Baxter International (BAX) 10-K risk factor changes: FY2017 vs FY2016

If any of the events described below occurs, our business, financial [removed: condition and] [added: condition,] results of [removed: operations and] [added: operations,] future growth prospects [added: and stock price] could suffer.

We have [removed: begun] [added: been] implementing plans to enhance profitability and returns for our stockholders.

These plans include the achievement of certain financial goals (including improved operating [removed: margin)] [added: margin and earnings per share)] in [removed: 2017] [added: 2018] and beyond.

These strategies include optimizing our core product portfolio globally, driving operational excellence through the [removed: rebasing] [added: realignment] of our cost structure and various restructuring activities and maximizing the value derived from the allocation of our capital.

Product development requires substantial investment and there is inherent risk in the [removed: research and development] [added: R&D] process.

Issues with product supply or quality could have an adverse effect upon our business, subject us to regulatory [removed: actions and] [added: actions,] cause a loss of customer confidence in us or our [removed: products.][added: products, among other negative consequences.]

These levels vary in response to macro-economic conditions, regulatory requirements (including the availability of private or public [removed: reimbursement)] [added: reimbursement), seasonality, natural disasters, epidemics] and [removed: seasonality.][added: other matters.]

[removed: While we have a quality system that covers the] lifecycle of our products, quality and safety issues may occur with respect to any of our products.

A quality or safety issue may result in adverse inspection reports, [added: voluntary or official action indicated,] warning letters, [added: import bans,] product recalls (either voluntary or required by the FDA or similar governmental authorities in other countries) or seizures, monetary sanctions, injunctions to halt manufacture and distribution of products, civil or criminal sanctions, costly litigation, refusal of a government to grant approvals and licenses, restrictions on operations or withdrawal of existing approvals and licenses.

Failure to comply with the requirements of FDA or other regulatory authorities, including a failed inspection or a failure in our adverse event reporting system, could result in adverse inspection reports, [added: voluntary or official action indicated,] warning letters, [added: import bans,] product recalls or seizures, monetary sanctions, injunctions to halt the manufacture and distribution of products, civil or criminal sanctions, refusal of a government to grant approvals or licenses, restrictions on operations or withdrawal of existing approvals and licenses.

The DOJ and the Securities and Exchange Commission have also increased their focus on the enforcement of the U.S. Foreign Corrupt Practices Act [added: (FCPA), particularly as it relates to the conduct of pharmaceutical and medical product companies.]

The laws and standards governing the promotion, sale and reimbursement of our products and those governing our relationships with healthcare providers and governments, including the Sunshine Act enacted under the Patient Protection and Affordable Care [removed: Act,] [added: Act (as amended, the PPACA),] can be complicated, are subject to frequent change and may be violated unknowingly.

From time to time, certain of our subsidiaries have limited business dealings in countries subject to these sanctions, including Iran, Sudan, Syria, [removed: Cuba,] [added: Russia] and [removed: Russia.][added: Cuba.]

If reimbursement or other payment for our current or future products is reduced or modified in the United States or abroad, including through the implementation [added: or repeal] of government-sponsored healthcare reform or other similar actions, cost containment measures, or changes to policies with respect to pricing, taxation or rebates, then our business could suffer.

These payers include Medicare, Medicaid, and private [removed: health care] [added: healthcare] insurers in the United States and foreign governments and third-party payers outside the United States.

Public and private payers are increasingly challenging the prices charged for medical products [removed: and services.]

We may continue to experience [removed: continued] downward pricing pressures from any or all of these payers which could result in an adverse effect on our business, financial condition and operational results.

[removed: For example, in the United States the Patient Protection and Affordable Care Act (PPACA), which was signed into law in March 2010,] [added: The PPACA] includes several provisions which impact our businesses in the United States, including increased Medicaid rebates and an expansion of the 340B Drug Pricing Program which provides certain qualified entities, such as hospitals serving disadvantaged populations, with discounts on the purchase of drugs for outpatient use and an excise tax on the sale of certain drugs.

Although no single company competes with us in all of our businesses, we face substantial competition in [removed: both] [added: all] of our [removed: segments] [added: markets] from international and domestic healthcare and pharmaceutical companies and providers of all sizes, and these competitors often differ across our businesses.

Our success developing products or expanding into new markets from such activities will depend on a number of factors, including our ability to find suitable opportunities for acquisition, investment or alliance; whether we are able to complete an acquisition, investment or alliance on terms that are satisfactory to us; the strength of the other company’s underlying technology, products and ability to execute its business strategies; any intellectual property and litigation related to these products or technology; and our ability to successfully integrate the acquired company, business, product, technology or research into our existing operations, including the ability to adequately fund acquired in-process [removed: research and development] [added: R&D] projects and to maintain adequate controls over the combined operations.

If we are unable to obtain sufficient components or raw materials on a timely basis or [added: for a cost-effective price or] if we experience other manufacturing or supply difficulties, our business [added: and results of operations] may be adversely affected.

The manufacture of our products [removed: requires] [added: requires, among other things,] the timely [added: supply or] delivery of sufficient amounts of quality components and materials.

We acquire our [removed: components and] [added: components,] materials [added: and other requirements for manufacturing] from many suppliers [added: and vendors] in various [removed: countries.][added: countries, including sometimes from ourselves for self-supplied requirements.]

We [removed: work] [added: endeavor, either alone or working] closely with our [removed: suppliers] [added: suppliers,] to ensure the continuity of [removed: supply] [added: our inputs and supplies] but we cannot guarantee these efforts will always be successful.

Further, while efforts are made to diversify [added: certain of] our sources of components and materials, in certain instances [removed: we acquire components and materials from] [added: there is only] a sole [removed: supplier.][added: source or supplier with no alternatives yet identified.]

For most of our components and materials for which a [removed: sole] [added: single source or] supplier is used, [removed: we believe that] alternative sources [removed: of supply exist and] [added: or suppliers may exist, but we] have made a strategic determination to use [removed: a sole] [added: the single source or] supplier.

Although we do carry strategic inventory and maintain insurance to [added: help] mitigate the potential risk related to any related supply disruption, there can be no assurance that such measures will be [added: sufficient or] effective.

A reduction or interruption in [removed: supply,] [added: supply] and an inability to [added: quickly] develop [added: acceptable] alternative sources for such supply, could adversely affect our ability to manufacture [added: and distribute] our products in a timely or cost-effective manner, and our ability to make product sales.

Loss or damage to a manufacturing facility or storage site due to a natural disaster or otherwise could adversely affect our ability to manufacture sufficient quantities of key products or otherwise deliver products to meet customer demand or contractual requirements which may result in a loss of revenue and other adverse business [removed: consequences.][added: consequences (including those identified in the paragraph above).]

Because of the time required to approve and license a manufacturing [removed: facility] [added: facility,] a third party manufacturer may not be available on a timely basis [added: (if at all)] to replace production capacity in the event we lose manufacturing capacity or products are otherwise unavailable due to natural disaster, regulatory action or otherwise.

While we have invested to protect our intellectual [removed: property] [added: property, confidential information] and other data, and continue to work diligently in this area, there can be no assurance that our precautionary measures will prevent breakdowns, breaches, cyber incidents or other events.

These risks include changes in exchange controls and other governmental actions, loss of business in government and public tenders that are held annually in many cases, increasingly complex labor environments, availability of raw materials, changes in taxation, export control restrictions, changes in or violations of U.S. or local laws, including the FCPA and the United Kingdom Bribery Act, dependence on a few government entities as customers, pricing restrictions, economic and political [added: instability, monetary or currency volatility or] instability (including [removed: instability] as it relates to the [removed: Euro] [added: U.S. dollar, the Euro, the Yuan] and currencies in [removed: certain] emerging market countries), disputes between countries, diminished or insufficient protection of intellectual property, and disruption or destruction of operations in a significant geographic region regardless of cause, including [added: natural disaster, pandemic, power loss, cyber attack, data breach,] war, terrorism, riot, [added: labor disruption,] civil insurrection or social unrest.

The 2016 referendum by British voters to exit the European Union (EU) (commonly known as Brexit) [added: and the UK government’s subsequent initiation of the withdrawal process] has created uncertainties affecting business operations in the EU.

[removed: A withdrawal] [added: Withdrawal by the UK] could result in the deterioration of economic conditions, volatility in currency exchange [removed: rates (as evidenced by the deterioration in the value of the British pound as compared to the U.S. dollar following the Brexit vote),] [added: rates,] and increased regulatory complexities.

We may experience additional volatility as a result of inflationary pressures and other macroeconomic [removed: factors] [added: factors, including] in [removed: certain] emerging market countries.

Although we believe that we transact intercompany business in accordance with arms-length principles, [removed: taxing] [added: tax] authorities may [removed: audit us from time to time,] disagree with [removed: certain positions we have taken] [added: our intercompany charges, cross-jurisdictional transfer pricing or other matters,] and [added: may] assess additional [removed: taxes.][added: taxes as a result.]

Our [added: products, devices, computer systems, servers and other] technology systems [added: (and those of third parties that we use)] are [removed: potentially] vulnerable to [removed: breakdown or] [added: breakdown, interruption, cyber and] other [removed: interruption by fire, power loss,] [added: security attacks,] system malfunction, unauthorized access and other events.

The increasing use and evolution of technology, including cloud-based computing, [added: and reliance on third parties] creates additional opportunities for the [removed: unintentional dissemination of information,] [added: unintentional,] intentional [added: and/or unauthorized exposure, dissemination and/or] destruction of confidential information stored in our [added: technology] systems, [removed: products or in non-encrypted portable media or storage devices.][added: infrastructure and products.]

We could also [removed: experience a] [added: suffer strained relationships with customers and] business [removed: interruption, information theft of confidential information,] [added: partners, increased costs (for security measures, remediation] or [removed: reputational damage] [added: otherwise), litigation (including class actions and stockholder derivative actions) or other negative consequences (including a decline in stock price)] from [removed: industrial espionage] [added: breaches, cyber and other security] attacks, [added: industrial espionage, ransomware, email or phishing scams,] malware or other cyber incidents, which may compromise our system infrastructure or lead to data leakage, either internally or at our third-party providers or other business partners.

While we have invested [removed: heavily] in the protection of data and information technology and in related training, there can be no assurance that our efforts will prevent significant breakdowns, [added: attacks,] breaches in our systems or other cyber incidents or ensure compliance with all applicable security and privacy laws, regulations and standards, including with respect to third-party service providers that utilize sensitive personal information, including [removed: PHI,] [added: protected health information (PHI),] on our behalf.

Failure to meet market demand may result in customers transitioning to available competitive products, loss of market share, negative publicity, reputational damage, loss of customer confidence or other negative consequences (including a decline in stock price).

While we have a quality system that covers the

Additionally, volatility in our costs of energy, transportation/freight, components, raw materials and other supply, manufacturing and distribution costs could adversely affect our results of operations.

Climate change (including laws or regulations passed in response thereto) could increase our costs, in particular our costs of supply, energy and transportation/freight.

Material or sustained increases in the price of oil could have an adverse impact on the cost of many of the plastic materials we use to make and package our products, as well as our transportation/freight costs.

These outcomes may in turn result in customers transitioning to available competitive products, loss of market share, negative publicity, reputational damage, loss of customer confidence or other negative consequences (including a decline in stock price).

We increasingly rely upon technology systems and infrastructure, including support provided by our partners and third parties, to support our business, our products and our customers.

For example, we routinely rely on our technology systems and infrastructure to aid us in the collection, use, storage and transfer, disclosure and other processing of voluminous amounts of data (including confidential, business, personal and other sensitive information).

We also rely on systems for manufacturing, customer orders, shipping, regulatory compliance and various other matters.

Certain of our products collect data regarding patients and their therapy and some connect to our systems for maintenance and other purposes.

Security threats, including cyber and other attacks are becoming increasingly sophisticated, frequent, and adaptive.

Any such vulnerability could compromise our technology systems and infrastructure and could expose personal and/or proprietary information (including sensitive personal information) to unauthorized third parties and/or cause permanent loss of such data.

In addition to loss of data, unauthorized access to or interference with our products that utilize cloud-based computing or otherwise send and receive data may cause product functionality issues that may result in risk to patient safety, field actions and/or product recalls.

