EXHIBIT 13
PORTIONS OF THE REGISTRANT'S ANNUAL
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REPORT TO SHAREHOLDERS FOR FISCAL YEAR 1994
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FINANCIAL TABLE OF CONTENTS
Financial Review 23
Six Year Summary of Selected Financial Data 30
Summary by Business Segment 32
Summary by Geographic Area 33
Report of Management 34
Report of Ernst & Young LLP, Independent Auditors 35
Consolidated Statements of Income 36
Consolidated Balance Sheets 37
Consolidated Statements of Cash Flows 38
Notes to Consolidated Financial Statements 39
Quarterly Data (Unaudited) 52
FINANCIAL REVIEW
Becton Dickinson is a medical technology company which manufactures and
sells a broad range of medical supplies and devices and diagnostic systems for
use by health care professionals, medical research institutions and the general
public. The Company focuses strategically on achieving growth in two worldwide
business segments - Medical Supplies and Devices (Medical) and Diagnostic
Systems (Diagnostic). The Company's financial results and the operating
performance of the segments are discussed below.
REVENUES AND EARNINGS
Worldwide revenues of $2.6 billion rose 4%, or 5% after excluding the
estimated unfavorable impact of foreign currency translation. Revenue growth was
achieved in the U.S. and international markets by both segments.
Medical segment revenues of $1.4 billion increased 5% compared with last
year. Excluding the estimated unfavorable impact of foreign currency
translation, Medical segment revenues increased 6%, almost all of which was from
unit volume increases and shifts in product mix. Growth was led by strong sales
of hypodermic products, notably safety products, as well as insulin and
prefillable syringes. The market for disposable insulin syringes has grown in
part from the widely published results of an independent and respected study
which suggests that closer monitoring of blood glucose levels and more frequent
insulin injections are beneficial to people with diabetes.
Medical segment operating income of $274 million increased 20% from the
prior year. Excluding the estimated unfavorable impact of foreign currency
translation and the effects of special charges in 1994 and 1993, as discussed
below, Medical segment operating income would have increased 18%, primarily from
improved product mix, manufacturing cost reductions and focused control of
selling and administrative expense.
Diagnostic segment revenues of $1.1 billion increased 3%, or 4% after
excluding the estimated unfavorable impact of foreign currency translation.
Volume growth contributed approximately 2%, with the balance from shifts in
product mix and price increases. Growth was led by strong sales of VACUTAINER
brand blood collection products, including the Company's newer proprietary
safety products, and increased placements of the BACTEC brand 9000 blood culture
systems. The rate of growth of traditional microbiology products was slower
than historical levels as a result of some adjustments being made in
microbiology test protocols due to cost containment initiatives in the United
States and Europe. Sales of FACS brand cellular analysis systems to research
institutions and clinical laboratories were also adversely impacted by
competition, regulatory delays for new products, and tight research budgets.
The Company is responding to these developments, which are expected to continue,
through its ongoing efforts to develop additional cost-effective, innovative
products which will maximize its opportunities in these markets.
Diagnostic segment operating income of $111 million was about the same as
the prior year. Excluding the estimated unfavorable impact of foreign currency
translation and the effects of special charges in 1994 and 1993, Diagnostic
segment operating income would have increased 17%, primarily from improved
product mix, manufacturing cost reductions and focused control of selling and
administrative expense. As discussed further below, the Company recorded
special charges during the year, primarily related to decisions to exit product
lines and refocus certain businesses within the
23
Diagnostic segment. The exited product lines consisted of those where the
market potential was reassessed and long-term profitability was projected at
less than acceptable levels. These product lines included thyroid, pregnancy,
fertility and anemia testing. In addition, the refocusing of certain businesses
will allow the Company to adjust infrastructure and research spending
commensurate with perceived market opportunities, which includes a refocus
around DNA probes for infectious disease diagnostics and clinical cellular
analysis.
On a geographic basis, revenues outside of the United States of $1.1
billion rose 4%, or 7% after excluding the estimated unfavorable impact of
foreign currency translation. This growth continued to be driven by double-
digit increases in Japan and Asia-Pacific, where significant investments have
been made in recent years. Cost containment measures by government agencies in
Europe have adversely impacted sales volume, particularly for instrumented
systems in Italy, Spain and Germany. Revenues in the United States were $1.4
billion, an increase of 4%. Revenues from the Company's core medical and
diagnostic products were strong, reflecting the Company's successful strategy of
focusing on cost-effective, innovative products which complement efforts to
provide lower cost and higher quality health care. As mentioned earlier, growth
of certain diagnostic products was impacted by the cost containment environment
in the United States.
The Company's gross profit margin rose to 45.3%, compared with 44.5% last
year, primarily due to favorable product mix and manufacturing cost reductions.
Also contributing to this improvement was the favorable impact of medical plan
changes, as discussed below. The effects on gross profit margin of recent and
projected price increases in certain key raw materials, principally
polypropylene and corrugated cartons, are expected to be largely offset
primarily through anticipated manufacturing efficiencies.
Selling and administrative expense was 25.8% of revenues, better than last
year's rate of 26.8%, reflecting the Company's tight spending controls and cost
reduction programs.
Investment in research and development increased to $144 million, or 5.6%
of revenues, reflecting the Company's continuing efforts to bring new products
to market to help achieve long-term growth objectives, as well as increasing
investments in higher technology platforms with good future market
opportunities. Sales of new products introduced in the last five years
represented 16% and 15% of revenues in 1994 and 1993, respectively.
In 1994, the Company recorded a one-time expense of $5 million in
connection with an early retirement program offered to certain eligible
employees. In addition, the Company made significant modifications to its U.S.
medical plans including employee and retiree contributions, higher deductibles
and a medical cost inflation cap. As expected, the favorable impact of these
plan changes more than offset the ongoing costs in 1994 related to the 1993
employee benefit related accounting changes which reduced 1993 earnings before
cumulative effect of accounting changes by $.14 per share.
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In the fourth quarter of 1994, the Company recorded special charges of $30
million, or $.26 per share, primarily related to write-offs of property, plant
and equipment, inventories and other assets associated with exited product lines
and refocused businesses. Revenues associated with exited product lines
approximated $19 million and $22 million in 1994 and 1993, respectively.
Operating income in 1994 was $325 million, an increase of 20%. Excluding
the estimated unfavorable impact of foreign currency translation and the effects
of special charges in 1994 and 1993, operating income increased 22% primarily
from improved gross profit margin and better control of selling and
administrative expense. In order to take full advantage of European economic
integration, the Company began centralizing its warehousing and distribution
activities within Europe in 1993. In 1995, the Company expects to begin
realizing long-term benefits from this centralization, such as enhanced customer
service and more efficient inventory management.
Net interest expense of $48 million in 1994 was $6 million lower than in
1993, primarily due to lower financing costs in Brazil.
"Other income (expense), net" of $19 million included a gain of $36
million, or $.30 per share, from the disposition of a foreign investment.
Proceeds from the disposition are being received in three installments, the
first of which was received in September 1994. Also included in "Other income
(expense), net" is a foreign exchange loss of $11 million in 1994. The net
monetary assets ($6 million and $5 million at September 30, 1994 and 1993,
respectively) of the Company's Brazilian subsidiary, where the functional
currency is the U.S. dollar, are translated at current exchange rates, with the
related translation gains and losses included in net earnings. The Company also
has certain receivables, payables and short-term borrowings denominated in
currencies other than the functional currencies of its subsidiaries. The
functional currency is almost always the currency of the country in which the
subsidiary is located. Despite volatility in European currency markets and the
rapid depreciation of the Brazilian currency in the first nine months of the
year, the Company's management and hedging of these foreign exchange exposures
mitigated the impact of exchange rate fluctuations on earnings, holding losses
to a level which was approximately $1 million below the prior year.
The net assets of foreign operations, where the functional currencies are
the local currencies, are translated at current exchange rates. The Company
does not generally hedge these translation exposures since such amounts are
recorded as cumulative translation adjustments, a separate component of
shareholders' equity, and do not represent current economic gains and losses.
The net assets of these foreign operations represented $829 million and $740
million at September 30, 1994 and 1993, respectively.
The Company utilizes simple derivative instruments to manage its interest
rate and foreign exchange risks. These instruments are selectively employed
solely to hedge exposures in those instances where their use will reduce the
volatility of the impact of foreign exchange and interest rate movements. For
further discussion of derivative
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instruments, see Note 9 of the Notes to Consolidated Financial Statements.
The effective tax rate was 23.3% compared with 4.5% in 1993. The lower tax
rate in 1993 resulted principally from adjustments relating to the conclusion of
tax examinations in various jurisdictions and the tax benefits associated with
specific transactions consummated in certain international locations. It is
expected that the Company's tax rate will be higher in 1995, although consistent
with historical levels, primarily due to a reduction in the tax benefits
generated from operations in Puerto Rico, as provided in the Omnibus Budget
Reconciliation Act of 1993.
Income before cumulative effect of accounting changes was $227 million, or
$3.05 per share, an increase of 13% compared with $2.71 per share in 1993.
Foreign currency translation had an estimated $.07 unfavorable impact on
earnings per share in 1994.
Net income was $227 million, compared with $72 million in 1993.
