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RESTATEMENT OF PREVIOUSLY ISSUED CONSOLIDATED FINANCIAL STATEMENTS

12 Months Ended

Dec. 31, 2019

Accounting Changes and Error Corrections [Abstract]

RESTATEMENT OF PREVIOUSLY ISSUED CONSOLIDATED FINANCIAL STATEMENTS


RESTATEMENT OF PREVIOUSLY ISSUED CONSOLIDATED FINANCIAL STATEMENTS

We have restated herein our consolidated financial statements as of December 31, 2018 and for the years ended December 31, 2018 and 2017. We have also restated impacted amounts within the accompanying notes to the consolidated financial statements, as applicable.

Restatement Background

On October 24, 2019, we reported that we had commenced an internal investigation into certain intra-company transactions that impacted our previously reported non-operating foreign exchange gains and losses. Our internal investigation, as it pertains to the evaluation of related financial statement impacts, is complete.

We previously had applied a longstanding convention for the initial measurement of foreign currency transactions and the subsequent remeasurement of foreign currency denominated monetary assets and liabilities (collectively, our historical exchange rate convention) that was not consistent with U.S. GAAP. U.S. GAAP requires that foreign currency transactions be initially measured and recorded in an entity’s functional currency using the exchange rate on the date of the transaction and it requires that foreign currency denominated monetary assets and liabilities be remeasured at the end of each reporting period using the exchange rate at that date. Under our historical exchange rate convention, all foreign currency transactions in a given month were initially measured using exchange rates from a specified date near the middle of the previous month. Additionally, all foreign currency denominated monetary assets and liabilities were subsequently remeasured at the end of each month using exchange rates from a specified date near the middle of the then current month. Beginning years after the adoption of our historical exchange rate convention, certain intra-company transactions were undertaken, after the related exchange rates were already known, solely for the purpose of generating non-operating foreign exchange gains or avoiding foreign exchange losses.

We identified misstatements relating to foreign currency denominated monetary assets and liabilities and foreign currency derivative contracts that caused our Other income (expense), net and Income from continuing operations before income taxes to be overstated by $59 million and $113 million, respectively, for the years ended December 31, 2018 and 2017. Our quantification of those misstatements to our previously reported foreign exchange gains and losses was not limited to intra-company transactions undertaken for the purpose of generating foreign exchange gains or avoiding foreign exchange losses after the related exchange rates were already known. Rather, we identified every legal entity within our consolidated group that had foreign exchange gains or losses above an immaterial threshold and, for those entities, we remeasured all foreign exchange gains and losses from foreign currency denominated cash balances and intra-company loan receivables and payables using the exchange rates required by U.S. GAAP. For those entities, we also quantified misstatements to our previously reported gains and losses on foreign currency derivative contracts, which had used foreign exchange rates determined under our historical exchange rate convention as inputs to the fair value measurements of those contracts. Our quantification of misstatements to the consolidated financial statements did not include foreign currency gains or losses from short-term third-party and intra-company trade receivables and trade payables denominated in foreign currencies. We determined that any potential misstatements relating to such balances that arise in the ordinary course of business and are ultimately settled for cash within a short period of time, generally thirty to sixty days, would not be material to our consolidated financial statements.

In order to correct our previously issued financial statements, we have restated herein our consolidated financial statements as of December 31, 2018 and for the years ended December 31, 2018 and 2017, in accordance with Accounting Standards Codification (ASC) Topic 250, Accounting Changes and Error Corrections. In addition to the misstatements described above relating to foreign exchange gains and losses, we corrected additional misstatements that were not material, individually or in the aggregate, to our previously issued consolidated financial statements. Those other immaterial misstatements relate to equipment leased to customers under operating leases, classification of foreign currency gains and losses on cash balances and intra-company loan receivables and payables in our consolidated statements of cash flows, translation of the financial position and results of operations of our foreign operations into U.S. dollars, income statement classification of transition services income related to the separation of Baxalta in 2015, other miscellaneous adjustments, and the income tax effects of those items.

