accumulated depreciation | (18) | (15) | |||||||||
| Property, plant and equipment, net | $ | 21 | $ | 18 | |||||||
| Current maturities of long-term debt and finance lease obligations | $ | 2 | $ | 2 | |||||||
| Long-term debt and finance lease obligations | 21 | 19 | |||||||||
| Total finance lease liabilities | $ | 23 | $ | 21 |
Lease term and discount rates as of December 31, 2025 and 2024 were:
| December 31, 2025 | December 31, 2024 | ||||||||||
| Weighted-average remaining lease term (years) | |||||||||||
| Operating leases | 5 | 6 | |||||||||
| Finance leases | 7 | 8 | |||||||||
| Weighted-average discount rate | |||||||||||
| Operating leases | 3.6 | % | 3.1 | % | |||||||
| Finance leases | 4.5 | % | 4.2 | % |
Maturities of operating and finance lease liabilities as of December 31, 2025 were:
| (in millions) | Finance Leases | Operating Leases | ||||||
| 2026 | $ | 4 | $ | 93 | ||||
| 2027 | 4 | 77 | ||||||
| 2028 | 4 | 53 | ||||||
| 2029 | 4 | 34 | ||||||
| 2030 | 4 | 20 | ||||||
| Thereafter | 10 | 60 | ||||||
| Total minimum lease payments | 30 | 337 | ||||||
| Less: imputed interest | (7) | (33) | ||||||
| Present value of lease liabilities | $ | 23 | $ | 304 |
Lessor Activity
We lease medical equipment, such as smart beds and infusion pumps, to customers, often in conjunction with arrangements to provide consumable medical products such as IV fluids and inhaled anesthetics. Certain of our equipment leases are classified as sales-type leases and the remainder are operating leases. The terms of the related contracts, including the proportion of fixed versus variable payments and any options to shorten or extend the lease term, vary by customer. We allocate revenue between equipment leases and medical products based on their standalone selling prices.
The components of lease revenue for the years ended December 31, 2025, 2024 and 2023 were:
| (in millions) | 2025 | 2024 | 2023 | ||||||||||||||
| Sales-type lease revenue | $ | 8 | $ | 10 | $ | 7 | |||||||||||
| Operating lease revenue | 350 | 380 | 397 | ||||||||||||||
| Variable lease revenue | 27 | 28 | 21 | ||||||||||||||
| Total lease revenue | $ | 385 | $ | 418 | $ | 425 |
The components of our net investment in sales-type leases as of December 31, 2025 and 2024 were:
| (in millions) | 2025 | 2024 | |||||||||
| Minimum lease payments | $ | 30 | $ | 38 | |||||||
| Unguaranteed residual values | — | (1) | |||||||||
| Net investment in leases | $ | 30 | $ | 37 |
Our net investment in sales-type leases is classified as follows in the accompanying consolidated balance sheets as of December 31, 2025 and 2024:
| (in millions) | 2025 | 2024 | |||||||||
| Accounts receivable, net | $ | 11 | $ | 15 | |||||||
| Other non-current assets | 19 | 22 | |||||||||
| Total | $ | 30 | $ | 37 |
Our net investment in sales-type leases was $30 million as of December 31, 2025, of which $1 million originated in 2021 and prior, $5 million in 2022, $6 million in 2023, $10 million in 2024 and $8 million in 2025.
Maturities of sales-type and operating leases as of December 31, 2025 were:
| (in millions) | Sales-type Leases1 | Operating Leases | ||||||
| 2026 | $ | 15 | $ | 9 | ||||
| 2027 | 9 | 9 | ||||||
| 2028 | 5 | 6 | ||||||
| 2029 | 3 | 3 | ||||||
| 2030 | — | 1 | ||||||
| Thereafter | — | — | ||||||
| Total minimum lease payments | $ | 32 | $ | 28 | ||||
1 Unamortized imputed interest on minimum lease payments was $2 million as of December 31, 2025.
NOTE 7
| COMMITMENTS AND CONTINGENCIES |
Refer to Note 2 for information regarding contingent payments related to Vantive, recorded in accordance with the EPA.
Indemnifications
During the normal course of business, we make indemnities, commitments and guarantees pursuant to which we may be required to make payments related to specific transactions. Indemnifications include: (i) intellectual property indemnities to customers in connection with the use, sales or license of products and services; (ii) indemnities to customers in connection with losses incurred while performing services on their premises; (iii) indemnities to vendors and service providers pertaining to claims based on negligence or willful misconduct; (iv) indemnities involving the representations and warranties in certain contracts; and (v) contractual indemnities for our directors and our executive and corporate officers for services provided to or at the request of us. In addition, under our Amended and Restated Certificate of Incorporation, and consistent with Delaware General Corporation Law, we have agreed to indemnify our directors and officers for certain losses and expenses upon the occurrence of certain prescribed events. The majority of these indemnities, commitments and guarantees do not provide for any limitation on the maximum potential for future payments that we could be obligated to make. To help address some of these risks, we maintain various insurance coverages. Based on historical experience and evaluation of the agreements, we do not believe that any payments related to our indemnities will have a material impact on our financial condition or results of operations.
In accordance with the EPA, we have agreed to indemnify Vantive for certain items. Refer to Note 2 for additional information regarding these indemnifications.
Legal Contingencies
We are involved in product liability, patent, commercial, employment, and other legal matters that arise in the normal course of our business. We record a liability when a loss is considered probable and the amount can be reasonably estimated. If the reasonable estimate of a probable loss is a range, and no amount within the range is a better estimate than any other amount, the minimum amount in the range is accrued. If a loss is not probable or a probable loss cannot be reasonably estimated, no liability is recorded. We regularly review legal contingencies to
determine whether our accruals and related disclosures are adequate. The amount of ultimate loss may differ from these estimates and could have a material adverse effect on our results of operations and cash flows. As of December 31, 2025 and 2024, our total recorded reserves with respect to legal and environmental matters were $47 million and $40 million, respectively.
We have established reserves for certain of the matters discussed below. 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 additional product recalls, injunctions, and other restrictions on our operations (including our ability to launch new products) and monetary sanctions, including significant civil or criminal penalties. With respect to intellectual property, we may be exposed to significant litigation concerning the scope of our and others’ rights. Such litigation could result in a loss of patent protection or the ability to market products, which could lead to a significant loss of sales, or otherwise materially affect future results of operations.
Novum IQ Large Volume Pump (Novum LVP)
Beginning in April 2025, we initiated a voluntary correction for the Novum LVP due to the potential for under-infusion when the pump is in "standby mode" for an extended period of time. Beginning in July 2025, we initiated voluntary corrections for the Novum LVP due to the potential for under-infusion when the pump is directed to deliver a bolus infusion or significantly increase the rate of infusion after it has been running at a lower infusion rate and the potential for over- and under-infusion related to set misloading, as well as certain software anomalies. The U.S. Food and Drug Administration (FDA) classified these voluntary corrections as Class I recalls. We have implemented certain corrections related to the recalls, and are developing additional corrections related to these recalls, some of which may require regulatory clearance or approval. In July 2025, we elected to temporarily stop distributing and installing the Novum LVP in the U.S. and Canada, except in the case of medical necessity. We have recorded estimates for sales reductions, for returns or exchanges of Novum LVP, and certain other charges, including estimates of reserves for remediation costs and inventory and contract asset write-downs associated with these Novum LVP corrections of approximately $105 million in the aggregate in 2025. We regularly review these estimates (including those associated with any future additional corrections and customer returns or exchanges) which may be subject to change in the future.
Environmental
We are involved as a potentially responsible party (PRP) for environmental clean-up costs at six Superfund sites. Additionally, we have reached an agreement in principle to resolve liability through a remedial investigation and feasibility study at a seventh Superfund site for an amount not material to Baxter. Under the U.S. Superfund statute and many state laws, generators of hazardous waste sent to a disposal or recycling site are liable for site cleanup if contaminants from that property later leak into the environment. The laws generally provide that a PRP may be held jointly and severally liable for the costs of investigating and remediating the site. Separate from these Superfund cases noted above, we are involved in ongoing environmental remediations associated with historic operations at certain of our facilities. As of December 31, 2025 and 2024, our environmental reserves, which are measured on an undiscounted basis, were $29 million. After considering these reserves, the outcome of these matters is not expected to have a material adverse effect on our financial position or results of operations.
General Litigation
In March 2020, two lawsuits were filed against us in the Northern District of Illinois by plaintiffs alleging injuries as a result of exposure to ethylene oxide used in our manufacturing facility in Mountain Home, Arkansas to sterilize certain of our products. The plaintiffs sought damages, including compensatory and punitive damages in an unspecified amount, and unspecified injunctive and declaratory relief. The parties reached an agreement to settle these lawsuits in the third quarter of 2021 for amounts that were not material to our financial results, which were paid in the fourth quarter of 2021. We have since resolved, without litigation, additional claims of injuries from exposure to ethylene oxide at Mountain Home for amounts within accruals previously established as of December 31, 2021. On October 20, 2022, a lawsuit was filed against us in the Western District of Arkansas alleging injury as a result of exposure to ethylene oxide at Mountain Home. The parties reached an agreement to settle this lawsuit in the third quarter of 2023 for an amount that was not material to our financial results, which was paid in the fourth quarter of 2023. The case was dismissed on October 17, 2023. Since December 2023, lawsuits have been filed against us in the Circuit Court of Cook County, Illinois by plaintiffs alleging injuries as a result of exposure to
ethylene oxide used by several companies, including historic use by us for sterilization at our facility in Round Lake, Illinois. The plaintiffs seek damages in an unspecified amount. In the second quarter of 2025, plaintiffs voluntarily dismissed Baxter from 30 of the filed cases, which dismissal was granted by the court, and have filed additional complaints. Thirty-eight complaints are currently filed and pending. The parties have reached an agreement in principle to resolve the remaining filed cases, for an amount not material to Baxter.
We acquired Hillrom on December 13, 2021. In July 2021, Hill-Rom, Inc., a wholly-owned subsidiary of Hillrom, received a subpoena from the United States Office of Inspector General for the Department of Health and Human Services (the DHHS) requesting documents and information related to compliance with the False Claims Act and the Anti-Kickback Statute. The subpoena was related to a lawsuit brought under the qui tam provisions of the False Claims Act. The allegations included in the unsealed complaint relate to conduct prior to our acquisition of Hillrom, and the division involved is no longer operational. Hillrom voluntarily began a related internal review, and Hillrom and Baxter cooperated fully with the DHHS and the Department of Justice (DOJ) with respect to this matter. In January 2024, the parties reached an agreement to settle the allegations. We paid the settlement amounts, which were not material to our financial results, in January 2024 and the matter was dismissed in February 2024. In October 2022, the DOJ issued a separate Civil Investigative Demand (CID) addressed to Hillrom, requesting documents and information related to compliance with the False Claims Act and the Anti-Kickback Statute. In October 2024, the DOJ issued a subpoena (the 2024 Subpoena), pursuant to 18 U.S.C. 3846, to Hillrom. The 2024 Subpoena substantially overlaps with the CID and requests additional documents relating to Hillrom's respiratory health business. Baxter is cooperating fully with the DOJ in responding to the CID and the 2024 Subpoena. The DHHS and DOJ often issue these types of requests when investigating alleged violations of the federal health care laws.
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 and 2 of The Sherman Antitrust Act of 1890, Section 3 of the Clayton Act, and the Illinois Antitrust Act by allegedly engaging in anti-competitive conduct in alleged markets for standard, ICU and birthing beds. Hillrom filed an answer to the complaint on January 28, 2022 and filed a motion challenging certain aspects of plaintiff's case on May 27, 2022, which was denied on January 17, 2024, subject to further discovery. Fact discovery is ongoing.
On June 20, 2024, Reading Hospital filed a putative class action complaint against Hill-Rom Holdings, Inc., Hill-Rom Company, Inc., and Hill-Rom Services, Inc. in the United States District Court for the Eastern District of Pennsylvania. The complaint alleges that Hillrom violated Sections 1 and 2 of The Sherman Antitrust Act and Section 3 of the Clayton Act by allegedly engaging in anti-competitive conduct in alleged markets for standard, ICU and birthing beds. The plaintiff filed the action on behalf of itself and all "direct purchasers of Standard Hospital Beds, ICU Beds, and/or Birthing Beds from Hill-Rom during a period beginning at least as early as June 20, 2020” and continuing past the date of filing. On September 30, 2024, the plaintiff filed a First Amended Complaint. On November 8, 2024, Hillrom filed a Motion to Dismiss Plaintiff's Amended Complaint. Briefing was completed in January 2025, and the court held a hearing on the motion on March 25, 2025. The court granted the motion and dismissed the case with prejudice on September 12, 2025. Reading Hospital filed a Notice of Appeal of the dismissal on October 9, 2025, and briefing is underway.
On October 16, 2025, we and certain of our current and former officers and employees were named in a class action complaint captioned Electrical Workers Pension Fund, Local 103, I.B.E.W. v. Baxter International Inc. et al. that was filed in the United States District Court for the Northern District of Illinois. The plaintiff, which allegedly purchased or otherwise acquired shares of our common stock during the specified class period, filed this putative class action on behalf of itself and those who purchased or otherwise acquired Baxter common stock between February 23, 2022 and July 30, 2025. The plaintiff alleges that we and certain former and current officers and employees 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 Novum LVP. On December 3, 2025, an additional class action complaint was filed against us and certain of our current and former officers and employees in the United States District Court for the Northern District of Illinois, captioned City of Hallansdale Beach Police Officers' and Firefighters' Personnel Retirement Trust v. Baxter International Inc., et al. The additional complaint included substantially the same allegations for the expanded period from February 23, 2022, through October 29, 2025. Plaintiffs filed their respective motions to be appointed lead plaintiff on December 15, 2025. Those motions are pending before the court.
