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FORM 10-Q
UNITED STATES 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, 2002
--------------------
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 by checkmark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Act). 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, 2003
--------------------- -----------------------------------------
Common stock, par value $1.00 254,700,573
BECTON, DICKINSON AND COMPANY
FORM 10-Q
For the quarterly period ended December 31, 2002
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 ............................................................ 12
Item 3. Quantitative and Qualitative Disclosures About Market Risk ............... 17
Item 4. Controls and Procedures .................................................. 17
Part II. OTHER INFORMATION
- ------- -----------------
Item 1. Legal Proceedings ........................................................ 18
Item 2. Changes in Securities and Use of Proceeds ................................ 19
Item 3. Defaults Upon Senior Securities .......................................... 19
Item 4. Submission of Matters to a Vote of Security Holders ...................... 19
Item 5. Other Information ........................................................ 19
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 2002 2002
- ------ --------------- ----------------
(Unaudited)
Current Assets:
Cash and equivalents $ 226,427 $ 243,115
Short-term investments 2,868 1,850
Trade receivables, net 743,139 745,998
Inventories:
Materials 135,651 137,688
Work in process 146,513 132,051
Finished products 431,864 427,957
------------ -----------
714,028 697,696
Prepaid expenses, deferred taxes and other 238,206 240,048
------------ -----------
Total Current Assets 1,924,668 1,928,707
Property, plant and equipment 3,684,753 3,621,361
Less allowances for depreciation and amortization 1,914,868 1,855,631
------------ -----------
1,769,885 1,765,730
Goodwill, Net 504,458 492,327
Core and Developed Technology, Net 277,787 283,166
Other Intangibles, Net 123,523 126,758
Capitalized Software, Net 291,352 284,109
Other 170,088 159,663
----------- ----------
Total Assets $ 5,061,761 $5,040,460
=========== ==========
Liabilities and Shareholders' Equity
- ------------------------------------
Current Liabilities:
Short-term debt $ 430,734 $ 434,642
Payables and accrued expenses 844,323 817,811
------------ -----------
Total Current Liabilities 1,275,057 1,252,453
Long-Term Debt 804,315 802,967
Long-Term Employee Benefit Obligations 301,222 391,607
Deferred Income Taxes and Other 108,830 105,459
Commitments and Contingencies - -
Shareholders' Equity:
Preferred stock 37,093 37,945
Common stock 332,662 332,662
Capital in excess of par value 188,588 185,122
Retained earnings 3,601,415 3,514,465
Unearned ESOP compensation (8,570) (7,847)
Deferred compensation 8,351 8,496
Common shares in treasury - at cost (1,189,925) (1,137,583)
Accumulated other comprehensive loss (397,277) (445,286)
------------ -----------
Total Shareholders' Equity 2,572,337 2,487,974
------------ -----------
Total Liabilities and Shareholders' Equity $ 5,061,761 $5,040,460
============ ===========
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,
------------------------
2002 2001
---------- -----------
Revenues $1,051,648 $944,946
Cost of products sold 550,039 499,762
Selling and administrative 284,181 248,294
Research and development 59,845 55,237
---------- --------
Total Operating Costs and Expenses 894,065 803,293
---------- --------
Operating Income 157,583 141,653
Interest expense, net (8,633) (9,571)
Other income (expense), net 84 (1,616)
---------- --------
Income Before Income Taxes 149,034 130,466
Income tax provision 35,396 30,793
---------- --------
Net Income $ 113,638 $ 99,673
========== ========
Earnings Per Share
- ------------------
Basic $ .44 $ .38
========== ========
Diluted $ .43 $ .37
========== ========
Dividends Per Common Share $ .10 $ .0975
========== ========
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,
-----------------------------------
2002 2001
------------ -----------
Operating Activities
--------------------
Net income $ 113,638 $ 99,673
Adjustments to net income to derive net cash
provided by operating activities:
Depreciation and amortization 82,081 72,960
Pension contribution (100,000) (100,000)
Change in working capital 13,189 73,749
Other, net 4,715 9,103
---------- ----------
Net Cash Provided by Operating Activities 113,623 155,485
---------- ----------
Investing Activities
--------------------
Capital expenditures (43,366) (49,505)
(Purchases) sales of investments, net (2,348) 5,343
Capitalized software (16,522) (21,966)
Other, net (15,015) (8,232)
---------- ----------
Net Cash Used for Investing Activities (77,251) (74,360)
---------- ----------
Financing Activities
--------------------
Change in short-term debt (2,374) 36,772
Proceeds from long-term debt - 3,820
Payments of long-term debt (383) (1,848)
Repurchase of common stock (56,623) (52,857)
Issuance of common stock from treasury 4,383 4,983
Dividends paid (488) 49
---------- ----------
Net Cash Used for Financing Activities (55,485) (9,081)
---------- ----------
Effect of exchange rate changes on cash and equivalents 2,425 (629)
---------- ----------
Net (decrease) increase in cash and equivalents (16,688) 71,415
Opening Cash and Equivalents 243,115 82,129
---------- ----------
Closing Cash and Equivalents $ 226,427 $ 153,544
========== ==========
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, 2002
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 2002 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 has
reclassified certain prior year information 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.
