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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(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, 2001
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
Baxter International Inc.
(Exact Name of Registrant as Specified in its Charter)
Delaware 36-0781620
(State or Other
Jurisdiction of
Incorporation or (I.R.S. Employer
Organization) Identification No.)
One Baxter Parkway,
Deerfield, Illinois 60015
(Address of Principal
Executive Offices) (Zip Code)
Registrant's telephone
number, including area
code: 847.948.2000
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, Inc.
Chicago Stock Exchange, Inc.
Pacific Exchange, Inc.
Preferred Stock Purchase Rights New York Stock Exchange, Inc.
(currently traded with common stock) Chicago Stock Exchange, Inc.
Pacific Exchange, Inc.
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 __(check mark) 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 definitive proxy or information statements
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 common equity held by
non-affiliates of the registrant (based on the per share closing sale price of
$55.37 on March 1, 2002, and for the purpose of this computation only, the
assumption that all registrant's directors and executive officers are
affiliates) was approximately $33.1 billion. There is no non-voting common
equity held by non-affiliates of the registrant.
The number of shares of the registrant's common stock, $1 par value,
outstanding as of February 28, 2002, was 599,868,645.
Documents Incorporated By Reference
Portions of the registrant's annual report to stockholders for fiscal year
ended December 31, 2001 are incorporated by reference into Parts I, II and IV
of this report. Portions of the registrant's proxy statement for use in
connection with its annual meeting of stockholders to be held on May 7, 2002
are incorporated by reference into Part III of this report.
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TABLE OF CONTENTS
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Page
Number
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Item 1. Business
(a) General Development of Business................................................. 1
(b) Financial Information about Segments............................................ 1
(c) Narrative Description of Business............................................... 1
(d) Financial Information about Foreign and Domestic Operations and Export Sales.... 7
Item 2. Properties.......................................................................... 7
Item 3. Legal Proceedings................................................................... 8
Item 4. Submission of Matters to a Vote of Security Holders................................. 12
Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters........... 13
Item 6. Selected Financial Data............................................................. 13
Item 7. Management's Discussion and Analysis of Financial Condition and Results of
Operations........................................................................ 13
Item 7A. Quantitative and Qualitative Disclosures about Market Risk.......................... 13
Item 8. Financial Statements and Supplementary Data......................................... 13
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 13
Item 10. Directors and Executive Officers of the Registrant.................................. 14
(a) Identification of Directors..................................................... 14
(b) Identification of Executive Officers............................................ 14
(c) Compliance with Section 16(a) of the Securities Exchange Act of 1934............ 16
Item 11. Executive Compensation.............................................................. 16
Item 12. Security Ownership of Certain Beneficial Owners and Management...................... 16
Item 13. Certain Relationships and Related Transactions...................................... 16
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K..................... 17
(a) Financial Statements............................................................ 17
(b) Reports on Form 8-K............................................................. 17
(c) Exhibits........................................................................ 17
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ALYX, Baxter, Ceprotin, Extraneal, HomeChoice Pediatric, INTERCEPT,
Nanoedge, Neis Vac-C and Syntra are trademarks of Baxter International Inc. and
its affiliates.
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[LOGO] Baxter
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 International" means Baxter International Inc. and
"Baxter" or the "company" means Baxter International and its subsidiaries.
Baxter engages in the worldwide development, manufacture and distribution of
a diversified line of products, systems and services used primarily in the
health care field. We manufacture products in 28 countries and sell them in
over 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. Our products are used by hospitals, clinical and
medical research laboratories, blood and blood dialysis centers, rehabilitation
centers, nursing homes, doctors' offices and by patients, at home, under
physician supervision.
For information regarding significant acquisitions, see our Annual Report to
Stockholders for the year ended December 31, 2001 (Annual Report), pages
45--47, section entitled "Notes to Consolidated Financial
Statements--Acquisitions" which is incorporated by reference.
(b) Financial Information About Segments.
Incorporated by reference from the Annual Report, pages 57--58, section
entitled "Notes to Consolidated Financial Statements--Segment Information."
(c) Narrative Description of Business.
Company Overview
Baxter operates as a global leader in critical therapies for
life-threatening conditions. Our continuing operations are comprised of three
segments: Medication Delivery, which provides a range of intravenous solutions
and specialty products that are used in combination for fluid replenishment,
nutrition therapy, pain management, antibiotic therapy and chemotherapy;
BioScience, which develops biopharmaceuticals, biosurgery products, vaccines
and blood collection, processing and storage products and technologies; and
Renal, which develops products and provides services to treat end-stage kidney
disease. Our three businesses enjoy leading positions in the medical products
and services fields. Unless otherwise indicated, each of the factors discussed
in this Part I do not materially differ in their impact across each of our
three segments.
Information about operating results is incorporated by reference from Annual
Report pages 27--36, section entitled "Management's Discussion and Analysis"
and pages 57--58, section entitled "Notes to Consolidated Financial
Statements--Segment Information."
Medication Delivery
Business Description. Baxter was founded in 1931 as the first commercial
manufacturer of intravenous (IV) solutions in glass bottles. Forty years later,
the company set a new standard for IV therapy with the
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introduction of the first plastic IV containers. Today, Baxter manufactures a
range of products that deliver fluids, therapies and medications to patients.
IV solutions represent only 20 percent of Baxter's Medication Delivery sales,
while 80 percent of the revenue comes from specialty products that include
anesthetic agents, premixed drugs and drug-reconstitution systems, nutrition
products and delivery devices. These products are used in combination for fluid
replenishment, nutrition therapy, pain management, antibiotic therapy and
chemotherapy.
Growth Strategy. Baxter continues to participate in the consolidation of
the global marketplace for medication-delivery products, particularly in
developing markets. Baxter expects to accelerate growth through expansion of
its higher-margin specialty products outside the United States, building on its
strong base in IV solutions. The company continues to broaden its portfolio of
new products and technologies for medication delivery through internal
development, acquisitions and alliances. Baxter also leverages its strengths in
anesthesia, drug delivery and infusion systems to provide customers with
innovative solutions at all points of care. In 2001, Baxter's oncology business
was expanded with the acquisition of ASTA Medica Oncology, a German-based
manufacturer of chemotherapy drugs.
Product Development. Baxter is developing a next-generation volumetric
infusion system with enhanced features and continues to expand its line of
drug-delivery platforms. In 2001, Baxter acquired Cook Pharmaceutical
Solutions, adding the capability to formulate and package injectable drugs in
vials and syringes, and licensed RTP Pharma's proprietary Nanoedge technology
to develop injectable formulations of insoluble medications. Baxter signed 18
new agreements with pharmaceutical companies in 2001 to package their drugs in
Baxter's systems, and launched generic propofol, an injectable anesthetic, in
the United Kingdom. The company also has several nutraceuticals in the pipeline
and continues to pursue new film technologies for manufacturing IV containers
and sets without polyvinyl chloride.
BioScience
Business Description. Baxter introduced the first commercially produced
Factor VIII concentrate to treat hemophilia in 1966. Today, Baxter is a leading
producer of both plasma-based and recombinant clotting factors for hemophilia,
as well as biopharmaceuticals used to treat immune deficiencies, cancer and
other disorders. The business also develops biosurgery products, used for
hemostasis, tissue-sealing and tissue-regeneration, and vaccines. Baxter also
is a leading manufacturer of manual and automated blood-collection, processing
and storage systems, used by hospitals, blood banks and plasma-collection
centers to collect and process blood components for therapeutic use.
