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 5-May-2014All Recent SEC Filings

Show all filings for BECTON DICKINSON & CO

Form 10-Q for BECTON DICKINSON & CO


5-May-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 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.

BD's products are manufactured and sold worldwide. We organize our operations outside the United States as follows: Europe (which includes the Middle East and Africa); Greater Asia (which includes Japan and Asia Pacific); Latin America (which includes Mexico and Brazil) and Canada. We continue to pursue growth opportunities in emerging markets, which include the following geographic regions: Eastern Europe, the Middle East, Africa, Latin America and Asia Pacific (excluding Japan). We are particularly focused on certain countries whose economic and healthcare sectors are growing rapidly, in particular, China, India, Brazil and Turkey.

Overview of Financial Results and Financial Condition

Second quarter revenues of $2.1 billion represented an increase of 3.6% from the prior year's period and reflected volume increases of approximately 5.1%, partially offset by unfavorable foreign exchange translation of approximately 1.5%. Pricing had an immaterial impact on revenue growth in the quarter, although we contemplate some less favorable pricing in the last half of fiscal year 2014. Revenue growth in the current year's period was driven by strong growth in our Medical and Biosciences segments. Medical segment growth reflected continued strong sales of pen needles in the Diabetes Care unit as well as favorable timing of orders in the Pharmaceutical Systems unit. Second quarter revenues in our Diagnostics segment benefitted from solid growth in our Preanalytical Systems unit but were unfavorably impacted by lower sales from the Women's Health and Cancer platform. Biosciences segment revenue growth reflected solid instrument placements and reagent sales, strong growth in emerging markets and some timing benefits. U.S. revenue growth for the quarter was unfavorably impacted by key challenges in the Diagnostics segment, as discussed further below. Second quarter revenues reflected strong international safety and emerging markets sales as these areas continue to be key growth drivers for the Company. Sales in the United States of safety-engineered devices in the second quarter of 2014 of $287 million were flat compared with the prior year's quarter. International sales of safety-engineered devices of $244 million in the second quarter of fiscal year 2014 grew 7.3% over the prior year's period, including an estimated 3.9% unfavorable impact due to foreign currency translation. International safety-engineered device revenue growth continues to be driven by strong growth in Western Europe and emerging markets.


Table of Contents

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, 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 imposed a 2.3% tax on certain U.S. sales of medical devices. This tax became effective at the beginning of BD's second quarter of fiscal year 2013. The incremental first quarter fiscal year 2014 impact of this tax on selling and administrative expense for the first six months of fiscal year 2014 was an increase of $14 million.

Our financial position remains strong, with cash flows from operating activities totaling $768 million in the first six months of 2014. At March 31, 2014, we had $2.6 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 six months of 2014, we repurchased $213 million of our common stock and paid cash dividends of $211 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.

Comparisons of income from continuing operations between the second quarter and six-month periods of fiscal year 2014 and the prior-year periods of fiscal year 2013 are affected by the following items that were recorded in our financial results during the second quarter and six-month periods ended March 31, 2014:

• Our Biosciences segment results reflect a pre-tax charge of $20 million, or $0.06 diluted earnings per share from continuing operations, in Research and development, for asset write-offs primarily resulting from the discontinuance of an instrument product development program. The charge is largely attributable to capitalized product software, but also includes a lesser amount attributable to fixed assets.


Table of Contents
• Our Diagnostics segment results reflect a pre-tax charge of $11 million, or $0.04 diluted earnings per share from continuing operations, in Selling and administrative, for contract termination costs that resulted from the early termination of a European distributor arrangement.

• Our unallocated corporate results reflect a pre-tax gain of $8 million, or $0.03 diluted earnings per share from continuing operations, in Other income, net resulting from the Company's receipt of cash proceeds from the sale of a company in which it held a small equity ownership interest.

Results of Operations

Revenues

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

Medical Segment

Second quarter revenues of $1.1 billion increased 5.1% over the prior year's quarter, which reflected an estimated unfavorable foreign currency translation impact of 1.2%.

