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, 20102011
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) | | 22-0760120
(I.R.S. Employer
Identification No.) |
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1 Becton Drive
Franklin Lakes, New Jersey
(Address of principal executive offices) | | 07417-1880
(Zip code) |
(201) 847-6800
(Registrant’s 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 | | Which Registered |
| Common Stock, par value $1.00 | | New York Stock Exchange |
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 ofRegulation 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 ofRegulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of thisForm 10-K or any amendment to thisForm 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” inRule 12b-2 of the Exchange Act. (Check one):
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| Large accelerated filer þ | Accelerated filer o | Non-accelerated filer o (Do not check if a smaller reporting company) |
Smaller reporting company o
Indicate by check mark whether the registrant is a shell company (as defined inRule 12b-2 of the Act). Yes o No þ
As of March 31, 2010,2011, the aggregate market value of the registrant’s outstanding common stock held by non-affiliates of the registrant was approximately $18,325,503,422.$17,370,014,569.
As of October 31, 2010, 229,961,2302011, 214,890,631 shares of the registrant’s common stock were outstanding.
Documents Incorporated by Reference
Portions of the registrant’s Proxy Statement for the Annual Meeting of Shareholders to be held February 1, 2011January 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. BD’s executive offices are located at 1 Becton Drive, Franklin Lakes, New Jersey07417-1880, and its telephone number is(201) 847-6800. All references in thisForm 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
BD’s operations consist of three worldwide business segments: BD Medical, BD Diagnostics and BD Biosciences. Information with respect to BD’s 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 Medical’s 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; and sharps disposal containers.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 instrumentinstruments and reagent systems and reagents 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 sexually transmittedinfectious diseases and HAIs;women’s 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 governmentalgovernment institutions; pharmaceutical and biotechnology companies; hospitals; and blood banks.
Acquisitions
On November 19, 2009,During the second quarter of 2011, BD acquired 100% of the outstanding shares of HandyLab, Inc. (“HandyLab”),Accuri Cytometers, Inc, a company that develops and manufactures molecular diagnostic assays and automation platforms.personal flow cytometers for researchers. The purchase price was $275fair value of consideration transferred totaled $205 million, in cash. HandyLab has developed and commercialized a flexible automated platform for performing molecular diagnostics that complements BD’s molecular diagnostics offerings, specifically in the areanet of HAIs. Additional information regarding this transaction 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.
Divestiturescash acquired.
During the fourth quarter of 2010, the Company sold the Ophthalmic Systems unit, as well as the surgical blades, critical care and extended dwell catheter product platforms2011, BD acquired 100% of the Medical Surgical Systems unitoutstanding shares of Carmel Pharma Inc., a Swedish company that manufactures the PhaSeal® System, a closed-system drug transfer device for $270 million. 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 this transactionthese acquisitions is contained in Note 109 to the consolidated financial statements contained in Item 8, Financial Statements and Supplementary Data, which is incorporated herein by reference.
International Operations
BD’s 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 BD’s 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
BD’s 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 2010.2011. Order backlog is not material to BD’s business inasmuch as orders for BD products generally are received and filled on a current basis, except for items temporarily out of stock. BD’s 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 mechanicalsub-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
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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 BD’s 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 $405 million and $383$405 million on research and development during the fiscal years ended September 30, 2011, 2010 and 2009, and 2008, 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 BD’s business. BD believes, however, that no single patent, technology, trademark, intellectual property asset or license is material in relation to BD’s 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 BD’s competitive position varies among BD’s 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.
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Third-Party Reimbursement
Healthcare providersand/or and related facilities are generally reimbursed for their services through numerous payment systems maintainedmanaged by various governmental agencies worldwide (e.g., Medicare and Medicaid in the
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United States, the National Health Service in the United Kingdom, the Joint Federal Committee in Germany, theCommission d’Evaluation des Produits et prestationsin France, and the Ministry for Health, Labor and Welfare in Japan)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 theeach payer’s 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 effectivenessand 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 or ACOs)(ACOs), DRG programs, and other such methods that shift medical cost risk to providers) that could potentially impact coverageand/or payment levels for current or future BD products.
As BD’s 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,systems. Many of the changes set forth in this statute have only recently been promulgated through formal regulations and most of which arethem have yet to be established in regulations. As yet,implemented. At this time, it isremains unclear whether, or how, the implementation of regulations pursuant to the PPACA might affect paymentpayments for BD products. See Item 1A. Risk Factors for a further discussion.
Regulation
BD’s 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 BD’s 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 counterpartnon-U.S. regulatory agencies. Following the introduction of a product, these agencies engage in periodic reviews of BD’s 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, 2010,2011, BD had 28,80329,369 employees, of whom 12,26212,041 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 UN’sOil-for-Food Programme (the “Programme”). In connection with the IIC’s 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 AG’s registration status in light of BD-France being listed in the IIC’s 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 U.N.UN stating that Becton Dickinson AG had been suspended from the UN Secretariat Procurement Division’s 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-France’s 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 atwww.bd.com. BD also makes available its Annual Reports onForm 10-K, its Quarterly Reports onForm 10-Q, and its Current Reports onForm 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 atwww.bd.com/investors. In addition, the written charters of the Audit Committee, the Compensation and Benefits Committee, the Corporate and Scientific Affairs Committee, the Corporate Governance and Nominating Committee, the Executive Committee and the ExecutiveScience, Innovation and Technology Committee of the Board of Directors, the Company’sBD’s Corporate Governance Principles and its BusinessCode of Conduct, and Compliance Guide, are available at BD’s website atwww.bd.com/investors/corporate_governance/. Printed copies of these materials, BD’s 20102011 Annual Report onForm 10-K, and BD’s 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 Jersey07417-1880, telephone201-847-6800. 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 atwww.sec.gov.
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BD also routinely posts important information for investors on its website atwww.bd.com/investors. BD may use this website as a means of disclosing material, non-public information and for complying with its
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disclosure obligations under Regulation FD adopted by the SEC. Accordingly, investors should monitor the Investor Relations portion of BD’s website noted above, in addition to following BD’s 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 fromtime-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, Management’s 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 BD’s business, financial condition, operating results or cash flows.
Current economic conditions could continue to adversely affect our operations.
The currentglobal 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 and increased price competition.technologies. During fiscal year 2010, lower laboratory testing volumes and physician visits2011, our revenue growth was adversely affected by conditions in the United Stateshealthcare industry, including lower healthcare utilization, particularly in the U.S. and macroeconomic factorswestern Europe, cost containment efforts by governments and other payors for healthcare services and other factors. These conditions resulted in Western Europe contributed to weakenedweaker overall customer demand and increased pricing pressure for some of our products. Any austerity plans implemented in Europe or other regions where governments areWe anticipate that these industry conditions will continue for the primary payers of healthcare expenses and research may also result in a decrease in demand for our products.foreseeable future. In addition, while the current economic conditions havedownturn 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 economicmacroeconomic 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. 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 have also experienced delays in collecting receivables in Greece due to the Greek government’s liquidity problems. Wecertain 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 remains uncertain, and there can be no assurance that theglobal economic downturnconditions will not continue to affect our operations in the future.deteriorate further.
We are subject to foreign currency exchange risk.
Over half of our fiscal year 20102011 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, Management’s Discussion of Financial Condition and Results of Operations. Any hedging activities we engage in which we may engage 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.
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 BD’s total U.S. revenues in fiscal year 2010. 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
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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 BD’s products is uncertain at this time.
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 the PPACA)healthcare reform or otherwise, as discussed below) or abroad (for example, those under consideration in France, Germany, Italy and the United Kingdom) could significantly
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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 BD’s 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 BD’s 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 BD’s 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.
BD’s 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 BD’s 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.
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We cannot guarantee that any of BD’s 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 increased pricing pressures,pressure, particularly in developing markets. Some competitors have also
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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 BD’s 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 BD’s 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
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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 BD’s 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 BD’s 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 product liability,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 BD’s results of operations and cash flows.
Consolidation in the healthcare industry could adversely affect BD’s future revenues and operating income.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 BD’s products must receive clearance or approval from the FDA or counterpart regulatory agencies in other countries before they can be marketed or sold. The medical technology industry has experiencedprocess for obtaining marketing approval or clearance may take a significant amountperiod of consolidation. As atime 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 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 placed pricing pressure on medical device suppliers. Further consolidation in the industry could exert additional pressurelimitations on the pricesindicated 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
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production, marketing or sale of our products.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
10
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.
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 BD’s products must receive clearance or approval from the FDA ornon-U.S. counterpart regulatory agencies 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 may be increasing. 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 addition, 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 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.
We cannot guarantee that any of BD’s strategic acquisitions, investments or alliances will be successful.
While our strategy to increase revenue growth is driven primarily by internal product development, we seek to supplement our 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 it into our existing business. There can be no assurance that any past or future transaction will be successful.
The international operations of BD’s 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 (as discussed above); the spread of a global economic downturn; 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 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
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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 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.
Our operations are dependent in part on patents and other intellectual property assets.
Many of BD’s 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 BD’s 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.
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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. BD’s 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.
BD’s executive offices are located in Franklin Lakes, New Jersey. As of November 1, 2010,2011, BD owned and leased 184180 facilities throughout the world comprising approximately 16,348,57817,081,296 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 1,738,0842,416,594 square feet of leased space. The international facilities comprise approximately 6,287,6336,197,567 square feet of owned and 1,303,9271,448,201 square feet of leased space. Sales offices and distribution centers included in the total square footage are also located throughout the world.
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Operations in each of BD’s 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, manufacturingand/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 | | Corporate | | BD Biosciences | | BD Diagnostics | | BD Medical | | Mixed(A) | | Total |
| |
| Leased | | | 2 | | | | 11 | | | | 12 | | | | 70 | | | | 35 | | | | 130 | | | | 3 | | | | 10 | | | | 8 | | | | 59 | | | | 46 | | | | 126 | |
| Owned | | | 2 | | | | 6 | | | | 13 | | | | 24 | | | | 9 | | | | 54 | | | | 2 | | | | 6 | | | | 13 | | | | 24 | | | | 9 | | | | 54 | |
| Total | | | 4 | | | | 17 | | | | 25 | | | | 94 | | | | 44 | | | | 184 | | | | 5 | | | | 16 | | | | 21 | | | | 83 | | | | 55 | | | | 180 | |
| Square feet | | | 494,104 | | | | 1,144,252 | | | | 2,755,390 | | | | 7,600,633 | | | | 4,352,199 | | | | 16,348,578 | | | | 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.
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| |
| 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 BDBD’s products (the “Distributor Plaintiffs”), alleging that BD violated federal antitrust laws, resulting in the charging of higher prices for BD’s 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 |
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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 BD’s products, such as hospitals (the “Hospital Plaintiffs”), alleging that BD violated federal and state antitrust laws, resulting in the charging of higher prices for BD’s products to the plaintiffplaintiffs and other purported class members.
| | | | | |
| Case | | Court | | Date Filed |
| |
Jabo’s 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 are seeking appellate reviewPlaintiffs’ request to appeal the trial court’s order on an interlocutory basis. BD currently cannot estimate the range of reasonably possible losses with respect to these class action matters beyond the court’s order.$45 million already accrued and changes to the amount already recognized may be required in the future as additional information becomes available.
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In June 2007, Retractable Technologies, Inc. (“RTI”) filed a complaint against BD under the captionRetractable Technologies, Inc. vs. Becton Dickinson and Company(Civil (Civil ActionNo.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 BD’s 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.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 captionRetractable Technologies, Inc. and Thomas J. Shaw v. Becton Dickinson and Company (Civil ActionNo. 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 RTI’s 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 longer of twelve months or the duration of anyBD’s appeal. At the same time, the court lifted a stay of RTI’s non-patent claims that the court had imposed during the pendency of the patent claims at the trial court level.claims. On June 16, 2010, BD filed its appeal withJuly 8, 2011, the Court of Appeals for the Federal Circuit.Circuit reversed the District Court judgment that BD’s 3ml Integratm products infringed the asserted RTI patents and affirmed the District Court judgment of infringement against BD’s discontinued 1ml Integratm products. On October 31, 2011, the Federal Circuit Court of Appeals denied RTI’s request for an en banc rehearing. The trial on RTI’s antitrust and false advertising claims is scheduled to begin in February 2012. With respect to RTI’s 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 RTI’s allegations are without merit.
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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. Additional disclosures regarding this instrument are provided in Note 9 to the consolidated financial statements contained in Item 8, Financial Statements and Supplementary Data. 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 federalFederal 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 BD’s consolidated results of operations and consolidated cash flows.
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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 | | | 5960 | | | Director since 1999; Chairman since February 2002; Chief Executive Officer sincefrom January 2000;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 | | | 5758 | | | Senior Vice President — Human Resources since June 2006; Vice President — Human Resources from June 2005 to June 2006; and, prior thereto, Vice President, Human Resources, BD Medical from April 2001 to June 2005. |
| | | | | | |
| | | | | | |
Scott P. Bruder | | | 48 | | | Senior Vice President and Chief Technology Officer since September 2007; Worldwide Vice President, Johnson & Johnson Regenerative Therapeutics, LLC from December 2005 to August 2007; Worldwide Vice President, DePuy Biologics, a unit of DePuy, Inc., a Johnson & Johnson Company, from October 2003 to November 2005; and, prior thereto, Worldwide Vice President, Orthobiologics, DePuy Spine, DePuy Orthopaedics, and DePuy Mitek, operating companies within DePuy, Inc.2006. |
| | | | | | | |
| | | | | | | |
| Gary M. Cohen | | | 5152 | | | Executive Vice President since June 2006; and, prior thereto, President — BD Medical from May 1999 to June 2006. |
| | | | | | |
| | | | | | |
David T. Durack | | | 65 | | | Senior Vice President — Corporate Medical Affairs since June 2006; and, prior thereto, Vice President — Corporate Medical Affairs from January 2000 to June 2006. |
| | | | | | | |
| | | | | | | |
| David V. Elkins | | | 4243 | | | 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, and, prior thereto, Chief Financial Officer, UK, AstraZeneca PLC from January 2004 to January 2006. |
| | | | | | |
| | | | | | |
Vincent A. Forlenza | | | 57 | | | Chief Operating Officer since July 2010; President since January 2009; Executive Vice President from June 2006 to January 2009; and, prior thereto, President — BD Biosciences from March 2003 to June 2006.2008. |
| | | | | | | |
| | | | | | | |
| William A. Kozy | | | 5859 | | | Executive Vice President since June 2006;2006. |
| | | | | | |
| | | | | | |
| William E. Rhodes | | | 57 | | | Senior Vice President, Corporate Strategy and prior thereto,Development since October 2011; President — BD DiagnosticsBiosciences from November 2003January 2009 to June 2006.October 2011; and President — BD Biosciences, Cell Analysis from February 2006 to January 2009. |
| | | | | | | |
| | | | | | | |
| Jeffrey S. Sherman | | | 5556 | | | Senior Vice President since June 2006; and General Counsel since January 2004; and Vice President from January 2004 to June 2006.2004. |
| | | | | | | |
| | | | | | | |
Patricia B. ShraderStephen Sichak | | | 6054 | | | Senior Vice President, Integrated Supply Chain since January 2009; and President — Corporate Regulatory and External Affairs since June 2006; Vice President, Corporate Regulatory and External AffairsBD Diagnostics, Preanalytical Systems from February 2005 to June 2006; and, prior thereto, Vice President, Corporate Regulatory, Public Policy and Communication from MarchOctober 2004 to February 2005.January 2009. |
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PART II
| |
| Item 5. | Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. |
BD’s common stock is listed on the New York Stock Exchange. As of October 31, 2010,2011, there were approximately 8,8958,674 shareholders of record.
Market and Market Prices of Common Stock (per common share)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 2009 | | 2010 | | 2010 | | 2011 |
| By Quarter | | High | | Low | | High | | Low | | High | | Low | | High | | Low |
| |
| First | | $ | 80.24 | | | $ | 60.26 | | | $ | 79.72 | | | $ | 66.60 | | | $ | 79.72 | | | $ | 66.60 | | | $ | 85.32 | | | $ | 73.67 | |
| Second | | | 74.15 | | | | 61.57 | | | | 80.14 | | | | 74.64 | | | | 80.14 | | | | 74.64 | | | | 85.64 | | | | 76.51 | |
| Third | | | 71.71 | | | | 60.48 | | | | 79.66 | | | | 67.45 | | | | 79.66 | | | | 67.45 | | | | 89.58 | | | | 83.39 | |
| Fourth | | | 73.60 | | | | 63.75 | | | | 74.82 | | | | 66.89 | | | | 74.82 | | | | 66.89 | | | | 89.74 | | | | 73.25 | |
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Dividends (per common share)
| | | | | | | | | | | | | | | | | |
| By Quarter | | 2009 | | 2010 | | 2010 | | 2011 |
| |
| First | | $ | 0.33 | | | $ | 0.37 | | | $ | 0.37 | | | $ | 0.41 | |
| Second | | | 0.33 | | | | 0.37 | | | | 0.37 | | | | 0.41 | |
| Third | | | 0.33 | | | | 0.37 | | | | 0.37 | | | | 0.41 | |
| Fourth | | | 0.33 | | | | 0.37 | | | | 0.37 | | | | 0.41 | |
Issuer Purchases of Equity Securities
The table below sets forth certain information regarding BD’s purchases of its common stock during the fiscal quarter ended September 30, 2010.2011.
