Baxter International (BAX) 10-K risk factor changes: FY2018 vs FY2017

These plans include the achievement of certain financial goals [removed: (including improved operating margin and earnings per share)] in [removed: 2018] [added: 2019] and beyond.

While we are continuing to refine these goals, our plan contemplates significant margin expansion over our long-range plan, which runs through [removed: 2020.][added: 2023.]

As a result, we may not achieve our targeted financial results, which could have a material adverse effect on our business, financial condition [removed: or] [added: and] results of operations.

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

The [added: pharmaceutical and] medical products [removed: industry is] [added: industries are] competitive and subject to complex market dynamics and varying demand levels.

[removed: Additionally] [added: Additionally,] the development of new or enhanced products involves a lengthy regulatory process and is capital intensive.

In the event of an oversupply, we may be forced to lower our [removed: prices or] [added: prices,] record asset impairment charges or take other [removed: action] [added: actions,] which may adversely affect our business, financial condition and results of operations.

Additionally, quality management plays an essential role in determining and meeting customer requirements, preventing defects, improving [removed: the company’s] [added: our] products and services and assuring the safety and efficacy of our products.

While we have a quality system that covers the [added: lifecycle of our]

[removed: 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, voluntary or official action indicated, warning letters, import bans, product recalls (either voluntary or required by [removed: 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.

Product quality or safety issues may restrict [removed: the company] [added: us] from being able to realize the expected returns from these investments, potentially resulting in asset impairments in the future.

Loss or damage to a manufacturing facility or storage site due to a natural [removed: disaster] [added: disaster, such as we experienced as a result of Hurricane Maria,] 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 consequences (including those identified in the paragraph above).

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 [removed: (including] [added: including] confidential, business, [added: financial,] personal and other sensitive [removed: information).][added: information (collectively, Confidential Information).]

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

The increasing use and evolution of technology, including cloud-based computing, and reliance on third parties creates additional opportunities for the unintentional, intentional and/or unauthorized exposure, dissemination and/or destruction of [removed: confidential information] [added: Confidential Information] stored in our [removed: technology] [added: devices,] systems, [added: servers,] infrastructure and [removed: products.][added: products (collectively, Technology).]

Our [removed: products, devices, computer systems, servers and other technology systems] [added: Technology] (and [removed: those] [added: that] of third parties that we use) [removed: are] [added: is] vulnerable to breakdown, interruption, cyber and other security attacks, system malfunction, unauthorized [removed: access] [added: access, inadvertent exposure or disclosure of information, theft] and other events.

Any such vulnerability could compromise our [removed: technology systems and infrastructure] [added: Technology] and could expose [removed: personal and/or proprietary information (including sensitive personal information)] [added: Confidential Information] to unauthorized third parties and/or cause permanent loss of such data.

In addition to loss of [removed: data,] [added: Confidential Information,] unauthorized access to or interference with our [removed: products that utilize cloud-based computing or otherwise send and receive data] [added: Technology] 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 [removed: information technology,] [added: Technology,] there can be no assurance that our efforts will prevent breakdowns, [added: attacks,] breaches in our [removed: systems] [added: Technology, cyber incidents] or other incidents or ensure compliance with all applicable security and privacy laws, regulations and [removed: standards.][added: standards, including with respect to third party service providers that host or process Confidential Information on our behalf.]

Such [removed: breakdowns] [added: incidents] can lead to [added: substantial and material] regulatory fines and penalties, business disruption, reputational harm, financial loss as well as other damages.

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, [removed: including] [added: including, but not limited to,] The Health Insurance Portability and Accountability Act, The Health Information Technology for Economic and Clinical Health [added: Act, the California Consumer Privacy] Act [added: of 2018] and the European Union’s General Data Protection Regulation (GDPR).

In May 2018, the GDPR [removed: will supersede] [added: superseded] current European Union data protection legislation, [removed: impose] [added: imposed] more stringent European Union data protection requirements, and [removed: provide] [added: provided] 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 [removed: regulations.][added: regulations, and noncompliance with the laws and regulations could result in substantial and material fines or class action litigation.]

Changes to current products may be subject to vigorous review, including additional 510(k) and other regulatory submissions, and approvals [added: or the time needed to secure approvals] are not certain.

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, voluntary or official action indicated, warning letters, import bans, product recalls or seizures, monetary sanctions, [added: reputational damage,] 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 requirements of regulatory authorities, including interpretative guidance, are subject to change and compliance with additional or changing requirements or interpretative guidance may subject [removed: the company] [added: us] to further review, result in product launch delays or otherwise increase our costs.

In connection with these issues, there can be no assurance that additional costs or civil and criminal penalties will not be incurred, that additional regulatory actions with respect to [removed: the company] [added: us] will not occur, that [removed: the company] [added: we] will not face civil claims for damages from purchasers or users, that substantial additional charges or significant asset impairments may not be required, that sales of other products may not be adversely affected, or that additional regulation will not be introduced that may adversely affect [removed: the company’s] [added: our] operations and consolidated financial statements.

The laws and standards governing the promotion, [added: pricing,] 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 Act (as amended, the PPACA), can be complicated, are subject to frequent change and may be violated unknowingly.

Additionally, the U.S. Department of the Treasury’s Office of Foreign Control and the Bureau of Industry and Security at the U.S. Department of Commerce administer laws and regulations that restrict U.S. persons and, in some instances, non-U.S. persons, in conducting activities, transacting business or making investments in certain countries, [added: or with] governments, entities and individuals subject to U.S. economic sanctions.

These dealings represent an insignificant amount of our consolidated revenues and income but expose us to an increased risk of [added: operating in these countries, including foreign exchange risks or restrictions or limitations on our ability to access funds generated in these jurisdictions, or the risk of] violating applicable sanctions regulations, which are complex and subject to frequent change.

For more information related to [removed: the company’s] [added: our] ongoing government investigations, please refer to Note [removed: 16] [added: 17] in Item 8 of this Annual Report on Form 10-K.

The laws and regulations discussed above are broad in scope and subject to evolving interpretations, which could require us to incur substantial cost associated with compliance or to alter one or more of our sales and marketing practices and may subject us to enforcement actions [added: or litigation] which could adversely affect our business, financial condition and results of operations.

If reimbursement or other payment for our current or future products is reduced or modified in the United States or [removed: abroad,] [added: in foreign countries,] including through the implementation 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, [removed: then] our business could suffer.

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

Governments around the world use various mechanisms to control healthcare expenditures such as price controls, the formation of public contracting authorities, product [removed: formularies (lists] [added: formularies, which are lists] of recommended or approved [removed: products),] [added: products,] and competitive tenders which require the submission of a bid to sell products.

Certain portions of the PPACA, [removed: 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.

If our competitors develop more effective or affordable products, or achieve earlier patent protection or product commercialization than we do, our [added: business, financial condition and] operations will likely be negatively affected.

[removed: The company’s sales] could be adversely affected if any of [removed: its] [added: our] contracts with GPOs, IDNs or other customers are terminated due to increased competition or otherwise.

[removed: As part of our long-term strategy, we are engaged] [added: We expect to continue to engage] in business development activities including evaluating acquisitions, joint development opportunities, technology licensing arrangements and other opportunities.

Misappropriation or other loss of our intellectual property from any of the foregoing may have an adverse effect on our competitive position and may cause us to incur substantial litigation costs.

Our work with government payers carries various risks inherent in working with government entities and agencies, including government reporting and auditing, additional regulatory oversight, mandated contractual terms, failure of government appropriations or other complex procedural requirements.

In addition, a substantial portion of our revenues is dependent on federal healthcare program reimbursement, and any disruptions in federal government operations, including a federal government shutdown or failure of the U.S. government to enact annual appropriations, could have a material adverse effect on our business, financial condition and results of operations.

Additionally, disruptions in federal government operations may negatively impact regulatory approvals and guidance that are important to our operations, and create uncertainty about the pace of upcoming healthcare regulatory developments or approvals.

Our sales

In addition, many health care industry companies, including health care systems, distributors, manufacturers, providers, and insurers, are consolidating or have formed strategic alliances.

As the health care industry consolidates, competition to provide goods and services to industry participants will become more intense.

Further, this consolidation creates larger enterprises with greater negotiating power, which they can use to negotiate price concessions.

