Monique Dolecki Vincent A. Forlenza - Chairman, Chief Executive Officer and President Christopher R. Reidy - Chief Financial Officer, Principal Accounting Officer and Executive Vice President of Administration William A. Kozy - Chief Operating Officer and Executive Vice President Tom Polen - President

Amit Bhalla - Citigroup Inc, Research Division David H. Roman - Goldman Sachs Group Inc., Research Division David R. Lewis - Morgan Stanley, Research Division Kristen M. Stewart - Deutsche Bank AG, Research Division Kimberly Weeks Gailun - JP Morgan Chase & Co, Research Division Frederick A. Wise - Stifel, Nicolaus & Co., Inc., Research Division Richard Newitter - Leerink Swann LLC, Research Division William R. Quirk - Piper Jaffray Companies, Research Division Brian Weinstein - William Blair & Company L.L.C., Research Division Derik De Bruin - BofA Merrill Lynch, Research Division Matthew Taylor - Barclays Capital, Research Division Konstantin Tcherepachenets Douglas Schenkel - Cowen and Company, LLC, Research Division Vijay Kumar - ISI Group Inc., Research Division S. Brandon Couillard - Jefferies LLC, Research Division Peter Lawson - Mizuho Securities USA Inc., Research Division Jeffrey Frelick - Canaccord Genuity, Research Division Amit Hazan - SunTrust Robinson Humphrey, Inc., Research Division

Hello, and welcome to BD's Fourth Fiscal Quarter and Full Fiscal Year 2013 Earnings Call. At the request of BD, today's call is being recorded. It will be available for replay through November 12, 2013, on the Investors page of the bd.com website or by phone at (800) 585-8367 for domestic calls and (404) 537-3406 for international calls, using confirmation number 69586788. [Operator Instructions] 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 results. As we referenced in our press release, we are presenting a set of slides to accompany our remarks on this call. The 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 sections 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, Chairman, Chief Executive Officer and President. Also joining us are Chris Reidy, Chief Financial Officer and Executive Vice President of Administration; Bill Kozy, Executive Vice President and Chief Operating Officer; Tom Polen, Group President; and Linda Tharby, Group President. At this time, we would like to announce some leadership changes in the business, which took place on October 1. Tom Polen has been promoted to the role of Group President for 2 of our business units: Medical Surgical Systems and Preanalytical -- and Pharmaceutical Systems. Tom had most recently been the President of Diagnostic Systems and before that, President, Preanalytical Systems. Linda Tharby has also been promoted to the role of Group President for 2 areas of responsibility: Biosciences and Preanalytical Systems. Linda had most recently been the President of Diabetes Care, and prior to that, Linda served as Vice President and General Manager in…

Thank you, Monique, and good morning, everyone. Before we discuss the company's performance, I would like to comment on the organizational changes Monique just walked you through. As we continue pursuing the company's strategy, we bolstered our leadership structure to help ensure our future success and continue the development of our senior leaders. The leadership changes we just discussed demonstrate our commitment to management development and the importance of running multiple businesses as a part of executive development. This leads to better decision making and an increased focus on growth as we develop more impactful solutions for our customers. These changes will enable us to seek strategic synergies across our diversified portfolio and nicely complement the international restructure in 2012 and the additions of Ellen Strahlman and Chris Reidy in fiscal year 2013. We're extremely pleased to have all of these leaders in their new roles as they help the company through our next phase of growth. Now I will begin with a brief review of BD's performance for the fourth quarter, the full fiscal year 2013 and our FY 2014 guidance highlights. Chris will then walk us through a detailed review of the financial and segment performance and how we're thinking about the various elements of our P&L for 2014. I will spend the balance of the time discussing our upcoming portfolio highlights and then opening up the call for questions. As we stated in our press release, we're proud of our accomplishments during fiscal year 2013. Our strategy is continuing to deliver results, as evidenced by our strong finish to the year. Growth this year was driven by solid performance in Medical and Diagnostics with a nice improvement in our Bioscience business. We continue to see strength in international sales and safety-engineered products and emerging markets. Our innovation…

