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 June 30, 2001
---------------------------------------
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
--------
Becton, Dickinson and Company
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
New Jersey 22-0760120
- ------------------------------- -----------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1 Becton Drive, Franklin Lakes, New Jersey 07417-1880
------------------------------------------------------
(Address of principal executive offices)
(Zip Code)
(201) 847-6800
----------------------------------------------------
(Registrant's telephone number, including area code)
N/A
----------------------------------------------------
(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 ____.
-
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 July 31, 2001
--------------------- --------------------------------------
Common stock, par value $1.00 258,544,900
BECTON, DICKINSON AND COMPANY
FORM 10-Q
For the quarterly period ended June 30, 2001
TABLE OF CONTENTS
Part I. FINANCIAL INFORMATION Page Number
- ------- --------------------- -----------
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets....................................... 3
Condensed Consolidated Statements of Income................................. 4
Condensed Consolidated Statements of Cash Flows............................. 5
Notes to Condensed Consolidated Financial Statements........................ 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations..................................................................... 17
Item 3. Quantitative and Qualitative Disclosures About Market Risk .................... 22
Part II. OTHER INFORMATION
- -------- -----------------
Item 1. Legal Proceedings.............................................................. 24
Item 2. Changes in Securities and Use of Proceeds...................................... 25
Item 3. Defaults Upon Senior Securities................................................ 25
Item 4. Submission of Matters to a Vote of Security Holders............................ 25
Item 5. Other Information.............................................................. 25
Item 6. Exhibits and Reports on Form 8-K............................................... 25
Signatures ............................................................................... 26
2
ITEM 1. FINANCIAL STATEMENTS
BECTON, DICKINSON AND COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
Thousands of Dollars
June 30, September 30,
Assets 2001 2000
- ------ ----------- -----------
(Unaudited)
Current Assets:
Cash and equivalents $ 71,291 $ 49,196
Short-term investments 5,497 5,561
Trade receivables, net 735,537 751,720
Inventories:
Materials 162,536 156,918
Work in process 120,723 110,843
Finished products 440,578 410,915
----------- -----------
723,837 678,676
Prepaid expenses, deferred taxes and other 200,814 175,524
----------- -----------
Total Current Assets 1,736,976 1,660,677
Property, plant and equipment 3,329,905 3,163,100
Less allowances for depreciation and amortization 1,671,497 1,587,042
----------- -----------
1,658,408 1,576,058
Goodwill, Net 434,231 466,343
Core and Developed Technology, Net 310,070 309,061
Other Intangibles, Net 166,283 172,720
Other 381,609 320,237
----------- -----------
Total Assets $ 4,687,577 $ 4,505,096
=========== ===========
Liabilities and Shareholders' Equity
- ------------------------------------
Current Liabilities:
Short-term debt $ 539,355 $ 637,735
Payables and accrued expenses 716,539 715,803
----------- -----------
Total Current Liabilities 1,255,894 1,353,538
Long-Term Debt 772,698 779,569
Long-Term Employee Benefit Obligations 336,150 329,497
Deferred Income Taxes and Other 102,852 86,494
Commitments and Contingencies -- --
Shareholders' Equity:
Preferred stock 41,225 43,570
Common stock 332,662 332,662
Capital in excess of par value 137,473 75,075
Retained earnings 3,063,927 2,835,908
Unearned ESOP compensation (17,444) (16,155)
Deferred compensation 7,248 6,490
Common shares in treasury - at cost (946,005) (980,163)
Accumulated other comprehensive loss (399,103) (341,389)
----------- -----------
Total Shareholders' Equity 2,219,983 1,955,998
----------- -----------
Total Liabilities and Shareholders' Equity $ 4,687,577 $ 4,505,096
=========== ===========
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 Nine Months Ended
June 30, June 30,
--------------------------------- -----------------------------------
2001 2000 2001 2000
---------------- --------------- ---------------- -----------------
Revenues $ 954,192 $ 914,140 $ 2,758,628 $ 2,698,436
Cost of products sold 475,305 453,838 1,411,867 1,377,776
Selling and administrative 248,709 248,773 725,913 726,674
Research and development 53,105 60,202 160,329 171,120
--------- --------- ----------- -----------
Total Operating Costs and Expenses 777,119 762,813 2,298,109 2,275,570
--------- --------- ----------- -----------
Operating Income 177,073 151,327 460,519 422,866
Interest expense, net (13,155) (17,564) (47,717) (60,320)
Gains on investments, net -- 31,766 -- 64,925
Other (expense) income, net (367) (4,021) (13,746) 893
--------- --------- ----------- -----------
Income Before Income Taxes 163,551 161,508 399,056 428,364
Income tax provision 39,252 47,090 95,773 119,481
--------- --------- ----------- -----------
Net Income $ 124,299 $ 114,418 $ 303,283 $ 308,883
========= ========= =========== ===========
Earnings Per Share:
Basic $ .48 $ .45 $ 1.17 $ 1.22
========= ========= =========== ===========
Diluted $ .46 $ .43 $ 1.13 $ 1.17
========= ========= =========== ===========
Dividends Per Common Share $ .095 $ .0925 $ .285 $ .2775
========= ========= =========== ===========
See notes to condensed consolidated financial statements
4
BECTON, DICKINSON AND COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Thousands of Dollars
(Unaudited)
Nine Months Ended
June 30,
-------------------------------------------------------
2001 2000
-------------------- --------------------
Operating Activities
--------------------
Net income $ 303,283 $ 308,883
Adjustments to net income to derive net cash
provided by operating activities:
Depreciation and amortization 232,437 214,755
Gains on investments,net - (64,925)
Change in working capital (50,561) (17,034)
Other, net 39,344 (2,550)
-------------------- --------------------
Net Cash Provided by Operating Activities 524,503 439,129
-------------------- --------------------
Investing Activities
--------------------
Capital expenditures (265,888) (271,296)
Acquisitions of businesses, net of cash acquired (30,953) (21,047)
(Purchases) sales of investments, net (6,781) 81,349
Capitalized software (54,207) (41,698)
Other, net (38,844) (33,130)
-------------------- --------------------
Net Cash Used for Investing Activities (396,673) (285,822)
-------------------- --------------------
Financing Activities
- ---------------------
Change in short-term debt 4,030 (34,387)
Proceeds from long-term debt 2,387 979
Payments of long-term debt (102,594) (60,600)
Issuance of common stock from treasury 69,379 31,836
Dividends paid (75,974) (72,093)
-------------------- --------------------
Net Cash Used for Financing Activities (102,772) (134,265)
-------------------- --------------------
Effect of exchange rate changes on cash and equivalents (2,963) (2,034)
-------------------- --------------------
Net increase in cash and equivalents 22,095 17,008
Opening Cash and Equivalents 49,196 59,932
-------------------- --------------------
Closing Cash and Equivalents $ 71,291 $ 76,940
==================== ====================
See notes to condensed consolidated financial statements
5
BECTON, DICKINSON AND COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Dollar and Share Amounts in Thousands, Except Per-share Data
June 30, 2001
Note 1 - Basis of Presentation
- ------------------------------
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with the instructions to Form 10-Q and, in the opinion of
the management of 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 2000 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
- ----------------------------
The Company uses the last-in, first-out ("LIFO") method of determining cost for
substantially all inventories in the United States. An actual valuation of
inventory under the LIFO method will 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. All other inventories are accounted for using the first-in,
first-out ("FIFO") method.
