<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, 2000
------------------------------------------------
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
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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, 2000
--------------------- --------------------------------------
Common stock, par value $1.00 253,223,142
<PAGE>
BECTON, DICKINSON AND COMPANY
FORM 10-Q
For the quarterly period ended June 30, 2000
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Part I. FINANCIAL INFORMATION Page Number
------- --------------------- -----------
<S> <C> <C>
Item 1. Financial Statements
Condensed Consolidated Balance Sheets.......................................... 3
Condensed Consolidated Statements of Income.................................... 4
Condensed Consolidated Statements of Cash Flows................................ 5
Notes to Condensed Consolidated Financial Statements........................... 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations....................................................................... 10
Item 3. Quantitative and Qualitative Disclosures About Market Risk ...................... 13
Part II. OTHER INFORMATION
-------- -----------------
Item 1. Legal Proceedings............................................................... 14
Item 2. Changes in Securities and Use of Proceeds....................................... 14
Item 3. Defaults Upon Senior Securities................................................. 14
Item 4. Submission of Matters to a Vote of Security Holders............................. 15
Item 5. Other Information............................................................... 15
Item 6. Exhibits and Reports on Form 8-K................................................ 15
Signature ................................................................................ 16
Exhibits ................................................................................ 17
</TABLE>
2
<PAGE>
ITEM 1. FINANCIAL STATEMENTS
BECTON, DICKINSON AND COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
Thousands of Dollars
<TABLE>
<CAPTION>
June 30, September 30,
Assets 2000 1999
------ ---------- ------------
(Unaudited)
<S> <C> <C>
Current Assets:
Cash and equivalents $ 76,940 $ 59,932
Short-term investments 6,225 4,660
Trade receivables, net 753,227 812,544
Inventories:
Materials 170,064 160,332
Work in process 112,441 94,627
Finished products 424,060 387,574
---------- ----------
706,565 642,533
Prepaid expenses, deferred taxes and other 165,069 164,056
---------- ----------
Total Current Assets 1,708,026 1,683,725
Property, plant and equipment 3,124,479 2,932,804
Less allowances for depreciation and amortization 1,585,595 1,501,655
---------- ----------
1,538,884 1,431,149
Goodwill, Net 491,881 526,942
Core and Developed Technology, Net 313,611 329,460
Other Intangibles, Net 174,026 178,285
Other 334,379 287,397
---------- ----------
Total Assets $4,560,807 $4,436,958
========== ==========
Liabilities and Shareholders' Equity
------------------------------------
Current Liabilities:
Short-term debt $ 701,242 $ 631,254
Payables and accrued expenses 739,176 698,068
---------- ----------
Total Current Liabilities 1,440,418 1,329,322
Long-Term Debt 787,780 954,169
Long-Term Employee Benefit Obligations 330,189 344,068
Deferred Income Taxes and Other 47,055 40,711
Commitments and Contingencies - -
Shareholders' Equity:
Preferred stock 44,394 46,717
Common stock 332,662 332,662
Capital in excess of par value 72,998 44,626
Retained earnings 2,775,887 2,539,020
Unearned ESOP compensation (21,177) (20,310)
Deferred compensation 6,559 5,949
Shares in treasury - at cost (982,700) (997,333)
Accumulated other comprehensive income (273,258) (182,643)
---------- ----------
Total Shareholders' Equity 1,955,365 1,768,688
---------- ----------
Total Liabilities and Shareholders' Equity $4,560,807 $4,436,958
========== ==========
</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,
----------------------------- ---------------------------------
2000 1999 2000 1999
---------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
Revenues $ 914,140 $ 873,002 $ 2,698,436 $ 2,515,932
Cost of products sold 453,838 461,323 1,377,776 1,276,293
