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Proc-Type: 2001,MIC-CLEAR
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<SEC-DOCUMENT>0000950131-01-500106.txt : 20010315
<SEC-HEADER>0000950131-01-500106.hdr.sgml : 20010315
ACCESSION NUMBER: 0000950131-01-500106
CONFORMED SUBMISSION TYPE: 10-K
PUBLIC DOCUMENT COUNT: 8
CONFORMED PERIOD OF REPORT: 20001231
FILED AS OF DATE: 20010314
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: BAXTER INTERNATIONAL INC
CENTRAL INDEX KEY: 0000010456
STANDARD INDUSTRIAL CLASSIFICATION: SURGICAL & MEDICAL INSTRUMENTS & APPARATUS [3841]
IRS NUMBER: 360781620
STATE OF INCORPORATION: DE
FISCAL YEAR END: 1231
FILING VALUES:
FORM TYPE: 10-K
SEC ACT:
SEC FILE NUMBER: 001-04448
FILM NUMBER: 1567882
BUSINESS ADDRESS:
STREET 1: ONE BAXTER PKWY
CITY: DEERFIELD
STATE: IL
ZIP: 60015
BUSINESS PHONE: 8479482000
MAIL ADDRESS:
STREET 1: ONE BAXTER PARKWAY
CITY: DEERFIELD
STATE: IL
ZIP: 60015
FORMER COMPANY:
FORMER CONFORMED NAME: BAXTER TRAVENOL LABORATORIES INC
DATE OF NAME CHANGE: 19880522
FORMER COMPANY:
FORMER CONFORMED NAME: BAXTER LABORATORIES INC
DATE OF NAME CHANGE: 19760608
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-K
<SEQUENCE>1
<FILENAME>d10k.txt
<DESCRIPTION>FORM 10-K
<TEXT>
<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 for the fiscal year ended December 31, 2000
OR
[_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 for the transition period from to
Commission file number 1-4448
- -------------------------------------------------------------------------------
Baxter International Inc.
- -------------------------------------------------------------------------------
(Exact Name of Registrant in Its Charter)
Delaware 36-0781620
- -------------------------------------------------- --------------------------
(State or Other Jurisdiction of Incorporation or (I.R.S. Employer
Organization) Identification No.)
One Baxter Parkway, Deerfield, Illinois 60015
- -------------------------------------------------- --------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code 847.948.2000
--------------------------
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
on which registered
New York Stock Exchange,
Title of each class Inc.
Common stock, $1 par value Chicago Stock Exchange,
Inc.
Pacific Exchange, Inc.
Preferred Stock Purchase Rights New York Stock Exchange,
(currently traded with common stock) Inc.
Chicago Stock Exchange,
Inc.
Pacific Exchange, Inc.
Securities registered pursuant to Section 12(g) of the Act: None
----------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [_]
The aggregate market value of the voting common equity held by non-
affiliates of the registrant (based on the per share closing sale price of
$92.61 on February 28, 2001, and for the purpose of this computation only, the
assumption that all registrant's directors and executive officers are
affiliates) was approximately $27.3 billion. There is no non-voting common
equity held by non-affiliates of the registrant.
The number of shares of the registrant's common stock, $1 par value,
outstanding as of February 28, 2001, was 295,263,214.
Documents Incorporated By Reference
Those sections or portions of the registrant's annual report to
stockholders for fiscal year ended December 31, 2000 and of the registrant's
proxy statement for use in connection with its annual meeting of stockholders
to be held on May 1, 2001, described in the cross reference sheet and table of
contents attached hereto are incorporated by reference in this report.
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<PAGE>
- -------------------------------------------------------------------------------
CROSS REFERENCE SHEET
and
TABLE OF CONTENTS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Page Number or
(Reference)
(1)
--------------
<C> <S> <C>
Item 1. Business
(a) General Development of Business.................. 1(2)
(b) Financial Information about Segments............. 1(3)
(c) Narrative Description of Business................ 1(4)
(d) Financial Information about Foreign and Domestic
Operations and Export Sales...................... 7(5)
Item 2. Properties........................................... 8
Item 3. Legal Proceedings.................................... 8
Item 4. Submission of Matters to a Vote of Security Holders.. 11
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters................................. 12(6)
Item 6. Selected Financial Data.............................. 12(7)
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations................. 12(8)
Item 7A. Quantitative and Qualitative Disclosures about Market
Risk................................................ 12(9)
Item 8. Financial Statements and Supplementary Data.......... 12(10)
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure................. 12
Item 10. Directors and Executive Officers of the Registrant... 13
(a) Identification of Directors...................... 13(11)
(b) Identification of Executive Officers............. 13
(c) Compliance with Section 16(a) of the Securities
Exchange Act of 1934............................. 14(12)
Item 11. Executive Compensation............................... 15(13)
Item 12. Security Ownership of Certain Beneficial Owners and
Management.......................................... 15(14)
Item 13. Certain Relationships and Related Transactions....... 15
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K......................................... 15
(a) Financial Statements............................. 15
(b) Reports on Form 8-K.............................. 15
(c) Exhibits......................................... 15
</TABLE>
(1) Information incorporated by reference to Baxter's Annual Report to
Stockholders for the year ended December 31, 2000 (Annual Report) and
Baxter's proxy statement for use in connection with its annual meeting of
stockholders to be held May 1, 2001 (Proxy Statement).
(2) Annual Report, pages 35-37, section entitled "Notes to Consolidated
Financial Statements--Acquisitions and Divestitures."
(3) Annual Report, pages 46-47, section entitled "Notes to Consolidated
Financial Statements--Segment Information."
(4) Annual Report, pages 19-27, section entitled "Management's Discussion and
Analysis" and pages 46-47, section entitled "Notes to Consolidated
Financial Statements--Segment Information."
(5) Annual Report, pages 46-47, section entitled "Notes to Consolidated
Financial Statements--Segment Information."
(6) Annual Report, page 48, section entitled "Notes to Consolidated Financial
Statements--Quarterly Financial Results and Market for the Company's
Stock (Unaudited)."
(7) Annual Report, inside back cover, section entitled "Five-Year Summary of
Selected Financial Data."
(8) Annual Report, pages 19-27, section entitled "Management's Discussion and
Analysis."
(9) Annual Report, page 26, section entitled "Financial Instrument Market
Risk."
(10) Annual Report, pages 28-48, sections entitled "Report of Independent
Accountants," "Consolidated Balance Sheets," "Consolidated Statements of
Income," "Consolidated Statements of Cash Flows," "Consolidated
Statements of Stockholders' Equity and Comprehensive Income" and "Notes
to Consolidated Financial Statements."
(11) Proxy Statement, page 12, section entitled "Board of Directors--Director
Biographies."
(12) Proxy Statement, page 29, section entitled "Section 16(2) Beneficial
Ownership Reporting Compliance."
(13) Proxy Statement, pages 16-17, section entitled "Board of Directors--
Compensation of Directors" and pages 23-27 section entitled "Executive
Compensation."
(14) Proxy Statement, pages 28-29, section entitled "Ownership of Baxter
Stock."
<PAGE>
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[LOGO] BAXTER
Baxter International Inc., One Baxter Parkway, Deerfield, Illinois 60015
- --------------------------------------------------------------------------------
PART I
- --------------------------------------------------------------------------------
ITEM 1. BUSINESS.
(a) General Development of Business.
Baxter International Inc. was incorporated under Delaware law in 1931. As
used in this report, except as otherwise indicated in information incorporated
by reference, "Baxter International" means Baxter International Inc. and
"Baxter" or the "company" means Baxter International and its subsidiaries.
Baxter engages in the worldwide development, manufacture and distribution of
a diversified line of products, systems and services used primarily in the
health care field. We manufacture products in 27 countries and sell them in
over 100 countries. Health care is concerned with the preservation of health
and with the diagnosis, cure, mitigation and treatment of disease and body
defects and deficiencies. Our products are used by hospitals, clinical and
medical research laboratories, blood and blood dialysis centers, rehabilitation
centers, nursing homes, doctors' offices and by patients, at home, under
physician supervision.
For information regarding significant acquisitions, investments in
affiliates and divestitures, see our Annual Report to Stockholders for the year
ended December 31, 2000 (Annual Report), pages 35-37, section entitled "Notes
to Consolidated Financial Statements--Acquisitions and Divestitures" which is
incorporated by reference.
(b) Financial Information About Segments.
Incorporated by reference from the Annual Report, pages 46-47, section
entitled "Notes to Consolidated Financial Statements--Segment Information."
(c) Narrative Description of Business.
Recent Developments
On February 27, 2001, the Baxter International Board of Directors approved a
two-for-one split of the company's common stock, subject to stockholder
approval of an increase in the number of shares of common stock authorized to
be issued by Baxter International from the current 350 million to one billion
at the annual stockholders' meeting to be held May 1, 2001. If the increase in
authorized shares is approved, stockholders of record at the close of business
on May 9, 2001 will receive one additional share of Baxter International common
stock for each share they hold as of the record date. The additional shares of
common stock will be distributed on May 30, 2001.
On February 1, 2001, Baxter acquired Sera-Tec Biologicals, L.P., which owns
and operates approximately 80 plasmapheresis centers in 28 states, and a
central testing laboratory. This purchase brings the total number of plasma
collection centers owned by Baxter to approximately 110 worldwide and is
intended to help provide Baxter with a consistent, stable supply of source
plasma for processing into life-saving plasma-based products.
Company Overview
Baxter operates as a global leader in critical therapies for life-
threatening conditions. We develop, manufacture and market products and
technologies related to the blood and circulatory system. Our continuing
operations are comprised of three segments: Medication Delivery, which develops
technologies and systems to improve intravenous medication delivery and
distributes medical products; BioScience, which develops biopharmaceutical and
blood collection and separation products and technologies; and Renal, which
develops products and provides services to treat end-stage kidney disease. Our
three businesses enjoy leading positions in
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<PAGE>
the medical products and services fields. Unless otherwise indicated, each of
the factors discussed in this Part I do not materially differ in their impact
across each of our three segments.
Information about operating results is incorporated by reference from
Annual Report pages 19-27, section entitled "Management's Discussion and
Analysis" and pages 46-47, section entitled "Notes to Consolidated Financial
Statements--Segment Information."
Medication Delivery
Business Description. Baxter manufactures a range of products that deliver
fluids and drugs to patients. These include large- and small-volume
intravenous (IV) solutions, IV administration sets, premixed drugs for IV
administration, reconstitution devices, IV nutrition solutions and devices, IV
infusion pumps, anesthesia-delivery devices, anesthetic agents, acute-care
injectible pharmaceuticals, ambulatory infusion systems and pharmacy services.
Growth Strategy. Baxter continues to participate in the consolidation of
the global marketplace for medication-delivery products, particularly in
developing markets where there are still a large number of local and regional
players. The company will accelerate expansion of its higher-margin specialty
products outside the United States, where currently the business has a strong
base in IV sets and solutions, and will continue to develop new technologies
for medication delivery through internal product development and acquisitions
and alliances. Baxter also will leverage its strength in the anesthesia
marketplace to expand its position in medication delivery across the peri-
operative arena--pre-surgery, surgery and post-surgery.
Product Development. In 2000, Baxter upgraded its Colleague electronic
infusion pump for global use and added multiple languages for certain key
markets. Worldwide placements of the Colleague pump continue to rise, with
50,000 new channels placed in 2000. Also in 2000, the company introduced a new
pump for post-operative pain management, called the Ipump Pain Management
System, in the United States. Also programmed in multiple languages and
designed for global use, Baxter will launch the Ipump in Europe and Canada in
2001. In addition, the company launched several new premixed IV drugs in 2000,
including its first global premixed drug, called AGGRASTAT, a cardiac compound
developed by Merck.
Acquisitions and Alliances. Over the last two years, Baxter has made
several acquisitions intended to broaden its portfolio of medication-delivery
products. These include Ohmeda Pharmaceutical Products, enhancing Baxter's
offering in anesthesia; Pharmacia & Upjohn's German-based IV and nutrition
business; and the ambulatory infusion pump business of Sabratek Corporation.
Baxter also reacquired the distribution rights for the Ohmeda pharmaceutical
products in Europe and Canada to serve as a base to build its specialty-
product offerings in these key markets. Baxter acquired a French company
called Biodome, which has a technology for efficient, low-cost reconstitution
of drugs for both injection and infusion. The company also received exclusive
U.S. distribution rights from Physiometrix Inc. for the PSA 4000 anesthesia
monitoring system, which helps anesthesiologists monitor a patient's level of
consciousness during surgery.
BioScience
Business Description. Baxter is a leading producer of biopharmaceuticals
for the treatment of hemophilia, immune deficiencies and other life-
threatening disorders. These products include coagulation factors, immune
globulins, biosurgery products and vaccines. The company also is a leading
manufacturer of manual and automated blood-collection, processing and storage
systems. These products are used by hospitals, blood banks and plasma-
collection centers to collect and process blood components for therapeutic
use. Therapeutic blood components are used to treat patients undergoing
surgery, cancer therapy and other critical therapies.
Growth Strategy. Baxter will continue to grow its global leadership in
biopharmaceuticals for the treatment of hemophilia and immune deficiencies by
broadening its portfolio, advancing technology and increasing production
capacity. Growth opportunities are presented by the tremendous need for and
increasing use of these products around the world, and the continued growth of
both plasma-derived and recombinant-derived therapies. Baxter will continue to
expand its pipeline of innovative biopharmaceuticals and vaccines through both
internal development and acquisitions and alliances. Baxter also continues to
focus on increased production and safety of transfusion products through
advanced automation, leukoreduction and pathogen inactivation.
2
<PAGE>
Product Development. In 2000, Baxter received approval in the United Kingdom
for NeisVac-C, a new meningococcemia vaccine. The company also received
approval from the U.S. Food and Drug Administration (FDA) for a new application
device for its Tisseel fibrin sealant. In the next 12 months, Baxter expects
FDA approval for a liquid form of IGIV, and European approval for a new
therapeutic protein for protein C deficiency and pathogen-inactivation
technology for platelets. Other products in development include a next-
generation recombinant Factor VIII using a totally protein-free manufacturing
process; a cell culture-derived vaccine for influenza; a new tetanus,
diphtheria and acellular pertussis vaccine; a European vaccine for Lyme
Disease; pathogen-inactivation technology for plasma and red cells; and a
recombinant form of hemoglobin that may be used instead of blood to carry
oxygen to vital organs.
Acquisitions and Alliances. In 2000, Baxter completed its acquisition of
North American Vaccine Inc., based in Columbia, Maryland, broadening its
position in the global vaccines market. The company also established an equity
position in British vaccine developer Acambis (formerly known as Peptide
Therapeutics Group), which will better position each company to develop and
commercialize their respective vaccine pipelines. In addition, Baxter formed
alliances with XOMA Ltd. for the rights to a recombinant protein for treatment
of a range of diseases caused by bacteria; Arriva Pharmaceuticals (formerly
known as AlphaOne Pharmaceuticals, Inc.) to co-develop a recombinant alpha 1-
antitrypsin protein to treat hereditary emphysema and other respiratory
diseases; and Pharming Group N.V. to collaborate on the development of a
recombinant, transgenic C1 inhibitor to treat hereditary angioedema.
Renal
Business Description. Baxter provides a range of products and services for
the treatment of kidney disease. These include products for both peritoneal
dialysis (PD) and hemodialysis (HD) as well as research initiatives in
xenotransplantation. Baxter is the world's leading manufacturer of PD products,
which include dialysis solutions, container systems and automated cyclers. For
HD, Baxter manufactures dialyzers and HD machines. The company's Renal Therapy
Services (RTS) business operates dialysis clinics in partnership with local
physicians in 12 countries outside the United States, while RMS Disease
Management Inc. partners with U.S. nephrologists to provide a kidney disease
management program to health-care payers. Baxter's RMS Lifeline Inc. helps to
improve the delivery and outcomes of interventional renal care in the United
States through dedicated outpatient centers.
Growth Strategy. The company's strategy is to continue to drive PD growth
while also investing in significant expansion of HD products and services. New
products will come from internal development, acquisitions, alliances and e-
health initiatives. The company also continues to grow its RTS business and
expand its product lines globally, particularly in developing markets where
many people with end-stage renal disease are currently under-treated. In
addition, Baxter intends to continue developing technology-based products and
services that improve therapeutic outcomes.
Product Development. Baxter continues to develop new PD solutions to better
manage specific patient needs. One example is Extraneal, which improves the
removal of excess fluids and toxins from patients with end-stage renal disease.
Introduced in Europe in 1997 and approved in 28 countries, Extraneal today is
being used by more than 6,000 European patients--more than a third of Baxter's
European PD population--and is currently under regulatory review in the United
States. Another solution, Physioneal, was introduced in Europe and began
clinical trials in Japan in 2000. Also in 2000, as a result of Baxter's
acquisition of Althin Medical, the company began selling an HD machine globally
called the Tina. Baxter also introduced a new HD machine called Meridian in the
United States. Future products include several new HD dialyzers and the Aurora
home HD machine. The company also is continuing research in the area of
xenotransplantation.
Acquisitions and Alliances. In March 2000, Baxter completed its acquisition
of Althin Medical AB, a leading manufacturer of HD products, based in Ronneby,
Sweden. The acquisition greatly expands Baxter's product offering for HD and
strengthens its position in the global HD marketplace. The company's joint
venture with Gambro AB of Sweden for the manufacture of dialyzers for both
Baxter and Gambro at Baxter's renal-products plant in Mountain Home, Arkansas,
continues to perform well, with more than 3 million dialyzers manufactured in
2000.
3
<PAGE>
United States Markets
The health care marketplace continues to be highly competitive. There has
been consolidation in the company's customer base, and by its competitors,
which has resulted in pricing and market share pressures. These industry
trends are expected to continue. The company intends to continue to manage
these issues by developing new products and services, leveraging its cost
structure, making acquisitions and entering alliances.
International Markets
Baxter generates more than 50 percent of its revenues outside the United
States. While health care cost containment continues to be a focus around the
world, demand for health care products and services continues to be strong
worldwide, particularly in developing markets. The company's strategies
emphasize global expansion and technological innovation to advance medical
care worldwide.
Joint Ventures and Affiliations
As described above, Baxter has entered into a United States-based
manufacturing joint venture with Gambro, an international medical technology
and health care company based in Sweden. The joint venture, named Tandem,
sources dialyzers from an existing Baxter production facility in Mountain
Home, Arkansas. Baxter manages the day-to-day operations on behalf of the
joint venture.
In addition, the company conducts a non-material amount of business through
other joint ventures. Many of these joint ventures are conducted by the
company's Medication Delivery and Renal businesses.
In March 2000, Baxter teamed with four of the largest, most experienced
companies in the health care industry to form the Global Healthcare Exchange
(GHX). GHX provides business-to-business procurement for the health care
industry. Utilizing Internet-based technology, GHX integrates hospitals and
suppliers, in an attempt to improve efficiencies and add value throughout the
supply chain. GHX was founded in March 2000 and now is comprised of more than
50 supplier members.
Baxter also owns minority positions in certain other publicly-traded
companies, including Cerus Corporation, with which it is jointly developing a
pathogen inactivation system for platelets, plasma and red blood cells for
transfusion, and Nexell Therapeutics Inc., which is developing and marketing
advanced technologies in the clinical use of blood-forming stem cells.
Methods of Distribution
Baxter conducts its selling efforts through its subsidiaries and divisions.
Many subsidiaries and divisions have their own sales forces and direct their
own sales efforts. In addition, sales are made to and through independent
distributors, dealers and sales agents. In the United States, Allegiance
Healthcare Corporation distributes a significant portion of the company's
products through its distribution centers. These distribution centers are
generally stocked with adequate inventories to facilitate prompt customer
service. Sales and distribution methods include frequent contact by sales
representatives, automated communications via various electronic purchasing
systems, circulation of catalogs and merchandising bulletins, direct-mail
campaigns, trade publications and advertising. Customers may return defective
merchandise for credit or replacement. In recent years, such returns have been
immaterial.
International sales and distribution are made in over 100 countries either
on a direct basis or through independent local distributors. International
subsidiaries employ their own field sales forces in Argentina, Australia,
Austria, Belgium, Brazil, Canada, Chile, China, Colombia, the Czech Republic,
Denmark, Ecuador, Finland, France, Germany, Greece, Guatemala, Hungary, India,
Ireland, Italy, Japan, Korea, Mexico, The Netherlands, New Zealand, Norway,
Panama, Peru, the Philippines, Portugal, Russia, Singapore, Spain, Sweden,
Switzerland, Taiwan, Thailand, Turkey, the United Kingdom and Venezuela. In
other countries, sales are made through independent distributors or sales
agents.
Raw Materials
Raw materials essential to the company's business are purchased worldwide
in the ordinary course of business from numerous suppliers. Although the vast
majority of these materials are generally available, the company has
experienced occasional shortages in supply of source plasma and of bulk
recombinant factor VIII used by Baxter in its BioScience business. In
addition, certain raw materials used in producing some of the company's
products are available only from a small number of suppliers. Baxter works
closely with its suppliers
4
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to assure continuity of supply while maintaining high quality and reliability.
The company also continues to develop new sources of supply and does not
believe that periodic shortages in supply of raw materials will have a material
adverse effect on the company's business.
In some of these situations, the company has long-term supply contracts with
its suppliers, although it does not consider its obligations under such
contracts to be material. Baxter does not always recover cost increases through
customer pricing due to contractual limits and market pressure on such price
increases. See "Contractual Arrangements."
Patents and Trademarks
Products manufactured by Baxter are sold primarily under its own trademarks
and trade names. Some products purchased and resold by the company are sold
under the company's trade names while others are sold under trade names owned
by its suppliers.
Baxter owns a number of patents and trademarks throughout the world and is
licensed under patents owned by others. Baxter's policy is to protect its
products and technology through patents and trademarks on a worldwide basis.
This protection is sought in a manner that balances the cost of such protection
against obtaining the greatest value for the company. The company also
recognizes the need to promote the enforcement of its patents and trademarks.
Over the past few years, Baxter has increased its enforcement activities by
aggressively taking action in various countries to protect its patents and
trademarks, including action taken in Chile, Germany, Japan, Sweden, The
Netherlands and the United States. An example of Baxter's increased enforcement
activity includes several suits brought in Japan against two competitors
selling fibrin sealant product, which Baxter contends infringes one of its
Japanese patents. While Baxter will take all reasonable and necessary action to
enforce its trademarks and patents against potential infringers, there can be
no assurance that any such action will result in favorable decisions; however,
Baxter believes that its overall business position is not materially dependent
upon any single patent or trademark.
Competition
Historically, competition in the health care industry has been characterized
by the search for technological and therapeutic innovations in the prevention,
diagnosis and treatment of disease. The company believes that it has benefited
from the technological advantages of certain of its products. While competitors
will continue to introduce new products that compete with those sold by Baxter,
the company believes that its research and development efforts will permit it
to remain competitive in all presently material product areas. Although no
single company competes with Baxter in all of its businesses, Baxter is faced
with substantial competition in all of its markets.
The changing health care environment in recent years has led to increasingly
intense competition among United States and certain European health care
suppliers. Competition is focused on price, service and product performance.
Pressure in these areas is expected to continue.
The company continues to increase its efforts to minimize costs and meet
price competition. The company believes that its cost position will continue to
benefit from improvements in manufacturing technology and increased economies
of scale. The company intends to continue to develop new products and services,
invest in capital and human resources to upgrade and expand facilities,
leverage its cost structure and make selected acquisitions.
Credit and Working Capital Practices
As of March 1, 2001, Baxter's debt ratings on senior debt were A3 by
Moody's, A by Standard & Poor's and A by Duff & Phelps. The company's credit
practices and related working capital needs are comparable to those of other
market participants. Collection periods tend to be longer for sales outside the
United States.
Quality Management
Baxter places significant emphasis on providing quality products and
services to its customers. A major portion of the company's quality systems
relate to the design and development manufacturing, packaging,
5
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sterilization, handling, distribution and labeling of the products by the
company. These quality systems, including control procedures that are
developed and implemented by technically trained professionals, result in
rigid specifications for product design, raw materials, components, packaging
materials, labels, sterilization procedures and overall manufacturing process
control. The quality systems integrate the efforts of suppliers of raw
materials, components and finished goods to ensure we meet customer and
regulatory requirements. These systems are designed to ensure that all
appropriate standards and requirements are met before goods are released. In
addition to other quality processes, Baxter initiated a Six Sigma Quality
process several years ago to train all appropriate individuals in statistical
process control and related subjects to ensure continuous improvement.
Research and Development
Baxter is actively engaged in research and development programs to develop
and improve products, systems and manufacturing methods. These activities are
performed at research and development centers located around the world and
include facilities in Australia, Austria, Belgium, France, Italy, Japan,
Malta, Singapore, Sweden and the United States. Expenditures for Baxter-
sponsored research and development activities were $379 million in 2000, $332
million in 1999 and $323 million in 1998.
Principal areas of strategic focus for research include next generation
recombinant, hemoglobin therapeutics, plasma-based therapies, vaccines,
xenotransplantation, pathogen inactivation, and medication-delivery systems.
The company's research efforts emphasize self-manufactured product
development, and portions of that research relate to multiple product lines.
For example, many product categories benefit from the company's research
effort as applied to the human body's circulatory systems. In addition,
research relating to the performance and purity of plastic materials has
resulted in advances that are applicable to a large number of the company's
products.
Government Regulation
Most products manufactured or sold by the company are subject to regulation
by numerous governmental agencies, both within and outside the United States.
In the United States, the federal agencies that regulate the company's
facilities, operations, personnel and products (their manufacture, sale,
import and export) include the Food and Drug Administration (FDA), the
Environmental Protection Agency, the Occupational Health & Safety
Administration, the Customs Service, the Department of Commerce, the Treasury
Department and others. State agencies also regulate the facilities,
operations, products and personnel of the company within their respective
states. Government agencies outside the United States also regulate public
health, environmental, employment, export, customs and other aspects of the
company's global operations.
With regard to the company's facilities and products, various governmental
agencies, including the FDA in the United States, regulate the manufacturing
procedures, labeling, recordkeeping, promotion and advertising. In addition,
the agencies have the authority to halt the distribution of medical products,
detain or seize adulterated or misbranded medical products, or order the
company to take other steps to correct issues surrounding the products. The
agencies may also require notification of health professionals and others with
regard to medical products that present risks of substantial harm to the
public health. From time to time, the company has removed products from the
market that were found not to meet acceptable standards.
Environmental policies of the company mandate compliance with all
applicable regulatory requirements concerning environmental quality and
contemplate, among other things, appropriate capital expenditures for
environmental protection. Various non-material capital expenditures for
environmental protection were made by Baxter during 2000 and similar
expenditures are planned for 2001. See Item 3.--"Legal Proceedings."
Employees
As of December 31, 2000, Baxter employed approximately 43,000 people.
Contractual Arrangements
A substantial portion of the company's products are sold through contracts
with customers, both within and outside the United States. Some of these
contracts have terms of more than one year and limits on price increases. In
the case of hospitals, clinical laboratories and other facilities, these
contracts may specify minimum quantities
6
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of a particular product or categories of products to be purchased by the
customer. In keeping with the increased emphasis on cost-effectiveness in
health care delivery, the current trend among hospitals and other customers of
medical products manufacturers is to consolidate into larger purchasing groups
to enhance purchasing power. The medical products industry has also experienced
some consolidation, partly in order to offer a broader range of products to
large purchasers. As a result, transactions with customers are larger, more
complex and tend to involve more long-term contracts than in the past. The
enhanced purchasing power of these larger customers may also increase the
pressure on product pricing, although management is unable to estimate the
potential impact at this time.
