10-Q: Quarterly report pursuant to Section 13 or 15(d)
Published on August 6, 2019
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
|
For the quarterly period ended June 30, 2019
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the transition period from to
Commission file number 001-4802
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer
Identification No.)
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(Address of principal executive offices) (Zip Code) |
(Registrant’s telephone number, including area code) |
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Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class |
Trading Symbol |
Name of Each Exchange on Which Registered |
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of large accelerated filer, accelerated filer, smaller reporting company, and emerging growth company in Rule 12b-2 of the Exchange Act.
☒ |
Accelerated filer |
☐ |
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Non-accelerated filer |
☐ |
Smaller reporting company |
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Emerging growth company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. |
☐ |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
There were 269,954,141 shares of Common Stock, $1.00 par value, outstanding at June 30, 2019.
BECTON, DICKINSON AND COMPANY
FORM 10-Q
For the quarterly period ended June 30, 2019
TABLE OF CONTENTS
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Page
Number
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Part I. |
FINANCIAL INFORMATION |
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Item 1. |
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Item 2. |
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Item 3. |
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Item 4. |
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Part II. |
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Item 1. |
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Item 1A. |
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Item 2. |
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Item 3. |
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Item 4. |
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Item 5. |
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Item 6. |
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2
ITEM 1. FINANCIAL STATEMENTS
BECTON, DICKINSON AND COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
Millions of dollars
June 30, 2019 |
September 30, 2018 |
||||||
Assets |
(Unaudited) |
||||||
Current Assets: |
|||||||
Cash and equivalents |
$ |
$ |
|||||
Restricted cash |
|||||||
Short-term investments |
|||||||
Trade receivables, net |
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Inventories: |
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Materials |
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Work in process |
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Finished products |
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Assets held for sale |
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Prepaid expenses and other |
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Total Current Assets |
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Property, Plant and Equipment |
|||||||
Less allowances for depreciation and amortization |
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Property, Plant and Equipment, Net |
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Goodwill |
|||||||
Developed Technology, Net |
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Customer Relationships, Net |
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Other Intangibles, Net |
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Other Assets |
|||||||
Total Assets |
$ |
$ |
|||||
Liabilities and Shareholders’ Equity |
|||||||
Current Liabilities: |
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Short-term debt |
$ |
$ |
|||||
Payables and accrued expenses |
|||||||
Total Current Liabilities |
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Long-Term Debt |
|||||||
Long-Term Employee Benefit Obligations |
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Deferred Income Taxes and Other |
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Commitments and Contingencies (See Note 5) |
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Shareholders’ Equity |
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Preferred stock |
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Common stock |
|||||||
Capital in excess of par value |
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Retained earnings |
|||||||
Deferred compensation |
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Common stock in treasury - at cost |
( |
) |
( |
) |
|||
Accumulated other comprehensive loss |
( |
) |
( |
) |
|||
Total Shareholders’ Equity |
|||||||
Total Liabilities and Shareholders’ Equity |
$ |
$ |
|||||
Amounts may not add due to rounding.
See notes to condensed consolidated financial statements
3
BECTON, DICKINSON AND COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Millions of dollars, except per share data
(Unaudited)
Three Months Ended June 30, |
Nine Months Ended June 30, |
||||||||||||||
2019 |
2018 |
2019 |
2018 |
||||||||||||
Revenues |
$ |
$ |
$ |
$ |
|||||||||||
Cost of products sold |
|||||||||||||||
Selling and administrative expense |
|||||||||||||||
Research and development expense |
|||||||||||||||
Acquisitions and other restructurings |
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Other operating expense, net |
|||||||||||||||
Total Operating Costs and Expenses |
|||||||||||||||
Operating Income |
|||||||||||||||
Interest expense |
( |
) |
( |
) |
( |
) |
( |
) |
|||||||
Interest income |
|||||||||||||||
Other (expense) income, net |
( |
) |
|||||||||||||
Income Before Income Taxes |
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Income tax provision |
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Net Income |
|||||||||||||||
Preferred stock dividends |
( |
) |
( |
) |
( |
) |
( |
) |
|||||||
Net income applicable to common shareholders |
$ |
$ |
$ |
$ |
|||||||||||
Basic Earnings per Share |
$ |
$ |
$ |
$ |
|||||||||||
Diluted Earnings per Share |
$ |
$ |
$ |
$ |
|||||||||||
Dividends per Common Share |
$ |
$ |
$ |
$ |
|||||||||||
Amounts may not add due to rounding.
