<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
- - ------ EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1994
- - ------ 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
BAXTER INTERNATIONAL INC.
-------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 36-0781620
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
ONE BAXTER PARKWAY, DEERFIELD, ILLINOIS 60015-4633
- - ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(708) 948-2000
-------------------------------
(Registrant's telephone number,
including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
The number of shares of the registrant's Common Stock, $1 par value, outstanding
as of October 31, 1994 the latest practicable date, was 282,949,900 shares.
<PAGE>
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Baxter International Inc. and Subsidiaries
Condensed Consolidated Statements of Income (Unaudited)
<TABLE>
<CAPTION>
- - -----------------------------------------------------------------------------------------------------------
(In millions, except per share data) Three Months Ended Nine Months Ended
September 30, September 30,
1994 1993 1994 1993
<S> <C> <C> <C> <C>
Operations
Net Sales $2,315 $2,228 $6,824 $6,484
Costs and expenses
Cost of goods sold 1,494 1,423 4,431 4,129
Marketing and administrative expenses 468 471 1,367 1,403
Research and development expenses 88 81 248 244
Settlement of patent litigation 0 0 0 105
Interest, net 47 47 143 141
Goodwill amortization 16 17 50 50
Other 0 15 20 13
- - -----------------------------------------------------------------------------------------------------------
Total costs and expenses 2,113 2,054 6,259 6,085
- - -----------------------------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------------------------
Income before income taxes and cumulative
effect of accounting changes 202 174 565 399
Income tax expense 53 39 141 75
- - -----------------------------------------------------------------------------------------------------------
Income before cumulative effect of accounting
changes 149 135 424 324
Cumulative effect of changes in accounting
principles, net of income taxes 0 0 0 70
- - -----------------------------------------------------------------------------------------------------------
Net income $149 $135 $424 $394
- - -----------------------------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------------------------
Earnings per common share
Operations $0.53 $0.49 $1.52 $1.17
Cumulative effect of changes in accounting
principles 0.00 0.00 0.00 0.25
- - -----------------------------------------------------------------------------------------------------------
Net income $0.53 $0.49 $1.52 $1.42
- - -----------------------------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------------------------
Average number of common shares outstanding 283 277 279 277
- - -----------------------------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
-3 -
Baxter International Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
- - -------------------------------------------------------------------------------------------------
(In millions, except shares) September 30, December 31,
1994 1993
(Unaudited)
<S> <C> <C> <C>
Current assets Cash and equivalents $ 349 $ 479
Accounts receivable 1,513 1,594
Notes and other current
receivables 163 82
Inventories 1,764 1,772
Other 518 495
----------------------------------------------------------------------------
Total current assets 4,307 4,422
- - -----------------------------------------------------------------------------------------------
Property, At cost 4,764 4,491
plant and Accumulated depreciation
equipment and amortization (2,084) (1,836)
----------------------------------------------------------------------------
Net property, plant and equipment 2,680 2,655
- - -----------------------------------------------------------------------------------------------
Goodwill and other non-current assets 3,309 3,468
- - -----------------------------------------------------------------------------------------------
Total assets $10,296 $10,545
- - -----------------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------------
Current
liabilities Short-term debt $ 597 $ 822
Accounts payable and other
current liabilities 2,028 2,111
----------------------------------------------------------------------------
Total current liabilities 2,625 2,933
- - ------------------------------------------------------------------------------------------------
Long-term debt and lease obligations 2,416 2,800
- - -----------------------------------------------------------------------------------------------
Non-current liabilities and long-term deferred taxes 1,594 1,627
- - -----------------------------------------------------------------------------------------------
Stockholders' Common stock, $1 par value,
equity authorized 350,000,000 shares,
issued 287,701,247 shares in
1994 and 1993 288 288
Additional contributed capital 1,827 1,883
Retained earnings 1,662 1,452
Common stock in treasury, at cost,
4,893,243 shares in 1994 and
11,187,278 shares in 1993 (129) (350)
Foreign currency adjustment 13 (88)
----------------------------------------------------------------------------
Total stockholders' equity 3,661 3,185
- - ------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $10,296 $10,545
- - -----------------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
- 4 -
Baxter International Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited)
<TABLE>
<CAPTION>
- - ----------------------------------------------------------------------------------------------------------
Nine months ended September 30, (in millions) 1994 1993
(Brackets denote cash outflows)
<S> <C> <C> <C>
Cash flow provided Income before cumulative effect
by operations of accounting changes $424 $324
Adjustments
Depreciation and amortization 390 363
Deferred income taxes 31 30
Asset dispositions, net (pre-tax) (28) (39)
Other 16 74
Changes in balance sheet items
Accounts receivable 97 71
Inventories 31 (165)
Accounts payable and other
accrued liabilities (125) (80)
Restructuring program payments (74) (21)
Other 40 (38)
--------------------------------------------------------------------------
Cash flow provided by operations 802 519
- - ----------------------------------------------------------------------------------------------------------
Investment Capital expenditures (1) (301) (377)
transactions Acquisitions (net of cash received)
and investments in affiliates (48) (100)
Proceeds from asset dispositions 86 68
----------------------------------------------------------------------------
Investment transactions, net (263) (409)
- - ----------------------------------------------------------------------------------------------------------
Financing Issuances of debt and lease
transactions obligations 1,524 1,393
Redemption of debt and lease
obligations (1,677) (1,010)
Increase (decrease) in debt with maturities
of three months or less, net (473) 251
Stock issued under Shared
Investment Plan 121 0
Common stock dividends (213) (208)
Common stock issued under employee
benefit plans 42 43
Purchase of treasury stock 0 (124)
-----------------------------------------------------------------------------
Financing transactions, net (676) 345
- - -----------------------------------------------------------------------------------------------------------
Effect of foreign exchange rate changes on cash
and equivalents 7 (9)
- - -----------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and equivalents (130) 446
Cash and equivalents at beginning of period 479 32
- - -----------------------------------------------------------------------------------------------------------
Cash and equivalents at end of period $349 $478
- - -----------------------------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to condensed consolidated financial statements.
(1) Includes additions to the pool of equipment leased or rented to customers.
</TABLE>
<PAGE>
- 5-
Baxter International Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
FINANCIAL INFORMATION
The unaudited interim condensed consolidated financial statements of Baxter
International Inc. and its subsidiaries ("the Company" or "Baxter") have been
prepared pursuant to the rules and regulations of the Securities and Exchange
Commission. Accordingly, certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. These interim
consolidated financial statements should be read in conjunction with the
condensed consolidated financial statements and notes included in the Company's
1993 Annual Report to Stockholders.
In the opinion of management, the interim condensed consolidated financial
statements reflect all adjustments necessary for a fair presentation of the
interim periods. The results of operations for the interim period are not
necessarily indicative of the results of operations to be expected for the full
year.
INVENTORIES
Inventories consisted of the following (in millions):
<TABLE>
<CAPTION>
September 30, December 31,
1994 1993
(Unaudited)
<S> <C> <C>
Raw materials $ 250 $ 238
Work in process 229 221
Finished products 1,285 1,313
------ ------
Total inventories $1,764 $1,772
------ ------
------ ------
</TABLE>
Credit Facilities
In July, 1994, the Company amended its $1 billion credit facility (with
commitments to run to August, 1996 with two one-year extensions) to be a $953
million five-year facility which would expire in August, 1999 and amended its
$500 million credit facility (scheduled to expire in August, 1994) to be a $477
million facility which expires in July, 1995. The primary reasons for the
amendments were to lengthen the time periods of the credit facilities and to
lower the associated fees. The changes in the amounts of the facilities were
due to changes in the participating banks supporting the facilities. The
amended agreements contain covenants substantially identical to the prior
facilities.
<PAGE>
- 6 -
INTEREST - NET
<TABLE>
<CAPTION>
Interest - net consists of the following (unaudited):
- - -----------------------------------------------------------------------
(in millions) Three months ended Nine months ended
September 30, September 30,
1994 1993 1994 1993
<S> <C> <C> <C> <C>
Interest expense $57 $56 $177 $163
Interest income (10) (9) (34) (22)
- - -----------------------------------------------------------------------
Interest - net $47 $47 $143 $141
- - -----------------------------------------------------------------------
- - -----------------------------------------------------------------------
</TABLE>
SUBSEQUENT EVENT - PLANNED DIVESTITURE
In October, 1994, the Company announced that it had signed a definitive
agreement to sell its diagnostics manufacturing businesses to Diagnostics
Holding, Inc. ("Holding"), a company organized by Bain Capital, Inc. The
proceeds to Baxter will consist of $40 million senior securities of Holding and
$408 million in cash, reduced by retained accounts receivable as of the closing
date. The final net value to Baxter will vary depending on various closing and
post-closing adjustments, retained liabilities and the ongoing benefits Baxter
will derive as the exclusive U.S. distributor of diagnostics products in the
future.
SUBSEQUENT EVENT - ACQUISITION
In November, 1994, the Company acquired Intramed Laboratories, Inc., a company
that develops, manufactures and markets cost-effective miniature endoscopes and
therapeutic devices for minimally invasive surgery, diagnosis and treatment
monitoring. Baxter issued approximately 365,000 shares of its common stock.
This transaction will be accounted for under the "purchase method" of
accounting.
LEGAL PROCEEDINGS
Please refer to "Part II - Item 1. Legal Proceedings" which begins on page 17
of this document for the status of cases and claims from individuals seeking
damages for injuries allegedly caused by silicone gel-filled mammary prostheses
("breast implants") manufactured by a division of American Hospital Supply
Corporation. That section also discusses the status of lawsuits and claims
involving individuals suffering with hemophilia, seeking damages for injuries
allegedly caused by anti-hemophilic factor VIII and IX concentrates derived from
human blood plasma processed and sold by the Company and other commercial
producers.
<PAGE>
- 7 -
Item. 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The Company's 1993 Annual Report to Stockholders ("ARS") contains management's
discussion and analysis of financial condition and results of operations at and
for the year ended December 31, 1993. In the ARS, management outlined its key
financial objectives in 1994 which are summarized as follows:
* Improve operational cash flows to $450 million in 1994 thereby allowing
the Company to remain debt-neutral in 1994, after payment of dividends
and all financing costs;
* Grow sales in the high single digit percentage range; the Company now
anticipates that its future sales growth will be below its earlier
expectations of sales growing in the high single digit percentage range as
its sales growth continues to slow in the U.S. market;
* Grow net earnings in the high single digit percentage range;
* Hold operating expenses flat for 1994 and 1995 and position Baxter to
further reduce its expense ratio in the years beyond 1995;
* Reduce the Company's net debt to net capital ratio from approximately 50%
at the end of 1993 to the mid 40's by the end of 1994, before considering
the use of any proceeds from the divestiture of the Diagnostics
manufacturing businesses; and
* Complete the divestiture of Baxter's Diagnostics manufacturing businesses.
The following discussion and analysis demonstrates that management is making
significant progress toward the accomplishment of the above objectives, except
for the attainment of anticipated domestic sales growth as discussed above.
Trends of a material nature and material changes in the Company's financial
condition since December 31, 1993, are discussed to the extent known and
considered relevant. The analysis of results compares the three months and nine
months ended September 30, 1994 with the corresponding periods of 1993.
RESULTS OF OPERATIONS
Third quarter net sales increased 4% to $2.3 billion and net sales for the nine
months ended September 30, 1994 increased 5% to $6.8 billion. The following
table shows net sales for each industry segment (unaudited):
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------------------------------
(in millions) Three months ended Nine months ended
September 30, Percent September 30, Percent
1994 1993 Increase 1994 1993 Increase
<S> <C> <C> <C> <C> <C> <C>
Medical specialties $901 $807 12% $2,586 $2,371 9%
Medical/laboratory products and
distribution 1,414 1,421 0% 4,238 4,113 3%
- - ----------------------------------------------------------------------------------------------------------
Total net sales $2,315 $2,228 4% $6,824 $6,484 5%
- - ----------------------------------------------------------------------------------------------------------
- - ----------------------------------------------------------------------------------------------------------
</TABLE>
Sales growth in the medical specialties segment was strong for both the quarter
and nine month periods, particularly for the Biotech, Cardiovascular and Renal
units. Sales in the medical/laboratory
<PAGE>
- 8 -
products and distribution segment were flat for the quarter ended September 30,
1994. This trend reflects continued pricing pressures on certain product lines,
the loss of some Columbia/HCA contracts and the decline in sales of diagnostics
products as a result of reduced capital purchases by hospitals and uncertainties
regarding Baxter's plans for the divestiture of its Diagnostics manufacturing
businesses.
