Q - BAXTER INTERNATIONAL

Previous 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.

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 and six months ended June 30, 2025 and 2024.

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. That business, which is now known as Vantive Health LLC (Vantive) is comprised of our former Kidney Care segment and provides chronic and acute dialysis therapies and services, including peritoneal dialysis, hemodialysis, continuous renal replacement therapies, and other organ support therapies. 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 closing 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, subject to certain post-closing adjustments. As of March 31, 2025, we repaid $3.13 billion of short- and long-term indebtedness primarily with the net after-tax cash proceeds from the sale of our Kidney Care business, and we expect to use substantially all of the remaining net after-tax proceeds to continue to repay indebtedness through the second quarter of 2025.

Current 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. That business, which is now known as Vantive Health LLC (Vantive) is comprised of our former Kidney Care segment and provides chronic and acute dialysis therapies and services, including peritoneal dialysis, hemodialysis, continuous renal replacement therapies, and other organ support therapies. 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 closing 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, subject to certain post-closing adjustments. As of June 30, 2025, we repaid $3.81 billion of short- and long-term indebtedness primarily with the net after-tax cash proceeds from the sale of our Kidney Care business.

Previous wording

We expect to incur dis-synergies following our sale of our Kidney Care business due to the reduced size of our company and, as a result, we have begun to undertake certain actions (and intend to undertake additional actions) to help ensure our cost structuring is appropriate to support our remaining business.

Current wording

We expect to incur dis-synergies following our sale of our Kidney Care business due to the reduced size of our company and, as a result, we have begun to undertake certain restructuring actions (and intend to undertake additional actions) to help ensure our cost structuring is appropriate to support our remaining business.

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, 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.

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. In response to Hurricane Helene and the related supply disruption, certain customers have enacted fluid conservation practices which have resulted in, and are currently expected to continue to result in, reduced demand in our intravenous (IV) solutions business. See Note 1 in Item 1 of this Quarterly Report on Form 10-Q for additional information.

Previous wording

Supply Constraints, Tariffs and Global Economic Conditions

Current wording

Supply Constraints, Tariffs, Global Economic Conditions

Previous 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.

Current wording

We have experienced challenges to our global supply chain (some of which have been significant), including, as a result of adverse impacts from significant weather events like Hurricane Helene, as well as adverse impacts as result of other global macroeconomic and geopolitical events. These challenges may have a negative impact on our results of operations in the future. In addition, 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 tariff offsets for 2025 and working to identify additional mitigation opportunities in 2025 and beyond, we currently expect that our results will be adversely affected by these events (including as a result of any failure to achieve the anticipated benefits of related offsets). 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 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.

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, including U.S. military strikes on Iran (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 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.

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 are 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, 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.

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 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, clearances (including temporary importation authorizations), licenses or other marketing 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, Health Canada 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 have subjected us to and may in the future subject us to various actions. These have included, or may in the future include, warning letters, product recalls or seizures, import bans, adverse regulatory site inspection reports, voluntary or official action indicated classifications, monetary sanctions, injunctions to halt the manufacture or distribution of products, civil or criminal sanctions (which may include corporate integrity agreements or consent decrees), costly litigation, refusal of a government to grant or the government withdrawal approvals, clearances, licenses or other marketing authorizations, or restrictions on our operations or withdrawal of existing approvals and licenses, and may have a material adverse impact on our results of operations (including on our ability to launch new products and demand for those products).

Previous 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.

Current wording

Net income (loss) attributable to Baxter stockholders for the three months ended June 30, 2025 was $91 million, or $0.18 per diluted share, compared to $(314) million, or $(0.61) per diluted share for the three months ended June 30, 2024. For the three months ended June 30, 2025, our results included special items that adversely impacted net income (loss) attributable to Baxter stockholders by $185 million, or $0.36 per diluted share. For the three months ended June 30, 2024, our results included special items that adversely impacted net income (loss) attributable to Baxter stockholders by $659 million, or $1.29 per diluted share.

Previous 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.

Current wording

Net income (loss) from continuing operations for the three months ended June 30, 2025 was $122 million, or $0.24 per diluted share, compared to $95 million, or $0.19 per diluted share for the three months ended June 30, 2024. Net income (loss) from continuing operations for the three months ended June 30, 2025 included special items that adversely impacted net income (loss) by $182 million, or $0.35 per diluted share. Net income (loss) from continuing operations for the three months ended June 30, 2024 included special items that adversely impacted net income (loss) by $139 million, or $0.27 per diluted share.

