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baxter international

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  • 1. -----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, AfjoVG498rTj7ClAT8LubmxOrMEgN/jzejHW6zzlKcjOh79ysfTKxhdSpJlzJ3+x 8xjVrHIAteLnw8GH7b/9cA== <SEC-DOCUMENT>0000950131-98-001860.txt : 19980323 <SEC-HEADER>0000950131-98-001860.hdr.sgml : 19980323 ACCESSION NUMBER: 0000950131-98-001860 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 14 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980320 SROS: CSX SROS: NYSE SROS: PCX 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: 98570280 BUSINESS ADDRESS: STREET 1: ONE BAXTER PKWY CITY: DEERFIELD STATE: IL ZIP: 60015 BUSINESS PHONE: 7089482000 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 <DESCRIPTION>FORM 10-K <TEXT>
  • 2. <PAGE> - ------------------------------------------------------------------------------- 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, 1997 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 - ------------------------------------------------------------------------------- LOGO 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) 847.948.2000 Registrant's telephone number, including area code ____________________________ Securities registered pursuant to Section 12(b) of the Act: NAME OF EACH EXCHANGE TITLE OF EACH CLASS ON WHICH REGISTERED -------------------- Common stock, $1 par value New York Stock Exchange Chicago Stock Exchange Preferred Stock Purchase Rights Pacific Stock Exchange (currently traded with common stock) New York Stock Exchange Chicago Stock Exchange Pacific Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None ---------------- Indicate by check mark whether the registrant (1) has filed all reports
  • 3. required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. X Yes No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein and will not be contained, to the best of registrant's knowledge, in the definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [_] The aggregate market value of the voting common equity held by non- affiliates of the registrant (based on the per share closing sale price of $55.38 on March 6, 1998, and for the purpose of this computation only, the assumption that all registrant's directors and executive officers are affiliates) was approximately $15.3 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 March 6, 1998, was 280,661,677. DOCUMENTS INCORPORATED BY REFERENCE Those sections or portions of the registrant's annual report to stockholders for fiscal year ended December 31, 1997 and of the registrant's proxy statement for use in connection with its annual meeting of stockholders to be held on May 5, 1998, described in the cross reference sheet and table of contents attached hereto are incorporated by reference in this report. - ------------------------------------------------------------------------------- <PAGE> CROSS REFERENCE SHEET AND TABLE OF CONTENTS - ------------------------------------------------------------------------------- <TABLE> <CAPTION> Page Number (Reference) (1) ----------- <C> <S> <C> Item 1. Business (a)General Development of Business.................... 1(2) (b)Financial Information about Industry Segments...... 1(3) (c)Narrative Description of Business.................. 1(4) (d)Financial Information about Foreign and Domestic Operations and Export Sales.......................................... 5(5) Item 2. Properties............................................ 5 Item 3. Legal Proceedings..................................... 6(6) Item 4. Submission of Matters to a Vote of Security Holders... 6 Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters................................... 6(7) Item 6. Selected Financial Data............................... 6(8) Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations................... 6(9) Item 7A. Quantitative and Qualitative Disclosures about Market
  • 4. Risk.................................................. 6(10) Item 8. Financial Statements and Supplementary Data........... 6(11) Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure................... 6 Item 10. Directors and Executive Officers of the Registrant (a)Identification of Directors........................ 7(12) (b)Identification of Executive Officers............... 7 (c)Compliance with Section 16(a) of the Securities Exchange Act of 1934.................................. 9(13) Item 11. Executive Compensation................................ 9(14) Item 12. Security Ownership of Certain Beneficial Owners and Management............................................ 9(15) Item 13. Certain Relationships and Related Transactions........ 9 Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.............................................. 9 (a)Financial Statements............................... 9 (a)Reports on Form 8-K................................ 9 (c)Exhibits........................................... 9 </TABLE> - --------------------- (1) Information incorporated by reference to the Company's Annual Report to Stockholders for the year ended December 31, 1997 ("Annual Report") and the board of directors' proxy statement for use in connection with the Registrant's annual meeting of stockholders to be held May 5, 1998 ("Proxy Statement"). (2) Annual Report, pages 31-46, section entitled "Notes to Consolidated Financial Statements" and pages 17-24, section entitled "Management's Discussion and Analysis." (3) Annual Report, pages 44-45, section entitled "Notes to Consolidated Financial Statements--Industry and Geographic Information." (4) Annual Report, pages 17-24, section entitled "Management's Discussion and Analysis" and pages 44-45, section entitled "Notes to Consolidated Financial Statements--Industry and Geographic Information." (5) Annual Report, pages 44-45, section entitled "Notes to Consolidated Financial Statements--Industry and Geographic Information." (6) Annual Report, pages 41-44, section entitled "Notes to Consolidated Financial Statements--Legal Proceedings." (7) Annual Report, page 46, section entitled "Notes to Consolidated Financial Statements--Quarterly Financial Results and Market for the Company's Stock (Unaudited)." (8) Annual Report, inside back cover, section entitled "Five-Year Summary of Selected Financial Data." (9) Annual Report, pages 17-24, section entitled "Management's Discussion and Analysis." (10) Annual Report, pages 21-22, section entitled "Financial Instrument Market Risk." (11) Annual Report, pages 26-46, sections entitled "Report of Independent Accountants," "Consolidated Balance Sheets," "Consolidated Statements of Income," "Consolidated Statements of Cash Flows," "Consolidated Statements of Stockholders' Equity" and "Notes to Consolidated Financial Statements." (12) Proxy Statement, pages 2-5, section entitled "Proposal 1--Election of Directors." (13) Proxy Statement, page 16, section entitled "Section 16(a) Beneficial Ownership Reporting Compliance." (14) Proxy Statement, pages 6-10, sections entitled "Compensation of Directors" and "Executive Compensation," and pages 14-15, section entitled "Pension Plan, Excess Plans and Supplemental Plans." (15) Proxy Statement, pages 16-17, section entitled "Ownership of Company Securities." <PAGE> - --------------------------------------------------------------------------------
  • 5. LOGO 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" means Baxter International Inc. and the "Company" means Baxter and its subsidiaries. The Company is engaged in the worldwide development, distribution and manufacture of a diversified line of products, systems and services used primarily in the health-care field. Products are manufactured by the Company in 25 countries and sold in approximately 100 countries. Health-care is concerned with the preservation of health and with the diagnosis, cure, mitigation and treatment of disease and body defects and deficiencies. The Company's products are used by hospitals, clinical and medical research laboratories, blood and dialysis centers, rehabilitation centers, nursing homes, doctors' offices and at home under physician supervision. See "Recent Developments." For information regarding acquisitions, investments in affiliates and divestitures, see the Company's Annual Report to Stockholders for the year ended December 31, 1997 (the "Annual Report"), pages 32-33, sections entitled "Notes to Consolidated Financial Statements--Acquisitions and Divestitures," and "--Subsequent Events" which are incorporated by reference. (b) Financial Information About Industry Segments. Incorporated by reference from the Annual Report, pages 44-45, section entitled "Notes to Consolidated Financial Statements--Industry and Geographic Information." (c) Narrative Description of Business. Recent Developments VIMRX In December 1997, the Company and VIMRX Pharmaceuticals Inc. formed a new cell therapy company to develop innovative treatments for cancer and other life-threatening diseases. The Company transferred certain assets of its Immunotherapy division to the new company and holds a minority-ownership position along with warrants to acquire an additional ownership interest in the future. Ohmeda In January 1998, the Company signed a definitive agreement to acquire the Pharmaceutical Products Division of the BOC Group's Ohmeda health-care business, a manufacturer of gases and drugs used for general and local anesthesia. The transaction is subject to customary anti-trust review and is expected to close in 1998. Somatogen
  • 6. In February 1998, the Company signed a definitive agreement to acquire Somatogen, Inc., a publicly-held biopharmaceutical developer of recombinant hemoglobin technology. It is expected that a substantial portion of the purchase price will be allocated to Somatogen's in-process research and development, which, under generally accepted accounting principles, will be immediately expensed by the Company. The transaction is subject to approval of Somatogen's shareholders and customary anti-trust review; it is expected to close in 1998. 1 <PAGE> Company Overview The Company operates in a single industry segment as a global developer, manufacturer and marketer of products and technologies related to the blood and circulatory system. It has market-leading positions in four businesses within this segment of the medical products and services industry: Blood Therapies, which develops biopharmaceutical and blood collection and separation products and technologies; I.V. Systems/Medical Products, which develops technologies and systems to improve intravenous medication delivery and distributes medical products; Renal, which develops products and services to treat kidney disease; and CardioVascular, which develops products and provides services to treat late-stage heart disease and vascular disorders. Information about operating results is incorporated by reference from the Annual Report, pages 17-21, section entitled "Management's Discussion and Analysis" and pages 44-45, section entitled "Notes to Consolidated Financial Statements--Industry and Geographic Information." United States Markets The health-care marketplace continues to be competitive. There has been consolidation in the Company's customer base and by its competitors which has resulted in pricing and market share pressures. These industry trends are expected to continue. The Company intends to continue to manage these issues by capitalizing on its market-leading positions, developing new products and services, leveraging its cost structure and making acquisitions. International Markets The Company generates more than 50% 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 such as Latin America and Asia. The Company's strategies emphasize global expansion and technological innovation to advance medical care worldwide. Joint Ventures The Company conducts an immaterial portion of its business through joint ventures. The majority of these joint ventures are accounted for under the equity method of accounting. Methods of Distribution The Company conducts its selling efforts through its subsidiaries and divisions. Many subsidiaries and divisions have their own sales forces and direct their own sales efforts. In addition, sales are made to independent distributors, dealers and sales agents. The Company's distribution centers are 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,
  • 7. circulation of catalogs and merchandising bulletins, direct mail campaigns, trade publications and advertising. Customers may return defective merchandise for credit or replacement. In recent years, such returns have been insignificant. International sales and distribution are made in approximately 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, Denmark, Ecuador, Finland, France, Germany, Guatemala, Hong Kong, India, Indonesia, Italy, Japan, Malaysia, Mexico, the Netherlands, New Zealand, Norway, Peru, the Philippines, Portugal, Singapore, Spain, Switzerland, Taiwan, Thailand, the United Kingdom and Venezuela. In other countries, sales are made through independent distributors or sales agents. Raw Materials Raw materials essential to the Company's business are purchased worldwide in the ordinary course of business from numerous suppliers. The vast majority of these materials are generally available, and no serious shortages or delays have been encountered. Certain raw materials used in producing some of the Company's products are available only from a small number of suppliers. In addition, certain biomaterials for medical implant applications (primarily polymers) are becoming more difficult to obtain due to market withdrawals by biomaterial suppliers, primarily as a result of perceived exposures to liability in the United States. 2 <PAGE> In some of these situations, the Company has long-term supply contracts with its suppliers, although it does not consider its obligations under such contracts to be material. The Company does not always recover cost increases through customer pricing due to contractual limits and market pressure on such price increases. See "Contractual Arrangements." Patents and Trademarks Products manufactured by the Company are sold primarily under its own trademarks and trade names. Some products purchased and resold by the Company are sold under the Company's trade names while others are sold under trade names owned by its suppliers. The Company owns a number of patents and trademarks throughout the world and is licensed under patents owned by others. The Company's policy is to protect its products and technology through patent and trademark applications on a worldwide basis. This protection is sought in a manner that balances the cost of such protection against obtaining the greatest value for the Company. The Company also recognizes the need to promote the enforcement of its patents and trademarks. However, while the Company can not make any assurances that any of its patents will not be circumvented, it does not consider its overall business to be materially dependent upon any individual patent or trademark. Competition Historically, competition in the health-care industry has been characterized by the search for technological and therapeutic innovations in the prevention, diagnosis and treatment of disease. The Company believes that it has benefited from the technological advantages of certain of its products. While others will continue to introduce new products which compete with those sold by the Company, the Company believes that its research and development efforts will permit it to remain competitive in all presently material product areas. Although no single company competes with the Company in all of its businesses, the Company is faced with substantial competition in all of its markets.
  • 8. The changing health-care environment in recent years has led to increasingly intense competition among United States 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 United States 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 continues to emphasize its investments in innovative and cost-effective technologies and the quality of its products and services. Credit and Working Capital Practices As of February 28, 1998, the Company's debt ratings on senior debt were A3 by Moody's, A by Standard & Poor's and A- by Duff & Phelps. The Company's credit practices and related working capital needs are comparable to those of other market participants. Collection periods tend to be longer for sales outside the United States. Quality Management The Company places significant emphasis on providing quality products and services to its customers. A major portion of the Company's quality systems relate to the manufacturing, packaging, sterilization, handling, distribution and labeling of the products by the Company. These quality systems, including control procedures that are developed and implemented by technically trained professionals, result in rigid specifications for raw materials, packaging materials, labels, sterilization procedures and overall manufacturing process control. The quality systems integrate the efforts of suppliers of both raw materials and finished goods to provide the highest value to customers. On a statistical sampling basis, internal quality assurance organizations test components and finished goods at different stages in the manufacturing process to assure that exacting standards are met. 3 <PAGE> Research and Development The Company is actively engaged in research and development programs to develop and improve products, systems and manufacturing methods. These activities are performed at 21 research and development centers located around the world and include facilities in Australia, Austria, Belgium, France, Germany, Italy, Japan, Malta, the Netherlands, Sweden, the United Kingdom and the United States. Expenditures for Company-sponsored research and development activities were $392 million in 1997, $340 million in 1996 and $327 million in 1995. Principal areas of strategic focus for research include hemoglobin therapeutics, xenotransplantation, medication-delivery systems and left- ventricular systems. The Company is conducting several clinical trials of its hemoglobin therapeutic, or "blood substitute," in the United States and Europe. The Company currently anticipates launching the product by late 1999 or early in the year 2000. 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.
  • 9. Government Regulation Most products manufactured or sold by the Company are subject to regulation by the Food and Drug Administration (the "FDA"), as well as by other agencies, both within and outside the United States. In the United States, the federal agencies which regulate the Company's facilities, operations and personnel include the FDA, the Environmental Protection Agency, the Occupational Health & Safety Administration, the Customs Department, the Commerce Department, and others. State agencies also regulate the facilities, operations and personnel of the Company within their respective states. The federal agencies possess authority to regulate the introduction and advertising of the Company's products and devices as well as manufacturing procedures, labeling and recordkeeping. In addition, the FDA has the power, among other powers, to enjoin the manufacture or sale of products and devices, to seize adulterated or misbranded products and devices and to require the manufacturer to remove them from the market. From time to time, the Company has removed products from the market that were found not to meet acceptable standards. This may occur in the future. Product regulatory laws exist in most other countries where the Company does business. These foreign government agencies also regulate public health, environmental, employment, export, customs, and other aspects of the Company's global operations. Environmental policies of the Company mandate compliance with all applicable regulatory requirements concerning environmental quality and contemplate, among other things, appropriate capital expenditures for environmental protection. Various non-material capital expenditures for environmental protection were made by the Company during 1997 and similar expenditures are planned for 1998. See Item 3.--"Legal Proceedings." Employees As of December 31, 1997, the Company employed approximately 41,000 people. Contractual Arrangements A substantial portion of the Company's products are sold through contracts with both international and domestic purchasers. Some of these contracts are for terms of more than one year and include limits on price increases. In the case of hospitals, clinical laboratories and other facilities, these contracts may specify minimum quantities of a particular product or categories of products to be purchased by the customer. 4 <PAGE> 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 Developments" 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
  • 10. capacity, new plant start-ups, the United States and global regulatory, trade and tax policies, continued price competition related to the Company's United States operations, product development risks, including technological difficulties, ability to enforce patents and unforeseen foreign commercialization and regulatory factors. In particular, the Company, as well as other companies in its industry, is experiencing increased regulatory activity by the United States FDA with respect to its plasma-based biologicals and its complaint-handling systems. Additionally, as discussed in Item 3.-- "Legal Proceedings," upon the resolution of certain legal matters, the Company may incur charges in excess of presently established reserves. Any such charge could have a material adverse effect on the Company's results of operations or cash flows in the period in which it is recorded. Currency fluctuations are also a significant variable for global companies, especially fluctuations in local currencies where hedging opportunities are unreasonably expensive or unavailable. If the United States dollar continues to strengthen against most foreign currencies, the Company's ability to realize projected growth rates in its sales and net earnings outside the United States will continue to be negatively impacted. The Company believes that its expectations with respect to forward looking statements are based upon reasonable assumptions within the bounds of its knowledge of its business and operations, but there can be no assurance that the actual results or performance of the Company will conform to any future results or performance expressed or implied by such forward looking statements. (d) Financial Information About Foreign and Domestic Operations and Export Sales. International operations are subject to certain additional risks inherent in conducting business outside the United States, such as changes in currency exchange rates, price and currency exchange controls, import restrictions, nationalization, expropriation and other governmental action. Financial information is incorporated by reference from the Annual Report, pages 44-45, section entitled "Notes to Consolidated Financial Statements-- Industry and Geographic Information." - -------------------------------------------------------------------------------- ITEM 2. PROPERTIES. The Company owns or has long-term leases on substantially all of its major manufacturing facilities. The Company maintains 21 manufacturing facilities in the United States, including six in Puerto Rico, and also manufactures in Australia, Austria, Belgium, Brazil, Canada, China, Colombia, Costa Rica, the Dominican Republic, France, Indonesia, Ireland, Italy, Japan, Malta, Mexico, the Netherlands, the Philippines, Singapore, Spain, Switzerland, Tunisia, Turkey and the United Kingdom. The Company owns or operates distribution facilities throughout the world, including 90 located in 26 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 with the current state of technology and government regulations. Capital expenditures were $403 million in 1997, $318 million in 1996 and $309 million in 1995. In addition, the Company added to the pool of equipment leased or rented to customers, spending $93 million in 1997, $80 million in 1996 and $90 million in 1995. 5 <PAGE>
  • 11. - ------------------------------------------------------------------------------- ITEM 3. LEGAL PROCEEDINGS. Incorporated by reference from the Annual Report, pages 41-44, section entitled "Notes to Consolidated Financial Statements--Legal Proceedings." - ------------------------------------------------------------------------------- ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None. - ------------------------------------------------------------------------------- PART II - ------------------------------------------------------------------------------- ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. Incorporated by reference from the Annual Report, page 46, 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 17-24, section entitled "Management's Discussion and Analysis." - ------------------------------------------------------------------------------- ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. Incorporated by reference from the Annual Report, pages 21-22, section entitled "Financial Instrument Market Risk." - ------------------------------------------------------------------------------- ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. Incorporated by reference from the Annual Report, pages 26-46, sections entitled "Report of Independent Accountants," "Consolidated Balance Sheets," "Consolidated Statements of Income," "Consolidated Statements of Cash Flows," "Consolidated Statements of Stockholders' Equity" and "Notes to Consolidated Financial Statements."
  • 12. - ------------------------------------------------------------------------------- ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. 6 <PAGE> PART III - -------------------------------------------------------------------------------- ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. (a) Identification of Directors Incorporated by reference from the board of directors' proxy statement for use in connection with Baxter's annual meeting of stockholders to be held on May 5, 1998 (the "Proxy Statement"), pages 2-5, section entitled "Proposal 1-- Election of Directors." (b) Identification of Executive Officers Following are the names and ages, as of March 1, 1998, of the executive officers of Baxter International Inc. ("Baxter"), and one or both of its two principal direct subsidiaries, Baxter Healthcare Corporation ("Healthcare") and Baxter World Trade Corporation ("World Trade"), their positions and summaries of their backgrounds and business experience. All executive officers of Baxter are elected or appointed by the board of directors and hold office until the next annual meeting of directors and until their respective successors are elected and qualified. The annual meeting of directors is held after the annual meeting of stockholders. All executive officers of Healthcare and World Trade are elected or appointed by the boards of directors of the applicable subsidiary and hold office until their respective successors are elected and qualified. As permitted by applicable law, actions by these boards (and their sole stockholder, Baxter) may be taken by written consent in lieu of a meeting. (1) Baxter International Inc. Executive Officers Vernon R. Loucks Jr., age 63, has been chairman of the board of directors since 1987 and chief executive officer of Baxter since 1980. Mr. Loucks was first elected an officer of Baxter in 1971. Harry M. Jansen Kraemer Jr., age 43, has been president of Baxter since March 1997. Mr. Kraemer previously was the senior vice president and chief financial officer of Baxter from 1993, and the vice president of finance and operations for a subsidiary of Baxter since 1992. Prior to that, he was employed as controller, group controller, and president of various divisions of subsidiaries of Baxter. Brian P. Anderson, age 47, has the been senior vice president and chief financial officer of Baxter since February 1998. Mr. Anderson previously was the vice president of finance of Baxter since March 1997, the corporate controller since 1993, and the vice president of corporate audit of a subsidiary of Baxter since 1991. Prior to that, he was a partner in the international accounting firm of Deloitte & Touche. Arthur F. Staubitz, age 58, has been a senior vice president of Baxter since December 1997. From 1993 to December 1997, he was senior vice president and general counsel of Baxter. From 1993 to 1994, he was also secretary of Baxter. Mr. Staubitz previously was vice president/general manager of the ventures
  • 13. group of a subsidiary of Baxter. Prior to that, he was senior vice president, secretary and general counsel of Amgen, Inc. Prior to that, he was a vice president of a Baxter subsidiary, and prior to that he was a vice president and deputy general counsel of Baxter. Michael J. Tucker, age 45, has been senior vice president of Baxter since 1995. From 1994 to 1995, he was a corporate vice president of World Trade. Mr. Tucker previously was a vice president of a division of World Trade, and prior to that, was a vice president of another division of a subsidiary of Baxter. Fabrizio Bonanni, age 51, has been a vice president of Baxter since 1995. From 1994 to 1995, he was a corporate vice president of World Trade. Mr. Bonanni previously was a vice president of a division of World Trade. John F. Gaither, Jr., age 48, has been a vice president of Baxter since 1994. Between 1991 and 1994, Mr. Gaither was vice president of law and strategic planning for a subsidiary of Baxter, and prior to that, was secretary and deputy general counsel of Baxter. David C. McKee, age 50, has been a vice president of Baxter since 1996, and was also secretary from February 1997 to February 1998. Since 1994, Mr. McKee has been deputy general counsel of Baxter. Prior to that, he was associate general counsel of a subsidiary of Baxter. 7 <PAGE> Kshitij Mohan, age 53, has been a vice president of Baxter since 1995. In 1995, Mr. Mohan also was a corporate vice president of World Trade. Mr. Mohan previously was a vice president of a division of Healthcare. John L. Quick, age 53, has been a vice president of Baxter since 1995. From 1994 to 1995, he was a corporate vice president of Healthcare. Mr. Quick previously was a vice president of a division of Healthcare, and prior to that, was a vice president of another division of that subsidiary. Thomas J. Sabatino, age 39, has been vice president and general counsel of Baxter since December 1997. He was also assistant secretary from February 1997 to December 1997. From 1995 to December 1997, Mr. Sabatino was associate general counsel of Healthcare. Prior to that, he was vice president and assistant general counsel of Tenet Healthcare Corporation from March 1995 to July 1995. From April 1994 to March 1995, he was vice president and general counsel of American Medical International, Inc., and from September 1993 to March of 1994, he was acting general counsel of that company; from 1992 to September 1993, he was its associate general counsel. Steven J. Meyer, age 41, has been treasurer of Baxter since February 1997. From 1993 to 1997, Mr. Meyer was a vice president of international finance of a business group of World Trade. Mr. Meyer previously was the international controller of a business group of World Trade. Jan Stern Reed, age 38, has been corporate secretary of Baxter since February 1998. She was assistant secretary from February 1997 to February 1998. From 1995 to 1997, Ms. Reed was assistant secretary of, and counsel to Wheelabrator Technologies, Inc. From 1992 to 1995, she was counsel to Waste Management, Inc. and Wheelabrator Technologies, Inc. (2) Healthcare and World Trade Executive Officers Timothy B. Anderson, age 51, has been a group vice president of Healthcare and World Trade since 1994. Between 1992 and 1994, Mr. Anderson was a vice president of Baxter. Mr. Anderson previously was president of several divisions of a subsidiary of Baxter.
  • 14. Donald W. Joseph, age 60, has been a group vice president of Healthcare and World Trade since 1994. Between 1990 and 1994, Mr. Joseph was a vice president of Baxter. Jack L. McGinley, age 51, has been a group vice president of Healthcare since 1994. Between 1992 and 1994, Mr. McGinley was a vice president of Baxter. Mr. McGinley previously was president of a division of Healthcare, and prior to that, he was president of the Japanese subsidiary of World Trade. Michael A. Mussallem, age 45, has been a group vice president of Healthcare since 1994. From 1993 to 1994, Mr. Mussallem was president of a division of Healthcare, and prior to that, was president of another division of that subsidiary. Carlos del Salto, age 55, has been a senior vice president of World Trade since 1996. From 1994 to 1996, Mr. del Salto was a corporate vice president of World Trade. Between 1992 and 1994, Mr. del Salto was a vice president of Baxter. Mr. del Salto previously was president--Latin America/Switzerland/Austria of a subsidiary of Baxter, and prior to that, he was vice president--Latin America of that subsidiary. David F. Drohan, age 59, has been a corporate vice president of Healthcare since 1996. Between 1991 and 1996, Mr. Drohan was president of a division of Healthcare. James M. Gatling, age 48, has been a corporate vice president of Healthcare since 1996. Between 1991 and 1996, Mr. Gatling was a vice president of a division of Healthcare. J. Robert Hurley, age 48, has been a corporate vice president of World Trade since 1993. Mr. Hurley previously was vice president of a division of World Trade. Roberto E. Perez, age 48, has been a corporate vice president of Healthcare and World Trade since 1995. Between 1992 and 1995, Mr. Perez was president of a division of a subsidiary of Baxter, and prior to that, was a vice president of that division. 8 <PAGE> (c) Compliance with Section 16(a) of the Securities Exchange Act of 1934. Incorporated by reference from the Proxy Statement, page 16, section entitled "Section 16(a) Beneficial Ownership Reporting Compliance." - -------------------------------------------------------------------------------- ITEM 11. EXECUTIVE COMPENSATION. Incorporated by reference from the Proxy Statement, pages 6-10, sections entitled "Compensation of Directors" and "Executive Compensation" and pages 14- 15, section entitled "Pension Plan, Excess Plans and Supplemental Plans." - -------------------------------------------------------------------------------- ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. Incorporated by reference from the Proxy Statement, pages 16-17, section entitled "Ownership of Company Securities." -
  • 15. -------------------------------------------------------------------------------- ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. None. - -------------------------------------------------------------------------------- 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 27 Consolidated Statements of Income Annual Report, page 28 Consolidated Statements of Cash Flows Annual Report, page 29 Consolidated Statements of Stockholders' Equity Annual Report, page 30 Notes to Consolidated Financial Statements Annual Report, pages 31- Report of Independent Accountants 46 Annual Report, page 26 Schedules Required By Article 12 of Regulation S-X Report of Independent Accountants on Financial Statement Schedule page 10 II Valuation and Qualifying Accounts page 11 All other schedules have been omitted because they are not applicable or not required. (b) Reports on Form 8-K A report on Form 8-K, dated February 11, 1998, was filed with the SEC under Item 5, Other Events, to file a press release disclosing Baxter's 1997 results. (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. 9 <PAGE> REPORT OF INDEPENDENT ACCOUNTANTS ON THE FINANCIAL STATEMENT SCHEDULE To the Board of Directors of Baxter International Inc. Our audits of the consolidated financial statements referred to in our report dated February 5, 1998 appearing on page 26 of the 1997 Annual Report to Stockholders of Baxter International Inc. (which report and consolidated financial statements are incorporated by reference in the Annual Report on Form 10-K) also included an audit of the Financial Statement Schedule listed in Item 14(a) of this Form 10-K. In our opinion, this Financial Statement Schedule presents fairly, in all material respects, the information set forth therein
  • 16. when read in conjunction with the related consolidated financial statements. PRICE WATERHOUSE LLP Chicago, Illinois February 5, 1998 10 <PAGE> SCHEDULE II - -------------------------------------------------------------------------------- VALUATION AND QUALIFYING ACCOUNTS (In millions) <TABLE> - -------------------------------------------------------------------------------- -------- <CAPTION> Additions ----------------------- Balance at Charged to Charged to Deductions Balance beginning costs and other from at end of Description of period expenses accounts (A) reserves period - -------------------------------------------------------------------------------- -------- <S> <C> <C> <C> <C> <C> <C> <C> Year ended December 31, 1997: Accounts receivable $24 $ 9 $(1) $(3) $29 - -------------------------------------------------------------------------------- -------- Year ended December 31, 1996: Accounts receivable $22 $ 5 $(2) $(1) $24 - -------------------------------------------------------------------------------- -------- Year ended December 31, 1995: Accounts receivable $21 $ 9 $ 1 $(9) $22 - -------------------------------------------------------------------------------- -------- </TABLE> (A) Valuation accounts of acquired or divested companies and foreign currency translation adjustments. 11 <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.
