As filed
with the Securities and Exchange Commission on November 23,
2011
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
20549
ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE
FISCAL YEAR ENDED SEPTEMBER 30, 2011
COMMISSION
FILE NUMBER 1-4802
BECTON,
DICKINSON AND COMPANY
(Exact name of registrant as
specified in its charter)
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New Jersey
(State or other jurisdiction
of
incorporation or organization)
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22-0760120
(I.R.S. Employer
Identification No.)
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1 Becton Drive
Franklin Lakes, New Jersey
(Address of principal
executive offices)
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07417-1880
(Zip
code)
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(201) 847-6800
(Registrants telephone
number, including area code)
Securities registered pursuant to Section 12(b) of the
Act:
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Name of Each Exchange on
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Title of Each Class
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Which Registered
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Common Stock, par value $1.00
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New York Stock Exchange
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Securities registered pursuant to Section 12(g) of the
Act:
None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes þ No o
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes o No þ
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Website, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such
files). Yes þ No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of registrants knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this
Form 10-K
or any amendment to this
Form 10-K. o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in
Rule 12b-2
of the Exchange Act. (Check one):
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Large
accelerated
filer þ
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Accelerated
filer o
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Non-accelerated
filer o
(Do not check if a smaller reporting company)
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Smaller reporting
company o
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the
Act). Yes o No þ
As of March 31, 2011, the aggregate market value of the
registrants outstanding common stock held by
non-affiliates of the registrant was approximately
$17,370,014,569.
As of October 31, 2011, 214,890,631 shares of the
registrants common stock were outstanding.
Documents Incorporated by Reference
Portions of the registrants Proxy Statement for the Annual
Meeting of Shareholders to be held January 31, 2012 are
incorporated by reference into Part III hereof.
PART I
General
Becton, Dickinson and Company (also known as BD) was
incorporated under the laws of the State of New Jersey in
November 1906, as successor to a New York business started in
1897. BDs executive offices are located at 1 Becton Drive,
Franklin Lakes, New Jersey
07417-1880,
and its telephone number is
(201) 847-6800.
All references in this
Form 10-K
to BD refer to Becton, Dickinson and Company and its
domestic and foreign subsidiaries, unless otherwise indicated by
the context.
BD is a global medical technology company engaged principally in
the development, manufacture and sale of medical devices,
instrument systems and reagents used by healthcare institutions,
life science researchers, clinical laboratories, the
pharmaceutical industry and the general public.
Business
Segments
BDs operations consist of three worldwide business
segments: BD Medical, BD Diagnostics and BD Biosciences.
Information with respect to BDs business segments is
included in Note 6 to the consolidated financial statements
contained in Item 8, Financial Statements and Supplementary
Data, and is incorporated herein by reference.
BD
Medical
BD Medical produces a broad array of medical devices that are
used in a wide range of healthcare settings. BD Medicals
principal product lines include needles, syringes and
intravenous catheters for medication delivery (including
safety-engineered and auto-disable devices); prefilled IV
flush syringes; syringes and pen needles for the self-injection
of insulin and other drugs used in the treatment of diabetes;
prefillable drug delivery systems provided to pharmaceutical
companies and sold to end-users as drug/device combinations;
regional anesthesia needles and trays; sharps disposal
containers; and closed-system transfer devices. The primary
customers served by BD Medical are hospitals and clinics;
physicians office practices; consumers and retail
pharmacies; governmental and nonprofit public health agencies;
pharmaceutical companies; and healthcare workers.
BD
Diagnostics
BD Diagnostics provides products for the safe collection and
transport of diagnostics specimens, as well as instruments and
reagent systems to detect a broad range of infectious diseases,
healthcare-associated infections (HAIs) and cancers.
BD Diagnostics principal products include integrated
systems for specimen collection; safety-engineered blood
collection products and systems; automated blood culturing
systems; molecular testing systems for infectious diseases and
womens health; microorganism identification and drug
susceptibility systems; liquid-based cytology systems for
cervical cancer screening; rapid diagnostic assays; and plated
media. BD Diagnostics serves hospitals, laboratories and
clinics; reference laboratories; blood banks; healthcare
workers; public health agencies; physicians office
practices; and industrial and food microbiology laboratories.
BD
Biosciences
BD Biosciences produces research and clinical tools that
facilitate the study of cells, and the components of cells, to
gain a better understanding of normal and disease processes.
That information is used to aid the discovery and development of
new drugs and vaccines, and to improve the diagnosis and
management of diseases. BD Biosciences principal product
lines include fluorescence-activated cell sorters and analyzers;
monoclonal antibodies and kits for performing cell analysis;
reagent systems for life science research; cell imaging systems;
laboratory products for tissue culture and fluid handling;
diagnostic assays; and cell culture media supplements for
biopharmaceutical manufacturing. The primary customers served by
BD Biosciences
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are research and clinical laboratories; academic and government
institutions; pharmaceutical and biotechnology companies;
hospitals; and blood banks.
Acquisitions
During the second quarter of 2011, BD acquired 100% of the
outstanding shares of Accuri Cytometers, Inc, a company that
develops and manufactures personal flow cytometers for
researchers. The fair value of consideration transferred totaled
$205 million, net of cash acquired.
During the fourth quarter of 2011, BD acquired 100% of the
outstanding shares of Carmel Pharma Inc., a Swedish company that
manufactures the
PhaSeal®
System, a closed-system drug transfer device for the safe
handling of hazardous drugs that are packaged in vials. The fair
value of consideration transferred was $287 million, net of
cash acquired.
Additional information regarding these acquisitions is contained
in Note 9 to the consolidated financial statements
contained in Item 8, Financial Statements and Supplementary
Data, which is incorporated herein by reference.
International
Operations
BDs products are manufactured and sold worldwide. For
reporting purposes, we organize our operations outside the
United States as follows: Europe (which includes the Middle East
and Africa); Japan; Asia Pacific (which includes Australia and
all of Asia except Japan); Latin America (which includes Mexico
and Brazil) and Canada. The principal products sold by BD
outside the United States are needles and syringes; insulin
syringes and pen needles; diagnostic systems; BD
Vacutainertm
brand blood collection products;
BD Hypaktm
brand prefillable syringe systems; infusion therapy products;
flow cytometry instruments and reagents; and disposable
laboratory products. BD has manufacturing operations outside the
United States in Brazil, Canada, China, France, Germany,
Hungary, India, Ireland, Japan, Mexico, Pakistan, Singapore,
South Korea, Spain, Sweden and the United Kingdom. Geographic
information with respect to BDs operations is included
under the heading Geographic Information in
Note 6 to the consolidated financial statements included in
Item 8, Financial Statements and Supplementary Data, and is
incorporated herein by reference.
Foreign economic conditions and exchange rate fluctuations have
caused the profitability related to foreign revenues to
fluctuate more than the profitability related to domestic
revenues. BD believes its activities in some countries outside
the United States involve greater risk than its domestic
business due to the factors cited herein, as well as the
economic environment, local commercial and economic policies and
political uncertainties. See further discussion of this risk in
Item 1A. Risk Factors.
Distribution
BDs products are marketed in the United States and
internationally through independent distribution channels and
directly to end-users by BD and independent sales
representatives. No customer accounted for 10% or more of
revenues in fiscal year 2011. Order backlog is not material to
BDs business inasmuch as orders for BD products generally
are received and filled on a current basis, except for items
temporarily out of stock. BDs worldwide sales are not
generally seasonal, with the exception of certain medical
devices in the BD Medical segment, and respiratory and flu
diagnostic products in the BD Diagnostics segment, that relate
to seasonal diseases such as influenza.
Raw
Materials
BD purchases many different types of raw materials, including
plastics, glass, metals, textiles, paper products, agricultural
products, electronic and mechanical
sub-assemblies
and various biological, chemical and petrochemical products.
Certain raw materials (primarily related to the BD Biosciences
segment) are not available from multiple sources. In the case of
certain principal raw materials that are available from multiple
sources, for various reasons (including quality assurance and
cost effectiveness), BD elects to purchase these raw materials
from sole suppliers. In cases where there are regulatory
requirements relating to qualification of suppliers, BD may not
be able to
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establish additional or replacement sources on a timely basis.
While BD works closely with its suppliers to ensure continuity
of supply, the termination, reduction or interruption in supply
of these sole-sourced raw materials could impact our ability to
manufacture and sell certain of our products.
Research
and Development
BD conducts its research and development (R&D)
activities at its operating units and at BD Technologies in
Research Triangle Park, North Carolina. The majority of
BDs R&D activities are conducted in the United
States. Outside the United States, BD conducts R&D
activities at BD Diagnostic Systems in Quebec City, Canada and
Suzhou, China, BD Pharmaceutical Systems in Pont de Claix,
France, and BD Medical Surgical Systems in Tuas, Singapore. BD
also collaborates with certain universities, medical centers and
other entities on R&D programs, and retains individual
consultants to support its efforts in specialized fields. BD
spent approximately $476 million, $431 million and
$405 million on research and development during the fiscal
years ended September 30, 2011, 2010 and 2009,
respectively. Fiscal 2011 spending included a $9 million charge
resulting from the discontinuance of a research program.
Intellectual
Property and Licenses
BD owns significant intellectual property, including patents,
patent applications, technology, trade secrets, know-how,
copyrights and trademarks in the United States and other
countries. BD is also licensed under domestic and foreign
patents, patent applications, technology, trade secrets,
know-how, copyrights and trademarks owned by others. In the
aggregate, these intellectual property assets and licenses are
of material importance to BDs business. BD believes,
however, that no single patent, technology, trademark,
intellectual property asset or license is material in relation
to BDs business as a whole, or to any business segment.
Competition
BD operates in the increasingly complex and challenging medical
technology marketplace whose dynamics are changing.
Technological advances and scientific discoveries have
accelerated the pace of change in medical technology, the
regulatory environment of medical products is becoming more
complex and vigorous, and economic conditions have resulted in a
challenging market. Companies of varying sizes compete in the
global medical technology field. Some are more specialized than
BD with respect to particular markets, and some have greater
financial resources than BD. New companies have entered the
field, particularly in the areas of molecular diagnostics,
safety-engineered devices and in the life sciences, and
established companies have diversified their business activities
into the medical technology area. Other firms engaged in the
distribution of medical technology products have become
manufacturers of medical devices and instruments as well.
Acquisitions and collaborations by and among companies seeking a
competitive advantage also affect the competitive environment.
In addition, the entry into the market of manufacturers located
in China and other low-cost manufacturing locations are creating
increased pricing pressures, particularly in developing markets.
Some competitors have also established manufacturing sites or
have contracted with suppliers located in these countries as a
means to lower their costs. New entrants may also appear,
particularly from these low-cost countries.
BD competes in this evolving marketplace on the basis of many
factors, including price, quality, innovation, service,
reputation, distribution and promotion. The impact of these
factors on BDs competitive position varies among BDs
various product offerings. In order to remain competitive in the
industries in which it operates, BD continues to make
investments in research and development, quality management,
quality improvement, product innovation and productivity
improvement in support of its core strategy to
increase revenue growth by focusing on products that deliver
greater benefits to patients, healthcare workers and researchers.
Third-Party
Reimbursement
Healthcare providers and related facilities are generally
reimbursed for their services through numerous payment systems
managed by various governmental agencies worldwide (e.g.,
Medicare and Medicaid in the
5
United States, the National Health Service in the United
Kingdom, the Joint Federal Committee in Germany, the Commission
dEvaluation des Produits et prestations in France, the
Ministry for Health, Labor and Welfare in Japan, the Ministry of
Health and the National Development and Reform Commission in
China, among many others), private insurance companies, and
managed care organizations. The manner and level of
reimbursement in any given case may depend on the site of care,
the procedure(s) performed, the final patient diagnosis, the
device(s)
and/or
drug(s) utilized, the available budget, or a combination of
these factors, and coverage and payment levels are determined at
each payers discretion. The coverage policies and
reimbursement levels of these third-party payers may impact the
decisions of healthcare providers and facilities regarding which
medical products they purchase and the prices they are willing
to pay for those products. Thus, changes in reimbursement level
or method may either positively or negatively impact sales of
BD products.
While BD is actively engaged in promoting the value of its
products for payers and patients, and it employs various efforts
and resources to positively impact coverage, coding and payment
processes in this regard, it has no direct control over payer
decision-making with respect to coverage and payment levels for
BD products. Additionally, we expect many payers to continue to
explore cost-containment strategies (e.g., comparative and
cost-effectiveness analyses, so-called
pay-for-performance
programs implemented by various public and private payers, and
expansion of payment bundling schemes such as Accountable Care
Organizations (ACOs), DRG programs, and other such methods that
shift medical cost risk to providers) that could potentially
impact coverage
and/or
payment levels for current or future BD products.
As BDs product offerings are diverse across many
healthcare settings, they are affected to varying degrees by the
many payment systems. Therefore, individual countries, product
lines or product classes may be impacted by changes to these
systems. Notably, the recently-enacted healthcare reform
legislation in the United States (i.e., the Patient Protection
and Affordable Care Act (PPACA)) provides for
numerous, substantive changes to U.S. healthcare payment
systems. Many of the changes set forth in this statute have only
recently been promulgated through formal regulations and most of
them have yet to be implemented. At this time, it remains
unclear whether, or how, the implementation of regulations
pursuant to the PPACA might affect payments for BD products. See
Item 1A. Risk Factors for a further discussion.
Regulation
BDs medical technology products and operations are subject
to regulation by the U.S. Food and Drug Administration
(FDA) and various other federal and state agencies,
as well as by foreign governmental agencies. These agencies
enforce laws and regulations that govern the development,
testing, manufacturing, labeling, advertising, marketing and
distribution, and market surveillance of BDs medical
products. The scope of the activities of these agencies,
particularly in the Europe, Japan and Asia Pacific regions in
which BD operates, has been increasing.
BD actively maintains FDA/ISO Quality Systems that establish
standards for its product design, manufacturing, and
distribution processes. Prior to marketing or selling most of
its products, BD must secure approval from the FDA and
counterpart
non-U.S. regulatory
agencies. Following the introduction of a product, these
agencies engage in periodic reviews of BDs quality
systems, as well as product performance, and advertising and
promotional materials. These regulatory controls, as well as any
changes in FDA policies, can affect the time and cost associated
with the development, introduction and continued availability of
new products. Where possible, BD anticipates these factors in
its product development and planning processes.
These agencies possess the authority to take various
administrative and legal actions against BD, such as product
recalls, product seizures and other civil and criminal
sanctions. BD also undertakes voluntary compliance actions such
as voluntary recalls.
BD also is subject to various federal and state laws, and laws
outside the United States, concerning healthcare fraud and abuse
(including false claims laws and anti-kickback laws), global
anti-corruption, transportation, safety and health, and customs
and exports. Many of the agencies enforcing these laws have
increased their enforcement activities with respect to medical
device manufacturers in recent years. This
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appears to be part of a general trend toward increased
regulation and enforcement activity within and outside the
United States.
BD believes it is in compliance in all material respects with
applicable law and the regulations promulgated by the applicable
agencies (including, without limitation, environmental laws and
regulations), and that such compliance has not had, and will not
have, a material adverse effect on our operations or results.
See Item 3. Legal Proceedings.
Employees
As of September 30, 2011, BD had 29,369 employees, of
whom 12,041 were employed in the U.S. (including Puerto
Rico). BD believes that its employee relations are satisfactory.
Other
Matters
Becton Dickinson France, S.A. (BD-France), a
subsidiary of BD, was listed among approximately 2,200 other
companies in an October 27, 2005 report of the Independent
Inquiry Committee (IIC) of the United Nations
(UN) as having been involved in humanitarian
contracts in which unauthorized payments were suspected of
having been made to the Iraqi Government in connection with the
UNs
Oil-for-Food
Programme (the Programme). In connection with the
IICs report, Becton Dickinson AG, a Swiss subsidiary of
BD, received a letter of inquiry from the Vendor Review
Committee (VRC) of the United Nations Procurement
Service dated November 22, 2005. The letter of inquiry said
that the VRC is reviewing Becton Dickinson AGs
registration status in light of BD-France being listed in the
IICs report and asked us for any information we might be
able to provide relating to the findings of the report. BD
conducted an internal review and found no evidence that BD or
any BD employee made, authorized, or approved improper payments
to the Iraqi Government in connection with the Programme. The
representative utilized by BD in Iraq also unequivocally denied
having made any such payments, and BD was unable to find any
evidence of such payments being made by this representative. BD
reported the results of its internal review to the VRC. In
May 2008, BD received a letter from the UN stating that
Becton Dickinson AG had been suspended from the UN Secretariat
Procurement Divisions vendor roster for a minimum period
of six months. We have requested that Becton Dickinson AG be
reinstated. BD believes that the suspension has not had, and
will not have, a material adverse effect on BD.
In May 2007, the French Judicial Police conducted searches of
BD-Frances offices in France with respect to the matters
that were the subject of the 2005 IIC report. We were informed
that BD-France is one of a number of companies named in the IIC
report that is being investigated by the French Judicial Police.
In June 2009, the Belgian Federal Police contacted BD to
interview certain individuals and review documents related to
sales made under the Programme. We are cooperating fully with
these investigations.
Available
Information
BD maintains a website at www.bd.com. BD also makes
available its Annual Reports on
Form 10-K,
its Quarterly Reports on
Form 10-Q,
and its Current Reports on
Form 8-K
(and amendments to those reports) as soon as reasonably
practicable after those reports are electronically filed with,
or furnished to, the Securities and Exchange Commission
(SEC). These filings may be obtained and printed
free of charge at
www.bd.com/investors.
In addition, the written charters of the Audit Committee, the
Compensation and Benefits Committee, the Corporate Governance
and Nominating Committee, the Executive Committee and the
Science, Innovation and Technology Committee of the Board of
Directors, BDs Corporate Governance Principles and its
Code of Conduct, are available at BDs website at
www.bd.com/investors/corporate_governance/. Printed
copies of these materials, BDs 2011 Annual Report on
Form 10-K,
and BDs reports and statements filed with, or furnished
to, the SEC, may be obtained, without charge, by contacting the
Corporate Secretary, BD, 1 Becton Drive, Franklin Lakes, New
Jersey
07417-1880,
telephone
201-847-6800.
In addition, the SEC maintains an internet site that contains
reports, proxy and information statements, and other information
regarding issues that file electronically with the SEC at
www.sec.gov.
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BD also routinely posts important information for investors on
its website at www.bd.com/investors. BD may use this
website as a means of disclosing material, non-public
information and for complying with its disclosure obligations
under Regulation FD adopted by the SEC. Accordingly,
investors should monitor the Investor Relations portion of
BDs website noted above, in addition to following
BDs press releases, SEC filings, and public conference
calls and webcasts. Our website and the information contained
therein or connected thereto shall not be deemed to be
incorporated into this Annual Report.
Forward-Looking
Statements
BD and its representatives may from
time-to-time
make certain forward-looking statements in publicly-released
materials, both written and oral, including statements contained
in filings with the SEC and in our reports to shareholders.
Additional information regarding our forward-looking statements
is contained in Item 7, Managements Discussion and
Analysis of Financial Condition and Results of Operations.
An investment in BD involves a variety of risks and
uncertainties. The following describes some of the significant
risks that could adversely affect BDs business, financial
condition, operating results or cash flows.
Current
economic conditions could continue to adversely affect our
operations.
The global economic conditions may result in a decrease in the
demand for our products and services, increased pricing
pressure, longer sales cycles, and slower adoption of new
technologies. During fiscal year 2011, our revenue growth was
adversely affected by conditions in the healthcare industry,
including lower healthcare utilization, particularly in the
U.S. and western Europe, cost containment efforts by
governments and other payors for healthcare services and other
factors. These conditions resulted in weaker overall customer
demand and increased pricing pressure for some of our products.
We anticipate that these industry conditions will continue for
the foreseeable future. In addition, while the economic downturn
has not impaired our ability to access credit markets to date,
there can be no assurance that these conditions will not
adversely affect our ability to do so in the future. The current
macroeconomic conditions may also adversely affect our
suppliers, and there can be no assurances that BD will not
experience any interruptions in supply in the future. We have
also experienced delays in collecting receivables in certain
countries in western Europe, and we may experience similar
delays in these and other jurisdictions experiencing liquidity
problems. The continued weakness in world economies makes the
strength and timing of any economic recovery uncertain, and
there can be no assurance that global economic conditions will
not deteriorate further.
We are
subject to foreign currency exchange risk.
Over half of our fiscal year 2011 revenues were derived from
international operations. Our revenues outside the United States
may be adversely affected by fluctuations in foreign currency
exchange rates. A discussion of the financial impact of exchange
rate fluctuations and the ways and extent to which we may
attempt to address any impact is contained in Item. 7,
Managements Discussion of Financial Condition and Results
of Operations. Any hedging activities we engage in may only
offset a portion of the adverse financial impact resulting from
unfavorable changes in foreign currency exchange rates. We
cannot predict with any certainty changes in foreign currency
exchange rates or the degree to which we can address these risks.
Changes
in reimbursement practices of third-party payers could affect
the demand for our products and the prices at which they are
sold.
Our sales depend, in part, on the extent to which healthcare
providers and facilities are reimbursed by government
authorities, private insurers and other third-party payers for
the costs of our products. The coverage policies and
reimbursement levels of third-party payers, which can vary among
public and private sources, may affect which products customers
purchase and the prices they are willing to pay for these
products in a particular jurisdiction. Legislative or
administrative reforms to reimbursement systems in the United
States (as part of healthcare reform or otherwise, as discussed
below) or abroad could significantly
8
reduce reimbursement for procedures using BD products, or result
in denial of reimbursement for those products. See
Third-Party Reimbursement under Item 1.
Business.
Federal
healthcare reform may adversely affect our results of
operations.
The Patient Protection and Affordable Care Act (the
PPACA) was enacted in March 2010. Under the PPACA,
beginning in 2013, medical device manufacturers, such as BD,
will pay a 2.3% excise tax on U.S. sales of certain medical
devices. Sales of BD products that we estimate to be subject to
this tax represented about 80% of BDs total
U.S. revenues in fiscal year 2011. We cannot predict with
any certainty what other impact the PPACA may have on our
business. The PPACA reduces Medicare and Medicaid payments to
hospitals, clinical laboratories and pharmaceutical companies,
and could otherwise reduce the volume of medical procedures.
These factors, in turn, could result in reduced demand for our
products and increased downward pricing pressure. It is also
possible that the PPACA will result in lower reimbursements for
our products. While the PPACA is intended to expand health
insurance coverage to uninsured persons in the United States,
the impact of any overall increase in access to healthcare on
sales of BDs products remains uncertain.
Efforts
to reduce the U.S. federal deficit could adversely affect our
results of operations.
As part of the law passed in August 2011 to extend the federal
debt limit and reduce government spending, a bipartisan
committee was established to identify up to $1.5 trillion in
cuts to federal programs. On November 21, 2011, the joint
committee announced that it would not reach an agreement by the
prescribed deadline, which will trigger an automatic $1.2
trillion in additional spending cuts in the absence of further
legislative action. Half of the automatic reductions would come
from lowering the caps imposed on domestic discretionary
spending and cutting domestic entitlement programs, including
reductions in payments to Medicare providers. Government
research funding could also be impacted as part of any deficit
reduction. Any such reductions in government healthcare spending
or research funding could result in reduced demand for our
products or additional pricing pressure.
Price
volatility could adversely affect costs associated with our
operations.
Our results of operations could be negatively impacted by price
volatility in the cost of raw materials, components, freight and
energy. In particular, BD purchases supplies of resins, which
are oil-based components used in the manufacture of certain
products. Any significant increases in resin purchase costs
could impact future operating results. Increases in the price of
oil can also increase BDs costs for packaging and
transportation. New laws or regulations adopted in response to
climate change could also increase energy costs and the costs of
certain raw materials and components. These cost increases may
adversely affect our profitability.
BDs
future growth is dependent upon the development of new products,
and there can be no assurance that such products will be
developed.
A significant element of our strategy is to increase revenue
growth by focusing on products that deliver greater benefits to
patients, healthcare workers and researchers. The development of
these products requires significant research and development,
clinical trials and regulatory approvals. The results of our
product development efforts may be affected by a number of
factors, including BDs ability to innovate, develop and
manufacture new products, complete clinical trials, obtain
regulatory approvals and reimbursement in the United States and
abroad, or gain and maintain market approval of our products. In
addition, patents attained by others can preclude or delay our
commercialization of a product. There can be no assurance that
any products now in development or that we may seek to develop
in the future will achieve technological feasibility, obtain
regulatory approval, or gain market acceptance.
9
We cannot
guarantee that any of BDs strategic acquisitions,
investments or alliances will be successful.
As part of our strategy to increase revenue growth, we seek to
supplement our internal growth through strategic acquisitions,
investments and alliances. Such transactions are inherently
risky. The success of any acquisition, investment or alliance
may be affected by a number of factors, including our ability to
properly assess and value the potential business opportunity or
to successfully integrate any business we may acquire into our
existing business. There can be no assurance that any past or
future transaction will be successful.
The
medical technology industry is very competitive.
The medical technology industry is subject to rapid
technological changes, and we face significant competition
across our product lines and in each market in which our
products are sold. We face this competition from a wide range of
companies. These include large medical device companies, some of
which may have greater financial and marketing resources than we
do. We also face competition from firms that are more
specialized than we are with respect to particular markets.
Other firms engaged in the distribution of medical technology
products have become manufacturers of medical devices and
instruments as well. In some instances, competitors, including
pharmaceutical companies, also offer, or are attempting to
develop, alternative therapies for disease states that may be
delivered without a medical device. The development of new or
improved products, processes or technologies by other companies
(such as needle-free injection technology) may render our
products or proposed products obsolete or less competitive. In
addition, increasing customer demand for more
environmentally-friendly products is creating another basis on
which BD must compete. The entry into the market of
manufacturers located in China and other low-cost manufacturing
locations is also creating pricing pressure, particularly in
developing markets. Some competitors have also established
manufacturing sites or have contracted with suppliers located in
these countries as a means to lower their costs. New entrants
may also appear, particularly from these low-cost countries.
Consolidation
in the healthcare industry could adversely affect BDs
future revenues and operating income.
The medical technology industry has experienced a significant
amount of consolidation. As a result of this consolidation,
competition to provide goods and services to customers has
increased. In addition, group purchasing organizations and
integrated health delivery networks have served to concentrate
purchasing decisions for some customers, which has also placed
pricing pressure on medical device suppliers. Further
consolidation in the industry could exert additional pressure on
the prices of our products.
The
international operations of BDs business may subject BD to
certain business risks.
BD operations outside the United States subject BD to certain
risks, including the effects of fluctuations in foreign currency
exchange (discussed above); the effects of local economic
conditions; changes in foreign regulatory requirements; local
product preferences; difficulty in establishing, staffing and
managing foreign operations; differing labor regulations;
changes in tax laws; potential political instability; trade
barriers; weakening or loss of the protection of intellectual
property rights in some countries; and restrictions on the
transfer of capital across borders. The success of our
operations outside the United States will depend, in part, on
our ability to acquire or form and maintain alliances with local
companies and make necessary infrastructure enhancements to,
among other things, our production facilities and distribution
networks.