Domestic sales for the third quarter of 1994 were approximately $1.65 billion,
an increase of 1.5% over the comparable period in 1993. Domestic sales for the
nine months ended September 30, 1994 were approximately $4.9 billion, an
increase of 4% over the comparable 1993 period. Sales from international
markets in the third quarter were $662 million, representing a 10% increase over
1993, while international sales in the nine month period rose 8% to a level of
$1.9 billion. International sales growth in local currency was approximately 9%
for both the third quarter and nine months ended September 30, 1994.
The gross profit rate was 35.5% for the quarter ended September 30, 1994, versus
36.1% for the prior year and was 35.1% for the nine months ended September 30,
1994, versus 36.3% for the similar period of 1993. These declines reflect
pricing pressures on certain product lines, a heavier mix of lower-margin
distributed products, and the voluntary market withdrawal of Gammagard
- - -REGISTERED TRADEMARK- IGIV, an immune globulin intravenous product. In the
second quarter of 1994, a new product, Gammagard -REGISTERED TRADEMARK- S/D was
licensed for sale in the United States and Germany. This product was previously
approved for sale in Sweden, Finland, Iceland, Holland and the United Kingdom.
This product is the second generation of Gammagard -REGISTERED TRADEMARK- IGIV.
Gammagard -REGISTERED TRADEMARK- S/D is treated with a solvent and two
detergents known to inactivate viruses such as hepatitis B, hepatitis C and HIV.
The gross margin rate was 34.7%, 35.1% and 35.5% for the quarters ended March
31, 1994, June 30, 1994 and September 30, 1994, respectively.
Savings in marketing and administrative expenses continue to offset the gross
margin erosion. Marketing and administrative expenses as a percent of sales
were 20.2% and 20.0% for the quarter and nine months ended September 30, 1994,
versus 21.1% and 21.6% for the similar periods in 1993. This decrease reflects
improved expense leveraging as a result of initiatives taken in connection with
the 1993 downsizing and restructuring programs. As mentioned above, the company
expects to hold marketing and administrative expenses flat for the next two
years and to further reduce the expense ratio over the next five years. The
three months ended September 30, 1993 included a $13 million charge taken to
provide for staff reductions in the Company's diagnostics businesses. The nine
months ended September 30, 1993, included $53 million in charges to provide for
staff reductions in the Company's hospital and diagnostics businesses. These
charges were taken as part of ongoing efforts to reduce marketing and
administrative expenses and drive more efficiencies through re-engineering of
the administrative and field support operations. The 1993 nine month charge of
$53 million was partially offset by a $35 million gain from the sale of a minor
business unit.
<PAGE>
- 9 -
The following table shows research and development expenses for each industry
segment (unaudited):
<TABLE>
<CAPTION>
(in millions) Three months ended Percent Nine months ended Percent
September 30, Increase September 30, Increase
1994 1993 (Decrease) 1994 1993 (Decrease)
<S> <C> <C> <C> <C> <C> <C>
Medical specialties $66 $58 14% $185 $169 9%
Medical/laboratory products and
distribution 22 23 (4%) 63 75 (16%)
- - ----------------------------------------------------------------------------------------------------------------
Total research and development
expenses $88 $81 9% $248 $244 2%
- - ----------------------------------------------------------------------------------------------------------------
- - ----------------------------------------------------------------------------------------------------------------
</TABLE>
The Company's research and development expenses ("R&D") increased 9% to $88
million and increased 2% to $248 million for the three and nine months ended
September 30, 1994, respectively, as compared to the similar periods of 1993,
primarily as a result of the Company's strategic review of research and
development initiatives. R&D expenses have increased in the medical specialties
segment as the company continues to increase its investment in high-growth,
strategic initiatives such as renal therapy and transplants, Novacor and Blood
Substitutes. The decrease in R&D spending in the medical/laboratory products
and distribution segment is related to the rationalization of projects being
developed in the diagnostics businesses.
The operating results for the first nine months of 1993 included the effect of a
worldwide settlement of patent litigation with Scripps Research Institute and
Rhone-Poulenc Rorer, Inc. ("Rorer"), which required Baxter to pay $105 million
to Rorer, and reduced earnings per share by $.23.
The increase in interest expense is primarily due to higher interest rates.
Interest income improved due to improved returns on the Company's portfolio of
investments.
Other costs and expenses includes approximately $2 million in net losses and $27
million in net gains for the three and nine months ended September 30, 1994 (as
compared to $0 million and $39 million in net gains in the similar periods of
1993), associated with the disposal or discontinuance of minor, non-strategic
businesses and investments.
Income before income taxes was $202 million and $565 million for the three and
nine months ended September 30, 1994 versus $174 million and $399 million for
the comparable periods of 1993. The following table shows income before income
taxes for each industry segment (unaudited):
<TABLE>
<CAPTION>
(in millions) Three months ended Percent Nine months ended
September 30, Increase September 30, Percent
1994 1993 (Decrease) 1994 1993 Increase
<S> <C> <C> <C> <C> <C>
Medical specialties $168 $145 16% $444 $337 32%
Medical/laboratory products and
distribution 106 109 (3%) 340 295 15%
General corporate and other (25) (33) (76) (92)
Interest - net (47) (47) (143) (141)
- - -------------------------------------------------------------------------------------------------------------
Total income before income taxes $202 $174 16% $565 $399 42%
- - -------------------------------------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
- 10 -
The increase in pretax income in the medical specialties segment for the quarter
ended September 30, 1994 is primarily due to the strong results of the Biotech
Group. The increase in pretax income in the medical specialties segment for the
nine month period is primarily due to the reduction in the 1993 operating
results for this segment as a result of the $105 million settlement of the
patent litigation described above offset by the effect of the decrease in the
1994 sales of Gammagard -REGISTERED TRADEMARK- IGIV and related rework costs
related to the voluntary market withdrawal discussed above. The medical
specialties segment was also adversely impacted for the nine months ended
September 30, 1994 by weaker foreign currency exchange rates.
The medical/laboratory products and distribution segment's income before income
taxes decreased 3% for the third quarter ended September 30, 1994, as compared
to the similar period of 1993 as a result of lower sales (as discussed above),
the impact of a lower gross margin related to pricing pressures and a heavier
mix of lower-margin products. The medical/laboratory products and distribution
segment increased 15% for the nine months ended September 30, 1994, as compared
to the similar periods of 1993 as a result of the benefits of cost containment
measures implemented throughout 1993 and the first nine months of 1994, a
decrease in the level of net gains of divestitures in 1994 offset by the $53
million of downsizing costs incurred in the second and third quarters of 1993.
The net decrease in costs in general corporate and other for the three and nine
month periods ended September 30, 1994, primarily reflects the impact of cost-
savings achieved in connection with the restructuring program and the effect of
net gains associated with the disposal or discontinuance of minor, non-strategic
business investments.
The effective tax rate was 26.2% and 25.0% for the three and nine months ended
September 30, 1994, versus 22.4% and 23.2% (excluding the tax effects from the
patent litigation settlement described above) for the similar periods of 1993.
These increases are primarily due to a larger proportion of earnings generated
in higher-tax jurisdictions during 1994.
Net income increased 10% to $149 million for the quarter ended September 30,
1994, as compared to the prior year. Earnings per share increased 8% to 53
cents for the similar period. The lower EPS growth reflects the dilution due to
the shares sold to Senior Management ("Shared Investment Plan") which is
discussed later.
Income before cumulative effect of accounting changes was $424 million for the
nine months of 1994 versus $324 million in the comparable period of 1993.
Earnings per common share from operations increased from $1.17 to $1.52. As
described above, the settlement of patent litigation reduced earnings per share
in 1993 by 23 cents. Earnings per share from operations, excluding the
settlement of patent litigation in 1993, increased 9% from the prior year. This
increase in 1994 reflects general growth in the Company's operations and
improved expense control.
The 1993 benefit for the cumulative effect of adopting FASB Statement No. 109,
"Accounting for Income Taxes" was $81 million, or 29 cents per common share.
This Statement was adopted on January 1, 1993. The 1993 charge for the
cumulative effect of adopting FASB Statement No.112, "Accounting for
Postemployment Benefits" was $11 million (net of $7 million in income tax
benefits) or 4 cents per common share. Statement No. 112 was adopted during the
fourth quarter of 1993, retroactive to January 1, 1993.
<PAGE>
- 11 -
RESTRUCTURING PROGRAM
In 1993, the Company announced a major restructuring program which resulted in a
$700 million pre-tax charge in the fourth quarter. As discussed in last year's
ARS, the major objectives of the restructuring program were to make the
Company's domestic medical/laboratory products and distribution segment more
efficient and more responsive in addressing the sweeping changes occurring in
the U.S. health-care system and accelerate growth of its medical specialties
businesses worldwide.
Since the announcement of the restructuring program, the Company has
implemented, or is in the process of implementing all of the major strategic
actions associated with the restructuring program and is satisfied that such
programs are progressing on schedule and that the overall restructuring program
will meet established financial targets.
For the nine months ended September 30, 1994, the Company has utilized
approximately $111 million of its restructuring reserves, including $37 million
of non-cash items. The Company expects to realize approximately $90 million in
savings for the total year 1994 as compared to its initial estimate of
approximately $100 million. The reduction in anticipated savings in 1994 is due
primarily to delays in the start-up of certain projects. Management believes
that its overall savings to be realized in 1995 and beyond will be substantially
consistent with earlier estimates disclosed in the ARS. Management anticipates
that these savings will be partially invested in increased research and
development spending and the Company's expansion into growing international
markets.
LIQUIDITY AND CAPITAL RESOURCES
Management assesses the Company's liquidity in terms of its overall ability to
mobilize cash to support ongoing business levels and to fund its growth.
Cash flow provided by continuing operations (which includes working capital
components) increased to $802 million from a level of $519 million for the nine
months ended September 30, 1994. This increase primarily reflects the increase
in income and improved balance sheet management, including approximately $100
million of proceeds for the sale of certain lease receivables discussed later.
Management believes that this level of cash flow is sufficient to support normal
ongoing business requirements.
As a result of the Company's increased emphasis on cash flow, management
introduced a new internal performance measure called "operational cash flow"
which evaluates each operating business on all aspects of cash flow under their
direct control. Management's objective in 1994 is to generate operational cash
flow of at least $450 million (after the payment of restructuring costs planned
in 1994) compared to $292 million in operational cash flow in 1993. The Company
has realized $650 million in operational cash flow for the nine months ended
September 30, 1994, thus, exceeding its goal for the entire year of 1994. In
addition, the incentive compensation programs for the Company's senior
management in each business have been modified to include significant emphasis
on the attainment of both operational cash flow as well as earnings objectives.
<PAGE>
- 12 -
The following table reconciles cash flow provided by continuing operations, as
determined by generally accepted accounting principles, to the Company's
internal measure of operational cash flow (unaudited):
<TABLE>
<CAPTION>
- - -------------------------------------------------------------------------------
(in millions) (Brackets denote cash outflows) Nine Months Ended
September 30,
1994 1993
<S> <C> <C>
Cash flow provided by operations per the Company's
condensed consolidated statements of cash flows $802 $519
Capital expenditures (301) (377)
Net interest after tax 86 84
Other 63 15
- - -------------------------------------------------------------------------------
Total operational cash flow $650 $241
- - -------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------
</TABLE>
Investment transactions for the nine months ended September 30, 1994 totaled
$263 million (compared to the $409 million expended in the similar period of
1993), and included $301 million in capital expenditures and additions to the
pool of equipment leased or rented to customers, $6 million for the acquisition
of minor businesses and investment positions for the purpose of acquiring
technologies, broadening product lines or expanding market coverage, $42 million
of payments of previously recorded acquisition-related liabilities of American
Hospital Supply Corporation and $86 million in proceeds from the disposal or
discontinuance of minor, non-strategic business units and investments.
The following table shows capital expenditures for each industry segment
(unaudited):
<TABLE>
<CAPTION>
- - -------------------------------------------------------------------------------
(in millions) Nine months ended Percent
September 30, Increase
1994 1993 (Decrease)
<S> <C> <C> <C>
Medical specialties $171 $157 9%
Medical/laboratory products and distribution 122 191 (36%)
General corporate 8 29 (72%)
- - -------------------------------------------------------------------------------
Total capital expenditures $301 $377 (20%)
- - -------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------
</TABLE>
Capital expenditures in the medical specialties segment represented 57% and 42%
of total company capital expenditures during the periods ended September 30,
1994 and 1993, respectively. In comparison, capital expenditures in the
medical/laboratory products and distribution segment represented 41% and 51% of
total Company capital expenditures during the periods ended September 30, 1994
and 1993, respectively. This shift is consistent with the company's strategy to
increase its investment in its higher growth medical specialties businesses.
The Company has made significant investments in recent years in its U.S.