  • 17. /s/ Vernon R. Loucks Jr. By:____________________________________ Vernon R. Loucks Jr. Chairman of the Board and Chief Executive Officer Date: March 17, 1998 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated. (i) Principal Executive Officers: (iv)A Majority of the Board of Directors /s/ Vernon R. Loucks Jr. Walter E. Boomer Vernon R. Loucks Jr. Pei-yuan Chia Director, Chairman of the Board John W. Colloton and Chief Executive Officer Susan Crown /s/ Harry M. Jansen Kraemer Jr. Mary Johnston Evans Harry M. Jansen Kraemer Jr. Martha R. Ingram President Harry M. Jansen Kraemer Jr. (ii) Principal Financial Officer: Arnold J. Levine /s/ Brian P. Anderson Georges C. St. Laurent, Jr. Brian P. Anderson Monroe E. Trout, M.D. Senior Vice President and Chief Reed V. Tuckson, M.D. Financial Officer Fred L. Turner /s/ Vernon R. Loucks Jr. (iii) Controller: By: ____________________________________ /s/ Brian P. Anderson Vernon R. Loucks Jr. Brian P. Anderson Director and Attorney-in-Fact Senior Vice President and Chief Accounting Officer 12 <PAGE> - -------------------------------------------------------------------------------- APPENDICES <TABLE> <CAPTION> DESCRIPTION PAGE - ----------- ---- <S> <C> Computation of Ratio of Earnings to Fixed Charges (Exhibit 12) 16 Subsidiaries of the Company (Exhibit 21) 17 </TABLE> -
  • 18. -------------------------------------------------------------------------------- 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. Instruments defining the rights of security holders, including 4. indentures 4.1* Indenture dated November 15, 1985 between the Company and Bankers Trust Company, filed as exhibit 4.8 to the Company's current report on Form 8-K dated December 16, 1985, file no. 1-4448. 4.2* Amended and Restated Indenture dated November 15, 1985 (the "Indenture"), between the Company and Continental Illinois National Bank and Trust Company of Chicago ("Continental"), filed under the Securities Act of 1933 as exhibit 4.1 to the Company's registration statement on Form S-3 (No. 33-1665). 4.3* First Supplemental Indenture to the Indenture between the Company and Continental, filed under the Securities Act of 1933 as exhibit 4.1(A) to the Company's registration statement on Form S-3 (No. 33-6746). 4.4* Supplemental Indenture dated as of January 29, 1997, between the Company and First Trust National Association (as successor to Continental), filed under the Securities Act of 1933 as exhibit 4.1B to the Company's debt securities shelf registration statement on Form S-3 (No. 333-19025) (the "1997 Shelf"). 4.5* Fiscal and Paying Agency Agreement dated as of April 26, 1984, among American Hospital Supply International Finance N.V., the Company and The Toronto-Dominion Bank, as amended, filed as exhibit 4.9 to the Company's annual report on Form 10-K for the year ended December 31, 1985 (the "1985 Form 10-K"). 4.6* Fiscal and Paying Agency Agreement dated as of November 15, 1984, between the Company and Citibank, N.A., as amended, filed as exhibit 4.16 to the Company's annual report on Form 10-K for the year ended December 31, 1987, file no. 1-4448 (the "1987 Form 10-K"). 4.7* Specimen 9 1/2% Note, filed as exhibit 4.3(a) to the Company's current report on Form 8-K dated June 23, 1988, file no. 1- 4448. 4.8* Specimen 9 1/4% Note, filed as exhibit 4.3(a) to the Company's current report on Form 8-K dated September 13, 1989, file number 1-4448. 4.9* Specimen 9 1/4% Note, filed as exhibit 4.3(a) to the Company's current report on Form 8-K dated December 7, 1989, file number 1-4448. 4.10* Specimen 7.125% Note, filed as exhibit 4.10 to the Company's annual report on Form 10-K for the year ended December 31, 1996 (the "1996 Form 10-K"). 4.11* Specimen 7.65% Debenture, filed as exhibit 4.11 to the 1996 Form 10-K. </TABLE>
  • 19. 13 <PAGE> <TABLE> <C> <C> <S> 10. Material Contracts C 10.1* Form of Indemnification Agreement entered into with directors and officers, filed as exhibit 19.4 to the Company's quarterly report on Form 10-Q for the quarter ended September 30, 1986, file no. 1-4448. C 10.2* 1988 Long-Term Incentive Plan, filed as exhibit 10.12 to the 1987 Form 10-K. C 10.3* 1987-1989 Long-Term Performance Incentive Plan, filed as exhibit 10.15 to the Company's annual report on Form 10-K for the year ended December 31, 1986 (the "1986 Form 10-K"). C 10.4* 1989 Long-Term Incentive Plan, filed as exhibit 10.12 to the Company's annual report on Form 10-K for the year ended December 31, 1988, file no. 1-4448 (the "1988 Form 10-K"). C 10.5* Stock Option Plan Adopted July 25, 1988, filed as exhibit 10.13 to the 1988 Form 10-K. C 10.6* 1991 Officer Incentive Compensation Plan, filed as exhibit 10.11 to the Company's annual report on Form 10-K for the year ended December 31, 1990, file number 1-4448 (the "1990 Form 10- K"). C 10.7* Baxter International Inc. and Subsidiaries Incentive Investment Excess Plan, filed as exhibit 10.17 to the 1988 Form 10-K. C 10.8* Baxter International Inc. and Subsidiaries Supplemental Pension Plan, filed as exhibit 10.18 to the 1988 Form 10-K. C 10.9* Limited Rights Plan, filed as exhibit 19.6 to the Company's quarterly report on Form 10-Q for the quarter ended September 30, 1989, file no. 1-4448 (the "September, 1989 Form 10-Q"). C 10.10* Amendments to various plans regarding disability, filed as exhibit 19.9 to the September, 1989 Form 10-Q. C 10.11* Amendments to 1987-1989 Long-Term Performance Incentive Plan and 1988 Long-Term Incentive Plan, filed as exhibit 19.10 to the September, 1989 Form 10-Q. C 10.12* 1987 Incentive Compensation Program, filed as exhibit C to the Company's proxy statement for use in connection with its May 13, 1987, annual meeting of stockholders, file no. 1-4448. 10.13* Rights Agreement between the Company and The First National Bank of Chicago, filed as exhibit 1 to a registration statement on Form 8-A dated March 21, 1989, file no. 1-4448. C 10.14* Amendment to 1987 Incentive Compensation Program, filed as exhibit 19.1 to September, 1989 Form 10-Q. C 10.15* Restricted Stock Grant Terms and Conditions, filed as exhibit 10.25 to the Company's annual report on Form 10-K for the year ended December 31, 1991, file number 1-4448 (the "1991 Form 10- K"). C 10.16* Vernon R. Loucks Restricted Stock Grant Terms and Conditions, filed as exhibit 10.26 to the 1991 Form 10-K. C 10.17 Deferred Compensation Plan, amended and restated effective January 1, 1998. C 10.18* Restricted Stock Plan for Non-Employee Directors (as amended and restated in 1992), filed as exhibit 10.28 to the 1992 Form 10-K. C 10.19* Restricted Stock Grant Terms and Conditions (as amended), filed as exhibit 10.31 to the 1992 Form 10-K. C 10.20* 1992 Officer Incentive Compensation Plan, filed as exhibit 10.29 to the 1992 Form 10-K. C 10.21* 1993 Officer Incentive Compensation Plan, filed as exhibit
  • 20. 10.30 to the 1992 Form 10-K. C 10.22* 1994 Officer Incentive Compensation Plan, filed as exhibit 10.31 to the Company's annual report on Form 10-K for the year ended December 31, 1993, file number 1-4448 (the "1993 Form 10- K"). </TABLE> 14 <PAGE> <TABLE> <C> <C> <S> C 10.23* Corporate Aviation Policy, filed as exhibit 10.33 to the 1992 Form 10-K. C 10.24* Plan and Agreement of Reorganization between Baxter and Caremark International Inc., filed as exhibit 10.34 to the 1992 Form 10-K. C 10.25* 1994 Incentive Compensation Program, filed as exhibit A to the Company's proxy statement for use in connection with its April 29, 1994 annual meeting of stockholders, file no. 1-4448. C 10.26* 1994 Shared Investment Plan and Terms and Conditions, filed as exhibit 10.1 to the Company's quarterly report on Form 10-Q for the quarter ended June 30, 1994. C 10.27* 1995 Officer Incentive Compensation Plan, filed as exhibit 10.31 to the Company's annual report on Form 10-K for the year ended December 31, 1994 (the "1994 Form 10-K"). C 10.28* Baxter International Inc. Restricted Stock Plan for Non- Employee Directors, as amended and restated effective May 8, 1995, filed as exhibit 10.32 to the 1994 Form 10-K. C 10.29* 1996 Officer Incentive Compensation Plan, filed as exhibit 10.33 to the Company's annual report on Form 10-K for the year ended December 31, 1995 (the "1995 Form 10-K"). C 10.30* 1995 Stock Option Grant Terms and Conditions, filed as exhibit 10.34 to the 1995 Form 10-K. 10.31* Reorganization Agreement between Baxter and Allegiance Corporation, filed as exhibit 2 to the Form 10 registration statement, file no. 1-11885, dated September 20, 1996. C 10.32* Supplemental Pension Agreement: Jack L. McGinley, filed as exhibit 10.32 to the 1996 Form 10-K. C 10.33* November 1996 Stock Option Grant Terms and Conditions, filed as exhibit 10.33 to the 1996 Form 10-K. C 10.34* November 1996 Premium Price Stock Option Grant Terms and Conditions, filed as exhibit 10.34 to the 1996 Form 10-K. C 10.35* Officer Incentive Compensation Plan, filed as exhibit 10.35 to the 1996 Form 10-K. C 10.36 November 1997 Stock Option Grant Terms and Conditions. C 10.37 1998 Incentive Compensation Program. C 10.38 Long Term Incentive Plan. 12. Statements re: computation of ratios. 13. 1997 Annual Report to Stockholders (such report, except to the extent incorporated herein by reference, is being furnished for the information of the Securities and Exchange Commission only and is not deemed to be filed as part of this annual report on Form 10-K). 21. Subsidiaries of the Company. 23. Consent of Price Waterhouse LLP. 24. Powers of Attorney. 27. Financial Data Schedule. </TABLE> - ------- *Incorporated herein by reference. CExhibit contemplated by Item 14(a)(3) of Form 10-K. (All other exhibits are inapplicable or not required.)
  • 21. LOGO Printed on Recycled Paper 15 <PAGE> EXHIBIT 12 - -------------------------------------------------------------------------------- COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES <TABLE> <CAPTION> (In millions, except ratios) Year ended December 31 - -------------------------------------------------------------------------------- - 1997 1997 1996 1995 1995 1994 1993 1993 - -------------------------------------------------------------------------------- - <S> <C> <C> <C> <C> <C> <C> <C> <C> (C) (C) (C) Income (loss) from continuing operations before income tax expense (benefit) $523 $875 $793 $524 $741 $559 $(74) $472 - -------------------------------------------------------------------------------- - Add: Interest costs 206 206 133 117 117 120 109 109 Estimated interest in rentals (A) 29 29 27 29 29 31 31 31 - -------------------------------------------------------------------------------- - Fixed charges as defined 235 235 160 146 146 151 140 140 - -------------------------------------------------------------------------------- - Interest costs capitalized (8) (8) (3) (3) (3) (2) (5) (5) Losses of less than majority owned affiliates, net of dividends 0 0 8 10 10 18 27 27 - -------------------------------------------------------------------------------- - Income as adjusted $750 $1,102 $958 $677 $894 $726 $ 88 $634 - -------------------------------------------------------------------------------- - Ratio of earnings to fixed charges 3.19 4.69 5.99 4.64 6.12 4.80 (B) 4.53 - -------------------------------------------------------------------------------- - </TABLE>
  • 22. (A) Represents the estimated interest portion of rents. (B) As a result of the loss incurred during this period, the Company's earnings did not cover the indicated fixed charges. The earnings required to attain a ratio of one-to-one are $52 million. (C) Included in this exhibit are supplemental presentations of the ratio of earnings to fixed charges which exclude the following significant unusual charges: 1993: $216 million restructuring charge and $330 million net litigation charge. 1995: $103 million restructuring charge, $96 million net litigation charge and $18 million in-process research and development charge. 1997: $352 million in-process research and development charge. 16 <PAGE> EXHIBIT 21 - -------------------------------------------------------------------------------- SUBSIDIARIES OF THE COMPANY, AS OF MARCH 13, 1998 <TABLE> <CAPTION> Organized % owned by under immediate Subsidiary laws of parent (1) (2) - ------------------------------------------------------------------------------- <S> <C> <C> Baxter International Inc......................... Delaware Baxter Research Medical Inc..................... Utah 100 Baxter Healthcare Corporation................... Delaware 100 Nextran Inc.................................. Delaware 100 Renal Management Strategies Inc.............. Delaware 91 Baxter World Trade Corporation.................. Delaware 100 Baxter Foreign Sales Corporation............. Barbados 100 Baxter Export Corporation.................... Nevada 100 Baxter, S.A.................................. Belgium 98.44(3) Baxter S.A................................. France 64.57(3) Baxter Deutschland GmbH...................... Germany 100 Baxter SpA................................... Italy 98.98(3) Baxter Pharmacy Services Corporation......... Delaware 100(4) Baxter Sales and Distribution Corp......... Delaware 100 Baxter Healthcare Corporation of Puerto Rico...................................... Alaska 100 Baxter Healthcare (Holdings) Limited......... United Kingdom 99.99(3) Baxter Healthcare Limited.................. United Kingdom 99.99(3) Baxter Healthcare S.A........................ Panama 100 Baxter Healthcare Pte. Ltd................... Singapore 100 Baxter World Trade S.A..................... Belgium 49.29(3) Baxter Limited............................... Japan 100 Baxter Healthcare Pty. Ltd................... Australia 99.99(3) Baxter Edwards AG............................ Switzerland 100(1) Baxter S.A. de C.V........................... Mexico 99.9(3) Laboratorios Baxter S.A. (Colombia).......... Delaware 100 Baxter Corporation........................... Canada 100 Baxter Biotech Worldwide Ltd.................... Delaware 100 Baxter Biotech Holding AG.................... Switzerland 100 Immuno International AG.................... Switzerland 100 Immuno--U.S., Inc........................ Michigan 100 Immuno AG................................ Austria 100(3) </TABLE> -
  • 23. -------------------------------------------------------------------------------- Subsidiaries omitted from this list, considered in aggregate as a single subsidiary, would not constitute a significant subsidiary. * * * * * (1) Including director's qualifying and other nominee shares. (2) All subsidiaries set forth herein are reported in the Company's financial statements through consolidations or under the equity method of accounting. (3) Remaining shares owned by the Company, its subsidiaries or employees. (4) Of common stock, with preferred stock held by Baxter Healthcare Corporation. 17 </TEXT> </DOCUMENT> <DOCUMENT> <TYPE>EX-3.3 <SEQUENCE>2 <DESCRIPTION>AMENDED & RESTATED BYLAWS <TEXT> <PAGE> EXHIBIT 3.3 ----------- Amended and Restated March 17, 1998 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
  • 24. 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 <PAGE> 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 representation that such stockholder intends to appear in person or by proxy at the meeting to nominate the persons named in its notice and (E) any other information relating to such stockholder that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for election of directors pursuant to Section 14 of the Exchange Act and the rules and regulations promulgated thereunder. Such notice must be accompanied by a written consent of each proposed nominee to being named as a nominee and to serve as a director if elected. (f) No person shall be eligible for election as a director of the Corporation, at any annual meeting of stockholders or at any special meeting of stockholders called for the purpose of electing directors, unless nominated in accordance with the procedures set forth in this Section 2. If the chairman of the meeting determines that a nomination was not made in accordance with the foregoing procedures, the chairman shall declare to the meeting that the nomination was defective and such defective nomination shall be disregarded. SECTION 3. VOTING. Each stockholder entitled to vote in accordance with the terms of the Certificate of Incorporation, these Bylaws or Delaware law shall, unless the Certificate of Incorporation or Delaware law otherwise provides, be entitled to one vote, in person or by proxy, for each share of stock entitled to vote held by such stockholder, but no proxy shall be voted after three years from its date unless such proxy provides for a longer period. The vote for directors, and upon the demand of any stockholder, the vote upon any question before the meeting, shall be by ballot. Except for the election of directors,
  • 25. which shall be decided by a plurality of the shares present in person or represented by proxy at the meeting and entitled to vote thereat, all matters shall be decided by the affirmative vote of a majority of shares present in person or represented by proxy at any meeting duly called and entitled to vote thereat, except as otherwise provided by the Certificate of Incorporation or Delaware law. Page 2 <PAGE> The Corporate Secretary shall prepare and make, at least ten days before each meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof and may be inspected by any stockholder who is present. SECTION 4. QUORUM. Except as provided in the next section hereof, any number of stockholders together holding a majority of the stock issued and outstanding and entitled to vote thereat, who shall be present in person or represented by proxy at any meeting duly called, shall constitute a quorum for the transaction of business. SECTION 5. ADJOURNMENT OF MEETINGS. If less than a quorum shall be in attendance at any time for which the meeting shall have been called, the meeting may, after the lapse of at least half an hour, be adjourned from time to time by a majority of the stockholders present or represented and entitled to vote thereat. If notice of such adjourned meeting is sent to the stockholders entitled by statute to receive the same, and such notice contains a statement of the purpose of the meeting, that the previous meeting failed for lack of a quorum, and that under the provisions of this Section it is proposed to hold the adjourned meeting with a quorum of those present, then any number of stockholders, in person or by proxy, shall constitute a quorum at such meeting unless otherwise provided by statute. SECTION 6. SPECIAL MEETINGS: HOW CALLED. Special meetings of the stockholders for any purpose or purposes may be called only (a) by the Chairman of the Board, 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. SECTION 8. CONDUCT OF THE MEETINGS. Page 3 <PAGE> (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
  • 26. 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 Page 4 <PAGE> 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
  • 27. stockholder, (iii) the class or series and number of shares of capital stock of the Corporation which are owned beneficially or of record by such stockholder, (iv) a description of all arrangements or understandings between such stockholder and any other person or persons (including their names) in connection with the proposal of such business by such stockholder and any material interest of such stockholder in such business and (v) a representation that such stockholder intends to appear in person or by proxy at the annual meeting to bring such business before the meeting. (e) No business shall be conducted at the annual meeting of stockholders except business brought before the annual meeting in accordance with the procedures set forth in this Section 9, provided, however, that, once business has been properly brought before the annual meeting in accordance with such procedures, nothing in this Section 9 shall be deemed to preclude discussion by any stockholder of any such business. If the chairman of the annual meeting determines that business was not properly brought before the annual meeting in accordance with the foregoing procedures, the chairman shall declare to the meeting that the business was not properly brought before the meeting and such business shall not be transacted. ARTICLE II DIRECTORS SECTION 1. QUALIFICATION AND QUORUM. No person shall be eligible for election or appointment as a director who, at the time of his election or appointment is 72 years old, or older, provided, however, that this provision shall not be applicable to persons who have been elected or appointed as directors prior to the 1978 annual meeting of the stockholders. One-third of the total number of directors (rounded upwards, if necessary, to the next whole number) shall constitute a quorum for the transaction of business at any meeting of the Board 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. Page 5 <PAGE> 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
  • 28. 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. 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 Page 6 <PAGE> 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 quarterly dividend, to authorize the issuance of stock and other securities and to adopt a Certificate of Ownership and Merger under Delaware law, provided that the Executive Committee shall not, in any event, have authority to amend the Certificate of Incorporation, to adopt any agreement of merger or consolidation involving the Corporation as a merging or consolidating party, to recommend to the stockholders the sale, lease or exchange of all or substantially all of the Corporation's property and assets, to recommend to the stockholders a dissolution of the Corporation or a revocation of a dissolution, to amend the Bylaws of the Corporation or to declare a dividend other than a regular quarterly dividend. SECTION 3. The Audit Committee shall consist solely of directors who are independent of management as defined in Section 2.
  • 29. 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. Page 7 <PAGE> (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. (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) make recommendations to the Board of Directors concerning the salaries of the Chairman of the Board, the Chief Executive Officer and the President, (e) advise the Board of Directors and the Chief Executive Officer on
  • 30. other compensation and benefit matters and (f) perform such other duties as shall be requested by the and 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 Page 8 <PAGE> $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) quarterly and 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; (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 Chief Executive Officer on major organization matters and issues relating to the organization structure of
  • 31. the Corporation, as well as management succession plans; (e) In the event of the death, incapacity, resignation or other absence (temporary or permanent) of the 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; Page 9 <PAGE> (f) Make recommendations to the Board of Directors concerning fees payable for Board of Directors membership, as well as retirement and other benefits available to Board of Directors members; (g) 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 (h) 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. Page 10 <PAGE>
  • 32. (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 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. Page 11 <PAGE> 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.
  • 33. 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 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 Page 12 <PAGE> 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
  • 34. 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. Page 13 <PAGE> 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 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
  • 35. 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 Page 14 <PAGE> 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. 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. 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.
  • 36. (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. Page 15 <PAGE> (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.
