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| Baxter International 1995 10-K Report (Partial 10-K shown; subscribers can see the entire 10-K report.) |
0000912057-96-004966.hdr.sgml : 19960325
ACCESSION NUMBER: 0000912057-96-004966
CONFORMED SUBMISSION TYPE: 10-K
PUBLIC DOCUMENT COUNT: 13
CONFORMED PERIOD OF REPORT: 19951231
FILED AS OF DATE: 19960322
SROS: NYSE
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: 1934 Act
SEC FILE NUMBER: 001-04448
FILM NUMBER: 96537405
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
10-K
1
BAXTER INTERNATIONAL 10-K
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(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, 1995
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.
- --------------------------------------------------------------------------------
DELAWARE 36-0781620
- ----------------------- --------------------------------
State of Incorporation I.R.S. Employer Identification
No.
ONE BAXTER PARKWAY, DEERFIELD, ILLINOIS 60015
(847) 948-2000
--------------------------------------------------
Address, including zip code, and telephone number,
including area code, of principal executive offices
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
Pacific Stock Exchange
Preferred Stock Purchase Rights New York Stock Exchange
(currently traded with common Chicago Stock Exchange
stock) 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
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes _X_ No ____
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein and will not be contained, to the
best of registrant's knowledge, in the definitive proxy statement 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 stock held by non-affiliates of the
registrant (based on the per share closing sale price of $43.88 on March 8,
1996, and for the purpose of this computation only, the assumption that all
registrant's directors and executive officers are affiliates) was approximately
$11.8 billion.
The number of shares of the registrant's common stock, $1 par value,
outstanding as of March 8, 1996, was 273,957,449.
DOCUMENTS INCORPORATED BY REFERENCE
Those sections or portions of the registrant's 1995 annual report to
stockholders and of the registrant's proxy statement for use in connection with
its annual meeting of stockholders to be held on May 6, 1996, described in the
cross reference sheet and table of contents attached hereto are incorporated by
reference in this report.
- --------------------------------------------------------------------------------
CROSS REFERENCE SHEET
AND
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
PAGE NUMBER OR
(REFERENCE) (1)
-----------------
Item 1. Business
(a) General Development of Business................................................. 3(2)
(b) Financial Information about Industry Segments................................... 3(3)
(c) Narrative Description of Business............................................... 3(4)
(d) Financial Information about Foreign and Domestic Operations and Export Sales.... 8(5)
Item 2. Properties................................................................................. 9
Item 3. Legal Proceedings.......................................................................... 9(6)
Item 4. Submission of Matters to a Vote of Security Holders........................................ 9
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters.................................................................................... 10(7)
Item 6. Selected Financial Data.................................................................... 10(8)
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.............................................................................. 10(9)
Item 8. Financial Statements and Supplementary Data................................................ 10(10)
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure....................................................................... 10
Item 10. Directors and Executive Officers of the Registrant
(a) Identification of Directors..................................................... 11(11)
(b) Identification of Executive Officers............................................ 11
(c) Compliance with Section 16(a) of the Securities Exchange Act of 1934............ 13(12)
Item 11. Executive Compensation..................................................................... 13(13)
Item 12. Security Ownership of Certain Beneficial Owners and Management............................. 13(14)
Item 13. Certain Relationships and Related Transactions............................................. 13
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K............................ 14
(a) Financial Statements............................................................ 14
(b) Reports on Form 8-K............................................................. 14
(c) Exhibits........................................................................ 14
- ------------------------
(1) Information incorporated by reference to the Company's Annual Report to
Stockholders for the year ended December 31, 1995 ("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 6, 1996 ("Proxy
Statement").
(2) Annual Report, pages 50-70, section entitled "Notes to Consolidated
Financial Statements" and pages 30-43, section entitled "Management's
Discussion and Analysis."
(3) Annual Report, pages 68-69, section entitled "Notes to Consolidated
Financial Statements-- Industry and Geographic Information."
