Item 8. Financial Statements and Supplementary Data.

CONSOLIDATED BALANCE SHEETS

									As Restated
as of December 31 (in millions, except share information)			2019						2018
Current assets:
Cash and cash equivalents			$	3,335					$	1,838
Accounts receivable, net			1,896						1,840
Inventories			1,653						1,667
Prepaid expenses and other current assets			619						614
Total current assets			7,503						5,959
Property, plant and equipment, net			4,512						4,530
Goodwill			3,030						3,002
Other intangible assets, net			1,471						1,410
Operating lease right-of-use assets			608						—
Other non-current assets			1,069						819
Total assets			$	18,193					$	15,720
Current liabilities:
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
Total current liabilities			3,230						2,814
Long-term debt and finance lease obligations			4,809						3,481
Operating lease liabilities			510						—
Other non-current liabilities			1,732						1,559
Total liabilities			10,281						7,854
Commitments and contingencies
Equity:
Common stock, $1 par value, authorized 2,000,000,000 shares, issued 683,494,944 shares in 2019 and 2018			683						683
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
Retained earnings			15,718						15,075
Accumulated other comprehensive (loss) income			(3,710)						(3,823)
Total Baxter stockholders’ equity			7,882						7,844
Noncontrolling interests			30						22
Total equity			7,912						7,866
Total liabilities and equity			$	18,193					$	15,720

The accompanying notes are an integral part of these consolidated financial statements.

CONSOLIDATED STATEMENTS OF INCOME

						As Restated
years ended December 31 (in millions, except per share data)			2019			2018			2017
Net sales			$	11,362		$	11,099		$	10,584
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
Interest expense, net			71			45			55
Other (income) expense, net			731			(78)			133
Income from continuing operations before income taxes			970			1,617			1,100
Income tax expense (benefit)			(41)			65			491
Income from continuing operations			1,011			1,552			609
Loss from discontinued operations, net of tax			—			(6)			(7)
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
Earnings per share from continuing operations
Basic			$	1.97		$	2.91		$	1.12
Diluted			$	1.93		$	2.84		$	1.10
Loss per share from discontinued operations
Basic			$	—		$	(0.01)		$	(0.01)
Diluted			$	—		$	(0.01)		$	(0.02)
Earnings per share
Basic			$	1.97		$	2.90		$	1.11
Diluted			$	1.93		$	2.83		$	1.08
Weighted-average number of shares outstanding
Basic			509			534			543
Diluted			519			546			555

The accompanying notes are an integral part of these consolidated financial statements.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

						As Restated
years ended December 31 (in millions)			2019			2018			2017
Net income			$	1,011		$	1,546		$	602
Other comprehensive (loss) income, net of tax:
Currency translation adjustments, net of tax expense (benefit) of ($5) in 2019, ($52) in 2018 and $89 in 2017			(95)			(323)			599
Pension and other postretirement benefit plans, net of tax expense of $130 in 2019, $10 in 2018, and $60 in 2017			408			33			134
Hedging activities, net of tax expense (benefit) of ($11) in 2019, $3 in 2018, and ($6) in 2017			(39)			9			(13)
Available-for-sale securities, net of tax expense of zero in 2019, 2018 and 2017, respectively			—			—			2
Total other comprehensive (loss) income, net of tax			274			(281)			722
Comprehensive income			1,285			1,265			1,324
Less: Comprehensive income attributable to noncontrolling interests			10			—			—
Comprehensive income attributable to Baxter stockholders			$	1,275		$	1,265		$	1,324

The accompanying notes are an integral part of these consolidated financial statements.

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

			Baxter International Inc. stockholders' equity
(in millions)			Common stock shares			Common stock			Common stock shares in treasury			Common stock in treasury			Additional contributed capital			Retained earnings			Accumulated other comprehensive income (loss)			Total Baxter stockholders' equity			Noncontrolling interests			Total equity
Balance as of January 1, 2017 (As Restated)			683			$	683		144			$	(7,995)		$	5,958		$	13,846		$	(4,261)		$	8,231		$	(10)		$	8,221
Net income			—			—			—			—			—			602			—			$	602		—			$	602
Other comprehensive income (loss)			—			—			—			—			—			—			722			722			—			722
Purchases of treasury stock			—			—			9			(564)			—			—			—			(564)			—			(564)
Stock issued under employee benefit plans and other			—			—			(11)			578			(18)			(134)			—			426			—			426
Dividends declared on common stock			—			—			—			—			—			(334)			—			(334)			—			(334)
Distribution of Baxalta			—			—			—			—			—			34			—			34			—			34
Changes in noncontrolling interests			—			—			—			—			—			—			—			—			2			2
Balance as of December 31, 2017 (As Restated)			683			$	683		$	142		$	(7,981)		$	5,940		$	14,014		$	(3,539)		$	9,117		$	(8)		$	9,109
Adoption of new accounting standards			—			—			—			—			—			(22)			(3)			(25)			—			(25)
Net income			—			—			—			—			—			1,546			—			1,546			—			1,546
Other comprehensive income (loss)			—			—			—			—			—			—			(281)			(281)			—			(281)
Purchases of treasury stock			—			—			36			(2,415)			(60)			—			—			(2,475)			—			(2,475)
Stock issued under employee benefit plans and other			—			—			(8)			407			18			(71)			—			354			—			354
Dividends declared on common stock			—			—			—			—			—			(392)			—			(392)			—			(392)
Changes in noncontrolling interests			—			—			—			—			—			—			—			—			30			30
Balance as of December 31, 2018 (As Restated)			683			$	683		$	170		$	(9,989)		$	5,898		$	15,075		$	(3,823)		$	7,844		$	22		$	7,866
Adoption of new accounting standards			—			—			—			—			—			161			(161)			—			—			—
Net income			—			—			—			—			—			1,001			—			1,001			10			1,011
Other comprehensive income (loss)			—			—			—			—			—			—			274			274			—			274
Purchases of treasury stock			—			—			16			(1,293)			46			—			—			(1,247)			—			(1,247)
Stock issued under employee benefit plans and other			—			—			(9)			518			11			(84)			—			445			—			445
Dividends declared on common stock			—			—			—			—			—			(435)			—			(435)			—			(435)
Changes in noncontrolling interests			—			—			—			—			—			—			—			—			(2)			(2)
Balance as of December 31, 2019			683			$	683		177			$	(10,764)		$	5,955		$	15,718		$	(3,710)		$	7,882		$	30		$	7,912

The accompanying notes are an integral part of these consolidated financial statements.

CONSOLIDATED STATEMENTS OF CASH FLOWS

						As Restated
years ended December 31 (in millions)			2019			2018			2017
Cash flows from operations
Net income			$	1,011		$	1,546		$	602
Adjustments to reconcile income from continuing operations to net cash from operating activities:
Loss from discontinued operations, net of tax			—			6			7
Depreciation and amortization			789			771			750
Pension settlement charges			755			1			2
Net periodic pension benefit and other postretirement costs			22			39			123
Deferred income taxes			(310)			(263)			211
Stock compensation			122			115			107
Intangible asset impairment			31			—			—
Other			115			50			38
Changes in balance sheet items:
Accounts receivable, net			(65)			(12)			30
Inventories			4			(197)			76
Accounts payable and accrued liabilities			(212)			60			11
Other			(152)			(99)			(227)
Cash flows from operations – continuing operations			2,110			2,017			1,730
Cash flows from operations – discontinued operations			(6)			—			(16)
Cash flows from operations			2,104			2,017			1,714
Cash flows from investing activities
Capital expenditures			(696)			(659)			(616)
Acquisitions and investments, net of cash acquired			(418)			(268)			(686)
Other investing activities, net			14			11			10
Cash flows from investing activities			(1,100)			(916)			(1,292)
Cash flows from financing activities
Issuances of long-term debt			1,661			—			665
Borrowings under revolving credit facility			222			—			—
Cash dividends on common stock			(423)			(376)			(315)
Proceeds from stock issued under employee benefit plans			356			258			347
Purchases of treasury stock			(1,270)			(2,452)			(564)
Other financing activities, net			(48)			(33)			(40)
Cash flows from financing activities			498			(2,603)			93
Effect of foreign exchange rate changes on cash and cash equivalents			(5)			(63)			102
Increase (decrease) in cash and cash equivalents			1,497			(1,565)			617
Cash and cash equivalents at beginning of year			1,838			3,403			2,786
Cash and cash equivalents at end of year			$	3,335		$	1,838		$	3,403
Other supplemental information
Interest paid, net of portion capitalized			$	103		$	94		$	80
Income taxes paid			$	294		$	301		$	253

The accompanying notes are an integral part of these consolidated financial statements.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations

Baxter International Inc., through our subsidiaries (collectively, Baxter, we, our or us), provides a broad portfolio of essential healthcare products, including acute and chronic dialysis therapies; sterile intravenous (IV) solutions; infusion systems and devices; parenteral nutrition therapies; inhaled anesthetics; generic injectable pharmaceuticals; and surgical hemostat and sealant products. Our global footprint and the critical nature of 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 patients at home under physician supervision. We operate in three segments: Americas, EMEA and APAC, which are described in Note 18.

Use of Estimates

The preparation of the financial statements in conformity with U.S. Generally Accepted Accounting Principles (U.S. GAAP) requires us to make estimates and assumptions that affect reported amounts and related disclosures. Actual results could differ from those estimates.

Basis of Presentation

The consolidated financial statements include the accounts of Baxter and our majority-owned subsidiaries that we control, after elimination of intra-company transactions. Certain reclassifications have been made to conform the prior period consolidated financial statements to the current period presentation.

On October 25, 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. Beginning October 25, 2019, our financial statements include the assets, liabilities and operating results of Cheetah. Refer to Note 4 for additional information.

On November 18, 2018, we acquired a controlling financial interest in our joint venture in Saudi Arabia. The acquisition allows us to increase manufacturing output and utilize the facilities for additional capacity for certain products in the region. Beginning November 18, 2018, we consolidated the financial statements of the joint venture with our consolidated financial statements. Refer to Note 4 for additional information.

On March 16, 2018, we acquired two hemostat and sealant products from Mallinckrodt plc: RECOTHROM Thrombin topical (Recombinant) and PREVELEAK Surgical Sealant for total consideration of $184 million. Beginning March 16, 2018, our financial statements include the assets, liabilities and operating results of RECOTHROM and PREVELEAK. Refer to Note 4 for additional information.

On July 27, 2017, 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. Beginning July 27, 2017, our financial statements include the assets, liabilities and operating results of Claris. Refer to Note 4 for additional information.

Currency restrictions enacted in Venezuela require approval from the Venezuelan government to exchange Venezuelan bolivars for U.S. dollars. Due to a decline in transactions to exchange Venezuelan bolivars for U.S. dollars, and limitations on our ability to repatriate funds generated by our Venezuela operations, we concluded in the second quarter of 2017 that we no longer met the accounting criteria for control over our business in Venezuela and we deconsolidated our Venezuelan operations on June 30, 2017. As a result of deconsolidating the Venezuelan operations, we recorded a pre-tax charge of $33 million in other (income) expense, net in 2017. This charge included the write-off of our investment in our Venezuelan operations, related cumulative translation adjustments and elimination of intra-company amounts. Beginning in the third quarter of 2017, we no longer included the results of our Venezuelan business in our consolidated financial statements. In 2018, we liquidated our subsidiary in

Venezuela and currently sell direct to distributors in that country through legal entities outside of Venezuela. The distributors purchase our products in U.S. dollars and are responsible for importing those products into Venezuela.

Revenue Recognition

We adopted Accounting Standards Update (ASU) No. 2014-9, Revenue from Contracts with Customers (Topic 606) as of January 1, 2018. Results for the years ended December 31, 2019 and 2018 are presented under Topic 606, while the 2017 period is presented under previous guidance. See further discussion of the impact of Topic 606 below under the header “New Accounting Standards.”

Revenue is measured as the amount of consideration we expect to receive in exchange for transferring goods or providing services. A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of account in the contract. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. Some of our contracts have multiple performance obligations. For contracts with multiple performance obligations, we allocate the contract’s transaction price to each performance obligation using our best estimate of the standalone selling price of each distinct good or service in the contract. Our global payment terms are typically between 30-90 days.

The majority of our performance obligations are satisfied at a point in time. This includes sales of our broad portfolio of essential healthcare products across our geographic segments, including acute and chronic dialysis therapies; sterile IV solutions; infusion systems and devices; parenteral nutrition therapies; inhaled anesthetics; generic injectable pharmaceuticals; and surgical hemostat and sealant products. For a majority of these sales, our performance obligation is satisfied upon delivery to the customer. Shipping and handling activities are considered to be fulfillment activities and are not considered to be a separate performance obligation.

To a lesser extent, in all of our segments, we enter into other types of contracts, including contract manufacturing arrangements, equipment leases, and certain subscription software and licensing arrangements. We recognize revenue for these arrangements over time or at a point in time depending on our evaluation of when the customer obtains control of the promised goods or services. Revenue is recognized over time when we are creating or enhancing an asset that the customer controls as the asset is created or enhanced or when our performance does not create an asset with an alternative use and we have an enforceable right to payment for performance completed.

As of December 31, 2019, we had $8.6 billion of transaction price allocated to remaining performance obligations related to executed contracts with an original duration of one year or more, which are primarily included in the Americas segment. Some contracts in the United States included in this amount contain index-dependent price increases, which are not known at this time. We expect to recognize approximately 25% of this amount as revenue in each of 2020 and 2021, 20% in each of 2022 and 2023, 5% in 2024, and the remaining balance thereafter.

Significant Judgments

Revenues from product sales are recorded at the net sales price (transaction price), which includes estimates of variable consideration related to rebates, product returns, sales discounts and wholesaler chargebacks. These reserves are based on estimates of the amounts earned or to be claimed on the related sales and are included in accounts receivable, net and accounts payable and accrued liabilities on the consolidated balance sheets. Management's estimates take into consideration historical experience, current contractual and statutory requirements, specific known market events and trends, industry data, and forecasted customer buying and payment patterns. Overall, these reserves reflect our best estimates of the amount of consideration to which we are entitled based on the terms of the contract using the expected value method. The amount of variable consideration included in the net sales price is limited to the amount that is probable not to result in a significant reversal in the amount of the cumulative revenue recognized in a future period. Revenue recognized in years ended December 31, 2019 and 2018 related to performance obligations satisfied in prior periods was not material.

Contract Balances

The timing of revenue recognition, billings and cash collections results in the recognition of trade accounts receivable, unbilled receivables, contract assets, and customer advances and deposits (contract liabilities) on our consolidated balance sheets. Net trade accounts receivable was $1.8 billion as of December 31, 2019 and 2018.

For contract manufacturing arrangements, revenue is primarily recognized throughout the production cycle, which typically lasts up to 90 days, resulting in the recognition of contract assets until the related services are completed and the customers are billed. Additionally, for arrangements containing a performance obligation to deliver software that can be used with medical devices, we recognize revenue upon delivery of the software, which results in the recognition of contract assets when customers are billed over time, generally over one to five years. For bundled contracts involving equipment delivered up-front and consumable medical products to be delivered over time, total contract revenue is allocated between the equipment and consumable medical products. In certain of those arrangements, a contract asset is created for the difference between the amount of equipment revenue recognized upon delivery and the amount of consideration initially receivable from the customer. In those arrangements, the contract asset becomes a trade account receivable as consumable medical products are provided and billed, generally over one to seven years. Our contract asset balances totaled $131 million as of December 31, 2019, of which $36 million related to contract manufacturing services, $43 million related to software sales and $52 million related to bundled equipment and consumable medical products contracts. Our contract asset balances totaled $80 million as of December 31, 2018, of which $33 million related to contract manufacturing services and $47 million related to software sales. Contract assets are presented within accounts receivable, net ($63 million and $50 million as of December 31, 2019 and 2018, respectively) and other non-current assets ($68 million and $30 million as of December 31, 2019 and 2018, respectively) on the consolidated balance sheets. Contract liabilities were $12 million as of December 31, 2019 and were included in other non-current liabilities on the consolidated balance sheet. Contract liabilities as of December 31, 2018 were not significant.

Practical Expedients

We apply a practical expedient to expense as incurred costs to obtain a contract with a customer when the amortization period would have been one year or less. We do not disclose the value of the transaction price that is allocated to unsatisfied performance obligations for contracts with an original expected length of one year or less. We have elected to use the practical expedient to not adjust the promised amount of consideration for the effects of a significant financing component if it is expected, at contract inception, that the period between when we transfer a promised good or service to a customer and when the customer pays for that good or service will be one year or less. Additionally, all taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction and collected from a customer are excluded from revenue.

Disaggregation of Net Sales

The following tables disaggregate our net sales from contracts with customers by Global Business Unit (GBU) between the U.S. and international:

															As Restated
			2019																		2018																		2017
years ended December 31 (in millions)			U.S.			International			Total						U.S.			International			Total						U.S.			International			Total
Renal Care1			$	791		$	2,848		$	3,639					$	816		$	2,835		$	3,651					$	754		$	2,737		$	3,491
Medication Delivery2			1,822			977			2,799						1,690			974			2,664						1,698			1,002			2,700
Pharmaceuticals3			940			1,215			2,155						996			1,091			2,087						892			994			1,886
Clinical Nutrition4			320			552			872						321			554			875						359			526			885
Advanced Surgery5			535			342			877						466			332			798						403			305			708
Acute Therapies6			184			351			535						174			341			515						147			310			457
Other7			234			251			485						260			249			509						257			200			457
Total Baxter			$	4,826		$	6,536		$	11,362					$	4,723		$	6,376		$	11,099					$	4,510		$	6,074		$	10,584

1 Renal Care includes sales of our peritoneal dialysis (PD), hemodialysis (HD) and additional dialysis therapies and services.

2 Medication Delivery includes sales of our IV therapies, infusion pumps, administration sets and drug reconstitution devices.

3 Pharmaceuticals includes sales of our premixed and oncology drug platforms, inhaled anesthesia and critical care products and pharmacy compounding services.

4 Clinical Nutrition includes sales of our parenteral nutrition (PN) therapies and related products.

5 Advanced Surgery includes sales of our biological products and medical devices used in surgical procedures for hemostasis, tissue sealing and adhesion prevention.

6 Acute Therapies includes sales of our continuous renal replacement therapies (CRRT) and other organ support therapies focused in the intensive care unit (ICU).

7 Other primarily includes sales of contract manufacturing services from our pharmaceutical partnering business.

Accounts Receivable and Allowance for Doubtful Accounts

In the normal course of business, we provide credit to our customers, perform credit evaluations of these customers and maintain reserves for potential credit losses. In determining the amount of the allowance for doubtful accounts, we consider, among other items, historical credit losses, the past-due status of receivables, payment histories and other customer-specific information. Receivables are written off when we determine they are uncollectible. The allowance for doubtful accounts was $112 million and $110 million as of December 31, 2019 and 2018, respectively.

Shipping and Handling Costs

Shipping costs, which are costs incurred to physically move product from our premises to the customer’s premises, are classified as selling, general and administrative (SG&A) expenses. Handling costs, which are costs incurred to store, move and prepare products for shipment, are classified as cost of sales. Approximately $324 million in 2019, $329 million in 2018 and $292 million in 2017 of shipping costs were classified in SG&A expenses.

Cash and Cash Equivalents

Cash and cash equivalents include cash, certificates of deposit and money market and other short-term funds with original maturities of three months or less.

Inventories

Inventories are stated at the lower of cost or net realizable value determined by the first-in, first-out method. We review inventories on hand at least quarterly and record provisions for estimated excess, slow-moving and obsolete inventory, as well as inventory with a carrying value in excess of net realizable value.

Property, Plant and Equipment, Net

Property, plant and equipment are stated at cost. Depreciation expense is calculated using the straight-line method over the estimated useful lives of the related assets, which range from 20 to 50 years for buildings and improvements and from three to 15 years for machinery and equipment. Leasehold improvements are amortized over the life of the related facility lease (including any renewal periods, if appropriate) or the asset, whichever is shorter. We capitalize certain computer software and software development costs incurred in connection with developing or obtaining software for internal use. Capitalized software costs are included within machinery and equipment and are amortized on a straight-line basis over the estimated useful lives of the software, which generally range from three to five years.

Research and Development

Research and development (R&D) costs, including R&D acquired in transactions that are not business combinations, are expensed as incurred. Pre-regulatory approval contingent milestone obligations to counterparties in collaborative arrangements, which include acquired R&D, are expensed when the milestone is achieved. Contingent milestone payments made to such counterparties on or after regulatory approval are capitalized and amortized over the remaining useful life of the related product. Amounts capitalized for such payments are included in other intangible assets, net.

Acquired in-process R&D (IPR&D) is the value assigned to technology or products under development acquired in a business combination which have not received regulatory approval and have no alternative future use. Acquired IPR&D is capitalized as an indefinite-lived intangible asset. Development costs incurred after the acquisition are expensed as incurred. Upon receipt of regulatory approval of the related technology or product, the indefinite-lived intangible asset is accounted for as a finite-lived intangible asset and amortized on a straight-line basis over the

estimated economic life of the related technology or product, subject to annual impairment reviews as discussed below. If the R&D project is abandoned, the indefinite-lived asset is charged to expense.

Collaborative Arrangements

We enter into collaborative arrangements in the normal course of business. These collaborative arrangements take a number of forms and structures and are designed to enhance and expedite long-term sales and profitability growth. These arrangements may provide for us to obtain commercialization rights to a product under development, and require us to make upfront payments, contingent milestone payments, profit-sharing, and/or royalty payments. We may be responsible for ongoing costs associated with the arrangements, including R&D cost reimbursements to the counterparty. See the R&D section of this note regarding the accounting treatment of upfront and contingent milestone payments. Any royalty and profit-sharing payments during the commercialization phase are expensed as cost of sales when they become due and payable.

Restructuring Charges

We record liabilities for costs associated with exit or disposal activities in the period in which the liability is incurred. Employee termination costs are primarily recorded when actions are probable and estimable. Costs for one-time termination benefits in which the employee is required to render service until termination in order to receive the benefits are recognized ratably over the future service period. Refer to the discussion below regarding the accounting for asset impairment charges.

Goodwill, Intangible Assets, and Other Long-Lived Assets

Goodwill is the excess of the purchase price over the fair value of acquired assets and liabilities in a business combination. Goodwill is not amortized but is subject to an impairment review annually and whenever indicators of impairment exist. We have the option to assess goodwill for impairment by initially performing a qualitative assessment to determine whether it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount. If we determine that it is not more-likely-than-not that the fair value of a reporting unit is less than its carrying amount, then the two-step goodwill impairment test is not required to be performed. If we determine that it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount, or if we do not elect the option to perform an initial qualitative assessment, we perform the two-step goodwill impairment test. In the first step, the fair value of the reporting unit is compared with its book value including goodwill. If the fair value of the reporting unit is in excess of its book value, the related goodwill is not impaired and no further analysis is necessary. If the fair value of the reporting unit is less than its book value, there is an indication of potential impairment and a second step is performed. When required, the second step of testing involves calculating the implied fair value of goodwill for the reporting unit. The implied fair value of goodwill is determined in the same manner as goodwill recognized in a business combination, which is the excess of the fair value of the reporting unit determined in step one over the fair value of its net assets, including identifiable intangible assets, as if the reporting unit had been acquired. If the carrying amount of the reporting unit's goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess.

Indefinite-lived intangible assets, such as IPR&D acquired in business combinations and certain trademarks with indefinite lives, are subject to an impairment review annually and whenever indicators of impairment exist. We have the option to assess indefinite-lived intangible assets for impairment by first performing qualitative assessments to determine whether it is more-likely-than-not that the fair values of its indefinite-lived intangible assets are less than the carrying amounts. If we determine that it is more-likely-than-not that an indefinite-lived intangible asset is impaired, or if we elect not to perform an initial qualitative assessment, we then perform the quantitative impairment test by comparing the fair value of the indefinite-lived intangible asset with its carrying amount. If the carrying amount exceeds the fair value of the indefinite-lived intangible asset, we write the carrying amount down to the fair value.

We review the carrying amounts of long-lived assets, other than goodwill and intangible assets not subject to amortization, for potential impairment when events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In evaluating recoverability, we group assets and liabilities at the lowest level such that the identifiable cash flows relating to the group are largely independent of the cash flows of other assets and liabilities. We then compare the carrying amounts of the assets or asset groups with the related estimated undiscounted future cash flows. In the event impairment exists, an impairment charge is recorded as the amount by which the carrying amount of the asset or asset group exceeds the fair value.

Income Taxes

Deferred taxes are recognized for the future tax effects of temporary differences between financial and income tax reporting based on enacted tax laws and rates. We maintain valuation allowances unless it is more-likely-than-not that the deferred tax asset will be realized. With respect to uncertain tax positions, we determine whether the position is more-likely-than-not to be sustained upon examination based on the technical merits of the position. Any tax position that meets the more-likely-than-not recognition threshold is measured and recognized in the consolidated financial statements at the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement. The liability relating to uncertain tax positions is classified as current in the consolidated balance sheets to the extent that we anticipate making a payment within one year. Interest and penalties associated with income taxes are classified in the income tax expense line in the consolidated statements of income.

Refer to the Recently Adopted Accounting Pronouncements section of this note and Note 14 for additional information related to the Tax Cuts and Jobs Act of 2017 (2017 Tax Act).

Foreign Currency Translation

Currency translation adjustments (CTA) related to foreign operations are included in other comprehensive income (OCI). For foreign operations in highly inflationary economies, translation gains and losses are included in other (income) expense, net, and were not material in 2019, 2018 and 2017.

Derivatives and Hedging Activities

All derivative instruments are recognized as either assets or liabilities at fair value in the consolidated balance sheets and are classified as short-term or long-term based on the scheduled maturity of the instrument. We designate certain of our derivatives and foreign-currency denominated debt instruments as hedging instruments in cash flow, fair value or net investment hedges.

For each derivative instrument that is designated and effective as a cash flow hedge, the gain or loss on the derivative is recorded in accumulated other comprehensive income (AOCI) and then recognized in earnings consistent with the underlying hedged item. Option premiums or net premiums paid are initially recorded as assets and reclassified to OCI over the life of the option, and then recognized in earnings consistent with the underlying hedged item. Cash flow hedges are classified in cost of sales and interest expense, net, and are primarily related to forecasted third-party sales denominated in foreign currencies, forecasted intra-company sales denominated in foreign currencies and anticipated issuances of debt, respectively.

For each derivative instrument that is designated and effective as a fair value hedge, the gain or loss on the derivative is recognized immediately to earnings, and offsets changes in fair value attributable to a particular risk, such as changes in interest rates, of the hedged item, which are also recognized in earnings. Fair value hedges are classified in interest expense, net, as they hedge the interest rate risk associated with certain of our fixed-rate debt.

We have designated our Euro-denominated senior notes as hedges of our net investment in our European operations and, as a result, mark to spot rate adjustments on the outstanding debt balances are recorded as a component of AOCI.

For derivative instruments that are not designated as hedges, the change in fair value is recorded directly to other (income) expense, net.

If it is determined that a derivative or nonderivative hedging instrument is no longer highly effective as a hedge, we discontinue hedge accounting prospectively. Gains or losses relating to terminations of effective cash flow hedges generally continue to be deferred and are recognized consistent with the loss or income recognition of the underlying hedged items. However, if it is probable that the hedged forecasted transactions will not occur, any gains or losses would be immediately reclassified from AOCI to earnings. If we terminate a fair value hedge, an amount equal to the cumulative fair value adjustment to the hedged item at the date of termination is amortized to earnings over the remaining term of the hedged item. If we remove a net investment hedge designation, any gains or losses recognized in AOCI are not reclassified to earnings until we sell, liquidate, or deconsolidate the foreign investments that were being hedged.

Derivatives, including those that are not designated as a hedge, are principally classified in the operating section of the consolidated statements of cash flows.

Refer to Note 16 for further information regarding our derivative and hedging activities.

New Accounting Standards

Recently adopted accounting pronouncements

As of January 1, 2019, we adopted Accounting Standards Update (ASU) No. 2016-02, Leases (Topic 842). Under this guidance, lessees are required to recognize a right-of-use asset and a lease liability on the balance sheet for all operating leases, other than those that meet the definition of a short-term lease. We adopted Topic 842 using the modified retrospective method. We elected the following practical expedients when assessing the transition impact: i) not to reassess whether any expired or existing contracts as of the adoption date are or contain leases; ii) not to reassess the lease classification for any expired or existing leases as of the adoption date; and iii) not to reassess initial direct costs for any existing leases as of the adoption date. The adjustment to record operating lease right-of-use assets and operating lease liabilities was $502 million as of January 1, 2019. The impact to the consolidated statements of income was not material and there was no net impact to the consolidated statements of cash flows.

As of January 1, 2019, we adopted ASU No. 2017-12, Targeted Improvements to Accounting for Hedging Activities. The purpose of this ASU is to better align a company’s risk management activities and financial reporting for hedging relationships, simplify the hedge accounting requirements, and improve the disclosures of hedging arrangements. The adoption of this standard did not have a material impact on our consolidated financial statements.

As of January 1, 2019, we adopted ASU No. 2018-02, Reclassification of Certain Tax Effects from AOCI. As a result of the enactment of the U.S. Tax Cuts and Jobs Act of 2017 (the 2017 Tax Act), this guidance provides for a reclassification of certain tax effects from AOCI to retained earnings. The impact of the adoption of this standard was a $161 million increase to retained earnings.

As of January 1, 2018, we adopted ASU No. 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other than Inventory (ASU No. 2016-16) using the modified retrospective method. ASU No. 2016-16 generally accelerates the recognition of income tax consequences for intra-company asset transfers other than inventory. We recorded a $70 million reduction to retained earnings upon adoption of the standard on January 1, 2018 related to the unrecognized income tax effects of asset transfers that occurred prior to adoption. Net income increased $14 million for the year ended December 31, 2018 as a result of the adoption of the standard.

As of January 1, 2018, we adopted ASU No. 2016-01, Financial Instruments: Recognition and Measurement of Financial Assets and Liabilities. The new standard amends certain aspects of accounting and disclosure requirements of financial instruments, including the requirement that equity investments with readily determinable fair values be measured at fair value with changes in fair value recognized in earnings. For privately-held securities, we elected the measurement alternative approach for our investments, which is applied prospectively upon adoption. This approach requires entities to measure their investments at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. The adoption of this standard did not have a material impact on our consolidated financial statements.