Thanks, Vince, and good morning, everyone. I'd like to begin by discussing the key financial highlights for the fourth quarter. As Vince mentioned earlier, we are pleased with our fourth quarter results. Strong growth of 7.2% was aided in part by 120 basis points from acquisitions and 60 basis points due to stimulus spending in Japan and a reversal of an unfavorable timing of orders in Advanced Bioprocessing from the third quarter. Additionally, we received the benefit from strong orders in Pharmaceutical Systems and competitive gains in the Medical Surgical Systems unit. Pricing in the quarter was about flat. Overall, we experienced underlying growth of 5.4% in the quarter, which gives us good momentum going into fiscal year 2014. Emerging market growth was strong and continued to deliver results, which I'll speak more about in a moment. Adjusted earnings per share growth, excluding the medical device tax, was 12%. We also completed an additional $44 million of our share repurchase program, bringing our total year repurchases to about $450 million. On Slide 10, I'll review our revenue growth by segment on a currency-neutral basis. Fourth quarter revenue of $2.1 billion was a record quarter for us. This represents growth of 7.2%. For the total year, company revenues grew 5.4%. BD Medical fourth quarter revenues increased 6.7%. Growth in this segment was driven by strong sales in the Medical Surgical and Pharmaceutical Systems units. Medical Surgical Systems growth was 6.2% led by emerging markets, international safety sales and competitive gains related to a competitor exiting a portion of the market. Growth in Diabetes Care was 5.9%. This reflects continued geographic expansion and strength in new product sales such as the BD Nano with EasyFlow Technology. Pharmaceutical Systems growth was 8.3% driven by our recent SSI acquisition and in part, from strong…

Thank you, Chris. We have been discussing our robust pipeline for some time now, and in fiscal year 2013, there were over 20 significant product launches. I'll not review them in detail, but we have highlighted them on Slides 19 and 20. Looking to fiscal year 2014, we have some products that are key to our success going forward. Some of them will launch in fiscal year 2014. Others were launched in fiscal year 2013. In BD Medical, the acquisition of SSI added a safety product to our Pharmaceutical Systems portfolio. We also launched next-generation glass and plastic syringes in that unit as well. We recently announced a commitment to create the Odon Device, a product aimed at addressing maternal and newborn mortality caused by obstructed and prolonged labor, typically in developing countries. Along with the World Health Organization and other organizations, we look forward to addressing this serious problem. For BD Simplist, you may have heard that we have just announced the FDA approval of morphine, which is consistent with our expectations. BD Rx will begin production of morphine immediately and projects initial availability in early calendar year 2014. We continue to plan for 20 to 30 drug launches over the next several years. Right now we have an additional 3 drugs in the pipeline submitted to the FDA that are in various stages of approval. In Biosciences, we recently launched 2 new products. The BD FACSAria Fusion improves on the solid foundation of patented technologies, exceptional multi-color performance and ease of use from our first-generation product. This sorting know-how is now being combined with best-in-class biosafety expertise to create a fully integrated advanced cell sorter and biosafety solution for research laboratories. We also launched our next-generation BD FACSCanto flow cytometer, now with a 10-color capability. This system delivers…

[Operator Instructions] Our first question comes from the line of Amit Bhalla with Citi.

I wanted to start just first with guidance and the operating margin expansion. Maybe, Vince or Chris, could you just walk through some of the gives and takes here? It looks like FX is having an impact on the op margin expansion, so I just wanted to understand that to be the case. And also if you could give some detail on pension and some of the other moving parts to drive leverage from revenue to earnings.