If we face an increase in costs or must reduce our prices because of industry consolidation, or if we lose customers as a result of consolidation, our business, financial condition and results of operations could be adversely affected.

If our business development activities are unsuccessful, we may not realize the intended benefits.

If we are unsuccessful in our business development activities, we may not realize the intended benefits of such activities, including that acquisition and integration costs may be greater than expected or the possibility that expected return on investment, synergies and accretion will not be realized or will not be realized within the expected timeframes.

For more information on accounts receivable

In addition, the separation and distribution agreement provides for certain indemnification obligations of Baxter, which may be significant.

While we have invested in the protection of data and information technology and in related training, there can be no assurance that our efforts will prevent significant breakdowns, 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 protected health information (PHI), on our behalf.

and services.

If our business development activities are unsuccessful, our business could suffer and our financial performance could be adversely affected.

If we are unsuccessful in our business development activities, we may be unable to meet our financial targets and our financial performance could be adversely affected.

to assume responsibility for obligations allocated to Baxalta.

In addition, our indemnity obligations to Baxalta may be significant.

Baxter International Inc., through its subsidiaries, provides a broad portfolio of essential healthcare products [removed: 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.

[removed: As] [added: The following table is] a [removed: result] [added: summary] of the [removed: separation, the] operating results [removed: of Baxalta] [added: related to Baxalta, which] have been reflected as discontinued operations for the years ended December 31, [removed: 2017, 2016,] [added: 2018, 2017] and [removed: 2015.][added: 2016.]

Refer to Note 2 in Item 8 [added: of this Annual Report on Form 10-K] for additional information regarding the separation of Baxalta.

Refer to Note 5 in Item 8 [added: of this Annual Report on Form 10-K] for additional information regarding the acquisition of Claris.

[removed: Pending] Acquisition of Recothrom and Preveleak

In [removed: January] [added: March] 2018, Baxter [removed: agreed to acquire] [added: acquired] two hemostat and sealant products from Mallinckrodt plc: RECOTHROM Thrombin topical

The purchase price [removed: includes] [added: included] an upfront payment of approximately [removed: $153] [added: $163] million and potential contingent payments in

[removed: As a result, the] [added: The] company [removed: now reports] [added: manages] its [removed: financial performance] [added: business] based on [removed: its new] [added: three geographic] 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 [removed: 17] [added: 18] in Item 8 of this Annual Report on Form 10-K.

Baxter had approximately [removed: 47,000] [added: 50,000] employees and conducted business in over 100 countries as of December 31, [removed: 2017.][added: 2018.]

In [removed: 2017,] [added: 2018,] the company generated approximately [removed: 60%] [added: 58%] of its revenues outside the United States.

The company maintained approximately 50 manufacturing facilities and over 100 distribution facilities in the United States, Europe, Asia-Pacific, Latin America and Canada as of December 31, [removed: 2017.][added: 2018.]

Baxter’s global net sales totaled [removed: $10.6] [added: $11.1] billion in [removed: 2017,] [added: 2018,] an increase of [removed: 4%] [added: 5%] over [removed: 2016] [added: 2017] on a reported [added: basis] and [added: 4% on a] constant currency basis.

International sales totaled [removed: $6.1] [added: $6.4] billion in [removed: 2017,] [added: 2018,] an increase of [removed: 2%] [added: 6%] compared to [removed: 2016] [added: 2017] on a reported [added: basis] and [added: 4% on a] constant currency basis.

Sales in the United States totaled [removed: $4.5] [added: $4.7] billion in [removed: 2017,] [added: 2018,] an increase of [removed: 6%] [added: 5%] compared to [removed: 2016.][added: 2017.]

Baxter’s income from continuing operations [removed: for 2017] totaled [added: $1.6 billion, or $2.99 per diluted share in 2018,] $724 [removed: million] [added: million,] or $1.30 per diluted [removed: share, compared to] [added: share in 2017 and] $4,966 million, or $9.01 per diluted [removed: share,] [added: share] in [removed: the prior year.][added: 2016.]

Baxter’s financial results included R&D expenses totaling [removed: $617] [added: $655] million in [removed: 2017,] [added: 2018,] which reflects the company’s focus on balancing increased investments to support [removed: the company’s] [added: its] new product pipeline with efforts to optimize overall R&D [removed: spending through continuous evaluation of the portfolio.][added: spending.]

The company’s financial position remains strong, with operating cash flows from continuing operations totaling [removed: $1.9] [added: $2.1] billion in [removed: 2017.][added: 2018.]

[removed: 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 share repurchases, as well as acquisitions and other business development initiatives as discussed in the Strategic Objectives section below.

Capital [removed: investments] [added: expenditures] totaled [removed: $634] [added: $681] million in [removed: 2017] [added: 2018] 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: 2017] [added: 2018] 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: 2017,] [added: 2018,] the company paid cash dividends to its [removed: shareholders] [added: stockholders] totaling [removed: $315] [added: $376] million.

Additionally, in [removed: 2017] [added: 2018] the company repurchased [removed: 9.2] [added: 35.8] million shares through cash repurchases pursuant to Rule 10b5-1 repurchase [removed: plans] [added: plans, an accelerated share repurchase plan] and otherwise.

The company is focused on three strategic factors as part of its pursuit of industry leading performance: optimizing its core portfolio globally; operational excellence focused on streamlining [removed: the] [added: its] cost structure and enhancing operational efficiency; and [removed: following] [added: maintaining] a disciplined and balanced approach to capital allocation.

Baxter [removed: looks] [added: seeks] to optimize its return on investment and to maintain or enhance its market position with its core return on capital products.

Baxter is in the midst of launching [removed: more than 200] [added: several] new products, geographic expansions and line extensions by [removed: 2020] [added: 2023] including in such areas as chronic and acute renal [removed: care;] [added: care,] smart pump [removed: technology;] [added: technology,] hospital pharmaceuticals and [removed: nutritionals;] [added: nutritionals,] surgical sealants, and more.

These comprise a mix of entirely new offerings, [removed: marked] improvements on existing technologies, and the expansion of current products into new geographies.

The company intends to continue to actively manage its cost structure to help ensure [added: that] it is committing resources to the highest value uses.

Baxter has undertaken a comprehensive review of all aspects of its operations and [removed: has already begun to implement] [added: is actively implementing] changes in line with its business goals.

| | • | return capital to stockholders through [removed: stock] dividends, to meaningfully increase with earnings growth; |

Throughout [removed: 2017] [added: 2018] 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: 2017, 2016] [added: 2018, 2017] and [removed: 2015.][added: 2016.]

| years ended December 31 (in millions) | | [removed: 2017] [added: 2018] | | | | [removed: 2016] [added: 2017] | | | | [removed: 2015] [added: 2016] | | |

| Intangible asset amortization expense | | $ | [removed: (154] [added: (169] | ) | | $ | [removed: (163] [added: (154] | ) | | $ | [removed: (158] [added: (163] | ) |

| Business optimization items1 | | | [removed: (53] [added: (49] | ) | | | [removed: (156] [added: (53] | ) | | | [removed: (38] [added: (156] | ) |

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

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

| Product-related items4 | | | [removed: (17] [added: 6] | [removed: )] | | | [removed: 18] [added: (17] | [added: )] | | | [removed: 28] [added: 18] | |

| [removed: Claris acquisition] [added: Acquisition] and integration [removed: expenses¹⁰] [added: activities5] | | | [removed: (8] [added: (27] | ) | | | [removed: —] [added: (8] | [added: )] | | | — | |

| Hurricane Maria [removed: costs¹¹] [added: benefits (costs)7] | | | [removed: (32] [added: 32] | [removed: )] | | | [removed: —] [added: (32] | [added: )] | | | — | |

Refer to Note 5 in Item 8 of this Annual Report on Form 10-K for additional information regarding the acquisition of the RECOTHROM and PREVELEAK products.

Income from continuing operations in 2018 included special items which resulted in a net decrease to income from continuing operations of $36 million, or $0.06 per diluted share.

