Baxter International (BAX) 10-K risk factor changes: FY2019 vs FY2018

[removed: We] [added: We] may not achieve our [removed: long-term] financial [removed: improvement goals.][added: goals.]

[removed: We] [added: Since the spin-off of Baxalta, we] have been [removed: implementing] [added: executing on] plans to enhance profitability and returns for our stockholders.

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

[removed: If] [added: If] we are unable to successfully introduce new products or fail to keep pace with advances in technology, our business, financial condition and results of operations could be adversely [removed: affected.][added: affected.]

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

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

For more information on regulatory matters currently affecting us, [added: including quality-related matters,] refer to the discussion under the caption entitled “Certain Regulatory Matters” in Item 7 of this Annual Report on Form 10-K.

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

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

Loss or damage to a manufacturing facility or storage site due to a natural 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 [removed: 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 [removed: paragraph] [added: paragraphs] above).

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

[removed: We] [added: We] are increasingly dependent on information technology systems and subject to privacy and security laws, and our systems and infrastructure face certain risks, including from cyber security breaches and data [removed: leakage.][added: leakage.]

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

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

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

[removed: In May 2018, the] [added: The] GDPR [removed: superseded current European Union data protection legislation, imposed more] [added: imposes] stringent European Union data protection [removed: requirements,] [added: requirements] and [removed: provided] [added: provides] for [removed: greater] [added: significant] penalties for noncompliance.

Security threats, including cyber and other [removed: attacks] [added: attacks,] are becoming increasingly sophisticated, frequent, and adaptive.

[removed: While] [added: Although the prior incidents have not had a material effect on our business and] we have invested [added: and continue to invest] in the protection of data and Technology, there can be no assurance that our efforts will prevent breakdowns, attacks, breaches in our Technology, cyber incidents or other incidents or ensure compliance with all applicable security and privacy laws, regulations and standards, including with respect to third party service providers that host or process Confidential Information on our behalf.

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

[removed: We] [added: We] are subject to a number of existing laws and regulations, non-compliance with which could adversely affect our business, financial condition and results of operations, and we are susceptible to a changing regulatory [removed: environment.][added: environment.]

[added: The same testing and procedures sometimes apply to] current products that are up for authorization [added: or] renewal or are subject to changes in [removed: law] [added: laws] or [removed: regulation] [added: regulations] (for example certain of our medical devices will have to comply with the new European Union Medical Device Regulation).

The laws and standards governing the promotion, 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 [removed: Protection and Affordable Care 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 [removed: in] [added: with] countries subject to these sanctions, including Iran, Sudan, Syria, Russia and Cuba.

These dealings represent an insignificant amount of our consolidated revenues and income but expose us to an increased risk of 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 [added: or] regulations, which are complex and subject to frequent change.

For more information related to our ongoing government investigations, please refer to Note [removed: 17] [added: 9] in Item 8 of this Annual Report on Form 10-K.

[removed: If] [added: If] reimbursement or other payment for our current or future products is reduced or modified in the United States or 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, our business could [removed: suffer.][added: suffer.]

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

Certain portions of the [removed: PPACA,] [added: PPACA] could negatively impact the demand for our products, and therefore our results of operations and financial position.

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

[removed: There] [added: There] is substantial competition in the product markets in which we [removed: operate.][added: operate.]

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

[removed: If] [added: If] our business development activities are unsuccessful, we may not realize the intended [removed: benefits.][added: benefits.]

We expect to continue to engage in business development [removed: activities] [added: activities,] including evaluating acquisitions, joint development opportunities, technology licensing arrangements and other opportunities.

Certain of these activities are subject to antitrust and competition laws, which laws could impact our ability to pursue strategic transactions and could result in mandated divestitures [removed: in the context of proposed acquisitions.]

For more information on recent business development activities, see Note [removed: 5] [added: 4] in Item 8 of this Annual Report on Form 10-K.

[removed: If] [added: If] we are unable to protect our patents or other proprietary rights, or if we infringe the patents or other proprietary rights of others, our competitiveness and business prospects may be materially [removed: damaged.][added: damaged.]

[removed: We] [added: We] are subject to risks associated with doing business [removed: globally.][added: globally.]

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, [added: tariffs,] export control restrictions, changes in or violations of U.S. or local laws, including the FCPA, the United Kingdom Bribery Act, GDPR and other data privacy laws, dependence on a few government entities as customers, pricing restrictions, economic and political instability, monetary or currency volatility or instability (including as it relates to the U.S. dollar, the Euro, the Yuan and currencies in emerging market countries), disputes between countries, [added: trade relationships and conflicts,] diminished or insufficient protection of intellectual property, and disruption or destruction of operations in a significant geographic region regardless of cause, including natural disaster, pandemic, power loss, [removed: cyber attack,] [added: cyber-attack,] data breach, war, terrorism, riot, labor disruption, civil insurrection or social unrest.

The [removed: potential] withdrawal by the UK from the EU, particularly if [removed: such withdrawal occurs] [added: the transition period expires] without a [removed: transitional] [added: trade] agreement between the UK and the EU, could result in the deterioration of economic conditions, volatility in currency exchange rates, and increased regulatory complexities, as well as the potential for product shortages, increased costs or other similar effects.

[removed: Changes] [added: Changes] in foreign currency exchange rates and interest rates could have a material adverse effect on our operating results and [removed: liquidity.][added: liquidity.]

costs of supply, energy and transportation/freight.

Our manufacturing capacity may also be adversely affected by public health crises and epidemics/pandemics, such as the novel strain of coronavirus (COVID-19), as a result of which we may be unable to obtain sufficient components or raw materials on a timely basis or at a cost-effective price.

Although we have not experienced significant manufacturing or supply difficulties as a result of COVID-19, the degree and duration of disruptions to business activity are unknown at this time.

In addition, several of our manufacturing facilities are leased and we may not be able to renew leases on favorable terms or at all.

Any of the foregoing could adversely affect our business, financial condition and results of operations.

Some of our products require sterilization prior to sale or distribution, and we utilize both Baxter-owned and third-party facilities for this process.

If an event occurs that results in damage to or closure, whether temporarily or permanent, of one or more of these facilities, we may be unable to manufacture or sterilize the relevant products at prior levels or at all, and a third party may not be available on a timely basis (if at all) to replace sterilization capacity.

For example, in February 2020, certain air emission control technology used to reduce ethylene oxide emissions from sterilization equipment at our facility in Mountain Home, Arkansas, was tested and determined not to operate in accordance with applicable emission limitations in our state-issued air permit.

Although we received a temporary variance and have recommenced operations, these events or other disruptions of manufacturing or sterilization processes that we or third parties may experience, whether due to lack of capacity, environmental, regulatory or compliance issues or otherwise, could result in product shortage, unanticipated costs, loss of revenues, litigation and damage to our reputation, all of which could have a material adverse effect on our business, financial condition and results of operations.

HIPAA also imposes

stringent data privacy and security requirements and the regulatory authority has imposed significant fines and penalties on organizations found to be out of compliance.

CCPA provides consumers with a private right of action against companies who have a security breach due to lack of appropriate security measures.

We have, like other large multi-national companies, experienced cyber incidents in the past and may experience them in the future.

Such incidents could result in unauthorized access to patient data and other Confidential Information and could pose a risk to patient safety.

We identified certain misstatements to our previously issued financial statements and have restated the financial statements described below, which has exposed us to a number of additional risks and uncertainties.

As discussed in the Explanatory Note, in Note 2, Restatement of Previously Issued Consolidated Financial Statements, and in Note 19, Quarterly Financial Data (Unaudited) in this Annual Report on Form 10-K, we restated our previously issued audited consolidated financial statements as of December 31, 2018 and for the years ended December 31, 2018 and 2017, unaudited interim financial information as of and for the quarterly periods ended June 30, 2019, March 31, 2019, December 31, 2018, June 30, 2018 and March 31, 2018, for the six months ended June 30, 2019 and 2018, and as of September 30, 2018 within the notes to the financial statements, and unaudited selected financial data as of December 31, 2017 and as of and for the years ended December 31, 2016 and 2015 within Item 6, Selected Financial Data.

In our Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2019, we also restated our unaudited financial statements for the quarterly and year-to-date periods ended September 30, 2018.

We concluded that these previous periods should be restated to correct misstatements of certain foreign exchange gains and losses from foreign currency denominated intra-company loan receivables and payables, cash balances and gains and losses from foreign currency derivative contracts, which we determined were material to these periods.

The restatement also included corrections for certain items, including items that affect operating income and operating cash flows, that were immaterial, individually and in the aggregate, to our previously issued financial statements.

As a result of the misstatements and the restatement, we have become subject to a number of additional risks and uncertainties and unanticipated costs for accounting, legal and other fees and expenses, including as a result of a

pending class-action lawsuit and a stockholder request for inspection of our books and records.

As initially disclosed on October 24, 2019, we also voluntarily advised the staff of the SEC of our previously disclosed internal investigation and we are continuing to cooperate with the staff of the SEC.