Reductions
in customers research budgets or government funding may
adversely affect our BD Biosciences segment.
Our BD Biosciences segment sells products to researchers at
pharmaceutical and biotechnology companies, academic
institutions, government laboratories and private foundations.
Research and development spending of our customers can fluctuate
based on spending priorities and general economic conditions. A
number of these customers are also dependent for their funding
upon grants from U.S. government agencies, such as the
U.S. National Institutes of Health (NIH) and
agencies in other countries. The level of government funding of
research and development is unpredictable. There have been
instances where NIH
10
grants have been frozen or otherwise unavailable for extended
periods. The availability of governmental research funding may
also continue to be adversely affected by the current economic
downturn. Any reduction or delay in governmental funding could
cause our customers to delay or forego purchases of our products.
A
reduction or interruption in the supply of certain raw materials
and components would adversely affect BDs manufacturing
operations and related product sales.
BD purchases many different types of raw materials and
components. Certain raw materials (primarily related to the BD
Biosciences segment) and components are not available from
multiple sources. In addition, for quality assurance,
cost-effectiveness and other reasons, BD elects to purchase
certain raw materials and components from sole suppliers. The
supply of these materials can be disrupted for a number of
reasons, including current economic conditions as described
above. While we work with suppliers to ensure continuity of
supply, no assurance can be given that these efforts will be
successful. In addition, where there are regulatory requirements
relating to the qualification of suppliers, we may not be able
to establish additional or replacement sources on a timely
basis. The termination, reduction or interruption in supply of
these sole-sourced raw materials and components could impact our
ability to manufacture and sell certain of our products.
Interruption
of our manufacturing operations could adversely affect BDs
future revenues and operating income.
We have manufacturing sites all over the world. In addition, in
some instances, the manufacturing of certain of our product
lines is concentrated in one or more of our plants. As a result,
weather, natural disasters (including pandemics), terrorism,
political change, failure to follow specific internal protocols
and procedures, equipment malfunction, environmental factors or
damage to one or more of our facilities could adversely affect
our ability to manufacture our products.
BD is
subject to a number of pending lawsuits.
BD is a defendant in a number of pending lawsuits, including
purported class action lawsuits for, among other things, alleged
antitrust violations and patent infringement, and could be
subject to additional lawsuits in the future. A more detailed
description of these lawsuits is contained in Item 3. Legal
Proceedings. Given the uncertain nature of litigation generally,
we are not able in all cases to estimate the amount or range of
loss that could result from an unfavorable outcome of the
litigation to which we are a party. In view of these
uncertainties, we could incur charges in excess of any currently
established accruals and, to the extent available, excess
liability insurance. Any such future charges, individually or in
the aggregate, could adversely affect BDs results of
operations and cash flows.
BD is
subject to extensive regulation.
BD is subject to extensive regulation by the FDA pursuant to the
Federal Food, Drug and Cosmetic Act, by comparable agencies in
foreign countries, and by other regulatory agencies and
governing bodies. Most of BDs products must receive
clearance or approval from the FDA or counterpart regulatory
agencies in other countries before they can be marketed or sold.
The process for obtaining marketing approval or clearance may
take a significant period of time and require the expenditure of
substantial resources, and these have been increasing due to
increased requirements from the FDA for supporting data for
submissions. The process may also require changes to our
products or result in limitations on the indicated uses of the
products. Also, governmental agencies may impose new
requirements regarding registration, labeling or prohibited
materials that may require us to modify or re-register products
already on the market or otherwise impact our ability to market
our products in those countries. Once clearance or approval has
been obtained for a product, there is an obligation to ensure
that all applicable FDA and other regulatory requirements
continue to be met.
Following the introduction of a product, these agencies also
periodically review our manufacturing processes and product
performance. Our failure to comply with the applicable good
manufacturing practices, adverse event reporting, clinical trial
and other requirements of these agencies could delay or prevent
the
11
production, marketing or sale of our products and result in
fines, delays or suspensions of regulatory clearances, closure
of manufacturing sites, seizures or recalls of products and
damage to our reputation. Recent changes in enforcement practice
by the FDA and other agencies have resulted in increased
enforcement activity, which increases the compliance risk for BD
and other companies in our industry.
Product
defects could adversely affect the results of our
operations.
The design, manufacture and marketing of medical devices involve
certain inherent risks. Manufacturing or design defects,
unanticipated use of our products, or inadequate disclosure of
risks relating to the use of our products can lead to injury or
other adverse events. These events could lead to recalls or
safety alerts relating to our products (either voluntary or
required by the FDA or similar governmental authorities in other
countries), and could result, in certain cases, in the removal
of a product from the market. A recall could result in
significant costs, as well as negative publicity and damage to
our reputation that could reduce demand for our products.
Personal injuries relating to the use of our products can also
result in product liability claims being brought against us. In
some circumstances, such adverse events could also cause delays
in new product approvals.
We may
experience difficulties implementing our enterprise resource
planning system.
We are engaged in a project to upgrade our enterprise resource
planning (ERP) system. Our ERP system is critical to
our ability to accurately maintain books and records, record
transactions, provide important information to our management
and prepare our financial statements. The design and
implementation of the new ERP system has required, and will
continue to require, the investment of significant financial and
human resources. The total cost needed to implement the new ERP
system may turn out to be more than we currently anticipate. In
addition, we may not be able to successfully implement the new
ERP system without experiencing difficulties. Any disruptions,
delays or deficiencies in the design and implementation of the
new ERP system could adversely affect our ability to process
orders, ship products, provide services and customer support,
send invoices and track payments, fulfill contractual
obligations or otherwise operate our business.
Our
operations are dependent in part on patents and other
intellectual property assets.
Many of BDs businesses rely on patent, trademark and other
intellectual property assets. While we do not believe that the
loss of any one patent or other intellectual property asset
would materially adversely affect BD operations, these
intellectual property assets, in the aggregate, are of material
importance to our business. BD can lose the protection afforded
by these intellectual property assets through patent
expirations, legal challenges or governmental action. Patents
attained by competitors, particularly as patents on our products
expire, may also adversely affect our competitive position. The
loss of a significant portion of our portfolio of intellectual
property assets may have an adverse effect on our earnings,
financial condition or cash flows. In addition, competitors may
claim that BD products infringe upon their intellectual
property. Resolving any intellectual property claim can be
costly and time-consuming.
Natural
disasters, war and other events could adversely affect BDs
future revenues and operating income.
Natural disasters (including pandemics), war, terrorism, labor
disruptions and international conflicts, and actions taken by
the United States and other governments, or by our customers or
suppliers, in response to such events, could cause significant
economic disruption and political and social instability in the
United States and in areas outside of the United States in which
we operate. These events could result in decreased demand for
our products, adversely affect our manufacturing and
distribution capabilities, or increase the costs for or cause
interruptions in the supply of materials from our suppliers.
12
We need
to attract and retain key employees to be competitive.
Our ability to compete effectively depends upon our ability to
attract and retain executives and other key employees, including
people in technical, marketing, sales and research positions.
Competition for experienced employees, particularly for persons
with specialized skills, can be intense. BDs ability to
recruit such talent will depend on a number of factors,
including compensation and benefits, work location and work
environment. If we cannot effectively recruit and retain
qualified executives and employees, our business could be
adversely affected.
|
|
Item 1B.
|
Unresolved
Staff Comments.
|
None.
BDs executive offices are located in Franklin Lakes, New
Jersey. As of November 1, 2011, BD owned and leased 180
facilities throughout the world comprising approximately
17,081,296 square feet of manufacturing, warehousing,
administrative and research facilities. The
U.S. facilities, including Puerto Rico, comprise
approximately 7,018,934 square feet of owned and
2,416,594 square feet of leased space. The international
facilities comprise approximately 6,197,567 square feet of
owned and 1,448,201 square feet of leased space. Sales
offices and distribution centers included in the total square
footage are also located throughout the world.
Operations in each of BDs business segments are conducted
at both U.S. and international locations. Particularly in
the international marketplace, facilities often serve more than
one business segment and are used for multiple purposes, such as
administrative/sales, manufacturing
and/or
warehousing/distribution. BD generally seeks to own its
manufacturing facilities, although some are leased. The
following table summarizes property information by business
segment.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sites
|
|
Corporate
|
|
BD Biosciences
|
|
BD Diagnostics
|
|
BD Medical
|
|
Mixed(A)
|
|
Total
|
|
Leased
|
|
|
3
|
|
|
|
10
|
|
|
|
8
|
|
|
|
59
|
|
|
|
46
|
|
|
|
126
|
|
Owned
|
|
|
2
|
|
|
|
6
|
|
|
|
13
|
|
|
|
24
|
|
|
|
9
|
|
|
|
54
|
|
Total
|
|
|
5
|
|
|
|
16
|
|
|
|
21
|
|
|
|
83
|
|
|
|
55
|
|
|
|
180
|
|
Square feet
|
|
|
1,003,608
|
|
|
|
1,141,319
|
|
|
|
2,747,797
|
|
|
|
7,507,547
|
|
|
|
4,681,025
|
|
|
|
17,081,296
|
|
|
|
|
(A) |
|
Facilities used by more than one business segment. |
BD believes that its facilities are of good construction and in
good physical condition, are suitable and adequate for the
operations conducted at those facilities, and are, with minor
exceptions, fully utilized and operating at normal capacity.
The U.S. facilities are located in Arizona, California,
Connecticut, Florida, Georgia, Illinois, Indiana, Maryland,
Massachusetts, Michigan, Minnesota, Nebraska, New Jersey, North
Carolina, Pennsylvania, South Carolina, Tennessee, Texas, Utah,
Washington, DC, Washington, Wisconsin and Puerto Rico.
The international facilities are grouped as follows:
Europe, which includes facilities in Austria,
Belgium, the Czech Republic, Denmark, England, Finland, France,
Germany, Greece, Hungary, Ireland, Italy, Kenya, Norway, Poland,
Russia, Saudi Arabia, South Africa, Spain, Sweden, Switzerland,
Turkey and the United Arab Emirates.
Japan.
Asia Pacific, which includes facilities in
Australia, China, India, Indonesia, Malaysia, New Zealand,
Pakistan, the Philippines, Singapore, South Korea, Taiwan,
Thailand and Vietnam.
Latin America, which includes facilities in
Argentina, Brazil, Chile, Colombia, Costa Rica, Mexico, Peru and
Venezuela.
Canada.
13
|
|
Item 3.
|
Legal
Proceedings.
|
BD is named as a defendant in the following purported class
action suits brought on behalf of distributors and other
entities that purchase BDs products (the Distributor
Plaintiffs), alleging that BD violated federal antitrust
laws, resulting in the charging of higher prices for BDs
products to the plaintiffs and other purported class members.
|
|
|
|
|
Case
|
|
Court
|
|
Date Filed
|
|
Louisiana Wholesale Drug Company, Inc., et. al. vs. Becton
Dickinson and Company
|
|
U.S. District Court, Newark, New Jersey
|
|
March 25, 2005
|
SAJ Distributors, Inc. et. al. vs. Becton
Dickinson & Co.
|
|
U.S. District Court, Eastern District of Pennsylvania
|
|
September 6, 2005
|
Dik Drug Company, et. al. vs. Becton, Dickinson and
Company
|
|
U.S. District Court, Newark, New Jersey
|
|
September 12, 2005
|
American Sales Company, Inc. et. al. vs. Becton,
Dickinson & Co.
|
|
U.S. District Court, Eastern District of Pennsylvania
|
|
October 3, 2005
|
Park Surgical Co. Inc. et. al. vs. Becton, Dickinson and
Company
|
|
U.S. District Court, Eastern District of Pennsylvania
|
|
October 26, 2005
|
These actions have been consolidated under the caption In
re Hypodermic Products Antitrust Litigation.
BD is also named as a defendant in the following purported class
action suits brought on behalf of purchasers of BDs
products, such as hospitals (the Hospital
Plaintiffs), alleging that BD violated federal and state
antitrust laws, resulting in the charging of higher prices for
BDs products to the plaintiffs and other purported class
members.
|
|
|
|
|
Case
|
|
Court
|
|
Date Filed
|
|
Jabos Pharmacy, Inc., et. al. v. Becton
Dickinson & Company
|
|
U.S. District Court,
Greenville, Tennessee
|
|
June 7, 2005
|
Drug Mart Tallman, Inc., et. al. v. Becton Dickinson and
Company
|
|
U.S. District Court, Newark, New Jersey
|
|
January 17, 2006
|
Medstar v. Becton Dickinson
|
|
U.S. District Court, Newark, New Jersey
|
|
May 18, 2006
|
The Hebrew Home for the Aged at Riverdale v. Becton
Dickinson and Company
|
|
U.S. District Court, Southern District of New York
|
|
March 28, 2007
|
The plaintiffs in each of the above antitrust class action
lawsuits seek monetary damages. All of the antitrust class
action lawsuits have been consolidated for pre-trial purposes in
a Multi-District Litigation (MDL) in Federal court in New
Jersey.
On April 27, 2009, BD entered into a settlement agreement
with the Distributor Plaintiffs in these actions. The settlement
agreement provided for, among other things, the payment by BD of
$45 million in exchange for a release by all potential
class members of the direct purchaser claims under federal
antitrust laws related to the products and acts enumerated in
the complaint, and a dismissal of the case with prejudice,
insofar as it relates to direct purchaser claims. The release
would not cover potential class members that affirmatively opt
out of the settlement. On September 30, 2010, the court
issued an order denying a motion to approve the settlement
agreement, ruling that the Hospital Plaintiffs, and not the
Distributor Plaintiffs, are the direct purchasers entitled to
pursue damages under the federal antitrust laws for certain
sales of BD products. The settlement agreement currently remains
in effect, subject to certain termination provisions, and the
federal court of appeals has granted the Distributor
Plaintiffs request to appeal the trial courts order
on an interlocutory basis. BD currently cannot estimate the
range of reasonably possible losses with respect to these class
action matters beyond the $45 million already accrued and
changes to the amount already recognized may be required in the
future as additional information becomes available.
14
In June 2007, Retractable Technologies, Inc. (RTI)
filed a complaint against BD under the caption Retractable
Technologies, Inc. vs. Becton Dickinson and Company (Civil
Action
No. 2:07-cv-250,
U.S. District Court, Eastern District of Texas). RTI
alleges that the BD
Integratm
syringes infringe patents licensed exclusively to RTI. In its
complaint, RTI also alleges that BD engaged in false advertising
with respect to certain of BDs safety-engineered products
in violation of the Lanham Act; acted to exclude RTI from
various product markets and to maintain its market share
through, among other things, exclusionary contracts in violation
of state and federal antitrust laws; and engaged in unfair
competition. In January 2008, the court severed the patent and
non-patent claims into separate cases, and stayed the non-patent
claims during the pendency of the patent claims at the trial
court level. RTI seeks money damages and injunctive relief. On
April 1, 2008, RTI filed a complaint against BD under the
caption Retractable Technologies, Inc. and Thomas J.
Shaw v. Becton Dickinson and Company (Civil Action
No. 2:08-cv-141,
U.S. District Court, Eastern District of Texas). RTI
alleges that the
BD Integratm
syringes infringe another patent licensed exclusively to RTI.
RTI seeks money damages and injunctive relief. On
August 29, 2008, the court ordered the consolidation of the
patent cases. On November 9, 2009, at a trial of these
consolidated cases, the jury rendered a verdict in favor of RTI
on all but one of its infringement claims, but did not find any
willful infringement, and awarded RTI $5 million in
damages. On May 19, 2010, the court granted RTIs
motion for a permanent injunction against the continued sale by
BD of its BD
Integratm
products in their current form, but stayed the injunction for
the duration of BDs appeal. At the same time, the court
lifted a stay of RTIs non-patent claims. On July 8,
2011, the Court of Appeals for the Federal Circuit reversed the
District Court judgment that BDs 3ml
Integratm
products infringed the asserted RTI patents and affirmed the
District Court judgment of infringement against BDs
discontinued 1ml
Integratm
products. On October 31, 2011, the Federal Circuit Court of
Appeals denied RTIs request for an en banc rehearing. The
trial on RTIs antitrust and false advertising claims is
scheduled to begin in February 2012. With respect to RTIs
antitrust and false advertising claims, BD cannot estimate the
possible loss or range of possible loss as there are significant
legal and factual issues to be resolved. In the event that RTI
succeeds at trial and subsequent appeals, however, any potential
loss could be material as RTI will likely seek to recover
substantial damages including disgorgement of profits and
damages under the federal antitrust laws which are trebled. BD
believes RTIs allegations are without merit.
On October 19, 2009, Gen-Probe Incorporated
(Gen-Probe) filed a patent infringement action
against BD in the U.S. District Court for the Southern
District of California. The complaint alleges that the BD
Vipertm
and BD
Vipertm
XTRtm
systems and BD
ProbeTectm
specimen collection products infringe certain U.S. patents
of Gen-Probe. On March 23, 2010, Gen-Probe filed a
complaint, also in the U.S. District Court for the Southern
District of California, alleging that the BD
Maxtm
instrument infringes Gen-Probe patents. The patents alleged to
be infringed are a subset of the Gen-Probe patents asserted
against BD in the October 2009 suit. On June 8, 2010, the
Court consolidated these cases. Gen-Probe is seeking monetary
damages and injunctive relief. BD currently cannot estimate the
range of reasonably possible losses for this matter as the
proceedings are in relatively early stages and there are
significant issues to be resolved.
BD believes that it has meritorious defenses to each of the
above-mentioned suits pending against BD and is engaged in a
vigorous defense of each of these matters.
BD is also involved both as a plaintiff and a defendant in other
legal proceedings and claims that arise in the ordinary course
of business.
BD is a party to a number of Federal proceedings in the United
States brought under the Comprehensive Environment Response,
Compensation and Liability Act, also known as
Superfund, and similar state laws. The affected
sites are in varying stages of development. In some instances,
the remedy has been completed, while in others, environmental
studies are commencing. For all sites, there are other
potentially responsible parties that may be jointly or severally
liable to pay all cleanup costs.
Given the uncertain nature of litigation generally, BD is not
able in all cases to estimate the amount or range of loss that
could result from an unfavorable outcome of the litigation to
which BD is a party. In accordance with U.S. generally
accepted accounting principles, BD establishes accruals to the
extent probable future losses are estimable (in the case of
environmental matters, without considering possible third-party
recoveries). In view of the uncertainties discussed below, BD
could incur charges in excess of any currently
15
established accruals and, to the extent available, excess
liability insurance. In the opinion of management, any such
future charges, individually or in the aggregate, could have a
material adverse effect on BDs consolidated results of
operations and consolidated cash flows.
Executive
Officers of the Registrant
The following is a list of the executive officers of BD, their
ages and all positions and offices held by each of them during
the past five years. There is no family relationship between any
executive officer or director of BD.
|
|
|
|
|
|
|
Name
|
|
Age
|
|
Position
|
|
Edward J. Ludwig
|
|
|
60
|
|
|
Director since 1999; Chairman since February 2002; Chief
Executive Officer from January 2000 to October 2011; and
President from May 1999 to January 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vincent A. Forlenza
|
|
|
58
|
|
|
Director and Chief Executive Officer since October 2011;
President since January 2009; Chief Operating Officer from July
2010 to October 2011; and Executive Vice President from June
2006 to January 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Donna M. Boles
|
|
|
58
|
|
|
Senior Vice President Human Resources since June
2006.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gary M. Cohen
|
|
|
52
|
|
|
Executive Vice President since June 2006.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David V. Elkins
|
|
|
43
|
|
|
Executive Vice President and Chief Financial Officer since
December 2008; and Vice President and Chief Financial Officer,
North America and Global Marketing, AstraZeneca PLC from April
2006 to December 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
William A. Kozy
|
|
|
59
|
|
|
Executive Vice President since June 2006.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
William E. Rhodes
|
|
|
57
|
|
|
Senior Vice President, Corporate Strategy and Development since
October 2011; President BD Biosciences from January
2009 to October 2011; and President BD Biosciences,
Cell Analysis from February 2006 to January 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jeffrey S. Sherman
|
|
|
56
|
|
|
Senior Vice President since June 2006; and General Counsel since
January 2004.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stephen Sichak
|
|
|
54
|
|
|
Senior Vice President, Integrated Supply Chain since January
2009; and President BD Diagnostics, Preanalytical
Systems from October 2004 to January 2009.
|
PART II
|
|
Item 5.
|
Market
for Registrants Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities.
|
BDs common stock is listed on the New York Stock Exchange.
As of October 31, 2011, there were approximately
8,674 shareholders of record.
Market
and Market Prices of Common Stock (per common share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
2011
|
By Quarter
|
|
High
|
|
Low
|
|
High
|
|
Low
|
|
First
|
|
$
|
79.72
|
|
|
$
|
66.60
|
|
|
$
|
85.32
|
|
|
$
|
73.67
|
|
Second
|
|
|
80.14
|
|
|
|
74.64
|
|
|
|
85.64
|
|
|
|
76.51
|
|
Third
|
|
|
79.66
|
|
|
|
67.45
|
|
|
|
89.58
|
|
|
|
83.39
|
|
Fourth
|
|
|
74.82
|
|
|
|
66.89
|
|
|
|
89.74
|
|
|
|
73.25
|
|
16
Dividends
(per common share)
|
|
|
|
|
|
|
|
|
By Quarter
|
|
2010
|
|
2011
|
|
First
|
|
$
|
0.37
|
|
|
$
|
0.41
|
|
Second
|
|
|
0.37
|
|
|
|
0.41
|
|
Third
|
|
|
0.37
|
|
|
|
0.41
|
|
Fourth
|
|
|
0.37
|
|
|
|
0.41
|
|
Issuer
Purchases of Equity Securities
The table below sets forth certain information regarding
BDs purchases of its common stock during the fiscal
quarter ended September 30, 2011.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maximum Number
|
|
|
|
|
|
|
Average
|
|
|
Total Number of Shares
|
|
|
of Shares that
|
|
|
|
Total Number of
|
|
|
Price
|
|
|
Purchased as Part of
|
|
|
May Yet be
|
|
For the Three Months Ended
|
|
Shares
|
|
|
Paid
|
|
|
Publicly Announced
|
|
|
Purchased Under the
|
|
September 30, 2011
|
|
Purchased(1)
|
|
|
per Share
|
|
|
Plans or Programs(2)
|
|
|
Plans or Programs
|
|
|
July 1-31, 2011
|
|
|
738,976
|
|
|
$
|
86.61
|
|
|
|
738,976
|
|
|
|
30,229,476
|
|
August 1-31, 2011
|
|
|
1,268,326
|
|
|
$
|
79.08
|
|
|
|
1,267,188
|
|
|
|
28,962,288
|
|
September 1-30, 2011
|
|
|
824,538
|
|
|
$
|
77.60
|
|
|
|
810,975
|
|
|
|
28,151,313
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
2,831,840
|
|
|
$
|
80.61
|
|
|
|
2,817,139
|
|
|
|
28,151,313
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes 14,701 shares purchased during the quarter in open
market transactions by the trust relating to BDs Deferred
Compensation and Retirement Benefit Restoration Plan and
1996 Directors Deferral Plan, and 0 shares
delivered to BD in connection with stock option exercises. |
|
(2) |
|
The repurchases were made pursuant to a repurchase program
covering 21 million shares authorized by the Board of
Directors on September 28, 2010, for which there is no
expiration date. The Board authorized a repurchase program
covering 18 million additional shares on July 26,
2011, for which there is no expiration date. |
17
|
|
Item 6.
|
Selected
Financial Data.
|
FIVE-YEAR
SUMMARY OF SELECTED FINANCIAL DATA
Becton,
Dickinson and Company
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended September 30
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
Dollars in millions, except per share amounts
|
|
|
Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
7,828.9
|
|
|
|
7,372.3
|
|
|
|
6,986.7
|
|
|
|
6,897.6
|
|
|
|
6,121.1
|
|
Gross Margin
|
|
|
4,091.6
|
|
|
|
3,829.2
|
|
|
|
3,675.0
|
|
|
|
3,540.5
|
|
|
|
3,174.4
|
|
Research and Development Expense
|
|
|
476.5
|
|
|
|
431.0
|
|
|
|
404.6
|
|
|
|
382.6
|
|
|
|
342.9
|
|
Operating Income
|
|
|
1,763.3
|
|
|
|
1,676.8
|
|
|
|
1,589.7
|
|
|
|
1,488.1
|
|
|
|
1,151.0
|
|
Interest Expense (Income), Net
|
|
|
40.8
|
|
|
|
16.1
|
|
|
|
7.2
|
|
|
|
(3.0
|
)
|
|
|
0.2
|
|
Income From Continuing Operations Before Income Taxes
|
|
|
1,716.3
|
|
|
|
1,661.2
|
|
|
|
1,578.6
|
|
|
|
1,489.7
|
|
|
|
1,151.7
|
|
Income Tax Provision
|
|
|
451.4
|
|
|
|
484.8
|
|
|
|
411.2
|
|
|
|
411.9
|
|
|
|
336.6
|
|
Income from Continuing Operations
|
|
|
1,264.9
|
|
|
|
1,176.3
|
|
|
|
1,167.3
|
|
|
|
1,077.8
|
|
|
|
815.1
|
|
Net Income
|
|
|
1,271.0
|
|
|
|
1,317.6
|
|
|
|
1,231.6
|
|
|
|
1,127.0
|
|
|
|
890.0
|
|
Basic Earnings Per Share from Continuing Operations
|
|
|
5.72
|
|
|
|
5.02
|
|
|
|
4.85
|
|
|
|
4.41
|
|
|
|
3.33
|
|
Diluted Earnings Per Share from Continuing Operations
|
|
|
5.59
|
|
|
|
4.90
|
|
|
|
4.73
|
|
|
|
4.27
|
|
|
|
3.20
|
|
Dividends Per Common Share
|
|
|
1.64
|
|
|
|
1.48
|
|
|
|
1.32
|
|
|
|
1.14
|
|
|
|
0.98
|
|
Financial Position
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Current Assets
|
|
|
4,668.3
|
|
|
|
4,505.3
|
|
|
|
4,647.0
|
|
|
|
3,614.7
|
|
|
|
3,130.6
|
|
Total Current Liabilities
|
|
|
1,823.2
|
|
|
|
1,671.7
|
|
|
|
1,777.1
|
|
|
|
1,416.6
|
|
|
|
1,478.8
|
|
Total PPE, Net
|
|
|
3,211.2
|
|
|
|
3,100.5
|
|
|
|
2,966.6
|
|
|
|
2,744.5
|
|
|
|
2,497.3
|
|
Total Assets
|
|
|
10,430.4
|
|
|
|
9,650.7
|
|
|
|
9,304.6
|
|
|
|
7,912.9
|
|
|
|
7,329.4
|
|
Total Long-Term Debt
|
|
|
2,484.7
|
|
|
|
1,495.4
|
|
|
|
1,488.5
|
|
|
|
953.2
|
|
|
|
955.7
|
|
Total Shareholders Equity
|
|
|
4,828.2
|
|
|
|
5,434.6
|
|
|
|
5,142.7
|
|
|
|
4,935.6
|
|
|
|
4,362.0
|
|
Book Value Per Common Share
|
|
|
22.48
|
|
|
|
23.65
|
|
|
|
21.69
|
|
|
|
20.30
|
|
|
|
17.89
|
|
Financial Relationships
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit Margin
|
|
|
52.3
|
%
|
|
|
51.9
|
%
|
|
|
52.6
|
%
|
|
|
51.3
|
%
|
|
|
51.9
|
%
|
Return on Revenues(C)
|
|
|
16.2
|
%
|
|
|
16.0
|
%
|
|
|
16.7
|
%
|
|
|
15.6
|
%
|
|
|
13.3
|
%
|
Return on Total Assets(A)(C)
|
|
|
17.9
|
%
|
|
|
18.1
|
%
|
|
|
18.8
|
%
|
|
|
20.0
|
%
|
|
|
16.9
|
%
|
Return on Equity(C)
|
|
|
24.6
|
%
|
|
|
22.2
|
%
|
|
|
23.2
|
%
|
|
|
23.2
|
%
|
|
|
19.9
|
%
|
Debt to Capitalization(B)(C)
|
|
|
35.8
|
%
|
|
|
23.7
|
%
|
|
|
26.8
|
%
|
|
|
18.8
|
%
|
|
|
20.9
|
%
|
Additional Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Employees
|
|
|
29,400
|
|
|
|
28,800
|
|
|
|
29,100
|
|
|
|
28,300
|
|
|
|
28,000
|
|
Number of Shareholders
|
|
|
8,713
|
|
|
|
8,887
|
|
|
|
8,930
|
|
|
|
8,820
|
|
|
|
8,896
|
|
Average Common and Common Equivalent
Shares Outstanding Assuming Dilution (millions)
|
|
|
226.3
|
|
|
|
240.1
|
|
|
|
246.8
|
|
|
|
252.7
|
|
|
|
254.8
|
|
Depreciation and Amortization
|
|
|
504.1
|
|
|
|
502.1
|
|
|
|
464.6
|
|
|
|
472.0
|
|
|
|
434.9
|
|
Capital Expenditures
|
|
|
515.4
|
|
|
|
537.3
|
|
|
|
585.2
|
|
|
|
595.8
|
|
|
|
550.2
|
|
|
|
|
(A) |
|
Earnings before interest expense and taxes as a percent of
average total assets. |
|
(B) |
|
Total debt as a percent of the sum of total debt,
shareholders equity and non-current deferred income tax
liabilities. |
|
(C) |
|
Excludes discontinued operations. |
18
|
|
Item 7.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations.
|
FINANCIAL
REVIEW
Company
Overview
Description
of the Company and Business Segments
Becton, Dickinson and Company (BD) is a global
medical technology company engaged principally in the
development, manufacture and sale of medical devices, instrument
systems and reagents used by healthcare institutions, life
science researchers, clinical laboratories, the pharmaceutical
industry and the general public. Our business consists of three
worldwide business segments BD Medical
(Medical), BD Diagnostics (Diagnostics)
and BD Biosciences (Biosciences). Our products are
marketed in the United States and internationally through
independent distribution channels and directly to end-users by
BD and independent sales representatives. References to years
throughout this discussion relate to our fiscal years, which end
on September 30.
