BAXTER INTERNATIONAL INC

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 and nine months ended September 30, 2025 and 2024.

Current wording

Refer to our Annual Report on Form 10-K for the year ended December 31, 2025 (2025 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, 2026 and 2025.

Previous wording

We have incurred and expect to incur additional 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.

Current wording

We have incurred and expect to incur additional dis-synergies following our sale of our Kidney Care business due to the reduced size of our company and, as a result, we have undertaken certain restructuring actions (and intend to undertake additional actions) to help ensure our cost structuring is appropriate to support our remaining business. See Note 10 of this Quarterly Report on Form 10-Q for additional information.

Previous wording

On April 24, 2025, we initiated a voluntary correction for the Novum LVP due to the potential for under-infusion when the pump is in "standby mode" for an extended period of time. On May 20, 2025, the U.S. Food and Drug Administration (FDA) classified this voluntary correction as a Class I recall. In July 2025, we initiated voluntary corrections for the Novum LVP due to the potential for under-infusion when the pump is directed to deliver a bolus infusion or significantly increase the rate of infusion after it has been running at a lower infusion rate and the potential for over- and under-infusion related to set misloading, as well as certain software anomalies. In August 2025, the FDA classified these additional voluntary corrections as Class I recalls. We have implemented certain corrections related to the recalls and are developing additional corrections related to these recalls, some of which will require regulatory approval). In July 2025, we elected to temporarily stop distributing and installing the Novum LVP in the U.S. and Canada, except in the case of medical necessity. While the timing of this continued ship and installation hold remains uncertain, we currently expect it to be in place beyond 2025. Additionally, while we expect no additional sales of Novum LVP while these holds are in effect, our Spectrum IQ large volume pump is generally available as an alternative option for customers with Novum LVPs. We have recorded a reserve for remediation costs associated with these initial Novum LVP corrections in the second quarter that is not material to our financial results. However, these estimates may be subject to change and these and other additional costs (including those associated with any additional corrections) could become material in the future. Additionally, while returns and exchanges of Novum LVP made to date are not material for our financial results, future returns or exchanges (including related costs) could have a material impact on our results in the future.

Current wording

During 2025, we initiated voluntary corrections for the Novum LVP. The U.S. Food and Drug Administration (FDA) classified these voluntary corrections as Class I recalls. We have implemented certain corrections related to the recalls, and are developing additional corrections related to these recalls, some of which may require regulatory clearance or approval. In July 2025, we elected to temporarily stop distributing and installing the Novum LVP in the U.S. and Canada, except in the case of medical necessity. The timing of the release of the ship and installation hold remains uncertain. As a result, we expect no meaningful sales of Novum LVP while these holds are in effect. Our Spectrum IQ large volume pump remains available as an alternative option for customers with Novum LVPs. In 2025, we recorded estimates for sales reductions, for returns or exchanges of Novum LVP, and certain other charges, including estimates of reserves for remediation costs and inventory and contract asset write-downs associated with these Novum LVP corrections. We regularly review these estimates (including those associated with any future additional corrections and customer returns or exchanges), which may be subject to additional change in the future. In the first quarter of 2026, we adjusted certain estimates associated with these Novum LVP corrections that were not material to our condensed consolidated financial statements.

Previous wording

Supply Constraints, Tariffs, Global Economic Conditions

Current wording

Supply Constraints, Tariffs and Global Economic Conditions

Previous 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, which have had a negative impact on our results of operations and may do so 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 and working to identify additional mitigation opportunities, our results have been adversely affected by these events and we expect for our results to continue to be negatively affected by tariffs. Additionally, continued global macroeconomic uncertainty, including in trade policies and practices, elevated tariffs and operational and policy changes in the governments of the U.S. and other countries (including a prolonged U.S. federal government shutdown), 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, including, as a result of adverse impacts from significant weather events like Hurricane Helene and other global macroeconomic and geopolitical events, which have had a negative impact on our results of operations and may do so 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 medical device and pharmaceutical tariffs), the Supreme Court's decision to invalidate tariffs levied under the International Emergency Economic Powers Act, and responses from other jurisdictions, have significantly affected financial markets and economic conditions. While in the second quarter of 2026 we submitted refund requests for those tariff amounts eligible for refund in the first phase of the process and expect to submit additional refund requests in future phases subject to further rulings by the Court of International Trade, uncertainty remains surrounding the economic impact of the global tariffs and the timing and quantum of any amounts we may ultimately recover on our refund claims, and therefore, we have not recorded an asset for tariff refunds in our condensed consolidated financial statements as of March 31, 2026. We currently expect that our results will continue to be adversely impacted by Section 122 duties that were imposed following the judicial review of certain tariffs. Additionally, continued global macroeconomic uncertainty, including in trade policies and practices, elevated tariffs and operational and policy changes in the governments of the U.S. and other countries and other geopolitical events or conflicts (including the conflict in Iran and the potential for escalation of this and other conflicts), could contribute to further market volatility, deteriorating or prolonged weakened economic conditions and decreased hospital capital spending levels. We continue to closely monitor these developing situations and the estimated impact on our business, results of operations, financial condition and cash flows.