Sure. I'll take that, Amit. You're right. In fiscal year '14, the gross margin has an FX drag of about 60 basis points, which on a all-in basis means the gross margin's flat. We're driving about 60 basis points of lift FXN. The 60 basis points of drag from FX, about half of that relates to the inventory translation adjustments, which hits mostly in Q1. The rest results in weakening currencies such as the yen, which is driving lower revenue, but also, we've reduced expenses. We're more profitable there, and that's flowing through. So it's less of a natural hedge. For the FXN, we're driving about 60 basis points of improvement, and that goes back to ReLoCo improvements, as well as a slight improvement from the pension benefit that shows up in COGS. That's partially offset by start-up cost and some deterioration from raw material pricing as well. And the start-up costs, as you know, are line extensions and product launches.

Our next question comes from the line of David Roman with Goldman Sachs.

Vince, I was hoping you could spend a couple minutes on the U.S. business. And as I look at the performance in the quarter, with the exception of what looks to be a big order in Pharmaceutical Systems, the U.S. franchises look to be roughly flat in aggregate or maybe even down a tad. Can you maybe just talk a little bit about the environment and your businesses more specifically about what's happening? Maybe just touch on new product launches in the context of the environment and how you see the domestic franchises playing out?

Yes, I'll make a couple of comments, and I'll ask Bill Kozy to add some other color on this. But we really haven't seen utilization changing much in our businesses. So we would say basically that it's fairly flat from a utilization standpoint. Now of course, there's the same exception we've been talking about for a couple of quarters now and maybe for a year now in Women's Health business where the pap screening intervals, of course, have lengthened. And we're now up to about maybe 60% of the customer base have moved to the longer interval, and that continues to impact us. Even though we had some good performance in terms of instrumentation in the U.S. and globally with some new products, the disposable piece continued to go down. So that's been impacting the growth that we've been seeing. In the U.S., in terms of Diabetes Care, maybe a little softer market as well. So those are the major factors. Bill, is there anything else you would want to add to that on the U.S.? We've got Pharma Systems being strong.

Sure. Just 2 minor things: Number one, we were up against the year-on-year comp in Diabetes Care with a co-marketing agreement that has moved on; and secondarily, in the U.S., it's particularly unique as a geography because the bulk of your late-stage, late-life-cycle products continue to have a base of revenue in the U.S. So you see things in Medical, some smaller product lines like Interlink and anesthesia products and so forth that they're just a revenue headwind at this point in time for the U.S. As we see those things move out in the next year or 2, we're hoping to see the U.S. top line performance start to improve.

Our next question comes from the line of David Lewis with Morgan Stanley.

Vince, maybe a kind of a 2-part question but both related. Can you just give us a sense of the M&A contribution for fiscal '14? And then sort of related to that, given that the buyback is down here in '14 relative to '13 and obviously, '12, which I think is consistent with your guidance, but I'm just trying to get a sense of how investors should be thinking about your use of the balance sheet as it relates to M&A. Are we thinking about similar deals that BD has always done? Has your appetite for larger transactions potentially gone up? And does your buyback being a little lower signal that maybe you're more comfortable with slightly larger deals just given the successful integration of some of the smaller transactions? So those 2 questions.

Sure. So it was 80 basis points, I believe, in the year. 120 basis points in the quarter were the contributions to our M&A. Is that right, Chris?

Yes, and you -- also into '14, it's about 20 basis points of -- less next year.

So from an M&A standpoint, the way we're thinking about M&A is we're trying to build complete solutions for the customers. So it's not randomly go out and find plug-in acquisitions, but it's very strategically build a franchise. Let me give you an example. The work that we've been doing in medication insurance, where you've seen us do PhaSeal, you've seen us do Cato and CRISI, so they start to give us a portfolio of products that really elevates the conversation in terms of need with the customer. So that's the first factor. And we're going to continue doing that around our businesses and increase our relevance to the customer base. Second part of the question is yes, we are feeling that we have made progress in terms of our ability to identify and to do due diligence and then integrate our acquisitions, and we think that over the last year, we proved that out. And while our focus, it does remain on these plug-in acquisitions, we do have some more confidence to do somewhat larger deals. So that's the way I would pull it all together for you.

Our next question comes from the line of Kristen Stewart with Deutsche Bank.