The company has continued to execute on its disciplined capital allocation framework, which is designed to optimize stockholder

For information on the company’s share repurchase plans, see Note 13 in Item 8 of this Annual Report on Form 10-K.

| | • | identify and pursue accretive M&A opportunities. |

| European medical devices regulation9 | | | (6 | ) | | | — | | | | — | |

| Litigation and contractual disputes6 | | | 2 | | | | 21 | | | | — | |

| Acquisition and integration activities5 | | | 7 | | | | — | | | | — | |

| European medical devices regulation9 | | | 3 | | | | — | | | | — | |

| Other Operating Income | | | | | | | | | | | | |

| Claris Settlement10 | | $ | (80 | ) | | $ | — | | | $ | — | |

| Hurricane Maria benefits7 | | | (10 | ) | | | — | | | | — | |

| Acquisition and integration activities5 | | $ | (24 | ) | | $ | — | | | $ | — | |

| Tax matter13 | | | — | | | | — | | | | 9 | |

| Venezuela deconsolidation14 | | | — | | | | 33 | | | | — | |

| Tax effects of special items and impact of U.S. Tax Reform13 | | $ | 277 | | | $ | 191 | | | $ | (314 | ) |

particularly in evaluating performance from one period to another.

| 5 | The company’s results in 2018 included acquisition and integration expenses related to the company’s acquisitions of Claris and the RECOTHROM and PREVELEAK products of $50 million, upfront payments related to R&D collaborations and license agreements of $7 million and a gain of $24 million from remeasuring its previously held investment to fair value upon acquisition of a controlling interest in its joint venture in Saudi Arabia. The company’s results in 2017 included acquisition and integration expenses of $28 million related to the company’s acquisition of Claris. Refer to Note 5 in Item 8 of this Annual Report on Form 10-K for further information regarding business development activities. |

| 9 | The company’s results in 2018 included costs of $9 million related to updating its quality systems and product labeling to comply with the new medical device reporting regulation and other requirements of the European Union’s regulations for medical devices that will become effective in 2020. |

| 10 | The company’s results in 2018 included a benefit of $80 million for settlement of certain claims related to the acquired operations of Claris. Refer to Note 5 in Item 8 of this Annual Report on Form 10-K for further information regarding the acquisition of Claris. |

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

On March 19, 2018, Baxter acquired 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 included cash payments of $163 million and potential contingent payments in the future.

In 2018, consolidated Baxter results include $52 million of net sales of RECOTHROM and PREVELEAK.

The Claris acquisition contributed $140 million and $57 million of net sales in 2018 and 2017, respectively.

The company’s global business units (GBUs) include the following:

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

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

The increase in 2018 was primarily driven by global growth in the PD business as well as increased international sales in the HD business.

The company expects net sales in its U.S. in-center HD business to decline in 2019, which will partially offset expected global growth in the Renal Care business.

The decrease in 2018 was partially attributable to supply constraints associated with the company’s small volume parenterals (SVPs) due to Hurricane Maria as well as lower international sales resulting from a reallocation of volume to the U.S. As a result of those supply constraints, some customers have changed their protocols for use of these products and some others shifted to competitive products.

The increase in 2018 was a result of the benefit from the acquisition of Claris, increased sales of the company’s premixed injectables and inhaled anesthetics, as well as increased demand for pharmacy compounding services.

The acquisition of Claris in 2017 contributed $140 million of net sales in 2018 compared to $57 million of net sales in 2017.

Partially offsetting the increase in 2018 was reduced sales of U.S. cyclophosphamide, which decreased from $185 million in 2017 to $166 million in 2018.

The company expects sales of U.S. cyclophosphamide and BREVIBLOC to decline in 2019 by approximately $70 million and $75 million, respectively.

The increase in 2017 was a result of increased sales of pre-mixed

Clinical Nutrition net sales decreased 1% in 2018 and increased 3% in 2017.

The decrease in 2018 was driven by the impact of Hurricane Maria related supply constraints which resulted in some customers in the U.S. changing protocols for parenteral nutritional therapies or shifting to outsourced nutrition compounding centers and competitive products, partially offset by improved volumes internationally for the company’s nutritional therapies.

The increase in 2018 was primarily driven by the acquisition of RECOTHROM and PREVELEAK from Mallinckrodt, which contributed $52 million of net sales in 2018, and improved sales for the company’s core hemostats and sealants.

The increase in 2017 was primarily driven by improved volumes internationally.

Separation of Baxalta Incorporated

On July 1, 2015, Baxter completed the distribution of approximately 80.5% of the outstanding common stock of its biopharmaceuticals business, Baxalta Incorporated (Baxalta), to Baxter stockholders (the Distribution).

Unless otherwise stated, financial results herein reflect continuing operations.

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.

Segments

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.

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

| | • | identify and pursue accretive M&A opportunities that generate returns above targeted thresholds. |

| Separation-related costs3 | | | — | | | | — | | | | 1 | |

| Business optimization items1 | | $ | — | | | $ | — | | | $ | (3 | ) |

| Reserve items and adjustments⁷ | | | — | | | | — | | | | (52 | ) |

| Business development items⁸ | | | — | | | | — | | | | (20 | ) |

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

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

| 7 | The company’s results in 2015 included income of $52 million related to a litigation settlement in which Baxter was the beneficiary. |

| 8 | The company’s results in 2015 included a benefit of $20 million relating to the reversal of contingent consideration milestone liabilities. Refer to Note 5 in Item 8 for further information regarding the company’s acquisitions and other arrangements. |

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

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

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.

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.

The company’s global business units (GBUs) reflect the reorganization of the company’s business consistent with its new strategic framework.

These groupings replace the company’s former franchises and include the following:

The increase in 2016 was driven by continued global growth of patients, new product launches and improved pricing in the U.S. PD business.

The decrease in 2016 was a result of U.S. Department of Defense PROTOPAM orders in 2015 that did not reoccur in 2016 and a reduction in sales of U.S. cyclophosphamide from $270 million in 2015 to $210 million in 2016.

Nutrition net sales increased 3% in 2017 and were flat in 2016.

The decrease in 2016 was driven by lower demand for products manufactured by Baxter on behalf of one of its pharmaceutical partners as that partner transitioned to self-manufacture of products previously manufactured by Baxter.

| Gross margin | | | 42.2 | % | | | 40.4 | % | | | 41.6 | % | | 1.8 pts | | (1.2 pts) |

The gross margin ratio was impacted by a positive sales mix, improved pricing in select areas of the portfolio and favorable manufacturing performance, offset by reduced sales of cyclophosphamide in the United States and foreign exchange.

Expense related to the company’s pension and other postemployment benefit plans decreased $111 million in 2016 primarily due to a change in approach to estimating employer service and interest costs and a $706 million voluntary, non-cash contribution to the U.S. qualified plan using Retained Shares.

2017 have resulted in approximately $730 million of savings in 2017.

The actions in the aggregate are expected to provide future annual pre-tax savings of approximately $19 million.

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

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

As of December 31, [removed: 2017,] [added: 2018,] Baxter manufactured products in over 20 countries and sold them in over 100 countries.

[removed: As a result, the] [added: The] company [removed: now reports] [added: manages] its [removed: financial performance] [added: business] based on [removed: its new] [added: three geographic] 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 [removed: products across its portfolio,] [added: products,] including acute and chronic dialysis therapies; sterile IV solutions; infusion systems and devices; parenteral nutrition therapies; inhaled anesthetics; generic injectable pharmaceuticals; and surgical hemostat and sealant products.

For financial information about Baxter’s [removed: segments (which includes recast information for earlier periods),] [added: segments,] see Note [removed: 17] [added: 18] in Item 8 of this Annual Report on Form 10-K.

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: 2017.][added: 2018.]

For financial information about foreign and domestic operations and geographic information, see Note [removed: 17] [added: 18] in Item 8 of this Annual Report on Form 10-K.

[removed: Substantial portions of the] [added: The] company’s products are sold through contracts with customers, both within and outside the United States.

GPOs and IDNs negotiate pricing arrangements with manufacturers and [removed: distributors,] [added: distributors] and the negotiated prices are made available to members.

Baxter’s 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, [removed: group purchasing organizations,] [added: GPOs,] physicians, and patients, many who self-administer the home-based therapies supplied by Baxter.

For more information on patent and other litigation, see Note [removed: 16] [added: 17] in Item 8 of this Annual Report on Form 10-K.