While we have invested in the protection of data and information technology, there can be no assurance that our efforts will prevent breakdowns, breaches in our systems or other incidents or ensure compliance with all applicable security and privacy laws, regulations and standards.

Such breakdowns can lead to regulatory fines and penalties, business disruption, reputational harm, financial loss as well as other damages.

Additionally, the legal and regulatory environment surrounding information security and privacy is increasingly demanding, with the imposition of new and changing requirements across businesses.

We are required to comply with increasingly complex and changing legal and regulatory requirements that govern the collection, use, storage, security, transfer, disclosure and other processing of personal data, including The Health Insurance Portability and Accountability Act, The Health Information Technology for Economic and Clinical Health Act and the European Union’s General Data Protection Regulation (GDPR).

In May 2018, the GDPR will supersede current European Union data protection legislation, impose more stringent European Union data protection requirements, and provide for greater penalties for noncompliance.

We or our third-party providers and business partners may also be subjected to audits or investigations by one or more domestic or foreign government agencies relating to compliance with information security and privacy laws and regulations.

We also face all of the same risks listed above and other heightened risks when acquiring a company, in particular if we need to transition or implement certain processes or controls with the acquired company.

The same testing and procedures sometimes apply to

current products that are up for authorization renewal or are subject to changes in law or regulation (for example certain of our medical devices will have to comply with the new European Union Medical Device Regulation).

and services.

Certain portions of the PPACA, including Sections 2501(a), 2501(b) and 7101(a), could negatively impact the demand for our products, and therefore our results of operations and financial position.

It is uncertain what impact the current U.S. presidential administration might have on coverage, reimbursement and other matters related to the PPACA and/or healthcare reform in general, including the timing and speed of any such impact.

Changes to the tax laws in the United States or other countries in which we operate could have an adverse effect on our operating results.

In particular, the recently-enacted Tax Cuts and Jobs Act of 2017 (Tax Reform), including, among other things, certain changes in tax rates, deductibility of interest, deductibility of executive compensation expense, expensing of capital expenditures, the ability to use certain tax credits, taxation on earnings from international business operations, and the system of taxation (from worldwide to territorial) could adversely affect our financial condition and results of operations.

In certain instances, Tax Reform could have a negative effect on our tax rate and the carrying value of deferred tax balances.

Any of these changes could adversely affect our financial performance.

There remains some uncertainty regarding the implementation of such Tax Reform and its impact on us.

We cannot currently predict the full impact of Tax Reform on our business, including revenues, profit margins, profitability, operating cash flows and results of operations.

For more information regarding the company’s provisional estimate of the impact of Tax Reform, see Note 15 in Item 8 of this Annual Report on Form 10-K.

Taxing authorities may audit us from time to time and disagree with certain positions we have taken in respect of our tax liabilities.

Our tax liabilities are affected by many factors, including the amounts we charge in intercompany transactions for inventory, services, licenses, funding and other items.

We are party to a number of pending lawsuits and other disputes which may have an adverse impact on our business, operations or financial condition.

We are party to a number of pending lawsuits, settlement discussions, mediations, arbitrations and other disputes.

Our operating results and financial condition may fluctuate.

Our operating results and financial condition may fluctuate from quarter to quarter and year to year for a number of reasons.

Events such as a delay in product development, changes to our expectations or strategy or even a relatively small revenue shortfall may cause financial results for a period to be below our expectations or projections.

As a result, we believe that period-to-period comparisons of our results of operations are not necessarily meaningful, and these comparisons should not be relied upon as an indication of future performance.

Risks Related to Baxter’s Business

Failure to meet market demand may result in customers transitioning to

available competitive products resulting in a loss of market share or customer confidence.

(FCPA), particularly as it relates to the conduct of pharmaceutical and medical product companies.

Members of Congress and the Executive Branch have made statements suggesting plans to seek repeal of all or portions of the PPACA.

Because of the continued uncertainty about the implementation of the PPACA, including the potential for legal challenges or repeal of that legislation, we cannot quantify or predict the likely impact of any change in or replacement of the PPACA on our business and the demand for our products.

In very limited instances, however, we do rely upon sole supplier relationships for which no alternatives have currently been identified.

Due to the regulatory environment in which we operate, we may be unable to quickly establish additional or replacement sources for some components or materials.

The UK government is expected to initiate a process to withdraw from the EU in the coming months.

Tax policy reform continues to be a topic of discussion in the United States.

Members of the newly installed U.S. Congress, including the Speaker of the House Paul Ryan, have identified comprehensive tax reform as a priority for 2017.

A significant change to the tax system in the United States, including changes to the taxation of international income or imported product, could have an adverse effect upon our results of operations.

We increasingly rely upon technology systems and infrastructure.

Likewise, data privacy breaches by employees and others with both permitted and unauthorized access to our systems and products may pose a risk that sensitive data (including protected health information (PHI)) may be exposed to unauthorized persons or to the public, or may be permanently lost.

As our products continue to evolve, third-parties may attempt to access or obtain proprietary information from our products or systems.

Additionally, we must comply with numerous federal and state laws and regulations governing the collection, dissemination, access, use, security and PHI, including The Health Insurance Portability and Accountability Act of 1996 and its implementing privacy and security regulations.

Any such breakdown, breach, incident or failure to comply could have a material adverse effect upon our reputation, business, operations or financial condition.

We are subject to a number of pending lawsuits.

We are a defendant in a number of pending lawsuits.

diversion of our management’s time, attention and resources.

Our inability to effectively manage the separation activities and related events could adversely affect our business, financial condition or results of operations.

Baxter International Inc., through its subsidiaries, provides a broad portfolio of essential [removed: renal and hospital products,] [added: healthcare products across its portfolio,] including acute and chronic [removed: dialysis;] [added: dialysis therapies;] sterile IV solutions; infusion systems and devices; parenteral nutrition therapies; [removed: premixed and oncolytic injectables; biosurgery products and] [added: inhaled] anesthetics; [removed: drug reconstitution systems;] [added: generic injectable pharmaceuticals;] and [removed: pharmacy automation, software] [added: surgical hemostat] and [removed: services.][added: sealant products.]

As a result of the separation, the operating results of Baxalta have been reflected as discontinued operations for the years ended December 31, [added: 2017,] 2016, [removed: 2015,] and [removed: 2014.][added: 2015.]

Refer to Note [removed: 14] [added: 5] in Item 8 for additional information regarding the [removed: company’s segments.][added: acquisition of Claris.]

Baxter [removed: has] [added: had] approximately [removed: 48,000] [added: 47,000] employees and [removed: conducts] [added: conducted] business in over 100 [removed: countries.][added: countries as of December 31, 2017.]

The company [removed: generates approximately 60% of its revenues outside the United States, and maintains] [added: maintained] approximately 50 manufacturing facilities and over 100 distribution facilities in the United States, Europe, Asia-Pacific, Latin America and [removed: Canada.][added: Canada as of December 31, 2017.]

Baxter’s global net sales totaled [removed: $10.2] [added: $10.6] billion in [removed: 2016,] [added: 2017,] an increase of [removed: 2%] [added: 4%] over [removed: 2015, including an unfavorable foreign] [added: 2016 on a reported and constant] currency [removed: impact of two percentage points.][added: basis.]

Sales in the United States totaled [removed: $4.3] [added: $4.5] billion in [removed: 2016,] [added: 2017,] an increase of 6% compared to [removed: 2015.][added: 2016.]

Baxter’s income from continuing operations for [removed: 2016] [added: 2017] totaled [removed: $5.0 billion] [added: $724 million] or [removed: $9.01] [added: $1.30] per diluted share, compared to [removed: $393] [added: $4,966] million, or [removed: $0.72] [added: $9.01] per diluted share, in the prior year.

Income from continuing operations in [removed: 2015] [added: 2017] included special items which resulted in a net [removed: reduction] [added: decrease] to income from continuing operations of [removed: $362] [added: $652] million, or [removed: $0.66] [added: $1.18] per diluted share.

Baxter’s financial results included R&D expenses totaling [removed: $647] [added: $617] million in [removed: 2016,] [added: 2017,] which reflects the company’s focus on balancing increased investments to support the company’s new product pipeline with efforts to optimize overall R&D spending through continuous evaluation of the portfolio.

The company’s financial position remains strong, with operating cash flows from continuing operations totaling [removed: $1.6] [added: $1.9] billion in [removed: 2016.][added: 2017.]

The company has continued to execute on its disciplined capital allocation framework, which is designed to optimize stockholder value creation through reinvestment in the businesses, dividends and [removed: targeted] share repurchases, as well as acquisitions and other business development initiatives as discussed in the Strategic Objectives section below.

Capital investments totaled [removed: $719] [added: $634] million in [removed: 2016] [added: 2017] as the company continues to invest across its businesses to support future growth, including additional investments in support of new and existing product capacity expansions.

The company’s investments in capital expenditures in [removed: 2016] [added: 2017] were focused on projects that improve production efficiency and enhance manufacturing capabilities to support its strategy of geographic expansion with select investments in growing markets.

During [removed: 2016,] [added: 2017,] the company paid cash dividends to its shareholders totaling [removed: $268] [added: $315] million.

Additionally, [removed: in 2016] [added: income from continuing operations per diluted share was positively impacted by] the [removed: company repurchased] [added: repurchase of] 17.8 million shares through cash repurchases and an equity-for-equity exchange of Retained Shares for outstanding Baxter [removed: shares.][added: shares in 2016, and the repurchase of 9.2 million shares in 2017 through Rule 10b5-1 purchase plans and otherwise.]

[removed: While] Baxter [removed: has made an initial assignment of each of its product categories to one of the business groupings described above, Baxter] continues to evaluate each product category’s placement in light of shifting market dynamics and company priorities and may reassign a product category into a different business grouping from time to time.

Baxter is in the midst of launching more than [removed: 100 products] [added: 200 new products, geographic expansions and line extensions] by 2020 [added: including] in such areas as chronic and acute renal care; smart pump technology; hospital pharmaceuticals and nutritionals; surgical sealants, and more.

As part of its pursuit of improved margin performance, Baxter is working to optimize its cost [removed: structure, consistent with its emergence as a stand-alone medical products company] [added: structure] and as such is critically assessing optimal support levels in light of the company’s ongoing portfolio optimization efforts.

| | • | [removed: targeted] share repurchases; and |

Throughout [removed: 2016] [added: 2017] the company continued to implement a range of water conservation strategies and facility-based energy saving initiatives.

The following table provides a summary of the company’s special items and the related impact by line item on the company’s results of continuing operations for [removed: 2016, 2015] [added: 2017, 2016] and [removed: 2014.][added: 2015.]

| years ended December 31 (in millions) | | [removed: 2016] [added: 2017] | | | | [removed: 2015] [added: 2016] | | | | [removed: 2014] [added: 2015] | | |

| Intangible asset amortization expense | | $ | [removed: (163] [added: (154] | ) | | $ | [removed: (158] [added: (163] | ) | | $ | [removed: (168] [added: (158] | ) |

| Business optimization items1 | | | [removed: (156] [added: (53] | ) | | | [removed: (38] [added: (156] | ) | | | [removed: 11] [added: (38] | [added: )] |

| Intangible asset impairment2 | | | [removed: (51] [added: —] | [removed: )] | | | [removed: —] [added: (51] | [added: )] | | | — | |

| Separation-related costs3 | | | (1 | ) | | | [removed: —] [added: (1] | [added: )] | | | — | |

| Product-related items4 | | | [removed: 18] [added: (17] | [added: )] | | | [removed: 28] [added: 18] | | | | [removed: (64] [added: 28] | [removed: )] |

| Total Special Items | | $ | [removed: (353] [added: (265] | ) | | $ | [removed: (168] [added: (353] | ) | | $ | [removed: (221] [added: (168] | ) |

| Impact on Gross Margin Ratio | | [removed: (3.5] [added: (2.6] pts) | | | | [removed: (1.7] [added: (3.5] pts) | | | | [removed: (2.1] [added: (1.7] pts) | | |

| Business optimization items1 | | $ | [removed: 173] [added: 116] | | | $ | [removed: 152] [added: 173] | | | $ | [removed: 115] [added: 152] | |

| Separation-related costs3 | | | [removed: 53] [added: 18] | | | | [removed: 110] [added: 53] | | | | [removed: 11] [added: 110] | |

| Total Special Items | | $ | [removed: 226] [added: 163] | | | $ | [removed: 262] [added: 226] | | | $ | [removed: 133] [added: 262] | |

| Impact on Marketing and Administrative Expense Ratio | | [removed: 2.3] [added: 1.5] pts | | | | [removed: 2.6] [added: 2.3] pts | | | | [removed: 1.2] [added: 2.6] pts | | |

| Business optimization items1 | | $ | [removed: 80] [added: —] | | | $ | [removed: 13] [added: 80] | | | $ | [removed: 2] [added: 13] | |

| Separation-related costs3 | | | — | | | | [removed: 1] [added: —] | | | | [removed: —] [added: 1] | |

| Total Special Items | | $ | [removed: 80] [added: —] | | | $ | [removed: 14] [added: 80] | | | $ | [removed: 2] [added: 14] | |

| Other [removed: (Income) Expense,] [added: Income,] Net | | | | | | | | | | | | |

| Business optimization items1 | | $ | — | | | $ | [removed: (3] [added: —] | [removed: )] | | $ | [removed: 25] [added: (3] | [added: )] |

| Net realized gains on Retained Shares [removed: transactions6] [added: transactions⁵] | | | [removed: (4,391] [added: —] | [removed: )] | | | [removed: —] [added: (4,391] | [added: )] | | | — | |

Acquisition of Claris Injectables Limited

On July 27, 2017, Baxter acquired 100 percent of Claris Injectables Limited (Claris), a wholly owned subsidiary of Claris Lifesciences Limited, for total cash consideration of approximately $629 million, net of cash acquired.

