Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
BDX > SEC Filings for BDX > Form 10-Q on 10-Feb-2014All Recent SEC Filings

Show all filings for BECTON DICKINSON & CO

Form 10-Q for BECTON DICKINSON & CO


10-Feb-2014

Quarterly Report


Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following commentary should be read in conjunction with the condensed consolidated financial statements and accompanying notes. Within the tables presented throughout this discussion, certain columns may not add due to the use of rounded numbers for disclosure purposes. Percentages and earnings per share amounts presented are calculated from the underlying whole-dollar amounts.

Company Overview

Becton, Dickinson and Company ("BD") is a global medical technology company engaged principally in the development, manufacture and sale of medical devices, instrument systems and reagents used by healthcare institutions, life science researchers, clinical laboratories, the pharmaceutical industry and the general public. Our business consists of three worldwide business segments - BD Medical ("Medical"), BD Diagnostics ("Diagnostics") and BD Biosciences ("Biosciences"). Our products are marketed in the United States and internationally through independent distribution channels and directly to end-users by BD and independent sales representatives.

Overview of Financial Results and Financial Condition

First quarter revenues of $2.0 billion represented an increase of 6.0% from the prior year's period and reflected volume increases of approximately 6.3%, including growth from acquisitions of 0.8%, and price increases of approximately 0.4%. Revenue growth in the current year's period was partially offset by unfavorable foreign exchange translation of approximately 0.7%. Revenue growth in the current year's period was driven by growth in all three segments, particularly in our Medical segment as well as continued improvement in our Biosciences segment. Medical segment growth reflected benefits from the earlier than expected receipt of orders in the Medical Surgical and Pharmaceutical Systems units. Revenue growth was also aided by sales attributable to the Company's acquisition of Safety Syringes, Inc. ("Safety Syringes") at the end of the first quarter of fiscal year 2013. Revenue growth in the Diagnostics segment benefited from an early start to the 2013-2014 influenza season and competitive gains in the segment's point-of-care category. Both worldwide and international revenues reflected continued strong growth in emerging markets and strong sales of safety-engineered products. Sales in the United States of safety-engineered devices in the first quarter of 2014 of $315 million increased approximately 8.1% compared with the prior year's quarter. This revenue growth was driven, in part, by Safety Syringes, as discussed above. International sales of safety-engineered devices of $242 million in the first quarter of 2014 grew 10.1% over the prior year's period, including an estimated 1.9% unfavorable impact due to foreign currency translation. International safety-engineered device revenue growth continues to be driven by strong growth in the Medical segment, with the largest growth in Western Europe and emerging markets.

We continue to invest in research and development spending, geographic expansion, and new product promotions to drive further revenue and profit growth. Our ability to sustain our long-term growth will depend on a number of factors, including our ability to expand our core business (including geographical expansion), develop innovative new products, and continue to improve operating efficiency and organizational effectiveness. While the economic environment for the healthcare industry has stabilized,


Table of Contents

pricing pressures continue for some of our products. Healthcare utilization has continued to stabilize in the United States; however, any destabilization could adversely impact our U.S. businesses. Additionally, macroeconomic challenges in Europe continue to constrain healthcare utilization, although we currently view the environment as stable. In emerging markets, the Company's growth is dependent on government funding for healthcare systems.

In addition to the economic conditions in the United States and elsewhere, numerous other factors can affect our ability to achieve our goals including, without limitation, increased competition and healthcare reform initiatives. For example, the U.S. Patient Protection and Affordable Care Act contains certain tax provisions that affect BD. The most significant impact is the medical device excise tax that, effective January 2013, imposed a 2.3% tax on certain U.S. sales of medical devices. BD records the tax in selling and administrative expense and the impact of this tax on our results in the first quarter of fiscal year 2014 was $14 million, or $0.05 diluted earnings per share from continuing operations. The tax became effective in BD's second quarter of fiscal year 2013, and, as a result, the comparison of income from continuing operations in the first quarter of 2014 to the prior year's period amount is affected by this charge.