Distribution and manufacturing and corporate infrastructure. As a consequence,
the level of capital expenditures in the medical/laboratory products and
distribution segment and general corporate capital expenditures will decline as
compared to 1993 levels. Incremental capital investments are being made in the
medical specialties segment primarily for the expansion of manufacturing
capacity for renal products.
<PAGE>
- 13 -
In connection with a newly implemented Shared Investment Plan, the Company
received $121 million in cash from 63 members of Baxter's senior management team
who collectively purchased 4.7 million shares of the Company's common stock.
This Plan more directly aligns management and shareholder interests. Under
terms of the voluntary program, Baxter managers used personal full-recourse
loans to exercise options to purchase stock at the June 15, 1994 closing price
of $26. The loans, borrowed from several commercial banks, are the personal
obligations of the participants. Baxter has agreed to unconditionally guaranty
the loans in case of default.
The Company's current assets exceeded current liabilities by $1.7 billion at
September 30, 1994 versus an excess of $1.5 billion at December 31, 1993.
Current assets at September 30, 1994, included receivables of $1.7 billion and
inventories of $1.8 billion. These sources of liquidity are convertible into
cash over a relatively short period of time and thus, will help the Company
satisfy normal operating cash requirements.
Short-term debt decreased from $822 million to $597 million and long-term debt
decreased from $2,800 million to $2,416 million at September 30, 1994 as
compared to December 31, 1993. Net debt (after consideration of cash
equivalents) declined to $2,664 million since the beginning of the year after
paying $213 million in dividends. At September 30, 1994, the Company's net debt
to net capital ratio was 42.1% versus 49.7% at year-end 1993, a decrease of
7.6%. The Company intends to utilize the net proceeds from the planned
divestiture of the diagnostics-products manufacturing and other non-strategic
businesses to reduce net debt, and thus, anticipates that its net debt to net
capital ratio will decline during the balance of 1994, with the goal of reaching
the 40% range in the years ahead.
The Company intends to fund its short-term and long-term obligations as they
mature by issuing additional debt or through cash flow from operations.
Notes and other current receivables increased and goodwill and other non-current
assets decreased primarily due to the reclassification of insurance receivables
from long-term to current to reflect payments expected to be received within one
year and the sale of certain lease receivables that were sold in September,
1994, for approximately $100 million on a non-recourse basis. There was an
immaterial gain on the sale of the lease receivables. The proceeds from this
sale were used to repay debt borrowings.
The decrease in long-term litigation liabilities is primarily due to the
reclassifications to current liabilities of payments expected to be made within
one year.
The decrease in common stock in treasury is due to the issuance of 4.7 million
shares under the Shared Investment Plan, discussed earlier.
Refer to "Part II - Item 1. Legal Proceedings" which begins on page 17 of this
document for the status of cases and claims from individuals seeking damages for
injuries allegedly caused by silicone gel-filled mammary prostheses manufactured
by a division of American Hospital Supply Corporation. That section also
discusses the status of lawsuits and claims involving individuals suffering with
hemophilia, seeking damages for injuries allegedly caused by anti-hemophilic
factor VIII and IX concentrates derived from human blood plasma processed and
sold by the Company and other commercial producers.
<PAGE>
- 14 -
Upon resolution of any of the uncertainties described in "Part II - Item 1.
Legal Proceedings", the Company may incur charges in excess of presently
established reserves. While such future charges could have a material adverse
impact on the Company's net income in the period in which it is recorded,
management believes that any outcome of these actions will not have a material
adverse effect on the Company's consolidated financial position.
The Company believes it has lines of credit adequate to support ongoing business
operations and has sufficient financial flexibility to attract long-term capital
on satisfactory terms to support its obligations and growth objectives.
<PAGE>
- 15 -
REVIEW BY INDEPENDENT PUBLIC ACCOUNTANTS
A review of the interim consolidated financial information included in this
Quarterly Report on Form 10-Q for the three months and nine months ended
September 30, 1994 has been performed by Price Waterhouse LLP, the Company's
independent public accountants. Their report on the interim consolidated
financial information follows. There have been no adjustments or disclosures
proposed by Price Waterhouse LLP which have not been reflected in the interim
consolidated financial information. Their report is not considered a report
within the meaning of Sections 7 and 11 of the Securities Act of 1933 and
therefore, the independent accountants' liability under Section 11 does not
extend to it.
<PAGE>
- 16 -
REPORT OF INDEPENDENT ACCOUNTANTS
November 11, 1994
Board of Directors and Stockholders
Baxter International Inc.
We have reviewed the accompanying condensed consolidated balance sheet and the
related condensed consolidated statements of income and condensed consolidated
statements of cash flows of Baxter International Inc. and its subsidiaries as of
September 30, 1994 and for the three-month and nine-month periods ended
September 30, 1994 and 1993. This interim financial information is the
responsibility of the company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying interim financial information for it to be in
conformity with generally accepted accounting principles.
We previously audited, in accordance with generally accepted auditing standards,
the consolidated balance sheet as of December 31, 1993, and the related
consolidated statements of income, cash flows and stockholders' equity for the
year then ended (not presented herein), and in our report dated February 10,
1994 we expressed an unqualified opinion on those consolidated financial
statements. In our opinion, the information set forth in the accompanying
condensed consolidated balance sheet as of December 31, 1993, is fairly stated
in all material respects in relation to the consolidated balance sheet from
which it has been derived.
Price Waterhouse LLP
<PAGE>
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PART II. OTHER INFORMATION
Baxter International Inc. and Subsidiaries
Item 1. Legal Proceedings
As of September 30, 1994, the Company was a defendant, together with other
defendants, in 5,832 lawsuits and had 1,754 pending claims from individuals, all
of which seek damages for injuries allegedly caused by silicone mammary
prostheses ("mammary implants") manufactured by the American Heyer-Schulte
division of American Hospital Supply Corporation ("American"). The Company's
responsibility for mammary implants results from the American Heyer-Schulte
division of American which manufactured these products from 1974 until 1984, at
which time the products and related assets were sold to Mentor Corporation.
American retained the product liability responsibility for products sold before
the divestiture, and that responsibility was assumed by a subsidiary of the
Company as part of its 1985 acquisition of American. The Company has never
manufactured this product nor does it have any of the product in its inventory.
The typical case or claim alleges that the individual's mammary implants caused
one or more of a wide range of ailments, including non-specific autoimmune
disease, scleroderma, lupus, rheumatoid arthritis, fibromyalgia, mixed
connective tissue disease, Sjogren's Syndrome, dermatomyositis, polymyositis,
and chronic fatigue. The comparable number of cases and claims was 137 as of
December 31, 1991; 1,612 as of December 31, 1992; 4,870 as of December 31, 1993;
and 6,925 as of June 30, 1994. In 1991, 76 cases and claims were disposed of;
in 1992, 309 cases and claims were disposed of; in 1993, 634 cases and claims
were disposed of; and in the first, second, and third quarters of 1994, 230
cases and claims were disposed of.
In addition to the individual suits against the Company, a class action on
behalf of all women with mammary implants filed against all manufacturers of
such implants has been conditionally certified and is pending in the United
States District Court for the Northern District of Alabama (DANTE, ET AL., V.
DOW CORNING, ET AL., U.S.D.C., N. Dist., Ala., 92-2589; part of IN RE: SILICONE
GEL BREAST IMPLANT PRODUCT LIABILITY LITIGATION, U.S.D.C., N. Dist. Ala., MDL
926, (U.S.D.C., N. Dist. Ala., CV 92-P-10000-S)). Another class action has been
certified and is pending in state court in Louisiana (SPITZFADDEN, ET AL., V.
DOW CORNING CORP., ET AL., Dist. Ct., Parish of Orleans, 92-2589). Baxter also
has been named in three purported additional class actions, none of which is
currently certified. (BARCELLONA, ET AL., V. DOW CORNING, ET AL., U.S.D.C.,
Mich., 9300 72045 DT and MOSS, ET AL., V. DOW CORNING, ET AL., U.S.D.C., Minn.,
92-P-10560-S, both of which have been transferred to and are part of IN RE:
SILICONE GEL BREAST IMPLANT PRODUCT LIABILITY LITIGATION, U.S.D.C., N. Dist.
Ala., MDL-926 for discovery purposes, and DOE, ET AL., V. INAMED CORPORATION, ET
AL., Circuit Ct., Dade County, Fla., 92-07034.) A suit seeking class
certification on behalf of all residents of the Province of Ontario, Canada, who
received Heyer-Schulte implants was dismissed as to Baxter (BURKE, V. AMERICAN
HEYER-SCHULTE, ET AL., Ontario Prov. Court, Gen. Div., 15981/93). That case is
currently on appeal. A second suit seeking class certification on behalf of all
women in the Province of Ontario who received Heyer-Schulte mammary implants has
been filed (BENNETT V. AMERICAN HEYER-SCHULTE, ET AL., Ontario Prov. Court, Gen.
Div., 18169/94).
Additionally, the Company has been served with a purported class action brought
on behalf of children allegedly exposed to silicone in utero and through breast
milk. (FEUER, ET AL., V. MCGHAN, ET AL., U.S.D.C., E. Dist. N.Y., 93-0146.)
The suit names all mammary implant manufacturers as defendants and seeks to
establish a medical monitoring fund.
<PAGE>
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These implant cases and claims generally raise difficult and complex factual and
legal issues and are subject to many uncertainties and complexities, including,
but not limited to, the facts and circumstances of each particular case or
claim, the jurisdiction in which each suit is brought, and differences in
applicable law. Many of the cases and claims are at very preliminary stages,
and the Company has not been able to obtain information sufficient to evaluate
each case and claim.
There also are issues concerning which of the Company's insurers is responsible
for covering each matter and the extent of the Company's claims for contribution
against third parties. The Company believes that a substantial portion of the
liability and defense costs related to mammary implant cases and claims will be
covered by insurance, subject to self-insurance retentions, exclusions,
conditions, coverage gaps, policy limits and insurer solvency. Most of the
Company's insurers have reserved (i.e., neither admitted nor denied), and may
attempt to reserve in the future, the right to deny coverage, in whole or in
part, due to differing theories regarding, among other things, the applicability
of coverage and when coverage may attach. The Company has been, and will
continue to be, engaged in active negotiations with its insurers concerning
coverages and the settlement described below. Two of the Company's claims-made
insurers have tendered the full amounts of their policies to the Company and a
third has tendered the full amounts of its policy on a prorata basis as claims
are paid. The total amount tendered is $85 million.
Also, some of the mammary implant cases pending against the Company seek
punitive damages and compensatory damages arising out of alleged intentional
torts. Depending on policy language, applicable law, and agreements with
insurers, the damages awarded pursuant to such claims may or may not be covered,
in whole or in part, by insurance. On February 7, 1994, the Company filed suit
against all of the insurance companies which issued product liability policies
to American, American Heyer-Schulte and Baxter for a declaratory judgment that:
the policies cover each year of injury or claim, the Company may choose among
multiple coverages; coverage begins with the date of implant; and legal fees and
punitive damages are covered. Subsequently, certain of the Company's product
liability insurance carriers filed suit against the Company and all of its other
carriers for a declaratory judgment to define various terms in the Company's
insurance policies, the extent of the Company's coverage, the date of the
occurrences giving rise to coverage, and the relative liabilities of the various
insurance carriers involved. In both cases, the parties have entered into a
"stand-still" agreement while negotiations continue.
Representatives of the plaintiffs and certain defendants in these cases have
negotiated a global settlement of the issues under the jurisdiction of the Court
in the DANTE V. DOW CORNING, ET AL. case (now known as LINDSAY, ET. AL. V. DOW
CORNING, ET. AL.). The monetary provisions of the settlement providing
compensation for all present and future plaintiffs and claimants based on a
series of specific funds and scheduled medical conditions have been agreed upon
by most of the significant defendants and representatives of the plaintiffs.
The total of all of the specific funds, which would be paid-in and made
available over approximately thirty years following final approval of the
settlement by the Courts, is capped at $4.75 billion. The settling defendants
have agreed to fund $4.255 billion of this amount. The Company's share of this
settlement has been established by the settlement negotiations at $556 million.
The global settlement was subject to a series of court proceedings, including a
court finding of its fairness, which was made by the Court on September 1, 1994,
and the opportunity for individual plaintiffs and claimants to elect to remove
themselves from the settlement ("opt-out"). The Court excluded mammary implant
recipients from Australia and the Provinces of Ontario and Quebec, Canada from
the settlement.
