BAXTER INTERNATIONAL INC

Previous wording

Refer to our Annual Report on Form 10-K for the year ended December 31, 2023 (2023 Annual Report) for management’s discussion and analysis of our financial condition and results of operations. The following is management’s discussion and analysis of our financial condition and results of operations for the three and nine months ended September 30, 2024 and 2023.

Current wording

Refer to our Annual Report on Form 10-K for the year ended December 31, 2024 (2024 Annual Report) for management’s discussion and analysis of our financial condition and results of operations. The following is management’s discussion and analysis of our financial condition and results of operations for the three months ended March 31, 2025 and 2024.

Previous wording

In mid-2022, our Board of Directors authorized a strategic review of our business portfolio, with the goal of increasing stockholder value. As part of that review process, we identified and evaluated a range of potential strategic actions, including opportunities for sales and other separation transactions. In January 2023, following the completion of that review, we announced a number of planned strategic actions, as discussed below, which are intended to enhance our operational effectiveness, accelerate innovation and drive additional stockholder value.

Current wording

In mid-2022, our Board of Directors authorized a strategic review of our business portfolio, with the goal of increasing stockholder value. As part of that review process, we identified and evaluated a range of potential strategic actions, including opportunities for sales and other separation transactions. In January 2023, following the completion of that review, we announced a number of planned strategic actions, as discussed below, which were intended to enhance our operational effectiveness, accelerate innovation and drive additional stockholder value. We completed the last of these strategic actions on January 31, 2025 in connection with the sale of our Kidney Care business.

Previous wording

Pending Sale of Kidney Care Business

Current wording

Sale of Kidney Care Business

Previous wording

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 for an aggregate purchase price of $3.80 billion. After giving effect to certain closing adjustments, we currently expect to receive approximately $3.50 billion in cash with net after-tax proceeds currently estimated to be in the range of $3.15 billion to $3.25 billion. The transaction is currently expected to close in late 2024 or early 2025, subject to the receipt of customary regulatory approvals and satisfaction of other closing conditions. We determined that our Kidney Care business met the criteria to be classified as held-for-sale in August 2024, and we also concluded that it met the conditions to be reported as a discontinued operation at that time. Accordingly, our Kidney Care business is reported in discontinued operations in the accompanying condensed consolidated financial statements, and our prior period results have been adjusted to reflect discontinued operations presentation.

Current wording

The financial position, results of operations and cash flows of our Kidney Care business, including our gain from the sale of that business and the related cash proceeds received, are reported as discontinued operations in the accompanying condensed consolidated financial statements, and our prior period results have been adjusted to reflect discontinued operations.

Previous wording

Implementation of New Operating Model and Resulting Segment Change

Current wording

Implementation of Operating Model and Resulting Segment Change

Previous wording

In the third quarter of 2023, we completed the implementation of a new operating model intended to simplify and streamline our operations and better align our manufacturing and supply chain to our commercial activities. Under this new operating model, our business is currently comprised of four segments: Medical Products and Therapies, Healthcare Systems and Technologies, Pharmaceuticals, and Kidney Care (which we are planning to divest through the pending sale and accordingly, the results are reported in discontinued operations as discussed in Note 1 in Item 1 of this Quarterly Report on Form 10-Q). Our segments were changed during the third quarter of 2023 to align with our new operating model. See Note 16 in Item 1 of this Quarterly Report on Form 10-Q for additional information. As discussed above, we have entered into the EPA to sell our Kidney Care business in a transaction that is currently expected to close in late 2024 or early 2025, subject to the receipt of customary regulatory approvals and satisfaction of other closing conditions.

Current wording

In the third quarter of 2023, we completed the implementation of an operating model intended to simplify and streamline our operations and better align our manufacturing and supply chain to our commercial activities. Under this operating model, our business is currently comprised of three reportable segments: Medical Products & Therapies, Healthcare Systems & Technologies, and Pharmaceuticals. Our segments were changed during the third quarter of 2023 to align with our operating model.

Previous wording

On September 29, 2023, we completed the sale of our BioPharma Solutions (BPS) business and received cash proceeds of $3.96 billion from that transaction. The results of operations and cash flows of our BPS business for the three and nine months ended September 30, 2023 are reported as discontinued operations in the accompanying condensed consolidated financial statements. We used substantially all of the after-tax proceeds from this transaction to repay certain of our debt obligations, including $514 million of commercial paper borrowings and $2.28 billion of long-term debt that we repaid during the fourth quarter of 2023, as well as €750 million of senior notes that we repaid during the second quarter of 2024. See Note 2 in Item 1 of this Quarterly Report on Form 10-Q for additional information.