We may become subject to enforcement proceedings brought by the SEC or other regulatory or governmental authorities, or subject to other legal proceedings, as a result of the events leading to our internal investigation, the misstatements or the related restatement, and actions and proceedings could also be brought against our current and former employees, officers, or directors.

These actions, lawsuits or other legal proceedings related to the misstatements or the restatement could result in reputational harm, additional defense and other costs, regardless of the outcome of the lawsuit or proceeding.

If we do not prevail in any such lawsuit or proceeding, we could be subject to substantial damages or settlement costs, criminal and civil penalties and other remedial measures, including, but not limited to, injunctive relief, disgorgement, civil and criminal fines and penalties.

In addition, we continue to be at risk for loss of investor confidence, loss of key employees, changes in management or our board of directors and other reputational issues, all of which could have a material adverse effect on our business, financial position and results of operations.

We identified a material weakness in our internal control over financial reporting.

If we are unable to remediate the material weakness, or if we experience additional material weaknesses in the future, our business may be harmed.

Our management is responsible for establishing and maintaining adequate internal control over financial reporting and for evaluating and reporting on the effectiveness of our system of internal control.

Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with U.S. GAAP.

As a public company, we are required to comply with the Sarbanes-Oxley Act and other rules that govern public companies.

In particular, we are required to certify our compliance with Section 404 of the Sarbanes-Oxley Act, which requires us to furnish annually a report by management on the effectiveness of our internal control over financial reporting.

In addition, our independent registered public accounting firm is required to report on the effectiveness of our internal control over financial reporting.

Management performed an assessment of the effectiveness of our internal control over financial reporting as of December 31, 2019 and concluded that our internal control over financial reporting was not effective as of December 31, 2019 due to the material weakness related to the accounting for certain foreign exchange gains and losses.

Specifically, we did not have controls in place to monitor and quantify the difference between the foreign exchange gains and losses that we reported and the foreign exchange gains and losses that we would have reported using exchange rates determined in accordance with U.S. GAAP.

Additionally, our policies and controls related to approvals and monitoring of intra-company transactions were insufficient to prevent or detect intra-company transactions undertaken solely for the purpose of generating foreign exchange gains or avoiding losses under our historical exchange rate convention.

We have taken and continue to take remedial steps to improve our internal control over financial reporting.

For further discussion of the material weakness identified and our remedial efforts, see Item 9A, Controls and Procedures.

Remediation efforts place a significant burden on management and add increased pressure to our financial resources and processes.

If we are unable to successfully remediate our existing material weakness or any additional material weaknesses in our internal control over financial reporting that may be identified in the future in a timely manner, the accuracy and timing of our financial reporting may be adversely affected; our liquidity, our access to capital markets, the perceptions of our creditworthiness and our ability to complete acquisitions may be adversely affected; we may be unable to maintain or regain compliance with applicable securities laws, the listing requirements of the New York Stock Exchange and the covenants under our debt instruments or derivative arrangements regarding the timely filing of periodic reports; we may be subject to regulatory investigations and penalties; investors may lose confidence in our financial reporting; our reputation may be harmed; we may suffer defaults, accelerations or cross-accelerations under our debt instruments or derivative arrangements to the extent we are unable to obtain additional waivers from the required creditors or counterparties or are unable to cure any breaches; and our stock price may decline.

These plans include the achievement of certain financial goals in 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 2023.

We have identified certain key strategies to help achieve these targets.

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

As part of these strategies, we continue to evaluate the performance of all of our businesses and may sell or acquire a business or product line or exit a particular market.

We are also evaluating our corporate and commercial infrastructure in the interest of streamlining costs while maintaining our commitment to quality and safety.

Future divestitures may result in significant write-offs, including those related to goodwill and other intangible assets.

Future acquisitions may fail to achieve the desired financial results (including return on investment) and synergies and may not provide the desired market access.

The restructuring of our operations may not generate targeted savings or may cause unexpected disruptions to our business.

products, quality and safety issues may occur with respect to any of our products.

The same testing and procedures sometimes apply to

Our sales

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

As of December 31, 2018, our net accounts receivable from the public sector in Greece, Spain, Portugal and Italy totaled $130 million.

For more information on accounts receivable

and credit matters with respect to certain of these countries, refer to the discussion under the caption entitled “Credit Facilities, Access to Capital and Credit Ratings” in Item 7 of this Annual Report on Form 10-K.

[removed: EXECUTIVE OVERVIEW][added: EXECUTIVE OVERVIEW]

[removed: Description] [added: Description] of the Company and Business [removed: Segments][added: Segments]

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

[removed: The company’s] [added: Our] global footprint and [added: the] critical nature of [removed: its] [added: our] products and services play a key role in expanding access to healthcare in emerging and developed countries.

These products are used by hospitals, kidney dialysis centers, nursing homes, rehabilitation centers, doctors’ offices and [removed: by] patients at home under physician supervision.

[removed: The company manages its] [added: We manage our] business based on three geographic segments: Americas (North and South America), EMEA (Europe, Middle East and Africa) and APAC (Asia-Pacific).

For financial information about [removed: Baxter’s] [added: our] segments, see Note 18 in Item 8 of this Annual Report on Form 10-K.

[removed: Acquisition of] Claris Injectables Limited

[removed: On] [added: In] July [removed: 27,] 2017, [removed: Baxter] [added: we] 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, [removed: Baxter] [added: we] 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.

Refer to Note [removed: 5] [added: 4] in Item 8 of this Annual Report on Form 10-K for additional information regarding the acquisition of Claris.

[removed: Acquisition of] Recothrom and Preveleak

In March 2018, [removed: Baxter] [added: we] acquired two hemostat and sealant products from Mallinckrodt plc: RECOTHROM Thrombin topical [added: (Recombinant), the first and only stand-alone recombinant thrombin, and PREVELEAK Surgical Sealant, which is used in vascular reconstruction.]

The purchase price included an upfront payment of approximately $163 million and potential contingent payments in [added: the future.]

Refer to Note [removed: 5] [added: 4] in Item 8 of this Annual Report on Form 10-K for additional information regarding the acquisition of the RECOTHROM and PREVELEAK products.

[removed: Financial Results][added: Financial Results]

[removed: Baxter’s] [added: Our] global net sales totaled [removed: $11.1] [added: $11.4] billion in [removed: 2018,] [added: 2019,] an increase of [removed: 5%] [added: 2%] over [removed: 2017] [added: 2018] on a reported basis and [removed: 4%] [added: 5%] on a constant currency basis.

International sales totaled [removed: $6.4] [added: $6.5] billion in [removed: 2018,] [added: 2019,] an increase of [removed: 6%] [added: 3%] compared to [removed: 2017] [added: 2018] on a reported basis and [removed: 4%] [added: 7%] on a constant currency basis.

Sales in the United States totaled [removed: $4.7] [added: $4.8] billion in [removed: 2018,] [added: 2019,] an increase of [removed: 5%] [added: 2%] compared to [removed: 2017.][added: 2018.]

Income from continuing operations in [removed: 2018] [added: 2019] included special items which resulted in a net decrease to income from continuing operations of [removed: $36] [added: $716] million, or [removed: $0.06] [added: $1.38] per diluted share.

[removed: The company’s] [added: Our] special items are discussed [removed: further] in the Results of Operations section below.

[removed: Baxter’s] [added: Our] financial results included R&D expenses totaling [removed: $655] [added: $595] million in [removed: 2018,] [added: 2019,] which reflects [removed: the company’s] [added: our] focus on balancing increased investments to support [removed: its] [added: our] new product pipeline with efforts to optimize overall R&D spending.

[removed: The company’s] [added: Our] financial position remains strong, with operating cash flows from continuing operations totaling $2.1 billion in [removed: 2018.][added: 2019.]

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

Capital expenditures totaled [removed: $681] [added: $696] million in [removed: 2018] [added: 2019] as [removed: the company continues] [added: we continue] to invest across [removed: its] [added: our] businesses to support future growth, including additional investments in support of new and existing product capacity expansions.

[removed: The company’s] [added: Our] investments in capital expenditures in [removed: 2018] [added: 2019] were focused on projects that improve production efficiency and enhance manufacturing capabilities to support [removed: its] [added: our] strategy of geographic expansion with select investments in growing markets.

[removed: The company] [added: We] also continued to return value to [removed: its] [added: our] stockholders in the form of dividends.

During [removed: 2018, the company] [added: 2019, we] paid cash dividends to [removed: its] [added: our] stockholders totaling [removed: $376] [added: $423] million.

Additionally, in [removed: 2018 the company] [added: 2019 we] repurchased [removed: 35.8] [added: 16.5] million shares through cash repurchases pursuant to Rule 10b5-1 repurchase plans, an accelerated share repurchase plan and otherwise.

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

[removed: Strategic Objectives][added: Strategic Objectives]

[removed: Baxter continues] [added: We continue] to focus on several key objectives to successfully execute [removed: its] [added: our] long-term strategy to achieve sustainable growth and deliver enhanced stockholder value.

