<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 March 31, 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
-------------------------------------------------------------------------
(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 April 30, 1999
--------------------- ---------------------------------------
Common stock, par value $1.00 249,713,700
<PAGE>
PART I - FINANCIAL INFORMATION
------------------------------
Item 1. Financial Statements.
---------------------
Condensed Consolidated Balance Sheets at March 31, 1999 and September
30, 1998
Condensed Consolidated Statements of Income for the three and six
months ended March 31, 1999 and 1998
Condensed Consolidated Statements of Cash Flows for the six months
ended March 31, 1999 and 1998
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>
March 31, September 30,
Assets 1999 1998
- ------ -------- ------------
(Unaudited)
<S> <C> <C>
Current Assets:
Cash and equivalents $ 73,855 $ 83,251
Short-term equivalents 7,941 7,390
Trade receivables, net 754,266 726,558
Inventories (Note 2):
Materials 144,994 122,232
Work in progress 91,472 86,239
Finished products 363,182 328,320
------------ ------------
599,648 536,791
Prepaid expenses, deferred taxes and other 197,860 188,772
------------ ------------
Total Current Assets 1,633,570 1,542,762
Property, plant and equipment 2,785,891 2,727,023
Less allowances for depreciation and amortization 1,459,160 1,424,373
------------ ------------
1,326,731 1,302,650
Goodwill, Net 464,317 412,070
Other Intangibles, Net 412,367 334,275
Other 294,996 254,281
------------ ------------
Total Assets $ 4,131,981 $ 3,846,038
============ ============
Liabilities and Shareholders' Equity
- ------------------------------------
Current Liabilities:
Short-term debt $ 658,396 $ 385,162
Payables and accrued expenses 640,976 706,751
------------ ------------
Total Current Liabilities 1,299,372 1,091,913
Long-Term Debt 760,750 765,176
Long-Term Employee Benefit Obligations 335,380 326,620
Deferred Income Taxes and Other 52,157 48,509
Commitments and Contingencies - -
Shareholders' Equity:
Preferred stock 48,217 48,959
Common stock 332,662 332,662
Capital in excess of par value 22,588 -
Retained earnings 2,473,035 2,350,781
Unearned ESOP compensation (24,817) (24,463)
Deferred compensation 5,646 4,903
Shares in treasury - at cost (1,005,875) (1,015,806)
Accumulated other comprehensive income (167,134) (83,216)
------------ ------------
Total Shareholders' Equity 1,684,322 1,613,820
------------ ------------
Total Liabilities and Shareholders' Equity $ 4,131,981 $ 3,846,038
============ ============
</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 Six Months Ended
March 31, March 31,
--------------------------------- ------------------------------------
1999 1998 1999 1998
---------------- --------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Revenues $ 873,964 $ 738,433 $ 1,642,930 $ 1,440,073
Cost of products sold 429,260 364,080 814,970 718,883
Selling and administrative 233,004 186,017 456,120 385,157
Research and development 67,251 43,796 116,561 88,426
-------------- ------------- -------------- ---------------
Total Operating Costs and Expenses 729,515 593,893 1,387,651 1,192,466
-------------- ------------- -------------- ---------------
Operating Income 144,449 144,540 255,279 247,607
Interest expense, net (18,758) (11,427) (36,629) (21,668)
Other income (expense), net 1,460 (3,064) 2,485 (5,297)
-------------- ------------- -------------- ---------------
Income Before Income Taxes 127,151 130,049 221,135 220,642
Income tax provision 37,037 37,714 54,863 63,986
-------------- ------------- -------------- ---------------
Net Income $ 90,114 $ 92,335 $ 166,272 $ 156,656
============== ============= ============== ===============
Earnings Per Share:
Basic $ .36 $ .37 $ .66 $ .63
============== ============= ============== ===============
Diluted $ .34 $ .35 $ .63 $ .60
============== ============= ============== ===============
Dividends Per Common Share $ .085 $ .0725 $ .17 $ .145
============== ============= ============== ===============
</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>
Six Months Ended
March 31,
-----------------------------------------
1999 1998
------------------ -----------------
<S> <C> <C>
Operating Activities:
Net income $ 166,272 $ 156,656
Adjustments to Net Income to Derive Net Cash
Provided by Operating Activities:
Depreciation and amortization 128,484 108,710
Purchased in-process research and development 16,800 -
Change in working capital (204,207) (40,869)
Other, net 17,708 17,245
------------------ -----------------
Net Cash Provided by Operating Activities 125,057 241,742
------------------ -----------------
Investing Activities:
Capital expenditures (132,855) (89,945)
