10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2019

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

Commission file number 1-4448

BAXTER INTERNATIONAL INC.

(Exact name of registrant as specified in its charter)

Delaware	36-0781620
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
One Baxter Parkway, Deerfield, Illinois	60015
(Address of principal executive offices)	(Zip Code)

224-948-2000

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $1.00 par value	BAX (NYSE)	New York Stock Exchange
		Chicago Stock Exchange
0.4% Global Notes due 2024	BAX 24	New York Stock Exchange
1.3% Global Notes due 2025	BAX 25	New York Stock Exchange
1.3% Global Notes due 2029	BAX 29	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.        ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ☒

The number of shares of the registrant’s Common Stock, par value $1.00 per share, outstanding as of July 25, 2019 was 510,555,869 shares.

BAXTER INTERNATIONAL INC.

FORM 10-Q

For the quarterly period ended June 30, 2019

TABLE OF CONTENTS

		Page Number
PART I.	FINANCIAL INFORMATION	2
Item 1.	Financial Statements (unaudited)	2
	Condensed Consolidated Balance Sheets	2
	Condensed Consolidated Statements of Income	3
	Condensed Consolidated Statements of Comprehensive Income	4
	Condensed Consolidated Statements of Changes in Equity	5
	Condensed Consolidated Statements of Cash Flows	7
	Notes to Condensed Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	29
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	41
Item 4.	Controls and Procedures	42
Review by Independent Registered Public Accounting Firm		43
Report of Independent Registered Public Accounting Firm		44
PART II.	OTHER INFORMATION	45
Item 1.	Legal Proceedings	45
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	45
Item 6.	Exhibits	46
Signature		47

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Baxter International Inc.

Condensed Consolidated Balance Sheets (unaudited)

(in millions, except shares)

	June 30,			December 31,
	2019			2018
Current assets:
Cash and cash equivalents	$	2,925		$	1,832
Accounts and other current receivables, net		1,885			1,812
Inventories		1,757			1,653
Prepaid expenses and other		651			622
Total current assets		7,218			5,919
Property, plant and equipment, net		4,541			4,542
Goodwill		2,938			2,958
Other intangible assets, net		1,364			1,398
Operating lease right-of-use assets		588			—
Other non-current assets		895			824
Total assets	$	17,544		$	15,641
Current liabilities:
Short-term debt	$	2		$	2
Current maturities of long-term debt and finance lease obligations		2			2
Accounts payable and accrued liabilities		2,593			2,832
Total current liabilities		2,597			2,836
Long-term debt and finance lease obligations		5,157			3,473
Operating lease liabilities		490			—
Other non-current liabilities		1,464			1,516
Total liabilities		9,708			7,825
Equity:
Common stock, $1 par value, authorized 2,000,000,000    shares, issued 683,494,944 shares in 2019 and 2018		683			683
Common stock in treasury, at cost, 173,275,586 shares    in 2019 and 170,495,859 shares in 2018		(10,322	)		(9,989	)
Additional contributed capital		5,906			5,898
Retained earnings		16,184			15,626
Accumulated other comprehensive (loss) income		(4,639	)		(4,424	)
Total Baxter stockholders’ equity		7,812			7,794
Noncontrolling interests		24			22
Total equity		7,836			7,816
Total liabilities and equity	$	17,544		$	15,641

The accompanying notes are an integral part of these condensed consolidated financial statements.

2

Baxter International Inc.

Condensed Consolidated Statements of Income (unaudited)

(in millions, except per share data)

	Three months ended						Six months ended
	June 30,						June 30,
	2019			2018			2019			2018
Net sales	$	2,840		$	2,842		$	5,472		$	5,519
Cost of sales		1,681			1,603			3,233			3,166
Gross margin		1,159			1,239			2,239			2,353
Selling, general and administrative expenses		642			681			1,242			1,303
Research and development expenses		166			174			295			314
Other operating income, net		(4	)		—			(37	)		(80	)
Operating income		355			384			739			816
Interest expense, net		20			11			38			23
Other income, net		(28	)		(31	)		(53	)		(49	)
Income before income taxes		363			404			754			842
Income tax expense		20			61			64			110
Net income	$	343		$	343		$	690		$	732
Net income per common share
Basic	$	0.67		$	0.64		$	1.35		$	1.36
Diluted	$	0.66		$	0.63		$	1.33		$	1.33
Weighted-average number of common shares outstanding
Basic		510			535			511			537
Diluted		519			547			520			549

The accompanying notes are an integral part of these condensed consolidated financial statements.

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Baxter International Inc.

Condensed Consolidated Statements of Comprehensive Income (unaudited)

(in millions)

	Three months ended						Six months ended
	June 30,						June 30,
	2019			2018			2019			2018
Net income	$	343		$	343		$	690		$	732
Other comprehensive (loss) income, net of tax:
Currency translation adjustments, net of tax (benefit) expense of ($4) and ($24) for the three months ended June 30, 2019 and 2018, respectively, and $2 and ($31) for the six months ended June 30, 2019 and 2018, respectively		(78	)		(363	)		(48	)		(282	)
Pension and other postretirement benefits, net of tax expense of $3 and $4 for the three months ended June 30, 2019 and 2018, respectively, and $6 and $17 for the six months ended June 30, 2019 and 2018, respectively		13			29			21			81
Hedging activities, net of tax (benefit) expense of ($3) and $2 for the three months ended June 30, 2019 and 2018, respectively, and ($8) and $3 for the six months ended June 30, 2019 and 2018, respectively		(12	)		11			(27	)		6
Total other comprehensive (loss) income, net of tax		(77	)		(323	)		(54	)		(195	)
Comprehensive income	$	266		$	20		$	636		$	537

The accompanying notes are an integral part of these condensed consolidated financial statements.

4

Baxter International Inc.

Condensed Consolidated Statements of Changes in Equity (unaudited)

(in millions)

	For the three and six months ended June 30, 2019
	Baxter International Inc. stockholders' equity
	Common stock shares		Common stock		Common stock shares in treasury			Common stock in treasury			Additional contributed capital			Retained earnings			Accumulated other comprehensive income (loss)			Total Baxter stockholders' equity			Noncontrolling interests		Total equity
Balance as of January 1, 2019	683		$	683		170		$	(9,989	)	$	5,898		$	15,626		$	(4,424	)	$	7,794		$	22	$	7,816
Adoption of new accounting standards		—		—		—			—			—			161			(161	)		—			—		—
Net income		—		—		—			—			—			347			—			347			—		347
Other comprehensive income (loss)		—		—		—			—			—			—			23			23			—		23
Purchases of treasury stock		—		—		8			(586	)		—			—			—			(586	)		—		(586	)
Stock issued under employee benefit plans and other		—		—		(5	)		291			(59	)		(66	)		—			166			—		166
Dividends declared on common stock		—		—		—			—			—			(98	)		—			(98	)		—		(98	)
Change in noncontrolling interests		—		—		—			—			—			—			—			—			1		1
Balance as of March 31, 2019	683		$	683	173			$	(10,284	)	$	5,839		$	15,970		$	(4,562	)	$	7,646		$	23	$	7,669
Net income		—		—		—			—			—			343			—			343			—		343
Other comprehensive income (loss)		—		—		—			—			—			—			(77	)		(77	)		—		(77	)
Purchases of treasury stock		—		—		2			(157	)		46			—			—			(111	)		—		(111	)
Stock issued under employee benefit plans and other		—		—		(2	)		119			21			(17	)		—			123			—		123
Dividends declared on common stock		—		—		—			—			—			(112	)		—			(112	)		—		(112	)
Change in noncontrolling interests		—		—		—			—			—			—			—			—			1		1
Balance as of June 30, 2019		683	$	683		173		$	(10,322	)	$	5,906		$	16,184		$	(4,639	)	$	7,812		$	24	$	7,836

The accompanying notes are an integral part of these condensed consolidated financial statements.

5

Baxter International Inc.

Condensed Consolidated Statements of Changes in Equity (unaudited)

(in millions)

	For the three and six months ended June 30, 2018
	Baxter International Inc. stockholders' equity
	Common stock shares		Common stock		Common stock shares in treasury			Common stock in treasury			Additional contributed capital			Retained earnings			Accumulated other comprehensive income (loss)			Total Baxter stockholders' equity			Noncontrolling interests			Total equity
Balance as of January 1, 2018	683		$	683		142		$	(7,981	)	$	5,940		$	14,483		$	(4,001	)	$	9,124		$	(8	)	$	9,116
Adoption of new accounting standards		—		—		—			—			—			(16	)		(3	)		(19	)		—			(19	)
Net income		—		—		—			—			—			389			—			389			—			389
Other comprehensive income (loss)		—		—		—			—			—			—			128			128			—			128
Purchases of treasury stock		—		—		8			(522	)		—			—			—			(522	)		—			(522	)
Stock issued under employee benefit plans and other		—		—		(3	)		149			(28	)		(36	)		—			85			—			85
Dividends declared on common stock		—		—		—			—			—			(86	)		—			(86	)		—			(86	)
Change in noncontrolling interests		—		—		—			—			—			—			—			—			2			2
Balance as of March 31, 2018	683		$	683	147			$	(8,354	)	$	5,912		$	14,734		$	(3,876	)	$	9,099		$	(6	)	$	9,093
Net income		—		—		—			—			—			343			—			343			—			343
Other comprehensive income (loss)		—		—		—			—			—			—			(323	)		(323	)		—			(323	)
Purchases of treasury stock		—		—		3			(259	)		—			—			—			(259	)		—			(259	)
Stock issued under employee benefit plans and other		—		—		(2	)		128			4			(9	)		—			123			—			123
Dividends declared on common stock		—		—		—			—			—			(102	)		—			(102	)		—			(102	)
Change in noncontrolling interests		—		—		—			—			—			—			—			—			(6	)		(6	)
Balance as of June 30, 2018		683	$	683		148		$	(8,485	)	$	5,916		$	14,966		$	(4,199	)	$	8,881		$	(12	)	$	8,869

The accompanying notes are an integral part of these condensed consolidated financial statements.

6

Baxter International Inc.

Condensed Consolidated Statements of Cash Flows (unaudited)

(in millions)

	Six months ended
	June 30,
	2019			2018
Cash flows from operations
Net income	$	690		$	732
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization		393			387
Deferred income taxes		(55	)		(51	)
Stock compensation		57			54
Net periodic pension benefit and other postretirement costs		7			21
Restructuring charges		77			33
Intangible asset impairment		31			—
Other		21			7
Changes in balance sheet items:
Accounts and other current receivables, net		(60	)		43
Inventories		(91	)		(134	)
Accounts payable and accrued liabilities		(308	)		(109	)
Restructuring payments		(60	)		(47	)
Other		(85	)		(84	)
Cash flows from operations – continuing operations		617			852
Cash flows from operations – discontinued operations		(6	)		—
Cash flows from operations		611			852
Cash flows from investing activities
Capital expenditures		(352	)		(311	)
Acquisitions and investments		(111	)		(228	)
Other investing activities, net		1			—
Cash flows from investing activities		(462	)		(539	)
Cash flows from financing activities
Issuances of debt		1,661			—
Cash dividends on common stock		(198	)		(173	)
Proceeds from stock issued under employee benefit plans		262			170
Purchases of treasury stock		(720	)		(781	)
Other financing activities, net		(37	)		(24	)
Cash flows from financing activities		968			(808	)
Effect of foreign exchange rate changes on cash and cash equivalents		(24	)		(42	)
Increase (decrease) in cash and cash equivalents		1,093			(537	)
Cash and cash equivalents at beginning of period		1,832			3,394
Cash and cash equivalents at end of period	$	2,925		$	2,857
Non-cash investing and financing activities
Decrease in liabilities for capital expenditures	$	47		$	20
Decrease in liability for treasury stock purchases	$	23		$	—

The accompanying notes are an integral part of these condensed consolidated financial statements.

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Baxter International Inc.

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 or our) have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles (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, 2018 (2018 Annual Report).

In the opinion of management, the unaudited interim condensed consolidated financial statements reflect all adjustments necessary for a fair presentation 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 results of operations for the current interim period are not necessarily indicative of the results of operations to be expected for the full year.

Certain reclassifications have been made to conform the prior period condensed consolidated statements to the current period presentation.  

New Accounting Standards

Recently adopted accounting pronouncements

As of January 1, 2019, we adopted Accounting Standards Update (ASU) No. 2016-02, Leases (Topic 842).  Under this guidance, lessees are required to recognize a right-of-use asset and a lease liability on the balance sheet for all operating leases, other than those that meet the definition of a short-term lease.  We adopted Topic 842 using the modified retrospective method.  We elected the following practical expedients when assessing the transition impact: i) not to reassess whether any expired or existing contracts as of the adoption date are or contain leases; ii) not to reassess the lease classification for any expired or existing leases as of the adoption date; and iii) not to reassess initial direct costs for any existing leases as of the adoption date. The adjustment to record operating lease right-of-use assets and operating lease liabilities was $502 million as of January 1, 2019. The impact to the condensed consolidated statements of income was not material and there was no net impact to the condensed consolidated statements of cash flows.

As of January 1, 2019, we adopted ASU No. 2017-12, Targeted Improvements to Accounting for Hedging Activities.  The purpose of this ASU is to better align a company’s risk management activities and financial reporting for hedging relationships, simplify the hedge accounting requirements, and improve the disclosures of hedging arrangements.  The adoption of this standard did not have a material impact on our condensed consolidated financial statements.

As of January 1, 2019, we adopted ASU No. 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income (AOCI).  As a result of the enactment of the U.S. Tax Cuts and Jobs Act of 2017 (the 2017 Tax Act), this guidance provides for a reclassification of certain tax effects from AOCI to retained earnings.  The impact of the adoption of this standard was a $161 million increase to retained earnings.

2. ACQUISITIONS AND OTHER ARRANGEMENTS

In the first quarter of 2019, we acquired the U.S. rights to multiple products for an aggregate purchase price of $94 million. The purchase prices were capitalized as developed-technology intangible assets and are being amortized over a weighted-average useful life of 10 years. Net sales related to these products in the first half of 2019 were not material.

In July 2019, we acquired the U.S. rights to an additional product for $62 million. The purchase price will be capitalized as a developed-technology intangible asset in the quarter ending September 30, 2019 and will be amortized over its estimated useful life of 12 years.

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3. SUPPLEMENTAL FINANCIAL INFORMATION

Interest Expense, Net

	Three months ended						Six months ended
	June 30,						June 30,
(in millions)	2019			2018			2019			2018
Interest expense, net of capitalized interest	$	28		$	24		$	53		$	46
Interest income		(8	)		(13	)		(15	)		(23	)
Interest expense, net	$	20		$	11		$	38		$	23

Other Income, Net

	Three months ended						Six months ended
	June 30,						June 30,
(in millions)	2019			2018			2019			2018
Foreign exchange gains, net	$	(17	)	$	(18	)	$	(22	)	$	(33	)
Pension and other postretirement benefits		(15	)		(14	)		(31	)		(26	)
Other		4			1			—			10
Other income, net	$	(28	)	$	(31	)	$	(53	)	$	(49	)

Inventories

	June 30,		December 31,
(in millions)	2019		2018
Raw materials	$	397	$	363
Work in process		197		203
Finished goods		1,163		1,087
Inventories	$	1,757	$	1,653

Property, Plant and Equipment, Net

	June 30,			December 31,
(in millions)	2019			2018
Property, plant and equipment, at cost	$	10,593		$	10,327
Accumulated depreciation		(6,052	)		(5,785	)
Property, plant and equipment, net	$	4,541		$	4,542

4. GOODWILL AND OTHER INTANGIBLE ASSETS, NET

Goodwill

The following is a reconciliation of goodwill by business segment.

(in millions)	Americas			EMEA			APAC			Total
Balance as of December 31, 2018	$	2,351		$	387		$	220		$	2,958
Adjustments		—			(4	)		—			(4	)
Currency translation adjustments		(13	)		(2	)		(1	)		(16	)
Balance as of June 30, 2019	$	2,338		$	381		$	219		$	2,938

As of June 30, 2019, there were no reductions in goodwill relating to impairment losses.

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Other intangible assets, net

The following is a summary of our other intangible assets.

(in millions)	Developed technology, including patents			Other amortized intangible assets			Indefinite-lived intangible assets		Total
June 30, 2019
Gross other intangible assets	$	2,164		$	450		$	188	$	2,802
Accumulated amortization		(1,171	)		(267	)		—		(1,438	)
Other intangible assets, net	$	993		$	183		$	188	$	1,364
December 31, 2018
Gross other intangible assets	$	2,115		$	451		$	188	$	2,754
Accumulated amortization		(1,106	)		(250	)		—		(1,356	)
Other intangible assets, net	$	1,009		$	201		$	188	$	1,398

Intangible asset amortization expense was $45 million and $44 million for the three months ended June 30, 2019 and 2018, respectively, and $88 million and $85 million for the six months ended June 30, 2019 and 2018, respectively.

For the three and six months ended June 30, 2019, we recognized a $31 million impairment charge related to a developed-technology intangible asset due to a decline in market expectations for the related product. The fair value of the intangible asset was measured using a discounted cash flow approach and the charge is classified within cost of sales in the accompanying condensed consolidated statements of income. We consider the fair value of the asset to be a Level 3 measurement due to the significant estimates and assumptions we used in establishing the estimated fair value.

5. FINANCING ARRANGEMENTS

Debt Issuance

In May 2019, we issued €750 million of 0.4% senior notes due in May 2024 and €750 million of 1.3% senior notes due in May 2029.  We have designated these debt instruments as net investment hedges of our European operations. Refer to Note 15 for additional information.

Short-term Debt

In the second quarter of 2019, we repaid $795 million of commercial paper and other short-term borrowings that were outstanding as of March 31, 2019. No commercial paper was outstanding as of June 30, 2019 or December 31, 2018.

6. LEASES

Lessee Activity

We have entered into operating and finance leases primarily for office, manufacturing and research and development (R&D) facilities, vehicles and equipment. Our leases have remaining terms from one to 25 years and some of those leases include options that provide us with the ability to extend the lease term for periods ranging from one to 12 years. Such options are included in the lease term when it is reasonably certain that the option will be exercised.

Certain lease contracts include other services, such as operations and maintenance. For all asset classes, we have elected to apply a practical expedient to account for other services within lease contracts as components of the lease. We also have elected to apply a practical expedient for short-term leases whereby we do not recognize a lease liability and right-of-use asset for leases with a term of less than 12 months.

We classify our leases as operating or finance at the lease commencement date. Finance leases are generally those leases for which we will pay substantially all of the underlying asset’s fair value or will use the asset for all or a major part of its economic life, including circumstances in which we will ultimately own the asset. All other leases are operating leases. For finance leases, we recognize interest expense using the effective interest method and we recognize

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amortization expense on the right-of-use asset over the shorter of the lease term or the useful life of the asset. For operating leases, we recognize lease cost on a straight-line basis over the term of the lease.

Lease liabilities and right-of-use assets are recognized at the lease commencement date based on the present value of minimum lease payments over the lease term. We determine the present value of payments under a lease based on our incremental borrowing rate as of the lease commencement date. The incremental borrowing rate is equal to the rate of interest that we would have to pay to borrow on a collateralized basis over a similar term in an amount equal to the lease payments in a similar economic environment. For operating leases that commenced prior to our adoption of Topic 842, we measured the lease liabilities and right-of-use assets using our incremental borrowing rate as of January 1, 2019.

There were no material lease transactions that we entered into but have not yet commenced as of June 30, 2019.

The components of lease cost for the three and six months ended June 30, 2019 were:

(in millions)	Three months ended June 30, 2019		Six months ended June 30, 2019
Operating lease cost	$	29	$	60
Finance lease cost
Amortization of right-of-use assets		1		2
Interest on lease liabilities		—		1
Variable lease cost		21		43
Lease cost	$	51	$	106

The following table contains supplemental cash flow information related to leases for the six months ended June 30, 2019:

(in millions)	Six months ended June 30, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	60
Operating cash flows from finance leases		3
Financing cash flows from finance leases		1
Right-of-use operating lease assets obtained in exchange for lease obligations		140

Supplemental balance sheet information related to leases as of June 30, 2019 includes:

(in millions)	June 30, 2019
Operating leases
Operating lease right-of-use assets	$	588
Accounts payable and accrued liabilities	$	98
Operating lease liabilities		490
Total operating lease liabilities	$	588
Finance leases
Property, plant and equipment, at cost	$	81
Accumulated depreciation		(27	)
Property, plant and equipment, net	$	54
Current maturities of long-term debt and finance lease obligations	$	1
Long-term debt and finance lease obligations		58
Total finance lease liabilities	$	59

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Lease term and discount rates as of June 30, 2019 were:

	June 30, 2019
Weighted-average remaining lease term (years)
Operating leases		10
Finance leases		15
Weighted-average discount rate
Operating leases		2.8	%
Finance leases		10.3	%

Maturities of operating and finance lease liabilities as of June 30, 2019 were:

(in millions)	Finance Leases			Operating Leases
2019	$	4		$	59
2020		8			99
2021		8			83
2022		8			70
2023		6			59
Thereafter		82			297
Total minimum lease payments		116			667
Less: imputed interest		(57	)		(79	)
Present value of lease liabilities	$	59		$	588

Future minimum lease payments as of December 31, 2018, as disclosed in our 2018 Annual Report, were:

(in millions)	Capital Leases			Operating Leases
2019	$	8		$	122
2020		7			93
2021		7			86
2022		8			71
2023		6			64
Thereafter		88			210
Total minimum lease payments		124		$	646
Less: imputed interest		(62	)
Present value of lease liabilities	$	62

Lessor Activity

We lease medical equipment, such as renal dialysis equipment and infusion pumps, to customers primarily in conjunction with arrangements to provide consumable medical products such as dialysis therapies, intravenous (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 and six months ended June 30, 2019 were:

(in millions)	Three months ended June 30, 2019		Six months ended June 30, 2019
Sales-type lease revenue	$	5	$	11
Operating lease revenue		15		30
Variable lease revenue		21		42
Total lease revenue	$	41	$	83

12

The components of our net investment in sales-type leases as of June 30, 2019 were:

(in millions)	June 30, 2019
Minimum lease payments	$	86
Unguaranteed residual values		11
Net investment in leases	$	97

Our net investment in sales-type leases is classified as follows in the accompanying condensed consolidated balance sheets:

(in millions)	June 30, 2019
Accounts and other current receivables, net	$	36
Other non-current assets		61
Total	$	97

Maturities of sales-type and operating leases as of June 30, 2019 were:

(in millions)	Sales-type Leases			Operating Leases
2019	$	17		$	24
2020		30			48
2021		24			48
2022		15			30
2023		8			16
Thereafter		2			7
Total minimum lease payments		96		$	173
Less: imputed interest		(10	)
Present value of minimum lease payments	$	86

7. COMMITMENTS AND CONTINGENCIES

We are involved in product liability, patent, commercial, 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, 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. As of June 30, 2019 and December 31, 2018, our total recorded reserves, including the environmental matters discussed below, with respect to legal matters were $49 million and $43 million, respectively, and there were no related receivables.

We have established reserves for certain of the matters discussed below. We are not able to estimate the amount or range of any loss for certain contingencies for which there is no reserve or additional loss for matters already reserved. While our liability in connection with these claims cannot be estimated and the resolution thereof in any reporting period could have a significant impact on our results of operations and cash flows for that period, the outcome of these legal proceedings is not expected to have a material adverse effect on our consolidated financial position. 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 product recalls, injunctions, and other restrictions on our operations 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.

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Environmental

We are involved as a potentially responsible party (PRP) for environmental clean-up costs at six 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 the Superfund cases noted above, we are involved in an ongoing voluntary environmental remediation associated with historic operations at our Irvine, California, United States facility. As of June 30, 2019 and December 31, 2018, our environmental reserves, which are measured on an undiscounted basis, were $20 million and $19 million, respectively.  After considering these reserves, management is of the opinion that the outcome of these matters will not have a material adverse effect on our financial position or results of operations.

General Litigation

In November 2016, a purported antitrust class action complaint seeking monetary and injunctive relief was filed in the United States District Court for the Northern District of Illinois. The complaint alleges a conspiracy among manufacturers of IV solutions to restrict output and affect pricing in connection with a shortage of such solutions. Similar parallel actions subsequently were filed. In January 2017, a single consolidated complaint covering these matters was filed in the Northern District of Illinois. We filed a motion to dismiss the consolidated complaint in February 2017.  The court granted our motion to dismiss the consolidated complaint without prejudice in July 2018. The plaintiffs filed an amended complaint on September 6, 2018.  We filed a motion to dismiss the amended complaint on November 9, 2018.

In April 2017, we became aware of a criminal investigation by the U.S. Department of Justice (DOJ), Antitrust Division and a federal grand jury in the United States District Court for the Eastern District of Pennsylvania. We and an employee received subpoenas seeking production of documents and testimony regarding the manufacturing, selling, pricing and shortages of IV solutions and containers (including saline solutions and certain other injectable medicines sold by us) and communications with competitors regarding the same. On November 30, 2018, the DOJ notified us that it had closed the investigation. The New York Attorney General has also requested that we provide information regarding business practices in the IV saline industry. We are cooperating with the New York Attorney General.  

Other

As previously disclosed, in 2008 we recalled our heparin sodium injection products in the United States.  Following the recall, more than 1,000 lawsuits alleging that plaintiffs suffered various reactions to a heparin contaminant, in some cases resulting in fatalities, were filed. In January 2019, the last of these cases was settled. In the first half of 2019, following the resolution of an insurance dispute, we received cash proceeds of $35 million for our allocation of the insurance proceeds under a settlement and cost-sharing agreement related to the defense of the heparin product liability cases. We recognized a $33 million gain in connection with the resolution of the dispute with the insurer that is classified within other operating income, net on the condensed consolidated statement of income for the six months ended June 30, 2019.

In September 2017, Hurricane Maria caused damage to certain of our assets in Puerto Rico and disrupted operations.  As previously disclosed, we realized $42 million of insurance recoveries in 2018 related to the damages and losses from that hurricane. In July 2019, an additional $40 million of claims were approved by our insurers and will be recognized in the quarter ending September 30, 2019.

In December 2016, we received a civil investigative demand from the Commercial Litigation Branch of the U.S. DOJ primarily relating to contingent discount arrangements for, and other promotion of, our TISSEEL and ARTISS products. In April 2018, the DOJ filed a notice of its decision not to intervene and an underlying qui tam complaint (U.S. ex rel. Andrew Capp v. Baxter) was unsealed in the United States District Court for the District of Columbia. The attorney for the relator/plaintiff voluntarily dismissed the qui tam complaint on June 16, 2018. The complaint which is now fully resolved, related to contingent discount arrangements for, and other promotion of, our TISSEEL, ARTISS and VERITAS products.

8. STOCKHOLDERS’ EQUITY

Cash Dividends

Cash dividends declared per common share for the three and six months ended June 30, 2019 were $0.22 and $0.41, respectively.  Cash dividends declared per common share for the three and six months ended June 30, 2018 were $0.19 and $0.35, respectively.

14

Stock Repurchase Programs

In July 2012, the Board of Directors authorized the repurchase of up to $2.0 billion of our common stock. The Board of Directors increased this authority by an additional $1.5 billion in each of November 2016 and February 2018 and by an additional $2.0 billion in November 2018. During the first half of 2019, we repurchased 9.5 million shares under this authority pursuant to Rule 10b5-1 plans and otherwise. During the first half of 2018, we repurchased 11.5 million shares pursuant to Rule 10b5-1 plans. We had $1.4 billion remaining available under the authorization as of June 30, 2019.

In December 2018, we entered into a $300 million accelerated share repurchase agreement (ASR Agreement) with an investment bank. We funded the ASR Agreement with available cash. The ASR Agreement was executed pursuant to the 2012 Repurchase Authorization described above. Under the ASR Agreement, we received 3.6 million shares upon execution.  Based on the volume-weighted average price of our common stock during the term of the ASR Agreement, we received an additional 0.6 million shares from the investment bank at settlement on May 7, 2019.

