<PAGE>
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, 1997
-----------------------------------------------
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
-----------
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, 1997
--------------------- --------------------------------------
Common stock, par value $1.00 122,169,158
<PAGE>
PART I - FINANCIAL INFORMATION
------------------------------
Item 1. Financial Statements.
---------------------
Condensed Consolidated Balance Sheets at June 30, 1997 and September 30,
1996
Condensed Consolidated Statements of Income for the three and nine months
ended June 30, 1997 and 1996
Condensed Consolidated Statements of Cash Flows for the nine months ended
June 30, 1997 and 1996
Notes to Condensed Consolidated Financial Statements
2
<PAGE>
ITEM 1. FINANCIAL STATEMENTS
BECTON, DICKINSON AND COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
Thousands of Dollars
<TABLE>
<CAPTION>
June 30, September 30
Assets 1997 1996
- ------ ------------- ------------
(Unaudited)
<S> <C> <C>
Current Assets:
Cash and equivalents $ 121,002 $ 135,151
Short-term investments 24,796 29,949
Trade receivables, net 580,214 580,313
Inventories (Note 2):
Materials 93,378 91,154
Work in process 82,963 66,005
Finished products 268,382 245,323
------------- ------------
444,723 402,482
Prepaid expenses, deferred taxes and other 137,253 128,946
------------- ------------
Total Current Assets 1,307,988 1,276,841
Investments in Marketable Securities 9,300 23,800
Property, plant and equipment 2,529,726 2,462,235
Less allowances for depreciation and amortization 1,285,439 1,218,087
------------- ------------
1,244,287 1,244,148
Intangibles, Net
Patents and other 121,496 81,992
Goodwill 181,002 93,873
Other 173,910 169,098
------------- ------------
Total Assets $ 3,037,983 $ 2,889,752
============= ============
Liabilities and Shareholders' Equity
- ------------------------------------
Current Liabilities:
Short-term debt $ 355,029 $ 227,424
Payables and accrued expenses 494,245 538,698
------------- ------------
Total Current Liabilities 849,274 766,122
Long-Term Debt 472,937 468,223
Long-Term Employee Benefit Obligations 306,957 295,122
Deferred Income Taxes and Other 66,536 35,102
Commitments and Contingencies - -
Shareholders' Equity:
Preferred stock 51,550 52,927
Common stock 167,455 170,484
Capital in excess of par value 78,923 58,378
Cumulative currency translation adjustments (57,963) (14,959)
Retained earnings 2,187,295 2,160,279
Unearned ESOP compensation (32,688) (32,787)
Shares in treasury - at cost (1,052,293) (1,069,139)
------------- ------------
Total Shareholders' Equity 1,342,279 1,325,183
------------- ------------
Total Liabilities and Shareholders' Equity $ 3,037,983 $ 2,889,752
============= ============
</TABLE>
See notes to condensed consolidated financial statements
3
<PAGE>
BECTON, DICKINSON AND COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Thousands of Dollars, Except Per Share Data
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
---------------------------- -----------------------------
1997 1996 1997 1996
------------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
REVENUES $ 706,539 $ 692,945 $ 2,061,545 $ 2,038,605
Cost of products sold 352,745 351,851 1,048,551 1,069,306
Selling and administrative 191,106 182,956 563,090 550,766
Research and development 57,551 38,091 136,618 113,748
--------- --------- ----------- ---------
TOTAL OPERATING COSTS AND EXPENSES 601,402 572,898 1,748,259 1,733,820
--------- --------- ----------- ---------
OPERATING INCOME 105,137 120,047 313,286 304,785
Interest expense, net (10,116) (9,773) (28,126) (28,758)
Other income (expense), net 3,779 (3,098) 11,920 (3,140)
--------- --------- ----------- ---------
INCOME BEFORE INCOME TAXES 98,800 107,176 297,080 272,887
Income tax provision 28,652 30,009 86,153 76,408
--------- --------- ----------- ---------
NET INCOME $ 70,148 $ 77,167 $ 210,927 $ 196,479
========= ========= ========== =========
EARNINGS PER SHARE $ .54 $ .58 $ 1.61 $ 1.45
========= ========= ========== =========
DIVIDENDS PER SHARE $ .13 $ .115 $ .39 $ .345
========= ========= ========== =========
Average common and common
equivalent shares outstanding 129,059 131,826 129,073 133,658
========= ========= ========== =========
</TABLE>
See notes to condensed consolidated financial statements
4
<PAGE>
BECTON, DICKINSON AND COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Thousands of Dollars