In 1993, the Financial Accounting Standards Board issued SFAS No. 115,
Accounting for Certain Investments in Debt and Equity Securities, which requires
adoption in fiscal year 1995. This Statement requires certain investments in
debt and equity securities to be reported at fair value. The adoption of SFAS
No. 115 is not expected to have a material impact on the Company's results of
operations or financial condition.
FINANCIAL CONDITION
Cash provided by operations continues to be the Company's primary source of
funds to finance operating needs and capital expenditures. In 1994, net cash
provided by operating activities was $480 million, compared with $320 million in
1993, reflecting the continued growth of the Company's earnings.
Capital expenditures were $123 million, compared with $184 million in the
prior year. The decline reflects lower spending as productivity programs were
completed at several plant locations. Medical segment capital spending, which
totaled $66 million in 1994, included the acquisition of equipment for the
ongoing expansion of the prefillable syringe systems business, and for the
hypodermic, vascular access and diabetes health care businesses. In addition,
funds were expended to support the Company's continuing emphasis on cost
reduction programs, especially in the hypodermic products area. Diagnostic
segment capital spending, which totaled $55 million in 1994, included the
acquisition of equipment for the expansion of manufacturing capacity for the
blood collection business, as well as the expansion of a building and the
acquisition of equipment for the microbiology business. In addition, funds were
expended to support the Company's continuing emphasis on cost reduction,
primarily in the microbiology and blood collection businesses. The Company
expects capital expenditures in 1995 to be slightly above the level in 1994.
Net cash used for financing activities was $292 million during 1994 as
compared with $163 million in 1993. This change was primarily due to the
Company's repurchase of 5.4 million of its common shares on the open market at
an average cost of $39.24 per share,
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totaling $210 million. At September 30, 1994, 9.9 million shares remained to
be purchased under a September 1994 Board of Directors' resolution that
authorized the repurchase of up to 10 million common shares. It is the
Company's intention to use substantial amounts of excess cash that is expected
to be generated over the next several years to pursue potential strategic
acquisition opportunities and to continue to purchase common shares. During
1994, total debt decreased $45 million. Total debt at the end of 1995 is
expected to remain at approximately the 1994 year-end level.
Total debt to capitalization at year end declined to 36.1%, compared with
37.8% last year.
Short-term debt was 21% of total debt at year end, compared with 23% in
1993. The decrease is principally attributable to the repayment of short-term
debt as a result of the Company's strong cash generation during the year. The
Company's weighted average cost of total debt at the end of 1994 was 7.2%
compared with 6.8% at the end of last year.
The current ratio improved to 2.0 at the end of 1994 compared with last
year's 1.8, primarily as a result of the decline in short-term debt. Book value
per share increased 8% to $21.08.
In the United States, the Company has unused confirmed short-term lines of
credit of $240 million as well as unused confirmed long-term credit lines of
$150 million. The Company has additional unconfirmed lines of credit outside of
the United States. The Company has a high degree of confidence in its ability
to refinance maturing short-term and long-term debt, including $211 million of
long-term debt maturities in 1996, as well as to incur substantial additional
debt, if required, based on its strong financial condition.
Subsidiaries operating in Puerto Rico have invested in high-grade
marketable securities, the cash proceeds of which can be used to provide cash
for use by the Company. During 1994, the Company repatriated $89 million from
certain of these subsidiaries. It is the Company's intention to accelerate the
repatriation of funds from Puerto Rico over the next few years, taking into
consideration the related tax effects.
Return on equity was 15.5% in 1994 compared with 4.7% in 1993. The 1993
ratio would have been 13.3% excluding the cumulative effect of 1993 accounting
changes.
The Company manufactures certain medical products in Brazil for sale in
that country and for export. In addition, the Company imports other medical and
diagnostic products for distribution within Brazil. Although the economic
situation in Brazil has recently shown signs of stabilizing, the Brazilian
economy has experienced very high inflation rates and significant devaluations
of its currency in the past. This situation creates volatility in the recording
of revenues and earnings of the Company's Brazilian operations, as well as the
risk of foreign exchange losses as a result of fluctuations in the Brazilian
currency. The Company has successfully managed these risks by raising the
selling prices of its products in line with inflation and by taking steps to
limit the size of its foreign exchange exposures, as discussed earlier. The
Company's Brazilian operations comprise 3% or less of each of the Company's
consolidated revenues, net income and total assets.
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The Company believes that the fundamentally non-cyclical nature of its core
medical and diagnostic businesses, its international diversification, and its
ability to meet the needs of the worldwide health care industry for cost-
effective and innovative products will continue to cushion the long-term impact
on the Company of economic or political dislocations in the countries in which
it does business, including possible reforms of their health care systems.
Inflation has not had a material impact on operations in recent years.
The Company believes that its operations comply in all material respects
with applicable laws and regulations. The Company is a party to a number of
federal proceedings in the United States brought under the Comprehensive
Environmental Response, Compensation and Liability Act, also known as Superfund,
and similar state laws. The Company is also involved in other legal proceedings
and claims which arise in the ordinary course of business, both as a plaintiff
and a defendant. In the opinion of the Company, the results of these matters,
individually and in the aggregate, are not expected to have a material effect on
its results of operations or financial condition.
1993 COMPARED WITH 1992
Worldwide revenues for 1993 of $2.5 billion rose 4%, or 6% after excluding the
estimated unfavorable impact of foreign currency translation. Medical segment
revenues of $1.4 billion increased 3% compared with 1992. Excluding the
estimated unfavorable impact of foreign currency translation, Medical segment
revenues increased 5%, almost all of which was from unit volume growth and
shifts in product mix. Recently introduced hypodermic safety products,
prefillable syringes sold to pharmaceutical companies, and the ULTRA-FINE brand
insulin syringe experienced strong revenue growth. Diagnostic segment revenues
of $1.1 billion increased 5%, or 8% after excluding the estimated unfavorable
impact of foreign currency translation. Volume growth contributed 6% and shifts
in product mix and price increases added 2%. Growth was led by strong revenues
from VACUTAINER brand blood collection products and FACS brand cellular analysis
instrumentation and reagents. Growth in revenues from traditional microbiology
products was aided by the full year's impact of the acquisition of the
microbiology business of Hoffmann-La Roche in May 1992. The continued recession
in much of Europe adversely impacted revenues, particularly from instrumented
systems in Italy and Spain.
The Company's gross profit margin was 44.5%. It would have been 45.0%, the
same as 1992, excluding the effect of 1993 accounting changes. The gross profit
margin percentage was favorably impacted by net changes in Medical segment
product mix offset by unfavorable mix related to certain instrumented
businesses.
Selling and administrative expense was 26.8% of revenues, which was higher
than the 1992 rate of 25.8%. As expected, the 1993 percentage was adversely
affected by start-up costs of centralizing warehousing and distribution
activities in Europe. Investment in research and development increased 11%,
which exceeded the revenues growth rate.
During 1993, the Company recorded special charges of $27 million consisting
principally of a
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provision to adjust the carrying values of idle and underperforming assets to
estimated net realizable values. The provision was based on a periodic review
of worldwide assets to determine whether there had been a permanent decline in
the value of any assets due to manufacturing productivity improvements,
refinements in strategic direction or declines in general real estate or market
values. No significant changes in estimates used to determine this provision
have been required subsequent to 1993.
Operating income decreased $58 million due primarily to the unfavorable
effects in 1993 of foreign currency translation, accounting changes and special
charges. Without the effects of these items, operating income would have been
about the same as in 1992.
Net interest expense increased $4 million over 1992 primarily due to the
reduction of capitalized interest as a result of the completion of several major
facilities.
"Other income (expense), net" in 1993 included a gain of $11 million from
the sale of an investment. Also included are $12 million of foreign exchange
losses.
The effective tax rate was 4.5% compared with 25.5% in 1992. The lower tax
rate resulted principally from adjustments relating to the conclusion of tax
examinations in various jurisdictions covering a total of eighteen open years
($.24 per share), and the tax benefits resulting from specific transactions
consummated in certain international locations in the latter part of the year
($.16 per share). In addition, a shift in the mix of earnings between tax
jurisdictions and the retroactive reinstatement by Congress of the research and
development tax credit in the United States contributed to the lower tax rate.
Income before cumulative effect of accounting changes was $213 million, or
$2.71 per share, compared with $201 million, or $2.57 per share in 1992. The
results for 1993 include an unfavorable impact of $.22 per share for special
charges, an $.11 per share unfavorable impact of accounting changes, an $.11 per
share gain related to the sale of an investment and an estimated $.11 per share
unfavorable impact of foreign currency translation.
In 1993, the Company adopted Statement of Financial Accounting Standards
(SFAS) No. 106, Employers' Accounting for Postretirement Benefits Other Than
Pensions; SFAS No. 112, Employers' Accounting for Postemployment Benefits; and
SFAS No. 109, Accounting for Income Taxes, all retroactive to October 1, 1992.
SFAS Nos. 106 and 112 require the use of the accrual method of accounting for
related costs, as compared with the former cash basis. The cumulative effect of
these accounting changes on fiscal years prior to 1993 was recorded as a one-
time charge, net of related income tax benefits, of $119 million, or $1.55 per
share, for SFAS No. 106, and $30 million, or $.38 per share, for SFAS No. 112.