Note 3 - Comprehensive Income
- -----------------------------
Comprehensive income for the Company is comprised of the following:
Three Months Ended Nine Months Ended
June 30, June 30,
------------------------------- -------------------------------
2001 2000 2001 2000
--------- --------- --------- ---------
Net Income $ 124,299 $ 114,418 $ 303,283 $ 308,883
Other Comprehensive Income,
Net of Tax
Foreign currency
translation (24,009) (24,181) (59,400) (101,899)
adjustments
Unrealized gain (loss)
on investments, net of
amounts realized 1,142 (281) (1,567) 11,284
Unrealized (loss) gain on
currency options, net of
amounts realized (2,018) -- 3,253 --
--------- --------- --------- ---------
Comprehensive Income $ 99,414 $ 89,956 $ 245,569 $ 218,268
========= ========= ========= =========
6
On October 1, 2000, the Company adopted the provisions of Statement of Financial
Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments
and Hedging Activities." Accordingly, net unrealized gains on currency options
have been included in other comprehensive income for the three and nine months
ended June 30, 2001. For additional discussion regarding the adoption of this
Statement, see Note 8 of the Notes to Condensed Consolidated Financial
Statements.
The amount of unrealized gains or losses on investments and currency options in
comprehensive income has been adjusted to reflect the realized gains included in
net income during the three and nine months ended June 30, 2001 and 2000.
Note 4 - Earnings per Share
- ---------------------------
The following table sets forth the computations of basic and diluted earnings
per share:
Three Months Ended Nine Months Ended
June 30, June 30,
------------------------------------- --------------------------------------
2001 2000 2001 2000
---------------- ---------------- ----------------- ----------------
Net income $ 124,299 $ 114,418 $ 303,283 $ 308,883
Preferred stock dividends (672) (725) (2,058) (2,203)
---------------- ---------------- ----------------- ----------------
Income available to common
shareholders (A) 123,627 113,693 301,225 306,680
Preferred stock dividends -
using "if converted" method 672 725 2,058 2,203
Additional ESOP contribution -
using "if converted" method (152) (165) (482) (512)
---------------- ---------------- ----------------- ----------------
Income available to common
shareholders after assumed
conversions (B) $ 124,147 $ 114,253 $ 302,801 $ 308,371
================ ================ ================= ================
Average common shares
outstanding (C) 258,086 252,904 256,513 252,093
Dilutive stock equivalents from
stock plans 7,095 5,939 7,372 6,283
Shares issuable upon conversion
of preferred stock 4,472 4,816 4,472 4,816
---------------- ---------------- ----------------- ----------------
Average common and common
equivalent shares outstanding
- assuming dilution (D) 269,653 263,659 268,357 263,192
================ ================ ================= ================
Basic earnings per share (A/C) $ .48 $ .45 $ 1.17 $ 1.22
================ ================ ================= ================
Diluted earnings per share (B/D) $ .46 $ .43 $ 1.13 $ 1.17
================ ================ ================= ================
7
Note 5 - Contingencies
- ----------------------
The Company is involved, both as a plaintiff and a defendant, in various legal
proceedings and claims which arise in the ordinary course of business, including
product liability and environmental matters. While it is not possible to
predict or determine the outcome of the legal actions brought against the
Company, upon resolution of such matters, the Company may incur charges in
excess of presently established reserves. While such future charges,
individually and in the aggregate, could have a material adverse impact on the
Company's net income and net cash flows in the period in which they are recorded
or paid, in the Company's opinion, the results of these matters, individually
and in the aggregate, are not expected to have a material adverse effect on the
Company's consolidated financial condition. Further discussion of legal
proceedings is included in Part II of this Report on Form 10-Q.
Note 6 - Segment Data
- ---------------------
On October 1, 2000, the Company changed the structure of its internal
organization, which caused the composition of its reportable segments to change.
For the nine months ending June 30, 2001, decisions about resource allocation
and performance assessment were made separately for the Medical Systems
("Medical") segment, the new Clinical Laboratory Solutions ("Clinical Lab")
segment, and the reorganized Biosciences segment. Prior year information has
been reclassified to conform to current year presentation.
The Company evaluates performance based upon operating income. Segment
operating income represents revenues reduced by product costs and operating
expenses.
Financial information for the Company's segments is as follows:
Three Months Ended Nine Months Ended
June 30, June 30,
-------------------------------------- -------------------------------------
2001 2000 2001 2000
--------------- ---------------- --------------- ---------------
Revenues
- --------
Medical $ 523,098 $ 512,182 $ 1,468,370 $ 1,464,117
Clinical Lab 284,415 269,380 859,727 834,412
Biosciences 146,679 132,578 430,531 399,907
--------------- ---------------- --------------- ---------------
Total Revenues (A) $ 954,192 $ 914,140 $ 2,758,628 $ 2,698,436
=============== ================ =============== ===============
Segment Operating Income
- ------------------------
Medical $ 132,711 $ 116,174 $ 324,924 $ 306,362
Clinical Lab 54,150 43,670 161,113 144,682
Biosciences 23,898 14,522 66,150 47,571
--------------- ---------------- --------------- ---------------
Total Segment Operating
Income 210,759 174,366 552,187 498,615
Unallocated Items (B) (47,208) (12,858) (153,131) (70,251)
--------------- ---------------- --------------- ---------------
Income Before Income Taxes $ 163,551 $ 161,508 $ 399,056 $ 428,364
=============== ================ =============== ===============
8
June 30, September 30,
2001 2000
----------------- -----------------
Segment Assets
- --------------
Medical $ 2,365,633 $ 2,289,304
Clinical Lab 1,072,488 1,059,144
Biosciences 825,288 811,081
----------------- -----------------
Total Segment Assets 4,263,409 4,159,529
Corporate and All Other (C) 424,168 345,567
----------------- -----------------
Total Assets $ 4,687,577 $ 4,505,096
================= =================
(A) Intersegment revenues are not material.