Through the acquisition, Baxter added capabilities in production of essential generic injectable medicines, such as anesthesia and analgesics, renal, anti-infectives and critical care in a variety of presentations including bags, vials and ampoules.

Pending Acquisition of Recothrom and Preveleak

In January 2018, Baxter agreed to acquire two hemostat and sealant products from Mallinckrodt plc: RECOTHROM Thrombin topical

(Recombinant), the first and only stand-alone recombinant thrombin, and PREVELEAK Surgical Sealant, which is used in vascular

reconstruction.

The purchase price includes an upfront payment of approximately $153 million and potential contingent payments in

the future.

The transaction is expected to close in the first half of 2018, subject to the satisfaction of regulatory approvals and other closing conditions.

Total sales of both products approximated $56 million during the twelve months ended September 29, 2017.

In 2017, Baxter announced a change in its commercial structure to improve performance, optimize costs, increase speed in the decision-making process and drive improved accountability across the company.

As a result, the company now reports its financial performance based on its new segments: Americas (North and South America), EMEA (Europe, Middle East and Africa) and APAC (Asia-Pacific).

For financial information about Baxter’s segments, see Note 17 in Item 8 of this Annual Report on Form 10-K.

In 2017, the company generated approximately 60% of its revenues outside the United States.

International sales totaled $6.1 billion in 2017, an increase of 2% compared to 2016 on a reported and constant currency basis.

Additionally, in 2017 the company repurchased 9.2 million shares through cash repurchases pursuant to Rule 10b5-1 repurchase plans and otherwise.

| Claris acquisition and integration expenses¹⁰ | | | (8 | ) | | | — | | | | — | |

| Hurricane Maria costs¹¹ | | | (32 | ) | | | — | | | | — | |

| Claris acquisition and integration expenses¹⁰ | | | 20 | | | | — | | | | — | |

| Historical reserve adjustments¹² | | | (12 | ) | | | — | | | | — | |

| Litigation and contractual disputes¹⁴ | | | 21 | | | | — | | | | — | |

| Tax matter⁹ | | | — | | | | 9 | | | | — | |

| Venezuela deconsolidation¹³ | | | 33 | | | | — | | | | — | |

| 10 | The company’s results in 2017 include acquisition and integration costs of $28 million related to the company’s acquisition of Claris. |

| 11 | The company’s results in 2017 included a charge of $32 million related to the impact of Hurricane Maria on the company’s operations in Puerto Rico. The costs primarily include inventory and fixed asset impairments as well as idle facility costs. |

| 12 | The company's results in 2017 included a benefit of $12 million related to an adjustment to the company's historical rebates and discounts reserve. |

| 13 | The company’s results in 2017 included a charge of $33 million related to the deconsolidation of its Venezuelan operations. |

| 14 | The company’s results in 2017 included charges of $21 million related to litigation and contractual disputes for businesses or arrangements in which the company is no longer engaged or a party thereto. |

Changes in foreign currency exchange rates had no net impact on net sales during 2017 compared to the prior year.

During 2016, the company made a strategic decision to exit select products in certain markets including Venezuela, India and Turkey.

Overall, these items had a negative impact to the company’s net sales growth rate of one percentage point during 2017.

In addition, the impact of generic competition for U.S. cyclophosphamide had a negative impact on net sales of $25 million in 2017 compared to 2016.

The company expects net sales of U.S. cyclophosphamide to decrease by approximately $90 million in 2018 due to the entrance of additional competitors.

On July 27, 2017, the company completed the acquisition of Claris, a wholly owned subsidiary of Claris Lifesciences Limited, for total cash consideration of $629 million, net of cash acquired.

In 2017, consolidated results include $57 million of net sales related to the Claris acquisition.

In September 2017, the company’s three Puerto Rico manufacturing facilities sustained minimal structural damage from the impact of Hurricane Maria.

Notwithstanding intermittent and continuing challenges with local infrastructure, limited production activities resumed soon thereafter and the company is currently back to pre-hurricane production levels at these facilities.

Given the disruptions to the company’s manufacturing facilities as a result of the storm, the company’s net sales in the fourth quarter of 2017 were negatively impacted by approximately $70 million.

The company currently expects these disruptions to negatively impact net sales in the first quarter of 2018 by approximately $25 million.

Baxter operates under two reportable segments, Hospital Products and Renal.

The segments and a description of their products and services are as follows:

The Hospital Products business manufactures sterile intravenous (IV) solutions and administration sets, premixed drugs and drug-reconstitution systems, pre-filled vials and syringes for injectable drugs, parenteral nutrition therapies, infusion pumps, inhalation anesthetics, and biosurgery products.

The business also provides products and services related to pharmacy compounding, and drug formulation; sterile IV solutions; infusion systems and devices; parenteral nutrition therapies; premixed and oncolytic injectables; biosurgery products and anesthetics; drug reconstitution systems; and pharmacy automation, software and services.

The Renal business offers a comprehensive portfolio to meet the needs of patients with end-stage renal disease, or irreversible kidney disease and acute kidney injuries, including technologies and therapies for peritoneal dialysis (PD), hemodialysis (HD), continuous renal replacement therapy (CRRT) and additional dialysis services.

International sales totaled $5.9 billion in 2016, a decrease of 1% compared to 2015, including an unfavorable foreign currency impact of four percentage points.

| Product-related items4 | | | — | | | | — | | | | 4 | |

| Branded Prescription Drug Fee5 | | | — | | | | — | | | | 3 | |

| Tax matter10 | | | 9 | | | | — | | | | — | |

| | restructuring charges included net $180 million of employee termination costs, $54 million of costs related to the discontinuance of the VIVIA home hemodialysis development program, $47 million of asset impairment charges related to acquired in-process R&D and facility closure costs and $4 million of other exit costs. The company’s results in 2015 included a net charge of $127 million related to restructuring activities and $73 million of Gambro integration costs. The $127 million of net restructuring charges included net $91 million of employee termination costs, a $20 million intangible asset impairment and $16 million of other asset impairments and other exit costs. The company’s results in 2014 included $144 million of Gambro integration costs and a net benefit of $13 million from adjustments for reserves that are no longer probable of being utilized. Refer to Note 7 in Item 8 for further information regarding these charges and related reserves. |

| 5 | The company’s results in 2014 included a charge of $3 million to account for an additional year of the Branded Prescription Drug Fee in accordance with final regulations issued in the third quarter of 2014 by the Internal Revenue Service. |

| | | | | | | | | | | | | | | Percent change | | | | | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| | | | | | | | | | | | | | | At actual currency rates | | | | | | | | At constant currency rates | | | | | | |

| Renal | | $ | 3,855 | | | $ | 3,789 | | | $ | 4,172 | | | | 2 | % | | | (9 | )% | | | 5 | % | | | 1 | % |

| Hospital Products | | | 6,308 | | | | 6,179 | | | | 6,547 | | | | 2 | % | | | (6 | )% | | | 4 | % | | | 1 | % |

Foreign currency unfavorably impacted net sales by eight percentage points during 2015 compared to 2014 principally due to the strengthening of the U.S. Dollar relative to the Euro, Australian Dollar, Colombian Peso, and certain other currencies.

The Hospital Products segment includes four commercial franchises: Fluid Systems, Integrated Pharmacy Solutions, Surgical Care and Other.

| Total Renal net sales | | $ | 3,855 | | | $ | 3,789 | | | $ | 4,172 | | | | 2 | % | | | (9 | )% | | | 5 | % | | | 1 | % |

| Fluid Systems | | $ | 2,300 | | | $ | 2,106 | | | $ | 2,129 | | | | 9 | % | | | (1 | )% | | | 11 | % | | | 6 | % |

| Integrated Pharmacy Solutions | | | 2,245 | | | | 2,297 | | | | 2,535 | | | | (2 | )% | | | (9 | )% | | | 0 | % | | | (2 | )% |

| Surgical Care | | | 1,321 | | | | 1,323 | | | | 1,373 | | | | 0 | % | | | (4 | )% | | | 1 | % | | | 3 | % |

| Other | | | 442 | | | | 453 | | | | 510 | | | | (2 | )% | | | (11 | )% | | | (2 | )% | | | (5 | )% |

| Total Hospital Products net sales | | $ | 6,308 | | | $ | 6,179 | | | $ | 6,547 | | | | 2 | % | | | (6 | )% | | | 4 | % | | | 1 | % |

Net sales in the Renal segment increased 2% in 2016 from 2015 but decreased 9% in 2015 from 2014.

These amounts include an unfavorable foreign currency impact of three percentage points in 2016 and 10 percentage points in 2015.

PD contributed approximately two percentage points to the growth rate during 2016.

In addition, increased sales of the company’s CRRT to treat acute kidney injury contributed two percentage points to the growth rate during 2016.

Sales increased 1% on a constant currency basis in 2015, driven by continued growth in the number of PD patients globally, which contributed approximately three percentage points, and strong demand in the acute business.

Net sales in the Hospital Products segment increased 2% in 2016 and decreased 6% in 2015.

Foreign currencies had an unfavorable impact of two percentage points in 2016 and seven percentage points in 2015.

| | • | In the Fluid Systems franchise, sales increased 11% in 2016 on a constant currency basis driven by favorable pricing and volume for IV solutions and increased sales of the SIGMA SPECTRUM pump and the related sets in the United States. Sales increased 6% in 2015 on a constant currency basis driven by increased sales of infusion system products, which contributed approximately four percentage points, including the relaunch of the SIGMA Spectrum infusion pump in the United States, Puerto Rico, and Canada during 2015. Additionally, sales growth in 2015 was impacted by favorable pricing and volume in the United States for the company’s IV therapies, which contributed approximately one percentage point. |

| | • | In the Integrated Pharmacy Solutions franchise, sales were flat in 2016 on a constant currency basis driven by global demand for the company’s nutritional therapies, contributing approximately one percentage point during 2016 and demand for the company’s international pharmacy compounding services which contributed approximately one percentage point during 2016. These increases were offset by lower U.S. sales of the company’s pharmacy injectable products, as there were government PROTOPAM orders in 2015 that did not reoccur in 2016, contributing approximately one percentage point of decline. In addition, U.S. sales of cyclophosphamide, a generic oncology drug, were approximately $210 million and $270 million in 2016 and 2015, respectively, which contributed an approximate three percentage point of decline in 2016. The company expects a significant decline in U.S sales for cyclophosphamide in 2017 due to additional competition in the market. Sales decreased 2% in 2015 on a constant currency basis driven by decreased sales of cyclophosphamide, following a competitor entering the U.S. market in November 2014 which contributed approximately six percentage points. U.S. sales of cyclophosphamide during 2014 were approximately $450 million. This decline was offset by an increase in revenues from pharmacy compounding services, increased demand for the company’s nutritional therapies, and pharmacy injectable products, including approximately $40 million in sales of PROTOPAM, which contributed two percentage points. |

| | • | In the Surgical Care franchise, sales increased 1% in 2016 on a constant currency basis driven by increased demand for international anesthesia products. Sales increased 3% in 2015 on a constant currency basis driven by strong global demand for the company’s portfolio of anesthetics products, which contributed three percentage points, offset partially by lower sales of select non-core biosurgery products. |

| | • | In the Other franchise, sales decreased 2% in 2016 on a constant currency basis compared to 2015 driven by lower demand for products manufactured by Baxter on behalf of one of its pharmaceutical partners. The company also recognized revenue of $39 million in 2016 as compared to $37 million in 2015 related to the company’s manufacturing and supply agreement with Baxalta. Sales decreased 5% in 2015 on a constant currency basis compared to 2014 driven by one of the company’s pharmaceutical partners electing to self-manufacture products previously contract manufactured by Baxter. This loss of revenue was partially offset by increased sales related to the company’s manufacturing and supply agreement with Baxalta. |

Excluding the impact of the special items, the gross margin ratio in 2015 was unfavorably impacted by decreased sales of cyclophosphamide in the United States, partially offset by an improved product mix in the Renal segment.

