Becton, Dickinson and Company — Form 10-Q Summary
Business context and reporting period. BD is a global medical technology company with Medical, Diagnostics and Biosciences segments. This unaudited filing covers the fiscal third quarter and nine months ended June 30, 2013; comparisons are with the corresponding 2012 periods. Dollar amounts below are in millions unless stated otherwise.
Financial performance and position
| Metric | Three months 2013 | Three months 2012 | Nine months 2013 | Nine months 2012 |
|---|---|---|---|---|
| Revenue | $2,052.7 | $1,980.5 | $5,953.2 | $5,741.2 |
| Operating income | $404.6 | $449.0 | $1,177.8 | $1,169.1 |
| Income from continuing operations | $291.9 | $311.6 | $838.2 | $835.2 |
| Net income | $301.6 | $326.9 | $1,202.6 | $880.9 |
| Diluted EPS, continuing operations | $1.47 | $1.52 | $4.21 | $3.95 |
| Gross margin | 51.6% | 52.2% | 51.8% | 51.4% |
| Continuing operating cash flow | — | — | $989.3 | $1,135.9 |
- Third-quarter revenue rose 3.6%, reflecting approximately 4.9% volume growth and 0.2% favorable price and mix, partly offset by 1.5% unfavorable currency translation. Operating income and continuing-operations earnings declined year over year.
- Nine-month net income included a $355.9 after-tax gain from the Discovery Labware divestiture. Discontinued operations contributed $364.4 of net income, versus $45.6 in the prior-year period; continuing-operations income was nearly flat.
- Third-quarter segment revenue: Medical $1,140.5, up 6.6%; Diagnostics $655.1, up 2.0%; Biosciences $257.1, down 4.2%. Segment operating income was $334.2, $158.5 and $58.1, respectively.
- At June 30, cash and equivalents were $1,962.1 and short-term investments $337.1. Total debt was approximately $4.0 billion ($207.4 short-term and $3,762.6 long-term); shareholders’ equity was $4,716.5.
- For the first nine months, investing activities provided $296.3, including $736.0 of divestiture proceeds; financing activities used $830.2. Capital expenditures were $339.0, share repurchases $406.5 and dividends paid $289.6.
Material changes, outlook and risks
- Medical growth reflected safety-engineered product sales, emerging-market demand and acquisitions. Diagnostics growth was modest; Biosciences was affected by Western European austerity, Japanese funding timing and Advanced Bioprocessing order timing.
- Quarterly gross margin fell 0.6 percentage points, principally due to currency, acquisition-related amortization and start-up costs, partly offset by manufacturing efficiencies and pricing. Diagnostics and Biosciences operating income declined.
- BD said cash from operations and available cash were expected to fund fiscal 2013 normal operating needs. It estimated fiscal 2013 medical-device excise-tax expense of $40–$45 million and full-year common-stock repurchases of $450–$500 million, subject to market conditions.
- BD reported $2.0 billion of its $2.3 billion cash and short-term investments outside the U.S.; repatriation could have adverse tax consequences. A $1 billion credit facility was undrawn, and the company reported compliance with its interest-coverage covenant.
- Antitrust matters: BD paid $45 million to settle direct-purchaser claims. A $22 million indirect-purchaser settlement was agreed after quarter-end and remained subject to court approval. The company said potential losses on RTI’s antitrust and false-advertising claims could be material but could not be estimated; trial was expected in September 2013.
- BD disclosed that certain information systems had been compromised by an external threat. At filing, it reported no material interruption, operational disruption or additional expense from the incident, but noted future cyber risks.
- Other risks cited include healthcare funding and pricing pressure, foreign exchange, product safety and regulation, competition, raw-material costs, litigation, pension assumptions and execution of acquisitions and product development.
Important facts for investors to verify
- Whether the $22 million indirect-purchaser settlement received final court approval and whether any class members opted out.
- Developments and potential financial exposure in the RTI litigation and related legal proceedings.
- Progress, impact and any subsequent costs or disruption related to the disclosed cybersecurity incident.
- Whether fiscal 2013 repurchase and medical-device excise-tax estimates were met, and how currency, segment trends and cash conversion developed.
- The sustainability of continuing-operations earnings, given the gap between reported net income and continuing results caused by the divestiture gain.