Therapeutic blood components are used in surgery, cancer therapy and other
critical therapies.
Growth Strategy. Baxter's strategy for increasing growth in its BioScience
business includes: expanding manufacturing capacity to meet current and future
demand, which today for most products far exceeds supply; penetrating new
markets outside North America and Europe, which currently account for more than
80 percent of sales; making acquisitions and forming other alliances and
partnerships to bring new and complementary technologies and product platforms
to Baxter; expanding the use of current products through additional indications
and establishing new standards of care; and introducing new products to
encompass additional therapies. In transfusion therapies, the focus remains on
increasing production and blood safety through advanced automation,
leukoreduction and pathogen inactivation.
Product Development. In 2001, Baxter received European licensure for
Ceprotin, a new protein C concentrate used to treat congenital protein C
deficiency. Recombinant proteins in development include a protein-free-method
recombinant Factor VIII, alpha-1-antitrypsin to treat emphysema and asthma, and
recombinant hemoglobin. Baxter also began clinical trials on a Factor VIII gene
therapy last year with its partner GenStar. In the area of vaccines, Baxter
received additional approvals for its NeisVac-C vaccine for meningitis C in
2001. The company also is developing cell-culture-derived vaccines for
influenza, smallpox and other diseases. Also in 2001, Baxter applied for FDA
approval on its ALYX automated blood component collection system and filed in
Europe for approval of the INTERCEPT Blood System for platelets.
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Renal
Business Description. Baxter is a leading provider worldwide of products
and services for the treatment of kidney disease. In 1956, the company
pioneered hemodialysis (HD) with the introduction of the first widely available
artificial kidney machine. Nearly 20 years later, Baxter introduced products
and services for peritoneal dialysis (PD), a home-based therapy. Today, Baxter
is the world's leading manufacturer of PD products, which include dialysis
solutions, container systems and automated cyclers. Baxter also manufactures HD
instruments and dialyzers. In addition, the company owns and operates dialysis
clinics in partnership with local physicians outside the United States. In the
United States, Baxter works with payers to provide disease-management services
and with nephrologists to operate interventional outpatient centers.
Growth Strategy. Baxter is growing its presence in renal care by addressing
the needs of kidney-disease patients over their lifetime of care--from initial
diagnosis through dialysis and organ replacement. Baxter's "integrated care"
strategy looks at that spectrum of care and considers where it makes sense for
Baxter to participate. For example, in 2001, Baxter acquired the assets and
exclusive rights to a proprietary recombinant drug for the treatment of anemia.
The company also conducted a landmark clinical trial with evidence suggesting
broader applicability for PD therapy, which could yield a shift in practice
patterns that could expand use of PD over time. Other growth will come through
continued product innovation, e-health initiatives, additional acquisitions and
alliances, and further expansion in developing markets.
Product Development. Innovation remains key to Baxter's continued
leadership and growth in renal care, with several new product launches planned
in 2002. These include Baxter's first synthetic HD dialyzer, called Syntra, and
new HD instruments for self-care centers, the home and the acute-care setting.
Also in 2002, the company plans to introduce new and improved approaches to PD
that provide unique patient benefits. Baxter expects to receive approval from
the U.S. Food and Drug Administration for Extraneal PD solution. Baxter also
will be launching HomeChoice Pediatric, an updated automated PD machine
designed for patients who require lower volumes of fluid, particularly
children. The system offers new safety features and makes the dialysis process
even more convenient for pediatric patients and their parents.
United States Markets
The health care marketplace continues to be highly competitive. There has
been consolidation in the company's customer base, and by its competitors,
which has resulted in pricing and market share pressures. These industry trends
are expected to continue. The company intends to continue to manage these
issues by developing new products and services, leveraging its cost structure,
making acquisitions and entering alliances.
International Markets
Baxter generates close to 50 percent of its revenues outside the United
States. While health care cost containment continues to be a focus around the
world, demand for health care products and services continues to be strong
worldwide, particularly in developing markets. The company's strategies
emphasize global expansion and technological innovation to advance medical care
worldwide.
Joint Ventures and Affiliations
Baxter's joint venture with Gambro A.B., named Tandem Healthcare LLC,
manufactures dialyzers from a Baxter production facility in Mountain Home,
Arkansas. Baxter manages the day-to-day operations on behalf of the joint
venture. Gambro is an international medical technology and health care company
based in Sweden. The company conducts a non-material amount of business through
joint ventures.
In March 2000, Baxter teamed with other experienced companies in the health
care industry to form the Global Healthcare Exchange (GHX). GHX provides
business-to-business procurement for the health care
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industry. Utilizing Internet-based technology, GHX integrates hospitals and
suppliers, in an attempt to improve efficiencies and add value throughout the
supply chain. GHX now is comprised of more than 100 supplier members and nearly
600 hospital members. In November 2001, GHX and HealthNexis combined their
operations into a single, comprehensive Internet-based exchange operating under
the Global Healthcare Exchange name.
Baxter also owns minority positions in certain other publicly-traded
companies, including Cerus Corporation, with which it is jointly developing a
pathogen inactivation system for platelets, plasma and red blood cells for
transfusion, and Acambis, a British vaccine developer with which Baxter is
producing smallpox vaccine for the U.S. government.
Methods of Distribution
Baxter 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 and through independent
distributors and drug wholesalers acting as sales agents. In the United States,
Allegiance Healthcare Corporation warehouses and ships a significant portion of
the company's products through its distribution centers. These distribution
centers are generally stocked with adequate inventories to facilitate prompt
customer service. Sales and distribution methods include frequent contact by
sales representatives, automated communications via various electronic
purchasing systems, circulation of catalogs and merchandising bulletins,
direct-mail campaigns, trade publications and advertising. Customers may return
defective merchandise for credit or replacement. In recent years, such returns
have been immaterial.
International sales are made and products are distributed in over 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, Canada, Chile, China, Colombia, the Czech
Republic, Denmark, Ecuador, Finland, France, Germany, Greece, Guatemala,
Hungary, India, Ireland, Italy, Japan, Korea, Mexico, The Netherlands, New
Zealand, Norway, Panama, Peru, the Philippines, Portugal, Russia, Singapore,
Spain, Sweden, Switzerland, Taiwan, Thailand, Turkey, the United Kingdom and
Venezuela. 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. Although the vast
majority of these materials are generally available, the company has
experienced occasional shortages in supply of source plasma and of bulk
recombinant factor VIII used by Baxter in its BioScience business. In addition,
certain raw materials used in producing some of the company's products are
available only from a small number of suppliers. Baxter works closely with its
suppliers to assure continuity of supply while maintaining high quality and
reliability. The company also continues to develop new sources of supply and
does not believe that periodic shortages in supply of raw materials will have a
material adverse effect on the company's business.
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. Baxter does not always recover cost increases through
customer pricing due to contractual limits and market pressure on such price
increases. See "Contractual Arrangements."
Patents and Trademarks
Products manufactured by Baxter 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.
4
Baxter owns a number of patents and trademarks throughout the world and is
licensed under patents owned by others. Baxter's policy is to protect its
products and technology through patents and trademarks on a worldwide basis.
This protection is sought in a manner that balances the cost of such protection
against obtaining the greatest value for the company. The company also
recognizes the need to promote the enforcement of its patents and trademarks.