Cautionary Statement for Purposes of the "Safe Harbor" Provisions of the
Private Securities Litigation Reform Act of 1995
Statements throughout this report that are not historical facts, including,
but not limited to, statements in the "Company Overview," "International
Markets" and "Recent Acquisitions" sections of this report (including material
incorporated therein by reference) are forward-looking statements. These
statements are based on the company's current expectations and involve numerous
risks and uncertainties. Some of these risks and uncertainties are factors that
affect all international businesses, while some are specific to the company and
the health care arenas in which it operates.
The factors below in some cases have affected and could affect the company's
actual results, causing results to differ, and possibly differ materially, from
those expressed in any such forward-looking statements. These factors include
technological advances in the medical field, economic conditions, demand and
market acceptance risks for new and existing products, technologies and health
care services, the impact of competitive products and pricing, manufacturing
capacity, new plant start-ups, global regulatory, trade and tax policies,
continued price competition, on-going scrutiny from regulatory agencies,
product development risks, including technological difficulties, ability to
enforce patents and unforeseen commercialization and regulatory factors.
Additionally, as discussed in Item 3.-- "Legal Proceedings," upon the
resolution of certain legal matters, the company may incur charges in excess of
presently established reserves. Any such charge could have a material adverse
effect on the company's results of operations or cash flows in the period in
which it is recorded.
Currency fluctuations are also a significant variable for global companies,
especially fluctuations in local currencies where hedging opportunities are
unreasonably expensive or unavailable. If the United States dollar strengthens
significantly against most foreign currencies, the company's ability to realize
projected growth rates in its sales and net earnings outside the United States
could be negatively impacted.
The company believes that its expectations with respect to forward-looking
statements are based upon reasonable assumptions within the bounds of its
knowledge of its business and operations, but there can be no assurance that
the actual results or performance of the company will conform to any future
results or performance expressed or implied by such forward-looking statements.
(d) Financial Information About Foreign and Domestic Operations and Export
Sales.
International operations are subject to certain additional risks inherent in
conducting business outside the United States, such as changes in currency
exchange rates, price and currency exchange controls, import restrictions,
nationalization, expropriation and other governmental action.
Financial information is incorporated by reference from the Annual Report,
pages 46-47, section entitled "Notes to Consolidated Financial Statements--
Segment Information."
7
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Item 2. Properties.
Baxter owns or has long-term leases on substantially all of its major
manufacturing facilities. With respect to its current operations, the company
maintains 24 manufacturing facilities in the United States and its
territories, including five in Puerto Rico. The company also manufactures in
Australia, Austria, Belgium, Brazil, Canada, Chile, China, Colombia, Costa
Rica, the Dominican Republic, France, Germany, Ireland, Italy, Japan, Malta,
Mexico, New Zealand, the Philippines, Poland, Singapore, Spain, Switzerland,
Turkey and the United Kingdom. While the majority of these facilities are
shared by more than one of the company's business segments, eleven domestic
facilities and eleven international facilities exclusively manufacture for the
Medication Delivery operations; nine domestic and thirteen international
facilities exclusively manufacture for BioScience operations; and the Renal
business is the exclusive operator of four international facilities. The
company also owns or operates shared distribution facilities throughout the
world, including eleven in the United States and Puerto Rico, and 109 located
in 32 foreign countries.
The company maintains a continuing program for improving its properties,
including the retirement or improvement of older facilities and the
construction of new facilities. This program includes improvement of
manufacturing facilities to enable production and quality control programs to
conform to the current state of technology and government regulations. Capital
expenditures relating to continuing operations were $547 million in 2000, $529
million in 1999 and $461 million in 1998. Additions to the installed base of
equipment leased to customers was $101 million in 2000, $102 million in 1999
and $95 million in 1998.
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Item 3. Legal Proceedings.
Baxter International and certain of its subsidiaries are named as
defendants in a number of lawsuits, claims and proceedings, including product
liability claims involving products now or formerly manufactured or sold by
the company or by companies that were acquired by the company. These cases and
claims raise difficult and complex factual and legal issues and are subject to
many uncertainties and complexities, including, but not limited to, the facts
and circumstances of each particular case or claim, the jurisdiction in which
each suit is brought, and differences in applicable law. Accordingly, in many
cases, Baxter International is not able to estimate the amount of its
liabilities with respect to such matters.
Upon resolution of any of the legal matters discussed below, Baxter
International may incur charges in excess of presently established reserves.
While such a future charge could have a material adverse impact on the
company's net income and net cash flows in the period in which it is recorded
or paid, management believes that no such charge would have a material adverse
effect on Baxter International's consolidated financial position.
Mammary Implant Litigation
Baxter International, together with certain of its subsidiaries, is
currently a defendant in various courts in a number of lawsuits brought by
individuals, all seeking damages for injuries of various types allegedly
caused by silicone mammary implants previously manufactured by the Heyer-
Schulte division (Heyer-Schulte) of American Hospital Supply Corporation
(AHSC). AHSC, which was acquired by Baxter in 1985, divested its Heyer-Schulte
division in 1984. It is not known how many of these claims and lawsuits
involve products manufactured and sold by Heyer-Schulte, as opposed to other
manufacturers.
In December 1998, a panel of independent medical experts appointed by a
federal judge announced its findings that reported medical studies contained
no clear evidence of a connection between silicone mammary implants and
traditional or atypical systemic diseases. In June 1999, a similar conclusion
was announced by a committee of independent medical experts from the Institute
of Medicine, a part of the National Academy of Sciences.
As of December 31, 2000, Baxter International, together with certain of its
subsidiaries, had been named as a defendant or co-defendant in 651 lawsuits
and 216 claims relating to mammary implants, brought by approximately 1,696
plaintiffs, of which 1,266 are implant plaintiffs and the remainder are
consortium or second generation plaintiffs. Of those plaintiffs, 227 currently
are included in the Lindsey class action Revised Settlement described below,
which accounts for 134 of the pending lawsuits against the company.
Additionally, 934 plaintiffs have opted out of the Revised Settlement
(representing 444 pending lawsuits), and the status of the
8
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remaining plaintiffs with pending lawsuits is unknown. Some of the opt-out
plaintiffs filed their cases naming multiple defendants and without product
identification; thus, not all of the opt-out plaintiffs will have viable claims
against the company. As of December 31, 2000, 395 of the opt-out plaintiffs had
confirmed Heyer-Schulte mammary implant product identification. Furthermore,
during 2000, Baxter obtained dismissals, or agreements for dismissals, with
respect to 2,753 plaintiffs.
In addition to the individual suits against the company, a class action on
behalf of all women with silicone mammary implants was filed on March 23, 1994
and is pending in the United States District Court (U.S.D.C.) for the Northern
District of Alabama involving most manufacturers of such implants, including
Baxter, as successor to AHSC (Lindsey, et al., v. Dow Corning, et al.,
U.S.D.C., N. Dist. Ala., CV 94-P-11558-S). The class action was certified for
settlement purposes only by the court on September 1, 1994, and the settlement
terms were subsequently revised and approved on December 22, 1995 (Revised
Settlement). The monetary provisions of the Revised Settlement provide
compensation for all present and future plaintiffs and claimants through a
series of specific funds and a disease-compensation program involving certain
specified medical conditions. All appeals directly challenging the Revised
Settlement have been dismissed.
On January 16, 1996, Baxter, Bristol-Myers Squibb Company and Minnesota
Mining and Manufacturing Company each paid $125 million into the court-
established fund as an initial fund to pay claims under the Revised Settlement.
Union Carbide Corporation and McGhan Medical Corporation also are parties to
the Revised Settlement.
In addition to the Lindsey class action, the company also has been named in
five other purported class actions in various state and provincial courts, only
one of which is certified: Harrington v. Dow Corning Corp., et al., Supreme
Court, British Columbia, C954330. The class action in British Columbia has been
certified solely with respect to the issue of whether silicone gel breast
implants are reasonably fit for their intended purpose.
The mammary implant litigation includes issues related to which of Baxter's
insurers are responsible for covering each matter and the extent of the
company's claims for contribution against third parties. Baxter believes that a
substantial portion of its liability and defense costs for mammary implant
litigation will be covered by insurance, subject to self-insurance retentions,
exclusions, conditions, coverage gaps, policy limits and insurer solvency. The
company has entered into "coverage-in-place" agreements with almost all of its
insurers, each of which issued or subscribed to policies of insurance between
1974 and 1985. These agreements resolve the signatory insurers' coverage
defenses and specify rules and procedures for allocation and payment of defense
and indemnity costs pursuant to which signatory insurers will reimburse Baxter
for mammary implant losses. Five of the company's claims-made insurers, which
issued policies subsequent to 1985, have agreed to pay under their policies
with respect to mammary implant claims. The combined total of the amount thus
far paid by insurers, committed for payment, and projected by Baxter to be paid
by insurers under these agreements is in excess of $800 million, based on the
company's current estimate of mammary implant expenditures.
Plasma-Based Therapies Litigation
Baxter currently is a defendant in a number of claims and lawsuits brought
by individuals who have hemophilia, all seeking damages for injuries allegedly
caused by anti-hemophilic factor concentrates VIII or IX derived from human
blood plasma (factor concentrates) processed by the company from the late 1970s
to the mid-1980s. The typical case or claim alleges that the individual was
infected with the HIV virus by factor concentrates, which contained the HIV
virus. None of these cases involves factor concentrates currently processed by
the company.
As of December 31, 2000, Baxter had been named in 188 lawsuits and 93 claims
in the United States, France, Ireland, Italy, Japan, Spain, Taiwan and The
Netherlands. All U.S. federal court factor concentrate cases were transferred
to the U.S.D.C. for the Northern District of Illinois for case management under
Multi District Litigation (MDL) rules (MDL Docket No. MDL-986), and were
remanded in 2000 to the courts in which they were filed. The company also has
been named in four purported class actions. None of these class actions has
been certified for trial.
In most states, Baxter's potential liability is limited by "blood shield"
laws that provide that the sale of blood or blood derivatives, including factor
concentrates, is not covered by the doctrine of strict liability. As a result,
each claimant must prove that his or her injuries were caused by the company's
negligence.
9
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On May 6, 1997, the U.S.D.C. approved a class action settlement submitted
by the plaintiffs' steering committee for the MDL, Baxter, Alpha Therapeutic
Corporation, Armour Pharmaceutical and Bayer Corporation. The essential terms
of the settlement provide payments of $100,000 to each HIV-positive person
with hemophilia in the United States who can demonstrate use of factor
concentrates produced by one of the settling defendants between 1978 and 1985.
Additionally, the defendants have established a $40 million fund for payment
of attorneys' fees, costs and court-administration expenses. Baxter's agreed
contribution to the proposed settlement is 20 percent of the total settlement
proceeds.
Baxter and the other defendants have reached agreements to settle potential
subrogation and reimbursement claims with most private insurers, the federal
government and all 50 states, the District of Columbia and Puerto Rico. As of
December 31, 2000, approximately 6,500 claimant groups had been found eligible
to participate in the settlement, and approximately 300 claimants had opted
out of the settlement. Approximately 6,202 claimant groups had received
payments as of December 31, 2000, and payments are expected to continue
through the first quarter of 2001 as releases are received from the remaining
claimant groups.
In Japan, Baxter is a defendant, along with the Japanese government and
four other co-defendants, in factor concentrates cases in Osaka, Tokyo,
Nagoya, Tohoku, Fukuoka, Sapporo and Kumamoto. As of December 31, 2000, the
cases involved 1,335 plaintiffs, of whom 1,333 have settled their claims.
Based upon the Osaka and Tokyo courts' recommendations, the parties have
agreed to a settlement of all pending and future factor concentrate cases. In
general, the settlement provides for payment of an up-front, lump-sum amount
of approximately $360,000 per plaintiff to be funded 40 percent by the
Japanese government and 60 percent by the corporate defendants. The share of
the settlement to be paid by each corporate defendant was determined based
upon its market share, resulting in a contribution by Baxter of approximately
15.36 percent. The portion of the settlement to be funded by the corporate
defendants will include credits for certain prior payments made by the
corporate defendants under a separate Japanese government-administered
program, which pays monthly amounts to HIV-positive and AIDS-manifested people
with hemophilia and their survivors. Additionally, monthly payments will be
made to each plaintiff according to a set schedule.
In Spain, Baxter was notified in 1995 that approximately 1,370 HIV-positive
people with hemophilia wished to explore settlement possibilities with the
company in lieu of filing suit in both Spain and the United States. The
parties have reached agreement on the terms of a settlement whereby each
claimant will receive $25,000 (including attorneys' fees and costs) in return
for a general release and protection against contribution claims by other
defendants. As of December 31, 2000, all 1,370 claimants had agreed to the
settlement.
In addition, Immuno International AG (Immuno), acquired by Baxter in 1996,
has unsettled claims for damages for injuries allegedly caused by its plasma-
based therapies. The typical claim alleges that the individual with hemophilia
was infected with HIV by factor concentrates containing the HIV virus.
Additionally, Immuno faces multiple claims stemming from its vaccines and
other biologically-derived therapies. A portion of the liability and defense
costs related to these claims will be covered by insurance, subject to
exclusions, conditions, policy limits and other factors. In addition, pursuant
to the stock purchase agreement between the company and Immuno, approximately
84 million Swiss francs of the purchase price was withheld to cover these
contingent liabilities. In April 1999, the stock purchase agreement between
the company and Immuno was amended to revise the holdback amount from 84
million Swiss francs to 26 million Swiss francs (or approximately $15 million
at December 31, 2000) in consideration for an April 1999 payment by the
company of 29 million Swiss francs to Immuno as additional purchase price.
Baxter is also currently a defendant in a number of claims and lawsuits
brought by individuals who infused the company's Gammagard(R) IVIG
(intravenous immuno-globulin), all of whom are seeking damages for Hepatitis C
infections allegedly caused by infusing Gammagard(R) IVIG. As of December 31,
2000, Baxter was a defendant in 30 lawsuits and 40 claims in the United
States, Denmark, France, Germany, Italy, Spain and the United Kingdom. Two
suits currently pending in the United States have been filed as purported
class actions but only one has been certified. All U.S. federal court
Gammagard(R) IVIG cases have been transferred to the U.S.D.C. for the Central
District of California for case management under MDL rules. On February 21,
1996, the court certified a nationwide class of persons who had infused
Gammagard(R) IVIG (Geary, et al., v. Baxter Healthcare Corporation, U.S.D.C.,
C.D., CA, ML-95-160-R). On September 18, 2000, the U.S.D.C. for the Central
District of California approved a settlement of the class action that would
provide financial compensation for U.S. individuals who used Gammagard(R) IVIG
between January 1993 and February 1994.
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<PAGE>
Baxter has entered into coverage in place agreements covering factor
concentrates lawsuits with substantially all of its insurers that issued or
subscribed to pertinent policies of insurance between 1978 and 1985. These
agreements resolve the signatory insurers' coverage defenses and specify rules
and procedures for allocation and payment of defense and indemnity costs
pursuant to which the signatory insurers will reimburse the company for factor
concentrates losses. Baxter is engaged in negotiations with the remaining
insurers to resolve outstanding insurance coverage issues. The company believes
that a substantial portion of the liability and defense costs related to all of
its plasma-based therapies litigation will be covered by insurance, subject to
self-insurance retentions, exclusions, conditions, coverage gaps, policy limits
and insurer solvency.
Net Litigation Charges
Baxter began accruing for its estimated liability resulting from the
settlement of the mammary implant related class action and to litigate or
settle cases and claims involving opt-outs in 1993. In 1998, the company
accrued an additional $250 million for its estimated liability resulting from
the class action settlement and remaining opt-out cases and claims, and
recorded a receivable for related estimated insurance recoveries of $121
million, resulting in an additional net charge of $129 million.
Baxter began accruing for its estimated worldwide liability for litigation
and settlement costs involving plasma-based therapies cases in 1993. The
company revised its estimate of liabilities and insurance recoveries in 1998,
and accrued an additional $180 million for its estimated liability for plasma-
based therapies litigation and other litigation and recorded a receivable for
related estimated insurance recoveries of $131 million, for a net charge of $49
million.
In 2000, the company recorded $29 million of income relating to its mammary
implant and plasma-based therapies litigation. The income was principally a
result of favorable adjustments to the mammary implant insurance receivables
due to settlements negotiated with certain insurance companies during 2000.
Other
As of September 30, 1996, the date of the spin-off of Allegiance Corporation
("Allegiance") from Baxter International, Allegiance assumed the defense of
litigation involving claims related to Allegiance's businesses, including
certain claims of alleged personal injuries as a result of exposure to natural
rubber latex gloves. Allegiance has not been named in all of this litigation,
but it will be defending and indemnifying Baxter pursuant to certain
contractual obligations for all expenses and potential liabilities associated
with claims pertaining to latex gloves. As of December 31, 2000, the company
had been named as a defendant in 569 lawsuits, including the following
purported class action: Swartz v. Baxter Healthcare Corporation, et al., Court
of Common Pleas, Jefferson County, PA, 656-1997 C.D. On February 26, 1997, all
federal cases involving latex gloves were ordered to be transferred to the
U.S.D.C. for the Eastern District of Pennsylvania for case management under the
MDL rules (MDL Docket No. 1148).
Baxter has been named a potentially responsible party (PRP) for
environmental clean-up costs at 16 hazardous-waste sites. Under the United
States Superfund statute and many state laws, generators of hazardous waste
that is sent to a disposal or recycling site are liable for clean-up of the
site if contaminants from that property later leak into the environment. The
laws generally provide that a PRP may be held jointly and severally liable for
the costs of investigating and remediating the site. Allegiance has assumed
responsibility for 10 of these sites. The estimated exposure for Baxter's
remaining six sites is approximately $2 million, which has been accrued (and
not discounted) in the company's financial statements.
In addition to the cases discussed above, Baxter is a defendant in a number
of other claims, investigations and lawsuits. Based on the advice of counsel,
management does not believe that, individually or in the aggregate, these other
claims, investigations and lawsuits will have a material adverse effect on the
company's results of operations, cash flows or consolidated financial position.
- --------------------------------------------------------------------------------
Item 4. Submission of Matters to a Vote of Security Holders.
None.
11
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PART II
- -------------------------------------------------------------------------------
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters.
Incorporated by reference from the Annual Report, page 48, section entitled
"Notes to Consolidated Financial Statements--Quarterly Financial Results and
Market for the Company's Stock (Unaudited)."
- -------------------------------------------------------------------------------
Item 6. Selected Financial Data.
Incorporated by reference from the Annual Report, inside back cover,
section entitled "Five-Year Summary of Selected Financial Data."
- -------------------------------------------------------------------------------
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Incorporated by reference from the Annual Report, pages 19-27, section
entitled "Management's Discussion and Analysis."
- -------------------------------------------------------------------------------
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Incorporated by reference from the Annual Report, page 26, section entitled
"Financial Instrument Market Risk."
- -------------------------------------------------------------------------------
Item 8. Financial Statements and Supplementary Data.
Incorporated by reference from the Annual Report, pages 28-48, sections
entitled "Report of Independent Accountants," "Consolidated Balance Sheets,"
"Consolidated Statements of Income," "Consolidated Statements of Cash Flows,"
"Consolidated Statements of Stockholders' Equity and Comprehensive Income" and
"Notes to Consolidated Financial Statements."
- -------------------------------------------------------------------------------
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
12
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PART III
- --------------------------------------------------------------------------------
Item 10. Directors and Executive Officers of the Registrant.
(a) Identification of Directors
Incorporated by reference from Baxter's proxy statement for use in
connection with its annual meeting of stockholders to be held on May 1, 2001
(Proxy Statement), page 4, section entitled "Election of Directors--Proposal 1
on the Proxy Card."
(b) Identification of Executive Officers
Following are the names and ages, as of March 1, 2001, of the executive
officers of Baxter International, and one or both of its two principal direct
subsidiaries, Baxter Healthcare Corporation and Baxter World Trade Corporation,
their positions and summaries of their backgrounds and business experience. All
executive officers of Baxter International are elected or appointed by the
board of directors and hold office until the next annual meeting of directors
and until their respective successors are elected and qualified. The annual
meeting of directors is held on the date of the annual meeting of stockholders.
All executive officers of Baxter Healthcare Corporation and Baxter World Trade
Corporation are elected or appointed by the boards of directors of the
applicable subsidiary and hold office until their respective successors are
elected and qualified. As permitted by applicable law, actions by these boards
(and their sole stockholder, Baxter International) may be taken by written
consent in lieu of a meeting.
(1) Baxter International Inc. Executive Officers
Harry M. Jansen Kraemer, Jr., age 46, has been a director of Baxter
International since 1995 and chairman of the board since January 1, 2000. Mr.
Kraemer has been president of Baxter International since 1997 and chief
executive officer since January 1, 1999. From 1993 to 1997, he served as senior
vice president and chief financial officer of Baxter International. Mr. Kraemer
also serves as a director of Comdisco Inc. and Science Applications
International Corporation.
Brian P. Anderson, age 50, is senior vice president and chief financial
officer of Baxter International, having served in those capacities since
February 1998. Mr. Anderson previously was corporate vice president of finance
of Baxter International beginning in May 1997, and was the corporate controller
from 1993 to 1997.
Timothy B. Anderson, age 54, is group vice president, corporate strategy and
development, of Baxter International, having served in that capacity since
November 1999. Prior to that he served as group vice president of Baxter
Healthcare Corporation and Baxter World Trade Corporation.
J. Robert Hurley, age 51, is a corporate vice president, integration
management, of Baxter International. Prior to that from 1993 to 2000, he was a
corporate vice president of Baxter World Trade Corporation.
Neville J. Jaharajah, age 47, is a corporate vice president, financial
planning and investor relations, of Baxter International, having served in that
capacity since February 2001. Prior to that since 1982 he held various finance
positions with the company, the most recent of which was vice president,
financial planning and investor relations.
Steven J. Meyer, age 44, is treasurer of Baxter International, having served
in that capacity since February 1997. From 1993 to 1997, Mr. Meyer was a vice
president of international finance of a business group of Baxter World Trade
Corporation
John L. Quick, age 56, is a corporate vice president, quality/regulatory, of
Baxter International, having served in that capacity since 1996. Prior to that
he was corporate vice president of Baxter Healthcare Corporation.
Karen J. May, age 42, is a corporate vice president, human resources, of
Baxter International, having served in that capacity since February 2001. Prior
to her recent appointment she was vice president, human resources from 2000
until 2001, vice president, global planning and staffing from 1998 to 2000,
vice president, international finance from 1997 to 1998 and vice president,
corporate audit from 1994 to 1997.
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<PAGE>
Jan Stern Reed, age 41, is corporate secretary and associate general
counsel of Baxter International, having served in those capacities since
February 1998. Prior to that she was assistant corporate secretary and
assistant general counsel from February 1997 to February 1998. From 1995 to
1997, Ms. Reed was assistant corporate secretary of, and legal counsel to,
Wheelabrator Technologies Inc., a publicly-traded subsidiary of Waste
Management, Inc.
Thomas J. Sabatino, Jr., age 42, is corporate vice president and general
counsel of Baxter International, having served in those capacities since
December 1997. He was also assistant secretary from February 1997 to December
1997. From 1995 to December 1997, Mr. Sabatino was an associate general
counsel of Baxter Healthcare Corporation. Prior to that, he was vice president
and assistant general counsel of Tenet Healthcare Corporation.
Michael J. Tucker, age 48, is senior vice president, human resources and
communications, of Baxter International, having served as senior vice
president, human resources since October 1995 and of communications since May
2000. Prior to that, he was a corporate vice president of Baxter World Trade
Corporation.
(2) Baxter Healthcare Corporation and Baxter World Trade Corporation Executive
Officers
Eric A. Beard, age 49, is a corporate vice president of Baxter World Trade
Corporation and president-Baxter Europe, Africa and Middle East, having served
in those capacities since October 1998. Prior to that, he was president of a
division of a subsidiary of Baxter World Trade Corporation.
Carlos del Salto, age 58, is a senior vice president Intercontinental/Asia
of Baxter World Trade Corporation, having served in that capacity since 1996,
and president-Latin America. Prior to that, Mr. del Salto was a corporate vice
president of Baxter World Trade Corporation.
David F. Drohan, age 62, is a corporate vice president of Baxter Healthcare
Corporation and president- Medication Delivery, having served in those
capacities since 1996. Prior to that, Mr. Drohan was president of a division
of Baxter Healthcare Corporation.
James M. Gatling, age 51, is a corporate vice president, global
manufacturing operations, of Baxter Healthcare corporation, having served in
that capacity since December 1996. Prior to that, Mr. Gatling was a vice
president of a division of Baxter Healthcare Corporation.
Thomas H. Glanzmann, age 42, is a corporate vice president of Baxter World
Trade Corporation and Baxter Healthcare Corporation, having served in those
capacities since October 1998, and president-Hyland Immuno. Prior to that, Mr.
Glanzmann was president of a division of a subsidiary of Baxter World Trade
Corporation.
Alan L. Heller, age 47, is a group vice president of Baxter Healthcare
Corporation and Baxter World Trade Corporation, and president, Global Renal,
having served in those capacities since he joined the Company in October 2000.
Prior to that, Mr. Heller was co-president and chief operating officer of G.D.
Searle & Co.
David C. McKee, age 53, is a corporate vice president and deputy general
counsel of Baxter World Trade Corporation and Baxter Healthcare Corporation,
having served as corporate vice president since 1996 and 1997, respectively
and as deputy general counsel of both entities since 1996. Prior to that from
1994 through 1999, Mr. McKee was corporate vice president and deputy general
counsel of Baxter International, and was corporate secretary from February
1997 to February 1998.
Gregory P. Young, age 47, is a corporate vice president of Baxter
Healthcare Corporation since February 2001 and president of the Fenwal
division since 1999. Prior to that from 1985 to 1999, Mr. Young served in
roles of increasing responsibility within the Medication Delivery division of
Baxter Healthcare Corporation.
(c) Compliance with Section 16(a) of the Securities Exchange Act of 1934.
Incorporated by reference from the Proxy Statement, page 29, section
entitled "Section 16(a) Beneficial Ownership Reporting Compliance."
14
<PAGE>
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Item 11. Executive Compensation.
Incorporated by reference from the Proxy Statement, pages 16-17, section
entitled "Board of Directors--Compensation of Directors" and pages 23-27,
section entitled "Executive Compensation."
- --------------------------------------------------------------------------------
Item 12. Security Ownership of Certain Beneficial Owners and Management.
Incorporated by reference from the Proxy Statement, pages 28-29, section
entitled "Ownership of Baxter Stock."
- --------------------------------------------------------------------------------
Item 13. Certain Relationships and Related Transactions.
None.
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PART IV
- --------------------------------------------------------------------------------
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
The following documents are filed as a part of this report:
(a) Financial Statements Location
Financial Statements Required By Item 8 of This Form
Consolidated Balance Sheets Annual Report, page 29
Consolidated Statements of Income Annual Report, page 30
Consolidated Statements of Cash Flows Annual Report, page 31
Consolidated Statements of Stockholders' Equity and Comprehensive Income
Annual Report, page 32
Notes to Consolidated Financial Statements Annual Report, pages 33-
Report of Independent Accountants 48
Annual Report, page 28
Schedules Required By Article 12 of Regulation S-X
Report of Independent Accountants on Financial Statement Schedule
page 17
II Valuation and Qualifying Accounts page 18
All other schedules have been omitted because they are not applicable or not
required.
(b) Reports on Form 8-K
On April 14, 2000, Baxter International filed a current report on Form
8-K, under Item 2., "Acquisition or Disposition of Assets" that related to
the completed distribution of Edwards Lifesciences Corporation common stock
to Baxter International shareholders of record on March 29, 2000.