Strategic
Objectives
BD remains focused on delivering sustainable growth and
shareholder value, while making appropriate investments for the
future. BD management operates the business consistent with the
following core strategies:
|
|
|
|
|
To increase revenue growth by focusing on our core products that
deliver greater benefits to patients, healthcare workers and
researchers;
|
|
|
|
To increase investment in research and development for platform
extensions and innovative new products;
|
|
|
|
To make significant investments in growing our emerging markets;
|
|
|
|
To improve operating effectiveness and balance sheet
productivity;
|
|
|
|
To drive an efficient capital structure and strong shareholder
returns.
|
Our strategy focuses on four specific areas within healthcare
and life sciences:
|
|
|
|
|
Enabling safer, simpler and more effective parenteral drug
delivery;
|
|
|
|
Improving clinical outcomes through new, accurate and faster
diagnostics;
|
|
|
|
Providing tools and technologies to the research community that
facilitates the understanding of the cell, cellular diagnostics
and cell therapy;
|
|
|
|
Enhancing disease management in diabetes, womens health
and cancer, and infection control.
|
We continue to strive to improve the efficiency of our capital
structure and follow these guiding principles:
|
|
|
|
|
To maintain a solid investment grade rating;
|
|
|
|
To ensure access to the debt market for strategic opportunities;
|
|
|
|
To optimize the cost of capital based on market conditions.
|
In assessing the outcomes of these strategies as well as
BDs financial condition and operating performance,
management generally reviews quarterly forecast data, monthly
actual results, segment sales and other similar information. We
also consider trends related to certain key financial data,
including gross profit margin, selling and administrative
expense, investment in research and development, return on
invested capital, and cash flows.
19
Financial
Results
Worldwide revenues in 2011 of $7.8 billion increased 6%
from the prior year and reflected volume increases of
approximately 4%, estimated favorable foreign exchange
translation of 3%, and estimated price decreases of just under
1%, reflecting an ongoing downward trend. Worldwide revenue
growth was also negatively impacted by about 2 percentage
points due to an unfavorable comparison to 2010, which included
strong sales related to the H1N1 flu pandemic, supplemental
government spending in Japan and economic stimulus research
spending in the U.S. We experienced strong international
sales of safety-engineered products and strong growth in
emerging markets, which was offset, in part, by weaker demand in
Western Europe resulting from austerity measures and lower
healthcare utilization. Sales in the United States of
safety-engineered devices grew 1% to $1.12 billion in 2011
from $1.11 billion in 2010. International sales of
safety-engineered devices grew 21% to $755 million in 2011
from $622 million in 2010, which included an estimated 8%
of favorable foreign currency translation. International
safety-engineered device revenue growth continues to be driven
by strong growth in the Medical Segment, with the largest growth
in emerging markets, including China and Latin America.
The healthcare industry is facing a challenging economic
environment. The current economic conditions and other
circumstances have resulted in pricing pressures for some of our
products, and we expect this downward pricing trend to continue
through fiscal year 2012. In addition, healthcare utilization in
the U.S. and Western Europe remains constrained due to
decreases in government and private healthcare spending,
resulting in less demand for our products, and we also expect
these conditions to continue into fiscal 2012. We are also
experiencing increased raw material costs. Our anticipated
revenue growth over the next three years is expected to come
from business growth and expansion among all segments and
regions of the world, and the development in each business
segment of new products and services that provide increased
benefits to patients, healthcare workers and researchers. Our
ability to sustain our long-term growth will depend on a number
of factors, including our ability to expand our core business
(including geographical expansion), develop innovative new
products with higher gross profit margins across our business
segments, and continue to improve operating efficiency and
organizational effectiveness. In addition to the economic
conditions in the United States and elsewhere, numerous other
factors can affect our ability to achieve these goals including,
without limitation, increased competition and healthcare reform
initiatives. For example, the U.S. healthcare reform law
contains certain tax provisions that will affect BD. The most
significant impact is the medical device excise tax, which
imposes a 2.3% tax on certain U.S. sales of medical
devices, beginning in January 2013. Sales of BD products that we
estimate to be subject to this tax represented about 80% of
BDs total U.S. revenues in fiscal year 2011.
Our financial position remains strong, with cash flows from
operating activities totaling $1.7 billion in 2011. At
September 30, 2011, we had $1.6 billion in cash and
equivalents and short-term investments. In 2011, cash outflows
relating to acquisitions included the purchase of Carmel Pharma
AB (Carmel Pharma), a Swedish company that
manufactures the BD
PhaSeal®
System, a closed-system drug transfer device for the safe
handling of hazardous drugs that are packaged in vials, for
$287 million, net of cash acquired. Cash outflows in 2011
also reflected the acquisition of Accuri Cytometers, Inc.
(Accuri) a company that develops and manufactures
personal flow cytometers for researchers, for $205 million,
net of cash acquired. Capital expenditures were
$515 million in 2011 as we continue to invest in capacity
across our segments to support future growth. BDs strong
cash flow generation also provided the flexibility to continue
to return value to our shareholders in the form of share
repurchases and dividends. During 2011, we repurchased
18.4 million shares of common stock for $1.5 billion
and paid cash dividends to our shareholders totaling
$361 million. In November 2011, we issued $500 million
of 5-year
1.75% Notes and $1 billion of
10-year
3.125% Notes, as discussed further below.
We face currency exposure each reporting period that arises from
translating the results of our worldwide operations to the
U.S. dollar at exchange rates that fluctuate from the
beginning of such period. From time to time, we purchase forward
contracts and options to partially protect against adverse
foreign exchange rate movements. Gains or losses on our
derivative instruments are largely offset by the gains or losses
on the underlying hedged transactions. We do not enter into
derivative instruments for trading or speculative purposes. We
did not enter into contracts to hedge cash flows in fiscal year
2011 or 2012. The favorable impact of
20
foreign currency on revenues for 2011 reflected favorable
foreign currency translation and a favorable comparison
resulting from hedge losses recognized in 2010. For further
discussion refer to Note 12 to the consolidated financial
statements contained in Item 8. Financial Statements and
Supplementary Data.
Results
of Continuing Operations
Comparisons of income from continuing operations between 2011
and 2010 are affected by the following items that are reflected
in our financial results:
|
|
|
|
|
During the fourth quarter of 2011, we recorded a non-cash
pre-tax charge of $9 million, or $0.03 diluted earnings per
share from continuing operations, resulting from the
discontinuance of a research program within the Diagnostic
Systems unit.
|
|
|
|
During the second quarter of 2010, we recorded a non-cash charge
of $9 million, or $0.04 diluted earnings per share from
continuing operations, related to the elimination of the
employer deduction of the Medicare Part D retiree drug
subsidy under the U.S. healthcare reform law.
|
In addition, our 2011 results were unfavorably impacted by the
effects of the earthquake and tsunami in Japan that occurred
earlier in the year. For the total fiscal year 2011, these
events had an estimated unfavorable impact of about
$15 million on revenues, and approximately $0.05 diluted
earnings per share from continuing operations.
Medical
Segment
Medical revenues in 2011 of $4.0 billion increased
$211 million, or 5.6%, over 2010, which reflected an
estimated impact of favorable foreign currency translation of
3.3%.
The following is a summary of Medical revenues by organizational
unit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
Exchange
|
|
|
|
2011
|
|
|
2010
|
|
|
Change
|
|
|
Impact
|
|
|
|
(Millions of dollars)
|
|
|
Medical Surgical Systems
|
|
$
|
2,082
|
|
|
$
|
2,010
|
|
|
|
3.6
|
%
|
|
|
3.2
|
%
|
Diabetes Care
|
|
|
866
|
|
|
|
786
|
|
|
|
10.3
|
%
|
|
|
3.5
|
%
|
Pharmaceutical Systems
|
|
|
1,059
|
|
|
|
1,001
|
|
|
|
5.8
|
%
|
|
|
3.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenues*
|
|
$
|
4,007
|
|
|
$
|
3,796
|
|
|
|
5.6
|
%
|
|
|
3.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Amounts may not add due to rounding. |
Revenue growth in the Medical Segment reflected strong growth of
Pharmaceutical Systems and international safety-engineered
product sales. Revenues of safety-engineered products increased
33.4% internationally, which included an estimated favorable
foreign exchange impact of 9.7%. Revenue growth in the
Pharmaceutical Systems unit was driven by double-digit growth in
the United States, Japan and Latin America. U.S. revenue
growth in the Pharmaceutical Systems unit in 2011 was aided by
strong sales to companies producing certain generic heparin
products. Revenue growth in the Diabetes Care unit resulted
primarily from continued strong growth in worldwide pen needle
sales. Medical revenues in 2011 also reflected an unfavorable
comparison to the prior-year period that included strong sales
related to the H1N1 flu pandemic primarily in the first half of
the year. We estimate that this unfavorable comparison
negatively impacted Medicals revenue growth rate by
approximately 2.2 percentage points.
Medical operating income in 2011 was $1.2 billion, or 29.5%
of Medical revenues, as compared with $1.1 billion, or
29.5%, of revenues in 2010. Gross profit margin was higher in
the current year than 2010 due to increased sales of products
with relatively high gross margins as well as continued
manufacturing productivity and lower manufacturing
start-up
costs. These favorable impacts on gross profit margin were
partially offset by increases in certain raw material costs and
higher pension costs allocated to the Segment. See further
discussion on gross profit margin below. Selling and
administrative expense as a percentage of
21
Medical revenues in 2011 increased to 17.5% of revenues from
17.3% of revenues in 2010, primarily due to the acquisition of
Carmel Pharma and unfavorable foreign currency translation,
partially offset by continued spending controls. Research and
development expenses in 2011 increased $17 million, or 13%,
and reflected continued investment in the development of new
products and platforms, including new infusion therapy products
and new pen needle introductions.
Diagnostics
Segment
Diagnostics revenues in 2011 of $2.5 billion increased
$161 million, or 7.0%, over 2010, which reflected an
estimated impact of favorable foreign currency translation of
3.1%.
The following is a summary of Diagnostics revenues by
organizational unit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
Exchange
|
|
|
|
2011
|
|
|
2010
|
|
|
Change
|
|
|
Impact
|
|
|
|
(Millions of dollars)
|
|
|
Preanalytical Systems
|
|
$
|
1,278
|
|
|
$
|
1,198
|
|
|
|
6.7
|
%
|
|
|
3.0
|
%
|
Diagnostic Systems
|
|
|
1,203
|
|
|
|
1,121
|
|
|
|
7.3
|
%
|
|
|
3.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenues*
|
|
$
|
2,480
|
|
|
$
|
2,319
|
|
|
|
7.0
|
%
|
|
|
3.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Amounts may not add due to rounding. |
Revenue growth in the Preanalytical Systems unit was driven by
sales of safety-engineered products. Sales of safety-engineered
products grew 3% in the United States, driven by BD
Vacutainertm
Push Button Blood Collection Set sales, and 15% internationally,
which included an estimated favorable foreign exchange impact of
7%. The Diagnostic Systems unit experienced growth in worldwide
sales of its automated diagnostic platforms, including the
molecular BD
ProbeTectm,
BD
Vipertm
and BD
Affirmtm
systems, along with solid growth of its BD
BACTECtm
blood culture and TB systems and the BD
Phoenixtm
ID/AST platform and its healthcare-associated infections
(HAI) product offerings. Diagnostics revenues in
2011 also reflected an unfavorable comparison to the prior-year
period that included strong sales related to the flu pandemic in
2010. We estimate that this unfavorable comparison negatively
impacted Diagnostics revenue growth rate by approximately
0.6 percentage points.
Diagnostics operating income in 2011 was $636 million, or
25.7% of Diagnostics revenues, compared with $607 million,
or 26.2% of revenues, in 2010. Gross profit margin in the
Diagnostics segment was relatively flat as compared to the prior
year and reflected favorable foreign currency translation,
offset by higher raw material costs, primarily resin. See
further discussion on gross profit margin below. Selling and
administrative expense as a percentage of Diagnostics revenues
increased by 30 basis points in 2011 to 21.5%, primarily
due to investments in emerging markets and unfavorable foreign
currency translation, partially offset by continued spending
controls. Research and development expense increased
$13 million, or 9% over 2010 and reflected continued
investment in the development of new products and platforms,
including the BD
MAXtm
and new BD
Vipertm
platforms and menus.
Biosciences
Segment
Biosciences revenues in 2011 of $1.3 billion increased
$84 million, or 6.7%, over 2010, which reflected an
estimated impact of favorable foreign currency translation of
3.5%.
22
The following is a summary of Biosciences revenues by
organizational unit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
Exchange
|
|
|
|
2011
|
|
|
2010
|
|
|
Change
|
|
|
Impact
|
|
|
|
(Millions of dollars)
|
|
|
Cell Analysis
|
|
$
|
1,024
|
|
|
$
|
951
|
|
|
|
7.7
|
%
|
|
|
3.4
|
%
|
Discovery Labware
|
|
|
317
|
|
|
|
306
|
|
|
|
3.6
|
%
|
|
|
3.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenues
|
|
$
|
1,341
|
|
|
$
|
1,257
|
|
|
|
6.7
|
%
|
|
|
3.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Biosciences revenue growth was primarily driven by instrument
and reagent sales in the Cell Analysis unit. The segments
overall revenue growth was affected by slower growth in sales of
Discovery Labware products in the U.S. Revenue growth in
2011 was also negatively impacted by approximately
3.6 percentage points due to an unfavorable comparison to
2010, which included strong sales from U.S. stimulus
spending and supplemental spending in Japan.
Biosciences operating income in 2011 was $376 million, or
28.1% of Biosciences revenues, compared with $354 million,
or 28.2%, in 2010. The Segments operating income in 2011
reflected a higher gross profit margin than 2010 primarily due
to the favorable impact of foreign currency translation and
higher margins on service revenue. These favorable variances
from the prior year were partially offset by amortization of
intangibles associated with the acquisition of Accuri and
increases in certain raw material costs. See further discussion
on gross profit margin below. Selling and administrative expense
was 22.1% in 2011 as compared with 21.9% in 2010 and reflected
unfavorable foreign currency translation, partially offset by
continued spending controls. Research and development spending
increased $11 million or 12% and reflected spending on new
products and platforms, including the BD FACS
Versetm
Analyzer and other next generation cell sorters and analyzers.
Geographic
Revenues
Revenues in the United States in 2011 of $3.4 billion
increased 2%. U.S. revenue growth was negatively impacted
by approximately 2.4 percentage points due to an
unfavorable comparison to 2010, which included strong sales
related to the flu pandemic and stimulus spending. The Medical
segment experienced strong sales of Pharmaceutical Systems
products in the U.S. Diagnostics revenue growth was driven
by solid growth in infectious disease and molecular diagnostic
platforms. Revenue growth in the Biosciences segment was driven
by the Cell Analysis unit, partially offset by lower sales
growth of Discovery Labware products.
International revenues in 2011 of $4.5 billion increased
9.5%, which reflected an estimated impact of favorable foreign
currency translation of 5.9%. Overall, international growth was
driven by sales in emerging markets, with especially strong
performance in Asia Pacific and Latin America, which was
partially offset by slower growth in Western Europe.
International revenue growth was negatively impacted by about
1.5 percentage points due to an unfavorable comparison to
2010, which included strong sales related to the H1N1 flu
pandemic and supplemental spending in Japan. Revenue growth in
the Medical Segment was driven by strong sales of
safety-engineered products. Diagnostic revenue growth reflected
solid growth of Womens Health and Cancer products within
the Diagnostic Systems unit, as governments are expanding
programs for cervical cancer screening in developing markets.
Biosciences revenue growth was driven by the Cell Analysis
units instrument and reagent sales, primarily in emerging
markets.
Gross
Profit Margin
Gross profit margin was 52.3% in 2011, compared with 51.9% in
2010. Gross profit margin in 2011 reflected estimated favorable
impacts of 20 basis points relating to foreign currency
translation and 30 basis points relating to operating
performance. The favorable impact from operating performance
resulted from increased sales of products with relatively higher
gross margins, increased productivity and lower manufacturing
start-up
costs, which were partially offset by increases in resin and
other raw material costs and higher
23
pension costs. Gross profit margin in 2011 was also unfavorably
impacted by 10 basis points as a result of the amortization
of intangibles associated with the Accuri acquisition.
Operating
Expenses
Selling and administrative expense in 2011 of $1.9 billion,
or 23.7% of revenues, increased $130 million, or 8%,
compared with $1.7 billion, or 23.3% of revenues, in 2010.
Aggregate expenses reflected $46 million of unfavorable
foreign exchange and increases in core spending of
$53 million, reflecting funding to expand our business in
emerging markets and higher shipping costs. Aggregate expenses
also reflected a $6 million charge to bad debt expense
related to European receivables, increased pension costs of
$13 million and higher acquisition-related expenses of
$6 million. Aggregate expenses for the year also included
increased spending of $14 million related to our global
enterprise resource planning initiative to update our business
information systems. These increases were partially offset by a
$7 million decrease in the deferred compensation plan
liability, as further discussed below.
Research and development (R&D) expense in 2011
was $476 million, or 6.1% of revenues, compared with
$431 million, or 5.8% of revenues, in 2010. The increase in
R&D expenditures includes spending for new products and
platforms in each of our segments, as previously discussed.
R&D expense also included a non-cash impairment charge of
$9 million in 2011 resulting from the discontinuance of a
research program within the Diagnostic Systems unit.
Non-Operating
Expense and Income
Interest expense in 2011 was $84 million, compared with
$51 million in 2010. This increase reflected higher levels
of long-term fixed rate debt, partially offset by lower average
interest rates on the overall long-term debt portfolio. Interest
income was $43 million in 2011, compared with
$35 million in 2010. This increase resulted from higher
interest rates and levels of investments outside the United
States, net of investment losses on assets related to our
deferred compensation plan. The related decrease in the deferred
compensation plan liability was recorded as a decrease in
selling and administrative expenses.
Income
Taxes
The effective tax rate in 2011 of 26.3% was lower compared with
the 2010 rate of 29.2% and reflected a favorable impact of
1.3 percentage points due to certain tax benefits. These
benefits resulted from the retroactive extension of the
U.S. research tax credit as well as a European
restructuring transaction. In addition, the 2010 rate was
unfavorably impacted by 0.6 percentage points from the
expiration of the R&D tax credit, and by
0.5 percentage points from the non-cash charge related to
healthcare reform impacting Medicare Part D reimbursements.
Income
and Diluted Earnings per Share from Continuing
Operations
Income from continuing operations and diluted earnings per share
from continuing operations in 2011 were $1.3 billion and
$5.59, respectively. The charge related to the discontinuance of
a research program decreased income from continuing operations
in 2011 by $9 million, or $0.03 per share. 2011 earnings
also reflected an overall net favorable impact of foreign
currency fluctuations of $0.28 per share. Income from continuing
operations and diluted earnings per share from continuing
operations in 2010 were $1.2 billion and $4.90,
respectively. The charge related to healthcare reform decreased
income from continuing operations in 2010 by $9 million, or
$0.04 per share.
Financial
Instrument Market Risk
We selectively use financial instruments to manage market risk,
primarily foreign currency exchange risk and interest rate risk
relating to our ongoing business operations. The counterparties
to these contracts are highly rated financial institutions. We
do not enter into financial instruments for trading or
speculative purposes.
24
Foreign
Exchange Risk
BD and its subsidiaries transact business in various foreign
currencies throughout Europe, Asia Pacific, Canada, Japan and
Latin America. We face foreign currency exposure from the effect
of fluctuating exchange rates on payables and receivables
relating to transactions that are denominated in currencies
other than our functional currency. These payables and
receivables primarily arise from intercompany transactions. We
hedge substantially all such exposures, primarily through the
use of forward contracts. We also face currency exposure that
arises from translating the results of our worldwide operations,
including sales, to the U.S. dollar at exchange rates that
have fluctuated from the beginning of a reporting period. From
time to time, we purchase forward contracts and options to hedge
certain forecasted sales that are denominated in foreign
currencies in order to partially protect against a reduction in
the value of future sales resulting from adverse foreign
exchange rate movements. Gains or losses on our derivative
instruments are largely offset by the gains or losses on the
underlying hedged transactions.
Derivative financial instruments are recorded on our balance
sheet at fair value. For foreign currency derivatives, market
risk is determined by calculating the impact on fair value of an
assumed change in foreign exchange rates relative to the
U.S. dollar. Fair values were estimated based upon
observable inputs, specifically spot currency rates and foreign
currency prices for similar assets and liabilities. With respect
to the derivative instruments outstanding at September 30,
2011, a 10% appreciation of the U.S. dollar over a one-year
period would decrease pre-tax earnings by $23 million,
while a 10% depreciation of the U.S. dollar would increase
pre-tax earnings by $23 million. Comparatively, considering
our derivative instruments outstanding at September 30,
2010, a 10% appreciation of the U.S. dollar over a one-year
period would have decreased pre-tax earnings by
$30 million, while a 10% depreciation of the
U.S. dollar would have increased pre-tax earnings by
$30 million. These calculations do not reflect the impact
of exchange gains or losses on the underlying transactions that
would substantially offset the results of the derivative
instruments.
Interest
Rate Risk
Our primary interest rate exposure results from changes in
short-term U.S. dollar interest rates. Our debt and
interest-bearing investments at September 30, 2011 are
substantially all U.S. dollar-denominated. Therefore,
transaction and translation exposure relating to such
instruments is minimal. When managing interest rate exposures,
we strive to achieve an appropriate balance between fixed and
floating rate instruments. We may enter into interest rate swaps
to help maintain this balance and manage debt and
interest-bearing investments in tandem, since these items have
an offsetting impact on interest rate exposure. For interest
rate derivative instruments, fair values are provided by the
financial institutions that are counterparties to these
arrangements. Market risk for these instruments is determined by
calculating the impact to fair value of an assumed change in
interest rates across all maturities. A change in interest rates
on short-term debt and interest-bearing investments impacts our
earnings and cash flow, but not the fair value of these
instruments because of their limited duration. A change in
interest rates on long-term debt is assumed to impact the fair
value of the debt, but not our earnings or cash flow because the
interest on such obligations is fixed. Based on our overall
interest rate exposure at September 30, 2011 and 2010, a
change of 10% in interest rates would not have a material effect
on our earnings or cash flows over a one-year period. An
increase of 10% in interest rates would decrease the aggregate
fair value of our long-term debt and related fair value hedges
at September 30, 2011 and 2010 by approximately
$90 million and $56 million, respectively. A 10%
decrease in interest rates would increase the aggregate fair
value of these same financial instruments at September 30,
2011 and 2010 by approximately $96 million and
$59 million, respectively.
Liquidity
and Capital Resources
Net
Cash Flows from Continuing Operating Activities
Net cash provided by continuing operating activities in 2011 was
$1.7 billion, unchanged from 2010. The change in operating
assets and liabilities resulted from a net use of cash and
primarily reflected higher levels of inventory and prepaid
expenses. Net cash provided by continuing operating activities
in 2010 was reduced
25
by discretionary cash contributions to the U.S. pension
plan of $175 million. An additional discretionary cash
contribution of $100 million was made to the
U.S. pension plan in October 2011.
Net
Cash Flows from Continuing Investing Activities
Capital
Expenditures
Our investments in capital expenditures are focused on projects
that enhance our cost structure and manufacturing capabilities
and support our strategy of geographic expansion with select
investments in growing markets. Capital expenditures were
$515 million in 2011, compared with $537 million in
2010. Capital spending for the Medical, Diagnostics and
Biosciences segments in 2011 was $367 million,
$93 million and $37 million, respectively, and related
primarily to manufacturing capacity expansions.
Acquisitions
of Businesses
Cash outflows relating to acquisitions of $492 million in
2011 were comprised of $287 million associated with the
acquisition of Carmel Pharma and $205 million associated
with the acquisition of Accuri. For further discussion, refer to
Note 9 to the consolidated financial statements contained
in Item 8, Financial Statements and Supplementary Data.
