Notes to Condensed Consolidated Financial Statements (unaudited)
1. BASIS OF PRESENTATION
The unaudited interim condensed consolidated financial statements of Baxter International Inc. and its subsidiaries (we, our or Baxter) have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (SEC) for interim financial reporting. Accordingly, certain information and note disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (U.S. GAAP) in the United States have been condensed or omitted. These unaudited interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in our Annual Report on Form 10-K for the year ended December 31, 2025 (2025 Annual Report).
In the opinion of management, the unaudited interim condensed consolidated financial statements reflect all adjustments necessary for a fair statement of the financial position, results of operations and cash flows for the periods presented. All such adjustments, unless otherwise noted herein, are of a normal, recurring nature. The disclosures presented in our notes to the consolidated financial statements are presented on a continuing operations basis. The results of operations for the current interim period are not necessarily indicative of the results of operations to be expected for the full year.
2. DISCONTINUED OPERATIONS
A component of an entity is reported in discontinued operations after meeting the criteria for held-for-sale classification if the disposition represents a strategic shift that has (or will have) a major effect on the entity's operations and financial results. The condensed consolidated financial statements reflect discontinued operations presentation as described below.
Discontinued Operations - Kidney Care
On January 31, 2025, we completed the sale of our Kidney Care business to certain affiliates of Carlyle Group Inc. (Carlyle). That business, which is 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.
Upon closing of the sale of the Kidney Care business, pursuant to the Equity Purchase Agreement (EPA), Baxter and Vantive entered into several agreements, including a Manufacturing and Supply Agreement (Kidney Care MSA), a Transition Services Agreement (Kidney Care TSA), a Long Term Master Services Agreement, a Distribution Agreement and certain other arrangements providing for short-term supply of saline products, and an Intellectual Property Agreement. Pursuant to the Kidney Care MSA, Baxter and the Kidney Care divested entities provide each other with certain dialysis-related products, other products, product components and fulfillment services for up to 10 years post-closing (with certain extension rights and early exit rights as provided therein). Pursuant to the Kidney Care MSA, our sales to Vantive are recognized in net sales in the condensed consolidated statements of income (loss). Pursuant to the Kidney Care TSA, Baxter and the entities that were divested in connection with the Kidney Care sale (the Kidney Care divested entities) provide each other, on an interim basis, certain transitional services for up to 30 months post-closing (with certain extension rights and early exit rights as provided therein) to help ensure business continuity and help minimize disruptions to the operations of both parties post-closing. Services provided under the Kidney Care TSA include information technology applications and support, supply chain and certain other corporate and administrative services. Billings by us under the Kidney Care TSA are recorded in other operating income, net in the condensed consolidated statements of income (loss). The costs to provide each respective service is recorded in the applicable expense category in the condensed consolidated statements of income (loss).
In accordance with the EPA, we have agreed to indemnify Vantive for certain items, including taxes imposed on or with respect to the Kidney Care divested entities, for pre-closing tax periods. The net indemnification liability as of March 31, 2026 was $53 million. Further, in accordance with the EPA, Baxter recorded a contingent liability for payments to reimburse Vantive for qualifying capital expenditures of $133 million over a period of three years post sale. The contingent liability as of March 31, 2026 was $83 million based on payments made to date.
Certain of the business guarantees originally entered by us on behalf of the Kidney Care business were not released prior to the completion of the sale and remain outstanding. These legacy guarantees primarily relate to certain leases, performance contracts and ones to support regulatory requirements of the Kidney Care business. As of March 31,
2026, the total amount of Kidney Care business guarantees retained by us was approximately $24 million. Under terms of the EPA, Carlyle has agreed to indemnify us for any cost or expense, or payments made in the future under these arrangements.
Results of Discontinued Operations
The following tables summarize the major classes of line items included in income (loss) from discontinued operations, net of tax, for the three months ended March 31, 2025:
| | | | | | | | | | | | |
| | | | Three Months Ended March 31, | | |
| (in millions) | | | | | 2025 | | | |
| Net sales | | | | | $ | 352 | | | | |
| Cost of sales | | | | | 206 | | | | |
| Gross margin | | | | | 146 | | | | |
| Selling, general and administrative expenses | | | | | 116 | | | | |
| Research and development expenses | | | | | 16 | | | | |
| Goodwill impairment | | | | | — | | | | |
| Other operating income, net | | | | | — | | | | |
| Operating income (loss) | | | | | 14 | | | | |
| Interest expense, net | | | | | 13 | | | | |
| Other (income) expense, net | | | | | 7 | | | | |
| Income (loss) from discontinued operations before gain on disposition and income taxes | | | | | (6) | | | | |
| Gain (loss) on disposition | | | | | 191 | | | | |
| Income tax expense (benefit) | | | | | 123 | | | | |
| Income (loss) from discontinued operations, net of tax | | | | | 62 | | | | |
| Less: Net income attributable to noncontrolling interest included in discontinued operations | | | | | — | | | | |
| Net income (loss) attributable to Baxter stockholders included in discontinued operations | | | | | $ | 62 | | | | |
3. SUPPLEMENTAL FINANCIAL INFORMATION
Allowance for Doubtful Accounts
The following table is a summary of the changes in our allowance for doubtful accounts for the three months ended March 31, 2026 and 2025.
| | | | | | | | | | | |
| Three Months Ended March 31, | | |
| (in millions) | 2026 | 2025 | | | |
| Balance at beginning of period | $ | 63 | | $ | 71 | | | | |
| | | | | |
| Charged to costs and expenses | 5 | | (4) | | | | |
| Write-offs | (1) | | (2) | | | | |
| Currency translation adjustments | — | | 1 | | | | |
| Balance at end of period | $ | 67 | | $ | 66 | | | | |
Inventories | | | | | | | | |
| (in millions) | March 31,
2026 | December 31,
2025 |
| Raw materials | $ | 567 | | $ | 536 | |
| Work in process | 390 | | 369 | |
| Finished goods | 1,359 | | 1,327 | |
| Inventories | $ | 2,316 | | $ | 2,232 | |
Property, Plant and Equipment, Net | | | | | | | | |
| (in millions) | March 31,
2026 | December 31,
2025 |
| Property, plant and equipment, at cost | $ | 8,099 | | $ | 8,054 | |
| Accumulated depreciation | (5,186) | | (5,144) | |
| Property, plant and equipment, net | $ | 2,913 | | $ | 2,910 | |
Interest Expense, Net | | | | | | | | | | | |
| Three Months Ended March 31, | | |
| (in millions) | 2026 | 2025 | | | |
| Interest expense, net of capitalized interest | $ | 78 | | $ | 81 | | | | |
| Interest income | (12) | | (17) | | | | |
| Interest expense, net | $ | 66 | | $ | 64 | | | | |
Other (Income) Expense, Net | | | | | | | | | | | | | |
| Three Months Ended March 31, | | |
| (in millions) | 2026 | 2025 | | | |
| Foreign exchange losses, net | $ | 3 | | $ | — | | | | |
| Pension and other postretirement benefit plans | (7) | | (11) | | | | |
| | | | | |
| Change in fair value of marketable equity securities | 4 | | 1 | | | | |
| | | | | |
| Investment impairments | 5 | | 9 | | | | |
| | | | | |
| Other, net | 1 | | (2) | | | | |
| Other (income) expense, net | $ | 6 | | $ | (3) | | | | |
Non-Cash Operating and Investing Activities
Right-of-use operating lease assets obtained in exchange for lease obligations for the three months ended March 31, 2026 and 2025 were $20 million and $5 million, respectively.