Expenditures for Baxter’s R&D activities were [removed: $617] [added: $655] million in [removed: 2017, $647] [added: 2018, $613] million in [removed: 2016,] [added: 2017,] and [removed: $603] [added: $646] million in [removed: 2015.][added: 2016.]

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, [added: India,] 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.]

On July 1, 2015, Baxter completed the distribution of approximately 80.5% of the outstanding common stock of Baxalta to Baxter [removed: shareholders] [added: stockholders] (the Distribution).

The Distribution was made to Baxter’s [removed: shareholders] [added: stockholders] of record as of the close of business on June 17, 2015 (the Record Date), who received one share of Baxalta common stock for each Baxter common share held as of the Record Date.

As of December 31, [removed: 2017,] [added: 2018,] Baxter employed approximately [removed: 47,000] [added: 50,000] people.

Baxter makes available free of charge on its website at www.baxter.com its Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (Exchange Act), as soon as reasonably practicable after electronically filing or furnishing such material [removed: to] [added: with] the Securities and Exchange Commission.

In January 2019, Takeda Pharmaceutical Company Limited (Takeda) acquired Shire.

These reports are also available free of charge via EDGAR through the Securities and Exchange Commission website (www.sec.gov).

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.

The local separation of Baxalta’s business in certain countries outside the United States did not occur prior to the distribution date due to regulatory requirements, the need to obtain consents from local governmental authorities and other business reasons.

Separation of the remaining three countries has occurred as of December 31, 2017.

Incorporated by reference to Note [removed: 16] [added: 17] in Item 8 of this Annual Report on Form 10-K.

10-K 1 [removed: bax-10k_20171231.htm] [added: bax-10k_20181231.htm] 10-K

For the fiscal year ended December 31, [removed: 2017][added: 2018]

[removed: ][added: ]

Indicate by check mark whether registrant has submitted electronically [removed: and posted on its corporate website, if any,] every Interactive Data File required to be submitted and [removed: posted] pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit [removed: and post] such files) Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated [removed: filer or] [added: filer,] a smaller reporting [added: company or an emerging growth] company.

See the definitions of “large accelerated filer,” “accelerated [removed: filer” and] [added: filer,”] “smaller reporting company” [added: and “emerging growth company”] in Rule 12b-2 of the Exchange Act.

| Non-accelerated filer | ☐ | [removed: (Do not check if a smaller reporting company)] | | Smaller reporting company | ☐ |

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the [added: Exchange] Act).

The aggregate market value of the voting common equity held by non-affiliates of the registrant as of June [removed: 30, 2017] [added: 29, 2018] (the last business day of the registrant’s most recently completed second fiscal quarter), based on the per share closing sale price of [removed: $60.54] [added: $73.84] 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: $33] [added: $40] billion.

The number of shares of the registrant’s common stock, $1.00 par value, outstanding as of January 31, [removed: 2018] [added: 2019] was [removed: 540,138,815.][added: 512,538,202.]

Portions of the registrant’s definitive [removed: 2018] [added: 2019] proxy statement for use in connection with its Annual Meeting of Stockholders to be held on May [removed: 8, 2018] [added: 7, 2019] are incorporated by reference into Part III of this report.

| Item 1B. | | [Unresolved Staff Comments](#ITEM_1B_UNRESOLVED_STAFF_COMMENTS) | | [removed: 13] [added: 14] |

| Item 2. | | [Properties](#ITEM_2_PROPERTIES) | | [removed: 14] [added: 15] |

| Item 3. | | [Legal Proceedings](#ITEM_3_LEGAL_PROCEEDINGS) | | [removed: 15] [added: 16] |

| Item 4. | | [Mine Safety Disclosures](#ITEM_4_MINE_SAFETY_DISCLOSURES) | | [removed: 15] [added: 16] |

| 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: 17] [added: 18] |

| Item 6. | | [Selected Financial Data](#ITEM_6_SELECTED_FINANCIAL_DATA) | | [removed: 18] [added: 19] |

| Item 7. | | [Management’s Discussion and Analysis of Financial Condition and Results of Operations](#ITEM_7_MANAGEMENTS_DISCUSSION_ANALYSIS_F) | | [removed: 20] [added: 21] |

| Item 7A. | | [Quantitative and Qualitative Disclosures About Market Risk](#ITEM_7A_QUANTITATIVE_QUALITATIVE_DISCLOS) | | [removed: 42] [added: 43] |

| Item 8. | | [Financial Statements and Supplementary Data](#ITEM_8_FINANCIAL_STATEMENTS_SUPPLEMENTAR) | | [removed: 43] [added: 44] |

| Item 9. | | [Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](#ITEM_9_CHANGES_IN_DISAGREEMENTS_WITH_ACC) | | [removed: 93] [added: 98] |

| Item 9A. | | [Controls and Procedures](#ITEM_9A_CONTROLS_PROCEDURES) | | [removed: 93] [added: 98] |

| Item 9B. | | [Other Information](#ITEM_9B_OR_INFORMATION) | | [removed: 94] [added: 98] |

| Item 10. | | [Directors, Executive Officers and Corporate Governance](#ITEM_10_DIRECTORS_EXECUTIVE_FICERS_CORPO) | | [removed: 95] [added: 99] |

| Item 11. | | [Executive Compensation](#ITEM_11_EXECUTIVE_COMPENSATION) | | [removed: 95] [added: 99] |

| Item 12. | | [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](#ITEM_12_SECURITY_OWNERSHIP_CERTAIN_BENEF) | | [removed: 95] [added: 99] |

| Item 13. | | [Certain Relationships and Related Transactions, and Director Independence](#ITEM_13_CERTAIN_RELATIONSHIPS_RELATED_TR) | | [removed: 96] [added: 100] |

| Item 14. | | [Principal Accountant Fees and Services](#ITEM_14_PRINCIPAL_ACCOUNTANT_FEES_SERVIC) | | [removed: 96] [added: 100] |

| Item 15. | | [Exhibits and Financial Statement Schedules](#ITEM_15_EXHIBITS_FINANCIAL_STATEMENT_SCH) | | [removed: 97] [added: 101] |

| Item 16. | | [Form 10-K Summary](#ITEM_16_FORM_10K_SUMMARY) | | [removed: 98] [added: 102] |

The [removed: company’s] [added: location of the] principal manufacturing facilities [removed: by] [added: of each of the company’s] geographic [removed: location] [added: segments] are listed below:

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

[added: Australia, Austria, Belgium, Brazil, 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 Kingdom, and Venezuela.

| | | Ahmedabad, India | | Owned |

Internationally, we have more than 100 shared distribution facilities located in Argentina,

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,

As of February [removed: 23, 2018,] [added: 21, 2019,] the following serve as Baxter’s executive officers:

Almeida, age [removed: 55,] [added: 56,] is Chairman, President and Chief Executive Officer, having served in that capacity since January 2016.

Giuseppe Accogli, age [removed: 47,] [added: 48,] is Senior Vice President and President, Global Businesses.

Eyre, age [removed: 54,] [added: 55,] is Senior Vice President and President, Americas.

Cristiano Franzi, age [removed: 55,] [added: 56,] is Senior Vice President and President, EMEA.

Andrew Frye, age [removed: 52,] [added: 53,] is Senior Vice President and President, APAC.

Sean Martin, age [removed: 55,] [added: 56,] is Senior Vice President and General Counsel.

Mason, Ph.D., age [removed: 62,] [added: 63,] is Senior Vice President, Human Resources.

Scott Pleau, age [removed: 52,] [added: 53,] is Senior Vice President, Operations.

Saccaro, age [removed: 45,] [added: 46,] is Executive Vice President and Chief Financial Officer.

The following table includes information about the company’s common stock repurchases during the three-month period ended December 31, [removed: 2017.][added: 2018.]

| (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 [added: each of] November [removed: 2016.] [added: 2016 and February 2018 and by an additional $2.0 billion in November 2018.] During the fourth quarter of [removed: 2017,] [added: 2018,] the company repurchased approximately [removed: 4.5] [added: 20.9] million shares for [removed: $289 million] [added: $1.4 billion] in cash pursuant to this authority through Rule 10b5-1 purchase [removed: plans.] [added: plans, an accelerated share repurchase program and otherwise.] The remaining authorization under this program totaled approximately [removed: $1.1] [added: $2.1] billion at December 31, [removed: 2017. The Board of Directors increased this authority by an additional $1.5 billion in February] 2018. [removed: 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. |

The New York Stock Exchange is the principal market on which the company’s common stock is [removed: traded.][added: traded under the symbol “BAX”.]