Our financial position remains strong, with cash flows from operating activities totaling $355 million in the first three months of 2014. At December 31, 2013, we had $2.5 billion in cash and equivalents and short-term investments. Also, we continued to return value to our shareholders in the form of share repurchases and dividends. During the first three months of 2014, we repurchased $189 million of our common stock and paid cash dividends of $106 million.

We face currency exposure each reporting period that arises from translating the results of our worldwide operations to the U.S. dollar at exchange rates that fluctuate from the beginning of such period. We evaluate our results of operations on both an as reported and a foreign currency-neutral basis, which excludes the impact of fluctuations in foreign currency exchange rates. We calculate foreign currency-neutral percentages by converting our current-period local currency financial results using the prior-period foreign currency exchange rates and comparing these adjusted amounts to our current-period reported results. From time to time, we may purchase forward contracts and options 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. For further discussion, refer to Note 10 in the Notes to Condensed Consolidated Financial Statements.

Results of Operations

Revenues

Refer to Note 5 in the Notes to Condensed Consolidated Financial Statements for segment financial data.

Medical Segment

First quarter revenues of $1.1 billion increased 8.2% over the prior year's quarter, which reflected an estimated unfavorable foreign currency translation impact of 0.4%.


Table of Contents

The following is a summary of first quarter Medical revenues by organizational unit:

                                           Three months ended December 31,
                                                                           Estimated
                                                                            Foreign
                                                             Total         Exchange
      (millions of dollars)        2013           2012       Change         Impact
      Medical Surgical Systems   $     579       $  536          8.0 %           (1.1 )%
      Diabetes Care                    264          243          8.6 %           (1.5 )%
      Pharmaceutical Systems           221          205          8.0 %            2.5 %

      Total Revenues             $   1,064       $  983          8.2 %           (0.4 )%

Medical segment revenue growth was driven by double-digit international revenue growth across all business units and continued growth of sales of safety-engineered products. Revenue growth in the Medical Surgical Systems unit was aided, in part, by a favorable timing of orders. The Diabetes Care unit's revenue growth reflected continued strong sales of pen needles, particularly the BD Ultra-Fine™ Nano product. Revenue growth in the Pharmaceutical Systems unit reflected the strong contribution of Safety Syringes' products, as previously discussed, as well as the benefits from the favorable timing of orders in Western Europe. These benefits were partially offset by an unfavorable comparison to the prior year's period, which included non-recurring sales to customers producing certain generic heparin products in the United States. Global sales of safety-engineered products were $285 million, as compared with $252 million in the prior year's quarter, and included an estimated $2 million unfavorable impact due to foreign currency translation.

Medical operating income for the first quarter was $300 million, or 28.2% of Medical revenues, compared with $288 million, or 29.3% of segment revenues, in the prior year's quarter. Gross profit margin was lower in the current quarter than the first quarter of 2013 due to unfavorable foreign currency translation, higher start-up costs, amortization of intangible assets associated with recent acquisitions and higher raw material costs. Gross profit margin in the current year's quarter also reflected the negative impact of a relatively unfavorable product mix resulting from higher relative growth in sales of products which have lower gross margins. These unfavorable impacts on gross profit margin were partially offset by lower manufacturing costs from continuous improvement projects, particularly Project ReLoCo, favorable pricing on certain product lines and lower pension costs. See further discussion on gross profit margin below. Selling and administrative expense as a percent of Medical revenues in the first quarter of 2014 was slightly lower as compared with the first quarter of 2013 primarily due to the favorable impact of higher sales growth in the current year's period. This favorability was partially offset by the medical device excise tax previously discussed, as well as higher selling and administrative expenses relating to the Company's recent acquisitions of Safety Syringes and Cato Software Solutions. Research and development expenses for the quarter increased $2 million, or 6% above the prior year's period, reflecting ongoing investment in new products and platforms.


Table of Contents

Diagnostics Segment

First quarter revenues of $672 million increased 3.1% over the prior year's quarter, which reflected an estimated unfavorable foreign currency translation impact of 1.1%.

