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SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
Commission File Number 1-6926
C. R. BARD, INC.
(Exact name of registrant as specified in its charter)
New Jersey 22-1454160
(State of incorporation) (I.R.S. Employer Identification No.)
730 Central Avenue, Murray Hill, New Jersey 07974
(Address of principal executive offices)
Registrant's telephone number, including area code: (908) 277-8000
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
Common Stock - $.25 par value New York 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 definitive
proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendments to this Form 10-K. [ X ]
The aggregate market value of the voting stock held by
nonaffiliates of the registrant was approximately $2,900,355,800
based on the closing price of stock traded on the New York Stock
Exchange on February 26, 1999. As of February 26, 1999, there were
51,447,553 shares of Common Stock, $.25 par value per share,
outstanding.
The company's definitive Proxy Statement dated March 12, 1999 has
been incorporated by reference with respect to certain information
contained therein in Part III and Part IV of this Form 10-K.
The exhibit index is located in Part IV, Item 14, Page IV-1.
PART I
Item 1. Business
General Development of Business
The company was started by Charles Russell Bard in 1907. One of
its first medical products was the silk urethral catheter imported
from France. In 1923, the company was incorporated as C. R. Bard,
Inc. and distributed an assortment of urological and surgical
products. Bard became a publicly-traded company in 1963 and five
years later was traded on the New York Stock Exchange.
In 1966, Bard acquired the United States Catheter & Instrument Co.,
a supplier of urological and cardiovascular specialty products.
In 1980 Bard acquired its major source of the Foley catheter -
Davol Inc. Numerous other acquisitions were made over the last
thirty-five years broadening Bard's product lines. Today, C. R.
Bard, Inc. is a leading multinational developer, manufacturer and
marketer of health care products.
1998 sales of $1.165 billion decreased 4% from 1997. Net income
for 1998 totaled $252.3 million compared with $72.3 million in
1997. Basic and diluted earnings per share were $4.54 and $4.51,
respectively, in 1998. Basic and diluted earnings per share were
$1.27 and $1.26, respectively in 1997.
Acquisitions and Dispositions
During the fourth quarter of 1998, the company completed the sale
of its global Coronary Cath Lab business to Arterial Vascular
Engineering, Inc. and its Intra-Aortic Balloon Products business to
Arrow International, Inc. for in excess of $625.0 million. A
portion of the proceeds represents retained working capital,
primarily accounts receivable, which will be collected through
normal operations.
1997 included the sale of two product lines which resulted in a
pretax gain of $22.7 million ($.23 per share).
In September of 1996 Bard completed the acquisition of IMPRA, Inc.
("IMPRA"), a company that develops, manufactures and markets
vascular grafts used for blood vessel replacement surgery. The
purchase and acquisition costs which approximated $155.4 million
were financed with commercial paper.
I-I
Product Group Information
Bard is engaged in the design, manufacture, packaging, distribution
and sale of medical, surgical, diagnostic and patient care devices.
Hospitals, physicians and nursing homes purchase approximately 90%
of the company's products, most of which are used once and
discarded.
The company reports its sales around the concept of disease state
management. Three of Bard's four major product group categories
are: vascular diagnosis and intervention, urological diagnosis and
intervention, and oncological diagnosis and intervention. In
addition the company maintains and grows its fourth major product
group, surgical specialties, and also has a product group of other
ongoing products. The divested products category contains divested
and discontinued product lines.
The following table sets forth for the last three years ended
December 31, 1998, the approximate percentage contribution by
product line to Bard's consolidated net sales on a worldwide basis.
Years Ended December 31,
1998 1997 1996
Vascular 18% 16% 14%
Urology 29% 27% 26%
Oncology 18% 16% 16%
Surgery 13% 11% 10%
Other ongoing products 5% 5% 5%
Total ongoing products 83% 75% 71%
Divested products 17% 25% 29%
Net sales 100% 100% 100%
Narrative Description of Business
General
Historically, Bard has been known for its products in the
urological field, where its Foley catheter is the leading device
for bladder drainage. Bard's largest product group is the
urological diagnosis and intervention category contributing
approximately 29% of consolidated net sales in 1998.
Bard continually expands its research toward the improvement of
existing products and the development of new ones. It has
pioneered the development of disposable medical products for
standardized procedures.
I-2
Vascular Diagnosis and Intervention - Bard's line of vascular
diagnosis and intervention products includes peripheral angioplasty
stents, catheters, guidewires, introducers and accessories and vena
cava filters; electrophysiology products including cardiac mapping
and electrophysiology laboratory systems, and diagnostic and
temporary pacing electrode catheters; fabrics and meshes and
implantable blood vessel replacements.
Urological Diagnosis and Intervention - Bard offers a complete line
of urological diagnosis and intervention products including Foley
catheters, procedure kits and trays and related urine monitoring
and collection systems; ureteral stents; and specialty devices for
incontinence, endoscopic procedures and stone removal.
Oncological Diagnosis and Intervention - Bard's line of oncological
diagnosis and intervention products include biopsy products;
specialty access catheters and ports; and gastroenterological
products.
Surgical Specialties - Bard's surgical specialties products include
meshes for hernia repair; irrigation devices for orthopaedic and
laparoscopic procedures; laparoscopic accessories; and topical
hemostasis.
International - Bard markets vascular, urological, oncological and
surgical specialties products throughout the world. Principal
markets are Japan, Canada, the United Kingdom and continental
Europe. Approximately 45% of the sales outside the United States
are of products manufactured by Bard in its facilities in Canada,
France, Germany, Malaysia and the United Kingdom. The balance of
the sales are from products manufactured in the continental United
States, Puerto Rico or Mexico for export. Bard's foreign
operations are subject to the usual risks of doing business abroad,
including restrictions on currency transfer, exchange fluctuations
and possible adverse government regulations. See p. II-31 Note 10
in the Notes to Consolidated Financial Statements for additional
information.
Competition
The company knows of no published statistics permitting a general
industry classification that would be meaningful as applied to the
company's variety of products. However, products sold by the
company are in substantial competition with those of many other
firms, including a number of larger well-established companies.
The company depends more on its consistently reliable product
quality, dependable service and its ability to develop products to
meet market needs than on patent protection, although some of its
products are patented or are the subject of patent applications.
I-3
Marketing
The company's products are distributed domestically directly to
hospitals and other institutions as well as through numerous
hospital/surgical supply and other medical specialty distributors
with whom the company has distributor agreements. In international
markets, products are distributed either directly or through
distributors with the practice varying by country. Sales promotion
is carried on by full-time representatives of the company in
domestic and international markets.
Sales to distributors, which supply the company's products to many
end users, accounted for approximately 26% of the company's sales
and the five largest distributors combined accounted for
approximately 95% of such sales.
In order to service its customers, both in the U.S. and outside the
U.S., the company maintains inventories at distribution facilities
in most of its principal marketing areas. Orders are normally
shipped within a matter of days after receipt, except for items
temporarily out of stock, and backlog is normally not significant
in the business of the company.
Most of the products sold by the company, whether manufactured by
it or by others, are sold under the BARD trade name or trademark
or other trademarks owned by the company. Such products
manufactured for the company by outside suppliers are produced
according to the company's specifications.
Regulation
The development, manufacture, sale and distribution of the
company's products are subject to comprehensive government
regulation. Government regulation by various federal, state and
local agencies, which includes detailed inspection of and controls
over research and laboratory procedures, clinical investigations,
manufacturing, marketing, sampling, distribution, record keeping,
storage and disposal practices, substantially increases the time,
difficulty, and costs incurred in obtaining and maintaining the
approval to market newly developed and existing products.
Government regulatory actions can result in the seizure or recall
of products, suspension or revocation of the authority necessary
for their production and sale, and other civil or criminal
sanctions.
I-4
Raw Materials
The company uses a wide variety of readily available plastics,
textiles, alloys and rubbers for conversion into its devices. Two
large, U.S.-based chemical suppliers have sought to restrict the
sale of certain of their materials to the device industry for use
in implantable products. Although one guiding principle in the
adoption of this policy is the avoidance of negative economic
effect on the health care industry, a small portion of the
company's product lines may face a short-term threat to the
continuity of their raw material supply. Such suppliers have
indicated that their action is based on product liability concerns.
Bard and the medical device industry are working to resolve this
problem in general and with these suppliers to assure a continuing
supply of necessary raw materials. Bard is working to maintain a
supply of qualified materials by developing new suppliers and
increasing inventories of important stocks.
Environment
The company continues to address current and pending environmental
regulations relating to its use of ethylene oxide (ETO) for the
sterilization of some of its products. The company is complying
with regulations reducing permitted ETO emissions by installing
scrubbing equipment and adjusting its processes. The company
believes that continuing costs for environmental activities will
not significantly affect earnings or competitive position.
Employees
The company employs approximately 7,700 persons.
Seasonality
The company's business is not affected to any material extent by
seasonal factors.
Research and Development
The company's research and development expenditures amounted to
approximately $72,700,000 in 1998, $85,800,000 in 1997 and
$77,300,000 in 1996.
I-5
Item 2. Properties
The executive offices of the company are located in Murray Hill,
New Jersey, in facilities that the company owns. Domestic
manufacturing and development units are located in Arizona,
Georgia, Kansas, Massachusetts, New Jersey, New York, Ohio,
Pennsylvania, Puerto Rico, Rhode Island, South Carolina, Texas and
Utah. Sales offices and distribution points are in these locations
as well as others.
Outside the U.S., the company has plants or offices in Australia,
Belgium, Canada, China, France, Germany, Hong Kong, India, Ireland,
Italy, Japan, Korea, Malaysia, Mexico, the Netherlands, Norway,
Portugal, Singapore, Spain, Sweden, Switzerland and the United
Kingdom.
The company owns approximately 1,723,000 square feet in 21
locations and leases approximately 1,370,000 square feet of space
in 53 locations.
All these facilities are well maintained and suitable for the
operations conducted in them.
Item 3. Legal Proceedings
On October 6, 1995, Trimedyne, Inc. filed a complaint in State
Court in California alleging breach of contract, fraud and
negligent misrepresentation by the company in connection with its
performance under a Development, Supply and License Agreement dated
June 28, 1991, concerning side-firing laser products (Urolase ),
along with certain other charges. The parties settled this case
during the fourth quarter of 1998.
During 1993, the United States Environmental Protection Agency (the
"EPA") notified the company's Urological division that it may be a
potentially responsible party relative to cleanup of the Frontier
Chemical site in Niagara Falls, New York. In September, 1993, the
company entered into a consent order concerning the first phase of
the cleanup, which was a drum removal action. The company's
liability for the first phase was $119,000. A second phase of
remedial action involves removal of waste in several large tanks.
The company's liability for this phase was assessed at less than
$15,000. The third phase of remedial action involves soil and
groundwater contamination. The company's responsibility, if any,
for cleanup of this phase is unknown at this time, but it is
believed that the final resolution of this matter is not expected
to have a material adverse financial impact on the company.