[removed: Baxter’s] [added: Our] diversified and broad portfolio of medical products that treat life-threatening acute or chronic conditions and [removed: its] [added: our] global presence are core components of [removed: the company’s] [added: our] strategy to achieve these objectives.

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

[removed: Within the] [added: For products with] core growth [removed: grouping, Baxter looks] [added: characteristics, we look] to invest for long-term, higher margin growth.

[removed: Maintain] [added: For products that we intend to maintain] or manage [removed: differently products are those for which Baxter looks] [added: differently, we look] to sustain or reposition [removed: its] [added: our] underlying investment.

As part of [removed: this] [added: our] portfolio [removed: review, Baxter seeks] [added: management strategy, we seek] to optimize [removed: its] [added: our] position in product areas where [removed: the company has] [added: we have] a stable, profitable business model, identify and alter investments in products that have reached the end of their life cycles or [removed: with respect to] [added: for] which market positions have evolved unfavorably.

In the course of doing so, [removed: Baxter expects] [added: we expect] to continue to reallocate capital to more promising opportunities or business groupings, as described above.

As part of this strategy, [removed: Baxter is] [added: we are] shifting [removed: its] [added: our] investments to drive innovation [added: in product areas] where [removed: it has] [added: we have] compelling opportunities to serve patients and healthcare professionals while advancing the business and [removed: will accelerate] [added: we are accelerating] the pace in [removed: bringing] [added: which we bring] these advances to market.

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

Restatement of Previously Issued Consolidated Financial Statements

We have restated our previously issued consolidated financial statements contained in this Annual Report on Form 10-K.

Refer to the “Explanatory Note” preceding Item 1, Business, for background on the restatement, the periods impacted, control considerations, and other information.

In addition, we have restated certain previously reported financial information as of December 31, 2018 and for the fiscal years ended December 31, 2018 and December 31, 2017 in this Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, including but not limited to information within the Results of Operations section.

See Note 2, Restatement of Previously Issued Consolidated Financial Statements, in Item 8, Financial Statements and Supplementary Data, for additional information related to the restatement, including descriptions of the misstatements and the impacts on our consolidated financial statements.

Recent Business Combinations and Asset Acquisitions

Cheetah Medical

In October 2019, we acquired 100 percent of Cheetah Medical, Inc. (Cheetah) for total upfront cash consideration of $195 million, net of cash acquired, with the potential for additional cash consideration, up to $40 million, based on clinical and commercial milestones for which the acquisition date fair value was $18 million.

Cheetah is a leading provider of hemodynamic monitoring technologies.

Seprafilm Adhesion Barrier

In December 2019, we entered into a definitive agreement to acquire Seprafilm Adhesion Barrier (Seprafilm) from Sanofi.

The transaction closed in February 2020 and we paid approximately $345 million for the acquired assets, subject to a post-close adjustment.

Seprafilm is indicated for use in patients undergoing abdominal or pelvic laparotomy as an adjunct intended to reduce the incidence, extent and severity of postoperative adhesions between the abdominal wall and the underlying viscera such as omentum, small bowel, bladder, and stomach, and between the uterus and surrounding structures such as tubes and ovaries, large bowel, and bladder.

As the acquisition was completed after December 31, 2019, our consolidated financial statements do not include the financial condition or results of operations of Seprafilm in any of the periods presented herein.

Refer to the Net Sales discussion in the Results of Operations section below for more information related to changes in net sales on a constant currency basis.

Our income from continuing operations totaled $1.0 billion, or $1.93 per diluted share, in 2019.

Our global product portfolio optimization strategy identifies products that we believe to have characteristics of core growth, products that we expect to provide us with a core return on capital, products that we intend to maintain or manage differently and products that we consider to be strategic bets.

For products that we expect to generate a core return on capital, we seek to optimize our return on investment and to maintain or enhance our market position.

Finally, we are evaluating our market position and investment strategy for products that we consider to be strategic bets.

| | | | | | | | | | | | |

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

| Investigation-related costs13 | | | 8 | | | — | | | — | | |

| R&D Expenses | | | | | | | | | | | |

| Impact on R&D Expense Ratio | | | 0.4 pts | | | 0.3 pts | | | 0.0 pts | | |

| Acquisition and integration expenses5 | | | $ | (4) | | $ | — | | $ | — | |

| Hurricane Maria insurance recoveries7 | | | (100) | | | (10) | | | — | | |

| Insurance recoveries from a legacy product-related matter11 | | | (37) | | | — | | | — | | |

| Pension settlement14 | | | 755 | | | — | | | — | | |

| Venezuela deconsolidation12 | | | — | | | — | | | 33 | | |

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

2In 2019, 2018 and 2017, our results were impacted by costs associated with our execution of programs to optimize our organization and cost structure on a global basis.

These actions included streamlining our international operations, rationalizing our manufacturing facilities, reducing our general and administrative infrastructure, re-aligning certain R&D activities and canceling certain R&D programs.

Our results in 2019, 2018 and 2017 included business optimization charges of $184 million, $220 million and $169 million, respectively.

Refer to Note 12 of this Annual Report on Form 10-K in Item 8 for further information regarding these charges and related liabilities.

3Our results in 2017 included costs related to the Baxalta separation of $19 million.

4Our results in 2018 included a net benefit of $6 million related to an adjustment to our accrual for SIGMA SPECTRUM infusion pump inspection and remediation activities.

5Our results in 2019 included $54 million of acquisition and integration expenses.

This included integration expenses relate to our acquisitions of Claris and the RECOTHROM and PREVELEAK products in prior periods, as well as the 2019 acquisitions of Cheetah and in-process R&D assets, partially offset by a benefit related to the change in the estimated fair value of contingent consideration liabilities.

Our results in 2017 included acquisition and integration expenses of $28 million related to our acquisition of Claris.

6Our results in 2018 included charges of $10 million related to certain product litigation.

| --- | --- |

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

reconstruction.

the future.

Baxter had approximately 50,000 employees and conducted business in over 100 countries as of December 31, 2018.

In 2018, the company generated approximately 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, 2018.

Baxter’s income from continuing operations totaled $1.6 billion, or $2.99 per diluted share in 2018, $724 million, or $1.30 per diluted share in 2017 and $4,966 million, or $9.01 per diluted share in 2016.

Income from continuing operations in 2017 included special items which resulted in a net decrease to income from continuing operations of $652 million, or $1.18 per diluted share.

Income from continuing operations in 2016 included special items which resulted in a net increase to income from continuing operations of $3.9 billion, or $7.05 per diluted share.

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

Baxter has categorized its product portfolio into four strategic business groupings.

Those groupings include core growth, core return on capital, maintain or manage differently and strategic bets.

Baxter seeks to optimize its return on investment and to maintain or enhance its market position with its core return on capital products.

Finally, the strategic bet grouping includes products for which Baxter is evaluating its market position and investment strategy.

These products cover mature and emerging markets.

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.

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| Research and Development Expenses | | | | | | | | | | | | |

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

| Net realized gains on Retained Shares transactions11 | | | — | | | | — | | | | (4,391 | ) |

| Loss on debt extinguishment12 | | | — | | | | — | | | | 149 | |

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

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

particularly in evaluating performance from one period to another.

This information should be considered in addition to, and not as a substitute for, information prepared in accordance with GAAP.

| 1 | In 2018, 2017 and 2016, the company’s results were impacted by costs associated with the company’s execution of certain strategies to optimize its organization and cost structure on a global basis. These actions included streamlining the company’s international operations, rationalizing its manufacturing facilities, reducing its general and administrative infrastructure, re-aligning certain R&D activities and cancelling certain R&D programs. The company recorded business optimization charges of $220 million, $169 million and $409 million in 2018, 2017 and 2016, respectively. The company’s results in 2018 included a charge of $117 million related to restructuring activities, $94 million of costs to implement business optimization programs, which primarily included external consulting and project employee costs, and $9 million of accelerated depreciation associated with facilities to be closed. The $117 million of restructuring charges included $100 million of employee termination costs, $7 million of asset impairment charges related to facility closures and $10 million of other exit costs. The company’s results in 2017 included a charge of $70 million related to restructuring activities, $89 million of costs to implement business optimization programs, which primarily included external consulting and project employee costs, and $10 million of accelerated depreciation associated with facilities to be closed. The $70 million of restructuring charges included $59 million of employee termination costs, $6 million of asset impairment charges related to facility closures and $5 million of other exit costs. The company’s results in 2016 included a charge of $285 million related to restructuring activities, $65 million of costs to implement business optimization programs, which primarily included external consulting and project employee costs, $33 million of accelerated depreciation associated with facilities to be closed, and $26 million of Gambro integration costs. The $285 million of restructuring charges included $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 closures and $4 million of other exit costs. Refer to Note 8 of this Annual Report on Form 10-K in Item 8 for further information regarding these charges and related reserves. |

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| 2 | The company’s results in 2016 included a $51 million asset impairment primarily related to developed technology. |

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| 7 | The company’s results in 2018 included a benefit of $42 million related to insurance recoveries as a result of losses incurred due to Hurricane Maria. 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 included inventory and fixed asset impairments as well as idle facility costs. Refer to Note 1 in Item 8 of this Annual Report on Form 10-K for further information regarding the impact of Hurricane Maria. |

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[removed: Company Overview][added: Company Overview]

[removed: The company’s] [added: Our] global footprint and [added: the] critical nature of [removed: its] [added: our] products and services play a key role in expanding access to healthcare in emerging and developed countries.