In November 2025, certain of our current and former directors, officers and employees were named in two derivative complaints in the United States District Court for the Northern District of Illinois, captioned Ryan Wood v. Jose E.
Almeida, et al. and Kevin Gray v. Jose E. Almeida, et al., respectively. Both complaints allege, nominally on behalf of Baxter International, Inc., breaches of fiduciary duties and violations of federal law in connection with public statements about Novum LVP. The two derivative complaints were consolidated before the court on January 6, 2026.
In addition, we have received stockholder requests for inspections of our books and records in connection with statements made about Novum LVP.
In December 2025, we received a CID from the DOJ requesting documents and information related to production of Baxter’s IV flexible containers and compliance with the False Claims Act. We are cooperating fully with the DOJ in responding to the CID.
NOTE 8
| STOCKHOLDERS' EQUITY |
Stock-Based Compensation
Our stock-based compensation generally includes stock options, restricted stock units (RSUs), performance share units (PSUs) and purchases under our employee stock purchase plan. Shares issued relating to our stock-based plans are generally issued out of treasury stock.
As of December 31, 2025, approximately 40 million authorized shares are available for future awards under our stock-based compensation plans.
Stock Compensation Expense
Stock compensation expense was $117 million, $114 million and $115 million in 2025, 2024 and 2023, respectively. The related tax benefit recognized was $13 million in 2025, $8 million in 2024 and $10 million in 2023. Included in the benefit in 2025, 2024 and 2023 was tax expense for stock-based compensation shortfalls of $10 million, $9 million and $11 million, respectively.
Approximately 75% of stock compensation expense is classified in SG&A expenses, with the remainder classified in cost of sales and R&D expenses. Costs capitalized in the consolidated balance sheets at December 31, 2025 and 2024 were not material.
Stock compensation expense is based on awards expected to vest and therefore has been reduced by estimated forfeitures.
Stock Options
Stock options are granted to employees with exercise prices equal to 100% of the market value on the date of grant. Stock options granted to employees generally vest in one-third increments over a three-year period. Stock options granted to non-employee directors prior to 2023 generally vested immediately on the grant date and are issued with a six-month claw-back provision. Stock options typically have a contractual term of 10 years. The grant-date fair value, adjusted for estimated forfeitures, is recognized as expense on a straight-line basis over the substantive vesting period.
The fair value of stock options is determined using the Black-Scholes model. The weighted-average assumptions used in estimating the fair value of stock options granted during each year, along with the weighted-average grant-date fair values, were as follows:
| years ended December 31 | 2025 | 2023 | |||||||||
| Expected volatility | 30 | % | 27 | % | |||||||
| Expected life (in years) | 6.5 | 6.0 | |||||||||
| Risk-free interest rate | 4.1 | % | 4.2 | % | |||||||
| Dividend yield | 2.3 | % | 3.0 | % | |||||||
| Fair value per stock option | $ | 9 | $ | 9 |
The expected volatility assumption required in the Black-Scholes model was calculated principally based on our historical volatility, and to a lesser extent, on implied volatility from options trading on our stock. The historical volatility was calculated over a period of time commensurate with the expected term of the options being valued. There were no options granted for the year ended December 31, 2024.
The following table summarizes stock option activity for the year ended December 31, 2025 and the outstanding stock options as of December 31, 2025.
| (options and aggregate intrinsic values in thousands) | Options | Weighted- average exercise price | Weighted- average remaining contractual term (in years) | Aggregate intrinsic value | ||||||||||
| Outstanding as of January 1, 2025 | 17,381 | $ | 60.15 | |||||||||||
| Granted | 1,251 | $ | 31.25 | |||||||||||
| Exercised | — | $ | — | |||||||||||
| Forfeited | (771) | $ | 41.84 | |||||||||||
| Expired | (4,106) | $ | 54.86 | |||||||||||
| Outstanding as of December 31, 2025 | 13,755 | $ | 60.12 | 3.95 | $ | — | ||||||||
| Vested or expected to vest as of December 31, 2025 | 13,663 | $ | 60.33 | 3.90 | $ | — | ||||||||
| Exercisable as of December 31, 2025 | 11,932 | $ | 64.09 | 3.32 | $ | — |
The aggregate intrinsic value in the table above represents the difference between the exercise price and our closing stock price on the last trading day of the year. There were no options exercised in 2025. The total intrinsic value of options exercised in 2024 and 2023 was $1 million and $5 million, respectively.
As of December 31, 2025, $10 million of unrecognized compensation cost related to stock options is expected to be recognized as expense over a weighted-average period of approximately 2.0 years.
RSUs
RSUs are granted to employees and non-employee directors. RSUs granted to employees generally vest in one-third increments over a three-year period. RSUs granted to non-employee directors generally vest immediately on the grant date and are issued with a six-month claw-back provision. The grant-date fair value, adjusted for estimated forfeitures, is recognized as expense on a straight-line basis over the substantive vesting period. The fair value of RSUs is determined based on the number of shares granted and the closing price of our common stock on the date of grant.
The following table summarizes nonvested RSU activity for the year ended December 31, 2025.
| (share units in thousands) | Share units | Weighted- average grant-date fair value | ||||||
| Nonvested RSUs as of January 1, 2025 | 6,940 | $ | 43.94 | |||||
| Granted | 4,198 | $ | 32.63 | |||||
| Vested | (2,867) | $ | 46.08 | |||||
| Forfeited | (2,132) | $ | 41.35 | |||||
| Nonvested RSUs as of December 31, 2025 | 6,139 | $ | 36.12 |
As of December 31, 2025, $135 million of unrecognized compensation cost related to RSUs is expected to be recognized as expense over a weighted-average period of approximately 1.8 years. The weighted-average grant-date fair value of RSUs granted in 2025, 2024 and 2023 was $32.63, $42.37 and $39.20, respectively. The fair value of RSUs vested in 2025, 2024 and 2023 was $69 million, $46 million and $25 million, respectively.
PSUs
Our annual equity awards stock compensation program for senior management includes the issuance of PSUs. PSUs awarded in 2025 were based on our compound annual sales growth rate (CAGR) performance and our adjusted return on invested capital (ROIC) and are modified by a multiplicative modifier based on our stock performance relative to our peer group over the 3-year performance period. PSUs awarded in 2024 (which grants were made solely to our former CEO and to our current Chief Financial Officer) were based on our stock performance relative to our peer group over the 3-year performance period. PSUs awarded in 2021 through 2023 were based on our CAGR performance, our ROIC performance and on our stock performance relative to our peer group. The vesting condition for these CAGR and ROIC PSUs was set at the beginning of the 3-year performance period. Compensation cost for the CAGR and adjusted ROIC PSUs is measured based on the fair value of the awards on the date that the specific vesting terms for each award are established and the fair value of the awards is determined based on the quoted price of our stock on the grant date of the award. The compensation cost for CAGR and adjusted ROIC PSUs is adjusted at each reporting date to reflect the estimated vesting outcome.
The fair value for PSUs based on our CAGR and ROIC and awarded in 2025 is modified by a multiplicative modifier based on our stock performance relative to our peer group and the fair value of other PSUs based on our stock performance relative to our peer group (including those awarded in 2021, 2022, 2023 or 2024) is determined using a Monte Carlo model. The assumptions used in estimating the fair value of these PSUs granted during the period, along with the grant-date fair values, were as follows:
| years ended December 31 | 2025 | 2024 | 2023 | ||||||||
| Baxter volatility | 31 | % | 29 | % | 27 | % | |||||
| Peer group volatility | 19%-53% | 20%-52% | 23%-54% | ||||||||
| Correlation of returns | 0.06-0.47 | 0.12-0.51 | 0.23-0.48 | ||||||||
| Risk-free interest rate | 3.9 | % | 4.3 | % | 4.6 | % | |||||
| Fair value per PSU | $ | 39 | $ | 57 | $ | 30 |
The following table summarizes nonvested PSU activity for the year ended December 31, 2025.
| (share units in thousands) | Share units | Weighted- average grant-date fair value | ||||||
| Nonvested PSUs as of January 1, 2025 | 602 | $ | 42.36 | |||||
| Granted | 1,012 | $ | 31.72 | |||||
| Vested | — | $ | — | |||||
| Forfeited | (350) | $ | 35.59 | |||||
| Nonvested PSUs as of December 31, 2025 | 1,264 | $ | 35.97 |
Unrecognized compensation cost related to all unvested PSUs of $24 million at December 31, 2025 is expected to be recognized as expense over a weighted-average period of 1.9 years.
Employee Stock Purchase Plan
Nearly all employees are eligible to participate in our employee stock purchase plan. The employee purchase price is 85% of the closing market price on the purchase date.
As of December 31, 2025, approximately six million shares of common stock were available for issuance to eligible participants.
During the year ended December 31, 2025, we issued approximately 1.3 million shares and during each of the years ended December 31, 2024 and 2023, we issued approximately 1.4 million shares under the employee stock purchase plan.
Cash Dividends
Total cash dividends declared per share for 2025, 2024, and 2023 were $0.52, $1.04 and $1.16, respectively.
A quarterly dividend of $0.17 per share ($0.68 on an annualized basis) was declared in February, May and July of 2025 and was paid in April, July and October of 2025, respectively. Our Board of Directors declared a quarterly dividend of $0.01 per share in November of 2025, which was paid in January of 2026.
Stock Repurchase Programs
As authorized by the Board of Directors, we repurchase our stock depending on our cash flows, net debt level and market conditions. In July 2012, the Board of Directors authorized a share repurchase program and the related authorization was subsequently increased a number of times. We did not repurchase any shares under this authority in 2025 or 2024. We had $1.30 billion of repurchase authority available as of December 31, 2025.
Other
In addition to common stock, our authorized capital structure includes 100 million shares of preferred stock, no par value. As of December 31, 2025 and 2024, no shares of preferred stock were outstanding.
NOTE 9
| ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) |
Comprehensive income (loss) represents net earnings plus items that are recorded directly to shareholders' equity, such as CTA, certain gains and losses from pension and other postretirement employee benefit (OPEB) plans, certain gains and losses from hedging activities and unrealized gains and losses on available-for-sale debt securities.
The following table is a net-of-tax summary of the changes in AOCI by component for the years ended December 31, 2025, 2024, and 2023.
| (in millions) | CTA | Pension and OPEB plans | Hedging activities | Available-for-sale debt securities | Total | ||||||||||||
| Gains (losses) | |||||||||||||||||
| Balance as of December 31, 2024 | $ | (3,430) | $ | (475) | $ | (108) | $ | 3 | $ | (4,010) | |||||||
| Other comprehensive income (loss) before reclassifications | 171 | (19) | (2) | — | 150 | ||||||||||||
| Amounts reclassified from AOCI (a) | 126 | (20) | — | — | 106 | ||||||||||||
| Net other comprehensive income (loss) | 297 | (39) | (2) | — | 256 | ||||||||||||
| Balance as of December 31, 2025 | $ | (3,133) | $ | (514) | $ | (110) | $ | 3 | $ | (3,754) |
| (in millions) | CTA | Pension and OPEB plans | Hedging activities | Available-for-sale debt securities | Total | ||||||||||||
| Gains (losses) | |||||||||||||||||
| Balance as of December 31, 2023 | $ | (2,985) | $ | (452) | $ | (120) | $ | 3 | $ | (3,554) | |||||||
| Other comprehensive income (loss) before reclassifications | (445) | (19) | 10 | — | (454) | ||||||||||||
| Amounts reclassified from AOCI (a) | — | (4) | 2 | — | (2) | ||||||||||||
| Net other comprehensive income (loss) | (445) | (23) | 12 | — | (456) | ||||||||||||
| Balance as of December 31, 2024 | $ | (3,430) | $ | (475) | $ | (108) | $ | 3 | $ | (4,010) |
| (in millions) | CTA | Pension and OPEB plans | Hedging activities | Available-for-sale debt securities | Total | ||||||||||||
| Gains (losses) | |||||||||||||||||
| Balance as of December 31, 2022 | $ | (3,386) | $ | (331) | $ | (119) | $ | 3 | $ | (3,833) | |||||||
| Other comprehensive income (loss) before reclassifications | 216 | (106) | 5 | — | 115 | ||||||||||||
| Amounts reclassified from AOCI (a) | 185 | (15) | (6) | — | 164 | ||||||||||||
| Net other comprehensive income (loss) | 401 | (121) | (1) | — | 279 | ||||||||||||
| Balance as of December 31, 2023 | $ | (2,985) | $ | (452) | $ | (120) | $ | 3 | $ | (3,554) |
(a) See table below for details about these reclassifications.
