|
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended September 30, 1999
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) |
(IRS 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
__________________________________________________________________________
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 the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
Class Common Stock - $.25 par value |
Outstanding at October 31, 1999 51,189,473 |
C. R. BARD, INC. AND SUBSIDIARIES
INDEX
PART I - FINANCIAL INFORMATION |
PAGE NUMBER |
Condensed Consolidated Balance Sheets - September 30, 1999 and December 31, 1998 |
1 |
Condensed Consolidated Statements of Income For The Quarter and Nine Months Ended September 30, 1999 and 1998 |
2 |
Condensed Consolidated Statements of Shareholders' Investment For The Nine Months Ended September 30, 1999 and 1998 |
3 |
Condensed Consolidated Statements of Cash Flows For The Nine Months Ended September 30, 1999 and 1998 |
4 |
Notes to Condensed Consolidated Financial Statements |
5 |
Management's Discussion and Analysis of Financial Condition and Results of Operations |
8 |
PART II - OTHER INFORMATION |
11 |
C. R. BARD, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(thousands of dollars)
|
September 30, |
December 31, |
|
1999 |
1998 |
|
(Unaudited) |
|
ASSETS |
|
|
Current Assets: |
|
|
Cash and short-term investments |
$ 59,500 |
$ 42,400 |
Accounts receivable, net |
203,600 |
217,800 |
Inventories |
209,400 |
182,500 |
Other current assets |
37,300 |
45,800 |
Total current assets |
509,800 |
488,500 |
Property, plant and equipment, net |
171,600 |
172,700 |
Intangible assets, net of amortization |
349,000 |
358,900 |
Other assets |
86,600 |
59,700 |
|
$ 1,117,000 |
$ 1,079,800 |
LIABILITIES AND SHAREHOLDERS' INVESTMENT |
|
|
Current Liabilities: |
|
|
Short-term borrowings and current maturities of long-term debt |
$ 97,000 |
$ 2,000 |
Accounts payable |
47,400 |
67,400 |
Accrued expenses |
172,700 |
187,400 |
Federal and foreign income taxes |
27,100 |
46,000 |
Total current liabilities |
344,200 |
302,800 |
Long-term debt |
158,800 |
160,000 |
Other long-term liabilities |
38,100 |
49,400 |
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 51,109,454 shares in 1999 and 51,497,564 shares in 1998 |
14,600 |
14,300 |
Capital in excess of par value |
153,400 |
132,300 |
Retained earnings |
465,500 |
452,200 |
Accumulated other comprehensive income |
(39,500) |
(23,100) |
Unamortized expenses under stock plans |
(18,100 ) |
(8,100 ) |
Total shareholders' investment |
575,900 |
567,600 |
|
$ 1,117,000 |
$ 1,079,800 |
The accompanying notes to condensed consolidated financial statements are an integral part of these statements.
- 1 -
C. R. BARD, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(thousands of dollars except per share amounts)
(Unaudited)
|
For Quarter Ended |
For Nine Months Ended |
||
|
September 30, |
September 30, |
||
|
1999 |
1998 |
1999 |
1998 |
Net sales |
$ 259,500 |
$ 298,500 |
$ 765,800 |
$ 895,400 |
Costs and expenses: |
|
|
|
|
Cost of goods sold |
116,200 |
144,900 |
340,100 |
430,400 |
Marketing, selling and administrative |
82,600 |
94,100 |
246,000 |
286,800 |
Research and development |
12,100 |
18,900 |
40,400 |
58,900 |
Interest expense |
5,100 |
7,600 |
14,100 |
22,900 |
Other (income) expense, net |
(400 ) |
(1,100 ) |
--- |
(36,200 ) |
Total costs and expenses |
215,600 |
264,400 |
640,600 |
762,800 |
Income before taxes |
43,900 |
34,100 |
125,200 |
132,600 |
Income tax provision |
13,800 |
10,600 |
40,300 |
44,000 |
Net income |
$ 30,100 |
$ 23,500 |
$ 84,900 |
$ 88,600 |
Basic earnings per share |
$ .59 |
$ .42 |
$ 1.66 |
$ 1.57 |
Diluted earnings per share |
$ .58 |
$ .42 |
$ 1.64 |
$ 1.56 |
Cash dividends per share |
$ .20 |
$ .19 |
$ .58 |
$ .55 |
Average common shares outstanding - basic |
51,152 |
55,936 |
51,219 |
56,498 |
Average common shares outstanding - diluted |
51,671 |
56,358 |
51,807 |
56,838 |
The accompanying notes to condensed consolidated financial statements are an integral part of these statements.
