<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 March 31, 1995
_______ 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 April 26, 1995 the latest practicable date, was 279,262,570 shares.
<PAGE>
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
March 31,
1995 1994
<S> <S> <C>
Operations
Net sales $2,318 $2,193
Costs and expenses
Cost of goods sold 1,548 1,433
Marketing and administrative expenses 424 440
Research and development expenses 78 76
Special charge for litigation - net 40 0
Interest - net 43 47
Goodwill amortization 16 17
Other (31) 6
- --------------------------------------------------------------------------------
Total costs and expenses 2,118 2,019
- --------------------------------------------------------------------------------
Income before income taxes 200 174
Income tax expense 55 43
- --------------------------------------------------------------------------------
Net income $145 $131
- --------------------------------------------------------------------------------
Earnings per common share $0.52 $0.47
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Average number of common shares outstanding 281 277
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</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) March 31, December 31,
1995 1994
(Unaudited)
<S> <C> <C>
Current assets Cash and equivalents $ 263 $ 471
Accounts receivable 1,533 1,543
Notes and other current
receivables 168 373
Inventories 1,598 1,537
Short-term deferred income taxes 302 271
Prepaid expenses 165 145
------------------------------------------------------------
Total current assets 4,029 4,340
- --------------------------------------------------------------------------------
Property, At cost 4,480 4,431
plant and Accumulated depreciation
equipment and amortization (1,911) (1,869)
------------------------------------------------------------
Net property, plant and equipment 2,569 2,562
- --------------------------------------------------------------------------------
Other assets Goodwill and other intangibles 2,268 2,290
Insurance receivables 715 446
Other 345 364
------------------------------------------------------------
Total other assets 3,328 3,100
- --------------------------------------------------------------------------------
Total assets $9,926 $10,002
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Current
liabilities Notes payable to banks $ 148 $ 131
Current maturities of long-term
debt and lease obligations 262 400
Accounts payable and accrued
liabilities 1,884 1,834
Income taxes payable 434 401
------------------------------------------------------------
Total current liabilities 2,728 2,766
- --------------------------------------------------------------------------------
Long-term debt and lease obligations 2,123 2,341
- --------------------------------------------------------------------------------
Long-term deferred income taxes 163 167
- --------------------------------------------------------------------------------
Long-term litigation liabilities 757 458
- --------------------------------------------------------------------------------
Other non-current liabilities 468 550
- --------------------------------------------------------------------------------
Stockholders' Common stock, $1 par value,
equity authorized 350,000,000 shares,
issued 287,701,247 shares in
1995 and 1994 288 288
Additional contributed capital 1,813 1,810
Retained earnings 1,831 1,762
Common stock in treasury, at cost,
8,893,654 shares in 1995 and
5,391,092 shares in 1994 (251) (135)
Foreign currency adjustment 6 (5)
------------------------------------------------------------
Total stockholders' equity 3,687 3,720
- --------------------------------------------------------------------------------
Total liabilities and stockholders' equity $9,926 $10,002
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
Baxter International Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Three months ended March 31, (in millions) 1995 1994
(Brackets denote cash outflows)
<S> <C> <C> <C>
Cash flow provided Income from operations $ 145 $ 131
by operations Adjustments
Depreciation and amortization 129 125
Deferred income taxes (37) 14
Asset dispositions, net (pre-tax) (53) (13)
Special charge for litigation -
net 40 0
Other 4 3
Changes in balance sheet items
Accounts receivable 26 25
Inventories (67) (25)
Accounts payable and other
accrued liabilities (5) (100)
Restructuring program payments (22) (24)
Other (26) (9)
------------------------------------------------------------
Cash flow provided by operations 134 127
- --------------------------------------------------------------------------------
Investment Capital expenditures (81) (86)
transactions Acquisitions (net of cash received)
and investments in affiliates 0 (23)
Proceeds from asset dispositions 266 39
------------------------------------------------------------
Investment transactions, net 185 (70)
- --------------------------------------------------------------------------------
Financing Issuance of debt and lease
transactions obligations 87 402
Redemption of debt and lease
obligations (172) (506)
Increase in debt with maturities
of three months or less, net (258) 96
Common stock dividends (75) (69)
Stock issued under employee
benefit plans 25 13
Purchase of treasury stock (139) 0
------------------------------------------------------------
Financing transactions, net (532) (64)
- --------------------------------------------------------------------------------
Effect of foreign exchange rate changes on cash
and equivalents 5 0
- --------------------------------------------------------------------------------
Decrease in cash and equivalents (208) (7)
Cash and equivalents at beginning of period 471 479
- --------------------------------------------------------------------------------
Cash and equivalents at end of period $263 $472
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
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
consolidated financial statements and notes included in the Company's 1994
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>
March 31, December 31,
1995 1994
(Unaudited)
<S> <C> <C>
Raw materials $ 226 $ 219
Work in process 221 191
Finished products 1,151 1,127
----- -----
Total inventories $1,598 $1,537
------ ------
------ ------
</TABLE>
INTEREST - NET
Interest - net consists of the following (unaudited):
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Three Months Ended
(in millions) March 31, March 31,
1995 1994
<S> <C> <C>
Interest expense 52 56
Interest income (9) (9)
- --------------------------------------------------------------------------------
Interest - net 43 47
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
<PAGE>
-6-
SPECIAL CHARGE FOR LITIGATION AND LEGAL PROCEEDINGS
The number of opt-outs for the mammary implant global settlement against Baxter
was reduced by plaintiffs who chose to rescind their opt-out notices, a right
which ended on March 1, 1995. Based on its continuing evaluation of the
remaining opt-outs, the Company accrued an additional $298 million for its
estimated liability to litigate and/or settle cases and claims involving opt-
outs and recorded an additional receivable for estimated insurance recovery of
$258 million, resulting in an additional net charge of $40 million in the first
quarter of 1995.
