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 December 31, 1997
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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 January 31, 1998
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Common stock, par value $1.00 122,175,189
PART I - FINANCIAL INFORMATION
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Item 1. Financial Statements.
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Condensed Consolidated Balance Sheets at December 31, 1997 and
September 30, 1997
Condensed Consolidated Statements of Income for the three months ended
December 31, 1997 and 1996
Condensed Consolidated Statements of Cash Flows for the three months
ended December 31, 1997 and 1996
Notes to Condensed Consolidated Financial Statements
2
ITEM 1. FINANCIAL STATEMENTS
BECTON, DICKINSON AND COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
Thousands of Dollars
December 31, September 30,
Assets 1997 1997
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(Unaudited)
Current Assets:
Cash and equivalents $ 118,477 $ 112,639
Short-term investments 30,511 28,316
Trade receivables, net 532,434 595,685
Inventories (Note 2):
Materials 97,858 92,307
Work in process 77,523 79,519
Finished products 263,151 266,511
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438,532 438,337
Prepaid expenses, deferred taxes and other 160,506 137,632
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Total Current Assets 1,280,460 1,312,609
Property, plant and equipment 2,584,236 2,549,828
Less allowances for depreciation and amortization 1,330,512 1,299,123
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1,253,724 1,250,705
Goodwill, Net 188,036 164,097
Other Intangibles, Net 168,535 167,847
Other 186,426 184,994
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Total Assets $ 3,077,181 $ 3,080,252
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Liabilities and Shareholders' Equity
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Current Liabilities:
Short-term debt $ 99,297 $ 132,440
Payables and accrued expenses 569,134 545,757
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Total Current Liabilities 668,431 678,197
Long-Term Debt 664,968 665,449
Long-Term Employee Benefit Obligations 314,139 306,514
Deferred Income Taxes and Other 48,202 44,659
Commitments and Contingencies - -
Shareholders' Equity:
Preferred stock 50,556 51,111
Common stock 166,366 167,245
Capital in excess of par value 87,732 83,422
Cumulative currency translation adjustments (102,950) (86,870)
Retained earnings 2,254,984 2,249,463
Unearned ESOP compensation (28,716) (28,620)
Shares in treasury - at cost (1,046,531) (1,050,318)
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Total Shareholders' Equity 1,381,441 1,385,433
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Total Liabilities and Shareholders' Equity $ 3,077,181 $ 3,080,252
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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
December 31,
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1997 1996
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REVENUES $ 701,640 $ 655,799
Cost of products sold 354,803 343,132
Selling and administrative 199,140 186,530
Research and development 44,630 39,656
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TOTAL OPERATING COSTS AND EXPENSES 598,573 569,318
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OPERATING INCOME 103,067 86,481
Interest expense, net (10,241) (9,447)
Other (expense) income, net (2,233) 4,808
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INCOME BEFORE INCOME TAXES 90,593 81,842
Income tax provision 26,272 23,734
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NET INCOME $ 64,321 $ 58,108
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Basic Earnings Per Share $ .52 $ .46
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Diluted Earnings Per Share $ .50 $ .44
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Dividends Per Common Share $ .145 $ .13
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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)
Three Months Ended
December 31,
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1997 1996
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Operating Activities:
Net income $ 64,321 $ 58,108
Adjustments to net income to derive net cash
provided by operating activities:
Depreciation and amortization 52,977 49,659
Change in working capital 34,043 9,926
Other, net 12,638 21,297
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Net cash provided by operating activities 163,979 138,990
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Investing Activities:
Capital expenditures (43,998) (30,775)
Acquisition of business, net of cash acquired (39,525) -
Proceeds from divestiture of business - 20,860
Change in investments, net 7,133 12,185
Other, net (12,610) (12,849)
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Net cash used for investing activities (89,000) (10,579)
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Financing Activities:
Change in short-term debt (30,207) (64,272)
Proceeds of long-term debt - 97,838
Payments of long-term debt (407) (101,071)
Issuance of common stock 5,987 3,554
Repurchase of common stock (42,745) (44,994)
Dividends paid (687) (858)
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Net cash used for financing activities (68,059) (109,803)
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Effect of exchange rate changes on cash and equivalents (1,082) (1,082)
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Net increase in cash and equivalents 5,838 17,526
Opening Cash and Equivalents 112,639 135,151
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Closing Cash and Equivalents $ 118,477 $ 152,677
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See notes to condensed consolidated financial statements
5
BECTON, DICKINSON AND COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
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
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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 - Earnings per Share
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In the quarter ended December 31, 1997, the Company adopted the provisions
of Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per
Share", which specifies the computation, presentation and disclosure
requirements for earnings per share for entities with publicly held common stock
or potential common stock. This Statement simplifies the computation of
earnings per share by replacing the previously reported primary and fully
diluted earnings per share with basic and diluted earnings per share,
respectively. Unlike primary earnings per share, basic earnings per share
exclude any dilutive effect of options, warrants and convertible securities.
Diluted earnings per share are very similar to the previously reported fully
diluted 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.
6
The reconciliation between the calculation of basic and diluted earnings per
share follows:
Three Months Ended
December 31,
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1997 1996
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Numerator:
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Net income $ 64,321 $ 58,108
Preferred stock dividends (825) (853)
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Numerator for basic earnings per
share - income available to
common shareholders 63,496 57,255
Effect of dilutive securities:
Preferred stock dividends - using
"if converted" method 825 853
Additional ESOP contribution -
using "if converted" method (252) (285)
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573 568
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Numerator for diluted earnings per
share - income available to common
shareholders after assumed conversions $ 64,069 $ 57,823
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Denominator:
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Denominator for basic earnings per
share - weighted average common
shares outstanding 121,812 123,183
Effect of dilutive securities:
Dilutive stock equivalents from stock plans 3,733 4,267
Shares issuable upon conversion of
preferred stock 2,742 2,847
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Dilutive potential common shares 6,475 7,114
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Denominator for diluted earnings per share
- adjusted weighted average common shares
outstanding and assumed conversions 128,287 130,297
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Basic earnings per share $ 0.52 $ 0.46
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Diluted earnings per share $ 0.50 $ 0.44
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7
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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First quarter reported revenues of $702 million exceeded prior year revenues by
7%. Reported 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 11%. Medical Supplies
and Devices segment ("Medical") revenues of $373 million increased 7%.