We believe that the use of our historical exchange rate convention to generate non-operating foreign exchange gains and avoid losses had occurred for at least ten years. The cumulative impact of misstatements related to non-operating foreign exchange gains and losses that we corrected for periods earlier than 2017, as well as the cumulative impact of correcting other immaterial misstatements relating to those earlier periods, have been recorded as a reduction to our opening retained earnings as of January 1, 2017.

Restated interim financial information for the quarterly periods ended June 30, 2019, March 31, 2019, December 31, 2018, June 30, 2018, and March 31, 2018 is included in Note 19, Quarterly Financial Results (Unaudited).

The categories of misstatements and their impact on our previously issued consolidated financial statements are described in more detail below.

Description of Misstatements

Misstatements of Foreign Exchange Gains and Losses

(a) Foreign Currency Denominated Monetary Assets and Liabilities

As discussed above, we recorded adjustments to correct foreign exchange gains and losses on monetary assets and liabilities denominated in a foreign currency to reflect the gains and losses resulting from application of the exchange rates required by U.S. GAAP. The impacts of the foreign currency gain or loss misstatements on each period are discussed in restatement reference (a) throughout this note and in Note 19, Quarterly Financial Results (Unaudited).

(b) Foreign Currency Derivative Contracts

As discussed above, we recorded adjustments to correct gains and losses on foreign currency derivative contracts by using current exchange rates at the applicable measurement dates as inputs to the related fair value measurements. The impacts of the foreign currency derivative contract gain or loss misstatements on each period are discussed in restatement reference (b) throughout this note and in Note 19, Quarterly Financial Results (Unaudited).

Additional Misstatements

Our manufacturing subsidiaries often sell products to commercial subsidiaries within our consolidated group which then sell or lease those products to third-party customers. Under U.S. GAAP, intra-company sales, intra-company cost of sales, and any step-ups in the carrying amount of inventory from intra-company transactions are eliminated in consolidation. If we subsequently sell the products to a third-party customer, the related intra-company profit previously eliminated in consolidation is recognized in our consolidated statements of income. For transactions in which we lease, rather than sell, our products to customers under operating lease arrangements, no profit or loss should be recognized at inception of the arrangement and any intra-company profit previously eliminated in consolidation should be recognized as a reduction to the carrying amount of the related leased assets. Prior to the third quarter of 2019, our international operations incorrectly recognized intra-company profit previously eliminated in consolidation as a reduction of cost of sales, rather than as a reduction of leased assets, at inception of operating lease arrangements. Accordingly, we have recorded adjustments to increase cost of sales and decrease property, plant, and equipment, net in our consolidated financial statements. Those adjustments include corrections of depreciation expense and accumulated depreciation resulting from the decreases to the carrying amounts of the

related leased equipment. The impacts of the operating lease misstatements on each period are discussed in restatement reference (c) throughout this note and in Note 19, Quarterly Financial Results (Unaudited).

(d) Classification of Foreign Currency Gains and Losses in our Consolidated Statements of Cash Flows

We previously included foreign exchange gains and losses related to intra-company receivables and payables and cash balances within our cash flows from operations. In the accompanying consolidated statements of cash flows, foreign exchange gains and losses, as restated, related to intra-company receivables and payables and cash balances are presented as reconciling items between income from continuing operations and cash flows from operations. The impacts of those misclassifications on our operating cash flows for each period are discussed in restatement reference (d) throughout this note and in Note 19, Quarterly Financial Results (Unaudited).

(e) Translation of the Financial Position and Results of Operations of our Foreign Operations into U.S. Dollars

U.S. GAAP specifies that the income statement of a foreign operation should be translated into the reporting currency using the exchange rates on the dates the income or expense was recognized and indicates that the use of weighted-average exchange rates during the period is generally appropriate. Similar to our convention for the initial measurement of foreign currency transactions, we historically translated the results of operations of our foreign operations for a given month into U.S. dollars using exchange rates from a specified date near the middle of the previous month. Accordingly, we have recorded adjustments to translate the income statements of our foreign operations into U.S. dollars using the applicable average foreign exchange rates for each month.

