<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, 1999
----------------------------
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
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(Address of principal executive offices)
(Zip Code)
(201) 847-6800
----------------------------------------------------
(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, 1999
--------------------- --------------------------------------
Common stock, par value $1.00 250,312,390
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PART I - FINANCIAL INFORMATION
------------------------------
Item 1. Financial Statements.
---------------------
Condensed Consolidated Balance Sheets at June 30, 1999 and September
30, 1998
Condensed Consolidated Statements of Operations for the three and nine
months ended June 30, 1999 and 1998
Condensed Consolidated Statements of Cash Flows for the nine months
ended June 30, 1999 and 1998
Notes to Condensed Consolidated Financial Statements
2
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<TABLE>
<CAPTION>
ITEM 1. FINANCIAL STATEMENTS
BECTON, DICKINSON AND COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
Thousands of Dollars
June 30, September 30,
Assets 1999 1998
- ------ ------------------ ------------------
(Unaudited)
<S> <C> <C>
Current Assets:
Cash and equivalents $ 66,984 $ 83,251
Short-term investments 5,976 7,390
Trade receivables, net 737,041 726,558
Inventories (Note 2):
Materials 154,509 122,232
Work in process 104,397 86,239
Finished products 335,081 328,320
------------------ ------------------
593,987 536,791
Prepaid expenses, deferred taxes and other 188,782 188,772
------------------ ------------------
Total Current Assets 1,592,770 1,542,762
Property, plant and equipment 2,826,866 2,727,023
Less allowances for depreciation and amortization 1,472,217 1,424,373
------------------ ------------------
1,354,649 1,302,650
Goodwill, Net 430,421 412,070
Other Intangibles, Net 397,733 334,275
Other 307,668 254,281
------------------ ------------------
Total Assets $ 4,083,241 $ 3,846,038
================== ==================
Liabilities and Shareholders' Equity
- ------------------------------------
Current Liabilities:
Short-term debt $ 592,560 $ 385,162
Payables and accrued expenses 666,983 706,751
------------------ ------------------
Total Current Liabilities 1,259,543 1,091,913
Long-Term Debt 759,216 765,176
Long-Term Employee Benefit Obligations 336,043 326,620
Deferred Income Taxes and Other 60,263 48,509
Commitments and Contingencies - -
Shareholders' Equity:
Preferred stock 47,744 48,959
Common stock 332,662 332,662
Capital in excess of par value 34,603 -
Retained earnings 2,484,559 2,350,781
Unearned ESOP compensation (24,994) (24,463)
Deferred compensation 5,751 4,903
Shares in treasury - at cost (1,001,041) (1,015,806)
Accumulated other comprehensive income (211,108) (83,216)
------------------ ------------------
Total Shareholders' Equity 1,668,176 1,613,820
------------------ ------------------
Total Liabilities and Shareholders' Equity $ 4,083,241 $ 3,846,038
================== ==================
See notes to condensed consolidated financial statements
</TABLE>
3
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BECTON, DICKINSON AND COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Thousands of Dollars, Except Per-share Data
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
--------------------------------- ------------------------------------
1999 1998 1999 1998
---------------- --------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Revenues $ 873,002 $ 833,561 $ 2,515,932 $ 2,273,634
Cost of products sold 461,323 419,007 1,276,293 1,137,890
Selling and administrative 231,924 234,418 688,044 619,575
Research and development 50,694 80,859 167,255 169,285
Special charges 75,553 90,945 75,553 90,945
-------------- ------------- -------------- ---------------
Total Operating Costs and Expenses 819,494 825,229 2,207,145 2,017,695
-------------- ------------- -------------- ---------------
Operating Income 53,508 8,332 308,787 255,939
Interest expense, net (16,877) (17,526) (53,506) (39,194)
Other (expense) income, net (1,267) (1,815) 1,218 (7,112)
-------------- ------------- -------------- ---------------
Income (Loss) Before Income Taxes 35,364 (11,009) 256,499 209,633
Income tax provision (benefit) 2,240 (1,024) 57,103 62,962
-------------- ------------- -------------- ---------------
Net Income (Loss) $ 33,124 $ (9,985) $ 199,396 $ 146,671
============== ============= ============== ===============
Earnings (Loss) Per Share:
Basic $ .13 $ (.04) $ .79 $ .59
============== ============= ============== ===============
Diluted $ .12 $ (.04) $ .75 $ .56
============== ============= ============== ===============
Dividends Per Common Share $ .085 $ .0725 $ .255 $ .2175
============== ============= ============== ===============
See notes to condensed consolidated financial statements
</TABLE>
4
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<TABLE>
<CAPTION>
BECTON, DICKINSON AND COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Thousands of Dollars