Purchases of property, plant and equipment included in accounts payable as of March 31, 2026 and 2025 were $54 million and $39 million, respectively.
4. GOODWILL AND OTHER INTANGIBLE ASSETS, NET
Goodwill
The following is a reconciliation of goodwill by segment. | | | | | | | | | | | | | | | |
| (in millions) | Medical Products & Therapies | Healthcare Systems & Technologies | Pharmaceuticals | | Total |
| Balance as of December 31, 2025 | $ | 1,265 | | $ | 3,087 | | $ | 577 | | | $ | 4,929 | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| Currency translation | (17) | | (5) | | (8) | | | (30) | |
| Balance as of March 31, 2026 | $ | 1,248 | | $ | 3,082 | | $ | 569 | | | $ | 4,899 | |
Other intangible assets, net
The following is a summary of our other intangible assets. | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Indefinite-lived intangible assets | |
| (in millions) | Customer relationships | Developed technology, including patents | Trade names | Other amortized intangible assets | Trade names | In process Research and Development |
Total |
| December 31, 2025 | | | | | | | |
| Gross other intangible assets | $ | 3,393 | | $ | 3,208 | | $ | 953 | | $ | 91 | | $ | 390 | | $ | 107 | | $ | 8,142 | |
| Accumulated amortization | (1,095) | | (2,434) | | (172) | | (72) | | — | | — | | (3,773) | |
| Other intangible assets, net | $ | 2,298 | | 774 | | 781 | | 19 | | 390 | | 107 | | 4,369 | |
| March 31, 2026 | | | | | | | |
| Gross other intangible assets | $ | 3,392 | | $ | 3,194 | | $ | 953 | | $ | 90 | | $ | 390 | | $ | 107 | | $ | 8,126 | |
| Accumulated amortization | (1,148) | | (2,498) | | (190) | | (72) | | — | | — | | (3,908) | |
| Other intangible assets, net | $ | 2,244 | | $ | 696 | | $ | 763 | | $ | 18 | | $ | 390 | | $ | 107 | | $ | 4,218 | |
Intangible asset amortization expense was $146 million and $155 million for the three months ended March 31, 2026 and 2025, respectively.
5. FINANCING ARRANGEMENTS
Credit Facilities
Our multicurrency revolver credit facility (which amended and restated our prior U.S. Dollar-denominated revolving credit facility and replaced our prior Euro-denominated revolving credit facility (Multicurrency Revolver)) has a maximum capacity of $2.20 billion and matures in 2030. Borrowings under the Multicurrency Revolver in U.S. dollars bear interest on the principal amount outstanding at either Term SOFR plus an applicable margin or a “base rate” plus an applicable margin. The Multicurrency Revolver contains various covenants, including a maximum net leverage ratio. Borrowings in Euros are subject to a sublimit of $300 million. We may, at our option, seek to increase the aggregate commitment under the Multicurrency Revolver by up to $1.10 billion, which would result in a maximum aggregate commitment of up to $3.30 billion. There were no borrowings outstanding under the Multicurrency Revolver as of March 31, 2026 or December 31, 2025. Our commercial paper borrowing arrangements require us to maintain undrawn borrowing capacity under our Multicurrency Revolver for an amount at least equal to our outstanding commercial paper borrowings. Based on our covenant calculations as of March 31, 2026, we had capacity to draw $1.62 billion under the Multicurrency Revolver.
As of March 31, 2026, we were in compliance with the financial covenant in the Multicurrency Revolver. The non-performance of any financial institution supporting the Multicurrency Revolver would reduce the capacity thereunder by such institution's respective commitment.
6. COMMITMENTS AND CONTINGENCIES
We are involved in product liability, patent, commercial, employment and other legal matters that arise in the normal course of our business. We record a liability when a loss is considered probable and the amount can be reasonably estimated. If the reasonable estimate of a probable loss is a range, and no amount within the range is a better
estimate than any other amount, the minimum amount in the range is accrued. If a loss is not probable or a probable loss cannot be reasonably estimated, no liability is recorded. We regularly review legal contingencies to determine whether our accruals and related disclosures are adequate. The amount of ultimate loss may differ from these estimates and could have a material adverse effect on our results of operations and cash flows. As of March 31, 2026 and December 31, 2025, our total recorded reserves with respect to legal and environmental matters were $44 million and $47 million, respectively.
We have established reserves for certain of the matters discussed below. While we believe that we have valid defenses in the matters set forth below, litigation is inherently uncertain, excessive verdicts do occur, and we may incur material judgments or enter into material settlements of claims.
In addition to the matters described below, we remain subject to the risk of future administrative and legal actions. With respect to governmental and regulatory matters, these actions may lead to additional product recalls, injunctions, and other restrictions on our operations (including our ability to launch new products) and monetary sanctions, including significant civil or criminal penalties. With respect to intellectual property, we may be exposed to significant litigation concerning the scope of our and others’ rights. Such litigation could result in a loss of patent protection or the ability to market products, which could lead to a significant loss of sales, or otherwise materially affect future results of operations.
Novum IQ Large Volume Pump (Novum LVP)
During 2025, we initiated certain 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 these 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. 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 and these and other additional costs could become material 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.
Environmental
We are involved as a potentially responsible party (PRP) for environmental clean-up costs at several Superfund sites. Under the U.S. Superfund statute and many state laws, generators of hazardous waste sent to a disposal or recycling site are liable for site cleanup if contaminants from that property later leak into the environment. The laws generally provide that a PRP may be held jointly and severally liable for the costs of investigating and remediating the site. Separate from these Superfund cases noted above, we are involved in ongoing environmental remediations associated with historic operations at certain of our facilities. As of March 31, 2026 and December 31, 2025, our environmental reserves, which are measured on an undiscounted basis, were $25 million and $29 million, respectively. After considering these reserves, the outcome of these matters is not expected to have a material adverse effect on our financial position or results of operations.
General Litigation
Since December 2023, lawsuits have been filed against us in the Circuit Court of Cook County, Illinois by plaintiffs alleging injuries as a result of exposure to ethylene oxide used by several companies, including historic use by us for sterilization at our facility in Round Lake, Illinois. Thirty-eight complaints are currently filed and pending. The parties have reached an agreement in principle to resolve these filed cases, for an amount not material to Baxter.
In October 2022, the DOJ issued a Civil Investigative Demand (CID) addressed to Hillrom, requesting documents and information related to compliance with the False Claims Act and the Anti-Kickback Statute. In October 2024, the DOJ issued a subpoena (the 2024 Subpoena), pursuant to 18 U.S.C. 3846, to Hillrom. The 2024 Subpoena substantially overlaps with the CID and requests additional documents relating to Hillrom's respiratory health business. Baxter is cooperating fully with the DOJ in responding to the CID and the 2024 Subpoena. The DOJ often issues these types of requests when investigating alleged violations of the federal health care laws.
In December 2021, Linet Americas, Inc. (Linet) filed a complaint against Hill-Rom Holdings, Inc., Hill-Rom Company, Inc., and Hill-Rom Services, Inc. in the United States District Court for the Northern District of Illinois. Linet alleges that Hillrom violated federal and state antitrust laws by allegedly engaging in anti-competitive conduct in alleged markets for standard, ICU and birthing beds. Hillrom filed an answer to the complaint in January 2022 and filed a motion challenging certain aspects of plaintiff's case in May 2022, which was denied in January 2024, subject to further discovery. Fact discovery is ongoing.