(4) Annual Report, pages 30-43, section entitled "Management's Discussion and
Analysis" and pages 68-69, section entitled "Notes to Consolidated
Financial Statements--Industry and Geographic Information."
(5) Annual Report, pages 68-69, section entitled "Notes to Consolidated
Financial Statements-- Industry and Geographic Information."
(6) Annual Report, page 62-68, section entitled "Notes to Consolidated
Financial Statements-- Legal Proceedings."
(7) Annual Report, page 70, section entitled "Notes to Consolidated Financial
Statements--Quarterly Financial Results and Market for the Company's
Stock."
(8) Annual Report, inside back cover, section entitled "Five-Year Summary of
Selected Financial Data."
(9) Annual Report, pages 30-43, section entitled "Management's Discussion and
Analysis."
(10) Annual Report, pages 45-70, sections entitled "Report of Independent
Accountants," "Consolidated Balance Sheets," "Consolidated Statements of
Income," "Consolidated Statements of Cash Flows," "Consolidated Statements
of Stockholders' Equity" and "Notes to Consolidated Financial Statements."
(11) Proxy Statement, pages 2-5, sections entitled "Board of Directors" and
"Election of Directors."
(12) Proxy Statement, page 18, section entitled "Section 16 Reporting."
(13) Proxy Statement, pages 6-12, sections entitled "Compensation of Directors"
and "Compensation of Named Executive Officers," and page 17-18, section
entitled "Pension Plan, Excess Plans and Supplemental Plans."
(14) Proxy Statement, pages 18-20, section entitled "Ownership of Company
Securities."
- --------------------------------------------------------------------------------
[BAXTER 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
23 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 more than
200,000 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, 1995 (the "Annual Report"), page 53, section entitled "Notes to
Consolidated Financial Statements--Acquisitions, Investments in Affiliates and
Divestitures" which is incorporated by reference.
(b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS.
Incorporated by reference from the Annual Report, pages 68-69, section
entitled "Notes to Consolidated Financial Statements--Industry and Geographic
Information."
(c) NARRATIVE DESCRIPTION OF BUSINESS.
Recent Developments
SPIN-OFF OF HEALTH CARE COST MANAGEMENT BUSINESS
On November 28, 1995, the board of directors of Baxter approved in principle
a plan to distribute to Baxter stockholders all of the outstanding stock of its
health-care cost management business in a spin-off transaction (the
"Distribution") which is expected to be tax-free. The creation of two
independent companies will enable Baxter and the new company to devote
management time, attention and investments directly to the core strategies of
each business. The new health-care cost management business will consist of the
Company's cost management services, United States distribution, surgical
products and respiratory-therapy operations and will operate as a medical
supplier focused on helping customers manage the total cost of providing patient
care. The Distribution is expected to occur in late 1996 and will result in the
health-care cost management business operating as an independent entity with
publicly-traded common stock.
OFFER TO ACQUIRE NATIONAL MEDICAL CARE; SUBSEQUENT WITHDRAWAL
On February 1, 1996, Baxter publicly announced its proposal to acquire the
National Medical Care ("NMC") subsidiary of W.R. Grace and Company ("Grace") in
a tax-free transaction for $3.8 billion, consisting of $1.8 billion of Baxter
common stock and a payment to Grace of $2.0 billion comprised of cash, notes and
assumed debt. Grace had previously announced its intention to spin-off or divest
NMC. Completion of this transaction in 1996 would have resulted in a dilution of
Baxter's net earnings, but
3
would have been accretive after approximately six quarters of combined results.
The Company's net-debt-to-net-capital ratio would have risen to approximately
42% (compared to 36.3% at December 31, 1995) but was expected to decline to
approximately 40% within two years of the acquisition, all else remaining
constant.
On February 5, 1996, Grace announced that it had agreed to combine its NMC
subsidiary with the worldwide dialysis business of Fresenius A.G. (a German
company) to form a new company called Fresenius Medical Care in a transaction
designed to be tax-free. Fresenius A.G. is a major competitor of the Company's
renal division and NMC is a large United States customer of the renal division.
