Becton, Dickinson and Company — FY2013 Form 10-K
Reporting period: Fiscal year ended September 30, 2013; filed November 27, 2013. BD is a global medical technology company with Medical, Diagnostics and Biosciences segments. Amounts below are in U.S. dollars.
Financial performance
| Metric | FY2013 | FY2012 |
|---|---|---|
| Revenue | $8.054 billion | $7.708 billion |
| Gross profit / gross margin | $4.171 billion / 51.8% | $3.953 billion / 51.3% |
| Operating income | $1.254 billion | $1.558 billion |
| Continuing-operations income | $929 million | $1.110 billion |
| Diluted EPS from continuing operations | $4.67 | $5.30 |
| Net income, including discontinued operations | $1.293 billion | $1.170 billion |
| Cash from continuing operating activities | $1.717 billion | $1.693 billion |
| Capital expenditures | $522 million | $487 million |
Revenue grew 4.5%, reflecting estimated volume growth of 5.5%, including 0.8% from acquisitions; foreign exchange reduced growth by 0.9%, while pricing and mix reduced it by an estimated 0.1%. Gross margin improved 0.5 percentage point, mainly due to manufacturing efficiencies and lower raw-material costs. Operating income and continuing earnings declined substantially, principally due to litigation charges.
Segments and material changes
- Medical: Revenue of $4.306 billion, up 5.3%; operating income of $1.233 billion versus $1.162 billion. Growth reflected emerging-market sales, safety-engineered products, diabetes products and the Safety Syringes acquisition.
- Diagnostics: Revenue of $2.646 billion, up 4.3%; operating income of $638 million versus $653 million. Growth included emerging markets and automated diagnostic platforms; U.S. Women’s Health and Cancer sales remained weak amid longer Pap smear testing intervals.
- Biosciences: Revenue of $1.102 billion, up 2.0%; operating income of $269 million versus $262 million. Emerging-market instrument and reagent sales were partly offset by declines in Western Europe.
- International revenue was $4.7 billion, up 6.3%; U.S. revenue was $3.4 billion, up 2.0%. Approximately 58% of FY2013 revenue came from international operations.
- BD acquired Safety Syringes for $124 million and Cato Software Solutions for $23 million, including contingent consideration. It sold the Discovery Labware unit for gross proceeds of approximately $740 million.
Cash, debt and shareholder returns
At year-end, cash and equivalents were $1.890 billion and short-term investments were $718 million. Current assets totaled $5.873 billion and current liabilities $2.130 billion. Short- and long-term debt totaled approximately $3.970 billion; debt was 43.1% of total capitalization, down from 49.7%. The company reported a $1 billion committed credit facility, with no borrowings outstanding under it, and $200 million of commercial paper outstanding. Credit outlooks from S&P and Moody’s were stable.
Operating cash flow was $1.717 billion; continuing investing activities used $311 million, including $522 million of capital expenditures and $136 million for acquisitions, partly offset by $736 million of divestiture proceeds. Financing activities used $968 million. BD repurchased $450 million of shares and paid $386 million in dividends during FY2013. Management said it planned approximately $450 million of share repurchases in FY2014, subject to market conditions.
Unusual items, outlook and risks
- A fourth-quarter $341 million pre-tax charge followed an unfavorable jury verdict in RTI litigation; FY2013 continuing-operations diluted EPS was reduced by $1.06 from that charge. The jury awarded RTI $113.5 million on an attempted-monopolization claim, subject to trebling and attorneys’ fees; BD planned to appeal. Further equitable relief was unresolved.
- FY2013 also included a $22 million pre-tax charge for a proposed indirect-purchaser antitrust settlement, a $40 million medical-device excise tax charge, and a $6 million pension settlement charge. The direct-purchaser antitrust settlement of $45 million had been paid.
- The Discovery Labware sale generated a pre-tax gain of approximately $577 million and after-tax discontinued-operations income of $364 million in FY2013. This helped lift reported net income despite lower continuing-operations income.
- The 2.3% U.S. medical-device excise tax applied from January 1, 2013 to certain device sales. Management also cited pricing pressure, constrained healthcare utilization, uncertainty in research funding, foreign-exchange exposure and healthcare reimbursement changes. No specific revenue or EPS guidance is provided in the filing text.
- BD disclosed that certain information systems had been compromised by an external threat. Its investigation had not identified information loss causing material interruption or damage, or material operational disruption; future cyber risk remained.
- Other material risks include regulatory approval and compliance, product defects and recalls, litigation, sole-source supply interruptions, manufacturing disruptions, competition, currency movements, government funding reductions and execution of an ERP system upgrade. BD reported effective internal control over financial reporting; the auditor issued unqualified opinions on the financial statements and internal controls.
Important facts for investors to verify
- Subsequent developments in the RTI appeal, damages, potential trebling, attorneys’ fees and any equitable relief.
- Final court approval and settlement releases for the $22 million indirect-purchaser antitrust settlement.
- Underlying segment growth, especially whether Diagnostics’ Women’s Health and Cancer weakness and Biosciences’ regional declines persist.
- Cash generation and liquidity after capital spending, pension contributions, dividends and planned FY2014 repurchases.
- Exposure to international collections and foreign exchange, including government receivables in Italy and Spain and the status of the Brazil anti-dumping investigation.
- Progress and costs of the ERP upgrade, cyber-security remediation and other material regulatory or litigation matters.