<PAGE>
- 19 -
Appeals have been filed challenging the global settlement. On April 11, 1994,
the court began the process of notifying all potential claimants of the class
action settlement and their rights to opt-out. The initial opt-out period ended
July 1, 1994. As of September 30, 1994, 13,834 individuals have opted out of
the global settlement, of which 5,455 allege claims against Baxter. Of the opt-
outs who filed claims against Baxter, 2,025 represent U.S. claimants, 3,214
represent foreign claimants and 216 are currently unidentified. The number of
opt-outs against Baxter will change as some claimants elect to rescind their
opt-out notice, current claimants are found to not have valid claims against
Baxter and other opt-outs are identified as having claims against Baxter. The
Company believes that a substantial number of the suits filed in the second and
third quarters of this year against Baxter will ultimately be dismissed because
it will be determined that no Heyer-Schulte mammary implant is involved. In
August, 1994, a jury in a Texarkana, Arkansas mammary implant case returned a
verdict in favor of the Company. At present, the Company is not able to
estimate the nature and extent of its potential future liability with respect to
opt-outs. The Company believes that most of its potential future liability with
respect to opt-outs is covered by insurance. The Company intends to continue to
litigate pending breast implant cases.
In the fourth quarter of 1993, the Company accrued $556 million for its
estimated liability resulting from the global settlement of the mammary implant
class action and recorded a receivable for estimated insurance recovery of $426
million, resulting in a net charge of $130 million. The reserves for the
settlement do not include any provisions for opt-outs and are in addition to the
general reserves for the mammary implant cases discussed below.
In connection with its acquisition of American, the Company had established
reserves at the time of the merger for product liability, including mammary
implant cases and claims. At September 30, 1994, the general reserve allocated
to mammary implant cases and claims was exhausted. Based on current
information, management believes that the Company's remaining exposure (which is
not presently estimable) in connection with future mammary implant cases and
claims beyond the effect of the global settlement described above will be
substantially covered by the Company's insurance.
Upon resolution of any of the uncertainties concerning these cases, the Company
will ultimately incur charges in excess of presently established reserves.
While such a future charge could have a material adverse impact on the Company's
net income in the period in which it is recorded, management believes that any
outcome of this litigation will not have a material adverse effect on the
Company's consolidated financial position.
As of September 30, 1994, the Company was a defendant, together with other
defendants, in 174 lawsuits, and had one pending claim, in the United States
involving individuals who have hemophilia, or their representatives. Those
cases and claim seek damages for injuries allegedly caused by anti-hemophilic
factor concentrates VIII and IX derived from human blood plasma processed and
sold by the Company. Furthermore, 57 lawsuits seeking damages based on similar
allegations are pending in Ireland and Japan.
The typical case or claim alleges that the individual with hemophilia was
infected with HIV by infusing Factor VIII or Factor IX concentrates ("Factor
Concentrates") containing HIV. The total number of cases and claims asserted
against the Company as of December 31, 1991, was 16, as of December 31, 1992,
was 52, and as of December 31, 1993, was 178. In 1991, 11 cases and claims
were disposed of; in 1992, 9 cases and claims were disposed of; in 1993,
11 cases
<PAGE>
- 20 -
and claims were disposed of; and in the first, second, and third
quarters of 1994, 27 cases and claims were disposed of.
All Federal Court cases have been transferred to the U.S.D.C. for the Northern
District of Illinois for case management under Multi District Litigation (MDL)
rules. In addition to the individual suits against the Company, a purported
class action was filed on September 30, 1993, on behalf of all U.S. residents
with hemophilia (and their families) who were treated with Factor Concentrates
and who allegedly are infected with HIV as a result of the use of such Factor
Concentrates. This lawsuit was filed in the United States District Court for
the Northern District of Illinois (WADLEIGH, ET AL., V. RHONE-POULENC RORER, ET
AL., U.S.D.C., N. Dist., Ill. 93C 5969). The court has certified the class for
purposes of determining whether the defendants' actions were negligent. Baxter
has also been named in three purported class actions, none of which have been
certified. ALVAREZ V. ARMOUR ET AL., U.S.D.C., 94-0649(E)(4); MARTIN V. RHONE
POULENC ET AL., U.S.D.C., ND CV-94-B-0537 and STANGER V. BAYER ET AL.,
U.S.D.C., AZ CIV-94-392-TUC, all of which have been transferred to the MDL for
discovery purposes.
Many of the cases and claims are at very preliminary stages, and the Company has
not been able to obtain information sufficient to evaluate each case and claim.
In most states, the Company's potential liability is limited by laws which
provide that the sale of blood or blood derivatives, including Factor
Concentrates, is not the sale of a "good," and thus is not covered by the
doctrine of strict liability. As a result, each claimant will have to prove
that his or her injuries were caused by the Company's negligence. The WADLEIGH
case alleges that the Company was negligent in failing: to use available
purification technology; to promote research and development for product safety;
to withdraw Factor Concentrates once it knew or should have known of viral
contamination of such concentrates; to screen plasma donors properly; to recall
contaminated Factor Concentrates; and to warn of risks known at the time the
product was used. The Company denies these allegations and has filed a
challenge to the class proceedings. In August, 1994, a jury in Los Angeles,
California, returned a verdict in a Factor Concentrates case in the Company's
favor.
The Company believes that a substantial portion of the liability and defense
costs related to anti-hemophilic factor concentrates cases and claims will be
covered by insurance, subject to self-insurance retentions, exclusions,
conditions, coverage gaps, policy limits and insurer solvency. Most of the
Company's insurers have reserved (i.e., neither admitted nor denied), and may
attempt to reserve in the future, the right to deny coverage, in whole or in
part, due to differing theories regarding, among other things, the applicability
of coverage and when coverage may attach. Zurich Insurance Co., one of the
Company's comprehensive general liability insurance carriers has filed a suit in
Illinois, against the Company seeking a declaratory judgment that the policies
it had issued do not cover the losses that the Company has notified it of for a
number of reasons, including that Factor Concentrates are products, not
services, and are, therefore, excluded from the policy coverage, and that the
Company has failed to comply with various obligations of tender, notice, and the
like under the policies. The Company has filed suit in California, against all
of the insurance companies which issued comprehensive general liability and
product liability policies to the Company for a declaratory judgment that the
policies of all the excess carriers provide coverage. In that suit, the Company
also sued Zurich for failure to defend it and Zurich and Columbia Casualty
Company for failure to indemnify it. Subsequently, the Company's excess product
liability insurance carriers also brought suit for a declaratory judgment as to
the parties respective liabilities. The suit filed by Zurich has been stayed
pending
<PAGE>
- 21 -
resolution of the Company's case against Zurich and its excess carriers. Zurich
has appealed that stay.
The Company has notified its insurers concerning coverages and the status of the
cases. Also, some of the anti-hemophilic factor concentrates cases pending
against the Company seek punitive damages and compensatory damages arising out
of alleged intentional torts. Depending on policy language, applicable law and
agreements with insurers, the damages awarded pursuant to such claims may or may
not be covered, in whole or in part, by insurance. Accordingly, the Company is
not currently in a position to estimate the amount of its potential future
recoveries from its insurers, but has estimated its recovery with respect to the
reserves it has established.
The Company is vigorously defending each of the cases and claims against it. At
the same time, the Company will continue to seek ways to resolve pending and
threatened litigation concerning these issues through a negotiated resolution.
Representatives of the plaintiffs and the Company and Rhone-Poulenc Rorer
("RPR") negotiated a tentative settlement of the issues as to them under the
jurisdiction of the court in the WADLEIGH case. The terms of the Memorandum of
Understanding were to be incorporated into a settlement agreement to be filed
with the court. The settlement is currently in question due to the court's
certification of the class action negligence issue. It is unclear whether
settlement will proceed on the terms originally reached. The Company and RPR
had agreed to fund jointly $140 to $160 million for the settlement, based on the
number of claimants seeking reimbursement, of which the Company's share was to
be 49.2%.
In Canada, the provincial governments created a settlement fund to which all of
the fractionators, including the Company, have contributed. The Company's
contribution to the fund was approximately $3 million. Those Canadian claimants
who availed themselves of this fund signed releases in favor of the Company
against further litigation. The period in which to file a claim against the
fund expired on March 15, 1994.
In the fourth quarter of 1993, the Company accrued $131 million for its
estimated worldwide liability for litigation and settlement expenses involving
anti-hemophilic Factor Concentrate cases, and recorded a receivable for
insurance coverage of $83 million, resulting in a net charge of $48 million.
The expense of the Canadian settlement is and the anticipated expense of the
settlement of the WADLEIGH case was to be covered by this reserve.
Upon resolution of any of the uncertainties concerning these cases, or if the
Company, along with the other defendants, enters into a comprehensive settlement
of the class actions described above, the Company may incur charges in excess of
presently established reserves. While such a future charge could have a
material adverse impact on the Company's net income in the period in which it is
recorded, management believes that any outcome of this litigation will not have
a material adverse effect on the Company's consolidated financial position.
On February 21, 1994, the Company began the voluntary withdrawal world-wide of
its Gammagard -REGISTERED TRADEMARK- IGIV (intravenous immune globulin) because
of indications that it might be implicated in Hepatitis C infections occurring
in users of the product. Gammagard is a concentration of antibodies derived
from human plasma and is used to treat immune-suppressed patients. A new immune
globulin product, Gammagard-REGISTERED TRADEMARK- S/D, produced with an
additional viral
<PAGE>
- 22 -
inactivation process was introduced by the Company after licensure in the United
States and certain other countries.
As of September 30, 1994, the Company had received reports of Hepatitis C
transmission from 164 patients from eight countries (U.S., U.K., Spain, Sweden,
Germany, France, South Africa and Denmark). The exact cause for these reports
has not been determined; however, all reports have been associated with
Gammagard injection produced from plasma which was screened for antibodies to
the Hepatitis C virus through second generation testing. The number of patients
receiving Gammagard-REGISTERED TRADEMARK- IGIV produced from the second
generation screened plasma is not yet known, nor is the number of patients
claiming exposure to Hepatitis C known.
As of November 4, 1994, seven suits resulting from this incident have been
served upon the Company. One suit, LOWE V. BAXTER, U.S.D.C., W.D. KY, C94-0125,
is a purported class action. The suits allege infection with the Hepatitis C
virus from the use of Gammagard-REGISTERED TRADEMARK-. The Company is defending
against these cases.
At this time the Company cannot estimate its level of exposure to claims or
lawsuits stemming from the market withdrawal. The Company does not, however, at
this time expect the exposure to have a material adverse effect on the Company's
operations or its consolidated financial condition.
Most of the individuals who served as directors of American in 1985, including
Mr. Cathcart and Ms. Evans, who currently are directors of the Company, were
defendants in a pending lawsuit filed as a derivative action. LEWIS V. BAYS, ET
AL. was filed on March 23, 1990, in the Circuit Court of Cook County, Illinois.
The plaintiffs allege breach of fiduciary duty claims relating to American's
buyout of an agreement with Hospital Corporation of America ("HCA") in
connection with the Company's merger with American in 1985.
On April 12, 1994, the parties in this case filed a settlement agreement with
the court for approval. The Court entered a preliminary order of fairness, and,
on April 26, 1994, the Company began notifying its stockholders of the
settlement. The settlement order was entered on June 15,1994, and the time for
appeal has expired. The terms of the settlement did not have a material adverse
effect on the Company's results of operations or consolidated financial
position.
Baxter Healthcare Corporation ("BHC") was one of ten defendants named in a
purported class action filed in August, 1993, on behalf of all medical and
dental personnel in the state of California who suffered allergic reactions to
natural rubber latex gloves and other protective equipment or who have been
exposed to natural rubber latex products. (KENNEDY, ET AL., V. BAXTER
HEALTHCARE CORPORATION, ET AL., Sup. Ct., Sacramento Co., Cal., #535632). The
case alleges that users of various natural rubber latex products, including
medical gloves made and sold by BHC and other manufacturers, suffered allergic
reactions to the products ranging from skin irritation to systemic anaphylaxis.
The Court granted defendants' demurrer to the class action allegations. This is
currently on appeal. In April, 1994, a similar purported class action, GREEN,
ET AL. V. BAXTER HEALTHCARE CORPORATION, ET AL., (Cir. Ct., Milwaukee Co., WI)
was filed in Wisconsin against Baxter and three other defendants. The class
action allegations have been withdrawn, but Leave to Amend was granted allowing
additional plaintiffs to be added. The Company will vigorously defend against
these actions. Management believes that the outcome
<PAGE>
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of these matters will not have a material adverse effect on the Company's
results of operations or consolidated financial position.