Acquisitions of businesses, net of cash acquired (153,247) (64,838)
Change in investments, net (18,159) 7,308
Other, net (59,546) (42,693)
------------------ -----------------
Net Cash Used for Investing Activities (363,807) (190,168)
------------------ -----------------
Financing Activities:
Change in short-term debt 371,349 4,648
Proceeds of long-term debt 185 -
Payments of long-term debt (108,395) (759)
Issuance of common stock 15,383 29,079
Repurchase of common stock - (44,476)
Dividends paid (43,163) (37,044)
------------------ -----------------
Net Cash Provided by (Used for) Financing Activities 235,359 (48,552)
------------------ -----------------
Effect of exchange rate changes on cash and equivalents (6,005) (2,550)
------------------ -----------------
Net (decrease) increase in cash and equivalents (9,396) 472
Opening Cash and Equivalents 83,251 112,639
------------------ -----------------
Closing Cash and Equivalents $ 73,855 $ 113,111
================== =================
</TABLE>
See notes to condensed consolidated financial statements
5
<PAGE>
BECTON, DICKINSON AND COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Amounts in Thousands, Except Per-share Data
March 31, 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.
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 Six Months Ended
March 31, March 31,
---------------------- ----------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net income $ 90,114 $ 92,335 $166,272 $156,656
Foreign currency translation
adjustments (72,785) (21,219) (79,667) (37,299)
Unrealized gain (loss) on investments 2,482 - (4,251) -
-------- -------- -------- --------
Total Comprehensive Income $ 19,811 $ 71,116 $ 82,354 $119,357
======== ======== ======== ========
</TABLE>
6
<PAGE>
In accordance with the requirements of this Statement, accumulated other
comprehensive income has been reported as a separate component of shareholders'
equity in the current quarter. Prior year information has been reclassified to
conform to current year presentation. 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 Six Months Ended
March 31, March 31,
---------------------- ----------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net income $ 90,114 $ 92,335 $166,272 $156,656
Preferred stock dividends (785) (809) (1,576) (1,634)
-------- -------- -------- --------
Income available to
common shareholders (A) 89,329 91,526 164,696 155,022
Preferred stock dividends - using
"if converted" method 785 809 1,576 1,634
Additional ESOP contribution -
using "if converted" method (201) (245) (405) (500)
-------- -------- -------- --------
Income available to common
shareholders after assumed conversions (B) $ 89,913 $ 92,090 $165,867 $156,156
======== ======== ======== ========
Average common shares outstanding (C) 249,276 244,952 248,793 244,282
Dilutive stock equivalents from stock plans 10,308 10,298 11,291 9,450
Shares issuable upon conversion of
preferred stock 5,230 5,428 5,230 5,428
-------- -------- -------- --------
Average common and common equivalent
shares outstanding - assuming dilution (D) 264,814 260,678 265,314 259,160
======== ======== ======== ========
Basic earnings per share (A/C) $ .36 $ .37 $ .66 $ .63
======== ======== ======== ========
Diluted earnings per share (B/D) $ .34 $ .35 $ .63 $ .60
======== ======== ======== ========
</TABLE>
7
<PAGE>
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. 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 phase 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 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.
8
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
-----------------------------------------------------------------------
of Operations
-------------
Results of Operations
- ---------------------
Second Quarter 1999 vs. Second Quarter 1998
- -------------------------------------------
Second quarter revenues of $874 million exceeded prior year revenues by 18%.
Recent acquisitions contributed to this growth. Revenue growth for the quarter
was also favorably affected by the weakening of the dollar versus the prior
year, which increased revenues by an estimated $12 million.
Medical Supplies and Devices segment ("Medical") revenues of $484 million
increased 26%. Excluding the estimated favorable impact of foreign currency
translation, Medical revenues would have increased approximately 25%. These
revenues reflected strong growth from the Company's infusion therapy business,
which included $45 million from the April 1998 acquisition of the medical device
business ("MDD") of the BOC Group. This segment's performance also reflects
significant growth in diabetes health care revenues primarily due to unusually
low revenues in the prior year's second quarter following a January 1998 price
increase.