Current wording

On September 29, 2023, we completed the sale of our BioPharma Solutions (BPS) business and received cash proceeds of $3.96 billion from that transaction. We used substantially all of the after-tax proceeds from this transaction to repay certain of our debt obligations, including $514 million of commercial paper borrowings and $2.28 billion of long-term debt that we repaid during the fourth quarter of 2023, as well as €750 million of senior notes that we repaid during the second quarter of 2024.

Previous wording

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. We are actively working with customers, regulators and other stakeholders to manage inventory and minimize disruption to patient care as we work to fully restore our North Cove manufacturing operations. Given the temporary disruptions to our facility as a result of the storm, we currently expect net sales in the fourth quarter to be negatively impacted by approximately $200 million, including an estimated $40 million to $50 million impact on Kidney Care sales and an estimated $150 million to $160 million impact on Medical Products & Therapies sales. We also expect to incur an estimated $350 million to $400 million of charges in the fourth quarter primarily consisting of remediation costs, air freight (as we transfer product across our global network in the interest of increasing the availability of intravenous and peritoneal dialysis solutions for our customers while we work to fully remediate our North Cove facility) and other charges, which we expect to be partially offset by insurance recoveries. Refer to Footnote 1 for further discussion of insurance recoveries related to Hurricane Helene.

Current wording

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, North Carolina and disrupted operations at that facility. While we continue to increase allocation levels across key impacted product groups, the facility was fully operational by the end of the first quarter of 2025. See Note 1 in Item 1 of this Quarterly Report on Form 10-Q for additional information.

Previous wording

In recent years, we have experienced significant challenges to our global supply chain, including production delays and interruptions, increased costs and shortages of raw materials and component parts (including resins and electromechanical devices), higher transportation costs, adverse impacts from significant weather events (including Hurricane Helene and the flooding of our North Cove facility), elevated inflation levels and interest rates, disruptions to certain ports of call and access to shipping ports around the world, the war in Ukraine, the conflict in the Middle East, tensions amongst China, Taiwan, and the U.S., and other geopolitical events. While we have seen improvements in the availability of component parts and improved pricing in raw materials and on transportation costs, some of these challenges (including certain of those set forth above as we work to fully remediate our North Cove facility) are expected to have a negative impact on our results of operations in the future.

Current wording

We have experienced significant challenges to our global supply chain, including production delays and interruptions, increased costs and shortages of raw materials and component parts (including resins and electromechanical devices), higher transportation costs, adverse impacts from significant weather events (including Hurricane Helene, which resulted in the flooding of our North Cove facility), elevated inflation levels and interest rates, disruptions to certain ports of call and access to shipping ports around the world, the war in Ukraine, the conflict in the Middle East, and other geopolitical events. While we have seen improvements in the availability of component parts and improved pricing in raw materials and on transportation costs, some of these challenges are expected to have a negative impact on our results of operations in the future. In addition, recent announcements regarding changes in U.S. trade policies and practices, including the implementation of global tariffs and proposed further tariffs (including potential pharmaceutical tariffs), and responses from other jurisdictions, have significantly affected financial markets and economic conditions. While we are in the process of implementing select offsets for 2025 and working to identify additional mitigation opportunities in 2025 and beyond, we currently expect that our results will be adversely affected (including as a result of a failure to achieve the anticipated offsets or an inability to identify additional mitigating actions). Additionally, continued global macroeconomic uncertainty, including in trade policies and practices, elevated tariffs and in operational and policy changes in the governments of the U.S. and other countries, could contribute to further market volatility, deteriorating or prolonged weakened economic conditions and decreased hospital capital spending levels, all of which could adversely affect our business, results of operations or financial condition. Sole source supplier relationships may limit our ability to respond to these tariffs with alternative or lower cost raw materials or component parts.

Previous wording

Our results of operations are also affected by macroeconomic conditions and levels of business confidence. The war in Ukraine, the conflict in the Middle East, tensions amongst China, Taiwan, and the U.S., and the sanctions and other measures being imposed in response to these conflicts (and the potential for escalation of these conflicts) have increased the levels of economic and political uncertainty and we continue to closely monitor the developing situations. While we have substantially completed our wind down efforts related to our business in Russia, a significant escalation or expansion of economic disruption or the current scope of the war in Ukraine could have an adverse effect on our operations (including our supply chain) in the region.

