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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, 1998
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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Baxter International Inc.
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(Exact Name of Registrant in its Charter)
Delaware 36-0781620
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(State or Other Jurisdiction of Incorporation or (I.R.S. Employer
Organization) Identification No.)
One Baxter Parkway, Deerfield, Illinois 60015
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(Address of Principal Executive Offices) (Zip Code)
847.948.2000
Registrant's telephone number, including area code ____________________________
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,
(currently traded with common stock) Inc.
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.
X
Yes 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 or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
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
$73.25 on March 5, 1999, and for the purpose of this computation only, the
assumption that all registrant's directors and executive officers are
affiliates) was approximately $20.8 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 March 5, 1999, was 287,041,108.
Documents Incorporated By Reference
Those sections or portions of the registrant's annual report to stockholders
for fiscal year ended December 31, 1998 and of the registrant's proxy
statement for use in connection with its annual meeting of stockholders to be
held on May 4, 1999, 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
Page Number or
(Reference)
(1)
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Item 1. Business
(a) General Development of Business.................. 1(2)
(b) Financial Information about Industry Segments.... 1(3)
(c) Narrative Description of Business................ 1(4)
(d) Financial Information about Foreign and Domestic
Operations and Export Sales....................... 6(5)
Item 2. Properties........................................... 7
Item 3. Legal Proceedings.................................... 7
Item 4. Submission of Matters to a Vote of Security Holders.. 11
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters.................................. 12(6)
Item 6. Selected Financial Data.............................. 12(7)
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................. 12(8)
Item 7A. Quantitative and Qualitative Disclosures about Market
Risk................................................. 12(9)
Item 8. Financial Statements and Supplementary Data.......... 12(10)
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.................. 12
Item 10. Directors and Executive Officers of the Registrant
(a) Identification of Directors...................... 13(11)
(b) Identification of Executive Officers............. 13
(c) Compliance with Section 16(a) of the Securities
Exchange Act of 1934................................. 15
Item 11. Executive Compensation............................... 15(12)
Item 12. Security Ownership of Certain Beneficial Owners and
Management........................................... 15(13)
Item 13. Certain Relationships and Related Transactions....... 15
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K.......................................... 16
(a) Financial Statements............................. 16
(b) Reports on Form 8-K.............................. 16
(c) Exhibits ........................................ 16
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(1) Information incorporated by reference to the Company's Annual Report to
Stockholders for the year ended December 31, 1998 ("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 4, 1999
("Proxy Statement").
(2) Annual Report, pages 36-50, section entitled "Notes to Consolidated
Financial Statements" and pages 21-30, section entitled "Management's
Discussion and Analysis."
(3) Annual Report, pages 48-49, section entitled "Notes to Consolidated
Financial Statements--Segment Information."
(4) Annual Report, pages 21-30, section entitled "Management's Discussion and
Analysis" and pages 48-49, section entitled "Notes to Consolidated
Financial Statements--Segment Information."
(5) Annual Report, pages 48-49, section entitled "Notes to Consolidated
Financial Statements--Segment Information."
(6) Annual Report, page 50, section entitled "Notes to Consolidated Financial
Statements--Quarterly Financial Results and Market for the Company's
Stock (Unaudited)."
(7) Annual Report, inside back cover, section entitled "Five-Year Summary of
Selected Financial Data."
(8) Annual Report, pages 21-30, section entitled "Management's Discussion and
Analysis."
(9) Annual Report, pages 27-28, section entitled "Financial Instrument Market
Risk."
(10) Annual Report, pages 31-50, 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 4-7, section entitled "Board of Directors--
Director Biographies."
(12) Proxy Statement, pages 9 and 14-17, sections entitled "Compensation of
Directors" and "Executive Compensation" and page 17, section entitled
"Pension Plan, Excess Plans and Supplemental Plans."
(13) Proxy Statement, pages 19-20, section entitled "Ownership of Baxter
Stock."
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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 28 countries and sold 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. The Company's products
are used by hospitals, clinical and medical research laboratories, blood and
dialysis centers, rehabilitation centers, nursing homes, doctors' offices and
by patients, at home, under physician supervision.
For information regarding significant acquisitions, investments in
affiliates and divestitures, see the Company's Annual Report to Stockholders
for the year ended December 31, 1998 (the "Annual Report"), pages 37-39,
section entitled "Notes to Consolidated Financial Statements--Acquisitions and
Divestitures" which is incorporated by reference. See also "Recent
Acquisitions."
(b) Financial Information About Industry Segments.
Incorporated by reference from the Annual Report, pages 48-49, section
entitled "Notes to Consolidated Financial Statements--Segment Information."
(c) Narrative Description of Business.
Recent Acquisitions
Somatogen, Inc.
