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| BDX > SEC Filings for BDX > Form 10-Q on 6-May-2009 | All Recent SEC Filings |
6-May-2009
Quarterly Report
Results of Operations
Revenues
Refer to Note 6 in the Notes to Condensed Consolidated Financial Statements for
segment financial data.
Medical Segment
Second quarter revenues of $897 million represented a decrease of $25 million,
or 3%, compared with the prior year's quarter, including an estimated
$43 million, or 5%, unfavorable impact due to foreign currency translation, net
of hedge gains. Worldwide sales growth of Medical Surgical Systems products were
offset in part by the decline in sales of prefillable devices in the U.S. and
inventory reductions of insulin delivery devices by distributors. Global sales
of safety-engineered products were $184 million, as compared with $174 million
in the prior year's quarter, and included a $5 million unfavorable impact due to
foreign currency translation. For the six-month period ended March 31, 2009,
global sales of safety-engineered products were $376 million, as compared with
$366 million in the prior year's period, and included a $9 million unfavorable
impact due to foreign currency translation. Total BD Medical Segment revenues
for the six-month period ended March 31, 2009 decreased by 2% from the prior
year six-month period, including a 4% unfavorable impact from foreign currency
translation, net of hedge gains.
Diagnostics Segment
Second quarter revenues of $540 million represented an increase of $9 million,
or 2%, over the prior year's quarter, including an estimated $18 million, or 3%,
unfavorable impact due to foreign currency translation, net of hedge gains.
Global sales of safety-engineered products in the Preanalytical Systems unit
totaled $208 million, compared with $199 million in the prior year's quarter,
and included a $9 million unfavorable impact due to foreign currency
translation. Sales growth of safety-engineered devices, cancer diagnostics
products and infectious disease testing systems were partially offset by a
decline in the sales of flu testing products due to a mild 2008-2009 flu season
in the U.S. and weaker than expected sales of BactecTM instruments. For the
six-month period ended March 31, 2009, global sales of safety-engineered
products in the Preanalytical Systems unit were $419 million as compared with
$395 million in the prior year's period, and included a $15 million unfavorable
impact due to foreign currency translation. Total BD Diagnostics Segment
revenues for the six-month period ended March 31, 2009 increased by 3% from the
prior year six-month period, including a 3% unfavorable impact from foreign
currency translation, net of hedge gains.
Biosciences Segment
Second quarter revenues of $304 million represented an increase of $10 million,
or 3%, over the prior year's quarter, including an estimated $2 million, or 1%,
favorable impact due to foreign currency translation, which includes hedge
gains. Strong international sales growth of research instruments and reagents,
primarily in Western Europe and Japan, were offset in part by a slowdown in
research-related capital spending in the U.S., particularly in the academic and
biotech markets, resulting from funding constraints. For the six-month period
ended March 31, 2009, total BD Biosciences Segment revenues increased by 7% from
the prior year period, including a 1% favorable impact from foreign currency
translation, which includes hedge gains. Biosciences Segment revenues reflect a
larger portion of our hedge gains, as the majority of its products are produced
in the United States
Segment Operating Income
Medical Segment
Segment operating income for the second quarter was $251 million, or 28.0% of
Medical revenues, compared with $251 million, or 27.2% of segment revenues, in
the prior year's quarter. Gross profit margin was higher than the second quarter
of 2008 due to favorable foreign currency translation including hedge gains,
which was partially offset by manufacturing start-up costs and the unfavorable
impact of relatively higher sales of products with lower gross margins. See
further discussion on gross profit margin below. Selling and administrative
expense as a percent of Medical revenues in the second quarter of 2009 was lower
than the comparable amount in the second quarter of 2008, due to continued
spending controls. Research and development expenses for the quarter increased
$2.4 million, or 8% above the prior year's period, reflecting increased
investment in new products and platforms. Segment operating income for the
six-month period was $514 million, or 28.7% of Medical revenues, compared with
$514 million, or 28.0% in the prior year's period.