Excluding the impact of the special items, the marketing and administrative expense ratio in 2015 was impacted by the benefits from the company’s business optimization actions as the company resets its cost structure, reduced its discretionary spending, and benefited from certain costs charged to Baxalta under the transition services agreement.

These benefits were partially offset by increased bad debt expense in emerging markets.

The company expects that approximately 10 percent of the charges will be non-cash.

The company estimates that the actions taken through December 31, 2016, have resulted in approximately $8 million of savings in the current period.

Baxter International Inc., through its subsidiaries, provides a broad portfolio of essential [removed: renal and hospital products,] [added: healthcare products across its portfolio,] including acute and chronic [removed: dialysis;] [added: dialysis therapies;] sterile [removed: IV] [added: intravenous (IV)] solutions; infusion systems and devices; parenteral nutrition therapies; [removed: premixed and oncolytic injectables; biosurgery products and] [added: inhaled] anesthetics; [removed: drug reconstitution systems;] [added: generic injectable pharmaceuticals;] and [removed: pharmacy automation, software] [added: surgical hemostat] and [removed: services.][added: sealant products.]

As of December 31, [removed: 2016,] [added: 2017,] Baxter manufactured products in over 20 countries and [removed: sells] [added: sold] them in over 100 countries.

As a result of the distribution, Baxalta became an independent public [removed: company trading under the symbol “BXLT” on the New York Stock Exchange.][added: company.]

Separation of the remaining three countries [removed: is expected to occur by 2018.][added: has occurred as of December 31, 2017.]

For financial information about Baxter’s segments [removed: and sales franchises,] [added: (which includes recast information for earlier periods),] see Note 17 in Item 8 of this Annual Report on Form 10-K.

[removed: International sales] [added: Sales] are made and products are distributed on a direct basis or through independent distributors or sales agents in more than 100 countries as of December 31, [removed: 2016.][added: 2017.]

In connection with the separation and [removed: distribution,] [added: distribution of Baxalta,] Baxter entered into a long-term manufacturing and supply agreement with Baxalta.

Baxter’s [removed: Hospital Products and Renal] businesses benefit from a number of competitive advantages, including the breadth and depth of their product offerings, as well as strong relationships with customers, including hospitals and clinics, group purchasing organizations, physicians, and patients, many who self-administer the home-based therapies supplied by Baxter.

[removed: In Europe and Latin America, for example, the government provides healthcare at low cost to] patients, and controls its expenditures by purchasing products through public tenders, collective purchasing, regulating prices, setting reference prices in public tenders or limiting reimbursement or patient access to certain products.

Baxter’s investment in research and development (R&D), consistent with the company’s portfolio optimization and capital allocation strategies, helps fuel its future growth and its ability to remain competitive in each of its [removed: business segments.][added: product categories.]

Expenditures for Baxter’s R&D activities were [removed: $647] [added: $617] million in [removed: 2016, $603] [added: 2017, $647] million in [removed: 2015] [added: 2016,] and [removed: $610] [added: $603] million in [removed: 2014.][added: 2015.]

[added: These expenditures include costs] associated with R&D activities performed at the company’s R&D centers located around the world, which include facilities in Belgium, Sweden, Italy, Germany, China, Japan and the United States, as well as in-licensing, milestone and reimbursement payments made to partners for R&D work performed at non-Baxter locations.

For more information on corrective actions taken by Baxter, refer to the discussion under the caption entitled “Certain Regulatory Matters” in Item 7 of this Annual Report on Form [removed: 10-K.][added: ‑10-K.]

As of December 31, [removed: 2016,] [added: 2017,] Baxter employed approximately [removed: 48,000] [added: 47,000] people.

In 2017, Baxter added capabilities in the production of essential generic injectable medicines with the acquisition of Claris Injectables Limited (Claris).

In 2017, Baxter announced a change in its commercial structure to improve performance, optimize costs, increase speed in the decision-making process and drive improved accountability across the company.

As a result, the company now reports its financial performance based on its new segments: Americas (North and South America), EMEA (Europe, Middle East and Africa) and APAC (Asia-Pacific).

Each of the company’s segments provide a broad portfolio of essential healthcare products across its portfolio, 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.

In Europe and Latin America, for example, the government provides healthcare at low cost to

The company operates in two segments: Hospital Products and Renal.

The Hospital Products business manufactures sterile intravenous (IV) solutions and administration sets, premixed drugs and drug-reconstitution systems, pre-filled vials and syringes for injectable drugs, IV nutrition products, parenteral nutrition therapies, infusion pumps, inhalation anesthetics, and biosurgery products.

The business also provides products and services related to pharmacy compounding, and drug formulation; sterile IV solutions; infusion systems and devices; parenteral nutrition therapies; premixed and oncolytic injectables; biosurgery products and anesthetics; drug reconstitution systems; and pharmacy automation, software and services.

The Renal business offers a comprehensive portfolio to meet the needs of patients with end-stage renal disease, or irreversible kidney disease and acute kidney injuries, including technologies and therapies for peritoneal dialysis (PD), hemodialysis (HD), continuous renal replacement therapy (CRRT) and additional dialysis services.

These expenditures include costs

10-K 1 [removed: bax-10k_20161231.htm] [added: bax-10k_20171231.htm] 10-K

For the fiscal year ended December 31, [removed: 2016][added: 2017]

[removed: ][added: ]

The aggregate market value of the voting common equity held by non-affiliates of the registrant as of June 30, [removed: 2016] [added: 2017] (the last business day of the registrant’s most recently completed second fiscal quarter), based on the per share closing sale price of [removed: $45.22] [added: $60.54] on that date and the assumption for the purpose of this computation only that all of the registrant’s directors and executive officers are affiliates, was approximately [removed: $24] [added: $33] billion.

The number of shares of the registrant’s common stock, $1.00 par value, outstanding as of January 31, [removed: 2017] [added: 2018] was [removed: 540,082,230.][added: 540,138,815.]

Portions of the registrant’s definitive [removed: 2017] [added: 2018] proxy statement for use in connection with its Annual Meeting of Stockholders to be held on May [removed: 2, 2017] [added: 8, 2018] are incorporated by reference into Part III of this report.

| Item 1B. | | [Unresolved Staff Comments](#ITEM_1B_UNRESOLVED_STAFF_COMMENTS) | | [removed: 12] [added: 13] |

| Item 2. | | [Properties](#ITEM_2_PROPERTIES) | | [removed: 13] [added: 14] |

| Item 3. | | [Legal Proceedings](#ITEM_3_LEGAL_PROCEEDINGS) | | [removed: 14] [added: 15] |

| Item 4. | | [Mine Safety Disclosures](#ITEM_4_MINE_SAFETY_DISCLOSURES) | | [removed: 14] [added: 15] |

| Item 5. | | [Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](#ITEM_5_MARKET_FOR_REGISTRANTS_COMMON_EQU) | | [removed: 16] [added: 17] |

| Item 6. | | [Selected Financial Data](#ITEM_6_SELECTED_FINANCIAL_DATA) | | [removed: 17] [added: 18] |

| Item 7. | | [Management’s Discussion and Analysis of Financial Condition and Results of Operations](#ITEM_7_MANAGEMENTS_DISCUSSION_ANALYSIS_F) | | [removed: 18] [added: 20] |

| Item 7A. | | [Quantitative and Qualitative Disclosures About Market Risk](#ITEM_7A_QUANTITATIVE_QUALITATIVE_DISCLOS) | | [removed: 39] [added: 42] |

| Item 8. | | [Financial Statements and Supplementary Data](#ITEM_8_FINANCIAL_STATEMENTS_SUPPLEMENTAR) | | [removed: 40] [added: 43] |

| Item 9. | | [Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](#ITEM_9_CHANGES_IN_DISAGREEMENTS_WITH_ACC) | | [removed: 88] [added: 93] |

| Item 9A. | | [Controls and Procedures](#ITEM_9A_CONTROLS_PROCEDURES) | | [removed: 88] [added: 93] |

| Item 9B. | | [Other Information](#ITEM_9B_OR_INFORMATION) | | [removed: 88] [added: 94] |

| Item 10. | | [Directors, Executive Officers and Corporate Governance](#ITEM_10_DIRECTORS_EXECUTIVE_FICERS_CORPO) | | [removed: 89] [added: 95] |

| Item 11. | | [Executive Compensation](#ITEM_11_EXECUTIVE_COMPENSATION) | | [removed: 89] [added: 95] |

| Item 12. | | [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](#ITEM_12_SECURITY_OWNERSHIP_CERTAIN_BENEF) | | [removed: 89] [added: 95] |

| Item 13. | | [Certain Relationships and Related Transactions, and Director Independence](#ITEM_13_CERTAIN_RELATIONSHIPS_RELATED_TR) | | [removed: 90] [added: 96] |

| Item 14. | | [Principal Accountant Fees and Services](#ITEM_14_PRINCIPAL_ACCOUNTANT_FEES_SERVIC) | | [removed: 90] [added: 96] |

| Item 15. | | [Exhibits and Financial Statement Schedules](#ITEM_15_EXHIBITS_FINANCIAL_STATEMENT_SCH) | | [removed: 91] [added: 97] |

| 1.3% Senior Notes due 2025 | | New York Stock Exchange |

| 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.

| | | | | |

| Item 16. | | [Form 10-K Summary](#ITEM_16_FORM_10K_SUMMARY) | | 98 |

| | | | | |

There is no non-voting common equity held by non-affiliates of the registrant.

The company’s principal manufacturing facilities by [removed: segment] [added: geographic location] are listed below:

| [removed: Business] [added: Region] | | Location | | Owned/Leased |

| | | Toongabbie, Australia | | [removed: Owned] [added: Leased] |

| | | [removed: Grosotta,] [added: Grosotto,] Italy | | Owned |

| | | PESA, Mexico | | [removed: Owned] [added: Leased] |

| | | Canlubang, [removed: Philippines] [added: Phillipines] | | Leased |

[removed: Internationally, we have more than 100 shared distribution facilities located in Argentina, Australia, Benelux, Brazil, Brunei, Canada, Chile, China, Colombia, Costa Rica, the Czech Republic, Ecuador, France, Germany,] Greece, Guatemala, Hong Kong, India, Ireland, Italy, Japan, Korea, Mexico, New Zealand, Panama, the Philippines, Poland, Portugal, Russia, Singapore, Spain, Sweden, Switzerland, Thailand, Turkey, the United Arab Emirates, the United [removed: Kingdom] [added: Kingdom,] and Venezuela.

| Americas | | | | |

| APAC | | | | |

| EMEA | | | | |

| | | Swinford, Ireland | | Owned |

Internationally, we have more than 100 shared distribution facilities located in Argentina, Australia, Austria, Benelux, Brazil, Canada, Chile, China, Colombia, Costa Rica, the Czech Republic, Ecuador, France, Germany,

| Hospital Products | | | | |

| | | Englewood, Colorado | | Leased |

| Renal | | | | |

| | | Prerov, Czech Republic | | Leased |

| Shared (Hospital Products and Renal) | | | | |

| | | Manesar, India | | Owned |

| | | Lublin, Poland | | Owned/Leased(1) |

As of February 23, [removed: 2017,] [added: 2018,] the following serve as Baxter’s executive officers:

Almeida, age [removed: 54,] [added: 55,] is [removed: Chairman] [added: Chairman, President] and Chief Executive Officer, having served in that capacity since January 2016.