Selling and administrative 248,773 231,924 726,674 688,044
Research and development 60,202 50,694 171,120 167,255
Special charges - 75,553 - 75,553
--------- ----------- ---------- -----------
Total Operating Costs and Expenses 762,813 819,494 2,275,570 2,207,145
--------- ----------- ---------- -----------
Operating Income 151,327 53,508 422,866 308,787
Interest expense, net (17,564) (16,877) (60,320) (53,506)
Gains on sales of investments, net 31,766 - 64,925 -
Other (expense) income, net (4,021) (1,267) 893 1,218
--------- ----------- ---------- -----------
Income Before Income Taxes 161,508 35,364 428,364 256,499
Income tax provision 47,090 2,240 119,481 57,103
--------- ----------- ---------- -----------
Net Income $ 114,418 $ 33,124 $ 308,883 $ 199,396
========= =========== ========== ===========
Earnings Per Share:
Basic $ .45 $ .13 $ 1.22 $ .79
========= =========== ========== ===========
Diluted $ .43 $ .12 $ 1.17 $ .75
========= =========== ========== ===========
Dividends Per Common Share $ .0925 $ .085 $ .2775 $ .255
========= =========== ========== ===========
</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,
------------------------
2000 1999
--------- ---------
<S> <C> <C>
Operating Activities
---------------------
Net income $ 308,883 $ 199,396
Adjustments to net income to derive net cash
provided by operating activities:
Depreciation and amortization 214,755 191,250
Gains on sales of investments, net (64,925) -
Non-cash special charges - 54,326
In-process research and development
from business combinations - 16,800
Change in working capital (17,034) (185,815)
Other, net (2,550) 30,277
--------- ---------
Net Cash Provided by Operating Activities 439,129 306,234
--------- ---------
Investing Activities
---------------------
Capital expenditures (271,296) (212,098)
Acquisitions of businesses, net of cash acquired (21,047) (153,247)
Sales (purchases) of investments, net 81,349 (19,762)
Capitalized software (41,698) (47,661)
Other, net (33,130) (39,018)
--------- ---------
Net Cash Used for Investing Activities (285,822) (471,786)
--------- ---------
Financing Activities
---------------------
Change in short-term debt (34,387) 306,302
Proceeds of long-term debt 979 185
Payments of long-term debt (60,600) (109,610)
Issuance of common stock from treasury 31,836 25,149
Dividends paid (72,093) (66,029)
--------- ---------
Net Cash (Used for) Provided by Financing Activities (134,265) 155,997
--------- ---------
Effect of exchange rate changes on cash and equivalents (2,034) (6,712)
--------- ---------
Net increase (decrease) in cash and equivalents 17,008 (16,267)
Opening Cash and Equivalents 59,932 83,251
--------- ---------
Closing Cash and Equivalents $ 76,940 $ 66,984
========= =========
</TABLE>
See notes to condensed consolidated financial statements
5
<PAGE>
BECTON, DICKINSON AND COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Dollar and Share Amounts in Thousands, Except Per-share Data
June 30, 2000
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 1999 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 will 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
-----------------------------
Comprehensive income for the Company is comprised of the following:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
----------------------------------- ---------------------------------------
2000 1999 2000 1999
--------------- --------------- ----------------- ----------------
<S> <C> <C> <C> <C>
Net income $ 114,418 $ 33,124 $ 308,883 $ 199,396
Other Comprehensive Income,
Net of Tax
Foreign currency translation
adjustments (24,181) (44,039) (101,899) (123,706)
Unrealized (loss) gain on
investments, net of
amounts realized (281) 65 11,284 (4,186)
-------------- -------------- ---------------- ---------------
Comprehensive Income $ 89,956 $ (10,850) $ 218,268 $ 71,504
=============== =============== ================ ===============
</TABLE>
6
<PAGE>
During the second quarter of fiscal 2000, the Company sold an investment for a
net gain of approximately $33,000 before taxes. The amount of unrealized gains
or losses on investments in comprehensive income has been adjusted to reflect
the realized gains included in net income for investments sold during the year.
See Note 10 for discussion of investments sold during the current year.