Previous wording

In the first quarter of 2025, the Kidney Care MSA sales favorably impacted sales growth by 3% and the exit of IV solutions in China adversely impacted sales by 1%. Additionally, in the first quarter of 2025, foreign currency rates adversely impacted net sales growth by 2%, compared to the prior year period, due to the weakening of the U.S. Dollar relative to the Euro, Australian Dollar, Canadian Dollar, Brazilian Real and the Mexican Peso.

Current wording

In the second quarter of 2025, the Kidney Care MSA sales favorably impacted sales growth by 4% and the previously announced exit of IV solutions in China adversely impacted sales by 1%. In the first six months of 2025, the Kidney Care MSA sales favorably impacted sales growth by 3% and the exit of IV solutions in China adversely impacted net sales by 1%.

Previous wording

Infusion Therapies and Technologies net sales increased 3% in the first quarter of 2025, as compared to the prior year period. Sales performance in the first quarter of 2025 primarily reflected growth in Infusion Systems as a result of increased U.S. sales for our infusion pump portfolio. Growth in our IV Solutions business was the result of price increases globally, but also benefited from the build back of distributor inventory in the U.S. following the flooding at our North Cove facility in Marion, North Carolina caused by Hurricane Helene in September 2024. The distributor build was offset by reduced U.S. demand as hospital customers continued fluid conservation efforts during the first quarter of 2025 originally instituted in response to Hurricane Helene. We expect some hospital customers to continue a level of conservation during 2025 with the impact waning over the course of the year as product allocations are lifted. Nutrition sales in the quarter reflected price increases globally and growth in the U.S. driven by the clearance of back orders and some distributor stock replenishment. The previously announced exit of IV solutions in China adversely impacted sales growth by 1% and foreign currency exchange rates adversely impacted sales growth by 2%, as compared to the prior year period.

Current wording

Infusion Therapies & Technologies net sales decreased 2% in the second quarter and were flat in the first six months of 2025, as compared to the prior year periods. The decline in the second quarter of 2025 primarily reflected reduced U.S. demand in our IV Solutions business as hospital customers continued IV fluid conservation practices originally instituted in response to Hurricane Helene. Sales volumes were further impacted by destocking of inventory at our customers and within our distributor channel. Volume declines in the second quarter were partially offset by price increases and the release of rebate accruals. The previously announced exit of IV solutions in China adversely impacted sales growth by 2% and foreign exchange rates favorably impacted sales growth by 1% for the second quarter of 2025, as compared to the prior year period. Sales performance in the first six months of 2025 reflected growth in Infusion Systems as a result of increased U.S. sales for our infusion pump portfolio. Nutrition sales in the first six months reflected price increases globally and growth in the U.S. driven by the clearance of back orders and some distributor stock replenishment. These increases were offset by reduced U.S. demand in our IV Solutions business as hospital customers continued the aforementioned fluid conservation practices and destocking of inventory at our customers within our distributor channel. IV price increases globally offset the volume decreases in the first six months of 2025. The previously announced exit of IV solutions in China adversely impacted sales growth by 2% and foreign exchange rates adversely impacted sales growth by 1% for the first six months of 2025, as compared to the prior year period. We expect some hospital customers to continue a level of conservation during 2025 with the impact currently expect to lessen over the course of the year. As previously discussed in "Factors Affecting our Results of Operations", we elected to temporarily stop distributing Novum LVP in the U.S. and Canada, except in the case of medical necessity, pending our review of the process for implementing corrections and interim mitigations related to the recent voluntary corrections. As a result, we expect reduced sales of Novum LVP while these holds are in effect.

Previous 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.

Current wording

Advanced Surgery net sales increased 7% in the second quarter and increased 4% in the first six months 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 globally. Foreign currency exchange rates favorably impacted sales growth by 2% for the second quarter and adversely impacted sales growth by 1% for the first six months of 2025, as compared to the prior year periods.

Previous wording

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

Current wording

Healthcare Systems & Technologies segment net sales increased 3% in the second quarter and increased 4% in the first six months of 2025, as compared to the prior year periods.

Previous 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.

Current wording

Care & Connectivity Solutions net sales increased 5% in the second quarter and increased 6% in the first six months of 2025, as compared to the prior year periods. Sales performance was primarily driven by increased volume associated with increased capital spending in the U.S., as compared to the prior year periods, as well as higher installations of our care communications products. Foreign currency exchange rates favorably impacted sales growth by 1% for the second quarter and the first six months of 2025, as compared to the prior year periods.

Previous wording

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

Current wording

Pharmaceuticals segment net sales increased 2% in the second quarter and increased 1% in the first six months of 2025, as compared to the prior year periods.

