01—Abstract
Summary
Summary of the 10-K filed November 23, 2007. Cited figures are marked; the original filing is the authoritative source.
Becton, Dickinson and Company (BD) closed fiscal 2007 (year ended September 30, 2007) with worldwide revenues of $6.36 billiona, up 11% from $5.74 billion, driven by roughly 8 points of volume growth, 3 points of favorable currency translation and under 1% of price.
Net income rose to $890.0 millionb, or $3.49 per diluted share, from $752.3 million ($2.93). Income from continuing operations was $856 million ($3.36 per diluted share), up from $815 million ($3.18). Results absorbed a $122 million acquired in-process R&D charge tied to the TriPath and Plasso acquisitions (about $0.48 per diluted share).
Excluding that charge and the prior-year insurance settlement, management reports adjusted operating income of $1.325 billionc, up 13%, or 20.8% of revenues. All three segments grew. BD Medical revenue rose 10% to $3.42 billion, helped by Pharmaceutical Systems (up 24%) and safety-engineered products, which grew 6% in the U.S. and 30% internationally.
BD Diagnostics rose 11% to $1.91 billiond, aided by TriPath and GeneOhm, though its segment margin fell to 18.0% because of acquisition charges. BD Biosciences rose 13% to $1.03 billion. Gross margin improved to 51.7% from 51.3%.
Management guides fiscal 2008 to roughly flat gross margin, about 8% Medical growth, 9% Diagnostics growth, 8-9% Biosciences growth, R&D up about 11%, capital spending of $600-650 million, and an effective tax rate near 27%. Balance sheet and cash flow remain strong. Operating cash flow from continuing operations was $1.24 billion, funding $556 million of capital expenditures and about $450 million of share repurchases, with $240 million of dividends paid.
Total debt fell to about $1.2 billion, debt-to-capitalization improved to 20.9% from 25.8%, and the company carries A2/A+ credit ratings. Risk factors center on the medical device industry's competitive pressures, consolidation among GPOs and IDNs, reimbursement changes, product liability and antitrust litigation (including the Hypodermic Products MDL and the Retractable Technologies suit), the FDA warning letter at San Lorenzo (now largely resolved), and foreign currency exposure, since over half of revenue is international.
02—Key points
Key Highlights
- Revenue grew 11% to $6.36 billion in fiscal 2007, with volume up about 8%, favorable currency adding about 3 points, and price up less than 1%.
- Diluted EPS rose to $3.49 from $2.93, including discontinued operations. Continuing-operations EPS was $3.36 versus $3.18, and that figure absorbed a $122 million acquired in-process R&D charge (about $0.48 per share).
- Adjusted operating income, excluding the in-process R&D charge and the prior-year insurance settlement, rose 13% to $1.325 billion, or 20.8% of revenues.
- All three segments grew: Medical +10% to $3.42 billion, Diagnostics +11% to $1.91 billion, and Biosciences +13% to $1.03 billion. Pharmaceutical Systems grew 24%, and safety-engineered products reached about $1.39 billion in combined sales.
- Gross margin improved to 51.7% from 51.3%, driven by higher-margin safety-engineered and pen-needle products and productivity gains. Management expects roughly flat gross margin in fiscal 2008.
- Financial strength is solid: operating cash flow of $1.24 billion, debt-to-capitalization down to 20.9% from 25.8%, and A2/A+ credit ratings. The company repurchased about $450 million of stock and paid $240 million in dividends.
- Fiscal 2008 guidance calls for Medical growth of about 8%, Diagnostics about 9%, Biosciences 8-9%, R&D up about 11%, capital spending of $600-650 million, and an effective tax rate near 27%.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2007, Becton Dickinson & Co kept $0.14.
- Revenue$6.28B100.0%
- Cost of revenue−$3.03B48.3%
- Gross profit$3.25B51.7%
- Operating costs−$2.07B32.9%
- Operating income$1.18B18.9%
- Interest, other & tax−$294.6M4.7%
- Net income$890.0M14.2%
Where FY2007 revenue went
$6.28B- Cost of revenue: $3.03B, 48% of revenue
- SG&A: $1.58B, 25% of revenue
- Net income: $890.0M, 14% of revenue
- Other operating costs: $481.5M, 7.7% of revenue
- Interest, other & tax: $294.6M, 4.7% of revenue
Kept 14% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2007filed November 23, 2007Financial Statements
| Revenue | $6.28B |
| Cost of Revenue | $3.03B |
| Gross Profit | $3.25B |
| SG&A Expenses | $1.58B |
| Operating Expenses | $5.10B |
| Operating Income | $1.18B |
| Interest Expense | $46.42M |
| Net Income | $890.03M |
| EPS (Basic) | $3.63 |
| EPS (Diluted) | $3.49 |
05—Questions
Frequently Asked Questions
How did BD perform on a normalized basis in fiscal 2007?
Reported continuing-operations EPS was $3.36, which includes a $122 million acquired in-process R&D charge (about $0.48 per share) tied to the TriPath and Plasso acquisitions. Excluding that charge, and the prior-year $17 million insurance settlement, adjusted operating income grew 13% to $1.325 billion, or 20.8% of revenues. Management's view is that the charge is non-recurring, though acquired IPR&D charges can recur with future deals.
What is driving growth at BD, and how much of it is organic?
Growth was broad-based. Volume contributed about 8 points, currency about 3 points, and price less than 1 point. Safety-engineered devices are a key driver: U.S. sales rose 7% to $982 million and international sales rose 26% to $409 million. Pharmaceutical Systems grew 24% on prefillable syringe demand, and Diagnostics benefited from the TriPath and GeneOhm acquisitions, which added $88 million and $13 million of incremental revenue.
How much of BD's revenue is exposed to currency and international risk?
Over half of fiscal 2007 revenue came from outside the U.S. International revenue grew 11% to $3.3 billion, with about 5 points of that growth attributed to favorable currency. BD hedges substantially all transactional currency exposure, but translation effects on reported results remain. A 10% dollar appreciation would have increased pre-tax earnings by $52 million on outstanding derivatives, while a 10% depreciation would have reduced them by $10 million.
What are the main legal and regulatory risks for investors?
The most significant items include several antitrust class actions by direct and indirect purchasers consolidated in an MDL in New Jersey, the UltiMed and Retractable Technologies suits alleging exclusionary contracts and patent infringement, a qui tam False Claims Act complaint, and an ongoing French investigation tied to the UN Oil-for-Food matter. The San Lorenzo, Puerto Rico FDA warning letter was largely resolved after re-inspection. Management says it cannot always estimate potential losses and that unfavorable outcomes could be material, though the company believes it has meritorious defenses.
06—Continue