Note 4 - Earnings per Share
---------------------------
The following table sets forth the computations of basic and diluted earnings
per share:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
----------------------------------- -----------------------------------
2000 1999 2000 1999
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Net income $ 114,418 $ 33,124 $ 308,883 $ 199,396
Preferred stock dividends (725) (780) (2,203) (2,355)
--------------- --------------- --------------- ---------------
Income available to
common shareholders (A) 113,693 32,344 306,680 197,041
Preferred stock dividends - using
"if converted" method 725 780 2,203 2,355
Additional ESOP contribution -
using "if converted" method (165) (201) (512) (610)
--------------- --------------- --------------- ---------------
Income available to common
shareholders after assumed
conversions (B) $ 114,253 $ 32,923 $ 308,371 $ 198,786
=============== =============== =============== ===============
Average common shares
outstanding (C) 252,904 250,075 252,093 249,213
Dilutive stock equivalents from
stock plans 5,939 9,818 6,283 10,943
Shares issuable upon conversion
of preferred stock 4,816 5,179 4,816 5,179
--------------- --------------- --------------- ---------------
Average common and common
equivalent shares outstanding -
assuming dilution (D) 263,659 265,072 263,192 265,335
=============== =============== =============== ===============
Basic earnings per share (A/C) $ .45 $ .13 $ 1.22 $ .79
=============== =============== =============== ===============
Diluted earnings per share (B/D) $ .43 $ .12 $ 1.17 $ .75
=============== =============== =============== ===============
</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. 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.
7
<PAGE>
Note 6 - Segment Data
---------------------
The Company's organizational structure is based upon its three principal
business segments: BD Medical Systems, BD Biosciences, and BD Preanalytical
Solutions. The Company evaluates performance based upon operating income.
Segment operating income represents revenues reduced by product costs and
operating expenses.
Financial information for the Company's segments is as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
-------------------------------------- ---------------------------------------
2000 1999 2000 1999
----------------- ----------------- ----------------- ------------------
<S> <C> <C> <C> <C>
Revenues
--------
Medical Systems $ 512,182 $ 495,135 $ 1,464,117 $ 1,404,078
Biosciences 269,340 245,262 830,073 730,866
Preanalytical Solutions 132,618 132,605 404,246 380,988
----------------- ----------------- ----------------- -----------------
Total Revenues (A) $ 914,140 $ 873,002 $ 2,698,436 $ 2,515,932
================= ================= ================= =================
Segment Operating Income
------------------------
Medical Systems $ 116,174 $ 30,508 $ 306,362 $ 211,839
Biosciences 26,118 21,395 98,192 79,342
Preanalytical Solutions 32,074 30,923 94,061 91,143
----------------- ----------------- ----------------- -----------------
Total Segment Operating
Income 174,366 82,826 498,615 382,324
Unallocated Items (B) (12,858) (47,462) (70,251) (125,825)
----------------- ----------------- ---------------- ----------------
Income Before
Income Taxes $ 161,508 $ 35,364 $ 428,364 $ 256,499
================= ================= ================ ================
</TABLE>
(A) Intersegment revenues are not material.
(B) Includes interest, net, foreign exchange, corporate expenses, and gains on
sales of investments.
Note 7 - Special Charges
------------------------
The Company recorded special charges in fiscal 1999 and 1998 associated with two
restructuring programs, primarily designed to improve the Company's cost
structure, refocus certain businesses, and write down impaired assets. A
summary of the special charge accrual activity during the first nine months of
fiscal 2000 follows:
<TABLE>
<CAPTION>
Severance Restructuring Other
-------------------- ------------------- ------------------
<S> <C> <C> <C>
Accrual Balances at
September 30, 1999 $ 13,100 $ 9,250 $ 6,100
Payments (4,200) (5,900) (3,500)
-------------------- ------------------- ------------------
Accrual Balances at
June 30, 2000 $ 8,900 $ 3,350 $ 2,600
==================== =================== ==================
</TABLE>
8
<PAGE>
The 1998 restructuring plan included charges associated with the restructuring
of certain manufacturing operations. As of June 30, 2000, a total of
approximately 100 positions have been eliminated, and the Company expects that
an additional 150 people will be affected by this plan, upon the closure of a
U.S. surgical blade plant scheduled for the first half of fiscal year 2002. The
remaining 1998 restructuring accruals related to this closure consist primarily
of severance.