Over the past few years, Baxter has increased its enforcement activities by
aggressively taking action in various countries to protect its patents and
trademarks. Baxter will continue taking all commercially reasonable steps to
enforce its patents and trademarks around the world against potential
infringers. However, there can be no assurance that any action will result in
favorable decisions. While the protection of its patents and trademarks is
important to Baxter's business strategy, Baxter believes that its overall
business position is not materially dependent upon any single patent or
trademark.
Competition
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 competitors
will continue to introduce new products that compete with those sold by Baxter,
the company believes that its research and development efforts will permit it
to remain competitive in all presently material product areas. Although no
single company competes with Baxter in all of its businesses, Baxter is faced
with substantial competition in all of its markets.
The changing health care environment in recent years has led to increasingly
intense competition among United States and certain European health care
suppliers. Competition is focused on price, service and product performance.
Pressure in these areas is expected to continue.
The company continues to increase its efforts to minimize costs and meet
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 intends to continue to develop new products and services,
invest in human resources and capital to upgrade and expand facilities,
leverage its cost structure and make selected acquisitions.
Credit and Working Capital Practices
As of March 1, 2002, Baxter's debt ratings on senior debt were A3 by
Moody's, A by Standard & Poor's and A by Fitch. The company's credit practices
and related working capital needs are comparable to those of other market
participants. Collection periods tend to be longer for sales outside the United
States.
Quality Management
Baxter places significant emphasis on providing quality products and
services to its customers. A major portion of the company's quality systems
relate to the design and development manufacturing, packaging, sterilization,
handling, distribution and labeling of the products by the company. These
quality systems, including control procedures that are developed and
implemented by technically trained professionals, result in rigid
specifications for product design, raw materials, components, packaging
materials, labels, sterilization procedures and overall manufacturing process
control. The quality systems integrate the efforts of suppliers of raw
materials, components and finished goods to ensure we meet customer and
regulatory requirements. These systems are designed to ensure that all
appropriate standards and requirements are met before goods are released. In
addition to other quality processes, Baxter initiated a Six Sigma Quality
process several years ago to train all appropriate individuals in statistical
process control and related subjects to ensure continuous improvement.
5
Research and Development
Baxter is actively engaged in research and development programs to develop
innovative products, systems and manufacturing methods. These activities are
performed at research and development centers located around the world and
include facilities in Australia, Austria, Belgium, France, Germany, Italy,
Japan, Malta, Sweden, the United States and Venezuela. Expenditures for
Baxter-sponsored research and development activities were $427 million in 2001,
$379 million in 2000 and $332 million in 1999.
Principal areas of strategic focus for research and development include
recombinant therapeutics, plasma-based therapeutics, vaccines, small molecule
drugs, pathogen inactivation, drug formulation technologies, medication
delivery systems and kidney dialysis. 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 immune and 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.
Government Regulation
Most products manufactured or sold by the company are subject to regulation
by numerous governmental agencies, both within and outside the United States.
In the United States, the federal agencies that regulate the company's
facilities, operations, personnel and products (their manufacture, sale, import
and export) include the Food and Drug Administration (FDA), the Environmental
Protection Agency, the Occupational Health & Safety Administration, the Customs
Service, the Department of Commerce, the Treasury Department and others. State
agencies also regulate the facilities, operations, products and personnel of
the company within their respective states. Government agencies outside the
United States also regulate public health, product manufacturing, environmental
conditions, employment, export, customs and other aspects of the company's
global operations.
With regard to the company's facilities and products, various governmental
agencies, including the FDA in the United States, regulate manufacturing,
labeling, promotion and advertising. In addition, the agencies have the
authority to halt the distribution of medical products, detain or seize
adulterated or misbranded medical products, or order the company to take other
steps to correct issues surrounding the products. The agencies may also require
notification of health professionals and others with regard to medical products
that present risks of substantial harm to the public health. From time to time,
the company has removed products from the market that were found not to meet
acceptable standards.
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 Baxter during 2001 and similar expenditures are planned for 2002. See
Item 3.--"Legal Proceedings."
Employees
As of December 31, 2001, Baxter employed approximately 48,000 people.
Contractual Arrangements
A substantial portion of the company's products are sold through contracts
with customers, both within and outside the United States. Some of these
contracts have terms of more than one year and 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. In keeping with the increased
emphasis on cost-effectiveness in health care delivery, the current trend among
hospitals and other customers of medical products manufacturers is to
consolidate into larger purchasing groups to enhance purchasing power. The
medical products industry has also experienced some consolidation, partly in
order to offer a broader range of products to large purchasers. As a result,
transactions with customers are larger, more complex and tend to involve more
long-term contracts than in the past. The enhanced purchasing power of these
larger customers may also increase the pressure on product pricing, although
management is unable to estimate the potential impact at this time.
6
Cautionary Statement for Purposes of the "Safe Harbor" Provisions
of the Private Securities Litigation Reform Act of 1995
Statements throughout this report that are not historical facts are
forward-looking statements. These statements are based on the company's current
expectations and involve numerous risks and uncertainties. Some of these risks
and uncertainties are factors that affect all international businesses, while
some are specific to the company and the health care arenas in which it
operates.
Many factors could affect the company's actual results, causing results to
differ, and possibly differ materially, from those expressed in any such
forward-looking statements. These factors include, but are not limited to,
interest rates; technological advances in the medical field; economic
conditions; demand and market acceptance risks for new and existing products,
technologies and health care services; the impact of competitive products and
pricing; manufacturing capacity; new plant start-ups; global regulatory, trade
and tax policies; regulatory, legal or other developments relating to the
company's Series A, AF and AX dialyzers; continued price competition; product
development risks, including technological difficulties; ability to enforce
patents; actions of regulatory bodies and other government authorities;
reimbursement policies of government agencies; commercialization factors;
results of product testing; and other factors described elsewhere in this
report or in the company's other filings with the Securities and Exchange
Commission. Additionally, as discussed in Item 3.-- "Legal Proceedings," upon
the resolution of certain legal matters, the company may incur charges in
excess of presently established reserves. Any such charge could have a material
adverse effect on the company's results of operations or cash flows in the
period in which it is recorded.
Currency fluctuations are also a significant variable for global companies,
especially fluctuations in local currencies where hedging opportunities are
unreasonably expensive or unavailable. If the United States dollar strengthens
significantly against most foreign currencies, the company's ability to realize
projected growth rates in its sales and net earnings outside the United States
could be negatively impacted.
The company believes that its expectations with respect to forward-looking
statements are based upon reasonable assumptions within the bounds of its
knowledge of its business and operations, but there can be no assurance that
the actual results or performance of the company will conform to any future
results or performance expressed or implied by such forward-looking statements.
(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 57--58, section entitled "Notes to Consolidated Financial
Statements--Segment Information."
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Item 2. Properties.
Baxter owns or has long-term leases on substantially all of its major
manufacturing facilities. With respect to its current operations, the company
maintains 25 manufacturing facilities in the United States and its territories,
including five in Puerto Rico. The company also manufactures in Australia,
Austria, Belgium, Brazil, Canada, Chile, China, Colombia, Costa Rica, the
Dominican Republic, France, Germany, India, Ireland, Italy, Japan, Malta,
Mexico, New Zealand, the Philippines, Poland, Singapore, Spain, Switzerland,
Tunisia, Turkey and the United Kingdom. While the majority of these facilities
are shared by more than one of the company's business segments, ten domestic
facilities and sixteen international facilities exclusively manufacture for the
Medication Delivery operations; eleven domestic and eighteen international
facilities exclusively manufacture for BioScience operations; and the Renal
business is the exclusive operator of five international facilities. The
7
company also owns or operates shared distribution facilities throughout the
world, including ten in the United States and Puerto Rico and 115 located in 34
foreign countries.