(B) Includes interest, net; foreign exchange; corporate expenses; and gains on
sales of investments.
(C) Includes cash and investments and corporate assets.
Note 7 - Special Charges
- ------------------------
The Company recorded special charges of $57,514, $75,553, and $90,945 in fiscal
years 2000, 1999, and 1998, respectively, as discussed in the 2000 Annual Report
on Form 10-K.
Fiscal Year 2000
- ----------------
The Company developed a worldwide organizational restructuring plan to align its
existing infrastructure with its projected growth programs. This plan included
the elimination of open positions and employee terminations from all businesses,
functional areas and regions for the sole purpose of cost reduction. As a
result of the approval of this plan in September 2000, the Company recorded
$33,000 of exit costs, of which $31,700 related to severance costs. This plan
provided for the termination of approximately 600 employees. As of June 30,
2001, approximately 520 of the targeted 600 had been severed. The remaining
terminations and related accrued severance are expected to be substantially
completed and paid by the end of fiscal 2001, as originally planned.
Asset impairments relating to this restructuring plan totaled $4,514 and
represented the write-down to fair value less cost to sell of assets held for
sale or disposal in the Medical segment. Also included in special charges in
2000 was $20,000 for estimated litigation defense costs associated with the
Company's latex glove business, which was divested in 1995. Further discussion
of legal proceedings is included in Part II of this Report on Form 10-Q.
A summary of the 2000 special charge accrual activity follows:
Severance Restructuring Other
-------------------- ------------------- ------------------
Accrual Balance at
September 30, 2000 $31,700 $1,300 $20,000
Payments (23,200) (100) (5,400)
-------------------- ------------------- ------------------
Accrual Balance at
June 30, 2001 $ 8,500 $1,200 $14,600
==================== =================== ==================
9
Fiscal Year 1999
- ----------------
In an effort to better focus its business and improve its future financial
performance, the Company decided in the third quarter of fiscal 1999 to exit
certain product lines and other activities, primarily in the Medical segment.
The product lines were in the area of home healthcare and represented new
products that included self-monitoring devices for blood pressure, ear and
heart. These products did not gain the expected market acceptance and the
Company decided to discontinue these products due to poor performance. Included
in 1999 special charges were exit costs relating to this plan of $21,000. Such
costs included approximately $11,500 for the settlement of contractual
obligations with suppliers, $6,800 for the write-off of prepaid expenses
associated with contractual obligations to purchase laboratory services and
inventory to be manufactured by third parties in the future, and $2,700 of
severance costs. This exit plan, which involved the termination of 61
employees, was completed and substantially all accrued liabilities were paid
within one year, as anticipated. Also included in 1999 special charges were the
write-off of impaired assets relating to the plan of $25,100. Such write-offs
included $14,800 related to goodwill, $9,000 to licenses and $1,300 to molds,
all of which were written down to zero. These assets were taken out of service
immediately after the write-down occurred and were subsequently scrapped.
The Company also reversed $6,300 of 1998 special charges in 1999 as a result of
the decision not to exit certain activities as had originally been planned.
Also included in special charges in 1999 were costs associated with a voluntary
retirement program offered to 176 employees meeting certain age and service
requirements at selected locations. A total of 133 participants accepted the
program, resulting in a $17,900 charge for special termination benefits, of
which $4,400 related to severance. This program was completed within one year,
as anticipated.
Special charges for 1999 also included $17,853 of other charges. Of this
amount, $8,153 related to the write-down of three equity investments whose
decline in fair value was deemed to be other than temporary. Also included was
$7,200 relating to three intangible assets that were deemed impaired. The
decision to exit certain product development ventures and realign the Company's
direction in other areas in the third quarter of fiscal 1999 resulted in the
need to review for impairments. At that time, it was determined that an
impairment loss existed for these assets. The impairment loss, which related
primarily to the Medical segment, represented the excess carrying values over
the fair values for these assets, based on discounted cash flow estimates. This
charge also included a $2,500 settlement payment relating to the exiting of a
joint venture agreement with a pump manufacturer.
10
A summary of the 1999 special charge accrual activity follows:
Severance Restructuring Other
----------- --------------- --------
1999 Special Charges $ 7,100 $ 11,700 $ 2,500
Payments (3,300) (6,600) (2,500)
------- -------- -------
Accrual Balance at
September 30, 1999 3,800 5,100 --
Payments (2,900) (5,100) --
------- -------- -------
Accrual Balance at
September 30, 2000 900 -- --
Payments (900) -- --
------- -------- -------
Accrual Balance at
June 30, 2001 $ -- $ -- $ --
======= ======== =======
The Company also recorded $26,900 of charges in Cost of products sold in 1999,
to reflect the write-off of inventories and to provide appropriate reserves for
expected future returns relating to the exited product lines.
Fiscal Year 1998
- ----------------
In an effort to improve manufacturing efficiencies at certain of its locations,
the Company initiated in 1998 two restructuring plans: the closing of a surgical
blade plant in Hancock, New York and the consolidation of other production
functions in Brazil, Spain, Australia and France. Total charges of $35,300 were
recorded in 1998 relating to these restructuring plans, primarily in the Medical
segment, and consisted of $15,400 relating to severance and other employee
termination costs, $15,400 relating to manufacturing equipment write-offs and
$4,500 relating to remaining lease obligations.