In June 2024, Reading Hospital filed a putative class action complaint against Hill-Rom Holdings, Inc., Hill-Rom Company, Inc., and Hill-Rom Services, Inc. in the United States District Court for the Eastern District of Pennsylvania. The complaint alleged that Hillrom violated federal antitrust laws by allegedly engaging in anti-competitive conduct in alleged markets for standard, ICU and birthing beds. The plaintiff filed the action on behalf of itself and all "direct purchasers of Standard Hospital Beds, ICU Beds, and/or Birthing Beds from Hill-Rom during a period beginning at least as early as June 20, 2020” and continuing past the date of filing. In September 2024, the plaintiff filed a First Amended Complaint. In November 2024, Hillrom filed a Motion to Dismiss Plaintiff's Amended Complaint. After briefing and a hearing, the court granted the motion and dismissed the case with prejudice in September 2025. Reading Hospital filed a Notice of Appeal of the dismissal in October 2025; appellate briefing is underway.
In October 2025, we and certain of our current and former officers and employees were named in a class action complaint captioned Electrical Workers Pension Fund, Local 103, I.B.E.W. v. Baxter International Inc. et al. that was filed in the United States District Court for the Northern District of Illinois. The plaintiff, which allegedly purchased or otherwise acquired shares of our common stock during the specified class period, filed this putative class action on behalf of itself and those who purchased or otherwise acquired Baxter common stock between February 23, 2022 and July 30, 2025. The plaintiff alleges that we and certain former and current officers and employees violated federal securities laws by making allegedly false and misleading statements and failing to disclose material facts relating to Novum LVP. In December 2025, an additional class action complaint was filed against us and certain of our current and former officers and employees in the United States District Court for the Northern District of Illinois, captioned City of Hallansdale Beach Police Officers' and Firefighters' Personnel Retirement Trust v. Baxter International Inc., et al. The additional complaint included substantially the same allegations for the expanded period from February 23, 2022, through October 29, 2025. Plaintiffs filed their respective motions to be appointed lead plaintiff in December 2025, which are pending before the court.
In November 2025, certain of our current and former directors, officers and employees were named in two derivative complaints in the United States District Court for the Northern District of Illinois, captioned Ryan Wood v. Jose E. Almeida, et al. and Kevin Gray v. Jose E. Almeida, et al., respectively. Both complaints allege, nominally on behalf of Baxter International Inc., breaches of fiduciary duties and violations of federal law in connection with public statements about Novum LVP. The two derivative complaints were consolidated before the court in January 2026.
In addition, we have received stockholder requests for inspections of our books and records in connection with statements made about Novum LVP.
In December 2025, we received a CID from the DOJ requesting documents and information related to production of Baxter’s IV flexible containers and compliance with the False Claims Act. We are cooperating fully with the DOJ in responding to the CID.
7. STOCKHOLDERS’ EQUITY
Cash Dividends
Cash dividends declared per share for the three months ended March 31, 2026 and 2025 were $0.01 and $0.17, respectively.
Stock Repurchase Programs
In July 2012, our Board of Directors authorized a share repurchase program and the related authorization amount was subsequently increased a number of times. During the first three months of 2026 and 2025 we did not repurchase any shares under this authority. We had $1.30 billion remaining available under the authorization as of March 31, 2026.
8. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
Comprehensive income (loss) represents net earnings plus items that are recorded directly to shareholders’ equity, such as cumulative translation adjustments (CTA), certain gains and losses from pension and other postretirement
employee benefit (OPEB) plans, certain gains and losses from hedging activities and unrealized gains and losses on available-for-sale debt securities.
The following table is a net-of-tax summary of the changes in accumulated other comprehensive income (loss) (AOCI) by component for the three months ended March 31, 2026 and 2025. | | | | | | | | | | | | | | | | | |
| Gains (losses) |
| (in millions) | CTA | Pension and OPEB plans | Hedging activities | Available-for-sale debt securities | Total |
| | | | | |
Balance as of December 31, 2025 | $ | (3,133) | | $ | (514) | | $ | (110) | | $ | 3 | | $ | (3,754) | |
| Other comprehensive income (loss) before reclassifications | (52) | | 1 | | — | | — | | (51) | |
Amounts reclassified from AOCI (a) | — | | 2 | | 1 | | — | | 3 | |
| Net other comprehensive income (loss) | (52) | | 3 | | 1 | | — | | (48) | |
| Balance as of March 31, 2026 | $ | (3,185) | | $ | (511) | | $ | (109) | | $ | 3 | | $ | (3,802) | |
| | | | | | | | | | | | | | | | | |
| Gains (losses) |
| (in millions) | CTA | Pension and OPEB plans | Hedging activities | Available-for-sale debt securities | Total |
| | | | | |
| Balance as of December 31, 2024 | $ | (3,430) | | $ | (475) | | $ | (108) | | $ | 3 | | $ | (4,010) | |
| | | | | |
| Other comprehensive income (loss) before reclassifications | (57) | | 14 | | — | | — | | (43) | |
Amounts reclassified from AOCI (a) | 126 | | (13) | | (2) | | — | | 111 | |
| Net other comprehensive income (loss) | 69 | | 1 | | (2) | | — | | 68 | |
| Balance as of March 31, 2025 | $ | (3,361) | | $ | (474) | | $ | (110) | | $ | 3 | | $ | (3,942) | |
(a) See table below for details about these reclassifications.
The following is a summary of the amounts reclassified from AOCI to net income (loss) during the three months ended March 31, 2026 and 2025. | | | | | | | | | | | |
| | | |
| Amounts reclassified from AOCI (a) | |
| (in millions) | Three months ended March 31, 2026 | Three months ended March 31, 2025 | Location of impact in income statement |
| CTA | | | |
| Reclassification of cumulative translation loss to earnings from Kidney Care separation | $ | — | | $ | (126) | | Income from discontinued operations, net of tax |
| Less: Tax effect | — | | — | | Income from discontinued operations, net of tax |
| $ | — | | $ | (126) | | Net of tax |
| Pension and OPEB items | | | |
| Amortization of net losses and prior service costs or credits | $ | (3) | | $ | 3 | | Other (income) expense, net |
| Pension settlement from Kidney Care separation | — | | 14 | | Income from discontinued operations, net of tax |
| $ | (3) | | $ | 17 | | Total before tax |
| Less: Tax effect | 1 | | (1) | | Income tax expense (benefit) |
| Less: Tax effect on pension settlement from Kidney Care separation | — | | (3) | | Income from discontinued operations, net of tax |
| $ | (2) | | $ | 13 | | Net of tax |
| Gains (losses) on hedging activities | | | |
| Foreign exchange contracts | $ | — | | $ | (1) | | Cost of sales |
| Interest rate contracts | (1) | | 4 | | Interest expense, net |
| | | |
| (1) | | 3 | | Total before tax |
| Less: Tax effect | — | | (1) | | Income tax expense (benefit) |
| $ | (1) | | $ | 2 | | Net of tax |
| Total reclassifications for the period | $ | (3) | | $ | (111) | | Total net of tax |
(a) Amounts in parentheses indicate reductions to net income
Refer to Note 11 for additional information regarding the amortization of pension and OPEB items and Note 14 for additional information regarding hedging activity.