The following is a summary of first quarter Diagnostics revenues by organizational unit:

                                          Three months ended December 31,
                                                                          Estimated
                                                                           Foreign
                                                            Total         Exchange
        (millions of dollars)    2013          2012         Change         Impact
        Preanalytical Systems   $   347       $   335           3.7 %           (0.7 )%
        Diagnostic Systems          325           317           2.4 %           (1.5 )%

        Total Revenues          $   672       $   652           3.1 %           (1.1 )%

Diagnostics segment revenue growth was primarily driven by continued international expansion in both business units as well as strong sales of safety-engineered products in the Preanalytical Systems unit. Global sales of safety-engineered products in the Preanalytical Systems unit totaled $272 million, compared with $259 million in the prior year's quarter, and included an estimated $2 million unfavorable impact due to foreign currency translation. Diagnostics revenue growth in the quarter benefitted from an early start to the 2013-2014 influenza season and competitive gains in the segment's point-of-care category.

Diagnostics operating income for the first quarter was $162 million, or 24.1% of Diagnostics revenues, compared with $170 million, or 26.1% of segment revenues, in the prior year's quarter. Gross profit margin was lower in the first quarter of fiscal year 2014 compared with the first quarter of 2013 due to unfavorable foreign currency translation and higher raw material costs. Gross profit margin in the current year's quarter also reflected the negative impact of a relatively unfavorable product mix resulting from higher relative growth in sales of products which have lower gross margins. These unfavorable impacts on gross profit margin were partially offset by lower manufacturing costs from continuous improvement projects and the favorable comparison to the prior-year period which was impacted by legal settlement costs. See further discussion on gross profit margin below. Selling and administrative expense as a percentage of Diagnostics revenues in the first quarter of 2014 was flat compared with the first quarter of 2013. Aggregate expenses in the first quarter of fiscal year 2014 reflected the unfavorable impact of the medical device excise tax previously discussed. This increase was offset primarily by the favorable impact of higher sales growth in the current year's period. Research and development expenses in the first quarter of 2014 decreased by $1 million, or 3% compared with the prior year's period.


Table of Contents

Biosciences Segment

First quarter revenues of $279 million increased 5.4% over the prior year's quarter, which reflected an estimated unfavorable foreign currency translation impact of 0.3%. Biosciences segment revenue growth was driven by double-digit growth of sales in emerging markets. Revenue growth in the segment also reflected strong clinical reagent sales as well as solid instrument placements in both the United States and Western Europe, aided by improved stability in research market funding. We continue to see signs of stabilization in the economic conditions affecting this segment.

Biosciences operating income for the first quarter was $66 million, or 23.6% of Biosciences revenues, compared with $65 million, or 24.6% of segment revenues, in the prior year's quarter. Gross profit margin as a percent of Biosciences revenues was lower in the current quarter as compared with the prior year's quarter reflecting unfavorable foreign currency translation and higher start-up costs. See further discussion on gross profit margin below. Selling and administrative expense as a percentage of Biosciences revenues in the first quarter of 2014 was lower than in the first quarter of 2013 primarily due to the favorable impact of higher sales growth in the current year's period. This favorability was partially offset by the medical device excise tax previously discussed. Research and development expenses in the first quarter of 2014 increased by $2 million, or 10% compared with the prior year's period, reflecting increased investment in new products and platforms.

Geographic Revenues

Revenues in the United States for the first quarter of $849 million represented an increase of 2.3% over the prior year's quarter. U.S. revenue growth in our Medical segment was attributable to continued strong sales of pen needles in the Diabetes Care unit and the favorable timing of orders in the Medical Surgical Systems unit. U.S. Pharmaceutical Systems' revenue growth that was attributable to Safety Syringes was more than offset by an unfavorable comparison to the prior year's period, as further discussed above, as well as by changes in our customers' geographic ordering patterns from which product is sourced. U.S. Diagnostics growth was flat in the current year's period due to the loss of a large customer contract and the continued decline in Women's Health and Cancer platform sales that has resulted from guidelines providing for increased Pap smear testing intervals. These declines were partially offset by steady sales of our microbiology portfolio which includes the point-of-care category. U.S. Biosciences revenues reflected strong clinical reagent sales and instrument placements as well as continued stability in the U.S. market.