Please refer to "Part II - Item 1. Legal Proceedings" of this document for the
status of cases and claims from individuals seeking damages for injuries
allegedly caused by silicone gel-filled mammary implants manufactured by a
division of American Hospital Supply Corporation. That section also discusses
the status of lawsuits and claims involving individuals 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 and updates the status of other legal proceedings
involving the Company.
<PAGE>
-7-
Item. 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The Company's 1994 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, 1994. In the ARS, management outlined its key
financial objectives in 1995 which are summarized as follows:
- - Generate $500 million in "operational cash flow" in 1995;
- - Maintain a net debt to net capital ratio of between 35-40%;
- - Repurchase $500 million of Baxter stock over the next 2 years as authorized
by the Board of Directors in February, 1995;
- - Achieve net income growth in the high single digits;
- - Reduce marketing and administrative expenses from 19.9% of sales in 1994 to
18% in 1995.
The following discussion and analysis describes management's progress toward the
above objectives and material changes in the Company's financial condition since
December 31, 1994. Trends of a material nature are discussed to the extent known
and considered relevant. The analysis of results compares the three months
ended March 31, 1995 with the corresponding period of 1994.
RESULTS OF OPERATIONS
First quarter net sales increased 6% to $2.3 billion. The following table shows
net sales for each industry segment (unaudited):
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Percent
Three months ended March 31, (in millions) 1995 1994 Increase
(Decrease)
<S> <C> <C> <C>
Medical specialties $931 $ 793 17%
Medical/laboratory products and
distribution 1,387 1,400 (1)%
- --------------------------------------------------------------------------------
Total net sales $2,318 $2,193 6%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
The medical specialties segment sales increase of 17% over the comparable period
in 1994 was achieved by increased unit sales growth and was helped by $34
million from foreign currency exchange rates. The sales for the
medical/laboratory products and distribution segment ("med/lab") reflects the
adverse impact due to the loss in sales related to the 1994 diagnostics
divestiture. The Company will experience lower sales growth throughout 1995 in
the med/lab segment due to the loss of approximately $300 million in annual
sales (primarily international) related to the diagnostics divestiture.
Domestic sales for the first quarter of 1995 were approximately $1.7 billion, an
increase of 5% over the comparable period in 1994. Sales from international
markets in the first quarter were $615 million, representing a 7% increase over
1994. International sales growth was approximately 13% in the first quarter of
1995, excluding the effect of changes in foreign exchange rates and the effect
of the divestiture of the diagnostics manufacturing business which occurred in
December 1994.
<PAGE>
-8-
The gross profit margin was 33.2% for the three months ended March 31, 1995,
versus 34.7% for the similar period of 1994. This decline of 1.5 percentage
points is entirely due to the divestiture of the diagnostics manufacturing
business. Baxter will continue to distribute all current diagnostics products
in the U.S., but will not distribute these products internationally.
Marketing and administrative expenses were 18.3% of sales for the quarter ended
March 31, 1995, versus 20.1% for the same period in 1994. This decrease
reflects improved expense leveraging as a result of initiatives taken in
connection with the 1993 downsizing and restructuring programs. These results
are in line with the Company goal to reduce marketing and administrative
expenses from 19.9% of sales in 1994 to 18% in 1995.
The following table shows research and development expenses for each industry
segment (unaudited):
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Three months ended March 31, (in millions) Percent
Increase
1995 1994 (Decrease)
<S> <C> <C> <C>
Medical specialties $64 $56 14%
Medical/laboratory products and
distribution 14 20 (30%)
- --------------------------------------------------------------------------------
Total research and development expenses $78 76 3%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
Total company research and development expenses increased 3% to $78 million for
the three months ended March 31, 1995, as compared to the similar period of
1994. Research and development expenses have increased in the medical
specialties segment as the Company continues to focus its investment in high-
growth, strategic initiatives in such areas as kidney transplants,
cardiovascular disease, Novacor and Blood Substitutes. As anticipated, the R&D
spending in the med/lab segment is lower in 1995 due to the divestiture of the
diagnostics manufacturing business and the Company's strategy to expand its R&D
expenditures in the medical specialties segment.