Diagnostic Systems segment ("Diagnostic") revenues of $390 million increased
10%, or 8% after excluding the estimated favorable impact of foreign currency
translation. Included in this segment's results were strong performances from
the flow cytometry, sample collection and tissue culture businesses.
Domestic Medical revenues of $226 million increased 14%. International Medical
revenues of $257 million increased 40%, or 36% after excluding the estimated
favorable impact of foreign currency translation. Recent acquisitions
contributed to both the domestic and international revenue growth for this
segment.
Domestic Diagnostic revenues of $212 million increased 4%. The growth rate
of the infectious diagnostic disease business was adversely affected by cost
containment in testing in the United States. International Diagnostic revenues
of $179 million increased 18%, which included strong performances by the sample
collection, flow cytometry, and infectious disease diagnostic businesses.
International Diagnostic revenues would have increased 14% after excluding the
estimated favorable impact of foreign currency translation.
The gross profit margin increased to 50.9% compared with last year's second
quarter rate of 50.7%, reflecting a more profitable mix of products sold as well
as continuing productivity improvements. Selling and administrative expense of
$233 million was 26.7% of revenues. This ratio is higher than last year's
second quarter ratio of 25.2% and reflects expenses related to recent
acquisitions and reengineering charges associated with the enterprise-wide
business systems upgrade program. Investment of $67 million in research and
development increased 54% over last year's second quarter expenditures of $44
million. The current quarter's expenditures included a $15 million charge for
purchased in-process research and development
9
<PAGE>
associated with an acquisition completed this quarter. Excluding this one-time
charge, investment in research and development increased 19% over last year's
second quarter.
Operating income was $144 million compared with last year's second quarter
amount of $145 million. Operating margin was 16.5% compared to last year's
second quarter operating margin of 19.6%, reflecting the increase in operating
expenses discussed earlier.
Net interest expense of $19 million was $7 million higher than last year
primarily due to additional borrowings to fund recent acquisitions. Other
income, net was $1 million compared with other expense, net of $3 million in the
prior year's quarter, primarily due to lower foreign exchange losses in the
current quarter.
The second quarter income tax rate was 29%, about the same as a year ago,
despite the lack of tax benefit associated with the $15 million charge for
purchased in-process research and development discussed above.
Net income was $90 million compared with $92 million a year ago. Diluted
earnings per share were $.34, including a $.06 per share charge for the
purchased in-process research and development discussed earlier. Excluding this
charge, earnings per share were $.40, an increase of 14% over last year's $.35.
Six Months 1999 vs. Six Months 1998
- -----------------------------------
Revenues of $1.643 billion were 14% higher than last year's revenues of $1.440
billion. Medical revenues of $909 million increased 20%. Diagnostic revenues
of $734 million increased 7%. Domestic revenues of $817 million increased 3%,
and international revenues of $826 million increased 27%. 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 six-month period.
The gross profit margin of 50.4% was slightly higher than last year's rate of
50.1%. Selling and administrative expense was 27.8% of revenues, higher than
last year's rate of 26.7%. The reasons for these changes are consistent with
those previously discussed in the Second Quarter Results of Operations.
Research and development spending of $117 million, which included $17 million of
charges for purchased in-process research and development associated with
current year acquisitions, was 32% higher than last year. As a percentage of
revenues, research and development expense was 7.1%, or the same as last year's
rate of 6.1% after excluding the one-time in-process charges in the current
year.
Operating income of $255 million increased $8 million over the same period last
year. As a percent of revenues, operating income was 15.5% as a result of the
increased operating expenses discussed earlier, compared with last year's rate
of 17.2%.
Net interest expense of $37 million was $15 million higher than last year.
Other income, net was $2 million compared with last year's other expense, net of
$5 million. The reasons for these
10
<PAGE>
changes are consistent with those previously discussed in the Second Quarter
Results of Operations.
The income tax rate was 25% compared with 29% a year ago. The income tax rate
for the first six months of 1999 was affected by a favorable $7 million tax
judgment in Brazil in the first quarter, partially offset by the lack of a tax
benefit on purchased in-process research and development discussed earlier. The
Company expects its full year reported tax rate to be about 25%, reflecting the
aforementioned items as well as a more favorable forecasted mix in income among
tax jurisdictions.
Net income was $166 million, compared with $157 million last year, an increase
of 6%. Diluted earnings per share of $.63 increased 5% over last year's $.60.