9. ACCUMULATED OTHER COMPREHENSIVE INCOME

Comprehensive income includes all changes in stockholders’ equity that do not arise from transactions with shareholders, and consists of net income, currency translation adjustments (CTA), pension and other postretirement employee benefit (OPEB) plans, unrealized gains and losses on cash flow hedges and prior to 2018, unrealized gains and losses on available-for-sale equity securities.  As a result of changes in accounting guidance related to available-for-sale equity securities, the unrealized gains and losses associated with these assets are no longer recognized in AOCI beginning January 1, 2018. The following table is a net-of-tax summary of the changes in AOCI by component for the six months ended June 30, 2019 and 2018.

(in millions)	CTA			Pension and OPEB plans			Hedging activities			Total
Gains (losses)
Balance as of December 31, 2018	$	(3,474	)	$	(949	)	$	(1	)	$	(4,424	)
Adoption of new accounting standard		9			(169	)		(1	)		(161	)
Other comprehensive income before reclassifications		(48	)		8			(26	)		(66	)
Amounts reclassified from AOCI (a)		—			13			(1	)		12
Net other comprehensive income (loss)		(48	)		21			(27	)		(54	)
Balance as of June 30, 2019	$	(3,513	)	$	(1,097	)	$	(29	)	$	(4,639	)

(in millions)	CTA			Pension and OPEB plans			Hedging activities			Available- for-sale- equity securities			Total
Gains (losses)
Balance as of December 31, 2017	$	(3,013	)	$	(981	)	$	(10	)	$	3		$	(4,001	)
Adoption of new accounting standard		—			—			—			(3	)		(3	)
Other comprehensive income before reclassifications		(282	)		51			(1	)		—			(232	)
Amounts reclassified from AOCI (a)		—			30			7			—			37
Net other comprehensive income (loss)		(282	)		81			6			—			(195	)
Balance as of June 30, 2018	$	(3,295	)	$	(900	)	$	(4	)	$	—		$	(4,199	)

(a) See table below for details about these reclassifications.

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The following is a summary of the amounts reclassified from AOCI to net income during the three and six months ended June 30, 2019 and 2018.

	Amounts reclassified from AOCI (a)
(in millions)	Three months ended June 30, 2019			Six months ended June 30, 2019			Location of impact in income statement
Amortization of pension and OPEB items
Amortization of net losses and prior service costs or credits	$	(7	)	$	(15	)	Other income, net
		(7	)		(15	)	Total before tax
		1			2		Income tax expense
	$	(6	)	$	(13	)	Net of tax
Gains on hedging activities
Foreign exchange contracts	$	1		$	1		Cost of sales
		1			1		Total before tax
		—			—		Income tax expense
	$	1		$	1		Net of tax
Total reclassifications for the period	$	(5	)	$	(12	)	Total net of tax

	Amounts reclassified from AOCI (a)
(in millions)	Three months ended June 30, 2018			Six months ended June 30, 2018			Location of impact in income statement
Amortization of pension and OPEB items
Amortization of net losses and prior service costs or credits	$	(18	)	$	(36	)	Other income, net
		(18	)		(36	)	Total before tax
		3			6		Income tax expense
	$	(15	)	$	(30	)	Net of tax
Losses on hedging activities
Foreign exchange contracts	$	(6	)	$	(10	)	Cost of sales
		(6	)		(10	)	Total before tax
		2			3		Income tax expense
	$	(4	)	$	(7	)	Net of tax
Total reclassifications for the period	$	(19	)	$	(37	)	Total net of tax

(a) Amounts in parentheses indicate reductions to net income. 

Refer to Note 12 for additional information regarding the amortization of pension and OPEB items and Note 15 for additional information regarding hedging activity.

10. 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 30-90 days.

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The majority of our performance obligations are satisfied at a point in time. This includes sales of our broad portfolio of essential healthcare products across our geographic segments including acute and chronic dialysis therapies; sterile IV solutions; infusion systems and devices; parenteral nutrition therapies; inhaled anesthetics; generic injectable pharmaceuticals; and surgical hemostat and sealant products. For a majority of these sales, 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, in all of our segments, we enter into other types of contracts including contract manufacturing arrangements, equipment leases, and certain subscription software and licensing arrangements. 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. 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.

On June 30, 2019, we had $8.9 billion of transaction price allocated to remaining performance obligations related to executed contracts with an original duration of one year or more, which are primarily included in the Americas 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 10% of this amount as revenue over the remainder of 2019, 20% in each year between 2020 and 2022, 10% in each of 2023 and 2024, and the remaining balance thereafter.

Significant Judgments

Revenues from product sales are recorded at the net sales price (transaction price), which includes estimates of variable consideration for reserves related to rebates, product returns, sales discounts and wholesaler chargebacks. These reserves are based on estimates of the amounts earned or to be claimed on the related sales and are included in accounts and other current receivables, net and accounts payable and accrued liabilities 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 that is probable not to result in a significant reversal in the amount of the cumulative revenue recognized in a future period. Revenue recognized during the three and six months ended June 30, 2019 and 2018 related to performance obligations satisfied in prior periods was not material.

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 were $1.8 billion and $1.7 billion as of June 30, 2019 and December 31, 2018, 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 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 certain bundled contracts, total contract revenue is allocated between equipment and consumable medical products. In conjunction with these arrangements, a contract asset is created, which represents the difference between the amount of equipment revenue recognized upon sale and the amount of consideration received from the customer. The contract asset is reclassified as accounts receivable as consumable medical products are provided and billed, generally over one to seven years. Our contract asset balances totaled $89 million as of June 30, 2019, of which $37 million related to contract manufacturing services, $40 million related to software sales and $12 million related to bundled equipment and consumable medical products contracts. Our contract asset balances totaled $80 million as of December 31, 2018, of which $33 million related to contract manufacturing services and $47 million related to software sales. Contract assets are presented within accounts and other receivables, net ($57 million and $50 million as of June 30, 2019 and December 31, 2018, respectively) and other non-current assets ($32 million and $30 million as of June 30, 2019 and December 31, 2018, respectively) in the accompanying condensed consolidated balance sheets. Contract liabilities as of June 30, 2019 and December 31, 2018 were not significant.

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Disaggregation of Net Sales

The following tables disaggregate our net sales from contracts with customers by Global Business Unit (GBU) between the U.S. and international:

	Three months ended June 30,
	2019						2018
(in millions)	U.S.		International		Total		U.S.		International		Total
Renal Care 1	$	196	$	714	$	910	$	204	$	727	$	931
Medication Delivery 2		441		248		689		426		255		681
Pharmaceuticals 3		235		304		539		262		275		537
Clinical Nutrition 4		79		136		215		80		141		221
Advanced Surgery 5		143		89		232		118		86		204
Acute Therapies 6		44		89		133		42		87		129
Other 7		55		67		122		78		61		139
Total Baxter	$	1,193	$	1,647	$	2,840	$	1,210	$	1,632	$	2,842

	Six months ended June 30,
	2019						2018
(in millions)	U.S.		International		Total		U.S.		International		Total
Renal Care 1	$	388	$	1,373	$	1,761	$	400	$	1,399	$	1,799
Medication Delivery 2		847		476		1,323		862		495		1,357
Pharmaceuticals 3		467		581		1,048		505		528		1,033
Clinical Nutrition 4		156		264		420		163		281		444
Advanced Surgery 5		263		167		430		217		169		386
Acute Therapies 6		92		169		261		88		170		258
Other 7		100		129		229		122		120		242
Total Baxter	$	2,313	$	3,159	$	5,472	$	2,357	$	3,162	$	5,519

1 Renal Care includes sales of our peritoneal dialysis (PD), hemodialysis (HD) and additional dialysis therapies and services.

2 Medication Delivery includes sales of our IV therapies, infusion pumps, administration sets and drug reconstitution devices.

3 Pharmaceuticals includes sales of our premixed and oncology drug platforms, inhaled anesthesia and critical care products and pharmacy compounding services.

4 Clinical Nutrition includes sales of our parenteral nutrition (PN) therapies and related products.

5 Advanced Surgery includes sales of our biological products and medical devices used in surgical procedures for hemostasis, tissue sealing and adhesion prevention.

6 Acute Therapies includes sales of our continuous renal replacement therapies (CRRT) and other organ support therapies focused in the intensive care unit (ICU).

7 Other primarily includes sales of contract manufacturing services from our pharmaceutical partnering business.

11. BUSINESS OPTIMIZATION CHARGES

Beginning in the second half of 2015, we have undertaken actions to transform our cost structure and enhance operational efficiency. These efforts include restructuring the organization, optimizing the manufacturing footprint, R&D operations and supply chain network, employing disciplined cost management, and centralizing and streamlining certain support functions. Through June 30, 2019, we have incurred cumulative pre-tax costs of $899 million related to these actions. The costs consisted primarily of employee termination, implementation costs and accelerated depreciation. We currently expect to incur additional pre-tax costs of approximately $70 million through the completion of these initiatives under our current program. These costs will primarily include employee termination costs, implementation costs, and accelerated depreciation.  

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During the three and six months ended June 30, 2019 and 2018, we recorded the following charges related to business optimization programs.

	Three months ended				Six months ended
	June 30,				June 30,
(in millions)	2019		2018		2019		2018
Restructuring charges	$	52	$	21	$	77	$	33
Costs to implement business optimization programs		12		25		22		50
Accelerated depreciation		1		1		4		2
Total business optimization charges	$	65	$	47	$	103	$	85

For segment reporting, business optimization charges are unallocated expenses.

Costs to implement business optimization programs for the three and six months ended June 30, 2019 and 2018, respectively, consisted primarily of external consulting and transition costs, including employee compensation and related costs. The costs were generally included within cost of sales, selling, general and administrative (SG&A) expense and R&D expense.

For the three and six months ended June 30, 2019 and 2018, respectively, we recognized accelerated depreciation, primarily associated with facilities to be closed. The costs were recorded within cost of sales and SG&A expense.

During the three and six months ended June 30, 2019 and 2018, we recorded the following restructuring charges.

	Three months ended June 30, 2019
(in millions)	COGS		SG&A		R&D		Total
Employee termination costs	$	6	$	26	$	17	$	49
Contract termination and other costs		1		—		—		1
Asset impairments		1		—		1		2
Total restructuring charges	$	8	$	26	$	18	$	52

	Three months ended June 30, 2018
(in millions)	COGS		SG&A		R&D		Total
Employee termination costs	$	3	$	8	$	7	$	18
Contract termination costs		—		2		—		2
Asset impairments		—		1		—		1
Total restructuring charges	$	3	$	11	$	7	$	21

	Six months ended June 30, 2019
(in millions)	COGS		SG&A		R&D		Total
Employee termination costs	$	6	$	25	$	26	$	57
Contract termination and other costs		8		—		—		8
Asset impairments		10		1		1		12
Total restructuring charges	$	24	$	26	$	27	$	77

	Six months ended June 30, 2018
(in millions)	COGS		SG&A		R&D		Total
Employee termination costs	$	4	$	14	$	10	$	28
Contract termination costs		—		2		—		2
Asset impairments		1		2		—		3
Total restructuring charges	$	5	$	18	$	10	$	33

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The following table summarizes activity in the reserves related to our restructuring initiatives.

(in millions)
Reserve as of December 31, 2018	$	101
Charges		78
Reserve adjustments		(13	)
Utilization		(60	)
Currency translation		2
Reserve as of June 30, 2019	$	108

Reserve adjustments primarily related to employee termination cost reserves established in prior periods.

Substantially all of our restructuring reserves as of June 30, 2019 relate to employee termination costs, with the remaining reserves attributable to contract termination costs. The reserves are expected to be substantially utilized by the end of 2020.

12. 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						Six months ended
	June 30,						June 30,
(in millions)	2019			2018			2019			2018
Pension benefits
Service cost	$	19		$	25		$	38		$	47
Interest cost		43			45			90			91
Expected return on plan assets		(67	)		(79	)		(140	)		(157	)
Amortization of net losses and prior service costs		14			24			29			48
Net periodic pension benefit cost	$	9		$	15		$	17		$	29
OPEB
Interest cost	$	2		$	2		$	4		$	4
Amortization of net loss and prior service credit		(7	)		(6	)		(14	)		(12	)
Net periodic OPEB cost	$	(5	)	$	(4	)	$	(10	)	$	(8	)

13. INCOME TAXES

Our effective income tax rate was 5.5% and 15.1% for the three months ended June 30, 2019 and 2018, respectively, and 8.5% and 13.1% for the six months ended June 30, 2019 and 2018, 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, increases or decreases in valuation allowances and liabilities for uncertain tax positions and excess tax benefits on stock compensation awards.

For the three and six months ended June 30, 2019, the difference between our effective income tax rate and the U.S. Federal statutory rate was primarily attributable to a tax benefit from the resolution of an uncertain tax position (UTP) as a result of a favorable ruling from the related taxing authority and excess tax benefits on stock compensation awards.  For the three months ended June 30, 2018, the difference between our effective income tax rate and the U.S. Federal statutory rate was primarily driven by excess tax benefits on stock compensation awards, partially offset by the revaluation of Swedish net deferred tax assets due to legislation reducing the Swedish income tax rate. For the six months ended June 30, 2018, the difference between our effective income tax rate and the U.S. Federal statutory rate was primarily attributable to nontaxable income from the settlement of certain claims with the seller of the acquired operations of Claris Injectables Limited, excess tax benefits on stock compensation awards, an adjustment of provisional amounts related to U.S. tax reform, a reduction of a liability for a UTP as a result of a settlement with the related taxing authority and the reversal of a valuation allowance as a result of continued profit improvements.  Partially offsetting the foregoing benefits was interest on the reserve for UTPs, the revaluation of Swedish net deferred tax assets and transfer pricing-related income tax accruals.

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14. EARNINGS PER SHARE

The numerator for both basic and diluted earnings per share (EPS) is net income. The denominator for basic EPS is the weighted-average number of common 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 basic shares to diluted shares.

	Three months ended				Six months ended
	June 30,				June 30,
(in millions)	2019		2018		2019		2018
Basic shares		510		535		511		537
Effect of dilutive securities		9		12		9		12
Diluted shares		519		547		520		549

The effect of dilutive securities included unexercised stock options, unvested RSUs and contingently issuable shares related to granted PSUs. The computation of diluted EPS excluded 4 million equity awards each for the three and six months ended June 30, 2019, respectively, and 4 million and 3 million equity awards for the three and six months ended June 30, 2018, respectively, because their inclusion would have had an anti-dilutive effect on diluted EPS.

15. 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, British Pound, Chinese Yuan, Korean Won, Australian Dollar, Canadian Dollar, Japanese Yen, Colombian Peso, Brazilian Real, Mexican Peso and Swedish Krona. 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 a mix of fixed- and floating-rate debt that we believe is appropriate.

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.

All 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 hedging instruments as 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.

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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 item. Option premiums or net premiums paid are initially recorded as assets and reclassified to other comprehensive income (OCI) over the life of the option, and then recognized in earnings consistent with the underlying hedged item. Cash flow hedges are classified in net sales, cost of sales and interest expense, net, and are primarily related to forecasted third-party sales denominated in foreign currencies, forecasted intercompany sales denominated in foreign currencies, and anticipated issuances of debt, respectively.

The notional amounts of foreign exchange contracts designated as cash flow hedges were $629 million and $775 million as of June 30, 2019 and December 31, 2018, respectively. The total notional amounts of interest rate contracts designated as cash flow hedges were $300 million and $150 million as of June 30, 2019 and December 31, 2018, respectively. The maximum term over which we have cash flow hedge contracts in place related to forecasted transactions at June 30, 2019 is 18 months for foreign exchange contracts and 30 years for interest rate contracts.

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. For each derivative instrument that is designated and effective as a fair value hedge, the gain or loss on the derivative is recognized immediately to earnings, and offsets the loss or gain on the underlying hedged item. Fair value hedges are classified in interest expense, net, as they hedge the interest rate risk associated with certain of our fixed-rate debt.

There were no outstanding interest rate swap contracts designated as fair value hedges as of June 30, 2019 and December 31, 2018.

Net Investment Hedges

In May 2017, we issued €600 million of senior notes due May 2025. In May 2019, we issued €750 million of senior notes due May 2024 and €750 million of 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 of the outstanding debt balances have been and will be recorded as a component of AOCI. As of June 30, 2019, we had an accumulated pre-tax unrealized translation loss in AOCI of $69 million related to the Euro-denominated senior notes.

In May 2019, we entered into forward contracts designated as net investment hedges to reduce exposure to changes in currency rates on €1.2 billion of our net investment in our European operations.  Those hedges were entered into in advance of the issuance of our senior notes mentioned above, were settled in the second quarter of 2019 and resulted in an insignificant loss.

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. If we remove the cash flow hedge designation because the hedged forecasted transactions are no longer probable of occurring, any gains or losses are immediately reclassified from AOCI to earnings. Gains or losses relating to terminations of effective cash flow hedges in which the forecasted transactions are still probable of occurring are deferred and recognized consistent with the loss or income recognition of the underlying hedged items.

There were no hedge dedesignations in the first six months of 2019 or 2018 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 items 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 six months of 2019 and 2018.

If we terminate a net investment hedge, 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. In the second quarter of 2019, we dedesignated €1.2 billion of forward contracts designated as a net investment hedge of our European operations.

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Undesignated Derivative Instruments

We use forward contracts to hedge earnings from the effects of foreign exchange relating to certain of our intercompany 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. 

The total notional amount of undesignated derivative instruments was $494 million as of June 30, 2019 and $485 million as of December 31, 2018.

Gains and Losses on Derivative Instruments

The following tables summarize the income statement locations and gains and losses on our derivative instruments for the three months ended June 30, 2019 and 2018.

	Gain (loss) recognized in OCI					Location of gain (loss)	Gain (loss) reclassified from AOCI into income
(in millions)	2019			2018		in income statement	2019		2018
Cash flow hedges
Interest rate contracts	$	(23	)	$	—	Interest expense, net	$	—	$	—
Foreign exchange contracts		9			7	Cost of sales		1		(6	)
Net investment hedges		(36	)		38	Other income, net		—		—
Total	$	(50	)	$	45		$	1	$	(6	)

		Gain (loss) recognized in income
(in millions)	Location of gain (loss) in income statement	2019		2018
Undesignated derivative instruments
Foreign exchange contracts	Other income, net	$	3	$	6

The following tables summarize the income statement locations and gains and losses on our derivative instruments for the six months ended June 30, 2019 and 2018.

	Gain (loss) recognized in OCI						Location of gain (loss)	Gain (loss) reclassified from AOCI into income
(in millions)	2019			2018			in income statement	2019		2018
Cash flow hedges
Interest rate contracts	$	(34	)	$	—		Interest expense, net	$	—	$	—
Foreign exchange contracts		—			(2	)	Cost of sales		1		(10	)
Net investment hedges		(22	)		17		Other income, net		—		—
Total	$	(56	)	$	15			$	1	$	(10	)

		Gain (loss) recognized in income
(in millions)	Location of gain (loss) in income statement	2019			2018
Fair value hedges
Interest rate contracts	Interest expense, net	$	—		$	(4	)
Undesignated derivative instruments
Foreign exchange contracts	Other income, net	$	(6	)	$	(11	)

For our fair value hedges, an equal and offsetting gain of $4 million was recognized in interest expense, net as an adjustment to the underlying hedged item, fixed-rate debt, in the second quarter and first half of 2018.

As of June 30, 2019, $13 million of deferred, net after-tax gains 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.

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Fair Values of Derivative Instruments

The following table summarizes the classification and fair values of derivative instruments reported in the condensed consolidated balance sheet as of June 30, 2019.

	Derivatives in asset positions			Derivatives in liability positions
(in millions)	Balance sheet location	Fair value		Balance sheet location	Fair value
Derivative instruments designated as hedges
Interest rate contracts	Other non-current assets	$	—	Other non-current liabilities	$	37
Foreign exchange contracts	Prepaid expenses and other		20	Accounts payable and accrued liabilities		1
Foreign exchange contracts	Other non-current assets		1	Other non-current liabilities		—
Total derivative instruments designated as hedges			21			38
Undesignated derivative instruments
Foreign exchange contracts	Prepaid expenses and other		—	Accounts payable and accrued liabilities		—
Total derivative instruments		$	21		$	38

The following table summarizes the classification and fair values of derivative instruments reported in the condensed consolidated balance sheet as of December 31, 2018.

	Derivatives in asset positions			Derivatives in liability positions
(in millions)	Balance sheet location	Fair value		Balance sheet location	Fair value
Derivative instruments designated as hedges
Interest rate contracts	Other non-current assets	$	—	Other non-current liabilities	$	3
Foreign exchange contracts	Prepaid expenses and other		22	Accounts payable and accrued liabilities		1
Foreign exchange contracts	Other non-current assets		1	Other non-current liabilities		—
Total derivative instruments designated as hedges			23			4
Undesignated derivative instruments
Foreign exchange contracts	Prepaid expenses and other		—	Accounts payable and accrued liabilities		1
Total derivative instruments		$	23		$	5

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.

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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.

	June 30, 2019						December 31, 2018
(in millions)	Asset			Liability			Asset			Liability
Gross amounts recognized in the consolidated balance sheet	$	21		$	38		$	23		$	5
Gross amount subject to offset in master netting arrangements not offset in the consolidated balance sheet		(1	)		(1	)		(5	)		(5	)
Total	$	20		$	37		$	18		$	—

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 June 30, 2019		Balance as of December 31, 2018		Balance as of June 30, 2019		Balance as of December 31, 2018
Long-term debt	$	103	$	103	$	6	$	7

(a) These fair value hedges were terminated prior to December 31, 2018.

16. FAIR VALUE MEASUREMENTS

The following tables summarize our financial instruments that are measured at fair value on a recurring basis.

			Basis of fair value measurement
(in millions)	Balance as of June 30, 2019		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	$	21	$	—	$	21	$	—
Marketable equity securities		4		4		—		—
Total	$	25	$	4	$	21	$	—
Liabilities
Foreign exchange contracts	$	1	$	—	$	1	$	—
Interest rate contracts		37		—		37		—
Contingent payments related to acquisitions		27		—		—		27
Total	$	65	$	—	$	38	$	27

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			Basis of fair value measurement
(in millions)	Balance as of December 31, 2018		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	$	23	$	—	$	23	$	—
Marketable equity securities		3		3		—		—
Total	$	26	$	3	$	23	$	—
Liabilities
Foreign exchange contracts	$	2	$	—	$	2	$	—
Interest rate contracts		3		—		3		—
Contingent payments related to acquisitions		32		—		—		32
Total	$	37	$	—	$	5	$	32

As of June 30, 2019 and December 31, 2018, cash and cash equivalents of $2.9 billion and $1.8 billion, respectively, included money market funds of approximately $1.5 billion and $169 million, respectively, which 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. The 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.

Contingent payments related to acquisitions, which consist of milestone payments and sales-based payments, are valued using discounted cash flow techniques. The fair value of milestone payments reflects management’s expectations of probability of payment, and increases as the 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. The following table is a reconciliation of the fair value measurements that use significant unobservable inputs (Level 3), which consist of contingent payments related to acquisitions.

	Three months ended June 30,					Six months ended June 30,
(in millions)	2019			2018		2019			2018
Fair value at beginning of period	$	31		$	23	$	32		$	9
Additions		—			—		—			14
Change in fair value recognized in earnings		(4	)		—		(4	)		—
Payments		—			—		(1	)		—
Fair value at end of period	$	27		$	23	$	27		$	23

Equity investments not measured at fair value are comprised of other equity investments without readily determinable fair values and were $39 million at June 30, 2019 and $41 million at December 31, 2018. These amounts are included in Other non-current assets.

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Fair Values of 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 June 30, 2019 and December 31, 2018.

	Book values				Fair values(a)
(in millions)	2019		2018		2019		2018
Liabilities
Short-term debt	$	2	$	2	$	2	$	2
Current maturities of long-term debt and finance lease obligations		2		2		2		2
Long-term debt and finance lease obligations		5,157		3,473		5,440		3,460

(a) These fair value amounts are classified as Level 2 within the fair value hierarchy as they are estimated based on observable inputs.

The carrying value of short-term debt approximates its fair value due to the short-term maturities of the obligations. 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 approximate their fair values due to the short-term maturities of most of those assets and liabilities.

17. SEGMENT INFORMATION

We manage our business based on three geographical segments: Americas (North and South America), EMEA (Europe, Middle East and Africa) and APAC (Asia Pacific). Our segments provide a broad portfolio of essential healthcare products, including acute and chronic dialysis therapies; sterile IV solutions; infusion systems and devices; parenteral nutrition therapies; inhaled anesthetics; generic injectable pharmaceuticals; and surgical hemostat and sealant products.

We use operating income on a segment basis to make resource allocation decisions and assess the ongoing performance of our business segments. Intersegment sales are eliminated in consolidation.

Certain items are maintained at Corporate and are not allocated to a segment. They primarily include the majority of the foreign currency hedging activities, corporate headquarters costs, certain R&D costs, certain GBU support costs, stock compensation expense, certain employee benefit plan costs as well as certain gains, losses, and other charges (such as business optimization, acquisition and integration costs, intangible asset amortization and asset impairments). Our chief operating decision maker does not receive any asset information by operating segment and, accordingly, we do not report asset information by operating segment.

Financial information for our segments is as follows.

	Three months ended				Six months ended
	June 30,				June 30,
(in millions)	2019		2018		2019		2018
Net sales:
Americas	$	1,520	$	1,525	$	2,928	$	2,967
EMEA		744		758		1,449		1,482
APAC		576		559		1,095		1,070
Total net sales	$	2,840	$	2,842	$	5,472	$	5,519
Operating Income:
Americas	$	584	$	619	$	1,121	$	1,185
EMEA		162		162		307		313
APAC		137		131		258		248
Total segment operating income	$	883	$	912	$	1,686	$	1,746

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The following is a reconciliation of segment operating income to income before income taxes per the condensed consolidated statements of income.

	Three months ended						Six months ended
	June 30,						June 30,
(in millions)	2019			2018			2019			2018
Total segment operating income	$	883		$	912		$	1,686		$	1,746
Corporate and other		(528	)		(528	)		(947	)		(930	)
Total operating income		355			384			739			816
Net interest expense		20			11			38			23
Other income, net		(28	)		(31	)		(53	)		(49	)
Income before income taxes	$	363		$	404		$	754		$	842

Refer to Note 10 for additional information on Net Sales by GBU.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Refer to our Annual Report on Form 10-K for the year ended December 31, 2018 (2018 Annual Report) for management’s discussion and analysis of our financial condition and results of operations. The following is management’s discussion and analysis of our financial condition and results of operations for the three and six months ended June 30, 2019 and 2018.

RESULTS OF OPERATIONS

Our net income for the three and six months ended June 30, 2019 totaled $343 million, or $0.66 per diluted share, and $690 million, or $1.33 per diluted share, compared to $343 million, or $0.63 per diluted share, and $732 million, or $1.33 per diluted share, for the three and six months ended June 30, 2018. Net income for the three and six months ended June 30, 2019 included special items which decreased net income by $121 million and $173 million, respectively, or $0.23 and $0.33 per diluted share, respectively, as further discussed below. Net income for the three and six months ended June 30, 2018 included special items which decreased net income by $78 million and $77 million, respectively, or $0.14 per diluted share, as further discussed below.

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Special Items

The following table provides a summary of our special items and the related impact by line item on our results for the three and six months ended June 30, 2019 and 2018.