9. REVENUES
Revenue is measured as the amount of consideration we expect to receive in exchange for transferring goods or providing services. A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of account in the contract. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. Some of our contracts have multiple performance obligations. For contracts with multiple performance obligations, we allocate the contract’s transaction price to each performance obligation using our best estimate of the standalone selling price of each distinct good or service in the contract. Our global payment terms are typically between 30 to 90 days.
Our primary customers are hospitals, healthcare distribution companies, and government agencies that purchase healthcare products on behalf of providers. Most of our performance obligations are satisfied at a point in time. This includes sales of our broad portfolio of essential healthcare products across our business segments. We earn revenues from sterile intravenous (IV) solutions; infusion systems and devices; parenteral nutrition therapies; inhaled anesthetics; generic injectable pharmaceuticals; surgical hemostat and sealant products; smart bed systems; patient monitoring and diagnostic technologies; respiratory health devices; and advanced equipment for the surgical space. For most of those offerings, our performance obligation is satisfied upon delivery to the customer. Shipping and handling activities are considered to be fulfillment activities and are not considered to be a separate performance obligation.
To a lesser extent, we enter into arrangements for which revenue may be recognized over time. For example, we lease medical equipment to customers under operating lease arrangements and recognize the related revenues on a monthly basis over the lease term. Our Healthcare Systems & Technologies segment includes connected care solutions and collaboration tools that are implemented over time. We recognize revenue for these arrangements over time or at a point in time depending on our evaluation of when the customer obtains control of the promised goods or services. We also earn revenue from contract manufacturing activities, which is recognized over time as the services are performed. Revenue is recognized over time when we are creating or enhancing an asset that the customer controls as the asset is created or enhanced or our performance does not create an asset with an alternative use and we have an enforceable right to payment for performance completed.
As of March 31, 2026, we had $8.87 billion of transaction price allocated to remaining performance obligations related to executed contracts with an original duration of more than one year, which are primarily included in the Medical Products & Therapies segment. Some contracts in the United States included in this amount contain index-dependent price increases, which are not known at this time. We expect to recognize approximately 25% of this amount as revenue over the remainder of 2026, 20% in 2027, 15% in each of 2028 and 2029, 10% in 2030 and the remainder thereafter.
Significant Judgments
Revenues from product sales are recorded at the net sales price, which include estimates of variable consideration primarily related to rebates and distributor chargebacks. These reserves are based on estimates of the amounts earned or to be claimed on the related sales and are included in accrued expenses and other current liabilities and as reductions of accounts receivable, net on the condensed consolidated balance sheets. Management's estimates take into consideration historical experience, current contractual and statutory requirements, specific known market events and trends, industry data, and forecasted customer buying and payment patterns. Overall, these reserves reflect our best estimates of the amount of consideration to which we are entitled based on the terms of the contract using the expected value method. The amount of variable consideration included in the net sales price is limited to the amount for which it is probable that a significant reversal in revenue will not occur when the related uncertainty is resolved. Revenue recognized during the three months ended March 31, 2026 and 2025 related to performance obligations satisfied in prior periods was not material. Additionally, our contracts with customers often include promises to transfer multiple products and services to a customer. Determining whether products and services are considered distinct performance obligations that should be accounted for separately and determining the allocation of the transaction price may require significant judgment.
Contract Balances
The timing of revenue recognition, billings and cash collections results in the recognition of trade accounts receivable, unbilled receivables, contract assets and customer advances, and deposits (contract liabilities) on our condensed consolidated balance sheets. Net trade accounts receivable was $1.54 billion and $1.70 billion as of March 31, 2026 and December 31, 2025, respectively.
For contract manufacturing arrangements, revenue is primarily recognized throughout the production cycle, which typically lasts up to 90 days, resulting in the recognition of contract assets until the related services are completed and the customers are billed. Additionally, for certain arrangements containing a performance obligation to deliver software that can be used with medical devices, we recognize revenue upon delivery of the software, which results in the recognition of contract assets when customers are billed over time, generally over one to five years. For bundled contracts involving equipment delivered up-front and consumable medical products to be delivered over time, total contract revenue is allocated between the equipment and consumable medical products. In certain of those arrangements, a contract asset is created for the difference between the amount of equipment revenue recognized upon delivery and the amount of consideration initially receivable from the customer. In those arrangements, the contract asset becomes a trade account receivable as consumable medical products are delivered and billed, generally over one to seven years.
The following table summarizes our contract assets: | | | | | | | | |
| (in millions) | March 31,
2026 | December 31,
2025 |
| Contract manufacturing services | $ | 5 | | $ | 3 | |
| Software sales | 31 | | 34 | |
| Bundled equipment and consumable medical products contracts | 100 | | 110 | |
| Contract assets | $ | 136 | | $ | 147 | |
Contract liabilities represent deferred revenues that arise as a result of cash received from customers or where the timing of billing for services precedes satisfaction of our performance obligations. Such remaining performance obligations represent the portion of the contract price for which work has not been performed and are primarily related to our installation and service contracts. We expect to satisfy the majority of the remaining performance obligations and recognize revenue related to installation and service contracts within the next 12 months with most of the non-current performance obligations satisfied within 24 months.
The following table summarizes contract liability activity for the three months ended March 31, 2026 and 2025. The contract liability balance represents the transaction price allocated to the remaining performance obligations.
| | | | | | | | |
| Three Months Ended March 31, |
| (in millions) | 2026 | 2025 |
| Balance at beginning of period | $ | 177 | | $ | 171 | |
| New revenue deferrals | 187 | | 128 | |
| Revenue recognized upon satisfaction of performance obligations | (182) | | (124) | |
| Currency translation and other | — | | — | |
| Balance at end of period | $ | 182 | | $ | 175 | |
For the three months ended March 31, 2026 and 2025, $46 million and $34 million of revenue was recognized that was included in contract liabilities as of December 31, 2025 and 2024, respectively.
The following table summarizes the classification of contract assets and contract liabilities as reported in the condensed consolidated balance sheets:
| | | | | | | | |
| (in millions) | March 31,
2026 | December 31,
2025 |
| Prepaid expenses and other current assets | $ | 70 | | $ | 71 | |
| Other non-current assets | 66 | | 76 | |
| Contract assets | $ | 136 | | $ | 147 | |
| | |
| Accrued expenses and other current liabilities | $ | 152 | | $ | 141 | |
| Other non-current liabilities | 30 | | 36 | |
| Contract liabilities | $ | 182 | | $ | 177 | |
Disaggregation of Net Sales
Refer to Note 16 for additional information on our net sales including the disaggregation of net sales within each of our segments and net sales by geographic location.
Lease Revenue
We lease medical equipment, such as smart beds and infusion pumps, to customers, often in conjunction with arrangements to provide consumable medical products such as IV fluids and inhaled anesthetics. Certain of our equipment leases are classified as sales-type leases and the remainder are operating leases. The terms of the related contracts, including the proportion of fixed versus variable payments and any options to shorten or extend the lease term, vary by customer. We allocate revenue between equipment leases and medical products based on their standalone selling prices.
The components of lease revenue for the three months ended March 31, 2026 and 2025 were: | | | | | | | | | | | | | |
| Three Months Ended March 31, | | |
| (in millions) | 2026 | 2025 | | | |
| Sales-type lease revenue | $ | 3 | | $ | 8 | | | | |
| Operating lease revenue | 90 | | 91 | | | | |
| Variable lease revenue | 7 | | 7 | | | | |
| Total lease revenue | $ | 100 | | $ | 106 | | | | |
Our net investment in sales-type leases was $30 million as of March 31, 2026, of which $5 million originated in 2022 and prior, $5 million in 2023, $9 million in 2024, $8 million in 2025, and $3 million in 2026.
