FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended December 31, 2001
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
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Commission file number 001-4802
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Becton, Dickinson and Company
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(Exact name of registrant as specified in its charter)
New Jersey 22-0760120
------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1 Becton Drive, Franklin Lakes, New Jersey 07417-1880
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(Address of principal executive offices)
(Zip Code)
(201) 847-6800
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(Registrant's telephone number, including area code)
N/A
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(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X. No .
--- ---
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class of Common Stock Shares Outstanding as of January 31, 2002
--------------------- -----------------------------------------
Common stock, par value $1.00 258,661,219
BECTON, DICKINSON AND COMPANY
FORM 10-Q
For the quarterly period ended December 31, 2001
TABLE OF CONTENTS
Part I. FINANCIAL INFORMATION Page Number
------- --------------------- -----------
Item 1. Financial Statements (Unaudited)
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..................................... 13
Item 3. Quantitative and Qualitative Disclosures About Market Risk.... 18
Part II. OTHER INFORMATION
-------- -----------------
Item 1. Legal Proceedings............................................. 19
Item 2. Changes in Securities and Use of Proceeds..................... 20
Item 3. Defaults Upon Senior Securities............................... 20
Item 4. Submission of Matters to a Vote of Security Holders........... 20
Item 5. Other Information............................................. 20
Item 6. Exhibits and Reports on Form 8-K.............................. 20
Signatures .............................................................. 21
2
ITEM 1. FINANCIAL STATEMENTS
BECTON, DICKINSON AND COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
Thousands of Dollars
December 31, September 30,
Assets 2001 2001
------ ---------- ----------
(Unaudited)
Current Assets:
Cash and equivalents $ 153,544 $ 82,129
Short-term investments 1,981 4,571
Trade receivables, net 657,328 768,047
Inventories:
Materials 169,938 160,208
Work in process 120,646 115,257
Finished products 413,816 432,279
---------- ----------
704,400 707,744
Prepaid expenses, deferred taxes and other 202,234 200,451
---------- ----------
Total Current Assets 1,719,487 1,762,942
Property, plant and equipment 3,477,235 3,420,294
Less allowances for depreciation and amortization 1,751,392 1,704,271
---------- ----------
1,725,843 1,716,023
Goodwill, Net 460,095 431,452
Core and Developed Technology, Net 299,307 304,688
Other Intangibles, Net 131,856 164,643
Other 426,669 422,539
---------- ----------
Total Assets $4,763,257 $4,802,287
========== ==========
Liabilities and Shareholders' Equity
------------------------------------
Current Liabilities:
Short-term debt $ 489,484 $ 454,012
Payables and accrued expenses 819,823 810,664
---------- ----------
Total Current Liabilities 1,309,307 1,264,676
Long-Term Debt 766,193 782,996
Long-Term Employee Benefit Obligations 240,224 335,731
Deferred Income Taxes and Other 92,769 90,117
Commitments and Contingencies -- --
Shareholders' Equity:
Preferred stock 40,031 40,528
Common stock 332,662 332,662
Capital in excess of par value 155,051 148,690
Retained earnings 3,210,793 3,137,304
Unearned ESOP compensation (12,576) (12,001)
Deferred compensation 10,760 7,096
Common shares in treasury - at cost (991,600) (937,790)
Accumulated other comprehensive loss (390,357) (387,722)
---------- ----------
Total Shareholders' Equity 2,354,764 2,328,767
---------- ----------
Total Liabilities and Shareholders' Equity $4,763,257 $4,802,287
========== ==========
See notes to condensed consolidated financial statements
3
BECTON, DICKINSON AND COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Thousands of Dollars, Except Per-share Data
(Unaudited)
Three Months Ended
December 31,
--------------------------
2001 2000
--------- ---------
Revenues $ 944,946 $ 864,418
Cost of products sold 499,762 453,918
Selling and administrative 248,294 235,292
Research and development 55,237 52,727
--------- ---------
Total Operating Costs and Expenses 803,293 741,937
--------- ---------
Operating Income 141,653 122,481
Interest expense, net (9,571) (18,564)
Other expense, net (1,616) (2,059)
--------- ---------
Income Before Income Taxes and Cumulative
Effect of Change in Accounting Principle 130,466 101,858
Income tax provision 30,793 28,160
--------- ---------
Income Before Cumulative Effect of Change
in Accounting Principle 99,673 73,698
Cumulative effect of change in
accounting principle, net of tax -- (36,750)
--------- ---------
Net Income $ 99,673 $ 36,948
========= =========
Basic Earnings Per Share
Before Cumulative Effect of Change in
Accounting Principle $ .38 $ .29
Cumulative effect of change in accounting