See notes to condensed consolidated financial statements
4
BECTON, DICKINSON AND COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Millions of dollars
(Unaudited)
Three Months Ended June 30, |
Nine Months Ended June 30, |
||||||||||||||
2019 |
2018 |
2019 |
2018 |
||||||||||||
Net Income |
$ |
$ |
$ |
$ |
|||||||||||
Other Comprehensive (Loss) Income, Net of Tax |
|||||||||||||||
Foreign currency translation adjustments |
( |
) |
( |
) |
( |
) |
( |
) |
|||||||
Defined benefit pension and postretirement plans |
( |
) |
|||||||||||||
Cash flow hedges |
( |
) |
( |
) |
|||||||||||
Other Comprehensive (Loss) Income, Net of Tax |
( |
) |
( |
) |
( |
) |
|||||||||
Comprehensive Income |
$ |
$ |
$ |
$ |
|||||||||||
Amounts may not add due to rounding.
See notes to condensed consolidated financial statements
5
BECTON, DICKINSON AND COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Millions of dollars
(Unaudited)
Nine Months Ended June 30, |
|||||||
2019 |
2018 |
||||||
Operating Activities |
|||||||
Net income |
$ |
$ |
|||||
Adjustments to net income to derive net cash provided by operating activities: |
|||||||
Depreciation and amortization |
|||||||
Share-based compensation |
|||||||
Deferred income taxes |
( |
) |
( |
) |
|||
Change in operating assets and liabilities |
( |
) |
|||||
Pension obligation |
( |
) |
( |
) |
|||
Excess tax benefits from payments under share-based compensation plans |
|||||||
Gain on sale of Vyaire interest |
( |
) |
|||||
Gain on sale of business |
( |
) |
|||||
Product liability-related charge |
|||||||
Other, net |
( |
) |
( |
) |
|||
Net Cash Provided by Operating Activities |
|||||||
Investing Activities |
|||||||
Capital expenditures |
( |
) |
( |
) |
|||
Proceeds from sale of investments, net |
|||||||
Acquisitions of businesses, net of cash acquired |
( |
) |
|||||
Proceeds from divestitures, net |
|||||||
Other, net |
( |
) |
( |
) |
|||
Net Cash Used for Investing Activities |
( |
) |
( |
) |
|||
Financing Activities |
|||||||
Change in credit facility borrowings |
|||||||
Proceeds from long-term debt and term loans |
|||||||
Payments of debt and term loans |
( |
) |
( |
) |
|||
Dividends paid |
( |
) |
( |
) |
|||
Other, net |
( |
) |
( |
) |
|||
Net Cash (Used for) Provided by Financing Activities |
( |
) |
|||||
Effect of exchange rate changes on cash and equivalents and restricted cash |
( |
) |
( |
) |
|||
Net decrease in cash and equivalents and restricted cash |
( |
) |
( |
) |
|||
Opening Cash and Equivalents and Restricted Cash |
|||||||
Closing Cash and Equivalents and Restricted Cash |
$ |
$ |
|||||
Non-Cash Investing Activities |
|||||||
Fair value of shares issued as acquisition consideration |
$ |
$ |
|||||
Fair value of equity awards issued as acquisition consideration |
$ |
$ |
|||||
Amounts may not add due to rounding.
