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, 1996
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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 1-4802
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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 .
- ----
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, 1996
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Common stock, par value $1.00 62,258,116
PART I - FINANCIAL INFORMATION
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Item 1. Financial Statements.
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Condensed Consolidated Balance Sheets at June 30, 1996 and September
30, 1995
Condensed Consolidated Statements of Income for the three and nine
month periods ended June 30, 1996 and 1995
Condensed Consolidated Statements of Cash Flows for the nine months
ended June 30, 1996 and 1995
Notes to Condensed Consolidated Financial Statements
2
ITEM 1. FINANCIAL STATEMENTS
BECTON, DICKINSON AND COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
Thousands of Dollars
June 30, September 30,
Assets 1996 1995
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(Unaudited)
Current Assets:
Cash and equivalents $ 187,789 $ 198,506
Short-term investments 57,633 41,495
Trade receivables, net 555,099 573,093
Inventories (Note 2):
Materials 88,298 87,116
Work in process 65,911 71,316
Finished products 246,686 250,203
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400,895 408,635
Prepaid expenses, deferred taxes and other 119,037 105,789
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Total Current Assets 1,320,453 1,327,518
Investments in Marketable Securities 23,800 44,400
Property, plant and equipment 2,436,477 2,423,080
Less allowances for depreciation and amortization 1,204,207 1,142,049
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1,232,270 1,281,031
Intangibles, Net
Patents and other 83,959 84,403
Goodwill 87,844 97,098
Other 161,347 165,055
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Total Assets $ 2,909,673 $ 2,999,505
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Liabilities and Shareholders' Equity
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Current Liabilities:
Short-term debt $ 427,155 $ 205,799
Payables and accrued expenses 458,821 514,236
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Total Current Liabilities 885,976 720,035
Long-Term Debt 371,942 557,594
Long-Term Employee Benefit Obligations 299,388 289,711
Deferred Income Taxes and Other 45,567 33,780
Commitments and Contingencies - -
Shareholders' Equity:
Preferred stock 53,328 54,713
Common stock 85,349 85,349
Capital in excess of par value 132,876 118,201
Cumulative currency translation adjustments (21,266) 6,767
Retained earnings 2,097,215 1,946,636
Unearned ESOP compensation (36,571) (36,941)
Shares in treasury - at cost (1,004,131) (776,340)
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Total Shareholders' Equity 1,306,800 1,398,385
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Total Liabilities and Shareholders' Equity $ 2,909,673 $ 2,999,505
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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,
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1996 1995 1996 1995
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REVENUES $ 692,945 $ 704,096 $ 2,038,605 $ 1,990,411
Cost of products sold 351,851 378,419 1,069,306 1,075,721
Selling and administrative 182,956 180,191 550,766 532,695
Research and development 38,091 35,581 113,748 106,308
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TOTAL OPERATING COSTS AND EXPENSES 572,898 594,191 1,733,820 1,714,724
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OPERATING INCOME 120,047 109,905 304,785 275,687
Interest expense, net (9,773) (10,878) (28,758) (33,003)
Other expense, net (3,098) (9,560) (3,140) (13,346)
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INCOME BEFORE INCOME TAXE 107,176 89,467 272,887 229,338
Income tax provision 30,009 22,817 76,408 64,215
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NET INCOME $ 77,167 $ 66,650 $ 196,479 $ 165,123
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EARNINGS PER SHARE $ 1.15 $ .95 $ 2.90 $ 2.33
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DIVIDENDS PER SHARE $ .23 $ .205 $ .69 $ .615
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Average common and common
equivalent shares outstanding 65,913 69,294 66,829 69,603
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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,
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1996 1995
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Operating Activities:
Net income $ 196,479 $ 165,123
Adjustments to net income to derive net cash
provided by operating activities:
Depreciation and amortization 149,791 154,065
Change in working capital (68,917) 7,559
Other, net 21,606 12,976
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Net cash provided by operating activities 298,959 339,723
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Investing Activities:
Capital expenditures (99,551) (75,220)
Acquisitions of businesses (10,418) -
Proceeds from divestitures of businesses 29,667 -
Payment received on notes receivable 1,146 23,836
Change in investments, net 3,489 60,458
Other, net (10,850) (12,899)
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Net cash used for investing activities (86,517) (3,825)
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Financing Activities:
Change in short-term debt 168,596 (146,195)
Proceeds of long-term debt - 108,653
Payments of long-term debt (127,605) (24,496)
Issuance of common stock 29,636 14,666
Repurchase of common stock (244,137) (215,345)
Dividends paid (47,362) (44,973)
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Net cash used for financing activities (220,872) (307,690)
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Effect of exchange rate changes on cash and
equivalents (2,287) (2,432)
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Net (decrease) increase in cash and
equivalents (10,717) 25,776
Opening Cash and Equivalents 198,506 94,913
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Closing Cash and Equivalents $ 187,789 $ 120,689
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See notes to condensed consolidated financial statements
5
BECTON, DICKINSON AND COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1996
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 1995 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
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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 - Debt Extinguishment
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In June 1996, the Company redeemed $66.4 million principal amount of its
outstanding 9 1/4% Sinking Fund Debentures due June 1, 2016 at a price of
104.375% of the principal amount.
