FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________________ to ______________________
Commission file number 001-4802
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Becton, Dickinson and Company
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(Exact name of registrant as specified in its charter)
New Jersey 22-0760120
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1 Becton Drive Franklin Lakes, New Jersey 07417-1880
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(Address of principal executive offices)
(Zip Code)
(201) 847-6800
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(Registrant's telephone number, including area code)
N/A
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(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X. No .
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Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class of Common Stock Shares Outstanding as of April 30, 1998
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Common stock, par value $1.00 123,100,479
PART I - FINANCIAL INFORMATION
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Item 1. Financial Statements.
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Condensed Consolidated Balance Sheets at March 31, 1998 and September
30, 1997
Condensed Consolidated Statements of Income for the three and six
months ended March 31, 1998 and 1997
Condensed Consolidated Statements of Cash Flows for the six months
ended March 31, 1998 and 1997
Notes to Condensed Consolidated Financial Statements
2
ITEM 1. FINANCIAL STATEMENTS
BECTON, DICKINSON AND COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
Thousands of Dollars
March 31, September 30,
Assets 1998 1997
- ------ ------------ -------------
(Unaudited)
Current Assets:
Cash and equivalents $ 113,111 $ 112,639
Short-term investments 15,648 28,316
Trade receivables, net 559,373 595,685
Inventories (Note 2):
Materials 103,670 92,307
Work in process 84,540 79,519
Finished products 281,482 266,511
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469,692 438,337
Prepaid expenses, deferred taxes and other 155,827 137,632
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Total Current Assets 1,313,651 1,312,609
Property, plant and equipment 2,613,070 2,549,828
Less allowances for depreciation and amortization 1,355,099 1,299,123
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1,257,971 1,250,705
Goodwill, Net 222,033 164,097
Other Intangibles, Net 167,751 167,847
Other 211,200 184,994
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Total Assets $ 3,172,606 $ 3,080,252
============ =============
Liabilities and Shareholders' Equity
- ------------------------------------
Current Liabilities:
Short-term debt $ 233,840 $ 132,440
Payables and accrued expenses 520,920 545,757
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Total Current Liabilities 754,760 678,197
Long-Term Debt 564,207 665,449
Long-Term Employee Benefit Obligations 314,832 306,514
Deferred Income Taxes and Other 51,719 44,659
Commitments and Contingencies - -
Shareholders' Equity:
Preferred stock 50,038 51,111
Common stock 166,331 167,245
Capital in excess of par value 125,544 83,422
Cumulative currency translation adjustments (124,169) (86,870)
Retained earnings 2,326,544 2,249,463
Unearned ESOP compensation (28,795) (28,620)
Shares in treasury - at cost (1,028,405) (1,050,318)
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Total Shareholders' Equity 1,487,088 1,385,433
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Total Liabilities and Shareholders' Equity $ 3,172,606 $ 3,080,252
============ =============
See notes to condensed consolidated financial statements
3
BECTON, DICKINSON AND COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Thousands of Dollars, Except Per Share Data
(Unaudited)
Three Months Ended Six Months Ended
March 31, March 31,
------------------------------- -------------------------------
1998 1997 1998 1997
------------- --------------- ------------- ---------------
REVENUES $ 738,433 $ 699,207 $1,440,073 $ 1,355,006
Cost of products sold 364,080 352,674 718,883 695,806
Selling and administrative 186,017 185,454 385,157 371,984
Research and development 43,796 39,411 88,426 79,067
----------- ----------- ----------- ------------
TOTAL OPERATING COSTS AND EXPENSES 593,893 577,539 1,192,466 1,146,857
----------- ----------- ----------- ------------
OPERATING INCOME 144,540 121,668 247,607 208,149
Interest expense, net (11,427) (8,563) (21,668) (18,010)
Other (expense) income, net (3,064) 3,333 (5,297) 8,141
----------- ----------- ----------- ------------
INCOME BEFORE INCOME TAXES 130,049 116,438 220,642 198,280
Income tax provision 37,714 33,767 63,986 57,501
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NET INCOME $ 92,335 $ 82,671 $ 156,656 $ 140,779
=========== =========== =========== ============
Basic Earnings Per Share $ .75 $ .67 $ 1.27 $ 1.13
=========== =========== =========== ============
Diluted Earnings Per Share $ .71 $ .63 $ 1.21 $ 1.08
=========== =========== =========== ============
Dividends Per Common Share $ .145 $ .13 $ .29 $ .26
=========== =========== =========== ============
See notes to condensed consolidated financial statements
4
BECTON, DICKINSON AND COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Thousands of Dollars
(Unaudited)
Six Months Ended
March 31,
----------------------------
1998 1997