  • 37. Page 16 <PAGE> 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: Page 17 <PAGE> (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
  • 38. 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. (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 Page 18 <PAGE> (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
  • 39. 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. Page 19 </TEXT> </DOCUMENT> <DOCUMENT> <TYPE>EX-10.17 <SEQUENCE>3 <DESCRIPTION>DEFERRED COMPENSATION PLAN <TEXT> <PAGE> BAXTER INTERNATIONAL INC. AND SUBSIDIARIES DEFERRED COMPENSATION PLAN (Amended and restated effective January 1, 1998) <PAGE> <TABLE> <CAPTION> TABLE OF CONTENTS <S> <C> ARTICLE I PURPOSE, EFFECTIVE DATE, EMPLOYER................................. 1 1.1 Purpose.............................................................. 1 1.2 Effective Date....................................................... 1 1.3 Employer............................................................. 1 ARTICLE II DEFINITIONS...................................................... 1
  • 40. 2.1 Accounts............................................................. 1 2.2 Administrative Committee............................................. 1 2.3 Beneficiary.......................................................... 2 2.4 Bonus................................................................ 2 2.5 Bonus Deferral....................................................... 2 2.6 Compensation......................................................... 2 2.7 Compensation Committee............................................... 2 2.8 Deferral Election Form............................................... 2 2.9 Distribution Election Form........................................... 2 2.10 Eligible Employee.................................................... 2 2.11 Excess Matching Contribution......................................... 2 2.12 Matching Contribution................................................ 3 2.13 Participant.......................................................... 3 2.14 Pay Deferral Contribution............................................ 3 2.15 Plan Year............................................................ 3 2.16 Termination of Employment............................................ 3 2.17 Unforeseeable Emergency.............................................. 3 2.18 Vesting.............................................................. 3 ARTICLE III ELIGIBILITY FOR EXCESS MATCHING CONTRIBUTIONS, BONUS DEFERRALS AND PAY DEFERRALS.................................................. 3 3.1 Eligibility for Excess Matching Contribution......................... 3 3.2 Bonus Deferral Elections............................................. 3 3.3 Pay Deferral Elections............................................... 4 ARTICLE IV CREDITING OF ACCOUNTS............................................ 4 4.1 Crediting of Accounts................................................ 4 4.2 Earnings............................................................. 4 4.3 Account Statements................................................... 4 4.4 Vesting.............................................................. 4 ARTICLE V DISTRIBUTION OF BENEFITS.......................................... 5 5.1 Distribution of Benefits............................................. 5 5.2 Distribution......................................................... 5 5.3 Effect of Payment.................................................... 6 5.4 Taxation of Plan Benefits............................................ 6 5.5 Withholding and Payroll Taxes........................................ 6 5.6 Distribution Due to Unforeseeable Emergency.......................... 6 ARTICLE VI BENEFICIARY DESIGNATION.......................................... 7 6.1 Beneficiary Designation.............................................. 7 6.2 Amendments to Beneficiary Designation................................ 7 6.3 No Beneficiary Designation........................................... 7 </TABLE> <PAGE> <TABLE> <CAPTION> <S> <C> ARTICLE VII ADMINISTRATION.................................................. 7 7.1 Administrative Committee............................................. 7 7.2 Administrative Committee Powers...................................... 7 7.3 Uniform Application of Rules......................................... 8 7.4 Claims Procedure..................................................... 8 7.5 Action by Administrative Committee................................... 9 7.6 Indemnity............................................................ 9 ARTICLE VIII AMENDMENT AND TERMINATION OF PLAN.............................. 9
  • 41. 8.1 Amendment............................................................ 9 8.2 Right to Terminate................................................... 9 8.3 Payment at Termination............................................... 9 ARTICLE IX MISCELLANEOUS.................................................... 10 9.1 Unfunded Plan........................................................ 10 9.2 Unsecured General Creditor........................................... 10 9.3 Nonassignability..................................................... 10 9.4 Not a Contract of Employment......................................... 10 9.5 Protective Provisions................................................ 10 9.6 Governing Law........................................................ 10 9.7 Severability......................................................... 11 9.8 Notice............................................................... 11 9.9 Successors........................................................... 11 9.10 Action by Baxter..................................................... 11 9.11 Effect on Benefit Plans.............................................. 11 9.12 Participant Litigation............................................... 11 </TABLE> ii <PAGE> BAXTER INTERNATIONAL INC. AND SUBSIDIARIES DEFERRED COMPENSATION PLAN (AMENDED AND RESTATED EFFECTIVE JANUARY 1, 1998) ARTICLE I PURPOSE, EFFECTIVE DATE, EMPLOYER 1.1 Purpose. The Baxter International Inc. & Subsidiaries Incentive Investment Plan ("IIP") is a defined contribution benefit plan maintained by Baxter International Inc. ("Baxter") to provide eligible participants with retirement benefits. Limitations imposed by the Internal Revenue Code of 1986, as amended, ("Code"), prevent some participants from receiving the full Matching Contribution under the IIP, a tax qualified defined contribution plan. In addition, Baxter desires to maintain an unfunded plan of deferred compensation for a select group of management and highly compensated employees. Accordingly, Baxter hereby amends and restates the Baxter International Inc. and Subsidiaries Deferred Compensation Plan and the Baxter International Inc. and Subsidiaries Incentive Investment Excess Plan and combines them into a single plan to be known as the Baxter International Inc. and Subsidiaries Deferred Compensation Plan ("Plan"). The purpose of the Plan is to enable certain Participants in the IIP to receive the full Matching Contribution under the IIP formula which is limited by the Code, or the Plan, and/or to elect to defer additional compensation until retirement, except as otherwise set forth on their election form. Participation in the Plan is limited to a select group of management or highly compensated employees of Baxter. Capitalized terms not defined in this Plan are deemed to have the meaning given them in the IIP. 1.2 Effective Date. The Plan, as amended and restated, is effective as of January 1, 1998. 1.3 Employer. The Plan is adopted for the benefit of a select group of management or highly compensated employees of Baxter or of any subsidiaries or affiliates of Baxter, as set forth below. The Plan may be adopted by any subsidiaries or affiliates of Baxter with the consent of the Administrative Committee. Adopting Employers are listed on Appendix A as attached and updated from time to time. ARTICLE II
  • 42. DEFINITIONS 2.1 Accounts. Accounts means the sum of the Participant's Excess Matching Contribution Account balance, the Participant's Bonus Deferral Account balance and the Participant's Pay Deferral Account balance. 2.2 Administrative Committee. For purposes of the Plan, Administrative Committee has the same meaning as the Administrative Committee in the IIP. <PAGE> 2.3 Beneficiary. A Participant's Beneficiary, as defined in Article VI, is the Beneficiary designated to receive the Participant's Accounts, if any, from the Plan, upon the death of the Participant. 2.4 Bonus. The term Bonus means those bonuses that are included in the definition of Compensation in the IIP and also includes any other bonus which is approved by the Administrative Committee and listed on Attachment A to this Plan. Attachment A may be updated from time to time to accurately reflect the approved bonuses for purpose of this definition. 2.5 Bonus Deferral. The Bonus Deferral is the amount of the Participant's Bonus which the Participant elected to defer and contribute to the Plan which, but for such election, would have otherwise been paid to him/her. 2.6 Compensation. For purposes of the Plan, Compensation has the same meaning as Compensation in the IIP without regard to Section 401(a)(17) of the Code, except that the Bonuses deferred under the Plan are included in Compensation in the Plan Year in which such amounts would be paid if they were not deferred and not in the Plan Year in which such amounts are actually paid. 2.7 Compensation Committee. The Compensation Committee of the Board of Directors of Baxter. 2.8 Deferral Election Form . The form which a Participant must complete and return to the Administrative Committee, in accordance with the rules and procedures as may be established by the Administrative Committee, in order to elect to defer a portion of his or her Bonus into the Plan and to designate his Pay Deferral Election. 2.9 Distribution Election Form. The form which a Participant must complete and return to the Administrative Committee, in accordance with the rules and procedures as may be established by the Administrative Committee. This form is to be used by Participants who are not eligible to defer a portion of their Bonus or make a Pay Deferral Contribution to the Plan. 2.10 Eligible Employee. An Eligible Employee is anyone who: (a) is a participant in the Baxter International Inc. Long Term Incentive Plan for the Plan Year to which deferrals relate who has contributed the maximum annual contribution limit under Sections 401(k) and 402(g) of the Code to the IIP; or (b) is a participant in the IIP whose Matching Contributions to the IIP for the Plan Year are limited because of the application of the Code, provided he or she has met the eligibility rules set forth in Section 3.1 below. 2.11 Excess Matching Contribution. The Excess Matching Contribution is the difference between the Matching Contributions allocated to a Participant's IIP Account during the Plan Year and the amount that would have been allocated if the limitations of Sections 415, 2 <PAGE>
  • 43. 401(k), 402(g) and 401(m) of the Code, as well as the limitations of Section 401(a)(17) of the Code, were disregarded. 2.12 Matching Contribution. The term Matching Contribution has the same meaning in the Plan as it does in the IIP. 2.13 Participant. A Participant is any Eligible Employee who has an Account balance in the Plan. 2.14 Pay Deferral Contribution. The term Pay Deferral Contribution has the same meaning as Pay Deferral Contribution in the IIP. The Pay Deferral Contribution is the amount of the Participant's Compensation which the Participant elected to defer into the Plan which, but for such election, would have otherwise been paid to him/her. 2.15 Plan Year. The Plan Year is the calendar year. 2.16 Termination of Employment. For purposes of the Plan, Termination of Employment has the same meaning as Termination of Employment in the IIP. 2.17 Unforeseeable Emergency. A severe financial hardship resulting from a sudden or unexpected illness or accident of the Participant or one of his or her dependents, loss of the Participant's property due to casualty or similar extraordinary and unforeseeable circumstances arising as a result of one or more recent events beyond the control of the Participant, as determined by the Administrative Committee. 2.18 Vesting. For purposes of the Plan, Vesting has the same meaning as Vesting in the IIP. ARTICLE III ELIGIBILITY FOR EXCESS MATCHING CONTRIBUTIONS, BONUS DEFERRALS AND PAY DEFERRALS 3.1 Eligibility for Excess Matching Contribution. An Eligible Employee is a Participant in the Plan and eligible to receive a contribution to his or her Excess Matching Contribution Account in the Plan for a Plan Year if such Participant's allocation of Matching Contributions in the IIP during the Plan Year is less than three percent (3%) of Compensation because of the application of the Code. 3.2 Bonus Deferral Elections. An Eligible Employee is a Participant in the Plan if he or she defers the maximum amount of Compensation allowed under the Code to the IIP for the Plan Year and he or she elects to defer all or a portion of his or her Bonus through the Plan until his or her Termination of Employment, or such other time as specified on his or her Deferral Election Form, by completing a Deferral Election Form in accordance with applicable rules and procedures established by the Administrative Committee. A Participant may elect to defer up to 100% of his or her Bonus, in whole percentages. Beginning January 1 of the year to which the Deferral Election Form applies, the Deferral Election Form is irrevocable, except as provided in 3 <PAGE> Section 5.6. The Deferral Election Form must be filed with the Administrative Committee in accordance with the rules established by the Administrative Committee before January 1 of the Plan Year to which the Deferral Election Form applies. For purposes of Bonus Deferral Elections, eligible employees are those employees who are participants in the Long Term Incentive Plan for the Plan Year to which deferrals relate. 3.3 Pay Deferral Elections. An Eligible Employee is a Participant in the
  • 44. Plan if he or she elects to defer a portion of his or her Compensation in excess of the annual contribution limit under Sections 401(k) and 402(g) of the Code (as contributed to the IIP) as set forth on his or her Deferral Election Form, in accordance with applicable rules and procedures established by the Administrative Committee. A Participant may elect to defer up to a total of 12% of his or her Compensation to the IIP and the Plan; however, such election must be the same election as the Participant made for the IIP for such Plan Year, and the Participant may not change his/her IIP election for the Plan Year. For purposes of Pay Deferral Elections, eligible employees are those employees who are participants in the Long Term Incentive Plan for the Plan Year to which deferrals relate. ARTICLE IV CREDITING OF ACCOUNTS 4.1 Crediting of Accounts. A. Excess Matching Contribution Account. An account equal to the Excess Matching Contributions, if any, of each Participant plus Earnings. B. Bonus Deferral Account. An account equal to the Bonus Deferrals, if any, of each Participant plus Earnings. C. Pay Deferral Account. An account equal to the Pay Deferral Contributions, if any, of each Participant plus Earnings. 4.2 Earnings. Each Participant's Excess Matching Contribution Account, Bonus Deferral Account, and Pay Deferral Account, if any, will be credited with Earnings at a rate determined by the Administrative Committee from time to time. As of the Effective Date of this Plan, Earnings will be credited at the same rate as the Stable Income Fund in the IIP. Earnings will be credited to each Participant's Account weekly. 4.3 Account Statements. Account Statements will be generated effective as of the last day of each calendar quarter and mailed to each Participant as soon as administratively feasible. Account Statements will reflect all Account activity during the reporting quarter, including Account contributions, distributions and earnings credits. 4.4 Vesting. Subject to Sections 9.1 and 9.2, a Participant is always 100% Vested in his or her Accounts in the Plan at all times. 4 <PAGE> ARTICLE V DISTRIBUTION OF BENEFITS 5.1 Distribution of Benefits. Subject to Section 5.2, distribution of a Participant's Accounts, if any, will commence in accordance with the Participant's Distribution Election Form or Deferral Election Form as soon as administratively feasible after the Participant's Termination of Employment. Any spousal consent requirements under the IIP will not apply to distributions under the Plan. 5.2 Distribution. A. Deferral Election Form. A Participant's Accounts will be paid in
  • 45. accordance with the form of payment designated in such Participant's Deferral Election Form. B. Distribution Election Form. A Participant's Accounts will be paid after a Participant's Termination of Employment, in accordance with the form of payment designated in such Participant's Distribution Election Form. C. Forms of Distribution. The forms of distribution are: (a) A lump sum payment, or (b) Annual installments of at least 2 years, but not to exceed 15 years. Annual installments will commence in the first quarter of the Plan Year as specified in the Participant's Deferral Election Form or Distribution Election Form. Subsequent installments will be paid annually in the first quarter of subsequent Plan Years. Lump sum payments will be made in the first quarter of the Plan Year as specified in the Participant's Deferral Election Form. Lump sum payments pursuant to a Distribution Election Form will be made in the first quarter of the Plan Year following the Plan Year in which the Participant incurs a Termination of Employment or any subsequent Plan Year as indicated on the Distribution Election Form. If a Participant does not elect a form of distribution by the time the Deferral Election Form or the Distribution Election Form is required to be completed, the Participant's election will default to a lump sum payment in the first quarter of the Plan Year following the Plan Year in which the Participant incurs a Termination of Employment. Notwithstanding the above, a Participant whose Accounts under the Plan total less than $50,000 as of the last day of the Plan Year in which he or she incurs a Termination of Employment will receive lump sum payment of his or her Accounts in the first quarter of the Plan Year following the Plan Year in which the Participant incurs a Termination of Employment. 5 <PAGE> The Administrative Committee has the right to postpone the payment of any Accounts for up to one year from the date on which the credits would otherwise be paid. 5.3 Effect of Payment. Payment to the person or trust reasonably and in good faith determined by the Administrative Committee to be the Participant's Beneficiary will completely discharge any obligations Baxter or any other Employer may have under the Plan. If a Plan benefit is payable to a minor or a person declared to be incompetent or to a person the Administrative Committee in good faith believes to be incompetent or incapable of handling the disposition of property, the Administrative Committee may direct payment of such Plan benefit to the guardian, legal representative or person having the care and custody of such minor and such decision by the Administrative Committee is binding on all parties. The Administrative Committee may initiate whatever action it deems appropriate to ensure that benefits are properly paid to an appropriate guardian. The Administrative Committee may require proof of incompetence, minority, incapacity or guardianship as it may deem appropriate prior to distribution of the Plan benefit. Such distribution will completely discharge the Administrative Committee and the Employer from all liability with respect to such benefit.
  • 46. 5.4 Taxation of Plan Benefits. It is intended that each Participant will be taxed on amounts credited to him or her under the Plan at the time such amounts are received, and the provisions of the Plan will be interpreted consistent with that intention. 5.5 Withholding and Payroll Taxes. Baxter will withhold from payments made hereunder any taxes required to be withheld for the payment of taxes to the Federal, or any state or local government. 5.6 Distribution Due to Unforeseeable Emergency. Upon written request of a Participant and the showing of Unforeseeable Emergency, the Administrative Committee may authorize distribution of all or a portion of the Participant's Accounts, and or the acceleration of any installment payments being made from the Plan, but only to the extent reasonably necessary to relieve the Unforeseeable Emergency. In any event, payment may not be made to the extent such Unforeseeable Emergency is or may be satisfied through reimbursement by insurance or otherwise, including, but not limited to, liquidation of the Participant's assets, to the extent that such liquidation would not in and of itself cause severe financial hardship. In addition, such Participant is precluded from enrolling in the Plan for the entire Plan Year beginning January 1 after the request is approved. 6 <PAGE> ARTICLE VI BENEFICIARY DESIGNATION 6.1 Beneficiary Designation. Each Participant has the right to designate one or more persons or trusts as the Participant's Beneficiary, primary as well as secondary, to whom benefits under this Plan will be paid in the event of the Participant's death prior to complete distribution to the Participant of the benefits due under the Plan. Each Beneficiary designation will be in a written form prescribed by the Administrative Committee and will be effective only when filed with the Administrative Committee during the Participant's lifetime. 6.2 Amendments to Beneficiary Designation. Any Beneficiary designation may be changed by a Participant without the consent of any Beneficiary by the filing of a new Beneficiary designation with the Administrative Committee. Filing a Beneficiary designation as to any benefits available under the Plan revokes all prior Beneficiary designations effective as of the date such Beneficiary designation is received by the Administrative Committee. If a Participant's Accounts are community property, any Beneficiary designation will be valid or effective only as permitted under applicable law. 6.3 No Beneficiary Designation. In the absence of an effective Beneficiary designation, or if all Beneficiaries predecease the Participant, the Participant's estate will be the Beneficiary. If a Beneficiary dies after the Participant and before payment of benefits under this Plan has been completed, and no secondary Beneficiary has been designated to receive such Beneficiary's share, the remaining benefits will be payable to the Beneficiary's estate. ARTICLE VII ADMINISTRATION 7.1 Administrative Committee. The Plan is administered by the Administrative Committee, which is the Plan Administrator for purposes of Section 3(16)(A) of the Employee Retirement Income Security Act of 1974, as
  • 47. amended ("ERISA"). Baxter has appointed the members of the Administrative Committee to administer the Plan. Members of the Administrative Committee may be Participants in the Plan. 7.2 Administrative Committee Powers. The Administrative Committee has such powers as may be necessary to discharge its duties hereunder, including, but not by way of limitation, the following powers, rights and duties: (a) Interpretation of Plan. The Administrative Committee has the power, right and duty to construe, interpret and enforce the Plan provisions and to determine all questions arising under the Plan including, but not by way of limitation, questions of Plan participation, eligibility for Plan benefits and the rights of employees, Participants, Beneficiaries and other persons to benefits under the Plan and to determine the amount, manner and time of payment of any benefits hereunder; 7 <PAGE> (b) Plan Procedures. The Administrative Committee has the power, right and duty to adopt procedures, rules, regulations and forms to be followed by employees, Participants, Beneficiaries and other persons or to be otherwise utilized in the efficient administration of the Plan which may alter any procedural provision of the Plan without the necessity of an amendment; (c) Benefit Determinations. The Administrative Committee has the power, right and duty to make determinations as to the rights of employees, Participants, Beneficiaries and other persons to benefits under the Plan and to afford any Participant or Beneficiary dissatisfied with such determination with rights pursuant to a claims procedure adopted by the Committee; and (d) Allocation of Duties. The Administrative Committee is empowered to employ agents (who may also be employees of Baxter) and to delegate to them any of the administrative duties imposed upon the Administrative Committee or Baxter. 7.3 Uniform Application of Rules. The Administrative Committee will apply all rules, regulations, procedures and decisions uniformly and consistently to all Participants similarly situated. Any ruling, regulation, procedure or decision of the Administrative Committee will be conclusive and binding upon all persons affected by it. There will be no appeal from any ruling by the Administrative Committee which is within its authority, except as provided in Section 7.4 below. When making a determination or a calculation, the Administrative Committee will be entitled to rely on information supplied by any Employer, accountants and other professionals including, but not by way of limitation, legal counsel for Baxter or any Employer. 7.4 Claims Procedure. If a claim for benefits by a Participant or his or her beneficiary or beneficiaries (the "applicant") is denied, the Administrative Committee will furnish the applicant within 90 days after receipt of such claim (or within 180 days after receipt if the Administrative Committee notifies the applicant prior to the end of the 90 day period that special circumstances require an extension of time), a written notice which specifies the reason for the denial, refers to the pertinent provisions of the Plan on which the denial is based, describes any additional material or information necessary for properly completing the claim and explains why such material or information is necessary, and explains the claim review procedures of this Section 7.4. If, within 60 days after receipt of such notice, the applicant so requests in writing, the Administrative Committee will review its earlier decision. The Administrative Committee's decision on review will be in writing, and will
  • 48. include specific reasons for the decision, written in a manner calculated to be understood by the claimant, and will include specific references to the pertinent provisions of the Plan on which the decision is based. It will be delivered to the claimant within 60 days after the request for review is received, unless extraordinary circumstances require a longer period, but in no event more than 120 days after the request for review is received. 8 <PAGE> 7.5 Action by Administrative Committee. Action by the Administrative Committee will be subject to the following special rules: (a) Meetings and Documents. The Administrative Committee may act by meeting or by document signed without meeting and documents may be signed through the use of a single document or concurrent documents. (b) Action by Majority. The Administrative Committee will act by a majority decision which action will be as effective as if such action had been taken by all Administrative Committee members, provided that by majority action one or more Administrative Committee members or other persons may be authorized to act with respect to particular matters on behalf of all Administrative Committee members. (c) Resolving Deadlocks. If there is an equal division among the Administrative Committee members with respect to any question a disinterested party may be selected by a majority vote to decide the matter. Any decision by such disinterested party will be binding. 7.6 Indemnity. To the extent permitted by applicable law and to the extent that they are not indemnified or saved harmless under any liability insurance contracts, any present or former Administrative Committee members, officers, or directors of Baxter, the Employers or their subsidiaries or affiliates, if any, will be indemnified and saved harmless by the Employers from and against any and all liabilities or allegations of liability to which they may be subjected by reason of any act done or omitted to be done in good faith in the administration of the Plan, including all expenses reasonably incurred in their defense in the event that Baxter fails to provide such defense after having been requested in writing to do so. ARTICLE VIII AMENDMENT AND TERMINATION OF PLAN 8.1 Amendment. The Compensation Committee may amend the Plan at any time, except that no amendment will decrease or restrict the Accounts of Participants and Beneficiaries at the time of the amendment. Notwithstanding the foregoing, the Compensation Committee may delegate certain authority to amend the Plan to the Administrative Committee. 8.2 Right to Terminate. The Compensation Committee may at any time terminate the Plan. Any Employer may terminate its participation in the Plan by notice to Baxter. 8.3 Payment at Termination. If the Plan is terminated payment of each affected Participant's Accounts to the Participant or Beneficiary for whom they are held will commence within 60 days of such termination in the form determined under Article 5. 9 <PAGE>
  • 49. ARTICLE IX MISCELLANEOUS 9.1 Unfunded Plan. This Plan is intended to be an unfunded retirement plan maintained primarily to provide retirement benefits for a select group of management or highly compensated employees. All credited amounts are unfunded, general obligations of the appropriate Employer. This Plan is not intended to create an investment contract, but to provide retirement benefits to eligible employees who participate in the Plan. Eligible employees are members of a select group of management or are highly compensated employees, who, by virtue of their position with an Employer, are uniquely informed as to such Employer's operations and have the ability to affect materially Employer's profitability and operations. 9.2 Unsecured General Creditor. In the event of an Employer's insolvency, Participants and their Beneficiaries, heirs, successors and assigns will have no legal or equitable rights, interest or claims in any property or assets of such Employer, nor will they be Beneficiaries of, or have any rights, claims or interests in any life insurance policies, annuity contracts or the proceeds therefrom owned or which may be acquired by such Employer (the "Policies") greater than those of any other unsecured general creditors. In that event, any and all of the Employer's assets and Policies will be, and remain, the general, unpledged, unrestricted assets of Employer. Employer's obligation under the Plan will be merely that of an unfunded and unsecured promise of Employer to pay money in the future. 9.3 Nonassignability. Neither a Participant nor any other person will have any right to commute, sell, assign, transfer, pledge, anticipate, mortgage or otherwise encumber, transfer, hypothecate or convey in advance of actual receipt the amounts, if any, payable hereunder, or any part thereof, which are, and all rights to which are, expressly declared to be nonassignable and nontransferable. No part of the amounts payable will, prior to actual payment, be subject to seizure or sequestration for the payment of any debts, judgments, alimony or separate maintenance owed by a Participant or any other person, nor be transferable by operation of law in the event of a Participant's or any other person's bankruptcy or insolvency. Nothing contained herein will preclude an Employer from offsetting any amount owed to it by a Participant against payments to such Participant or his or her Beneficiary. 9.4 Not a Contract of Employment. The terms and conditions of this Plan will not be deemed to constitute a contract of employment between a Participant and such Participant's Employer, and neither the Participant nor the Participant's Beneficiary will have any rights against such Participant's Employer except as may otherwise be specifically provided herein. Moreover, nothing in this Plan is deemed to give a Participant the right to be retained in the service of his or her Employer or to interfere with the right of such Employer to discipline or discharge him or her at any time. 9.5 Protective Provisions. A Participant will cooperate with Baxter by furnishing any and all information requested by Baxter, in order to facilitate the payment of benefits hereunder. 9.6 Governing Law. The provisions of this Plan will be construed and interpreted according to the laws of the State of Illinois, to the extent not preempted by ERISA. 10 <PAGE> 9.7 Severability. In the event any provision of the Plan is held invalid or illegal for any reason, any illegality or invalidity will not affect the
  • 50. remaining parts of the Plan, but the Plan will be construed and enforced as if the illegal or invalid provision had never been inserted, and Baxter will have the privilege and opportunity to correct and remedy such questions of illegality or invalidity by amendment as provided in the Plan, including, but not by way of limitation, the opportunity to construe and enforce the Plan as if such illegal and invalid provision had never been inserted herein. 9.8 Notice. Any notice or filing required or permitted to be given to Baxter or the Administrative Committee under the Plan will be sufficient if in writing and hand delivered, or sent by registered or certified mail to any member of the Administrative Committee, or to Baxter's Chief Financial Officer and, if mailed, will be addressed to the principal executive offices of Baxter. Notice to a Participant or Beneficiary may be hand delivered or mailed to the Participant or Beneficiary at his or her most recent address as listed in the employment records of Baxter. Notices will be deemed given as of the date of delivery or mailing or, if delivery is made by certified or registered mail, as of the date shown on the receipt for registration or certification. Any person entitled to notice hereunder may waive such notice. 9.9 Successors. The provisions of this Plan will bind and inure to the benefit of Baxter, each Employer, the Participants and Beneficiaries, and their respective successors, heirs and assigns. The term successors as used herein will include any corporate or other business entity which, whether by merger, consolidation, purchase or otherwise acquires all or substantially all of the business and assets of Baxter, and successors of any such corporation or other business entity. 9.10 Action by Baxter. Except as otherwise provided herein, any action required of or permitted by Baxter under the Plan will be by resolution of the Compensation Committee or any person or persons authorized by resolution of the Compensation Committee. 9.11 Effect on Benefit Plans. Amounts paid under this Plan, will not by operation of this Plan be considered to be compensation for the purposes of any benefit plan maintained by any Employer. The treatment of such amounts under other employee benefit plans will be determined pursuant to the provisions of such plans. 9.12 Participant Litigation. In any action or proceeding regarding the Plan, employees or former employees of Baxter or an Employer, Participants, Beneficiaries or any other persons having or claiming to have an interest in this Plan will not be necessary parties and will not be entitled to any notice or process. Any final judgment which is not appealed or appealable and may be entered in any such action or proceeding will be binding and conclusive on the parties hereto and all persons having or claiming to have any interest in this Plan. To the extent permitted by law, if a legal action is begun against Baxter, an Employer, the Administrative Committee, or any member of the Administrative Committee by or on behalf of any person and such action results adversely to such person or if a legal action arises because of conflicting claims to a Participant's or other person's benefits, the costs to such person of defending the action will be charged to the amounts, if any, which were involved in the action or were payable to the Participant or other person concerned. To the extent permitted by applicable law, acceptance of participation in this Plan will constitute a release of Baxter, each Employer, the 11 <PAGE> Administrative Committee and each member thereof, and their respective agents from any and all liability and obligation not involving willful misconduct or gross neglect. Baxter International Inc. has caused this instrument to be executed by its authorized officer, as of the 1st day of December, 1997.
  • 51. BAXTER INTERNATIONAL INC. BY: ______________________________ TITLE: ______________________________ 12 </TEXT> </DOCUMENT> <DOCUMENT> <TYPE>EX-10.36 <SEQUENCE>4 <DESCRIPTION>NOV. 1997 STOCK OPTION GRANT TERMS & CON. <TEXT> <PAGE> Exhibit 10.36 Baxter International Inc. Stock Option Plan Adopted November 18, 1997 1. Purpose ------- This Stock Option Plan ("Plan") is adopted by the Compensation Committee of the Board of Directors ("Committee") of Baxter International Inc. Although this Plan is not adopted pursuant to the Baxter International Inc. 1994 Incentive Compensation Program ("Program"), it is granted for the purposes stated in the Program. 2. Participants ------------ Participants in this Plan ("Optionee") shall be valued employees of Baxter International Inc. or its subsidiaries ("Company") who have been selected by the Committee and to whom the Committee makes an award of an option ("Option") under this Plan. 3. Awards ------ Each Option shall consist of a Stock Option as defined in the Program and is granted under the terms and conditions contained in this Plan. All of the provisions of the Program which apply to Stock Options granted pursuant to the Program shall apply to the Stock Options granted pursuant to this Plan, except for Section 4 of the Program (relating to shares subject to the Program). To the extent that any of the terms and conditions contained in this Plan are inconsistent with the applicable terms of the Program, the applicable terms of the Program shall control. Terms defined in the Program shall have the same meaning in these terms and conditions. The Option is not intended to qualify as an Incentive Stock Option within the meaning of section 422 of the United States Internal Revenue Code. Residents of the United Kingdom may also be subject to additional terms and conditions in the form contained in the Baxter International Inc. Rules of the Baxter International United Kingdom Stock Option, to the extent deemed necessary by the Committee.
