RESTATEMENT OF PREVIOUSLY ISSUED CONSOLIDATED FINANCIAL STATEMENTS (Tables)

9 Months Ended

Sep. 30, 2019

Accounting Changes and Error Corrections [Abstract]

Schedule of Quantifying Prior Year Misstatements Corrected in Current Year Financial Statements

Following the restated condensed consolidated financial statement tables, we have presented reconciliations from our prior periods as previously reported to the restated amounts. The amounts as previously reported for the three and nine months ended September 30, 2018 were derived from our Quarterly Report on Form 10-Q for the period ended September 30, 2018 filed on November 5, 2018.


Baxter International Inc.
Condensed Consolidated Balance Sheet
(in millions, except per share)

	December 31, 2018
	As previously reported		Restatement impacts		Restatement reference	As restated
Current assets:
Cash and cash equivalents	$	1,832	$	6	(e)	$	1,838
Accounts receivable, net	1,812		28		(e)(g)	1,840
Inventories	1,653		14		(e)(g)	1,667
Prepaid expenses and other current assets	622		(8)		(b)(e)(g)	614
Total current assets	5,919		40			5,959
Property, plant and equipment, net	4,542		(12)		(c)(e)	4,530
Goodwill	2,958		44		(e)	3,002
Other intangible assets, net	1,398		12		(e)(g)	1,410
Other non-current assets	824		(5)		(a)(c)(e)(g)	819
Total assets	$	15,641	$	79		$	15,720
Current liabilities:
Short-term debt	$	2	$	—		$	2
Current maturities of long-term debt and finance lease obligations	2		—			2
Accounts payable and accrued liabilities	2,832		(22)		(b)(e)(g)	2,810
Total current liabilities	2,836		(22)			2,814
Long-term debt and finance lease obligations	3,473		8		(e)	3,481
Other non-current liabilities	1,516		43		(a)(c)(e)(g)	1,559
Total liabilities	7,825		29			7,854
Commitments and contingencies
Equity:
Common stock, $1 par value, authorized 2,000,000,000 shares, issued 683,494,944 shares	683		—			683
Common stock in treasury, at cost, 170,495,859 shares	(9,989)		—			(9,989)
Additional contributed capital	5,898		—			5,898
Retained earnings	15,626		(551)		(a)(b)(c)(e)(g)	15,075
Accumulated other comprehensive (loss) income	(4,424)		601		(a)(e)	(3,823)
Total Baxter stockholders’ equity	7,794		50			7,844
Noncontrolling interests	22		—			22
Total equity	7,816		50			7,866
Total liabilities and equity	$	15,641	$	79		$	15,720

(a) Foreign Currency Denominated Monetary Assets and Liabilities—The correction of these misstatements resulted in decreases to retained earnings of $487 million and accumulated other comprehensive loss of $482 million and increases to other non-current assets of $8 million and other non-current liabilities of $13 million as of December 31, 2018.

(b) Foreign Currency Derivative Contracts—The correction of these misstatements resulted in increases to prepaid expenses and other current assets of $2 million, accounts payable and accrued liabilities of $1 million and retained earnings of $1 million as of December 31, 2018.

(c) Equipment Leased to Customers under Operating Leases—The correction of these misstatements resulted in decreases to property, plant and equipment, net of $53 million, other non-current liabilities of $5 million, and retained earnings of $38 million, and an increase to other non-current assets of $10 million as of December 31, 2018.

(e) Translation of the Financial Position and Results of Operations of our Foreign Operations into U.S. Dollars—The correction of these misstatements resulted in increases to cash and cash equivalents of $6 million, accounts receivable, net of $22 million, inventories of $19 million, prepaid expenses and other current assets of $2 million, property, plant and equipment of $41 million, goodwill of $44 million, other intangible assets, net of $13 million, other non-current assets of $6 million, accounts payable and accrued liabilities of $24 million, long-term debt and finance lease obligations of $8 million, and other non-current liabilities of $19 million as of December 31, 2018. The correction of these misstatements also resulted in decreases to retained earnings of $17 million and accumulated other comprehensive loss of $119 million as of December 31, 2018.

(g) Other miscellaneous adjustments - The correction of these misstatements resulted in decreases to inventories of $5 million, prepaid expenses and other current assets of $12 million, other intangible assets, net of $1 million, other non-current assets of $29 million, accounts payable and accrued liabilities of $47 million, and retained earnings of $10 million, and increases to accounts receivable, net of $6 million and other non-current liabilities of $16 million as of December 31, 2018.