- 2 -
C. R. BARD, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' INVESTMENT
(thousands of dollars except per share amounts)
(Unaudited)
Nine Months Ended September 30, 1999
Shares |
Amount |
Capital in Excess of Par |
Retained Earnings |
Cumulative Translation Adjustment |
Unamortized Expenses Under Stock Plan |
Total |
|
Balance at December 31, 1998 |
51,497,564 |
$ 14,300 |
$ 132,300 |
$ 452,200 |
$ (23,100) |
$ (8,100) |
$ 567,600 |
Net income |
|
|
|
84,900 |
|
|
84,900 |
Currency translation adjustments |
|
|
|
|
(16,400) |
|
(16,400) |
Comprehensive income |
|
|
|
|
|
|
68,500 |
Cash dividends ($.58 per share) |
|
|
|
(29,800) |
|
|
(29,800) |
Treasury stock acquired |
(1,154,800) |
|
|
(59,400) |
|
|
(59,400) |
Employee stock plans |
766,690 |
300 |
21,100 |
17,600 |
|
(10,000 ) |
29,000 |
Balance at September 30, 1999 |
51,109,454 |
$ 14,600 |
$ 153,400 |
$ 465,500 |
$ (39,500 ) |
$ (18,100 ) |
$ 575,900 |
Nine Months Ended September 30, 1998
Shares |
Amount |
Capital in Excess of Par |
Retained Earnings |
Cumulative Translation Adjustment |
Unamortized Expenses Under Stock Plan |
Total |
|
Balance at December 31, 1997 |
56,784,551 |
$ 14,100 |
$ 101,100 |
$ 506,700 |
$ (38,500) |
$ (10,300) |
$ 573,100 |
Net income |
|
|
|
88,600 |
|
|
88,600 |
Currency translation adjustments |
(5,000) |
(5,000) |
|||||
Comprehensive income |
|
|
|
|
|
|
83,600 |
Cash dividends ($.55 per share) |
|
|
|
(31,200) |
|
|
(31,200) |
Treasury stock acquired |
(2,100,000) |
|
|
(80,000) |
|
|
(80,000) |
Employee stock plans |
384,000 |
200 |
10,900 |
300 |
|
(1,000 ) |
10,400 |
Balance at September 30, 1998 |
55,068,551 |
$ 14,300 |
$ 112,000 |
$ 484,400 |
$ (43,500 ) |
$ (11,300 ) |
$ 555,900 |
The accompanying notes to condensed consolidated financial statements are an integral part of these statements.
- 3 -
C. R. BARD, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(thousands of dollars)
(Unaudited)
|
For the Nine Months Ended September 30, |
|
|
1999 |
1998 |
Cash flows from operating activities: |
|
|
Net income |
$ 84,900 |
$ 88,600 |
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
Depreciation and amortization |
36,500 |
43,300 |
Other noncash items |
4,000 |
23,400 |
Changes in assets and liabilities: |
|
|
Current assets |
(22,600) |
(18,800) |
Current liabilities |
(44,200) |
19,500 |
Other |
(2,400 ) |
11,900 |
|
56,200 |
167,900 |
Cash flows from investing activities: |
|
|
Capital expenditures |
(20,800) |
( 33,900) |
Other long-term investments, net |
(42,900 ) |
(17,600 ) |
|
(63,700 ) |
(51,500 ) |
Cash flows from financing activities: |
|
|
Purchase of common stock |
(59,400) |
(80,000) |
Dividends paid |
(29,800) |
(31,200) |
Short-term borrowings and other |
113,800 |
109,300 |
Long-term borrowings |
(800 ) |
(118,700 ) |
|
23,800 |
(120,600 ) |
Net increase(decrease) in cash and cash equivalents |
16,300 |
(4,200) |
Cash and cash equivalents at January 1, |
41,200 |
36,400 |
Cash and cash equivalents at September 30, |
$ 57,500 |
$ 32,200 |
The accompanying notes to condensed consolidated financial statements are an integral part of these statements
.- 4 -
C. R. BARD, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The financial statements contained in this filing have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission and have not been audited. However, C. R. Bard, Inc. ("Bard" or the "company") believes that it has included all adjustments to the interim financial statements, consisting only of normal recurring adjustments, which are necessary to present fairly Bard's financial condition and results of operations at the dates and for the periods presented. The results of operations for the interim periods are not necessarily indicative of results of operations for a full year. These financial statements should be read in conjunction with the Consolidated Financial Statements and Notes to Consolidated Financial Statements as filed by the company in the 1998 Annual Report on Form 10-K.