Previous wording

Injectables and Anesthesia net sales increased 2% in the first quarter of 2025, as compared to the prior year period. Sales performance was primarily due to growth in our specialty injectable products, driven by strong sales volume in our core portfolio and recent product launches, partially offset by declines for inhaled anesthetics. Foreign currency exchange rates adversely impacted sales growth by 2%, as compared to the prior year period.

Current wording

Injectables & Anesthesia net sales decreased 3% in the second quarter and were flat for the first six months of 2025, as compared to the prior year periods. Sales performance in the second quarter was primarily driven by declines for inhaled anesthetics and a difficult comparison due to one-time U.S. government order in injectables in the prior year period. Foreign exchange favorably impacted sales growth by 1% for the second quarter, as compared to the prior year period. Sales performance for the first six months was driven by declines for inhaled anesthetics offset by growth in our specialty injectable products, driven by sales volume in our core portfolio and recent product launches.

Previous 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.

Current wording

Drug Compounding net sales increased 7% in the second quarter and increased 3% in the first six months of 2025, as compared to the prior year periods. Sales performance in the current year periods was driven by improved product mix and increased demand for our international pharmacy compounding offerings. Foreign currency exchange rates adversely impacted sales growth by 1% for the first six months of 2025, as compared to the prior year period.

Previous 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.

Current wording

During the three months ended June 30, 2025 and 2024, we earned $111 million and $22 million, and $189 million and $38 million for the six months ended June 30, 2025 and 2024, respectively, of revenues that were not attributable to our reportable segments. In the current year periods, 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 periods, Other sales primarily represented revenues earned by certain of our manufacturing facilities from contract manufacturing activities. The increase in Other sales for the second quarter and six months ended June 30, 2025 as compared to the prior year periods 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 months ended March 31, 2025 and 2024.

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 and six months ended June 30, 2025 and 2024.

Previous 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.

Current wording

1 Our results for second quarter of 2025 and 2024 included business optimization charges of $17 million and $9 million, respectively. Our results for the first six months of 2025 and 2024 included business optimization charges of $62 million and $31 million, respectively. These restructuring and business optimization costs in the second quarter and first six months of 2025 included costs primarily related to our initiatives to reduce our cost structure following the sale of our former Kidney Care segment. These restructuring and business optimization costs in the second quarter and first half of 2024 included costs 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 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 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.

Current wording

2 Our results for the second quarter of 2025 and 2024 included $5 million and $6 million, respectively, and for the first six months of 2025 and 2024 included $11 million, of integration costs which primarily reflected third party consulting costs related to our ongoing integration of Hill-Rom Holdings, Inc. (Hillrom). In the first six months of 2025 those costs also included the recognition of a noncash impairment of properly, plant and equipment related to integration activities.

Previous 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.

Current wording

3 Our results for the second quarter of 2025 and 2024 included $5 million and $9 million, respectively, and for the first six months of 2025 and 2024 included $10 million and $16 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 first quarter of 2025 included $13 million of separation-related costs primarily reflecting costs of external advisors supporting our activities related to the separation of our Kidney Care segment.

Current wording

4 Our results for the second quarter and the first six months of 2025 included $14 million and $27 million, respectively, of separation-related costs primarily reflecting costs of external advisors supporting our activities related to the sale of our former Kidney Care segment.

Previous 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.

Current wording

5 Our results for the second quarter and first six months of 2025 included charges of $23 million and $29 million, respectively, related to an estimate of warranty and remediation activities from field corrective actions on certain of our infusion pumps and 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 first quarter of 2025 included pre-tax charges of $98 million related to damages caused by Hurricane Helene. This amount consisted of remediation, air freight and other costs. Refer to Note 1 in Item 1 of this Quarterly Report on Form 10-Q for further information.

Current wording

6 Our results in the second quarter and first six months of 2025 included pre-tax charges of $17 million and $115 million, respectively, related to damages caused by Hurricane Helene. This amount consisted of remediation, air freight and other costs. Refer to Note 1 in Item 1 of this Quarterly Report on Form 10-Q for further information.

Previous wording

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

Current wording

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

Previous wording

8 Our results in first quarter of 2025 included $9 million of losses from a noncash impairment write-down in an equity method investment.

Current wording

8 Our results in first six months of 2025 included $9 million of losses from a noncash impairment write-down in an equity method investment.

Previous wording

9 Our results in the first quarter of 2025 included $43 million of income tax benefit driven by an entity classification election that we made for U.S. tax purposes, which resulted in a capital loss. Our results in the first quarter of 2024 included $32 million of income tax expense driven by a change in its permanent reinvestment assertion resulting from internal reorganization transactions related to the sale of our Kidney Care segment.

