BECTON DICKINSON & CO — Interim / Quarterly Report 1997

May 15, 1997

FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1997 ------------------------------------ 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 1-4802 ----------------------------------------------- Becton, Dickinson and Company - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) New Jersey 22-0760120 - ---------------------------------- ------------------------------------ (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 1 Becton Drive Franklin Lakes, New Jersey 07417-1880 ---------------------------------------------------- (Address of principal executive offices) (Zip Code) (201)847-6800 ---------------------------------------------------- (Registrant's telephone number, including area code) N/A ---------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X. No ____. -- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class of Common Stock Shares Outstanding as of April 30, 1997 --------------------- --------------------------------------- Common stock, par value $1.00 122,081,475 PART I - FINANCIAL INFORMATION ------------------------------ Item 1. Financial Statements. --------------------- Condensed Consolidated Balance Sheets at March 31, 1997 and September 30, 1996 Condensed Consolidated Statements of Income for the three and six months ended March 31, 1997 and 1996 Condensed Consolidated Statements of Cash Flows for the six months ended March 31, 1997 and 1996 Notes to Condensed Consolidated Financial Statements 2 ITEM 1. FINANCIAL STATEMENTS BECTON, DICKINSON AND COMPANY CONDENSED CONSOLIDATED BALANCE SHEETS Thousands of Dollars

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)

See notes to condensed consolidated financial statements 4 BECTON, DICKINSON AND COMPANY CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS Thousands of Dollars (UNAUDITED)

See notes to condensed consolidated financial statements 5 BECTON, DICKINSON AND COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 1997 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 1996 Annual Report on Form 10-K. The results of operations for the interim periods are not necessarily indicative of the results of operations to be expected for the full year. Note 2 - Inventory Valuation - ---------------------------- An actual valuation of inventory under the LIFO method can be made only at the end of each fiscal year based on the inventory levels and costs at that time. Accordingly, interim LIFO calculations are based on management's estimates of expected year-end inventory levels and costs. 6 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -------------------------------------------- Results of Operations - --------------------- Second Quarter 1997 vs. Second Quarter 1996 - ------------------------------------------- Second quarter reported revenues of $699 million were slightly below last year's reported revenues of $706 million. Reported revenues for the quarter were unfavorably impacted by the effect of a stronger dollar versus the prior year, which reduced revenues by an estimated $20 million, and the absence of approximately $16 million of revenues included in the prior year second quarter associated with divested businesses, all of which related to the Medical Supplies and Devices segment. Adjusting for the effects of these items, revenues would have increased approximately 4%. Medical Supplies and Devices segment revenues of $376 million were slightly below last year's revenues of $379 million. Adjusting for the absence of sales related to divested businesses and the estimated unfavorable effect of foreign currency translation, Medical Supplies and Devices segment revenues would have increased approximately 5%. Diagnostic Systems segment revenues were $323 million compared with last year's revenues of $326 million and would have increased 3% after adjusting for the estimated unfavorable impact of foreign currency translation. Domestic Medical segment revenues of $194 million were about the same as last year. Adjusting for the unfavorable impact from the absence of sales of divested businesses, Domestic Medical segment revenues increased approximately 4%. International Medical segment revenues of $182 million decreased 2%, but would have increased 7% after adjusting for both the estimated unfavorable impact of foreign currency translation and the absence of sales of divested businesses. Good growth rates were experienced worldwide by both the injection systems and infusion therapy businesses. Domestic Diagnostic segment revenues of $167 million decreased 1%. Diagnostic segment revenue growth continues to be unfavorably impacted by U.S. cost containment initiatives in the infectious disease diagnostics business. International Diagnostic segment revenues of $156 million were about the same as last year but would have increased approximately 7% after excluding the estimated unfavorable effect of foreign currency translation. Good growth rates were achieved in the sample collection and flow cytometry businesses. The gross profit margin of 49.6% improved almost two percentage points over last year's second quarter rate of 47.8%. The improvement reflects a more profitable mix of products sold as well as continuing productivity improvements. Selling and administrative expense of $185 million was 26.5% of revenues which was slightly higher than last year's second quarter ratio of 26.3%. Investment of $39 million in research and development increased 3% over last year's second 7 quarter expenditures, reflecting the continued investment in strategic areas of the Company's businesses. Operating income of $122 million increased 8% from last year's second quarter amount of $113 million. The improvement in the operating margin from 16.0% to 17.4% primarily reflects the improved gross profit margin. Net interest expense of $9 million was $1 million lower than last year's second quarter amount due to a reduction in overall debt levels resulting from strong cash flows. Other income (expense), net was $3 million favorable to last year's second quarter amount primarily due to a $6 million gain on the sale of an equity investment in the current quarter. The second quarter income tax rate was 29.0%, compared with last year's second quarter rate of 28.0%, reflecting a less favorable forecasted mix in income among tax jurisdictions. Net income was $83 million compared with $75 million last year, an increase of 11%. Earnings per share of $.63 increased 15% over last year's $.55. Strong growth in operating income as well as a continuation of the Company's share repurchase program contributed to this favorable earnings per share growth. Six Months 1997 vs. Six Months 1996 - ----------------------------------- Reported revenues of $1.355 billion were 1% higher than last year's reported revenues of $1.346 billion. After adjusting for the estimated unfavorable effect of foreign currency translation and the absence of sales associated with divested businesses, revenues would have increased approximately 6%. Medical Supplies and Devices segment revenues were $724 million compared with last year's reported revenues of $726 million. After adjusting for the absence of sales associated with divested businesses and the unfavorable effect of foreign currency translation, Medical Supplies and Devices segment revenues would have grown 8%. Diagnostic Systems segment revenues of $631 million increased 2%, or 5% after adjusting for the estimated unfavorable impact of foreign currency translation. Domestic revenues increased $2 million despite the effect of the divestitures mentioned above. International revenues of $663 million increased 1%, or 6% after excluding the estimated impact of foreign currency translation. The gross profit margin of 48.6% was almost two percentage points higher than last year's rate of 46.7%, reflecting a more profitable mix of products sold and productivity improvements. Selling and administrative expense was 27.5% of revenues, slightly higher than last year's rate of 27.3%. Investment of $79 million in research and development expense was 5% higher than last year's investment. As a percent of revenues, research and development expense was 5.8%, higher than last year's rate of 5.6%. The reasons for these changes are consistent with those previously discussed in the Second Quarter Results of Operations. 8 Operating income of $208 million increased $23 million over last year. As a percent of revenues, operating income was 15.4% compared with last year's rate of 13.7% resulting primarily from the improved gross profit margin. Other income (expense), net was $8 million favorable compared with last year, principally due to a $4 million gain on the sale of the infusion pump business in the first quarter of 1997, in addition to the reasons discussed in the Second Quarter Results of Operations. The income tax rate of 29.0%, compared with last year's rate of 28.0% reflects a less favorable forecasted mix in income among tax jurisdictions. Financial Condition - ------------------- During the first six months of 1997, cash provided by operations was $209 million, compared with $179 million during the first six months of last year principally due to improvement in net income and lower working capital requirements. Capital expenditures for the first six months of 1997 were $63 million which was about the same as last year. For the full year, capital expenditures are expected to be slightly higher than last year's full year amount of $146 million. The Company also received $21 million in proceeds from the sale of the infusion pump business and $9 million in proceeds from the sale of an equity investment. During the first six months of 1997, total debt declined $28 million. The percentage of debt to capitalization (wherein capitalization is defined as the sum of shareholders' equity, net non-current deferred income tax liabilities, and debt) was 33.4%, compared with 36.0% a year ago. Because of its strong credit ratings, the Company believes it has the capacity to arrange significant additional borrowings should the need arise. During the first six months of 1997, the Company repurchased 2.4 million shares of its common stock for a total expenditure of $108 million. At March 31, 1997, authorization from the Board of Directors remained outstanding to acquire an additional 12.4 million shares. In March 1997, the Company signed a definitive agreement to purchase Difco Laboratories Incorporated, a Michigan-based manufacturer of microbiology media and supplies with estimated annual revenues of $82 million. The Company has received government approval for the transaction, which is expected to be completed during the third quarter of fiscal 1997. In April 1997, the Company also signed a definitive agreement to acquire PharMingen, a California-based manufacturer of products for biomedical research with estimated annual revenues of $30 million. Upon receipt of government approval, the Company expects to complete the transaction later in fiscal 1997. 9 In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings per Share." This Statement specifies the computation, presentation and disclosure requirements for earnings per share for entities with publicly held common stock or potential common stock. The Company is required to adopt the provisions of SFAS No. 128 for the quarter ended December 31, 1997. The principal difference between the provisions of SFAS No. 128 and previous authoritative pronouncements is related to the exclusion of common stock equivalents in the determination of Basic Earnings Per Share and the market price at which common stock equivalents are calculated in the determination of Diluted Earnings Per Share. In accordance with the provisions of SFAS No. 128, earnings per share for the three and six months ended March 31, 1997 and 1996 are presented in the table below:

