NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Significant Accounting Policies
Nature of Operations
- C. R.
Bard, Inc. and its subsidiaries (the company or Bard) are engaged in the design, manufacture, packaging, distribution and sale of medical, surgical, diagnostic and patient care devices. The company markets its products
worldwide to hospitals, individual healthcare professionals, extended care facilities and alternate site facilities.
Consolidation
- The consolidated financial statements include the accounts of C. R. Bard, Inc. and its subsidiaries. All
significant intercompany accounts and transactions are eliminated in consolidation. The accounts of most foreign subsidiaries are consolidated as of November 30. No events occurred related to these foreign subsidiaries during the months of December
2016, 2015 or 2014 that materially affected the financial position or results of operations of the company. The company has no material interests in variable interest entities and none that require consolidation.
Use of Estimates in the Preparation of Financial Statements
- The preparation of these financial statements in conformity with
accounting principles generally accepted in the United States requires the company to make estimates and judgments that affect reported amounts of assets, liabilities, revenues and expenses, and the related disclosure of contingent assets and
liabilities at the date of the financial statements. The company evaluates these estimates and judgments on an ongoing basis and bases its estimates on historical experience, current conditions and various other assumptions that are believed to be
reasonable under the circumstances. The results of these estimates form the basis for making judgments about the carrying values of assets and liabilities as well as identifying and assessing the accounting treatment with respect to commitments and
contingencies. Actual results may differ from these estimates under different assumptions or conditions.
Foreign
Currency
- Net assets of foreign subsidiaries are translated into U.S. dollars at current year-end rates, and revenues, costs and expenses are translated at average monthly rates during each monthly period. Net exchange gains or losses resulting
from the translation of foreign financial statements and the effect of exchange rate changes on intercompany transactions of a long-term investment nature are accumulated and credited or charged directly to a separate component of shareholders
investment. Any foreign currency gains or losses related to monetary assets are charged to other (income) expense, net.
Revenue Recognition
- The companys net sales represent gross sales invoiced to both end-user customers and independent
distributors, less certain related charges, including discounts, returns, rebates and other allowances. The company recognizes product revenue when persuasive evidence of a sales arrangement exists, title and risk of loss have transferred, the
selling price is fixed or determinable, contractual obligations have been satisfied and collectibility is reasonably assured. Generally, sales to end-user customers and European distributors are recognized at the point of delivery, and sales to
domestic distributors are recognized at the time of shipment. In certain circumstances, end-user customers may require the company to maintain consignment inventory at the customers location. In the case of consignment inventories, revenue and
associated cost are recognized upon the notification of usage by the customer.
Royalty revenue is recognized as earned in
accordance with the contract terms when royalty revenue can be objectively determined. If royalty revenue cannot be objectively determined during the quarterly period in which it is earned, then royalty revenue is recognized in the following
quarterly period when objective evidence is obtained and the revenue becomes fixed and determinable.
Charges for discounts,
returns, rebates and other allowances are recognized as a deduction from revenue on an accrual basis in the period in which the revenue is recorded. The accrual for product returns, discounts and other allowances is based on the companys
history. The company allows customers to return defective or
II-31
C. R. BARD, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
damaged products. Historically, product returns have not been material. The company grants sales rebates to independent distributors based upon the distributors reporting of end-user sales
and pricing. Sales rebates are accrued by the company in the period in which the sale is recorded. The companys rebate accrual is based on its history of actual rebates paid. In estimating rebate accruals, the company considers the lag time
between the point of sale and the payment of the distributors rebate claim, distributor-specific trend analysis and contractual commitments including stated rebate rates. The companys reserves for rebates are reviewed at each reporting
period and adjusted to reflect data available at that time. The company adjusts reserves to reflect any differences between estimated and actual amounts. Such adjustments impact the amount of net product sales revenue recognized by the company in
the period of adjustment.
Shipping and Handling Costs
- Shipping and handling costs are included in cost of goods
sold.
Advertising Costs
- Costs related to advertising are expensed as incurred. Advertising expense was $20.8
million, $4.8 million and $4.4 million in 2016, 2015 and 2014, respectively, and is included in marketing, selling and administrative expense.
Research and Development
- Research and development expense is comprised of costs related to internal research and development activities, milestone payments for third-party research and
development activities, and acquired in-process research and development (IPR&D) arising from acquisitions not accounted for as a business combination. IPR&D arising from a business combination are accounted for as
indefinite-lived intangible assets, subject to impairment testing until completion or abandonment of a project. Upon successful completion, a separate determination will be made as to the useful life of the asset and amortization will begin.
Share-Based Compensation
- Share-based compensation cost is measured at the grant date based on the fair value of the
award. Generally, compensation expense is recognized on a straight-line basis over the vesting period.
Cash
Equivalents
- Cash equivalents consist of highly liquid investments purchased with an original maturity of three months or less and amounted to $623.2 million and $615.4 million at December 31, 2016 and 2015, respectively.
Accounts Receivable
- In addition to trade receivables, accounts receivable included $20.5 million and $20.7 million of
non-trade receivables at December 31, 2016 and 2015, respectively.
Inventories -
Inventories are stated at the
lower of cost or market. Cost is determined using the first-in, first-out method.
Depreciation
- Depreciation is
provided over the estimated useful lives of depreciable assets using the straight-line method. The estimated useful lives primarily range from three to 40 years for buildings and improvements and three to 20 years for machinery and equipment.
Depreciation expense was $69.9 million, $62.3 million and $56.8 million in 2016, 2015 and 2014, respectively.
Software Capitalization and Amortization
- Internally used software, whether purchased or developed, is capitalized and amortized
using the straight-line method over an estimated useful life of five to seven years. Capitalized software costs are included in machinery and equipment. The company capitalizes certain costs associated with internal-use software such as the payroll
costs of employees devoting time to the projects and external direct costs for materials and services. Costs associated with internal-use software are expensed during the design phase until the point at which the project has reached the application
development stage. Subsequent
II-32
C. R. BARD, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
additions, modifications or upgrades to internal-use software are capitalized only to the extent that they allow the software to perform a task it previously did not perform. Software maintenance
and training costs are expensed in the period in which they are incurred. The company capitalized $16.4 million, $17.1 million and $21.2 million of internal-use software for the years ended December 31, 2016, 2015 and 2014, respectively.
Amortization expense for capitalized software was $13.0 million, $11.3 million and $8.5 million in 2016, 2015 and 2014, respectively.
Goodwill
- Goodwill is tested for impairment annually at December 31 or more frequently if impairment indicators arise using a fair value based test. The company assigns goodwill recorded in
connection with acquisitions to its four reporting units, each of which is one level below the companys single reporting segment. The fair value of each reporting unit is calculated and compared to its carrying value. In determining the fair
value of each reporting unit, the company uses a weighted-average combination of both market and income approaches. The market approach to estimating fair value is based primarily on applying external market information to a historical earnings
measure. The income approach to estimating fair value is based on a discounted value of estimated future cash flows of the reporting unit. If the carrying amount of a reporting unit exceeds its fair value, then the company will record an impairment
charge for the excess of the carrying value of goodwill over its implied fair value.
Other Intangible Assets
- Other
intangible assets with finite lives are amortized on a straight-line basis over their estimated useful lives ranging from five to 22 years with a weighted average of 13 years. When events or circumstances indicate that the carrying amount of
intangible assets may not be recoverable, the company will assess recoverability from future operations using undiscounted cash flows derived from the lowest appropriate asset groupings. To the extent carrying value exceeds the undiscounted cash
flows, impairments are recognized in operating results to the extent that the carrying value exceeds the fair value, which is determined based on the net present value of estimated future cash flows.
Income Taxes
- Deferred tax assets and liabilities are recognized based on the expected future tax consequences of temporary
differences between the carrying amounts of assets and liabilities for financial and income tax reporting purposes. The company regularly assesses its tax positions to determine whether the benefits of tax positions are more likely than not of being
sustained upon audit. These positions relate to transfer pricing, the deductibility of certain expenses, intercompany transactions, state taxes and other matters. Although the outcome of tax audits is uncertain, provisions for income taxes have been
made for potential liabilities resulting from such matters. Any reserves are adjusted once the statutes of limitation have expired or the tax position is remeasured or effectively settled. The companys policy is to classify interest and
penalties related to unrecognized tax positions as income tax expense.
Income Statement Presentation of Taxes Collected
from Customers and Remitted to Government Authorities
- The company follows a net basis policy with regard to sales, use, value added or any other tax collected from customers and remitted to government authorities, which excludes them from
both net sales and expenses.
Treasury Stock
- The company accounts for treasury stock purchases as retirements by
reducing retained earnings for the cost of the repurchase. Issuances of previously repurchased shares are accounted for as new issuances. There were 43.9 million and 43.1 million of previously repurchased shares at December 31, 2016 and 2015,
respectively.
Derivative Instruments
- The company recognizes all derivative instruments at fair value on a gross
basis in its consolidated balance sheets. Changes in fair value of derivative instruments are recorded in each period in current earnings or accumulated other comprehensive loss depending on whether the derivative instrument is designated as part of
a hedged transaction, and if so, the type of hedge transaction.
II-33
C. R. BARD, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
The companys objective in managing its exposures to foreign currency fluctuations
is to minimize earnings and cash flow volatility associated with future intercompany receivables and payables denominated in foreign currencies. These risks are managed using derivative instruments, mainly through forward currency and option
contracts. The company does not utilize derivative instruments for trading or speculative purposes. None of these derivative instruments extend beyond June 2018. All of these derivative instruments are designated and qualify as cash flow hedges. The
effective portion of the changes in fair value of the derivative instruments gains or losses are reported as a component of accumulated other comprehensive loss and reclassified into earnings on the same line item associated with the
forecasted transaction and in the same period or periods when the forecasted transaction affects earnings. At December 31, 2016, all of these derivative instruments were highly effective hedging instruments because they were denominated in the
same currency as the hedged item and because the maturities of the derivative instruments matched the timing of the hedged items.
When applicable, foreign currency exposures that arise from remeasuring intercompany loans denominated in currencies other than the functional currency are mitigated through the use of forward contracts.
Hedges of these foreign exchange exposures are not designated as hedging instruments for accounting purposes. The gains or losses on these instruments are recognized in earnings and are effectively offset by the gains or losses on the underlying
hedged items.
The company may use interest rate swap contracts to manage its net exposure to interest rates on its long-term
debt. Under its interest rate swap contract, the company exchanged, at specified intervals, the difference between fixed and floating interest rates calculated by reference to a notional principal amount of these notes. The companys swap
contract was designated and qualified as a fair value hedge. Changes in the fair value of the swap contract offset changes in the fair value of the fixed rate debt due to changes in market interest rates. The companys interest rate swap
contract was settled concurrent with the maturity of the 2.875% fixed-rate notes in January 2016.
The company may use forward
starting interest rate swap contracts which are intended to manage its exposure to interest rate volatility in anticipation of issuing fixed-rate debt. The effective portion of the changes in fair value are reported as a component of accumulated
other comprehensive loss and are then reclassified into interest expense over the term of the related debt beginning in the period in which the planned debt issuance occurs and the related forward starting swap contract is settled. The
companys forward starting interest rate swap contract was designated and qualified as a cash flow hedge. This contract was settled concurrent with the issuance of the 3.000% senior unsecured notes due 2026 (3.000% Notes due 2026)
in May 2016.
Reclassifications
Certain prior year amounts have been reclassified to conform to the current year
presentation.
Recently Adopted Accounting Pronouncement
In November 2015, the Financial Accounting Standards
Board (FASB) issued an accounting standard update that simplifies the balance sheet classification of deferred taxes. This update requires all deferred tax assets and liabilities to be reported as non-current in the consolidated balance
sheets. The company elected to adopt this update early in the fourth quarter of 2016. See Note 4 of the notes to consolidated financial statements.
In June 2015, the FASB issued an accounting standard update that contains amendments that will affect a wide variety of topics in the accounting standards codification. One of the amendments include a
clarification that an equity security has a readily determinable fair value if it meets certain conditions, which include the fair value of an equity security that is an investment in a mutual fund or in a structure similar to a mutual fund is
readily determinable if the fair value per share is determined and published and is the basis for current transactions. In 2016, the company adopted this provision of this update and applied the provision retrospectively to 2015. See Note 12 of the
notes to the consolidated financial statements.
II-34
C. R. BARD, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
In April 2015, the FASB issued an accounting standard update that requires debt issuance
costs to be presented as a direct deduction from the carrying amount of the related debt rather than as an asset. In 2016, the company adopted this update. See Note 9 of the notes to consolidated financial statements.
New Accounting Pronouncements Not Yet Adopted
In January 2017, the FASB issued an accounting standard update that clarifies
the definition of a business by providing a more robust framework to evaluate whether transactions should be accounted for as an acquisition of assets or business. This update is expected to reduce the number of transactions that will be accounted
for as an acquisition of a business. The effects of this update will depend on future acquisitions. The company intends to adopt this standard early as of the beginning of Bards 2017 fiscal year.
In November 2016, the FASB issued an accounting standard update that requires the change in the total of cash, cash equivalents, and
restricted cash to be shown in the statement of cash flows. As a result, transfers between cash, cash equivalents, and restricted cash will no longer be presented in the statement of cash flows. This update will be effective as of the beginning of
Bards 2018 fiscal year, with early adoption permitted. Other than the impact of this change on the statements of cash flows, this update is not expected to have a material impact on the companys consolidated financial statements.
In October 2016, the FASB issued an accounting standard update that requires the immediate recognition of the income tax
effects of intra-entity transfers of assets other than inventory at the time of the transfer. This update will be effective as of the beginning of Bards 2018 fiscal year, with early adoption permitted at the beginning of an annual period. The
company is assessing the impact of inter-entity transfers on the companys consolidated financial statements.
In March
2016, the FASB issued an accounting standard update that includes multiple provisions intended to simplify various aspects of the accounting for share-based payments, including the income tax items and the classification of these items on the
statement of cash flows. This update will be effective as of the beginning of Bards 2017 fiscal year. This standard will result in the recognition of excess income tax benefits to the consolidated statements of income upon settlement of
share-based compensation awards, which is largely dependent on the exercise/vesting of awards and variables such as the companys stock price at the time of the exercise/vesting of awards and the exercise price of the underlying awards. Other
than the recognition of excess income tax benefits which may be material to the consolidated statements of income and the classification of these items on the statements of cash flows, this update is not expected to have a material impact on the
companys consolidated financial statements.
In February 2016, the FASB issued a new accounting standard to use in the
accounting for leases. The new standard will require, among other items, lessees to recognize most leases on the balance sheet by recording a right-of-use asset and a lease liability. This standard will be effective as of the beginning of
Bards 2019 fiscal year. Other than this impact to the companys consolidated balance sheet, the new standard is not expected to have a material impact on the companys consolidated financial statements.