As of January 1, 2018, we adopted Topic 606, which amends the existing accounting standards for revenue recognition. ASU No. 2014-09 is based on principles that govern the recognition of revenue at an amount an entity expects to be entitled to receive when products are transferred to customers. The primary impact of the new standard relates to our contract manufacturing operations and software arrangements. Certain contract manufacturing arrangements require revenue recognition over-time in situations in which we produce products that have no alternative use and we have an enforceable right to payment for performance completed to date, inclusive of a reasonable profit margin. This results in an acceleration of revenue recognition for certain contractual arrangements as compared to recognition under prior accounting literature. The new guidance also impacts our arrangements subject to previous software revenue recognition guidance, as we are required to recognize as revenue a significant portion of the contract consideration upon delivery of the software compared to the previous practice of recognizing the contract consideration ratably over time for certain arrangements. We adopted Topic 606 using the modified retrospective method. The adjustment upon adoption increased our opening balance of retained

earnings by approximately $45 million, net of tax, on January 1, 2018. The impact to net sales as a result of the adoption was an increase of $7 million for the year ended December 31, 2018. The impact to cost of sales was not material for the year ended December 31, 2018.

In December 2017, the SEC issued guidance for situations where the accounting for certain elements of the 2017 Tax Act could not be completed prior to the release of a company's financial statements. For specific elements of the 2017 Tax Act, we determined a reasonable estimate for certain effects and recorded that estimate as a provisional amount in 2017. The guidance provided a measurement period to allow a company to account for these specific elements, which began in the reporting period that included the enactment of the 2017 Tax Act and ended when we obtained, prepared and analyzed the information needed in order to complete its accounting assessments or one year, whichever occurred sooner. The resulting tax effects were to be recognized in the period the assessment was complete, and included in income tax expense, accompanied by appropriate disclosures. The measurement period closed in 2018 and we recorded adjustments to reduce income tax expense by $207 million in 2018. Refer to Note 14 for additional information related to the 2017 Tax Act.

NOTE 2

RESTATEMENT OF PREVIOUSLY ISSUED CONSOLIDATED FINANCIAL STATEMENTS

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

Restatement Background

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

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

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

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

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

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

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

Description of Misstatements

Misstatements of Foreign Exchange Gains and Losses

(a) Foreign Currency Denominated Monetary Assets and Liabilities

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

(b) Foreign Currency Derivative Contracts

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

Additional Misstatements

(c) Equipment Leased to Customers under Operating Leases

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

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

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

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

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

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

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

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

(f) Income Statement Classification of Transition Services Income

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

(g) Other Miscellaneous Adjustments

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

Description of Restatement Tables

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

Following the restated consolidated financial statement tables, we have presented reconciliations from our prior periods as previously reported to the restated amounts. The amounts as previously reported for the years ended December 31, 2018 and 2017 were derived from our Annual Report on Form 10-K for the year ended December 31, 2018 filed on February 21, 2019.

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

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

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

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

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

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

Baxter International Inc.
Consolidated Statement of Income
(in millions, except per share)
			Year ended December 31, 2018
			As previously reported			Restatement impacts			Restatement reference			As restated
Net sales			$	11,127		$	(28)		(e)			$	11,099
Cost of sales			6,346			(6)			(c)(e)			6,340
Gross margin			4,781			(22)						4,759
Selling, general and administrative expenses			2,617			3			(e)(f)			2,620
Research and development expenses			655			(1)			(e)			654
Other operating income, net			(90)			(9)			(f)			(99)
Operating income			1,599			(15)						1,584
Interest expense, net			45			—						45
Other (income) expense, net			(139)			61			(a)(b)(e)			(78)
Income from continuing operations before income taxes			1,693			(76)						1,617
Income tax expense (benefit)			63			2			(c)(e)(g)			65
Income from continuing operations			1,630			(78)						1,552
Loss from discontinued operations, net of tax			(6)			—						(6)
Net income			$	1,624		$	(78)					$	1,546
Earnings per share from continuing operations
Basic			$	3.05		$	(0.14)					$	2.91
Diluted			$	2.99		$	(0.15)					$	2.84
Loss per share from discontinued operations
Basic			$	(0.01)		$	—					$	(0.01)
Diluted			$	(0.02)		$	0.01					$	(0.01)
Earnings per share
Basic			$	3.04		$	(0.14)					$	2.90
Diluted			$	2.97		$	(0.14)					$	2.83
Weighted-average number of shares outstanding
Basic			534			—						534
Diluted			546			—						546

(a) Foreign Currency Denominated Monetary Assets and Liabilities—The correction of these misstatements resulted in a decrease to other (income) expense, net of $64 million for the year ended December 31, 2018.

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

(c) Equipment Leased to Customers under Operating Leases—The correction of these misstatements resulted in an increase to cost of sales of $11 million and a decrease to income tax expense of $3 million for the year ended December 31, 2018.

(e) Translation of the Financial Position and Results of Operations of our Foreign Operations into U.S. Dollars—The correction of these misstatements resulted in decreases to net sales of $28 million, cost of sales of $17 million, SG&A expense of $6 million, R&D expense of $1 million, other (income) expense, net of $2 million, and income tax expense of $2 million for the year ended December 31, 2018.

(f) Income Statement Classification of Transition Services Income—The correction of these misstatements resulted in increases to SG&A expense and other operating income, net of $9 million for the year ended December 31, 2018.

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

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

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

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

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

(e) Translation of the Financial Position and Results of Operations of our Foreign Operations into U.S. Dollars—The correction of these misstatements resulted in increases to net sales of $23 million, cost of sales of $11 million, SG&A expense of $5 million, R&D expense of $2 million, other (income) expense, net of $1 million and income tax expense of $1 million for the year ended December 31, 2017.

(f) Income Statement Classification of Transition Services Income—The correction of these misstatements resulted in increases to SG&A expense and other operating income, net of $56 million for the year ended December 31, 2017.

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

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

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

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

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

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

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

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

Baxter International Inc.
Consolidated Statement of Changes in Equity
(in millions)
			Baxter International Inc. stockholders' equity
			Common stock shares			Common stock			Common stock shares in treasury			Common stock in treasury			Additional contributed capital			Retained earnings			Accumulated other comprehensive income (loss)			Total Baxter stockholders' equity			Noncontrolling interests			Total equity
As previously reported
Balance as of January 1, 2018			683			$	683		142			$	(7,981)		$	5,940		$	14,483		$	(4,001)		$	9,124		$	(8)		$	9,116
Adoption of new accounting standards			—			—			—			—			—			(18)			(3)			(21)			—			(21)
Net income			—			—			—			—			—			1,624			—			1,624			—			1,624
Other comprehensive income (loss)			—			—			—			—			—			—			(420)			(420)			—			(420)
Purchases of treasury stock			—			—			36			(2,415)			(60)			—			—			(2,475)			—			(2,475)
Stock issued under employee benefit plans and other			—			—			(8)			407			18			(71)			—			354			—			354
Dividends declared on common stock			—			—			—			—			—			(392)			—			(392)			—			(392)
Changes in noncontrolling interests			—			—			—			—			—			—			—			—			30			30
Balance as of December 31, 2018			683			$	683		170			$	(9,989)		$	5,898		$	15,626		$	(4,424)		$	7,794		$	22		$	7,816
Restatement impacts
Balance as of January 1, 2018			—			$	—		—			$	—		$	—		$	(469)		$	462		$	(7)		$	—		$	(7)
Adoption of new accounting standards			—			—			—			—			—			(4)			—			(4)			—			(4)
Net income			—			—			—			—			—			(78)			—			(78)			—			(78)
Other comprehensive income (loss)			—			—			—			—			—			—			139			139			—			139
Balance as of December 31, 2018			—			$	—		—			$	—		$	—		$	(551)		$	601		$	50		$	—		$	50
As restated
Balance as of January 1, 2018			683			$	683		142			$	(7,981)		$	5,940		$	14,014		$	(3,539)		$	9,117		$	(8)		$	9,109
Adoption of new accounting standards			—			—			—			—			—			(22)			(3)			(25)			—			(25)
Net income			—			—			—			—			—			1,546			—			1,546			—			1,546
Other comprehensive income (loss)			—			—			—			—			—			—			(281)			(281)			—			(281)
Purchases of treasury stock			—			—			36			(2,415)			(60)			—			—			(2,475)			—			(2,475)
Stock issued under employee benefit plans and other			—			—			(8)			407			18			(71)			—			354			—			354
Dividends declared on common stock			—			—			—			—			—			(392)			—			(392)			—			(392)
Changes in noncontrolling interests			—			—			—			—			—			—			—			—			30			30
Balance as of December 31, 2018			683			683			170			(9,989)			5,898			15,075			(3,823)			7,844			22			7,866

See descriptions of the net income and other comprehensive income impacts in the consolidated statement of income and consolidated statement of comprehensive income for the year ended December 31, 2018 sections above. Additionally, we recorded an adjustment to the opening balance of retained earnings on January 1, 2018 for the adoption of ASU No. 2016-16, which was impacted by our adjustments to equipment leased to customers under operating leases.

Baxter International Inc.
Consolidated Statement of Changes in Equity
(in millions)
			Baxter International Inc. stockholders' equity
			Common stock shares			Common stock			Common stock shares in treasury			Common stock in treasury			Additional contributed capital			Retained earnings			Accumulated other comprehensive income (loss)			Total Baxter stockholders' equity			Noncontrolling interests			Total equity
As previously reported
Balance as of January 1, 2017			683			$	683		144			$	(7,995)		$	5,958		$	14,200		$	(4,556)		$	8,290		$	(10)		$	8,280
Net income			—			—			—			—			—			717			—			$	717		—			$	717
Other comprehensive income (loss)			—			—			—			—			—			—			555			555			—			555
Purchases of treasury stock			—			—			9			(564)			—			—			—			(564)			—			(564)
Stock issued under employee benefit plans and other			—			—			(11)			578			(18)			(134)			—			426			—			426
Dividends declared on common stock			—			—			—			—			—			(334)			—			(334)			—			(334)
Distribution of Baxalta			—			—			—			—			—			34			—			34			—			34
Changes in noncontrolling interests			—			—			—			—			—			—			—			—			2			2
Balance as of December 31, 2017			683			$	683		142			$	(7,981)		$	5,940		$	14,483		$	(4,001)		$	9,124		$	(8)		$	9,116
Restatement impacts
Balance as of January 1, 2017			—			$	—		—			$	—		$	—		$	(354)		$	295		$	(59)		$	—		$	(59)
Net income			—			—			—			—			—			(115)			—			(115)			—			(115)
Other comprehensive income (loss)			—			—			—			—			—			—			167			167			—			167
Balance as of December 31, 2017			—			$	—		—			$	—		$	—		$	(469)		$	462		$	(7)		$	—		$	(7)
As restated
Balance as of January 1, 2017			683			$	683		144			$	(7,995)		$	5,958		$	13,846		$	(4,261)		$	8,231		$	(10)		$	8,221
Net income			—			—			—			—			—			602			—			602			—			602
Other comprehensive income (loss)			—			—			—			—			—			—			722			722			—			722
Purchases of treasury stock			—			—			9			(564)			—			—			—			(564)			—			(564)
Stock issued under employee benefit plans and other			—			—			(11)			578			(18)			(134)			—			426			—			426
Dividends declared on common stock			—			—			—			—			—			(334)			—			(334)			—			(334)
Distribution of Baxalta			—			—			—			—			—			34			—			34			—			34
Changes in noncontrolling interests			—			—			—			—			—			—			—			—			2			2
Balance as of December 31, 2017			683			$	683		142			$	(7,981)		$	5,940		$	14,014		$	(3,539)		$	9,117		$	(8)		$	9,109

The adjustment to the January 1, 2017 retained earnings and accumulated other comprehensive loss represent the cumulative impacts of foreign exchange gains and losses and the translation of our financial position and results of operations for our foreign operations into U.S. dollars for the periods prior to January 1, 2017. Retained earnings also includes the cumulative impacts of equipment leased to customers under operating leases and other miscellaneous adjustments for the periods prior to January 1, 2017.

See descriptions of the net income and other comprehensive income impacts in the consolidated statement of income and consolidated statement of comprehensive income for the year ended December 31, 2017 sections above.

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

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

(a) Foreign Currency Denominated Monetary Assets and Liabilities—The correction of these misstatements resulted in an increase to the effect of foreign exchange rate changes on cash and cash equivalents of $64 million for the year ended December 31, 2018.

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

(c) Equipment Leased to Customers under Operating Leases—The correction of these misstatements resulted in decreases to depreciation and amortization of $11 million, deferred income taxes of $3 million and capital expenditures of $22 million for the year ended December 31, 2018.

(d) Classification of Foreign Currency Gains and Losses in our Consolidated Statements of Cash Flows - The corrections of these misstatements resulted in a decrease to the effect of foreign exchange rate changes on cash and cash equivalents and an increase to other adjustments to reconcile net income to net cash from operating activities of $7 million for the year ended December 31, 2018.

(e) Translation of the Financial Position and Results of Operations of our Foreign Operations into U.S. Dollars - The corrections of these misstatements resulted in increases to cash and cash equivalents at the beginning of the period of $9 million, at the end of the period of $6 million, and to other changes in balance sheet items of $4 million and decreases in the effect of foreign exchange rate changes on cash and cash equivalents of $3 million and income taxes paid of $1 million for the year ended December 31, 2018.

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

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

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

(a) Foreign Currency Denominated Monetary Assets and Liabilities—The correction of these misstatements resulted in an increase to the effect of foreign exchange rate changes on cash and cash equivalents of $99 million for the year ended December 31, 2017. Additionally, issuances of debt increased $32 million with an offsetting decrease to the effect of foreign exchange rate changes on cash and cash equivalents to remeasure the proceeds received from the issuance of our Euro-denominated senior notes in May 2017.

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

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

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

(e) Translation of the Financial Position and Results of Operations of our Foreign Operations into U.S. Dollars - The corrections of these misstatements resulted in increases in cash and cash equivalents at the end of the period of $9 million and the effect of foreign exchange rate changes on cash and cash equivalents of $24 million and decreases to cash and cash equivalents at the beginning of the period of $15 million, other changes in balance sheet items of $3 million and income taxes paid of $2 million for the year ended December 31, 2017.

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

NOTE 3

SEPARATION OF BAXALTA

On July 1, 2015, we completed the distribution of approximately 80.5% of the outstanding common stock of Baxalta to our stockholders (the Distribution). After giving effect to the Distribution, we retained 19.5% of the outstanding common stock, or 131,902,719 shares of Baxalta (Retained Shares). The Distribution was made to our stockholders of record as of the close of business on June 17, 2015 (Record Date), who received one share of Baxalta common stock for each of our shares held as of the Record Date. As a result of the Distribution, Baxalta became an independent public company. In 2016, we disposed of our remaining 19.5% interest in Baxalta through a series of transactions including debt-for-equity exchanges, an equity-for-equity exchange and a contribution to our U.S. pension plan.

We entered into several additional agreements with Baxalta as a result of the July 1, 2015 separation, including a transition services agreement (TSA), separation and distribution agreement, manufacturing and supply agreements (MSA), tax matters agreement and a long-term services agreement.

Pursuant to the TSA, we and our subsidiaries, along with Baxalta and their respective subsidiaries, provided to each other, on an interim, transitional basis, various services. Services provided by us included, among others, finance, information technology, human resources, quality, supply chain and certain other administrative services. The services generally commenced on the Distribution date and terminated as of July 1, 2018. Billings by us under the TSA are presented within other operating income, net in the consolidated statements of income. In 2018 and 2017, we recognized approximately $9 million and $56 million, respectively, related to the TSA.

Cash outflows of $6 million, zero and $16 million in 2019, 2018 and 2017, respectively, were reported in cash flows from operations – discontinued operations. These cash flows relate to payments under the tax matters agreement, non-assignable tenders whereby we remained the seller of Baxalta products, transactions related to importation services we provided in certain countries and trade payables settled following local separation on Baxalta’s behalf.

NOTE 4

ACQUISITIONS AND OTHER ARRANGEMENTS

Results of operations of acquired companies are included in our results of operations as of the respective acquisition dates. The purchase price of each acquisition is allocated to the net assets acquired based on estimates of their fair values at the date of the acquisition. Any purchase price in excess of these net assets is recorded as goodwill. The allocation of purchase price in certain cases may be subject to revision based on the final determination of fair values during the measurement period, which may be up to one year from the acquisition date.

Contingent consideration related to business combinations is recognized at its estimated fair value on the acquisition date. Subsequent changes to the fair value of those contingent consideration arrangements are recognized in earnings. Contingent consideration related to acquisitions may consist of development, regulatory and commercial milestone payments, and sales or earnings-based payments, and are valued using discounted cash flow techniques. The fair value of development, regulatory and commercial milestone payments reflects management’s expectations of the probability of payment, and increases or decreases as the probability of payment or expectation of timing or amount of payments changes. The fair value of sales-based payments is based upon probability-weighted future revenue estimates and increases or decreases as revenue estimates or expectation of timing or amount of payments changes.

Cheetah Medical, Inc.

On October 25, 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. The fair value of the potential contingent consideration payments was estimated by applying a probability-weighted expected payment model for the clinical milestone and a Monte Carlo simulation model for the commercial milestone, which were then discounted to present value. The fair value measurements were based on Level 3 inputs. Refer to Note 17 for additional information regarding fair value measurements.

The following table summarizes the fair value of consideration transferred:

(in millions)
Cash consideration transferred			$	197
Contingent consideration			18
Total consideration			$	215

The following table summarizes the fair values of the assets acquired and liabilities assumed as of the acquisition date:

(in millions)
Assets acquired and liabilities assumed
Cash			$	2
Accounts receivable, net			3
Inventories			1
Prepaid expenses and other current assets			1
Property, plant and equipment			1
Goodwill			111
Other intangible assets			131
Operating lease right-of-use assets			1
Accounts payable and other accrued liabilities			(4)
Other non-current liabilities			(32)
Total assets acquired and liabilities assumed			$	215

The results of operations of the acquired business have been included in our consolidated statement of income since the date the business was acquired and were not significant. Acquisition and integration costs associated with the acquisition were $3 million in 2019.

We allocated $123 million of the total consideration to the developed product rights with a weighted-average useful life of 15 years and $8 million to customer relationships with a useful life of 13 years. The fair values of the intangible assets were determined using the income approach. The discount rates used to measure the intangible assets were 11.0% for developed product rights and 10.0% for customer relationships. We consider the fair value of the intangible assets to be Level 3 measurements due to the significant estimates and assumptions used by management in establishing the estimated fair values.

The goodwill, which is not deductible for tax purposes, includes the value of potential future technologies as well as the overall strategic benefits provided to our product portfolio and is included primarily in the Americas segment.

RECOTHROM and PREVELEAK

On March 16, 2018, we acquired two hemostat and sealant products from Mallinckrodt plc: RECOTHROM Thrombin topical (Recombinant), the first and only stand-alone recombinant thrombin, and PREVELEAK Surgical Sealant, which is used in vascular reconstruction. We concluded that the acquired assets met the definition of a business and accounted for the transaction as a business combination using the acquisition method of accounting. The purchase price included an upfront payment of approximately $163 million in 2018. In addition, the purchase price included new and assumed contingent payments in the future related to inventory and technology transfer milestones and net revenue royalty payments with an estimated fair value of $21 million as of the acquisition date. The maximum aggregate amounts payable for the inventory and technology transfer and net revenue royalties were $7 million, $15 million and $143 million, respectively. The fair value of the potential contingent consideration payments was estimated by applying a probability-weighted expected payment model for the inventory and technology transfer payments and a Monte Carlo simulation model for contingent royalty payments, which were then discounted to present value.

The following table summarizes the fair value of consideration transferred:

(in millions)
Cash consideration transferred			$	163
Contingent consideration			21
Total consideration			$	184

The following table summarizes the fair value of the assets acquired as of the acquisition date:

(in millions)
Assets acquired
Accounts receivable, net			$	2
Inventory			80
Goodwill			2
Other intangible assets			100
Total assets acquired			$	184

The results of operations of the acquired business have been included in our consolidated statement of income since the date the business was acquired. The RECOTHROM and PREVELEAK acquisitions contributed $80 million and $52 million of net sales for the years ended December 31, 2019 and 2018, respectively. Acquisition and integration costs, including incremental cost of sales relating to inventory fair value step-ups, associated with the acquisition were $20 million and $17 million, respectively, in 2019 and 2018.

We allocated $100 million of the total consideration to the RECOTHROM and PREVELEAK developed product rights with a weighted-average useful life of 10 years. The fair value of the intangible assets was determined using the income approach. The discount rates used to measure the RECOTHROM and PREVELEAK intangible assets were 12.5% and 13.0%, respectively. We consider the fair value of the intangible assets to be Level 3 measurements due to the significant estimates and assumptions used by management in establishing the estimated fair values.

The goodwill, which is deductible for tax purposes, includes the value of potential future technologies as well as the overall strategic benefits provided to our surgical portfolio of hemostats and sealants, and is included in the Americas segment.

Saudi Arabia Joint Venture

In November 2018, we acquired additional equity to obtain a 51% controlling financial interest of our joint venture in Saudi Arabia that was previously accounted for under the equity method of accounting. The acquisition allows us to increase manufacturing output and utilize the facilities for additional capacity for certain products in the region. Beginning in the fourth quarter of 2018, we consolidated the financial statements of the joint venture with our consolidated financial statements. The results of operations of the joint venture have been included in our consolidated statement of income since the date the business was acquired and were not significant.

The guidance on accounting for business combinations requires that an acquirer remeasure its previously held equity interest in an acquiree at its acquisition date fair value and recognize the resulting gain or loss in earnings. Thus, in connection with the acquisition, the carrying amount of our previously held equity interest in the joint venture was remeasured to fair value at the acquisition date, resulting in a gain in the fourth quarter of 2018 of $24 million, which was included in other (income) expense, net in the consolidated statement of income. The fair value of the equity interest on the acquisition date was $39 million and we consider the fair value to be a Level 3 measurement due to the significant estimates and assumptions used by management in establishing the estimated fair value.

The following table summarizes the fair value of consideration transferred:

(in millions)
Consideration transferred
Cash			$	2
Fair value of equity investment			39
Noncontrolling interest			39
Total consideration transferred			$	80

The following table summarizes the fair value of assets acquired and liabilities assumed as of the acquisition date:

(in millions)
Assets acquired and liabilities assumed
Cash			$	4
Accounts receivable, net			25
Inventories			8
Property, plant and equipment			12
Goodwill			17
Other intangible assets			40
Other non-current assets			2
Short-term debt			(4)
Accounts payable and accrued liabilities			(16)
Other non-current liabilities			(8)
Total assets acquired and liabilities assumed			$	80

The goodwill, which is not deductible for tax purposes, includes the value to create a more fully integrated supply chain and go-to-market business model and is included in the EMEA segment.

In connection with the acquisition, we reacquired certain license rights which had provided the joint venture with the exclusive and perpetual rights to manufacture and distribute our products for sale in specified territories. Reacquired license rights with fair values totaling $10 million were assigned a useful life of 12 years. Other amortizable intangible assets consist of customer relationships and have a weighted-average estimated useful life of 10 years. The intangible assets were valued using the income approach. The discount rates used to measure the reacquired rights and customer relationship intangible assets were 13.0% and 14.0%, respectively. We consider the

fair value of each of the acquired intangible assets to be Level 3 measurements due to the significant estimates and assumptions used by management in establishing the estimated fair values.

The fair value of the 49% noncontrolling interest in the joint venture is estimated to be $39 million. The fair value of the noncontrolling interest was estimated using the income approach applied to the projected cash flows of the joint venture. As the joint venture is a private company, the fair value measurement is based on significant inputs that are not observable in the market and thus represents a Level 3 measurement.

Claris Injectables Limited

On July 27, 2017, we acquired 100 percent of Claris, a wholly owned subsidiary of Claris Lifesciences Limited, for total cash consideration of approximately $629 million, net of cash acquired. Through the acquisition, 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.

In the third quarter of 2018, we finalized our valuation of the acquisition date assets acquired and liabilities assumed. The measurement period adjustments in 2018 included a $2 million reduction in property, plant and equipment, a $1 million increase in accounts payable and accrued liabilities and a $2 million increase in other non-current liabilities. These adjustments resulted in a corresponding increase to goodwill of $5 million. The measurement period adjustments did not have a material impact on our results of operations in 2018.

The following table summarizes the fair value of the assets acquired and liabilities assumed as of the acquisition date for our acquisition of Claris:

(in millions)
Assets acquired and liabilities assumed
Cash			$	11
Accounts receivable, net			16
Inventories			30
Prepaid expenses and other current assets			16
Property, plant and equipment			130
Goodwill			296
Other intangible assets			280
Other non-current assets			20
Accounts payable and accrued liabilities			(23)
Other non-current liabilities			(136)
Total assets acquired and liabilities assumed			$	640

The results of operations of Claris have been included in our consolidated statement of income since the date the business was acquired. The Claris acquisition contributed $140 million and $57 million, respectively, of net sales for the years ended December 31, 2018 and 2017. Acquisition and integration costs associated with the Claris acquisition were $27 million in 2019, $33 million in 2018 and $28 million in 2017, and were primarily included within SG&A in the consolidated statements of income.

We allocated $280 million of the total consideration to acquired intangible assets. The acquired intangible assets include $140 million of developed technology with a weighted-average useful life of 8 years and $140 million of IPR&D with an indefinite useful life. For the IPR&D, additional R&D will be required prior to technological feasibility.

The fair value of intangible assets was determined using the income approach. The income approach is a valuation technique that provides an estimate of the fair value of an asset based on market participant expectations of the cash flows an asset will generate over its remaining useful life, discounted to present value. The discount rates used to measure the developed technology and IPR&D intangible assets were 12.0% and 13.0%, respectively. We consider the fair value of each of the acquired intangible assets to be Level 3 measurements due to the significant estimates and assumptions used by management in establishing the estimated fair values.

The goodwill, which is not deductible for tax purposes, includes the value of potential future technologies as well as the overall strategic benefits to us in the injectables market, and is included in the Americas segment.

In the first quarter of 2018, we settled certain claims with Claris Lifesciences Limited related to the acquired operations and terminated a development agreement with Dorizoe Lifesciences Limited. As a result, we received cash of $73 million in February 2018 and were released from an accrued liability to Claris Lifesciences Limited of $7 million. The total of $80 million is reflected as a benefit within other operating income, net in the 2018 consolidated statement of income.

Other Business Combinations

Total consideration transferred for other acquisitions totaled $10 million, $36 million and $16 million in 2019, 2018 and 2017, respectively, and primarily resulted in the recognition of intangible assets. These acquisitions did not materially affect our results of operations.

We have not presented pro forma financial information for any of the 2019, 2018 or 2017 acquisitions because their results are not material to our consolidated financial statements.

Other Business Development Activities

Celerity Pharmaceuticals, LLC

In September 2013, we entered into an agreement with Celerity Pharmaceutical, LLC (Celerity) to develop certain acute care generic injectable premix and oncolytic molecules through regulatory approval. We transferred our rights in these molecules to Celerity and Celerity assumed ownership and responsibility for development of the molecules. We are obligated to purchase the individual product rights from Celerity if the products obtain regulatory approval. In 2019, 2018 and 2017, we paid $86 million, $72 million and $20 million, respectively, to acquire the rights to various molecules that have received regulatory approval. The payment in 2018 for one of the molecules was based on tentative approval from the U.S. Food and Drug Administration (FDA). Full approval from FDA was received in the third quarter of 2018. We capitalized the purchase prices of products that were purchased upon regulatory approval as intangible assets and are amortizing the assets over their estimated useful lives of 12 years. As of December 31, 2019, our contingent future payments total up to $79 million upon Celerity’s achievement of specified regulatory approvals.

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. We expect that most of the purchase price will be allocated to intangible assets and we are evaluating whether this transaction will be accounted for as an asset acquisition or a business combination.

Other Intangible Acquisitions

During the year ended December 31, 2019, we acquired the rights to multiple products for an aggregate purchase price of $80 million. The purchase prices were capitalized primarily as developed-technology intangible assets and are being amortized over a weighted-average useful of 10 years. Net sales related to these products for the year ended December 31, 2019 were not material.

In January 2020, we acquired the U.S. rights to an additional product for $60 million. The purchase price will be capitalized as a developed-technology intangible asset in the quarter ending March 31, 2020 and will be amortized over its estimated useful life of 11 years.

Other

In addition to the significant arrangements described above, we have entered into several other collaborative arrangements. We could make additional payments of up to $26 million upon the achievement of certain development and regulatory milestones, in addition to future payments related to contingent commercialization milestones, profit-sharing and royalties.

NOTE 5

SUPPLEMENTAL FINANCIAL INFORMATION

Inventories

						As Restated
as of December 31 (in millions)			2019			2018
Raw materials			$	377		$	367
Work in process			185			207
Finished goods			1,091			1,093
Inventories			$	1,653		$	1,667

Prepaid Expenses and Other Current Assets

						As Restated
as of December 31 (in millions)			2019			2018
Prepaid value added taxes			$	140		$	131
Prepaid income taxes			90			79
Other			389			404
Prepaid expenses and other current assets			$	619		$	614

Property, Plant and Equipment, Net

						As Restated
as of December 31 (in millions)			2019			2018
Land			$	148		$	142
Buildings and leasehold improvements			1,761			1,703
Machinery and equipment			6,671			6,423
Equipment with customers			1,489			1,364
Construction in progress			591			701
Total property, plant and equipment, at cost			10,660			10,333
Accumulated depreciation			(6,148)			(5,803)
Property, plant and equipment (PP&E), net			$	4,512		$	4,530

Purchases of property, plant and equipment included in accounts payable and accrued liabilities as of December 31, 2019 and 2018 was $87 million and $97 million, respectively. Depreciation expense was $606 million in 2019, $602 million in 2018 and $596 million in 2017.