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

                                             Three months ended March 31,
                                                                          Estimated
                                                                           Foreign
                                                            Total         Exchange
        (millions of dollars)       2014        2013        Change         Impact
        Medical Surgical Systems   $   551     $   539          2.3 %           (2.1 )%
        Diabetes Care                  251         232          8.1 %           (2.3 )%
        Pharmaceutical Systems         314         291          7.9 %            1.3 %

        Total Revenues             $ 1,116     $ 1,062          5.1 %           (1.2 )%

Medical segment revenue growth was driven by new products, strength of emerging market sales and some timing benefits. Second quarter revenue growth in the Medical Surgical Systems unit reflected both strong emerging market and international safety sales. The Diabetes Care unit's revenue growth reflected continued strong sales of pen needles, particularly the BD Ultra-Fine™ Nano and AutoShield™ Duo products. Revenue growth in the Pharmaceutical Systems unit reflected favorable timing of orders. Global sales of safety-engineered products were $263 million, as compared with $256 million in the prior year's quarter, and included an estimated $4 million unfavorable impact due to foreign currency translation. Total Medical revenues for the six-month period ended March 31, 2014 increased by 6.6% from the prior-year six-month period, including an estimated 0.8% unfavorable impact from foreign currency translation. For the six-month period ended March 31, 2014, global sales of safety-engineered products were $548 million, compared with $508 million in the prior year's period, and included an estimated $7 million unfavorable impact due to foreign currency translation.


Table of Contents

Medical operating income for the second quarter was $317 million, or 28.4% of Medical revenues, compared with $291 million, or 27.4% of segment revenues, in the prior year's quarter. Gross profit margin was higher in the current quarter than the second quarter of 2013 due to lower manufacturing costs resulting from continuous improvement projects, particularly Project ReLoCo, favorable pricing on certain product lines and lower pension costs. Gross profit margin in the current year's quarter also reflected the impact of a favorable product mix resulting from higher relative growth in sales of products which have higher gross margins. These favorable impacts on gross profit margin were partially offset by unfavorable foreign currency translation, higher start-up costs and higher raw material costs. See further discussion on gross profit margin below. Selling and administrative expense as a percent of Medical revenues in the second quarter of 2014 was lower as compared with the second quarter of 2013 primarily due to the favorable impact of higher sales growth in the current year's period. Research and development expenses for the quarter increased $3 million, or 6% above the prior year's period, reflecting ongoing investment in new products and platforms. Segment operating income for the six-month period was $611 million, or 28.0% of Medical revenues, compared with $579 million, or 28.3%, in the prior year's period.

Diagnostics Segment

Second quarter revenues of $653 million decreased 0.9% compared with the prior year's quarter, which reflected an estimated unfavorable foreign currency translation impact of 1.9%.

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

                                           Three months ended March 31,
                                                                       Estimated
                                                                        Foreign
                                                         Total         Exchange
          (millions of dollars)    2014       2013      Change          Impact
          Preanalytical Systems   $   342     $ 330         3.7 %            (1.8 )%
          Diagnostic Systems          311       329        (5.5 )%           (1.9 )%

          Total Revenues          $   653     $ 659        (0.9 )%           (1.9 )%

Diagnostics segment revenues for the quarter reflected solid sales of safety-engineered products in the Preanalytical Systems unit. Global sales of safety-engineered products in the Preanalytical Systems unit totaled $268 million, compared with $258 million in the prior year's quarter, and included an estimated $5 million unfavorable impact due to foreign currency translation. Diagnostic Systems revenue growth in the quarter was unfavorably impacted by lower sales from the Women's Health and Cancer platform due to guidelines providing for increased Pap smear testing intervals, as well as share losses in the United States. Total Diagnostics revenues for the six-month period ended March 31, 2014 increased by 1.1% from the prior-year six-month period, including an estimated 1.5% unfavorable impact from foreign currency translation. For the six-month period ended March 31, 2014, global sales of safety-engineered products in the Preanalytical Systems unit were $540 million, compared with $517 million in the prior year's period, and included an estimated $6 million unfavorable impact due to foreign currency translation.


Table of Contents

Diagnostics operating income for the second quarter was $131 million, or 20.1% of Diagnostics revenues, compared with $145 million, or 22.0% of segment revenues, in the prior year's quarter. Gross profit margin was lower in the second quarter of fiscal year 2014 compared with the second quarter of 2013 primarily due to unfavorable foreign currency translation and higher raw material costs. Gross profit margin in the current year's quarter also reflected the impact of an unfavorable product mix resulting from lower relative growth in sales of products which have higher gross margins. These unfavorable impacts on gross profit margin were partially offset by lower manufacturing costs from continuous improvement projects, lower pension costs and the favorable comparison to the prior-year period which was impacted by product remediation costs. See further discussion on gross profit margin below. Selling and administrative expense as a percentage of Diagnostics revenues in the second quarter of 2014 was higher compared with the second quarter of 2013. Aggregate expenses in the second quarter of fiscal year 2014 reflected the charge relating to the early termination of a distributor arrangement previously discussed, partially offset by a reversal of bad debt expense further discussed below. Research and development expenses in the second quarter of 2014 decreased by $3 million, or 8% compared with the prior year's period. Segment operating income for the six-month period was $293 million, or 22.1% of Diagnostics revenues, compared with $315 million, or 24.0%, in the prior year's period.