Baxter International Inc.
Condensed Consolidated Statement of Income
(in millions, except per share)

	Three months ended September 30, 2018
	As previously reported		Restatement impacts		Restatement reference	As restated
Net sales	$	2,767	$	(6)	(e)	$	2,761
Cost of sales	1,531		(2)		(c)(e)	1,529
Gross margin	1,236		(4)			1,232
Selling, general and administrative expenses	685		(1)		(e)	684
Research and development expenses	166		—			166
Operating income	385		(3)			382
Interest expense, net	11		—			11
Other (income) expense, net	(32)		31		(a)(b)(e)	(1)
Income before income taxes	406		(34)			372
Income tax benefit	(138)		(8)		(a)(b)(c)(e)	(146)
Net income	$	544	$	(26)		$	518
Earnings per share
Basic	$	1.02	$	(0.05)		$	0.97
Diluted	$	1.00	$	(0.05)		$	0.95
Weighted-average number of shares outstanding
Basic	534		—			534
Diluted	546		—			546

(a) Foreign Currency Denominated Monetary Assets and Liabilities—The correction of these misstatements resulted in decreases to other (income) expense, net of $49 million and income tax expense of $10 million for the three months ended September 30, 2018.

(b) Foreign Currency Derivative Contracts—The correction of these misstatements resulted in increases to other (income) expense, net of $19 million and income tax expense of $4 million for the three months ended September 30, 2018.

(c) Equipment Leased to Customers under Operating Leases—The correction of these misstatements resulted in an increase to cost of sales of $4 million and a decrease to income tax expense of $1 million for the three months ended September 30, 2018.

(e) Translation of the Financial Position and Results of Operations of our Foreign Operations into U.S. Dollars—The correction of these misstatements resulted in decreases to net sales of $6 million, cost of sales of $6 million, SG&A expense of $1 million, other (income) expense, net of $1 million, and income tax expense of $1 million for the three months ended September 30, 2018.


Baxter International Inc.
Condensed Consolidated Statement of Income
(in millions, except per share)

	Nine months ended September 30, 2018
	As previously reported		Restatement impacts		Restatement reference	As restated
Net sales	$	8,286	$	(20)	(e)	$	8,266
Cost of sales	4,697		(7)		(c)(e)	4,690
Gross margin	3,589		(13)			3,576
Selling, general and administrative expenses	1,988		5		(e)(f)	1,993
Research and development expenses	480		(1)		(e)	479
Other operating income, net	(80)		(9)		(f)	(89)
Operating income	1,201		(8)			1,193
Interest expense, net	34		—			34
Other (income) expense, net	(81)		36		(a)(b)(e)	(45)
Income before income taxes	1,248		(44)			1,204
Income tax benefit	(28)		(9)		(a)(c)(e)	(37)
Net income	$	1,276	$	(35)		$	1,241
Earnings per share
Basic	$	2.38	$	(0.06)		$	2.32
Diluted	$	2.33	$	(0.07)		$	2.26
Weighted-average number of shares outstanding
Basic	536		—			536
Diluted	548		—			548

(a) Foreign Currency Denominated Monetary Assets and Liabilities—The correction of these misstatements resulted in decreases to other (income) expense, net of $32 million and income tax expense of $5 million for the nine months ended September 30, 2018.

(b) Foreign Currency Derivative Contracts—The correction of these misstatements resulted in a decrease to other (income) expense, net of $2 million for the nine months ended September 30, 2018.

(c) Equipment Leased to Customers under Operating Leases—The correction of these misstatements resulted in an increase to cost of sales of $7 million and a decrease to income tax expense of $2 million for the nine months ended September 30, 2018.

(e) Translation of the Financial Position and Results of Operations of our Foreign Operations into U.S. Dollars—The correction of these misstatements resulted in decreases to net sales of $20 million, cost of sales of $14 million, SG&A expense of $4 million, R&D expense of $1 million, other (income) expense, net of $2 million and income tax expense of $2 million for the nine months ended September 30, 2018.

(f) Income Statement Classification of Transition Services Income—The correction of these misstatements resulted in increases to SG&A expense and other operating income, net of $9 million for the nine months ended September 30, 2018.