Net
Cash Flows from Continuing Financing Activities
Debt
Issuances and Payments of Obligations
On November 8, 2010, we issued $700 million of
10-year
3.25% Notes and $300 million of
30-year
5.00% Notes. Short-term debt decreased to 9% of total debt
at the end of 2011, from 12% at the end of 2010. Floating rate
debt was 16% of total debt at the end of 2011 and 24% at the end
of 2010. Our weighted average cost of total debt at the end of
2011 was 4.9%, up from 4.6% at the end of 2010.
Debt-to-capitalization
(ratio of total debt to the sum of total debt,
shareholders equity and net non-current deferred income
tax liabilities) at September 30, 2011 was 35.8% compared
with 23.7% at September 30, 2010.
On November 3, 2011, we issued $500 million of
5-year
1.75% Notes and $1 billion of
10-year
3.125% Notes. The net proceeds from these issuances are
expected to be used for repurchases of our common stock and
other general corporate purposes, which may include funding for
working capital, capital expenditures, and acquisitions.
Repurchase
of Common Stock
We repurchased approximately 18.4 million shares of our
common stock for $1.5 billion in 2011 and 10.1 million
shares for $750 million in 2010. In July 2011, our Board of
Directors authorized the repurchase of an additional
18 million of our common shares. When combined with the
remaining shares under the September 2010 Board of
Directors repurchase authorization, a total of
approximately 28 million common shares remain available for
purchase at September 30, 2011. We plan on share
repurchases of $1.5 billion in 2012, subject to market
conditions. Such repurchases are expected to be funded primarily
by the newly-issued debt in November 2011, as discussed further
above.
Cash
and Short-term Investments
At September 30, 2011, total worldwide cash and short-term
investments were $1.56 billion, of which $1.34 billion
was held in jurisdictions outside of the United States. We
regularly review the amount of cash and short-term investments
held outside the United States and currently intend to use most
of such amounts to fund our international operations and their
growth initiatives. However, if these amounts were moved out of
these jurisdictions or repatriated to the United States, there
could be tax consequences.
26
Government
Receivables
Accounts receivable balances include sales to government-owned
or government-supported healthcare facilities. Because these
customers are government-owned or supported, we could be
impacted by declines in sovereign credit ratings or by defaults
in these countries.
We continually evaluate all government receivables, particularly
in Spain, Italy, and other parts of Western Europe, for
potential collection risks associated with the availability of
government funding and reimbursement practices. We believe the
current reserves related to government receivables are adequate
and this concentration of credit risk is not expected to have a
material adverse impact on our financial position or liquidity.
Credit
Facilities
We have in place a commercial paper borrowing program that is
available to meet our short-term financing needs, including
working capital requirements. Borrowings outstanding under this
program were $200 million at September 30, 2011. We
maintain a $1 billion syndicated credit facility in order
to provide backup support for our commercial paper program and
for other general corporate purposes. This credit facility
expires in December 2012 and includes a single financial
covenant that requires BD to maintain an interest expense
coverage ratio (ratio of earnings before income taxes,
depreciation and amortization to interest expense) of not less
than 5-to-1 for the most recent four consecutive fiscal
quarters. On the last eight measurement dates, this ratio had
ranged from 19-to-1 to 29-to-1. There were no borrowings
outstanding under this facility at September 30, 2011. In
addition, we have informal lines of credit outside the United
States.
Access
to Capital and Credit Ratings
Our ability to generate cash flow from operations, issue debt,
enter into other financing arrangements and attract long-term
capital on acceptable terms could be adversely affected in the
event there was a material decline in the demand for our
products, deterioration in our key financial ratios or credit
ratings, or other significantly unfavorable changes in
conditions.
BDs credit ratings at September 30, 2011 were as
follows:
|
|
|
|
|
|
|
Standard & Poors
|
|
Moodys
|
|
Ratings:
|
|
|
|
|
Senior Unsecured Debt
|
|
AA−
|
|
A2
|
Commercial Paper
|
|
A-1+
|
|
P-1
|
Outlook
|
|
Stable
|
|
Stable
|
Upon review of our plans for the November 2011 debt issuance,
Standard & Poors lowered BDs Senior
Unsecured Debt rating to A+ and its Commercial Paper rating to
A-1, while
affirming a rating outlook for BD of Stable. At the
same time, Moodys affirmed its Senior Unsecured Debt
rating of A2 and Commercial Paper rating of
P-1, but
lowered its rating outlook for BD to Negative.
While further deterioration in our credit ratings would increase
the costs associated with maintaining and borrowing under its
existing credit arrangements, such a downgrade would not affect
our ability to draw on these credit facilities, nor would it
result in an acceleration of the scheduled maturities of any
outstanding debt. We believe that given our debt ratings, our
conservative financial management policies, our ability to
generate cash flow and the non-cyclical, geographically
diversified nature of our businesses, we would have access to
additional short-term and long-term capital should the need
arise.
27
Contractual
Obligations
In the normal course of business, we enter into contracts and
commitments that obligate us to make payments in the future. The
table below sets forth BDs significant contractual
obligations and related scheduled payments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2013 to
|
|
|
2015 to
|
|
|
2017 and
|
|
|
|
Total
|
|
|
2012
|
|
|
2014
|
|
|
2016
|
|
|
Thereafter
|
|
|
|
(Millions of dollars)
|
|
|
Short-term debt
|
|
$
|
235
|
|
|
$
|
235
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Long-term debt(A)
|
|
|
4,153
|
|
|
|
117
|
|
|
|
432
|
|
|
|
221
|
|
|
|
3,383
|
|
Operating leases
|
|
|
217
|
|
|
|
47
|
|
|
|
74
|
|
|
|
51
|
|
|
|
45
|
|
Purchase obligations(B)
|
|
|
506
|
|
|
|
286
|
|
|
|
184
|
|
|
|
36
|
|
|
|
|
|
Unrecognized tax benefits(C)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total(D)
|
|
$
|
5,111
|
|
|
$
|
685
|
|
|
$
|
690
|
|
|
$
|
308
|
|
|
$
|
3,428
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(A) |
|
Long-term debt obligations include expected principal and
interest obligations, including interest rate swaps. The
interest rate forward curve at September 30, 2011 was used
to compute the amount of the contractual obligation for variable
rate debt instruments and swaps. |
|
(B) |
|
Purchase obligations are for purchases made in the normal course
of business to meet operational and capital requirements. |
|
(C) |
|
Unrecognized tax benefits at September 30, 2011 of
$112 million were all long-term in nature. Due to the
uncertainty related to the timing of the reversal of these tax
positions, the related liability has been excluded from the
table. |
|
(D) |
|
Required funding obligations for 2012 relating to pension and
other postretirement benefit plans are not expected to be
material. In October 2011, a discretionary cash contribution of
$100 million was made to the U.S. pension plan. |
2010
Compared With 2009
Results
of Continuing Operations
Worldwide revenues in 2010 of $7.4 billion increased 5.5%
from the prior year and reflected volume increases of
approximately 6%, unfavorable foreign exchange translation of
0.1%, inclusive of hedge losses, and price decreases of 0.4%.
The increase is attributable to solid revenue growth in the
Medical Segment, continued improvement in Biosciences sales and,
to a lesser extent, growth in Diagnostics Segment revenues.
Comparisons of income from continuing operations between 2010
and 2009 are affected by the following significant items that
are reflected in our 2010 financial results:
|
|
|
|
|
During the second quarter of 2010, we recorded a non-cash charge
of $9 million, or 4 cents diluted earnings per share from
continuing operations, related to healthcare reform impacting
Medicare Part D reimbursements.
|
|
|
|
During the third quarter of 2009, we recorded a tax benefit of
$20 million, or 8 cents diluted earnings per share from
continuing operations, relating to various tax settlements in
multiple jurisdictions.
|
|
|
|
During the second quarter of 2009, we recorded a pre-tax charge
of $45 million, or 11 cents diluted earnings per share from
continuing operations, associated with the pending settlement in
certain antitrust class action litigation.
|
Medical
Segment
Medical revenues in 2010 of $3.8 billion increased
$239 million, or 6.7%, over 2009, which reflected an
estimated impact of favorable foreign currency translation of
0.5%, net of hedge losses.
28
The following is a summary of Medical revenues by organizational
unit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
Exchange
|
|
|
|
2010
|
|
|
2009
|
|
|
Change
|
|
|
Impact
|
|
|
|
(Millions of dollars)
|
|
|
Medical Surgical Systems
|
|
$
|
2,010
|
|
|
$
|
1,889
|
|
|
|
6.4
|
%
|
|
|
1.5
|
%
|
Diabetes Care
|
|
|
786
|
|
|
|
715
|
|
|
|
9.9
|
%
|
|
|
0.8
|
%
|
Pharmaceutical Systems
|
|
|
1,001
|
|
|
|
952
|
|
|
|
5.1
|
%
|
|
|
(1.3
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenues*
|
|
$
|
3,796
|
|
|
$
|
3,557
|
|
|
|
6.7
|
%
|
|
|
0.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Amounts may not add due to rounding. |
Revenue growth in the Medical Surgical Systems unit continues to
be driven by sales of safety-engineered products and prefilled
flush syringes. Revenues of safety-engineered products increased
5% in the United States and 15% internationally, which included
an estimated favorable foreign exchange impact of 3%, net of
hedge losses. Revenue growth in the Diabetes Care unit resulted
primarily from continued strong growth in worldwide pen needle
sales and a co-marketing agreement in the United States. Revenue
growth in the Pharmaceutical Systems unit was driven by
double-digit growth in the United States, Japan and Asia
Pacific. Revenues related to the H1N1 pandemic grew
$15 million to $45 million for the Medical Surgical
Systems unit and grew $10 million to $35 million for
the Pharmaceutical Systems unit in 2010.
Medical operating income in 2010 was $1.1 billion, or 29.5%
of Medical revenues, as compared with $1.0 billion, or
29.5%, of revenues in 2009. Favorable manufacturing productivity
improvements were substantially offset by a slight decrease in
gross profit margin resulting from unfavorable foreign currency
translation, a modest increase in the cost of raw materials, and
increased manufacturing
start-up and
restructuring costs. See further discussion on gross profit
margin below. Selling and administrative expense as a percentage
of Medical revenues in 2010 declined to 17.3% of revenues from
17.5% of revenues in 2009, primarily due to continued diligent
spending controls. Research and development expenses in 2010
increased $8 million, or 7%, and reflected continued
investment in the development of new products and platforms.
Diagnostics
Segment
Diagnostics revenues in 2010 of $2.3 billion increased
$93 million, or 4.2%, over 2009, which reflected an
estimated impact of favorable foreign currency translation of
0.2%, net of hedge losses.
The following is a summary of Diagnostics revenues by
organizational unit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
Exchange
|
|
|
|
2010
|
|
|
2009
|
|
|
Change
|
|
|
Impact
|
|
|
|
(Millions of dollars)
|
|
|
Preanalytical Systems
|
|
$
|
1,198
|
|
|
$
|
1,143
|
|
|
|
4.8
|
%
|
|
|
0.4
|
%
|
Diagnostic Systems
|
|
|
1,121
|
|
|
|
1,083
|
|
|
|
3.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenues
|
|
$
|
2,319
|
|
|
$
|
2,226
|
|
|
|
4.2
|
%
|
|
|
0.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue growth in the Preanalytical Systems unit was driven by
sales of safety-engineered products. Sales of safety-engineered
products grew 5% in the United States, driven by BD
Vacutainertm
Push Button Blood Collection Set sales, and 7% internationally,
which included an estimated favorable foreign exchange impact of
1%, net of hedge losses. The Diagnostic Systems unit experienced
growth in worldwide sales of its automated diagnostic platforms,
including the molecular BD
ProbeTectm,
BD
Vipertm
and BD
Affirmtm
systems, along with solid growth of its BD
BACTECtm
blood culture and TB systems and the BD
Phoenixtm
ID/AST platform. Revenues related to the flu pandemic were
$13 million in 2010 compared with $22 million in 2009
for the Diagnostic Systems unit.
29
Diagnostics operating income in 2010 was $607 million, or
26.2% of Diagnostics revenues, compared with $607 million,
or 27.3% of revenues, in 2009. The Diagnostics segment
experienced a decline in gross profit margin that reflected
unfavorable foreign currency translation and
start-up
costs associated with acquisitions. This decline was partially
offset by sales growth of products that have higher overall
gross profit margins, in particular, safety-engineered products
and the BD
ProbeTectm
and BD
Vipertm
systems. See further discussion on gross profit margin below.
Selling and administrative expense as a percentage of
Diagnostics revenues remained the same in 2010 at 21.2%, due to
continued spending controls. Research and development expense
increased modestly over 2009 and reflected continued investment
in the development of new products and platforms with particular
emphasis on our molecular platforms.
Biosciences
Segment
Biosciences revenues in 2010 of $1.3 billion increased
$53 million, or 4.4%, over 2009, which reflected an
estimated impact of unfavorable foreign currency translation of
2.4% due to hedge losses. Biosciences revenues reflected a
larger portion of our hedge losses, which are allocated to the
segments based on their proportionate share of international
sales of
U.S.-produced
products.
The following is a summary of Biosciences revenues by
organizational unit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
Exchange
|
|
|
|
2010
|
|
|
2009
|
|
|
Change
|
|
|
Impact
|
|
|
|
(Millions of dollars)
|
|
|
Cell Analysis
|
|
$
|
951
|
|
|
$
|
905
|
|
|
|
5.2
|
%
|
|
|
(2.6
|
)%
|
Discovery Labware
|
|
|
306
|
|
|
|
299
|
|
|
|
2.2
|
%
|
|
|
(1.4
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenues
|
|
$
|
1,257
|
|
|
$
|
1,204
|
|
|
|
4.4
|
%
|
|
|
(2.4
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue growth in the Cell Analysis unit reflected increased
demand for instruments and reagents and was aided by stimulus
programs in the U.S. as well as supplemental funding in
Japan. Revenue growth in the Discovery Labware unit reflected
increased sales to major biopharmaceutical customers, offset by
reduced private label sales compared with 2009.
Biosciences operating income in 2010 was $354 million, or
28.2% of Biosciences revenues, compared with $362 million,
or 30.1%, in 2009. The decrease in operating income, as a
percentage of revenues, reflects lower gross profit from the
unfavorable impact of hedge losses, partially offset by the
favorable impact of foreign currency translation. Selling and
administrative expense was 21.9% in 2010 as compared with 21.6%
in 2009 and reflected new direct selling programs and
inflationary factors. Research and development expense increased
$10 million, or 11%, and reflected spending on new product
development and advanced technology.
Geographic
Revenues
Revenues in the United States in 2010 of $3.3 billion
increased 5%. Overall, growth was led by sales of
safety-engineered products, which increased 5% to
$1.11 billion from $1.06 billion in 2009, as well as
sales of Diabetes Care products. Revenue growth also reflected
sales of immunocytometry instruments and reagents, aided by
stimulus programs in the U.S.
International revenues in 2010 of $4.1 billion increased
6%, and reflected nominal impact from net foreign currency
translation. Sales growth was led by double-digit growth in Asia
Pacific, Latin America and Japan. International sales of
safety-engineered devices grew 9.5% to $622 million in 2010
from $568 million in 2009, which included an estimated
impact of net favorable foreign currency translation of 1.4%.
Sales growth in Western Europe was unfavorably impacted by
continuing adverse macroeconomic conditions and an unfavorable
comparison to 2009, which included flu-related sales that did
not reoccur in 2010.
30
Gross
Profit Margin
Gross profit margin was 51.9% in 2010, compared with 52.6% in
2009. Gross profit margin in 2010 reflected an estimated
unfavorable impact primarily from hedging activity of
90 basis points. Partially offsetting these losses was a
net favorable operating performance impact of 20 basis
points. Operating performance reflected higher sales of products
with higher gross margins, partially offset by higher
manufacturing
start-up and
restructuring costs, higher pension costs, and increases in
certain raw material costs.
Operating
Expenses
Selling and administrative expense in 2010 of $1.7 billion,
or 23.3% of revenues, increased $41 million, or 2%,
compared with $1.7 billion, or 24.1% of revenues, in 2009.
This increase reflected $32 million of unfavorable foreign
currency translation. Increased spending in 2010 included
$18 million in core spending, $16 million related to
our global enterprise resource planning initiative to update our
business information systems, and $15 million in pension
costs. Aggregate expenses for 2009 reflected the
$45 million litigation charge previously discussed.
Research and development (R&D) expense in 2010
was $431 million, or 5.8% of revenues, compared with
$405 million, or 5.8% of revenues, in 2009. The increase in
R&D expenditures includes spending for new products and
platforms in each of our segments, as previously discussed.
Non-Operating
Expense and Income
Interest expense in 2010 was $51 million, compared with
$40 million in 2009. This increase reflected higher levels
of long-term fixed rate debt, partially offset by lower interest
rates on floating rate debt and a benefit from higher levels of
capitalized interest. Interest income was $35 million in
2010, compared with $33 million in 2009. This increase
resulted primarily from higher investment levels. Other income
(expense), net in 2010 included the gain recognized on the sale
of the extended dwell catheter product platform of
$18 million and a write-down of investments of
$14 million.
Income
Taxes
The effective tax rate in 2010 of 29.2% was higher compared with
the 2009 rate of 26.1% and reflected the unfavorable impact of
certain unusual items. The 2010 rate was unfavorably impacted by
0.6 percentage points from the expiration of the R&D
tax credit, and by 0.5 percentage points from the non-cash
charge related to healthcare reform impacting Medicare
Part D reimbursements. In addition, the 2009 rate reflected
a 1.2 percentage point benefit due to various tax
settlements in multiple jurisdictions.
Income
and Diluted Earnings per Share from Continuing
Operations
Income from continuing operations and diluted earnings per share
from continuing operations in 2010 were $1.2 billion and
$4.90, respectively. The non-cash charge related to healthcare
reform decreased income from continuing operations and diluted
earnings per share from continuing operations in 2010 by
$9 million, or 4 cents, respectively. The current
years earnings also reflected an overall net unfavorable
impact of foreign exchange fluctuations of 26 cents, including
hedge losses. Income from continuing operations and diluted
earnings per share from continuing operations in 2009 were
$1.2 million and $4.73, respectively. The tax benefit
discussed above increased income from continuing operations and
diluted earnings per share from continuing operations in 2009 by
$20 million, or 8 cents, respectively. The litigation
charge discussed above decreased income from continuing
operations and diluted earnings per share from continuing
operations in 2009 by $28 million, or 11 cents,
respectively.
Liquidity
and Capital Resources
Net
Cash Flows from Continuing Operating
Activities
Net cash provided by continuing operating activities in 2010 was
$1.7 billion, unchanged from 2009. The change in operating
assets and liabilities resulted from a net use of cash and
reflected higher levels of accounts
31
receivable and inventory. Net cash provided by continuing
operating activities was reduced by discretionary cash
contributions to the U.S. pension plan of $175 million
and $75 million in 2010 and 2009, respectively.
Net
Cash Flows from Continuing Investing
Activities
Capital expenditures were $537 million in 2010, compared
with $585 million in 2009. Capital spending for the
Medical, Diagnostics and Biosciences segments in 2010 was
$369 million, $109 million and $50 million,
respectively, and related primarily to manufacturing capacity
expansions.
Cash outflows relating to acquisitions of $281 million in
2010 primarily related to a cash outflow of $275 million
associated with the acquisition of HandyLab, Inc. For further
discussion refer to Note 9 to the consolidated financial
statements contained in Item 8, Financial Statements and
Supplementary Data.
On July 30, 2010, the Company sold the Ophthalmic Systems
unit and the surgical blades platform. The sale of the critical
care and extended dwell catheter product platforms was completed
on September 30, 2010. Cash proceeds received in the fourth
quarter 2010 from these divestitures were $260 million, net
of working capital adjustments. For further discussion refer to
Note 10 to the consolidated financial statements contained
in Item 8, Financial Statements and Supplementary Data.
Net
Cash Flows from Continuing Financing
Activities
The change in short-term debt reflected the repayment of
$200 million of 7.15% Notes, due October 1, 2009,
using the proceeds from the issuance of $500 million of
10-year,
5.00% Notes and $250 million of
30-year,
6.00% Notes in May 2009. Short-term debt decreased to 12%
of total debt at the end of 2010, from 21% at the end of 2009.
Floating rate debt was 24% of total debt at the end of 2010 and
32% at the end of 2009. Our weighted average cost of total debt
at the end of 2010 was 4.6%, down from 4.9% at the end of 2009.
Debt-to-capitalization
(ratio of total debt to the sum of total debt,
shareholders equity and net non-current deferred income
tax liabilities) at September 30, 2010 was 23.7% compared
to 26.8% at September 30, 2009.
Critical
Accounting Policies
The preparation of the consolidated financial statements
requires management to use estimates and assumptions that affect
the reported amounts of assets, liabilities, revenues and
expenses, as well as the disclosure of contingent assets and
liabilities at the date of the consolidated financial
statements. Some of those judgments can be subjective and
complex and, consequently, actual results could differ from
those estimates. Management bases its estimates and judgments on
historical experience and on various other factors that are
believed to be reasonable under the circumstances, the results
of which form the basis for making judgments about the carrying
values of assets and liabilities that are not readily apparent
from other sources. For any given estimate or assumption made by
management, it is possible that other people applying reasonable
judgment to the same facts and circumstances could develop
different estimates. Actual results that differ from
managements estimates could have an unfavorable effect on
our consolidated financial statements. Management believes the
following critical accounting policies reflect the more
significant judgments and estimates used in the preparation of
the consolidated financial statements:
Revenue
Recognition
Revenue from product sales is typically recognized when all of
the following criteria have been met: persuasive evidence of an
arrangement exists; delivery has occurred or services have been
rendered; product price is fixed or determinable; and collection
of the resulting receivable is reasonably assured.
For certain instruments sold from the Biosciences segment, we
recognize revenue upon installation at a customers site,
as installation of these instruments is considered a significant
post-delivery obligation. For certain sales arrangements,
primarily in the U.S., with multiple deliverables, revenue and
cost of products sold are recognized at the completion of each
deliverable: shipment, installation and training. These sales
agreements are divided into separate units of accounting and
revenue is recognized upon the completion of
32
each deliverable based on its relative selling price. The
relative selling prices of installation and training are
determined based on the prices at which these deliverables would
be regularly sold on a standalone basis. The relative selling
prices of instruments are based on estimated selling prices.
These estimates represent the quoted sales contract price in
each arrangement.
BDs domestic businesses sell products primarily to
distributors who resell the products to end-user customers. We
provide rebates to distributors that sell to end-user customers
at prices determined under a contract between BD and the
end-user customer. Provisions for rebates, which are based on
historical information for all rebates that have not yet been
processed, as well as sales discounts and returns, are accounted
for as a reduction of revenues when revenue is recognized.
Impairment
of Assets
Goodwill and in-process research and development assets are
subject to impairment reviews at least annually, or whenever
indicators of impairment arise. Intangible assets with finite
lives, including core and developed technology, and other
long-lived assets, are periodically reviewed for impairment when
impairment indicators are present.
We assess goodwill for impairment at the reporting unit level,
which is defined as an operating segment or one level below an
operating segment, referred to as a component. Our reporting
units generally represent one level below reporting segments and
we aggregate components within an operating segment that have
similar economic characteristics. For our 2011 annual impairment
assessment, we identified six reporting units. Potential
impairment of goodwill is identified by comparing the fair value
of a reporting unit with its carrying value. Our annual goodwill
impairment test for 2011 did not result in any impairment
charges, as the fair value of each reporting unit exceeded its
carrying value.
We generally use the income approach to derive the fair value
for impairment assessments. This approach calculates fair value
by estimating future cash flows attributable to the assets and
then discounting these cash flows to a present value using a
risk-adjusted discount rate. We selected this method because we
believe the income approach most appropriately measures our
income producing assets. This approach requires significant
management judgment with respect to future volume, revenue and
expense growth rates, changes in working capital use,
appropriate discount rates and other assumptions and estimates.
The estimates and assumptions used are consistent with BDs
business plans. The use of alternative estimates and assumptions
could increase or decrease the estimated fair value of the
asset, and potentially result in different impacts to BDs
results of operations. Actual results may differ from
managements estimates.
Income
Taxes
BD maintains valuation allowances where it is more likely than
not that all or a portion of a deferred tax asset will not be
realized. Changes in valuation allowances are included in our
tax provision in the period of change. In determining whether a
valuation allowance is warranted, management evaluates factors
such as prior earnings history, expected future earnings, carry
back and carry forward periods, and tax strategies that could
potentially enhance the likelihood of realization of a deferred
tax asset.
BD conducts business and files tax returns in numerous countries
and currently has tax audits in progress in a number of tax
jurisdictions. In evaluating the exposure associated with
various tax filing positions, we record accruals for uncertain
tax positions based on the technical support for the positions,
our past audit experience with similar situations, and the
potential interest and penalties related to the matters.
BDs effective tax rate in any given period could be
impacted if, upon resolution with taxing authorities, we
prevailed in positions for which reserves have been established,
or we were required to pay amounts in excess of established
reserves.
Deferred taxes are not provided on undistributed earnings of
foreign subsidiaries that are indefinitely reinvested. At
September 30, 2011, the cumulative amount of such
undistributed earnings indefinitely reinvested outside the
United States was $3.8 billion. The determination of the
amount of the unrecognized
33
deferred tax liability related to the undistributed earnings is
not practicable because of the complexities associated with its
hypothetical calculation.
Contingencies
We are involved, both as a plaintiff and a defendant, in various
legal proceedings that arise in the ordinary course of business,
including, without limitation, product liability, antitrust and
environmental matters, as further discussed in Note 5 to
the consolidated financial statements contained in Item 8,
Financial Statements and Supplementary Data. We assess the
likelihood of any adverse judgments or outcomes to these matters
as well as potential ranges of probable losses. We establish
accruals to the extent probable future losses are estimable (in
the case of environmental matters, without considering possible
third-party recoveries). A determination of the amount of
accruals, if any, for these contingencies is made after careful
analysis of each individual issue and, when appropriate, is
developed after consultation with outside counsel. The accruals
may change in the future due to new developments in each matter
or changes in our strategy in dealing with these matters.
Given the uncertain nature of litigation generally, we are not
able in all cases to estimate the amount or range of loss that
could result from an unfavorable outcome of the litigation to
which we are a party. In view of these uncertainties, we could
incur charges in excess of any currently established accruals
and, to the extent available, excess liability insurance.
Accordingly, in the opinion of management, any such future
charges, individually or in the aggregate, could have a material
adverse effect on BDs consolidated results of operations
and consolidated net cash flows.
Benefit
Plans
We have significant net pension and other postretirement benefit
costs that are measured using actuarial valuations. Pension
benefit costs include assumptions for the discount rate and
expected return on plan assets. Other postretirement benefit
plan costs include assumptions for the discount rate and
healthcare cost trend rates. These assumptions have a
significant effect on the amounts reported. In addition to the
analysis below, see Note 8 to the consolidated financial
statements contained in Item 8, Financial Statements and
Supplementary Data for additional discussion.