On February 28, 2001, Baxter International filed a current report on
Form 8-K under Item 5., "Other Events" that related to the approval of a
two-for-one common stock split, subject to stockholder approval of an
increase in the number of shares of common stock authorized by the company.
(c) Exhibits required by Item 601 of Regulation S-K are listed in the Exhibit
Index, which is incorporated herein by reference. Exhibits in the Exhibit
Index marked with a "C" in the left margin constitute management contracts
or compensatory plans or arrangements contemplated by Item 14(a) of Form
10-K. The list of exhibits so designated is incorporated by reference in
this Part IV, Item 14.
15
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE
To the Board of Directors of
Baxter International Inc.
Our audits of the consolidated financial statements referred to in our
report dated February 16, 2001, except for Note 14, which is as of February
28, 2001, appearing in the 2000 Annual Report to Stockholders of Baxter
International Inc., (which report and consolidated financial statements are
incorporated by reference in this Annual Report on Form 10-K), also included
an audit of the financial statement schedule listed in Item 14(A) of this Form
10-K. In our opinion, this financial statement schedule presents fairly, in
all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Chicago, Illinois
February 16, 2001
16
<PAGE>
SCHEDULE II
- --------------------------------------------------------------------------------
Valuation and Qualifying Accounts
(in million of dollars)
<TABLE>
- -------------------------------------------------------------------------------
<CAPTION>
Additions
----------------------
Balance at Charged to Charged to Deductions Balance
beginning costs and other from at end of
of period expenses accounts(a) reserves period
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year ended December 31,
2000:
Allowance for doubtful
accounts 34 10 3 (4) 43
Inventory reserves 78 73 4 (45) 110
Litigation reserves 426 31 -- (131) 326
Deferred tax asset
valuation allowance 43 12 -- (5) 50
- -------------------------------------------------------------------------------
Year ended December 31,
1999:
Allowance for doubtful
accounts 37 6 -- (9) 34
Inventory reserves 97 68 -- (87) 78
Litigation reserves 698 -- -- (272) 426
Deferred tax asset
valuation allowance 34 14 -- (5) 43
- -------------------------------------------------------------------------------
Year ended December 31,
1998:
Allowance for doubtful
accounts 26 14 -- (3) 37
Inventory reserves 65 135 2 (105) 97
Litigation reserves 599 430 -- (331) 698
Deferred tax asset
valuation allowance 45 7 1 (19) 34
- -------------------------------------------------------------------------------
</TABLE>
(a) Valuation accounts of acquired or divested companies and foreign currency
translation adjustments. Reserves are deducted form assets to which they
apply.
17
<PAGE>
SIGNATURES
Pursuant to the requirements of section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
Baxter International Inc.
/s/ Harry M. Jansen Kraemer, Jr.
By: ____________________________________
Harry M. Jansen Kraemer, Jr.
Chairman and Chief Executive Officer
DATE: March 14, 2001
KNOW ALL BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Harry M. Jansen Kraemer, Jr. and Jan Stern Reed, and
each of them, his or her true and lawful attorneys-in-fact and agents, with
full power of substitution and resubstitution, in any and all capacities, to
sign any or all amendments to this Form 10-K, and to file the same with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he or she might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or their
substitutes, may lawfully do or cause to be done by virtue hereof.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
/s/ Harry M. Hansen Kraemer, Jr. Chairman of the Board of Directors and
___________________________________________ Chief Executive Officer (principal
Harry M. Jansen Kraemer, Jr. executive officer)
/s/ Brian P. Anderson Senior Vice President and Chief Financial
___________________________________________ Officer (principal financial officer and
Brian P. Anderson principal accounting officer)
/s/ Walter E. Boomer Director
___________________________________________
Walter E. Boomer
/s/ Pei-yuan Chia Director
___________________________________________
Pei-yuan Chia
/s/ John W. Colloton Director
___________________________________________
John W. Colloton
/s/ Susan Crown Director
___________________________________________
Susan Crown
/s/ Brian D. Finn Director
___________________________________________
Brian D. Finn
/s/ Frank R. Frame Director
___________________________________________
Frank R. Frame
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
/s/ Martha R. Ingram Director
___________________________________________
Martha R. Ingram
/s/ Arnold J. Levine Director
___________________________________________
Arnold J. Levine
/s/ Thomas T. Stallkamp Director
___________________________________________
Thomas T. Stallkamp
/s/ Monroe E. Trout, M.D. Director
___________________________________________
Monroe E. Trout, M.D.
/s/ Fred L. Turner Director
___________________________________________
Fred L. Turner
</TABLE>
19
<PAGE>
- --------------------------------------------------------------------------------
APPENDICES
<TABLE>
<CAPTION>
Description Page
- ----------- ----
<S> <C>
Computation of Ratio of Earnings to Fixed Charges (Exhibit 12) 36
Subsidiaries of the Company (Exhibit 21) 37
</TABLE>
- --------------------------------------------------------------------------------
EXHIBITS FILED WITH SECURITIES AND EXCHANGE COMMISSION
<TABLE>
<CAPTION>
Number and Description of Exhibit
---------------------------------
<C> <C> <S>
3. Certificate of Incorporation and Bylaws
3.1* Restated Certificate of Incorporation, filed as exhibit 3.1
to the company's annual report on Form 10-K for the year
ended December 31, 1992, file number 1-4448 (the "1992
Form 10-K").
3.2* Certificate of Designation of Series A Junior Participating
Preferred Stock, filed under the Securities Act of 1933 as
Exhibit 4.3 to the company's registration statement on Form
S-8 (No. 33-28428).
3.3 Amended and Restated Bylaws dated February 27, 2001.
3.4* Certificate of Designation of Series B Junior Participating
Preferred Stock filed as Exhibit 3.4 to the company's annual
report on Form 10-K for the year ended December 31, 1988,
file number 1-4448 (the "1998 Form 10-K").
3.5* Certificate of Elimination of Series A Junior Participating
Preferred Stock filed under the Securities Act of 1933 as
Exhibit 4.1A to the company's registration statement on Form
S-3 (No. 333-94889).
Instruments defining the rights of security holders, including
4. indentures
4.1* Amended and Restated Indenture dated November 15, 1985 (the
"Indenture"),
between the company and First Trust N.A. ("First Trust") as
successor in interest to Continental Illinois National Bank
and Trust Company of Chicago ("Continental"), filed under
the Securities Act of 1933 as exhibit 4.1 to the company's
registration statement on Form S-3 (No. 33-1665).
4.2* First Supplemental Indenture to the Indenture between the
company and First Trust (as successor in interest to
Continental), filed under the Securities Act of 1933 as
exhibit 4.1(A) to the company's registration statement on
Form S-3 (No. 33-6746).
4.3* Supplemental Indenture dated as of January 29, 1997, between
the company and First Trust (as successor to Continental),
filed under the Securities Act of 1933 as exhibit 4.1B to
the company's debt securities shelf registration statement
on Form S-3 (No. 333-19025) (the "1997 Shelf").
4.4* Fiscal and Paying Agency Agreement dated as of November 15,
1984, between the company and Citibank, N.A., as amended,
filed as exhibit 4.16 to the company's annual report on Form
10-K for the year ended December 31, 1987, file no. 1-4448
(the "1987 Form 10-K").
4.5* Specimen 9 1/2% Note, filed as exhibit 4.3(a) to the
company's current report on Form 8-K dated June 23, 1988,
file no. 1-4448.
4.6* Specimen 9 1/4% Note, filed as exhibit 4.3(a) to the
company's current report on Form 8-K dated September 13,
1989, file number 1-4448.
4.7* Specimen 9 1/4% Note, filed as exhibit 4.3(a) to the
company's current report on Form 8-K dated December 7, 1989,
file number 1-4448.
4.8* Specimen 7.125% Note, filed as exhibit 4.10 to the company's
annual report on Form 10-K for the year ended December 31,
1996 (the "1996 Form 10-K").
4.9* Specimen 7.65% Debenture, filed as exhibit 4.11 to the 1996
Form 10-K.
4.10* Contingent Payment Rights Agreement, filed under the
Securities Act of 1933 as exhibit 4.2 to the Company's
registration statement on Form S-4 (No. 333-47927).
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
Number and Description of Exhibit
---------------------------------
<C> <C> <S>
4.11* Rights Agreement dated as of December 9, 1998, between the
company and First Chicago Trust Company of New York, filed
as Exhibit 1 to a registration statement on Form 8-A dated
February 23, 1999, file No. 1-4448.
10. Material Contracts
C 10.1* Form of Indemnification Agreement entered into with
directors and officers, filed as exhibit 19.4 to the
company's quarterly report on Form 10-Q for the quarter
ended September 30, 1986, file no. 1-4448.
C 10.2 Baxter International Inc. and Subsidiaries Incentive
Investment Excess Plan, effective January 1, 1999.
C 10.3* Baxter International Inc. and Subsidiaries Supplemental
Pension Plan, filed as exhibit 10.18 to the 1988 Form 10-K.
C 10.4* Limited Rights Plan, filed as exhibit 19.6 to the Company's
quarterly report on Form 10-Q for the quarter ended
September 30, 1989, file no. 1-4448 (the "September 1989
Form 10-Q").
C 10.5* Amendments to various plans regarding disability, filed as
exhibit 19.9 to the September 1989 Form 10-Q.
C 10.6* 1987 Incentive Compensation Program, filed as exhibit C to
the company's proxy statement for use in connection with
its May 13, 1987, annual meeting of stockholders, file no.
1-4448.
C 10.7* Amendment to 1987 Incentive Compensation Program, filed as
exhibit 19.1 to September, 1989 Form 10-Q, file No. 1-4448.
C 10.8* Restricted Stock Grant Terms and Conditions, filed as
exhibit 10.25 to the company's annual report on Form 10-K
for the year ended December 31, 1991, file number 1-4448
(the "1991 Form 10-K").
C 10.9* Deferred Compensation Plan, amended and restated effective
January 1, 1998, filed as exhibit 10.17 to 1997 Form 10-K.
C 10.10* Restricted Stock Plan for Non-Employee Directors (as
amended and restated in 1992), filed as exhibit 10.28 to
the 1992 Form 10-K.
C 10.11* Restricted Stock Grant Terms and Conditions (as amended),
filed as exhibit 10.31 to the 1992 Form 10-K.
C 10.12* Corporate Aviation Policy, filed as exhibit 10.33 to the
1992 Form 10-K.
C 10.13* 1994 Incentive Compensation Program, filed as exhibit A to
the company's proxy statement for use in connection with
its April 29, 1994 annual meeting of stockholders, file no.
1-4448.
C 10.14* 1999 Shared Investment Plan, filed as exhibit 10.1 to the
company's quarterly report on Form 10-Q for the quarter
ended June 30, 1999, file No. 1-4448.
C 10.15 Officer Incentive Compensation Plan.
C 10.16* Baxter International Inc. Restricted Stock Plan for Non-
Employee Directors, as amended and restated effective May
8, 1995, filed as exhibit 10.32 to the 1994 Form 10-K.
C 10.17* 1995 Stock Option Grant Terms and Conditions, filed as
exhibit 10.34 to the 1995 Form 10-K.
C 10.18* Supplemental Pension Agreement: Jack L. McGinley, filed as
exhibit 10.32 to the 1996 Form 10-K.
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
Number and Description of Exhibit
---------------------------------
<C> <C> <S>
C 10.19* November 1996 Stock Option Grant Terms and Conditions,
filed as exhibit 10.33 to the 1996 Form 10-K.
C 10.20* November 1996 Premium Price Stock Option Grant Terms and
Conditions, filed as exhibit 10.34 to the 1996 Form 10-K.
C 10.21* November 1997 Stock Option Grant Terms and Conditions,
filed as exhibit 10.36 to the 1997 Form 10-K.
C 10.22* 1998 Incentive Compensation Program, filed as exhibit 10.37
to the 1997 Form 10-K.
C 10.23* Long Term Incentive Plan, filed as exhibit 10.38 to the
1997 Form 10-K.
C 10.24* 1997 Scientific Advisory Board Option Plan, filed as
exhibit 4.4 to the company's registration statement on Form
S-8 (No. 333-71533).
C 10.25* 2000 Incentive Compensation Program, filed as Exhibit A to
the company's proxy statement for use in connection with
its May 2, 2000 annual meeting of stockholders, file No. 1-
4448.
C 10.26* Employee Stock Purchase Plan for United States Employees
(as amended and restated effective October 1, 1999), filed
as exhibit 10 to the company's quarterly report on Form 10-
Q for the quarter ended September 30, 1999, file No. 1-
4448.
C 10.27* 2001 Incentive Compensation Program, filed as Exhibit A to
the company's proxy statement for use in connection with
its May 1, 2001 annual meeting of stockholders, file no. 1-
4448.
</TABLE>
<TABLE>
<C> <S> <C>
12. Computation of Ratio of Earnings to Fixed Charges.
13. Selections from the 2000 Annual Report to Stockholders (such
report, except to the extent incorporated herein by reference,
is being furnished for the information of the Securities and
Exchange Commission only and is not deemed to be filed as part
of this annual report on Form 10-K).
21. Subsidiaries of Baxter International Inc.
23. Consent of PricewaterhouseCoopers LLP.
24. Powers of Attorney (included on signature page)
</TABLE>
- -------
* Incorporated herein by reference.
C Exhibit contemplated by Item 14(a)(3) of Form 10-K.
(All other exhibits are inapplicable or not required.)
Copies of the above exhibits are available at a charge of 35 cents
per page upon written request to the Stockholder Services Department,
Baxter International Inc., One Baxter Parkway, Deerfield, Illinois
60015. Copies are also available at a charge of at least 25 cents per
page from the Public Reference Section of the Securities and Exchange
Commission, 450 Fifth Street, N.W., Washington, D.C., 20549.
22
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-3.3
<SEQUENCE>2
<FILENAME>dex33.txt
<DESCRIPTION>AMENDED & RESTATED BYLAWS DATED 2/27/2001
<TEXT>
<PAGE>
EXHIBIT 3.3
- --------------------------------------------------------------------------------
As Amended February 27, 2001
BAXTER INTERNATIONAL INC.
BYLAWS
ARTICLE I
STOCKHOLDERS
SECTION l. 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 Corporate Secretary of the Corporation.
(d) To be timely, a stockholder's notice to the Corporate 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 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 Corporate
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
23
<PAGE>
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. The Corporate Secretary shall prepare and make, at least
ten days before each meeting of stockholders, a complete list of the
stockholders in either hard copy or electronic format, 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 at the
office of the Corporation in Deerfield, Illinois, for a period of at least ten
days prior to the meeting. 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.
The Corporate Secretary shall prepare and make, at least ten days before
each meeting of stockholders, a complete list of the stockholders, in either
hard copy or electronic format, 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 at the office of the Corporation in Deerfield,
Illinois, for a period of at least ten days prior to the meeting. 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, the Chief Executive Officer or the Corporate Secretary,
and shall be called by the Chairman of the Board, the Chief Executive Officer
or the Corporate Secretary upon a request in writing therefor, stating the
purpose or purposes thereof, delivered to the Chairman of the Board, the Chief
Executive Officer or the Corporate 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
Corporate Secretary, or such other officer as the Board of Directors may
designate, to each stockholder entitled to vote thereat at such stockholder's
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.
24
<PAGE>
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 or her 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 or her 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 or her 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 Corporate
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 Corporate 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 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 Corporate
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
25
<PAGE>
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 of Directors. If at any meeting of the
Board of Directors 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 of
Directors may also transact business without a meeting if all members of the
Board of Directors 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.
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 from their number, and a Chief Executive Officer, 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
Corporate Secretary, and one or more Assistant Corporate Secretaries, who need
not be directors. Such officers shall hold office until the next annual
election of officers, and until their successors are elected and qualified.
SECTION 4. SPECIAL MEETINGS: HOW CALLED: NOTICE. Special meetings of the
Board of Directors may be called by the Chairman of the Board, the Chief
Executive Officer, the President or the Corporate 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
of Directors a fixed fee may be paid together with expenses for 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.
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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 of Directors, 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.
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 annual or 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 annual
or 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 Audit 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.
(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 Audit
Committee's activities and recommend to the Board of Directors any changes
in the appointment of independent auditors which the Audit Committee may
deem to be in the best interests of the Corporation and its stockholders.
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(h) Have such other powers and perform such other duties as the Board of
Directors 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, the Chief Executive Officer and the
President and advise the Board of Directors of such determination, (b)
exercise the authority of the Board of Directors 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) exercise the authority of the Board of
Directors to issue stock of the Corporation as compensation or as an incentive
to non-employee directors, officers, employees, consultants or advisors, (e)
make recommendations to the Board of Directors concerning the salaries of the
Chairman of the Board, the Chief Executive Officer and the President, (f)
advise the Board of Directors and the Chief Executive Officer on other
compensation and benefit matters and (g) perform such other duties as shall be
requested by the Chairman of the Board or the Chief Executive Officer or
designated by Board of Directors 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
of Directors, 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 of Directors: (i) annual, quarterly or
extraordinary dividend proposals, (ii) financing proposals involving more
than $100 million, (iii) results of the management of pension assets and
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 of Directors
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 Planning and Organization Committee shall assist and advise the Board
of Directors in connection with Board of Directors membership, Board of
Directors committee structure and membership and general organization and
planning matters. To accomplish these purposes, the Planning and Organization
Committee shall:
(a) Develop general criteria for use in selecting potential new Board of
Directors members and assist the Board of Directors in identifying and
attracting qualified candidates for election to the Board of Directors;
(b) Recommend to the Board of Directors annually a slate of nominees to
be proposed by the Board of Directors to the stockholders as nominees for
election as directors and, from time to time, recommend persons to fill any
vacancy on the Board of Directors;
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(c) Recommend to the Board of Directors any changes in number, authority
and duties of Board of Directors committees and the chairmen and members
who should serve thereon;
(d) Advise the Board of Directors and the Chairman/Chief Executive
Officer on major organization matters and issues relating to the
organization structure of the Corporation, as well as management succession
plans;
(e) Oversee the succession planning process for the Chairman/Chief
Executive Officer;
(f) Develop and implement an annual process for evaluating the
performance of the Chairman/CEO that includes measurable performance
objectives, performance assessment against such objectives and
communication and coordination with the Compensation Committee in
furtherance of its responsibility to recommend to the full Board
compensation decisions with respect to the Chairman/CEO;
(g) In the event of the death, incapacity, resignation or other absence
(temporary or permanent) of the Chief Executive Officer, the Planning and
Organization Committee shall confer and recommend for election by the full
Board of Directors an acting or successor Chief Executive Officer;
(h) Make recommendations to the Board of Directors concerning
compensation payable for Board of Directors membership, as well as other
benefits available to Board of Directors members;
(i) Exercise the authority of the Board of Directors concerning policies
relating to service by directors and employees on other unrelated Board of
Directors of directors; and
(j) Have such other duties and authority as shall be assigned or granted
to it from time to time by the Chief Executive Officer or the Board of
Directors.
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 Chief Executive Officer or the Board of Directors.
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 of Directors 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 of Directors 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, the Chief Executive Officer, the President, the
Corporate Secretary, or any Assistant Corporate 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
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States mail, addressed to the member of the committee at his or her
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.
(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, 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 include, when and if
designated by the Board of Directors, a Senior Chairman, a Chairman of the
Board, a Chief Executive Officer, 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 Corporate Secretary, one or more
Assistant Corporate Secretaries, a Treasurer, and such other officers as may
from time to time be elected or appointed by the Board of Directors. Any one
person may hold any number of offices of the Corporation unless specifically
prohibited therefrom by law.
SECTION 2. SENIOR CHAIRMAN. The Senior Chairman shall, in the absence of
the Chairman of the Board, the 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 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 Chief Executive Officer, the President
or the Board of Directors shall designate from time to time.
SECTION 3. CHAIRMAN OF THE BOARD. The Chairman of the Board, if any, shall
be an officer of the Corporation and, subject to the direction of the Board of
Directors, shall perform such executive, supervisory and management functions
and duties as may be assigned to him or her from time to time by the Board of
Directors. The Chairman of the Board shall, when present, preside at all
meetings of the stockholders and of the Board of Directors. He or she shall
act as spokesman for the Board of Directors and as a liaison between the Board
of Directors and the Corporation. The Chairman of the Board shall perform all
other duties commonly incident to this office and shall also perform such
other duties and have such other powers as the Board of Directors shall
designate from time to time
SECTION 4. CHIEF EXECUTIVE OFFICER. The Chief Executive Officer shall have
responsibility for the management of the Corporation, including the general
supervision and control of all the business and affairs of the Corporation,
and shall have such other powers and duties as may be assigned to him or her
from time to time by the Board of Directors. The Chief Executive Officer
shall, in the absence of the Chairman of the Board, preside at all meetings of
the stockholders and of the Board of Directors. The Chief Executive Officer
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shall participate in long range planning for the Corporation. He or she 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. The Chief
Executive Officer 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. The Chief
Executive Officer shall perform other duties commonly incident to this office
and shall also perform such other duties and have such other powers as the
Board of Directors shall designate from time to time.
SECTION 5. PRESIDENT. The President shall have such duties and authority as
the Chief Executive Officer may determine from time to time. In the absence or
disability of the Chief Executive Officer, the President shall exercise all
powers and discharge all of the duties of the Chief Executive Officer,
including the general supervision and control of all the business and affairs
of the Corporation. The President shall, in the absence of the Chairman of the
Board and the Chief Executive Officer, preside at all meetings of stockholders
and the Board of Directors. The President 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.
The 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. The
President shall perform all other duties commonly incident to this office and
shall also perform such other duties and have such powers as the Chief
Executive Officer shall designate from time to time.
SECTION 6. VICE PRESIDENT. In the absence or disability of the Chief
Executive Officer and the President, the functions of the 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 or her from time to time by the 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. Each Vice President shall perform
all other duties commonly incident to this office and shall also perform such
other duties and have such powers as the Chief Executive Officer or President
shall designate from time to time.
SECTION 7. CORPORATE SECRETARY. The Corporate 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 or her
absence or refusal or neglect so to do, any such notice may be given by any
person thereunto directed by the Chief Executive Officer or the directors, upon
whose requisition the meeting is called as provided in these Bylaws. The
Corporate Secretary 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 or her by the Board
of Directors, the Chief Executive Officer or the President. The Corporate
Secretary 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 Chief Executive Officer or the President, and attest the same.
The Corporate Secretary 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 Corporate Secretary. The Corporate Secretary
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 8. ASSISTANT CORPORATE SECRETARY. Each Assistant Corporate Secretary
shall have such powers and perform such duties as shall be assigned to him or
her by the directors or delegated to him
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by the Corporate Secretary, and in the absence or inability of the Corporate
Secretary to act, shall have the same general powers as the Corporate
Secretary.
SECTION 9. 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,
the Chief Executive Officer, the President or the Corporate 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 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 or her successor shall have been elected and
qualified.
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 have been elected and qualified.
ARTICLE VI
CAPITAL STOCK
SECTION l. CERTIFICATES OF STOCK. Certificates of stock, numbered and with
the seal of the Corporation affixed, signed by the Chief Executive Officer,
the President or any Vice President, and the Corporate Secretary or an
Assistant Corporate Secretary, shall be issued to each stockholder certifying
the number of shares owned by such stockholder 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 or she were such officer or transfer agent at the
date of issue unless otherwise provided in accordance with Delaware law.
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 such owner's 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.
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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.
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.
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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 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. 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.
34
<PAGE>
(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 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.
35
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.2
<SEQUENCE>3
<FILENAME>dex102.txt
<DESCRIPTION>BAXTER INCENTIVE INVESTMENT EXCESS PLAN
<TEXT>
<PAGE>
Exhibit 10.2
BAXTER INTERNATIONAL INC. AND SUBSIDIARIES
SUPPLEMENTAL PENSION PLAN
(As Amended and Restated Effective January 1, 1999)
ARTICLE 1
General
-------
1.1. Purpose Effective Date. Baxter International Inc. (the
"Corporation") established the Baxter International Inc. and Subsidiaries
Supplemental Pension Plan (the "Plan"), effective as of January 1, 1989, to
assist in providing retirement and other benefits to certain employees of the
Corporation and its affiliates which are in addition to those provided under the
Baxter International Inc. and Subsidiaries Pension Plan (the "Pension Plan").
The following provisions constitute an amendment and restatement of the Plan
effective as of January 1, 1999, the "Effective Date" of the Plan set forth
herein. The Plan is intended to constitute an "excess benefit plan" within the
meaning of Section 3(36) of ERISA with respect to the benefits provided under
Section 4.2 that are in excess of those that may be provided under the Pension
Plan because of the application of Code Section 415, and an unfunded plan
maintained primarily for the purpose of providing deferred compensation to a
select group of management or highly compensated employees with respect to the
other benefits provided under the Plan.
1.2. Plan Administration; Source of Benefit Payments. The authority to
control and manage the operation and administration of the Plan shall be vested
in the Administrative Committee. In controlling and managing the operation and
administration of the Plan, the Administrative Committee shall have the same
rights, powers and duties as those delegated to such Committee under the Pension
Plan. A Participating Employer's obligation under the Plan shall be reduced to
the extent that any amounts due under the Plan are paid from one or more trusts,
the assets of which are subject to the claims of general creditors of the
Participating Employer or any affiliate thereof; provided, however, that nothing
in the Plan shall require the Corporation or any Participating Employer to
establish any trust to provide benefits under the Plan.
1.3. Applicable Laws. The Plan shall be construed and administered in
accordance with the laws of the State of Illinois to the extent that such laws
are not preempted by the laws of the United States of America.
1.4. Notices. Any notice or document required to be filed with the
Administrative Committee under the Plan will be properly filed if delivered or
mailed by registered mail, postage prepaid, to the Administrative Committee, in
care of the Corporation, at its principal executive offices. Any notice required
under the Plan may be wholly or partially waived by the person entitled thereto.
<PAGE>
1.5. Action by Participating Employers. Any action required or
permitted to be taken under the Plan by a Participating Employer shall be by
resolution of its Board of Directors, or by a person or persons authorized by
its Board of Directors.
1.6. Limitation of Provisions. Any benefit payable under the Pension
Plan shall be paid solely in accordance with the terms and conditions of the
Pension Plan and nothing in the Plan shall operate or be construed in any way to
modify, amend or affect the terms and provisions of the Pension Plan.
1.7. Claims and Review Procedures. The claims procedures applicable
to claims and appeals of denied claims under the Pension Plan shall apply to any
claims for benefits under the Plan and appeals of any such denied claims.
1.8. Inactive Participation. Except as otherwise specifically provided
herein, the benefits, if any, payable to or on behalf of Participants who
terminated employment with the Corporation and its affiliates prior to the
Effective Date shall be determined in accordance with the terms of the Plan as
in effect on such termination of employment.
1.9. Plan Supplements. The provisions of the Plan as applied to any
Participating Employer or Participant may be modified to supplemented from time
to time by the adoption of one or more Supplements. In the event of any
inconsistency between a Supplement and the Plan document, the terms of the
Supplement shall govern.
1.10. Severability of Plan Provisions. In the event any provisions of
the Plan shall be held invalid or illegal for any reason, any invalidity or
illegality shall not affect the remaining parts of the Plan, but the Plan shall
be construed and enforced as if the invalid or illegal provision had never been
included, and the Corporation shall have the right to correct and remedy such
questions of invalidity or illegality by amendment as provided in Article 5.
ARTICLE 2
Definitions
-----------
2.1. "Accrued Benefit" shall have the meaning ascribed to such term
under the Pension Plan.
2.2. "Administrative Committee" shall have the meaning ascribed to such
term under the Pension Plan.