principle, net of tax -- (.14)
--------- ---------
Basic Earnings Per Share $ .38 $ .15
========= =========
Diluted Earnings Per Share
Before Cumulative Effect of Change in
Accounting Principle $ .37 $ .28
Cumulative effect of change in accounting
principle, net of tax -- (.14)
--------- ---------
Diluted Earnings Per Share $ .37 $ .14
========= =========
Dividends Per Common Share $ .0975 $ .095
========= =========
See notes to condensed consolidated financial statements
4
BECTON, DICKINSON AND COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Thousands of Dollars
(Unaudited)
Three Months Ended
December 31,
------------------------
2001 2000
--------- ---------
Operating Activities
Net income $ 99,673 $ 36,948
Adjustments to net income to derive net cash
provided by operating activities:
Depreciation and amortization 72,960 75,318
Pension contribution (100,000) --
Cumulative effect of change in accounting principle, net of tax -- 36,750
Change in working capital 73,749 (66,788)
Other, net 9,103 12,962
--------- ---------
Net Cash Provided by Operating Activities 155,485 95,190
--------- ---------
Investing Activities
Capital expenditures (49,505) (77,213)
Acquisitions of businesses, net of cash acquired -- (2,575)
Sales (purchases) of investments, net 5,343 (544)
Capitalized software (21,966) (18,152)
Other, net (8,232) (10,868)
--------- ---------
Net Cash Used for Investing Activities (74,360) (109,352)
--------- ---------
Financing Activities
Change in short-term debt 36,772 23,258
Proceeds from long-term debt 3,820 2,127
Payments of long-term debt (1,848) (1,579)
Repurchase of common stock (52,857) --
Issuance of common stock from treasury 4,983 21,407
Dividends paid 49 (652)
--------- ---------
Net Cash (Used for) Provided by Financing Activities (9,081) 44,561
--------- ---------
Effect of exchange rate changes on cash and equivalents (629) (583)
--------- ---------
Net increase in cash and equivalents 71,415 29,816
Opening Cash and Equivalents 82,129 49,196
--------- ---------
Closing Cash and Equivalents $ 153,544 $ 79,012
========= =========
See notes to condensed consolidated financial statements
5
BECTON, DICKINSON AND COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Dollar and Share Amounts in Thousands, Except Per-share Data
December 31, 2001
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 2001 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.
The Company adopted the provisions of Securities and Exchange Commission Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements,"
("SAB 101") in the fourth quarter of fiscal 2001, retroactive to October 1,
2000, as more fully discussed in the 2001 Annual Report on Form 10-K. Prior year
results have been restated to reflect this adoption.
Effective October 1, 2001, the Company adopted the provisions of Statement of
Financial Accounting Standard ("SFAS") No. 141, "Business Combinations," and
SFAS No. 142, "Goodwill and Other Intangible Assets," as more fully discussed in
Note 8. As a result of the adoption of these Statements, the Company is no
longer amortizing goodwill and indefinite-lived intangible assets, and has
reclassified certain assets from Other Intangibles, Net that did not meet the
criteria for recognition apart from goodwill.
The Company re-designated its cash flow hedges in April 2001 pursuant to
implementation guidance released by the Derivatives Implementation Group of the
Financial Accounting Standards Board ("FASB") related to SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," as more fully
discussed in the its 2001 Annual Report on Form 10-K. This interpretation allows
changes in time value of options to be included in effectiveness testing. Prior
to the release of this guidance and the re-designation of these hedges, the
Company recorded the change in the time value of options in other expense.
Hedging costs of $5,903 recorded in other expense in the first quarter of fiscal
2001 have been reclassified as a reduction in revenues, to conform with the
current year presentation.
Note 2 - Inventory Valuation
----------------------------
The Company uses the last-in, first-out ("LIFO") method of determining cost for
substantially all inventories in the United States. 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. All other inventories are accounted for using the first-in,
first-out ("FIFO") method.
6
Note 3 - Comprehensive Income
-----------------------------
Comprehensive income for the Company is comprised of the following:
Three Months Ended
December 31,
------------------------
2001 2000
-------- -------
Net Income $ 99,673 $36,948
Other Comprehensive Income, Net of Tax
Foreign currency translation adjustments (11,833) 6,347
Unrealized gain (loss) on investments, net of
amounts realized 6,333 (859)
Unrealized gain on cash flow hedges, net of
amounts realized 2,865 2,050
-------- --------
Comprehensive Income $ 97,038 $44,486
======== ========
The amount of unrealized gains or losses on investments and cash flow hedges in
comprehensive income has been adjusted to reflect the realized gains included in
net income during the three months ended December 31, 2001 and 2000.