Note 3 - Comprehensive Income
Comprehensive income for the Company is comprised of the following:
Three Months Ended
December 31,
-----------------------------
2002 2001
------------ -----------
Net Income $113,638 $ 99,673
Other Comprehensive Income, Net of Tax
Foreign currency translation adjustments 48,090 (11,833)
Unrealized gains on investments, net of
amounts recognized 477 6,333
Unrealized (losses) gains on cash flow hedges, net
of amounts realized (558) 2,865
------------ -----------
Comprehensive Income $161,647 $ 97,038
============ ===========
6
The amount of unrealized gains or losses on investments and cash flow hedges in
comprehensive income has been adjusted to reflect any realized gains and
recognized losses included in net income during the three months ended December
31, 2002 and 2001.
Note 4 - Earnings per Share
The following table sets forth the computations of basic and diluted earnings
per share:
Three Months Ended
December 31,
--------------------------
2002 2001
---------- ----------
Net Income $113,638 $ 99,673
Preferred stock dividends (606) (654)
---------- ----------
Income available to common shareholders (A) 113,032 99,019
Preferred stock dividends - using "if converted" method 606 654
Additional ESOP contribution - using "if converted"
method (138) (149)
---------- ----------
Income available to common shareholders
after assumed conversions (B) $113,500 $ 99,524
========== ==========
Average common shares outstanding (C) 255,286 259,192
Dilutive stock equivalents from stock plans 3,772 6,638
Shares issuable upon conversion of preferred stock 4,023 4,342
---------- ----------
Average common and common equivalent
shares outstanding - assuming dilution (D) 263,081 270,172
========== ==========
Basic earnings per share (A/C) $ .44 $ .38
========== ==========
Diluted earnings per share (B/D) $ .43 $ .37
========== ==========
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.
The Company currently is engaged in discovery or is otherwise in the early
stages with respect to certain of the litigation to which it is a party, and
therefore, it is difficult to predict the outcome of such litigation. In
addition, given the uncertain nature of litigation generally and of the current
litigation environment, it is difficult to predict the outcome of any litigation
regardless of its stage. A number of the cases pending against the Company
present complex factual and legal issues and are subject to a number of
variables, including, but not limited to, the facts and circumstances of each
particular case, the jurisdiction in which each suit is brought, and differences
in applicable law. As a result, the Company is not able to estimate the amount
or range of loss that could result from an unfavorable outcome of such matters.
While the Company believes that the claims against it, upon resolution, should
not have a material adverse effect on the Company, in view of the uncertainties
discussed above, the Company could incur charges in excess of currently
established reserves and, to the extent
7
available, excess liability insurance. Accordingly, in the opinion of management
any such future charges, individually or in the aggregate, could have a material
adverse effect on the Company's consolidated results of operations and
consolidated net cash flows in the period or periods in which they are recorded
or paid. The Company continues to believe that it has a number of valid defenses
to each of the suits pending against it and is engaged in a vigorous defense of
each of these matters. Further discussion of legal proceedings is included in
Part II of this Report on Form 10-Q.