Other Non-Current Assets

						As Restated
as of December 31 (in millions)			2019			2018
Deferred tax assets			$	621		$	483
Non-current receivables, net			163			146
Contract assets			68			30
Investments			76			44
Other			141			116
Other non-current assets			$	1,069		$	819

Accounts Payable and Accrued Liabilities

						As Restated
as of December 31 (in millions)			2019			2018
Accounts payable			$	892		$	998
Common stock dividends payable			111			101
Employee compensation and withholdings			456			486
Property, payroll and certain other taxes			113			131
Restructuring reserves			83			90
Accrued rebates			208			193
Operating lease liabilities			101			—
Income taxes payable			85			104
Other			640			707
Accounts payable and accrued liabilities			$	2,689		$	2,810

Other Non-Current Liabilities

						As Restated
as of December 31 (in millions)			2019			2018
Pension and other postretirement benefits			$	1,260		$	1,087
Deferred tax liabilities			192			215
Long-term tax liabilities			81			77
Interest rate contracts			52			3
Litigation and environmental reserves			30			31
Restructuring reserves			9			11
Other			108			135
Other non-current liabilities			$	1,732		$	1,559

Interest Expense, net

years ended December 31 (in millions)			2019			2018			2017
Interest costs			$	120		$	105		$	98
Interest costs capitalized			(9)			(12)			(13)
Interest expense			111			93			85
Interest income			(40)			(48)			(30)
Interest expense, net			$	71		$	45		$	55

Other (Income) Expense, net

						As Restated
years ended December 31 (in millions)			2019			2018			2017
Foreign exchange losses (gains), net			$	37		$	(14)		$	63
Gain on sale of investments			(1)			(3)			(3)
Saudi Arabia joint venture gain			—			(24)			—
Venezuela deconsolidation			—			—			33
Pension settlement			755			1			2
Pension and other postretirement benefit plans			(53)			(49)			31
Other, net			(7)			11			7
Other (income) expense, net			$	731		$	(78)		$	133

NOTE 6

GOODWILL AND OTHER INTANGIBLE ASSETS, NET

Goodwill

The following table is a summary of the activity in goodwill by segment.

(in millions)			Americas			EMEA			APAC			Total
December 31, 2017 (As Restated)			$	2,476		$	393		$	233		$	3,102
Additions			15			17			—			$	32
Currency translation and other adjustments			(105)			(17)			(10)			$	(132)
December 31, 2018 (As Restated)			$	2,386		$	393		$	223		$	3,002
Additions			101			10			—			111
Currency translation and other adjustments			(59)			(18)			(6)			(83)
December 31, 2019			$	2,428		$	385		$	217		$	3,030

As of December 31, 2019, there were no reductions in goodwill relating to impairment losses.

Other Intangible Assets, Net

The following table is a summary of our other intangible assets.

(in millions)			Developed technology, including patents			Other amortized intangible assets			Indefinite-lived intangible assets			Total
December 31, 2019
Gross other intangible assets			$	2,309		$	464		$	173		$	2,946
Accumulated amortization			(1,190)			(285)			—			$	(1,475)
Other intangible assets, net			$	1,119		$	179		$	173		$	1,471
December 31, 2018 (As Restated)
Gross other intangible assets			$	2,135		$	457		$	188		$	2,780
Accumulated amortization			(1,117)			(253)			—			$	(1,370)
Other intangible assets, net			$	1,018		$	204		$	188		$	1,410

Intangible asset amortization expense was $183 million in 2019, $169 million in 2018, and $154 million in 2017. The anticipated annual amortization expense for definite-lived intangible assets recorded as of December 31, 2019 is $188 million in 2020, $184 million in 2021, $179 million in 2022, $167 million in 2023 and $145 million in 2024.

In the second quarter of 2019, we recognized a $31 million impairment charge related to a developed-technology intangible asset due to a decline in market expectations for the related product. The fair value of the intangible asset was measured using a discounted cash flow approach and the charge is classified within cost of sales in the accompanying consolidated statement of income for the year ended December 31, 2019. We consider the fair

value of the asset to be a Level 3 measurement due to the significant estimates and assumptions we used in establishing the estimated fair value.

NOTE 7

DEBT AND CREDIT FACILITIES

Debt Outstanding

At December 31, 2019 and 2018, we had the following debt outstanding:

												As Restated
as of December 31 (in millions)			Effective interest rate in 2019			20191						20181
Variable-rate loan due 2020			1.0		%	$	313					$	310
1.7% notes due 2021			1.9		%	398						398
2.4% notes due 2022			2.5		%	203						202
0.40% notes due 2024			0.6		%	834						—
1.3% notes due in 2025			1.4		%	669						684
2.6% notes due 2026			2.7		%	746						745
7.65% debentures due 2027			7.7		%	5						5
6.625% debentures due 2028			6.7		%	98						98
1.3% notes due 2029			1.3		%	830						—
6.25% notes due 2037			6.3		%	265						265
3.65% notes due 2042			3.7		%	6						6
4.5% notes due 2043			4.5		%	255						255
3.5% notes due 2046			3.6		%	440						439
Finance leases and other			10.0 %			62						76
Total debt						5,124						3,483
Current portion						(315)						(2)
Long-term portion						$	4,809					$	3,481

1Book values include any discounts, premiums and adjustments related to hedging instruments.

Significant Debt Issuances

In May 2017, we issued €600 million of 1.3% senior notes due May 2025. In May 2019, we issued €750 million of 0.40% senior notes due May 2024 and €750 million of 1.3% senior notes due May 2029. We have designated these debt instruments as net investment hedges of our European operations. Refer to Note 16 for additional information.

Credit Facilities

In December 2019, we entered into new U.S. and Euro-denominated credit facilities. Our U.S. dollar-denominated revolving credit facility has a capacity of $2.0 billion and our Euro-denominated senior revolving credit facility has a capacity of approximately €200 million. Each of the facilities matures in 2024. As of December 31, 2019, we had €200 million ($224 million) outstanding under our Euro-denominated facility at a 0.91% interest rate and no borrowings outstanding under our U.S. dollar-denominated credit facility. The facilities enable us to borrow funds on an unsecured basis at variable interest rates, and contain various covenants, including a maximum net leverage ratio. Fees under the credit facilities are 0.09% annually as of December 31, 2019 and are based on our credit ratings and the total capacity of the facility. Prior to entering into these new credit facilities, our previous U.S. dollar-denominated revolving credit facility and Euro-denominated senior revolving credit facility had a maximum capacity of $1.5 billion and €200 million, respectively. Fees under these credit facilities were 0.10% annually as of December 31, 2018 and were based on our credit ratings and the total capacity of the facility. There were no borrowings outstanding under these credit facilities as of December 31, 2018.

We also maintain other credit arrangements, which totaled approximately $200 million as of December 31, 2019 and 2018, respectively. We had $2 million outstanding under these arrangements as of December 31, 2019 and 2018, respectively.

As of December 31, 2019, we were in compliance with the financial covenants in these agreements. The non-performance of any financial institution supporting any of the credit facilities would reduce the maximum capacity of these facilities by each institution’s respective commitment.

Future Debt Maturities

as of and for the years ended December 31 (in millions)			Debt maturities
2020			$	315
2021			402
2022			207
2023			1
2024			842
Thereafter			3,393
Total obligations and commitments			5,160
Discounts, premiums, and adjustments relating to hedging instruments			(36)
Total debt			$	5,124

NOTE 8

LEASES

Lessee Activity

We have entered into operating and finance leases primarily for office, manufacturing and R&D facilities, vehicles and equipment. Our leases have remaining terms from one to 25 years and some of those leases include options that provide us with the ability to extend the lease term for periods ranging from one to 16 years. Such options are included in the lease term when it is reasonably certain that the option will be exercised.

Certain of our leases include provisions for variable lease payments which are based on, but not limited to, maintenance, insurance, taxes, index escalations and usage-based amounts. For all asset classes, we have elected to apply a practical expedient to account for other services within lease contracts as components of the lease. We also have elected to apply a practical expedient for short-term leases whereby we do not recognize a lease liability and right-of-use asset for leases with a term of less than 12 months.

We classify our leases as operating or finance at the lease commencement date. Finance leases are generally those leases for which we will pay substantially all of the underlying asset’s fair value or will use the asset for all or a major part of its economic life, including circumstances in which we will ultimately own the asset. All other leases are operating leases. For finance leases, we recognize interest expense using the effective interest method and we recognize amortization expense on the right-of-use asset over the shorter of the lease term or the useful life of the asset. For operating leases, we recognize lease cost on a straight-line basis over the term of the lease.

Lease liabilities and right-of-use assets are recognized at the lease commencement date based on the present value of minimum lease payments over the lease term. We determine the present value of payments under a lease based on our incremental borrowing rate as of the lease commencement date. The incremental borrowing rate is equal to the rate of interest that we would have to pay to borrow on a collateralized basis over a similar term in an amount equal to the lease payments in a similar economic environment. For operating leases that commenced prior to our adoption of Topic 842, we measured the lease liabilities and right-of-use assets using our incremental borrowing rate as of January 1, 2019.

The components of lease cost for the year ended December 31, 2019 were:

(in millions)			2019
Operating lease cost			$	121
Finance lease cost
Amortization of right-of-use assets			5
Interest on lease liabilities			5
Variable lease cost			89
Lease cost			$	220

The following table contains supplemental cash flow information related to leases for the year ended December 31, 2019:

(in millions)			2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases			$	119
Operating cash flows from finance leases			4
Financing cash flows from finance leases			4
Right-of-use operating lease assets obtained in exchange for lease obligations			207

There were no material lease transactions that we entered into but have not yet commenced as of December 31, 2019. Supplemental balance sheet information related to leases as of December 31, 2019 includes:

(in millions)			December 31, 2019
Operating leases
Operating lease right-of-use assets			$	608
Accounts payable and accrued liabilities			$	101
Operating lease liabilities			510
Total operating lease liabilities			$	611
Finance leases
Property, plant and equipment, at cost			$	63
Accumulated depreciation			(19)
Property, plant and equipment, net			$	44
Current maturities of long-term debt and finance lease obligations			$	—
Long-term debt and finance lease obligations			54
Total finance lease liabilities			$	54

Lease term and discount rates as of December 31, 2019 were:

			December 31, 2019
Weighted-average remaining lease term (years)
Operating leases			10
Finance leases			15
Weighted-average discount rate
Operating leases			2.8		%
Finance leases			10.6		%

Maturities of operating and finance lease liabilities as of December 31, 2019 were:

(in millions)			Finance Leases			Operating Leases
2020			$	7		$	112
2021			7			96
2022			7			80
2023			6			67
2024			6			54
Thereafter			78			267
Total minimum lease payments			111			676
Less: imputed interest			(57)			(65)
Present value of lease liabilities			$	54		$	611

Maturities of operating and finance lease liabilities as of December 31, 2018 were:

			As Restated
(in millions)			Capital Leases			Operating Leases
2019			$	7		$	123
2020			7			94
2021			8			86
2022			8			72
2023			6			64
Thereafter			88			212
Total minimum lease payments			124			$	651
Less: imputed interest			(62)
Present value of lease liabilities			$	62

For the years ended December 31, 2018 and 2017, rent expense was $152 million and $155 million, respectively.

Lessor Activity

We lease medical equipment, such as renal dialysis equipment and infusion pumps, to customers, primarily in conjunction with arrangements to provide consumable medical products such as dialysis therapies, intravenous (IV) fluids and inhaled anesthetics. Certain of our equipment leases are classified as sales-type leases and the remainder are operating leases. The terms of the related contracts, including the proportion of fixed versus variable payments and any options to shorten or extend the lease term, vary by customer. We allocate revenue between equipment leases and medical products based on their standalone selling prices.

The components of lease revenue for the year ended December 31, 2019 were:

(in millions)			2019
Sales-type lease revenue			$	35
Operating lease revenue			61
Variable lease revenue			85
Total lease revenue			$	181

The components of our net investment in sales-type leases as of December 31, 2019 were:

(in millions)			2019
Minimum lease payments			$	110
Unguaranteed residual values			11
Net investment in leases			$	121

Our net investment in sales-type leases is classified as follows in the accompanying consolidated balance sheets:

(in millions)			December 31, 2019
Accounts receivable, net			$	45
Other non-current assets			76
Total			$	121

Maturities of sales-type and operating leases as of December 31, 2019 were:

(in millions)			Sales-type Leases			Operating Leases
2020			$	45		$	61
2021			32			60
2022			22			60
2023			14			33
2024			7			15
Thereafter			1			4
Total minimum lease payments			121			$	233
Less: imputed interest			(11)
Present value of minimum lease payments			$	110

NOTE 9

COMMITMENTS AND CONTINGENCIES

Refer to Note 4 for information regarding our unfunded contingent payments associated with collaborative and other arrangements.

Indemnifications

During the normal course of business, we make indemnities, commitments and guarantees pursuant to which we may be required to make payments related to specific transactions. Indemnifications include: (i) intellectual property indemnities to customers in connection with the use, sales or license of products and services; (ii) indemnities to customers in connection with losses incurred while performing services on their premises; (iii) indemnities to vendors and service providers pertaining to claims based on negligence or willful misconduct; (iv) indemnities involving the representations and warranties in certain contracts; (v) contractual indemnities related to the separation and distribution as set forth in certain of the agreements entered into in connection with such transactions (including the separation and distribution agreement and the tax matters agreement with Baxalta); and (vi) contractual indemnities for our directors and certain of our executive officers for services provided to or at the request of us. In addition, under our Amended and Restated Certificate of Incorporation, and consistent with Delaware General Corporation Law, we have agreed to indemnify our directors and officers for certain losses and expenses upon the occurrence of certain prescribed events. The majority of these indemnities, commitments and guarantees do not provide for any limitation on the maximum potential for future payments that we could be obligated to make. To help address some of these risks, we maintain various insurance coverages. Based on historical experience and evaluation of the agreements, we do not believe that any payments related to our indemnities will have a material impact on our financial condition or results of operations.

Legal Contingencies

We are involved in product liability, patent, commercial, and other legal matters that arise in the normal course of our business. We record a liability when a loss is considered probable and the amount can be reasonably estimated. If the reasonable estimate of a probable loss is a range, and no amount within the range is a better estimate, the minimum amount in the range is accrued. If a loss is not probable or a probable loss cannot be reasonably estimated, no liability is recorded. As of December 31, 2019 and 2018, our total recorded reserves with respect to legal and environmental matters were $56 million and $46 million, respectively, and there were no related receivables.

We have established reserves for certain of the matters discussed below. We are not able to estimate the amount or range of any loss for certain contingencies for which there is no reserve or additional loss for matters already reserved. While our liability in connection with these claims cannot be estimated and the resolution thereof in any reporting period could have a significant impact on our results of operations and cash flows for that period, the outcome of these legal proceedings is not expected to have a material adverse effect on our consolidated financial position. While we believe that we have valid defenses in the matters set forth below, litigation is inherently uncertain, excessive verdicts do occur, and we may incur material judgments or enter into material settlements of claims.

In addition to the matters described below, we remain subject to the risk of future administrative and legal actions. With respect to governmental and regulatory matters, these actions may lead to product recalls, injunctions, and other restrictions on our operations and monetary sanctions, including significant civil or criminal penalties. With respect to intellectual property, we may be exposed to significant litigation concerning the scope of our and others’ rights. Such litigation could result in a loss of patent protection or the ability to market products, which could lead to a significant loss of sales, or otherwise materially affect future results of operations.

Environmental

We are involved as a potentially responsible party (PRP) for environmental clean-up costs at six Superfund sites. Under the U.S. Superfund statute and many state laws, generators of hazardous waste sent to a disposal or recycling site are liable for site cleanup if contaminants from that property later leak into the environment. The laws generally provide that a PRP may be held jointly and severally liable for the costs of investigating and remediating the site. Separate from the Superfund cases noted above, we are involved in an ongoing voluntary environmental remediation associated with historic operations at our Irvine, California, United States, facility. In 2017, we recorded a pre-tax charge of $15 million related to a former location and included that charge within loss from discontinued operations, net of tax, on the consolidated statement of income. As of December 31, 2019 and 2018, our environmental reserves, which are measured on an undiscounted basis, were $18 million and $19 million, respectively. After considering these reserves, management is of the opinion that the outcome of these matters will not have a material adverse effect on our financial position or results of operations.

General litigation

In November 2016, a purported antitrust class action complaint seeking monetary and injunctive relief was filed in the United States District Court for the Northern District of Illinois. The complaint alleges a conspiracy among manufacturers of IV solutions to restrict output and affect pricing in connection with a shortage of such solutions. Similar parallel actions subsequently were filed. In January 2017, a single consolidated complaint covering these matters was filed in the Northern District of Illinois. We filed a motion to dismiss the consolidated complaint in February 2017. The court granted our motion to dismiss the consolidated complaint without prejudice in July 2018. The plaintiffs filed an amended complaint on September 6, 2018. We filed a motion to dismiss the amended complaint on November 9, 2018.

In April 2017, we became aware of a criminal investigation by the U.S. Department of Justice (DOJ), Antitrust Division and a federal grand jury in the United States District Court for the Eastern District of Pennsylvania. We and an employee received subpoenas seeking production of documents and testimony regarding the manufacturing, selling, pricing and shortages of IV solutions and containers (including saline solutions and certain other injectable medicines sold by us) and communications with competitors regarding the same. On November 30, 2018, the DOJ notified us that it had closed the investigation. The New York Attorney General has also requested that we provide information regarding business practices in the IV saline industry. We are cooperating with the New York Attorney General.

In August 2019, we were named in an amended complaint filed by Fayette County, Georgia in the MDL In re: National Prescription Opiate Litigation pending in the U.S. District Court, Northern District of Ohio. The complaint alleges that multiple manufacturers and distributors of opiate products improperly marketed and diverted these products, which caused harm to Fayette County. The complaint is limited in its allegations as to Baxter and does not distinguish between injectable opiate products and orally administered opiates. We manufactured generic injectable opiate products in our facility in Cherry Hill, NJ, which we divested in 2011.

In November 2019, we and certain of our officers were named in a class action complaint captioned Ethan E. Silverman et al. v. Baxter International Inc. et al. that was filed in the United States District Court for the Northern District of Illinois. The plaintiff, who allegedly purchased shares of our common stock during the specified class

period, filed this putative class action on behalf of himself and shareholders who acquired Baxter common stock between February 21, 2019 and October 23, 2019. The plaintiff alleges that we and certain officers violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and Rule 10b-5 promulgated thereunder by making allegedly false and misleading statements and failing to disclose material facts relating to certain intra-company transactions undertaken for the purpose of generating foreign exchange gains or avoiding foreign exchange losses, as well as our internal controls over financial reporting. On January 29, 2020, the Court appointed Varma Mutual Pension Insurance Company and Louisiana Municipal Police Employees Retirement System as lead plaintiffs in the case. In addition, we have received a stockholder request for inspection of our books and records in connection with the announcement made in our Form 8-K on October 24, 2019 that we had commenced an internal investigation into certain intra-company transactions that impacted our previously reported non-operating foreign exchange gains and losses. 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.

In March 2020, two lawsuits were filed against us in the Northern District of Illinois by plaintiffs alleging injuries as a result of exposure to ethylene oxide used in our manufacturing facility in Mountain Home, Arkansas to sterilize certain of our products. The plaintiffs seek damages, including compensatory and punitive damages in an unspecified amount, and unspecified injunctive and declaratory relief.

Other

As previously disclosed, in 2008 we recalled our heparin sodium injection products in the United States. Following the recall, more than 1,000 lawsuits alleging that plaintiffs suffered various reactions to a heparin contaminant, in some cases resulting in fatalities, were filed. In January 2019, the last of these cases was settled. In 2019, following the resolution of an insurance dispute, we received cash proceeds of $39 million for our allocation of the insurance proceeds under a settlement and cost-sharing agreement related to the defense of the heparin product liability cases. We recognized a $37 million gain in connection with the resolution of the dispute with the insurer that is classified within other operating income, net on the consolidated statement of income for the year ended December 31, 2019.

In September 2017, Hurricane Maria caused damage to certain of our assets in Puerto Rico and disrupted operations. Insurance, less applicable deductibles and subject to any coverage exclusions, covered the repair or replacement of our assets that suffered loss or damage, and also provided coverage for interruption to our business, including lost profits, and reimbursement for other expenses and costs that have been incurred relating to the damages and losses suffered. In 2017, we recorded $32 million of pre-tax charges related to damages caused by the hurricane, including $11 million related to the impairment of damaged inventory and fixed assets as well as $21 million of idle facility and other costs. These amounts were recorded as a component of cost of sales in the consolidated statement of income for year ended December 31, 2017. In 2019 and 2018, we recognized $100 million and $42 million, respectively, of insurance recoveries related to the previously mentioned asset impairments and idle facility and other costs suffered as a result of the hurricane. These benefits were recorded as a reduction of cost of sales and within other operating income, net on the consolidated statements of income for the years ended December 31, 2019 and 2018. No further insurance recoveries are expected.

NOTE 10

STOCKHOLDERS’ EQUITY

Stock-Based Compensation

Our stock-based compensation generally includes stock options, restricted stock units (RSUs), performance share units (PSUs) and purchases under our employee stock purchase plan. Shares issued relating to our stock-based plans are generally issued out of treasury stock.

As of December 31, 2019, approximately 24 million authorized shares are available for future awards under our stock-based compensation plans.

Stock Compensation Expense

Stock compensation expense was $122 million, $115 million and $107 million in 2019, 2018 and 2017, respectively. The related tax benefit recognized was $70 million in 2019, $61 million in 2018 and $87 million in 2017. Included in the benefit in 2019, 2018 and 2017 were realized excess tax benefits for stock-based compensation of $54 million, $40 million and $56 million, respectively.

Stock compensation expense is recorded at the corporate level and is not allocated to the segments. Approximately 80% of stock compensation expense is classified in SG&A expenses, with the remainder classified in cost of sales and R&D expenses. Costs capitalized in the consolidated balance sheets at December 31, 2019 and 2018 were not material.

Stock compensation expense is based on awards expected to vest, and therefore has been reduced by estimated forfeitures.

Stock Options

Stock options are granted to employees and non-employee directors with exercise prices equal to 100% of the market value on the date of grant. Stock options granted to employees generally vest in one-third increments over a three-year period. Stock options granted to non-employee directors generally vest immediately on the grant date and are issued with a six-month claw-back provision. Stock options typically have a contractual term of 10 years. The grant-date fair value, adjusted for estimated forfeitures, is recognized as expense on a straight-line basis over the substantive vesting period.

The fair value of stock options is determined using the Black-Scholes model. The weighted-average assumptions used in estimating the fair value of stock options granted during each year, along with the weighted-average grant-date fair values, were as follows:

years ended December 31			2019			2018			2017
Expected volatility			19		%	18		%	19		%
Expected life (in years)			5.5			5.5			5.5
Risk-free interest rate			2.5		%	2.6		%	2.1		%
Dividend yield			1.0		%	1.0		%	1.0		%
Fair value per stock option			$	15		$	13		$	10

The following table summarizes stock option activity for the year ended December 31, 2019 and the outstanding stock options as of December 31, 2019.

(options and aggregate intrinsic values in thousands)			Options			Weighted- average exercise price			Weighted- average remaining contractual term (in years)			Aggregate intrinsic value
Outstanding as of January 1, 2019			25,314			$	43.76
Granted			3,801			$	75.03
Exercised			(8,043)			$	38.52
Forfeited			(596)			$	66.91
Expired			(132)			$	46.44
Outstanding as of December 31, 2019			20,344			$	50.99		6.1			$	663,620
Vested or expected to vest as of December 31, 2019			20,029			$	50.66		6.0			$	660,342
Exercisable as of December 31, 2019			12,945			$	41.74		4.9			$	542,128

The aggregate intrinsic value in the table above represents the difference between the exercise price and our closing stock price on the last trading day of the year. The total intrinsic value of options exercised in 2019, 2018 and 2017 was $272 million, $222 million and $203 million, respectively.

As of December 31, 2019, $55 million of unrecognized compensation cost related to stock options is expected to be recognized as expense over a weighted-average period of approximately 1.7 years.

RSUs

RSUs are granted to employees and non-employee directors. RSUs granted to employees generally vest in one-third increments over a three-year period. RSUs granted to non-employee directors generally vest immediately on the grant date and are issued with a six-month claw-back provision. The grant-date fair value, adjusted for estimated forfeitures, is recognized as expense on a straight-line basis over the substantive vesting period. The fair

value of RSUs is determined based on the number of shares granted and the closing price of our common stock on the date of grant.

The following table summarizes nonvested RSU activity for the year ended December 31, 2019.

(share units in thousands)			Share units			Weighted- average grant-date fair value
Nonvested RSUs as of January 1, 2019			1,611			$	56.45
Granted			537			$	75.60
Vested			(740)			$	51.82
Forfeited			(134)			$	63.90
Nonvested RSUs as of December 31, 2019			1,274			$	66.46

As of December 31, 2019, $46 million of unrecognized compensation cost related to RSUs is expected to be recognized as expense over a weighted-average period of approximately 1.7 years. The weighted-average grant-date fair value of RSUs granted in 2019, 2018 and 2017 was $75.60, $67.11 and $55.11, respectively. The fair value of RSUs vested in 2019, 2018 and 2017 was $57 million, $69 million and $88 million, respectively.

PSUs

Our annual equity awards stock compensation program for senior management includes the issuance of PSUs based on adjusted operating margin as well as stock performance relative to our peer group. Fifty percent of the PSUs granted in 2015 were based on return on invested capital (ROIC) instead of adjusted operating margin. The vesting condition for adjusted operating margin or ROIC PSUs is set at the beginning of the year for each tranche of the award during the 3-year service period. Compensation cost for the adjusted operating margin or ROIC PSUs is measured based on the fair value of the awards on the date that the specific vesting terms for each tranche of the award are established. The fair value of the awards is determined based on the quoted price of our stock on the grant date for each tranche of the award. The compensation cost for adjusted operating margin or ROIC PSUs is adjusted at each reporting date to reflect the estimated vesting outcome.

The fair value for PSUs based on stock performance relative to our peer group is determined using a Monte Carlo model. The assumptions used in estimating the fair value of these PSUs granted during the period, along with the grant-date fair values, were as follows:

years ended December 31			2019			2018			2017
Baxter volatility			19		%	19		%	19		%
Peer group volatility			18%-113%			16%-53%			16%-54%
Correlation of returns			0.13-0.63			0.16-0.61			0.19-0.58
Risk-free interest rate			2.5		%	2.3		%	1.6		%
Fair value per PSU			$	106		$	90		$	69

Unrecognized compensation cost related to all unvested PSUs of $18 million at December 31, 2019 is expected to be recognized as expense over a weighted-average period of 1.6 years.

The following table summarizes nonvested PSU activity for the year ended December 31, 2019.

(share units in thousands)			Share units			Weighted- average grant-date fair value
Nonvested PSUs as of January 1, 2019			913			$	63.88
Granted			626			$	69.36
Vested			(559)			$	46.47
Forfeited			(50)			$	77.70
Nonvested PSUs as of December 31, 2019			930			$	75.50

Employee Stock Purchase Plan

Nearly all employees are eligible to participate in our employee stock purchase plan. The employee purchase price is 85% of the closing market price on the purchase date.

The Baxter International Inc. Employee Stock Purchase Plan provides for 10 million shares of common stock available for issuance to eligible participants, of which approximately three million shares were available for future purchases as of December 31, 2019.

During 2019, 2018, and 2017, we issued approximately 0.7 million, 0.8 million and 0.8 million shares, respectively, under the employee stock purchase plan.

Cash Dividends

Total cash dividends declared per share for 2019, 2018, and 2017 were $0.85, $0.73 and $0.61, respectively.

A quarterly dividend of $0.19 per share ($0.76 on an annualized basis) was declared in February 2019 and was paid in April 2019. Quarterly dividends of $0.22 per share ($0.88 on an annualized basis) were declared in May and July of 2019 and were paid in July and October of 2019, respectively. Our Board of Directors declared a quarterly dividend of $0.22 per share in November of 2019, which was paid in January of 2020.

Stock Repurchase Programs

As authorized by the Board of Directors, we repurchase our stock depending on our cash flows, net debt level and market conditions. In July 2012, the Board of Directors authorized the repurchase of up to $2.0 billion of our common stock. The Board of Directors increased this authority by an additional $1.5 billion in each of November 2016 and February 2018 and by an additional $2.0 billion in November 2018. We repurchased 16.5 million shares under this authority pursuant to Rule 10b5-1 plans and otherwise for $1.3 billion in cash in 2019, 35.8 million shares under this authority pursuant to Rule 10b5-1 plans and otherwise for $2.5 billion in cash in 2018 and 9.2 million shares under this authority pursuant to Rule 10b5-1 plans for $564 million in cash in 2017. As of December 31, 2018, we recognized a liability within accounts payable and accrued liabilities of $23 million for share repurchases that settled in early January 2019. We had $897 million of purchase authority available as of December 31, 2019.

Accelerated Share Repurchase Agreement

In December 2018, we entered into a $300 million accelerated share repurchase agreement (ASR Agreement) with an investment bank. We funded the ASR Agreement with available cash. The ASR Agreement was executed pursuant to the 2012 Repurchase Authorization described above. Under the ASR Agreement, we received 3.6 million shares upon execution. Based on the volume-weighted average price of our common stock during the term of the ASR Agreement, we received an additional 0.6 million shares from the investment bank at settlement on May 7, 2019.

NOTE 11

ACCUMULATED OTHER COMPREHENSIVE INCOME

Comprehensive income includes all changes in stockholders’ equity that do not arise from transactions with stockholders, and consists of net income, CTA, certain gains and losses from other postretirement benefit (OPEB) plans, gains and losses on cash flow hedges and, prior to 2018, unrealized gains and losses on available-for-sale equity securities. As a result of changes in accounting guidance related to available-for-sale equity securities, the unrealized gains and losses associated with these assets are no longer recognized in AOCI beginning January 1, 2018. The following table is a net-of-tax summary of the changes in AOCI by component for the years ended December 31, 2019 and 2018.