In May 1998, the Company acquired Somatogen, Inc. ("Somatogen"), a
biopharmaceutical company which is developing recombinant hemoglobin
technology. The purchase price was approximately $206 million and was
principally settled with 3,547,004 shares of Baxter common stock. In addition,
Somatogen shareholders are entitled to a contingent deferred cash payment of
up to $2.00 per Somatogen share, based on a percentage of sales of certain
future products through the year 2007.
Bieffe Medital S.p.A.
In early 1998, the Company acquired a majority interest in Bieffe Medital
S.p.A., a European manufacturer of dialysis and intravenous solutions and
containers, with the remaining shares purchased in July 1998. The total
purchase price was approximately $188 million.
1
Company Overview
The Company operates as a global leader in critical therapies for life-
threatening conditions. It develops, manufactures and markets products and
technologies related to the blood and circulatory system. The Company conducts
its businesses in four segments: Blood Therapies, which develops
biopharmaceutical and blood collection and separation products and
technologies; I.V. Systems/Medical Products, which develops technologies and
systems to improve intravenous ("I.V.") medication delivery and distributes
medical products; Renal, which develops products and provides services to treat
end-stage kidney disease; and CardioVascular, which develops products and
provides services to treat late-stage heart disease and vascular disorders.
These four 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 the
Company's four segments.
Information about operating results is incorporated by reference from the
Annual Report, pages 21-30, section entitled "Management's Discussion and
Analysis" and pages 48-49, section entitled "Notes to Consolidated Financial
Statements--Segment Information."
The Company's Businesses
Blood Therapies
The Company's Blood Therapies segment develops and manufactures therapeutic
proteins from human blood plasma and through recombinant methods. These
proteins are used to treat hemophilia, immune deficiencies and other blood-
related disorders. The Blood Therapies business also manufactures blood-
collection containers and automated blood-cell separation and collection
systems used by hospitals and blood banks to collect blood components. These
components are used to treat patients undergoing surgery, cancer therapy and
other therapies. Products used by plasma centers to collect plasma for
fractionation are also manufactured by this business.
I.V. Systems/Medical Products
The Company's I.V. Systems/Medical Products segment provides a range of
products that deliver fluids and drugs to patients, and is the leading
manufacturer and marketer of intravenous products for use in hospitals and
other health-care settings. These products include I.V. solutions in flexible
plastic containers, I.V. tubing sets, electronic infusion pumps, I.V. nutrition
products, anesthesia products and pharmaceutical agents, and ambulatory I.V.
delivery systems.
Renal
The Company's Renal segment provides products and services for kidney
dialysis--the primary treatment for end-stage renal disease, or kidney failure.
This business is a leading manufacturer of products for peritoneal dialysis, a
home-based renal therapy, and it also manufactures products for hemodialysis, a
treatment administered in a hospital or clinic. In selected international
markets, through its Renal Therapy Services unit, this business operates
dialysis clinics. Through Renal Management Strategies Inc., it also works in
concert with United States nephrologists as a kidney-disease management
company.
CardioVascular
The Company's CardioVascular segment develops and manufactures products to
treat late-stage heart disease and vascular disorders. These products include
replacement heart valves and valve-repair products; perfusion products, used to
provide oxygen to the blood while the heart and lungs are stopped during open-
heart surgery; vascular products which remove clots from peripheral blood
vessels; cardiac monitoring catheters; heart-assist systems; and contract
perfusion services.
2
United States Markets
The health-care marketplace continues to be 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
capitalizing on its market-leading positions, developing new products and
services, leveraging its cost structure and making acquisitions.
International Markets
The Company generates more than 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
The Company conducts a non-material amount of business through joint
ventures. Many of these joint ventures are conducted by the Company's I.V.
Systems/Medical Products and Renal businesses, and most are accounted for under
the equity method of accounting.
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 and through
independent distributors, dealers and sales agents. In the United States,
Allegiance Healthcare Corporation distributes a significant portion of the
Company's products. 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 insignificant.
International sales and distribution are made 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,
Indonesia, Ireland, Italy, Japan, Korea, Mexico, the Netherlands, New Zealand,
Norway, Panama, Peru, the Philippines, Portugal, Russia, Singapore, Spain,
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. 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 are available 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 and market pressure on such
price increases. See "Contractual Arrangements."
3
Patents and Trademarks
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.
The Company owns a number of patents and trademarks throughout the world and
is licensed under patents owned by others. The Company'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. However, while the Company can not make any assurances that any of
its patents will not be circumvented, it does not consider its overall business
to be materially dependent upon any individual 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 others will
continue to introduce new products which compete with those sold by the
Company, 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 the Company in all of its businesses,
the Company 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 capital and human resources to upgrade and expand facilities,
leverage its cost structure and make selected acquisitions.
