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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1994
OR
[_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE TRANSITION PERIOD FROM _______________ TO _______________
COMMISSION FILE NUMBER 1-4448
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LOGO
Baxter International Inc.
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DELAWARE 36-0781620
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State of I.R.S. Employer
Incorporation Identification No.
ONE BAXTER PARKWAY, DEERFIELD, ILLINOIS 60015
(708) 948-2000
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Address, including zip code, and telephone number,
including area code, of principal executive offices
Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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Common stock, $1 par value New York Stock Exchange
Chicago Stock Exchange
Pacific Stock Exchange
Preferred Stock Purchase Rights
(currently traded with common stock) New York Stock Exchange
Chicago Stock Exchange
Pacific Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein and will not be contained, to the
best of registrant's knowledge, in the definitive proxy statement incorporated
by reference in Part III of this Form 10-K or any amendment to this Form 10-
K. [_]
The aggregate market value of the voting stock held by non-affiliates of the
registrant (based on the per share closing sale price of $31.63 on March 10,
1995, and for the purpose of this computation only, the assumption that all
registrant's directors and executive officers are affiliates) was approximately
$8.7 billion.
The number of shares of the registrant's common stock, $1 par value,
outstanding as of March 10, 1995, was 282,851,308.
DOCUMENTS INCORPORATED BY REFERENCE
Those sections or portions of the registrant's 1994 annual report to
stockholders and of the registrant's proxy statement for use in connection with
its annual meeting of stockholders to be held on May 8, 1995, described in the
cross reference sheet and table of contents attached hereto are incorporated by
reference in this report.
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CROSS REFERENCE SHEET
AND
TABLE OF CONTENTS
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Page Number or
(Reference) (1)
---------------
Item 1. Business.
(a)General Development of Business.................. 3(2)
(b)Financial Information about Industry Segments.... 3(3)
(c)Narrative Description of Business................ 3(4)
(d)Financial Information about Foreign and Domestic
Operations and Export Sales..................... 8(5)
Item 2. Properties.......................................... 8
Item 3. Legal Proceedings................................... 8(6)
Item 4. Submission of Matters to a Vote of Security Holders. 13
Item 5. Market for the Registrant's Common Equity and
Related Stockholder Matters........................ 14(7)
Item 6. Selected Financial Data............................. 14(8)
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations................ 14(9)
Item 8. Financial Statements and Supplementary Data......... 14(10)
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure................ 14
Item 10. Directors and Executive Officers of the Registrant
(a)Identification of Directors...................... 15(11)
(b)Identification of Executive Officers............. 15
(c)Compliance with Section 16(a) of the Securities
Exchange Act of 1934............................ 17(12)
Item 11. Executive Compensation.............................. 17(13)
Item 12. Security Ownership of Certain Beneficial Owners and
Management......................................... 17(14)
Item 13. Certain Relationships and Related Transactions...... 17(15)
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K........................................ 18
(a)Financial Statements............................. 18
(b)Reports on Form 8-K.............................. 18
(c)Exhibits......................................... 18
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(1) Information incorporated by reference to the Company's Annual Report to
Stockholders for the year ended December 31, 1994 ("Annual Report") and
the board of directors' proxy statement for use in connection with the
Registrant's annual meeting of stockholders to be held May 8, 1995 ("Proxy
Statement").
(2) Annual Report, pages 49-66, section entitled "Notes to Consolidated
Financial Statements" and pages 31-42, section entitled "Management's
Discussion and Analysis."
(3) Annual Report, pages 63-65, section entitled "Notes to Consolidated
Financial Statements--Segment Information."
(4) Annual Report, pages 31-42, section entitled "Management's Discussion and
Analysis" and pages 63-65, section entitled "Notes to Consolidated
Financial Statements--Segment Information."
(5) Annual Report, pages 63-65, section entitled "Notes to Consolidated
Financial Statements--Segment Information."
(6) Annual Report, page 59-63, section entitled "Notes to Consolidated
Financial Statements--Legal Proceedings."
(7) Annual Report, page 66, section entitled "Notes to Consolidated Financial
Statements--Quarterly Financial Results and Market for the Company's
Stock."
(8) Annual Report, inside back cover, section entitled "Seven-Year Summary of
Selected Financial Data."
(9) Annual Report, pages 31-42, section entitled "Management's Discussion and
Analysis."
(10) Annual Report, pages 44-66, sections entitled "Report of Independent
Accountants," "Consolidated Balance Sheets," "Consolidated Statements of
Income," "Consolidated Statements of Cash Flows," "Consolidated Statements
of Stockholders' Equity" and "Notes to Consolidated Financial Statements."
(11) Proxy Statement, pages 2-4, sections entitled "Board of Directors" and
"Election of Directors."
(12) Proxy Statement, page 18, section entitled "Section 16 Reporting."
(13) Proxy Statement, pages 6-16, sections entitled "Compensation of Directors"
and "Compensation of Named Executive Officers," and page 17, section
entitled "Pension Plan and Excess Plan."
(14) Proxy Statement, pages 19-20, section entitled "Ownership of Company
Securities."
(15)Proxy Statement, page 18, section entitled "Significant Business
Relationships."
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LOGO
Baxter International Inc., One Baxter Parkway, Deerfield, Illinois 60015
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PART I
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ITEM 1. BUSINESS.
(a) General Development of Business.
Baxter International Inc. was incorporated under Delaware law in 1931. As
used in this report, except as otherwise indicated in information incorporated
by reference, "Baxter" means Baxter International Inc. and the "Company" means
Baxter and its subsidiaries.
The Company is engaged in the worldwide development, distribution and
manufacture of a diversified line of products, systems and services used
primarily in the health care field. Products are manufactured by the Company in
21 countries and sold in approximately 100 countries. Health care is concerned
with the preservation of health and with the diagnosis, cure, mitigation and
treatment of disease and body defects and deficiencies. The Company's more than
200,000 products are used primarily by hospitals, clinical and medical research
laboratories, blood and dialysis centers, rehabilitation centers, nursing
homes, doctors' offices and at home under physician supervision. The Company
also distributes and manufactures a wide range of products for research and
development facilities and manufacturing facilities.
For information regarding acquisitions, investments in affiliates and
divestitures, see the Company's Annual Report to Stockholders for the year
ended December 31, 1994 (the "Annual Report"), page 51, section entitled "Notes
to Consolidated Financial Statements--Acquisitions, Investments in Affiliates,
Divestitures and Discontinued Operations," which is incorporated by reference.
(b) Financial Information about Industry Segments.
Incorporated by reference from the Annual Report, pages 63-65, section
entitled "Notes to Consolidated Financial Statements--Segment Information."
(c) Narrative Description of Business.
Recent Developments
There are fundamental changes occurring in the United States health-care
system and significant changes are occurring in the Company's marketplace.
Competition among all health-care providers is becoming much more intense as
they attempt to gain patients on the basis of price, quality and service. Each
is under pressure to decrease the total cost of health-care delivery and,
therefore, is looking for ways to reduce materials handling costs, decrease
supply utilization, increase product standardization per procedure, and to
control capital expenditures. There was increased consolidation in the
Company's customer base and by its competitors. These trends are expected to
continue. In recent years, the Company's overall price increases were below the
increases in the Consumer Price Index, and these industry trends may inhibit
the Company's ability to increase its supply prices in the future.
Accordingly, in November 1993, the Company undertook a series of strategic
actions to improve shareholder value, to extend positions of leadership in
health-care markets and to reduce costs. These actions were designed to make
the Company's domestic medical/laboratory products and distribution segment
more efficient and more responsive in addressing the changes occurring in the
United States health-care system and accelerate growth of its medical
specialties businesses worldwide. The Company recorded a $700 million pre tax
provision in 1993 to cover costs associated with these restructuring
initiatives. The $700 million charge included approximately $300 million for
non-cash valuation adjustments as a result of the Company's decision to close
facilities or exit non-strategic businesses and investments. The Company
expects to spend approximately $400 million in cash related to the 1993
restructuring program, with most of that expended from 1994 through 1996.
3
Since the announcement of the 1993 restructuring program, the Company has
implemented, or is in the process of implementing all of the major strategic
actions associated with the restructuring program and is satisfied that such
programs are progressing on schedule and that the overall restructuring program
will meet established financial targets. The Company realized approximately $95
million in expense savings in 1994 under the 1993 restructuring program.