I-6
Item 3. Legal Proceedings (continued)
During 1992, the EPA notified the company that it had been
identified as a potentially responsible party in connection with an
ongoing investigation of the Solvents Recovery Service of New
England site in Southington, Connecticut. Although the full extent
of liability in this case is unknown, the company has been
identified with less than one-half percent of the total gallonage
of waste materials. Beginning in 1995, the company, together with
several hundred other parties, entered into two consent orders to
perform the remedial investigation and feasibility study and two
removal actions with respect to groundwater contamination. The
final resolution of this matter is not expected to have a material
adverse financial impact on the company.
Davol Inc., a Bard subsidiary, has been identified as a Potentially
Responsible Party by the Massachusetts Department of Environmental
Protection for two new Superfund sites in Dartmouth and Freetown,
Massachusetts. The allegations stem from transhipments of waste
from the ReSolve hazardous waste reprocessing facility in
Dartmouth, Massachusetts to each of the sites associated with the
H&M Drum Company. At this time, Davol Inc. and the other former
ReSolve waste generators have agreed to contribute $1,000 towards
a fund to finance a site investigation. The final resolution of
this matter is not expected to have a material adverse financial
impact on the company.
The company is also subject to other legal proceedings and claims
that arise in the ordinary course of business.
Item 4. Results of Votes of Security Holders
Not applicable.
I-7
Executive Officers of the Registrant
Set forth below is the name, age, position, five-year business
history and other information with respect to each executive
officer of the company as of March 1, 1999. No family
relationships exist among the officers of the company.
Name Age Position
William H. Longfield 60 Chairman and
Chief Executive Officer
and Director
Guy J. Jordan 50 Group President
Timothy M. Ring 41 Group President
John H. Weiland 43 Group President
Charles P. Slacik 44 Senior Vice President and
Chief Financial Officer
Nadia C. Adler 54 Vice President General Counsel
and Secretary
James R. Adwers, M.D. 55 Vice President-Medical Affairs
E. Robert Ernest 58 Vice President-Planning and
Development
Christopher D. Ganser 46 Vice President-Quality Assurance
Hope Greenfield 47 Vice President-Human Resources
Charles P. Grom 51 Vice President and Controller
Richard D. Manthei 63 Vice President-Scientific
Affairs
Earle L. Parker 55 Vice President and
Chief Investor Relations Officer
Todd C. Schermerhorn 38 Vice President and Treasurer
All officers of the company are elected annually by the Board of
Directors.
I-8
Executive Officers of the Registrant (continued)
William H. Longfield joined Bard in 1989 as Executive Vice
President and Chief Operating Officer. Prior to joining the
company was President and Chief Executive Officer of Cambridge
Group, Inc. Previously was Executive Vice President-Operations of
Lifemark, Inc. and, prior thereto, was employed by American
Hospital Supply Corporation where he held a number of positions
including President of the Convertors Division. Elected President
and Chief Operating Officer in 1991, elected President and Chief
Executive Officer in 1994 and to present position in 1995. Elected
to Board of Directors in 1990.
Guy J. Jordan joined Bard in 1986 as Director of research and
development for USCI. Promoted to Vice President for specialty
access products in 1990 for Davol. In 1991 promoted to Vice
President and General Manager of Bard Access Systems and became
President of the division in 1993. Elected to Group Vice President
in October 1996 and to present position in April 1997. Prior to
joining Bard, he was with American Cyanamid Corporation.
Timothy M. Ring joined Bard as Vice President-Human Resources in
June 1992. Prior to joining the company was with Abbott
Laboratories, Inc. for ten years, most recently with their Hospital
Products Division as director of Personnel. Elected to Group Vice
President in 1993 and to present position in 1997.
John H. Weiland joined Bard in 1996 as Group Vice President. Prior
to joining the company, was Senior Vice President at Dentsply
International. Previously served as President and Chief Executive
Officer of Pharmacia Diagnostics, Inc. and was with American
Hospital Supply and Baxter Healthcare. Served one year as a White
House Fellow in the role of Special Assistant in the Office of
Management and Budget. Elected to present position in 1997.
Charles P. Slacik joined Bard in 1999 as Senior Vice President and
Chief Financial Officer. Prior to joining the company, was with
American Home Products since 1982 in various financial and
operating positions, the most recent as Chief Operating Officer for
Solgar Vitamin and Herb Company. Other American Home Products
positions included Senior Vice President of Finance for Whitehall-Robins
Healthcare Division and Sherwood-Davis & Geck Corp.;
Corporate Controller for American Home Products and Executive Vice
President of Whitehall-Robins Healthcare Division.
I-9
Executive Officers of the Registrant (continued)
Nadia C. Adler joined Bard in 1999 as Vice President, General
Counsel and Secretary. Prior to joining Bard was Senior Vice
President, General Counsel and Assistant Secretary of Montefiore
Medical Center in New York City since 1987. Before Montefiore, was
Partner in the law firm of Rosenman & Colin as a member of the
Litigation Department and later their Corporate Department.
James R. Adwers, M.D. joined Bard in 1995 as Regional Vice
President, Surgical Group, Corporate Medical Affairs. Promoted to
Staff Vice President of the Corporate Medical Affairs Group in
1996. Prior to joining the company, held medical affairs positions
with Becton, Dickinson and Company and Technomed International.
Promoted to present position in 1997.
E. Robert Ernest joined Bard as Director of Market Research and
Business Development in 1977. Prior to joining Bard, was with
Abbott Laboratories for ten years. Promoted to Vice President-Business
Development in 1979 and named to present position in
1994.
Christopher D. Ganser joined Bard in 1989 as Manager-Quality
Assurance in the Moncks Corner facility. Promoted to Division
Manager-Quality Control Operations in 1991 and to Director of
Quality Assurance of Bard Urological Division in 1992. Promoted to
present position in 1994. Prior to joining Bard, held several
quality assurance positions with Kendall McGaw.
Hope Greenfield joined Bard in 1995 in her present position. Prior
to joining the company, was with Digital Equipment Corporation for
sixteen years where she served as Human Resources Director and Vice
President for various divisions.
Charles P. Grom joined Bard in 1977 as Corporate Accounting Manager
and promoted to Corporate Cost and Budget Manager in 1980. Served
as Division Controller for various Bard Divisions between 1981 and
1988 when he was promoted to Assistant Corporate Controller.
Elected Controller in 1994 and to his present position in 1995.
Richard D. Manthei joined Bard in 1996 in his current position.
Prior to joining the company, was a Partner in the law firm of
McKenna and Cuneo in Washington, D.C., where he chaired the Food,
Drug, Cosmetic, and Medical Device Department. Previously served
as Managing Partner at Burditt, Bowles and Radzius. Held prior
positions with American Hospital Supply Corporation and Baxter
International, Inc.
I-10
Executive Officers of the Registrant (continued)
Earle L. Parker joined Bard in 1979 as Corporate Cost and Budget
Manager. Promoted to Assistant Controller of Bard Urological
Division in 1980, to Controller of USCI Division in 1981 and to
Vice President and Controller in 1985. Promoted to Vice President-Operations
of USCI Division in 1990, to Vice President and General
Manager of USCI Angiography Division in 1991, to Treasurer in 1992,
to Vice President and Treasurer in 1994, and to present position in
1998.
Todd C. Schermerhorn joined Bard in 1985 as Cost Analyst and has
held increasingly responsible financial positions including
Controller of the Vascular Systems Division and Vice President and
Controller at USCI. Most recently was Vice President and Group
Controller for Bard's Global Cardiology Unit. Promoted to present
position in 1998.
I-11
PART II
Item 5. Market for Registrant's Common Stock and Related
Stockholder Matters
Market and Market Prices of Common Stock
The company's common stock is traded on the New York Stock Exchange
using the symbol: BCR. The following table illustrates the high
and low sales prices as traded on the New York Stock Exchange for
each quarter during the last two years.
Quarters
1st 2nd 3rd 4th Year
1998
High 38-1/4 38-7/8 41-5/8 50-1/4 50-1/4
Low 28-1/2 32-7/16 32-3/4 33-7/8 28-1/2
Close 36-3/4 38-1/16 36-7/8 49-1/2 49-1/2
1997
High 28-3/4 36-3/4 39 34-7/8 39
Low 26-3/8 27-7/8 32-11/16 26-1/2 26-3/8
Close 28-1/2 36-5/16 34 31-5/16 31-5/16
Approximate Number of Equity Security Holders
Approximate Number
of Record Holders
Title of Class as of February 26, 1999
Common Stock - $.25 par value 6,947
Dividends
The company paid cash dividends of $41,500,000 or $.74 per share in
1998 and $40,000,000 or $.70 per share in 1997. The following
table illustrates the quarterly rate of dividends paid per share.
Quarters
1st 2nd 3rd 4th Year
1998 $ .18 $ .18 $ .19 $ .19 $ .74
1997 $ .17 $ .17 $ .18 $ .18 $ .70
In December 1998 the first quarter dividend of $.19 per share was
declared, indicating an annual rate of $.76 per share. The first
quarter dividend was paid on February 5, 1999 to shareholders of
record on January 25.
II-1
Item 6.
SELECTED FINANCIAL DATA
C. R. BARD, INC. AND SUBSIDIARIES
For the Years Ended December 31,
(Thousands of dollars except
per share amounts)
1998 1997 1996 1995 1994 1993
INCOME STATEMENT DATA
Net sales $1,164,700 $1,213,500 $1,194,400 $1,137,800 $1,064,600 $1,008,800
Net income 252,300 72,300 92,500 86,800 75,600 57,800
BALANCE SHEET DATA
Total assets$1,079,800 $1,279,300 $1,332,500 $1,091,000 $1,043,100 $ 881,400
Working
capital $ 185,700 252,900 240,700 230,600 72,300 165,200
Long-term
debt $ 160,000 340,700 342,800 198,400 93,400 82,100
Total debt $ 162,000 443,700 491,000 265,300 294,000 171,000
Shareholders'
investment $ 567,600 573,100 601,500 564,600 495,400 439,900
COMMON STOCK DATA
Basic earnings
per share $ 4.54 $ 1.27 $ 1.62 $ 1.53 $ 1.34 $ 1.02
Diluted earnings
per share $ 4.51 $ 1.26 $ 1.61 $ 1.52 $ 1.33 $ 1.01
Cash dividends
per share .74 .70 .66 .62 .58 .54
Shareholders'
investment
per share $ 11.02 $ 10.09 $ 10.56 $ 9.89 $ 8.77 $ 7.77
Average shares
outstanding
(000's) 55,566 56,971 57,090 56,731 56,461 56,692
Shareholders of
record 6,650 7,088 7,371 7,644 8,104 8,489
SUPPLEMENTARY DATA
Return on average
shareholders'
investment 44.2% 12.3% 15.9% 16.4% 16.2% 13.1%
Net income/net
sales 21.7% 6.0% 7.7% 7.6% 7.1% 5.7%
Days-accts
receivable 72.8 69.6 70.3 66.7 62.3 60.7
Days-
inventory 151.9(1) 151.9 151.7 149.4 143.6 135.9
Total debt/
total
capitaliza-
tion 22.2% 43.6% 44.9% 32.0% 37.2% 28.0%
Interest
expense $ 26,400 $ 32,900 $ 26,400 $ 24,200 $ 16,300 $ 12,500
R&D expense 72,700 85,800 77,300 $ 75,600 $ 71,600 $ 67,500
Number of
employees 7,700 9,550 9,800 9,400 8,900 8,650
Net sales per
employee $ 151.3 $ 127.1 $ 121.9 $ 121.0 $ 119.6 $ 116.6
Net income per
employee $ 32.8 $ 7.6 $ 9.4 $ 9.2 $ 8.5 $ 6.7
(1) 1998 excludes divested cardiology businesses.