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 to the current state of technology and government regulations. Capital
expenditures relating to continuing operations were $669 million in 2001, $547
million in 2000 and $529 million in 1999. Additions to the installed base of
equipment leased to customers were $118 million in 2001, $101 million in 2000
and $102 million in 1999.
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Item 3. Legal Proceedings.
Baxter International and certain of its subsidiaries are named as defendants
in a number of lawsuits, claims and proceedings, including product liability
claims involving products now or formerly manufactured or sold by the company
or by companies that were acquired by the company. These cases and claims 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. Accordingly, in many cases,
Baxter International is not able to estimate the amount of its liabilities with
respect to such matters.
Upon resolution of any of the legal matters discussed below, Baxter
International 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 and net cash flows in the period in which it is recorded
or paid, management believes that no such charge would have a material adverse
effect on Baxter International's consolidated financial position.
Mammary Implant Litigation
Baxter International, together with certain of its subsidiaries, is
currently a defendant in various courts in a number of lawsuits brought by
individuals, all seeking damages for injuries of various types allegedly caused
by silicone mammary implants previously manufactured by the Heyer-Schulte
division (Heyer-Schulte) of American Hospital Supply Corporation (AHSC). AHSC,
which was acquired by Baxter in 1985, divested its Heyer-Schulte division in
1984.
In December 1998, a panel of independent medical experts appointed by a
federal judge announced its findings that reported medical studies contained no
clear evidence of a connection between silicone mammary implants and
traditional or atypical systemic diseases. In June 1999, a similar conclusion
was announced by a committee of independent medical experts from the Institute
of Medicine, a part of the National Academy of Sciences.
As of December 31, 2001, Baxter International, together with certain of its
subsidiaries, was named as a defendant or co-defendant in 303 lawsuits and two
claims relating to mammary implants, brought by approximately 618 plaintiffs,
of which 503 are implant plaintiffs and the remainder are consortium or second
generation plaintiffs. Of those plaintiffs, 15 currently are included in the
Lindsey class action Revised Settlement described below, which accounts for 14
of the pending lawsuits against the company. Additionally, 392 plaintiffs have
opted out of the Revised Settlement (representing 243 pending lawsuits), and
the status of the remaining plaintiffs with pending lawsuits is unknown. Some
of the opt-out plaintiffs filed their cases naming multiple defendants and
without product identification; thus, not all of the opt-out plaintiffs will
have viable claims against the company. As of December 31, 2001, 232 of the
opt-out plaintiffs had confirmed Heyer-Schulte mammary implant product
identification. Furthermore, during 2001, Baxter obtained dismissals, or
agreements for dismissals, with respect to 802 plaintiffs.
In addition to the individual suits against the company, a class action on
behalf of all women with silicone mammary implants was filed on March 23, 1994
and is pending in the United States District Court (U.S.D.C.) for
8
the Northern District of Alabama involving most manufacturers of such implants,
including Baxter, as successor to AHSC (Lindsey, et al., v. Dow Corning, et
al., U.S.D.C., N. Dist. Ala., CV 94-P-11558-S). The class action was certified
for settlement purposes only by the court on September 1, 1994, and the
settlement terms were subsequently revised and approved on December 22, 1995
(Revised Settlement). The monetary provisions of the Revised Settlement provide
compensation for all present and future plaintiffs and claimants through a
series of specific funds and a disease-compensation program involving certain
specified medical conditions. All appeals directly challenging the Revised
Settlement have been dismissed.
On January 16, 1996, Baxter, Bristol-Myers Squibb Company and Minnesota
Mining and Manufacturing Company each paid $125 million into the
court-established fund as an initial fund to pay claims under the Revised
Settlement. Union Carbide Corporation and McGhan Medical Corporation also are
parties to the Revised Settlement.
In addition to the Lindsey class action, the company also has been named in
three other purported class actions in various state and provincial courts,
only one of which is certified: Harrington v. Dow Corning Corp., et al.,
Supreme Court, British Columbia, C954330. The class action in British Columbia
has been certified solely with respect to the issue of whether silicone gel
breast implants are reasonably fit for their intended purpose.
On March 31, 2000, the United States Department of Justice filed an action
in the federal district court in Birmingham, Alabama against Baxter and other
manufacturers of breast implants, as well as the escrow agent for the revised
settlement fund, seeking reimbursement under various federal statutes for
medical care provided to various women with mammary implants. On September 26,
2001 the district court granted the motion of all defendants, including Baxter,
to dismiss the action. The federal government has appealed the dismissal.
Baxter believes that a substantial portion of its liability and defense
costs for mammary implant litigation will be covered by insurance, subject to
self-insurance retentions, exclusions, conditions, coverage gaps, policy limits
and insurer solvency. The company has entered into "coverage-in-place"
agreements with almost all of its insurers, each of which issued or subscribed
to policies of insurance between 1974 and 1985. These agreements resolve the
signatory insurers' coverage defenses and specify rules and procedures for
allocation and payment of defense and indemnity costs pursuant to which
signatory insurers will reimburse Baxter for mammary implant losses. Five of
the company's claims-made insurers, which issued policies subsequent to 1985,
have agreed to pay under their policies with respect to mammary implant claims.
The combined total of the amount thus far paid by insurers, committed for
payment, and projected by Baxter to be paid by insurers under these agreements
is in excess of $800 million, based on the company's current estimate of
mammary implant expenditures.
Plasma-Based Therapies Litigation
Baxter currently is a defendant in a number of claims and lawsuits brought
by individuals who have hemophilia, all seeking damages for injuries allegedly
caused by anti-hemophilic factor concentrates VIII or IX derived from human
blood plasma (factor concentrates) processed by the company from the late 1970s
to the mid-1980s. The typical case or claim alleges that the individual was
infected with the HIV virus by factor concentrates, which contained the HIV
virus. None of these cases involves factor concentrates currently processed by
the company.
As of December 31, 2001, Baxter was named in 49 lawsuits and 98 claims in
the United States, France, Ireland, Italy, Japan, Spain, Taiwan and The
Netherlands. All U.S. federal court factor concentrate cases were transferred
to the U.S.D.C. for the Northern District of Illinois for case management under
Multi District Litigation (MDL) rules (MDL Docket No. MDL-986), and were
remanded in 2000 to the courts in which they were filed.
In most states, Baxter's potential liability is limited by "blood shield"
laws that provide that the sale of blood or blood derivatives, including factor
concentrates, is not covered by the doctrine of strict liability. As a result,
each claimant must prove that his or her injuries were caused by the company's
negligence.
9
On May 6, 1997, the U.S.D.C. approved a class action settlement submitted by
the plaintiffs' steering committee for the MDL, Baxter, Alpha Therapeutic
Corporation, Armour Pharmaceutical and Bayer Corporation. The essential terms
of the settlement provide payments of $100,000 to each HIV-positive person with
hemophilia in the United States who can demonstrate use of factor concentrates
produced by one of the settling defendants between 1978 and 1985. Additionally,
the defendants have established a $40 million fund for payment of attorneys'
fees, costs and court-administration expenses. Baxter's agreed contribution to
the proposed settlement is 20 percent of the total settlement proceeds.