	Three months ended June 30,						Six months ended June 30,
(in millions)	2019			2018			2019			2018
Gross Margin
Intangible asset amortization expense	$	(45	)	$	(44	)	$	(88	)	$	(85	)
Intangible asset impairment 1		(31	)		—			(31	)		—
Business optimization items 2		(10	)		(3	)		(29	)		(9	)
Acquisition and integration expenses 3		(12	)		(6	)		(17	)		(9	)
Litigation 4		—			—			—			(8	)
European medical devices regulation 5		(6	)		—			(10	)		—
Total Special Items	$	(104	)	$	(53	)	$	(175	)	$	(111	)
Impact on Gross Margin Ratio	(3.7 pts)			(1.9 pts)			(3.2 pts)			(2.0 pts)
Selling, General and Administrative (SG&A) Expenses
Business optimization items 2	$	32		$	34		$	40		$	63
Acquisition and integration expenses 3		—			6			5			10
Litigation 4		—			—			—			2
Total Special Items	$	32		$	40		$	45		$	75
Impact on SG&A Ratio	1.1 pts			1.4 pts			0.8 pts			1.3 pts
Research and Development (R&D) Expenses
Business optimization items 2	$	23		$	10		$	34		$	13
Acquisition and integration expenses 3		2			—			6			—
Total Special Items	$	25		$	10		$	40		$	13
Impact on R&D Ratio	0.8 pts			0.3 pts			0.7 pts			0.2 pts
Other Operating Income, net
Acquisition and integration expenses 3	$	(4	)	$	—		$	(4	)	$	—
Insurance recovery from legacy product-related matter 6		—			—			(33	)		—
Claris settlement 7		—			—			—			(80	)
Total Special Items	$	(4	)	$	—		$	(37	)	$	(80	)
Income Tax Expense
Tax effects of special items and impact of U.S. Tax Reform 8	$	(36	)	$	(25	)	$	(50	)	$	(42	)
Total Special Items	$	(36	)	$	(25	)	$	(50	)	$	(42	)
Impact on Effective Tax Rate	(5.3 pts)			(1.9 pts)			(3.2 pts)			(2.7 pts)

Intangible asset amortization expense is identified as a special item to facilitate an evaluation of current and past operating performance and is consistent with how management and our Board of Directors assess performance. Additional special items are identified above because they are highly variable, difficult to predict and of a size that may substantially impact our reported results of operations for the period. Management believes that providing the separate impact of those items 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.

¹ Our results in 2019 included a $31 million asset impairment related to a developed-technology intangible asset.  

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² In 2019 and 2018, our results were impacted by costs associated with our execution of programs to optimize our organization and cost structure on a global basis. These actions included streamlining our international operations, rationalizing our manufacturing facilities, reducing our general and administrative infrastructure, re-aligning certain R&D activities and cancelling certain R&D programs. Our results in 2019 included business optimization charges of $65 million in the second quarter and $103 million in the first half.  Our results in 2018 included business optimization charges of $47 million in the second quarter and $85 million in the first half.  Refer to Note 11 within Item 1 for more information.  

³ Our results in 2019 included $10 million in the second quarter and $24 million in the first half of acquisition and integration expenses. This included integration expenses related to our acquisitions of Claris Injectables Limited (Claris) and the RECOTHROM and PREVELEAK products in prior periods, as well as the 2019 acquisitions of in-process R&D assets, partially offset by a benefit related to the change in the estimated fair value of contingent consideration liabilities. Our results in 2018 included $12 million in the second quarter and $19 million in the first half of acquisition and integration expenses related to our acquisitions of Claris and the RECOTHROM and PREVELEAK products.

⁴ Our results in the first half of 2018 included a charge of $10 million related to certain product litigation.

⁵ Our results in 2019 included costs of $6 million in the second quarter and $10 million in the first half related to updating our quality systems and product labeling to comply with the new medical device reporting regulation and other requirements of the European Union’s regulations for medical devices that will become effective in 2020.

⁶ Our results in the first half of 2019 included a benefit of $33 million for our allocation of insurance proceeds received pursuant to a settlement and cost-sharing arrangement for a legacy product-related matter.

⁷ Our results in the first half of 2018 included a benefit of $80 million for the settlement of certain claims related to the acquired operations of Claris.

⁸ Reflected in this item is the income tax impact of the special items identified in this table.  Additionally, our results in the first half of 2018 included a tax benefit of $8 million related to updates to the estimated impact of U.S. Federal tax reform previously made in 2017. The tax effect of each adjustment is based on the jurisdiction in which the adjustment is incurred and the tax laws in effect for each such jurisdiction.

NET SALES

	Three months ended
	June 30,				Percent change
(in millions)	2019		2018		At actual currency rates			At constant currency rates			U.S. cyclophosphamide(1)
United States	$	1,193	$	1,210		(1	)%		(1	)%		(1	)%
International		1,647		1,632		1	%		8	%		0	%
Total net sales	$	2,840	$	2,842		(0	)%		4	%		0	%
	Six months ended
	June 30,				Percent change
(in millions)	2019		2018		At actual currency rates			At constant currency rates			U.S. cyclophosphamide(1)
United States	$	2,313	$	2,357		(2	)%		(2	)%		(1	)%
International		3,159		3,162	(0		)%		7	%		0	%
Total net sales	$	5,472	$	5,519		(1	)%		3	%		0	%

(1) The amounts reflect the impact of U.S. cyclophosphamide net sales on constant currency sales growth for the current period.

Foreign currency unfavorably impacted net sales by 4 percentage points during the second quarter and first half of 2019, respectively, compared to the prior period principally due to the strengthening of the U.S. Dollar relative to the Euro, Australian Dollar, British Pound, Chinese Yuan, Colombian Peso and Brazilian Real.  

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The comparisons presented at constant currency rates reflect local currency sales at the prior period’s foreign exchange rates. This measure provides information on the change in net sales assuming that foreign currency exchange rates had not changed between the prior and the current period. We believe that the non-GAAP measure of change in net sales at constant currency rates, when used in conjunction with the GAAP measure of change in net sales at actual currency rates, may provide a more complete understanding and facilitate a fuller analysis of our results of operations, particularly in evaluating performance from one period to another.

We have disclosed the impact of generic competition for U.S. cyclophosphamide on our net sales to enhance comparability between periods and better identify operating trends.  

Global Business Unit Net Sales Reporting

Our global business units (GBUs) include the following:

• Renal Care includes sales of our peritoneal dialysis (PD), hemodialysis (HD) and additional dialysis therapies and services.

• Medication Delivery includes sales of our intravenous (IV) therapies, infusion pumps, administration sets and drug reconstitution devices.

• Pharmaceuticals includes sales of our premixed and oncology drug platforms, inhaled anesthesia and critical care products and pharmacy compounding services.

• Clinical Nutrition includes sales of our parenteral nutrition (PN) therapies and related products.

• Advanced Surgery includes sales of our biological products and medical devices used in surgical procedures for hemostasis, tissue sealing and adhesion prevention.

• Acute Therapies includes sales of our continuous renal replacement therapies (CRRT) and other organ support therapies focused in the intensive care unit (ICU).

• Other primarily includes sales of contract manufacturing services from our pharmaceutical partnering business.

The following is a summary of net sales by GBU.

	Three months ended June 30,				Percent change
(in millions)	2019		2018		At actual currency rates			At constant currency rates			U.S. cyclophosphamide(1)
Renal Care	$	910	$	931		(2	)%		3	%		0	%
Medication Delivery		689		681		1	%		4	%		0	%
Pharmaceuticals		539		537		0	%		4	%		(2	)%
Clinical Nutrition		215		221		(3	)%		2	%		0	%
Advanced Surgery		232		204		14	%		17	%		0	%
Acute Therapies		133		129		3	%		8	%		0	%
Other		122		139		(12	)%		(9	)%		0	%
Total Baxter	$	2,840	$	2,842	(0		)%		4	%		0	%
	Six months ended June 30,				Percent change
(in millions)	2019		2018		At actual currency rates			At constant currency rates			U.S. cyclophosphamide(1)
Renal Care	$	1,761	$	1,799		(2	)%		3	%		0	%
Medication Delivery		1,323		1,357		(3	)%	(0		)%		0	%
Pharmaceuticals		1,048		1,033		1	%		5	%		(2	)%
Clinical Nutrition		420		444		(5	)%		(1	)%		0	%
Advanced Surgery		430		386		11	%		15	%		0	%
Acute Therapies		261		258		1	%		6	%		0	%
Other		229		242		(5	)%		(2	)%		0	%
Total Baxter	$	5,472	$	5,519		(1	)%		3	%		0	%

(1) The amounts reflect the impact of U.S. cyclophosphamide net sales on constant currency sales growth for the current period.

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On a constant currency basis, Renal Care net sales increased during the second quarter and first half of 2019, driven by global patient growth in PD partially offset by lower U.S. in-center HD sales.

On a constant currency basis, Medication Delivery net sales increased during the second quarter and were flat during the first half of 2019.  The increase in the second quarter of 2019 was attributable to increased sales of our Spectrum IQ Infusion System in the U.S. and EVO IQ Infusion System internationally and related IV access administration sets.  The increase in the second quarter was offset by a decline in the first quarter compared to the prior year due to higher sales in 2018 of our large volume parenterals (LVPs) as customer demand increased due to industry-wide supply challenges.    

On a constant currency basis, Pharmaceuticals net sales increased during the second quarter and first half of 2019. The increase in 2019 was due to growth in international pharmacy compounding sales and increased sales of our generic injectables. Partially offsetting those increases were reduced sales of U.S. cyclophosphamide and BREVIBLOC due to increased generic competition.

On a constant currency basis, Clinical Nutrition net sales increased during the second quarter and decreased during the first half of 2019. The increase in the second quarter was due to the launch of new products. The decrease in the first half of 2019 was due to lower U.S. sales of our PN therapies and related products.

On a constant currency basis, Advanced Surgery net sales increased during the second quarter and first half of 2019, primarily driven by higher sales as a result of a temporary supply disruption of a competitor.

On a constant currency basis, Acute Therapies net sales increased during the second quarter and first half of 2019 due to higher global demand for our CRRT systems to treat acute kidney injuries, including the launch of PrisMax in several countries across Europe and Asia.

On a constant currency basis, Other net sales decreased during the second quarter and first half of 2019 in comparison to strong sales performance in the prior year.

Gross Margin and Expense Ratios

	Three months ended June 30,
	2019		% of net sales			2018		% of net sales			$ change			% change
Gross margin	$	1,159		40.8	%	$	1,239		43.6	%	$	(80	)		(6.5	)%
SG&A	$	642		22.6	%	$	681		24.0	%	$	(39	)		(5.7	)%
R&D	$	166		5.8	%	$	174		6.1	%	$	(8	)		(4.6	)%
	Six months ended June 30,
	2019		% of net sales			2018		% of net sales			$ change			% change
Gross margin	$	2,239		40.9	%	$	2,353		42.6	%	$	(114	)		(4.8	)%
SG&A	$	1,242		22.7	%	$	1,303		23.6	%	$	(61	)		(4.7	)%
R&D	$	295		5.4	%	$	314		5.7	%	$	(19	)		(6.1	)%

Gross Margin

The special items identified above had an unfavorable impact of approximately 3.7 and 3.2 percentage points on the gross margin ratio in the second quarter and first half of 2019, respectively.  The unfavorable impact was 1.9 and 2.0 percentage points in the second quarter and first half of 2018, respectively. Refer to the Special Items caption above for additional detail.

Excluding the impact of the special items, the gross margin ratio decreased in the second quarter and first half of 2019 compared to the prior year due to an unfavorable product mix as well as inventory write-downs and incremental costs relating to improvements at a dialyzer facility in the U.S. that experienced manufacturing issues during the second quarter of 2019.

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SG&A

The special items identified above had an unfavorable impact of approximately 1.1 and 0.8 percentage points on the SG&A expenses ratio in the second quarter and first half of 2019, respectively. The unfavorable impact was 1.4 and 1.3 percentage points in the second quarter and first half of 2018, respectively. Refer to the Special Items caption above for additional detail.

Excluding the impact of the special items, the SG&A expenses ratio decreased in the second quarter and first half of 2019 primarily due to favorable foreign currency translation and actions we took to restructure our cost position and focus on expense management, partially offset by the absence of transition service income that we earned following our spinoff of Baxalta Incorporated (Baxalta), as the agreement for those services terminated as of July 1, 2018.

R&D

The special items identified above had an unfavorable impact of approximately 0.8 and 0.7 percentage points on the R&D expenses ratio in the second quarter and first half of 2019, respectively. The unfavorable impact was 0.3 and 0.2 percentage points in the second quarter and first half of 2018, respectively. Refer to the Special Items caption above for additional detail.

Excluding the impact of the special items, R&D expenses decreased in the second quarter and first half of 2019 as a result of the timing of project-related expenditures compared to the prior year, actions we took to restructure our cost position and focus on expense management, and favorable foreign currency translation.

Business Optimization Items

Beginning in the second half of 2015, we have undertaken actions to transform our cost structure and enhance operational efficiency. These efforts include restructuring the organization, optimizing our manufacturing footprint, R&D operations and supply chain network, employing disciplined cost management, and centralizing and streamlining certain support functions. Through June 30, 2019, we have incurred cumulative pre-tax costs of $899 million related to these actions. The costs consisted primarily of employee termination costs, implementation costs, and accelerated depreciation. We currently expect to incur additional pre-tax costs of approximately $70 million related to these initiatives, primarily related to employee termination costs and implementation costs. The reductions in our cost base from these actions in the aggregate are expected to provide cumulative annual pre-tax savings of approximately $1.2 billion once the remaining actions are complete. The savings from these actions will impact cost of sales, SG&A expenses, and R&D expenses. Approximately 90 percent of the expected annual pre-tax savings are expected to be realized by the end of 2019, with the remainder by the end of 2023.

Other Operating Income, Net

Other operating income, net was $4 million and $37 million in the second quarter and first half of 2019, respectively, and $80 million in the first half of 2018.  In the second quarter of 2019, we recognized a benefit of $4 million related to the change in the estimated fair value of contingent consideration liabilities. In the first half of 2019, we recognized a $33 million gain when our share of the proceeds under a cost-sharing agreement became realizable following the resolution of a dispute with an insurer related to a legacy product-related matter. In the prior period, we settled certain claims with the seller related to the acquired operations of Claris, which resulted in a gain of $80 million.

Interest Expense, Net

Interest expense, net was $20 million and $38 million in the second quarter and first half of 2019, respectively, and $11 million and $23 million in the second quarter and first half of 2018, respectively. The increase in the second quarter and first half of 2019 was primarily driven by higher average debt outstanding and lower interest income as a result of lower average cash and cash equivalents balances.  

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Other Income, Net

Other income, net was $28 million and $53 million in the second quarter and first half of 2019, respectively, and $31 million and $49 million in the second quarter and first half of 2018, respectively. The decrease in the second quarter of 2019 compared to the prior year was primarily due to fair value declines in marketable equity securities in the current year. The increase in the first half of 2019 compared to the prior year was primarily due to the impairment of an investment in the prior-year period and higher pension benefits in the current-year period, partially offset by lower foreign exchange gains in the current-year period.    

Income Taxes

Our effective income tax rate was 5.5% and 15.1% in the second quarter and 8.5% and 13.1% for the first half of 2019 and 2018, 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, increases or decreases in valuation allowances and liabilities for uncertain tax positions and excess tax benefits on stock compensation awards. For the three and six months ended June 30, 2019, the difference between our effective income tax rate and the U.S. Federal statutory rate was primarily attributable to a tax benefit from the resolution of an uncertain tax position (UTP) as a result of a favorable ruling from the related taxing authority and excess tax benefits on stock compensation awards.  For the three months ended June 30, 2018, the difference between our effective income tax rate and the U.S. Federal statutory rate was primarily driven by excess tax benefits on stock compensation awards, partially offset by the revaluation of Swedish net deferred tax assets due to legislation reducing the Swedish income tax rate. For the six months ended June 30, 2018, the difference between our effective income tax rate and the U.S. Federal statutory rate was primarily attributable to nontaxable income from the settlement of certain claims with the seller of the acquired operations of Claris, excess tax benefits on stock compensation awards, an adjustment of provisional amounts related to U.S. tax reform, a reduction of a liability for a UTP as a result of a settlement with the related taxing authority and the reversal of a valuation allowance as a result of continued profit improvements.  Partially offsetting the foregoing benefits was interest on the reserve for UTPs, the revaluation of Swedish net deferred tax assets and transfer pricing-related income tax accruals.

Segment Results

We use operating income on a segment basis to make resource allocation decisions and assess the ongoing performance of our segments. The following is a summary of significant factors impacting our reportable segments’ financial results.

	Net sales								Operating income (loss)
	Three months ended				Six months ended				Three months ended						Six months ended
	June 30,				June 30,				June 30,						June 30,
(in millions)	2019		2018		2019		2018		2019			2018			2019			2018
Americas	$	1,520	$	1,525	$	2,928	$	2,967	$	584		$	619		$	1,121		$	1,185
EMEA		744		758		1,449		1,482		162			162			307			313
APAC		576		559		1,095		1,070		137			131			258			248
Corporate and other		—		—		—		—		(528	)		(528	)		(947	)		(930	)
Total	$	2,840	$	2,842	$	5,472	$	5,519	$	355		$	384		$	739		$	816

Americas

Segment operating income was $584 million and $1,121 million, respectively, in the second quarter and first half of 2019 and $619 million and $1,185 million, respectively, in the second quarter and first half of 2018. The decrease in the second quarter of 2019 was primarily driven by lower sales and gross margin in Pharmaceuticals.  Lower sales and gross margin in Medication Delivery and Clinical Nutrition in the first quarter of 2019 contributed to the decrease in the first half of 2019. Partially offsetting the decreases in the second quarter and first half of 2019 was favorable performance in Advanced Surgery primarily due to a temporary supply disruption of a competitor.

EMEA

Segment operating income was $162 million and $307 million, respectively, in the second quarter and first half of 2019 and $162 million and $313 million, respectively, in the second quarter and first half of 2018. The decrease in the first half of 2019 was primarily driven by unfavorable foreign exchange rates partially offset by increased sales and gross margin in Renal Care and Pharmaceuticals.

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APAC

Segment operating income was $137 million and $258 million, respectively, in the second quarter and first half of 2019 and $131 million and $248 million, respectively, in the second quarter and first half of 2018. Results in 2019 were driven by higher sales and gross margin, primarily from China and Australia, in Renal Care and Pharmaceuticals.

Corporate and Other

Certain items are maintained at Corporate and are not allocated to a segment. They primarily include certain foreign currency hedging activities, corporate headquarters costs, certain R&D costs, certain GBU support costs, stock compensation expense, certain employee benefit plan costs as well as certain gains, losses, and other charges (such as business optimization, acquisition and integration costs, intangible asset amortization and asset impairments). The operating loss in the second quarter of 2019 was consistent with the prior-year period as higher business optimization charges and an impairment of a developed-technology intangible asset were offset by lower SG&A and R&D expenses.  The operating loss in the first half of 2019 increased over the prior-year period due to an impairment of a developed-technology intangible asset, higher business optimization charges and the benefit from the Claris settlement in the prior year, partially offset by a benefit for our allocation of insurance proceeds received pursuant to a settlement and cost-sharing arrangement for a legacy product-related matter in the current year and lower SG&A and R&D expenses.

LIQUIDITY AND CAPITAL RESOURCES

The following table is a summary of the statement of cash flows for the six-month periods ended June 30, 2019 and 2018.

	Six months ended
	June 30,
(in millions)	2019			2018
Cash flows from operations - continuing operations	$	617		$	852
Cash flows from investing activities		(462	)		(539	)
Cash flows from financing activities		968			(808	)

Cash Flows from Operations — Continuing Operations

In the first half of 2019, cash provided by operating activities was $617 million, as compared to cash provided by operating activities of $852 million in the first half of 2018, a decrease of $235 million. The decrease was primarily due to the Claris settlement received in 2018 and the timing of customer and vendor payments, partially offset by an insurance recovery received in 2019 from a legacy product-related matter.

Cash Flows from Investing Activities

In the first half of 2019, cash used for investing activities included payments for acquisitions of $111 million, primarily related to the U.S. rights to multiple products we acquired, and capital expenditures of $352 million. In the first half of 2018, cash used for investing activities included payments for acquisitions of $228 million, primarily related to RECOTHROM and PREVELEAK and two molecules from Celerity Pharmaceuticals, LLC, and capital expenditures of $311 million.

Cash Flows from Financing Activities

In the first half of 2019, cash generated from financing activities included the net proceeds from the issuance of €750 million of senior notes due in 2024 and €750 million of senior notes due in 2029 along with stock issued under employee benefit plans of $262 million, partially offset by payments for stock repurchases of $720 million and dividend payments of $198 million. In the first half of 2018, cash used for financing activities included payments for stock repurchases of $781 million and dividend payments of $173 million, partially offset by the proceeds from stock issued under employee benefit plans of $170 million.

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As authorized by the Board of Directors, we repurchase our stock depending upon our cash flows, net debt levels and market conditions. In July 2012, the Board of Directors authorized the repurchase of up to $2.0 billion of our common stock. The Board of Directors increased this authority by an additional $1.5 billion in each of November 2016 and February 2018 and by an additional $2.0 billion in November 2018. We paid $720 million in cash to repurchase approximately 9.5 million shares under this authority pursuant to Rule 10b5-1 plans and otherwise in the first half of 2019 and had $1.4 billion remaining available under this authorization as of June 30, 2019.

In December 2018, we entered into a $300 million accelerated share repurchase agreement (ASR Agreement) with an investment bank. We funded the ASR Agreement with available cash. Under the ASR Agreement, we received 3.6 million shares upon execution. Based on the volume-weighted average price of our common stock during the term of the ASR Agreement, we received an additional 0.6 million shares from the investment bank at settlement on May 7, 2019.

Credit Facilities and Access to Capital and Credit Ratings

Credit Facilities

As of June 30, 2019, our U.S. dollar-denominated revolving credit facility and Euro-denominated senior revolving credit facility had a maximum capacity of $1.5 billion and approximately €200 million, respectively. There were no amounts outstanding under our credit facilities at June 30, 2019 or December 31, 2018, respectively. As of June 30, 2019, we were in compliance with the financial covenants in these agreements. The non-performance of any financial institution supporting either of the credit facilities would reduce the maximum capacity of these facilities by each institution’s respective commitment.

Access to Capital and Credit Ratings

We intend to fund short-term and long-term obligations as they mature through cash on hand, future cash flows from operations or by issuing additional debt. We had $2.9 billion of cash and cash equivalents as of June 30, 2019, with adequate cash available to meet operating requirements in each jurisdiction in which we operate. We invest our excess cash in money market funds and diversify the concentration of cash among different financial institutions.

Our ability to generate cash flows from operations, issue debt or enter into other financing arrangements on acceptable terms could be adversely affected if there is a material decline in the demand for our products or in the solvency of our customers or suppliers, deterioration in our key financial ratios or credit ratings or other significantly unfavorable changes in conditions. However, we believe we have sufficient financial flexibility to issue debt, enter into other financing arrangements and attract long-term capital on acceptable terms to support our growth objectives. Between February and July 2019, Standard & Poor’s, Fitch, and Moody’s reaffirmed our investment grade credit ratings that we disclosed in our 2018 Annual Report.

CRITICAL ACCOUNTING POLICIES

The preparation of financial statements in accordance with U.S. GAAP requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. A summary of our significant accounting policies is included in Note 1 to our consolidated financial statements in our 2018 Annual Report. Certain of our accounting policies are considered critical, as these policies are the most important to the depiction of our financial statements and require significant, difficult or complex judgments, often employing the use of estimates about the effects of matters that are inherently uncertain. Such policies are summarized in the Management’s Discussion and Analysis of Financial Condition and Results of Operations section in our 2018 Annual Report. There have been no significant changes in the application of our critical accounting policies during the first half of 2019.

RECENT ACCOUNTING PRONOUNCEMENTS

In June 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Codification (ASU) 2016-13, Financial Instruments - Credit Losses, which requires the measurement of expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions and reasonable forecasts. The main objective of this ASU is to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. The standard is effective for our financial statements beginning in 2020. We are currently evaluating the impact of the adoption of this ASU, but it is not expected to have a material effect on our condensed consolidated financial statements.

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In August 2018, the FASB issued ASC 2018-15, Intangibles-Goodwill and Other-Internal-Use Software, which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software.  The standard is effective for our financial statements beginning in 2020. We are currently evaluating the impact of the adoption of this ASU, but it is not expected to have a material effect on our condensed consolidated financial statements.

LEGAL CONTINGENCIES

Refer to Note 7 within Item 1 for a discussion of our legal contingencies. Upon resolution of any of these uncertainties, we may incur charges in excess of presently established liabilities. While our liability in connection with certain claims cannot be estimated with any certainty, and although the resolution in any reporting period of one or more of these matters could have a significant impact on our results of operations and cash flows for that period, the outcome of these legal proceedings is not expected to have a material adverse effect on our consolidated financial position. While we believe that we have valid defenses in these matters, litigation is inherently uncertain, excessive verdicts do occur, and we may in the future incur material judgments or enter into material settlements of claims.

CERTAIN REGULATORY MATTERS

The U.S. Food and Drug Administration (FDA) commenced an inspection of Claris’ facilities in Ahmedabad, India in July 2017, immediately prior to the closing of the Claris acquisition. FDA completed the inspection, at which time FDA issued a related Form-483 (Claris 483). In July 2018, FDA issued a Warning Letter based on observations identified in the 2017 inspection (Claris Warning Letter).¹ The Claris Warning Letter includes a number of observations across a variety of areas. We submitted our response to the Claris Warning Letter in August 2018 and we are continuing to implement corrective and preventive actions, which have included product recalls that are financially immaterial to us, to address FDA’s observations as set forth in the Claris 483 or the Claris Warning Letter and other items identified in connection with integrating Claris into our quality systems. We had a Regulatory Meeting with FDA on November 6, 2018 and we continue to cooperate with FDA in connection with the resolution of these matters.

On May 6, 2019, we received a Show Cause Notice under the Drugs & Cosmetics Act, 1940 and Rules thereunder (Show Cause Notice) from the Commissioner of the Food & Drugs Control Administration in the Gujarat State in Gandhinagar, India (Commissioner).  The Show Cause Notice was issued regarding an April 9, 2019 inspection of our Claris facilities in Ahmedabad, India by the Commissioner.  The Show Cause Notice contains a number of observations of alleged Good Manufacturing Practice related issues across a variety of areas, some of which overlap with the areas covered in the Claris 483 or the Claris Warning Letter.  We responded to the Show Cause Notice and are cooperating with the regulatory authorities.

In June 2013, we received a Warning Letter from FDA regarding operations and processes at our North Cove, North Carolina and Jayuya, Puerto Rico facilities. We attended Regulatory Meetings with FDA regarding one or both of these facilities in October 2014, November 2015, July 2017, April 2018 and October 2018. The Warning Letter addresses observations related to Current Good Manufacturing Practice violations at the two facilities.

As previously disclosed, in the fourth quarter of 2012, the company received two investigative demands from the United States Attorney for the Western District of North Carolina for information regarding its quality and manufacturing practices and procedures at its North Cove facility. In January 2017, the parties resolved the matter by entering into a deferred prosecution agreement and a civil settlement whereby the company agreed to pay approximately $18 million and implement certain enhanced compliance measures.  In July 2019, the deferred prosecution agreement expired and, based on Baxter’s fulfillment of the terms of the agreement, the court dismissed the criminal information previously filed in the case with prejudice.