Credit and Working Capital Practices
As of January 28, 1999, the Company's debt ratings on senior debt were A3 by
Moody's, A by Standard & Poor's and A- by Duff & Phelps. 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
The Company places significant emphasis on providing quality products and
services to its customers. A major portion of the Company's quality systems
relate to the 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 raw materials, packaging
materials, labels, sterilization procedures and overall manufacturing process
control. The quality systems integrate the efforts of suppliers of both raw
materials and finished goods to provide the highest value to customers. On a
statistical sampling basis, internal quality assurance organizations test
components and finished goods at different stages in the manufacturing process
to assure that exacting standards are met.
4
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 31 research and development centers located around
the world and include facilities in Australia, Austria, Belgium, Brazil,
France, Japan, Malta, Sweden and the United States. Expenditures for Company-
sponsored research and development activities were $379 million in 1998, $392
million in 1997 and $340 million in 1996.
Principal areas of strategic focus for research include hemoglobin
therapeutics, plasma-based therapies, vaccines, minimally-invasive surgical
procedures, xenotransplantation, medication-delivery systems and left-
ventricular assist systems. 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.
Government Regulation
Most products manufactured or sold by the Company are subject to regulation
by the United States Food and Drug Administration (the "FDA"), as well as by
other agencies, both within and outside the United States. In the United
States, the federal agencies which regulate the Company's facilities,
operations and personnel include the FDA, the Environmental Protection Agency,
the Occupational Health & Safety Administration, the Customs Department, the
Commerce Department, and others. State agencies also regulate the facilities,
operations and personnel of the Company within their respective states.
The federal agencies possess authority to regulate the introduction and
advertising of the Company's products and devices as well as manufacturing
procedures, labeling and recordkeeping. In addition, the FDA has the power,
among other powers, to enjoin the manufacture or sale of products and devices,
to seize adulterated or misbranded products and devices and to require the
manufacturer to remove them from the market. 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. These foreign government
agencies also regulate public health, environmental, employment, export,
customs, and other aspects of the Company's global operations.
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 1998 and similar expenditures are planned for 1999.
See Item 3.--"Legal Proceedings."
Employees
As of December 31, 1998, the Company employed approximately 42,000 people.
Contractual Arrangements
A substantial portion of the Company's products are sold through contracts
with both international and domestic purchasers. 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.
5
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, including
but not limited to, statements in the "Company Overview," "International
Markets" and "Recent Acquisitions" sections of this report (including material
incorporated therein by reference) 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.
The factors below in some cases have affected and 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
technological advances in the medical field, unforeseen information technology
issues related to the Company or third parties, 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,
continued price competition, product development risks, including technological
difficulties, ability to enforce patents and unforeseen commercialization and
regulatory factors. In particular, the Company, as well as other companies in
its industry, is experiencing increased regulatory activity by the FDA with
respect to its plasma-based biologicals and its complaint-handling systems.
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 continues to
strengthen against most foreign currencies, the Company's ability to realize
projected growth rates in its sales and net earnings outside the United States
will continue to 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 48-49, section entitled "Notes to Consolidated Financial Statements--
Segment Information."
6
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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 27 manufacturing facilities in
the United States, including six in Puerto Rico. The Company also manufactures
in Australia, Austria, Belgium, Brazil, Canada, Chile, China, Colombia, Costa
Rica, the Dominican Republic, France, Germany, Indonesia, Ireland, Italy,
Japan, Malta, Mexico, the Netherlands, New Zealand, the Philippines, 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 13 international facilities primarily
manufacture for the I.V. Systems/Medical Products operations; nine domestic and
11 international facilities primarily manufacture for Blood Therapies
operations; six domestic and three international facilities primarily
manufacture for CardioVascular operations, and the Renal businesses are the
primary operators of three of the Company's international facilities. The
Company also owns or operates shared distribution facilities throughout the
world, including 11 in the United States and Puerto Rico, and 111 located in 36
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 were $492 million in 1998, $403 million in 1997 and $318 million
in 1996. Moreover, additions to the installed base of equipment leased to
customers was $104 million in 1998, $93 million in 1997 and $80 million in
1996.
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Item 3. Legal Proceedings.
Baxter 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, the Company 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 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's consolidated
financial position.
Mammary Implant Litigation
The Company, 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 formerly manufactured by the Heyer-Schulte division ("Heyer-
Schulte") of American Hospital Supply Corporation ("AHSC"). AHSC, which was
acquired by the Company in 1985, divested its Heyer-Schulte division in 1984.
It is not known how many of these claims and lawsuits involve products
manufactured and sold by Heyer-Schulte, as opposed to other manufacturers. On
December 1, 1998, a panel of independent medical experts appointed by a federal
judge announced their findings that reported medical studies contained no clear
evidence of a connection between silicone mammary implants and traditional or
atypical systemic diseases. It is not yet clear what effect this report will
have on the mammary implant litigation described below.
7
As of December 31, 1998, Baxter, together with certain of its subsidiaries,
had been named as a defendant or co-defendant in 5,805 lawsuits and 1,870
claims relating to mammary implants, brought by approximately 14,584
plaintiffs, of which 11,272 are implant plaintiffs and the remainder are
consortium or second generation plaintiffs. Of those plaintiffs, 5,417
currently are included in the Lindsey class action Revised Settlement described
below, which accounts for 2,209 of the pending lawsuits against the Company.