Current wording

Our results of operations are also affected by macroeconomic conditions and levels of business confidence. The aforementioned tariffs and any retaliatory countermeasures, operational and policy changes in the governments of the U.S. and other countries, the war in Ukraine, the conflict in the Middle East, other geopolitical events (and the potential for escalation of these and other conflicts), and recent political changes to trade policies, have increased the levels of economic and political uncertainty and we continue to closely monitor the developing situations and the estimated impact on our business, results of operations, financial condition and cash flows. While we have substantially completed our wind down efforts related to our business in Russia, a significant escalation or expansion of economic disruption or the current scope of the war in Ukraine could have an adverse effect on our operations (including our supply chain) in the region.

Previous wording

The existence of high inflation rates in the United States and in many of the countries where we conduct business has resulted in, and may in the future result in, higher interest rates, shipping costs, labor costs, and other costs and expenses. Additionally, adverse changes in foreign currency exchange rates have increased, and could continue to increase, our costs of sourcing certain raw materials in some jurisdictions. We have experienced and may in the future experience inflationary increases in manufacturing costs and operating expenses and we may not be able to pass these cost increases on to our customers in a timely manner or at all, which could have a material adverse impact on our profitability and results of operations. Inflation and general macroeconomic factors have caused certain of our customers to reduce or delay orders for our products and services and could cause them to do so in the future, which could have a material adverse impact on our sales and results of operations.

Current wording

The existence of high inflation rates in the United States and in many of the countries where we conduct business has resulted in, and is likely in the future to result in, higher interest rates, shipping costs, labor costs, and other costs and expenses. Additionally, adverse changes in foreign currency exchange rates have increased, and could continue to increase, our costs of sourcing certain raw materials in some jurisdictions. We have experienced and are likely in the future to experience inflationary increases in manufacturing costs and operating expenses (including as a result of the aforementioned tariffs) and may be limited in our ability to pass these cost increases on to our customers in a timely manner or at all due to the longer term nature of our customer contracts and arrangements, which could have a material adverse impact on our profitability and results of operations. Inflation and general macroeconomic factors have caused certain of our customers to reduce or delay orders for our products and services and could cause them to do so in the future, which could have a material adverse impact on our sales and results of operations.

Previous wording

As a medical products company, our operations and many of the products manufactured or sold by us are subject to extensive regulation by numerous government agencies, both within and outside the United States. These regulations (as described in Item 1, Government Regulation, of our Annual Report on Form 10-K for the fiscal year ended December 31, 2023) require that we obtain specific approval from the Food and Drug Administration (FDA) or applicable non-U.S. regulatory authorities before we can market and sell most of our products in a particular country. Failure to obtain or maintain those approvals or clearances (including temporary importation authorizations) could have a material adverse impact on our business (including with respect to our ability to compete in the product markets in which we currently operate). Furthermore, the FDA in the United States, the European Medicines Agency in Europe, the China Food and Drug Administration in China, and other government agencies, inside and outside of the United States, administer requirements covering the testing, safety, effectiveness, manufacturing, labeling, promotion and advertising, pricing, distribution, and post-market surveillance of our products. Our failure to comply with these requirements may subject us to various actions, including warning letters, product recalls or seizures, monetary sanctions, injunctions to halt the manufacture and distribution of products, civil or criminal sanctions, refusal of a government to grant approvals or licenses, restrictions on operations or withdrawal of existing approvals and licenses, and may have a material adverse impact on our results of operations.

Current wording

As a medical products company, our operations and many of the products manufactured or sold by us are subject to extensive regulation by numerous government agencies, both within and outside the United States. These regulations (as described in Item 1, Government Regulation, of our Annual Report on Form 10-K for the fiscal year ended December 31, 2024) require that we obtain specific approval from the Food and Drug Administration (FDA) or applicable non-U.S. regulatory authorities before we can market and sell most of our products in a particular country. Failure to obtain or maintain those approvals or clearances (including temporary importation authorizations) could have a material adverse impact on our business (including with respect to our ability to compete in the product markets in which we currently operate). Furthermore, FDA in the United States, the European Medicines Agency in Europe, the China Food and Drug Administration in China, and other government agencies, inside and outside of the United States, administer requirements covering the testing, safety, effectiveness, manufacturing, labeling, promotion and advertising, pricing, distribution, and post-market surveillance of our products. Our failure to comply with these requirements may subject us to various actions, including warning letters, product recalls or seizures, monetary sanctions, injunctions to halt the manufacture and distribution of products, civil or criminal sanctions, refusal of a government to grant approvals or licenses, restrictions on operations or withdrawal of existing approvals and licenses, and may have a material adverse impact on our results of operations.

