Becton Dickinson and Co (BDX) 2011 Q4 法說會逐字稿

Hello and welcome to BD's fourth fiscal quarter 2011 earnings call. At the request of BD today's call is being recorded. It will be available for replay through Wednesday, November 9, 2011, on the Investors page of the BD.com website or by phone at 855-859-2056 for domestic calls and 404-537-3406 for international calls using conference ID 16826583.

I would like to inform all parties that your lines have been placed in a listen-only mode until the question-and-answer segment. Beginning today's call is Ms. Monique Dolecki. Ms. Dolecki, you may begin.

Thank you, Jackie. Good morning, everyone, and thank you for joining us to review our fourth fiscal quarter and year-end results.

As we referenced in our press release, we are presenting a set of slides to accompany our remarks on this call. The slide presentation is posted on the Investor Relations page of our website at BD.com.

During today's call we will make forward-looking statements and it is possible that actual results could differ from our expectations. Factors that could cause such differences appear in our fourth fiscal quarter press release and in the MD&A section of our recent SEC filings.

We will also discuss some non-GAAP financial measures with respect to our performance. A reconciliation to GAAP measures can be found in our press release and its related financial schedules and in the slides. A copy of the release, including the financial schedules, is posted on the BD.com website.

Leading the call this morning is Vince Forlenza, Chief Executive Officer and President. Also joining us are David Elkins, Executive Vice President and Chief Financial Officer; BD Executive Vice Presidents Gary Cohen and Bill Kozy, as well as Tom Polen, President of Diagnostic Systems.

At this time we would also like to announce [Alberto Mas], the new President of BD Biosciences. Alberto will have responsibility for the Cell Analysis and Labware units. Alberto has spent the past six years as the President of the Medical Surgical Systems.

His 19-year career at BD includes functional and general management assignments in Europe and the US, including prior Finance and General Manager roles in Discovery Labware and four years as Vice President and General Manager for BD Biosciences in Europe.

Bill Rhodes, the previous President of BD Biosciences, will assume the role of Senior Vice President Corporate Strategy and Development, reporting to David Elkins. Bill is especially qualified for this role. With more than 25 years of new business development and start-up company experience, he combines a deep understanding of external market opportunities with a true general management perspective. Bill is participating on the call today.

We are extremely pleased to have both of these leaders in their new roles, and we believe they will leverage their diverse experience to lead the Company through its next phase of growth. It is now my pleasure to turn the call over to Vince.

Thank you, Monique, and good morning, everyone. Today I will begin with a brief overview of BD's performance for the full fiscal year 2011 and I will spend some time highlighting the guidance for fiscal year 2012.

After that David will provide a financial review of the total company and segment performance, as well as provide you with key components of our 2012 guidance. I will spend the balance of our time discussing our performance in emerging markets and the progress we have made in our product pipeline. After that we will open the call to questions.

As we stated in the press release, we had a solid finish to the fiscal year. Revenue growth was 4.9% currency neutral, when excluding the difficult comparisons from the pandemic flu as well as stimulus and supplemental spending in fiscal year 2010. We are pleased with our continued strong growth in safety sales and in emerging markets.

We continue to make progress with our operational excellence programs. This year we also successfully completed two acquisitions, Accuri Cytometers and Carmel Pharma. We are pleased with our progress to date on these acquisitions, and we will continue to look for external opportunities that are aligned with BD's capabilities.

We continue to invest in R&D and our key product launches remained on track and each of our three segments contributed to the Company's pipeline progress. We now have the most robust pipeline in the Company's history. We continue to make the Company more effective, efficient, and we will continue to deliver superior and safer healthcare products.

I would like to discuss the things we contemplated when forecasting fiscal year 2012. As our industry remains a challenge, we continue to see economic pressures on healthcare utilization in the US and Western Europe. Additionally, we anticipate lower research funding and expect a downward trend on pricing to continue in fiscal year 2012.

Despite these macroeconomic challenges, we will increase our investments in high-growth opportunities to ensure the long-term health of the Company.

Given the aforementioned factors and our commitment to deliver on our guidance, we have taken a prudent approach to our outlook for next year. We are expanding the range of our revenue growth and expect it to be between 2% to 4% on a currency neutral basis. We expect EPS growth to be between 4% to 6%. We believe these projections incorporate additional flexibility for unanticipated external conditions.

On slide five you will see the guidance for fiscal year 2012 on a reported and currency neutral basis. This year our revenue growth was 2.9% currency neutral.

If you exclude the impact of the pandemic flu and stimulus and supplemental sales from fiscal year 2010, revenue growth was 4.9%. EPS growth was 8.1% currency neutral. As I just mentioned, we are expecting revenue growth to be between 2% and 4% and EPS growth of [4% to] 6% currency neutral. David will discuss key components of our P&L for fiscal year 2012 later in his remarks.

On slide six I will walk you through our guidance by segment. For the Medical segment, we are anticipating currency neutral growth of about 1% to 3%. Our outlook reflects non-recurring items in the Pharmaceutical Systems business that took place in fiscal year 2011. Additionally, we anticipate continued challenging macroeconomic conditions that are adversely impacting end-user demand and causing pricing pressure in developed markets.

In the Diagnostic segment, we anticipate currency neutral growth of 2% to 4%. Similar to our Medical segment, challenging macroeconomic conditions and continued downward pricing trends are impacting this segment, primarily in pre-analytical systems. However, Diagnostic Systems is benefiting from a series of product launches.

We expect Biosciences currency neutral growth to be between 4% and 6%. This lower growth rate is due in part to uncertainty in the research funding environment worldwide which impacts both our Cell Analysis and Discovery Labware units. Additionally, we have taken steps to eliminate products from the Discovery Labware portfolio that were low volume, low margin, and low contributors to growth.

And now, I will turn the call over to David.

Thank you, Vince, and good morning, everyone. Moving to slide eight I would like to briefly highlight some of our fourth-quarter results which were mostly in line with the Company's expectations.

Revenue came in at about 4% currency neutral. We experience strong growth, both in emerging markets as well as international safety sales. We also delivered on our EPS guidance coming in at $1.39 for the quarter.

On slide nine you can see revenues were approximately $2.1 billion in the fourth quarter. Adjusted EPS growth grew about 8% to $1.39 currency neutral. Our total year revenues of $7.8 billion reflect revenue growth of 2.9% and adjusted EPS growth of about 8% currency neutral.

Now let's move on to slide 10 where we review our revenue growth by segment, which I will speak to on a currency neutral basis.

BD Medical fourth-quarter revenues increased 3.8%. The growth in this segment was mainly driven by the Diabetes Care business with continued strong sales of pen needles and solid growth in Pharmaceutical Systems unit. For the total year, the Medical segment grew 2.3% when excluding the impact of pandemic flu related sales in fiscal year 2010 growth in this segment was 4.5%.