Additionally, 5,685 plaintiffs have opted out of the Revised Settlement
(representing 3,463 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, 1998, 2,264 of the opt-out plaintiffs
had confirmed Heyer-Schulte mammary implant product identification.
Furthermore, during 1998, Baxter obtained dismissals, or agreements for
dismissals, with respect to 7,324 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 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
(the "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
11 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.
In the fourth quarter of 1993, Baxter accrued $556 million for its estimated
liability resulting from the settlement of the Lindsey class action and
recorded a receivable for estimated insurance recoveries totaling $426 million,
resulting in a net charge of $130 million. Based on its continuing evaluation
of the remaining opt-outs, the Company accrued an additional $298 million for
its estimated liability to litigate or settle cases and claims involving opt-
outs and recorded an additional receivable for estimated insurance recoveries
totaling $258 million, resulting in an additional net charge of $40 million in
the first quarter of 1995.
In the third quarter of 1998, Baxter accrued an additional $250 million for
its estimated liability resulting from the class action settlement and
remaining opt-out cases and claims. Substantially more women have both
participated in, and opted out of, the global class action than originally
anticipated, thereby increasing the total estimated costs of this litigation
and necessitating an increase in litigation reserves. Baxter recorded a
receivable for related estimated insurance recoveries of $121 million,
resulting in an additional net charge of $129 million.
The mammary implant litigation includes issues related to which of Baxter's
insurers are responsible for covering each matter and the extent of the
Company's claims for contribution against third parties. 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 a number 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 $700 million, based on the
Company's current estimate of mammary implant expenditures. The
8
insurers with which Baxter has not reached coverage agreements generally 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. Baxter is engaged in active litigation with each of these
insurers and is negotiating with certain of them to resolve outstanding
insurance coverage issues.
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, 1998, Baxter had been named in 328 lawsuits and 411 claims
in the United States, Canada, Ireland, Italy, Taiwan, Japan, Argentina, France
and the Netherlands. All U.S. 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 (MDL Docket No. MDL-
986), and will be remanded in 1999 to the courts in which they were filed. The
Company also has been named in four purported class actions. None of these
class actions has been certified.
In most states, Baxter's potential liability is limited by 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.
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% of the total settlement proceeds.
The settlement requires insurance-carrier approval and the signing of
releases. 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, 1998, approximately 6,140 claimant groups had been found
eligible to participate in the settlement, and approximately 350 claimants had
opted out of the settlement. Approximately 5,765 of the claimant groups had
received payments as of December 31, 1998, and payments are expected to
continue through the first quarter of 1999 as releases are received from the
remaining claimant groups.
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, 1998, the cases
involved 1,295 plaintiffs, of whom 1,265 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% by the Japanese
government and 60% 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 approximately 15.36%. 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 Spain, Baxter was notified in 1995 that approximately 1,370 HIV-positive
people with hemophilia wished to explore settlement possibilities with the
Company in lieu of filing suit in both Spain and the United States.
9
The parties have reached agreement on the terms of a settlement whereby each
claimant will receive $25,000 (including attorneys' fees and costs) in return
for a general release and protection against contribution claims by other
defendants. As of December 31, 1998, all 1,370 claimants had agreed to the
settlement. Baxter does not expect any additional claimants to come forward.
In addition, Immuno International AG ("Immuno") 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. In addition, pursuant to the stock purchase agreement
between the Company and Immuno, approximately 84 million Swiss francs (or
approximately $61 million at year-end) of the purchase price was withheld to
cover these contingent liabilities. Based on management's estimates, the
Company has recorded a liability and a related insurance receivable with regard
to certain of the matters above.
Baxter is 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, 1998, Baxter was a
defendant in 53 lawsuits and 50 claims in the United States, Denmark, France,
Germany, Italy, Spain and the United Kingdom. Five suits currently pending in
the United States have been filed as purported class actions but only one 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 (Fayne, et al.,
v. Baxter Healthcare Corporation, U.S.D.C., C.D., CA, ML-95-160-R) and, after
an unsuccessful appeal by Baxter, refused to reconsider the propriety of the
class certification. Baxter intends to appeal certain class issues to the 9th
Circuit Court of Appeals while continuing to vigorously defend these cases.
Baxter has entered into coverage in place agreements covering factor
concentrates lawsuits with certain of its insurers that issued or subscribed to
policies of insurance between 1978 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 the
signatory insurers will reimburse the Company for factor concentrates losses.
The insurers with which Baxter has not reached coverage agreements generally
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. Baxter is engaged in active litigation and
negotiations with certain of these insurers to resolve outstanding insurance
coverage issues. 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.