¹ Available online at https://www.fda.gov/ICECI/EnforcementActions/WarningLetters/ucm613538.htm

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FORWARD-LOOKING INFORMATION

This quarterly report includes forward-looking statements. Use of the words “may,” “will,” “would,” “could,” “should,” “believes,” “estimates,” “projects,” “potential,” “expects,” “plans,” “seeks,” “intends,” “evaluates,” “pursues,” “anticipates,” “continues,” “designs,” “impacts,” “affects,” “forecasts,” “target,” “outlook,” “initiative,” “objective,” “designed,” “priorities,” “goal,” or the negative of those words or other similar expressions is intended to identify forward-looking statements that represent our current judgment about possible future events. These forward-looking statements may include statements with respect to accounting estimates and assumptions, litigation-related matters including outcomes, future regulatory filings and our R&D pipeline (including estimates regarding our ability to obtain approval for distribution in the U.S. of new products manufactured at our Baxter Ahmedabad facility), strategic objectives, sales from new product offerings, credit exposure to foreign governments, potential developments with respect to credit ratings, investment of foreign earnings, estimates of liabilities including those related to uncertain tax positions, contingent payments, future pension plan contributions, costs, discount rates and rates of return, our exposure to financial market volatility and foreign currency and interest rate risks, potential tax liability associated with the separation of our biopharmaceuticals and medical products businesses (including the 2016 disposition of our formerly retained shares in Baxalta (Retained Shares)), the impact of competition, future sales growth, business development activities (including the recent acquisitions of Claris Injectables and two surgical products from Mallinckrodt plc), the effects of product recalls or production disruptions, business optimization initiatives, cost saving initiatives, future capital and R&D expenditures, future debt issuances, manufacturing expansion, the sufficiency of our facilities and financial flexibility, the adequacy of credit facilities, tax provisions and reserves, the effective tax rate and all other statements that do not relate to historical facts.

These forward-looking statements are based on certain assumptions and analyses made in light of our experience and perception of historical trends, current conditions, and expected future developments as well as other factors that we believe are appropriate in the circumstances. While these statements represent our current judgment on what the future may hold, and we believe these judgments are reasonable, these statements are not guarantees of any events or financial results. Whether actual future results and developments will conform to expectations and predictions is subject to a number of risks and uncertainties, including the following factors, many of which are beyond our control:

• failure to achieve our long-term financial improvement goals;

• demand for and market acceptance risks for and competitive pressures related to new and existing products (including challenges with our ability to predict these pressures and the resulting impact on customer inventory levels), and the impact of those products on quality and patient safety concerns;

• product development risks, including satisfactory clinical performance, the ability to manufacture at appropriate scale, and the general unpredictability associated with the product development cycle;

• our ability to finance and develop new products or enhancements on commercially acceptable terms or at all;

• our ability to identify business development and growth opportunities to successfully execute on business development strategies;

• product quality or patient safety issues, leading to product recalls, withdrawals, launch delays, warning letters (including the Claris Warning Letter), import bans, sanctions, seizures, litigation, or declining sales;

• the continuity, availability and pricing of acceptable raw materials and component supply, and the related continuity of our manufacturing and distribution;

• inability to create additional production capacity in a timely manner or the occurrence of other manufacturing or supply difficulties (including as a result of natural disaster or otherwise);

• breaches or failures of our information technology systems or products, including by cyber-attack, unauthorized access or theft;

• future actions of (or failures to act or delays in acting by) FDA, the European Medicines Agency or any other regulatory body or government authority (including the DOJ or the Attorney General of any State) that could delay, limit or suspend product development, manufacturing or sale or result in seizures, recalls, injunctions, monetary sanctions or criminal or civil liabilities;

• proposed regulatory changes of the U.S. Department of Health and Human Services in kidney health policy (AAKHI) and reimbursement, which may substantially change the U.S. end stage renal disease market and demand for our peritoneal dialysis products, necessitating significant multi-year capital expenditures which are difficult to estimate in advance;

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• failures with respect to our quality, compliance or ethics programs;

• future actions of third parties, including third-party payers, the impact of healthcare reform and the implementation, suspension, repeal, replacement, amendment, modification and other similar actions undertaken by the United States or foreign governments, including with respect to pricing, reimbursement, taxation and rebate policies; legislation, regulation and other governmental pressures in the United States or globally, including the cost of compliance and potential penalties for purported noncompliance thereof, all of which may affect pricing, reimbursement, taxation and rebate policies of government agencies and private payers or other elements of our business, including new or amended laws, rules and regulations (such as the California Consumer Privacy Act of 2018 and the European Union’s General Data Protection Regulation which became effective in May 2018 for example);

• the impact of competitive products and pricing, including generic competition, drug reimportation and disruptive technologies;

• global regulatory, trade and tax policies;

• the ability to protect or enforce our owned or in-licensed patent or other proprietary rights (including trademarks, copyrights, trade secrets and know-how) or patents of third parties preventing or restricting our manufacture, sale or use of affected products or technology;

• the impact of any goodwill impairments on our operating results;

• any failure by Baxalta or Shire plc to satisfy its obligation under the separation agreements, including the tax matters agreement, or that certain letter agreement entered into with Shire plc and Baxalta;

• the impact of global economic conditions (including potential trade wars) on us and our customers and suppliers, including foreign governments in countries in which we operate;

• fluctuations in foreign exchange and interest rates;

• any changes in law concerning the taxation of income (whether with respect to current or future tax reform), including income earned outside the United States;

• actions by tax authorities in connection with ongoing tax audits;

• loss of key employees or inability to identify and recruit new employees;

• the outcome of pending or future litigation;

• the adequacy of our cash flows from operations to meet our ongoing cash obligations and fund our investment program; and

• other factors identified elsewhere in this report and other filings with the Securities and Exchange Commission, including those factors described in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2018, all of which are available on our website.

Actual results may differ materially from those projected in the forward-looking statements. We do not undertake to update our forward-looking statements.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

Currency Risk

We are primarily exposed to foreign exchange risk with respect to revenues generated outside of the United States denominated in the Euro, British Pound, Chinese Yuan, Korean Won, Australian Dollar, Canadian Dollar, Japanese Yen, Colombian Peso, Brazilian Real, Mexican Peso and Swedish Krona. 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 financial instruments to further reduce the net exposure to foreign exchange. Gains and losses on the hedging instruments offset losses and gains on the hedged transactions and reduce the earnings and stockholders’ equity volatility relating to foreign exchange. Financial market and currency volatility may limit our ability to cost-effectively hedge these exposures.

We may use options, forwards and cross-currency swaps to hedge the foreign exchange risk to earnings relating to forecasted transactions denominated in foreign currencies and recognized assets and liabilities. The maximum term over which we have cash flow hedge contracts in place related to foreign exchange risk on forecasted transactions as of June 30, 2019 is 18 months. We also enter into derivative instruments to hedge foreign exchange risk on certain intercompany and third-party receivables and payables and debt denominated in foreign currencies.

As part of our risk-management program, we perform sensitivity analyses to assess potential changes in the fair value of our foreign exchange instruments relating to hypothetical and reasonably possible near-term movements in foreign exchange rates.

A sensitivity analysis of changes in the fair value of foreign exchange option and forward contracts outstanding as of June 30, 2019, while not predictive in nature, indicated that if the U.S. Dollar uniformly weakened by 10% against all currencies, on a net-of-tax basis, the net asset balance of $15 million with respect to those contracts would decrease by $26 million, resulting in a net liability position.

The sensitivity analysis model recalculates the fair value of the foreign exchange option and forward contracts outstanding at June 30, 2019 by replacing the actual exchange rates at June 30, 2019 with exchange rates that are 10% weaker compared to the actual exchange rates for each applicable currency. All other factors are held constant. These sensitivity analyses disregard the possibility that currency exchange rates can move in opposite directions and that gains from one currency may or may not be offset by losses from another currency. The analyses also disregard the offsetting change in value of the underlying hedged transactions and balances.

Our operations in Argentina are reported using highly inflationary accounting effective July 1, 2018. Changes in the value of the Argentine Peso applied to our peso-denominated net monetary asset positions are recorded in income at the time of the change. As of June 30, 2019, our net monetary assets denominated in Argentine Pesos are not significant.

Interest Rate and Other Risks

Refer to the caption “Interest Rate and Other Risks” in the “Financial Instrument Market Risk” section of the 2018 Annual Report. There were no significant changes during the quarter ended June 30, 2019.

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Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We carried out an evaluation, under the supervision and with the participation of our Disclosure Committee and management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act)) as of June 30, 2019. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of June 30, 2019.

Changes in Internal Control over Financial Reporting

We are currently implementing an upgrade to our enterprise resource planning (ERP) software. In connection with the ERP upgrade, we are updating the processes that constitute our internal control over financial reporting, as necessary. This normal course of business ERP upgrade is being implemented to remain current with the latest release of the software.

In 2017, related to our overall business optimization initiatives, we began implementation of a business transformation project within the finance, human resources, purchasing and information technology functions which will further centralize and standardize business processes and systems across the company.  We are transitioning some processes to our shared services centers while others have moved to outsourced providers.  This multi-year initiative is being conducted in phases and includes modifications to the design and operation of controls over financial reporting.

With the exception of the above, there have been no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended June 30, 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.  

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Review by Independent Registered Public Accounting Firm

A review of the interim condensed consolidated financial statements included in this Quarterly Report on Form 10-Q for the three and six months ended June 30, 2019 and 2018 has been performed by PricewaterhouseCoopers LLP, our independent registered public accounting firm. Its report on the interim condensed consolidated financial information follows. This report is not considered a report within the meaning of Sections 7 and 11 of the Securities Act of 1933 and, therefore, the independent accountants’ liability under Section 11 does not extend to it.

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Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of Baxter International Inc.

Results of Review of Interim Financial Statements

We have reviewed the condensed consolidated balance sheet of Baxter International Inc. and its subsidiaries (the “Company”) as of June 30, 2019, and the related condensed consolidated statements of income, comprehensive income and changes in equity for the three-month and six-month periods ended June 30, 2019 and 2018 and the related condensed consolidated statements of cash flows for the six-month periods ended June 30, 2019 and 2018, including the related notes, appearing under Part I, Item 1 of this Quarterly Report on Form 10-Q (collectively referred to as the “interim financial statements”). Based on our reviews, we are not aware of any material modifications that should be made to the interim financial statements referred to above for them to be in conformity with accounting principles generally accepted in the United States of America.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of the Company as of December 31, 2018 and the related consolidated statements of income, comprehensive income, changes in equity and cash flows for the year then ended (not presented herein), and in our report dated February 21, 2019, which included a paragraph describing a change in the manner of accounting for certain pension and postretirement net periodic benefit costs in the 2018 financial statements, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the condensed consolidated balance sheet as of December 31, 2018, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

Basis for Review Results

These interim financial statements are the responsibility of the Company’s management. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our review in accordance with the standards of the PCAOB. A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the PCAOB, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

/s/ PricewaterhouseCoopers LLP

Chicago, Illinois

July 30, 2019

44

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

The information in Part I, Item 1, Note 7 is incorporated herein by reference.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The following table includes information about our common stock repurchases during the three-month period ended June 30, 2019.

Issuer Purchases of Equity Securities
Period	Total number of shares purchased (1)		Average price paid per share		Total number of shares purchased as part of publicly announced program(1)		Approximate dollar value of shares that may yet be purchased under the program(1)
April 1, 2019 through April 30, 2019		749,300	$	80.68		749,300
May 1, 2019 through May 31, 2019 (2)		1,254,787	$	76.59		1,254,787
June 1, 2019 through June 30, 2019		—	$	—		—
Total		2,004,087	$	78.12		2,004,087	$	1,447,516,465

(1) In July 2012, we announced that our Board of Directors authorized us to repurchase up to $2.0 billion of our common stock on the open market or in private transactions. The Board of Directors increased this authority by an additional $1.5 billion in each of November 2016 and February 2018 and by an additional $2.0 billion in November 2018. During the second quarter of 2019, we repurchased 1.4 million shares under this authority pursuant to Rule 10b5-1 plans and otherwise. We had $1.4 billion remaining under this program (as amended and after giving effect to stock repurchases) as of June 30, 2019. This program does not have an expiration date.

(2) In December 2018, we entered into a $300 million accelerated share repurchase agreement (ASR Agreement) with an investment bank. We funded the ASR Agreement with available cash. The ASR Agreement was executed pursuant to the 2012 Repurchase Authorization described above. Under the ASR Agreement, we received 3.6 million shares upon execution.  Based on the volume-weighted average price of our common stock during the term of the ASR Agreement, we received an additional 0.6 million shares from the investment bank at settlement on May 7, 2019.

45

Item 6. Exhibits

Exhibit Index:

Exhibit Number	Description
4.2	Twelfth Supplemental Indenture, dated as of May 15, 2019, between Baxter International Inc. (the “Company”) and The Bank of New York Mellon Trust Company, N.A., as Trustee (including form of 0.400% Senior Note due 2024 and form of 1.300% Senior Note due 2029) (incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K, filed May 15, 2019).
15*	Letter Re Unaudited Interim Financial Information
31.1*	Certification of Chief Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as amended.
31.2*	Certification of Chief Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as amended.
32.1*	Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2*	Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS*	XBRL Instance Document
101.SCH*	XBRL Taxonomy Extension Schema Document
101.CAL*	XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB*	XBRL Taxonomy Extension Label Linkbase Document
101.PRE*	XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF*	XBRL Taxonomy Extension Definition Linkbase Document

* Filed herewith.

46

Signature

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

		BAXTER INTERNATIONAL INC.
		(Registrant)
Date: July 30, 2019	By:	/s/ James K. Saccaro
		James K. Saccaro
		Executive Vice President and Chief Financial Officer
		(duly authorized officer and principal financial officer)

47

EX-15

EXHIBIT 15

July 30, 2019

Securities and Exchange Commission

100 F Street, N.E.

Washington, DC 20549

Commissioners:

We are aware that our reportdated July 30, 2019 on our reviewof interim financial information of Baxter International Inc., which appears in this Quarterly Report on Form 10-Q, isincorporated by reference in the Registration Statementson Form S-8 (Nos. 33-28428, 33-54069, 333-10520, 333-43563, 333-47019, 333-71553, 333-80403, 333-88257, 333-48906, 333-62820, 333-102140, 333-104420, 333-104421, 333-105032, 333-143063, 333-174400, 333-174401, 333-206700 and 333-206701) and on Form S-3 (No. 333-226987)of Baxter International Inc.

Very truly yours,

/s/ PricewaterhouseCoopers LLP

Chicago, Illinois

EX-31.1

EXHIBIT 31.1

Certification of Chief Executive Officer

Pursuant to Rules 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as Amended

I, José E. Almeida, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Baxter International Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/ José E. Almeida

José E. Almeida

Chairman of the Board and

Chief Executive Officer

Date: July 30, 2019

EX-31.2

EXHIBIT 31.2

Certification of Chief Financial Officer

Pursuant to Rules 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as Amended

I, James K. Saccaro, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Baxter International Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/ James K. Saccaro

James K. Saccaro

Executive Vice President and Chief Financial Officer

Date: July 30, 2019

EX-32.1

EXHIBIT 32.1

Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350,

as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

José E. Almeida, as Chairman of the Board and Chief Executive Officer of Baxter International Inc. (the “Company”), certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) the Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2019 as filed with the Securities and Exchange Commission on the date hereof (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ José E. Almeida

José E. Almeida

Chairman of the Board and
Chief Executive Officer

July 30, 2019

EX-32.2

EXHIBIT 32.2

Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350,

as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

James K. Saccaro, as Executive Vice President and Chief Financial Officer of Baxter International Inc. (the “Company”), certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) the Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2019 as filed with the Securities and Exchange Commission on the date hereof (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ James K. Saccaro

James K. Saccaro

Executive Vice President and
Chief Financial Officer

July 30, 2019

XML

Document and Entity Information - shares	6 Months Ended
	Jun. 30, 2019	Jul. 25, 2019
Document And Entity Information [Abstract]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Jun. 30, 2019
Document Fiscal Year Focus	2019
Document Fiscal Period Focus	Q2
Trading Symbol	BAX
Entity Registrant Name	BAXTER INTERNATIONAL INC
Entity Central Index Key	0000010456
Current Fiscal Year End Date	--12-31
Entity Filer Category	Large Accelerated Filer
Entity Small Business	false
Entity Emerging Growth Company	false
Entity Current Reporting Status	Yes
Entity Shell Company	false
Entity File Number	1-4448
Entity Tax Identification Number	360781620
Entity Address, Address Line One	One Baxter Parkway
Entity Address, City or Town	Deerfield
Entity Address, State or Province	Illinois
Entity Address, Postal Zip Code	60015
City Area Code	224
Local Phone Number	948-2000
Entity Common Stock, Shares Outstanding		510,555,869

XML

Condensed Consolidated Balance Sheets - USD ($) $ in Millions	Jun. 30, 2019	Dec. 31, 2018
Current assets:
Cash and cash equivalents	$ 2,925	$ 1,832
Accounts and other current receivables, net	1,885	1,812
Inventories	1,757	1,653
Prepaid expenses and other	651	622
Total current assets	7,218	5,919
Property, plant and equipment, net	4,541	4,542
Goodwill	2,938	2,958
Other intangible assets, net	1,364	1,398
Operating lease right-of-use assets	588
Other non-current assets	895	824
Total assets	17,544	15,641
Current liabilities:
Short-term debt	2	2
Current maturities of long-term debt and finance lease obligations	2	2
Accounts payable and accrued liabilities	2,593	2,832
Total current liabilities	2,597	2,836
Long-term debt and finance lease obligations	5,157	3,473
Operating lease liabilities	490
Other non-current liabilities	1,464	1,516
Total liabilities	9,708	7,825
Equity:
Common stock, $1 par value, authorized 2,000,000,000 shares, issued 683,494,944 shares in 2019 and 2018	683	683
Common stock in treasury, at cost, 173,275,586 shares in 2019 and 170,495,859 shares in 2018	(10,322)	(9,989)
Additional contributed capital	5,906	5,898
Retained earnings	16,184	15,626
Accumulated other comprehensive (loss) income	(4,639)	(4,424)
Total Baxter stockholders’ equity	7,812	7,794
Noncontrolling interests	24	22
Total equity	7,836	7,816
Total liabilities and equity	$ 17,544	$ 15,641

XML

Condensed Consolidated Balance Sheets (Parenthetical) - $ / shares	Jun. 30, 2019	Dec. 31, 2018
Statement Of Financial Position [Abstract]
Common stock, par value	$ 1	$ 1
Common stock, authorized	2,000,000,000	2,000,000,000
Common stock, issued	683,494,944	683,494,944
Treasury stock, shares	173,275,586	170,495,859

XML

Condensed Consolidated Statements of Income (Unaudited) - USD ($) shares in Millions, $ in Millions	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Income Statement [Abstract]
Net sales	$ 2,840	$ 2,842	$ 5,472	$ 5,519
Cost of sales	1,681	1,603	3,233	3,166
Gross margin	1,159	1,239	2,239	2,353
Selling, general and administrative expenses	642	681	1,242	1,303
Research and development expenses	166	174	295	314
Other operating income, net	(4)		(37)	(80)
Operating income	355	384	739	816
Interest expense, net	20	11	38	23
Other income, net	(28)	(31)	(53)	(49)
Income before income taxes	363	404	754	842
Income tax expense	20	61	64	110
Net income	$ 343	$ 343	$ 690	$ 732
Net income per common share
Basic	$ 0.67	$ 0.64	$ 1.35	$ 1.36
Diluted	$ 0.66	$ 0.63	$ 1.33	$ 1.33
Weighted-average number of common shares outstanding
Basic	510	535	511	537
Diluted	519	547	520	549

XML

Condensed Consolidated Statements of Comprehensive Income (Unaudited) - USD ($) $ in Millions	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Statement Of Income And Comprehensive Income [Abstract]
Net income	$ 343	$ 343	$ 690	$ 732
Other comprehensive (loss) income, net of tax:
Currency translation adjustments, net of tax (benefit) expense of ($4) and ($24) for the three months ended June 30, 2019 and 2018, respectively, and $2 and ($31) for the six months ended June 30, 2019 and 2018, respectively	(78)	(363)	(48)	(282)
Pension and other postretirement benefits, net of tax expense of $3 and $4 for the three months ended June 30, 2019 and 2018, respectively, and $6 and $17 for the six months ended June 30, 2019 and 2018, respectively	13	29	21	81
Hedging activities, net of tax (benefit) expense of ($3) and $2 for the three months ended June 30, 2019 and 2018, respectively, and ($8) and $3 for the six months ended June 30, 2019 and 2018, respectively	(12)	11	(27)	6
Total other comprehensive (loss) income, net of tax	(77)	(323)	(54)	(195)
Comprehensive income	$ 266	$ 20	$ 636	$ 537

XML

Condensed Consolidated Statements of Comprehensive Income (Unaudited) (Parenthetical) - USD ($) $ in Millions	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Statement Of Income And Comprehensive Income [Abstract]
Tax (benefit) expense on currency translation adjustments	$ (4)	$ (24)	$ 2	$ (31)
Tax expense on pension and other postretirement benefits	3	4	6	17
Tax (benefit) expense on hedging activities	$ (3)	$ 2	$ (8)	$ 3

XML

Condensed Consolidated Statements of Changes in Equity (Unaudited) - USD ($) $ in Millions	Total	Common Stock	Common Stock in Treasury	Additional Contributed Capital	Retained Earnings	Accumulated Other Comprehensive Income (Loss)	Parent	Noncontrolling Interest
Beginning of period at Dec. 31, 2017	$ 9,116	$ 683	$ (7,981)	$ 5,940	$ 14,483	$ (4,001)	$ 9,124	$ (8)
Beginning of period at Dec. 31, 2017		683,000,000
Beginning of period at Dec. 31, 2017			142,000,000
Adoption of new accounting standards	(19)				(16)	(3)	(19)
Net income	389				389		389
Other comprehensive income (loss)	128					128	128
Purchases of treasury stock	(522)		$ (522)				(522)
Purchases of treasury stock, shares			8,000,000
Stock issued under employee benefit plans and other	85		$ 149	(28)	(36)		85
Stock issued under employee benefit plans and other, shares			(3,000,000)
Dividends declared on common stock	(86)				(86)		(86)
Change in noncontrolling interests	2							2
End of period at Mar. 31, 2018	9,093	$ 683	$ (8,354)	5,912	14,734	(3,876)	9,099	(6)
End of period at Mar. 31, 2018		683,000,000
End of period at Mar. 31, 2018			147,000,000
Beginning of period at Dec. 31, 2017	9,116	$ 683	$ (7,981)	5,940	14,483	(4,001)	9,124	(8)
Beginning of period at Dec. 31, 2017		683,000,000
Beginning of period at Dec. 31, 2017			142,000,000
Net income	732
Other comprehensive income (loss)	$ (195)
Purchases of treasury stock, shares	11,500,000
End of period at Jun. 30, 2018	$ 8,869	$ 683	$ (8,485)	5,916	14,966	(4,199)	8,881	(12)
End of period at Jun. 30, 2018		683,000,000
End of period at Jun. 30, 2018			148,000,000
Beginning of period at Mar. 31, 2018	9,093	$ 683	$ (8,354)	5,912	14,734	(3,876)	9,099	(6)
Beginning of period at Mar. 31, 2018		683,000,000
Beginning of period at Mar. 31, 2018			147,000,000
Net income	343				343		343
Other comprehensive income (loss)	(323)					(323)	(323)
Purchases of treasury stock	(259)		$ (259)				(259)
Purchases of treasury stock, shares			3,000,000
Stock issued under employee benefit plans and other	123		$ 128	4	(9)		123
Stock issued under employee benefit plans and other, shares			(2,000,000)
Dividends declared on common stock	(102)				(102)		(102)
Change in noncontrolling interests	(6)							(6)
End of period at Jun. 30, 2018	8,869	$ 683	$ (8,485)	5,916	14,966	(4,199)	8,881	(12)
End of period at Jun. 30, 2018		683,000,000
End of period at Jun. 30, 2018			148,000,000
Beginning of period at Dec. 31, 2018	$ 7,816	$ 683	$ (9,989)	5,898	15,626	(4,424)	7,794	22
Beginning of period at Dec. 31, 2018	683,494,944	683,000,000
Beginning of period at Dec. 31, 2018	170,495,859		170,000,000
Adoption of new accounting standards					161	(161)
Net income	$ 347				347		347
Other comprehensive income (loss)	23					23	23
Purchases of treasury stock	(586)		$ (586)				(586)
Purchases of treasury stock, shares			8,000,000
Stock issued under employee benefit plans and other	166		$ 291	(59)	(66)		166
Stock issued under employee benefit plans and other, shares			(5,000,000)
Dividends declared on common stock	(98)				(98)		(98)
Change in noncontrolling interests	1							1
End of period at Mar. 31, 2019	7,669	$ 683	$ (10,284)	5,839	15,970	(4,562)	7,646	23
End of period at Mar. 31, 2019		683,000,000
End of period at Mar. 31, 2019			173,000,000
Beginning of period at Dec. 31, 2018	$ 7,816	$ 683	$ (9,989)	5,898	15,626	(4,424)	7,794	22
Beginning of period at Dec. 31, 2018	683,494,944	683,000,000
Beginning of period at Dec. 31, 2018	170,495,859		170,000,000
Net income	$ 690
Other comprehensive income (loss)	$ (54)
Purchases of treasury stock, shares	9,500,000
End of period at Jun. 30, 2019	$ 7,836	$ 683	$ (10,322)	5,906	16,184	(4,639)	7,812	24
End of period at Jun. 30, 2019	683,494,944	683,000,000
End of period at Jun. 30, 2019	173,275,586		173,000,000
Beginning of period at Mar. 31, 2019	$ 7,669	$ 683	$ (10,284)	5,839	15,970	(4,562)	7,646	23
Beginning of period at Mar. 31, 2019		683,000,000
Beginning of period at Mar. 31, 2019			173,000,000
Net income	343				343		343
Other comprehensive income (loss)	(77)					(77)	(77)
Purchases of treasury stock	(111)		$ (157)	46			(111)
Purchases of treasury stock, shares			2,000,000
Stock issued under employee benefit plans and other	123		$ 119	21	(17)		123
Stock issued under employee benefit plans and other, shares			(2,000,000)
Dividends declared on common stock	(112)				(112)		(112)
Change in noncontrolling interests	1							1
End of period at Jun. 30, 2019	$ 7,836	$ 683	$ (10,322)	$ 5,906	$ 16,184	$ (4,639)	$ 7,812	$ 24
End of period at Jun. 30, 2019	683,494,944	683,000,000
End of period at Jun. 30, 2019	173,275,586		173,000,000

XML

Condensed Consolidated Statements of Cash Flows (unaudited) - USD ($) $ in Millions	6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018
Cash flows from operations
Net income	$ 690	$ 732
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization	393	387
Deferred income taxes	(55)	(51)
Stock compensation	57	54
Net periodic pension benefit and other postretirement costs	7	21
Restructuring charges	77	33
Intangible asset impairment	31
Other	21	7
Changes in balance sheet items:
Accounts and other current receivables, net	(60)	43
Inventories	(91)	(134)
Accounts payable and accrued liabilities	(308)	(109)
Restructuring payments	(60)	(47)
Other	(85)	(84)
Cash flows from operations – continuing operations	617	852
Cash flows from operations – discontinued operations	(6)
Cash flows from operations	611	852
Cash flows from investing activities
Capital expenditures	(352)	(311)
Acquisitions and investments	(111)	(228)
Other investing activities, net	1
Cash flows from investing activities	(462)	(539)
Cash flows from financing activities
Issuances of debt	1,661
Cash dividends on common stock	(198)	(173)
Proceeds from stock issued under employee benefit plans	262	170
Purchases of treasury stock	(720)	(781)
Other financing activities, net	(37)	(24)
Cash flows from financing activities	968	(808)
Effect of foreign exchange rate changes on cash and cash equivalents	(24)	(42)
Increase (decrease) in cash and cash equivalents	1,093	(537)
Cash and cash equivalents at beginning of period	1,832	3,394
Cash and cash equivalents at end of period	2,925	2,857
Non-cash investing and financing activities
Decrease in liabilities for capital expenditures	47	$ 20
Decrease in liability for treasury stock purchases	$ 23

XML

BASIS OF PRESENTATION

6 Months Ended

Jun. 30, 2019

Organization Consolidation And Presentation Of Financial Statements [Abstract]

BASIS OF PRESENTATION

1. BASIS OF PRESENTATION

The unaudited interim condensed consolidated financial statements of Baxter International Inc. and its subsidiaries (we or our) have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles (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, 2018 (2018 Annual Report).