Baxter and the other defendants have reached agreements to settle potential
subrogation and reimbursement claims with most private insurers, the federal
government and all 50 states, the District of Columbia and Puerto Rico. As of
December 31, 2001, approximately 6,500 claimant groups had been found eligible
to participate in the settlement, and approximately 350 claimants had opted out
of the settlement. Approximately 6,233 claimant groups had received payments as
of December 31, 2001, and seven claimant groups remain as of that date.
In Japan, Baxter is a defendant, along with the Japanese government and four
other co-defendants, in factor concentrates cases in Osaka, Tokyo, Nagoya,
Tohoku, Fukuoka, Sapporo and Kumamoto. As of December 31, 2001, the cases
involved 1,348 plaintiffs, of whom 1,338 have settled their claims. Based upon
the Osaka and Tokyo courts' recommendations, the parties have agreed to a
settlement of all pending and future factor concentrate cases. In general, the
settlement provides for payment of an up-front, lump-sum amount of
approximately $360,000 per plaintiff to be funded 40 percent by the Japanese
government and 60 percent by the corporate defendants. The share of the
settlement to be paid by each corporate defendant was determined based upon its
market share, resulting in a contribution by Baxter of 15.36 percent. The
portion of the settlement to be funded by the corporate defendants will include
credits for certain prior payments made by the corporate defendants under a
separate Japanese government-administered program, which pays monthly amounts
to HIV-positive and AIDS-manifested people with hemophilia and their survivors.
Additionally, monthly payments will be made to each plaintiff according to a
set schedule.
In addition, Immuno International AG (Immuno), acquired by Baxter in 1996,
has unsettled claims for damages for injuries allegedly caused by its
plasma-based therapies. The typical claim alleges that the individual with
hemophilia was infected with HIV by factor concentrates containing the HIV
virus. Additionally, Immuno faces multiple claims stemming from its vaccines
and other biologically-derived therapies. A portion of the liability and
defense costs related to these claims will be covered by insurance, subject to
exclusions, conditions, policy limits and other factors. Pursuant to the stock
purchase agreement between the company and Immuno, as revised in April 1999 in
consideration for payment by the company of 29 million Swiss francs to Immuno
as additional purchase price, approximately 26 million Swiss francs of the
purchase price is being withheld to cover these contingent liabilities.
Baxter is also currently a defendant in a number of claims and lawsuits
brought by individuals who infused the company's Gammagard(R) IVIG (intravenous
immuno-globulin), all of whom are seeking damages for Hepatitis C infections
allegedly caused by infusing Gammagard(R) IVIG. As of December 31, 2001, Baxter
was a defendant in 21 lawsuits and 13 claims in the United States, Denmark,
France, Germany, Italy, Spain and the United Kingdom. One class action in the
United States has been certified. All U.S. federal court Gammagard(R) IVIG
cases have been transferred to the U.S.D.C. for the Central District of
California for case management under MDL rules. On February 21, 1996, the court
certified a nationwide class of persons who had infused Gammagard(R) IVIG
(Geary, et al., v. Baxter Healthcare Corporation, U.S.D.C., C.D., CA,
ML-95-160-R). On September 18, 2000, the U.S.D.C. for the Central District of
California approved a settlement of the class action that would provide
financial compensation for U.S. individuals who used Gammagard(R) IVIG between
January 1993 and February 1994.
Baxter has entered into coverage in place agreements covering factor
concentrates lawsuits with substantially all of its insurers that issued or
subscribed to pertinent policies of insurance between 1978 and 1985.
10
These agreements resolve the signatory insurers' coverage defenses and specify
rules and procedures for allocation and payment of defense and indemnity costs
pursuant to which the signatory insurers will reimburse the company for factor
concentrates losses. The company believes that a substantial portion of the
liability and defense costs related to all of its plasma-based therapies
litigation will be covered by insurance, subject to self-insurance retentions,
exclusions, conditions, coverage gaps, policy limits and insurer solvency.
Net Litigation Charges
Baxter began accruing for its estimated liability resulting from the
settlement of the mammary implant related class action and to litigate or
settle cases and claims involving opt-outs in 1993. In 1998, the company
accrued an additional $250 million for its estimated liability resulting from
the class action settlement and remaining opt-out cases and claims, and
recorded a receivable for related estimated insurance recoveries of $121
million, resulting in an additional net charge of $129 million.
Baxter began accruing for its estimated worldwide liability for litigation
and settlement costs involving plasma-based therapies cases in 1993. The
company revised its estimate of liabilities and insurance recoveries in 1998,
and accrued an additional $180 million for its estimated liability for
plasma-based therapies litigation and other litigation and recorded a
receivable for related estimated insurance recoveries of $131 million, for a
net charge of $49 million.
Other
As of December 31, 2001, Baxter International and certain of its
subsidiaries were named as defendants in two civil lawsuits, one of which is a
purported class action, seeking damages on behalf of persons who allegedly died
or were injured as a result of exposure to Baxter's A, AF and AX series
dialyzers. The cases, which were filed in November 2001, are pending in the
U.S.D.C. for the Middle District of Louisiana and the U.S.D.C. for the Northern
District of Illinois. The company has reached settlements with a number of the
families of patients who died in Spain and Croatia after undergoing
hemodialysis on Baxter Althane series dialyzers. Government criminal
investigations concerning the patient deaths are pending in Spain and Croatia.
Other lawsuits and claims may be filed in the United States and elsewhere.
As of December 31, 2001, Baxter International and certain of its
subsidiaries were named as defendants, along with others, in four lawsuits
pending in U.S. federal courts on behalf of various classes of purchasers of
Medicare and Medicaid eligible drugs alleged to have been injured by Baxter and
other defendants as a result of pricing practices for such drugs, which are
alleged to be artificially inflated. These cases, which were filed in the
fourth quarter of 2001, are pending in the U.S. District Courts for the Central
District of California, Northern District of Illinois, Eastern District of
Texas and District of Massachusetts. Claimants seek damages and declaratory and
injunctive relief under various state and/or federal statutes. In addition, in
January 2002, the Attorney General of Nevada filed a civil suit in the Second
Judicial District Court of Washoe County, Nevada naming a subsidiary of Baxter
International as a defendant. The lawsuit, which seeks damages, injunctive
relief, civil penalties and restitution, alleges that prices for Medicare and
Medicaid eligible drugs were artificially inflated in violation of various
state laws. Various state and federal agencies are conducting civil
investigations into the marketing and pricing practices of Baxter and others
with respect to Medicare and Medicaid reimbursement.
As of September 30, 1996, the date of the spin-off of Allegiance Corporation
("Allegiance") from Baxter International, Allegiance assumed the defense of
litigation involving claims related to Allegiance's businesses, including
certain claims of alleged personal injuries as a result of exposure to natural
rubber latex gloves. Allegiance has not been named in most of this litigation
but will be defending and indemnifying Baxter pursuant to certain contractual
obligations for all expenses and potential liabilities associated with claims
pertaining to latex gloves. As of December 31, 2001, the company was named as a
defendant in 557 lawsuits, including the following purported class action:
Swartz v. Baxter Healthcare Corporation, et al., Court of Common Pleas,
11
Jefferson County, PA, 656-1997 C.D. On February 26, 1997, all federal cases
involving latex gloves were ordered to be transferred to the U.S.D.C. for the
Eastern District of Pennsylvania for case management under the MDL rules (MDL
Docket No. 1148).