Management believes that the overall expense savings to be realized in 1995 and
beyond will be substantially consistent with its earlier estimates of $200
million in 1995, $275 million in 1996, $325 million in 1997 and exceeding $350
million in 1998. Management anticipates that these savings will be partially
invested in increased research and development spending and the Company's
expansion into growing international markets. Management further believes that
its remaining restructuring reserves are adequate to complete the actions
contemplated by the 1993 restructuring program. Since the inception of the 1993
restructuring program, the Company has eliminated approximately 2,300 of the
4,500 positions affected by the program. The majority of the remaining
reductions will occur in 1995 and 1996 as facility closures and consolidations
are completed as planned.
As part of the 1993 restructuring program, the Company announced its intent
to divest its diagnostics manufacturing businesses. In December 1994, the
Company completed the divestiture of these businesses, but retained the rights
to distribute all current diagnostics products in the United States. This
transaction was completed substantially in accordance with the Company's
valuation estimates. The divestiture of the diagnostics manufacturing
businesses is not expected to have a material impact on the Company's results
of operations, but will decrease the growth rate of sales in the
medical/laboratory segment. See "Industry Segments--Medical/Laboratory Products
and Distribution".
Industry Segments
The Company is a world leader in global manufacturing and distribution of
health-care products and services for use in hospitals and other health-care
and industrial settings. It offers a broad array of products and services. The
Company's operations are reported in the following two industry segments:
Medical Specialties
The Company develops, manufactures and markets on a global basis highly
specialized medical products for treating kidney and heart disease and blood
disorders and for collecting and processing blood. These products include
dialysis equipment and supplies; prosthetic heart valves and cardiac catheters;
blood-clotting therapies; and machines and supplies for collecting, separating
and storing blood. These products require extensive research and development
and investment in worldwide distribution, marketing, and administrative
infrastructure. The Company's International Hospital unit, which manufactures
and distributes intravenous solutions and other medical products outside the
United States is also included in this segment because it shares facilities,
resources and customers with the other medical specialty businesses in several
locations worldwide.
Medical/Laboratory Products and Distribution
The Company manufactures medical and laboratory supplies and equipment,
including intravenous fluids and pumps, surgical instruments and procedure
kits, and a range of disposable and reusable medical products. These self-
manufactured products, as well as a significant volume of third party
manufactured medical products, are primarily distributed through the Company's
extensive distribution system to United States hospitals, alternate-site care
facilities, medical laboratories, and industrial and educational facilities.
Information about operating results by segments is incorporated by reference
from the Annual Report, pages 31-42, section entitled "Management's Discussion
and Analysis" and pages 63-65, section entitled "Notes to Consolidated
Financial Statements--Segment Information."
Joint Ventures
The Company conducts a portion of its business through joint ventures,
including a joint venture with Nestle, S.A. to develop, market and distribute
clinical nutrition products worldwide. This joint venture is accounted for
under the equity method of accounting and therefore, is excluded from the two
industry segments in which the Company operates.
4
United States Health Care Environment
Accelerating cost pressures on hospitals are resulting in increased out-
patient and alternate-site health-care service delivery and a focus on cost-
effectiveness and quality. These forces increasingly shape the demand for, and
supply of medical care.
Many private health-care payors are providing incentives for consumers to
seek lower cost care outside the hospital. Many corporations' employee health
plans have been restructured to provide financial incentives for patients to
utilize the most cost-effective forms of treatment (managed care programs, such
as health maintenance organizations, have become more common), and physicians
have been encouraged to provide more cost-effective treatments.
The future financial success of suppliers, such as the Company, will depend
on their ability to work with hospitals to help them enhance their
competitiveness. The Company believes it can help hospitals achieve savings in
the total supply system by automating supply-ordering procedures, optimizing
distribution networks, improving materials management and achieving economies
of scale associated with aggregating supply purchases. The Company continues to
believe that its strategy of providing unmatched service to its health-care
customers and achieving the best overall cost in its delivery of health-care
products and services is compatible with any restructuring of the United States
health-care system which may ultimately occur.
Methods of Distribution
The Company conducts its selling efforts through its subsidiaries and
divisions. Many subsidiaries and divisions have their own sales forces and
direct their own sales efforts. In addition, sales are made to independent
distributors, dealers and sales agents. Distribution centers, which may serve
more than one division, are stocked with adequate inventories to facilitate
prompt customer service. Sales and distribution methods include frequent
contact by sales representatives, automated hospital communications via various
electronic purchasing systems, circulation of catalogs and merchandising
bulletins, direct mail campaigns, trade publications and advertising.
The Company's Corporate program provides large hospitals and multi-hospital
systems with a single point of contact for all of the Company's products,
services and special value-added programs. The Company is allied with other
companies through its ACCESS(TM) program. Through this program, the Company
provides its Corporate customers with products and services from leading
companies in related industries which go beyond the Company's scope of
proprietary product offerings. The Company maintains ACCESS alliances with a
subsidiary of WMX Technologies, Inc. (formerly Waste Management of America,
Inc.) for handling and disposal of medical waste; with Comdisco, Inc. for high
technology asset management and contingency services; with Kraft Foodservice
Inc., a subsidiary of Kraft General Foods, Inc., to distribute and market a
broad array of hospital food service products; with the Graphics and Technology
Group, a division of North American Paper Company; and with various divisions
of Trammell Crow Company for facilities management and real estate planning
services.
The Company's ValueLink(R) hospital inventory management service is designed
to deliver health-care products in ready-to-use packaging directly to
individual hospital departments on a "just-in-time" basis. As of the end of
1994, 108 hospitals were participating in the Company's ValueLink program. With
ValueLink services, hospitals reduce their inventories and the related
warehousing costs for medical-surgical supplies and rely on the Company for
frequent, standardized deliveries and improved service levels. The Company has
distribution facilities across the United States to serve the nation's
hospitals.
The Company's Quality Enhanced Distribution Services(TM) program is designed
to reduce the time it takes for a hospital to receive and store supplies and to
process accounts payable. Through Quality Enhanced Distribution Services and
based on each customer's unique requirements, the Company's products are
delivered in a manner which facilitates efficient processing of products and
related documents by the hospital's personnel. As a result, many hospital
customers have been able to reduce the amount of labor associated with the
receipt and storage of supplies. As of the end of 1994, more than 732 Quality
Enhanced Distribution Services initiatives were serving United States hospital
customers.
5
International sales and distribution are made in approximately 100 countries
either on a direct basis or through independent local distributors.
International subsidiaries employ their own field sales forces in Argentina,
Australia, Austria, Belgium, Brazil, Brunei, Canada, China, Colombia, Ecuador,
Denmark, Finland, France, Germany, Hong Kong, India, Indonesia, Italy, Japan,
Malaysia, Mexico, the Netherlands, New Zealand, Norway, Pakistan, the
Philippines, Singapore, Spain, Sweden, Switzerland, Taiwan, Thailand and the
United Kingdom. In other countries, sales are made through independent
distributors or sales agents.
Raw Materials
Raw materials essential to the Company's business are purchased worldwide in
the ordinary course of business from numerous suppliers. The vast majority of
these materials are generally available, and no serious shortages or delays
have been encountered. Certain raw materials used in producing some of the
Company's products can be obtained only from a small number of suppliers. In
addition, certain biomaterials for medical implant applications (primarily
polymers) are becoming more difficult to obtain due to market withdrawals by
biomaterial suppliers, primarily as a result of perceived exposures to
liability in the United States.
In some of these situations, the Company has long-term supply contracts with
its suppliers, although it does not consider its obligations under such
contracts to be material. The Company does not always recover cost increases
through customer pricing due to contractual limits on such price increases. See
"Contractual Arrangements."
Patents and Trademarks
The Company owns a number of patents and trademarks throughout the world and
is licensed under patents owned by others. While it seeks patents on new
developments whenever feasible, the Company does not consider any one or more
of its patents, or the licenses granted to or by it, to be essential to its
business.
Products manufactured by the Company are sold primarily under its own
trademarks and trade names. Some products purchased and resold by the Company
are sold under the Company's trade names while others are sold under trade
names owned by its suppliers.
Competition
The Company is a major factor in the distribution and manufacture of hospital
and laboratory products and services and medical specialties. Although no
single company competes with the Company in all of its industry segments, the
Company is faced with substantial competition in all of its markets.