In May 2014, the FASB issued a new accounting standard that provides for a comprehensive model to use in the accounting for revenue
arising from contracts with customers. Under this standard, revenue will be recognized to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in
exchange for those goods or services. In August 2015, the FASB issued an accounting standard update to defer this standards effective date for one year, which will now begin with Bards 2018 fiscal year. Under this standard, the company
expects to recognize royalty revenue in earlier periods than under its current policy, and for other contracts that do not meet the new criteria for recognizing revenue over time. In addition, revenue will be recognized in earlier periods, where the
company
II-35
C. R. BARD, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
maintains risk of loss for products that are in-transit to the customer. The company has made substantial progress in its evaluation of the new standard, and other than these items, this standard
is not expected to have a material impact on the companys consolidated financial statements. The company will continue to assess the new standard, as well as updates to the standard that have been proposed by the FASB. The company intends to
adopt the standard under the modified retrospective approach beginning with Bards 2018 fiscal year.
2. Acquisitions
The company acquires businesses, products and technologies to augment its existing product lines and from time-to-time may divest
businesses or product lines for strategic reasons. Unaudited pro forma financial information has not been presented because the effects of acquisitions were not material on either an individual or aggregate basis.
Acquisitions
On January
21, 2016, the company acquired all of the outstanding shares of Liberator Medical Holdings, Inc. (Liberator), a publicly-held direct-to-consumer distributor of urological catheters, ostomy supplies, mastectomy fashions and diabetic
medical supplies for a purchase price of $181.1 million. This acquisition enhanced the companys position in the home healthcare market in the United States. The acquisition was accounted for as a business combination, and the results of
operations have been included in the companys results since the acquisition date. The fair value of the assets acquired and the liabilities assumed results in the recognition of: customer relationships of $53.0 million; other intangibles of
$26.0 million, primarily consisting of a trade name and non-compete agreements; deferred tax liabilities of $31.6 million, primarily associated with intangible assets; and other net assets of $11.9 million. The excess of the purchase price over fair
value of the acquired net assets was recorded as goodwill of $121.8 million. The goodwill recognized includes the value of expected market expansion in the home healthcare market through Liberators direct-to-consumer capabilities that provide
additional opportunity for market penetration. Additionally, synergies are expected to result from the alignment of sales call points within the companys sales organization. The goodwill is not deductible for tax purposes. Customer
relationships and other intangible assets are being amortized over their weighted average estimated useful lives of approximately 12 years and 8 years, respectively.
On December 3, 2015, the company, through a wholly-owned foreign subsidiary, acquired all of the outstanding shares
of Embo Medical Limited (Embo), a privately-held company headquartered in Galway, Ireland, specializing in the development of peripheral embolization devices. The total purchase consideration included an up-front cash payment of $21.0
million and the fair value of future additional milestone payments of up to $22.5 million that are contingent upon specific regulatory and revenue-related milestones being achieved, which had a fair value of $16.6 million as of the acquisition date.
The acquisition was recognized in the first quarter of 2016 for this foreign subsidiary. The fair value of the assets acquired and the liabilities assumed resulted in the recognition of: an IPR&D asset of $36.1 million related to the development
of the Caterpillar
TM
vascular plug device; goodwill of
$4.4 million; and other net liabilities of $2.9 million. The goodwill is not deductible for tax purposes. The fair value of the IPR&D asset was determined based upon the present value of expected future cash flows adjusted for the probability of
technological and regulatory success, utilizing a risk-adjusted discount rate of 17.5%. The fair value of the future contingent consideration was determined utilizing a probability weighted cash flow estimate adjusted for the expected timing of the
payment.
On November 2, 2015, the company acquired Kobayashi Pharmaceutical Co., Ltd.s (Kobayashi) 50%
ownership share in Medicon, Inc. (Medicon), through a share redemption (the Medicon Acquisition). Medicon was a joint venture company equally-owned by the company and Kobayashi and was a distributor of
II-36
C. R. BARD, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Bards products in Japan. As a result of the Medicon Acquisition, the company now owns 100% of the outstanding shares of Medicon. The acquisition provides the company with greater control
over its operations in Japan. The total consideration of $138.0 million, denominated in Japanese Yen, included an up-front cash payment of approximately $24.9 million at closing; the present value of future payments totaling approximately $65.8
million; settlement of an accounts receivable balance due from Medicon of $42.0 million; and the fair value of an off-market supply contract of $5.3 million. The future payments will be paid in Japanese Yen over a 10 year period, subject to exchange
rate fluctuations. The liability for future payments was $52.3 million, of which $39.5 million was recorded to other long-term liabilities, and $66.0 million, of which $50.3 million was recorded to other long-term liabilities, at December 31, 2016
and 2015, respectively. The company will make future payments of $41.0 million over the next five years.
The fair value of
the purchase consideration for the Medicon Acquisition was $88.4 million. In addition, the company recorded an expense of $49.6 million ($33.5 million after tax) to other (income) expense, net, related to the settlement of a pre-existing contractual
relationship, which included a management fee provision. The settlement amount was calculated as the present value of the differential between the forecasted payments under the pre-existing contract and those of an at-market contract. Immediately
prior to the Medicon Acquisition, the fair value of the companys existing 50% ownership share in Medicon of $46.4 million was determined using the present value of expected future cash flows. In connection with the fair value measurement of
this ownership share, the company recorded a gain of $25.5 million to other (income) expense, net.
The Medicon Acquisition
was accounted for as a business combination, and the results of operations have been included in the companys results since the acquisition date. The fair value of the assets acquired and the liabilities assumed results in the recognition of:
customer relationships of $13.0 million; other intangible assets of $4.0 million, primarily related to regulatory assets; other net assets of $93.0 million, primarily consisting of inventory, accounts receivable, financial instruments, and pension
obligations; and deferred tax liabilities of $8.8 million, primarily associated with intangible assets. An IPR&D asset of $11.9 million was recorded for the ongoing clinical trials required to obtain regulatory approval for certain of
Bards products in the Japanese health care market. The fair value of the IPR&D asset was determined utilizing the replacement cost method. The excess of the purchase price over fair value of the acquired net assets was recorded as goodwill
of $21.7 million. The goodwill recognized includes the value of Medicons assembled workforce and expected other cost synergies. A portion of the goodwill is deductible for tax purposes. Customer relationships and other intangibles assets are
being amortized over their weighted average estimated useful lives of approximately 12 years and 10 years, respectively. The company incurred acquisition-related transaction costs of $2.4 million, which were expensed to marketing, selling and
administrative expense.
Prior to the Medicon Acquisition, the company accounted for the joint venture under the equity method
of accounting. The company recorded sales to Medicon of $139.6 million for the period from January 1, 2015 through November 1, 2015 and $156.3 million for the year ended 2014. The company eliminated the intercompany profits on sales to Medicon until
Medicon sold the companys products to a third party. The company recorded equity losses of $0.4 million for the period from January 1, 2015 through November 1, 2015 and $0.3 million for the year ended 2014. There were no dividends received
from Medicon in 2015. The company received dividends from Medicon of $1.5 million for the year ended December 31, 2014.
On July 1, 2015, the company acquired all of the outstanding shares of Vascular Pathways, Inc. (VPI), a privately-held developer and supplier of vascular access devices. VPI manufactures the
AccuCath
®
Intravenous Catheter System, a United States Food and Drug Administration cleared device that enables
rapid and safe peripheral intravenous (PIV) insertion. This acquisition allows the company to expand its wire-assist PIV technology platform to address unmet clinical needs and will supplement its intellectual property portfolio for
II-37
C. R. BARD, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
wire-assist vascular access devices. The total purchase consideration of $81.5 million included the fair value of future contingent consideration of up to $15 million, which is based on specific
revenue-based and manufacturing-related milestones. The fair value of the future contingent consideration was determined by utilizing a probability weighted cash flow estimate adjusted for the expected timing of the payment and was not material as
of the acquisition date. The acquisition was accounted for as a business combination, and the results of operations have been included in the companys results since the acquisition date. The fair value of the assets acquired and the
liabilities assumed results in the recognition of: developed technologies of $65.0 million; deferred tax liabilities of $24.8 million, primarily associated with intangible assets; deferred tax assets of $9.9 million, consisting primarily of net
operating loss carryforwards; and other net liabilities of $11.0 million. The excess of the purchase price over fair value of the acquired net assets was recorded as goodwill of $42.4 million. The goodwill recognized includes the value of future
product applications for wire-assist vascular access devices that did not meet the criteria for separate recognition of IPR&D and provides for call point synergies within the companys sales organization. The goodwill is not deductible for
tax purposes. Developed technologies are being amortized over their estimated useful lives of approximately 12 years. The company incurred acquisition-related transaction costs of $2.2 million, of which $1.2 million were expensed to marketing,
selling and administrative expense and $1.0 million were expensed to research and development expense.
3. Asset Impairments
During 2016, the company recorded $1.2 million ($1.2 million after tax) to cost of goods sold for the impairment of a
prepaid asset. During 2015 and 2014, the company recorded $4.5 million ($2.8 million after tax) and $6.8 million ($4.3 million after tax), respectively, to research and development expense for the impairment of IPR&D projects, primarily due to
changes in cash flow assumptions.
Asset impairment charges were measured at fair value using significant unobservable inputs
that are categorized as Level 3 under the fair value hierarchy, which is described further in Note 6 of the notes to consolidated financial statements.
4. Income Taxes
The components of income from operations before income
taxes for the following years ended December 31 consisted of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
(dollars in millions)
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
268.1
|
|
|
$
|
550.3
|
|
|
$
|
344.3
|
|
Foreign
|
|
|
395.6
|
|
|
|
(200.9
|
)
|
|
|
101.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
663.7
|
|
|
$
|
349.4
|
|
|
$
|
445.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
II-38
C. R. BARD, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
The income tax provision for the following years ended December 31 consisted of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
(dollars in millions)
|
|
|
|
|
|
|
|
|
|
Current provision
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
132.3
|
|
|
$
|
196.8
|
|
|
$
|
130.1
|
|
Foreign
|
|
|
44.5
|
|
|
|
40.8
|
|
|
|
32.3
|
|
State
|
|
|
20.9
|
|
|
|
21.5
|
|
|
|
15.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
197.7
|
|
|
|
259.1
|
|
|
|
178.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred (benefit) provision
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(62.1
|
)
|
|
|
(18.3
|
)
|
|
|
(17.8
|
)
|
Foreign
|
|
|
4.4
|
|
|
|
(26.5
|
)
|
|
|
(3.9
|
)
|
State
|
|
|
(7.7
|
)
|
|
|
(0.3
|
)
|
|
|
(5.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(65.4
|
)
|
|
|
(45.1
|
)
|
|
|
(26.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
132.3
|
|
|
$
|
214.0
|
|
|
$
|
151.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax assets and deferred tax liabilities at December 31 consisted of:
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
(dollars in millions)
|
|
|
|
|
|
|
Deferred tax assets
|
|
|
|
|
|
|
|
|
Employee benefits
|
|
$
|
184.2
|
|
|
$
|
180.1
|
|
Inventory
|
|
|
12.4
|
|
|
|
12.2
|
|
Receivables and rebates
|
|
|
31.7
|
|
|
|
29.6
|
|
Accrued expenses
|
|
|
259.8
|
|
|
|
165.2
|
|
Loss carryforwards and credits
|
|
|
77.7
|
|
|
|
81.4
|
|
Other
|
|
|
2.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross deferred tax assets
|
|
|
568.3
|
|
|
|
468.5
|
|
Valuation allowance
|
|
|
(53.3
|
)
|
|
|
(51.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
515.0
|
|
|
|
417.4
|
|
Deferred tax liabilities
|
|
|
|
|
|
|
|
|
Intangibles
|
|
|
346.2
|
|
|
|
338.8
|
|
Accelerated depreciation
|
|
|
16.9
|
|
|
|
16.3
|
|
Receivables and other
|
|
|
106.4
|
|
|
|
59.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
469.5
|
|
|
|
414.1
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
45.5
|
|
|
$
|
3.3
|
|
|
|
|
|
|
|
|
|
|
As discussed in Note 1 of the notes to consolidated financial statements, the company retrospectively
adopted an accounting standard update early. This update requires all deferred tax assets and liabilities to be reported as non-current in the consolidated balance sheets. The adoption of this update had the following impact on the 2015 consolidated
balance sheet amounts as previously reported: short-term deferred tax assets decreased by $123.9 million, deferred tax assets increased by $28.7 million, accrued expenses decreased by $1.1 million and deferred tax
liabilities decreased by $94.1 million.
At December 31, 2016, the company had federal net operating loss carryforwards of
$34.3 million, which expire between 2027 and 2036, state net operating loss carryforwards of $415.2 million, which expire between
II-39
C. R. BARD, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
2017 and 2037, foreign net operating loss carryforwards of $158.4 million, which expire between 2018 and 2027, and foreign net operating loss carryforwards of $24.5 million with an indefinite
life. The company also had various tax credits of $11.5 million with an indefinite life and $12.3 million that expire between 2018 and 2033.
The company records valuation allowances to reduce its deferred tax assets to the amount that it believes is more likely than not to be realized. The company considers future taxable income and the
periods over which it must be earned in assessing the need for valuation allowances. In the event the company determines it would not be able to realize all or part of its net deferred tax assets in the future, an adjustment to the deferred tax
assets would be charged to expense in the period such determination was made. At December 31, 2016, the valuation allowance primarily related to state and foreign net operating loss carryforward and credits, and to certain other state deferred
tax assets.