Previous wording

Our presentation of percentage changes in net sales at constant currency rates, which is computed using current period local currency sales at the prior period’s foreign exchange rates, is a non-GAAP financial measure. This measure provides information about growth (or declines) in our net sales as if foreign currency exchange rates had not changed between the prior period and the current period. We believe that the non-GAAP measure of percent change in net sales at constant currency rates, when used in conjunction with the U.S. GAAP measure of percent change in net sales at actual currency rates, may provide a more complete understanding and facilitate a fuller analysis of our results of operations, particularly in evaluating performance from one period to another.

Current wording

Our presentation of percentage changes in net sales at operational sales growth excludes the impact of the Kidney Care MSA sales not reflected in reportable segments, reflects the exit of IV solutions in China in our Infusion Therapies & Technologies division, in our Medical Products & Therapies reportable segment, and is calculated at constant currency rates. Constant currency rates are computed using current period local currency sales at the prior period’s foreign exchange rates. Operational sales growth is a non-GAAP financial measure. This measure provides information about growth (or declines) in our net sales as if the Kidney Care MSA and the exit of IV solutions in China had no impact on our sales and foreign currency exchange rates had not changed between the prior period and the current period. We believe that the non-GAAP measure of percent change in net sales at operational sales growth, when used in conjunction with the U.S. GAAP measure of percent change in net sales at actual rates, may provide a more complete understanding and facilitate a fuller analysis of our results of operations, particularly in evaluating performance from one period to another.

Previous wording

Net income attributable to Baxter stockholders for the three months ended September 30, 2024 was $140 million, or $0.27 per diluted share compared to $2.51 billion, or $4.93 per diluted share for the three months ended September 30, 2023. For the three months ended September 30, 2024, our results included special items that adversely impacted net income attributable to Baxter stockholders by $271 million, or $0.53 per diluted share. For the three months ended September 30, 2023, our results included special items which increased net income attributable to Baxter stockholders by $2.09 billion, or $4.11 per diluted share. Net income (loss) attributable to Baxter stockholders for the nine months ended September 30, 2024 as $(137) million, or $(0.27) per diluted share compared to $2.41 billion, or $4.76 per diluted share for the nine months ended September 30, 2023. For the nine months ended September 30, 2024, our results included special items that adversely impacted net income attributable to Baxter stockholders by $1.22 billion, or $2.40 per diluted share. For the nine months ended September 30, 2023, our results included special items which increased net income attributable to Baxter stockholders by $1.36 billion, or $2.69 per diluted share.

Current wording

Net income (loss) attributable to Baxter stockholders for the three months ended March 31, 2025 was $126 million, or $0.25 per diluted share, compared to $37 million, or $0.07 per diluted share for the three months ended March 31, 2024. For the three months ended March 31, 2025, our results included special items that adversely impacted net income (loss) attributable to Baxter stockholders by $194 million, or $0.37 per diluted share. For the three months ended March 31, 2024, our results included special items that adversely impacted net income (loss) attributable to Baxter stockholders by $294 million, or $0.58 per diluted share.

Previous wording

Net income from continuing operations for the three months ended September 30, 2024 was $61 million, or $0.12 per diluted share compared to $37 million, or $0.07 per diluted share for the three months ended September 30, 2023. Net income from continuing operations for the three months ended September 30, 2024 included special items that adversely impacted net income by $191 million, or $0.37 per diluted share. Net income from continuing operations for the three months ended September 30, 2023 included special items that adversely impacted net income by $184 million, or $0.36 per diluted share. Net income (loss) from continuing operations for the nine months ended September 30, 2024 was $162 million, or $0.32 per diluted share compared to $(38) million, or $(0.08) per diluted share for the nine months ended September 30, 2023. For the nine months ended September 30, 2024, our results included special items that adversely impacted net income (loss) from continuing operations by $507 million, or $0.99 per diluted share. For the nine months ended September 30, 2023, our results included special items that impacted net income (loss) from continuing operations by $571 million, or $1.13 per diluted share.

