Notes to Consolidated Financial Statements
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5 |
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Special and Other Charges |
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The Company recorded special charges of $21,508, $57,514, and
$90,945 in fiscal years 2002, 2000, and 1998, respectively.
Fiscal Year 2002
The Company recorded special charges of $9,937 and $15,760
during the second and third quarters of fiscal 2002, respectively,
related to a manufacturing restructuring program in the BD
Medical Systems ("Medical") segment that is aimed at optimizing
manufacturing efficiencies and improving the Company's competitiveness
in the different markets in which it operates. Of these
charges, $19,171 represented exit costs, which included $18,533
related to severance costs. This program involves the termination of
533 employees in China, France, Germany, Ireland, Mexico, and
the United States. As of September 30, 2002, 268 of the targeted
employees had been severed. The Company expects these terminations
to be completed and the related accrued severance to be
substantially paid by the end of fiscal 2003. Also included in current
year special charges were asset write-downs of $6,526. Included in
this amount were asset impairments in China of $5,109 that represented
the excess carrying values over the fair values of machinery
and equipment, based on discounted cash flow estimates. The
depreciation of the remaining carrying value of these assets is being
accelerated over the period remaining until the completion of the
exit plan. The remaining asset write-downs recorded in the special
charge included machinery and equipment, which were written
down to zero. These assets were taken out of service immediately
after the write-down occurred and will be scrapped.
Offsetting special charges in the third quarter of 2002 were
$4,189 of reversals of fiscal 2000 special charges. These charges primarily
related to a manufacturing restructuring that took place in
Europe and includes excess reserves primarily related to severance
and lease cancellation costs. The lower severance costs were due to
the ability to sever individuals at a lower cost. The lower lease cancellation
cost was due to the decision not to exit a leased facility as
originally planned. These changes primarily resulted from further
analysis of our European manufacturing structure and a modified
restructuring plan approved in the third quarter of 2002. These
reversals, the majority of which related to the Medical segment,
were recorded to Special Charges, consistent with the original
accounting treatment.
A summary of the 2002 special charge accrual activity follows:
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Severance |
Restructuring |
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| 2002 Special Charges |
$18,500 |
$600 |
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| Payments |
(5,100) |
- |
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| Accrual Balance at September 30, 2002 |
$13,400 |
$600 |
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Fiscal Year 2000
The Company developed a worldwide organizational restructuring
plan to align its existing infrastructure with its projected growth
programs. This plan included the elimination of open positions and
employee terminations from all businesses, functional areas and
regions for the sole purpose of cost reduction. As a result of the
approval of this plan in September 2000, the Company recorded
$33,000 of exit costs, of which $31,700 related to severance costs.
As discussed earlier, the Company reversed $4,189 of these charges
in the third quarter of fiscal 2002 primarily related to severance and
lease cancellation costs. Of the 600 employees originally targeted
for termination under this plan, approximately 15 remained to be
severed as of September 30, 2002. The remaining terminations and
related accrued severance are expected to be substantially completed
and paid by the first half of 2003.
Asset impairments relating to this restructuring plan totaled
$4,514 and represented the write-down to fair value less cost to sell
of assets held for sale or disposal in the Medical Systems segment.
Also included in special charges in 2000 was $20,000 for estimated
litigation defense costs associated with the Company's latex glove
business, which was divested in 1995. Further discussion of legal
proceedings is included in Note 13.
A summary of the 2000 special charge accrual activity follows:
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Severance |
Restructuring |
Other |
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| Accrual Balance at September 30, 2000 |
$31,700 |
$1,300 |
$20,000 |
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| Payments |
(25,400) |
(100) |
(8,300) |
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| Accrual Balance at September 30, 2001 |
6,300 |
1,200 |
11,700 |
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| Reversals |
(3,000) |
(1,200) |
- |
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| Payments |
(2,600) |
- |
(9,300) |
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| Accrual Balance at September 30, 2002 |
$ 700 |
$ - |
$ 2,400 |
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The Company recorded $13,100 of charges in Cost of products
sold in the second quarter of fiscal 2000, associated with a
product recall. These charges consisted primarily of costs associated
with product returns, disposal of affected product, and other direct
recall costs.
Fiscal Year 1998
In an effort to improve manufacturing efficiencies at certain locations,
the Company initiated in 1998 two restructuring plans: the closing
of a surgical blade plant in Hancock, New York and the consolidation
of other production functions in Brazil, Spain, Australia and
France. Total charges of $35,300 were recorded in 1998 relating to
these restructuring plans, primarily in the Medical segment, and
consisted of $15,400 relating to severance and other employee termination
costs; $15,400 relating to manufacturing equipment
write-offs; and $4,500 relating to remaining lease obligations.