Baxter has been named a potentially responsible party (PRP) for
environmental clean-up costs at a number of hazardous-waste sites. Under the
United States Superfund statute and many state laws, generators of hazardous
waste that is sent to a disposal or recycling site are liable for clean-up of
the site 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. Allegiance has assumed
responsibility for all but six of these sites. The estimated exposure for
Baxter's remaining six sites is approximately $2 million, which has been
accrued (and not discounted) in the company's financial statements.
In addition to the cases discussed above, Baxter is a defendant in a number
of other claims, investigations and lawsuits. Based on the advice of counsel,
management does not believe that, individually or in the aggregate, these other
claims, investigations and lawsuits will have a material adverse effect on the
company's results of operations, cash flows or consolidated financial position.
- --------------------------------------------------------------------------------
Item 4. Submission of Matters to a Vote of Security Holders.
None.
12
- --------------------------------------------------------------------------------
PART II
- --------------------------------------------------------------------------------
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters.
Incorporated by reference from the Annual Report, page 59, section entitled
"Notes to Consolidated Financial Statements--Quarterly Financial Results and
Market for the Company's Stock (Unaudited)."
On December 7, 2001, pursuant to the exemption from registration under
Section 4(2) of the Securities Act, Baxter International issued 9,656,237
shares of its common stock to a financial institution in order to fund the
company's acquisition of ASTA Medica Onkologie GmbH & CoKG. The shares are
subject to transfer restrictions.
- --------------------------------------------------------------------------------
Item 6. Selected Financial Data.
Incorporated by reference from the Annual Report, page 62, section entitled
"Five-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 27-36, section
entitled "Management's Discussion and Analysis."
- --------------------------------------------------------------------------------
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Incorporated by reference from the Annual Report, pages 34-36, section
entitled "Financial Instrument Market Risk."
- --------------------------------------------------------------------------------
Item 8. Financial Statements and Supplementary Data.
Incorporated by reference from the Annual Report, pages 37-59, sections
entitled "Report of Independent Accountants," "Consolidated Balance Sheets,"
"Consolidated Statements of Income," "Consolidated Statements of Cash Flows,"
"Consolidated Statements of Stockholders' Equity and Comprehensive Income" and
"Notes to Consolidated Financial Statements."
- --------------------------------------------------------------------------------
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
13
- --------------------------------------------------------------------------------
PART III
- --------------------------------------------------------------------------------
Item 10. Directors and Executive Officers of the Registrant.
(a) Identification of Directors
Incorporated by reference from Baxter's proxy statement for use in
connection with its annual meeting of stockholders to be held on May 7, 2002
(Proxy Statement), page 4, section entitled "Election of Directors--Proposal 1
on the Proxy Card," and pages 9-11, section entitled "Board of
Directors--Director Biographies."
(b) Identification of Executive Officers
Following are the names and ages, as of March 1, 2002, of the executive
officers of Baxter International, and one or both of its two principal
operating subsidiaries, Baxter Healthcare Corporation and Baxter World Trade
Corporation, their positions and summaries of their backgrounds and business
experience. All executive officers of Baxter International 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 on the date of the annual
meeting of stockholders. All executive officers of Baxter Healthcare
Corporation and Baxter World Trade Corporation 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 International)
may be taken by written consent in lieu of a meeting.
(1) Baxter International Inc. Executive Officers
Harry M. Jansen Kraemer, Jr., age 47, has been a director of Baxter
International since 1995 and chairman of the board since January 1, 2000. Mr.
Kraemer has been president of Baxter International since 1997 and chief
executive officer since January 1, 1999. From 1993 to 1997, he served as senior
vice president and chief financial officer of Baxter International. Mr. Kraemer
also serves as a director of Comdisco Inc. and Science Applications
International Corporation.
Brian P. Anderson, age 51, is senior vice president and chief financial
officer of Baxter International, having served in those capacities since
February 1998. Mr. Anderson previously was corporate vice president of finance
of Baxter International beginning in May 1997, and was the corporate controller
from 1993 to 1997.
Timothy B. Anderson, age 55, is senior vice president, corporate strategy
and development, of Baxter International, having served in that capacity since
May 2001. He was group vice president, corporate strategy and development, from
November 1999 to May 2001. Prior to that Mr. Anderson served as group vice
president of Baxter Healthcare Corporation and Baxter World Trade Corporation.
J. Robert Hurley, age 52, is a corporate vice president, integration
management, of Baxter International. Prior to that from 1993 to 2000, he was a
corporate vice president of Baxter World Trade Corporation and president--Japan.
Neville J. Jeharajah, age 48, is a corporate vice president, investor
relations and financial planning, of Baxter International, having served in
that capacity since February 2001. Prior to that since 1982, Mr. Jeharajah held
various finance positions with the company, the most recent of which was vice
president, financial planning and investor relations.
Karen J. May, age 43, is a corporate vice president, human resources, of
Baxter International, having served in that capacity since February 2001. Prior
to her current appointment she was vice president, human resources
14
from 2000 until 2001, vice president, global planning and staffing from 1998 to
2000, vice president, international finance from 1997 to 1998 and vice
president, corporate audit from 1994 to 1997.
Steven J. Meyer, age 45, is treasurer of Baxter International, having served
in that capacity since February 1997.
John L. Quick, age 57, is a corporate vice president, quality/regulatory, of
Baxter International, having served in that capacity since 1996.
Jan Stern Reed, age 42, is corporate secretary and associate general counsel
of Baxter International, having served in those capacities since February 1998.
Prior to that she was assistant corporate secretary and assistant general
counsel from February 1997 to February 1998.
Norbert G. Reidel, age 44, is a corporate vice president and chief
scientific officer of Baxter International, having served in those capacities
since May 2001. From 1998 to 2001 he served as president of the recombinant
business unit of the BioScience division of Baxter Healthcare Corporation.
Prior to joining Baxter in 1998 he was head of worldwide biotechnology and
worldwide core research functions at Hoechst Marion Roussel.
Thomas J. Sabatino, Jr., age 43, is a senior vice president and general
counsel of Baxter International, having served as a senior vice president since
May 2001 and as general counsel since December 1997. He was a corporate vice
president from December 1997 to May 2001 and assistant secretary from February
1997 to December 1997. From 1995 to December 1997, Mr. Sabatino was an
associate general counsel of Baxter Healthcare Corporation.
Michael J. Tucker, age 49, is a senior vice president of Baxter
International, responsible for human resources, communications and Europe. He
has served as senior vice president, human resources since September 1995, of
communications since May 2000 and of Europe since February 2001.
(2) Baxter Healthcare Corporation and Baxter World Trade Corporation Executive
Officers
Eric A. Beard, age 50, is a corporate vice president of Baxter World Trade
Corporation and president--Baxter Europe, Africa and Middle East, having served
in those capacities since October 1998. Prior to that, Mr. Beard was president
of a division of a subsidiary of Baxter World Trade Corporation.
Carlos del Salto, age 59, is a senior vice president Intercontinental/Asia
of Baxter World Trade Corporation, having served in that capacity since 1996,
and president--Latin America.
David F. Drohan, age 63, is a senior vice president of Baxter Healthcare
Corporation and president--Medication Delivery, having served as a senior vice
president since May 2001 and as president--Medication Delivery since 1996. He
was a corporate vice president from 1996 to May 2001.
James M. Gatling, age 52, is a corporate vice president, manufacturing
operations, of Baxter Healthcare Corporation, having served in that capacity
since December 1996.
Thomas H. Glanzmann, age 43, is a senior vice president of Baxter World
Trade Corporation and Baxter Healthcare Corporation, and president--BioScience.