A reconciliation between the effective income tax rate and the federal statutory rate for the following years
ended December 31 is:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Federal statutory rate
|
|
|
35
|
%
|
|
|
35
|
%
|
|
|
35
|
%
|
State taxes, net of federal benefit
|
|
|
1
|
%
|
|
|
4
|
%
|
|
|
2
|
%
|
Operations taxed at other than U.S. rate
|
|
|
(13
|
)%
|
|
|
24
|
%
(A)
|
|
|
(2
|
)%
(A)
|
Research and development tax credit
|
|
|
(1
|
)%
|
|
|
(2
|
)%
|
|
|
(1
|
)%
|
Other
|
|
|
(2
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20
|
%
|
|
|
61
|
%
|
|
|
34
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(A)
|
Includes the tax effects of litigation charges, net, which consist primarily
of product liability claims allocated to a low tax jurisdiction.
|
The companys foreign tax incentives
consist of incentive tax grants in Malaysia and Puerto Rico. The companys grant in Malaysia expired during 2015 and the companys grant in Puerto Rico will expire in 2028. The approximate dollar and per share effects of the Malaysian and
Puerto Rican tax grants were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
(A)
|
|
|
2014
(A)
|
|
(dollars in millions, except per share amounts)
|
|
|
|
|
|
|
|
|
|
Tax benefit
|
|
$
|
92.2
|
|
|
$
|
2.3
|
|
|
$
|
7.0
|
|
Per share benefit
|
|
$
|
1.23
|
|
|
$
|
0.03
|
|
|
$
|
0.09
|
|
(A)
|
Litigation charges, net, reduced the tax benefit recognized from the incentive tax grant in Puerto Rico.
|
II-40
C. R. BARD, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
A tax benefit from an uncertain tax position may be recognized only if it is more likely
than not that the position is sustainable based on its technical merits. The tax benefit of a qualifying position is the largest amount of tax benefit that is greater than 50% likely of being realized upon settlement with a taxing authority having
full knowledge of all relevant information. A reconciliation of the gross amounts of unrecognized tax benefits, excluding interest and penalties, is as follows:
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
(dollars in millions)
|
|
|
|
|
|
|
Balance, January 1
|
|
$
|
22.3
|
|
|
$
|
36.1
|
|
Additions related to prior year tax positions
|
|
|
0.7
|
|
|
|
2.9
|
|
Reductions related to prior year tax positions
|
|
|
(2.7
|
)
|
|
|
(4.8
|
)
|
Additions for tax positions of the current year
|
|
|
3.4
|
|
|
|
2.1
|
|
Settlements
|
|
|
(1.1
|
)
|
|
|
(12.4
|
)
|
Lapse of statutes of limitation
|
|
|
(1.1
|
)
|
|
|
(1.6
|
)
|
|
|
|
|
|
|
|
|
|
Balance, December 31
|
|
$
|
21.5
|
|
|
$
|
22.3
|
|
|
|
|
|
|
|
|
|
|
The company operates in multiple taxing jurisdictions and faces audits from various tax authorities
regarding transfer pricing, the deductibility of certain expenses, intercompany transactions and other matters. As of December 31, 2016, the liability for unrecognized tax benefits related to federal, state and foreign taxes was $21.5 million
(of which $18.4 million would impact the effective tax rate if recognized), plus $2.6 million of accrued interest. As of December 31, 2015, the liability for unrecognized tax benefits was $22.3 million plus $2.8 million of accrued interest.
Interest and penalties associated with uncertain tax positions amounted to expense of $0.3 million in both 2016 and 2015, and a credit of $0.2 million in 2014.
The company is currently under examination in several tax jurisdictions and remains subject to examination until the statutes of limitation expire. Within specific countries, the company may be subject to
audit by various tax authorities, and subsidiaries operating within the country may be subject to different statutes of limitation expiration dates. As of December 31, 2016, a summary of the tax years that remain subject to examination in the
companys major tax jurisdictions are:
|
|
|
United States federal
|
|
2014 and forward
|
United States states
|
|
2008 and forward
|
China
|
|
2008 and forward
|
Germany
|
|
2010 and forward
|
Japan
|
|
2012 and forward
|
Malaysia
|
|
2010 and forward
|
Puerto Rico
|
|
2012 and forward
|
United Kingdom
|
|
2015 and forward
|
In 2016 and 2014, the companys income tax provision was reduced by $2.6 million and
$10.9 million, respectively, as a result of the completion of certain U.S. Internal Revenue Service (IRS) examinations. Depending upon open tax examinations and/or the expiration of applicable statutes of limitation, the company
believes that it is reasonably possible that the total amount of unrecognized tax benefits may decrease by up to $5.1 million within the next 12 months.
At December 31, 2016, the company did not provide for income taxes on the undistributed earnings of certain foreign operations of approximately $2.5 billion as it is the companys intention to
permanently reinvest these undistributed earnings outside of the United States. Determination of the amount of unrecognized deferred tax liability related to these permanently reinvested earnings is not practicable.
II-41
C. R. BARD, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
5. Earnings per Common Share
Earnings per share (EPS) is computed under the two-class method, which requires nonvested share-based payment awards that have
non-forfeitable rights to dividend or dividend equivalents to be treated as a separate class of securities in calculating EPS. Participating securities include nonvested restricted stock and units, nonvested shares or units under the management
stock purchase program, and certain other nonvested stock-based awards. EPS is computed using the following common share information for the following years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
(dollars and shares in millions)
|
|
|
|
|
|
|
|
|
|
EPS Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to common shareholders
|
|
$
|
531.4
|
|
|
$
|
135.4
|
|
|
$
|
294.5
|
|
Less: Income allocated to participating securities
|
|
|
2.6
|
|
|
|
1.9
|
|
|
|
4.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to common shareholders
|
|
$
|
528.8
|
|
|
$
|
133.5
|
|
|
$
|
289.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EPS Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
|
74.0
|
|
|
|
74.1
|
|
|
|
75.6
|
|
Dilutive common share equivalents from share-based compensation plans
|
|
|
1.2
|
|
|
|
1.3
|
|
|
|
1.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common and common equivalent shares outstanding, assuming dilution
|
|
|
75.2
|
|
|
|
75.4
|
|
|
|
77.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6. Financial Instruments
Foreign Exchange Derivative Instruments
The company enters into readily
marketable forward and option contracts with financial institutions to help reduce its exposure to foreign currency exchange rate fluctuations. These contracts limit volatility because gains and losses associated with foreign currency exchange rate
movements are generally offset by movements in the underlying hedged item. The notional value of the companys forward currency and option currency contracts was $243.2 million and $191.6 million at December 31, 2016 and 2015, respectively.
Interest Rate Derivative Instruments
In January 2016, the companys outstanding interest rate swap contract was settled concurrent with the maturity of the underlying 2.875% fixed-rate notes. The notional value of the companys
interest rate swap was $250 million and effectively converted these fixed-rate notes to a floating-rate instrument.
In May
2016, the companys forward starting interest rate swap contract with a notional value of $250 million was settled concurrent with the issuance of the 3.000% Notes due 2026. The fair value of the forward starting interest rate swap contract at
settlement recorded in accumulated other comprehensive loss was a loss of $23.3 million. This loss will be recognized as interest expense over the term of the 3.000% Notes due 2026.
II-42
C. R. BARD, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
The location and fair value of derivative instruments that are designated as hedging
instruments recognized in the consolidated balance sheets at December 31, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
Sheet
Location
|
|
|
Fair Value
of Derivatives
|
|
Derivatives Designated as Hedging Instruments
|
|
|
2016
|
|
|
2015
|
|
(dollars in millions)
|
|
|
|
|
|
|
|
|
|
Forward currency contracts
|
|
|
Other current assets
|
|
|
$
|
10.9
|
|
|
$
|
2.9
|
|
Option currency contracts
|
|
|
Other current assets
|
|
|
|
|
|
|
|
3.8
|
|
Interest rate swap contract
|
|
|
Other current assets
|
|
|
|
|
|
|
|
0.2
|
|
Forward currency contracts
|
|
|
Other assets
|
|
|
|
3.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
14.8
|
|
|
$
|
6.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward currency contracts
|
|
|
Accrued expenses
|
|
|
$
|
6.2
|
|
|
$
|
6.2
|
|
Interest rate swap contract
|
|
|
Accrued expenses
|
|
|
|
|
|
|
|
8.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
6.2
|
|
|
$
|
14.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The location and amounts of gains and losses on derivative instruments designated as cash flow hedges and
the impact on shareholders investment for the years ended December 31, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain/(Loss)
Recognized in Other
Comprehensive
Income (Loss)
|
|
|
Location of
Gain/(Loss) Reclassified
from Accumulated
Other Comprehensive
Loss
into Income
|
|
|
Gain/(Loss) Reclassified
from Accumulated
Other Comprehensive
Loss
into Income
|
|
(dollars in millions)
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Forward currency contracts
|
|
$
|
2.3
|
|
|
$
|
(5.1
|
)
|
|
$
|
(4.6
|
)
|
|
|
Cost of goods sold
|
|
|
$
|
(7.7
|
)
|
|
$
|
(2.3
|
)
|
|
$
|
1.4
|
|
Option currency contracts
|
|
|
(3.4
|
)
|
|
|
10.1
|
|
|
|
6.8
|
|
|
|
Cost of goods sold
|
|
|
|
(0.6
|
)
|
|
|
13.4
|
|
|
|
(2.0
|
)
|
Interest rate swap contract
|
|
|
(15.3
|
)
|
|
|
(8.2
|
)
|
|
|
0.2
|
|
|
|
Interest expense
|
|
|
|
(1.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(16.4
|
)
|
|
$
|
(3.2
|
)
|
|
$
|
2.4
|
|
|
|
|
|
|
$
|
(9.8
|
)
|
|
$
|
11.1
|
|
|
$
|
(0.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2016, the company had losses of approximately $0.2 million in accumulated other
comprehensive loss in the consolidated balance sheet that are expected to be reclassified into earnings in 2017.
Financial Instruments
Measured at Fair Value on a Recurring Basis
Fair value is defined as the exit price that would be received to sell an
asset or paid to transfer a liability. Fair value is a market-based measurement that is determined using assumptions that market participants would use in pricing an asset or liability. The fair value guidance establishes a three-level hierarchy
which maximizes the use of observable inputs and minimizes the use of unobservable inputs used in measuring fair value. The levels within the hierarchy range from Level 1 having observable inputs to Level 3 having unobservable inputs.
The following table summarizes certain financial instrument assets/(liabilities) measured at fair value on a recurring basis at December
31:
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
(dollars in millions)
|
|
|
|
|
|
|
Forward currency contracts
|
|
$
|
8.6
|
|
|
$
|
(3.3
|
)
|
Option currency contracts
|
|
|
|
|
|
|
3.8
|
|
Interest rate swap contracts
|
|
|
|
|
|
|
(7.8
|
)
|
II-43
C. R. BARD, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
The fair values were measured using significant other observable inputs and valued by
reference to similar financial instruments, adjusted for restrictions and other terms specific to each instrument. These financial instruments are categorized as Level 2 under the fair value hierarchy.
The fair value of the liability for contingent consideration related to acquisitions was measured using significant unobservable inputs
and is categorized as Level 3 under the fair value hierarchy. The change in the liability for contingent consideration is as follows:
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
(dollars in millions)
|
|
|
|
|
|
|
Balance, January 1
|
|
$
|
11.2
|
|
|
$
|
23.1
|
|
Purchase price contingent consideration
|
|
|
17.1
|
|
|
|
5.7
|
|
Payments
|
|
|
(2.3
|
)
|
|
|
(8.0
|
)
|
Change in fair value of contingent consideration
|
|
|
(11.1
|
)
|
|
|
(9.6
|
)
|
|
|
|
|
|
|
|
|
|
Balance, December 31
|
|
$
|
14.9
|
|
|
$
|
11.2
|
|
|
|
|
|
|
|
|
|
|
Financial Instruments Not Measured at Fair Value
The estimated fair value of long-term debt (including current maturities and the effect of the related swap contract) was $1,688.0 million
and $1,449.8 million at December 31, 2016 and 2015, respectively. The fair value was estimated using dealer quotes for similarly-rated debt instruments over the remaining contractual term of the companys obligation and is categorized as Level
2 under the fair value hierarchy.
The fair value of the deferred future payments related to the Medicon Acquisition of $52.3
million and $66.0 million at December 31, 2016 and 2015, respectively, approximated the carrying value. During 2016, the company made a payment related to the Medicon Acquisition of $18.4 million. The fair value was estimated by discounting the
future payments based upon the timing of such payments and is categorized as Level 2 under the fair value hierarchy.
Concentration Risks
The company is potentially subject to concentration of credit risk through its cash equivalents and accounts receivable.
The company performs periodic evaluations of the relative credit standing of its financial institutions and limits the amount of credit exposure with any one institution. Concentrations of risk with respect to trade accounts receivable are limited
due to the large number of customers dispersed across many geographic areas.
Accounts receivable balances include sales to
government-supported healthcare systems outside the United States. The company monitors economic conditions and evaluates accounts receivable in certain countries for potential collection risks. Economic conditions and other factors in certain
countries, particularly in Spain, Italy, Greece and Portugal, have resulted in, and may continue to result in, an increase in the average length of time that it takes to collect these accounts receivable and may require the company to re-evaluate
the collectability of these receivables in future periods. At December 31, 2016, the companys accounts receivable, net of allowances, from the national healthcare systems and private sector customers in these four countries was $44.6 million,
of which $3.3 million was greater than 365 days past due.
Sales to distributors, which supply the companys products to
many end-users, accounted for approximately 36% of the companys net sales in 2016 and the five largest distributors combined accounted for approximately 51% of distributors sales in 2016. One large distributor accounted for approximately
8% of the companys net sales in 2016 and 9% of the companys net sales in each of 2015 and 2014. This distributor represented gross receivables of approximately $37.3 million and $45.4 million as of December 31, 2016 and 2015,
respectively.
II-44
C. R. BARD, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
7. Inventories
Inventories at December 31 consisted of:
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
(dollars in millions)
|
|
|
|
|
|
|
Finished goods
|
|
$
|
292.8
|
|
|
$
|
252.3
|
|
Work in process
|
|
|
27.0
|
|
|
|
23.8
|
|
Raw materials
|
|
|
163.2
|
|
|
|
137.6
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
483.0
|
|
|
$
|
413.7
|
|
|
|
|
|
|
|
|
|
|
Consigned inventory was $59.4 million and $53.2 million at December 31, 2016 and 2015, respectively.
8. Other Intangible Assets
Other intangible assets at December 31 consisted of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
|
Gross
Carrying
Amount
|
|
|
Accumulated
Amortization
|
|
|
Gross
Carrying
Amount
|
|
|
Accumulated
Amortization
|
|
(dollars in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
Core and developed technologies
|
|
$
|
1,197.7
|
|
|
$
|
(511.3
|
)
|
|
$
|
1,161.6
|
|
|
$
|
(417.3
|
)
|
Customer relationships
|
|
|
171.6
|
|
|
|
(53.2
|
)
|
|
|
150.1
|
|
|
|
(70.3
|
)
|
In-process research and development
|
|
|
121.5
|
|
|
|
|
|
|
|
115.7
|
|
|
|
|
|
Other intangibles
|
|
|
190.8
|
|
|
|
(107.1
|
)
|
|
|
184.9
|
|
|
|
(105.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,681.6
|
|
|
$
|
(671.6
|
)
|
|
$
|
1,612.3
|
|
|
$
|
(593.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts capitalized as IPR&D are accounted for as indefinite-lived intangible assets until completion
or abandonment of the project. See Note 3 of the notes to consolidated financial statements for further discussion of IPR&D impairment charges.
Amortization expense was $130.5 million, $119.5 million and $108.8 million in 2016, 2015 and 2014, respectively. The estimated amortization expense for the years 2017 through 2021 based on the
companys amortizable intangible assets as of December 31, 2016 is as follows: 2017 - $127.6 million; 2018 - $123.6 million; 2019 - $119.2 million; 2020 - $107.0 million; and 2021 - $88.5 million.