Note 4 - Earnings per Share
---------------------------
The following table sets forth the computations of basic and diluted earnings
per share, before the cumulative effect of accounting change:
Three Months Ended
December 31,
-------------------------
2001 2000
-------- --------
Income Before Cumulative Effect of Accounting Change $ 99,673 $ 73,698
Preferred stock dividends (654) (701)
-------- --------
Income available to common shareholders (A) 99,019 72,997
Preferred stock dividends - using "if converted" method 654 701
Additional ESOP contribution - using "if converted"
method (149) (160)
-------- --------
Income available to common shareholders
after assumed conversions (B) $ 99,524 $ 73,538
======== ========
Average common shares outstanding (C) 259,192 254,465
Dilutive stock equivalents from stock plans 6,638 7,122
Shares issuable upon conversion of preferred stock 4,342 4,650
-------- --------
Average common and common equivalent
shares outstanding - assuming dilution (D) 270,172 266,237
-------- --------
Basic earnings per share (A/C) $ .38 $ .29
======== ========
Diluted earnings per share (B/D) $ .37 $ .28
======== ========
7
Note 5 - Contingencies
----------------------
The Company is involved, both as a plaintiff and a defendant, in various legal
proceedings and claims which arise in the ordinary course of business,
including, without limitation, product liability and environmental matters.
While it is not possible to predict or determine the outcome of the legal
actions brought against the Company, upon resolution of such matters, the
Company may incur charges in excess of presently established reserves. While
such future charges, individually and in the aggregate, could have a material
adverse impact on the Company's net income and net cash flows in the period in
which they are recorded or paid, in the Company's opinion, the results of these
matters, individually and in the aggregate, are not expected to have a material
adverse effect on the Company's consolidated financial condition. Further
discussion of legal proceedings is included in Part II of this Report on Form
10-Q.
Note 6 - Segment Data
---------------------
For the three months ending December 31, 2001, decisions about resource
allocation and performance assessment were made separately for the Medical
Systems ("Medical") segment, the Clinical Laboratory Solutions ("Clinical Lab")
segment, and the Biosciences segment.
The Company evaluates performance based upon operating income. Segment operating
income represents revenues reduced by product costs and operating expenses. As
discussed more fully in the Company's 2001 Annual Report on Form 10-K, during
fiscal 2001, the Company refined its methodology for allocating indirect
expenses for purposes of reporting segment operating income to the chief
operating decision maker. The Company believes this new approach is a preferable
method for allocating shared expenses as the allocations are now being performed
at a more detailed level of reporting. As a result of this change in
methodology, segment operating income has been restated for the prior year.
Financial information for the Company's segments is as follows:
Three Months Ended
December 31,
--------------------------
2001 2000(A)
-------- --------
Revenues
Medical $503,030 $460,389
Clinical Lab 294,749 274,603
Biosciences 147,167 129,426
-------- --------
Total Revenues (B) $944,946 $864,418
======== ========
8
Three Months Ended
December 31,
--------------------------
2001 2000 (A)
-------- --------
Segment Operating Income
Medical $ 98,232 $ 90,625
Clinical Lab 54,722 45,877
Biosciences 25,484 13,410
-------- --------
Total Segment Operating Income 178,438 149,912
Unallocated Items (C) (47,972) (48,054)
-------- --------
Income Before Income Taxes and Cumulative Effect
of Change in Accounting Principle $130,466 $101,858
======== ========
(A) As discussed in Note 1, prior year amounts reflect the reclassification of
hedging costs from other expense to revenues. The amounts reclassified were
$2,179 for Medical, $2,241 for Clinical Lab, and $1,483 for Biosciences.
Prior year amounts have also been restated to reflect the adoption of SAB
101.
(B) Intersegment revenues are not material.
(C) Includes primarily interest, net; foreign exchange; corporate expenses; and
net gains on sales of investments.
Note 7 - Special Charges
------------------------
The Company recorded special charges of $57,514 and $90,945 in fiscal years 2000
and 1998, respectively as discussed in the 2001 Annual Report on Form 10-K.
