01—Abstract
Summary
Summary of the 10-K filed December 21, 2001. Cited figures are marked; the original filing is the authoritative source.
Becton, Dickinson and Company (BD) reported fiscal 2001 (year ended September 30, 2001) revenue of $3.75 billiona, up 4% from $3.62 billion in 2000, though foreign currency translation reduced growth by roughly 3 points.
Underlying growth was driven by volume gains across all three segments, led by the conversion to advanced protection safety devices (syringes, blood collection products) in Medical Systems and Clinical Lab. Operating income rose 25% to $646 millionb, with operating margin of 17.2% versus 14.3% in 2000 (16.3% excluding special charges). Diluted EPS before the cumulative accounting effect was $1.63, compared with $1.49 in 2000, and reported diluted EPS was $1.49 after a $0.14 charge from adopting SAB 101 revenue recognition changes.
Free cash flow improved, with operating cash flow of $779 millionc versus $615 million, and total debt was reduced by $180 million, lowering debt-to-capitalization to 34.1% from 41.4%. The balance sheet strengthened over the year, with shareholders' equity rising to $2.33 billion from $1.96 billion and the weighted average cost of debt falling to 4.8% from 7.0%. Management indicated expectations of excess cash in fiscal 2002, which could be used for further debt reduction, and noted a $100 million contribution to the U.S. pension plan in November 2001.
Management also flagged several items for investors: ongoing product liability litigation involving about 482 latex glove lawsuits and class actions related to needlestick injuries, a CalOSHA citation concerning the BD Eclipse device, an antitrust suit from Retractable Technologies, and a possible smaller restructuring of manufacturing facilities in 2002. Management expects the adoption of SFAS 142 to add roughly $0.09d per share in fiscal 2002 by eliminating goodwill amortization.
02—Key points
Key Highlights
- Revenue grew 4% to $3.75 billion (about 7% underlying growth excluding a 3% foreign currency headwind), with U.S. revenue up 8% to $2.02 billion and international revenue flat in reported terms at $1.74 billion.
- Operating income increased 25% to $645.9 million, and operating margin expanded to 17.2% from 14.3% reported in 2000, driven by mix shift toward higher-margin advanced protection products and cost control.
- Diluted EPS before cumulative accounting change rose to $1.63 from $1.49; reported diluted EPS was $1.49 after a $0.14 SAB 101 charge.
- Operating cash flow increased to $779 million from $615 million, and capital expenditures were steady at $371 million.
- Total debt fell $180 million, and debt-to-capitalization improved to 34.1% from 41.4%; the weighted average cost of debt declined to 4.8% from 7.0%.
- Biosciences segment operating income nearly doubled-plus to $97 million from $73 million, while Clinical Lab operating income rose to $213 million from $170 million and Medical Systems to $447 million from $395 million.
- Key legal and regulatory exposures include about 482 latex glove product liability suits, class actions over needlestick injuries, the Retractable Technologies antitrust suit, and the CalOSHA Eclipse citation, which management says are not expected to be materially adverse to financial condition.
03—Questions
Frequently Asked Questions
How did BD's fiscal 2001 revenue and profitability trend compare with 2000?
Revenue rose 4% to $3.75 billion, and operating income increased 25% to $646 million. Net income was $402 million, or $1.49 diluted EPS, which included a $0.14 per-share charge from the SAB 101 accounting change. Before that charge, diluted EPS was $1.63, up from $1.49 in 2000. Growth was driven mainly by advanced protection safety devices and volume gains across segments, partly offset by currency translation.
What was the impact of the SAB 101 accounting change?
BD adopted SAB 101 in Q4 2001, retroactive to October 1, 2000. It changed revenue recognition for branded insulin syringes sold through U.S. distributor incentive programs (now recognized on sell-through) and for Biosciences instruments (now recognized on installation). The cumulative effect was a after-tax charge of $36.8 million, or $0.14 per share, and the impact on fiscal 2001 revenue and pre-cumulative-effect net income was immaterial.
How strong is BD's balance sheet and cash generation?
Operating cash flow rose to $779 million from $615 million, and debt was reduced by $180 million to about $1.24 billion total. Debt-to-capitalization fell to 34.1%, and shareholders' equity grew to $2.33 billion. BD holds a $900 million credit facility with no borrowings outstanding, and its ratings are A2 (Moody's) and A+ (S&P). Management expects excess cash in 2002, which could be used to further repay debt.
What are the main litigation and regulatory risks investors should monitor?
The largest exposures are roughly 482 product liability lawsuits tied to natural rubber latex gloves from a business divested in 1995, and class actions by healthcare workers over needlestick injuries from hollow-bore needles. Other items include the Retractable Technologies antitrust suit over GPO contracts, a CalOSHA citation regarding the BD Eclipse blood collection device, and Superfund proceedings. Management states these are not expected to have a material adverse effect on consolidated financial condition, though charges above current reserves could affect net income and cash flow.
What operational changes or outlook items were disclosed for 2002?
Management said it is considering actions beginning in 2002 to improve operating efficiency, possibly including a smaller restructuring of Medical segment manufacturing facilities, and it is considering divesting business units with combined revenues under $200 million. Adoption of SFAS 142 (no goodwill amortization) is expected to add about $0.09 per share in earnings. The Hancock, New York surgical blade plant closure is expected to be completed by December 2002.
04—Continue