9. Debt
Long-term debt
including current maturities at December 31 consisted of:
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
(dollars in millions)
|
|
|
|
|
|
|
2.875% notes due 2016
|
|
$
|
|
|
|
$
|
250.2
|
|
1.375% notes due 2018
|
|
|
499.1
|
|
|
|
498.2
|
|
4.40% notes due 2021
|
|
|
496.9
|
|
|
|
496.1
|
|
3.000% notes due 2026
|
|
|
495.9
|
|
|
|
|
|
6.70% notes due 2026
|
|
|
149.8
|
|
|
|
149.8
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,641.7
|
|
|
$
|
1,394.3
|
|
|
|
|
|
|
|
|
|
|
II-45
C. R. BARD, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
As discussed in Note 1 of the notes to consolidated financial statements, the company
retrospectively adopted an accounting standard update that requires debt issuance costs to be presented as a direct deduction from the carrying amount of the related debt. The adoption of this update required the reclassification of $3.7 million
from other assets to long-term debt on the 2015 consolidated balance sheet.
In January 2016, the company redeemed, at
maturity, its 2.875% notes due 2016, primarily through the issuance of commercial paper. On May 9, 2016, the company issued $500 million aggregate principal amount of 3.000% senior unsecured notes due 2026. Interest on the notes is payable
semi-annually. Net proceeds from this offering were approximately $495.6 million, after deducting debt offering costs, consisting of underwriting commissions and offering expenses of $4.3 million and a debt issuance discount of $0.1 million, which
were both recorded to long-term debt. The debt offering costs and debt issuance discount will be amortized over the term of the notes. Net proceeds from the issuance of the notes were used for general corporate purposes, including repayment of
outstanding commercial paper.
With the exception of the 6.70% notes due 2026, the notes included in the above table are
redeemable in whole or in part at any time, at the companys option at specified redemption prices or, at the holders option, upon change of control triggering event, as defined in the applicable indenture.
In November 2016, the company amended its $1.0 billion five-year committed syndicated bank credit facility that was scheduled to expire
in November 2020. The amendment extends the commitment termination date until November 2021. The amended credit facility supports the companys commercial paper program and can be used for general corporate purposes. The facility includes
pricing based on the companys long-term credit ratings and includes a financial covenant that limits the amount of total debt to total capitalization. At December 31, 2016, the company was in compliance with this covenant. There were no
commercial paper borrowings outstanding at December 31, 2016 or 2015.
10. Commitments and Contingencies
In the ordinary course of business, the company is subject to various legal proceedings, investigations and claims, including, for
example, environmental matters, employment disputes, disputes on agreements and other commercial disputes. In addition, the company operates in an industry susceptible to significant product liability and patent legal claims. The company accounts
for estimated losses with respect to legal proceedings and claims when such losses are probable and reasonably estimable. If the estimate of a probable loss is a range and no amount within the range is more likely, the company accrues the minimum
amount of the range. Legal costs associated with these matters are expensed as incurred. At any given time, in the ordinary course of business, the company is involved as either a plaintiff or defendant in a number of patent infringement actions. If
a third partys patent infringement claim were to be determined against the company, the company might be required to make significant royalty or other payments or might be subject to an injunction or other limitation on its ability to
manufacture or distribute one or more products. If a patent owned by or licensed to the company is found to be invalid or unenforceable, the company might be required to reduce the value of certain intangible assets on the companys balance
sheet and to record a corresponding charge, which could be significant in amount. Many of the companys legal proceedings and claims could have a material adverse effect on its business, results of operations, financial condition and/or
liquidity.
The company requires limited product warranty accruals as the majority of the companys products are intended
for single use. Certain of the companys products carry limited warranties that in general do not exceed one year from sale. The company accrues estimated product warranty costs at the time of sale.
II-46
C. R. BARD, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Product Liability Matters
Hernia Product Claims
As of December 31, 2016, approximately 25 federal and 65 state lawsuits involving individual claims by approximately 90 plaintiffs, as well as one putative class action in the United States, are currently
pending against the company with respect to its Composix
®
Kugel
®
and certain other hernia repair implant products (collectively, the Hernia Product Claims).
The company voluntarily recalled certain sizes and lots of the Composix
®
Kugel
®
products beginning in December 2005. In June 2007, the Composix
®
Kugel
®
lawsuits and,
subsequently, other hernia repair product lawsuits, pending in federal courts nationwide were transferred into one Multidistrict Litigation (MDL) for coordinated pre-trial proceedings in the United States District Court for the District
of Rhode Island. The MDL stopped accepting new cases in the second quarter of 2014 and was terminated in November 2016, at which time the remaining federal lawsuits were remanded to their courts of original jurisdiction for trial. As of December 31,
2016, all but one of the putative class actions pending against the company was dismissed. The remaining putative class action pending against the company has not been certified and seeks: (i) medical monitoring; (ii) compensatory damages; (iii)
punitive damages; (iv) a judicial finding of defect and causation; and/or (v) attorneys fees. In April 2014, a settlement was reached with respect to the three putative Canadian class actions within amounts previously recorded by the company.
Approximately 50 of the state lawsuits, involving individual claims by approximately 50 plaintiffs, are pending in the Superior Court of the State of Rhode Island, with the remainder in various other jurisdictions. The Hernia Product Claims also
generally seek damages for personal injury resulting from use of the products.
The company has resolved the majority of its
historical Hernia Product Claims, including through agreements or agreements in principle with various plaintiffs law firms to settle their respective inventories of cases. Each agreement involving the settlement of a firms inventory of
claims was subject to certain conditions, including requirements for participation in the proposed settlements by a certain minimum number of plaintiffs. In addition, the company continues to engage in discussions with other plaintiffs law
firms regarding potential resolution of unsettled Hernia Product Claims, and intends to vigorously defend Hernia Product Claims that do not settle, including through litigation. The company expects additional trials of Hernia Product Claims to take
place over the next 12 months. The company cannot give any assurances that the resolution of the Hernia Product Claims that have not settled, including asserted and unasserted claims and the putative class action lawsuit, will not have a material
adverse effect on the companys business, results of operations, financial condition and/or liquidity.
Womens
Health Product Claims
As of December 31, 2016, product liability lawsuits involving individual claims by approximately
6,235 plaintiffs are currently pending against the company in various federal and state jurisdictions alleging personal injuries associated with the use of certain of the companys surgical continence products for women, which includes products
manufactured by both the company and two subsidiaries of Medtronic plc (as successor in interest to Covidien plc) (Medtronic), each a supplier of the company. Medtronic has an obligation to defend and indemnify the company with respect
to any product defect liability for products its subsidiaries had manufactured. As described below, in July 2015 the company reached an agreement with Medtronic regarding certain aspects of Medtronics indemnification obligation. In addition,
five putative class actions in the United States and five putative class actions in Canada have been filed against the company, and a limited number of other claims have been filed or asserted in various non-U.S. jurisdictions. The foregoing
lawsuits, unfiled or unknown claims, putative class actions and other claims, together with claims that have settled or are the subject of agreements or agreements in principle to settle, are referred to collectively as the Womens Health
Product Claims. The Womens Health Product Claims generally seek damages for personal injury resulting from use of the products. The putative class actions, none of which has been certified, seek: (i) medical monitoring; (ii)
II-47
C. R. BARD, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
compensatory damages; (iii) punitive damages; (iv) a judicial finding of defect and causation; and/or (v) attorneys fees. In April 2015, the Ontario Superior Court of Justice dismissed the
plaintiffs motion for class certification in one Canadian putative class action. In March 2016, the company reached an agreement in principle to resolve all Canadian putative class actions, with the exception of a Quebec class action, within
amounts previously recorded by the company, which settlement was finalized in September 2016. In January 2017, the court approved the discontinuance of the proposed Quebec class action.
In October 2010, the Womens Health Product Claims involving solely Avaulta
®
products pending in federal courts nationwide were transferred into an MDL in the United States District Court for
the Southern District of West Virginia (the WV District Court), the scope of which was later expanded to include lawsuits involving all womens surgical continence products that are manufactured or distributed by the company. The
first trial in a state court was completed in California in July 2012 and resulted in a judgment against the company of approximately $3.6 million. On appeal the decision was affirmed by the appellate court in November 2014. The company filed a
petition for review to the California Supreme Court on December 24, 2014, which was denied on February 18, 2015. The judgment in this matter, including interest and costs, was paid on March 20, 2015 within the amounts previously recorded by the
company. The first trial in the MDL commenced in July 2013 and resulted in a judgment against the company of approximately $2 million, which was upheld by the Fourth Circuit on January 14, 2016. The company does not believe that any verdicts entered
to date are representative of potential outcomes of all Womens Health Product Claims. On January 16, 2014 and July 31, 2014, the WV District Court ordered that the company prepare 200 and then an additional 300 individual cases, respectively,
for trial (the 2014 WHP Pre-Trial Orders) (the timing for which is currently unknown). The 2014 WHP Pre-Trial Orders resulted in significant additional litigation-related defense costs beginning in the second quarter of 2014 and
continuing through the second quarter of 2015. In February 2015, the WV District Court appointed a Special Master to assist with settlement resolution. In June 2015, the WV District Court issued an order staying the requirement to prepare a
significant portion of the cases covered by the 2014 WHP Pre-Trial Orders. Substantially all of the 500 individual cases that are the subject of the 2014 WHP Pre-Trial Orders have been part of agreements or agreements in principle to settle with
various plaintiff law firms. In December 2016, the WV District Court lifted the stay of the 2014 WHP Pre-Trial Orders and remanded five of the unsettled cases to their courts of original jurisdiction for trial. In response to a January 27, 2017
court order, the company is required to prepare an additional approximately 243 individual cases for trial (together with the 2014 WHP Pre-Trial Orders, the WHP Pre-Trial Orders). The WHP Pre-Trial Orders may result in material
additional cost in future periods in defending Womens Health Product Claims. The WV District Court may also order that the company prepare additional cases for trial, which could result in material additional costs in future periods.
As of December 31, 2016, the company reached agreements or agreements in principle with various plaintiffs law firms to
settle their respective inventories of cases totaling approximately 11,000 Womens Health Product Claims, including approximately: 560 during 2014, 6,285 during 2015 and 4,155 during 2016. The company believes that these Womens Health
Product Claims are not the subject of Medtronics indemnification obligation. These settlement agreements and agreements in principle include unfiled and previously unknown claims held by various plaintiffs law firms, which have not been
included in the approximate number of lawsuits set forth in the first paragraph of this section. Each agreement is subject to certain conditions, including requirements for participation in the proposed settlements by a certain minimum number of
plaintiffs. The company continues to engage in discussions with other plaintiffs law firms regarding potential resolution of unsettled Womens Health Product Claims, which may include additional inventory settlements. Notwithstanding
these settlement efforts, the company anticipates additional trials over the next 12 months. In addition, one or more possible consolidated trials may occur in the future.
In July 2015, as part of the agreement noted above, Medtronic agreed to take responsibility for pursuing settlement of certain of the Womens Health Product Claims that relate to products distributed
by the company
II-48
C. R. BARD, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
under supply agreements with Medtronic and the company has paid Medtronic $121 million towards these potential settlements. The company also may, in its sole discretion, transfer responsibility
for settlement of additional Womens Health Product Claims to Medtronic on similar terms. The agreement does not resolve the dispute between the company and Medtronic with respect to Womens Health Product Claims that do not settle, if
any. As part of the agreement, Medtronic and the company agreed to dismiss without prejudice their previously filed litigation with respect to Medtronics obligation to defend and indemnify the company.
The approximate number of lawsuits set forth in the first paragraph of this section does not include approximately 600 generic complaints
involving womens health products where the company cannot, based on the allegations in the complaints, determine whether any of those cases involve the companys womens health products. In addition, the approximate number of
lawsuits set forth in the first paragraph of this section does not include approximately 830 claims that have been threatened against the company but for which complaints have not yet been filed. In addition, the company has limited information
regarding the nature and quantity of these and other unfiled or unknown claims. During the course of engaging in settlement discussions with plaintiffs law firms, the company has learned, and may in future periods learn, additional information
regarding these and other unfiled or unknown claims, or other lawsuits, which could materially impact the companys estimate of the number of claims or lawsuits against the company. While the company continues to engage in discussions with
other plaintiffs law firms regarding potential resolution of unsettled Womens Health Product Claims and intends to vigorously defend the Womens Health Product Claims that do not settle, including through litigation, it cannot give
any assurances that the resolution of these claims will not have a material adverse effect on the companys business, results of operations, financial condition and/or liquidity.
Filter Product Claims
As of December 31, 2016, product liability lawsuits involving individual claims by approximately 1,425 plaintiffs are currently pending against the company in various federal and state jurisdictions
alleging personal injuries associated with the use of the companys vena cava filter products (all lawsuits, collectively, the Filter Product Claims). In August 2015, the Judicial Panel for Multi-District Litigation
(JPML) ordered the creation of a Multi-District Litigation for all federal Filter Product Claims (the IVC Filter MDL) in the District of Arizona. There are approximately 1,375 Filter Product Claims that have been, or shortly
will be, transferred to the IVC Filter MDL, including one medical monitoring class action. The remaining approximately 50 Filter Product Claims are pending in various state courts. In March 2016, a putative Canadian class action was filed against
the company in Quebec. In April 2016 and May 2016, putative Canadian class actions were filed in Ontario and British Columbia, respectively. In November 2016, a putative Canadian class action was filed in Saskatchewan. The approximate number of
lawsuits set forth above does not include approximately 25 claims that have been threatened against the company but for which complaints have not yet been filed. In addition, the company has limited information regarding the nature and quantity of
these and other unfiled or unknown claims. The company continues to receive claims and lawsuits and may in future periods learn additional information regarding other unfiled or unknown claims, or other lawsuits, which could materially impact the
companys estimate of the number of claims or lawsuits against the company. The company expects that trials of Filter Product Claims may take place over the next 12 months. While the company intends to vigorously defend Filter Product Claims
that do not settle, including through litigation, it cannot give any assurances that the resolution of these claims will not have a material adverse effect on the companys business, results of operations, financial condition and/or liquidity.
General
In most product liability litigations (like those described above), plaintiffs allege a wide variety of claims, ranging from allegations of serious injury caused by the products to efforts to obtain
compensation
II-49
C. R. BARD, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
notwithstanding the absence of any injury. In many of these cases, the company has not yet received and reviewed complete information regarding the plaintiffs and their medical conditions and,
consequently, is unable to fully evaluate the claims. The company expects that it will receive and review additional information regarding any remaining unsettled product liability matters.