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | 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, 2010 | | Purchased(1) | | | per Share | | | Plans or Programs(2) | | | Plans or Programs | |
| |
| July 1-31, 2010 | | | 203,385 | | | $ | 68.82 | | | | 200,000 | | | | 10,202,344 | |
| August 1-31, 2010 | | | 2,620,679 | | | $ | 71.17 | | | | 2,616,750 | | | | 7,585,594 | |
| September 1-30, 2010 | | | 3,098 | | | $ | 74.13 | | | | — | | | | 28,585,594 | |
| | | | | | | | | | | | | | | | | |
| Total | | | 2,827,162 | | | $ | 71.00 | | | | 2,816,750 | | | | 28,585,594 | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | 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 for14,701 shares purchased during the quarter 7,353 shares purchased in open market transactions by the trustees undertrust relating to BD’s employeeDeferred Compensation and director deferred compensation plans. Also includes 3,059Retirement Benefit Restoration Plan and 1996 Directors’ Deferral Plan, and 0 shares delivered to BD in connection with stock option exercises. |
| |
| (2) | | Repurchases of 402,344 shares were made pursuant to a repurchase program for 10 million shares announced on November 24, 2008. The remaining repurchases were made pursuant to a repurchase program covering 1021 million shares authorized by the Board of Directors on November 24, 2009 (the “2009 Program”). ThereSeptember 28, 2010, for which there is no expiration date for the 2009 Program.date. The Board authorized a repurchase program covering 2118 million additional shares on September 28, 2010,July 26, 2011, for which there is also no expiration date. |
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| Item 6. | Selected Financial Data. |
FIVE-YEAR SUMMARY OF SELECTED FINANCIAL DATA
Becton, Dickinson and Company
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Years Ended September 30 | | Years Ended September 30 | |
| | | 2010 | | 2009 | | 2008 | | 2007 | | 2006 | | 2011 | | 2010 | | 2009 | | 2008 | | 2007 | |
| | | Dollars in millions, except per share amounts | | Dollars in millions, except per share amounts | |
| |
Operations | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Revenues | | | 7,372.3 | | | | 6,986.7 | | | | 6,897.6 | | | | 6,121.1 | | | | 5,512.6 | | | | 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 | | | 431.0 | | | | 404.6 | | | | 382.6 | | | | 342.9 | | | | 288.5 | | | | 476.5 | | | | 431.0 | | | | 404.6 | | | | 382.6 | | | | 342.9 | |
| Operating Income | | | 1,676.8 | | | | 1,589.7 | | | | 1,488.1 | | | | 1,151.0 | | | | 1,091.3 | | | | 1,763.3 | | | | 1,676.8 | | | | 1,589.7 | | | | 1,488.1 | | | | 1,151.0 | |
| Interest Expense (Income), Net | | | 16.1 | | | | 7.2 | | | | (3.0 | ) | | | 0.2 | | | | 6.8 | | | | 40.8 | | | | 16.1 | | | | 7.2 | | | | (3.0 | ) | | | 0.2 | |
| Income From Continuing Operations Before Income Taxes | | | 1,661.2 | | | | 1,578.6 | | | | 1,489.7 | | | | 1,151.7 | | | | 1,075.8 | | | | 1,716.3 | | | | 1,661.2 | | | | 1,578.6 | | | | 1,489.7 | | | | 1,151.7 | |
| Income Tax Provision | | | 484.8 | | | | 411.2 | | | | 411.9 | | | | 336.6 | | | | 297.0 | | | | 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 | | | 1,317.6 | | | | 1,231.6 | | | | 1,127.0 | | | | 890.0 | | | | 752.3 | | | | 1,271.0 | | | | 1,317.6 | | | | 1,231.6 | | | | 1,127.0 | | | | 890.0 | |
| Basic Earnings Per Share | | | 5.62 | | | | 5.12 | | | | 4.61 | | | | 3.63 | | | | 3.04 | | |
| Diluted Earnings Per Share | | | 5.49 | | | | 4.99 | | | | 4.46 | | | | 3.49 | | | | 2.93 | | |
| 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 | | | 1.48 | | | | 1.32 | | | | 1.14 | | | | 0.98 | | | | 0.86 | | | | 1.64 | | | | 1.48 | | | | 1.32 | | | | 1.14 | | | | 0.98 | |
Financial Position | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Total Current Assets | | | 4,505.3 | | | | 4,647.0 | | | | 3,614.7 | | | | 3,130.6 | | | | 3,185.3 | | | | 4,668.3 | | | | 4,505.3 | | | | 4,647.0 | | | | 3,614.7 | | | | 3,130.6 | |
| Total Current Liabilities | | | 1,671.7 | | | | 1,777.1 | | | | 1,416.6 | | | | 1,478.8 | | | | 1,576.3 | | | | 1,823.2 | | | | 1,671.7 | | | | 1,777.1 | | | | 1,416.6 | | | | 1,478.8 | |
| Total PPE, Net | | | 3,100.5 | | | | 2,966.6 | | | | 2,744.5 | | | | 2,497.3 | | | | 2,133.5 | | | | 3,211.2 | | | | 3,100.5 | | | | 2,966.6 | | | | 2,744.5 | | | | 2,497.3 | |
| Total Assets | | | 9,650.7 | | | | 9,304.6 | | | | 7,912.9 | | | | 7,329.4 | | | | 6,824.5 | | | | 10,430.4 | | | | 9,650.7 | | | | 9,304.6 | | | | 7,912.9 | | | | 7,329.4 | |
| Total Long-Term Debt | | | 1,495.4 | | | | 1,488.5 | | | | 953.2 | | | | 955.7 | | | | 957.0 | | | | 2,484.7 | | | | 1,495.4 | | | | 1,488.5 | | | | 953.2 | | | | 955.7 | |
| Total Shareholders’ Equity | | | 5,434.6 | | | | 5,142.7 | | | | 4,935.6 | | | | 4,362.0 | | | | 3,836.2 | | | | 4,828.2 | | | | 5,434.6 | | | | 5,142.7 | | | | 4,935.6 | | | | 4,362.0 | |
| Book Value Per Common Share | | | 23.65 | | | | 21.69 | | | | 20.30 | | | | 17.89 | | | | 15.63 | | | | 22.48 | | | | 23.65 | | | | 21.69 | | | | 20.30 | | | | 17.89 | |
Financial Relationships | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Gross Profit Margin | | | 51.9 | % | | | 52.6 | % | | | 51.3 | % | | | 51.9 | % | | | 51.5 | % | | | 52.3 | % | | | 51.9 | % | | | 52.6 | % | | | 51.3 | % | | | 51.9 | % |
| Return on Revenues (C) | | | 16.0 | % | | | 16.7 | % | | | 15.6 | % | | | 13.3 | % | | | 14.1 | % | |
| Return on Total Assets (A)(C) | | | 18.1 | % | | | 18.8 | % | | | 20.0 | % | | | 16.9 | % | | | 17.6 | % | |
| Return on Equity (C) | | | 22.2 | % | | | 23.2 | % | | | 23.2 | % | | | 19.9 | % | | | 21.9 | % | |
| Debt to Capitalization (B)(C) | | | 23.7 | % | | | 26.8 | % | | | 18.8 | % | | | 20.9 | % | | | 25.8 | % | |
| 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 | | | 28,800 | | | | 29,100 | | | | 28,300 | | | | 28,000 | | | | 27,000 | | | | 29,400 | | | | 28,800 | | | | 29,100 | | | | 28,300 | | | | 28,000 | |
| Number of Shareholders | | | 8,887 | | | | 8,930 | | | | 8,820 | | | | 8,896 | | | | 9,147 | | | | 8,713 | | | | 8,887 | | | | 8,930 | | | | 8,820 | | | | 8,896 | |
| Average Common and Common Equivalent Shares Outstanding — Assuming Dilution (millions) | | | 240.1 | | | | 246.8 | | | | 252.7 | | | | 254.8 | | | | 256.6 | | | | 226.3 | | | | 240.1 | | | | 246.8 | | | | 252.7 | | | | 254.8 | |
| Depreciation and Amortization | | | 502.1 | | | | 464.6 | | | | 472.0 | | | | 434.9 | | | | 396.7 | | | | 504.1 | | | | 502.1 | | | | 464.6 | | | | 472.0 | | | | 434.9 | |
| Capital Expenditures | | | 537.3 | | | | 585.2 | | | | 595.8 | | | | 550.2 | | | | 451.6 | | | | 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 net non-current deferred income tax liabilities. |
| |
| (C) | | Excludes discontinued operations. |
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| Item 7. | Management’s 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:
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| | • | To increase revenue growth by focusing on our core products that deliver greater benefits to patients, healthcare workers and researchers; |
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| | • | To increase investment in research and development for platform extensions and innovative new products; |
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| | • | To make significant investments in growing our emerging markets; |
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| | • | To improve operating effectiveness and balance sheet productivity; |
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| | • | To drive an efficient capital structure and strong shareholder returns. |
Our efforts to increase revenues and earnings per share are focusedstrategy focuses on four specific areas within healthcare and life sciences:
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| | • | Enabling safer, simpler and more effective parenteral drug delivery; |
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| | • | Improving clinical outcomes through new, accurate and faster diagnostics; |
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| | • | Providing tools and technologies to the research community that facilitate basic science, drug discoveryfacilitates the understanding of the cell, cellular diagnostics and cell therapy; |
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| | • | Enhancing disease management in Diabetes, Women’s Healthdiabetes, women’s health and Cancercancer, and Infection Control.infection control. |
We continue to strive to improve the efficiency of our capital structure and follow these guiding principles:
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| | • | To maintain a solid investment grade rating; |
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| | • | To ensure access to the debt market for strategic opportunities; |
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| | • | To optimize the cost of capital based on market conditions. |
In assessing the outcomes of these strategies as well as BD’s 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.
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Financial Results
Worldwide revenues in 20102011 of $7.4$7.8 billion increased 5.5%6% from the prior year and reflected volume increases of approximately 6%4%, unfavorableestimated favorable foreign exchange translation of 0.1%3%, inclusive of hedge losses, and estimated price decreases of 0.4%. The increase is attributable to solidjust 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 Medical Segment, continued improvement in BiosciencesU.S. We experienced strong international sales of safety-engineered products and to a lesser extent,strong growth in Diagnostics segment revenues. U.S. revenues increased 5% to $3.3 billion.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 5%1% to $1.12 billion in 2011 from $1.11 billion in 2010 from $1.06 billion in 2009. International revenues of $4.1 billion grew 6% compared with the prior year.2010. International sales of safety-engineered devices grew 9.5%21% to $755 million in 2011 from $622 million in 2010, from $568 million in 2009, which included an estimated 1.4%8% of favorable foreign currency translation, net of hedge losses.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.
Operating incomeThe healthcare industry is facing a challenging economic environment. The current economic conditions and other circumstances have resulted in 2010 grew 5.5% to $1.7 billion or 22.7%pricing pressures for some of revenues, as compared with $1.6 billion, or 22.8% of revenues in 2009. Operating income growth reflected an overall unfavorable impact of foreign exchange translation, net of hedge losses, as well as the absence of a $45 million litigation charge recorded in 2009. The net unfavorable impact of these items on operating income growth in 2010 was 330 basis points.
Our financial position remains strong, with cash flows from operating activities totaling $1.7 billion in 2010. At September 30, 2010,our products, and we had $1.2 billion in cash and equivalents and ourdebt-to-capitalization at September 30, 2010 was 23.7% compared with 26.8% at the end of 2009. In 2010, BD’s cash outflows relating to acquisitions included the purchase of HandyLab, Inc., a company that develops and manufactures molecular diagnostic assays and automation platforms, for $275 million in cash. Capital expenditures were $537 million in 2010 as we continue to invest in capacity across our segments to support future growth. BD’s strong cash flow generation also provided the flexibilityexpect this downward pricing trend to continue to return value to our shareholdersthrough fiscal year 2012. In addition, healthcare utilization in the form of share repurchasesU.S. and dividends. During 2010,Western Europe remains constrained due to decreases in government and private healthcare spending, resulting in less demand for our products, and we repurchased 10.1 million shares of common stock for $750 million and paid cash dividendsalso expect these conditions to our shareholders totaling $346 million. In November 2010, we issued $700 million of10-year 3.25% Notes and $300 million of30-year 5.00% Notes, as discussed further below.
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. NumerousIn 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, economic conditions in the United States and elsewhere, increased competition and healthcare reform initiatives. For example, the recently-enacted U.S. healthcare reform legislationlaw 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 BD’s total U.S. revenues in fiscal year 2010.2011.
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 addition,2011, cash outflows relating to acquisitions included the new law includedpurchase of Carmel Pharma AB (“Carmel Pharma”), a tax provisionSwedish company that eliminatedmanufactures the employer deductionBD 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 Medicare Part D retiree drug subsidy,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 a result, we recorded a charge of $9 million, or 4 cents per share,continue to invest in capacity across our segments to support future growth. BD’s strong cash flow generation also provided the flexibility to continue to return value to our shareholders in the second quarterform of 2010.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 of5-year 1.75% Notes and $1 billion of10-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. During 2010, the U.S. dollar weakened against most foreign currencies compared with rates during 2009.We did not enter into contracts to hedge cash flows in fiscal year 2011 or 2012. The resulting favorable impact of
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foreign currency on worldwide revenues was offset byfor 2011 reflected favorable foreign currency translation and a favorable comparison resulting from hedge losses from our hedging activities.recognized in 2010. For further discussion refer to Note 12 to the consolidated financial statements contained in Item 8,8. Financial Statements and Supplementary Data.
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Divestiture
During the fourth quarter of 2010, the Company sold the Ophthalmic Systems unit, as well as the surgical blades, critical care and extended dwell catheter product platforms of the Medical Surgical Systems unit. Following the sale, prior period Consolidated Statements of Income and Cash Flows were restated to present separately the operating results of the Ophthalmic Systems unit, surgical blade and critical care product platforms as discontinued operations. See Note 10 to the consolidated financial statements contained in Item 8, Financial Statements and Supplementary Data for additional discussion. The results of operations associated with the extended dwell catheter product platform are reported within continuing operations, as the divestiture of this asset group did not meet the criteria for discontinued operations.
Results of Continuing Operations
Comparisons of income from continuing operations between 20102011 and 20092010 are affected by the following significant items that are reflected in our 2010 financial results:
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| • | 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. |
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| | • | During the second quarter of 2010, we recorded a non-cash charge of $9 million, or 4 cents$0.04 diluted earnings per share from continuing operations, related to healthcare reform impactingthe elimination of the employer deduction of the Medicare Part D reimbursements. |
|
| • | Duringretiree drug subsidy under 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.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 20102011 of $3.8$4.0 billion increased $239$211 million, or 6.7%5.6%, over 2009,2010, which reflected an estimated impact of favorable foreign currency translation of 0.5%, net of hedge losses.3.3%.
The following is a summary of Medical revenues by organizational unit:
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| | | | | | | | | Estimated
| | | | | | | | | Estimated
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| | | | | | | | | Foreign
| | | | | | | | | Foreign
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| | | | | | | Total
| | Exchange
| | | | | | | Total
| | Exchange
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| | | 2010 | | 2009 | | Change | | Impact | | | 2011 | | 2010 | | Change | | Impact | |
| | | (Millions of dollars) | | | (Millions of dollars) | |
| |
| Medical Surgical Systems | | $ | 2,010 | | | $ | 1,889 | | | | 6.4 | % | | | 1.5 | % | | $ | 2,082 | | | $ | 2,010 | | | | 3.6 | % | | | 3.2 | % |
| Diabetes Care | | | 786 | | | | 715 | | | | 9.9 | % | | | 0.8 | % | | | 866 | | | | 786 | | | | 10.3 | % | | | 3.5 | % |
| Pharmaceutical Systems | | | 1,001 | | | | 952 | | | | 5.1 | % | | | (1.3 | )% | | | 1,059 | | | | 1,001 | | | | 5.8 | % | | | 3.4 | % |
| | | | | | | | | | | | | | | | | | | |
| Total Revenues* | | $ | 3,796 | | | $ | 3,557 | | | | 6.7 | % | | | 0.5 | % | | $ | 4,007 | | | $ | 3,796 | | | | 5.6 | % | | | 3.3 | % |
| | | | | | | | | | | | | | | | | | | |
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| * | | Amounts may not add due to rounding. |
Revenue growth in the Medical SurgicalSegment reflected strong growth of Pharmaceutical Systems unit continues to be driven by sales ofand international safety-engineered products and prefilled flush syringes.product sales. Revenues of safety-engineered products increased 5% in the United States and 15%33.4% 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.9.7%. 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 forLatin America. U.S. revenue growth in the Pharmaceutical Systems unit in 2010.2011 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 Medical’s revenue growth rate by approximately 2.2 percentage points.
Medical operating income in 20102011 was $1.1$1.2 billion, or 29.5% of Medical revenues, as compared with $1.0$1.1 billion, or 29.5%, of revenues in 2009. Favorable2010. 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 improvements were substantially offset by a slight decrease inand lower manufacturingstart-up costs. These favorable impacts on gross profit margin resulting from unfavorable foreign currency
21
translation, a modest increasewere partially offset by increases in certain raw material costs and higher pension costs allocated to the cost of raw materials, and increased manufacturingstart-up and restructuring costs.Segment. See further discussion on gross profit margin below. Selling and administrative expense as a percentage of
21
Medical revenues in 2010 declined2011 increased to 17.5% of revenues from 17.3% of revenues from 17.5% of revenues in 2009,2010, primarily due to the acquisition of Carmel Pharma and unfavorable foreign currency translation, partially offset by continued diligent spending controls. Research and development expenses in 20102011 increased $8$17 million, or 7%13%, and reflected continued investment in the development of new products and platforms.platforms, including new infusion therapy products and new pen needle introductions.
Diagnostics Segment
Diagnostics revenues in 20102011 of $2.3$2.5 billion increased $93$161 million, or 4.2%7.0%, over 2009,2010, which reflected an estimated impact of favorable foreign currency translation of 0.2%, net of hedge losses.3.1%.
The following is a summary of Diagnostics revenues by organizational unit:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | Estimated
| | | | | | | | | Estimated
| |
| | | | | | | | | Foreign
| | | | | | | | | Foreign
| |
| | | | | | | Total
| | Exchange
| | | | | | | Total
| | Exchange
| |
| | | 2010 | | 2009 | | Change | | Impact | | | 2011 | | 2010 | | Change | | Impact | |
| | | (Millions of dollars) | | | (Millions of dollars) | |
| |
| Preanalytical Systems | | $ | 1,198 | | | $ | 1,143 | | | | 4.8 | % | | | 0.4 | % | | $ | 1,278 | | | $ | 1,198 | | | | 6.7 | % | | | 3.0 | % |
| Diagnostic Systems | | | 1,121 | | | | 1,083 | | | | 3.5 | % | | | — | | | | 1,203 | | | | 1,121 | | | | 7.3 | % | | | 3.1 | % |
| | | | | | | | | | | | | | | | | | | |
| Total Revenues | | $ | 2,319 | | | $ | 2,226 | | | | 4.2 | % | | | 0.2 | % | |
| Total Revenues* | | | $ | 2,480 | | | $ | 2,319 | | | | 7.0 | % | | | 3.1 | % |
| | | | | | | | | | | | | | | | | | | |
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| * | | 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 5%3% in the United States, driven byBD Vacutainertm Push Button Blood Collection Set sales, and 7%15% internationally, which included an estimated favorable foreign exchange impact of 1%, net of hedge losses.7%. The Diagnostic Systems unit experienced growth in worldwide sales of its automated diagnostic platforms, including the molecularBD ProbeTectm,BD Vipertm andBD Affirmtm systems, along with solid growth of itsBD BACTECtm blood culture and TB systems and theBD Phoenixtm ID/AST platform. Revenuesplatform 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 were $13 million in 2010 compared with $22 million in 2009 for the Diagnostic Systems unit.2010. We estimate that this unfavorable comparison negatively impacted Diagnostics’ revenue growth rate by approximately 0.6 percentage points.
Diagnostics operating income in 20102011 was $607$636 million, or 26.2%25.7% of Diagnostics revenues, compared with $607 million, or 27.3%26.2% of revenues, in 2009. The2010. Gross profit margin in the Diagnostics segment experienced a decline in gross profit margin thatwas relatively flat as compared to the prior year and reflected unfavorablefavorable foreign currency translation, andstart-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 theBD ProbeTectmand BD Vipertm systems.raw material costs, primarily resin. See further discussion on gross profit margin below. Selling and administrative expense as a percentage of Diagnostics revenues remained the sameincreased by 30 basis points in 2010 at 21.2%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 modestly$13 million, or 9% over 20092010 and reflected continued investment in the development of new products and platforms, with particular emphasis on our molecular platforms.including the BD MAXtm and new BD Vipertm platforms and menus.
Biosciences Segment
Biosciences revenues in 20102011 of $1.3 billion increased $53$84 million, or 4.4%6.7%, over 2009,2010, which reflected an estimated impact of unfavorablefavorable 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 ofU.S.-produced products.3.5%.
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The following is a summary of Biosciences revenues by organizational unit:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | Estimated
| | | | | | | | | Estimated
| |
| | | | | | | | | Foreign
| | | | | | | | | Foreign
| |
| | | | | | | Total
| | Exchange
| | | | | | | Total
| | Exchange
| |
| | | 2010 | | 2009 | | Change | | Impact | | | 2011 | | 2010 | | Change | | Impact | |
| | | (Millions of dollars) | | | (Millions of dollars) | |
| |
| Cell Analysis | | $ | 951 | | | $ | 905 | | | | 5.2 | % | | | (2.6 | )% | | $ | 1,024 | | | $ | 951 | | | | 7.7 | % | | | 3.4 | % |
| Discovery Labware | | | 306 | | | | 299 | | | | 2.2 | % | | | (1.4 | )% | | | 317 | | | | 306 | | | | 3.6 | % | | | 3.6 | % |
| | | | | | | | | | | | | | | | | | | |
| Total Revenues | | $ | 1,257 | | | $ | 1,204 | | | | 4.4 | % | | | (2.4 | )% | | $ | 1,341 | | | $ | 1,257 | | | | 6.7 | % | | | 3.5 | % |
| | | | | | | | | | | | | | | | | | | |
RevenueBiosciences revenue growth was primarily driven by instrument and reagent sales in the Cell Analysis unit reflected increased demand for instruments and reagents andunit. The segment’s overall revenue growth was aidedaffected by governmental economic stimulus programs for researchslower growth in sales of Discovery Labware products in the U.S. as well as supplemental government funding in Japan. Revenue growth in the Discovery Labware unit reflected increased2011 was also negatively impacted by approximately 3.6 percentage points due to an unfavorable comparison to 2010, which included strong sales to major biopharmaceutical customers, offset by reduced private label sales compared with 2009.from U.S. stimulus spending and supplemental spending in Japan.