  • 52. 4. Vesting, Exercise and Expiration -------------------------------- 4.1 The Option becomes vested three years after the date on which the Option is granted or, if such date is not a Business Day, then the next Business Day following such date. The Option shall continue to vest for one year after the date on which employment of the Optionee by the Company is terminated, if on the employment termination date the Optionee is age 50 or older and has completed 15 or more years of employment with the Company. 4.2 When vested and until it expires, the Option may be exercised in whole or in part in the manner specified by the Stockholder Services Department of Baxter <PAGE> International Inc. If exercised in part, the Option must be exercised in installments consisting of at least 100 shares or, if options for less than 100 shares are then exercisable, for the number of shares then exercisable. Shares of Common Stock may be used to pay the exercise price of the Option in accordance with the requirements specified by the Stockholder Services Department. Residents of the United Kingdom may not use shares of Common Stock to pay the exercise price of the Option in any circumstances. 4.3 If the Optionee's employment by the Company is terminated by death or disability more than one year after the date on which the Option is granted, the Optionee or the Optionee's legal representative or the person or persons to whom the Optionee's rights under the Option are transferred by will or the laws of descent and distribution shall have the right to exercise the Option until it expires in accordance with its terms with respect to all or any part of the shares remaining subject to the Option (whether or not the Option was vested under section 4.1 on the Optionee's employment termination date). 4.4 The Option shall expire at the close of business on the earlier of a date determined as follows or, if such date is not a Business Day, then the last Business Day preceding such date: (i) one year after the date on which employment of the Optionee by the Company is terminated by his or her death or disability; (ii) five years after the date on which employment of the Optionee by the Company is terminated, if on the employment termination date the Optionee is age 50 or older and has completed 15 or more years of employment with the Company; (iii) three months after the date on which employment of the Optionee by the Company is terminated except as provided in subsection 4.4(i) and (ii), unless the Optionee dies or becomes disabled during the three-month period, in which case the relevant date shall be one year after the termination; or (iv) ten years from the date on which the Option is granted. "Business Day" shall mean any day, other than Saturday or Sunday, when the corporate headquarters of the Company is open for the transaction of business and when the Common Stock is traded on the New York Stock Exchange. A transfer of an Optionee from employment by one corporation to another among Baxter International Inc. and its subsidiaries, or a transfer of an Optionee to employment by another corporation which assumes the Option or issues a substitute option in a transaction to which section 424 of the Internal Revenue Code applies, shall not be considered a termination of employment for the purposes of the Option. <PAGE> Baxter International Inc. Stock Option Plan Adopted November 18, 1997 1. Purpose ------- The Stock Option Plan ("Plan") is adopted pursuant to the Baxter International Inc. 1994 Incentive Compensation Program ("Program") for the purposes stated in the Program.
  • 53. 2. Participants ------------ Participants in this Plan ("Optionee") shall be valued employees of Baxter International Inc. or its subsidiaries ("Company") who have been selected by the Committee, as defined in the Program ("Committee"), and to whom the Committee makes an award of an option ("Option") under this Plan. 3. Awards ------ Each Option shall consist of a Stock Option as defined in the Program and is granted under the terms and conditions contained in the Program and this Plan. To the extent that any of the terms and conditions contained in this Plan are inconsistent with the Program, the terms of the Program shall control. Terms defined in the Program shall have the same meaning in these terms and conditions. The Option is not intended to qualify as an Incentive Stock Option within the meaning of section 422 of the United States Internal Revenue Code. Residents of the United Kingdom may also be subject to additional terms and conditions in the form contained in the Baxter International Inc. Rules of the Baxter International United Kingdom Stock Option, to the extent deemed necessary by the Committee. 4. Vesting, Exercise and Expiration -------------------------------- 4.1 The Option becomes vested three years after the date on which the Option was granted, or, if such date is not a Business Day, then the next Business Day following such date. The Option shall continue to vest for one year after the date on which employment of the Optionee by the Company is terminated, if on the employment termination date the Optionee is age 50 or older and has completed 15 years of employment with the Company. 4.2 When vested and until it expires, the Option may be exercised in whole or in part in the manner specified by the Stockholder Services Department of Baxter International Inc. If exercised in part, the Option must be exercised in installments consisting of at least 100 shares or, if options for less than 100 shares are then exercisable, for the number of shares then exercisable. Shares of Common Stock may be used to pay the exercise price of the Option in accordance with the <PAGE> requirements specified by the Stockholder Services Department. Residents of the United Kingdom may not use shares of Common Stock to pay the exercise price of the Option in any circumstances. 4.3 If the Optionee's employment by the Company is terminated by death or disability more than one year after the date on which the Option is granted, the Optionee or the Optionee's legal representative or the person or persons to whom the Optionee's rights under the Option are transferred by will or the laws of descent and distribution shall have the right to exercise the Option until it expires in accordance with its terms with respect to all or any part of the shares remaining subject to the Option (whether or not the Option was vested under section 4.1 on the Optionee's employment termination date.) 4.4 The Option shall expire at the close of business on the earlier of a date determined as follows or, if such date is not a Business Day, then the last Business Day preceding such date: (i) one year after the date on which employment of the Optionee by the Company is terminated by his or her death or disability; (ii) five years after the date on which employment of the Optionee by the Company is terminated, if on the employment termination date the Optionee is age 50 or older and has completed 15 or more years of employment with the
  • 54. Company; (iii) three months after the date on which employment of the Optionee by the Company is terminated except as provided in subsection 4.4(i) and (ii), unless the Optionee dies or becomes disabled during the three-month period, in which case the relevant date shall be one year after the termination; or (iv) ten years from the date on which the Option is granted. "Business Day" shall mean any day, other than Saturday or Sunday, when the corporate headquarters of the Company is open for the transaction of business and when the Common Stock is traded on the New York Stock Exchange. A transfer of an Optionee from employment by one corporation to another among Baxter International Inc. and its subsidiaries, or a transfer of an Optionee to employment by another corporation which assumes the Option or issues a substitute option in a transaction to which section 424 of the Internal Revenue Code applies, shall not be considered a termination of employment for the purposes of the Option. </TEXT> </DOCUMENT> <DOCUMENT> <TYPE>EX-10.37 <SEQUENCE>5 <DESCRIPTION>1998 INCENTIVE COMPENSATION PROGRAM <TEXT> <PAGE> EXHIBIT 10.37 BAXTER INTERNATIONAL INC. 1998 INCENTIVE COMPENSATION PROGRAM 1. PURPOSE. The purpose of the Baxter International Inc. 1998 Incentive Compensation Program ("Program") is to increase stockholder value and to advance the interests of Baxter International Inc. ("Baxter") and its subsidiaries (collectively, the "Company") by providing a variety of economic incentives designed to attract, retain and motivate employees. As used in this Program, the term "subsidiary" means any business, whether or not incorporated, in which Baxter has a direct or indirect ownership interest. 2. ADMINISTRATION. 2.1 ADMINISTRATION BY COMMITTEE. The Program shall be administered by the Compensation Committee of the Baxter Board of Directors ("Committee"), which shall consist of two or more non-employee directors within the meaning of Rule 16b-3 of the Securities Exchange Act of 1934, as amended ("Exchange Act") who also qualify as outside directors within the meaning of Section 162(m) and the related regulations under the Internal Revenue Code of 1986, as amended, except as otherwise determined by the Board of Directors. The Board of Directors may also exercise any or all authority otherwise delegated to the Committee under the terms of the Program with respect to the grant or administration of incentives. 2.2 AUTHORITY. Subject to the provisions of the Program, the Committee shall have the authority to (a) interpret the provisions of the Program, and prescribe, amend, and rescind rules and procedures relating to the Program, (b) grant incentives under the Program, in such forms and amounts and subject to such terms and conditions as it deems appropriate, including, without limitation, incentives which are made in combination with or in tandem with other incentives (whether or not contemporaneously granted) or compensation or in lieu of current or deferred compensation, (c) modify the terms of, cancel and reissue, or repurchase outstanding incentives, subject to subsection 11.9(b), (d) prescribe the form of agreement, certificate or other instrument evidencing any incentive under the Program, (e) correct any defect or
  • 55. omission and reconcile any inconsistency in the Program or in any incentive hereunder, and (f) make all other determinations and take all other actions as it deems necessary or desirable for the administration of the Program; provided, however, that in no event shall the Committee cancel any outstanding stock option for the purpose of reissuing an option to the option holder at a lower exercise price. The determination of the Committee on matters within its authority shall be conclusive and binding on the Company and all other persons. The Committee shall comply with all applicable law in administering the Plan. 3. PARTICIPATION. Subject to the terms and conditions of the Program, the Committee shall determine and designate from time to time the employees of the Company (including employees who are directors of Baxter) who shall receive incentives under the Program ("Participants"). All employees of the Company are eligible to receive incentives under the Program. Participation, the grant of incentives and any related performance goals for persons subject to section 16(a) of the Exchange Act must be approved by the Committee. The Committee's authority with respect to participation, the grant of incentives and related performance objectives for others (persons not subject to section 16(a)) may be delegated. <PAGE> 4. SHARES SUBJECT TO THE PROGRAM. 4.1 NUMBER OF SHARES RESERVED. Shares of common stock, $1.00 par value, of Baxter ("Common Stock") shall be available for incentives under the Program. To the extent provided by resolution of the Baxter Board of Directors, such shares may be uncertificated. Subject to adjustment in accordance with subsections 4.3 and 4.4, the aggregate number of shares of Common Stock available for incentives under the Program shall be 10,000,000 shares. 4.2 TYPE OF COMMON STOCK. Common Stock issued under the Program in connection with Stock Options and Performance Shares may be authorized and unissued shares or issued shares held as treasury shares. Common Stock issued under the Program in connection with Restricted Stock or Stock Awards shall be issued shares held as treasury shares; provided, however, that authorized and unissued shares may be issued in connection with Restricted Stock or Stock Awards to the extent that the Committee determines that past services of the Participant constitute adequate consideration for at least the par value thereof. 4.3 REUSAGE OF SHARES. (a) In the event of the exercise or termination (by reason of forfeiture, expiration, cancellation, surrender or otherwise) of any incentive under the Program, that number of shares of Common Stock that was subject to the incentive but not delivered shall again be available for incentives under the Program. (b) In the event that shares of Common Stock are delivered under the Program as Restricted Stock or pursuant to a Stock Award and are thereafter forfeited or reacquired by the Company pursuant to rights reserved upon the award thereof, such forfeited or reacquired shares shall again be available for incentives under the Program. (c) Notwithstanding the provisions of paragraphs (a) or (b), the following shares of Common Stock shall not be available for reissuance under the Program: (1) shares which are withheld from any award or payment under the Program to satisfy tax withholding
  • 56. obligations (as described in subsection 11.5(e)); (2) shares which are surrendered to fulfill tax obligations (as described in subsection 11.5(e)); and (3) shares which are surrendered in payment of the Option Price (as defined in subsection 5.1) upon the exercise of a Stock Option. 4.4 ADJUSTMENTS TO SHARES RESERVED. In the event of any merger, consolidation, reorganization, recapitalization, spinoff, stock dividend, stock split, reverse stock split, exchange, or other distribution with respect to shares of Common Stock or other change in the corporate structure or capitalization affecting the Common Stock, the type and number of shares of stock which are or may be subject to incentives under the Program, the terms of any outstanding incentives (including the price at which shares of stock may be issued pursuant to an outstanding incentive) and the limitations set forth in Sections 5.1, 6, 7.1, and 8.1 shall be equitably adjusted by the Committee, in its sole discretion, to preserve the value of incentives awarded or to be awarded to Participants under the Program. 5. STOCK OPTIONS. 5.1 AWARDS. Subject to the terms and conditions of the Program, the Committee shall designate the employees to whom options to purchase shares of Common Stock ("Stock Options") are to be awarded under the Program and shall determine the number, type, and terms of the Stock Options to be awarded to each of them. Stock Option awards are subject to the following <PAGE> specific limitations. Each Stock Option shall expire on the earlier of the date provided by the option terms or the date which is 10 years and one day after the date of grant. The option price per share ("Option Price") for any Stock Option awarded shall not be less than the greater of par value or the Fair Market Value of a share of Common Stock on the date the Stock Option is awarded. Each Stock Option awarded under the Program shall be a "nonqualified stock option" for tax purposes unless the Stock Option satisfies all of the requirements of section 422 of the Internal Revenue Code of 1986, as amended, and the Committee designates such Stock Option as an "Incentive Stock Option". No person shall receive, in any calendar year, Stock Options which, in the aggregate, represent more than 500,000 shares of Common Stock, subject to adjustment as set forth in Section 4.4. 5.2 MANNER OF EXERCISE. A Stock Option may be exercised, in whole or in part, by giving written notice to Baxter prior to the date on which the Stock Option expires; provided, however, that a Stock Option may only be exercised with respect to whole shares of Common Stock. Such notice shall specify the number of shares of Common Stock to be purchased and shall be accompanied by payment of the Option Price for such shares in such form and manner as the Committee may from time to time approve. 6. STOCK AWARDS. Subject to the terms and conditions of the Program, the Committee shall designate the employees who shall be awarded shares of Common Stock without restrictions ("Stock Awards"), under the Program and shall determine the number and terms of the Stock Awards to be awarded to each of them. Stock Awards are subject to the following specific limitations. No person subject to section 16(a) of the Exchange Act may receive a Stock Award, and no person eligible to receive a Stock Award may receive a Stock Award representing more than 2,500 shares of Common Stock in any calendar year, subject to adjustment as set forth in Section 4.4. 7. RESTRICTED STOCK.
  • 57. 7.1 AWARDS. Subject to the terms and conditions of the Program, the Committee shall designate the employees to whom shares of Common Stock, subject to restrictions ("Restricted Stock"), shall be awarded under the Program and determine the number of shares and the terms and conditions of each such award. Each Restricted Stock award shall entitle the Participant to receive shares of Common Stock upon the terms and conditions specified by the Committee and subject to the following provisions of this Section 7 and the provisions of Section 10, and no person eligible to receive Restricted Stock may receive more than 50,000 shares in any calendar year, subject to adjustment as set forth in Section 4.4. 7.2 RESTRICTIONS. All shares of Restricted Stock transferred or sold hereunder shall be subject to such restrictions as the Committee may determine, including, without limitation, any or all of the following: (a) a required period of employment with the Company, as determined by the Committee, prior to the vesting of the shares of Restricted Stock; (b) a prohibition against the sale, assignment, transfer, pledge, hypothecation or other encumbrance of the shares of Restricted Stock for a specified period as determined by the Committee; (c) a requirement that the holder of shares of Restricted Stock forfeit (or in the case of shares sold to a Participant, resell to the Company at his or her cost) all or a part of such shares <PAGE> in the event of termination of his or her employment during any period in which such shares are subject to restrictions; or (d) a prohibition against employment of the holder of such Restricted Stock by any competitor of the Company or against such holder's dissemination of any secret or confidential information belonging to the Company. All restrictions on shares of Restricted Stock awarded pursuant to the Program shall expire at such time or times as the Committee shall specify. 7.3 REGISTRATION OF SHARES. Shares of Restricted Stock awarded pursuant to the Program shall be registered in the name of the Participant and, if such shares are certificated, in the discretion of the Committee, may be deposited in a bank designated by the Committee or with Baxter. The Committee may require a stock power endorsed in blank with respect to shares of Restricted Stock whether or not certificated. 7.4 STOCKHOLDER RIGHTS. Subject to the terms and conditions of the Program, during any period in which shares of Restricted Stock are subject to forfeiture or restrictions on transfer, each Participant who has been awarded shares of Restricted Stock shall have such rights of a stockholder with respect to such shares as the Committee may designate at the time of the award, including the right to vote such shares and the right to receive all dividends paid on such shares. Unless otherwise provided by the Committee, stock dividends or non-cash dividends and, except as otherwise provided by subsection 11.10, any other securities distributed with respect to Restricted Stock shall be restricted to the same extent and subject to the same terms and conditions as the Restricted Stock to which they are attributable. 7.5 LAPSE OF RESTRICTIONS. Subject to the terms and conditions of the Program, at the end of any time period during which the shares of Restricted Stock are subject to forfeiture or restrictions on transfer, such shares will be delivered free of all restrictions to the Participant (or to the
  • 58. Participant's legal representative, beneficiary or heir). 7.6 SUBSTITUTION OF CASH. The Committee may, in its sole discretion, substitute cash equal to the Fair Market Value (determined as of the date of the distribution) of shares of Common Stock otherwise required to be distributed to a Participant in accordance with this Section 7. 8. PERFORMANCE SHARES. 8.1 AWARDS. A performance share is an award which shall be paid in shares of Common Stock, as described below. Subject to the terms and conditions of the Program, the Committee shall designate the employees to whom Performance Shares are to be awarded in accordance with this Section 8 and the number of shares subject to the award and the terms and conditions of such awards. No person eligible for a Performance Share Award shall receive more than 50,000 shares in any calendar year, subject to adjustment as set forth in Section 4.4. Each Performance Share awarded pursuant to this Section 8 shall entitle the Participant to a payment in the form of one share of Common Stock upon the attainment of such performance goals and other terms and conditions as may be specified by the Committee. 8.2 NO ADJUSTMENTS. Except as otherwise provided by the Committee, no adjustment shall be made in Performance Shares awarded on account of cash dividends which may be paid or other rights which may be provided to the holders of Common Stock prior to the end of any period for which performance goals were established. <PAGE> 8.3 SUBSTITUTION OF CASH. The Committee may, in its sole discretion, substitute cash equal to the Fair Market Value (determined as of the date of the issuance) of shares of Common Stock otherwise required to be issued to a Participant in accordance with this Section 8. 9. OTHER INCENTIVES. In addition to the incentives described in Sections 5 through 8 above and subject to the terms and conditions of the Program, the Committee may grant other incentives ("Other Incentives"), payable in cash or in kind, under the Program as it determines to be in the best interest of the Company. 10. PERFORMANCE GOALS AND APPLICATION OF TAX DEDUCTION LIMITATIONS. Compensation attributable to a Stock Option awarded to a Participant is intended to satisfy the requirements of the exception for qualified performance-based compensation within the meaning of section 162(m) and the related regulations under the Internal Revenue Code of 1986, as amended. All awards of Restricted Stock, Performance Shares, and Other Incentives under the Program, to persons subject to section 16(a) of the Exchange Act, shall be made subject to the attainment of performance goals relating to one or more of the business criteria within the meaning of section 162(m) identified above, including but not limited to, stock price, market share, sales, earnings per share, return on equity, costs, and cash flow, as determined by the Committee from time to time. 11. GENERAL. 11.1 EFFECTIVE DATE. The Program will become effective upon its approval by the affirmative vote of the holders of a majority of the voting stock of Baxter at a meeting of its stockholders. Unless approved within one year after the date of the Program's adoption by the Board of Directors, the Program shall not be effective for any purpose. Prior to the approval of the Program by Baxter's stockholders, the Committee may award incentives, but if such approval is not received in the specified period, then such awards shall be of no effect.
  • 59. 11.2 DURATION. The Program shall remain in effect until all incentives granted under the Program have either been satisfied by the issuance of shares of Common Stock or the payment of cash or been terminated in accordance with the terms of the Program or the incentive and until all restrictions imposed on shares of Common Stock issued under the Program have lapsed. No incentive may be granted under the Program after the tenth anniversary of the date the Program is approved by Baxter's stockholders. 11.3 NON-TRANSFERABILITY OF INCENTIVES. No share of Restricted Stock, Performance Share, or Other Incentive under the Program may be transferred, pledged, or assigned by the holder thereof (except, in the event of the holder's death, by will or the laws of descent and distribution to the limited extent provided in the Program or in the terms of the incentive), and the Company shall not be required to recognize any attempted assignment of such rights by any Participant. Stock Options may be transferred by the holder thereof to the limited extent authorized by rules and procedures established by the Committee from time to time. 11.4 EFFECT OF TERMINATION OF EMPLOYMENT OR DEATH. If a Participant ceases to be an employee of the Company for any reason, including death, any incentives then outstanding may be exercised or shall expire in accordance with the terms of the incentive. 11.5 COMPLIANCE WITH APPLICABLE LAW AND WITHHOLDING. (a) Notwithstanding any other provision of the Program, Baxter shall have no obligation to issue any shares of Common Stock under the Program if such issuance would violate any <PAGE> applicable law or any applicable regulation or requirement of any securities exchange or similar entity. (b) Prior to the issuance of any shares of Common Stock under the Program, Baxter or the Company may require a written statement that the recipient is acquiring the shares for investment and not for the purpose or with the intention of distributing the shares and that the recipient will not dispose of them in violation of the registration requirements of the Securities Act of 1933. (c) With respect to any person who is subject to section 16(a) of the Exchange Act, the Committee may, at any time, add such conditions and limitations to any incentive or payment under the Program or implement procedures for the administration of the Program which it deems necessary or desirable to comply with the requirements of Rule 16b-3 of the Exchange Act. (d) If, at any time, Baxter, in its sole discretion, determines that the listing, registration, or qualification (or any updating of any such document) of any type of incentive, or the shares of Common Stock issuable pursuant thereto, is necessary on any securities exchange or under any federal or state securities or blue sky law, or that the consent or approval of any governmental regulatory body is necessary or desirable as a condition of, or in connection with, any incentive, the issuance of shares of Common Stock pursuant to any incentive, or the removal of any restrictions imposed on shares subject to an incentive, such incentive shall not be granted and the shares of Common Stock shall not be issued or such restrictions shall not be removed, as the case may be, in whole or in part, unless such listing, registration, qualification, consent, or approval shall have been effected or obtained free of any conditions not acceptable to Baxter. (e) All incentives and payments under the Program are subject to withholding of all applicable taxes and the Company shall have the right to withhold from
  • 60. any award under the Program or to collect as a condition of any payment under the Program, as applicable, any taxes required by law to be withheld. To the extent provided by the Committee, a Participant may elect to have any distribution, or a portion thereof, otherwise required to be made under the Program to be withheld or to surrender to the Company previously owned shares of Common Stock to fulfill any tax withholding obligation. 11.6 NO CONTINUED EMPLOYMENT. The Program does not constitute a contract of employment or continued service, and participation in the Program will not give any employee or Participant the right to be retained in the employ of the Company or the right to continue as a director of the Company or any right or claim to any benefit under the Program unless such right or claim has specifically accrued under the terms of the Program or the terms of any incentive under the Program. 11.7 TREATMENT AS A STOCKHOLDER. No incentive granted to a Participant under the Program shall create any rights in such Participant as a stockholder of Baxter until shares of Common Stock related to the incentive are registered in the name of the Participant. 11.8 DEFERRAL PERMITTED. Payment of cash to a Participant or distribution of any shares of Common Stock to which a Participant is entitled under any incentive shall be made as provided in the terms of the incentive. Payment may be deferred at the request of the Participant to the extent provided in the incentive. <PAGE> 11.9 AMENDMENT OF THE PROGRAM. The Board may, at any time and in any manner, amend, suspend, or terminate the Program or any incentive outstanding under the Program; provided, however, that no such amendment or discontinuance shall: (a) be made without stockholder approval to the extent such approval is required by law, agreement or the rules of any exchange or automated quotation system upon which the Common Stock is listed or quoted; (b) alter or impair the rights of Participants with respect to incentives previously made under the Program without the consent of the holder thereof; or (c) make any change that would disqualify awards made under the Program, intended to be so qualified, from the exemption provided by Rule 16b-3 of the Exchange Act. 11.10 ACCELERATION OF INCENTIVES. Notwithstanding any provision in this Program to the contrary or the normal terms of vesting in any incentive, (a) the restrictions on all shares of Restricted Stock awarded shall lapse immediately, (b) all outstanding Stock Options will become exercisable immediately, and (c) all performance goals shall be deemed to be met and payment made immediately if a Change in Control occurs. For purposes of this Program, a "Change in Control" shall have occurred if: (1) any "Person", as such term is used in Section 13(d) and 14(d) of the Exchange Act (other than Baxter, any corporation owned, directly or indirectly, by the stockholders of Baxter in substantially the same proportions as their ownership of stock of Baxter, and any trustee or other fiduciary holding securities under an employee benefit plan of Baxter or such proportionately owned corporation), is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of Baxter representing 30% or more of the combined voting power of Baxter's then outstanding securities;
  • 61. (2) during any period of not more than 24 months, individuals who at the beginning of such period constitute the Board of Directors of Baxter, and any new director (other than a director designated by a Person who has entered into an agreement with Baxter to effect a transaction described in paragraph (1), (3) or (4) of this subsection 11.10) whose election by the board or nomination for election by Baxter's stockholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute at least a majority thereof; (3) the stockholders of Baxter approve a merger or consolidation of Baxter with any other corporation, other than (A) a merger or consolidation which would result in the voting securities of Baxter outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than 60% of the combined voting power of the voting securities of Baxter or such surviving entity outstanding immediately after such merger or consolidation, or (B) a merger or consolidation effected to implement a recapitalization of Baxter (or similar transaction) in which no Person acquires more than 30% of the combined voting power of Baxter's then outstanding securities; or <PAGE> (4) the stockholders of Baxter approve a plan of complete liquidation of Baxter or an agreement for the sale or disposition by Baxter of all or substantially all of Baxter's assets (or any transaction having a similar effect). 11.11 DEFINITION OF FAIR MARKET VALUE. Except as otherwise determined by the Committee, the "Fair Market Value" of a share of Common Stock as of any date shall be equal to the closing sale price of a share of Common Stock as reported on The National Association of Securities Dealers' New York Stock Exchange Composite Reporting Tape (or if the Common Stock is not traded on the New York Stock Exchange, the closing sale price on the exchange on which it is traded or as reported by an applicable automated quotation system) ("Composite Tape") on the applicable date or, if no sales of Common Stock are reported on such date, the closing sale price of a share of Common Stock on the date the Common Stock was last reported on the Composite Tape (or such other exchange or automated quotation system, if applicable). </TEXT> </DOCUMENT> <DOCUMENT> <TYPE>EX-10.38 <SEQUENCE>6 <DESCRIPTION>LONG TERM INCENTIVE PLAN <TEXT> <PAGE> EXHIBIT 10.38 BAXTER INTERNATIONAL INC. LONG-TERM INCENTIVE PLAN 1. Adoption This Long-Term Incentive Plan ("Plan") of Baxter International Inc. ("Baxter") and its subsidiaries (collectively, the "Company"), is adopted pursuant to the
  • 62. Baxter International Inc. 1994 Incentive Compensation Program ("Program") for the purposes stated in the Program. It represents an amendment and restatement of the Baxter International Inc. 1989 Long-Term Incentive Plan. 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. 2. Participants Participants in this Plan are valued employees of the Company who have been selected by the Compensation Committee of the Board of Directors of Baxter ("Committee"), and to whom the Committee makes awards ("Award") under this Plan. Each Award may consist of any combination of Restricted Stock and Stock Options as each is defined in the Program and under the terms and conditions contained in the Program and this Plan. 3. Restricted Stock Awards 3.1 Upon the grant of an Award, a stock certificate for the shares of Restricted Stock awarded shall be issued in the participant's name and deposited, together with a stock power endorsed in blank by the participant, with the Company. Each certificate will include a restrictive legend as provided in the Program. 3.2 The Committee shall assign to each participant a target number of shares of Restricted Stock ("Annual Target Award") that can be earned for a calendar year (or portion of such calendar year) ("Plan Year"). The Committee also shall establish a) Company performance goals for the Plan Year which will include one or more of the following 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"), and b) the method for determining the percentage of each participant's Annual Target Award that is earned by the participant based upon the achievement of the Company Performance Criteria for the Plan Year. The terms described in the preceding two sentences must be established by April 1 of the Plan Year, and such terms shall not thereafter be changed, except as permitted by paragraph 3.3. 3.3 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, significant and unplanned currency rate fluctuations 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 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 the percentage of each participant's Annual Target Award that is earned for the Plan Year based upon the terms described in paragraph 3.2 above. The Committee, however, has the discretion to reduce the earned percentage determined under the preceding sentence. The Committee's determination shall be consistent with IRC Section 162(m)(4)(C) and the related regulations described <PAGE> above. No participant shall earn more than 50,000 shares of Restricted Stock under this Plan 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 percentage of the Annual Target Award that is earned under the Plan with respect to participants who are not subject to IRC Section 162(m).