The number of opt-outs for the mammary-implant global settlement against Baxter
was reduced by plaintiffs who chose to rescind their opt-out notices, a right
which ended on March 1, 1995. Based on its continuing evaluation of the
remaining opt-outs, the Company accrued an additional $298 million for its
estimated liability to litigate and/or settle cases and claims involving opt-
outs and recorded an additional receivable for estimated insurance recovery of
$258 million, resulting in an additional net charge of $40 million in the first
quarter of 1995. See "Part II - Item 1. Legal Proceedings" for further
information.
The increase in other income is primarily due to net gains associated with the
disposal or discontinuance of minor, non-strategic business and investments,
including the first quarter 1995 sale of the majority of the Company's
investment in MediSense, Inc. These net gains were $53 million and $13 million
in the first quarters ended March 31, 1995 and 1994, respectively.
<PAGE>
-9-
Income before income taxes was $200 million for the three months ended March 31,
1995 versus $174 million for the comparable period of 1994. The following table
shows income (loss) before income taxes for each industry segment (unaudited):
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Three months ended March 31, (in millions) Percent
Increase
1995 1994 (Decrease)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Medical specialties $156 $131 19%
- --------------------------------------------------------------------------------
Medical/laboratory products and
distribution 100 114 (12%)
- --------------------------------------------------------------------------------
General corporate and other:
Before litigation 27 (24)
Special charge for litigation - net (40) 0
- --------------------------------------------------------------------------------
General corporate and other (13) (24)
- --------------------------------------------------------------------------------
Interest - net (43) (47)
- --------------------------------------------------------------------------------
Total income before income taxes $200 $174 15%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
The increase in income before income taxes in the medical specialties segment
for the three month period is consistent with the increase in sales and was also
favorably affected by foreign exchange rates. The medical specialties segment
was adversely impacted in the first quarter of 1994 by foreign currency exchange
rates and by the effect of the voluntary market withdrawal of Gammagard
- -REGISTERED TRADEMARK-, an immune globulin intravenous product. The med/lab
segment's income before income taxes decreased by 12% for the first quarter as
compared to the same period in 1994 as a result of the divestiture of the
diagnostics business as well as a strong operational performance during the
first quarter of 1994. The net increase in general corporate and other for the
three month period primarily reflects the effect of net gains associated with
the disposal or discontinuance of minor, non-strategic business investments.
The effective tax rate for the first quarter was 27.5% versus 24.7% for the
similar period in 1994. The increase is primarily due to a larger proportion of
earnings generated in the U.S. and less income in Puerto Rico due to the
diagnostics divestiture.
Net income and earnings per common share increased 11% for the first quarter of
1995 over the comparable period of 1994. These increases reflect general growth
in the Company's operations and improved expense control in line with the key
financial objectives.
RESTRUCTURING PROGRAM
Since the announcement of its 1993 restructuring program the Company has
implemented, or is in the process of implementing, all of the major strategic
actions associated with the program. Management is satisfied that such actions
are generally progressing on schedule and that the overall program will meet
previously established financial targets.
In the first quarter of 1995, the Company utilized $45 million of restructuring
reserves, including $31 million in cash payments. Cash outflows pertain
primarily to employee-related costs for severance, outplacement assistance,
relocation and retention payments. The Company currently anticipates that it
will achieve its goal of $200 million in savings for 1995. Management
anticipates that these savings will be invested in increased research and
development spending in the medical specialties segment and the Company's
expansion into growing international markets.
<PAGE>
-10-
Since the inception of the restructuring program, the Company has eliminated
2,400 positions of the approximately 4,500 positions affected by the program.
The majority of the remaining reductions will occur throughout the remainder of
1995 and 1996 as facility closures and consolidations are completed as planned.
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 $134 million for the 3 months ended March 31, 1995 from
a level of $127 million for the corresponding period in 1994. This increase
primarily reflects net cash inflows for working capital components including
approximately $25 million in proceeds for the sale of certain lease receivables
under a revolving agreement. 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
monitors an internal performance measure called "operational cash flow" which
evaluates each operating business on all aspects of cash flow under its direct
control. The incentive compensation programs for the Company's senior
management in each business include significant emphasis on the attainment of
both "operational cash flow" as well as earnings objectives.
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) Three Months Ended
March 31,
1995 1994
<S> <C> <C>
Cash flow provided by operations per the
Company's condensed consolidated statements
of cash flows $134 $127
Capital expenditures (81) (86)
Net interest after tax 25 28
Other adjustments 32 5
- --------------------------------------------------------------------------------
Total "operational cash flow" $110 $74
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
"Operational cash flow" of $110 million is consistent with the Company's
objective to generate "operational cash flow" of at least $500 million in 1995.
The following table shows capital expenditures for each industry segment
(unaudited):
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Three months ended March 31, (in millions) 1995 1994 Percent
Increase
(Decrease)
<S> <C> <C> <C>
Medical specialties $49 $46 7%
Medical/laboratory products and distribution 29 36 (19%)
General corporate 3 4 (25%)
- --------------------------------------------------------------------------------
Total $81 $86 (6%)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
<PAGE>
-11-
The 7% increase in the medical specialties segment is consistent with the
Company's strategy to increase its investment in its higher growth businesses.