[removed: Previously, he] [added: He] served as [removed: an operating executive to the Carlye] [added: Senior Advisor with The Carlyle] Group [removed: L.P.] from May 2015 until October 2015.

Previously, he served as the Chairman, President and Chief Executive Officer of Covidien plc (Covidien) from March 2012 to January 2015, prior to Medtronic plc’s [added: (Medtronic)] acquisition of Covidien, and President and Chief Executive Officer of Covidien from July 2011 to March 2012.

Mr. Almeida served in other executive roles with Covidien (formerly Tyco [removed: Healthcare)] [added: Healthcare (Tyco))] between April 2004 and June 2011.

Giuseppe Accogli, age [removed: 46,] [added: 47,] is [removed: Corporate] [added: Senior] Vice President and President, [removed: Renal.][added: Global Businesses.]

Mr. Accogli joined [removed: the company] [added: Baxter] in 2007 as [removed: renal] [added: Renal] business unit [removed: director] [added: Director] in Italy, and assumed positions of increasing responsibility with the Renal business in Europe, including [removed: head] [added: Head] of the EMEA region for [removed: renal] [added: Renal] from 2013 to 2015.

Eyre, age [removed: 53,] [added: 54,] is [removed: Corporate] [added: Senior] Vice President and President, [removed: Hospital Products.][added: Americas.]

Mr. Eyre joined the company in 2008 as [removed: general manager] [added: General Manager] for BioPharma Solutions, Baxter’s [added: global] manufacturing and contract services business.

He later served as [removed: general manager] [added: General Manager] for our U.S. [removed: medication delivery] [added: Medication Delivery] business and [removed: most recently] [added: then] he [removed: was] [added: served as] Corporate Vice President and [removed: President,] [added: President of] Renal.

Mason, Ph.D., age [removed: 61,] [added: 62,] is [removed: Corporate] [added: Senior] Vice President, Human Resources.

[removed: Prior to joining] [added: Ms. Mason joined] Baxter in [removed: May 2006, Dr. Mason was with General Electric] [added: 2006] from [removed: 1988, holding various leadership positions, the most recent of which was with] GE Insurance [removed: Solutions] [added: Solutions, a primary insurance and reinsurance business,] where she was responsible for global human resource functions.

Scott Pleau, age [removed: 51,] [added: 52,] is [removed: Corporate] [added: Senior] Vice President, Operations.

Mr. Saccaro was Senior Vice President and Chief Financial Officer at Hill-Rom Corporation [removed: from December 2013 to July 2014] prior to rejoining Baxter in [removed: July 2014 as Special Advisor to the Chief Executive Officer.][added: 2014.]

He originally joined the company in 2002 as [removed: manager] [added: Manager] of [removed: strategy] [added: Strategy] for the company’s [removed: former] BioScience business, and [removed: from there moved onto] [added: over the years assumed] positions of increasing responsibility, including Vice President of [added: Financial Planning, Vice President of Finance for the company’s operations in Europe, the Middle East and Africa and Corporate Vice President and Treasurer.]

[removed: Prior to Baxter, he] [added: He previously] held strategy and business development positions at Clear Channel Communications and the Walt Disney Company.

[removed: Marcus Schabacker, M.D., Ph.D.,] [added: Saccaro,] age [removed: 53,] [added: 45,] is [removed: Corporate] [added: Executive] Vice President and Chief [removed: Scientific] [added: Financial] Officer.

He began serving as an executive officer of the company in October 2015.

Mr. Almeida is a member of the Board of Directors of Walgreens Boots Alliance, Inc.

Prior to his current role, Mr. Accogli served as Corporate Vice President and President, Renal from 2016 to 2017 and as Head of the U.S. region for Baxter’s Renal business from 2015 to 2016.

Previously he worked as a Business Unit Manager and Sales and Marketing Manager for Medtronic (Italy) and in several sales, product and marketing roles for Tyco and then Covidien in Italy and EMEA.

Prior to his current role, Mr. Eyre served as Corporate Vice President and President, Hospital Products from 2015 to 2017.

Cristiano Franzi, age 55, is Senior Vice President and President, EMEA.

Mr. Franzi joined Baxter in 2017 from Medtronic, where he served as Vice President and President, Minimally Invasive Therapies Group EMEA from 2015 to 2017.

He served as President EMEA at Covidien prior to Medtronic’s acquisition of Covidien.

He joined Covidien in 2009 and held roles of increasing responsibility during his tenure.

He held a number of commercial and functional roles across Europe, the Middle East and Africa at ev3 Endovascular, Inc., Boston Scientific Corporation and Becton, Dickinson & Co. earlier in his career.

Andrew Frye, age 52, is Senior Vice President and President, APAC.

Mr. Frye joined Baxter in 2017 from DKSH Holdings Ltd., where he served as Global Head of Healthcare from 2015 to 2017.

In that role, he oversaw a portfolio of pharmaceuticals, over-the-counter and device products across 13 countries.

Previously, he served as Vice President of Business Development from 2011 to 2014 for DKSH Healthcare.

Earlier in his career, he held a number of commercial roles with increasing responsibility at Abbott Laboratories’ Pharmaceutical and Nutrition divisions.

Sean Martin, age 55, is Senior Vice President and General Counsel.

Mr. Martin joined Baxter in 2017 from Apollo Education Group, Inc., where he served as Senior Vice President, General Counsel and Secretary from 2010 to 2017.

Previously, he served as Assistant Secretary (2010), Vice President of Corporate Law (2009 to 2010) and Vice President of Commercial Law (2005 to 2009) for Amgen Inc. He also served as Vice President and Deputy General Counsel at Fresenius Medical Care North America from 2000 to 2005.

Mr.

Martin was a Partner at the law firm Foley & Lardner LLP from 1998 to 2000 and served eight years as Assistant U.S. Attorney for the Northern District of Illinois.

Ms. Mason began her career with General Electric (GE) in 1988 after serving with the U.S. General Accounting Office in Washington, D.C. Her GE experience included leadership roles in Europe for GE Information Services and GE Capital Real Estate.

Mr. Pleau joined Baxter in 2016 from Medtronic, where he served as Vice President of Global Operations.

Previously he held key operations positions of increasing responsibility across multiple businesses at Covidien beginning in 1995, most recently as Vice President, Operations, prior to Medtronic’s 2015 acquisition of Covidien.

Between October 2015 and January 2016, Mr. Almeida served as an executive officer of the company.

Prior to joining Baxter, he served as business unit manager and sales and marketing manager for Medtronic, Inc. (Italy) from 2004 to 2007.

From 1996 to 2004, he held a series of positions in Europe with Tyco Healthcare – Covidien Ltd., including marketing director and group product director.

Prior to joining Baxter in June 2016, Mr. Pleau served as vice president of operations for medical devices at Medtronic plc from 2015 to 2016, and at Covidien from 2013 to 2015, prior to Medtronic plc’s acquisition of Covidien.

From 1995 to 2013, he held several key operations positions at Covidien, including vice president of operations, surgical solutions; vice president of operations, vascular therapies & medical supplies; vice president of engineering; and director of operational quality.

Saccaro, age 44, is Corporate Vice President and Chief Financial Officer and has served in that capacity since June 2015.

Prior to that, Mr. Saccaro served as Corporate Vice President and Treasurer of Baxter from 2011 to 2013.

Financial Planning and Vice President of Finance for the company’s operations in Europe, Middle East and Africa.

Dr. Schabacker joined the company in 2011.

Prior to his current role, Dr. Schabacker served as Vice President, R&D, Medical Products.

Dr. Schabacker held the position of Senior Vice President and Chief Scientific Officer at ConvaTec, Inc. before joining the company.

His previous roles include Corporate Vice President R&D at B.

Braun Medical and Senior Medical Officer at Mafikeng General Hospital, South Africa.

David P.

Scharf, age 49, is Corporate Vice President and General Counsel, having served in this capacity since August 2009.

Mr. Scharf joined Baxter in July 2005 and served in advancing leadership roles within the legal department.

Prior to joining Baxter, Mr. Scharf was with Guidant Corporation from 2002, in roles of increasing responsibility.

Paul Vibert, age 57, is Corporate Vice President and President, International.

Mr. Vibert joined the company in January 2008 as Vice President of Business Development for Asia Pacific.

He also served as regional general manager for China and Hong Kong for two years before moving to Ferring Pharmaceuticals, as Senior Vice President, Asia Pacific, from May 2011 to May 2013.

He returned to Baxter in May 2013 as President of Western Europe, and assumed his current role in January 2015.

Prior to joining Baxter in 2008, Vibert spent 19 years with Abbott Laboratories, where he held various leadership positions.

[removed: ][added: ]

The following table includes information about the company’s common stock repurchases during the three-month period ended December 31, 2017.

| Period | Total Number of Shares Purchased(1) | | | Average Price Paid per Share | | | Total Number of Shares Purchased as Part of Publicly Announced Programs(1) | | | Approximate Dollar Value of Shares that may yet be Purchased Under the Program(1) | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| October 1, 2017 through October 31, 2017 | | 328,500 | | $ | 62.41 | | | 328,500 | | | | |

| November 1, 2017 through November 30, 2017 | | 2,332,814 | | $ | 64.30 | | | 2,332,814 | | | | |

| December 1, 2017 through December 31, 2017 | | 1,834,400 | | $ | 64.82 | | | 1,834,400 | | | | |

| Total | | 4,495,714 | | $ | 64.37 | | | 4,495,714 | | $ | 1,119,190,080 | |

| (1) | On July 25, 2012, the company announced that its Board of Directors authorized the company to repurchase up to $2.0 billion of its common stock on the open market or in private transactions. The Board of Directors increased this authority by $1.5 billion in November 2016. During the fourth quarter of 2017, the company repurchased approximately 4.5 million shares for $289 million in cash pursuant to this authority through Rule 10b5-1 purchase plans. The remaining authorization under this program totaled approximately $1.1 billion at December 31, 2017. The Board of Directors increased this authority by an additional $1.5 billion in February 2018. After giving effect to the February 2018 approval and 2018 share repurchases, $2.3 billion of repurchase authority remained available as of February 20, 2018. This program does not have an expiration date. |

| --- | --- |

Baxter common stock is listed on the New York, Chicago and SIX Swiss stock exchanges.

The New York Stock Exchange is the principal market on which the company’s common stock is traded.

At January 31, 2018, there were 26,370 holders of record of the company’s common stock.

On July 25, 2012, the company announced that its Board of Directors authorized the company to repurchase up to $2.0 billion of its common stock on the open market or in private transactions.

The Board of Directors increased this authority by $1.5 billion in November 2016.

During 2016, the company repurchased approximately 6.3 million shares for $287 million in cash pursuant to this authority.

The remaining authorization under this program totaled approximately $1.7 billion at December 31, 2016.

This program does not have an expiration date.