Note 8 - Acquisition Reserves
-----------------------------
During fiscal year 1997, the Company acquired Difco Laboratories Incorporated
("Difco"). The assumed liabilities for the Difco acquisition included
approximately $17,500 for severance and other exit costs associated with the
closing of certain Difco facilities. As of June 30, 2000, approximately $2,000
of these reserves remained. The Company does not expect any significant reserve
balance to remain at year-end.
Note 9 - Product Recall
-----------------------
On February 23, 2000, the Company announced that it was voluntarily recalling
certain manufacturing lots of the BD Insyte(R) AutoGuard(TM) shielded IV
catheter after receiving reports of localized skin irritation following product
use. Accordingly, the Company recorded recall costs of approximately $13,000 in
the second quarter, which consisted primarily of costs associated with product
returns, disposal of the affected product, and other direct recall costs. These
recall costs were reported in cost of products sold. The Company has since
adjusted its Insyte AutoGuard manufacturing process to address the situation,
and shipments of this product resumed at the beginning of the third quarter.
Note 10 - Gains on Sales of Investments, Net
--------------------------------------------
During the first nine months of fiscal 2000, the Company recorded approximately
$65,000 of net gains on sales of investments, which primarily consisted of two
significant transactions.
During the second quarter, the Company sold an investment for a net gain of
approximately $33,000 before taxes. The proceeds from these sales were
approximately $38,000. The cost of this investment was determined based upon
the specific identification method.
During the third quarter, the Company received 480,000 shares of common stock in
a publicly traded company (parent) in exchange for its shares in a majority-
owned subsidiary of the parent company. The total value of the stock received
by the Company was approximately $51,000. Based upon the fair value of the
parent common stock at the date of the exchange and the cost basis of subsidiary
stock, the Company recorded a gain upon the exchange of the shares. The Company
also entered into forward sale contracts to hedge the proceeds from the
anticipated sale of the parent common stock. During the third quarter, the
Company sold the parent common stock and settled the forward sale contracts. As
a result of these transactions, the Company recorded a net gain of approximately
$29,000 before taxes.
9
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
-----------------------------------------------------------------------
of Operations
-------------
Results of Operations
---------------------
Third quarter revenues exceeded prior year revenues by 5%. Revenues for the
nine months increased $183 million or 7% from last year. Recent acquisitions
and sales of safety-engineered products contributed to revenue growth for the
quarter and nine months. Revenue growth was unfavorably affected by the
strengthened dollar against the Euro as compared to the prior year. The impact
of foreign currency translation reduced revenues by an estimated $24 million and
$53 million for the three and nine month periods, respectively. International
revenues grew approximately 2% for the quarter, or 8% after excluding the
unfavorable impact of foreign currency translation.
<TABLE>
<CAPTION>
Three Months Ended June 30, Nine Months Ended June 30,
Segment Revenues -------------------------------------------------------------------------------------
(Dollars in millions) 2000 1999 % Change 2000 1999 % Change
==============================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Medical Systems
---------------
United States $ 249 $ 238 5 $ 688 $ 657 5
International 263 257 2 776 747 4
--------------------------------------------------------------------------------------------------------------
Total $ 512 $ 495 3 $ 1,464 $ 1,404 4
==============================================================================================================
Biosciences
-----------
United States $ 159 $ 136 17 $ 481 $ 402 20
International 110 109 1 349 329 6
--------------------------------------------------------------------------------------------------------------
Total $ 269 $ 245 10 $ 830 $ 731 14
==============================================================================================================
Preanalytical Solutions
-----------------------
United States $ 73 $ 76 (4) $ 220 $ 208 6
International 60 57 5 184 173 6
--------------------------------------------------------------------------------------------------------------
Total $ 133 $ 133 - $ 404 $ 381 6
==============================================================================================================
Total Revenues
--------------
United States $ 481 $ 450 7 $ 1,389 $ 1,267 10
International 433 423 2 1,309 1,249 5
--------------------------------------------------------------------------------------------------------------
Total $ 914 $ 873 5 $ 2,698 $ 2,516 7
==============================================================================================================
</TABLE>
BD Medical Systems ("Medical") revenues increased 3% for the quarter, or 7%
after excluding the estimated unfavorable impact of foreign currency
translation. The Medical segment results reflected favorable sales growth from
safety-engineered products. BD Biosciences ("Biosciences") revenues, which
increased 10% for the quarter, or 12% after excluding the estimated unfavorable
impact of foreign currency translation, reflected strong growth in flow
cytometry and tissue culture products. While the number of placements is on
plan for our new BDProbeTec ET system, which permits laboratories to perform
advanced clinical molecular diagnostics, the selling cycle has been longer than
expected resulting in lower than expected product revenues. Recent
acquisitions, primarily in the United States, also added about $18 million to
Biosciences revenues and about $6 million to Medical revenues for quarter. BD
Preanalytical ("Preanalytical") revenues, which were about the same as a last
year, increased 3% for the quarter after excluding the estimated unfavorable
impact of foreign currency translation. Preanalytical segment revenues were
adversely affected by a shift in the inventory levels of a key U.S. distributor
10
<PAGE>
in the third quarter. End-user demand for Preanalytical products remains
strong, led by sales of safety-engineered devices.
