10-QPeriod: Q2 FY2018

BECTON DICKINSON & CO Quarterly Report for Q2 Ended Mar 31, 2018

Filed May 3, 2018For Securities:BDX

Summary

Becton Dickinson & Co. (BDX) reported its fiscal second quarter 2018 results, heavily influenced by the recent acquisition of C.R. Bard, Inc. Total revenues surged by 42.2% year-over-year to $4.222 billion, with approximately 33% of this growth attributed to the Bard acquisition. The company experienced a net loss of $12 million, or $(0.19) per diluted share, compared to a net income of $344 million, or $1.58 per diluted share, in the prior-year period. This swing to a loss was significantly impacted by acquisition-related expenses, including a substantial $422 million inventory step-up adjustment for Bard's inventory. Despite the near-term net loss, the underlying operational performance shows positive volume growth and contributions from key segments. The balance sheet reflects the significant impact of the Bard acquisition, with total assets increasing substantially to $54.57 billion from $37.73 billion at fiscal year-end 2017, driven by increases in goodwill, developed technology, and property, plant, and equipment. Long-term debt also increased significantly to fund the acquisition. The company continues to manage its cash flow effectively, with operating activities providing $1.017 billion in cash over the first six months. Investors should monitor the integration of Bard, ongoing litigation matters, and the impact of the new U.S. tax legislation, which has resulted in provisional expense recognition.

Financial Statements
Beta
Revenue$4.22B
Cost of Revenue$2.62B
Gross Profit$1.61B
R&D Expenses$259.00M
SG&A Expenses$1.06B
Operating Expenses$4.04B
Operating Income$186.00M
Interest Expense$185.00M
Net Income-$12.00M
EPS (Basic)$-0.19
EPS (Diluted)$-0.19
Shares Outstanding (Basic)267.34M
Shares Outstanding (Diluted)267.34M

Key Highlights

  • 1Total revenues increased by 42.2% to $4.222 billion, primarily driven by the acquisition of C.R. Bard, which contributed approximately 33% of the growth.
  • 2The company reported a net loss of $12 million for the quarter, a significant decrease from a net income of $344 million in the prior year, largely due to acquisition-related costs, including a $422 million inventory step-up.
  • 3Diluted EPS was $(0.19) for the quarter, down from $1.58 in the prior year, reflecting the net loss.
  • 4Total assets significantly increased to $54.57 billion, largely due to the $25 billion acquisition of C.R. Bard, which added substantial goodwill and intangible assets.
  • 5Long-term debt increased significantly to $22.59 billion from $18.67 billion, primarily to finance the Bard acquisition.
  • 6Operating cash flow remained strong, generating $1.017 billion for the six months ended March 31, 2018.
  • 7The company is facing significant product liability litigation, particularly related to Bard's hernia repair, women's health, and filter products, with potential material adverse effects on financial results.

Frequently Asked Questions

The primary driver of the significant revenue increase was the acquisition of C.R. Bard, Inc. (Bard), which was completed on December 29, 2017. Bard's operations were included in the consolidated results beginning January 1, 2018, contributing approximately 33% to the reported revenue growth.

The company reported a net loss of $12 million primarily due to significant acquisition-related expenses. These included a substantial $422 million fair value step-up adjustment for Bard's acquired inventory, along with other transaction and integration costs. These one-time or integration-related expenses overshadowed the underlying operational performance.

The acquisition of Bard significantly increased BDX's total assets to $54.57 billion. This increase is largely attributed to the recognition of substantial goodwill ($15.88 billion) and other intangible assets like developed technology ($10.40 billion) and customer relationships ($1.12 billion) related to the acquisition. Consequently, long-term debt also rose significantly to fund the cash portion of the deal.

BDX faces a significant number of product liability claims related to Bard's hernia repair devices, women's health (pelvic mesh) devices, and vena cava filters. The company has accrued approximately $1.8 billion for Bard-related product liability and legal matters. Recent jury verdicts in filter and women's health claims, though being challenged, highlight the potential for substantial financial impact. Management stated that adverse outcomes in these matters, individually or in aggregate, could have a material adverse effect on the company's consolidated results of operations and cash flows.