01—Abstract
Summary
Summary of the 10-K filed December 10, 1999. Cited figures are marked; the original filing is the authoritative source.
Becton, Dickinson and Company (BDX) reported fiscal 1999 (year ended September 30, 1999) with revenues of $3.42 billiona, up 10% from $3.12 billion in 1998, of which acquisitions contributed roughly 5 points and currency translation was not significant.
Growth was led by Medical Systems (up 12% to $1.92 billionb, driven by prefillable syringes and infusion therapy, with home health care underperforming), Biosciences (up 7% to $986 million, led by flow cytometry), and Preanalytical Solutions (up 6% to $509 million, driven by advanced protection devices). Net income rose 17% to $276 million, but reported diluted EPS of $1.04 was depressed by $76 million of third-quarter special charges, $27 million of related inventory write-offs in cost of products sold, and $49 million of purchased in-process R&D from acquisitions. Excluding these items, management cites diluted EPS of $1.49.
Operating income was $445 millionc (13.0% of revenues as reported; 17.4% excluding special and IPR&D charges). The balance sheet and cash flow picture shows increased leverage tied to acquisitions. Total assets grew to $4.44 billion, and debt to capitalization rose to 47.2% from 41.4%.
Short-term debt reached 40% of total debt, with $573 milliond of commercial paper outstanding. Operating cash flow fell to $432 million from $501 million, while capital expenditures more than doubled to $312 million, leaving free cash flow thin relative to dividends of $88 million. Management said it expects 2000 capital spending to rise 10-15% and acquisition activity to slow considerably, with excess cash used to repay debt.
Standard & Poor's moved its outlook to negative, and Moody's downgraded long-term debt from A1 to A2. Investors should weigh several risks: pricing pressure from healthcare cost containment and consolidation in the Medical segment; ongoing latex glove product liability suits (about 300 cases); a set of needlestick class action suits, including a Texas class certification development the court signaled in October 1999; an antitrust suit from Retractable Technologies; and Year 2000 and euro-related disclosures. The company also has a Genesis systems upgrade running through 2001 and a 1998 manufacturing restructuring that includes closing a surgical blade plant.
02—Key points
Key Highlights
- Revenue of $3.42 billion grew 10% year over year, with acquisitions contributing about 5 points and underlying growth driven by volume in all three segments.
- Reported diluted EPS was $1.04 (up from $0.90), but excluding $76M special charges, $27M inventory write-offs, and $49M in-process R&D, management cites $1.49 diluted EPS.
- Ten businesses were acquired in fiscal 1999 for about $382M in cash plus 357,522 shares, including Clontech Laboratories ($201M) and Critical Device Corporation, following about $1.1B of acquisitions over three years.
- Leverage increased: debt to capitalization rose to 47.2% from 41.4%, short-term debt reached 40% of total debt, and Moody's cut long-term debt rating to A2 while S&P moved its outlook to negative.
- Operating cash flow declined to $432M from $501M as capex rose to $312M from $181M, and no share repurchases were made in 1999 after $44M in 1998.
- International revenues grew 17% to $1.67B, now close to 50% of total revenues, with strong prefillable syringe sales in Europe and flow cytometry sales in Japan.
- Litigation exposure remains: about 300 natural rubber latex glove suits, needlestick cases where a Texas court signaled class action treatment, and an antitrust suit from Retractable Technologies.
03—Questions
Frequently Asked Questions
What drove BD's revenue growth in fiscal 1999?
Revenue rose 10% to $3.42 billion. About 5 points came from acquisitions, and the underlying growth came mainly from volume increases across all segments. Medical Systems grew 12%, led by prefillable syringes and infusion therapy. Biosciences grew 7%, led by flow cytometry, and Preanalytical Solutions grew 6%, led by advanced protection devices. Home health care underperformed.
Why is reported EPS ($1.04) so far below management's adjusted figure ($1.49)?
Reported diluted EPS includes a $76 million third-quarter special charge tied to exiting product lines (mainly home health care), asset impairments, and an enhanced early retirement program. It also includes $27 million of related inventory write-offs in cost of products sold and $49 million of purchased in-process R&D from 1999 acquisitions, $32 million of which came from Clontech. The adjusted figure excludes these items, and investors should judge how much of these charges are truly non-recurring.
Is BD's balance sheet becoming a concern?
Leverage rose noticeably. Debt to capitalization increased to 47.2% from 41.4%, and short-term debt was 40% of total debt, largely commercial paper used to fund acquisitions. Moody's lowered the long-term rating to A2 and S&P moved its outlook to negative. Management says it expects excess cash in 2000 to go toward debt repayment, and it has credit facilities of about $900 million with no borrowings outstanding at year end.
What are the main legal risks disclosed?
The company faces roughly 300 latex glove product liability suits, though the glove business was divested in 1995. It also faces about 11 needlestick suits, with a Texas court indicating in October 1999 that it views the Usrey case as appropriate for class action treatment. A Retractable Technologies antitrust suit alleges the GPO contracts exclude competitors. Management says none of these matters is expected to have a material effect on financial results.
What is management's outlook for 2000?
Management expects capital expenditures to rise 10% to 15% in 2000, mainly for advanced protection device capacity. It expects acquisition activity to slow considerably as it integrates recent deals, and it expects excess cash to be used to repay debt. The filing notes ongoing pricing pressure in the Medical segment from cost containment and customer consolidation, and it does not provide quantitative revenue or EPS guidance.
04—Continue