U.S. GAAP specifies that the assets and liabilities of foreign operations be translated into the reporting currency at the end of each reporting period using the exchange rate at that date. Similar to our convention for the subsequent remeasurement of foreign currency denominated monetary assets and liabilities, our financial reporting systems were previously configured to translate assets and liabilities at the end of each month using exchange rates from a specified date near the middle of the current month. In recent years, we separately computed the impact of translating assets and liabilities at period-end exchange rates and adjusted our consolidated balance sheets to reflect that difference. However, due to an incorrect input in those manual calculations as of December 31, 2018, our balance sheet was misstated as of that date.

The impacts of misstatements related to the translation of the financial position and results of operations of our foreign operations on each period are discussed in restatement reference (e) throughout this note and in Note 19, Quarterly Financial Results (Unaudited).

(f) Income Statement Classification of Transition Services Income

We entered into a transition services agreement (TSA) with Baxalta in connection with the July 1, 2015 separation transaction. Services we provided under the TSA included, among others, finance, information technology, human resources, quality, supply chain, and certain other administrative services. Those services generally commenced on July 1, 2015 and concluded on July 1, 2018. As previously disclosed, we recognized income of approximately $9 million and $56 million, respectively, under the TSA for the years ended December 31, 2018 and 2017. The amounts earned for those services were previously presented as a reduction of Selling, general, and administrative expenses (which we previously referred to as “Marketing and administrative expenses”) in our consolidated statements of income. The accompanying restated consolidated statements of income for the years ended December 31, 2018 and 2017 present the amounts earned for those services within Other operating income, net, rather than as a reduction of Selling, general, and administrative expenses. The impacts of the income statement misclassification of TSA income on each period are discussed in restatement reference (f) throughout this note and in Note 19, Quarterly Financial Results (Unaudited).

(g) Other Miscellaneous Adjustments

We recorded adjustments to correct other out-of-period items and previously uncorrected misstatements that were not material, individually or in the aggregate, to our consolidated financial statements. Those other misstatements were primarily related to a historical restructuring liability and amounts related to our separation of Baxalta in 2015. The impacts of the other miscellaneous adjustments on each period are discussed in restatement reference (g) throughout this note and in Note 19, Quarterly Financial Results (Unaudited).

Description of Restatement Tables

The following tables present the impact of the adjustments described above to our previously reported consolidated balance sheet as of December 31, 2018 and the consolidated statements of income, comprehensive income, changes in equity, and cash flows for the years ended December 31, 2018 and 2017.

Following the restated 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 years ended December 31, 2018 and 2017 were derived from our Annual Report on Form 10-K for the year ended December 31, 2018 filed on February 21, 2019.


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

	Year ended December 31, 2018
	As previously reported		Restatement impacts		Restatement reference	As restated
Net sales	$	11,127	$	(28)	(e)	$	11,099
Cost of sales	6,346		(6)		(c)(e)	6,340
Gross margin	4,781		(22)			4,759
Selling, general and administrative expenses	2,617		3		(e)(f)	2,620
Research and development expenses	655		(1)		(e)	654
Other operating income, net	(90)		(9)		(f)	(99)
Operating income	1,599		(15)			1,584
Interest expense, net	45		—			45
Other (income) expense, net	(139)		61		(a)(b)(e)	(78)
Income from continuing operations before income taxes	1,693		(76)			1,617
Income tax expense (benefit)	63		2		(c)(e)(g)	65
Income from continuing operations	1,630		(78)			1,552
Loss from discontinued operations, net of tax	(6)		—			(6)
Net income	$	1,624	$	(78)		$	1,546
Earnings per share from continuing operations
Basic	$	3.05	$	(0.14)		$	2.91
Diluted	$	2.99	$	(0.15)		$	2.84
Loss per share from discontinued operations
Basic	$	(0.01)	$	—		$	(0.01)
Diluted	$	(0.02)	$	0.01		$	(0.01)
Earnings per share
Basic	$	3.04	$	(0.14)		$	2.90
Diluted	$	2.97	$	(0.14)		$	2.83
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 a decrease to other (income) expense, net of $64 million for the year ended December 31, 2018.

(b) Foreign Currency Derivative Contracts—The correction of these misstatements resulted in an increase to other (income) expense, net of $5 million for the year ended December 31, 2018.