Note 6 - Segment Data
The Company's organizational structure is based upon its three principal
business segments: BD Medical Systems ("Medical"), BD Clinical Laboratory
Solutions ("Clinical Lab"), and BD Biosciences ("Biosciences"). 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:
Three Months Ended
December 31,
------------------------------
2002 2001
------------ ----------
Revenues
--------
Medical $ 571,637 $503,030
Clinical Lab 331,654 294,749
Biosciences 148,357 147,167
------------ ----------
Total Revenues (A) $1,051,648 $944,946
============ ==========
Three Months Ended
December 31,
------------------------------
2002 2001
------------ ----------
Segment Operating Income
------------------------
Medical $ 122,799 $ 98,232
Clinical Lab 66,098 54,722
Biosciences 18,867 25,484
------------ ----------
Total Segment Operating Income 207,764 178,438
Unallocated Items (B) (58,730) (47,972)
------------ ----------
Income Before Income Taxes $ 149,034 $130,466
============ ==========
(A) Intersegment revenues are not material.
(B) Includes primarily interest, net; foreign exchange; corporate expenses; net
gains on sales of investments; and certain legal costs.
Note 7 - Special Charges
The Company recorded special charges of $21,508, $57,514 and $90,945 in fiscal
years 2002, 2000 and 1998, respectively, as discussed in the Company's 2002
Annual Report on Form 10-K.
8
Fiscal Year 2002
In fiscal year 2002, the Company initiated a manufacturing restructuring program
in the Medical segment that was aimed at optimizing manufacturing efficiencies
and improving the Company's competitiveness in the different markets in which it
operates. This program involves the termination of 533 employees in China,
France, Germany, Ireland, Mexico and the United States. As of December 31, 2002,
384 of the targeted employees had been severed. The Company expects these
terminations to be completed and the related accrued severance to be
substantially paid by the end of fiscal 2003.
A summary of the 2002 special charge accrual activity during the first three
months of fiscal 2003 follows:
Severance Restructuring
--------- -------------
Accrual Balance at September 30, 2002 $13,400 $ 600
Payments (1,000) (100)
--------- --------
Accrual Balance at December 31, 2002 $12,400 $ 500
========= ========
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. Of the 600
employees originally targeted for termination under this plan, 15 remained to be
severed as of December 31, 2002. The remaining terminations and related accrued
severance are expected to be substantially completed and paid by the end of
fiscal 2003.
A summary of the 2000 special charge accrual activity during the first three
months of fiscal 2003 follows:
Severance Other
--------- ---------
Accrual Balance at September 30, 2002 $ 700 $ 2,400
Payments (100) (1,700)
------- ---------
Accrual Balance at December 31, 2002 $ 600 $ 700
======= =========
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 was delayed, as more fully described in the
Company's 2002 Annual Report on Form 10-K. Production at the Hancock facility
ceased in September 2002, and as of the end of the first quarter, 11 employees
remained to be terminated. The Company expects these terminations to be
completed and the related severance accrual of $1,900 to be paid upon the
conclusion of remaining shutdown activities.
9
A summary of the 1998 special charge accrual activity during the first three
months of fiscal 2003 follows:
Severance Restructuring Other
---------- ------------- ------------
Accrual Balance at September 30, 2002 $ 5,800 $400 $1,000
Payments (3,900) - (100)
---------- ------------- ------------
Accrual Balance at December 31, 2002 $ 1,900 $400 900
========== ============= ============
Note 8 - Goodwill and Other Intangible Assets
The components of intangible assets are as follows:
December 31, 2002 September 30, 2002
------------------------------- ------------------------------
Gross Gross
Carrying Accumulated Carrying Accumulated
Amount Amortization Amount Amortization
-------------- ------------- ------------ -------------
Amortized intangible assets:
Core and Developed Technology $370,044 $ 92,257 $370,044 $ 86,878
Patents, Trademarks, & Other 306,623 200,721 308,202 199,065
-------------- ------------- ------------ --------------
Total $676,667 $292,978 $678,246 $285,943
============== ============= ============ ==============
Unamortized intangible assets:
Goodwill $504,458 $492,327
Trademarks 17,621 17,621
-------------- ------------
Total $522,079 $509,948
============== ============
The estimated intangible amortization expense for the fiscal years ending
September 30, 2003 to 2008 are as follows: 2003 - $37,200; 2004 - $36,800; 2005
- - $35,100; 2006 - $32,200; 2007 - $31,900; 2008 - $30,900.
