STOCKHOLDERS’ EQUITY

12 Months Ended

Dec. 31, 2025


STOCKHOLDERS' EQUITY

Stock-Based Compensation

Our stock-based compensation generally includes stock options, restricted stock units (RSUs), performance share units (PSUs) and purchases under our employee stock purchase plan. Shares issued relating to our stock-based plans are generally issued out of treasury stock.

As of December 31, 2025, approximately 40 million authorized shares are available for future awards under our stock-based compensation plans.

Stock Compensation Expense

Stock compensation expense was $117 million, $114 million and $115 million in 2025, 2024 and 2023, respectively. The related tax benefit recognized was $13 million in 2025, $8 million in 2024 and $10 million in 2023. Included in the benefit in 2025, 2024 and 2023 was tax expense for stock-based compensation shortfalls of $10 million, $9 million and $11 million, respectively.

Approximately 75% of stock compensation expense is classified in SG&A expenses, with the remainder classified in cost of sales and R&D expenses. Costs capitalized in the consolidated balance sheets at December 31, 2025 and 2024 were not material.

Stock compensation expense is based on awards expected to vest and therefore has been reduced by estimated forfeitures.

Stock Options

Stock options are granted to employees with exercise prices equal to 100% of the market value on the date of grant. Stock options granted to employees generally vest in one-third increments over a three-year period. Stock options granted to non-employee directors prior to 2023 generally vested immediately on the grant date and are issued with a six-month claw-back provision. Stock options typically have a contractual term of 10 years. The grant-date fair value, adjusted for estimated forfeitures, is recognized as expense on a straight-line basis over the substantive vesting period.

The fair value of stock options is determined using the Black-Scholes model. The weighted-average assumptions used in estimating the fair value of stock options granted during each year, along with the weighted-average grant-date fair values, were as follows:


years ended December 31	2025			2023
Expected volatility	30		%	27		%
Expected life (in years)	6.5			6.0
Risk-free interest rate	4.1		%	4.2		%
Dividend yield	2.3		%	3.0		%
Fair value per stock option	$	9		$	9

The expected volatility assumption required in the Black-Scholes model was calculated principally based on our historical volatility, and to a lesser extent, on implied volatility from options trading on our stock. The historical volatility was calculated over a period of time commensurate with the expected term of the options being valued. There were no options granted for the year ended December 31, 2024.

The following table summarizes stock option activity for the year ended December 31, 2025 and the outstanding stock options as of December 31, 2025.


(options and aggregate intrinsic values in thousands)	Options	Weighted- average exercise price		Weighted- average remaining contractual term (in years)	Aggregate intrinsic value
Outstanding as of January 1, 2025	17,381	$	60.15
Granted	1,251	$	31.25
Exercised	—	$	—
Forfeited	(771)	$	41.84
Expired	(4,106)	$	54.86
Outstanding as of December 31, 2025	13,755	$	60.12	3.95	$	—
Vested or expected to vest as of December 31, 2025	13,663	$	60.33	3.90	$	—
Exercisable as of December 31, 2025	11,932	$	64.09	3.32	$	—

The aggregate intrinsic value in the table above represents the difference between the exercise price and our closing stock price on the last trading day of the year. There were no options exercised in 2025. The total intrinsic value of options exercised in 2024 and 2023 was $1 million and $5 million, respectively.

As of December 31, 2025, $10 million of unrecognized compensation cost related to stock options is expected to be recognized as expense over a weighted-average period of approximately 2.0 years.

RSUs

RSUs are granted to employees and non-employee directors. RSUs granted to employees generally vest in one-third increments over a three-year period. RSUs granted to non-employee directors generally vest immediately on the grant date and are issued with a six-month claw-back provision. The grant-date fair value, adjusted for estimated forfeitures, is recognized as expense on a straight-line basis over the substantive vesting period. The fair value of RSUs is determined based on the number of shares granted and the closing price of our common stock on the date of grant.

The following table summarizes nonvested RSU activity for the year ended December 31, 2025.