(c) Equipment Leased to Customers under Operating Leases—The correction of these misstatements resulted in an increase to cost of sales of $11 million and a decrease to income tax expense of $3 million for the year ended 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 decreases to net sales of $28 million, cost of sales of $17 million, SG&A expense of $6 million, R&D expense of $1 million, other (income) expense, net of $2 million, and income tax expense of $2 million for the year ended December 31, 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 year ended December 31, 2018.

(g) Other miscellaneous adjustments - The correction of these misstatements resulted in an increase to income tax expense of $7 million for the year ended December 31, 2018.


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

	Year ended December 31, 2017
	As previously reported		Restatement impacts		Restatement reference	As restated
Net sales	$	10,561	$	23	(e)	$	10,584
Cost of sales	6,091		19		(c)(e)	6,110
Gross margin	4,470		4			4,474
Selling, general and administrative expenses	2,566		61		(e)(f)	2,627
Research and development expenses	613		2		(e)	615
Other operating income, net	—		(56)		(f)	(56)
Operating income	1,291		(3)			1,288
Interest expense, net	55		—			55
Other (income) expense, net	19		114		(a)(b)(e)	133
Income from continuing operations before income taxes	1,217		(117)			1,100
Income tax expense (benefit)	493		(2)		(c)(e)	491
Income from continuing operations	724		(115)			609
Loss from discontinued operations, net of tax	(7)		$	—		(7)
Net income	$	717	$	(115)		$	602
Earnings per share from continuing operations
Basic	$	1.33	$	(0.21)		$	1.12
Diluted	$	1.30	$	(0.20)		$	1.10
Loss per share from discontinued operations
Basic	$	(0.01)	$	—		$	(0.01)
Diluted	$	(0.01)	$	(0.01)		$	(0.02)
Earnings per share
Basic	$	1.32	$	(0.21)		$	1.11
Diluted	$	1.29	$	(0.21)		$	1.08
Weighted-average number of shares outstanding
Basic	543		—			543
Diluted	555		—			555

(a) Foreign Currency Denominated Monetary Assets and Liabilities—The correction of these misstatements resulted in an increase to other (income) expense, net of $96 million.

(b) Foreign Currency Derivative Contracts—The correction of these misstatements resulted in an increase to other (income) expense, net of $17 million.

(c) Equipment Leased to Customers under Operating Leases—The correction of these misstatements resulted in an increase to cost of sales of $8 million and a decrease to income tax expense of $3 million for the year ended December 31, 2017.

(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 net sales of $23 million, cost of sales of $11 million, SG&A expense of $5 million, R&D expense of $2 million, other (income) expense, net of $1 million and income tax expense of $1 million for the year ended December 31, 2017.


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

	Year ended December 31, 2018
	As previously reported		Restatement impacts		As restated
Net income	$	1,624	$	(78)	$	1,546
Other comprehensive (loss) income, net of tax:
Currency translation adjustments	(461)		138		(323)
Pension and other postretirement benefit plans	32		1		33
Hedging activities	9		—		9
Total other comprehensive (loss) income, net of tax	(420)		139		(281)
Comprehensive income	$	1,204	$	61	$	1,265

The $78 million decrease to net income was driven by the items described above in the consolidated statement of income for the year ended December 31, 2018 section.

The $138 million decrease to currency translation adjustments for the year ended December 31, 2018 is comprised of a $74 million decrease to correct the foreign exchange rates used to translate the financial position and results of operations of our foreign operations into U.S. dollars and a $64 million decrease from the offsetting balance sheet impact of the adjustments to foreign exchange gains and losses.

The $1 million increase to pension and other postretirement benefit plans for the year ended December 31, 2018 is a result of the correction of the foreign exchange rates used to translate the financial position and results of operations of our foreign operations into U.S. dollars.


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

	Year ended December 31, 2017
	As previously reported		Restatement impacts		As restated
Net income	$	717	$	(115)	$	602
Other comprehensive (loss) income, net of tax:
Currency translation adjustments	425		174		599
Pension and other postretirement benefit plans	141		(7)		134
Hedging activities	(13)		—		(13)
Available-for-sale securities	2		—		2
Total other comprehensive (loss) income, net of tax	555		167		722
Comprehensive income	$	1,272	$	52	$	1,324

The $115 million decrease to net income was driven by the items described above in the consolidated statement of income for the year ended December 31, 2017 section.