The discount rate is selected each year based on investment
grade bonds and other factors as of the measurement date
(September 30). For the U.S. pension plan, we will use a
discount rate of 4.9% for 2012, which was based on an
actuarially-determined, company-specific yield curve. The rate
selected is used to measure liabilities as of the measurement
date and for calculating the following years pension
expense. The expected long-term rate of return on plan assets
assumption, although reviewed each year, changes less frequently
due to the long-term nature of the assumption. This assumption
does not impact the measurement of assets or liabilities as of
the measurement date; rather, it is used only in the calculation
of pension expense. To determine the expected long-term rate of
return on pension plan assets, we consider many factors,
including our historical assumptions compared with actual
results; benchmark data; expected returns on various plan asset
classes, as well as current and expected asset allocations. We
will use a long-term expected rate of return on plan assets
assumption of 7.75% for the U.S. pension plan in 2012. We
believe our discount rate and expected long-term rate of return
on plan assets assumptions are appropriate based upon the above
factors.
Sensitivity to changes in key assumptions for our
U.S. pension and other postretirement plans are as follows:
|
|
|
|
|
Discount rate A change of plus (minus)
25 basis points, with other assumptions held constant,
would have an estimated $8 million favorable (unfavorable)
impact on the total U.S. net pension and other
postretirement benefit plan cost.
|
|
|
|
Expected return on plan assets A change of
plus (minus) 25 basis points, with other assumptions held
constant, would have an estimated $2 million favorable
(unfavorable) impact on U.S. pension plan cost.
|
34
Share-Based
Compensation
Compensation cost relating to share-based payment transactions
is recognized in net income using a fair value measurement
method. All share-based payments to employees, including grants
of employee stock options, are recognized in the statement of
operations as compensation expense (based on their fair values)
over the vesting period of the awards. We determine the fair
value of certain share-based awards using a lattice-based
binomial option valuation model that incorporates certain
assumptions, such as the risk-free interest rate, expected
volatility, expected dividend yield and expected life of the
options. See Note 7 to the consolidated financial
statements contained in Item 8, Financial Statements and
Supplementary Data for additional discussion.
Cautionary
Statement Regarding Forward-Looking Statements
BD and its representatives may from time to time make certain
forward-looking statements in publicly released materials, both
written and oral, including statements contained in filings with
the Securities and Exchange Commission, press releases, and our
reports to shareholders. Forward-looking statements may be
identified by the use of words such as plan,
expect, believe, intend,
will, anticipate, estimate
and other words of similar meaning in conjunction with, among
other things, discussions of future operations and financial
performance, as well as our strategy for growth, product
development, regulatory approvals, market position and
expenditures. All statements that address operating performance
or events or developments that we expect or anticipate will
occur in the future including statements relating to
volume growth, sales and earnings per share growth, cash flows
or uses, and statements expressing views about future operating
results are forward-looking statements.
Forward-looking statements are based on current expectations of
future events. The forward-looking statements are, and will be,
based on managements then-current views and assumptions
regarding future events and operating performance, and speak
only as of their dates. Investors should realize that if
underlying assumptions prove inaccurate or unknown risks or
uncertainties materialize, actual results could vary materially
from our expectations and projections. Investors are therefore
cautioned not to place undue reliance on any forward-looking
statements. Furthermore, we undertake no obligation to update or
revise any forward-looking statements after the date they are
made, whether as a result of new information, future events and
developments or otherwise, except as required by applicable law
or regulations.
The following are some important factors that could cause our
actual results to differ from our expectations in any
forward-looking statements. For further discussion of certain of
these factors, see Item 1A. Risk Factors.
|
|
|
|
|
The current conditions in the global economy and financial
markets, and the potential adverse effect on the cost of
operating our business, the demand for our products and
services, prices for our products and services due to increases
in pricing pressure, or our ability to produce our products,
including the impact on developing countries. Also, the increase
in sovereign debt during the financial crisis as a result of
governmental intervention in the world economy poses additional
risks to the global financial system and economic recovery. We
sell to government-owned or government-supported healthcare and
research facilities, and any governmental austerity programs or
other adverse change in the availability of government funding
in these countries, particularly in Western Europe, could result
in less demand for our products and additional pricing
pressures, as well as create potential collection risks
associated with such sales.
|
|
|
|
The consequences of the healthcare reform in the United States,
which implemented an excise tax on U.S. sales of certain
medical devices, and which could result in reduced demand for
our products, increased pricing pressures or otherwise adversely
affect BDs business.
|
|
|
|
Future healthcare reform in the countries in which we do
business may also involve changes in government pricing and
reimbursement policies or other cost containment reforms.
|
|
|
|
Changes in domestic and foreign healthcare industry practices
that result in a reduction in procedures using our products or
increased pricing pressures, including the continued
consolidation among
|
35
|
|
|
|
|
healthcare providers and trends toward managed care and
healthcare cost containment (including changes in reimbursement
practices by third party payors).
|
|
|
|
|
|
Our ability to penetrate developing and emerging markets, which
also depends on economic and political conditions and how well
we are able to acquire or form strategic business alliances with
local companies and make necessary infrastructure enhancements
to production facilities, distribution networks, sales equipment
and technology.
|
|
|
|
Regional, national and foreign economic factors, including
inflation, deflation, and fluctuations in interest rates and, in
particular, foreign currency exchange rates, and the potential
effect on our revenues, expenses, margins and credit ratings.
|
|
|
|
New or changing laws and regulations affecting our domestic and
foreign operations, or changes in enforcement practices,
including laws relating to trade, monetary and fiscal policies,
taxation (including tax reforms that could adversely impact
multinational corporations), sales practices, price controls and
licensing and regulatory requirements for new products and
products in the postmarketing phase. In particular, the
U.S. and other countries may impose new requirements
regarding registration, labeling or prohibited materials that
may require us to re-register products already on the market or
otherwise impact our ability to market our products.
Environmental laws, particularly with respect to the emission of
greenhouse gases, are also becoming more stringent throughout
the world, which may increase our costs of operations or
necessitate changes in our manufacturing plants or processes or
those of our suppliers, or result in liability to BD.
|
|
|
|
Product efficacy or safety concerns regarding our products
resulting in product recalls, regulatory action on the part of
the U.S. Food and Drug Administration (FDA) or foreign
counterparts, declining sales and product liability claims,
particularly in light of the current regulatory environment,
including increased enforcement activity by the FDA.
|
|
|
|
Competitive factors that could adversely affect our operations,
including new product introductions (for example, new forms of
drug delivery) by our current or future competitors, increased
pricing pressure due to the impact of low-cost manufacturers as
certain competitors have established manufacturing sites or have
contracted with suppliers in low-cost manufacturing locations as
a means to lower their costs, patents attained by competitors
(particularly as patents on our products expire), and new
entrants into our markets.
|
|
|
|
The effects of events that adversely impact our ability to
manufacture our products (particularly where production of a
product line is concentrated in one or more plants) or our
ability to source materials or components from suppliers that
are needed for such manufacturing, including pandemics, natural
disasters, environmental factors or cyber attacks.
|
|
|
|
Fluctuations in the cost and availability of oil-based resins
and other raw materials, as well as certain
sub-assemblies
and finished goods, the ability to maintain favorable supplier
arrangements and relationships (particularly with respect to
sole-source suppliers), and the potential adverse effects of any
disruption in the availability of such items.
|
|
|
|
Difficulties inherent in product development, including the
potential inability to successfully continue technological
innovation, complete clinical trials, obtain regulatory
approvals in the United States and abroad, obtain coverage and
adequate reimbursement for new products, or gain and maintain
market approval of products, as well as the possibility of
infringement claims by competitors with respect to patents or
other intellectual property rights, all of which can preclude or
delay commercialization of a product. Delays in obtaining
necessary approvals or clearances from the FDA or other
regulatory agencies or changes in the regulatory process
(including potential 510(k) reforms) may also delay product
launches and increase development costs.
|
|
|
|
Fluctuations in the demand for products we sell to
pharmaceutical companies that are used to manufacture, or are
sold with, the products of such companies, as a result of
funding constraints, consolidation or otherwise.
|
36
|
|
|
|
|
Fluctuations in university or U.S. and international
governmental funding and policies for life sciences research.
|
|
|
|
Our ability to achieve our projected level or mix of product
sales. Our earnings forecasts are based on projected volumes and
sales of many product types, some of which are more profitable
than others.
|
|
|
|
Our ability to implement our ongoing upgrade of our enterprise
resource planning system, as any delays or deficiencies in the
design and implementation of our upgrade could adversely affect
our business.
|
|
|
|
Pending and potential future litigation or other proceedings
adverse to BD, including antitrust claims, product liability
claims and patent infringement claims, and the availability or
collectibility of insurance relating to any such claims.
|
|
|
|
The effect of adverse media exposure or other publicity
regarding BDs business or operations, including the effect
on BDs reputation or demand for its products.
|
|
|
|
The effects, if any, of governmental and media activities
regarding the business practices of group purchasing
organizations, which negotiate product prices on behalf of their
member hospitals with BD and other suppliers.
|
|
|
|
The effect of market fluctuations on the value of assets in
BDs pension plans and on actuarial interest rate and asset
return assumptions, which could require BD to make additional
contributions to the plans or increase our pension plan expense.
|
|
|
|
Political conditions in international markets, including civil
unrest, terrorist activity, governmental changes, restrictions
on the ability to transfer capital across borders and
expropriation of assets by a government, including the recent
civil unrest in parts of the Middle East.
|
|
|
|
The impact of business combinations, including any volatility in
earnings relating to acquired in-process research and
development assets, and our ability to successfully integrate
any business we may acquire.
|
|
|
|
Our ability to obtain the anticipated benefits of restructuring
programs, if any, that we may undertake.
|
|
|
|
Issuance of new or revised accounting standards by the Financial
Accounting Standards Board or the Securities and Exchange
Commission.
|
The foregoing list sets forth many, but not all, of the factors
that could impact our ability to achieve results described in
any forward-looking statements. Investors should understand that
it is not possible to predict or identify all such factors and
should not consider this list to be a complete statement of all
potential risks and uncertainties.
|
|
Item 7A.
|
Quantitative
and Qualitative Disclosures About Market Risk.
|
The information required by this item is included in
Item 7, Managements Discussion and Analysis of
Financial Condition and Results of Operations, and in
Notes 1, 12 and 13 to the consolidated financial statements
contained in Item 8, Financial Statements and Supplementary
Data, and is incorporated herein by reference.
37
|
|
Item 8.
|
Financial
Statements and Supplementary Data.
|
Reports
of Management
Managements
Responsibilities
The following financial statements have been prepared by
management in conformity with U.S. generally accepted
accounting principles and include, where required, amounts based
on the best estimates and judgments of management. The integrity
and objectivity of data in the financial statements and
elsewhere in this Annual Report are the responsibility of
management.
In fulfilling its responsibilities for the integrity of the data
presented and to safeguard the Companys assets, management
employs a system of internal accounting controls designed to
provide reasonable assurance, at appropriate cost, that the
Companys assets are protected and that transactions are
appropriately authorized, recorded and summarized. This system
of control is supported by the selection of qualified personnel,
by organizational assignments that provide appropriate
delegation of authority and division of responsibilities, and by
the dissemination of written policies and procedures. This
control structure is further reinforced by a program of internal
audits, including a policy that requires responsive action by
management.
The Board of Directors monitors the internal control system,
including internal accounting and financial reporting controls,
through its Audit Committee, which consists of seven independent
Directors. The Audit Committee meets periodically with the
independent registered public accounting firm, the internal
auditors and management to review the work of each and to
satisfy itself that they are properly discharging their
responsibilities. The independent registered public accounting
firm and the internal auditors have full and free access to the
Audit Committee and meet with its members, with and without
management present, to discuss the scope and results of their
audits including internal control, auditing and financial
reporting matters.
Managements
Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining
adequate internal control over financial reporting, as defined
in
Rule 13a-15(f)
under the Securities Act of 1934. Management conducted an
assessment of the effectiveness of internal control over
financial reporting based on the criteria established in
Internal Control-Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO).
Based on this assessment and those criteria, management
concluded that internal control over financial reporting was
effective as of September 30, 2011.
The financial statements and internal control over financial
reporting have been audited by Ernst & Young LLP, an
independent registered public accounting firm. Ernst &
Youngs reports with respect to fairness of the
presentation of the statements, and the effectiveness of
internal control over financial reporting, are included herein.
|
|
|
|
|
Vincent A. Forlenza
|
|
David V. Elkins
|
|
William A. Tozzi
|
Chief Executive Officer and
President
|
|
Executive Vice President and
Chief Financial Officer
|
|
Senior Vice President and
Controller
|
38
Report
of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors of
Becton, Dickinson and Company
We have audited the accompanying consolidated balance sheets of
Becton, Dickinson and Company as of September 30, 2011 and
2010, and the related consolidated statements of income,
comprehensive income, and cash flows for each of the three years
in the period ended September 30, 2011. These financial
statements are the responsibility of the Companys
management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Becton, Dickinson and Company at
September 30, 2011 and 2010, and the consolidated results
of its operations and its cash flows for each of the three years
in the period ended September 30, 2011, in conformity with
U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States),
Becton, Dickinson and Companys internal control over
financial reporting as of September 30, 2011, based on
criteria established in Internal Control-Integrated Framework
issued by the Committee of Sponsoring Organizations of the
Treadway Commission and our report dated November 23, 2011
expressed an unqualified opinion thereon.
New York, New York
November 23, 2011
39
Report
of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors of
Becton, Dickinson and Company
We have audited Becton, Dickinson and Companys internal
control over financial reporting as of September 30, 2011,
based on criteria established in Internal Control-Integrated
Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission (the COSO criteria). Becton, Dickinson
and Companys management is responsible for maintaining
effective internal control over financial reporting, and for its
assessment of the effectiveness of internal control over
financial reporting included in the accompanying
Managements Report on Internal Control Over Financial
Reporting. Our responsibility is to express an opinion on the
companys internal control over financial reporting based
on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk, and performing such other procedures as we
considered necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In our opinion, Becton, Dickinson and Company maintained, in all
material respects, effective internal control over financial
reporting as of September 30, 2011, based on the COSO
criteria.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of Becton, Dickinson and Company as
of September 30, 2011 and 2010, and the related
consolidated statements of income, comprehensive income, and
cash flows for each of the three years in the period ended
September 30, 2011 of Becton, Dickinson and Company, and
our report dated November 23, 2011 expressed an unqualified
opinion thereon.
New York, New York
November 23, 2011
40
Becton,
Dickinson and Company
Consolidated
Statements of Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended September 30
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
|
Thousands of dollars, except per share amounts
|
|
|
Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
7,828,904
|
|
|
$
|
7,372,333
|
|
|
$
|
6,986,722
|
|
Cost of products sold
|
|
|
3,737,352
|
|
|
|
3,543,183
|
|
|
|
3,311,676
|
|
Selling and administrative expense
|
|
|
1,851,774
|
|
|
|
1,721,356
|
|
|
|
1,680,797
|
|
Research and development expense
|
|
|
476,496
|
|
|
|
430,997
|
|
|
|
404,567
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Operating Costs and Expenses
|
|
|
6,065,622
|
|
|
|
5,695,536
|
|
|
|
5,397,040
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income
|
|
|
1,763,282
|
|
|
|
1,676,797
|
|
|
|
1,589,682
|
|
Interest expense
|
|
|
(84,019
|
)
|
|
|
(51,263
|
)
|
|
|
(40,389
|
)
|
Interest income
|
|
|
43,209
|
|
|
|
35,129
|
|
|
|
33,148
|
|
Other (expense) income, net
|
|
|
(6,209
|
)
|
|
|
497
|
|
|
|
(3,850
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income From Continuing Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
Before Income Taxes
|
|
|
1,716,263
|
|
|
|
1,661,160
|
|
|
|
1,578,591
|
|
Income tax provision
|
|
|
451,411
|
|
|
|
484,820
|
|
|
|
411,246
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from Continuing Operations
|
|
|
1,264,852
|
|
|
|
1,176,340
|
|
|
|
1,167,345
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from Discontinued Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
Net of income tax provision of $792, $40,703 and $19,975
|
|
|
6,142
|
|
|
|
141,270
|
|
|
|
64,258
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
$
|
1,270,994
|
|
|
$
|
1,317,610
|
|
|
$
|
1,231,603
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic Earnings per Share
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from Continuing Operations
|
|
$
|
5.72
|
|
|
$
|
5.02
|
|
|
$
|
4.85
|
|
Income from Discontinued Operations
|
|
$
|
0.03
|
|
|
$
|
0.60
|
|
|
$
|
0.27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic Earnings per Share
|
|
$
|
5.75
|
|
|
$
|
5.62
|
|
|
$
|
5.12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted Earnings per Share
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from Continuing Operations
|
|
$
|
5.59
|
|
|
$
|
4.90
|
|
|
$
|
4.73
|
|
Income from Discontinued Operations
|
|
$
|
0.03
|
|
|
$
|
0.59
|
|
|
$
|
0.26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted Earnings per Share
|
|
$
|
5.62
|
|
|
$
|
5.49
|
|
|
$
|
4.99
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements
41
Becton,
Dickinson and Company
Consolidated
Statements of Comprehensive Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended September 30
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
|
Thousands of dollars
|
|
|
Net Income
|
|
$
|
1,270,994
|
|
|
$
|
1,317,610
|
|
|
$
|
1,231,603
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Comprehensive (Loss) Income, Net of Tax
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
|
(117,083
|
)
|
|
|
330
|
|
|
|
29,358
|
|
Defined benefit pension and postretirement plans
|
|
|
(62,228
|
)
|
|
|
(130,461
|
)
|
|
|
(242,478
|
)
|
Unrealized gain on investments, net of amounts recognized
|
|
|
420
|
|
|
|
|
|
|
|
41
|
|
Unrealized (loss) gain on cash flow hedges, net of amounts
realized
|
|
|
(33,200
|
)
|
|
|
44,884
|
|
|
|
(82,073
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Comprehensive Loss, Net of Tax
|
|
|
(212,091
|
)
|
|
|
(85,247
|
)
|
|
|
(295,152
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive Income
|
|
$
|
1,058,903
|
|
|
$
|
1,232,363
|
|
|
$
|
936,451
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements
42
Becton,
Dickinson and Company
Consolidated
Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
September 30
|
|
|
|
2011
|
|
|
2010
|
|
|
|
Thousands of dollars, except
|
|
|
|
per share amounts and
|
|
|
|
numbers of shares
|
|
|
ASSETS
|
Current Assets
|
|
|
|
|
|
|
|
|
Cash and equivalents
|
|
$
|
1,175,282
|
|
|
$
|
1,215,989
|
|
Short-term investments
|
|
|
388,031
|
|
|
|
528,206
|
|
Trade receivables, net
|
|
|
1,228,637
|
|
|
|
1,205,377
|
|
Inventories
|
|
|
1,244,972
|
|
|
|
1,145,337
|
|
Prepaid expenses, deferred taxes and other
|
|
|
631,409
|
|
|
|
410,341
|
|
|
|
|
|
|
|
|
|
|
Total Current Assets
|
|
|
4,668,331
|
|
|
|
4,505,250
|
|
Property, Plant and Equipment, Net
|
|
|
3,211,197
|
|
|
|
3,100,492
|
|
Goodwill
|
|
|
991,121
|
|
|
|
763,961
|
|
Core and Developed Technology, Net
|
|
|
380,899
|
|
|
|
310,783
|
|
Other Intangibles, Net
|
|
|
417,636
|
|
|
|
227,857
|
|
Capitalized Software, Net
|
|
|
316,634
|
|
|
|
254,761
|
|
Other
|
|
|
444,610
|
|
|
|
487,590
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
10,430,428
|
|
|
$
|
9,650,694
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY
|
Current Liabilities
|
|
|
|
|
|
|
|
|
Short-term debt
|
|
$
|
234,932
|
|
|
$
|
202,758
|
|
Accounts payable
|
|
|
304,836
|
|
|
|
325,402
|
|
Accrued expenses
|
|
|
795,224
|
|
|
|
661,112
|
|
Salaries, wages and related items
|
|
|
477,198
|
|
|
|
453,605
|
|
Income taxes
|
|
|
11,038
|
|
|
|
28,796
|
|
|
|
|
|
|
|
|
|
|
Total Current Liabilities
|
|
|
1,823,228
|
|
|
|
1,671,673
|
|
Long-Term Debt
|
|
|
2,484,665
|
|
|
|
1,495,357
|
|
Long-Term Employee Benefit Obligations
|
|
|
1,068,483
|
|
|
|
899,109
|
|
Deferred Income Taxes and Other
|
|
|
225,877
|
|
|
|
149,975
|
|
Commitments and Contingencies
|
|
|
|
|
|
|
|
|
Shareholders Equity
|
|
|
|
|
|
|
|
|
Common stock $1 par value:
authorized 640,000,000 shares;
issued 332,662,160 shares in 2011 and 2010
|
|
|
332,662
|
|
|
|
332,662
|
|
Capital in excess of par value
|
|
|
1,793,160
|
|
|
|
1,624,768
|
|
Retained earnings
|
|
|
9,633,584
|
|
|
|
8,724,228
|
|
Deferred compensation
|
|
|
18,875
|
|
|
|
17,164
|
|
Common stock in treasury at cost
117,844,159 shares in 2011 and 102,845,609 shares in
2010
|
|
|
(6,280,106
|
)
|
|
|
(4,806,333
|
)
|
Accumulated other comprehensive loss
|
|
|
(670,000
|
)
|
|
|
(457,909
|
)
|
|
|
|
|
|
|
|
|
|
Total Shareholders Equity
|
|
|
4,828,175
|
|
|
|
5,434,580
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Shareholders Equity
|
|
$
|
10,430,428
|
|
|
$
|
9,650,694
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements
43
Becton,
Dickinson and Company
Consolidated
Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended September 30
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
|
Thousands of dollars
|
|
|
Operating Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
1,270,994
|
|
|
$
|
1,317,610
|
|
|
$
|
1,231,603
|
|
Less: Income from discontinued operations, net
|
|
|
6,142
|
|
|
|
141,270
|
|
|
|
64,258
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations, net
|
|
|
1,264,852
|
|
|
|
1,176,340
|
|
|
|
1,167,345
|
|
Adjustments to income from continuing operations to derive net
cash provided by continuing operating activities, net of amounts
acquired:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
504,089
|
|
|
|
502,113
|
|
|
|
464,604
|
|
Share-based compensation
|
|
|
73,363
|
|
|
|
79,374
|
|
|
|
86,574
|
|
Deferred income taxes
|
|
|
30,047
|
|
|
|
28,055
|
|
|
|
60,041
|
|
Change in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade receivables, net
|
|
|
(26,515
|
)
|
|
|
(73,933
|
)
|
|
|
(81,530
|
)
|
Inventories
|
|
|
(117,539
|
)
|
|
|
(116,500
|
)
|
|
|
(91,462
|
)
|
Prepaid expenses, deferred taxes and other
|
|
|
(237,953
|
)
|
|
|
(34,340
|
)
|
|
|
(22,059
|
)
|
Accounts payable, income taxes and other liabilities
|
|
|
128,738
|
|
|
|
156,023
|
|
|
|
123,576
|
|
Pension obligation
|
|
|
80,837
|
|
|
|
(102,967
|
)
|
|
|
(68,574
|
)
|
Other, net
|
|
|
12,611
|
|
|
|
44,852
|
|
|
|
19,971
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Provided by Continuing Operating Activities
|
|
|
1,712,530
|
|
|
|
1,659,017
|
|
|
|
1,658,486
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(515,385
|
)
|
|
|
(537,306
|
)
|
|
|
(585,196
|
)
|
Capitalized software
|
|
|
(89,872
|
)
|
|
|
(95,159
|
)
|
|
|
(109,588
|
)
|
Change in short-term investments
|
|
|
120,445
|
|
|
|
34,550
|
|
|
|
(338,228
|
)
|
Sales of long-term investments
|
|
|
1,144
|
|
|
|
963
|
|
|
|
840
|
|
Acquisitions of businesses, net of cash acquired
|
|
|
(492,081
|
)
|
|
|
(281,367
|
)
|
|
|
|
|
Divestiture of businesses
|
|
|
|
|
|
|
259,990
|
|
|
|
51,022
|
|
Other, net
|
|
|
(63,588
|
)
|
|
|
(81,636
|
)
|
|
|
(85,900
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Used for Continuing Investing Activities
|
|
|
(1,039,337
|
)
|
|
|
(699,965
|
)
|
|
|
(1,067,050
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in short-term debt
|
|
|
34,251
|
|
|
|
(200,193
|
)
|
|
|
1,196
|
|
Proceeds from long-term debt
|
|
|
991,265
|
|
|
|
|
|
|
|
739,232
|
|
Payments of debt
|
|
|
(35
|
)
|
|
|
(76
|
)
|
|
|
(311
|
)
|
Repurchase of common stock
|
|
|
(1,500,001
|
)
|
|
|
(750,000
|
)
|
|
|
(550,006
|
)
|
Issuance of common stock and other, net
|
|
|
84,148
|
|
|
|
50,093
|
|
|
|
32,403
|
|
Excess tax benefit from payments under share-based compensation
plans
|
|
|
37,189
|
|
|
|
23,202
|
|
|
|
14,667
|
|
Dividends paid
|
|
|
(361,199
|
)
|
|
|
(345,713
|
)
|
|
|
(316,877
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Used for Continuing Financing Activities
|
|
|
(714,382
|
)
|
|
|
(1,222,687
|
)
|
|
|
(79,696
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
3,470
|
|
|
|
85,251
|
|
|
|
58,329
|
|
Net cash used for investing activities
|
|
|
(173
|
)
|
|
|
(5,661
|
)
|
|
|
(5,912
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Provided by Discontinued Operations
|
|
|
3,297
|
|
|
|
79,590
|
|
|
|
52,417
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and equivalents
|
|
|
(2,815
|
)
|
|
|
5,790
|
|
|
|
(390
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (Decrease) Increase in Cash and Equivalents
|
|
|
(40,707
|
)
|
|
|
(178,255
|
)
|
|
|
563,767
|
|
Opening Cash and Equivalents
|
|
|
1,215,989
|
|
|
|
1,394,244
|
|
|
|
830,477
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Closing Cash and Equivalents
|
|
$
|
1,175,282
|
|
|
$
|
1,215,989
|
|
|
$
|
1,394,244
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements
44
Becton,
Dickinson and Company
Notes to
Consolidated Financial Statements
Thousands
of dollars, except per share amounts and numbers of
shares
|
|
Note 1
|
Summary
of Significant Accounting Policies
|
Principles
of Consolidation
The consolidated financial statements include the accounts of
Becton, Dickinson and Company and its majority-owned
subsidiaries (the Company) after the elimination of
intercompany transactions. The Company has no material interests
in variable interest entities.