(in millions)			CTA			Pension and OPEB plans			Hedging activities			Total
Gains (losses)
Balance as of December 31, 2018 (as restated)			$	(2,868)		$	(954)		$	(1)		$	(3,823)
Adoption of new accounting standard			9			(169)			(1)			(161)
Other comprehensive (loss) income before reclassifications			(95)			(184)			(36)			(315)
Amounts reclassified from AOCI (a)			—			592			(3)			589
Net other comprehensive (loss) income			(95)			408			(39)			274
Balance as of December 31, 2019			$	(2,954)		$	(715)		$	(41)		$	(3,710)

			As Restated
(in millions)			CTA			Pension and OPEB plans			Hedging activities			Available-for- sale-equity securities			Total
Gains (losses)
Balance as of December 31, 2017			$	(2,545)		$	(987)		$	(10)		$	3		$	(3,539)
Adoption of new accounting standard			—			—			—			(3)			(3)
Other comprehensive income (loss) before reclassifications			(323)			(23)			(1)			—			(347)
Amounts reclassified from AOCI (a)			—			56			10			—			66
Net other comprehensive (loss) income			(323)			33			9			—			(281)
Balance as of December 31, 2018			$	(2,868)		$	(954)		$	(1)		$	—		$	(3,823)

(a) See table below for details about these reclassifications.

The following table is a summary of the amounts reclassified from AOCI to net income during the years ended December 31, 2019 and 2018.

			Amounts reclassified from AOCI (a)
						As Restated
(in millions)			2019			2018			Location of impact in income statement
Pension and OPEB items
Amortization of net losses and prior service costs or credits			$	(31)		$	(69)		Other (income) expense, net
Settlement charge			(755)			(1)			Other (income) expense, net
			(786)			(70)			Total before tax
Less: Tax effect			194			14			Income tax expense
			$	(592)		$	(56)		Net of tax
Gains (losses) on hedging activities
Foreign exchange contracts			$	4		$	(12)		Cost of sales
Less: Tax effect			(1)			2			Income tax expense
			$	3		$	(10)		Net of tax
Total reclassification for the period			$	(589)		$	(66)		Total net of tax

(a)Amounts in parentheses indicate reductions to net income.

Refer to Note 13 for additional information regarding the amortization of pension and OPEB items and Note 16 for additional information regarding hedging activity.

NOTE 12

BUSINESS OPTIMIZATION CHARGES

In recent years, we have undertaken actions to transform our cost structure and enhance operational efficiency. These efforts include restructuring the organization, optimizing the manufacturing footprint, R&D operations and supply chain network, employing disciplined cost management, and centralizing and streamlining certain support functions. From the commencement of our business optimization activities through December 31, 2019, we have incurred cumulative pre-tax costs of approximately $980 million related to these actions. The costs consisted primarily of employee termination, implementation costs, asset impairments and accelerated depreciation. We currently expect to incur additional pre-tax cash costs of approximately $50 million through the completion of these initiatives under our current program. These costs will primarily include employee termination costs, implementation costs, and accelerated depreciation. To the extent further cost savings opportunities are identified, we may incur additional business optimization expenses.

We recorded the following charges related to business optimization programs in 2019, 2018, and 2017:

years ended December 31 (in millions)			2019			2018			2017
Restructuring charges			$	134		$	117		$	70
Costs to implement business optimization programs			45			94			89
Accelerated depreciation			5			9			10
Total business optimization charges			$	184		$	220		$	169

For segment reporting, business optimization charges are unallocated expenses.

Costs to implement business optimization programs for the years ended December 31, 2019, 2018 and 2017, consisted primarily of external consulting and transition costs, including employee compensation and related costs. The costs were generally included within cost of sales, SG&A expense and R&D expense.

For the years ended December 31, 2019, 2018 and 2017, we recognized accelerated depreciation, primarily associated with facilities to be closed. The costs were recorded within cost of sales and SG&A expense.

During the years ended December 31, 2019, 2018 and 2017, we recorded the following restructuring charges:

			2019
(in millions)			COGS			SG&A			R&D			Total
Employee termination costs			$	13		$	37		$	25		$	75
Contract termination and other costs			10			1			—			11
Asset impairments			37			2			9			48
Total restructuring charges			$	60		$	40		$	34		$	134
			2018
(in millions)			COGS			SG&A			R&D			Total
Employee termination costs			$	30		$	51		$	19		$	100
Contract termination and other costs			4			6			—			10
Asset impairments			1			6			—			7
Total restructuring charges			$	35		$	63		$	19		$	117
			2017
(in millions)			COGS			SG&A			R&D			Total
Employee termination costs			$	22		$	39		$	(2)		$	59
Contract termination and other costs			—			5			—			5
Asset impairments			5			1			—			6
Total restructuring charges			$	27		$	45		$	(2)		$	70

The following table summarizes activity in the liability related to our restructuring initiatives.

(in millions)
Liability balance as of December 31, 2016 (As Restated)			$	164
Charges			83
Payments			(140)
Reserve adjustments			(19)
Currency translation			24
Liability balance as of December 31, 2017 (As Restated)			112
Charges			126
Payments			(96)
Reserve adjustments			(16)
Currency translation			(25)
Liability balance as of December 31, 2018 (As Restated)			101
Charges			113
Payments			(93)
Reserve adjustments			(27)
Currency translation			(2)
Liability balance as of December 31, 2019			$	92

Reserve adjustments primarily relate to employee termination cost reserves established in prior periods.

Substantially all of our restructuring liabilities as of December 31, 2019 relate to employee termination costs, with the remaining liabilities attributable to contract termination costs. Substantially all of the cash payments for those liabilities are expected to be disbursed by the end of 2020.

NOTE 13

PENSION AND OTHER POSTRETIREMENT BENEFIT PROGRAMS

We sponsor a number of qualified and nonqualified pension plans for eligible employees. We also sponsor certain unfunded contributory healthcare and life insurance benefits for substantially all domestic retired employees. Newly hired employees in the United States and Puerto Rico are not eligible to participate in the pension plans but receive a higher level of company contributions in the defined contribution plans.

Reconciliation of Pension and Other Postretirement Benefit Plan Obligations, Assets and Funded Status

The benefit plan information in the table below pertains to all of our pension and OPEB plans, both in the United States and in other countries.

			Pension benefits												OPEB
						As Restated
as of and for the years ended December 31 (in millions)			2019			2018						2019			2018
Benefit obligations
Beginning of period			$	5,635		$	6,182					$	211		$	235
Service cost			74			87						1			1
Interest cost			172			178						8			7
Participant contributions			4			5						—			—
Actuarial (gain) loss			924			(431)						26			(14)
Benefit payments			(267)			(259)						(18)			(18)
Settlements			(2,550)			(6)						—			—
Curtailment			(13)			(56)						—			—
Foreign exchange and other			(6)			(65)						—			—
End of period			3,973			5,635						228			211
Fair value of plan assets
Beginning of period			4,774			5,261						—			—
Actual return on plan assets			939			(237)						—			—
Employer contributions			69			51						18			18
Participant contributions			4			5						—			—
Benefit payments			(267)			(259)						(18)			(18)
Settlements			(2,550)			(6)						—			—
Foreign exchange and other			4			(41)						—			—
End of period			2,973			4,774						—			—
Funded status at December 31			$	(1,000)		$	(861)					$	(228)		$	(211)
Amounts recognized in the consolidated balance sheets
Noncurrent asset			$	77		$	60					$	—		$	—
Current liability			(25)			(25)						(20)			(20)
Noncurrent liability			(1,052)			(896)						(208)			(191)
Net liability recognized at December 31			$	(1,000)		$	(861)					$	(228)		$	(211)

The pension obligation information in the table above represents the projected benefit obligation (PBO). The PBO incorporates assumptions relating to future compensation levels. The accumulated benefit obligation (ABO) is the same as the PBO except that it includes no assumptions relating to future compensation levels. The ABO for all of our pension plans was $3.7 billion and $5.4 billion at the 2019 and 2018 measurement dates, respectively.

The information in the funded status table above represents the totals for all of our pension plans. The following table is information relating to the individual plans in the funded status table above that have an ABO in excess of plan assets.

						As Restated
as of December 31 (in millions)			2019			2018
ABO			$	3,240		$	4,981
Fair value of plan assets			$	2,339		$	4,246

The following table presents information relating to the individual plans in the funded status table above that have a PBO in excess of plan assets (many of which also have an ABO in excess of assets and are therefore also included in the table directly above).

						As Restated
as of December 31 (in millions)			2019			2018
PBO			$	3,688		$	5,386
Fair value of plan assets			$	2,611		$	4,465

Expected Net Pension and OPEB Plan Payments for the Next 10 Years

(in millions)			Pension benefits			OPEB
2020			$	86		$	20
2021			104			18
2022			118			17
2023			132			17
2024			149			16
2024 through 2028			917			71
Total expected net benefit payments for next 10 years			$	1,506		$	159

The expected net benefit payments above reflect the total net benefits expected to be paid from the plans’ assets (for funded plans) or from our assets (for unfunded plans). The federal subsidies relating to the Medicare Prescription Drug, Improvement and Modernization Act are not expected to be significant.

Amounts Recognized in AOCI

The pension and OPEB plans’ gains or losses, prior service costs or credits, and transition assets or obligations not yet recognized in net periodic benefit cost are recognized on a net-of-tax basis in AOCI and will be amortized from AOCI to net periodic benefit cost in the future. For active employees, we utilize the average future working lifetime as the amortization period for prior service. For inactive employees, we utilize the average remaining life expectancy as the amortization period for prior service.

The following table is a summary of the pre-tax losses included in AOCI at December 31, 2019 and December 31, 2018.

(in millions)			Pension benefits			OPEB
Actuarial loss (gain)			$	1,025		$	(41)
Prior service credit and transition obligation			(9)			(59)
Total pre-tax loss recognized in AOCI at December 31, 2019			$	1,016		$	(100)
Actuarial loss (gain)			$	1,607		$	(79)
Prior service credit and transition obligation			(10)			(74)
Total pre-tax loss (gain) recognized in AOCI at December 31, 2018 (As Restated)			$	1,597		$	(153)

Refer to Note 11 for the net-of-tax balances included in AOCI as of each of the year-end dates. The following table is a summary of the net-of-tax amounts recorded in OCI relating to pension and OPEB plans.

						As Restated
Year ended December 31 (in millions)			2019			2018			2017
Gain (loss) arising during the year, net of tax expense (benefit) of $(64) in 2019, $(4) in 2018 and $25 in 2017			$	(184)		$	(22)		$	32
Amortization of loss to earnings, net of tax benefit of $6 in 2019, $14 in 2018 and $35 in 2017			25			55			102
Settlement charge, net of tax benefit of $188 in 2019			$	567		$	—		$	—
Pension and other employee benefits gain			$	408		$	33		$	134

In 2019, OCI activity for pension and OPEB plans was primarily related to the U.S. pension settlement charge, further discussed below, and actuarial gains and losses. In 2018 and 2017, OCI activity for pension and OPEB plans was primarily related to actuarial gains and losses.

Amounts Expected to be Amortized from AOCI to Net Periodic Benefit Cost in 2020

With respect to the AOCI balance at December 31, 2019, the following table is a summary of the pre-tax amounts expected to be amortized to net periodic benefit cost in 2020.

(in millions)			Pension benefits			OPEB
Actuarial loss/(gain)			$	78		$	(4)
Prior service credit and transition obligation			(1)			(14)
Total pre-tax amount expected to be amortized from AOCI to net pension and OPEB cost in 2020			$	77		$	(18)

Net Periodic Benefit Cost – Continuing Operations

						As Restated
Year ended December 31 (in millions)			2019			2018			2017
Pension benefits
Service cost			$	74		$	87		$	91
Interest cost			172			178			180
Expected return on plan assets			(264)			(303)			(291)
Amortization of net losses and other deferred amounts			58			94			163
Settlement charges			755			1			2
Other			—			—			(2)
Net periodic pension benefit cost			$	795		$	57		$	143
OPEB
Service cost			$	1		$	1		$	1
Interest cost			8			7			7
Amortization of net losses and prior service credit			(27)			(25)			(26)
Net periodic OPEB cost			$	(18)		$	(17)		$	(18)

Weighted-Average Assumptions Used in Determining Benefit Obligations at the Measurement Date

			Pension benefits												OPEB
			2019			2018						2019			2018
Discount rate
U.S. and Puerto Rico plans			3.44		%	4.31		%				3.16		%	4.20		%
International plans			1.34		%	2.02		%				n/a			n/a
Rate of compensation increase
U.S. and Puerto Rico plans			3.68		%	3.66		%				n/a			n/a
International plans			3.03		%	3.08		%				n/a			n/a
Annual rate of increase in the per-capita cost			n/a			n/a						6.75		%	7.00		%
Rate decreased to			n/a			n/a						5.00		%	5.00		%
by the year ended			n/a			n/a						2027			2027

The assumptions above, which were used in calculating the December 31, 2019 measurement date benefit obligations, will be used in the calculation of net periodic benefit cost in 2020.

Weighted-Average Assumptions Used in Determining Net Periodic Benefit Cost

			Pension benefits																		OPEB
			2019			2018			2017						2019			2018			2017
Discount rate
U.S. and Puerto Rico plans			4.18		%	3.60		%	4.09		%				4.20		%	3.51		%	3.89		%
International plans			2.02		%	2.02		%	2.03		%				n/a			n/a			n/a
Expected return on plan assets
U.S. and Puerto Rico plans			6.29		%	6.25		%	6.50		%				n/a			n/a			n/a
International plans			5.45		%	5.58		%	5.77		%				n/a			n/a			n/a
Rate of compensation increase
U.S. and Puerto Rico plans			3.66		%	3.42		%	3.75		%				n/a			n/a			n/a
International plans			3.08		%	3.05		%	3.11		%				n/a			n/a			n/a
Annual rate of increase in the per-capita cost			n/a			n/a			n/a						6.75		%	7.00		%	6.25		%
Rate decreased to			n/a			n/a			n/a						5.00		%	5.00		%	5.00		%
by the year ended			n/a			n/a			n/a						2027			2027			2023

We established the expected return on plan assets assumption primarily based on a review of historical compound average asset returns, both company-specific and relating to the broad market (based on our asset allocation), as well as an analysis of current market and economic information and future expectations. We plan to use a 6.50% assumption for our U.S. and Puerto Rico plans for 2020.

Actuarial gains and losses result from changes in actuarial assumptions (such as changes in the discount rate and revised mortality rates). Actuarial losses in 2019 and gains in 2018 related to plan benefit obligations were primarily the result of changes in discount rates.

Effect of a One-Percent Change in Assumed Healthcare Cost Trend Rate on the OPEB Plan

The effect of a one-percent change in the assumed healthcare cost trend rate on the service and interest cost components of OPEB cost as well as the OPEB obligation were not significant for 2019 or 2018, respectively.

Pension Plan Assets

An investment committee of members of senior management is responsible for supervising, monitoring and evaluating the invested assets of our funded pension plans. The investment committee, which meets at least quarterly, abides by documented policies and procedures relating to investment goals, targeted asset allocations, risk management practices, allowable and prohibited investment holdings, diversification, use of derivatives, the relationship between plan assets and benefit obligations, and other relevant factors and considerations.

The investment committee’s policies and procedures include the following:

• Ability to pay all benefits when due;

• Targeted long-term performance expectations relative to applicable market indices, such as Russell, MSCI EAFE, and other indices;

• Targeted asset allocation percentage ranges (summarized below), and periodic reviews of these allocations;

• Diversification of assets among third-party investment managers, and by geography, industry, stage of business cycle and other measures;

• Specified investment holding and transaction prohibitions (for example, private placements or other restricted securities, securities that are not traded in a sufficiently active market, short sales, certain derivatives, commodities and margin transactions);

• Specified portfolio percentage limits on holdings in a single corporate or other entity (generally 5% at time of purchase, except for holdings in U.S. government or agency securities);

• Specified average credit quality for the fixed-income securities portfolio (at least A- by Standard & Poor’s or A3 by Moody’s);

• Specified portfolio percentage limits on foreign holdings; and

• Periodic monitoring of investment manager performance and adherence to the investment committee’s policies.

Plan assets are invested using a total return investment approach whereby a mix of equity securities, debt securities and other investments are used to preserve asset values, diversify risk and exceed the planned benchmark investment return. Investment strategies and asset allocations are based on consideration of plan liabilities, the plans’ funded status and other factors, such as the plans’ demographics and liability durations. Investment performance is reviewed by the investment committee on a quarterly basis and asset allocations are reviewed at least annually.

Plan assets are managed in a balanced portfolio comprised of two major components: return-seeking investments and liability hedging investments. The target allocations for plan assets are 53% in return-seeking investments and 47% in liability hedging investments and other holdings. The documented policy includes an allocation range based on each individual investment type within the major components that allows for a variance from the target allocations depending on the investment type. Return-seeking investments primarily include common stock of U.S. and international companies, common/collective trust funds, mutual funds, hedge funds, and partnership investments. Liability hedging investments and other holdings primarily include cash, money market funds with an original maturity of three months or less, U.S. and foreign government and governmental agency issues, corporate bonds, municipal securities, derivative contracts and asset-backed securities.

While the investment committee provides oversight over plan assets for U.S. and international plans, the summary above is specific to the plans in the United States. The plan assets for international plans are managed and allocated by the entities in each country, with input and oversight provided by the investment committee. The plan assets for the U.S. and international plans are included in the table below.

The following tables summarize our pension plan financial instruments that are measured at fair value on a recurring basis.

						Basis of fair value measurement
(in millions)			Balance at December 31, 2019			Quoted prices in active markets for identical assets (Level 1)			Significant other observable inputs (Level 2)			Significant unobservable inputs (Level 3)			Measured at NAV
Assets
Fixed income securities
Cash and cash equivalents			$	224		$	72		$	152		$	—		$	—
U.S. government and government agency issues			452			—			452			—			—
Corporate bonds			352			—			352			—			—
Equity securities
Common stock:
Large cap			231			231			—			—			—
Mid cap			158			158			—			—			—
Small cap			37			37			—			—			—
Total common stock			426			426			—			—			—
Mutual funds			442			189			253			—			—
Common/collective trust funds			668			19			272			—			377
Partnership investments			333			—			—			—			333
Other holdings			76			8			58			10			—
Collateral held on loaned securities			9			—			9			—			—
Liabilities
Collateral to be paid on loaned securities			(9)			(9)			—			—			—
Fair value of pension plan assets			$	2,973		$	705		$	1,548		$	10		$	710

			As Restated
						Basis of fair value measurement
(in millions)			Balance at December 31, 2018			Quoted prices in active markets for identical assets (Level 1)			Significant other observable inputs (Level 2)			Significant unobservable inputs (Level 3)			Measured at NAV
Assets
Fixed income securities
Cash and cash equivalents			$	145		$	21		$	124		$	—		$	—
U.S. government and government agency issues			735			—			735			—			—
Corporate bonds			1,127			—			1,127			—			—
Equity securities
Common stock:
Large cap			541			541			—			—			—
Mid cap			298			298			—			—			—
Small cap			91			91			—			—			—
Total common stock			930			930			—			—			—
Mutual funds			356			135			221			—			—
Common/collective trust funds			919			—			210			—			709
Partnership investments			390			—			—			—			390
Other holdings			172			11			151			10			—
Collateral held on loaned securities			196			—			196			—			—
Liabilities
Collateral to be paid on loaned securities			(196)			(34)			(162)			—			—
Fair value of pension plan assets			$	4,774		$	1,063		$	2,602		$	10		$	1,099

The following table is a reconciliation of changes in fair value measurements that used significant unobservable inputs (Level 3).

(in millions)			Total						Common/collective trust funds						Other holdings
Balance at December 31, 2017			$	18					$	8					$	10
Transfers out			(8)						(8)						—
Balance at December 31, 2018			10						—						10
Purchases			—						—						—
Balance at December 31, 2019			$	10					$	—					$	10

The assets and liabilities of our pension plans are valued using the following valuation methods:

Investment category			Valuation methodology
Cash and cash equivalents			These largely consist of a short-term investment fund, U.S. dollars and foreign currency. The fair value of the short-term investment fund is based on the net asset value
U.S. government and government agency issues			Values are based on reputable pricing vendors, who typically use pricing matrices or models that use observable inputs
Corporate bonds			Values are based on reputable pricing vendors, who typically use pricing matrices or models that use observable inputs
Common stock			Values are based on the closing prices on the valuation date in an active market on national and international stock exchanges
Mutual funds			Values are based on the net asset value of the units held in the respective fund which are obtained from national and international exchanges or based on the net asset value of the underlying assets of the fund provided by the fund manager
Common/collective trust funds			Values are based on the net asset value of the units held at year end
Partnership investments			Values are based on the net asset value of the participation by us in the investment as determined by the general partner or investment manager of the respective partnership
Other holdings			The value of these assets vary by investment type, but primarily are determined by reputable pricing vendors, who use pricing matrices or models that use observable inputs
Collateral held on loaned securities			Values are based on the net asset value per unit of the fund in which the collateral is invested
Collateral to be paid on loaned securities			Values are based on the fair value of the underlying securities loaned on the valuation date

Expected Pension and OPEB Plan Funding

Our funding policy for our pension plans is to contribute amounts sufficient to meet legal funding requirements, plus any additional amounts that we may determine to be appropriate considering the funded status of the plans, tax deductibility, the cash flows generated by us, and other factors. Volatility in the global financial markets could have an unfavorable impact on future funding requirements. We have no obligation to fund our principal plans in the United States in 2020. We continually reassess the amount and timing of any discretionary contributions. In 2020, we expect to make contributions of at least $5 million to our Puerto Rico pension plan and $41 million to our foreign pension plans. We expect to have net cash outflows relating to our OPEB plan of approximately $20 million in 2020.

The following table details the funded status percentage of our pension plans as of December 31, 2019, including certain plans that are unfunded in accordance with the guidelines of our funding policy outlined above.

			United States and Puerto Rico												International
as of December 31, 2019 (in millions)			Qualified plans			Nonqualified plan						Funded plans			Unfunded plans			Total
Fair value of plan assets			$	2,060		n/a						$	913		n/a			$	2,973
PBO			2,278			$	243					1,001			$	451		3,973
Funded status percentage			90		%	n/a						91		%	n/a			75		%

Pension Annuitization

As part of our continued effort to reduce pension plan obligations, we transferred approximately $2.4 billion of U.S. qualified pension plan liabilities to an insurance company through the purchase of a group annuity contract in October 2019. As a result of this transaction, we recognized a non-cash pretax pension settlement charge of $755 million in the fourth quarter of 2019.

Pension Plan Amendments and Other Events

In January 2018, we announced changes to our U.S. pension plans. We spun off the assets and liabilities of the qualified plan attributable to current employees into a new plan and will freeze the pay and service amounts used to calculate pension benefits for active participants in the U.S. pension plans as of December 31, 2022. The assets and liabilities attributable to retired and former company employees remained with the original qualified plan. Years of additional service earned and eligible compensation received after December 31, 2022 will not be included in the determination of the benefits payable to participants. These changes resulted in a $57 million decline in the PBO upon the effective date of the changes. As a result of these changes, net periodic pension and OPEB expense decreased in 2019 and 2018.

U.S. Defined Contribution Plan

Most U.S. employees are eligible to participate in a qualified defined contribution plan. We recognized expense of $53 million in 2019, $50 million in 2018 and $45 million in 2017 related to contributions to this plan.

NOTE 14

INCOME TAXES

Income from Continuing Operations Before Income Tax Expense by Category

						As Restated
years ended December 31 (in millions)			2019			2018			2017
United States			$	(586)		$	7		$	(320)
International			1,556			1,610			1,420
Income from continuing operations before income taxes			$	970		$	1,617		$	1,100

Income Tax Expense Related to Continuing Operations

						As Restated
years ended December 31 (in millions)			2019			2018			2017
Current
United States
Federal			$	8		$	21		$	8
State and local			3			(1)			11
International			258			308			261
Current income tax expense			269			328			280
Deferred
United States
Federal			(140)			(228)			230
State and local			(29)			—			1
International			(141)			(35)			(20)
Deferred income tax expense (benefit)			(310)			(263)			211
Income tax expense (benefit)			$	(41)		$	65		$	491

Deferred Tax Assets and Liabilities

						As Restated
as of December 31 (in millions)			2019			2018
Deferred tax assets
Accrued liabilities and other			$	209		$	227
Pension and other postretirement benefits			258			222
Tax credit and net operating loss carryforwards			928			862
Swiss tax reform net asset basis step-up			159			—
Operating lease liabilities			153			—
Valuation allowances			(420)			(310)
Total deferred tax assets			1,287			1,001
Deferred tax liabilities
Subsidiaries’ unremitted earnings			57			43
Long-lived assets and other			649			690
Operating lease right-of-use assets			152			—
Total deferred tax liabilities			858			733
Net deferred tax asset			$	429		$	268

At December 31, 2019, we had U.S. state operating loss carryforwards totaling $1.1 billion, U.S. federal operating loss carryforwards totaling $58 million and tax credit carryforwards totaling $410 million, which includes a U.S. foreign tax credit carryforward of $395 million. The U.S. federal and state operating loss carryforwards expire between 2020 and 2038 and the tax credits expire between 2020 and 2038.

At December 31, 2019, with respect to our operations outside the U.S., we had foreign operating loss carryforwards totaling $1.3 billion and foreign tax credit carryforwards totaling $49 million. The foreign operating loss carryforwards expire between 2020 and 2031 with $814 million having no expiration date. The foreign tax credits expire between 2021 and 2027 with $48 million having no expiration date.

Realization of these operating loss and tax credit carryforwards depends on generating sufficient future earnings. A valuation allowance of $420 million and $310 million was recognized as of December 31, 2019 and 2018, respectively, to reduce the deferred tax assets associated with net operating loss and tax credit carryforwards because we do not believe it is more likely than not that these assets will be fully realized prior to expiration. After evaluating the 2017 Tax Act and related U.S. Treasury Regulations, any elections or other opportunities that may be available, and the future expiration of certain U.S. tax provisions that will impact the utilization of our U.S. foreign tax credit carryforwards, management expects to be able to realize some, but not all, of the U.S. foreign tax credit deferred tax assets up to its overall domestic loss balance plus other recurring and non-recurring foreign inclusions. Therefore, a valuation allowance of $180 million and $175 million was recognized with respect to the foreign tax credit carryforwards as of December 31, 2019 and 2018, respectively. We will continue to evaluate the need for additional valuation allowances and, as circumstances change, the valuation allowance may change.

As a result of Swiss tax reform legislation enacted during 2019, we recognized an $863 million net asset basis step-up that is amortizable as a tax deduction ratably over tax years 2025 through 2029. The net asset basis step-up resulted in a $159 million deferred tax asset. We expect to realize some, but not all, of the Swiss deferred tax assets based principally on expected future earnings generated by the Swiss subsidiary during the period in which the tax basis will be amortized. Therefore, a valuation allowance of $69 million was recognized on the Swiss deferred tax assets as of December 31, 2019, resulting in a net deferred tax benefit of $90 million for the year ended December 31, 2019.

Income Tax Expense (Benefit) Reconciliation

						As Restated
years ended December 31 (in millions)			2019			2018			2017
Income tax expense at U.S. statutory rate			$	204		$	340		$	383
Tax incentives			(140)			(161)			(139)
State and local taxes, net of federal benefit			(17)			5			(6)
Impact of foreign taxes			65			122			(41)
Swiss tax reform net asset basis step-up			(159)			—			—
Deferred tax revaluation due to 2017 Tax Act and foreign tax reform			(19)			(8)			(283)
Transition tax due to 2017 Tax Act			(16)			(5)			529
U.S. valuation allowance due to 2017 Tax Act			—			(194)			339
Other valuation allowances			110			21			(6)
Stock compensation windfall tax benefits			(54)			(40)			(56)
Foreign tax credits			—			—			(246)
Research and development tax credits			(13)			(17)			(5)
Other, net			(2)			2			22
Income tax expense (benefit)			$	(41)		$	65		$	491

In the above reconciliation, the 2017 income tax expense associated with deferred tax revaluation, the transition tax and the U.S. valuation allowance, all of which result directly or indirectly from the enactment of the 2017 Tax Act, included, or were, provisional amounts. In 2018, we completed our one-year measurement period adjustments to the 2017 Tax Act provisional amounts in accordance with SAB 118. In addition, the tax impact of non-deductible corrections of misstatements related to foreign exchange gains and losses for the years ended December 31, 2018 and 2017 is included above within the impact of foreign taxes.

The 2017 Tax Act reduced the U.S. statutory tax rate from 35% to 21% for years after 2017. Accordingly, upon its enactment in 2017, we remeasured our deferred tax assets and liabilities as of December 31, 2017 to reflect the reduced rate that will apply in future periods when these deferred taxes are settled or realized. We recognized a SAB 118 provisional deferred tax benefit of $283 million to reflect the reduced U.S. tax rate and other effects of the 2017 Tax Act. In 2018, we collected all of the necessary data to complete our analysis of the effect of the 2017 Tax Act on the remeasurement of the underlying deferred taxes and recognized an additional deferred tax benefit of $8 million.

The 2017 Tax Act requires us to pay U.S. income taxes on accumulated foreign subsidiary earnings not previously subject to U.S. income tax at a rate of 15.5% to the extent of foreign cash and certain other net current assets and 8% on the remaining earnings. We recognized a $529 million provisional charge in 2017 for that one-time transitional tax, the majority of which was non-cash. This charge was inclusive of relevant non-U.S. withholding taxes and U.S. state income taxes on the portion of the earnings expected to be repatriated. In 2018, after further study of the 2017 Tax Act and related U.S. Treasury Regulations, and further analysis of historical earnings and profits and tax pools, as well as refinements of the cash portion of the charge, which was provisional due to certain foreign subsidiaries with non-calendar tax year-ends, we reduced our one-time transitional tax expense by $5 million.

Additionally, the 2017 Tax Act changed the rules that enabled taxpayers to generate foreign source income related to export sales that were eligible to utilize foreign tax credits. Consequently, we did not believe in 2017 that it would be more likely than not that we would be able to utilize our existing foreign tax credit deferred tax assets within the applicable carryforward periods. As such, a provisional $339 million U.S. valuation allowance was recognized in respect of our foreign tax credit deferred tax assets in accordance with SAB118. After studying the 2017 Tax Act and related U.S. Treasury Regulations and evaluating any elections or other opportunities that may be available, we currently expect to be able to realize some, but not all, of the foreign tax credit deferred tax assets up to our overall domestic loss (ODL) balance plus recurring and non-recurring foreign inclusions. Accordingly, we reduced our provisional foreign tax credit deferred tax asset valuation allowance and recognized a 2018 benefit of $194 million.