He has served as a senior vice president since May 2001 and was a corporate
vice president from October 1998 to May 2001. Prior to that, Mr. Glanzmann was
president of a division of a subsidiary of Baxter World Trade Corporation.
Alan L. Heller, age 48, is a senior vice president of Baxter Healthcare
Corporation and Baxter World Trade Corporation, and president--Renal, having
served as a senior vice president since May 2001 and as president--Renal since
he joined the Company in October 2000. He was a group vice president from
October 2000 to May 2001. Prior to that, Mr. Heller was co-president and chief
operating officer of G.D. Searle & Co.
15
David C. McKee, age 54, is a corporate vice president and deputy general
counsel of Baxter Healthcare Corporation and Baxter World Trade Corporation,
having served as corporate vice president since 1997 and 1996, respectively,
and as deputy general counsel of both entities since 1996. Mr. McKee has held
various positions with Baxter International, including vice president from 1996
to 1997, corporate vice president from 1997 to 1999, deputy general counsel
from 1996 to 1999, and corporate secretary from February 1997 to February 1998.
Gregory P. Young, age 48, is a corporate vice president of Baxter Healthcare
Corporation and president of the Fenwal division. He has served as a corporate
vice president since February 2001 and as president of the Fenwal division
since 1999. Prior to that from 1985 to 1999, Mr. Young served in roles of
increasing responsibility within the Medication Delivery division of Baxter
Healthcare Corporation.
(c) Compliance with Section 16(a) of the Securities Exchange Act of 1934.
Incorporated by reference from the Proxy Statement, page 25, section
entitled "Section 16(a) Beneficial Ownership Reporting Compliance."
- --------------------------------------------------------------------------------
Item 11. Executive Compensation.
Incorporated by reference from the Proxy Statement, pages 13-14, section
entitled "Board of Directors--Compensation of Directors" and pages 19-23,
section entitled "Executive Compensation."
- --------------------------------------------------------------------------------
Item 12. Security Ownership of Certain Beneficial Owners and Management.
Incorporated by reference from the Proxy Statement, pages 24-25, section
entitled "Ownership of Baxter Stock."
- --------------------------------------------------------------------------------
Item 13. Certain Relationships and Related Transactions.
None.
16
- --------------------------------------------------------------------------------
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 38
Consolidated Statements of Income Annual Report, page 39
Consolidated Statements of Cash Flows Annual Report, page 40
Consolidated Statements of Stockholders' Equity and
Comprehensive Income Annual Report, page 41
Notes to Consolidated Financial Statements Annual Report, pages 42-59
Report of Independent Accountants Annual Report, page 37
Schedules Required By Article 12 of Regulation S-X
Report of Independent Accountants on Financial Statement
Schedule page 18
Schedule II--Valuation and Qualifying Accounts page 19
All other schedules have been omitted because they are not applicable or not
required.
(b) Reports on Form 8-K
On November 5, 2001, Baxter International filed a current report on Form
8-K under Item 5, ''Other Events,'' which reported that a Baxter
International subsidiary announced that preliminary tests lead the company
to believe that a processing fluid used in the manufacturing operation in
its Ronneby, Sweden facility may have played a role in hemodialysis patient
deaths.
On November 28, 2001, Baxter International filed a current report on Form
8-K under Item 5, "Other Events," which reported that a Baxter International
subsidiary reached a settlement of certain claims in connection with its
Althane dialyzers.
On November 29, 2001, Baxter International filed a current report on Form
8-K under Item 5, "Other Events," relating to Baxter Healthcare
Corporation's participation in the production of smallpox vaccine with
Acambis at the request of the U.S. government.
(c) Exhibits required by Item 601 of Regulation S-K are listed in the Exhibit
Index, which is incorporated herein by reference. Exhibits in the Exhibit
Index marked with a "C" in the left margin constitute management contracts
or compensatory plans or arrangements contemplated by Item 14(a) of Form
10-K. The list of exhibits so designated is incorporated by reference in
this Part IV, Item 14.
17
REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE
To the Board of Directors of
Baxter International Inc.
Our audits of the consolidated financial statements referred to in our
report dated February 14, 2002 appearing in the 2001 Annual Report to
Stockholders of Baxter International Inc. (which report and consolidated
financial statements are incorporated by reference in this 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.
/s/ PRICEWATERHOUSECOOPERS LLP
PricewaterhouseCoopers LLP
Chicago, Illinois
February 14, 2002
18
- --------------------------------------------------------------------------------
SCHEDULE II
- --------------------------------------------------------------------------------
Valuation and Qualifying Accounts
(in million of dollars)
- --------------------------------------------------------------------------------
Additions
----------------------
Balance at Charged to Charged to Balance
beginning of costs and other Deductions at end of
period expenses accounts (a) from reserves period
- -------------------------------------------------------------------------------------------------------
Year ended December 31, 2001:
Allowance for doubtful accounts 43 17 -- (3) 57
Inventory reserves 110 116 (7) (94) 125
Litigation reserves 326 -- 3 (109) 220
Deferred tax asset valuation allowance 50 17 -- (9) 58
- -------------------------------------------------------------------------------------------------------
Year ended December 31, 2000:
Allowance for doubtful accounts 34 10 3 (4) 43
Inventory reserves 78 73 4 (45) 110
Litigation reserves 426 31 -- (131) 326
Deferred tax asset valuation allowance 43 12 -- (5) 50
- -------------------------------------------------------------------------------------------------------
Year ended December 31, 1999:
Allowance for doubtful accounts 37 6 -- (9) 34
Inventory reserves 97 68 -- (87) 78
Litigation reserves 698 -- -- (272) 426
Deferred tax asset valuation allowance 34 14 -- (5) 43
- -------------------------------------------------------------------------------------------------------
(a) Valuation accounts of acquired or divested companies and foreign currency
translation adjustments. Reserves are deducted from assets to which they
apply.
19
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.
By: /s/ HARRY M. JANSEN KRAEMER, JR.
--------------------------------
Harry M. Jansen Kraemer, Jr.
Chairman and Chief Executive
Officer
DATE: March 13, 2002
KNOW ALL BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Harry M. Jansen Kraemer, Jr. and Jan Stern Reed, and
each of them, his or her true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution, in any and all capacities, to sign any
or all amendments to this Form 10-K, and to file the same with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he or she might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or their substitutes, may
lawfully do or cause to be done by virtue hereof.
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 indicated on March 13, 2002.
Signature Title
--------- -----
/s/ HARRY M. JANSEN KRAEMER, JR. Chairman of the Board of Directors and Chief
- -------------------------------- Executive Officer (principal executive
Harry M. Jansen Kraemer, Jr. officer)
/s/ BRIAN P. ANDERSON Senior Vice President and Chief Financial
- -------------------------------- Officer (principal financial officer and
Brian P. Anderson principal accounting officer)
/s/ WALTER E. BOOMER Director
- -------------------------------
Walter E. Boomer
/s/ PEI-YUAN CHIA Director
- -------------------------------
Pei-yuan Chia
/s/ JOHN W. COLLOTON Director
- -------------------------------
John W. Colloton
/s/ SUSAN CROWN Director
- -------------------------------
Susan Crown
/s/ BRIAN D. FINN Director
- -------------------------------
Brian D. Finn
20
Signature Title
--------- -----
/s/ GAIL D. FOSLER Director
- ----------------------------------
Gail D. Fosler
/s/ MARTHA R. INGRAM Director
- ----------------------------------
Martha R. Ingram
/s/ JOSEPH B. MARTIN, M.D., PH.D. Director
- ----------------------------------
Joseph B. Martin, M.D., Ph.D.