Financial Condition
- -------------------
During the first six months of 1999, cash provided by operations was $125
million compared to $242 million during the first six months of last year. Net
cash used by changes in working capital increased, reflecting higher inventory
levels in anticipation of future sales and higher trade receivable balances
primarily due to geographic expansion. Capital expenditures during the first
six months were $133 million compared with $90 million during the first six
months of last year. For the full year, the Company expects capital
expenditures to be about $225 million.
During the first quarter of 1999, the Company completed the acquisitions of two
businesses for an aggregate purchase price of $42 million, net of cash acquired,
subject to certain post-closing adjustments. During the second quarter, the
Company completed the acquisitions of three businesses for an aggregate purchase
price of $111 million, net of cash acquired, subject to certain post-closing
adjustments.
As of March 31, 1999, total debt of $1.4 billion represented 45.4% of total
capital (shareholders' equity, net non-current deferred income tax liabilities,
and debt), an increase from 34.6% a year ago primarily due to additional
borrowings to fund acquisitions. Because of its strong credit rating, the
Company believes it has the capacity to arrange significant additional
borrowings should the need arise.
In April 1999, the Company offered an enhanced retirement incentive to certain
salaried employees at selected sites. This Voluntary Retirement Program has
been offered to 175 employees meeting certain age and years of service
requirements. Eligible employees are entitled to enhanced pension and
retirement benefits as well as separation pay, and are required to respond by
May 25, 1999. The Company will record the related expenses during the third
quarter upon acceptance by the participants.
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.
11
<PAGE>
On April 27, 1999, the Company signed an agreement to acquire Clontech
Laboratories, Inc., a California-based company specializing in the areas of
gene-based drug discovery and molecular biology research. The stock-for-stock
exchange, valued at approximately $200 million, is expected to be completed by
the end of the third quarter, following receipt of required consents and
approvals. The combination is intended to be accounted for under the pooling of
interests method.
Year 2000 Readiness Disclosure
- ------------------------------
As described more fully in its 1998 annual report on Form 10-K, the Company has
developed and is well into implementing 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
table set forth below summarizes, by focus area, the status and projected dates
of completion as of May 1, 1999 for each of the related tasks:
<TABLE>
<CAPTION>
Estimated % of Completion/Projected Date of Completion
===================================================================================================
3rd Party
Focus Area IT Systems Non-IT Systems Considerations Products
===================================================================================================
<S> <C> <C> <C> <C>
Identification and 100%/ 100%/ 100%/ 100%/
Assessment of Completed Completed Completed Completed
Year 2000 Issues
- ---------------------------------------------------------------------------------------------------
Prioritization of 100%/ 100%/ 100%/ 100%/
Identified Issues Completed Completed Completed Completed
- ---------------------------------------------------------------------------------------------------
Assessment of 100%/ 100%/ 100%/ 100%/
Compliance Completed Completed Completed Completed
- ---------------------------------------------------------------------------------------------------
Remediation 85%/ 85%/ 50% / 80%/
September 1999 June 1999 September 1999 June 1999
- ---------------------------------------------------------------------------------------------------
Testing 70%/ 65%/ 25% / 80%/
September 1999 June 1999 September 1999 July 1999
- ---------------------------------------------------------------------------------------------------
Contingency and 50% / 50% / 50% / 85%/
Business September 1999 June 1999 September 1999 May 1999
Continuation Plans
- ---------------------------------------------------------------------------------------------------
</TABLE>
The total cost of the Company's Year 2000 Plan is not expected to be material to
the Company's financial condition. The estimated total cost of the Plan is
approximately $16 million, and is being funded through operating cash flows. As
of March 31, 1999, the Company had incurred to date approximately $7 million in
costs related to its Year 2000 identification, assessment,
12
<PAGE>
remediation, and testing efforts. The Company currently anticipates that the
remaining costs of the Plan include approximately $3 million attributable to the
purchase of new software and hardware and approximately $2 million attributable
to contingency and business continuation plans. The remaining $4 million relates
to internal product remediation upgrading and deployment as well as repair,
reprogramming or modification of hardware and software. Of the total remaining
costs of the Plan, $3 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 presently 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 does not properly identify Year 2000 issues or the
compliance assessment, remediation and testing is 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
internal systems and facilities remediation is nearly complete. Emphasis has
now 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 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 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.
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 currently is evaluating 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
13
<PAGE>
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
may 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 2000. This Statement
requires that all derivatives be recorded in the balance 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
14
<PAGE>
product introductions, 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.