Our tax provisions for 2019 and 2018 do not include any tax charges related to either the Base Erosion and Anti-Abuse Tax (BEAT) or Global Intangible Low Taxed Income (GILTI) provisions, except for the inability to fully utilize

foreign tax credits against such GILTI. While we are not expecting to be subject to a tax charge under the 2017 Tax Act GILTI provisions in the near term, our accounting policy is to recognize this charge as a period cost.

The enactment of the 2017 Tax Act created a territorial tax system that allows companies to repatriate certain foreign earnings without incurring additional U.S. federal tax by providing for a 100% dividend exemption. Under the dividend-exemption provision, 100% of the foreign-source portion of dividends paid by certain foreign corporations to a U.S. corporate stockholder are exempt from U.S. federal taxation. As a result of the U.S. change to a territorial tax system and the incurrence of the one-time transition tax charge, we plan to repatriate our foreign earnings that were previously considered indefinitely reinvested with the exception of approximately $192 million of accumulated earnings as of December 31, 2019 related to one of our foreign operations. Additional withholding taxes of $19 million would be incurred if such earnings were remitted currently.

In 2019, Switzerland and India enacted tax reform legislation that had a material impact on our effective tax rate. We recognized a deferred tax benefit of $90 million to reflect a tax basis step-up, net of a valuation allowance, partially offset by a $5 million deferred tax revaluation to reflect an increase in the statutory tax rate, under the newly enacted Swiss tax laws. We also recognized a net deferred tax benefit of $24 million associated with deferred tax revaluation in India to reflect a decrease in the statutory tax rate. Our effective tax rate was also favorably impacted by $57 million in 2019 related to a notional interest deduction on the share capital of a foreign subsidiary. The gross tax benefit of the deduction is included in the table above within impact of foreign taxes and the portion not expected to be realized is included within other valuation allowances.

Unrecognized Tax Benefits

We classify interest and penalties associated with income taxes in income tax expense (benefit) within the consolidated statements of income. Net interest and penalties recognized were not significant during 2019, 2018 and 2017. The liability recognized related to interest and penalties was $21 million and $22 million as of December 31, 2019 and 2018, respectively. The total amount of gross unrecognized tax benefits that, if recognized, would impact the effective tax rate are $70 million, $84 million and $88 million as of December 31, 2019, 2018 and 2017, respectively.

The following table is a reconciliation of our unrecognized tax benefits, including those related to discontinued operations, for the years ended December 31, 2019, 2018 and 2017.

as of and for the years ended (in millions)			2019			2018			2017
Balance at beginning of the year			$	127		$	108		$	82
Increase associated with tax positions taken during the current year			8			33			33
Increase (decrease) associated with tax positions taken during a prior year			(3)			13			2
Settlements			(20)			(5)			(6)
Decrease associated with lapses in statutes of limitations			(1)			(22)			(3)
Balance at end of the year			$	111		$	127		$	108

Of the gross unrecognized tax benefits, $62 million and $68 million were recognized as liabilities in the consolidated balance sheets as of December 31, 2019 and 2018, respectively. We have recognized net indemnification receivables from Baxalta in the amount of $6 million, $6 million and $13 million as of December 31, 2019, 2018 and 2017, respectively, related to the unrecognized tax benefits for which we are the primary obligor but economically relate to Baxalta operations.

Tax Incentives

We have received tax incentives in Puerto Rico, Switzerland, Dominican Republic, Costa Rica and certain other tax jurisdictions outside the United States. The financial impact of the reductions as compared to the statutory tax rates is indicated in the income tax expense reconciliation table above. The tax reductions as compared to the local statutory rate favorably impacted earnings per diluted share from continuing operations by $0.27 in 2019, $0.29 in 2018, and $0.25 in 2017. The above grants provide that our manufacturing operations are and will be partially exempt from local taxes with varying expirations from 2025 to 2027.

Examinations of Tax Returns

As of December 31, 2019, we had ongoing audits in the United States, Germany, Sweden, Belgium and other jurisdictions. During 2019, Baxter obtained a settlement in a transfer pricing Competent Authority proceeding, covering the period from 2009 through 2013, between the U.S. and Switzerland. Tax years 2009 and forward remain under examination by the IRS while additional Competent Authority proceedings take place. We believe that it is reasonably possible that our gross unrecognized tax benefits will be reduced within the next 12 months by $27 million. While the final outcome of these matters is inherently uncertain, we believe we have made adequate tax provisions for all years subject to examination.

NOTE 15

EARNINGS PER SHARE

The numerator for both basic and diluted earnings per share (EPS) is either net income, income from continuing operations, or loss from discontinued operations. The denominator for basic EPS is the weighted-average number of shares outstanding during the period. The dilutive effect of outstanding stock options, RSUs and PSUs is reflected in the denominator for diluted EPS using the treasury stock method.

The following table is a reconciliation of income from continuing operations to net income attributable to Baxter stockholders.

years ended December 31(in millions)						2019			2018			2017
Income from continuing operations									$	1,011		$	1,552		$	609
Less: Income from continuing operations attributable to noncontrolling interests									$	10		$	—		$	—
Income from continuing operations attributable to Baxter stockholders									$	1,001		$	1,552		$	609
Loss from discontinued operations attributable to Baxter stockholders									$	—		$	(6)		$	(7)
Net income attributable to Baxter stockholders									$	1,001		$	1,546		$	602

The following table is a reconciliation of basic shares to diluted shares.

years ended December 31(in millions)			2019			2018			2017
Basic shares			509			534			543
Effect of dilutive securities			10			12			12
Diluted shares			519			546			555

The effect of dilutive securities included unexercised stock options, unvested RSUs and contingently issuable shares related to granted PSUs. The computation of diluted EPS excluded 4 million, 3 million, and 2 million equity awards in 2019, 2018, and 2017, respectively, because their inclusion would have had an anti-dilutive effect on diluted EPS. Refer to Note 10 for additional information regarding items impacting basic shares.

NOTE 16

FINANCIAL INSTRUMENTS, DERIVATIVES AND HEDGING ACTIVITIES

Accounts Receivable Sales

For accounts receivable originated in Japan, we have entered into agreements with financial institutions in which the entire interest in and ownership of the receivable is sold. We continue to service the receivables in this arrangement. Servicing assets or liabilities are not recognized because we receive adequate compensation to service the sold receivables. The Japanese arrangement includes limited recourse provisions, which are not material.

The following is a summary of the activity relating to the arrangement.

									As Restated
as of and for the years ended December 31 (in millions)									2019			2018			2017
Sold receivables at beginning of year									$	69		$	70		$	67
Proceeds from sales of receivables									$	292		$	267		$	270
Cash collections (remitted to the owners of the receivables)									$	(282)		$	(270)		$	(270)
Effect of foreign exchange rate changes									$	—		$	2		$	3
Sold receivables at end of year									$	79		$	69		$	70

The net losses relating to the sales of accounts receivable were immaterial for each year.

Concentrations of Credit Risk

We invest excess cash in certificates of deposit or money market funds and diversify the concentration of cash among different financial institutions. With respect to financial instruments, where appropriate, we have diversified our selection of counterparties, and have arranged collateralization and master-netting agreements to minimize the risk of loss.

Global economic conditions and liquidity issues in certain countries have resulted, and may continue to result, in delays in the collection of receivables and credit losses. Global economic conditions, governmental actions and customer-specific factors may require us to re-evaluate the collectability of our receivables and we could potentially incur additional credit losses. These conditions may also impact the stability of the Euro.

Foreign Currency and Interest Rate Risk Management

We operate on a global basis and are exposed to the risk that our earnings, cash flows and equity could be adversely impacted by fluctuations in foreign exchange and interest rates. Our hedging policy attempts to manage these risks to an acceptable level based on our judgment of the appropriate trade-off between risk, opportunity and costs.

We are primarily exposed to foreign exchange risk with respect to recognized assets and liabilities, forecasted transactions and net assets denominated in the Euro, British Pound, Chinese Yuan, Korean Won, Australian Dollar, Canadian Dollar, Japanese Yen, Colombian Peso, Brazilian Real, Mexican Peso and Swedish Krona. We manage our foreign currency exposures on a consolidated basis, which allows us to net exposures and take advantage of any natural offsets. In addition, we use derivative and nonderivative instruments to further reduce the net exposure to foreign exchange risk. Gains and losses on the hedging instruments offset losses and gains on the hedged transactions and reduce the earnings and equity volatility resulting from changes in foreign exchange rates. Financial market and currency volatility may limit our ability to cost-effectively hedge these exposures.

We are also exposed to the risk that our earnings and cash flows could be adversely impacted by fluctuations in interest rates. Our policy is to manage interest costs using a mix of fixed- and floating-rate debt that we believe is appropriate. To manage this mix in a cost-efficient manner, we periodically enter into interest rate swaps in which we agree to exchange, at specified intervals, the difference between fixed and floating interest amounts calculated by reference to an agreed-upon notional amount.

We do not hold any instruments for trading purposes and none of our outstanding derivative instruments contain credit-risk-related contingent features.

Cash Flow Hedges

We may use options, including collars and purchased options, forwards and cross-currency swaps to hedge the foreign exchange risk to earnings relating to forecasted transactions and recognized assets and liabilities. We periodically use treasury rate locks to hedge the risk to earnings associated with movements in interest rates relating to anticipated issuances of debt.

The notional amounts of foreign exchange contracts designated as cash flow hedges were $617 million and $706 million as of December 31, 2019 and 2018, respectively. The maximum term over which we have cash flow hedge

contracts in place related to forecasted transactions at December 31, 2019 is 12 months for foreign exchange contracts. The total notional amounts of interest rate contracts designated as cash flow hedges were $550 million and $150 million as of December 31, 2019 and 2018, respectively. The interest rate contracts have maturity dates in 2022 and hedge the variability in future benchmark interest payments attributable to changes in interest rates on the forecasted issuance of fixed-rate debt.

Fair Value Hedges

We periodically use interest rate swaps to convert a portion of our fixed-rate debt into variable-rate debt. These instruments hedge our earnings from changes in the fair value of debt due to fluctuations in the designated benchmark interest rate.

There were no outstanding interest rate contracts designated as fair value hedges as of December 31, 2019 and 2018.

Net Investment Hedges

In May 2017, we issued €600 million of senior notes due May 2025. In May 2019, we issued €750 million of senior notes due May 2024 and €750 million of senior notes due May 2029. We have designated these debt obligations as hedges of our net investment in our European operations and, as a result, mark to spot rate adjustments of the outstanding debt balances are recorded as a component of AOCI. As of December 31, 2019, we had an accumulated pre-tax unrealized translation loss in AOCI of $21 million related to the Euro-denominated senior notes.

In May 2019, we entered into forward contracts designated as net investment hedges to reduce exposure to changes in currency rates on €1.2 billion of our net investment in our European operations. Those hedges were entered into in advance of the issuance of our senior notes mentioned above, were settled in the second quarter of 2019 and resulted in an insignificant loss.

Dedesignations

If it is determined that a derivative or nonderivative hedging instrument is no longer highly effective as a hedge, we discontinue hedge accounting prospectively. Gains or losses relating to terminations of effective cash flow hedges generally continue to be deferred and are recognized consistent with the loss or income recognition of the underlying hedged items. However, if it is probable that hedged forecasted transactions will not occur, any gains or losses would be immediately reclassified from AOCI to earnings. There were no cash flow hedge dedesignations in 2019, 2018 or 2017 resulting from changes in our assessment of the probability that the hedged forecasted transactions would occur.

If we terminate a fair value hedge, an amount equal to the cumulative fair value adjustment to the hedged item at the date of termination is amortized to earnings over the remaining term of the hedged item. There were no fair value hedges terminated in 2019 or 2017. In 2018, we terminated our interest rate fair value hedges and the cumulative fair value adjustment to the hedged item was insignificant.

If we terminate a net investment hedge, any gain or loss recognized in AOCI is not reclassified to earnings until we sell, liquidate, or deconsolidate the foreign investments that were being hedged. In 2019, we dedesignated €1.2 billion of forward contracts designated as a net investment hedge of our European operations. There were no net investment hedge dedesignations in 2018 or 2017.

Undesignated Derivative Instruments

We use forward contracts to hedge foreign exchange gains and losses relating to certain of our intra-company and third-party receivables and payables denominated in a foreign currency. These derivative instruments are generally not formally designated as hedges and the terms of these instruments generally do not exceed one month.

The total notional amount of undesignated derivative instruments was $619 million and $487 million as of December 31, 2019 and 2018, respectively.

Gains and Losses on Hedging Instruments and Undesignated Derivative Instruments

The following table summarizes the income statement locations and gains and losses on our hedging instruments for the years ended December 31, 2019, 2018, and 2017.

(in millions)			Gain (loss) recognized in OCI															Location of gain (loss) in income statement			Gain (loss) reclassified from AOCI into income
									As Restated
			2019			2018			2017						2019			2018			2017
Cash flow hedges
Interest rate contracts			$	(37)		$	(3)		$	(3)		Interest expense, net			$	—		$	—		$	—
Foreign exchange contracts			(9)			3			(24)			Cost of sales			4			(12)			(8)
Net investment hedges			12			32			(65)			Other (income) expense, net			—			—			—
Total			$	(34)		$	32		$	(92)					$	4		$	(12)		$	(8)

			Location of gain (loss) in income statement						Gain (loss) recognized in income
												As Restated
(in millions)									2019			2018			2017
Fair value hedges
Interest rate contracts			Interest expense, net						$	—		$	(4)		$	(3)
Undesignated derivative instruments
Foreign exchange contracts			Other (income) expense, net						$	(17)		$	—		$	(37)

For our fair value hedges, equal and offsetting gains of $4 million and $3 million were recognized in interest expense, net as an adjustment to the underlying hedged items, fixed-rate debt, in 2018 and 2017, respectively.

The following table summarizes net-of-tax activity in AOCI, a component of stockholders’ equity, related to our cash flow hedges.

as of and for the year ended December 31 (in millions)			2019			2018			2017
Accumulated other comprehensive income (loss) balance at beginning of year			$	(1)		$	(10)		$	3
Adoption of new accounting standard			(1)			—			—
(Loss) gain in fair value of derivatives during the year			(36)			(1)			(18)
Amount reclassified to earnings during the year			(3)			10			5
Accumulated other comprehensive income (loss) balance at end of year			$	(41)		$	(1)		$	(10)

As of December 31, 2019, $6 million of deferred, net after-tax losses on derivative instruments included in AOCI are expected to be recognized in earnings during the next 12 months, coinciding with when the hedged items are expected to impact earnings.

Derivative Assets and Liabilities

The following table summarizes the classification and fair value amounts of derivative instruments reported in the consolidated balance sheet as of December 31, 2019.

			Derivatives in asset positions												Derivatives in liability positions
(in millions)			Balance sheet location			Fair value						Balance sheet location			Fair value
Derivative instruments designated as hedges
Interest rate contracts			Other non-current assets			$	10					Other non-current liabilities			$	52
Foreign exchange contracts			Prepaid expenses and other current assets			10						Accounts payable and accrued liabilities			—
Foreign exchange contracts			Other non-current assets			—						Other non-current liabilities			—
Total derivative instruments designated as hedges						20									52
Undesignated derivative instruments
Foreign exchange contracts			Prepaid expenses and other current assets			1						Accounts payable and accrued liabilities			2
Total derivative instruments						$	21								$	54

The following table summarizes the classification and fair values of derivative instruments reported in the consolidated balance sheet as of December 31, 2018.

			Derivatives in asset positions												Derivatives in liability positions
						As Restated									As Restated
(in millions)			Balance sheet location			Fair value						Balance sheet location			Fair value
Derivative instruments designated as hedges
Interest rate contracts			Other non-current assets			$	—					Other non-current liabilities			$	3
Foreign exchange contracts			Prepaid expenses and other current assets			22						Accounts payable and accrued liabilities			1
Foreign exchange contracts			Other non-current assets			1						Other non-current liabilities			—
Total derivative instruments designated as hedges						23									4
Undesignated derivative instruments
Foreign exchange contracts			Prepaid expenses and other current assets			2						Accounts payable and accrued liabilities			2
Total derivative instruments						$	25								$	6

While some of our derivatives are subject to master netting arrangements, we present our assets and liabilities related to derivative instruments on a gross basis within the consolidated balance sheets. Additionally, we are not required to post collateral for any of our outstanding derivatives.

The following table provides information on our derivative positions as if they were presented on a net basis, allowing for the right of offset by counterparty.

			December 31, 2019												December 31, 2018
												As Restated
(in millions)			Asset			Liability						Asset			Liability
Gross amounts recognized in the consolidated balance sheets			$	21		$	54					$	25		$	6
Gross amount subject to offset in master netting arrangements not offset in the consolidated balance sheets			(11)			(11)						(3)			(3)
Total			$	10		$	43					$	22		$	3

The following table presents the amounts recorded on the consolidated balance sheets related to fair value hedges:

			Carrying amount of hedged item												Cumulative amount of fair value hedging adjustment included in the carrying amount of the hedged item (a)
(in millions)			Balance as of December 31, 2019			Balance as of December 31, 2018						Balance as of December 31, 2019			Balance as of December 31, 2018
Long-term debt			$	103		$	103					$	6		$	7

(a) These fair value hedges were terminated prior to December 31, 2018.

NOTE 17

FAIR VALUE MEASUREMENTS

The fair value hierarchy under the accounting standard for fair value measurements consists of the following three levels:

• Level 1 — Quoted prices in active markets that we have the ability to access for identical assets or liabilities;

• Level 2 — Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuations in which all significant inputs are observable in the market; and

• Level 3 — Valuations using significant inputs that are unobservable in the market and include the use of judgment by management about the assumptions market participants would use in pricing the asset or liability.

The following table summarizes financial instruments that are measured at fair value on a recurring basis.

						Basis of fair value measurement
(in millions)			Balance as of December 31, 2019			Quoted prices in active markets for identical assets (Level 1)			Significant other observable inputs (Level 2)			Significant unobservable inputs (Level 3)
Assets
Foreign exchange contracts			$	11		$	—		$	11		$	—
Interest rate contracts			10			—			10			—
Marketable equity securities			3			3			—			—
Total			$	24		$	3		$	21		$	—
Liabilities
Foreign exchange contracts			$	2		$	—		$	2		$	—
Interest rate contracts			52			—			52			—
Contingent payments related to acquisitions			39			—			—			39
Total			$	93		$	—		$	54		$	39

			As Restated
						Basis of fair value measurement
(in millions)			Balance as of December 31, 2018			Quoted prices in active markets for identical assets (Level 1)			Significant other observable inputs (Level 2)			Significant unobservable inputs (Level 3)
Assets
Foreign exchange contracts			$	25		$	—		$	25		$	—
Marketable equity securities			3			3			—			—
Total			$	28		$	3		$	25		$	—
Liabilities
Foreign exchange contracts			$	3		$	—		$	3		$	—
Interest rate contracts			3			—			3			—
Contingent payments related to acquisitions			32			—			—			32
Total			$	38		$	—		$	6		$	32

As of December 31, 2019 and 2018, cash and cash equivalents of $3.3 billion and $1.8 billion, respectively, included money market and other short-term funds of approximately $1.7 billion and $169 million, respectively, which are considered Level 2 in the fair value hierarchy.

For assets that are measured using quoted prices in active markets, the fair value is the published market price per unit multiplied by the number of units held, without consideration of transaction costs. The majority of the derivatives entered into by us are valued using internal valuation techniques as no quoted market prices exist for such instruments. The principal techniques used to value these instruments are discounted cash flow and Black-Scholes models. The key inputs, which are considered observable and vary depending on the type of derivative, include contractual terms, interest rate yield curves, foreign exchange rates and volatility.

Contingent payments related to acquisitions, which consist of milestone payments and sales-based payments, are valued using discounted cash flow techniques. The fair value of milestone payments reflects management’s expectations of probability of payment, and increases as the probability of payment increases or the expected timing of payments is accelerated. The fair value of sales-based payments is based upon probability-weighted future revenue estimates, and increases as revenue estimates increase, probability weighting of higher revenue scenarios increases or the expected timing of payment is accelerated. The following table is a reconciliation of our recurring

fair value measurements that use significant unobservable inputs (Level 3), which consist of contingent payments related to acquisitions.

as of and for the years ended December 31 (in millions)			2019			2018
Fair value at beginning of period			$	32		$	9
Additions			18			24
Change in fair value recognized in earnings			(4)			—
Payments			(7)			(1)
Fair value at end of period			$	39		$	32

Equity investments not measured at fair value are comprised of other equity investments without readily determinable fair values and were $73 million and $41 million at December 31, 2019 and 2018, respectively. These amounts are included in Other non-current assets.

Fair Values of Financial Instruments Not Measured at Fair Value

In addition to the financial instruments that we are required to recognize at fair value in the consolidated balance sheets, we have certain financial instruments that are recognized at amortized cost or some basis other than fair value. For these financial instruments, the following table provides the values recognized in the consolidated balance sheets and the estimated fair values.

			Book values												Fair values(a)
						As Restated									As Restated
as of December 31 (in millions)			2019			2018						2019			2018
Liabilities
Short-term debt			$	226		$	2					$	226		$	2
Current maturities of long-term debt and finance lease obligations			315			2						315			2
Long-term debt and finance lease obligations			4,809			3,481						5,156			3,469

(a) These fair value amounts are classified as Level 2 within the fair value hierarchy as they are estimated based on observable inputs.

The carrying value of short-term debt approximates its fair value due to the short-term maturities of the obligations. The estimated fair values of current and long-term debt were computed by multiplying price by the notional amount of the respective debt instruments. Price is calculated using the stated terms of the respective debt instrument and yield curves commensurate with our credit risk. The carrying values of other financial instruments approximate their fair values due to the short-term maturities of most of those assets and liabilities.

NOTE 18

SEGMENT INFORMATION

We manage our business based on three geographical segments: Americas (North and South America), EMEA (Europe, Middle East and Africa) and APAC (Asia Pacific). Our segments provide 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.

We use operating income on a segment basis to make resource allocation decisions and assess the ongoing performance of our business segments. Intersegment sales are eliminated in consolidation.

Certain items are maintained at Corporate and are not allocated to a segment. They primarily include the majority of foreign currency hedging activities, corporate headquarters costs, certain R&D costs, certain GBU support costs, stock compensation expense, certain employee benefit plan costs, and certain gains, losses, and other charges (such as business optimization, acquisition and integration costs, intangible asset amortization and asset impairments). Our chief operating decision maker does not receive any asset information by operating segment and, accordingly, we do not report asset information by operating segment.

Financial information for our segments is as follows:

						As Restated
for the years ended December 31 (in millions)			2019			2018			2017
Net sales:
Americas			$	6,094		$	5,951		$	5,718
EMEA			2,968			2,946			2,752
APAC			2,300			2,202			2,114
Total net sales			$	11,362		$	11,099		$	10,584
Operating income:
Americas			$	2,374		$	2,411		$	2,238
EMEA			652			666			562
APAC			549			532			510
Total segment operating income			$	3,575		$	3,609		$	3,310
Depreciation Expense:
Americas			$	255		$	229		$	231
EMEA			149			158			149
APAC			85			95			84
Corporate and other			117			120			132
Total depreciation expense			$	606		$	602		$	596
Capital expenditures:
Americas			$	325		$	296		$	269
EMEA			143			140			141
APAC			98			122			95
Corporate and other			120			134			101
Total capital expenditures			$	686		$	692		$	606

The following table is a reconciliation of segment operating income to income from continuing operations before income taxes per the consolidated statements of income.

						As Restated
for the years ended December 31 (in millions)			2019			2018			2017
Total segment operating income			$	3,575		$	3,609		$	3,310
Corporate and other			(1,803)			(2,025)			(2,022)
Total operating income			1,772			1,584			1,288
Net interest expense			71			45			55
Other (income) expense, net			731			(78)			133
Income from continuing operations before income taxes			$	970		$	1,617		$	1,100

Geographic information

						As Restated
for the years ended December 31 (in millions)			2019			2018			2017
Net sales:
United States			$	4,826		$	4,723		$	4,510
Latin America and Canada			1,268			1,228			1,208
Total Americas			$	6,094		$	5,951		$	5,718
EMEA			2,968			2,946			2,752
APAC			2,300			2,202			2,114
Total net sales			$	11,362		$	11,099		$	10,584

						As Restated
as of December 31 (in millions)			2019			2018
PP&E and operating lease right-of-use assets, net:
United States			$	1,889		$	1,786
EMEA			1,447			1,204
APAC			959			892
Latin America and Canada			825			648
Consolidated PP&E and operating lease right-of-use assets, net			$	5,120		$	4,530

NOTE 19

QUARTERLY FINANCIAL DATA (UNAUDITED)

			As Restated
years ended December 31 (in millions, except per share data)			First quarter			Second quarter			Third quarter			Fourth quarter¹			Full year
2019
Net sales			$	2,638		$	2,834		$	2,851		$	3,039		$	11,362
Gross margin			1,080			1,153			1,230			1,298			4,761
Net income (loss) attributable to Baxter stockholders			342			313			369			(23)			1,001
Earnings (loss) per share
Basic			0.67			0.61			0.72			(0.05)			1.97
Diluted			0.66			0.60			0.71			(0.05)			1.93
Cash dividends declared per share			0.190			0.220			0.220			0.220			0.850
Market price per share
High			81.31			82.41			89.78			88.45			89.78
Low			64.48			73.44			81.40			76.70			64.48
			As Restated												As Restated
			First quarter			Second quarter			Third quarter			Fourth quarter			Full year
2018
Net sales			$	2,692		$	2,813		$	2,761		$	2,833		$	11,099
Gross margin			1,121			1,223			1,232			1,183			4,759
Income from continuing operations			382			341			518			311			1,552
Earnings per share from continuing operations
Basic			0.71			0.64			0.97			0.59			2.91
Diluted			0.69			0.62			0.95			0.58			2.84
Loss from discontinued operations, net of tax			—			—			—			(6)			(6)
Loss per share from discontinued operations
Basic			—			—			—			(0.01)			(0.01)
Diluted			—			—			—			(0.01)			(0.01)
Net income			382			341			518			305			1,546
Earnings per share
Basic			0.71			0.64			0.97			0.58			2.90
Diluted			0.69			0.62			0.95			0.57			2.83
Cash dividends declared per share			0.160			0.190			0.190			0.190			0.730
Market price per share
High			72.26			75.41			77.75			77.80			77.80
Low			62.56			63.43			70.71			61.45			61.45

¹Results for the fourth quarter and full year of 2019 include a $755 million pre-tax charge related to the annuitization of a portion of our U.S. pension plan.

We are presenting herein restated unaudited condensed consolidated financial information for each quarterly and year-to-date interim period within the six months ended June 30, 2019 and the year ended December 31, 2018, except for the three and nine months ended September 30, 2018. See Note 2, Restatement of Previously Issued Consolidated Financial Statements, for additional information and refer to our Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2019, filed on March 17, 2020, for information about the restatement of our unaudited interim financial statements for the three and nine months ended September 30, 2018.

The amounts as previously reported for the quarters ended June 30, 2019 and March 31, 2019 were derived from our Quarterly Reports on Form 10-Q filed on July 30, 2019 and May 8, 2019, respectively. The amounts as previously reported for the quarter ended December 31, 2018 were derived from our Annual Report on Form 10-K for the year ended December 31, 2018 filed on February 21, 2019. The amounts as previously reported as of September 30, 2018 and for the quarters and year-to-date interim periods ended June 30, 2018 and March 31, 2018 were derived from our Quarterly Reports on Form 10-Q filed on November 5, 2018, August 6, 2018 and May 9, 2018, respectively. See Note 2, Restatement of Previously Issued Consolidated Financial Statements, for a description of the misstatements in each category of restatements referenced by (a) through (g).