As of December 31, [removed: 2018, Baxter] [added: 2019, we] manufactured products in over 20 countries and sold them in over 100 countries.

As used in this report, “Baxter International” means Baxter International Inc. and [removed: “Baxter,” the “company”] [added: “we", "our”] or [removed: the “Company”] [added: "us"] means Baxter International and its consolidated subsidiaries (after giving effect to the separation and distribution of Baxalta Incorporated (Baxalta), as further described below), unless the context otherwise requires.

[removed: Business] [added: Business] Segments and [removed: Products][added: Products]

[removed: The company manages its] [added: We manage our] business based on three geographic segments: Americas (North and South America), EMEA (Europe, Middle East and Africa) and APAC (Asia-Pacific).

Each of [removed: the company’s] [added: our] segments [removed: provide] [added: provides] a broad portfolio of essential healthcare products, including acute and chronic dialysis therapies; sterile IV solutions; infusion systems and devices; parenteral nutrition therapies; inhaled anesthetics; generic injectable pharmaceuticals; and surgical hemostat and sealant products.

For financial information about [removed: Baxter’s] [added: our] segments, see Note 18 in Item 8 of this Annual Report on Form 10-K.

[removed: Sales] [added: Sales] and [removed: Distribution][added: Distribution]

[removed: The company has its] [added: We have our] own direct sales force and also [removed: makes] [added: make] sales to and through independent distributors, drug wholesalers acting as sales agents and specialty pharmacy or other alternate site providers.

In the United States, third [removed: parties] [added: parties,] such as Cardinal Health, [removed: Inc.] [added: Inc.,] warehouse and ship a significant portion of [removed: the company’s] [added: our] products through their distribution centers.

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: 2018.][added: 2019.]

[removed: International Operations][added: International Operations]

The majority of [removed: the company’s] [added: our] revenues are generated outside of the United States and geographic expansion remains a component of [removed: the company’s] [added: our] strategy.

[removed: Baxter’s international] [added: Our] presence includes operations in [removed: Europe (including Eastern and Central Europe),] [added: Europe,] the Middle East, Africa, Asia-Pacific, Latin America and Canada.

[removed: The company is] [added: We are] subject to certain risks inherent in conducting business outside the United States.

[removed: Contractual Arrangements][added: Contractual Arrangements]

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

Some of these contracts have terms of more than one year and place limits on [removed: the company’s] [added: our] ability to increase prices.

[removed: Baxter has] [added: We have] purchasing agreements with several of the major GPOs in the United States.

Accordingly, in these cases, [removed: Baxter faces] [added: we face] competition from other suppliers even where a customer is a member of a GPO under contract with [removed: Baxter.][added: us.]

The result is that demand for healthcare products is increasingly concentrated across [removed: the company’s] [added: our] markets globally.

[removed: Raw Materials][added: Raw Materials]

Raw materials essential to [removed: Baxter’s] [added: our] business are purchased from numerous suppliers worldwide in the ordinary course of business.

Although most of these materials are generally available, [removed: Baxter] [added: we] at times may experience shortages of supply.

In an effort to manage risk associated with raw materials supply, [removed: Baxter works] [added: we work] closely with [removed: its] [added: our] suppliers to help ensure availability and continuity of supply while maintaining high quality and reliability.

[removed: The company] [added: We] also [removed: seeks] [added: seek] to develop new and alternative sources of supply where beneficial to [removed: its] [added: our] overall raw materials procurement strategy.

[removed: The company also utilizes] [added: Accordingly, we utilize] long-term supply contracts with some suppliers to help maintain continuity of supply and manage the risk of price increases.

[removed: Baxter is] [added: We are] not always able to recover cost increases for raw materials through customer pricing due to contractual limits and market forces.

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

Baxalta manufactures and supplies [removed: Baxter] [added: us] with ARTISS, TISSEEL, FLOSEAL and stand-alone [removed: thrombin] [added: thrombin, on a cost-plus basis,] under [removed: the] [added: that] manufacturing and supply [removed: agreement, on a cost-plus basis.][added: agreement.]

[removed: Competition] [added: Competition] and Healthcare Cost [removed: Containment][added: Containment]

[removed: Baxter’s] [added: Our] businesses benefit from a number of competitive advantages, including the breadth and depth of [removed: their] [added: our] product offerings, [removed: as well as] [added: our] strong relationships with customers, including hospitals and clinics, GPOs, physicians, and patients, many [removed: who] [added: of whom] self-administer [removed: the] home-based therapies [removed: supplied by Baxter.][added: that we supply.]

[removed: Baxter as a whole benefits] [added: We also benefit] from efficiencies and cost advantages resulting from shared manufacturing facilities and the technological advantages of [removed: its] [added: our] products.

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

There has been increasing consolidation in [removed: the company’s] [added: our] customer base and by [removed: its] [added: our] competitors, which continues to result in pricing and market pressures.

Sales of [removed: Baxter’s] [added: our] products are dependent, in part, on the availability of reimbursement by government agencies and healthcare programs, as well as insurance companies and other private payers.

In the United States, the federal and many state governments have adopted or proposed initiatives relating to Medicaid and other health programs that may limit reimbursement or increase rebates that [removed: Baxter] [added: we] and other providers are required to pay to the state.

[removed: Baxter faces] [added: We face] similar issues outside of the United States.

[added: 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.

Expenditures for our R&D activities were $595 million in 2019, $654 million in 2018, and $615 million in 2017.

These expenditures include costs associated with R&D activities performed at our R&D centers located

Our operations involve the use of substances regulated under environmental laws, primarily in manufacturing and sterilization processes.

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

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

Expenditures for Baxter’s R&D activities were $655 million in 2018, $613 million in 2017, and $646 million in 2016.

Incorporated by reference to Note [removed: 17] [added: 9] in Item 8 of this Annual Report on Form 10-K.

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[removed: UNITED STATES][added: UNITED STATES]

[removed: SECURITIES] [added: SECURITIES] AND EXCHANGE [removed: COMMISSION][added: COMMISSION]

[removed: Washington,] [added: Washington,] D.C. [removed: 20549][added: 20549]

[removed: FORM 10-K][added: FORM 10-K]

[removed: (Mark One)][added: (Mark One)]

| [removed: ☑] [added: ☑] | [removed: ANNUAL] [added: | | ANNUAL] REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF [removed: 1934] [added: 1934] | [added: | |]

[removed: For] [added: For] the fiscal year ended December 31, [removed: 2018][added: 2019]

| [removed: ☐] [added: ☐] | [removed: TRANSITION] [added: | | TRANSITION] REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF [removed: 1934] [added: 1934] | [added: | |]

[removed: For] [added: For] the transition period from [added: __________] to [added: __________]

[removed: Commission] [added: Commission] file number [removed: 1-4448][added: 1-4448]

[removed: ][added: ]

[removed: Baxter] [added: Baxter] International [removed: Inc.][added: Inc.]

[removed: (Exact] [added: (Exact] Name of Registrant as Specified in its [removed: Charter)][added: Charter)]

| [removed: Delaware] [added: Delaware] | | [removed: 36-0781620] | [added: | | | | | | | | | | | | | | | 36-0781620 | | |]

| [removed: (State] [added: (State] or Other Jurisdiction [removed: of Incorporation] [added: of Incorporation] or [removed: Organization)] [added: Organization)] | | [removed: (I.R.S.] [added: | | | | | | | | | | | | | | | | (I.R.S.] Employer Identification [removed: No.)] [added: No.)] | [added: | |]

| [removed: One] [added: One] Baxter [removed: Parkway, Deerfield, Illinois] [added: Parkway,] | | [removed: 60015] | [added: Deerfield, | | | Illinois | | | | | | 60015 | | | | | | | | |]

| [removed: (Address] [added: (Address] of Principal Executive [removed: Offices)] [added: Offices)] | | [removed: (Zip Code)] | [added: | | | | | | | | | | | | | | | (Zip Code) | | |]

[removed: Registrant’s] [added: Registrant’s] telephone number, including area code [removed: 224.948.2000][added: 224.948.2000]

[removed: Securities] [added: Securities] registered pursuant to Section 12(b) of the [removed: Act:][added: Act:]

| [removed: Title] [added: Title] of Each [removed: Class] [added: Class] | | [removed: Name] [added: | | | | Trading Symbol(s) | | | | | | Name] of Each Exchange on Which [removed: Registered] [added: Registered] | [added: | |]

| Common stock, $1.00 par value | | [added: | | | | BAX (NYSE) | | | | | |] New York Stock Exchange [removed: Chicago Stock Exchange] | [added: | |]

| 1.3% [removed: Senior] [added: Global] Notes due 2025 | | [added: | | | | BAX 25 | | | | | |] New York Stock Exchange | [added: | |]

[removed: Securities] [added: Securities] registered pursuant to Section 12(g) of the Act: [removed: None][added: None]

Yes [removed: ☑ No] ☐ [added: No ☑]

| Large accelerated filer | [added: | |] ☑ | | | [added: | | |] Accelerated filer | [added: | |] ☐ | [added: | |]

| Non-accelerated filer | [added: | |] ☐ | | | [added: | | |] Smaller reporting company | [added: | |] ☐ | [added: | |]

| Emerging growth company | [added: | |] ☐ | | | | | [added: | | | | | | |]

The aggregate market value of the voting common equity held by non-affiliates of the registrant as of June [removed: 29, 2018] [added: 28, 2019] (the last business day of the registrant’s most recently completed second fiscal quarter), based on the per share closing sale price of [removed: $73.84] [added: $81.90] 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: $40] [added: $42] billion.