The $174 million increase to currency translation adjustments for the year ended December 31, 2017 is comprised of a $78 million increase to correct the foreign exchange rates used to translate the financial position and results of operations of our foreign operations into U.S. dollars and a $96 million increase from the offsetting balance sheet impact of the adjustments to foreign exchange gains and losses.

The $7 million decrease to pension and other postretirement benefit plans for the year ended December 31, 2017 is a result of the correction of the foreign exchange rates used to translate the financial position and results of operations of our foreign operations into U.S. dollars.


Baxter International Inc.
Consolidated Statement of Changes in Equity
(in millions)
	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	—	—		—	—		—		(18)		(3)		(21)		—		(21)
Net income	—	—		—	—		—		1,624		—		1,624		—		1,624
Other comprehensive income (loss)	—	—		—	—		—		—		(420)		(420)		—		(420)
Purchases of treasury stock	—	—		36	(2,415)		(60)		—		—		(2,475)		—		(2,475)
Stock issued under employee benefit plans and other	—	—		(8)	407		18		(71)		—		354		—		354
Dividends declared on common stock	—	—		—	—		—		(392)		—		(392)		—		(392)
Changes in noncontrolling interests	—	—		—	—		—		—		—		—		30		30
Balance as of December 31, 2018	683	$	683	170	$	(9,989)	$	5,898	$	15,626	$	(4,424)	$	7,794	$	22	$	7,816
Restatement impacts
Balance as of January 1, 2018	—	$	—	—	$	—	$	—	$	(469)	$	462	$	(7)	$	—	$	(7)
Adoption of new accounting standards	—	—		—	—		—		(4)		—		(4)		—		(4)
Net income	—	—		—	—		—		(78)		—		(78)		—		(78)
Other comprehensive income (loss)	—	—		—	—		—		—		139		139		—		139
Balance as of December 31, 2018	—	$	—	—	$	—	$	—	$	(551)	$	601	$	50	$	—	$	50
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	—	—		—	—		—		(22)		(3)		(25)		—		(25)
Net income	—	—		—	—		—		1,546		—		1,546		—		1,546
Other comprehensive income (loss)	—	—		—	—		—		—		(281)		(281)		—		(281)
Purchases of treasury stock	—	—		36	(2,415)		(60)		—		—		(2,475)		—		(2,475)
Stock issued under employee benefit plans and other	—	—		(8)	407		18		(71)		—		354		—		354
Dividends declared on common stock	—	—		—	—		—		(392)		—		(392)		—		(392)
Changes in noncontrolling interests	—	—		—	—		—		—		—		—		30		30
Balance as of December 31, 2018	683	683		170	(9,989)		5,898		15,075		(3,823)		7,844		22		7,866