(Unaudited)
Nine Months Ended
June 30,
------------------------------------------
1999 1998
------------------ ----------------
<S> <C> <C>
Operating Activities
--------------------
Net income $ 199,396 $ 146,671
Adjustments to Net Income to Derive Net Cash
Provided By Operating Activities:
Depreciation and amortization 191,250 168,889
Non-cash special charges 54,326 59,308
Purchased in-process research and development 16,800 30,000
Change in working capital (185,815) (74,715)
Other, net 30,277 30,901
------------------ --------------
Net Cash Provided by Operating Activities 306,234 361,054
------------------ --------------
Investing Activities
--------------------
Capital expenditures (212,098) (138,768)
Acquisitions of businesses, net of cash acquired (153,247) (520,768)
Change in investments, net (19,762) (5,138)
Capitalized Software (47,661) (20,107)
Other, net (39,018) (28,800)
------------------ --------------
Net Cash Used for Investing Activities (471,786) (713,581)
------------------ --------------
Financing Activities
--------------------
Change in short-term debt 306,302 413,263
Proceeds of long-term debt 185 -
Payments of long-term debt (109,610) (2,524)
Issuance of common stock from treasury 25,149 37,593
Repurchase of common stock - (44,476)
Dividends paid (66,029) (56,523)
------------------ --------------
Net Cash Provided by Financing Activities 155,997 347,333
------------------ --------------
Effect of exchange rate changes on cash and equivalents (6,712) (4,023)
------------------ --------------
Net decrease in cash and equivalents (16,267) (9,217)
Opening Cash and Equivalents 83,251 112,639
------------------ --------------
Closing Cash and Equivalents $ 66,984 $ 103,422
================== ==============
See notes condensed consolidated financial statements
</TABLE>
5
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BECTON, DICKINSON AND COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Dollar and Share Amounts in Thousands, Except Per-share Data
June 30, 1999
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 1998 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. Prior year
information has been reclassified to conform to current year presentation.
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 - Comprehensive Income
- -----------------------------
Effective October 1, 1998, the Company adopted the provisions of Statement of
Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive
Income", which specifies the reporting requirements for comprehensive income and
its components. Comprehensive income for the Company includes the following:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
-------------------- --------------------
1999 1998 1999 1998
--------- --------- ---------- --------
<S> <C> <C> <C> <C>
Net income (loss) $ 33,124 $(9,985) $ 199,396 $146,671
Foreign currency translation
adjustments (44,039) 3,819 (123,706) (33,480)
Unrealized gain (loss) on investments 65 - (4,186) -
-------- ------- --------- --------
Total Comprehensive Income $(10,850) $(6,166) $ 71,504 $113,191
======== ======= ========= ========
</TABLE>
6
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In accordance with the requirements of this Statement, accumulated other
comprehensive income has been reported as a separate component of shareholders'
equity. The adoption of SFAS No. 130 had no effect on the Company's reported
results of operations, financial condition or cash flows.
Note 4 - Earnings per Share
- ---------------------------
The following table sets forth the computations of basic and diluted earnings
per share, restated to reflect the 1998 two-for-one stock split:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
--------------------- ----------------------
1999 1998 1999 1998
--------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net income (loss) $ 33,124 $ (9,985) $199,396 $146,671
Preferred stock dividends (780) (803) (2,355) (2,437)
-------- -------- -------- --------
Income (loss) applicable to
common shareholders (A) 32,344 (10,788) 197,041 144,234
Preferred stock dividends - using
"if converted" method 780 - 2,355 2,437
Additional ESOP contribution -
using "if converted" method (201) - (610) (749)
-------- -------- -------- --------
Income (loss) applicable to common
shareholders after assumed conversions (B) $ 32,923 $(10,788) $198,786 $145,922
======== ======== ======== ========
Average common shares outstanding (C) 250,075 246,604 249,213 245,054
Dilutive stock equivalents from stock plans 9,818 - 10,943 10,266
Shares issuable upon conversion of
preferred stock 5,179 - 5,179 5,364
-------- -------- -------- --------
Average common and common equivalent
shares outstanding - assuming dilution (D) 265,072 246,604 265,335 260,684
======== ======== ======== ========
Basic earnings (loss) per share (A/C) $ .13 $ (.04) $ .79 $ .59
======== ======== ======== ========
Diluted earnings (loss) per share (B/D) $ .12 $ (.04) $ .75 $ .56
======== ======== ======== ========
</TABLE>
Note 5 - Contingencies
- ----------------------
The Company is 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.