At January 31, [removed: 2018,] [added: 2019,] there were [removed: 26,370] [added: 24,563] holders of record of the company’s common stock.

The following graph compares the change in Baxter’s cumulative total [removed: shareholder] [added: stockholder] return (including reinvested dividends) on Baxter’s common stock with the Standard & Poor’s 500 Composite Index and the Standard & Poor’s 500 Health Care Index over the past five years.

[removed: ][added: ]

| October 1, 2018 through October 31, 2018 | | 1,328,099 | | $ | 70.35 | | | 1,328,099 | | | | |

| November 1, 2018 through November 30, 2018 | | 953,202 | | $ | 63.28 | | | 953,202 | | | | |

| December 1, 2018 through December 31, 2018 (2) | | 18,627,352 | | $ | 66.23 | | | 18,627,352 | | | | |

| Total | | 20,908,653 | | $ | 66.36 | | | 20,908,653 | | $ | 2,144,034,361 | |

| (2) | In December 2018, the company entered into an accelerated share repurchase agreement to repurchase an aggregate of $300 million of common stock. In December 2018, 3.6 million shares were initially delivered to the company and the final number of shares and the average purchase price will be determined at the end of the purchase period, which is scheduled to occur in the second quarter of 2019 but may occur earlier in certain circumstances. |

| --- | --- |

| 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 | |

See Note 1 of Item 8 [added: of this Annual Report on Form 10-K] for additional details regarding basis of presentation.

| Operating Results | | Net sales | | $ | [removed: 10,561] [added: 11,127] | | | | [removed: 10,163] [added: 10,561] | | | | [removed: 9,968] [added: 10,163] | | | | [removed: 10,719] [added: 9,968] | | | | [removed: 9,413] [added: 10,719] | |

| (in millions) | | Income from continuing operations | | $ | [removed: 724] [added: 1,630] | | | | [removed: 4,966] [added: 724] | | | | [removed: 393] [added: 4,966] | | | | [removed: 457] [added: 393] | | | | [removed: 315] [added: 457] | |

| | | (Loss) income from discontinued operations, net of tax | | $ | [removed: (7] [added: (6] | ) | | | [removed: (1] [added: (7] | ) | | | [removed: 575] [added: (1] | [added: )] | | | [removed: 2,040] [added: 575] | | | | [removed: 1,697] [added: 2,040] | |

| | | Net income | | $ | [removed: 717] [added: 1,624] | | | | [removed: 4,965] [added: 717] | | | | [removed: 968] [added: 4,965] | | | | [removed: 2,497] [added: 968] | | | | [removed: 2,012] [added: 2,497] | |

| Balance Sheet | | Capital expenditures, continuing operations | | $ | [removed: 634] [added: 681] | | | | [removed: 719] [added: 634] | | | | [removed: 911] [added: 719] | | | | [removed: 925] [added: 911] | | | | [removed: 706] [added: 925] | |

| Information | | Total assets | | $ | [removed: 17,111] [added: 15,641] | | | | [removed: 15,546] [added: 17,111] | | | | [removed: 20,962] [added: 15,546] | | | | [removed: 26,138] [added: 20,962] | | | | [removed: 25,224] [added: 26,138] | |

| (in millions) | | Long-term debt and lease obligations | | $ | [removed: 3,509] [added: 3,473] | | | | [removed: 2,779] [added: 3,509] | | | | [removed: 3,922] [added: 2,779] | | | | [removed: 7,331] [added: 3,922] | | | | [removed: 8,126] [added: 7,331] | |

| | | Basic | | | [removed: 543] [added: 534] | | | | [removed: 546] [added: 543] | | | | [removed: 545] [added: 546] | | | | [removed: 542] [added: 545] | | | | [removed: 543] [added: 542] | |

| | | Diluted | | | [removed: 555] [added: 546] | | | | [removed: 551] [added: 555] | | | | [removed: 549] [added: 551] | | | | [removed: 547] [added: 549] | | | | [removed: 549] [added: 547] | |

| | | Basic | | $ | [removed: 1.33] [added: 3.05] | | | | [removed: 9.10] [added: 1.33] | | | | [removed: 0.72] [added: 9.10] | | | | [removed: 0.84] [added: 0.72] | | | | [removed: 0.58] [added: 0.84] | |

| | | Diluted | | $ | [removed: 1.30] [added: 2.99] | | | | [removed: 9.01] [added: 1.30] | | | | [removed: 0.72] [added: 9.01] | | | | [removed: 0.83] [added: 0.72] | | | | [removed: 0.57] [added: 0.83] | |

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

| | | Diluted | | $ | [removed: (0.01] [added: (0.02] | ) | | | [removed: —] [added: (0.01] | [added: )] | | | [removed: 1.04] [added: —] | | | | [removed: 3.73] [added: 1.04] | | | | [removed: 3.09] [added: 3.73] | |

| | | Basic | | $ | [removed: 1.32] [added: 3.04] | | | | [removed: 9.09] [added: 1.32] | | | | [removed: 1.78] [added: 9.09] | | | | [removed: 4.61] [added: 1.78] | | | | [removed: 3.70] [added: 4.61] | |

| | | Diluted | | $ | [removed: 1.29] [added: 2.97] | | | | [removed: 9.01] [added: 1.29] | | | | [removed: 1.76] [added: 9.01] | | | | [removed: 4.56] [added: 1.76] | | | | [removed: 3.66] [added: 4.56] | |

| | | Cash dividends declared per common share | | $ | [removed: 0.610] [added: 0.730] | | | | [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: 2] [added: 3] | 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 [added: U.S.] tax reform. Also included was a benefit of $12 million related to an adjustment to the company’s historical rebates and discount reserves. |

| [removed: 3] [added: 4] | 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 [removed: redemptions,] [added: redemptions and] $51 million for impairment primarily related to developed [removed: technology and $9 million related to the settlement of an income tax matter in the company’s non-wholly owned joint venture in Turkey.] [added: technology.] Also included were net realized gains of $4.4 billion related to the Baxalta Retained Shares [removed: transactions and] [added: transactions,] a benefit of $18 million primarily related to adjustments to the COLLEAGUE and SIGMA SPECTRUM infusion pump [removed: reserves.] [added: reserves and a benefit of $10 million related to the settlement of an income tax matter in the company’s non-wholly owned subsidiary in Turkey.] |

| [removed: 4] [added: 5] | 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: 5] [added: 6] | Income from continuing operations included charges totaling $138 million for business optimization, $68 million for SIGMA [removed: Spectrum Infusion Pump] [added: 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. |

| as of or for the years ended December 31 | | | | 20182,1 | | | | 20173,1 | | | | 20164,1 | | | | 20155,1 | | | | 20146,1 | | |

| 2 | Income from continuing operations included charges totaling $220 million for business optimization, $33 million related to acquisition and integration activities, $10 million related to certain product litigation and $9 million related to European medical devices regulations. Also included were benefits totaling $80 million related to a settlement with Claris Lifesciences Limited, $6 million related to a reduction of SIGMA SPECTRUM infusion pump inspection and remediation reserves, $42 million related to insurance recoveries as a result of losses incurred due to Hurricane Maria and $196 million primarily related to the impact of U.S. tax reform. |