The following table is a summary of the amounts reclassified from AOCI to net income (loss) during the years ended December 31, 2025, 2024 and 2023.
| Amounts reclassified from AOCI (a) | ||||||||||||||
| (in millions) | 2025 | 2024 | 2023 | Location of impact in income statement | ||||||||||
| CTA | ||||||||||||||
| Reclassification of cumulative translation loss to earnings from Kidney Care separation | $ | (126) | $ | — | $ | — | Income (loss) from discontinued operations, net of tax | |||||||
| Reclassification of cumulative translation loss to earnings from BPS divestiture | — | — | (185) | Income (loss) from discontinued operations, net of tax | ||||||||||
| (126) | — | (185) | Total before tax | |||||||||||
| Less: Tax effect | — | — | — | Income tax expense (benefit) | ||||||||||
| $ | (126) | $ | — | $ | (185) | Net of tax | ||||||||
| Pension and OPEB items | ||||||||||||||
| Amortization of net losses and prior service costs or credits | $ | 11 | $ | 6 | $ | 18 | Other (income) expense, net | |||||||
| Settlement charges | — | — | (2) | Other (income) expense, net | ||||||||||
| Pension settlement from Kidney Care separation | 14 | — | — | Income (loss) from discontinued operations, net of tax | ||||||||||
| Pension settlement from BPS divestiture | — | — | 4 | Income (loss) from discontinued operations, net of tax | ||||||||||
| 25 | 6 | 20 | Total before tax | |||||||||||
| Less: Tax effect | (2) | (2) | (5) | Income tax expense (benefit) | ||||||||||
| Less: Tax effect on pension settlement from Kidney Care separation | (3) | — | — | Income tax expense (benefit) | ||||||||||
| $ | 20 | $ | 4 | $ | 15 | Net of tax | ||||||||
| Gains (losses) on hedging activities | ||||||||||||||
| Foreign exchange contracts | $ | 6 | $ | 8 | $ | 16 | Cost of sales | |||||||
| Interest rate contracts | (6) | (6) | (6) | Interest expense, net | ||||||||||
| Fair value hedges | — | (5) | (3) | Other (income) expense, net | ||||||||||
| — | (3) | 7 | Total before tax | |||||||||||
| Less: Tax effect | — | 1 | (1) | Income tax expense (benefit) | ||||||||||
| $ | — | $ | (2) | $ | 6 | Net of tax | ||||||||
| Total reclassifications for the period | $ | (106) | $ | 2 | $ | (164) | Total net of tax |
(a)Amounts in parentheses indicate reductions to net income.
Refer to Note 12 for additional information regarding the amortization of pension and OPEB items and Note 15 for additional information regarding hedging activity.
NOTE 10
| REVENUES |
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 consolidated balance sheets. Net trade accounts receivable was $1.70 billion and 1.54 billion as of December 31, 2025 and 2024, respectively.
For contract manufacturing arrangements, revenue is primarily recognized throughout the production cycle, which typically lasts up to 90 days, resulting in the recognition of contract assets until the related services are completed and the customers are billed. Additionally, for certain arrangements containing a performance obligation to deliver software that can be used with medical devices, we recognize revenue upon delivery of the software, which results in the recognition of contract assets when customers are billed over time, generally over one to five years. For bundled contracts involving equipment delivered up-front and consumable medical products to be delivered over time, total contract revenue is allocated between the equipment and consumable medical products. In certain of those arrangements, a contract asset is created for the difference between the amount of equipment revenue recognized upon delivery and the amount of consideration initially receivable from the customer. In those arrangements, the contract asset becomes a trade account receivable as consumable medical products are provided and billed, generally over one to seven years.
The following table summarizes our contract assets:
| as of December 31 (in millions) | 2025 | 2024 | ||||||
| Contract manufacturing services | $ | 3 | $ | 2 | ||||
| Software sales | 34 | 44 | ||||||
| Bundled equipment and consumable medical products contracts | 110 | 87 | ||||||
| Contract assets | $ | 147 | $ | 133 |
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 years ended December 31, 2025 and 2024. The contract liability balance represents the transaction price allocated to the remaining performance obligations.
| year ended December 31 (in millions) | 2025 | 2024 | ||||||
| Balance at beginning of period | $ | 171 | $ | 169 | ||||
| New revenue deferrals | 605 | 554 | ||||||
| Revenue recognized upon satisfaction of performance obligations | (601) | (555) | ||||||
| Currency translation | 2 | 3 | ||||||
| Balance at end of period | $ | 177 | $ | 171 |
In 2025 and 2024, $115 million and $103 million of revenue was recognized that was included in contract liabilities as of December 31, 2024 and 2023, respectively. In 2023, $117 million of revenue was recognized that was included in contract liabilities as of December 31, 2022.
The following table summarizes the classification of contract assets and contract liabilities as reported in the consolidated balance sheet:
| as of December 31 (in millions) | 2025 | 2024 | ||||||
| Prepaid expenses and other current assets | $ | 71 | $ | 51 | ||||
| Other non-current assets | 76 | 82 | ||||||
| Contract assets | $ | 147 | $ | 133 | ||||
| Accrued expenses and other current liabilities | $ | 141 | $ | 131 | ||||
| Other non-current liabilities | 36 | 40 | ||||||
| Contract liabilities | $ | 177 | $ | 171 |
Disaggregation of Net Sales
Refer to Note 17 for additional information on our net sales including the disaggregation of net sales within each of our segments and net sales by geographic location.
NOTE 11
| BUSINESS OPTIMIZATION CHARGES |
We are continuing to undertake actions to transform our cost structure and enhance operational efficiency. In recent years, these efforts have included restructuring the organization into verticalized segments, optimizing the manufacturing footprint, R&D operations and supply chain network, employing disciplined cost management and centralizing and streamlining certain support functions, some of which are still ongoing. We currently expect to incur additional pre-tax cash costs, primarily related to the implementation of business optimization programs, of approximately $2 million through the completion of initiatives that are currently underway. We continue to pursue cost savings initiatives, including those intended to mitigate a portion of the dis-synergies that arose as a result of the sale of our Kidney Care business, and we expect to incur additional restructuring charges and costs in future periods to implement business optimization programs. For segment reporting, business optimization charges are unallocated expenses.
We recorded the following charges related to business optimization programs in 2025, 2024 and 2023:
| years ended December 31 (in millions) | 2025 | 2024 | 2023 | ||||||||
| Restructuring charges | $ | 162 | $ | 146 | $ | 141 | |||||
| Costs to implement business optimization programs1 | 16 | 16 | 33 | ||||||||
| Total business optimization charges | $ | 178 | $ | 162 | $ | 174 |
1 Costs to implement business optimization programs for the years ended December 31, 2025, 2024 and 2023, respectively, consisted primarily of external consulting and transition costs, including employee compensation and related costs. The costs were primarily included within cost of sales and SG&A expenses.
The costs of restructuring actions consisted primarily of employee termination costs, contract termination costs and asset impairments. During the years ended December 31, 2025, 2024 and 2023, we recorded the following restructuring charges:
| 2025 | ||||||||||||||
| (in millions) | COGS | SG&A | R&D | Total | ||||||||||
| Employee termination costs | $ | 36 | $ | 62 | $ | 11 | $ | 109 | ||||||
| Contract termination and other costs | 11 | 4 | — | 15 | ||||||||||
| Asset impairments | 19 | 19 | — | 38 | ||||||||||
| Total restructuring charges | $ | 66 | $ | 85 | $ | 11 | $ | 162 | ||||||
| 2024 | ||||||||||||||
| (in millions) | COGS | SG&A | R&D | Total | ||||||||||
| Employee termination costs | $ | 20 | $ | 48 | $ | 30 | $ | 98 | ||||||
| Contract termination and other costs | 3 | 6 | — | 9 | ||||||||||
| Asset impairments | 39 | — | — | 39 | ||||||||||
| Total restructuring charges | $ | 62 | $ | 54 | $ | 30 | $ | 146 | ||||||
| 2023 | ||||||||||||||
| (in millions) | COGS | SG&A | R&D | Total | ||||||||||
| Employee termination costs | $ | 20 | $ | 91 | $ | 10 | $ | 121 | ||||||
| Contract termination and other costs | (1) | 3 | — | 2 | ||||||||||
| Asset impairments | 11 | 7 | — | 18 | ||||||||||
| Total restructuring charges | $ | 30 | $ | 101 | $ | 10 | $ | 141 |
For the year ended December 31, 2025, $100 million of the restructuring charges reflected in the table above, consisting of employee termination costs, were related to initiatives to reduce our cost structure following the sale of our Kidney Care segment. For the year ended December 31, 2025, $28 million of the restructuring charges reflected in the table above, consisting of $14 million of asset impairment charges, $9 million of contract termination and other costs, and $5 million of employee termination costs, were related to the exit of a product line at one of our manufacturing facilities.
For the year ended December 31, 2024, $45 million of the restructuring charges reflected in the table above, consisting of employee termination costs, were related to initiatives to reduce our cost structure following the sale of our Kidney Care segment. For the year ended December 31, 2024, $46 million of the restructuring charges reflected in the table above were related to business optimization initiatives within our Healthcare Systems & Technologies segment. These charges included $21 million of long-lived asset impairment charges, $9 million of other asset write-downs related to inventory and $2 million of employee termination costs related to our decision to discontinue a product line. Additionally, these charges included $14 million of employee termination costs related to other business optimization initiatives within this segment.
For the year ended December 31, 2023, $81 million of the restructuring charges reflected in the table above, consisting of employee termination costs, were related to the implementation of our new operating model intended to streamline our operations.
The following table summarizes activity in the liability related to our restructuring initiatives.
| (in millions) | |||||
| Liability balance as of December 31, 2022 | $ | 86 | |||
| Charges | 146 | ||||
| Payments | (101) | ||||
| Reserve adjustments | (23) | ||||
| Currency translation | (13) | ||||
| Liability balance as of December 31, 2023 | 95 | ||||
| Charges | 116 | ||||
| Payments | (80) | ||||
| Reserve adjustments | (9) | ||||
| Liability balance as of December 31, 2024 | 122 | ||||
| Charges | 137 | ||||
| Payments | (118) | ||||
| Reserve adjustments | (13) | ||||
| Currency translation | 5 | ||||
| Liability balance as of December 31, 2025 | $ | 133 |
Reserve adjustments primarily relate to employee termination cost reserves established in prior periods.
Substantially all of our restructuring liabilities as of December 31, 2025 relate to employee termination costs, with the remaining liabilities attributable to contract termination costs. Substantially all of the cash payments for those liabilities are expected to be disbursed by the end of 2026.
NOTE 12
| PENSION AND OTHER POSTRETIREMENT BENEFIT PROGRAMS |
We sponsor a number of qualified and nonqualified pension plans for eligible employees. We also sponsor certain unfunded contributory healthcare and life insurance benefits for substantially all domestic retired employees. Newly hired employees in the United States and Puerto Rico are not eligible to participate in the pension plans but receive a higher level of company contributions in our defined contribution plans.
Reconciliation of Pension and Other Postretirement Benefit Plan Obligations, Assets and Funded Status
The benefit plan information in the table below pertains to all of our pension and OPEB plans, both in the United States and in other countries.
| Pension benefits | OPEB | ||||||||||||||||
| as of and for the years ended December 31 (in millions) | 2025 | 2024 | 2025 | 2024 | |||||||||||||
| Benefit obligations | |||||||||||||||||
| Beginning of period | $ | 2,748 | $ | 2,901 | $ | 141 | $ | 154 | |||||||||
| Service cost | 13 | 11 | — | — | |||||||||||||
| Interest cost | 136 | 136 | 7 | 8 | |||||||||||||
| Participant contributions | 2 | 3 | — | — | |||||||||||||
| Actuarial (gain) loss | 81 | (129) | 6 | (3) | |||||||||||||
| Benefit payments | (148) | (133) | (15) | (15) | |||||||||||||
| Settlements | (5) | (8) | — | — | |||||||||||||
| Curtailment | (2) | — | — | — | |||||||||||||
| Plan Amendments | — | — | — | (2) | |||||||||||||
| Foreign exchange and other | 34 | (33) | — | (1) | |||||||||||||
| End of period | 2,859 | 2,748 | 139 | 141 | |||||||||||||
| Fair value of plan assets | |||||||||||||||||
| Beginning of period | 2,228 | 2,350 | — | — | |||||||||||||
| Actual return on plan assets | 221 | (4) | — | — | |||||||||||||
| Employer contributions | 56 | 46 | 15 | 15 | |||||||||||||
| Participant contributions | 2 | 3 | — | — | |||||||||||||
| Benefit payments | (148) | (133) | (15) | (15) | |||||||||||||
| Settlements | (5) | (8) | — | — | |||||||||||||
| Foreign exchange and other | 34 | (26) | — | — | |||||||||||||
| End of period | 2,388 | 2,228 | — | — | |||||||||||||
| Funded status at December 31 | $ | (471) | $ | (520) | $ | (139) | $ | (141) | |||||||||
| Amounts recognized in the consolidated balance sheets | |||||||||||||||||
| Noncurrent asset | $ | 66 | $ | 56 | $ | — | $ | — | |||||||||
| Current liability | (24) | (23) | (15) | (16) | |||||||||||||
| Noncurrent liability | (513) | (553) | (124) | (125) | |||||||||||||
| Net liability recognized at December 31 | $ | (471) | $ | (520) | $ | (139) | $ | (141) |
Actuarial gains and losses result from changes in actuarial assumptions (such as changes in the discount rate and revised mortality rates). Actuarial losses in 2025 and gains in 2024 related to plan benefit obligations were primarily the result of changes in discount rates.