The prior year's third quarter segment operating income was affected by the
special and other charges, which are more fully discussed below. Excluding
these charges in the prior year's quarter, Medical segment operating income was
unchanged. We are experiencing slightly lower gross profit margins on our newer
safety-engineered devices until production scale is achieved and costs are
reduced. Biosciences segment operating income for the quarter decreased 7%,
excluding last year's charges, primarily due to a $5 million in-process research
and development charge discussed below. Amortization associated with 1999
acquisitions for this segment also affected the growth rate. Excluding the
special charges in the prior year's quarter, Preanalytical segment operating
income decreased 9% primarily due to the unfavorable impact of foreign currency
translation. (See Note 6 in "Notes to Condensed Consolidated Financial
Statements" for additional segment income information.)
In the second quarter, we recorded recall costs of approximately $13 million, as
more fully described in Note 9 in "Notes to Condensed Consolidated Financial
Statements." These recall costs were reported in cost of products sold. We
believe third quarter revenues were unaffected by this recall as we made
adjustments to the product's manufacturing process and shipments of this product
resumed at the beginning of the third quarter.
Reported gross profit margin was 50.4% for the quarter and 48.9% for the nine
months ended June 30, 2000. Excluding the product recall costs recorded in the
second quarter, gross profit margin would have been 49.4% for the nine months.
The prior year's gross profit margin would have been 50.2% and 50.3% for the
quarter and nine months, respectively, after excluding the effect of the charges
associated with exited product lines discussed below. The decline in gross
profit margin for the nine months reflects a less profitable mix of products
sold and higher costs associated with the scale up of production of safety-
engineered products.
Selling and administrative expense was 27.2% of revenues for the quarter and
26.9% for the nine months compared with the prior year's ratios of 26.6% and
27.3%, respectively. The increase in this ratio in the current quarter reflects
slightly lower than expected revenues. The overall improvement in the ratio for
the nine months reflects savings achieved through spending controls and
productivity improvements.
Investment in research and development was 6.6% of revenues for the current
quarter, compared with 5.8% a year ago. The current quarter's expenditures
included a $5 million charge for purchased in-process research and development
in connection with an agreement with a third party. This charge represented the
fair value of certain acquired research and development projects in the area of
cancer diagnostics which were determined not to have reached technological
feasibility and which do not have alternative future uses. Research and
development expense in the first nine months of 1999 also included in-process
research and development charges of $17 million in connection with the
acquisition of two businesses. Excluding these charges in both years, research
and development would have been 6.2% and 6.0 % of revenues for the first nine
months of fiscal 2000 and 1999, respectively.
During the third quarter of fiscal year 1999, we 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 our 1999 Annual Report on Form 10-K. We also
11
<PAGE>
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 related to the exited product lines.
Operating margin was 16.6% and 15.7% for the quarter and nine months,
respectively. Excluding in-process research and development in the current
quarter and special and other charges in the prior year's quarter, third quarter
operating margins would have been 17.1% and 17.9% in 2000 and 1999,
respectively. Excluding the aforementioned charges as well as product recall
charges in the current year and in-process research and development charges in
the prior year, operating margins would have been 16.3% and 17.0% for the first
nine months of fiscal 2000 and 1999, respectively. This decline primarily
reflects the decrease in gross profit margin discussed earlier.