II-2
Item 7. Management's Discussion and Analysis of Results
of Operations and of Financial Conditions
General
Bard is a leading multinational developer, manufacturer and
marketer of products for the large and growing health care
industry. Worldwide health care expenditures approximated $2.5
trillion in 1998 with about half that amount spent in the United
States. Bard's segment of this industry, itself a multi-billion
dollar market, is primarily specialized products used mainly in
hospitals, in outpatient centers and in physician's offices to meet
the needs of the medical profession in caring for their patients.
The company seeks to focus and concentrate on selected markets with
cost-effective, innovative products and specialized sales forces to
maximize Bard's opportunities in managing these markets.
Summary Results
Net sales for the full year 1998 were $1.165 billion, which include
sales of products that were divested during the year. Full-year
sales of ongoing products, which include vascular, urology,
oncology and surgery products increased 6% to $968.9 million. This
increase was primarily the result of growth in new and established
product lines. Bard's key franchises remain strong. The company
reported record earnings in 1998 of $252.3 million, which include
a gain on the sale of its cardiology businesses as well as several
other one-time items. Without the one-time items reported in both
1998 and 1997, earnings per share would have shown growth
consistent with ongoing sales growth.
Results of Operations - 1998 vs. 1997
Net sales for 1998 totaled $1.165 billion, which represents a 4%
decline from the prior year mostly due to the 1998 divestiture of
the company's cardiology businesses. Full year sales of ongoing
products were $968.9 million, an increase of 6% over 1997 results.
Price reductions and the impact of a stronger dollar had the effect
of reducing 1998 reported net sales by 2% and 1%, respectively.
Sales of vascular products rose 6% in 1998. Radiology and
electrophysiology devices showed strong worldwide growth. Graft
product sales from our IMPRA division also contributed to the
overall growth in the product group.
Urology product sales grew 5% in 1998. The Infection Control Foley
catheter and our ProSeed brachytherapy business provided the
majority of the growth in this area.
Sales of oncological products increased 7% in 1998. Specialty
access devices showed good growth, particularly in international
markets.
II-3
Results of Operations - 1998 vs. 1997 (continued)
Sales of surgery products grew 10% in 1998, propelled by high
worldwide growth of mesh products, used primarily for hernia
repair.
The product areas discussed above represent substantially all of
Bard's ongoing products subsequent to the completion of the
cardiology divestiture.
Net sales by product group for the last three years (in millions)
are:
1998 1997 1996
Vascular $ 209.0 $ 198.0 $ 160.9
Urology 339.8 323.4 306.4
Oncology 213.1 199.1 191.7
Surgery 148.4 134.8 123.0
Other ongoing products 58.6 58.2 62.6
Total ongoing products 968.9 913.5 844.6
Divested products 195.8 300.0 349.8
Net sales $1,164.7 $1,213.5 $1,194.4
Sales in the United States of ongoing products rose 5% to $687.9
million. The vascular and surgery products provided the greatest
growth.
Ongoing product sales outside the U.S. increased 8% to $281.0
million with growth demonstrated by urology, oncology and surgery
products. The impact of a stronger dollar had the effect of
reducing these sales by 3%.
The geographic breakdown of ongoing product sales for the last
three years is:
1998 1997 1996
United States 71% 71% 71%
Europe 19% 19% 19%
Japan 5% 5% 4%
Other 5% 5% 6%
100% 100% 100%
Global pricing pressures together with the additional expenditures
related to Bard's ongoing manufacturing restructuring effort
increased cost of goods sold as a percent of sales to 47.6% from
47.2% in 1997. In the fourth quarter when a substantial portion of
the cardiology sale was completed, Bard reported improved cost of
goods sold as a percent of sales of 45.9% from 47.1% in the prior
year quarter.
Marketing, selling and administrative expenses declined 3% in 1998.
As a percent of sales, these expenses increased due to the effect
of several one-time items such as Year 2000 expenditures. Reported
research and development expense declined 15% as a result of the
sale of the cardiology businesses, while Bard's spending on its
ongoing products was consistent with the prior year.
II-4
Results of Operations - 1998 vs. 1997 (continued)
Interest expense declined 20% in 1998 due to Bard's decision to
utilize a portion of the proceeds from the sale of the cardiology
businesses to repay short-term debt. In addition, the company
elected in June 1998 to prepay a long-term note which further
reduced 1998 interest expense.
As a result of a series of strategic initiatives, the company has
divested several cardiology product lines. These transactions
closed in the fourth quarter 1998 when the company recorded a
pretax gain of $329.2 million. Please refer to Note 2,
Acquisitions and Dispositions, of the Notes to Consolidated
Financial Statements on page II-19 for additional information.
Please refer to Note 9, Other (Income) Expense, Net, of the Notes
to Consolidated Financial Statements on page II-28 of this report
for a summary of items in this category in the last three years.
Included in this category in 1998 are a net gain of $48.6 million
from the settlement of various patent infringement and legal claims
and a charge of $34.1 million for the writedown of assets primarily
associated with divested businesses.
Income Tax
The effective tax rate was 45.7% in 1998, 31.1% in 1997 and 9.9% in
1996. The increase in 1998 is largely the result of the sale of
the cardiology businesses.
Net Income
In 1998, Bard reported net income of $252.3 million and diluted
earnings per share of $4.51. Excluding the impact of the after-tax
gain on the sale of the cardiology businesses of $2.93, the net
after-tax loss from one-time items of ($0.13) and the after-tax
impact of the Year 2000 costs of ($0.03) diluted earnings per share
would have been $1.76.
In 1997, Bard reported net income of $72.3 million and diluted
earnings per share of $1.26. Excluding the net after-tax loss from
one-time items of ($0.38) and the after-tax impact of the Year 2000
costs of ($0.03), diluted earnings per share would have been $1.67.
In 1996, Bard reported net income of $92.5 million and diluted
earnings per share of $1.61. Excluding the net after-tax loss from
one-time charges of ($0.45) and a reversal of tax reserves of
$0.26, diluted earnings per share would have been $1.80.
Results of Operations - 1997 vs. 1996
Net sales rose 2% to $1.214 billion. Products divested in 1997
reduced the growth in sales by 6%. Price reductions totaled about
1.5% and the stronger dollar reduced reported net sales by 2%.
II-5
Results of Operations - 1997 vs. 1996 (continued)
Sales of vascular products rose 23% in 1997. Radiology devices and
a full year of sales of graft products from the acquisition of
IMPRA, Inc. both contributed to the growth rate of vascular
products.
Urology product sales grew 6% in 1997. The Infection Control Foley
Catheter and the Contigen Bard's collagen implant provided the
growth in this area.
Sales of oncological products increased 4% in 1997. Both specialty
venous access devices and biopsy products showed strong
performance.
Sales of surgery products grew 10% in 1997, propelled by high
worldwide growth of mesh products, used primarily for hernia
repair.
The product areas discussed above represent substantially all of
Bard's ongoing products. The combined growth of ongoing products
was 8% in 1997.
Sales in the United States of ongoing products rose 8% in 1997 to
$652.6 million. Vascular and surgery products provided the best
growth in the U.S.
Sales outside the U.S. of ongoing products increased 7% to $260.9
million in 1997. Sales of vascular grafts (helped by the
acquisition of IMPRA in 1996), specialty access devices, mesh
products and basic urological drainage devices contributed to this
growth internationally.
Bard's cost of goods sold improved to 47.2% of sales compared with
48.7% in 1996. The company's efforts to reduce manufacturing costs
and the acquisition of IMPRA resulted in this improvement.
Marketing, selling and administrative expenses increased almost 7%
in 1997 primarily due to a full year of spending associated with
the IMPRA acquisition and the costs associated with programming
changes for the year 2000. These expenses grew faster than sales
and were at a level of 32.2% of sales in 1997 compared with 30.6%
in 1996.
Spending for research and development increased 11% in 1997 to 7.1%
of sales from 6.5% of sales in 1996. This increase in spending
reflected the continued high cost of competing in the cardiology
marketplace.
Additional interest expense for the full year 1997 related to
acquisitions in 1996 and resulted in the increase in total interest
expense for the year.
II-6
Results of Operations - 1997 vs. 1996 (continued)
Other (income) expense, net, in 1997 included charges of $44.1
million for a manufacturing restructuring plan and $10.5 million
associated with the impairment of investments and intangible
assets, and a legal settlement. These charges were partially
offset by gains of $17.8 million on the sale of the surgical
suction and irrigation product line and $6.7 million from sales of
other product lines and assets. In addition, costs of $9.0 million
in 1996 to combine the operations of acquisitions affected income
in that year.
The effective tax rate was 31.1% in 1997 and 9.9% in 1996. The
lower tax rate in 1996 was primarily due to the increased tax
benefit in the U.S. related to one-time charges and the reversal of
approximately $15 million in tax reserves no longer required. The
tax benefit from operations in Ireland and Puerto Rico favorably
affected the tax rate in each year.
Net income decreased to $72.3 million in 1997 from $92.5 million in
1996. Both years were affected by one-time items as discussed
earlier in this review
Year 2000 Functionality
Bard has a company-wide initiative to address Year 2000
functionality. A team of management and technical representatives
oversees the Year 2000 efforts. The company divides its Year 2000
initiative into two components, information technology (IT) and
non-information technology (Non-IT). The IT initiative includes
purchased and internally developed mainframe and desktop computer
systems and applications. The Non-IT initiative includes
suppliers, manufacturing and support systems and the company's
customers.
Internal and external resources are being used to identify needs,
make the required IT modifications and test Year 2000
functionality. The identification process of all critical IT
applications is complete. The company is currently on schedule to
complete the implementation of all modifications to these
applications by the third quarter of 1999. The company is
utilizing both internal and external resources to provide
independent system verification and validation of Year 2000
functionality. This process will continue through the end of 1999
and includes the development and implementation of contingency
plans to address unforeseen problems.
The company's Non-IT efforts include ensuring suppliers,
manufacturing and support systems and the company's larger
customers are Year 2000 functional. The company is communicating
with suppliers that provide critical products or services and
customers. The company is testing significant manufacturing and
II-7
Year 2000 Functionality (continued)
support systems. If as a result of the company's communications or
as a result of the company's testing of Non-IT systems there appear
to be potential Year 2000 functionality problems, additional
contingency plans under development should minimize these risks.