Previous 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 previously announced 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.

Current wording

Our presentation of percentage changes in net sales at organic sales growth excludes the impact of the Kidney Care MSA sales not reflected in reportable segments, impacts associated with business acquisitions or divestitures, 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. Organic 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 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 organic 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 (loss) attributable to Baxter stockholders for the three months ended September 30, 2025 was $(46) million, or $(0.09) per diluted share, compared to $140 million, or $0.27 per diluted share for the three months ended September 30, 2024. For the three months ended September 30, 2025, our results included special items that adversely impacted net income (loss) attributable to Baxter stockholders by $401 million, or $0.78 per diluted share. For the three months ended September 30, 2024, our results included special items that adversely impacted net income (loss) attributable to Baxter stockholders by $271 million, or $0.53 per diluted share.

Current wording

Net income (loss) attributable to Baxter stockholders for the three months ended March 31, 2026 was $(15) million, or $(0.03) per diluted share, compared to $126 million, or $0.25 per diluted share for the three months ended March 31, 2025. For the three months ended March 31, 2026, our results included special items that adversely impacted net income (loss) attributable to Baxter stockholders by $205 million, or $0.40 per diluted share. 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.

Previous wording

Net income (loss) from continuing operations for the three months ended September 30, 2025 was $(51) million, or $(0.10) per diluted share, compared to $61 million, or $0.12 per diluted share for the three months ended September 30, 2024. Net income (loss) from continuing operations for the three months ended September 30, 2025 included special items that adversely impacted net income (loss) by $404 million, or $0.79 per diluted share. Net income (loss) from continuing operations for the three months ended September 30, 2024 included special items that adversely impacted net income (loss) by $191 million, or $0.37 per diluted share.

Current wording

Net income (loss) from continuing operations for the three months ended March 31, 2026 was $(17) million, or $(0.03) per diluted share, compared to $64 million, or $0.13 per diluted share for the three months ended March 31, 2025. Net income (loss) from continuing operations for the three months ended March 31, 2026 included special items that adversely impacted net income (loss) by $205 million, or $0.39 per diluted share. 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.

Previous wording

In the third quarter of 2025, the Kidney Care MSA sales favorably impacted sales growth by 3% and the previously announced exit of IV solutions in China adversely impacted sales by 1%. Additionally, in the third quarter of 2025, foreign currency rates favorably impacted net sales growth by 1%. In the first nine months of 2025, the Kidney Care MSA sales favorably impacted sales growth by 3%. The exit of IV solutions in China and foreign currency rates were not meaningful.

Current wording

In the first quarter of 2026, the Kidney Care MSA sales favorably impacted sales growth by 1%. Additionally, in the first quarter of 2026, foreign currency rates favorably impacted net sales growth by 3%, compared to the prior year period due to the strengthening of the U.S. Dollar relative to the Euro, Australian Dollar, British Pound and the Canadian Dollar.

Previous wording

Medical Product & Therapies segment net sales decreased 1% in the third quarter and were flat in the first nine months of 2025, as compared to the prior year periods.

Current wording

Medical Product & Therapies segment net sales increased 2% in the first quarter of 2026, as compared to the prior year period.