The Company has made significant investments in recent years in its U.S.
Distribution and manufacturing infrastructure. As a consequence, the level of
capital expenditures in the med/lab segment have declined as compared to 1994
levels. Incremental capital investments are being made in the medical
specialties segment for the expansion of manufacturing capacity for renal and
blood collection products.
The Company's current assets exceeded current liabilities by $1.3 billion at
March 31, 1995 and $1.6 billion at December 31, 1994. Current assets included
receivables of $1.5 billion and inventories of $1.6 billion at March 31, 1995.
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.
The increase in long-term insurance receivables and litigation liabilities was
primarily due to the special charge for litigation discussed earlier.
Divestiture proceeds in the first quarter of 1995 include $266 million primarily
from notes receivable from the disposition of the diagnostics manufacturing
business and proceeds from the sale of common stock in MediSense, Inc. These
proceeds have been used to reduce net debt. Net debt decreased during the first
quarter from $2,401 million to $2,270 million and long-term debt decreased from
$2,341 million to $2,123 million. At March 31, 1995, the Company's net debt to
net capital ratio was 38% versus 39% at December 31, 1994. These results are
consistent with the goal of maintaining a net debt to net capital ratio of
between 35-40%.
During the first quarter of 1995, the Company announced a two-year $500 million
stock repurchase program. During the first quarter, the Company has repurchased
approximately $139 million (4.4 million shares) of common stock.
On April 26, 1995, the Company's debt rating of "A" by Duff & Phelps ("D&P")
was reaffirmed. The Company continues to remain on Rating Watch -- Down as
developments will be monitored by D&P in product liability litigation and
progress in restructuring initiatives. On March 23, 1995, Standard & Poor's
reaffirmed its "A-" rating and changed its rating outlook to "stable" from
"negative" citing the Company's reduction in leverage and improvement in
operating margins.
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.
Refer to "Part II - Item 1. Legal Proceedings" in 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.
Upon resolution of any of the litigation related uncertainties, or if the
Company should, along with the other defendants, enter into a comprehensive
settlement of the related purported class actions, 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
<PAGE>
-12-
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>
-13-
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 ended March 31, 1995 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>
-14-
REPORT OF INDEPENDENT ACCOUNTANTS
May 4, 1995
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
March 31, 1995 and for the three-month periods ended March 31, 1995 and 1994.
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, 1994, 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 13,
1995 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, 1994, is fairly stated
in all material respects in relation to the consolidated balance sheet from
which it has been derived.
Price Waterhouse LLP
<PAGE>
-15-
PART II. OTHER INFORMATION
Baxter International Inc. and Subsidiaries
Item 1. Legal Proceedings
As of March 31, 1995, the Company was a defendant, together with other
defendants, in 6,272 lawsuits and had 1,758 pending claims from individuals, all
of which seek damages for injuries allegedly caused by silicone mammary implants
manufactured by the American Heyer-Schulte division of American Hospital Supply
Corporation ("American"). The comparable number of cases and claims was 7,992
as of December 31, 1994. In the first quarter of 1995, 15 cases and claims were
disposed of.
The typical case or claim alleges that the individual's mammary implants
caused one or more of a wide range of ailments, including non-specific
autoimmune disease, scleroderma, lupus, rheumatoid arthritis, fibromyalgia,
mixed connective tissue disease, Sjogren's Syndrome, dermatomyositis,
polymyositis, and chronic fatigue.
In addition to the individual suits against the Company, a class action on
behalf of all women with mammary implants filed against all manufacturers of
such implants has been conditionally certified and is pending in the United
States District Court for the Northern District of Alabama (DANTE, ET AL., V.
DOW CORNING, ET AL., U.S.D.C., N. Dist., Ala., 92-2589; part of IN RE: SILICONE
GEL BREAST IMPLANT PRODUCT LIABILITY LITIGATION, U.S.D.C., N. Dist. Ala., MDL
926, (U.S.D.C., N. Dist. Ala., CV 92-P-10000-S)(now held in abeyance pending
settlement proceedings in LINDSEY, ET AL., V. DOW CORNING ET AL., U.S.D.C., N.
Dist. Ala., CV 94-P-11558-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 currently is on appeal. A
second suit seeking class certification on behalf of all women in the Province
of Ontario who received Heyer-Schulte mammary implants has been filed (BENNETT
V. AMERICAN HEYER-SCHULTE, ET AL., Ontario Prov. Court, Gen. Div., 18169/94).
Additionally, the Company has been served with a purported class action
brought on behalf of children allegedly exposed to silicone in utero and through
breast milk. (FEUER, ET AL., V. MCGHAN, ET AL., U.S.D.C., E. Dist. NY, 93-
0146.) The suit names all mammary implant manufacturers as defendants and seeks
to establish a medical monitoring fund.
These implant cases and claims generally raise difficult and complex
factual and legal issues and are subject to many uncertainties and complexities,
including, but not limited to, the facts and circumstances of each particular
case or claim, the jurisdiction in which each suit is brought, and differences
in applicable law. Many of the cases and claims are at very preliminary stages,
and the Company has not been able to obtain information sufficient to evaluate
each case and claim.