The pension obligation information in the table above represents the projected benefit obligation (PBO). The PBO incorporates assumptions relating to future compensation levels. The accumulated benefit obligation (ABO) is the same as the PBO except that it includes no assumptions relating to future compensation levels. The ABO for all of our pension plans was $2.83 billion and $2.71 billion at the 2025 and 2024 measurement dates, respectively.
The information in the funded status table above represents the totals for all of our pension plans. The following table is information relating to the individual plans in the funded status table above that have an ABO in excess of plan assets.
| as of December 31 (in millions) | 2025 | 2024 | ||||||
| ABO | $ | 2,508 | $ | 2,403 | ||||
| Fair value of plan assets | $ | 1,982 | $ | 1,843 |
The following table presents information relating to the individual plans in the funded status table above that have a PBO in excess of plan assets (many of which also have an ABO in excess of assets and are therefore also included in the table directly above).
| as of December 31 (in millions) | 2025 | 2024 | ||||||
| PBO | $ | 2,519 | $ | 2,419 | ||||
| Fair value of plan assets | $ | 1,982 | $ | 1,843 |
Expected Net Pension and OPEB Plan Payments for the Next 10 Years
| (in millions) | Pension benefits | OPEB | ||||||
| 2026 | $ | 172 | $ | 15 | ||||
| 2027 | 179 | 15 | ||||||
| 2028 | 186 | 14 | ||||||
| 2029 | 190 | 13 | ||||||
| 2030 | 195 | 13 | ||||||
| 2031 through 2035 | 1,009 | 53 | ||||||
| Total expected net benefit payments for next 10 years | $ | 1,931 | $ | 123 |
The expected net benefit payments above reflect the total net benefits expected to be paid from the plans’ assets (for funded plans) or from our assets (for unfunded plans). The federal subsidies relating to the Medicare Prescription Drug, Improvement and Modernization Act are not expected to be significant.
Amounts Recognized in AOCI
The pension and OPEB plans’ gains or losses, prior service costs or credits, and transition assets or obligations not yet recognized in net periodic benefit cost are recognized on a net-of-tax basis in AOCI and will be amortized from AOCI to net periodic benefit cost in the future. For active employees, we utilize the average future working lifetime as the amortization period for prior service. For inactive employees, we utilize the average remaining life expectancy as the amortization period for prior service.
The following table is a summary of the pre-tax losses (gains) included in AOCI at December 31, 2025 and 2024.
| (in millions) | Pension benefits | OPEB | ||||||
| Actuarial loss (gain) | $ | 680 | $ | (27) | ||||
| Prior service credit and transition obligation | 9 | (2) | ||||||
| Total pre-tax loss (gain) recognized in AOCI at December 31, 2025 | $ | 689 | $ | (29) | ||||
| Actuarial loss (gain) | $ | 642 | $ | (42) | ||||
| Prior service credit and transition obligation | 11 | (10) | ||||||
| Total pre-tax loss (gain) recognized in AOCI at December 31, 2024 | $ | 653 | $ | (52) |
Refer to Note 9 for the net-of-tax balances included in AOCI as of each of the year-end dates. The following table is a summary of the net-of-tax amounts recorded in OCI relating to pension and OPEB plans.
| Year ended December 31 (in millions) | 2025 | 2024 | 2023 | ||||||||
| Gain (loss) arising during the year, net of tax of $(14) in 2025, $(6) in 2024 and $31 in 2023 | $ | (20) | $ | (15) | $ | (103) | |||||
| Amortization of gain (loss) to earnings, net of tax of $(3) in 2025, zero in 2024 and $(5) in 2023 | (8) | (4) | 13 | ||||||||
| Settlement charges, net of tax of zero in 2025 and 2024 and $(1) 2023 | — | — | (2) | ||||||||
| Pension and other employee benefits | $ | (28) | $ | (19) | $ | (92) |
In 2025, 2024 and 2023, OCI activity for pension and OPEB plans was primarily related to actuarial gains and losses.
Net Periodic Benefit Cost
| Year ended December 31 (in millions) | 2025 | 2024 | 2023 | ||||||||
| Pension benefits | |||||||||||
| Service cost | $ | 13 | $ | 11 | $ | 19 | |||||
| Interest cost | 136 | 136 | 148 | ||||||||
| Expected return on plan assets | (176) | (179) | (187) | ||||||||
| Amortization of net losses and other deferred amounts | 6 | 15 | 6 | ||||||||
| Curtailment gain | (1) | — | — | ||||||||
| Settlement charges | — | — | 1 | ||||||||
| Other | — | — | 1 | ||||||||
| Net periodic pension benefit cost | $ | (22) | $ | (17) | $ | (12) | |||||
| OPEB | |||||||||||
| Interest cost | $ | 7 | $ | 8 | $ | 8 | |||||
| Amortization of net losses and prior service credit | (17) | (19) | (24) | ||||||||
| Curtailment gain | — | — | (1) | ||||||||
| Net periodic OPEB cost | $ | (10) | $ | (11) | $ | (17) |
Weighted-Average Assumptions Used in Determining Benefit Obligations at the Measurement Date
| Pension benefits | OPEB | ||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | ||||||||||||||
| Discount rate | |||||||||||||||||
| U.S. and Puerto Rico plans | 5.46 | % | 5.71 | % | 5.13 | % | 5.54 | % | |||||||||
| International plans | 3.90 | % | 3.67 | % | n/a | n/a | |||||||||||
| Rate of compensation increase | |||||||||||||||||
| U.S. and Puerto Rico plans | 4.00 | % | 3.00 | % | n/a | n/a | |||||||||||
| International plans | 2.96 | % | 3.07 | % | n/a | n/a | |||||||||||
| Annual rate of increase in the per-capita cost | n/a | n/a | 6.50 | % | 6.75 | % | |||||||||||
| Rate decreased to | n/a | n/a | 5.00 | % | 5.00 | % | |||||||||||
| by the year ended | n/a | n/a | 2032 | 2032 |
The assumptions above, which were used in calculating the December 31, 2025 measurement date benefit obligations, will be used in the calculation of net periodic benefit cost in 2026.
Weighted-Average Assumptions Used in Determining Net Periodic Benefit Cost
| Pension benefits | OPEB | ||||||||||||||||||||||
| 2025 | 2024 | 2023 | 2025 | 2024 | 2023 | ||||||||||||||||||
| Discount rate | |||||||||||||||||||||||
| U.S. and Puerto Rico plans | 5.71 | % | 5.20 | % | 5.55 | % | 5.54 | % | 5.11 | % | 5.46 | % | |||||||||||
| International plans | 3.67 | % | 3.41 | % | 4.11 | % | n/a | n/a | n/a | ||||||||||||||
| Expected return on plan assets | |||||||||||||||||||||||
| U.S. and Puerto Rico plans | 6.65 | % | 6.65 | % | 6.43 | % | n/a | n/a | n/a | ||||||||||||||
| International plans | 5.21 | % | 4.86 | % | 4.93 | % | n/a | n/a | n/a | ||||||||||||||
| Rate of compensation increase | |||||||||||||||||||||||
| U.S. and Puerto Rico plans | 3.00 | % | 2.60 | % | 2.93 | % | n/a | n/a | n/a | ||||||||||||||
| International plans | 3.06 | % | 3.32 | % | 3.43 | % | n/a | n/a | n/a | ||||||||||||||
| Annual rate of increase in the per-capita cost | n/a | n/a | n/a | 6.50 | % | 6.75 | % | 6.25 | % | ||||||||||||||
| Rate decreased to | n/a | n/a | n/a | 5.00 | % | 5.00 | % | 5.00 | % | ||||||||||||||
| by the year ended | n/a | n/a | n/a | 2032 | 2032 | 2029 |
We established the expected return on plan assets assumption primarily based on a review of historical compound average asset returns, both company-specific and relating to the broad market (based on our asset allocation), as well as an analysis of current market and economic information and future expectations. We plan to use a 7.25% assumption for our U.S. and Puerto Rico plans for 2026.
Pension Plan Assets
An investment committee of members of senior management is responsible for supervising, monitoring and evaluating the invested assets of our funded pension plans. The investment committee, which meets at least quarterly, abides by documented policies and procedures relating to investment goals, targeted asset allocations, risk management practices, allowable and prohibited investment holdings, diversification, use of derivatives, the relationship between plan assets and benefit obligations, and other relevant factors and considerations. The investment committee utilizes an Outsourced Chief Investment Officer model where investment decisions are outsourced to investment consultants, for our U.S. and Puerto Rico Plans, who in turn become co-fiduciaries with the investment committee.
Plan assets are invested using a total return investment approach whereby a mix of equity securities, debt securities and other investments are used to preserve asset values, diversify risk and exceed the planned benchmark investment return. Investment strategies and asset allocations are based on consideration of plan liabilities, the plans’ funded status and other factors, such as the plans’ demographics and liability durations. Investment performance is reviewed by the investment committee on a quarterly basis and asset allocations are reviewed on a periodic basis.
Plan assets are managed in a balanced portfolio comprised of two major components: return-seeking investments and liability hedging investments. The target allocations for plan assets are 50% in return-seeking investments and 50% in liability hedging investments and other holdings. The documented policy includes an allocation range based on each individual investment type within the major components that allows for a variance from the target allocations depending on the investment type. Return-seeking investments primarily include common stock of U.S. and international companies, common/collective trust funds, mutual funds, hedge funds, and partnership investments. Liability hedging investments and other holdings primarily include cash, money market funds with an original maturity of three months or less, U.S. and foreign government and governmental agency issues, corporate bonds, municipal securities, derivative contracts and asset-backed securities.
While the investment committee provides oversight over plan assets for U.S. and international plans, the summary above is specific to the plans in the United States. The plan assets for international plans are managed and allocated by the entities in each country, with input and oversight provided by the investment committee. The plan assets for the U.S. and international plans are included in the table below.
The following tables summarize our pension plan financial instruments that are measured at fair value on a recurring basis.
| Basis of fair value measurement | |||||||||||||||||
| (in millions) | Balance at December 31, 2025 | Quoted prices in active markets for identical assets (Level 1) | Significant other observable inputs (Level 2) | Significant unobservable inputs (Level 3) | Measured at NAV (a) | ||||||||||||
| Assets | |||||||||||||||||
| Cash | $ | 60 | |||||||||||||||
| Fixed income securities | |||||||||||||||||
| Cash equivalents | $ | 181 | $ | — | $ | 181 | $ | — | $ | — | |||||||
| U.S. government and government agency issues | 245 | — | 245 | — | — | ||||||||||||
| Corporate bonds | 398 | — | 398 | — | — | ||||||||||||
| Equity securities | |||||||||||||||||
| Mutual funds | 743 | 222 | 521 | — | — | ||||||||||||
| Common/collective trust funds | 335 | — | 38 | — | 297 | ||||||||||||
| Partnership investments | 204 | — | — | — | 204 | ||||||||||||
| Other holdings | 222 | 5 | 85 | 132 | — | ||||||||||||
| Fair value of pension plan assets | $ | 2,388 | $ | 227 | $ | 1,468 | $ | 132 | $ | 501 |
(a) Certain assets that are measured at fair value using the NAV per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy.
| Basis of fair value measurement | |||||||||||||||||
| (in millions) | Balance at December 31, 2024 | Quoted prices in active markets for identical assets (Level 1) | Significant other observable inputs (Level 2) | Significant unobservable inputs (Level 3) | Measured at NAV (a) | ||||||||||||
| Assets | |||||||||||||||||
| Cash | $ | 52 | |||||||||||||||
| Fixed income securities | |||||||||||||||||
| Cash equivalents | $ | 179 | $ | — | $ | 179 | $ | — | $ | — | |||||||
| U.S. government and government agency issues | 135 | — | 135 | — | — | ||||||||||||
| Corporate bonds | 357 | — | 357 | — | — | ||||||||||||
| Equity securities | |||||||||||||||||
| Common stock | 353 | 353 | — | — | — | ||||||||||||
| Mutual funds | 199 | 199 | — | — | — | ||||||||||||
| Common/collective trust funds | 540 | — | — | — | 540 | ||||||||||||
| Partnership investments | 198 | — | — | — | 198 | ||||||||||||
| Other holdings | 215 | 9 | 79 | 127 | — | ||||||||||||
| Fair value of pension plan assets | $ | 2,228 | $ | 561 | $ | 750 | $ | 127 | $ | 738 |
(a) Certain assets that are measured at fair value using the NAV per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy.