Current wording

Net income (loss) from continuing operations for the three months ended March 31, 2025 was $64 million, or $0.13 per diluted share, compared to $6 million, or $0.01 per diluted share for the three months ended March 31, 2024. Net income (loss) from continuing operations for the three months ended March 31, 2025 included special items that adversely impacted net income (loss) by $221 million, or $0.42 per diluted share. Net income (loss) from continuing operations for the three months ended March 31, 2024 included special items that adversely impacted net income (loss) by $177 million, or $0.35 per diluted share.

Previous wording

Our Medical Products and Therapies segment includes sales of our sterile IV solutions, infusion systems, administration sets, parenteral nutrition therapies and surgical hemostat, sealant, and adhesion prevention products.

Current wording

Our 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.

Previous wording

Medical Product and Therapies segment net sales increased 7% in the third quarter and increased 5% in the first nine months of 2024, as compared to the prior year periods.

Current wording

Medical Product and Therapies segment net sales increased 3% in the first quarter of 2025, as compared to the prior year period.

Previous wording

Advanced Surgery net sales increased 7% in the third quarter and increased 5% in the first nine months of 2024, as compared to the prior year periods. Sales performance primarily reflected growth in hemostats and sealants and was primarily attributable to increased sales volume. Foreign currency exchange rates adversely impacted sales growth by 1% for the first nine months of 2024, as compared to the prior year period.

Current wording

Advanced Surgery net sales increased 2% in the first quarter of 2025, as compared to the prior year period. Sales performance was primarily driven by growth in hemostats and sealants and was primarily attributable to increased sales volume outside the U.S.. Foreign currency exchange rates adversely impacted sales growth by 2%, as compared to the prior year period.

Previous wording

Our Healthcare Systems and Technologies segment includes sales of our connected care solutions and collaboration tools, including smart bed systems, patient monitoring systems and diagnostic technologies, respiratory health devices, and advanced equipment for the surgical space, including operating room integration technologies, precision positioning devices, and other accessories.

Current wording

Our 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.

Previous wording

Care and Connectivity Solutions net sales increased 3% in the third quarter and were flat in the first nine months of 2024, as compared to the prior year periods. The growth in the third quarter was primarily driven by increased order volume associated with capital spending as compared to the prior year quarterly period, partially offset by declines in care communications products driven by the shifting of installations to future periods and lower sales outside of the U.S.

Current wording

Care and Connectivity Solutions net sales increased 6% in the first quarter of 2025, as compared to the prior year period. Sales performance was primarily driven by increased order volume associated with increased capital spending in the U.S., as compared to the prior year period, as well as higher installations of our care communications products. These increases were partially offset by lower international sales. Foreign currency exchange rates adversely impacted sales growth by 1%, as compared to the prior year period.

Previous wording

Pharmaceuticals segment net sales increased 1% in the third quarter and increased 7% in the first nine months of 2024, as compared to the prior year periods.

Current wording

Pharmaceuticals segment net sales increased 1% in the first quarter of 2025, as compared to the prior year period.

Previous wording

Drug Compounding net sales increased 17% in the third quarter and for the first nine months of 2024, as compared to the prior year periods. The increase in the current year periods was driven by increased demand for our international pharmacy compounding offerings due, in part, to customer capacity constraints that resulted in increased outsourcing of compounding activities. Foreign currency exchange rates favorably impacted sales growth by 3% for the third quarter of 2024, as compared to the prior year period.

Current wording

Drug Compounding net sales decreased 2% in the first quarter of 2025, as compared to the prior year period. Sales performance was driven by decreased demand for our international pharmacy compounding offerings due, in part, to the short-term outsourcing of compounding activities by select customers in the prior year which did not continue in the current year. Foreign currency exchange rates adversely impacted sales growth by 4%, as compared to the prior year period.