Under the proposed transaction with Fresenius A.G., Grace shareholders would
receive a 44.8% equity interest in Fresenius Medical Care and Grace would
receive $2.3 billion in cash provided by proceeds of debt financing by Fresenius
Medical Care. This transaction is subject to the approval of the shareholders of
Grace, Fresenius U.S.A. and Fresenius A.G. If the transaction with Grace is
consummated with Fresenius A.G., there will be an increased competitive threat
to the Company's renal division. However, management believes that this would
not have a material adverse effect on Baxter's financial condition or results of
operations in 1996.
Since the management of Grace refused to discuss the Company's proposed
transaction, Baxter withdrew its offer on February 22, 1996.
RESTRUCTURING PROGRAMS
The Company currently has two restructuring programs in process. In November
1993, the Company initiated a restructuring program 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. In the third quarter of 1995, the Company initiated a second
restructuring program to consolidate manufacturing operations in Puerto Rico in
order to eliminate excess capacity and reduce manufacturing costs.
Since the announcement of the 1993 restructuring program, the Company has
implemented, or is in the process of implementing, all of the major strategic
actions associated therewith and is satisfied that the program is progressing on
schedule and will meet previously established financial targets. During 1995,
the Company utilized $60 million of restructuring reserves related to its
continuing operations, including $36 million in cash payments. Cash outflows
pertain primarily to employee-related costs for severance, outplacement
assistance, relocation and retention. The Company has eliminated from continuing
operations approximately 1,250 positions of the approximately 1,640 positions
affected by the program. The majority of the remaining reductions will occur in
1996 and 1997, as facility closures and consolidations are completed as planned.
During 1995, the Company realized approximately $90 million in continuing
operations savings which represents a shortfall of approximately $20 million
from its estimated savings target. This shortfall is primarily due to timing
delays in the implementation of a number of projects. Management has forecasted
continuing operations savings of approximately $110 million in 1996, $130
million in 1997 and exceeding $140 million in 1998. Management anticipates that
these savings will be partially invested in increased research and development
and expansion into growing international markets. Management further believes
that its remaining restructuring reserves are adequate to complete the actions
contemplated by the 1993 restructuring program.
Management is at the very early stages of implementing the 1995
restructuring program, which is expected to be completed by the end of 1998. The
pretax restructuring charge of $93 million includes approximately $67 million
for valuation adjustments as a result of the Company's decision to close
facilities.
The Company expects to spend approximately $26 million in cash over the next
two years, including severance related to the approximately 1,450 positions that
will be eliminated in connection with the 1995 plan. The plant closures and
consolidations in Puerto Rico will lower the Company's manufacturing costs.
Management believes these actions will help mitigate the Company's exposure to
future gross
4
margin erosion arising from pricing pressure, primarily in the United States. In
addition to the consolidation of the Company's manufacturing operations in
Puerto Rico, the Company has initiated plans for other organizational structure
changes which have resulted in a $10 million provision for cash payments related
to employee severance.
Management anticipates that future cash expenditures related to both the
1993 and 1995 restructuring programs will be funded from cash generated from
operations.
Industry Overview
The Company operates in a single industry segment as a world leader in
providing health-care products for use in hospitals and other health-care
settings. On a global basis, the Company develops, manufactures and markets
intravenous solutions and related administration equipment, and highly
specialized medical products for treating kidney and heart disease, blood
disorders, and for collecting and processing blood. These products include
intravenous solutions and pumps; dialysis equipment and supplies; prosthetic
heart valves and cardiac catheters; blood-clotting therapies; and machines and
supplies for collecting, separating and storing blood. These products require
extensive research and development and investment in worldwide manufacturing,
marketing and administrative infrastructure.
Information about segment operating results is incorporated by reference
from the Annual Report, pages 30-43, section entitled "Management's Discussion
and Analysis" and pages 68-69, section entitled "Notes to Consolidated Financial
Statements--Industry and Geographic Information."