Just to go back to the revenue guidance, this past year you guys had commented the underlying growth was, I think, 4.2%, and that has included a negative price about 10%. Your guidance for next year of 4% to 5% has 20 basis points of acquisitions, a little bit more of a pricing headwind. So just trying to get a sense of what gives you confidence that either you're going to see better mix or better underlying unit growth relative to the base this year.

Kristen, could you repeat that? We didn't catch all of it.

Sure. So growth this year, you ended the year with 4.2%, and that included a negative price of 10%. Next year, you're guiding to 4% to 5% with 20 basis points of acquisition and a greater pricing headwind. So it would basically imply that underlying unit growth is going to be faster, so I'm just trying to get a sense for why you believe that or maybe it's perhaps mix benefit from new products.

So Kristen, you're exactly right. The midpoint of our range, let's say, that we pointed to is about 4.5%. If you look at the underlying growth, we have about 4.2% when you normalize for the onetime items. That also includes the headwinds we mentioned of the $25 million from the lost customer contract and the expected 20 to 40 basis points. So you're absolutely right. It does contemplate an acceleration or a continued momentum. Again, we're seeing that from emerging markets growth, and we continue to see safety growth as well. So we're seeing that continue. So the range is a continuation of that momentum that we saw this year.

And continued ramp-up of the new products that we've been talking about, and as I was going through the portfolio, we would have noticed as I talked about things that we launched in 2013 and that we're launching into '14. So we've been early on in that ramp-up, and we continue to expect to make progress in terms of new products as a percent of sales. So those are the factors.

And what's your just baseline assumptions regarding the U.S. and health care reform impact?

So in terms of health care reform, we basically have it in as a neutral. It's extremely difficult right now to forecast how this is going to impact the markets that we are in. How fast are they going to go in terms of fixing the website? We don't know. There seems to be major issues there. We also -- and so we know it will be somewhat a positive if you get the uninsured covered, and people who had put off elective surgeries, there could be a small bump there. But we also see negative pressure emerging in terms of consolidation in pricing and whatnot. So at the end of the day, we put it in as a neutral, and we'll watch it as we go forward. And if we see changes, we'll update you on those.

Our next question comes from the line of Mike Weinstein with JPMorgan. Kimberly Weeks Gailun - JP Morgan Chase & Co, Research Division: It's Kim here for Mike. First question if we could on Simplist, just curious with the recent morphine approval that you announced. How...

I'm sorry, can you speak a little louder? We're having trouble hearing you. Kimberly Weeks Gailun - JP Morgan Chase & Co, Research Division: Okay. A question on Simplist and with the recent morphine approval. Just curious how that's tracking relative to your expectations and if you could share with us what level of sales you're expecting from Simplist in '14.

So I'll let Bill Kozy talk to that, but I would tell you right now, as we guided for fiscal year 2013, we said it wasn't going to be significant. And we knew that was because we didn't have a broad array at launch and people were going to be in the motive just starting to try the product. And we've included a ramp-up in Simplist in our guidance. But Bill, you want to talk a little bit more of that?

Sure. We're encouraged by the number of evaluations we've got going on right now. As you know, we've only got a few drugs that are relatively lower volumes. The morphine launch that Vince described is important to us because it really brings a higher-volume drug application to the BD Rx portfolio. So when we get that rolling out in January, that period of January to June next year will be most important for us. As mentioned, several hundred evaluations and a few hundred customers who have ordered twice, which we're taking as a point of encouragement. We continue to work very closely with some of our major customers like IDNs and the GPOs that you know that BD has relationships with, and that'll be the focus as we roll out morphine and some of these other drug applications over the next couple of quarters.

So we're not going to give specific guidance on this. We want a little bit more experience under our belt, and once we have that, then we'll start to give you some more precise information.

I would just add that the timing of the morphine approval was right in line with when we expected it to occur and was part of our guidance.