10. BUSINESS OPTIMIZATION CHARGES
We are continuing to undertake actions to transform our cost structure and enhance operational efficiency. In recent years, these efforts have included restructuring the organization into verticalized segments, optimizing the manufacturing footprint, R&D operations and supply chain network, employing disciplined cost management, and centralizing and streamlining certain support functions, some of which are still ongoing. We currently expect to incur additional pre-tax cash costs, primarily related to the implementation of business optimization programs, of approximately $2 million through the completion of 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 we expect to incur additional restructuring charges and costs in future periods to implement business optimization programs. For segment reporting, business optimization charges are unallocated expenses.
During the three months ended March 31, 2026 and 2025, we recorded the following charges related to business optimization programs.
| | | | | | | | | | | |
| Three Months Ended March 31, | | |
| (in millions) | 2026 | 2025 | | | |
| Restructuring charges | $ | 61 | | $ | 44 | | | | |
Costs to implement business optimization programs1 | 7 | | 1 | | | | |
| | | | | |
| Total business optimization charges | $ | 68 | | $ | 45 | | | | |
1Costs to implement business optimization programs for the three months ended March 31, 2026 and 2025, respectively, consisted primarily of external consulting and transition costs, including employee compensation and related costs. These costs were primarily included within cost of sales and SG&A expense.
During the three months ended March 31, 2026 and 2025, we recorded the following restructuring charges. | | | | | | | | | | | | | | |
| Three months ended March 31, 2026 |
| (in millions) | COGS | SG&A | R&D | Total |
| Employee termination costs | $ | 10 | | $ | 35 | | $ | 13 | | $ | 58 | |
| Contract termination and other costs | 1 | | — | | 1 | | 2 | |
| Asset write offs | — | | 1 | | — | | 1 | |
| Total restructuring charges | $ | 11 | | $ | 36 | | $ | 14 | | $ | 61 | |
| | | | | | | | | | | | | | |
| Three months ended March 31, 2025 |
| (in millions) | COGS | SG&A | R&D | Total |
| Employee termination costs | $ | 12 | | $ | 13 | | $ | 1 | | $ | 26 | |
| | | | |
| Asset write offs | 1 | | 17 | | — | | 18 | |
| Total restructuring charges | $ | 13 | | $ | 30 | | $ | 1 | | $ | 44 | |
For the three months ended March 31, 2026 and 2025, $58 million and $25 million, respectively, of the restructuring charges reflected in the table above, consisting of employee termination costs, were related to initiatives to reduce our cost structure following the sale of our Kidney Care segment.
The following table summarizes activity in the liability related to our restructuring initiatives. | | | | | |
| (in millions) | |
| Liability balance as of December 31, 2025 | $ | 133 | |
| Charges | 60 | |
| Payments | (48) | |
| Reserve adjustments | — | |
| Currency translation | (1) | |
| Liability balance as of March 31, 2026 | $ | 144 | |
Substantially all of our restructuring liabilities as of March 31, 2026 relate to employee termination costs, with the remaining liabilities attributable to contract termination costs. Substantially all of the cash payments for those liabilities are expected to be disbursed by the end of 2026.
11. PENSION AND OTHER POSTRETIREMENT BENEFIT PROGRAMS
The following is a summary of net periodic benefit cost relating to our pension and OPEB plans. | | | | | | | | | | | | | |
| Three Months Ended March 31, | | |
| (in millions) | 2026 | 2025 | | | |
| Pension benefits | | | | | |
| Service cost | $ | 3 | | $ | 3 | | | | |
| Interest cost | 31 | | 34 | | | | |
| Expected return on plan assets | (42) | | (44) | | | | |
| Amortization of net losses and prior service costs | 3 | | 1 | | | | |
| Net periodic pension cost (benefit) | $ | (5) | | $ | (6) | | | | |
| OPEB | | | | | |
| Interest cost | $ | 1 | | $ | 2 | | | | |
| Amortization of net loss and prior service credit | — | | (4) | | | | |
| Net periodic OPEB cost (income) | $ | 1 | | $ | (2) | | | | |
12. INCOME TAXES
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.
For the three months ended March 31, 2026, 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 results and increases to our valuation allowance on U.S. deferred tax assets. The quarter also reflects income tax recorded related to tax shortfalls on stock compensation awards.
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.
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 adjustments to the reserves in connection with the NOPA, other than interest that may be owed upon conclusion of the audit.
13. EARNINGS PER SHARE
The numerator for both basic and diluted earnings per share (EPS) is net income (loss) attributable to Baxter stockholders. The denominator for basic EPS is the weighted-average number of shares outstanding during the period. The dilutive effect of outstanding stock options, restricted stock units (RSUs) and performance share units (PSUs) is reflected in the denominator for diluted EPS using the treasury stock method.
The following table is a reconciliation of income (loss) from continuing operations to net income (loss) attributable to Baxter stockholders.
| | | | | | | | | | | | | |
| Three Months Ended March 31, | | |
| (in millions) | 2026 | 2025 | | | |
| Income (loss) from continuing operations | $ | (17) | | $ | 64 | | | | |
| Less: Net income attributable to noncontrolling interests included in continuing operations | — | | — | | | | |
| Income (loss) from continuing operations attributable to Baxter stockholders | (17) | | 64 | | | | |
| Income (loss) from discontinued operations | 2 | | 62 | | | | |
| Less: Net income attributable to noncontrolling interests included in discontinued operations | — | | — | | | | |
| Income (loss) from discontinued operations attributable to Baxter stockholders | 2 | | 62 | | | | |
| Net income (loss) attributable to Baxter stockholders | $ | (15) | | $ | 126 | | | | |
The following table is a reconciliation of basic shares and diluted shares.
| | | | | | | | | | | | | |
| Three Months Ended March 31, | | |
| (in millions) | 2026 | 2025 | | | |
| Basic shares | 515 | | 512 | | | | |
| Effect of dilutive securities | — | | 2 | | | | |
| Diluted shares | 515 | | 514 | | | | |
Basic and diluted shares are the same for three months ended March 31, 2026 due to our loss from continuing operations attributable to Baxter stockholders. The effect of dilutive securities includes unexercised stock options, unvested RSUs and contingently issuable shares related to granted PSUs. The computation of diluted EPS excludes 25 million and 20 million shares issuable under equity awards for the three months ended March 31, 2026 and 2025, respectively, because their inclusion would have had an anti-dilutive effect on diluted EPS.
14. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
We operate on a global basis and are exposed to the risk that our earnings, cash flows and equity could be adversely impacted by fluctuations in foreign exchange and interest rates. Our hedging policy attempts to manage these risks to an acceptable level based on our judgment of the appropriate trade-off between risk, opportunity and costs.
We are primarily exposed to foreign exchange risk with respect to recognized assets and liabilities, forecasted transactions and net assets denominated in the Euro, Polish Zloty, Swedish Krona, Swiss Franc, Turkish Lira, Australian Dollar, Singapore Dollar, Korean Wan, Chinese Renminbi, and Canadian Dollar. We manage our foreign currency exposures on a consolidated basis, which allows us to net exposures and take advantage of any natural offsets. In addition, we use derivative and nonderivative instruments to further reduce the net exposure to foreign exchange risk. Gains and losses on the hedging instruments offset losses and gains on the hedged transactions and reduce the earnings and equity volatility resulting from changes in foreign exchange rates. Financial market and currency volatility may limit our ability to cost-effectively hedge these exposures.