The effect of these changes on 1993 operating results, excluding the cumulative
effect for fiscal years prior to 1993, was to recognize additional after-tax
expense of $10 million, or $.14 per share. The Company also changed its method
of accounting for income taxes in accordance with SFAS No. 109, which changes
the criteria for the recognition and measurement of deferred tax assets and
liabilities. The cumulative effect of this accounting change on fiscal years
prior to 1993 was recorded as a one-time credit of $8 million, or $.10 per
share. The effect of this change on 1993 net income, excluding the cumulative
effect for fiscal years prior to 1993, was a credit of $4 million, or $.03 per
share. Net income was $72 million, or $.88 per share, after reflecting the one-
time after-tax charge of $1.83 per share for the cumulative effect of these
accounting changes.
The major source of funds in 1993 was net income adjusted for non-cash
charges for depreciation and the cumulative effect of accounting changes.
Capital expenditures were $184 million compared with $186 million in 1992.
Medical and Diagnostic segment capital spending totaled $106 million and $75
million, respectively, in 1993. During the third quarter of 1993, the sale of
an investment resulted in cash proceeds of $59 million.
During 1993, debt decreased $83 million, and the Company purchased 1.8
million of its common shares on the open market at an average cost of $35.74 per
share, totaling $64 million.
Short-term debt was 23% of total debt at year end compared with 29% in
1992. The decrease is principally attributable to the repayment of the current
portion of long-term debt as a result of the Company's strong cash generation.
The Company has a high degree of confidence in its ability to refinance maturing
short-term and long-term debt, including $155 million of long-term debt
maturities in 1995, as well as to incur substantial additional debt, if
required, based on its strong financial condition.
Return on equity was 4.7% in 1993, or 13.3% excluding the cumulative impact
of accounting changes, compared with 13.6% in 1992.
29
SIX YEAR SUMMARY OF SELECTED FINANCIAL DATA
Becton, Dickinson and Company
Years Ended September 30
Thousands of dollars, except per share amounts 1994
----------
OPERATIONS Revenues $2,559,461
Gross Profit Margin 45.3%
Operating Income 325,038
Interest Expense, Net 47,624
Income From Continuing Operations
Before Income Taxes and Cumulative
Effect of Accounting Changes 296,159
Income Tax Provision 68,985
Income From Continuing Operations
Before Cumulative Effect of
Accounting Changes 227,174
Net Income 227,174
Earnings Per Share:
- Continuing Operations Before Cumulative
Effect of Accounting Changes 3.05
- Net Income 3.05
Dividends Per Common Share .74
Average Common and Common Equivalent
Shares Outstanding 73,333
FINANCIAL Current Assets $1,326,551
POSITION Current Liabilities 678,321
Current Ratio 2.0
Property, Plant and Equipment, Net 1,376,349
Total Assets 3,159,533
Long-Term Debt 669,157
Shareholders' Equity 1,481,694
Book Value Per Common Share 21.08
FINANCIAL Income From Continuing Operations
RELATIONSHIPS Before Income Taxes and Cumulative Effect of
Accounting Changes as a Percent of Revenues 11.6%
Return on Total Assets (C)(D) 11.5%
Return on Equity (D) 15.5%
Debt to Capitalization (E) 36.1%
ADDITIONAL DATA Depreciation and Amortization $ 203,705
Capital Expenditures 123,017
Research and Development Expense 144,227
Number of Employees 18,600
Number of Shareholders 7,489
(A) Includes after-tax charge of $141,057, or $1.83 per share, for the
cumulative effect of accounting changes.
(B) Includes after-tax gain of $44,658, or $.56 per share, on the sale of
Edmont.
(C) Net income before interest expense and taxes as a percent of average total
assets.
30
SIX YEAR SUMMARY OF SELECTED FINANCIAL DATA
Becton, Dickinson and Company
Years Ended September 30
Thousands of dollars, except per share amounts 1993 1992 1991 1990 1989
---------- ---------- ---------- ---------- ----------
OPERATIONS Revenues $2,465,405 $2,365,317 $2,172,168 $2,012,654 $1,811,456
Gross Profit Margin 44.5% 45.0% 46.0% 45.8% 45.7%
Operating Income 270,425 328,592 313,746 305,476 255,795
Interest Expense, Net 53,412 49,116 50,051 40,235 34,527
Income From Continuing Operations
Before Income Taxes and Cumulative
Effect of Accounting Changes 222,894 269,457 267,303 274,107 227,786
Income Tax Provision 10,054 68,704 77,514 91,850 69,784
Income From Continuing Operations
Before Cumulative Effect of
Accounting Changes 212,840 200,753 189,789 182,257 158,002
Net Income 71,783(A) 200,753 189,789 182,257 213,596(B)
Earnings Per Share:
- Continuing Operations Before Cumulative
Effect of Accounting Changes 2.71 2.57 2.43 2.33 2.00
- Net Income .88(A) 2.57 2.43 2.33 2.70(B)
Dividends Per Common Share .66 .60 .58 .54 .50
Average Common and Common Equivalent
Shares Outstanding 76,930 77,028 77,096 77,320 79,172
FINANCIAL Current Assets $1,150,742 $1,221,209 $1,031,581 $ 961,874 $ 868,630
POSITION Current Liabilities 636,062 713,335 531,277 573,801 567,761
Current Ratio 1.8 1.7 1.9 1.7 1.5
Property, Plant and Equipment, Net 1,403,070 1,429,519 1,351,387 1,276,113 1,100,567
Total Assets 3,087,565 3,177,675 2,779,975 2,593,513 2,270,130
Long-Term Debt 680,581 685,081 739,076 649,287 516,047
Shareholders' Equity 1,456,953 1,594,926 1,363,786 1,233,555 1,071,497
Book Value Per Common Share 19.50 21.00 18.07 16.39 14.00
FINANCIAL Income From Continuing Operations
RELATIONSHIPS Before Income Taxes and Cumulative Effect of
Accounting Changes as a Percent of Revenues 9.0% 11.4% 12.3% 13.6% 12.6%
Return on Total Assets (C)(D) 9.2% 11.1% 12.3% 13.6% 14.0%
Return on Equity (D) 13.3% 13.6% 14.6% 15.8% 17.0%
Debt to Capitalization (E) 37.8% 36.1% 37.5% 38.2% 38.3%
ADDITIONAL DATA Depreciation and Amortization $ 189,756 $ 169,638 $ 149,897 $ 135,723 $ 121,947
Capital Expenditures 184,168 185,559 211,136 263,579 314,367
Research and Development Expense 139,141 125,207 113,045 102,826 97,543
Number of Employees 19,000 19,100 18,600 18,500 18,800
Number of Shareholders 7,463 7,086 7,007 6,854 7,134
(D) Excludes the cumulative effect of accounting changes in 1993 and gain on
sale of Edmont in 1989.
(E) Total debt as a percent of the sum of total debt, shareholder's equity and
net non-current deferred income tax liabilities.
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SUMMARY BY BUSINESS SEGMENT
(See Note 13 to Financial Statements)
Thousands of dollars 1994 1993 1992
---------- ---------- ----------
REVENUES Medical Supplies and Devices $1,421,435 $1,359,533 $1,315,513
Diagnostic Systems 1,138,026 1,105,872 1,049,804
---------- ---------- ----------
Total Segments $2,559,461 $2,465,405 $2,365,317
========== ========== ==========
SEGMENT Medical Supplies and Devices (A) $ 274,498 $ 228,337 $ 246,080
OPERATING Diagnostic Systems (B) 110,989 111,460 130,660
INCOME ---------- ---------- ----------
Total Segments 385,487 339,797 376,740
Unallocated Expenses (89,328)(C) (116,903) (107,283)
---------- ---------- ----------
Income Before Income Taxes
and Cumulative Effect of
Accounting Changes $ 296,159 $ 222,894 $ 269,457
========== ========== ==========
IDENTIFIABLE Medical Supplies and Devices $1,433,145 $1,422,147 $1,487,103
ASSETS Diagnostic Systems 1,267,331 1,270,037 1,234,938
---------- ---------- ----------
Total Segments 2,700,476 2,692,184 2,722,041
Corporate (D) 459,057 395,381 455,634
---------- ---------- ----------
Total $3,159,533 $3,087,565 $3,177,675
========== ========== ==========
CAPITAL Medical Supplies and Devices $ 66,181 $ 105,632 $ 102,311
EXPENDITURES Diagnostic Systems 55,024 74,780 79,529
---------- ---------- ----------
Total Segments 121,205 180,412 181,840
Corporate 1,812 3,756 3,719
---------- ---------- ----------
Total $ 123,017 $ 184,168 $ 185,559
========== ========== ==========
DEPRECIATION Medical Supplies and Devices $ 99,420 $ 97,516 $ 91,333
AND Diagnostic Systems 96,407 85,595 73,026
AMORTIZATION ---------- ---------- ----------
Total Segments 195,827 183,111 164,359
Corporate 7,878 6,645 5,279
---------- ---------- ----------
Total $ 203,705 $ 189,756 $ 169,638
========== ========== ==========
(A) Includes $8,016 and $14,592 of the special charges discussed in Note 4 in
1994 and 1993, respectively, as well as an incremental charge in 1993 of
$8,260 in connection with the adoption of SFAS No. 106 and No. 112.
(B) Includes $20,598 and $3,892 of the special charges discussed in Note 4 in
1994 and 1993, respectively, as well as an incremental charge in 1993 of
$7,357 in connection with the adoption of SFAS No. 106 and No. 112.
(C) Net of a gain of $35,868 from the disposition of a corporate investment.