Additional information required by this item is incorporated by reference to Note 18 in Item 8 of this Annual Report on Form 10-K.

| Operating Results | | Net sales | | $ | [removed: 10,163] [added: 10,561] | | | | [removed: 9,968] [added: 10,163] | | | | [removed: 10,719] [added: 9,968] | | | | [removed: 9,413] [added: 10,719] | | | | [removed: 8,626] [added: 9,413] | |

| (in millions) | | Income from continuing operations | | $ | [removed: 4,966] [added: 724] | | | | [removed: 393] [added: 4,966] | | | | [removed: 457] [added: 393] | | | | [removed: 315] [added: 457] | | | | [removed: 663] [added: 315] | |

| | | [removed: Income (loss)] [added: (Loss) income] from discontinued operations, net of tax | | $ | [removed: (1] [added: (7] | ) | | | [removed: 575] [added: (1] | [added: )] | | | [removed: 2,040] [added: 575] | | | | [removed: 1,697] [added: 2,040] | | | | [removed: 1,663] [added: 1,697] | |

| | | Net income | | $ | [removed: 4,965] [added: 717] | | | | [removed: 968] [added: 4,965] | | | | [removed: 2,497] [added: 968] | | | | [removed: 2,012] [added: 2,497] | | | | [removed: 2,326] [added: 2,012] | |

| Balance Sheet | | Capital expenditures, continuing operations | | $ | [removed: 719] [added: 634] | | | | [removed: 911] [added: 719] | | | | [removed: 925] [added: 911] | | | | [removed: 706] [added: 925] | | | | [removed: 622] [added: 706] | |

| Information | | Total assets | | $ | [removed: 15,546] [added: 17,111] | | | | [removed: 20,962] [added: 15,546] | | | | [removed: 26,138] [added: 20,962] | | | | [removed: 25,224] [added: 26,138] | | | | [removed: 20,390] [added: 25,224] | |

| (in millions) | | Long-term debt and lease obligations | | $ | [removed: 2,779] [added: 3,509] | | | | [removed: 3,922] [added: 2,779] | | | | [removed: 7,331] [added: 3,922] | | | | [removed: 8,126] [added: 7,331] | | | | [removed: 5,580] [added: 8,126] | |

| | | Basic | | | [removed: 546] [added: 543] | | | | [removed: 545] [added: 546] | | | | [removed: 542] [added: 545] | | | | [removed: 543] [added: 542] | | | | [removed: 551] [added: 543] | |

| | | Diluted | | | [removed: 551] [added: 555] | | | | [removed: 549] [added: 551] | | | | [removed: 547] [added: 549] | | | | [removed: 549] [added: 547] | | | | [removed: 556] [added: 549] | |

| | | Basic | | $ | [removed: 9.10] [added: 1.33] | | | | [removed: 0.72] [added: 9.10] | | | | [removed: 0.84] [added: 0.72] | | | | [removed: 0.58] [added: 0.84] | | | | [removed: 1.20] [added: 0.58] | |

| | | Diluted | | $ | [removed: 9.01] [added: 1.30] | | | | [removed: 0.72] [added: 9.01] | | | | [removed: 0.83] [added: 0.72] | | | | [removed: 0.57] [added: 0.83] | | | | [removed: 1.19] [added: 0.57] | |

| | | [removed: Income] [added: (Loss) income] from discontinued operations per common share | | | | | | | | | | | | | | | | | | | | |

| | | Basic | | $ | (0.01 | ) | | | [removed: 1.06] [added: (0.01] | [added: )] | | | [removed: 3.77] [added: 1.06] | | | | [removed: 3.12] [added: 3.77] | | | | [removed: 3.02] [added: 3.12] | |

| | | Diluted | | $ | [removed: 0.00] [added: (0.01] | [added: )] | | | [removed: 1.04] [added: —] | | | | [removed: 3.73] [added: 1.04] | | | | [removed: 3.09] [added: 3.73] | | | | [removed: 2.99] [added: 3.09] | |

| | | Basic | | $ | [removed: 9.09] [added: 1.32] | | | | [removed: 1.78] [added: 9.09] | | | | [removed: 4.61] [added: 1.78] | | | | [removed: 3.70] [added: 4.61] | | | | [removed: 4.22] [added: 3.70] | |

| | | Diluted | | $ | [removed: 9.01] [added: 1.29] | | | | [removed: 1.76] [added: 9.01] | | | | [removed: 4.56] [added: 1.76] | | | | [removed: 3.66] [added: 4.56] | | | | [removed: 4.18] [added: 3.66] | |

| | | Cash dividends declared per common share | | $ | [removed: 0.505] [added: 0.610] | | | | [removed: 1.270] [added: 0.505] | | | | [removed: 2.050] [added: 1.270] | | | | [removed: 1.920] [added: 2.050] | | | | [removed: 1.570] [added: 1.920] | |

| [removed: 2] [added: 3] | Income from continuing operations included charges totaling $409 million for business optimization, $54 million related to the Baxalta separation, $149 million of debt extinguishment costs related to the March 2016 debt-for-equity exchange for certain company indebtedness and certain debt redemptions, $51 million for impairment primarily related to developed technology and $9 million related to the settlement of an income tax matter in the company’s non-wholly owned joint venture in Turkey. Also included were net realized gains of $4.4 billion related to the Baxalta Retained Shares transactions and a benefit of $18 million primarily related to adjustments to the COLLEAGUE and SIGMA SPECTRUM infusion pump reserves. |

| [removed: 3] [added: 4] | Income from continuing operations included charges totaling $200 million for business optimization, $111 million related to the Baxalta separation and $130 million related to Baxter’s July 2015 tender offer for certain outstanding indebtedness. Also included were benefits of $28 million primarily related to adjustments to the COLLEAGUE and SIGMA SPECTRUM infusion pump reserves, $52 million related to a litigation settlement in which Baxter was the beneficiary and $20 million relating to the reversal of contingent consideration milestone liabilities. |

| [removed: 4] [added: 5] | Income from continuing operations included charges totaling $138 million for business optimization, $68 million for SIGMA Spectrum Infusion Pump product remediation efforts, $11 million related to the Baxalta separation and $3 million to account for an additional year of the Branded Prescription Drug Fee in accordance with final regulations issued by the Internal Revenue Service. Also included were benefits of $1 million related to third-party recoveries and reversals of prior reserves. |

| [removed: 5] [added: 6] | Income from continuing operations included charges totaling $148 million for business optimization, $17 million primarily related to remediation efforts associated with modifications to the SIGMA Spectrum Infusion Pump in conjunction with re-filing for 510(k) clearance, $255 million related to the acquisition and integration of Gambro and losses from the derivative instruments used to hedge the anticipated foreign currency cash outflows and $25 million related to an upfront payment [removed: associated with one of the company’s collaboration arrangements. Also included were benefits of $3 million related to tax and legal reserves associated with VAT matters in Turkey.] |

| as of or for the years ended December 31 | | | | 20172,1 | | | | 20163,1 | | | | 20154,1 | | | | 20145,1 | | | | 20136,1 | | |

| 2 | Income from continuing operations included charges totaling $169 million for business optimization, $19 million related to the Baxalta separation, $17 million related to SIGMA SPECTRUM infusion pump inspection and remediation reserves and other historical product reserves, $28 million of Claris acquisition and integration expenses, $32 million related to the impact of Hurricane Maria on the company’s operations in Puerto Rico, $21 million related to litigation and contractual disputes for business arrangements in which the company is no longer engaged or a party thereto, $33 million related to the deconsolidation of the company’s Venezuelan operations and $322 million related to the impact of tax reform. Also included was a benefit of $12 million related to an adjustment to the company’s historical rebates and discount reserves. |

| | associated with one of the company’s collaboration arrangements. Also included were benefits of $3 million related to tax and legal reserves associated with VAT matters in Turkey. |

| as of or for the years ended December 31 | | | | 20162,1 | | | | 20153,1 | | | | 20144,1 | | | | 20135,1 | | | | 20126,1 | | |

| 6 | Income from continuing operations included charges totaling $106 million for business optimization, $15 million primarily related to business development, and $170 million primarily related to pension settlement charges and other pension-related items. Also included were benefits of $23 million primarily related to an adjustment to the COLLEAGUE infusion pump reserve when the company substantially completed its recall activities in the United States and $91 million for gains related to a decrease in the estimated fair value of acquisition-related contingent payment liabilities. |

| as of December 31 (in millions, except share information) | | | | [removed: 2016] [added: 2017] | | | | [removed: 2015] [added: 2016] | | |

| Current assets | | Cash and equivalents | | $ | [removed: 2,801] [added: 3,394] | | | $ | [removed: 2,213] [added: 2,801] | |

| | | Accounts and other current receivables, net | | | [removed: 1,691] [added: 1,793] | | | | [removed: 1,731] [added: 1,691] | |

| | | Inventories | | | [removed: 1,430] [added: 1,475] | | | | [removed: 1,604] [added: 1,430] | |

| | | Prepaid expenses and other | | | [removed: 602] [added: 601] | | | | [removed: 855] [added: 602] | |

| | | Current assets held for disposition | | | [removed: 50] [added: —] | | | | [removed: 245] [added: 50] | |

| | | Total current assets | | | [removed: 6,574] [added: 7,263] | | | | [removed: 11,796] [added: 6,574] | |

| Property, plant and equipment, net | | | | | [removed: 4,289] [added: 4,588] | | | | [removed: 4,386] [added: 4,289] | |

| Other assets | | Goodwill | | | [removed: 2,595] [added: 3,099] | | | | [removed: 2,687] [added: 2,595] | |

| | | Other intangible assets, net | | | [removed: 1,111] [added: 1,374] | | | | [removed: 1,349] [added: 1,111] | |

| | | Other | | | [removed: 977] [added: 787] | | | | [removed: 744] [added: 977] | |

| | | Total other assets | | | [removed: 4,683] [added: 5,260] | | | | [removed: 4,780] [added: 4,683] | |

| | | Total assets | | $ | [removed: 15,546] [added: 17,111] | | | $ | [removed: 20,962] [added: 15,546] | |

| [removed: | |] Current maturities of long-term debt and lease obligations | | | 3 | | | | [removed: 810] [added: 3] | | [added: | | 3 | | | | 3 | |]

| | | Accounts payable and accrued liabilities | | | [removed: 2,612] [added: 2,733] | | | | [removed: 2,666] [added: 2,612] | |

| | | Current income taxes payable | | | [removed: 126] [added: 85] | | | | [removed: 453] [added: 126] | |

| | | Current liabilities held for disposition | | | [removed: 3] [added: —] | | | | [removed: 46] [added: 3] | |

| | | Total current liabilities | | | [removed: 2,744] [added: 2,821] | | | | [removed: 5,750] [added: 2,744] | |

| Long-term debt and lease obligations | | | | | [removed: 2,779] [added: 3,509] | | | | [removed: 3,922] [added: 2,779] | |

| Other long-term liabilities | | | | | [removed: 1,743] [added: 1,665] | | | | [removed: 2,425] [added: 1,743] | |

| Equity | | Common stock, $1 par value, authorized 2,000,000,000 shares, issued 683,494,944 shares in [removed: 2016] [added: 2017] and [removed: 2015] [added: 2016] | | | 683 | | | | 683 | |

| | | Common stock in treasury, at cost, [removed: 143,890,064] [added: 142,017,600] shares in [removed: 2016] [added: 2017] and [removed: 135,839,938] [added: 143,890,064] shares in [removed: 2015] [added: 2016] | | | [removed: (7,995] [added: (7,981] | ) | | | [removed: (7,646] [added: (7,995] | ) |

| | | Additional contributed capital | | | [removed: 5,958] [added: 5,940] | | | | [removed: 5,902] [added: 5,958] | |

| | | Retained earnings | | | [removed: 14,200] [added: 14,483] | | | | [removed: 9,683] [added: 14,200] | |

| | | Accumulated other comprehensive (loss) income | | | [removed: (4,556] [added: (4,001] | ) | | | [removed: 224] [added: (4,556] | [added: )] |

| [removed: | |] Total Baxter shareholders’ equity | | | [added: | | | $ | 9,124 | | | | | | | $ |] 8,290 | | | | [added: | | | $ |] 8,846 | |

| | | Noncontrolling interests | | | [removed: (10] [added: (8] | ) | | | [removed: 19] [added: (10] | [added: )] |

| [removed: | |] Total equity | | | [added: | | | $ | 9,116 | | | | | | | $ |] 8,280 | | | | [added: | | | $ |] 8,865 | |

| | | Total liabilities and equity | | $ | [removed: 15,546] [added: 17,111] | | | $ | [removed: 20,962] [added: 15,546] | |

| years ended December 31 (in millions, except per share data) | | [removed: 2016] [added: 2017] | | | | [removed: 2015] [added: 2016] | | | | [removed: 2014] [added: 2015] | | |

| Net sales | | $ | [removed: 10,163] [added: 10,561] | | | $ | [removed: 9,968] [added: 10,163] | | | $ | [removed: 10,719] [added: 9,968] | |

| Cost of sales | | | [removed: 6,053] [added: 6,099] | | | | [removed: 5,822] [added: 6,053] | | | | [removed: 6,138] [added: 5,822] | |

| Gross margin | | | [removed: 4,110] [added: 4,462] | | | | [removed: 4,146] [added: 4,110] | | | | [removed: 4,581] [added: 4,146] | |

| Marketing and administrative expenses | | | [removed: 2,739] [added: 2,587] | | | | [removed: 3,094] [added: 2,739] | | | | [removed: 3,315] [added: 3,094] | |

| Research and development expenses | | | [removed: 647] [added: 617] | | | | [removed: 603] [added: 647] | | | | [removed: 610] [added: 603] | |

| Operating income | | | [removed: 724] [added: 1,258] | | | | [removed: 449] [added: 724] | | | | [removed: 656] [added: 449] | |

| Net interest expense | | | [removed: 66] [added: 55] | | | | [removed: 126] [added: 66] | | | | [removed: 145] [added: 126] | |

| Other [removed: (income) expense,] [added: income,] net | | | [removed: (4,296] [added: (14] | ) | | | [removed: (105] [added: (4,296] | ) | | | [removed: 21] [added: (105] | [added: )] |

| Income from continuing operations before income taxes | | | [removed: 4,954] [added: 1,217] | | | | [removed: 428] [added: 4,954] | | | | [removed: 490] [added: 428] | |

| [removed: Income tax (benefit) expense] | | | [removed: (12 | ) |] [added: —] | | [removed: 35] | | [added: —] | | [removed: 33] | [added: Income tax expense (benefit)] |

| Commitments and contingencies | | | | | | | | | | |

| | | Business optimization payments | | | (143 | ) | | | (164 | ) | | | (89 | ) |

| | | Other | | | (229 | ) | | | 90 | | | | (364 | ) |

| Net income | | | | | | | 717 | | | | | | | | 4,965 | | | | | | | | 968 | |

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

On July 27, 2017, Baxter acquired 100 percent of Claris Injectables Limited (Claris), a wholly owned subsidiary of Claris Lifesciences Limited, for total cash consideration of $629 million, net of cash acquired.