Previous wording

Other sales, which represent sales not attributable to our reportable segments, were $17 million for both the three months ended September 30, 2024 and 2023, and $55 million and $73 million for the nine months ended September 30, 2024 and 2023, respectively. In the current and prior year periods, Other sales primarily represent revenues earned by certain of our manufacturing facilities from contract manufacturing activities. The nine-month period ended September 30, 2023 also included royalty income under a business development arrangement. The decrease in other sales for the nine months ended September 30, 2024 as compared to the prior year period primarily reflects lower contract manufacturing volume and, to a lesser extent, termination of the royalty arrangement following our acquisition of the rights to the underlying product.

Current wording

During the three months ended March 31, 2025 and 2024, we earned $78 million and $16 million, respectively, of revenues that were not attributable to our reportable segments. In the current year period, Other sales primarily represented revenue recognized under the Kidney Care MSA and to a lesser extent, revenues earned by certain of our manufacturing facilities from contract manufacturing activities. In the prior year period, Other sales primarily represented revenues earned by certain of our manufacturing facilities from contract manufacturing activities. The increase in Other sales for the three months ended March 31, 2025 as compared to the prior year period reflects the impact of the Kidney Care MSA entered into upon the sale of our Kidney Care business in January 2025.

Previous wording

The following table provides a summary of our special items from continuing operations and the related impact by line item on our results for the three and nine months ended September 30, 2024 and 2023.

Current wording

The following table provides a summary of our special items from continuing operations and the related impact by line item on our results for the three months ended March 31, 2025 and 2024.

Previous wording

1 Our results for third quarter of 2024 and 2023 included business optimization charges of $18 million and $48 million, respectively. Our results for the first nine months of 2024 and 2023 included business optimization charges of $49 million and $167 million, respectively. These restructuring and other business optimization costs included costs primarily related to our implementation of a new operating model intended to simplify and streamline our operations and better align our manufacturing and supply chain to our commercial activities, third-party costs incurred to support the transformation of certain general and administrative functions, and rationalization of certain other manufacturing and distribution facilities. Refer to Note 10 in Item 1 of this Quarterly Report on Form 10-Q for further information regarding these charges and related liabilities.

Current wording

1 Our results for first quarter of 2025 and 2024 included business optimization charges of $45 million and $22 million, respectively. These restructuring and business optimization costs in 2025 included costs primarily related to its initiatives to reduce our cost structure following the sale of our former Kidney Care segment. These restructuring and business optimization costs in 2024 included costs primarily related to the implementation of a new operating model intended to simplify and streamline our operations and better align our manufacturing and supply chain to our commercial activities and to a lesser extent, third-party costs incurred to support the transformation of certain general and administrative functions. Refer to Note 10 in Item 1 of this Quarterly Report on Form 10-Q for further information regarding these charges and related liabilities.

Previous wording

2 Our results for the third quarter of 2024 and 2023 included $5 million and $2 million, respectively, and for both the first nine months of 2024 and 2023 included $16 million, of integration costs which primarily reflected third party consulting costs related to our integration of Hillrom. In 2023, those costs were partially offset by a $14 million benefit in the first nine months related to changes in the estimated fair values of contingent consideration liabilities.

Current wording

2 Our results for the first quarter of 2025 included $6 million of integration costs which primarily reflected the recognition of a noncash impairment of properly, plant and equipment related to integration activities. Our results for the first quarter of 2024 included $5 million of integration costs which primarily reflected third party consulting costs related to our integration of Hillrom.

Previous wording

3 Our results for the third quarter of 2024 and 2023 included $9 million and $12 million, respectively, and for the first nine months of 2024 and 2023 included $25 million and $32 million, respectively, of incremental costs to comply with the European Union's medical device regulations for previously registered products, which primarily consist of contractor costs and other direct third-party costs. We consider the adoption of these regulations to be a significant one-time regulatory charge and believe that the costs of initial compliance for previously registered products over the implementation period are not indicative of our core operating results.

Current wording

3 Our results for the first quarter of 2025 and 2024 included $5 million and $7 million, respectively, of incremental costs to comply with the European Union's medical device regulations for previously registered products, which primarily consist of contractor costs and other direct third-party costs. We consider the adoption of these regulations to be a significant one-time regulatory change and believe that the costs of initial compliance for previously registered products over the implementation period are not indicative of our core operating results.

Previous wording

4 Our results for the third quarter and first nine months of 2024 included charges of $3 million related to a revised estimate of warranty and remediation activities arising from a field corrective action on certain of our infusion pumps initially recorded in 2022.

Current wording

5 Our results for the first quarter of 2025 included charges of $6 million related to a revised estimate of warranty and remediation activities arising from a field corrective action on certain of our infusion pumps initially recorded in 2022.