International revenues for the first quarter of $1.2 billion represented an increase of 8.9% over the prior year's quarter, including a 1.1% unfavorable impact due to foreign currency translation. International revenues for the first quarter of fiscal year 2014 reflected double-digit emerging market growth and strong performance across all segments, particularly our Medical and Diagnostics segments. International Medical revenue growth reflected solid sales of safety-engineered products as well as the benefit from the favorable timing of orders in Western Europe. International revenues for the Diagnostics segment reflected strong growth from both its units. Biosciences international revenue growth reflected solid instrument placements in Western Europe.


Table of Contents

Gross Profit Margin

Gross profit margin was 51.3% for the first quarter, compared with 52.9% for the comparable prior-year period. The decrease in gross profit margin reflected an estimated unfavorable impact of 130 basis points relating to foreign currency translation. Operating performance was unfavorably impacted by approximately 110 basis points due to higher start-up costs, amortization of intangible assets associated with recent acquisitions and higher raw material costs. Operating performance was also adversely affected by a relatively unfavorable product mix resulting from higher relative growth in sales of products which have lower gross margins. Operating performance was favorably impacted by approximately 80 basis points primarily due to lower manufacturing costs from continuous improvement projects, lower pension costs, and favorable pricing on certain product lines.

Selling and Administrative Expense

Selling and administrative expense was 26.4% of revenues for the first quarter, compared with 26.1% for the prior year's period. Aggregate expenses for the first quarter reflected an increase in core spending of $26 million, primarily relating to expansion of our business in emerging markets and higher expenses resulting from recent acquisitions. Aggregate expenses for the first quarter of 2014 also reflected the $14 million charge related to the medical device tax previously discussed and an increase in the deferred compensation plan liability of $5 million. This change in the deferred compensation liability is further discussed below. Selling and administrative expenses in the current year's period was also favorably impacted by lower pension costs of approximately $6 million and favorable foreign currency translation of approximately $4 million.

Research and Development Expense

Research and development expense was $126 million, or 6.2% of revenues, for the first quarter, representing an increase of 6.4% compared with the prior year's amount of $118 million, or 6.2% of revenues. This increase in research and development expense compared with the prior year's period reflected increased investment in new products and platforms within the Medical and Biosciences segments.

Non-Operating Expense and Income

Interest income was $14 million in the first quarter of fiscal year 2014, compared with $8 million in the prior year's period. The increase in the current year's period compared with the prior year's period primarily reflected the impact of higher investment gains on assets related to our deferred compensation plan. The offsetting movements in the deferred compensation plan liability were recorded in selling and administrative expense. Interest expense was $34 million in the first quarter, compared with $35 million in the prior year's period. This decrease was primarily due to lower levels of long-term fixed-rate debt.

Income Taxes

The income tax rate was 24.4% for the first quarter, compared with the prior year's rate of 26.1%. The decrease in the income tax rate in the first quarter of 2014 primarily reflected the favorable comparison to the prior-year period which was unfavorably impacted by certain discrete tax expenses and by the absence of the U.S. research and development tax credit, which was not reinstated until the Company's fiscal year 2013 second quarter.

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 first quarter of 2014 were $271 million and $1.37, respectively. Income from continuing operations and diluted earnings per share from continuing operations for the prior year's first


Table of Contents

quarter were $270 million and $1.35, respectively. The current quarter's earnings reflected the unfavorable impact of the medical device excise tax of $0.05 per share, as well as an estimated $0.09 unfavorable impact due to foreign currency translation.