Previous wording

Infusion Therapies & Technologies net sales decreased 4% in the third quarter and decreased 1% in the first nine months of 2025, as compared to the prior year periods. The decline in the third quarter of 2025 was primarily the lower Novum LVP pump sales as a result of the shipment hold. Sales volumes were further impacted by reduced U.S. demand in our IV Solutions business as hospital customers continued IV fluid conservation practices originally instituted in response to Hurricane Helene. Volume declines in the third quarter were partially offset by price increases and one-time pricing benefits. The previously announced exit of IV solutions in China adversely impacted sales growth by 1% and foreign exchange rates favorably impacted sales growth by 1% for the third quarter of 2025, as compared to the prior year period. Sales performance in the first nine months of 2025 declined, primarily due to lower demand in our IV Solutions business in the U.S. as customers continued the aforementioned fluid conservation practices. This decline was partially offset by one-time pricing benefits and price increases in certain products globally. The previously announced exit of IV solutions in China adversely impacted sales growth by 1% for the first nine months of 2025, as compared to the prior year period. We expect some hospital customers to continue a level of conservation through the remainder of 2025 and potentially beyond with the impact expected to lessen over time. As previously discussed in "Factors Affecting our Results of Operations", we elected to temporarily stop distributing and installing the Novum LVP in the U.S. and Canada, except in the case of medical necessity. Although the timing of this continued ship and installation hold remains uncertain, we currently expect it to be in place beyond 2025. As a result, we expect no additional sales of Novum LVP while these holds are in effect, however our Spectrum IQ large volume pump is generally available as an alternative option for customers with Novum LVPs. Additionally, while returns and exchanges of Novum LVP made to date are not material for our financial results, future returns or exchanges could have a material impact on our financial results in the future.

Current wording

Infusion Therapies & Technologies net sales decreased 1% in the first quarter of 2026, as compared to the prior year period. The decline in the first quarter was primarily due to lower Novum LVP pump sales as a result of the voluntary shipment and implementation hold. Sales volumes were further impacted by a strong prior year comparison in U.S. IV solutions businesses, during which we experienced strong sales due to a one-time distributor build following Hurricane Helene. Foreign exchange rates favorably impacted sales growth by 4% for the first quarter of 2026, as compared to the prior year period. As previously discussed in "Factors Affecting our Results of Operations", we elected to temporarily stop distributing and installing the Novum LVP in the U.S. and Canada, except in the case of medical necessity. As a result, we expect no meaningful sales of Novum LVP while these holds are in effect. Our Spectrum IQ large volume pump remains available as an alternative option for customers with Novum LVPs.

Previous wording

Advanced Surgery net sales increased 13% in the third quarter and increased 7% in the first nine 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 third quarter of 2025, as compared to the prior year period.

Current wording

Advanced Surgery net sales increased 13% in the first quarter of 2026, 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 3% for the first quarter of 2026, as compared to the prior year period.

Previous wording

Care & Connectivity Solutions net sales increased 4% in the third quarter and increased 5% in the first nine months of 2025, as compared to the prior year periods. Sales performance was primarily driven by increased volume associated with increased capital spending by customers 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 third quarter and the first nine months of 2025, as compared to the prior year periods.

Current wording

Care & Connectivity Solutions net sales increased 2% in the first quarter of 2026, as compared to the prior year period. Sales performance was primarily driven by increased volume associated with increased capital spending by customers in the U.S. for patient support systems, offset by lower installations in our care communications portfolio. Foreign currency exchange rates favorably impacted sales growth by 2% for the first quarter of 2026, as compared to the prior year period.

Previous wording

1 Percent change in net sales at operational growth rates is a non-GAAP financial measure. See the section entitled “Non-GAAP Financial Measures” for additional information about our use of that measure.

Current wording

1 Percent change in net sales at organic growth rates is a non-GAAP financial measure. See the section entitled “Non-GAAP Financial Measures” for additional information about our use of that measure.

Previous wording

Pharmaceuticals segment net sales increased 7% in the third quarter and increased 3% in the first nine months of 2025, as compared to the prior year periods.

Current wording

Pharmaceuticals segment net sales increased 7% in the first quarter of 2026, as compared to the prior year period.

Previous wording

Drug Compounding net sales increased 12% in the third quarter and increased 6% in the first nine 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 favorably impacted sales growth by 1% for the third quarter of 2025, as compared to the prior year period.

Current wording

Drug Compounding net sales increased 30% in the first quarter of 2026, as compared to the prior year period. Sales performance was primarily driven by increased demand for our international pharmacy compounding offerings. Foreign currency exchange rates favorably impacted sales growth by 10% for the first quarter of 2026, as compared to the prior year period.