Our next question comes from the line of Rick Wise with Stifel, Nicolaus. Frederick A. Wise - Stifel, Nicolaus & Co., Inc., Research Division: Perhaps you could give us a little more color on what's happening in China. You really saw some nice sequential acceleration, 20% in the fourth quarter versus I think it was up 18% in the third quarter despite the tougher comp. Just update us on some of your investments there and just perhaps some of the key drivers in fiscal '14 in terms of both investments and opportunities.

So we have done well in China, and we're encouraged by what we're seeing. First from a macro environment, I know there's been a lot of concern about would health care spending slowdown, and we track -- our country organization tracks a bunch of measures out there. We have not seen that in the markets that we participate in. So number one, we continue to see strong spending. Number two, we've successfully implemented across the entire BD portfolio, and so it's not just Medical or one piece of the business now. It's all of the businesses implementing quite well in China, and that's a result of the infrastructure building that we've done. Third, this year, we started to expand our footprint into what people call Tier 2. And as we've done that, we've built our distribution network. Then lastly, we've effectively partnered with the government of China to improve the health care system. We've -- as I've mentioned in the past, we've done 3 memorandums of understanding on Infection Control, and we continue to implement that program with them. Looking forward, we're going to continue to expand that distribution reach, and we're starting to put R&D in Asia. That process began in 2013, and we will do that in Singapore and some in China. So we're becoming a more fully integrated company in China. So all that together has meant that we both kind of built the market and have gained share in a number of our businesses.

Our next question comes from the line of Richard Newitter with Leerink Swann.

Just on the guidance commentary. I think, Vince, you had mentioned that it was going to be at the midpoint. Can you just describe with respect to the assumptions that could bring you above or below what the midpoint assumes. Flu I get is a little bit unpredictable, but particularly if you could give more commentary on what could happen in the emerging markets to get you higher or lower and what's been embedded assumption at the midpoint?

Sure. So the way to think about our starting point, which is the midpoint, is that pretty much that the environment remains consistent from what we saw in 2013. So on emerging markets, it says that we're continuing to see the same rate of health care spending that we saw in 2013. So obviously, if there was an acceleration, that could bring us up towards the higher end of our guidance range. The concern is, of course, geographies such as Latin America, where there has been a lot of political unrest, some concerns about global kind of spending in the region heightened by some of the spending that they're doing for the World Cup and the Olympics and whatnot. So will that impact us? That could take us down in terms of revenue growth in those regions. So those are some of the swing factors on emerging markets. Now we always have the kind of timing of large NGO tenders and when they actually happen. And so this year, we saw some move from the first half of the year to the second half of the year. We always have the possibility that they move into another year. So the timing on those things can always impact us. Coming back to the U.S., our concern is that we've seen some nice improvement in Biosciences, and we saw some really good growth this quarter. Now in the U.S. Biosciences, we don't know what's going to happen come January when the government once again starts to face up to the budget issues and the debt ceiling and what will they do with sequestration. So that's a question mark for us. Looking to international in that business, what will the Japanese government do in 2014? We saw a nice stimulus program. So we didn't assume any major stimulus in this set of guidance. So those are some of the bigger factors. Chris, anything else you would want to add on that?

No. I think the only thing is, is pricing. Obviously, we had 20 to 40 basis points in our guidance. We were down about 10 basis points this year. But if you look back to '12 and fiscal year '11, we're in the 80 to 90 basis points range. So that's a volatile assumption.

Yes.

Our next question comes from the line of Bill Quirk with Piper Jaffray.

Chris, just want to pick up on your last comment regarding the historic impact on price and I guess, the reprieve, for lack of a better term, that we saw in 2013. Can you just help us think a little bit about what's driving the pricing assumptions in 2014? Is this essentially just going back and saying, hey, we had a nice gift here in '13. We don't expect it to continue? Or is there something more acutely that you're starting to see here at the beginning of the fiscal year?