Revenues in the BD Diagnostics segment grew 3.8%. Revenues reflected solid growth in both women's health and cancer and the infectious disease product offerings within the Diagnostic Systems unit. For the total year, the Diagnostics segment grew 3.9%. When excluding the impact of pandemic flu-related sales in fiscal year 2010, growth in this segment was 4.5%.

BD Biosciences revenue growth was 4.7% driven by strong instrument reagent sales in our cell analysis unit. For the total year, the Biosciences segment grew 3.2%. Excluding the impact of sales related to supplemental and stimulus spending in Japan and in the US in fiscal year 2010, the Biosciences business grew 6.8%.

Now turning to slide 11 we will look at our geographic results. In the fourth quarter BD's US revenues increased to about 1%, US Medical revenues increased 1% year over year. US sales of Diagnostics products increased almost 2%. Biosciences revenues in the US increased about 0.5% with growth in Cell Analysis business unit being offset by weakness in core consumables and our Discovery Labware business.

International revenues grew about 6% on a currency neutral basis. Growth was driven by continued strong international safety sales and growth in Asia Pacific and Latin America. Medical and Diagnostics contributed about 6%. The Biosciences segment grew 7.3%.

For the total year, US revenues grew 2% with Medical increasing 1.8%, Diagnostics increasing 2.6%, and Biosciences growing 1.9%. International revenues grew 3.6% on a currency neutral basis. When excluding the impact of pandemic flu-related sales in fiscal year 2010, international revenue overall grew about 5%.

Moving to global Safety on slide 12, reported sales grew 12.3% in the quarter to $498 million. On a currency neutral basis Safety growth was about 8%. This was comprised of 2% growth rate in the US and an international growth rate of 18.5%. For the total year, Safety growth was 5.4% on a currency neutral basis, which is a combination of 0.7% growth rate in the US and an international growth rate of 13.6% on a currency neutral basis.

In the Medical segment, the US growth rate is being driven by Nexiva and our new product, PhaSeal. This product is from our Carmel acquisition and expanded our Safety product offering. International Safety is driven by Infusion Therapy products. In the Diagnostics segment of the US growth rate is being driven by push-button blood collection sets and an international growth rate is being driven by a range of safety products. Additionally, Safety growth was particularly strong in emerging markets coming in at 24.2%.

On slide 13 we review our revenue in the fourth quarter in which our reported growth rate was 9.5%. Currency contributed about 6% to the growth and performance contributed 4%. The loss due to the hedge gain from fiscal year 2010 is not recurring in fiscal year 2011.

Moving to slide 14, looking at our gross margins we experienced a negative 70 basis points impact from currency and a hedge gain not repeating. From a performance standpoint, positive operating performance of 90 points was offset by higher raw material costs and pension expenses.

Slide 15 recaps the fourth-quarter income statement and highlights our foreign currency neutral results. As discussed earlier, fourth-quarter revenue was 4% and gross profit also grew about 4%.

Moving down the income statement line, SSG&A increased 5.6% primarily due to higher acquisition-related expenses, higher legal costs, and increased shipping fees related to higher fuel costs.

As we discussed in previous calls, another headwind is our EVEREST SAP implementation costs. Partially offsetting these items is a decrease in our deferred compensation expense, which is offset by a loss on the interest income line. R&D decreased 7.2%, which is in line with our expectation, as we accelerate spending in the first half of the year.

As a result of the items I just mentioned, our operating income increased 5.7% and earnings per share increased about 8% in the quarter. Slide 16 recaps the total year income statement and highlights our foreign currency neutral results. Revenue growth was about 2.9% and gross profit growth was 3.2% due to increased productivity and ReLoCo, which more than offset raw materials and pension costs for the full year.

Moving down the income statement, SSG&A increased about 5% with the main drivers being increased investments in emerging markets, higher pension, and EVEREST costs. Acquisition-related expenses and a provision for European receivable also contributed to the increase. These increases were partially offset through efficiencies in our G&A infrastructure and other cost savings programs.

For the total year R&D increased 7.7% currency neutral, which is in line with our expectations. We increased R&D as a percent of sales by 20 basis points as we invested in new products and platforms. As a result, operating income increased 0.2%, which reflects lower revenues and increased SSG&A and R&D expenses. EPS growth is 8%currency neutral.

On slide 17 I would like to walk you through our outlook for next year. As Vince mentioned earlier, we expect revenues to increase about 2.4% on a currency neutral basis. We are considering several factors with this outlook.

First, we expect to see a downward pricing trend continuing through the full fiscal year 2012. Although our price decline was just under 100 basis points for the total year, we did see an increase in the fourth quarter. We expect pricing erosion to be slightly above 100 basis points for fiscal year 2012.

Second, healthcare utilization in the US and Western Europe remains constrained, and we expect these macroeconomic conditions to continue in the near future. Third, we are seeing an increase in raw material costs, which will impact our gross profit margin. Additionally, we will be making significant investments in SSG&A, increased sales and marketing resources in emerging and other high-growth markets, accelerated acquisition expenses, and increased SAP implementation costs. Due to these items, some of which are one-time in nature, we are expecting EPS to increase 4% to 6% currency neutral in fiscal year 2012.

Moving to slide 18, I would like to walk you through our P&L for fiscal year 2012. For the year we are expecting revenues of about $8 billion. We expect our gross profit margin to be approximately 51.3% to 51.5%, a decrease of about 70 to 90 basis points.

This reflects the anticipated negative effects of higher raw material costs, the acquisition-related expenses, and software expenses resulting from our Biosciences product launches. Partially offsetting this was a benefit from our ReLoCo program and positive productivity and mix.

SSG&A is expected to be approximately 23.6% to 23.8%. This reflects increased investment in emerging markets; selling and infrastructure and acquisition costs primarily related to the rollout of Carmel and Accuri. Also included are the EVEREST SAP implementation costs, which are slightly offset by reductions in our G&A spending driven by the functional transformation programs.

We plan to increase R&D about 6% by investing in new product platforms and funding even further increases through an R&D reprioritization and reductions in infrastructure. Operating income, as a result, is expected to be approximately 21.5% to 21.7%. Our cash flow will remain strong with our operating cash expected to be $1.7 billion in fiscal year 2012.

We also plan to repurchase $1.5 billion in shares. The majority of which will be funded through a future debt offering. Capital expenditures will remain in line with our 2011 spending at approximately $500 million to $525 million. For our bottom line, we expect reported EPS to be between $5.75 and $5.85.

I would also like to highlight that we anticipate the first-quarter fiscal year 2012 to be below our guided growth rates for the year. We expect revenue growth rate of about 1% to 2% on a currency neutral basis, which reflects the tough comparison in the first quarter of fiscal year 2011, primarily related to the Pharmaceutical Systems unit where there was an inventory build due to the launch of low molecular weight heparin and an increase sampling of certain biological products.