Cash
Equivalents
Cash equivalents consist of all highly liquid investments with a
maturity of three months or less at time of purchase.
Short-Term
Investments
Short-term investments consist of time deposits with maturities
greater than three months and less than one year when purchased.
Inventories
Inventories are stated at the lower of
first-in,
first-out cost or market.
Property,
Plant and Equipment
Property, plant and equipment are stated at cost, less
accumulated depreciation and amortization. Depreciation and
amortization are principally provided on the straight-line basis
over estimated useful lives, which range from 20 to
45 years for buildings, four to 12 years for machinery
and equipment and one to 20 years for leasehold
improvements. Depreciation and amortization expense was
$348,522, $347,402 and $312,321 in fiscal 2011, 2010 and 2009,
respectively.
Goodwill
and Other Intangible Assets
Goodwill, core and developed technology, and in-process research
and development assets arise from acquisitions. Goodwill is
reviewed at least annually for impairment. Goodwill is assessed
for impairment at the reporting unit level, which is defined as
an operating segment or one level below an operating segment,
referred to as a component. The Companys reporting units
generally represent one level below reporting segments, and
components within an operating segment that have similar
economic characteristics are aggregated. Potential impairment of
goodwill is identified by comparing the fair value of a
reporting unit, estimated using an income approach, with its
carrying value. The annual impairment review performed in fiscal
year 2011 indicated that all six identified reporting
units fair values exceeded their respective carrying
values.
The review for impairment of in-process research and development
assets, as well as core and developed technology assets,
compares the fair value of the technology or project assets,
estimated using an income approach, with their carrying value.
In-process research and development assets are considered
indefinite-lived assets until projects are completed or
abandoned, and these assets are reviewed at least annually for
impairment. Core and developed technology assets are amortized
over periods ranging from 15 to 20 years, using the
straight-line method, and are periodically reviewed for
impairment when impairment indicators are present.
Other intangibles with finite useful lives, which include
patents, are amortized over periods principally ranging from one
to 40 years, using the straight-line method. These
intangibles, including core and developed
45
Becton,
Dickinson and Company
Notes to
Consolidated Financial
Statements (Continued)
technology, are periodically reviewed when impairment indicators
are present to assess recoverability from future operations
using undiscounted cash flows. To the extent carrying value
exceeds the undiscounted cash flows, an impairment loss is
recognized in operating results based upon the excess of the
carrying value over fair value. Other intangibles also include
certain trademarks that are considered to have indefinite lives,
as they are expected to generate cash flows indefinitely, and
are reviewed annually for impairment.
Capitalized
Software
Capitalized software, including costs for software developed or
obtained for internal use, is stated at cost, less accumulated
amortization. Amortization expense is principally provided on
the straight-line basis over estimated useful lives, which do
not exceed 10 years. The current balance primarily includes
capital software investments related to a global enterprise
resource planning initiative to upgrade the Companys
business information systems. Amortization for this project has
not commenced because the program has not yet been placed in
service. Amortization expense related to capitalized software
was $23,173, $32,181 and $46,485 for 2011, 2010 and 2009,
respectively.
Foreign
Currency Translation
Generally, foreign subsidiaries functional currency is the
local currency of operations and the net assets of foreign
operations are translated into U.S. dollars using current
exchange rates. The U.S. dollar results that arise from
such translation, as well as exchange gains and losses on
intercompany balances of a long-term investment nature, are
included in the foreign currency translation adjustments in
Accumulated other comprehensive (loss) income.
Revenue
Recognition
Revenue from product sales is typically recognized when all of
the following criteria have been met: persuasive evidence of an
arrangement exists; delivery has occurred or services have been
rendered; product price is fixed or determinable; collection of
the resulting receivable is reasonably assured. The Company
recognizes revenue for certain instruments sold from the
Biosciences segment upon installation at a customers site,
as installation of these instruments is considered a significant
post-delivery obligation. For certain instrument sales
arrangements, primarily in the U.S., with multiple deliverables,
revenue and cost of products sold are recognized at the
completion of each deliverable: instrument shipment,
installation and training. Installation and training typically
occur within one month after an instrument is shipped. These
sales agreements are divided into separate units of accounting
and revenue is recognized upon the completion of each
deliverable based on its relative selling price. The relative
selling prices of installation and training are determined based
on the prices at which these deliverables would be regularly
sold on a standalone basis. The relative selling prices of
instruments are based on estimated selling prices. These
estimates represent the quoted sales contract price in each
arrangement.
The Companys domestic businesses sell products primarily
to distributors that resell the products to end-user customers.
Rebates are provided to distributors that sell to end-user
customers at prices determined under a contract between the
Company and the end-user customer. Provisions for rebates, as
well as sales discounts and returns, are based upon estimates
and are accounted for as a reduction of revenues when revenue is
recognized.
Shipping
and Handling Costs
Shipping and handling costs are included in Selling and
administrative expense. Shipping expense was $276,797, $255,765
and $250,941 in 2011, 2010 and 2009, respectively.
46
Becton,
Dickinson and Company
Notes to
Consolidated Financial
Statements (Continued)
Derivative
Financial Instruments
All derivatives are recorded in the balance sheet at fair value
and changes in fair value are recognized currently in earnings
unless specific hedge accounting criteria are met.
Derivative financial instruments are utilized by the Company in
the management of its foreign currency and interest rate
exposures. From time to time, the Company hedges forecasted
sales denominated in foreign currencies using forward and option
contracts to protect against the reduction in value of
forecasted foreign currency cash flows resulting from export
sales. The Company also periodically utilizes interest rate
swaps to maintain a balance between fixed and floating rate
instruments. The Company does not enter into derivative
financial instruments for trading or speculative purposes.
Any deferred gains or losses associated with derivative
instruments are recognized in income in the period in which the
underlying hedged transaction is recognized. In the event a
designated hedged item is sold, extinguished or matures prior to
the termination of the related derivative instrument, such
instrument would be closed and the resultant gain or loss would
be recognized in income.
Income
Taxes
United States income taxes are not provided on undistributed
earnings of foreign subsidiaries where such undistributed
earnings are indefinitely reinvested outside the United States.
Deferred taxes are provided for earnings of foreign subsidiaries
when those earnings are not considered indefinitely reinvested.
Income taxes are provided and tax credits are recognized based
on tax laws enacted at the dates of the financial statements.
The Company conducts business and files tax returns in numerous
countries and currently has tax audits in progress in a number
of tax jurisdictions. In evaluating the exposure associated with
various tax filing positions, the Company records accruals for
uncertain tax positions, based on the technical support for the
positions, past audit experience with similar situations, and
the potential interest and penalties related to the matters.
The Company maintains valuation allowances where it is more
likely than not that all or a portion of a deferred tax asset
will not be realized. Changes in valuation allowances are
included in the tax provision in the period of change. In
determining whether a valuation allowance is warranted,
management evaluates factors such as prior earnings history,
expected future earnings, carry back and carry forward periods
and tax strategies that could potentially enhance the likelihood
of the realization of a deferred tax asset.
Earnings
per Share
Basic earnings per share are computed based on the weighted
average number of common shares outstanding. Diluted earnings
per share reflect the potential dilution that could occur if
securities or other contracts to issue common stock were
exercised or converted into common stock.
Use of
Estimates
The preparation of financial statements in conformity with
U.S. generally accepted accounting principles requires
management to make estimates and assumptions. These estimates or
assumptions affect reported assets, liabilities, revenues and
expenses as reflected in the consolidated financial statements.
Actual results could differ from these estimates.
Share-Based
Compensation
The Company recognizes the fair value of share-based
compensation in net income. Compensation expense is recognized
on a straight-line basis over the requisite service period,
which is generally the vesting period.
47
Becton,
Dickinson and Company
Notes to
Consolidated Financial
Statements (Continued)
|
|
Note 2
|
Accounting
Changes
|
In October 2009, the Financial Accounting Standards Board
(FASB) issued revised revenue recognition guidance
affecting the accounting for software-enabled devices and
multiple-element arrangements. The revisions expand the scope of
multiple-element arrangement guidance to include revenue
arrangements containing certain nonsoftware elements and related
software elements. Additionally, the revised guidance changes
the manner in which separate units of accounting are identified
within a multiple-element arrangement and modifies the manner in
which transaction consideration is allocated across the
separately identified deliverables. The Company adopted the
revised revenue recognition guidance for new arrangements it
entered into on or after October 1, 2010. The adoption of
these new requirements did not significantly impact the
Companys consolidated financial statements.
In June 2009, the FASB issued guidance amending the variable
interest consolidation model. The revised model amends certain
guidance for determining whether an entity is a variable
interest entity and requires a qualitative, rather than
quantitative, analysis to determine the primary beneficiary of a
variable interest entity. The Companys adoption of the
amended variable interest consolidation model on October 1,
2010 did not significantly impact the Companys
consolidated financial statements.
Adoption
of New Accounting Standards
In September 2011, the FASB issued revised annual goodwill
impairment testing guidance. The revised requirements allow
entities to first qualitatively assess whether it is necessary
to perform the two-step quantitative goodwill impairment test.
Further testing of goodwill for impairment under the
quantitative model is required only if an entity determines,
through the qualitative assessment, that it is more likely than
not that a given reporting units fair value is less than
its carrying amount. The revised goodwill impairment testing
requirements are effective for fiscal years beginning after
December 15, 2011 and early adoption is permitted. The
Company intends to apply the revised requirements in its fiscal
year 2012 goodwill impairment review processes. No significant
impact to the Companys consolidated financial statements
is expected upon adoption of these revised requirements.
48
Becton,
Dickinson and Company
Notes to
Consolidated Financial
Statements (Continued)
|
|
Note 3
|
Shareholders
Equity
|
Changes in certain components of shareholders equity were
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
|
|
|
Capital in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Issued
|
|
|
Excess of
|
|
|
Retained
|
|
|
Deferred
|
|
|
Treasury Stock
|
|
|
|
at Par Value
|
|
|
Par Value
|
|
|
Earnings
|
|
|
Compensation
|
|
|
Shares
|
|
|
Amount
|
|
|
Balance at September 30, 2008
|
|
$
|
332,662
|
|
|
$
|
1,359,531
|
|
|
$
|
6,838,589
|
|
|
$
|
14,694
|
|
|
|
(89,584,786
|
)
|
|
$
|
(3,532,398
|
)
|
Net income
|
|
|
|
|
|
|
|
|
|
|
1,231,603
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common ($1.32 per share)
|
|
|
|
|
|
|
|
|
|
|
(317,361
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued for:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation plans, net
|
|
|
|
|
|
|
38,919
|
|
|
|
|
|
|
|
|
|
|
|
2,283,887
|
|
|
|
11,608
|
|
Business acquisitions
|
|
|
|
|
|
|
1,330
|
|
|
|
|
|
|
|
|
|
|
|
24,110
|
|
|
|
309
|
|
Share-based compensation
|
|
|
|
|
|
|
86,519
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock held in trusts, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,212
|
|
|
|
(91,681
|
)
|
|
|
(3,212
|
)
|
Repurchase of common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,211,500
|
)
|
|
|
(550,006
|
)
|
Other changes
|
|
|
|
|
|
|
(625
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2009
|
|
$
|
332,662
|
|
|
$
|
1,485,674
|
|
|
$
|
7,752,831
|
|
|
$
|
17,906
|
|
|
|
(95,579,970
|
)
|
|
$
|
(4,073,699
|
)
|
Net income
|
|
|
|
|
|
|
|
|
|
|
1,317,610
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common ($1.48 per share)
|
|
|
|
|
|
|
|
|
|
|
(346,213
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued for:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation plans, net
|
|
|
|
|
|
|
59,866
|
|
|
|
|
|
|
|
|
|
|
|
2,758,391
|
|
|
|
16,624
|
|
Share-based compensation
|
|
|
|
|
|
|
79,228
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock held in trusts, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(742
|
)
|
|
|
34,790
|
|
|
|
742
|
|
Repurchase of common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,058,820
|
)
|
|
|
(750,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2010
|
|
$
|
332,662
|
|
|
$
|
1,624,768
|
|
|
$
|
8,724,228
|
|
|
$
|
17,164
|
|
|
|
(102,845,609
|
)
|
|
$
|
(4,806,333
|
)
|
Net income
|
|
|
|
|
|
|
|
|
|
|
1,270,994
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common ($1.64 per share)
|
|
|
|
|
|
|
|
|
|
|
(361,638
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued for:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation plans, net
|
|
|
|
|
|
|
95,227
|
|
|
|
|
|
|
|
|
|
|
|
3,432,415
|
|
|
|
27,939
|
|
Share-based compensation
|
|
|
|
|
|
|
73,165
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock held in trusts, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,711
|
|
|
|
3,316
|
|
|
|
(1,711
|
)
|
Repurchase of common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(18,434,281
|
)
|
|
|
(1,500,001
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2011
|
|
$
|
332,662
|
|
|
$
|
1,793,160
|
|
|
$
|
9,633,584
|
|
|
$
|
18,875
|
|
|
|
(117,844,159
|
)
|
|
$
|
(6,280,106
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock held in trusts represents rabbi trusts in
connection with deferred compensation under the Companys
employee salary and bonus deferral plan and directors
deferral plan.
49
Becton,
Dickinson and Company
Notes to
Consolidated Financial
Statements (Continued)
The components of Accumulated other comprehensive (loss) income
were as follows:
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
2010
|
|
|
Foreign currency translation adjustments(A)
|
|
$
|
69,694
|
|
|
$
|
186,777
|
|
Benefit plans adjustment(B)
|
|
|
(696,624
|
)
|
|
|
(634,396
|
)
|
Unrealized loss on investments(B)
|
|
|
(161
|
)
|
|
|
(581
|
)
|
Unrealized losses on cash flow hedges(B)(C)
|
|
|
(42,909
|
)
|
|
|
(9,709
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(670,000
|
)
|
|
$
|
(457,909
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
(A) |
|
Foreign currency translation adjustments that were attributable
to goodwill in fiscal years 2011 and 2010 were $(12,525) and
$2,044, respectively. The adjustments primarily affected
goodwill reported within the Medical segment. |
|
(B) |
|
Amounts are net of tax. |
|
(C) |
|
The unrealized losses on cash flow hedges at September 30,
2009 were $(54,593), net of tax. |
The change in foreign currency translation adjustments
represented a loss in fiscal year 2011 which is mainly
attributable to the weakening of the Euro, as well as certain
currencies in Latin America, against the U.S. dollar during
fiscal year 2011.
The income tax (benefit) provision recorded in fiscal years
2011, 2010 and 2009 for the unrealized (loss) gain on
investments was $(40), $0 and $25, respectively. The income tax
(benefit) provision recorded in fiscal years 2011, 2010 and 2009
for cash flow hedges was $(20,348), $27,509 and $(50,302),
respectively. The income tax benefit recorded in fiscal years
2011, 2010, 2009 for defined benefit pension, postretirement
plans and postemployment plans was $47,575, $67,829 and
$146,554, respectively. Income taxes are generally not provided
for translation adjustments.
The unrealized (losses) gains on cash flow hedges included in
other comprehensive (loss) income for 2011, 2010 and 2009 are
net of reclassification adjustments of $0, $(19,512), and
$65,012, net of tax, respectively, for realized net hedge gains
(losses) recorded to revenues. These amounts had been included
in Accumulated other comprehensive (loss) income in prior
periods. The tax (benefit) provision associated with these
reclassification adjustments in 2011, 2010 and 2009 was $0,
$(11,959) and $39,846, respectively.
|
|
Note 4
|
Earnings
per Share
|
The weighted average common shares used in the computations of
basic and diluted earnings per share (shares in thousands) for
the years ended September 30 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
Average common shares outstanding
|
|
|
221,175
|
|
|
|
234,328
|
|
|
|
240,479
|
|
Dilutive share equivalents from share-based plans
|
|
|
5,105
|
|
|
|
5,808
|
|
|
|
6,319
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average common and common equivalent shares
outstanding assuming dilution
|
|
|
226,280
|
|
|
|
240,136
|
|
|
|
246,798
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 5
|
Commitments
and Contingencies
|
Commitments
Rental expense for all operating leases amounted to $70,113 in
2011, $65,000 in 2010, and $64,500 in 2009. Future minimum
rental commitments on noncancelable leases are as follows: 2012
- $47,516; 2013 $40,428; 2014 $33,244;
2015 $27,721; 2016 $23,367 and an
aggregate of $44,557 thereafter.
50
Becton,
Dickinson and Company
Notes to
Consolidated Financial
Statements (Continued)
As of September 30, 2011, the Company has certain future
purchase commitments aggregating to approximately $505,586,
which will be expended over the next several years.
Contingencies
Given the uncertain nature of litigation generally, the Company
is not able in all cases to estimate the amount or range of loss
that could result from an unfavorable outcome of the litigation
to which the Company is a party. In accordance with
U.S. generally accepted accounting principles, the Company
establishes accruals to the extent probable future losses are
estimable (in the case of environmental matters, without
considering possible third-party recoveries). In view of the
uncertainties discussed below, the Company could incur charges
in excess of any currently established accruals and, to the
extent available, excess liability insurance. In the opinion of
management, any such future charges, individually or in the
aggregate, could have a material adverse effect on the
Companys consolidated results of operations and
consolidated cash flows.
The Company is named as a defendant in the following purported
class action suits brought on behalf of distributors and other
entities that purchase the Companys products (the
Distributor Plaintiffs), alleging that the Company
violated federal antitrust laws, resulting in the charging of
higher prices for the Companys products to the plaintiffs
and other purported class members.
|
|
|
|
|
Case
|
|
Court
|
|
Date Filed
|
|
Louisiana Wholesale Drug Company, Inc., et. al. vs. Becton
Dickinson and Company
|
|
U.S. District Court, Newark, New Jersey
|
|
March 25, 2005
|
SAJ Distributors, Inc. et. al. vs. Becton
Dickinson & Co.
|
|
U.S. District Court, Eastern District of Pennsylvania
|
|
September 6, 2005
|
Dik Drug Company, et. al. vs. Becton, Dickinson and
Company
|
|
U.S. District Court, Newark, New Jersey
|
|
September 12, 2005
|
American Sales Company, Inc. et. al. vs. Becton,
Dickinson & Co.
|
|
U.S. District Court, Eastern District of Pennsylvania
|
|
October 3, 2005
|
Park Surgical Co. Inc. et. al. vs. Becton, Dickinson and
Company
|
|
U.S. District Court, Eastern District of Pennsylvania
|
|
October 26, 2005
|
These actions have been consolidated under the caption
In re Hypodermic Products Antitrust
Litigation.
The Company is also named as a defendant in the following
purported class action suits brought on behalf of purchasers of
the Companys products, such as hospitals (the
Hospital Plaintiffs), alleging that the Company
violated federal and state antitrust laws, resulting in the
charging of higher prices for the Companys products to the
plaintiffs and other purported class members.
|
|
|
|
|
Case
|
|
Court
|
|
Date Filed
|
|
Jabos Pharmacy, Inc., et. al. v. Becton
Dickinson & Company
|
|
U.S. District Court, Greenville, Tennessee
|
|
June 7, 2005
|
Drug Mart Tallman, Inc., et. al. v. Becton Dickinson and
Company
|
|
U.S. District Court, Newark, New Jersey
|
|
January 17, 2006
|
Medstar v. Becton Dickinson
|
|
U.S. District Court, Newark, New Jersey
|
|
May 18, 2006
|
The Hebrew Home for the Aged at Riverdale v. Becton
Dickinson and Company
|
|
U.S. District Court, Southern District of New York
|
|
March 28, 2007
|
51
Becton,
Dickinson and Company
Notes to
Consolidated Financial
Statements (Continued)
The plaintiffs in each of the above antitrust class action
lawsuits seek monetary damages. All of the antitrust class
action lawsuits have been consolidated for pre-trial purposes in
a Multi-District Litigation (MDL) in Federal court in New
Jersey.
On April 27, 2009, the Company entered into a settlement
agreement with the Distributor Plaintiffs in these actions. The
settlement agreement provided for, among other things, the
payment by the Company of $45,000 in exchange for a release by
all potential class members of the direct purchaser claims under
federal antitrust laws related to the products and acts
enumerated in the complaint, and a dismissal of the case with
prejudice, insofar as it relates to direct purchaser claims. The
release would not cover potential class members that
affirmatively opt out of the settlement. On September 30,
2010, the court issued an order denying a motion to approve the
settlement agreement, ruling that the Hospital Plaintiffs, and
not the Distributor Plaintiffs, are the direct purchasers
entitled to pursue damages under the federal antitrust laws for
certain sales of BD products. The settlement agreement currently
remains in effect, subject to certain termination provisions,
and the federal court of appeals has granted the Distributor
Plaintiffs request to appeal the trial courts order
on an interlocutory basis. The Company currently cannot estimate
the range of reasonably possible losses with respect to these
class action matters beyond the $45,000 already accrued and
changes to the amount already recognized may be required in the
future as additional information becomes available.
In June 2007, Retractable Technologies, Inc. (RTI)
filed a complaint against the Company under the caption
Retractable Technologies, Inc. vs. Becton Dickinson and
Company (Civil Action
No. 2:07-cv-250,
U.S. District Court, Eastern District of Texas). RTI
alleges that the BD
Integratm
syringes infringe patents licensed exclusively to RTI. In its
complaint, RTI also alleges that the Company engaged in false
advertising with respect to certain of the Companys
safety-engineered products in violation of the Lanham Act; acted
to exclude RTI from various product markets and to maintain its
market share through, among other things, exclusionary contracts
in violation of state and federal antitrust laws; and engaged in
unfair competition. In January 2008, the court severed the
patent and non-patent claims into separate cases, and stayed the
non-patent claims during the pendency of the patent claims at
the trial court level. RTI seeks money damages and injunctive
relief. On April 1, 2008, RTI filed a complaint against BD
under the caption Retractable Technologies, Inc. and Thomas
J. Shaw v. Becton Dickinson and Company (Civil Action
No. 2:08-cv-141,
U.S. District Court, Eastern District of Texas). RTI
alleges that the BD
Integratm
syringes infringe another patent licensed exclusively to RTI.
RTI seeks money damages and injunctive relief. On
August 29, 2008, the court ordered the consolidation of the
patent cases. On November 9, 2009, at a trial of these
consolidated cases, the jury rendered a verdict in favor of RTI
on all but one of its infringement claims, but did not find any
willful infringement, and awarded RTI $5,000 in damages. On
May 19, 2010, the court granted RTIs motion for a
permanent injunction against the continued sale by the Company
of its BD
Integratm
products in their current form, but stayed the injunction for
the duration of the Companys appeal. At the same time, the
court lifted a stay of RTIs non-patent claims. On
July 8, 2011, the Court of Appeals for the Federal Circuit
reversed the District Court judgment that the Companys 3ml
BD
Integratm
products infringed the asserted RTI patents and affirmed the
District Court judgment of infringement against the
Companys discontinued 1ml BD
Integratm
products. On October 31, 2011, the Federal Circuit Court of
Appeals denied RTIs request for an en banc
rehearing. The trial on RTIs antitrust and false
advertising claims is scheduled to begin in February 2012. With
respect to RTIs antitrust and false advertising claims, BD
cannot estimate the possible loss or range of possible loss as
there are significant legal and factual issues to be resolved.
In the event that RTI succeeds at trial and subsequent appeals,
however, any potential loss could be material as RTI will likely
seek to recover substantial damages including disgorgement of
profits and damages under the federal antitrust laws which are
trebled. BD believes RTIs allegations are without merit.
On October 19, 2009, Gen-Probe Incorporated
(Gen-Probe) filed a patent infringement action
against BD in the U.S. District Court for the Southern
District of California. The complaint alleges that the BD
Vipertm
and BD
Vipertm
XTRtm
systems and BD
ProbeTectm
specimen collection products infringe certain U.S. patents
of Gen-Probe. On March 23, 2010, Gen-Probe filed a
complaint, also in the U.S. District Court
52
Becton,
Dickinson and Company
Notes to
Consolidated Financial
Statements (Continued)
for the Southern District of California, alleging that the BD
Maxtm
instrument infringes Gen-Probe patents. The patents alleged to
be infringed are a subset of the Gen-Probe patents asserted
against the Company in the October 2009 suit. On June 8,
2010, the Court consolidated these cases. Gen-Probe is seeking
monetary damages and injunctive relief. The Company currently
cannot estimate the range of reasonably possible losses for this
matter as the proceedings are in relatively early stages and
there are significant issues to be resolved.
The Company believes that it has meritorious defenses to each of
the above-mentioned suits pending against the Company and is
engaged in a vigorous defense of each of these matters.
The Company is also involved both as a plaintiff and a defendant
in other legal proceedings and claims that arise in the ordinary
course of business.
The Company is a party to a number of Federal proceedings in the
United States brought under the Comprehensive Environment
Response, Compensation and Liability Act, also known as
Superfund, and similar state laws. The affected
sites are in varying stages of development. In some instances,
the remedy has been completed, while in others, environmental
studies are commencing. For all sites, there are other
potentially responsible parties that may be jointly or severally
liable to pay all cleanup costs.
The Companys organizational structure is based upon its
three principal business segments: BD Medical
(Medical), BD Diagnostics (Diagnostics)
and BD Biosciences (Biosciences). These segments are
strategic businesses that are managed separately because each
one develops, manufactures and markets distinct products and
services.
The Medical segment produces a broad array of medical devices
that are used in a wide range of healthcare settings. The
principal product lines in the Medical segment include needles,
syringes and intravenous catheters for medication delivery
(including safety-engineered and auto-disable devices);
prefilled IV flush syringes; syringes and pen needles for
the self-injection of insulin and other drugs used in the
treatment of diabetes; prefillable drug delivery devices
provided to pharmaceutical companies and sold to end-users as
drug/device combinations; regional anesthesia needles and trays;
sharps disposal containers; and closed-system transfer devices.
The Diagnostics segment produces products for the safe
collection and transport of diagnostic specimens, as well as
instrument systems and reagents to detect a broad range of
infectious diseases, healthcare-associated infections
(HAIs) and cancers. The principal products and
services in the Diagnostics segment include integrated systems
for specimen collection; safety-engineered blood collection
products and systems; automated blood culturing systems;
molecular testing systems for infectious diseases and
womens health; microorganism identification and drug
susceptibility systems; liquid-based cytology systems for
cervical cancer screening; rapid diagnostic assays; and plated
media.
The Biosciences segment produces research and clinical tools
that facilitate the study of cells, and the components of cells,
to gain a better understanding of normal and disease processes.
The principal product lines in the Biosciences segment include
fluorescence-activated cell sorters and analyzers; monoclonal
antibodies and kits for performing cell analysis; reagent
systems for life science research; cell imaging systems;
laboratory products for tissue culture and fluid handling;
diagnostic assays; and cell culture media supplements for
biopharmaceutical manufacturing.
The Company evaluates performance of its business segments and
allocates resources to them primarily based upon operating
income. Segment operating income represents revenues reduced by
product costs and operating expenses. From time to time, the
Company hedges against certain forecasted sales of
U.S.-produced
products sold outside the United States. Gains and losses
associated with these foreign currency translation hedges are
reported in segment revenues based upon their proportionate
share of these international sales of
U.S.-produced
products.