The following table is a reconciliation of changes in fair value measurements that used significant unobservable inputs (Level 3).
| (in millions) | Other holdings | ||||||||||||||||
| Balance at December 31, 2023 | $ | 155 | |||||||||||||||
| Unrealized gains (losses) | (24) | ||||||||||||||||
| Sales | (7) | ||||||||||||||||
| Purchases | 3 | ||||||||||||||||
| Balance at December 31, 2024 | 127 | ||||||||||||||||
| Unrealized gains (losses) | 10 | ||||||||||||||||
| Sales | (7) | ||||||||||||||||
| Purchases | 2 | ||||||||||||||||
| Balance at December 31, 2025 | $ | 132 |
The assets and liabilities of our pension plans are valued using the following valuation methods:
| Investment category | Valuation methodology | ||||
| Cash equivalents | These largely consist of a short-term investment fund, U.S. dollars and foreign currencies. The fair value of the short-term investment fund is based on the net asset value. | ||||
| U.S. government and government agency issues | Values are based on reputable pricing vendors, who typically use pricing matrices or models that use observable inputs. | ||||
| Corporate bonds | Values are based on reputable pricing vendors, who typically use pricing matrices or models that use observable inputs. | ||||
| Mutual funds | Values are based on the net asset value of the units held in the respective fund which are obtained from national and international exchanges or based on the net asset value of the underlying assets of the fund provided by the fund manager. | ||||
| Common/collective trust funds | Values are based on the net asset value of the units held at year end. | ||||
| Partnership investments | Values are based on the net asset value of the participation by us in the investment as determined by the general partner or investment manager of the respective partnership. | ||||
| Other holdings | Other holdings includes assets valued by pricing vendors using pricing matrices or models that use observable inputs and an insurance contract held by our pension plan in the United Kingdom, which is measured using a discounted cash flow model. In addition to observable market inputs such as interest rates, the fair value measurement of the insurance contract also reflects unobservable inputs, such as qualitative judgments about pricing of similar contracts in the insurance market. | ||||
Expected Pension and OPEB Plan Funding
Our funding policy for our pension plans is to contribute amounts sufficient to meet legal funding requirements, plus any additional amounts that we may determine to be appropriate considering the funded status of the plans, tax deductibility, the cash flows generated by us, and other factors. Volatility in the global financial markets could have an unfavorable impact on future funding requirements. In 2026, we have no obligation to fund our principal plans in the United States, but we regularly reassess the amount and timing of any discretionary contributions. Conversely, we do expect to make contributions of at least $10 million to our Puerto Rico plan and $5 million to our foreign pension plans in 2026. Additionally, we expect to have net cash outflows relating to our OPEB plans of approximately $15 million in 2026.
The following table details the funded status percentage of our pension plans as of December 31, 2025, including certain plans that are unfunded in accordance with the guidelines of our funding policy outlined above.
| United States and Puerto Rico | International | |||||||||||||||||||
| as of December 31, 2025 (in millions) | Qualified plans | Nonqualified plan | Funded plans | Unfunded plans | Total | |||||||||||||||
| Fair value of plan assets | $ | 1,890 | $ n/a | $ | 498 | $ n/a | $ | 2,388 | ||||||||||||
| PBO | 2,117 | 185 | 537 | 20 | 2,859 | |||||||||||||||
| Funded status percentage | 89 | % | n/a | 93 | % | n/a | 84 | % |
U.S. Defined Contribution Plan
Most U.S. employees are eligible to participate in a qualified defined contribution plan. We recognized expense of $102 million in 2025, $119 million in 2024 and $116 million in 2023 related to contributions to this plan.
NOTE 13
| INCOME TAXES |
Income (Loss) Before Income Tax Expense (Benefit) by Category
| years ended December 31 (in millions) | 2025 | 2024 | 2023 | ||||||||
| United States | $ | (1,345) | $ | (1,499) | $ | (1,057) | |||||
| Foreign | 840 | 1,210 | 1,299 | ||||||||
| Income (loss) from continuing operations before income taxes | $ | (505) | $ | (289) | $ | 242 |
Income Tax Expense (Benefit)
| years ended December 31 (in millions) | 2025 | 2024 | 2023 | ||||||||
| Current | |||||||||||
| United States | |||||||||||
| Federal | $ | 118 | $ | 19 | $ | 1 | |||||
| State and local | 29 | 21 | 9 | ||||||||
| Foreign | 171 | 259 | 307 | ||||||||
| Current income tax expense (benefit) | 318 | 299 | 317 | ||||||||
| Deferred | |||||||||||
| United States | |||||||||||
| Federal | (34) | (197) | (123) | ||||||||
| State and local | 37 | (21) | (25) | ||||||||
| Foreign | 74 | (44) | (108) | ||||||||
| Deferred income tax expense (benefit) | 77 | (262) | (256) | ||||||||
| Income tax expense (benefit) | $ | 395 | $ | 37 | $ | 61 |
On July 4, 2025, the United States enacted the One Big Beautiful Bill Act (OBBBA), which includes significant tax provisions, including extensions of key provisions from the 2017 Tax Cuts and Jobs Act and modifications to the U.S. international tax framework. The legislation has multiple effective dates, with certain provisions effective in 2025 and others to be implemented through 2027. The impact of the OBBBA legislation on our income tax expense for the year ending December 31, 2025 was not material. We will continue to monitor regulatory guidance and interpretations as they are issued.
Deferred Tax Assets and Liabilities
| as of December 31 (in millions) | 2025 | 2024 | ||||||
| Deferred tax assets | ||||||||
| Accrued liabilities and other | $ | 403 | $ | 310 | ||||
| Pension and other postretirement benefits | 124 | 131 | ||||||
| Tax credit and net operating loss carryforwards | 433 | 750 | ||||||
| Swiss tax reform net asset basis step-up | 103 | 92 | ||||||
| Operating lease liabilities | 66 | 139 | ||||||
| Valuation allowances | (543) | (536) | ||||||
| Total deferred tax assets | 586 | 886 | ||||||
| Deferred tax liabilities | ||||||||
| Unremitted earnings of subsidiaries | 33 | 21 | ||||||
| Long-lived assets and other | 536 | 632 | ||||||
| Operating lease right-of-use assets | 62 | 132 | ||||||
| Total deferred tax liabilities | 631 | 785 | ||||||
| Net deferred tax asset (liability) | $ | (45) | $ | 101 |
At December 31, 2025, we had U.S. state operating loss carryforwards totaling $70 million, U.S. federal operating loss carryforwards totaling $9 million and tax credit carryforwards totaling $277 million, which includes a U.S. foreign tax credit carryforward of $235 million. The U.S. federal and state operating loss and tax credit carryforwards expire between 2026 and 2045, with $13 million of the operating loss carryforwards having no expiration date.
At December 31, 2025, with respect to our operations outside the U.S., we had operating loss carryforwards totaling $69 million and tax credit carryforwards totaling $16 million. The non-U.S. operating loss carryforwards expire between 2026 and 2044 with $47 million having no expiration date. All of the non-U.S. tax credit carryforwards have no expiration date.
Realization of the U.S. and foreign operating loss and tax credit carryforwards depends on generating sufficient future earnings. During 2025, because of a cumulative history of operating losses in the U.S., we recorded a valuation allowance against our U.S. deferred tax assets, including certain federal and state tax attributes such as foreign tax credits. Additionally, we recorded additional valuation allowance against deferred tax assets in Switzerland related to the tax basis step-up we received in connection with the 2019 Swiss tax reform. We also determined that certain tax losses in Malta would not be realizable due to legal entity restructuring activities and reduced our tax attributes and valuation allowance for the Malta losses accordingly.
The following table is a summary of changes in our deferred tax valuation allowance for the years ended December 31, 2025, 2024 and 2023.
| years ended December 31 (in millions) | 2025 | 2024 | 2023 | ||||||||
| Balance at beginning of period | $ | 536 | $ | 584 | $ | 631 | |||||
| Charged to income tax expense | 309 | 48 | 87 | ||||||||
| Deductions | (349) | (73) | (139) | ||||||||
| Currency translation adjustments | 47 | (23) | 5 | ||||||||
| Balance at end of period | $ | 543 | $ | 536 | $ | 584 |
Income Tax Expense (Benefit) Reconciliation
As discussed in Note 1, Summary of Significant Accounting Policies, we have elected to prospectively adopt the guidance in ASU 2023-09. The following table is a reconciliation of the income tax expense (benefit) at the U.S. statutory rate to our income tax expense (benefit) for the year ended December 31, 2025.
| year ended December 31 (in millions) | 2025 | % | ||||||
| Income tax expense (benefit) at U.S. statutory rate | $ | (106) | 21.0 | % | ||||
| State and local income taxes, net of federal (national) income tax effect1 | 62 | (12.3) | % | |||||
| Foreign tax effects | ||||||||
| Costa Rica | ||||||||
| Local tax incentive rate | (23) | 4.6 | % | |||||
| Other | 10 | (2.0) | % | |||||
| Netherlands | 26 | (5.1) | % | |||||
| Puerto Rico | ||||||||
| Local tax incentive rate | (19) | 3.8 | % | |||||
| Other | 9 | (1.8) | % | |||||
| Switzerland | ||||||||
| Changes in valuation allowances | 54 | (10.7) | % | |||||
| Other | (5) | 1.0 | % | |||||
| Other jurisdictions | 37 | (7.3) | % | |||||
| Effect of cross-border tax laws | ||||||||
| Global intangible low taxed income, net of tax credits | 18 | (3.6) | % | |||||
| Effect of internal reorganization | (56) | 11.1 | % | |||||
| Other | (8) | 1.6 | % | |||||
| Tax credits | ||||||||
| Foreign tax credits | (24) | 4.8 | % | |||||
| Research and development tax credits | (18) | 3.6 | % | |||||
| Changes in valuation allowances | 88 | (17.4) | % | |||||
| Nontaxable or Non-deductible items | ||||||||
| Non-deductible goodwill impairment | 90 | (17.8) | % | |||||
| Other, net | 15 | (3.0) | % | |||||
| Changes in unrecognized tax benefits | 246 | (48.7) | % | |||||
| Other adjustments | ||||||||
| Other, net | (1) | 0.2 | % | |||||
| Income tax expense (benefit) | $ | 395 | (78.2) | % |
1 State taxes in IL, IN, CA, and PA made up the majority (greater than 50 percent) of the tax effect in this category.
The following table is a reconciliation of the income tax expense (benefit) at the U.S. statutory rate to our income tax expense (benefit) for the years ended December 31, 2024 and 2023 in accordance with the guidance prior to the adoption of ASU 2023-09.
| years ended December 31 (in millions) | 2024 | 2023 | |||||||||
| Income tax expense (benefit) at U.S. statutory rate | $ | (61) | $ | 51 | |||||||
| Tax incentives | (176) | (200) | |||||||||
| State and local taxes, net of federal benefit | (9) | (2) | |||||||||
| Impact of foreign taxes | 137 | 190 | |||||||||
| Non-deductible goodwill impairments | 86 | — | |||||||||
| Notional interest deduction expense (benefit) | (37) | 31 | |||||||||
| Valuation allowances | (25) | (51) | |||||||||
| Stock compensation (windfall) shortfall tax expense (benefit) | 9 | 10 | |||||||||
| Research and development tax credits | (19) | (17) | |||||||||
| Uncertain tax positions | 9 | 6 | |||||||||
| Unutilized foreign tax credits | 15 | 32 | |||||||||
| Subpart F income | 18 | 26 | |||||||||
| Foreign tax credits | (5) | (7) | |||||||||
| Pillar Two taxes | 11 | — | |||||||||
| Revaluation of Swiss basis step-up deferred tax asset | 58 | — | |||||||||
| Tax law changes on Section 987 | 17 | — | |||||||||
| Other, net | 9 | (8) | |||||||||
| Income tax expense (benefit) | $ | 37 | $ | 61 |
Our effective income tax rate can differ from the 21% U.S. federal statutory rate due to a number of factors, including tax incentives, foreign rate differences, state income taxes, non-deductible expenses, non-taxable income, increases or decreases in valuation allowances and liabilities for uncertain tax positions, excess tax benefits or shortfalls on stock compensation awards, audit developments and legislative changes.
In 2025, the difference between our effective income tax rate and the U.S. federal statutory rate was primarily driven by an increase in liabilities for uncertain tax positions, an increase in the valuation allowance related to the realizability of our deferred tax assets, changes in the treatment of accumulated earnings that are considered indefinitely reinvested as of December 31, 2025 and a tax benefit driven by an entity classification election that we made for U.S. tax purposes, which resulted in a capital loss for the period.
In 2024, the difference between our effective income tax rate and the U.S. federal statutory rate was adversely impacted by a non-deductible impairment of goodwill and legislative changes under IRC Section 987 (which is the exchange gain or loss on foreign branch remittances in the U.S., effective in 2024), and a net revaluation of the Swiss basis step-up deferred tax asset and related valuation allowance that arose from Swiss tax reform legislation in 2019, partially offset by a favorable geographic earnings mix, a decrease in valuation allowance mainly related to U.S. foreign tax credit carryforward, and a tax benefit related to research and development tax credits.
In 2023, our effective income tax rate was impacted favorably by geographic earnings mix, a $50 million net tax benefit after related valuation allowances from notional interest deductions that are received by certain wholly-owned foreign subsidiaries that have financed their operations with equity capital and a $17 million tax benefit related to research and development tax credits, partially offset by tax shortfalls on stock compensation awards.
Certain of our unremitted foreign earnings are considered to be indefinitely reinvested. The determination of taxes that would be incurred upon the future remittance of such earnings is not practicable.
Our tax provisions for 2025, 2024 and 2023 do not include any significant tax charges related to either the Base Erosion and Anti-Abuse Tax (BEAT) or Global Intangible Low Taxed Income (GILTI) provisions, except for the inability to fully utilize foreign tax credits against such GILTI. Our accounting policy is to recognize any GILTI charge as a period cost.
Unrecognized Tax Benefits
We classify interest and penalties associated with income taxes in income tax expense (benefit) within the consolidated statements of income (loss). Net interest and penalties recognized were not significant during 2025, 2024 and 2023. The liability recognized related to interest and penalties was $15 million and $21 million as of December 31, 2025 and 2024, respectively. The total amount of gross unrecognized tax benefits that, if recognized, would impact the effective tax rate are $110 million, $51 million and $47 million as of December 31, 2025, 2024 and 2023, respectively.