Baxter International Inc.
Condensed Consolidated Balance Sheets
(in millions, except per share)
			As Restated
			June 30, 2019			March 31, 2019
Current assets:
Cash and cash equivalents			$	2,934		$	1,902
Accounts receivable, net			1,897			1,801
Inventories			1,756			1,743
Prepaid expenses and other current assets			642			614
Total current assets			7,229			6,060
Property, plant and equipment, net			4,485			4,476
Goodwill			2,937			2,929
Other intangible assets, net			1,363			1,440
Operating lease right-of-use assets			595			513
Other non-current assets			894			823
Total assets			$	17,503		$	16,241
Current liabilities:
Short-term debt			$	2		$	796
Current maturities of long-term debt and finance lease obligations			2			2
Accounts payable and accrued liabilities			2,553			2,478
Total current liabilities			2,557			3,276
Long-term debt and finance lease obligations			5,157			3,451
Operating lease liabilities			496			417
Other non-current liabilities			1,490			1,504
Total liabilities			9,700			8,648
Commitments and contingencies
Equity:
Common stock, $1 par value, authorized 2,000,000,000 shares, issued 683,494,944 shares at June 30, 2019 and March 31, 2019			683			683
Common stock in treasury, at cost, 173,275,586 shares at June 30, 2019 and 173,447,198 shares at March 31, 2019			(10,322)			(10,284)
Additional contributed capital			5,906			5,839
Retained earnings			15,598			15,414
Accumulated other comprehensive (loss) income			(4,086)			(4,082)
Total Baxter stockholders’ equity			7,779			7,570
Noncontrolling interests			24			23
Total equity			7,803			7,593
Total liabilities and equity			$	17,503		$	16,241

Baxter International Inc.
Condensed Consolidated Balance Sheets
(in millions, except per share)
			As Restated
			September 30, 2018			June 30, 2018			March 31, 2018
Current assets:
Cash and cash equivalents			$	2,863		$	2,858		$	2,949
Accounts receivable, net			1,837			1,789			1,818
Inventories			1,716			1,616			1,578
Prepaid expenses and other current assets			615			621			610
Total current assets			7,031			6,884			6,955
Property, plant and equipment, net			4,476			4,486			4,576
Goodwill			2,978			2,981			3,103
Other intangible assets, net			1,400			1,424			1,505
Other non-current assets			918			744			704
Total assets			$	16,803		$	16,519		$	16,843
Current liabilities:
Current maturities of long-term debt and finance lease obligations			$	3		$	3		$	3
Accounts payable and accrued liabilities			2,660			2,583			2,598
Total current liabilities			2,663			2,586			2,601
Long-term debt and finance lease obligations			3,480			3,491			3,550
Other non-current liabilities			1,570			1,612			1,630
Total liabilities			7,713			7,689			7,781
Commitments and contingencies
Equity:
Common stock, $1 par value, authorized 2,000,000,000 shares, issued 683,494,944 shares at September 30, 2018, June 30, 2018 and March 31, 2018			683			683			683
Common stock in treasury, at cost, 150,213,621 shares at September 30, 2018, 148,485,202 shares at June 30, 2018 and 146,993,164 shares at March 31, 2018			(8,639)			(8,485)			(8,354)
Additional contributed capital			5,931			5,916			5,912
Retained earnings			14,886			14,484			14,254
Accumulated other comprehensive (loss) income			(3,754)			(3,756)			(3,427)
Total Baxter stockholders’ equity			9,107			8,842			9,068
Noncontrolling interests			(17)			(12)			(6)
Total equity			9,090			8,830			9,062
Total liabilities and equity			$	16,803		$	16,519		$	16,843

Baxter International Inc.
Condensed Consolidated Statements of Income
(in millions, except per share)
			As Restated
			June 30, 2019									March 31, 2019
			Six months ended			Three months ended			Three months ended
Net sales			$	5,472		$	2,834		$	2,638
Cost of sales			3,239			1,681			1,558
Gross margin			2,233			1,153			1,080
Selling, general and administrative expenses			1,242			641			601
Research and development expenses			295			166			129
Other operating income, net			(37)			(4)			(33)
Operating income			733			350			383
Interest expense, net			38			20			18
Other (income) expense, net			(17)			4			(21)
Income before income taxes			712			326			386
Income tax expense			57			13			44
Net income			$	655		$	313		$	342
Earnings per share
Basic			$	1.28		$	0.61		$	0.67
Diluted			$	1.26		$	0.60		$	0.66
Weighted-average number of shares outstanding
Basic			511			510			512
Diluted			520			519			522

Baxter International Inc.
Condensed Consolidated Statements of Income
(in millions, except per share)
			As Restated
			December 31, 2018			June 30, 2018									March 31, 2018
			Three months ended			Six months ended			Three months ended			Three months ended
Net sales			$	2,833		$	5,505		$	2,813		$	2,692
Cost of sales			1,650			3,161			1,590			1,571
Gross margin			1,183			2,344			1,223			1,121
Selling, general and administrative expenses			627			1,309			676			633
Research and development expenses			175			313			172			141
Other operating income, net			(10)			(89)			(2)			(87)
Operating income			391			811			377			434
Interest expense, net			11			23			11			12
Other (income) expense, net			(33)			(44)			(38)			(6)
Income from continuing operations before income taxes			413			832			404			428
Income tax expense			102			109			63			46
Income from continuing operations			311			723			341			382
Loss from discontinued operations, net of tax			(6)			—			—			—
Net income			$	305		$	723		$	341		$	382
Earnings per share from continuing operations
Basic			$	0.59		$	1.35		$	0.64		$	0.71
Diluted			$	0.58		$	1.32		$	0.62		$	0.69
Loss per share from discontinued operations
Basic			$	(0.01)		$	—		$	—		$	—
Diluted			$	(0.01)		$	—		$	—		$	—
Earnings per share
Basic			$	0.58		$	1.35		$	0.64		$	0.71
Diluted			$	0.57		$	1.32		$	0.62		$	0.69
Weighted-average number of shares outstanding
Basic			528			537			535			539
Diluted			538			549			547			551

Baxter International Inc.
Condensed Consolidated Statements of Comprehensive Income
(in millions)
			As Restated
			June 30, 2019									March 31, 2019
			Six months ended			Three months ended			Three months ended
Net income			$	655		$	313		$	342
Other comprehensive (loss) income, net of tax:
Currency translation adjustments			(95)			2			(97)
Pension and other postretirement benefit plans			20			6			14
Hedging activities			(27)			(12)			(15)
Total other comprehensive (loss) income, net of tax			(102)			(4)			(98)
Comprehensive income			$	553		$	309		$	244

Baxter International Inc.
Condensed Consolidated Statements of Comprehensive Income
(in millions)
			As Restated
			June 30, 2018									March 31, 2018
			Six months ended			Three months ended			Three months ended
Net income			$	723		$	341		$	382
Other comprehensive (loss) income, net of tax:
Currency translation adjustments			(305)			(368)			63
Pension and other postretirement benefit plans			85			28			57
Hedging activities			6			11			(5)
Total other comprehensive (loss) income, net of tax			(214)			(329)			115
Comprehensive income			$	509		$	12		$	497

Baxter International Inc.
Condensed Consolidated Statements of Changes in Equity
(in millions)
			As Restated
			For the Three Months Ended June 30, 2019
			Baxter International Inc. stockholders' equity
			Common stock shares			Common stock			Common stock shares in treasury			Common stock in treasury			Additional contributed capital			Retained earnings			Accumulated other comprehensive income (loss)			Total Baxter stockholders' equity			Noncontrolling interests			Total equity
Balance as of April 1, 2019			683			$	683		173			$	(10,284)		$	5,839		$	15,414		$	(4,082)		$	7,570		$	23		$	7,593
Net income			—			—			—			—			—			313			—			313			—			313
Other comprehensive income (loss)			—			—			—			—			—			—			(4)			(4)			—			(4)
Purchases of treasury stock			—			—			2			(157)			46			—			—			(111)			—			(111)
Stock issued under employee benefit plans and other			—			—			(2)			119			21			(17)			—			123			—			123
Dividends declared on common stock			—			—			—			—			—			(112)			—			(112)			—			(112)
Change in noncontrolling interests			—			—			—			—			—			—			—			—			1			1
Balance as of June 30, 2019			683			$	683		173			$	(10,322)		$	5,906		$	15,598		$	(4,086)		$	7,779		$	24		$	7,803

Baxter International Inc.
Condensed Consolidated Statements of Changes in Equity
(in millions)
			As Restated
			For the Six Months Ended June 30, 2019
			Baxter International Inc. stockholders' equity
			Common stock shares			Common stock			Common stock shares in treasury			Common stock in treasury			Additional contributed capital			Retained earnings			Accumulated other comprehensive income (loss)			Total Baxter stockholders' equity			Noncontrolling interests			Total equity
Balance as of January 1, 2019			683			$	683		170			$	(9,989)		$	5,898		$	15,075		$	(3,823)		$	7,844		$	22		$	7,866
Adoption of new accounting standards			—			—			—			—			—			161			(161)			—			—			—
Net income			—			—			—			—			—			655			—			655			—			655
Other comprehensive income (loss)			—			—			—			—			—			—			(102)			(102)			—			(102)
Purchases of treasury stock			—			—			10			(743)			46			—			—			(697)			—			(697)
Stock issued under employee benefit plans and other			—			—			(7)			410			(38)			(83)			—			289			—			289
Dividends declared on common stock			—			—			—			—			—			(210)			—			(210)			—			(210)
Change in noncontrolling interests			—			—			—			—			—			—			—			—			2			2
Balance as of June 30, 2019			683			$	683		173			$	(10,322)		$	5,906		$	15,598		$	(4,086)		$	7,779		$	24		$	7,803

Baxter International Inc.
Condensed Consolidated Statements of Changes in Equity
(in millions)
			As Restated
			For the Three Months Ended March 31, 2019
			Baxter International Inc. stockholders' equity
			Common stock shares			Common stock			Common stock shares in treasury			Common stock in treasury			Additional contributed capital			Retained earnings			Accumulated other comprehensive income (loss)			Total Baxter stockholders' equity			Noncontrolling interests			Total equity
Balance as of January 1, 2019			683			$	683		170			$	(9,989)		$	5,898		$	15,075		$	(3,823)		$	7,844		$	22		$	7,866
Adoption of new accounting standards			—			—			—			—			—			161			(161)			—			—			—
Net income			—			—			—			—			—			342			—			342			—			342
Other comprehensive income (loss)			—			—			—			—			—			—			(98)			(98)			—			(98)
Purchases of treasury stock			—			—			8			(586)			—			—			—			(586)			—			(586)
Stock issued under employee benefit plans and other			—			—			(5)			291			(59)			(66)			—			166			—			166
Dividends declared on common stock			—			—			—			—			—			(98)			—			(98)			—			(98)
Change in noncontrolling interests			—			—			—			—			—			—			—			—			1			1
Balance as of March 31, 2019			683			$	683		173			$	(10,284)		$	5,839		$	15,414		$	(4,082)		$	7,570		$	23		$	7,593

Baxter International Inc.
Condensed Consolidated Statements of Changes in Equity
(in millions)
			As Restated
			For the Three Months Ended June 30, 2018
			Baxter International Inc. stockholders' equity
			Common stock shares			Common stock			Common stock shares in treasury			Common stock in treasury			Additional contributed capital			Retained earnings			Accumulated other comprehensive income (loss)			Total Baxter stockholders' equity			Noncontrolling interests			Total equity
Balance as of April 1, 2018			683			$	683		147			$	(8,354)		$	5,912		$	14,254		$	(3,427)		$	9,068		$	(6)		$	9,062
Net income			—			—			—			—			—			341			—			341			—			341
Other comprehensive income (loss)			—			—			—			—			—			—			(329)			(329)			—			(329)
Purchases of treasury stock			—			—			3			(259)			—			—			—			(259)			—			(259)
Stock issued under employee benefit plans and other			—			—			(2)			128			4			(9)			—			123			—			123
Dividends declared on common stock			—			—			—			—			—			(102)			—			(102)			—			(102)
Change in noncontrolling interests			—			—			—			—			—			—			—			—			(6)			(6)
Balance as of June 30, 2018			683			683			148			(8,485)			5,916			14,484			(3,756)			8,842			(12)			8,830

Baxter International Inc.
Condensed Consolidated Statements of Changes in Equity
(in millions)
			As Restated
			For the Six Months Ended June 30, 2018
			Baxter International Inc. stockholders' equity
			Common stock shares			Common stock			Common stock shares in treasury			Common stock in treasury			Additional contributed capital			Retained earnings			Accumulated other comprehensive income (loss)			Total Baxter stockholders' equity			Noncontrolling interests			Total equity
Balance as of January 1, 2018			683			$	683		142			$	(7,981)		$	5,940		$	14,014		$	(3,539)		$	9,117		$	(8)		$	9,109
Adoption of new accounting standards			—			—			—			—			—			(20)			(3)			(23)			—			(23)
Net income			—			—			—			—			—			723			—			723			—			723
Other comprehensive income (loss)			—			—			—			—			—			—			(214)			(214)			—			(214)
Purchases of treasury stock			—			—			11			(781)			—			—			—			(781)			—			(781)
Stock issued under employee benefit plans and other			—			—			(5)			277			(24)			(45)			—			208			—			208
Dividends declared on common stock			—			—			—			—			—			(188)			—			(188)			—			(188)
Change in noncontrolling interests			—			—			—			—			—			—			—			—			(4)			(4)
Balance as of June 30, 2018			683			$	683		148			$	(8,485)		$	5,916		$	14,484		$	(3,756)		$	8,842		$	(12)		$	8,830

Baxter International Inc.
Condensed Consolidated Statements of Changes in Equity
(in millions)
			As Restated
			For the Three Months Ended March 31, 2018
			Baxter International Inc. stockholders' equity
			Common stock shares			Common stock			Common stock shares in treasury			Common stock in treasury			Additional contributed capital			Retained earnings			Accumulated other comprehensive income (loss)			Total Baxter stockholders' equity			Noncontrolling interests			Total equity
Balance as of January 1, 2018			683			$	683		142			$	(7,981)		$	5,940		$	14,014		$	(3,539)		$	9,117		$	(8)		$	9,109
Adoption of new accounting standards			—			—			—			—			—			(20)			(3)			(23)			—			(23)
Net income			—			—			—			—			—			382			—			382			—			382
Other comprehensive income (loss)			—			—			—			—			—			—			115			115			—			115
Purchases of treasury stock			—			—			8			(522)			—			—			—			(522)			—			(522)
Stock issued under employee benefit plans and other			—			—			(3)			149			(28)			(36)			—			85			—			85
Dividends declared on common stock			—			—			—			—			—			(86)			—			(86)			—			(86)
Change in noncontrolling interests			—			—			—			—			—			—			—			—			2			2
Balance as of March 31, 2018			683			$	683		147			$	(8,354)		$	5,912		$	14,254		$	(3,427)		$	9,068		$	(6)		$	9,062

Baxter International Inc.
Condensed Consolidated Statements of Cash Flows
(in millions)
			As Restated
			Six months ended June 30, 2019			Three months ended March 31, 2019
Cash flows from operations
Net income			$	655		$	342
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization			385			192
Deferred income taxes			(63)			(6)
Stock compensation			57			22
Net periodic pension benefit and other postretirement costs			7			3
Intangible asset impairment			31			—
Other			44			14
Changes in balance sheet items:
Accounts receivable, net			(60)			32
Inventories			(91)			(82)
Accounts payable and accrued liabilities			(299)			(335)
Other			(86)			(48)
Cash flows from operations – continuing operations			580			134
Cash flows from operations – discontinued operations			(6)			(6)
Cash flows from operations			574			128
Cash flows from investing activities
Capital expenditures			(338)			(193)
Acquisitions and investments, net of cash acquired			(111)			(109)
Other investing activities, net			1			1
Cash flows from investing activities			(448)			(301)
Cash flows from financing activities
Issuances of debt			1,661			—
Net increases in debt obligations with original maturities of three months or less			—			795
Cash dividends on common stock			(198)			(101)
Proceeds from stock issued under employee benefit plans			262			173
Purchases of treasury stock			(720)			(597)
Other financing activities, net			(37)			(32)
Cash flows from financing activities			968			238
Effect of foreign exchange rate changes on cash and cash equivalents			2			(1)
Increase in cash and cash equivalents			1,096			64
Cash and cash equivalents at beginning of period			1,838			1,838
Cash and cash equivalents at end of period			$	2,934		$	1,902

Baxter International Inc.
Condensed Consolidated Statements of Cash Flows
(in millions)
			As Restated
			Six months ended June 30, 2018			Three months ended March 31, 2018
Cash flows from operations
Net income			$	723		$	382
Adjustments to reconcile income from continuing operations to net cash from operating activities:
Depreciation and amortization			382			190
Deferred income taxes			(51)			(38)
Stock compensation			54			20
Net periodic pension benefit and other postretirement costs			21			10
Other			—			(1)
Changes in balance sheet items:
Accounts receivable, net			43			76
Inventories			(134)			(56)
Accounts payable and accrued liabilities			(124)			(119)
Other			(82)			(34)
Cash flows from operations			832			430
Cash flows from investing activities
Capital expenditures			(303)			(152)
Acquisitions and investments, net of cash acquired			(228)			(219)
Cash flows from investing activities			(531)			(371)
Cash flows from financing activities
Cash dividends on common stock			(173)			(87)
Proceeds from stock issued under employee benefit plans			170			82
Purchases of treasury stock			(781)			(522)
Other financing activities, net			(24)			(18)
Cash flows from financing activities			(808)			(545)
Effect of foreign exchange rate changes on cash and cash equivalents			(38)			32
Decrease in cash and cash equivalents			(545)			(454)
Cash and cash equivalents at beginning of period			3,403			3,403
Cash and cash equivalents at end of period			$	2,858		$	2,949

Baxter International Inc.
Condensed Consolidated Balance Sheet
(in millions, except per share)
			June 30, 2019
			As previously reported			Restatement impacts			Restatement reference			As restated
Current assets:
Cash and cash equivalents			$	2,925		$	9		(e)			$	2,934
Accounts receivable, net			1,885			12			(e)(g)			1,897
Inventories			1,757			(1)			(e)(g)			1,756
Prepaid expenses and other current assets			651			(9)			(b)(e)(g)			642
Total current assets			7,218			11						7,229
Property, plant and equipment, net			4,541			(56)			(c)(e)			4,485
Goodwill			2,938			(1)			(e)			2,937
Other intangible assets, net			1,364			(1)			(g)			1,363
Operating lease right-of-use assets			588			7			(e)			595
Other non-current assets			895			(1)			(a)(c)(e)(g)			894
Total assets			$	17,544		$	(41)					$	17,503
Current liabilities:
Short-term debt			$	2		$	—					$	2
Current maturities of long-term debt and finance lease obligations			2			—						2
Accounts payable and accrued liabilities			2,593			(40)			(b)(e)(g)			2,553
Total current liabilities			2,597			(40)						2,557
Long-term debt and finance lease obligations			5,157			—						5,157
Operating lease liabilities			490			6			(e)			496
Other non-current liabilities			1,464			26			(a)(c)(e)(g)			1,490
Total liabilities			9,708			(8)						9,700
Commitments and contingencies
Equity:
Common stock, $1 par value, authorized 2,000,000,000 shares, issued 683,494,944 shares			683			—						683
Common stock in treasury, at cost, 173,275,586 shares			(10,322)			—						(10,322)
Additional contributed capital			5,906			—						5,906
Retained earnings			16,184			(586)			(a)(b)(c)(e)(g)			15,598
Accumulated other comprehensive (loss) income			(4,639)			553			(a)(e)			(4,086)
Total Baxter stockholders’ equity			7,812			(33)						7,779
Noncontrolling interests			24			—						24
Total equity			7,836			(33)						7,803
Total liabilities and equity			$	17,544		$	(41)					$	17,503

(a) Foreign Currency Denominated Monetary Assets and Liabilities—The correction of these misstatements resulted in decreases to retained earnings of $514 million and accumulated other comprehensive loss of $514 million and increases to other non-current assets of $12 million and other non-current liabilities of $12 million as of June 30, 2019.

(b) Foreign Currency Derivative Contracts—The correction of these misstatements resulted in increases to prepaid expenses and other current assets of $2 million and accounts payable and other accrued liabilities of $4 million and a decrease to retained earnings of $2 million as of June 30, 2019.

(c) Equipment Leased to Customers under Operating Leases—The correction of these misstatements resulted in decreases to property, plant and equipment, net of $61 million, other non-current liabilities of $6 million, and retained earnings of $44 million and an increase to other non-current assets of $11 million as of June 30, 2019.

(e) Translation of the Financial Position and Results of Operations of our Foreign Operations into U.S. Dollars—The correction of these misstatements resulted in increases to cash and cash equivalents of $9 million, accounts receivable, net of $6 million, inventories of $4 million, prepaid expenses and other current assets of $1 million, property, plant and equipment, net of $5 million, operating lease right-of-use assets of $7 million, other non-current assets of $5 million, accounts payable and accrued liabilities of $3 million, operating lease liabilities of $6 million, and other non-current liabilities of $4 million and decreases to goodwill of $1 million, retained earnings of $16 million, and accumulated other comprehensive loss of $39 million as of June 30, 2019.

(g) Other miscellaneous adjustments - The correction of these misstatements resulted in increases to accounts receivable, net of $6 million and other non-current liabilities of $16 million and decreases to inventories of $5 million, prepaid expenses and other current assets of $12 million, other intangible assets, net of $1 million, other non-current assets of $29 million, accounts payable and accrued liabilities of $47 million and retained earnings of $10 million as of June 30, 2019.

Baxter International Inc.
Condensed Consolidated Balance Sheet
(in millions, except per share)
			March 31, 2019
			As previously reported			Restatement impacts			Restatement reference			As restated
Current assets:
Cash and cash equivalents			$	1,908		$	(6)		(e)			$	1,902
Accounts receivable, net			1,802			(1)			(e)(g)			1,801
Inventories			1,751			(8)			(e)(g)			1,743
Prepaid expenses and other current assets			626			(12)			(b)(e)(g)			614
Total current assets			6,087			(27)						6,060
Property, plant and equipment, net			4,539			(63)			(c)(e)			4,476
Goodwill			2,930			(1)			(e)			2,929
Other intangible assets, net			1,441			(1)			(g)			1,440
Operating lease right-of-use assets			517			(4)			(e)			513
Other non-current assets			836			(13)			(a)(c)(e)(g)			823
Total assets			$	16,350		$	(109)					$	16,241
Current liabilities:
Short-term debt			$	796		$	—					$	796
Current maturities of long-term debt and finance lease obligations			2			—						2
Accounts payable and accrued liabilities			2,529			(51)			(e)(g)			2,478
Total current liabilities			3,327			(51)						3,276
Long-term debt and finance lease obligations			3,451			—						3,451
Operating lease liabilities			420			(3)			(e)			417
Other non-current liabilities			1,483			21			(a)(c)(e)(g)			1,504
Total liabilities			8,681			(33)						8,648
Commitments and contingencies
Equity:
Common stock, $1 par value, authorized 2,000,000,000 shares, issued 683,494,944 shares			683			—						683
Common stock in treasury, at cost, 173,447,198 shares			(10,284)			—						(10,284)
Additional contributed capital			5,839			—						5,839
Retained earnings			15,970			(556)			(a)(b)(c)(e)(g)			15,414
Accumulated other comprehensive (loss) income			(4,562)			480			(a)(e)			(4,082)
Total Baxter stockholders’ equity			7,646			(76)						7,570
Noncontrolling interests			23			—						23
Total equity			7,669			(76)						7,593
Total liabilities and equity			$	16,350		$	(109)					$	16,241

(a) Foreign Currency Denominated Monetary Assets and Liabilities—The correction of these misstatements resulted in decreases to retained earnings of $491 million and accumulated other comprehensive loss of $487 million and increases to other non-current assets of $9 million and other non-current liabilities of $13 million as of March 31, 2019.

(b) Foreign Currency Derivative Contracts—The correction of these misstatements resulted in increases to prepaid expenses and other current assets of $1 million and retained earnings of $1 million as of March 31, 2019.

(c) Equipment Leased to Customers under Operating Leases—The correction of these misstatements resulted in decreases to property, plant and equipment, net of $55 million, other non-current liabilities of $5 million, and retained earnings of $40 million and an increase to other non-current assets of $10 million as of March 31, 2019.

(e) Translation of the Financial Position and Results of Operations of our Foreign Operations into U.S. Dollars—The correction of these misstatements resulted in decreases to cash and cash equivalents of $6 million, accounts receivable, net of $7 million, inventories of $3 million, prepaid expenses and other current assets of $1 million, property, plant and equipment, net of $8 million, goodwill of $1 million, operating lease right-of-use assets of $4 million, other non-current assets of $3 million, accounts payable and accrued liabilities of $4 million, operating lease liabilities of $3 million, other non-current liabilities of $3 million, retained earnings of $16 million and an increase to accumulated other comprehensive loss of $7 million as of March 31, 2019.

(g) Other miscellaneous adjustments - The correction of these misstatements resulted in increases to accounts receivable, net of $6 million and other non-current liabilities of $16 million and decreases to inventories of $5 million, prepaid expenses and other current assets of $12 million, other intangible assets, net of $1 million, other non-current assets of $29 million, accounts payable and accrued liabilities of $47 million, and retained earnings of $10 million as of March 31, 2019.

Baxter International Inc.
Condensed Consolidated Balance Sheet
(in millions, except per share)
			September 30, 2018
			As previously reported			Restatement impacts			Restatement reference			As restated
Current assets:
Cash and cash equivalents			$	2,860		$	3		(e)			$	2,863
Accounts receivable, net			1,826			11			(e)(g)			1,837
Inventories			1,718			(2)			(e)(g)			1,716
Prepaid expenses and other current assets			624			(9)			(b)(g)			615
Total current assets			7,028			3						7,031
Property, plant and equipment, net			4,520			(44)			(c)(e)			4,476
Goodwill			2,980			(2)			(e)			2,978
Other intangible assets, net			1,402			(2)			(e)(g)			1,400
Other non-current assets			917			1			(a)(c)(e)(g)			918
Total assets			$	16,847		$	(44)					$	16,803
Current liabilities:
Current maturities of long-term debt and finance lease obligations			$	3		$	—					$	3
Accounts payable and accrued liabilities			2,701			(41)			(b)(e)(g)			2,660
Total current liabilities			2,704			(41)						2,663
Long-term debt and finance lease obligations			3,485			(5)			(e)			3,480
Other non-current liabilities			1,545			25			(a)(c)(e)(g)			1,570
Total liabilities			7,734			(21)						7,713
Commitments and contingencies
Equity:
Common stock, $1 par value, authorized 2,000,000,000 shares, issued 683,494,944 shares			683			—						683
Common stock in treasury, at cost, 150,213,621 shares			(8,639)			—						(8,639)
Additional contributed capital			5,931			—						5,931
Retained earnings			15,394			(508)			(a)(b)(c)(e)(g)			14,886
Accumulated other comprehensive (loss) income			(4,239)			485			(a)(e)			(3,754)
Total Baxter stockholders’ equity			9,130			(23)						9,107
Noncontrolling interests			(17)			—						(17)
Total equity			9,113			(23)						9,090
Total liabilities and equity			$	16,847		$	(44)					$	16,803

(a) Foreign Currency Denominated Monetary Assets and Liabilities—The correction of these misstatements resulted in decreases to retained earnings of $448 million and accumulated other comprehensive loss of $456 million and increases to other non-current assets of $20 million and other non-current liabilities of $12 million as of September 30, 2018.

(b) Foreign Currency Derivative Contracts—The correction of these misstatements resulted in increases to prepaid expenses and other current assets of $3 million and accounts payable and accrued liabilities of $4 million and a decrease to retained earnings of $1 million as of September 30, 2018.

(c) Equipment Leased to Customers under Operating Leases—The correction of these misstatements resulted in decreases to property, plant and equipment, net of $49 million, other non-current liabilities of $2 million, and retained earnings of $35 million and an increase to other non-current assets of $12 million as of September 30, 2018.

(e) Translation of the Financial Position and Results of Operations of our Foreign Operations into U.S. Dollars—The correction of these misstatements resulted in increases to cash and cash equivalents of $3 million, accounts receivable, net of $5 million, inventories of $3 million, property, plant and equipment, net of $5 million and accounts payable and accrued liabilities of $2 million and decreases to goodwill of $2 million, other intangible assets, net of $1 million, other non-current assets of $2 million, long-term debt and finance lease obligations of $5 million, other non-current liabilities of $1 million, retained earnings of $14 million, and accumulated other comprehensive loss of $29 million as of September 30, 2018.

(g) Other miscellaneous adjustments - The correction of these misstatements resulted in increases to accounts receivable, net of $6 million and other non-current liabilities of $16 million and decreases to inventories of $5 million, prepaid expenses and other current assets of $12 million, other intangible assets, net of $1 million, other non-current assets of $29 million, accounts payable and accrued liabilities of $47 million, and retained earnings of $10 million as of September 30, 2018.

Baxter International Inc.
Condensed Consolidated Balance Sheet
(in millions, except per share)
			June 30, 2018
			As previously reported			Restatement impacts			Restatement reference			As restated
Current assets:
Cash and cash equivalents			$	2,857		$	1		(e)			$	2,858
Accounts receivable, net			1,783			6			(g)			1,789
Inventories			1,622			(6)			(e)(g)			1,616
Prepaid expenses and other current assets			628			(7)			(b)(e)(g)			621
Total current assets			6,890			(6)						6,884
Property, plant and equipment, net			4,531			(45)			(c)			4,486
Goodwill			2,984			(3)			(e)			2,981
Other intangible assets, net			1,427			(3)			(e)(g)			1,424
Other non-current assets			746			(2)			(a)(c)(g)			744
Total assets			$	16,578		$	(59)					$	16,519
Current liabilities:
Current maturities of long-term debt and finance lease obligations			$	3		$	—					$	3
Accounts payable and accrued liabilities			2,626			(43)			(b)(g)			2,583
Total current liabilities			2,629			(43)						2,586
Long-term debt and finance lease obligations			3,495			(4)			(e)			3,491
Other non-current liabilities			1,585			27			(a)(c)(g)			1,612
Total liabilities			7,709			(20)						7,689
Commitments and contingencies
Equity:
Common stock, $1 par value, authorized 2,000,000,000 shares, issued 683,494,944 shares			683			—						683
Common stock in treasury, at cost, 148,485,202 shares			(8,485)			—						(8,485)
Additional contributed capital			5,916			—						5,916
Retained earnings			14,966			(482)			(a)(c)(e)(g)			14,484
Accumulated other comprehensive (loss) income			(4,199)			443			(a)(e)			(3,756)
Total Baxter stockholders’ equity			8,881			(39)						8,842
Noncontrolling interests			(12)			—						(12)
Total equity			8,869			(39)						8,830
Total liabilities and equity			$	16,578		$	(59)					$	16,519

(a) Foreign Currency Denominated Monetary Assets and Liabilities—The correction of these misstatements resulted in decreases to retained earnings of $425 million and accumulated other comprehensive loss of $428 million and increases to other non-current assets of $16 million and other non-current liabilities of $13 million as of June 30, 2018.

(b) Foreign Currency Derivative Contracts—The correction of these misstatements resulted in increases to prepaid expenses and other current assets of $4 million and accounts payable and accrued liabilities of $4 million as of June 30, 2018.

(c) Equipment Leased to Customers under Operating Leases—The correction of these misstatements resulted in decreases to property, plant and equipment, net of $45 million, other non-current liabilities of $2 million, and retained earnings of $32 million and an increase to other non-current assets of $11 million as of June 30, 2018.

(e) Translation of the Financial Position and Results of Operations of our Foreign Operations into U.S. Dollars—The correction of these misstatements resulted in increases to cash and cash equivalents of $1 million and prepaid expenses and other current assets of $1 million and decreases to inventories of $1 million, goodwill of $3 million, other intangible assets, net of $2 million, long-term debt and finance lease obligations of $4 million, retained earnings of $15 million, and accumulated other comprehensive loss of $15 million as of June 30, 2018.

(g) Other miscellaneous adjustments - The correction of these misstatements resulted in increases to accounts receivable, net of $6 million and other non-current liabilities of $16 million and decreases to inventories of $5 million, prepaid expenses and other current assets of $12 million, other intangible assets, net of $1 million, other non-current assets of $29 million, accounts payable and accrued liabilities of $47 million, and retained earnings of $10 million as of June 30, 2018.