We recorded net gains on the sales of investments of $32 million and $65 million
for the three and nine month periods, respectively, as is described more fully
in Note 10 in the "Notes to Condensed Consolidated Financial Statements."
Net interest expense was $7 million higher for the nine months compared with the
prior year, due to additional borrowings to fund an acquisition completed in the
fourth quarter of fiscal 1999. Other expense, net was $3 million higher for the
quarter compared with the prior year, primarily due to the write-down in the
current quarter of an asset held for sale.
The income tax rate was 29.2% for the quarter and 27.9% for the nine months and
reflected the higher rate on the gains on sales of investments. Excluding the
investment gains, the in-process research and development charge, and the asset
write-down in the current quarter as well as the special and other charges in
the prior year, the third quarter rate would have been 26% for both years.
Net income for the current quarter was $114 million and diluted earnings per
share were $.43. Excluding the one-time items in both years discussed above,
third quarter earnings per share would have been $.40 and $.38 in 2000 and 1999,
respectively. The unfavorable effect of foreign currency translation reduced
third quarter earnings per share by an estimated $.03.
Financial Condition
-------------------
During the first nine months of 2000, cash provided by operating activities was
$439 million compared with $306 million during the first nine months of last
year. This increase reflects lower trade receivable balances compared with the
prior year's third quarter. Capital expenditures during the first nine months
were $271 million compared with last year's amount of $212 million. We expect
capital spending for fiscal 2000 to be about $400 million, reflecting increased
investment in additional manufacturing capacity for safety-engineered products.
Trade receivables of $753 million decreased $59 million from fiscal year-end
levels primarily from increased collection activity. Inventory levels increased
$64 million since fiscal year-end reflecting the building of inventory needed
for the acceleration of revenues in the fourth quarter consistent with
historical trends.
As of June 30, 2000, total debt of $1.5 billion represented 43.1% of total
capital (shareholders' equity, net non-current deferred income tax liabilities,
and debt), down from 44.4% a year ago. As our long-term debt rating is A2 by
Moody's and A+ by Standard & Poor's,
12
<PAGE>
we believe we have the capacity to arrange additional borrowings as would be
needed in the ordinary course of business.
Adoption of New Accounting Standards
------------------------------------
In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities". This Statement requires that all
derivatives be recorded in the balance sheet as either an asset or liability
measured at fair value and that changes in fair value be recognized currently in
earnings unless specific hedge accounting criteria are met. In June 1999, the
FASB issued SFAS No. 137, which deferred the effective date of SFAS No. 133. As
a result, we will be adopting the provisions of this Statement in our first
quarter of fiscal 2001. We have determined that the adoption of this Statement
will not have a material effect on our earnings and financial position based on
the derivatives owned by us at June 30, 2000.
In December 1999, the Securities and Exchange Commission ("SEC") issued Staff
Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial
Statements". This SAB provides the SEC's views in applying generally accepted
accounting principles to selected revenue recognition issues. We are required
to adopt the provisions of this SAB no later than our fourth quarter of fiscal
2001. The SEC is expected to issue additional guidance on this SAB during
August 2000 and we will evaluate the future impact on our consolidated financial
statements at that time.
Forward-Looking Statements
--------------------------
This interim report on Form 10-Q may contain certain forward looking statements
(as defined under Federal securities laws) regarding the performance for Becton,
Dickinson and Company ("BD"), including future revenues, products and income,
which are based upon current expectations of BD 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, and changes in health care or other governmental regulation, as well
as other factors discussed herein and in BD's other 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, 1999.
13
<PAGE>
PART II - OTHER INFORMATION
---------------------------
Item 1. Legal Proceedings.
-----------------
We are 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.
Latex Cases
-----------
As described more fully in our 1999 Annual Report on Form 10-K, we,
along with a number of other manufacturers, have been named as a
defendant in approximately 375 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. We are
vigorously defending these lawsuits.