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

| --- | --- |

| 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 |

| | 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 December 31 (in millions, except share information) | | | | [removed: 2017] [added: 2018] | | | | [removed: 2016] [added: 2017] | | |

| Current assets | | Cash and [added: cash] equivalents | | $ | [removed: 3,394] [added: 1,832] | | | $ | [removed: 2,801] [added: 3,394] | |

| | | Accounts and other current receivables, net | | | [removed: 1,793] [added: 1,812] | | | | [removed: 1,691] [added: 1,793] | |

| | | Inventories | | | [removed: 1,475] [added: 1,653] | | | | [removed: 1,430] [added: 1,475] | |

| | | Prepaid expenses and other | | | [removed: 601] [added: 622] | | | | [removed: 602] [added: 601] | |

| | | Total current assets | | | [removed: 7,263] [added: 5,919] | | | | [removed: 6,574] [added: 7,263] | |

| Property, plant and equipment, net | | | | | [removed: 4,588] [added: 4,542] | | | | [removed: 4,289] [added: 4,588] | |

| Other assets | | Goodwill | | | [removed: 3,099] [added: 2,958] | | | | [removed: 2,595] [added: 3,099] | |

| | | Other intangible assets, net | | | [removed: 1,374] [added: 1,398] | | | | [removed: 1,111] [added: 1,374] | |

| | | Other | | | [removed: 787] [added: 824] | | | | [removed: 977] [added: 787] | |

| | | Total other assets | | | [removed: 5,260] [added: 5,180] | | | | [removed: 4,683] [added: 5,260] | |

| | | Total assets | | $ | [removed: 17,111] [added: 15,641] | | | $ | [removed: 15,546] [added: 17,111] | |

| [removed: Current liabilities] | | Current maturities of long-term debt and lease obligations | | [removed: $] | [removed: 3] [added: 2] | | | [removed: $] | 3 | |

| | | Accounts payable and accrued liabilities | | | [removed: 2,733] [added: 2,728] | | | | [removed: 2,612] [added: 2,733] | |

| | | Current income taxes payable | | | [removed: 85] [added: 104] | | | | [removed: 126] [added: 85] | |

| | | Total current liabilities | | | [removed: 2,821] [added: 2,836] | | | | [removed: 2,744] [added: 2,821] | |

| Long-term debt and lease obligations | | | | | [removed: 3,509] [added: 3,473] | | | | [removed: 2,779] [added: 3,509] | |

| Other long-term liabilities | | | | | [removed: 1,665] [added: 1,516] | | | | [removed: 1,743] [added: 1,665] | |

| Equity | | Common stock, $1 par value, authorized 2,000,000,000 shares, issued 683,494,944 shares in [removed: 2017] [added: 2018] and [removed: 2016] [added: 2017] | | | 683 | | | | 683 | |

| | | Common stock in treasury, at cost, [removed: 142,017,600] [added: 170,495,859] shares in [removed: 2017] [added: 2018] and [removed: 143,890,064] [added: 142,017,600] shares in [removed: 2016] [added: 2017] | | | [removed: (7,981] [added: (9,989] | ) | | | [removed: (7,995] [added: (7,981] | ) |

| | | Additional contributed capital | | | [removed: 5,940] [added: 5,898] | | | | [removed: 5,958] [added: 5,940] | |

| | | Retained earnings | | | [removed: 14,483] [added: 15,626] | | | | [removed: 14,200] [added: 14,483] | |

| | | Accumulated other comprehensive (loss) income | | | [removed: (4,001] [added: (4,424] | ) | | | [removed: (4,556] [added: (4,001] | ) |

| [removed: | |] Total Baxter [removed: shareholders’] [added: stockholders’] equity | | | [added: | | | $ | 7,794 | | | | | | | $ |] 9,124 | | | | [added: | | | $ |] 8,290 | |

| | | Noncontrolling interests | | | [removed: (8] [added: 22] | [removed: )] | | | [removed: (10] [added: (8] | ) |

| [removed: | |] Total equity | | | [added: | | | $ | 7,816 | | | | | | | $ |] 9,116 | | | | [added: | | | $ |] 8,280 | |

| | | Total liabilities and equity | | $ | [removed: 17,111] [added: 15,641] | | | $ | [removed: 15,546] [added: 17,111] | |

| years ended December 31 (in millions, except per share data) | | [removed: 2017] [added: 2018] | | | | [removed: 2016] [added: 2017] | | | | [removed: 2015] [added: 2016] | | |

| Net sales | | $ | [removed: 10,561] [added: 11,127] | | | $ | [removed: 10,163] [added: 10,561] | | | $ | [removed: 9,968] [added: 10,163] | |

| Marketing and administrative expenses | | | [removed: 2,587] [added: —] | | | | [removed: 2,739] [added: (1] | [added: )] | | | [removed: 3,094] [added: (20] | [added: )] |

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

| Net interest expense | | | [removed: 55] [added: 45] | | | | [removed: 66] [added: 55] | | | | [removed: 126] [added: 66] | |

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

| Income from continuing operations before income taxes | | | [removed: 1,217] [added: 1,693] | | | | [removed: 4,954] [added: 1,217] | | | | [removed: 428] [added: 4,954] | |

| Income tax [removed: (benefit)] expense [added: (benefit)] | | | [removed: 493] [added: 63] | | | | [removed: (12] [added: 493] | [removed: )] | | | [removed: 35] [added: (12] | [added: )] |

| Income from continuing operations | | | [removed: 724] [added: 1,630] | | | | [removed: 4,966] [added: 724] | | | | [removed: 393] [added: 4,966] | |

| [removed: (Loss) income] [added: Loss] from discontinued operations, net of tax | | | [removed: (7] [added: (6] | ) | | | [removed: (1] [added: (7] | ) | | | [removed: 575] [added: (1] | [added: )] |

| Net income | | $ | [removed: 717] [added: 1,624] | | | $ | [removed: 4,965] [added: 717] | | | $ | [removed: 968] [added: 4,965] | |

| Basic | | $ | [removed: 1.33] [added: 3.05] | | | $ | [removed: 9.10] [added: 1.33] | | | $ | [removed: 0.72] [added: 9.10] | |

| Diluted | | $ | [removed: 1.30] [added: 2.99] | | | $ | [removed: 9.01] [added: 1.30] | | | $ | [removed: 0.72] [added: 9.01] | |

| Current liabilities | | Short-term debt | | $ | 2 | | | $ | — | |

| | | Total liabilities | | | 7,825 | | | | 7,995 | |

| Cost of sales | | | 6,346 | | | | 6,091 | | | | 6,047 | |

| Gross margin | | | 4,781 | | | | 4,470 | | | | 4,116 | |

| Operating income | | | 1,599 | | | | 1,291 | | | | 745 | |

| Other (income) expense, net | | | (139 | ) | | | 19 | | | | (4,275 | ) |

| | | Inventories | | | (197 | ) | | | 76 | | | | 80 | |

| (Increases) decreases in the accrual for capital expenditures | | | | $ | (33 | ) | | $ | 9 | | | $ | 28 | |

| Purchases of common stock | | | | | | | (60 | ) | | | | | | | — | | | | | | | | — | |

| Net income | | | | | | | 1,624 | | | | | | | | 717 | | | | | | | | 4,965 | |

| Adoption of new accounting standards | | | | | | | (18 | ) | | | | | | | — | | | | | | | | — | |

| Adoption of new accounting standard | | | | | | | (3 | ) | | | | | | | — | | | | | | | | — | |

On November 18, 2018, Baxter acquired a controlling financial interest in its joint venture in Saudi Arabia.

The acquisition allows the company to increase manufacturing output and utilize the facilities for additional capacity for certain products in the region.

Beginning in the fourth quarter of 2018, the company consolidated the financial statements of the joint venture with the company's consolidated financial statements.

On March 16, 2018, Baxter acquired two hemostat and sealant products from Mallinckrodt plc: RECOTHROM Thrombin topical (Recombinant) and PREVELEAK Surgical Sealant for total consideration of $184 million.

Beginning March 16, 2018, Baxter’s financial statements include the assets, liabilities and operating results of RECOTHROM and PREVELEAK.

Refer to Note 5 for additional information.

Refer to Note 5 for additional information.

In January 2019, Takeda Pharmaceutical Company Limited (Takeda) acquired Shire.

In the first quarter of 2016, the Venezuelan government moved from the three-tier exchange rate system to a two-tiered

In 2018, the company liquidated its subsidiary in Venezuela and currently sells direct to distributors in that country through legal entities outside of Venezuela.

These distributors purchase applicable products from the company in U.S. dollars and are responsible for importing those products into Venezuela.

In 2018, the company recognized $42 million of insurance recoveries related to the previously mentioned asset impairments and idle facility and other costs suffered as a result of the hurricane.

These benefits were recorded as a reduction of cost of sales and within other operating income in the consolidated statement of income for the year ended December 31, 2018.

Results for the year ended December 31, 2018 are presented under Topic 606, while earlier periods are presented under previous guidance.

See further discussion of the impact of Topic 606 below under the header “New Accounting Standards.”