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.
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. In June of 1999, the Financial Accounting Standards Board deferred the effective date of FAS 133 to all fiscal quarters for all fiscal years beginning after June 15, 1999. The company does not expect that the adoption of FAS 133 will have a material impact on its financial statements.
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.
- 5 -
C. R. BARD, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
Short Term Borrowings and Long-Term Debt
The company has a shelf registration with the Securities and Exchange Commission for the issuance of up to $200,000,000 of long-term debt. As part of that registration, in December 1996, the company issued $150,000,000 of long-term notes due 2026. These notes may be redeemed at the option of the note holders on December 1, 2006, at a redemption price equal to the principal amount.
Income Taxes
The company's other current assets contain certain deferred tax assets of approximately $34,000,000 at December 31, 1998 and $22,700,000 at September 30, 1999.
Acquisitions
In August, the company entered into an exclusive agreement with Endologix, Inc., a California-based company that has developed an endoluminal graft (ELG) used for the minimally invasive treatment of abdominal aortic aneurysms. The agreement gives Bard exclusive distribution rights to Endologix ELG in Europe and Australia and an exclusive and irrevocable option to acquire all of the capital stock of Endologix, Inc. before the end of the Year 2000 at a preset price.
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. Management generally evaluates profitability and associated investment on an enterprise-wide basis due to shared infrastructures.
(thousands of dollars) |
Quarter Ended September 30, |
Nine Months Ended September 30, |
||||
|
1999 |
1998 |
% Chg |
1999 |
1998 |
% Chg |
Vascular |
$ 56,800 |
$ 51,700 |
10 |
$166,800 |
$152,200 |
10 |
Urology |
87,800 |
85,100 |
3 |
260,600 |
249,700 |
4 |
Oncology |
60,700 |
53,500 |
13 |
175,400 |
157,300 |
12 |
Surgery |
40,800 |
36,700 |
11 |
122,000 |
108,700 |
12 |
Other ongoing products |
13,400 |
13,900 |
(4) |
41,000 |
43,600 |
(6) |
Total ongoing products |
259,500 |
240,900 |
8 |
765,800 |
711,500 |
8 |
Divested products |
--- |
57,600 |
--- |
--- |
183,900 |
-- |
Net sales |
$259,500 |
$298,500 |
(13) |
$765,800 |
$895,400 |
(14) |
- 6 -
C. R. BARD, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
Segment Information
(continued)
(thousands of dollars) |
Quarter Ended September 30, |
Nine Months Ended September 30, |
||
1999 |
1998 |
1999 |
1998 |
|
Income before taxes |
$ 43,900 |
$ 34,100 |
$ 125,200 |
$ 132,600 |
Total assets |
$ 1,117,000 |
$ 1,257,700 |
$ 1,117,000 |
$ 1,257,700 |
Capital expenditures |
$ 8,200 |
$ 12,200 |
$ 20,800 |
$ 33,900 |
Depreciation and amortization |
$ 12,500 |
$ 13,600 |
$ 36,500 |
$ 43,300 |
The following table presents sales of ongoing products based on the geographic location of the third-party customer.
(thousands of dollars) |
Quarter Ended September 30, |
Nine Months Ended September 30, |
||
|
1999 |
1998 |
1999 |
1998 |
United States |
$184,600 |
$172,000 |
$544,500 |
$505,600 |
Europe |
47,000 |
44,100 |
142,900 |
131,500 |
Japan |
12,900 |
12,200 |
36,800 |
37,600 |
Rest of world |
15,000 |
12,600 |
41,600 |
36,800 |
Total |
$259,500 |
$240,900 |
$765,800 |
$711,500 |
- 7 -
C. R. BARD, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This discussion does not include net sales of divested products for the three and nine month periods ended September 30, 1998. Consolidated net sales for the third quarter of 1999 of $259,500,000 increased 8 percent from the third quarter of 1998 net sales of ongoing products of $240,900,000. Net sales in the U.S. for the third quarter of 1999 were $184,600,000, an increase of 7 percent from net sales of ongoing products for the third quarter of 1998, while international net sales for the third quarter of 1999 were $74,900,000, up 9 percent against net sales of ongoing products for the third quarter of 1998. The impact of currency translation in the third quarter of 1999 was not material. For the first nine months of 1999, U.S. sales totaled $544,500,000 up 8 percent as compared to the same period in 1998, while international sales increased 7 percent to $221,300,000 as compared to the same period in 1998. Currency translation for the first nine months of 1999 did not have a material impact on international sales.