(D) Consists principally of short-term and long-term investments in marketable
securities, buildings and equipment, and investments in non-affiliated
companies.
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SUMMARY BY GEOGRAPHIC AREA
(See Note 13 to Financial Statements)
Thousands of dollars 1994 1993 1992
---------- ---------- ----------
REVENUES United States $1,423,060 $1,371,607 $1,313,675
Europe 704,116 699,839 696,268
Other 432,285 393,959 355,374
---------- ---------- ----------
Total (A) $2,559,461 $2,465,405 $2,365,317
========== ========== ==========
AREA United States (B) $ 264,117 $ 232,727 $ 275,932
OPERATING Europe (C) 82,040 79,453 80,828
INCOME Other (D) 39,330 27,617 19,980
---------- ---------- ----------
Total 385,487 339,797 376,740
Unallocated Expenses (89,328)(E) (116,903) (107,283)
---------- ---------- ----------
Income Before Income Taxes
and Cumulative Effect of
Accounting Changes $ 296,159 $ 222,894 $ 269,457
========== ========== ==========
IDENTIFIABLE United States $1,601,569 $1,613,985 $1,558,514
ASSETS Europe 667,467 665,799 763,241
Other 431,440 412,400 400,286
---------- ---------- ----------
Total 2,700,476 2,692,184 2,722,041
Corporate (F) 459,057 395,381 455,634
---------- ---------- ----------
Total $3,159,533 $3,087,565 $3,177,675
========== ========== ==========
(A) Interarea revenues to affiliates amounted to $350,207 in 1994, $383,428 in
1993 and $362,778 in 1992. These revenues, which are principally from the
United States, are eliminated in consolidation. Intersegment revenues are
not material.
(B) Includes $26,186 and $15,187 of the special charges as discussed in Note 4,
in 1994 and 1993, respectively, as well as an incremental charge in 1993 of
$17,574 in connection with the Company's adoption of SFAS No. 106 and No.
112.
(C) Includes $2,188 and $250 of the special charges as discussed in Note 4, in
1994 and 1993, respectively, as well as an incremental benefit in 1993 of
$1,563 in connection with the Company's adoption of SFAS No. 112.
(D) Includes $240 and $3,047 of the special charges as discussed in Note 4, in
1994 and 1993, respectively, as well as an incremental benefit in 1993 of
$394 in connection with the Company's adoption of SFAS No. 112.
(E) Net of a gain of $35,868 from the disposition of a corporate investment.
(F) Consists principally of short-term and long-term investments in marketable
securities, buildings and equipment, and investments in non-affiliated
companies.
33
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Shareholders and Board of Directors
Becton, Dickinson and Company
We have audited the accompanying consolidated balance sheets of Becton,
Dickinson and Company as of September 30, 1994 and 1993, and the related
consolidated statements of income and cash flows for each of the three years in
the period ended September 30, 1994. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Becton, Dickinson
and Company at September 30, 1994 and 1993, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
September 30, 1994 in conformity with generally accepted accounting principles.
As discussed in Note 1 to the financial statements, in 1993 the Company changed
its methods of accounting for postretirement benefits other than pensions,
postemployment benefits, and income taxes.
/s/ Ernst & Young LLP
Hackensack, New Jersey
November 8, 1994
35
CONSOLIDATED STATEMENTS OF INCOME
Becton, Dickinson and Company
Years Ended September 30
Thousands of dollars, except per share amounts 1994 1993 1992
---------- ---------- ----------
OPERATIONS Revenues $2,559,461 $2,465,405 $2,365,317
Cost of products sold 1,399,634 1,368,402 1,301,621
Selling and administrative expense 660,072 660,508 609,897
Research and development expense 144,227 139,141 125,207
Special charges 30,490 26,929 --
---------- ---------- ----------
Total Operating Costs and Expenses 2,234,423 2,194,980 2,036,725
---------- ---------- ----------
Operating Income 325,038 270,425 328,592
Interest expense, net (47,624) (53,412) (49,116)
Other income (expense), net 18,745 5,881 (10,019)
---------- ---------- ----------
Income Before Income Taxes
and Cumulative Effect of
Accounting Changes 296,159 222,894 269,457
Income tax provision 68,985 10,054 68,704
---------- ---------- ----------
Income Before Cumulative Effect of
Accounting Changes 227,174 212,840 200,753
Cumulative effect of accounting changes,
net of taxes -- (141,057) --
---------- ---------- ----------
Net Income $ 227,174 $ 71,783 $ 200,753
========== ========== ==========
EARNINGS Income Before Cumulative Effect of
PER SHARE Accounting Changes $ 3.05 $ 2.71 $ 2.57
Cumulative effect of accounting changes,
net of taxes -- (1.83) --
---------- ---------- ----------
Net Income $ 3.05 $ .88 $ 2.57
========== ========== ==========
See notes to consolidated financial statements
36
CONSOLIDATED BALANCE SHEETS
Becton, Dickinson and Company
September 30
Thousands of dollars, except per share amounts 1994 1993
---------- ----------
ASSETS Current Assets
Cash and equivalents $ 94,913 $ 39,126
Short-term investments 83,854 25,753
Trade receivables, net 589,918 557,803
Inventories 420,001 445,877
Prepaid expenses, deferred taxes and other 137,865 82,183
---------- ----------
Total Current Assets 1,326,551 1,150,742
Investments in Marketable Securities 71,527 123,605
Property, Plant and Equipment, Net 1,376,349 1,403,070
Intangibles, Net 217,725 216,092
Other 167,381 194,056
---------- ----------
Total Assets $3,159,533 $3,087,565
========== ==========
LIABILITIES Current Liabilities
Short-term debt $ 173,228 $ 206,763
Accounts payable 118,146 110,690
Accrued expenses 173,284 153,588
Income taxes 93,691 63,406
Salaries, wages and related items 119,972 101,615
---------- ----------
Total Current Liabilities 678,321 636,062
Long-Term Debt 669,157 680,581
Long-Term Employee Benefit Obligations 297,644 294,054
Deferred Income Taxes and Other 32,717 19,915
Commitments and Contingencies -- --
SHAREHOLDERS' ESOP convertible preferred stock -
EQUITY $1 par value: authorized - 1,016,949 shares;
issued and outstanding - 954,764 shares in
1994 and 984,890 shares in 1993 56,331 58,108
Common stock - $1 par value:
authorized - 160,000,000 shares;
issued - 85,349,046 shares 85,349 85,349
Capital in excess of par value 111,600 104,954
Cumulative currency translation adjustments 8,573 (22,048)
Retained earnings 1,752,360 1,581,196
Unearned ESOP compensation (41,096) (45,249)
Common shares in treasury - at cost - 15,071,131
shares in 1994 and 10,622,430 shares in 1993 (491,423) (305,357)
---------- ----------
Total Shareholders' Equity 1,481,694 1,456,953
---------- ----------
Total Liabilities and Shareholders' Equity $3,159,533 $3,087,565
========== ==========
See notes to consolidated financial statements
37
CONSOLIDATED STATEMENTS OF CASH FLOWS
Becton, Dickinson and Company
Years Ended September 30
Thousands of dollars 1994 1993 1992
--------- --------- ---------
OPERATING Net income $ 227,174 $ 71,783 $ 200,753
ACTIVITIES Adjustments to net income to derive net cash
provided by operating activities:
Depreciation and amortization 203,705 189,756 169,638
Cumulative effect of accounting changes,
net of taxes -- 141,057 --
Special charges 30,490 26,929 --
Gains on sales of equity investments (35,868) (10,650) --
Deferred income taxes (31,418) (21,509) 7,066
Change in:
Trade receivables (20,720) (24,715) (96,075)
Inventories 30,988 (31,205) (6,164)
Prepaid expenses, deferred taxes and other 9,394 (2,930) (3,551)
Accounts payable, income taxes and
other liabilities 55,756 (232) 43,909
Other, net 10,048 (18,444) (7,330)
--------- --------- ---------
Net cash provided by operating activities 479,549 319,840 308,246
--------- --------- ---------
INVESTING Capital expenditures (123,017) (184,168) (185,559)
ACTIVITIES Sales of equity investments 22,159 59,470 --
Acquisitions of businesses (12,750) -- (98,767)
(Purchases) proceeds of short-term investments, net (6,031) 18,077 9,566
Proceeds from sales of long-term investments 8 384 2
Purchases of long-term investments -- (28,800) (20,626)
Other, net (12,809) (38,083) (34,349)
--------- --------- ---------
Net cash used for investing activities (132,440) (173,120) (329,733)
--------- --------- ---------
FINANCING Change in short-term debt (51,063) 206 91,708
ACTIVITIES Proceeds of long-term debt 39,606 42,062 2,077
Payment of long-term debt (43,606) (100,067) (7,895)
Issuance of common stock 30,865 12,974 15,807
Repurchase of common stock (210,285) (64,112) (3,812)
Dividends paid (57,034) (53,825) (49,277)
--------- --------- ---------
Net cash (used for) provided by
financing activities (291,517) (162,762) 48,608
--------- --------- ---------
Effect of exchange rate changes on cash
and equivalents 195 (1,463) (776)
--------- --------- ---------
Net increase (decrease) in cash and
equivalents 55,787 (17,505) 26,345
--------- --------- ---------
OPENING CASH
AND EQUIVALENTS 39,126 56,631 30,286
--------- --------- ---------
CLOSING CASH
AND EQUIVALENTS $ 94,913 $ 39,126 $ 56,631
========= ========= =========
See notes to consolidated financial statements
38
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Becton, Dickinson and Company
Thousands of dollars, except per share amounts
INDEX
Note Subject Page
1 Summary of Significant Accounting Policies 39
2 Employee Stock Ownership Plan (ESOP)/Savings Plan 40
3 Benefit Plans 40
4 Special Charges 42
5 Other Income (Expense), Net 42
6 Income Taxes 42
7 Supplemental Balance Sheet Information 44
8 Debt 44
9 Financial Instruments 45
10 Shareholders' Equity 48
11 Commitments and Contingencies 49
12 Stock Plans 49
13 Business Segment Data 51
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Becton, Dickinson
and Company and its wholly-owned subsidiaries after the elimination of
intercompany transactions. Investments in other entities in which the Company
has significant management influence are accounted for using the equity method
of accounting. These investments are included in Other assets at cost plus the
Company's equity in undistributed earnings since the date of acquisition. The
proportionate share of income (loss) from equity investments is included in
Other income (expense), net.