<PAGE>
-16-
There also are issues concerning which of the Company's insurers are
responsible for covering each matter and the extent of the Company's claims for
contribution against third parties. The Company believes that a substantial
portion of the liability and defense costs related to mammary implant cases and
claims will be covered by insurance, subject to self-insurance retentions,
exclusions, conditions, coverage gaps, policy limits and insurer solvency. Most
of the Company's insurers have reserved (i.e., neither admitted nor denied), and
may attempt to reserve in the future, the right to deny coverage, in whole or in
part, due to differing theories regarding, among other things, the applicability
of coverage and when coverage may attach. The Company is engaged in active
negotiations with its insurers concerning coverages and the settlement described
below. Two of the Company's claims-made insurers have tendered the full amounts
of their policies to the Company and a third has tendered the full amounts of
its policy ratably as claims are paid. Additionally, the Company received
certain funds in settlement of claims pending against a carrier in liquidation.
The total amount tendered is $85 million.
Also, some of the mammary implant cases pending against the Company seek
punitive damages and compensatory damages arising out of alleged intentional
torts. Depending on policy language, applicable law, and agreements with
insurers, the damages awarded pursuant to such claims may or may not be covered,
in whole or in part, by insurance. On February 7, 1994, the Company filed suit
against all of the insurance companies that issued product liability policies to
American, American Heyer-Schulte and Baxter for a declaratory judgment that: the
policies cover each year of injury or claim; the Company may choose among
multiple coverages; coverage begins with the date of implant; and legal fees and
punitive damages are covered. Subsequently, certain of the Company's product
liability insurance carriers filed suit against the Company and all of its other
carriers for a declaratory judgment to define various terms in the Company's
insurance policies, the extent of the Company's coverage, the date of the
occurrences giving rise to coverage, and the relative liabilities of the various
insurance carriers involved. In both cases, the parties have entered into a
"stand-still" agreement while negotiations continue.
In 1994, representatives of the plaintiffs and certain defendants in these
cases negotiated a global settlement of the issues under the jurisdiction
of the Court in the LINDSEY V. DOW CORNING, ET AL. case. The monetary
provisions of the settlement, providing compensation for all present and future
plaintiffs and claimants through a series of specific funds and a disease
compensation program involving 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 and the disease compensation
program, which would be paid-in and made available over approximately thirty
years following final approval of the settlement by the courts, is $4.255
billion. That total consists of $1.54 billion which is designated for the
specific funds, $1.2 billion which is designated for the payment of current
claims under the disease compensation program, and approximately $1.515 billion
which is designated for the payment of future claims under the disease
compensation program. The Company's share of this settlement has been
established by the settlement negotiations at $556 million. Appeals have been
filed challenging the global settlement.
The time to file current claims against the fund ended on September 16,
1994. Since that date, the Court's claims administration office has been
evaluating the current claims filed against the scheduled medical conditions.
If those claims exceed the funds available, the settlement agreement provides
for reductions of the amounts payable for scheduled medical conditions (a
"ratchet"), and for negotiations among the
<PAGE>
-17-
representatives of the plaintiffs and the settling defendants with respect to
the shortfall in funding for current claims. The Court has indicated that it
expects that there will be a substantial ratchet downward in the amounts
payable, and this expectation has resulted in further negotiations among the
parties, which are ongoing. The extent of the reductions in the amounts payable
cannot be estimated until the Court's preliminary evaluations of the current
claims and the parties negotiations are completed. If the settlement does
continue in effect, under the settlement agreement, a ratchet or a renegotiated
settlement will result in a further notice to the class, a second opportunity
for class members to opt-out of the settlement, and an opportunity for each
settling defendant to withdraw from the settlement.
The global settlement gave individual plaintiffs and claimants the
opportunity to remove themselves from the settlement ("opt-out"). The initial
opt-out period ended July 1, 1994. As of March 1995, approximately 11,360
individuals have opted out of the global settlement, of which 3,641 allege
claims against Baxter. Of the opt-outs who filed claims against Baxter, 1,977
represent U.S. claimants, 1,664 represent foreign claimants. The number of opt-
outs against Baxter was reduced by plaintiffs who chose to rescind their opt-out
notices, a right which ended on March 1, 1995. The number of opt-outs against
Baxter will change as some claimants are found to not have valid claims against
Baxter, and others are identified as having claims against Baxter. The Company
believes that a substantial number of the suits filed in the second, third and
fourth quarters of 1994 against Baxter will ultimately be dismissed because it
will be determined that no Heyer-Schulte mammary implant is involved.
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. Based on its continuing
evaluation of the remaining opt-outs, the Company accrued an additional $298
million for its estimated liability to litigate and/or settle cases and claims
involving opt-outs and recorded an additional receivable for estimated insurance
recovery of $258 million, resulting in an additional net charge of $40 million
in the first quarter of 1995.