Historically, competition in the health-care industry has been characterized
by the search for technological and therapeutic innovations in the prevention,
diagnosis and treatment of disease. The Company believes that it has benefited
from the technological advantages of certain of its products. While others will
continue to introduce new products which compete with those sold by the
Company, the Company believes that its research and development effort will
permit it to remain competitive in all presently material product areas.
The changing health-care environment in recent years has led to increasingly
intense competition among health-care suppliers. Competition is focused on
price, service and product performance. Pressure in these areas is expected to
continue. See "United States Health Care Environment."
In part through its 1993 restructuring program, the Company continues to
increase its efforts to minimize costs and better meet accelerating price
competition. The Company believes that its cost position will continue to
benefit from improvements in manufacturing technology and increased economies
of scale. The Company continues to emphasize its investments in innovative
technologies and the quality of its product and services.
Credit and Working Capital Practices
The Company's debt ratings of A3 on senior debt by Moody's, A- by Standard &
Poor's and A by Duff & Phelps were reaffirmed by each rating agency in 1994.
Standard & Poor's and Duff & Phelps have indicated that continuation of these
ratings in the future is dependent on the Company's successful implementation
of the 1993 restructuring program, reduction of its leverage and reduction in
the uncertainty of the ultimate impact of products liability litigation.
6
Although the Company's credit practices and related working capital needs
vary across industry segments, they are comparable to those of other market
participants. Collection periods tend to be longer for sales outside the United
States.
Customers may return defective merchandise for credit or replacement. In
recent years, such returns have been insignificant.
Quality Control
The Company places great emphasis on providing quality products and services
to its customers. An integrated network of quality systems, including control
procedures that are developed and implemented by technically trained
professionals, result in rigid specifications for raw materials, packaging
materials, labels, sterilization procedures and overall manufacturing process
control. The quality systems integrate the efforts of raw material and finished
goods suppliers to provide the highest value to customers. On a statistical
sampling basis, a quality assurance organization tests components and finished
goods at different stages in the manufacturing process to assure that exacting
standards are met.
Research and Development
The Company is actively engaged in research and development programs to
develop and improve products, systems and manufacturing methods. These
activities are performed at 25 research and development centers located around
the world and include facilities in Australia, Belgium, Germany, Italy, Japan,
Malaysia, Malta, the Netherlands, Sweden, Switzerland, the United Kingdom and
the United States. Expenditures for Company-sponsored research and development
activities were $343 million in 1994, $337 million in 1993 and $317 million in
1992.
The Company's research efforts emphasize self-manufactured product
development, and portions of that research relate to multiple product lines.
For example, many product categories benefit from the Company's research effort
as applied to the human body's circulatory systems. In addition, research
relating to the performance and purity of plastic materials has resulted in
advances that are applicable to a large number of the Company's products.
Principal areas of strategic focus for research are biotechnology, renal
therapy and transplantation, blood disorders and cardiovascular disease.
Government Regulation
Most products manufactured or sold by the Company in the United States are
subject to regulation by the Food and Drug Administration ("FDA"), as well as
by other federal and state agencies. The FDA regulates the introduction and
advertising of new drugs and devices as well as manufacturing procedures,
labeling and record keeping with respect to drugs and devices. The FDA has the
power to seize adulterated or misbranded drugs and devices or to require the
manufacturer to remove them from the market and the power to publicize relevant
facts. From time to time, the Company has removed products from the market that
were found not to meet acceptable standards. This may occur in the future.
Product regulatory laws exist in most other countries where the Company does
business.
Environmental policies of the Company mandate compliance with all applicable
regulatory requirements concerning environmental quality and contemplate, among
other things, appropriate capital expenditures for environmental protection.
Various non-material capital expenditures for environmental protection were
made by the Company during 1994 and similar expenditures are planned for 1995.
See Item 3.--"Legal Proceedings."
Employees
As of December 31, 1994, the Company employed approximately 53,500 people,
including approximately 30,600 in the United States and Puerto Rico.
Contractual Arrangements
A substantial portion of the Company's products are sold through contracts
with purchasers, both international and domestic. Some of these contracts are
for terms of more than one year and include limits on price increases. In the
case of hospitals, clinical laboratories and other facilities, these contracts
may specify minimum quantities of a particular product or categories of
products to be purchased by the customer.
7
(d) Financial Information about Foreign and Domestic Operations and Export
Sales.
International operations are subject to certain additional risks inherent in
conducting business outside the United States, such as changes in currency
exchange rates, price and currency exchange controls, import restrictions,
nationalization, expropriation and other governmental action.
Financial information is incorporated by reference from the Annual Report,
pages 63-65, section entitled "Notes to Consolidated Financial Statements--
Segment Information."
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ITEM 2. PROPERTIES.
The Company owns or has long-term leases on substantially all of its major
manufacturing facilities. The Company maintains 34 manufacturing facilities in
the United States, including nine in Puerto Rico, and also manufactures in
Australia, Belgium, Brazil, Canada, the Chech Republic, Colombia, Costa Rica,
the Dominican Republic, France, Germany, Ireland, Italy, Japan, Malaysia,
Malta, Mexico, the Netherlands, Singapore, Spain, Russia and the United
Kingdom. Many of the major manufacturing facilities are multi-product and
manufacture items for both of the Company's industry segments.
The Company owns or operates 90 distribution centers in the United States and
Puerto Rico and 59 located in 23 foreign countries. Many of these facilities
handle products for both of the Company's industry segments.
The Company maintains a continuing program for improving its properties,
including the retirement or improvement of older facilities and the
construction of new facilities. This program includes improvement of
manufacturing facilities to enable production and quality control programs to
conform with the current state of technology and government regulations.
Capital expenditures were $411 million in 1994, $516 million in 1993 and $537
million in 1992. In addition, the Company added to the pool of equipment leased
or rented to customers, spending $91 million in 1994, $89 million in 1993 and
$103 million in 1992.
The Company's facilities are suitable for their respective uses and, in
general, are adequate for the Company's current needs.
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ITEM 3. LEGAL PROCEEDINGS.
As of December 31, 1994, the Company was a defendant, together with other
defendants, in 6,235 lawsuits and had 1,757 pending claims from individuals,
all of which seek damages for injuries allegedly caused by silicone mammary
prostheses ("mammary implants") manufactured by the American Heyer-Schulte
division of American Hospital Supply Corporation ("American"). The comparable
number of cases and claims was 4,870 as of December 31, 1993. In 1994, 311
cases and claims were disposed of.
The typical case or claim alleges that the individual's mammary implants
caused one or more of a wide range of ailments, including non-specific
autoimmune disease, scleroderma, lupus, rheumatoid arthritis, fibromyalgia,
mixed connective tissue disease, Sjogren's Syndrome, dermatomyositis,
polymyositis, and chronic fatigue.
In addition to the individual suits against the Company, a class action on
behalf of all women with mammary implants filed against all manufacturers of
such implants has been conditionally certified and is pending in the United
States District Court for the Northern District of Alabama (Dante, et al., v.
Dow Corning, et al., U.S.D.C., N. Dist., Ala., 92-2589; part of In re: Silicone
Gel Breast Implant Product Liability Litigation, U.S.D.C., N. Dist. Ala., MDL
926, (U.S.D.C., N. Dist. Ala., CV 92-P-10000-S)). Another class action has been
certified and is pending in state court in Louisiana (Spitzfadden, et al., v.
Dow Corning Corp., et al., Dist. Ct., Parish of Orleans, 92-2589). Baxter also
has been named in three purported additional class actions, none of which is
currently certified. (Barcellona, et al., v. Dow Corning, et al., U.S.D.C.,
Mich., 9300
8
72045 DT and Moss, et al., v. Dow Corning, et al., U.S.D.C., Minn., 92-P-10560-
S, both of which have been transferred to and are part of In re: Silicone Gel
Breast Implant Product Liability Litigation, U.S.D.C., N. Dist. Ala., MDL-926
for discovery purposes, and Doe, et al., v. INAMED Corporation, et al., Circuit
Ct., Dade County, Fla., 92-07034.) A suit seeking class certification on behalf
of all residents of the Province of Ontario, Canada, who received Heyer-Schulte
implants was dismissed as to Baxter (Burke, v. American Heyer-Schulte, et al.,
Ontario Prov. Court, Gen. Div., 15981/93). That case currently is on appeal. A
second suit seeking class certification on behalf of all women in the Province
of Ontario who received Heyer-Schulte mammary implants has been filed (Bennett
v. American Heyer-Schulte, et al., Ontario Prov. Court, Gen. Div., 18169/94).