In the opinion of management, the unaudited interim condensed consolidated financial statements reflect all adjustments necessary for a fair presentation 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 results of operations for the current interim period are not necessarily indicative of the results of operations to be expected for the full year.

Certain reclassifications have been made to conform the prior period condensed consolidated statements to the current period presentation.  

New Accounting Standards

Recently adopted accounting pronouncements

As of January 1, 2019, we adopted Accounting Standards Update (ASU) No. 2016-02, Leases (Topic 842).  Under this guidance, lessees are required to recognize a right-of-use asset and a lease liability on the balance sheet for all operating leases, other than those that meet the definition of a short-term lease.  We adopted Topic 842 using the modified retrospective method.  We elected the following practical expedients when assessing the transition impact: i) not to reassess whether any expired or existing contracts as of the adoption date are or contain leases; ii) not to reassess the lease classification for any expired or existing leases as of the adoption date; and iii) not to reassess initial direct costs for any existing leases as of the adoption date. The adjustment to record operating lease right-of-use assets and operating lease liabilities was $502 million as of January 1, 2019. The impact to the condensed consolidated statements of income was not material and there was no net impact to the condensed consolidated statements of cash flows.

As of January 1, 2019, we adopted ASU No. 2017-12, Targeted Improvements to Accounting for Hedging Activities.  The purpose of this ASU is to better align a company’s risk management activities and financial reporting for hedging relationships, simplify the hedge accounting requirements, and improve the disclosures of hedging arrangements.  The adoption of this standard did not have a material impact on our condensed consolidated financial statements.

As of January 1, 2019, we adopted ASU No. 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income (AOCI).  As a result of the enactment of the U.S. Tax Cuts and Jobs Act of 2017 (the 2017 Tax Act), this guidance provides for a reclassification of certain tax effects from AOCI to retained earnings.  The impact of the adoption of this standard was a $161 million increase to retained earnings.

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ACQUISITIONS AND OTHER ARRANGEMENTS

6 Months Ended

Jun. 30, 2019

Business Combinations [Abstract]

ACQUISITIONS AND OTHER ARRANGEMENTS

2. ACQUISITIONS AND OTHER ARRANGEMENTS

In the first quarter of 2019, we acquired the U.S. rights to multiple products for an aggregate purchase price of $94 million. The purchase prices were capitalized as developed-technology intangible assets and are being amortized over a weighted-average useful life of 10 years. Net sales related to these products in the first half of 2019 were not material.

In July 2019, we acquired the U.S. rights to an additional product for $62 million. The purchase price will be capitalized as a developed-technology intangible asset in the quarter ending September 30, 2019 and will be amortized over its estimated useful life of 12 years.

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SUPPLEMENTAL FINANCIAL INFORMATION

6 Months Ended

Jun. 30, 2019

Organization Consolidation And Presentation Of Financial Statements [Abstract]

SUPPLEMENTAL FINANCIAL INFORMATION

3. SUPPLEMENTAL FINANCIAL INFORMATION

Interest Expense, Net

	Three months ended						Six months ended
	June 30,						June 30,
(in millions)	2019			2018			2019			2018
Interest expense, net of capitalized interest	$	28		$	24		$	53		$	46
Interest income		(8	)		(13	)		(15	)		(23	)
Interest expense, net	$	20		$	11		$	38		$	23

Other Income, Net

	Three months ended						Six months ended
	June 30,						June 30,
(in millions)	2019			2018			2019			2018
Foreign exchange gains, net	$	(17	)	$	(18	)	$	(22	)	$	(33	)
Pension and other postretirement benefits		(15	)		(14	)		(31	)		(26	)
Other		4			1			—			10
Other income, net	$	(28	)	$	(31	)	$	(53	)	$	(49	)

Inventories

	June 30,		December 31,
(in millions)	2019		2018
Raw materials	$	397	$	363
Work in process		197		203
Finished goods		1,163		1,087
Inventories	$	1,757	$	1,653

Property, Plant and Equipment, Net

	June 30,			December 31,
(in millions)	2019			2018
Property, plant and equipment, at cost	$	10,593		$	10,327
Accumulated depreciation		(6,052	)		(5,785	)
Property, plant and equipment, net	$	4,541		$	4,542

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GOODWILL AND OTHER INTANGIBLE ASSETS, NET

6 Months Ended

Jun. 30, 2019

Goodwill And Intangible Assets Disclosure [Abstract]

GOODWILL AND OTHER INTANGIBLE ASSETS, NET

4. GOODWILL AND OTHER INTANGIBLE ASSETS, NET

Goodwill

The following is a reconciliation of goodwill by business segment.

(in millions)	Americas			EMEA			APAC			Total
Balance as of December 31, 2018	$	2,351		$	387		$	220		$	2,958
Adjustments		—			(4	)		—			(4	)
Currency translation adjustments		(13	)		(2	)		(1	)		(16	)
Balance as of June 30, 2019	$	2,338		$	381		$	219		$	2,938

As of June 30, 2019, there were no reductions in goodwill relating to impairment losses.

Other intangible assets, net

The following is a summary of our other intangible assets.

(in millions)	Developed technology, including patents			Other amortized intangible assets			Indefinite-lived intangible assets		Total
June 30, 2019
Gross other intangible assets	$	2,164		$	450		$	188	$	2,802
Accumulated amortization		(1,171	)		(267	)		—		(1,438	)
Other intangible assets, net	$	993		$	183		$	188	$	1,364
December 31, 2018
Gross other intangible assets	$	2,115		$	451		$	188	$	2,754
Accumulated amortization		(1,106	)		(250	)		—		(1,356	)
Other intangible assets, net	$	1,009		$	201		$	188	$	1,398

Intangible asset amortization expense was $45 million and $44 million for the three months ended June 30, 2019 and 2018, respectively, and $88 million and $85 million for the six months ended June 30, 2019 and 2018, respectively.

For the three and six months ended June 30, 2019, we recognized a $31 million impairment charge related to a developed-technology intangible asset due to a decline in market expectations for the related product. The fair value of the intangible asset was measured using a discounted cash flow approach and the charge is classified within cost of sales in the accompanying condensed consolidated statements of income. We consider the fair value of the asset to be a Level 3 measurement due to the significant estimates and assumptions we used in establishing the estimated fair value.

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FINANCIAL ARRANGEMENTS

6 Months Ended

Jun. 30, 2019

Debt Disclosure [Abstract]

FINANCIAL ARRANGEMENTS

5. FINANCING ARRANGEMENTS

Debt Issuance

In May 2019, we issued €750 million of 0.4% senior notes due in May 2024 and €750 million of 1.3% senior notes due in May 2029.  We have designated these debt instruments as net investment hedges of our European operations. Refer to Note 15 for additional information.

Short-term Debt

In the second quarter of 2019, we repaid $795 million of commercial paper and other short-term borrowings that were outstanding as of March 31, 2019. No commercial paper was outstanding as of June 30, 2019 or December 31, 2018.

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LEASES

6 Months Ended

Jun. 30, 2019

Leases [Abstract]

LEASES

6. LEASES

Lessee Activity

We have entered into operating and finance leases primarily for office, manufacturing and research and development (R&D) facilities, vehicles and equipment. Our leases have remaining terms from one to 25 years and some of those leases include options that provide us with the ability to extend the lease term for periods ranging from one to 12 years. Such options are included in the lease term when it is reasonably certain that the option will be exercised.

Certain lease contracts include other services, such as operations and maintenance. For all asset classes, we have elected to apply a practical expedient to account for other services within lease contracts as components of the lease. We also have elected to apply a practical expedient for short-term leases whereby we do not recognize a lease liability and right-of-use asset for leases with a term of less than 12 months.

We classify our leases as operating or finance at the lease commencement date. Finance leases are generally those leases for which we will pay substantially all of the underlying asset’s fair value or will use the asset for all or a major part of its economic life, including circumstances in which we will ultimately own the asset. All other leases are operating leases. For finance leases, we recognize interest expense using the effective interest method and we recognize

amortization expense on the right-of-use asset over the shorter of the lease term or the useful life of the asset. For operating leases, we recognize lease cost on a straight-line basis over the term of the lease.

Lease liabilities and right-of-use assets are recognized at the lease commencement date based on the present value of minimum lease payments over the lease term. We determine the present value of payments under a lease based on our incremental borrowing rate as of the lease commencement date. The incremental borrowing rate is equal to the rate of interest that we would have to pay to borrow on a collateralized basis over a similar term in an amount equal to the lease payments in a similar economic environment. For operating leases that commenced prior to our adoption of Topic 842, we measured the lease liabilities and right-of-use assets using our incremental borrowing rate as of January 1, 2019.

There were no material lease transactions that we entered into but have not yet commenced as of June 30, 2019.

The components of lease cost for the three and six months ended June 30, 2019 were:

(in millions)	Three months ended June 30, 2019		Six months ended June 30, 2019
Operating lease cost	$	29	$	60
Finance lease cost
Amortization of right-of-use assets		1		2
Interest on lease liabilities		—		1
Variable lease cost		21		43
Lease cost	$	51	$	106

The following table contains supplemental cash flow information related to leases for the six months ended June 30, 2019:

(in millions)	Six months ended June 30, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	60
Operating cash flows from finance leases		3
Financing cash flows from finance leases		1
Right-of-use operating lease assets obtained in exchange for lease obligations		140

Supplemental balance sheet information related to leases as of June 30, 2019 includes:

(in millions)	June 30, 2019
Operating leases
Operating lease right-of-use assets	$	588
Accounts payable and accrued liabilities	$	98
Operating lease liabilities		490
Total operating lease liabilities	$	588
Finance leases
Property, plant and equipment, at cost	$	81
Accumulated depreciation		(27	)
Property, plant and equipment, net	$	54
Current maturities of long-term debt and finance lease obligations	$	1
Long-term debt and finance lease obligations		58
Total finance lease liabilities	$	59

Lease term and discount rates as of June 30, 2019 were:

	June 30, 2019
Weighted-average remaining lease term (years)
Operating leases		10
Finance leases		15
Weighted-average discount rate
Operating leases		2.8	%
Finance leases		10.3	%

Maturities of operating and finance lease liabilities as of June 30, 2019 were:

(in millions)	Finance Leases			Operating Leases
2019	$	4		$	59
2020		8			99
2021		8			83
2022		8			70
2023		6			59
Thereafter		82			297
Total minimum lease payments		116			667
Less: imputed interest		(57	)		(79	)
Present value of lease liabilities	$	59		$	588

Future minimum lease payments as of December 31, 2018, as disclosed in our 2018 Annual Report, were:

(in millions)	Capital Leases			Operating Leases
2019	$	8		$	122
2020		7			93
2021		7			86
2022		8			71
2023		6			64
Thereafter		88			210
Total minimum lease payments		124		$	646
Less: imputed interest		(62	)
Present value of lease liabilities	$	62

Lessor Activity

We lease medical equipment, such as renal dialysis equipment and infusion pumps, to customers primarily in conjunction with arrangements to provide consumable medical products such as dialysis therapies, intravenous (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 and six months ended June 30, 2019 were:

(in millions)	Three months ended June 30, 2019		Six months ended June 30, 2019
Sales-type lease revenue	$	5	$	11
Operating lease revenue		15		30
Variable lease revenue		21		42
Total lease revenue	$	41	$	83

The components of our net investment in sales-type leases as of June 30, 2019 were:

(in millions)	June 30, 2019
Minimum lease payments	$	86
Unguaranteed residual values		11
Net investment in leases	$	97

Our net investment in sales-type leases is classified as follows in the accompanying condensed consolidated balance sheets:

(in millions)	June 30, 2019
Accounts and other current receivables, net	$	36
Other non-current assets		61
Total	$	97

Maturities of sales-type and operating leases as of June 30, 2019 were:

(in millions)	Sales-type Leases			Operating Leases
2019	$	17		$	24
2020		30			48
2021		24			48
2022		15			30
2023		8			16
Thereafter		2			7
Total minimum lease payments		96		$	173
Less: imputed interest		(10	)
Present value of minimum lease payments	$	86

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COMMITMENTS AND CONTINGENCIES

6 Months Ended

Jun. 30, 2019

Commitments And Contingencies Disclosure [Abstract]

COMMITMENTS AND CONTINGENCIES

7. COMMITMENTS AND CONTINGENCIES

We are involved in product liability, patent, commercial, 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, 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. As of June 30, 2019 and December 31, 2018, our total recorded reserves, including the environmental matters discussed below, with respect to legal matters were $49 million and $43 million, respectively, and there were no related receivables.

We have established reserves for certain of the matters discussed below. We are not able to estimate the amount or range of any loss for certain contingencies for which there is no reserve or additional loss for matters already reserved. While our liability in connection with these claims cannot be estimated and the resolution thereof in any reporting period could have a significant impact on our results of operations and cash flows for that period, the outcome of these legal proceedings is not expected to have a material adverse effect on our consolidated financial position. 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 product recalls, injunctions, and other restrictions on our operations 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.

Environmental

We are involved as a potentially responsible party (PRP) for environmental clean-up costs at six 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 the Superfund cases noted above, we are involved in an ongoing voluntary environmental remediation associated with historic operations at our Irvine, California, United States facility. As of June 30, 2019 and December 31, 2018, our environmental reserves, which are measured on an undiscounted basis, were $20 million and $19 million, respectively.  After considering these reserves, management is of the opinion that the outcome of these matters will not have a material adverse effect on our financial position or results of operations.

General Litigation

In November 2016, a purported antitrust class action complaint seeking monetary and injunctive relief was filed in the United States District Court for the Northern District of Illinois. The complaint alleges a conspiracy among manufacturers of IV solutions to restrict output and affect pricing in connection with a shortage of such solutions. Similar parallel actions subsequently were filed. In January 2017, a single consolidated complaint covering these matters was filed in the Northern District of Illinois. We filed a motion to dismiss the consolidated complaint in February 2017.  The court granted our motion to dismiss the consolidated complaint without prejudice in July 2018. The plaintiffs filed an amended complaint on September 6, 2018.  We filed a motion to dismiss the amended complaint on November 9, 2018.

In April 2017, we became aware of a criminal investigation by the U.S. Department of Justice (DOJ), Antitrust Division and a federal grand jury in the United States District Court for the Eastern District of Pennsylvania. We and an employee received subpoenas seeking production of documents and testimony regarding the manufacturing, selling, pricing and shortages of IV solutions and containers (including saline solutions and certain other injectable medicines sold by us) and communications with competitors regarding the same. On November 30, 2018, the DOJ notified us that it had closed the investigation. The New York Attorney General has also requested that we provide information regarding business practices in the IV saline industry. We are cooperating with the New York Attorney General.  

Other

As previously disclosed, in 2008 we recalled our heparin sodium injection products in the United States.  Following the recall, more than 1,000 lawsuits alleging that plaintiffs suffered various reactions to a heparin contaminant, in some cases resulting in fatalities, were filed. In January 2019, the last of these cases was settled. In the first half of 2019, following the resolution of an insurance dispute, we received cash proceeds of $35 million for our allocation of the insurance proceeds under a settlement and cost-sharing agreement related to the defense of the heparin product liability cases. We recognized a $33 million gain in connection with the resolution of the dispute with the insurer that is classified within other operating income, net on the condensed consolidated statement of income for the six months ended June 30, 2019.

In September 2017, Hurricane Maria caused damage to certain of our assets in Puerto Rico and disrupted operations.  As previously disclosed, we realized $42 million of insurance recoveries in 2018 related to the damages and losses from that hurricane. In July 2019, an additional $40 million of claims were approved by our insurers and will be recognized in the quarter ending September 30, 2019.

In December 2016, we received a civil investigative demand from the Commercial Litigation Branch of the U.S. DOJ primarily relating to contingent discount arrangements for, and other promotion of, our TISSEEL and ARTISS products. In April 2018, the DOJ filed a notice of its decision not to intervene and an underlying qui tam complaint (U.S. ex rel. Andrew Capp v. Baxter) was unsealed in the United States District Court for the District of Columbia. The attorney for the relator/plaintiff voluntarily dismissed the qui tam complaint on June 16, 2018. The complaint which is now fully resolved, related to contingent discount arrangements for, and other promotion of, our TISSEEL, ARTISS and VERITAS products.

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STOCKHOLDERS’ EQUITY

6 Months Ended

Jun. 30, 2019

Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]

STOCKHOLDERS' EQUITY

8. STOCKHOLDERS’ EQUITY

Cash Dividends

Cash dividends declared per common share for the three and six months ended June 30, 2019 were $0.22 and $0.41, respectively.  Cash dividends declared per common share for the three and six months ended June 30, 2018 were $0.19 and $0.35, respectively.

Stock Repurchase Programs

In July 2012, the Board of Directors authorized the repurchase of up to $2.0 billion of our common stock. The Board of Directors increased this authority by an additional $1.5 billion in each of November 2016 and February 2018 and by an additional $2.0 billion in November 2018. During the first half of 2019, we repurchased 9.5 million shares under this authority pursuant to Rule 10b5-1 plans and otherwise. During the first half of 2018, we repurchased 11.5 million shares pursuant to Rule 10b5-1 plans. We had $1.4 billion remaining available under the authorization as of June 30, 2019.

In December 2018, we entered into a $300 million accelerated share repurchase agreement (ASR Agreement) with an investment bank. We funded the ASR Agreement with available cash. The ASR Agreement was executed pursuant to the 2012 Repurchase Authorization described above. Under the ASR Agreement, we received 3.6 million shares upon execution.  Based on the volume-weighted average price of our common stock during the term of the ASR Agreement, we received an additional 0.6 million shares from the investment bank at settlement on May 7, 2019.

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ACCUMULATED OTHER COMPREHENSIVE INCOME

6 Months Ended

Jun. 30, 2019

Equity [Abstract]

ACCUMULATED OTHER COMPREHENSIVE INCOME

9. ACCUMULATED OTHER COMPREHENSIVE INCOME

Comprehensive income includes all changes in stockholders’ equity that do not arise from transactions with shareholders, and consists of net income, currency translation adjustments (CTA), pension and other postretirement employee benefit (OPEB) plans, unrealized gains and losses on cash flow hedges and prior to 2018, unrealized gains and losses on available-for-sale equity securities.  As a result of changes in accounting guidance related to available-for-sale equity securities, the unrealized gains and losses associated with these assets are no longer recognized in AOCI beginning January 1, 2018. The following table is a net-of-tax summary of the changes in AOCI by component for the six months ended June 30, 2019 and 2018.

(in millions)	CTA			Pension and OPEB plans			Hedging activities			Total
Gains (losses)
Balance as of December 31, 2018	$	(3,474	)	$	(949	)	$	(1	)	$	(4,424	)
Adoption of new accounting standard		9			(169	)		(1	)		(161	)
Other comprehensive income before reclassifications		(48	)		8			(26	)		(66	)
Amounts reclassified from AOCI (a)		—			13			(1	)		12
Net other comprehensive income (loss)		(48	)		21			(27	)		(54	)
Balance as of June 30, 2019	$	(3,513	)	$	(1,097	)	$	(29	)	$	(4,639	)

(in millions)	CTA			Pension and OPEB plans			Hedging activities			Available- for-sale- equity securities			Total
Gains (losses)
Balance as of December 31, 2017	$	(3,013	)	$	(981	)	$	(10	)	$	3		$	(4,001	)
Adoption of new accounting standard		—			—			—			(3	)		(3	)
Other comprehensive income before reclassifications		(282	)		51			(1	)		—			(232	)
Amounts reclassified from AOCI (a)		—			30			7			—			37
Net other comprehensive income (loss)		(282	)		81			6			—			(195	)
Balance as of June 30, 2018	$	(3,295	)	$	(900	)	$	(4	)	$	—		$	(4,199	)

(a) See table below for details about these reclassifications.

The following is a summary of the amounts reclassified from AOCI to net income during the three and six months ended June 30, 2019 and 2018.

	Amounts reclassified from AOCI (a)
(in millions)	Three months ended June 30, 2019			Six months ended June 30, 2019			Location of impact in income statement
Amortization of pension and OPEB items
Amortization of net losses and prior service costs or credits	$	(7	)	$	(15	)	Other income, net
		(7	)		(15	)	Total before tax
		1			2		Income tax expense
	$	(6	)	$	(13	)	Net of tax
Gains on hedging activities
Foreign exchange contracts	$	1		$	1		Cost of sales
		1			1		Total before tax
		—			—		Income tax expense
	$	1		$	1		Net of tax
Total reclassifications for the period	$	(5	)	$	(12	)	Total net of tax

	Amounts reclassified from AOCI (a)
(in millions)	Three months ended June 30, 2018			Six months ended June 30, 2018			Location of impact in income statement
Amortization of pension and OPEB items
Amortization of net losses and prior service costs or credits	$	(18	)	$	(36	)	Other income, net
		(18	)		(36	)	Total before tax
		3			6		Income tax expense
	$	(15	)	$	(30	)	Net of tax
Losses on hedging activities
Foreign exchange contracts	$	(6	)	$	(10	)	Cost of sales
		(6	)		(10	)	Total before tax
		2			3		Income tax expense
	$	(4	)	$	(7	)	Net of tax
Total reclassifications for the period	$	(19	)	$	(37	)	Total net of tax

(a) Amounts in parentheses indicate reductions to net income. 

Refer to Note 12 for additional information regarding the amortization of pension and OPEB items and Note 15 for additional information regarding hedging activity.

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REVENUES

6 Months Ended

Jun. 30, 2019

Revenue From Contract With Customer [Abstract]

REVENUES

10. 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 30-90 days.

The majority of our performance obligations are satisfied at a point in time. This includes sales of our broad portfolio of essential healthcare products across our geographic segments including acute and chronic dialysis therapies; sterile IV solutions; infusion systems and devices; parenteral nutrition therapies; inhaled anesthetics; generic injectable pharmaceuticals; and surgical hemostat and sealant products. For a majority of these sales, 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, in all of our segments, we enter into other types of contracts including contract manufacturing arrangements, equipment leases, and certain subscription software and licensing arrangements. 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. 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.

On June 30, 2019, we had $8.9 billion of transaction price allocated to remaining performance obligations related to executed contracts with an original duration of one year or more, which are primarily included in the Americas 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 10% of this amount as revenue over the remainder of 2019, 20% in each year between 2020 and 2022, 10% in each of 2023 and 2024, and the remaining balance thereafter.

Significant Judgments

Revenues from product sales are recorded at the net sales price (transaction price), which includes estimates of variable consideration for reserves related to rebates, product returns, sales discounts and wholesaler chargebacks. These reserves are based on estimates of the amounts earned or to be claimed on the related sales and are included in accounts and other current receivables, net and accounts payable and accrued liabilities 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 that is probable not to result in a significant reversal in the amount of the cumulative revenue recognized in a future period. Revenue recognized during the three and six months ended June 30, 2019 and 2018 related to performance obligations satisfied in prior periods was not material.

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 were $1.8 billion and $1.7 billion as of June 30, 2019 and December 31, 2018, 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 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 certain bundled contracts, total contract revenue is allocated between equipment and consumable medical products. In conjunction with these arrangements, a contract asset is created, which represents the difference between the amount of equipment revenue recognized upon sale and the amount of consideration received from the customer. The contract asset is reclassified as accounts receivable as consumable medical products are provided and billed, generally over one to seven years. Our contract asset balances totaled $89 million as of June 30, 2019, of which $37 million related to contract manufacturing services, $40 million related to software sales and $12 million related to bundled equipment and consumable medical products contracts. Our contract asset balances totaled $80 million as of December 31, 2018, of which $33 million related to contract manufacturing services and $47 million related to software sales. Contract assets are presented within accounts and other receivables, net ($57 million and $50 million as of June 30, 2019 and December 31, 2018, respectively) and other non-current assets ($32 million and $30 million as of June 30, 2019 and December 31, 2018, respectively) in the accompanying condensed consolidated balance sheets. Contract liabilities as of June 30, 2019 and December 31, 2018 were not significant.

Disaggregation of Net Sales

The following tables disaggregate our net sales from contracts with customers by Global Business Unit (GBU) between the U.S. and international:

	Three months ended June 30,
	2019						2018
(in millions)	U.S.		International		Total		U.S.		International		Total
Renal Care 1	$	196	$	714	$	910	$	204	$	727	$	931
Medication Delivery 2		441		248		689		426		255		681
Pharmaceuticals 3		235		304		539		262		275		537
Clinical Nutrition 4		79		136		215		80		141		221
Advanced Surgery 5		143		89		232		118		86		204
Acute Therapies 6		44		89		133		42		87		129
Other 7		55		67		122		78		61		139
Total Baxter	$	1,193	$	1,647	$	2,840	$	1,210	$	1,632	$	2,842

	Six months ended June 30,
	2019						2018
(in millions)	U.S.		International		Total		U.S.		International		Total
Renal Care 1	$	388	$	1,373	$	1,761	$	400	$	1,399	$	1,799
Medication Delivery 2		847		476		1,323		862		495		1,357
Pharmaceuticals 3		467		581		1,048		505		528		1,033
Clinical Nutrition 4		156		264		420		163		281		444
Advanced Surgery 5		263		167		430		217		169		386
Acute Therapies 6		92		169		261		88		170		258
Other 7		100		129		229		122		120		242
Total Baxter	$	2,313	$	3,159	$	5,472	$	2,357	$	3,162	$	5,519

1 Renal Care includes sales of our peritoneal dialysis (PD), hemodialysis (HD) and additional dialysis therapies and services.

2 Medication Delivery includes sales of our IV therapies, infusion pumps, administration sets and drug reconstitution devices.

3 Pharmaceuticals includes sales of our premixed and oncology drug platforms, inhaled anesthesia and critical care products and pharmacy compounding services.

4 Clinical Nutrition includes sales of our parenteral nutrition (PN) therapies and related products.

5 Advanced Surgery includes sales of our biological products and medical devices used in surgical procedures for hemostasis, tissue sealing and adhesion prevention.

6 Acute Therapies includes sales of our continuous renal replacement therapies (CRRT) and other organ support therapies focused in the intensive care unit (ICU).

7 Other primarily includes sales of contract manufacturing services from our pharmaceutical partnering business.

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BUSINESS OPTIMIZATION CHARGES

6 Months Ended

Jun. 30, 2019

Restructuring And Related Activities [Abstract]

BUSINESS OPTIMIZATION CHARGES

11. BUSINESS OPTIMIZATION CHARGES

Beginning in the second half of 2015, we have undertaken actions to transform our cost structure and enhance operational efficiency. These efforts include restructuring the organization, optimizing the manufacturing footprint, R&D operations and supply chain network, employing disciplined cost management, and centralizing and streamlining certain support functions. Through June 30, 2019, we have incurred cumulative pre-tax costs of $899 million related to these actions. The costs consisted primarily of employee termination, implementation costs and accelerated depreciation. We currently expect to incur additional pre-tax costs of approximately $70 million through the completion of these initiatives under our current program. These costs will primarily include employee termination costs, implementation costs, and accelerated depreciation.  

During the three and six months ended June 30, 2019 and 2018, we recorded the following charges related to business optimization programs.

	Three months ended				Six months ended
	June 30,				June 30,
(in millions)	2019		2018		2019		2018
Restructuring charges	$	52	$	21	$	77	$	33
Costs to implement business optimization programs		12		25		22		50
Accelerated depreciation		1		1		4		2
Total business optimization charges	$	65	$	47	$	103	$	85

For segment reporting, business optimization charges are unallocated expenses.