7
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In the opinion of the Company, the results of these matters, individually and in
the aggregate, are not expected to have a material impact on its results of
operations, financial condition or cash flows.
The Company has developed a Company-wide Year 2000 plan (the "Plan") to, among
other things, prepare its computer equipment and software and devices with date-
sensitive embedded technology for the year 2000. The estimated costs of the
Company's Plan and the dates by which the Company believes it will have
completed each of the phases of the Plan, are based upon management's best
estimates, which rely upon numerous assumptions regarding future events,
including the continued availability of certain resources, third-party
remediation plans, and other factors. These estimates, however, may prove not
to be accurate, and actual results could differ materially from those
anticipated. Factors that could result in material differences include, without
limitation, the availability and cost of personnel with appropriate training and
experience, the ability to identify, assess, remediate and test all devices, all
relevant computer codes and embedded technology, and similar uncertainties. In
addition, Year 2000-related issues may lead to possible third-party claims, the
impact of which cannot yet be estimated. No assurance can be given that the
aggregate cost of defending and resolving such claims, if any, would not have a
material adverse effect on the Company.
Note 6 - Special and Other Charges
- ----------------------------------
During the third quarter of fiscal year 1999, the Company recorded Special
charges of $75,553. Of these charges, $46,125 were associated with the write-
off of intangibles, as well as other costs relating to the Company's exit of
certain product lines and activities, primarily in the home healthcare self-
monitoring business. The third quarter Special charges also included $17,857
primarily for the write-down of certain investment assets related to various
product development ventures that the Company will no longer pursue. The
Company's decision to refocus certain businesses and the continued decline in
sales volume for selected products created impairment indicators, which required
a reassessment of the recoverability of the underlying assets. An impairment
loss was recorded as a result of the carrying amounts of these assets exceeding
their recoverable values, based on discounted future cash flow estimates.
Special charges also included $17,871 in special termination and severance
benefits associated with an enhanced voluntary retirement incentive program.
This program was offered in April 1999 to 176 employees meeting certain age and
service requirements at selected locations. Responses to this offer were due by
May 25, 1999. During the third quarter, 133 employees accepted this program.
The Company also reversed $6,300 of the 1998 special charges as a result of the
Company's decision in the current quarter not to exit certain activities as had
originally been planned.
The Company also recorded $26,868 of charges in Cost of products sold to reflect
the write-off of inventories and to provide appropriate reserves for expected
future returns relating to the exited product lines discussed above.
8
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Note 7 - Subsequent Event
- -------------------------
On August 6, 1999, the Company signed a revised agreement to acquire Clontech
Laboratories, Inc., a California-based company specializing in the areas of
gene-based drug discovery and molecular biology research, for $200 million in
cash. The acquisition is expected to be completed during the fourth quarter of
fiscal 1999, following receipt of required consents and approvals. The Company
will record this combination using the purchase method of accounting.
9
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
-----------------------------------------------------------------------
of Operations
-------------
Special and Other Charges
- -------------------------
During the third quarter of fiscal year 1999, the Company recorded special
charges of $76 million associated with the exiting of product lines and other
activities, the impairment of assets, and an enhanced voluntary retirement
incentive program, as more fully described in Note 6 to the Financial
Statements. The Company also recorded charges of $27 million in Cost of
products sold to reflect the write-off of inventories and to provide appropriate
reserves for expected future returns relating to the exited product lines.
Implementation of the exit plans is expected to be completed by the latter part
of fiscal year 2000.