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Operating Activities:
Net income $ 156,656 $ 140,779
Adjustments to Net Income to Derive Net Cash
Provided by Operating Activities:
Depreciation and amortization 108,710 101,060
Change in working capital (40,869) (46,095)
Other, net 17,245 13,568
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Net Cash Provided by Operating Activities 241,742 209,312
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Investing Activities:
Capital expenditures (89,945) (62,627)
Acquisitions of businesses, net of cash acquired (64,838) -
Proceeds from divestiture of a business - 20,860
Change in investments, net 7,308 21,112
Other, net (42,693) (19,315)
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Net Cash Used for Investing Activities (190,168) (39,970)
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Financing Activities:
Change in short-term debt 4,648 (20,744)
Proceeds of long-term debt - 97,838
Payments of long-term debt (759) (102,079)
Issuance of common stock 29,079 19,810
Repurchase of common stock (44,476) (107,875)
Dividends paid (37,044) (33,894)
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Net Cash Used for Financing Activities (48,552) (146,944)
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Effect of exchange rate changes on cash and equivalents (2,550) (6,266)
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Net increase in cash and equivalents 472 16,132
Opening Cash and Equivalents 112,639 135,151
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Closing Cash and Equivalents $ 113,111 $ 151,283
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See notes to condensed consolidated financial statements
5
BECTON, DICKINSON AND COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Thousands of Dollars, Except Per Share Data
March 31, 1998
Note 1 - Basis of Presentation
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The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with the instructions to Form 10-Q and, in the opinion of
the management of the Company, include all adjustments, which are of a normal
recurring nature, necessary for a fair presentation of financial position and
the results of operations and cash flows for the periods presented. However,
the financial statements do not include all information and footnotes required
for a presentation in accordance with generally accepted accounting principles.
These condensed consolidated financial statements should be read in conjunction
with the consolidated financial statements and the notes thereto included or
incorporated by reference in the Company's 1997 Annual Report on Form 10-K.
The results of operations for the interim periods are not necessarily indicative
of the results of operations to be expected for the full year.
Note 2 - Inventory Valuation
- ----------------------------
An actual valuation of inventory under the LIFO method can be made only at the
end of each fiscal year based on the inventory levels and costs at that time.
Accordingly, interim LIFO calculations are based on management's estimates of
expected year-end inventory levels and costs.
Note 3 - Subsequent Event
- -------------------------
On April 3, 1998, the Company completed its acquisition of the Medical Devices
Division of Ohmeda, the health care business of The BOC Group, which has
estimated annual revenues of $200,000. The purchase price was approximately
$452,000 in cash, subject to certain post-closing adjustments.
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Note 4 - Earnings per Share
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In 1998, the Company adopted the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 128, "Earnings per Share". All share and per share data
for all periods have been presented and, where necessary, restated to conform to
the SFAS No. 128 requirements. The reconciliation between the calculation of
basic and diluted earnings per share follows:
Three Months Ended Six Months Ended
March 31, March 31,
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1998 1997 1998 1997
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Net income $ 92,335 $ 82,671 $156,656 $140,779
Preferred stock dividends (809) (846) (1,634) (1,699)
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Income available to
common shareholders (A) 91,526 81,825 155,022 139,080
Preferred stock dividends - using
"if converted" method 809 846 1,634 1,699
Additional ESOP contribution -
using "if converted" method (245) (283) (500) (568)
-------- -------- -------- --------
Income available to common shareholders
after assumed conversions (B) $ 92,090 $ 82,388 $156,156 $140,211
======== ======== ======== ========
Average common shares outstanding (C) 122,476 122,841 122,141 122,984
Dilutive stock equivalents from stock plans 5,149 4,980 4,725 4,416
Shares issuable upon conversion of
preferred stock 2,714 2,818 2,714 2,818
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Average common and common equivalent
shares outstanding - assuming dilution (D) 130,339 130,639 129,580 130,218
======== ======== ======== ========
Basic earnings per share (A/C) $ .75 $ .67 $ 1.27 $ 1.13
======== ======== ======== ========
Diluted earnings per share (B/D) $ .71 $ .63 $ 1.21 $ 1.08
======== ======== ======== ========
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
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of Operations.
