01—Abstract
Summary
Summary of the 10-K filed November 26, 2008. Cited figures are marked; the original filing is the authoritative source.
Becton, Dickinson and Company (BD) closed fiscal 2008 (year ended September 30, 2008) with revenue of $7.16 billiona, up 13% from $6.36 billion in fiscal 2007, driven by roughly 7% volume growth and an estimated 6-point favorable currency translation effect.
Diluted EPS from continuing operations rose to $4.46b from $3.36, though the prior year absorbed a $122 million acquired in-process R&D charge. Operating margin expanded to 21.7% from 18.9%, and net income reached $1.13 billion, a 27% increase. Cash generation was strong, with operating cash flow of $1.69 billion, and BD ended the year with $1.2 billion of total debt, a debt-to-capitalization ratio of 18.8%, and a $1 billion undrawn credit facility.
Management also upgraded its outlook for 2009, guiding to operating margin expansion of about 100 basis points and EPS growth supported by gross margin gains and cost controls. The filing also highlights several risks. Gross margin slipped to 51.2%c from 51.7% because of rising resin and raw material costs.
International revenue (about 56% of the total) carries currency exposure, and the 10% dollar appreciation sensitivity on derivatives is $91 milliond of pre-tax earnings. BD faces a broad set of litigation, including multi-district hypodermic products antitrust class actions, a Retractable Technologies patent and antitrust suit, a False Claims Act qui tam case, and product liability suits tied to needlesticks and latex gloves. Management states that an unfavorable outcome could have a material adverse effect, although it characterizes the Therasense patent litigation as largely favorable to BD.
An ERP system upgrade also poses execution risk. Finally, the company faces a French investigation tied to the UN Oil-for-Food matter and a UN vendor suspension, both of which management believes are not material.
02—Key points
Key Highlights
- Revenue grew 13% to $7.16 billion in FY2008, with volume up about 7%, favorable FX adding about 6 points, and price down less than 1%.
- Diluted EPS from continuing operations was $4.46, up from $3.36 in FY2007, which included a $122 million in-process R&D charge.
- Operating margin improved to 21.7% from 18.9%, and net income rose 27% to $1.13 billion.
- Operating cash flow reached $1.69 billion, and capital expenditures rose to $602 million.
- Balance sheet strength: total debt of $1.2 billion, debt-to-capitalization of 18.8%, S&P rating upgraded to AA-, and a $1 billion undrawn credit facility.
- Capital returns: $450 million in share repurchases and $279 million in dividends paid, with dividends per share up to $1.14 from $0.98. A new 10 million share repurchase authorization was added in November 2008.
- Gross margin declined to 51.2% from 51.7% due to resin and raw material cost inflation, and management guides to a 40-60 basis point recovery in FY2009.
- Material litigation exposure includes antitrust class actions, the Retractable Technologies patent suit, and a False Claims Act qui tam case.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2008, Becton Dickinson & Co kept $0.16.
- Revenue$6.90B100.0%
- Cost of revenue−$3.36B48.7%
- Gross profit$3.54B51.3%
- Operating costs−$2.05B29.8%
- Operating income$1.49B21.6%
- Interest, other & tax−$361.1M5.2%
- Net income$1.13B16.3%
Where FY2008 revenue went
$6.90B- Cost of revenue: $3.36B, 49% of revenue
- SG&A: $1.67B, 24% of revenue
- Net income: $1.13B, 16% of revenue
- Other operating costs: $382.6M, 5.5% of revenue
- Interest, other & tax: $361.1M, 5.2% of revenue
Kept 16% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2008filed November 26, 2008Financial Statements
FY2008 against FY2007
| Line item | FY2008FY2007 | Change |
|---|---|---|
| Revenue | $6.90B$6.28B | +9.8% |
| Cost of Revenue | $3.36B$3.03B | +10.7% |
| Gross Profit | $3.54B$3.25B | +8.9% |
| SG&A Expenses | $1.67B$1.58B | +5.4% |
| Operating Expenses | $5.41B$5.10B | +6.1% |
| Operating Income | $1.49B$1.18B | +25.6% |
| Interest Expense | $36.34M$46.42M | −21.7% |
| Net Income | $1.13B$890.03M | +26.6% |
| EPS (Basic) | $4.61$3.63 | +27.0% |
| EPS (Diluted) | $4.46$3.49 | +27.8% |
| Shares Outstanding (Basic) | 244.32M— | — |
| Shares Outstanding (Diluted) | 252.68M— | — |
05—Questions
Frequently Asked Questions
How did BD perform financially in fiscal 2008?
BD grew revenue 13% to $7.16 billion, with about 7 points from volume and 6 points from favorable currency translation. Operating income rose to $1.55 billion, and diluted EPS from continuing operations increased to $4.46 from $3.36. Part of the EPS increase reflects the absence of the $122 million in-process R&D charge that depressed fiscal 2007 results.
What is BD's exposure to foreign currency and how is it managed?
Over half of fiscal 2008 revenue came from outside the U.S., so currency movements matter. BD hedges substantially all transactional exposures with forwards and options, and it hedges some forecasted sales. Management estimates that a 10% dollar appreciation over one year would increase pre-tax earnings by $91 million on its derivative positions, while a 10% depreciation would decrease them by the same amount. The company notes that these figures do not reflect offsetting gains or losses on the underlying exposures.
What are the main litigation risks facing BD?
BD faces several significant matters: antitrust class actions by direct and indirect purchasers (consolidated as In re Hypodermic Products Antitrust Litigation), the Retractable Technologies patent and antitrust suit with trial scheduled for March 2009, a False Claims Act qui tam case, product liability suits involving needlesticks and latex gloves, and a UltiMed antitrust suit. Management says it could incur charges above current accruals and that such charges could have a material adverse effect. BD also won key rulings in the Therasense patent case.
What is BD's outlook for fiscal 2009?
Management expects Medical segment revenue growth of flat to 1%, Diagnostics growth of 2-3%, and Biosciences growth of 3-4%, all after an estimated FX headwind of about 4-5% in each segment. It expects gross margin to rise 40-60 basis points, operating margin to increase about 100 basis points, and an effective tax rate near 27.5%. It also plans capital expenditures of about $650 million and cash from operations of about $1.8 billion. The company also cautioned that the global economic downturn and currency volatility could affect these projections.
06—Continue