See notes to condensed consolidated financial statements
6
BECTON, DICKINSON AND COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2019
Note 1 – Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and, in the opinion of the management of Becton, Dickinson and Company (the "Company" or "BD"), include all adjustments which are of a normal recurring nature, necessary for a fair presentation of the financial position and the results of operations and cash flows for the periods presented. However, the financial statements do not include all information and accompanying notes required for a presentation in accordance with U.S. generally accepted accounting principles ("U.S. GAAP"). These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in the Company’s 2018 Annual Report on Form 10-K. Within the financial statements and tables presented, certain columns and rows may not add due to the use of rounded numbers for disclosure purposes. Percentages and earnings per share amounts presented are calculated from the underlying amounts. The results of operations for the interim periods are not necessarily indicative of the results of operations to be expected for the full year.
Note 2 – Accounting Changes
New Accounting Principles Adopted
On October 1, 2018, the Company adopted Accounting Standards Codification Topic 606, "Revenue from Contracts with Customers" ("ASC 606") using the modified retrospective method. Under ASC 606, revenue is recognized upon the transfer of control of goods or services to customers and reflects the amount of consideration to which a reporting entity expects to be entitled in exchange for those goods or services. The Company assessed the impact of this new standard on its consolidated financial statements based upon a review of contracts that were not completed as of October 1, 2018. Amounts presented in the Company's financial statements for the prior-year periods have not been revised and are reflective of the revenue recognition requirements which were in effect for those periods. This accounting standard adoption, which is further discussed in Note 6, did not materially impact any line items of the Company's consolidated income statements and balance sheet.
On October 1, 2018, the Company retrospectively adopted an accounting standard update which requires all components of net periodic pension and postretirement benefit costs to be disaggregated from the service cost component and to be presented on the income statement outside a subtotal of income from operations, if one is presented. Upon the Company's adoption of the accounting standard update, which did not have a material impact on its consolidated financial statements, all components of the Company’s net periodic pension and postretirement benefit costs, aside from service cost, are recorded to Other income (expense), net on its consolidated income statements for all periods presented. Revisions of prior-year period amounts were estimated based upon previously disclosed amounts.
On October 1, 2018, the Company adopted an accounting standard update which requires that the income tax effects of intercompany sales or transfers of assets, except those involving inventory, be recognized in the income statement as income tax expense (or benefit) in the period that the sale or transfer occurs. The Company adopted this accounting standard update, which did not have a material impact on its consolidated financial statements, using the modified retrospective method.
New Accounting Principle Not Yet Adopted
In February 2016, the FASB issued a new lease accounting standard which requires lessees to recognize lease assets and lease liabilities on the balance sheet. The new standard also requires expanded disclosures regarding leasing arrangements. The Company is in the process of evaluating the impact on its consolidated financial statements and anticipates most of its current operating leases will result in the recognition of right-of-use assets and corresponding lease liabilities on its consolidated balance sheet. The new standard is not expected to materially impact the Company's results of operations. The Company will adopt the standard on October 1, 2019 and will elect the transition method that allows application of the new standard at its adoption date, rather than at the earliest comparative period presented in the financial statements.