Biosciences operating income in 20102011 was $354$376 million, or 28.2%28.1% of Biosciences revenues, compared with $362$354 million, or 30.1%28.2%, in 2009.2010. The decrease inSegment’s operating income asin 2011 reflected a percentage of revenues, reflects lowerhigher gross profit from the unfavorable impact of hedge losses, partially offset bymargin than 2010 primarily due to the favorable impact of foreign currency translation.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 as compared with 21.6% in 2009 and reflected new direct selling programs and inflationary factors.unfavorable foreign currency translation, partially offset by continued spending controls. Research and development expensespending increased $10$11 million or 11%12% and reflected spending on new product developmentproducts and advanced technology.platforms, including the BD FACS Versetm Analyzer and other next generation cell sorters and analyzers.
Geographic Revenues
Revenues in the United States in 20102011 of $3.3$3.4 billion increased 5%2%. Overall,U.S. revenue growth was lednegatively 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 safety-engineeredPharmaceutical Systems products which increased 5% to $1.11 billion from $1.06 billion in 2009, as well as sales of Diabetes Care products.the U.S. Diagnostics revenue growth was driven by solid growth in infectious disease and molecular diagnostic platforms. Revenue growth also reflected sales of immunocytometry instruments and reagents, aided by governmental economic stimulus programs in the U.S.Biosciences segment was driven by the Cell Analysis unit, partially offset by lower sales growth of Discovery Labware products.
International revenues in 20102011 of $4.1$4.5 billion increased 6%9.5%, andwhich 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%5.9%. SalesOverall, 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 EuropeEurope. International revenue growth was unfavorablynegatively impacted by continuing adverse macroeconomic conditions andabout 1.5 percentage points due to an unfavorable comparison to 2009,2010, which included flu-relatedstrong sales that did not reoccurrelated to the H1N1 flu pandemic and supplemental spending in 2010.Japan. Revenue growth in the Medical Segment was driven by strong sales of safety-engineered products. Diagnostic revenue growth reflected solid growth of Women’s 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 unit’s 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, compared with 52.6% in 2009.2010. Gross profit margin in 20102011 reflected an estimated unfavorable impact primarily from hedging activity of 90 basis points. Partially offsetting these losses was a net favorable operating performance impactimpacts of 20 basis points. Operatingpoints relating to foreign currency translation and 30 basis points relating to operating performance. The favorable impact from operating performance reflected higherresulted from increased sales of products with relatively higher gross margins, increased productivity and lower manufacturingstart-up costs, which were partially offset by higher manufacturingstart-upincreases in resin and restructuring costs, higher pensionother raw material costs and increaseshigher
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pension costs. Gross profit margin in certain raw material costs.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 20102011 of $1.9 billion, or 23.7% of revenues, increased $130 million, or 8%, compared with $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 increase2010. Aggregate expenses reflected $32$46 million of unfavorable foreign currency translation. Increased spending in 2010 included $18 millionexchange and increases in core spending $16of $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, and $15systems. These increases were partially offset by a $7 million decrease in pension costs. Aggregate expenses for 2009 reflected the $45 million litigation charge previously discussed.deferred compensation plan liability, as further discussed below.
Research and development (“R&D”) expense in 20102011 was $476 million, or 6.1% of revenues, compared with $431 million, or 5.8% of revenues, compared with $405 million, or 5.8% of revenues, in 2009.2010. 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.
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Non-Operating Expense and Income
Interest expense in 20102011 was $51$84 million, compared with $40$51 million in 2009.2010. This increase reflected higher levels of long-term fixed rate debt, partially offset by lower average interest rates on floating ratethe overall long-term debt and a benefit from higher levels of capitalized interest.portfolio. Interest income was $43 million in 2011, compared with $35 million in 2010, compared with $33 million in 2009.2010. 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 millioninterest rates and a write-downlevels of investments outside the United States, net of $14 million.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 20102011 of 29.2%26.3% was higherlower compared with the 20092010 rate of 26.1%29.2% and reflected the unfavorablea favorable impact of 1.3 percentage points due to certain unusual items. Thetax 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. 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 20102011 were $1.2$1.3 billion and $4.90,$5.59, respectively. The non-cash charge related to healthcare reformthe 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 by $9 million, or 4 cents,were $1.2 billion and $4.90, respectively. The current year’s 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 aboverelated to healthcare reform decreased income from continuing operations and diluted earnings per share from continuing operations in 20092010 by $28$9 million, or 11 cents, respectively.$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.
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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
24
would decreasehave decreased pre-tax earnings by $30 million, while a 10% depreciation of the U.S. dollar would increase pre-tax earnings by $30 million. Comparatively, considering our derivative instruments outstanding at September 30, 2009, a 10% appreciation of the U.S. dollar over a one-year period would have increased pre-tax earnings by $85 million, while a 10% depreciation of the U.S. dollar would have decreased pre-tax earnings by $85$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, 20102011 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, 20102011 and 2009,2010, 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 interest rate swapsrelated fair value hedges at September 30, 20102011 and 20092010 by approximately $56$90 million and $66$56 million, respectively. A 10% decrease in interest rates would increase the aggregate fair value of our long-term debt and interest rate swapsthese same financial instruments at September 30, 20102011 and 20092010 by approximately $59$96 million and $71$59 million, respectively.
Liquidity and Capital Resources
Net Cash Flows from Continuing Operating Activities
Net cash provided by continuing operating activities in 20102011 was $1.7 billion, unchanged from 2009.2010. The change in operating assets and liabilities resulted from a net use of cash and primarily reflected higher levels of accounts receivableinventory and inventory.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 and $75 millionwas made to the U.S. pension plan in 2010 and 2009, respectively.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, compared with $585 million in 2009.2010. Capital spending for the Medical, Diagnostics and Biosciences segments in 20102011 was $369$367 million, $109$93 million and $50$37 million, respectively, and related primarily to manufacturing capacity expansions.
Acquisitions of Businesses
In November 2009, we acquired 100%Cash outflows relating to acquisitions of $492 million in 2011 were comprised of $287 million associated with the outstanding sharesacquisition of HandyLab, Inc., a company that developsCarmel Pharma and manufactures molecular diagnostic assays and automation platforms, for a net cash payment$205 million associated with the acquisition of $275 million.Accuri. For further discussion, refer to Note 9 to the consolidated financial statements contained in Item 8, Financial Statements and Supplementary Data.
Divestiture of Businesses
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.
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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
Debt Issuances and Payments of Obligations
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 $500On November 8, 2010, we issued $700 million of10-year 5.00%3.25% Notes and $250$300 million of30-year 6.00% Notes in May 2009.5.00% Notes. Short-term debt decreased to 12%9% of total debt at the end of 2010,2011, from 21%12% at the end of 2009.2010. Floating rate debt was 24%16% of total debt at the end of 20102011 and 32%24% at the end of 2009.2010. Our weighted average cost of total debt at the end of 20102011 was 4.6%4.9%, downup from 4.9%4.6% at the end of 2009.2010.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, 20102011 was 23.7%35.8% compared to 26.8%with 23.7% at September 30, 2009.2010.
On November 8, 2010,3, 2011, we issued $700$500 million of10-year5-year 3.25%1.75% Notes and $300 million$1 billion of30-year10-year 5.00%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, repurchases of our common stock and acquisitions.
Repurchase of Common Stock
We repurchased approximately 10.118.4 million shares of our common stock for $1.5 billion in 2011 and 10.1 million shares for $750 million in 2010 and 8.2 million shares for $550 million in 2009.2010. In September 2010,July 2011, our Board of Directors authorized the repurchase of an additional 2118 million of our common shares. When combined with the remaining shares under the November 2009September 2010 Board of Directors’ repurchase authorization, there is a total of approximately 2928 million common shares remain available for purchase at September 30, 2010.2011. We plan on share repurchases of $1.5 billion in 2011 and $600 million in 2012, whichsubject to market conditions. Such repurchases are expected to be funded primarily by cash flows from operating activities and the issuance of debt.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.
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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, 2010.2011. 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 26-to-119-to-1 to 34-to-1.29-to-1. There were no borrowings outstanding under this facility at September 30, 2010.2011. In addition, we have informal lines of credit outside the United States.
Access to Capital and Credit Ratings
BD’sOur 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 BD’sour products, deterioration in BD’sour key financial ratios or credit ratings, or other significantly unfavorable changes in conditions.
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BD’s credit ratings at September 30, 20102011 were as follows:
| | | | | |
| | | Standard & Poor’s | | Moody’s |
| |
| Ratings: | | | | |
Long-term debtSenior 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 & Poor’s lowered BD’s Senior Unsecured Debt rating to A+ and its Commercial Paper rating toA-1, while affirming a rating outlook for BD of “Stable”. At the same time, Moody’s affirmed its Senior Unsecured Debt rating of A2 and Commercial Paper rating ofP-1, but lowered its rating outlook for BD to “Negative”.
While further deterioration in BD’sour credit ratings would increase the costs associated with maintaining and borrowing under its existing credit arrangements, such a downgrade would not affect itsour ability to draw on these credit facilities, nor would it result in an acceleration of the scheduled maturities of any outstanding debt. BD believesWe believe that given itsour debt ratings, itsour conservative financial management policies, itsour ability to generate cash flow and the non-cyclical, geographically diversified nature of itsour businesses, itwe would have access to additional short-term and long-term capital should the need arise.
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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 BD’s significant contractual obligations and related scheduled payments:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | 2012 to
| | 2014 to
| | 2016 and
| | | | | | | 2013 to
| | 2015 to
| | 2017 and
| |
| | | Total | | 2011 | | 2013 | | 2015 | | Thereafter | | | Total | | 2012 | | 2014 | | 2016 | | Thereafter | |
| | | (Millions of dollars) | | | (Millions of dollars) | |
| |
| Short-term debt | | $ | 203 | | | $ | 203 | | | $ | — | | | $ | — | | | $ | — | | | $ | 235 | | | $ | 235 | | | $ | — | | | $ | — | | | $ | — | |
| Long-term debt(A) | | | 2,624 | | | | 79 | | | | 362 | | | | 145 | | | | 2,038 | | | | 4,153 | | | | 117 | | | | 432 | | | | 221 | | | | 3,383 | |
| Operating leases | | | 197 | | | | 45 | | | | 63 | | | | 46 | | | | 43 | | | | 217 | | | | 47 | | | | 74 | | | | 51 | | | | 45 | |
| Purchase obligations(B) | | | 521 | | | | 318 | | | | 188 | | | | 15 | | | | — | | | | 506 | | | | 286 | | | | 184 | | | | 36 | | | | — | |
| Unrecognized tax benefits(C) | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Total(D) | | $ | 3,545 | | | $ | 645 | | | $ | 613 | | | $ | 206 | | | $ | 2,081 | | | $ | 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, 20102011 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, 20102011 of $90$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 20112012 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. |
20092010 Compared With 20082009
Results of Continuing Operations
Worldwide revenues in 20092010 of $7.0$7.4 billion increased 1%5.5% from 2008the prior year and reflected volume increases of approximately 5%6%, unfavorable foreign exchange translation of 0.1%, inclusive of hedge losses, and price increasesdecreases of less than 1%, which were partially offset by net unfavorable foreign currency translation of 4%, after factoring0.4%. The increase is attributable to solid revenue growth in hedge gains.the Medical Segment, continued improvement in Biosciences sales and, to a lesser extent, growth in Diagnostics Segment revenues.
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Comparisons of income from continuing operations between 20092010 and 20082009 are affected by the following significant items that are reflected in our 20092010 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, the Companywe 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, the Companywe 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 20092010 of $3.6$3.8 billion increased $14$239 million, or 0.4%6.7%, over 2008, as volume growth was mostly offset by2009, which reflected an estimated impact of unfavorablefavorable foreign currency translation of 5.5 percentage points,0.5%, net of hedge gains.losses.
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The following is a summary of Medical revenues by organizational unit:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | Estimated
| | | | | | | | | Estimated
| |
| | | | | | | | | Foreign
| | | | | | | | | Foreign
| |
| | | | | | | Total
| | Exchange
| | | | | | | Total
| | Exchange
| |
| | | 2009 | | 2008 | | Change | | Impact | | | 2010 | | 2009 | | Change | | Impact | |
| | | (Millions of dollars) | | | (Millions of dollars) | |
| |
| Medical Surgical Systems | | $ | 1,889 | | | $ | 1,906 | | | | (0.9 | )% | | | (5.6 | )% | | $ | 2,010 | | | $ | 1,889 | | | | 6.4 | % | | | 1.5 | % |
| Diabetes Care | | | 715 | | | | 694 | | | | 3.0 | % | | | (3.9 | )% | | | 786 | | | | 715 | | | | 9.9 | % | | | 0.8 | % |
| Pharmaceutical Systems | | | 952 | | | | 942 | | | | 1.1 | % | | | (6.3 | )% | | | 1,001 | | | | 952 | | | | 5.1 | % | | | (1.3 | )% |
| | | | | | | | | | | | | | | | | | | |
| Total Revenues* | | $ | 3,557 | | | $ | 3,543 | | | | 0.4 | % | | | (5.5 | )% | | $ | 3,796 | | | $ | 3,557 | | | | 6.7 | % | | | 0.5 | % |
| | | | | | | | | | | | | | | | | | | |
| | |
| * | | Amounts may not add due to rounding. |
On a foreign currency-neutral basis, revenueRevenue growth ofin the Medical Surgical Systems unit continuedcontinues to be driven by sales inof safety-engineered products and prefilled flush syringes. Revenues of safety-engineered products increased 2%5% in the United States and 12%15% internationally, which included an estimated unfavorablefavorable foreign exchange impact of 11%3%, net of hedge gains.losses. Revenue growth in the Diabetes Care unit resulted primarily from continued strong growth in worldwide pen needle sales.sales and a co-marketing agreement in the United States. Revenue growth in the Pharmaceutical Systems unit was driven by double-digit growth in Europe and Asia Pacific, offset by lower sales in the United States, when compared with 2008, which included non-recurring sales to companies producing certain generic heparin products.Japan and Asia Pacific. Revenues related to the H1N1 pandemic were $30grew $15 million to $45 million for the Medical Surgical Systems unit and $25grew $10 million to $35 million for the Pharmaceutical Systems unit in 2009.2010.
Medical operating income in 20092010 was $1.0$1.1 billion, or 29.5% of Medical revenues, as compared with $1.0 billion, or 28.4%29.5%, of revenues in 2008. Operating income as2009. Favorable manufacturing productivity improvements were substantially offset by a percentage of revenues reflected an increaseslight decrease in gross profit margin primarily resulting from favorableunfavorable foreign currency translation, including hedge gains, and a modest benefit from lowerincrease in the cost of raw materials, cost, which was partially offset byand increased manufacturingstart-up and restructuring costs. See further discussion on gross profit margin below. Selling and administrative expense as a percentage of Medical revenues in 20092010 declined to 17.3% of revenues from 17.5% of revenues from 17.9% of revenues in 2008,2009, primarily due to tightcontinued diligent spending controls. Research and development expenses in 20092010 increased $16$8 million, or 15%7%, reflectingand reflected continued investment in the development of new products and platforms.
Diagnostics Segment
Diagnostics revenues in 20092010 of $2.2$2.3 billion increased $66$93 million, or 3%4.2%, over 2008. Revenues in 2009, which reflected an estimated unfavorable impact of favorable foreign currency translation of 4 percentage points,0.2%, net of hedge gains.losses.
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The following is a summary of Diagnostics revenues by organizational unit:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | Estimated
| | | | | | | | | Estimated
| |
| | | | | | | | | Foreign
| | | | | | | | | Foreign
| |
| | | | | | | Total
| | Exchange
| | | | | | | Total
| | Exchange
| |
| | | 2009 | | 2008 | | Change | | Impact | | | 2010 | | 2009 | | Change | | Impact | |
| | | (Millions of dollars) | | | (Millions of dollars) | |
| |
| Preanalytical Systems | | $ | 1,143 | | | $ | 1,124 | | | | 1.8 | % | | | (4.6 | )% | | $ | 1,198 | | | $ | 1,143 | | | | 4.8 | % | | | 0.4 | % |
| Diagnostic Systems | | | 1,083 | | | | 1,036 | | | | 4.5 | % | | | (2.9 | )% | | | 1,121 | | | | 1,083 | | | | 3.5 | % | | | — | |
| | | | | | | | | | | | | | | | | | | |
| Total Revenues | | $ | 2,226 | | | $ | 2,160 | | | | 3.1 | % | | | (3.7 | )% | | $ | 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 6%5% in the United States, driven byBD VacutainerTMtm Push Button Blood Collection Set sales, and 4%7% internationally, which included an estimated unfavorablefavorable foreign exchange impact of 10%1%, net of hedge gains.losses. The Diagnostic Systems unit experienced growth in worldwide sales of its automated diagnostic platforms, including the molecularBD ProbeTecTMtm,BD ViperTMtm andBD AffirmTMtm systems, along with solid growth of itsBD BACTECTMtm blood culture and TB systems and theBD PhoenixTMtm ID/AST platform. Revenues of flu-related productsrelated to the flu pandemic were $13 million in 2010 compared with $22 million in 2009. In addition, revenues from TriPath grew $11 million to $130 million and revenues from GeneOhm grew $9 million to $51 million in 2009.2009 for the Diagnostic Systems unit.
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Diagnostics operating income in 2010 was $607 million, or 26.2% of Diagnostics revenues, compared with $607 million, or 27.3% of Diagnostics revenues, in 2009, compared with $526 million, or 24.3% of revenues, in 2008.2009. The Diagnostics Segmentsegment experienced an improvementa decline in gross profit margin fromthat reflected unfavorable foreign currency translation andstart-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 theBD ProbeTecTMtm andBD ViperTMtm systems. This was partially offset by increases in raw material costs and unfavorable foreign exchange. See further discussion on gross profit margin below. Selling and administrative expense as a percentage of Diagnostics revenues remained the same in 2009 was2010 at 21.2%, compared with 22.0% in 2008, primarily due to tightcontinued spending controls. Research and development expense increased $10 million, or 7%, reflectingmodestly 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 20092010 of $1.2$1.3 billion increased $9$53 million, or 1%4.4%, over 2008,2009, which reflected an estimated impact of unfavorable foreign currency translation of 1 percentage point, net of2.4% due to hedge gains.
The following is a summary of Biosciences revenues by organizational unit:
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | Estimated
| |
| | | | | | | | | | | | Foreign
| |
| | | | | | | | | Total
| | | Exchange
| |
| | | 2009 | | | 2008 | | | Change | | | Impact | |
| | | (Millions of dollars) | |
| |
| Cell Analysis | | $ | 905 | | | $ | 901 | | | | 0.4 | % | | | (1.0 | )% |
| Discovery Labware | | | 299 | | | | 295 | | | | 1.6 | % | | | (0.3 | )% |
| | | | | | | | | | | | | | | | | |
| Total Revenues* | | $ | 1,204 | | | $ | 1,195 | | | | 0.7 | % | | | (0.8 | )% |
| | | | | | | | | | | | | | | | | |
| | |
* | | Amounts may not add due to rounding. |
Revenue growth in the Cell Analysis unit reflected lessening demand for instruments and research reagents, caused primarily by adverse economic conditions in the U.S. that resulted in funding constraints and lower demand for capital equipment. The unit was also impacted by reduced research spending in other regions. Revenue growth in the Discovery Labware unit was adversely impacted by reduced sales to a major bionutrients customer compared with 2008.losses. Biosciences revenues reflected a larger portion of our hedge gains,losses, which are allocated to the segments based on their proportionate share of international sales ofU.S.-produced products.