During the third quarter of fiscal year 1998, the Company recorded special
charges of $91 million, primarily associated with the restructuring of certain
manufacturing operations and the write-down of impaired assets. The Company
reversed $6 million of these charges in the third quarter of fiscal 1999 as a
result of the Company's decision not to exit certain activities as had
originally been planned. As of June 30, 1999, the remaining 1998 special
charges restructuring accruals consisted primarily of severance related to a
plant closing scheduled for the middle of fiscal year 2000.
The prior year's third quarter results also included approximately $11 million
of reengineering charges associated with the enterprise-wide program to upgrade
the Company's business systems. The majority of these charges were included in
selling and administrative expense.
Acquisitions
- ------------
During the first nine months of fiscal year 1999, the Company acquired five
businesses for an aggregate purchase price of $153 million, net of cash
acquired. The Company recorded charges of $17 million for purchased in-process
research and development in connection with two of these acquisitions. All
acquisitions were recorded using the purchase method of accounting and the
results of operations of the acquired companies are included in the consolidated
results of the Company as of their respective acquisition dates.
During the third quarter of fiscal 1998, the Company acquired the Medical
Devices Division ("MDD") of The BOC Group for approximately $457 million in
cash. The Company recorded a charge of $30 million for purchased in-process
research and development in connection with this acquisition.
Results of Operations - Third Quarter 1999 vs. Third Quarter 1998
- -----------------------------------------------------------------
Third quarter revenues of $873 million exceeded prior year revenues by five
percent. Foreign currency translation did not have a significant effect on
revenues for the current quarter. Underperformance in the Company's home health
care business, weaker than expected sales
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in Western Europe and in certain emerging markets, and the stronger than
expected U.S. dollar caused third quarter revenues to fall below earlier
expectations.
Medical Supplies and Devices segment ("Medical") revenues of $495 million
increased four percent, with the infusion therapy and pre-fillable syringe
businesses reporting strong performance. Diagnostic Systems segment
("Diagnostic") revenues of $378 million increased five percent, with strong
results reported by the Company's flow cytometry business.
Domestic Medical revenues of $238 million were about the same as last year.
Revenue growth in this segment was adversely affected by underperformance in the
home health care business. International Medical revenues of $257 million
increased eight percent, with strong performance reported by the infusion
therapy business. A recent acquisition contributed to the international revenue
growth for this segment.
Domestic Diagnostic revenues of $212 million increased three percent. The
infectious disease diagnostic business continues to be adversely affected by
cost containment in testing in the United States. International Diagnostic
revenues of $166 million increased nine percent, which included strong
performances by the flow cytometry and infectious disease diagnostic businesses.
Reported gross profit margin was 47.2% in the current quarter, and would have
been three percentage points higher excluding the effect of the charges
associated with exited product lines. This improvement in the gross profit
margin over the prior year's rate of 49.7% reflects continuing productivity
improvements in both recently acquired and ongoing businesses of the Company.
Selling and administrative expense was $232 million, or 26.6% of revenues.
Savings achieved through spending controls and productivity improvements were
partially offset by expenses primarily associated with the program to upgrade
the Company's business systems. The prior year's third quarter ratio was 28.1%
and included the reengineering charges discussed earlier.
Investment in research and development was $51 million, compared with last
year's third quarter amount of $81 million. The prior year's expenditures
included a $30 million charge for purchased in-process research and development
associated with the MDD acquisition.
Operating income was $54 million compared with last year's third quarter amount
of $8 million. Excluding the special and other charges in the current and prior
year third quarters, as well as the in-process research and development charge
in the prior year third quarter, operating income would have been 17.9% of
revenues compared to 16.8% last year.
Net interest expense of $17 million was slightly lower than in the prior year.
Other expense, net of $1 million was about the same as last year.
Excluding the impact of special and other charges in both years and of the MDD
acquisition in the prior year, the third quarter income tax rate was 26%
compared with 29% a year ago. The lower rate in the current year reflects a
more favorable mix in income among tax jurisdictions.
11
<PAGE>
The Company reported net income of $33 million, or $.12 per diluted share,
compared with a net loss of $10 million, or $.04 per diluted share, a year ago.
Current year charges, as discussed previously, have reduced net income by $69
million, or $.26 per share. Special and other charges, as well as the in-
process R&D charge associated with the MDD acquisition, also adversely affected
prior year results.