Diagnostics Segment
Segment operating income for the second quarter was $141 million, or 26.2% of
Diagnostics revenues, compared with $125 million, or 23.6% of segment revenues
in the prior year's quarter. Gross profit margin was higher than the second
quarter of 2008 compared with the prior year's quarter due to relatively higher
sales of products with higher gross margins, the favorable impact of foreign
currency translation including hedge gains, and reduced start-up costs, which
were partially offset by increased costs of raw materials. See further
discussion on gross profit margin below. Selling and administrative expense as a
percentage of Diagnostics revenues in the second quarter of 2009 was lower than
the comparable amount in the second quarter of 2008, due to continued spending
controls. Research and development expenses in the second quarter of 2009
increased $.4 million, or 1%, due to modest incremental investment in new
instrument and reagent products. Segment operating income for the six-month
period was $296 million, or 27.4% of Diagnostics revenues compared with
$252 million, or 24.0% in the prior year's period.
Biosciences Segment
Segment operating income for the second quarter was $92 million, or 30.3% of
Biosciences revenues, compared with $84 million, or 28.6% of segment revenues,
in the prior year's quarter. Gross profit margin increased primarily due to the
favorable impact of foreign currency translation, including hedge gains. See
further discussion on gross profit margin below. Selling and administrative
expense as a percent of Biosciences revenues for the quarter decreased compared
with the prior year's quarter, as a result of continued spending controls.
Research and development spending in the quarter increased $1.7 million, or 8%
above the prior year period, reflecting higher spending on new product
development. Segment operating income for the six-month period was $192 million,
or 31.6% of Biosciences revenues, compared with $163 million, or 28.6% in the
prior year's period.
Gross Profit Margin
Gross profit margin was 51.9% for the second quarter, compared with 51.1% for
the comparable prior year period. Gross profit margin in the second quarter of
2009 as compared with the prior
year's period reflected an estimated favorable impact of 190 basis points, from
both foreign currency translation and the hedging of certain foreign currencies,
in particular the Euro, as previously discussed above under "Overview of
Financial Results." These favorable impacts were partially offset by
approximately 110 basis points related to increased manufacturing start-up costs
and the unfavorable impact of relatively higher sales of products with lower
gross margins. Gross profit margin in the six-month period of 2009 of 52.7%
compared with the prior year's period of 51.2% reflected an estimated favorable
impact of foreign currency translation of 230 basis points resulting from the
favorable impact of lower inventory costs and the hedging of certain foreign
currencies, as previously discussed. Partially offsetting these gains were
increases in certain raw material costs, manufacturing start-up costs and the
unfavorable impact of relatively higher sales of products with lower gross
margins, aggregating approximately 80 basis points. We expect gross profit
margin to increase by about 150 basis points in 2009 compared with 2008.
Selling and Administrative Expense
Selling and administrative expense was 25.3% of revenues for the second quarter
and 24.5% for the six-month period, compared with 23.8% and 24.2%, respectively,
for the prior year's periods. Aggregate expenses for the current period
reflected the $45 million litigation charge previously discussed, which was
partially offset by a favorable foreign exchange impact of $20 million. Core
spending was relatively flat as compared with the prior year period. Aggregate
expenses for the six-month period reflected the $45 million litigation charge
and $15 million of increased net core spending. These increases were partially
offset by $38 million of favorable foreign exchange impacts and a $9 million
reduction in the deferred compensation plan liability as discussed below. On a
reported basis, selling and administrative expense as a percentage of revenues
is expected to decrease by about 40 basis points in 2009 compared with 2008.
Research and Development Expense
Research and development expense was $99 million, or 5.7% of revenues, for the
second quarter, which increased 3% compared with the prior year's amount of
$96 million, or 5.5% of revenues. Research and development expense was
$196 million, or 5.6% of revenues, for the six-month period in the current year,
compared with the prior year's amount of $188 million, or 5.4% of revenues. The
increase in research and development expenditures reflects increased spending
for new programs in each of our segments for the three and six-month periods
ended 2009. We anticipate research and development expense to increase from 5.5%
of revenues in 2008 to about 5.6% to 5.8% of revenues for 2009.