Note 4 - Subsequent Event
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On July 23, 1996, the Board of Directors authorized a two-for-one common stock
split, payable on August 15, 1996, to shareholders of record on August 5, 1996.
The Board of Directors also approved an increase in the authorized common stock
from 160 million shares to 320 million shares, enabling the Company to complete
the stock split. Par value will remain at $1.00 per common share.
6
ITEM 2. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
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Results of Operations
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Third Quarter 1996 vs. Third Quarter 1995
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Third quarter reported revenues were $693 million, compared to the prior year's
revenues of $704 million. The unfavorable effect of a stronger dollar versus
the prior year reduced revenues by an estimated $17 million. Included in the
1995 results were revenues from the glove business which was sold in the third
quarter of 1995 and revenues from a contract packaging business and a small
surgical product line which were both sold in the second quarter of this year.
Adjusting for these divestitures and the unfavorable effect of foreign currency
translation, the revenue growth rate would have been approximately 6%. Medical
Supplies and Devices segment revenues of $377 million decreased 4%, or 2% after
excluding the estimated unfavorable effect of foreign currency translation.
Adjusting for the divestitures noted above, and the estimated unfavorable effect
of foreign currency translation, Medical Supplies and Devices segment revenues
increased 8%. Diagnostic Systems segment revenues of $316 million increased 1%,
or 5% after excluding the estimated unfavorable effect of foreign currency
translation.
Domestic Medical segment revenues of $185 million decreased 10% while
International Medical segment revenues of $192 million increased 2%, or
approximately 6% after excluding the estimated unfavorable impact of foreign
currency translation. Good growth was generated by the injection systems
business, which continues to benefit from the conversion to safety products and
prefillable syringes. These results were more than offset by the absence of
revenues in the current quarter from the above-mentioned divestitures. Strong
sales growth continued in the pharmaceutical systems business in Europe.
Domestic Diagnostic segment revenues of $168 million increased 3% and continue
to be unfavorably impacted by cost containment initiatives in the marketplace.
The Company is responding to these trends by continuing the effort to develop
innovative and cost effective products. International Diagnostic segment
revenues were $148 million, about the same as last year. Excluding the
estimated unfavorable effect of foreign currency translation, the international
growth rate in this segment was 6%. Strong sales growth continued in the sample
collection and flow cytometry businesses, particularly in the Asia Pacific
region.
The gross profit margin of 49.2% was almost three percentage points higher than
last year's third quarter rate of 46.3% and reflects a more profitable mix of
products sold, continued productivity improvements and the lower margins
associated with divested businesses. Selling and administrative expense of $183
million was 26.4% of revenues, compared to last year's ratio of 25.6%, and
increased less than 2% despite the increase in some targeted investments in
sales and marketing for critical strategic initiatives and international
expansion. Investment of $38 million in research and development increased 7%
over last year's third quarter expenditures, reflecting the increased funding of
strategic choices in the Company's areas of focus.
7
Operating income of $120 million increased 9% from last year's third quarter
amount of $110 million. The improvement in the operating margin from 15.6% to
17.3% primarily reflects the positive impact of the improved gross profit
margin. Excluding the effects of the divestitures, growth in operating income
would have been approximately 12%.
Net interest expense of $10 million was $1 million lower than last year's third
quarter amount, reflecting the Company's improved mix of debt and strong cash
flow. Other expense, net was $6 million favorable to last year's third quarter
amount primarily due to the inclusion of a $6 million loss on the divestiture of
the glove business in last year's third quarter amount. The third quarter
income tax rate was 28.0%, compared with last year's third quarter rate of
25.5%. It is expected that the Company's tax rate for the 1996 fiscal year will
be 28%, the same rate as last year's.
Net income was $77 million compared with $67 million last year, an increase of
16%. Earnings per share of $1.15 increased 21% over last year's $.95. Strong
growth in operating income as well as the Company's continuation of the share
repurchase program contributed to this favorable earnings per share growth. The
estimated unfavorable impact of foreign currency translation on earnings per
share was $.04.
Nine Months 1996 vs. Nine Months 1995
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Reported revenues of $2.039 billion exceeded the prior year's level of $1.990
billion by 2%, or 3% after excluding the estimated unfavorable impact of foreign
currency translation. Reported revenue growth would have been approximately 6%
after adjusting for the negative impact of the divested businesses, the
unfavorable impact of foreign currency translation and the favorable effect on
revenues (primarily in the first quarter) from the reduction in promotional
activity in the fourth quarter of last year. Medical Supplies and Devices
segment revenues of $1.103 billion were about the same as $1.097 billion last
year. Diagnostic Systems segment revenues were $936 million, an increase of 5%.