Well, it's a combination of factors. Clearly, we've talked about having put in more effective price management procedures and really driving a focus on price management. And we think that we've gotten some traction internally with that and have seen some nice results. Having said that, it can also be impacted by the amount of tenders, et cetera. And so when we look out next year, we see a lot more potential volatility in tenders and particularly in Europe. So while we're happy with the performance in '13, we're not declaring victory. It could been more of an environmental reprieve, and so we're very focused on that going into '14.

So just to add to that a little bit as well, as Chris mentioned, we are doing a better job of managing pricing across the entire portfolio and globally. And so -- and we saw that improvement over 2013. The environmental pressures are still there, but as we launch some of these new products that are highly differentiated, that's also helping us. So our guidance in terms of having some negative price but being in a much better position in the beginning of 2014 than we were in the beginning of 2013, I think, reflects where we're at.

Our next question comes from the line of Brian Weinstein with William Blair. Brian Weinstein - William Blair & Company L.L.C., Research Division: My question is for Tom actually. Tom, can you talk a little bit about the BD MAX uptick and any kind of statistics that you can give us to help us understand what the uptick of the product is -- has been here and then also if you can comment on some of the delays in the pipeline that were highlighted by Vince in your slides?

Sure. Okay. So Brian, just starting with MAX, as we've shared earlier this year, we expected that it was going to take until the second half of FY '13 to really see MAX growth starting to fully offset the declines that we had seen in GeneOhm from prior years. And we are very pleased that we're seeing that positive trajectory. We're up high single digits for the quarter overall. We're seeing very positive feedback from customers. We're now approaching about 300 installations in the field and continue to focus on our menu expansion there. As you look at some of the delays that we reported in the -- earlier by Vince, it's really 2 major factors that are influencing those. One is related to clinical trial prevalence. As we're doing more complex panels on MAX, of course, we end up with a large number of organisms that we're looking for in each panel, and the prevalence of those are very significantly. So if you look at, for example, enteric bacteria and GC/CT Trich, those delays are related specifically to prevalence and us expanding the clinical trial length and numbers of sites. The other major area was just further feedback from FDA related to the depth of the trials required. And that one was specific if you look at Totalys in the U.S. So while we did launch Totalys x U.S. in Q4 and fulfilled a nice backlog of orders we had there, the U.S. is going to take us a little longer based on feedback for additional testing that we had gotten from the FDA.

Our next question comes from the line of Derik De Bruin with Bank of America Merrill Lynch.

Just a couple of quick questions. First one, just on the tax rate, is that -- can we see further improvement when we go out looking in 2015 and beyond?

Well, we're not going to guide to 2015, beyond. But if you look at our track record, we've shown significant improvement over the last few years. We're continuing to work that, and you see that in '14 with a nice step function down in terms of the tax rate primarily driven by geographical mix.

Our next question comes from the line of Matthew Taylor with Barclays.

So I guess my first question was that I just wanted to understand your emerging market assumptions for 2014. You had a better growth year in '13. Do you expect continued growth at about that level with the additional investment? Or what could take it up or down?

So we do continue to expect similar growth in emerging markets as we enter -- as we're in beginning of 2014. Things that can take it up or down is really health care spending, number one, in the region -- in the various regions and continued focus of these governments. Right now we're assuming no real change in terms of the spending. Second is that we work with many governments and NGOs, and the timing of their tenders can vary, and they can move from 1 year to another. And so that can impact us as well and then just the amount of success that we're having in terms of building new markets and how long it takes to do those things and to influence Medical practice. So right now it's very much, we're looking at it as similar to 2013.

Our next question comes from the line of Lawrence Keusch with Raymond James.

This is actually Konstantin for Larry. So just a clarification question. I think I heard you guys say that the incremental investment in emerging markets for BD will be less in 2014 than in 2013. If that is correct, can you explain? Is it just you guys invested so much in prior years that now you're going to see the leverage? Or just in terms of -- or are you seeing less incremental opportunity kind of to deploy capital?