7
Note 3 – Shareholders' Equity
Changes in certain components of shareholders' equity for the first three quarters of fiscal years 2019 and 2018 were as follows:
|
Common
Stock Issued
at Par Value
|
Capital in
Excess of
Par Value
|
Retained
Earnings
|
Deferred
Compensation
|
Treasury Stock |
||||||||||||||||||
(Millions of dollars) |
Shares (in
thousands)
|
Amount |
||||||||||||||||||||
Balance at September 30, 2018 |
$ |
$ |
$ |
$ |
( |
) |
$ |
( |
) |
|||||||||||||
Net income |
— |
— |
— |
— |
— |
|||||||||||||||||
Common dividends ($0.77 per share) |
— |
— |
( |
) |
— |
— |
— |
|||||||||||||||
Preferred dividends |
— |
— |
( |
) |
— |
— |
— |
|||||||||||||||
Common stock issued for share-based compensation and other plans, net |
— |
( |
) |
— |
||||||||||||||||||
Share-based compensation |
— |
— |
— |
— |
— |
|||||||||||||||||
Common stock held in trusts, net (a) |
— |
— |
— |
— |
( |
) |
— |
|||||||||||||||
Effect of changes in accounting principles (see Note 2) |
— |
— |
— |
— |
— |
|||||||||||||||||
Balance at December 31, 2018 |
$ |
$ |
$ |
$ |
( |
) |
$ |
( |
) |
|||||||||||||
Net income |
— |
— |
— |
— |
— |
|||||||||||||||||
Common dividends ($0.77 per share) |
— |
— |
( |
) |
— |
— |
— |
|||||||||||||||
Preferred dividends |
— |
— |
( |
) |
— |
— |
— |
|||||||||||||||
Common stock issued for share-based compensation and other plans, net |
— |
( |
) |
( |
) |
( |
) |
|||||||||||||||
Share-based compensation |
— |
— |
— |
— |
— |
|||||||||||||||||
Common stock held in trusts, net (a) |
— |
— |
— |
— |
— |
|||||||||||||||||
Balance at March 31, 2019 |
$ |
$ |
$ |
$ |
( |
) |
$ |
( |
) |
|||||||||||||
Net income |
— |
— |
— |
— |
— |
|||||||||||||||||
Common dividends ($0.77 per share) |
— |
— |
( |
) |
— |
— |
— |
|||||||||||||||
Preferred dividends |
— |
— |
( |
) |
— |
— |
— |
|||||||||||||||
Common stock issued for share-based compensation and other plans, net |
— |
( |
) |
— |
— |
( |
) |
|||||||||||||||
Share-based compensation |
— |
— |
— |
— |
— |
|||||||||||||||||
Common stock held in trusts, net (a) |
— |
— |
— |
— |
— |
|||||||||||||||||
Balance at June 30, 2019 |
$ |
$ |
$ |
$ |
( |
) |
$ |
( |
) |
|||||||||||||
8
|
Common
Stock Issued
at Par Value
|
Capital in
Excess of
Par Value
|
Retained
Earnings
|
Deferred
Compensation
|
Treasury Stock |
||||||||||||||||||
(Millions of dollars) |
Shares (in
thousands)
|
Amount |
||||||||||||||||||||
Balance at September 30, 2017 |
$ |
$ |
$ |
$ |
( |
) |
$ |
( |
) |
|||||||||||||
Net loss |
— |
— |
( |
) |
— |
— |
— |
|||||||||||||||
Common dividends ($0.75 per share) |
— |
— |
( |
) |
— |
— |
— |
|||||||||||||||
Preferred dividends |
— |
— |
( |
) |
— |
— |
— |
|||||||||||||||
Common stock issued for acquisition |
— |
— |
— |
|||||||||||||||||||
Common stock issued for share-based compensation and other plans, net |
— |
( |
) |
— |
— |
( |
) |
|||||||||||||||
Share-based compensation |
— |
— |
— |
— |
— |
|||||||||||||||||
Common stock held in trusts, net (a) |
— |
— |
— |
— |
( |
) |
— |
|||||||||||||||
Balance at December 31, 2017 |
$ |
$ |
$ |
$ |
( |
) |
$ |
( |
) |
|||||||||||||
Net loss |
— |
— |
( |
) |
— |
— |
— |
|||||||||||||||
Common dividends ($0.75 per share) |
— |
— |
( |
) |
— |
— |
— |
|||||||||||||||
Preferred dividends |
— |
— |
( |
) |
— |
— |
— |
|||||||||||||||
Common stock issued for acquisition |
— |
( |
) |
— |
— |
— |
— |
|||||||||||||||
Common stock issued for share-based compensation and other plans, net |
— |
( |
) |
( |
) |
|||||||||||||||||
Share-based compensation |
— |
— |
— |
— |
— |
|||||||||||||||||
Common stock held in trusts, net (a) |
— |
— |
— |
— |
— |
|||||||||||||||||
Effect of changes in accounting principles |
— |
— |
— |
— |
— |
|||||||||||||||||
Balance at March 31, 2018 |
$ |
$ |
$ |
$ |
( |
) |
$ |
( |
) |
|||||||||||||
Net income |
— |
— |
— |
— |
— |