There can be no guaranty that the systems of other companies on
which the company's systems rely will be converted in a timely
manner, or that a failure to convert by another company, or a
conversion that is incompatible with the company's systems, would
not have a material adverse effect on the company. In addition,
there are many risks associated with the Year 2000 issue, including
but not limited to the possible failure of the company's computer
and information technology systems. Any failure by a supplier,
customer or other entity may have a material adverse financial or
operational effect on the company.
The company's marketing, selling and administrative expense
included $4.7 million for IT-related Year 2000 expenditures in 1998
and $2.8 million in 1997. Management believes that the company
will incur additional expenses of approximately $3.0 million in
1999. These incremental costs do not include existing internal
resources allocated to the project effort.
These costs and the date on which the company plans to complete the
Year 2000 modification and testing processes are based on
management's best estimates, which were derived utilizing numerous
assumptions of future events including the continued availability
of certain resources, third-party modification plans and other
factors. However, there can be no guaranty that these estimates
will be achieved and actual results could differ from those plans.
Financial Condition and Liquidity
Bard's financial condition substantially strengthened in 1998. The
company received proceeds of approximately $625 million from the
fourth quarter sale of its cardiology businesses. A portion of
these proceeds along with a second quarter intellectual property
settlement and ongoing operating cash flow were used to retire debt
and repurchase common stock. As a result, total debt was reduced
by $281.7 million to $162.0 million at the end of 1998 and the
ratio of total debt to total capitalization declined to 22.2% at
December 31, 1998 from 43.6% at December 31, 1997. Shareholders'
equity was reduced in 1998 with the repurchase of $264.1 million of
common stock.
The company has a $300 million syndicated, committed credit
facility with a group of 12 banks. The company made no borrowings
under this credit facility in 1998. The facility expires in June
2000. This facility supports a commercial paper program of $300
million. The company borrows actively under this program.
II-8
Financial Condition and Liquidity (continued)
In addition to the $300 million committed credit facility, Bard
maintains uncommitted credit lines with banks for short-term cash
needs and these lines were used as needed during the last three
years. At December 31, 1998 the unused uncommitted lines of credit
totaled $255 million.
The company expects cash flow from operating activities to exceed
capital expenditures and dividend payments. The company believes
it could borrow adequate funds at competitive terms and rates,
should it be necessary. The company believes this overall
financial strength gives Bard sufficient financing flexibility.
Total cash outlays made for purchases of businesses, patents,
trademarks and other related items were approximately $50 million
in 1998, $23 million in 1997, and $237 million in 1996. The
majority of these investments were for intangible assets,
reflecting the premium over book value for these purchases. The
majority of the cash outlays were financed with additional debt
with the balance coming from cash from operations.
Periodically, the company purchases its common stock in the open
market to replace shares issued under various employee stock plans.
In connection with the announced sale of the cardiology businesses,
the Board of Directors in July 1998 authorized the purchase from
time to time of up to 10 million shares of common stock. Total
shares purchases were 6,295,200 in 1998; 955,200 in 1997; and
813,700 in 1996.
Foreign Currency Risk
The company periodically enters into foreign exchange contracts and
options to reduce its exposure to fluctuations in currency values.
Contracts have been exclusively for the forward purchase of, and
options in, currencies in which the company has known or
anticipated payments. These are primarily for intercompany
transactions, resulting in a high degree of confidence that the
anticipated transactions will take place. Monetary assets of the
company held in foreign currencies have relatively short maturities
and are denominated in currencies that have not experienced wide
short-term fluctuations in their equivalent U.S. dollar values.
Please refer to Note 4 of the Notes to Consolidated Financial
Statements on page II-22 of this report for further information
about the company's foreign exchange contracts.
II-9
Foreign Currency Risk (continued)
The company continues to review and monitor the impact of a common
European currency on its business. Due to numerous uncertainties,
the company cannot at this time accurately estimate the effect one
common currency will have on pricing and the resulting impact, if
any, on the company's financial condition or results of operations.
Currently, management believes that this impact will not be
material.
Legal Proceedings
For a discussion of pending legal proceedings and related matters,
please see Note 5, Commitments and Contingencies, of the Notes to
Consolidated Financial Statements on page II-23.
Acquisitions and Dispositions
For information on the company's acquisitions and dispositions of
businesses, please see Note 2, Acquisitions and Dispositions, of
the Notes to Consolidated Financial Statements on page II-19.
Cautionary Statement Regarding Forward-Looking Information
Certain statements contained herein or in other company documents
and certain statements that may be made by management of the
company orally, including without limitation statements regarding
the use of net proceeds from the sale of the company's cardiology
businesses, statements regarding cost savings from restructuring,
and statements regarding the company's future performance, may
contain forward-looking statements as defined in the Private
Securities Litigation Reform Act of 1995. Because actual results
are affected by risks and uncertainties, the company cautions
investors that actual results may differ materially from those
expressed or implied. Factors which could cause the actual results
to differ materially from expected and historical results include,
but are not limited to: health care industry consolidation
resulting in customer demands for price concessions; competitors'
attempts to gain market share through aggressive marketing
programs; fewer medical procedures performed in a cost-conscious
environment; the unpredictability of the approval time by the FDA
or other government authorities to clear medical devices for
commercial release; unanticipated product failures; legislative or
administrative reforms to the U.S. Medicare and Medicaid systems or
other non-U.S. reimbursement systems in a manner that would
significantly reduce reimbursements for procedures using the
company's medical devices; the acquisition of key patents by
competitors that would have the effect of excluding the company
from new market segments; the uncertainty of whether increased
research and development expenditures will result in increased
sales; unpredictability of existing and future litigation including
without limitation litigation regarding product liability;
II-10
Cautionary Statement Regarding Forward-Looking Information
(continued)
uncertainty related to tax appeals and litigation; price increases
from the company's suppliers of critical components; foreign
currency fluctuations; unanticipated business disruptions from Year
2000 issues; the risk that the company may not achieve
manufacturing or administrative efficiencies as a result of the
company's restructuring and/or in the integration of acquired
businesses or divestitures.
II-11
Item 8. Financial Statements and Supplementary Data
Report of Independent Public Accountants
To the Shareholders and Board of
Directors of C. R. Bard, Inc.:
We have audited the accompanying consolidated balance sheets
of C. R. Bard, Inc. (a New Jersey corporation) and subsidiaries as
of December 31, 1998 and 1997 and the related consolidated
statements of income, shareholders' investment and cash flows for
each of the three years in the period ended December 31, 1998.
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 in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of
C. R. Bard, Inc. and subsidiaries as of December 31, 1998 and 1997,
and the results of their operations and their cash flows for each
of the three years in the period ended December 31, 1998 in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Roseland, New Jersey
January 26, 1999
II-12
C. R. BARD, INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED INCOME
For the Years Ended December 31,
(Thousands of dollars except per share amounts)
1998 1997 1996
Net sales $1,164,700 $1,213,500 $1,194,400
Costs and expenses:
Cost of goods sold 554,100 572,800 581,300
Marketing, selling
and administrative 379,200 390,500 365,800
Research and development 72,700 85,800 77,300
Interest expense 26,400 32,900 26,400
Gain from dispositions of
cardiology businesses (329,200) --- ---
Other(income)expense, net (2,900) 26,600 40,900
Total costs and expenses 700,300 1,108,600 1,091,700
Income before taxes 464,400 104,900 102,700
Income tax provision 212,100 32,600 10,200
Net income $ 252,300 $ 72,300 $ 92,500
Basic earnings per share $ 4.54 $ 1.27 $ 1.62
Diluted earnings per share $ 4.51 $ 1.26 $ 1.61
The accompanying notes to consolidated financial statements are an
integral part of these statements.
II-13
C. R. BARD, INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED SHAREHOLDERS'INVESTMENT
(Thousands of dollars except per share amounts)
Unamortized
Capital in Cumulative Expenses
Common Stock Excess of Retained Translation Under
Shares Amount Par Value Earnings Adjustments Stock Plan Total
Balance at December 31, 1995 57,100,598 $14,300 $63,300 $478,900 $ 12,400 $(4,300) $564,600
Net income 92,500 92,500
Currency translation
adjustments (4,400) (4,400)
Comprehensive income 88,100
Cash dividends ($.66 per share) (37,700) (37,700)
Treasury stock retired (813,700) (200) (27,000) (27,200)
Employee stock plans 699,085 200 14,200 (700) 13,700
Balance at December 31, 1996 56,985,983 14,300 77,500 506,700 8,000 (5,000) 601,500
Net income 72,300 72,300
Currency translation
adjustments (46,500) (46,500)
Comprehensive income 25,800
Cash dividends ($.70 per share) (40,000) (40,000)
Treasury stock retired (955,200) (300) (32,300) (32,600)
Employee stock plans 753,768 100 23,600 (5,300) 18,400
Balance at December 31, 1997 56,784,551 14,100 101,100 506,700 (38,500) (10,300) 573,100
Net income 252,300 252,300
Currency translation
adjustments 15,400 15,400
Comprehensive income 267,700
Cash dividends ($.74 per share) (41,500) (41,500)
Treasury stock acquired (6,295,200) (264,100) (264,100)
Employee stock plans 1,008,213 200 31,200 (1,200) 2,200 32,400
Balance at December 31, 1998 51,497,564 $14,300 $132,300 $452,200 $(23,100) $ (8,100) $567,600
The accompanying notes to consolidated financial statements are an integral part
of these statements.
II-14
C. R. BARD, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
(Thousands of dollars) 1998 1997
Assets
Current assets:
Cash $ 25,600 $ 8,000
Short-term investments 16,800 52,700
Accounts receivable, less reserve of
$9,300 and $14,000 217,800 240,600
Inventories 182,500 241,700
Other current assets 45,800 20,500
Total current assets 488,500 563,500
Property, plant and equipment, at cost
Land 11,000 11,000
Buildings and improvements 121,900 144,100
Machinery and equipment 156,700 186,800
289,600 341,900
Less - Accumulated depreciation and
amortization 116,900 135,500
Net property, plant and equipment 172,700 206,400
Intangible assets, net of amortization 358,900 424,400
Other assets 59,700 85,000
$1,079,800 $1,279,300
Liabilities and shareholders' investment
Current liabilities:
Short-term borrowings and current
maturities of long-term debt $ 2,000 $ 103,000
Accounts payable 67,400 60,400
Accrued compensation and benefits 41,800 37,900
Accrued expenses 145,600 90,900
Federal and foreign income taxes 46,000 18,400
Total current liabilities 302,800 310,600
Long-term debt 160,000 340,700
Other long-term liabilities 49,400 54,900
Commitments and contingencies --- ---
Shareholders' investment:
Preferred stock, $1 par value, authorized
5,000,000 shares; none issued --- ---
Common stock, $.25 par value, authorized
300,000,000 shares; issued
and outstanding 51,497,564 shares
in 1998, 56,784,551 shares in 1997 14,300 14,100
Capital in excess of par value 132,300 101,100
Retained earnings 452,200 506,700
Accumulated other comprehensive income (23,100) (38,500)
Unamortized expenses under stock plans (8,100) (10,300)
Total shareholders' investment 567,600 573,100
$1,079,800 $1,279,300
The accompanying notes to consolidated financial statements are an integral part
of these balance sheets.