The following table is a reconciliation of our unrecognized tax benefits for the years ended December 31, 2025, 2024 and 2023.
| as of and for the years ended (in millions) | 2025 | 2024 | 2023 | ||||||||
| Balance at beginning of the year | $ | 96 | $ | 89 | $ | 87 | |||||
| Increase associated with tax positions taken during the current year | 5 | 10 | 9 | ||||||||
| Increase (decrease) associated with tax positions taken during a prior year | 258 | 5 | 3 | ||||||||
| Settlements | — | (1) | (2) | ||||||||
| Decrease associated with lapses in statutes of limitations | (30) | (7) | (8) | ||||||||
| Balance at end of the year | $ | 329 | $ | 96 | $ | 89 |
Of the gross unrecognized tax benefits, $109 million and $39 million were recognized as liabilities in the consolidated balance sheets as of December 31, 2025 and 2024, respectively.
Tax Incentives
We have received tax incentives in Puerto Rico, Dominican Republic, Costa Rica, and Switzerland. The financial impact of the reductions as compared to the statutory tax rates is indicated in the income tax expense (benefit) reconciliation table above. The tax reductions as compared to the local statutory rate favorably impacted earnings (loss) by $57 million in 2025, $176 million in 2024, and $200 million in 2023, and favorably impacted earnings (loss) per diluted share by $0.11 in 2025, $0.34 in 2024 and $0.39 in 2023. The Switzerland incentive program expired at the end of 2024 and therefore did not provide any benefit in 2025, however did contribute to the benefits recognized in 2024 and 2023. The other tax incentives provide that our manufacturing operations are and will be partially exempt from local taxes with varying expirations from 2025 to 2034.
Examinations of Tax Returns
As of December 31, 2025, we had ongoing audits in the United States, Belgium, Germany, Italy and other jurisdictions. We are currently under examination by the Internal Revenue Service (IRS) for transfer pricing matters related to transactions with our manufacturing operations in Costa Rica and Puerto Rico for the 2019 and 2020 tax years. While we have not yet received a final Notice of Proposed Adjustment (NOPA) from the IRS, the examination is ongoing, and we are in the process of responding to inquiries from, and engaging in ongoing discussions with, the IRS related to certain intercompany transactions between our U.S. entities and these foreign manufacturers. As a result, we have recorded reserves for uncertain tax positions related to these transfer pricing matters for tax years 2019 through 2025. These reserves in aggregate are recorded to expense for approximately $280 million, exclusive of any potential penalties and interest. While we believe that our transfer pricing positions are well documented, properly supported, and adequate amounts have been reserved to account for any adjustments that may ultimately result from this examination, the ultimate outcome of this matter is uncertain (upon the receipt of a final NOPA or otherwise).
Tax years 2012 and forward remain open to examination by various foreign taxing authorities. While the final outcome of these matters is inherently uncertain, we believe we have made adequate tax provisions for all years subject to examination.
NOTE 14
| EARNINGS (LOSS) PER SHARE |
The numerator for both basic and diluted earnings (loss) per share (EPS) is net income (loss) attributable to Baxter stockholders. The denominator for basic EPS is the weighted-average number of shares outstanding during the period. The dilutive effect of outstanding stock options, RSUs and PSUs is reflected in the denominator for diluted EPS using the treasury stock method.
The following table is a reconciliation of net income (loss) attributable to Baxter stockholders.
| years ended December 31(in millions) | 2025 | 2024 | 2023 | ||||||||
| Income (loss) from continuing operations | $ | (900) | $ | (326) | $ | 181 | |||||
| Less: Net income attributable to noncontrolling interests included in continuing operations | — | — | — | ||||||||
| Income (loss) from continuing operations attributable to Baxter stockholders | (900) | (326) | 181 | ||||||||
| Income (loss) from discontinued operations | (57) | (312) | 2,482 | ||||||||
| Less: Net income attributable to noncontrolling interests included in discontinued operations | — | 11 | 7 | ||||||||
| Income (loss) from discontinued operations attributable to Baxter stockholders | (57) | (323) | 2,475 | ||||||||
| Net income (loss) attributable to Baxter stockholders | $ | (957) | $ | (649) | $ | 2,656 |
The following table is a reconciliation of basic shares to diluted shares.
| years ended December 31(in millions) | 2025 | 2024 | 2023 | ||||||||
| Basic shares | 513 | 510 | 506 | ||||||||
| Effect of dilutive securities | — | — | 2 | ||||||||
| Diluted shares | 513 | 510 | 508 |
Basic and diluted shares are the same for the years ended December 31, 2025 and 2024 due to our loss from continuing operations attributable to Baxter stockholders. The effect of dilutive securities includes unexercised stock options, unvested RSUs and contingently issuable shares related to granted PSUs. The computation of diluted EPS excludes 22 million, 25 million, and 19 million equity awards in 2025, 2024 and 2023, respectively, because their inclusion would have had an anti-dilutive effect on diluted EPS. Refer to Note 8 for additional information regarding items impacting basic shares.
NOTE 15
| DERIVATIVES AND HEDGING ACTIVITIES |
Concentrations of Credit Risk
We invest excess cash in certificates of deposit or money market or other funds and diversify the concentration of cash among different financial institutions. With respect to financial instruments, where appropriate, we have diversified our selection of counterparties, and have arranged collateralization and master-netting agreements to minimize the risk of loss.
Global economic conditions and liquidity issues in certain countries have resulted, and may continue to result, in delays in the collection of receivables and credit losses. Global economic conditions, governmental actions and customer-specific factors may require us to re-evaluate the collectability of our receivables and we could potentially incur additional credit losses.
Foreign Currency and Interest Rate Risk Management
We operate on a global basis and are exposed to the risk that our earnings, cash flows and equity could be adversely impacted by fluctuations in foreign exchange and interest rates. Our hedging policy attempts to manage these risks to an acceptable level based on our judgment of the appropriate trade-off between risk, opportunity and costs.
We are primarily exposed to foreign exchange risk with respect to recognized assets and liabilities, forecasted transactions and net assets denominated in the Euro, British Pound, Chinese Renminbi, Swedish Krona, Polish Zloty, Swiss Franc, Australian Dollar, Turkish Lira, Singapore Dollar and Korean Wan. We manage our foreign currency exposures on a consolidated basis, which allows us to net exposures and take advantage of any natural offsets. In addition, we use derivative and nonderivative instruments to further reduce the net exposure to foreign exchange risk. Gains and losses on the hedging instruments offset losses and gains on the hedged transactions and reduce the earnings and equity volatility resulting from changes in foreign exchange rates. Financial market and currency volatility may limit our ability to cost-effectively hedge these exposures.
We are also exposed to the risk that our earnings and cash flows could be adversely impacted by fluctuations in interest rates. Our policy is to manage interest costs using the mix of fixed- and floating-rate debt that we believe is appropriate at that time. To manage this mix in a cost-efficient manner, we periodically enter into interest rate swaps in which we agree to exchange, at specified intervals, the difference between fixed and floating interest amounts calculated by reference to an agreed-upon notional amount.
We do not hold any instruments for trading purposes and none of our outstanding derivative instruments contain credit-risk-related contingent features.
Cash Flow Hedges
We may use options, including collars and purchased options, forwards and cross-currency swaps to hedge the foreign exchange risk to earnings relating to forecasted transactions and recognized assets and liabilities. We periodically use treasury rate locks to hedge the risk to earnings associated with movements in interest rates relating to anticipated issuances of debt.
There were no foreign exchange contracts designated as cash flow hedges outstanding as of December 31, 2025. The notional amounts of foreign exchange contracts designated as cash flow hedges were $99 million as of December 31, 2024. There were no outstanding interest rate contracts designated as cash flow hedges as of December 31, 2025 and 2024.
Fair Value Hedges
We periodically use interest rate swaps to convert a portion of our fixed-rate debt into variable-rate debt. These instruments hedge our earnings from changes in the fair value of debt due to fluctuations in the designated benchmark interest rate.
There were no outstanding interest rate contracts designated as fair value hedges as of December 31, 2025 and 2024.
In October 2023, we entered into a foreign currency forward contract with a notional amount of $798 million and designated that derivative as a fair value hedge of our €750 million of 0.40% senior notes due May 2024. This forward contract matured in May 2024.
Net Investment Hedges
In May 2017, we issued €600 million of 1.3% senior notes due May 2025. We had designated these debt obligations as hedges of our net investment in our European operations and, as a result, mark to spot rate adjustments of the outstanding debt balances were previously recorded as a component of AOCI. In March 2025, we dedesignated this previously designated net investment hedge and concurrently entered into forward contracts to manage foreign exchange risk in earnings related to these outstanding debt balances. These forward contracts matured in May 2025.
In May 2019, we issued €750 million of 1.3% senior notes due May 2029. We have designated these debt obligations as hedges of our net investment in our European operations and, as a result, mark to spot rate adjustments of the outstanding debt balances are recorded as a component of AOCI.
In May 2019, we issued €750 million of 0.40% senior notes due May 2024, which we repaid in full on their maturity date. We had designated these debt obligations as hedges of our investment in our European operations and, as a result, mark to spot rate adjustments of the outstanding debt balances were previously recorded as a component of
AOCI. In October 2023, we dedesignated this previously designated net investment hedge and concurrently entered into a fair value hedging relationship as discussed in the “Fair Value Hedges” section above.
As of December 31, 2025, we had an accumulated pre-tax unrealized translation loss in AOCI of $3 million related to the Euro-denominated senior notes.
Dedesignations
If it is determined that a derivative or nonderivative hedging instrument is no longer highly effective as a hedge, we discontinue hedge accounting prospectively. Gains or losses relating to terminations of effective cash flow hedges generally continue to be deferred and are recognized consistent with the loss or income recognition of the underlying hedged transactions. However, if it is probable that hedged forecasted transactions will not occur, any gains or losses would be immediately reclassified from AOCI to earnings. There were no cash flow hedge dedesignations in 2025, 2024 or 2023 resulting from changes in our assessment of the probability that the hedged forecasted transactions would occur. The losses relating to these terminations continue to be deferred and are being recognized consistent with the underlying hedged item, interest expense on the issuance of debt.
If we terminate a fair value hedge, an amount equal to the cumulative fair value adjustment to the hedged item at the date of termination is amortized to earnings over the remaining term of the hedged item. There were no fair value hedges terminated in 2025, 2024 or 2023.
If we remove a net investment hedge designation, any gain or loss recognized in AOCI is not reclassified to earnings until we sell, liquidate, or deconsolidate the foreign investments that were being hedged. In both March 2025 and October 2023, we dedesignated one of our net investment hedges as discussed in the "Net Investment Hedges" section above. There were no net investment hedges terminated in 2024.
Undesignated Derivative Instruments
We use forward contracts to hedge earnings from the effects of foreign exchange relating to certain of our intra-company and third-party receivables and payables denominated in a foreign currency. These derivative instruments are generally not formally designated as hedges and the terms of these instruments generally do not exceed one month.
In March 2025, as discussed in the "Net Investment Hedges" section above, we entered into forward contracts with a notional amount of $655 million to hedge the repayment of our Euro-denominated senior notes due May 2025. These forward contracts matured in May 2025. The total notional amount of undesignated derivative instruments was $323 million and $389 million as of December 31, 2025 and 2024, respectively.
Gains and Losses on Hedging Instruments and Undesignated Derivative Instruments
The following tables summarize the gains and losses on our hedging instruments and the classification of those gains and losses within our consolidated financial statements for the years ended December 31, 2025, 2024 and 2023.
| (in millions) | Gain (loss) recognized in OCI | Location of gain (loss) in income statement | Gain (loss) reclassified from AOCI into income | ||||||||||||||||||||
| 2025 | 2024 | 2023 | 2025 | 2024 | 2023 | ||||||||||||||||||
| Cash flow hedges | |||||||||||||||||||||||
| Interest rate contracts | $ | — | $ | — | $ | — | Interest expense, net | $ | (6) | $ | (6) | $ | (6) | ||||||||||
| Foreign exchange contracts | (1) | 17 | 15 | Cost of sales | 6 | 8 | 15 | ||||||||||||||||
| Fair value hedges | |||||||||||||||||||||||
| Foreign exchange contracts | — | (3) | (4) | Other (income) expense, net | — | (5) | (3) | ||||||||||||||||
| Net investment hedges | (127) | 87 | (58) | Other (income) expense, net | — | — | — | ||||||||||||||||
| Total | $ | (128) | $ | 101 | $ | (47) | $ | — | $ | (3) | $ | 6 |
| Location of gain (loss) in income statement | Gain (loss) recognized in income | ||||||||||||||||
| (in millions) | 2025 | 2024 | 2023 | ||||||||||||||
| Fair value hedges | |||||||||||||||||
| Foreign exchange contracts | Other (income) expense, net | $ | — | $ | (24) | $ | 38 | ||||||||||
| Undesignated derivative instruments | |||||||||||||||||
| Foreign exchange contracts | Other (income) expense, net | 30 | (13) | 2 | |||||||||||||
| Total | $ | 30 | $ | (37) | $ | 40 |
The following table summarizes net-of-tax activity in AOCI, a component of stockholders’ equity, related to our cash flow hedges.
| as of and for the year ended December 31 (in millions) | 2025 | 2024 | 2023 | ||||||||
| Accumulated other comprehensive income (loss) balance at beginning of year | $ | (108) | $ | (120) | $ | (119) | |||||
| (Loss) gain in fair value of derivatives during the year | (2) | 10 | 5 | ||||||||
| Amount reclassified to earnings during the year | — | 2 | (6) | ||||||||
| Accumulated other comprehensive income (loss) balance at end of year | $ | (110) | $ | (108) | $ | (120) |
As of December 31, 2025, $4 million of deferred, net after-tax losses on derivative instruments included in AOCI are expected to be recognized in earnings during the next 12 months, coinciding with when the hedged items are expected to impact earnings.