Results of Operations - Nine Months 1999 vs. Nine Months 1998
- -------------------------------------------------------------
Revenues of $2.516 billion were 11% higher than last year's revenues of $2.274
billion. Aided by recent acquisitions, Medical revenues of $1.404 billion
increased 14%. Diagnostic revenues of $1.112 billion increased 7%. Domestic
revenues of $1.267 billion increased 3%, and international revenues of $1.249
billion increased 20%. As previously noted, recent acquisitions and strong
performances by the international businesses contributed to revenue growth.
Foreign currency translation did not have a significant effect on revenues for
the nine-month period.
The gross profit margin was 49.3% compared with last year's rate of 50.0%.
Excluding the third quarter fiscal 1999 effects of the charges associated with
exited product lines, gross profit margin would have been 50.3%. Selling and
administrative expense was 27.3% of revenues, the same as last year's rate.
Research and development spending was $167 million, which included $17 million
of charges for purchased in-process research and development associated with
current year acquisitions. Last year's research and development spending of $169
million included a $30 million charge for purchased in-process research and
development associated with the MDD acquisition. Excluding the effect of
purchased in-process research and development in both years, investment in
research and development increased eight percent. Operating income of $309
million increased $53 million over the same period last year. Excluding in both
years the special and other charges and in-process research and development
charges, operating income increased 10%. The reasons for these changes are
consistent with those previously discussed in the Third Quarter Results of
Operations.
Net interest expense of $54 million was $14 million higher than last year,
primarily due to additional borrowings to fund recent acquisitions. Other
income, net was $1 million compared with last year's other expense, net of $7
million, primarily due to lower foreign exchange losses and a one-time gain on
the sale of an asset in the current year.
Excluding the special and other charges, as well as in-process research and
development charges in the current year, the income tax rate was 24.1%. The
prior year's tax rate was 29%, excluding the special and other charges and the
impact of the MDD acquisition. The income tax rate for the first nine months of
1999 included a favorable $7 million tax judgment in Brazil in the first
quarter. Excluding the special and other charges, as well as in-process
research and development charges in the current year, the Company expects its
full year tax rate to be about 25%, reflecting the favorable tax judgment as
well as a more favorable mix in income among tax jurisdictions.
Net income was $199 million, or $.75 per diluted share, compared with $147
million, or $.56 per diluted share, in the prior year. Both periods were
affected adversely by special and other
12
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charges, as well as the in-process research and development charges, discussed
earlier.
Financial Condition
- -------------------
During the first nine months of 1999, Net Cash Provided by Operating Activities
was $306 million compared to $361 million during the first nine months of last
year. This decrease reflects inventory replenishment and new product inventory.
Capital expenditures during the first nine months were $212 million compared
with $139 million during the first nine months of last year. For the full year,
the Company expects capital expenditures to be about $275 million. As
previously discussed, during the first nine months of fiscal year 1999, the
Company acquired five businesses for an aggregate purchase price of $153
million, net of cash acquired. Capitalized software represents expenditures
associated with the enterprise-wide program to upgrade the Company's business
systems.
As of June 30, 1999, total debt of $1.4 billion represented 44.4% of total
capital (shareholders' equity, net non-current deferred income tax liabilities,
and debt), consistent with the prior year's ratio of 44.6%. Because of its
strong credit rating, the Company believes it has the capacity to arrange
additional borrowings should the need arise.
On April 20, 1999, the Executive Committee of the Board of Directors revoked its
pre-existing authorization for the Company to reacquire shares of its common
stock.
On August 6, 1999, the Company signed a revised agreement to acquire Clontech
Laboratories, Inc., a California-based company specializing in the areas of
gene-based drug discovery and molecular biology research, for $200 million in
cash. The acquisition is expected to be completed during the fourth quarter of
fiscal 1999, following receipt of required consents and approvals. The Company
will record this combination using the purchase method of accounting.
Year 2000 Readiness Disclosure
- ------------------------------
The Company has developed and has substantially implemented a Company-wide Year
2000 plan (the "Plan") with the intent to ensure that its computer equipment and
software and devices with date-sensitive embedded technology will be able to
distinguish between the year 1900 and the year 2000 and will function properly
with respect to all dates, whether in the twentieth or twenty-first centuries
(such functionality is hereafter referred to as being "Year 2000 compliant").