II-15
C. R. BARD, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31,
(Thousands of dollars) 1998 1997 1996
Cash flows from operating activities:
Net income $252,300 $ 72,300 $ 92,500
Adjustments to reconcile net
income to net cash provided
from operating activities:
Depreciation and amortization 58,700 57,300 57,400
Net gain on sales of product lines,
net of tax (149,200) (22,700) ---
Deferred income taxes (26,300) (15,900) 7,300
Expenses under stock plans 3,600 2,800 2,200
Other noncash items 31,400 38,200 15,500
Changes in assets and
liabilities net of acquired
businesses:
Accounts receivable 9,200 (7,000) (21,500)
Inventories (12,200) (16,100) (9,800)
Other assets 17,500 (18,300) 6,000
Current liabilities, excluding
debt 27,200 4,700 (24,400)
Other long-term liabilities (4,000) 3,200 (2,700)
Net cash provided from operating
activities 208,200 98,500 122,500
Cash flows from investing activities:
Capital expenditures (43,800) (32,800) (41,600)
Net proceeds from sales of product
lines 449,300 29,700 ---
Payments made for purchases of
businesses (17,500) (7,200) (199,400)
Patents, trademarks and other (32,000) (15,300) (37,700)
Net cash used in investing
activities 356,000 (25,600) (278,700)
Cash flows from financing activities:
Common stock issued for options and
benefit plans 28,800 15,600 11,500
Purchase of common stock (264,100) (32,600) (27,200)
Proceeds from long-term
borrowings, net of issuance costs --- 5,600 159,600
Principal payments of long-term
borrowings (180,800) (1,000) (3,100)
Proceeds from(repayments of)
short-term borrowings, net (101,000) (44,900) 79,700
Dividends paid (41,500) (40,000) (37,700)
Net cash provided by (used in)
financing activities (558,600) (97,300) 182,800
Translation adjustment (800) (2,800) (400)
Cash and cash equivalents:
Increase(decrease) during the year 4,800 (27,200) 26,200
Balance at January 1, 36,400 63,600 37,400
Balance at December 31, $ 41,200 $ 36,400 $ 63,600
The accompanying notes to consolidated financial statements are an integral part
of these statements.
II-16
C. R. BARD, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
C. R. Bard, Inc. ("the company" or "Bard") is a leading
multinational developer, manufacturer and marketer of health care
products. The company markets its products worldwide to hospitals,
individual health care professionals, extended care facilities and
alternate site facilities. Bard holds strong positions in products
used for vascular, urological and oncological diagnosis and
intervention. Bard also has a surgical product group.
1. Significant Accounting Policies
Consolidation The consolidated financial statements include the
accounts of the company and its majority-owned subsidiaries. All
significant intercompany accounts and transactions are eliminated
in consolidation.
Earnings Per Share "Basic earnings per share" represents net income
divided by the weighted average shares outstanding. "Diluted
earnings per share" represents net income divided by weighted
average shares outstanding adjusted for the incremental dilution of
outstanding employee stock options and awards. Unless indicated
otherwise per share amounts are calculated on a diluted basis.
A reconciliation of weighted average common shares outstanding to
weighted average common shares outstanding assuming dilution
follows:
1998 1997 1996
Average common shares
outstanding 55,566,453 56,970,849 57,090,130
Incremental common shares
issuable: Stock option
and incentive plans 403,620 302,151 458,870
Average common shares
outstanding assuming dilution 55,970,073 57,273,000 57,549,000
Derivative Instruments In June 1998, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments and Hedging
Activities" ("FAS 133"). FAS 133 establishes accounting and
reporting standards requiring that every derivative instrument be
recorded in the balance sheet as either an asset or liability
measured at its fair value. FAS 133 requires that changes in the
derivative's fair value be recognized currently in earnings unless
specific hedge accounting criteria are met. FAS 133 is effective
for fiscal years beginning after June 15, 1999 with early adoption
permitted. The company does not expect that the adoption of FAS
133 will have a material impact on its financial statements.
II-17
C. R. BARD, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Significant Accounting Policies (continued)
Inventories Inventories are stated at the lower of cost or market.
Substantially all domestic inventories are accounted for using the
LIFO method of determining costs. All other inventories are
accounted for using the FIFO method. Inventories valued under the
LIFO method were $123,600,000 in 1998, $136,800,000 in 1997 and
$151,000,000 in 1996; under the FIFO method such inventories would
have been higher by $10,900,000, $14,500,000 and $15,800,000,
respectively. The following is a summary of inventories at
December 31:
(Thousands of dollars) 1998 1997
Finished goods $ 97,800 $144,000
Work in process 52,600 62,700
Raw materials 32,100 35,000
$182,500 $241,700
Depreciation Property, plant and equipment are depreciated on a
straight-line basis over the useful lives (ranging from 3-40 years)
of the various classes of assets.
Short-term Investments Short-term investments that have a maturity
of ninety days or less are considered cash equivalents and amounted
to $15,600,000 and $28,400,000 as of December 31, 1998 and 1997.
Short-term investments are stated at cost, which approximates their
market value.
Intangible Assets Goodwill is amortized using the straight-line
method over periods of 15-40 years as appropriate. Other
intangible assets are amortized over their useful lives. The
company periodically evaluates its intangibles to assess
recoverability from future operations using undiscounted cash
flows. Impairment would be recognized in operating results if a
permanent diminution in value occurred.
As of December 31, 1998 and 1997, intangible assets include the
following:
(Thousands of dollars) 1998 1997
Goodwill $ 355,900 $ 390,800
Other intangibles (primarily 167,100 168,200
patents)
Less accumulated amortization (164,100) (134,600)
Intangible assets, net $ 358,900 $ 424,400
II-18
C. R. BARD, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Significant Accounting Policies (continued)
Federal Income Taxes The company has not provided for federal
income taxes on the undistributed earnings of its foreign
operations as it is the company's intention to permanently reinvest
undistributed earnings (approximately $567,200,000 as of
December 31, 1998).
Concentrations of Credit Risk Financial instruments, which
potentially subject the company to significant concentrations of
credit risk, consist principally of cash investments, foreign
currency exchange contracts and trade accounts receivable.
The company maintains cash and cash equivalents, investments and
certain other financial instruments with various major financial
institutions. The company performs periodic evaluations of the
relative credit standing of these financial institutions and limits
the amount of credit exposure with any institution.
Concentrations of credit risk with respect to trade accounts
receivable are limited due to the large number of customers and
their dispersion across many geographic areas. However, a
significant amount of trade receivables are with national health
care systems in several countries. Although the company does not
currently foresee a credit risk associated with these receivables,
repayment is dependent upon the financial stability of those
countries' national economies.
Use of Estimates The financial statements and related disclosures
have been prepared in conformity with generally accepted accounting
principles and, accordingly, include amounts based on estimates and
judgments of management with consideration given to materiality.
Actual results could differ from those estimates.
Reclassifications Certain prior year amounts have been reclassified
to conform with the current year presentation.
2. Acquisitions and Dispositions
The second quarter of 1998 included a pre-tax loss on the sale of
several product lines (including the loss on the sale of the
Diagnostic Sciences Division) of $17,500,000 ($.18 per share).
During the third quarter of 1998, the company announced that, as a
step in a series of strategic initiatives being pursued to enhance
operating performance and shareholder value, it had agreed to sell
its global Coronary Cath Lab business to Arterial Vascular
Engineering, Inc. and its Intra-Aortic Balloon Products business to
II-19
C. R. BARD, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. Acquisitions and Dispositions (continued)
Arrow International, Inc. for in excess of $625,000,000. A portion
of the proceeds represents retained working capital, primarily
accounts receivable, which will be collected through normal
operations. The net proceeds of these dispositions are targeted
for the repurchase, from time-to-time, of up to 10,000,000 shares
of common stock, debt reduction and strategic investments and
acquisitions. These transactions were closed in the fourth quarter
of 1998 when the company reported a pretax gain on the disposition
of the Cardiology businesses of $329,200,000 ($3.03 per share). The
gain on the disposition of the cardiology business included, in
addition to the assets sold and normal transaction costs,
incremental costs of $4,800,000 for severance attributed to
terminated employees primarily involved in cardiology operations.
In addition, the remaining cardiology assets were written down to
net realizable value. The company also stated that it would
further consider strategic alternatives for its remaining coronary
vascular businesses and take additional steps necessary to improve
efficiencies in manufacturing and operations globally.
1997 included the sale of two product lines which resulted in a
pretax gain of $22,700,000 ($.23 per share).
In September 1996 Bard completed the acquisition of IMPRA,
Inc.("IMPRA"), a company that developed, manufactured and marketed
vascular grafts used for blood vessel replacement surgery. The
purchase and acquisition costs, which approximated $155,400,000,
were financed with commercial paper. This acquisition was
accounted for under the purchase method of accounting and,
accordingly, IMPRA's assets and liabilities were recorded at their
estimated fair market values and the excess purchase price of
$140,900,000 has been assigned to goodwill.
3. Income Tax Expense
Income tax expense consists of the following:
(Thousands of dollars) 1998 1997 1996
Currently payable:
Federal $205,200 $ 36,300 $ (6,300)
Foreign 10,700 6,600 7,500
State 22,500 5,600 1,700
238,400 48,500 2,900
Deferred:
Federal (29,800) (15,200) 7,600
Foreign 2,800 1,000 (300)
State 700 (1,700) ---
(26,300) (15,900) 7,300
$212,100 $ 32,600 $ 10,200
II-20
C. R. BARD, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. Income Tax Expense (continued)
Deferred income taxes are recognized for the tax consequences of
"temporary differences" by applying enacted statutory tax rates,
applicable to future years, to differences between the financial
reporting and the tax basis of assets and liabilities. At
December 31, 1998, the company's net deferred tax assets amounted
to approximately $50,100,000, which are recorded in other current
assets and other assets. This amount principally comprises the tax
effects of the differences between tax and financial accounting
treatment of employee benefits of $10,900,000, accrued expenses of
$12,500,000, disposition related and other temporary differences of
$33,800,000, offset by the effect of accelerated depreciation of
($7,100,000).
The following is a reconciliation between the effective tax rates
and the statutory rates excluding the impact of the gain from the
disposition of the cardiology businesses in 1998:
1998 1997 1996
U.S. federal statutory rate 35% 35% 35%
State income taxes net of
federal income tax benefits 3 3 3
Foreign operations taxed at
less than the U.S. statutory
rate, primarily Ireland and
Puerto Rico (8) (10) (13)
Reversal of tax reserve --- --- (15)
Other, net 5 3 ---
Effective tax rate 35% 31% 10%
The disposition of the cardiology businesses was taxed at an
effective rate of approximately 50% resulting from differences in
the applicable tax in the countries where the cardiology businesses
were conducted.