Non-Operating Expense and Income
Interest income was $4 million in the second quarter compared with $8 million in
the prior year's period. The decrease resulted from lower investment rates on
investments as well as investment losses on assets relating to our deferred
compensation plan. Interest income was $6 million in the six-month period,
compared with $22 million in the prior year's periods. The decrease resulted
primarily from investment losses on deferred compensation plan assets, as well
as lower investment rates. The related reductions in the deferred compensation
plan liability were recorded as reductions in selling and administrative
expense. Interest expense was $7 million in the second quarter and $15 million
in the six-month period, compared with $8 million and $18 million, respectively,
in the prior year's periods. The decrease reflects lower interest rates on
floating rate debt. Other (expense) income was $(6) million in the second
quarter and $4 million in the six-month period, compared with $1 million and
$2 million, respectively, in the prior year's periods.
Income Taxes
The income tax rate was 26.3% for the second quarter, compared with the prior
year's rate of 27.9%. The six-month tax rate was 26.5% compared with the prior
year's rate of 27.0% on a reported basis. The current year's second quarter and
six-month rates reflect the impact of the litigation charge previously
discussed. The Company expects the reported tax rate for 2009 to be about 27.3%.
Income from Continuing Operations and Diluted Earnings Per Share from Continuing
Operations
Income from continuing operations and diluted earnings per share from continuing
operations for the second quarter of 2009 were $261 million and $1.06,
respectively. Income from continuing operations and diluted earnings per share
from continuing operations for the prior year's second quarter were $276 million
and $1.09, respectively. For the six-month periods, income from continuing
operations and diluted earnings per share from continuing operations were
$573 million and $2.32, respectively, in 2009 and $547 million and $2.16,
respectively, in 2008. The litigation charge decreased the current year's income
from continuing operations and diluted earnings from continuing operations by
$28 million, or 11 cents per share.
Liquidity and Capital Resources
Cash generated from operations, along with available cash and cash equivalents,
is expected to be sufficient to fund our normal operating needs, including
capital expenditures, cash dividends and common stock repurchases in 2009. Net
cash provided by continuing operating activities, was $526 million during the
first six months of 2009, compared with $686 million in the same period in 2008.
The decrease in cash provided by changes in operating assets and liabilities
primarily reflects higher inventory levels.
Net cash used for continuing investing activities for the first six months of
the current year was $320 million, compared with $337 million in the prior year
period. Capital expenditures were $223 million in the first six months of 2009
and $266 million in the same period in 2008. We expect capital spending for 2009
to be about $650 million.
Net cash used for continuing financing activities for the first six months of
the current year was $480 million, compared with $314 million in the prior year
period. For the first six months of the current year, the Company repurchased
$342 million of its common stock, compared with approximately $276 million of
its common stock in the prior year period. At March 31, 2009, authorization to
repurchase an additional 10.7 million common shares remained.
As of March 31, 2009, total debt of $1.2 billion represented 19.3% of total
capital (shareholders' equity, net non-current deferred income tax liabilities,
and debt), versus 18.8% at September 30, 2008. Short-term debt increased to 35%
of total debt at the end of March 31, 2009, from 17% at September 30, 2008,
reflecting the reclassification of $200 million in 7.15% notes, due October 1,
2009, to short-term.
We have in place a commercial paper borrowing program that is available to meet
our short-term financing needs, including working capital requirements.
Borrowings outstanding under this program were $200 million at March 31, 2009.
We have available a $1 billion syndicated credit
facility with an expiration date in December 2012. This credit facility, under
which there were no borrowings outstanding at March 31, 2009, provides backup
support for our commercial paper program and can also be used for other general
corporate purposes. This credit facility includes a single financial covenant
that requires BD to maintain an interest expense coverage ratio (ratio of
earnings before income taxes, depreciation and amortization to interest expense)
of not less than 5-to-1 for the most recent four consecutive fiscal quarters. On
the last eight measurement dates, this ratio has ranged from 21-to-1 to 34-to-1.
In addition, we have informal lines of credit outside the United States.