The original anticipated completion date for the Hancock facility closing was
May 2000. The Company had estimated that approximately 200 employees would be
terminated and recorded a $9,900 charge relating to severance and a $2,400
charge relating to other employee termination costs. Severance was originally
estimated based on the severance arrangement communicated to employees in June
1998. The shutdown of the Hancock facility involved the transfer of three major
production lines to new locations. Two of these production moves occurred in
September 1999, as planned. At that time, a total of 50 employees were
terminated and severance was paid and charged against the reserve. The move of
the remaining production line for surgical blades has been delayed due to the
following events:
1. The original plan did not anticipate the need for safety stock to serve
the blade market during the move since the Company planned to use a new
blade grinding technology that would allow for parallel production of
blades during the eventual wind down and phase out of the old
technology in Hancock. Problems arose with this new technology during
fiscal 1999, which resulted in the Company's decision to maintain the
existing technology. In addition, the blade business experienced a
surge in demand for surgical blades around the world,
11
particularly in Europe, between October 1998 and June 1999. This
increased demand seriously hampered the Company's ability to build the
required inventory levels to enable a move by May 2000. As a result,
the Hancock closure date was revised to the latter part of fiscal 2001.
2. During the latter part of fiscal 1999 and early fiscal 2000, the U.S.
healthcare marketplace experienced increased activity in the area of
healthcare worker safety and sharp device injuries. In response to this
significant shift in the marketplace and the enactment of state laws
and the expected enactment of federal law requiring the use of
safety-engineered products, the Company re- prioritized its efforts to
deliver safety surgical blades to the marketplace. This decision
resulted in an extension of the timeline necessary to enable the blade
production move and the closure of the Hancock facility.
The Company now expects the Hancock restructuring plan to be completed and the
related accruals to be substantially paid by December 2002. The severance
estimates have increased as a result of the extension of the Hancock final
closing date. The impact of the estimated increase in severance costs was
offset by savings from certain other factors, including lower actual salary
increases, and lower outplacement fees than were originally anticipated. The
remaining 150 employees will be terminated upon closure of the plant.
The Company originally scheduled to complete the consolidation of the other
production facilities within twelve to eighteen months from the date the plans
were finalized. Approximately 150 employees were estimated to be affected by
these consolidations. Exit costs of approximately $23,000 associated with these
activities included $3,100 of severance costs, with the remainder primarily
related to write-offs of manufacturing equipment with a fair value of zero. At
the time, the Company expected to remove all such assets, with the exception of
Brazil and Spain manufacturing assets, from operations by September 1998. The
Company reversed $6,300 of the charges relating to the Brazil and Spain
restructuring plans in fiscal 1999 as a result of the decision not to exit
certain production activities as had originally been planned. The Company also
recorded a catch-up adjustment to cost of sales for depreciation not taken since
the initial write-off of assets relating to these locations. The remaining
consolidation activities in Australia and France were completed as planned, with
a total of approximately 30 employees terminated.
The Company also recorded $37,800 of special charges to recognize impairment
losses on other non-manufacturing assets. Approximately $25,600 of this charge
related to the write-down of goodwill and other assets associated with prior
acquisitions in the area of manual microbiology. The impairment loss was
recorded as a result of the carrying value of these assets exceeding their fair
value, calculated on the basis of discounted estimated future cash flows. The
carrying amount of such goodwill and other intangibles was $24,000. The balance
of the impairment loss of $1,600 was recognized as a write-down of related fixed
assets. Also included in the $37,800 charge was a $4,700 write-down of a
facility held for sale, which was subsequently sold in fiscal 2000 at its
adjusted book value.
12
The remaining special charges of $17,845 primarily consisted of $12,300 of
estimated litigation defense costs associated with the Company's latex glove
business, which was divested in 1995, as well as a number of miscellaneous asset
write-downs.
A summary of the 1998 special charge accrual activity follows:
Severance Restructuring Other
----------- --------------- --------
1998 Special Charges $ 13,000 $ 4,500 $ 15,100
Payments (500) (50) (2,400)
-------- ------- --------
Accrual Balance at
September 30, 1998 12,500 4,450 12,700
Reversals (1,500) -- --
Payments (1,700) (300) (6,600)
-------- ------- --------
Accrual Balance at
September 30, 1999 9,300 4,150 6,100
Payments (1,900) (2,400) (4,500)
-------- ------- --------
Accrual Balance at
September 30, 2000 7,400 1,750 1,600
Payments (400) (50) (300)
-------- ------- --------
Accrual Balance at
June 30, 2001 $ 7,000 $ 1,700 $ 1,300
======== ======= ========
Other accruals of $15,100 primarily represented the estimated litigation defense
costs, as discussed above.
Note 8 - Financial Instruments
- ------------------------------
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities," as amended,
which was required to be adopted in fiscal years beginning after June 15, 2000.
This Statement requires that all derivatives be recorded in the balance sheet at
fair value and that changes in fair value be recognized currently in earnings
unless specific hedge accounting criteria are met. The Company adopted the
provisions of SFAS No. 133 effective October 1, 2000. The cumulative effect of
adoption was not material to the Company's results of operations or financial
condition.
At the end of fiscal 2000, the Company purchased option contracts to hedge a
portion of its anticipated sales from the United States to customers outside of
the United States that are made by local affiliates. These option contracts are
designated as cash flow hedges, as defined by SFAS No. 133, and are effective as
hedges of these revenues.
Changes in the effective portion of the fair value of these option contracts are
included in other comprehensive income until the hedged sales transactions are
recognized in earnings. Once the hedged transaction occurs, the unrealized gain
or loss on the option is reclassified from accumulated other comprehensive
income to revenues. The Company realized hedge gains of $3,573 for the quarter
and $7,702 for the nine months, which were reclassified from other comprehensive
income to revenues once the hedged transactions had occurred.
13
In April 2001, the Company re-designated its cash flow hedges pursuant to
Statement 133 implementation guidance released by the Derivatives Implementation
Group of the FASB. This interpretation allows companies to assess the
effectiveness of cash flow hedges using an expected cash flow approach that is
based on a probability-weighted distribution of possible outcomes. As a
result, both the time value and intrinsic value of these option contracts are
now designated as effective cash flow hedges, as defined by SFAS No. 133. As
such, there was no ineffective portion recognized to earnings during the third
quarter. Prior to the release of this guidance and the re-designation of these
hedges, the Company recorded other expense of $8,121 for the six months ended
March 31, 2001 for the ineffective portion of the change in fair value of the
options.
All outstanding currency options that were designated as cash flow hedges as of
June 30, 2001 will mature by the end of fiscal 2001. Included in other
comprehensive income for the nine months is an unrealized gain of $3,253, net of
tax and amounts realized, for options outstanding as of June 30, 2001.