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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 20092010 was $362$354 million, or 30.1%28.2% of Biosciences revenues, compared with $334$362 million, or 27.9%30.1%, in 2008.2009. The increasedecrease in operating income, as a percentage of revenues, reflects lower gross profit improvement from the unfavorable impact of hedge losses, partially offset by the favorable impact of foreign currency translation, including hedge gains. See further discussion on gross profit margin below. In addition, sellingtranslation. Selling and administrative expense was 21.9% in 2010 as a percentage of Biosciences revenues declinedcompared with 21.6% in 2009 to 21.6% from 23.0% in 2008, primarily due to tight spending controls.and reflected new direct selling programs and inflationary factors. Research and development expense in 2009 was flat compared with 2008.increased $10 million, or 11%, and reflected spending on new product development and advanced technology.
Geographic Revenues
Revenues in the United States in 20092010 of $3.1$3.3 billion increased 3%5%. Overall, growth was led by sales of safety-engineered products, which increased 4%5% to $1.1$1.11 billion from $1.06 billion in 2009, as well as sales of Diabetes Care products. Revenue growth was adversely impacted by loweralso reflected sales of immunocytometry instruments and reagents, and Pharmaceutical Systems products, as previously discussed.aided by stimulus programs in the U.S.
International revenues in 20092010 of $3.9$4.1 billion were relatively flat compared with 2008, as increased sales volume was offset by an estimated6%, and reflected nominal impact of unfavorablefrom net foreign currency translation of 7 percentage points, net of hedge gains. Volumetranslation. Sales growth was led by salesdouble-digit growth in Western Europe, Asia Pacific, Latin America and Latin America.Japan. International sales of safety-engineered devices grew 6.5%9.5% to $622 million in 2010 from $568 million in 2009, from $533 million in 2008 and reflectedwhich included an estimated 10 percentage pointsimpact of unfavorablenet favorable foreign currency translation.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.
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Gross Profit Margin
Gross profit margin increased towas 51.9% in 2010, compared with 52.6% in 2009, from 51.3% in 2008.2009. Gross profit margin in 20092010 reflected an estimated favorableunfavorable impact primarily from hedging activity of 14090 basis points from both foreign currency translation and the hedging of certain foreign currencies and 20 basis points from lower raw materials cost.points. Partially offsetting these gains werelosses 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 manufacturingstart-up and restructuring costs, higher pension costs, and increases in manufacturingstart-up costs of approximately 30 basis points.certain raw material costs.
Operating Expenses
Selling and administrative expense in 2009 was2010 of $1.7 billion, or 23.3% of revenues, increased $41 million, or 2%, compared with $1.7 billion, or 24.1% of revenues, compared with $1.7 billion, or 24.2%in 2009. This increase reflected $32 million of revenues,unfavorable foreign currency translation. Increased spending in 2008.2010 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 and $48 million of increased core spending. These increases were partially offset by $82 million of favorable foreign exchange impacts.discussed.
Research and development (“R&D&D”) expense in 20092010 was $405$431 million, or 5.8% of revenues, compared with $383$405 million, or 5.5%5.8% of revenues, in 2008.2009. The increase in R&D expenditures includes spending for new products and platforms in the Medical and Diagnosticseach of our segments, as previously discussed.
Operating Income
Operating margin in 2009 was 22.8% of revenues, compared with 21.6% in 2008. The litigation charge noted above decreased operating margin in 2009 by 60 basis points.
Non-Operating Expense and Income
Interest expense in 2010 was $51 million, compared with $40 million in 2009, compared with $36 million in 2008.2009. This increase reflected higher levels of long-term fixed rate debt, levelspartially offset in part, by lower interest rates on floating rate debt.debt and a benefit from higher levels of capitalized interest. Interest income was $35 million in 2010, compared with $33 million in 2009, compared with $392009. 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 in 2008. This decrease was primarily attributable to the impactand a write-down of lower interest rates on floating rate investments.investments of $14 million.
Income Taxes
The effective tax rate in 20092010 of 29.2% was 26.1%higher compared with the 20082009 rate of 27.7%,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%1.2 percentage point benefit due to various tax settlements in multiple jurisdictions.
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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 year’s 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 billionmillion 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. Income from continuing operations and diluted earnings per share from continuing operations in 2008 were $1.1 million and $4.27, respectively.
Discontinued Operations
In July 2009, the Company sold certain assets and liabilities related to the elastics and thermometer components of the Home Healthcare product line of the Medical segment for $51 million. See Note 10 to the consolidated financial statements contained in Item 8, Financial Statements and Supplementary Data for additional discussion.
Liquidity and Capital Resources
Net Cash Flows from Continuing Operating Activities
Net cash provided by continuing operating activities in 20092010 was $1.7 billion, compared with $1.6 billion in 2008. Net income, excluding non-cash items (primarily depreciation, amortization, share-based compensation and deferred income taxes), was the primary source of operating cash flow duringunchanged from 2009. The change in operating assets and liabilities wasresulted from a net use of cash and reflected higher levels of accounts
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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
Net cash used for continuing investing activities in 2009 was $1.1 billion, compared with $777 million in 2008. Capital expenditures were $537 million in 2010, compared with $585 million in 2009, compared with $596 million in 2008.2009. Capital spending for the Medical, Diagnostics and Biosciences segments in 2010 was $408$369 million, $102$109 million and $56$50 million, respectively, in 2009 and related primarily to manufacturing capacity expansions. The increase
Cash outflows relating to acquisitions of $281 million in cash used for purchases of short-term investments is2010 primarily related to a cash outflow of $275 million associated with the temporary investmentacquisition 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 long-term debt issuance discussed below. The increaseconsolidated financial statements contained in cash used for capital software investment is primarily related to our global enterprise resource planning initiative to upgrade our business information systems.Item 8, Financial Statements and Supplementary Data.
Net Cash Flows from Continuing Financing Activities
Net cash used for financing activities was $80The change in short-term debt reflected the repayment of $200 million inof 7.15% Notes, due October 1, 2009, as compared with $586 million in 2008. In May 2009, we issuedusing the proceeds from the issuance of $500 million of10-year, 5.00% Notes and $250 million of30-year, 6.00% Notes the proceeds of which were used to repay $200 million of 7.15% Notes, due October 1, 2009, to fund a discretionary pension contribution of $175 million in October 2009, and for general corporate purposes. Total debt was $1.9 billion and $1.2 billion at September 30, 2009 and 2008, respectively.May 2009. Short-term debt increaseddecreased to 21%12% of total debt at the end of 2009,2010, from 17%21% at the end of 2008.2009. Floating rate debt was 32%24% of total debt at the end of 20092010 and 35%32% at the end of 2008.2009. Our weighted average cost of total debt at the end of 20092010 was 4.9%4.6%, unchangeddown from the end of 2008.Debt-to-capitalization4.9% at the end of 2009 increased2009.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% compared with 18.8% in 2008, primarily due to our debt issuance.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
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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 management’s 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 titleall 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 riskcollection of loss pass to the customer. However, we recognize revenue forresulting receivable is reasonably assured.
For certain instruments sold from the Biosciences segment, we recognize revenue upon installation at a customer’s site, as installation of these instruments is considered a significant post-delivery obligation. In addition, forFor 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
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each deliverable based on theits relative fair valuesselling price. The relative selling prices of items delivered. Fair valuesinstallation and training are generally 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 of the individual deliverables to third parties.contract price in each arrangement.
BD’s 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 indefinite-lived intangiblein-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 20102011 did not result in anany impairment charges, as the fair value of each reporting unit exceeded its carrying value. Intangible assets other than goodwill and indefinite-lived intangible
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 other long-lived assets are reviewed annually for impairment, or when impairment indicators are present. Impairment reviews are based on anthen discounting these cash flows to a present value using a risk-adjusted discount rate. We selected this method because we believe the income approach which is based on the present value of future cash flows.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 BD’s 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 BD’s results of operations. Actual results may differ from management’s 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 reservesaccruals 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. BD’s 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
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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 BD’s 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 usedwill use a discount rate of 5.2% as of September 30, 2010,4.9% 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 year’s 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. At September 30, 2010, we usedWe will use a long-term expected rate of return on plan assets assumption of 8.00%7.75% for the U.S. pension plan.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:
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| | • | Discount rate —A change of plus (minus) 25 basis points, with other assumptions held constant, would have an estimated $7$8 million favorable (unfavorable) impact on the total U.S. net pension and other postretirement benefit plan cost. |
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| | • | 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. |
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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 management’s 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.
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| • | The current conditions in the global economy and financial markets, and the potential adverse effect on liquidity and access to capital resources for BDand/or its customers and suppliers, the cost of operating our business, the demand for our products and services, (particularlyprices for our products and services due to increases in countries where governments are the primary payers of healthcare expenses and research),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. |
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| • | The consequences of the recently-enacted healthcare reform legislation 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 BD’s business. |
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| • | 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. |
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| • | 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 |
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| | healthcare providers and trends toward managed care and healthcare cost containment (including changes in reimbursement practices by third party payors). |
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| • | 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. |
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| • | 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. |
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| • | 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. |
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| • | 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. |
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| • | 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. |
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| • | The effects of natural disasters, including pandemics, earthquakes, fire, wind or other destructive events or the effects of climate change onthat 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.manufacturing, including pandemics, natural disasters, environmental factors or cyber attacks. |
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| • | Fluctuations in the cost and availability of oil-based resins and other raw materials, as well as certainsub-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. |
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| • | 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. |
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| • | 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. |
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| • | Fluctuations in university or U.S. and international governmental funding and policies for life sciences research. |
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| • | Our ability to achieve our projected level or mix of product sales. Our earnings forecasts are generated based on projected volumes and sales of many product types, some of which are more profitable than others. |
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| • | 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. |
35
| |
| • | The effect of adverse media exposure or other publicity regarding BD’s business or operations, including the effect on BD’s 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 BD’s pension plans and toon 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.government, including the recent civil unrest in parts of the Middle East. |
| |
• | 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. |
|
• | The effects, if any, of future healthcare reform in the countries in which we do business, including changes in government pricing and reimbursement policies or other cost containment reforms. |
|
| • | 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, Management’s 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. |
36
Reports of Management
Management’s 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 Company’s assets, management employs a system of internal accounting controls designed to provide reasonable assurance, at appropriate cost, that the Company’s 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.
Management’s Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined inRule 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 inInternal Control-Integrated Frameworkissued 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, 2010.2011.
The financial statements and internal control over financial reporting have been audited by Ernst & Young LLP, an independent registered public accounting firm. Ernst & Young’s reports with respect to fairness of the presentation of the statements, and the effectiveness of internal control over financial reporting, are included herein.
| | | | | |
Edward J. LudwigVincent A. Forlenza | | David V. Elkins | | William A. Tozzi |
Chairman and
Chief Executive Officer and
President | | Executive Vice President and
Chief Financial Officer | | Senior Vice President and
Controller |
3738
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, 20102011 and 2009,2010, and the related consolidated statements of income, comprehensive income, and cash flows for each of the three years in the period ended September 30, 2010.2011. These financial statements are the responsibility of the Company’s 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, 20102011 and 2009,2010, and the consolidated results of its operations and its cash flows for each of the three years in the period ended September 30, 2010,2011, 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 Company’s internal control over financial reporting as of September 30, 2010,2011, based on criteria established inInternal Control-Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated November 24, 201023, 2011 expressed an unqualified opinion thereon.
New York, New York
November 24, 201023, 2011
3839
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 Company’s internal control over financial reporting as of September 30, 2010,2011, based on criteria established inInternal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Becton, Dickinson and Company’s 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 Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the company’s 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 company’s 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 company’s 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 company’s 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, 2010,2011, 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, 20102011 and 2009,2010, and the related consolidated statements of income, comprehensive income, and cash flows for each of the three years in the period ended September 30, 20102011 of Becton, Dickinson and Company, and our report dated November 24, 201023, 2011 expressed an unqualified opinion thereon.
New York, New York
November 24, 201023, 2011
3940
Becton, Dickinson and Company
Consolidated Statements of Income
| | | | | | | | | | | | | |
| | | Years Ended September 30 | |
| | | 2010 | | | 2009 | | | 2008 | |
| | | Thousands of dollars, except per share amounts | |
| |
Operations | | | | | | | | | | | | |
| Revenues | | $ | 7,372,333 | | | $ | 6,986,722 | | | $ | 6,897,619 | |
| Cost of products sold | | | 3,543,183 | | | | 3,311,676 | | | | 3,357,159 | |
| Selling and administrative expense | | | 1,721,356 | | | | 1,680,797 | | | | 1,669,762 | |
| Research and development expense | | | 430,997 | | | | 404,567 | | | | 382,554 | |
| Total Operating Costs and Expenses | | | 5,695,536 | | | | 5,397,040 | | | | 5,409,475 | |
| | | | | | | | | | | | | |
| Operating Income | | | 1,676,797 | | | | 1,589,682 | | | | 1,488,144 | |
| Interest expense | | | (51,263 | ) | | | (40,389 | ) | | | (36,343 | ) |
| Interest income | | | 35,129 | | | | 33,148 | | | | 39,368 | |
| Other income (expense), net | | | 497 | | | | (3,850 | ) | | | (1,484 | ) |
| | | | | | | | | | | | | |
| Income From Continuing Operations | | | | | | | | | | | | |
| Before Income Taxes | | | 1,661,160 | | | | 1,578,591 | | | | 1,489,685 | |
| Income tax provision | | | 484,820 | | | | 411,246 | | | | 411,931 | |
| | | | | | | | | | | | | |
| Income from Continuing Operations | | | 1,176,340 | | | | 1,167,345 | | | | 1,077,754 | |
| | | | | | | | | | | | | |
| Income from Discontinued Operations | | | | | | | | | | | | |
| Net of income tax provision of $40,703, $19,975 and $13,191 | | | 141,270 | | | | 64,258 | | | | 49,242 | |
| | | | | | | | | | | | | |
| Net Income | | $ | 1,317,610 | | | $ | 1,231,603 | | | $ | 1,126,996 | |
| | | | | | | | | | | | | |
Basic Earnings per Share | | | | | | | | | | | | |
| Income from Continuing Operations | | $ | 5.02 | | | $ | 4.85 | | | $ | 4.41 | |
| Income from Discontinued Operations | | $ | 0.60 | | | $ | 0.27 | | | $ | 0.20 | |
| | | | | | | | | | | | | |
| Basic Earnings per Share | | $ | 5.62 | | | $ | 5.12 | | | $ | 4.61 | |
| | | | | | | | | | | | | |
Diluted Earnings per Share | | | | | | | | | | | | |
| Income from Continuing Operations | | $ | 4.90 | | | $ | 4.73 | | | $ | 4.27 | |
| Income from Discontinued Operations | | $ | 0.59 | | | $ | 0.26 | | | $ | 0.19 | |
| | | | | | | | | | | | | |
| Diluted Earnings per Share | | $ | 5.49 | | | $ | 4.99 | | | $ | 4.46 | |
| | | | | | | | | | | | | |
See notes to consolidated financial statements
40
Becton, Dickinson and Company
Consolidated Statements of Comprehensive Income
| | | | | | | | | | | | | |
| | | Years Ended September 30 | |
| | | 2010 | | | 2009 | | | 2008 | |
| | | Thousands of dollars | |
| |
| Net Income | | $ | 1,317,610 | | | $ | 1,231,603 | | | $ | 1,126,996 | |
| | | | | | | | | | | | | |
| Other Comprehensive Income (Loss), Net of Tax | | | | | | | | | | | | |
| Foreign currency translation adjustments | | | 330 | | | | 29,358 | | | | (80,305 | ) |
| Defined benefit pension and postretirement plans | | | (130,461 | ) | | | (242,478 | ) | | | (42,862 | ) |
| Unrealized gain (loss) on investments, net of amounts recognized | | | — | | | | 41 | | | | (42 | ) |
| Unrealized gain (loss) on cash flow hedges, net of amounts realized | | | 44,884 | | | | (82,073 | ) | | | 43,871 | |
| | | | | | | | | | | | | |
| Other Comprehensive Loss, Net of Tax | | | (85,247 | ) | | | (295,152 | ) | | | (79,338 | ) |
| | | | | | | | | | | | | |
| Comprehensive Income | | $ | 1,232,363 | | | $ | 936,451 | | | $ | 1,047,658 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | 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 Balance SheetsStatements of Comprehensive Income
| | | | | | | | | |
| | | September 30 | |
| | | 2010 | | | 2009 | |
| | | Thousands of dollars, except
| |
| | | per share amounts and
| |
| | | numbers of shares | |
| |
ASSETS |
| Current Assets | | | | | | | | |
| Cash and equivalents | | $ | 1,215,989 | | | $ | 1,394,244 | |
| Short-term investments | | | 528,206 | | | | 551,561 | |
| Trade receivables, net | | | 1,205,377 | | | | 1,168,662 | |
| Inventories | | | 1,145,337 | | | | 1,156,762 | |
| Prepaid expenses, deferred taxes and other | | | 410,341 | | | | 375,725 | |
| | | | | | | | | |
| Total Current Assets | | | 4,505,250 | | | | 4,646,954 | |
| Property, Plant and Equipment, Net | | | 3,100,492 | | | | 2,966,629 | |
| Goodwill | | | 763,961 | | | | 621,872 | |
| Core and Developed Technology, Net | | | 310,783 | | | | 309,990 | |
| Other Intangibles, Net | | | 227,857 | | | | 96,659 | |
| Capitalized Software, Net | | | 254,761 | | | | 197,224 | |
| Other | | | 487,590 | | | | 465,296 | |
| | | | | | | | | |
| Total Assets | | $ | 9,650,694 | | | $ | 9,304,624 | |
| | | | | | | | | |
| |
| LIABILITIES |
| Current Liabilities | | | | | | | | |
| Short-term debt | | $ | 202,758 | | | $ | 402,965 | |
| Accounts payable | | | 325,402 | | | | 264,181 | |
| Accrued expenses | | | 661,112 | | | | 646,540 | |
| Salaries, wages and related items | | | 453,605 | | | | 459,742 | |
| Income taxes | | | 28,796 | | | | 3,665 | |
| | | | | | | | | |
| Total Current Liabilities | | | 1,671,673 | | | | 1,777,093 | |
| Long-Term Debt | | | 1,495,357 | | | | 1,488,460 | |
| Long-Term Employee Benefit Obligations | | | 899,109 | | | | 782,034 | |
| Deferred Income Taxes and Other | | | 149,975 | | | | 114,325 | |
| Commitments and Contingencies | | | — | | | | — | |
| Shareholders’ Equity | | | | | | | | |
| Common stock — $1 par value: authorized — 640,000,000 shares; issued-332,662,160 shares in 2010 and 2009 | | | 332,662 | | | | 332,662 | |
| Capital in excess of par value | | | 1,624,768 | | | | 1,485,674 | |
| Retained earnings | | | 8,724,228 | | | | 7,752,831 | |
| Deferred compensation | | | 17,164 | | | | 17,906 | |
| Common stock in treasury — at cost — 102,845,609 shares in 2010 and 95,579,970 shares in 2009 | | | (4,806,333 | ) | | | (4,073,699 | ) |
| Accumulated other comprehensive loss | | | (457,909 | ) | | | (372,662 | ) |
| | | | | | | | | |
| Total Shareholders’ Equity | | | 5,434,580 | | | | 5,142,712 | |
| | | | | | | | | |
| Total Liabilities and Shareholders’ Equity | | $ | 9,650,694 | | | $ | 9,304,624 | |
| | | | | | | | | |
| | | | | | | | | | | | | |
| | | 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 Statements of Cash FlowsBalance Sheets
| | | | | | | | | | | | | |
| | | Years Ended September 30 | |
| | | 2010 | | | 2009 | | | 2008 | |
| | | Thousands of dollars | |
| |
Operating Activities | | | | | | | | | | | | |
| Net income | | $ | 1,317,610 | | | $ | 1,231,603 | | | $ | 1,126,996 | |
| Income from discontinued operations, net | | | (141,270 | ) | | | (64,258 | ) | | | (49,242 | ) |
| | | | | | | | | | | | | |
| Income from continuing operations, net | | | 1,176,340 | | | | 1,167,345 | | | | 1,077,754 | |
| Adjustments to income from continuing operations to derive net cash provided by continuing operating activities, net of amounts acquired: | | | | | | | | | | | | |
| Depreciation and amortization | | | 502,113 | | | | 464,604 | | | | 471,963 | |
| Share-based compensation | | | 79,374 | | | | 86,574 | | | | 100,585 | |
| Deferred income taxes | | | 28,055 | | | | 60,041 | | | | 80,088 | |
| Change in operating assets and liabilities: | | | | | | | | | | | | |
| Trade receivables, net | | | (73,933 | ) | | | (81,530 | ) | | | (4,610 | ) |
| Inventories | | | (116,500 | ) | | | (91,462 | ) | | | (49,362 | ) |
| Prepaid expenses, deferred taxes and other | | | (34,340 | ) | | | (22,059 | ) | | | (32,245 | ) |
| Accounts payable, income taxes and other liabilities | | | 156,023 | | | | 123,576 | | | | (15,657 | ) |
| Pension obligation | | | (102,967 | ) | | | (68,574 | ) | | | (56,083 | ) |
| Other, net | | | 44,852 | | | | 19,971 | | | | 45,354 | |
| | | | | | | | | | | | | |
| Net Cash Provided by Continuing Operating Activities | | | 1,659,017 | | | | 1,658,486 | | | | 1,617,787 | |
| | | | | | | | | | | | | |
Investing Activities | | | | | | | | | | | | |
| Capital expenditures | | | (537,306 | ) | | | (585,196 | ) | | | (595,811 | ) |
| Capitalized software | | | (95,159 | ) | | | (109,588 | ) | | | (49,306 | ) |
| Change in short-term investments | | | 34,550 | | | | (338,228 | ) | | | (46,321 | ) |
| Proceeds (purchases) of long-term investments | | | 963 | | | | 840 | | | | (5,666 | ) |
| Acquisitions of businesses, net of cash acquired | | | (281,367 | ) | | | — | | | | (41,259 | ) |
| Divestiture of businesses | | | 259,990 | | | | 51,022 | | | | — | |
| Other, net | | | (81,636 | ) | | | (85,900 | ) | | | (38,491 | ) |
| | | | | | | | | | | | | |
| Net Cash Used for Continuing Investing Activities | | | (699,965 | ) | | | (1,067,050 | ) | | | (776,854 | ) |
| | | | | | | | | | | | | |
Financing Activities | | | | | | | | | | | | |
| Change in short-term debt | | | (200,193 | ) | | | 1,196 | | | | (5,938 | ) |
| Proceeds from long-term debt | | | — | | | | 739,232 | | | | — | |
| Payments of debt | | | (76 | ) | | | (311 | ) | | | (1,114 | ) |
| Repurchase of common stock | | | (750,000 | ) | | | (550,006 | ) | | | (450,001 | ) |
| Issuance of common stock and other, net | | | 50,093 | | | | 32,403 | | | | 85,396 | |
| Excess tax benefit from payments under share-based compensation plans | | | 23,202 | | | | 14,667 | | | | 64,335 | |
| Dividends paid | | | (345,713 | ) | | | (316,877 | ) | | | (278,506 | ) |
| | | | | | | | | | | | | |
| Net Cash Used for Continuing Financing Activities | | | (1,222,687 | ) | | | (79,696 | ) | | | (585,828 | ) |
| | | | | | | | | | | | | |
| Discontinued Operations: | | | | | | | | | | | | |
| Net cash provided by operating activities | | | 85,251 | | | | 58,329 | | | | 69,311 | |
| Net cash used for investing activities | | | (5,661 | ) | | | (5,912 | ) | | | (6,169 | ) |
| | | | | | | | | | | | | |
| Net Cash Provided by Discontinued Operations | | | 79,590 | | | | 52,417 | | | | 63,142 | |
| | | | | | | | | | | | | |
| Effect of exchange rate changes on cash and equivalents | | | 5,790 | | | | (390 | ) | | | 748 | |
| | | | | | | | | | | | | |
| Net (Decrease) Increase in Cash and Equivalents | | | (178,255 | ) | | | 563,767 | | | | 318,995 | |
| Opening Cash and Equivalents | | | 1,394,244 | | | | 830,477 | | | | 511,482 | |
| | | | | | | | | | | | | |
| Closing Cash and Equivalents | | $ | 1,215,989 | | | $ | 1,394,244 | | | $ | 830,477 | |
| | | | | | | | | | | | | |
| | | | | | | | | |
| | | 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
| |
| 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 offirst-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 1012 years for machinery and equipment and one to 20 years for leasehold improvements. Depreciation and amortization expense was $348,522, $347,402 $312,321 and $300,384$312,321 in fiscal 2011, 2010 2009 and 2008,2009, respectively.