Fiscal Year 2000
----------------
The Company developed a worldwide organizational restructuring plan to align its
existing infrastructure with its projected growth programs. This plan included
the elimination of open positions and employee terminations from all businesses,
functional areas and regions for the sole purpose of cost reduction. This plan
provided for the termination of approximately 600 employees. As of December 31,
2001, 542 of the targeted 600 had been severed. The remaining terminations and
related accrued severance are expected to be substantially completed and paid no
later than the second half of fiscal 2002.
A summary of the 2000 special charge accrual activity during the first three
months of fiscal 2002 follows:
Severance Restructuring Other
--------- ------------- -----
Accrual Balance at
September 30, 2001 $ 6,300 $1,200 $11,700
Payments (1,200) - (1,700)
------- ------ -------
Accrual Balance at
December 31, 2001 $ 5,100 $1,200 $10,000
======= ====== =======
9
Fiscal Year 1998
----------------
In an effort to improve manufacturing efficiencies at certain of its locations,
the Company initiated a restructuring plan in 1998, which included the closing
of a surgical blade plant in Hancock, New York. The move of a production line
from Hancock to another location has been delayed, as more fully described in
the Company's 2001 Annual Report on Form 10-K. The Company now expects the
Hancock restructuring plan to be completed and the related accruals to be
substantially paid by December 2002. The remaining 150 employees will be
terminated upon closure of the plant.
A summary of the 1998 special charge accrual activity follows:
Severance Restructuring Other
--------- ------------- -----
Accrual Balance at September 30, 2001 $6,900 $1,500 $1,300
Payments (200) (200) -
------ ------ ------
Accrual Balance at December 31, 2001 $6,700 $1,300 $1,300
====== ====== ======
Note 8 - Adoption of New Accounting Standards
---------------------------------------------
Effective October 1, 2001, the Company adopted the provisions of SFAS No. 141,
"Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible
Assets." SFAS No. 141 eliminates the pooling-of-interests method of accounting
for business combinations initiated after July 1, 2001, and changes the criteria
for recognizing intangible assets apart from goodwill. SFAS No. 141 requires any
business combination initiated after June 30, 2001 to be accounted for by the
purchase method. SFAS No. 142 stipulates that goodwill and indefinite-lived
intangible assets will no longer be amortized, but instead will be periodically
reviewed for impairment. Diluted earnings per share for the first quarter
reflect an approximate 2 1/2 cent benefit from the adoption of SFAS 142.
Upon adoption of these Statements, the Company reclassified approximately
$28,500 of assets from Other Intangibles, Net that did not meet the criteria for
recognition apart from goodwill, primarily related to assembled workforce. Of
this amount, approximately $18,400 related to the Biosciences segment and
approximately $10,100 related to the Medical segment. The Company also ceased
amortizing certain trademarks that were deemed to have indefinite lives as they
are expected to generate cash flows indefinitely. The following table reconciles
reported net income to that which would have been reported if the current method
of accounting was used for each of the quarters ended December 31, 2001 and
2000:
For the Three Months Ended
December 31,
--------------------------
2001 2000
------- --------
Reported Net Income $99,673 $36,948
Add back: Goodwill Amortization -- 6,145
Add back: Amortization of Indefinite-Lived
Intangible Assets -- 275
------- -------
Adjusted Net Income $99,673 $43,368
======= =======
10
For the Three Months Ended
December 31,
--------------------------
2001 2000
---- ----
Basic Earnings Per Share $.38 $.15
Goodwill Amortization - .03
Amortization of Indefinite-Lived Intangible Assets - -
---- ----
Adjusted Basic Earnings Per Share $.38 $.18
==== ====
Diluted Earnings Per Share $.37 $.14
Goodwill Amortization - .02
Amortization of Indefinite-Lived Intangible Assets - -
---- ----
Adjusted Diluted Earnings Per Share $.37 $.16
==== ====
Acquired Intangible Assets
--------------------------
As of December 31, 2001
-------------------------------------
Gross Carrying Accumulated
Amount Amortization
-------------- ------------
Amortized intangible assets:
Core and Developed Technology $370,044 $ 70,737
Patents, Trademarks, & Other 303,089 188,854
-------- ---------
Total $673,133 $259,591
======== ========
Unamortized intangible assets:
Goodwill $460,095
Trademarks 17,621
--------
Total $477,716
========
Estimated Intangible Amortization Expense:
------------------------------------------
For the Years Ending September 30:
2002 $35,926
2003 36,104
2004 34,617
2005 33,093
2006 31,274
2007 30,649
The Company is in the process of performing the goodwill impairment assessment
as required by SFAS No. 142. The adoption of this aspect of SFAS No. 142 is not
expected to have a significant impact on the results of operations or financial
condition of the Company.