Beginning July 27, 2017, Baxter’s financial statements include the assets, liabilities and operating results of Claris.

Refer to Note 5 for additional information.

As a result of the Distribution, Baxalta became an independent public company.

Currency restrictions enacted in Venezuela require Baxter to obtain approval from the Venezuelan government to exchange Venezuelan bolivars for U.S. dollars and require such exchange to be made at the official exchange rate established by the government.

In the first quarter of 2016, the Venezuelan government moved from the three-tier exchange rate system to a two-tiered exchange rate system and the official rate for food and medicine imports was adjusted from 6.3 to 10 bolivars per U.S. dollar.

Due to a recent decline in transactions settled at the official rate or the secondary rate and limitations on the company’s ability to repatriate funds generated by its Venezuela operations, the company concluded in the second quarter of 2017 that it no longer met the accounting criteria for control over its business in Venezuela and the company deconsolidated its Venezuelan operations on June 30, 2017.

As a result of deconsolidating the Venezuelan operations, the company recorded a pre-tax charge of $33 million in other income, net in 2017.

This charge included the write-off of the company’s investment in its Venezuelan operations, related cumulative unrealized translation adjustments and elimination of intercompany amounts.

Beginning in the third quarter of 2017, the company no longer includes the results of its Venezuelan business in its consolidated financial statements.

In September 2017, Hurricane Maria caused damage to certain of the company's assets in Puerto Rico and disrupted operations.

Insurance, less applicable deductibles and subject to any coverage exclusions, covers the repair or replacement of the company's assets that suffered loss or damage, and the company is working with its insurance carriers and claims adjusters to ascertain the full amount of insurance proceeds due to the company as a result of the damages and the loss the company suffered.

The company's insurance policies also provide coverage for interruption to the company’s business, including lost profits, and reimbursement for other expenses and costs that have been incurred relating to the damages and losses suffered.

In 2017, the Company recorded $32 million of pre-tax charges related to damages caused by the hurricane, including $11 million related to the impairment of damaged inventory and fixed assets as well as $21 million of idle facility and other costs.

These amounts were recorded as a component of cost of sales in the consolidated statement of income for year ended December 31, 2017.

At this time, the full amount of business interruption costs and recoveries cannot be estimated, and accordingly, no additional amounts, including amounts for anticipated insurance recoveries, have been recorded as of December 31, 2017

Goodwill is the excess of purchase price over the fair value of acquired assets and liabilities in a business combination.

Refer to the Recently Adopted Accounting Pronouncements section of this note and Note 15 for additional information related to the 2017 Tax Act.

For a portion of the company’s senior notes, the company has designated this debt as a hedge of its net investment in its 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.

If the company removes the net investment hedge designation, any gains or losses recognized in AOCI are not reclassified to earnings until the company sells, liquidates, or deconsolidates the foreign investments that were being hedged.

In February 2018, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.

As a result of the enactment of the 2017 Tax Act, the FASB issued new accounting guidance on the reclassification of certain tax effects from AOCI to retained earnings.

The optional guidance is effective January 1, 2019, with early adoption permitted.

The Company is evaluating whether it will adopt the new guidance along with any impacts on the company’s financial position, results of operations and cash flows.

In August 2017, the FASB issued ASU No. 2017-12, Targeted Improvements to Accounting for Hedging Activities, which amends ASC 815, Derivatives and Hedging.

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 effective date for this ASU is January 1, 2019, with early adoption permitted.

The company is evaluating the potential effects on its consolidated financial statements.

In March 2017, the FASB issued ASU No. 2017-07, Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost, which amends ASC 715, Compensation – Retirement Benefits, to require employers that present a measure of operating income in their statements of earnings to include only the service cost component of net periodic postretirement benefit cost in operating expenses.

The service cost component of net periodic postretirement benefit cost should be presented in the same operating expense line items as other employee compensation costs arising from services rendered during the period.

The other components of net benefit cost, including interest costs, expected return on assets, amortization of prior service cost/credit, and settlement and curtailment effects, are to be included separately and outside of any subtotal of operating income.

The company will adopt the standard effective January 1, 2018.

This guidance will impact the presentation of the company’s consolidated statements of income with no significant impact on net income.

Upon adoption of the standard on January 1, 2018, operating income for 2017 and 2016 will be recast to increase $33 million and $21 million, respectively, with a corresponding decrease in other income, net.

In October 2016, the FASB issued ASU No. 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other than Inventory.

| | | Investment in Baxalta common stock | | | — | | | | 5,148 | |

| Current liabilities | | Short-term debt | | $ | — | | | $ | 1,775 | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| | | Business optimization and infusion pump payments | | | (189 | ) | | | (112 | ) | | | (124 | ) |

| --- | --- | --- | --- | --- | --- | --- | --- | --- |

Gains or

The guidance is effective for the company beginning January 1, 2017.

The impact of the standard is dependent on the timing and value of award exercises and vesting.

The company has evaluated the impact of this standard on its consolidated financial statements for 2016, and determined that net income and operating cash flow for the year would have each increased by approximately $39 million if the company had adopted the new standard January 1, 2016.

Based on the work performed to date, the company does not expect the adoption of the new standard to have a material impact on the consolidated financial statements.

The company has not finalized its transition method for adoption.

As of January 1, 2016, the company adopted ASU No. 2015-03, Simplifying the Presentation of Debt Issuance Costs, which amended ASC 835-30, Interest – Imputation of Interest.

This guidance requires that debt issuance costs related to a recognized debt liability be presented as a direct deduction from the carrying amount of the related debt liability.

As a result of the adoption, the company reclassified debt issuance costs of $13 million from other assets to long-term debt in the company’s consolidated balance sheet as of December 31, 2015.

The adoption of this guidance did not impact the company’s consolidated statements of income, comprehensive income, changes in equity or cash flows.

As of January 1, 2016, the company adopted ASU No. 2015-05, Intangibles — Goodwill and Other — Internal-Use Software (Subtopic 350-40), Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement.

This update provides guidance on determining whether a cloud-based computer arrangement includes a software license.

If it is determined that the arrangement includes a software license, then the customer is to account for that element in a manner that is consistent with the acquisition of other software licenses.

If it is determined that the arrangement does not include a software license, then it is to be accounted for as a service

contract.

The company elected to adopt the amendments prospectively to all arrangements entered into or materially modified after the effective date.

The adoption of ASU No. 2015-05 did not have a material impact on the company’s consolidated financial statements.

As of July 1, 2016, the company adopted ASU No. 2016-15, Statement of Cash Flows (Topic 230).

The guidance requires that the cash payments for debt prepayment or debt extinguishment costs be classified as cash outflows for financing activities.

As a result of the adoption, in the third quarter of 2016 the company reclassified certain debt repayments and debt extinguishment costs from operating to financing activities which resulted in a decrease in financing cash flows of $16 million and $124 million for 2016 and 2015, respectively.

The adoption of this guidance did not impact the company’s consolidated statements of income, consolidated balance sheets, comprehensive income or changes in equity.

Effective January 27, 2016, Baxter completed a debt-for-equity exchange through the transfer of 37,573,040 Retained Shares in exchange for the extinguishment of the $1.45 billion aggregate principal amount of indebtedness outstanding under the company’s prior U.S. dollar denominated revolving credit facility, which was terminated in connection with the closing of this exchange.

On March 16, 2016, the company completed a debt-for-equity exchange, in which Baxter exchanged 63,823,582 Retained Shares for the extinguishment of $2.2 billion in aggregate principal amount of Baxter indebtedness.

On May 6, 2016, the company contributed 17,145,570 Retained Shares to Baxter’s U.S. pension fund.

On May 26, 2016, the company completed an equity-for-equity exchange by exchanging 13,360,527 Retained Shares for 11,526,638 shares of Baxter.

The company held no shares of Baxalta as of December 31, 2016.

Separation of the remaining three countries is expected to occur by 2018.

The assets and liabilities of Baxalta have been classified as held for disposition as of December 31, 2016 and 2015.

These amounts consist of the following carrying amounts in each major class.

| Carrying amounts of major classes of assets included as part of discontinued operations | | | | | | | | |

| Total assets of the disposal group | | $ | 50 | | | $ | 245 | |

| Carrying amounts of major classes of liabilities included as part of discontinued operations | | | | | | | | |

| Other | | | 341 | | | | 435 | |

| Infusion pump reserves | | | — | | | | 52 | |

| Contingent payment liabilities | | | 15 | | | | 20 | |

Baxter carried out an evaluation, under the supervision and with the participation of its Disclosure Committee and management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of Baxter’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of December 31, [removed: 2016.][added: 2017.]

Based on that evaluation the Chief Executive Officer and Chief Financial Officer concluded that the company’s disclosure controls and procedures were effective as of December 31, [removed: 2016.][added: 2017.]

Management performed an assessment of the effectiveness of the company’s internal control over financial reporting as of December 31, [removed: 2016.][added: 2017.]

Based on that assessment under the framework in Internal Control-Integrated Framework (2013) , management concluded that the company’s internal control over financial reporting was effective as of December 31, [removed: 2016.][added: 2017.]

The effectiveness of the company’s internal control over financial reporting as of December 31, [removed: 2016] [added: 2017] has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which appears herein.

[removed: There] [added: With the exception of the above, there] have been no changes in Baxter’s 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 December 31, [removed: 2016] [added: 2017] that have materially affected, or are reasonably likely to materially affect, Baxter’s internal control over financial reporting.

In 2017, Baxter acquired 100 percent of Claris Injectables Limited (Claris).

As part of the post-closing integration, the company is engaged in refining and harmonizing the internal controls and processes of the acquired business with those of the company.

Management has excluded the internal controls of Claris associated with total assets of approximately 2% and total revenues of 1% included in the Consolidated Financial Statements as of and for the year ended December 31, 2017 from its annual assessment of the effectiveness of the company’s internal control over financial reporting as of December 31, 2017.

This exclusion is in accordance with the general guidance issued by the Securities and Exchange Commission that an assessment of a recent business combination may be omitted from management’s report on internal control over financial reporting in the year of consolidation.

In 2017, related to its overall business optimization initiatives, the company 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.

The company is transitioning some processes to its shared services centers while others are moving to outsourced providers.

This multi-year initiative will be conducted in phases and include modifications to the design and operation of controls over financial reporting.

On February 20, 2018, the Board of Directors amended and restated the company’s Bylaws (effective immediately) to clarify the ability of the lead director of the Board of Directors or a majority of the independent directors to instruct the Corporate Secretary to call a special meeting of the independent directors of the Board of Directors.

The amendments also reflect the removal of the Corporate Vice President title.

The foregoing summary is qualified in its entirety by reference to the text of the amended and restated Bylaws, a copy of which is attached hereto as Exhibit 3.3 and is incorporated herein by reference.

None.