Previous wording

6 Our results in the third quarter and first nine months of 2024 included charges of $17 million related to environmental reserves for remediation actions associated with historic operations at certain of our facilities. Our results in the third quarter and first nine months of 2023 included costs, including associated legal fees, of $13 million related to matters involving alleged violations of the False Claims Act related to a now-discontinued legacy Hillrom sales line and alleged injury from environmental exposure.

Current wording

7 Our results in the first quarter of 2025 included charges of $11 million related to matters involving alleged injury from environmental exposure.

Previous wording

9 This item reflects the income tax impact of the special items identified in this table. The tax effect of each special item is based on the jurisdiction in which the item was incurred and the tax laws in effect for each such jurisdiction.

Current wording

10 This item reflects the income tax impact of the special items identified in this table. The tax effect of each special item is based on the jurisdiction in which the item was incurred and the tax laws in effect for each such jurisdiction.

Previous wording

Our gross margin ratio was 38.3% and 40.6% for the three months ended September 30, 2024 and 2023, respectively. The special items identified earlier in this section had an unfavorable impact of approximately 5.4 and 4.2 percentage points on the gross margin ratio for the three months ended September 30, 2024 and 2023, respectively. Our gross margin ratio was 38.4% and 40.0% for the nine months ended September 30, 2024 and 2023, respectively. The special items identified earlier in this section had an unfavorable impact of approximately 4.8 and 4.3 percentage points on the gross margin ratio for the nine months ended September 30, 2024 and 2023, respectively. Refer to the Special Items caption above for additional detail.

Current wording

Our gross margin ratio was 32.8% and 38.6% for the three months ended March 31, 2025 and 2024, respectively. The special items identified earlier in this section had an unfavorable impact of approximately 9.0 and 4.8 percentage points on the gross margin ratio for the three months ended March 31, 2025 and 2024, respectively. Refer to the Special Items caption above for additional detail.

Previous wording

Excluding the impact of special items, the gross margin ratio decreased by 1.1 percentage points in both the third quarter and first nine months of 2024, respectively, compared to the prior year periods. The lower gross margins were driven by an unfavorable product mix, partially offset by initiatives to reduce our manufacturing and supply chain costs.

Current wording

Excluding the impact of special items, the gross margin ratio decreased by 1.6% percentage points in the first quarter of 2025 compared to the prior year period. The lower gross margins were driven primarily by the impact of the Kidney Care MSA and increased shipping costs, partially offset by initiatives to reduce our manufacturing and supply chain costs.

Previous wording

Our SG&A expenses ratio was 27.9% and 28.6% for the three months ended September 30, 2024 and 2023, respectively. The special items identified earlier in this section had an unfavorable impact of approximately 3.3 and 4.2 percentage points on the SG&A expenses ratio for the three months ended September 30, 2024 and 2023, respectively. Our SG&A expenses ratio was 28.0% and 29.7% for the nine months ended September 30, 2024 and 2023, respectively. The special items identified earlier in this section had an unfavorable impact of approximately 2.9 and 4.1 percentage points on the SG&A expenses ratio for the nine months ended September 30, 2024 and 2023, respectively.

Current wording

Our SG&A expenses ratio was 26.8% and 29.3% for the three months ended March 31, 2025 and 2024, respectively. The special items identified earlier in this section had an unfavorable impact of approximately 3.6 and 3.0 percentage points on the SG&A expenses ratio for the three months ended March 31, 2025 and 2024, respectively.

Previous wording

Our R&D expenses ratio was 4.8% and 5.1% for the three months ended September 30, 2024 and 2023, respectively. The special items identified earlier in this section had no impact and an unfavorable impact of 0.1 percentage points on the R&D expense ratio in the third quarter of 2024 and 2023, respectively. The R&D expenses ratio was 4.8% and 5.1% for the nine months ended September 30, 2024 and 2023, respectively. The special items identified earlier in this section had no impact and an unfavorable impact of 0.1 percentage points on the R&D expenses ratio for the nine months ended September 30, 2024 and 2023, respectively.

Current wording

Our R&D expenses ratio was 5.3% and 4.8% for the three months ended March 31, 2025 and 2024, respectively. The special items identified earlier in this section had no impact on the R&D expense ratio in the first quarter of 2025 and 2024.