11
Pending Adoption of New Accounting Standard
-------------------------------------------
In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets." This Statement requires that one accounting
model be used for long-lived assets to be disposed of by sale and it broadens
the presentation of discontinued operations to include more disposal
transactions. The provisions relating to long-lived assets to be disposed of by
sale or otherwise are effective for disposal activities initiated by a
commitment to a plan after the effective date of the Statement. The Company is
required to adopt the provisions of this Statement no later than October 1,
2002. The Company is in the process of evaluating this Statement and has not
yet determined the future impact on its consolidated financial statements.
12
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
Becton, Dickinson and Company ("BD") adopted the provisions of Securities and
Exchange Commission Staff Accounting Bulletin No. 101, "Revenue Recognition in
Financial Statements," ("SAB 101") in the fourth quarter of fiscal 2001,
retroactive to October 1, 2000, as more fully discussed in our 2001 Annual
Report on Form 10-K. Prior year results have been restated to reflect this
adoption.
First quarter revenues of $945 million represented a nine percent increase from
the same period a year ago. Revenue growth was unfavorably affected by foreign
currency translation, which we estimate reduced revenues by less than one
percent. International revenues grew 10 percent, or approximately 11 percent
after excluding the unfavorable impact of foreign currency translation, and
benefited from strong performance in Europe and improved performance in Latin
America and Asia Pacific.
Medical Systems ("Medical") revenues increased nine percent for the quarter,
with almost one-half of this growth from sales of advanced protection devices in
the United States. Worldwide sales of prefillable drug delivery devices, which
grew about $15 million or 27%, also contributed to the growth of this segment.
Medical revenue growth was offset in part by lower recorded sales of diabetes
syringes due in part to the redirection of promotional efforts in the United
States toward sustaining our branded syringe sales at the retail level.
Clinical Laboratory Solutions ("Clinical Lab") revenues increased seven percent
for the quarter. Growth in the Clinical Lab segment was driven primarily by
strong sales of advanced protection devices in the United States. Clinical Lab
revenues also reflected increased worldwide sales in the diagnostic systems
product area, due in part to sales of its molecular diagnostic platform, BD
ProbeTec ET.'TM'
Biosciences revenues grew 14 percent for the quarter. International Biosciences
revenue growth of approximately 25 percent was led by sales from both the
immunocytometry systems and reagents and discovery labware product groups.
Domestic Biosciences revenues grew by approximately five percent. Domestic
growth in this segment was offset, in part, by essentially flat immunocytometry
instrument sales, due primarily to comparatively lower instrument installations,
and weaker demand for certain molecular biology products.
Segment Revenues Three Months Ended December 31,
--------------------------------
(Dollars in millions) 2001 2000 % Change
---------------------------------------------------------------------
Medical
-------
United States $251 $226 11
International 252 234 8
---------------------------------------------------------------------
Total $503 $460 9
=====================================================================
13
Segment Revenues Three Months Ended December 31,
--------------------------------
(Dollars in millions) 2001 2000 % Change
---------------------------------------------------------------------
Clinical Lab
-----------
United States $172 $160 8
International 123 115 6
---------------------------------------------------------------------
Total $295 $275 7
=====================================================================
Biosciences
-----------
United States $ 77 $ 73 5
International 70 56 25
---------------------------------------------------------------------
Total $147 $129 14
=====================================================================
Total Revenues
--------------
United States $500 $459 9
International 445 405 10
---------------------------------------------------------------------
Total $945 $864 9
=====================================================================
Refer to Note 6 in Notes to Condensed Consolidated Financial Statements for
additional segment data.
BD adopted the provisions of Statement of Financial Accounting Standards
("SFAS") No. 141, "Business Combinations," and SFAS No. 142, "Goodwill and Other
Intangible Assets" effective October 1, 2001, which, among other things,
eliminates the requirement to amortize goodwill and certain other intangible
assets. See Note 8 of the Notes to Condensed Consolidated Financial Statements
for further discussion.
Excluding the impact of the adoption of SFAS Nos. 141 and 142, changes in
segment operating income were primarily driven by fluctuations in revenue, as
discussed above. Medical segment operating income was unfavorably affected by
the redirection of promotional efforts on our branded diabetes syringes, as
discussed earlier, as well as by the lower sales of such products, which have
higher overall gross profit margins. Medical segment operating income was also
unfavorably impacted by manufacturing variances resulting from our inventory
reduction program. Biosciences segment income was also favorably impacted by
lower operating expenses compared with the prior year, reflecting spending
controls and a shift in the timing of expenses incurred for key development
programs to later in the fiscal year. Clinical Lab segment income was also
favorably impacted by increased sales of advanced protection devices, which have
higher overall gross profit margins as compared to products sold in the same
period in the prior year. Clinical Lab segment income also benefited from
manufacturing productivity improvements on its molecular diagnostic platform, BD
ProbeTec ET'TM'.