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Results of Operations
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Second Quarter 1998 vs. Second Quarter 1997
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Second quarter revenues of $738 million exceeded prior year revenues by 6%.
Revenue growth for the quarter was unfavorably impacted by the effect of a
stronger dollar versus the prior year, which reduced revenues by an estimated
$26 million. Excluding the estimated impact of foreign currency translation,
revenue growth would have been approximately 9%. Medical Supplies and Devices
segment ("Medical") revenues of $384 million increased 2%. Adjusting for the
estimated unfavorable impact of foreign currency translation, Medical revenues
would have increased approximately 6%. Diagnostic Systems segment
("Diagnostic") revenues of $355 million increased 10%, or 14% after excluding
the estimated unfavorable impact of foreign currency translation.
Domestic Medical revenues of $199 million increased 3%. International Medical
revenues of $184 million increased 2%, or 9% after adjusting for an estimated
$13 million unfavorable impact of foreign currency translation. Good growth
rates were experienced by the infusion therapy and injection systems businesses.
Domestic Diagnostic revenues of $203 million increased 21%, aided by prior year
acquisitions. International Diagnostic revenues of $152 million declined 3%,
but would have increased 6% after excluding the estimated unfavorable effect of
foreign currency translation.
The gross profit margin of 50.7% improved more than a full percentage point over
last year's second quarter rate of 49.6%. The improvement reflects a more
profitable mix of products sold as well as continuing productivity improvements.
Selling and administrative expense was $186 million, or 25.2% of revenues, which
improved from last year's second quarter ratio of 26.5%. Investment of $44
million in research and development increased to 5.9% of revenues from 5.6% in
last year's second quarter, primarily reflecting the continuation of strategic
investments in support of the Company's key businesses.
Operating income of $145 million increased 19% from last year's second quarter
amount of $122 million. The improved operating margin of 19.6%, as compared to
17.4%, reflects the improved gross profit margin as well as the lower selling
and administrative expense ratio.
Net interest expense of $11 million was about $3 million higher than last year
due to additional borrowings to fund recent acquisitions. Other (expense)
income, net decreased $6 million from last year, primarily due to the absence of
a $6 million gain on the sale of an equity investment in the prior year. The
second quarter income tax rate was 29%, consistent with last year's rate, which
is the expected rate for the year.
8
Net income was $92 million compared with $83 million last year, an increase of
12%. Earnings per share of $.71 increased 13% over last year's $.63 on a
diluted basis, or 19% after adjusting for an estimated $.04 unfavorable foreign
currency translation effect.
Six Months 1998 vs. Six Months 1997
- -----------------------------------
Revenues of $1.440 billion were 6% higher than last year's revenues of $1.355
billion. After adjusting for the estimated unfavorable effect of foreign
currency translation, revenues would have increased approximately 10%. Medical
revenues of $756 million increased 5%, or 8% after adjusting for the estimated
unfavorable impact of foreign currency translation. Aided by prior year
acquisitions, Diagnostic revenues of $684 million increased 8%. After
adjusting for the unfavorable effect of foreign currency translation, diagnostic
revenues would have grown 13%. Domestic revenues of $791 million increased
14%, also aided by prior year acquisitions. International revenues of $649
million decreased 2%, but would have increased 6% after excluding the estimated
impact of foreign currency translation.
The gross profit margin of 50.1% was more than a full percentage point higher
than last year's rate of 48.6%. Selling and administrative expense was 26.7% of
revenues, lower than last year's rate of 27.5%. Research and development
spending was $88 million, 12% higher than last year. As a percentage of
revenues, research and development expense was 6.1%, compared with last year's
rate of 5.8%. The reasons for these changes are consistent with those
previously discussed in the Second Quarter Results of Operations.