The Company's Plan consists of four major focus areas: information-technology
("IT") systems; non-IT systems; third-party considerations; and products.
The tasks common to each of these areas of focus are: (i) the identification and
assessment of Year 2000 issues; (ii) prioritization of the identified issues;
(iii) assessment of compliance; (iv) remediation; (v) testing; and (vi) design
and implementation of contingency and business continuation plans. In addition,
the Company has identified certain of its products that are in use by customers
and that contain date-sensitive technology. For these products, the Company has
13
<PAGE>
undertaken the additional step of distributing and installing any requisite
remediating product upgrades and/or replacements.
The table set forth below summarizes, by focus area, the current status and
projected dates of completion for each of the related tasks:
<TABLE>
<CAPTION>
Estimated % of Completion/Projected Date of Completion
- ---------------------------------------------------------------------------------------------------------------------
3/rd/ Party
Focus Area IT Systems Non-IT Systems Considerations Products
=====================================================================================================================
<S> <C> <C> <C> <C>
Identification and Assessment of 100%/ 100%/ 100%/ 100%/
Year 2000 Issues Completed Completed Completed Completed
- ---------------------------------------------------------------------------------------------------------------------
Prioritization of Identified 100%/ 100%/ 100%/ 100%/
Issues Completed Completed Completed Completed
- ---------------------------------------------------------------------------------------------------------------------
Assessment of Compliance 100%/ 100%/ 100%/ 100%/
Completed Completed Completed Completed
- ---------------------------------------------------------------------------------------------------------------------
Remediation 94%/ 98%/ 100%/ 98%/
September 1999 September 1999 Completed September 1999
- ---------------------------------------------------------------------------------------------------------------------
Testing 85%/ 98%/ 85%/ 98%/
September 1999 September 1999 September 1999 September 1999
- ---------------------------------------------------------------------------------------------------------------------
Distribution and Installation of Not Applicable Not Applicable Not Applicable US/Canada 85%/
Product Upgrades September 1999
------------------
Asia Pacific/
Japan 83%/
September 1999
------------------
Latin
America 54%/
September 1999
------------------
Europe/Middle
East 24%/
November 1999
- ---------------------------------------------------------------------------------------------------------------------
Contingency and 80% / 98% / 80% / 90%/
Business September 1999 September 1999 September 1999 September 1999
Continuation Plans
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
Most of the Company's products do not contain date-sensitive embedded
technology. For those that do, the Company estimates that as of August 1, 1999,
it has completed approximately 98%
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of its remediation and testing efforts. In addition, the Company has identified
certain of its products that are in use by customers and that contain date-
sensitive technology. For these products, the Company has undertaken the
additional step of distributing and installing any requisite remediating product
upgrades and/or replacements. The Company is working with its customers to
schedule and complete these upgrades and replacements in a timely manner. To
date, the Company has deployed approximately 70% of its product upgrades. All
regions, with the exception of Europe and the Middle East, will have completed
their customer product upgrades (representing 91% of the total) by the end of
September 1999. The Company expects to have completed 99% of its customer
product upgrades by the end of October 1999, with the remaining one percent in
Europe and the Middle East expected to be completed by the end of November 1999.
Contingency and business continuation planning with respect to products is
scheduled for completion by the end of September 1999.
The internal systems and facilities remediation is nearly complete. Emphasis now
has shifted toward contingency planning. Plans are being developed to mitigate
those risks that have been identified. The Company expects to complete its
contingency planning and analysis by September 30, 1999.
The estimated total cost of the Plan is approximately $16 million, and is being
funded through operating cash flows. As of June 30, 1999, the Company had
incurred approximately $10 million in costs related to its Year 2000 project.
The Company anticipates that the remaining costs of the Plan include
approximately $1 million allocated to the purchase of new software and hardware,
$3 million for the distribution and installation of product upgrades and/or
replacement, and $2 million allocated to unanticipated contingencies. Of the
total remaining costs of the Plan, $1 million represents the redeployment of
existing resources. None of the Company's other information technology projects
have been delayed or deferred as a result of the implementation of the Plan.