The company believes that some settlements and judgments, as well as some legal defense costs, relating to product liability matters are
or may be covered in whole or in part under its product liability insurance policies with a limited number of insurance carriers, or, in some circumstances, indemnification obligations to the company from other parties, which if disputed, the
company intends to vigorously contest. Amounts recovered under the companys product liability insurance policies or indemnification arrangements may be less than the stated coverage limits or less than otherwise expected and may not be
adequate to cover damages and/or costs relating to claims. In addition, there is no guarantee that insurers or other parties will pay claims or that coverage or indemnity will be otherwise available.
In January 2017, the company reached an agreement to resolve litigation filed in the Southern District of New York by its insurance
carriers in connection with Womens Health Product Claims and Filter Product Claims. The agreement requires the insurance carriers to reimburse the company for certain future costs incurred in connection with Filter Product Claims up to an
agreed amount. For certain product liability claims or lawsuits, the company does not maintain or has limited remaining insurance coverage.
Other Legal Matters
Since early 2013, the company has received subpoenas or Civil Investigative Demands from a number of State Attorneys General seeking
information related to the sales and marketing of certain of the companys products that are the subject of the Hernia Product Claims and the Womens Health Product Claims. The company is cooperating with these requests. Although the
company has had discussions with the State Attorneys General with respect to overall potential resolution of this matter, there can be no assurance that a resolution will be reached or what the terms of any such resolution may be. Since it is not
feasible to predict the outcome of these proceedings, the company cannot give any assurances that the resolution of these proceedings will not have a material adverse effect on the companys business, results of operations, financial condition
and/or liquidity.
In November 2015, the Department of Defense Inspector General issued an investigative subpoena to the
company. The Department of Health and Human Services is also participating in this investigation. The subpoena seeks documents related to the companys sales and marketing of certain filter products, drug coated balloon catheters, and
peripheral arterial disease detection products. The company is cooperating with these requests. Since it is not feasible to predict the outcome of these proceedings, the company cannot give any assurances that the resolution of these proceedings
will not have a material adverse effect on the companys business, results of operations, financial condition and/or liquidity.
In June 2011, W. L. Gore & Associates, Inc. (Gore) filed suit in the U.S. District Court in Delaware alleging the company had infringed several of Gores patents. Fact and expert
discovery have been completed. In December 2015, the Delaware District Court granted the companys summary judgment motion of no willful infringement. However, that decision was vacated in June 2016 due to a United States Supreme Court ruling
that changed the test for willful infringement historically applied by the lower courts. In July 2016, the companys summary judgment motion of laches (undue delay) was denied, at least in part because of the currently pending Supreme Court
case on this issue, which was heard during the Fall 2016 term. Previously, the company filed a motion to dismiss a significant portion of Gores damages claim on the grounds that Gore lacks proper standing. This motion was converted to a motion
for summary judgment and was granted in July 2016, effectively
II-50
C. R. BARD, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
reducing the amount of potential damages. The trial has been set for March 2017. The company intends to vigorously defend the allegations asserted by Gore. The company cannot give any assurances
that an adverse resolution of this matter will not have a material adverse effect on the companys business, results of operations, financial condition and/or liquidity.
The company is subject to numerous federal, state, local and foreign environmental protection laws governing, among other things, the generation, storage, use and transportation of hazardous materials and
emissions or discharges into the ground, air or water. The company is or may become a party to proceedings brought under various federal laws including the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA), commonly known
as Superfund, the Resource Conservation and Recovery Act, the Clean Water Act, the Clean Air Act and similar state or foreign laws. These proceedings seek to require the owners or operators of contaminated sites, transporters of hazardous materials
to the sites and generators of hazardous materials disposed of at the sites to clean up the sites or to reimburse the government for cleanup costs. In most cases, there are other potentially responsible parties that may be liable for remediation
costs. In these cases, the government alleges that the defendants are jointly and severally liable for the cleanup costs; however, these proceedings are frequently resolved so that the allocation of cleanup costs among the parties more closely
reflects the relative contributions of the parties to the site contamination. The companys potential liability varies greatly from site to site. For some sites, the potential liability is de minimis and for others the costs of cleanup have not
yet been determined. Accruals for estimated losses from environmental remediation obligations generally are recognized no later than completion of the remedial feasibility study and are adjusted as further information develops or circumstances
change. Costs of future expenditures for environmental remediation obligations are not discounted to their present value. Recoveries of environmental remediation costs from other parties are recorded as assets when their receipt is deemed probable.
The company believes that the proceedings and claims described above will likely be resolved over an extended period of time. While it is not feasible to predict the outcome of these proceedings, based upon the companys experience, current
information and applicable law, the company does not expect these proceedings to have a material adverse effect on its financial condition and/or liquidity. However, one or more of the proceedings could be material to the companys business
and/or results of operations.
Litigation Reserves
The company regularly monitors and evaluates the status of product liability and other legal matters, and may, from time-to-time, engage in settlement and mediation discussions taking into consideration
developments in the matters and the risks and uncertainties surrounding litigation. These discussions could result in settlements of one or more of these claims at any time.
In the second quarter of 2014, the company recorded a charge, net of estimated recoveries to other (income) expense, net, of approximately $259 million ($238 million after tax) related to certain of the
product liability matters discussed above under the heading Product Liability Matters. The company recorded this charge based on additional information obtained during the quarter, including but not limited to: the allegations and
documentation supporting or refuting such allegations; publicly available information regarding similar medical device mass tort settlements; historical information regarding other product liability settlements involving the company; and the
procedural posture and stage of litigation. Specifically, the company considered its discussions with plaintiffs counsel, the increase in the rate of claims being filed (which led the company to increase its estimate of future Womens
Health Product Claims), and the value, number of cases and nature of the inventory of cases with respect to the recent settlements of claims by the company and other manufacturers.
In the second quarter of 2015, the company recorded an additional charge related to these matters, net of estimated recoveries to other
(income) expense, net, of approximately $337 million ($325 million after tax). The
II-51
C. R. BARD, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
company recorded this charge based on additional information obtained during the quarter, including with respect to the factors noted above. Specifically the company considered the agreement and
the agreement in principle by the company to settle approximately 2,880 Womens Health Product Claims, the involvement of the Special Master in settlement resolution, additional settlements by other manufacturers subject to product liability
claims with respect to similar products, and the continued rate of claims being filed (which led the company to increase its estimate of future Womens Health Product Claims).
In the third quarter of 2015, the company recorded an additional charge related to these matters to other (income) expense, net, of
approximately $241 million ($228 million after tax). The company recorded this charge based on additional information obtained with respect to the quarter, including with respect to the factors noted above. Specifically, the company considered the
agreements and the agreement in principle by the company to settle approximately 3,030 Womens Health Product Claims, discussions with plaintiffs counsel, additional information learned regarding the nature and quantity of unfiled and
unknown claims (which led the company to increase its estimate of future Womens Health Product Claims), a reconciliation of claims in connection with settlements, additional settlements by other manufacturers subject to product liability
claims with respect to similar products, the rate of claims being filed, and the creation of the IVC Filter MDL.
In the first
quarter of 2016, the company recorded an additional charge related to these matters to other (income) expense, net, of approximately $49 million ($31 million after tax). The company recorded this charge based on additional information obtained with
respect to the quarter. Specifically, the company considered, among other factors, additional information learned regarding the nature and quantity of unfiled and filed claims, the increase in advertising by plaintiffs counsel with respect to
IVC filters and an increase in the rate of claims being filed in Filter Product Claims (which led the company to increase its estimate of future Filter Product Claims).
In the third quarter of 2016, the company recorded an additional charge related to these matters to other (income) expense, net, of approximately $111 million ($77 million after tax). The company recorded
this charge based on additional information obtained with respect to the quarter, including with respect to the factors noted above. Specifically, the company considered, among other factors, additional information learned regarding Product
Liability Matters, including regarding the nature and quantity of unfiled and filed claims and the continued rate of claims being filed in certain Product Liability Matters (which led the company to increase its estimate of future claims for certain
Product Liability Matters, including Filter Product Claims).
In the fourth quarter of 2016, the company recorded an
additional charge related to these matters to other (income) expense, net, of approximately $46 million ($31 million after tax). The company recorded this charge based on additional information obtained with respect to the quarter, including
regarding cases settled by certain other manufacturers, public information available from the court, unfiled and filed claims, the status of certain settlement discussions and information regarding plaintiff law firm inventories.
These charges recognized the estimated costs for the product liability matters discussed above, including (with respect to such matters)
filed and an estimate of unfiled and unknown claims, and costs to administer the settlements related to such matters. These charges exclude any costs associated with certain of the putative class action lawsuits in the United States and Canada.
The company cannot give any assurances that the actual costs incurred with respect to these product liability matters will
not exceed the related amounts accrued. With respect to product liability claims that are not resolved through settlement, the company intends to vigorously defend against such claims, including through litigation. The company cannot give any
assurances that the resolution of any of its product liability matters, including
II-52
C. R. BARD, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
filed, unfiled and unknown claims and the putative class action lawsuits, will not have a material adverse effect on the companys business, results of operations, financial condition and/or
liquidity.
Accruals for product liability and other legal matters amounted to $1,201.5 million, of which $605.3 million was
recorded to accrued expenses, and $1,174.3 million, of which $516.5 million was recorded to accrued expenses, at December 31, 2016 and December 31, 2015, respectively. The company has made total payments of $762.4 million to qualified settlement
funds (QSFs), subject to certain settlement conditions, for certain product liability matters since 2011, of which $375.2 million were made to QSFs during 2016. Payments to QSFs are recorded as a component of restricted cash. Total
payments of $562.7 million from these QSFs have been made to qualified claimants, of which $254.0 million were made during 2016. In addition, other payments of $73.3 million have been made to qualified claimants, of which $10.8 million were made
during 2016.
The company recorded expected recoveries related to product liability matters amounting to $267.3 million, of
which $156.2 million was recorded to other current assets, and $132.8 million, of which $132.1 million was recorded to other assets, at December 31, 2016 and December 31, 2015, respectively. A substantial amount of these expected recoveries at
December 31, 2016 relate to the companys agreements with Medtronic related to certain Womens Health Product Claims. The terms of the companys agreement with Medtronic are substantially consistent with the assumptions underlying,
and the manner in which, the company has recorded expected recoveries related to the indemnification obligation. The expected recoveries at December 31, 2016 and 2015 related to the indemnification obligation are not in dispute with respect to
claims that Medtronic settles pursuant to the agreement. As described above, the agreement does not resolve the dispute between the company and Medtronic with respect to Womens Health Product Claims that do not settle, if any, and the company
also may, in its sole discretion, transfer responsibility for settlement of additional Womens Health Product Claims to Medtronic on similar terms.
The company is unable to estimate the reasonably possible losses or range of losses, if any, arising from certain existing product liability matters and other legal matters. Under U.S. generally accepted
accounting principles, an event is reasonably possible if the chance of the future event or events occurring is more than remote but less than likely and an event is remote if the chance of the future event
or events occurring is slight. With respect to putative class action lawsuits in the United States and certain of the Canadian lawsuits relating to product liability matters, the company is unable to estimate a range of reasonably possible
losses for the following reasons: (i) all or certain of the proceedings are in early stages; (ii) the company has not received and reviewed complete information regarding all or certain of the plaintiffs and their medical conditions; and/or (iii)
there are significant factual issues to be resolved. In addition, there is uncertainty as to the likelihood of a class being certified or the ultimate size of the class. In addition, with respect to the investigative subpoenas issued by various
state and federal government agencies and other legal matters, the company is unable to estimate a range of reasonably possible losses for the following reasons: (i) all or certain of the proceedings are in early stages; and/or (ii) there are
significant factual and legal issues to be resolved. With respect to Gores suit against the company alleging infringement of certain of Gores patents, the company is unable to estimate a range of reasonably possible losses for the
following reasons: (i) the stage of the proceedings; and/or (ii) there are significant factual and legal issues to be resolved.
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: 2017 - $35.0 million; 2018 - $29.8 million; 2019 - $21.6 million; 2020 - $15.3 million; 2021 - $10.3 million and thereafter - $37.0 million. Total rental expense for operating leases
approximated $34.8 million in 2016, $31.7 million in 2015 and $32.3 million in 2014.
II-53
C. R. BARD, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
11. Share-Based Compensation Plans
The company may grant a variety of share-based payments under the 2012 Long Term Incentive Plan of C. R. Bard, Inc., as amended and
restated (the LTIP) and the 2005 Directors Stock Award Plan of C. R. Bard, Inc., as amended and restated (the Directors Plan) to certain directors, officers and employees. The total number of remaining shares at
December 31, 2016 that may be issued under the LTIP was 3,639,647 and under the Directors Plan was 21,890. Awards under the LTIP may be in the form of stock options, stock appreciation rights, limited stock appreciation rights, restricted
stock, unrestricted stock and other stock-based awards. Awards under the Directors Plan may be in the form of stock awards, stock options or stock appreciation rights. The company also has two employee stock purchase programs.
Amounts charged against income for share-based payment arrangements were $90.0 million for 2016, $81.8 million for 2015 and $71.4 million
for 2014. The related income tax benefit recognized in income for share-based payment arrangements was $30.2 million for 2016, $27.7 million for 2015 and $24.2 million for 2014.
As of December 31, 2016, there were $144.3 million of unrecognized compensation costs related to share-based payment arrangements. These
costs are expected to be recognized over a weighted-average period of approximately two years. The company has sufficient shares to satisfy expected share-based payment arrangements in 2017.
Stock Options
- The company grants stock options to certain employees and may grant stock options to directors with exercise
prices equal to the average of the high and low prices of the companys common stock on the date of grant. These stock option awards generally have requisite service periods of up to four years, and ten-year contractual terms. Certain stock
option awards granted in prior years provided for accelerated vesting after a minimum of two years subject to performance conditions, which were met. Summarized information regarding total stock option activity and amounts for the year ended
December 31, 2016 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
Options
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining
Contractual
Term (years)
|
|
|
Aggregate
Intrinsic
Value
(millions)
|
|
Outstanding - January 1
|
|
|
3,918,435
|
|
|
$
|
124.77
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
249,213
|
|
|
|
218.15
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(795,663
|
)
|
|
|
97.31
|
|
|
|
|
|
|
|
|
|
Canceled/forfeited
|
|
|
(76,106
|
)
|
|
|
155.19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding - December 31
|
|
|
3,295,879
|
|
|
$
|
137.76
|
|
|
|
6.5
|
|
|
$
|
286.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable
|
|
|
2,129,474
|
|
|
$
|
113.99
|
|
|
|
5.35
|
|
|
$
|
235.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The company uses a binomial-lattice option valuation model to estimate the fair value of stock options.