15
<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 245 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 ten 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 ten
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. No additional actions were filed
during the second quarter of fiscal 1999.
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.
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.
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.
16
<PAGE>
Item 2. Changes in Securities and Use of Proceeds.
------------------------------------------
Pursuant to the terms of the Agreement and Plan of Merger dated January
9, 1998 (the "Merger Agreement") entered into by the Company in
connection with its acquisition of Tru-Fit Marketing Corporation, a
Massachusetts corporation ("Tru-Fit"), in this quarter the former
shareholders of Tru-Fit received an additional 74,440 shares of the
Company's common stock, par value $1.00 per share ("Common Stock").
The Common Stock issued to the former shareholders of Tru-Fit was
offered and sold pursuant to the exemption from registration provided
by Section 4(2) of the Securities Act of 1933, as amended (the
"Securities Act"), for transactions not involving a public offering of
securities. In connection with the offer and sale, the Company relied
upon the fact that the offering was made to only two offerees (the
former shareholders of Tru-Fit) and did not involve any general
advertising or solicitation, the offerees were sophisticated investors,
the size of the offering was small in relation to the Company's market
capitalization, and the Company had taken reasonable steps to prevent
resale of the Common Stock by the former shareholders of Tru-Fit in
violation of the Securities Act.
Item 3. Defaults Upon Senior Securities.
--------------------------------
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
----------------------------------------------------
a.) The Annual Meeting of Shareholders of the Company was held on
February 9, 1999.
c.) i.) A management proposal for the election of five directors for
the terms indicated below was voted upon as follows:
Nominee Term Votes For Votes Withheld
----------------------- ---------- -------------- ---------------
Raymond S. Troubh 1 Year 220,100,984 1,544,120
Albert J. Costello 3 Years 216,203,916 5,441,188
James E. Perrella 3 Years 220,401,667 1,243,437
Gloria Shatto 3 Years 220,416,372 1,228,732
Alfred Sommer 3 Years 220,383,792 1,261,312
ii.) A management proposal to approve the selection of Ernst &
Young, LLP as independent auditors for the fiscal year 1999
was voted upon. 219,928,088 shares were voted for the
proposal, 414,144 shares were voted against and 1,302,872
shares abstained.
17
<PAGE>
iii.) A shareholder proposal requesting the Board of Directors take
the necessary steps to provide for cumulative voting in the
election of directors was voted upon. 60,472,334 shares were
voted for the proposal, 104,902,653 shares were voted against
and 31,955,907 shares abstained.
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 March 31, 1999, the Company
filed one Current Report on Form 8-K under Item 5 - Other Events
concerning the announcement of its results for the quarter ended
December 31, 1998. This report was dated January 22, 1999.
18
<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 May 13, 1999
-------------
/s/ Kenneth R. Weisshaar
---------------------------------
Kenneth R. Weisshaar
Senior Vice President - Finance and Chief Financial Officer
(Principal Financial and Accounting Officer)
19
<PAGE>
EXHIBIT INDEX
-------------
Exhibit
Number Description Method of Filing
- ------- ----------- --------------------
27 Financial Data Schedule Filed with
this report
20
<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> 6-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-END> MAR-31-1999
<CASH> 73,855
<SECURITIES> 7,941
<RECEIVABLES> 754,266
<ALLOWANCES> 0<F1>
<INVENTORY> 599,648
<CURRENT-ASSETS> 1,633,570
<PP&E> 2,785,891
<DEPRECIATION> 1,459,160
<TOTAL-ASSETS> 4,131,981
<CURRENT-LIABILITIES> 1,299,372
<BONDS> 760,750
0
48,217
<COMMON> 332,662
<OTHER-SE> 1,303,443
<TOTAL-LIABILITY-AND-EQUITY> 4,131,981
<SALES> 1,642,930
<TOTAL-REVENUES> 1,642,930
<CGS> 814,970
<TOTAL-COSTS> 814,970
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0<F1>
<INTEREST-EXPENSE> 38,464
<INCOME-PRETAX> 221,135
<INCOME-TAX> 54,863
<INCOME-CONTINUING> 166,272
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 166,272
<EPS-PRIMARY> 0.66
<EPS-DILUTED> 0.63
<FN>
<F1>THESE ITEMS ARE CONSOLIDATED ONLY AT YEAR-END
</FN>
</TABLE>