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
June 30,
------------------------------
1997 1996
---------- ----------
<S> <C> <C>
Operating Activities:
Net income $ 210,927 $ 196,479
Adjustments to net income to derive net cash
provided by operating activities:
Depreciation and amortization 154,175 149,791
Change in working capital (76,500) (68,917)
Purchased in-process research and development 14,750 -
Other, net 12,885 21,606
---------- ----------
Net cash provided by operating activities 316,237 298,959
---------- ----------
Investing Activities:
Capital expenditures (109,411) (99,551)
Acquisitions of businesses, net of cash acquired (187,101) (10,418)
Proceeds from divestitures of businesses 24,343 29,667
Payments received on notes receivable 4,549 1,146
Change in investments, net 22,323 3,489
Other, net (40,870) (10,850)
---------- ----------
Net cash used for investing activities (286,167) (86,517)
---------- ----------
Financing Activities:
Change in short-term debt 145,264 168,596
Proceeds of long-term debt 97,838 -
Payments of long-term debt (117,473) (127,605)
Issuance of common stock 26,935 29,636
Repurchase of common stock (139,230) (244,137)
Dividends paid (51,217) (47,362)
---------- ----------
Net cash used for financing activities (37,883) (220,872)
---------- ----------
Effect of exchange rate changes on cash and equivalents (6,336) (2,287)
---------- ----------
Net decrease in cash and equivalents (14,149) (10,717)
Opening Cash and Equivalents 135,151 198,506
---------- ----------
Closing Cash and Equivalents $ 121,002 $ 187,789
========== ==========
</TABLE>
See notes to condensed consolidated financial statements
5
<PAGE>
BECTON, DICKINSON AND COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
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 1996 Annual Report on Form 10-K. The
results of operations for the interim periods are not necessarily indicative of
the results of operations to be expected for the full year.
Note 2 - Inventory Valuation
- ----------------------------
An actual valuation of inventory under the LIFO method can be made only at the
end of each fiscal year based on the inventory levels and costs at that time.
Accordingly, interim LIFO calculations are based on management's estimates of
expected year-end inventory levels and costs.
Note 3 - Acquisitions of Businesses
- -----------------------------------
During the third quarter, the Company completed the acquisition of PharMingen, a
manufacturer of products for biomedical research, and Difco Laboratories
Incorporated, a manufacturer of microbiology media and supplies, for an
aggregate amount of $187 million, net of cash acquired.
Note 4 - Accounting Policies: Derivative Financial Instruments
- ---------------------------------------------------------------
The Company has certain receivables, payables and short term borrowings
denominated in currencies other than the functional currency of the Company and
its subsidiaries. The Company hedges substantially of all of these exposures by
entering into forward exchange contracts, purchased currency options and
combination options for the future purchase and sale of foreign currencies.
The Company also occasionally enters into interest rate swaps, interest rate
caps, interest rate collars, and forward rate agreements in order to reduce the
impact of fluctuating interest rates on its short-term floating rate debt and
investments. In connection with issuances of long-term debt, the Company also
may enter into interest rate hedge agreements in order to protect itself
from
6
<PAGE>
fluctuating interest rates during the period in which the sale of the debt
issuance is being arranged. The Company accounts for its derivative financial
instruments using the deferral method of accounting, whereby gains and losses
related to these hedges are recognized in income as part of, and concurrent
with, the hedged transactions. The carrying value of derivative instruments is
recorded during the accounting period and is included in "Prepaid expenses,
deferred taxes and other" or in "Accrued expenses" on the balance sheet. The
Company does not use derivative financial instruments for trading or speculative
purposes.
Any deferred gains or losses associated with derivative instruments, which on
infrequent occasions may be terminated prior to maturity, are recognized in
income in the period in which the underlying hedged transaction is recognized.