|||||||||||||||||
Common dividends ($0.75 per share) |
— |
— |
( |
) |
— |
— |
— |
|||||||||||||||
Preferred dividends |
— |
— |
( |
) |
— |
— |
— |
|||||||||||||||
Common stock issued for share-based compensation and other plans, net |
— |
( |
) |
( |
) |
|||||||||||||||||
Share-based compensation |
— |
— |
— |
— |
— |
|||||||||||||||||
Common stock held in trusts, net (a) |
— |
— |
— |
— |
( |
) |
— |
|||||||||||||||
Balance at June 30, 2018 |
$ |
$ |
$ |
$ |
( |
) |
$ |
( |
) |
|||||||||||||
(a) |
Common stock held in trusts represents rabbi trusts in connection with deferred compensation under the Company’s employee salary and bonus deferral plan and directors’ deferral plan. |
9
The components and changes of Accumulated other comprehensive income (loss) for the first three quarters of fiscal years 2019 and 2018 were as follows:
(Millions of dollars) |
Total |
Foreign Currency
Translation
|
Benefit Plans |
Cash Flow Hedges
|
|||||||||||
Balance at September 30, 2018 |
$ |
( |
) |
$ |
( |
) |
$ |
( |
) |
$ |
( |
) |
|||
Other comprehensive (loss) income before reclassifications, net of taxes |
( |
) |
( |
) |
( |
) |
|||||||||
Amounts reclassified into income, net of taxes |
|||||||||||||||
Balance at December 31, 2018 |
$ |
( |
) |
$ |
( |
) |
$ |
( |
) |
$ |
( |
) |
|||
Other comprehensive income (loss) before reclassifications, net of taxes |
( |
) |
|||||||||||||
Amounts reclassified into income, net of taxes |
|||||||||||||||
Balance at March 31, 2019 |
$ |
( |
) |
$ |
( |
) |
$ |
( |
) |
$ |
( |
) |
|||
Other comprehensive loss before reclassifications, net of taxes |
( |
) |
( |
) |
|||||||||||
Amounts reclassified into income, net of taxes |
( |
) |
|||||||||||||
Balance at June 30, 2019 |
$ |
( |
) |
$ |
( |
) |
$ |
( |
) |
$ |
( |
) |
|||
(Millions of dollars) |
Total |
Foreign Currency
Translation
|
Benefit Plans |
Cash Flow Hedges
|
|||||||||||
Balance at September 30, 2017 |
$ |
( |
) |
$ |
( |
) |
$ |
( |
) |
$ |
( |
) |
|||
Other comprehensive loss before reclassifications, net of taxes |
( |
) |
( |
) |
|||||||||||
Amounts reclassified into income, net of taxes |
|||||||||||||||
Balance at December 31, 2017 |
$ |
( |
) |
$ |
( |
) |
$ |
( |
) |
$ |
( |
) |
|||
Other comprehensive income before reclassifications, net of taxes |
|||||||||||||||
Amounts reclassified into income, net of taxes |
|||||||||||||||
Tax effects reclassified into retained earnings |
( |
) |
( |
) |
( |
) |
|||||||||
Balance at March 31, 2018 |
$ |
( |
) |
$ |
( |
) |
$ |
( |
) |
$ |
( |
) |
|||
Other comprehensive (loss) income before reclassifications, net of taxes |
( |
) |
( |
) |
|||||||||||
Amounts reclassified into income, net of taxes |
|||||||||||||||
Balance at June 30, 2018 |
$ |
( |
) |
$ |
( |
) |
$ |
( |
) |
$ |
( |
) |
|||
10
Note 4 – Earnings per Share
The weighted average common shares used in the computations of basic and diluted earnings per share (shares in thousands) were as follows:
Three Months Ended June 30, |
Nine Months Ended June 30, |
||||||||||
2019 |
2018 |
2019 |
2018 |
||||||||
Average common shares outstanding |
|||||||||||
Dilutive share equivalents from share-based plans |
|||||||||||
Average common and common equivalent shares outstanding – assuming dilution |
|||||||||||
Share equivalents excluded from the diluted shares outstanding calculation because the result would have been antidilutive: |
|||||||||||
Mandatory convertible preferred stock |
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Note 5 – Contingencies