Note 9 - Adoption of New Accounting Standards
Effective October 1, 2002, the Company adopted the provisions of Statement of
Financial Accounting Standards ("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 adoption of these provisions had no impact on the Company's
consolidated financial position or results of operations for the first quarter.
In June 2002, the Financial Accounting Standard Board ("FASB") issued SFAS No.
146, "Accounting for Costs Associated with Exit or Disposal Activities." This
Statement requires that a liability for a cost associated with an exit or
disposal activity be recognized when the liability is incurred. Previous
guidance had required that liabilities for exit costs be recognized at the date
of an entity's commitment to an exit plan. The Company is required to adopt the
provisions of this Statement for any exit or disposal activities that are
initiated after December 31, 2002, and does not expect that this Statement will
have a material impact on its consolidated financial position or results of
operations in 2003.
10
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure," which amends the disclosure
provisions of SFAS No. 123, "Accounting for Stock-Based Compensation." SFAS No.
148 requires expanded and more prominent disclosure of the effects of an
entity's accounting policy with respect to stock-based employee compensation. As
required, the Company will include these expanded disclosures in its Form 10-Q
for the quarter ending March 31, 2003.
11
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
Becton Dickinson and Company ("BD") reported first quarter revenues of $1.052
billion, an 11 percent increase from the same period a year ago. Revenue growth
was favorably affected by foreign currency translation, primarily the euro,
which increased revenues approximately two percent. International revenues grew
10 percent, or approximately five percent after excluding the favorable impact
of foreign currency translation.
BD Medical Systems ("Medical") revenues of $572 million increased 14 percent for
the quarter. This growth was driven by safety-engineered product sales in the
United States of $100 million, compared with $78 million in the prior year's
quarter, and strong worldwide sales of prefillable drug delivery devices, which
grew 30 percent to $93 million. Revenue from sales of consumer health care
products grew 13 percent to $120 million, based in part on a favorable
comparison to the prior year's quarter for diabetes syringe sales in the United
States. The prior year's quarter had included 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. Revenue
growth in the Medical segment was partly offset by reduced sales of certain
conventional devices in the United States due to the transition to
safety-engineered devices.
BD Clinical Laboratory Solutions ("Clinical Lab") revenues increased 13 percent
for the quarter to $332 million. Growth in the Clinical Lab segment was driven
primarily by strong sales of safety-engineered products in the United States,
which were $65 million compared with $49 million in the prior year. Revenue from
sales of diagnostic systems also grew 13 percent to $164 million, due in part to
strong sales of respiratory and flu diagnostic tests, especially in Japan, and
sales of its molecular diagnostic platform, BD ProbeTec'TM'ET. Clinical Lab
revenue growth was partly offset by reduced sales of certain conventional
devices in the United States due to the transition to safety-engineered devices.
BD Biosciences ("Biosciences") revenues of $148 million were slightly ahead of
last year. Growth in flow cytometry reagents, immunology/cell biology reagents
and discovery labware products was partly offset by sales of molecular biology
reagents, which were below the prior year due to continued weakness in some
portions of the molecular biology research market. In addition, flow cytometry
instrument sales were $35 million in the current quarter, compared with $42
million in the prior year, reflecting a reduction in order backlog in fiscal
2002 resulting from order fulfillment and installation improvements. In
addition, favorable reaction to the first quarter announcement of the new BD
FACSAria'TM' cell sorter caused some order postponement in anticipation of the
availability of this new instrument later in the year.
During the beginning of the second quarter, certain BD warehouses were shut down
for nine days to facilitate the start up of our business information system in
the United States. In order to avoid any potential supply interruptions, we
implemented a consignment safety-stocking program in all segments that allowed
major distributors to receive advanced shipments of inventory. As a result of
this program, about two weeks of additional inventory was placed with
12
major distributors as of December 31, 2002. BD retained the title for the
inventory included in these advanced shipments and will recognize the related
revenue when title passes in the second quarter.