Biosciences Segment

Second quarter revenues of $302 million increased 8.2% over the prior year's quarter, which reflected an estimated unfavorable foreign currency translation impact of 2.0%. Biosciences segment revenue growth was driven by solid instrument placements, solid clinical and research reagent sales and strong sales growth in emerging markets. Revenue growth in the second quarter also benefitted from the timing of a government order in Latin America, a large tender order in Africa and more normalized stimulus spending in Japan. Growth in the second half of this fiscal year is expected to decelerate, due to these timing items. For the six-month period ended March 31, 2014, total Biosciences revenues increased by 6.8% from the prior-year six-month period, including an estimated 1.2% unfavorable impact from foreign currency translation.

Biosciences operating income for the second quarter was $67 million, or 22.1% of Biosciences revenues, compared with $71 million, or 25.6% of segment revenues, in the prior year's quarter. Gross profit margin as a percent of Biosciences revenues was higher in the current quarter as compared with the prior year's quarter reflecting the favorable impact of a favorable product mix resulting from higher relative growth in sales of products which have higher gross margins. See further discussion on gross profit margin below. Selling and administrative expense as a percentage of Biosciences revenues in the second quarter of 2014 was lower than in the second quarter of 2013 due to the reversal of bad debt expense further discussed below. Selling and administrative expense as a percent of Biosciences revenues also reflected the favorable impact of higher sales growth in the current year's period. Research and development expenses in the second quarter of 2014 increased by $20 million, or 77% compared with the prior year's period, reflecting the asset write-off primarily resulting from the discontinuance of an instrument product development program previously discussed. Segment operating income for the six-month period was $139 million, or 23.9% of Biosciences revenues, compared with $136 million, or 25.1%, in the prior year's period.


Table of Contents

Geographic Revenues

Revenues in the United States for the second quarter of $826 million were flat compared to the prior year's period with growth of 0.2%. 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 Pharmaceutical Systems unit. U.S. Diagnostics growth was unfavorably impacted by the continued decline in Women's Health and Cancer platform sales, as previously discussed, coupled with a mild influenza season. These unfavorable impacts were partially offset by solid growth in the Preanalytical Systems unit and strong growth in sales of the BD MaxTM platform. U.S. Biosciences revenues reflected continued stability in the U.S. market.

International revenues for the second quarter of $1.2 billion represented an increase of 5.9% over the prior year's quarter, including a 2.6% unfavorable impact due to foreign currency translation. International revenues for the second quarter of fiscal year 2014 reflected strong performance across all segments, including double-digit growth, on a foreign currency-neutral basis, in emerging markets, including China. International Medical and Diagnostics revenue growth also reflected strong sales of safety-engineered products. Biosciences international revenue growth reflected some timing benefits, as previously discussed.

Gross Profit Margin

Gross profit margin was 50.8% for the second quarter, compared with 50.9% for the comparable prior-year period. The decrease in gross profit margin reflected an estimated unfavorable impact of 70 basis points relating to foreign currency translation. Operating performance was favorably impacted by approximately 90 basis points primarily due to lower manufacturing costs from continuous improvement projects, lower pension costs and net favorable product mix resulting from higher relative growth in sales of products which have higher gross margins. These favorable impacts on operating performance were partially offset by approximately 30 basis points primarily due to higher start-up costs and higher raw material costs.

Gross profit margin was 51.1% in the six-month period of 2014, compared with 51.9% for the comparable prior-year period. The decrease in gross profit margin reflected an estimated unfavorable impact of 90 basis points relating to foreign currency translation. Operating performance was favorably impacted by approximately 85 basis points primarily due to lower manufacturing costs from continuous improvement projects and lower pension costs. These favorable impacts on operating performance were partially offset by approximately 75 basis points primarily due to net unfavorable product mix resulting from lower relative growth in sales of products which have higher gross margins, as well as higher start-up costs and raw material costs.