UNITED STATES MARKETS
Though the federal government failed to enact health-care reform,
fundamental change continued to be a part of the United States health-care
system in 1995. Competition for patients among health-care providers continues
to intensify. Increasingly, providers are looking for ways to better manage
costs in areas such as materials handling, supply utilization, product
standardization for specific procedures and capital expenditures. The new
health-care cost management business is being distributed to stockholders to
more optimally meet these emerging market needs, remove limitations, and improve
the competitiveness of both Baxter and the new company. There has also been
consolidation in the Company's customer base and by its competitors. These
trends are expected to continue. In recent years, the Company's overall price
increases have been below the Consumer Price Index, and industry trends and
competition may inhibit the Company's ability to increase prices in the future.
INTERNATIONAL MARKETS
Throughout the world, as developing countries create more wealth, improving
the health and well-being of their citizens becomes a much higher social
priority and usually leads to increased per-capita spending on health care. The
world's largest developing markets in the Pacific Rim countries and Latin
America are all poised for significant economic growth. Based on these factors,
management believes there will be improved expansion opportunities for the
Company with its broad portfolio of proven cost-effective products, services and
therapies to meet the demands of these markets. In the developed
world--especially in Western Europe and Japan--there continues to be strong
demand for more technologically advanced and cost-effective therapies, products
and services, and the Company has long been a leader in these markets. In view
of these conditions, management believes the Company's best opportunities for
growth are outside the United States. Consequently, the Company's strategies
emphasize international expansion to capitalize on the Company's strong global
positions in intravenous products, renal therapy, biotechnology and
cardiovascular therapies.
HEALTH-CARE COST ENVIRONMENT
Accelerating cost pressures on United States hospitals are resulting in
increased out-patient and alternate-site health-care service delivery and a
focus on cost-effectiveness and quality. In addition, technological advances in
health-care product and service offerings are increasingly evaluated on their
ability to both improve the quality of care and provide more cost-effective
outcomes. These forces increasingly shape the demand for, and supply of, medical
care.
5
Many private health-care payers are providing incentives for consumers to
seek lower cost care outside the hospital. Many corporations' employee health
plans have been restructured to provide financial incentives for patients to
utilize the most cost-effective forms of treatment (managed care programs, such
as health maintenance organizations, have become more common), and physicians
have been encouraged to provide more cost-effective treatments.
The future financial success of health-care product and service companies,
such as the Company, will depend on their ability to work with health-care
customers to help them enhance their competitiveness. The Company believes it
can help its customers achieve savings in the total health-care system by
automating supply-ordering procedures, optimizing distribution networks,
improving materials management and achieving economies of scale associated with
aggregating purchases. The Company continues to believe that its strategy of
providing unmatched service to its health-care customers and achieving the best
overall cost in its delivery of health-care products and services is compatible
with any realignment of the United States health-care system which may
ultimately occur.
Joint Ventures
The Company conducts a portion of its business through joint ventures,
including a joint venture with Nestle, S.A. to develop, market and distribute
clinical nutrition products worldwide. This joint venture is accounted for under
the equity method of accounting and therefore, is excluded from the Company's
segment results.
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. Distribution centers, which may serve
more than one division, 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, circulation of catalogs and merchandising bulletins, direct
mail campaigns, trade publications and advertising.
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, Brunei, Canada, China, Colombia, Ecuador,
Denmark, Finland, France, Germany, Hong Kong, India, Indonesia, Italy, Japan,
Malaysia, Mexico, the Netherlands, New Zealand, Norway, Pakistan, the
Philippines, Singapore, Spain, Sweden, Switzerland, Taiwan, Thailand and the
United Kingdom. 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, including its latex products, are available only from a small number
of suppliers. In addition, certain biomaterials for medical implant applications
(primarily polymers) are becoming more difficult to obtain due to market
withdrawals by biomaterial suppliers, primarily as a result of perceived
exposures to liability in the United States.
In some of these situations, the Company has long-term supply contracts with
its suppliers, although it does not consider its obligations under such
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