2.3. "Code" means the Internal Revenue Code of 1986, as amended.
2.4. "Corporation" has the meaning ascribed to such term in Section
1.1.
2
<PAGE>
2.5. "Deferred Compensation Plan" means Baxter International Inc. and
Subsidiaries Deferred Compensation Plan.
2.6. "Effective Date" means January 1, 1999.
2.7. "ERISA" means the Employment Retirement Income Security Act of
1974, as amended.
2.8. "Excess Benefit" means the benefit determined under Section 4.2.
2.9. "Participant" means an employee of a Participating Employer who is
eligible for an Excess Benefit, Pension Make-Whole Benefit or Special
Supplemental Benefit, as set forth in Section 3.1.
2.10. "Participating Employer" means the Corporation and any affiliate
of the Corporation which is a Participating Employer under the Pension Plan.
2.11. "Pension Make-Whole Benefit" means the benefit determined under
Section 4.3.
2.12. "Pension Plan" has the meaning ascribed to such term in Section
1.1.
2.13. "Plan" has the meaning ascribed to such term in Section 1.1.
2.14. "Special Supplemental Benefit" means the benefit determined under
Section 4.4.
ARTICLE 3
Participation in the Plan
-------------------------
3.1. Eligibility. An employee of a Participating Employer shall become
a Participant in the Plan on the first date such employee is eligible for an
Excess Benefit, Pension Make-Whole Benefit or Special Supplemental Benefit, in
accordance with the following:
(a) Each participant in the Pension Plan who has a fully vested
interest in his or her Accrued Benefit under the Pension Plan and
whose benefit under the Pension Plan is limited by reason of the
application Section 415 or Section 401(a)(17) of the Code shall be
eligible for an Excess Benefit, determined in accordance with
Section 4.2.
(b) Each participant in the Pension Plan who has a fully vested
interest in his or her Accrued Benefit under the Pension Plan and
who also is a participant in the Deferred Compensation Plan shall
be eligible for a Pension Make-Whole Benefit, determined in
accordance with Section 4.3.
3
<PAGE>
(c) The Administrative Committee (or the person or persons delegated such
authority by the Administrative Committee), in its sole discretion,
shall designate the individuals, if any, who shall be eligible for
Special Supplemental Benefits.
3.2. Restricted Participation. Notwithstanding any other provision of the
Plan to the contrary, if the Administrative Committee determines that
participation by one or more Participants shall cause the Plan as applied to any
Participating Employer to be subject to Part 2, 3 or 4 of Subtitle B of Title I
of ERISA, the entire interest of such Participants under the Plan shall be
immediately paid to them by each applicable Participating Employer, or shall
otherwise be segregated from the Plan in the discretion of the Administrative
Committee, and such Participants shall cease to have any interest under the
Plan. In the event the Participant has died, the foregoing provisions of this
Section 3.2 shall apply to the Participant's interest, if any, which is payable
to the Participant's surviving spouse or other beneficiary.
3.3. No Contract of Employment. The Plan does not constitute a contract of
employment, and participation in the Plan will not give any employee the right
to be retained in the employ of the Corporation or any Participating Employer
nor any right or claim to any benefit under the Plan, unless such right or claim
has specifically accrued under the terms of the Plan.
ARTICLE 4
Amount and Payment of Plan Benefits
-----------------------------------
4.1. Plan Benefits. Eligible Participants under the Plan shall receive an
Excess Benefit, Pension Make-Whole Benefit or Special Supplemental Benefit, in
the amount and payable at the times set forth in the following provisions of
this Article 4.
4.2. Excess Benefit. As of any date, an eligible Participant's "Excess
Benefit" under the Plan shall be an amount equal to the Accrued Benefit the
Participant would be eligible for under the Pension Plan as of such date if such
Accrued Benefit were determined without regard to limitations of Section 415 and
Section 401(a)(17) of the Code, reduced by the Participant's actual Accrued
Benefit under the Pension Plan as of such date. A Participant's Excess Benefit,
if any, shall be paid at the same time and in the same form as the Participant's
benefits under the Pension Plan; provided, however, the Administrative
Committee, in its sole discretion, may defer commencement of payments under the
Plan for a period of up to twelve months after the time payments under the
Pension Plan commence.
4.3. Pension Make-Whole Benefit. As of any date, an eligible Participant's
"Pension Make-Whole Benefit" under the Plan shall be an amount equal to:
(a) the Accrued Benefit the Participant would be eligible for under the
Pension Plan as of such date if such Accrued Benefit were determined
(i) without exclusion of compensation deferred under the Deferred
Compensation Plan, and (ii) without regard to the limitations of Code
Sections 415 and 401(a)(17),
4
<PAGE>
reduced by
(b) the sum of (i) the Participant's actual Accrued Benefit under
the Pension Plan as of such date, and (ii) the amount of any
Excess Benefit determined under Section 4.2 without regard to such
deferred compensation.
A Participant's Pension Make-Whole Benefit, if any, shall be paid at the same
time and in the same form as the Participant's benefits under the Pension Plan;
provided, however, the Administrative Committee, in its sole discretion, may
defer commencement of payments under the Plan for a period of up to twelve
months after the time payments under the Pension Plan commence.
4.4. Special Supplemental Benefits. The amount, if any, of a
Participant's "Special Supplemental Benefit" shall be determined by the
Administrative Committee, shall be subject to such terms and conditions as the
Administrative Committee may establish, and shall be payable at the times and in
the form determined by the Administrative Committee. The Administrative
Committee, in its sole discretion, may delegate its authority under this Section
4.4 to any person or persons in connection with the award of Special
Supplemental Benefits to a particular Participant, a class of Participants, or
all Participants. A copy of all actions taken by the Administrative Committee or
its delegate with respect to Special Supplemental Benefits under the Plan shall
be sent to the Corporate Counsel in charge of the Company's employee benefit
plans.
4.5. Actuarial Equivalence. To the extent applicable, the benefits
payable to any person under the Plan shall be determined by applying the
appropriate interest rate and other actuarial assumptions set forth in the
Pension Plan.
4.6. Benefits May Not Be Assigned or Alienated. Benefits payable under
the Plan are expressly declared to be unassignable and nontransferable. Neither
the Participant nor any other person shall have any voluntary or involuntary
right to commute, sell, assign, pledge, anticipate, mortgage or otherwise
encumber or transfer or convey in advance of actual receipt any benefits payable
under the Plan.
4.7. Withholding Taxes. Benefits and payments under the Plan are
subject to the withholding of all applicable taxes. Notwithstanding any
provision of the Plan to the contrary, a Participant's initial benefit payment
under the Plan shall be in an amount sufficient pay any remaining employment tax
required to be withheld with respect to Plan benefits. To the extent such amount
is in excess of the first distribution that would otherwise have been made based
on the form of benefit elected by the Participant, subsequent payments will not
begin until the aggregated payments that would have been made under the form of
benefit elected by the Participant exceed the amount of such initial
distribution.
5
<PAGE>
4.8. Beneficiaries. A Participant's beneficiary under the Plan with
respect to benefits payable under the Plan following the Participant's death, if
any, shall be the Participant's beneficiary under the Pension Plan.
ARTICLE 5
Amendment and Termination
-------------------------
5.1. Amendment and Termination. The Administrative Committee may, at
any time, amend or supplement the Plan. The Board of Directors of the
Corporation may, at any time, terminate the Plan. Notwithstanding the foregoing
provisions of this Section 5.1, neither an amendment or termination of the Plan
shall materially reduce or impair the interests of Participants or other persons
entitled to benefits under the Plan; provided, however, the Administrative
Committee or Corporation, as applicable, may amend or terminate the Plan at any
time to take effect retroactively or otherwise, as deemed necessary or advisable
for purposes of conforming the Plan to any present or future law, regulations or
rulings relating to plans of this or a similar nature.
5.2. Successors and Assigns. The obligations of the Corporation and the
Participating Employers under the Plan shall be binding upon any assignee or
successor in interest thereto.
* * *
IN WITNESS WHEREOF, the undersigned duly authorized officer has caused
this Plan to be executed this __ day of November, 1999.
BAXTER INTERNATIONAL INC.
By ___________________________________
Its Sr. Vice President of Human Resources
6
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.15
<SEQUENCE>4
<FILENAME>dex1015.txt
<DESCRIPTION>OFFICER INCENTIVE COMPENSATION PLAN
<TEXT>
<PAGE>
Exhibit 10.15
BAXTER INTERNATIONAL INC.
OFFICER INCENTIVE COMPENSATION PLAN
This Officer Incentive Compensation Plan ("Plan") of Baxter International Inc.
("Baxter") and its subsidiaries (collectively, the "Company") is adopted
pursuant to the Baxter International Inc. 1994 Incentive Compensation Program
(the "Program") for the purposes stated in the Program. The Plan is intended to
comply with the requirements of Section 162(m)(4)(C) of the Internal Revenue
Code of 1986 ("IRC"), as amended, and the related income tax regulations issued
thereunder.
1. Eligibility
-----------
Officers of the Company are eligible to participate in the Plan if the officer's
participation for a calendar year (or portion of such calendar year) ("Plan
Year") is approved by the Compensation Committee of the Board of Directors of
Baxter ("Committee"). Officers so approved by the Committee shall be referred to
herein as "Participants".
2. Bonus Award
-----------
2.1 For each Plan Year, each Participant shall be eligible to receive a cash
payment ("Bonus Award") in accordance with the terms provided herein and any
other terms established by the Committee. To determine a Participant's Bonus
Award, the Committee shall establish a) Company performance goals for the Plan
Year which will include one or more of the following performance measures: net
income growth, operational cash flow, sales growth, the Common Stock price of
Baxter, earnings per share, total shareholder return, and inventory turns
("Company Performance Criteria"), b) a "Bonus Range" for each Participant for
the Plan Year, and c) the amount within a Participant's Bonus Range that will be
payable to a Participant based upon the achievement of the Company Performance
Criteria for the Plan Year. The terms described in the preceding sentence must
be established by April 1 of the Plan Year, and such terms shall not thereafter
be changed, except as permitted by paragraph 2.2.
2.2 By March 31 of each year, the Committee shall assess the extent to which
the Company has achieved the Company Performance Criteria for the preceding Plan
Year, based on the Company's publicly reported results. The Committee shall
exclude the effect of acquisitions, divestitures, changes in accounting
principles, and other extraordinary or non-recurring events which occurred
during the Plan Year when assessing the extent to which the Company has achieved
the Company Performance Criteria for such Plan Year, but only if such exclusion
would enhance the Company's performance relative to the Company Performance
Criteria. The exclusion authorized
<PAGE>
by the preceding sentence shall only apply to the extent it is consistent with
IRC Section 162(m)(4)(C) and the related regulations described above. The
Committee shall then determine each Participant's Bonus Award based upon the
terms described in paragraph 2.1 above. The Committee, however, has the
discretion to reduce the amount of a Participant's Bonus Award determined under
the preceding sentence. The Committee's determination shall be consistent with
IRC Section 162(m)(4)(C) and the related regulations described above. No
Participant shall receive a Bonus Award in excess of $2.0 million for any Plan
Year for which the Participant is subject to IRC Section 162(m). The Committee
may exercise discretion in the determination of the Bonus Awards earned under
the Plan with respect to participants who are not subject to IRC Section 162(m).
2.3 If an officer's participation in the Plan becomes effective after January 1
of a Plan Year, the Committee shall establish a prorated Bonus Range for such
Participant based on the number of full months remaining in the Plan Year after
he or she becomes a Participant. To the extent applicable, the determination of
a prorated Bonus Range shall be consistent with IRC Section 162(m)(4)(C) and the
related regulations described above.
3. Payment
-------
3.1 Except as otherwise determined by the Committee and except with respect to
Participants who have filed deferral elections pursuant to paragraph 4, all
Bonus Awards will be paid in cash as soon as possible following determination of
Bonus Awards by the Committee.
3.2 No Participant will be eligible to receive a Bonus Award for a Plan Year
unless he or she continues to be employed by the Company through February 1 of
the following year except as otherwise determined by the Committee. The
Committee's Bonus Award determination with respect to such participant may be
determined in the same manner as provided in paragraphs 2.1 and 2.2 above.
4. Deferral of Payment
-------------------
Participants may elect to defer payment in accordance with the Baxter
International Inc. and Subsidiaries Deferred Compensation Plan.
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-12
<SEQUENCE>5
<FILENAME>dex12.txt
<DESCRIPTION>COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
<TEXT>
<PAGE>
EXHIBIT 12
- -------------------------------------------------------------------------------
Computation of Ratio of Earnings to Fixed Charges
(unaudited--in millions, except ratios)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Years ended December 31,
--------------------------------
2000 1999 1998 1997 1996
- ---------------------------------------------------------------------------
(B) (B) (B)
<S> <C> <C> <C> <C> <C>
Income from continuing operations before
income taxes and cumulative effect of
accounting change $ 946 $1,052 $493 $570 $693
- ---------------------------------------------------------------------------
Fixed charges
Interest costs 135 123 152 166 98
Estimated interest in rentals (A) 33 30 26 26 24
- ---------------------------------------------------------------------------
Fixed charges as defined 168 153 178 192 122
- ---------------------------------------------------------------------------
Adjustments to income
Interest costs capitalized (14) (10) (4) (6) (2)
Losses of less than majority owned
affiliates, net of dividends (2) (2) -- -- 8
- ---------------------------------------------------------------------------
Income as adjusted $1,098 $1,193 $667 $756 $821
- ---------------------------------------------------------------------------
Ratio of earnings to fixed charges 6.54 7.80 3.75 3.94 6.73
- ---------------------------------------------------------------------------
</TABLE>
(A) Represents the estimated interest portion of rents.
(B) Excluding the following significant unusual charges, the ratio of earnings
to fixed charges was 8.24, 6.08, and 5.08 in 2000, 1998, and 1997,
respectively.
2000: $286 million charge for in-process research and development and
acquisition-related costs.
1998: $116 million in-process research and development charge, $178
million net litigation charge, $122 million exit and reorganization
costs charge.
1997: $220 million in-process research and development charge.
36
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-13
<SEQUENCE>6
<FILENAME>dex13.txt
<DESCRIPTION>SELECTIONS FROM THE 2000 ANNUAL REPORT
<TEXT>
<PAGE>
<TABLE>
<S> <C> <C>
Management's Discussion 29 Consolidated Balance Sheets 33 Notes to Consolidated Financial
and Analysis Statements
28 Management's Responsibilities 30 Consolidated Statements of Income 49 Directors and Executive Officers
for Financial Reporting
28 Report of Independent Accountants 31 Consolidated Statements 50 Company Information
of Cash Flows
32 Consolidated Statements
of Stockholders' Equity and
Comprehensive Income
</TABLE>
<PAGE>
19
Management's Discussion and Analysis
This discussion and analysis presents the factors that had a material effect on
Baxter International Inc.'s (Baxter or the company) results of operations and
cash flows during the three years ended December 31, 2000, and the company's
financial position at that date. This discussion and analysis should be read in
conjunction with the consolidated financial statements of the company and
related notes.
The matters discussed in this Annual Report include forward-looking
statements that involve risks and uncertainties, including, but not limited to,
currency exchange rates, interest rates, technological advances in the medical
field, economic conditions, demand and market acceptance risks for new and
existing products, technologies and health-care services, the impact of
competitive products and pricing, manufacturing capacity, new plant start-ups,
global regulatory, trade and tax policies, continued price competition, product
development risks, including technological difficulties, ability to enforce
patents, unforeseen commercialization and regulatory factors, and other risks
more completely reflected in the company's filings with the Securities and
Exchange Commission. In particular, the company, as well as other companies in
its industry, has experienced increased regulatory activity by the U.S. Food and
Drug Administration with respect to its plasma-based biologicals. It is not
possible to predict the extent to which the company or the health-care industry
might be adversely affected by these factors in the future.
Management's financial objectives for 2000, which were outlined in last
year's Annual Report and are summarized below, were established based on
Baxter's results excluding the cardiovascular business, the stock of which was
distributed to shareholders on March 31, 2000. Refer to Note 2 to the
consolidated financial statements for further information regarding the spin-off
of the cardiovascular business. The company's consolidated financial statements
and related notes have been restated to reflect the financial position, results
of operations and cash flows of the cardiovascular business as a discontinued
operation. The results presented below reflect the results of continuing
operations only.
Key Financial Objectives and Results
2000 OBJECTIVES RESULTS
- --------------------------------------------------------------------------------
Increase net sales approximately 10 percent. Net sales increased eight percent
in 2000. Excluding fluctuations in
currency exchange rates, net sales
increased 12 percent.
- --------------------------------------------------------------------------------
Grow net earnings in the mid-teens. Net earnings from continuing
operations increased 17 percent in
2000, excluding the cumulative
effect of a change in accounting
principle in 1999 and the charge
for in-process research and
development (IPR&D) and
acquisition-related costs in 2000.
- --------------------------------------------------------------------------------
Generate a minimum of $500 million in The company generated operational
operational cash flow after investing cash flow of $588 million during
more than $1 billion in capital 2000. The total of capital
improvements and research and development. expenditures and research and
development expenses was more than
$1 billion.
Company and Industry Overview
Baxter is a global leader in providing critical therapies for life-threatening
conditions and operates in three segments, which are described in Note 13. The
company manufactures and markets products and services used to treat patients
with hemophilia, immune deficiencies, infectious diseases, cancer, kidney
disease, trauma and other disorders. The company generates more than 50 percent
of its revenues outside the United States. While health-care cost containment
continues to be a focus around the world, demand for health-care products and
services continues to be strong worldwide, particularly in developing markets.
The company's strategies emphasize global expansion and technological innovation
to advance medical care worldwide.
The company's primary markets are highly competitive and subject to
substantial regulation. There has been consolidation in the company's customer
base and by its competitors, which has resulted in pricing and market share
pressures. The company has experienced increases in its labor and material
costs, which are partly influenced by general inflationary trends. Competitive
market conditions have minimized inflation's impact on the selling prices of the
company's products and services. Management expects these trends to continue.
The company will continue to manage these issues by capitalizing on its market-
leading positions, developing innovative products and services, investing in
human resources, upgrading and expanding facilities, leveraging its cost
structure, making acquisitions, and entering into alliances and joint venture
arrangements.
<PAGE>
20
Results of Continuing Operations
Net Sales Trends
Percent increase
--------------------
years ended December 31 (in millions) 2000 1999 1998 2000 1999
- --------------------------------------------------------------------------------
Medication Delivery $2,719 $2,524 $2,314 8% 9%
BioScience 2,353 2,176 1,862 8% 17%
Renal 1,824 1,680 1,530 9% 10%
- --------------------------------------------------------------------------------
Total net sales $6,896 $6,380 $5,706 8% 12%
======================================
Percent increase
--------------------
years ended December 31 (in millions) 2000 1999 1998 2000 1999
- --------------------------------------------------------------------------------
United States $3,194 $2,921 $2,609 9% 12%
International 3,702 3,459 3,097 7% 12%
- --------------------------------------------------------------------------------
Total net sales $6,896 $6,380 $5,706 8% 12%
======================================
Excluding fluctuations in currency exchange rates, which impacted sales growth
unfavorably for all three segments, total net sales growth was 12 percent in
2000. The company's sales growth was unfavorably impacted by fluctuations in
currency exchange rates in 2000 principally due to the weakening of the Euro
relative to the United States Dollar, partially offset by the strengthening of
the Japanese Yen.
Medication Delivery The Medication Delivery segment generated eight percent and
nine percent sales growth in 2000 and 1999, respectively. Excluding the impact
of fluctuations in currency exchange rates, sales growth was 11 percent in 2000.
Of the constant-currency sales growth, approximately two points and four points
of growth in 2000 and 1999, respectively, was generated by recent acquisitions,
principally the January 2000 acquisition of a domestic ambulatory and infusion
pump business, the September 1999 acquisition of a nutrition and fluid therapy
business in Europe and the April 1998 acquisition of a domestic manufacturer of
inhalants and drugs used for general and local anesthesia. Approximately three
points of growth in both 2000 and 1999 was generated from the segment's late-
1999 exclusive agreement to sell the first generic formulation of Propofol
approved by the United States Food and Drug Administration. Propofol is an
intravenous drug used for the induction or maintenance of anesthesia in surgery,
and as a sedative in monitored anesthesia care. The remaining sales growth in
both periods was principally due to increased sales of Colleague(R) electronic
infusion pumps and intravenous fluids and administration sets used with
electronic infusion pumps, as well as growth in products for nutrition-based
therapies. Such sales growth in 2000 was partially offset by the effect of
terminations of certain distribution agreements that were not part of the
segment's core businesses. Sales in the United States and Western Europe have
been impacted by competitive pricing pressures and cost pressures from health-
care providers. These factors were more than offset by increased penetration and
new product introductions in emerging markets, as well as increased sales due to
new distribution and alliance agreements, new products and acquisitions.
Management expects these trends to continue.
BioScience Sales in the BioScience segment increased eight percent and 17
percent in 2000 and 1999, respectively. Excluding the impact of fluctuations in
currency exchange rates, sales growth was 14 percent in 2000, with growth
particularly strong outside the United States. The June 2000 acquisition of
North American Vaccine, Inc. (NAV), which is further discussed in Note 3,
contributed approximately three points to the segment's constant-currency sales
growth rate in 2000. As a result of the company's increase in manufacturing
capacity for Recombinate Antihemophilic Factor (rAHF) in late 1998 and late
2000, and the strong demand for this product, sales of Recombinate contributed
approximately three points and nine points to the segment's constant-currency
percentage sales growth in 2000 and 1999, respectively. Strong sales growth is
expected to continue as a result of the recent capacity expansions and
anticipated demand for this product. Approximately six points of the growth in
both 2000 and 1999 was due to increased sales of plasma-derived products,
primarily as a result of improved product supply and strong growth of
Gammagard(R) S/D IGIV. Sales in the blood-collection and processing businesses
also grew in both 2000 and 1999, principally due to an increase in sales of
products that
<PAGE>
21
provide for leukoreduction, which is the removal of white blood cells from blood
products used for transfusion. Sales growth in these businesses has been
negatively affected by regulatory and production issues facing certain of the
company's customers in the plasma-fractionation industry. The effects of
regulatory, supply, competitive and other pressures on the BioScience segment
are expected to continue to be more than offset by the effects of global
expansion, technological advancement and innovation, increases in manufacturing
capacity, and strategic alliances, joint ventures and acquisitions.
Renal The Renal segment generated sales growth of nine percent and 10 percent in
2000 and 1999, respectively. Excluding the impact of fluctuations in currency
exchange rates, sales growth was 11 percent in 2000 and six percent in 1999.
Sales related to the March 2000 acquisition of Althin Medical A.B. (Althin), a
manufacturer of hemodialysis products, contributed approximately four points to
the segment's growth rate in 2000. Significant growth was generated by the
segment's Renal Therapy Services business, which operates dialysis clinics in
partnership with local physicians in international markets, and the Renal
Management Strategies business, which is a renal-disease management
organization, with revenues from these businesses increasing over $60 million in
2000 and over $80 million in 1999. The remaining sales growth in the Renal
segment was driven principally by continued penetration of products for
peritoneal dialysis. Penetration of products used for peritoneal dialysis
continues to be strongest in emerging markets such as Latin America and Asia,
where many people with end-stage renal disease are currently under-treated.
Sales in certain geographic markets continue to be affected by strong pricing
pressures and the effects of market consolidation. These issues are expected to
continue to be more than offset by increased penetration of peritoneal dialysis,
growth in sales of hemodialysis products, continued expansion into developing
markets, and alliances and acquisitions.
Gross Margin and Expense Ratios
years ended December 31 (as a percent of sales) 2000 1999 1998
- --------------------------------------------------------------------------------
Gross margin 44.4% 44.1% 44.9%
Marketing and administrative expenses 20.1% 20.5% 21.2%
=========================
The change in the gross margin in both 2000 and 1999 was partly due to changes
in the products and services mix and fluctuations in currency exchange rates.
The improved sales mix in 2000 was principally due to significantly higher sales
of Recombinate and vaccines within the BioScience segment. The reduction in 1999
was impacted by higher costs related to increased investments and reduced
production in the BioScience segment in response to heightened FDA regulatory
activity with respect to safety and quality systems.
The reduction in the expense ratio in both 2000 and 1999 was due to a
number of factors. The company has been making significant investments in order
to attract and retain a highly talented workforce. Such investments include
increased cash compensation as well as increased long-term Baxter stock
incentives. The effect of these strategic investments was more than offset by
the company's aggressive management of expenses, leveraging of recent
acquisitions, improved pension plan asset returns and hedging activities.
In addition, various recently implemented e-business and strategic sourcing
initiatives have resulted in significant efficiencies and cost savings to the
company, which has contributed to an improved gross margin and expense ratio,
particularly in 2000, and have allowed management to redeploy valuable resources
within the company. Management expects to continue to make strategic investments
while leveraging and closely managing costs in 2001.
Research and Development
<TABLE>
<CAPTION>
Percent increase
-------------------
years ended December 31 (in millions) 2000 1999 1998 2000 1999
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Research and development expenses $379 $332 $323 14% 3%
as a percent of sales 5% 5% 6%
======================
</TABLE>
<PAGE>
22
Research and development (R&D) expenses above exclude in-process R&D (IPR&D)
charges, which principally consisted of a $250 million IPR&D charge relating to
the acquisition of NAV in 2000 and a $116 million IPR&D charge relating to the
acquisition of Somatogen, Inc. in 1998. Refer to Note 3 for a discussion of
significant acquisitions, along with related IPR&D charges. R&D expenses
increased in all three segments in both 2000 and 1999. The overall increase was
primarily due to spending in the BioScience segment, principally relating to the
next-generation recombinant product, the next-generation oxygen-therapeutics
program, initiatives in the wound management and plasma-based products areas,
and, in 2000, to the acquisition of NAV. Management plans to continue to make
significant investments in the R&D initiatives mentioned above as well as other
projects across the three segments in 2001.
Exit and Other Reorganization Costs
Refer to Note 4 for a discussion of a charge recorded in 1998 for exit and other
reorganization costs. The company recorded a $122 million charge in 1998
principally related to the decisions to end the clinical development of the
company's first-generation oxygen-carrying therapeutic program, exit certain
non-strategic investments, primarily in Asia, and reorganize certain other
activities. The program is substantially complete as originally planned.
Management believes remaining reserves for exit and other reorganization
programs are adequate to complete the actions contemplated by the programs.
Future cash expenditures will be funded with cash generated from operations.
Management anticipates employee compensation and other cost savings from the
programs will be invested in R&D, new business initiatives, and expansion into
growing international markets.
Acquisition Reserves Based on plans formulated at acquisition date, reserves
have been established for certain acquisitions as part of the allocation of
purchase price. The reserves, which are further discussed in Note 3, principally
consisted of employee severance costs associated with headcount reductions at
the acquired companies, and the costs of exiting activities and terminating
distribution, lease and other contracts of the acquired companies that existed
prior to the respective dates of acquisition and either continued with no
economic benefit or required payment of a cancellation penalty. Management
believes remaining reserves are adequate to complete the actions contemplated by
the plans.
Net Litigation Charge
As further discussed in Note 12, the company recorded $29 million of income in
2000, which was principally a result of favorable adjustments to the mammary
implant insurance receivables due to settlements negotiated with certain
insurance companies during 2000. The company recorded a $178 million net
litigation charge in 1998 relating to mammary implants, plasma-based therapies
(relating to the BioScience segment) and other litigation.
Goodwill Amortization
Goodwill amortization increased in 2000 principally due to the acquisition of
NAV.