At present, the Company is not able to estimate the nature and extent of
its further potential future liability with respect to mammary implants. The
Company believes that most of its potential future liability with respect to
mammary implant cases is covered by insurance. The Company intends to continue
to litigate pending mammary implant cases.
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 March 31, 1995, the Company was a defendant, together with other
defendants, in 255 lawsuits, and had one pending claim, in the United States and
Canada involving individuals who have hemophilia, or their representatives.
Those cases and the claim seek damages for injuries allegedly caused by anti-
hemophilic factor concentrates VIII and IX derived from human blood plasma
processed and sold by the Company. Furthermore, 57 lawsuits seeking damages
based on similar allegations are pending in Ireland and Japan and 8 claims are
pending in Italy.
<PAGE>
-18-
The typical case or claim alleges that the individual with hemophilia was
infected with HIV by infusing Factor VIII or Factor IX concentrates ("Factor
Concentrates") containing HIV.
All Federal Court Factor Concentrate cases have been transferred to the
U.S.D.C. for the Northern District of Illinois for case management under Multi
District Litigation (MDL) rules. In addition to the individual suits against
the Company, a purported class action was filed on September 30, 1993, on behalf
of all U.S. residents with hemophilia (and their families) who were treated with
Factor Concentrates and who allegedly are infected with HIV as a result of the
use of such Factor Concentrates. This lawsuit was filed in the United States
District Court for the Northern District of Illinois (WADLEIGH, ET AL., V.
RHONE-POULENC RORER, ET AL., U.S.D.C., N. Dist., Ill. 93C 5969). On November 3,
1994, the court certified the class only for the purpose of determining whether
the defendants' actions were negligent. The defendants in this case filed a
petition for a Writ of Mandamus with the 7th Circuit Court of Appeals seeking an
order directing the district court judge to vacate that certification. On March
16, 1995, the Court of Appeals granted the petition and stated that it would
issue a Writ of Mandamus directing the District Court to vacate its
certification. On April 28, 1995, the Court of Appeals denied the plaintiffs
request for a rehearing EN BANC. Baxter has also been named in three other
purported class actions, none of which have been certified and all of which have
been transferred to the MDL for discovery purposes. The Company denies these
allegations.
Many of the cases and claims are at very preliminary stages, and the
Company has not been able to obtain information sufficient to evaluate each case
and claim. In most states, the Company's potential liability is limited by laws
that provide that the sale of blood or blood derivatives, including Factor
Concentrates, is not the sale of a "good," and thus is not covered by the
doctrine of strict liability. As a result, each claimant will have to prove
that his or her injuries were caused by the Company's negligence. The WADLEIGH
case alleges that the Company was negligent in failing: to use available
purification technology; to promote research and development for product safety;
to withdraw Factor Concentrates once it knew or should have known of viral-
contamination of such concentrates; to screen plasma donors properly; to recall
contaminated Factor Concentrates; and to warn of risks known at the time the
Factor Concentrates were used.
The Company believes that a substantial portion of the liability and
defense costs related to anti-hemophilic Factor Concentrate cases and claims
will be covered by insurance, subject to self-insurance retentions, exclusions,
conditions, coverage gaps, policy limits and insurer solvency. Most of the
Company's insurers have reserved their rights (i.e., neither admitted nor denied
coverage), 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 filed suit in California against all of the insurance
companies that issued comprehensive general liability and excess liability
policies to the Company for a declaratory judgment that the policies of all
of the carriers provide coverage. In that suit, the Company also sued Zurich
for failure to defend it. The Company subsequently dismissed without prejudice
its claims against all of the excess insurance carriers except Columbia
Casualty Company (one of the Company's excess insurers during part of the
relevant time period). The Company has filed an Amended Complaint in the
California action seeking a declaration that Zurich has a duty to defend the
Company in connection with the Factor Concentrate cases and claims.
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 notice and the like under the policies.
<PAGE>
-19-
The Company's excess liability insurance carriers also brought suit in
Illinois for a declaratory judgment as to the parties' respective liabilities.
That suit has been dismissed without prejudice. The suit filed by Zurich in
Illinois has been stayed pending resolution of the Company's California case.
Zurich has appealed that stay.
The Company has notified its insurers concerning coverages and the status
of the cases. Also, some of the anti-hemophilic Factor Concentrates cases
pending against the Company seek punitive damages and compensatory damages
arising out of alleged intentional torts. Depending on policy language,
applicable law and agreements with insurers, the damages awarded pursuant to
such claims may or may not be covered, in whole or in part, by insurance.
Accordingly, the Company is not currently in a position to estimate the amount
of its potential future recoveries from its insurers, but has estimated its
recovery with respect to the reserves it has established.
The Company is vigorously defending each of the cases and claims against
it. The Company will continue to seek ways to resolve pending and threatened
litigation concerning these issues through a negotiated resolution.
In the fourth quarter of 1993, the Company accrued $131 million for its
estimated worldwide liability for litigation and settlement expenses involving
anti-hemophilic Factor Concentrate cases, and recorded a receivable for
insurance coverage of $83 million, resulting in a net charge of $48 million.