53
Becton,
Dickinson and Company
Notes to
Consolidated Financial
Statements (Continued)
Distribution of products is primarily through independent
distribution channels, and directly to end-users by BD and
independent sales representatives. No customer accounted for 10%
or more of revenues in any of the three years presented.
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues(A)
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
Medical
|
|
$
|
4,007,304
|
|
|
$
|
3,796,432
|
|
|
$
|
3,556,694
|
|
Diagnostics
|
|
|
2,480,477
|
|
|
|
2,318,879
|
|
|
|
2,226,219
|
|
Biosciences
|
|
|
1,341,123
|
|
|
|
1,257,022
|
|
|
|
1,203,809
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
7,828,904
|
|
|
$
|
7,372,333
|
|
|
$
|
6,986,722
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment Operating Income
|
|
|
|
|
|
|
|
|
|
|
|
|
Medical
|
|
$
|
1,181,404
|
|
|
$
|
1,118,319
|
|
|
$
|
1,049,236
|
|
Diagnostics
|
|
|
636,361
|
|
|
|
607,411
|
|
|
|
607,250
|
|
Biosciences
|
|
|
376,389
|
|
|
|
354,229
|
|
|
|
362,344
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Segment Operating Income
|
|
|
2,194,154
|
|
|
|
2,079,959
|
|
|
|
2,018,830
|
|
Unallocated Expenses(B)
|
|
|
(477,891
|
)
|
|
|
(418,799
|
)
|
|
|
(440,239
|
)(C)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income From Continuing Operations Before Income Taxes
|
|
$
|
1,716,263
|
|
|
$
|
1,661,160
|
|
|
$
|
1,578,591
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Medical
|
|
$
|
3,928,241
|
|
|
$
|
3,527,457
|
|
|
$
|
3,706,086
|
|
Diagnostics
|
|
|
2,269,797
|
|
|
|
2,301,586
|
|
|
|
1,998,490
|
|
Biosciences
|
|
|
1,332,246
|
|
|
|
1,059,774
|
|
|
|
989,299
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Segment Assets
|
|
|
7,530,284
|
|
|
|
6,888,817
|
|
|
|
6,693,875
|
|
Corporate and All Other(D)
|
|
|
2,900,144
|
|
|
|
2,761,877
|
|
|
|
2,610,749
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
10,430,428
|
|
|
$
|
9,650,694
|
|
|
$
|
9,304,624
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital Expenditures
|
|
|
|
|
|
|
|
|
|
|
|
|
Medical
|
|
$
|
366,915
|
|
|
$
|
368,857
|
|
|
$
|
407,884
|
|
Diagnostics
|
|
|
93,435
|
|
|
|
108,941
|
|
|
|
102,432
|
|
Biosciences
|
|
|
37,220
|
|
|
|
49,821
|
|
|
|
55,646
|
|
Corporate and All Other
|
|
|
17,815
|
|
|
|
9,687
|
|
|
|
19,234
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
515,385
|
|
|
$
|
537,306
|
|
|
$
|
585,196
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and Amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
Medical
|
|
$
|
248,091
|
|
|
$
|
253,109
|
|
|
$
|
243,445
|
|
Diagnostics
|
|
|
163,313
|
|
|
|
163,392
|
|
|
|
136,690
|
|
Biosciences
|
|
|
76,861
|
|
|
|
72,319
|
|
|
|
73,067
|
|
Corporate and All Other
|
|
|
15,824
|
|
|
|
13,293
|
|
|
|
11,402
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
504,089
|
|
|
$
|
502,113
|
|
|
$
|
464,604
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(A) |
|
Intersegment revenues are not material. |
|
(B) |
|
Includes primarily interest, net; foreign exchange; corporate
expenses; and share-based compensation expense. |
54
Becton,
Dickinson and Company
Notes to
Consolidated Financial
Statements (Continued)
|
|
|
(C) |
|
Includes charge associated with the settlement with the direct
purchaser plaintiffs (which includes BDs distributors) in
certain antitrust class actions. |
|
(D) |
|
Includes cash and investments and corporate assets. |
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues by Organizational Units
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
BD Medical
|
|
|
|
|
|
|
|
|
|
|
|
|
Medical Surgical Systems
|
|
$
|
2,081,733
|
|
|
$
|
2,010,009
|
|
|
$
|
1,889,314
|
|
Diabetes Care
|
|
|
866,477
|
|
|
|
785,759
|
|
|
|
714,937
|
|
Pharmaceutical Systems
|
|
|
1,059,094
|
|
|
|
1,000,664
|
|
|
|
952,443
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4,007,304
|
|
|
$
|
3,796,432
|
|
|
$
|
3,556,694
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BD Diagnostics
|
|
|
|
|
|
|
|
|
|
|
|
|
Preanalytical Systems
|
|
$
|
1,277,793
|
|
|
$
|
1,197,807
|
|
|
$
|
1,143,431
|
|
Diagnostic Systems
|
|
|
1,202,684
|
|
|
|
1,121,072
|
|
|
|
1,082,788
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,480,477
|
|
|
$
|
2,318,879
|
|
|
$
|
2,226,219
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BD Biosciences
|
|
|
|
|
|
|
|
|
|
|
|
|
Cell Analysis
|
|
$
|
1,024,445
|
|
|
$
|
951,238
|
|
|
$
|
904,517
|
|
Discovery Labware
|
|
|
316,678
|
|
|
|
305,784
|
|
|
|
299,292
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,341,123
|
|
|
$
|
1,257,022
|
|
|
$
|
1,203,809
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
7,828,904
|
|
|
$
|
7,372,333
|
|
|
$
|
6,986,722
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Geographic
Information
The countries in which the Company has local revenue-generating
operations have been combined into the following geographic
areas: the United States (including Puerto Rico), Europe, Asia
Pacific and Other, which is comprised of Latin America, Canada,
and Japan.
Revenues to unaffiliated customers are based upon the source of
the product shipment. Long-lived assets, which include net
property, plant and equipment, are based upon physical location.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
3,355,769
|
|
|
$
|
3,286,565
|
|
|
$
|
3,130,165
|
|
Europe
|
|
|
2,497,278
|
|
|
|
2,386,965
|
|
|
|
2,408,319
|
|
Asia Pacific
|
|
|
817,323
|
|
|
|
684,319
|
|
|
|
563,390
|
|
Other
|
|
|
1,158,534
|
|
|
|
1,014,484
|
|
|
|
884,848
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
7,828,904
|
|
|
$
|
7,372,333
|
|
|
$
|
6,986,722
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-Lived Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
3,140,395
|
|
|
$
|
2,841,639
|
|
|
$
|
2,469,952
|
|
Europe
|
|
|
1,461,085
|
|
|
|
1,145,043
|
|
|
|
1,150,655
|
|
Asia Pacific
|
|
|
300,006
|
|
|
|
258,879
|
|
|
|
231,257
|
|
Other
|
|
|
590,544
|
|
|
|
617,323
|
|
|
|
537,214
|
|
Corporate
|
|
|
270,067
|
|
|
|
282,560
|
|
|
|
268,592
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
5,762,097
|
|
|
$
|
5,145,444
|
|
|
$
|
4,657,670
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
55
Becton,
Dickinson and Company
Notes to
Consolidated Financial
Statements (Continued)
|
|
Note 7
|
Share-Based
Compensation
|
The Company grants share-based awards under the 2004 Employee
and Director Equity-Based Compensation Plan (2004
Plan), which provides long-term incentive compensation to
employees and directors consisting of: stock appreciation rights
(SARs), stock options, performance-based restricted
stock units, time-vested restricted stock units and other stock
awards.
The amounts and location of compensation cost relating to
share-based payments included in consolidated statements of
income is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
Cost of products sold
|
|
$
|
14,440
|
|
|
$
|
15,128
|
|
|
$
|
16,846
|
|
Selling and administrative expense
|
|
|
49,536
|
|
|
|
54,423
|
|
|
|
58,920
|
|
Research and development expense
|
|
|
9,387
|
|
|
|
9,823
|
|
|
|
10,808
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
73,363
|
|
|
$
|
79,374
|
|
|
$
|
86,574
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The associated income tax benefit recognized was $26,342,
$28,532 and $31,307, respectively.
Stock
Appreciation Rights
SARs represent the right to receive, upon exercise, shares of
common stock having a value equal to the difference between the
market price of common stock on the date of exercise and the
exercise price on the date of grant. SARs vest over a four-year
period and have a ten-year term. The fair value was estimated on
the date of grant using a lattice-based binomial option
valuation model that uses the following weighted-average
assumptions:
|
|
|
|
|
|
|
|
|
2011
|
|
2010
|
|
2009
|
|
Risk-free interest rate
|
|
2.40%
|
|
2.60%
|
|
2.73%
|
Expected volatility
|
|
24.00%
|
|
28.0%
|
|
28.0%
|
Expected dividend yield
|
|
2.14%
|
|
1.96%
|
|
2.11%
|
Expected life
|
|
7.8 years
|
|
6.5 years
|
|
6.5 years
|
Fair value derived
|
|
$16.80
|
|
$19.70
|
|
$16.11
|
Expected volatility is based upon historical volatility for the
Companys common stock and other factors. The expected life
of SARs granted is derived from the output of the lattice-based
model, using assumed exercise rates based on historical exercise
and termination patterns, and represents the period of time that
SARs granted are expected to be outstanding. The risk-free
interest rate used is based upon the published
U.S. Treasury yield curve in effect at the time of grant
for instruments with a similar life. The dividend yield is based
upon the most recently declared quarterly dividend as of the
grant date. The total intrinsic value of SARs exercised during
2011, 2010, and 2009 was $9,185, $2,831, and $406, respectively.
The Company issued 81,848 shares during 2011 to satisfy the
SARs exercised. The actual tax benefit realized during 2011,
2010, and 2009 for tax deductions from SAR exercises totaled
$3,459, $1,031 and $154, respectively. The total fair value of
SARs vested during 2011, 2010 and 2009 was $31,992, $33,640 and
$24,888, respectively.
56
Becton,
Dickinson and Company
Notes to
Consolidated Financial
Statements (Continued)
A summary of SARs outstanding as of September 30, 2011, and
changes during the year then ended is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
|
|
|
Average
|
|
|
Contractual Term
|
|
|
Intrinsic
|
|
|
|
SARs
|
|
|
Exercise Price
|
|
|
(Years)
|
|
|
Value
|
|
|
Balance at October 1
|
|
|
7,659,155
|
|
|
$
|
70.46
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
2,216,436
|
|
|
|
76.64
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(555,155
|
)
|
|
|
66.58
|
|
|
|
|
|
|
|
|
|
Forfeited, canceled or expired
|
|
|
(293,399
|
)
|
|
|
72.71
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30
|
|
|
9,027,037
|
|
|
$
|
72.14
|
|
|
|
7.07
|
|
|
$
|
35,203
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and expected to vest at September 30
|
|
|
8,584,694
|
|
|
$
|
72.03
|
|
|
|
7.00
|
|
|
$
|
34,346
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at September 30
|
|
|
4,603,602
|
|
|
$
|
70.09
|
|
|
|
5.85
|
|
|
$
|
26,631
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
options
The Company has not granted stock options since 2005. All
outstanding stock option grants are fully vested and have a
ten-year term.
A summary of stock options outstanding as of September 30,
2011 and changes during the year then ended is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
Stock
|
|
|
Average
|
|
|
Contractual Term
|
|
|
Intrinsic
|
|
|
|
Options
|
|
|
Exercise Price
|
|
|
(Years)
|
|
|
Value
|
|
|
Balance at October 1
|
|
|
6,433,148
|
|
|
$
|
38.12
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(2,927,278
|
)
|
|
|
35.28
|
|
|
|
|
|
|
|
|
|
Forfeited, canceled or expired
|
|
|
(48,519
|
)
|
|
|
32.22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30
|
|
|
3,457,351
|
|
|
$
|
40.61
|
|
|
|
2.04
|
|
|
$
|
113,078
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and expected to vest at September 30
|
|
|
3,457,351
|
|
|
$
|
40.61
|
|
|
|
2.04
|
|
|
$
|
113,078
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at September 30
|
|
|
3,457,351
|
|
|
$
|
40.61
|
|
|
|
2.04
|
|
|
$
|
113,078
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash received from the exercising of stock options in 2011, 2010
and 2009 was $103,267, $72,770 and $53,019, respectively. The
actual tax benefit realized for tax deductions from stock option
exercises totaled $45,829, $28,660 and $16,931, respectively.
The total intrinsic value of stock options exercised during the
years 2011, 2010 and 2009 was $137,720, $89,943 and $53,630,
respectively. The total fair value of stock options vested
during 2011, 2010 and 2009 was $0, $0 and $6,083, respectively.
Performance-Based
Restricted Stock Units
Performance-based restricted stock units cliff vest three years
after the date of grant. These units are tied to the
Companys performance against pre-established targets,
including its average growth rate of consolidated revenues and
average return on invested capital, over a three-year
performance period. Under the Companys long-term incentive
program, the actual payout under these awards may vary from zero
to 200% of an
57
Becton,
Dickinson and Company
Notes to
Consolidated Financial
Statements (Continued)
employees target payout, based on the Companys
actual performance over the three-year performance period. The
fair value is based on the market price of the Companys
stock on the date of grant. Compensation cost initially
recognized assumes that the target payout level will be achieved
and is adjusted for subsequent changes in the expected outcome
of performance-related conditions.
A summary of performance-based restricted stock units
outstanding as of September 30, 2011 and changes during the
year then ended is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
Stock
|
|
|
Average Grant
|
|
|
|
Units
|
|
|
Date Fair Value
|
|
|
Balance at October 1
|
|
|
2,879,568
|
|
|
$
|
72.79
|
|
Granted
|
|
|
944,174
|
|
|
|
76.64
|
|
Distributed
|
|
|
(122,554
|
)
|
|
|
84.29
|
|
Forfeited or canceled
|
|
|
(798,254
|
)
|
|
|
82.24
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30(A)
|
|
|
2,902,934
|
|
|
$
|
70.96
|
|
|
|
|
|
|
|
|
|
|
Expected to vest at September 30(B)
|
|
|
234,015
|
|
|
$
|
70.32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(A) |
|
Based on 200% of target payout. |
|
(B) |
|
Net of expected forfeited units and units in excess of the
expected performance payout of 180,182 and 2,488,737,
respectively. |
The weighted average grant date fair value of performance-based
restricted stock units granted during the years 2010 and 2009
was $75.63 and $62.50, respectively. The total fair value of
performance-based restricted stock units vested during 2011,
2010 and 2009 was $15,430, $24,357 and $33,712, respectively. At
September 30, 2011, the weighted average remaining vesting
term of performance-based restricted stock units is
1.08 years.
Time-Vested
Restricted Stock Units
Time-vested restricted stock units generally cliff vest three
years after the date of grant, except for certain key executives
of the Company, including the executive officers, for which such
units generally vest one year following the employees
retirement. The related share-based compensation expense is
recorded over the requisite service period, which is the vesting
period or in the case of certain key executives is based on
retirement eligibility. The fair value of all time-vested
restricted stock units is based on the market value of the
Companys stock on the date of grant.
A summary of time-vested restricted stock units outstanding as
of September 30, 2011 and changes during the year then
ended is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
Stock
|
|
|
Average Grant
|
|
|
|
Units
|
|
|
Date Fair Value
|
|
|
Balance at October 1
|
|
|
1,808,295
|
|
|
$
|
70.90
|
|
Granted
|
|
|
600,651
|
|
|
|
76.97
|
|
Distributed
|
|
|
(301,196
|
)
|
|
|
80.46
|
|
Forfeited or canceled
|
|
|
(197,080
|
)
|
|
|
77.77
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30
|
|
|
1,910,670
|
|
|
$
|
70.59
|
|
|
|
|
|
|
|
|
|
|
Expected to vest at September 30
|
|
|
1,719,603
|
|
|
$
|
70.59
|
|
|
|
|
|
|
|
|
|
|
58
Becton,
Dickinson and Company
Notes to
Consolidated Financial
Statements (Continued)
The weighted average grant date fair value of time-vested
restricted stock units granted during the years 2010 and 2009
was $75.58 and $62.96, respectively. The total fair value of
time-vested restricted stock units vested during 2011, 2010 and
2009 was $36,009, $36,675 and $29,535, respectively. At
September 30, 2011, the weighted average remaining vesting
term of the time-vested restricted stock units is
1.36 years.
The amount of unrecognized compensation expense for all
non-vested share-based awards as of September 30, 2011, is
approximately $80,744, which is expected to be recognized over a
weighted-average remaining life of approximately
2.09 years. At September 30, 2011,
7,717,344 shares were authorized for future grants under
the 2004 Plan.
The Company has a policy of satisfying share-based payments
through either open market purchases or shares held in treasury.
At September 30, 2011, the Company has sufficient shares
held in treasury to satisfy these payments in 2011.
Other
Stock Plans
The Company has a Stock Award Plan, which allows for grants of
common shares to certain key employees. Distribution of 25% or
more of each award is deferred until after retirement or
involuntary termination, upon which the deferred portion of the
award is distributable in five equal annual installments. The
balance of the award is distributable over five years from the
grant date, subject to certain conditions. In February 2004,
this plan was terminated with respect to future grants upon the
adoption of the 2004 Plan. At September 30, 2011 and 2010,
awards for 97,705 and 106,293 shares, respectively, were
outstanding.
The Company has a Restricted Stock Plan for Non-Employee
Directors which reserves for issuance of 300,000 shares of
the Companys common stock. No restricted shares were
issued in 2011.
The Company has a Directors Deferral Plan, which provides
a means to defer director compensation, from time to time, on a
deferred stock or cash basis. As of September 30, 2011,
97,628 shares were held in trust, of which
4,212 shares represented Directors compensation in
2011, in accordance with the provisions of the plan. Under this
plan, which is unfunded, directors have an unsecured contractual
commitment from the Company.
The Company also has a Deferred Compensation Plan that allows
certain highly-compensated employees, including executive
officers, to defer salary, annual incentive awards and certain
equity-based compensation. As of September 30, 2011,
508,144 shares were issuable under this plan.
The Company has defined benefit pension plans covering
substantially all of its employees in the United States and
certain foreign locations. The Company also provides certain
postretirement healthcare and life insurance benefits to
qualifying domestic retirees. Postretirement healthcare and life
insurance benefit plans in foreign countries are not material.
The measurement date used for the Companys employee
benefit plans is September 30.
59
Becton,
Dickinson and Company
Notes to
Consolidated Financial
Statements (Continued)
Net pension and other postretirement cost for the years ended
September 30 included the following components:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Plans
|
|
|
Other Postretirement Benefits
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
Service cost
|
|
$
|
88,692
|
|
|
$
|
72,901
|
|
|
$
|
55,004
|
|
|
$
|
5,842
|
|
|
$
|
5,007
|
|
|
$
|
3,441
|
|
Interest cost
|
|
|
93,228
|
|
|
|
90,432
|
|
|
|
87,480
|
|
|
|
13,143
|
|
|
|
14,190
|
|
|
|
15,338
|
|
Expected return on plan assets
|
|
|
(103,081
|
)
|
|
|
(99,199
|
)
|
|
|
(86,819
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of prior service (credit) cost
|
|
|
(1,294
|
)
|
|
|
(1,091
|
)
|
|
|
(1,099
|
)
|
|
|
(686
|
)
|
|
|
4
|
|
|
|
(463
|
)
|
Amortization of loss (gain)
|
|
|
55,735
|
|
|
|
41,812
|
|
|
|
17,235
|
|
|
|
4,465
|
|
|
|
3,408
|
|
|
|
(143
|
)
|
Amortization of net asset
|
|
|
(34
|
)
|
|
|
(47
|
)
|
|
|
(59
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Curtailment/settlement loss
|
|
|
1,096
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
134,342
|
|
|
$
|
104,808
|
|
|
$
|
71,742
|
|
|
$
|
22,764
|
|
|
$
|
22,609
|
|
|
$
|
18,173
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net pension cost attributable to foreign plans included in the
preceding table was $34,429, $25,820 and $24,971 in 2011, 2010
and 2009, respectively.
The change in benefit obligation, change in fair value of plan
assets, funded status and amounts recognized in the Consolidated
Balance Sheets for these plans were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Postretirement
|
|
|
|
Pension Plans
|
|
|
Benefits
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
|
Change in benefit obligation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning obligation
|
|
$
|
1,911,295
|
|
|
$
|
1,635,334
|
|
|
$
|
260,124
|
|
|
$
|
249,593
|
|
Service cost
|
|
|
88,692
|
|
|
|
72,901
|
|
|
|
5,842
|
|
|
|
5,007
|
|
Interest cost
|
|
|
93,228
|
|
|
|
90,432
|
|
|
|
13,143
|
|
|
|
14,190
|
|
Plan amendments
|
|
|
(3,683
|
)
|
|
|
60
|
|
|
|
|
|
|
|
(6,702
|
)
|
Benefits paid
|
|
|
(108,381
|
)
|
|
|
(101,394
|
)
|
|
|
(25,776
|
)
|
|
|
(25,046
|
)
|
Actuarial loss
|
|
|
22,146
|
|
|
|
224,890
|
|
|
|
8,277
|
|
|
|
16,233
|
|
Other, includes translation
|
|
|
(6,856
|
)
|
|
|
(10,928
|
)
|
|
|
7,848
|
|
|
|
6,849
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation at September 30
|
|
$
|
1,996,441
|
|
|
$
|
1,911,295
|
|
|
$
|
269,458
|
|
|
$
|
260,124
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in fair value of plan assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning fair value
|
|
$
|
1,413,848
|
|
|
$
|
1,209,135
|
|
|
$
|
|
|
|
$
|
|
|
Actual return on plan assets
|
|
|
1,391
|
|
|
|
109,310
|
|
|
|
|
|
|
|
|
|
Employer contribution
|
|
|
53,505
|
|
|
|
207,775
|
|
|
|
|
|
|
|
|
|
Benefits paid
|
|
|
(108,381
|
)
|
|
|
(101,394
|
)
|
|
|
|
|
|
|
|
|
Other, includes translation
|
|
|
(7,633
|
)
|
|
|
(10,978
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plan assets at September 30
|
|
$
|
1,352,730
|
|
|
$
|
1,413,848
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
60
Becton,
Dickinson and Company
Notes to
Consolidated Financial
Statements (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Postretirement
|
|
|
|
Pension Plans
|
|
|
Benefits
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
|
Funded Status at September 30:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unfunded benefit obligation
|
|
$
|
(643,711
|
)
|
|
$
|
(497,447
|
)
|
|
$
|
(269,458
|
)
|
|
$
|
(260,124
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts recognized in the Consolidated Balance Sheets at
September 30:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
$
|
3,217
|
|
|
$
|
143
|
|
|
$
|
|
|
|
$
|
|
|
Salaries, wages and related items
|
|
|
(6,042
|
)
|
|
|
(6,492
|
)
|
|
|
(18,188
|
)
|
|
|
(17,875
|
)
|
Long-term Employee Benefit Obligations
|
|
|
(640,886
|
)
|
|
|
(491,098
|
)
|
|
|
(251,270
|
)
|
|
|
(242,249
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net amount recognized
|
|
$
|
(643,711
|
)
|
|
$
|
(497,447
|
)
|
|
$
|
(269,458
|
)
|
|
$
|
(260,124
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts recognized in Accumulated other comprehensive (loss)
income before income taxes at September 30:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net transition asset
|
|
$
|
398
|
|
|
$
|
513
|
|
|
$
|
|
|
|
$
|
|
|
Prior service credit
|
|
|
9,193
|
|
|
|
6,530
|
|
|
|
6,013
|
|
|
|
6,699
|
|
Net actuarial loss
|
|
|
(911,146
|
)
|
|
|
(843,284
|
)
|
|
|
(70,653
|
)
|
|
|
(67,009
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net amount recognized
|
|
$
|
(901,555
|
)
|
|
$
|
(836,241
|
)
|
|
$
|
(64,640
|
)
|
|
$
|
(60,310
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign pension plan assets at fair value included in the
preceding table were $419,452 and $402,298 at September 30,
2011 and 2010, respectively. The foreign pension plan projected
benefit obligations were $500,969 and $560,640 at
September 30, 2011 and 2010, respectively.
Pension plans with accumulated benefit obligations in excess of
plan assets and plans with projected benefit obligations in
excess of plan assets consist of the following at September 30:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated Benefit
|
|
Projected Benefit
|
|
|
Obligation Exceeds the
|
|
Obligation Exceeds the
|
|
|
Fair Value of Plan Assets
|
|
Fair Value of Plan Assets
|
|
|
2011
|
|
2010
|
|
2011
|
|
2010
|
|
Projected benefit obligation
|
|
$
|
1,616,534
|
|
|
$
|
1,669,986
|
|
|
$
|
1,862,441
|
|
|
$
|
1,903,939
|
|
Accumulated benefit obligation
|
|
$
|
1,338,643
|
|
|
$
|
1,410,029
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets
|
|
$
|
989,043
|
|
|
$
|
1,224,095
|
|
|
$
|
1,215,513
|
|
|
$
|
1,406,349
|
|
The estimated net actuarial loss and prior service credit for
pension benefits that will be amortized from Accumulated other
comprehensive (loss) income into net pension costs over the next
fiscal year are expected to be $(62,700) and $1,772,
respectively. The estimated net actuarial loss and prior service
credit for other postretirement benefits that will be amortized
from Accumulated other comprehensive (loss) income into net
other postretirement costs over the next fiscal year are
expected to be $(4,645) and $690, respectively.
61
Becton,
Dickinson and Company
Notes to
Consolidated Financial
Statements (Continued)
The weighted average assumptions used in determining pension
plan information were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
2010
|
|
2009
|
|
Net Cost
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. plans(A)
|
|
|
5.20
|
%
|
|
|
5.90
|
%
|
|
|
8.00
|
%
|
Foreign plans
|
|
|
4.68
|
|
|
|
5.63
|
|
|
|
6.03
|
|
Expected return on plan assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. plans
|
|
|
8.00
|
|
|
|
8.00
|
|
|
|
8.00
|
|
Foreign plans
|
|
|
6.31
|
|
|
|
6.38
|
|
|
|
6.45
|
|
Rate of compensation increase:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. plans(A)
|
|
|
4.50
|
|
|
|
4.50
|
|
|
|
4.50
|
|
Foreign plans
|
|
|
3.56
|
|
|
|
3.35
|
|
|
|
3.56
|
|
Benefit Obligation
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. plans(A)
|
|
|
4.90
|
|
|
|
5.20
|
|
|
|
5.90
|
|
Foreign plans
|
|
|
5.26
|
|
|
|
4.68
|
|
|
|
5.63
|
|
Rate of compensation increase:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. plans(A)
|
|
|
4.25
|
|
|
|
4.50
|
|
|
|
4.50
|
|
Foreign plans
|
|
|
3.61
|
|
|
|
3.56
|
|
|
|
3.35
|
|
|
|
|
(A) |
|
Also used to determine other postretirement and postemployment
benefit plan information. |
At September 30, 2011 the assumed healthcare trend rates
were 7.6% pre and post age 65, gradually decreasing to an
ultimate rate of 5.0% beginning in 2024. At September 30,
2010 the corresponding assumed healthcare trend rates were 7.8%
pre and post age 65, gradually decreasing to an ultimate
rate of 4.5% beginning in 2027. A one percentage point increase
in assumed healthcare cost trend rates in each year would
increase the accumulated postretirement benefit obligation as of
September 30, 2011 by $8,566 and the aggregate of the
service cost and interest cost components of 2011 annual expense
by $828. A one percentage point decrease in the assumed
healthcare cost trend rates in each year would decrease the
accumulated postretirement benefit obligation as of
September 30, 2011 by $7,617 and the aggregate of the 2011
service cost and interest cost by $723.