Costs to implement business optimization programs for the three and six months ended June 30, 2019 and 2018, respectively, consisted primarily of external consulting and transition costs, including employee compensation and related costs. The costs were generally included within cost of sales, selling, general and administrative (SG&A) expense and R&D expense.

For the three and six months ended June 30, 2019 and 2018, respectively, we recognized accelerated depreciation, primarily associated with facilities to be closed. The costs were recorded within cost of sales and SG&A expense.

During the three and six months ended June 30, 2019 and 2018, we recorded the following restructuring charges.

	Three months ended June 30, 2019
(in millions)	COGS		SG&A		R&D		Total
Employee termination costs	$	6	$	26	$	17	$	49
Contract termination and other costs		1		—		—		1
Asset impairments		1		—		1		2
Total restructuring charges	$	8	$	26	$	18	$	52

	Three months ended June 30, 2018
(in millions)	COGS		SG&A		R&D		Total
Employee termination costs	$	3	$	8	$	7	$	18
Contract termination costs		—		2		—		2
Asset impairments		—		1		—		1
Total restructuring charges	$	3	$	11	$	7	$	21

	Six months ended June 30, 2019
(in millions)	COGS		SG&A		R&D		Total
Employee termination costs	$	6	$	25	$	26	$	57
Contract termination and other costs		8		—		—		8
Asset impairments		10		1		1		12
Total restructuring charges	$	24	$	26	$	27	$	77

	Six months ended June 30, 2018
(in millions)	COGS		SG&A		R&D		Total
Employee termination costs	$	4	$	14	$	10	$	28
Contract termination costs		—		2		—		2
Asset impairments		1		2		—		3
Total restructuring charges	$	5	$	18	$	10	$	33

The following table summarizes activity in the reserves related to our restructuring initiatives.

(in millions)
Reserve as of December 31, 2018	$	101
Charges		78
Reserve adjustments		(13	)
Utilization		(60	)
Currency translation		2
Reserve as of June 30, 2019	$	108

Reserve adjustments primarily related to employee termination cost reserves established in prior periods.

Substantially all of our restructuring reserves as of June 30, 2019 relate to employee termination costs, with the remaining reserves attributable to contract termination costs. The reserves are expected to be substantially utilized by the end of 2020.

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PENSION AND OTHER POSTRETIREMENT BENEFIT PROGRAMS

6 Months Ended

Jun. 30, 2019

Compensation And Retirement Disclosure [Abstract]

PENSION AND OTHER POSTRETIREMENT BENEFIT PROGRAMS

12. 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						Six months ended
	June 30,						June 30,
(in millions)	2019			2018			2019			2018
Pension benefits
Service cost	$	19		$	25		$	38		$	47
Interest cost		43			45			90			91
Expected return on plan assets		(67	)		(79	)		(140	)		(157	)
Amortization of net losses and prior service costs		14			24			29			48
Net periodic pension benefit cost	$	9		$	15		$	17		$	29
OPEB
Interest cost	$	2		$	2		$	4		$	4
Amortization of net loss and prior service credit		(7	)		(6	)		(14	)		(12	)
Net periodic OPEB cost	$	(5	)	$	(4	)	$	(10	)	$	(8	)

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INCOME TAXES

6 Months Ended

Jun. 30, 2019

Income Tax Disclosure [Abstract]

INCOME TAXES

13. INCOME TAXES

Our effective income tax rate was 5.5% and 15.1% for the three months ended June 30, 2019 and 2018, respectively, and 8.5% and 13.1% for the six months ended June 30, 2019 and 2018, 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, increases or decreases in valuation allowances and liabilities for uncertain tax positions and excess tax benefits on stock compensation awards.

For the three and six months ended June 30, 2019, the difference between our effective income tax rate and the U.S. Federal statutory rate was primarily attributable to a tax benefit from the resolution of an uncertain tax position (UTP) as a result of a favorable ruling from the related taxing authority and excess tax benefits on stock compensation awards.  For the three months ended June 30, 2018, the difference between our effective income tax rate and the U.S. Federal statutory rate was primarily driven by excess tax benefits on stock compensation awards, partially offset by the revaluation of Swedish net deferred tax assets due to legislation reducing the Swedish income tax rate. For the six months ended June 30, 2018, the difference between our effective income tax rate and the U.S. Federal statutory rate was primarily attributable to nontaxable income from the settlement of certain claims with the seller of the acquired operations of Claris Injectables Limited, excess tax benefits on stock compensation awards, an adjustment of provisional amounts related to U.S. tax reform, a reduction of a liability for a UTP as a result of a settlement with the related taxing authority and the reversal of a valuation allowance as a result of continued profit improvements.  Partially offsetting the foregoing benefits was interest on the reserve for UTPs, the revaluation of Swedish net deferred tax assets and transfer pricing-related income tax accruals.

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EARNINGS PER SHARE

6 Months Ended

Jun. 30, 2019

Earnings Per Share [Abstract]

EARNINGS PER SHARE

14. EARNINGS PER SHARE

The numerator for both basic and diluted earnings per share (EPS) is net income. The denominator for basic EPS is the weighted-average number of common 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 basic shares to diluted shares.

	Three months ended				Six months ended
	June 30,				June 30,
(in millions)	2019		2018		2019		2018
Basic shares		510		535		511		537
Effect of dilutive securities		9		12		9		12
Diluted shares		519		547		520		549

The effect of dilutive securities included unexercised stock options, unvested RSUs and contingently issuable shares related to granted PSUs. The computation of diluted EPS excluded 4 million equity awards each for the three and six months ended June 30, 2019, respectively, and 4 million and 3 million equity awards for the three and six months ended June 30, 2018, respectively, because their inclusion would have had an anti-dilutive effect on diluted EPS.

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DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

6 Months Ended

Jun. 30, 2019

Derivative Instruments And Hedging Activities Disclosure [Abstract]

DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

15. 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, British Pound, Chinese Yuan, Korean Won, Australian Dollar, Canadian Dollar, Japanese Yen, Colombian Peso, Brazilian Real, Mexican Peso and Swedish Krona. 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 a mix of fixed- and floating-rate debt that we believe is appropriate.

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.

All 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 hedging instruments as 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 item. Option premiums or net premiums paid are initially recorded as assets and reclassified to other comprehensive income (OCI) over the life of the option, and then recognized in earnings consistent with the underlying hedged item. Cash flow hedges are classified in net sales, cost of sales and interest expense, net, and are primarily related to forecasted third-party sales denominated in foreign currencies, forecasted intercompany sales denominated in foreign currencies, and anticipated issuances of debt, respectively.

The notional amounts of foreign exchange contracts designated as cash flow hedges were $629 million and $775 million as of June 30, 2019 and December 31, 2018, respectively. The total notional amounts of interest rate contracts designated as cash flow hedges were $300 million and $150 million as of June 30, 2019 and December 31, 2018, respectively. The maximum term over which we have cash flow hedge contracts in place related to forecasted transactions at June 30, 2019 is 18 months for foreign exchange contracts and 30 years for interest rate contracts.

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. For each derivative instrument that is designated and effective as a fair value hedge, the gain or loss on the derivative is recognized immediately to earnings, and offsets the loss or gain on the underlying hedged item. Fair value hedges are classified in interest expense, net, as they hedge the interest rate risk associated with certain of our fixed-rate debt.

There were no outstanding interest rate swap contracts designated as fair value hedges as of June 30, 2019 and December 31, 2018.

Net Investment Hedges

In May 2017, we issued €600 million of senior notes due May 2025. In May 2019, we issued €750 million of senior notes due May 2024 and €750 million of 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 of the outstanding debt balances have been and will be recorded as a component of AOCI. As of June 30, 2019, we had an accumulated pre-tax unrealized translation loss in AOCI of $69 million related to the Euro-denominated senior notes.

In May 2019, we entered into forward contracts designated as net investment hedges to reduce exposure to changes in currency rates on €1.2 billion of our net investment in our European operations.  Those hedges were entered into in advance of the issuance of our senior notes mentioned above, were settled in the second quarter of 2019 and resulted in an insignificant loss.

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. If we remove the cash flow hedge designation because the hedged forecasted transactions are no longer probable of occurring, any gains or losses are immediately reclassified from AOCI to earnings. Gains or losses relating to terminations of effective cash flow hedges in which the forecasted transactions are still probable of occurring are deferred and recognized consistent with the loss or income recognition of the underlying hedged items.

There were no hedge dedesignations in the first six months of 2019 or 2018 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 items 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 six months of 2019 and 2018.

If we terminate a net investment hedge, 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. In the second quarter of 2019, we dedesignated €1.2 billion of forward contracts designated as a net investment hedge of our European operations.

Undesignated Derivative Instruments

We use forward contracts to hedge earnings from the effects of foreign exchange relating to certain of our intercompany 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. 

The total notional amount of undesignated derivative instruments was $494 million as of June 30, 2019 and $485 million as of December 31, 2018.

Gains and Losses on Derivative Instruments

The following tables summarize the income statement locations and gains and losses on our derivative instruments for the three months ended June 30, 2019 and 2018.

	Gain (loss) recognized in OCI					Location of gain (loss)	Gain (loss) reclassified from AOCI into income
(in millions)	2019			2018		in income statement	2019		2018
Cash flow hedges
Interest rate contracts	$	(23	)	$	—	Interest expense, net	$	—	$	—
Foreign exchange contracts		9			7	Cost of sales		1		(6	)
Net investment hedges		(36	)		38	Other income, net		—		—
Total	$	(50	)	$	45		$	1	$	(6	)

		Gain (loss) recognized in income
(in millions)	Location of gain (loss) in income statement	2019		2018
Undesignated derivative instruments
Foreign exchange contracts	Other income, net	$	3	$	6

The following tables summarize the income statement locations and gains and losses on our derivative instruments for the six months ended June 30, 2019 and 2018.

	Gain (loss) recognized in OCI						Location of gain (loss)	Gain (loss) reclassified from AOCI into income
(in millions)	2019			2018			in income statement	2019		2018
Cash flow hedges
Interest rate contracts	$	(34	)	$	—		Interest expense, net	$	—	$	—
Foreign exchange contracts		—			(2	)	Cost of sales		1		(10	)
Net investment hedges		(22	)		17		Other income, net		—		—
Total	$	(56	)	$	15			$	1	$	(10	)

		Gain (loss) recognized in income
(in millions)	Location of gain (loss) in income statement	2019			2018
Fair value hedges
Interest rate contracts	Interest expense, net	$	—		$	(4	)
Undesignated derivative instruments
Foreign exchange contracts	Other income, net	$	(6	)	$	(11	)

For our fair value hedges, an equal and offsetting gain of $4 million was recognized in interest expense, net as an adjustment to the underlying hedged item, fixed-rate debt, in the second quarter and first half of 2018.

As of June 30, 2019, $13 million of deferred, net after-tax gains 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.

Fair Values of Derivative Instruments

The following table summarizes the classification and fair values of derivative instruments reported in the condensed consolidated balance sheet as of June 30, 2019.

	Derivatives in asset positions			Derivatives in liability positions
(in millions)	Balance sheet location	Fair value		Balance sheet location	Fair value
Derivative instruments designated as hedges
Interest rate contracts	Other non-current assets	$	—	Other non-current liabilities	$	37
Foreign exchange contracts	Prepaid expenses and other		20	Accounts payable and accrued liabilities		1
Foreign exchange contracts	Other non-current assets		1	Other non-current liabilities		—
Total derivative instruments designated as hedges			21			38
Undesignated derivative instruments
Foreign exchange contracts	Prepaid expenses and other		—	Accounts payable and accrued liabilities		—
Total derivative instruments		$	21		$	38

The following table summarizes the classification and fair values of derivative instruments reported in the condensed consolidated balance sheet as of December 31, 2018.

	Derivatives in asset positions			Derivatives in liability positions
(in millions)	Balance sheet location	Fair value		Balance sheet location	Fair value
Derivative instruments designated as hedges
Interest rate contracts	Other non-current assets	$	—	Other non-current liabilities	$	3
Foreign exchange contracts	Prepaid expenses and other		22	Accounts payable and accrued liabilities		1
Foreign exchange contracts	Other non-current assets		1	Other non-current liabilities		—
Total derivative instruments designated as hedges			23			4
Undesignated derivative instruments
Foreign exchange contracts	Prepaid expenses and other		—	Accounts payable and accrued liabilities		1
Total derivative instruments		$	23		$	5

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.

	June 30, 2019						December 31, 2018
(in millions)	Asset			Liability			Asset			Liability
Gross amounts recognized in the consolidated balance sheet	$	21		$	38		$	23		$	5
Gross amount subject to offset in master netting arrangements not offset in the consolidated balance sheet		(1	)		(1	)		(5	)		(5	)
Total	$	20		$	37		$	18		$	—

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 June 30, 2019		Balance as of December 31, 2018		Balance as of June 30, 2019		Balance as of December 31, 2018
Long-term debt	$	103	$	103	$	6	$	7

(a) These fair value hedges were terminated prior to December 31, 2018.

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FAIR VALUE MEASUREMENTS

6 Months Ended

Jun. 30, 2019

Fair Value Disclosures [Abstract]

FAIR VALUE MEASUREMENTS

16. FAIR VALUE MEASUREMENTS

The following tables summarize our financial instruments that are measured at fair value on a recurring basis.

			Basis of fair value measurement
(in millions)	Balance as of June 30, 2019		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	$	21	$	—	$	21	$	—
Marketable equity securities		4		4		—		—
Total	$	25	$	4	$	21	$	—
Liabilities
Foreign exchange contracts	$	1	$	—	$	1	$	—
Interest rate contracts		37		—		37		—
Contingent payments related to acquisitions		27		—		—		27
Total	$	65	$	—	$	38	$	27

			Basis of fair value measurement
(in millions)	Balance as of December 31, 2018		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	$	23	$	—	$	23	$	—
Marketable equity securities		3		3		—		—
Total	$	26	$	3	$	23	$	—
Liabilities
Foreign exchange contracts	$	2	$	—	$	2	$	—
Interest rate contracts		3		—		3		—
Contingent payments related to acquisitions		32		—		—		32
Total	$	37	$	—	$	5	$	32

As of June 30, 2019 and December 31, 2018, cash and cash equivalents of $2.9 billion and $1.8 billion, respectively, included money market funds of approximately $1.5 billion and $169 million, respectively, which 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. The 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.

Contingent payments related to acquisitions, which consist of milestone payments and sales-based payments, are valued using discounted cash flow techniques. The fair value of milestone payments reflects management’s expectations of probability of payment, and increases as the 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. The following table is a reconciliation of the fair value measurements that use significant unobservable inputs (Level 3), which consist of contingent payments related to acquisitions.

	Three months ended June 30,					Six months ended June 30,
(in millions)	2019			2018		2019			2018
Fair value at beginning of period	$	31		$	23	$	32		$	9
Additions		—			—		—			14
Change in fair value recognized in earnings		(4	)		—		(4	)		—
Payments		—			—		(1	)		—
Fair value at end of period	$	27		$	23	$	27		$	23

Equity investments not measured at fair value are comprised of other equity investments without readily determinable fair values and were $39 million at June 30, 2019 and $41 million at December 31, 2018. These amounts are included in Other non-current assets.

Fair Values of 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 June 30, 2019 and December 31, 2018.

	Book values				Fair values(a)
(in millions)	2019		2018		2019		2018
Liabilities
Short-term debt	$	2	$	2	$	2	$	2
Current maturities of long-term debt and finance lease obligations		2		2		2		2
Long-term debt and finance lease obligations		5,157		3,473		5,440		3,460

(a) These fair value amounts are classified as Level 2 within the fair value hierarchy as they are estimated based on observable inputs.

The carrying value of short-term debt approximates its fair value due to the short-term maturities of the obligations. 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 approximate their fair values due to the short-term maturities of most of those assets and liabilities.

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SEGMENT INFORMATION

6 Months Ended

Jun. 30, 2019

Segment Reporting [Abstract]

SEGMENT INFORMATION

17. SEGMENT INFORMATION

We manage our business based on three geographical segments: Americas (North and South America), EMEA (Europe, Middle East and Africa) and APAC (Asia Pacific). Our segments provide a broad portfolio of essential healthcare products, including acute and chronic dialysis therapies; sterile IV solutions; infusion systems and devices; parenteral nutrition therapies; inhaled anesthetics; generic injectable pharmaceuticals; and surgical hemostat and sealant products.

We use operating income on a segment basis to make resource allocation decisions and assess the ongoing performance of our business segments. Intersegment sales are eliminated in consolidation.

Certain items are maintained at Corporate and are not allocated to a segment. They primarily include the majority of the foreign currency hedging activities, corporate headquarters costs, certain R&D costs, certain GBU support costs, stock compensation expense, certain employee benefit plan costs as well as certain gains, losses, and other charges (such as business optimization, acquisition and integration costs, intangible asset amortization and asset impairments). Our chief operating decision maker does not receive any asset information by operating segment and, accordingly, we do not report asset information by operating segment.

Financial information for our segments is as follows.

	Three months ended				Six months ended
	June 30,				June 30,
(in millions)	2019		2018		2019		2018
Net sales:
Americas	$	1,520	$	1,525	$	2,928	$	2,967
EMEA		744		758		1,449		1,482
APAC		576		559		1,095		1,070
Total net sales	$	2,840	$	2,842	$	5,472	$	5,519
Operating Income:
Americas	$	584	$	619	$	1,121	$	1,185
EMEA		162		162		307		313
APAC		137		131		258		248
Total segment operating income	$	883	$	912	$	1,686	$	1,746

The following is a reconciliation of segment operating income to income before income taxes per the condensed consolidated statements of income.

	Three months ended						Six months ended
	June 30,						June 30,
(in millions)	2019			2018			2019			2018
Total segment operating income	$	883		$	912		$	1,686		$	1,746
Corporate and other		(528	)		(528	)		(947	)		(930	)
Total operating income		355			384			739			816
Net interest expense		20			11			38			23
Other income, net		(28	)		(31	)		(53	)		(49	)
Income before income taxes	$	363		$	404		$	754		$	842

Refer to Note 10 for additional information on Net Sales by GBU.

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BASIS OF PRESENTATION (Policies)

6 Months Ended

Jun. 30, 2019

Accounting Policies [Abstract]

Basis of Presentation

The unaudited interim condensed consolidated financial statements of Baxter International Inc. and its subsidiaries (we or our) have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles (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, 2018 (2018 Annual Report).

In the opinion of management, the unaudited interim condensed consolidated financial statements reflect all adjustments necessary for a fair presentation 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 results of operations for the current interim period are not necessarily indicative of the results of operations to be expected for the full year.

Certain reclassifications have been made to conform the prior period condensed consolidated statements to the current period presentation.  

New Accounting Standards

New Accounting Standards

Recently adopted accounting pronouncements

As of January 1, 2019, we adopted Accounting Standards Update (ASU) No. 2016-02, Leases (Topic 842).  Under this guidance, lessees are required to recognize a right-of-use asset and a lease liability on the balance sheet for all operating leases, other than those that meet the definition of a short-term lease.  We adopted Topic 842 using the modified retrospective method.  We elected the following practical expedients when assessing the transition impact: i) not to reassess whether any expired or existing contracts as of the adoption date are or contain leases; ii) not to reassess the lease classification for any expired or existing leases as of the adoption date; and iii) not to reassess initial direct costs for any existing leases as of the adoption date. The adjustment to record operating lease right-of-use assets and operating lease liabilities was $502 million as of January 1, 2019. The impact to the condensed consolidated statements of income was not material and there was no net impact to the condensed consolidated statements of cash flows.

As of January 1, 2019, we adopted ASU No. 2017-12, Targeted Improvements to Accounting for Hedging Activities.  The purpose of this ASU is to better align a company’s risk management activities and financial reporting for hedging relationships, simplify the hedge accounting requirements, and improve the disclosures of hedging arrangements.  The adoption of this standard did not have a material impact on our condensed consolidated financial statements.

As of January 1, 2019, we adopted ASU No. 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income (AOCI).  As a result of the enactment of the U.S. Tax Cuts and Jobs Act of 2017 (the 2017 Tax Act), this guidance provides for a reclassification of certain tax effects from AOCI to retained earnings.  The impact of the adoption of this standard was a $161 million increase to retained earnings.

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SUPPLEMENTAL FINANCIAL INFORMATION (Tables)

6 Months Ended

Jun. 30, 2019

Organization Consolidation And Presentation Of Financial Statements [Abstract]

Interest Expense, Net

Interest Expense, Net

	Three months ended						Six months ended
	June 30,						June 30,
(in millions)	2019			2018			2019			2018
Interest expense, net of capitalized interest	$	28		$	24		$	53		$	46
Interest income		(8	)		(13	)		(15	)		(23	)
Interest expense, net	$	20		$	11		$	38		$	23

Other Income, Net

Other Income, Net

	Three months ended						Six months ended
	June 30,						June 30,
(in millions)	2019			2018			2019			2018
Foreign exchange gains, net	$	(17	)	$	(18	)	$	(22	)	$	(33	)
Pension and other postretirement benefits		(15	)		(14	)		(31	)		(26	)
Other		4			1			—			10
Other income, net	$	(28	)	$	(31	)	$	(53	)	$	(49	)

Inventories

Inventories

	June 30,		December 31,
(in millions)	2019		2018
Raw materials	$	397	$	363
Work in process		197		203
Finished goods		1,163		1,087
Inventories	$	1,757	$	1,653

Property, Plant and Equipment, Net

Property, Plant and Equipment, Net

	June 30,			December 31,
(in millions)	2019			2018
Property, plant and equipment, at cost	$	10,593		$	10,327
Accumulated depreciation		(6,052	)		(5,785	)
Property, plant and equipment, net	$	4,541		$	4,542

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GOODWILL AND OTHER INTANGIBLE ASSETS, NET (Tables)

6 Months Ended

Jun. 30, 2019

Goodwill And Intangible Assets Disclosure [Abstract]

Goodwill

The following is a reconciliation of goodwill by business segment.

(in millions)	Americas			EMEA			APAC			Total
Balance as of December 31, 2018	$	2,351		$	387		$	220		$	2,958
Adjustments		—			(4	)		—			(4	)
Currency translation adjustments		(13	)		(2	)		(1	)		(16	)
Balance as of June 30, 2019	$	2,338		$	381		$	219		$	2,938

Other Intangible Assets, Net

The following is a summary of our other intangible assets.

(in millions)	Developed technology, including patents			Other amortized intangible assets			Indefinite-lived intangible assets		Total
June 30, 2019
Gross other intangible assets	$	2,164		$	450		$	188	$	2,802
Accumulated amortization		(1,171	)		(267	)		—		(1,438	)
Other intangible assets, net	$	993		$	183		$	188	$	1,364
December 31, 2018
Gross other intangible assets	$	2,115		$	451		$	188	$	2,754
Accumulated amortization		(1,106	)		(250	)		—		(1,356	)
Other intangible assets, net	$	1,009		$	201		$	188	$	1,398

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LEASES (Tables)

6 Months Ended

Jun. 30, 2019

Leases [Abstract]

Components of Lease Cost

The components of lease cost for the three and six months ended June 30, 2019 were:

(in millions)	Three months ended June 30, 2019		Six months ended June 30, 2019
Operating lease cost	$	29	$	60
Finance lease cost
Amortization of right-of-use assets		1		2
Interest on lease liabilities		—		1
Variable lease cost		21		43
Lease cost	$	51	$	106

Supplemental Cash Flow Information Related to Leases

The following table contains supplemental cash flow information related to leases for the six months ended June 30, 2019:

(in millions)	Six months ended June 30, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	60
Operating cash flows from finance leases		3
Financing cash flows from finance leases		1
Right-of-use operating lease assets obtained in exchange for lease obligations		140

Supplemental Balance Sheet Information Related to Leases

Supplemental balance sheet information related to leases as of June 30, 2019 includes:

(in millions)	June 30, 2019
Operating leases
Operating lease right-of-use assets	$	588
Accounts payable and accrued liabilities	$	98
Operating lease liabilities		490
Total operating lease liabilities	$	588
Finance leases
Property, plant and equipment, at cost	$	81
Accumulated depreciation		(27	)
Property, plant and equipment, net	$	54
Current maturities of long-term debt and finance lease obligations	$	1
Long-term debt and finance lease obligations		58
Total finance lease liabilities	$	59

Schedule of Lease Term and Discount Rates

Lease term and discount rates as of June 30, 2019 were:

	June 30, 2019
Weighted-average remaining lease term (years)
Operating leases		10
Finance leases		15
Weighted-average discount rate
Operating leases		2.8	%
Finance leases		10.3	%

Maturities of Operating and Finance Lease Liabilities

Maturities of operating and finance lease liabilities as of June 30, 2019 were:

(in millions)	Finance Leases			Operating Leases
2019	$	4		$	59
2020		8			99
2021		8			83
2022		8			70
2023		6			59
Thereafter		82			297
Total minimum lease payments		116			667
Less: imputed interest		(57	)		(79	)
Present value of lease liabilities	$	59		$	588

Schedule of Future Minimum Lease Payments

Future minimum lease payments as of December 31, 2018, as disclosed in our 2018 Annual Report, were:

(in millions)	Capital Leases			Operating Leases
2019	$	8		$	122
2020		7			93
2021		7			86
2022		8			71
2023		6			64
Thereafter		88			210
Total minimum lease payments		124		$	646
Less: imputed interest		(62	)
Present value of lease liabilities	$	62

Components of Lease Revenue

The components of lease revenue for the three and six months ended June 30, 2019 were:

(in millions)	Three months ended June 30, 2019		Six months ended June 30, 2019
Sales-type lease revenue	$	5	$	11
Operating lease revenue		15		30
Variable lease revenue		21		42
Total lease revenue	$	41	$	83

Components of Net Investment In Sales-type Leases

The components of our net investment in sales-type leases as of June 30, 2019 were:

(in millions)	June 30, 2019
Minimum lease payments	$	86
Unguaranteed residual values		11
Net investment in leases	$	97

Net Investment in Sales Type Leases Classified in Accompanying Condensed Consolidated Balance Sheets

Our net investment in sales-type leases is classified as follows in the accompanying condensed consolidated balance sheets:

(in millions)	June 30, 2019
Accounts and other current receivables, net	$	36
Other non-current assets		61
Total	$	97

Maturities of Sales-type and Operating Leases

Maturities of sales-type and operating leases as of June 30, 2019 were:

(in millions)	Sales-type Leases			Operating Leases
2019	$	17		$	24
2020		30			48
2021		24			48
2022		15			30
2023		8			16
Thereafter		2			7
Total minimum lease payments		96		$	173
Less: imputed interest		(10	)
Present value of minimum lease payments	$	86

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ACCUMULATED OTHER COMPREHENSIVE INCOME (Tables)

6 Months Ended

Jun. 30, 2019

Equity [Abstract]

Summary of Changes in AOCI by Component

The following table is a net-of-tax summary of the changes in AOCI by component for the six months ended June 30, 2019 and 2018.

(in millions)	CTA			Pension and OPEB plans			Hedging activities			Total
Gains (losses)
Balance as of December 31, 2018	$	(3,474	)	$	(949	)	$	(1	)	$	(4,424	)
Adoption of new accounting standard		9			(169	)		(1	)		(161	)
Other comprehensive income before reclassifications		(48	)		8			(26	)		(66	)
Amounts reclassified from AOCI (a)		—			13			(1	)		12
Net other comprehensive income (loss)		(48	)		21			(27	)		(54	)
Balance as of June 30, 2019	$	(3,513	)	$	(1,097	)	$	(29	)	$	(4,639	)

(in millions)	CTA			Pension and OPEB plans			Hedging activities			Available- for-sale- equity securities			Total
Gains (losses)
Balance as of December 31, 2017	$	(3,013	)	$	(981	)	$	(10	)	$	3		$	(4,001	)
Adoption of new accounting standard		—			—			—			(3	)		(3	)
Other comprehensive income before reclassifications		(282	)		51			(1	)		—			(232	)
Amounts reclassified from AOCI (a)		—			30			7			—			37
Net other comprehensive income (loss)		(282	)		81			6			—			(195	)
Balance as of June 30, 2018	$	(3,295	)	$	(900	)	$	(4	)	$	—		$	(4,199	)

(a) See table below for details about these reclassifications.