Cautionary Statement Regarding Forward-Looking Statements
BD and its representatives may from time-to-time make certain forward-looking
statements in publicly-released material, both written and oral, including
statements contained in this report and filings with the Securities and Exchange
Commission ("SEC") 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 that 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.
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:
• The current economic crisis and instability in the global financial markets
and the potential adverse effect on liquidity and capital resources for BD or
its customers and suppliers, the cost of operating our business, the demand
for our products and services, or the ability to produce our products. This
includes the impact on developing countries and their demand for our products.
• Regional, national and foreign economic factors, including inflation, deflation and fluctuations in interest rates and foreign currency exchange rates and the potential effect of such fluctuations on revenues, expenses and resulting margins, as well as competition in certain markets.
• Fluctuations in the cost and availability of oil-based resins and other raw materials, as well as certain sub-assemblies and finished goods, and the ability to maintain favorable supplier
arrangements and relationships (particularly with respect to sole-source suppliers) and the potential adverse effects of any disruption in the availability of such items.
• We operate in a highly competitive environment. New product introductions by our current or future competitors (for example, new forms of drug delivery) could adversely affect our ability to compete in the global market. Patents attained by competitors, particularly as patents on our products expire, may also adversely impact our competitive position. Certain competitors have established manufacturing sites or have contracted with suppliers in low-cost manufacturing locations as a means to lower their costs. New entrants may also appear.
• We sell certain products to pharmaceutical companies that are used to manufacture, or are sold with, products by such companies. As a result, fluctuations in demand for the products of these pharmaceutical companies could adversely affect our operating results.
• Changes in domestic and foreign healthcare industry practices and regulations resulting in increased 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.
• The effects, if any, of governmental and media activities regarding the business practices of group purchasing organizations, which negotiate product prices on behalf of their member hospitals with BD and other suppliers.
• Our ability to obtain the anticipated benefits of restructuring programs, if any, that we may undertake.
• Our ability to implement the upgrade of our enterprise resource planning system. Any delays or deficiencies in the design and implementation of our upgrade could adversely affect our business.
• Adoption of, or changes in, government laws and regulations affecting domestic and foreign operations, including those relating to trade, monetary and fiscal policies, taxation (including tax reforms proposed by the Obama administration that could adversely impact multinational corporations), environmental matters, sales practices, price controls, licensing and regulatory approval of new products, regulatory requirements for products in the postmarketing phase, or changes in enforcement practices with respect to any such laws and regulations. In particular, environmental laws, particularly with respect to the emission of greenhouse gases, are becoming more stringent throughout the world, which may increase our costs of operations or necessitate changes in our manufacturing plants or processes.
• Fluctuations in U.S. and international governmental funding and policies for life sciences research.
• 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, obtain coverage and adequate reimbursement for new products, or gain and maintain market approval of products, as well as 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.
• Pending and potential litigation or other proceedings adverse to BD, including antitrust claims, product liability claims, patent infringement claims, and the availability or collectibility of insurance relating to any such claims.
• The effects, if any, of adverse media exposure or other publicity regarding BD's business or operations.
• Our ability to achieve the projected level or mix of product sales. Our earnings forecasts are generated based on such projected volumes and sales of many product types, some of which are more profitable than others.
• 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.
• Our ability to effect infrastructure enhancements and incorporate new systems technologies into our operations.
• Product efficacy or safety concerns resulting in product recalls, regulatory action on the part of the U.S. Food and Drug Administration (or foreign counterparts) or declining sales.
• Political conditions in international markets, including civil unrest, terrorist activity, governmental changes, restrictions on the ability to transfer capital across borders and expropriation of assets by a government.
• The effects of natural disasters, including pandemic diseases, earthquakes, fire, or the effects of climate change on our ability to manufacture our products, particularly where production of a product line is concentrated in one or more plants, or on our ability to source components from suppliers that are needed for such manufacturing.
• 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.
• The impact of business combinations, including acquisitions and divestitures, both internally on BD and externally on the healthcare industry.
• Issuance of new or revised accounting standards by 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.
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