  • 63. 3.4 Shares of Restricted Stock are earned as of December 31 of the Plan Year in which the Company achieves the Company Performance Criteria. Shares of Restricted Stock which have been earned shall become vested, unless previously vested or forfeited pursuant to sections 5.1 or 5.2 of this Plan, on December 31 of the Plan Year after the Plan Year in which they are earned. 3.5 When a participant's rights to Restricted Stock become vested, the participant shall be entitled to shares of Baxter's common stock, $1.00 par value, ("Common Stock"), free and clear of all restrictions, except as otherwise provided in section 10.5 of the Program. The certificates representing these shares shall be delivered to the participant within 30 days after the date such rights become vested. 4. Stock Options 4.1 Upon the grant of an Award, a certificate for the Stock Options awarded shall be issued in the participant's name advising the participant of the number of Stock Options awarded to him or her. 4.2 Subject to the terms and conditions of the Program, the Committee shall determine the number, type, and terms of the Stock Options to be awarded under the Plan to each participant. Stock Option awards are subject to the following specific limitations. Each Stock Option shall expire on the earlier of the date provided by the option terms or the date which is 10 years and one day after the date of grant. The option price per share ("Option Price") for any Stock Option awarded shall not be less than the greater of par value or the Fair Market Value (as defined in the Program) of a share of Common Stock on the date the Stock Option is awarded. Each Stock Option awarded under the Program shall be a "nonqualified stock option" for tax purposes unless the Stock Option satisfies all of the requirements of section 422 of the Internal Revenue Code of 1986, as amended, and the Committee designates such Stock Option as an "Incentive Stock Option". No person shall receive, in any calendar year, Stock Options which, in the aggregate, represent more than 500,000 shares of Common Stock. 5. General Provisions 5.1 If a participant's employment by the Company is terminated, with or without cause, for any reason other than death or disability before the Restricted Stock vests as provided in section 3.4 (even if the shares of Restricted Stock have been earned as provided in section 3.4), then the participant shall forfeit all rights to Restricted Stock, except as otherwise determined by the chairman of the board and chief executive officer of Baxter (and, in the case of officers of Baxter, approved by the Committee). 5.2 If a participant's employment by the Company is terminated by death or disability prior to such vesting, then all of the Restricted Stock awarded to the participant under this Plan, but not previously vested, shall be vested on the effective date of the participant's employment termination, whether or not earned as provided in section 3.2. <PAGE> 5.3 Shares of Restricted Stock granted under the Baxter International Inc. 1989 Long-Term Incentive Plan, pursuant to the Baxter International Inc. 1987 Incentive Compensation Program ("1987 Program"), and which are not vested as of the date on which this Plan is adopted by the Committee, shall be governed by the provisions of this Plan to the extent that they do not conflict with the 1987 Program. Shares of Restricted Stock previously granted under this Plan, pursuant to the 1994 Program, and which are not vested as of the date on which this Plan is adopted by the Committee, shall be governed by the provisions of this Plan to the extent that they do not conflict with the 1994 Program.
  • 64. 5.4 This Plan does not constitute a contract of employment or continued service. Participation in this Plan does not give any participant the right to be retained as an employee of the Company or any right or claim to any benefit under this Plan unless such right or claim has specifically accrued under the terms of this Plan. </TEXT> </DOCUMENT> <DOCUMENT> <TYPE>EX-12 <SEQUENCE>7 <DESCRIPTION>COMPUTATION OF RATIOS <TEXT> <PAGE> EXHIBIT 12 - -------------------------------------------------------------------------------- COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES <TABLE> <CAPTION> (In millions, except ratios) Year ended December 31 - -------------------------------------------------------------------------------- - 1997 1997 1996 1995 1995 1994 1993 1993 - -------------------------------------------------------------------------------- - <S> <C> <C> <C> <C> <C> <C> <C> <C> (C) (C) (C) Income (loss) from continuing operations before income tax expense (benefit) $523 $875 $793 $524 $741 $559 $(74) $472 - -------------------------------------------------------------------------------- - Add: Interest costs 206 206 133 117 117 120 109 109 Estimated interest in rentals (A) 29 29 27 29 29 31 31 31 - -------------------------------------------------------------------------------- - Fixed charges as defined 235 235 160 146 146 151 140 140 - -------------------------------------------------------------------------------- - Interest costs capitalized (8) (8) (3) (3) (3) (2) (5) (5) Losses of less than majority owned affiliates, net of dividends 0 0 8 10 10 18 27 27 - -------------------------------------------------------------------------------- -
  • 65. Income as adjusted $750 $1,102 $958 $677 $894 $726 $ 88 $634 - -------------------------------------------------------------------------------- - Ratio of earnings to fixed charges 3.19 4.69 5.99 4.64 6.12 4.80 (B) 4.53 - -------------------------------------------------------------------------------- - </TABLE> (A) Represents the estimated interest portion of rents. (B) As a result of the loss incurred during this period, the Company's earnings did not cover the indicated fixed charges. The earnings required to attain a ratio of one-to-one are $52 million. (C) Included in this exhibit are supplemental presentations of the ratio of earnings to fixed charges which exclude the following significant unusual charges: 1993: $216 million restructuring charge and $330 million net litigation charge. 1995: $103 million restructuring charge, $96 million net litigation charge and $18 million in-process research and development charge. 1997: $352 million in-process research and development charge. 16 </TEXT> </DOCUMENT> <DOCUMENT> <TYPE>EX-13 <SEQUENCE>8 <DESCRIPTION>ANNUAL REPORT <TEXT> <PAGE> FINANCIAL INFORMATION Management's Discussion & Analysis 17 Management's Responsibilities for Financial Reporting 25 Report of Independent Accountants 26 Consolidated Balance Sheets 27 Consolidated Statements of Income 28 Consolidated Statements of Cash Flows 29 Consolidated Statements of Stockholders' Equity 30 Notes to Consolidated Financial Statements 31 Directors and Officers 47 Investor Information 48 16 <PAGE>
  • 66. MANAGEMENT'S DISCUSSION & ANALYSIS This discussion and analysis presents the factors that had a material effect on Baxter International Inc.'s (Baxter, or, together with its consolidated subsidiaries, the company) cash flows and results of operations during the three years ended December 31, 1997, 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. KEY FINANCIAL OBJECTIVES AND RESULTS <TABLE> <CAPTION> - -------------------------------------------------------------------------------- 1997 OBJECTIVES RESULTS - -------------------------------------------------------------------------------- <S> <C> . Generate $300 million in . The company generated $432 million operational cash flow, of operational cash flow in 1997, before litigation payments. before litigation payments. - -------------------------------------------------------------------------------- . Increase net sales approximately . Net sales increased 3% before the 10% before the impact of 1997 impact of acquisitions and acquisitions and 20% including increased 13% including 1997 acquisitions. acquisitions. Excluding the effect of a stronger U.S. dollar, net sales increased 6% before acquisitions and 16% including acquisitions. - -------------------------------------------------------------------------------- . Achieve growth in income from . Income from continuing operations continuing operations in the low increased 13%, excluding the double digits. in-process research and development charge relating to the acquisitions discussed below. - -------------------------------------------------------------------------------- </TABLE> COMPANY AND INDUSTRY OVERVIEW Baxter is a global developer, manufacturer and marketer of products and technologies related to the blood and circulatory system. The company has market-leading positions in four businesses within this segment of the medical products and services industry: Blood Therapies, which develops biopharmaceutical and blood-collection and separation products and technologies; I.V. Systems/Medical Products, which develops technologies and systems to improve intravenous medication delivery, and distributes medical products; Renal, which develops products and services to treat kidney disease; and CardioVascular, which develops products and provides services to treat late- stage heart disease and vascular disorders. The company generates more than 50% of its revenues outside the United States. While health-care cost containment continues to be a focus around the world,
  • 67. demand for health-care products and services continues to be strong worldwide, particularly in developing markets such as Latin America and Asia. The company's strategies emphasize global expansion and technological innovation to advance medical care worldwide. The health-care marketplace continues to be competitive. There has been consolidation in the company's customer base and by its competitors, which has resulted in pricing and market-share pressures. These industry trends are expected to continue. The company will continue to manage these issues by capitalizing on its market-leading positions, developing new products and services, leveraging its cost structure and making acquisitions. The company has experienced increases in its labor and material costs, which are partly influenced by general inflationary trends. Competitive market conditions have minimized the impact of inflation on the selling prices of the company's products and services. Management expects these trends to continue. 17 BAXTER INTERNATIONAL 1997 ANNUAL REPORT <PAGE> MANAGEMENT'S DISCUSSION & ANALYSIS RESULTS OF CONTINUING OPERATIONS NET SALES TRENDS <TABLE> <CAPTION> Percent increase ---------------- years ended December 31 (in millions) 1997 1996 1995 1997 1996 - -------------------------------------------------------------------------------- -------------------------- <S> <C> <C> <C> <C> <C> Global businesses: Blood Therapies $1,765 $1,284 $1,131 37% 14% I.V. Systems/Medical Products 2,110 1,956 1,893 8% 3% Renal 1,384 1,343 1,294 3% 4% CardioVascular 879 855 730 3% 17% - -------------------------------------------------------------------------------- -------------------------- Total net sales $6,138 $5,438 $5,048 13% 8% ================================================================================ ========================== Percent increase ---------------- years ended December 31 (in millions) 1997 1996 1995 1997 1996 -
  • 68. -------------------------------------------------------------------------------- -------------------------- United States $2,887 $2,665 $2,492 8% 7% International 3,251 2,773 2,556 17% 9% - -------------------------------------------------------------------------------- -------------------------- Total net sales $6,138 $5,438 $5,048 13% 8% ================================================================================ ========================== </TABLE> The U.S. dollar has strengthened relative to other currencies over the last two years. As a result, the company's sales denominated in foreign currencies are lower when translated into U.S. dollars. Excluding the effect of a stronger U.S. dollar, international sales growth would have been 24% and 13% in 1997 and 1996, respectively. Blood Therapies Strong demand for the company's therapeutic proteins, especially Recombinate(TM) Anti-hemophilic factor (Recombinant), generated worldwide growth in the Blood Therapies businesses in 1997 and 1996, particularly outside the United States. This trend is expected to continue as the company increases its manufacturing capacity for genetically engineered proteins to meet the strong demand for these blood therapies. The acquisition of Immuno International AG (Immuno), a global manufacturer of biopharmaceutical products, was a strong contributor to sales growth in 1997. The Immuno acquisition strengthens the businesses' presence in Europe and enhances the company's position in several emerging markets. Sales of Gammagard(R) S/D immunoglobulin intravenous, a viral-inactivated plasma derivative that boosts immune systems, strongly contributed to the 1996 sales growth of the Blood Therapies businesses. Sales levels in 1997 in the automated and manual blood-collection businesses decreased slightly from those in the prior year primarily due to pricing pressures and supply issues, partially offset by continued penetration of basic blood-collection products into developing markets. Sales in the automated and manual blood-collection businesses increased modestly from 1995 to 1996, as penetration into developing markets more than offset pricing pressures in the businesses. I.V. Systems/Medical Products Contributing to 1997 sales growth were increased sales due to the acquisition of the Clintec parenteral-nutrition business (Clintec) after the dissolution of the company's joint venture with Nestle S.A. Excluding the effect of the acquisition of Clintec, worldwide sales of intravenous and other medical products increased moderately in both 1997 and 1996. Sales in the United States and Western Europe were unfavorably affected by competitive pricing pressures and cost pressures from health-care providers. Offsetting these factors were increased penetration and new product introductions in Latin America, increased sales as a result of a multiyear agreement entered into in late 1996 with Premier, a major U.S. group of customers, and the 1997 introduction of the Colleague(TM) volumetric infusion pump in the United States. Also, as discussed in Note 4 to the Consolidated Financial Statements, in early 1998, the company acquired Bieffe Medital S.p.A. (Bieffe), a European manufacturer of dialysis and intravenous solutions and containers, and entered into a definitive agreement to aquire the Pharmaceutical Products Division of the Ohmeda business from the BOC Group (Ohmeda), a manufacturer of gases and drugs used for general and local anesthesia. These factors are expected to contribute to the trend of moderate and stable growth in this business. <PAGE>
  • 69. Renal Worldwide sales of renal products and services continued to grow in 1997 and 1996. Strong pricing pressures in the United States and Europe along with continued market consolidation in the United States affected sales growth in these two regions. These factors were more than offset by increased penetration into developing markets, especially in Latin America. Another strong contributor to 1997 sales growth was revenue from the Renal Therapy Services (RTS) unit, which operates dialysis clinics outside the United States, frequently partnering with physicians and hospitals. Also contributing to sales growth in 1997 was the new Renal Management Strategies (RMS) unit, which is a renal disease-management organization dedicated to creating partnerships with nephrologists to lead renal-care networks throughout the United States. Continued growth in the RTS and RMS units and the early 1998 acquisition of Bieffe discussed above, are expected to enhance the sales growth trend of the Renal business. More than 70% of the sales of the Renal business are generated outside the United States. Therefore, the strengthening of the U.S. dollar over the last two years has significantly affected the U.S. dollar sales growth in this business. CardioVascular Sales growth in 1997 and 1996 was led by strong growth in the tissue heart valve and valve-repair product lines. The 1997 acquisition of Research Medical, Inc. (RMI), a manufacturer of specialized cannulae and cardioplegia products, also contributed to the sales growth. The acquisition of several perfusion-services businesses and strong sales of monitoring catheters were contributors to 1996 sales growth. The acquisitions of RMI and perfusion-services businesses are part of the company's strategy to offer a comprehensive approach for surgeons treating patients with late-stage cardiovascular disease, including products used in minimally invasive cardiac surgery. While pricing pressures continue to impact several product lines, sales are expected to continue to grow in 1998, with strong performances expected in the heart valve, valve repair and minimally invasive product lines. GROSS MARGIN AND EXPENSE RATIOS <TABLE> <CAPTION> years ended December 31 (as a percent of sales) 1997 1996 1995 - -------------------------------------------------------------------------------- <S> <C> <C> <C> Gross margin 45.6% 44.7% 45.0% Marketing and administrative expenses 22.1% 21.0% 21.5% ================================================================================ </TABLE> The gross margin increased in 1997 primarily as a result of acquisitions and a more favorable product mix, particularly with respect to the Renal and I.V. Systems/Medical Products businesses. The decrease in the gross margin rate in 1996 reflects increased sales in the lower-margin cardiovascular-services business as a result of the 1996 perfusion-services business acquisitions, coupled with a slight change in the mix of product sales. The company expects its gross margin rate to be approximately 45% in 1998. Marketing and administrative expenses increased as a percent of sales in 1997 primarily due to the acquisition of Immuno, and expansion into developing markets and new business initiatives, partially offset by a continued focus on cost control in all business units. The ratio decreased in 1996 primarily as a result of increased sales in the cardiovascular-services business, which has a lower cost structure, coupled with a continued focus on cost control in all business units. The company expects that its expense ratio will decrease in 1998 as the company continues to focus on cost control and realizes the benefits of
  • 70. integrating Immuno and other recent acquisitions. The gross margin and expense ratios were affected in 1997 by favorable experience and related assumptions with respect to certain employee retirement plans. RESEARCH AND DEVELOPMENT <TABLE> <CAPTION> Percent increase years ended December 31 (in millions) 1997 1996 1995 1997 1996 - -------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> Research and development expenses $392 $340 $327 15% 4% - -------------------------------------------------------------------------------- as a percent of sales 6% 6% 6% ========================================================== </TABLE> 19 BAXTER INTERNATIONAL 1997 ANNUAL REPORT <PAGE> MANAGEMENT'S DISCUSSION & ANALYSIS Research and development (R&D) expenses above exclude in-process R&D charges of $220 million and $132 million relating to the 1997 acquisitions of Immuno and RMI, respectively, which are discussed in Note 3 to the Consolidated Financial Statements. The 1995 expense excludes the $18 million in-process R&D charge related to the acquisition of the remaining 30% of Nextran. R&D expenses are focused on initiatives such as hemoglobin therapeutics, xenotransplantation, medication-delivery systems and the Novacor(TM) left-ventricular assist system. The company is conducting several clinical trials of its hemoglobin therapeutic, HemAssist (Hemoglobin Crosfumaril), or "blood substitute", in the United States and Europe. The company currently anticipates launching the product by late 1999 or early 2000. RESTRUCTURING PROGRAMS Baxter has two restructuring programs in process. See Note 5 to the Consolidated Financial Statements for a discussion of the charges, utilization of the reserves and position reductions to date. Management believes remaining restructuring reserves are adequate to complete the actions contemplated by the programs. With respect to the 1993 program, the company realized approximately $129 million, $116 million and $90 million in pretax savings in 1997, 1996 and 1995, respectively, which were consistent with originally forecasted savings. Anticipated future savings of approximately $130 million annually are also in line with original targets. Management anticipates restructuring savings will continue to be partially invested in R&D and expansion into growing international markets. The company is in the process of implementing the 1995 program. Management expects that the plant closures and consolidations in Puerto Rico will be substantially completed in 1999, and will lower manufacturing costs and help mitigate future exposure to gross margin erosion arising from pricing pressures, primarily in the United States. Future cash expenditures related to both the 1993 and 1995 programs will be funded with cash generated from operations. LITIGATION AND OTHER INCOME AND EXPENSE
  • 71. Included in the 1995 results are net litigation charges in the amount of $96 million relating to the company's plasma-based therapies and mammary-implant product liabilities. Net interest expense increased in 1997 primarily due to increased debt related to the acquisition of Immuno. Net interest expense is not expected to change significantly in 1998. Goodwill amortization increased in 1997 primarily due to the acquisitions of Immuno and Clintec, and increased in 1996 primarily due to the acquisition of Clintec. Goodwill amortization is anticipated to increase in 1998 primarily due to the acquisition of Bieffe. The early 1998 acquisition of Bieffe and the pending acquisition of Ohmeda are expected to be nondilutive to earnings in 1998 and accretive in 1999. Included in the 1997 results is a pretax gain of $32 million relating to the company's divestiture of certain assets of its Immunotherapy division. Refer to Note 3 to the Consolidated Financial Statements for further information. Also included in other income in 1997 and 1995 are pretax gains relating to the disposal of certain non-strategic investments totaling $17 million and $62 million, respectively. PRETAX INCOME FROM CONTINUING OPERATIONS <TABLE> <CAPTION> Percent increase (decrease) <S> <C> <C> <C> <C> <C> years ended December 31 (in millions) 1997 1996 1995 1997 1996 - -------------------------------------------------------------------------------- ---- Pretax income from continuing operations $523 $793 $524 (34%) 51% ================================================================================ ==== </TABLE> Excluding the in-process R&D charges and divestiture gains, the 1997 growth in pretax income from continuing operations would have been 4%. Excluding the restructuring, litigation and Nextran in-process R&D charges and the divestiture gain, all recorded in 1995, the 1996 growth in pretax income from continuing operations would have been 17%. <PAGE> The effective income tax rate for continuing operations, excluding the in- process R&D charges, was approximately 25%, 27% and 30% in 1997, 1996 and 1995, respectively. The rate has declined primarily due to a larger portion of the company's earnings generated in lower tax jurisdictions. Management does not expect a significant change in the effective tax rate in 1998. Income from discontinued operations in 1996 and 1995 related to the company's former health-care cost management and distribution businesses. In September 1996, Baxter stockholders received all of the outstanding stock of Allegiance Corporation (Allegiance), its health-care cost management and distribution businesses, in a tax-free spin-off. Income from discontinued operations decreased significantly from 1995 to 1996 due primarily to the net gain in 1995 resulting from the company's divestiture of its Industrial and Life Sciences business and to lower income in 1996 resulting from the spin-off of Allegiance
  • 72. at the end of the third fiscal quarter. Excluding the in-process R&D charges and divestiture gains recorded in 1997, diluted earnings per share from continuing operations (EPS) in 1997 would have been $2.21, and the 1997 growth in diluted EPS would have been 7%. Excluding the 1995 restructuring, litigation and Nextran in-process R&D charges, and the divestiture gain, diluted EPS would have been $1.61 for the year ended December 31, 1995, and the 1996 growth in diluted EPS would have been 29%. 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, purchased options and swaps. Refer to Note 7 to the Consolidated Financial Statements for further information regarding these instruments. The company does not hold financial instruments for trading or speculative purposes. CURRENCY RISK The company is primarily exposed to currency exchange-rate risk with respect to its transactions and net assets denominated in Japanese Yen, Belgian Francs, U.K. Pound Sterling, French Francs, German Marks, Austrian Schillings and Italian Lira. Business activities in various currencies expose the company to the risk that the eventual net dollar cash inflows resulting from transactions with foreign customers and suppliers denominated in foreign currencies may be adversely affected by changes in currency exchange rates. The company manages these risks utilizing various types of foreign exchange contracts. The company also enters into foreign exchange contracts to hedge anticipated, but not yet committed sales expected to be denominated in foreign currencies. In addition, the company hedges certain of its net investments in international affiliates. As part of its risk-management process, the company uses a value-at-risk model to measure the potential loss related to its foreign currency financial instruments. The value-at-risk calculation approximates a potential loss amount from adverse movements in currency exchange rates. The company utilizes a Monte Carlo simulation, with a 95% confidence level, using implied volatilities and correlations (as of the measurement date) to estimate this potential loss. The company's calculated value-at-risk as of fiscal year-end 1997, assuming a one- year holding period, is $15 million; this amount excludes the potential effect of any changes in the value of the underlying transactions or balances. Actual future gains or losses may differ from this estimate based upon actual fluctuations in market rates, operating exposures and the timing thereof, and changes in the company's portfolio of derivatives during the measured period. In addition, the assumption within the value-at-risk model is that changes in currency exchange rates are adverse, which may not be the case. Any loss incurred on the financial instruments is expected to be offset by the effects of currency movements on the respective underlying hedged transactions and balances. However, since the company's risk-management program does not require the hedging of all exposures, there may be currency exchange-rate gains or losses in the future. 21 <PAGE> MANAGEMENT'S DISCUSSION & ANALYSIS INTEREST RATE RISK
  • 73. As part of its risk-management program, the company performs sensitivity analyses to assess potential gains and losses in earnings and changes in fair value relating to hypothetical movements in interest rates. A 75 basis-point increase in interest rates (approximately 10% 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 1998 pretax earnings and on the fair value of the company's fixed-rate financial instruments. As discussed in Note 7 to the Consolidated Financial Statements, 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% 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 investments in affiliates accounted for on the cost basis, management believes any reasonably possible near-term losses in earnings, cash flows and fair values would not be material. LIQUIDITY AND CAPITAL RESOURCES Management assesses the company's liquidity in terms of its overall ability to mobilize cash to support ongoing business levels and to fund its growth. 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. The company exceeded its annual operational cash flow goals for the last three years. 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 nor sold. If all the company's litigation payments, net of insurance recoveries, were excluded from operational cash flow (including those relating to plasma-based therapies), the amount generated from continuing operations would be $432 million, $587 million and $337 million in 1997, 1996 and 1995, respectively. The company expects to generate more than $500 million in operational cash flow in 1998. Certain amounts on the Consolidated Balance Sheet have increased due to the acquisitions discussed above. In addition, the increases in accounts receivable reflect increased sales outside the United States, which have longer collection periods. The following table reconciles cash flow provided by continuing operations, as determined by generally accepted accounting principles, to operational cash flow: <TABLE> <CAPTION> Brackets denote cash outflows years ended December 31 (in millions) 1997 1996 1995 - ------------------------------------------------------------------------------ <S> <C> <C> <C> Cash flow provided by continuing operations $ 616 $ 700 $ 573 Capital expenditures (496) (398) (399) Net interest after tax 97 62 56 Other 57 126 86 - ------------------------------------------------------------------------------ Operational cash flow--continuing operations 274 490 316 - ------------------------------------------------------------------------------ Operational cash flow--discontinued operations - 192 271
  • 74. - ------------------------------------------------------------------------------ Total operational cash flow $ 274 $ 682 $ 587 ============================================================================== </TABLE> 22 <PAGE> Cash flow provided by discontinued operations decreased from 1995 to 1996 primarily due to the spin-off of Allegiance, which occurred in September 1996, and the proceeds received in 1995 relating to the divestiture of the Industrial and Life Sciences business. Capital expenditures are made at a sufficient level to support the strategic and operating needs of the businesses. Significant expenditures have included continuing construction of a manufacturing facility in Switzerland for HemAssist/TM/ (Hemoglobin Crosfumaril), the company's hemoglobin therapeutic, construction of a new European distribution center in Belgium, and construction and continuing expansion of facilities in California for the production of genetically engineered proteins. Management expects to invest between $500 million and $600 million in capital expenditures in 1998. Approximately $498 million and $48 million of the net cash flows used for acquisitions and investments in affiliates in 1997 related to the acquisition of Immuno and the early 1998 acquisition of Bieffe, respectively. The increase in net cash flows used for acquisitions and investments in affiliates in 1996 related primarily to purchases of cardiovascular-services businesses, the largest of which was PSICOR, Inc. Also included was the previously discussed acquisition of Clintec. See Notes 3 and 4 to the Consolidated Financial Statements for additional information. The company's net-debt-to-capital ratio was 46.9% and 33.8% at December 31, 1997 and 1996, respectively. The increase in the ratio primarily was due to increased net debt relating to the acquisition of Immuno and the impact on total capital of the in-process R&D charges discussed above. Management expects the ratio to decline to the low-40% range over time as a result of ongoing operations. Refer to Note 6 to the Consolidated Financial Statements for a discussion of the company's credit facilities and long-term debt and lease obligations. Refer to Note 2 to the Consolidated Financial Statements regarding Allegiance's indirect assumption of company debt in 1996. 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 board of directors authorized the repurchase of up to $500 million over a period of several years, of which $267 million was repurchased as of December 31, 1996. The company repurchased $500 million of its stock in 1995 under a prior board of directors' authorization. As discussed above, the company's net-debt-to- capital ratio is currently 46.9% and, therefore, management does not presently intend to repurchase shares. Effective as of December 31, 1997, the company could 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.
  • 75. In February 1998, the board of directors declared a quarterly dividend on the company's common stock of 29.10 cents per share (annualized rate of $1.164 per share). The company intends to continue lowering its dividend payout ratio in order to optimize its capital structure. See Note 13 to the Consolidated Financial Statements 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. 23 <PAGE> MANAGEMENT'S DISCUSSION & ANALYSIS 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. The company is in the process of implementing appropriate courses of action to ensure its computer systems, selected products and other processes will be "year 2000" compliant. The costs of new software will be capitalized and amortized over the software's estimated useful life and software modification costs will be expensed as incurred. The amounts expensed to date have been immaterial and the company does not expect the amounts required to be expensed in the future to have a material effect on its financial position or results of operations. A significant portion of the anticipated modification effort will be accomplished by a redeployment of existing internal information technology resources. Management presently believes that, with planned modifications to existing software and conversions to new software, year 2000 compliance will not pose significant operational problems. However, if such modifications and conversions are not completed on a timely basis, or if the company's trading partners have significant unresolved systems problems, there is a risk that year 2000 compliance could have a material impact on the operations of the company. The matters discussed in this section include forward-looking statements that involve risks and uncertainties, including, but not limited to, currency exchange rates, technological advances in the medical field, economic conditions, product demand and industry acceptance of the company's new products, competitive products and pricing, manufacturing efficiencies, new product development, ability to enforce patents, availability of raw materials and manufacturing capacity, new plant start-ups, the U.S. and global regulatory, trade and tax environment, year 2000 compliance, and other risks more completely reflected in the company's filings with the Securities and Exchange Commission. ADOPTION OF NEW ACCOUNTING STANDARDS In June 1997, the FASB issued Statement No. 130, "Reporting Comprehensive Income," which is effective for fiscal years beginning after December 15, 1997, and requires reclassification of prior-period financial statements. Statement No. 130 requires the presentation of comprehensive income, which consists of net income and other comprehensive income, and its components in a full set of financial statements. The company's other comprehensive income will consist of
  • 76. foreign currency translation adjustments, which totaled $(202) million, $(44) million and $29 million in 1997, 1996 and 1995, respectively, and which currently are reported as a component of stockholders' equity. Additional items may be included in other comprehensive income in the future. The company plans to display comprehensive income and its components in the Consolidated Statement of Stockholders' Equity beginning in 1998. In June 1997, the FASB issued Statement No. 131, "Disclosures about Segments of an Enterprise and Related Information," which is effective for fiscal years beginning after December 15, 1997, and requires reclassification of prior-period financial statements. Statement No. 131 establishes standards for reporting information about operating segments and related disclosures about products and services, geographic areas and major customers in annual financial statements and interim financial reports. Management currently is evaluating its reportable segments under the new Statement and anticipates disclosures for more than one segment under the new rules. 24 <PAGE> 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 generally accepted accounting principles and include some 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 of assets against unauthorized acquisition, use or disposition that is designed to provide reasonable assurance as to the integrity and reliability of financial reporting and asset safeguarding. 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 practice, 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. Price Waterhouse 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. The independent certified public accountants and corporate auditors meet regularly with, and have access to, this committee, with and without management present, to discuss the results of the audit work.