Given the uncertain nature of litigation generally, the Company is not able, in all cases, to estimate the amount or range of loss that could result from an unfavorable outcome of the litigation to which the Company is a party. In accordance with U.S. GAAP, the Company establishes accruals to the extent probable future losses are estimable (in the case of environmental matters, without considering possible third-party recoveries). With respect to putative class action lawsuits in the United States and certain of the Canadian lawsuits described below 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. With respect to the civil investigative demand served by the Department of Justice, as discussed below, 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.
In view of the uncertainties discussed below, the Company could incur charges in excess of any currently established accruals and, to the extent available, liability insurance. In the opinion of management, any such future charges, individually or in the aggregate, could have a material adverse effect on the Company’s consolidated results of operations and consolidated cash flows.
Product Liability Matters
The Company believes that certain settlements and judgments, as well as 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 Company’s 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.
Hernia Product Claims
As of June 30, 2019, the Company is defending approximately 8,795 product liability claims involving the Company’s line of hernia repair devices (collectively, the “Hernia Product Claims”). The majority of those claims are currently pending in a coordinated proceeding in Rhode Island State Court, but claims are also pending in other state and/or federal court jurisdictions. In addition, those claims include multiple putative class actions in Canada. Generally, the Hernia Product Claims seek damages for personal injury allegedly resulting from use of the products. From time to time, the Company engages in resolution discussions with plaintiffs’ law firms regarding certain of the Hernia Product Claims, but the Company also intends to vigorously defend Hernia Product Claims that do not settle, including through litigation. Trials are scheduled throughout 2020 in various state and/or federal courts. The Company expects additional trials of Hernia Product Claims to take place over the next 12 months. In August 2018, a new hernia multi-district litigation (“MDL”) was ordered to be established in the Southern District of Ohio. 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 lawsuits, will not have a material adverse effect
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on the Company’s business, results of operations, financial condition and/or liquidity.
Women’s Health Product Claims
As of June 30, 2019, the Company is defending approximately 985 product liability claims involving the Company’s line of pelvic mesh devices. The majority of those claims are currently pending in either the federal MDL in the United States District Court for the Southern District of West Virginia, or a coordinated proceeding in New Jersey State Court, but claims are also pending in other state and/or federal court jurisdictions. In addition, those claims include putative class actions filed in the United States. Not included in the figures above are approximately 1,010 filed and unfiled claims that have been asserted or threatened against the Company but lack sufficient information to determine whether a pelvic mesh device of the Company is actually at issue. The claims identified above also include 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 relating to products its subsidiaries had manufactured. As described below, in July 2015 the Company reached an agreement with Medtronic (which was amended in June 2017) regarding certain aspects of Medtronic’s indemnification obligation. The foregoing lawsuits, unfiled 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 “Women’s Health Product Claims.” The Women’s Health Product Claims generally seek damages for personal injury allegedly resulting from use of the products.