All of the individuals who served as directors of the Company as of September 1,
1993, as well as Lester B. Knight, executive vice president of the Company, are
named as defendants in a pending lawsuits ostensibly filed as a "demand excused"
derivative action. SEIGEL V. LOUCKS, ET AL., was filed September 15, 1993, in
the Court of Chancery in New Castle County, Delaware Cir. Ct., New Castle Co.,
Del., Cir. Act #13130. On October 24, 1993, a substantially identical complaint
was filed in the same court by Bartholomew J. Millano. The two complaints have
been consolidated. The plaintiffs allege, among other things, that the
directors failed to oversee management in connection with actions which are the
basis for the dispute between the Company and the DVA which are described above,
failed to prevent such actions, and failed to create a compliance program to
prevent or detect such actions. The complaint seeks to recover alleged damages
incurred by the Company as the result of lost sales due to the proposed
debarment discussed above, as well as the compensation paid to Messrs. Gantz,
Knight, Loucks and Tobin since 1991. The Company and its directors have filed
motions to dismiss the suit, have answered the complaint and have filed a
counterclaim seeking to permanently bar and enjoin the plaintiff from
prosecuting this case because her claims have been disposed of and barred in a
prior suit against the Company.
A purported class action has been filed against the Company, Caremark
International, Inc. ("Caremark"), C.A. (Lance) Piccolo, James G. Connelly and
Thomas W. Hodson (all current officers of Caremark) alleging securities law
disclosure violations in connection with the November 30, 1992, spin-off of
Caremark in the Registration and Information Statement ("Registration
Statement") and subsequent SEC filings submitted by Caremark (ISQUITH V.
CAREMARK INTERNATIONAL, INC., ET AL., U.S.D.C., N. Dist. Ill., 94C 5534). The
plaintiffs allege, among other things, that the Registration Statement and
subsequent SEC filings contained false and misleading statements regarding the
scope of the Office of Inspector General for the Department of Health and Human
Services' investigation of Caremark's business and Medicare/Medicaid patient
referral practices. The Company will respond to the complaint and vigorously
defend this action. Management believes that the outcome of this matter will
not have a material adverse effect on the Company's results of operations or
consolidated financial position.
As of September 30, 1994, the Company has been named as a potentially
responsible party for cleanup costs at 17 hazardous waste sites. The Company
was a significant contributor to waste disposed of at only one of these sites,
the Thermo-Chem site in Muskegon, Michigan. The company expects that the total
cleanup costs for this site will be between $44 million and $65 million, of
which the Company's share will be approximately $5 million. This amount has
been reserved and is reflected in the Company's financial statements.
In all of the other sites, the Company was a minor contributor and does not have
information on the total cleanup costs. The Company has, however, in most of
these cases been advised by the potentially responsible party of its roughly
estimated exposure at these sites. Those estimated exposures total
approximately $5 million. This amount has been reserved and reflected in the
Company's financial statements.
The Company is a defendant in a number of other claims, investigations and
lawsuits. Based on the advice of counsel, management does not believe that the
other claims, investigations and
<PAGE>
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lawsuits individually or in the aggregate, will have a material adverse effect
on the Company's operations or its consolidated financial condition.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibits required by Item 601 of Regulation S-K are listed in the Exhibit
Index hereto.
(b) Report on Form 8-K
None
<PAGE>
- 25 -
Signature
Pursuant to the requirements 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.
-----------------------------------
(Registrant)
Date: November 11, 1994 By: /s/ Harry M. Jansen Kraemer, Jr.
---------------------------------
Harry M. Jansen Kraemer, Jr.
Senior Vice President and
Chief Financial Officer
<PAGE>
EXHIBIT INDEX
Exhibits Filed with Securities and Exchange Commission
Number Description of Exhibit
- - ------ -----------------------
3.3 Amended and Restated Bylaws
11.1 Computation of Primary
Earnings Per Common Share
11.2 Computation of Fully Diluted
Earnings Per Common Share
12 Computation of Ratio of
Earnings to Fixed Charges
15 Letter Re Unaudited Interim
Financial Information
27 Financial Data Schedules
(All other exhibits are inapplicable.)
<PAGE>
EXHIBIT 3.3
AMENDED AND RESTATED SEPTEMBER 26, 1994
BAXTER INTERNATIONAL INC.
BYLAWS
ARTICLE I
STOCKHOLDERS
SECTION 1. PLACE OF HOLDING MEETINGS. All meetings of the stockholders
shall be held at the office of the Corporation in Deerfield, Illinois, or such
other place as shall be determined by the Board of Directors.
SECTION 2. ELECTION OF DIRECTORS.
(a) The annual meeting of stockholders for the election of
directors and the transaction of other business shall be held at such time and
date as shall be determined by the Board of Directors.
(b) Only persons who are nominated in accordance with the
following procedures shall be eligible for election as directors of the
Corporation, except as may be otherwise provided in the Certificate of
Incorporation of the Corporation with respect to the right of holders of
preferred stock of the Corporation to nominate and elect a specified number of
directors in certain circumstances. Nominations of persons for election to the
Board of Directors may be made at any annual meeting of stockholders, or at any
special meeting of stockholders called for the purpose of electing directors,
(i) by or at the direction of the Board of Directors (or any duly authorized
committee thereof) or (ii) by any stockholder of the Corporation (A) who is a
stockholder of record on the date of the giving of the notice provided for in
this Section 2 and on the record date for the determination of stockholders
entitled to vote at such meeting and (B) who complies with the notice procedures
set forth in this Section 2.
(c) In addition to any other applicable requirements, for a
nomination to be made by a stockholder, such stockholder must have given timely
notice thereof in proper written form to the secretary of the Corporation.
(d) To be timely, a stockholder's notice to the secretary must
be delivered to or mailed and received at the principal executive offices of the
Corporation (i) in the case of an annual meeting, not less than sixty (60) days
nor more than ninety (90) days prior to the anniversary date of the immediately
preceding annual meeting of stockholders; PROVIDED, HOWEVER, that in the event
that the annual meeting is called for a date that is not within thirty (30) days
before or after such anniversary date, notice by the stockholder in order to be
timely must be so received not later than the close of business on the tenth
(10th) day following the day on which such notice of the date of the annual
meeting was mailed or such public disclosure of the date of the annual meeting
was
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made, whichever occurs first, and (ii) in the case of a special meeting of
stockholders called for the purpose of electing directors, not later than the
close of business on the tenth (10th) day following the day on which notice of
the date of the special meeting was mailed or public disclosure of the date of
the special meeting was made, whichever occurs first.
(e) To be in proper written form, a stockholder's notice to the
secretary must set forth (i) as to each person whom the stockholder proposes to
nominate for election as a director (A) the name, age, business address and
residence address of the person, (B) the principal occupation or employment of
the person, (C) the class or series and number of shares of capital stock of the
Corporation which are owned beneficially or of record by the person and (D) any
other information relating to the person that would be required to be disclosed
in a proxy statement or other filings required to be made in connection with
solicitations of proxies for election of directors pursuant to Section 14 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the rules
and regulations promulgated thereunder; and (ii) as to the stockholder giving
the notice (A) the name and record address of such stockholder, (B) the class or
series and number of shares of capital stock of the Corporation which are owned
beneficially or of record by such stockholder, (C) a description of all
arrangements or understandings between such stockholder and each proposed
nominee and any other person or persons (including their names) pursuant to
which the nomination(s) are to be made by such stockholder, (D) a representation
that such stockholder intends to appear in person or by proxy at the meeting to
nominate the persons named in its notice and (E) any other information relating
to such stockholder that would be required to be disclosed in a proxy statement
or other filings required to be made in connection with solicitations of proxies
for election of directors pursuant to Section 14 of the Exchange Act and the
rules and regulations promulgated thereunder. Such notice must be accompanied
by a written consent of each proposed nominee to being named as a nominee and to
serve as a director if elected.
(f) No person shall be eligible for election as a director of
the Corporation, at any annual meeting of stockholders or at any special meeting
of stockholders called for the purpose of electing directors, unless nominated
in accordance with the procedures set forth in this Section 2. If the chairman
of the meeting determines that a nomination was not made in accordance with the
foregoing procedures, the chairman shall declare to the meeting that the
nomination was defective and such defective nomination shall be disregarded.
SECTION 3. VOTING. Each stockholder entitled to vote in accordance with the
terms of the Certificate of Incorporation, these Bylaws or Delaware law shall,
unless the Certificate of Incorporation or Delaware law otherwise provides, be
entitled to one vote, in person or by proxy, for each share of stock entitled to
vote held by such stockholder, but no proxy shall be voted after three years
from its date unless such proxy provides for a longer period. The vote for
directors, and upon the demand of any stockholder, the vote upon any question
before the meeting, shall be by ballot. Except for the election of directors,
which shall be decided by a plurality of the shares present in person or
represented by proxy at the meeting and entitled to vote thereat, all matters
shall be decided by the affirmative vote of a majority of shares present in
person or represented by proxy at any meeting duly called and entitled to vote
thereat, except as otherwise provided by the Certificate of Incorporation and/or
Delaware law.
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The secretary shall prepare and make, at least ten days before each meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of meeting,
or, if not so specified, at the place where the meeting is to be held. The list
shall also be produced and kept at the time and place of the meeting during the
whole time thereof and may be inspected by any stockholder who is present.
SECTION 4. QUORUM. Except as provided in the next section hereof, any
number of stockholders together holding a majority of the stock issued and
outstanding and entitled to vote thereat, who shall be present in person or
represented by proxy at any meeting duly called, shall constitute a quorum for
the transaction of business.
SECTION 5. ADJOURNMENT OF MEETINGS. If less than a quorum shall be in
attendance at any time for which the meeting shall have been called, the meeting
may, after the lapse of at least half an hour, be adjourned from time to time by
a majority of the stockholders present or represented and entitled to vote
thereat. If notice of such adjourned meeting is sent to the stockholders
entitled by statute to receive the same, and such notice contains a statement of
the purpose of the meeting, that the previous meeting failed for lack of a
quorum, and that under the provisions of this Section it is proposed to hold the
adjourned meeting with a quorum of those present, then any number of
stockholders, in person or by proxy, shall constitute a quorum at such meeting
unless otherwise provided by statute.
SECTION 6. SPECIAL MEETINGS: HOW CALLED. Special meetings of the
stockholders for any purpose or purposes may be called only (a) by the chairman
of the board and chief executive officer or secretary, and shall be called by
the chairman of the board and chief executive officer or secretary upon a
request in writing therefor, stating the purpose or purposes thereof, delivered
to the chairman of the board and chief executive officer or secretary, signed by
a majority of the directors or (b) by resolution of the directors.
SECTION 7. NOTICE OF STOCKHOLDERS' MEETINGS. Written or printed notice
stating the time and place of regular or special meetings of the stockholders
and the general nature of the business to be considered shall be mailed by the
secretary, or such other officer as the Board of Directors may designate, to
each stockholder entitled to vote thereat at his address as it appears on the
records of the Corporation, at least twenty (20) days but not more than sixty
(60) days before the date of such meeting.
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SECTION 8. CONDUCT OF THE MEETINGS.
(a) The chairman of the meeting shall have absolute authority
over matters of procedure and there shall be no appeal from the ruling of the
chairman. If the chairman, in his absolute discretion, deems it advisable to
dispense with the rules of parliamentary procedure as to any one meeting of
stockholders or part thereof, the chairman shall so state and shall clearly
state the rules under which the meeting or appropriate part thereof shall be
conducted.
(b) If disorder should arise which prevents continuation of the
legitimate business of the meeting, the chairman may quit the chair and announce
the adjournment of the meeting; and upon his doing so, the meeting is
immediately adjourned.
(c) The chairman may ask or require that anyone not a bona fide
stockholder or proxy leave the meeting.
(d) A resolution or motion shall be considered for vote only if
(i) proposed by a stockholder or duly authorized proxy, and seconded by an
individual, who is a stockholder or a duly authorized proxy, other than the
individual who proposed the resolution and (ii) all other requirements under
law, the Corporation's Certificate of Incorporation, these Bylaws or otherwise,
for consideration of such a resolution or motion have been duly satisfied as
determined by the chairman in his absolute discretion, from which there shall be
no appeal.
SECTION 9. ANNUAL MEETINGS.
(a) No business may be transacted at an annual meeting of
stockholders, other than business that is either (i) specified in the notice of
meeting (or any supplement thereto) given by or at the direction of the Board of
Directors (or any duly authorized committee thereof), (ii) otherwise properly
brought before the annual meeting by or at the direction of the Board of
Directors (or any duly authorized committee thereof) or (iii) otherwise properly
brought before the annual meeting by any stockholder of the Corporation (A) who
is a stockholder of record on the date of the giving of the notice provided for
in this Section 9 and on the record date for the determination of stockholders
entitled to vote at such annual meeting and (B) who complies with the notice
procedures set forth in this Section 9.
(b) In addition to any other applicable requirements, for
business to be properly brought before an annual meeting by a stockholder, such
stockholder must have given timely notice thereof in proper written form to the
secretary of the Corporation, which notice is not withdrawn by such stockholder
at or prior to such annual meeting.