Other Income and Expense
Net interest expense declined in 2000 and 1999 due principally to the impact of
a greater mix of foreign currency denominated debt, which bears a lower average
interest rate, and to lower average debt levels. In 2000, these factors were
partially offset by the impact of increased interest rates, principally in the
United States and Europe. Management does not expect net interest expense to
change significantly in 2001.
As further discussed in Note 10, other income in 2000 consisted principally of
net gains relating to foreign currency hedging instruments, partially offset by
losses relating to the early termination of debt. Other expense in 1999
principally related to losses on disposals of nonstrategic investments and
fluctuations in currency exchange rates. Included in other income in 1998 was a
pretax gain of $20 million relating to the disposal of a nonstrategic investment
in the Medication Delivery segment.
Pretax Income
Refer to Note 13 for a summary of financial results by segment. Certain items
are maintained at the company's corporate headquarters and are not allocated to
the segments. They primarily include hedging activities, certain foreign
currency fluctuations, net interest expense, corporate headquarters costs, and
certain nonrecurring gains and losses.
<PAGE>
23
Medication Delivery Growth in pretax income of one percent and eight percent in
2000 and 1999, respectively, was primarily a result of strong sales, and the
leveraging of expenses in conjunction with recent acquisitions, partially offset
by the unfavorable impact of fluctuations in currency exchange rates in both
periods, increased pump service costs in 2000 and the termination of certain
non-core distribution agreements in 2000.
BioScience The 23 percent and eight percent growth in pretax income in 2000 and
1999, respectively, was principally driven by strong sales, improved
manufacturing efficiencies, and the leveraging and close management of marketing
and administrative expenses, partially offset by the unfavorable impact of
fluctuations in currency exchange rates and significantly increased R&D
expenditures. The impact of eased supply constraints and manufacturing capacity
expansions for Recombinate also contributed to the growth in pretax income.
Renal Pretax income declined three percent and increased 43 percent in 2000 and
1999, respectively. A significant contributor to the increase in 1999 was the
impact of the strengthening Japanese Yen. In 2000, the effect of the
strengthening Japanese Yen was more than offset by the effect of the
significantly weakening Euro. Excluding the effects of currency exchange rate
fluctuations, pretax income increased due to strong sales, partially offset by a
less favorable mix of sales and services, and higher R&D and sales and marketing
investments in the business.
Income Taxes
Excluding the 2000 charge for IPR&D and acquisition-related costs and the 1998
charges for IPR&D, exit and other reorganization costs and net litigation, along
with a related provision in 1998 for U.S. taxes on previously unremitted foreign
earnings (collectively, "special charges"), the effective income tax rate from
continuing operations was approximately 26 percent, 26 percent and 24 percent in
2000, 1999 and 1998, respectively. Management does not expect a significant
change in the effective tax rate in 2001.
Income from Continuing Operations Before Cumulative Effect of Accounting Change
and Special Charges
<TABLE>
<CAPTION>
Percent increase
------------------
years ended December 31 (in millions) 2000 1999 1998 2000 1999
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Income from continuing operations
before cumulative effect of accounting change
in 1999 and special charges in 2000 and 1998 $915 $779 $688 17% 13%
- ---------------------------------------------------------------------------------------------------------
</TABLE>
Income from continuing operations before cumulative effect of accounting change
per the consolidated statements of income was $738 million, $779 million and
$275 million in 2000, 1999 and 1998, respectively.
Earnings Per Share from Continuing Operations
Excluding the cumulative effect of an accounting change in 1999 and the special
charges in 2000 and 1998, earnings per diluted share in 2000, 1999 and 1998 were
$3.06, $2.64 and $2.38, respectively, and the growth in earnings per diluted
share was 16 percent and 11 percent in 2000 and 1999, respectively.
Discontinued Operation
As further discussed in Note 2, on March 31, 2000, Baxter stockholders of record
on March 29, 2000 received all of the outstanding stock of Edwards Lifesciences
Corporation (Edwards), the company's cardiovascular business, in a tax-free
spin-off. Income from the discontinued operation grew 60 percent in 1999, or
approximately $24 million, largely due to favorable currency exchange rate
fluctuations, principally due to the strengthening of the Japanese Yen, and an
improved mix of sales.
Change in Accounting Principle
In the first quarter of 1999, the company recorded a $27 million after-tax
charge for the cumulative effect of a change in accounting principle related to
the adoption of AICPA Statement of Position (SOP) 98-5, "Reporting on the Costs
of Start-up Activities." Excluding the initial effect of adopting this standard,
the SOP does not have a material impact on the company's results of operations.
<PAGE>
24
Liquidity and Capital Resources
Cash flows from continuing operations per the consolidated statements of cash
flows increased during 2000 principally as a result of higher earnings (before
non-cash items), decreased cash payments pertaining to the company's litigation,
a decrease in receivables and a higher liabilities balance. These increases in
cash flows were partially offset by the effect of higher inventories. Cash flows
from continuing operations increased in 1999 due principally to higher earnings,
lower inventories and lower other asset balances. These increases were partially
offset principally by higher net cash outflows relating to litigation and lower
liabilities balances. Accounts receivable balances generally increase as the
company generates sales growth in certain regions outside the United States,
which have longer collection periods. As further discussed in Note 6, cash flows
benefited from the sales of certain trade accounts receivable whereby the
company realized net cash inflows of $195 million, $65 million and $150 million
in 2000, 1999 and 1998, respectively. Such receivables were sold to reduce the
overall costs of financing the receivables.
Cash flows related to the discontinued operation decreased in 2000 due to
the effect of the spin-off of Edwards on March 31, 2000.
Cash outflows from investing activities increased in 2000 and decreased in
1999. Capital expenditures (including additions to the pool of equipment leased
or rented to customers) increased three and 13 percent in 2000 and 1999,
respectively, as the company increased its investments in various capital
projects across all three segments. The growth in capital expenditures
principally reflected increases in manufacturing capacity in the BioScience
segment, and, in 1999, to the implementation of a new integrated operational
system. Capital expenditures are made at a sufficient level to support the
strategic and operating needs of the businesses. Management expects to invest
between $600 million and $700 million in capital expenditures in 2001.
Net cash outflows relating to acquisitions increased in 2000 and decreased
in 1999. In 2000, net cash outflows relating to acquisitions included
approximately $55 million related to the acquisition of Althin and approximately
$63 million related to the acquisition of NAV. As further discussed in Note 3, a
portion of the purchase price for both of these acquisitions was paid in Baxter
International Inc. common stock. Approximately $131 million of the total
outflows in 2000 related to several acquisitions and investments in the
Medication Delivery segment, principally the acquisition of a domestic
ambulatory and infusion pump business and a contingent purchase price payment
associated with the 1998 acquisition of a domestic manufacturer of inhalants and
drugs used for general and local anesthesia. Approximately $15 million of the
company's net cash outflows relating to acquisitions in 2000 related to the
acquisition of dialysis centers in international markets. In 1999, net cash
outflows relating to acquisitions included approximately $36 million for a
contingent purchase price payment pertaining to the 1997 acquisition of Immuno
International AG. Approximately $22 million of the 1999 total related to
acquisitions of dialysis centers in international markets and approximately $88
million related to the acquisition of a nutrition and fluid therapy business in
Europe. In 1998, net cash outflows relating to acquisitions included
approximately $142 million pertaining to the acquisition of Bieffe Medital
S.p.A., a manufacturer of dialysis and intravenous solutions and containers,
approximately $94 million related to an acquisition of a domestic manufacturer
of inhalants and drugs used for general and local anesthesia, and the remainder
primarily related to acquisitions of dialysis centers in international markets.
Refer to Note 3 for further information regarding significant acquisitions.
The cash flows relating to divestitures and other asset dispositions in
2000 principally related to the spin-off of Edwards on March 31, 2000. In 1999,
the company generated approximately $30 million of cash relating to a prior year
divestiture in the BioScience segment and approximately $42 million of cash
relating to the sale and leaseback of certain assets.
Cash flows from financing activities increased in 2000 and decreased in
1999. Common stock dividends decreased in 2000 due to the company's change from
a quarterly to an annual dividend payout schedule effective at the beginning of
the year, and increased in 1999 due to a higher number of shares outstanding. As
further discussed in Note 8, included in total outflows in 1999 was $198 million
in cash inflows relating to the Shared Investment Plan. Cash received for stock
issued under employee benefit plans increased in 2000 and 1999 primarily due to
a higher level of employee stock option exercises, coupled with a higher average
stock option exercise price. A portion of the increase in 2000 was due to
required exercises of stock options by employees transferring to Edwards as a
result of the March 31, 2000 spin-off of that business, as well as to increased
stock purchases by employees. Purchases of treasury stock increased in both 2000
and 1999, as more shares were purchased at higher market prices.
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.
Management uses an internal performance measure called operational cash flow
that evaluates each operating business and geographic region on all aspects of
cash flow under its direct control. Operational cash flow, as defined, reflects
all litigation payments and related insurance recoveries except for those
payments and recoveries relating to mammary implants, which the company never
manufactured or sold. The company expects to generate more than $500 million in
operational cash flow in 2001.
<PAGE>
25
The following table reconciles cash flows from continuing operations, as
determined by generally accepted accounting principles (GAAP), to operational
cash flow, which is not a measure defined by GAAP:
<TABLE>
<CAPTION>
Brackets denote cash outflows
years ended December 31 (in millions) 2000 1999 1998
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from continuing operations per the $1,233 $977 $837
company's consolidated statements of cash flows
Capital expenditures (648) (631) (556)
Net interest after tax 51 52 74
Other (48) 190 24
- --------------------------------------------------------------------------------------------------
Operational cash flow-continuing operations $ 588 $588 $379
============================
</TABLE>
The company's net-debt-to-capital ratio was 40.1 percent and 40.2 percent at
December 31, 2000 and 1999, respectively. In order to better match the currency
denomination of its assets and liabilities, the company rebalanced certain of
its debt during 2000. The company acquired approximately $878 million of its
U.S. Dollar denominated debt securities during 2000 and increased its non-U.S.
Dollar denominated debt. During 1998, a wholly-owned subsidiary of the company
entered into an $800 million revolving credit facility. Due to the subsidiary's
covenants under the facility, certain assets are restricted to the parent
company. Refer to Note 5 for further information regarding the company's credit
facilities, long-term debt and lease obligations, and related restrictions and
covenants.
As authorized by the board of directors, the company repurchases its stock
to optimize its capital structure depending upon its operational cash flows, net
debt level and current market conditions. In November 1995, the company's board
of directors authorized the repurchase of up to $500 million of common stock
over a period of several years, all of which was repurchased by early 2000. In
November 1999, the board of directors authorized the repurchase of an additional
$500 million over a period of several years, of which approximately two-thirds
has been repurchased as of December 31, 2000.
As of December 31, 2000, the company can issue up to $550 million in
aggregate principal amount of additional senior unsecured debt securities under
effective registration statements filed with the Securities and Exchange
Commission. The company's debt ratings on senior debt are A3 by Moody's, A by
Standard & Poor's and A by Duff & Phelps. 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. The company believes it has lines of credit
adequate to support ongoing operational requirements. Beyond that, the company
believes it has sufficient financial flexibility to attract long-term capital on
acceptable terms as may be needed to support its growth objectives.
In November 2000, the board of directors declared an annual dividend on the
company's common stock of $1.164 per share. The dividend, which was payable on
January 8, 2001 to stockholders of record as of December 15, 2000, is a
continuation of the current annual rate.
Euro Conversion
On January 1, 1999, certain member countries of the European Union introduced a
new currency called the "Euro." The conversion rates between the Euro and the
participating nations' currencies were fixed irrevocably as of January 1, 1999.
Prior to full implementation of the new currency on January 1, 2002, there is a
transition period during which parties may use either the existing currencies or
the Euro for financial transactions.
Action plans are currently being implemented which are expected to result
in compliance with all laws and regulations relating to the Euro conversion.
Management expects that the adaptation of its information technology and other
systems to accommodate Euro-denominated transactions as well as the requirements
of the transition period will not have a material impact on the company's
results of operations or financial condition. The company is also addressing the
impact of the Euro on currency exchange-rate risk, taxation, contracts,
competition and pricing. While it is not possible to accurately predict the
impact the Euro will have on the company's business, management does not
anticipate that the Euro conversion will have a material adverse impact on the
company's results of operations or financial condition.
<PAGE>
26
Financial Instrument Market Risk
The company's business and financial results are affected by fluctuations in
world financial markets, including currency exchange rates and interest rates.
The company's hedging policy attempts to manage these risks to an acceptable
level based on management's judgment of the appropriate trade-off between risk,
opportunity and costs. In hedging its currency and interest rate risks, the
company utilizes primarily forward contracts, options and swaps. The company
does not hold financial instruments for trading or speculative purposes. Refer
to Note 6 for further information regarding the company's financial instruments.
Currency Risk The company operates on a global basis and is exposed to the risk
that its earnings, cash flows and equity could be adversely impacted by
fluctuations in currency exchange rates. The company is primarily exposed to
currency exchange-rate risk with respect to its transactions and net assets
denominated in Japanese Yen, Euro, British Pound and Swiss Franc. The company
manages its foreign currency exposures and capital structure on a consolidated
basis, which allows the company to net exposures and take advantage of any
natural offsets. The company also utilizes derivative financial instruments to
further reduce the net exposure to currency fluctuations. The company
principally enters into foreign currency option and forward agreements to hedge
firm commitments and anticipated but not yet committed sales expected to be
denominated in foreign currencies. The company enters into foreign currency
forward agreements to hedge certain receivables and payables denominated in
foreign currencies. The company also hedges certain of its net investments in
international affiliates principally using cross-currency swap agreements.
As part of its risk-management program, the company performs sensitivity
analyses to assess potential changes in fair value relating to hypothetical
movements in currency exchange rates. A sensitivity analysis of changes in the
fair value of foreign exchange option and forward contracts outstanding at
December 31, 2000 indicated that, if the U.S. Dollar uniformly fluctuated
unfavorably by 10 percent against all currencies, the fair value of those
contracts would decrease by $20 million. A similar analysis performed with
respect to option and forward contracts outstanding at December 31, 1999
indicated that the fair value of such contracts would decrease by $16 million.
With respect to the company's cross-currency swap agreements, if the U.S. Dollar
uniformly weakened by 10 percent, the fair value of the contracts would decrease
by $83 million and $295 million as of December 31, 2000 and 1999, respectively.
Any increase or decrease in the fair value of cross-currency swap agreements as
a result of fluctuations in currency exchange rates is offset almost completely
by the change in the value of the hedged net investments in foreign affiliates.
The amount above for 2000 is less than that for 1999 due to the significantly
lower notional amount of cross-currency swap agreements outstanding at December
31, 2000 as compared to the prior year-end. These sensitivity analyses disregard
the possibility that currency exchange rates can move in opposite directions and
that gains from one currency may or may not be offset by losses from another
currency.
Interest Rate Risk As part of its risk-management program, the company performs
sensitivity analyses to assess potential gains and losses in earnings relating
to hypothetical movements in interest rates. A 44 basis-point increase in
interest rates (approximately 10 percent of the company's weighted-average
interest rate) affecting the company's financial instruments, including debt
obligations and related derivatives, and investments, would have an immaterial
effect on the company's 2000 and 1999 earnings and on the fair value of the
company's fixed-rate financial instruments as of the end of such fiscal years.
As discussed in Note 6, the fair values of the company's long-term
litigation liabilities and related insurance receivables were computed by
discounting the expected cash flows based on currently available information. A
10 percent movement in the assumed discount rate would have an immaterial effect
on the fair values of those assets and liabilities.
Other Risks With respect to the company's unconsolidated investments, management
believes any reasonably possible near-term losses in earnings, cash flows and
fair values would not be material to the company's consolidated financial
position.
<PAGE>
27
Legal Proceedings
See Note 12 for a discussion of the company's legal contingencies and related
insurance coverage with respect to cases and claims relating to the company's
plasma-based therapies and mammary implants, as well as other matters. Upon
resolution of any of these uncertainties, the company may incur charges in
excess of presently established reserves. While such a future charge could have
a material adverse effect on the company's net income or cash flows in the
period in which it is recorded or paid, based on the advice of counsel,
management believes that any outcome of these actions, individually or in the
aggregate, will not have a material adverse effect on the company's consolidated
financial position.
Based on the company's assessment of the costs associated with its
environmental responsibilities, including recurring administrative costs,
capital expenditures and other compliance costs, such costs have not had, and in
management's opinion, will not have in the foreseeable future, a material effect
on the company's financial position, results of operations, cash flows or
competitive position.
New Accounting and Disclosure Standards
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities," as amended by SFAS No. 137, "Accounting for
Derivative Instruments and Hedging Activities--Deferral of the Effective Date of
FASB Statement No. 133" and SFAS No. 138, "Accounting for Certain Hedging
Activities" (collectively, SFAS No. 133), is effective for the company as of
January 1, 2001. SFAS No. 133 requires that a company recognize all derivatives
as assets or liabilities measured at fair value. The accounting for changes in
the fair value of a derivative depends on the use of the derivative. Adoption of
SFAS No. 133 will result in a cumulative after-tax reduction in net income of
approximately $52 million and a cumulative after-tax increase in other
comprehensive income of approximately $8 million, both of which will be recorded
at the beginning of fiscal year 2001. The ongoing impact of SFAS No. 133 is not
expected to be material. SFAS No. 140, "Accounting for Transfers and Servicing
of Financial Assets and Extinguishments of Liabilities"
(SFAS No. 140) was issued in September 2000 and is effective for transfers,
servicings and extinguishments occurring after March 31, 2001. SFAS No. 140
replaces SFAS No. 125, "Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities" (SFAS No. 125). Although SFAS No. 140
clarifies or amends various aspects of SFAS No. 125, most of the fundamental
concepts from SFAS No. 125 have been brought forward without modification. SFAS
No. 140 is not expected to have a material impact on the company's consolidated
financial statements.
<PAGE>
28
Management's Responsibilities for Financial Reporting
The accompanying financial statements and other financial data have been
prepared by management, which is responsible for their integrity and
objectivity. The statements have been prepared in conformity with accounting
principles generally accepted in the United States and include amounts that are
based upon management's best estimates and judgments.
Management is responsible for establishing and maintaining a system of
internal control over financial reporting and safeguarding assets against
unauthorized acquisition, use or disposition. This system is designed to provide
reasonable assurance as to the integrity and reliability of financial reporting
and safeguarding of assets. The concept of reasonable assurance is based on the
recognition that there are inherent limitations in all systems of internal
control, and that the cost of such systems should not exceed the benefits to be
derived from them.
Management believes that the foundation of an appropriate system of internal
control is a strong ethical company culture and climate. The Corporate
Responsibility Office, which reports to the Public Policy Committee of the board
of directors, is responsible for developing and communicating appropriate
business practices, policies and initiatives; maintaining independent channels
of communication for providing guidance and reporting potential business
practice violations; and monitoring compliance with the company's business
practices, including annual compliance certifications by senior managers
worldwide. Additionally, a professional staff of corporate auditors reviews the
design of the related internal control system and the accounting policies and
procedures supporting this system and compliance with them. The results of these
reviews are reported at least annually to the Public Policy and/or Audit
Committees of the board of directors.
PricewaterhouseCoopers LLP performs audits, in accordance with generally
accepted auditing standards, which include a review of the system of internal
controls and result in assurance that the financial statements are, in all
material respects, fairly presented.
The board of directors, through its Audit Committee comprised solely of non-
employee directors, is responsible for overseeing the integrity and reliability
of the company's accounting and financial reporting practices and the
effectiveness of its system of internal controls. PricewaterhouseCoopers LLP and
the corporate auditors meet regularly with, and have access to, this committee,
with and without management present, to discuss the results of the audit work.
/s/ Harry M. Jansen Kraemer, Jr. /s/ Brian P. Anderson
Harry M. Jansen Kraemer, Jr. Brian P. Anderson
Chairman and Chief Senior Vice President and
Executive Officer Chief Financial Officer
Report of Independent Accountants
To the Board of Directors and Stockholders of Baxter International Inc.:
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, cash flows and stockholders' equity and
comprehensive income present fairly, in all material respects, the financial
position of Baxter International Inc. (the company) and its subsidiaries at
December 31, 2000 and 1999, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 2000, in
conformity with accounting principles generally accepted in the United States of
America. These financial statements are the responsibility of the company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with auditing standards generally accepted in the United States of
America, which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Chicago, Illinois
February 16, 2001, except for Note 14,
which is as of February 28, 2001
<PAGE>
29
Consolidated Balance Sheets
<TABLE>
<CAPTION>
as of December 31 (in millions, except share information) 2000 1999
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current Assets Cash and equivalents $ 579 $ 606
Accounts receivable 1,387 1,504
Notes and other current receivables 155 148
Inventories 1,159 1,116
Short-term deferred income taxes 159 216
Prepaid expenses 212 229
-----------------------------------------------------------------------------------
Total current assets 3,651 3,819
- ------------------------------------------------------------------------------------------------------------------------
Property, Plant and Equipment, Net 2,807 2,650
- ------------------------------------------------------------------------------------------------------------------------
Other Assets Net assets of discontiued operation - 1,231
Goodwill and other intangible assets 1,239 921
Insurance receivables 160 301
Other 876 722
-----------------------------------------------------------------------------------
Total other assets 2,275 3,175
-----------------------------------------------------------------------------------
Total assets $ 8,733 $ 9,644
========================================================================================================================
Current Liabilities Short-term $ 576 $ 125
Current maturities of long-term debt and
lease obligations 58 130
Accounts payable and accrued liabilities 1,990 1,805
Income taxes payable 748 640
-----------------------------------------------------------------------------------
Total current liabilities 3,372 2,700
- ------------------------------------------------------------------------------------------------------------------------
Long-Term Debt and Lease Obligations 1,726 2,601
- ------------------------------------------------------------------------------------------------------------------------
Long-Term Deferred Income Taxes 160 311
- ------------------------------------------------------------------------------------------------------------------------
Long-Term Litigation Liabilities 184 273
- ------------------------------------------------------------------------------------------------------------------------
Other Long-Term Liabilities 632 411
- ------------------------------------------------------------------------------------------------------------------------
Commitments and Contingencies
- ------------------------------------------------------------------------------------------------------------------------
Stockholders' Equity Common stock, $1 par value, authorized
350,000,000 shares, issued 298,133,251 shares
in 2000 and 294,363,251 shares in 1999 298 294
Common stock in treasury, at cost,
4,953,062 shares in 2000 and
4,163,737 shares in 1999 (349) (269)
Additional contributed capital 2,506 2,282
Retained earnings 853 1,415
Accumulated other comprehensive loss (649) (374)
-----------------------------------------------------------------------------------
Total stockholders' equity 2,659 3,348
-----------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 8,733 $ 9,644
========================================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
30
Consolidated Statements of Income
<TABLE>
<CAPTION>
years ended December 31 (in millions, except per share data) 2000 1999 1998
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operations Net sales $ 6,896 $ 6,380 $ 5,706
Costs and expenses
Cost of goods sold 3,833 3,568 3,142
Marketing and administrative expenses 1,385 1,311 1,208
Research and development expenses 379 332 323
In-process research and development
and acquisition-related costs 286 - 116
Exit and other reorganization costs - - 122
Net litigation (income) costs (29) - 178
Goodwill amortization 31 19 18
-------------------------------------------------------------------------
Operating income 1,011 1,150 599
-------------------------------------------------------------------------
Interest expense, net 85 87 124
Other (income) expense (20) 11 (18)
-------------------------------------------------------------------------
Income from continuing operations
before income taxes and cumulative
effect of accounting change 946 1,052 493
Income tax expense 208 273 218
-------------------------------------------------------------------------
Income from continuing operations before
cumulative effect of accounting change 738 779 275
Discontinued operation 2 45 40
-------------------------------------------------------------------------
Income before cumulative effect
of accounting change 740 824 315
Cumulative effect of accounting change,
net of income tax benefit of $7 - (27) -
-------------------------------------------------------------------------
Net income $ 740 $ 797 $ 315
==========================================================================================
Per Share Data Earnings per basic common share
Continuing operations $ 2.52 $ 2.69 $ 0.97
Discontinued operation 0.01 0.15 0.14
Cumulative effect of accounting change - (0.09) -
-------------------------------------------------------------------------
Net income $ 2.53 $ 2.75 $ 1.11
-------------------------------------------------------------------------
Earnings per diluted common share
Continuing operations $ 2.47 $ 2.64 $ 0.95
Discontinued operation 0.01 0.15 0.14
Cumulative effect of accounting change - (0.09) -
-------------------------------------------------------------------------
Net income $ 2.48 $ 2.70 $ 1.09
-------------------------------------------------------------------------
Weighted average number of
common shares outstanding
Basic 292 290 284
Diluted 299 295 289
==========================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
31
<TABLE>
<CAPTION>
Consolidated Statements of Cash Flows
as of or for the years ended December 31 (in millions) (brackets denote cash outflows) 2000 1999 1998
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows from Operations Income from continuing operations before
cumulative effect of accounting change $ 738 $ 779 $ 275
Adjustments
Depreciation and amortization 405 372 344
Deferred income taxes (170) 92 (56)
Loss (gain) on asset dispositions 6 13 (23)
In-process research and development
and acquisition-related costs 286 - 116
Exit and other reorganization costs - - 122
Net litigation (income) charge (29) - 178
Other 55 20 2
Changes in balance sheet items
Accounts receivable 54 103) (153)
Inventories (114) 17 (79)
Accounts payable and accrued liabilities 60 30 165
Net litigation payments and other (58) (243) (54)
---------------------------------------------------------------------------------
Cash flows from continuing operations 1,233 977 837
---------------------------------------------------------------------------------
Cash flows from discontinued operation (19) 106 102
---------------------------------------------------------------------------------
Cash flows from operations 1,214 1,083 939
- -----------------------------------------------------------------------------------------------------------------------
Cash Flows from Investing Activities Capital expenditures (547) (529) (461)
Additions to the pool of equipment leased
or rented to customers (101) (102) (95)
Acquisitions (net of cash received)
and investments in affiliates (345) (179) (319)
Divestitures and other asset dispositions (60) 75 3
---------------------------------------------------------------------------------
Cash flows from investing activities (1,053) (735) (872)
- -----------------------------------------------------------------------------------------------------------------------
Cash Flows from Financing Activities Issuances of debt obligations 1,180 764 1,143
Redemption of debt obligations (1,953) (481) (598)
Increase (decrease) in debt with
maturities of three months or less, net 879 (552) (159)
Common stock cash dividends (84) (338) (331)
Stock issued under Shared Investment Plan - 198 -
Stock issued under employee benefit plans 233 148 118
Purchases of treasury stock (375) (184) -
---------------------------------------------------------------------------------
Cash flows from financing activities (120) (445) 173
- -----------------------------------------------------------------------------------------------------------------------
Effect of Foreign Exchange Rate Changes on Cash and Equivalents (68) (6) 4
- -----------------------------------------------------------------------------------------------------------------------
Increase (Decrease) in Cash and Equivalents (27) (103) 244
- -----------------------------------------------------------------------------------------------------------------------
Cash and Equivalents at Beginning of Year 606 709 465
- -----------------------------------------------------------------------------------------------------------------------
Cash and Equivalents at End of year $ 579 $ 606 $ 709
- -----------------------------------------------------------------------------------------------------------------------
Supplemental information:
Interest paid, net of portion capitalized $ 110 $ 150 $ 191
Income taxes paid $ 279 $ 197 $ 143
=======================================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
<PAGE>
32
Consolidated Statements of Stockholders' Equity and Comprehensive Income
<TABLE>
<CAPTION>
years ended December 31 (in millions) 2000 1999 1998
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common Stock $ 294 $ 291 $ 288
Beginning of year
Common stock issued for acquisitions 4 -- 3
Stock issued under Shared Investment Plan -- 3 --
- ----------------------------------------------------------------------------------------------------------------------------
End of year 298 294 291
- ----------------------------------------------------------------------------------------------------------------------------
Common Stock in Treasury
Beginning of year (269) (210) (329)
Common stock issued for acquisitions 47 -- --
Purchase of common stock (375) (184) --
Common stock issued under employee benefit plans 248 125 119
- ----------------------------------------------------------------------------------------------------------------------------
End of year (349) (269) (210)
- ----------------------------------------------------------------------------------------------------------------------------
Additional Contributed Capital
Beginning of year 2,282 2,064 1,876
Common stock issued for acquisitions 239 -- 189
Stock issued under Shared Investment Plan -- 195 --
Common stock issued under employee benefit plans (15) 23 (1)
- ----------------------------------------------------------------------------------------------------------------------------
End of year 2,506 2,282 2,064
- ----------------------------------------------------------------------------------------------------------------------------
Retained Earnings
Beginning of year 1,415 990 1,006
Net income 740 797 315
Elimination of reporting lag for certain international operations -- (34) --
Common stock cash dividends (341) (338) (331)
Distribution of Edwards Lifesciences Corporation common stock to stockholders (961) -- --
- ----------------------------------------------------------------------------------------------------------------------------
End of year 853 1,415 990
- ----------------------------------------------------------------------------------------------------------------------------
Accumulated Other Comprehensive Loss
Beginning of year (374) (296) (222)
Other comprehensive loss (275) (78) (74)
- ----------------------------------------------------------------------------------------------------------------------------
End of year (649) (374) (296)
- ----------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity $ 2,659 $ 3,348 $ 2,839
============================================================================================================================
Comprehensive Income
Net income $ 740 $ 797 $ 315
Currency translation adjustments, net of tax expense (benefit)
of $82 in 2000, $87 in 1999 and $(56) in 1998 (297) (80) (75)
Unrealized net gain on marketable equity securities, net of tax
of $15 in 2000, $1 in 1999 and $1 in 1998 22 2 1
- ----------------------------------------------------------------------------------------------------------------------------
Other comprehensive loss (275) (78) (74)
Elimination of reporting lag for certain international
operations, net of tax benefit of $22 -- (34) --
- ----------------------------------------------------------------------------------------------------------------------------
Total comprehensive income $ 465 $ 685 $ 241
============================================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
33
Notes to Consolidated Financial Statements
1 Summary of Significant Accounting Policies
Financial statement presentation
The preparation of the financial statements in conformity with generally
accepted accounting principles (GAAP) requires management to make estimates and
assumptions that affect reported amounts and related disclosures. Actual results
could differ from those estimates.