Goodwill and Other Intangible Assets
Goodwill, core and developed technology, and in-process research and development assets arise from acquisitions. Goodwill and in-process research and development assets areis 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 Company’s 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. Reporting units generally represent one level below reporting segment. The annual impairment review performed in fiscal year 20102011 indicated that all six identified reporting units’ fair valuevalues exceeded their respective carrying value. 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.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.
44
Becton, Dickinson and Company
Notes to Consolidated Financial Statements — (Continued)
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 Company’s 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 $56,368 for 2010, 2009, and 2008, 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 title and riskall of loss pass to the customer.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 customer’s 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. Revenueaccounting and revenue is recognized upon the completion of each deliverable based on theits relative fair valuesselling price. The relative selling prices of items delivered. Fair valuesinstallation and training are generally 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 of the individual deliverables to other third parties.contract price in each arrangement.
The Company’s domestic businesses sell products primarily to distributors whothat 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 $263,504 in 2010, 2009, respectively.
46
Becton, Dickinson and 2008, respectively.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.
45
Becton, Dickinson and Company
Notes to Consolidated Financial Statements — (Continued)
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 reservesaccruals 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 ourthe 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.
Note 2 — Accounting Changes
In December 2008, the Financial Accounting Standards Board (“FASB”) issued revised guidance to require entities to disclose the major categories of defined benefit and postretirement plan assets and the measurement of these assets in accordance with the fair value measurement framework as defined under U.S. GAAP. The new guidance also requires disclosures regarding how investment allocation decisions are made. The Company adopted the revised disclosure requirements on September 30, 2010 and there was no impact to the consolidated financial statements as a result of this adoption. The required disclosures are included in Note 8.
4647
Becton, Dickinson and Company
Notes to Consolidated Financial Statements — (Continued)
The Company implemented the revised business combination rules for acquisitions occurring after October 1, 2009. Under the new rules, acquired in-process research and development assets will be recorded as indefinite-lived intangible assets until projects are completed or abandoned and acquisition-related costs are expensed as incurred. Disclosures required under the revised business combination rules relating to the Company’s acquisition of HandyLab, Inc., on November 19, 2009, are provided in Note 9.
The Company implemented new fair value measurement requirements for nonfinancial assets and liabilities measured on a nonrecurring basis on October 1, 2009. The new guidance defines fair value, establishes a framework for measuring fair value in GAAP, and expands disclosures relating to fair value measurements. Assets and liabilities subject to this guidance primarily include goodwill and indefinite-lived intangible assets measured at fair value for impairment assessments, long-lived assets measured at fair value when impaired and non-financial assets and liabilities measured at fair value in business combinations. The Company’s adoption of this guidance did not materially impact the consolidated financial statements.
On October 1, 2007, the Company adopted guidance relating to the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. Upon implementing this guidance, the Company recognized a $5,084 increase in its existing liability for uncertain tax positions, with a corresponding decrease to the October 1, 2007 retained earnings balance.
Adoption of New Accounting Standards
| |
| Note 2 — | Accounting Changes |
In October 2009, the FASBFinancial 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 is effective for new arrangements the Company entersit entered into on or after October 1, 2010. The adoption of these new requirements did not significantly impact the Company’s 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 Company’s adoption of the amended variable interest consolidation model on October 1, 2010 did not significantly impact the Company’s 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 unit’s 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 Company’s consolidated financial statements is expected upon adoption of these newrevised requirements.
4748
Becton, Dickinson and Company
Notes to Consolidated Financial Statements — (Continued)
Note 3 — Shareholders’ Equity
| |
| Note 3 — | Shareholders’ Equity |
Changes in certain components of shareholders’ equity were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Common
| | Capital in
| | | | | | | | | | | Common
| | Capital in
| | | | | | | | | |
| | | Stock Issued
| | Excess of
| | Retained
| | Deferred
| | Treasury Stock | | | Stock Issued
| | Excess of
| | Retained
| | Deferred
| | Treasury Stock | |
| | | at Par Value | | Par Value | | Earnings | | Compensation | | Shares | | Amount | | | at Par Value | | Par Value | | Earnings | | Compensation | | Shares | | Amount | |
| | |
| Balance at September 30, 2007 | | $ | 332,662 | | | $ | 1,125,368 | | | $ | 5,995,787 | | | $ | 12,205 | | | | (88,825,066 | ) | | $ | (3,105,893 | ) | |
| Net income | | | | | | | | | | | 1,126,996 | | | | | | | | | | | | | | |
| Cash dividends: | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common ($1.14 per share) | | | | | | | | | | | (279,110 | ) | | | | | | | | | | | | | |
| Common stock issued for: | | | | | | | | | | | | | | | | | | | | | | | | | |
| Share-based compensation plans, net | | | | | | | 132,372 | | | | | | | | | | | | 4,649,160 | | | | 25,866 | | |
| Business acquisitions | | | | | | | 1,206 | | | | | | | | | | | | 16,327 | | | | 118 | | |
| Share-based compensation | | | | | | | 100,585 | | | | | | | | | | | | | | | | | | |
| Common stock held in trusts, net | | | | | | | | | | | | | | | 2,489 | | | | (169,307 | ) | | | (2,489 | ) | |
| Repurchase of common stock | | | | | | | | | | | | | | | | | | | (5,255,900 | ) | | | (450,000 | ) | |
| Cumulative effect for accounting change (see Note 2) | | | | | | | | | | | (5,084 | ) | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| Balance at September 30, 2008 | | $ | 332,662 | | | $ | 1,359,531 | | | $ | 6,838,589 | | | $ | 14,694 | | | | (89,584,786 | ) | | $ | (3,532,398 | ) | | $ | 332,662 | | | $ | 1,359,531 | | | $ | 6,838,589 | | | $ | 14,694 | | | | (89,584,786 | ) | | $ | (3,532,398 | ) |
| Net income | | | | | | | | | | | 1,231,603 | | | | | | | | | | | | | | | | | | | | | | | | 1,231,603 | | | | | | | | | | | | | |
| Cash dividends: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common ($1.32 per share) | | | | | | | | | | | (317,361 | ) | | | | | | | | | | | | | | | | | | | | | | | (317,361 | ) | | | | | | | | | | | | |
| Common stock issued for: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Share-based compensation plans, net | | | | | | | 38,919 | | | | | | | | | | | | 2,283,887 | | | | 11,608 | | | | | | | | 38,919 | | | | | | | | | | | | 2,283,887 | | | | 11,608 | |
| Business acquisitions | | | | | | | 1,330 | | | | | | | | | | | | 24,110 | | | | 309 | | | | | | | | 1,330 | | | | | | | | | | | | 24,110 | | | | 309 | |
| Share-based compensation | | | | | | | 86,519 | | | | | | | | | | | | | | | | | | | | | | | | 86,519 | | | | | | | | | | | | | | | | | |
| Common stock held in trusts, net | | | | | | | | | | | | | | | 3,212 | | | | (91,681 | ) | | | (3,212 | ) | | | | | | | | | | | | | | | 3,212 | | | | (91,681 | ) | | | (3,212 | ) |
| Repurchase of common stock | | | | | | | | | | | | | | | | | | | (8,211,500 | ) | | | (550,006 | ) | | | | | | | | | | | | | | | | | | | (8,211,500 | ) | | | (550,006 | ) |
| Other changes | | | | | | | (625 | ) | | | | | | | | | | | | | | | | | | | | | | | (625 | ) | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Balance at September 30, 2009 | | $ | 332,662 | | | $ | 1,485,674 | | | $ | 7,752,831 | | | $ | 17,906 | | | | (95,579,970 | ) | | $ | (4,073,699 | ) | | $ | 332,662 | | | $ | 1,485,674 | | | $ | 7,752,831 | | | $ | 17,906 | | | | (95,579,970 | ) | | $ | (4,073,699 | ) |
| Net income | | | | | | | | | | | 1,317,610 | | | | | | | | | | | | | | | | | | | | | | | | 1,317,610 | | | | | | | | | | | | | |
| Cash dividends: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common ($1.48 per share) | | | | | | | | | | | (346,213 | ) | | | | | | | | | | | | | | | | | | | | | | | (346,213 | ) | | | | | | | | | | | | |
| Common stock issued for: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Share-based compensation plans, net | | | | | | | 59,866 | | | | | | | | | | | | 2,758,391 | | | | 16,624 | | | | | | | | 59,866 | | | | | | | | | | | | 2,758,391 | | | | 16,624 | |
| Share-based compensation | | | | | | | 79,228 | | | | | | | | | | | | | | | | | | | | | | | | 79,228 | | | | | | | | | | | | | | | | | |
| Common stock held in trusts, net | | | | | | | | | | | | | | | (742 | ) | | | 34,790 | | | | 742 | | | | | | | | | | | | | | | | (742 | ) | | | 34,790 | | | | 742 | |
| Repurchase of common stock | | | | | | | | | | | | | | | | | | | (10,058,820 | ) | | | (750,000 | ) | | | | | | | | | | | | | | | | | | | (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 | ) | | $ | 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 Company’s employee salary and bonus deferral plan and directors’ deferral plan.
4849
Becton, Dickinson and Company
Notes to Consolidated Financial Statements — (Continued)
The components of Accumulated other comprehensive (loss) income were as follows:
| | | | | | | | | |
| | | 2010 | | | 2009 | |
| |
| Foreign currency translation adjustments (A) | | $ | 186,777 | | | $ | 186,447 | |
| Benefit plans adjustment (B) | | | (634,396 | ) | | | (503,935 | ) |
| Unrealized loss on investments (B) | | | (581 | ) | | | (581 | ) |
| Unrealized (losses) gains on cash flow hedges (B)(C) | | | (9,709 | ) | | | (54,593 | ) |
| | | | | | | | | |
| | | $ | (457,909 | ) | | $ | (372,662 | ) |
| | | | | | | | | |
| | | | | | | | | |
| | | 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 2009 were $2,044, and $(3,749), respectively. The adjustments primarily affected goodwill reported within the Medical segment. |
| |
| (B) | | Amounts are net of tax. |
| |
| (C) | | The unrealized gainslosses on cash flowsflow hedges at September 30, 20082009 were $27,480,$(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 (benefit) recorded in fiscal years 2011, 2010 2009 and 20082009 for the unrealized (loss) gain on investments was $(40), $0 $25 and $(25),$25, respectively. The income tax (benefit) provision (benefit) recorded in fiscal years 2011, 2010 2009 and 20082009 for cash flow hedges was $(20,348), $27,509 $(50,302) and $26,889,$(50,302), respectively. The income tax benefit recorded in fiscal years 2011, 2010, 2009 2008 for defined benefit pension, postretirement plans and postemployment plans was $47,575, $67,829 $146,554 and $3,439,$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 2009 and 20082009 are net of reclassification adjustments of $0, $(19,512), $65,012, and $(6,733),$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 2008 was $(11,959), $39,846, and $(4,127), respectively.
Note 4 — Earnings per Share
| |
| 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:
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 2010 | | 2009 | | 2008 | | | 2011 | | 2010 | | 2009 | |
| |
| Average common shares outstanding | | | 234,328 | | | | 240,479 | | | | 244,323 | | | | 221,175 | | | | 234,328 | | | | 240,479 | |
| Dilutive share equivalents from share-based plans | | | 5,808 | | | | 6,319 | | | | 8,358 | | | | 5,105 | | | | 5,808 | | | | 6,319 | |
| | | | | | | | | | | | | | | |
| Average common and common equivalent shares outstanding — assuming dilution | | | 240,136 | | | | 246,798 | | | | 252,681 | | | | 226,280 | | | | 240,136 | | | | 246,798 | |
| | | | | | | | | | | | | | | |
Note 5 — Commitments and Contingencies
| |
| 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, and $68,200 in 2008.2009. Future minimum rental commitments on noncancelable leases are as follows: 2011 — $45,200; 2012 — $36,500;- $47,516; 2013 — $26,500;$40,428; 2014 — $24,400;$33,244; 2015 — $21,100$27,721; 2016 — $23,367 and an aggregate of $43,400$44,557 thereafter.
As of September 30, 2010, the Company has certain future purchase commitments aggregating to approximately $521,097, which will be expended over the next several years.
4950
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 Company’s 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 Company’s products (the “Distributor Plaintiffs”), alleging that the Company violated federal antitrust laws, resulting in the charging of higher prices for the Company’s 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 Company’s 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 Company’s products to the plaintiffs and other purported class members.
| | | | | |
| Case | | Court | | Date Filed |
| |
Jabo’s 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
50
Becton, Dickinson and Company
Notes to Consolidated Financial Statements — (Continued)
$45,000 $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 are seeking appellate reviewPlaintiffs’ request to appeal the trial court’s 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 court’s order.$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 captionRetractable Technologies, Inc. vs. Becton Dickinson and Company(Civil ActionNo. 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 Company’s 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.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 captionRetractable Technologies, Inc. and Thomas J. Shaw v. Becton Dickinson and Company(Civil ActionNo. 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 RTI’s 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 longer of twelve months or the duration of anythe Company’s appeal. At the same time, the court lifted a stay of RTI’s non-patent claims that the court had imposed during the pendency of the patent claims at the trial court level.claims. On June 16, 2010, the Company filed its appeal withJuly 8, 2011, the Court of Appeals for the Federal Circuit.Circuit reversed the District Court judgment that the Company’s 3ml BD Integratm products infringed the asserted RTI patents and affirmed the District Court judgment of infringement against the Company’s discontinued 1ml BD Integratm products. On October 31, 2011, the Federal Circuit Court of Appeals denied RTI’s request for anen bancrehearing. The trial on RTI’s antitrust and false advertising claims is scheduled to begin in February 2012. With respect to RTI’s 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 RTI’s 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. Additional disclosures regarding this instrument are provided in Note 9. 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.
51
Becton, Dickinson and Company
Notes to Consolidated Financial Statements — (Continued)
The Company’s 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;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; and sharps disposal containers.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 sexually transmittedinfectious diseases and healthcare-associated infections;women’s health; microorganism identification and drug susceptibility systems; liquid-based cytology systems for cervical cancer screening; rapid diagnostic assaysassays; 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 and supplements for biopharmaceutical manufacturing; and diagnostic assays.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 ofU.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 ofU.S.-produced products.