Previous wording

During the three months ended September 30, 2025 and 2024, we earned $101 million and $17 million, and $290 million and $55 million for the nine months ended September 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 third quarter and nine months ended September 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.

Current wording

During the three months ended March 31, 2026 and 2025, we earned $90 million and $78 million, respectively, of revenues that were not attributable to our reportable segments. The increase in Other sales for the three months ended March 31, 2026 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, 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 months ended March 31, 2026 and 2025.

Previous wording

1 Our results for third quarter of 2025 and 2024 included business optimization charges of $38 million and $18 million, respectively. Our results for the first nine months of 2025 and 2024 included business optimization charges of $100 million and $49 million, respectively. These restructuring and business optimization charges in the third quarter and first nine months of 2025 included costs primarily related to our initiatives to reduce our cost structure following the sale of our former Kidney Care segment and the exit of a product line at one of our manufacturing facilities. These restructuring and business optimization costs in the third quarter and first nine months 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 initiatives within our Healthcare Systems & Technologies segment. 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 the first quarter of 2026 and 2025 included business optimization charges of $68 million and $45 million, respectively. These restructuring and business optimization costs in 2026 and 2025 included costs primarily related to initiatives to reduce our cost structure following the sale of our former Kidney Care segment. 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

3 Our results for the third quarter of 2025 and 2024 included $5 million and $9 million, respectively, and for the first nine months of 2025 and 2024 included $15 million and $25 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

2 Our results for the first quarter of 2026 and 2025 included $4 million and $5 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

5 Our results for the third quarter and first nine months of 2025 included charges of $32 million and $61 million, respectively, related to estimates of warranty and remediation activities from field corrective actions across our infusion pump category 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. 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

3 Our results for the first quarter of 2026 included a benefit of $12 million related to a revised estimate of warranty and remediation activities from field corrective actions across our infusion pump category initially recorded in 2025. 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 2025 included pre-tax charges of $8 million and $123 million, respectively, related to damages caused by Hurricane Helene. This amount consisted of remediation, air freight and other costs. Our results in the third quarter and first nine months of 2024 included net charges of $25 million related to Hurricane Helene. This amount consisted of $44 million related to the write-off of damaged inventory and fixed assets, partially offset by a $19 million benefit related to insurance recoveries as a result of those asset write-offs. Refer to Note 1 in Item 1 of this Quarterly Report on Form 10-Q for further information.

Current wording

5 Our results in the first quarter of 2026 and 2025 included charges of $3 million and $98 million, respectively, related to damages caused by Hurricane Helene which consisted of remediation, air freight and other costs.

Previous wording

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

Current wording

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

Previous wording

2 Our results for the third quarter of 2025 and 2024 included $8 million and $5 million, respectively, and for the first nine months of 2025 and 2024 included $19 million and $16 million, respectively, of integration costs which primarily reflected third party consulting costs related to our ongoing integration of Hill-Rom Holdings, Inc. (Hillrom). In the first nine months of 2025, those costs also included the recognition of a noncash impairment of properly, plant and equipment related to integration activities.

Current wording

7 Our results for the first quarter of 2025 included $6 million of integration costs which primarily reflected the recognition of a non-cash impairment of properly, plant and equipment related to integration activities.

Previous wording

4 Our results for the third quarter and the first nine months of 2025 included $13 million and $40 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.

Current wording

8 Our results for the first quarter of 2026 and 2025 included $11 million and $13 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

9 Our results in the third quarter and first nine months of 2025 included $213 million and $174 million of income tax expense primarily related to an increase in reserves for uncertain tax positions and a step-up in Swiss valuation allowances, partially offset by the release of valuation allowances on foreign tax credits. The nine months ended period also included a 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 third quarter of 2024, included $11 million of income tax expense consisting of a $26 million valuation allowance recorded to reduce the carrying amount of a tax attribute carryforward in the U.S. related to the sale of our former Kidney Care segment, partially offset by the application of the intraperiod tax allocation between continuing operations and discontinued operations. Our results for the first nine months of 2024, included $45 million of income tax expense consisting of a $26 million valuation allowance recorded to reduce the carrying amount of a tax attribute carryforward in the U.S. and internal reorganization transactions related to the sale of our former Kidney Care segment.

Current wording

10 Our results in the first quarter of 2026 included $26 million of income tax expense primarily related to an increase in interest related to uncertain tax positions and differences arising from the use of a forecasted effective tax rate to compute income tax expense during the quarter. 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.