The Company believes it has an effective plan in place to anticipate and resolve
any potential Year 2000 issues in a timely manner. In the event, however, that
the Company has not properly identified Year 2000 issues or the compliance
assessment, remediation, testing, and deployment of product upgrades are not
conducted on a timely basis with respect to the Year 2000 issues that are
identified, there can be no assurance that Year 2000 issues will not materially
and adversely affect the Company's results of operations or relationships with
third parties. In addition, disruptions in the economy generally resulting from
Year 2000 issues also could materially and adversely affect the Company. The
amount of potential liability and lost revenue that would be reasonably likely
to result from the failure by the Company and certain key third parties to
achieve Year 2000 compliance on a timely basis cannot be reasonably estimated at
this time.
The estimated costs of the Company's Plan, and the dates by which the Company
believes it will have completed each of the phases of the Plan, are based upon
management's best estimates, which rely upon numerous assumptions regarding
future events, including the continued availability of certain resources, third-
party remediation plans, and other factors. These estimates, however, may prove
not to be accurate, and actual results could differ materially from those
anticipated. Factors that could result in material differences include, without
limitation, the availability and cost of personnel with the appropriate training
and experience, the ability to identify, assess, remediate and test all devices,
all relevant computer codes and embedded
15
<PAGE>
technology, and similar uncertainties. In addition, Year 2000-related issues may
lead to possible third-party claims, the impact of which cannot yet be
estimated. No assurance can be given that the aggregate cost of defending and
resolving such claims, if any, would not have a material adverse effect on the
Company.
Euro Conversion
- ---------------
On January 1, 1999, eleven member countries of the European Union began the
transition to the euro as a common currency. Prior to the full implementation
of the new currency on January 1, 2002, there is a transition period during
which parties may use either their national currencies or the euro. The Company
has completed the necessary system modifications to accommodate euro-denominated
transactions with suppliers and customers and is continuing to convert
historical information from the respective national currencies to the euro. The
Company continues to evaluate the impact of the euro conversion on market risk
and price competition. While it is not possible to accurately predict the
impact that the euro will have on the Company's business or on the economy in
general, management currently does not anticipate that the euro conversion will
have a material adverse impact on its results of operations, financial condition
or cash flows.
Adoption of New Accounting Standards
- ------------------------------------
In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS No.
131, "Disclosures about Segments of an Enterprise and Related Information".
This Statement establishes a new method by which companies will report operating
segment information. This method is based on the manner in which management
organizes the segments within a company for making operating decisions and
assessing performance. As required by the Statement, the Company will adopt the
provision of SFAS No. 131 in its fiscal year-end 1999 financial statements and
will report different operating segments.
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures about
Pension and Other Postretirement Benefits". This Statement standardizes the
disclosure requirements, requires additional information on changes in benefit
obligations and fair values of plan assets, and eliminates certain disclosures.
As required by the Statement, the Company will adopt the new disclosure rules in
its fiscal year-end 1999 financial statements.
In April 1998, the American Institute of Certified Public Accountants issued
Statement of Position (SOP) 98-5 "Reporting on the Costs of Start-Up
Activities". The Company is required to adopt the provisions of this Statement
no later than its fiscal year 2000. This SOP provides guidance on the financial
reporting of start-up and organization costs and requires such costs, as
defined, to be expensed as incurred. Adoption of this Statement is not expected
to have a material impact on the Company's results of operations or financial
condition.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities". The Company is required to adopt the
provisions of this Statement no later than its fiscal year 2001. This Statement
requires that all derivatives be recorded in the balance
16
<PAGE>
sheet as either an asset or liability measured at fair value. The Statement
requires that changes in the derivative's fair value be recognized currently in
earnings unless specific hedge accounting criteria are met. The Company is in
the process of evaluating this Statement and has not yet determined the future
impact on the Company's consolidated financial statements.
Forward-Looking Statements
- --------------------------
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,
litigation, Year 2000 issues, and changes in health care or other governmental
regulation, as well as other factors discussed herein and in other of the
Company's filings with the Securities and Exchange Commission.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
-----------------------------------------------------------
There have been no material changes in information reported since the
fiscal year ended September 30, 1998.
17
<PAGE>
PART II - OTHER INFORMATION
---------------------------
Item 1. Legal Proceedings.
-----------------
The Company is 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.