In the fourth quarter of 1993, the Company accrued $131 million for its
estimated worldwide liability for litigation and settlement expenses involving
factor concentrates cases and recorded a receivable for insurance coverage of
$83 million, resulting in a net charge of $48 million. In the third quarter of
1995, significant developments occurred, primarily in the United States, Europe
and Japan relative to claims and litigation pertaining to Baxter's plasma-based
therapies. After analyzing circumstances in light of such developments and
considering various factors and issues unique to each geography, the Company
revised its estimated exposure from the $131 million previously recorded for
factor concentrates litigation to $378 million for all litigation relating to
plasma-based therapies, including the factor concentrates litigation and the
Gammagard(R) IVIG litigation. Related estimated insurance recoveries were
revised from $83 million for factor concentrates to $274 million for all
plasma-based therapies. This resulted in a net charge of $56 million in the
third quarter of 1995.
Baxter has settled and continues to settle claims and lawsuits relating to
its plasma-based therapies through court-ordered mediation and other
mechanisms. Based on this and other currently available information, the
Company revised its estimate of liabilities and insurance recoveries and, in
the third quarter of 1998, 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.
10
Other Litigation
As of September 30, 1996, the date of the spin-off of Allegiance Corporation
("Allegiance") from Baxter, 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, 1998, the Company had been named as a
defendant in 347 lawsuits, including the following purported class action:
Swartz v. Baxter Healthcare Corporation, et al. Court of Common Pleas,
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).
A purported class action was filed against Baxter, Caremark International
Inc. ("Caremark"), C.A. (Lance) Piccolo, James G. Connelly and Thomas W. Hodson
(all former 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 (the "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). On March 26, 1997, the Court
dismissed the action against the Company essentially on the ground that
plaintiffs lacked standing to bring this action, and on February 10, 1998, the
7th Circuit Court of Appeals affirmed the trial court's ruling. The plaintiffs'
petition for certiorari to the United States Supreme Court was denied on
October 5, 1998 and this federal suit is now concluded. Additionally, in
February 1997, the plaintiffs served a separate state court action, styled as a
class action, against Mr. Piccolo, Vernon R. Loucks Jr., William H. Gantz,
William B. Graham and James R. Tobin, alleging violations of various state laws
pertaining to the Caremark spin-off (Isquith, et al. v. C. A. (Lance) Piccolo,
et al; Circuit Court, Cook County, IL, Chancery Division, 96CH0013652). On
April 9, 1998, the trial court dismissed the plaintiffs' case with prejudice.
Plaintiffs' appeal to the Illinois Appellate Court was voluntarily dismissed in
December 1998 by the plaintiffs, also concluding this litigation.
Baxter has been named a potentially responsible party (a "PRP") for
environmental cleanup costs at 19 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 cleanup 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 10 of these sites, the largest of which is the Thermo-Chem
site in Muskegon, Michigan. In 1998, Baxter settled liability at one of the
nine sites not assumed by Allegiance. The estimated exposure for Baxter's
remaining eight 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.
11
- --------------------------------------------------------------------------------
PART II
- --------------------------------------------------------------------------------
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters.
Incorporated by reference from the Annual Report, page 50, section entitled
"Notes to Consolidated Financial Statements--Quarterly Financial Results and
Market for the Company's Stock (Unaudited)."
Item 6. Selected Financial Data.
Incorporated by reference from the Annual Report, inside back cover, 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 21-30, section
entitled "Management's Discussion and Analysis."
- --------------------------------------------------------------------------------
Item 7a. Quantitative and Qualitative Disclosures About Market Risk.
Incorporated by reference from the Annual Report, pages 27-28, section
entitled "Financial Instrument Market Risk."
- --------------------------------------------------------------------------------
Item 8. Financial Statements and Supplementary Data.
Incorporated by reference from the Annual Report, pages 31-50, 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.
12
- --------------------------------------------------------------------------------
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 4, 1999 (the "Proxy Statement"), pages 4-7, section entitled "Board of
Directors--Director Biographies."
(b) Identification of Executive Officers
Following are the names and ages, as of March 1, 1999, 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 on the date of
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
Vernon R. Loucks Jr., age 64, has been chairman of the board of directors
since 1987 and previously served as Baxter's chief executive officer from 1980
through 1998. Mr. Loucks was first elected an officer of Baxter in 1971.
Harry M. Jansen Kraemer, Jr., age 44, has been chief executive officer since
January 1999, and president of Baxter since March 1997. Mr. Kraemer previously
was the senior vice president and chief financial officer of Baxter from 1993
to 1997, and prior to that, was the vice president of finance and operations
for a subsidiary of Baxter.
Brian P. Anderson, age 48, has been senior vice president and chief financial
officer of Baxter since February 1998. Mr. Anderson previously was the vice
president of finance of Baxter since March 1997, and the corporate controller
since 1993.
Fabrizio Bonanni, age 52, has been a vice president of Baxter since 1995.