The number of shares of the registrant’s common stock, $1.00 par value, outstanding as of [removed: January 31, 2019] [added: February 29, 2020] was [removed: 512,538,202.][added: 507,263,731.]

[removed: DOCUMENTS] [added: DOCUMENTS] INCORPORATED BY [removed: REFERENCE][added: REFERENCE]

Portions of the registrant’s definitive [removed: 2019] [added: 2020] proxy statement for use in connection with its Annual Meeting of Stockholders [added: expected] to be held on May [removed: 7, 2019] [added: 5, 2020] are incorporated by reference into Part III of this report.

[removed: TABLE] [added: TABLE] OF [removed: CONTENTS][added: CONTENTS]

| | | | [removed: Page Number] | | [added: | Page Number | | |]

| [removed: Item 1.] [added: [Item 1.](#i9886386820ea4ce3bad9bbc3bc752006_10)] | | [removed: [Business](#ITEM_1__BUSINESS_)] | [added: [Business](#i9886386820ea4ce3bad9bbc3bc752006_10)] | [removed: 1] | [added: | [1](#i9886386820ea4ce3bad9bbc3bc752006_10) | | |]

| [removed: Item 1A.] [added: [Item 1A.](#i9886386820ea4ce3bad9bbc3bc752006_13)] | | [added: |] [Risk [removed: Factors](#ITEM_1A_RISK_FACTORS)] [added: Factors](#i9886386820ea4ce3bad9bbc3bc752006_13)] | | [removed: 5] | [added: [6](#i9886386820ea4ce3bad9bbc3bc752006_13) | | |]

| [removed: Item 1B.] [added: [Item 1B.](#i9886386820ea4ce3bad9bbc3bc752006_16)] | | [added: |] [Unresolved Staff [removed: Comments](#ITEM_1B_UNRESOLVED_STAFF_COMMENTS)] [added: Comments](#i9886386820ea4ce3bad9bbc3bc752006_16)] | | [removed: 14] | [added: [18](#i9886386820ea4ce3bad9bbc3bc752006_16) | | |]

| [removed: Item 2.] [added: [Item](#i9886386820ea4ce3bad9bbc3bc752006_19) [2](#i9886386820ea4ce3bad9bbc3bc752006_19)[.](#i9886386820ea4ce3bad9bbc3bc752006_19)] | | [removed: [Properties](#ITEM_2_PROPERTIES)] | [added: [Properties](#i9886386820ea4ce3bad9bbc3bc752006_19)] | [removed: 15] | [added: | [18](#i9886386820ea4ce3bad9bbc3bc752006_19) | | |]

| [removed: Item 3.] [added: [Item 3.](#i9886386820ea4ce3bad9bbc3bc752006_22)] | | [added: |] [Legal [removed: Proceedings](#ITEM_3_LEGAL_PROCEEDINGS)] [added: Proceedings](#i9886386820ea4ce3bad9bbc3bc752006_22)] | | [removed: 16] | [added: [20](#i9886386820ea4ce3bad9bbc3bc752006_22) | | |]

| [removed: Item 4.] [added: [Item 4.](#i9886386820ea4ce3bad9bbc3bc752006_25)] | | [added: |] [Mine Safety [removed: Disclosures](#ITEM_4_MINE_SAFETY_DISCLOSURES)] [added: Disclosures](#i9886386820ea4ce3bad9bbc3bc752006_25)] | | [removed: 16] | [added: [20](#i9886386820ea4ce3bad9bbc3bc752006_25) | | |]

| [removed: Item 5.] [added: [Item 5.](#i9886386820ea4ce3bad9bbc3bc752006_28)] | | [added: |] [Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity [removed: Securities](#ITEM_5_MARKET_FOR_REGISTRANTS_COMMON_EQU)] [added: Securities](#i9886386820ea4ce3bad9bbc3bc752006_28)] | | [removed: 18] | [added: [22](#i9886386820ea4ce3bad9bbc3bc752006_28) | | |]

_____________________________________________________________________________________________

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OR

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| 0.4% Global Notes due 2024 | | | | | | BAX 24 | | | | | | New York Stock Exchange | | |

| 1.3% Global Notes due 2029 | | | | | | BAX 29 | | | | | | New York Stock Exchange | | |

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10-K 1 bax-10k_20181231.htm 10-K

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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.

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[removed: The company’s] [added: Our] corporate offices are owned and located at One Baxter Parkway, Deerfield, Illinois 60015.

[removed: Baxter owns] [added: We own] or [removed: has] [added: have] long-term leases on all of [removed: its] [added: our] manufacturing facilities.

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

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

| Americas | | | | | [added: | | | |]

| | | [added: |] Aibonito, Puerto Rico | | [added: |] Leased | [added: | |]

| | | [added: |] Alliston, Canada | | [added: |] Owned | [added: | |]

| | | [added: |] Cali, Colombia | | [added: |] Owned | [added: | |]

| | | [added: |] Cartago, Costa Rica | | [added: |] Owned | [added: | |]

| | | [added: |] Cuernavaca, Mexico | | [added: |] Owned | [added: | |]

| | | [added: |] Guayama, Puerto Rico | | [added: |] Owned | [added: | |]

| | | [added: |] Haina, Dominican Republic | | [added: |] Leased | [added: | |]

| | | [added: |] Hayward, California | | [added: |] Leased | [added: | |]

| | | [added: |] Round Lake, Illinois | | [added: |] Owned | [added: | |]

| | | [added: |] Bloomington, Indiana | | [added: |] Owned/Leased(1) | [added: | |]

| | | [added: |] Cleveland, Mississippi | | [added: |] Leased | [added: | |]

| | | [added: |] Medina, New York | | [added: |] Leased | [added: | |]

| | | [added: |] Jayuya, Puerto Rico | | [added: |] Leased | [added: | |]

| | | [added: |] Opelika, Alabama | | [added: |] Owned | [added: | |]

| | | [added: |] Brooklyn Park, Minnesota | | [added: |] Leased | [added: | |]

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

| | | [added: |] Sao Paulo, Brazil | | [added: |] Owned | [added: | |]

| | | [added: |] Tijuana, Mexico | | [added: |] Owned | [added: | |]

| | | [added: |] Mountain Home, Arkansas | | [added: |] Owned/Leased(1) | [added: | |]

| | | [added: |] North Cove, North Carolina | | [added: |] Owned | [added: | |]

| | | [added: |] St. Paul, Minnesota | | [added: |] Leased | [added: | |]

| | | [added: |] Irvine, California | | [added: |] Owned | [added: | |]

| APAC | | | | | [added: | | | |]

| | | [added: |] Ahmedabad, India | | [added: |] Owned | [added: | |]

| | | [added: |] Guangzhou, China | | [added: |] Owned | [added: | |]

| | | [added: |] Shanghai, China | | [added: |] Owned | [added: | |]

| | | [added: |] Suzhou, China | | [added: |] Owned | [added: | |]

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

| | | [added: |] Woodlands, Singapore | | [added: |] Owned/Leased(2) | [added: | |]

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

| | | [added: |] Amata, Thailand | | [added: |] Owned | [added: | |]

| | | [added: |] Tianjin, China | | [added: |] Owned | [added: | |]

| | | [added: |] Miyazaki, Japan | | [added: |] Owned | [added: | |]

| EMEA | | | | | [added: | | | |]

| | | [added: |] Castlebar, Ireland | | [added: |] Owned | [added: | |]

| | | | | | | | | |

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

| | | | Mountain View, California | | | Leased | | |

| | | | Dammam, Saudi Arabia | | | Owned | | |

__________________________________________________________________

| --- | --- |

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

| --- | --- |

| --- | --- |

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

[removed: Executive] [added: Executive] Officers of the [removed: Registrant][added: Registrant]

As of [removed: February 21, 2019,] [added: March 17, 2020,] the following serve as Baxter’s executive officers:

[removed: José] [added: *José] E.