The Company continues to hedge certain intercompany receivables and payables by
entering into forward exchange contracts and currency options. Gains or losses
on these contracts are largely offset by the gains or losses on the underlying
hedged items. As under prior accounting standards, these forward exchange
contracts do not qualify for hedge accounting under SFAS No. 133.
In the second quarter of fiscal 2001, the Company entered into an interest rate
swap agreement, with an effective date of January 15, 2001, on its $100,000 in
outstanding 8.7% Debentures, due January 15, 2025. Under this agreement, the
Company will pay interest at a variable rate in exchange for fixed rate
payments, effectively transforming the Debentures to floating rate obligations.
This swap is designated as a perfectly effective fair value hedge, as defined by
SFAS No. 133. Changes in the fair value of the interest rate swap perfectly
offset changes in the fair value of the fixed rate debt due to changes in market
interest rates. As such, there was no ineffective portion to the hedge
recognized in earnings during the period.
During the second quarter, the Company began entering into forward exchange
contracts to hedge a portion of its net investments in Singapore and Japan.
These forward contracts, which mature within 90 days, are designated and
effective as net investment hedges, as defined by SFAS No. 133. Changes in the
fair value of the forward exchange contracts offset translation gains or losses
on the hedged portion of these net investments. The Company recorded a gain of
$3,294 for the quarter and $10,556 for the nine months to foreign currency
translation adjustments in other comprehensive income for the change in the fair
value of the contracts. Gains of $1,387 for the quarter and $2,250 for the
nine months were recognized in other expense for the ineffective portion of the
change in fair value of the forward contracts.
As discussed above, the Company hedges substantially all transactional foreign
exchange exposures through the use of forward contracts and currency options,
and in an effort to manage interest rate exposures, the Company strives to
achieve an acceptable balance between fixed and floating rate debt.
14
The Company is exposed to credit loss in the event of nonperformance by
financial institutions with which it conducts business. The Company minimizes
exposure to such risk, however, by dealing only with major international banks
and financial institutions.
Further discussion of market risk is included in Item 3 of Part I of this Report
on Form 10-Q.
Note 9 - Acquisitions
- ---------------------
On January 10, 2001, the Company completed its acquisition of Gentest
Corporation, a privately-held company serving the life sciences market in the
areas of drug metabolism and toxicology testing of pharmaceutical candidates.
The purchase price was approximately $29,000 in cash, subject to certain post-
closing adjustments.
The Company records acquisitions under the purchase method of accounting and,
therefore, purchase prices are allocated to assets acquired and liabilities
assumed based on estimated fair values. The results of operations for acquired
companies are included in the consolidated results of the Company from their
respective acquisition dates.
In certain instances, the Company may record charges for purchased in-process
research and development in connection with acquired companies. These charges
represent the fair value of certain acquired research and development projects
that were determined to have not reached technological feasibility and do not
have alternative future uses. The Company recorded such in-process research
and development charges in fiscal years 1999 and 1998. For the acquisition of
Clontech Laboratories, Inc. in fiscal 1999, the $32,000 charge for purchased in-
process research and development represented the value of several projects
relating to gene chip technology, gene expression and gene cloning and reporter
tools. For the acquisition of the Medical Devices Division of The BOC Group in
fiscal 1998, the $30,000 charge represented the value of several projects
relating to new medical catheters and other devices. These charges represented
the fair value for all such projects based on discounted net cash flows. These
cash flows were based on management's estimates of future revenues and expected
profitability of each product/technology. The rate used to discount these
projected cash flows accounts for both the time value of money, as well as the
risks of realization of the cash flows. No such charges for purchased in-
process research and development were recorded in fiscal 2000 or in the first
nine months of fiscal 2001.
Note 10 - Adoption of New Accounting Standards
- ----------------------------------------------
In December 1999, the Securities and Exchange Commission ("SEC") issued Staff
Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial
Statements." This SAB provides the SEC's views in applying generally accepted
accounting principles to selected revenue recognition issues. The Company will
be adopting the provisions of this SAB during the fourth quarter of fiscal 2001.
The Company is continuing to quantify the impact as a result of the additional
guidance issued by the SEC in October 2000. The Company expects to record a
cumulative effect adjustment upon adoption. The Company does not expect the
adoption of this SAB to be material to its results of operations or financial
condition for the fiscal year ending September 30, 2001.
15
In June 2001, the FASB issued SFAS No. 141, "Business Combinations," and SFAS
No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 eliminates the
pooling-of-interests method of accounting for business combinations initiated
after July 1, 2001, and changes the criteria for recognizing intangible assets
apart from goodwill. SFAS No. 141 requires any business combination initiated
after June 30, 2001 to be accounted for by the purchase method. SFAS No. 142
stipulates that goodwill and indefinite lived intangible assets will no longer
be amortized, but instead will be periodically reviewed for impairment. The
amortization provisions of SFAS No. 142 apply to goodwill and intangible assets
acquired after June 30, 2001. For goodwill and intangible assets acquired prior
to July 1, 2001, the provisions of Statement 142 are effective upon adoption.
The Company is required to adopt the provisions of SFAS No. 142 no later than
October 1, 2002. The Company is in the process of evaluating these Statements
and has not yet determined the future impact on its consolidated financial
statements.
16
Item 2. Management's Discussion and Analysis of Financial Condition and Results
-----------------------------------------------------------------------
of Operations
- -------------
Results of Operations
- ---------------------
Third quarter revenues of $954 million represented a four percent increase from
the same period a year ago. Revenues for the nine months were $2.759 billion, a
two percent increase over a year ago. Revenue growth was unfavorably affected
by foreign currency translation, which reduced revenues by an estimated two
percent and four percent for the three and nine month periods, respectively.
International revenues grew approximately five percent and six percent for the
three and nine months, respectively, after excluding the unfavorable impact of
foreign currency translation. Revenues were also adversely impacted by economic
conditions in Latin America, and by a decline in sales performance in Asia
Pacific.
Medical Systems ("Medical") revenues increased two percent for the quarter, or
five percent after excluding the estimated unfavorable impact of foreign
currency translation, primarily due to strong sales of advanced protection
devices. Also contributing to this segment's revenue growth was an increase in
sales of consumer health care products in the U.S. due primarily to sales of
insulin syringes, reflecting the impact of our existing incentive programs in
the drug wholesaler channel. In the future, we intend to redirect our
promotional efforts toward sustaining our branded syringe sales at the retail
level and toward development of the U.S. pen needle market. These activities
are expected to result in lower U.S. Medical segment sales in the fourth
quarter. Medical segment results also included strong sales of pharmaceutical
systems products which were offset by a decline in revenues in Latin America and
Asia Pacific, as discussed above.