Cash payments for income taxes were $183,100,000, $29,400,000 and
$27,100,000 in 1998, 1997 and 1996, respectively.
During the third quarter of 1997, the company filed a protest at
the IRS appeals level related to tax years 1990-1992. Management
believes that the outcome of these matters will not have a material
impact on the company's consolidated financial position or results
of operations.
II-21
C. R. BARD, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. Short-Term Borrowings and Long-Term Debt
The company maintains uncommitted lines of credit, a commercial
paper program and a committed credit facility, which supports the
commercial paper program. The committed facility can also be used
for other corporate purposes. Total short-term borrowings
amounted to $900,000 and $101,900,000 at December 31, 1998 and
1997, respectively. The maximum amount of short-term borrowings
outstanding during 1998 was approximately $264,900,000 with an
average outstanding balance of $96,600,000 and an effective rate of
5.59%.
At December 31, 1998, the company had short-term uncommitted
borrowings of $100,000 and available unused lines under its
uncommitted lines of credit of $255,400,000. $800,000 in
commercial paper was outstanding at December 31, 1998.
Historically, borrowings of $120,000,000 were classified as long-term
debt since the company had both the ability and intent through
its committed credit facility to refinance this amount on a long-term basis.
With the October 1998 sale of the Cath Lab business,
the company paid off substantially all of its commercial paper.
The $300,000,000 committed line of credit is a facility with 12
banks through which the company can borrow at rates slightly above
LIBOR through June 2000. The company had no borrowings under the
committed lines of credit at December 31, 1998.
The following is a summary of long-term debt:
(Thousands of dollars) 1998 1997
6.70% notes due 2026 $149,900 $149,900
8.69% notes due 1999 --- 60,000
7.80% mortgage loan 5,800 5,600
Commercial paper and bank borrowings --- 120,000
Other 5,400 6,300
161,100 341,800
Less: amounts classified as current: 1,100 1,100
$160,000 $340,700
The 6.70% notes due 2026 may be redeemed at the option of the note
holder on December 1, 2006, at a redemption price equal to the
principal amount. In June 1998, the company elected to prepay the
$60,000,000 8.69% notes due in 1999. The charge of retiring the
notes early was recorded in other income and expense in the second
quarter.
Under four deposit loan agreements with a bank, $64,000,000 has
been borrowed at floating rates (5.86% at December 31, 1998) with
various maturity dates from December 1999 through June 2005. At
maturity, the loans are to be repaid through matured certificates
of deposit held by the company at the same bank. Since the
II-22
C. R. BARD, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. Short-Term Borrowings and Long-Term Debt (continued)
company has the right of offset under these agreements and it is
the company's intention to present these certificates of deposit
for repayment of these loans at their maturity, the borrowings have
been offset against these certificates of deposit in the
accompanying consolidated balance sheet at December 31, 1998. The
related interest income has been offset against the interest
expense.
At December 31, 1998, the aggregate maturities of long-term debt
were as follows: 1999 - $1,100,000; 2000 - $1,100,000; 2001 -
$1,100,000; 2002 - $1,100,000; 2003 - $1,100,000; 2004 and
thereafter - $155,600,000. The fair value of the company's long-term
debt is not significantly different from its recorded value.
Interest expense in 1998, 1997 and 1996 approximated the cash
outlay in each year.
Certain of the company's debt agreements contain restrictions that,
among other things, require the maintenance of minimum net worth
and operating cash flow levels, limit the amount of debt and
contain a material adverse change clause.
The company enters into foreign exchange forward contracts and
options to help reduce the exposure to fluctuations between certain
currencies. There were no forward contracts or options outstanding
at the end of 1998. During 1998 the company had option contracts
outstanding that were primarily related to anticipated normal
intercompany purchases and their related monthly cash flows. The
company recorded any gains and losses associated with these options
on the income statement as "other income and expense" and on the
balance sheet as "other current assets" or "accrued expenses".
Cash flows associated with the settlement of these options were
reflected as operating activities. At December 31, 1997, there were
options and contracts outstanding in the equivalent of $18,400,000.
5. Commitments and Contingencies
The company is subject to various legal proceedings and claims
involving product liability and disputes on agreements that arise
in the ordinary course of business. The company believes that
these legal matters will likely be disposed of over an extended
period of time and should not have a material adverse impact on the
company's consolidated financial position or results of operations.
The company is committed under noncancelable operating leases
involving certain facilities and equipment. The minimum annual
rentals under the terms of these leases are as follows: 1999 -
$16,000,000; 2000 - $13,100,000; 2001 - $10,800,000; 2002 -
$8,900,000; 2003 - $7,000,000; and thereafter - $7,100,000. Total
rental expense for all leases approximated $20,100,000 in 1998,
$21,000,000 in 1997 and $28,400,000 in 1996.
II-23
C. R. BARD, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. Stock Rights
In October 1995 the company's Board of Directors declared a
dividend distribution of one Common Share Purchase Right for each
outstanding share of Bard common stock. These Rights will expire
in October 2005 and trade with the company's common stock. Such
Rights are not presently exercisable and have no voting power. In
the event a person acquires 20% or more, or makes a tender or
exchange offer for 30% or more, of Bard's common stock, the Rights
detach from the common stock and become exercisable and entitle a
holder to buy one share of common stock at $120.00 (adjustable to
prevent dilution).
If, after the Rights become exercisable, Bard is acquired or
merged, each Right will entitle its holder to purchase $240 market
value of the surviving company's stock for $120, based upon the
current exercise price of the Rights. The company may redeem the
Rights, at its option, at $.05 per Right, prior to a public
announcement that any person has acquired beneficial ownership of
at least 20% of Bard's common stock. These Rights are designed
primarily to encourage anyone interested in acquiring Bard to
negotiate with the Board of Directors. There are 60 million shares
of common stock reserved for the Rights.
7. Shareholders' Investment
The company has stock option, stock award and restricted stock
plans under which certain directors, officers and employees are
participants. At December 31, 1998, approximately 908,000 shares
were reserved for issuance under all company plans.
Under the company's stock option plans, options have been granted
to certain directors, officers and employees at prices equal to the
market value of the shares at the date of grant, become exercisable
in four annual installments and expire not more than 10 years after
the date of grant. During 1998, the company awarded approximately
750,000 performance-based stock options at a price equal to the
market value of the shares at the date of grant. These
performance-based stock options become exercisable on their ninth
anniversary after date of grant or on an accelerated basis when the
company's stock price reaches certain market prices.
The following tables summarize information about stock option
activity and amounts:
II-24
C. R. BARD, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. Shareholders' Investment (continued)
Weighted Weighted
Number Average Average
Of Exercise Fair
Shares Price Value
Options outstanding,
December 31, 1995 3,691,939 $23.98
(2,038,844 exercisable)
Granted 703,940 $32.89 $ 9.61
Exercised (688,708) $20.47
Canceled (202,116) $26.91
Options outstanding,
December 31, 1996 3,505,055 $26.31
(1,905,876 exercisable)
Granted 1,024,948 $37.04 $11.75
Exercised (714,097) $22.80
Canceled (155,564) $29.70
Options outstanding,
December 31, 1997 3,660,342 $29.83
(1,769,062 exercisable)
Granted 754,762 $40.19 $12.05
Exercised (872,442) $27.46
Canceled (189,317) $34.36
Options outstanding,
December 31, 1998 3,353,345 $32.55
(1,905,996 exercisable)
Weighted Weighted Weighted
Range of Number Average Average Number Average
Exercise Outstanding Remaining Exercise Exercisable Exercise
Prices at 12/31/98 Life Price at 12/31/98 Price
$10 to 25 496,953 4.0 $20.80 493,870 $20.82
25 to 30 823,665 4.5 $27.99 730,271 $27.79
30 to 35 464,772 6.8 $32.84 258,273 $32.82
35 to 40 857,859 7.6 $37.11 364,286 $37.04
40 to 45 710,096 8.9 $40.36 59,296 $40.35
10 to 45 3,353,345 6.5 $32.55 1,905,996 $28.82
In accordance with Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" ("FAS
123"), the fair value of option grants is estimated on the date of
grant using the Black-Scholes option-pricing model for pro forma
footnote purposes.
In 1996 the dividend yield was assumed to be 2%, the risk-free
interest rate was 6.67%, the expected option life was 4.4 years and
the expected volatility was 29%. In 1997 the dividend yield was
assumed to be 2%, the risk-free interest rate was 6.2%, the
expected option life was 6 years and the expected volatility was
26%. In 1998 the dividend yield was assumed to be 2%, the risk-free
interest rate was 4.75%, the expected option life was 5.8
years and the expected volatility was 29%.
II-25
C. R. BARD, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. Shareholders' Investment (continued)
As permitted by FAS 123, the company has chosen to continue
accounting for stock options at their intrinsic value.
Accordingly, no compensation expense has been recognized for its
stock option plans. Had the fair value method of accounting been
applied to the company's stock option plans, the tax-effected
impact would be as follows:
(thousands of dollars except
per share amounts) 1998 1997 1996
Net income as reported $252,300 $72,300 $92,500
Estimated fair value of
option grants, net of tax (4,900) (3,200) (1,700)
Net income adjusted $247,400 $69,100 $90,800
Adjusted basic earnings per share $ 4.45 $ 1.21 $ 1.59
Adjusted diluted earnings per share $ 4.42 $ 1.21 $ 1.58
This pro forma impact takes into account options granted since
January 1, 1995 and increases as additional options are granted and
amortized ratably over the vesting period.
Under the company's stock award plans for key employees and
directors, shares are granted at no cost to the recipients and
distributed in three separate installments. During 1998, awards
for 22,554 shares (net of cancellations) were granted and 24,796
shares were issued. Awards are charged to income over the vesting
period. At December 31, 1998, 24,516 awarded shares (aggregate
market price at date of grant $949,533) have not been issued.
Under the company's restricted stock plan, which was established in
1993, common stock may be granted at no cost to certain officers
and key employees. Shares are issued to the participants at the
date of grant entitling the participants to cash dividends and the
right to vote their respective shares. Restrictions limit the sale
or transfer of these shares during a five-year period from the
grant date. During 1998, a total of 76,865 shares were granted,
net of forfeitures. In addition during 1997 the company awarded
130,000 performance-based restricted shares. These performance-based
restricted shares are vested five years after the company's
stock reaches certain market prices. These shares will be
forfeited if the targeted market prices are not met within certain
time periods. As of December 31, 1998, 65,000 shares continued to
be subject to stock price performance restrictions. Upon issuance
of both the restricted and performance-based stock, unearned
compensation ($8,100,000 at December 31, 1998) equivalent to the
market value of the stock at the date of grant is reflected in
shareholders' investment and subsequently amortized to expense over
the relevant restriction periods.
II-26
C. R. BARD, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. Postretirement Benefits
The company has defined benefit pension plans which cover
substantially all domestic and certain foreign employees and its
policy is to fund accrued pension expense for these plans up to the
full funding limitations. These plans provide for benefits based
upon individual participants' compensation and years of service.