Baxter International Inc.
Condensed Consolidated Balance Sheet
(in millions, except per share)
			March 31, 2018
			As previously reported			Restatement impacts			Restatement reference			As restated
Current assets:
Cash and cash equivalents			$	2,947		$	2		(e)			$	2,949
Accounts receivable, net			1,807			11			(e)(g)			1,818
Inventories			1,581			(3)			(e)(g)			1,578
Prepaid expenses and other current assets			621			(11)			(b)(g)			610
Total current assets			6,956			(1)						6,955
Property, plant and equipment, net			4,614			(38)			(c)(e)			4,576
Goodwill			3,107			(4)			(e)			3,103
Other intangible assets, net			1,507			(2)			(e)(g)			1,505
Other non-current assets			706			(2)			(a)(c)(e)(g)			704
Total assets			$	16,890		$	(47)					$	16,843
Current liabilities:
Current maturities of long-term debt and finance lease obligations			$	3		$	—					$	3
Accounts payable and accrued liabilities			2,639			(41)			(b)(e)(g)			2,598
Total current liabilities			2,642			(41)						2,601
Long-term debt and finance lease obligations			3,550			—						3,550
Other non-current liabilities			1,605			25			(a)(c)(e)(g)			1,630
Total liabilities			7,797			(16)						7,781
Commitments and contingencies
Equity:
Common stock, $1 par value, authorized 2,000,000,000 shares, issued 683,494,944 shares			683			—						683
Common stock in treasury, at cost, 146,993,164 shares			(8,354)			—						(8,354)
Additional contributed capital			5,912			—						5,912
Retained earnings			14,734			(480)			(a)(b)(c)(e)(g)			14,254
Accumulated other comprehensive (loss) income			(3,876)			449			(a)(e)			(3,427)
Total Baxter stockholders’ equity			9,099			(31)						9,068
Noncontrolling interests			(6)			—						(6)
Total equity			9,093			(31)						9,062
Total liabilities and equity			$	16,890		$	(47)					$	16,843

(a) Foreign Currency Denominated Monetary Assets and Liabilities—The correction of these misstatements resulted in decreases to retained earnings of $426 million and accumulated other comprehensive loss of $432 million and increases to other non-current assets of $20 million and other non-current liabilities of $14 million as of March 31, 2018.

(b) Foreign Currency Derivative Contracts—The correction of these misstatements resulted in increases to prepaid expenses and other current assets of $1 million and accounts payable and accrued liabilities of $4 million and a decrease to retained earnings of $3 million as of March 31, 2018.

(c) Equipment Leased to Customers under Operating Leases—The correction of these misstatements resulted in decreases to property, plant and equipment, net of $44 million, other non-current liabilities of $2 million, and retained earnings of $31 million and an increase to other non-current assets of $11 million as of March 31, 2018.

(e) Translation of the Financial Position and Results of Operations of our Foreign Operations into U.S. Dollars—The correction of these misstatements resulted in increases to cash and cash equivalents of $2 million, accounts receivable, net of $5 million, inventories of $2 million, property, plant and equipment, net of $6 million, and accounts payable and accrued liabilities of $2 million and decreases to goodwill of $4 million, other intangible assets, net of $1 million, other non-current assets of $4 million, other non-current liabilities of $3 million, retained earnings of $10 million, and accumulated other comprehensive loss of $17 million as of March 31, 2018.

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

Baxter International Inc.
Condensed Consolidated Statement of Income
(in millions, except per share)
			Three months ended June 30, 2019
			As previously reported			Restatement impacts			Restatement reference			As restated
Net sales			$	2,840		$	(6)		(e)			$	2,834
Cost of sales			1,681			—			(c)(e)			1,681
Gross margin			1,159			(6)						1,153
Selling, general and administrative expenses			642			(1)			(e)			641
Research and development expenses			166			—						166
Other operating income, net			(4)			—						(4)
Operating income			355			(5)						350
Interest expense, net			20			—						20
Other (income) expense, net			(28)			32			(a)(b)			4
Income before income taxes			363			(37)						326
Income tax expense			20			(7)			(a)(c)			13
Net income			$	343		$	(30)					$	313
Earnings per share
Basic			$	0.67		$	(0.06)					$	0.61
Diluted			$	0.66		$	(0.06)					$	0.60
Weighted-average number of shares outstanding
Basic			510			—						510
Diluted			519			—						519

(a) Foreign Currency Denominated Monetary Assets and Liabilities—The correction of these misstatements resulted in a decrease to other (income) expense, net of $26 million and a decrease to income tax expense of $5 million for the three months ended June 30, 2019.

(b) Foreign Currency Derivative Contracts—The correction of these misstatements resulted in a decrease to other (income) expense, net of $6 million for the three months ended June 30, 2019.

(c) Equipment Leased to Customers under Operating Leases—The correction of these misstatements resulted in an increase to cost of sales of $5 million and a decrease to income tax expense of $2 million for the three months ended June 30, 2019.

(e) Translation of the Financial Position and Results of Operations of our Foreign Operations into U.S. Dollars—The correction of these misstatements resulted in decreases to net sales of $6 million, cost of sales of $5 million and SG&A expense of $1 million for the three months ended June 30, 2019.

Baxter International Inc.
Condensed Consolidated Statement of Income
(in millions, except per share)
			Six months ended June 30, 2019
			As previously reported			Restatement impacts			Restatement reference			As restated
Net sales			$	5,472		$	—					$	5,472
Cost of sales			3,233			6			(c)(e)			3,239
Gross margin			2,239			(6)						2,233
Selling, general and administrative expenses			1,242			—						1,242
Research and development expenses			295			—						295
Other operating income, net			(37)			—						(37)
Operating income			739			(6)						733
Interest expense, net			38			—						38
Other (income) expense, net			(53)			36			(a)(b)			(17)
Income before income taxes			754			(42)						712
Income tax expense			64			(7)			(a)(b)(c)			57
Net income			$	690		$	(35)					$	655
Earnings per share
Basic			$	1.35		$	(0.07)					$	1.28
Diluted			$	1.33		$	(0.07)					$	1.26
Weighted-average number of shares outstanding
Basic			511			—						511
Diluted			520			—						520

(a) Foreign Currency Denominated Monetary Assets and Liabilities—The correction of these misstatements resulted in decreases to other (income) expense, net of $31 million and income tax expense of $4 million for the six months ended June 30, 2019.

(b) Foreign Currency Derivative Contracts—The correction of these misstatements resulted in decreases to other (income) expense, net of $5 million and income tax expense of $1 million for the six months ended June 30, 2019.

(c) Equipment Leased to Customers under Operating Leases—The correction of these misstatements resulted in an increase to cost of sales of $7 million and a decrease to income tax expense of $2 million for the six months ended June 30, 2019.

(e) Translation of the Financial Position and Results of Operations of our Foreign Operations into U.S. Dollars—The correction of these misstatements resulted in a decrease to cost of sales of $1 million for the six months ended June 30, 2019.

Baxter International Inc.
Condensed Consolidated Statement of Income
(in millions, except per share)
			Three months ended March 31, 2019
			As previously reported			Restatement impacts			Restatement reference			As restated
Net sales			$	2,632		$	6		(e)			$	2,638
Cost of sales			1,552			6			(c)(e)			1,558
Gross margin			1,080			—						1,080
Selling, general and administrative expenses			600			1			(e)			601
Research and development expenses			129			—						129
Other operating income, net			(33)			—						(33)
Operating income			384			(1)						383
Interest expense, net			18			—						18
Other (income) expense, net			(25)			4			(a)(b)			(21)
Income before income taxes			391			(5)						386
Income tax expense			44			—						44
Net income			$	347		$	(5)					$	342
Earnings per share
Basic			$	0.68		$	(0.01)					$	0.67
Diluted			$	0.66		$	—					$	0.66
Weighted-average number of shares outstanding
Basic			512			—						512
Diluted			522			—						522

(a) Foreign Currency Denominated Monetary Assets and Liabilities—The correction of these misstatements resulted in a decrease to other (income) expense, net of $5 million for the three months ended March 31, 2019.

(b) Foreign Currency Derivative Contracts—The correction of these misstatements resulted in an increase to other (income) expense, net of $1 million for the three months ended March 31, 2019.

(c) Equipment Leased to Customers under Operating Leases—The correction of these misstatements resulted in an increase to cost of sales of $2 million for the three months ended March 31, 2019.

(e) Translation of the Financial Position and Results of Operations of our Foreign Operations into U.S. Dollars—The correction of these misstatements resulted in increases to net sales of $6 million, cost of sales of $4 million and SG&A expense of $1 million for the three months ended March 31, 2019.

Baxter International Inc.
Condensed Consolidated Statement of Income
(in millions, except per share)
			Three months ended December 31, 2018
			As previously reported			Restatement impacts			Restatement reference			As restated
Net sales			$	2,841		$	(8)		(e)			$	2,833
Cost of sales			1,649			1			(c)(e)			1,650
Gross margin			1,192			(9)						1,183
Selling, general and administrative expenses			629			(2)			(e)			627
Research and development expenses			175			—						175
Other operating income, net			(10)			—						(10)
Operating income			398			(7)						391
Interest expense, net			11			—						11
Other (income) expense, net			(58)			25			(a)(b)			(33)
Income from continuing operations before income taxes			445			(32)						413
Income tax expense			91			11			(a)(c)(g)			102
Income from continuing operations			354			(43)						311
Loss from discontinued operations			(6)			—						(6)
Net income			$	348		$	(43)					$	305
Earnings per share from continuing operations
Basic			$	0.67		$	(0.08)					$	0.59
Diluted			$	0.66		$	(0.08)					$	0.58
Loss per share from discontinued operations
Basic			$	(0.01)		$	—					$	(0.01)
Diluted			$	(0.01)		$	—					$	(0.01)
Earnings per share
Basic			$	0.66		$	(0.08)					$	0.58
Diluted			$	0.65		$	(0.08)					$	0.57
Weighted-average number of shares outstanding
Basic			528			—						528
Diluted			538			—						538

(a) Foreign Currency Denominated Monetary Assets and Liabilities—The correction of these misstatements resulted in a decrease to other (income) expense, net of $26 million and an increase to income tax expense of $5 million for the three months ended December 31, 2018.

(b) Foreign Currency Derivative Contracts—The correction of these misstatements resulted in an increase to other (income) expense, net of $1 million.

(c) Equipment Leased to Customers under Operating Leases—The correction of these misstatements resulted in an increase to cost of sales of $4 million and a decrease to income tax expense of $1 million for the three months ended December 31, 2018.

(e) Translation of the Financial Position and Results of Operations of our Foreign Operations into U.S. Dollars—The correction of these misstatements resulted in decreases to net sales of $8 million, cost of sales of $3 million and SG&A expense of $2 million for the three months ended December 31, 2018.

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

Baxter International Inc.
Condensed Consolidated Statement of Income
(in millions, except per share)
			Three months ended June 30, 2018
			As previously reported			Restatement impacts			Restatement reference			As restated
Net sales			$	2,842		$	(29)		(e)			$	2,813
Cost of sales			1,603			(13)			(c)(e)			1,590
Gross margin			1,239			(16)						1,223
Selling, general and administrative expenses			681			(5)			(e)(f)			676
Research and development expenses			174			(2)			(e)			172
Other operating income, net			—			(2)			(f)			(2)
Operating income			384			(7)						377
Interest expense, net			11			—						11
Other (income) expense, net			(31)			(7)			(b)(e)			(38)
Income before income taxes			404			—						404
Income tax expense			61			2			(b)(c)(e)			63
Net income			$	343		$	(2)					$	341
Earnings per share
Basic			$	0.64		$	—					$	0.64
Diluted			$	0.63		$	(0.01)					$	0.62
Weighted-average number of shares outstanding
Basic			535			—						535
Diluted			547			—						547

(b) Foreign Currency Derivative Contracts—The correction of these misstatements resulted in increases to other (income) expense, net of $8 million and income tax expense of $4 million for the three months ended June 30, 2018.

(c) Equipment Leased to Customers under Operating Leases—The correction of these misstatements resulted in an increase to cost of sales of $2 million and a decrease to income tax expense of $1 million for the three months ended June 30, 2018.

(e) Translation of the Financial Position and Results of Operations of our Foreign Operations into U.S. Dollars—The correction of these misstatements resulted in decreases to net sales of $29 million, cost of sales of $15 million, SG&A expense of $7 million, R&D expense of $2 million, other (income) expense, net of $1 million and income tax expense of $1 million for the three months ended June 30, 2018.

(f) Income Statement Classification of Transition Services Income—The correction of these misstatements resulted in increases to SG&A expense and other operating income, net of $2 million for the three months ended June 30, 2018.

Baxter International Inc.
Condensed Consolidated Statement of Income
(in millions, except per share)
			Six months ended June 30, 2018
			As previously reported			Restatement impacts			Restatement reference			As restated
Net sales			$	5,519		$	(14)		(e)			$	5,505
Cost of sales			3,166			(5)			(c)(e)			3,161
Gross margin			2,353			(9)						2,344
Selling, general and administrative expenses			1,303			6			(e)(f)			1,309
Research and development expenses			314			(1)			(e)			313
Other operating income, net			(80)			(9)			(f)			(89)
Operating income			816			(5)						811
Interest expense, net			23			—						23
Other (income) expense, net			(49)			5			(a)(b)(e)			(44)
Income before income taxes			842			(10)						832
Income tax expense			110			(1)			(a)(b)(c)(e)			109
Net income			$	732		$	(9)					$	723
Earnings per share
Basic			$	1.36		$	(0.01)					$	1.35
Diluted			$	1.33		$	(0.01)					$	1.32
Weighted-average number of shares outstanding
Basic			537			—						537
Diluted			549			—						549

(a) Foreign Currency Denominated Monetary Assets and Liabilities—The correction of these misstatements resulted in decreases to other (income) expense, net of $9 million and income tax expense of $3 million for the six months ended June 30, 2018.

(b) Foreign Currency Derivative Contracts—The correction of these misstatements resulted in increases to other (income) expense, net of $5 million and income tax of $4 million for the six months ended June 30, 2018.

(c) Equipment Leased to Customers under Operating Leases—The correction of these misstatements resulted in an increase to cost of sales of $3 million and a decrease to income tax expense of $1 million for the six months ended June 30, 2018.

(e) Translation of the Financial Position and Results of Operations of our Foreign Operations into U.S. Dollars—The correction of these misstatements resulted in decreases to net sales of $14 million, cost of sales of $8 million, SG&A expense of $3 million, R&D expense of $1 million, other (income) expense, net of $1 million and income tax expense of $1 million for the six months ended June 30, 2018.

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

Baxter International Inc.
Condensed Consolidated Statement of Income
(in millions, except per share)
			Three months ended March 31, 2018
			As previously reported			Restatement impacts			Restatement reference			As restated
Net sales			$	2,677		$	15		(e)			$	2,692
Cost of sales			1,563			8			(c)(e)			1,571
Gross margin			1,114			7						1,121
Selling, general and administrative expenses			622			11			(e)(f)			633
Research and development expenses			140			1			(e)			141
Other operating income, net			(80)			(7)			(f)			(87)
Operating income			432			2						434
Interest expense, net			12			—						12
Other (income) expense, net			(18)			12			(a)(b)			(6)
Income before income taxes			438			(10)						428
Income tax expense			49			(3)			(a)			46
Net income			$	389		$	(7)					$	382
Earnings per share
Basic			$	0.72		$	(0.01)					$	0.71
Diluted			$	0.71		$	(0.02)					$	0.69
Weighted-average number of shares outstanding
Basic			539			—						539
Diluted			551			—						551

(a) Foreign Currency Denominated Monetary Assets and Liabilities—The correction of these misstatements resulted in decreases to other (income) expense, net of $9 million and income tax expense of $3 million for the three months ended March 31, 2018.

(b) Foreign Currency Derivative Contracts—The correction of these misstatements resulted in a decrease to other (income) expense, net of $3 million for the three months ended March 31, 2018.

(c) Equipment Leased to Customers under Operating Leases—The correction of these misstatements resulted in an increase to cost of sales of $1 million for the three months ended March 31, 2018.

(e) Translation of the Financial Position and Results of Operations of our Foreign Operations into U.S. Dollars—The correction of these misstatements resulted in increases to net sales of $15 million, cost of sales of $7 million, SG&A expense of $4 million and R&D expense of $1 million for the three months ended March 31, 2018.

(f) Income Statement Classification of Transition Services Income—The correction of these misstatements resulted in increases to SG&A expense and other operating income, net of $7 million for the three months ended March 31, 2018.

Baxter International Inc.
Condensed Consolidated Statement of Comprehensive Income
(in millions)
			Three months ended June 30, 2019
			As previously reported			Restatement impacts			As restated
Net income			$	343		$	(30)		$	313
Other comprehensive (loss) income, net of tax:
Currency translation adjustments			(78)			80			2
Pension and other postretirement benefit plans			13			(7)			6
Hedging activities			(12)			—			(12)
Total other comprehensive loss, net of tax			(77)			73			(4)
Comprehensive income			$	266		$	43		$	309

The $30 million decrease to net income was driven by the items described above in the consolidated statement of income for the three months ended June 30, 2019 section.

The $80 million decrease to currency translation adjustments for the three months ended June 30, 2019 is comprised of a $54 million decrease to correct the foreign exchange rates used to translate the financial position and results of operations of our foreign operations into U.S. dollars and a $26 million decrease from the offsetting balance sheet impact of the adjustments to foreign exchange gains and losses on intra-company receivables and payables.

The $7 million decrease to pension and other postretirement benefit plans for the three months ended June 30, 2019 is a result of the correction of the foreign exchange rates used to translate the financial position and results of operations of our foreign operations into U.S. dollars.

Baxter International Inc.
Condensed Consolidated Statement of Comprehensive Income
(in millions)
			Six months ended June 30, 2019
			As previously reported			Restatement impacts			As restated
Net income			$	690		$	(35)		$	655
Other comprehensive (loss) income, net of tax:
Currency translation adjustments			(48)			(47)			(95)
Pension and other postretirement benefit plans			21			(1)			20
Hedging activities			(27)			—			(27)
Total other comprehensive loss, net of tax			(54)			(48)			(102)
Comprehensive income			$	636		$	(83)		$	553

The $35 million decrease to net income was driven by the items described above in the consolidated statement of income for the six months ended June 30, 2019 section.

The $47 million increase to currency translation adjustments for the six months ended June 30, 2019 is comprised of a $78 million increase to correct the foreign exchange rates used to translate the financial position and results of operations of our foreign operations into U.S. dollars partially offset by a $31 million decrease from the offsetting balance sheet impact of the adjustments to foreign exchange gains and losses on intra-company receivables and payables.

The $1 million decrease to pension and other postretirement benefit plans for the six months ended June 30, 2019 is a result of the correction of the foreign exchange rates used to translate the financial position and results of operations of our foreign operations into U.S. dollars.

Baxter International Inc.
Condensed Consolidated Statement of Comprehensive Income
(in millions)
			Three months ended March 31, 2019
			As previously reported			Restatement impacts			As restated
Net income			$	347		$	(5)		$	342
Other comprehensive (loss) income, net of tax:
Currency translation adjustments			30			(127)			(97)
Pension and other postretirement benefit plans			8			6			14
Hedging activities			(15)			—			(15)
Total other comprehensive (loss) income, net of tax			23			(121)			(98)
Comprehensive income			$	370		$	(126)		$	244

The $5 million decrease to net income was driven by the items described above in the consolidated statement of income for the three months ended March 31, 2019 section.

The $127 million decrease to currency translation adjustments for the three months ended March 31, 2019 is comprised of a $132 million decrease to correct the foreign exchange rates used to translate the financial position and results of operations of our foreign operations into U.S. dollars partially offset by a $5 million increase from the offsetting balance sheet impact of the adjustments to foreign exchange gains and losses on intra-company receivables and payables.

The $6 million increase to pension and other postretirement benefit plans for the three months ended March 31, 2019 is a result of the correction of the foreign exchange rates used to translate the financial position and results of operations of our foreign operations into U.S. dollars.

Baxter International Inc.
Condensed Consolidated Statement of Comprehensive Income
(in millions)
			Three months ended June 30, 2018
			As previously reported			Restatement impacts			As restated
Net income			$	343		$	(2)		$	341
Other comprehensive (loss) income, net of tax:
Currency translation adjustments			(363)			(5)			(368)
Pension and other postretirement benefit plans			29			(1)			28
Hedging activities			11			—			11
Total other comprehensive loss, net of tax			(323)			(6)			(329)
Comprehensive income			$	20		$	(8)		$	12

The $2 million decrease to net income was driven by the items described above in the consolidated statement of income for the three months ended June 30, 2018 section.

The $5 million increase to currency translation adjustments for the three months ended June 30, 2018 is comprised of a $5 million increase to correct the foreign exchange rates used to translate the financial position and results of operations of our foreign operations into U.S. dollars.

The $1 million decrease to pension and other postretirement benefit plans for the three months ended June 30, 2018 is a result of the correction of the foreign exchange rates used to translate the financial position and results of operations of our foreign operations into U.S. dollars.

Baxter International Inc.
Condensed Consolidated Statement of Comprehensive Income
(in millions)
			Six months ended June 30, 2018
			As previously reported			Restatement impacts			As restated
Net income			$	732		$	(9)		$	723
Other comprehensive (loss) income, net of tax:
Currency translation adjustments			(282)			(23)			(305)
Pension and other postretirement benefit plans			81			4			85
Hedging activities			6			—			6
Total other comprehensive loss, net of tax			(195)			(19)			(214)
Comprehensive income			$	537		$	(28)		$	509

The $9 million decrease to net income was driven by the items described above in the consolidated statement of income for the six months ended June 30, 2018 section.

The $23 million increase to currency translation adjustments for the six months ended June 30, 2018 is comprised of a $32 million increase to correct the foreign exchange rates used to translate the financial position and results of operations of our foreign operations into U.S. dollars partially offset by a $9 million decrease from the offsetting balance sheet impact of the adjustments to foreign exchange gains and losses on intra-company receivables and payables.

The $4 million increase to pension and other postretirement benefit plans for the six months ended June 30, 2018 is a result of the correction of the foreign exchange rates used to translate the financial position and results of operations of our foreign operations into U.S. dollars.

Baxter International Inc.
Condensed Consolidated Statement of Comprehensive Income
(in millions)
			Three months ended March 31, 2018
			As previously reported			Restatement impacts			As restated
Net income			$	389		$	(7)		$	382
Other comprehensive (loss) income, net of tax:
Currency translation adjustments			81			(18)			63
Pension and other postretirement benefit plans			52			5			57
Hedging activities			(5)			—			(5)
Total other comprehensive income, net of tax			128			(13)			115
Comprehensive income			$	517		$	(20)		$	497

The $7 million decrease to net income was driven by the items described above in the consolidated statement of income for the three months ended March 31, 2018 section.

The $18 million decrease to currency translation adjustments for the three months ended March 31, 2018 is comprised of a $27 million decrease to correct the foreign exchange rates used to translate the financial position and results of operations of our foreign operations into U.S. dollars partially offset by a $9 million increase from the offsetting balance sheet impact of the adjustments to foreign exchange gains and losses on intra-company receivables and payables.

The $5 million increase to pension and other postretirement benefit plans for the three months ended March 31, 2018 is a result of the correction of the foreign exchange rates used to translate the financial position and results of operations of our foreign operations into U.S. dollars.

Baxter International Inc.
Consolidated Statement of Changes in Equity
(in millions)
			For the Three Months Ended June 30, 2019
			Baxter International Inc. stockholders' equity
			Common stock shares			Common stock			Common stock shares in treasury			Common stock in treasury			Additional contributed capital			Retained earnings			Accumulated other comprehensive income (loss)			Total Baxter stockholders' equity			Noncontrolling interests			Total equity
As previously reported
Balance as of April 1, 2019			683			$	683		173			$	(10,284)		$	5,839		$	15,970		$	(4,562)		$	7,646		$	23		$	7,669
Net income			—			—			—			—			—			343			—			343			—			343
Other comprehensive income (loss)			—			—			—			—			—			—			(77)			(77)			—			(77)
Purchases of treasury stock			—			—			2			(157)			46			—			—			(111)			—			(111)
Stock issued under employee benefit plans and other			—			—			(2)			119			21			(17)			—			123			—			123
Dividends declared on common stock			—			—			—			—			—			(112)			—			(112)			—			(112)
Changes in noncontrolling interests			—			—			—			—			—			—			—			—			1			1
Balance as of June 30, 2019			683			$	683		173			$	(10,322)		$	5,906		$	16,184		$	(4,639)		$	7,812		$	24		$	7,836
Restatement impacts
Balance as of April 1, 2019			—			$	—		—			$	—		$	—		$	(556)		$	480		$	(76)		$	—		$	(76)
Net income			—			—			—			—			—			(30)			—			(30)			—			(30)
Other comprehensive income (loss)			—			—			—			—			—			—			73			73			—			73
Balance as of June 30, 2019			—			$	—		—			$	—		$	—		$	(586)		$	553		$	(33)		$	—		$	(33)
As restated
Balance as of April 1, 2019			683			$	683		173			$	(10,284)		$	5,839		$	15,414		$	(4,082)		$	7,570		$	23		$	7,593
Net income			—			—			—			—			—			313			—			313			—			313
Other comprehensive income (loss)			—			—			—			—			—			—			(4)			(4)			—			(4)
Purchases of treasury stock			—			—			2			(157)			46			—			—			(111)			—			(111)
Stock issued under employee benefit plans and other			—			—			(2)			119			21			(17)			—			123			—			123
Dividends declared on common stock			—			—			—			—			—			(112)			—			(112)			—			(112)
Changes in noncontrolling interests			—			—			—			—			—			—			—			—			1			1
Balance as of June 30, 2019			683			$	683		173			$	(10,322)		$	5,906		$	15,598		$	(4,086)		$	7,779		$	24		$	7,803

See descriptions of the net income and other comprehensive income impacts in the consolidated statement of income and consolidated statement of comprehensive income for the three months ended June 30, 2019 sections above.

Baxter International Inc.
Consolidated Statement of Changes in Equity
(in millions)
			For the Six Months Ended June 30, 2019
			Baxter International Inc. stockholders' equity
			Common stock shares			Common stock			Common stock shares in treasury			Common stock in treasury			Additional contributed capital			Retained earnings			Accumulated other comprehensive income (loss)			Total Baxter stockholders' equity			Noncontrolling interests			Total equity
As previously reported
Balance as of January 1, 2019			683			$	683		170			$	(9,989)		$	5,898		$	15,626		$	(4,424)		$	7,794		$	22		$	7,816
Adoption of new accounting standards			—			—			—			—			—			161			(161)			—			—			—
Net income			—			—			—			—			—			690			—			690			—			690
Other comprehensive income (loss)			—			—			—			—			—			—			(54)			(54)			—			(54)
Purchases of treasury stock			—			—			10			(743)			46			—			—			(697)			—			(697)
Stock issued under employee benefit plans and other			—			—			(7)			410			(38)			(83)			—			289			—			289
Dividends declared on common stock			—			—			—			—			—			(210)			—			(210)			—			(210)
Changes in noncontrolling interests			—			—			—			—			—			—			—			—			2			2
Balance as of June 30, 2019			683			$	683		173			$	(10,322)		$	5,906		$	16,184		$	(4,639)		$	7,812		$	24		$	7,836
Restatement impacts
Balance as of January 1, 2019			—			$	—		—			$	—		$	—		$	(551)		$	601		$	50		$	—		$	50
Net income			—			—			—			—			—			(35)			—			(35)			—			(35)
Other comprehensive income (loss)			—			—			—			—			—			—			(48)			(48)			—			(48)
Balance as of June 30, 2019			—			$	—		—			$	—		$	—		$	(586)		$	553		$	(33)		$	—		$	(33)
As restated
Balance as of January 1, 2019			683			$	683		170			$	(9,989)		$	5,898		$	15,075		$	(3,823)		$	7,844		$	22		$	7,866
Adoption of new accounting standards			—			—			—			—			—			161			(161)			—			—			—
Net income			—			—			—			—			—			655			—			655			—			655
Other comprehensive income (loss)			—			—			—			—			—			—			(102)			(102)			—			(102)
Purchases of treasury stock			—			—			10			(743)			46			—			—			(697)			—			(697)
Stock issued under employee benefit plans and other			—			—			(7)			410			(38)			(83)			—			289			—			289
Dividends declared on common stock			—			—			—			—			—			(210)			—			(210)			—			(210)
Changes in noncontrolling interests			—			—			—			—			—			—			—			—			2			2
Balance as of June 30, 2019			683			$	683		173			$	(10,322)		$	5,906		$	15,598		$	(4,086)		$	7,779		$	24		$	7,803

See descriptions of the net income and other comprehensive income impacts in the consolidated statement of income and consolidated statement of comprehensive income for the six months ended June 30, 2019 sections above.