Additionally, we expect continued downward pricing trends in our Medical Surgical Systems unit. We expect EPS, therefore, to be between $1.13 and $1.17, which also reflects a higher tax rate compared to the prior year which benefited from discrete items.

Before I turn the call back over to Vince, I would just like to highlight our solid finish to the year in a very challenging environment. Emerging markets and international Safety continue to deliver strong double-digit growth and we are still investing in key R&D projects and in new programs to drive operational efficiencies. We are also seeking to maximize our capital structure, and in doing so, return more cash to our shareholders.

Now I would like to turn the call back over to Vince.

Thank you, David. Moving on to slide 21, I would like to highlight our emerging market results.

We continue to see strong growth in emerging markets, which accounted for approximately 21% of our total revenues in the fourth quarter. Emerging market revenues grew about 11% in total over the prior year, accounting for two-thirds of total BD dollar growth on a currency neutral basis. We continue to see double-digit growth in a number of key markets with China growing at about 26%.

We were very pleased with Safety revenue growth in emerging markets, which was up about 24% over the prior year. We will continue to invest in emerging markets in the areas of geographic expansion, market development, local manufacturing, and R&D to build a long-term business model for sustained growth.

On slide 22 I would like to provide an update of our key product initiatives starting with BD Medical. Earlier in the year, we announced the launches of our BD ecoFinity Life Cycle Solution program and the first products from our ReKindle program. In the fourth quarter we launched an extension of our flagship IP catheter product, Insyte Autoguard, with a blood control feature. We will also launch Nexiva with a diffusion tip in the first quarter of fiscal 2012.

In our Diabetes Care business, we just launched a next-generation safety pen needle, the AutoShield Duo, and we plan to launch other innovative products throughout the year.

On slide 23 I would like to walk through some of the key initiatives in our Diagnostics segment. In the third quarter of this fiscal year we launched a new automated microbiology plate-streaker called the BD Innova. We also launched the six-color BD MAX as an open system in May. We have received good feedback from our customers and we are pleased with the progress we have made in these areas.

As I mentioned in previous conference calls, in fiscal year 2012 you can expect the launch of the BD MAX MRSA and C. difficile assays midyear in the EU. The US launch will be toward the end of the year.

We are continuing to invest in the BD Viper XTR with fully-automated specimen processing. In the fourth quarter of fiscal year 2012 we will be launching the Trichomonas assay on the BD Viper. At the end of fiscal year 2013 we will be launching the Viper LT, our next-generation mid-volume Viper platform. In fiscal year 2013 we expect to launch our molecular Pap test, the BD SurePath Plus, which is in the data analysis phase of the clinical trial.

On slide 24 we will review the product launches of our Biosciences segment. We announced our BD Recharge Media Supplement for bioproduction earlier this year, along with our eight-color research analyzer, the FACSVerse. Our desktop sorter, the FACS Jazz, was released as a limited launch last quarter and will be launched worldwide by the second quarter of this fiscal year.

We plan to launch our new cell culture medium, Mosaic, in the first quarter of fiscal year 2012. As we look to fiscal years 2012 and 2013, we plan to launch two new analyzers for CD4 testing. One is meant for mid and smaller volume laboratories in both the emerging markets and the developing world, while the other is a more portable point-of-care instrument targeted towards rural clinics in the developing world.

Turning to slide 25, as I outlined in my initial comments, BD is continuously focused on operational excellence programs. Today I am pleased to update you on ReLoCo and provide you with an overview on ReLoCo II.

The ReLoCo I project has been successfully implemented, achieving breakeven status in fiscal year 2011. And as I mentioned on the last conference call, will yield savings of approximately $50 million to $60 million by fiscal year 2013. The ReLoCo II initiative is something we are very excited about. Essentially, we have expanded ReLoCo I and we are using the same principles, knowledge, and skills gained and applying them more broadly.

While ReLoCo I was a program that was only in our Medical Surgical Systems unit, the ReLoCo II program encompasses all of the BD Medical segment as well as Diagnostic Systems and some elements of the BD supply chain. We have identified and are implementing projects that we expect to yield annualized net savings of $60 million to $70 million per year by the end of fiscal year 2014.

On slide 26, before we open the call to questions, I would just like to reiterate the key messages I would like for you to take away from our discussion today. First, we are pleased with our performance and believe our results for the year were solid despite the headwinds facing our industry. Second, we are going to continue to invest in the business to drive both top-line and bottom-line growth. We will make focused investments in R&D and in emerging markets, and continue to look for acquisition opportunities that align with BD's strategies and capabilities. The successful completions of the Accuri and Carmel acquisitions are two strong examples of this.

And, third, we continue to focus on operational excellence programs across the P&L to maintain our strong cost position. We believe programs such as ReLoCo and ReLoCo II will deliver significant savings in the long run.

For more than a decade BD has been a company that investors could rely on for consistent, predictable results. More recently, we, and other companies in our industry, have faced a more challenging and less predictable external environment. We anticipate this environment will continue for the foreseeable future, at a minimum through the next fiscal year.

Recognizing the importance of delivering on our commitment during these challenging economic times, we have taken steps to achieve higher predictability in a less predictable environment. As I mentioned earlier, this is reflected in our guidance for fiscal year 2012. We have incorporated additional flexibility for unanticipated external conditions while preserving the Company's key investments in R&D, emerging markets, and operating efficiency programs. We remain confident that the programs we have in place are a strong foundation for future growth.

Thank you. We will now open the call to questions.

(Operator Instructions) Jon Wood, Jefferies.

Vince, good morning. Just some perspective on the top line next year.

If I look at your underlying, BD's underlying trajectory the last three years, you have been around the 5% level, 4.5% in 2009. So even if I take another point or so of price off looking at that 2009 figure, you still seem to be guiding below your 2009 experience in 2012. Is that an accurate representation?

And if conditions were to just stay as they are right now and kind of as you exited the fourth quarter, do you perceive that your numbers are too low or in line with where they should be?

Jon, I do think from -- if you look at where we finished the fourth quarter and then look forward, the story is really around what is happening in the US marketplace. And there is a couple of factors that we saw in the fourth quarter that I will mention.

Number one is utilization in the hospital segment and lower acuity. We saw that also reflected when we step back and look more broadly at the cost trends in the insurance industry where their cost ratios were going down.

On the physician office side, we saw less physician visits. We don't know exactly whether that was seasonal and how much of that will bounce back. We think September was maybe a little bit better.

So from an environmental standpoint our concern on the clinical market side was that we were seeing some weakening, number one. Number two, on the research product side we are also concerned about funding, and if you look at Biosciences growth in the fourth quarter, in the US we saw some lightness there as well.