We are also exposed to the risk that our earnings and cash flows could be adversely impacted by fluctuations in interest rates. Our policy is to manage interest costs using the mix of fixed- and floating-rate debt that we believe is appropriate at that time. To manage this mix in a cost-efficient manner, we periodically enter into interest rate swaps in which we agree to exchange, at specified intervals, the difference between fixed and floating interest amounts calculated by reference to an agreed-upon notional amount.
We do not hold any instruments for trading purposes and none of our outstanding derivative instruments contain credit-risk-related contingent features.
Derivative instruments are recognized as either assets or liabilities at fair value in the condensed consolidated balance sheets and are classified as short-term or long-term based on the scheduled maturity of the instrument. We designate certain of our derivatives and foreign-currency denominated debt as hedging instruments in cash flow, fair value or net investment hedges.
Cash Flow Hedges
We may use options, including collars and purchased options, forwards and cross-currency swaps to hedge the foreign exchange risk to earnings relating to forecasted transactions and recognized assets and liabilities. We periodically use treasury rate locks to hedge the risk to earnings associated with movements in interest rates relating to anticipated issuances of debt.
For each derivative instrument that is designated and effective as a cash flow hedge, the gain or loss on the derivative is recorded in AOCI and then recognized in earnings consistent with the underlying hedged transaction. Cash flow hedges are classified in cost of sales and interest expense, net, and are primarily related to forecasted intra-company sales denominated in foreign currencies and forecasted interest payments on anticipated issuances of debt, respectively.
There were no foreign exchange contracts designated as cash flow hedges outstanding as of March 31, 2026 and December 31, 2025. There were no outstanding interest rate contracts designated as cash flow hedges as of March 31, 2026 and December 31, 2025.
Fair Value Hedges
We periodically use interest rate swaps to convert a portion of our fixed-rate debt into variable-rate debt. These instruments hedge our earnings from changes in the fair value of debt due to fluctuations in the designated benchmark interest rate.
There were no outstanding interest rate contracts designated as fair value hedges as of March 31, 2026 and December 31, 2025.
Net Investment Hedges
In May 2017, we issued €600 million of 1.3% senior notes due May 2025. We had designated these debt obligations as hedges of our net investment in our European operations and, as a result, mark to spot rate adjustments of the outstanding debt balances were previously recorded as a component of AOCI. In March 2025, we dedesignated this
previously designated net investment hedge and concurrently entered into forward contracts to manage foreign exchange risk in earnings relating to these outstanding debt balances. These forward contracts matured in May 2025.
In May 2019, we issued €750 million of 1.3% senior notes due May 2029. We have designated these debt obligations as hedges of our net investment in our European operations and, as a result, mark to spot rate adjustments on the outstanding debt balances are recorded as a component of AOCI.
As of March 31, 2026, we had an accumulated pre-tax unrealized translation gain in AOCI of $17 million related to the Euro-denominated senior notes.
Dedesignations
If it is determined that a derivative or nonderivative hedging instrument is no longer highly effective as a hedge, we discontinue hedge accounting prospectively. Gains or losses relating to terminations of effective cash flow hedges generally continue to be deferred and are recognized consistent with the loss or income recognition of the underlying hedged transactions. However, if it is probable that the hedged forecasted transactions will not occur, any gains or losses would be immediately reclassified from AOCI to earnings.
There were no cash flow hedge dedesignations in the first three months of 2026 or 2025 resulting from changes in our assessment of the probability that the hedged forecasted transactions would occur.
If we terminate a fair value hedge, an amount equal to the cumulative fair value adjustment to the hedged item at the date of termination is amortized to earnings over the remaining term of the hedged item. There were no fair value hedges terminated during the first three months of 2026 or 2025.
If we remove a net investment hedge designation, any gain or loss recognized in AOCI is not reclassified to earnings until we sell, liquidate, or deconsolidate the foreign investments that were being hedged. There were no net investment hedges terminated during the first three months of 2026. In March 2025, we dedesignated one of our net investment hedges as discussed in the "Net Investment Hedges" section above.
Undesignated Derivative Instruments
We use forward contracts to hedge earnings from the effects of foreign exchange relating to certain of our intra-company and third-party receivables and payables denominated in a foreign currency. These derivative instruments are generally not formally designated as hedges and the terms of these instruments generally do not exceed one month.
In March 2025, as discussed in the "Net Investment Hedges" section above, we entered into forward contracts with a notional amount of $655 million to hedge the repayment of our Euro-denominated senior notes due May 2025. These forward contracts matured in May 2025. The total notional amount of undesignated derivative instruments was $187 million as of March 31, 2026 and $323 million as of December 31, 2025.
Gains and Losses on Hedging Instruments and Undesignated Derivative Instruments
The following tables summarize the gains and losses on our hedging instruments and the classification of those gains and losses within our condensed consolidated financial statements for the three months ended March 31, 2026 and 2025. | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Gain (loss) recognized in OCI | | Location of gain (loss)
in income statement | Gain (loss) reclassified from AOCI into income |
| (in millions) | 2026 | | 2025 | | 2026 | | 2025 |
| Cash flow hedges | | | | | | | | |
| Interest rate contracts | $ | — | | | $ | — | | | Interest expense, net | $ | (1) | | | $ | (1) | |
| Foreign exchange contracts | — | | | — | | | Cost of sales | — | | | 4 | |
| | | | | | | | |
| | | | | | | | |
| Net investment hedges | 20 | | | 61 | | | Other (income) expense, net | — | | | — | |
| Total | $ | 20 | | | $ | 61 | | | | $ | (1) | | | $ | 3 | |
| | | | | | | | | | | | | | |
| Location of gain (loss) in income statement | Gain (loss) recognized in income |
| (in millions) | 2026 | | 2025 |
| | | | |
| | | | |
| Undesignated derivative instruments | | | | |
| Foreign exchange contracts | Other (income) expense, net | $ | (4) | | | $ | (2) | |
| Total | | $ | (4) | | | $ | (2) | |
As of March 31, 2026, $4 million of deferred, net after-tax losses on derivative instruments included in AOCI are expected to be recognized in earnings during the next 12 months, coinciding with when the hedged items are expected to impact earnings.Derivative Assets and Liabilities
The following table summarizes the classification and fair values of derivative instruments reported in the condensed consolidated balance sheet as of March 31, 2026. | | | | | | | | | | | |
| | | Derivatives in liability positions |
| (in millions) | | | | Balance sheet location | Fair value |
| Derivative instruments designated as hedges | | | | | |
| | | | | |
| Net investment hedges | | | | Long-term debt and finance lease obligations, less current portion | $ | 805 |
| Undesignated derivative instruments | | | | | |
| Foreign exchange contracts | | | | Accrued expenses and other current liabilities | 2 |
| | | | | |
| | | | | |
| | | | | |
| Total derivative instruments | | | | | $ | 807 |
The following table summarizes the classification and fair values of derivative instruments reported in the condensed consolidated balance sheet as of December 31, 2025. | | | | | | | | | | | | | |
| | | Derivatives in liability positions |
| (in millions) | | | | Balance sheet location | Fair value |
| Derivative instruments designated as hedges | | | | | |
| | | | | |
| | | | | |
| Net investment hedges | | | | Long-term debt and finance lease obligations, less current portion | 834 | |
| Undesignated derivative instruments | | | | | |
| | | | | |
| Foreign exchange contracts | | | | Accrued expenses and other current liabilities | 1 | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| Total derivative instruments | | | | | $ | 835 | |
While some of our derivatives are subject to master netting arrangements, we present our assets and liabilities related to derivative instruments on a gross basis within the condensed consolidated balance sheets. Additionally, we are not required to post collateral for any of our outstanding derivatives.