Summary of Reclassification from AOCI to Net Income

The following is a summary of the amounts reclassified from AOCI to net income during the three and six months ended June 30, 2019 and 2018.

	Amounts reclassified from AOCI (a)
(in millions)	Three months ended June 30, 2019			Six months ended June 30, 2019			Location of impact in income statement
Amortization of pension and OPEB items
Amortization of net losses and prior service costs or credits	$	(7	)	$	(15	)	Other income, net
		(7	)		(15	)	Total before tax
		1			2		Income tax expense
	$	(6	)	$	(13	)	Net of tax
Gains on hedging activities
Foreign exchange contracts	$	1		$	1		Cost of sales
		1			1		Total before tax
		—			—		Income tax expense
	$	1		$	1		Net of tax
Total reclassifications for the period	$	(5	)	$	(12	)	Total net of tax

	Amounts reclassified from AOCI (a)
(in millions)	Three months ended June 30, 2018			Six months ended June 30, 2018			Location of impact in income statement
Amortization of pension and OPEB items
Amortization of net losses and prior service costs or credits	$	(18	)	$	(36	)	Other income, net
		(18	)		(36	)	Total before tax
		3			6		Income tax expense
	$	(15	)	$	(30	)	Net of tax
Losses on hedging activities
Foreign exchange contracts	$	(6	)	$	(10	)	Cost of sales
		(6	)		(10	)	Total before tax
		2			3		Income tax expense
	$	(4	)	$	(7	)	Net of tax
Total reclassifications for the period	$	(19	)	$	(37	)	Total net of tax

(a) Amounts in parentheses indicate reductions to net income. 

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REVENUES (Tables)

6 Months Ended

Jun. 30, 2019

Revenue From Contract With Customer [Abstract]

Net Sales from Contracts with Customers by Global Business Unit

The following tables disaggregate our net sales from contracts with customers by Global Business Unit (GBU) between the U.S. and international:

	Three months ended June 30,
	2019						2018
(in millions)	U.S.		International		Total		U.S.		International		Total
Renal Care 1	$	196	$	714	$	910	$	204	$	727	$	931
Medication Delivery 2		441		248		689		426		255		681
Pharmaceuticals 3		235		304		539		262		275		537
Clinical Nutrition 4		79		136		215		80		141		221
Advanced Surgery 5		143		89		232		118		86		204
Acute Therapies 6		44		89		133		42		87		129
Other 7		55		67		122		78		61		139
Total Baxter	$	1,193	$	1,647	$	2,840	$	1,210	$	1,632	$	2,842

	Six months ended June 30,
	2019						2018
(in millions)	U.S.		International		Total		U.S.		International		Total
Renal Care 1	$	388	$	1,373	$	1,761	$	400	$	1,399	$	1,799
Medication Delivery 2		847		476		1,323		862		495		1,357
Pharmaceuticals 3		467		581		1,048		505		528		1,033
Clinical Nutrition 4		156		264		420		163		281		444
Advanced Surgery 5		263		167		430		217		169		386
Acute Therapies 6		92		169		261		88		170		258
Other 7		100		129		229		122		120		242
Total Baxter	$	2,313	$	3,159	$	5,472	$	2,357	$	3,162	$	5,519

1 Renal Care includes sales of our peritoneal dialysis (PD), hemodialysis (HD) and additional dialysis therapies and services.

2 Medication Delivery includes sales of our IV therapies, infusion pumps, administration sets and drug reconstitution devices.

3 Pharmaceuticals includes sales of our premixed and oncology drug platforms, inhaled anesthesia and critical care products and pharmacy compounding services.

4 Clinical Nutrition includes sales of our parenteral nutrition (PN) therapies and related products.

5 Advanced Surgery includes sales of our biological products and medical devices used in surgical procedures for hemostasis, tissue sealing and adhesion prevention.

6 Acute Therapies includes sales of our continuous renal replacement therapies (CRRT) and other organ support therapies focused in the intensive care unit (ICU).

7 Other primarily includes sales of contract manufacturing services from our pharmaceutical partnering business.

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BUSINESS OPTIMIZATION CHARGES (Tables)

6 Months Ended

Jun. 30, 2019

Restructuring And Related Activities [Abstract]

Summary of Business Optimization Charges

During the three and six months ended June 30, 2019 and 2018, we recorded the following charges related to business optimization programs.

	Three months ended				Six months ended
	June 30,				June 30,
(in millions)	2019		2018		2019		2018
Restructuring charges	$	52	$	21	$	77	$	33
Costs to implement business optimization programs		12		25		22		50
Accelerated depreciation		1		1		4		2
Total business optimization charges	$	65	$	47	$	103	$	85

Components of Restructuring Charges

During the three and six months ended June 30, 2019 and 2018, we recorded the following restructuring charges.

	Three months ended June 30, 2019
(in millions)	COGS		SG&A		R&D		Total
Employee termination costs	$	6	$	26	$	17	$	49
Contract termination and other costs		1		—		—		1
Asset impairments		1		—		1		2
Total restructuring charges	$	8	$	26	$	18	$	52

	Three months ended June 30, 2018
(in millions)	COGS		SG&A		R&D		Total
Employee termination costs	$	3	$	8	$	7	$	18
Contract termination costs		—		2		—		2
Asset impairments		—		1		—		1
Total restructuring charges	$	3	$	11	$	7	$	21

	Six months ended June 30, 2019
(in millions)	COGS		SG&A		R&D		Total
Employee termination costs	$	6	$	25	$	26	$	57
Contract termination and other costs		8		—		—		8
Asset impairments		10		1		1		12
Total restructuring charges	$	24	$	26	$	27	$	77

	Six months ended June 30, 2018
(in millions)	COGS		SG&A		R&D		Total
Employee termination costs	$	4	$	14	$	10	$	28
Contract termination costs		—		2		—		2
Asset impairments		1		2		—		3
Total restructuring charges	$	5	$	18	$	10	$	33

Summary of Activity in Reserves Related to Restructuring Initiatives

The following table summarizes activity in the reserves related to our restructuring initiatives.

(in millions)
Reserve as of December 31, 2018	$	101
Charges		78
Reserve adjustments		(13	)
Utilization		(60	)
Currency translation		2
Reserve as of June 30, 2019	$	108

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PENSION AND OTHER POSTRETIREMENT BENEFIT PROGRAMS (Tables)

6 Months Ended

Jun. 30, 2019

Compensation And Retirement Disclosure [Abstract]

Net Periodic Benefit Cost Relating to Pension and Other Postemployment Employee Benefit Plans

The following is a summary of net periodic benefit cost relating to our pension and OPEB plans.

	Three months ended						Six months ended
	June 30,						June 30,
(in millions)	2019			2018			2019			2018
Pension benefits
Service cost	$	19		$	25		$	38		$	47
Interest cost		43			45			90			91
Expected return on plan assets		(67	)		(79	)		(140	)		(157	)
Amortization of net losses and prior service costs		14			24			29			48
Net periodic pension benefit cost	$	9		$	15		$	17		$	29
OPEB
Interest cost	$	2		$	2		$	4		$	4
Amortization of net loss and prior service credit		(7	)		(6	)		(14	)		(12	)
Net periodic OPEB cost	$	(5	)	$	(4	)	$	(10	)	$	(8	)

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EARNINGS PER SHARE (Tables)

6 Months Ended

Jun. 30, 2019

Earnings Per Share [Abstract]

Reconciliation of Basic Shares to Diluted Shares

The following table is a reconciliation of basic shares to diluted shares.

	Three months ended				Six months ended
	June 30,				June 30,
(in millions)	2019		2018		2019		2018
Basic shares		510		535		511		537
Effect of dilutive securities		9		12		9		12
Diluted shares		519		547		520		549

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DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES (Tables)

6 Months Ended

Jun. 30, 2019

Derivative Instruments And Hedging Activities Disclosure [Abstract]

Summary of Gains and Losses on Derivative Instruments

The following tables summarize the income statement locations and gains and losses on our derivative instruments for the three months ended June 30, 2019 and 2018.

	Gain (loss) recognized in OCI					Location of gain (loss)	Gain (loss) reclassified from AOCI into income
(in millions)	2019			2018		in income statement	2019		2018
Cash flow hedges
Interest rate contracts	$	(23	)	$	—	Interest expense, net	$	—	$	—
Foreign exchange contracts		9			7	Cost of sales		1		(6	)
Net investment hedges		(36	)		38	Other income, net		—		—
Total	$	(50	)	$	45		$	1	$	(6	)

		Gain (loss) recognized in income
(in millions)	Location of gain (loss) in income statement	2019		2018
Undesignated derivative instruments
Foreign exchange contracts	Other income, net	$	3	$	6

The following tables summarize the income statement locations and gains and losses on our derivative instruments for the six months ended June 30, 2019 and 2018.

	Gain (loss) recognized in OCI						Location of gain (loss)	Gain (loss) reclassified from AOCI into income
(in millions)	2019			2018			in income statement	2019		2018
Cash flow hedges
Interest rate contracts	$	(34	)	$	—		Interest expense, net	$	—	$	—
Foreign exchange contracts		—			(2	)	Cost of sales		1		(10	)
Net investment hedges		(22	)		17		Other income, net		—		—
Total	$	(56	)	$	15			$	1	$	(10	)

		Gain (loss) recognized in income
(in millions)	Location of gain (loss) in income statement	2019			2018
Fair value hedges
Interest rate contracts	Interest expense, net	$	—		$	(4	)
Undesignated derivative instruments
Foreign exchange contracts	Other income, net	$	(6	)	$	(11	)

Classification and Fair Values of Derivative Instruments

The following table summarizes the classification and fair values of derivative instruments reported in the condensed consolidated balance sheet as of June 30, 2019.

	Derivatives in asset positions			Derivatives in liability positions
(in millions)	Balance sheet location	Fair value		Balance sheet location	Fair value
Derivative instruments designated as hedges
Interest rate contracts	Other non-current assets	$	—	Other non-current liabilities	$	37
Foreign exchange contracts	Prepaid expenses and other		20	Accounts payable and accrued liabilities		1
Foreign exchange contracts	Other non-current assets		1	Other non-current liabilities		—
Total derivative instruments designated as hedges			21			38
Undesignated derivative instruments
Foreign exchange contracts	Prepaid expenses and other		—	Accounts payable and accrued liabilities		—
Total derivative instruments		$	21		$	38

The following table summarizes the classification and fair values of derivative instruments reported in the condensed consolidated balance sheet as of December 31, 2018.

	Derivatives in asset positions			Derivatives in liability positions
(in millions)	Balance sheet location	Fair value		Balance sheet location	Fair value
Derivative instruments designated as hedges
Interest rate contracts	Other non-current assets	$	—	Other non-current liabilities	$	3
Foreign exchange contracts	Prepaid expenses and other		22	Accounts payable and accrued liabilities		1
Foreign exchange contracts	Other non-current assets		1	Other non-current liabilities		—
Total derivative instruments designated as hedges			23			4
Undesignated derivative instruments
Foreign exchange contracts	Prepaid expenses and other		—	Accounts payable and accrued liabilities		1
Total derivative instruments		$	23		$	5

Derivative Positions Presented On Net Basis

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.

	June 30, 2019						December 31, 2018
(in millions)	Asset			Liability			Asset			Liability
Gross amounts recognized in the consolidated balance sheet	$	21		$	38		$	23		$	5
Gross amount subject to offset in master netting arrangements not offset in the consolidated balance sheet		(1	)		(1	)		(5	)		(5	)
Total	$	20		$	37		$	18		$	—

Amounts Recorded on Condensed Consolidated Balance Sheet Related to Fair Value Hedges

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 June 30, 2019		Balance as of December 31, 2018		Balance as of June 30, 2019		Balance as of December 31, 2018
Long-term debt	$	103	$	103	$	6	$	7

(a) These fair value hedges were terminated prior to December 31, 2018.

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FAIR VALUE MEASUREMENTS (Tables)

6 Months Ended

Jun. 30, 2019

Fair Value Disclosures [Abstract]

Summary of Financial Instruments Measured at Fair Value on Recurring Basis

The following tables summarize our financial instruments that are measured at fair value on a recurring basis.

			Basis of fair value measurement
(in millions)	Balance as of June 30, 2019		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	$	21	$	—	$	21	$	—
Marketable equity securities		4		4		—		—
Total	$	25	$	4	$	21	$	—
Liabilities
Foreign exchange contracts	$	1	$	—	$	1	$	—
Interest rate contracts		37		—		37		—
Contingent payments related to acquisitions		27		—		—		27
Total	$	65	$	—	$	38	$	27

			Basis of fair value measurement
(in millions)	Balance as of December 31, 2018		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	$	23	$	—	$	23	$	—
Marketable equity securities		3		3		—		—
Total	$	26	$	3	$	23	$	—
Liabilities
Foreign exchange contracts	$	2	$	—	$	2	$	—
Interest rate contracts		3		—		3		—
Contingent payments related to acquisitions		32		—		—		32
Total	$	37	$	—	$	5	$	32

Reconciliation of Fair Value Measurements that Use Significant Unobservable Inputs

The following table is a reconciliation of the fair value measurements that use significant unobservable inputs (Level 3), which consist of contingent payments related to acquisitions.

	Three months ended June 30,					Six months ended June 30,
(in millions)	2019			2018		2019			2018
Fair value at beginning of period	$	31		$	23	$	32		$	9
Additions		—			—		—			14
Change in fair value recognized in earnings		(4	)		—		(4	)		—
Payments		—			—		(1	)		—
Fair value at end of period	$	27		$	23	$	27		$	23

Book Values and Fair Values of Financial Instruments

the following table provides the values recognized in the condensed consolidated balance sheets and the estimated fair values as of June 30, 2019 and December 31, 2018.

	Book values				Fair values(a)
(in millions)	2019		2018		2019		2018
Liabilities
Short-term debt	$	2	$	2	$	2	$	2
Current maturities of long-term debt and finance lease obligations		2		2		2		2
Long-term debt and finance lease obligations		5,157		3,473		5,440		3,460

(a) These fair value amounts are classified as Level 2 within the fair value hierarchy as they are estimated based on observable inputs.

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SEGMENT INFORMATION (Tables)

6 Months Ended

Jun. 30, 2019

Segment Reporting [Abstract]

Summary of Financial Information for Our Segments

Financial information for our segments is as follows.

	Three months ended				Six months ended
	June 30,				June 30,
(in millions)	2019		2018		2019		2018
Net sales:
Americas	$	1,520	$	1,525	$	2,928	$	2,967
EMEA		744		758		1,449		1,482
APAC		576		559		1,095		1,070
Total net sales	$	2,840	$	2,842	$	5,472	$	5,519
Operating Income:
Americas	$	584	$	619	$	1,121	$	1,185
EMEA		162		162		307		313
APAC		137		131		258		248
Total segment operating income	$	883	$	912	$	1,686	$	1,746

Operating Income to Income Before Income Taxes Reconciliation

The following is a reconciliation of segment operating income to income before income taxes per the condensed consolidated statements of income.

	Three months ended						Six months ended
	June 30,						June 30,
(in millions)	2019			2018			2019			2018
Total segment operating income	$	883		$	912		$	1,686		$	1,746
Corporate and other		(528	)		(528	)		(947	)		(930	)
Total operating income		355			384			739			816
Net interest expense		20			11			38			23
Other income, net		(28	)		(31	)		(53	)		(49	)
Income before income taxes	$	363		$	404		$	754		$	842

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Basis of Presentation - Additional Information (Detail) - USD ($) $ in Millions		6 Months Ended
	Jan. 01, 2019	Jun. 30, 2019
Disclosure Basis Of Presentation Details [Line Items]
Operating lease right-of-use asset		$ 588
Operating lease liabilities		490
ASU 2016-02 | Adjustment
Disclosure Basis Of Presentation Details [Line Items]
Operating lease right-of-use asset	$ 502
Operating lease liabilities	502
ASU 2018-02
Disclosure Basis Of Presentation Details [Line Items]
Other comprehensive income to retained earnings	$ 161	$ 161

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Acquisitions and Other Arrangements - Additional Information (Detail) - USD ($) $ in Millions		3 Months Ended
	Jul. 30, 2019	Mar. 31, 2019
Subsequent Event
Acquisitions And Collaborations [Line Items]
Payments to acquire rights	$ 62
Weighted-average useful life	12 years
U.S. Rights to Multiple Products
Acquisitions And Collaborations [Line Items]
Payments to acquire rights		$ 94
Weighted-average useful life		10 years

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Supplemental Financial Information - Interest Expense, Net (Detail) - USD ($) $ in Millions	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Interest Income Expense Net
Interest expense, net of capitalized interest	$ 28	$ 24	$ 53	$ 46
Interest income	(8)	(13)	(15)	(23)
Interest expense, net	$ 20	$ 11	$ 38	$ 23

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Supplemental Financial Information - Other Income, Net (Detail) - USD ($) $ in Millions	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Other Income, net
Foreign exchange gains, net	$ (17)	$ (18)	$ (22)	$ (33)
Pension and other postretirement benefits	(15)	(14)	(31)	(26)
Other	4	1		10
Other income, net	$ (28)	$ (31)	$ (53)	$ (49)

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Supplemental Financial Information - Inventories (Detail) - USD ($) $ in Millions	Jun. 30, 2019	Dec. 31, 2018
Inventory Disclosure [Abstract]
Raw materials	$ 397	$ 363
Work in process	197	203
Finished goods	1,163	1,087
Inventories	$ 1,757	$ 1,653

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Supplemental Financial Information - Property, Plant and Equipment, Net (Detail) - USD ($) $ in Millions	Jun. 30, 2019	Dec. 31, 2018
Property, Plant and Equipment, Net
Property, plant and equipment, at cost	$ 10,593	$ 10,327
Accumulated depreciation	(6,052)	(5,785)
Property, plant and equipment, net	$ 4,541	$ 4,542

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Goodwill and Other Intangible Assets, Net - Goodwill (Detail) $ in Millions	6 Months Ended
	Jun. 30, 2019 USD ($)
Goodwill [Line Items]
Goodwill, beginning balance	$ 2,958
Adjustments	(4)
Currency translation adjustments	(16)
Goodwill, ending balance	2,938
Americas
Goodwill [Line Items]
Goodwill, beginning balance	2,351
Currency translation adjustments	(13)
Goodwill, ending balance	2,338
EMEA
Goodwill [Line Items]
Goodwill, beginning balance	387
Adjustments	(4)
Currency translation adjustments	(2)
Goodwill, ending balance	381
APAC
Goodwill [Line Items]
Goodwill, beginning balance	220
Currency translation adjustments	(1)
Goodwill, ending balance	$ 219

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Goodwill and Other Intangible Assets, Net - Additional Information (Detail) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Goodwill And Other Intangible Asset [Line Items]
Accumulated goodwill impairment losses	$ 0		$ 0
Intangible asset amortization expense	45,000,000	$ 44,000,000	88,000,000	$ 85,000,000
Impairment of intangible assets			31,000,000
Developed Technology Intangible Asset
Goodwill And Other Intangible Asset [Line Items]
Impairment of intangible assets	$ 31,000,000		$ 31,000,000

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Goodwill and Other Intangible Assets, Net - Other Intangible Assets, Net (Detail) - USD ($) $ in Millions	Jun. 30, 2019	Dec. 31, 2018
Intangible Asset Excluding Goodwill [Line Items]
Gross other intangible assets	$ 2,802	$ 2,754
Accumulated amortization	(1,438)	(1,356)
Other intangible assets, net	1,364	1,398
Developed technology, including patents
Intangible Asset Excluding Goodwill [Line Items]
Gross other intangible assets	2,164	2,115
Accumulated amortization	(1,171)	(1,106)
Other intangible assets, net	993	1,009
Other amortized intangible assets
Intangible Asset Excluding Goodwill [Line Items]
Gross other intangible assets	450	451
Accumulated amortization	(267)	(250)
Other intangible assets, net	183	201
Indefinite-lived intangible assets
Intangible Asset Excluding Goodwill [Line Items]
Other intangible assets	$ 188	$ 188

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Financing Arrangements - Additional Information (Detail) € in Millions	1 Months Ended	3 Months Ended	6 Months Ended
	May 31, 2019 EUR (€)	Jun. 30, 2019 USD ($)	Jun. 30, 2019 USD ($)	Dec. 31, 2018 USD ($)
Debt Instrument [Line Items]
Repayments of outstanding commercial paper and other short-term borrowings | $		$ 795,000,000
Commercial paper | $		$ 0	$ 0	$ 0
0.4% Senior Notes Due in May 2024
Debt Instrument [Line Items]
Senior notes | €	€ 750
Higher rate of debt maturity periods	May 2024		May 2024
Senior notes, interest rate	0.40%
1.3% Senior Notes Due in May 2029
Debt Instrument [Line Items]
Senior notes | €	€ 750
Higher rate of debt maturity periods	May 2029		May 2029
Senior notes, interest rate	1.30%

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Leases - Additional Information (Detail)	6 Months Ended
	Jun. 30, 2019
Leases [Line Items]
Lessee, option to extend lease, description	Our leases have remaining terms from one to 25 years and some of those leases include options that provide us with the ability to extend the lease term for periods ranging from one to 12 years.
Lessee, existence of option to extend lease	true
Lessor, option to extend lease, description	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.
Lessor, existence of option to extend lease	true
Minimum
Leases [Line Items]
Remaining term of contract	1 year
Lessee, option to extend lease term	1 year
Maximum
Leases [Line Items]
Remaining term of contract	25 years
Lessee, option to extend lease term	12 years

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Leases - Components of Lease Cost (Detail) - USD ($) $ in Millions	3 Months Ended	6 Months Ended
	Jun. 30, 2019	Jun. 30, 2019
Leases [Abstract]
Operating lease cost	$ 29	$ 60
Finance lease cost
Amortization of right-of-use assets	1	2
Interest on lease liabilities		1
Variable lease cost	21	43
Lease cost	$ 51	$ 106

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Leases - Supplemental Cash Flow Information Related to Leases (Detail) $ in Millions	6 Months Ended
	Jun. 30, 2019 USD ($)
Leases [Abstract]
Operating cash flows from operating leases	$ 60
Operating cash flows from finance leases	3
Financing cash flows from finance leases	1
Right-of-use operating lease assets obtained in exchange for lease obligations	$ 140

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Leases - Supplemental Balance Sheet Information Related to Leases (Detail) $ in Millions	Jun. 30, 2019 USD ($)
Leases [Abstract]
Operating lease right-of-use assets	$ 588
Current operating lease liabilities	$ 98
Operating Lease, Liability, Current, Statement of Financial Position [Extensible List]	us-gaap:AccountsPayableAndAccruedLiabilitiesCurrent
Operating lease liabilities	$ 490
Total operating lease liabilities	588
Property, plant and equipment, at cost	81
Accumulated depreciation	(27)
Property, plant and equipment, net	54
Current maturities of long-term debt and finance lease obligations	$ 1
Finance Lease, Liability, Current, Statement of Financial Position [Extensible List]	bax:CurrentMaturitiesOfLongTermDebtAndFinanceLeaseObligations
Long-term debt and finance lease obligations	$ 58
Finance Lease, Liability, Noncurrent, Statement of Financial Position [Extensible List]	bax:LongTermDebtAndFinanceLeaseObligationsNoncurrent
Total finance lease liabilities	$ 59

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Leases - Schedule of Lease Term and Discount Rates (Detail)	Jun. 30, 2019
Leases [Abstract]
Operating leases, Weighted-average remaining lease term (years)	10 years
Finance leases, Weighted-average remaining lease term (years)	15 years
Operating leases, Weighted-average discount rate	2.80%
Finance leases, Weighted-average discount rate	10.30%

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Leases - Maturities of Operating and Finance Lease Liabilities (Detail) $ in Millions	Jun. 30, 2019 USD ($)
Finance Leases
2019	$ 4
2020	8
2021	8
2022	8
2023	6
Thereafter	82
Total minimum lease payments	116
Less: imputed interest	(57)
Present value of lease liabilities	59
Operating Leases
2019	59
2020	99
2021	83
2022	70
2023	59
Thereafter	297
Total minimum lease payments	667
Less: imputed interest	(79)
Present value of lease liabilities	$ 588

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Leases - Schedule of Future Minimum Lease Payments (Detail) $ in Millions	Dec. 31, 2018 USD ($)
Capital Leases
2019	$ 8
2020	7
2021	7
2022	8
2023	6
Thereafter	88
Total minimum lease payments	124
Less: imputed interest	(62)
Present value of lease liabilities	62
Operating Leases
2019	122
2020	93
2021	86
2022	71
2023	64
Thereafter	210
Total minimum lease payments	$ 646

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Leases - Components of Lease Revenue (Detail) - USD ($) $ in Millions	3 Months Ended	6 Months Ended
	Jun. 30, 2019	Jun. 30, 2019
Leases [Abstract]
Sales-type lease revenue	$ 5	$ 11
Operating lease revenue	15	30
Variable lease revenue	21	42
Total lease revenue	$ 41	$ 83

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Leases - Components of Net Investment in Sales-type Lease (Detail) $ in Millions	Jun. 30, 2019 USD ($)
Leases [Abstract]
Minimum lease payments	$ 86
Unguaranteed residual values	11
Net investment in leases	$ 97

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Leases - Net Investment in Sales Type Leases Classified in Accompanying Condensed Consolidated Balance Sheets (Detail) $ in Millions	Jun. 30, 2019 USD ($)
Leases [Abstract]
Accounts and other current receivables, net	$ 36
Other non-current assets	61
Total	$ 97

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Leases - Maturities of Sales-type and Operating Leases (Detail) $ in Millions	Jun. 30, 2019 USD ($)
Sales-type Leases
2019	$ 17
2020	30
2021	24
2022	15
2023	8
Thereafter	2
Total minimum lease payments	96
Less: imputed interest	(10)
Present value of minimum lease payments	86
Operating Leases
2019	24
2020	48
2021	48
2022	30
2023	16
Thereafter	7
Total minimum lease payments	$ 173

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Commitments and Contingencies - Additional Information (Detail)	6 Months Ended	12 Months Ended
	Jun. 30, 2019 USD ($) Site Lawsuit	Dec. 31, 2018 USD ($)	Jul. 31, 2019 USD ($)
Loss Contingencies [Line Items]
Litigation reserve	$ 49,000,000	$ 43,000,000
Litigation related receivables	0	0
Proceeds from insurance dispute settlements	35,000,000
Gain on insurance claims	$ 33,000,000
Hurricane Maria
Loss Contingencies [Line Items]
Insurance recoveries		42,000,000
Hurricane Maria | Subsequent Event
Loss Contingencies [Line Items]
Insurance recoveries yet to be recognized			$ 40,000,000
Minimum
Loss Contingencies [Line Items]
Number of law suits filed | Lawsuit	1,000
Superfund Sites | Environmental Clean-up
Loss Contingencies [Line Items]
Number of sites | Site	6
Name of site	Superfund
Environmental reserves	$ 20,000,000	$ 19,000,000

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Stockholders' Equity - Additional Information (Detail) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018	May 07, 2019	Dec. 31, 2018	Nov. 30, 2018	Feb. 28, 2018	Nov. 30, 2016	Jul. 31, 2012
Stockholders Equity Note [Line Items]
Cash dividends declared per common share	$ 0.22	$ 0.19	$ 0.41	$ 0.35
Stock repurchase program, authorized amount										$ 2,000,000,000.0
Stock repurchase program, additional authorized amount							$ 2,000,000,000.0	$ 1,500,000,000	$ 1,500,000,000
Share repurchases			9,500,000	11,500,000
Remaining value available under stock repurchase programs	$ 1,400,000,000		$ 1,400,000,000
ASR Agreement
Stockholders Equity Note [Line Items]
Stock repurchase program, authorized amount						$ 300,000,000
Stock repurchase program, authorized to be purchased					600,000	3,600,000

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Accumulated Other Comprehensive Income - Summary of Changes in AOCI by Component (Detail) - USD ($) $ in Millions			3 Months Ended				6 Months Ended
		Jan. 01, 2019	Jun. 30, 2019	Mar. 31, 2019	Jun. 30, 2018	Mar. 31, 2018	Jun. 30, 2019	Jun. 30, 2018
Accumulated Other Comprehensive Income (Loss) [Line Items]
Beginning of period		$ 7,816	$ 7,669	$ 7,816	$ 9,093	$ 9,116	$ 7,816	$ 9,116
Other comprehensive income before reclassifications							(66)	(232)
Amounts reclassified from AOCI	[1]						12	37
Total other comprehensive (loss) income, net of tax			(77)	23	(323)	128	(54)	(195)
End of period			7,836	7,669	8,869	9,093	7,836	8,869
ASU 2018-02
Accumulated Other Comprehensive Income (Loss) [Line Items]
Adoption of new accounting standard		(161)					(161)
ASU 2016-01
Accumulated Other Comprehensive Income (Loss) [Line Items]
Adoption of new accounting standard								(3)
CTA
Accumulated Other Comprehensive Income (Loss) [Line Items]
Beginning of period		(3,474)		(3,474)		(3,013)	(3,474)	(3,013)
Other comprehensive income before reclassifications							(48)	(282)
Total other comprehensive (loss) income, net of tax							(48)	(282)
End of period			(3,513)		(3,295)		(3,513)	(3,295)
CTA | ASU 2018-02
Accumulated Other Comprehensive Income (Loss) [Line Items]
Adoption of new accounting standard							9
Pension and OPEB Plans
Accumulated Other Comprehensive Income (Loss) [Line Items]
Beginning of period		(949)		(949)		(981)	(949)	(981)
Other comprehensive income before reclassifications							8	51
Amounts reclassified from AOCI	[1]						13	30
Total other comprehensive (loss) income, net of tax							21	81
End of period			(1,097)		(900)		(1,097)	(900)
Pension and OPEB Plans | ASU 2018-02
Accumulated Other Comprehensive Income (Loss) [Line Items]
Adoption of new accounting standard							(169)
Hedging activities
Accumulated Other Comprehensive Income (Loss) [Line Items]
Beginning of period		(1)		(1)		(10)	(1)	(10)
Other comprehensive income before reclassifications							(26)	(1)
Amounts reclassified from AOCI	[1]						(1)	7
Total other comprehensive (loss) income, net of tax							(27)	6
End of period			(29)		(4)		(29)	(4)
Hedging activities | ASU 2018-02
Accumulated Other Comprehensive Income (Loss) [Line Items]
Adoption of new accounting standard							(1)
Available-for-sale securities
Accumulated Other Comprehensive Income (Loss) [Line Items]
Beginning of period						3		3
Available-for-sale securities | ASU 2016-01
Accumulated Other Comprehensive Income (Loss) [Line Items]
Adoption of new accounting standard								(3)
Accumulated Other Comprehensive Income (Loss)
Accumulated Other Comprehensive Income (Loss) [Line Items]
Beginning of period		$ (4,424)		$ (4,424)		$ (4,001)	(4,424)	(4,001)
End of period			$ (4,639)		$ (4,199)		$ (4,639)	$ (4,199)

[1] Amounts in parentheses indicate reductions to net income.

