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Gross
profit margin was 50.6% in 1998, compared with 49.7% in 1997,
reflecting our continued success in improving manufacturing efficiency,
as well as a more profitable mix of products sold.
Selling
and administrative expense of $862 million was 27.6% of revenues,
compared to 27.3% in 1997, and was unfavorably affected by the
1998 reengineering charges related to Genesis. Investment in research
and development in 1998 increased to $218 million, or 7.0% of
revenues, including the $30 million charge for purchased in-process
research and development related to the MDD acquisition. In 1997,
we recorded a charge of $15 million for purchased in-process research
and development associated with two acquisitions. Excluding the
effect of purchased in-process research and development in both
years, investment in research and development remained at 6% of
revenues, or an increase of 13% over 1997. This increase includes
additional funding directed toward emerging new platforms, such
as DNA probe technology and other new diagnostic platforms, to
support our efforts to accelerate our rate of revenue growth.
Operating income in 1998 of $405 million decreased from $451 million
in 1997. Excluding the special and other charges in 1998 and purchased
in-process research and development in 1998 and 1997, operating
income would have been 17.6% of revenues in 1998, compared to
16.6% in 1997. This increase in operating margin resulted from
an improved gross profit margin, as well as a lower selling and
administrative expense ratio.
Net
interest expense of $56 million in 1998 was $17 million higher
than in 1997, primarily due to additional borrowings to fund acquisitions.
“Other
(expense) income, net” in 1998 included foreign exchange losses
of $11 million, including hedging costs, and a gain of $3 million
on the sale of an investment. “Other (expense) income, net” in
1997 included $8 million of gains from the disposition of non-core
business lines and a gain of $6 million on the sale of an investment.
Also included in 1997 were foreign exchange losses of $5 million,
including hedging costs.
The
effective tax rate in 1998 was 30.6% compared to 29% in 1997.
The increase is principally due to the lack of a tax benefit associated
with a larger purchased in-process research and development charge
recorded in 1998, as compared to 1997.
Net
income in 1998 was $237 million, compared to $300 million in 1997.
Diluted earnings per share were $.90, compared to $1.15 in 1997.
The effects of the special and other charges and the purchased
in-process research and development charge recorded in 1998 decreased
diluted earnings per share by $.40, and the estimated impact of
unfavorable foreign currency translation was $.07 per share. Exclusive
of these items and the in-process research and development charges
recorded in 1997, diluted earnings per share grew 13% over 1997.
Capital
expenditures were $181 million, compared to $170 million in 1997.
Medical, Biosciences and Preanalytical capital spending totaled
$105 million, $38 million and $28 million, respectively, in 1998.
We
expended $537 million, net of cash acquired, for business acquisitions
in 1998, compared to $201 million in 1997.
Net
cash provided by financing activities was $242 million during
1998 as compared with a use of cash of $92 million during 1997.
This change was due primarily to a reduction in common share repurchases,
as well as net proceeds received from the issuance of commercial
paper in 1998 versus net repayments in 1997.
During
1998, total debt increased $352 million, primarily as a result
of increased spending on acquisitions. Short-term debt was 33%
of total debt at year end, compared to 17% at the end of 1997.
The change in this percentage was principally attributable to
the use of short-term debt to finance a portion of the MDD acquisition.
Return
on equity decreased to 15.8% in 1998, from 22.1% in 1997, primarily
due to the impact of special and other charges and the purchased
in-process research and development charge.
The
Private Securities Litigation Reform Act of 1995 provides a safe
harbor for forward-looking statements (as defined under Federal
securities laws) made by or on behalf of BD. BD and its representatives
from time to time may make certain verbal or written forward-looking
statements regarding BD’s performance (including future revenues,
products and income), or events or developments that BD expects
to occur or anticipates occurring in the future. All such statements
are based upon current expectations of BD and involve a number
of business risks and uncertainties. Actual results could vary
materially from anticipated results described in any forward-looking
statement. Factors that could cause actual results to vary materially
include, but are not limited to, competitive factors, changes
in regional, national or foreign economic conditions, changes
in interest or foreign currency exchange rates, delays in product
introductions, Year 2000 issues, and changes in health care or
other governmental practices or regulation, as well as other factors
discussed herein and in other of BD’s filings with the Securities
Exchange Commission.