In the event a designated hedged instrument is sold, extinguished or matured
prior to the termination of the related derivative instrument, the related
derivative instrument would be closed and the resultant gain or loss would be
recognized in income.
Note 5 - Subsequent Event
- -------------------------
In July 1997, the Company issued $200 million of 7% Debentures with an
effective yield, including the results of an interest rate hedge and other
financing costs, of 7.23% which will mature on August 1, 2027. Interest on the
Debentures is payable on February 1 and August 1, beginning February 1, 1998.
The Debentures are not redeemable at the option of either the Company or the
holders thereof and are not entitled to any sinking fund. The Company intends
to use the net proceeds to repay a portion of its outstanding commercial paper
upon maturity. Pending application of the net proceeds, such proceeds have been
invested in short-term interest-bearing securities.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
-------------------------------------------
Results of Operations
- ---------------------
Third Quarter 1997 vs. Third Quarter 1996
- -----------------------------------------
Third quarter reported revenues of $707 million exceeded prior year revenues of
$693 million by 2%, or 5% after adjusting for the estimated $23 million
unfavorable effect of foreign currency translation. The impact on total revenues
of the absence of approximately $12 million of revenues included in the prior
year third quarter associated with divested businesses was offset by the
inclusion of approximately $12 million of revenues in the current year third
quarter associated with acquired businesses.
Medical Supplies and Devices segment ("Medical") revenues of $384 million
increased 2%. Adjusting for the absence of sales related to divested businesses
which occurred virtually all in this segment, and the estimated unfavorable
effect of foreign currency translation, Medical revenues would have increased
approximately 8%. All of the core businesses in this segment contributed to
this growth in revenues. Particularly strong sales were achieved in the pre-
fillable syringe portion of the injection systems business. Diagnostic Systems
segment ("Diagnostic") revenues of $323 million increased 2% compared with last
year's revenues of $316 million. The estimated unfavorable impact of foreign
currency translation of $11 million was offset by the favorable impact of recent
acquisitions. Diagnostic revenue growth continues to be unfavorably impacted by
flat sales performance in the infectious disease diagnostics business.
Domestic Medical revenues of $196 million grew 9% after adjusting for the
unfavorable impact from the absence of sales of divested businesses.
International Medical revenues of $187 million decreased 2%, but would have
increased 8% after adjusting for both the estimated unfavorable impact of
foreign currency translation and the absence of sales of divested businesses.
Domestic Diagnostic revenues of $181 million which included approximately $11
million of revenues associated with recent acquisitions exceeded prior year
revenues of $168 million by 8%, or 1% after excluding the impact of recent
acquisitions. International Diagnostic revenues of $142 million which included
approximately $1 million of revenues associated with recent acquisitions
decreased 4%. After excluding revenues associated with recent acquisitions and
the estimated unfavorable impact of foreign currency translation, International
Diagnostic revenues would have increased 3%.
The gross profit margin of 50.1% improved almost one percentage point over last
year's third quarter rate of 49.2%. The improvement reflects a more profitable
mix of products sold as well as continuing productivity improvements. Selling
and administrative expense of $191 million was 27.0% of revenues which was
slightly higher than last year's third quarter ratio of 26.4%. Investment of
$58 million in research and development increased 51% over last year's third
8
<PAGE>
quarter expenditures of $38 million. The current quarter's expenditures included
$15 million of charges for purchased in-process research and development
associated with two acquisitions completed this quarter.
Operating income of $105 million decreased 12% from last year's third quarter
amount of $120 million due to the $15 million of purchased in-process research
and development charges discussed above.
Net interest expense of $10 million was basically unchanged from last year's
third quarter. Other income (expense), net was $7 million favorable to last
year's third quarter amount primarily due to the absence of refinancing costs
which occurred in the prior year and a net gain resulting from the sale of
several small product lines. The third quarter income tax rate was 29.0%,
compared with last year's third quarter rate of 28.0%, principally due to a
slight improvement in the forecasted mix in income among tax jurisdictions more
than offset by the lack of a tax benefit associated with the $15 million of
charges for purchased in-process research and development discussed above.