/s/ THOMAS T. STALLKAMP Director
- ----------------------------------
Thomas T. Stallkamp
/s/ MONROE E. TROUT, M.D. Director
- ----------------------------------
Monroe E. Trout, M.D.
/s/ FRED L. TURNER Director
- ----------------------------------
Fred L. Turner
21
EXHIBITS FILED WITH SECURITIES AND EXCHANGE COMMISSION
Number and Description of Exhibit
---------------------------------
3. Certificate of Incorporation and Bylaws
3.1* Restated Certificate of Incorporation, as amended, including Certificate of Designation of Series
B Junior Participating Preferred Stock and Certificate of Elimination of Series A Junior
Participating Preferred Stock, filed as exhibit 3.1 to the company's quarterly report on Form
10-Q for the quarter ended March 31, 2001, (the "March 2001 Form 10-Q").
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 dated February 27, 2001, filed as exhibit 3.3 to the company's
annual report on Form 10-K for the year ended December 31, 2000 (the "2000 Form 10-K").
4. Instruments defining the rights of security holders, including indentures
4.1* Amended and Restated Indenture dated November 15, 1985 (the "Indenture"), between the
company and First Trust N.A. ("First Trust") as successor in interest to Continental Illinois
National Bank and Trust Company of Chicago ("Continental"), filed under the Securities Act of
1933 as exhibit 4.1 to the company's registration statement on Form S-3 (No. 33-1665).
4.2* First Supplemental Indenture to the Indenture between the company and First Trust (as successor
in interest to Continental), 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).
4.3* Supplemental Indenture dated as of January 29, 1997, between the company and First Trust (as
successor to Continental), filed under the Securities Act of 1933 as exhibit 4.1B to the company's
debt securities shelf registration statement on Form S-3 (No. 333-19025) (the "1997 Shelf").
4.4* 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 (the "1987 Form 10-K").
4.5* Specimen 91/2% Note, filed as exhibit 4.3(a) to the company's current report on Form 8-K dated
June 23, 1988.
4.6* Specimen 91/4% Note, filed as exhibit 4.3(a) to the company's current report on Form 8-K dated
September 13, 1989.
4.7* Specimen 91/4% Note, filed as exhibit 4.3(a) to the company's current report on Form 8-K dated
December 7, 1989.
4.8* Specimen 7.125% Note, filed as exhibit 4.10 to the company's annual report on Form 10-K for
the year ended December 31, 1996 (the "1996 Form 10-K").
4.9* Specimen 7.65% Debenture, filed as exhibit 4.11 to the 1996 Form 10-K.
4.10* Contingent Payment Rights Agreement, filed under the Securities Act of 1933 as exhibit 2 to the
Company's registration statement on Form S-4 (No. 333-47927).
4.11* Rights Agreement dated as of December 9, 1998, between the company and First Chicago Trust
Company of New York, filed as Exhibit 1 to a registration statement on Form 8-A dated
February 23, 1999.
4.12* Indenture dated as of May 21, 2001 by and among the company and Bank One Trust Company,
N.A. as trustee, filed as exhibit 4.6 to the company's registration statement on Form S-3 (No.
333-67772).
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Number and Description of Exhibit
---------------------------------
4.13* Form of Debenture, filed as exhibit 4.7 to the company's registration statement on Form S-3
(No. 333-67772).
4.14* Registration Rights Agreement dated May 16, 2001 by and among the company and the initial
purchasers of the Debentures, filed as exhibit 4.8 to the company's registration statement on
Form S-3 (No. 333-67772).
10. Material Contracts
C 10.1* 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.
C 10.2 Baxter International Inc. International Retirement Plan.
C 10.3* Baxter International Inc. and Subsidiaries Supplemental Pension Plan, filed as exhibit 10.18 to
the company's annual report on Form 10-K for the year ended December 31, 1988.
10.4 Intentionally omitted.
10.5 Intentionally omitted.
C 10.6* 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.
C 10.7* Amendment to 1987 Incentive Compensation Program, filed as exhibit 19.1 to September
1989 Form 10-Q.
C 10.8 Non-Employee Director Stock Option Plan for Annual Grant, as amended and restated
effective February 25, 2002.
C 10.9* Deferred Compensation Plan, amended and restated effective January 1, 1998, filed as exhibit
10.17 to the company's annual report on Form 10-K for the year ended December 31, 1997
(the "1997 Form 10-K").
10.10 Intentionally omitted.
10.11 Intentionally omitted.
C 10.12* Corporate Aviation Policy, filed as exhibit 10.33 to the company's annual report on Form
10-K for the year ended December 31, 1992.
C 10.13* 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.
C 10.14* 1999 Shared Investment Plan, filed as exhibit 10.1 to the company's quarterly report on Form
10-Q for the quarter ended June 30, 1999.
C 10.15 Officer Incentive Compensation Plan.
C 10.16* Baxter International Inc. Restricted Stock Plan for Non-Employee Directors, as amended and
restated effective May 1, 2001, filed as exhibit 10.16 to the March 2001 Form 10-Q.
C 10.17* 1995 Stock Option Grant Terms and Conditions, filed as exhibit 10.34 to the company's
annual report on Form 10-K for the year ended December 31, 1995.
10.18 Intentionally omitted.
C 10.19* November 1996 Stock Option Grant Terms and Conditions, filed as exhibit 10.33 to the 1996
Form 10-K.
C 10.20* November 1996 Premium Price Stock Option Grant Terms and Conditions, filed as exhibit
10.34 to the 1996 Form 10-K.
23
Number and Description of Exhibit
---------------------------------
C 10.21* November 1997 Stock Option Grant Terms and Conditions, filed as exhibit 10.36 to the 1997
Form 10-K.
C 10.22* 1998 Incentive Compensation Program, filed as exhibit 10.37 to the 1997 Form 10-K.
C 10.23* Long Term Incentive Plan, filed as exhibit 10.38 to the 1997 Form 10-K.
C 10.24* 1997 Scientific Advisory Board Option Plan, filed as exhibit 4.4 to the company's registration
statement on Form S-8 (No. 333-71533).
C 10.25* 2000 Incentive Compensation Program, filed as Exhibit A to the company's proxy statement
for use in connection with its May 2, 2000 annual meeting of stockholders.
C 10.26* Employee Stock Purchase Plan for United States Employees (as amended and restated
effective October 1, 1999), filed as exhibit 10 to the company's quarterly report on Form 10-Q
for the quarter ended September 30, 1999.
C 10.27 2001 Incentive Compensation Program and Amendment No. 1 thereto.
C 10.28* Consulting Agreement with Arnold J. Levine, Ph.D., filed as exhibit 10.28 to Amendment No. 1
to the 2000 Form 10-K.
12. Computation of Ratio of Earnings to Fixed Charges.
13. Selections from the 2001 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 Baxter International Inc.
23. Consent of PricewaterhouseCoopers LLP.
24. Powers of Attorney (included in signature page)
- --------
* Incorporated herein by reference.
C Exhibit contemplated by Item 14(a)(3) of Form 10-K.
Copies of the above exhibits are available at a charge of 35 cents per page
upon written request to the Stockholder Services Department, Baxter
International Inc., One Baxter Parkway, Deerfield, Illinois 60015. Copies are
also available at a charge of at least 24 cents per page from the Public
Reference Room of the Securities and Exchange Commission, Washington, D.C.,
20549.
24