Operating income of $248 million increased $39 million over the same period last
year. As a percent of revenues, operating income was 17.2% compared with last
year's rate of 15.4% resulting primarily from the improved gross profit margin.
Other (expense) income, net declined $13 million compared with last year,
principally due to higher foreign exchange losses and the absence of a $4
million one-time gain which occurred in the first quarter of the prior year, in
addition to the reasons discussed in the Second Quarter Results of Operations.
The income tax rate of 29.0% is consistent with last year's rate.
Net income was $157 million, compared with $141 million last year, an increase
of 11%. Diluted earnings per share of $1.21 increased 12% over last year's
$1.08, or 20% after excluding an estimated $.09 unfavorable impact of foreign
currency translation compared with the prior year.
Financial Condition
- -------------------
During the first six months of 1998, cash provided by operations was $242
million, compared with $209 million during the first six months of last year.
Capital expenditures during the first six months were $90 million compared with
$63 million during the first six months of last
9
year. For the full year, capital expenditures are expected to be slightly higher
than last year's amount of $170 million. In the first quarter, the Company
invested $40 million for the acquisition of a manufacturer of ophthalmic
surgical and anesthesia products. In the second quarter, the Company acquired
IntelliCode Intelligent Bar Coding Systems and Tru-Fit Marketing Corporation for
an aggregate of $25 million in cash and 297,760 shares of the Company's common
stock, subject to certain post-closing adjustments.
As of March 31, 1998, total debt of $798 million represented 34.6% of total
capital (shareholders' equity, net non-current deferred income tax liabilities,
and debt) compared with 33.4% a year ago. Because of its strong credit rating,
the Company believes it has the capacity to arrange significant additional
borrowings should the need arise.
During the first six months of 1998, the Company repurchased 913,500 shares of
its common stock for a total expenditure of $44 million. At March 31, 1998,
authorization from the Board of Directors remained in effect to reacquire up to
an additional 10.6 million shares, although the Company expects to limit its
share repurchases for the balance of the year.
The Company continues to evaluate the appropriate courses of corrective action
needed to prepare its computer systems for the year 2000. Based on a
preliminary assessment, the Company expects to spend approximately $6 million to
$10 million to modify and replace its existing computer software to ensure
proper transaction processing in the year 2000 and beyond. A portion of these
costs will represent the redeployment of existing internal resources and,
therefore, are not expected to be incremental. The Company will expense the
costs to modify existing systems and will capitalize the costs to replace
software that is not Year 2000 compliant. Accordingly, the cost of the Year
2000 project to be incurred over the next two years is not expected to have a
material effect on the Company's results of operations or financial position. A
comprehensive evaluation of the impact of the Year 2000 issue on both the
Company's infrastructure and its interface with suppliers, distributors and
customers has been initiated and is expected to be completed in the latter part
of fiscal year 1998. The Company expects the remediation program to be
completed by the middle of 1999. There can be no guarantee, however, that the
systems of other entities with which the Company's systems interface also will
be converted on a timely basis or that any failure to convert by another entity
would not have an adverse effect on the Company's systems.
In March 1998, the Board of Directors approved an enterprise-wide systems
initiative. This project will develop a platform of common business practices
for the Company and will coordinate the installation of a global software system
to provide more efficient access to worldwide business information. The
initiative is expected to cost $160 million over the next seven years.
This interim report on Form 10-Q may contain certain forward looking statements
(as defined under federal securities laws) regarding the Company's performance,
including future revenues, products and income, which are based upon current
expectations of the Company and involve a number of business risks and
uncertainties. Actual results could vary materially from anticipated results
described in any forward looking statement. Factors that could cause actual
10
results to vary materially include, but are not limited to, competitive factors,
changes in regional, national or foreign economic conditions, changes in
interest or foreign currency exchange rates, delays in product introductions,
and changes in health care or other governmental regulation, as well as other
factors discussed herein and in other of the Company's filings with the
Securities and Exchange Commission.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
-----------------------------------------------------------
There have been no material changes in information reported since the
fiscal year ended September 30, 1997.
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PART II - OTHER INFORMATION
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Item 1. Legal Proceedings.