See descriptions of the net income and other comprehensive income impacts in the consolidated statement of income and consolidated statement of comprehensive income for the year ended December 31, 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.
Consolidated Statement of Changes in Equity
(in millions)
	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, 2017	683	$	683	144	$	(7,995)	$	5,958	$	14,200	$	(4,556)	$	8,290	$	(10)	$	8,280
Net income	—	—		—	—		—		717		—		$	717	—		$	717
Other comprehensive income (loss)	—	—		—	—		—		—		555		555		—		555
Purchases of treasury stock	—	—		9	(564)		—		—		—		(564)		—		(564)
Stock issued under employee benefit plans and other	—	—		(11)	578		(18)		(134)		—		426		—		426
Dividends declared on common stock	—	—		—	—		—		(334)		—		(334)		—		(334)
Distribution of Baxalta	—	—		—	—		—		34		—		34		—		34
Changes in noncontrolling interests	—	—		—	—		—		—		—		—		2		2
Balance as of December 31, 2017	683	$	683	142	$	(7,981)	$	5,940	$	14,483	$	(4,001)	$	9,124	$	(8)	$	9,116
Restatement impacts
Balance as of January 1, 2017	—	$	—	—	$	—	$	—	$	(354)	$	295	$	(59)	$	—	$	(59)
Net income	—	—		—	—		—		(115)		—		(115)		—		(115)
Other comprehensive income (loss)	—	—		—	—		—		—		167		167		—		167
Balance as of December 31, 2017	—	$	—	—	$	—	$	—	$	(469)	$	462	$	(7)	$	—	$	(7)
As restated
Balance as of January 1, 2017	683	$	683	144	$	(7,995)	$	5,958	$	13,846	$	(4,261)	$	8,231	$	(10)	$	8,221
Net income	—	—		—	—		—		602		—		602		—		602
Other comprehensive income (loss)	—	—		—	—		—		—		722		722		—		722
Purchases of treasury stock	—	—		9	(564)		—		—		—		(564)		—		(564)
Stock issued under employee benefit plans and other	—	—		(11)	578		(18)		(134)		—		426		—		426
Dividends declared on common stock	—	—		—	—		—		(334)		—		(334)		—		(334)
Distribution of Baxalta	—	—		—	—		—		34		—		34		—		34
Changes in noncontrolling interests	—	—		—	—		—		—		—		—		2		2
Balance as of December 31, 2017	683	$	683	142	$	(7,981)	$	5,940	$	14,014	$	(3,539)	$	9,117	$	(8)	$	9,109

The adjustment to the January 1, 2017 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, 2017. 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, 2017.


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

	Year ended December 31, 2018
	As previously reported		Restatement impacts		Restatement reference	As restated
Cash flows from operations
Net income	$	1,624	$	(78)		$	1,546
Adjustments to reconcile income from continuing operations to net cash from operating activities:
Loss from discontinued operations, net of tax	6		—			6
Depreciation and amortization	785		(14)		(c)(g)	771
Pension settlement charges	1		—			1
Net periodic pension benefit and other postretirement costs	39		—			39
Deferred income taxes	(267)		4		(c)(g)	(263)
Stock compensation	115		—			115
Other	43		7		(d)	50
Changes in balance sheet items:
Accounts receivable, net	(12)		—			(12)
Inventories	(197)		—			(197)
Accounts payable and accrued liabilities	64		(4)		(b)	60
Other	(105)		6		(b)(e)(g)	(99)
Cash flows from operations	2,096		(79)			2,017
Cash flows from investing activities
Capital expenditures	(681)		22		(c)	(659)
Acquisitions and investments, net of cash acquired	(268)		—			(268)
Other investing activities, net	11		—			11
Cash flows from investing activities	(938)		22			(916)
Cash flows from financing activities
Cash dividends on common stock	(376)		—			(376)
Proceeds from stock issued under employee benefit plans	258		—			258
Purchases of treasury stock	(2,452)		—			(2,452)
Other financing activities, net	(33)		—			(33)
Cash flows from financing activities	(2,603)		—			(2,603)
Effect of foreign exchange rate changes on cash and cash equivalents	(117)		54		(a)(d)(e)	(63)
Increase (decrease) in cash and cash equivalents	(1,562)		(3)			(1,565)
Cash and cash equivalents at beginning of year	3,394		9		(e)	3,403
Cash and cash equivalents at end of year	$	1,832	$	6	(e)	$	1,838
Other supplemental information
Interest paid, net of portion capitalized	$	94	—			$	94
Income taxes paid	$	302	(1)		(e)	$	301

The $78 million decrease to net income was driven by the items described above in the consolidated statement of income for the year ended December 31, 2018 section.

(b) Foreign Currency Derivative Contracts—The correction of these misstatements resulted in decreases to changes in accounts payable and accrued liabilities of $4 million and other changes in balance sheet items of $1 million for the year ended December 31, 2018.

(c) Equipment Leased to Customers under Operating Leases—The correction of these misstatements resulted in decreases to depreciation and amortization of $11 million, deferred income taxes of $3 million and capital expenditures of $22 million for the year ended December 31, 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 $7 million for the year ended December 31, 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 increases to cash and cash equivalents at the beginning of the period of $9 million, at the end of the period of $6 million, and to other changes in balance sheet items of $4 million and decreases in the effect of foreign exchange rate changes on cash and cash equivalents of $3 million and income taxes paid of $1 million for the year ended December 31, 2018.