As you move down in the range, clearly the direction you are going, with the environment would have to be worse to go down further in the range. That is true. So the low end of our range would certainly be implying further deterioration in the environment.

Now I would like to point out one other thing, which changes from last year to this year. David mentioned it in his remarks and that is really Pharm Systems. Pharm Systems in the US last year benefited from the launch of low-weight molecular heparin and some sampling programs with some biotech drugs. They are not going to repeat in fiscal year 2012 and that is cutting the growth rate for Pharm Systems substantially.

So that is kind of the picture. International looks good; the emerging market piece looks good. So, yes, if you look at our range, the environment would have to get worse to get down in the lower end of the range.

Okay, very good. Thanks.

Rick Wise, Leerink Swann.

Hi, Vince. Hi, David. It's Miroslava for Rick today. Let me just start by asking about the gross margin.

You highlighted some of the factors that are impacting it, and I appreciate the increased cost pressures from raw materials. But maybe if you could help us understand what is driving such a reduction from fiscal 2011 to fiscal 2012?

Sure, we will break that out for you, but you are right, the starting point is the raw material costs, which is up about $25 million year on year. David has got a breakout that he can walk you through.

The main things that are driving the year over year, first and foremost, is that, as we talked about earlier, software amortization that we have with the launches of the Biosciences. The other big driver there is the raw material costs. We are seeing raw material price increases year over year. And it's not just resins; we are seeing that within paper, glass, steel, and rubber.

Also, the other thing driving margins, as Vince had mentioned, is as you have increased price all of that price pressure falls through on your gross margin. Lastly, the one other major item is with the two acquisitions that we had you have integration costs that go through your gross margin line and you also have the step up in your inventories that you got to do as part of your acquisition accounting. So when you put all those things together there are some one-off items that are hitting us next year that we don't see as longer-term trends that are causing the margins to be slightly lower next year than what they are this year.

And just to further explain, on the software what we are talking about there is we have always capitalized software in the Biosciences business. We have launched a new software platform, to a company these product launches, and as we do that we start to amortize the software.

So that is not a thing that continues to increase. This is a program you have once every 5 to 7 years, something along those lines, but that is impacting fiscal year 2012.

Great. Thanks, appreciate the color. So some temporary items there as well.

Maybe if you could just clarify real quick for us whether the buyback is included in your EPS guidance or is it not?

It is.

Okay, thank you. I will get back in queue.

David Roman, Goldman Sachs.

Good morning, everybody. I wanted just to go into a little bit more detail with respect to the $1.5 billion share repurchase. I think a year ago you had committed to sort of $650 million. Stock is obviously below where it was at that time.

Maybe you could sort of remind us how you are thinking about use of capital, why you wouldn't be looking to deploy your resources to a higher growth external asset, and why at this point you think buying back stock is the right move?

Well, we do believe that acquisitions will be a part of our strategy, just as we just did at Accuri, just as we just did Carmel Pharma. So you are making a good point there. And as we identify strong targets but maintain discipline we will look to do that.

At this point in time, having done that analysis, we think $1.5 billion is a prudent use of our capital. So maybe, David, you want to make any other comments on the share buyback?

I think definitely we are looking at acquisitions out there. As Vince talked about on the last call, we are building our capabilities and our business development area. That is one of the reasons that we have got Bill Rhodes going into that area.

But also, we are going to apply the same financial discipline we always provided and went through when we looked at acquisitions. So when we looked at our capital structure we think there is ways to continue to optimize the capital structure given where interest rates are. We think returning the cash to our shareholders is the right thing to do if the acquisitions don't materialize.

Yes, and John, we think a share buyback program gives us the flexibility that if we identify something that we want to go after then we can flex it if we have to.

Okay. And maybe as a follow-up to that. On the savings from ReLoCo, if you look at the dollars that you have quoted, can you maybe just clarify whether those are gross or net savings? And as you think about reinvestment, how much are you at a point right now where you are basically running some of your developed markets for cash and redeploying a lot of those resources into investments in either emerging markets or some of the growth in therapeutic categories that you serve?

It's a great question and I am going to ask that we maintain just the rule on one question, but certainly we will answer your question.

As we approach this year, we did look at the infrastructures in the developed world versus the developing world. We made some very tough choices on those infrastructures in the developed world and did redeploy resources from the developed world into the developing world. By the way, that is a process that has been going on before this year.

And so the answer to that question is, yes, we are being very disciplined around there. But we also have a whole series of new products, so we have to make sure that in a targeted way, so as we launch these new products, that we have the resources in the developed world as well. So it's not just a run the developed world for cash. It's also have to maintain the ability to sell value in the developed world, but there was some significant shifting in resources.

Kristen Stewart, Deutsche Bank.

Kristen, are you on mute? Guess she dropped off.

Her question has been withdrawn.

Mike Weinstein, JPMorgan.

Oh, hi there. It's Kim for Mike. So just a couple of quick questions. I wanted to start on the Medical pricing commentary and maybe you could just give us some color on where you are seeing it the most within Medical and how you are thinking about that going forward? I think you said you were expecting a little bit over 100 basis points of pricing pressure next year, but kind of what is the visibility into that?

And are you guys still targeting, probably on a longer-term basis at this point, that 50 basis points of operating margin expansion?

The answer to the second question you asked is, yes. That is why we talked about ReLoCo I then going to ReLoCo II; the savings programs that we have in G&A. We are just at the point where those service centers are up and running, and so we expect benefits from them in the future.

Quite frankly, in this environment we will look for other opportunities to become more efficient, but those are good platforms to build from.

I will let Bill answer the question around pricing and Medical, Bill Kozy.

Sure. The way we are looking at our prices on a geographic basis and the pressure is pretty much coming from Europe and the US, not a surprise. Both are equally impacting our overall profitability as we look at each of the individual businesses.

The European price pressure is more pervasive across all three of the units at this point in time. Most of our price pressure in the US at this stage has come in our Medical Surgical business and the traditional product categories you would expect of hypodermic and IV catheter.

And then to the first part of your question, the ReLoCo numbers are net.

Okay, great. Then just one quick follow-up on the pension expense. What are you guys assuming in terms of the headwind from pension costs in 2012 versus 2011?

So we are assuming flat pension costs. There is a headwind from the discount rate going down, but we are looking at strategies around contribution and some other things to hold the line on pensions. Thanks very much.

David Lewis, Morgan Stanley.

Good morning. Vince, just wanted to take a step back here for a second. One thing BD has done a very nice job of is talking about these pressures. You have talked about multiple initiatives to get ahead of these pressures, but it does seem in the last three to four months your business fundamentals have changed.

And I am just sort of wondering is this more the ReLoCo initiative that you thought would manifest in 2012 and 2013 are just not manifesting fast enough, or in the last three to four months the pricing and broader environment has just gotten that much worse? Just help us understand.