Basis of consolidation
The consolidated financial statements include the accounts of Baxter
International Inc. and its majority-owned, controlled subsidiaries (Baxter or
the company). Effective in the first quarter of 1999 and in conjunction with the
implementation of new financial systems, the company eliminated the one-month
lag in reporting certain international operations to facilitate more timely
consolidation. The December 1998 net loss of $34 million for these operations
was recorded directly to retained earnings in the first fiscal quarter of 1999.
Effective in the first quarter of 2001, the one-month lag was eliminated for the
remaining international operations.
Foreign currency translation
The results of operations for non-U.S. subsidiaries, other than those located in
highly inflationary countries, are translated into U.S. dollars using the
average exchange rates during the year, while assets and liabilities are
translated using period-end rates. Resulting translation adjustments are
recorded as currency translation adjustments within other comprehensive income.
Where foreign affiliates operate in highly inflationary economies, non-monetary
amounts are remeasured at historical exchange rates while monetary assets and
liabilities are remeasured at the current rate with the related adjustments
reflected in the consolidated statements of income.
Revenue recognition
The company's policy is to recognize revenues from product sales and services
when earned, as defined by GAAP, and in accordance with SEC Staff Accounting
Bulletin No. 101. Revenue is recognized when persuasive evidence of the
arrangement exists, delivery has occurred or services have been rendered, the
price is fixed or determinable, and collectibility is reasonably assured. For
product sales, revenue is not recognized until title and risk of loss have
transferred. Prior to revenue recognition, the company substantially completes
the terms specified in the arrangement, and any remaining obligations are
inconsequential or perfunctory. Provisions for discounts, rebates to customers,
and returns are provided for at the time the related sales are recorded, and are
classified as adjustments to sales.
Warranty expense
The company provides for the estimated costs that may be incurred under its
warranty programs at the time revenue is recognized.
Inventories
as of December 31 (in millions) 2000 1999
- -----------------------------------------------------------------------
Raw materials $ 261 $ 251
Work in process 174 193
Finished products 724 672
- -----------------------------------------------------------------------
Total inventories $ 1,159 $ 1,116
==========================
Inventories are stated at the lower of cost (first-in, first-out method) or
market value. Market value for raw materials is based on replacement costs and,
for other inventory classifications, on net realizable value. Reserves for
excess and obsolete inventory were $110 million and $78 million at December 31,
2000 and 1999, respectively.
Property, plant and equipment
as of December 31 (in millions) 2000 1999
- -------------------------------------------------------------------------
Land $ 113 $ 93
Buildings and leasehold improvements 967 987
Machinery and equipment 2,822 2,615
Equipment with customers 484 489
Construction in progress 592 525
- -------------------------------------------------------------------------
Total property, plant and equipment, at cost 4,978 4,709
Accumulated depreciation and amortization (2,171) (2,059)
- -------------------------------------------------------------------------
Property, plant and equipment, net $ 2,807 $ 2,650
========================
Depreciation and amortization are principally calculated on the straight-line
method over the estimated useful lives of the related assets, which range from
20 to 50 years for buildings and improvements and from three to 15 years for
machinery and equipment. Leasehold improvements are amortized over the life of
the related facility lease or the asset, whichever is shorter. Straight-line and
accelerated methods of depreciation are used for income tax purposes.
Accumulated amortization for assets under capital lease was $11 million and $10
million at December 31, 2000 and 1999, respectively. Depreciation expense was
$308 million, $290 million and $269 million in 2000, 1999 and 1998,
respectively. Repairs and maintenance expense was $105 million, $97 million and
$93 million in 2000, 1999 and 1998, respectively.
<PAGE>
34
Goodwill and other intangible assets
as of December 31 (in millions) 2000 1999
- ------------------------------------------------------------------
Goodwill $1,094 $ 737
Accumulated amortization (138) (113)
- ------------------------------------------------------------------
Net goodwill 956 624
- ------------------------------------------------------------------
Other intangible assets 701 677
Accumulated amortization (418) (380)
- ------------------------------------------------------------------
Net other intangible assets 283 297
- ------------------------------------------------------------------
Goodwill and other intangible assets $1,239 $ 921
===================
Intangible assets are amortized on a straight-line basis. Goodwill is amortized
over estimated useful lives ranging from 15 to 40 years; other intangible
assets, consisting of purchased patents, trademarks and other identified rights,
are amortized over their legal or estimated useful lives, whichever is shorter
(generally not exceeding 17 years). The company's policy is to review the
carrying amounts of goodwill and other intangibles whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Such events or circumstances might include a significant decline in
market share, a significant decline in profits, rapid changes in technology,
significant litigation or other items. In evaluating the recoverability of
goodwill and other intangible assets, management's policy is to compare the
carrying amounts of such assets with the estimated undiscounted future operating
cash flows. In the event impairment exists, an impairment charge would be
determined by comparing the carrying amounts of the asset to the applicable
estimated future cash flows, discounted at a risk-adjusted interest rate. In
addition, the remaining amortization period for the impaired asset would be
reassessed and revised if necessary. Management does not believe the carrying
amounts of goodwill and other intangible assets are impaired at December 31,
2000.
Earnings per share (EPS)
The numerator for both basic and diluted EPS is net earnings available to common
shareholders. The denominator for basic EPS is the weighted-average number of
common shares outstanding during the period. The following is a reconciliation
of the shares (denominator) of the basic and diluted per-share computations.
years ended December 31
(in million of shares) 2000 1999 1998
- ------------------------------------------------------------------------
Basic 292 290 284
Effect of dilutive securities
Employee stock options 6 4 5
Employee stock purchase plans
and equity forward agreements 1 1 -
- ------------------------------------------------------------------------
Diluted 299 295 289
======================
Comprehensive income
Comprehensive income encompasses all changes in stockholders' equity other than
those arising from stockholders, and generally consists of net income, currency
translation adjustments and unrealized net gains and losses on marketable equity
securities. Accumulated currency translation adjustments were ($674) million and
($377) million at December 31, 2000 and 1999, respectively. Accumulated
unrealized net gains on unrestricted marketable equity securities were $25
million and $3 million at December 31, 2000 and 1999, respectively.
Start-up costs
Effective at the beginning of 1999, the company adopted AICPA Statement of
Position (SOP) 98-5, "Reporting on the Costs of Start-up Activities." This SOP
required that the costs of start-up and organization activities previously
capitalized be expensed and reported as a cumulative effect of a change in
accounting principle and that such costs subsequent to adoption be expensed as
incurred. The after-tax cumulative effect of this accounting change was $27
million.
Derivatives
Gains and losses relating to foreign currency purchased options and forward
agreements that are designated and effective as hedges of firm commitments and
anticipated transactions are deferred and recognized in income as offsets of
gains and losses resulting from the underlying hedged items. Purchased option
premiums are deferred and recognized in income to the extent considered
effective. Premiums and discounts related to forward agreements are capitalized
and amortized over the period of the underlying agreement. Deferred amounts are
classified in inventories. Gains, losses and option premiums relating to foreign
currency derivative instruments not qualifying as hedges for accounting purposes
are recognized in income immediately. Such instruments are classified in
accounts payable and accrued liabilities. Gains, losses relating to terminations
of qualifying hedges are generally deferred and recognized consistent with the
income or loss recognition of the underlying hedged items. In circumstances
where the underlying hedged items are sold or no longer exist, any remaining
gains or losses are recognized immediately in income. The effective portions of
gains and losses on hedges of net investments in foreign affiliates are reported
as currency translation adjustments in stockholders' equity. The interest rate
differentials relating to interest rate swaps used to hedge debt obligations and
cross-currency swap contracts used to hedge net investments in foreign
affiliates are reflected as an adjustment to interest expense over the lives of
the financial instruments. Gains or losses relating to terminations of cross-
currency swap contracts used to hedge net investments in foreign affiliates are
recognized immediately and recorded in other income or expense. Instruments that
are indexed to and potentially settled in the company's stock are accounted for
in accordance with Emerging Issues Task Force Issue Nos. 00-7 and 00-19. Cash
flows from derivatives are classified in the same category as the cash flows
from the related hedged activity.
<PAGE>
35
Cash and equivalents
Cash and equivalents include cash, certificates of deposit and marketable
securities with an original maturity of three months or less.
Shipping and handling costs
Shipping and handling costs are classified in either cost of goods sold or
marketing and administrative expenses based on their nature. Approximately $200
million of shipping and handling costs were classified in marketing and
administrative expenses in each of 2000, 1999 and 1998.
Reclassifications
Certain reclassifications have been made to conform the 1999 and 1998 financial
statements and notes to the 2000 presentation.
New accounting pronouncements
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities," as amended by SFAS No. 137, "Accounting for
Derivative Instruments and Hedging Activities--Deferral of the Effective Date of
FASB Statement No. 133" and SFAS No. 138, "Accounting for Certain Hedging
Activities" (collectively, SFAS No. 133), is effective for the company as of
January 1, 2001. SFAS No. 133 requires that a company recognize all derivatives
as assets or liabilities measured at fair value. The accounting for changes in
the fair value of a derivative depends on the use of the derivative. Adoption of
SFAS No. 133 will result in a cumulative after-tax reduction in net income of
approximately $52 million and a cumulative after-tax increase in other
comprehensive income of approximately $8 million, both of which will be recorded
at the beginning of fiscal year 2001. The ongoing impact of SFAS No. 133 is not
expected to be material.
SFAS No. 140, "Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities" (SFAS No. 140) was issued in September 2000
and is effective for transfers, servicings and extinguishments occurring after
March 31, 2001. SFAS No. 140 replaces SFAS No. 125, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities" (SFAS No.
125). Although SFAS No. 140 clarifies or amends various aspects of SFAS No. 125,
most of the fundamental concepts from SFAS No. 125 have been brought forward
without modification. SFAS No. 140 is not expected to have a material impact on
the company's consolidated financial statements.
2 Discontinued Operation
On March 31, 2000, Baxter stockholders of record on March 29, 2000, received all
of the outstanding stock of Edwards Lifesciences Corporation (Edwards), the
company's cardiovascular business, in a tax-free spin-off. The company's
consolidated financial statements and related notes have been adjusted and
restated to reflect the financial position, results of operations and cash flows
of Edwards as a discontinued operation.
In 2000, 1999 and 1998, the company recorded income from the discontinued
operation of $14 million, $64 million and $40 million, respectively, which was
net of income tax expense of $5 million, $19 million and $16 million,
respectively. In addition, in 2000 and 1999 the company recorded $12 million
(including tax of $6 million) and $19 million, respectively, of net costs
directly associated with effecting the business distribution. The impact of
these costs on basic earnings per share was $.04 and $.07 in 2000 and 1999,
respectively, and the impact on diluted earnings per share was $.04 and $.06 in
2000 and 1999, respectively. Net sales of the discontinued operation were $906
million in 1999, $893 million in 1998, and $252 million for the three-month
period ended March 31, 2000.
Through the issuance of new third-party debt, approximately $502 million of
Baxter's debt was indirectly assumed by Edwards upon spin-off. The distribution
of Edwards stock totaled $961 million.
The cardiovascular business in Japan was not transferred to Edwards at the
time of distribution due to Japanese regulatory requirements and business
culture considerations. The business is operated pursuant to a contractual joint
venture under which a Japanese subsidiary of Baxter retains ownership of the
business assets, but a subsidiary of Edwards holds a 90 percent profit interest.
Edwards has an option to purchase the Japanese assets, which option may be
exercised no earlier than 28 months following the spin-off date and no later
than 60 months following the spin-off date. The exercise price of the option is
approximately 26.4 billion Japanese Yen, of which Edwards would obtain
approximately 23.2 billion Japanese Yen upon termination of the joint venture
for the return of its fair value in the joint venture at inception. Included in
Baxter's consolidated balance sheet at December 31, 2000 was a $203 million
liability relating to this contractual joint venture, which was established in
connection with the accounting for the spin-off of Edwards.
3 Acquisitions and Divestitures
Accounting for acquisitions
All acquisitions during the three years ended December 31, 2000 were accounted
for under the purchase method. Results of operations of acquired companies are
included in the company's results of operations as of the respective acquisition
dates. The purchase price of each acquisition was allocated to the net assets
acquired based on estimates of their fair values at the date of the acquisition.
The excess of the purchase price over the fair values of the net tangible
assets, identifiable intangible assets and liabilities acquired was allocated to
goodwill. As further discussed below, a portion of the purchase price for
certain of the acquisitions was allocated to in-process research and development
(IPR&D) which, under GAAP, was immediately expensed.
<PAGE>
36
Significant acquisitions
The following is a summary of the company's significant recent acquisitions
along with the allocation of the purchase price to IPR&D and intangible assets.
Acquisition Purchase Intangible assets
-----------------
(in millions) date price IPR&D Goodwill Other
- -----------------------------------------------------------------------------
North American June
Vaccine, Inc. 2000 $328 $250 $245 $10
May
Somatogen, Inc. 1998 206 116 2 3
December
Bieffe Medital S.p.A. 1997 188 - 124 15
=============================================================================
North American Vaccine, Inc. (NAV) was engaged in the research, development,
production and sales of vaccines for the prevention of human infectious
diseases. Somatogen, Inc. (Somatogen) was a developer of recombinant
hemoglobin-based technology, and no revenue had ever been generated from
commercial product sales. Somatogen shareholders are entitled to a contingent
deferred cash payment of up to $2.00 per Somatogen share, or approximately $42
million, based on a percentage of sales of future products through the year
2007. The acquisitions of NAV and Somatogen are included in the BioScience
segment. Bieffe Medital S.p.A. (Bieffe), which was a manufacturer of dialysis
and intravenous solutions and containers, is included in both the Renal and the
Medication Delivery segments. The purchase prices of NAV and Somatogen were
principally paid in approximately 3,770,000 and 3,547,000 shares, respectively,
of Baxter International Inc. common stock. A portion of the purchase price of
the Renal segment's acquisition of Althin Medical A.B. was paid in approximately
592,000 shares of Baxter common stock.
The $286 million charge for IPR&D and acquisition-related costs recorded in
2000 consisted principally of the above-mentioned $250 million charge relating
to NAV, insignificant IPR&D charges pertaining to three other acquisitions, as
well as certain charges associated with one of the Medication Delivery segment's
acquisitions.
IPR&D
Amounts allocated to IPR&D were determined on the basis of independent
valuations using the income approach, which measures the value of an asset by
the present value of its future economic benefits. Estimated cash flows were
discounted to their present values at rates of return that incorporate the risk-
free rate, the expected rate of inflation, and risks associated with the
particular projects. The valuations incorporated the stages of completion of the
IPR&D projects. Projected revenue and cost assumptions were determined
considering the company's historical experience and industry trends and
averages. No value was assigned to any IPR&D project unless it was probable of
being further developed.
The following is a summary of significant amounts allocated to IPR&D during
the last several years, by significant project category.
(in millions) NAV Somatogen Immuno
- --------------------------------------------------------------------------
Oxygen-carrying therapeutics $116
Plasma-based therapies $142
Vaccines $250 78
- --------------------------------------------------------------------------
Total $250 $116 $220
=================================
Material net cash inflows for significant IPR&D projects for NAV were
forecasted in the valuation to commence between 2002 and 2005. A discount rate
of 20 percent was used for all projects, which include Streptococcal B,
Pneumococcal, Meningococcal B/C/Y and other vaccines. Assumed additional
research and development (R&D) expenditures prior to the dates of product
introductions totaled approximately $85 million. The status of development,
stage of completion, assumptions, nature and timing of remaining efforts for
completion, risks and uncertainties, and other key factors varied by individual
vaccine project. The percentage completion rate for significant projects ranged
in the valuation from approximately 65 percent to over 90 percent, with the
weighted-average completion rate approximately 70 percent. Subsequent to the
June 2000 acquisition date, the projects have been proceeding in accordance with
the original projections. Approximately $8 million of R&D costs were expensed in
2000 subsequent to the acquisition date relating to these projects.
Material net cash inflows relating to Somatogen's IPR&D were forecasted to
begin in 2004. A discount rate of 22 percent was used in the valuation.
Estimated R&D costs to be incurred prior to 2004 were forecasted to total
approximately $100 million. As the R&D efforts progress, it is currently
forecasted that material net cash inflows relating to Somatogen's IPR&D as of
acquisition date will not begin until after 2006. Also, it is currently
estimated that over $200 million of R&D costs will be incurred between the date
of acquisition and 2006. During 2000, the results of preclinical studies were
submitted to the U.S. Food and Drug Administration as part of an investigational
new drug application. Pending the outcome of the FDA's review of the
application, the company plans to begin human clinical trials in 2001.
Approximately $18 million, $18 million and $10 million of R&D costs were
expended in 2000, 1999 and 1998, respectively, relating to these projects.
Immuno International AG (Immuno), a manufacturer of biopharmaceutical
products and services for transfusion medicine, was acquired by the company in
December 1996, and is included in the BioScience segment. The two project
categories were comprised of 18 projects, many of which were comprised of
multiple sub-projects. As part of the post-acquisition integration and R&D
rationalization process, management reassessed all of Immuno's ongoing R&D
projects in conjunction with a re-evaluation of Baxter's existing R&D projects,
and re-prioritized certain projects,
<PAGE>
37
resulting in modifications to originally planned timetables for certain of the
projects and terminations of other projects. Such revisions to original plans
were also significantly influenced by marketplace trends and competitive factors
occurring since the acquisition date. Most significantly, the timetables for
certain of the plasma-based therapies projects have been altered in order to
accelerate the development of the next-generation recombinant Factor VIII
concentrate for hemophilia treatment, given the strong and accelerating demand
for recombinant products in the marketplace. As a result of the timetable
revisions and terminations, actual R&D expenditures since acquisition date have
been over 40 percent lower than that assumed in the model. Total additional R&D
expenditures are currently forecasted to be less than those assumed in the
model. Approximately $15 million, $30 million and $25 million of R&D costs have
been expensed in 2000, 1999 and 1998, respectively, relating to these projects.
With respect to NAV, Somatogen and Immuno IPR&D, the products currently
under development are at various stages of development, and substantial further
research and development, pre-clinical testing and clinical trials will be
required to determine their technical feasibility and commercial viability.
There can be no assurance such efforts will be successful. Delays in the
development, introduction or marketing of the products under development could
result either in such products being marketed at a time when their cost and
performance characteristics would not be competitive in the market-place or in a
shortening of their commercial lives. If the products are not completed on time,
the expected return on the company's investments could be significantly and
unfavorably impacted.
Pro forma information
The following unaudited pro forma information presents a summary of the
company's consolidated results of operations as if acquisitions had occurred as
of the beginning of fiscal years 2000 and 1999, respectively, giving effect to
purchase accounting adjustments but excluding the 2000 charge for IPR&D and
acquisition-related costs.
years ended December 31
(in millions, except per share data) 2000 1999
- --------------------------------------------------------------------
Net sales $7,005 $8,614
Income from continuing operations before
cumulative effect of accounting change $ 896 $ 781
Net income $ 896 $ 754
Net income per diluted common share $ 2.99 $ 2.52
----------------
These pro forma results of operations have been presented for comparative
purposes only and do not purport to be indicative of the results of operations
which actually would have resulted had the acquisitions occurred on the date
indicated, or which may result in the future. The diluted pro forma earnings and
per-share earnings included in the table above primarily reflect the historical
pre-acquisition net losses reported by NAV.
Acquisition reserves
Based on plans formulated at acquisition date, as part of the allocation of
purchase price, reserves have been established for certain acquisitions. The
following is a summary of the reserves and related activity pertaining to the
acquisition of Immuno. Reserves established for certain of the company's
acquisitions during the period are not included below as such reserves were not
material. Actions executed to date and anticipated in the future with respect to
the acquisition-related plans are substantially consistent with the original
plans. Management believes remaining reserves are adequate to complete the
actions contemplated by the plans.
as of or for the years ended
December 31 (in millions) Immuno
- -----------------------------------------------------------------------------
Original reserve
Employee-related costs $ 38
Contract termination and other costs 41
- -----------------------------------------------------------------------------
Total original reserve 79
- -----------------------------------------------------------------------------
1998 and prior reserve utilization (26)
1999 reserve utilization (11)
2000 reserve utilization (16)
- -----------------------------------------------------------------------------
Balance at December 31, 2000 $ 26
=====
Employee-related costs consisted principally of employee severance associated
with headcount reductions in Europe and primarily impacted the sales and
marketing functions. Utilization of reserves for employee-related costs totaled
$3 million, $6 million and $16 million in 2000, 1999 and 1998, respectively.
Contract termination and other costs related principally to the exiting of
activities and termination of distribution, lease and other contracts of the
acquired company that existed prior to the acquisition date that either
continued with no economic benefit or required payment of a cancellation
penalty.
<PAGE>
38
[4] Exit and Other Reorganization Costs
In 1998, the company decided to end the clinical development of the BioScience
segment's first-generation oxygen-carrying therapeutic, HemAssist (DCLHb), which
was based on human hemoglobin, and focus on the next-generation program, which
is based on genetically engineered hemoglobin molecules. The company also
decided to exit certain non-strategic investments, primarily in Asia, and
reorganize certain other activities. As a result of these decisions, the company
recorded a $122 million pretax charge in 1998. Included in the total charge was
a $74 million charge to write down certain assets to estimated sales or salvage
value due to impairment. The majority of the asset writedowns related to
machinery and equipment located in a manufacturing facility in Neuchatel,
Switzerland, that were used solely in the development and manufacture of
HemAssist (DCLHb), and had no alternative future use. Activities ceased upon the
decision to end the clinical development of HemAssist (DCLHb). In 1999, the
company began modifications to this manufacturing facility, which was designed
to manufacture a human hemoglobin product, to produce recombinant
biopharmaceutical products. Such alternate production is expected to commence at
the Neuchatel facility in the next two years.
The following is a summary of the components of the remainder of the charge and
the utilization of such reserves.
as of or for the years ended Employee- Other
December 31 (in millions) related costs costs Total
- ---------------------------------------------------------------------
Original charge $ 34 $ 14 $ 48
1998 utilization (12) (6) (18)
1999 utilization (16) (7) (23)
2000 utilization (4) - (4)
- --------------------------------------------------------------------
Reserves at December 31, 2000 $ 2 $ 1 $ 3
============================
Employee-related costs consisted principally of employee severance resulting
from the elimination of approximately 375 positions worldwide. The headcount
reductions affected various functions and pertained principally to the
BioScience and Medication Delivery segments. Approximately 360 positions have
been eliminated through December 31, 2000. The other costs related principally
to contractual obligations that existed prior to the date of the charge that
either continued with no economic benefit or required payment of a cancellation
penalty. The majority of such costs related to the terminated HemAssist (DCLHb)
program and included cancellation costs associated with a minimum purchase
agreement.
[5] Long-Term Debt, Credit Facilities and Lease Obligations
Effective
as of December 31 (in millions) interest rate 2000 1999
- -------------------------------------------------------------------------
Commercial paper 6.4% $ 800 $ 668
Short-term notes 3.5% 513 646
Zero coupon notes
due 2000 (unamortized original
issue discount of $9) 10.3% - 120
8.125% notes due 2001 6.2% 40 155
7.625% notes due 2002 7.5% 46 151
7.125% notes due 2007 7.1% 54 251
7.25% notes due 2008 7.5% 29 198
9.5% notes due 2008 9.5% 75 75
7.65% debentures due 2027 7.6% 5 202
6.625% debentures due 2028 6.7% 147 249
Other 75 16
- ----------------------------------------------------------------------
Total long-term debt and
lease obligations 1,784 2,731
Current portion (58) (130)
- ----------------------------------------------------------------------
Long-term portion $ 1,726 $ 2,601
===========================
In order to better match the currency denomination of its assets and
liabilities, the company rebalanced certain of its debt during 2000. The company
acquired approximately $878 million of its U.S. Dollar denominated debt
securities during 2000 and increased its Japanese Yen and Euro denominated debt.
The net costs associated with the early termination of the U.S. Dollar
denominated debt of $15 million were recorded in other expense as they were not
material. The increase in debt denominated in Japanese Yen and Euro was
classified in short-term debt as of December 31, 2000. Management intends to
replace the majority of this short-term debt with long-term debt during 2001.
The company leases certain facilities and equipment under capital and operating
leases expiring at various dates. Most of the operating leases contain renewal
options. Rent expense under operating leases was $99 million, $91 million and
$79 million in 2000, 1999 and 1998, respectively.
<PAGE>
39
Future minimum lease payments and debt maturities
Aggregate debt
maturities
as of and for the years ended Operating and capital
December 31 (in millions) leases leases
- ---------------------------------------------------------------------
2001 $ 82 $ 62
2002 66 50
2003 52 1,336/1/
2004 42 3
2005 36 2
Thereafter 70 341
- ---------------------------------------------------------------------
Total obligations and commitments $ 348 1,794
-------------------------
Amounts representing interest,
discounts, premiums and deferred
financing costs (10)
- ---------------------------------------------------------------------
Total long-term debt and present
value of lease obligations $ 1,784
=========================
1. Includes approximately $1.3 billion of commercial paper and short-term notes
supported by long-term credit facilities expiring in 2003.