Additionally, the Company has been served with a purported class action
brought on behalf of children allegedly exposed to silicone in utero and
through breast milk. (Feuer, et al., v. McGhan, et al., U.S.D.C., E. Dist.
N.Y., 93-0146.) The suit names all mammary implant manufacturers as defendants
and seeks to establish a medical monitoring fund.
These implant cases and claims generally raise difficult and complex factual
and legal issues and are subject to many uncertainties and complexities,
including, but not limited to, the facts and circumstances of each particular
case or claim, the jurisdiction in which each suit is brought, and differences
in applicable law. Many of the cases and claims are at very preliminary stages,
and the Company has not been able to obtain information sufficient to evaluate
each case and claim.
There also are issues concerning which of the Company's insurers is
responsible for covering each matter and the extent of the Company's claims for
contribution against third parties. The Company believes that a substantial
portion of the liability and defense costs related to mammary implant cases and
claims will be covered by insurance, subject to self-insurance retentions,
exclusions, conditions, coverage gaps, policy limits and insurer solvency. Most
of the Company's insurers have reserved (i.e., neither admitted nor denied),
and may attempt to reserve in the future, the right to deny coverage, in whole
or in part, due to differing theories regarding, among other things, the
applicability of coverage and when coverage may attach. The Company is engaged
in active negotiations with its insurers concerning coverages and the
settlement described below. Two of the Company's claims-made insurers have
tendered the full amounts of their policies to the Company and a third has
tendered the full amounts of its policy on a prorata basis as claims are paid.
Additionally, the Company received certain funds in settlement of claims
pending against a carrier in liquidation. The total amount tendered is $85
million.
Also, some of the mammary implant cases pending against the Company seek
punitive damages and compensatory damages arising out of alleged intentional
torts. Depending on policy language, applicable law, and agreements with
insurers, the damages awarded pursuant to such claims may or may not be
covered, in whole or in part, by insurance. On February 7, 1994, the Company
filed suit against all of the insurance companies that issued product liability
policies to American, American Heyer-Schulte and Baxter for a declaratory
judgment that: the policies cover each year of injury or claim; the Company may
choose among multiple coverages; coverage begins with the date of implant; and
legal fees and punitive damages are covered. Subsequently, certain of the
Company's product liability insurance carriers filed suit against the Company
and all of its other carriers for a declaratory judgment to define various
terms in the Company's insurance policies, the extent of the Company's
coverage, the date of the occurrences giving rise to coverage, and the relative
liabilities of the various insurance carriers involved. In both cases, the
parties have entered into a "stand-still" agreement while negotiations
continue.
Representatives of the plaintiffs and certain defendants in these cases have
negotiated a global settlement of the issues under the jurisdiction of the
Court in the Dante v. Dow Corning, et al. case (now known as Lindsay, et al. v.
Dow Corning, et al.). The monetary provisions of the settlement providing
compensation for all present and future plaintiffs and claimants based on a
series of specific funds and scheduled medical conditions have been agreed upon
by most of the significant defendants and representatives of the plaintiffs.
The total of all of the specific funds, that would be paid-in and made
available over approximately thirty years following final approval of the
settlement by the courts, is capped at $4.75 billion. The settling defendants
have agreed to fund $4.255 billion of this amount. The Company's share of this
settlement has been established by the settlement negotiations at $556 million.
Appeals have been filed challenging the global settlement.
9
The global settlement gave individual plaintiffs and claimants the
opportunity to remove themselves from the settlement ("opt-out"). The initial
opt-out period ended July 1, 1994. As of January 1995, approximately 11,360
individuals have opted out of the global settlement, of which 3,757 allege
claims against Baxter. Of the opt-outs who filed claims against Baxter, 2,101
represent U.S. claimants, 1,656 represent foreign claimants. The number of opt-
outs against Baxter will change as some claimants elect to rescind their opt-
out notice, others are found to not have valid claims against Baxter, and
others are identified as having claims against Baxter. In December 1994, and
January 1995, over 1,600 opt-out claimants asserting a claim against Baxter
rescinded their opt-out notices and returned to the global settlement. The
Company believes that a substantial number of the suits filed in the second,
third and fourth quarters of 1994 against Baxter will ultimately be dismissed
because it will be determined that no Heyer-Schulte mammary implant is
involved.
At present, the Company is not able to estimate the nature and extent of its
potential future liability with respect to opt-outs. The Company believes that
most of its potential future liability with respect to opt-outs is covered by
insurance. The Company intends to continue to litigate pending mammary implant
cases.
In the fourth quarter of 1993, the Company accrued $556 million for its
estimated liability resulting from the global settlement of the mammary implant
class action and recorded a receivable for estimated insurance recovery of $426
million, resulting in a net charge of $130 million. The reserves for the
settlement do not include any provisions for opt-outs.
Upon resolution of any of the uncertainties concerning these cases, the
Company will ultimately incur charges in excess of presently established
reserves. While such a future charge could have a material adverse impact on
the Company's net income in the period in which it is recorded, management
believes that any outcome of this litigation will not have a material adverse
effect on the Company's consolidated financial position.
As of December 31, 1994, the Company was a defendant, together with other
defendants, in 246 lawsuits, and had one pending claim, in the United States
and Canada involving individuals who have hemophilia, or their representatives.
Those cases and the claim seek damages for injuries allegedly caused by anti-
hemophilic factor concentrates VIII and IX derived from human blood plasma
processed and sold by the Company. Furthermore, 57 lawsuits seeking damages
based on similar allegations are pending in Ireland and Japan.
The typical case or claim alleges that the individual with hemophilia was
infected with HIV by infusing Factor VIII or Factor IX concentrates ("Factor
Concentrates") containing HIV.
All Federal Court Factor Concentrate cases have been transferred to the
U.S.D.C. for the Northern District of Illinois for case management under Multi
District Litigation (MDL) rules. In addition to the individual suits against
the Company, a purported class action was filed on September 30, 1993, on
behalf of all U.S. residents with hemophilia (and their families) who were
treated with Factor Concentrates and who allegedly are infected with HIV as a
result of the use of such Factor Concentrates. This lawsuit was filed in the
United States District Court for the Northern District of Illinois (Wadleigh,
et al., v. Rhone-Poulenc Rorer, et al., U.S.D.C., N. Dist., Ill. 93C 5969). The
court has certified the class only for the purpose of determining whether the
defendants' actions were negligent. Baxter has also been named in three other
purported class actions, none of which have been certified and all of which
have been transferred to the MDL for discovery purposes.
Many of the cases and claims are at very preliminary stages, and the Company
has not been able to obtain information sufficient to evaluate each case and
claim. In most states, the Company's potential liability is limited by laws
that provide that the sale of blood or blood derivatives, including Factor
Concentrates, is not the sale of a "good," and thus is not covered by the
doctrine of strict liability. As a result, each claimant will have to prove
that his or her injuries were caused by the Company's negligence. The Wadleigh
case alleges that the Company was negligent in failing: to use available
purification technology; to promote research and development for product
safety; to withdraw Factor Concentrates once it knew or should have known of
viral-contamination of such concentrates; to screen plasma donors properly; to
recall contaminated Factor Concentrates; and to warn of risks known at the time
the product was used. The Company denies these allegations and has filed a
challenge to the class proceedings. On March 16, 1995, the Seventh Circuit
Court of Appeals granted the defendants' writ of mandamus and directed the
District Court to decertify the class action.
10
The Company believes that a substantial portion of the liability and defense
costs related to anti-hemophilic Factor Concentrate cases and claims will be
covered by insurance, subject to self-insurance retentions, exclusions,
conditions, coverage gaps, policy limits and insurer solvency. Most of the
Company's insurers have reserved (i.e., neither admitted nor denied), and may
attempt to reserve in the future, the right to deny coverage, in whole or in
part, due to differing theories regarding, among other things, the
applicability of coverage and when coverage may attach. Zurich Insurance Co.,
one of the Company's comprehensive general liability insurance carriers has
filed a suit in Illinois, against the Company seeking a declaratory judgment
that the policies it had issued do not cover the losses that the Company has
notified it of for a number of reasons, including that Factor Concentrates are
products, not services, and are, therefore, excluded from the policy coverage,
and that the Company has failed to comply with various obligations of tender,
notice, and the like under the policies. The Company has filed suit in
California, against all of the insurance companies that issued comprehensive
general liability and excess liability policies to the Company for a
declaratory judgment that the policies of all of the carriers provide coverage.