Previous 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.

Current wording

11 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 33.5% and 38.3% for the three months ended September 30, 2025 and 2024, respectively. The special items identified earlier in this section had an unfavorable impact of approximately 5.9 and 5.4 percentage points on the gross margin ratio for the three months ended September 30, 2025 and 2024, respectively. Our gross margin ratio was 33.9% and 38.4% for the nine months ended September 30, 2025 and 2024, respectively. The special items identified earlier in this section had an unfavorable impact of approximately 6.7 and 4.8 percentage points on the gross margin ratio for the nine months ended September 30, 2025 and 2024, respectively. Refer to the Special Items caption above for additional detail.

Current wording

Our gross margin ratio was 33.0% and 32.8% for the three months ended March 31, 2026 and 2025, respectively. The special items identified earlier in this section had an unfavorable impact of approximately 3.8 and 9.0 percentage points on the gross margin ratio for the three months ended March 31, 2026 and 2025, respectively.

Previous wording

Excluding the impact of special items, the gross margin ratio decreased by 4.3 and 2.6 percentage points in the third quarter and first nine 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, product mix and unfavorable manufacturing variances, 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 5.0 percentage points in the first quarter of 2026 compared to the prior year period. The lower gross margins were primarily driven by increased manufacturing and supply costs, tariffs and product mix.

Previous wording

Our SG&A expenses ratio was 25.0% and 27.9% for the three months ended September 30, 2025 and 2024, respectively. The special items identified earlier in this section had an unfavorable impact of approximately 2.8 and 3.3 percentage points on the SG&A expenses ratio for the three months ended September 30, 2025 and 2024, respectively. Our SG&A expenses ratio was 25.7% and 28.0% for the nine months ended September 30, 2025 and 2024, respectively. The special items identified earlier in this section had an unfavorable impact of approximately 3.0 and 2.9 percentage points on the SG&A expenses ratio for the nine months ended September 30, 2025 and 2024, respectively.

Current wording

Our SG&A expenses ratio was 27.0% and 26.8% for the three months ended March 31, 2026 and 2025, respectively. The special items identified earlier in this section had an unfavorable impact of approximately 4.3 and 3.6 percentage points on the SG&A expenses ratio for the three months ended March 31, 2026 and 2025, respectively.

Previous wording

Excluding the impact of special items, the SG&A expenses ratio decreased by 2.4 percentage points in the third quarter and first nine months of 2025 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 and lower accruals under our annual employee incentive compensation plans.

Current wording

Excluding the impact of special items, the SG&A expenses ratio decreased by 0.5 percentage points in the first quarter of 2026 compared to the prior year period. The decrease primarily reflects lower headcount, partially offset by annual compensation increases.

Previous wording

Our R&D expenses ratio was 4.2% and 4.8% for each of the three months ended September 30, 2025 and 2024. The special items identified earlier in this section had an unfavorable impact of 0.1 percentage points and no impact on the R&D expenses ratio for each of the three months ended September 30, 2025 and 2024, respectively. Our R&D expenses ratio was 4.7% and 4.8% for the nine months ended September 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 nine months ended September 30, 2025 and 2024.

Current wording

Our R&D expenses ratio was 5.1% and 5.3% for each of the three months ended March 31, 2026 and 2025. The special items identified earlier in this section had an unfavorable impact of approximately 0.5 percentage points on the

Previous wording

For the three and nine months ended September 30, 2025, $10 million and $41 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. For the three months ended September 30, 2025, $21 million of the restructuring charges reflected in the table above, consisting of $8 million of asset impairments, $8 million of contract termination and other costs, and $5 million of employee termination costs, were related to the exit of a product line at one of our manufacturing facilities. For the nine months ended September 30, 2025, $24 million of the restructuring charges reflected in the table above, consisting of $11 million of asset impairments, $8 million of contract termination and other costs, and $5 million of employee termination costs, were related to the exit of a product line at one of our manufacturing facilities.

Current wording

For the three months ended March 31, 2026, $58 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 $1 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.

Current wording

We currently expect to incur additional pre-tax costs, primarily related to the implementation of business optimization programs, of approximately $2 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 $48 million and $5 million in the third quarter of 2025 and 2024, respectively, and $140 million and $9 million for the nine months ended September 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.