Current wording

9 Our results in the second quarter of 2025 included $4 million of income tax expenses resulting from the application of an intraperiod tax allocation to our adjusted results in an interim period. Our results in the first six months of 2025 included $39 million of income tax benefit primarily driven by an entity classification election that we made for U.S. tax purposes, which resulted in a capital loss. Our results in the second quarter and first six months of 2024, included $2 million and $34 million, respectively, of income tax expense driven by a change in our permanent reinvestment assertion resulting from internal reorganization transactions related to the sale of our former Kidney Care segment.

Previous 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.

Current wording

Our gross margin ratio was 35.3% and 38.3% for the three months ended June 30, 2025 and 2024, respectively. The special items identified earlier in this section had an unfavorable impact of approximately 5.4 and 4.1 percentage points on the gross margin ratio for the three months ended June 30, 2025 and 2024, respectively. Our gross margin ratio was 34.1% and 38.4% for the six months ended June 30, 2025 and 2024, respectively. The special items identified earlier in this section had an unfavorable impact of approximately 7.2 and 4.5 percentage points on the gross margin ratio for the six months ended June 30, 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 1.6% 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.

Current wording

Excluding the impact of special items, the gross margin ratio decreased by 1.7 and 1.6 percentage points in the second quarter and first six months of 2025, respectively, compared to the prior year periods. The lower gross margins were driven primarily by the impact of the Kidney Care MSA and unfavorable manufacturing variances, partially offset by initiatives to reduce our manufacturing and supply chain costs.

Previous 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.

Current wording

Our SG&A expenses ratio was 25.6% and 26.8% for the three months ended June 30, 2025 and 2024, respectively. The special items identified earlier in this section had an unfavorable impact of approximately 2.9 and 2.4 percentage points on the SG&A expenses ratio for the three months ended June 30, 2025 and 2024, respectively. Our SG&A expenses ratio was 26.1% and 28.0% for the six months ended June 30, 2025 and 2024, respectively. The special items identified earlier in this section had an unfavorable impact of approximately 3.2 and 2.7 percentage points on the SG&A expenses ratio for the six months ended June 30, 2025 and 2024, respectively.

Previous wording

Excluding the impact of special items, the SG&A expenses ratio decreased by 3.1 percentage points in the first quarter of 2025 compared to the prior year period. The decrease primarily reflects an updated estimate of indirect costs previously recorded in SG&A now capitalized into inventory after the separation of our Kidney Care business.

Current wording

Excluding the impact of special items, the SG&A expenses ratio decreased by 1.7 and 2.4 percentage points in the second quarter and first six months of 2025, respectively, compared to the prior year periods. The decrease primarily reflects an updated estimate of indirect costs previously recorded in SG&A now capitalized into inventory after the separation of our Kidney Care business.

Previous 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.

Current wording

Our R&D expenses ratio was 4.8% for each of the three months ended June 30, 2025 and 2024. The special items identified earlier in this section had no impact on the R&D expenses ratio for each of the three months ended June 30, 2025 and 2024. Our R&D expenses ratio was 5.0% and 4.8% for the six months ended June 30, 2025 and 2024, respectively. The special items identified earlier in this section had no impact on the R&D expenses ratio for each of the six months ended June 30, 2025 and 2024.

Previous 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.

Current wording

The R&D expenses ratio remained flat in the second quarter and increased by 0.2 percentage points in the first six months of 2025, in each case compared to the applicable prior year period, primarily reflecting increased project-related expenditures.

Previous 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.

Current wording

For the three and six months ended June 30, 2025, $6 million and $31 million, respectively, 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 $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.

Current wording

We currently expect to incur additional pre-tax costs, primarily related to the implementation of business optimization programs, of approximately $3 million through the completion of certain 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 operating income, net was $40 million and $3 million in the first quarter of 2025 and 2024, respectively. In the first quarter of 2025, this amount was primarily related to the income recognized under the Kidney Care TSA entered into upon the sale of the Kidney Care business in January 2025.

Current wording

Other operating income, net was $52 million and $1 million in the second quarter of 2025 and 2024, respectively, and $92 million and $4 million for the six months ended June 30, 2025, and 2024, respectively. In the current year periods, this amount was primarily related to the income recognized under the Kidney Care TSA entered into upon the sale of the Kidney Care business in January 2025.

Previous wording

Interest expense, net was $64 million and $78 million in the first quarter of 2025 and 2024, respectively. The decrease in 2025 was driven by debt repayments in first quarter of 2025 and the fourth quarter of 2024.

Current wording

Interest expense, net was $58 million and $86 million in the second quarter of 2025 and 2024, respectively, and $122 million and $164 million for the six months ended June 30, 2025 and 2024, respectively. The decrease in 2025, was driven by debt repayments in second quarter and first six months of 2025 and the fourth quarter of 2024.