  • 77. /S/ Vernon R. Loucks Jr. Vernon R. Loucks Jr. Chairman of the Board and Chief Executive Officer /S/ Harry M. Jansen Kraemer Jr. Harry M. Jansen Kraemer Jr. President /S/ Brian P. Anderson Brian P. Anderson Corporate Vice President, Finance 25 BAXTER INTERNATIONAL 1997 ANNUAL REPORT <PAGE> REPORT OF INDEPENDENT ACCOUNTANTS BOARD OF DIRECTORS AND STOCKHOLDERS BAXTER INTERNATIONAL INC. In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, cash flows and stockholders' equity present fairly, in all material respects, the financial position of Baxter International Inc. (the company) and its subsidiaries at December 31, 1997 and 1996, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. 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 generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatements. 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 the opinion expressed above. /S/ Price Waterhouse LLP Price Waterhouse LLP Chicago, Illinois February 5, 1998 26 <PAGE> <TABLE> <CAPTION> CONSOLIDATED BALANCE SHEETS as of December 31 (in millions, except shares) 1997 1996 - -------------------------------------------------------------------------------
  • 78. <S> <C> <C> <C> CURRENT ASSETS Cash and equivalents $ 465 $ 761 Accounts receivable 1,372 1,219 Notes and other current receivables 367 266 Inventories 1,208 883 Short-term deferred income taxes 253 212 Prepaid expenses 205 139 ----------------------------------------------------------- Total current assets 3,870 3,480 - ------------------------------------------------------------------------------- PROPERTY, PLANT AND EQUIPMENT, NET 2,360 1,843 - ------------------------------------------------------------------------------- OTHER ASSETS Goodwill and other intangibles 1,622 1,386 Insurance receivables 409 641 Other 446 246 ----------------------------------------------------------- Total other assets 2,477 2,273 ----------------------------------------------------------- Total assets $8,707 $7,596 ================================================================================ CURRENT LIABILITIES Notes payable to banks $ 102 $ 121 Current maturities of long-term debt and lease obligations 42 225 Accounts payable and accrued liabilities 1,963 1,704 Income taxes payable 450 395 ----------------------------------------------------------- Total current liabilities 2,557 2,445 - ------------------------------------------------------------------------------- LONG-TERM DEBT AND LEASE OBLIGATIONS 2,635 1,695 - ------------------------------------------------------------------------------- LONG-TERM DEFERRED INCOME TAXES 316 255 - ------------------------------------------------------------------------------- LONG-TERM LITIGATION LIABILITIES 210 365 - ------------------------------------------------------------------------------- OTHER LONG-TERM LIABILITIES 370 332 - ------------------------------------------------------------------------------- STOCKHOLDERS' EQUITY Common stock, $1 par value, authorized 350,000,000 shares, issued 287,701,247 shares in 1997 and 1996 288 288 Additional contributed capital 1,876 1,825 Retained earnings 1,006 1,022 Common stock in treasury, at cost, 7,662,187 shares in 1997 and 15,261,100 shares in 1996 (329) (611) Cumulative foreign currency adjustment (222) (20) ----------------------------------------------------------- Total stockholders' equity 2,619 2,504 ----------------------------------------------------------- Total liabilities and stockholders' equity $8,707 $7,596 ================================================================================ The accompanying notes are an integral part of these consolidated financial statements. </TABLE> BAXTER INTERNATONAL 1997 ANNUAL REPORT
  • 79. 27 <PAGE> <TABLE> <CAPTION> CONSOLIDATED STATEMENTS OF INCOME years ended December 31 (in millions, except per share data) 1997 1996 1995 - -------------------------------------------------------------------------------- ------------------------------------- <S> <C> <C> <C> <C> OPERATIONS Net sales $6,138 $5,438 $5,048 Costs and expenses Cost of goods sold 3,340 3,009 2,777 Marketing and administrative expenses 1,356 1,142 1,084 Research and development expenses 392 340 327 Acquired research and development 352 - 18 Special charges for litigation and restructuring - - 199 Interest, net 163 103 96 Goodwill amortization 45 36 28 Other (income) expense (33) 15 (5) -------------------------------------------------------------------------------- ---------------- Total costs and expenses 5,615 4,645 4,524 -------------------------------------------------------------------------------- ---------------- Income from continuing operations before income taxes 523 793 524 Income tax expense 223 218 153 -------------------------------------------------------------------------------- ---------------- Income from continuing operations 300 575 371 -------------------------------------------------------------------------------- ---------------- Discontinued operations - 94 278 -------------------------------------------------------------------------------- ---------------- Net income $ 300 $ 669 $ 649 ================================================================================ ===================================== PER SHARE DATA Basic earnings per common share
  • 80. Continuing operations $ 1.08 $ 2.11 $ 1.34 Net income $ 1.08 $ 2.46 $ 2.35 -------------------------------------------------------------------------------- ---------------- Diluted earnings per common share Continuing operations $ 1.06 $ 2.07 $ 1.32 Net income $ 1.06 $ 2.41 $ 2.31 ================================================================================ ===================================== The accompanying notes are an integral part of these consolidated financial statements. </TABLE> 28 <PAGE> <TABLE> <CAPTION> CONSOLIDATED STATEMENTS OF CASH FLOWS years ended December 31 (in millions) (brackets denote cash outflows) 1997 1996 1995 - -------------------------------------------------------------------------------- ---------------------------------------------- <S> <C> <C> <C> <C> CASH FLOWS FROM Income from continuing operations $ 300 $ 575 $ 371 CONTINUING OPERATIONS Adjustments Depreciation and amortization 398 348 336 Deferred income taxes (1) 74 (17) Gain on asset dispositions (48) (9) (65) Acquired research and development 352 - 18 Restructuring and litigation charges - - 199 Other 9 17 20 Changes in balance sheet items Accounts receivable (56) (258) (121) Inventories (102) 59 (90) Accounts payable and accrued liabilities 103 79 104 Income taxes payable 3 6 (19) Net litigation payments (215) (219) (87) Restructuring program payments (19) (37) (40) Other (108) 65 (36)
  • 81. -------------------------------------------------------------------------------- --------------- Cash flows from continuing operations 616 700 573 - -------------------------------------------------------------------------------- ---------------------------------------------- CASH FLOWS FROM DISCONTINUED OPERATIONS - 93 763 - -------------------------------------------------------------------------------- ---------------------------------------------- CASH FLOWS FROM Capital expenditures (403) (318) (309) INVESTING ACTIVITIES Additions to the pool of equipment leased or rented to customers (93) (80) (90) Acquisitions (net of cash received) and investments in affiliates (622) (294) (44) Proceeds from assets dispositions (23) (15) 91 -------------------------------------------------------------------------------- --------------- Cash flows from investing activities (1,141) (707) (352) - -------------------------------------------------------------------------------- ---------------------------------------------- CASH FLOWS FROM Issuances of debt and lease obligations 855 1,855 1,296 FINANCING ACTIVITIES Redemption of debt and lease obligations (465) (1,674) (891) Increase (decrease) in debt with maturities of three months or less, net 81 429 (698) Common stock cash dividends (316) (320) (306) Stock issued under employee benefit plans 110 193 103 Purchase of treasury stock - (267) (500) -------------------------------------------------------------------------------- --------------- Cash flows from financing activities 265 216 (996) - -------------------------------------------------------------------------------- ---------------------------------------------- EFFECT OF FOREIGN EXCHANGE RATE CHANGES ON CASH AND EQUIVALENTS (36) (17) 20 - -------------------------------------------------------------------------------- ---------------------------------------------- (DECREASE) INCREASE IN CASH AND EQUIVALENTS (296) 285 8 - -------------------------------------------------------------------------------- ----------------------------------------------
  • 82. CASH AND EQUIVALENTS AT BEGINNING OF YEAR 761 476 468 - -------------------------------------------------------------------------------- ---------------------------------------------- CASH AND EQUIVALENTS AT END OF YEAR $ 465 $ 761 $ 476 ================================================================================ ============================================== Supplemental information: Interest paid, net of portion capitalized $ 155 $ 215 $ 176 Income taxes paid $ 174 $ 114 $ 182 ================================================================================ ============================================== The accompanying notes are an integral part of these consolidated financial statements. BAXTER INTERNATIONAL 1997 ANNUAL REPORT </TABLE> 29 <PAGE> <TABLE> <CAPTION> CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY years ended December 31 (in millions) 1997 1996 1995 - -------------------------------------------------------------------------------- ------------------------------------ <S> <C> <C> <C> <C> COMMON STOCK Balance, beginning and end of year $ 288 $ 288 $ 288 - -------------------------------------------------------------------------------- ------------------------------------ ADDITIONAL Balance, beginning of year 1,825 1,837 1,810 CONTRIBUTED CAPITAL Stock issued under employee-benefit plans 6 (12) 27 Stock issued for acquisitions 45 - - -------------------------------------------------------------------------------- ---------- Balance, end of year 1,876 1,825 1,837 - -------------------------------------------------------------------------------- ------------------------------------ RETAINED EARNINGS Balance, beginning of year 1,022 2,105 1,762 Net income 300 669 649 Common stock cash dividends (316) (320) (306)
  • 83. Distribution of Allegiance Corporation common stock to stockholders - (1,432) - -------------------------------------------------------------------------------- ---------- Balance, end of year 1,006 1,022 2,105 - -------------------------------------------------------------------------------- ------------------------------------ COMMON STOCK Balance, beginning of year (611) (550) (135) IN TREASURY Purchases - (267) (500) Stock issued under employee-benefit plans 104 205 76 Stock issued for acquisitions 178 1 9 -------------------------------------------------------------------------------- ---------- Balance, end of year (329) (611) (550) - -------------------------------------------------------------------------------- ------------------------------------ CUMULATIVE Balance, beginning of year (20) 24 (5) FOREIGN CURRENCY Currency fluctuations (202) (44) 29 ADJUSTMENT -------------------------------------------------------------------------------- ---------- Balance, end of year (222) (20) 24 -------------------------------------------------------------------------------- ---------- Total stockholders' equity $2,619 $2,504 $3,704 ================================================================================ ==================================== The accompanying notes are an integral part of these consolidated financial statements. </TABLE> <PAGE> 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
  • 84. the company). Operations outside the United States and its territories are included in the consolidated financial statements on the basis of fiscal years ending November 30 in order to facilitate timely consolidation. INVENTORIES as of December 31 (in millions) 1997 1996 - ------------------------------------------------------------- Raw materials $ 279 $190 Work in process 243 152 Finished products 686 541 - ------------------------------------------------------------- Total inventories $1,208 $883 ============================================================= Inventories are stated at the lower of cost (first-in, first-out method) or market. Market for raw materials is based on replacement costs and for other inventory classifications on net realizable value. PROPERTY, PLANT AND EQUIPMENT as of December 31 (in millions) 1997 1996 - ------------------------------------------------------------------- Land $ 106 $ 85 Buildings and leasehold improvements 994 719 Machinery and equipment 2,515 2,290 Equipment leased or rented to customers 449 400 Construction in progress 343 301 - ------------------------------------------------------------------- Total property, plant and equipment, at cost 4,407 3,795 Accumulated depreciation and amortization (2,047) (1,952) - ------------------------------------------------------------------- Net property, plant and equipment $2,360 $1,843 =================================================================== Depreciation and amortization are principally calculated on the straight-line method over the estimated useful lives of the related assets. Leasehold improvements are amortized over the life of the related facility leases or the asset, whichever is shorter. Straight-line and accelerated methods of depreciation are used for income tax purposes. Depreciation expense was $299 million, $258 million and $254 million in 1997, 1996 and 1995, respectively. Repairs and maintenance expense was $103 million, $93 million and $79 million in 1997, 1996 and 1995, respectively. GOODWILL AND OTHER INTANGIBLE ASSETS as of December 31 (in millions) 1997 1996 - ------------------------------------------------------------- Goodwill $1,571 $1,388 Accumulated amortization (379) (334) - ------------------------------------------------------------- Net goodwill $1,192 $1,054 - ------------------------------------------------------------- Other intangibles $804 $ 663 Accumulated amortization (374) (331) - ------------------------------------------------------------- Net other intangibles $ 430 $ 332 ============================================================= 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, deferred charges and other identified rights, are amortized over their legal or estimated useful lives,
  • 85. whichever is shorter (generally not exceeding 17 years). Based upon management's assessment of the future undiscounted operating cash flows of acquired businesses, the carrying value of goodwill at December 31, 1997, has not been impaired. Earnings per share The numerator for both basic and diluted EPS is income from continuing operations or net income, as applicable. 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 millions) 1997 1996 1995 - ------------------------------------------------------------ Basic EPS 278 272 277 - ------------------------------------------------------------ Effect of dilutive securities: Employee stock options 4 4 4 Employee stock subscriptions 0 1 1 - ------------------------------------------------------------ Diluted EPS 282 277 282 ============================================================ Basic and diluted EPS from discontinued operations (net of costs associated with effecting the business distribution) were $0.35 and $0.34, respectively, in 1996 and $1.01 and $0.99, respectively, in 1995. 31 BAXTER INTERNATIONAL 1997 ANNUAL REPORT <PAGE> NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Derivatives Realized gains and losses on hedges of existing assets or liabilities are included in the carrying amounts of those assets or liabilities and ultimately are recognized in income. Gains and option premiums relating to qualifying hedges of firm commitments or anticipated transactions are deferred and recognized in income as offsets of gains and losses resulting from the underlying hedged transactions. Gains and losses relating to terminations of qualifying hedges are included in the carrying amounts and amortized over the remaining expected lives of the underlying assets or liabilities. In circumstances where the underlying assets or liabilities are sold or no longer exist, any remaining carrying value adjustments are recognized in other income or expense. Gains and losses on hedges of net investments are reported as foreign currency adjustments in stockholders' equity. The interest rate differential relating to interest rate swaps used to hedge debt obligations and net investments in foreign affiliates is reflected as an adjustment to interest expense over the lives of the swaps. Cash flows from derivatives are classified in the same category as the cash flows from the related investment, borrowing or foreign exchange activity. Cash and equivalents Cash and equivalents include cash, certificates of deposit and marketable securities with a maturity of three months or less. Reclassifications
  • 86. Certain reclassifications have been made to conform the 1996 and 1995 financial statements and footnotes to the 1997 presentation. 2 DISCONTINUED OPERATIONS On September 30, 1996, Baxter stockholders of record on September 26, 1996, received all of the outstanding stock of Allegiance Corporation (Allegiance), which was the company's health-care cost management and distribution business, in a tax-free spin-off. As of that date, Allegiance began operating as an independent publicly owned company. In 1996 and 1995, the company recorded income from discontinued operations of $81 million and $304 million, respectively, which was net of income tax expense of $14 million and $88 million, respectively. In addition, the company recorded an additional $13 million in 1996, which consisted of $36 million in benefit plan curtailment gains, net of costs of the distribution and income tax expense of $11 million. Costs of the distribution totaled $26 million in 1995, which were net of an income tax benefit of $8 million. Through an issuance of new third-party debt, $1.15 billion of Baxter's existing debt was indirectly assumed by Allegiance upon spin-off. Approximately $1.4 billion of net assets were transferred to Allegiance upon spin-off. 3 ACQUISITIONS AND DIVESTITURES All acquisitions during the three years ended December 31, 1997, were accounted for under the purchase method. 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 and liabilities acquired is allocated to intangible assets. On the basis of independent appraisals in 1997, a portion of the purchase price for certain of the acquisitions during 1997 and 1995 was allocated to in-process research and development (R&D) which, under generally accepted accounting principles, was immediately expensed. Results of operations of acquired companies are included in the company's results of operations as of the respective acquisition dates. The pro forma information presented below is not necessarily indicative of what operating results would have been had the acquisitions occurred on the indicated dates, nor is it necessarily indicative of future operating results. Immuno International AG In the first fiscal quarter of 1997, the company acquired Immuno International AG (Immuno), a global manufacturer of biopharmaceutical products and services for transfusion medicine. The acquisition cost was approximately $600 million plus assumption of $280 million of net debt. Approximately $58 million of the purchase price is being withheld to cover certain legal contingencies, as further discussed in Note 13. Approximately $220 million of the purchase price was allocated to in-process R&D, and expensed, as discussed above. Approximately $95 million of the purchase price was allocated to existing product technology and is being amortized on a straight-line basis over 20 years. Approximately $82 million of the purchase price was allocated to goodwill and is being amortized on a straight-line basis over 40 years. Research Medical, Inc. In March 1997, Baxter acquired Research Medical, Inc. (RMI), a provider of specialized products used in open-heart surgery. The purchase price was $239 million and was principally settled with 4,801,711 shares of Baxter International Inc. common stock, issued from treasury. Approximately $132 million of the purchase price was allocated to in-process R&D, and expensed, as discussed above. Approximately $40 million of the purchase price was allocated
  • 87. to existing product technology and is being amortized on a straight-line basis over 14 years. Approximately $29 million of the purchase price was allocated to goodwill and is being amortized on a straight-line basis over 20 years. 32 <PAGE> Clintec Nutrition Company In October 1996, the company and Nestle S.A. (Nestle) dissolved Clintec Nutrition Company (Clintec), a joint venture between Baxter and Nestle. Under the dissolution agreement, the company funded its share of previously guaranteed joint venture debt totaling $66 million and received the assets and liabilities associated with Clintec's parenteral-nutrition business for a total consideration of the company's 50% share of Clintec's enteral business and a net cash payment to Nestle of $50 million. Approximately $198 million of the purchase price was allocated to goodwill and is being amortized on a straight- line basis over 40 years. PSICOR, Inc. In January 1996, the company acquired PSICOR, Inc. (PSICOR), a perfusion- services business, for $84 million. Approximately $70 million of the purchase price was allocated to goodwill and is being amortized on a straight-line basis over 15 years. Pro Forma Information (Unaudited) Had the acquisitions of Immuno and RMI taken place at the beginning of the first fiscal quarter of 1997, net sales, net income and basic earnings per share would not have been materially different from the reported amounts and, therefore, pro forma information is not presented. Had the acquisitions of Immuno, RMI, Clintec and PSICOR taken place at the beginning of the first fiscal quarter of 1996, the company's pro forma net sales in 1996 would have been approximately $6.2 billion. Excluding the in-process R&D charge relating to the acquisitions of Immuno and RMI, pro forma net income and basic earnings per share for the year ended December 31, 1996, would have been $701 million and $2.54 per share, respectively. VIMRX Pharmaceuticals Inc. In December 1997, the company and VIMRX Pharmaceuticals Inc. (VIMRX) formed a new cell-therapy company to develop innovative treatments for cancer and other life-threatening diseases. The company transferred certain assets of its Immunotherapy division into the new company and holds a minority ownership position along with warrants to acquire an additional ownership interest in the future. VIMRX obtained a majority interest in the new company in exchange for 11 million shares of VIMRX common stock and convertible preferred shares with a nominal value of approximately $66 million. The securities received by Baxter are reflected on the company's balance sheet in other noncurrent assets. Baxter is restricted from selling the common stock or converting the convertible preferred stock for a period of time pursuant to government regulations and contractual agreement, respectively. The company recognized a pretax gain from the transaction of $32 million. The company and VIMRX loaned $30 million and $10 million, respectively, to the new company to provide initial operating funds. 4 SUBSEQUENT EVENTS Bieffe Medital S.p.A. In July 1997, the company signed a definitive agreement to acquire Bieffe Medital S.p.A., a European manufacturer of dialysis and intravenous solutions and containers, for approximately $235 million, which includes assumption of debt. Approximately $48 million in purchase price installments were made during
  • 88. 1997. The acquisition will be recorded in early 1998, when the company became a majority shareholder. The purchase of the remaining shares is expected to be completed in mid-1998. Pharmaceutical Products Division of the BOC Group In January 1998, the company signed a definitive agreement to acquire the Pharmaceutical Products Division of the BOC Group's Ohmeda health-care business (Ohmeda), a manufacturer of gases and drugs used for general and local anesthesia, for approximately $104 million. The transaction is subject to customary antitrust review and is expected to close in 1998. 5 RESTRUCTURING PROGRAMS The company has two restructuring programs in place. In November 1993, the company recorded a $216 million restructuring charge for costs associated with strategic actions designed to accelerate growth and reduce costs in the company's businesses worldwide, including reorganizations and consolidations in the United States, Europe, Japan and Canada. The restructuring program is expected to be substantially completed in 1998. Employee-related costs include provisions for severance, outplacement assistance, relocation and retention payments. Since the inception of the program, the company has eliminated approximately 1,950 positions, which exceeds the 1,640 positions originally targeted. In September 1995, the company recorded a restructuring charge of $103 million primarily to eliminate excess plant capacity and reduce manufacturing costs, as well as to initiate certain organizational structure changes. The charge predominantly relates to the closure of the intravenous-solutions plant and warehouse in Carolina, Puerto Rico. Production and warehousing will be transferred and consolidated into other facilities. Employee-related costs consist primarily of severance. The company currently estimates that approximately 1,200 positions will be eliminated in total. Approximately 350 positions have been eliminated to date and completion of the plan is anticipated in 1999. The original timetable for the 1995 program has been affected by delays in required governmental regulatory reviews relating to the transfer of equipment and production processes to other facilities in Puerto Rico and the United States. <PAGE> NOTES TO CONSOLIDATED FINANCIAL STATEMENTS RESTRUCTURING PROGRAMS <TABLE> <CAPTION> Divestitures Employee- and asset Other (in millions) related costs write-downs costs Total - -------------------------------------------------------------------------------- <S> <C> <C> <C> <C> Reserves at December 31, 1994 $94 $113 $49 $256 1995 utilization: Cash 20 - 17 37 Noncash - 72 - 72 - -------------------------------------------------------------------------------- 1996 utilization: Cash 26 - 27 53 Noncash - 20 - 20 Reallocation of reserves 18 (6) (12) - -
  • 89. -------------------------------------------------------------------------------- 1997 utilization: Cash 10 - 5 15 Noncash and adjustments 3 10 2 15 - -------------------------------------------------------------------------------- Reserves at December 31, 1997 $17 $ 17 $10 $ 44 ================================================================================ </TABLE> 6 LONG-TERM DEBT, CREDIT FACILITIES AND LEASE OBLIGATIONS <TABLE> <CAPTION> Effective as of December 31 (in millions) interest rate 1997 1996 - -------------------------------------------------------------------------------- <S> <C> <C> <C> Commercial paper 5.7% $1,053 $ 694 - -------------------------------------------------------------------------------- Short-term notes 5.7% 119 49 - -------------------------------------------------------------------------------- 7.5% notes due 1997 - 200 - -------------------------------------------------------------------------------- 8.875% notes redeemable by company in 1998 8.9% 87 86 - -------------------------------------------------------------------------------- 9.25% notes due 1999 10.0% 99 98 - -------------------------------------------------------------------------------- Zero coupon note due 2000 9.7% 112 98 - -------------------------------------------------------------------------------- 8.125% notes due 2001 6.0% 160 151 - -------------------------------------------------------------------------------- 7.625% notes due 2002 7.4% 151 150 - -------------------------------------------------------------------------------- 7.125% notes due 2007 6.4% 252 - - -------------------------------------------------------------------------------- 7.25% notes due 2008 7.5% 198 198 - -------------------------------------------------------------------------------- 9.5% notes due 2008 10.2% 100 100 - -------------------------------------------------------------------------------- 7.65% debentures due 2027 6.9% 202 - - -------------------------------------------------------------------------------- Other 144 96 - -------------------------------------------------------------------------------- Total long-term debt and lease obligations 2,677 1,920 Current portion (42) (225)
  • 90. - -------------------------------------------------------------------------------- Long-term portion $2,635 $1,695 ================================================================================ </TABLE> At December 31, 1997 and 1996, commercial paper and short-term notes together totaling $1,172 million and $743 million, respectively, have been classified with long-term debt as they are supported by a long-term credit facility, as discussed below, which management intends to continue to refinance. The company had unamortized original issue discounts of $36 million and $47 million for the Zero coupon notes due 2000 at December 31, 1997 and 1996, respectively. 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 $86 million, $81 million and $88 million in 1997, 1996 and 1995, respectively. <TABLE> <CAPTION> FUTURE MINIMUM LEASE PAYMENTS AND DEBT MATURITIES Aggregate debt maturities Operating and capital as of and for the years ended December 31 (in millions) leases leases - -------------------------------------------------------------------------------- <S> <C> <C> 1998 $ 69 $ 47 1999 48 114 2000 31 145 2001 22 1,324/1/ 2002 19 350 Thereafter 34 718 - -------------------------------------------------------------------------------- Total obligations and commitments $223 2,698 ================================================================== Amounts representing interest, discounts, premiums and deferred financing costs (21) - -------------------------------------------------------------------------------- Present value of long-term debt and lease obligations $2,677 ================================================================================ </TABLE> 1. Includes $1,172 million of commercial paper and short-term notes supported by long-term credit facilities expiring in 2001. Baxter maintains a $1.5 billion revolving credit facility, which expires in 2001 and enables the company to borrow funds on an unsecured basis at variable interest rates. The agreement contains covenants, which include a maximum debt- to-capital ratio and a minimum interest coverage ratio. At December 31, 1997, there were no borrowings outstanding under this facility. Baxter also maintains short-term credit arrangements totaling approximately $829 million in support of international and domestic operations. At December