Refer to Note 6 in Notes to Condensed Consolidated Financial Statements for
additional segment data.
Changes in segment operating income were primarily driven by fluctuations in
revenue, as discussed above. Segment operating income for Medical and Clinical
Lab was also favorably impacted by increased sales of products with higher
overall gross profit margins, including safety-engineered products, compared to
products sold in the same period in the prior year. Medical segment operating
income also benefited from the absence of the inventory reduction program that
unfavorably impacted manufacturing variances in the prior year's quarter.
Biosciences segment income was unfavorably impacted by lower sales of products
with higher margins compared with the prior year, as well as higher research and
development expenses associated with new product launches.
Gross profit margin was 47.7% for the quarter, compared with 47.1% for the prior
year. This increase primarily reflects the sales growth of our safety-engineered
products, which have higher gross margins, and the absence of the inventory
reduction program in the prior year. Partially offsetting these items were
higher pension costs.
Selling and administrative expense was 27.0% of revenues for the quarter,
compared with the prior year's ratio of 26.3%. This increase reflects
incremental spending related to our enterprise-wide program to upgrade our
business information systems and processes and increased pension costs.
Investment in research and development was $60 million or 5.7% of revenues for
the quarter, compared with $55 million or 5.8% of revenues for the prior year.
Operating margin of 15.0% for the current quarter was the same as the prior
year. Net interest expense declined about $1 million for the quarter compared
with the prior year.
Other income (expense), net was approximately $2 million lower than the prior
year's quarter. Prior year other expense, net included foreign exchange gains of
$4 million that were more than offset by net losses on investments of $6
million.
The income tax rate of 24% for the quarter is the same as the prior year. We
expect the tax rate for the fiscal year to remain 24%.
Net income and diluted earnings per share for the current quarter were $114
million and 43 cents, respectively. For the same period in fiscal 2002, net
income and diluted earnings per share were $100 million and 37 cents,
respectively.
13
Subsequent Event
On January 29, 2003, an explosion occurred at a plant in Kinston, North Carolina
owned by one of our suppliers, West Pharmaceutical Services, Inc. ("West").
This facility supplies BD with certain rubber, plastic and metal components used
in the manufacture of various BD products. Detailed action plans are being
implemented that will result in either the expansion of manufacturing in other
West facilities or the movement of certain manufacturing equipment from Kinston
to other West facilities that currently run similar processes. We anticipate
that supply interruptions to our customers, if any, will be short-term in
nature. Due to the anticipated timing, scope and costs associated with the
actions described above, we estimate that up to 2 cents of diluted earnings per
share could shift from the second quarter to the second half of the fiscal year.
We do not expect this event to otherwise affect our financial results for fiscal
2003.
Prior Year Special Charges
In fiscal 2002, we recorded special charges of $22 million and $7 million of
other manufacturing restructuring costs, primarily accelerated depreciation, in
cost of products sold, as discussed in Note 7 of the Notes to Condensed
Consolidated Financial Statements ("Note 7") and in the 2002 Annual Report on
Form 10-K. For fiscal 2003, we expect any cost savings from this program to be
fully offset by the remaining manufacturing restructuring costs. Beginning in
fiscal 2004, we expect to achieve savings of approximately $15 million related
to this restructuring program.
We recorded special charges of $58 million and $91 million in fiscal years 2000
and 1998, respectively, as described in Note 7. 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 certain BD 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 $3 million from the 1998 restructuring plan
consisting of reduced manufacturing costs and tax savings associated with the
move of a surgical blade plant are expected to be realized in 2004. See Note 7
for further discussion.
Liquidity and Capital Resources
During the first three months of fiscal 2003, cash provided by operating
activities was $114 million compared to $155 million during the first three
months of last year. This decrease was due mainly to changes in working capital,
as a change to our U.S. diabetes promotional activities in the prior year
resulted in a significant decline in trade receivables during the first quarter
of fiscal 2002. Cash provided by operations was reduced by $100 million in the
first quarter of both fiscal 2003 and 2002, reflecting the impact of cash
contributions to the U.S. pension plan.
