Please ensure Javascript is enabled for purposes of website accessibility

Internal Probe Reveals Baxter Overstated Annual Income

By Mark Prvulovic - Feb 14, 2020 at 7:32PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Over a three-year period, the pharmaceutical giant reported it made $278 million more than it really did.

In October 2019, Baxter (BAX 0.87%) warned shareholders that it found an accounting error in its past financial filings, something that would require an internal investigation. On late Thursday, investors found out the preliminary results of the internal probe looking into the matter, which revealed that the company had significantly overstated its income between 2016 and the first half of 2019.

The healthcare product maker stated in an official Securities and Exchange Commission (SEC) filing that over the past four years, it overstated its income by $276 million due to foreign exchange trading practices that weren't GAAP (generally accepted accounting principles) compliant. Baxter expects to refile its financial statements for the period that these errors were recorded.

A woman looking at a piece of paper through a magnifying glass.

Image source: Getty Images.

"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 10 years," read a statement from the company's filing. 

Further details

Looking at individual years, Baxter said that its income was overrepresented by $40 million in 2016, $117 million in 2017, $77 million in 2018, and $42 million during 2019. However, gains on foreign exchange transactions are pretty small in comparison to Baxter's core business operations. In the company's most recent third-quarter earnings statement, the healthcare giant brought in $2.85 billion during the quarter.

When the news of these accounting errors first broke back in October, shares of Baxter ended up falling by over 10% in early trading. Today, however, shares haven't moved much in response to the news, with the stock inching up just 0.6% over the course of the day.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Baxter International Inc. Stock Quote
Baxter International Inc.
BAX
$73.23 (0.87%) $0.63

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
331%
 
S&P 500 Returns
115%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/20/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.