(c) To be timely, a stockholder's notice to the secretary must
be delivered to or mailed and received at the principal executive offices of the
Corporation not less than sixty (60) days nor more than ninety (90) days prior
to the anniversary date of the immediately preceding annual meeting of
stockholders; PROVIDED, HOWEVER, that in the event that the annual meeting is
called for a date that is not within thirty (30) days before or after such
anniversary date, notice by the stockholder in order to be timely must be so
received not later than the close of business on the
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tenth (10th) day following the day on which such notice of the date of the
annual meeting was mailed or such public disclosure of the date of the annual
meeting was made, whichever occurs first.
(d) To be in proper written form, a stockholder's notice to the
secretary must set forth as to each matter such stockholder proposes to bring
before the annual meeting (i) a brief description of the business desired to be
brought before the annual meeting and the reasons for conducting such business
at the annual meeting, (ii) the name and record address of such stockholder,
(iii) the class or series and number of shares of capital stock of the
Corporation which are owned beneficially or of record by such stockholder, (iv)
a description of all arrangements or understandings between such stockholder and
any other person or persons (including their names) in connection with the
proposal of such business by such stockholder and any material interest of such
stockholder in such business and (v) a representation that such stockholder
intends to appear in person or by proxy at the annual meeting to bring such
business before the meeting.
(e) No business shall be conducted at the annual meeting of
stockholders except business brought before the annual meeting in accordance
with the procedures set forth in this Section 9, PROVIDED, HOWEVER, that, once
business has been properly brought before the annual meeting in accordance with
such procedures, nothing in this Section 9 shall be deemed to preclude
discussion by any stockholder of any such business. If the chairman of the
annual meeting determines that business was not properly brought before the
annual meeting in accordance with the foregoing procedures, the chairman shall
declare to the meeting that the business was not properly brought before the
meeting and such business shall not be transacted.
ARTICLE II
DIRECTORS
SECTION 1. QUALIFICATION AND QUORUM. No person shall be eligible for
election or appointment as a director who, at the time of his election or
appointment is 72 years old, or older, provided, however, that this provision
shall not be applicable to persons who have been elected or appointed as
directors prior to the 1978 annual meeting of the stockholders.
One-third of the total number of directors (rounded upwards, if necessary, to
the next whole number) shall constitute a quorum for the transaction of business
at any meeting of the board. If at any meeting of the board there shall be less
than a quorum present, a majority of those present may adjourn the meeting from
time to time until a quorum is obtained, and no further notice thereof need to
be given other than by announcement at said meeting which shall be so adjourned.
The board may also transact business without a meeting if all members of the
board consent thereto in writing.
SECTION 2. FIRST MEETING. The newly elected directors may hold their first
meeting for the purpose of organization and the transaction of business if a
quorum be present, immediately after the annual meeting of the stockholders; or
the time and place of such meeting may be fixed by consent in writing of all the
directors.
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SECTION 3. ELECTION OF OFFICERS. At the first meeting or at any subsequent
meeting called for the purpose, the directors shall elect a chairman of the
board and chief executive officer from their number, and a president, one or
more executive vice presidents, one or more senior vice presidents, one or more
group vice presidents, one or more vice presidents, a treasurer, a secretary,
and one or more assistant secretaries, who need not be directors. Each such
officer shall hold office until the next annual election of officers, and until
his successor is elected and qualified.
SECTION 4. SPECIAL MEETINGS: HOW CALLED: NOTICE. Special meetings of the
board may be called by the chairman of the board and chief executive officer or
the president or the secretary on the written request of any two directors on
twenty-four (24) hours notice to each director. Such notice, which need not
specify the purpose of the meeting or the matters to be considered thereat, may
be given as provided in Article VIII, personally (including by telephone) or by
telegram or other written communication delivered to the residence or office of
the director. Such personal notice or written communication shall be effective
when delivered.
SECTION 5. PLACE OF MEETING. The directors may hold their meetings and have
one or more offices, and keep the books of the Corporation, outside the State of
Delaware, at any office or offices of the Corporation, or at any place as they
may from time to time by resolution determine.
SECTION 6. GENERAL POWERS OF DIRECTORS. The Board of Directors shall have
the management of the business of the Corporation, and subject to the
restrictions imposed by law, by the Certificate of Incorporation, or by these
Bylaws, may exercise all the powers of the Corporation, including any powers
incidental thereto.
SECTION 7. COMPENSATION OF DIRECTORS. Directors shall not receive any
stated salary for their services as directors, but by resolution of the board a
fixed fee may be paid together with expenses of attendance at meetings. Nothing
herein contained shall be construed to preclude any director from serving the
Corporation in any other capacity as an officer, agent or otherwise, and
receiving compensation therefor.
ARTICLE III
COMMITTEES
SECTION 1. The Board of Directors shall create an executive committee, an
audit committee, a compensation committee, a finance committee, a planning and
organization committee, and a public policy committee, and may create such other
committees as the board, from time to time, deems desirable. Each committee
shall consist of three or more of the directors of the Corporation and, to the
extent provided in the resolutions creating the committees or in these Bylaws,
shall have the powers of the Board of Directors in the management of the
business and affairs of the Corporation.
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SECTION 2. A majority of the executive committee shall consist of directors
who are independent of management and free from any relationships that, in the
opinion of the Board of Directors, would interfere with their exercise of
independent judgment as a committee member. The Policy Statement on Audit
Committees issued by the New York Stock Exchange shall be applicable in
determining which directors are "independent" for this purpose.
The executive committee shall have all the powers and authority of the Board of
Directors, including the authority to declare a regular quarterly dividend, to
authorize the issuance of stock and other securities and to adopt a Certificate
of Ownership and Merger under Delaware law, provided that the executive
committee shall not, in any event, have authority to amend the Certificate of
Incorporation, to adopt any agreement of merger or consolidation involving the
Corporation as a merging or consolidating party, to recommend to the
stockholders the sale, lease or exchange of all or substantially all of the
Corporation's property and assets, to recommend to the stockholders a
dissolution of the Corporation or a revocation of a dissolution, to amend the
Bylaws of the Corporation or to declare a dividend other than a regular
quarterly dividend.
SECTION 3. The audit committee shall consist solely of directors who are
independent of management as defined in Section 2.
The audit committee shall assist the Board of Directors in fulfilling its
responsibilities for the Corporation's accounting and financial reporting
practices and provide a channel of communication between the Board of Directors
and the Corporation's independent auditors.
To accomplish the above purposes, the audit committee shall:
(a) Review with the independent auditors the scope of their
annual and interim examinations, placing particular attention where either the
committee or the auditors believe such attention should be directed, and to
direct the auditors to expand (but not to limit) the scope of their audit
whenever such action is, in the opinion of the committee, necessary or
desirable. The independent auditors shall have sole authority to determine the
scope of the audit which they deem necessary for the formation of an opinion on
financial statements.
(b) Consult with the auditors during any annual or interim audit
on any situation which the auditors deem advisable for resolution prior to the
completion of their examination.
(c) Meet with the auditors to appraise the effectiveness of the
audit effort. Such appraisal shall include a discussion of the overall approach
to and the scope of the examination, with particular attention on those areas on
which either the committee or the auditors believe emphasis is necessary or
desirable.
(d) Determine through discussions with the auditors and
otherwise, that no restrictions were placed by management on the scope of the
examination or its implementation.
(e) Inquire into the effectiveness of the Corporation's
accounting and internal control functions through discussions with the auditors
and appropriate officers of the Corporation and exercise supervision of the
Corporation's policies which prohibit improper or illegal payments.
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(f) Review with the auditors and management any registration
statement which shall be filed by the Corporation in connection with the public
offering of securities and such other public financial reports as the committee
or the Board of Directors shall deem desirable.
(g) Report to the Board of Directors on the results of the
committee's activities and recommend to the Board of Directors any changes in
the appointment of independent auditors which the committee may deem to be in
the best interests of the Corporation and its stockholders.
(h) Have such other powers and perform such other duties as the
board shall, from time to time, grant and assign to it.
SECTION 4. The compensation committee shall consist solely of directors who
are independent of management, as defined in Section 2.
The compensation committee shall (a) determine the salaries of officers, other
than the chairman of the board and chief executive officer and president and
advise the board of such determination, (b) exercise the authority of the board
concerning benefit plans, including those plans which are limited in their
application to officers and senior management, (c) serve as the administration
committee of the Corporation's stock option plans, (d) make recommendations to
the board concerning the salaries of the chairman of the board and chief
executive officer and president, (e) advise the board and the chairman of the
board and chief executive officer on other compensation and benefit matters and
(f) perform such other duties as shall be requested by the chairman of the board
and chief executive officer or designated by board resolution or specific
benefit plans.
SECTION 5. A majority of the finance committee shall consist of directors
who are independent of management as defined in Section 2.
The finance committee shall exercise the power and authority of the board, and
assist the Board of Directors in fulfilling its responsibilities, in connection
with the financial affairs of the Corporation, as follows:
The finance committee shall:
(a) have the authority to approve, without further action by the
Board of Directors: (i) financing proposals, including loans and securities
offerings involving not more than $100 million, and matters relating thereto,
and (ii) proposed capital expenditures, acquisitions, divestitures,
partnerships, strategic alliances involving the purchase or sale of a security,
and other similar transactions involving a commitment by the Corporation of more
than $10 million, but not more than $50 million (including the issue of the
Corporation's common stock in connection with such transactions); and
(b) review the following and, when appropriate, report or make
recommendations to the board: (i) quarterly and extraordinary dividend
proposals, (ii) financing proposals involving more than $100 million, (iii)
results of the management of pension assets and
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the reasonableness of the major actuarial assumptions which impact the funding
of the pension benefits, (iv) proposed capital expenditures, acquisitions,
divestitures, partnerships, strategic alliances involving the purchase or sale
of a security, and other similar transactions involving a commitment by the
Corporation of more than $50 million, and (v) the risk management program of the
Corporation; and
(c) exercise such other authority and duties as the board may
from time to time delegate to it.
SECTION 6. The planning and organization committee shall consist solely of
directors who are independent of management, as defined in Section 2.
The committee shall assist and advise the Board of Directors in connection with
board membership, board committee structure and membership and general
organization and planning matters. To accomplish these purposes, the
organization and planning committee shall:
(a) Develop general criteria for use in selecting potential new
board members and assist the board in identifying and attracting qualified
candidates for election to the board;
(b) Recommend to the board annually a slate of nominees to be
proposed by the board to the stockholders as nominees for election as directors
and, from time to time, recommend persons to fill any vacancy on the board;
(c) Recommend to the board any changes in number, authority and
duties of board committees and the chairmen and members who should serve
thereon;
(d) Advise the board and the chairman of the board and chief
executive officer on major organization matters and issues relating to the
organization structure of the Corporation, as well as management succession
plans;
(e) In the event of the death, incapacity, resignation or other
absence (temporary or permanent) of the chairman of the board and chief
executive officer, the planning and organization committee shall confer and
recommend for election by the full board an acting or successor chairman of the
board and chief executive officer;
(f) Make recommendations to the board concerning fees payable
for board membership, as well as retirement and other benefits available to
board members;
(g) Exercise the authority of the board concerning policies
relating to service by directors and employees on other unrelated boards of
directors; and
(h) Have such other duties and authority as shall be assigned or
granted to it from time to time by the chairman of the board and chief executive
officer or the board.
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SECTION 7. The public policy committee shall consist of directors of the
Corporation, a majority of whom are independent of management, as defined in
Section 2.
The public policy committee shall review the policies and practices of the
Corporation to assure that they are consistent with its social responsibility to
employees, to customers, and to society. It is anticipated that emphasis will
include the following areas:
(a) the health and safety of employees and consumers;
(b) the fulfillment of the company's responsibilities to women,
racial minorities, and disadvantaged persons;
(c) the physical and social environment;
(d) contributions to educational, health, cultural, and other
social institutions;
(e) community actions where it is necessary to close or move a
business unit or significantly reduce employment;
(f) the ethical standards of the Corporation; and
(g) other duties and authority as shall be assigned or granted
to it from time to time by the chairman of the board and chief executive officer
or the board.
SECTION 8. The following provisions shall apply to all committees of the
Board of Directors:
(a) Any power or authority granted to a committee by these
bylaws may also be exercised by the board or the executive committee.
(b) Each member of a committee shall hold office until the next
regular annual meeting of the Board of Directors following his designation and
until his successor is designated as a member of a committee, or until the
committee is dissolved by a majority of the whole board or the member is removed
as hereinafter provided.
(c) Meetings of a committee may be called by any member thereof,
the chairman of the board and chief executive officer, the president, the
secretary, or any assistant secretary upon twenty-four (24) hours notice to each
member stating the place, date, and hour of the meeting, which notice may be
written or oral. If mailed, the notice shall be deemed to be delivered when
deposited in the United States mail, addressed to the member of the committee at
his business address, provided it is mailed four (4) days prior to the meeting.