The company maintains two revolving credit facilities, which total $1.5 billion.
Of this total, $700 million will expire in 2001 and $800 million will expire in
2003. The facilities enable the company to borrow funds in U.S. Dollars or Euros
on an unsecured basis at variable interest rates and contain various covenants,
including a maximum debt-to-capital ratio and a minimum interest coverage ratio.
There were no borrowings outstanding under these facilities at December 31, 2000
or 1999. Baxter also maintains or guarantees other short-term credit
arrangements which totaled approximately $418 million at December 31, 2000.
Approximately $61 million and $93 million of borrowings were outstanding under
these facilities at December 31, 2000 and 1999, respectively.
During 1998, a wholly-owned subsidiary of the company entered into an $800
million revolving credit facility, which expires in 2003 and enables the
subsidiary to borrow funds at variable interest rates. The agreement contains
various covenants, including a minimum interest coverage ratio, a maximum
debt-to-adjusted earnings ratio and a minimum adjusted net worth amount. There
were $513 million and $596 million in borrowings outstanding under this facility
at December 31, 2000 and 1999, respectively, and they were denominated in Swiss
Francs. These borrowings are secured and guaranteed by a pledge of the shares of
the borrower and certain of its subsidiaries.
At December 31, 2000 and 1999, commercial paper and short-term notes together
totaling approximately $1.3 billion have been classified with long-term debt as
they are supported by the long-term credit facilities discussed above, which
management intends to continue to refinance.
[6] Financial Instruments and Risk Management
Accounts receivable
In the normal course of business, the company provides credit to customers in
the health-care industry, performs credit evaluations of these customers and
maintains reserves for potential credit losses which, when realized, have been
within the range of management's allowance for doubtful accounts. The allowance
for doubtful accounts was $43 million and $34 million at December 31, 2000 and
1999, respectively.
In order to reduce its overall financing costs, the company periodically sells
its trade accounts receivable. In 2000, the company generated net operating cash
inflows of approximately $195 million relating to such sales. Under the terms of
the sales arrangements, the company has the ability to sell certain accounts
receivable on an ongoing basis, continues to service the sold receivables, and
is subject to recourse provisions. Management believes the company is adequately
reserved with respect to the recourse provisions. In 2000, proceeds from new
sales totaled approximately $1.5 billion and cash collections reinvested totaled
approximately $1.3 billion. The portfolio of accounts receivable that the
company services totaled approximately $590 million at December 31, 2000. The
net gains and losses recognized upon sale of the receivables, amounts relating
to the company's servicing of the receivables, and delinquencies were not
material to the consolidated financial statements.
Other concentrations of risk
The company invests the majority of its excess cash in certificates of deposit
or money market accounts and, where appropriate, diversifies the concentration
of cash among different financial institutions. With respect to financial
instruments, where appropriate, the company has diversified its selection of
counterparties, and has arranged collateralization and master-netting agreements
to minimize the risk of loss.
Interest rate risk management
Baxter uses interest rate swaps generally from less than one year to three years
in duration to manage the company's exposure to adverse movements in interest
rates. The book values of debt at December 31, 2000 and 1999 reflect deferred
hedge gains of $2 million and $11 million, respectively, offset by $2 million of
deferred hedge losses at December 31, 1999.
Foreign exchange risk management
The company enters into various types of foreign exchange contracts to protect
the company from risks associated with the fluctuation in currency exchange
rates. The company principally enters into foreign currency option and forward
contracts, with terms generally less than three years, to hedge firm commitments
and anticipated but not yet committed sales expected to be
<PAGE>
40
denominated in foreign currencies. Deferred hedging gains on hedges of
anticipated but not yet committed sales totaled $20 million and $7 million at
December 31, 2000 and 1999, respectively. The company also enters into foreign
currency forward agreements to hedge certain receivables and payables
denominated in foreign currencies. The company principally hedges the following
currencies: Japanese Yen, Euro, British Pound and Swiss Franc.
The company also enters into cross-currency swap agreements, with original
maturities up to 10 years, to hedge certain of its net investments in foreign
affiliates. In conjunction with the company's rebalancing of its debt portfolio
and in anticipation of the adoption of SFAS No. 133, certain of such contracts
were terminated in 2000, and a gain was recognized in other income. Refer to
Note 10 for further information. In order to hedge certain of its net
investments in foreign affiliates in the future, the company plans to designate
a portion of its debt denominated in foreign currencies as hedges of these net
investments, as well as use cross-currency swap agreements.
Interest rate and foreign exchange contracts
<TABLE>
<CAPTION>
2000 1999
-------------------------------------------------------------
Notional Market Notional Market
as of December 31 (in millions) amounts values amounts values
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest rate contracts
Floating to fixed rate swaps $ 100 $ - $ 300 $ 3
Average pay rate 5.1% in
2000 and 7.4% in 1999
Average receive rate 6.3% in
2000 and 5.8% in 1999
=========================================================================================================
Foreign exchange contracts
Forwards and options used to
hedge firm commitments
and anticipated sales
Japanese Yen $ 578 $ 26 $ 483 $ (1)
Euro 439 12 610 15
Other currencies 69 2 34 1
- ---------------------------------------------------------------------------------------------------------
Total $1,086 $ 40 $ 1,127 $ 15
- ---------------------------------------------------------------------------------------------------------
Forwards and swaps used to
hedge net investments in
foreign affiliates
Japanese Yen $ 115 $ (6) $ 315 $ (113)
Euro 650 (64) 2,650 175
Other currencies 68 (3) 15 -
- ---------------------------------------------------------------------------------------------------------
Total $ 833 $ (73) $ 2,980 $ 62
- ---------------------------------------------------------------------------------------------------------
Forwards used to hedge certain
receivables and payables
(primarily Japanese Yen,
Euro and Swiss Franc) $ 21 $ 14 $ 58 $ -
- ---------------------------------------------------------------------------------------------------------
</TABLE>
Equity risk management
In order to partially offset the potentially dilutive effect of employee stock
options, the company has entered into forward agreements with independent third
parties related to the company's common stock. The forward agreements require
the company to purchase its common stock from the counterparties on specified
future dates and at specified prices. The company can, at its option, require
settlement of the agreements with shares of its common stock or, in some cases,
cash, in lieu of physical settlement. The company may, at its option, terminate
and settle these agreements early at any time before maturity. At December 31,
2000, agreements related to approximately 2.5 million shares mature in 2001 at
an average exercise price of approximately $58 per share and agreements related
to approximately 3.7 million shares mature in 2002 at exercise prices ranging
from $70 to $78 per share. At December 31, 1999, agreements related to
approximately 7.0 million shares were outstanding.
In connection with the company's stock repurchase program, during 2000 the
company issued put options and purchased call options on shares of its common
stock. The put options give the purchaser the right to sell Baxter common stock
to the company at contractually specified prices. The call options give the
company the right to purchase Baxter common stock at contractually specified
prices. The agreements were executed with independent third parties, and the
cost of the call options was offset by the premium from the put options. The
company can, at its option, require settlement of the agreements with shares of
its common stock or, in some cases, cash, in lieu of physical settlement. The
company may, at its option, terminate and settle these agreements at any time
before maturity. In conjunction with its stock repurchase program, the company
terminated certain of these contracts during the 2000. At December 31, 2000, put
options for approximately 1.5 million shares of common stock and call options
for approximately 1.0 million shares of common stock were outstanding. The
exercise prices of the outstanding put options were $56 per share and the
exercise prices of the outstanding call options were $62 per share. The
contracts mature in 2001.
<PAGE>
41
The following is a summary of the carrying amounts and approximate fair
values of the company's financial instruments included in the consolidated
balance sheets.
Fair values of financial instruments
<TABLE>
<CAPTION>
Approximate
as of December 31 Carrying amounts fair values
---------------- ----------------
(in millions) 2000 1999 2000 1999
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Assets
Long-term insurance
receivables $ 160 $ 301 $ 145 $ 248
Investments in affiliates 195 145 312 158
Foreign exchange hedges 65 20 51 15
Liabilities
Short-term debt 576 125 576 125
Short-term borrowings
classified as long term/1/ 1,313 1,314 1,313 1,311
Other long-term debt
and lease obligations/2/ 471 1,417 487 1,326
Long-term litigation
liabilities 184 273 170 237
=============================================================================================
</TABLE>
1. Includes interest rate hedging instruments
2. Includes swaps used to hedge net investments in foreign affiliates.
The fair values of certain of the investments in affiliates are not readily
determinable as the investments are not traded in a market. For these
investments, fair value is assumed to approximate carrying value. With respect
to the approximate fair values of the company's unrestricted marketable
investments in affiliates, the total net unrealized gain at December 31, 2000
consists of gross unrealized gains of $50 million net of gross unrealized losses
of $9 million, and the total at December 31, 1999 consists of gross unrealized
gains of $7 million net of gross unrealized losses of $2 million. Although the
company's litigation remains unresolved by final orders or settlement agreements
in some cases, the estimated fair values of insurance receivables and long-term
litigation liabilities were computed by discounting the expected cash flows
based on currently available information. The approximate fair values of other
assets and liabilities are based on quoted market prices, where available.
The carrying values of all other financial instruments approximate their fair
values due to the short-term maturities of these assets and liabilities.
7 Accounts Payable and Accrued Liabilities
as of December 31 (in millions) 2000 1999
- ----------------------------------------------------------
Accounts payable, principally trade $ 659 $ 612
Employee compensation and withholdings 238 260
Litigation 177 183
Pension and other deferred benefits 17 40
Property, payroll and other taxes 77 105
Other 822 605
- ----------------------------------------------------------
Accounts payable and accrued liabilities $1,990 $1,805
===============
8 Common and Preferred Stock
Baxter has several stock-based compensation plans, which are described below.
The company applies APB Opinion No. 25, "Accounting for Stock Issued to
Employees," and related interpretations in accounting for its plans. No
compensation cost has been recognized for fixed stock option plans and stock
purchase plans. The compensation expense recognized for continuing operations
for performance-based, restricted and other stock plans was $23 million, $26
million and $15 million in 2000, 1999 and 1998, respectively. Had compensation
cost for all of the company's stock-based compensation plans been determined
based on the fair value at the grant dates consistent with the method of SFAS
No. 123, "Accounting for Stock-Based Compensation," the company's net income and
related earnings per share (EPS) would have been reduced to the pro forma
amounts indicated below.
Pro forma net income and EPS
years ended December 31
(in millions, except per share data) 2000 1999 1998
- -------------------------------------------------------------------
Pro forma net income $ 68 $ 746 $ 262
Pro forma basic EPS $ 2.33 $ 2.57 $ .92
Pro forma diluted EPS $ 2.29 $ 2.54 $ .91
============================
Pro forma compensation expense for stock options and employee-stock
subscriptions was calculated using the Black-Scholes model.
All outstanding options were modified as a result of the spin-off of Edwards.
Equitable adjustments were made to the number of shares and exercise price for
each option and employee stock subscription outstanding.
Fixed stock option plans
Stock options have been granted at various dates. All
grants have a 10-year initial term and have an exercise price at least equal to
100% of market value on the date of grant. Vesting terms vary, with most
outstanding options vesting 100% in one year or 100% in three years.
Stock options outstanding at December 31, 2000
(option shares in thousands)
<TABLE>
<CAPTION>
Options outstanding Options exercisable
- ---------------------------------------------------------------------------------------------------------
Weighted-
average
remaining Weighted- Weighted-
Range of contractual average average
exercise life exercise exercise
prices Outstanding (years) price Exercisable price
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$20-39 2,495 3.5 $ 29.42 2,495 $ 29.42
40-49 4,583 6.2 45.45 4,583 45.45
50-59 5,934 8.1 54.72 247 53.87
60-79 4,556 8.2 64.53 - -
80-83 6,933 9.8 82.53 - -
- ---------------------------------------------------------------------------------------------------------
$20-83 24,501 7.8 $ 60.21 7,325 $ 40.66
=========================================================================================================
</TABLE>
As of December 31, 1999 and 1998, there were 8,755,000 and 4,565,000 options
exercisable, respectively, at weighted-average exercise prices of $41.06 and
$30.27, respectively.
<PAGE>
42
Stock option activity
Weighted-
average
exercise
(option shares in thousands) Shares price
- -------------------------------------------------------------------------
Options outstanding at January 1, 1998 13,882 $ 39.64
Granted 4,806 59.83
Exercised (1,728) 28.69
Forfeited (587) 49.51
- -------------------------------------------------------------------------
Options outstanding at December 31, 1998 16,373 46.37
Granted 5,013 66.73
Exercised (1,958) 39.18
Forfeited (619) 56.73
- -------------------------------------------------------------------------
Options outstanding at December 31, 1999 18,809 52.20
Granted 9,520 75.32
Exercised (2,853) 39.47
Forfeited (1,921) 57.81
Equitable adjustment 946 -
- -------------------------------------------------------------------------
Options outstanding at December 31, 2000 24,501 $ 60.21
========================
Included in the tables above are certain premium-priced options. During 1998,
approximately 470,000 premium-priced stock options were granted with a
weighted-average exercise price of $73 and a weighted-average fair value of
approximately $13 per option. During 1996, approximately 2.5 million
premium-stock options were granted with an exercise price of $49 and a
weighted-average fair value of approximately $11 per option. All of such options
granted in 1998 and 1.4 million of such options granted in 1996 are outstanding
at December 31, 2000.
Pro forma compensation expense was calculated with the following weighted-
average assumptions for grants in 2000, 1999 and 1998, respectively: dividend
yield of 1.25%, 1.5% and 1.5%; expected life of six years for all periods;
expected volatility of 31%, 29% and 29%; and risk-free interest rates of 6.1%,
5.4% and 5.3%. The weighted-average fair value of options granted during the
year were $27.49, $22.59 and $18.58 in 2000, 1999 and 1998, respectively.
Employees of Edwards were required to exercise any vested options within 90
days from the date of spin-off, which occurred on March 31, 2000. All unvested
options were canceled 90 days after the date of spin-off.
Employee stock purchase plans
The company has employee stock purchase plans whereby it is authorized, as of
December 31, 2000, to issue up to 10 million shares of common stock to its
employees, nearly all of whom are eligible to participate. The purchase price is
the lower of 85 percent of the closing market price on the date of subscription
or 85 percent of the closing market price as defined by the plans. The total
subscription amount for each participant cannot exceed 25 percent of current
annual pay. Under the plans, the company sold 1,387,022 and 777,618 and 810,855
shares to employees in 2000, 1999 and 1998, respectively. Pro forma compensation
expense was estimated with the following weighted-average assumptions for 2000,
1999 and 1998, respectively: dividend yield of 1.4%, 1.5% and 1.5%: expected
volatility of 33% for all periods, and risk-free interest rates of 6.2%, 5.4%
and 4.4%. The weighted-average fair value of those purchase rights granted in
2000, 1999 and 1998 was $22.98, $20.09 and $15.16, respectively.
Restricted stock and performance-share plans
The long-term incentive plan includes both stock options and restricted stock.
Under the plan, grants of restricted stock are generally made annually and are
earned based on the achievement of financial performance targets. The restricted
stock component of the long-term incentive plan is being eliminated effective in
2001 and, instead, a greater number of stock options will be granted to
participants in the plan with terms and conditions similar to existing stock
option plans. The year 2000 was a transition year whereby most participants in
the plan elected to receive incremental stock options and were no longer
eligible to earn restricted stock. The number of stock options granted pursuant
to the revised plan is based on the achievement of financial performance
objectives.
The company also has other incentive compensation plans whereby grants of
restricted stock and performance shares are made to key employees and
non-employee directors. At December 31, 2000, approximately 84,000 shares of
stock were subject to restrictions, the majority of which lapse in 2001 and
2002. During 2000, 1999 and 1998, approximately 249,500, 542,500 and 242,700
shares, respectively, of restricted stock and performance shares were granted at
weighted-average grant-date fair values of $65.75, $63.99 and $58.74 per share,
respectively. The majority of the restricted stock granted in 2000 was forfeited
pursuant to the long-term incentive plan transition discussed above.
Shared Investment Plan
In 1999, the company sold approximately 3.1 million shares of the company's
common stock to 142 of Baxter's senior managers for approximately $198 million
in cash. This plan directly aligns management and shareholder interests. The
Baxter managers used full-recourse personal bank loans to purchase the stock at
the May 3, 1999 closing price of $63.63. Baxter has agreed to guarantee
repayment to the banks in the event of default by a participant in the plan. The
total outstanding participant loan amount at December 31, 2000 was $188 million.
Stock repurchase programs
In November 1995, the company's board of directors authorized the repurchase of
up to $500 million of common stock over a period of several years, all of which
was repurchased by early 2000. In November 1999, the board of directors
authorized the repurchase of an additional $500 million over a period of several
years, of which approximately two-thirds has been repurchased as of December 31,
2000.
Other
Approximately 100 million shares of no par value preferred stock are authorized
for issuance in series with varying terms as determined by the board of
directors.
<PAGE>
43
In March 1999, common stockholders received a dividend of one preferred stock
purchase right (collectively, the Rights) for each share of common stock. These
Rights replaced similar rights that expired in March 1999. The Rights may become
exercisable at a specified time after (1) a person or group acquires 15 percent
or more of the company's common stock or (2) a tender or exchange offer for 15
percent or more of the company's common stock. Once exercisable, the holder of
each Right is entitled to purchase, upon payment of the exercise price, shares
of the company's common stock having a market value equal to two times the
exercise price of the Rights. The Rights have a current exercise price of $275.
The Rights expire on March 23, 2009, unless earlier redeemed by the company
under certain circumstances at a price of $0.01 per Right.
[9] Retirement and Other Benefit Programs
The company sponsors several qualified and nonqualified pension plans for its
employees. The company also sponsors certain unfunded contributory health-care
and life insurance benefits for substantially all domestic retired employees.
Reconciliation of plans' benefit obligations,
assets and funded status
as of and for the years Pension benefits Other benefits
----------------- ----------------
ended December 31 (in millions) 2000 1999 2000 1999
- ---------------------------------------------------------------------------
Benefit obligations
Beginning of year $1,344 $1,427 $ 175 $ 200
Service cost 41 48 3 3
Interest cost 113 102 14 12
Participant contributions 2 2 3 3
Actuarial loss (gain) 147 (148) 35 (30)
Acquisitions (divestitures), net (10) 1 - -
Curtailments and settlements (10) (7) - (3)
Benefit payments (78) (76) (11) (11)
Currency exchange-rate
changes and other 6 (5) - 1
- ---------------------------------------------------------------------------
End of year 1,555 1,344 219 175
- ---------------------------------------------------------------------------
Fair value of plan assets
Beginning of year 1,724 1,472 - -
Actual return on plan assets 173 302 - -
Employer contributions 19 13 8 8
Participant contributions 2 2 3 3
Acquisitions (divestitures), net (8) 11 - -
Curtailments and settlements (11) - - -
Benefit payments (78) (76) (11) (11)
Currency exchange-rate
changes and other (14) - - -
- ---------------------------------------------------------------------------
End of year 1,807 1,724 - -
- ---------------------------------------------------------------------------
Funded status
Funded status at December 31 252 380 (219) (175)
Unrecognized
transition obligation 4 9 - -
Unrecognized net gains (252) (390) (56) (98)
Unrecognized prior-service cost - (3) - -
- ---------------------------------------------------------------------------
Net amount recognized $ 4 $ (4) $ (275) $ (273)
- ---------------------------------------------------------------------------
Prepaid benefit cost $ 143 $ 121 $ - $ -
Accrued benefit liability (139) (125) (275) (273)
- ---------------------------------------------------------------------------
Net amount recognized $ 4 $ (4) $ (275) $ (273)
===========================================================================
Assets held by the trusts of the plans consist primarily of equity securities.
The accumulated benefit obligation is in excess of plan assets for certain of
the company's pension plans. The projected benefit obligation, accumulated
benefit obligation, and fair value of plan assets for these plans was $159
million, $142 million and $17 million, respectively, at December 31, 2000, and
$140 million, $128 million and $23 million, respectively, at December 31, 1999.
Net periodic benefit cost
years ended December 31 (in millions) 2000 1999 1998
- -------------------------------------------------------------------------
Pension benefits
Service cost $ 41 $ 48 $ 41
Interest cost 113 102 96
Expected return on plan assets (159) (133) (117)
Amortization of prior service cost - 1 1
Amortization of transition obligation 5 6 6
- -------------------------------------------------------------------------
Net periodic pension benefit cost $ - $ 24 $ 27
=========================
Other benefits
Service cost $ 3 $ 3 $ 3
Interest cost 14 12 14
Recognized actuarial gain (7) (7) (6)
- -------------------------------------------------------------------------
Net periodic other benefit cost $ 10 $ 8 $ 11
=========================
The net periodic benefit cost amounts principally pertain to continuing
operations.
Assumptions used in determining benefit obligations
Pension benefits Other benefits
------------------ ----------------
2000 1999 2000 1999
- -----------------------------------------------------------------------------
Discount rate
U.S. and Puerto Rico plans 7.75% 8.25% 7.75% 8.25%
International plans (average) 5.8% 5.7% n/a n/a
Expected return on plan assets
U.S. and Puerto Rico plans 11.0% 10.5% n/a n/a
International plans (average) 8.1% 6.9% n/a n/a
Rate of compensation increase
U.S. and Puerto Rico plans 4.5% 4.5% n/a n/a
International plans (average) 4.0% 4.1% n/a n/a
Annual rate of increase in the
per-capita cost n/a n/a 7.5% 7.5%
Rate decreased to n/a n/a 5.5% 5.5%
by the year ended n/a n/a 2003 2002
=============================================================================
Effect of a one-percent change in assumed health-care cost trend rate
One percent One percent
increase decrease
------------- -------------
(in millions) 2000 1999 2000 1999
- ---------------------------------------------------------------------------
Effect on total of service and
interest cost components $ 3 $ 2 $ 2 $ 2
Effect on postretirement
benefit obligation $ 29 $ 21 $ 24 $ 18
===========================================================================
<PAGE>
44
With respect to the employees of Edwards, the company froze benefits at the date
of spin-off under the U.S. defined benefit pension plan and under plans that
provide retirees with health-care and life insurance benefits. The pension
liabilities related to such employees' service prior to the spin-off date remain
with Baxter. Included in net costs associated with effecting the business
distribution in 1999 was a $5 million gain (net of tax of $4 million) relating
to these benefit plan curtailments. Most U.S. employees are eligible to
participate in a qualified defined contribution plan. Company matching
contributions relating to continuing operations were $15 million, $14 million
and $14 million in 2000, 1999 and 1998, respectively.
10 Interest and Other (Income) Expense
Interest expense, net
years ended December 31 (in millions) 2000 1999 1998
- ---------------------------------------------------------------------------
Interest expense, net
Interest costs $ 146 $ 165 $ 198
Interest costs capitalized (15) (13) (5)
- ---------------------------------------------------------------------------
Interest expense 131 152 193
Interest income (39) (35) (32)
- ---------------------------------------------------------------------------
Total interest expense, net $ 92 $ 117 $ 161
- ---------------------------------------------------------------------------
Allocated to discontinued operation $ 7 $ 30 $ 37
Allocated to continuing operations $ 85 $ 87 $ 124
============================
The allocation of interest to continuing and discontinued operations was based
on relative net assets of these operations.
Other (income) expense
years ended December 31 (in millions) 2000 1999 1998
- ---------------------------------------------------------------------
Equity in losses of affiliates
and minority interests $ 9 $ 5 $ 3
Asset dispositions, net 6 13 (23)
Foreign currency (57) (8) -
Loss on early extinguishments of debt 15 - -
Other 7 1 2
- ---------------------------------------------------------------------
Total other (income) expense $ (20) $ 11 $ (18)
==========================
Included in foreign currency income in 2000 was approximately $66 million of
gains associated with the termination of cross-currency swap agreements, as
further discussed in Note 6.
11 Income Taxes
U.S. federal income tax returns filed by Baxter International Inc. through
December 31, 1994, have been examined and closed by the Internal Revenue
Service. The company has ongoing audits in U.S. and international jurisdictions.
In the opinion of management, the company has made adequate provisions for tax
expenses for all years subject to examination.
Income before income tax expense by category
years ended December 31 (in millions) 2000 1999 1998
- ----------------------------------------------------------------------------
U.S. $ 353 $ 330 $ 78
International 593 722 415
Income from continuing operations
before income taxes and cumulative
effect of accounting change $ 946 $ 1,052 $ 493
==============================
Income tax expense
years ended December 31 (in millions) 2000 1999 1998
- ----------------------------------------------------------------------------
Current
U.S
Federal $ 142 $ (13) $ 119
State and local 47 38 3
International 189 156 152
- ----------------------------------------------------------------------------
Current income tax expense 378 181 274
- ----------------------------------------------------------------------------
Deferred
U.S
Federal (98) 69 (3)
State and local (21) 14 5
International (51) 9 (58)
- ----------------------------------------------------------------------------
Deferred income tax expense (benefit) (170) 92 (56)
- ----------------------------------------------------------------------------
Income tax expense $ 208 $ 273 $ 218
==============================
The income tax for continuing operations was calculated as if Baxter were a
stand-alone entity (without income from the discontinued operation).
Deferred tax assets and liabilities
years ended December 31 (in millions) 2000 1999 1998
- ----------------------------------------------------------------------------
Deferred tax assets
Accrued expenses $ 374 $ 389 $ 349
Accrued postretirement benefits 102 102 103
Alternative minimum tax credit 146 162 164
Tax credits and net operating losses 92 100 179
Valuation allowances (50) (43) (34)
- ----------------------------------------------------------------------------
Total deferred tax assets 664 710 761
- ----------------------------------------------------------------------------
Deferred tax liabilities
Asset basis differences 410 471 473
Subsidiaries' unremitted earnings 85 160 188
Other 38 35 13
- ----------------------------------------------------------------------------
Total deferred tax liabilities 533 666 674
- ----------------------------------------------------------------------------
Net deferred tax asset $ 131 $ 44 $ 87
==============================
<PAGE>
45
Income tax expense rate reconciliation
years ended December 31 (in millions) 2000 1999 1998
- ------------------------------------------------------------------------------
Income tax expense at statutory rate $ 331 $ 368 $ 172
Tax-exempt operations (147) (134) (120)
State and local taxes 9 23 (3)
Repatriation of foreign earnings - - 87
Foreign tax expense 31 18 46
IPR&D expense - - 41
Other factors (16) (2) (5)
- -----------------------------------------------------------------------------
Income tax expense $ 208 $ 273 $ 218
=======================
The company has received a tax-exemption grant from Puerto Rico, which provides
that its manufacturing operations will be partially exempt from local taxes
until the year 2013. Appropriate taxes have been provided for these operations
assuming repatriation of all available earnings. In addition, the company has
other manufacturing operations outside the United States, which benefit from
reductions in local tax rates under tax incentives that will continue at least
until 2002.
U.S. federal income taxes, net of available foreign tax credits, on
unremitted earnings deemed permanently reinvested would be approximately $424
million as of December 31, 2000.
[12] Legal Proceedings, Commitments and Contingencies
Baxter International Inc. and certain of its subsidiaries are named as
defendants in a number of lawsuits, claims and proceedings, including product
liability claims involving products now or formerly manufactured or sold by the
company or by companies that were acquired by the company. These cases and
claims raise difficult and complex factual and legal issues and are subject to
many uncertainties and complexities, including, but not limited to, the facts
and circumstances of each particular case and claim, the jurisdiction in which
each suit is brought, and differences in applicable law. Accordingly, in many
cases, the company is not able to estimate the amount of its liabilities with
respect to such matters.