Net income was $70 million compared with $77 million last year. After adjusting
for the impact of the in-process research and development charges, net income
increased 10%. Earnings per share of $.54 decreased 7% from last year's $.58.
After adjusting for the impact of the in-process research and development
charges of approximately $.11, earnings per share would have grown 12%.
Nine Months 1997 vs. Nine Months 1996
- -------------------------------------
Reported revenues of $2.062 billion were 1% higher than last year's reported
revenues of $2.039 billion. After adjusting for the estimated unfavorable effect
of foreign currency translation and the net impact of sales associated with
recent divestitures and acquisitions, revenues would have increased
approximately 6%. Medical revenues were $1.108 billion compared with last year's
reported revenues of $1.103 billion which included revenues associated with
divested businesses of approximately $57 million. After adjusting for the
absence of sales associated with divested businesses and the unfavorable effect
of foreign currency translation, Medical revenues would have increased 8%.
Diagnostic revenues of $954 million increased 2%, or 4% after adjusting for the
estimated unfavorable impact of foreign currency translation and the net impact
of revenues associated with recent divestitures and acquisitions. Good sales
growth rates in the sample collection and flow cytometry businesses were
partially offset by continuing flat sales growth in the infectious disease
diagnostics business.
Domestic revenues of $1.070 billion increased 3%, or 4% after excluding the net
impact of recent divestitures and acquisitions as discussed above. International
revenues of $992 million were about the same as last year. After adjusting for
the estimated unfavorable impact of foreign currency translation and the net
impact of divestitures and acquisitions, International revenues increased 8%.
9
<PAGE>
The gross profit margin of 49.1% was more than one and one-half percentage
points higher than last year's rate of 47.5%, reflecting a more profitable mix
of products sold and productivity improvements. Selling and administrative
expense was 27.3% of revenues, slightly higher than last year's rate of 27.0%.
Investment of $137 million in research and development expense, which included
$15 million of charges for purchased in-process research and development as
previously discussed, was 20% higher than the prior year.
Operating income of $313 million increased $9 million over last year, despite
the inclusion of the $15 million of purchased in-process research and
development charges. As a percent of revenues, operating income was 15.2%
compared with last year's rate of 15.0% resulting primarily from the improved
gross profit margin.
Other income (expense), net was $15 million favorable compared with last year,
principally due to the absence of refinancing costs which occurred in the prior
year, a $6 million gain on the sale of an equity investment, the net result of
several small gains and losses related to divested products and lower foreign
exchange losses.
The income tax rate was 29.0%, compared with last year's rate of 28.0%,
principally the result of a slight improvement in the forecasted mix in income
among tax jurisdictions more than offset by the lack of a tax benefit associated
with the $15 million of purchased in-process research and development charges as
discussed above.
Financial Condition
- -------------------
During the first nine months of 1997, cash provided by operations was $316
million, compared with $299 million during the first nine months of last year.
Capital expenditures for the first nine months of 1997 were $109 million, which
was slightly higher than last year's amount of $100 million. For the full year,
capital expenditures are expected to be about the same as last year's amount of
$146 million. The Company also received $24 million in proceeds from the sales
of businesses and $9 million in proceeds from the sale of an equity investment.
In the third quarter, the Company expended $187 million, net of cash acquired
for the acquisitions of PharMingen and Difco Laboratories Incorporated.
During the first nine months of 1997, total debt of $828 million increased from
$696 million principally as a result of the acquisitions discussed above. 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 37.5%, compared with 37.6% a year ago. 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 1997, the Company repurchased 3.0 million shares
of its common stock for a total expenditure of $139 million. At June 30, 1997,
authorization from the Board of Directors remained outstanding to acquire an
additional 11.8 million shares.