Expected
Rate of Return on Plan Assets
The expected rate of return on plan assets is based upon
expectations of long-term average rates of return to be achieved
by the underlying investment portfolios. In establishing this
assumption, the Company considers many factors, including
historical assumptions compared with actual results; benchmark
data; expected returns on various plan asset classes, as well as
current and expected asset allocations.
Expected
Funding
The Companys funding policy for its defined benefit
pension plans is to contribute amounts sufficient to meet legal
funding requirements, plus any additional amounts that may be
appropriate considering the funded status of the plans, tax
consequences, the cash flow generated by the Company and other
factors. While the Company does not anticipate any significant
required contributions to its pension plans in 2012, the Company
made a discretionary contribution of $100,000 to its
U.S. pension plan in October 2011.
62
Becton,
Dickinson and Company
Notes to
Consolidated Financial
Statements (Continued)
Expected benefit payments are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
Pension
|
|
Postretirement
|
|
|
Plans
|
|
Benefits
|
|
2012
|
|
$
|
128,921
|
|
|
$
|
18,188
|
|
2013
|
|
|
96,178
|
|
|
|
18,708
|
|
2014
|
|
|
101,061
|
|
|
|
19,224
|
|
2015
|
|
|
111,483
|
|
|
|
19,778
|
|
2016
|
|
|
116,066
|
|
|
|
20,199
|
|
2017-2021
|
|
|
735,367
|
|
|
|
102,714
|
|
Expected receipts of the subsidy under the Medicare Prescription
Drug Improvement and Modernization Act of 2003, which are not
reflected in the expected other postretirement benefit payments
included in the preceding table, are as follows: 2012, $2,314;
2013, $2,440; 2014, $2,549; 2015, $2,623; 2016, $2,684;
2017-2021,
$13,800.
Investments
The Companys primary objective is to achieve returns
sufficient to meet future benefit obligations. It seeks to
generate above market returns by investing in more volatile
asset classes such as equities while at the same time
controlling risk with allocations to more stable asset classes
like fixed income.
U.S.
Plans
The Companys U.S. plans comprise 69% of total benefit
plan investments, based on September 30, 2011 market
values, and have a target asset mix of 65% equities and 35%
fixed income. This mix was established based on an analysis of
projected benefit payments and estimates of long-term returns,
volatilities and correlations for various asset classes. The mix
is reviewed periodically by the named fiduciary of the plans and
is intended to provide above-market returns at an acceptable
level of risk over time.
The established target mix includes ranges by which the target
may deviate in order to accommodate normal market fluctuations.
Routine cash flows are used to bring the mix closer to target
and a move outside of the acceptable ranges will signal the
potential for a formal rebalancing, based on an assessment of
current market conditions and transaction costs. Any tactical
deviations from the established asset mix require the approval
of the named fiduciary.
The U.S. plans may enter into both exchange traded and
non-exchange traded derivative transactions in order to manage
interest rate exposure, volatility, term structure of interest
rates, and sector and currency exposures within the fixed income
portfolios. The Company has established minimum credit quality
standards for counterparties in such transactions.
63
Becton,
Dickinson and Company
Notes to
Consolidated Financial
Statements (Continued)
The following table provides the fair value measurements of
U.S. plan assets, as well as the measurement techniques and
inputs utilized to measure fair value of these assets, at
September 30, 2011 and 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total U.S.
|
|
|
|
|
|
|
|
|
|
|
|
|
Plan Asset
|
|
|
Quoted Prices in
|
|
|
Significant
|
|
|
|
|
|
|
Balances at
|
|
|
Active Markets
|
|
|
Other
|
|
|
Significant
|
|
|
|
September 30,
|
|
|
for Identical
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
2011
|
|
|
Assets (Level 1)
|
|
|
Inputs (Level 2)
|
|
|
Inputs (Level 3)
|
|
|
Fixed Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage and asset-backed securities(A)
|
|
$
|
165,042
|
|
|
$
|
|
|
|
$
|
165,042
|
|
|
$
|
|
|
Corporate bonds(B)
|
|
|
111,954
|
|
|
|
|
|
|
|
111,954
|
|
|
|
|
|
Government and agency-U.S.(C)
|
|
|
41,885
|
|
|
|
26,577
|
|
|
|
15,308
|
|
|
|
|
|
Government and agency-Foreign(D)
|
|
|
6,836
|
|
|
|
|
|
|
|
6,836
|
|
|
|
|
|
Other(E)
|
|
|
8,277
|
|
|
|
|
|
|
|
8,277
|
|
|
|
|
|
Equity securities(F)
|
|
|
562,047
|
|
|
|
435,847
|
|
|
|
126,200
|
|
|
|
|
|
Cash and cash equivalents(G)
|
|
|
37,237
|
|
|
|
37,237
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets
|
|
$
|
933,278
|
|
|
$
|
499,661
|
|
|
$
|
433,617
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total U.S.
|
|
|
|
|
|
|
|
|
|
|
|
|
Plan Asset
|
|
|
Quoted Prices in
|
|
|
Significant
|
|
|
|
|
|
|
Balances at
|
|
|
Active Markets
|
|
|
Other
|
|
|
Significant
|
|
|
|
September 30,
|
|
|
for Identical
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
2010
|
|
|
Assets (Level 1)
|
|
|
Inputs (Level 2)
|
|
|
Inputs (Level 3)
|
|
|
Fixed Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage and asset-backed securities(A)
|
|
$
|
160,189
|
|
|
$
|
|
|
|
$
|
160,189
|
|
|
$
|
|
|
Corporate bonds(B)
|
|
|
109,331
|
|
|
|
|
|
|
|
109,331
|
|
|
|
|
|
Government and agency-U.S. (C)
|
|
|
41,175
|
|
|
|
21,416
|
|
|
|
19,759
|
|
|
|
|
|
Government and agency-Foreign(D)
|
|
|
15,960
|
|
|
|
|
|
|
|
15,960
|
|
|
|
|
|
Other(E)
|
|
|
3,337
|
|
|
|
|
|
|
|
3,337
|
|
|
|
|
|
Equity securities(F)
|
|
|
631,877
|
|
|
|
396,188
|
|
|
|
235,689
|
|
|
|
|
|
Cash and cash equivalents(G)
|
|
|
42,681
|
|
|
|
42,681
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets
|
|
$
|
1,004,550
|
|
|
$
|
460,285
|
|
|
$
|
544,265
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(A) |
|
Values are based upon a combination of observable prices,
independent pricing services and relevant broker quotes. |
|
(B) |
|
Values are based upon comparable securities with similar yields
and credit ratings. |
|
(C) |
|
Values of instruments classified as Level 1 are based on
the closing price reported on the major market on which the
investments are traded. Values of instruments classified as
Level 2 are based upon quoted market prices from observable
pricing sources. |
|
(D) |
|
Values are based upon quoted market prices from observable
pricing sources. |
|
(E) |
|
Classification contains various immaterial investments and
valuation varies by investment type. Values are primarily based
upon quoted market prices from observable pricing sources. |
|
(F) |
|
Values of instruments classified as Level 1 are based on
the closing price reported on the major market on which the
investments are traded. Values of instruments classified as
Level 2 are based on the net asset value provided by the
fund administrator, which is based on the value of the
underlying assets owned by the fund, less its liabilities and
then divided by the number of fund units outstanding. |
|
(G) |
|
Values are based upon quoted market prices or broker/dealer
quotations. |
64
Becton,
Dickinson and Company
Notes to
Consolidated Financial
Statements (Continued)
The U.S. portion of fixed income assets is invested in
mortgage-backed, corporate, government and agency and
asset-backed instruments. Mortgage-backed securities consist of
residential mortgage pass-through certificates. Corporate bonds
are diversified across industry and sector and, while consisting
primarily of investment grade instruments, include an allocation
to high-yield debt as well. U.S. government investments
consist of obligations of the U.S. Treasury and its
agencies.
The
non-U.S. portion
of fixed income investments consists primarily of corporate
bonds in developed markets but includes an allocation to
emerging markets debt as well. The value of derivative
instruments is not material and is included in the
Other category provided in the table above.
Equity securities included within the plans assets consist
of publicly-traded U.S. and
non-U.S. equity
securities. In order to achieve appropriate diversification,
these portfolios are allocated among multiple asset managers and
invested across market sectors, investment styles,
capitalization weights and geographic regions.
A portion of the U.S. plans assets consists of
investments in cash and cash equivalents, primarily to
accommodate liquidity requirements relating to trade settlement
and benefit payment activity.
Foreign
Plans
Foreign plan assets comprise 31% of the Companys total
benefit plan assets, based on market value at September 30,
2011. Such plans have local independent fiduciary committees,
with responsibility for development and oversight of investment
policy, including asset allocation decisions. In making such
decisions, consideration is given to local regulations,
investment practices and funding rules.
The following table provides the fair value measurements of
foreign plan assets, as well as the measurement techniques and
inputs utilized to measure fair value of these assets, at
September 30, 2011 and 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Foreign
|
|
|
|
|
|
|
|
|
|
|
|
|
Plan Asset
|
|
|
Quoted Prices in
|
|
|
Significant
|
|
|
|
|
|
|
Balances at
|
|
|
Active Markets
|
|
|
Other
|
|
|
Significant
|
|
|
|
September 30,
|
|
|
for Identical
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
2011
|
|
|
Assets (Level 1)
|
|
|
Inputs (Level 2)
|
|
|
Inputs (Level 3)
|
|
|
Fixed Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds(A)
|
|
$
|
34,905
|
|
|
$
|
|
|
|
$
|
34,905
|
|
|
$
|
|
|
Government and agency-U.S.(B)
|
|
|
1,065
|
|
|
|
1,065
|
|
|
|
|
|
|
|
|
|
Government and agency-Foreign(C)
|
|
|
77,949
|
|
|
|
36,687
|
|
|
|
41,262
|
|
|
|
|
|
Other(D)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities(E)
|
|
|
215,309
|
|
|
|
201,325
|
|
|
|
13,726
|
|
|
|
258
|
|
Cash and cash equivalents(F)
|
|
|
1,191
|
|
|
|
1,191
|
|
|
|
|
|
|
|
|
|
Real estate(G)
|
|
|
10,688
|
|
|
|
|
|
|
|
|
|
|
|
10,688
|
|
Insurance contracts(H)
|
|
|
78,345
|
|
|
|
|
|
|
|
|
|
|
|
78,345
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets
|
|
$
|
419,452
|
|
|
$
|
240,268
|
|
|
$
|
89,893
|
|
|
$
|
89,291
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
65
Becton,
Dickinson and Company
Notes to
Consolidated Financial
Statements (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Foreign
|
|
|
|
|
|
|
|
|
|
|
|
|
Plan Asset
|
|
|
Quoted Prices in
|
|
|
Significant
|
|
|
|
|
|
|
Balances at
|
|
|
Active Markets
|
|
|
Other
|
|
|
Significant
|
|
|
|
September 30,
|
|
|
for Identical
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
2010
|
|
|
Assets (Level 1)
|
|
|
Inputs (Level 2)
|
|
|
Inputs (Level 3)
|
|
|
Fixed Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds(A)
|
|
$
|
36,541
|
|
|
$
|
|
|
|
$
|
36,541
|
|
|
$
|
|
|
Government and agency-U.S.(B)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government and agency-Foreign(C)
|
|
|
65,561
|
|
|
|
34,387
|
|
|
|
31,174
|
|
|
|
|
|
Other(D)
|
|
|
8,797
|
|
|
|
|
|
|
|
8,797
|
|
|
|
|
|
Equity securities(E)
|
|
|
220,102
|
|
|
|
207,577
|
|
|
|
12,258
|
|
|
|
267
|
|
Cash and cash equivalents(F)
|
|
|
6,478
|
|
|
|
6,478
|
|
|
|
|
|
|
|
|
|
Real estate(G)
|
|
|
9,486
|
|
|
|
|
|
|
|
|
|
|
|
9,486
|
|
Insurance contracts(H)
|
|
|
62,333
|
|
|
|
|
|
|
|
89
|
|
|
|
62,244
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets
|
|
$
|
409,298
|
|
|
$
|
248,442
|
|
|
$
|
88,859
|
|
|
$
|
71,997
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(A) |
|
Values are based upon comparable securities with similar yields
and credit ratings. |
|
(B) |
|
Values are based on the closing price reported on the major
market on which the investments are traded. |
|
(C) |
|
Values of instruments classified as Level 1 are based on
the closing price reported on the major market on which the
investments are traded. Values of instruments classified as
Level 2 are based upon quoted market prices from observable
pricing sources. |
|
(D) |
|
Values are based upon quoted market prices from observable
pricing sources. |
|
(E) |
|
Values of instruments classified as Level 1 are based on
the closing price reported on the major market on which the
investments are traded. Values of instruments classified as
Level 2 are based on the net asset value provided by the
fund administrator, which is based on the value of the
underlying assets owned by the fund, less its liabilities and
then divided by the number of fund units outstanding. |
|
(F) |
|
Values are based upon quoted market prices or broker/dealer
quotations. |
|
(G) |
|
Values represent the estimated fair value based on the fair
value of the underlying investment value or cost, adjusted for
any accumulated earnings or losses. |
|
(H) |
|
Values approximately represent cash surrender value. |
Fixed income investments include corporate, U.S. government
and
non-U.S. government
securities. Equity securities included in the foreign plan
assets consist of publicly-traded U.S. and
non-U.S. equity
securities. Real estate investments consist of investments in
funds holding an interest in real properties. The foreign plans
also hold a portion of assets in cash and cash equivalents, in
order to accommodate liquidity requirements.
66
Becton,
Dickinson and Company
Notes to
Consolidated Financial
Statements (Continued)
The following table summarizes the changes, for the years ended
September 30, 2011 and 2010, in the fair value of foreign
pension assets measured using Level 3 inputs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
Real
|
|
|
Insurance
|
|
|
Total
|
|
|
|
Securities
|
|
|
Estate
|
|
|
Contracts
|
|
|
Assets
|
|
|
Balance at September 30, 2009
|
|
$
|
494
|
|
|
$
|
8,987
|
|
|
$
|
59,078
|
|
|
$
|
68,559
|
|
Actual return on plan assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Relating to assets held at September 30, 2010
|
|
|
|
|
|
|
558
|
|
|
|
2,075
|
|
|
|
2,633
|
|
Relating to assets sold during the period
|
|
|
(199
|
)
|
|
|
185
|
|
|
|
|
|
|
|
(14
|
)
|
Purchases, sales and settlements, net
|
|
|
7
|
|
|
|
122
|
|
|
|
|
|
|
|
129
|
|
Transfers in (out) from other categories
|
|
|
(3
|
)
|
|
|
|
|
|
|
4,866
|
|
|
|
4,863
|
|
Exchange rate changes
|
|
|
(32
|
)
|
|
|
(366
|
)
|
|
|
(3,775
|
)
|
|
|
(4,173
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2010
|
|
$
|
267
|
|
|
$
|
9,486
|
|
|
$
|
62,244
|
|
|
$
|
71,997
|
|
Actual return on plan assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Relating to assets held at September 30, 2011
|
|
|
(4
|
)
|
|
|
46
|
|
|
|
2,613
|
|
|
|
2,655
|
|
Relating to assets sold during the period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases, sales and settlements, net
|
|
|
|
|
|
|
1,363
|
|
|
|
14,710
|
|
|
|
16,073
|
|
Transfers in (out) from other categories
|
|
|
|
|
|
|
|
|
|
|
92
|
|
|
|
92
|
|
Exchange rate changes
|
|
|
(5
|
)
|
|
|
(207
|
)
|
|
|
(1,314
|
)
|
|
|
(1,526
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2011
|
|
$
|
258
|
|
|
|
10,688
|
|
|
$
|
78,345
|
|
|
$
|
89,291
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Postemployment
Benefits
The Company utilizes a service-based approach in accounting for
most of its postemployment benefits. Under this approach, the
costs of benefits are recognized over the eligible
employees service period. The Company has elected to delay
recognition of actuarial gains and losses that result from
changes in assumptions.
Postemployment benefit costs for the years ended September 30
included the following components:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
Service cost
|
|
$
|
13,327
|
|
|
$
|
11,409
|
|
|
$
|
9,944
|
|
Interest cost
|
|
|
5,054
|
|
|
|
4,379
|
|
|
|
5,435
|
|
Amortization of prior service credit
|
|
|
(1,697
|
)
|
|
|
(1,697
|
)
|
|
|
(1,697
|
)
|
Amortization of loss
|
|
|
10,490
|
|
|
|
7,777
|
|
|
|
4,323
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
27,174
|
|
|
$
|
21,868
|
|
|
$
|
18,005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The unfunded status of the postemployment benefit plans, which
are not funded, was $137,575 and $112,751 at September 30,
2011 and 2010, respectively. The amounts recognized in
Accumulated other comprehensive (loss) income before income
taxes for the net actuarial loss was $116,442 and $76,220 at
September 30, 2011 and 2010, respectively. The estimated
net actuarial loss that will be amortized from the Accumulated
other comprehensive (loss) income into postemployment benefit
cost over the next fiscal year is $13,942.
Savings
Incentive Plan
The Company has a voluntary defined contribution plan
(Savings Incentive Plan) covering eligible employees
in the United States. The Company matches contributions for
eligible employees to 75% of employees contributions, up
to a maximum of 4.5% of each employees eligible
compensation. The cost of
67
Becton,
Dickinson and Company
Notes to
Consolidated Financial
Statements (Continued)
the Savings Incentive Plan was $36,535 in 2011, $34,097 in 2010
and $36,438 in 2009. The Company guarantees employees
contributions to the fixed income fund of the Savings Incentive
Plan, which consists of diversified money market instruments.
The amount guaranteed was $240,113 at September 30, 2011.
Carmel
Pharma
During the fourth quarter of fiscal year 2011, the Company
acquired 100% of the outstanding shares of Carmel Pharma, AB
(Carmel), a Swedish company that manufactures the BD
PhaSealtm
System, a closed-system drug transfer device for the safe
handling of hazardous drugs that are packaged in vials. The fair
value of consideration transferred totaled $287,111, net of
$5,047 in cash acquired. The Company intends for this
acquisition to expand the scope of its healthcare worker safety
emphasis, especially in the area of parenteral medication
delivery.
The acquisition was accounted for under the acquisition method
of accounting for business combinations and Carmels
results of operations were included in the Medical
segments results from the acquisition date. Pro forma
information is not provided as the acquisition did not have a
material effect on the Companys consolidated results. The
following table summarizes the estimated fair values of the
assets acquired and liabilities assumed at the acquisition date.
These fair values are based upon the information available as of
September 30, 2011 and may be adjusted should further
information regarding events or circumstances existing at the
acquisition date become available.
|
|
|
|
|
Product rights
|
|
$
|
161,800
|
|
Customer relationships
|
|
|
4,100
|
|
Deferred tax assets
|
|
|
2,135
|
|
Other
|
|
|
32,001
|
|
|
|
|
|
|
Total identifiable assets acquired
|
|
|
200,036
|
|
|
|
|
|
|
Deferred tax liabilities
|
|
|
(45,035
|
)
|
Other
|
|
|
(13,276
|
)
|
|
|
|
|
|
Total liabilities assumed
|
|
|
(58,311
|
)
|
|
|
|
|
|
Net identifiable assets acquired
|
|
|
141,725
|
|
Goodwill
|
|
|
145,386
|
|
|
|
|
|
|
Net assets acquired
|
|
$
|
287,111
|
|
|
|
|
|
|
The $145,386 of goodwill was allocated to the Medical segment.
Goodwill typically results through expected synergies from
combining operations of an acquiree and an acquirer as well as
from intangible assets that do not qualify for separate
recognition. The goodwill recognized as a result of this
acquisition includes, among other things, the value of expanding
the Companys market for healthcare worker safety products.
Synergies are expected to result from the alignment of
Carmels product offerings in the closed-system drug
transfer device market segment with the Companys existing
healthcare worker safety focus, global customer reach, and
operational structure. No portion of this goodwill will be
deductible for tax purposes. The Company recognized $5,250 of
acquisition-related costs that were expensed in the current
year-to-date
period and reported in the Consolidated Statements of Income as
Selling and administrative.
68
Becton,
Dickinson and Company
Notes to
Consolidated Financial
Statements (Continued)
Accuri
On March 17, 2011, the Company acquired 100% of the
outstanding shares of Accuri Cytometers, Inc.
(Accuri), a company that develops and manufactures
personal flow cytometers for researchers. The fair value of
consideration transferred totaled $204,970, net of $3,112 in
cash acquired.
The Company intends for this acquisition to expand its presence
into the emerging affordable personal flow cytometer space. The
acquisition is also expected to help expand the use of flow
technology by researchers in developing regions where ease of
use is critical, as well as by researchers in scientific
disciplines that have not traditionally used flow cytometry,
such as environmental studies.
The acquisition was accounted for under the acquisition method
of accounting for business combinations and Accuris
results of operations were included in the Biosciences
segments results from the acquisition date. Pro forma
information is not provided as the acquisition did not have a
material effect on the Companys consolidated results. The
following table summarizes the estimated fair values of the
assets acquired and liabilities assumed at the acquisition date.
These fair values are based upon the information available as of
September 30, 2011 and may be adjusted should further
information regarding events or circumstances existing at the
acquisition date become available.
|
|
|
|
|
Developed technology
|
|
$
|
111,500
|
|
Acquired in-process research and development
|
|
|
42,300
|
|
Other intangibles
|
|
|
2,850
|
|
Deferred tax assets
|
|
|
10,442
|
|
Other
|
|
|
8,176
|
|
|
|
|
|
|
Total identifiable assets acquired
|
|
|
175,268
|
|
|
|
|
|
|
Deferred tax liabilities
|
|
|
(59,869
|
)
|
Other
|
|
|
(4,728
|
)
|
|
|
|
|
|
Total liabilities assumed
|
|
|
(64,597
|
)
|
|
|
|
|
|
Net identifiable assets acquired
|
|
|
110,671
|
|
Goodwill
|
|
|
94,299
|
|
|
|
|
|
|
Net assets acquired
|
|
$
|
204,970
|
|
|
|
|
|
|
The acquired in-process research and development asset of
$42,300 represents development of the personal flow cytometry
technology that will enable its use in the clinical market. The
fair value of this project was determined based on the present
value of projected cash flows utilizing an income approach
reflecting an appropriate risk-adjusted discount rate based on
the applicable technological and commercial risk of the project.
The launch of the personal flow cytometer for use in the
clinical market is expected to occur in fiscal year 2013,
subject to regulatory approvals.
The $94,299 of goodwill was allocated to the Biosciences
segment. The goodwill recognized as a result of this acquisition
includes, among other things, the value of broadening the
Companys potential market for flow cytometry technology.
No portion of this goodwill will be deductible for tax purposes.
The Company recognized $900 of acquisition-related costs that
were expensed in the current
year-to-date
period and reported in the Consolidated Statements of Income as
Selling and administrative.
HandyLab
On November 19, 2009, the Company acquired 100% of the
outstanding shares of HandyLab, Inc. (HandyLab), a
company that develops and manufactures molecular diagnostic
assays and automation
69
Becton,
Dickinson and Company
Notes to
Consolidated Financial
Statements (Continued)
platforms. The fair value of consideration transferred totaled
$277,610, net of cash acquired, which consisted of the following:
|
|
|
|
|
Cash
|
|
$
|
274,756
|
|
Settlement of preexisting relationship
|
|
|
2,854
|
(A)
|
|
|
|
|
|
Total
|
|
$
|
277,610
|
|
|
|
|
|
|
|
|
|
(A) |
|
The acquisition effectively settled a prepaid asset associated
with a pre-existing relationship with HandyLab, as discussed in
further detail below. |
HandyLab developed and commercialized a flexible automated
platform (Jaguar Plus) for performing molecular
diagnostics which complements the Companys molecular
diagnostics offerings, specifically in the area of
healthcare-associated infections. The Company is placing its BD
GeneOhmtm
molecular assays onto the HandyLab platform and intends to
market them as the new BD
Maxtm
System. The Company intends for this acquisition to allow
further expansion of the BD molecular diagnostic menu and the
achievement of revenue and cost synergies.
The acquisition was accounted for under the acquisition method
of accounting for business combinations and HandyLabs
results of operations were included in the Diagnostics
segments results from the acquisition date. Pro forma
information was not provided as the acquisition did not have a
material effect on the Companys consolidated results. The
following table summarizes the estimated fair values of the
assets acquired and liabilities assumed at the acquisition date.
These fair values are based upon the information available as of
September 30, 2011 and may be adjusted should further
information regarding events or circumstances existing at the
acquisition date become available.
|
|
|
|
|
Acquired in-process research and development
|
|
$
|
169,000
|
|
Deferred tax assets
|
|
|
23,000
|
|
Other
|
|
|
8,843
|
|
|
|
|
|
|
Total identifiable assets acquired
|
|
|
200,843
|
|
|
|
|
|
|
Deferred tax liabilities
|
|
|
(64,221
|
)
|
Other
|
|
|
(6,468
|
)
|
|
|
|
|
|
Total liabilities assumed
|
|
|
(70,689
|
)
|
|
|
|
|
|
Net identifiable assets acquired
|
|
|
130,154
|
|
Goodwill
|
|
|
147,456
|
|
|
|
|
|
|
Net assets acquired
|
|
$
|
277,610
|
|
|
|
|
|
|
The acquired in-process research and development assets of
$169,000 consisted of two projects that were still in
development at the acquisition date: Platform technology for
$26,000 and Jaguar Plus technology for $143,000. The Platform
technology is incorporated into an automated platform that
performs molecular diagnostics on certain specimens. The Jaguar
Plus technology incorporates the Platform technology as well as
additional technology to perform assays or molecular tests. The
fair values of these projects were determined based on the
present value of projected cash flows utilizing an income
approach reflecting the appropriate risk-adjusted discount rate
based on the applicable technological and commercial risk of
each project. During the third quarter of fiscal year 2010, the
Platform technology project was completed, and, as a result, the
$26,000 associated with this project was reclassified from
Other Intangibles, Net to Core and Developed
Technology, Net and is being amortized over its estimate