Upon resolution of any of the uncertainties concerning these cases, or if
the Company, along with the other defendants, enters into a comprehensive
settlement of the putative 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 Gammagard. Gammagard is a concentration of antibodies
derived from human plasma and is used to treat immune-suppressed patients. A
new immune globulin, Gammagard S/D, produced with an additional viral
inactivation process was introduced by the Company after licensure in the United
States and certain other countries.
As of March 31, 1995, the Company had received reports of Hepatitis C
transmission from 250 patients. The exact cause for these reports has not been
determined; however, many of the reports have been associated with Gammagard
injection produced from plasma which was screened for antibodies to the
Hepatitis C virus through second generation testing. The number of patients
receiving Gammagard IGIV produced from the second-generation screened plasma is
not yet known, nor is the number of patients claiming exposure to Hepatitis C
known.
<PAGE>
-20-
As of March 31, 1995, 32 suits resulting from this incident have been
served on the Company. Six suits have been filed as purported class actions,
LOWE V. BAXTER, U.S.D.C., W.D. KY, C94-0125; MOCK V. BAXTER, ET AL., U.S.D.C.,
ID, CIV-94-0524-S-LMV; FAYNE V. BAXTER, U.S.D.C., S.D., NY, 95CIV1129, GUTTERMAN
V. BAXTER, U.S.D.C., S.D., IL, 95-198-WDS, GEARY V. BAXTER, U.S.D.C., W.D., PA,
95 0457, and KELLEY V. BAXTER, U.S.D.C., M.D., NC, 6:95CV00178. The suits
allege infection with the Hepatitis C virus from the use of Gammagard. The
Company is defending 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.
Baxter Healthcare Corporation ("BHC") was one of ten defendants named in a
purported class action filed in August 1993, on behalf of all medical and dental
personnel in the state of California who suffered allergic reactions to natural
rubber latex gloves and other protective equipment or who have been exposed to
natural rubber latex products. (KENNEDY, ET AL., V. BAXTER HEALTHCARE
CORPORATION, ET AL., Sup. Ct., Sacramento Co., Cal., #535632). The case alleges
that users of various natural rubber latex products, including medical gloves
made and sold by BHC and other manufacturers, suffered allergic reactions to the
products ranging from skin irritation to systemic anaphylaxis. The Court
granted defendants' demurrer to the class action allegations. This is currently
on appeal. In April 1994, a similar purported class action, GREEN, ET AL. V.
BAXTER HEALTHCARE CORPORATION, ET AL., (Cir. Ct., Milwaukee Co., WI) was filed
against Baxter and three other defendants. The class action allegations have
been withdrawn, but additional plaintiffs added individual claims. The Company
will vigorously defend against these actions. Management believes that the
outcome of these matters will not have a material adverse effect on the
Company's results of operations or consolidated financial position.
A purported class action has been filed against the Company, Caremark
International, Inc. ("Caremark"), C.A. (Lance) Piccolo, James G. Connelly and
Thomas W. Hodson (all current officers of Caremark) alleging securities law
disclosure violations in connection with the November 30, 1992, spin-off of
Caremark in the Registration and Information Statement ("Registration
Statement") and subsequent SEC filings submitted by Caremark (ISQUITH V.
CAREMARK INTERNATIONAL, INC., ET AL., U.S.D.C., N. Dist. Ill., 94C 5534). The
plaintiffs allege, among other things, that the Registration Statement and
subsequent SEC filings contained false and misleading statements regarding the
scope of the Office of Inspector General for the Department of Health and Human
Services' investigation of Caremark's business and Medicare/Medicaid patient-
referral practices. The Company will respond to the complaint and vigorously
defend this action. Management believes that the outcome of this matter will
not have a material adverse effect on the Company's results of operations or
consolidated financial position.
All of the individuals who served as directors of the Company as of
September 1, 1993, as well as Lester B. Knight, executive vice president of the
Company, were named as defendants in a lawsuit ostensibly filed as a "demand
excused" derivative action. SIEGEL V. LOUCKS, ET AL., was filed September 15,
1993, in the Court of Chancery in New Castle County, Delaware Cir. Ct., New
Castle Co., Del., C. A. No. 13130. On October 24, 1993, a substantially
identical complaint was filed in the same court by Bartholomew J. Millano. The
two complaints were consolidated. The plaintiffs allege that the directors
failed to oversee management in connection with actions which were the basis for
a dispute between the Company and the Department of Veterans Affairs concerning
sales
<PAGE>
-21-
and pricing practices, 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 dispute, as well as the compensation paid to Messrs. Gantz, Knight,
Loucks and Tobin since 1991. The Company and its directors filed motions to
dismiss the suit, answered the complaint and filed a counterclaim seeking
permanently to bar and enjoin the plaintiff from prosecuting this case because
her claims have been disposed of and barred in a prior suit against the Company.
On March 7, 1995, the court granted the defendants' motions to dismiss the suit,
and on April 7, that order became final and non-appealable.