In that suit, the Company also sued Zurich for failure to defend it and Zurich
and Columbia Casualty Company for failure to indemnify it. Subsequently, the
Company's excess liability insurance carriers also brought suit for a
declaratory judgment as to the parties' respective liabilities. The suit filed
by Zurich has been stayed pending resolution of the Company's case against
Zurich and its excess carriers. Zurich has appealed that stay.
The Company has notified its insurers concerning coverages and the status of
the cases. Also, some of the anti-hemophilic factor concentrates cases pending
against the Company seek punitive damages and compensatory damages arising out
of alleged intentional torts. Depending on policy language, applicable law and
agreements with insurers, the damages awarded pursuant to such claims may or
may not be covered, in whole or in part, by insurance. Accordingly, the Company
is not currently in a position to estimate the amount of its potential future
recoveries from its insurers, but has estimated its recovery with respect to
the reserves it has established.
The Company is vigorously defending each of the cases and claims against it.
The Company will continue to seek ways to resolve pending and threatened
litigation concerning these issues through a negotiated resolution.
In the fourth quarter of 1993, the Company accrued $131 million for its
estimated worldwide liability for litigation and settlement expenses involving
anti-hemophilic Factor Concentrate cases, and recorded a receivable for
insurance coverage of $83 million, resulting in a net charge of $48 million.
Upon resolution of any of the uncertainties concerning these cases, or if the
Company, along with the other defendants, enters into a comprehensive
settlement of the class actions described above, the Company may incur charges
in excess of presently established reserves. While such a future charge could
have a material adverse impact on the Company's net income in the period in
which it is recorded, management believes that any outcome of this litigation
will not have a material adverse effect on the Company's consolidated financial
position.
On February 21, 1994, the Company began the voluntary withdrawal world-wide
of its Gammagard(R) IGIV (intravenous immune globulin) because of indications
that it might be implicated in Hepatitis C infections occurring in users of the
product. Gammagard is a concentration of antibodies derived from human plasma
and is used to treat immune-suppressed patients. A new immune globulin product,
Gammagard S/D, produced with an additional viral inactivation process was
introduced by the Company after licensure in the United States and certain
other countries.
As of December 31, 1994, the Company had received reports of Hepatitis C
transmission from 219 patients. The exact cause for these reports has not been
determined; however, all reports have been associated with Gammagard injection
produced from plasma which was screened for antibodies to the Hepatitis C virus
through second generation testing. The number of patients receiving Gammagard
IGIV produced from the second-generation screened plasma is not yet known, nor
is the number of patients claiming exposure to Hepatitis C known.
As of December 31, 1994, 14 suits resulting from this incident have been
served on the Company. Two suits have been filed as purported class actions,
Lowe v. Baxter, U.S.D.C., W.D. KY, C94-0125, and Mock v. Baxter, U.S.D.C., ID,
CIV-94-0524-S-LMV. The suits allege infection with the Hepatitis C virus from
the use of Gammagard. The Company is defending these cases.
11
At this time the Company cannot estimate its level of exposure to claims or
lawsuits stemming from the market withdrawal. The Company does not, however, at
this time expect the exposure to have a material adverse effect on the
Company's operations or its consolidated financial condition.
At the start of 1993, the Company was a defendant in patent litigation
brought by Scripps Clinic and Research Foundation ("Scripps") and Rhone-Poulenc
Rorer, Inc. (formerly Rorer Group, Inc.) ("Rorer") in which the plaintiffs
alleged that the Company's monoclonal anti-hemophilic Factor VIII and its
Recombinate(R) Factor VIII infringed a patent. The Company entered into a
worldwide settlement of the litigation with Scripps and Rorer. Under this
settlement agreement, in 1993, the Company paid $105 million to Rorer to settle
claims relating to certain anti-hemophilic Factor VIII products.
Baxter Healthcare Corporation ("BHC") was one of ten defendants named in a
purported class action filed in August 1993, on behalf of all medical and
dental personnel in the state of California who suffered allergic reactions to
natural rubber latex gloves and other protective equipment or who have been
exposed to natural rubber latex products. (Kennedy, et al., v. Baxter
Healthcare Corporation, et al., Sup. Ct., Sacramento Co., Cal., #535632). The
case alleges that users of various natural rubber latex products, including
medical gloves made and sold by BHC and other manufacturers, suffered allergic
reactions to the products ranging from skin irritation to systemic anaphylaxis.
The Court granted defendants' demurrer to the class action allegations. This is
currently on appeal. In April 1994, a similar purported class action, Green, et
al. v. Baxter Healthcare Corporation, et al., (Cir. Ct., Milwaukee Co., WI) was
filed against Baxter and three other defendants. The class action allegations
have been withdrawn, but additional plaintiffs added individual claims. The
Company will vigorously defend against these actions. Management believes that
the outcome of these matters will not have a material adverse effect on the
Company's results of operations or consolidated financial position.
A purported class action has been filed against the Company, Caremark
International, Inc. ("Caremark"), C.A. (Lance) Piccolo, James G. Connelly and
Thomas W. Hodson (all current officers of Caremark) alleging securities law
disclosure violations in connection with the November 30, 1992, spin-off of
Caremark in the Registration and Information Statement ("Registration
Statement") and subsequent SEC filings submitted by Caremark (Isquith v.
Caremark International, Inc., et al., U.S.D.C., N. Dist. Ill., 94C 5534). The
plaintiffs allege, among other things, that the Registration Statement and
subsequent SEC filings contained false and misleading statements regarding the
scope of the Office of Inspector General for the Department of Health and Human
Services' investigation of Caremark's business and Medicare/Medicaid patient-
referral practices. The Company will respond to the complaint and vigorously
defend this action. Management believes that the outcome of this matter will
not have a material adverse effect on the Company's results of operations or
consolidated financial position.
Most of the individuals who served as directors of American in 1985,
including Mr. Cathcart and Ms. Evans, who currently are directors of the
Company, were defendants in a pending lawsuit filed as a derivative action.
Lewis v. Bays, et al. was filed on March 23, 1990 in the Circuit Court of Cook
County, Illinois. The plaintiffs allege breach of fiduciary duty claims
relating to American's buyout of an agreement with Hospital Corporation of
America ("HCA") in connection with the Company's merger with American in 1985.
On April 12, 1994, the parties in this case filed a settlement agreement with
the court for approval. The Court entered a preliminary order of fairness, and,
on April 26, 1994, the Company began notifying its stockholders of the
settlement. The settlement order was entered on June 15, 1994, and the time for
appeal has expired. The terms of the settlement did not have a material adverse
effect on the Company's results of operations or consolidated financial
position.
All of the individuals who served as directors of the Company as of September
1, 1993, as well as Lester B. Knight, executive vice president of the Company,
were named as defendants in a lawsuit ostensibly filed as a "demand excused"
derivative action. Siegel v. Loucks, et al., was filed September 15, 1993, in
the Court of Chancery in New Castle County, Delaware Cir. Ct., New Castle Co.,
Del., C. A. No. 13130. On October 24, 1993, a substantially identical complaint
was filed in the same court by Bartholomew J. Millano. The two complaints were
consolidated. The plaintiffs allege that the directors failed to oversee
management in connection with actions which were the basis for a dispute
between the Company and the Department of Veterans Affairs concerning sales and
pricing practices, failed to prevent such actions, and failed to create a
12
compliance program to prevent or detect such actions. The complaint seeks to
recover alleged damages incurred by the Company as the result of lost sales due
to the dispute, as well as the compensation paid to Messrs. Gantz, Knight,
Loucks and Tobin since 1991. The Company and its directors filed motions to
dismiss the suit, answered the complaint and filed a counterclaim seeking
permanently to bar and enjoin the plaintiff from prosecuting this case because
her claims have been disposed of and barred in a prior suit against the
Company. On March 7, 1995 the court granted defendants' motions to dismiss the
suit. The plaintiffs have thirty days to appeal the dismissal order.