  • 91. 31, 1997, approximately $221 million of borrowings were outstanding under these facilities, of which $119 million is classified as long-term debt as discussed above. 34 <PAGE> 7 FINANCIAL INSTRUMENTS AND RISK MANAGEMENT Concentrations of credit risk 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 $29 million and $24 million at December 31, 1997 and 1996, respectively. 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 forward contracts, options and interest rate swaps generally from one 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, 1997 and 1996, reflect deferred hedge gains of $19 million and $2 million, respectively, offset by $3 million and $4 million of deferred hedge losses, respectively. Foreign exchange risk management The company enters into various types of foreign exchange contracts to protect the company from the risk that the eventual net dollar cash inflows resulting from transactions with foreign customers and suppliers may be adversely affected by changes in currency exchange rates. The company also enters into foreign exchange contracts, with terms generally less than one year, to hedge anticipated but not yet committed sales expected to be denominated in foreign currencies. Deferred hedging gains on hedges of anticipated but not yet committed sales totaled $15 million and $3 million at December 31, 1997 and 1996, respectively. The company has entered into foreign exchange contracts, for up to 10 years, to hedge certain of its net investments in foreign affiliates. These contracts hedge the U.S. dollar value of foreign currency denominated net assets from the effects of volatility in currency exchange rates by changing the currency denomination of certain of Baxter's debt repayments and interest payments from the U.S. dollar to the respective currencies of the underlying net assets. The company principally hedges the following currencies: Japanese Yen, Belgian Francs, French Francs, Italian Lira, U.K. Pound Sterling, German Marks and Austrian Schillings. INTEREST RATE AND FOREIGN EXCHANGE CONTRACTS <TABLE>
  • 92. <CAPTION> as of December 31 (in millions) 1997 1996 - -------------------------------------------------------------------------------- -------------------------------------- Market Weighted- Market Weighted- value average value average Notional gain interest Notional gain interest amounts (loss) rate amounts (loss) rate - -------------------------------------------------------------------------------- -------------------------------------- <S> <C> <C> <C> <C> <C> <C> Interest Rate Contracts Floating to fixed rate hedges $400 $(1) $850 $2 Average pay rate 5.4% 5.8% Average receive rate 5.8% 5.5% Fixed to floating rate (swapped notes) - - 325 7 Average pay rate 4.3% Average receive rate 5.8% Call Option 25 6 25 4 Floor - - 150 11 Foreign Exchange Contracts Forwards and options used to hedge anticipated sales 397 (4) N/A 68 0 N/A Forwards and swaps used to hedge certain receivables and payables 290 7 N/A 102 6 N/A Forwards and swaps used to hedge net investments in foreign affiliates 1,546 10 N/A 144 (11) N/A ================================================================================ ====================================== </TABLE> 35 BAXTER INTERNATIONAL 1997 ANNUAL REPORT <PAGE> NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  • 93. FAIR VALUES OF FINANCIAL INSTRUMENTS <TABLE> <CAPTION> Approximate Carrying amounts fair values as of December 31 (in millions) 1997 1996 1997 1996 - -------------------------------------------------------------------------------- <S> <C> <C> <C> <C> Assets Long-term insurance receivables $ 409 $ 641 $ 339 $ 548 Investment in affiliates 180 64 192 74 Liabilities Notes payable to banks 102 121 102 121 Short-term borrowings classified as long-term/2/ 1,172 743 1,173 741 Other long-term debt and lease obligations/1/,/2/ 1,505 1,177 1,625 1,224 Foreign exchange hedges 26 (18) 13 (5) Long-term litigation liabilities 210 365 191 290 ================================================================================ </TABLE> 1. Based on quoted market prices. 2. Interest rate hedge carrying amounts are included in corresponding debt balances. 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 carrying values of all other financial instruments approximate their fair values due to the short-term maturities of these assets and liabilities. 8 ACCOUNTS PAYABLE AND ACCRUED LIABILITIES <TABLE> <CAPTION> as of December 31 (in millions) 1997 1996 - --------------------------------------------------------------------------- <S> <C> <C> Accounts payable, principally trade $ 572 $ 442 Employee compensation and withholdings 225 222 Restructuring 34 30 Litigation 400 465 Pension and other deferred benefits 38 25 Property, payroll and other taxes 74 63 Other 620 457 - --------------------------------------------------------------------------- Accounts payable and accrued liabilities $1,963 $1,704 =========================================================================== </TABLE> 9 COMMON 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. Accordingly, no compensation cost has been recognized for its fixed stock
  • 94. option plans and its stock purchase plans. The compensation expense recognized for continuing operations for performance-based and restricted plans was $13 million, $20 million and $17 million in 1997, 1996 and 1995, 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 FASB Statement No. 123, "Accounting for Stock-Based Compensation", the company's income and earnings per share (EPS) would have been reduced to the pro forma amounts indicated below: PRO FORMA INCOME AND EPS FROM CONTINUING OPERATIONS <TABLE> <CAPTION> years ended December 31 (in millions, except per share data) 1997 1996 1995 - ---------------------------------------------------------------------- <S> <C> <C> <C> Income from continuing operations: As reported $ 300 $ 575 $ 371 Pro forma $ 266 $ 557 $ 358 - ---------------------------------------------------------------------- EPS from continuing operations: Basic, as reported $1.08 $2.11 $1.34 Pro forma $0.96 $2.05 $1.29 ====================================================================== </TABLE> Excluding the $352 million in-process R&D expense recorded in 1997, and further discussed in Note 3, pro forma income from continuing operations and EPS from continuing operations in 1997 was $618 million and $2.22, respectively, compared to income from continuing operations and EPS from continuing operations of $652 million and $2.35, respectively. The pro forma amounts reflected above are not likely to be representative of the pro forma amounts in future years due to the FASB Statement No. 123 transition rules that require pro forma disclosures only for awards granted after 1994. In addition, the pro forma expense in 1997 is higher than the amounts in 1996 and 1995 due principally to accelerated vesting as a result of achievement in 1997 of the specified stock price level relating to the stock options granted in 1995. Pro forma income and EPS from discontinued operations were $66 million and $0.24, respectively, for 1996 and $299 million and $1.08, respectively, for 1995. All outstanding options were modified as a result of the spin-off of Allegiance. Equitable adjustments were made to the number of shares and exercise price for each option and employee stock subscription outstanding. Pro forma compensation expense for stock options and employee-stock subscriptions was calculated using the Black-Scholes model. 36 <PAGE> Fixed Stock Option Plans Stock options have been granted at various dates. All grants have a 10-year initial term and most have an exercise price equal to 100% of market value on the date of grant. Vesting terms vary, with some options vesting ratably over three years and others vesting 100% in five years or three years. Some grants vest on an accelerated basis upon the achievement of specified stock price levels. Employees transferring to Allegiance generally were required to exercise
  • 95. any vested options within 90 days from the date of spin-off, and all unexercised options were canceled after that date. All unvested options held by Allegiance employees were canceled 90 days after the date of spin-off. Under the rules of FASB Statement No. 123, the modified options held by employees remaining with the company were treated as an exchange of the original award for a new award. FIXED STOCK OPTIONS OUTSTANDING <TABLE> <CAPTION> Options Outstanding Options Exercisable - -------------------------------------------------------------------------------- --------------------------------------------------- Weighted-average Range of Outstanding remaining Weighted- average Exercisable Weighted-average Exercise Prices December 31, 1997 contractual life (years) exercise price per share December 31, 1997 exercise price per share - -------------------------------------------------------------------------------- --------------------------------------------------- <S> <C> <C> <C> <C> <C> $14 - 18 110,516 .69 16.93 110,516 16.93 19 - 26 2,502,332 5.34 24.03 2,502,332 24.03 27 - 40 3,701,575 6.58 34.15 3,701,575 34.15 41 - 51 7,470,124 8.22 47.70 - - 52 - 58 97,800 9.67 57.19 - - - -------------------------------------------------------------------------------- --------------------------------------------------- $14 - 58 13,882,347 6.10 39.64 6,314,423 29.84 ================================================================================ =================================================== </TABLE> STOCK OPTION PLAN STATUS (Exercise Price Equals Market Price) <TABLE> <CAPTION> as of and for the years ended December 31 1997 1996 1995 - -------------------------------------------------------------------------------- -------------------------------------- Weighted- Weighted- Weighted- average average average exercise exercise exercise Shares price Shares price Shares price - --------------------------------------------------------------------------------
  • 96. -------------------------------------- <S> <C> <C> <C> <C> <C> <C> Outstanding at beginning of year 12,501,329 $34.89 14,651,835 $31.35 12,368,320 $27.83 Granted 4,208,302 47.59 3,538,300 48.12 5,193,650 37.23 Exercised (2,406,409) 29.04 (4,080,414) 27.88 (2,107,441) 25.29 Forfeited (420,875) 38.76 (2,404,225) 33.09 (802,694) 30.91 Equitable adjustment - - 795,833 29.98 - - - -------------------------------------------------------------------------------- -------------------------------------- Outstanding at end of year 13,882,347 $39.64 12,501,329 $34.89 14,651,835 $31.35 - -------------------------------------------------------------------------------- -------------------------------------- Options exercisable at end of year 6,314,423 $29.84 4,542,496 $26.65 6,258,117 $29.02 Weighted-average fair value of options granted during the year $15.95 $12.05 $11.35 ================================================================================ ====================================== </TABLE> 37 BAXTER INTERNATIONAL 1997 ANNUAL REPORT <PAGE> NOTES TO CONSOLIDATED FINANCIAL STATEMENTS During 1996, approximately 2.4 million stock options were granted with an exercise price of $51 (120% of the market price of the stock on grant date) and a weighted-average fair value of $11.00. All of the options were outstanding at year-end 1997. Pro forma compensation expense was calculated with the following weighted- average assumptions for grants in 1997, 1996, and 1995, respectively: dividend yield of 2.1%, 2.7% and 2.7%; expected life of seven, eight and seven years; expected volatility of 28%, 25% and 26%; and risk-free interest rates of 6.2%, 6.6% and 6.5%. Stock options have also been granted to The Baxter Allegiance Foundation (a philanthropic organization), as follows: an option to purchase 1,124,478 shares of common stock at $31.45 per share was granted on April 22, 1991, and expires in 2001; and an option to purchase 1,074,000 shares of common stock at $31.42 per share was granted on December 2, 1992, and expires in 2002. Employee stock purchase plans The company has employee stock purchase plans whereby it is authorized, as of December 31, 1996, to issue up to 12 million shares of common stock to its employees, nearly all of whom are eligible to participate. The purchase price is the lower of 85% of the closing market price on the date of subscription or 85% of the closing market price as defined by the plans. The total subscription amount for each participant cannot exceed 25% of current annual pay. Under the plans, the company sold 760,490, 1,121,907 and 1,579,425 shares to employees in 1997, 1996 and 1995, respectively. Pro forma compensation expense was estimated with the following weighted-average assumptions for 1997, 1996 and 1995, respectively: dividend yield of 2.1%, 2.7% and 2.7%; expected life of one year
  • 97. for all periods; expected volatility of 33%, 26% and 23%, and risk-free interest rates of 5.7%, 5.7% and 5.8%. The weighted-average fair value of those purchase rights granted in 1997, 1996 and 1995 was $13.27, $10.93 and $8.51, respectively. Restricted stock and performance-share plans Under various plans, the company has made grants of restricted stock and performance shares in the form of the company's common stock to provide incentive compensation to key employees and non-employee directors. Under the long-term incentive plan, grants are generally made annually and are earned based on the achievement of financial performance targets, adjusted up or down by the company's stock performance against the change in the Standard & Poor's Medical Products and Supplies Index. The restricted shares vest one year after they are earned. At December 31, 1997, 61,220 shares were subject to restrictions, which lapse between 1998 and 2002, and 1,144,963 shares were subject to restrictions that lapse upon achievement of future performance objectives and related vesting periods. During 1997, 1996 and 1995, 24,930, 720,043 and 574,174 shares, respectively, of restricted stock and performance shares were granted at weighted-average grant-date fair values of $51.29, $41.89 and $30.52 per share, respectively. Other In connection with a voluntary Shared Investment Plan implemented during 1994, members of Baxter's senior-management team purchased shares of the company's common stock. Baxter managers used personal full-recourse loans to purchase the stock at the June 15, 1994, closing price. Baxter has agreed to guarantee repayment to the banks in the event of default by a participant. The participant loan amount outstanding at December 31, 1997, is $77 million. 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. During 1989, common stockholders received a dividend of one preferred stock purchase right (collectively, the "Rights") for each share of common stock. Each Right, under specified circumstances, entitles the owner to purchase one one- hundredth of a share of Series A Junior Participating Preferred Stock at a purchase price of $70. The Rights become exercisable at a price of $140 and at a specified time after (1) a person or group acquires 20% or more of the company's common stock or (2) a tender or exchange offer for 20% or more of the company's common stock. The Rights expire on March 20, 1999, unless earlier redeemed by the company under certain circumstances at a price of $0.01 per Right. 10 RETIREMENT AND OTHER BENEFIT PROGRAMS The company has defined benefit pension plans that cover substantially all employees in the United States and Puerto Rico, and its funding policy is to meet or exceed the minimum requirements of the Employee Retirement Income Security Act of 1974. The benefits are generally based on individual participants' years of service and compensation near retirement. Assets held by the trusts of the plans consist primarily of equity and fixed income securities. The company also has various retirement plans in locations outside the United States and Puerto Rico. 38 <PAGE> [CAPTION] <TABLE>
  • 98. PENSION EXPENSE years ended December 31 (in millions) 1997 1996 1995 - -------------------------------------------------------------------------------- <S> <C> <C> <C> Service cost $36 $42 $27 Interest cost on projected benefit obligation 90 76 62 Actual return on assets (183) (155) (159) Net amortization and deferral 82 84 105 - -------------------------------------------------------------------------------- Total pension expense $25 $47 $35 - -------------------------------------------------------------------------------- </TABLE> [CAPTION] <TABLE> FUNDED STATUS AND CONSOLIDATED BALANCE SHEET AMOUNTS Plans with Plans with accumulated assets exceeding benefits exceeding accumulated as of December 31 assets benefits (in millions) 1997 1996 1997 1996 - -------------------------------------------------------------------------------- <S> <C> <C> <C> <C> Actuarial present value of benefit obligations: Vested benefits $100 $ 74 $1,046 $ 955 - -------------------------------------------------------------------------------- Accumulated benefits $110 $ 81 $1,074 $ 978 - -------------------------------------------------------------------------------- Projected benefits $132 $100 $1,169 $1,040 Less plan assets at fair value 15 15 1,290 1,175 - -------------------------------------------------------------------------------- Projected benefit obligation less plan assets 117 85 (121) (135) Unrecognized net gains and unrecognized prior service cost (4) (5) 59 70 Unrecognized obligation at January 1, net of amortization (7) (6) (17) (22) - -------------------------------------------------------------------------------- Net pension liability (asset) $106 $ 74 $ (79) $ (87) - -------------------------------------------------------------------------------- </TABLE> [CAPTION] <TABLE> ASSUMPTIONS USED IN DETERMINING FUNDED STATUS
  • 99. as of December 31 1997 1996 - -------------------------------------------------------------------------------- <S> <C> <C> Annual rate of increase in compensation levels: U.S. and Puerto Rico plans 4.5% 4.5% International plans (average) 4.5% 4.6% Discount rate applied to benefit obligations: U.S. and Puerto Rico plans 7.5% 8.0% International plans (average) 6.0% 6.0% Return on assets: U.S. and Puerto Rico plans 10.5% 9.5% International plans (average) 7.5% 7.0% - -------------------------------------------------------------------------------- </TABLE> In addition to pension benefits, the company sponsors certain unfunded contributory health-care and life insurance benefits for substantially all domestic retired employees. [CAPTION] <TABLE> NET POSTRETIREMENT HEALTH-CARE AND LIFE INSURANCE EXPENSE years ended December 31 (in millions) 1997 1996 1995 - -------------------------------------------------------------------------------- <S> <C> <C> <C> Service cost $ 3 $ 5 $ 3 Interest cost on projected benefit obligation 14 15 15 Net amortization and deferral (6) (2) (2) - -------------------------------------------------------------------------------- Net postretirement benefits cost $11 $18 $16 - -------------------------------------------------------------------------------- </TABLE> [CAPTION] <TABLE> PRESENT VALUE OF APBO OBLIGATION INCLUDED IN CONSOLIDATED BALANCE SHEETS as of December 31 (in millions) 1997 1996 - -------------------------------------------------------------------------------- <S> <C> <C> Accumulated postretirement benefit obligation ("APBO") Retirees $118 $138 Fully eligible active participants 25 10 Other active participants 59 65 Unrecognized net gains 70 55 - -------------------------------------------------------------------------------- Accrued postretirement benefit liability $272 $268 - -------------------------------------------------------------------------------- </TABLE> [CAPTION]
  • 100. <TABLE> ASSUMPTIONS USED IN DETERMINING THE APBO as of December 31 1997 1996 - -------------------------------------------------------------------------------- <S> <C> <C> Discount rate applied to APBO 7.5% 8.0% Annual rate of increase in the per-capita cost 9.0% 10.0% Rate decreased to 5.0% 5.0% By the year ended 2002 2002 Increase if health-care trend rates increase by 1% in each year (in millions) APBO $27 $28 Expense $ 3 $ 3 - -------------------------------------------------------------------------------- </TABLE> Most U.S. employees are eligible to participate in a qualified defined contribution plan. Participants may contribute up to 12% of their annual compensation to the plan and the company matches participants' contributions up to 3% of compensation (subject to legal limits). Company matching contributions were $14 million, $14 million and $13 million in 1997, 1996 and 1995, respectively. 39 <PAGE> NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 11 INTEREST AND OTHER (INCOME) EXPENSE <TABLE> <CAPTION> INTEREST EXPENSE years ended December 31 (in millions) 1997 1996 1995 - ------------------------------------------------------------------------------- <S> <C> <C> <C> Interest, net Interest costs $206 $219 $219 Interest costs capitalized (8) (5) (5) - ------------------------------------------------------------------------------- Interest expense 198 214 214 Interest income (35) (44) (34) - ------------------------------------------------------------------------------- Total interest, net $163 $170 $180 - ------------------------------------------------------------------------------- Less interest allocated to discontinued operations/1/ - (67) (84) - ------------------------------------------------------------------------------- Interest allocated to continuing operations/1/ $163 $103 $ 96 ===============================================================================
  • 101. 1. 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) 1997 1996 1995 - ------------------------------------------------------------------------------- Equity in (income) losses of affiliates $ (2) $13 $17 Asset dispositions, net (48) (9) (65) Foreign exchange (22) 1 22 Other 39 10 21 - ------------------------------------------------------------------------------ Total (income) expense $(33) $15 $(5) =============================================================================== 12 INCOME TAXES U.S. federal income tax returns filed by Baxter International Inc. through December 31, 1990, 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 open years. INCOME BEFORE TAX EXPENSE BY CATEGORY years ended December 31 (in millions) 1997 1996 1995 - ------------------------------------------------------------------------------ U.S. $ 92 $188 $ 4 International 431 605 520 - ------------------------------------------------------------------------------ Income from continuing operations before income tax expense $523 $793 $524 ============================================================================== Income tax expense (benefit) related to continuing operations by category and by income statement classification is as follows: INCOME TAX EXPENSE years ended December 31 (in millions) 1997 1996 1995 - ------------------------------------------------------------------------------ <S> <C> <C> <C> Current U.S. Federal $ 98 $(16) $ 21 State and local (6) 12 26 International 132 148 123 - ------------------------------------------------------------------------------ Current income tax expense 224 144 170 - ------------------------------------------------------------------------------ Deferred U.S. Federal (50) 40 13 State and local 23 22 (27) International 26 12 (3) - ------------------------------------------------------------------------------ Deferred income tax expense (benefit) (1) 74 (17) - ------------------------------------------------------------------------------ Income tax expense $223 $218 $153 ==============================================================================
  • 102. The income tax for continuing operations was calculated as if Baxter were a stand-alone entity (without income from discontinued operations). DEFERRED TAX ASSETS AND LIABILITIES as of December 31 (in millions) 1997 1996 1995 - ------------------------------------------------------------------------------ Deferred tax assets Accrued expenses $ 10 $ 88 $192 Accrued postretirement benefits 103 97 80 Merger and restructuring costs 19 29 97 Alternative minimum tax credit 114 90 62 Tax credits and net operating losses 136 27 20 Valuation allowances (46) (36) (30) - ------------------------------------------------------------------------------ Total deferred tax assets 336 295 421 - ------------------------------------------------------------------------------ Deferred tax liabilities Asset basis differences 294 227 241 Subsidiaries' unremitted earnings 91 80 121 Other 4 25 26 - ------------------------------------------------------------------------------ Total deferred tax liabilities 389 332 388 - ------------------------------------------------------------------------------ Net deferred tax asset (liability) $(53) $(37) $ 33 ============================================================================== </TABLE> There are $63 million of loss carryforwards which expire in 2012 and $23 million of foreign tax credit carryforwards which expire in 2001, and $10 million of foreign tax credit carryforwards which expire in 2002. 40 <PAGE> INCOME TAX EXPENSE Income tax expense applicable to income from continuing operations differs from income tax expense calculated by using the U.S. federal income tax rate for the following reasons: <TABLE> <CAPTION> years ended December 31 (in millions) 1997 1996 1995 - ------------------------------------------------------------ <S> <C> <C> <C> Income tax expense at statutory rate $183 $278 $183 Tax-exempt operations (130) (130) (125) Nondeductible goodwill 12 10 8 State and local taxes (5) 3 7 Repatriation of foreign earnings - 17 57 Foreign tax expense 40 33 14 Acquired R&D expense 123 - - Other factors - 7 9 - ------------------------------------------------------------ Income tax expense $223 $218 $153 ============================================================ </TABLE> 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 2002. Appropriate taxes have been provided for these operations
  • 103. 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 through 1999. U.S. federal income taxes, net of available foreign tax credits, on unremitted earnings deemed permanently reinvested would be approximately $270 million as of December 31, 1997. 13 LEGAL PROCEEDINGS 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 Baxter. These cases and claims raise difficult and complex factual and legal issues and are subject to many uncertainties and complexities, including, but not limited to, the facts and circumstances of each particular case or claim, the jurisdiction in which each suit is brought, and differences in applicable law. Accordingly, in many cases, the company is not able to estimate the amount of its liabilities with respect to such matters. Upon resolution of any of the legal matters discussed below, Baxter may incur charges in excess of presently established reserves. While such a future charge could have a material adverse impact on the company's net income and net cash flows in the period in which it is recorded or paid, management believes that no such charge would have a material adverse effect on Baxter's consolidated financial position. Mammary Implant Litigation The company, together with certain of its subsidiaries, is currently a defendant in various courts in a number of lawsuits brought by individuals, all seeking damages for injuries of various types allegedly caused by silicone mammary implants formerly manufactured by the Heyer-Schulte division (Heyer-Schulte) of American Hospital Supply Corporation (AHSC). AHSC, which was acquired by the company in 1985, divested its Heyer-Schulte division in 1984. It is not known how many of these claims and lawsuits involve products manufactured and sold by Heyer-Schulte, as opposed to other manufacturers. As of December 31, 1997, Baxter, together with certain of its subsidiaries, had been named as a defendant or co-defendant in 7,762 lawsuits and 1,734 claims relating to mammary implants, brought by approximately 16,480 plaintiffs. Of those plaintiffs, 8,963 currently are included in the Lindsey class action Revised Settlement described below, which accounts for 3,902 of the pending lawsuits against the company. Additionally, 7,151 plaintiffs have opted out of the Revised Settlement (representing 3,572 pending lawsuits), and the status of the remaining plaintiffs with pending lawsuits is unknown. Some of the opt-out plaintiffs filed their cases naming multiple defendants and without product identification; thus, not all of the opt-out plaintiffs will have viable claims against the company. As of December 31, 1997, 2,527 of the opt-out plaintiffs had confirmed Heyer-Schulte mammary implant product identification. Furthermore, during 1997, Baxter obtained dismissals, or agreements for dismissals, with respect to 7,383 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, in the United States District Court (U.S.D.C.) for the Northern District of Alabama involving most manufacturers of such implants, including Baxter (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 subsequently were revised and approved on December 22, 1995 (the Revised Settlement). The monetary provisions of the Revised Settlement provide compensation for all present and