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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 Company.
Item 2. Changes in Securities and Use of Proceeds.
------------------------------------------
On February 18, 1998, the registrant completed the acquisition
of Tru-Fit Marketing Corporation, a Massachusetts corporation ("Tru-
Fit"), pursuant to an Agreement and Plan of Merger dated January 9,
1998 (the "Merger Agreement"). In connection with the acquisition, the
former shareholders of Tru-Fit received certain cash consideration and
an aggregate 248,134 shares of the registrant's common stock, par
value $1.00 per share ("Common Stock"), in exchange for all of the
issued and outstanding common stock of Tru-Fit. Pursuant to the terms
of the Merger Agreement, the former Tru-Fit shareholders may receive
up to an additional 49,626 shares of Common Stock pending resolution
of certain post-closing adjustments to the merger consideration paid
under the Merger Agreement and resolution of post-closing
indemnification claims of the registrant, if any.
The Common Stock issued to the former shareholders of Tru-Fit in
connection with the acquisition was offered and sold pursuant to the
exemption from registration provided by Section 4(2) of the Securities
Act of 1933, as amended (the "Securities Act"), for transactions not
involving a public offering of securities. In connection with the
offer and sale, the registrant relied upon the fact that the offering
was made to only two offerees (the former shareholders of Tru-Fit) and
did not involve any general advertising or solicitation, the offerees
were sophisticated investors, the size of the offering was small in
relation to the registrant's market capitalization, and the registrant
had taken reasonable steps to prevent resale of the Common Stock by
the former shareholders of Tru-Fit in violation of the Securities Act.
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Item 3. Defaults Upon Senior Securities.
--------------------------------
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
----------------------------------------------------
a.) The Annual Meeting of Shareholders of the Company was held on
February 10, 1998.
c.) i.) A management proposal for the election of four directors
for the terms indicated below was voted upon as follows:
Nominee Term Votes For Votes Withheld
---------------------- ------- ----------- --------------
Richard W. Hanselman 2 Years 105,433,443 1,583,370
Henry P. Becton, Jr. 3 Years 105,525,229 1,491,584
Gerald M. Edelman 3 Years 105,524,335 1,492,478
Margaretha af Ugglas 3 Years 105,511,854 1,504,959
ii.) A management proposal to approve the selection of Ernst &
Young, LLP as independent auditors for the fiscal year
1998 was voted upon. 106,508,430 shares were voted for
the proposal, 234,040 shares were voted against and
274,343 shares abstained.
iii.) A management proposal relating to the adoption of the
1998 Stock Option Plan was voted upon. 98,639,298 shares
were voted for the proposal, 7,719,871 shares were voted
against and 657,644 shares abstained.
iv.) A shareholder proposal requesting the Board of Directors
take the necessary steps to provide for cumulative voting
in the election of directors was voted upon. 23,947,019
shares were voted for the proposal, 69,846,443 shares
were voted against and 1,973,319 shares abstained.
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Item 5. Other Information.
------------------
Not applicable.
Item 6. Exhibits and Reports on Form 8-K.
---------------------------------
a) Exhibits
3(ii) - By-Laws, as amended February 10, 1998
27.1 - Financial Data Schedule
27.2 - Restated Financial Data Schedule
b) Reports on Form 8-K
During the three-month period ending March 31, 1998, the Company
filed one Current Report on Form 8-K under Item 5 - Other Events
concerning the announcement of the signing of a definitive
agreement to acquire the Medical Devices Division of Ohmeda, the
health care business of The BOC Group, Inc. This report was dated
January 28, 1998 and filed February 3, 1998.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Becton, Dickinson and Company
-----------------------------
(Registrant)
Date May 14, 1998
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/s/ Edward J. Ludwig
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Edward J. Ludwig
Senior Vice President - Finance and Chief Financial Officer
(Principal Financial and Accounting Officer)
15
EXHIBIT INDEX
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Exhibit Method of
Number Description Filing
- --------- ------------------------------------- -----------
3(ii) By-Laws, as amended February 10, 1998 Filed with
this report
27.1 Financial Data Schedule Filed with
this report
27.2 Restated Financial Data Schedule Filed with
this report
16