Refer to information under the captions entitled “Corporate Governance at Baxter International Inc. — Proposal 1 — Election of Directors,” “— Directors Continuing in Office,” “— Board of Directors — Nomination of Directors,” “— Committees of the Board — Audit Committee,” “— Board Responsibilities — Code of Conduct,” and “Ownership of Our Stock — Section 16(a) Beneficial Ownership Reporting Compliance” in Baxter’s definitive proxy statement to be filed with the Securities and Exchange Commission and delivered to stockholders in connection with the Annual Meeting of Stockholders to be held on May [removed: 2, 2017] [added: 8, 2018] (the Proxy Statement), all of which information is incorporated herein by reference.

The following table provides information relating to shares of common stock that may be issued under Baxter’s existing equity compensation plans as of December 31, [removed: 2016.][added: 2017.]

| Equity Compensation Plans Not Approved by Shareholders | | | [removed: 1,140,770] [added: 461,283] | | (4) | | $ | [removed: 30.06] [added: 30.50] | | | | | — | | |

| (3) | Includes (i) [removed: 5,032,670] [added: 4,155,853] shares of common stock available for purchase under the Employee Stock Purchase Plan; (ii) [removed: 119,171] [added: 287,512] shares of common stock available under the 2007 Incentive Plan; (iii) [removed: 7,228,968] [added: 8,571,623] shares of common stock available under the 2011 Incentive Plan; and (iv) [removed: 33,449,160] [added: 23,015,120] shares of common stock available under the 2015 Incentive Plan. |

| (5) | Includes outstanding awards of [removed: 33,076,401] [added: 28,208,052] stock options, which have a weighted-average exercise price of [removed: $35.73] [added: $39.25] and a weighted-average remaining term of 6.2 years, [removed: 2,697,906] [added: 2,200,782] shares of common stock issuable upon vesting of restricted stock units, and [removed: 277,743] [added: 459,623] shares of common stock reserved for issuance in connection with performance share unit grants. |

| Equity Compensation Plans Approved by Shareholders | | | 30,771,865 | | (1) | | $ | 39.40 | | (2) | | | 36,030,108 | | (3) |

| Total | | | 31,233,148 | | (5) | | $ | 39.25 | | (2) | | | 36,030,108 | | |

| Equity Compensation Plans Approved by Shareholders | | | 35,252,613 | | (1) | | $ | 35.95 | | (2) | | | 45,829,969 | | (3) |

| Total | | | 36,393,383 | | (5) | | $ | 35.73 | | (2) | | | 45,829,969 | | |

| | | [Consolidated Balance Sheets](#CONSOLIDATED_BALANCE_SHEETS) | | [removed: 40] [added: 43] |

| | | [Consolidated Statements of Income](#CONSOLIDATED_STATEMENTS_INCOME) | | [removed: 41] [added: 44] |

| | | [Consolidated Statements of Comprehensive Income](#CONSOLIDATED_STATEMENTS_COMPREHENSIVE_IN) | | [removed: 42] [added: 45] |

| | | [Consolidated Statements of Cash Flows](#CONSOLIDATED_STATEMENTS_CASH_FLOWS) | | [removed: 43] [added: 46] |

| | | [Consolidated Statements of Changes in Equity](#CONSOLIDATED_STATEMENTS_CHANGES_IN_EQUIT) | | [removed: 44] [added: 47] |

| | | [Notes to Consolidated Financial Statements](#NOTES_TO_CONSOLIDATED_FINANCIAL_STATEMEN) | | [removed: 45] [added: 48] |

| | | [Report of Independent Registered Public Accounting Firm](#REPORT_INDEPENDENT_REGISTERED_PUBLIC_ACC) | | [removed: 87] [added: 91] |

| | | [Schedule II — Qualifying and Valuation accounts for each of the three years in the period ended December 31, 2017](#SCHEDULE_II) | | 103 |

| --- | --- |

| | | [Schedule II — Valuation and Qualifying Accounts](#SCHEDULE_II) | | 96 |

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

| BAXTER INTERNATIONAL INC. | | |

| --- | --- | --- |

| | | |

| By: | | /s/ José E. Almeida |

| | | José E. Almeida |

| | | Chairman and Chief Executive Officer |

DATE: February 23, 2017

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on February 23, 2017.

| Signature | | Title |

| /s/ José E. Almeida | | Chairman and Chief Executive Officer |

| José E. Almeida. | | (principal executive officer) |

| /s/ James K. Saccaro | | Corporate Vice President and Chief Financial Officer |

| James K. Saccaro | | (principal financial officer) |

| /s/ Caroline D. Karp | | Corporate Vice President and Controller |

| Caroline D. Karp | | (principal accounting officer) |

| /s/ Thomas F. Chen | | Director |

| Thomas F. Chen | | |

| /s/ John D. Forsyth | | Director |

| John D. Forsyth | | |

| /s/ James R. Gavin III, M.D., Ph.D. | | Director |

| James R. Gavin III, M.D., Ph.D. | | |

| /s/ Peter S. Hellman | | Director |

| Peter S. Hellman | | |

| /s/ Munib Islam | | Director |

| Munib Islam | | |

| /s/ Michael F. Mahoney | | Director |

| Michael F. Mahoney | | |

| | | Director |

| Stephen N. Oesterle, M.D. | | |

| /s/ Carole J. Shapazian | | Director |

| Carole J. Shapazian | | |

| /s/ Thomas T. Stallkamp | | Director |

| Thomas T. Stallkamp | | |

| /s/ K.J. Storm | | Director |

| K.J. Storm | | |

| /s/ Albert P. L. Stroucken | | Director |

| --- | --- |

Not applicable.

EXHIBIT INDEX

| | | Number and Description of Exhibit |

| --- | --- | --- |

| | | |

| 2.1 | | [Separation and Distribution Agreement (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K, filed on July 7, 2015).](http://www.sec.gov/Archives/edgar/data/10456/000119312515246136/d57625dex21.htm) |

| | | |

| 3.1 3.2 | | [Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K, filed on May 10, 2013).](http://www.sec.gov/Archives/edgar/data/10456/000119312513214390/d537200dex31.htm) [Certificate of Amendment to the Amended and Restated Certificate of Incorporation dated May 3, 2016 (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K, filed on May 4, 2016).](http://www.sec.gov/Archives/edgar/data/10456/000119312516577979/d191725dex31.htm) |

| | | |

| 3.3* | | [Bylaws, as amended and restated on February 20, 2018.](https://www.sec.gov/Archives/edgar/data/10456/000156459018002954/bax-ex33_838.htm) |

| | | |

| 4.1(P) | | Form of Common Stock Certificate of the Company (incorporated by reference to Exhibit(a) to the Company’s Registration Statement on Form S-16 (Registration No. 02-65269), filed on August 17, 1979). |

| | | |

| 4.2 | | [Indenture, dated August 8, 2006, between the Company and J.P. Morgan Trust Company, National Association, as Trustee (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K, filed on August 9, 2006).](http://www.sec.gov/Archives/edgar/data/10456/000095013706008933/c07629exv4w1.htm) |

| | | |

| 4.3 | | [Second Supplemental Indenture, dated December 7, 2007, between the Company and The Bank of New York Trust Company, N.A. (as successor in interest to J.P. Morgan Trust Company, National Association), as Trustee (including form of 6.250% Senior Note due 2037) (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K, filed on December 7, 2007).](http://www.sec.gov/Archives/edgar/data/10456/000095013707018293/c22126exv4w1.htm) |

| | | |

| 4.4 | | [Eighth Supplemental Indenture, dated August 13, 2012, between the Company and The Bank of New York Mellon Trust Company, N.A. (as successor in interest to J.P. Morgan Trust Company, National Association), as Trustee (including forms of 2.400% Senior Notes due 2022 and 3.650% Senior Notes due 2042) (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K, filed on August 13, 2012).](http://www.sec.gov/Archives/edgar/data/10456/000119312512351947/d396975dex41.htm) |

| | | |

| 4.5 4.6 | | [Ninth Supplemental Indenture, dated June 11, 2013, between the Company and The Bank of New York Mellon Trust Company, N.A. (as successor in interest to J.P. Morgan Trust Company, National Association), as Trustee (including form of 4.500% Senior Notes due 2043) (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K, filed on June 11, 2013).](http://www.sec.gov/Archives/edgar/data/10456/000119312513254412/d552141dex41.htm) [Tenth Supplemental Indenture, dated August 13, 2016, between the Company and The Bank of New York Mellon Trust Company, N.A., as Trustee (including forms of 1.700% Senior Notes due 2021, 2.600% Senior Notes due 2026 and 3.500% Senior Notes due 2046) (incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K, filed on August 15, 2016).](http://www.sec.gov/Archives/edgar/data/10456/000119312516682018/d234689dex42.htm) |

| 4.7 | | [Eleventh Supplemental Indenture, dated as of May 30, 2017, by and between the Company and The Bank of New York Mellon Trust Company, N.A., as Trustee (including form of 1.300% Senior Notes due 2025) (incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K, filed on May 30, 2017).](http://www.sec.gov/Archives/edgar/data/10456/000119312517186276/d393456dex42.htm) |

| 10.1 | | [Five-Year Credit Agreement, dated as of July 1, 2015, among Baxter International Inc. as Borrower, JPMorgan Chase Bank, National Association, as Administrative Agent and certain other financial institutions named therein (incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K, filed on July 7, 2015).](http://www.sec.gov/Archives/edgar/data/10456/000119312515246136/d57625dex104.htm) |

| | | |

| 10.2 | | [Amendment No. 1 to the Five-Year Credit Agreement, dated as of October 26, 2015, among Baxter International Inc. as Borrower, JPMorgan Chase Bank, National Association, as Administrative Agent and certain other financial institutions named therein (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed on October 27, 2015).](http://www.sec.gov/Archives/edgar/data/10456/000119312515353939/d96844dex101.htm) |

| | | |

| 10.3 | | [Credit Agreement, dated as of July 1, 2015, among Baxter Healthcare SA and Baxter World Trade SPRL, as Borrowers, J.P. Morgan Europe Limited, as Administrative Agent and certain other financial institutions named therein (incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K, filed on July 7, 2015).](http://www.sec.gov/Archives/edgar/data/10456/000119312515246136/d57625dex105.htm) |

| | | |

| 10.4 | | [Amendment No. 1 to the Credit Agreement, dated as of October 26, 2015, among Baxter Healthcare SA and Baxter World Trade SPRL, as Borrowers, J.P. Morgan Europe Limited, as Administrative Agent and certain other financial institutions named therein (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed on October 27, 2015).](http://www.sec.gov/Archives/edgar/data/10456/000119312515353939/d96844dex102.htm) |

| | | Number and Description of Exhibit |

| --- | --- | --- |

| | | |

| 10.5 | | [Tax Matters Agreement, dated as of June 30, 2015, by and between Baxter International Inc. and Baxalta Incorporated (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed on July 7, 2015).](http://www.sec.gov/Archives/edgar/data/10456/000119312515246136/d57625dex102.htm) |

| 10.6 | | [Letter Agreement, dated as of January 11, 2016, by and among Baxter International Inc., Baxalta Incorporated and Shire plc. (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed on January 11, 2016).](http://www.sec.gov/Archives/edgar/data/10456/000119312516426696/d51194dex101.htm) |

| | | |

| 10.7 | | [Support Agreement, dated as of September 29, 2015, by and among Baxter International Inc., Third Point LLC, Third Point Partners L.P., Third Point Partners Qualified L.P., Third Point Offshore Master Fund L.P., Third Point Ultra Master Fund L.P., Third Point Reinsurance Co. Ltd., Third Point Advisors LLC, Third Point Advisors II LLC, Daniel S. Loeb and Munib Islam (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed on September 30, 2015).](http://www.sec.gov/Archives/edgar/data/10456/000119312515333393/d93131dex101.htm) |

| | | |

| C 10.8(P) | | Form of Indemnification Agreement entered into with directors and officers (incorporated by reference to Exhibit 19.4 to the Company’s Quarterly Report on Form 10-Q, filed on November 14, 1986). |

| | | |

| C 10.9 | | [Baxter International Inc. 2007 Incentive Plan (incorporated by reference to Appendix A to the Company’s Definitive Proxy Statement on Schedule 14A, filed on March 20, 2007).](http://www.sec.gov/Archives/edgar/data/10456/000095013707004087/c13022ddef14a.htm) |