Any member of a committee may waive notice of any meeting and no notice of any
meeting need be given to any member thereof who attends in person. The notice
of a meeting of a committee need not state the business proposed to be
transacted at the meeting.
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(d) The lesser of a majority of the members or two members of a
committee shall constitute a quorum for the transaction of business at any
meeting thereof and action of a committee must be authorized by the affirmative
vote of a majority of the members present at a meeting at which a quorum is
present.
(e) Any action that may be taken by a committee at a meeting may
be taken without a meeting if a consent in writing, setting forth the action so
to be taken, shall be signed by all of the members of a committee and filed with
the minutes of the committee, which action shall be effective as of the date
stated in such consent.
(f) Any vacancy on a committee may be filled by a resolution
adopted by a majority of the Board of Directors.
(g) Any member of a committee may be removed at any time with or
without cause by resolution adopted by a majority of the Board of Directors.
(h) The chairman of the committee shall, if present, preside at
all meetings of a committee. A committee may fix its own rules of procedure
which shall not be inconsistent with these Bylaws. Each committee shall keep
regular minutes of its proceedings and report its proceedings at the next
meeting of the Board of Directors.
(i) The chairman of the board and chief executive officer and
the president shall act in an advisory capacity to all committees other than the
executive committee.
ARTICLE IV
OFFICERS
SECTION 1. The officers of the Corporation shall be the senior chairman, the
chairman of the board and chief executive officer, the president, one or more
executive vice presidents, one or more senior vice presidents, one or more group
vice presidents, one or more vice presidents, a secretary, one or more assistant
secretaries, a treasurer, and such other officers as may from time to time be
elected or appointed by the Board of Directors.
SECTION 2. SENIOR CHAIRMAN. The senior chairman shall, in the absence of
the chairman of the board and chief executive officer and the president, preside
at all meetings of the stockholders and the Board of Directors. In addition,
the senior chairman shall advise the chairman of the board and chief executive
officer and the president on matters of long and short term strategic planning,
policy and other major matters affecting the Corporation and shall have such
duties, authority and responsibilities as the chairman of the board and chief
executive officer, the president or the board shall, from time to time, delegate
to him.
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SECTION 3. CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER. The
chairman of the board and chief executive officer shall be the chief executive
officer of the Corporation and shall have the responsibility for the management
of the Corporation and such other powers and duties as may be assigned to him
from time to time by the board. The chairman of the board and chief executive
officer shall, when present, preside at all meetings of the stockholders and of
the Board of Directors. He shall act as liaison from and as spokesman for the
board. He shall participate in long range planning for the Corporation. He may
sign shares of the Corporation, any deeds, mortgages, bonds, contracts or other
instruments which the Board of Directors has authorized to be executed, or which
are in the ordinary course of business of the Corporation. He may vote, either
in person or by proxy, all the shares of the capital stock of any company which
the Corporation owns or is otherwise entitled to vote at any and all meetings of
the stockholders of such company and shall have the power to accept or waive
notice of such meetings. He shall in general perform all duties incident to the
office and such other duties as shall be prescribed by the Board of Directors
from time to time.
SECTION 4. PRESIDENT. The president shall have such duties and authority as
the chairman of the board and chief executive officer may determine from time to
time. In the absence or disability of the chairman of the board and chief
executive officer, the president shall exercise all powers and discharge all of
the duties of the chairman of the board and chief executive officer, including
the general supervision and control of all the business and affairs of the
Corporation. He may sign any deeds, mortgages, bonds, contracts or other
instruments which the Board of Directors has authorized to be executed or which
are in the ordinary course of business of the Corporation. He may vote, either
in person or by proxy, all the shares of the capital stock of any company which
the Corporation owns or is otherwise entitled to vote at any and all meetings of
the stockholders of such company and shall have the power to accept or waive
notice of such meetings.
SECTION 5. VICE PRESIDENTS. In the absence or disability of the chairman of
the board and chief executive officer and the president, the functions of the
chairman of the board and chief executive officer shall be performed by the
executive vice president who was first elected to that office and who is not
then absent or disabled, or, if none, the senior vice president who was first
elected to that office and who is not then absent or disabled, or, if none, the
group vice president who was first elected to that office and who is not then
absent or disabled, or, if none, the vice president who was first elected to
that office and who is not then absent or disabled. Each executive vice
president, senior vice president, group vice president and vice president shall
have such powers and shall discharge such duties as may be assigned to him from
time to time by the chairman of the board and chief executive officer or the
president and may sign any deeds, mortgages, bonds, contracts or other
instruments which the Board of Directors has authorized to be executed or which
are in the ordinary course of business. Each executive vice president, senior
vice president, group vice president and vice president may vote, either in
person or by proxy, all the shares of the capital stock of any company which the
Corporation owns or is otherwise entitled to vote at any and all meetings of the
stockholders of such company and shall have the power to accept or waive notice
of such meetings.
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SECTION 6. SECRETARY. The secretary shall give, or cause to be given,
notice of all meetings of stockholders and directors, and all other notices
required by law or by these Bylaws, and in the case of his absence or refusal or
neglect so to do, any such notice may be given by any person thereunto directed
by the chairman of the board and chief executive officer or the directors, upon
whose requisition the meeting is called as provided in these Bylaws. He shall
record all the proceedings of the meetings of the stockholders and of the
directors in a book to be kept for that purpose, and shall perform such other
duties as may be assigned to him by the Board of Directors or the president. He
shall have the custody of the seal of the Corporation and shall affix the same
to all instruments requiring it, when authorized by the Board of Directors, the
chairman of the board and chief executive officer or the president, and attest
the same. He shall have charge of the original stock books, transfer books and
stock ledgers, and act as transfer agent in respect of the stock and the
securities of the Corporation in the absence of designation by the Board of
Directors of a corporate transfer agent, and shall perform all of the other
duties incident to the office of secretary. He may vote, either in person or by
proxy, all the shares of the capital stock of any company which the Corporation
owns or is otherwise entitled to vote at any and all meetings of the
stockholders of such company and shall have the power to accept or waive notice
of such meetings.
SECTION 7. ASSISTANT SECRETARY. Each assistant secretary shall have such
powers and perform such duties as shall be assigned to him by the directors or
delegated to him by the secretary, and in the absence or inability of the
secretary to act, shall have the same general powers as the secretary.
SECTION 8. TREASURER. The treasurer shall perform such duties as shall be
delegated to him by the Board of Directors.
ARTICLE V
RESIGNATIONS; FILLING OF VACANCIES;
INCREASE OF NUMBER OF DIRECTORS
SECTION 1. RESIGNATIONS. Any director, member of a committee or other
officer may resign at any time. Such resignations shall be made in writing and
shall take effect at the time specified therein and, if no time be specified, at
the time of the receipt of such resignation by the chairman of the board and
chief executive officer or president or secretary. The acceptance of the
resignation shall not be necessary to make it effective.
SECTION 2. FILLING OF VACANCIES. If the office of any member of a committee
or other officer becomes vacant, the vacancy may be filled only by the remaining
directors in office, although less than a quorum, who, by a majority vote, may
appoint any qualified person to fill such vacancy. Except as set forth below,
any vacancy on the Board of Directors may be filled by a
Page 13
<PAGE>
majority of the directors then in office, although less than a quorum, or by a
sole remaining director. A person appointed to fill a vacancy shall hold office
for the unexpired term and until his successor shall be elected and qualify.
SECTION 3. INCREASE IN NUMBER OF DIRECTORS. The number of directors may be
increased or decreased at any time by the affirmative vote of a majority of the
directors at a regular meeting or a special meeting called for that purpose.
Any vacancy on the Board of Directors that results from an increase in the
number of directors may be filled by a majority of the directors then in office.
These additional directors may be chosen at such meeting to hold office until
the next election of the class for which such directors have been chosen and
until their successors are elected and qualify.
ARTICLE VI
CAPITAL STOCK
SECTION 1. CERTIFICATES OF STOCK. Certificates of stock, numbered and with
the seal of the Corporation affixed, signed by the chairman of the board and
chief executive officer, the president or vice president, and secretary or an
assistant secretary, shall be issued to each stockholder certifying the number
of shares owned by him in the Corporation. Any of or all the signatures on
these certificates may be facsimile. In case any officer or transfer agent who
has signed or whose facsimile signature has been placed upon a certificate shall
have ceased to be such officer or transfer agent before such certificate is
issued, it may be issued by the Corporation with the same effect as if he were
such officer or transfer agent at the date of issue.
SECTION 2. LOST, STOLEN OR DESTROYED CERTIFICATES. A new certificate of
stock may be issued in the place of any certificate theretofore issued by the
Corporation, alleged to have been lost, stolen or destroyed, and the directors
may, in their discretion, require the owner of the lost, stolen or destroyed
certificate, or his legal representative, to give the Corporation a bond, in
such sum as they may direct, sufficient to indemnify the Corporation against any
claim that may be made against it on account of the alleged loss, theft or
destruction of any such certificate or the issuance of such new certificate.
SECTION 3. TRANSFER OF SHARES. The shares of stock of the Corporation shall
be transferable only upon its books by the holders thereof in person or by their
duly authorized attorneys or legal representatives, and upon such transfer the
old certificates shall be surrendered to the Corporation by the delivery thereof
to the person in charge of the stock and transfer books and ledgers, or to such
other person as the directors may designate, by whom they shall be canceled, and
new certificates shall thereupon be issued. A record shall be made of each
transfer, and whenever a transfer shall be made for collateral security, and not
absolutely, it shall be so expressed in the entry of the transfer.
Page 14
<PAGE>
SECTION 4. DETERMINATION OF RECORD DATE.
(a) In order that the Corporation may determine the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the Board of Directors may fix, in advance, a record date,
which shall not be more than sixty (60) nor less than ten (10) days before the
date of such meeting, nor more than sixty (60) days prior to any other action.
(b) If no record date is fixed:
(1) The record date for determining stockholders entitled
to notice of or to vote at a meeting of stockholders shall be at the close of
business on the day next preceding the day on which notice is given, or, if
notice is waived, at the close of business on the day next preceding the day on
which the meeting is held.
(2) The record date for determining stockholders for any
other purpose shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating thereto.
(c) A determination of stockholders of record entitled to notice
of or to vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the Board of Directors may fix a new record
date for the adjourned meeting.
SECTION 5. DIVIDENDS. Subject to the provisions of the Certificate of
Incorporation, if any, and Delaware law, the directors may declare dividends
upon the capital stock of the Corporation as and when they deem expedient.
Before declaring any dividend there may be set apart out of any funds of the
Corporation available for dividends, such sum or sums as the directors from time
to time in their discretion think proper for working capital or as a reserve
fund to meet contingencies or for equalizing dividends, or for such other
purposes as the directors shall think conducive to the interests of the
Corporation.
ARTICLE VII
AMENDMENTS
SECTION 1. AMENDMENTS OF BYLAWS. The stockholders by the affirmative vote
of the holders of the majority of the stock issued and outstanding, or the
directors by the affirmative vote of a majority of the directors present at any
meeting, may amend or alter any of these Bylaws, provided the substance of the
proposed amendment shall have been stated in the notice of the meeting.
Page 15
<PAGE>
ARTICLE VIII
MISCELLANEOUS PROVISIONS
SECTION 1. CORPORATE SEAL. The corporate seal of the Corporation shall be
circular in form and shall contain the name of the Corporation, and the words
"Corporate Seal, Delaware". Said seal may be used by causing it or facsimile
thereof to be impressed or affixed or reproduced or otherwise.
SECTION 2. FISCAL YEAR. The fiscal year of the Corporation shall be the
calendar year.
SECTION 3. PRINCIPAL OFFICE. The registered office shall be established and
maintained at the office of The Corporation Trust Company, in the City of
Wilmington and County of New Castle, and such company shall be the registered
agent of this Corporation.
SECTION 4. BANK ACCOUNTS, CHECKS, DRAFTS, NOTES. The Corporation shall
maintain such bank accounts and checks upon such accounts shall be signed and/or
countersigned by such officers as may be designated by resolution of the Board
of Directors. Notes or other evidences of indebtedness issued in the name of
the Corporation shall be signed by such officer or officers, agent or agents of
the Corporation, and in such manner as shall from time to time be determined by
resolution of the Board of Directors.
SECTION 5. NOTICE AND WAIVER OF NOTICE. Whenever any notice is required by
these Bylaws to be given, personal notice is not meant unless expressly so
stated, and any notice so required shall be deemed to be sufficient if given by
depositing the same in a post office box in a sealed post paid wrapper,
addressed to the person entitled thereto at his last known post office address,
and such notice shall be deemed to have been given on the day of such mailing.