Needle-Stick Cases
------------------
Also as discussed in our 1999 Annual Report on Form 10-K, we have 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
seeking class action certification under the laws of these states.
Generally, these actions allege that health care workers have sustained
needle sticks using hollow-bore needle devices manufactured by us and,
as a result, require medical testing, counseling and/or treatment.
In the matter of Benner v. Becton, Dickinson and Company, et al., (No.
99 Civ. 4785, United States District Court, Southern District of New
York), an amended complaint has been filed in the third quarter naming
both additional plaintiffs and additional defendants. We continue to
vigorously defend this matter.
Summary
-------
In our opinion, the outcome of the above matters, individually and in
the aggregate, are not expected to have a material effect on our results
of operations, financial condition or cash flows.
Item 2. Changes in Securities and Use of Proceeds.
------------------------------------------
Not applicable.
Item 3. Defaults Upon Senior Securities.
--------------------------------
Not applicable.
14
<PAGE>
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
3(b) - By-Laws, as amended and restated as of July 25,
2000.
10(d) - Amendment dated as of April 24, 2000 to the Stock
Award Plan dated February 11, 1992, as amended and
restated.
10(f) - Amendment dated as of April 24, 2000 to the 1982
Non-Qualified Stock Option Plan dated February 8,
1994, as amended and restated.
10(g)(i) - Amendment dated as of April 24, 2000 to the Salary
and Bonus Deferral Plan, dated August 15, 1996, as
amended and restated.
10(g)(ii) - Amendment dated as of April 24, 2000 to the
Directors' Deferral Plan, dated November 1, 1996.
10(h) - Amendment dated as of April 24, 2000 to the 1990
Stock Option Plan dated February 8, 1994, as
amended and restated.
10(k) - Amendments dated as of April 24, 2000 to the 1995
Stock Option Plan dated January 27, 1998, as
amended and restated.
10(l) - Amendments dated as of April 24, 2000 to the 1998
Stock Option Plan.
10(o) - Amendments dated April 24, 2000 to the Non-Employee
Directors 2000 Stock Option Plan.
27 - Financial Data Schedule.
b) Reports on Form 8-K
During the three-month period ended June 30, 2000, we filed one
Current Report on Form 8-K. In a report dated April 21, 2000, we
announced our results for the quarter ended March 31, 2000 and
filed our By-Laws as amended and restated as of March 28, 2000.
15
<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 11, 2000
-----------------
/s/ John R. Considine
-----------------------------------
John R. Considine
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
/s/ Richard M. Hyne
-----------------------------------
Richard M. Hyne
Vice President and Controller
(Chief Accounting Officer)
16
<PAGE>
EXHIBIT INDEX
-------------
<TABLE>
<CAPTION>
Exhibit
Number Description Method of Filing
-------------------------------------------------------------------------------
<S> <C> <C>
3(b) By-Laws, as amended and restated Filed with this report
as of July 25, 2000.
10(d) Amendment dated as of April 24, 2000 to Filed with this report
the Stock Award Plan dated February 11,
1992, as amended and restated.
10(f) Amendment dated as of April 24, 2000 to Filed with this report
the 1982 Non-Qualified Stock Option Plan
dated February 8, 1994, as amended
and restated.
10(g)(i) Amendment dated as of April 24, 2000 to Filed with this report
the Salary and Bonus Deferral Plan, dated
August 15, 1996, as amended and restated.
10(g)(ii) Amendment dated as of April 24, 2000 to Filed with this report
the Directors' Deferral Plan, dated
November 1, 1996.
10(h) Amendment dated as of April 24, 2000 to Filed with this report
the 1990 Stock Option Plan dated
February 8, 1994, as amended and restated.
10(k) Amendments dated as of April 24, 2000 to Filed with this report
the 1995 Stock Option Plan dated
January 27, 1998, as amended and restated.
10(l) Amendments dated as of April 24, 2000 to Filed with this report
the 1998 Stock Option Plan.
10(o) Amendments dated April 24, 2000 to the Filed with this report
Non-Employee Directors 2000 Stock
Option Plan.
27 Financial Data Schedule Filed with this report
</TABLE>
17
