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| BDX > SEC Filings for BDX > Form 10-Q on 10-Aug-2009 | All Recent SEC Filings |
10-Aug-2009
Quarterly Report
• During the second quarter of fiscal year 2009, the Company recorded a charge of $45 million, or 11 cents diluted earnings per share from continuing operations for the nine-month period, associated with the pending settlement with the direct purchaser plaintiffs (which includes BD's distributors) in certain antitrust class actions. Further discussion of these class actions is provided in Note 5 in the Notes to Condensed Consolidated Financial Statements.
As further discussed in our 2008 Annual Report on Form 10-K, we face currency exposure that arises from translating the results of our worldwide operations to the U.S. dollar at exchange rates that fluctuate from the beginning of the period. We purchase forward contracts to partially protect against adverse foreign exchange rate movements. Gains or losses on our derivative instruments are largely offset by the gains or losses on the underlying hedged transactions. We do not enter into derivative instruments for trading or speculative purposes.
During the first nine months of fiscal year 2009, the U.S. dollar has strengthened against most foreign currencies, primarily the Euro, compared to rates from fiscal year 2008. The resulting unfavorable impact of foreign currency translation on revenues in the first nine months of 2009 was mitigated to an extent by hedge gains, recorded in revenues, resulting from our hedging activities. For further discussion refer to Note 11 in the Notes to Condensed Consolidated Financial Statements. In addition, the strengthening of the U.S. dollar during the first quarter of 2009 reduced the carrying value of inventory sold outside the United States, resulting in lower cost of goods sold in the first quarter of 2009, which had a favorable impact on gross profit margin for the nine-month period reported. Our financial projections for 2009 discussed below are based on our foreign exchange rate assumptions. Further fluctuations in foreign exchange rates during 2009 could impact our financial results.
Results of Operations
Revenues
Refer to Note 6 in the Notes to Condensed Consolidated Financial Statements for
segment financial data.
Medical Segment
Third quarter revenues of $969 million represented a decrease of $29 million, or
3%, over the prior year's quarter, including an estimated $81 million, or 8%,
unfavorable impact due to foreign currency translation, net of hedge gains.
Worldwide sales growth was primarily due to sales of insulin delivery products,
as well as safety-engineered and prefillable devices. Global sales of
safety-engineered products were $199 million, as compared with $191 million in
the prior year's quarter, and included a $7 million unfavorable impact due to
foreign currency translation. For the nine-month period ended June 30, 2009,
global sales of safety-engineered products were $575 million, as compared with
$557 million in the prior year's period, and included a $16 million unfavorable
impact due to foreign currency translation. Total BD Medical Segment revenues
for the nine-month period ended June 30, 2009 decreased by 2% from the prior
year's nine-month period, including a 6% unfavorable impact from foreign
currency translation, net of hedge gains.
Diagnostics Segment
Third quarter revenues of $566 million represented an increase of $13 million,
or 2%, over the prior year's quarter, including an estimated $33 million, or 6%,
unfavorable impact due to foreign currency translation, net of hedge gains.
Global sales of safety-engineered products in the Preanalytical Systems unit
totaled $223 million, compared with $213 million in the prior year's quarter,
and included a $13 million unfavorable impact due to foreign currency
translation. Sales of safety-engineered devices, cancer diagnostics products and
infectious disease testing systems, including flu-related products, contributed
to revenue growth. For the nine-month period ended June 30, 2009, global sales
of safety-engineered products in the Preanalytical Systems unit were
$642 million as compared with $609 million in the prior year's period, and
included a $28 million unfavorable impact due to foreign currency translation.
Total BD Diagnostics Segment revenues for the nine-month period ended June 30,
2009 increased by 2.5% from the prior year's nine-month period, including a 4%
unfavorable impact from foreign currency translation, net of hedge gains.
Biosciences Segment
Third quarter revenues of $285 million represented a decrease of $13 million, or
4%, compared to the prior year's quarter, including an estimated $9 million, or
3%, unfavorable impact due to foreign currency translation, net of hedge gains.
Demand in the U.S. for capital equipment in the research and clinical segments
continued to be impacted by funding constraints. The Company
also began to experience weakening demand for instruments in Japan and certain
parts of Europe during the quarter. For the nine-month period ended June 30,
2009, total BD Biosciences Segment revenues increased by 3% from the prior
year's period, including a 1% unfavorable impact from foreign currency
translation, net of hedge gains. Biosciences Segment revenues reflect a larger
portion of our hedge gains, as further discussed in Note 6 in the Notes to
Condensed Consolidated Financial Statements.