Selling and Administrative Expense

Selling and administrative expense was 25.3% of revenues for the second quarter, compared with 25.7% for the prior year's period. Aggregate expenses for the second quarter reflected an increase in core spending of $22 million, including spending relating to the expansion of our business in emerging markets. Aggregate expenses for the second quarter of 2014 also reflected the $11 million charge relating to the early termination of a distributor arrangement previously discussed. Selling and administrative expense in the current year's period was favorably


Table of Contents

impacted by lower pension costs of approximately $6 million, favorable foreign currency translation of approximately $8 million and a decrease in the deferred compensation liability of $3 million. This change in the deferred compensation liability is further discussed below. Selling and administrative expense in the current year's period was also favorably impacted by the reversal of $6 million of bad debt expense relating to the collection of government receivable balances in Spain, as further discussed below.

Selling and administrative expense was 25.8% of revenues for the six-month period of fiscal year 2014, compared with 25.9% for the prior year's period. Aggregate expenses for the second quarter reflected an increase in core spending of $48 million, including spending relating to the expansion of our business in emerging markets. Aggregate expenses for the second quarter of 2014 also reflected the incremental first quarter fiscal year 2014 impact of $14 million related to the medical device excise tax previously discussed, as well as the $11 million early termination charge. Aggregate expenses in the current year-to-date period also reflected an increase in the deferred compensation liability of $2 million. These increases were partially offset by favorable foreign currency translation of $12 million, lower pension costs of approximately $12 million and the $6 million reversal of bad debt expense.

Research and Development Expense

Research and development expense was $147 million, or 7.1% of revenues, for the second quarter, representing an increase of 20.0% compared with the prior year's amount of $122 million, or 6.1% of revenues. Research and development expense was $273 million, or 6.7% of revenues, for the six-month period in the current year, representing an increase of 13.4% compared with the prior year's amount of $241 million, or 6.2% of revenues. These increases in research and development expense compared with the prior year's periods reflected the $20 million asset write-off primarily resulting from the discontinuance of an instrument product development program previously discussed. The increases also reflected increased investment in new products and platforms within the Medical segment.

Non-Operating Expense and Income

Interest income was $10 million in the second quarter, compared with $12 million in the prior year's period. The decrease in the current year's quarter compared with the prior year's period primarily reflected the impact of lower investment gains on assets related to our deferred compensation plan, partially offset by the impact of higher interest rates on investments outside the United States. Interest income was $24 million in the current year's six-month period, compared with $20 million in the prior year's period. The increase in the current year-to-date period compared with the prior year's period primarily reflected the impact of higher investment gains on assets related to our deferred compensation plan and the impact of higher interest rates on investments outside the United States. The offsetting movements in the deferred compensation plan liability were recorded in selling and administrative expense. Interest expense was $33 million in the second quarter and $67 million in the six-month period of 2014, compared with $35 million and $70 million, respectively, in the prior year's periods. These decreases were primarily due to lower levels of long-term fixed-rate debt.

Income Taxes

The income tax rate was 20.9% for the second quarter, compared with the prior year's rate of 23.4%. The decrease in the income tax rate in the second quarter of fiscal year 2014 was primarily attributable to geographic mix and the benefit of some discrete one-time items. The


Table of Contents

six-month tax rate was 22.7% compared with the prior year's rate of 24.8%. In addition to the second quarter events discussed above, the decrease in the income tax rate in the first six months of 2014 reflected a favorable comparison to the prior-year period which was unfavorably impacted by some discrete tax expenses.

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 2014 were $287 million and $1.45, respectively. Income from continuing operations and diluted earnings per share from continuing operations for the prior year's second quarter were $276 million and $1.39, respectively. The current quarter's earnings reflected an estimated $0.08 unfavorable impact due to foreign currency translation. For the six-month periods, income from continuing operations and diluted earnings per share from continuing operations were $558 million and $2.82, respectively, in 2014 and $546 million and $2.74, respectively, in 2013. The incremental first quarter fiscal year 2014 impact of the medical device excise tax decreased income from continuing operations for the six-month period of fiscal year 2014 by $9 million, or $0.05 diluted earnings per share. The current year-to-date period's earnings reflected an estimated $0.17 unfavorable impact due to foreign currency translation. The after-tax asset write-off and contract termination charges previously discussed decreased income from continuing operations for the second-quarter and six-month periods ended March 31, 2014 by $12 million, or $0.06 per share, and $8 million, or $0.04 per share, respectively. The after-tax gain from the sale of an investment previously discussed increased income from continuing operations for the second-quarter and six-month periods ended March 31, 2014 by $5 million, or $0.03 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 in fiscal year 2014. Normal operating needs in fiscal year 2014 include working capital, capital expenditures, cash dividends and common stock repurchases. Net cash . . .

  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.