You have been getting ready for these things; it looks like the environment has gotten ahead of you again and I am just trying to understand what has changed the last three to four months. And give us a flavor of ReLoCo plus the environment.

Sure. So ReLoCo is on track, it's where we expected it to be, ReLoCo I. From an overall standpoint, I think we accelerated our work on ReLoCo II. As to your point, the environment got worse.

So we were being proactive, but in the fourth quarter we saw the increase in raw material costs and that was more than we were expecting. On the pricing side, from an environmental standpoint the pricing that we have in this plan there is two pieces to it. There is one that is driven by -- and this is really on the device side of the business, kind of the environmental pressures that we have been talking about and describing on the call.

In one area on the device side, one particular product line which less than 4% of the Company sales, it was more driven by a competitive situation that was kind of a unique situation with excess capacity in that product line. Not at BD, but on the part of the competitor. And that was a much more significant event than we were expecting, so I see that as kind of a one-off.

So you take half of that pricing impact that we are talking about, that is the kind of one-off event, unique competitive situation. The rest is kind of the environmental impacts, that is how we see it. But ReLoCo is on track and so we are redoubling our efforts there.

David is going to add something else.

What I would say is since July the two biggest things that are different is one is the acquisitions. As I talked about, there is the integration costs that are in there that really hit next year, as well as the step-up in the inventories that we are selling. Then as Vince talked about, the raw material costs continued and we are assuming that those price increases within raw materials are going to continue into next year.

So those are the two biggest things that are causing -- and we don't see those as things continuing beyond next year.

Jon Groberg, Macquarie Capital.

Good morning. Thanks for taking the questions. Maybe just one clarification and an another question. But, Vince, from the guidance perspective, I guess I am just trying to understand a little bit. Are you -- the way you think about your guidance is the midpoint of your guidance kind of what you expect for next year? From your comments I am just trying to understand if you think you are giving very conservative guidance.

Well, you know, the way I think you should think about the guidance is we have given you a broader range to start the year. We would expect as we get more clarity on the year that we will start to narrow that range. That is the way I would look at this.

We are also indicating to you that the first quarter, because of tough comparisons to last year, is going to be a lower quarter. And David walked you through those numbers. So what I expect is going to happen is we are going to narrow this as things go on.

As we said, that bottom end of the range -- the environment would have to deteriorate for us to get down to the bottom end of the range. That is the way I think about it.

Okay, thanks for the clarification. Then could you -- the detailed question is just around Safety. Could you maybe just talk about what you are seeing? You mentioned emerging markets still growing well, but you mentioned international. Are you getting traction in Europe with the safety products given the directive there and regardless of what is happening in those countries or I guess what is happening with Safety growth in the European countries? Thanks.

Sure, happy to do that and I am going to ask Gary Cohen to walk you through it.

The short answer is, yes, we are getting traction. Safety growth has been accelerating in Western Europe. We had a strong finish in the year driven by a much stronger fourth quarter relative to earlier in the year.

It has also gained significant traction pretty much in all of the international markets with exceptionally strong growth in Latin America, very strong growth in Asia Pacific. In the quarter we even had strong growth in Safety in Japan, in Canada. So pretty much in all markets except the US, which is now a mature market relative to safety-engineered devices.

We were seeing very strong growth, double digit or above in all markets. Canada just very slightly below double digit and an acceleration in Western Europe, so the trend has been very positive.

And could I just have one clarification on the Safety? On the pricing issue, are you seeing -- because of what is going on in those countries, what is the pricing impact in Safety?

What we are doing is we are really tailoring our offering to the economic situations in the various countries we are operating in. And we are not seeing the pricing pressure that the Company is experiencing overall. It tends to be focused in particular areas and those are not necessarily in the safety-engineered devices.

Thanks a million.

Amit Bhalla, Citi.

Good morning. I was hoping you could just talk for a minute about leverage from the top line to the bottom line in a more normalized environment, because clearly there is a lot of one-timers or issues that are impacting the fiscal 2012 guidance? Then can you also just talk to us about the long-term outlook for the Company, if there is any revisions to how you feel that BD is going to be operating? Thanks.

Starting with your second question, we are not going to guide over the long term. When the environment is so uncertain, we just don't think that is prudent and that as things evolve we will be changing our outlook. So we are not going to do that on this call.

I would encourage you to come to the analyst day that we have coming up and you can see firsthand some of the really interesting products that we are going to be launching.

In terms of thinking about the P&L, it's still our goal to get 50 basis points of leverage across the P&L. In fact, if you look at what is going on -- let me just start on the SSG&A line. What is happening right now is we are investing more in the sales and marketing area, especially for emerging markets, and it's a significant investment this year.

While we are doing that we have become more and will continue to become more effective on the G&A line. If you go back, I think it's -- David, to 2008, is it? We have improved on about 0.4 of a percentage point and over 1 percentage point if you take out the impact of EVEREST.

EVEREST is costing us about $68 million this year. EVEREST, from a project expense standpoint, finishes -- we go live in 2012. So the project starts to ramp down, we pick up the amortization, and we just get a little bit more spending in fiscal 2013 on EVEREST, so we start to get that behind us. This has been a big ramp up.

The other thing I would like to point out to you that we have been jumping over, of course, is the pension. We mentioned we are going to make contribution to deal with that this year. So emerging markets, as I was talking about in terms of an investment, was $60 million. EVEREST is about $20 million, and acquisitions this year going year on year is about $20 million as well.

So there is a lot of things in the P&L we are jumping over, including the $25 million on raw materials with about 60% of that being the resins. And we haven't seen the resins start to move yet, even though oil prices have moderated. So we will see what happens with that, but those are kind of the major elements that we are talking about.

Brian Weinstein, William Blair.

Actually this is Pete in for Brian. I was wondering if you could break down your 2012 growth expectations between organic and nonorganic terms. So if you could just break out between current, new product launches, and maybe the acquisitions as well.

David will do that for you.

It is pretty straightforward. Between Accuri and Carmel all-in, it is about -- what we said on Accuri is about 1 to 2 basis points of growth to our Biosciences business. And our Carmel, what we have communicated is it is about $50 million is what we are doing this year, and the market overall is growing about 10 basis points. So that gives you an idea of the range of those two acquisitions. The majority of our growth still remains organic.

And the new product launches?

Oh sorry, 10%. I am sorry. The market on Carmel is growing 10%.

Yes, not 10 basis points.

Right. Can you break out the new product launches from the existing products?

I don't think we have -- we don't have that level right here.

We'll be going through that on the analyst day.

Yes, you will see that next week.

Okay, great. Thanks.

Bill Bonello, RBC Capital Markets.