The assumptions used to estimate the fair value of the companys stock option grants for the following years ended December 31 are:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Dividend yield
|
|
|
0.5
|
%
|
|
|
0.5
|
%
|
|
|
0.6
|
%
|
Risk-free interest rate
|
|
|
1.6
|
%
|
|
|
1.3
|
%
|
|
|
1.2
|
%
|
Expected option life in years
|
|
|
7.4
|
|
|
|
6.5
|
|
|
|
6.5
|
|
Expected volatility
|
|
|
21
|
%
|
|
|
21
|
%
|
|
|
21
|
%
|
Option fair value
|
|
$
|
54.71
|
|
|
$
|
40.94
|
|
|
$
|
35.69
|
|
II-54
C. R. BARD, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Compensation expense related to stock options was $23.9 million, $22.6 million and $19.4
million for the years ended December 31, 2016, 2015 and 2014, respectively. At December 31, 2016, there were $31.6 million of total unrecognized compensation costs related to nonvested stock options. These costs are expected to be
recognized over a weighted-average period of approximately two years. During the years ended December 31, 2016, 2015 and 2014, 650,782, 730,082 and 709,882 options, respectively, vested with a weighted-average fair value of $31.45, $26.11 and
$23.07, respectively. The total intrinsic value of stock options exercised during 2016, 2015 and 2014 was $91.7 million, $94.6 million and $95.7 million, respectively.
Cash received from stock option exercises for the years ended December 31, 2016, 2015 and 2014 was $75.0 million, $89.4 million and $120.9 million, respectively. The actual tax benefit realized
for the tax deductions from option exercises was $30.3 million, $32.1 million and $32.2 million for the years ended December 31, 2016, 2015 and 2014, respectively.
Restricted Stock and Units
Restricted stock awards entitle employees to voting and dividend rights. Restricted stock units entitle employees to dividend rights. Certain restricted stock awards
have performance features. Restricted stock and unit grants have requisite service periods of between four to five years. Compensation expense related to restricted stock and units was $23.1 million, $23.8 million and $21.7 million for the years
ended December 31, 2016, 2015 and 2014, respectively. At December 31, 2016, there were $52.9 million of total unrecognized compensation costs related to nonvested restricted stock and unit awards. These costs are expected to be recognized over a
weighted-average period of approximately two years. The activity in the nonvested restricted stock and unit awards for the year ended December 31, 2016 is as follows:
|
|
|
|
|
|
|
|
|
|
|
Number of
Shares
|
|
|
Weighted
Average
Grant Date
Fair Value
|
|
Outstanding - January 1
|
|
|
471,920
|
|
|
$
|
147.41
|
|
Granted
|
|
|
178,825
|
|
|
|
219.63
|
|
Vested
|
|
|
(165,115
|
)
|
|
|
129.87
|
|
Forfeited
|
|
|
(12,542
|
)
|
|
|
153.13
|
|
|
|
|
|
|
|
|
|
|
Outstanding - December 31
|
|
|
473,088
|
|
|
$
|
180.67
|
|
|
|
|
|
|
|
|
|
|
Other Restricted Stock Units
Certain other restricted stock units have requisite service
periods of between four and seven years. No voting or dividend rights are associated with these grants until the underlying shares are issued upon vesting. Compensation expense related to these awards was $9.1 million, $7.3 million and $7.1 million
for the years ended December 31, 2016, 2015 and 2014, respectively. At December 31, 2016, there were $31.7 million of total unrecognized compensation costs related to these nonvested restricted stock unit awards. These costs are expected
to be recognized over a weighted-average period of approximately four years. The activity in the nonvested restricted stock unit awards for the year ended December 31, 2016 is as follows:
|
|
|
|
|
|
|
|
|
|
|
Number of
Shares
|
|
|
Weighted
Average
Grant Date
Fair Value
|
|
Outstanding - January 1
|
|
|
406,533
|
|
|
$
|
115.30
|
|
Granted
|
|
|
99,240
|
|
|
|
200.12
|
|
Vested
|
|
|
(79,750
|
)
|
|
|
96.65
|
|
Forfeited
|
|
|
(23,933
|
)
|
|
|
139.71
|
|
|
|
|
|
|
|
|
|
|
Outstanding - December 31
|
|
|
402,090
|
|
|
$
|
138.47
|
|
|
|
|
|
|
|
|
|
|
II-55
C. R. BARD, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Performance Restricted Stock Units
In the first quarter of each of 2016,
2015 and 2014, the company granted performance restricted stock units to officers. These units have requisite service periods of three years and have no dividend rights. Compensation expense related to performance restricted stock units was $18.8
million, $14.9 million and $12.7 million for the years ended December 31, 2016, 2015 and 2014, respectively. At December 31, 2016, there were $19.4 million of total unrecognized compensation costs related to nonvested performance restricted
stock units. These costs are expected to be recognized over a weighted-average period of approximately two years. The actual payout of these units varies based on the companys performance over the three-year period based on pre-established
targets over the period and a market condition modifier based on total shareholder return (TSR) compared to an industry peer group. The actual payout under these awards may exceed an officers target payout; however, compensation
cost initially recognized assumes that the target payout level will be achieved and may be adjusted for subsequent changes in the expected outcome of the performance-related condition. The fair values of these units are based on the market price of
the companys stock on the date of the grant and use a Monte Carlo simulation model for the TSR component. The fair values of the TSR components of the 2016, 2015 and 2014 grants were estimated based on the following assumptions: risk-free
interest rate of 0.83%, 0.86% and 0.70%, respectively; dividend yield of 0.52%, 0.51% and 0.62%, respectively; and expected life of approximately 2.9 years for the 2016 and 2014 grants and 2.8 years for the 2015 grant. At December 31, 2016 and 2015,
there were 313,412 and 304,751 nonvested performance restricted stock units outstanding, respectively.
Other Stock-Based
Awards
The company grants stock awards to directors. Shares have been generally distributed to directors annually and have a requisite service period of three years. The fair value of these awards is charged to compensation expense over the
directors terms. Restrictions limit the sale or transfer of these awards until the awarded stock vests. There are voting and dividend rights associated with these awards. Compensation expense related to these stock awards was $0.8 million for
both of the years ended December 31, 2016 and 2015, and $0.9 million for the year ended December 31, 2014. At December 31, 2016, there were $0.4 million of total unrecognized compensation costs related to nonvested other stock-based
awards. These costs are expected to be recognized over a weighted-average period of approximately two years. At December 31, 2016 and 2015, nonvested other stock-based awards of 13,076 and 13,741 shares, respectively, were outstanding.
Management Stock Purchase Program
The company maintains a management stock purchase program under the Plan (together with a
predecessor stock purchase plan, the MSPP). Under the MSPP, employees at a specified level may purchase, with their eligible annual bonus, common stock units at a 30% discount from the lower of the price of the common stock on
July 1 of the previous year or on the date of purchase, which occurs on the date bonuses are approved by the Board of Directors. Employees make an election on or before June 30 of the previous year as to the percentage of their eligible
annual bonus that will be used to purchase common stock units under the MSPP. The companys predecessor plan provided for the purchase of shares of the companys common stock. Employees are required to allocate at least 25% of their
eligible annual bonuses to purchase common stock units under the MSPP to the extent they have not satisfied certain stock ownership guidelines. MSPP shares or units are restricted from sale or transfer for four years from the purchase date. Only
shares or units corresponding to the 30% discount are forfeited if the employees employment terminates prior to the end of the four-year vesting period. Dividends or dividend-equivalents are paid on MSPP shares or units, and the
II-56
C. R. BARD, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
participant has the right to vote all MSPP shares. The activity in the MSPP for the year ended December 31, 2016 is as follows:
|
|
|
|
|
|
|
|
|
|
|
Number of
Shares
|
|
|
Weighted
Average
Grant Date
Fair Value
|
|
Outstanding - January 1
|
|
|
197,997
|
|
|
$
|
39.70
|
|
Purchased
|
|
|
54,359
|
|
|
|
60.54
|
|
Vested
|
|
|
(44,562
|
)
|
|
|
32.44
|
|
Forfeited
|
|
|
(7,790
|
)
|
|
|
47.96
|
|
|
|
|
|
|
|
|
|
|
Outstanding - December 31
|
|
|
200,004
|
|
|
$
|
46.66
|
|
|
|
|
|
|
|
|
|
|
The company uses the Black-Scholes model, as a result of the option-like features of the MSPP, to
estimate the expense associated with anticipated MSPP purchases. Compensation expense is recognized over a period that will end four years after purchase. The assumptions used for the following years ended December 31 are:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Dividend yield
|
|
|
0.5
|
%
|
|
|
0.6
|
%
|
|
|
0.6
|
%
|
Risk-free interest rate
|
|
|
0.39
|
%
|
|
|
0.16
|
%
|
|
|
0.07
|
%
|
Expected life in years
|
|
|
0.6
|
|
|
|
0.6
|
|
|
|
0.6
|
|
Expected volatility
|
|
|
18
|
%
|
|
|
17
|
%
|
|
|
20
|
%
|
Fair value
|
|
$
|
83.23
|
|
|
$
|
60.47
|
|
|
$
|
51.82
|
|
Compensation expense related to this program was $10.7 million, $9.2 million and $6.7 million for the
years ended December 31, 2016, 2015 and 2014, respectively. At December 31, 2016, there were $8.3 million of total unrecognized compensation costs related to nonvested MSPP shares and units. These costs are expected to be recognized over a
weighted-average period of approximately two years.
Employee Stock Purchase Plan
Under the Employee Stock
Purchase Plan of C. R. Bard, Inc. as Amended and Restated (ESPP), domestic employees and certain foreign employees can purchase Bard stock at a 15% discount to the lesser of the market price on the beginning or ending date of the
six-month periods ending June 30 and December 31 of each year. Participants in the ESPP may elect to make after-tax payroll deductions of 1% to 10% of compensation as defined by the plan up to the stated maximum of $20,000 per year. The
ESPP is intended to meet the requirements of Section 423 of the Internal Revenue Code of 1986, as amended. At December 31, 2016, 185,383 shares were available for purchase under the ESPP. Employee payroll deductions are for six-month
periods beginning each January 1 and July 1. Shares of the companys common stock are purchased on June 30 or December 31 or the following business day, unless either the purchase of such shares was delayed at the election
of the participant or the participants employment was terminated. Purchased shares are restricted for sale or transfer for a six-month period. All participant funds received prior to the ESPP purchase dates are held as company liabilities
without interest or other increment. No dividends are paid on employee contributions until shares are purchased.
The company
values the ESPP purchases utilizing the Black-Scholes model. The weighted average assumptions used for the following years ended December 31 are:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Dividend yield
|
|
|
0.5
|
%
|
|
|
0.6
|
%
|
|
|
0.6
|
%
|
Risk-free interest rate
|
|
|
0.45
|
%
|
|
|
0.14
|
%
|
|
|
0.08
|
%
|
Expected life in years
|
|
|
0.5
|
|
|
|
0.5
|
|
|
|
0.5
|
|
Expected volatility
|
|
|
21
|
%
|
|
|
17
|
%
|
|
|
18
|
%
|
Fair value
|
|
$
|
42.71
|
|
|
$
|
33.45
|
|
|
$
|
27.73
|
|
II-57
C. R. BARD, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Compensation expense related to this plan was $3.6 million, $3.2 million and
$2.9 million for the years ended December 31, 2016, 2015 and 2014, respectively. For the years ended December 31, 2016 and 2015, employees purchased 94,841 and 107,359 shares, respectively.
12. Pension and Other Postretirement Benefit Plans
Defined Benefit Pension Plans
The company has both tax-qualified and
nonqualified, noncontributory defined benefit pension plans that together cover certain domestic and foreign employees. These plans provide benefits based upon a participants compensation and years of service. The nonqualified plans are made
up of the following arrangements: a nonqualified supplemental deferred compensation arrangement and a nonqualified excess pension deferred compensation arrangement (together, the nonqualified plans). The nonqualified supplemental
deferred compensation arrangement provides supplemental income to key executives of the company. The benefit is determined by the accumulation of an account balance that results from a percentage of pay credit and interest. No deferrals of pay are
required from participants. The balance is paid to a participant after retirement over a 15-year period. The nonqualified excess pension deferred compensation arrangement provides benefits to key employees that cannot be provided by the qualified
plan due to IRS limitations.
The change in benefit obligation, change in fair value of plan assets and funded status for the
plans are as follows:
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
(dollars in millions)
|
|
|
|
|
|
|
Benefit obligation - beginning
|
|
$
|
586.9
|
|
|
$
|
544.0
|
|
Service cost
|
|
|
29.2
|
|
|
|
30.1
|
|
Interest cost
|
|
|
19.0
|
|
|
|
20.2
|
|
TransfersMedicon
|
|
|
(19.1
|
)
|
|
|
25.4
|
|
Curtailment
|
|
|
(5.9
|
)
|
|
|
|
|
Actuarial loss (gain)
|
|
|
24.3
|
|
|
|
6.1
|
|
Benefits paid
|
|
|
(31.8
|
)
|
|
|
(33.1
|
)
|
Currency/other
|
|
|
(13.3
|
)
|
|
|
(5.8
|
)
|
|
|
|
|
|
|
|
|
|
Benefit obligation - ending
|
|
$
|
589.3
|
|
|
$
|
586.9
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets - beginning
|
|
$
|
462.6
|
|
|
$
|
455.6
|
|
Actual return on plan assets
|
|
|
35.6
|
|
|
|
(5.1
|
)
|
Company contributions
|
|
|
34.8
|
|
|
|
31.6
|
|
TransfersMedicon
|
|
|
(19.0
|
)
|
|
|
17.9
|
|
Benefits paid
|
|
|
(31.8
|
)
|
|
|
(33.1
|
)
|
Currency/other
|
|
|
(12.5
|
)
|
|
|
(4.3
|
)
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets - ending
|
|
$
|
469.7
|
|
|
$
|
462.6
|
|
|
|
|
|
|
|
|
|
|
Funded status of the plans, December 31
|
|
$
|
(119.6
|
)
|
|
$
|
(124.3
|
)
|
|
|
|
|
|
|
|
|
|
Foreign benefit plan assets at fair value included in the preceding table were $86.8 million and
$107.8 million at December 31, 2016 and 2015, respectively. The foreign pension plan benefit obligations included in this table were $102.4 million and $123.1 million at December 31, 2016 and 2015, respectively. The benefit obligation for
nonqualified plans also included in this table was $86.4 million and $78.9 million at December 31, 2016 and 2015, respectively. The nonqualified plans are generally not funded.
II-58
C. R. BARD, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
At December 31, 2016 and 2015, the accumulated benefit obligation for all pension plans
was $537.6 million and $526.4 million, respectively. At December 31, 2016 and 2015, the accumulated benefit obligation for foreign pension plans was $87.6 million and $105.5 million, respectively. The accumulated benefit obligation for the
nonqualified plans was $82.8 million and $75.1 million at December 31, 2016 and 2015, respectively.