The company has a defined contribution plan covering substantially
all domestic employees. In addition, the company has a
supplemental defined contribution plan for certain officers and key
employees. The amounts charged to income for these plans amounted
to $13,500,000 in 1998; $14,100,000 in 1997 and $13,800,000 in
1996.
The following tables set forth the information relative to the
company's defined benefit plans:
(thousands of dollars)
Change in Projected Benefit Obligation
as of September 30: 1998 1997
Projected benefit obligation as of
previous year $127,100 $ 95,700
Service cost 8,300 8,000
Interest cost 8,800 8,100
Curtailment (1,400) ---
Special termination benefits 3,900 1,600
Acquisitions (Divestitures) (10,300) 6,400
Actuarial (gain)/loss 10,200 15,100
Benefits paid (10,600) (7,900)
Other 1,100 100
Projected benefit obligation as of
current year $137,100 $127,100
Change in Plan Assets as of September 30: 1998 1997
Fair value as of previous year $123,200 $ 90,900
Actual return 4,800 25,700
Company contribution 21,000 9,100
Acquisitions (Divestitures) (10,800) 5,100
Benefits paid (10,600) (7,900)
Other 1,500 300
Fair value as of current year $129,100 $123,200
Funded Status as of December 31: 1998 1997
As of current year end $ (8,000) $ (3,900)
Unrecognized net (gain)/loss 9,100 (3,500)
Unrecognized prior service cost 3,500 5,100
Unrecognized net transition (asset)
obligation (700) (1,600)
Prepaid (accrued) pension obligation $ 3,900 $ (3,900)
II-27
C. R. BARD, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. Postretirement Benefits (continued)
Pension costs related to the defined benefit pension plans for the
years ended December 31, 1998, 1997 and 1996 are as follows:
(thousands of dollars) 1998 1997 1996
Service cost $ 8,300 $ 8,000 $ 7,000
Interest cost 8,800 8,100 7,000
Expected return on plan assets (9,000) (7,500) (6,600)
Other 800 800 0
Net Periodic Pension Cost $ 8,900 $ 9,400 $ 7,400
1998 1997
Weighted Average Assumptions:
Discount rate 6.48% 7.34%
Expected return on plan assets 8.94% 8.91%
Rate of compensation increase 4.22% 5.15%
The company does not provide postretirement health care benefits
and life insurance coverage except to a limited number of former
employees. The amounts charged to income for this plan were
approximately $720,000 in 1998 and $550,000 in 1997 and $600,000 in
1996. The accumulated postretirement benefit obligation included
in other liabilities amounted to $11,000,000 and $10,300,000 for
the years ended December 31, 1998 and December 31, 1997,
respectively.
Actuarial assumptions included a discount rate of 6.5% and an
ultimate health care cost trend rate of 5%. The effect of a 1%
annual increase in the assumed cost trend rate would increase the
accumulated postretirement benefit obligation at December 31, 1998,
by $390,000 and postretirement benefit cost by $25,000.
9. Other (Income) Expense, Net
As a result of the company's continuing extensive review of
operations, during the third quarter of 1997, management and the
Board of Directors authorized and committed the company to a
restructuring of its global manufacturing operations. Four
manufacturing facilities have been or are in the process of being
closed, three additional facilities are being downsized and several
European distribution centers are being consolidated. The products
manufactured at these locations are being redeployed to other
facilities including a new plant. These restructuring activities
are in process and will be completed during 1999. The
restructuring plan resulted in a charge of $44,100,000 exclusive of
certain period costs that are required to be expensed as incurred.
II-28
C. R. BARD, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. Other (Income) Expense, Net (continued)
In connection with the disposition of the cardiology businesses in
1998, certain changes were made to the company's restructuring
plan. As a result of the changes, a net additional charge of
$3,200,000 was recorded, primarily related to the carrying value of
certain facilities, the closing of an additional manufacturing
location and the sale of two facilities previously included in the
1997 restructuring. After reflecting the changes made in 1998, the
reserve balance relating to the 1997 restructuring plan amounts to
$16,100,000 at December 31, 1998.
Since the implementation of the 1997 restructuring plan, the
restructuring accruals have decreased by $31,200,000 due to cash
expenditures of approximately $10,200,000, primarily for severance
and related personnel benefits and noncash charges of approximately
$21,000,000 to reduce the carrying value of certain assets related
to manufacturing operations. The restructuring plan, when
completed, will impact approximately 1,000 positions worldwide.
Other income and expense for 1998 includes a net gain of
$48,600,000 from the settlement of patent infringement claims
netted by other legal and patent settlements. Also included is a
charge of $34,100,000 for the writedown of several businesses and
investments (including the loss on the sale of the Diagnostic
Sciences Division), a charge of $6,400,000 related to acquired R&D
and a charge of $10,100,000 related to other items including a
charge related to the retiring of $60 million of long-term debt.
The net after-tax effect of these items and the 1998 restructuring
charge discussed above amounted to an after-tax loss of $7,100,000
($.13 per share).
In addition to the manufacturing restructuring reserve noted above,
other income and expense for 1997 includes the gain on the sale of
several product lines of $24,500,000, a charge for the impairment
of certain investments and intangible assets of $8,500,000 and the
settlement of a legal claim of $2,000,000. The net after-tax
effect of these items amounted to a loss of $21,700,000 ($.38 per
share).
During 1996, the company recorded a charge for the impairment of
certain assets of $31,000,000; a charge of $10,000,000 related to
the reorganization of certain manufacturing operations; a charge of
$9,000,000 to combine operations related to acquisitions made
during the year; a charge of $3,500,000 for legal and patent
settlements, net and $9,200,000 in income related to royalty
II-29
C. R. BARD, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. Other (Income) Expense, Net (continued)
payments received on sales of products for prior periods. The net
after-tax effect of these items amounted to a loss of $26,100,000
($.45 per share).
Other (income) expense, net in the Statements of Consolidated
Income is summarized as follows:
(Thousands of dollars) 1998 1997 1996
Interest income $ (6,000) $ (3,500) $ (3,800)
Foreign exchange (gains) losses (2,100) --- 400
Legal and patent settlements, net (48,600) 2,000 3,500
Asset writedown 34,100 8,500 31,000
Restructuring 3,200 44,100 10,000
Gains from sale of product lines
and other --- (24,500) ---
Costs to combine operations --- --- 9,000
Acquired R&D 6,400 --- ---
Other, net 10,100 --- (9,200)
Total $ (2,900) $ 26,600 $ 40,900
II-30
C. R. BARD, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. Segment Information
The company's management considers its business to be a single
segment entity - the manufacture and sale of medical devices. The
company's products generally share similar distribution channels
and customers. The company designs, manufactures, packages,
distributes and sells medical, surgical, diagnostic and patient
care devices which, for the most part, are purchased by hospitals,
physicians and nursing homes; used once and discarded. Management
evaluates its various global product portfolios on a revenue basis,
which is presented below, and profitability is generally evaluated
on an enterprise-wide basis due to shared infrastructures.
(thousands of dollars) 1998 1997 1996
Sales:
Vascular $ 209,000 $ 198,000 $ 160,900
Urology 339,800 323,400 306,400
Oncology 213,100 199,100 191,700
Surgery 148,400 134,800 123,000
Other ongoing products 58,600 58,200 62,600
Total ongoing products $ 968,900 $ 913,500 $ 844,600
Divested products 195,800 300,000 349,800
Net sales $1,164,700 $1,213,500 $1,194,400
Income before taxes $ 464,400 $ 104,900 $ 102,700
Total Assets $1,079,800 $1,279,300 $1,332,500
Capital Expenditures $ 43,800 $ 32,800 $ 41,600
Depreciation and Amortization $ 58,700 $ 57,300 $ 57,400
The following table presents sales of onging products by geography
based on the location of the external customer.
1998 1997 1996
United States $ 687,900 $ 652,600 $ 601,700
Europe 182,700 171,300 158,200
Japan 50,300 42,900 35,200
Rest of World 48,000 46,700 49,500
Total $ 968,900 $ 913,500 $ 844,600
The following table presents identifiable assets by geography.
1998 1997 1996
United States $ 829,800 $ 899,400 $ 940,600
Europe 224,600 336,000 337,600
Japan 4,600 22,200 24,700
Rest of World 20,800 21,700 29,600
Total $1,079,800 $1,279,300 $1,332,500
II-31
QUARTERLY FINANCIAL DATA
C. R. BARD, INC. AND SUBSIDIARIES
1998
1st 2nd 3rd 4th Year
(Thousands of dollars
except per share amounts)
Net sales $296,300 $300,600 $298,500 $269,300 $ 1,164,700
Cost of goods sold 140,900 144,600 144,900 123,700 554,100
Income before taxes 36,300 62,200 34,100 331,800 464,400
Net income 24,900 40,200 23,500 163,700 252,300
Per share information:
Basic earnings per
share $ .44 $ .71 $ .42 $ 3.06 $ 4.54
Diluted earnings per
share $ .44 $ .71 $ .42 $ 3.03 $ 4.51
Note: The second quarter included a net gain of $61,800 ($0.65 per share) for
legal and patent settlements, a charge of $24,100 ($0.25 per share) primarily
for discontinued operations and a charge of $6,500 ($0.07 per share) for other
nonrecurring charges including the cost of retiring $60,000 of long-term debt.
The fourth quarter included a gain of $329,200 ($3.03 per share) for the net
gain on cardiology dispositions and a net charge of $13,200 ($0.15 per share),
$10,000 ($0.12 per share), $6,400 ($0.10 per share) and $6,800 ($0.11 per
share) related to legal settlements, discontinued businesses, acquired
research and develoopment and other nonrecurring charges, respectively.
(Figures in this note are pretax except per share amounts. Per share amounts
are on a diluted basis).
1997
1st 2nd 3rd 4th Year
(Thousands of dollars
except per share amounts)
Net sales $300,700 $304,000 $297,500 $311,300 $1,213,500
Cost of goods sold 143,200 143,700 139,300 146,600 572,800
Income before taxes 37,900 37,700 (5,000) 34,300 104,900
Net income 26,100 26,200 (3,800) 23,800 72,300
Per share information:
Basic earnings per
share $ .46 $ .46 $ (.07) $ .42 $ 1.27
Diluted earnings per
share $ .45 $ .45 $ (.07) $ .42 $ 1.26
Note: The first quarter included a gain of $4,900 ($0.05 per share) for the
sale of a product line. The second quarter included a gain of $1,800 ($0.02
per share) for the sale of an investment. The third quarter included a
$44,100 charge ($0.52 per share) for manufacturing restructuring. In
addition, the third quarter included a charge primarily for the impairment of
certain investments and intangible assets and the settlement of a legal claim
as well as a gain from the sale of the surgical suction product line totaling
$6,500 ($0.07 per share). The fourth quarter included a charge of $2,100
($0.02 per share) for miscellaneous items including the settlement of a legal
claim. (Figures in this note are pretax except per share amounts. Per share
amounts are on a diluted basis.)