Segment Operating Income
Medical Segment
Segment operating income for the third quarter was $304 million, or 31.3% of
Medical revenues, compared with $284 million, or 28.4% of segment revenues, in
the prior year's quarter. Gross profit margin was higher than the third quarter
of 2008 primarily due to favorable foreign currency translation, including hedge
gains, as well as favorable resin prices compared with the prior year's period,
partially offset by increased manufacturing start-up costs. See further
discussion on gross profit margin below. Selling and administrative expense as a
percentage of Medical revenues in the third quarter of 2009 was lower than the
comparable amount in the third quarter of 2008, due to continued spending
controls. Segment operating income for the nine-month period was $811 million,
or 29.8% of Medical revenues, compared with $791 million, or 28.3% in the prior
year's period.
Diagnostics Segment
Segment operating income for the third quarter was $155 million, or 27.3% of
Diagnostics revenues, compared with $135 million, or 24.5% of segment revenues
in the prior year's quarter. Gross profit margin was higher than the third
quarter of 2008 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 third quarter of 2009 was lower than the comparable amount in the third
quarter of 2008, due to continued spending controls. Segment operating income
for the nine-month period was $451 million, or 27.4% of Diagnostics revenues
compared with $388 million, or 24.1% in the prior year's period.
Biosciences Segment
Segment operating income for the third quarter was $76 million, or 26.7% of
Biosciences revenues, compared with $83 million, or 27.8% of segment revenues,
in the prior year's quarter. Gross profit margin decreased primarily due to
plant restructuring costs, higher instrument costs due to lower manufacturing
volumes, the unfavorable impact of relatively higher sales of products with
lower gross margins, and an asset impairment charge. See further discussion on
gross profit margin below. Selling and administrative expense as a percentage of
Biosciences revenues for the quarter decreased compared with the prior year's
quarter, as a result of continued spending controls. Segment operating income
for the nine-month period was $268 million, or 30.1% of Biosciences revenues,
compared with $246 million, or 28.4% in the prior year's period.
Gross Profit Margin
Gross profit margin was 52.8% for the third quarter, compared with 51.0% for the
comparable prior year period. Gross profit margin in the third quarter of 2009
as compared with the prior year's period reflected an estimated favorable impact
of 110 basis points, from both foreign currency translation and the gains
resulting from the hedging of certain foreign currencies, in particular the
Euro, as previously discussed above under "Overview of Financial Results."
Favorable purchase prices for raw materials, substantially resins, also improved
gross profit margin in the third quarter by 100 basis points. These favorable
impacts were partially offset by approximately 30 basis points related to
increased manufacturing start-up costs and the unfavorable impact of relatively
higher sales of products with lower gross margins (in particular from the
Biosciences segment). Gross profit margin in the nine-month period of 2009 of
52.8% compared with the prior year's period of 51.2% reflected an estimated
favorable impact of 190 basis points from both foreign currency translation and
the hedging of certain foreign currencies. Partially offsetting these gains were
increases in manufacturing start-up costs and the unfavorable impact of
relatively higher sales of products with lower gross margins, aggregating
approximately 30 basis points. We expect gross profit margin to increase by
about 120 to 170 basis points in 2009 compared with 2008.
Selling and Administrative Expense
Selling and administrative expense was 23.6% of revenues for the third quarter
and 24.2% for the nine-month period, compared with 23.6% and 24.0%,
respectively, for the prior year's periods. Aggregate expenses for the current
period reflect a favorable foreign exchange impact of $30 million, offset by
increases in base spending of $24 million. Aggregate expenses for the nine-month
period reflected the $45 million litigation charge previously discussed and
$32 million of increased net core spending. These increases were partially
offset by $68 million of favorable foreign exchange impacts. On a reported
basis, selling and administrative expense as a percentage of revenues is
expected to decrease by about 10 to 40 basis points in 2009 compared with 2008.
Research and Development Expense
Research and development expense was $98 million, or 5.4% of revenues, for the
third quarter, which was relatively flat compared with the prior year's amount
of $100 million, or 5.4% of revenues. Research and development expense was
$294 million, or 5.6% of revenues, for the nine-month period in the current
year, compared with the prior year's amount of $287 million, or 5.5% of
revenues. The nine-month increase in research and development expenditures
reflects increased spending for new programs in each of our segments. We
anticipate research and development expense to be 5.6% to 5.8% of revenues for
2009.
Non-Operating Expense and Income
Interest income was $13 million in the third quarter, compared with $11 million
in the prior year's period. The increase resulted from investment gains on
assets relating to our deferred compensation plan, partially offset by lower
investment rates. The related offsetting changes in the deferred compensation
liability were recorded in selling and administrative expenses. Interest income
was $19 million in the nine-month period, compared with $32 million in the prior
year's period. The decrease resulted primarily from lower investment rates.