Derivative Assets and Liabilities
The following table summarizes the classification and fair values of derivative instruments reported in the consolidated balance sheet as of December 31, 2025.
| Derivatives in liability positions | |||||||||||||||||
| (in millions) | Balance sheet location | Fair value | |||||||||||||||
| Derivative instruments designated as hedges | |||||||||||||||||
| Net investment hedges | Long-term debt and finance lease obligations, less current portion | $ | 834 | ||||||||||||||
| Undesignated derivative instruments | |||||||||||||||||
| Foreign exchange contracts | Accrued expenses and other current liabilities | 1 | |||||||||||||||
| Total derivative instruments | $ | 835 |
The following table summarizes the classification and fair values of derivative instruments reported in the consolidated balance sheet as of December 31, 2024.
| Derivatives in asset positions | Derivatives in liability positions | ||||||||||||||||
| (in millions) | Balance sheet location | Fair value | Balance sheet location | Fair value | |||||||||||||
| Derivative instruments designated as hedges | |||||||||||||||||
| Foreign exchange contracts | Prepaid expenses and other current assets | $ | 6 | Accrued expenses and other current liabilities | $ | — | |||||||||||
| Net investment hedges | Current maturities of long-term debt and finance lease obligations | 618 | |||||||||||||||
| Net investment hedges | Long-term debt and finance lease obligations, less current portion | 727 | |||||||||||||||
| Undesignated derivative instruments | |||||||||||||||||
| Foreign exchange contracts | Prepaid expenses and other current assets | 1 | Accrued expenses and other current liabilities | 2 | |||||||||||||
| Total derivative instruments | $ | 7 | $ | 1,347 |
While some of our derivatives are subject to master netting arrangements, we present our assets and liabilities related to derivative instruments on a gross basis within the consolidated balance sheets. Additionally, we are not required to post collateral for any of our outstanding derivatives.
The following table provides information on our derivative positions as if they were presented on a net basis, allowing for the right of offset by counterparty.
| December 31, 2025 | December 31, 2024 | ||||||||||||||||
| (in millions) | Asset | Liability | Asset | Liability | |||||||||||||
| Gross amounts recognized in the consolidated balance sheets | $ | — | $ | 1 | $ | 7 | $ | 2 | |||||||||
| Gross amount subject to offset in master netting arrangements not offset in the consolidated balance sheets | — | — | (1) | (1) | |||||||||||||
| Total | $ | — | $ | 1 | $ | 6 | $ | 1 |
The following table presents the amounts recorded on the consolidated balance sheets related to fair value hedges:
| Carrying amount of hedged items | Cumulative amount of fair value hedging adjustment included in the carrying amount of the hedged items (a) | ||||||||||||||||
| (in millions) | Balance as of December 31, 2025 | Balance as of December 31, 2024 | Balance as of December 31, 2025 | Balance as of December 31, 2024 | |||||||||||||
| Long-term debt | $ | 99 | $ | 99 | $ | 2 | $ | 2 |
(a) These fair value hedges were terminated in 2018 and earlier periods.
NOTE 16
| FAIR VALUE MEASUREMENTS |
The fair value hierarchy consists of the following three levels:
-
Level 1 — Quoted prices in active markets that we have the ability to access for identical assets or liabilities;
-
Level 2 — Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuations in which all significant inputs are observable in the market; and
-
Level 3 — Valuations using significant inputs that are unobservable in the market and include the use of judgment by management about the assumptions market participants would use in pricing the asset or liability.
The following tables summarize our assets and liabilities that are measured at fair value on a recurring basis.
| Basis of fair value measurement | ||||||||||||||
| (in millions) | Balance as of December 31, 2025 | Quoted prices in active markets for identical assets (Level 1) | Significant other observable inputs (Level 2) | Significant unobservable inputs (Level 3) | ||||||||||
| Assets | ||||||||||||||
| Available-for-sale debt securities | $ | 1 | $ | — | $ | — | $ | 1 | ||||||
| Marketable equity securities | 15 | 15 | — | — | ||||||||||
| Total | $ | 16 | $ | 15 | $ | — | $ | 1 | ||||||
| Liabilities | ||||||||||||||
| Foreign exchange contracts | $ | 1 | $ | — | $ | 1 | $ | — | ||||||
| Contingent payments related to acquisitions | 7 | — | — | 7 | ||||||||||
| Indemnifications related to Kidney Care separation1 | 53 | — | — | 53 | ||||||||||
| Total | $ | 61 | $ | — | $ | 1 | $ | 60 |
1See Note 2 for additional information.
| Basis of fair value measurement | |||||||||||||||||
| (in millions) | Balance as of December 31, 2024 | Quoted prices in active markets for identical assets (Level 1) | Significant other observable inputs (Level 2) | Significant unobservable inputs (Level 3) | |||||||||||||
| Assets | |||||||||||||||||
| Foreign exchange contracts | $ | 7 | $ | — | $ | 7 | $ | — | |||||||||
| Available-for-sale debt securities | 1 | — | — | 1 | |||||||||||||
| Marketable equity securities | 13 | 13 | — | — | |||||||||||||
| Total | $ | 21 | $ | 13 | $ | 7 | $ | 1 | |||||||||
| Liabilities | |||||||||||||||||
| Foreign exchange contracts | $ | 2 | $ | — | $ | 2 | $ | — | |||||||||
| Contingent payments related to acquisitions | 12 | — | — | 12 | |||||||||||||
| Total | $ | 14 | $ | — | $ | 2 | $ | 12 |
As of December 31, 2025 and 2024, cash and cash equivalents of $1.97 billion and $1.76 billion, respectively, included money market and other short-term funds of approximately $832 million and $583 million, respectively, that are considered Level 2 in the fair value hierarchy.
For assets that are measured using quoted prices in active markets, the fair value is the published market price per unit multiplied by the number of units held, without consideration of transaction costs. A majority of the derivatives entered into by us are valued using internal valuation techniques as no quoted market prices exist for such instruments. The principal techniques used to value these instruments are discounted cash flow and Black-Scholes models. The key inputs, which are considered observable and vary depending on the type of derivative, include contractual terms, interest rate yield curves, foreign exchange rates and volatility.
Available-for-sale debt securities, which consist of convertible debt and convertible redeemable preferred shares issued by nonpublic entities, are measured using discounted cash flow and option pricing models. Those available-for-sale debt securities are classified as Level 3 fair value measurements when there are no observable transactions near the balance sheet date due to the lack of observable data over certain fair value inputs such as equity volatility. The fair values of available-for-sale debt securities increase when interest rates decrease, equity volatility increases, or the fair values of the equity shares underlying the conversion options increase.
Contingent payments related to acquisitions, which consist of milestone payments and sales-based payments, are valued using discounted cash flow techniques incorporating management's expectations of future outcomes. The fair value of milestone payments increases as the estimated probability of payment increases or the expected timing of payments is accelerated. The fair value of sales-based payments is based upon probability-weighted future revenue estimates, and increases as revenue estimates increase, probability weighting of higher revenue scenarios increases or the expected timing of payment is accelerated.
In addition, we have contingent payments related to the Kidney Care separation, which consist of reimbursements to Vantive for certain indemnifications contemplated in the EPA. For additional information on these items see Note 2.
The following table is a reconciliation of recurring fair value measurements that use significant unobservable inputs (Level 3), which consist of indemnifications related to the Kidney Care separation, contingent payments related to acquisitions and available-for-sale debt securities.
| 2025 | 2024 | |||||||||||||||||||
| as of and for the years ended December 31 (in millions) | Indemnifications related to Kidney Care separation | Contingent payments related to acquisitions | Available-for-sale debt securities | Contingent payments related to acquisitions | Available-for-sale debt securities | |||||||||||||||
| Fair value at beginning of period | $ | — | $ | 12 | $ | 1 | $ | 14 | $ | 1 | ||||||||||
| Additions | 67 | — | — | — | — | |||||||||||||||
| Change in fair value recognized in earnings | — | 2 | — | — | — | |||||||||||||||
| Payments | (14) | (5) | — | (2) | — | |||||||||||||||
| Transfers out of Level 3 | — | (2) | — | — | — | |||||||||||||||
| Fair value at end of period | $ | 53 | $ | 7 | $ | 1 | $ | 12 | $ | 1 |
Financial Instruments Not Measured at Fair Value
In addition to the financial instruments that we are required to recognize at fair value in the consolidated balance sheets, we have certain financial instruments that are recognized at amortized cost or some basis other than fair value. For these financial instruments, the following table provides the values recognized in the consolidated balance sheets and the estimated fair values.
| Book values | Fair values(a) | ||||||||||||||||
| as of December 31 (in millions) | 2025 | 2024 | 2025 | 2024 | |||||||||||||
| Liabilities | |||||||||||||||||
| Short-term debt | $ | — | $ | 2,126 | $ | — | $ | 2,126 | |||||||||
| Current maturities of long-term debt | — | 626 | — | 619 | |||||||||||||
| Long-term debt | 9,436 | 10,374 | 8,714 | 9,295 |
(a) These fair value amounts are classified as Level 2 within the fair value hierarchy as they are estimated based on observable inputs.
The carrying value of short-term debt approximates its fair value due to the short-term maturities of the obligations. The estimated fair values of current and long-term debt were computed by multiplying price by the notional amount of the respective debt instruments. Price is calculated using the stated terms of the respective debt instrument and yield curves commensurate with our credit risk. The carrying values of other financial instruments not presented in the table above, such as accounts receivable and accounts payable, approximate their fair values due to the short-term maturities of most of those assets and liabilities.
The carrying values of equity investments without readily determinable fair values that we measure at cost, less impairment were $50 million and $37 million at December 31, 2025 and 2024, respectively. When applicable, we also adjust the measurement of such equity investments for observable prices in orderly transactions for an identical or similar investment of the same issuer. These investments are included in Other non-current assets on our consolidated balance sheets.
NOTE 17
| SEGMENT AND GEOGRAPHIC INFORMATION |
Our business is comprised of three reportable segments: Medical Products & Therapies, Healthcare Systems & Technologies, and Pharmaceuticals. The Medical Products & Therapies segment includes sales of our sterile IV solutions, infusion systems, administration sets, parenteral nutrition therapies and surgical hemostat, sealant and adhesion prevention products. The Healthcare Systems & Technologies segment includes sales of our connected care solutions and collaboration tools, including smart bed systems, patient monitoring systems and diagnostic technologies, respiratory health devices and advanced equipment for the surgical space, including operating room integration technologies, precision positioning devices, and other accessories. The Pharmaceuticals segment includes sales of specialty injectable pharmaceuticals, inhaled anesthetics and drug compounding. Other sales not allocated to a segment primarily include sales to Vantive, pursuant to the Kidney Care MSA, and sales of products and services provided directly through certain of our manufacturing facilities.
Disaggregation of Net Sales
The following tables present our U.S. and International disaggregated net sales.
| for the years ended December 31 | 2025 | 2024 | 2023 | ||||||||||||||||||||||||||||||||
| (in millions) | U.S. | International | Total | U.S. | International | Total | U.S. | International | Total | ||||||||||||||||||||||||||
| Infusion Therapies & Technologies | $ | 2,236 | $ | 1,865 | $ | 4,101 | $ | 2,279 | $ | 1,824 | $ | 4,103 | $ | 2,227 | $ | 1,733 | $ | 3,960 | |||||||||||||||||
| Advanced Surgery | 648 | 550 | 1,198 | 603 | 501 | 1,104 | 582 | 469 | 1,051 | ||||||||||||||||||||||||||
| Medical Products & Therapies | 2,884 | 2,415 | 5,299 | 2,882 | 2,325 | 5,207 | 2,809 | 2,202 | 5,011 | ||||||||||||||||||||||||||
| Care & Connectivity Solutions | 1,372 | 539 | 1,911 | 1,311 | 503 | 1,814 | 1,263 | 537 | 1,800 | ||||||||||||||||||||||||||
| Front Line Care | 871 | 289 | 1,160 | 843 | 294 | 1,137 | 905 | 308 | 1,213 | ||||||||||||||||||||||||||
| Healthcare Systems & Technologies | 2,243 | 828 | 3,071 | 2,154 | 797 | 2,951 | 2,168 | 845 | 3,013 | ||||||||||||||||||||||||||
| Injectables & Anesthesia | 749 | 603 | 1,352 | 780 | 593 | 1,373 | 759 | 588 | 1,347 | ||||||||||||||||||||||||||
| Drug Compounding | — | 1,141 | 1,141 | — | 1,038 | 1,038 | — | 902 | 902 | ||||||||||||||||||||||||||
| Pharmaceuticals | 749 | 1,744 | 2,493 | 780 | 1,631 | 2,411 | 759 | 1,490 | 2,249 | ||||||||||||||||||||||||||
| Other | 246 | 135 | 381 | 34 | 33 | 67 | 66 | 21 | 87 | ||||||||||||||||||||||||||
| Total Baxter | $ | 6,122 | $ | 5,122 | $ | 11,244 | $ | 5,850 | $ | 4,786 | $ | 10,636 | $ | 5,802 | $ | 4,558 | $ | 10,360 |
Geographic Information
Our net sales are attributed to the following geographic regions based on the location of the customer.
| for the years ended December 31 (in millions) | 2025 | 2024 | 2023 | ||||||||
| Net sales: | |||||||||||
| United States | $ | 6,122 | $ | 5,850 | $ | 5,802 | |||||
| Emerging markets1 | 1,394 | 1,350 | 1,343 | ||||||||
| Rest of world 2 | 3,728 | 3,436 | 3,215 | ||||||||
| Total net sales | $ | 11,244 | $ | 10,636 | $ | 10,360 |
1 Emerging markets include sales from our operations in Eastern Europe, the Middle East, Africa, Latin America and Asia (except for Japan).