As a result of the above-mentioned divestitures, domestic revenues of $1.043
billion were slightly less than last year's. International revenues of $995
million increased 7%.
The gross profit margin was 47.5% compared to last year's rate of 46.0%.
Selling and administrative expense was 27.0% of revenues, about the same as last
year's rate of 26.8%. Investment of $114 million in research and development
expense was 7% higher than last year's investment. As a percent of revenues,
research and development expense was 5.6%, slightly higher than last year's rate
of 5.3%. The reasons for these changes are consistent with those previously
discussed in the Third Quarter Results of Operations.
Operating income of $305 million increased $29 million over last year. As a
percent of revenues, operating income was 15.0% compared with last year's 13.9%,
resulting primarily from increased margins.
8
Net interest expense of $29 million was $4 million lower than last year for
reasons consistent with those previously discussed in the Third Quarter Results
of Operations. Other expense, net was $10 million favorable compared to last
year primarily due to the inclusion of a $6 million loss on the divestiture of
the glove business in last year's amount. Other expense, net also included
several offsetting items including gains from asset sales largely offset by an
adjustment of the carrying value of certain real estate to reflect net
realizable value. The income tax rate of 28.0% was the same as last year's
rate.
Net income was $196 million, compared with $165 million last year, an increase
of 19%. Earnings per share of $2.90 increased 24% over last year's $2.33.
Financial Condition
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During the first nine months of 1996, cash provided by operations was $299
million compared with $340 million provided during the first nine months of last
year. The percentage of debt to capitalization (wherein capitalization is
defined as the sum of shareholders' equity, net non-current deferred income tax
liabilities, and debt) was 37.6%, slightly higher than 35.8% a year ago. In
June 1996, the Company redeemed $66.4 million principal amount of its
outstanding 9 1/4% Sinking Fund Debentures due June 1, 2016 at a price of
104.375% of the principal amount.
Capital expenditures for the first nine months were $100 million compared with
$75 million during the first nine months of last year primarily due to
international expansion. For the full year, capital expenditures are expected
to be approximately $150 million. In the first nine months, the Company also
expended $10 million to complete acquisitions in the infectious disease and
sample collection businesses and received approximately $30 million related to
divestitures of the contract packaging business and a small surgical product
line.
Because of its strong credit ratings, the Company believes it has the capacity
to arrange significant additional borrowings should the need arise.
During the first nine months of 1996, the Company repurchased 3.2 million shares
of its common stock for a total expenditure of $244 million. At June 30, 1996,
authorization from the Board of Directors remained outstanding to acquire an
additional .9 million shares. For the full year, the Company expects to spend
approximately $300 million for share repurchases.
At its July 1996 meeting, the Board of Directors authorized a two-for-one stock
split and an increase in the authorized common stock, as further discussed in
Note 4 in Notes to Condensed Consolidated Financial Statements. The Board also
announced authorization of a new share repurchase plan to acquire an additional
15 million shares of the Company's common stock, after adjusting for the stock
split.
9
In March 1995, the Financial Accounting Standards Board issued Statement No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of." This Statement establishes accounting standards for
the assessment and measurement of impairment of long-lived assets, certain
identifiable intangibles, and goodwill related to those assets to be held and
used and for long-lived assets and certain identifiable intangibles to be
disposed of. Although the Company is assessing the effect of adoption of
Statement No. 121, which is required to be adopted by the Company by the first
quarter of fiscal 1997, its adoption is not expected to have a material impact
on the Company's results of operations or financial condition.
10
PART II - OTHER INFORMATION
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Item 6. Exhibits and Reports on Form 8-K.
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a) Exhibits
3(a) - Restated Certificate of Incorporation, as amended
January 22, 1990 and Amendment to the Restated Certificate of
Incorporation as of August 5, 1996.
3(b) - By-Laws, as amended May 30, 1989.
11 - Computation of Earnings Per Share.
27 - Financial Data Schedule
b) Reports on Form 8-K
There were no reports on Form 8-K filed for the quarter ended
June 30, 1996.
11
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
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(Registrant)
Date August 12, 1996
/s/ Edward J. Ludwig
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Edward J. Ludwig
Senior Vice President - Finance and Chief Financial Officer
(Principal Financial and Accounting Officer)
12
EXHIBIT INDEX
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Exhibit Method of
Number Description Filing
- ------- ----------- ---------
3(a) Restated Certificate of Incorporated by reference
Incorporation, as amended to Exhibit 3(a) to the
January 22, 1990 registrant's Annual Report
on Form 10-K for the fiscal
year ended September 30, 1990
Amendment to the Restated Filed with this report
Certificate of Incorporation,
as of August 5, 1996
3(b) By-Laws, as amended Incorporated by reference to
May 30, 1989 Exhibit 3(b) to the registrant's
Annual Report on Form 10-K
for the fiscal year ended
September 30, 1989
11 Computation of Earnings Filed with this report
Per Share
27 Financial Data Schedule Filed with this report
13