5253
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) | | 2010 | | 2009 | | 2008 | | | 2011 | | 2010 | | 2009 | |
| |
| Medical | | $ | 3,796,432 | | | $ | 3,556,694 | | | $ | 3,542,712 | | | $ | 4,007,304 | | | $ | 3,796,432 | | | $ | 3,556,694 | |
| Diagnostics | | | 2,318,879 | | | | 2,226,219 | | | | 2,159,811 | | | | 2,480,477 | | | | 2,318,879 | | | | 2,226,219 | |
| Biosciences | | | 1,257,022 | | | | 1,203,809 | | | | 1,195,096 | | | | 1,341,123 | | | | 1,257,022 | | | | 1,203,809 | |
| | | | | | | | | | | | | | | |
| | | $ | 7,372,333 | | | $ | 6,986,722 | | | $ | 6,897,619 | | | $ | 7,828,904 | | | $ | 7,372,333 | | | $ | 6,986,722 | |
| | | | | | | | | | | | | | | |
Segment Operating Income | | | | | | | | | | | | | | | | | | | | | | | | |
| Medical | | $ | 1,118,319 | | | $ | 1,049,236 | | | $ | 1,004,671 | | | $ | 1,181,404 | | | $ | 1,118,319 | | | $ | 1,049,236 | |
| Diagnostics | | | 607,411 | | | | 607,250 | | | | 525,747 | | | | 636,361 | | | | 607,411 | | | | 607,250 | |
| Biosciences | | | 354,229 | | | | 362,344 | | | | 333,662 | | | | 376,389 | | | | 354,229 | | | | 362,344 | |
| | | | | | | | | | | | | | | |
| Total Segment Operating Income | | | 2,079,959 | | | | 2,018,830 | | | | 1,864,080 | | | | 2,194,154 | | | | 2,079,959 | | | | 2,018,830 | |
| Unallocated Expenses(B) | | | (418,799 | ) | | | (440,239 | )(C) | | | (374,395 | ) | | | (477,891 | ) | | | (418,799 | ) | | | (440,239 | )(C) |
| | | | | | | | | | | | | | | |
| Income From Continuing Operations Before Income Taxes | | $ | 1,661,160 | | | $ | 1,578,591 | | | $ | 1,489,685 | | | $ | 1,716,263 | | | $ | 1,661,160 | | | $ | 1,578,591 | |
| | | | | | | | | | | | | | | |
Segment Assets | | | | | | | | | | | | | | | | | | | | | | | | |
| Medical | | $ | 3,527,457 | | | $ | 3,706,086 | | | $ | 3,432,113 | | | $ | 3,928,241 | | | $ | 3,527,457 | | | $ | 3,706,086 | |
| Diagnostics | | | 2,301,586 | | | | 1,998,490 | | | | 1,887,261 | | | | 2,269,797 | | | | 2,301,586 | | | | 1,998,490 | |
| Biosciences | | | 1,059,774 | | | | 989,299 | | | | 933,105 | | | | 1,332,246 | | | | 1,059,774 | | | | 989,299 | |
| | | | | | | | | | | | | | | |
| Total Segment Assets | | | 6,888,817 | | | | 6,693,875 | | | | 6,252,479 | | | | 7,530,284 | | | | 6,888,817 | | | | 6,693,875 | |
| Corporate and All Other(D) | | | 2,761,877 | | | | 2,610,749 | | | | 1,660,464 | | | | 2,900,144 | | | | 2,761,877 | | | | 2,610,749 | |
| | | | | | | | | | | | | | | |
| | | $ | 9,650,694 | | | $ | 9,304,624 | | | $ | 7,912,943 | | | $ | 10,430,428 | | | $ | 9,650,694 | | | $ | 9,304,624 | |
| | | | | | | | | | | | | | | |
Capital Expenditures | | | | | | | | | | | | | | | | | | | | | | | | |
| Medical | | $ | 368,857 | | | $ | 407,884 | | | $ | 372,616 | | | $ | 366,915 | | | $ | 368,857 | | | $ | 407,884 | |
| Diagnostics | | | 108,941 | | | | 102,432 | | | | 123,915 | | | | 93,435 | | | | 108,941 | | | | 102,432 | |
| Biosciences | | | 49,821 | | | | 55,646 | | | | 82,880 | | | | 37,220 | | | | 49,821 | | | | 55,646 | |
| Corporate and All Other | | | 9,687 | | | | 19,234 | | | | 16,400 | | | | 17,815 | | | | 9,687 | | | | 19,234 | |
| | | | | | | | | | | | | | | |
| | | $ | 537,306 | | | $ | 585,196 | | | $ | 595,811 | | | $ | 515,385 | | | $ | 537,306 | | | $ | 585,196 | |
| | | | | | | | | | | | | | | |
Depreciation and Amortization | | | | | | | | | | | | | | | | | | | | | | | | |
| Medical | | $ | 253,109 | | | $ | 243,445 | | | $ | 234,983 | | | $ | 248,091 | | | $ | 253,109 | | | $ | 243,445 | |
| Diagnostics | | | 163,392 | | | | 136,690 | | | | 150,202 | | | | 163,313 | | | | 163,392 | | | | 136,690 | |
| Biosciences | | | 72,319 | | | | 73,067 | | | | 75,809 | | | | 76,861 | | | | 72,319 | | | | 73,067 | |
| Corporate and All Other | | | 13,293 | | | | 11,402 | | | | 10,969 | | | | 15,824 | | | | 13,293 | | | | 11,402 | |
| | | | | | | | | | | | | | | |
| | | $ | 502,113 | | | $ | 464,604 | | | $ | 471,963 | | | $ | 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. |
5354
Becton, Dickinson and Company
Notes to Consolidated Financial Statements — (Continued)
| | |
| (C) | | Includes charge associated with the pending settlement with the direct purchaser plaintiffs (which includes BD’s distributors) in certain antitrust class actions. |
| |
| (D) | | Includes cash and investments and corporate assets. |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Revenues by Organizational Units | | 2010 | | 2009 | | 2008 | | | 2011 | | 2010 | | 2009 | |
| |
BD Medical | | | | | | | | | | | | | | | | | | | | | | | | |
| Medical Surgical Systems | | $ | 2,010,009 | | | $ | 1,889,314 | | | $ | 1,906,224 | | | $ | 2,081,733 | | | $ | 2,010,009 | | | $ | 1,889,314 | |
| Diabetes Care | | | 785,759 | | | | 714,937 | | | | 694,352 | | | | 866,477 | | | | 785,759 | | | | 714,937 | |
| Pharmaceutical Systems | | | 1,000,664 | | | | 952,443 | | | | 942,136 | | | | 1,059,094 | | | | 1,000,664 | | | | 952,443 | |
| | | | | | | | | | | | | | | |
| | | $ | 3,796,432 | | | $ | 3,556,694 | | | $ | 3,542,712 | | | $ | 4,007,304 | | | $ | 3,796,432 | | | $ | 3,556,694 | |
| | | | | | | | | | | | | | | |
BD Diagnostics | | | | | | | | | | | | | | | | | | | | | | | | |
| Preanalytical Systems | | $ | 1,197,807 | | | $ | 1,143,431 | | | $ | 1,123,528 | | | $ | 1,277,793 | | | $ | 1,197,807 | | | $ | 1,143,431 | |
| Diagnostic Systems | | | 1,121,072 | | | | 1,082,788 | | | | 1,036,283 | | | | 1,202,684 | | | | 1,121,072 | | | | 1,082,788 | |
| | | | | | | | | | | | | | | |
| | | $ | 2,318,879 | | | $ | 2,226,219 | | | $ | 2,159,811 | | | $ | 2,480,477 | | | $ | 2,318,879 | | | $ | 2,226,219 | |
| | | | | | | | | | | | | | | |
BD Biosciences | | | | | | | | | | | | | | | | | | | | | | | | |
| Cell Analysis | | $ | 951,238 | | | $ | 904,517 | | | $ | 900,511 | | | $ | 1,024,445 | | | $ | 951,238 | | | $ | 904,517 | |
| Discovery Labware | | | 305,784 | | | | 299,292 | | | | 294,585 | | | | 316,678 | | | | 305,784 | | | | 299,292 | |
| | | | | | | | | | | | | | | |
| | | $ | 1,257,022 | | | $ | 1,203,809 | | | $ | 1,195,096 | | | $ | 1,341,123 | | | $ | 1,257,022 | | | $ | 1,203,809 | |
| | | | | | | | | | | | | | | |
| | | $ | 7,372,333 | | | $ | 6,986,722 | | | $ | 6,897,619 | | | $ | 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.
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 2010 | | 2009 | | 2008 | | | 2011 | | 2010 | | 2009 | |
| |
Revenues | | | | | | | | | | | | | | | | | | | | | | | | |
| United States | | $ | 3,286,565 | | | $ | 3,130,165 | | | $ | 3,046,506 | | | $ | 3,355,769 | | | $ | 3,286,565 | | | $ | 3,130,165 | |
| Europe | | | 2,386,965 | | | | 2,408,319 | | | | 2,411,412 | | | | 2,497,278 | | | | 2,386,965 | | | | 2,408,319 | |
| Asia Pacific | | | 684,319 | | | | 563,390 | | | | 556,407 | | | | 817,323 | | | | 684,319 | | | | 563,390 | |
| Other | | | 1,014,484 | | | | 884,848 | | | | 883,294 | | | | 1,158,534 | | | | 1,014,484 | | | | 884,848 | |
| | | | | | | | | | | �� | | | | | |
| | | $ | 7,372,333 | | | $ | 6,986,722 | | | $ | 6,897,619 | | | $ | 7,828,904 | | | $ | 7,372,333 | | | $ | 6,986,722 | |
| | | | | | | | | | | | | | | |
Long-Lived Assets | | | | | | | | | | | | | | | | | | | | | | | | |
| United States | | $ | 2,841,639 | | | $ | 2,469,952 | | | $ | 2,179,544 | | | $ | 3,140,395 | | | $ | 2,841,639 | | | $ | 2,469,952 | |
| Europe | | | 1,145,043 | | | | 1,150,655 | | | | 1,135,379 | | | | 1,461,085 | | | | 1,145,043 | | | | 1,150,655 | |
| Asia Pacific | | | 258,879 | | | | 231,257 | | | | 211,845 | | | | 300,006 | | | | 258,879 | | | | 231,257 | |
| Other | | | 617,323 | | | | 537,214 | | | | 509,510 | | | | 590,544 | | | | 617,323 | | | | 537,214 | |
| Corporate | | | 282,560 | | | | 268,592 | | | | 261,990 | | | | 270,067 | | | | 282,560 | | | | 268,592 | |
| | | | | | | | | | | | | | | |
| | | $ | 5,145,444 | | | $ | 4,657,670 | | | $ | 4,298,268 | | | $ | 5,762,097 | | | $ | 5,145,444 | | | $ | 4,657,670 | |
| | | | | | | | | | | | | | | |
5455
Becton, Dickinson and Company
Notes to Consolidated Financial Statements — (Continued)
Note 7 — Share-Based Compensation
| |
| 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:
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 2010 | | 2009 | | 2008 | | | 2011 | | 2010 | | 2009 | |
| |
| Cost of products sold | | $ | 15,128 | | | $ | 16,846 | | | $ | 19,338 | | | $ | 14,440 | | | $ | 15,128 | | | $ | 16,846 | |
| Selling and administrative expense | | | 54,423 | | | | 58,920 | | | | 68,677 | | | | 49,536 | | | | 54,423 | | | | 58,920 | |
| Research and development expense | | | 9,823 | | | | 10,808 | | | | 12,570 | | | | 9,387 | | | | 9,823 | | | | 10,808 | |
| | | | | | | | | | | | | | | |
| | | $ | 79,374 | | | $ | 86,574 | | | $ | 100,585 | | | $ | 73,363 | | | $ | 79,374 | | | $ | 86,574 | |
| | | | | | | | | | | | | | | |
The associated income tax benefit recognized was $26,342, $28,532 and $31,307, and $36,236, respectively.Share-based compensation attributable to discontinued operations was not material.
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:
| | | | | | | | | | | | | |
| | | 2010 | | 2009 | | 2008 | | 2011 | | 2010 | | 2009 |
| |
| Risk-free interest rate | | 2.60% | | 2.73% | | 3.83% | | 2.40% | | 2.60% | | 2.73% |
| Expected volatility | | 28.0% | | 28.0% | | 27.0% | | 24.00% | | 28.0% | | 28.0% |
| Expected dividend yield | | 1.96% | | 2.11% | | 1.35% | | 2.14% | | 1.96% | | 2.11% |
| Expected life | | 6.5 years | | 6.5 years | | 6.5 years | | 7.8 years | | 6.5 years | | 6.5 years |
| Fair value derived | | $19.70 | | $16.11 | | $24.92 | | $16.80 | | $19.70 | | $16.11 |
Expected volatility is based upon historical volatility for the Company’s 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 2008 was $2,831, $406, and $2,122, respectively. The Company issued 26,73081,848 shares during 20102011 to satisfy the SARs exercised. The actual tax benefit realized during 2011, 2010, 2009, and 20082009 for tax deductions from SAR exercises totaled $3,459, $1,031 $154 and $808,$154, respectively. The total fair value of SARs vested during 2011, 2010 and 2009 was $31,992, $33,640 and 2008 was $33,640, $24,888, and $16,429, respectively.
5556
Becton, Dickinson and Company
Notes to Consolidated Financial Statements — (Continued)
A summary of SARs outstanding as of September 30, 2010,2011, and changes during the year then ended is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | Weighted
| | | | | | | | | Weighted
| | | |
| | | | | | | Average
| | | | | | | | | Average
| | | |
| | | | | Weighted
| | Remaining
| | Aggregate
| | | | | Weighted
| | Remaining
| | Aggregate
| |
| | | | | Average
| | Contractual Term
| | Intrinsic
| | | | | Average
| | Contractual Term
| | Intrinsic
| |
| | | SARs | | Exercise Price | | (Years) | | Value | | | SARs | | Exercise Price | | (Years) | | Value | |
| |
| Balance at October 1 | | | 6,177,554 | | | $ | 68.60 | | | | | | | | | | | | 7,659,155 | | | $ | 70.46 | | | | | | | | | |
| Granted | | | 1,988,075 | | | | 75.63 | | | | | | | | | | | | 2,216,436 | | | | 76.64 | | | | | | | | | |
| Exercised | | | (226,806 | ) | | | 63.15 | | | | | | | | | | | | (555,155 | ) | | | 66.58 | | | | | | | | | |
| Forfeited, canceled or expired | | | (279,668 | ) | | | 72.03 | | | | | | | | | | | | (293,399 | ) | | | 72.71 | | | | | | | | | |
| | | | | | | | | | | |
| Balance at September 30 | | | 7,659,155 | | | $ | 70.46 | | | | 7.38 | | | $ | 43,970 | | | | 9,027,037 | | | $ | 72.14 | | | | 7.07 | | | $ | 35,203 | |
| | | | | | | | | | | | | | | | | | | |
| Vested and expected to vest at September 30 | | | 7,256,414 | | | $ | 70.35 | | | | 7.33 | | | $ | 42,385 | | | | 8,584,694 | | | $ | 72.03 | | | | 7.00 | | | $ | 34,346 | |
| | | | | | | | | | | | | | | | | | | |
| Exercisable at September 30 | | | 3,631,747 | | | $ | 68.37 | | | | 6.34 | | | $ | 28,119 | | | | 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, 20102011 and changes during the year then ended is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | Weighted Average
| | | | | | | | | Weighted Average
| | | |
| | | | | Weighted
| | Remaining
| | Aggregate
| | | | | Weighted
| | Remaining
| | Aggregate
| |
| | | Stock
| | Average
| | Contractual Term
| | Intrinsic
| | | Stock
| | Average
| | Contractual Term
| | Intrinsic
| |
| | | Options | | Exercise Price | | (Years) | | Value | | | Options | | Exercise Price | | (Years) | | Value | |
| |
| Balance at October 1 | | | 8,629,438 | | | $ | 36.94 | | | | | | | | | | | | 6,433,148 | | | $ | 38.12 | | | | | | | | | |
| Granted | | | — | | | | — | | | | | | | | | | | | — | | | | — | | | | | | | | | |
| Exercised | | | (2,170,608 | ) | | | 33.53 | | | | | | | | | | | | (2,927,278 | ) | | | 35.28 | | | | | | | | | |
| Forfeited, canceled or expired | | | (25,682 | ) | | | 30.61 | | | | | | | | | | | | (48,519 | ) | | | 32.22 | | | | | | | | | |
| | | | | | | | | | | |
| Balance at September 30 | | | 6,433,148 | | | $ | 38.12 | | | | 2.61 | | | $ | 231,452 | | | | 3,457,351 | | | $ | 40.61 | | | | 2.04 | | | $ | 113,078 | |
| | | | | | | | | | | | | | | | | | | |
| Vested and expected to vest at September 30 | | | 6,433,148 | | | $ | 38.12 | | | | 2.61 | | | $ | 231,452 | | | | 3,457,351 | | | $ | 40.61 | | | | 2.04 | | | $ | 113,078 | |
| | | | | | | | | | | | | | | | | | | |
| Exercisable at September 30 | | | 6,433,148 | | | $ | 38.12 | | | | 2.61 | | | $ | 231,452 | | | | 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 2008 was $72,770, $53,019, and $122,977, respectively. The actual tax benefit realized for tax deductions from stock option exercises totaled $45,829, $28,660 $16,931 and $62,230,$16,931, respectively. The total intrinsic value of stock options exercised during the years 2011, 2010 and 2009 was $137,720, $89,943 and 2008 was $89,943, $53,630, and $191,627, respectively. The total fair value of stock options vested during 2011, 2010 2009 and 20082009 was $0, $6,083$0 and $18,951,$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 Company’s 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 Company’s long-term incentive program, the actual payout under these awards may vary from zero to 200% of an employee’s target payout, based on the Company’s actual performance over the three-year performance period.
5657
Becton, Dickinson and Company
Notes to Consolidated Financial Statements — (Continued)
employee’s target payout, based on the Company’s actual performance over the three-year performance period. The fair value is based on the market price of the Company’s 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, 20102011 and changes during the year then ended is as follows:
| | | | | | | | | | | | | | | | | |
| | | | | Weighted
| | | | | Weighted
| |
| | | Stock
| | Average Grant
| | | Stock
| | Average Grant
| |
| | | Units | | Date Fair Value | | | Units | | Date Fair Value | |
| |
| Balance at October 1 | | | 3,098,868 | | | $ | 71.40 | | | | 2,879,568 | | | $ | 72.79 | |
| Granted | | | 1,021,860 | | | | 75.63 | | | | 944,174 | | | | 76.64 | |
| Distributed | | | (228,912 | ) | | | 71.72 | | | | (122,554 | ) | | | 84.29 | |
| Forfeited or canceled | | | (1,012,248 | ) | | | 71.64 | | | | (798,254 | ) | | | 82.24 | |
| | | | | | | | | | | |
| Balance at September 30(A) | | | 2,879,568 | | | $ | 72.79 | | | | 2,902,934 | | | $ | 70.96 | |
| | | | | | | | | | | |
| Expected to vest at September 30(B) | | | 557,621 | | | $ | 74.81 | | | | 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 209,606180,182 and 2,112,341,2,488,737, 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 2008 was $62.50, and $84.33, respectively. The total fair value of performance-based restricted stock units vested during 2011, 2010 and 2009 was $15,430, $24,357 and 2008 was $24,357, $33,712, and $49,387, respectively. At September 30, 2010,2011, the weighted average remaining vesting term of performance-based restricted stock units is 1.211.08 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 employee’s 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 Company’s stock on the date of grant.
A summary of time-vested restricted stock units outstanding as of September 30, 20102011 and changes during the year then ended is as follows:
| | | | | | | | | | | | | | | | | |
| | | | | Weighted
| | | | | Weighted
| |
| | | Stock
| | Average Grant
| | | Stock
| | Average Grant
| |
| | | Units | | Date Fair Value | | | Units | | Date Fair Value | |
| |
| Balance at October 1 | | | 1,706,958 | | | $ | 69.36 | | | | 1,808,295 | | | $ | 70.90 | |
| Granted | | | 633,195 | | | | 75.58 | | | | 600,651 | | | | 76.97 | |
| Distributed | | | (343,648 | ) | | | 71.43 | | | | (301,196 | ) | | | 80.46 | |
| Forfeited or canceled | | | (188,210 | ) | | | 71.73 | | | | (197,080 | ) | | | 77.77 | |
| | | | | | | | | | | |
| Balance at September 30 | | | 1,808,295 | | | $ | 70.90 | | | | 1,910,670 | | | $ | 70.59 | |
| | | | | | | | | | | |
| Expected to vest at September 30 | | | 1,627,466 | | | $ | 70.90 | | | | 1,719,603 | | | $ | 70.59 | |
| | | | | | | | | | | |
The weighted average grant date fair value of time-vested restricted stock units granted during the years 2009 and 2008 was $62.96 and $84.42, respectively. The total fair value of time-vested restricted stock units
5758
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 2008 was $36,675, $29,535, and $26,674, respectively. At September 30, 2010,2011, the weighted average remaining vesting term of the time-vested restricted stock units is 1.571.36 years.