10 PART II - OTHER INFORMATION --------------------------- Item 4. Submission of Matters to a Vote of Security Holders. ---------------------------------------------------- a.) The Annual Meeting of Shareholders of the Company was held on February 11, 1997. c.) i.) A management proposal for the election of five directors for the terms indicated below was voted upon as follows: Nominee Term Votes For Votes Withheld ------------- ------- ----------- -------------- Albert J. Costello 2 Years 106,417,953 984,174 Harry N. Beaty 3 Years 106,429,543 972,584 Clateo Castellini 3 Years 106,390,246 1,011,881 John W. Galiardo 3 Years 106,402,871 999,256 Frank A. Olson 3 Years 106,407,889 994,228 ii.) A management proposal to approve the selection of Ernst & Young, LLP as independent auditors for the fiscal year 1997 was voted upon. 106,995,031 shares were voted for the proposal, 183,861 shares were voted against and 223,235 shares abstained. iii.) A shareholder proposal requesting the Board of Directors to take the necessary steps to provide for cumulative voting in the election of directors was voted upon. 27,088,965 shares were voted for the proposal, 61,477,389 shares were voted against and 8,623,737 shares abstained. iv.) A shareholder proposal requesting the Board of Directors to provide a report on the Company's Mexican operations was voted upon. 7,424,674 shares were voted for the proposal, 80,974,700 shares were voted against and 8,786,916 shares abstained. 11 Item 6. Exhibits and Reports on Form 8-K. --------------------------------- a) Exhibits 11 - Computation of Earnings Per Share. 27 - Financial Data Schedule b) Reports on Form 8-K There were no reports on Form 8-K filed for the quarter ended March 31, 1997. 12 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Becton, Dickinson and Company ----------------------------- (Registrant) Date May 15, 1997 --------------- /s/ Edward J. Ludwig ---------------------------------- Edward J. Ludwig Senior Vice President - Finance and Chief Financial Officer (Principal Financial and Accounting Officer) 13 EXHIBIT INDEX ------------- Exhibit Method of Number Description Filing - ------ ----------- -------------- 11 Computation of Earnings Filed with Per Share this report 27 Financial Data Schedule Filed with this report