As of December 31, 2002, total debt of $1.2 billion represented 31.8% of total
capital (shareholders' equity, net non-current deferred income tax liabilities,
and debt), down from 32.5% at September 30, 2002. We use commercial paper to
meet our short-term financing needs, including working capital requirements. As
discussed in our 2002 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
14
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 to incur
substantial additional debt, if required.
Capital expenditures during the first three months were $43 million, compared
with last year's amount of $50 million. We expect capital spending for fiscal
2003 to be about $275 million. Cash used for financing activities in the current
quarter included the repurchase of 1.9 million shares of our common stock for
$57 million. As of December 31, 2002, authorization to repurchase approximately
1.5 million shares remained under a September 2001 resolution of the Board of
Directors. A resolution in January 2003 by the Board of Directors authorized BD
to repurchase up to an additional 10 million common shares.
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 shareholders.
Forward-looking statements may be identified by the use of words like "plan,"
"expect," "believe," "intend," "will," "anticipate," "estimate" and other words
of similar 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
15
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 The effects, if any, of governmental and media activities relating to U.S.
Congressional hearings regarding the business practices of group purchasing
organizations, which negotiate product prices on behalf of their member
hospitals with BD and other suppliers.
o Fluctuations in the cost and availability of raw materials and the ability
to maintain favorable supplier arrangements and relationships, including
without limitation, shortages, if any, of components supplied by West
Pharmaceutical Services, Inc. ("West") as a result of the recent damage to
West's Kinston, North Carolina facility.
o Adoption of or changes in government laws and regulations affecting
domestic and foreign operations, including those relating to trade,
monetary and fiscal policies, taxation, environmental matters, sales
practices, price controls, licensing and regulatory approval of new
products, or changes in enforcement practices with respect to any such laws
and regulations.
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.
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 The effects, if any, of adverse media exposure or other publicity regarding
BD's business, operations or allegations made or related to litigation
pending against BD.
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 The effect of market fluctuations on the value of assets in BD's pension
plans and the possibility that BD may need to make additional contributions
to the plans as a result of any decline in the value of such assets.
o Our ability to effect infrastructure enhancements and incorporate new
systems technologies
16
into our operations.
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 our ability to
successfully 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, 2002.
Item 4. Controls and Procedures
Within the 90-day period prior to the filing of this report, an evaluation was
carried out under the supervision and with the participation of BD's management,
including our Chief Executive Officer and Chief Financial Officer, of the
effectiveness of the design and operation of BD's disclosure controls and
procedures (as defined in Rule 13a-14(c) under the Securities Exchange Act of
1934). Based upon that evaluation, the Chief Executive Officer and Chief
Financial Officer concluded that the design and operation of these disclosure
controls and procedures were effective and designed to ensure that material
information relating to BD and its consolidated subsidiaries would be made known
to them by others within these entities. There were no significant changes in
our internal controls or, to our knowledge, in other factors that could
significantly affect these internal controls subsequent to the date of their
evaluation.
17
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 2002 Annual Report on Form 10-K (the "10-K"). For
the quarter ended December 31, 2002, the following changes have
occurred.
Litigation - Other than Environmental
Latex Cases
We have received a total of 521 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. Since
the inception of this litigation, 241 of these cases have been
closed with no liability to BD (178 of which have been closed
with prejudice) and 14 cases have been settled for an aggregate
de minimis amount. We are vigorously defending the remaining
lawsuits.
RTI Litigation
On January 17, 2003, Retractable Technologies, Inc. ("plaintiff")
filed a third amended complaint against BD, another manufacturer,
and two group purchasing organizations ("GPOs") under the caption
Retractable Technologies, Inc. vs. Becton Dickinson and Company,
et al. (Civil Action No. 501 CV 036, United States District
Court, Eastern District of Texas). Plaintiff alleges that BD and
other defendants conspired to exclude it from the market and to
maintain BD's market share by entering into long-term contracts
in violation of state and Federal antitrust laws. Plaintiff also
has asserted claims for business disparagement, common law
conspiracy, and tortious interference with business
relationships. Fact discovery ended on January 10, 2003, and
a trial date has been set for April 8, 2003. We continue to
vigorously defend this matter.