The following table provides information on our derivative positions as if they were presented on a net basis, allowing for the right of offset by counterparty. | | | | | | | | | | | | | | | | | |
| March 31, 2026 | | December 31, 2025 |
| (in millions) | Asset | Liability | | Asset | Liability |
| Gross amounts recognized in the condensed consolidated balance sheets | $ | — | | $ | 2 | | | $ | — | | $ | 1 | |
| Gross amount subject to offset in master netting arrangements not offset in the condensed consolidated balance sheet | — | | — | | | — | | — | |
| Total | $ | — | | $ | 2 | | | $ | — | | $ | 1 | |
The following table presents the amounts recorded on the condensed consolidated balance sheet related to fair value hedges: | | | | | | | | | | | | | | | | | |
| Carrying amount of hedged item | | Cumulative amount of fair value hedging adjustment included
in the carrying amount of the hedged item (a) |
| (in millions) | Balance as of March 31, 2026 | Balance as of December 31, 2025 | | Balance as of March 31, 2026 | Balance as of December 31, 2025 |
| Long-term debt | $ | 99 | | $ | 99 | | | $ | 1 | | $ | 2 | |
(a) These fair value hedges were terminated in 2018 and earlier periods.
15. FAIR VALUE MEASUREMENTS
The following tables summarize our assets and liabilities that are measured at fair value on a recurring basis. | | | | | | | | | | | | | | |
| | Basis of fair value measurement |
| (in millions) | Balance as of March 31, 2026 | Quoted prices in active markets for identical assets
(Level 1) | Significant other
observable inputs
(Level 2) | Significant
unobservable inputs
(Level 3) |
| Assets | | | | |
| Foreign exchange contracts | $ | — | | $ | — | | $ | — | | $ | — | |
| | | | |
| Available-for-sale debt securities | 1 | | — | | — | | 1 | |
| Marketable equity securities | 11 | | 11 | | — | | — | |
| Total | $ | 12 | | $ | 11 | | $ | — | | $ | 1 | |
| Liabilities | | | | |
| Foreign exchange contracts | $ | 2 | | $ | — | | $ | 2 | | $ | — | |
| | | | |
| Contingent payments related to acquisitions | 7 | | — | | — | | 7 | |
Indemnifications related to Kidney Care separation1 | 53 | | — | | — | | 53 | |
| Total | $ | 62 | | $ | — | | $ | 2 | | $ | 60 | |
1 See Note 2 for additional information.
| | | | | | | | | | | | | | |
| | Basis of fair value measurement |
| (in millions) | Balance as of December 31, 2025 | Quoted prices in active markets for identical assets
(Level 1) | Significant other
observable inputs
(Level 2) | Significant
unobservable inputs
(Level 3) |
| Assets | | | | |
| | | | |
| | | | |
| Available-for-sale debt securities | 1 | | — | | — | | 1 | |
| Marketable equity securities | 15 | | 15 | | — | | — | |
| Total | $ | 16 | | $ | 15 | | $ | — | | $ | 1 | |
| Liabilities | | | | |
| Foreign exchange contracts | $ | 1 | | $ | — | | $ | 1 | | $ | — | |
| | | | |
| Contingent payments related to acquisitions | 7 | | — | | — | | 7 | |
Indemnifications related to Kidney Care separation1 | 53 | | — | | — | | 53 | |
| Total | $ | 61 | | $ | — | | $ | 1 | | $ | 60 | |
As of March 31, 2026 and December 31, 2025, cash and cash equivalents of $2.02 billion and $1.97 billion, respectively, included money market fund and other short-term funds of approximately $853 million and $832 million, respectively, that are considered Level 2 in the fair value hierarchy.
For assets that are measured using quoted prices in active markets, the fair value is the published market price per unit multiplied by the number of units held, without consideration of transaction costs. A majority of the derivatives entered into by us are valued using internal valuation techniques as no quoted market prices exist for such instruments. The principal techniques used to value these instruments are discounted cash flow and Black-Scholes models. The key inputs, which are considered observable and vary depending on the type of derivative, include contractual terms, interest rate yield curves, foreign exchange rates and volatility.
Available-for-sale debt securities, which consist of convertible debt and convertible redeemable preferred shares issued by nonpublic entities, are measured using discounted cash flow and option pricing models. Those available-for-sale debt securities are classified as Level 3 fair value measurements when there are no observable transactions near the balance sheet date due to the lack of observable data over certain fair value inputs such as equity volatility. The fair values of available-for-sale debt securities increase when interest rates decrease, equity volatility increases, or the fair values of the equity shares underlying the conversion options increase.
Contingent payments related to acquisitions, which consist of milestone payments and sales-based payments, are valued using discounted cash flow techniques incorporating management's expectations of future outcomes. The fair value of milestone payments increases as the estimated probability of payment increases or the expected timing of payments is accelerated. The fair value of sales-based payments is based upon probability-weighted future revenue estimates, and increases as revenue estimates increase, probability weighting of higher revenue scenarios increases or the expected timing of payment is accelerated.
In addition, we have contingent payments related to the Kidney Care separation, which consist of reimbursements to Vantive for certain indemnifications contemplated in the EPA. For additional information on these items see Note 2.
The following table is a reconciliation of recurring fair value measurements that use significant unobservable inputs (Level 3), which consist of indemnifications related to the Kidney Care separation, contingent payments related to acquisitions and available-for-sale debt securities. | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, |
| 2026 | | 2025 |
| (in millions) | Indemnifications related to Kidney Care separation | Contingent payments related to acquisitions | Available-for-sale debt securities | | Indemnifications related to Kidney Care separation | Contingent payments related to acquisitions | Available-for-sale debt securities |
| Fair value at beginning of period | $ | 53 | | $ | 7 | | $ | — | | | $ | — | | $ | 12 | | $ | 1 | |
| Additions | — | | — | | — | | | 37 | | — | | — | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Fair value at end of period | $ | 53 | | $ | 7 | | $ | — | | | $ | 37 | | $ | 12 | | $ | 1 | |
Financial Instruments Not Measured at Fair Value In addition to the financial instruments that we are required to recognize at fair value in the condensed consolidated balance sheets, we have certain financial instruments that are recognized at amortized cost or some basis other than fair value. For these financial instruments, the following table provides the values recognized in the condensed consolidated balance sheets and the estimated fair values as of March 31, 2026 and December 31, 2025.
| | | | | | | | | | | | | | | | | |
| Book values | | Fair values(a) |
| (in millions) | 2026 | 2025 | | 2026 | 2025 |
| Liabilities | | | | | |
| | | | | |
| Current maturities of long-term debt and finance lease obligations | 842 | | — | | | 823 | | $ | — | |
| Long-term debt and finance lease obligations | 8,621 | | 9,436 | | | 7,749 | | 8,714 | |
(a) These fair value amounts are classified as Level 2 within the fair value hierarchy as they are estimated based on observable inputs.