Clinical Laboratory Solutions ("Clinical Lab") revenues increased six percent
for the quarter, or eight percent after excluding the estimated unfavorable
impact of foreign currency translation. Growth in the Clinical Lab segment was
primarily due to strong sales of advanced protection devices. Clinical Lab
revenues also benefited from a favorable comparison to the prior year, when
revenues were adversely affected by a shift in the inventory levels of a key
U.S. distributor.
Biosciences revenues grew 11 percent, with both product groups within this
segment contributing to this growth. After excluding the estimated unfavorable
impact of foreign currency translation, Biosciences revenues grew 13 percent.
Segment Revenues Three Months Ended June 30, Nine Months Ended June 30,
--------------------------------------------------------------------------------------
(Dollars in millions) 2001 2000 % Change 2001 2000 % Change
===============================================================================================================
Medical
- -------
United States $ 271 $ 249 9 $ 724 $ 688 5
International 252 263 (4) 744 776 (4)
- ---------------------------------------------------------------------------------------------------------------
Total $ 523 $ 512 2 $ 1,468 $ 1,464 -
===============================================================================================================
Clinical Lab
- ------------
United States $ 169 $ 153 10 $ 504 $ 474 6
International 116 116 (1) 356 360 (1)
- ---------------------------------------------------------------------------------------------------------------
Total $ 284 $ 269 6 $ 860 $ 834 3
===============================================================================================================
17
Segment Revenues Three Months Ended June 30, Nine Months Ended June 30,
--------------------------------------------------------------------------------------
(continued) 2001 2000 % Change 2001 2000 % Change
===============================================================================================================
Biosciences
- -----------
United States $ 85 $ 79 8 $ 238 $ 228 5
International 62 54 15 192 172 12
- ---------------------------------------------------------------------------------------------------------------
Total $ 147 $ 133 11 $ 431 $ 400 8
===============================================================================================================
Total Revenues
- --------------
United States $ 525 $ 481 9 $ 1,467 $ 1,389 6
International 429 433 (1) 1,292 1,309 (1)
- ---------------------------------------------------------------------------------------------------------------
Total $ 954 $ 914 4 $ 2,759 $ 2,698 2
===============================================================================================================
Refer to Note 6 in Notes to Condensed Consolidated Financial Statements for
additional segment data. Changes in segment operating income were primarily
driven by fluctuations in revenue, as discussed above. Biosciences segment
income was also favorably impacted by increased sales of products from recent
acquisitions, which have higher overall gross profit margins, as compared to
products sold in the same period in the prior year. All segments benefited from
lower operating expenses compared with the prior year, as discussed below.
Gross profit margin was 50.2% for the quarter and 48.8% for the nine months,
compared with 50.4% and 48.9%, respectively, for the prior year. Excluding the
voluntary product recall costs recorded in the second quarter of the prior year,
gross profit margin would have been 49.4% for the nine months ended June 30,
2000. The decline in gross profit margin reflects an increase in sales of new
products with lower margins in the Clinical Lab segment compared with a year
ago, as well as cost containment pricing pressures on Medical segment products.
Selling and administrative expense was 26.1% of revenues for the quarter and
26.3% of revenues for the nine months, compared with the prior year's ratios of
27.2% and 26.9%, respectively. Selling and administrative expenditures for the
quarter and year were about the same as last year, as incremental spending for
new product initiatives offset favorable foreign currency translation and
savings associated with the fiscal 2000 worldwide organizational restructuring
plan. Investment in research and development was 5.6% of revenues for the
quarter and 5.8% of revenues for the nine months. Excluding a charge for
purchased in-process research and development recorded in the prior year's
quarter, research and development would have been 6.0% and 6.2% of revenues for
the prior year's quarter and nine months, respectively. Increased spending in
the Biosciences segment and in other key initiatives, including blood glucose
monitoring, were offset by lower ongoing development costs as a result of the
recent introduction of safety products.
Operating margin was 18.6% and 16.7% for the current quarter and nine months,
respectively. Excluding the aforementioned product recall and in-process
research and development charges, the prior year's operating margins would have
been 17.1% and 16.3% for the quarter and nine months, respectively. The
increase in operating margin for the quarter reflects the decrease in operating
expenses as a percent of revenues discussed above. Net interest expense
declined $4 million for the quarter and $13 million for the nine months compared
with the prior year,
18
primarily due to lower debt levels and lower short-term interest rates.
During 2000, we recorded net gains on the sales of investments of $32 million
and $65 million for the three and nine month periods, respectively, which
related primarily to transactions involving two equity investments, as more
fully described in our 2000 Annual Report on Form 10-K.
Other expense, net was $4 million lower for the current quarter compared with a
year ago, primarily due to a write-down of an asset held for sale in the prior
year. Other expense, net was $14 million for the nine months. Included in the
current year's other expense, net were hedging expenses of $8 million and net
foreign exchange losses of $3 million. See Note 8 of the Notes to Condensed
Consolidated Financial Statements for further discussion.
The income tax rate was 24% for the quarter and nine months. The prior year's
rate of 29.2% and 27.9% for the quarter and nine months, respectively, reflected
the higher rate on the gains on the sales of investments. We expect our tax
rate for the full year to be about 24%.
Net income and diluted earnings per share for the current quarter were $124
million and 46 cents, respectively, compared with $114 million and 43 cents in
the prior year. Last year's reported earnings included a gain from the sale of
an equity investment, offset in part by charges related to the acquisition of
in-process research and development and the write-down of an asset held for
sale, as discussed above. Excluding these items, earnings per share for the
prior year's quarter would have been 40 cents. Net income and diluted earnings
per share for the nine months were $303 million and $1.13, respectively,
compared with $309 million and $1.17 for the same period in fiscal 2000,
reflecting the aforementioned items.
Financial Condition
- -------------------
During the first nine months of fiscal 2001, cash provided by operating
activities increased to $525 million compared to $439 million during the first
nine months of last year. Capital expenditures during the first nine months
were $266 million, compared with last year's amount of $271 million. We expect
capital spending for fiscal 2001 to be about the same as last year's amount of
$376 million.