Previous wording

Excluding the impact of special items, the R&D expenses ratio decreased by 0.2 percentage points in both the third quarter and first nine months of 2024, compared to the prior year periods.

Current wording

The R&D expenses ratio increased by 0.5 percentage points in the first quarter of 2025, compared to the prior year period, primarily reflecting increased project-related expenditures.

Previous wording

In recent years, we have undertaken actions to transform our cost structure and enhance operational efficiency. These efforts have included restructuring the organization, optimizing our manufacturing footprint, R&D operations, and supply chain network, employing disciplined cost management, and centralizing and streamlining certain support functions. The related costs of these actions consisted primarily of employee termination costs, implementation costs, contract termination costs, and asset impairments.

Current wording

In recent years, we have undertaken actions to transform our cost structure and enhance operational efficiency. These efforts have included restructuring the organization into verticalized segments, optimizing our manufacturing footprint, R&D operations, and supply chain network, employing disciplined cost management, and centralizing and streamlining certain support functions. The related costs of these actions consisted primarily of employee termination costs, implementation costs, contract termination costs, and asset impairments.

Previous wording

For the three months ended months ended September 30, 2024, $7 million and $14 million of the restructuring charges, consisting of employee termination costs, related to business optimization initiatives within our Healthcare Systems and Technologies segment. Additionally, for the nine months ended September 30, 2024, $7 million of the restructuring charges, consisting of employee termination costs, related to our recent implementation of a new operating model intended to simplify and streamline our operations.

Current wording

For the three months ended March 31, 2025, $25 million of the restructuring charges, consisting of employee termination costs, were related to initiatives to reduce our cost structure following the sale of our Kidney Care segment.

Previous wording

We currently expect to incur additional pre-tax costs, primarily related to the implementation of business optimization programs, of approximately $5 million through the completion of initiatives that are currently underway. We continue to pursue cost savings initiatives and, to the extent further cost savings opportunities are identified (including after the completion of the pending sale of our Kidney Care business), we would incur additional restructuring charges and costs to implement business optimization programs in future periods. Refer to Note 10 in Item 1 of this Quarterly Report on Form 10-Q for additional information regarding our business optimization programs.

Current wording

We currently expect to incur additional pre-tax costs, primarily related to the implementation of business optimization programs, of approximately $4 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 to the extent further cost savings opportunities are identified, we would incur additional restructuring charges and costs to implement business optimization programs in future periods. Refer to Note 10 in Item 1 of this Quarterly Report on Form 10-Q for additional information regarding our business optimization programs.

Previous wording

Other (income) expense, net was income of $1 million and income of $12 million for the three months ended September 30, 2024 and 2023, respectively, and income of $34 million and expense of $15 million for the nine months ended September 30, 2024 and 2023, respectively. In the current year periods, other income, net was primarily driven by pension and other postretirement benefits, partially offset by foreign exchange losses. In the three months ended September 30, 2023, other income, net was primarily driven by pension and other postretirement benefits. In the nine months ended September 30, 2023, other expense, net was primarily driven by foreign exchange losses, non-marketable investment impairments and decreases in the fair value of marketable equity securities, partially offset by pension and postretirement benefits.

Current wording

Other (income) expense, net was income of $3 million and $9 million in the first quarter of 2025 and 2024, respectively. In the current and prior year periods, other income, net was primarily driven by pension and other postretirement benefits.

Previous wording

Our effective income tax rate was 11.6% and 42.2% in the third quarter of 2024 and 2023, respectively, and 30.2% and 281.0% for the first nine months of 2024 and 2023, respectively. Our effective income tax rate can differ from the 21% U.S. federal statutory rate due to a number of factors, including foreign rate differences, tax incentives, non-deductible expenses, non-taxable income, increases or decreases in valuation allowances, increases or decreases in liabilities for uncertain tax positions, and excess tax benefits or shortfalls on stock compensation awards. Our effective income tax rate during interim periods reflects our estimated annual effective tax rate and discrete items.

Current wording

For the three months ended March 31, 2025 and 2024, our effective income tax rate differs significantly from the 21% U.S. federal statutory rate due to a number of factors, including foreign rate differences, tax incentives, non-deductible expenses, non-taxable income, increases or decreases in valuation allowances, increases or decreases in liabilities for uncertain tax positions, and excess tax benefits or shortfalls on stock compensation awards.