2 Rest of world includes sales from our operations in Western Europe, Canada, Japan, Australia and New Zealand.
Our property, plant and equipment and operating lease right-of-use assets, net are attributed to the following geographic regions.
| as of December 31 (in millions) | 2025 | 2024 | ||||||
| Property, plant and equipment and operating lease right-of-use assets, net: | ||||||||
| United States | $ | 1,609 | $ | 1,654 | ||||
| Emerging markets | 817 | 793 | ||||||
| Rest of world | 760 | 729 | ||||||
| Total property, plant and equipment and operating lease right-of-use assets, net | $ | 3,186 | $ | 3,176 |
Segment Information
In the first quarter of 2025, in conjunction with the change in our Chief Executive Officer, we determined that our chief operating decision maker (CODM) was comprised of our Chair and Interim Chief Executive Officer, and our former Executive Vice President, Chief Operating Officer and Interim Group President, Medial Products & Therapies. In the third quarter of 2025, in conjunction with the appointment of Andrew Hider as our President and Chief Executive Officer, we determined that our President and Chief Executive Officer is now the CODM, who reviews the financial information presented for purposes of evaluating the performance of our segments and to make resource allocation decisions. The change in CODM during both the first and third quarter of 2025 did not result in a change in our segments.
Segment operating income is the measure of segment profitability and represents income before income taxes, interest and other non-operating income or expense, unallocated corporate costs, intangible asset amortization and other special items. Special items, which are presented below in our reconciliations of segment operating income to income (loss) from continuing operations before income taxes, are excluded from segment operating income because they are highly variable, difficult to predict and of a size that may substantially impact our reported results of operations for the period.
Corporate costs, inclusive of global functional support costs, overhead costs and other shared costs that benefit our segments are allocated to those segments. Corporate costs that are not allocated to our segments, as well as any differences between actual corporate costs and the amounts allocated to our segments, are presented as unallocated corporate costs.
Segment results include net sales, cost of sales, SG&A, R&D expenses, corporate costs that had previously been allocated to our former Kidney Care segment which did not convey in the related sale, and other segment items which are directly allocated to each segment. Billings by us under the Kidney Care TSA are included in other segment items as further described in Note 2. Beginning in 2024 annual reporting, we adopted ASU 2023-07 retrospectively. The following tables present our segment information of net sales, significant expenses and operating income during the periods presented.
| For the year ended December 31, 2025 | ||||||||||||||
| (in millions) | Medical Products & Therapies | Healthcare Systems & Technologies | Pharmaceuticals | |||||||||||
| Net sales | $ | 5,299 | $ | 3,071 | $ | 2,493 | ||||||||
| Cost of sales | 3,065 | 1,603 | 1,777 | |||||||||||
| Selling, general and administrative expenses | 1,162 | 873 | 429 | |||||||||||
| Research and development expenses | 209 | 190 | 101 | |||||||||||
| Other segment items | (107) | (36) | (36) | |||||||||||
| Segment operating income | $ | 970 | $ | 441 | $ | 222 |
| For the year ended December 31, 2024 | ||||||||||||||
| (in millions) | Medical Products & Therapies | Healthcare Systems & Technologies | Pharmaceuticals | |||||||||||
| Net sales | $ | 5,207 | $ | 2,951 | $ | 2,411 | ||||||||
| Cost of sales | 2,867 | 1,464 | 1,612 | |||||||||||
| Selling, general and administrative expenses | 1,176 | 836 | 396 | |||||||||||
| Research and development expenses | 216 | 184 | 91 | |||||||||||
| Other segment items | (2) | (1) | (1) | |||||||||||
| Segment operating income | $ | 950 | $ | 468 | $ | 313 |
| For the year ended December 31, 2023 | ||||||||||||||
| (in millions) | Medical Products & Therapies | Healthcare Systems & Technologies | Pharmaceuticals | |||||||||||
| Net sales | $ | 5,011 | $ | 3,013 | $ | 2,249 | ||||||||
| Cost of sales | 2,720 | 1,532 | 1,400 | |||||||||||
| Selling, general and administrative expenses | 1,097 | 822 | 363 | |||||||||||
| Research and development expenses | 222 | 176 | 86 | |||||||||||
| Other segment items | — | — | (1) | |||||||||||
| Segment operating income | $ | 972 | $ | 483 | $ | 401 |
The following table presents our reportable segment operating income and reconciliations of reportable segment operating income to income (loss) from continuing operations before income taxes.
| for the years ended December 31 (in millions) | 2025 | 2024 | 2023 | ||||||||
| Medical Products & Therapies | $ | 970 | $ | 950 | $ | 972 | |||||
| Healthcare Systems & Technologies | 441 | 468 | 483 | ||||||||
| Pharmaceuticals | 222 | 313 | 401 | ||||||||
| Total reportable segment operating income | 1,633 | 1,731 | 1,856 | ||||||||
| Other | 43 | 18 | 18 | ||||||||
| Unallocated corporate costs | (86) | (275) | (355) | ||||||||
| Intangible asset amortization expense | (598) | (625) | (590) | ||||||||
| Business optimization items | (178) | (162) | (174) | ||||||||
| European Medical Devices Regulation | (21) | (33) | (41) | ||||||||
| Indefinite-lived asset impairments | (290) | (50) | — | ||||||||
| Separation-related costs | (58) | — | — | ||||||||
| Legal matters | (11) | (17) | (7) | ||||||||
| Acquisition and integration items | (27) | (23) | — | ||||||||
| Product-related reserves | (113) | (15) | — | ||||||||
| Hurricane Helene Costs | (133) | (110) | — | ||||||||
| Goodwill impairments | (485) | (425) | — | ||||||||
| Gain on sale of long-lived asset | 16 | — | — | ||||||||
| Total operating income (loss) | (308) | 14 | 707 | ||||||||
| Interest expense, net | 238 | 341 | 439 | ||||||||
| Other (income) expense, net | (41) | (38) | 26 | ||||||||
| Income (loss) from continuing operations before income taxes | $ | (505) | $ | (289) | $ | 242 |
Additional financial information for our segments is as follows:
| for the years ended December 31 (in millions) | 2025 | 2024 | 2023 | |||||||||||
| Depreciation Expense1: | ||||||||||||||
| Medical Products & Therapies | $ | 206 | $ | 201 | $ | 232 | ||||||||
| Healthcare Systems & Technologies | 112 | 109 | 108 | |||||||||||
| Pharmaceuticals | 65 | 62 | 54 | |||||||||||
| Total depreciation expense | $ | 383 | $ | 372 | $ | 394 |
1 Depreciation expense related to Corporate property, plant and equipment has been fully allocated to our segments and those allocations are reflected in the depreciation amounts presented herein.
Our CODM does not receive asset or capital expenditure information by segment and, accordingly, we do not report that information for our reportable segments.
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of Baxter International Inc.
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Baxter International Inc. and its subsidiaries (the "Company") as of December 31, 2025 and 2024, and the related consolidated statements of income (loss), of comprehensive income (loss), of changes in equity and of cash flows for each of the three years in the period ended December 31, 2025, including the related notes (collectively referred to as the "consolidated financial statements"). We also have audited the Company's internal control over financial reporting as of December 31, 2025, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2025 and 2024, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2025 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2025, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Assessment of Internal Control Over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that (i) relate to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Goodwill Impairment Assessment – Front Line Care Reporting Unit
As described in Notes 1 and 4 to the consolidated financial statements, the Company’s consolidated goodwill balance as of December 31, 2025 was $4,929 million, and the goodwill associated with the Front Line Care reporting unit was $1,520 million. Management performs an impairment test in the fourth quarter of each year, or whenever events or changes in circumstances indicate that the fair value of the reporting unit is more-likely-than-not below its carrying amount. If management determines that it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount, or management does not elect the option to perform an initial qualitative assessment, management performs a quantitative goodwill impairment test. In the quantitative impairment test, management calculates the estimated fair value of the reporting unit. If the carrying amount of the reporting unit exceeds the estimated fair value, an impairment charge is recorded. The fair values of the Company’s reporting units are generally determined based on a discounted cash flow model (an income approach) and earnings multiples (a market approach) based on the guideline public company method. Significant assumptions in reporting unit fair value measurements generally include revenue growth rates, forecasted earnings before interest, taxes, depreciation, and amortization (EBITDA) margins, discount rates, terminal growth rates and earnings multiples. In connection with the annual goodwill impairment assessment, management recorded a $485 million goodwill impairment related to the Front Line Care reporting unit.
The principal considerations for our determination that performing procedures relating to the goodwill impairment assessment of the Front Line Care reporting unit is a critical audit matter are (i) the significant judgment by management when developing the fair value estimate of the reporting unit; (ii) a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating management’s significant assumptions related to the revenue growth rates, forecasted EBITDA margins, discount rate, and terminal growth rate used in the discounted cash flow model and earnings multiples used in the earnings multiples approach; and (iii) the audit effort involved the use of professionals with specialized skill and knowledge.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management’s goodwill impairment assessment, including controls over the valuation of the Front Line Care reporting unit. These procedures also included, among others (i) testing management’s process for developing the fair value estimate of the Front Line Care reporting unit; (ii) evaluating the appropriateness of the discounted cash flow model and the earnings multiples approach used by management; (iii) testing the completeness and accuracy of underlying data used in the discounted cash flow model and the earnings multiples approach; and (iv) evaluating the reasonableness of the significant assumptions used by management related to the revenue growth rates, forecasted EBITDA margins, discount rate, terminal growth rate and earnings multiples. Evaluating management’s assumptions related to the revenue growth rates and forecasted EBITDA margins involved evaluating whether the assumptions used by management were reasonable considering (i) the current and past performance of the Front Line Care reporting unit; (ii) the consistency with external market and industry data; and (iii) whether the assumptions were consistent with evidence obtained in other areas of the audit. Professionals
with specialized skill and knowledge were used to assist in evaluating (i) the appropriateness of the discounted cash flow model and the earnings multiples approach and (ii) the reasonableness of the discount rate, terminal growth rate and earnings multiples assumptions.
Indefinite-Lived Intangible Asset Impairment Assessment - Welch Allyn Trade Name
As described in Notes 1 and 4 to the consolidated financial statements, the Company’s consolidated trade names indefinite-lived intangible asset balance as of December 31, 2025 was $390 million. Indefinite-lived intangible assets are subject to an impairment review by management annually in the fourth quarter and whenever indicators of impairment exist. If management determines that it is more-likely-than-not that an indefinite-lived intangible asset is impaired, or if management elects not to perform an initial qualitative assessment, management then performs the quantitative impairment test by comparing the fair value of the indefinite-lived intangible asset with its carrying amount. If the carrying amount exceeds the fair value of the indefinite-lived intangible asset, management writes the carrying amount down to the fair value. The fair value of the trade name intangible asset was determined by management using the relief from royalty method. Significant assumptions used by management in the determination of fair value of the trade name intangible assets included revenue growth rates, discount rate, and royalty rate. In connection with the annual impairment assessment, management recognized a pre-tax impairment charge of $290 million to reduce the carrying amount of the Welch Allyn trade name, an indefinite-lived intangible asset, to its estimated fair value.
The principal considerations for our determination that performing procedures relating to the indefinite-lived intangible asset impairment assessment for the Welch Allyn trade name is a critical audit matter are (i) the significant judgment by management when developing the fair value estimate of the Welch Allyn trade name; (ii) a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating management’s significant assumptions related to the revenue growth rates, discount rate, and royalty rate; and (iii) the audit effort involved the use of professionals with specialized skill and knowledge.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management’s indefinite-lived intangible asset impairment assessment, including controls over the valuation of the Company’s Welch Allyn trade name. These procedures also included, among others (i) testing management’s process for developing the fair value estimate of the Welch Allyn trade name; (ii) evaluating the appropriateness of the relief from royalty valuation model used by management; (iii) testing the completeness and accuracy of underlying data used in the relief from royalty model; and (iv) evaluating the reasonableness of the significant assumptions used by management related to the revenue growth rates, discount rate, and royalty rate. Evaluating management’s assumption related to the revenue growth rates involved evaluating whether the assumption used by management was reasonable considering (i) the current and past performance of the products supported by the trade name, (ii) the consistency with external market and industry data, and (iii) whether the assumption was consistent with evidence obtained in other areas of the audit. Professionals with specialized skill and knowledge were used to assist in evaluating (i) the appropriateness of the relief from royalty model and (ii) the reasonableness of the discount rate, and royalty rate assumptions.
/s/ PricewaterhouseCoopers LLP
Chicago, Illinois
February 12, 2026
We have served as the Company’s auditor since 1985.
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