This just sort of follows up on our answer to one of the previous questions. So just to get a little more clarity, you mentioned about five or six different items that are putting pressure on the margins in 2012. And just to make sure that we have captured all of those, would you mind sort of walking through one more time the relative impact of raw materials, software, acquisitions, investments, just so we have it accurate?

So I will ask David to walk through the gross margin and then we will walk through the investment on the SSG&A line as well for you.

Okay. So as we talked about, some of the one-off things. One is the raw material increase that we are seeing year over year, as Vince talked about, that was around $25 million -- and what I am talking to is just the gross margin -- so we lose about 30 basis points there. The acquisitions that we have caused us to lose about 20 basis points of gross profit margin and the software and amortization is around 20 basis points of gross margin.

So those are the major one-off factors that are really impacting us as we go into 2012 from a gross profit margin perspective.

As Vince talked about, we have about $100 million worth of investments that we believe is in the best interest of the Company, long-term health, to continue to invest in. We have $60 million that we are investing overall in emerging markets next year, that is an increase year over year. We also have the $20 million increase as we go -- march towards our SAP implementation in North America.

And then, as also we have mentioned earlier, got about $20 million related to our acquisition costs with Carmel as we continue to invest in selling as well as in R&D programs with that. That is also the other factor.

As we talked about on the revenue side of things, price was slightly below 100 basis points this year on the revenue line and we are anticipating that to be slightly above 100 basis points in fiscal year 2012. So those are the major components that is driving that. And as Vince mentioned earlier, this is why we still have confidence in the 50 basis points year-over-year increase in our operating income because of the nature of these items.

Okay. And just with the $60 million in emerging markets, did you say that was $60 million incremental investment in emerging markets?

That is right, $60 million incremental.

Okay, thank you very much.

Bill Quirk, Piper Jaffray.

Thank you. Good morning, everybody. A couple of questions for me. First off, on the research spending environment, Bill or Alberto, would you expect this to improve post super committee? In other words, as we move throughout the year should we get a little bit more clarity on the spending patterns?

Bill, do you want to take that?

Yes. So you are talking, obviously, NIH spending in the US and, quite obviously, I don't have a crystal ball. To be perfectly frank, I think that it's more relevant to take a look at Western Europe where we actually see stabilization and some improvement in research spending.

In the US, to be perfectly frank, for our Biosciences business the exposure to NIH-related spend, i.e., selling into NIH or capital equipment that is purchased with NIH funds, the exposure is really not that great for the Biosciences business. It runs around 5% to 6%. And until the super committee says something and we know what that NIH budget is it's very hard for me to comment on that.

Understood. And then just a quick housekeeping question. Can you guys break down the GeneOhm, TriPath, and the STD impact in the quarter? Thank you.

The quarter, yes.

I will take that; this is Tom Polen. So for TriPath, TriPath grew 7.9% for the quarter, which was strong. On a full-year basis, TriPath grew 6.6% so a large portion of that growth was coming from emerging markets. We continue to see, in the US, volume pressure as Pap testing intervals continue to be extended as a result of recommendations that were made a few years ago. So relatively flat in the US and strong double-digit performance in most of the rest of the world for TriPath.

On GeneOhm, to your question, it was a relatively light quarter for GeneOhm. We grew 4% in the quarter, 11% for the full-year FY 2011, but we are continuing to see strong double-digit growth for C. diff.

We have seen a slowdown in MRSA due to really two major factors. One is there were several lost accounts that impacted the quarter, and the other major factor is we are seeing slower new placements of our SmartCycler product there as we are seeing customers begin to hold purchase decisions. You have got to keep in mind MAX MRSA assay launches in less than 90 days in Europe, and of course, launches in Q3 in the US. So we do see customers anticipating that platform with much excitement and we are seeing them hold off on their SmartCycler decisions at this point.

So we are still making placements, but not at the same rate that we were earlier in the year. We see a bridging period between that SmartCycler product and our launch of MAX.

The STDs?

STDs -- thanks for the reminder -- 5.1% for the quarter, 5.7% on a full-year basis. No major items in the quarter.

All right. Thanks very much, Bill.

Nandita Koshal, Barclays Capital.

Good morning, gentlemen. I was wondering if you could provide us an update on the BD MAX; how the uptick has been there, better or slower? What is the expectation?

And then on some of the content roll outs on the BD MAX. Obviously competitors in [HAI] is making some very good progress this year. If you could talk about the timing there and just your outlook for the market.

Sure, Tom Polen will do that.

So BD MAX is, as you know, it launched in Q3 of FY 2011 as an open system and we are very pleased with really customer demand, which is on track with our expectation. We are getting very positive feedback, not only on its high level of automation, flexibility, but also how easy it has been for customers to port over their own assays. At this point, we have a number of customers throughout the world who have ported over their own assays at this point and are running those in their laboratory.

Of course, at this point we have not launched any IVD assays yet on MAX, although those are now coming up in FY 2012 with our first product launch, as we have communicated, in early Q2 in Europe which is MRSA. Our first IVD product in the US will be GVS, which we expect to launch at the end of Q1 followed by MRSA and C. diff later on this year.

We also have a series of our partner assays, which we shared in our strategy in the past and we will be providing further details at the analyst meeting next week on. But our first partner assays begin to launch in early Q2 in Europe.

So as you mentioned we recognize that there is a number of individuals launching menu in the molecular space. We are now about to enter into a quite intensive phase of menu expansion for MAX and we expect that phase to begin in Q2 of this year ramping up with our major launch of MRSA. Then you are going to see assays launching either from us or our partners every quarter for the foreseeable future.

And again, we are going to provide much greater detail on quarter-by-quarter launch schedule at our analyst meeting next week.

Thanks very much.

Jonathan Palmer, CLSA.

Good morning. I was wondering if you guys could just talk through the geographic assumptions you have for the 2012 guidance. By my math, with emerging markets accounting for about 20% of sales and growing somewhere close to 10% that would account for just about all of that incremental growth between this year and next. Could you just maybe talk through what you have for the US, Europe, and Asia?

For the US from a revenue standpoint, we have zero to 2% and for international 4% to 6%, so that is the breakout with stronger growth in international driven by the emerging market. And I think Gary has a little more color on international growth.

First, your observation that much of the overall growth is coming from emerging markets is correct. Not all of the growth, but much of it, as it was in 2011 as well. We are expecting slightly higher growth -- somewhat higher growth in 2012 in Western Europe in 2012 versus 2011. That is largely on the basis of some one-time factors that occurred in 2011 that depressed reported growth in Western Europe or the FX neutral growth that don't recur. So we are looking at low single-digits, sort of between zero and 5%, right in the middle of that range.

We are looking at good growth, continuing strong growth in Asia Pacific, slightly higher than what we experienced in 2011. We start to see a rebound in growth in Japan coming off of the disasters that they had in 2011. That was evident in the fourth quarter. We are looking at them more than doubling the low single-digit growth rate in Japan.