From 1994 to 1995, he was a corporate vice president of World Trade. Dr.
Bonanni previously was a vice president of a division of World Trade.
John F. Gaither, Jr., age 49, has been a vice president of Baxter since 1994.
Between 1991 and 1994, Mr. Gaither was vice president of law and strategic
planning for a subsidiary of Baxter, and prior to that, was secretary and
deputy general counsel of Baxter.
David C. McKee, age 51, has been a vice president of Baxter since 1996, and
was also secretary from February 1997 to February 1998. Since 1994, Mr. McKee
has been deputy general counsel of Baxter. Prior to that, he was associate
general counsel of Healthcare and World Trade.
Steven J. Meyer, age 42, has been treasurer of Baxter since February 1997.
From 1993 to 1997, Mr. Meyer was a vice president of international finance of a
business group of World Trade.
Kshitij Mohan, age 54, has been a vice president of Baxter since 1995. In
1995, Dr. Mohan also was a corporate vice president of World Trade. Dr. Mohan
previously was a vice president of a division of Healthcare.
13
John L. Quick, age 54, has been a vice president of Baxter since 1995. From
1994 to 1995, he was a corporate vice president of Healthcare. Mr. Quick
previously was a vice president of a division of Healthcare.
Jan Stern Reed, age 39, has been corporate secretary of Baxter since February
1998. She was assistant corporate secretary from February 1997 to February
1998. From 1995 to 1997, Ms. Reed was assistant corporate secretary of, and
counsel to, Wheelabrator Technologies Inc. Prior to that, she was counsel to
Waste Management, Inc. and Wheelabrator Technologies Inc.
Thomas J. Sabatino, age 40, has been a vice president and general counsel of
Baxter since December 1997. He was also assistant secretary from February 1997
to December 1997. From 1995 to December 1997, Mr. Sabatino was associate
general counsel of Healthcare. Prior to that, he was vice president and
assistant general counsel of Tenet Healthcare Corporation from March 1995 to
July 1995. From April 1994 to March 1995, he was vice president and general
counsel of American Medical International, Inc., and from September 1993 to
March of 1994, he was acting general counsel of that company.
Michael J. Tucker, age 46, has been a senior vice president of Baxter since
1995. From 1994 to 1995, he was a corporate vice president of World Trade. Mr.
Tucker previously 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.
(2) Healthcare and World Trade Executive Officers
Timothy B. Anderson, age 52, has been a group vice president of Healthcare
and World Trade since 1994. Prior to that, Mr. Anderson was a vice president of
Baxter.
Eric A. Beard, age 47, has been a corporate vice president of World Trade
since October 1998. Prior to that, he was president of a division of a
subsidiary of World Trade.
Carlos del Salto, age 56, has been a senior vice president of World Trade
since 1996. From 1994 to 1996, Mr. del Salto was a corporate vice president of
World Trade. Prior to that, Mr. del Salto was a vice president of Baxter.
David F. Drohan, age 60, has been a corporate vice president of Healthcare
since 1996. Prior to that, Mr. Drohan was president of a division of
Healthcare.
James M. Gatling, age 49, has been a corporate vice president of Healthcare
since 1996. Prior to that, Mr. Gatling was a vice president of a division of
Healthcare.
Thomas H. Glanzmann, age 40, has been a corporate vice president of World
Trade and Healthcare since October 1998. Prior to that, he was president of a
division of a subsidiary of World Trade.
J. Robert Hurley, age 49, has been a corporate vice president of World Trade
since 1993.
Donald W. Joseph, age 61, has been a group vice president of Healthcare and
World Trade since 1994. Prior to that, Mr. Joseph was a vice president of
Baxter.
Jack L. McGinley, age 52, has been a group vice president of Healthcare since
1994. Prior to that, Mr. McGinley was a vice president of Baxter.
Michael A. Mussallem, age 46, has been a group vice president of Healthcare
since 1994. From 1993 to 1994, Mr. Mussallem was president of a division of
Healthcare, and prior to that, was president of another division of that
subsidiary.
Roberto E. Perez, age 49, has been a corporate vice president of Healthcare
and World Trade since 1995. Prior to that, Mr. Perez was president of a
division of a subsidiary of Baxter.
(c) Compliance with Section 16(a) of the Securities Exchange Act of 1934.
Not applicable.
14
- --------------------------------------------------------------------------------
Item 11. Executive Compensation.
Incorporated by reference from the Proxy Statement, pages 9 and 14-17,
sections entitled "Compensation of Directors" and "Executive Compensation" and
page 17, section entitled "Pension Plan, Excess Plans and Supplemental Plans."
Item 12. Security Ownership of Certain Beneficial Owners and Management.
Incorporated by reference from the Proxy Statement, pages 19-20, section
entitled "Ownership of Baxter Stock."
Item 13. Certain Relationships and Related Transactions.
None.