[removed: Almeida,] [added: Almeida*,] age [removed: 56,] [added: 57,] is Chairman, President and Chief Executive Officer, having served in that capacity since January 2016.

[removed: Giuseppe Accogli,] [added: *Giuseppe Accogli*,] age [removed: 48,] [added: 49,] is Senior Vice President and President, [removed: Global Businesses.][added: Americas.]

[removed: Prior to his current role, Mr. Accogli] [added: He also] 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 [removed: (Italy)] [added: plc in Italy,] and in several sales, product and marketing roles for Tyco and then Covidien in Italy and EMEA.

[removed: Eyre,] [added: *Cristiano Franzi*,] age [removed: 55,] [added: 57,] is Senior Vice President and President, [removed: Americas.][added: EMEA.]

Prior to his current role, Mr. [removed: Eyre] [added: Accogli] served as [removed: Corporate] [added: Senior] Vice President and President, [removed: Hospital Products] [added: Global Businesses,] from [removed: 2015] [added: 2017] to [removed: 2017.][added: 2019.]

[removed: Cristiano Franzi,] [added: *Andrew Frye*,] age [removed: 56,] [added: 54,] is Senior Vice President and President, [removed: EMEA.][added: APAC.]

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

[removed: Andrew Frye,] [added: *Sean Martin*,] age [removed: 53,] [added: 57,] is Senior Vice President and [removed: President, APAC.][added: General Counsel.]

[added: 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.

[removed: Jeanne] [added: *Jeanne] K.

[removed: Mason,] [added: Mason*,] Ph.D., age [removed: 63,] [added: 64,] is Senior Vice President, Human Resources.

[removed: James] [added: *James] K.

[removed: Saccaro,] [added: Saccaro*,] age [removed: 46,] [added: 47,] is Executive Vice President and Chief Financial Officer.

[removed: PART II][added: PART II]

Mr. Accogli has served as a director to AdvaMed, an American medical device trade association, since September 25, 2019.

He served as a member of the board of Eucomed Medical Technology from 2013 to 2015 and again from 2018 to 2019.

*Jacqueline Kunzler*, age 54, is Senior Vice President and Chief Quality Officer.

Ms. Kunzler joined Baxter in 1993 and has served in roles of increasing responsibility across Baxter’s research & development, international marketing, and quality organizations, most recently as Senior Vice President, Chief Quality Officer.

She is a member of the Board of Directors of Family Service of Lake County and is a member of the Executive Advisory Council for the Chicago Chapter of National Association of African Americans in Human Resources.

| --- | --- |

Brik V.

Mr. Eyre joined the company in 2008 as General Manager for BioPharma Solutions, Baxter’s global manufacturing and contract services business.

He later served as General Manager for our U.S. Medication Delivery business and then he served as Corporate Vice President and President of Renal.

Prior to joining Baxter, he held a variety of senior management positions at Cardinal Health, Inc., including President of Cardinal’s PreSource Products and Services business.

Sean Martin, age 56, is Senior Vice President and General Counsel.

Mr.

Scott Pleau, age 53, is Senior Vice President, Operations.

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.

The following table includes information about [removed: the company’s] [added: our] common stock repurchases during the three-month period ended December 31, [removed: 2018.][added: 2019.]

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

[removed: Baxter] [added: Our] 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 [removed: the company’s] [added: our] common stock is traded under the symbol “BAX”.

At [removed: January 31, 2019,] [added: February 29, 2020,] there were [removed: 24,563] [added: 22,818] holders of record of [removed: the company’s] [added: our] common stock.

[removed: Performance Graph][added: Performance Graph]

The following graph compares the change in [removed: Baxter’s] [added: our] cumulative total stockholder return (including reinvested dividends) on [removed: Baxter’s] [added: our] 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, 2019 through October 31, 2019 | | | 2,369,658 | | | | | | $ | 86.02 | | | | | 2,369,658 | | | | | | | | |

| November 1, 2019 through November 30, 2019 | | | — | | | | | | $ | — | | | | | — | | | | | | | | |

| December 1, 2019 through December 31, 2019 | | | — | | | | | | $ | — | | | | | — | | | | | | | | |

| Total | | | 2,369,658 | | | | | | $ | 86.02 | | | | | 2,369,658 | | | | | | $ | 897,396,644 | |

(1)On July 25, 2012, we announced that our Board of Directors authorized us to repurchase up to $2.0 billion of our common stock on the open market or in private transactions.

The Board of Directors increased this authority by $1.5 billion in each of November 2016 and February 2018 and by an additional $2.0 billion in November 2018.

During the fourth quarter of 2019, we repurchased approximately 2.4 million shares for $204 million in cash pursuant to this authority through Rule 10b5-1 purchase plans.

The remaining authorization under this program totaled approximately $897 million at December 31, 2019.

This program does not have an expiration date.

| --- | --- |

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

| 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 | |

| (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 each of November 2016 and February 2018 and by an additional $2.0 billion in November 2018. During the fourth quarter of 2018, the company repurchased approximately 20.9 million shares for $1.4 billion in cash pursuant to this authority through Rule 10b5-1 purchase plans, an accelerated share repurchase program and otherwise. The remaining authorization under this program totaled approximately $2.1 billion at December 31, 2018. This program does not have an expiration date. |

| --- | --- |

| (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. |

| --- | --- |

| | | [added: |] (Loss) income from discontinued operations, net of tax | | [removed: $] | [removed: (6] [added: $] | [removed: )] [added: —] | | [added: (6)] | [removed: (7] | [removed: )] | [added: (7)] | | [removed: (1] | [removed: )] [added: (1)] | | | [removed: 575] [added: 571] | | | | [removed: 2,040] | | [added: | | | | | |]

| [removed: Common Stock Information] | | [added: |] Weighted-average number of [removed: common] shares outstanding | | | | | | | | | | | | | | | | | | | | | [added: | | | | | |]

| | | [added: |] Basic | | | [removed: 534] [added: 509] | | | [added: 534] | [removed: 543] | | [added: 543] | | [removed: 546] | [added: 546] | | | 545 | | | | [removed: 542] | | [added: | | | | | |]

| | | [added: |] Diluted | | | [removed: 546] [added: 519] | | | [added: 546] | [removed: 555] | | [added: 555] | | [removed: 551] | [added: 551] | | | 549 | | | | [removed: 547] | | [added: | | | | | |]

| | | [removed: Income] [added: | Earnings per share] from continuing operations [removed: per common share] | | | | | | | | | | | | | | | | | | | | | [added: | | | | | |]

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

| | | [added: |] Basic | | [removed: $] | [removed: (0.01] [added: $] | [removed: )] [added: —] | | [added: (0.01)] | [removed: (0.01] | [removed: )] | [added: (0.01)] | | [removed: (0.01] | [removed: )] [added: —] | | | [removed: 1.06] [added: 1.04] | | | | [removed: 3.77] | | [added: | | | | | |]

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

| [added: Common Stock Information] | | [added: |] Cash dividends declared per [removed: common] share | | [added: | $ | 0.850 | |] $ | 0.730 | | [removed: |] [added: $] | 0.610 | | [removed: |] [added: $] | 0.505 | | [removed: |] [added: $] | 1.270 | | | | [removed: 2.050] | | [added: | | | | |]

The following selected consolidated financial data should be read in conjunction with our consolidated financial statements and the accompanying notes thereto in Item 8 of this Annual Report on Form 10-K, and the information contained in Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations of this Annual Report on Form 10-K.

| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |

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| | | | | | | | | | As Restated 1 | | | | | | | | | | | | | | | | | | | | |

| | | | | | | | | | | | | | | | Unaudited | | | | | | | | | | | | | | |

| as of or for the years ended December 31 | | | | | | | | | 2019 2 | | | 2018 | | | 2017 3 | | | 2016 3,4,5 | | | 2015 6 | | | | | | | | |

| Operating Results | | | Net sales | | | $ | 11,362 | | 11,099 | | | 10,584 | | | 10,133 | | | 9,918 | | | | | | | | | | | |

| *(in millions)* | | | Income from continuing operations | | | $ | 1,011 | | 1,552 | | | 609 | | | 4,936 | | | 254 | | | | | | | | | | | |

| | | | Net income attributable to Baxter stockholders | | | $ | 1,001 | | 1,546 | | | 602 | | | 4,935 | | | 825 | | | | | | | | | | | |

| | | | Basic | | | $ | 1.97 | | 2.91 | | | 1.12 | | | 9.04 | | | 0.47 | | | | | | | | | | | |

| | | | Diluted | | | $ | 1.93 | | 2.84 | | | 1.10 | | | 8.96 | | | 0.46 | | | | | | | | | | | |

| | | | Earnings per share | | | | | | | | | | | | | | | | | | | | | | | | | | |

| | | | Basic | | | $ | 1.97 | | 2.90 | | | 1.11 | | | 9.04 | | | 1.51 | | | | | | | | | | | |

| | | | Diluted | | | $ | 1.93 | | 2.83 | | | 1.08 | | | 8.96 | | | 1.50 | | | | | | | | | | | |