Baxter International Inc.
Condensed Consolidated Statement of Comprehensive Income
(in millions)

	Three months ended September 30, 2018
	As previously reported		Restatement impacts		As restated
Net income	$	544	$	(26)	$	518
Other comprehensive (loss) income, net of tax:
Currency translation adjustments	(50)		41		(9)
Pension and other postretirement benefit plans	8		1		9
Hedging activities	2		—		2
Total other comprehensive loss, net of tax	(40)		42		2
Comprehensive income	$	504	$	16	$	520


Baxter International Inc.
Condensed Consolidated Statement of Comprehensive Income
(in millions)

	Nine months ended September 30, 2018
	As previously reported		Restatement impacts		As restated
Net income	$	1,276	$	(35)	$	1,241
Other comprehensive (loss) income, net of tax:
Currency translation adjustments	(332)		18		(314)
Pension and other postretirement benefit plans	89		5		94
Hedging activities	8		—		8
Total other comprehensive loss, net of tax	(235)		23		(212)
Comprehensive income	$	1,041	$	(12)	$	1,029


Baxter International Inc.
Condensed Consolidated Statement of Changes in Equity
(in millions)
	For the Three Months Ended September 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
As previously reported
Balance as of July 1, 2018	683	$	683	148	$	(8,485)	$	5,916	$	14,966	$	(4,199)	$	8,881	$	(12)	$	8,869
Net income	—	—		—	—		—		544		—		$	544	—		$	544
Other comprehensive income (loss)	—	—		—	—		—		—		(40)		(40)		—		(40)
Purchases of treasury stock	—	—		4	(247)		—		—		—		(247)		—		(247)
Stock issued under employee benefit plans and other	—	—		(2)	93		15		(14)		—		94		—		94
Dividends declared on common stock	—	—		—	—		—		(102)		—		(102)		—		(102)
Changes in noncontrolling interests	—	—		—	—		—		—		—		—		(5)		(5)
Balance as of September 30, 2018	683	$	683	150	$	(8,639)	$	5,931	$	15,394	$	(4,239)	$	9,130	$	(17)	$	9,113
Restatement impacts
Balance as of July 1, 2018	—	$	—	—	$	—	$	—	$	(482)	$	443	$	(39)	$	—	$	(39)
Net income	—	—		—	—		—		(26)		—		(26)		—		(26)
Other comprehensive income (loss)	—	—		—	—		—		—		42		42		—		42
Balance as of September 30, 2018	—	$	—	—	$	—	$	—	$	(508)	$	485	$	(23)	$	—	$	(23)
As restated
Balance as of July 1, 2018	683	$	683	148	$	(8,485)	$	5,916	$	14,484	$	(3,756)	$	8,842	$	(12)	$	8,830
Net income	—	—		—	—		—		518		—		518		—		518
Other comprehensive income (loss)	—	—		—	—		—		—		2		2		—		2
Purchases of treasury stock	—	—		4	(247)		—		—		—		(247)		—		(247)
Stock issued under employee benefit plans and other	—	—		(2)	93		15		(14)		—		94		—		94
Dividends declared on common stock	—	—		—	—		—		(102)		—		(102)		—		(102)
Changes in noncontrolling interests	—	—		—	—		—		—		—		—		(5)		(5)
Balance as of September 30, 2018	683	$	683	150	$	(8,639)	$	5,931	$	14,886	$	(3,754)	$	9,107	$	(17)	$	9,090


Baxter International Inc.
Condensed Consolidated Statement of Changes in Equity
(in millions)
	For the Nine Months Ended September 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
As previously reported
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	—	—		—	—		—		1,276		—		$	1,276	—		$	1,276
Other comprehensive income (loss)	—	—		—	—		—		—		(235)		(235)		—		(235)
Purchases of treasury stock	—	—		15	(1,028)		—		—		—		(1,028)		—		(1,028)
Stock issued under employee benefit plans and other	—	—		(7)	370		(9)		(59)		—		302		—		302
Dividends declared on common stock	—	—		—	—		—		(290)		—		(290)		—		(290)
Other changes in noncontrolling interests	—	—		—	—		—		—		—		—		(9)		(9)
Balance as of September 30, 2018	683	$	683	150	$	(8,639)	$	5,931	$	15,394	$	(4,239)	$	9,130	$	(17)	$	9,113
Restatement impacts
Balance as of January 1, 2018	—	$	—	—	$	—	$	—	$	(469)	$	462	$	(7)	$	—	$	(7)
Adoption of new accounting standards	—	—		—	—		—		(4)		—		(4)		—		(4)
Net income	—	—		—	—		—		(35)		—		(35)		—		(35)
Other comprehensive income (loss)	—	—		—	—		—		—		23		23		—		23
Balance as of September 30, 2018	—	$	—	—	$	—	$	—	$	(508)	$	485	$	(23)	$	—	$	(23)
As restated
Balance as of January 1, 2018	683	$	683	142	$	(7,981)	$	5,940	$	14,014	$	(3,539)	$	9,117	$	(8)	$	9,109
Adoption of new accounting standards	—	—		—	—		—		(20)		(3)		(23)		—		(23)
Net income	—	—		—	—		—		1,241		—		1,241		—		1,241
Other comprehensive income (loss)	—	—		—	—		—		—		(212)		(212)		—		(212)
Purchases of treasury stock	—	—		15	(1,028)		—		—		—		(1,028)		—		(1,028)
Stock issued under employee benefit plans and other	—	—		(7)	370		(9)		(59)		—		302		—		302
Dividends declared on common stock	—	—		—	—		—		(290)		—		(290)		—		(290)
Other changes in noncontrolling interests	—	—		—	—		—		—		—		—		(9)		(9)
Balance as of September 30, 2018	683	$	683	150	$	(8,639)	$	5,931	$	14,886	$	(3,754)	$	9,107	$	(17)	$	9,090

