Becton, Dickinson and Company — FY2012 Form 10-K
Reporting period: Fiscal year ended September 30, 2012; filed November 21, 2012. This is an annual filing, not a standalone fourth-quarter report. BD is a global medical technology company with Medical, Diagnostics and Biosciences segments.
Financial results
| Metric | FY2012 | FY2011 |
|---|---|---|
| Revenue | $7.708 billion | $7.584 billion |
| Gross profit / margin | $3.953 billion / 51.3% | $3.959 billion / 52.2% |
| Operating income | $1.558 billion | $1.666 billion |
| Income from continuing operations | $1.110 billion | $1.201 billion |
| Net income | $1.170 billion | $1.271 billion |
| Diluted EPS, continuing operations | $5.30 | $5.31 |
| Cash from continuing operating activities | $1.693 billion | $1.638 billion |
| Capital expenditures | $487 million | $509 million |
- Revenue increased 1.6%; management estimated volume growth of 5.2%, including 1.1% from acquisitions, offset by 2.7% unfavorable foreign exchange and 0.9% price declines.
- Segment revenue: Medical $4.091 billion (+2.1%); Diagnostics $2.538 billion (+2.3%); Biosciences $1.080 billion (-1.5%). Segment operating income was $1.162 billion, $653 million and $262 million, respectively.
- At year-end, cash and short-term investments totaled $2.181 billion; current assets were $5.322 billion and current liabilities $1.978 billion. Short-term debt was $405 million and long-term debt $3.761 billion. Debt-to-capitalization rose to 49.7% from 35.8%.
- Shareholders received $368 million in dividends; BD repurchased $1.5 billion of stock. The annual dividend was $1.80 per share, up from $1.64.
Material changes and unusual items
- Revenue growth slowed from 6.4% in FY2011 to 1.6% in FY2012. Operating income declined 6.5%, and continuing-operations diluted EPS was nearly flat.
- Gross margin fell 0.9 percentage points. BD cited lower sales of higher-margin products, pricing pressure, raw-material costs, foreign exchange, acquisition-related amortization and other one-time impacts; productivity savings partly offset these pressures.
- Interest expense increased to $135 million from $84 million, primarily reflecting higher long-term debt. The effective tax rate declined to 24.6% from 25.8%, partly due to tax settlements.
- FY2012 continuing-operations results included a $20 million pre-tax pension settlement charge, reducing diluted EPS by $0.06. A change in estimated useful lives of certain machinery increased operating income by approximately $26 million.
- BD acquired KIESTRA for approximately $59 million and Sirigen for approximately $64 million, including contingent consideration. The sale of Discovery Labware, excluding Advanced Bioprocessing, closed October 31, 2012 for approximately $728 million gross proceeds; BD expected to record a gain in FY2013 discontinued operations.
Outlook, risks and contingencies
- Management described healthcare utilization and research spending as constrained, with continuing price competition, particularly in some Medical products and Biosciences high-end instruments. International revenue was affected by unfavorable currency translation.
- BD estimated the U.S. medical-device excise tax would cost $40–$50 million in FY2013, affecting three fiscal quarters. It planned approximately $500 million of FY2013 share repurchases, subject to market conditions; no full-year revenue or earnings guidance is provided in the supplied filing text.
- Key risks include global economic weakness, currency movements, healthcare reimbursement and cost-containment changes, regulatory approval and compliance, product defects or recalls, competition, government research funding, sole-source supply interruptions, manufacturing disruption, ERP implementation, cybersecurity, pension assumptions and international operating risks.
- BD disclosed pending antitrust and patent litigation. The $45 million distributor antitrust settlement remained subject to court fairness approval. BD could not estimate a possible loss range for the RTI and Gen-Probe matters; management said an adverse outcome could be material. Environmental proceedings are also ongoing.
- Moody’s placed ratings under review for downgrade in September 2012 and downgraded BD’s senior unsecured debt to A3 and commercial paper to Prime-2 on October 3, 2012. BD reported no borrowing under its $1 billion revolving facility at year-end.
- After year-end, the CEO transition and CFO change were disclosed: David V. Elkins resigned effective November 9, 2012; Vincent A. Forlenza was CEO and Suketu Upadhyay was appointed acting CFO.
Important facts for investors to verify
- Whether underlying volume growth can offset price pressure and foreign-exchange headwinds, and whether the gross-margin decline stabilizes.
- Cash generation, debt levels and credit ratings after increased borrowing, share repurchases and the planned FY2013 repurchases.
- The realized cost of the device excise tax and the net proceeds and gain from the Discovery Labware divestiture.
- Developments in antitrust and patent litigation, especially settlement approval and any changes to loss estimates or accruals.
- Collection trends for government receivables in Italy and Spain, and execution of the ERP upgrade, acquisitions and planned product launches.
The financial statements received an unqualified audit opinion, and management and the auditor reported effective internal control over financial reporting as of September 30, 2012.