| Balance Sheet Information | | | Total assets | | | $ | 18,193 | | 15,720 | | | 17,102 | | | 15,459 | | | 20,941 | | | | | | | | | | | |

| *(in millions)* | | | Total liabilities | | | $ | 10,281 | | 7,854 | | | 7,993 | | | 7,238 | | | 12,089 | | | | | | | | | | | |

| | | | Total equity | | | $ | 7,912 | | 7,866 | | | 9,109 | | | 8,221 | | | 8,852 | | | | | | | | | | | |

| | | | Long-term debt and finance lease obligations | | | $ | 4,809 | | 3,481 | | | 3,512 | | | 2,774 | | | 3,923 | | | | | | | | | | | |

| Cash Flow Information | | | Cash flows from operations - continuing operations | | | $ | 2,110 | | 2,017 | | | 1,730 | | | 1,588 | | | 1,211 | | | | | | | | | | | |

| *(in millions)* | | | Cash flows from investing activities - continuing operations | | | $ | (1,100) | | (916) | | | (1,292) | | | (716) | | | (855) | | | | | | | | | | | |

| | | | Cash flows from financing activities | | | $ | 498 | | (2,603) | | | 93 | | | (324) | | | (481) | | | | | | | | | | | |

| | | | Capital expenditures - continuing operations | | | $ | (696) | | (659) | | | (616) | | | (705) | | | (905) | | | | | | | | | | | |

_______________________________________________________________

1.We have restated in this Annual Report on Form 10-K our previously issued audited financial statements as of December 31, 2018 and for the years ended December 31, 2018 and 2017 and selected previously reported financial information as of December 31, 2017, 2016 and 2015 and for the years ended December 31, 2016 and 2015.

In addition to the correction of misstatements related to non-operating foreign exchange gains and losses, we also corrected other misstatements that were immaterial, individually and in the aggregate, to our previously issued financial statements.

See Note 2, Restatement of Previously Issued Consolidated Financial Statements, in Item 8, Financial Statements and Supplementary Data, for additional information.

2.Income from continuing operations for the year ended December 31, 2019 included a charge of $755 million related to the annuitization of a portion of our U.S. pension plan.

3.As of December 31, 2017, total assets have changed from $17,111 million as originally reported to $17,102 million as restated, total liabilities have changed from $7,995 million as originally reported to $7,993 million as restated, total equity has changed from $9,116 million as originally reported to $9,109 million as restated, and long-term debt and finance lease obligations have changed from $3,509 million as originally reported to $3,512 million as restated.

See Note 2, Restatement of Previously Issued Consolidated Financial Statements, in Item 8, Financial Statements and Supplementary Data, for information related to the restatement impacts on operating results and cash flow information for the year ended December 31, 2017.

Balance sheet information as of December 31, 2017 is unaudited.

4.As of and for the year ended December 31, 2016, net sales have changed from $10,163 million as originally reported to $10,133 million as restated, income from continuing operations has changed from $4,966 million as originally reported to $4,936 million as restated, net income attributable to Baxter stockholders has changed from $4,965 million as originally reported to $4,935 million as restated, basic earnings per share from continuing operations has changed from $9.10 as originally reported to $9.04 as restated, diluted earnings per share from continuing operations has changed from $9.01 as originally reported to $8.96 as restated, basic loss per share from discontinued operations has changed from $(0.01) as originally reported to $0.00 as restated, basic earnings per share has changed from $9.09 as originally reported to $9.04 as restated, diluted earnings per share has changed from $9.01 as originally reported to $8.96 as restated, total assets have changed from $15,546 million as originally reported to $15,459 million as restated, total liabilities have changed from $7,266 million as originally reported to $7,238 million as restated, total equity has changed from $8,280 million as originally reported to $8,221 million as restated, long-term debt and finance lease obligations have changed from $2,779 million as originally reported to $2,774 million as restated, cash inflows from operations - continuing operations has changed from $1,624 million as originally reported to $1,588 million as restated, cash outflows from investing activities - continuing operations has changed from $730 million as originally reported to $716 million as restated, and capital expenditures - continuing operations has changed from $719 million as originally reported to $705 million as restated.

5.For the year ended December 31, 2016, income from continuing operations included net realized gains of $4.4 billion related to the disposition of our formerly retained shares in Baxalta (Baxalta Retained Shares).

6.As of and for the year ended December 31, 2015, net sales have changed from $9,968 million as originally reported to $9,918 million as restated, income from continuing operations has changed from $393 million as originally reported to $254 million as restated, net income attributable to Baxter stockholders has changed from $968 million as originally reported to $825 million as restated, basic earnings per share from continuing operations has changed from $0.72 as originally reported to $0.47 as restated, diluted earnings per share from continuing operations has changed from $0.72 as originally reported to $0.46 as restated, basic earnings per share from discontinued operations has changed from $1.06 as originally reported to $1.04 as restated, basic earnings per share has changed from $1.78 as originally reported to $1.51 as restated, diluted earnings per share has changed from $1.76 as originally reported to $1.50 as restated, total assets have changed from $20,962 million as originally reported to $20,941 million as restated, total liabilities have changed from $12,097 million as originally reported to $12,089 million as restated, total equity has changed from $8,865 million as originally reported to $8,852 million as restated, long-term debt and finance lease obligations have changed from $3,922 million as originally reported to $3,923 million as restated, cash inflows from operations - continuing operations has changed from $1,253 million as originally reported to $1,211 million as restated, cash outflows from investing activities - continuing operations has changed from $861 million as originally reported to $855 million as restated, and capital expenditures - continuing operations has changed from $911 million as originally reported to $905 million as restated.

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

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

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

| Operating Results | | Net sales | | $ | 11,127 | | | | 10,561 | | | | 10,163 | | | | 9,968 | | | | 10,719 | |

| (in millions) | | Income from continuing operations | | $ | 1,630 | | | | 724 | | | | 4,966 | | | | 393 | | | | 457 | |

| | | Net income | | $ | 1,624 | | | | 717 | | | | 4,965 | | | | 968 | | | | 2,497 | |

| Balance Sheet | | Capital expenditures, continuing operations | | $ | 681 | | | | 634 | | | | 719 | | | | 911 | | | | 925 | |

| Information | | Total assets | | $ | 15,641 | | | | 17,111 | | | | 15,546 | | | | 20,962 | | | | 26,138 | |

| (in millions) | | Long-term debt and lease obligations | | $ | 3,473 | | | | 3,509 | | | | 2,779 | | | | 3,922 | | | | 7,331 | |

| | | Basic | | $ | 3.05 | | | | 1.33 | | | | 9.10 | | | | 0.72 | | | | 0.84 | |

| | | Diluted | | $ | 2.99 | | | | 1.30 | | | | 9.01 | | | | 0.72 | | | | 0.83 | |

| | | Net income per common share | | | | | | | | | | | | | | | | | | | | |

| | | Basic | | $ | 3.04 | | | | 1.32 | | | | 9.09 | | | | 1.78 | | | | 4.61 | |

| | | Diluted | | $ | 2.97 | | | | 1.29 | | | | 9.01 | | | | 1.76 | | | | 4.56 | |

| 1 | Refer to the notes to the consolidated financial statements for information regarding other charges and income items. |

| --- | --- |

| 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. |

| --- | --- |

| 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 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. |

| --- | --- |

| 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 redemptions and $51 million for impairment primarily related to developed technology. Also included were net realized gains of $4.4 billion related to the Baxalta Retained Shares transactions, a benefit of $18 million primarily related to adjustments to the COLLEAGUE and SIGMA SPECTRUM infusion pump 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. |

| --- | --- |

| 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. |

| --- | --- |

| 6 | 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: CONSOLIDATED] [added: CONSOLIDATED] BALANCE [removed: SHEETS][added: SHEETS]

| as of December 31 (in millions, except share information) | | | [added: 2019] | [removed: 2018] | | | | [removed: 2017] | [added: 2018] | | [added: |]

| [removed: Current assets | |] Cash and cash equivalents | | [added: |] $ | 1,832 | | [added: $] | [added: 6 | | (e) | | |] $ | [removed: 3,394] [added: 1,838] | | [added: | | | | | | | | | | | |]

| [added: Inventories] | | [removed: Inventories] | [added: 1,653] | | [removed: 1,653] | | | | [removed: 1,475] [added: 1,667] | | [added: |]

| [removed: | |] Prepaid expenses and other [added: current assets] | | | 622 | | | [added: (8)] | [removed: 601] | | [added: (b)(e)(g) | | | 614 | | | | | | | | | | | | | | |]

| [removed: | |] Total current assets | | | 5,919 | | | [added: 40] | [removed: 7,263] | | [added: | | | 5,959 | | | | | | | | | | | | | | |]

| Property, plant and equipment, net | | | [added: 4,542] | | [removed: 4,542] | [added: (12)] | | | [removed: 4,588] [added: (c)(e)] | | [added: | 4,530 | | | | | | | | | | | | | | |]

| [removed: | |] Other intangible assets, net | | | 1,398 | | | [added: 12] | [removed: 1,374] | | [added: (e)(g) | | | 1,410 | | | | | | | | | | | | | | |]

| [removed: | |] Total assets | | [added: |] $ | 15,641 | | [added: $] | [added: 79 | | | | |] $ | [removed: 17,111] [added: 15,720] | | [added: | | | | | | | | | | | |]

| [removed: Current liabilities | |] Short-term debt | | [added: |] $ | 2 | | [removed: |] $ | — | | [added: | | | $ | 2 | | | | | | | | | | | | | |]