As of June 30, 2019, the Company has reached agreements or agreements in principle with various plaintiffs’ law firms to settle their respective inventories of cases totaling approximately 15,160 of the Women’s Health Product Claims. The Company believes that these Women’s Health Product Claims are not the subject of Medtronic’s indemnification obligation. These settlement agreements and agreements in principle include unfiled and previously unknown claims held by various plaintiffs’ law firms, which are not 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 Women’s Health Product Claims, which may include additional inventory settlements.
Starting in 2014 in the MDL, the court entered certain pre-trial orders requiring trial work up and remand of a significant number of Women’s Health Product Claims, including an order entered in the MDL on January 30, 2018, that requires the work up and remand of all remaining unsettled cases (the “WHP Pre-Trial Orders”). The WHP Pre-Trial Orders may result in material additional costs or trial verdicts in future periods in defending Women’s Health Product Claims. Trials are anticipated throughout 2019 in state courts. A trial in the New Jersey coordinated proceeding began in March 2018, and in April 2018 a jury entered a verdict against the Company in the total amount of $68 million ($33 million compensatory; $35 million punitive). The Company is in the process of appealing that verdict. A consolidated trial involving two plaintiffs is scheduled to begin in September 2019 in the New Jersey coordinated proceeding. The Company expects additional trials of Women’s Health Product Claims to take place over the next 12 months, which may potentially include consolidated trials.
In July 2015, as part of the agreement with Medtronic noted above, Medtronic agreed to take responsibility for pursuing settlement of certain of the Women’s Health Product Claims that relate to products distributed by the Company under supply agreements with Medtronic, and the Company has paid Medtronic $121 million towards these potential settlements. In June 2017, the Company amended the agreement with Medtronic to transfer responsibility for settlement of additional Women’s Health Product Claims to Medtronic on terms similar to the July 2015 agreement, including with respect to the obligation to make payments to Medtronic towards these potential settlements. The Company also may, in its sole discretion, transfer responsibility for settlement of additional Women’s Health Product Claims to Medtronic on similar terms. The agreements do not resolve the dispute between the Company and Medtronic with respect to Women’s Health Product Claims that do not settle, if any.
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 claims, or other lawsuits, which could materially impact the Company’s estimate of the number of claims or lawsuits against the Company.
Filter Product Claims
As of June 30, 2019, the Company is defending approximately 4,525 product liability claims involving the Company’s line of inferior vena cava filters (collectively, the “Filter Product Claims”). The majority of those claims are currently pending in an MDL in the United States District Court for the District of Arizona, but claims are also pending in other state and/or federal court jurisdictions, including a coordinated proceeding in Arizona State Court. In addition, those claims include putative class actions filed in the United States and Canada. The Filter Product Claims generally seek damages for personal injury allegedly resulting from use of the products. The Company has limited information regarding the nature and quantity of certain of the Filter Product Claims. The Company continues to receive claims and lawsuits and may in future periods learn additional
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information regarding other unfiled or unknown claims, or other lawsuits, which could materially impact the Company’s estimate of the number of claims or lawsuits against the Company. On May 31, 2019, the MDL Court ceased accepting direct filings or transfers into the Filter Product Claims MDL and remands for non-settled cases are expected to begin within the next three to six months. The MDL trials are scheduled throughout 2019 and 2020 in certain state and federal courts. As of June 30, 2019, the Company entered into settlement agreements and/or settlement agreements in principle for approximately 4,200 cases. On March 30, 2018, a jury in the first MDL trial found the Company liable for negligent failure to warn and entered a verdict in favor of plaintiffs. The jury found the Company was not liable for (a) strict liability design defect; (b) strict liability failure to warn; and (c) negligent design. The Company has appealed that verdict. On June 1, 2018, a jury in the second MDL trial unanimously found in favor of the Company on all claims. On August 17, 2018, the Court entered summary judgment in favor of the Company on all claims in the third MDL trial. On October 5, 2018, a jury in the fourth MDL trial unanimously found in favor of the Company on all claims. The Company expects additional trials of Filter Product Claims may take place over the next 12 months.
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 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.
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 Women’s 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 Filt