As of December 31, 1994, the Company has been named as a potentially
responsible party for cleanup costs at 15 hazardous waste sites. The Company
was a significant contributor to waste disposed of at only one of these sites,
the Thermo-Chem site in Muskegon, Michigan. The Company expects that the total
cleanup costs for this site will be between $44 million and $65 million, of
which the Company's share will be approximately $5 million. This amount has
been reserved and is reflected in the Company's financial statements.
In all of the other sites, the Company was a minor contributor and does not
have information on the total cleanup costs. The Company has, however, in most
of these cases been advised by the potentially responsible party of its roughly
estimated exposure at these sites. Those estimated exposures total
approximately $7 million. This amount has been reserved and reflected in the
Company's financial statements.
The Company is a defendant in a number of other claims, investigations and
lawsuits. Based on the advice of counsel, management does not believe that the
other claims, investigations and lawsuits individually or in the aggregate,
will have a material adverse effect on the Company's operations or its
consolidated financial condition.
--------------------------------------------------------------------------------
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
13
PART II
--------------------------------------------------------------------------------
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
Incorporated by reference from the Annual Report, page 66, section entitled
"Notes to Consolidated Financial Statements--Quarterly Financial Results and
Market for the Company's Stock."
--------------------------------------------------------------------------------
ITEM 6. SELECTED FINANCIAL DATA.
Incorporated by reference from the Annual Report, inside back cover, section
entitled "Seven-Year Summary of Selected Financial Data."
--------------------------------------------------------------------------------
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Incorporated by reference from the Annual Report, pages 31-42, section
entitled "Management's Discussion and Analysis." Also incorporated by reference
is the section of this Form 10-K, Part I captioned "Recent Developments,"
"United States Health Care Environment" and "Legal Proceedings" on pages 3 to
4, 5 and 8 to 13, respectively.
--------------------------------------------------------------------------------
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Incorporated by reference from the Annual Report, pages 44-66, sections
entitled "Report of Independent Accountants," "Consolidated Balance Sheets,"
"Consolidated Statements of Income," "Consolidated Statements of Cash Flows,"
"Consolidated Statements of Stockholders' Equity," and "Notes to Consolidated
Financial Statements."
--------------------------------------------------------------------------------
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
14
PART III
--------------------------------------------------------------------------------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
(a) Identification of Directors
Incorporated by reference from the board of directors' proxy statement for
use in connection with Baxter's annual meeting of stockholders to be held on
May 8, 1995 (the "Proxy Statement"), pages 2-4, sections entitled "Board of
Directors" and "Election of Directors."
(b) Identification of Executive Officers
Following are the names and ages, as of March 10, 1995, of the executive
officers of Baxter International Inc. ("Baxter"), and one or both of its two
principal direct subsidiaries, Baxter Healthcare Corporation ("Healthcare") and
Baxter World Trade Corporation ("World Trade"), their positions and summaries
of their backgrounds and business experience. All executive officers of Baxter
are elected or appointed by the board of directors and hold office until the
next annual meeting of directors and until their respective successors are
elected and qualified. The annual meeting of directors is held after the annual
meeting of stockholders. All executive officers of Healthcare and World Trade
are elected or appointed by the boards of directors of the applicable
subsidiary and hold office until their respective successors are elected and
qualified. As permitted by applicable law, actions by these boards (and their
sole stockholder, Baxter) may be taken by written consent in lieu of a meeting.
(1) Baxter International Inc. Executive Officers
William B. Graham, age 83, has been senior chairman of the board of directors
since 1985. Mr. Graham became president of the Company in 1953 and chief
executive officer in 1960 and continued in these positions until 1971. From
1971 to 1980 he was chairman of the board and chief executive officer, and
thereafter he served as chairman until he became senior chairman.
Vernon R. Loucks Jr., age 60, has been chairman of the board of directors
since 1987 and chief executive officer of Baxter since 1980. Mr. Loucks was
first elected an officer of Baxter in 1971.
Lester B. Knight, age 36, has been an executive vice president of Baxter
since 1992, and a vice president since 1990. Mr. Knight previously was
president of a division of Healthcare.
Tony L. White, age 48, has been an executive vice president of Baxter since
1992, and a vice president since 1986, when he was first elected an officer of
Baxter.
Harry M. Jansen Kraemer, Jr., age 40, has been senior vice president and
chief financial officer of Baxter since 1993. Mr. Kraemer previously was the
vice president of finance and operations for a subsidiary of Baxter. Prior to
that he was employed as controller, group controller, and president of various
divisions of subsidiaries of Baxter.
Arthur F. Staubitz, age 55, has been senior vice president, secretary and
general counsel of Baxter since 1993. Mr. Staubitz previously was vice
president/general manager of the ventures group of a subsidiary of Baxter.
Prior to that he was senior vice president, secretary and general counsel of
Amgen, Inc. Prior to that he was a vice president of a Baxter subsidiary, and
prior to that he was a vice president and deputy general counsel of Baxter.
Herbert E. Walker, age 60, has been senior vice president of Baxter since
1993. Mr. Walker previously was vice president of human resources of a division
of Healthcare.
Dale A. Smith, age 63, has been a group vice president of Baxter since 1979,
when he was first elected an officer of Baxter.
David J. Aho, age 45, has been a vice president of Baxter since 1989, when he
was first elected an officer of Baxter.
15
John F. Gaither, Jr., age 45, has been a vice president of Baxter since 1994.
Between 1991 and 1994, Mr. Gaither was vice president of business development
and strategic planning and associate general counsel for a subsidiary of
Baxter, and prior to that was secretary and deputy general counsel of Baxter.
James H. Taylor, Jr., age 56, has been a vice president of Baxter since 1992.
Mr. Taylor previously was the general manager of operations of a division of
Healthcare, and prior to that was vice president of manufacturing of that
division.
Brian P. Anderson, age 44, has been controller of Baxter since 1993. Mr.
Anderson previously was the vice president of corporate audit of a subsidiary
of Baxter, and prior to that was a partner in the international accounting firm
of Deloitte & Touche.
Lawrence D. Damron, age 48, has been treasurer of Baxter since 1992. Mr.
Damron previously was a vice president and controller of a division of a
subsidiary of Baxter, and prior to that was the corporate auditor of another
subsidiary. Prior to that, he was vice president and controller of a division
of that subsidiary.
A. Gerard Sieck, age 38, has been secretary of Baxter since 1994. From 1992
to 1994, Mr. Sieck was assistant secretary of Baxter, and prior to that was
corporate counsel in the law department of a subsidiary of Baxter.
(2) Healthcare and World Trade Executive Officers
Timothy B. Anderson, age 48, has been a group vice president of Healthcare
and World Trade since 1994. Between 1992 and 1994, Mr. Anderson was a vice
president of Baxter. Mr. Anderson previously was president of several divisions
of a subsidiary of Baxter.
Manuel A. Baez, age 53, has been a group vice president of World Trade since
1994. Between 1990 and 1994, Mr. Baez was a group vice president of Baxter. Mr.
Baez was first elected an officer of Baxter in 1989.
Joseph F. Damico, age 41, has been a group vice president of Healthcare since
1994. Between 1992 and 1994, Mr. Damico was a vice president of Baxter. Mr.
Damico previously was president of a division of Healthcare, and prior to that
was a vice president-general manager of that division.
Michael S. Estes, age 51, has been a group vice president of Healthcare and
World Trade since 1994. Between 1990 and 1994, Mr. Estes was a group vice
president of Baxter. Mr. Estes was first elected an officer of Baxter in 1987.
Donald W. Joseph, age 57, has been a group vice president of Healthcare and
World Trade since 1994. Between 1990 and 1994, Mr. Joseph was a vice president
of Baxter. Mr. Joseph previously was president of a division of a subsidiary of
Baxter.
Darnell Martin, age 46, has been a group vice president of Healthcare since
1994. Between 1992 and 1994, Mr. Martin was a group vice president of Baxter,
and a vice president since 1987, when he was first elected an officer of
Baxter.
Jack L. McGinley, age 48, has been a group vice president of Healthcare since
1994. Between 1992 and 1994, Mr. McGinley was a vice president of Baxter. Mr.
McGinley previously was president of a division of Healthcare, and prior to
that was president of the Japanese subsidiary of World Trade.