As of March 31, 1995, the Company has been named as a potentially
responsible party for cleanup costs at 15 hazardous waste sites. The Company
was a significant contributor to waste disposed of at only one of these sites,
the Thermo-Chem site in Muskegon, Michigan. The Company expects that the total
cleanup costs for this site will be between $44 million and $65 million, of
which the Company's share will be approximately $5 million. This amount has
been reserved and is reflected in the Company's financial statements.
In all of the other sites, the Company was a minor contributor and does not
have information on the total cleanup costs. The Company has, however, in most
of these cases been advised by the potentially responsible party of its roughly
estimated exposure at these sites. Those estimated exposures total
approximately $7 million. This amount has been reserved and reflected in the
Company's financial statements.
The Company is a defendant in a number of other claims, investigations and
lawsuits. Based on the advice of counsel, management does not believe that the
other claims, investigations and lawsuits individually or in the aggregate, will
have a material adverse effect on the Company's operations or its consolidated
financial condition.
Item 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
A report on Form 8-K, dated February 14, 1995, was filed with the SEC under
Item 5, Other Events, to file a press release which announced the Company's
stock repurchase program.
<PAGE>
-22-
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: May 4, 1995 By:/s/ Harry M. Jansen Kraemer, Jr.
-----------------------------------
Harry M. Jansen Kraemer, Jr.
Senior Vice President and
Chief Financial Officer
<PAGE>
-23-
Exhibit Index
Number Description of Exhibit Page Number
- ------ ---------------------- -----------
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 Schedule
(All other exhibits are inapplicable.)
- --------------------------------------------------------------------------------
<PAGE>
-24-
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
March 31,
1995 1994
<S> <C> <C>
Net income available for common stock $145 $131
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Shares
Weighted average number of common
shares outstanding 281 277
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Primary earnings per common share $0.52 $0.47
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
<PAGE>
-25-
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
March 31,
1995 1994
<S> <C> <C>
Net income available for common stock $145 $131
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Shares
Weighted average number of common shares
outstanding 281 277
Additional shares assuming exercise of
stock options, performance share awards and stock
purchase plan subscriptions 3 0
- --------------------------------------------------------------------------------
Average common shares and equivalents outstanding 284 277
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Fully diluted earnings per common share $0.51 $0.47
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
<PAGE>
-26-
Baxter International Inc. and Subsidiaries
Exhibit 12 - Computation of Ratio of Earnings to Fixed Charges
(Unaudited - in millions, except ratios)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Year ended December 31 1994 1993(2) 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Income (loss) from continuing operations
before income tax expense (benefit)
and cumulative effect of accounting
change $ 801 $(330) $753 $688 $16
Add:
Interest costs 242 232 221 231 264
Estimated interest included
in rentals (1) 43 44 43 36 35
- --------------------------------------------------------------------------------
Fixed charges as defined 285 276 264 267 299
Interest costs capitalized (5) (10) (10) (9) (5)
Losses of less than majority owned
affiliates, net of dividends 18 27 34 32 22
- --------------------------------------------------------------------------------
Income (loss) as adjusted $1,099 $(37) $1,041 $978 $332
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Ratio of earnings to fixed charges 3.86 (0.13) 3.94 3.66 1.11
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Three months ended March 31 1995
Income before income taxes $200
Add:
Interest costs 53
Estimated interest included in rentals (1) 11
- --------------------------------------------------------------------------------
Fixed charges as defined 64
Interest costs capitalized (1)
Losses of less than majority
owned affiliates, net of dividends 1
- --------------------------------------------------------------------------------
Income as adjusted $264
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Ratio of earnings to fixed charges 4.13
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<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>
-27-
EXHIBIT 15
May 4, 1995
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 May 4,
1995 (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 FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF MARCH 31, 1995 AND CONDENSED
CONSOLIDATED STATEMENT OF INCOME FOR THE THREE MONTHS ENDED MARCH 31, 1995
AND IS QUALIFIED IN ITS ENTIRETY BY REFERNENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<CASH> 263
<SECURITIES> 0
<RECEIVABLES> 1,741
<ALLOWANCES> 40
<INVENTORY> 1,598
<CURRENT-ASSETS> 4,029
<PP&E> 4,480
<DEPRECIATION> 1,911
<TOTAL-ASSETS> 9,926
<CURRENT-LIABILITIES> 2,728
<BONDS> 2,123
<COMMON> 288
0
0
<OTHER-SE> 3,399
<TOTAL-LIABILITY-AND-EQUITY> 9,926
<SALES> 2,318
<TOTAL-REVENUES> 2,318
<CGS> 1,548
<TOTAL-COSTS> 1,548
<OTHER-EXPENSES> 94<F1>
<LOSS-PROVISION> 4
<INTEREST-EXPENSE> 52
<INCOME-PRETAX> 200
<INCOME-TAX> 55
<INCOME-CONTINUING> 145
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 145
<EPS-PRIMARY> $0.52
<EPS-DILUTED> $0.51
<FN>
<F1>For "other costs and expenses" - Ref #5-03(b)3 - Includes R&D & Goodwill Amor.
</FN>
</TABLE>