RECLASSIFICATIONS
The Company has reclassified certain prior year information to conform with the
current year presentation.
CASH EQUIVALENTS
Cash equivalents are stated at cost plus accrued interest, which approximates
market. The Company considers all highly liquid investments with a maturity of
90 days or less when purchased to be cash equivalents.
INVENTORIES
Inventories are stated at the lower of cost or market. The Company uses the
last-in, first-out (LIFO) method of determining cost for substantially all
inventories in the United States. All other inventories are accounted for using
the first-in, first-out (FIFO) method.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost, less accumulated depreciation
and amortization. The cost of additions, improvements, and interest on
construction are capitalized, while maintenance and repairs are charged to
expense when incurred. Depreciation and amortization are provided on the
straight-line basis over estimated useful lives.
INTANGIBLES
Intangibles include goodwill, which represents costs in excess of net assets of
businesses acquired, and patents. Goodwill and patents are being amortized over
periods ranging from eight to forty years, using the straight-line method.
REVENUE RECOGNITION
Substantially all revenue is recognized when products are shipped to customers.
WARRANTY
Estimated future warranty obligations related to certain products are provided
by charges to operations in the period that the related revenue is recognized.
INCOME TAXES
United States income taxes are not provided on substantially all undistributed
earnings of foreign and Puerto Rican subsidiaries since the subsidiaries
reinvest such earnings or remit them to the Company without tax consequence.
Income taxes have been provided and tax credits have been recognized based on
tax laws in effect at the dates of the financial statements.
EARNINGS PER SHARE
Earnings per share are computed using the weighted average number of common and
common equivalent shares outstanding during the year, and related income amounts
after adjustment for dividends on preferred shares (net of related tax benefits
in 1992).
39
The weighted average number of shares used in the computations were 73,333,000
in 1994, 76,930,000 in 1993 and 77,028,000 in 1992. Common equivalent shares
relate to employee stock plans.
ACCOUNTING CHANGES
Effective October 1, 1992, the Company adopted three Statements of Financial
Accounting Standards (SFAS). The cumulative effect on prior years and the net
incremental charges attributable to the adoption of SFAS No. 106, Employers'
Accounting For Postretirement Benefits Other Than Pensions; SFAS No. 112,
Employers' Accounting For Postemployment Benefits; and SFAS No. 109, Accounting
For Income Taxes, are included in the determination of net income in 1993, as
detailed below:
Cumulative Effect
----------------------------------
Pre-tax After-tax Per Share
--------- --------- ---------
SFAS No. 106 $(189,150) $(119,130) $(1.55)
SFAS No. 112 (46,155) (29,765) (.38)
SFAS No. 109 -- 7,838 .10
1993 Incremental Effect
----------------------------------
Pre-tax After-tax Per Share
--------- --------- ---------
SFAS No. 106 $ (19,600) $ (12,420) $ (.17)
SFAS No. 112 3,632 2,325 .03
SFAS No. 109 -- 3,725 .03
NOTE 2 - EMPLOYEE STOCK OWNERSHIP PLAN (ESOP)/SAVINGS PLAN
The Company has an Employee Stock Ownership Plan (ESOP) as part of its voluntary
defined contribution plan (savings plan) covering most domestic employees. The
ESOP is intended to satisfy all or part of the Company's obligation to match 50%
of employees' contributions, up to a maximum of 3% of each participant's salary.
To accomplish this, in 1990, the ESOP borrowed $60,000 in a private debt
offering and used the proceeds to buy the Company's ESOP convertible preferred
stock. Each share of preferred stock has a guaranteed liquidation value of $59
per share and is convertible into 1.6 shares of the Company's common stock. The
preferred stock pays an annual dividend of $3.835 per share, a portion of which
is used by the ESOP, together with the Company's contributions, to repay the
ESOP debt. Since the ESOP debt is guaranteed by the Company, it is reflected on
the consolidated balance sheet as short-term and long-term debt with a related
amount shown in the shareholders' equity section as unearned ESOP compensation.
The amount of ESOP expense recognized is equal to the cost of the preferred
shares allocated to plan participants and the ESOP interest expense for the
year, reduced by the amount of dividends paid on the preferred stock.
Selected financial data pertaining to the ESOP/Savings Plan follow:
1994 1993 1992
-------- -------- --------
Total expense of the
savings plan $ 9,347 $ 9,201 $ 8,880
Compensation expense
(included in total
expense above) $ 6,543 $ 6,194 $ 5,725
Number of preferred
shares allocated
at September 30 248,766 211,465 158,588
The Company guarantees employees' contributions to the fixed income fund of the
Savings Plan. The amount guaranteed was $92,935 at September 30, 1994.
NOTE 3 - BENEFIT PLANS
The Company and certain of its subsidiaries have defined benefit pension plans
which cover a substantial number of its employees. The largest plan, covering
most of the Company's domestic employees, is a "final average pay" plan.
A summary of the costs of the domestic defined benefit pension plans follows:
1994 1993 1992
-------- -------- --------
Service cost: benefits
earned during
the year $ 20,040 $ 18,497 $ 16,833
Interest cost on
projected benefit
obligation 28,641 27,991 26,058
Return on assets:
Actual gain (1,280) (58,371) (36,474)
Deferred portion (34,986) 25,990 5,924
-------- -------- --------
Expected return (36,266) (32,381) (30,550)
Special termination
benefits 3,498 - -
-------- -------- --------
Net pension cost $ 15,913 $ 14,107 $ 12,341
======== ======== ========
40
Rate assumptions used in accounting for the defined benefit plans were:
1994 1993 1992
------ ------ ------
Discount rate:
End of year 8.00% 7.25% 7.75%
Beginning of year 7.25 7.75 7.75
Rate of increase in
compensation 5.25 5.25 6.25
Expected long-term rate
of return on assets 10.00 10.00 10.00
The following table sets forth the funded status and amounts recognized in the
consolidated balance sheets at September 30, 1994 and 1993 for the Company's
domestic defined benefit pension plans:
1994 1993
-------- --------
Actuarial present value of
benefit obligations:
Vested benefit obligation $253,995 $279,507
======== ========
Accumulated benefit
obligation $274,319 $301,242
======== ========
Projected benefit obligation $361,418 $402,377
Plan assets at fair value 306,437 364,705
-------- --------
Plan assets under projected
benefit obligation (54,981) (37,672)
Unrecognized net loss 10,555 9,190
Unrecognized net asset at
October 1, 1985, net of
amortization (3,640) (4,247)
-------- -------
Net pension liability
recognized in the
consolidated
balance sheet $(48,066) $(32,729)
======== ========
Plan assets are composed primarily of investments in publicly traded securities.
The Company's funding policy is to contribute amounts to the plans sufficient to
meet the minimum funding requirements set forth in the Employee Retirement
Income Security Act of 1974, as amended, plus such additional amounts as the
Company may determine to be appropriate from time to time.
Employees in foreign countries are covered by various postretirement benefit
arrangements, some of which are considered to be defined benefit plans for
accounting purposes. Such plans are immaterial to the Company's consolidated
financial position and results of operations.
In addition to providing pension benefits, the Company and its domestic
subsidiaries provide certain health care and life insurance benefits for retired
employees. Substantially all of the Company's domestic employees may become
eligible for these benefits upon retirement from the Company. The Company's
cost of benefits for foreign retirees is minimal as health care and life
insurance coverage is generally provided through government plans.
Postretirement benefit costs include the following components:
1994 1993
------- -------
Service cost: benefits
earned during the year $ 2,537 $ 9,645
Interest cost on
projected benefit obligation 9,671 15,830
Amortization of prior
service cost (6,312) -
------- -------
Postretirement benefit cost $ 5,896 $25,475
======= =======
The amount included in expense for 1992 under the cash basis method was
approximately $5,800.