As of June 30, 2001, total debt of $1.3 billion represented 36.4% of total
capital (shareholders' equity, net non-current deferred income tax liabilities,
and debt), down from 43.1% a year ago. Because of our strong credit rating, we
believe we have the capacity to arrange any additional borrowings which might be
required in the ordinary course of business.
Adoption of New Accounting Standards
- ------------------------------------
In December 1999, the Securities and Exchange Commission ("SEC") issued Staff
Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial
Statements." This SAB provides the SEC's views in applying generally accepted
accounting principles to selected revenue recognition issues. We will be
adopting the provisions of this SAB during the fourth quarter of fiscal 2001.
We are continuing to quantify the impact as a result of the additional guidance
19
issued by the SEC in October 2000 and are expecting to record a cumulative
effect adjustment upon adoption. We do not expect the adoption of this SAB to
be material to our results of operations or financial condition for the fiscal
year ending September 30, 2001.
In June 2001, the FASB issued SFAS No. 141, "Business Combinations," and SFAS
No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 eliminates the
pooling-of-interests method of accounting for business combinations initiated
after July 1, 2001, and changes the criteria for recognizing intangible assets
apart from goodwill. The requirements of SFAS No. 141 are effective for any
business combination accounted for by the purchase method that is completed
after June 30, 2001. SFAS No. 142 stipulates that goodwill and indefinite lived
intangible assets will no longer be amortized, but instead will be periodically
reviewed for impairment. The amortization provisions of SFAS No. 142 apply to
goodwill and intangible assets acquired after June 30, 2001. For goodwill and
intangible assets acquired prior to July 1, 2001, the provisions of Statement
142 are effective upon adoption. We are required to adopt the provisions of
SFAS No. 142 no later than October 1, 2002. We are in the process of evaluating
these Statements and have not yet determined the future impact on our
consolidated financial statements.
Prior Year Special Charges
- --------------------------
We recorded special charges of $58 million, $76 million, and $91 million in
fiscal years 2000, 1999, and 1998, respectively, as described in Note 7 of the
Notes to Condensed Consolidated Financial Statements.
For the 2000 restructuring plan, the annual savings from the reduction in
salaries and wages expense are estimated to be $30 million. As anticipated,
these savings, beginning in 2001, offset incremental costs relating to programs,
such as advanced protection technologies, blood glucose monitoring, molecular
oncology, and our implementation of SAP, known as Genesis.
The annual savings of $6 million for the 1999 restructuring plan primarily
related to a reduction in salaries and wages expense resulting from the
voluntary retirement program. As anticipated, these benefits, beginning in
2000, offset incremental costs relating to Genesis.
For the 1998 restructuring plan, the estimated annual benefits of $4 million
related to tax savings and reduced manufacturing costs associated with the move
of the surgical blade plant in Hancock to Puerto Rico are expected to be
realized following the closure of the Hancock facility. Beginning in 1999, we
realized a reduction in amortization expense of $5 million, resulting from the
write-down of certain assets, which offset incremental costs associated with
Genesis. See Note 7 of the Notes to Condensed Consolidated Financial Statements
for further discussion.
Cautionary Statement Pursuant to Private Securities Litigation Reform Act of
- ----------------------------------------------------------------------------
1995 -- "Safe Harbor" for Forward-Looking Statements
- ----------------------------------------------------
The Private Securities Litigation Reform Act of 1995 (the "Act") provides a safe
harbor for forward-looking statements made by or on behalf of Becton, Dickinson
and Company ("BD").
20
BD and its representatives may from time to time make certain forward-looking
statements in publicly-released materials, both written and oral, including
statements contained in this report and filings with the Securities and Exchange
Commission and in our other reports to shareowners. Forward-looking statements
may be identified by the use of words like "plan," "expect," "believe,"
"intend," "will," "anticipate," "estimate" and other words of similar meaning in
conjunction with, among other things, discussions of future operations and
financial performance, as well as our strategy for growth, product development,
regulatory approvals, market position and expenditures. All statements which
address operating performance or events or developments that we expect or
anticipate will occur in the future -- including statements relating to volume
growth, sales and earnings per share growth and statements expressing views
about future operating results -- are forward-looking statements within the
meaning of the Act.
Forward-looking statements are based on current expectations of future events.
The forward-looking statements are and will be based on management's then
current views and assumptions regarding future events and operating performance,
and speak only as of their dates. Investors should realize that if underlying
assumptions prove inaccurate or unknown risks or uncertainties materialize,
actual results could vary materially from our expectations and projections.
Investors are therefore cautioned not to place undue reliance on any forward-
looking statements. Furthermore, we undertake no obligation to update or revise
any forward-looking statements whether as a result of new information, future
events and developments or otherwise.
The following are some important factors that could cause our actual results to
differ from our expectations in any forward-looking statements:
. Regional, national and foreign economic factors, including inflation and
fluctuations in interest rates and foreign currency exchange rates and the
potential effect of such fluctuations on revenues, expenses and resulting
margins.
. Competitive product and pricing pressures and our ability to gain or
maintain market share in the global market as a result of actions by
competitors, including technological advances achieved and patents attained
by competitors as patents on our products expire. While we believe our
opportunities for sustained, profitable growth are considerable, actions of
competitors could impact our earnings, share of sales and volume growth.
. Changes in domestic and foreign healthcare resulting in pricing pressures,
including the continued consolidation among healthcare providers, trends
toward managed care and healthcare cost containment and government laws and
regulations relating to sales and promotion, reimbursement and pricing
generally.
. Fluctuations in the cost and availability of raw materials and the ability
to maintain favorable supplier arrangements and relationships.
. Government laws and regulations affecting domestic and foreign operations,
including those relating to trade, monetary and fiscal policies, taxation,
environmental matters, price controls, licensing and regulatory approval of
new products.
21
. Difficulties inherent in product development, including the potential
inability to successfully continue technological innovation, complete
clinical trials, obtain regulatory approvals in the United States and
abroad, or gain and maintain market approval of products, and the
possibility of encountering infringement claims by competitors with respect
to patent or other intellectual property rights, all of which can preclude
or delay commercialization of a product.
. Significant litigation adverse to BD, including product liability claims,
patent infringement claims, and antitrust claims, as well as other risks
and uncertainties detailed from time to time in our Securities and Exchange
Commission filings.
. Our ability to achieve earnings forecasts, which are generated based on
projected volumes and sales of many product types, some of which are more
profitable than others. There can be no assurance that we will achieve the
projected level or mix of product sales.