It's leverage. We built our core organizations. We're going to continue to build out the sales infrastructure and whatnot, but think about we had to put in a regulatory infrastructure, we had to put in a compliance infrastructure. So those things are in place. And yes, they'll have to be expanded over time, but they're not going to have to grow at the same rate as we're growing sales. So you start to see some leverage in the P&L. And that's the difference year-on-year really.

Our next question comes from the line of Doug Schenkel with Cowen and Company.

So as one looks back at the slide decks over the past 2 quarters, it seems like something unexpected is happening with chlamydia, gonorrhea and, to an extent, HPV where you've had some recurring delays in both the MAX and Viper platforms. And it's interesting because the delays are not just instrument delays as the instruments have been cleared. These are really assay delays. So could you just provide a bit more clarity on what's happening here? Is this a visibility issue? Or it something else? And how are you managing these delays with customers?

Yes, so Doug, this is Tom. So HPV has not been fundamentally delayed, right? HPV remains on track to launch x U.S. this quarter. And again, that's an x U.S. launch. We've not shared the launch date for the U.S. with customers nor with, obviously, in this forum. We have shared that our clinical trial in the U.S. is underway, but we've not yet shared that date. On GC/CT, specifically on MAX, so as I already referred to in response to Brian, that was really delay related to a clinical trial prevalence that's underway. There's nothing wrong with the instrument or the assay. It's really around the prevalence of the organisms at this point in time that we've -- in the trial sites that we're testing in.

Our next question comes from the line of Vijay Kumar with ISI Group.

I guess a 2-part question, 1 was a quick housekeeping. What was the decline in Women's Health in the quarter? And sort of another one was, what kind of leverage levels would you be comfortable at? Currently you're running under one turn leverage levels, and we've seen other companies in this space sort of go on an acquisition spree and sort of that's certainly helped their stock price. So just your thoughts on leverage levels.

So Tom will take the first part of the question, and I didn't understand the second one. I didn't hear it. Let Tom go first, then we'll come back.

So Women's Health was actually was an -- I view it as really an exceptional quarter for TriPath. Women's Health or TriPath was actually up mid to high single digits in the quarter, but that's really a tale of 2 very different worlds. So we did see continued declines in that U.S. reagent sales in the TriPath driven by those interval extensions as we shared for the last 1.5 years. What we saw though was that be more than offset by continued strong growth x U.S., as well as pent-up demand for the new Totalys automation system that we launched in Q4 and shipped a number of those systems x U.S.

Sure. And when -- I guess just to clarify my question, I guess, on thoughts on mix leverage levels. You're running under one turn. And if you were to think of M&A, sort of what kind of leverage levels would you be comfortable with?

So the question is how much leverage would we take on in terms of the balance sheet to do M&A?

Yes.

Got you. Okay. Well, Right now we're at investment grade. That's very important to us. We're comfortably within investment grade, and Moody's just reaffirmed us. You have to look at the M&A opportunity and how strategic that opportunity is obviously. We have the capacity to do a little bit more leverage, but it all depends on the strategic nature of the acquisition. But I would emphasize that the investment grade is particularly important.

Our next question comes from the line of Brandon Couillard with Jefferies.

Chris, just curious with this being your first call as -- in the CFO role, how to think about opportunities for working capital improvement and better free cash flow conversion over the next several years, whether opportunities exist or we should think about this metric being relatively stable moving forward?

Sure. So technically, this is my second, but I was only here 2 weeks the last time. So you're probably right. But in terms of cash flow, you can see that we guided to $1.8 billion, which is an increase from the $1.7-ish billion that we had this year. And if you remember back in August, we mentioned that cash flow from operations was actually a bit negative in the first half of the year. We expected that to get back to about flat year-over-year and it did. The negative was being driven by a negative working capital situation, buildup of inventory, mostly safety stock in the first half of the year. So we got back to flat. We see that improving going forward, and that is almost entirely driven by improvement in working capital. We get a little bit of a headwind there from the incremental medical device tax, but the big story there is working capital improvement. What you probably know is that we've added working capital and free cash flow to our bonus payout ratios last year. So we're very focused on driving working capital growth. So you'll see a little bit of an opportunity to lift from the current $1.7 billion up to the $1.8 billion going forward.