The postretirement benefit plans other than pensions are not funded. The
present value of the Company's obligation included in the September 30, 1994 and
1993 balance sheet was as follows:
1994 1993
-------- --------
Accumulated postretirement
benefit obligation:
Retirees $103,326 $ 78,220
Fully eligible active participants 13,136 38,250
Other active participants 24,262 110,240
-------- --------
Total 140,724 226,710
Unrecognized prior service cost 88,368 --
Unrecognized actuarial loss (4,545) --
-------- --------
Accrued postretirement
benefit liability $224,547 $226,710
======== ========
In 1994 and 1993, health care cost trends of 14% and 15%, respectively, pre-age
65 and 11% and 12%, respectively, post-age 65 were assumed. These rates were
assumed to decrease gradually to an ultimate rate of 6.25% beginning in 2003 for
pre-age 65 and
41
2000 for post-age 65. The effect of a 1% annual increase in these assumed cost
trend rates would increase the accumulated postretirement benefit obligation at
September 30, 1994 by $6,264 and the postretirement cost for 1994 by $501. The
discount rate used to estimate the postretirement benefit cost was 7.25% and
7.75%, in 1994 and 1993, respectively. The discount rate used to estimate the
accumulated postretirement benefit obligation at September 30, 1994 and 1993 was
8.0% and 7.25%, respectively. In 1994, the Company made significant
modifications to its U.S. postretirement benefit plans. These plan changes,
which are effective for retirements after January 1, 1995, consist primarily of
retiree contributions and an inflation cap. The accumulated postretirement
benefit obligation was reduced as a result of these changes. In accordance with
SFAS No. 106, this reduction in the obligation is being amortized as a component
of the postretirement benefit cost.
In accordance with SFAS No. 112, the Company recorded a provision of $7,100 in
1994 and $6,000 in 1993, for postemployment benefits. The amount included in
expense for 1992 prior to the adoption of SFAS No. 112 was approximately $4,300.
The Company utilizes a service-based approach in applying the provisions of SFAS
No. 112 for most of its post-employment benefits. Such an approach recognizes
that actuarial gains and losses may result from experience that differs from
baseline assumptions. Such actuarial gains and losses, if material, are
amortized over future service periods.
NOTE 4 - SPECIAL CHARGES
In the fourth quarter of 1994, the Company recorded special charges of $30,490,
primarily related to write-offs of property, plant and equipment, inventories
and other assets associated with decisions made in the fourth quarter to exit
specific product lines and refocus certain businesses.
In 1993, the Company recorded special charges of $26,929 consisting principally
of a provision to adjust the carrying values of idle and underperforming assets
to estimated net realizable values. The provision was based on a periodic
review of worldwide assets to determine whether there had been a permanent
decline in the value of any assets due to manufacturing productivity
improvements, refinements in strategic direction or declines in general real
estate or market values.
NOTE 5 - OTHER INCOME (EXPENSE), NET
Other income, net in 1994 includes a gain of $35,868 from the disposition of a
foreign investment previously accounted for using the equity method. Proceeds
from the disposition are being received in three installments, the first of
which was received in September 1994. The balance of the receivable of $42,563
is classified in Prepaid expenses, deferred taxes and other at September 30,
1994.
Other income, net in 1993 includes a gain of $10,650 from the disposition of an
investment previously accounted for using the equity method.
Foreign exchange losses of $10,608, $11,626 and $10,845 are included in Other
income (expense), net in 1994, 1993 and 1992, respectively.
NOTE 6 - INCOME TAXES
The provision for income taxes is comprised of the following charges (benefits).
The 1994 and 1993 amounts reflect the use of the liability method under SFAS No.
109, while the 1992 amounts reflect the use of the deferred method under APB No.
11.
1994 1993 1992
-------- -------- -------
Current:
Domestic:
Federal $ 42,514 $ (7,116) $34,053
State and local,
including Puerto Rico 20,148 11,439 10,051
Foreign 37,741 27,240 17,534
-------- -------- -------
100,403 31,563 61,638
-------- -------- -------
Deferred:
Domestic (21,728) (11,448) 975
Foreign (9,690) (10,061) 6,091
-------- -------- -------
(31,418) (21,509) 7,066
-------- -------- -------
$ 68,985 $ 10,054 $68,704
======== ======== =======
42
Effective October 1, 1992, the Company adopted the provisions of SFAS No. 109.
Deferred income taxes at September 30, 1994 and 1993 and October 1, 1992
consisted of:
September 30, 1994 September 30, 1993 October 1, 1992
---------------------- ---------------------- ----------------------
Assets Liabilities Assets Liabilities Assets Liabilities
-------- ----------- -------- ----------- -------- -----------
Compensation
and benefits $130,962 $ -- $129,518 $ -- $112,674 $ --
Property and
equipment -- 126,539 -- 126,708 -- 121,651
Other 68,890 13,393 45,175 17,271 40,623 31,468
-------- ----------- -------- ----------- -------- -----------
199,852 139,932 174,693 143,979 153,297 153,119
Valuation
allowance (7,100) -- (7,937) -- (5,906) --
-------- ----------- -------- ----------- -------- -----------
$192,752 $139,932 $166,756 $143,979 $147,391 $153,119
======== =========== ======== =========== ======== ===========
In accordance with SFAS No. 109, deferred tax assets and liabilities are netted
on the balance sheet by separate tax jurisdictions. At September 30, 1994 and
1993, net current deferred tax assets of $35,725 and $15,484, respectively, were
included in Prepaid expenses, deferred taxes and other. Net non-current deferred
tax assets of $28,961 and $10,212, respectively, were included in Other non-
current assets. Net non-current deferred tax liabilities of $11,866 and $2,919,
respectively, were included in Deferred income taxes and other.
Deferred taxes are not provided on substantially all undistributed earnings of
foreign and Puerto Rican subsidiaries. At September 30, 1994, the cumulative
amount of such undistributed earnings approximated $927,000 against which United
States tax-free liquidation provisions or substantial tax credits are available.
Determining the tax liability that would arise if these earnings were remitted
is not practicable.
The components of the 1992 deferred income tax provision follow:
1992
-------
Depreciation $10,482
Capitalized interest 1,553
Joint venture and equity investments 941
Compensation and benefits (3,347)
Other (2,563)
-------
$ 7,066
=======
A reconciliation of the federal statutory tax rate to the Company's effective
tax rate follows:
1994 1993 1992
---- ---- ----
Federal statutory tax rate 35.0% 34.8% 34.0%
State and local income
taxes, net of Federal
tax benefit .7 .3 2.8
Effect of foreign and
Puerto Rican income (8.4) (13.3) (8.9)
Adjustments to estimated
liability for prior
years' taxes - (8.3) -
Foreign tax credits (2.3) (5.4) -
Research tax credit (.5) (1.4) (.5)
Benefit from sale
of subsidiary - - (1.9)
Other, net (1.2) (2.2) -
---- ---- ----
23.3% 4.5% 25.5%
==== ==== ====
43
The approximate dollar and per share amounts of tax reductions related to tax
holidays in various countries in which the Company does business were: 1994 -
$23,300 and $.32; 1993 - $24,100 and $.31; and 1992 - $21,100 and $.28. The tax
holidays expire at various dates through 2010.
The Company made income tax payments, net of refunds, of $65,481 in 1994,
$61,449 in 1993 and $35,848 in 1992.
The components of income before income taxes and cumulative effect of accounting
changes follow:
1994 1993 1992
-------- -------- --------
Domestic, including
Puerto Rico $166,563 $141,913 $202,080
Foreign 129,596 80,981 67,377
-------- -------- --------
$296,159 $222,894 $269,457
======== ======== ========
NOTE 7 - SUPPLEMENTAL BALANCE SHEET INFORMATION
TRADE RECEIVABLES
Allowances for doubtful accounts and cash discounts netted against trade
receivables were $22,158 and $18,898 at September 30, 1994 and 1993,
respectively.
INVENTORIES
1994 1993
-------- --------
Materials $ 85,303 $ 89,549
Work in process 69,696 67,257
Finished products 265,002 289,071
-------- --------
$420,001 $445,877
======== ========
Inventories valued under the LIFO method were $240,965 in 1994 and $227,539 in
1993. Inventories valued under the LIFO method would have been higher by
approximately $36,500 in both 1994 and 1993, if valued on a current cost basis.
PROPERTY, PLANT AND EQUIPMENT
1994 1993
---------- ----------
Land $ 54,410 $ 52,842
Buildings 907,832 881,643
Machinery, equipment
and fixtures 1,483,334 1,401,319
Leasehold improvements 34,360 28,052
---------- ----------
2,479,936 2,363,856
Less allowances for
depreciation and
amortization 1,103,587 960,786
---------- ----------
$1,376,349 $1,403,070
========== ==========
INTANGIBLES
1994 1993
---------- ----------
Patents and other $ 220,927 $ 211,847
Goodwill 147,600 132,170
---------- ----------
368,527 344,017
Less accumulated
amortization 150,802 127,925
---------- ----------
$ 217,725 $ 216,092
========== ==========
NOTE 8 - DEBT
The components of short-term debt follow:
1994 1993
---------- ----------
Loans payable:
Domestic $ 35,941 $ 108,000
Foreign 110,883 81,752
Current portion of
long-term debt 26,404 17,011
---------- ----------
$ 173,228 $ 206,763
========== ==========
Domestic loans payable consist of commercial paper supported by committed lines
of credit. Foreign loans payable consist of short-term borrowings from
financial institutions. The weighted average interest rate for loans payable
was 4.2% at both September 30, 1994 and 1993. At September 30, 1994, the
Company had domestic unused confirmed short-term lines of credit of $240,000 and
unused confirmed long-term lines of credit of $150,000. In addition, the
Company had unused foreign lines of credit pursuant to informal arrangements of
approximately $209,000 at September 30, 1994.