Gross profit margin was 47.1% for the quarter, compared with 47.5% for the prior
year. Higher gross margins from sales of our advanced protection products were
more than offset by the unfavorable events affecting branded diabetes syringe
products as well as our inventory reduction program, as discussed above. Gross
profit margin was also negatively impacted by increased sales in the current
quarter of products with lower overall gross profit margins, as compared to
products sold in the same period in the prior year.
14
Selling and administrative expense was 26.3% of revenues for the quarter,
compared with the prior year's ratio of 27.2%. Excluding the aforementioned
impact of the adoption of SFAS Nos. 141 and 142, selling and administrative
expense as a percent of revenues would have been about the same as last year.
Investment in research and development was $55 million or 5.8% of revenues for
the quarter, compared with $53 million or 6.1% of revenues for the prior year.
Operating margin was 15.0% for the current quarter, compared with 14.2% in the
prior year. Excluding the aforementioned impact of the adoption of SFAS Nos. 141
and 142, operating margin as a percent of revenue would have been about the same
as last year. Net interest expense declined $9 million for the quarter compared
with the prior year, primarily due to lower short-term interest rates and lower
debt levels.
Other expense, net was about the same as last year. Foreign exchange gains of $4
million were more than offset in the current quarter by net losses on
investments of $6 million. As further described in Note 1 of the Notes to
Condensed Consolidated Financial Statements, hedging costs of $5.9 million
recorded in other expense in the first quarter of fiscal 2001 have been
reclassified as a reduction in revenues, to conform with current year
presentation.
The income tax rate was 24% for the quarter. As a result of the restatement of
the prior years' results for the adoption of SAB 101, the first quarter of
fiscal 2001 includes $27 million of additional revenues that were taxed at a 41%
rate. As a result, the first quarter of fiscal 2001, on a restated basis,
reflects a 28% effective tax rate, as compared to 24% on a pre-SAB 101 basis.
For the year, the fiscal 2001 tax rate remained at 24%, which is also the
expected rate for the current year.
Net income and diluted earnings per share for the current quarter were $100
million and 37 cents, respectively. Prior year income before cumulative effect
of accounting change and diluted earnings per share were $74 million and 28
cents, respectively.
Special Charges
We recorded special charges of $58 million and $91 million in fiscal years 2000
and 1998, respectively, as described in Note 7 of the Notes to Condensed
Consolidated Financial Statements. For the 2000 restructuring plan, the annual
savings from the reduction in salaries and wages expense are estimated to be $30
million. As anticipated, these savings, beginning in 2001, offset incremental
costs relating to programs, such as advanced protection technologies, molecular
oncology, and our enterprise-wide program to upgrade our business information
systems, known internally as Genesis. The estimated annual benefits of $4
million for the 1998 restructuring plan related to reduced manufacturing costs
and tax savings associated with the move of a surgical blade plant are expected
to be realized following the closure of the facility. See Note 7 of the Notes to
Condensed Consolidated Financial Statements for further discussion.
In January 2001, we commenced a relatively small-scale restructuring of
manufacturing facilities in the Medical segment. As a result, we are planning to
record special charges during the second quarter of approximately $25 to $28
million, relating primarily to severance costs.
15
Liquidity and Capital Resources
During the first three months of fiscal 2002, cash provided by operating
activities increased to $155 million compared to $95 million during the first
three months of last year. The increase in cash provided by changes in working
capital is primarily due to the decline in trade receivables during the quarter,
which in turn was largely due to the change in our diabetes promotional
strategies. Cash provided by operations was reduced by a $100 million cash
contribution to the U.S. pension plan made in November 2001.
As of December 31, 2001, total debt of $1.3 billion represented 34.2% of total
capital (shareholders' equity, net non-current deferred income tax liabilities,
and debt), down from 40.8% a year ago. We use commercial paper to meet our
short-term financing needs, including working capital requirements. As discussed
in our Annual Report on Form 10-K, we currently have in place two syndicated
credit facilities totaling $900 million that are available to provide backup
support for our commercial paper program and for other general corporate
purposes. Each of these facilities contains a single financial covenant relating
to our interest coverage ratio. Given the availability of these facilities and
our strong credit ratings, we continue to have a high degree of confidence in
our ability to refinance maturing short-term and long-term debt, as well as
incur substantial additional debt, if required.