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 in fiscal year 2014. Normal operating needs in fiscal year 2014 include working capital, capital expenditures, cash dividends and common stock repurchases. Net cash provided by continuing operating activities was $355 million during the first three months of 2014, compared with $226 million in the same period in 2013. The current period change in operating assets and liabilities was a net use of cash and primarily reflected higher levels of inventory and lower levels of accounts payable and accrued expenses, partially offset by lower levels of accounts receivable. The decrease in accrued expenses included the payment of $22 million into a fund under a settlement agreement related to indirect purchaser antitrust class action cases. Refer to Note 4 in the Notes to Condensed Consolidated Financial Statements for further discussion regarding this matter. Net cash provided by continuing operating activities in the first quarter of 2014 was reduced by changes in the pension obligation resulting primarily from discretionary cash contributions of $40 million. Net cash provided by continuing operating activities in the prior-year period was also reduced by changes in the pension obligation resulting primarily from discretionary cash contributions of approximately $132 million.

Net cash used for continuing investing activities for the first three months of the current year was $267 million, compared with net cash provided by continuing investing activities of $391 million in the prior-year period. The prior period's net cash provided by continuing investing activities included approximately $721 million of net proceeds from the sale of the Discovery Labware disposal group, partially offset by cash outflows relating to acquisitions of $124 million. Capital expenditures were $99 million in the first three months of 2014 and $80 million in the same period in 2013.

Net cash used for financing activities for the first three months of the current year was $298 million, compared with $379 million in the prior-year period. For the first three months of the current year, we repurchased approximately 1.8 million shares of our common stock for $189 million, compared with approximately 3.9 million shares of our common stock for $300 million in the prior-year period. Aggregate common stock repurchases are estimated to be approximately $450 million for the full fiscal year 2014, subject to market conditions. At December 31, 2013, a total of approximately 11 million common shares remained available for purchase under the Board of Directors' July 2011 and September 2013 repurchase authorizations.

At December 31, 2013, total worldwide cash and short-term investments were approximately $2.5 billion, of which $2.0 billion was held in jurisdictions outside of the United States. We regularly review the amount of cash and short-term investments held outside the United States and currently intend to use most of such amounts to fund our international operations and their growth initiatives. However, if these amounts were moved out of these jurisdictions or repatriated to the United States, there could be adverse tax consequences.


Table of Contents

As of December 31, 2013, total debt of $4.0 billion represented 42.9% of total capital (shareholders' equity, net non-current deferred income tax liabilities, and debt), versus 43.1% at September 30, 2013. Short-term debt represented 5.2% of total debt at December 31, 2013 and September 30, 2013.

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 December 31, 2013. We have available a $1 billion syndicated credit facility with an expiration date of May 2017. This credit facility, under which there were no borrowings outstanding at December 31, 2013, provides backup support for our commercial paper program and can also be used for other general corporate purposes. It includes a provision that enables BD, subject to additional commitments made by the lenders, to access up to an additional $500 million in financing through the facility, for a maximum aggregate commitment of $1.5 billion. The 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 11-to-1 to 16-to-1. In addition, we have informal lines of credit outside the United States.

Government Receivables

Accounts receivable balances include sales to government-owned or government-supported healthcare facilities in several countries, which are subject to payment delays. Payment may be dependent upon the financial stability and creditworthiness of those countries' national economies. In recent years, due to economic conditions in parts of Western Europe, particularly in Italy and Spain, the average length of time it takes us to collect our accounts receivable in certain regions within these countries has increased. Outstanding governmental receivable balances, net of reserves, in Italy at December 31, 2013 and September 30, 2013 were $63 million and $73 million, respectively. Outstanding governmental receivable balances, net of reserves, in Spain were $68 million and $61 million at December 31, 2013 and September 30, 2013, respectively.

We continually evaluate all governmental receivables for potential collection risks associated with the availability of government funding and reimbursement practices. We believe the current reserves related to all governmental receivables are adequate and that this concentration of credit risk will not 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 materials, both written and oral, including statements contained in filings with the Securities and Exchange Commission, press releases, and our reports to shareholders. Forward-looking statements may . . .

  Add BDX to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for BDX - All Recent SEC Filings
Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.