44
The components of long-term debt follow:
1994 1993
-------- --------
Domestic notes due through 2013
(average year-end interest rate:
4.9%-1994; 3.5%-1993) $162,788 $166,603
Foreign notes due through 2004
(average year-end interest rate:
6.7%-1994; 6.0%-1993) 29,522 33,801
7.875% Notes due
December 15, 1996 100,000 100,000
8.375% Notes due
June 1, 1996 50,000 50,000
8.80% Notes due
March 1, 2001 100,000 100,000
9.25% Sinking fund
debentures due
through June 1, 2016 81,400 81,400
9.45% Guaranteed ESOP
Notes due through
July 1, 2004 45,447 48,777
9.95% Notes due
March 15, 1999 100,000 100,000
-------- --------
$669,157 $680,581
======== ========
Domestic notes include $150,000 of commercial paper which are supported by long-
term credit agreements with leading banks, at both September 30, 1994 and 1993.
The aggregate annual maturities of long-term debt during the fiscal years ending
September 30, 1996 to 1999 are as follows: 1996 - $211,290; 1997 - $105,394;
1998 - $7,653; 1999 - $106,123.
The Company capitalizes interest costs as a component of the cost of
construction in progress. The following is a summary of interest costs:
1994 1993 1992
------- ------- -------
Charged to operations $62,472 $66,716 $60,577
Capitalized 5,946 8,181 21,176
------- ------- -------
$68,418 $74,897 $81,753
======= ======= =======
Interest paid, net of amounts capitalized, was $63,670 in 1994, $67,308 in 1993
and $59,766 in 1992.
NOTE 9 - FINANCIAL INSTRUMENTS
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying values of cash equivalents, short-term investments and short-term
debt approximate fair values. Fair values were estimated based on market
prices, where available, or dealer quotes.
The estimated fair values of the Company's financial instruments at September
30, 1994 and 1993 were as follows:
1994 1993
------------------ -------------------
CARRYING FAIR Carrying Fair
VALUE VALUE Value Value
-------- -------- -------- --------
Assets:
Investments in marketable
securities (non-current) $ 71,527 $ 70,093 $123,605 $128,616
Other long-term investments 9,112 10,117 11,113 13,051
Purchased currency option 112 112 - -
Liabilities:
Long-term debt $669,157 $689,181 $680,581 $753,879
Forward exchange contracts 630 473 9,586 8,790
Interest rate swaps 68 (524) (31) 354
Interest rate collars 32 49 (57) 153
45
OFF-BALANCE-SHEET RISK
The Company has certain receivables, payables and short-term borrowings
denominated in currencies other than the functional currency of the Company and
its subsidiaries. During the year, the Company hedged in excess of 75% of these
exposures by entering into forward exchange contracts and purchased currency
options for the future purchase and sale of foreign currencies. In addition,
the Company hedged a portion of its investment in a foreign subsidiary by
entering into forward exchange contracts with a stated value of $55,482 to sell
French francs and buy U.S. dollars forward.
At September 30, the stated or notional amounts of the Company's outstanding
forward exchange contracts and purchased currency option were as follows:
1994 1993
-------- --------
Forward exchange
contracts $665,945 $512,988
Purchased currency option,
German mark put,
U.S. dollar call $ 9,416 $ -
At September 30, 1994, $506,732 of the forward exchange contracts mature within
90 days, $124,037 at various dates in 1995 and $35,176 in March 1996. The
purchased currency option at September 30, 1994 expires October 1994.
Significant forward exchange contracts and the purchased currency option which
represent hedges of currency transaction exposures at September 30, 1994 were as
follows:
U.S. Dollar Equivalents
----------------------------------------
September 30, 1994
--------------------------
Currency
Transaction Average
Exposure- Contracts
Notional Asset During
Amount (Liability) Fiscal 1994
--------- ----------- -----------
Commitments to
sell foreign
currencies:
French francs $ 73,485 $ 73,485 $ 69,576
Italian lira 57,888 57,888 51,781
Belgian francs 46,202 46,202 45,582
Spanish pesetas 45,141 45,141 43,801
British pounds 26,041 26,041 11,145
Japanese yen 6,417 6,417 7,627
Commitments to
purchase foreign
currencies:
Irish pounds $182,290 $(182,485) $156,207
Singapore dollars 46,798 (46,798) 45,697
Japanese yen 17,287 (17,287) 8,218
Belgian francs 14,058 (25,413) 14,702
British pounds 11,243 (11,497) 14,367
German marks 11,319 (11,319) 7,017
46
Significant forward exchange contracts which represent hedges of currency
transaction exposures at September 30, 1993 were as follows:
U.S. Dollar Equivalents
------------------------------------
September 30, 1993
----------------------
Currency
Transaction Average
Exposure- Contracts
Notional Asset During
Amount (Liability) Fiscal 1993
-------- ----------- -----------
Commitments to
sell foreign
currencies:
French francs $ 65,026 $ 65,026 $ 59,588
Italian lira 50,085 50,085 52,412
Belgian francs 42,236 42,236 71,117
Spanish pesetas 36,216 39,730 35,541
British pounds 33,936 40,837 29,945
Japanese yen 9,385 9,385 10,044
Irish pounds 8,834 8,834 2,463
Commitments to
purchase foreign
currencies:
Irish pounds $156,024 $(156,024) $165,868
Singapore dollars 42,855 (42,855) 39,218
British pounds 15,617 (15,617) 17,714
Belgian francs 9,743 (26,219) 22,188
Japanese yen 6,804 (6,804) 567
The Company's foreign exchange hedging activities do not generally create
exchange rate risk since gains and losses on these contracts generally offset
losses and gains on the related non-functional currency denominated receivables,
payables and short-term borrowings.
The Company enters into interest rate swap and interest rate collar agreements
in order to reduce the impact of fluctuating interest rates on its foreign
currency short-term floating rate debt outside the U.S. At September 30, 1994
and 1993, the Company had foreign interest rate swap agreements, with maturities
at various dates through 1997. Under these agreements the Company agrees with
other parties to pay, at specified intervals, fixed rate payments in exchange
for variable rate payments, calculated on an agreed-upon notional amount.
Notional
Amount Average
U.S. Dollar Fixed Variable
Equivalent Rate Rate
----------- ------ --------
Interest Rate Swaps:
September 30, 1994
French francs $18,886 8.16% 6.41%
French francs 18,886 5.00 6.80
British pounds 15,795 5.85 5.40
Japanese yen 5,041 2.61 2.23
Japanese yen 10,082 2.61 2.25
September 30, 1993
French francs $17,535 8.16% 10.01%
British pounds 14,960 5.85 6.06
At September 30, 1994 and 1993, the Company had a foreign interest rate collar
agreement with a notional amount of $15,800 which limits the potential interest
rate fluctuations on a portion of the Company's British pound denominated short-
term debt to a range of 6.5%-8.0%. The premium paid on the collar agreement is
amortized to interest expense over the term of the agreement. The collar
agreement expires in October 1994.
CONCENTRATION OF CREDIT RISK
Substantially all of the Company's trade receivables are due from entities in
the health care industry. Due to the large number and diversity of the
Company's customer base, concentrations of credit risk with respect to trade
receivables are limited. The Company does not normally require collateral. The
Company is exposed to credit loss in the event of nonperformance by financial
institutions with which it conducts business. However, the Company minimizes
exposure to such risk by dealing only with major international banks and
financial institutions.
47
NOTE 10 - SHAREHOLDERS' EQUITY
Series B,
ESOP
Preferred Common Capital In Treasury Stock
Stock Stock Excess of Retained Unearned ESOP -------------------------
Issued Issued Par Value Earnings Compensation Shares Amount
--------- ------- ---------- ---------- ------------- ---------- ---------
Balance at October 1, 1991 $55,032 $85,349 $105,682 $1,409,376 $(49,048) (9,866,668) $(266,942)
Net income 200,753
Cash dividends:
Common ($.60 per share) (45,408)
Preferred ($3.835 per
share), net of tax benefits (2,545)
Issuance of common stock
for employee stock plans, net (16) 600,136 15,664
Repurchase of common stock (127,400) (3,812)
Reduction in unearned ESOP
compensation for the year 4,039
Adjustment for redemption
provisions and other 3,995 (4,652) 5,286 159
------- ------- -------- ---------- -------- ---------- ---------
Balance at September 30, 1992 59,027 85,349 105,666 1,562,176 (49,661) (9,388,646) (254,931)
Net income 71,783
Cash dividends:
Common ($.66 per share) (50,014)
Preferred ($3.835 per share),
net of tax benefits (2,749)
Issuance of common stock for
employee stock plans, net (825) 545,964 13,284
Repurchase of common stock (1,793,650) (64,112)
Reduction in unearned ESOP
compensation for the year 4,412
Adjustment for redemption
provisions and other (919) 113 13,902 402
------- ------- -------- ---------- -------- ---------- ---------
Balance at September 30, 1993 58,108 85,349 104,954 1,581,196 (45,249) (10,622,430) (305,357)
Net income 227,174
Cash dividends:
Common ($.74 per share) (53,292)
Preferred ($3.835 per share),
net of tax benefits (2,718)
Issuance of common stock for
employee stock plans, net 6,355 874,309 23,160
Repurchase of common stock (5,359,600) (210,285)
Reduction in unearned ESOP
compensation for the year 4,153
Adjustment for redemption
provisions and other (1,777) 291 36,590 1,059
------- ------- -------- ---------- -------- ---------- ---------
Balance at September 30, 1994 $56,331 $85,349 $111,600 $1,752,360 $(41,096) (15,071,131) $(491,423)
======= ======= ======== ========== ======== ========== =========
48
CUMULATIVE CURRENCY TRANSLATION ADJUSTMENTS
Generally, the net assets of foreign operations are translated into U.S. dollars
using current exchange rates. The U.S. dollar results that arise from such
translation, as well as exchange gains and losses on intercompany balances of a
long-term investment nature (net of allocated income taxes), are included in the
cumulative currency translation adjustment account in Shareholders' Equity. The
following is an analysis of the account:
1994 1993 1992
-------- --------- -------
Balance at October 1 $(22,048) $ 87,300 $24,337
Translation adjustment 37,900 (109,408) 65,367
Disposition of foreign
investment (6,348) - -
Allocated income taxes (931) 60 (2,404)
-------- --------- -------
Balance at September 30 $ 8,573 $ (22,048) $87,300
======== ========= =======
PREFERRED STOCK PURCHASE RIGHTS
In 1986, the Board of Directors declared a distribution of one Preferred Stock
Purchase Right (Right) for each outstanding share of the Company's common stock.