Terrence J. Mulligan, age 49, has been a group vice president of Healthcare
since 1994. Between 1990 and 1994, Mr. Mulligan was a senior vice president of
Baxter. Mr. Mulligan was first elected an officer of Baxter in 1985.
Michael A. Mussallem, age 42, has been a group vice president of Healthcare
since 1994. Between 1993 and 1994, Mr. Mussallem was president of a division of
Healthcare, and from 1990 to 1993, was president of another division of that
subsidiary.
Fabrizio Bonanni, age 48, has been a corporate vice president of World Trade
since 1994. Mr. Bonanni previously was a vice president of a division of World
Trade.
16
Carlos del Salto, age 52, has been a corporate vice president of World Trade
since 1994. Between 1992 and 1994, Mr. del Salto was a vice president of
Baxter. Mr. del Salto previously was president--Latin
America/Switzerland/Austria of a subsidiary of Baxter, and prior to that, he
was vice president--Latin America of that subsidiary.
J. Robert Hurley, age 45, has been a corporate vice president of World Trade
since 1993. Mr. Hurley previously was vice president of a division of World
Trade.
Robert Perez, age 45, has been a corporate vice president of Healthcare and
World Trade since March 3, 1995. Between 1992 to 1995, Mr. Perez was president
of a division of a subsidiary of Baxter, and prior to that was a vice president
of that division.
John L. Quick, age 50, has been a corporate vice president of Healthcare
since 1994. Between 1992 and 1994, Mr. Quick was a vice president of a division
of Healthcare, and prior to that, was a vice president of another division of
that subsidiary.
Michael J. Tucker, age 42, has been a corporate vice president of World Trade
since 1994. Between 1992 and 1994, Mr. Tucker was a vice president of a
division of World Trade, and prior to that, was a vice president of another
division of a subsidiary of Baxter.
(c) Compliance with Section 16(a) of the Securities Exchange Act of 1934.
Incorporated by reference from Proxy Statement, page 18, section entitled
"Section 16 Reporting."
--------------------------------------------------------------------------------
ITEM 11. EXECUTIVE COMPENSATION.
Incorporated by reference from the Proxy Statement, pages 6-16, sections
entitled "Compensation of Directors" and "Compensation of Named Executive
Officers," and page 17, section entitled "Pension Plan and Excess Plan."
--------------------------------------------------------------------------------
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Incorporated by reference from the Proxy Statement, pages 19-20, section
entitled "Ownership of Company Securities."
--------------------------------------------------------------------------------
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Incorporated by reference from the Proxy Statement, page 18, section entitled
"Significant Business Relationships."
17
--------------------------------------------------------------------------------
PART IV
--------------------------------------------------------------------------------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
The following documents are filed as a part of this report:
(a) Financial Statements Location
Financial Statements required by Item 8 of this Form
Consolidated Balance Sheets Annual Report, page 45
Consolidated Statements of Income Annual Report, page 46
Consolidated Statements of Cash Flows Annual Report, page 47
Consolidated Statements of Stockholders'
Equity Annual Report, page 48
Notes to Consolidated Financial Statements Annual Report, pages 49-66
Report of Independent Accountants Annual Report, page 44
Schedules required by Article 12 of Regulation S-X
Report of Independent Accountants on
Financial Statement Schedule page 19
II Valuation and Qualifying Accounts page 20
All other schedules have been omitted because they are not applicable or not
required.
(b) Reports on Form 8-K
A report on Form 8-K, dated December 23, 1994, was filed with the SEC under
Item 5, Other Events, to file a press release which announced the completion
of the sale of the Company's diagnostics businesses.
A report on Form 8-K, dated February 14, 1995, was filed with the SEC under
Item 5, Other Events, to file a press release which announced the Company's
stock repurchase program.
(c) Exhibits required by Item 601 of Regulation S-K are listed in the
Exhibit Index, which is incorporated herein by reference.
18
REPORT OF INDEPENDENT ACCOUNTANTS ON THE FINANCIAL STATEMENT SCHEDULE
Board of Directors
Baxter International Inc.
Our audits of the consolidated financial statements referred to in our report
dated February 13, 1995 appearing on page 44 of the 1994 Annual Report to
Stockholders of Baxter International Inc. (which report and consolidated
financial statements are incorporated by reference in the Annual Report on Form
10-K) also included an audit of the Financial Statement Schedule listed in Item
14(a) of this Form 10-K. In our opinion, this Financial Statement Schedule
presents fairly, in all material respects, the information set forth therein
when read in conjunction with the related consolidated financial statements.
PRICE WATERHOUSE LLP
Chicago, Illinois
February 13, 1995
19
SCHEDULE II
--------------------------------------------------------------------------------
VALUATION AND QUALIFYING ACCOUNTS
(In millions of dollars)
--------------------------------------------------------------------------------
Additions
----------------------
Balance at Charged to Charged to Deductions Balance
beginning costs and other from at end of
Description of period expenses accounts(A) reserves period
-------------------------------------------------------------------------------
Year ended December 31,
1994:
Accounts receivable $32 $14 $ 2 $(9) $39
=== === ==== === ===
-------------------------------------------------------------------------------
Year ended December 31,
1993:
Accounts receivable $29 $ 8 $-- $(5) $32
=== === ==== === ===
-------------------------------------------------------------------------------
Year ended December 31,
1992:
Accounts receivable $27 $ 6 $ 1 $(5) $29
=== === ==== === ===
--------------------------------------------------------------------------------
(A) Valuation accounts of acquired or divested companies and foreign currency
translation adjustments. Reserves are deducted from assets to which they
apply.
20
SIGNATURES
Pursuant to the requirements of section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
Baxter International Inc.
/s/ Vernon R. Loucks Jr.
By: ____________________________________
Vernon R. Loucks Jr.
Chairman of the Board and
Chief Executive Officer
Date: March 22, 1995
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.
(i) Principal Executive Officer: (iv)A Majority of the Board of
Directors
/s/ Vernon R. Loucks Jr.
___________________________________ Silas S. Cathcart
Vernon R. Loucks Jr. John W. Colloton
Director, Chairman of the Board Susan Crown
and Chief Executive Officer Mary Johnston Evans
Frank R. Frame
(ii) Principal Financial Officer: William B. Graham
David W. Grainger
/s/ Harry M. Jansen Kraemer, Martha R. Ingram
Jr. Arnold J. Levine
___________________________________ Georges C. St. Laurent, Jr.
Harry M. Jansen Kraemer, Jr. Monroe E. Trout, M.D.
Senior Vice President and Fred L. Turner
Chief Financial Officer
/s/ Vernon R. Loucks Jr.
(iii) Controller: By: ____________________________________
Vernon R. Loucks Jr.
/s/ Brian P. Anderson Director and Attorney-in-Fact
___________________________________
Brian P. Anderson
Controller
21
--------------------------------------------------------------------------------
APPENDICES
DESCRIPTION PAGE
----------- ----
Computation of Primary Earnings per Common Share (Exhibit 11.1) 25
Computation of Fully Diluted Earnings per Common Share (Exhibit 11.2) 26
Computation of Ratio of Earnings to Fixed Charges (Exhibit 12) 27
Subsidiaries of the Company (Exhibit 21) 28
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EXHIBITS FILED WITH SECURITIES AND EXCHANGE COMMISSION
NUMBER AND DESCRIPTION OF EXHIBIT
---------------------------------
3. Certificate of Incorporation and Bylaws
3.1* Restated Certificate of Incorporation, filed as exhibit 3.1 to the
Company's annual report on Form 10-K for the year ended December
31, 1992, file number 1-4448 (the "1992 Form 10-K").
3.2* Certificate of Designation of Series A Junior Participating
Preferred Stock, filed under the Securities Act of 1933 as exhibit
4.3 to the Company's registration statement on Form S-8 (No. 33-
28428).
3.3* Amended and Restated Bylaws, filed as exhibit 3.3 to the Form 10-Q
for the quarter ended September 30, 1994, file number 1-4448.
4. Instruments defining the rights of security holders, including indentures
4.1* Indenture for 4% Convertible Subordinated Debentures due January 1,
2001, filed under the Securities Act of 1933 as exhibit 2(d) to the
Company's registration statement on Form S-7 (No. 2-55622).
4.2* Indenture dated November 15, 1985 between the Company and Bankers
Trust Company, filed as exhibit 4.8 to the Company's current report
on Form 8-K dated December 16, 1985, file no. 1-4448.