Revenue is recognized when obligations under the terms of a contract with a customer are satisfied; generally this occurs with the transfer of control of the company’s products or services.

The company’s global payment terms are typically between 30-90 days.

Revenue is measured as the amount of consideration the company expects to receive in exchange for transferring goods or providing services.

A performance obligation is a promise in a contract to transfer a distinct good or service to the customer, and is the unit of account in the contract.

A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied.

Some of the company’s contracts have multiple performance obligations.

For contracts with multiple performance obligations, the company allocates the contract’s transaction price to each performance obligation using its best estimate of the standalone selling price of each distinct good or service in the contract.

The majority of the company’s performance obligations are satisfied at a point in time.

This includes sales of the company’s broad portfolio of essential healthcare products across its geographic segments including acute and chronic dialysis therapies; sterile IV solutions; infusion systems and devices; parenteral nutrition therapies; inhaled anesthetics; generic injectable pharmaceuticals; and surgical hemostat and sealant products.

For a majority of these sales, the company’s performance obligation is satisfied upon delivery to the customer.

Shipping and handling activities are considered to be fulfillment activities and are not considered to be a separate performance obligation.

To a lesser extent, in all the company’s segments, the company enters into other types of contracts including contract manufacturing arrangements, equipment leases, and certain subscription software and licensing arrangements.

The company recognizes revenue for these arrangements over time or at a point in time depending on its evaluation of when the customer obtains control of the promised goods or services.

| --- | --- |

| | | Current assets held for disposition | | | — | | | | 50 | |

| | | Current liabilities held for disposition | | | — | | | | 3 | |

| Cost of sales | | | 6,099 | | | | 6,053 | | | | 5,822 | |

| Gross margin | | | 4,462 | | | | 4,110 | | | | 4,146 | |

| Operating income | | | 1,258 | | | | 724 | | | | 449 | |

| | | Infusion pump and other product-related charges | | | (4 | ) | | | (18 | ) | | | (28 | ) |

| Distribution of Baxalta | | | | | | | — | | | | | | | | — | | | | | | | | 350 | |

References in this report to Baxalta prior to the Merger closing date refers to Baxalta as a stand-alone public company.

References in this report to Baxalta subsequent to the Merger closing date refer to Baxalta as a subsidiary of Shire.

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.

The company recognizes revenues from product sales and services when earned.

Specifically, revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred (or services have been rendered), the price is fixed or determinable, and collectability is reasonably assured.

For product sales, revenue is not recognized until title and risk of loss have transferred to the customer.

The shipping terms for the majority of the company’s revenue arrangements are FOB destination.

The recognition of revenue is delayed if there are significant post-delivery obligations, such as training, installation or other services.

Provisions for discounts, rebates to customers, chargebacks to wholesalers and returns are provided for at the time the related sales are recorded, and are reflected as a reduction to gross sales to arrive at net sales.

The company sometimes enters into arrangements in which it commits to delivering multiple products or services to its customers.

In these cases, total arrangement consideration is allocated to the deliverables based on their relative selling prices.

Then the allocated consideration is recognized as revenue in accordance with the principles described above.

Selling prices are determined by applying a selling price hierarchy and by using vendor specific objective evidence (VSOE), if it exists.

Otherwise, selling prices are determined using third party evidence (TPE).

If neither VSOE nor TPE is available, the company uses its best estimate of selling prices.

The company reviews

Goodwill would be impaired if the carrying amount of a reporting unit exceeded the fair value of that reporting unit, calculated as the present value of estimated cash flows discounted using a risk-free market rate adjusted for a market participant’s view of similar companies and perceived risks in the cash flows.

The implied fair value of goodwill is then determined by subtracting the fair value of all identifiable net assets other than goodwill from the fair value of the reporting unit, with an impairment charge recorded for the excess, if any, of carrying amount of goodwill over the implied fair value.

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.

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

This update will establish a lease asset and lease liability by lessees for those leases classified as operating under current GAAP.

Leases will be classified as either operating or finance under the new guidance.

Operating leases will result in straight-line expense in the income statement, similar to current operating leases, and finance leases will result in more expense being recognized in the earlier years of the lease term, similar to current capital leases.

This ASU is effective for the company beginning January 1, 2019.

ASU No. 2014-09 will be effective for the company beginning on January 1, 2018.

The standard may be applied retrospectively to each prior period presented or retrospectively with the cumulative effect recognized as of the date of adoption.

The company has completed an assessment of the new standard and is currently executing its detailed implementation plan and developing processes and controls for gathering information for required disclosures.

The company does not expect ASU 2014-09 to have a material impact to reported revenue in subsequent reporting periods.

The measurement period shall not exceed one year from enactment, December 22, 2018.

The Distribution was made to Baxter’s shareholders of record as of the close of business on June 17, 2015 (Record Date), who received one share of Baxalta common stock for each Baxter common share held as of the Record Date.

As a result of the Distribution, Baxalta became an independent public company trading under the symbol “BXLT” on the New York Stock Exchange.

As of December 31, 2016, Baxter recorded a liability of $47 million for its obligation to transfer these net assets, primarily accounts and other current receivables, net, to Baxalta.

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 [added: Securities] Exchange [removed: Act)] [added: Act of 1394,] as [added: amended (the Exchange Act)) as] of December 31, [removed: 2017.][added: 2018.]

Based on that [removed: evaluation] [added: 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: 2017.][added: 2018.]

Management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the [removed: Securities] Exchange [removed: Act of 1934, as amended.][added: Act.]

Management performed an assessment of the effectiveness of the company’s internal control over financial reporting as of December 31, [removed: 2017.][added: 2018.]

Based on that assessment under the framework in Internal Control-Integrated Framework [removed: (2013) ,] [added: (2013),] management concluded that the company’s internal control over financial reporting was effective as of December 31, [removed: 2017.][added: 2018.]

The effectiveness of the company’s internal control over financial reporting as of December 31, [removed: 2017] [added: 2018] has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which appears herein.

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: 2017] [added: 2018] 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.

None.

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.

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: 8, 2018] [added: 7, 2019] (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: 2017.][added: 2018.]

| Plan Category | | Number of Shares to be Issued upon Exercise of Outstanding Options, Warrants and Rights(a) | | | | | Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights(b) | | | | | Number of Shares Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Shares Reflected in [removed: Column(a))(c)] [added: Column(a)(b))] | | | |

| (3) | Includes (i) [removed: 4,155,853] [added: 3,387,916] shares of common stock available for purchase under the Employee Stock Purchase Plan; (ii) [removed: 287,512] [added: 400,387] shares of common stock available under the 2007 Incentive Plan; (iii) [removed: 8,571,623] [added: 8,936,287] shares of common stock available under the 2011 Incentive Plan; and (iv) [removed: 23,015,120] [added: 17,567,468] shares of common stock available under the 2015 Incentive Plan. |

| (4) | Includes shares of common stock issuable upon exercise of options granted under the 2001 Incentive Compensation Program. These shares were made available pursuant to an amendment thereto not approved by [removed: shareholders.] [added: stockholders.] These additional shares were approved by the company’s [removed: board] [added: Board] of [removed: directors,] [added: Directors,] not the company’s [removed: shareholders,] [added: stockholders,] although the company [removed: shareholders] [added: stockholders] have approved the 2001 Incentive Compensation Program. |

| (5) | Includes outstanding awards of [removed: 28,208,052] [added: 25,313,685] stock options, which have a weighted-average exercise price of [removed: $39.25] [added: $43.76] and a weighted-average remaining term of [removed: 6.2] [added: 5.8] years, [removed: 2,200,782] [added: 1,611,179] shares of common stock issuable upon vesting of restricted stock units, and [removed: 459,623] [added: 913,482] shares of common stock reserved for issuance in connection with performance share unit grants. |

| Equity Compensation Plans Approved by Stockholders | | | 28,151,039 | | (1) | | $ | 43.83 | | (2) | | | 30,292,058 | | (3) |

| Equity Compensation Plans Not Approved by Stockholders | | | 107,427 | | (4) | | $ | 28.97 | | | | | — | | |

| Total | | | 28,258,466 | | (5) | | $ | 43.76 | | (2) | | | 30,292,058 | | |

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

| Equity Compensation Plans Not Approved by Shareholders | | | 461,283 | | (4) | | $ | 30.50 | | | | | — | | |