Class Action Cases
In Ohio, Grant vs. Becton Dickinson et al. (Case No. 98CVB075616,
Franklin County Court), which was filed on July 22, 1998, the
Ohio Court of Appeals for the 10th Appellate Judicial District
has set a date of February 26, 2003 for oral argument of BD's
appeal from the trial court's decision certifying a class.
Summary
We currently are engaged in discovery or are otherwise in the
early stages with respect to certain of the litigation to which
we are a party, and therefore, it is difficult to predict the
outcome of such litigation. In addition, given the uncertain
nature of litigation generally and of the current litigation
environment, it is difficult to predict
18
the outcome of any litigation regardless of its stage. A number
of the cases pending against BD present complex factual and legal
issues and are subject to a number of variables, including, but
not limited to, the facts and circumstances of each particular
case, the jurisdiction in which each suit is brought, and
differences in applicable law. As a result, we are not able to
estimate the amount or range of loss that could result from an
unfavorable outcome of such matters. While we believe that the
claims against BD are without merit and, upon resolution, should
not have a material adverse effect on BD, in view of the
uncertainties discussed above, we could incur charges in excess
of currently established reserves and, to the extent available,
excess liability insurance. Accordingly, in the opinion of
management, any such future charges, individually or in the
aggregate, could have a material adverse effect on BD's
consolidated results of operations and consolidated net cash
flows in the period or periods in which they are recorded or
paid. We continue to believe that we have a number of valid
defenses to each of the suits pending against BD and are engaged
in a vigorous defense of each of these matters.
Environmental Matters
We are also a party to a number of Federal proceedings in the
United States brought under the Comprehensive Environment
Response, Compensation and Liability Act, also known as
"Superfund," and similar state laws. For all sites, there are
other potentially responsible parties that may be jointly or
severally liable to pay all cleanup costs. We accrue costs for
estimated environmental liabilities based upon our best estimate
within the range of probable losses, without considering possible
third-party recoveries. While we believe that, upon resolution,
the environmental claims against BD should not have a material
adverse effect on BD, we could incur charges in excess of
presently established reserves and, to the extent available,
excess liability insurance. Accordingly, in the opinion of
management, any such future charges, individually or in the
aggregate, could have a material adverse effect on BD's
consolidated results of operations and consolidated net cash
flows in the period or periods in which they are recorded or
paid.
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.
19
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, 2002, we
filed three Current Reports on Form 8-K:
(i) Under Item 5 - Other Events and Regulation FD
Disclosure, we announced our results for the fourth
quarter and fiscal year ended September 30, 2002 in a
report dated November 6, 2002.
(ii) Under Item 5 - Other Events and Regulation FD
Disclosure, in a report dated November 26, 2002, we
announced the declaration of our quarterly dividend.
(iii) Under Item 9 - Regulation FD Disclosure, in a report
dated December 20, 2002, we furnished the
certifications submitted to the Securities and Exchange
Commission by each of our Chief Executive Officer and
Chief Financial Officer relating to our Annual Report
on Form 10-K for the fiscal year ended September 30,
2002, pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
20
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 13, 2003
------------------
/s/ John R. Considine
--------------------------------------
John R. Considine
Executive Vice President and Chief
Financial Officer
(Principal Financial Officer)
/s/ William A. Tozzi
---------------------------------------
William A. Tozzi
Vice President and Controller
(Chief Accounting Officer)
21
CERTIFICATIONS
I, Edward J. Ludwig, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Becton,
Dickinson and Company;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
22
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: February 13, 2003
/s/ Edward J. Ludwig
- ------------------------------
Edward J. Ludwig
Chairman, President and
Chief Executive Officer
23
I, John R. Considine, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Becton,
Dickinson and Company;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
24
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: February 13, 2003
/s/ John R. Considine
- ----------------------------------------
John R. Considine
Executive Vice President and
Chief Financial Officer
25
STATEMENT OF DIFFERENCES
The trademark symbol shall be expressed as............................'TM'