The adjustment to the January 1, 2018 retained earnings and accumulated other comprehensive loss represent the cumulative impacts of foreign exchange gains and losses and the translation of our financial position and results of operations for our foreign operations into U.S. dollars for the periods prior to January 1, 2018. Retained earnings also includes the cumulative impacts of equipment leased to customers under operating leases and other miscellaneous adjustments for the periods prior to January 1, 2018.

See descriptions of the net income and other comprehensive income impacts in the condensed consolidated statement of income and condensed consolidated statement of comprehensive income for the nine months ended September 30, 2018 sections above. Additionally, we recorded an adjustment to the opening balance of retained earnings on January 1, 2018 for the adoption of ASU No. 2016-16, which was impacted by our adjustments to equipment leased to customers under operating leases.


Baxter International Inc.
Condensed Consolidated Statement of Cash Flows
(in millions)

	For the Nine Months Ended September 30, 2018
	As previously reported		Restatement impacts		Restatement reference	As restated
Cash flows from operations
Net income	$	1,276	$	(35)		$	1,241
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization	594		(8)		(c)	586
Deferred income taxes	(284)		(7)		(c)(g)	(291)
Stock compensation	87		—			87
Net periodic pension benefit and other postretirement costs	31		—			31
Other	6		17		(d)	23
Changes in balance sheet items:
Accounts receivable, net	(16)		—			(16)
Inventories	(226)		—			(226)
Accounts payable and accrued liabilities	(31)		(1)		(b)	(32)
Other	(96)		1		(e)	(95)
Cash flows from operations	1,341		(33)			1,308
Cash flows from investing activities
Capital expenditures	(468)		15		(c)	(453)
Acquisitions and investments, net of cash acquired	(255)		—			(255)
Other investing activities, net	8		—			8
Cash flows from investing activities	(715)		15			(700)
Cash flows from financing activities
Cash dividends on common stock	(274)		—			(274)
Proceeds from stock issued under employee benefit plans	232		—			232
Purchases of treasury stock	(1,028)		—			(1,028)
Other financing activities, net	(25)		—			(25)
Cash flows from financing activities	(1,095)		—			(1,095)
Effect of foreign exchange rate changes on cash and cash equivalents	(65)		12		(a)(d)(e)	(53)
Increase (decrease) in cash and cash equivalents	(534)		(6)			(540)
Cash and cash equivalents at beginning of period	3,394		9		(e)	3,403
Cash and cash equivalents at end of period	$	2,860	$	3	(e)	$	2,863

The $35 million decrease to net income was driven by the items described above in the condensed consolidated statement of income for the nine months ended September 30, 2018 section.

(a) Foreign Currency Denominated Monetary Assets and Liabilities—The correction of these misstatements resulted in an increase to the effect of foreign exchange rate changes on cash and cash equivalents of $35 million for the nine months ended September 30, 2018.

(b) Foreign Currency Derivative Contracts—The correction of these misstatements resulted in a decrease to changes in accounts payable and accrued liabilities of $1 million for the nine months ended September 30, 2019.

(c) Equipment Leased to Customers under Operating Leases—The correction of these misstatements resulted in decreases to depreciation and amortization of $8 million, deferred income taxes of $2 million and capital expenditures of $15 million for the nine months ended September 30, 2018.

(d) Classification of Foreign Currency Gains and Losses in our Consolidated Statements of Cash Flows - The corrections of these misstatements resulted in a decrease to the effect of foreign exchange rate changes on cash and cash equivalents and an increase to other adjustments to reconcile net income to net cash from operating activities of $17 million for the nine months ended September 30, 2018.

(e) Translation of the Financial Position and Results of Operations of our Foreign Operations into U.S. Dollars - The corrections of these misstatements resulted in an increase in cash and cash equivalents at the beginning of the period of $9 million, at the end of the period of $3 million, and other changes in balance sheet items of $1 million and a decrease to the effect of foreign exchange rate changes on cash and cash equivalents of $6 million for the nine months ended September 30, 2018.

(g) Other miscellaneous adjustments - The correction of these misstatements resulted in a decrease to deferred income taxes of $5 million for the nine months ended September 30, 2018.