(share units in thousands)	Share units	Weighted- average grant-date fair value
Nonvested RSUs as of January 1, 2025	6,940	$	43.94
Granted	4,198	$	32.63
Vested	(2,867)	$	46.08
Forfeited	(2,132)	$	41.35
Nonvested RSUs as of December 31, 2025	6,139	$	36.12

As of December 31, 2025, $135 million of unrecognized compensation cost related to RSUs is expected to be recognized as expense over a weighted-average period of approximately 1.8 years. The weighted-average grant-date fair value of RSUs granted in 2025, 2024 and 2023 was $32.63, $42.37 and $39.20, respectively. The fair value of RSUs vested in 2025, 2024 and 2023 was $69 million, $46 million and $25 million, respectively.

PSUs

Our annual equity awards stock compensation program for senior management includes the issuance of PSUs. PSUs awarded in 2025 were based on our compound annual sales growth rate (CAGR) performance and our adjusted return on invested capital (ROIC) and are modified by a multiplicative modifier based on our stock performance relative to our peer group over the 3-year performance period. PSUs awarded in 2024 (which grants were made solely to our former CEO and to our current Chief Financial Officer) were based on our stock performance relative to our peer group over the 3-year performance period. PSUs awarded in 2021 through 2023 were based on our CAGR performance, our ROIC performance and on our stock performance relative to our peer group. The vesting condition for these CAGR and ROIC PSUs was set at the beginning of the 3-year performance period. Compensation cost for the CAGR and adjusted ROIC PSUs is measured based on the fair value of the awards on the date that the specific vesting terms for each award are established and the fair value of the awards is determined based on the quoted price of our stock on the grant date of the award. The compensation cost for CAGR and adjusted ROIC PSUs is adjusted at each reporting date to reflect the estimated vesting outcome.

The fair value for PSUs based on our CAGR and ROIC and awarded in 2025 is modified by a multiplicative modifier based on our stock performance relative to our peer group and the fair value of other PSUs based on our stock performance relative to our peer group (including those awarded in 2021, 2022, 2023 or 2024) is determined using a Monte Carlo model. The assumptions used in estimating the fair value of these PSUs granted during the period, along with the grant-date fair values, were as follows:


years ended December 31	2025			2024			2023
Baxter volatility	31		%	29		%	27		%
Peer group volatility	19%-53%			20%-52%			23%-54%
Correlation of returns	0.06-0.47			0.12-0.51			0.23-0.48
Risk-free interest rate	3.9		%	4.3		%	4.6		%
Fair value per PSU	$	39		$	57		$	30

The following table summarizes nonvested PSU activity for the year ended December 31, 2025.


(share units in thousands)	Share units	Weighted- average grant-date fair value
Nonvested PSUs as of January 1, 2025	602	$	42.36
Granted	1,012	$	31.72
Vested	—	$	—
Forfeited	(350)	$	35.59
Nonvested PSUs as of December 31, 2025	1,264	$	35.97

Unrecognized compensation cost related to all unvested PSUs of $24 million at December 31, 2025 is expected to be recognized as expense over a weighted-average period of 1.9 years.

Employee Stock Purchase Plan

Nearly all employees are eligible to participate in our employee stock purchase plan. The employee purchase price is 85% of the closing market price on the purchase date.

As of December 31, 2025, approximately six million shares of common stock were available for issuance to eligible participants.

During the year ended December 31, 2025, we issued approximately 1.3 million shares and during each of the years ended December 31, 2024 and 2023, we issued approximately 1.4 million shares under the employee stock purchase plan.

Cash Dividends

Total cash dividends declared per share for 2025, 2024, and 2023 were $0.52, $1.04 and $1.16, respectively.

A quarterly dividend of $0.17 per share ($0.68 on an annualized basis) was declared in February, May and July of 2025 and was paid in April, July and October of 2025, respectively. Our Board of Directors declared a quarterly dividend of $0.01 per share in November of 2025, which was paid in January of 2026.

Stock Repurchase Programs

As authorized by the Board of Directors, we repurchase our stock depending on our cash flows, net debt level and market conditions. In July 2012, the Board of Directors authorized a share repurchase program and the related authorization was subsequently increased a number of times. We did not repurchase any shares under this authority in 2025 or 2024. We had $1.30 billion of repurchase authority available as of December 31, 2025.

Other

In addition to common stock, our authorized capital structure includes 100 million shares of preferred stock, no par value. As of December 31, 2025 and 2024, no shares of preferred stock were outstanding.