Interest expense was $11 million in the third quarter compared with $9 million
in the prior year's period. The increase reflects higher levels of debt, offset
by lower interest rates on floating rate debt.
Interest expense of $27 million in the nine-month period was relatively flat
compared with the prior year's period. Other (expense) income was $(4) million
in the third quarter and $(1) million in the nine-month period, compared with
$(1) million and $.3 million, respectively, in the prior year's periods.
Income Taxes
The income tax rate was 21.0% for the third quarter, compared with the prior
year's rate of 27.6% and reflected a 4.8% benefit due to various tax settlements
in multiple jurisdictions. The nine-month tax rate was 24.5% compared with the
prior year's rate of 27.3%. The Company expects the reported tax rate for fiscal
year 2009 to be about 25.4%.
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 third quarter of 2009 were $339 million and $1.38,
respectively. Income from continuing operations and diluted earnings per share
from continuing operations for the prior year's third quarter were $296 million
and $1.18, respectively. For the nine-month periods, income from continuing
operations and diluted earnings per share from continuing operations were
$907 million and $3.67, respectively, in 2009 and $837 million and $3.31,
respectively, in 2008. The tax benefit discussed above increased the current
quarter and nine-month period's income from continuing operations by
$20 million, or 8 cents per share, respectively. The litigation charge decreased
the nine-month period's income from continuing operations and diluted earnings
from continuing operations by $28 million, or 11 cents per share.
Discontinued Operations
On July 8, 2009, we sold the assets associated with the Home Healthcare product
line. The results of operations of the Home Healthcare product line have been
classified as discontinued operations for all periods presented in the
Consolidated Statements of Income. An estimated gain on sale of 5 cents diluted
earnings per share from discontinued operations will be recorded in the fourth
quarter of fiscal year 2009. See Note 9 of the Notes to the Consolidated
Financial Statements for additional discussion.
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 $1.048 billion during the
first nine months of 2009, compared with $1.205 billion in the same period in
2008. The decrease in cash provided by changes in working capital primarily
reflects higher inventory levels.
Net cash used for continuing investing activities for the first nine months of
the current year was $714 million, compared with $570 million in the prior year
period. The increase in cash used for capital software investments is primarily
related to our enterprise-wide program to upgrade our business information
systems. The increase in cash used for purchases of investments is related to
the temporary investment of proceeds from the long-term debt issuances discussed
below. Capital expenditures were $354 million in the first nine months of 2009
and $418 million in the same period in 2008. We expect capital spending for
fiscal year 2009 to be about $600 million.
Net cash provided by continuing financing activities for the first nine months
of the current year was $162 million, compared with net cash used for financing
activities of $448 million in the prior year period. Net cash provided by
continuing financing activities for the nine-month period included proceeds from
long-term debt issuances, as discussed below. For the first nine months of the
current year, the Company repurchased $371 million of its common stock, compared
with approximately $354 million of its common stock in the prior year period. At
June 30, 2009, authorization to repurchase an additional 10.3 million common
shares was in effect.
As of June 30, 2009, total debt of $1.9 billion represented 26.5% of total
capital (shareholders' equity, net non-current deferred income tax liabilities,
and debt), versus 18.8% at September 30, 2008. In May 2009, we issued
$500 million of 10-year 5% notes and $250 million of 30-year 6% notes. The net
proceeds from these issuances are expected to be used for the repayment of $200
million in 7.15% notes, due October 1, 2009, and for general corporate purposes.
Short-term debt increased to 21% of total debt at the end of June 30, 2009, from
17% at September 30, 2008.
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 June 30, 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 June 30, 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 23-to-1 to 32-to-1. In addition, we have
informal lines of credit outside the United States.
Greek Government Receivables
Accounts receivable balances at June 30, 2009 include sales to government-owned
or supported healthcare facilities in Greece of approximately $42 million, net
of reserves which were increased in the third quarter of 2009. These sales are
subject to significant payment delays due to government funding and
reimbursement practices. We understand that this is an industry-wide issue for
suppliers to these facilities. If significant changes occur in the availability
of government funding, we may not be able to collect on amounts due from these
customers. We do not expect this concentration of credit risk to have a material
adverse impact on our financial position or liquidity.
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 "Risk
Factors" included in our Annual Report on Form 10-K for the 2008 fiscal year and
Quarterly Report on Form 10-Q for the period ended March 31, 2009 also describe
certain risks that could adversely affect our business, financial condition,
operating results or cash flows.
• The current economic downturn and continued 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.
. . .
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