. Product efficacy or safety concerns resulting in product recalls,
regulatory action on the part of the Federal Drug Administration (or
foreign counterparts) or declining sales.
. Economic and political conditions in international markets, including civil
unrest, governmental changes and restrictions on the ability to transfer
capital across borders.
. Our ability to penetrate developing and emerging markets, which also
depends on economic and political conditions, and how well we are able to
acquire or form strategic business alliances with local companies and make
necessary infrastructure enhancements to production facilities,
distribution networks, sales equipment and technology.
. The impact of business combinations, including acquisitions and
divestitures, both internally for BD and externally in the healthcare
industry.
. Issuance of new or revised accounting standards by the American Institute
of Certified Public Accountants, the Financial Accounting Standards Board
or the Securities and Exchange Commission.
The foregoing list sets forth many, but not all, of the factors that could
impact our ability to achieve results described in any forward-looking
statements. Investors should understand that it is not possible to predict or
identify all such factors and should not consider this list to be a complete
statement of all potential risks and uncertainties.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
----------------------------------------------------------
The Company hedges substantially all transactional foreign exchange exposures
through the use of forward contracts and currency options, and in an effort to
manage interest rate exposures, the Company strives to achieve an acceptable
balance between fixed and floating rate debt. The Company also faces currency
exposure that arises from translating the results of its worldwide operations to
the U.S. dollar at exchange rates that have fluctuated from the beginning of the
22
period. The Company began to purchase option contracts at the end of 2000 to
partially protect against adverse foreign exchange rate movements. The
Company's 2000 Annual Report on Form 10-K includes sensitivity analysis
disclosures that express the potential loss in future earnings, fair values, or
cash flows from market risk sensitive instruments resulting from hypothetical
changes in relevant market rates over a selected period of time. For foreign
currency derivative instruments, market risk is determined by calculating the
impact on fair value of an assumed one-time change in foreign exchange rates
relative to the U.S. dollar. Fair values were estimated based on market prices,
where available, or dealer quotes. The reduction in fair value of the Company's
purchased option contracts is limited to the options' fair value. For interest
rate derivative instruments, market risk is determined by calculating the impact
to fair value of an assumed one-time change in interest rates across all
maturities. Fair values were estimated based on market prices, where available,
or dealer quotes. A change in interest rates on short-term debt is assumed to
impact earnings and cash flow but not fair value because of the short maturities
of these instruments. A change in interest rates on long term debt is assumed
to impact fair value but not earnings or cash flow because the interest rates
are fixed.
There have been no material changes in information reported since the fiscal
year ended September 30, 2000.
23
PART II - OTHER INFORMATION
- ---------------------------
Item 1. Legal Proceedings.
-----------------
We are involved, both as a plaintiff and a defendant, in various legal
proceedings which arise in the ordinary course of business, including
product liability and environmental matters.
A more complete description of legal proceedings has been set forth in
our 2000 annual report on Form 10-K (the "10-K"), as updated in our
Forms 10-Q for the quarters ended December 31, 2000 and March 31, 2001.
For the quarter ended June 30, 2001, the following changes have
occurred.
Latex Cases
-----------
We have now received a total of 466 claims to date, relating to alleged
reactions caused by exposure to latex resulting from the use, over time,
of latex gloves. The facts and circumstances of new claims filed since
the 10-K are similar to those previously filed and we are of the same
opinion as stated in the 10-K.
RTI Litigation
--------------
On January 29, 2001, a lawsuit was filed under the caption Retractable
Technologies, Inc. vs. Becton Dickinson and Company, et al. (Case No.
CA5010V036, United States District Court for the Eastern District of
Texas). The allegations of the lawsuit, with the exception of new
causes of action under federal antitrust laws, are substantially similar
to the allegations set forth in Retractable Technologies, Inc. vs.
Becton Dickinson and Company et al. (Case No. 5333*J6198, Brazoria
County District Court), which was withdrawn by the plaintiff on February
5, 2001. A Case Management Conference has been scheduled by the Court
for August 15, 2001.
CalOSHA Citation
----------------
On May 11, 2001, CalOSHA issued a Citation and Notification of Penalty
to the Kaiser Permanente Sunset facility in Los Angeles, setting forth a
number of alleged violations. One of the alleged violations stated
that: "The BD Eclipse blood collection device used in the Laboratory
(Main and Outpatient) does not meet the definition of a needle with
engineered sharp injury protection because it does not effectively
reduce the risk of an exposure incident, and it causes splashing,
spraying, spattering and/or generation of droplets of blood in violation
of subsection 5193(d)(2)(D)." Kaiser has filed an appeal to this
citation and we have moved to intervene in the proceeding. CalOSHA has
issued a public statement that "We are not making an announcement per se
------
that the Eclipse device is unacceptable, but that the way it was used
may be a problem. We are not saying at this time that employers should
not be using this device."
Summary
-------
While it is not possible to predict or determine the outcome of the
above or other legal actions brought against BD, upon resolution of such
matters, we may incur
24
charges in excess of presently established reserves. While such future
charges, individually and in the aggregate, could have a material
adverse impact on our net income and net cash flows in the period in
which they are recorded or paid, in our opinion, the results of the
above matters, individually and in the aggregate, are not expected to
have a material adverse effect on the Company's consolidated financial
condition.
Item 2. Changes in Securities and Use of Proceeds.
------------------------------------------
Not applicable.
Item 3. Defaults Upon Senior Securities.
--------------------------------
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
----------------------------------------------------
Not applicable.
Item 5. Other Information.
------------------
Not applicable.
Item 6. Exhibits and Reports on Form 8-K.
---------------------------------
a) Exhibits
None.
b) Reports on Form 8-K
During the three-month period ended June 30, 2001, we filed two
Current Reports on Form 8-K:
(i) Under Item 5 - Other Events, we announced our results
for the quarter ended March 31, 2001 in a report dated
April 18, 2001.
(ii) Under Item 9 - Regulation FD Disclosure, we furnished
information in a report dated May 25, 2001 regarding a
Cal-OSHA citation received by a Kaiser Permanente
hospital in Los Angeles that involved the use of one
of our products.
25
SIGNATURES
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 August 13, 2001
----------------
/s/ John R. Considine
------------------------------
John R. Considine
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
/s/ Richard M. Hyne
------------------------------
Richard M. Hyne
Vice President and Controller
(Chief Accounting Officer)
26