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

| | | [Consolidated Balance Sheets](#CONSOLIDATED_BALANCE_SHEETS) | | [removed: 43] [added: 44] |

| | | [Consolidated Statements of Income](#CONSOLIDATED_STATEMENTS_INCOME) | | [removed: 44] [added: 45] |

| | | [Consolidated Statements of Comprehensive Income](#CONSOLIDATED_STATEMENTS_COMPREHENSIVE_IN) | | [removed: 45] [added: 46] |

| | | [Consolidated Statements of Cash Flows](#CONSOLIDATED_STATEMENTS_CASH_FLOWS) | | [removed: 46] [added: 47] |

| | | [Consolidated Statements of Changes in Equity](#CONSOLIDATED_STATEMENTS_CHANGES_IN_EQUIT) | | [removed: 47] [added: 48] |

| | | [Notes to Consolidated Financial Statements](#NOTES_TO_CONSOLIDATED_FINANCIAL_STATEMEN) | | [removed: 48] [added: 49] |

| | | [Report of Independent Registered Public Accounting Firm](#REPORT_INDEPENDENT_REGISTERED_PUBLIC_ACC) | | [removed: 91] [added: 96] |

| | | [Schedule II — Qualifying and Valuation accounts for each of the three years in the period ended December 31, [removed: 2017](#SCHEDULE_II)] [added: 2018](#SCHEDULE_II)] | | [removed: 103] [added: 108] |

| C 10.13 | | [Baxter International Inc. 2015 Incentive Plan (incorporated by reference to Appendix A to the Company’s Definitive Proxy Statement on Schedule 14A, filed on March 25, [removed: 2015).](http://www.sec.gov/Archives/edgar/data/10456/000119312515104161/d864138ddef14a.htm)] [added: 2015).](http://www.sec.gov/Archives/edgar/data/10456/000119312515104161/d864138ddef14a.htm#toc864138_20)] |

| C [removed: 10.16] [added: 10.20 C 10.21*] | | [removed: [Baxter] [added: [First Amendment to Baxter] International Inc. [removed: Directors’ Deferred Compensation] [added: Employee Stock Purchase] Plan [removed: (amended and restated effective January 1, 2009) and Amendment No. 1 thereto effective January 1, 2012] [added: (dated as of July 15, 2016)] (incorporated by reference to Exhibit [removed: 10.9] [added: 10.27] to the Company’s Annual Report on Form [removed: 10-K] [added: 10-K,] filed on February 23, [removed: 2012).](http://www.sec.gov/Archives/edgar/data/10456/000119312512075661/d267280dex109.htm)] [added: 2017).](http://www.sec.gov/Archives/edgar/data/10456/000156459017002240/bax-ex1027_383.htm) [Baxter International Inc. Non-Employee Director Compensation Plan (as amended and restated effective January 1, 2018)](https://www.sec.gov/Archives/edgar/data/10456/000156459019003727/bax-ex1021_608.htm).] |

| 21* | | [Subsidiaries of Baxter International [removed: Inc.](https://www.sec.gov/Archives/edgar/data/10456/000156459018002954/bax-ex21_11.htm)] [added: Inc.](https://www.sec.gov/Archives/edgar/data/10456/000156459019003727/bax-ex21_12.htm)] |

| 23* | | [Consent of PricewaterhouseCoopers [removed: LLP.](https://www.sec.gov/Archives/edgar/data/10456/000156459018002954/bax-ex23_10.htm)] [added: LLP.](https://www.sec.gov/Archives/edgar/data/10456/000156459019003727/bax-ex23_10.htm)] |

| 31.1* | | [Certification of Chief Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as [removed: amended.](https://www.sec.gov/Archives/edgar/data/10456/000156459018002954/bax-ex311_9.htm)] [added: amended.](https://www.sec.gov/Archives/edgar/data/10456/000156459019003727/bax-ex311_13.htm)] |

| 31.2* | | [Certification of Chief Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as [removed: amended.](https://www.sec.gov/Archives/edgar/data/10456/000156459018002954/bax-ex312_8.htm)] [added: amended.](https://www.sec.gov/Archives/edgar/data/10456/000156459019003727/bax-ex312_6.htm)] |

| 32.1* | | [Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of [removed: 2002.](https://www.sec.gov/Archives/edgar/data/10456/000156459018002954/bax-ex321_7.htm)] [added: 2002.](https://www.sec.gov/Archives/edgar/data/10456/000156459019003727/bax-ex321_8.htm)] |

| 32.2* | | [Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of [removed: 2002.](https://www.sec.gov/Archives/edgar/data/10456/000156459018002954/bax-ex322_6.htm)] [added: 2002.](https://www.sec.gov/Archives/edgar/data/10456/000156459019003727/bax-ex322_7.htm)] |

DATE: February [removed: 23, 2018][added: 21, 2019]

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 [removed: 23, 2018.][added: 21, 2019.]

| /s/ [removed: Caroline D. Karp] [added: Brian C. Stevens] | | Senior Vice [removed: President] [added: President, Chief Accounting Officer] and Controller |

| [removed: Caroline D. Karp] [added: Brian C. Stevens] | | (principal accounting officer) |

SCHEDULE II – Qualifying and Valuation accounts for each of the three years in the period ended December 31, [removed: 2017][added: 2018]

| Valuation and Qualifying Accounts (in millions) | | Balance at beginning of period | | | | Charged to costs and expenses | | | | [removed: Charged (credited)] [added: (Credited) charged] to other accounts [removed: (1)(2)] [added: (1)] | | | | Deductions [removed: from reserves] | | | | Balance at end of period | | |

| Year ended December 31, [removed: 2015:] [added: 2018:] | | | | | | | | | | | | | | | | | | | | |

| Allowance for doubtful accounts | | $ | [removed: 119] [added: 120] | | | | [removed: 30] [added: 4] | | | | [removed: (10] [added: (7] | ) | | | [removed: (29] [added: (7] | ) | | $ | 110 | |

| Deferred tax asset valuation allowance | | $ | [removed: 129] [added: 483] | | | | [removed: 30] [added: 15] | | | | [removed: (16] [added: (4] | ) | | | [removed: (8] [added: (189] | ) | | $ | [removed: 135] [added: 305] | |

| 3.3 | | [Bylaws, as amended and restated on November 13, 2018 (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K, filed on November 15, 2018).](http://www.sec.gov/Archives/edgar/data/10456/000119312518328076/d639069dex31.htm) |

| C 10.8* | | [Form of Indemnification Agreement entered into with directors and officers.](https://www.sec.gov/Archives/edgar/data/10456/000156459019003727/bax-ex108_609.htm) |

| C 10.16* | | [Baxter International Inc. Directors’ Deferred Compensation Plan (amended and restated effective January 1, 2018).](https://www.sec.gov/Archives/edgar/data/10456/000156459019003727/bax-ex1016_611.htm) |

| (P) | Paper exhibit |

| | | Director |

| Patricia B. Morrison | | |

| | | Director |

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

| Amy A. Wendell | | |

| --- | --- |

| 3.3* | | [Bylaws, as amended and restated on February 20, 2018.](https://www.sec.gov/Archives/edgar/data/10456/000156459018002954/bax-ex33_838.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 10.20 C 10.21 | | [First Amendment to Baxter International Inc. Employee Stock Purchase Plan (dated as of July 15, 2016) (incorporated by reference to Exhibit 10.27 to the Company’s Annual Report on Form 10-K, filed on February 23, 2017).](http://www.sec.gov/Archives/edgar/data/10456/000156459017002240/bax-ex1027_383.htm) [Baxter International Inc. Non-Employee Director Compensation Plan (as amended and restated effective January 1, 2017) (incorporated by reference to Exhibit 10.28 to the Company’s Annual Report on Form 10-K, filed on February 23, 2017).](http://www.sec.gov/Archives/edgar/data/10456/000156459017002240/bax-ex1028_384.htm) |

| 12* | | [Computation of Ratio of Earnings to Fixed Charges.](https://www.sec.gov/Archives/edgar/data/10456/000156459018002954/bax-ex12_12.htm) |

| (P) | Paper exhibit. |

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

| K.J. Storm | | |

| (2) | Amounts include adjustments related to the divestiture of the BioSciences business. |