For pension plans
with benefit obligations in excess of plan assets at December 31, 2016 and 2015, the fair value of plan assets was $469.7 million and $444.7 million, respectively, and the benefit obligation was $589.3 million and $576.3 million,
respectively. For pension plans with accumulated benefit obligations in excess of plan assets at December 31, 2016 and 2015, the fair value of plan assets was $8.0 million and $7.1 million, respectively, and the accumulated benefit obligation
was $94.6 million and $96.6 million, respectively.
Defined benefit plans are an exception to the recognition and fair value
measurement principles in business combinations. Defined benefit plan obligations are recognized and measured in accordance with the accounting principles for benefit plans rather than at fair value. Accordingly, at the time of acquisition, the
company remeasured the benefit plans sponsored by Medicon and recognized an asset or liability for the funded status of these plans. See Note 2 of the notes to consolidated financial statements.
In the fourth quarter of 2016, the Medicon defined benefit pension plans were frozen to further benefit accruals and closed to new
participants. This action required a remeasurement of the plans assets and obligations, which resulted in a non-cash curtailment gain of $5.3 million. These plans were converted to a defined contribution plan.
Amounts recognized in accumulated other comprehensive loss at December 31 consisted of:
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
(dollars in millions)
|
|
|
|
|
|
|
Net loss
|
|
$
|
169.2
|
|
|
$
|
163.7
|
|
Prior service credit
|
|
|
(1.9
|
)
|
|
|
(2.7
|
)
|
|
|
|
|
|
|
|
|
|
Before tax amount
|
|
$
|
167.3
|
|
|
$
|
161.0
|
|
|
|
|
|
|
|
|
|
|
After tax amount
|
|
$
|
108.7
|
|
|
$
|
103.8
|
|
|
|
|
|
|
|
|
|
|
The change in net loss in the above table included net losses of $16.7 million ($11.3 million after tax)
and $41.3 million ($26.5 million after tax) during the years ended December 31, 2016 and 2015, respectively.
Amounts
recognized in the consolidated balance sheets at December 31 consisted of:
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
(dollars in millions)
|
|
|
|
|
|
|
Other assets
|
|
$
|
|
|
|
$
|
7.2
|
|
Accrued compensation and benefits
|
|
|
(4.6
|
)
|
|
|
(4.6
|
)
|
Other long-term liabilities
|
|
|
(115.0
|
)
|
|
|
(126.9
|
)
|
|
|
|
|
|
|
|
|
|
Net amount recognized
|
|
$
|
(119.6
|
)
|
|
$
|
(124.3
|
)
|
|
|
|
|
|
|
|
|
|
II-59
C. R. BARD, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
The estimated net actuarial loss for pension benefits that will be amortized from
accumulated other comprehensive loss into net pension cost over the next fiscal year is expected to be $12.7 million.
The
components of net periodic benefit cost for the following years ended December 31 are:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
(dollars in millions)
|
|
|
|
|
|
|
|
|
|
Service cost, net of employee contributions
|
|
$
|
28.8
|
|
|
$
|
29.6
|
|
|
$
|
26.9
|
|
Interest cost
|
|
|
19.0
|
|
|
|
20.2
|
|
|
|
21.2
|
|
Expected return on plan assets
|
|
|
(32.1
|
)
|
|
|
(31.3
|
)
|
|
|
(27.9
|
)
|
Amortization of net loss
|
|
|
10.8
|
|
|
|
12.4
|
|
|
|
10.4
|
|
Amortization of prior service cost
|
|
|
(0.4
|
)
|
|
|
(0.4
|
)
|
|
|
(0.4
|
)
|
Curtailment
|
|
|
(5.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic pension cost
|
|
$
|
20.8
|
|
|
$
|
30.5
|
|
|
$
|
30.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The net pension cost attributable to foreign plans included in the above table were a credit of $0.5
million in 2016 and cost of $4.4 million and $4.2 million in 2015 and 2014, respectively.
The weighted average
assumptions used in determining pension plan information for the following years ended December 31 are:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Net Cost
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate service cost
|
|
|
4.26
|
%
|
|
|
3.79
|
%
|
|
|
4.58
|
%
|
Discount rate interest cost
|
|
|
3.47
|
%
|
|
|
3.79
|
%
|
|
|
4.58
|
%
|
Expected return on plan assets
|
|
|
6.72
|
%
|
|
|
7.17
|
%
|
|
|
7.26
|
%
|
Rate of compensation increase
|
|
|
3.57
|
%
|
|
|
3.42
|
%
|
|
|
3.49
|
%
|
Benefit Obligation
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
3.91
|
%
|
|
|
4.03
|
%
|
|
|
3.79
|
%
|
Rate of compensation increase
|
|
|
3.58
|
%
|
|
|
3.57
|
%
|
|
|
3.42
|
%
|
Prior to 2016, the company estimated the service and interest cost components using a single
weighted-average discount rate derived from the yield curves used to measure the benefit obligation. In 2016, the company changed its method used to estimate the service and interest cost components of net periodic benefit cost for defined benefit
plans. The company has elected to use a full yield curve approach in the estimation of these components of benefit cost by applying the specific spot rates along the yield curve used in the determination of the benefit obligation to the relevant
projected cash flows. The company made this change to improve the correlation between projected benefit cash flows and the corresponding yield curve spot rates and to provide a more precise measurement of service and interest costs. The company has
accounted for this change as a change in estimate and began to account for it prospectively in 2016. The reduction in service and interest cost for 2016 associated with this change in estimate was approximately $4.8 million.
The long-term rate of return for plan assets is derived from return assumptions determined for each of the significant asset classes.
Under this approach, the historical real returns (net of inflation) on different asset classes are combined with long-term expectations for inflation to determine an expected return on assets within that class. These real rates of return for each
asset class reflect the long-term historical relationships between equities and fixed income investments. Current market factors such as inflation and interest rates are evaluated before long-term assumptions are determined. The long-term portfolio
return is established based on the combination of these asset class real returns and inflation with proper consideration of the effects of diversification and rebalancing.
II-60
C. R. BARD, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Plan Assets
The company employs a total return investment approach whereby a
mix of equities and fixed income investments are used to balance the need for long-term return of plan assets with a prudent level of risk. The intent of this strategy is to minimize plan expenses by exceeding the interest growth in plan liabilities
over the long run. Risk tolerance is established through careful consideration of plan liabilities, plan funded status and corporate financial condition. This consideration involves the use of long-term measures that address both return and risk and
are not impacted significantly by short-term fluctuations. Equity investments include a diversified mix of growth, value and small and large capitalization securities. Investment risks and returns are measured and monitored on an ongoing basis
through quarterly investment portfolio reviews.
The weighted average target asset allocations for the plans at December 31,
are as follows:
|
|
|
|
|
|
|
|
|
|
|
Target Allocation
|
|
|
|
2016
|
|
|
2015
|
|
Asset Categories
|
|
|
|
|
|
|
|
|
Equity securities
|
|
|
65
|
%
|
|
|
63
|
%
|
Fixed income securities
|
|
|
33
|
%
|
|
|
35
|
%
|
Cash equivalents
|
|
|
2
|
%
|
|
|
2
|
%
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
Due to short-term fluctuations in asset performance, allocation percentages may temporarily deviate from
these target allocation percentages before a rebalancing occurs. Cash equivalents are used to satisfy benefit disbursement requirements and will vary throughout the year.
The following table summarizes fair value measurements of plan assets at December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
|
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
|
Total
(B)
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
(dollars in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents
|
|
$
|
3.4
|
|
|
$
|
7.1
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
3.4
|
|
|
$
|
7.1
|
|
Equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. large-cap
|
|
|
125.7
|
|
|
|
117.3
|
|
|
|
|
|
|
|
|
|
|
|
125.7
|
|
|
|
117.3
|
|
U.S. small-cap
|
|
|
40.6
|
|
|
|
37.2
|
|
|
|
|
|
|
|
|
|
|
|
40.6
|
|
|
|
37.2
|
|
Foreign
|
|
|
118.0
|
|
|
|
117.3
|
|
|
|
|
|
|
|
|
|
|
|
118.0
|
|
|
|
117.3
|
|
Fixed income securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diversified bond funds
(A)
|
|
|
131.6
|
|
|
|
121.1
|
|
|
|
|
|
|
|
2.1
|
|
|
|
131.6
|
|
|
|
123.2
|
|
Foreign government bonds
|
|
|
11.5
|
|
|
|
17.5
|
|
|
|
|
|
|
|
3.9
|
|
|
|
11.5
|
|
|
|
21.4
|
|
Foreign corporate notes and bonds
|
|
|
11.3
|
|
|
|
12.7
|
|
|
|
|
|
|
|
|
|
|
|
11.3
|
|
|
|
12.7
|
|
Private alternative investment
|
|
|
|
|
|
|
|
|
|
|
19.6
|
|
|
|
19.3
|
|
|
|
19.6
|
|
|
|
19.3
|
|
Guaranteed insurance contracts
|
|
|
|
|
|
|
|
|
|
|
8.0
|
|
|
|
7.1
|
|
|
|
8.0
|
|
|
|
7.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total plan assets
|
|
$
|
442.1
|
|
|
$
|
430.2
|
|
|
$
|
27.6
|
|
|
$
|
32.4
|
|
|
$
|
469.7
|
|
|
$
|
462.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(A)
|
Diversified bond funds consists of U.S. Treasury bonds, mortgage backed
securities, and corporate bonds.
|
(B)
|
There were no plan assets categorized as Level 3 at December 31, 2016 or 2015.
|
II-61
C. R. BARD, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
As discussed in Note 1 of the notes to consolidated financial statements, the company
adopted a new accounting standard update that clarifies that an equity security has a readily determinable fair value if it meets certain conditions. As a result, certain plan assets previously reported as Level 2 were reclassified to Level 1 in the
fair value hierarchy for which fair value is readily determinable. These assets include commingled funds invested in cash equivalents, equities and fixed income securities and are valued at net asset value (NAV) as determined by the fund
administrators.
Plan assets categorized as Level 2 primarily consist of private alternative investments, guaranteed insurance
contracts and fixed income securities. These assets are valued using other inputs, such as NAV provided by the fund administrators or by dealer quotes for similarly-rated instruments that are observable or that can be corroborated by observable
market data for substantially the remaining term of the plan instruments. There were no redemption restrictions on these investments other than for the private alternative investment, which requires a 60 day notice period for quarterly redemptions
and a 90 day notice period for monthly redemptions, or unfunded commitments related to assets valued at NAV at December 31, 2016.
Funding Policy and Expected Contributions
The companys objective in funding its domestic tax-qualified plan is to accumulate funds sufficient to provide for all benefits and to satisfy
the minimum contribution requirements of ERISA. Outside the United States, the companys objective is to fund the international retirement costs over time within the limits of minimum requirements and allowable tax deductions. The
companys annual funding decisions also consider the relationship between the returns on each asset compared to the plans corresponding expense and consider the relationship between each tax-qualified plans benefit obligation and
its corresponding funded status. The company expects to make discretionary contributions of up to $30 million to its qualified plans in 2017.
The total expected benefit payments are as follows:
|
|
|
|
|
(dollars in millions)
|
|
|
|
2017
|
|
$
|
33.9
|
|
2018
|
|
|
32.4
|
|
2019
|
|
|
34.1
|
|
2020
|
|
|
36.1
|
|
2021
|
|
|
35.5
|
|
2022 through 2026
|
|
|
206.6
|
|
Defined Contribution Retirement Plans
All domestic employees of the company not covered by a collective bargaining agreement who have been scheduled for 1,000 hours of service are eligible to participate in the companys defined
contribution plan. The amounts charged to income for this plan were $16.0 million, $15.9 million and $14.1 million for the years ended December 31, 2016, 2015 and 2014, respectively. Outside the United States, the company maintains defined
contribution plans along with small pension arrangements that are typically funded with insurance products. These arrangements had a total expense of $5.3 million for the year ended December 31, 2016 and $5.1 million for each of the years ended
December 31, 2015 and 2014. In addition, the company maintains a long-term deferred compensation arrangement for directors that allows for the deferral of the annual retainer and meeting fees at the directors election and provides certain
other long-term compensation benefits. The company annually accrues for long-term compensation, which is paid out upon the directors retirement from the board. These arrangements had a total expense of $6.9 million, $5.5 million and $6.9
million for the years ended December 31, 2016, 2015 and 2014, respectively, and a benefit obligation of $36.1 million and $35.4 million at December 31, 2016 and 2015, respectively.
II-62
C. R. BARD, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Other Postretirement Benefit Plan
The company does not provide subsidized postretirement healthcare benefits and life insurance coverage except for a limited number of
former employees. As this plan is unfunded, contributions are made as benefits are incurred. The benefit obligation for this plan was $6.2 million and $7.0 million at December 31, 2016 and 2015, respectively. Amounts recognized in accumulated other
comprehensive loss were $1.5 million ($0.9 million after tax) for the year ended December 31, 2016 and $2.0 million ($1.3 million after tax) for the year ended December 31, 2015. The net periodic benefit cost was $0.3 million, $0.4 million and $0.5
million for the years ended December 31, 2016, 2015 and 2014, respectively.
13. Other (Income) Expense, Net
The components of other (income) expense, net, for the following years ended December 31 are:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
(dollars in millions)
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
$
|
(1.6
|
)
|
|
$
|
(0.9
|
)
|
|
$
|
(2.0
|
)
|
Foreign exchange (gains) losses
|
|
|
(1.8
|
)
|
|
|
3.8
|
|
|
|
1.7
|
|
Litigation charges, net
|
|
|
205.2
|
|
|
|
595.1
|
|
|
|
288.6
|
|
Restructuring and productivity initiative costs
|
|
|
30.4
|
|
|
|
41.5
|
|
|
|
11.8
|
|
Acquisition-related items
|
|
|
(1.3
|
)
|
|
|
24.7
|
|
|
|
2.3
|
|
Gore Proceeds
|
|
|
|
|
|
|
(210.5
|
)
|
|
|
|
|
Gain on sale of investment
|
|
|
|
|
|
|
|
|
|
|
(7.1
|
)
|
Other, net
|
|
|
(1.5
|
)
|
|
|
(4.5
|
)
|
|
|
(4.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other (income) expense, net
|
|
$
|
229.4
|
|
|
$
|
449.2
|
|
|
$
|
290.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Litigation charges, net
In 2016, the amount reflected the estimated costs for product
liability matters, net of recoveries. In 2015, the amount reflected estimated costs for product liability matters, net of recoveries, litigation-related defense costs of $15.1 million in connection with the 2014 WHP Pre-Trial Orders, and certain
other litigation-related charges. In 2014, the amount reflected estimated costs for product liability matters, net of recoveries, and litigation-related defense costs of $30.1 million in connection with the 2014 WHP Pre-Trial Orders. See Note 10 of
the notes to consolidated financial statements.