Adjusting for the estimated unfavorable impact of foreign currency translation,
Medical revenues would have increased approximately 11%. Diagnostic Systems
segment ("Diagnostic") revenues of $329 million increased 7%, or 11% after
excluding the estimated unfavorable impact of foreign currency translation.
Domestic Medical revenues of $201 million increased 18%. International Medical
revenues of $172 million decreased 3%, but would have increased 4% after
adjusting for the estimated $13 million unfavorable impact of foreign currency
translation. Good growth rates were experienced by the consumer health care and
infusion therapy businesses in both the domestic and international markets.
Domestic Diagnostic revenues of $188 million increased 17%. The infectious
disease diagnostics business experienced improved revenue growth in the first
quarter as a result of a prior year acquisition. International Diagnostic
revenues of $141 million decreased 4%, but would have increased 5% after
excluding the estimated unfavorable effect of foreign currency translation.
Good sales growth was achieved worldwide in the sample collection and flow
cytometry businesses.
The gross profit margin of 49.4% improved almost two percentage points over last
year's first quarter rate of 47.7%. The improvement reflects a more profitable
mix of products sold as well as continuing productivity improvements. Selling
and administrative expense was $199 million, or 28.4% of revenues, which was
unchanged compared to last year's first quarter ratio. Investment of $45
million in research and development increased 13% over last year's first quarter
expenditures, primarily reflecting the continuation of strategic investments in
support of the Company's key businesses.
Operating income of $103 million increased 19% from last year's first quarter
amount of $86 million. The improved operating margin of 14.7% compared to 13.2%
primarily reflects the improved gross profit margin.
Net interest expense of $10 million was about $1 million higher than last year.
Other (expense) income, net was $7 million unfavorable compared with last year,
principally due to higher foreign exchange losses and the absence of a $4
million one-time gain included in the prior year.
8
The first quarter income tax rate was 29%, consistent with last year's first
quarter rate, reflecting the forecasted mix in income among tax jurisdictions.
Net income was $64 million compared with $58 million last year, an increase of
11%. Earnings per share of $.50 increased 14% over last year's $.44 on a
diluted basis. Diluted earnings per share would have increased 25% after
adjusting for the estimated $.05 unfavorable foreign currency translation
effect. Strong growth in operating income as well as the continuation of the
Company's share repurchase program contributed to this favorable earnings per
share growth.
Financial Condition
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During the first quarter of 1998, cash provided by operations was $164 million,
compared with $139 million during the first quarter of last year, principally
due to lower working capital requirements. Capital expenditures during the
quarter were $44 million compared with $31 million during the first quarter of
last year. For the full year, capital expenditures are expected to be slightly
higher than last year's amount of $170 million. The Company also invested $40
million in the first quarter for the acquisition of a manufacturer of ophthalmic
surgical and anesthesia products, with estimated annual revenues of
approximately $22 million.
During the first quarter of 1998, total debt declined $34 million. 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 35.3%, compared with 31.9% 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 quarter of 1998, the Company repurchased 879,000 shares of its
common stock for a total expenditure of $43 million. At December 31, 1997,
authorization from the Board of Directors remained in effect to reacquire up to
an additional 10.7 million shares.
At its November 1997 meeting, the Board of Directors increased the Company's
quarterly dividend from $.13 to $.145 per common share.
In January 1998, the Company signed a definitive agreement to acquire the
Medical Devices Division ("MDD") of Ohmeda, the health care business of The BOC
Group. MDD has estimated annual revenues of $200 million. Subject to receipt
of all requisite government approvals, the Company anticipates completing this
transaction in the third quarter of fiscal 1998.
During the second quarter the Company also acquired IntelliCode Intelligent Bar
Coding Systems, a division of MedPlus, Inc., which provides intelligent bar
coding technology to the health care industry, and Tru-Fit Marketing
Corporation, a Massachusetts-based sports medicine company. Aggregate annual
revenues for these acquisitions were approximately $28 million for their most
recent fiscal years.
9
As of December 31, 1997, the three year cumulative inflation rate in Brazil was
significantly below 100%. As a result, effective January 1, 1998, the Company
will no longer consider its Brazilian business to be operating in a highly
inflationary economy as defined by SFAS No. 52, "Foreign Currency Translation"
and, accordingly, future translation adjustments will be recorded as a component
of shareholders' equity and will not affect reported earnings or cash flow.
The Brazilian operations represented approximately 3% of the Company's net
revenues in fiscal 1997, and therefore, this change is not expected to have a
material impact on the Company's results of operations or financial condition in
fiscal 1998.
The Company has initiated an enterprise-wide program 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 of modifying existing systems
and capitalize the replacement of 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 and customers 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.
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
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 the Company's filings with the Securities and
Exchange Commission.
10
PART II - OTHER INFORMATION
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Item 6. Exhibits and Reports on Form 8-K.
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a) Exhibits
27 - Financial Data Schedule
b) Reports on Form 8-K
There were no reports on Form 8-K filed for the quarter ended
December 31, 1997.
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 February 13, 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)
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EXHIBIT INDEX
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Exhibit Method of
Number Description Filing
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27 Financial Data Schedule Filed with
this report
13