  • 104. future plaintiffs and claimants through a series of specific funds and a disease-compensation program involving certain specified medical conditions. Appeals have been filed challenging the Revised Settlement. BAXTER INTERNATIONAL 1997 ANNUAL REPORT 41 <PAGE> NOTES TO CONSOLIDATED FINANCIAL STATEMENTS On May 15, 1995, Dow Corning Corporation, one of the defendants in the mammary implant cases, declared bankruptcy and filed for protection under Chapter 11 (In re: Dow Corning Corporation, U.S.D.C., E.D. Mich. 95-20512, 95CV72397-DT). The full impact of these proceedings on the Revised Settlement is unclear. 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. Under the Revised Settlement, plaintiffs and claimants have a second opportunity to opt out of the Revised Settlement, once they receive a "Notification of Status" letter from the claims-administration office. "Notification of Status" letters were delivered to virtually all domestic claimants by July 1997, and the opt-out period for most claimants expired on September 1, 1997. In addition to the Lindsey class action, the company also has been named in 11 other purported class actions in various state and provincial courts, only one of which is certified: Harrington v. Dow Corning Corp., et al., Supreme Court, British Columbia, C954330. The class action in British Columbia has been certified solely with respect to the issue of whether silicone gel breast implants are reasonably fit for their intended purpose. In the fourth quarter of 1993, Baxter accrued $556 million for its estimated liability resulting from the settlement of the Lindsey class action and recorded a receivable for estimated insurance recoveries totaling $426 million, resulting in a net charge of $130 million. Based on its continuing evaluation of the remaining opt-outs, the company accrued an additional $298 million for its estimated liability to litigate or settle cases and claims involving opt-outs and recorded an additional receivable for estimated insurance recoveries totaling $258 million, resulting in an additional net charge of $40 million in the first quarter of 1995. The mammary implant litigation includes issues related to which of the Baxter's insurers are responsible for covering each matter and the extent of the company's claims for contribution against third parties. Baxter believes that a substantial portion of its liability and defense costs for mammary implant litigation will be covered by insurance, subject to self-insurance retentions, exclusions, conditions, coverage gaps, policy limits and insurer solvency. The company has entered into "coverage-in-place" agreements with a number of its insurers, each of which issued or subscribed to policies of insurance between 1974 and 1985. These agreements resolve the signatory insurers' coverage defenses and specify rules and procedures for allocation and payment of defense and indemnity costs pursuant to which signatory insurers will reimburse Baxter for mammary implant losses. Five of the company's claims-made insurers, which issued policies subsequent to 1985, have agreed to pay under their policies with respect to mammary implant claims. The combined total of the amount thus far paid by insurers, committed for payment, and projected by Baxter to be paid by insurers under these agreements is in excess of $550 million, based on the company's current estimate of mammary implant expenditures. The insurers with
  • 105. which Baxter has not reached coverage agreements generally have reserved (i.e., neither admitted nor denied), and may attempt to reserve in the future, the right to deny coverage, in whole or in part, due to differing theories regarding, among other things, the applicability of coverage and when coverage may attach. Baxter is engaged in active litigation with each of these insurers and is negotiating with certain of them to resolve outstanding insurance coverage issues. Factor Concentrates 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 in the early and 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, 1997, Baxter had been named in 486 lawsuits and 410 claims in the United States, Canada, Ireland, Italy, Taiwan, Japan and the Netherlands. All U.S. federal court factor concentrate cases have been transferred to the U.S.D.C. for the Northern District of Illinois for case management under Multi District Litigation (MDL) rules (MDL Docket No. MDL-986). The company also has been named in eight purported class actions. None of these class actions has been certified, and five have been transferred to the MDL for discovery. In most states, Baxter's potential liability is limited by laws that provide that the sale of blood or blood derivatives, including factor concentrates, is not covered by the doctrine of strict liability. As a result, each claimant must prove that his or her injuries were caused by the company's negligence. On May 6, 1997, the court approved a 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 per person to each HIV-positive person with hemophilia in the United States who can demonstrate use of factor concentrates produced by one of the settling defendants between 1978 and 1985. Additionally, the defendants have established a $40 million fund for payment of attorneys' fees, costs and court-administration expenses. Baxter's agreed contribution to the proposed settlement is 20% of the total settlement proceeds. The settlement requires insurance-carrier approval and the signing of releases. Baxter and the other defendants have reached agreements to settle potential 42 <PAGE> subrogation and reimbursement claims with most private insurers, the federal government and all 50 states, the District of Columbia and Puerto Rico. Although the period for claimants to decide whether or not to participate in the settlement is anticipated not to expire until March 31, 1998, the approximate number of eligible claimants as of December 31, 1997, was 5,581, and the number of eligible opt-outs was approximately 533. On July 29, 1997, the court dismissed two appeals that had been filed challenging the settlement. The defendants had paid 1,737 claimants as of December 31, 1997. Payments are expected to continue through the middle of 1998 as documents are sent to all eligible claimants. In Japan, Baxter is a defendant, along with the Japanese government and four other co-defendants, in factor concentrate cases in Osaka, Tokyo, Nagoya, Tohoku, Fukuoka, Sapporo and Kumamoto. As of December 31, 1997, the cases
  • 106. involved 1,257 plaintiffs, of whom 1,206 allegedly used factor concentrates manufactured by the company. Based upon the Osaka and Tokyo courts' recommendations, the parties have agreed to a settlement of all pending and future factor concentrate cases. In general, the settlement provides for payment of an up-front, lump-sum amount of approximately $360,000 per plaintiff to be funded 40% by the Japanese government and 60% by the corporate defendants. The share of the settlement to be paid by each corporate defendant was determined based upon its market share, resulting in a contribution by the Baxter of approximately 15.36%. The portion of the settlement to be funded by the corporate defendants will include prior payments made by the corporate defendants under a 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, 1997, 1,370 claimants had agreed to the settlement. Baxter does not expect any additional claimants to come forward. The company believes that a substantial portion of the liability and defense costs related to factor concentrate litigation will be covered by insurance, subject to self-insurance retentions, exclusions, conditions, coverage gaps, policy limits and insurer solvency. Baxter has entered into coverage in place agreements with certain of its insurers that issued or subscribed to policies of insurance between 1978 and 1985. These agreements resolve the signatory insurers' coverage defenses and specify rules and procedures for allocation and payment of defense and indemnity costs pursuant to which the signatory insurers will reimburse the company for factor concentrate losses. The insurers with which Baxter has not reached coverage agreements generally have reserved (i.e., neither admitted nor denied), and may attempt to reserve in the future, the right to deny coverage, in whole or in part, due to differing theories regarding, among other things, the applicability of coverage and when coverage may attach. Baxter is engaged in active litigation and negotiations with certain of these insurers to resolve outstanding insurance coverage issues. In the fourth quarter of 1993, the company accrued $131 million for its estimated worldwide liability for litigation and settlement expenses involving factor concentrate cases and recorded a receivable for insurance coverage of $83 million, resulting in a net charge of $48 million. In the third quarter of 1995, significant developments occurred, primarily in the United States, Europe and Japan relative to claims and litigation pertaining to the Baxter's plasma-based therapies. After analyzing circumstances in light of recent developments and considering various factors and issues unique to each geography, the company revised its estimated exposure from the $131 million previously recorded for factor concentrate litigation to $378 million for all litigation relating to plasma-based therapies, including the factor concentrate litigation and the Gammagard(R) IVIG litigation (see Other Litigation below). Related estimated insurance recoveries were revised from $83 million for factor concentrates to $274 million for all plasma-based therapies. This resulted in a net charge of $56 million in the third quarter of 1995. In addition, as described in Note 3, Baxter acquired Immuno International AG (Immuno) in fiscal year 1997. Immuno has unsettled claims for damages for injuries allegedly caused by its plasma-based therapies. The typical claim alleges that the individual with hemophilia was infected with HIV by factor concentrates containing the HIV virus. Additionally, Immuno faces multiple claims stemming from its vaccines and other biologically derived therapies. A portion of the liability and defense costs related to these claims will be
  • 107. covered by insurance, subject to exclusions, conditions, policy limits and other factors. In addition, the stock purchase agreement between the company and Immuno provides that approximately 84 million Swiss francs (or approximately $58 million at year end) of the purchase price will be withheld to cover these contingent liabilities. Based on management's estimates, the amount of these contingencies, net of insurance recoveries and reserves, is not expected to exceed the negotiated contingent payment held back from the total purchase price. Other litigation Baxter is currently a defendant in a number of claims and lawsuits brought by individuals who infused the company's Gammagard(R) IVIG (intravenous immuno- globulin), all of whom are seeking damages for Hepatitis C infections allegedly BAXTER INTERNATIONAL 1997 ANNUAL REPORT 43 <PAGE> NOTES TO CONSOLIDATED FINANCIAL STATEMENTS caused by infusing Gammagard(R) IVIG. As of December 31, 1997, Baxter was a defendant in 134 lawsuits and 70 claims in the United States, Denmark, France, Germany, Italy, Spain, Sweden and the United Kingdom. Eleven suits currently pending in the United States have been filed as purported class actions but only one has been certified. All U.S. federal court Gammagard(R) IVIG cases have been transferred to the U.S.D.C. for the Central District of California for case management under MDL rules. On February 21, 1996, the court certified a nationwide class of persons who had infused Gammagard(R) IVIG (Fayne, et al., v. Baxter Healthcare Corporation, U.S.D.C., C.D., CA, ML-95-160-R). The company sought an immediate stay of the class notice from the 9th Circuit Court of Appeals and subsequently filed a Writ of Mandamus seeking class decertification. The 9th Circuit Court of Appeals granted the stay of the class notice on March 19, 1996, and on April 12, 1996, granted a stay of the class certification pending final determination on the writ. On August 5, 1997, the 9th Circuit Court of Appeals denied the Writ of Mandamus. Baxter is vigorously defending these cases. As of September 30, 1996, Allegiance assumed the defense of litigation involving claims related to Allegiance's businesses, including certain claims of alleged personal injuries as a result of exposure to natural rubber latex gloves. Allegiance has not been named in most of this litigation but will be defending and indemnifying Baxter pursuant to certain contractual obligations for all expenses and potential liabilities associated with claims pertaining to latex gloves. As of December 31, 1997, the company had been named as a defendant in 171 lawsuits, including the following purported class actions: Wolf v. Baxter Healthcare Corp., et al., Circuit Court, Wayne County, MI, 96-617844NP; Murray, et al., v. Baxter Healthcare Corp., et al., U.S.D.C., S. Dist. Ind., IP96-1889C, and Cowart, Alma M. v. Baxter International, Inc., U.S.D.C. E. Dist., LA 97- 1681. On February 26, 1997, all federal cases involving latex gloves were ordered to be transferred to the U.S.D.C. for the Eastern District of Pennsylvania for case management under the MDL rules (MDL Docket No. 1148). A purported class action has been filed against Baxter, Caremark International Inc. (Caremark), C.A. (Lance) Piccolo, James G. Connelly and Thomas W. Hodson (all former officers of Caremark) alleging securities law disclosure violations in connection with the November 30, 1992, spin-off of Caremark in the Registration and Information Statement (Registration Statement) and subsequent SEC filings submitted by Caremark (Isquith v. Caremark International Inc., et al., U.S.D.C., N. Dist. Ill., 94C 5534). On March 26, 1997, the Court dismissed the action against the company essentially on the ground that plaintiffs lacked standing to bring this action. On April 24, 1997, plaintiffs filed a notice of appeal which is still pending. Additionally, in
  • 108. February 1997, the plaintiffs served a separate state court action, styled as a class action, against Mr. Piccolo, Vernon R. Loucks Jr., William H. Gantz, William B. Graham and James R. Tobin, alleging violations of various state laws pertaining to the Caremark spin-off (Isquith, et al., v. C. A. (Lance) Piccolo, et al., Circuit Court, Cook County, IL, Chancery Division, 96CH0013652). Baxter and the other defendants are vigorously defending this action. Baxter has been named a potentially responsible party (PRP) for environmental cleanup 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 cleanup of the site if contaminants from that property later leak into the environment. The laws generally provide that a PRP may be held jointly and severally liable for the costs of investigating and remediating the site. Allegiance has assumed responsibility for 10 of these sites, the largest of which is the Thermo-Chem site in Muskegan, Michigan. 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. 14 INDUSTRY AND GEOGRAPHIC INFORMATION Baxter operates in a single industry segment as a global medical products and services company that is a leader in technologies related to the blood and circulatory system. It has market-leading positions in four businesses: Blood Therapies, which develops biopharmaceutical and blood-collection and separation products and technologies; I.V. Systems/Medical Products, which develops technologies and systems to improve intravenous medication delivery, and distributes medical products; Renal, which develops products and services to treat kidney disease; and CardioVascular, which develops products and provides services to treat late-stage heart disease and vascular disorders. The company's products include blood-clotting therapies and machines and supplies for collecting, separating and storing blood; prosthetic heart valves and cardiac catheters; dialysis equipment and supplies; and intravenous solutions and pumps. 44 <PAGE> FINANCIAL INFORMATION BY GEOGRAPHIC AREA years ended December 31 (in millions) <TABLE> <CAPTION> Canada Pacific Latin and other Inter-area United States Europe Rim/1/ America international Other/2/ eliminations Total - -------------------------------------------------------------------------------- ------------------------------- <S> <C> <C> <C> <C> <C> <C> <C> <C> 1997 Trade sales $3,054 1,707 888 342 147 - - $6,138 Inter-area sales $ 709 249 189 112 1 (1,260) -
  • 109. - -------------------------------------------------------------------------------- ------------------------------- Total sales $3,763 1,956 1,077 454 148 - (1,260) $6,138 Pretax income (loss) $ 324 370 248 61 35 (515) - $ 523 Identifiable assets $5,480 2,202 551 427 80 - (33) $8,707 - -------------------------------------------------------------------------------- ------------------------------- 1996 Trade sales $2,824 1,322 890 260 142 - - $5,438 Inter-area sales $ 761 182 179 129 3 - (1,254) - - -------------------------------------------------------------------------------- ------------------------------- Total sales $3,585 1,504 1,069 389 145 - (1,254) $5,438 Pretax income (loss) $ 215 337 268 45 31 (103) - $ 793 Identifiable assets $5,385 1,246 641 312 85 - (73) $7,596 - -------------------------------------------------------------------------------- ------------------------------- 1995 Trade sales $2,634 1,215 860 204 135 - - $5,048 Inter-area sales $ 675 158 191 113 2 - (1,139) - - -------------------------------------------------------------------------------- ------------------------------- Total sales $3,309 1,373 1,051 317 137 - (1,139) $5,048 Pretax income (loss) $ 121 244 284 30 37 (192) - $ 524 Identifiable assets $4,933 1,156 575 209 82 - (137) $6,818 - -------------------------------------------------------------------------------- ------------------------------- </TABLE> 1. Includes Japan, Australia, New Zealand and South Asia. 2. Consists of interest, net and in-process research and development charges (in 1997 and 1995) and litigation charges (in 1995). Inter-area transactions are accounted for using arm's-length principles. Identifiable assets are those assets associated with a specific geographic area. Goodwill and amortization have been allocated to geographic areas, as applicable. NET SALES AND NET ASSETS OF CONSOLIDATED FOREIGN SUBSIDIARIES AND BRANCHES <TABLE> <CAPTION> years ended December 31 (in millions) 1997 1996 1995 - ------------------------------------------------------------ <S> <C> <C> <C> Foreign net sales/1/ $3,251 $2,773 $2,556
  • 110. Foreign assets/2/ net of liabilities at end of year $2,601 $1,876 $1,424 - ------------------------------------------------------------ </TABLE> 1. Includes U.S. export sales. 2. Includes advances from the company and its subsidiaries. BAXTER INTERNATIONAL 1997 ANNUAL REPORT 45 <PAGE> NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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> 1997 Net sales $1,443 $1,569 $1,494 $1,632 $6,138 Gross profit 661 714 669 754 2,798 Income from continuing operations/1, 2/ (203) 162 159 182 300 Net income/1, 2/ (203) 162 159 182 300 Per common share: Income from continuing operations/1/: Basic (.74) .58 .57 .65 1.08 Diluted (.74) .57 .56 .64 1.06 Net income/1/: Basic (.74) .58 .57 .65 1.08 Diluted (.74) .57 .56 .64 1.06 Dividends .2825 .2825 .2825 .2910 1.139 Market price High 49.75 56.125 60.25 57.125 60.25 Low 39.875 41.563 51.375 43.625 39.875 - -------------------------------------------------------------------------------- ------------------------- 1996 Net sales $1,299 $1,335 $1,310 $1,494 $5,438 Gross profit 578 594 590 667 2,429 Income from continuing operations 138 142 137 158 575 Net income/3/ 158 176
  • 111. 177 158 669 Per common share: Income from continuing operations: Basic .51 .52 .50 .58 2.11 Diluted .50 .51 .49 .57 2.07 Net income: Basic .58 .65 .65 .58 2.46 Diluted .57 .64 .64 .57 2.41 Dividends .2825 .3025 .3025 .2825 1.17 Market price High 47.125 47.875 47.75 46.25 47.875 Low 40.00 41.25 41.375 40.125 40.00 - -------------------------------------------------------------------------------- ------------------------- </TABLE> 1. The first quarter includes $352 million of in-process research and development charges relating to the acquisitions of Immuno and RMI. The charges decreased earnings per share by $1.28. 2. The fourth quarter includes a pretax gain of $32 million relating to the divestiture of certain assets of the company's Immunotherapy division. 3. The third quarter includes a pretax gain of $36 million relating to the curtailment of the majority of Allegiance employees' participation in the company's pension and other postemployment benefit plans and a pretax charge of $12 million for costs associated with effecting the distribution of Allegiance. 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. 46 <PAGE> FIVE-YEAR SUMMARY OF SELECTED FINANCIAL DATA <TABLE> <CAPTION> as of and for the years ended December 31 1997/1/ 1996/2/ 1995/3/ 1994 1993/4/ - -------------------------------------------------------------------------------- ----------------------------------- <S> <C> <C> <C> <C> <C> Operations Net sales $6,138 5,438 5,048 4,479 4,116 (in millions) Income (loss) from continuing operations $ 300 575 371 406 (193) Depreciation and amortization $ 398 348 336 302 273 Research-and-development expenses/5/ $ 392 340 327 303 280 - -------------------------------------------------------------------------------- -----------------------------------
  • 112. Capital Employed Capital expenditures $ 496 398 399 380 332 (in millions) Total assets $8,707 7,596 9,437 9,039 9,211 Long-term debt and lease obligations $2,635 1,695 2,372 2,341 2,800 Operational cash flow from continuing operations/6/ $ 274 490 316 618 160 - -------------------------------------------------------------------------------- ----------------------------------- Per Common Share Average number of common shares outstanding (in millions)/7/ 278 272 277 280 277 Income (loss) from continuing operations per common share: Basic $ 1.08 2.11 1.34 1.45 (0.70) Diluted $ 1.06 2.07 1.32 1.44 (0.70) Cash dividends per common share $1.139 1.17 1.11 1.025 1.00 Year-end market price per common share $50.44 41.00 41.88 28.25 24.38 - -------------------------------------------------------------------------------- ----------------------------------- </TABLE> 1. Income from continuing operations includes an in-process research-and- development charge of $352 million. 2. Certain balance sheet and other data are significantly affected by the spin- off of Allegiance Corporation, which occurred on September 30, 1996. 3. Income from continuing operations includes a pretax restructuring charge of $103 million, a pretax litigation charge of $96 million and an in-process research-and-development charge of $18 million. 4. Loss from continuing operations includes a pretax restructuring charge of $216 million and a pretax litigation charge of $330 million. 5. Excludes in-process research-and-development charges of $352 million and $18 million in 1997 and 1995, respectively. 6. The company's operational cash flow measurement is defined on page 22. 7. Excludes common stock equivalents. </TEXT> </DOCUMENT> <DOCUMENT> <TYPE>EX-21 <SEQUENCE>9 <DESCRIPTION>SUBSIDIARIES OF THE COMPANY <TEXT> <PAGE> EXHIBIT 21 - -------------------------------------------------------------------------------- SUBSIDIARIES OF THE COMPANY, AS OF MARCH 13, 1998 <TABLE> <CAPTION> Organized % owned by under immediate Subsidiary laws of parent (1) (2) - ------------------------------------------------------------------------------- <S> <C> <C>
  • 113. Baxter International Inc......................... Delaware Baxter Research Medical Inc..................... Utah 100 Baxter Healthcare Corporation................... Delaware 100 Nextran Inc.................................. Delaware 100 Renal Management Strategies Inc.............. Delaware 91 Baxter World Trade Corporation.................. Delaware 100 Baxter Foreign Sales Corporation............. Barbados 100 Baxter Export Corporation.................... Nevada 100 Baxter, S.A.................................. Belgium 98.44(3) Baxter S.A................................. France 64.57(3) Baxter Deutschland GmbH...................... Germany 100 Baxter SpA................................... Italy 98.98(3) Baxter Pharmacy Services Corporation......... Delaware 100(4) Baxter Sales and Distribution Corp......... Delaware 100 Baxter Healthcare Corporation of Puerto Rico...................................... Alaska 100 Baxter Healthcare (Holdings) Limited......... United Kingdom 99.99(3) Baxter Healthcare Limited.................. United Kingdom 99.99(3) Baxter Healthcare S.A........................ Panama 100 Baxter Healthcare Pte. Ltd................... Singapore 100 Baxter World Trade S.A..................... Belgium 49.29(3) Baxter Limited............................... Japan 100 Baxter Healthcare Pty. Ltd................... Australia 99.99(3) Baxter Edwards AG............................ Switzerland 100(1) Baxter S.A. de C.V........................... Mexico 99.9(3) Laboratorios Baxter S.A. (Colombia).......... Delaware 100 Baxter Corporation........................... Canada 100 Baxter Biotech Worldwide Ltd.................... Delaware 100 Baxter Biotech Holding AG.................... Switzerland 100 Immuno International AG.................... Switzerland 100 Immuno--U.S., Inc........................ Michigan 100 Immuno AG................................ Austria 100(3) </TABLE> - -------------------------------------------------------------------------------- Subsidiaries omitted from this list, considered in aggregate as a single subsidiary, would not constitute a significant subsidiary. * * * * * (1) Including director's qualifying and other nominee shares. (2) All subsidiaries set forth herein are reported in the Company's financial statements through consolidations or under the equity method of accounting. (3) Remaining shares owned by the Company, its subsidiaries or employees. (4) Of common stock, with preferred stock held by Baxter Healthcare Corporation. 17 </TEXT> </DOCUMENT> <DOCUMENT> <TYPE>EX-23 <SEQUENCE>10 <DESCRIPTION>CONSENT OF PRICE WATERHOUSE <TEXT> <PAGE> EXHIBIT 23 - -------------------------------------------------------------------------------- CONSENT OF PRICE WATERHOUSE LLP -
  • 114. -------------------------------------------------------------------------------- We hereby consent to the incorporation by reference in the Prospectuses constituting part of the Registration Statements on Form S-8 (Nos. 2-82667, 2- 86993, 2-97607, 33-8812, 33-15523, 33-15787, 33-28428, 33-33750, 33-54069, 333- 43563 and 333-47019), on Form S-3 (Nos. 33-5044, 33-23450, 33-27505, 33-31388, 33-49820 and 333-19025) and on Form S-4 (Nos. 33-808, 33-15357, 33-53937 and 333-21327) of Baxter International Inc. of our report dated February 5, 1998 appearing on page 26 of the Annual Report to Stockholders incorporated by reference herein. We also consent to the incorporation by reference of our report on the Financial Statement Schedule, which appears on page 10 of this Form 10-K. PRICE WATERHOUSE LLP Chicago, Illinois March 17, 1998 </TEXT> </DOCUMENT> <DOCUMENT> <TYPE>EX-24 <SEQUENCE>11 <DESCRIPTION>POWERS OF ATTORNEY <TEXT> <PAGE> Exhibit 24 P O W E R O F A T T O R N E Y Annual Report on Form 10-K -------------------------- The undersigned directors of Baxter International Inc., a Delaware corporation (the "Company"), which proposes to file with the Securities and Exchange Commission its annual report on Form 10-K for year ended December 31, 1997, pursuant to the Securities Exchange Act of 1934, as approved by the Company's principal executive and financial officers and controller, hereby appoints Vernon R. Loucks Jr. for him or her and in his or her name as a director to be his or her lawful attorney-in-fact, with full power (i) to sign and file with the Securities and Exchange Commission the proposed report and (ii) to perform every other act which said attorney-in-fact may deem necessary or proper in connection with such report. Dated: March 17, 1998 A Majority of the Board of Directors /S/ Walter E. Boomer /S/ Pei-yuan Chia /S/ John W. Colloton /S/ Susan Crown /S/ Mary Johnston Evans /S/ Martha R. Ingram /S/ Harry M. Jansen Kraemer, Jr. /S/ Arnold J. Levine, Ph.D.
  • 115. /S/ Georges C. St. Laurent, Jr. /S/ Monroe E. Trout, M.D. /S/ Reed V. Tuckson, M.D. /S/ Fred L. Turner </TEXT> </DOCUMENT> <DOCUMENT> <TYPE>EX-27 <SEQUENCE>12 <DESCRIPTION>FINANCIAL DATA SCHEDULE <TEXT> <TABLE> <S> <C> <PAGE> <ARTICLE> 5 <LEGEND> This schedule contains summary financial information extracted from the Consolidated Balance Sheet as of December 31, 1997 and the Consolidated Income Statement for the year ended December 31, 1997 and is qualified in its entirety by reference to such financial statements. </LEGEND> <MULTIPLIER> 1,000,000 <S> <C> <PERIOD-TYPE> YEAR <FISCAL-YEAR-END> DEC-31-1997 <PERIOD-START> JAN-01-1997 <PERIOD-END> DEC-31-1997 <CASH> 465 <SECURITIES> 0 <RECEIVABLES> 1,768 <ALLOWANCES> 29 <INVENTORY> 1,208 <CURRENT-ASSETS> 3,870 <PP&E> 4,407 <DEPRECIATION> 2,047 <TOTAL-ASSETS> 8,707 <CURRENT-LIABILITIES> 2,557 <BONDS> 2,635 <PREFERRED-MANDATORY> 0 <PREFERRED> 0 <COMMON> 288 <OTHER-SE> 2,331 <TOTAL-LIABILITY-AND-EQUITY> 8,707 <SALES> 6,138 <TOTAL-REVENUES> 6,138 <CGS> 3,340 <TOTAL-COSTS> 3,340 <OTHER-EXPENSES> 789<F1> <LOSS-PROVISION> 9 <INTEREST-EXPENSE> 206 <INCOME-PRETAX> 523 <INCOME-TAX> 223 <INCOME-CONTINUING> 300 <DISCONTINUED> 0 <EXTRAORDINARY> 0 <CHANGES> 0 <NET-INCOME> 300 <EPS-PRIMARY> 1.08 <EPS-DILUTED> 1.06
  • 116. <FN> <F1> Includes research and development expenses, acquired research and development, and goodwill amortization. </FN> </TABLE> </TEXT> </DOCUMENT> <DOCUMENT> <TYPE>EX-27.1 <SEQUENCE>13 <DESCRIPTION>FINANCIAL DATA SCHEDULE <TEXT> <TABLE> <S> <C> <PAGE> <ARTICLE> 5 <LEGEND> THIS RESTATED FINANCIAL DATA SCHEDULE CONTAINS RESTATED SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONDENSED CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 1996 AND CONDENSED CONSOLIDATED STATEMENT OF INCOME FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. </LEGEND> <RESTATED> <MULTIPLIER> 1,000,000 <S> <C> <PERIOD-TYPE> 6-MOS <FISCAL-YEAR-END> DEC-31-1996 <PERIOD-START> JAN-01-1996 <PERIOD-END> JUN-30-1996 <CASH> 670 <SECURITIES> 0 <RECEIVABLES> 977 <ALLOWANCES> 21 <INVENTORY> 942 <CURRENT-ASSETS> 3,116 <PP&E> 3,532 <DEPRECIATION> 1,792 <TOTAL-ASSETS> 9,703 <CURRENT-LIABILITIES> 2,332 <BONDS> 2,449 <PREFERRED-MANDATORY> 0 <PREFERRED> 0 <COMMON> 288 <OTHER-SE> 3,502 <TOTAL-LIABILITY-AND-EQUITY> 9,703 <SALES> 2,634 <TOTAL-REVENUES> 2,634 <CGS> 1,462 <TOTAL-COSTS> 1,462 <OTHER-EXPENSES> 183<F1> <LOSS-PROVISION> 3 <INTEREST-EXPENSE> 64 <INCOME-PRETAX> 385 <INCOME-TAX> 105 <INCOME-CONTINUING> 280 <DISCONTINUED> 54 <EXTRAORDINARY> 0 <CHANGES> 0
  • 117. <NET-INCOME> 334 <EPS-PRIMARY> 1.23 <EPS-DILUTED> 1.21 <FN> <F1> For "Other cost and expenses" - Ref #5-03(b)3 - Includes R&D & Goodwill Amortization </FN> </TABLE> </TEXT> </DOCUMENT> <DOCUMENT> <TYPE>EX-27.2 <SEQUENCE>14 <DESCRIPTION>FINANCIAL DATA SCHEDULE <TEXT> <TABLE> <S> <C> <PAGE> <ARTICLE> 5 <LEGEND> This restated financial data schedule contains restated summary financial information extracted from the condensed consolidated balance sheet as of September 30, 1996 and condensed consolidated statement of income for the nine months ended September 30, 1996 and is qualified in its entirety by reference to such financial statements. </LEGEND> <RESTATED> <MULTIPLIER> 1,000,000 <S> <C> <PERIOD-TYPE> 9-MOS <FISCAL-YEAR-END> DEC-31-1996 <PERIOD-START> JAN-01-1996 <PERIOD-END> SEP-30-1996 <CASH> 833 <SECURITIES> 0 <RECEIVABLES> 1,307 <ALLOWANCES> 21 <INVENTORY> 954 <CURRENT-ASSETS> 3,460 <PP&E> 3,615 <DEPRECIATION> 1,844 <TOTAL-ASSETS> 7,546 <CURRENT-LIABILITIES> 2,181 <BONDS> 1,692 <PREFERRED-MANDATORY> 0 <PREFERRED> 0 <COMMON> 288 <OTHER-SE> 2,289 <TOTAL-LIABILITY-AND-EQUITY> 7,546 <SALES> 3,944 <TOTAL-REVENUES> 3,944 <CGS> 2,182 <TOTAL-COSTS> 2,182 <OTHER-EXPENSES> 275<F1> <LOSS-PROVISION> 4 <INTEREST-EXPENSE> 96 <INCOME-PRETAX> 575 <INCOME-TAX> 158 <INCOME-CONTINUING> 417
  • 118. <DISCONTINUED> 94 <EXTRAORDINARY> 0 <CHANGES> 0 <NET-INCOME> 511 <EPS-PRIMARY> 1.88 <EPS-DILUTED> 1.85 <FN> <F1> For "Other cost and expenses" - Ref #5-03(b)3 - includes R&D and Goodwill amortization. </FN> </TABLE> </TEXT> </DOCUMENT> </SEC-DOCUMENT> -----END PRIVACY-ENHANCED MESSAGE-----

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