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Accumulated Other Comprehensive Income - Summary of Amounts Reclassification from AOCI to Net Income (Detail) - USD ($) $ in Millions		3 Months Ended				6 Months Ended
		Jun. 30, 2019	Mar. 31, 2019	Jun. 30, 2018	Mar. 31, 2018	Jun. 30, 2019	Jun. 30, 2018
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items]
Other income, net		$ 28		$ 31		$ 53	$ 49
Total before tax		363		404		754	842
Income tax expense		20		61		64	110
Net income		343	$ 347	343	$ 389	690	732
Cost of sales		1,681		1,603		3,233	3,166
Amounts reclassified from AOCI
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items]
Net income	[1]	(5)		(19)		(12)	(37)
Amortization of pension and OPEB items | Amounts reclassified from AOCI
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items]
Other income, net	[1]	(7)		(18)		(15)	(36)
Total before tax	[1]	(7)		(18)		(15)	(36)
Income tax expense	[1]	1		3		2	6
Net income	[1]	(6)		(15)		(13)	(30)
Gains (losses) on hedging activities | Amounts reclassified from AOCI
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items]
Total before tax	[1]	1		(6)		1	(10)
Income tax expense	[1]			2			3
Net income	[1]	1		(4)		1	(7)
Gains (losses) on hedging activities | Foreign exchange contract | Amounts reclassified from AOCI
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items]
Cost of sales	[1]	$ 1		$ (6)		$ 1	$ (10)

[1] Amounts in parentheses indicate reductions to net income.

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Revenues - Additional Information (Detail) - USD ($) $ in Millions	6 Months Ended
	Jun. 30, 2019	Dec. 31, 2018
Revenue From Contract With Customer [Line Items]
Transaction price allocated to remaining performance obligations	$ 8,900
Net trade accounts receivable	1,800	$ 1,700
Contract assets	89	80
Accounts and Other Receivables, Net
Revenue From Contract With Customer [Line Items]
Contract assets	57	50
Other Non Current Assets
Revenue From Contract With Customer [Line Items]
Contract assets	32	30
Manufacturing Arrangements
Revenue From Contract With Customer [Line Items]
Contract assets	37	33
Software Arrangements
Revenue From Contract With Customer [Line Items]
Contract assets	40	$ 47
Bundled Equipment
Revenue From Contract With Customer [Line Items]
Contract assets	12
Consumable Medical Products
Revenue From Contract With Customer [Line Items]
Contract assets	$ 12
Maximum | Manufacturing Arrangements
Revenue From Contract With Customer [Line Items]
Revenue recognized contract period	90 days
Maximum | Software Arrangements
Revenue From Contract With Customer [Line Items]
Revenue recognized contract period	5 years
Maximum | Consumable Medical Products
Revenue From Contract With Customer [Line Items]
Revenue recognized contract period	7 years
Minimum | Software Arrangements
Revenue From Contract With Customer [Line Items]
Revenue recognized contract period	1 year
Minimum | Consumable Medical Products
Revenue From Contract With Customer [Line Items]
Revenue recognized contract period	1 year

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Revenues - Additional Information1 (Detail)	Jun. 30, 2019
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date: 2019-07-01
Revenue From Contract With Customer [Line Items]
Remaining revenue performance obligation, percentage of revenue expected to be recognized	10.00%
Remaining performance obligations period	1 year
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date: 2020-01-01
Revenue From Contract With Customer [Line Items]
Remaining revenue performance obligation, percentage of revenue expected to be recognized	20.00%
Remaining performance obligations period	1 year
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date: 2021-01-01
Revenue From Contract With Customer [Line Items]
Remaining revenue performance obligation, percentage of revenue expected to be recognized	20.00%
Remaining performance obligations period	1 year
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date: 2022-01-01
Revenue From Contract With Customer [Line Items]
Remaining revenue performance obligation, percentage of revenue expected to be recognized	20.00%
Remaining performance obligations period	1 year
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date: 2023-01-01
Revenue From Contract With Customer [Line Items]
Remaining revenue performance obligation, percentage of revenue expected to be recognized	10.00%
Remaining performance obligations period	1 year
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date: 2024-01-01
Revenue From Contract With Customer [Line Items]
Remaining revenue performance obligation, percentage of revenue expected to be recognized	10.00%
Remaining performance obligations period	1 year

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Revenues - Net Sales from Contracts with Customers by Global Business Unit (Detail) - USD ($) $ in Millions		3 Months Ended		6 Months Ended
		Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Revenue From Contract With Customer [Line Items]
Net sales		$ 2,840	$ 2,842	$ 5,472	$ 5,519
U.S.
Revenue From Contract With Customer [Line Items]
Net sales		1,193	1,210	2,313	2,357
International
Revenue From Contract With Customer [Line Items]
Net sales		1,647	1,632	3,159	3,162
Renal
Revenue From Contract With Customer [Line Items]
Net sales	[1]	910	931	1,761	1,799
Renal | U.S.
Revenue From Contract With Customer [Line Items]
Net sales	[1]	196	204	388	400
Renal | International
Revenue From Contract With Customer [Line Items]
Net sales	[1]	714	727	1,373	1,399
Medication Delivery
Revenue From Contract With Customer [Line Items]
Net sales	[2]	689	681	1,323	1,357
Medication Delivery | U.S.
Revenue From Contract With Customer [Line Items]
Net sales	[2]	441	426	847	862
Medication Delivery | International
Revenue From Contract With Customer [Line Items]
Net sales	[2]	248	255	476	495
Pharmaceuticals
Revenue From Contract With Customer [Line Items]
Net sales	[3]	539	537	1,048	1,033
Pharmaceuticals | U.S.
Revenue From Contract With Customer [Line Items]
Net sales	[3]	235	262	467	505
Pharmaceuticals | International
Revenue From Contract With Customer [Line Items]
Net sales	[3]	304	275	581	528
Clinical Nutrition
Revenue From Contract With Customer [Line Items]
Net sales	[4]	215	221	420	444
Clinical Nutrition | U.S.
Revenue From Contract With Customer [Line Items]
Net sales	[4]	79	80	156	163
Clinical Nutrition | International
Revenue From Contract With Customer [Line Items]
Net sales	[4]	136	141	264	281
Advanced Surgery
Revenue From Contract With Customer [Line Items]
Net sales	[5]	232	204	430	386
Advanced Surgery | U.S.
Revenue From Contract With Customer [Line Items]
Net sales	[5]	143	118	263	217
Advanced Surgery | International
Revenue From Contract With Customer [Line Items]
Net sales	[5]	89	86	167	169
Acute Therapies
Revenue From Contract With Customer [Line Items]
Net sales	[6]	133	129	261	258
Acute Therapies | U.S.
Revenue From Contract With Customer [Line Items]
Net sales	[6]	44	42	92	88
Acute Therapies | International
Revenue From Contract With Customer [Line Items]
Net sales	[6]	89	87	169	170
Other
Revenue From Contract With Customer [Line Items]
Net sales	[7]	122	139	229	242
Other | U.S.
Revenue From Contract With Customer [Line Items]
Net sales	[7]	55	78	100	122
Other | International
Revenue From Contract With Customer [Line Items]
Net sales	[7]	$ 67	$ 61	$ 129	$ 120

[1] Renal Care includes sales of our peritoneal dialysis (PD), hemodialysis (HD) and additional dialysis therapies and services.

[2] Medication Delivery includes sales of our IV therapies, infusion pumps, administration sets and drug reconstitution devices.

[3] Pharmaceuticals includes sales of our premixed and oncology drug platforms, inhaled anesthesia and critical care products and pharmacy compounding services.

[4] Clinical Nutrition includes sales of our parenteral nutrition (PN) therapies and related products.

[5] Advanced Surgery includes sales of our biological products and medical devices used in surgical procedures for hemostasis, tissue sealing and adhesion prevention.

[6] Acute Therapies includes sales of our continuous renal replacement therapies (CRRT) and other organ support therapies focused in the intensive care unit (ICU).

[7] Other primarily includes sales of contract manufacturing services from our pharmaceutical partnering business.

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Business Optimization Charges - Additional Information (Detail) $ in Millions	Jun. 30, 2019 USD ($)
Restructuring And Related Activities [Abstract]
Cumulative pre-tax costs incurred	$ 899
Expected additional pre-tax costs	$ 70

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Business Optimization Charges - Summary of Business Optimization Charges (Detail) - USD ($) $ in Millions	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Restructuring And Related Activities [Abstract]
Restructuring charges	$ 52	$ 21	$ 77	$ 33
Costs to implement business optimization programs	12	25	22	50
Accelerated depreciation	1	1	4	2
Total business optimization charges	$ 65	$ 47	$ 103	$ 85

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Business Optimization Charges - Components of Restructuring Charges (Detail) - USD ($) $ in Millions	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Restructuring Cost And Reserve [Line Items]
Restructuring charges	$ 52	$ 21	$ 77	$ 33
Cost of Goods Sold
Restructuring Cost And Reserve [Line Items]
Restructuring charges	8	3	24	5
Selling, General and Administrative Expenses
Restructuring Cost And Reserve [Line Items]
Restructuring charges	26	11	26	18
Research and Development Expenses
Restructuring Cost And Reserve [Line Items]
Restructuring charges	18	7	27	10
Employee Termination Costs
Restructuring Cost And Reserve [Line Items]
Restructuring charges	49	18	57	28
Employee Termination Costs | Cost of Goods Sold
Restructuring Cost And Reserve [Line Items]
Restructuring charges	6	3	6	4
Employee Termination Costs | Selling, General and Administrative Expenses
Restructuring Cost And Reserve [Line Items]
Restructuring charges	26	8	25	14
Employee Termination Costs | Research and Development Expenses
Restructuring Cost And Reserve [Line Items]
Restructuring charges	17	7	26	10
Contract Termination and Other Costs
Restructuring Cost And Reserve [Line Items]
Restructuring charges	1		8
Contract Termination and Other Costs | Cost of Goods Sold
Restructuring Cost And Reserve [Line Items]
Restructuring charges	1		8
Asset Impairments
Restructuring Cost And Reserve [Line Items]
Restructuring charges	2	1	12	3
Asset Impairments | Cost of Goods Sold
Restructuring Cost And Reserve [Line Items]
Restructuring charges	1		10	1
Asset Impairments | Selling, General and Administrative Expenses
Restructuring Cost And Reserve [Line Items]
Restructuring charges		1	1	2
Asset Impairments | Research and Development Expenses
Restructuring Cost And Reserve [Line Items]
Restructuring charges	$ 1		$ 1
Contract Termination costs
Restructuring Cost And Reserve [Line Items]
Restructuring charges		2		2
Contract Termination costs | Selling, General and Administrative Expenses
Restructuring Cost And Reserve [Line Items]
Restructuring charges		$ 2		$ 2

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Business Optimization Charges - Summary of Activity in Reserves Related to Restructuring Initiatives (Detail) - USD ($) $ in Millions	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Restructuring Cost And Reserve [Line Items]
Charges	$ 52	$ 21	$ 77	$ 33
Severance and Other Employee Related Costs
Restructuring Cost And Reserve [Line Items]
Reserve, beginning balance			101
Charges			78
Reserve adjustments			(13)
Utilization			(60)
Currency translation			2
Reserve, ending balance	$ 108		$ 108

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Pension and Other Postretirement Benefit Programs - Net Periodic Benefit Cost Relating to Pension and Other Postemployment Employee Benefit Plans (Detail) - USD ($) $ in Millions	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Pension benefits
Net periodic benefit cost
Service cost	$ 19	$ 25	$ 38	$ 47
Interest cost	43	45	90	91
Expected return on plan assets	(67)	(79)	(140)	(157)
Amortization of net losses and prior service costs (credit)	14	24	29	48
Net periodic cost	9	15	17	29
OPEB
Net periodic benefit cost
Interest cost	2	2	4	4
Amortization of net losses and prior service costs (credit)	(7)	(6)	(14)	(12)
Net periodic cost	$ (5)	$ (4)	$ (10)	$ (8)

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Income Taxes - Additional Information (Detail)	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Income Tax Disclosure [Abstract]
Effective income tax rate	5.50%	15.10%	8.50%	13.10%
U.S. Federal statutory rate	21.00%	21.00%	21.00%	21.00%

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Earnings Per Share - Reconciliation of Basic Shares to Diluted Shares (Detail) - shares shares in Millions	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Reconciliation of Basic Shares to Diluted Shares
Basic shares	510	535	511	537
Effect of dilutive securities	9	12	9	12
Diluted shares	519	547	520	549

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Earnings Per Share - Additional Information (Detail) - shares shares in Millions	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Earnings Per Share [Abstract]
Anti-dilutive securities excluded from computation of EPS	4	4	4	3

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Derivative Instruments and Hedging Activities - Additional Information (Detail) € in Millions	1 Months Ended		3 Months Ended			6 Months Ended
	May 31, 2019 EUR (€)	May 31, 2017 EUR (€)	Jun. 30, 2019 USD ($)	Jun. 30, 2019 EUR (€)	Jun. 30, 2018 USD ($)	Jun. 30, 2019 USD ($)	Jun. 30, 2018 USD ($)	Dec. 31, 2018 USD ($)
Derivative Instruments and Hedging Activities Disclosures [Line Items]
Forward contracts designated as net investment hedge			$ (78,000,000)		$ (363,000,000)	$ (48,000,000)	$ (282,000,000)
Terminated fair value hedges						0	0
Gain (loss) on hedged item in fair value hedge					4,000,000		4,000,000
Deferred, net after-tax gains on derivative instruments						13,000,000
Designated as Hedging Instrument
Derivative Instruments and Hedging Activities Disclosures [Line Items]
Derivative notional amount			0		$ 0	0	$ 0
Not Designated as Hedging Instrument
Derivative Instruments and Hedging Activities Disclosures [Line Items]
Derivative notional amount			494,000,000			$ 494,000,000		$ 485,000,000
1.30% Senior Notes due May 2025
Derivative Instruments and Hedging Activities Disclosures [Line Items]
Senior notes | €		€ 600
Higher rate of debt maturity periods		May 2025
0.4% Senior Notes Due in May 2024
Derivative Instruments and Hedging Activities Disclosures [Line Items]
Senior notes | €	€ 750
Higher rate of debt maturity periods	May 2024					May 2024
1.3% Senior Notes Due in May 2029
Derivative Instruments and Hedging Activities Disclosures [Line Items]
Senior notes | €	€ 750
Higher rate of debt maturity periods	May 2029					May 2029
Net investment hedge
Derivative Instruments and Hedging Activities Disclosures [Line Items]
Accumulated pre-tax unrealized translation losses in AOCI related to euro-denominated senior notes			69,000,000			$ 69,000,000
Net investment hedge | Forward Contracts
Derivative Instruments and Hedging Activities Disclosures [Line Items]
Forward contracts designated as net investment hedge | €				€ 1,200
Net investment hedge | Designated as Hedging Instrument | Forward Contracts
Derivative Instruments and Hedging Activities Disclosures [Line Items]
Forward contracts designated as net investment hedge | €	€ 1,200
Foreign exchange contract
Derivative Instruments and Hedging Activities Disclosures [Line Items]
Derivative notional amount			629,000,000			$ 629,000,000		775,000,000
Maximum length of time hedge in cash flow hedge						18 months
Interest rate contract
Derivative Instruments and Hedging Activities Disclosures [Line Items]
Derivative notional amount			300,000,000			$ 300,000,000		150,000,000
Maximum length of time hedge in cash flow hedge						30 years
Interest rate contract | Fair value hedges
Derivative Instruments and Hedging Activities Disclosures [Line Items]
Derivative notional amount			$ 0			$ 0		$ 0

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Derivative Instruments and Hedging Activities - Summary of Gains and Losses on Derivative Instruments (Detail) - USD ($) $ in Millions	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Derivative Instruments, Gain (Loss) [Line Items]
Gain (loss) recognized in OCI	$ (50)	$ 45	$ (56)	$ 15
Gains (losses) on hedging activities reclassified from AOCI to net income, before tax	1	(6)	1	(10)
Gain (loss) recognized in income, fair value hedges		4		4
Other income, net | Undesignated Derivative Instruments
Derivative Instruments, Gain (Loss) [Line Items]
Gain (loss) recognized in income, undesignated derivative instruments	3	6	(6)	(11)
Cash Flow Hedges | Interest rate contract
Derivative Instruments, Gain (Loss) [Line Items]
Gain (loss) recognized in OCI	(23)		(34)
Cash Flow Hedges | Foreign exchange contract
Derivative Instruments, Gain (Loss) [Line Items]
Gain (loss) recognized in OCI	9	7		(2)
Cash Flow Hedges | Foreign exchange contract | Cost of Sales
Derivative Instruments, Gain (Loss) [Line Items]
Gains (losses) on hedging activities reclassified from AOCI to net income, before tax	1	(6)	1	(10)
Net investment hedges
Derivative Instruments, Gain (Loss) [Line Items]
Gain (loss) recognized in OCI	$ (36)	$ 38	$ (22)	17
Fair value hedges | Interest expense, net
Derivative Instruments, Gain (Loss) [Line Items]
Gain (loss) recognized in income, fair value hedges				$ (4)

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Derivative Instruments and Hedging Activities - Classification and Fair Value Amounts of Derivative Instruments (Detail) - USD ($) $ in Millions	Jun. 30, 2019	Dec. 31, 2018
Derivatives, Fair Value [Line Items]
Derivative asset, fair value	$ 21	$ 23
Derivative liability, fair value	38	5
Designated as Hedging Instrument
Derivatives, Fair Value [Line Items]
Derivative asset, fair value	21	23
Derivative liability, fair value	38	4
Designated as Hedging Instrument | Interest rate contract | Other Non-current Liabilities
Derivatives, Fair Value [Line Items]
Derivative liability, fair value	37	3
Designated as Hedging Instrument | Foreign exchange contract | Other Non-current Assets
Derivatives, Fair Value [Line Items]
Derivative asset, fair value	1	1
Designated as Hedging Instrument | Foreign exchange contract | Prepaid expenses and other
Derivatives, Fair Value [Line Items]
Derivative asset, fair value	20	22
Designated as Hedging Instrument | Foreign exchange contract | Accounts Payable And Accrued Liabilities
Derivatives, Fair Value [Line Items]
Derivative liability, fair value	$ 1	1
Undesignated Derivative Instruments | Foreign exchange contract | Accounts Payable And Accrued Liabilities
Derivatives, Fair Value [Line Items]
Derivative liability, fair value		$ 1

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Derivative Instruments and Hedging Activities - Derivative Positions Presented On Net Basis (Detail) - USD ($) $ in Millions	Jun. 30, 2019	Dec. 31, 2018
Derivative Instruments And Hedging Activities Disclosure [Abstract]
Gross amounts recognized in the consolidated balance sheet, Asset	$ 21	$ 23
Gross amount subject to offset in master netting arrangements not offset in the consolidated balance sheet, Asset	(1)	(5)
Total, Asset	20	18
Gross amounts recognized in the consolidated balance sheet, Liability	38	5
Gross amount subject to offset in master netting arrangements not offset in the consolidated balance sheet, Liability	(1)	$ (5)
Total, Liability	$ 37

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Derivative Instruments and Hedging Activities - Amounts Recorded on Condensed Consolidated Balance Sheet Related to Fair Value Hedges (Detail) - Long-term debt - USD ($) $ in Millions		Jun. 30, 2019	Dec. 31, 2018
Derivatives, Fair Value [Line Items]
Carrying amount of hedged item		$ 103	$ 103
Cumulative amount of fair value hedging adjustment included in the carrying amount of the hedged item	[1]	$ 6	$ 7

[1] These fair value hedges were terminated prior to December 31, 2018.

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Fair Value Measurements - Summary of Financial Instruments Measured at Fair Value on Recurring Basis (Detail) - Fair Value, Measurements, Recurring - USD ($) $ in Millions	Jun. 30, 2019	Dec. 31, 2018
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Foreign exchange contracts, assets at fair value	$ 21	$ 23
Marketable equity securities	4	3
Total assets	25	26
Foreign currency hedges, liabilities at fair value	1	2
Interest rate contracts, liabilities at fair value	37	3
Contingent payments related to acquisitions	27	32
Total liabilities	65	37
Quoted Prices in Active Markets for Identical Assets (Level 1)
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Marketable equity securities	4	3
Total assets	4	3
Significant Other Observable Inputs (Level 2)
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Foreign exchange contracts, assets at fair value	21	23
Total assets	21	23
Foreign currency hedges, liabilities at fair value	1	2
Interest rate contracts, liabilities at fair value	37	3
Total liabilities	38	5
Significant Unobservable Inputs (Level 3)
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Contingent payments related to acquisitions	27	32
Total liabilities	$ 27	$ 32

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Fair Value Measurements - Additional Information (Detail) - USD ($) $ in Millions	Jun. 30, 2019	Dec. 31, 2018
Fair Value Disclosures [Line Items]
Cash and cash equivalents	$ 2,925.0	$ 1,832.0
Other Assets
Fair Value Disclosures [Line Items]
Other equity investments without readily determinable fair values	39.0	41.0
Significant Other Observable Inputs (Level 2)
Fair Value Disclosures [Line Items]
Money market funds, at carrying value	$ 1.5	$ 169.0

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Fair Value Measurements - Reconciliation of Fair Value Measurements that Use Significant Unobservable Inputs (Detail) - USD ($) $ in Millions	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Fair Value Disclosures [Abstract]
Contingent payments, Fair value as of beginning of period	$ 31	$ 23	$ 32	$ 9
Contingent payments, additions	0	0	0	14
Contingent payments, change in fair value recognized in earnings	(4)	0	(4)	0
Contingent payments, payments	0	0	(1)	0
Contingent payments, Fair value as of end of period	$ 27	$ 23	$ 27	$ 23

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Fair Value Measurements - Book Values and Fair Values of Financial Instruments (Detail) - USD ($) $ in Millions		Jun. 30, 2019	Dec. 31, 2018
Book Values
Fair Value And Carrying Value By Balance Sheet Grouping [Line Items]
Short-term debt		$ 2	$ 2
Current maturities of long-term debt and finance lease obligations		2	2
Long-term debt and finance lease obligations		5,157	3,473
Fair values
Fair Value And Carrying Value By Balance Sheet Grouping [Line Items]
Short-term debt	[1]	2	2
Current maturities of long-term debt and finance lease obligations	[1]	2	2
Long-term debt and finance lease obligations	[1]	$ 5,440	$ 3,460

[1] (a) These fair value amounts are classified as Level 2 within the fair value hierarchy as they are estimated based on observable inputs.

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Segment Information - Summary of Financial Information for Our Segments (Detail) - USD ($) $ in Millions	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Segment Reporting Information [Line Items]
Net sales	$ 2,840	$ 2,842	$ 5,472	$ 5,519
Total segment operating income	355	384	739	816
Americas
Segment Reporting Information [Line Items]
Net sales	1,520	1,525	2,928	2,967
EMEA
Segment Reporting Information [Line Items]
Net sales	744	758	1,449	1,482
APAC
Segment Reporting Information [Line Items]
Net sales	576	559	1,095	1,070
Operating Segments
Segment Reporting Information [Line Items]
Total segment operating income	883	912	1,686	1,746
Operating Segments | Americas
Segment Reporting Information [Line Items]
Total segment operating income	584	619	1,121	1,185
Operating Segments | EMEA
Segment Reporting Information [Line Items]
Total segment operating income	162	162	307	313
Operating Segments | APAC
Segment Reporting Information [Line Items]
Total segment operating income	$ 137	$ 131	$ 258	$ 248

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Segment Information - Operating Income to Income Before Income Taxes Reconciliation (Detail) - USD ($) $ in Millions	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Segment Reporting, Reconciling Item for Operating Profit (Loss) from Segment to Consolidated [Line Items]
Total operating income	$ 355	$ 384	$ 739	$ 816
Net interest expense	20	11	38	23
Other income, net	(28)	(31)	(53)	(49)
Income before income taxes	363	404	754	842
Operating Segments
Segment Reporting, Reconciling Item for Operating Profit (Loss) from Segment to Consolidated [Line Items]
Total operating income	883	912	1,686	1,746
Corporate and Other
Segment Reporting, Reconciling Item for Operating Profit (Loss) from Segment to Consolidated [Line Items]
Total operating income	$ (528)	$ (528)	$ (947)	$ (930)