Deerfield Firm Overstated Income By $276 Million: Internal Probe

DEERFIELD, IL — Medical products company Baxter International last week disclosed the results of an internal investigation into how the firm overstated its income by hundreds of millions of dollars over the past four years.

In a U.S. Securities and Exchange Commission filing Thursday, the Deerfield-based company said the way it accounted for foreign exchange transactions led to a $276 million overstatement from 2016 through the first half of 2019.

According to the filing, Baxter adopted a convention for measuring those transactions in a way that was inconsistent with generally accepted accounting principles, or GAAP.

"Beginning years after the adoption of that 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," it said.

As a result, Baxter overreported its 2016 income by $40 million, its 2017 income by $117 million, its 2018 income by $77 million and its first-half 2019 income by $42 million, the investigation found.

"The Company believes that the use of its previous exchange rate convention to generate non-operating foreign exchange gains and avoid losses had occurred for at least ten years," its SEC filing said. Company officials plan to file restated financial statements by the end of next month.

The company first disclosed the accounting mistake in October 2019 and announced it would conduct an internal probe with the help of PricewaterhouseCoopers. The company's stock lost more than than 10 percent of its value on the news, but its price has rebounded in the subsequent months. Following last week's news of the results of the investigation, the stock dropped by less than 1 percent after the President's Day holiday but bounced back Wednesday.