4.3* Amended and Restated Indenture dated November 15, 1985, between the
Company and Continental Illinois National Bank and Trust Company of
Chicago, filed under the Securities Act of 1933 as exhibit 4.1 to
the Company's registration statement on Form S-3 (No. 33-1665).
4.4* First Supplemental Indenture to Amended and Restated Indenture
dated November 15, 1985, between the Company and Continental
Illinois National Bank and Trust Company of Chicago, filed under
the Securities Act of 1933 as exhibit 4.1(A) to the Company's
registration statement on Form S-3 (No. 33-6746).
4.5* Indenture dated as of August 15, 1977, between the Company and
Midlantic National Bank, as supplemented, filed as exhibit 4.7 to
the Company's annual report on Form 10-K for the year ended
December 31, 1985, file no. 1-4448 (the "1985 Form 10-K").
4.6* Fiscal and Paying Agency Agreement dated as of April 26, 1984,
among American Hospital Supply International Finance N.V., the
Company and The Toronto-Dominion Bank, as amended, filed as exhibit
4.9 to the 1985 Form 10-K.
4.7* Fiscal and Paying Agency Agreement dated as of November 15, 1984,
between the Company and Citibank, N.A., as amended, filed as
exhibit 4.16 to the Company's annual report on Form 10-K for the
year ended December 31, 1987, file no. 1-4448 (the "1987 Form 10-
K").
4.8* Specimen Medium-Term Note, filed as exhibit 4.10 to the 1985 Form
10-K.
4.9* Specimen Extendible Note, filed as exhibit 4.11 to the 1985 Form
10-K.
4.10* Specimen 13 1/8% Note, filed as exhibit 4.12 to the 1985 Form 10-K.
4.11* Specimen 9 5/8% Note, filed as exhibit 4.13 to the 1987 Form 10-K.
22
NUMBER AND DESCRIPTION OF EXHIBIT
---------------------------------
4.12* Specimen 8 7/8% Debenture, filed as exhibit 4.2(a) to the Company's
current report on Form 8-K dated June 15, 1988, file no. 1-4448.
4.13* Specimen 9 1/2% Note, filed as exhibit 4.3(a) to the Company's
current report on Form 8-K dated June 23, 1988, file no. 1-4448.
4.14* Specimen 9 1/4% Note, filed as exhibit 4.3(a) to the Company's
current report on Form 8-K dated September 13, 1989, file number 1-
4448.
4.15* Specimen 9 1/4% Note, filed as exhibit 4.3(a) to the Company's
current report on Form 8-K dated December 7, 1989, file number 1-
4448.
10. Material Contracts
10.1* Employment Agreement between William B. Graham and the Company,
filed as exhibit 10.1 to the 1985 Form 10-K.
10.2* Form of Indemnification Agreement entered into with directors and
officers, filed as exhibit 19.4 to the Company's quarterly report
on Form 10-Q for the quarter ended September 30, 1986, file no. 1-
4448.
10.3* Stock Option Plan of 1977 (as amended and restated), filed as
exhibit 19.3 to the Company's quarterly report on Form 10-Q for the
quarter ended September 30, 1984, file no. 1-4448.
10.4* 1988 Long-Term Incentive Plan, filed as exhibit 10.12 to the 1987
Form 10-K.
10.5* 1987-1989 Long-Term Performance Incentive Plan, filed as exhibit
10.15 to the Company's annual report on Form 10-K for the year
ended December 31, 1986 (the "1986 Form 10-K").
10.6* 1989 Long-Term Incentive Plan, filed as exhibit 10.12 to the
Company's annual report on Form 10-K for the year ended December
31, 1988, file no. 1-4448 (the "1988 Form 10-K").
10.7* Stock Option Plan Adopted July 25, 1988, filed as exhibit 10.13 to
the 1988 Form 10-K.
10.8* 1991 Officer Incentive Compensation Plan, filed as exhibit 10.11 to
the Company's annual report on Form 10-K for the year ended
December 31, 1990, file number 1-4448 (the "1990 Form 10-K").
10.9* Baxter International Inc. and Subsidiaries Incentive Investment
Excess Plan, filed as exhibit 10.17 to the 1988 Form 10-K.
10.10* Baxter International Inc. and Subsidiaries Supplemental Pension
Plan, filed as exhibit 10.18 to the 1988 Form 10-K.
10.11* Amendment to Stock Option Plan of 1977, filed as exhibit 19.2 to
the Company's quarterly report on Form 10-Q for the quarter ended
September 30, 1989, file no. 1-4448 (the "September, 1989 Form 10-
Q").
10.12* Limited Rights Plan, filed as exhibit 19.6 to the September, 1989
Form 10-Q.
10.13* Amendments to various plans regarding disability, filed as exhibit
19.9 to the September, 1989 Form 10-Q.
10.14* Amendments to 1987-1989 Long-Term Performance Incentive Plan and
1988 Long-Term Incentive Plan, filed as exhibit 19.10 to the
September, 1989 Form 10-Q.
10.15* 1987 Incentive Compensation Program, filed as exhibit C to the
Company's proxy statement for use in connection with its May 13,
1987, annual meeting of stockholders, file no. 1-4448.
10.16* Rights Agreement between the Company and The First National Bank of
Chicago,
filed as exhibit 1 to a registration statement on Form 8-A dated
March 21, 1989, file
no. 1-4448.
10.17* Amendment to 1987 Incentive Compensation Program, filed as exhibit
19.1 to September, 1989 Form 10-Q.
23
NUMBER AND DESCRIPTION OF EXHIBIT
---------------------------------
10.18* Deferred Compensation Plan (1990), filed as exhibit 10.24 to the
1990 Form 10-K.
10.19* Restricted Stock Grant Terms and Conditions, filed as exhibit 10.25
to the Company's annual report on Form 10-K for the year ended
December 31, 1991, file number 1-4448 (the "1991 Form 10-K").
10.20* Vernon R. Loucks Restricted Stock Grant Terms and Conditions, filed
as exhibit 10.26 to the 1991 Form 10-K.
10.21* Deferred Compensation Plan (1990), as amended in 1992, filed as
exhibit 10.27 to the 1992 Form 10-K.
10.22* Restricted Stock Plan for Non-Employee Directors (as amended and
restated in 1992), filed as exhibit 10.28 to the 1992 Form 10-K.
10.23* Restricted Stock Grant Terms and Conditions (as amended), filed as
exhibit 10.31 to the 1992 Form 10-K.
10.24* 1992 Officer Incentive Compensation Plan, filed as exhibit 10.29 to
the 1992 Form 10-K.
10.25* 1993 Officer Incentive Compensation Plan, filed as exhibit 10.30 to
the 1992 Form 10-K.
10.26* 1994 Officer Incentive Compensation Plan, filed as exhibit 10.31 to
the Company's annual report on Form 10-K for the year ended
December 31, 1993, file number 1-4448 (the "1993 Form 10-K").
10.27* Corporate Aviation Policy, filed as exhibit 10.33 to the 1992 Form
10-K.
10.28* Plan and Agreement of Reorganization Between Baxter and Caremark
International Inc., filed as exhibit 10.34 to the 1992 Form 10-K
10.29* 1994 Incentive Compensation Program, filed as exhibit A to the
Company's proxy statement for use in connection with its April 29,
1994 annual meeting of stockholders, file no. 1-4448.
10.30* 1994 Shared Investment Plan and Terms and Conditions, filed as
exhibit 10.1 to the Company's quarterly report on Form 10-Q for the
quarter ended June 30, 1994.
10.31 1995 Officer Incentive Compensation Plan.
10.32 Baxter International Inc. Restricted Stock Plan for Non-Employee
Directors, as amended and restated effective May 8, 1995.
11. Statement re: computation of per share earnings.
11.1 Computation of primary earnings per common share.
11.2 Computation of fully diluted earnings per common share.
12. Statements re: computation of ratios.
13. 1994 Annual Report to Stockholders (such report, except to the extent
incorporated herein by reference, is being furnished for the information of
the Securities and Exchange Commission only and is not deemed to be filed
as part of this annual report on Form 10-K).
21. Subsidiaries of the Company.
23. Consent of Price Waterhouse LLP.
24. Powers of Attorney.
27. Financial Statement Schedule.
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* Incorporated herein by reference.
(All other exhibits are inapplicable.)
24