Restructuring and productivity initiative costs
In 2016, 2015
and 2014, the amounts primarily reflected costs incurred in connection with productivity initiatives to optimize and streamline certain manufacturing and administrative functions to better align resources to the companys business strategies.
Key activities under these initiatives may include systems enhancements, the implementation of shared services centers designed to standardize and centralize certain functions or the outsourcing of certain services. Productivity initiative costs
include consulting costs, primarily related to program creation and management, employee separation costs under the companys existing severance program, and other related costs. In 2015 and 2014, employee separation costs of $10.3 million and
$1.7 million, respectively, were recognized related to these initiatives. In 2015, the amount also reflected employee separation costs of $7.9 million related to the elimination of certain positions and other terminations worldwide. In 2014, the
amount also reflected employee separation costs of $7.5 million primarily to improve the overall cost structure in certain of the companys vascular businesses.
Acquisition-related items
The amounts for 2016, 2015 and 2014 consist of acquisition-related integration costs. The amounts for 2016 and 2015 also include acquisition-related purchase
accounting adjustments. See Note 2 of the notes to consolidated financial statements.
Gore Proceeds
In 2015,
Gore paid the company $210.5 million, representing the total amount of the enhanced damages awarded by the U.S. District Court for the District of Arizona due to Gores willfulness in
II-63
C. R. BARD, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
connection with the companys lawsuit against Gore for infringing Bards patent number 6,436,135 and an audit adjustment related to the payment of royalties through September 30, 2013
(the Gore Proceeds).
14. Other Comprehensive Income
The changes in accumulated other comprehensive income (loss) by component are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative
Instruments
Designated as
Cash Flow Hedges
|
|
|
Foreign Currency
Translation
Adjustments
|
|
|
Benefit
Plans
(C)
|
|
|
Total
|
|
(dollars in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2013
|
|
$
|
|
|
|
$
|
47.3
|
|
|
$
|
(68.2
|
)
|
|
$
|
(20.9
|
)
|
Other comprehensive income (loss) before reclassifications
|
|
|
2.5
|
|
|
|
(50.4
|
)
|
|
|
(39.9
|
)
|
|
|
(87.8
|
)
|
Tax (provision) benefit
(A)
|
|
|
(2.0
|
)
|
|
|
|
|
|
|
14.9
|
|
|
|
12.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss) before reclassifications, net of taxes
|
|
|
0.5
|
|
|
|
(50.4
|
)
|
|
|
(25.0
|
)
|
|
|
(74.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassifications
|
|
|
0.6
|
(B)
|
|
|
|
|
|
|
10.1
|
|
|
|
10.7
|
|
Tax provision (benefit)
|
|
|
(0.2
|
)
|
|
|
|
|
|
|
(3.5
|
)
|
|
|
(3.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassifications, net of tax
|
|
|
0.4
|
|
|
|
|
|
|
|
6.6
|
|
|
|
7.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss)
|
|
|
0.9
|
|
|
|
(50.4
|
)
|
|
|
(18.4
|
)
|
|
|
(67.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2014
|
|
$
|
0.9
|
|
|
$
|
(3.1
|
)
|
|
$
|
(86.6
|
)
|
|
$
|
(88.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss) before reclassifications
|
|
$
|
(2.6
|
)
|
|
$
|
(91.1
|
)
|
|
$
|
(40.9
|
)
|
|
$
|
(134.6
|
)
|
Tax (provision) benefit
(A)
|
|
|
0.7
|
|
|
|
|
|
|
|
14.6
|
|
|
|
15.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss) before reclassifications, net of taxes
|
|
|
(1.9
|
)
|
|
|
(91.1
|
)
|
|
|
(26.3
|
)
|
|
|
(119.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassifications
|
|
|
(11.1
|
)
(B)
|
|
|
|
|
|
|
12.1
|
|
|
|
1.0
|
|
Tax provision (benefit)
|
|
|
3.4
|
|
|
|
|
|
|
|
(4.3
|
)
|
|
|
(0.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassifications, net of tax
|
|
|
(7.7
|
)
|
|
|
|
|
|
|
7.8
|
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss)
|
|
|
(9.6
|
)
|
|
|
(91.1
|
)
|
|
|
(18.5
|
)
|
|
|
(119.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2015
|
|
$
|
(8.7
|
)
|
|
$
|
(94.2
|
)
|
|
$
|
(105.1
|
)
|
|
$
|
(208.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss) before reclassifications
|
|
$
|
(13.3
|
)
|
|
$
|
(21.8
|
)
|
|
$
|
(16.4
|
)
|
|
$
|
(51.5
|
)
|
Tax (provision) benefit
(A)
|
|
|
2.7
|
|
|
|
|
|
|
|
5.1
|
|
|
|
7.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss) before reclassifications, net of taxes
|
|
|
(10.6
|
)
|
|
|
(21.8
|
)
|
|
|
(11.3
|
)
|
|
|
(43.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassifications
|
|
|
9.8
|
(B)
|
|
|
|
|
|
|
10.6
|
|
|
|
20.4
|
|
Tax provision (benefit)
|
|
|
(0.4
|
)
|
|
|
|
|
|
|
(3.8
|
)
|
|
|
(4.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassifications, net of tax
|
|
|
9.4
|
|
|
|
|
|
|
|
6.8
|
|
|
|
16.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss)
|
|
|
(1.2
|
)
|
|
|
(21.8
|
)
|
|
|
(4.5
|
)
|
|
|
(27.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2016
|
|
$
|
(9.9
|
)
|
|
$
|
(116.0
|
)
|
|
$
|
(109.6
|
)
|
|
$
|
(235.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(A)
|
Income taxes are not provided for foreign currency translation adjustments.
|
(B)
|
See Note 6 of the notes to consolidated financial statements.
|
(C)
|
These components are included in the computation of net periodic pension
cost. See Note 12 of the notes to consolidated financial statements.
|
II-64
C. R. BARD, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
15. Segment Information
The companys management considers its business to be a single segment entity the manufacture and sale of medical devices. The companys products generally share similar distribution
channels and customers. The company designs, develops, manufactures, packages, distributes and sells medical, surgical, diagnostic and patient care devices. The company sells a broad range of products to hospitals, individual healthcare
professionals, extended care health facilities and alternate site facilities on a global basis. In general, the companys products are intended to be used once and then discarded or either temporarily or permanently implanted. The
companys chief operating decision makers evaluate their various global product portfolios on a net sales basis and generally evaluate profitability and associated investment on an enterprise-wide basis due to shared geographic infrastructures.
Net sales based on the location of the external customer and identifiable assets by geographic region for the following years
ended December 31 are:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
(dollars in millions)
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
2,559.5
|
|
|
$
|
2,378.4
|
|
|
$
|
2,263.5
|
|
Europe
|
|
|
446.4
|
|
|
|
439.5
|
|
|
|
488.5
|
|
Asia-Pacific
(A)
|
|
|
489.4
|
|
|
|
388.6
|
|
|
|
354.6
|
|
Other
(A)
|
|
|
218.7
|
|
|
|
209.5
|
|
|
|
217.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,714.0
|
|
|
$
|
3,416.0
|
|
|
$
|
3,323.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(A)
|
Beginning in 2016, net sales for Asia-Pacific are separately reported. Prior year amounts have been reclassified to conform to the current year
presentation.
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
(dollars in millions)
|
|
|
|
|
|
|
Long-lived assets
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
410.3
|
|
|
$
|
398.5
|
|
Europe
|
|
|
48.7
|
|
|
|
49.5
|
|
Asia-Pacific
(B)
|
|
|
24.8
|
|
|
|
19.0
|
|
Other
(B)
|
|
|
5.7
|
|
|
|
5.4
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
489.5
|
|
|
$
|
472.4
|
|
|
|
|
|
|
|
|
|
|
(B)
|
Beginning in 2016, amounts for Asia-Pacific are separately reported. Prior year amounts have been reclassified to conform to the current year
presentation.
|
Total net sales by product group category for the following years ended December 31 are:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
(dollars in millions)
|
|
|
|
|
|
|
|
|
|
Vascular
|
|
$
|
1,014.9
|
|
|
$
|
970.3
|
|
|
$
|
928.3
|
|
Urology
|
|
|
951.8
|
|
|
|
845.0
|
|
|
|
835.9
|
|
Oncology
|
|
|
1,012.1
|
|
|
|
936.9
|
|
|
|
910.9
|
|
Surgical Specialties
|
|
|
637.3
|
|
|
|
572.3
|
|
|
|
555.1
|
|
Other
|
|
|
97.9
|
|
|
|
91.5
|
|
|
|
93.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,714.0
|
|
|
$
|
3,416.0
|
|
|
$
|
3,323.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
II-65
C. R. BARD, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
16. Unaudited Interim Financial Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
1st Qtr
|
|
|
2nd Qtr
|
|
|
3rd Qtr
|
|
|
4th Qtr
|
|
|
Year
|
|
(dollars in millions except per share amounts)
|
|
|
|
|
|
|
Net sales
|
|
$
|
873.5
|
|
|
$
|
931.5
|
|
|
$
|
941.9
|
|
|
$
|
967.1
|
|
|
$
|
3,714.0
|
|
Cost of goods sold
|
|
|
320.4
|
|
|
|
351.0
|
|
|
|
352.2
|
|
|
|
348.1
|
|
|
|
1,371.7
|
|
Income from operations before income taxes
|
|
|
142.9
|
|
|
|
207.7
|
|
|
|
112.2
|
|
|
|
200.9
|
|
|
|
663.7
|
|
Net income
|
|
|
116.2
|
|
|
|
159.2
|
|
|
|
96.4
|
|
|
|
159.6
|
|
|
|
531.4
|
|
Basic earnings per share available to common shareholders
|
|
|
1.56
|
|
|
|
2.14
|
|
|
|
1.30
|
|
|
|
2.15
|
|
|
|
7.15
|
|
Diluted earnings per share available to common shareholders
|
|
|
1.54
|
|
|
|
2.11
|
|
|
|
1.27
|
|
|
|
2.11
|
|
|
|
7.03
|
|
The first quarter 2016 included litigation charges of $48.9 million, net charges from acquisition-related
items of $4.5 million primarily consisting of a purchase accounting adjustment of $5.8 million associated with the reversal of a liability with respect to certain revenue-based and manufacturing-related milestones, and restructuring and productivity
initiative costs of $9.8 million. These items decreased net income by $39.4 million after tax, or $0.52 diluted earnings per share available to common shareholders.
The second quarter 2016 included restructuring and productivity initiative costs of $11.9 million, net charges from acquisition-related items of $3.9 million primarily consisting of integration costs, and
an asset impairment of $1.2 million. These items decreased net income by $11.3 million after tax, or $0.15 diluted earnings per share available to common shareholders.
The third quarter 2016 included litigation charges of $110.6 million, acquisition-related items of $5.0 million primarily consisting of integration costs, and restructuring and productivity initiative
costs of $4.6 million. The income tax provision decreased $2.6 million due to the completion of certain IRS examinations. These items decreased net income by $81.5 million after tax, or $1.08 diluted earnings per share available to common
shareholders.
The fourth quarter 2016 included litigation charges, net, of $45.7 million, a net benefit from
acquisition-related items of $6.8 million primarily consisting of a benefit of $3.8 million related to integration costs and a benefit of $3.7 million related to purchase accounting adjustments, and restructuring and productivity initiative costs of
$4.1 million. These items decreased net income by $27.6 million after tax, or $0.37 diluted earnings per share available to common shareholders.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2015
|
|
1st Qtr
|
|
|
2nd Qtr
|
|
|
3rd Qtr
|
|
|
4th Qtr
|
|
|
Year
|
|
(dollars in millions except per share amounts)
|
|
|
|
|
|
|
Net sales
|
|
$
|
819.7
|
|
|
$
|
859.8
|
|
|
$
|
865.7
|
|
|
$
|
870.8
|
|
|
$
|
3,416.0
|
|
Cost of goods sold
|
|
|
311.2
|
|
|
|
333.7
|
|
|
|
336.3
|
|
|
|
320.0
|
|
|
|
1,301.2
|
|
Income (loss) from operations before income taxes
|
|
|
184.6
|
|
|
|
59.2
|
|
|
|
(52.4
|
)
|
|
|
158.0
|
|
|
|
349.4
|
|
Net income (loss)
|
|
|
139.8
|
|
|
|
(54.7
|
)
|
|
|
(86.0
|
)
|
|
|
136.3
|
|
|
|
135.4
|
|
Basic earnings (loss) per share available to common shareholders
(A)
|
|
|
1.85
|
|
|
|
(0.74
|
)
|
|
|
(1.16
|
)
|
|
|
1.82
|
|
|
|
1.80
|
|
Diluted earnings (loss) per share available to common shareholders
(A)
|
|
|
1.82
|
|
|
|
(0.74
|
)
(B)
|
|
|
(1.16
|
)
(B)
|
|
|
1.79
|
|
|
|
1.77
|
|
(A)
|
Total per share amounts may not add due to rounding.
|
(B)
|
Common share equivalents primarily from share-based compensation plans were
not included in the computation of diluted weighted average shares outstanding because their effect would have been antidilutive.
|
The first quarter 2015 included litigation charges of $10.3 million, a net benefit from acquisition-related items of $9.2 million primarily consisting of a purchase accounting adjustment of $10.2 million
associated with
II-66
C. R. BARD, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
the reversal of a liability with respect to a certain revenue-based milestone, and restructuring and productivity initiative costs of $3.9 million. These items decreased net income by $2.6
million after tax, or $0.03 diluted earnings per share available to common shareholders.
The second quarter 2015 included
litigation charges, net, of $343.7 million, a gain of $210.5 million related to the Gore Proceeds, restructuring and productivity initiative costs of $8.5 million, and net charges from acquisition-related items of $4.5 million. These items increased
net loss by $209.0 million after tax, or $2.73 diluted loss per share available to common shareholders.
The third quarter
2015 included litigation charges of $241.1 million, restructuring and productivity initiative costs of $14.6 million, and acquisition-related items of $2.5 million primarily consisting of integration costs. These items increased net loss by $240.5
million after tax, or $3.14 diluted loss per share available to common shareholders.
The fourth quarter 2015 included net
charges from acquisition-related items of $33.9 million primarily consisting of purchase accounting adjustments of $24.3 million and integration costs of $5.4 million, restructuring and productivity initiative costs of $14.5 million, and an asset
impairment of $4.5 million. These items decreased net income by $28.3 million after tax, or $0.37 diluted earnings per share available to common shareholders.
II-67
C. R. BARD, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)