10
<PAGE>
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 128, "Earnings per Share." This
Statement specifies the computation, presentation and disclosure requirements
for earnings per share for entities with publicly held common stock or potential
common stock. The Company is required to adopt the provisions of SFAS No. 128
for the quarter ending December 31, 1997. The principal difference between the
provisions of SFAS No. 128 and previous authoritative pronouncements is related
to the exclusion of common stock equivalents in the determination of Basic
Earnings Per Share and the market price at which common stock equivalents are
calculated in the determination of Diluted Earnings Per Share. In accordance
with the provisions of SFAS No. 128, earnings per share for the three and nine
months ended June 30, 1997 and 1996 are presented in the table below:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
------------------ -----------------
Earnings Per Share 1997 1996 1997 1996
- -------------------- -------- -------- -------- -------
<S> <C> <C> <C> <C>
Basic $ .57 $ .61 $1.70 $1.53
Diluted $ .53 $ .57 $1.59 $1.43
</TABLE>
11
<PAGE>
PART II - OTHER INFORMATION
---------------------------
Item 6. Exhibits and Reports on Form 8-K.
---------------------------------
a) Exhibits
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, 1997.
12
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Becton, Dickinson and Company
-----------------------------
(Registrant)
Date August 8, 1997
-----------------
/s/ Edward J. Ludwig
---------------------------------
Edward J. Ludwig
Senior Vice President - Finance and Chief Financial Officer
(Principal Financial and Accounting Officer)
13
<PAGE>
EXHIBIT INDEX
-------------
Exhibit Method of
Number Description Filing
- ------- ----------- --------------
11 Computation of Earnings Filed with
Per Share this report
27 Financial Data Schedule Filed with
this report
14
<PAGE>
Exhibit 11
BECTON, DICKINSON AND COMPANY
COMPUTATION OF EARNINGS PER SHARE
(All amounts in thousands, except per share data)
<TABLE>
<CAPTION>
Nine Months Ended
June 30,
---------------------
PRIMARY EARNINGS PER SHARE 1997 1996
-------------------------- -------- --------
<S> <C> <C>
Net Income $210,927 $196,479
Less preferred stock dividends (2,549) (2,613)
-------- --------
Net income applicable to common stock $208,378 $193,866
======== ========
Shares:
Average shares outstanding 122,653 127,516
Add dilutive stock equivalents from stock plans 6,420 6,142
-------- --------
Weighted average number of common and common
equivalent shares outstanding during the year 129,073 133,658
======== ========
Earnings per share $1.61 $1.45
======== ========
FULLY DILUTED EARNINGS PER SHARE
--------------------------------
Net income applicable to common stock $208,378 $193,866
Add preferred stock dividends
using the "if converted" method 2,549 2,613
Less additional ESOP contribution, using
the "if converted" method (855) (963)
-------- --------
Net income for fully diluted earnings per share $210,072 $195,516
======== ========
Shares:
Average shares outstanding 122,653 127,516
Add:
Dilutive stock equivalents from stock plans 7,044 6,338
Shares issuable upon conversion
of preferred stock 2,796 2,892
-------- --------
Weighted average number of common shares used
in calculating fully diluted earnings per share 132,493 136,746
======== ========
Fully diluted earnings per share $1.59 $1.43
======== ========
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This Schedule contains summary financial information extracted from the
Company's Consolidated Financial Statements for the nine months
ended June 30, 1997, and is qualified in its entirety by reference to
financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> JUN-30-1997
<CASH> 121,002
<SECURITIES> 24,796
<RECEIVABLES> 580,214
<ALLOWANCES> 0 <F1>
<INVENTORY> 444,723
<CURRENT-ASSETS> 1,307,988
<PP&E> 2,529,726
<DEPRECIATION> 1,285,439
<TOTAL-ASSETS> 3,037,983
<CURRENT-LIABILITIES> 849,274
<BONDS> 472,937
<COMMON> 167,455
0
51,550
<OTHER-SE> 1,123,274
<TOTAL-LIABILITY-AND-EQUITY> 3,037,983
<SALES> 2,061,545
<TOTAL-REVENUES> 2,061,545
<CGS> 1,048,551
<TOTAL-COSTS> 1,048,551
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0 <F1>
<INTEREST-EXPENSE> 37,001
<INCOME-PRETAX> 297,080
<INCOME-TAX> 86,153
<INCOME-CONTINUING> 210,927
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 210,927
<EPS-PRIMARY> 1.61
<EPS-DILUTED> 1.59
<FN>
<F1> These items are consolidated only at year-end.
</FN>
</TABLE>