15
- -------------------------------------------------------------------------------
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 32
Consolidated Statements of Income Annual Report, page 33
Consolidated Statements of Cash Flows Annual Report, page 34
Consolidated Statements of Stockholders' Equity Annual Report, page 35
Notes to Consolidated Financial Statements Annual Report, pages 36-
Report of Independent Accountants 50
Annual Report, page 31
Schedules Required By Article 12 of Regulation S-X
Report of Independent Accountants on Financial
Statement Schedule page 17
II Valuation and Qualifying Accounts page 18
All other schedules have been omitted because they are not applicable or
not required.
(b) Reports on Form 8-K
During the fourth quarter of 1998, the Company filed two current reports on
Form 8-K; each under Item 5., "Other Events." The first, dated December 2,
1998, filed a press release disclosing the adoption of a replacement
stockholder rights plan. The second, dated December 15, 1998, filed the
related rights agreement as an exhibit.
(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.
16
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 5, 1999 (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.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Chicago, Illinois
February 5, 1999
17
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
of period expenses accounts (A) reserves period
- --------------------------------------------------------------------------------
Year ended December 31,
1998:
Allowance for doubtful
accounts $ 29 $ 15 $ 0 $ (3) $ 41
Inventory reserves 77 139 2 (112) 106
Litigation reserves 599 430 0 (331) 698
Restructuring reserves 44 131 (1) (108) 66
Acquisition reserves 150 0 30 (53) 127
Deferred tax asset
valuation allowance 45 7 1 (19) 34
- --------------------------------------------------------------------------------
Year ended December 31,
1997:
Allowance for doubtful
accounts 24 9 (1) (3) 29
Inventory reserves 64 90 0 (77) 77
Litigation reserves 807 0 109 (317) 599
Restructuring reserves 74 0 (2) (28) 44
Acquisition reserves 65 0 107 (22) 150
Deferred tax asset
valuation allowance 36 13 12 (16) 45
- --------------------------------------------------------------------------------
Year ended December 31,
1996:
Allowance for doubtful
accounts 22 5 (2) (1) 24
Inventory reserves 44 84 1 (65) 64
Litigation reserves 1,124 0 0 (317) 807
Restructuring reserves 147 0 (2) (71) 74
Acquisition reserves 0 0 92 (27) 65
Deferred tax asset
valuation allowance 30 11 5 (10) 36
- --------------------------------------------------------------------------------
(A) Valuation accounts of acquired or divested companies and foreign currency
translation adjustments. Reserves are deducted from assets to which they
apply.
18
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/ Harry M. Jansen Kraemer, Jr.
By:____________________________________
Harry M. Jansen Kraemer, Jr.
A Director, and Chief Executive
Officer
Date: March 18, 1999
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 Officers: (iv)A Majority of the Board of
Directors
/s/ Vernon R. Loucks Jr.
Walter E. Boomer
Vernon R. Loucks Jr. Pei-yuan Chia
Chairman of the Board of Directors John W. Colloton
Susan Crown
/s/ Harry M. Jansen Kraemer, Jr. Mary Johnston Evans
Frank R. Frame
Harry M. Jansen Kraemer, Jr. Martha R. Ingram
Director, and Chief Executive Arnold J. Levine
Officer Georges C. St. Laurent, Jr.
Vernon R. Loucks Jr.
(ii) Principal Financial Officer: Monroe E. Trout, M.D.
Fred L. Turner
/s/ Brian P. Anderson
/s/ Harry M. Jansen Kraemer, Jr.
Brian P. Anderson By: ____________________________________
Senior Vice President and Chief Harry M. Jansen Kraemer, Jr.
Financial Officer Director and Attorney-in-Fact
(iii) Controller:
/s/ Brian P. Anderson
Brian P. Anderson
Senior Vice President and Chief
Accounting Officer
19
- --------------------------------------------------------------------------------
APPENDICES
Description Page
- ----------- ----
Computation of Ratio of Earnings to Fixed Charges (Exhibit 12) 23
Subsidiaries of the Company (Exhibit 21) 24
- --------------------------------------------------------------------------------
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
Company's annual report on Form 10-K for the year ended December
31, 1997, file number 1-4448 (the "1997 Form 10-K").
3.4 Certificate of Designation of Series B Junior Participating
Preferred Stock.
Instruments defining the rights of security holders, including
4. indentures
4.1* 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.
4.2* Amended and Restated Indenture dated November 15, 1985 (the
"Indenture"), between the Company and 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).
4.3* First Supplemental Indenture to the Indenture between the
Company and 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).
4.4* Supplemental Indenture dated as of January 29, 1997, between the
Company and First Trust National Association (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").
4.5* 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 Company's annual report on Form 10-K for the
year ended December 31, 1985 (the "1985 Form 10-K").
4.6* 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").
4.7* 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.
4.8* 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.
4.9* 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.
20
Number and Description of Exhibit
---------------------------------
4.10* 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").