Capital expenditures during the first three months were $50 million, compared
with last year's amount of $77 million. We expect capital spending for fiscal
2002 to be about $300 million. The decline in cash provided by financing
activities is primarily due to the repurchase of 1.6 million shares of our
common stock for $53 million during the quarter. As of December 31, 2001,
authorization to repurchase up to an additional 8.4 million shares remained
under a September 2001 resolution of the Board of Directors.
Contractual Obligations and Commercial Commitments
As disclosed in our 2001 Annual Report on Form 10-K, the aggregate annual
maturities of long-term debt during the fiscal years ending September 30, 2003
to 2006 are as follows: 2003 - $8,355; 2004 - $5,602; 2005 - $5,780; 2006 -
$871. Future minimum rental commitments on noncancelable leases are as follows:
2002 - $31,100; 2003 - $24,300; 2004 - $20,200; 2005 - $15,400; 2006 - $13,000
and an aggregate of $29,400 thereafter. As of September 30, 2001, we had certain
future capital commitments aggregating approximately $93,100, which will be
expended over the next several years.
Cautionary Statement Pursuant to Private Securities Litigation Reform Act of
1995 -- "Safe Harbor" for Forward-Looking Statements
The Private Securities Litigation Reform Act of 1995 (the "Act") provides a safe
harbor for forward-looking statements made by or on behalf of Becton, Dickinson
and Company ("BD"). BD and its representatives may from time to time make
certain forward-looking statements in publicly-released materials, both written
and oral, including statements contained in this report and filings with the
Securities and Exchange Commission and in our other reports to shareowners.
Forward-looking statements may be identified by the use of words like "plan,"
"expect," "believe," "intend," "will," "anticipate," "estimate" and other words
of similar
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meaning in conjunction with, among other things, discussions of future
operations and financial performance, as well as our strategy for growth,
product development, regulatory approvals, market position and expenditures. All
statements which address operating performance or events or developments that we
expect or anticipate will occur in the future -- including statements relating
to volume growth, sales and earnings per share growth and statements expressing
views about future operating results -- are forward-looking statements within
the meaning of the Act.
Forward-looking statements are based on current expectations of future events.
The forward-looking statements are and will be based on management's then
current views and assumptions regarding future events and operating performance,
and speak only as of their dates. Investors should realize that if underlying
assumptions prove inaccurate or unknown risks or uncertainties materialize,
actual results could vary materially from our expectations and projections.
Investors are therefore cautioned not to place undue reliance on any
forward-looking statements. Furthermore, we undertake no obligation to update or
revise any forward-looking statements whether as a result of new information,
future events and developments or otherwise.
The following are some important factors that could cause our actual results to
differ from our expectations in any forward-looking statements:
o Regional, national and foreign economic factors, including inflation and
fluctuations in interest rates and foreign currency exchange rates and the
potential effect of such fluctuations on revenues, expenses and resulting
margins.
o Competitive product and pricing pressures and our ability to gain or
maintain market share in the global market as a result of actions by
competitors, including technological advances achieved and patents attained
by competitors as patents on our products expire. While we believe our
opportunities for sustained, profitable growth are considerable, actions of
competitors could impact our earnings, share of sales and volume growth.
o Changes in domestic and foreign healthcare resulting in pricing pressures,
including the continued consolidation among healthcare providers, trends
toward managed care and healthcare cost containment and government laws and
regulations relating to sales and promotion, reimbursement and pricing
generally.
o Fluctuations in the cost and availability of raw materials and the ability
to maintain favorable supplier arrangements and relationships.
o Government laws and regulations affecting domestic and foreign operations,
including those relating to trade, monetary and fiscal policies, taxation,
environmental matters, price controls, licensing and regulatory approval of
new products.
o Difficulties inherent in product development, including the potential
inability to successfully continue technological innovation, complete
clinical trials, obtain regulatory approvals in the United States and
abroad, or gain and maintain market approval of products, and the
possibility of encountering infringement claims by competitors with respect
to patent or other intellectual property rights, all of which can preclude
or delay commercialization of a product.