II-32
C. R. BARD, INC. AND SUBSIDIARIES
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
Not applicable.
II-33
C. R. BARD, INC. AND SUBSIDIARIES
PART III
Item 10. Directors and Executive Officers of the Registrant
Directors of the Registrant
Information with respect to Directors of the company is
incorporated herein by reference to the material contained under
the heading "Proposal No. 1 - Election of Directors" appearing on
pages 1 through 4 of the company's definitive Proxy Statement dated
March 12, 1999.
Executive Officers of the Registrant
Information with respect to Executive Officers of the Registrant
are on pages I-8 through I-11 of this filing.
Item 11. Executive Compensation
The information contained under the caption "Executive
Compensation" appearing on Pages 11 through 20 of the company's
definitive Proxy Statement dated March 12, 1999 is incorporated
herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and
Management
The information contained under the captions "Securities Ownership
of Certain Beneficial Owners" and "Securities Ownership of
Management" on pages 5 and 6 of the company's definitive Proxy
Statement dated March 12, 1999 is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
The information contained under the caption "Related Transactions"
on page 17 of the company's definitive Proxy Statement dated March
12, 1999 is incorporated herein by reference.
III-1
C. R. BARD, INC. AND SUBSIDIARIES
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K
(a) l. Financial Statements and Supplementary Data
Included in Part II Item 8 of this report:
Page
II-12 Report of Independent Public Accountants.
II-13 Statements of Consolidated Income.
II-14 Statements of Consolidated Shareholders' Investment
II-15 Consolidated Balance Sheets at December 31, 1998 and
1997.
II-16 Consolidated Statements of Cash Flows for the three
years ended December 31, 1998.
II-17 Notes to Consolidated Financial Statements.
II-32 Quarterly Financial Data.
2. Financial Statement Schedules
Schedules are omitted because they are not applicable, are
not required or the information required is included in the
financial statements or notes thereto.
3. Exhibits, No.
3a Registrant's Restated Certificate of Incorporation, as
amended, as of April 17, 1996, filed as Exhibit 3 to
the company's September 30, 1996 Form 10-Q is
incorporated herein by reference.
3b Registrant's Bylaws revised as of February 10, 1999.
(p. IV-8)
4a Rights Agreement dated as of October 11, 1995 between
C. R. Bard, Inc. and First Chicago Trust Company of
New York as Rights Agent, filed as Exhibit 1
to the company's Registration Statement on Form 8-A
filed with the Securities and Exchange Commission on
October 12, 1995 is incorporated herein by reference.
4b Indenture, dated as of December 1, 1996 between
C. R. Bard, Inc. and The Chase Manhattan Bank, as
trustee, filed as Exhibit 4.1 to the company's
Registration Statement on Form S-3, File No. 333-05997
is incorporated herein by reference.
IV-1
C. R. BARD, INC. AND SUBSIDIARIES
3. Exhibits, No. (Continued)
10* William H. Longfield Change of Control Agreement as
amended dated as of July 13, 1994, filed as Exhibit
10b to the company's 1994 Annual Report on Form 10-K
is incorporated herein by reference.
10a* Hope Greenfield Change of Control Agreement dated as
of March 6, 1996, filed as Exhibit 10d to the
company's 1995 Annual Report on Form 10-K is
incorporated herein by reference.
10b* E. Robert Ernest Change of Control Agreement as
amended dated as of July 19, 1994, filed as Exhibit
10f to the company's 1994 Annual Report on Form 10-K
is incorporated herein by reference.
10c* William H. Longfield Supplemental Executive Retirement
Agreement dated as of January 12, 1994, filed as
Exhibit 10g to the company's 1993 Annual Report on
Form 10-K is incorporated herein by reference.
10d* 1990 Stock Option Plan, filed as Exhibit 10h to the
company's 1993 Annual Report on Form 10-K is
incorporated herein by reference.
10e* 1989 Employee Stock Appreciation Rights Plan, filed as
Exhibit 10i to the company's 1993 Annual Report on
Form 10-K is incorporated herein by reference.
10f* C. R. Bard, Inc. Agreement and Plans Trust, filed as
Exhibit 10j to the company's 1993 Annual Report on
Form 10-K is incorporated herein by reference.
10g* Supplemental Insurance/Retirement Plan, Plan I - For
new corporate officer when previous agreement as non-officer
exists, Plan II - For new corporate officer
when no previous agreement exists, filed as Exhibit
10k to the company's 1993 Annual Report on Form 10-K
is incorporated herein by reference.
10h* Stock Equivalent Plan For Outside Directors of C. R.
Bard, Inc. dated as of January 1, 1997. (p. IV-70)
10i* Deferred Compensation Contract Deferral of Directors'
Fees, as amended entered into with directors William
T. Butler, M.D., Regina E. Herzlinger, and Robert P.
Luciano, filed as Exhibit 10m to the company's 1993
Annual Report on Form 10-K is incorporated herein by
reference.
IV-2
C. R. BARD, INC. AND SUBSIDIARIES
3. Exhibits, No. (Continued)
10j* 1988 Directors Stock Award Plan, as amended in April
1998, filed as Exhibit 10ae to the company's 1998
Quarterly Report on Form 10-Q for the quarter ended
March 31, 1998, File No. 1-6926 is incorporated herein
by reference.
10k* Excess Benefit Plan, filed as Exhibit 10o to the
company's 1993 Annual Report on Form 10-K is
incorporated herein by reference.
10l* Supplemental Executive Retirement Plan, filed as
Exhibit 10p to the company's 1993 Annual Report on
Form 10-K is incorporated herein by reference.
10m* 1994 Executive Bonus Plan, filed as Exhibit 10 to the
company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1994, File No. 1-6926 is
incorporated herein by reference.
10n* Long Term Performance Incentive Plan, filed as Exhibit
10r to the company's 1993 Annual Report on Form 10-K
is incorporated herein by reference.
10o* Deferred Compensation Contract Deferral of
Discretionary Bonus, filed as Exhibit 10s to the
company's 1993 Annual Report on Form 10-K is
incorporated herein by reference.
10p* Deferred Compensation Contract Deferral of Salary,
filed as Exhibit 10t to the company's 1993 Annual
Report on Form 10-K is incorporated herein by
reference.
10q* 1993 Long Term Incentive Plan, as amended, filed as
Exhibit 10ad to the company's 1998 Quarterly Report on
Form 10-Q for the quarter ended March 31, 1998, File
No. 1-6926 is incorporated herein by reference.
10r* Earle L. Parker Change of Control Agreement dated
as of June 29, 1994 filed as Exhibit 10v to the
company's 1994 Annual Report on Form 10-K is
incorporated herein by reference.
10s* John H. Weiland Change of Control Agreement dated
as of March 11, 1996 filed as Exhibit 10w to the
company's 1995 Annual Report on Form 10-K is
incorporated herein by reference.
IV-3
C. R. BARD, INC. AND SUBSIDIARIES
3. Exhibits, No. (Continued)
10t* Timothy M. Ring Change of Control Agreement dated as
of March 12, 1996 filed as Exhibit 10y to the
company's 1995 Annual Report on Form 10-K is
incorporated herein by reference.
10u* Guy J. Jordan Change of Control Agreement dated as
of October 10, 1996 filed as Exhibit 10z to the
company's 1996 Annual Report on Form 10-K is
incorporated herein by reference.
10v* Charles P. Grom Change of Control Agreement dated as
of December 11, 1996, filed as Exhibit 10aa to the
company's 1996 Annual Report on Form 10-K is
incorporated herein by reference.
10w* Richard D. Manthei Change of Control Agreement dated
as of February 11, 1998 filed as Exhibit 10ab to the
company's 1997 Annual Report on Form 10-K is
incorporated herein by reference.
10x* Nadia C. Adler Change of Control Agreement dated as
of February 8, 1999. (p. IV-20)
10y* Charles P. Slacik Change of Control Agreement dated
as of January 6, 1999. (p. IV-34)
10z* C. R. Bard, Inc. Management Stock Purchase Plan
dated as of January 1, 1998. (p. IV-48)
10aa*C. R. Bard, Inc. 1998 Employee Stock Purchase Plan
dated as of April 15, 1998. (p. IV-60)
10ab Stock and Asset Purchase Agreement dated as of July, 9
1998 between C. R. Bard, Inc. and Arterial Vascular
Engineering, Inc. filed as Exhibit 2(a) on the company's
current report on Form 8-K dated October 16, 1998.
12.1 Computation in Support of Ratio of Earnings to Fixed
Charges. (p. IV-66)
21 Subsidiaries of registrant. (p. IV-67).
23 Arthur Andersen LLP consent to the incorporation by
reference of their report on Form 10-K into
previously filed Forms S-8 and S-3. (p. IV-69)
27 Financial data schedule
IV-4
C. R. BARD, INC. AND SUBSIDIARIES
3. Exhibits, No. (Continued)
99 Indemnity agreement between the company and each of
its directors and officers, filed as Exhibit 99 to
the company's 1993 Annual Report on Form 10-K is
incorporated herein by reference.
* Each of these exhibits listed under the number 10 constitutes
a management contract or a compensatory plan or arrangement.
All other exhibits are not applicable.
(b) Reports on Form 8-K
(b) The Registrant filed a current report on Form 8-K dated
October 16, 1998 announcing the completion of the sale of
the company's Coronary Catheter Lab business to Arterial
Vascular Engineering, Inc. and certain financial and pro
forma information.
IV-5
C. R. BARD, INC. AND SUBSIDIARIES
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.
C. R. BARD, INC.
(Registrant)
By: Charles P. Slacik /s/
Charles P. Slacik
Senior Vice President and
Chief Financial Officer
Date: March 30, 1999
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 dates
indicated.
Signatures Title Date
William H. Longfield /s/ Chairman and March 30, 1999
William H. Longfield Chief Executive Officer
and Director
(Principal Executive
Officer)
Charles P. Slacik /s/ Senior Vice President March 30, 1999
Charles P. Slacik and Chief Financial
Officer
(Principal Financial
Officer)
Charles P. Grom /s/ Vice President and March 30, 1999
Charles P. Grom Controller
(Principal Accounting
Officer)
IV-6
Signatures Title Date
Joseph F. Abely, Jr. /s/ Director March 26, 1999
Joseph F. Abely, Jr.
Marc C. Breslawsky /s/ Director March 23, 1999
Marc C. Breslawsky
William T. Butler, M.D. /s/ Director March 23, 1999
William T. Butler, M.D.
Daniel A. Cronin, Jr. /s/ Director March 23, 1999
Daniel A. Cronin, Jr.
T. Kevin Dunnigan /s/ Director March 26, 1999
T. Kevin Dunnigan
Regina E. Herzlinger /s/ Director March 29, 1999
Regina E. Herzlinger
Robert P. Luciano /s/ Director March 23, 1999
Robert P. Luciano
Anthony Welters /s/ Director March 23, 1999
Anthony Welters
Tony L. White /s/ Director March 23, 1999
Tony L. White
IV-7