Baxter International Inc.
Consolidated Statement of Changes in Equity
(in millions)
			For the Three Months Ended March 31, 2019
			Baxter International Inc. stockholders' equity
			Common stock shares			Common stock			Common stock shares in treasury			Common stock in treasury			Additional contributed capital			Retained earnings			Accumulated other comprehensive income (loss)			Total Baxter stockholders' equity			Noncontrolling interests			Total equity
As previously reported
Balance as of January 1, 2019			683			$	683		170			$	(9,989)		$	5,898		$	15,626		$	(4,424)		$	7,794		$	22		$	7,816
Adoption of new accounting standards			—			—			—			—			—			161			(161)			—			—			—
Net income			—			—			—			—			—			347			—			347			—			347
Other comprehensive income (loss)			—			—			—			—			—			—			23			23			—			23
Purchases of treasury stock			—			—			8			(586)			—			—			—			(586)			—			(586)
Stock issued under employee benefit plans and other			—			—			(5)			291			(59)			(66)			—			166			—			166
Dividends declared on common stock			—			—			—			—			—			(98)			—			(98)			—			(98)
Changes in noncontrolling interests			—			—			—			—			—			—			—			—			1			1
Balance as of March 31, 2019			683			$	683		173			$	(10,284)		$	5,839		$	15,970		$	(4,562)		$	7,646		$	23		$	7,669
Restatement impacts
Balance as of January 1, 2019			—			$	—		—			$	—		$	—		$	(551)		$	601		$	50		$	—		$	50
Net income			—			—			—			—			—			(5)			—			(5)			—			(5)
Other comprehensive income (loss)			—			—			—			—			—			—			(121)			(121)			—			(121)
Balance as of March 31, 2019			—			$	—		—			$	—		$	—		$	(556)		$	480		$	(76)		$	—		$	(76)
As restated
Balance as of January 1, 2019			683			$	683		170			$	(9,989)		$	5,898		$	15,075		$	(3,823)		$	7,844		$	22		$	7,866
Adoption of new accounting standards			—			—			—			—			—			161			(161)			—			—			—
Net income			—			—			—			—			—			342			—			342			—			342
Other comprehensive income (loss)			—			—			—			—			—			—			(98)			(98)			—			(98)
Purchases of treasury stock			—			—			8			(586)			—			—			—			(586)			—			(586)
Stock issued under employee benefit plans and other			—			—			(5)			291			(59)			(66)			—			166			—			166
Dividends declared on common stock			—			—			—			—			—			(98)			—			(98)			—			(98)
Changes in noncontrolling interests			—			—			—			—			—			—			—			—			1			1
Balance as of March 31, 2019			683			$	683		173			$	(10,284)		$	5,839		$	15,414		$	(4,082)		$	7,570		$	23		$	7,593

See descriptions of the net income and other comprehensive income impacts in the consolidated statement of income and consolidated statement of comprehensive income for the three months ended March 31, 2019 sections above.

Baxter International Inc.
Consolidated Statement of Changes in Equity
(in millions)
			For the Three Months Ended June 30, 2018
			Baxter International Inc. stockholders' equity
			Common stock shares			Common stock			Common stock shares in treasury			Common stock in treasury			Additional contributed capital			Retained earnings			Accumulated other comprehensive income (loss)			Total Baxter stockholders' equity			Noncontrolling interests			Total equity
As previously reported
Balance as of April 1, 2018			683			$	683		147			$	(8,354)		$	5,912		$	14,734		$	(3,876)		$	9,099		$	(6)		$	9,093
Net income			—			—			—			—			—			343			—			343			—			343
Other comprehensive income (loss)			—			—			—			—			—			—			(323)			(323)			—			(323)
Purchases of treasury stock			—			—			3			(259)			—			—			—			(259)			—			(259)
Stock issued under employee benefit plans and other			—			—			(2)			128			4			(9)			—			123			—			123
Dividends declared on common stock			—			—			—			—			—			(102)			—			(102)			—			(102)
Changes in noncontrolling interests			—			—			—			—			—			—			—			—			(6)			(6)
Balance as of June 30, 2018			683			$	683		148			$	(8,485)		$	5,916		$	14,966		$	(4,199)		$	8,881		$	(12)		$	8,869
Restatement impacts
Balance as of April 1, 2018			—			$	—		—			$	—		$	—		$	(480)		$	449		$	(31)		$	—		$	(31)
Net income			—			—			—			—			—			(2)			—			(2)			—			(2)
Other comprehensive income (loss)			—			—			—			—			—			—			(6)			(6)			—			(6)
Balance as of June 30, 2018			—			$	—		—			$	—		$	—		$	(482)		$	443		$	(39)		$	—		$	(39)
As restated
Balance as of April 1, 2018			683			$	683		147			$	(8,354)		$	5,912		$	14,254		$	(3,427)		$	9,068		$	(6)		$	9,062
Net income			—			—			—			—			—			341			—			341			—			341
Other comprehensive income (loss)			—			—			—			—			—			—			(329)			(329)			—			(329)
Purchases of treasury stock			—			—			3			(259)			—			—			—			(259)			—			(259)
Stock issued under employee benefit plans and other			—			—			(2)			128			4			(9)			—			123			—			123
Dividends declared on common stock			—			—			—			—			—			(102)			—			(102)			—			(102)
Changes in noncontrolling interests			—			—			—			—			—			—			—			—			(6)			(6)
Balance as of June 30, 2018			683			$	683		148			$	(8,485)		$	5,916		$	14,484		$	(3,756)		$	8,842		$	(12)		$	8,830

See descriptions of the net income and other comprehensive income impacts in the consolidated statement of income and consolidated statement of comprehensive income for the three months ended June 30, 2018 sections above.

Baxter International Inc.
Consolidated Statement of Changes in Equity
(in millions)
			For the Six Months Ended June 30, 2018
			Baxter International Inc. stockholders' equity
			Common stock shares			Common stock			Common stock shares in treasury			Common stock in treasury			Additional contributed capital			Retained earnings			Accumulated other comprehensive income (loss)			Total Baxter stockholders' equity			Noncontrolling interests			Total equity
As previously reported
Balance as of January 1, 2018			683			$	683		142			$	(7,981)		$	5,940		$	14,483		$	(4,001)		$	9,124		$	(8)		$	9,116
Adoption of new accounting standards			—			—			—			—			—			(16)			(3)			(19)			—			(19)
Net income			—			—			—			—			—			732			—			732			—			732
Other comprehensive income (loss)			—			—			—			—			—			—			(195)			(195)			—			(195)
Purchases of treasury stock			—			—			11			(781)			—			—			—			(781)			—			(781)
Stock issued under employee benefit plans and other			—			—			(5)			277			(24)			(45)			—			208			—			208
Dividends declared on common stock			—			—			—			—			—			(188)			—			(188)			—			(188)
Changes in noncontrolling interests			—			—			—			—			—			—			—			—			(4)			(4)
Balance as of June 30, 2018			683			$	683		148			$	(8,485)		$	5,916		$	14,966		$	(4,199)		$	8,881		$	(12)		$	8,869
Restatement impacts
Balance as of January 1, 2018			—			$	—		—			$	—		$	—		$	(469)		$	462		$	(7)		$	—		$	(7)
Adoption of new accounting standards			—			—			—			—			—			(4)			—			(4)			—			(4)
Net income			—			—			—			—			—			(9)			—			(9)			—			(9)
Other comprehensive income (loss)			—			—			—			—			—			—			(19)			(19)			—			(19)
Balance as of June 30, 2018			—			$	—		—			$	—		$	—		$	(482)		$	443		$	(39)		$	—		$	(39)
As restated
Balance as of January 1, 2018			683			$	683		142			$	(7,981)		$	5,940		$	14,014		$	(3,539)		$	9,117		$	(8)		$	9,109
Adoption of new accounting standards			—			—			—			—			—			(20)			(3)			(23)			—			(23)
Net income			—			—			—			—			—			723			—			723			—			723
Other comprehensive income (loss)			—			—			—			—			—			—			(214)			(214)			—			(214)
Purchases of treasury stock			—			—			11			(781)			—			—			—			(781)			—			(781)
Stock issued under employee benefit plans and other			—			—			(5)			277			(24)			(45)			—			208			—			208
Dividends declared on common stock			—			—			—			—			—			(188)			—			(188)			—			(188)
Changes in noncontrolling interests			—			—			—			—			—			—			—			—			(4)			(4)
Balance as of June 30, 2018			683			$	683		148			$	(8,485)		$	5,916		$	14,484		$	(3,756)		$	8,842		$	(12)		$	8,830

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

Baxter International Inc.
Consolidated Statement of Changes in Equity
(in millions)
			For the Three Months Ended March 31, 2018
			Baxter International Inc. stockholders' equity
			Common stock shares			Common stock			Common stock shares in treasury			Common stock in treasury			Additional contributed capital			Retained earnings			Accumulated other comprehensive income (loss)			Total Baxter stockholders' equity			Noncontrolling interests			Total equity
As previously reported
Balance as of January 1, 2018			683			$	683		142			$	(7,981)		$	5,940		$	14,483		$	(4,001)		$	9,124		$	(8)		$	9,116
Adoption of new accounting standards			—			—			—			—			—			(16)			(3)			(19)			—			(19)
Net income			—			—			—			—			—			389			—			389			—			389
Other comprehensive income (loss)			—			—			—			—			—			—			128			128			—			128
Purchases of treasury stock			—			—			8			(522)			—			—			—			(522)			—			(522)
Stock issued under employee benefit plans and other			—			—			(3)			149			(28)			(36)			—			85			—			85
Dividends declared on common stock			—			—			—			—			—			(86)			—			(86)			—			(86)
Changes in noncontrolling interests			—			—			—			—			—			—			—			—			2			2
Balance as of March 31, 2018			683			$	683		147			$	(8,354)		$	5,912		$	14,734		$	(3,876)		$	9,099		$	(6)		$	9,093
Restatement impacts
Balance as of January 1, 2018			—			$	—		—			$	—		$	—		$	(469)		$	462		$	(7)		$	—		$	(7)
Adoption of new accounting standards			—			—			—			—			—			(4)			—			(4)			—			(4)
Net income			—			—			—			—			—			(7)			—			(7)			—			(7)
Other comprehensive income (loss)			—			—			—			—			—			—			(13)			(13)			—			(13)
Balance as of March 31, 2018			—			$	—		—			$	—		$	—		$	(480)		$	449		$	(31)		$	—		$	(31)
As restated
Balance as of January 1, 2018			683			$	683		142			$	(7,981)		$	5,940		$	14,014		$	(3,539)		$	9,117		$	(8)		$	9,109
Adoption of new accounting standards			—			—			—			—			—			(20)			(3)			(23)			—			(23)
Net income			—			—			—			—			—			382			—			382			—			382
Other comprehensive income (loss)			—			—			—			—			—			—			115			115			—			115
Purchases of treasury stock			—			—			8			(522)			—			—			—			(522)			—			(522)
Stock issued under employee benefit plans and other			—			—			(3)			149			(28)			(36)			—			85			—			85
Dividends declared on common stock			—			—			—			—			—			(86)			—			(86)			—			(86)
Changes in noncontrolling interests			—			—			—			—			—			—			—			—			2			2
Balance as of March 31, 2018			683			$	683		147			$	(8,354)		$	5,912		$	14,254		$	(3,427)		$	9,068		$	(6)		$	9,062

See descriptions of the net income and other comprehensive income impacts in the consolidated statement of income and consolidated statement of comprehensive income for the three months ended March 31, 2018 sections above. Additionally, we recorded an adjustment to the opening balance of retained earnings on January 1, 2018 for the adoption of ASU No. 2016-16, which was impacted by our adjustments to equipment leased to customers under operating leases.

Baxter International Inc.
Condensed Consolidated Statement of Cash Flows
(in millions)
			For the Six Months Ended June 30, 2019
			As previously reported			Restatement impacts			Restatement reference			As restated
Cash flows from operations
Net income			$	690		$	(35)					$	655
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization			393			(8)			(c)(g)			385
Deferred income taxes			(55)			(8)			(c)(g)			(63)
Stock compensation			57			—						57
Net periodic pension benefit and other postretirement costs			7			—						7
Intangible asset impairment			31			—						31
Other			34			10			(d)			44
Changes in balance sheet items:
Accounts receivable, net			(60)			—						(60)
Inventories			(91)			—						(91)
Accounts payable and accrued liabilities			(303)			4			(b)			(299)
Other			(86)			—			(e)(g)			(86)
Cash flows from operations - continuing operations			617			(37)						580
Cash flows from operations - discontinued operations			(6)			—						(6)
Cash flows from operations			611			(37)						574
Cash flows from investing activities
Capital expenditures			(352)			14			(c)			(338)
Acquisitions and investments, net of cash acquired			(111)			—						(111)
Other investing activities, net			1			—						1
Cash flows from investing activities			(462)			14						(448)
Cash flows from financing activities
Issuances of debt			1,661			—						1,661
Cash dividends on common stock			(198)			—						(198)
Proceeds from stock issued under employee benefit plans			262			—						262
Purchases of treasury stock			(720)			—						(720)
Other financing activities, net			(37)			—						(37)
Cash flows from financing activities			968			—						968
Effect of foreign exchange rate changes on cash and cash equivalents			(24)			26			(a)(d)(e)			2
Increase in cash and cash equivalents			1,093			3						1,096
Cash and cash equivalents at beginning of period			1,832			6			(e)			1,838
Cash and cash equivalents at end of period			$	2,925		$	9		(e)			2,934

The $35 million decrease to net income was driven by the items described above in the consolidated statement of income for the six months ended June 30, 2019 section.

(a) Foreign Currency Denominated Monetary Assets and Liabilities—The correction of these misstatements resulted in an increase to the effect of foreign exchange rate changes on cash and cash equivalents of $33 million for the six months ended June 30, 2019.

(b) Foreign Currency Derivative Contracts—The correction of these misstatements resulted in an increase to changes in accounts payable and accrued liabilities of $4 million for the six months ended June 30, 2019.

(c) Equipment Leased to Customers under Operating Leases—The correction of these misstatements resulted in decreases to depreciation and amortization of $7 million, deferred income taxes of $2 million and capital expenditures of $14 million for the six months ended June 30, 2019.

(d) Classification of Foreign Currency Gains and Losses in our Consolidated Statements of Cash Flows - The corrections of these misstatements resulted in a decrease to the effect of foreign exchange rate changes on cash and cash equivalents and an increase to other adjustments to reconcile net income to net cash from operating activities of $10 million for the six months ended June 30, 2019.

(e) Translation of the Financial Position and Results of Operations of our Foreign Operations into U.S. Dollars - The corrections of these misstatements resulted in an increase in cash and cash equivalents at the beginning of the period of $6 million, at the end of the period of $9 million and the effect of foreign exchange rate changes on cash and cash equivalents of $3 million and a decrease to other changes in balance sheet items of $1 million for the six months ended June 30, 2019.

(g) Other miscellaneous adjustments - The correction of these misstatements resulted in decreases to depreciation and amortization of $1 million and deferred income taxes of $6 million and an increase to other changes in balance sheet items of $1 million for the six months ended June 30, 2019.

Baxter International Inc.
Condensed Consolidated Statement of Cash Flows
(in millions)
			For the Three Months Ended March 31, 2019
			As previously reported			Restatement impacts			Restatement reference			As restated
Cash flows from operations
Net income			$	347		$	(5)					$	342
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization			195			(3)			(c)			192
Deferred income taxes			(6)			—						(6)
Stock compensation			22			—						22
Net periodic pension benefit and other postretirement costs			3			—						3
Other			19			(5)			(d)			14
Changes in balance sheet items:
Accounts receivable, net			32			—						32
Inventories			(82)			—						(82)
Accounts payable and accrued liabilities			(333)			(2)			(b)(g)			(335)
Other			(49)			1			(b)(e)(g)			(48)
Cash flows from operations - continuing operations			148			(14)						134
Cash flows from operations - discontinued operations			(6)			—						(6)
Cash flows from operations			142			(14)						128
Cash flows from investing activities
Capital expenditures			(198)			5			(c)			(193)
Acquisitions and investments, net of cash acquired			(109)			—						(109)
Other investing activities, net			1			—						1
Cash flows from investing activities			(306)			5						(301)
Cash flows from financing activities
Net increases in debt obligations with original maturities of three months of less			795			—						795
Cash dividends on common stock			(101)			—						(101)
Proceeds from stock issued under employee benefit plans			173			—						173
Purchases of treasury stock			(597)			—						(597)
Other financing activities, net			(32)			—						(32)
Cash flows from financing activities			238			—						238
Effect of foreign exchange rate changes on cash and cash equivalents			2			(3)			(a)(d)(e)			(1)
Increase (decrease) in cash and cash equivalents			76			(12)						64
Cash and cash equivalents at beginning of period			1,832			6			(e)			1,838
Cash and cash equivalents at end of period			$	1,908		$	(6)		(e)			1,902

The $5 million decrease to net income was driven by the items described above in the consolidated statement of income for the three months ended March 31, 2019 section.

(a) Foreign Currency Denominated Monetary Assets and Liabilities—The correction of these misstatements resulted in an increase to the effect of foreign exchange rate changes on cash and cash equivalents of $4 million for the three months ended March 31, 2019.

(b) Foreign Currency Derivative Contracts—The correction of these misstatements resulted in a decrease to changes in accounts payable and accrued liabilities of $1 million and an increase in other changes in balance sheet items of $1 million for the three months ended March 31, 2019.

(c) Equipment Leased to Customers under Operating Leases—The correction of these misstatements resulted in decreases to depreciation and amortization of $3 million and capital expenditures of $5 million for the three months ended March 31, 2019.

(d) Classification of Foreign Currency Gains and Losses in our Consolidated Statements of Cash Flows - The corrections of these misstatements resulted in an increase to the effect of foreign exchange rate changes on cash and cash equivalents and a decrease to other adjustments to reconcile net income to net cash from operating activities of $5 million for the three months ended March 31, 2019.

(e) Translation of the Financial Position and Results of Operations of our Foreign Operations into U.S. Dollars - The corrections of these misstatements resulted in an increase in cash and cash equivalents at the beginning of the period of $6 million and decreases to other changes in balance sheet items of $1 million, cash and cash equivalents at the end of the period of $6 million and the effect of foreign exchange rate changes on cash and cash equivalents of $12 million for the three months ended March 31, 2019.

(g) Other miscellaneous adjustments - The correction of these misstatements resulted in an increase to other changes in balance sheet items of $1 million and a decrease in changes in accounts payable and accrued liabilities of $1 million for the three months ended March 31, 2019.

Baxter International Inc.
Condensed Consolidated Statement of Cash Flows
(in millions)
			For the Six Months Ended June 30, 2018
			As previously reported			Restatement impacts			Restatement reference			As restated
Cash flows from operations
Net income			$	732		$	(9)					$	723
Adjustments to reconcile income from continuing operations to net cash from operating activities:
Depreciation and amortization			387			(5)			(c)			382
Deferred income taxes			(51)			—			(c)(g)			(51)
Stock compensation			54			—						54
Net periodic pension benefit and other postretirement costs			21			—						21
Other			10			(10)			(d)			—
Changes in balance sheet items:
Accounts receivable, net			43			—						43
Inventories			(134)			—						(134)
Accounts payable and accrued liabilities			(126)			2			(b)			(124)
Other			(84)			2			(e)			(82)
Cash flows from operations			852			(20)						832
Cash flows from investing activities
Capital expenditures			(311)			8			(c)			(303)
Acquisitions and investments, net of cash acquired			(228)			—						(228)
Cash flows from investing activities			(539)			8						(531)
Cash flows from financing activities
Cash dividends on common stock			(173)			—						(173)
Proceeds from stock issued under employee benefit plans			170			—						170
Purchases of treasury stock			(781)			—						(781)
Other financing activities, net			(24)			—						(24)
Cash flows from financing activities			(808)			—						(808)
Effect of foreign exchange rate changes on cash and cash equivalents			(42)			4			(a)(d)(e)			(38)
Decrease in cash and cash equivalents			(537)			(8)						(545)
Cash and cash equivalents at beginning of period			3,394			9			(e)			3,403
Cash and cash equivalents at end of period			$	2,857		$	1		(e)			2,858

The $9 million decrease to net income was driven by the items described above in the consolidated statement of income for the six months ended June 30, 2018 section.

(a) Foreign Currency Denominated Monetary Assets and Liabilities—The correction of these misstatements resulted in an increase to the effect of foreign exchange rate changes on cash and cash equivalents of $2 million for the six months ended June 30, 2018.

(b) Foreign Currency Derivative Contracts—The correction of these misstatements resulted in an increase to changes in accounts payable and accrued liabilities of $2 million for the six months ended June 30, 2018.

(c) Equipment Leased to Customers under Operating Leases—The correction of these misstatements resulted in decreases to depreciation and amortization of $5 million, deferred income taxes of $1 million and capital expenditures of $8 million for the six months ended June 30, 2018.

(d) Classification of Foreign Currency Gains and Losses in our Consolidated Statements of Cash Flows - The corrections of these misstatements resulted in an increase to the effect of foreign exchange rate changes on cash and cash equivalents and a decrease to other adjustments to reconcile net income to net cash from operating activities of $10 million for the six months ended June 30, 2018.

(e) Translation of the Financial Position and Results of Operations of our Foreign Operations into U.S. Dollars - The corrections of these misstatements resulted in increases in other changes in balance sheet items of $2 million, cash and cash equivalents at the beginning of the period of $9 million and at the end of the period of $1 million and a decrease to the effect of foreign exchange rate changes on cash and cash equivalents of $8 million for the six months ended June 30, 2018.

(g) Other miscellaneous adjustments - The correction of these misstatements resulted in an increase to deferred income taxes of $1 million for the six months ended June 30, 2018.

Baxter International Inc.
Condensed Consolidated Statement of Cash Flows
(in millions)
			For the Three Months Ended March 31, 2018
			As previously reported			Restatement impacts			Restatement reference			As restated
Cash flows from operations
Net income			$	389		$	(7)					$	382
Adjustments to reconcile income from continuing operations to net cash from operating activities:
Depreciation and amortization			192			(2)			(c)			190
Deferred income taxes			(33)			(5)			(g)			(38)
Stock compensation			20			—						20
Net periodic pension benefit and other postretirement costs			10			—						10
Other			2			(3)			(d)			(1)
Changes in balance sheet items:
Accounts receivable, net			76			—						76
Inventories			(56)			—						(56)
Accounts payable and accrued liabilities			(120)			1			(b)(g)			(119)
Other			(33)			(1)			(b)(e)			(34)
Cash flows from operations			447			(17)						430
Cash flows from investing activities
Capital expenditures			(155)			3			(c)			(152)
Acquisitions and investments, net of cash acquired			(219)			—						(219)
Cash flows from investing activities			(374)			3						(371)
Cash flows from financing activities
Cash dividends on common stock			(87)			—						(87)
Proceeds from stock issued under employee benefit plans			82			—						82
Purchases of treasury stock			(522)			—						(522)
Other financing activities, net			(18)			—						(18)
Cash flows from financing activities			(545)			—						(545)
Effect of foreign exchange rate changes on cash and cash equivalents			25			7			(a)(d)(e)			32
Decrease in cash and cash equivalents			(447)			(7)						(454)
Cash and cash equivalents at beginning of period			3,394			9			(e)			3,403
Cash and cash equivalents at end of period			$	2,947		$	2		(e)			2,949

The $7 million decrease to net income was driven by the items described above in the consolidated statement of income for the three months ended March 31, 2018 section.

(a) Foreign Currency Denominated Monetary Assets and Liabilities—The correction of these misstatements resulted in an increase to the effect of foreign exchange rate changes on cash and cash equivalents of $11 million for the three months ended March 31, 2018.

(b) Foreign Currency Derivative Contracts—The correction of these misstatements resulted in a decrease to changes in accounts payable and accrued liabilities of $1 million and an increase to other changes in balance sheet items of $2 million for the three months ended March 31, 2018.

(c) Equipment Leased to Customers under Operating Leases—The correction of these misstatements resulted in decreases to depreciation and amortization of $2 million and capital expenditures of $3 million for the three months ended March 31, 2018.

(d) Classification of Foreign Currency Gains and Losses in our Consolidated Statements of Cash Flows - The corrections of these misstatements resulted in an increase to the effect of foreign exchange rate changes on cash and cash equivalents and a decrease to other adjustments to reconcile net income to net cash from operating activities of $3 million for the three months ended March 31, 2018.

(e) Translation of the Financial Position and Results of Operations of our Foreign Operations into U.S. Dollars - The corrections of these misstatements resulted in increases in cash and cash equivalents at the beginning of the period of $9 million and at the end of the period of $2 million and decreases to other changes in balance sheet items of $3 million and the effect of foreign exchange rate changes on cash and cash equivalents of $7 million for the three months ended March 31, 2018.

(g) Other miscellaneous adjustments - The correction of these misstatements resulted in a decrease to deferred income taxes of $5 million and an increase to changes in accounts payable and accrued liabilities of $2 million for the three months ended March 31, 2018.

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of Baxter International Inc.

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of Baxter International Inc. and its subsidiaries (the “Company”) as of December 31, 2019 and 2018, and the related consolidated statements of income, comprehensive income, changes in equity and cash flows for each of the three years in the period ended December 31, 2019, including the related notes and financial statement schedule listed in the index appearing under Item 15(2) (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company did not maintain, in all material respects, effective internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO because a material weakness in internal control over financial reporting existed as of that date related to the accounting for certain foreign exchange gains and losses arising from intra-company transactions.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis. The material weakness referred to above is described in Management’s Assessment of Internal Control Over Financial Reporting appearing under Item 9A. We considered this material weakness in determining the nature, timing, and extent of audit tests applied in our audit of the 2019 consolidated financial statements, and our opinion regarding the effectiveness of the Company’s internal control over financial reporting does not affect our opinion on those consolidated financial statements.

Restatement of Previously Issued Financial Statements

As discussed in Note 2 to the consolidated financial statements, the Company has restated its 2018 and 2017 financial statements to correct misstatements.

Change in Accounting Principle

As discussed in Note 1 to the consolidated financial statements, the Company changed the manner in which it accounts for leases in 2019.

Basis for Opinions

The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in management's report referred to above. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

Definition and Limitations of Internal Control over Financial Reporting

A company’s 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 purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that (i) relate to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Foreign exchange gains and losses

As described in Notes 2 and 5 to the consolidated financial statements, on October 24, 2019, the Company reported that it had commenced an internal investigation into certain intra-Company transactions that impacted the Company’s previously reported non-operating foreign exchange gains and losses. As further disclosed by management, certain intra-Company transactions were undertaken, after the related exchange rates were already known, solely for the purpose of generating non-operating foreign exchange gains or avoiding foreign exchange losses. In connection with the internal investigation, the Company identified misstatements relating to foreign currency denominated monetary assets and liabilities and foreign currency derivative contracts that caused Other income (expense), net and Income from continuing operations before income taxes to be overstated by $59 million and $113 million, respectively, for the years ended December 31, 2018 and 2017 and the Company has restated its consolidated financial statements as of December 31, 2018 and for the years ended December 31, 2018 and 2017 to correct misstatements to the Company’s previously reported foreign exchange gains and losses. The quantification of misstatements to the previously reported foreign exchange gains and losses was not limited to intra-Company transactions undertaken for the purpose of generating foreign exchange gains or avoiding foreign exchange losses after the related exchange rates were already known. Rather, management identified every legal entity within the Company’s consolidated group that had foreign exchange gains or losses above an immaterial threshold and for those entities management remeasured all foreign exchange gains and losses from foreign currency denominated cash balances and intra-company loan receivables and payables using the exchange rates required by U.S. GAAP. Management also quantified misstatements to its previously reported gains and losses on

foreign currency derivative contracts, which used foreign exchange rates determined under its historical exchange rate convention as inputs to the fair value measurements of those contracts. The Company recorded foreign exchange losses, net, of $37 million for the year ended December 31, 2019.

The principal considerations for our determination that performing procedures relating to foreign exchange gains and losses is a critical audit matter are a high degree of auditor judgment and subjectivity was necessary to evaluate the audit evidence obtained related to the Company’s internal investigation into certain intra-Company transactions that impacted the Company’s non-operating foreign exchange gains and losses, significant audit effort was necessary to evaluate the audit evidence relating to the foreign exchange gains and losses, and the audit effort involved the use of professionals with specialized skill and knowledge to assist in performing these procedures and evaluating the audit evidence obtained from these procedures. As described in the “Opinions on the Financial Statements and Internal Control over Financial Reporting” section, a material weakness was identified related to this matter.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included, among others, evaluating the scope and extent of management’s quantification of the misstatements of foreign exchange gains and losses, testing management’s calculation of the misstatements of foreign exchange gains and losses, agreeing foreign exchange rates used by management to third party sources, and agreeing a sample of foreign currency denominated cash balances, intra-Company loan receivables and payables, and foreign currency derivative contracts to source documents. Professionals with specialized skill and knowledge were used to assist in evaluating the audit evidence related to the scope and extent of management’s quantification of the misstatements of foreign exchange gains and losses.

Valuation Allowances on United States (U.S.) Foreign Tax Credit Carryforwards and Swiss Deferred Tax Assets

As described in Note 14 to the consolidated financial statements, as of December 31, 2019, the Company has $1,707 million of total deferred tax assets, including $395 million of deferred tax assets for U.S. foreign tax credit carryforwards in the United States and $159 million of Swiss deferred tax assets which were established for a step-up in tax basis that resulted from the enactment of new tax laws in Switzerland during 2019. The deferred tax assets for U.S. foreign tax credit carryforwards and Swiss deferred tax assets are partially offset by valuation allowances of $180 million and $69 million, respectively. Management maintains valuation allowances unless it is more likely than not that all or a portion of the deferred tax asset will be realized. In determining whether a valuation allowance is warranted, management evaluates factors such as prior earnings history, expected future earnings, carryback and carryforward periods, and tax strategies that could potentially enhance the likelihood of realization of a deferred tax asset. After evaluating the 2017 Tax Act and related U.S. Treasury Regulations, any elections or other opportunities that may be available, and the future expiration of certain U.S. tax provisions that will impact the utilization of the Company’s U.S. foreign tax credit carryforwards, management expects to be able to realize some, but not all, of the U.S. foreign tax credit deferred tax assets up to its overall domestic loss balance plus other recurring and non-recurring foreign inclusions. With regards to the Swiss deferred tax assets, management expects to realize some, but not all, of the Swiss deferred tax assets based principally on expected future earnings generated by the Swiss subsidiary during the period in which the tax basis may be amortized.

The principal considerations for our determination that performing procedures relating to the valuation allowances on U.S. foreign tax credit carryforwards and Swiss deferred tax assets is a critical audit matter are the significant judgment by management when developing assumptions related to expected future earnings, which in turn led to a high degree of auditor judgment, subjectivity and audit effort in performing procedures and evaluating evidence related to management’s expected future earnings.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls over the valuation allowances on U.S. foreign tax credit carryforwards and Swiss deferred tax assets, including controls over the development of assumptions related to expected future earnings. These procedures also included, among others, evaluating management’s assessment of the realizability of the deferred tax assets, including evaluating the reasonableness of assumptions relating to expected future earnings during the applicable periods. Evaluating management’s assumptions related to expected future earnings involved evaluating whether the assumptions used by management related to expected future earnings were reasonable considering the current and past performance of the Company and whether the assumptions were consistent with evidence obtained in other areas of the audit.

/s/ PricewaterhouseCoopers LLP

Chicago, Illinois

March 17, 2020

We have served as the Company’s auditor since 1985.