The estimated fair values of current and long-term debt were computed by multiplying price by the notional amount of the respective debt instruments. Price is calculated using the stated terms of the respective debt instrument and yield curves commensurate with our credit risk. The carrying values of other financial instruments not presented in the above table, such as accounts receivable and accounts payable, approximate their fair values due to the short-term maturities of most of those assets and liabilities.
Investments Without Readily Determinable Fair Values
The carrying values of equity investments without readily determinable fair values that we measure at cost, less impairment were $45 million and $50 million as of as of March 31, 2026 and December 31, 2025, respectively. When applicable, we also adjust the measurement of such equity investments for observable prices in orderly transactions for an identical or similar investment of the same issuer. These investments are included in Other non-current assets on our condensed consolidated balance sheets.
16. SEGMENT INFORMATION
Our business is comprised of three segments: Medical Products & Therapies, Healthcare Systems & Technologies, and Pharmaceuticals. The Medical Products & Therapies segment includes sales of our sterile IV solutions, infusion systems, administration sets, parenteral nutrition therapies and surgical hemostat, sealant, and adhesion prevention products. The Healthcare Systems & Technologies segment includes sales of our connected care solutions and collaboration tools, including smart bed systems, patient monitoring systems and diagnostic technologies, respiratory health devices, and advanced equipment for the surgical space, including operating room integration technologies, precision positioning devices, and other accessories. The Pharmaceuticals segment includes sales of specialty injectable pharmaceuticals, inhaled anesthesia, and drug compounding. Other sales not allocated to a segment primarily includes sales to Vantive, pursuant to the Kidney Care MSA, and sales of products and services provided directly through certain of our manufacturing facilities.
Disaggregation of Net Sales
The following table presents our U.S. and international disaggregated net sales.
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, |
| 2026 | | 2025 |
| (in millions) | U.S. | International | Total | | U.S. | International | Total |
Infusion Therapies & Technologies | $ | 526 | | $ | 455 | | $ | 981 | | | $ | 584 | | $ | 410 | | $ | 994 | |
Advanced Surgery | 165 | | 139 | | 304 | | | 145 | | 123 | | 268 | |
| Medical Products & Therapies | 691 | | 594 | | 1,285 | | | 729 | | 533 | | 1,262 | |
Care & Connectivity Solutions | 315 | | 120 | | 435 | | | 316 | | 111 | | 427 | |
Front Line Care | 198 | | 72 | | 270 | | | 202 | | 75 | | 277 | |
Healthcare Systems & Technologies | 513 | | 192 | | 705 | | | 518 | | 186 | | 704 | |
Injectables & Anesthesia | 180 | | 121 | | 301 | | | 195 | | 140 | | 335 | |
| Drug Compounding | — | | 320 | | 320 | | | — | | 246 | | 246 | |
| Pharmaceuticals | 180 | | 441 | | 621 | | | 195 | | 386 | | 581 | |
| Other | 51 | | 39 | | 90 | | | 48 | | 30 | | 78 | |
| Total Baxter | $ | 1,435 | | $ | 1,266 | | $ | 2,701 | | | $ | 1,490 | | $ | 1,135 | | $ | 2,625 | |
Segment Operating Income
Our chief operating decision maker who has been identified as our President and Chief Executive Officer, reviews the financial information presented for purposes of evaluating the performance of our segments and to make resource allocation decisions.
Segment operating income is the measure of segment profitability and represents income before income taxes, interest and other non-operating income or expense, unallocated corporate costs, intangible asset amortization, and other special items. Special items, which are presented below in our reconciliations of reportable segment operating income to income (loss) from continuing operations before income taxes, are excluded from segment operating income because they are highly variable, difficult to predict and of a size that may substantially impact our reported results of operations for the period.
Corporate costs, inclusive of global functional support costs, overhead costs and other shared costs that benefit our segments are allocated to those segments. Corporate costs that are not allocated to our segments, as well as any differences between actual corporate costs and the amounts allocated to our segments, are presented as unallocated corporate costs.
Segment results include net sales, cost of sales, selling, general and administrative expenses, R&D expenses, corporate costs that had previously been allocated to our former Kidney Care segment which did not convey in the related sale, and other segment items which are directly allocated to each segment. Billings by us under the Kidney
Care TSA are included in other segment items as further described in Note 2. The following table presents our segment information of net sales, significant expenses and operating income during the periods presented.
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2026 | | Three Months Ended March 31, 2025 |
| (in millions) | Medical Products & Therapies | Healthcare Systems & Technologies | Pharmaceuticals | | Medical Products & Therapies | Healthcare Systems & Technologies | Pharmaceuticals |
| Net sales | $ | 1,285 | | $ | 705 | | $ | 621 | | | $ | 1,262 | | $ | 704 | | $ | 581 | |
| Cost of sales | 781 | | 390 | | 458 | | | 694 | | 356 | | 396 | |
| Selling, general and administrative expenses | 290 | | 209 | | 102 | | | 286 | | 217 | | 103 | |
| Research and development expenses | 54 | | 49 | | 22 | | | 59 | | 45 | | 26 | |
| Other segment items | (26) | | (9) | | (7) | | | (21) | | (7) | | (7) | |
| Segment operating income | $ | 186 | | $ | 66 | | $ | 46 | | | $ | 244 | | $ | 93 | | $ | 63 | |
The following table presents our reportable segment operating income and reconciliations of reportable segment operating income to income (loss) from continuing operations before income taxes.
| | | | | | | | | | | | | |
| Three Months Ended March 31, | | |
| (in millions) | 2026 | 2025 | | | |
| Medical Products & Therapies | $ | 186 | | $ | 244 | | | | |
| Healthcare Systems & Technologies | 66 | | 93 | | | | |
| Pharmaceuticals | 46 | | 63 | | | | |
| Total reportable segment operating income | 298 | | 400 | | | | |
| Other | 11 | | 9 | | | | |
| Unallocated corporate costs | (12) | | (17) | | | | |
| Intangible asset amortization expense | (146) | | (155) | | | | |
| | | | | |
| Legal matters | — | | (11) | | | | |
| | | | | |
| Business optimization items | (68) | | (45) | | | | |
| Acquisition and integration items | — | | (1) | | | | |
| | | | | |
| Separation-related costs | (11) | | (13) | | | | |
| European Medical Devices Regulation | (4) | | (5) | | | | |
| Business transformation | (11) | | — | | | | |
| Hurricane Helene costs | (3) | | (98) | | | | |
| Product-related items | 12 | | (6) | | | | |
| Total operating income | 66 | | 58 | | | | |
| Interest expense, net | 66 | | 64 | | | | |
| Other (income) expense, net | 6 | | (3) | | | | |
| Income (loss) from continuing operations before income taxes | $ | (6) | | $ | (3) | | | | |
Additional financial information for our segments is as follows:
| | | | | | | | | | | | | |
| Three Months Ended March 31, | | |
| (in millions) | 2026 | 2025 | | | |
Depreciation Expense1 | | | | | |
| Medical Products & Therapies | $ | 51 | | $ | 49 | | | | |
| Healthcare Systems & Technologies | 24 | | 27 | | | | |
| Pharmaceuticals | 16 | | 16 | | | | |
| Total depreciation expense | $ | 91 | | $ | 92 | | | | |
1Depreciation expense related to Corporate property, plant and equipment has been fully allocated to our segments and those segment allocations are reflected in the depreciation amounts presented herein.
Our CODM does not receive asset information by reportable segment and, accordingly, we do not report that information for our segments.