4.11* Specimen 7.65% Debenture, filed as exhibit 4.11 to the 1996
Form 10-K.
4.12* Contingent Payment Rights Agreement, filed under the Securities
Act of 1933 as exhibit 4.2 to the Company's registration
statement on Form S-4 (No. 333-47927).
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,
file no. 1-4448.
C 10.2* 1988 Long-Term Incentive Plan, filed as exhibit 10.12 to the
1987 Form 10-K.
C 10.3* 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").
C 10.4* 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").
C 10.5* Stock Option Plan Adopted July 25, 1988, filed as exhibit 10.13
to the 1988 Form
10-K.
C 10.6* 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").
C 10.7* Baxter International Inc. and Subsidiaries Incentive Investment
Excess Plan, filed as exhibit 10.17 to the 1988 Form 10-K.
C 10.8* Baxter International Inc. and Subsidiaries Supplemental Pension
Plan, filed as exhibit 10.18 to the 1988 Form 10-K.
C 10.9* Limited Rights Plan, filed as exhibit 19.6 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").
C 10.10* Amendments to various plans regarding disability, filed as
exhibit 19.9 to the September, 1989 Form 10-Q.
C 10.11* 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.
C 10.12* 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.
10.13* 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.
C 10.14* Amendment to 1987 Incentive Compensation Program, filed as
exhibit 19.1 to September, 1989 Form 10-Q.
C 10.15* 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").
C 10.16* Vernon R. Loucks Restricted Stock Grant Terms and Conditions,
filed as exhibit 10.26 to the 1991 Form 10-K.
C 10.17 Deferred Compensation Plan, amended and restated effective
January 1, 1998.
C 10.18* Restricted Stock Plan for Non-Employee Directors (as amended
and restated in 1992), filed as exhibit 10.28 to the 1992 Form
10-K.
C 10.19* Restricted Stock Grant Terms and Conditions (as amended), filed
as exhibit 10.31 to the 1992 Form 10-K.
21
Number and Description of Exhibit
---------------------------------
C 10.20* 1992 Officer Incentive Compensation Plan, filed as exhibit
10.29 to the 1992 Form 10-K.
C 10.21* 1993 Officer Incentive Compensation Plan, filed as exhibit
10.30 to the 1992 Form 10-K.
C 10.22* 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").
C 10.23* Corporate Aviation Policy, filed as exhibit 10.33 to the 1992
Form 10-K.
C 10.24* Plan and Agreement of Reorganization between Baxter and
Caremark International Inc., filed as exhibit 10.34 to the 1992
Form 10-K.
C 10.25* 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.
C 10.26* 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.
C 10.27* 1995 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, 1994 (the "1994 Form 10-K").
C 10.28* Baxter International Inc. Restricted Stock Plan for Non-
Employee Directors, as amended and restated effective May 8,
1995, filed as exhibit 10.32 to the 1994 Form 10-K.
C 10.29* 1996 Officer Incentive Compensation Plan, filed as exhibit
10.33 to the Company's annual report on Form 10-K for the year
ended December 31, 1995 (the "1995 Form 10-K").
C 10.30* 1995 Stock Option Grant Terms and Conditions, filed as exhibit
10.34 to the 1995 Form 10-K.
10.31* Reorganization Agreement between Baxter and Allegiance
Corporation, filed as exhibit 2 to the Form 10 registration
statement, file no. 1-11885, dated September 20, 1996.
C 10.32* Supplemental Pension Agreement: Jack L. McGinley, filed as
exhibit 10.32 to the 1996 Form 10-K.
C 10.33* November 1996 Stock Option Grant Terms and Conditions, filed as
exhibit 10.33 to the 1996 Form 10-K.
C 10.34* November 1996 Premium Price Stock Option Grant Terms and
Conditions, filed as exhibit 10.34 to the 1996 Form 10-K.
C 10.35* Officer Incentive Compensation Plan, filed as exhibit 10.35 to
the 1996 Form 10-K.
C 10.36* November 1997 Stock Option Grant Terms and Conditions, filed as
exhibit 10.36 to the 1997 Form 10-K.
C 10.37* 1998 Incentive Compensation Program, filed as exhibit 10.37 to
the 1997 Form 10-K.
C 10.38* Long Term Incentive Plan, filed as exhibit 10.38 to the 1997
Form 10-K.
C 10.39* Special Stock Option Plan adopted February 17, 1998, filed
under the Securities Act of 1933 as exhibit 4.6 to the
Company's registration statement on Form S-8 (No. 333-71553).
10.40 Stock Option Plan adopted February 17, 1998.
12. Statements re: computation of ratios.
13. 1998 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 PricewaterhouseCoopers LLP.
24. Powers of Attorney.
27. Financial Data Schedules.
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*Incorporated herein by reference.
CExhibit contemplated by Item 14(a)(3) of Form 10-K.
(All other exhibits are inapplicable or not required.)
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