Becton, Dickinson and Company (BDX) — FY2020 Form 10-K
Reporting period: Fiscal year ended September 30, 2020. The filing also provides fourth-quarter results; this is an annual report, not a standalone quarterly filing. BD is a global medical technology company operating through BD Medical, BD Life Sciences and BD Interventional.
Financial performance
| Metric | FY2020 | FY2019 |
|---|---|---|
| Revenue | $17.117 billion | $17.290 billion |
| Gross profit / margin | $7.577 billion / 44.3% | $8.288 billion / 47.9% |
| Operating income | $1.484 billion | $1.760 billion |
| Net income | $874 million | $1.233 billion |
| Diluted EPS | $2.71 | $3.94 |
| Operating cash flow | $3.539 billion | $3.330 billion |
| Capital expenditures | $810 million | $957 million |
| Cash, cash equivalents, restricted cash and short-term investments | $2.937 billion | $620 million |
| Total debt | $17.931 billion | $19.390 billion |
| Dividends paid | $1.026 billion | $984 million |
Revenue declined 1.0% year over year. Reported revenue was affected by approximately 1.0% unfavorable foreign exchange and 0.2% unfavorable pricing; volume increased approximately 0.2%. Management estimated COVID-19 reduced FY2020 volume growth by about 3.3 percentage points and had a net unfavorable revenue impact of approximately $600 million.
FY2020 segment results: Medical revenue was $8.680 billion, down 4.2%, with operating income of $2.274 billion versus $2.824 billion. Life Sciences revenue was $4.675 billion, up 8.7%, with operating income of $1.405 billion versus $1.248 billion. Interventional revenue was $3.762 billion, down 4.2%, with operating income of $724 million versus $903 million.
At September 30, 2020, current assets were $8.969 billion and current liabilities were $5.836 billion. Long-term debt was $17.224 billion and short-term debt was $707 million; debt was 41.3% of total capital. BD reported no borrowings on its $2.63 billion revolving credit facility at year-end and said it was in compliance with its financial covenants.
Material changes and unusual items
- Gross margin fell 3.6 percentage points, reflecting lower plant utilization and manufacturing overhead recognized in the period, unfavorable product mix, and specified charges. Operating income and net income also declined.
- COVID-19 drove demand down for products tied to elective procedures, routine testing, specimen collection and research activity. COVID-19 diagnostic test sales partly offset those declines. BD reported moderate recovery in some product demand during the second half, but not a full recovery.
- BD recorded a $244 million estimate of future costs for Alaris infusion-pump remediation. The estimate could change as remediation proceeds. Other FY2020 specified items totaled $2.510 billion before tax, including $631 million related to transaction gain/loss, product and other litigation matters, $214 million of integration costs, and $106 million of European regulatory initiative costs. The filing reports a $7.49 unfavorable specified-item impact on diluted EPS.
- Product-liability reserves were approximately $2.5 billion at year-end. BD recorded $378 million of FY2020 charges for product-liability matters, compared with $914 million in FY2019. The company cautions that outcomes and additional losses are uncertain.
- BD raised approximately $2.917 billion net through May 2020 common and mandatory convertible preferred offerings. It also issued $1.5 billion of long-term notes and repaid or redeemed debt; total debt declined from FY2019.
- FY2020 investing cash outflow was $1.232 billion, including $810 million of capital expenditures and $164 million of net acquisition spending. Financing cash flow was positive $22 million, supported chiefly by equity issuance and offset by debt repayments and dividends.
Outlook, risks and contingencies
BD provided no specific consolidated revenue or earnings guidance in the supplied filing text. Management said near-term results could remain volatile because the duration and effects of the pandemic were uncertain. Recovery depends on healthcare utilization, elective procedures, routine laboratory and research activity, COVID-19 testing demand, and the broader economy. Management identified continued investment in innovation, geographic expansion and operating efficiency as priorities.
- Alaris and FDA oversight: BD was shipping Alaris in the United States only for medical necessity and said full commercial resumption required filing and FDA clearance of a 510(k) submission. Management expected to file around the end of FY2021’s second quarter or early in its third quarter. An FDA inspection also produced a Form 483 with observations; the agency’s review remained ongoing. The infusion-pump business remains subject to an amended FDA consent decree.
- Litigation: Significant product-liability matters include hernia repair, women’s health pelvic mesh and inferior vena cava filter claims. The filing notes that certain potential losses cannot be reasonably estimated and that future charges could exceed recorded reserves. A $60 million settlement with State Attorneys General over sales and marketing investigations was recorded as a liability.
- Other operating and regulatory risks: COVID-19 resurgence, supply interruptions and sole-source components, sterilization capacity and ethylene oxide restrictions, product quality and recalls, pricing and reimbursement pressure, foreign exchange, cybersecurity, and changing medical-device and privacy regulations.
- Debt and credit: BD cited leverage and refinancing risks following the Bard acquisition. At year-end, Moody’s senior unsecured rating was Ba1; S&P rated the debt BBB with a negative outlook, and Fitch rated it BBB- with a stable outlook.
Ernst & Young issued an unqualified opinion on the financial statements and internal controls. The auditor identified product-liability reserve estimation, uncertain tax positions and Interventional-segment goodwill impairment as critical audit matters. BD reported effective internal control over financial reporting.
Important facts for investors to verify
- Whether procedure volumes and routine diagnostic and research activity recover, and how COVID-19 testing demand and pricing develop.
- The timing and outcome of Alaris remediation, FDA review and clearance, and the resulting costs and commercial restrictions.
- The assumptions, insurance recoveries and future developments underlying the approximately $2.5 billion product-liability reserves.
- How much of reported earnings is recurring: FY2020 included $2.510 billion of specified items before tax and a reported $7.49 unfavorable specified-item EPS impact.
- Debt maturities, interest costs, rating changes and covenant capacity, alongside cash generation and shareholder distributions.
- The sensitivity of Interventional goodwill and other assets to revised growth, margin and discount-rate assumptions.