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

| [removed: | |] Accounts payable and accrued liabilities | | | [removed: 2,728] [added: 64] | | | [added: (4)] | [removed: 2,733] | | [added: (b) | | | 60 | | | | | | | | | | | | | | |]

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

| [removed: | |] Total current liabilities | | | 2,836 | | | [added: (22)] | [removed: 2,821] | | [added: | | | 2,814 | | | | | | | | | | | | | | |]

| Long-term debt and [added: finance] lease obligations | | | [added: 3,473] | | [removed: 3,473] | [added: 8] | | | [removed: 3,509] [added: (e)] | | [added: | 3,481 | | | | | | | | | | | | | | |]

| [removed: Other long-term] [added: Long-term tax] liabilities | | | [removed: | | 1,516] [added: 81] | | | [added: 77] | [removed: 1,665] | |

| [removed: | |] Total liabilities | | | 7,825 | | | [added: 29] | [removed: 7,995] | | [added: | | | 7,854 | | | | | | | | | | | | | | |]

| Commitments and contingencies | | | | | | | | | | | [added: |]

| [removed: Equity | |] Common stock, $1 par value, authorized 2,000,000,000 shares, issued 683,494,944 shares in [removed: 2018] [added: 2019] and [removed: 2017] [added: 2018] | | | [removed: 683] [added: 683] | | | | [added: | |] 683 | | [added: |]

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

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

| [removed: | |] Retained earnings | | | 15,626 | | | [added: (551)] | [removed: 14,483] | | [added: (a)(b)(c)(e)(g) | | | 15,075 | | | | | | | | | | | | | | |]

| [removed: | |] Accumulated other comprehensive (loss) income | | | [removed: (4,424] [added: (4,424)] | [removed: )] | | [added: 601] | [removed: (4,001] | [removed: )] | [added: (a)(e) | | | (3,823) | | | | | | | | | | | | | | |]

| [removed: | |] Total Baxter stockholders’ equity | | | 7,794 | | | [added: 50] | [removed: 9,124] | | [added: | | | 7,844 | | | | | | | | | | | | | | |]

| [removed: | |] Noncontrolling interests | | | [removed: 22] [added: 30] | | | | [removed: (8] | [removed: )] | [added: 22 | | |]

| [removed: | |] Total equity | | | 7,816 | | | [added: 50] | [removed: 9,116] | | [added: | | | 7,866 | | | | | | | | | | | | | | |]

| [removed: | |] Total liabilities and equity | | [added: |] $ | 15,641 | | [added: $] | [added: 79 | | | | |] $ | [removed: 17,111] [added: 15,720] | | [added: | | | | | | | | | | | |]

[removed: CONSOLIDATED] [added: CONSOLIDATED] STATEMENTS OF [removed: INCOME][added: INCOME]

| years ended December 31 (in millions, except per share data) | | [removed: 2018] | [added: 2019] | | | [added: 2018 | | |] 2017 | | | | [removed: 2016] | | | [added: | |]

| Net sales | | [added: |] $ | 11,127 | | [removed: |] $ | [removed: 10,561] [added: (28)] | | [added: (e)] | [added: | |] $ | [removed: 10,163] [added: 11,099] | | [added: | | | | | | | | | | | |]

| Cost of sales | | | 6,346 | | | [added: (6)] | [removed: 6,091] | | [added: (c)(e)] | | [removed: 6,047] | [added: 6,340] | [added: | | | | | | | | | | | | | |]

| Gross margin | | | 4,781 | | | [added: (22)] | [removed: 4,470] | | | | [removed: 4,116] | [added: 4,759] | [added: | | | | | | | | | | | | | |]

| [removed: Marketing] [added: Selling, general] and administrative expenses | | | 2,617 | | | [added: 3] | [removed: 2,566] | | [added: (e)(f)] | | [removed: 2,725] | [added: 2,620] | [added: | | | | | | | | | | | | | |]

| Research and development expenses | | | 655 | | | [added: (1)] | [removed: 613] | | [added: (e)] | | [removed: 646] | [added: 654] | [added: | | | | | | | | | | | | | |]

| Other operating [removed: income] [added: income, net] | | | [removed: (90] [added: (90)] | [removed: )] | | [added: (9)] | [removed: —] | | [added: (f)] | | [removed: —] | [added: (99)] | [added: | | | | | | | | | | | | | |]

| Operating income | | | 1,599 | | | [added: (15)] | [removed: 1,291] | | | | [removed: 745] | [added: 1,584] | [added: | | | | | | | | | | | | | |]

| [removed: Net interest expense] [added: Interest expense, net] | | | [removed: 45] [added: 71] | | | [added: 45] | [added: | |] 55 | | | | [removed: 66] | | [added: | | |]

| Other (income) expense, net | | | [removed: (139] [added: (139)] | [removed: )] | | [added: 61] | [removed: 19] | | [added: (a)(b)(e)] | | [removed: (4,275] | [removed: )] [added: (78)] | [added: | | | | | | | | | | | | | |]

| Income from continuing operations before income taxes | | | 1,693 | | | [added: (76)] | [removed: 1,217] | | | | [removed: 4,954] | [added: 1,617] | [added: | | | | | | | | | | | | | |]

| Income tax expense (benefit) | | | [removed: 63] [added: 493] | | | [added: (2)] | [removed: 493] | | [added: (c)(e)] | | [removed: (12] | [removed: )] [added: 491] | [added: | | | | | | | | | | | | | |]

| | | | | | | | | | | | |

| | | | | | | | | | As Restated | | |

| Accounts receivable, net | | | 1,896 | | | | | | 1,840 | | |

| Prepaid expenses and other current assets | | | 619 | | | | | | 614 | | |

| Property, plant and equipment, net | | | 4,512 | | | | | | 4,530 | | |

| Goodwill | | | 3,030 | | | | | | 3,002 | | |

| Operating lease right-of-use assets | | | 608 | | | | | | — | | |

| Other non-current assets | | | 1,069 | | | | | | 819 | | |

| Short-term debt | | | $ | 226 | | | | | $ | 2 | |

| Current maturities of long-term debt and finance lease obligations | | | 315 | | | | | | 2 | | |

| Accounts payable and accrued liabilities | | | 2,689 | | | | | | 2,810 | | |

| Long-term debt and finance lease obligations | | | 4,809 | | | | | | 3,481 | | |

| Operating lease liabilities | | | 510 | | | | | | — | | |

| Other non-current liabilities | | | 1,732 | | | | | | 1,559 | | |

| Equity: | | | | | | | | | | | |

| Common stock in treasury, at cost, 177,340,358 shares in 2019 and 170,495,859 shares in 2018 | | | (10,764) | | | | | | (9,989) | | |

| Additional contributed capital | | | 5,955 | | | | | | 5,898 | | |

| Total equity | | | 7,912 | | | | | | 7,866 | | |

| Total liabilities and equity | | | $ | 18,193 | | | | | $ | 15,720 | |

| | | | | | | | | | | | | | | | | | |

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

| | | | | | | As Restated | | | | | | | | | | | |

| Cost of sales | | | 6,601 | | | 6,340 | | | 6,110 | | | | | | | | |

| Gross margin | | | 4,761 | | | 4,759 | | | 4,474 | | | | | | | | |

| Selling, general and administrative expenses | | | 2,535 | | | 2,620 | | | 2,627 | | | | | | | | |

| Research and development expenses | | | 595 | | | 654 | | | 615 | | | | | | | | |

| Other operating income, net | | | (141) | | | (99) | | | (56) | | | | | | | | |

| Operating income | | | 1,772 | | | 1,584 | | | 1,288 | | | | | | | | |

| Income from continuing operations before income taxes | | | 970 | | | 1,617 | | | 1,100 | | | | | | | | |

| Income from continuing operations | | | 1,011 | | | 1,552 | | | 609 | | | | | | | | |

| Net income | | | 1,011 | | | 1,546 | | | 602 | | | | | | | | |

| Less: Net income attributable to noncontrolling interests | | | 10 | | | — | | | — | | | | | | | | |

| Net income attributable to Baxter stockholders | | | $ | 1,001 | | $ | 1,546 | | $ | 602 | | | | | | | |

| Basic | | | $ | 1.97 | | $ | 2.91 | | $ | 1.12 | | | | | | | |

| Diluted | | | $ | 1.93 | | $ | 2.84 | | $ | 1.10 | | | | | | | |

| Basic | | | $ | 1.97 | | $ | 2.90 | | $ | 1.11 | | | | | | | |