Each Right will entitle a shareholder to buy one one-hundredth of a share of
Series A preferred stock at an exercise price of $88. The Rights will be
exercisable only if a third party acquires 20% or more of the Company's common
stock or commences a tender or exchange offer for 30% or more of the common
stock. After the Rights become exercisable and in the event of certain
transactions, principally involving significant changes in control of the
Company, each holder of a Right will be entitled to receive, upon exercise, a
number of shares of the surviving company's common stock which would have a
market value of twice the exercise price. The Company will be entitled to
redeem the Rights for $.01 per Right at any time until ten days after a 20% or
more position has been acquired. The Rights will expire April 25, 1996. There
are 500,000 shares of preferred stock designated Series A, none of which have
been issued.
NOTE 11 - COMMITMENTS AND CONTINGENCIES
LEASE COMMITMENTS
Rental expense for all operating leases amounted to $49,900 in 1994, $51,500 in
1993 and $45,800 in 1992. Future minimum rental commitments on noncancelable
leases are as follows: 1995 - $33,300; 1996 - $28,300; 1997 - $22,300; 1998 -
$16,700; 1999 - $13,800 and an aggregate of $58,900 thereafter.
CONTINGENCIES
The Company believes that its operations comply in all material respects with
applicable laws and regulations. The Company is a party to a number of federal
proceedings in the United States brought under the Comprehensive Environmental
Response, Compensation and Liability Act, also known as Superfund, and similar
state laws. The Company is also involved in other legal proceedings and claims
which arise in the ordinary course of business, both as a plaintiff and a
defendant. The results of these matters, individually and in the aggregate, are
not expected to have a material effect on the results of operations or financial
condition of the Company.
NOTE 12 - STOCK PLANS
STOCK OPTION PLANS
The Company has stock option plans under which key employees have been granted
options to purchase shares of the Company's common stock at the fair market
value at the time of the grant. The 1990 Stock Option Plan, adopted in 1991,
makes available 4,000,000 shares of the Company's common stock for the granting
of options. The 1990 Plan has a provision whereby unqualified options may be
granted at, below, or above market value of the Company's stock. If the option
price is less than the market value of the Company's stock on the date of grant,
the discount is recorded as compensation expense over the service period. There
was no such compensation expense in each of the three years presented.
Under certain circumstances, the stock option plans permit the optionee the
right to receive cash and/or stock at the Company's discretion equal to the
difference between the market value on the date of election and the option
price. This difference would be recorded as compensation expense over the
vesting period.
49
A summary of changes in outstanding options is as follows:
1994 1993 1992
--------------------------- --------------------------- ---------------------------
Shares Price Range Shares Price Range Shares Price Range
--------- --------------- --------- --------------- --------- ---------------
Balance at October 1 4,672,044 $ 8.41 - $39.50 4,161,988 $ 8.41 - $38.78 3,879,858 $ 8.33 - $38.78
Granted 1,258,370 34.56 - 40.10 1,054,764 37.25 - 39.50 816,450 35.85 - 36.71
Exercised (756,350) 8.41 - 40.10 (498,979) 8.41 - 38.78 (487,070) 8.33 - 31.57
Canceled (93,105) 8.41 - 38.78 (45,729) 10.05 - 38.78 (47,250) 26.88 - 38.78
--------- --------- ---------
Balance at September 30 5,080,959 $12.67 - $40.10 4,672,044 $ 8.41 - $39.50 4,161,988 $ 8.41 - $38.78
========= ========= =========
Exercisable at
September 30 3,550,467 3,380,615 3,096,904
Available for grant at:
October 1, 1993 2,249,016
September 30, 1994 1,046,921
Options outstanding as of September 30, 1994 expire at various times from June
1995 through June 2004.
OTHER STOCK PLANS
The Company has a compensatory Stock Award Plan which provides for grants of
common shares to certain key employees. Distribution of 25% or more of each
award, as elected by the grantee, is deferred until after retirement or
involuntary termination. Commencing on the first anniversary of a grant, the
remainder is distributable in five equal annual installments. During 1994,
109,044 shares were distributed. Awards for 58,585, 47,590 and 49,300 shares
(net of cancellations) were granted in 1994, 1993 and 1992, respectively. At
September 30, 1994, 816,584 shares were reserved for future issuance, of which
awards for 292,171 shares have been granted.
During 1994, the Company adopted the 1994 Restricted Stock Plan for Non-Employee
Directors. The Restricted Stock Plan, which is compensatory, reserves for
issuance 75,000 shares of the Company's common stock. During 1994, 15,229
restricted shares were issued in accordance with the provisions of the plan.
50
NOTE 13 - BUSINESS SEGMENT DATA
The Company's operations are comprised of two segments, Medical Supplies and
Devices and Diagnostic Systems.
MEDICAL SUPPLIES AND DEVICES
The major products in this segment are hypodermic products, specially designed
devices for diabetes care, prefillable drug delivery systems, vascular access
products and surgical devices (including disposable scrubs, surgical gloves,
specialty and surgical blades and pre-surgery patient prep kits). The Medical
Supplies and Devices segment also includes specialty needles, drug infusion
systems, elastic support products, thermometers, examination gloves and contract
packaging services. Distribution of these products is both through distributors
and directly to hospitals, laboratories and other end users.
DIAGNOSTIC SYSTEMS
The major products in this segment are classical and instrumented microbiology
products, blood collection products, instrumentation systems for cellular
analysis, including flow cytometry and cellular imaging products, tissue culture
labware, hematology instruments and other diagnostic systems, including
immunodiagnostic test kits. Distribution of these products is both through
distributors and directly to hospitals, laboratories and other end users.
Sales to a distributor which supplies the Company's products to many end users
accounted for approximately 12% of revenues in both 1994 and 1993 and 11% of
revenues in 1992, and were from both the Diagnostic Systems and Medical Supplies
and Devices segments. No other customer accounted for 10% or more of revenues
in each of the three years presented.
The countries in which the Company has local revenue-generating operations have
been combined into the following geographic areas: the United States, including
Puerto Rico; Europe; and Other, which is comprised of Canada, Latin America,
Japan and Asia Pacific.
Segment and geographic area operating income represent revenues reduced by
product costs and operating expenses. Unallocated expenses include costs
related to management of corporate assets, foreign exchange, the results of
investments accounted for by the equity method and interest expense, net.
Financial information with respect to business segment and geographic data for
the years ended September 30, 1994, 1993 and 1992 is on pages 32 and 33 and is
considered to be an integral part of the notes to the consolidated financial
statements.
51
QUARTERLY DATA (UNAUDITED)
Thousands of dollars, except per share amounts
1994 1st 2nd 3rd 4th Year
-------- -------- -------- -------- ----------
Revenues $554,080 $634,814 $652,988 $717,579 $2,559,461
Gross Profit 241,198 291,732 295,131 331,766 1,159,827
Net Income 25,696 57,093 58,074 86,311 227,174
Earnings Per Share .33 .76 .78 1.18 3.05
1993 1st 2nd 3rd 4th Year
-------- -------- -------- -------- ----------
Revenues $560,462 $612,534 $625,356 $667,053 $2,465,405
Gross Profit 241,354 272,285 279,538 303,826 1,097,003
Income Before Cumulative Effect
of Accounting Changes 23,344 55,996 57,060 76,440 212,840
Net Income (117,713)(A) 55,996 57,060 76,440 71,783(A)
Earnings Per Share:
Income Before Cumulative Effect
of Accounting Changes .30 .71 .72 .98 2.71
Net Income (1.53)(A) .71 .72 .98 .88(A)
(A) Includes an after-tax charge of $141,057, or $1.83 per share, for the
cumulative effect of accounting changes.
COMMON STOCK PRICES AND DIVIDENDS
1994 By Quarter High Low Dividends
-------- ------- -----------
First $ 39 $34 $ .185
Second 40 3/4 34 .185
Third 41 1/2 35 3/8 .185
Fourth 48 1/4 40 1/8 .185
1993 By Quarter High Low Dividends
-------- ------- -----------
First $42 1/16 $36 1/8 $.165
Second 40 3/4 33 7/8 .165
Third 40 32 5/8 .165
Fourth 40 1/4 34 1/2 .165
52