Our next question comes from the line of Peter Lawson with Mizuho Securities.

This is probably a question for Vince and I guess Chris, just on...

I'm sorry, if you could just, a little bit louder.

Yes, okay. Just thinking about some of the recent announced divestitures of Diagnostic businesses, what are the synergies and benefits you see from kind of housing both Bioscience and Diagnostics with this -- with your supply business?

So the question was, what are the synergies between the device side of the business and the life science side of the business? And we see that from a global standpoint, having this broader portfolio really helps us, I mean, number one, in emerging markets. Number two, it increases our relevance to the customer base in the developed world as well. And number three, going forward, we think there are potentials for utilizing skills from one side of the company and the other side of the company as we move into more innovative spaces. Let me call it that way. From a financial standpoint, all the businesses if you do it, some of the parts are fully valued but certainly, helps us in terms of consistency of performance. So we see a kind of geographic strategic benefit. We see some capability benefit and then some consistency benefit throughout the portfolio. Those are the 3 things that we said.

Our next question comes from the line of Jeff Frelick with Canaccord.

Vince, how do you plan to leverage your growing customer base for Veritor with future menu? Any plans for like quantitative test to follow on?

Well, Tom can talk about Veritor. We are in the process of expanding the menu right now.

So Jeff, as Vince had mentioned earlier, of course, today we have flu RSV available. We have adenovirus available x U.S. We have strep FDA approved already. We're awaiting the CLIA waiver, which is what we expect in Q2. We do have a series of other technology development programs underway that does include the ability for higher sensitivity and quantitation. But they're a bit earlier stage, and we haven't articulated any menu specifically related to those. While we certainly have those in mind, we haven't communicated those broadly.

But they would not go on to Veritor is what Tom is saying. They're beyond the next generation for example. Is that what you're saying, Tom, or...

They could potentially.

They could potentially go on Veritor. Okay.

So we are very pleased with the expanding placement of Veritor.

Our next question comes from the line of Kristen Stewart with Deutsche Bank.

I just wanted to go back just on the pension expense. I know that you said that, that was going to be more of a headwind -- or sorry, it was a headwind this past year and it's going to be more of the tailwind in fiscal '14. Could you just maybe help us quantify that on the bottom line, what the impact is going to be?

Yes. I think what we had said was that it would be about half of the operating margin impact. So we were around, I guess, it was 70 to 80 basis points on all-in basis. And net of the pension impact, it's about 30 to 40 basis points.

Our final question comes from the line of Amit Hazan with SunTrust.

Just a general question on your new products and kind of look back to guidance back in 2011 was to get to 18% of sales by the end of '14. We're at 13% now looking -- if we kind of take that look back, can you talk about whether that's a realistic expectation? And if not, what has missed and how we should think about the trajectory from here?

Yes. We think for this year that we're going to be approaching around the 15% mark. So 200 basis points improvement, and we see continued improvement going forward. It's interesting. We've made good progress on the new products, maybe a little bit below where we thought we're going to be. But all in all, we're quite pleased. The other thing that's happened is that our core products have grown faster, and that's been driven by emerging markets, some really good work that we've done, which have grown faster than we contemplated at the time we were giving that guidance. So all in all, I think it's been a pretty positive story.

I'd just add that, that could also be increased by any additional new acquisitions because nothing contemplated in the guidance for new acquisitions. That will lift that as well.

That was our final question. I'd now like to turn the floor back over to Vince Forlenza for any additional or closing remarks.

Sure. I would like to thank all of you for joining us today and going through our results in 2013 and the guidance for 2014. We look forward to updating you on the year as the year progressed. As I said, we remain confident in the strategy going forward, our strategy around growth, operating effectiveness and building capabilities. So thank you very much, and we'll talk to you soon.

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