The amount of unrecognized compensation expense for all non-vested share-based awards as of September 30, 2010,2011, is approximately $91,201,$80,744, which is expected to be recognized over a weighted-average remaining life of approximately 2.09 years. At September 30, 2010, 10,421,4782011, 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, 2010,2011, 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, 20102011 and 2009,2010, awards for 106,29397,705 and 114,197106,293 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 Company’s common stock. No restricted shares were issued in 2010.2011.
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, 2010, 92,8352011, 97,628 shares were held in trust, of which 4,3904,212 shares represented Directors’ compensation in 2010,2011, 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, 2010, 516,2532011, 508,144 shares were issuable under this plan.
Note 8 — Benefit Plans
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 Company’s employee benefit plans is September 30.
5859
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 | | | Pension Plans | | Other Postretirement Benefits | |
| | | 2010 | | 2009 | | 2008 | | 2010 | | 2009 | | 2008 | | | 2011 | | 2010 | | 2009 | | 2011 | | 2010 | | 2009 | |
| |
| Service cost | | $ | 72,901 | | | $ | 55,004 | | | $ | 66,440 | | | $ | 5,007 | | | $ | 3,441 | | | $ | 4,648 | | | $ | 88,692 | | | $ | 72,901 | | | $ | 55,004 | | | $ | 5,842 | | | $ | 5,007 | | | $ | 3,441 | |
| Interest cost | | | 90,432 | | | | 87,480 | | | | 81,939 | | | | 14,190 | | | | 15,338 | | | | 14,906 | | | | 93,228 | | | | 90,432 | | | | 87,480 | | | | 13,143 | | | | 14,190 | | | | 15,338 | |
| Expected return on plan assets | | | (99,199 | ) | | | (86,819 | ) | | | (97,218 | ) | | | — | | | | — | | | | — | | | | (103,081 | ) | | | (99,199 | ) | | | (86,819 | ) | | | — | | | | — | | | | — | |
| Amortization of prior service (credit) cost | | | (1,091 | ) | | | (1,099 | ) | | | (1,066 | ) | | | 4 | | | | (463 | ) | | | (6,232 | ) | | | (1,294 | ) | | | (1,091 | ) | | | (1,099 | ) | | | (686 | ) | | | 4 | | | | (463 | ) |
| Amortization of loss (gain) | | | 41,812 | | | | 17,235 | | | | 8,256 | | | | 3,408 | | | | (143 | ) | | | 3,962 | | | | 55,735 | | | | 41,812 | | | | 17,235 | | | | 4,465 | | | | 3,408 | | | | (143 | ) |
| Amortization of net asset | | | (47 | ) | | | (59 | ) | | | (112 | ) | | | — | | | | — | | | | — | | | | (34 | ) | | | (47 | ) | | | (59 | ) | | | — | | | | — | | | | — | |
| Settlements | | | — | | | | — | | | | 602 | | | | — | | | | — | | | | — | | |
| Curtailment/settlement loss | | | | 1,096 | | | | — | | | | — | | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | $ | 104,808 | | | $ | 71,742 | | | $ | 58,841 | | | $ | 22,609 | | | $ | 18,173 | | | $ | 17,284 | | | $ | 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 $20,072 in 2010, 2009, and 2008, 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
| | | | | Other Postretirement
| |
| | | Pension Plans | | Benefits | | | Pension Plans | | Benefits | |
| | | 2010 | | 2009 | | 2010 | | 2009 | | | 2011 | | 2010 | | 2011 | | 2010 | |
| |
Change in benefit obligation: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Beginning obligation | | $ | 1,635,334 | | | $ | 1,272,456 | | | $ | 249,593 | | | $ | 201,246 | | | $ | 1,911,295 | | | $ | 1,635,334 | | | $ | 260,124 | | | $ | 249,593 | |
| Service cost | | | 72,901 | | | | 55,004 | | | | 5,007 | | | | 3,441 | | | | 88,692 | | | | 72,901 | | | | 5,842 | | | | 5,007 | |
| Interest cost | | | 90,432 | | | | 87,480 | | | | 14,190 | | | | 15,338 | | | | 93,228 | | | | 90,432 | | | | 13,143 | | | | 14,190 | |
| Plan amendments | | | 60 | | | | 380 | | | | (6,702 | ) | | | — | | | | (3,683 | ) | | | 60 | | | | — | | | | (6,702 | ) |
| Benefits paid | | | (101,394 | ) | | | (68,791 | ) | | | (25,046 | ) | | | (22,913 | ) | | | (108,381 | ) | | | (101,394 | ) | | | (25,776 | ) | | | (25,046 | ) |
| Actuarial loss (gain) | | | 224,890 | | | | 279,414 | | | | 16,233 | | | | 43,334 | | |
| Actuarial loss | | | | 22,146 | | | | 224,890 | | | | 8,277 | | | | 16,233 | |
| Other, includes translation | | | (10,928 | ) | | | 9,391 | | | | 6,849 | | | | 9,147 | | | | (6,856 | ) | | | (10,928 | ) | | | 7,848 | | | | 6,849 | |
| | | | | | | | | | | | | | | | | | | |
| Benefit obligation at September 30 | | $ | 1,911,295 | | | $ | 1,635,334 | | | $ | 260,124 | | | $ | 249,593 | | | $ | 1,996,441 | | | $ | 1,911,295 | | | $ | 269,458 | | | $ | 260,124 | |
| | | | | | | | | | | | | | | | | | | |
Change in fair value of plan assets: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Beginning fair value | | $ | 1,209,135 | | | $ | 1,099,966 | | | $ | — | | | $ | — | | | $ | 1,413,848 | | | $ | 1,209,135 | | | $ | — | | | $ | — | |
| Actual return on plan assets | | | 109,310 | | | | 32,217 | | | | — | | | | — | | | | 1,391 | | | | 109,310 | | | | — | | | | — | |
| Employer contribution | | | 207,775 | | | | 140,316 | | | | — | | | | — | | | | 53,505 | | | | 207,775 | | | | — | | | | — | |
| Benefits paid | | | (101,394 | ) | | | (68,791 | ) | | | — | | | | — | | | | (108,381 | ) | | | (101,394 | ) | | | — | | | | — | |
| Other, includes translation | | | (10,978 | ) | | | 5,427 | | | | — | | | | — | | | | (7,633 | ) | | | (10,978 | ) | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | |
| Plan assets at September 30 | | $ | 1,413,848 | | | $ | 1,209,135 | | | $ | — | | | $ | — | | | $ | 1,352,730 | | | $ | 1,413,848 | | | $ | — | | | $ | — | |
| | | | | | | | | | | | | | | | | | | |
5960
Becton, Dickinson and Company
Notes to Consolidated Financial Statements — (Continued)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Other Postretirement
| | | | | Other Postretirement
| |
| | | Pension Plans | | Benefits | | | Pension Plans | | Benefits | |
| | | 2010 | | 2009 | | 2010 | | 2009 | | | 2011 | | 2010 | | 2011 | | 2010 | |
| |
Funded Status at September 30: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Unfunded benefit obligation | | $ | (497,447 | ) | | $ | (426,199 | ) | | $ | (260,124 | ) | | $ | (249,593 | ) | | $ | (643,711 | ) | | $ | (497,447 | ) | | $ | (269,458 | ) | | $ | (260,124 | ) |
| | | | | | | | | | | | | | | | | | | |
Amounts recognized in the Consolidated Balance Sheets at September 30: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Other | | $ | 143 | | | $ | 4,668 | | | $ | — | | | $ | — | | | $ | 3,217 | | | $ | 143 | | | $ | — | | | $ | — | |
| Salaries, wages and related items | | | (6,492 | ) | | | (4,967 | ) | | | (17,875 | ) | | | (19,597 | ) | | | (6,042 | ) | | | (6,492 | ) | | | (18,188 | ) | | | (17,875 | ) |
| Long-term Employee Benefit Obligations | | | (491,098 | ) | | | (425,900 | ) | | | (242,249 | ) | | | (229,996 | ) | | | (640,886 | ) | | | (491,098 | ) | | | (251,270 | ) | | | (242,249 | ) |
| | | | | | | | | | | | | | | | | | | |
| Net amount recognized | | $ | (497,447 | ) | | $ | (426,199 | ) | | $ | (260,124 | ) | | $ | (249,593 | ) | | $ | (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 (obligation) | | $ | 513 | | | $ | 745 | | | $ | — | | | $ | (118 | ) | |
| Prior service credit (cost) | | | 6,530 | | | | 7,447 | | | | 6,699 | | | | (7 | ) | |
| Net transition asset | | | $ | 398 | | | $ | 513 | | | $ | — | | | $ | — | |
| Prior service credit | | | | 9,193 | | | | 6,530 | | | | 6,013 | | | | 6,699 | |
| Net actuarial loss | | | (843,284 | ) | | | (673,734 | ) | | | (67,009 | ) | | | (54,133 | ) | | | (911,146 | ) | | | (843,284 | ) | | | (70,653 | ) | | | (67,009 | ) |
| | | | | | | | | | | | | | | | | | | |
| Net amount recognized | | $ | (836,241 | ) | | $ | (665,542 | ) | | $ | (60,310 | ) | | $ | (54,258 | ) | | $ | (901,555 | ) | | $ | (836,241 | ) | | $ | (64,640 | ) | | $ | (60,310 | ) |
| | | | | | | | | | | | | | | | | | | |
Foreign pension plan assets at fair value included in the preceding table were $402,298$419,452 and $375,468$402,298 at September 30, 20102011 and 2009,2010, respectively. The foreign pension plan projected benefit obligations were $560,640$500,969 and $461,321$560,640 at September 30, 20102011 and 2009,2010, 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
| | | Accumulated Benefit
| | Projected Benefit
|
| | | Obligation Exceeds the
| | Obligation Exceeds the
| | | Obligation Exceeds the
| | Obligation Exceeds the
|
| | | Fair Value of Plan Assets | | Fair Value of Plan Assets | | | Fair Value of Plan Assets | | Fair Value of Plan Assets |
| | | 2010 | | 2009 | | 2010 | | 2009 | | | 2011 | | 2010 | | 2011 | | 2010 |
| |
| Projected benefit obligation | | $ | 1,669,986 | | | $ | 1,283,337 | | | $ | 1,903,939 | | | $ | 1,473,574 | | | $ | 1,616,534 | | | $ | 1,669,986 | | | $ | 1,862,441 | | | $ | 1,903,939 | |
| Accumulated benefit obligation | | $ | 1,410,029 | | | $ | 1,092,101 | | | | | | | | | | | $ | 1,338,643 | | | $ | 1,410,029 | | | | | | | |
| Fair value of plan assets | | $ | 1,224,095 | | | $ | 885,210 | | | $ | 1,406,349 | | | $ | 1,042,707 | | | $ | 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 $(55,467)$(62,700) and $1,082,$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 $(4,463)$(4,645) and $687,$690, respectively.
6061
Becton, Dickinson and Company
Notes to Consolidated Financial Statements — (Continued)
The weighted average assumptions used in determining pension plan information were as follows:
| | | | | | | | | | | | | | | | | | | | | | |
| | | 2010 | | 2009 | | 2008 | | | 2011 | | 2010 | | 2009 |
| |
Net Cost | | | | | | | | | | | | | | | | | | | | | |
| Discount rate: | | | | | | | | | | | | | | | | | | | | | |
| U.S. plans(A) | | | 5.90 | % | | | 8.00 | % | | | 6.35 | % | | | 5.20 | % | | | 5.90 | % | | | 8.00 | % |
| Foreign plans | | | 5.63 | | | | 6.03 | | | | 5.32 | | | | 4.68 | | | | 5.63 | | | | 6.03 | |
| Expected return on plan assets: | | | | | | | | | | | | | | | | | | | | | |
| U.S. plans | | | 8.00 | | | | 8.00 | | | | 8.00 | | | | 8.00 | | | | 8.00 | | | | 8.00 | |
| Foreign plans | | | 6.38 | | | | 6.45 | | | | 6.42 | | | | 6.31 | | | | 6.38 | | | | 6.45 | |
| Rate of compensation increase: | | | | | | | | | | | | | | | | | | | | | |
| U.S. plans(A) | | | 4.50 | | | | 4.50 | | | | 4.50 | | | | 4.50 | | | | 4.50 | | | | 4.50 | |
| Foreign plans | | | 3.35 | | | | 3.56 | | | | 3.45 | | | | 3.56 | | | | 3.35 | | | | 3.56 | |
Benefit Obligation | | | | | | | | | | | | | | | | | | | | | |
| Discount rate: | | | | | | | | | | | | | | | | | | | | | |
| U.S. plans(A) | | | 5.20 | | | | 5.90 | | | | 8.00 | | | | 4.90 | | | | 5.20 | | | | 5.90 | |
| Foreign plans | | | 4.68 | | | | 5.63 | | | | 5.98 | | | | 5.26 | | | | 4.68 | | | | 5.63 | |
| Rate of compensation increase: | | | | | | | | | | | | | | | | | | | | | |
| U.S. plans(A) | | | 4.50 | | | | 4.50 | | | | 4.50 | | | | 4.25 | | | | 4.50 | | | | 4.50 | |
| Foreign plans | | | 3.18 | | | | 3.35 | | | | 3.56 | | | | 3.61 | | | | 3.56 | | | | 3.35 | |
| | |
| (A) | | Also used to determine other postretirement and postemployment benefit plan information. |
At September 30, 20102011 the assumed healthcare trend rates were 7.8%7.6% pre and post age 65, gradually decreasing to an ultimate rate of 4.5%5.0% beginning in 2027.2024. At September 30, 20092010 the corresponding assumed healthcare trend rates were 8%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, 20102011 by $12,157$8,566 and the aggregate of the service cost and interest cost components of 20102011 annual expense by $745.$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, 20102011 by $10,890$7,617 and the aggregate of the 20102011 service cost and interest cost by $662.$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 Company’s 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. TheWhile 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.
6162
Becton, Dickinson and Company
Notes to Consolidated Financial Statements — (Continued)
Expected benefit payments are as follows:
| | | | | | | | | | | | | | | | | |
| | | | | Other
| | | | | Other
|
| | | Pension
| | Postretirement
| | | Pension
| | Postretirement
|
| | | Plans | | Benefits | | | Plans | | Benefits |
| |
| 2011 | | $ | 112,311 | | | $ | 17,875 | | |
| 2012 | | | 83,600 | | | | 18,390 | | | $ | 128,921 | | | $ | 18,188 | |
| 2013 | | | 91,191 | | | | 18,821 | | | | 96,178 | | | | 18,708 | |
| 2014 | | | 97,859 | | | | 19,302 | | | | 101,061 | | | | 19,224 | |
| 2015 | | | 108,713 | | | | 19,829 | | | | 111,483 | | | | 19,778 | |
| 2016-2020 | | | 664,696 | | | | 101,896 | | |
| 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: 2011, $2,410; 2012, $2,538;$2,314; 2013, $2,661;$2,440; 2014, $2,764;$2,549; 2015, $2,829;$2,623; 2016, $2,684;2016-2020,2017-2021, $14,622.$13,800.
Investments
The Company adopted revised pension plan asset disclosure requirements, requiring entities to disclose the major categories of defined benefit and postretirement plan assets as well as the measurement of these assets in accordance with the fair value measurement framework as defined under U.S. GAAP, on September 30, 2010. The newly-adopted guidance also requires disclosures regarding how investment allocation decisions are made.
The Company’s 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 Company’s U.S. plans comprise 71.1%69% of total benefit plan investments, based on September 30, 20102011 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 marketabove-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.
6263
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.
| | | | | | | |
| | | | | Quoted Prices in
| | Significant
| | | | | Plan Asset
| | Quoted Prices in
| | Significant
| | | |
| | | Total U.S.
| | Active Markets
| | Other
| | Significant
| | | Balances at
| | Active Markets
| | Other
| | Significant
| |
| | | Plan Asset
| | for Identical
| | Observable
| | Unobservable
| | | September 30,
| | for Identical
| | Observable
| | Unobservable
| |
| | | Balances | | Assets (Level 1) | | Inputs (Level 2) | | Inputs (Level 3) | | | 2011 | | Assets (Level 1) | | Inputs (Level 2) | | Inputs (Level 3) | |
| |
| Fixed Income: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Mortgage and asset-backed securities(A) | | $ | 160,189 | | | $ | — | | | $ | 160,189 | | | $ | — | | | $ | 165,042 | | | $ | — | | | $ | 165,042 | | | $ | — | |
| Corporate bonds(B) | | | 109,331 | | | | — | | | | 109,331 | | | | — | | | | 111,954 | | | | — | | | | 111,954 | | | | — | |
| Government and agency-U.S.(C) | | | 41,175 | | | | 21,416 | | | | 19,759 | | | | — | | | | 41,885 | | | | 26,577 | | | | 15,308 | | | | — | |
| Government and agency-Foreign(D) | | | 15,960 | | | | — | | | | 15,960 | | | | — | | | | 6,836 | | | | — | | | | 6,836 | | | | — | |
| Other(E) | | | 3,337 | | | | — | | | | 3,337 | | | | — | | | | 8,277 | | | | — | | | | 8,277 | | | | — | |
| Equity securities(F) | | | 631,877 | | | | 396,188 | | | | 235,689 | | | | — | | | | 562,047 | | | | 435,847 | | | | 126,200 | | | | — | |
| Cash and cash equivalents(G) | | | 42,681 | | | | 42,681 | | | | — | | | | — | | | | 37,237 | | | | 37,237 | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | |
| Fair value of plan assets | | $ | 1,004,550 | | | $ | 460,285 | | | $ | 544,265 | | | $ | — | | | $ | 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. The net asset valueadministrator, which is based on the value of the underlying assets owned by the fund, less its liabilities and then divided by the number of sharesfund 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.
Thenon-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. andnon-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.
63
Becton, Dickinson and Company
Notes to Consolidated Financial Statements — (Continued)
Foreign Plans
Foreign plan assets comprise 28.9%31% of the Company’s total benefit plan assets, based on market value at September 30, 2010.2011. 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.
| | | | | | | | | | | | | | | | | |
| | | | | | Quoted Prices in
| | | Significant
| | | | |
| | | Total Foreign
| | | Active Markets
| | | Other
| | | Significant
| |
| | | Plan Asset
| | | for Identical
| | | Observable
| | | Unobservable
| |
| | | Balances | | | Assets (Level 1) | | | Inputs (Level 2) | | | Inputs (Level 3) | |
| |
| Fixed Income: | | | | | | | | | | | | | | | | |
| Corporate bonds(A) | | $ | 36,541 | | | $ | — | | | $ | 36,541 | | | $ | — | |
| Government and agency-Foreign(B) | | | 65,561 | | | | 34,387 | | | | 31,174 | | | | — | |
| Other(C) | | | 8,797 | | | | — | | | | 8,797 | | | | — | |
| Equity securities(D) | | | 220,102 | | | | 207,577 | | | | 12,258 | | | | 267 | |
| Cash and cash equivalents(E) | | | 6,478 | | | | 6,478 | | | | — | | | | — | |
| Real estate(F) | | | 9,486 | | | | — | | | | — | | | | 9,486 | |
| Insurance contracts(G) | | | 62,333 | | | | — | | | | 89 | | | | 62,244 | |
| | | | | | | | | | | | | | | | | |
| Fair value of plan assets | | $ | 409,298 | | | $ | 248,442 | | | $ | 88,859 | | | $ | 71,997 | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | 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. |
| |
(C)(D) | | Values are based upon quoted market prices from observable pricing sources. |
| |
(D)(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. The net asset valueadministrator, which is based on the value of the underlying assets owned by the fund, less its liabilities and then divided by the number of sharesfund units outstanding. |
| |
(E)(F) | | Values are based upon quoted market prices or broker/dealer quotations. |
| |
(F)(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. |
| |
(G)(H) | | Values approximately represent cash surrender value. |
Fixed income investments include corporate, U.S. government andnon-U.S. government securities. Equity securities included in the foreign plan assets consist of publicly-traded U.S. andnon-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.
