Business Context and Reporting Period
Company: Becton, Dickinson and Company (BD)
Filing Type: Form 10-Q (Quarterly Report)
Reporting Period: Quarter and nine months ended June 30, 1997
Business Overview: BD operates primarily through two segments: Medical Supplies and Devices and Diagnostic Systems. The period included the acquisition of PharMingen and Difco Laboratories.
Key Financial Metrics
| Metric (in millions, except per share) | Q3 1997 | Q3 1996 | 9M 1997 | 9M 1996 |
|---|---|---|---|---|
| Revenues | $706.5 | $692.9 | $2,061.5 | $2,038.6 |
| Operating Income | $105.1 | $120.0 | $313.3 | $304.8 |
| Net Income | $70.1 | $77.2 | $210.9 | $196.5 |
| Earnings Per Share (Diluted) | $0.53 | $0.57 | $1.59 | $1.43 |
| Gross Profit Margin | 50.1% | 49.2% | 49.1% | 47.5% |
| Operating Margin | 14.9% | 17.3% | 15.2% | 15.0% |
| Cash from Operations (9M) | $316.2 | $299.0 | ||
| Total Debt (Short + Long Term) | ||||
| Debt to Capitalization | 37.5% | 37.6% (Prior Year) | ||
| Cash and Equivalents |
Note: Debt figures are derived from the balance sheet ($355M short-term + $473M long-term = $828M total at June 30, 1997).
Material Changes vs. Prior Period
- Revenue Growth: Q3 revenues increased 2% year-over-year. Adjusted for foreign currency translation and divestitures/acquisitions, organic growth was approximately 5% for the quarter and 6% for the nine-month period.
- Profitability: Gross profit margins improved significantly (up ~1.6 percentage points for the nine months) due to a more profitable product mix and productivity gains. However, reported operating income for Q3 declined 12% primarily due to a $15 million charge for purchased in-process research and development (IPR&D).
- Acquisitions: The company spent $187 million net of cash acquired in Q3 to acquire PharMingen and Difco Laboratories. This activity drove a significant increase in total debt from $696 million to $828 million over the nine-month period.
- Share Repurchases: The company repurchased 3.0 million shares for $139 million during the first nine months of 1997.
Guidance, Outlook, and Risks
- Capital Expenditures: Management expects full-year capital expenditures to be approximately $146 million, similar to the prior year.
- Debt Management: In July 1997 (subsequent to the period end), the company issued $200 million in 7% Debentures maturing in 2027 to repay commercial paper. Management cites strong credit ratings and capacity for additional borrowing if needed.
- Accounting Changes: The company is preparing to adopt SFAS No. 128 regarding Earnings Per Share calculations for the quarter ending December 31, 1997.
- Risks/Contingencies: Results are impacted by foreign currency translation (unfavorable in this period) and flat sales performance in the infectious disease diagnostics business. The company utilizes derivative instruments to hedge currency and interest rate risks but does not trade them speculatively.
Investor Verification Checklist
- Adjusted EPS: Verify the impact of the $15 million IPR&D charge; adjusted EPS would have grown 12% in Q3 versus a reported 7% decline.
- Acquisition Integration: Monitor the revenue contribution and integration costs of PharMingen and Difco Laboratories in subsequent quarters.
- Debt Levels: Confirm the utilization of the new $200 million debenture proceeds to reduce short-term commercial paper exposure.
- Segment Performance: Review the continued flat performance in infectious disease diagnostics versus the strong growth in pre-fillable syringes and flow cytometry.
- Share Count: Note the reduction in outstanding shares due to the $139 million buyback program and remaining authorization for 11.8 million additional shares.