Latin America had particularly strong growth in 2011. We are seeing that a little bit lower in 2012, but that may have a little bit of conservatism in it. We are looking at higher single digits rather than lower double digits in Latin America.

The EMA region -- Eastern Europe, Middle East, and Africa -- had very strong growth in 2011 in the Middle East. The fourth quarter was light in Africa due to the timing of major international funding for things like HIV/AIDS and childhood immunization. We are looking at mid to slightly higher single-digit growth there.

And I think I have covered all markets. Canada has been a good grower, despite it having the characteristics of an industrialized market. We are looking slightly above mid single-digit growth there.

That was very helpful. Thank you. Then for David, could you just tell us what is implied in terms of interest income and expense for 2012?

We are not breaking out the interest income and expense individually.

Okay. Thank you for taking my questions.

Sara Michelmore, Brean Murray.

Yes, thanks for taking the question. Vince, can you just talk through the Pharm Systems dynamics? I understand that is kind of a lumpy business and you mentioned some of the tough comps, but if you can just kind of clarify exactly what is going on there. What I want to make sure is that there is not a change in the outlook for that business based on anything that has happened in the last couple months. Thanks.

Sure. I am going to ask Bill Kozy to walk you through that, but just to kick it off, there were a couple of dynamics. The regional dynamic between going from last year to this year in terms of the growth rates in that business, and there is also -- with some shift in the way customers bought.

But in terms of the year-on-year growth rate, on a worldwide basis there were two issues that we mentioned. It's around low-molecular weight heparin and some sampling. Bill, maybe want to give some color and kind of future outlook for that business?

Sure, I think, Vince, you have covered the key points. To put a little more detail on it, there was some significant stocking ordering that took place in fiscal year 2011 for the launches, particularly in the US, for low molecular weight heparin. Additionally, and as a separate item, there was above plan sampling for clinical trials with a number of our biotech customers. These are typical purchases that people are looking at sampling of a new drug launch in a pre-filled format, and we had an inordinate number of those.

Those were important factors in the ex-pandemic growth of Pharm Systems in FY 2011 of a little over 6%. And so said that 6% was just a little hotter than what it would have been in a normalized environment. So their projection for next year more in that 3% to 4% range is traditionally in line with their above-market performance, so there is no other significant items happening.

So then next week we are going to be talking to you about a series of new product launches as well and entering into some new space with Pharm Systems. So hopefully we can have good dialogue around that next week.

And then just a question on the pricing overall. In terms of the price pressure you have seen, what has been the mechanics of that? Is that related to the way customers are buying or dealing with you has changed? Is it a tender issue?

Can you just give us a sense of what exactly has been the agent of change in terms of the lower pricing? Thanks.

So Bill Kozy will comment on that.

This is Bill again. Two factors and you have already highlighted one of them. We have seen the expansion of tendering on a number of agreements, particularly in Western Europe, and that has been across a number of our businesses.

Number two, we have seen a lot of interesting things happening in terms of product mix. Now let me give you a practical example of that. In the Diabetes Care business you are now seeing more interest in private-label product versus what you have traditionally seen in branded syringes, so there is a mix impact for us. That is another small factor in this.

Then in the US you have had the ongoing, very traditional GPO bid process. We don't see anything different there. We just saw some timing last year and I am talking about fiscal year 2011 where some of those major device contracts did happen to come up and get reassigned for the next two- or three-year period. Those would be the key factors.

Okay, thanks, Bill. That is helpful.

Sure.

Jeffrey Frelick, Canaccord.

Good morning, Vince. Question, given the 2012 guidance, what are the expectations in that guidance for the upcoming flu season and Safety growth?

So we have -- well, I will ask Tom Polen to talk about that since he is (multiple speakers)

In terms of -- the flu season has been assumed to be a normal flu season and it's off to that start.

And for Safety, we are looking at similar growth in the international markets to what we achieved currency neutral in 2011. So we are seeing a continuation of that positive trend and marginally higher growth in the US that is driven in large part by the Carmel acquisition.

Okay, thanks.

Peter Lawson, Mizuho Securities.

Just wondering if you could talk through that R&D write-off. What was the project and what was the impact in the 2012 revenues and EPS?

Let me just repeat the question for everybody. I think what you said, it was hard to understand you, but you were asking about the R&D write-off in the fourth quarter, which was really the ovarian program.

That is right. And the impact on that is around $0.03 on an EPS basis in fiscal year 2011, which is about $9 million.

And just to add, there is no impact -- that was a pipeline project. There is no impact on revenue now nor in the outlook for Diagnostics.

And then for ReLoCo II, what are the cost savings, do you think, for 2012 or do you think that is more of a backend-loaded 2014 event?

Well, the majority of the savings come in the future years. A small amount of it occurs in 2012, but not a big piece at all.

And then just finally, David, thanks for the breakout for the moving parts of the P&L for the EPS number. Does that mid single-digit EPS growth look like the new norm? Do you think you get the underlying EPS growth very close to double digits for 2012?

The underlying growth rate, yes.

Okay, thank you so much.

Doug Schenkel, Cowen and Company.

Hi, good morning. Just first question is a quick question on guidance. I want to make sure I heard you right that Q1 guidance was set at $1.13 to $1.17 for EPS. And if so, is there any front loading of expenses, I guess through the expectation that margins and EPS growth does improve over the balance of the year?

So we are not front-loading expenses in the P&L. It's really a question of tougher comps in the first quarter. I believe we had strong Pharm. System sales in the first quarter. Last year the pricing impacts that have hit us during fiscal year 2011, most of that occurred in the second half of the year.

And on the raw materials side --

Raw materials as well.

-- the biggest impact is in the first quarter as well, because we saw raw materials increase throughout the year but you get the difficult comp in the first quarter.

So you have a number of factors coming together, but it's not expense loading.

Okay. And then I guess maybe a bigger picture question that I think a few folks have tried to get at. Keeping in mind that when you look across your comp universe you screen really well from a returns perspective. To your credit, you are a consistent grower. You do it organically; you are not a serial acquirer.

That being said, one of the primary concerns I think in the investment community is really what is your inherent growth rate and are you managing the business accordingly? If you go back and you look back to 2009, 2010, now 2011, and now you look forward based on what you have guided the Street to expect, you have been a 3% to 5% grower with some good tailwinds in some years and some tough headwinds in others.

Is this the growth rate that you are managing your business to one a multi-year basis? I guess, just as importantly, is this how you are managing your spend? This year you are increasing your spend, as you have talked about a few times on this call. Would you say that the success of that spending is predicated on accelerating your organic growth outside of this range?

Well, our plan is to accelerate growth. First is we have been increasing our R&D spending over the last few years, and we have generally increased that faster than revenue growth. We are going to talk about those programs next week and how we see those programs.