(g) Other miscellaneous adjustments - The correction of these misstatements resulted in a decrease to depreciation and amortization of $3 million and increases to deferred income taxes of $7 million and other changes in balance sheet items of $3 million for the year ended December 31, 2018.


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

	Year ended December 31, 2017
	As previously reported		Restatement impacts		Restatement reference	As restated
Cash flows from operations
Net income	$	717	$	(115)		$	602
Adjustments to reconcile income from continuing operations to net cash from operating activities:
Loss from discontinued operations, net of tax	7		—			7
Depreciation and amortization	761		(11)		(c)(g)	750
Pension settlement charges	2		—			2
Net periodic pension benefit and other postretirement costs	123		—			123
Deferred income taxes	211		—			211
Stock compensation	107		—			107
Other	43		(5)		(d)(g)	38
Changes in balance sheet items:
Accounts receivable, net	30		—			30
Inventories	76		—			76
Accounts payable and accrued liabilities	5		6		(b)	11
Other	(229)		2		(b)(c)(e)	(227)
Cash flows from operations - continuing operations	1,853		(123)			1,730
Cash flows from operations - discontinued operations	(16)		—			(16)
Cash flows from operations	1,837		(123)			1,714
Cash flows from investing activities
Capital expenditures	(634)		18		(c)	(616)
Acquisitions and investments, net of cash acquired	(686)		—			(686)
Other investing activities, net	10		—			10
Cash flows from investing activities	(1,310)		18			(1,292)
Cash flows from financing activities
Issuances of debt	633		32		(a)	665
Cash dividends on common stock	(315)		—			(315)
Proceeds from stock issued under employee benefit plans	347		—			347
Purchases of treasury stock	(564)		—			(564)
Other financing activities, net	(40)		—			(40)
Cash flows from financing activities	61		32			93
Effect of foreign exchange rate changes on cash and cash equivalents	5		97		(a)(d)(e)	102
Increase (decrease) in cash and cash equivalents	593		24			617
Cash and cash equivalents at beginning of year	2,801		(15)		(e)	2,786
Cash and cash equivalents at end of year	$	3,394	$	9	(e)	$	3,403
Other supplemental information
Interest paid, net of portion capitalized	$	80	—			$	80
Income taxes paid	$	255	(2)		(e)	$	253

The $115 million decrease to net income was driven by the items described above in the consolidated statement of income for the year ended December 31, 2017 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 $99 million for the year ended December 31, 2017. Additionally, issuances of debt increased $32 million with an offsetting decrease to the effect of foreign exchange rate changes on cash and cash equivalents to remeasure the proceeds received from the issuance of our Euro-denominated senior notes in May 2017.

(b) Foreign Currency Derivative Contracts—The correction of these misstatements resulted in increases to changes in accounts payable and accrued liabilities of $6 million and other changes in balance sheet items of $8 million for the year ended December 31, 2017.

(c) Equipment Leased to Customers under Operating Leases—The correction of these misstatements resulted in decreases to depreciation and amortization of $10 million, other changes in balance sheet items of $3 million and capital expenditures of $18 million for the year ended December 31, 2017.

(d) Classification of Foreign Currency Gains and Losses in our Consolidated Statements of Cash Flows - The corrections of these misstatements resulted in an increase to the effect of foreign exchange rate changes on cash and cash equivalents and a decrease to other adjustments to reconcile net income to net cash from operating activities of $6 million for the year ended December 31, 2017.

(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 increases in cash and cash equivalents at the end of the period of $9 million and the effect of foreign exchange rate changes on cash and cash equivalents of $24 million and decreases to cash and cash equivalents at the beginning of the period of $15 million, other changes in balance sheet items of $3 million and income taxes paid of $2 million for the year ended December 31, 2017.

(g) Other miscellaneous adjustments - The correction of these misstatements resulted in a decrease to depreciation and amortization and an increase to other adjustments to reconcile net income to net changes from operating activities of $1 million for the year ended December 31, 2017.