The original anticipated completion date for the Hancock
facility closing was May 2000. The Company had estimated that
approximately 200 employees would be terminated and recorded
a $9,900 charge relating to severance and a $2,400 charge relating
to other employee termination costs. Severance was originally
estimated based on the severance arrangement communicated to
employees in June 1998. The shutdown of the Hancock facility
involved the transfer of three major production lines to new locations.
Two of these production moves occurred in September 1999,
as planned. At that time, a total of 50 employees were terminated
and severance was paid and charged against the reserve. The move
of the remaining production line for surgical blades has been
delayed due to the following events:
- The original plan did not anticipate the need for safety stock
to serve the blade market during the move since the Company
planned to use a new blade grinding technology that would
allow for parallel production of blades during the eventual
wind down and phase out of the old technology in Hancock.
Problems arose with this new technology during fiscal 1999,
which resulted in the Company's decision to maintain the
existing technology. In addition, the blade business experienced
a surge in demand for surgical blades around the
world, particularly in Europe, between October 1998 and
June 1999. This increased demand seriously hampered the
Company's ability to build the required inventory levels to
enable a move by May 2000. As a result, the Hancock closure
date was revised to the latter part of fiscal 2001.
- During the latter part of fiscal 1999 and early fiscal 2000, the
U.S. healthcare marketplace experienced increased activity in
the area of healthcare worker safety and sharp device injuries.
In response to this significant shift in the marketplace and the
enactment of state laws and the expected enactment of
Federal law requiring the use of safety-engineered products,
the Company reprioritized its efforts to deliver safety surgical
blades to the marketplace. This decision resulted in an extension
of the timeline necessary to enable the blade production
move and the closure of the Hancock facility.
The severance estimates increased as a result of the extension
of the Hancock final closing date. The impact of the estimated
increase in severance costs was offset by savings from certain other
factors, including lower actual salary increases, and lower outplacement
fees than were originally anticipated. Production at the
Hancock facility ceased in September 2002, and approximately
28 employees remain to be terminated upon completion of remaining
shutdown activities. The Company expects the accruals related
to this restructuring plan to be substantially paid by December 2002.
The Company originally scheduled to complete the consolidation
of the other production facilities within 12 to 18 months
from the date the plans were finalized. Approximately 150 employees
were estimated to be affected by these consolidations. Exit costs
of approximately $23,000 associated with these activities included
$3,100 of severance costs, with the remainder primarily related to
write-offs of manufacturing equipment with a fair value of zero. At
the time, the Company expected to remove all such assets, with the
exception of Brazil and Spain manufacturing assets, from operations
by September 1998. The Company reversed $6,300 of the
charges relating to the Brazil and Spain restructuring plans in fiscal
1999 as a result of the decision not to exit certain production activities
as originally planned. The Company also recorded a catch-up
adjustment to cost of sales for depreciation not taken since the initial
write-off of assets relating to these locations. The remaining consolidation
activities in Australia and France were completed as
planned, with a total of approximately 30 employees terminated.
The Company also recorded $37,800 of special charges to
recognize impairment losses on other non-manufacturing assets.
Approximately $25,600 of this charge related to the write-down of
goodwill and other assets associated with prior acquisitions in the
area of manual microbiology. The impairment loss was recorded as
a result of the carrying value of these assets exceeding their fair value,
calculated on the basis of discounted estimated future cash flows.
The carrying amount of such goodwill and other intangibles was
$24,000. The balance of the impairment loss of $1,600 was recognized
as a write-down of related fixed assets. Also included in the
$37,800 charge was a $4,700 write-down of a facility held for sale,
which was subsequently sold in fiscal 2000 at its adjusted book value.
The remaining special charges of $17,845 primarily consisted
of $12,300 of estimated litigation defense costs associated with the
Company's latex glove business, which was divested in 1995, as
well as a number of miscellaneous asset write-downs.
A summary of the 1998 special charge accrual activity follows:
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Severance |
Restructuring |
Other |
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| Special Charges |
$13,000 |
$4,500 |
$15,100 |
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| Payments |
(500) |
(50) |
(2,400) |
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| Accrual Balance at September 30, 1998 |
12,500 |
4,450 |
12,700 |
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| Reversals |
(1,500) |
- |
- |
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| Payments |
(1,700) |
(300) |
(6,600) |
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| Accrual Balance at September 30, 1999 |
9,300 |
4,150 |
6,100 |
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| Payments |
(1,900) |
(2,400) |
(4,500) |
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| Accrual Balance at September 30, 2000 |
7,400 |
1,750 |
1,600 |
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| Payments |
(500) |
(250) |
(300) |
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| Accrual Balance at September 30, 2001 |
6,900 |
1,500 |
1,300 |
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| Payments |
(1,100) |
(1,100) |
(300) |
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| Accrual Balance at September 30, 2002 |
$ 5,800 |
$ 400 |
$ 1,000 |
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Other accruals of $15,100 primarily represented the
estimated litigation defense costs, as discussed above.
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