17
o Significant litigation adverse to BD, including product liability claims,
patent infringement claims, and antitrust claims, as well as other risks
and uncertainties detailed from time to time in our Securities and Exchange
Commission filings.
o Our ability to achieve earnings forecasts, which are generated based on
projected volumes and sales of many product types, some of which are more
profitable than others. There can be no assurance that we will achieve the
projected level or mix of product sales.
o Product efficacy or safety concerns resulting in product recalls,
regulatory action on the part of the Food and Drug Administration (or
foreign counterparts) or declining sales.
o Economic and political conditions in international markets, including civil
unrest, governmental changes and restrictions on the ability to transfer
capital across borders.
o Our ability to penetrate developing and emerging markets, which also
depends on economic and political conditions, and how well we are able to
acquire or form strategic business alliances with local companies and make
necessary infrastructure enhancements to production facilities,
distribution networks, sales equipment and technology.
o The impact of business combinations, including acquisitions and
divestitures, both internally for BD and externally in the healthcare
industry.
o Issuance of new or revised accounting standards by the American Institute
of Certified Public Accountants, the Financial Accounting Standards Board
or the Securities and Exchange Commission.
The foregoing list sets forth many, but not all, of the factors that could
impact our ability to achieve results described in any forward-looking
statements. Investors should understand that it is not possible to predict or
identify all such factors and should not consider this list to be a complete
statement of all potential risks and uncertainties.
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, 2001.
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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.
A more complete description of legal proceedings has been set forth in
our 2001 Annual Report on Form 10-K (the "10-K"). For the quarter ended
December 31, 2001, the following changes have occurred.
Latex Cases
We have received a total of 510 claims to date, relating to alleged
reactions caused by exposure to latex resulting from the use, over time,
of latex gloves. The facts and circumstances of new claims filed since
the 10-K are similar to those previously filed and we are of the same
opinion as stated in the 10-K.
RTI Litigation
On January 29, 2001, Retractable Technologies, Inc. ("RTI") filed an
action under the caption Retractable Technologies, Inc. vs. Becton
Dickinson and Company, et al. (Case No. CA5010V036, United States
District Court for the Eastern District of Texas), against BD, another
manufacturer and two group purchasing organizations ("GPOs"). RTI (a
manufacturer of retractable syringes) alleges that we and other
defendants conspired to exclude them from the market and maintain our
market share by entering into long-term contracts with GPOs in violation
of state and Federal antitrust laws. Plaintiff seeks money damages. This
action is in preliminary stages. Discovery commenced in October 2001. On
December 18, 2001, the Court granted our motion to dismiss the
Complaint, and gave plaintiff 30 days to file a new pleading. On January
18, 2002, plaintiff filed a Second Amended Complaint. The Court has set
a September 10, 2002 date for jury selection for the trial of this
matter. We are vigorously defending this action.
Class Action Cases
We, along with another manufacturer and several medical product
distributors, have been named as a defendant in product liability
lawsuits relating to healthcare workers who allegedly sustained
needlesticks, but have not become infected with any disease. At the time
of the filing of the 10-K, cases were pending on behalf of an
unspecified number of healthcare workers in seven states seeking class
certification under the laws of these states. Since the filing of the
10-K, in Illinois, in McCaster vs. Becton Dickinson et al. (Case No.
98L09478, Cook County Circuit Court), filed on August 13, 1998, the
Court issued a decision denying class certification on January 11, 2002.
Plaintiff is seeking permission to appeal.
Summary
While it is not possible to predict or determine the outcome of the
above or other legal actions brought against BD, upon resolution of such
matters, we may incur charges in excess of presently established
reserves. While such future charges, individually and in the aggregate,
could have a material adverse impact on our net
19
income and net cash flows in the period in which they are recorded or
paid, in our opinion, the results of the above matters, individually and
in the aggregate, are not expected to have a material adverse effect on
the Company's consolidated financial condition.
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
None.
b) Reports on Form 8-K
During the three-month period ended December 31, 2001, we filed three
Current Reports on Form 8-K:
(i) Under Item 9 - Regulation FD Disclosure, we furnished
information in a report dated November 1, 2001 regarding
developments in the matter of Becton Dickinson and Company, et
al. v. Usrey (Case No. 2-00-052-CV, Court of Appeals, Second
District of Texas).
(ii) Under Item 5 - Other Events, we announced our results for the
fourth quarter and year ended September 30, 2001 in a report
dated November 7, 2001.
(iii) Under Item 5 - Other Events, in a report dated November 27,
2001, we announced the election of Edward J. Ludwig to the
additional role of Chairman of the Board effective immediately
following the conclusion of the BD Annual Meeting of
shareholders scheduled for February 13, 2002.
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SIGNATURES
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 February 14, 2002
-----------------
/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)
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STATEMENT OF DIFFERENCES
The trademark symbol shall be expressed as.................................'TM'