The good news here is we are going to be talking about things that are launching in 2012 and 2013, so it's not everything that is in our pipeline, but the near-term stuff. So we are seeing products that are moving through, both from the organic side and also leveraging some of the acquisition work we did -- HandyLab would be an example -- and then turning around and partnering to leverage that acquisition.

So the intent, of course, is to increase the organic growth rate of the business. I am not going to get into guiding specifically at this point in time.

On the acquisition side, we have done both technology acquisitions and let me call them small, plug-in acquisitions, like Carmel Pharma, where we are picking up sales, an operating entity that we can integrate easily, where we have capabilities that play in on the operations side. Those sorts of deals that can add to our growth rate we are going to be looking for in a very disciplined way. So it's both of those things we are looking at to drive incremental growth.

Robert Goldman, CL King.

Thank you and good morning. I was hoping to take a little bit of a step back and ask a question from an industry perspective. I am not looking for Becton Dickinson's long-term guidance.

But I have been following the industry over 20 years and I think up until this year for every one of those years you could pretty well bank on prices between -- actual price increases or mix trickling up every year. Now industry wide they are trickling down.

I am just wondering, Vince, what gives you a sense of confidence that for the next 20 years this industry is not going to experience this just sort of steady price mix erosion since at the end of the day the industry wide operating margins are well in excess of the US corporate average?

So it's a great question as to what is happening across the industry for the long term, and I think it's very much dependent upon the value that you bring in this new environment. If you are bringing features that are not highly valued by the marketplace or don't correspond to this new environment, I think you are going to be on the side that you were talking about which is the trickle-down side.

But if you go out and you talk to our customer base, our customers will tell you that they have major labor issues, efficiency issues, and clinical issues. If you can do -- come out with new solutions that makes healthcare safer and more effective and takes down their cost structure, and we are doing a lot of health economics work which was really not done in the device industry before, we see ways where there is a win-win for us and for our customer base.

And I will just point to one example. It's a short run example, but ecoFinity is an example where we are not just selling the product; it's a service that is involved. And if you are the head of administration for a hospital you have got to manage both your device spend and you have got to manage your recycling cost. Net-net with ecoFinity we can save you money and it's not a pure price issue.

So it's going to take more creativity to get there. You are going to have to be more rigorous on the economics piece of your argument. You are going to have to prove it, but we see lots of opportunities to do that and we see them as expansions of our core business.

So where does your R&D to sales have to go to accomplish those objectives?

So as I mentioned at the beginning of my remarks, we have been increasing our R&D. We are now at about 6% of sales. Over the long run we may take that up a little bit higher, but it's not a major step increase to do that from where we are as we look at our pipeline.

Thank you very much.

Okay. So we have one more question I believe.

Kristen Stewart, Deutsche Bank.

Hey, can you guys hear me now? I just wanted to take a step back, because it has kind of all been addressed throughout all the questions but I am still not particularly clear on it. But relative to where you were in July, you had mentioned that you would expect 2012 to be roughly in line with what you had been seeing through the course of 2011, which was 5% underlying top line and then 10% underlying EPS growth. And you never really quantified in July what the share buyback assumption would be.

So I am just curious, would -- from a kind of EPS perspective, what really is the difference between what you had thought the 2012 outlook would look like in July relative to where you are guiding today, especially given the fact that the buyback would assume it would be more accretive? And so it would really mean that the underlying business would be deteriorating at a much faster rate than certainly your fourth-quarter numbers would suggest?

Well, I started out on the environmental factors at the beginning of the call and how things changed and then talked about Pharm Systems, then the raw material price increases, then the cost of acquisitions. But, David, do you want to take some?

Sure, absolutely. First, a really good question on the share repurchases. If you recall, we were assuming -- we were guiding about $600 million in share repurchases and if we did share repurchases at the level it could be internally funded. As we move to $1.5 billion in share repurchases, as I said earlier on the call, the majority of that will be funded through a debt offering.

The interest expense or the difference between those two in fiscal year 2012, you don't get much accretion when you look at the difference because of the interest cost associated with the debt offering. So that is the first one.

The other is that the guidance on the 10% bottom-line EPS growth that we provided in July was currency neutral. So we will lose about 2 percentage points because of currency, how they have moved since July to what we are assuming for next year.

As Vince talked about as well, you lose about a percentage point because of the pricing. As the pricing deteriorated we built that trend continuing. Remember that started out in the second half of fiscal year 2011 and we are assuming that goes through the full year of fiscal year 2012.

And then just with the utilization and what we saw from a utilization perspective, you lose about 2 to 3 percentage points there on -- again, as Vince talked about, how we are looking at that. And just being prudent. We want to put a forecast out there that we are confident that we can meet.

Lastly, building in the acquisitions that we had that is about a percentage point that we lose because of the -- from an EPS perspective, the dilution was about $0.04 in fiscal year 2011. It's around $0.08 in fiscal year 2012. So when you put all those components together that gets you to where we are from a guidance perspective.

We broaden the range, again as Vince mentioned earlier, just to reflect the uncertainties in the macroeconomic environment. But we are feeling very confident about the guidance that we are providing you today.

Okay. So basically, over the last three months you guys have seen things that make you more concerned on price, more concerned on utilization, and on the acquisition side are they running more dilutive than what you would have anticipated three months ago? Because I know your guidance didn't include acquisitions originally.

No, they are about right where we expected them to be.

Okay. But it's just raw material utilization and pricing trends over the last three months have gotten that much worse?

And FX.

And FX, okay.

Currency.

Okay, thanks. Thank you.

So let me just sum up here, as we have been talking about during the course of the call, it's obviously a challenging environment for us and others in the industry. We think we have taken a prudent approach to our forecast given the environment. We have expanded the range at the beginning of the year. We will look to tighten that range as we move forward and as we get more clarity.

There is a number of one-time items impacting profitability. The step-up in software from the amortization is impacting the GP line, the acquisitions, and the raw material costs. In spite of all of that we see a lot of good opportunity. We are reflecting that by our investments in both R&D and especially in emerging markets.

We are launching a record number of new products. We are going to talk to you about that and that impact on a go-forward multi-year basis next week. We look forward to having that conversation.

We are driving our internal efficiency programs. ReLoCo I is on track. We accelerated the work on ReLoCo II given this tougher environment and we quantified that for you on the call. That looks like that that is going to be another major cost savings for us.

Our G&A programs, as I indicated, we are managing G&A down as a percent of sales and reinvesting in the sales and marketing side to drive growth. So we think all of these programs are a good, fundamental, a strong foundation for moving forward, and I would just like to say we look forward to seeing you next week.

Thanks for all of your questions.

Thank you. This does conclude today's teleconference. Please disconnect your lines at this time and have a wonderful day.