As described more fully in the Company's 1998 annual report on Form 10-
K, the Company, along with a number of other manufacturers, has been
named as a defendant in approximately 280 product liability lawsuits
related to natural rubber latex that have been filed in various state
and Federal courts. Cases pending in Federal court are being coordinated
under the matter In re Latex Gloves Products Liability Litigation (MDL
Docket No. 1148) in Philadelphia, and analogous procedures have been
implemented in the state courts of California, Pennsylvania and New
Jersey. The Company is vigorously defending these lawsuits.
Also as discussed in the Company's 1998 Annual Report on Form 10-K, the
Company has been named as a defendant in eleven product liability
lawsuits relating to health care workers who allegedly sustained
accidental needle sticks, but have not become infected with any disease.
Another manufacturer and several medical product distributors also have
been named as defendants in most of these cases. The cases have been
filed on behalf of an unspecified number of health care workers in
eleven different states, including California and Florida, seeking class
action certification under the laws of these states. To date no class
has been certified in any of these cases. The action filed during the
third quarter of fiscal 1999 is pending in New York state court, under
the caption Benner vs. Becton Dickinson et al. (Case No. 99-111372,
Supreme Court of the State of New York), filed on June 1, 1999.
Generally, these actions allege that health care workers have sustained
needle sticks using hollow-bore needle devices manufactured by the
Company and, as a result, require medical testing, counseling and/or
treatment.
The case filed in California, Chavez, et al. vs. Becton Dickinson, et
al. (Case No. 722978, San Diego County Superior Court), was dismissed in
its entirety on March 19, 1999. Plaintiffs have filed an appeal of the
dismissal. The case filed in Florida, Delgado, et al. vs. Becton
Dickinson, et al. (Case No. 98-5608, Hillsborough County Circuit Court),
was voluntarily dismissed without prejudice by plaintiffs on March 8,
1999.
In the opinion of the Company, the results of the above matters,
individually and in the aggregate, are not expected to have a material
effect on its results of operations, financial condition or cash flows.
18
<PAGE>
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
27 - Financial Data Schedule.
b) Reports on Form 8-K
During the three-month period ended June 30, 1999, the Company filed
four Current Reports on Form 8-K under Item 5 - Other Events:
(i) In a report dated April 21, 1999, the Company announced its
results for the quarter ended March 31, 1999.
(ii) In a report dated April 28, 1999, the Company released financial
schedules for the quarter ended March 31, 1999.
(iii) In a report dated May 26, 1999, the Company announced the
election of Willard J. Overlock, Jr. to the Board of Directors.
The Company also announced that the Board of Directors had named
Edward J. Ludwig as President.
(iv) In a report dated June 14, 1999, the Company announced that its
third quarter and full year results would fall below
expectations. The Company also announced that it would report
voluntary retirement program and other charges during the third
quarter.
19
<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 13, 1999
----------------
/s/ Kenneth R. Weisshaar
---------------------------------
Kenneth R. Weisshaar
Senior Vice President - Finance and Chief Financial Officer
(Principal Financial and Accounting Officer)
20
<PAGE>
EXHIBIT INDEX
-------------
Exhibit
Number Description Method of Filing
- ------------------------------------------------------------------
27 Financial Data Schedule Filed with
this report
21
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's Consolidated Financial Statements and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-END> JUN-30-1999
<CASH> 66,984
<SECURITIES> 5,976
<RECEIVABLES> 737,041
<ALLOWANCES> 0 <F1>
<INVENTORY> 593,987
<CURRENT-ASSETS> 1,592,770
<PP&E> 2,826,866
<DEPRECIATION> 1,472,217
<TOTAL-ASSETS> 4,083,241
<CURRENT-LIABILITIES> 1,259,543
<BONDS> 759,216
<COMMON> 332,662
0
47,744
<OTHER-SE> 1,287,770
<TOTAL-LIABILITY-AND-EQUITY> 4,083,241
<SALES> 2,515,932
<TOTAL-REVENUES> 2,515,932
<CGS> 1,276,293
<TOTAL-COSTS> 1,276,293
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0 <F1>
<INTEREST-EXPENSE> 56,823
<INCOME-PRETAX> 256,499
<INCOME-TAX> 57,103
<INCOME-CONTINUING> 199,396
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 199,396
<EPS-BASIC> 0.79
<EPS-DILUTED> 0.75
<FN>
<F1> THESE ITEMS ARE CONSOLIDATED ONLY AT YEAR-END
</FN>
</TABLE>