Any notice required to be given under these Bylaws may be waived by the person
entitled thereto. Stockholders not entitled to vote shall not be entitled to
receive notice of any meetings except as otherwise provided by statute.
SECTION 6. CERTAIN PURCHASES BY THE CORPORATION OF OUTSTANDING SHARES OF ITS
COMMON STOCK.
(a) VOTE REQUIRED FOR CERTAIN PURCHASES. Except as set forth
in subsection (b) of this Section 6, in addition to any vote of the
Corporation's stockholders required by law, the Corporation's Certificate of
Incorporation or these Bylaws, the affirmative vote of the holders of not less
than a majority of the Voting Stock (as defined below) of the Corporation shall
be required before the Corporation may purchase any outstanding shares of Common
Stock of the Corporation at a price known by the Corporation to be above Market
Price (as defined below) from a person
Page 16
<PAGE>
known by the Corporation to be a Selling Stockholder (as defined below). Such
affirmative vote will be required notwithstanding the fact that no vote may be
required, or that a lesser percentage may be specified, by law or any agreement
with any national securities exchange.
(b) WHEN A VOTE IS NOT REQUIRED. The provisions of subsection
(a) of this Section 6 will not apply to:
(i) any purchase or other acquisition of securities made as part
of a tender or exchange offer by the Corporation to purchase
securities of the same class made on the same terms to all holders of
such securities and complying with the applicable requirements of the
Exchange Act and the rules and regulations promulgated thereunder;
(ii) any purchase or acquisition made pursuant to an open market
purchase program approved by the Board of Directors; or
(iii) any purchase or acquisition which is approved by the
vote of a majority of the directors then in office and which is made
at no more than the Market Price, on the date that the understanding
between the Corporation and the Selling Stockholder is reached with
respect to such purchase (whether or not such purchase is made or a
written agreement relating to such purchase is executed on such date),
of shares of the Common Stock of the Corporation to be purchased.
(c) CERTAIN DEFINITIONS. For purposes of this Section 6,
the following terms are defined as follows:
(i) "VOTING STOCK" means the outstanding shares of capital stock
of the Corporation entitled to vote in elections of directors of the
Corporation considered as one class.
(ii) "MARKET PRICE" means the highest closing sale price, during
the 30-day period immediately preceding the date of the making of such
purchase agreement, of a share of the Common Stock of the Corporation
on the Composite Tape for the New York Stock Exchange. If such stock
is not quoted on the Composite Tape or is not listed on the New York
Stock Exchange, then such price during the 30-day period on the
principal United States securities exchange registered under the
Exchange Act on which such stock is listed. If such stock is not
listed on any such exchange, then the highest closing bid quotation
with respect to a share of such stock during the 30-day period on the
National Association of Securities Dealers, Inc. Automated Quotations
System or any system then in use. If no such quotations are
available, the fair market value on the date in question of a share of
such stock.
(iii) "SELLING STOCKHOLDER" means and includes any person
(other than the Corporation, any of its Subsidiaries, any benefit plan
or trust of or for the benefit of the Corporation or any of its
Subsidiaries, or any trustee, agent or other representative of any of
the foregoing) who or which is the beneficial owner of in the
aggregate five percent (5%) or more of the outstanding shares of
Common Stock of the Corporation and who or which has purchased or
agreed to purchase any of such shares within the most recent two-year
period.
Page 17
<PAGE>
For purposes of determining whether a person is a Selling Stockholder, the
number of shares of Common Stock deemed to be outstanding and the number of
shares beneficially owned by the person shall include shares respectively deemed
owned through application of Article VIII, Section 6(c)(v), but shall not
include any other shares of Common Stock which may be issuable pursuant to any
agreement, arrangement or understanding, or upon exercise of conversion rights,
warrants or options, or otherwise.
(iv) A "PERSON" means any individual, firm, partnership,
corporation or other entity (including, without limitation, a "group"
within the meaning of Section 13(d) of the Exchange Act and the rules
and regulations promulgated thereunder).
(v) A person shall be the "BENEFICIAL OWNER" of any shares of
Common Stock of the Corporation:
(A) which such person or any of its Affiliates or
Associates (as defined below) beneficially owns, directly or
indirectly; or
(B) which such person or any of its Affiliates or
Associates has (1) the right to acquire (whether such right is
conditional or exercisable immediately or only after the passage
of time), pursuant to any agreement, arrangement or understanding
or upon the exercise of conversion rights, exchange rights,
warrants or options, or otherwise, or (2) the right to vote
pursuant to any agreement, arrangement or understanding; or
(C) which are beneficially owned, directly or indirectly,
by any other person with which such person or any of its
Affiliates or Associates has any agreement, arrangement or
understanding for the purpose of acquiring, holding, voting or
disposing thereof.
(vi) The terms "AFFILIATE" and "ASSOCIATE" have the respective
meanings ascribed to such terms in Rule 12b-2 of the rules and
regulations under the Exchange Act.
(vii) "SUBSIDIARY" means any corporation at least a majority
of the outstanding securities of which having ordinary voting power to
elect a majority of the board of directors of such corporation
(whether or not any other class of securities has or might have voting
power by reason of the happening of a contingency) is at the time
owned or controlled directly or indirectly by the Corporation and/or
one or more Subsidiaries.
(d) FIDUCIARY DUTY OF SELLING STOCKHOLDER. Nothing
contained in this Section 6 shall be construed to relieve any Selling
Stockholder or any other person from any fiduciary obligation imposed by law.
(e) INTERPRETATIONS. The Board of Directors of the
Corporation has the power to construe and interpret this Section 6, including,
without limitation, (i) whether a person is a Selling Stockholder, (ii) whether
a person is an Affiliate or Associate of another, (iii) whether this Section 6
is applicable to a proposed transaction, (iv) what is the Market Price and
whether a price is above
Page 18
<PAGE>
Market Price, and (v) when or whether a purchase or agreement to purchase any
shares of Common Stock of the Corporation has occurred and when or whether a
person has become a beneficial owner of any shares of Common Stock of the
Corporation. Any decision or action reasonably taken by the Board of Directors
of the Corporation in good faith in connection with the interpretation of this
Section 6 shall not constitute a violation of and shall be deemed to be in
accordance with the terms of this Section 6.
Page 19
<PAGE>
Baxter International Inc. and Subsidiaries
Exhibit 11.1 - Computation of Primary Earnings Per Common Share
<TABLE>
<CAPTION>
- - -----------------------------------------------------------------------------------------------------------------
(Unaudited - in millions, except per share data) Three Months Ended Nine Months Ended
September 30, September 30,
1994 1993 1994 1993
<S> <C> <C> <C> <C>
Earnings
Income before cumulative effect of accounting changes $149 $135 $424 $324
Cumulative effect of change in accounting for:
Income taxes 0 0 0 81
Other postemployment benefits 0 0 0 (11)
- - ------------------------------------------------------------------------------------------------------------------
Net income available for common stock $149 $135 $424 $394
- - ------------------------------------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------------------------------------
Shares
Weighted average number of
common shares outstanding 283 277 279 277
- - ------------------------------------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------------------------------------
Primary earnings (loss) per common share
Income before cumulative effect of accounting changes $0.53 $0.49 $1.52 $1.17
Cumulative effect of change in accounting for:
Income taxes 0.00 0.00 0.00 0.29
Other postemployment benefits 0.00 0.00 0.00 (0.04)
- - ------------------------------------------------------------------------------------------------------------------
Net income $0.53 $0.49 $1.52 $1.42
- - ------------------------------------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Baxter International Inc. and Subsidiaries
Exhibit 11.2 - Computation of Fully Diluted Earnings Per Common Share
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------------------------------
(Unaudited - in millions, except per share data) Three Months Ended Nine Months Ended
September 30, September 30,
1994 1993 1994 1993
<S> <C> <C> <C> <C>
Earnings
Income before cumulative effect of accounting
changes $149 $135 $424 $324
Cumulative effect of change in accounting for:
Income taxes 0 0 0 81
Other postemployment benefits 0 0 0 (11)
- - -------------------------------------------------------------------------------------------------------------
Pro forma net income available for common stock $149 $135 $424 $394
- - -------------------------------------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------------------------------------
Shares
Weighted average number of common shares
outstanding 283 277 279 277
Additional shares assuming exercise of stock
options, performance share awards and stock
purchase plan subscriptions 1 1 2 2
- - -------------------------------------------------------------------------------------------------------------
Average common shares and equivalents outstanding 284 278 281 279
- - -------------------------------------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------------------------------------
Fully diluted earnings (loss) per common share
Income before cumulative effect of accounting changes $0.52 $0.49 $1.51 $1.16
Cumulative effect of change in accounting for:
Income taxes 0.00 0.00 0.00 0.29
Other postemployment benefits 0.00 0.00 0.00 (0.04)
- - -------------------------------------------------------------------------------------------------------------
Net income $0.52 $0.49 $1.51 $1.41
- - -------------------------------------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Baxter International Inc. and Subsidiaries
Exhibit 12 - Computation of Ratio of Earnings to Fixed Charges
(Unaudited - in millions, except ratios)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Year ended December 31 1993 1992 1991 1990 1989
Income (loss) from continuing operations
before income tax expense (benefit) $(330) $753 $688 $ 16 $578
Add:
Interest costs 232 221 231 264 291
Estimated interest included
in rentals (1) 44 43 36 35 30
- - ------------------------------------------------------------------------------------------------------------------------
Fixed charges as defined 276 264 267 299 321
Interest costs capitalized (10) (10) (9) (5) (7)
Losses of less than majority owned
affiliates, net of dividends 27 34 32 22 15
- - ------------------------------------------------------------------------------------------------------------------------
Income (loss) as adjusted $(37) $1,041 $978 $332 $907
- - ------------------------------------------------------------------------------------------------------------------------
Ratio of earnings to fixed charges (2) (0.13) 3.94 3.66 1.11 2.83
- - ------------------------------------------------------------------------------------------------------------------------
Nine months ended September 30 1994
Income before income taxes and
cumulative effect of accounting changes $565
Add:
Interest costs 182
Estimated interest included in rentals (1) 33
- - ------------------------------------------------------------------------------------------------------------------------
Fixed charges as defined 215
Interest costs capitalized (5)
Losses of less than majority
owned affiliates, net of dividends 17
- - ------------------------------------------------------------------------------------------------------------------------
Income as adjusted $792
- - ------------------------------------------------------------------------------------------------------------------------
Ratio of earnings to fixed charges 3.68
- - ------------------------------------------------------------------------------------------------------------------------
<FN>
(1) Represents the estimated interest portion of rents.
(2) Earnings were inadequate to cover fixed charges for the year-ended December
31, 1993, due to the provision for the restructuring program costs. The
amount of the coverage deficiency is $313 million.
</TABLE>
<PAGE>
EXHIBIT 15
November 11, 1994
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Dear Sirs:
We are aware that Baxter International Inc. has included our report dated
November 11, 1994 (issued pursuant to the provisions of Statement on Auditing
Standards No. 71) in the Prospectus constituting part of its Registration
Statements on Form S-8 (Nos. 2-82667, 2-86993, 2-97607, 33-8812, 33-15523, 33-
15787, 33-28428, 33-33750 and 33-54069), on Form S-3 (Nos. 33-5044, 33-23450,
33-27505, 33-31388 and 33-49820) and on Form S-4 (Nos. 33-808, 33-15357 and 33-
53937). We are also aware of our responsibilities under the Securities Act of
1933.
Yours very truly,
Price Waterhouse LLP
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM BAXTER INTERNATIONAL
INC.'S FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1994 AND IS
QUALIFIED IN ITS ENTIRITY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> SEP-30-1994
<CASH> 349
<SECURITIES> 0
<RECEIVABLES> 1,715
<ALLOWANCES> 39
<INVENTORY> 1,764
<CURRENT-ASSETS> 4,307
<PP&E> 4,764
<DEPRECIATION> 2,084
<TOTAL-ASSETS> 10,296
<CURRENT-LIABILITIES> 2,625
<BONDS> 2,416
<COMMON> 288
0
0
<OTHER-SE> 3,373
<TOTAL-LIABILITY-AND-EQUITY> 10,296
<SALES> 6,824
<TOTAL-REVENUES> 6,824
<CGS> 4,431
<TOTAL-COSTS> 4,431
<OTHER-EXPENSES> 298<F1>
<LOSS-PROVISION> 14
<INTEREST-EXPENSE> 177
<INCOME-PRETAX> 565
<INCOME-TAX> 141
<INCOME-CONTINUING> 424
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 424
<EPS-PRIMARY> 1.52
<EPS-DILUTED> 1.51
<FN>
<F1>INCLUDES R&D EXPENSE AND GOODWILL AMORTIZATION.
</FN>
</TABLE>