Current wording

Other operating income, net was $42 million and $40 million in the first quarter of 2026 and 2025, respectively, and these amounts were 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 $58 million and $87 million in the third quarter of 2025 and 2024, respectively, and $180 million and $251 million for the nine months ended September 30, 2025 and 2024, respectively. The decrease in 2025, was driven by debt repayments in the first nine months of 2025 and the fourth quarter of 2024.

Current wording

Interest expense, net was $66 million and $64 million in the first quarter of 2026 and 2025, respectively. The slight increase in 2026 was driven by higher interest expense on senior notes issued in the fourth quarter of 2025 partially offset by debt repayments in the first three months of 2025.

Previous wording

Our effective income tax rate was 142% and 12% for the three months ended September 30, 2025 and 2024, respectively, and 46% and 30% for the nine months ended September 30, 2025 and 2024, 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.

Current wording

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.

Previous wording

For the nine months ended September 30, 2025, the difference between our effective income tax rate and the U.S. federal statutory rate was primarily driven by an increase in liabilities for uncertain tax positions (as discussed below), partially offset by a reduction in the valuation allowance on foreign tax credits, changes in the treatment of accumulated earnings that are considered indefinitely reinvested as of December 31, 2024 and a tax benefit drive by an entity classification election that we made for U.S. tax purposes, which resulted in a capital loss.

Current wording

For the three months ended March 31, 2025, the difference between our effective income tax rate and the U.S. federal statutory rate was primarily driven by our near break-even pre-tax income and a tax benefit driven by an entity classification election that we made for U.S. tax purposes, which resulted in a capital loss.

Previous wording

We are currently under examination by the Internal Revenue Service (IRS) for transfer pricing matters related to transactions with our manufacturing operations in Costa Rica and Puerto Rico for the 2019 and 2020 tax years. While we have not yet received a Notice of Proposed Adjustment (NOPA) from the IRS, the examination is ongoing, and we are in the process of responding to inquiries from, and engaging in ongoing discussions with, the IRS related to certain intercompany transactions between our U.S. entities and these foreign manufacturers. As a result, we have recorded reserves for uncertain tax positions related to these transfer pricing matters for tax years 2019 through 2025. These reserves in aggregate are recorded to expense for approximately $300 million as of September 30, 2025, exclusive of any potential penalties and interest. While we believe that our transfer pricing positions are well documented and properly supported, and adequate amounts have been reserved to account for any adjustments that may ultimately result from this examination, the ultimate outcome of this matter is uncertain (upon the receipt of a NOPA or otherwise). Additionally, if the IRS were to assert we owe additional taxes and prevails in this assertion, such outcome could have a material impact on our financial position, results of operations, and cash flows.

Current wording

We are currently under examination by the Internal Revenue Service (IRS) for transfer pricing matters related to transactions with our manufacturing operations in Costa Rica and Puerto Rico for the 2019 and 2020 tax years. During the quarter, we received a Notice of Proposed Adjustment (NOPA) from the IRS covering the 2019 and 2020 tax years that is consistent with our existing and previously disclosed uncertain tax position reserves. We did not record further reserves in connection with the NOPA, other than interest that may be owed upon conclusion of the audit. While we believe that our transfer pricing positions are well documented and properly supported, and adequate amounts have been reserved to account for any adjustments that may ultimately result from this examination, the matter remains open for resolution. Additionally, if the IRS were to assert we owe additional taxes and prevails in this assertion, such outcome could have a material impact on our financial position, results of operations, and cash flows.

Previous wording

The Organization of Economic Co-operation and Development (OECD) reached agreement among over 140 countries to implement a minimum 15% tax rate on certain multinational enterprises, commonly referred to as Pillar Two. We currently expect that the impact of the Pillar Two legislation on our income tax expense for the year ending December 31, 2025 is not expected to be material. We will continue to evaluate the impact of legislative changes as additional guidance becomes available.

Current wording

The Organization of Economic Co-operation and Development (OECD) reached agreement among over 140 countries to implement a minimum 15% tax rate on certain multinational enterprises, commonly referred to as Pillar Two. During the quarter, the OECD published administrative guidance proposing a Side-by-Side safe harbor, which may reduce the impact of Pillar Two for U.S. headquartered multinational corporations. We will monitor the implementation of the Side-by-Side safe harbor by individual jurisdictions, however we do not expect the impact of Pillar Two to be material in any case.