Upon resolution of any pending legal matters, Baxter may incur charges in
excess of presently established reserves. While such a future charge could have
a material adverse impact on the company's net income and net cash flows in the
period in which it is recorded or paid, management believes that no such charge
would have a material adverse effect on Baxter's consolidated financial
position.
Following is a summary of certain legal matters pending against the company.
For a more extensive description of such matters and other lawsuits, claims and
proceedings against the company, see Baxter's Form 10-K for the year ended
December 31, 2000.
Mammary implant litigation
The company, together with certain of its subsidiaries, is a defendant in
various courts in a number of lawsuits brought by individuals, all seeking
damages for injuries of various types allegedly caused by silicone mammary
implants formerly manufactured by the Heyer-Schulte division (Heyer-Schulte) of
American Hospital Supply Corporation (AHSC). AHSC, which was acquired by the
company in 1985, divested its Heyer-Schulte division in 1984.
Settlement of a class action on behalf of all women with silicone mammary
implants was approved by the U.S. District Court (U.S.D.C.) for the Northern
District of Alabama in December 1995. The monetary provisions of the settlement
provide compensation for all present and future plaintiffs and claimants through
a series of specific funds and a disease- compensation program involving certain
specified medical conditions. In addition to the class action, there are a large
number of individual suits currently pending against the company, primarily
consisting of plaintiffs who have opted out of the class action.
The mammary implant litigation includes issues related to which of Baxter's
insurers are responsible for covering each matter and the extent of the
company's claims for contribution against third parties. Baxter believes that a
substantial portion of its liability and defense costs for mammary implant
litigation will be covered by insurance, subject to self-insurance retentions,
exclusions, conditions, coverage gaps, policy limits and insurer solvency.
Plasma-based therapies litigation
Baxter is a defendant in a number of claims
and lawsuits brought by individuals who have hemophilia, all seeking damages for
injuries allegedly caused by antihemophilic factor concentrates VIII or IX
derived from human blood plasma (factor concentrates) processed by the company
from the late 1970s to the mid-1980s. The typical case or claim alleges that the
individual was infected with the HIV virus by factor concentrates, which
contained the HIV virus. None of these cases involves factor concentrates
currently processed by the company.
In addition, Immuno has unsettled claims for damages for injuries allegedly
caused by its plasma-based therapies. A portion of the liability and defense
costs related to these claims will be covered by insurance, subject to
exclusions, conditions, policy limits and other factors. Pursuant to the stock
purchase agreement between the company and Immuno, as revised in April 1999 for
consideration by the company of a 29 million Swiss Franc payment to Immuno as
additional purchase price, approximately 26 million Swiss Francs of the purchase
price is being withheld to cover these contingent liabilities.
Baxter is also a defendant in a number of claims and lawsuits, including one
certified class action in the U.S.D.C. for the Central District of California,
brought by individuals who infused the company's Gammagard(R) IVIG (intravenous
immunoglobulin), all of whom are seeking damages for Hepatitis C infections
allegedly
<PAGE>
46
caused by infusing Gammagard(R) IVIG. In September 2000, the U.S. D.C. for the
Central District of California approved a settlement of the class action that
would provide financial compensation for U.S. individuals who used Gammagard(R)
IVIG between January 1993 and February 1994.
Baxter believes that a substantial portion of the liability and defense costs
related to its plasma-based therapies litigation will be covered by insurance,
subject to self-insurance retentions, exclusions, conditions, coverage gaps,
policy limits and insurer solvency.
Net litigation charges
Baxter began accruing for its estimated liability resulting from the settlement
of the mammary implant-related class action and to litigate or settle cases and
claims involving opt-outs in 1993. In 1998, the company accrued an additional
$250 million for its estimated liability resulting from the class action
settlement and remaining opt-out cases and claims, and recorded a receivable for
related estimated insurance recoveries of $121 million, resulting in an
additional net charge of $129 million.
Baxter began accruing for its estimated worldwide liability for litigation and
settlement costs involving plasma-based therapies in 1993. The company revised
its estimate of liabilities and insurance recoveries in 1998, and accrued an
additional $180 million for its estimated liability for plasma-based therapies
litigation and other litigation and recorded a receivable for related estimated
insurance recoveries of $131 million, for a net charge of $49 million.
In 2000, the company recorded $29 million of income relating to its mammary
implant and plasma-based therapies litigation. The income was principally a
result of favorable adjustments to the mammary implant insurance receivables due
to settlements negotiated with certain insurance companies during 2000.
Other
Allegiance Corporation (Allegiance) was spun off from the company in a
tax-free distribution to shareholders on September 30, 1996. As of September 30,
1996, Allegiance assumed the defense of litigation involving claims related to
its businesses, including certain claims of alleged personal injuries as a
result of exposure to natural rubber latex gloves. Although Allegiance has not
been named in all of this litigation, it will be defending and indemnifying
Baxter pursuant to certain contractual obligations for all expenses and
potential liabilities associated with claims pertaining to latex gloves.
In addition to the cases discussed above, Baxter is a defendant in a number of
other claims, investigations and lawsuits, including certain environmental
proceedings. Based on the advice of counsel, management does not believe that,
individually or in the aggregate, these other claims, investigations and
lawsuits will have a material adverse effect on the company's results of
operations, cash flows or consolidated financial position.
In November 1999, the company and Nexell Therapeutics Inc. (Nexell) entered
into an agreement whereby Baxter agreed to issue put rights in connection with a
$63 million private placement by Nexell of preferred stock. This preferred stock
is convertible at the option of the holders into common stock of Nexell at $11
per share at any time until November 2006. The put rights provide the holders of
the preferred stock with the ability to cause Baxter to purchase the preferred
stock from November 2002 until November 2004. The purchase price to be paid by
Baxter would reflect a per annum compounded return to the holders of the
preferred stock of 5.91%.
In connection with the spin-off of its cardiovascular business, Baxter
obtained a ruling from the Internal Revenue Service to the effect that the
distribution should qualify as a tax-free spin-off in the United States. In many
countries throughout the world, Baxter has not sought similar rulings from the
local tax authorities and has taken the position that the spin-off was a tax-
free event to Baxter. In the event that one or more countries' taxing
authorities successfully challenge this position, Baxter would be liable for any
resulting liability. Baxter believes that it has established adequate reserves
to cover the expected tax liabilities. There can be no assurance, however, that
Baxter will not incur losses in excess of such reserves.
[13] Segment Information
Baxter operates in three segments, each of which are strategic businesses that
are managed separately because each business develops, manufactures and sells
distinct products and services. The segments are as follows: Medication
Delivery, medication delivery products and services, including intravenous
infusion pumps and solutions, anesthesia-delivery devices and pharmaceutical
agents; BioScience, biopharmaceutical and blood-collection, separation and
storage products and technologies; and Renal, products and services to treat
end-stage kidney disease. As discussed in Note 2, the company spun off Edwards
on March 31, 2000. Financial information for Edwards, which is substantially the
same as the former CardioVascular segment, is reflected in the consolidated
financial statements as a discontinued operation.
Management utilizes more than one measurement and multiple views of data to
measure segment performance and to allocate resources to the segments. However,
the dominant measurements are consistent with the company's consolidated
financial statements and, accordingly, are reported on the same basis herein.
Management evaluates the performance of its segments and allocates resources to
them primarily based on pretax income along with cash flows and overall economic
returns. Intersegment sales are generally accounted for at amounts comparable to
sales to unaffiliated customers, and are eliminated in consolidation. The
accounting policies of the segments are substantially the same as those
described in the summary of significant accounting policies, as discussed in
Note 1.
Certain items are maintained at the company's corporate headquarters
(Corporate) and are not allocated to the segments. They primarily include most
of the company's debt and cash and equivalents and related net interest expense,
corporate headquarters costs, certain non-strategic investments and
<PAGE>
47
nonrecurring gains and losses, deferred income taxes, certain foreign currency
fluctuations, hedging activities, and certain litigation liabilities and related
insurance receivables. With respect to depreciation and amortization, and
expenditures for long-lived assets, the difference between the segment totals
and the consolidated totals principally related to assets maintained at
Corporate.
Segment information
as of and for the years ended December 31 (in millions)
Medication
Delivery BioScience Renal Other Total
- ---------------------------------------------------------------------------
2000
Net sales $2,719 $2,353 $1,824 $ - $6,896
Depreciation
and amortization 147 125 96 37 405
Pretax income 426 533 310 (323) 946
Assets 2,453 2,935 1,591 1,754 8,733
Expenditures for
long-lived assets 185 248 126 89 648
- ---------------------------------------------------------------------------
1999
Net sales $2,524 $2,176 $1,680 $ - $6,380
Depreciation
and amortization 145 114 81 32 372
Pretax income 424 435 318 (125) 1,052
Assets 2,447 2,632 1,342 3,223 9,644
Expenditures for
long-lived assets 175 235 125 96 631
- ---------------------------------------------------------------------------
1998
Net sales $2,314 $1,862 $1,530 $ - $5,706
Depreciation
and amortization 137 101 81 25 344
Pretax income 392 404 223 (526) 493
Assets 2,257 2,655 1,353 3,608 9,873
Expenditures for
long-lived assets 146 212 129 69 556
- ---------------------------------------------------------------------------
Pretax income reconciliation
for the years ended
December 31 (in millions) 2000 1999 1998
- ---------------------------------------------------------------------------
Total pretax income from segments $ 1,269 $ 1,177 $ 1,019
Unallocated amounts:
In-process research and
development expense and
acquisition-related costs (286) - (116)
Charge for exit and other
reorganization costs - - (122)
Net litigation income (costs) 29 - (178)
Interest expense, net (85) (87) (124)
Certain currency exchange
rate fluctuations 15 25 27
Other Corporate items 4 (63) (13)
- ---------------------------------------------------------------------------
Consolidated income from continuing
operations before income taxes
and cumulative effect of
accounting change $ 946 $ 1,052 $ 493
==============================
Assets reconciliation
as of December 31 (in millions) 2000 1999 1998
- ------------------------------------------------------------------------
Total segment assets $6,979 $6,421 $6,265
Unallocated assets
Cash and equivalents 579 606 709
Deferred income taxes 308 417 583
Insurance receivables 277 417 639
Net assets of discontinued operation - 1,231 1,275
Other Corporate assets 590 552 402
- ------------------------------------------------------------------------
Consolidated total assets $8,733 $9,644 $9,873
==========================
Geographic information
Net sales are based on product shipment destination and long-lived assets are
based on physical location.
as of and for the years ended
December 31 (in millions) 2000 1999 1998
- ---------------------------------------------------------
Net sales
United States $3,194 $2,921 $2,609
Japan 485 482 405
Other countries 3,217 2,977 2,692
- ---------------------------------------------------------
Consolidated net sales $6,896 $6,380 $5,706
========================
Long-lived assets
United States $1,543 $1,361 $1,250
Austria 294 344 326
Other countries 970 945 869
- ---------------------------------------------------------
Consolidated long-lived assets $2,807 $2,650 $2,445
========================
[14] Subsequent Event
On February 27, 2001, Baxter's board of directors approved a 2 for 1 stock split
of the company's common shares. This approval is subject to shareholder approval
of the authorization of additional shares at the company's annual meeting to be
held on May 1, 2001.
Baxter's historical earnings per share for the years ended December 31, on a
pro forma basis assuming the stock split had occurred as of January 1, 1998,
would be as follows (unaudited).
2000 1999 1998
- -----------------------------------------------------------------
Pro forma earnings per basic
common share
Continuing operations $ 1.26 $ 1.35 $ 0.49
Discontinued operation 0.01 0.08 0.07
Cumulative effect of
accounting change - (0.05) -
- -----------------------------------------------------------------
Net income $ 1.27 $ 1.38 $ 0.56
=========================
Pro forma earnings per diluted
common share
Continuing operations $ 1.23 $ 1.32 $ 0.48
Discontinued operation 0.01 0.08 0.07
Cumulative effect of
accounting change - (0.05) -
- -----------------------------------------------------------------
Net income $ 1.24 $ 1.35 $ 0.55
=========================
<PAGE>
48
15 Quarterly Financial Results and Market for the Company's Stock (Unaudited)
<TABLE>
<CAPTION>
First Second Third Fourth Total
years ended December 31 (in millions, except per share data) quarter quarter quarter quarter year
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
2000
Net sales $ 1,583 $ 1,694 $ 1,687 $ 1,932 $ 6,896
Gross profit 687 747 762 867 3,063
Income from continuing operations/1/ 191 46 231 270 738
Net income/1/ 191 48 231 270 740
Per common share
Income from continuing operations/1/
Basic .66 .15 .78 .92 2.52
Diluted .65 .15 .77 .90 2.47
Net income/1/
Basic .66 .16 .78 .92 2.53
Diluted .65 .16 .77 .90 2.48
Dividends declared - - - 1.164 1.164
Market price
High 67.56 72.00 84.75 88.62 88.62
Low 51.81 56.44 69.50 75.75 51.81
- --------------------------------------------------------------------------------------------------------------------------------
1999
Net sales $ 1,462 $ 1,560 $ 1,589 $ 1,769 $ 6,380
Gross profit 625 690 713 784 2,812
Income from continuing operations before cumulative
effect of accounting change 162 189 197 231 779
Net income/2/ 151 207 210 229 797
Per common share
Income from continuing operations before cumulative
effect of accounting change
Basic .56 .65 .67 .80 2.69
Diluted .55 .64 .67 .78 2.64
Net income/2/
Basic .53 .71 .72 .79 2.75
Diluted .52 .70 .71 .77 2.70
Dividends declared .2910 .2910 .2910 .2910 1.164
Market price
High 75.94 68.63 70.75 68.75 75.94
Low 62.56 60.38 58.69 59.31 58.69
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
1. The second quarter of 2000 includes a $286 million charge for in-process
research and development and acquisition-related costs. The fourth quarter of
2000 includes income of $29 million relating to litigation.
2. The first quarter of 1999 includes a $27 million charge for the cumulative
effect of an accounting change. The fourth quarter of 1999 includes a $19
million in net costs associated with effecting the distribution of the
cardiovascular business.
Baxter common stock is listed on the New York, Chicago and Pacific Stock
Exchanges, on the London Stock Exchange and on the Swiss stock exchanges of
Zurich, Basel and Geneva. The New York Stock Exchange is the principal market on
which the company's common stock is traded. At January 31, 2001, there were
approximately 58,800 holders of record of the company's common stock.
<PAGE>
49
Directors and Executive Officers
Board of Directors
Walter E. Boomer
President and
Chief Executive Officer
Rogers Corporation
Pei-yuan Chia
Retired Vice Chairman
Citicorp and Citibank, N.A.
John W. Colloton
Director Emeritus
University of Iowa
Hospitals & Clinics
Susan Crown
Vice President
Henry Crown and Company
Brian D. Finn
Partner
Clayton, Dubilier & Rice, Inc.
Frank R. Frame
Retired Deputy Chairman
The Hongkong and Shanghai
Banking Corporation Limited
Martha R. Ingram
Chairman of the Board
Ingram Industries Inc.
Harry M. Jansen Kraemer, Jr.
Chairman and
Chief Executive Officer
Baxter International Inc.
Arnold J. Levine, Ph.D.
President
The Rockefeller University
Thomas T. Stallkamp
Vice Chairman and
Chief Executive Officer
MSX International
Monroe E. Trout, M.D.
Chairman of the Board
Cytyc Corporation
Fred L. Turner
Senior Chairman
McDonald's Corporation
Honorary Director
William B. Graham
Chairman Emeritus
of the Board
Baxter International Inc.
Executive Officers
Baxter International Inc.
- -------------------------
Brian P. Anderson/1,2/
Senior Vice President
and Chief Financial Officer
Timothy B. Anderson/1,2/
Group Vice President
Corporate Strategy and
Development
Neville J. Jeharajah
Corporate Vice President
Investor Relations and
Financial Planning
Harry M. Jansen Kraemer, Jr./1,2/
Chairman and
Chief Executive Officer
Karen J. May
Corporate Vice President
Human Resources
Steven J. Meyer/1,2/
Treasurer
J. Robert Hurley
Corporate Vice President
Integration Management
John L. Quick
Corporate Vice President
Quality/Regulatory
Jan Stern Reed/1,2/
Corporate Secretary and
Associate General Counsel
Thomas J. Sabatino, Jr./1,2/
Corporate Vice President
and General Counsel
Michael J. Tucker
Senior Vice President
Human Resources and
Communications
Baxter World Trade Corporation
- ------------------------------
Eric A. Beard
Corporate Vice President
and President-Europe, Africa
and Middle East
Carlos del Salto
Senior Vice President
Intercontinental / Asia
and President-Latin America
Thomas H. Glanzmann/1/
Corporate Vice President
and President-Hyland Immuno
Baxter Healthcare Corporation
- -----------------------------
David F. Drohan
Corporate Vice President and
President-Medication Delivery
J. Michael Gatling
Corporate Vice President
Global Manufacturing Operations
Alan L. Heller/2/
Group Vice President
and President-Global Renal
David C. McKee/2/
Corporate Vice President
and Deputy General Counsel
Gregory P. Young
Corporate Vice President
and President-Fenwal
1. Also an executive officer of
Baxter Healthcare Corporation
2. Also an executive officer of
Baxter World Trade Corporation
As of February 28, 2001
<PAGE>
50
Company Information
Corporate Headquarters
Baxter International Inc.
One Baxter Parkway
Deerfield, IL 60015-4633
Telephone: (847) 948-2000
Internet: www.baxter.com
Stock Exchange Listings
Ticker Symbols: BAX, BXL, bax
Baxter common stock is listed on the New York, Chicago
and Pacific Stock Exchanges, on the London Stock Exchange
and on the SWX Swiss Exchange. The New York Stock
Exchange is the principal market on which the company's
common stock is traded.
Annual Meeting
The 2001 Annual Meeting of Shareholders will be held
on Tuesday, May 1, at 10:30 a.m. at the Drury Lane Theatre
in Oakbrook Terrace, Illinois.
Stock Transfer Agent
Correspondence concerning Baxter International stock holdings,
lost or missing certificates or dividend checks, duplicate mailings
or changes of address should be directed to:
Equiserve
P.O. Box 2500
Jersey City, NJ 07303-2500
Telephone: (800) 446.2617 / (201) 324-0498
Internet: www.equiserve.com
Correspondence concerning Baxter International Contingent
Payment Rights related to the acquisition of Somatogen, Inc.
should be directed to:
U.S. Bank Trust National Association
Telephone: (800) 934-6802 / (312) 228-9455
Dividend Reinvestment
The company offers an automatic dividend-reinvestment
program to all holders of Baxter International Inc. common
stock. A detailed brochure is available upon request from:
Equiserve
P.O. Box 2598
Jersey City, NJ 07303-2598
Telephone: (800) 446-2617 / (201) 324-0498
Internet: www.equiserve.com
Information Resources
Internet
www.baxter.com
Please visit our Internet site for:
. General company information
. Corporate news or earnings releases
. Annual report
. Form 10-Q
. Form 10-K
. Proxy statement
. Annual environmental report
Shareholders may elect to receive future proxy materials
and annual reports on-line via the Internet instead of receiving
them by mail. To sign up for this service, please go to
http://www.econsent.com/bax. When the next proxy materials
and annual reports are distributed, you will be supplied with a
proxy control number and a link to the Web site where you can
cast your proxy vote on-line. Once you provide your consent
to receive electronic delivery of proxy materials via the Internet,
your consent will remain in effect until you revoke it.
Shareholders also may access personal account information
on-line via the Internet by visiting www.equiserve.com and
selecting the "Account Access" menu.
Investor Relations
Securities analysts, investment professionals and investors
seeking additional investor information should contact:
Baxter Investor Relations
Telephone: (847) 948-4551
Customer Inquiries / General Information
Customers who would like general information about
Baxter's products and services may call the Center for
One Baxter toll free in the United States at (800) 422-9837,
or by dialing (847)
948-4770.
___________________________________________
(C)Baxter International Inc., 2001. All rights reserved.
References in this report to Baxter are intended to refer collectively
to Baxter International Inc. and its U.S. and international subsidiaries
and their operating divisions.
Aurora, Colleague, Extraneal, Ipump, Meridian, NeisVac-C, Physioneal,
Recombinate, Tina and Tisseel are trademarks of Baxter International
Inc., its subsidiaries or affiliates.
PSA 4000 is a trademark of Physiometrix Inc.
AGGRASTAT is a trademark of Merck & Co.
Baxter would like to thank Cornerstone Medical in Wheaton, Illinois,
for the use of its facility in taking the photo that appears on the cover
of this report.
Design / Paragraphs Design Inc., Chicago
Printing / George Rice & Sons, Los Angeles
<PAGE>
Five-Year Summary of Selected Financial Data
<TABLE>
<CAPTION>
as of or for the years ended December 31 2000/1,2/ 1999 1998/3/ 1997/4/ 1996/2/
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Operating Net sales $ 6,896 6,380 5,706 5,259 4,583
Results Income from continuing operations $ 738 779 275 371 505
(in millions) Depreciation and amortization $ 405 372 344 318 269
Research and development expenses/5/ $ 379 332 323 339 291
- ------------------------------------------------------------------------------------------------------------------------------------
Balance Sheet Capital expenditures $ 648 631 556 454 362
and Cash Flow Total assets $ 8,733 9,644 9,873 8,511 7,407
Information Long-term debt and lease obligations $ 1,726 2,601 3,096 2,635 1,695
(in millions) Cash flows from continuing operations $ 1,233 977 837 472 530
Cash flows from discontinued operation $ (19) 106 102 86 108
Cash flows from investing activities $ (1,053) (735) (872) (1,083) (552)
Cash flows from financing activities $ (120) (445) 173 265 216
- ------------------------------------------------------------------------------------------------------------------------------------
Common Stock Average number of common shares
Information outstanding (in millions)/6/ 292 290 284 278 272
Income from continuing operations
per common share
Basic $ 2.52 2.69 0.97 1.34 1.85
Diluted $ 2.47 2.64 0.95 1.31 1.82
Cash dividends declared
per common share $ 1.164 1.164 1.164 1.139 1.17
Year-end market price
per common share $ 88.31 62.81 64.31 50.44 41.00
- ------------------------------------------------------------------------------------------------------------------------------------
Other Net-debt-to-capital ratio 40.1% 40.2% 48.4% 46.9% 33.8%
Information "Operational cash flow" from
continuing operations (in millions)/7/ $ 588 588 379 153 341
Total shareholder return/8/ 48.1% (0.5%) 30.1% 25.9% 13.9%
Common stockholders of record
at year-end 59,100 61,200 61,000 62,900 65,400
===========================================================
</TABLE>
1. Income from continuing operations includes a charge for in-process research
and development and acquisition-related costs of $286 million and income from
litigation of $29 million.
2. Certain balance sheet and other data are affected by the spin-off of Edwards
Lifesciences Corporation in 2000 and the spin-off of Allegiance Corporation
in 1996.
3. Income from continuing operations includes charges for in-process research
and development, net litigation, and exit and other reorganization costs of
$116 million, $178 million and $122 million, respectively.
4. Income from continuing operations includes a charge for in-process research
and development of $220 million.
5. Excludes charges for in-process research and development, as noted above.
6. Excludes common stock equivalents.
7. The company's internal "operational cash flow" measurement is defined on page
24 and is not a measure defined by generally accepted accounting principles.
8. Represents the total of appreciation in market price plus cash dividends
declared on common shares plus the effect of any stock dividends for the
year.
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-21
<SEQUENCE>7
<FILENAME>dex21.txt
<DESCRIPTION>SUBSIDIARIES OF BAXTER
<TEXT>
<PAGE>
EXHIBIT 21
- --------------------------------------------------------------------------------
Subsidiaries of the Company, as of March 14, 2001
<TABLE>
<CAPTION>
% owned by
Organized immediately
Subsidiary under laws of parent
- -------------------------------------------------------------------------------
<S> <C> <C>
Baxter International Inc......................... Delaware
Baxter Healthcare Corporation.................. Delaware 100
Baxter World Trade Corporation................. Delaware 100
Baxter Pharmacy Services Corporation......... Delaware 100(3)
Baxter Healthcare Corporation of Puerto
Rico...................................... Alaska 100
Baxter Sales and Distribution Corp......... Delaware 100
Baxter Biotech Holding AG.................... Switzerland 100
Baxter Healthcare Pte. Ltd................. Singapore 100
Baxter World Trade S.A................... Belgium 46.21(2)
Baxter Healthcare S.A...................... Switzerland 100
Baxter World Trade S.A................... Belgium 53.78(2)
Baxter Trading GmbH...................... Switzerland 95(2)
Baxter Trading GmbH...................... Austria 99.9(2)
Baxter AG................................ Austria 100
Baxter Biotech Technology S.a.r.l........ Switzerland 100(1)
Baxter Corporation........................... Canada 100
Baxter Deutschland Holding GmbH.............. Germany 100
Baxter Deutschland GmbH.................... Germany 99.99(2)
Baxter Healthcare (Holdings) Limited......... United Kingdom 99.99(2)
Baxter Healthcare Limited.................. United Kingdom 99.99(2)
Baxter Holdings Limited...................... Japan 100
Baxter Limited............................. Japan 100
Baxter Representacoes Ltda................... Brazil 100
Baxter Hospitalar Ltda..................... Brazil 99.99(2)
Baxter S.A................................... Belgium 98.43(2)
Baxter Sweden AB........................... Sweden 100
Althin Medical AB.......................... Sweden 44(2)
Baxter S.A................................. France 64.58(1)(2)
Baxter S.A. de C.V........................... Mexico 99.9(2)
Baxter S.p.A................................. Italy 99.98(2)
Bieffe Medital S.p.A....................... Italy 99
Baxter Biosciences AG........................ Switzerland 100
Baxter Dialysis Holding AB..................... Sweden 80(2)
Althin Medical AB............................ Sweden 56(2)
- -------------------------------------------------------------------------------
</TABLE>
Subsidiaries omitted from this list, considered in aggregate as a single
subsidiary, would not constitute a significant subsidiary. All subsidiaries set
forth herein are reported in the Company's financial statements through
consolidation or under the equity method of accounting.
* * * * * *
(1) Including nominee shares.
(2) Remaining shares owned by the Company, or other subsidiaries of the
Company.
(3) Of common stock, with preferred stock held by Baxter Healthcare
Corporation.
37
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23
<SEQUENCE>8
<FILENAME>dex23.txt
<DESCRIPTION>CONSENT OF INDEPENDENT ACCOUNTANTS
<TEXT>
<PAGE>
EXHIBIT 23
- -------------------------------------------------------------------------------
Consent of Independent Accountants
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (Nos. 2-82667, 2-86993, 2-97607, 33-8812, 33-8813, 33-
15523, 33-15787, 33-28428, 33-33750, 33-54069, 333-43563, 333-47019, 333-
71553, 333-88257, 333-80403 and 333-48906) on Form S-3 (Nos. 33-5044, 33-
23450, 33-27505, 33-31388, 33-49820 and 333-19025, 333-94889, 333-38564 and
333-54014) and on Form S-4 (Nos. 33-808, 33-15357, 33-53937, 333-21327, 333-
47927 and 333-36670) of Baxter International Inc. of our report dated February
16, 2001, except for Note 14, which as of February 28, 2001, relating to the
financial statements, which appears in the Annual Report to Stockholders,
which is incorporated in this Annual Report on Form 10-K. We also consent to
the incorporation by reference of our report dated February 16, 2001 relating
to the financial statement schedule, which appears in this Form 10-K.
PricewaterhouseCoopers LLP
Chicago, Illinois
March 13, 2001
38
</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
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