Vascular sales for the quarter and year-to-date periods ended September 30, 1999 increased 10 percent as compared to the same periods in 1998, due to electrophysiology and peripheral technology product growth. Urological sales for the quarter and year-to-date periods increased by 3 and 4 percent, respectively, as compared to the same periods in 1998, due to infection control catheters and brachytherapy growth. Oncology sales for the quarter and year-to-date periods increased 13 percent and 12 percent, respectively, as compared to the same periods in 1998 due to specialty access products. Surgical sales for the quarter and year-to-date periods increased by 11 percent and 12 percent, respectively, as compared to the same periods in 1998, due to soft tissue repair products.
The company's gross profit margin for the quarter and year-to-date periods ended September 30, 1999 of 55.2 percent and 55.6 percent, respectively, improved from the gross profit margins for the quarter and year-to-date periods ended September 30, 1998 of 51.5 percent and 51.9 percent, respectively. These improvements were primarily the result of the company's divestiture of several cardiology businesses and improvements resulting from steps to reduce global manufacturing costs.
Other income and expense for the third quarter of 1999 is composed primarily of interest income and foreign exchange.
Other income and expense for the second quarter of 1998 was affected by several nonrecurring, one-time items. These include the gain from an intellectual property settlement of $80,000,000 (net of a third-party royalty payment); the writedown of several businesses of $24,100,000 (including Bard's Diagnostic Sciences Division in anticipation of its sale to Polymedco, Inc., which was completed on July 7, 1998); $18,200,000 related to legal settlements; and $6,500,000 related to other items. The net after-tax favorable impact of these items was $18,700,000 or 33 cents per share on a diluted basis.
During the first nine months of 1999, the company acquired 1,154,800 of its common shares. During the first nine months of 1998, the company acquired 2,100,000 of its common shares.
Restructuring Charges
In connection with the company's restructuring plans, restructuring accruals during the nine-month period ended September 30, 1999 have decreased by approximately $6,200,000 compared to the year ended December 31, 1998, primarily for cash expenditures related to employees severed and other facility exit costs. Facility closing plans proceeded as planned with no additional facilities closed during the third quarter of 1999.
- 8 -
C. R. BARD, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
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 effort. 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 for Year 2000 functionality. The identification process of all critical IT applications is complete. The company has also substantially completed the implementation of all modifications to these applications. 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 addressing Year 2000 functionality of suppliers, manufacturing and support systems and the company's larger customers. The company is communicating with suppliers that provide critical products or services and customers. The company is testing significant manufacturing and 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 any potential Year 2000 functionality problems, additional contingency plans under development should address these risks.
There can be no guaranty that the systems of other businesses on which the company's systems rely will be converted in a timely manner, or that a failure to convert by another business (including the company's suppliers and customers), 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 IT and Non-IT technology systems. Any such failure may have a material adverse financial or operational effect on the company.
The company's marketing, selling and administrative expense included $757,000 for IT-related Year 2000 expenditures during the third quarter of 1999 and $1,185,000 during the third quarter of 1998. Management believes that the company will incur additional expenses of approximately $961,000 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.
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 cost savings from restructuring, statements regarding Year 2000 functionality 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,
- 9 -
C. R. BARD, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Cautionary Statement Regarding Forward-Looking Information
(continued)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; 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.
- 10 -
C. R. BARD, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits pursuant to Item 601 of Regulation S-K.
Exhibit 12.1 - Computation of Ratio of Earnings to Fixed Charges
Exhibit 27 - Financial Data Schedule
Exhibit 99 - Bard Announces Endologix Agreement for AAA Device
(b) Reports on Form 8-K.
There were no reports on Form 8-K filed by the company during the quarter ended September 30, 1999
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
C. R. BARD, INC. |
|
(Registrant) |
|
Charles P. Slacik /s/ |
|
Charles P. Slacik |
|
Senior Vice President and |
|
Chief Financial Officer |
|
Charles P. Grom /s/ |
|
Charles P. Grom |
|
Vice President and Controller |
|
and Chief Accounting Officer |
DATE: November 12, 1999
- 11 -
|