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Notes to Consolidated Financial Statements — (Continued)
The following table summarizes the changes, for the yearyears ended September 30, 2011 and 2010, in the fair value of foreign pension assets measured using Level 3 inputs:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Equity
| | Real
| | Insurance
| | Total
| | | Equity
| | Real
| | Insurance
| | Total
| |
| | | Securities | | Estate | | Contracts | | Assets | | | Securities | | Estate | | Contracts | | Assets | |
| |
| Balance at September 30, 2009 | | $ | 494 | | | $ | 8,987 | | | $ | 59,078 | | | $ | 68,559 | | | $ | 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 | | | | — | | | | 558 | | | | 2,075 | | | | 2,633 | |
| Relating to assets sold during the period | | | (199 | ) | | | 185 | | | | — | | | | (14 | ) | | | (199 | ) | | | 185 | | | | — | | | | (14 | ) |
| Purchases, sales and settlements, net | | | 7 | | | | 122 | | | | — | | | | 129 | | | | 7 | | | | 122 | | | | — | | | | 129 | |
| Transfers in (out) from other categories | | | (3 | ) | | | — | | | | 4,866 | | | | 4,863 | | | | (3 | ) | | | — | | | | 4,866 | | | | 4,863 | |
| Exchange rate changes | | | (32 | ) | | | (366 | ) | | | (3,775 | ) | | | (4,173 | ) | | | (32 | ) | | | (366 | ) | | | (3,775 | ) | | | (4,173 | ) |
| | | | | | | | | | | | | | | | | | | |
| Balance at September 30, 2010 | | $ | 267 | | | $ | 9,486 | | | $ | 62,244 | | | $ | 71,997 | | | $ | 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:
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 2010 | | 2009 | | 2008 | | | 2011 | | 2010 | | 2009 | |
| |
| Service cost | | $ | 11,409 | | | $ | 9,944 | | | $ | 11,276 | | | $ | 13,327 | | | $ | 11,409 | | | $ | 9,944 | |
| Interest cost | | | 4,379 | | | | 5,435 | | | | 5,643 | | | | 5,054 | | | | 4,379 | | | | 5,435 | |
| Amortization of prior service (credit) cost | | | (1,697 | ) | | | (1,697 | ) | | | 159 | | |
| Amortization of prior service credit | | | | (1,697 | ) | | | (1,697 | ) | | | (1,697 | ) |
| Amortization of loss | | | 7,777 | | | | 4,323 | | | | 6,686 | | | | 10,490 | | | | 7,777 | | | | 4,323 | |
| | | | | | | | | | | | | | | |
| | | $ | 21,868 | | | $ | 18,005 | | | $ | 23,764 | | | $ | 27,174 | | | $ | 21,868 | | | $ | 18,005 | |
| | | | | | | | | | | | | | | |
The unfunded status of the postemployment benefit plans, which are not funded, was $112,751$137,575 and $102,311$112,751 at September 30, 20102011 and 2009,2010, respectively. The amounts recognized in Accumulated other comprehensive (loss) income before income taxes for the net actuarial loss was $76,220$116,442 and $54,487$76,220 at September 30, 20102011 and 2009,2010, 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 $8,793.$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 employee’s eligible compensation. The cost of
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Notes to Consolidated Financial Statements — (Continued)
the Savings Incentive Plan was $36,535 in 2011, $34,097 in 2010 and $36,438 in 2009 and $31,526 in 2008.2009. 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 $223,399$240,113 at September 30, 2010.2011.
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 Carmel’s results of operations were included in the Medical segment’s results from the acquisition date. Pro forma information is not provided as the acquisition did not have a material effect on the Company’s 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 Company’s market for healthcare worker safety products. Synergies are expected to result from the alignment of Carmel’s product offerings in the closed-system drug transfer device market segment with the Company’s 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 currentyear-to-date period and reported in the Consolidated Statements of Income asSelling and administrative.
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Notes to Consolidated Financial Statements — (Continued)
Note 9 — AcquisitionsAccuri
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 Accuri’s results of operations were included in the Biosciences segment’s results from the acquisition date. Pro forma information is not provided as the acquisition did not have a material effect on the Company’s 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 Company’s 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 currentyear-to-date period and reported in the Consolidated Statements of Income asSelling 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
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Notes to Consolidated Financial Statements — (Continued)
platforms. The acquisition-date 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 has developed and commercialized a flexible automated platform (“Jaguar Plus”) for performing molecular diagnostics which complements the Company’s molecular diagnostics offerings, specifically in the area of healthcare-associated infections. The Company plans to placeis 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 HandyLab’s results of operations were included in the Diagnostics segment’s results from the acquisition date. Pro forma information was not provided as the acquisition did not have a material effect on the Company’s 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, 20102011 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
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Notes to Consolidated Financial Statements — (Continued)
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 fromOther Intangibles, NettoCore and Developed Technology, Netand is being amortized over theits estimated useful life of 20 years. Substantially all of the cash flows expected to be generated from the technology will occur over this period. The Company expects the
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Notes to Consolidated Financial Statements — (Continued)
Jaguar Plus Platform to be fully launched with the commencement of material cash inflows, in fiscal year 2012, subject to regulatory approvals.
The $147,456 of goodwill was allocated to the Diagnostics segment. The primary item that generated goodwill is the value of the Company’s access to HandyLab’s flexible automated platform and expected synergies. No portion of this goodwill is expected to be deductible for tax purposes. The Company recognized $2,500 of acquisition relatedacquisition-related costs that were expensed in the current period and reported in the Consolidated Statements of Income asSelling and administrative.
In May 2009, the Company entered into a twenty-year product development and supply agreement with HandyLab. This agreement provided the Company with access and distribution rights to HandyLab’s proprietary technology. Upon executing this agreement, the Company recorded an initial payment for exclusive distribution rights over a twelve-year term. At the acquisition date, the unamortized balance of the recognized prepaid was $2,854. The Company’s acquisition of HandyLab effectively settled the preexisting product development and supply agreement. Because the terms of the contract were determined to represent fair value at the acquisition date, the Company did not record any gain or loss separately from the acquisition.
Cytopeia
On May 12, 2008, the Company acquired 100% of the outstanding stock of Cytopeia, Inc., a privately-held corporation that develops and markets advanced flow cytometry cell sorting instruments. The acquisition advances the Company’s position in rapidly emerging areas of cell-based research, such as cell therapy research, stem cell research, drug discovery and development, and marine biology. The acquisition was accounted for under the purchase method of accounting and the results of operations of Cytopeia were included in the Biosciences segment’s results from the acquisition date. Pro forma information was not provided as the acquisition did not have a material effect on the Company’s consolidated results. The purchase price was $42,914 in cash, including transaction costs. Cash assumed as of the valuation date was $1,655. The purchase price was allocated based upon the fair values of the assets and liabilities acquired per the following:
| | | | | |
| Core and developed technology | | $ | 20,000 | |
| Deferred tax asset | | | 3,832 | |
| Other | | | 3,713 | |
| | | | | |
| Total identifiable assets acquired | | | 27,545 | |
| | | | | |
| Deferred tax liabilities | | | (7,904 | ) |
| Net identifiable assets acquired | | | 19,641 | |
| Goodwill | | | 23,273 | |
| | | | | |
| Net assets acquired | | $ | 42,914 | |
| | | | | |
Core and developed technology will be amortized on a straight-line basis over its estimated useful life of approximately 15 years. The primary item that generated goodwill is the value of the Company’s access to new technologies and capabilities related to cell therapy research. No portion of this goodwill was deductible for tax purposes.
Note 10 — Divestitures
In Maythe fourth quarter of fiscal year 2010, the Company signed agreements to sell certain assets of its Medical segment, includingsold the Ophthalmic Systems unit as well asand the surgical blades, critical care and extended dwell catheter product platforms of the Medical Surgical Systems unit for $270,000. On July 30, 2010, the Company completed the sale of the Ophthalmic Systems unit and the surgical blades platform. The sale of the critical care and
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Notes to Consolidated Financial Statements — (Continued)
extended dwell catheter product platforms was completed on September 30, 2010. The Company recognized a pre-tax gain on sale from all of these divestitures of $139,167. As a result of the divestitures, the Company derecognized $10,941 of goodwill, allocated based upon the relative fair values of the disposed assets. The Company expects these divestitures will enable it to focus resources and management attention on opportunities which are a preferred strategic fit with the Medical Segment’s strategy, which focuses on parenteral medication delivery.
$146,478. The results of operations associated with the Ophthalmic Systems unit, surgical blade platform and critical care platform are reported as discontinued operations for all periods presented in the accompanying Consolidated Statements of Income and Cash Flows and related disclosures. Subsequent cash flows that will be generated as a result of transitional activities intended to facilitate the orderly transfer of business operations are not expected to be significant. The gain on sale recognized in discontinued operations was $121,128.
The Company has agreed to perform some contract manufacturing for a defined period after the sale of the extended dwell catheter product platform. Due to the Company’sthis significant continuing involvement in operations, the associated results of operations arewere reported within continuing operations. Aoperations and $18,197 of the gain on sale of $18,039 associated with this platform was recognized inOther income (expense). The contract manufacturing agreement was determined to be an element of the overall sale agreement. Accordingly, the fair value of this element was determined to be $7,000 and the Company recognized this amount as a deferred gain on the sale. This deferred gain will be amortized and recognized inRevenuesover the term of the contract manufacturing agreement.
On July 8, 2009, the Company sold certain assets and liabilities related to the elastics and thermometer components of the Home Healthcare product line of the Medical segment for $51,022. The Company recognized a pre-tax gain on sale of $18,145. Concurrent with the sale, the Company exited the remaining portion of the Home Healthcare product line. The results of operations associated with the Home Healthcare product line are reported as discontinued operations for all periods presented in the accompanying Consolidated Statements of Income and Cash Flows and related disclosures.
Results of discontinued operations for the years ended September 30 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 2010 | | 2009 | | 2008 | | | 2011 | | 2010 | | 2009 | |
| |
| Revenues | | $ | 167,720 | | | $ | 230,022 | | | $ | 260,878 | | | $ | 3,148 | | | $ | 167,720 | | | $ | 230,022 | |
| | | | | | | | | | | | | | | |
| Income from discontinued operations before income taxes | | | 181,973 | | | | 84,233 | | | | 62,433 | | | | 6,934 | | | | 181,973 | | | | 84,233 | |
| Less income tax provision | | | 40,703 | | | | 19,975 | | | | 13,191 | | | | 792 | | | | 40,703 | | | | 19,975 | |
| | | | | | | | | | | | | | | |
| Income from discontinued operations, net | | $ | 141,270 | | | $ | 64,258 | | | $ | 49,242 | | | $ | 6,142 | | | $ | 141,270 | | | $ | 64,258 | |
| | | | | | | | | | | | | | | |
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Notes to Consolidated Financial Statements — (Continued)
| |
| Note 11 — | — Intangible Assets |
Other intangible assets at September 30 consisted of:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 2010 | | 2009 | | | 2011 | | 2010 | |
| | | Gross
| | | | Gross
| | | | | Gross
| | | | Gross
| | | |
| | | Carrying
| | Accumulated
| | Carrying
| | Accumulated
| | | Carrying
| | Accumulated
| | Carrying
| | Accumulated
| |
| | | Amount | | Amortization | | Amount | | Amortization | | | Amount | | Amortization | | Amount | | Amortization | |
| |
Amortized intangible assets | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Core and developed technology | | $ | 580,709 | | | $ | 269,926 | | | $ | 539,674 | | | $ | 229,684 | | | $ | 685,191 | | | $ | 304,292 | | | $ | 580,709 | | | $ | 269,926 | |
| Product rights | | | | 152,140 | | | | 1,268 | | | | — | | | | — | |
| Patents, trademarks, and other | | | 301,883 | | | | 219,735 | | | | 312,430 | | | | 218,531 | | | | 309,337 | | | | 230,542 | | | | 301,883 | | | | 219,735 | |
| | | | | | | | | | | | | | | | | | | |
| | | $ | 882,592 | | | $ | 489,661 | | | $ | 852,104 | | | $ | 448,215 | | | $ | 1,146,668 | | | $ | 536,102 | | | $ | 882,592 | | | $ | 489,661 | |
| | | | | | | | | | | | | | | | | | | |
Unamortized intangible assets | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Acquired in-process research and development | | $ | 143,000 | | | | | | | $ | — | | | | | | | $ | 185,300 | | | | | | | $ | 143,000 | | | | | |
| Trademarks | | | 2,709 | | | | | | | | 2,760 | | | | | | | | 2,669 | | | | | | | | 2,709 | | | | | |
| | | | | | | | | | | |
| | | $ | 145,709 | | | | | | | $ | 2,760 | | | | | | | $ | 187,969 | | | | | | | $ | 145,709 | | | | | |
| | | | | | | | | | | |
Intangible amortization expense was $55,151, $48,399 and $47,066 in 2011, 2010 and $54,217 in 2010, 2009, and 2008, respectively. The estimated aggregate amortization expense for the fiscal years ending September 30, 20112012 to 20152016 are as follows: 2011 — $53,800; 2012 — $56,900;$72,536; 2013 — $56,000;$74,412; 2014 — $54,800;$71,849; 2015 — $53,100.$69,745; 2016 — $64,963.
Note 12 — Derivative Instruments and Hedging Activities
| |
| Note 12 — | Derivative Instruments and Hedging Activities |
The Company uses derivative instruments to mitigate certain exposures. The effects these derivative instruments and hedged items have on financial position, financial performance, and cash flows are provided below.
Foreign Currency Risks and Related Strategies
The Company has foreign currency exposures throughout Europe, Asia Pacific, Canada, Japan and Latin America. From time to time, the Company may partially hedge forecasted export sales denominated in foreign currencies using forward and option contracts, generally with one-year terms. The Company’s hedging program has been designed to mitigate exposures resulting from movements of the U.S. dollar, from the beginning of a reporting period, against other foreign currencies. The Company’s strategy is to offset the changes in the present value of future foreign currency revenue resulting from these movements with either gains or losses in the fair value of foreign currency derivative contracts. Forward contracts were used to hedge forecasted sales in fiscal years 2010 and 2009. Currency options were used toyear 2010. The Company did not hedge forecasted sales in fiscal year 2008. As2011 and as of September 30, 2010,2011, the Company has not entered into contracts to hedge cash flows infor fiscal year 2011.2012.
The Company designates forward contracts used to hedge these certain forecasted sales denominated in foreign currencies as cash flow hedges. Changes in the effective portion of the fair value of the Company’s forward contracts that are designated and qualify as cash flow hedges (i.e., hedging the exposure to variability in expected future cash flows that is attributable to a particular risk) are included inOther comprehensive income (loss)until the hedged transactions are reclassified in earnings. These changes result from the maturity of derivative instruments as well as the commencement of new derivative instruments. The changes also reflect movements in the period-end foreign exchange rates against the spotforward rates at the time the Company enters into any given derivative instrument contract. Once the hedged revenue transaction occurs, the recognized gain or loss on the contract is recognizedreclassified fromAccumulated other comprehensive income (loss)toRevenues. The Company
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Notes to Consolidated Financial Statements — (Continued)
Company records the premium or discount of the forward contracts, which is included in the assessment of hedge effectiveness, toRevenues.
In the event that the revenue transactions underlying a derivative instrument are no longer probable of occurring, accounting for the instrument under hedge accounting must beis discontinued. Gains and losses previously recognized inOther comprehensive income (loss)must beare reclassified intoOther income (expense). If only a portion of the revenue transaction underlying a derivative instrument is no longer probable of occurring, only the portion of the derivative relating to those revenues would no longer be eligible for hedge accounting.
Transactional currency exposures that arise from entering into transactions, generally on an intercompany basis, in non-hyperinflationary countries that are denominated in currencies other than the functional currency are mitigated primarily through the use of forward contracts and currency options. Hedges of the transactional foreign exchange exposures resulting primarily from intercompany payables and receivables are undesignated hedges. As such, the gains or losses on these instruments are recognized immediately in income. The offset of these gains or losses against the gains and losses on the underlying hedged items, as well as the hedging costs associated with the derivative instruments, areis recognized inOther income (expense).
The total notional amounts of the Company’s outstanding foreign exchange contracts as of September 30, 20102011 and September 30, 20092010 were $1,776,046$2,209,780 and $2,601,109,$1,776,046, respectively.
Interest Rate Risks and Related Strategies
The Company’s primary interest rate exposure results from changes in short-term U.S. dollar interest rates. The Company’s policy is to manage interest cost using a mix of fixed and variable rate debt. The Company periodically uses interest rate swaps to manage such exposures. Under these interest rate swaps, the Company exchanges, at specified intervals, the difference between fixed and floating interest amounts calculated by reference to anagreed-upon notional principal amount. These swaps are designated as either fair value or cash flow hedges.
For interest rate swaps designated as fair value hedges (i.e., hedges against the exposure to changes in the fair value of an asset or a liability or an identified portion thereof that is attributable to a particular risk), changes in the fair value of the interest rate swaps offset changes in the fair value of the fixed rate debt due to changes in market interest rates.
Changes in the fair value of the interest rate swaps designated as cash flow hedges (i.e., hedging the exposure to variability in expected future cash flows that is attributable to a particular risk) are offset by amounts recorded inOther comprehensive income (loss). If interest rate derivatives designated as cash flow hedges are terminated, the balance inAccumulated other comprehensive income (loss)attributable to those derivatives is reclassified into earnings over the remaining life of the hedged debt. The amount, related to terminated interest rate swaps, expected to be reclassified and recorded inInterest expensewithin the next 12 months is $1,248,$996, net of tax.
As of September 30, 2010 and September 30, 2009, theThe total notional amounts of the Company’s outstanding interest rate swaps designated as fair value hedges were $200,000 at both September 30, 2011 and $400,000, respectively.September 30, 2010. The current year’s outstanding swap represents afixed-to-floating rate swap agreement that was entered into to convert the interest payments on $200,000 in 4.55% notes, due April 15, 2013, from the fixed rate to a floating interest rate based on LIBOR.
The Company had nototal notional amounts of the Company’s outstanding interest rate swaps designated as cash flow hedges as of September 30, 2010.2011 and September 30, 2010 were $900,000 and $0, respectively. The current year’s outstanding swaps include forward startingfixed-to-floating rate swap agreements under which the Company agrees to pay a fixed interest rate and receive a floating interest rate based on LIBOR, subject to mandatory termination and cash settlement on the forward start date. These hedges were entered into during the fourth quarter of fiscal year 2011 in anticipation of issuing new long-term debt in the first quarter of fiscal
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Becton, Dickinson and Company
Notes to Consolidated Financial Statements — (Continued)
Commodity Price Risks and Related Strategies
The Company also manages risks associated with certain forecasted commodity purchases by using forward contracts. In 2009,year 2012. Their purpose was to partially hedge the Company entered into a commodity forward contract on ethanerisk of changes in interest payments attributable to manage the price risk associated with forecasted purchases of polyethylene usedchanges in the benchmark interest rate (the U.S. Dollar LIBOR swap rate) against which the debt was issued. These swaps were terminated on November 3, 2011, concurrent with the issuance of the new long-term debt. Additional disclosures regarding the Company’s manufacturing process. The contract was designated as a cash flow hedge and once the hedged commodity purchases occurred, the gain or loss on the contract was recognized fromAccumulated other comprehensive income (loss)toCostissuance of products sold. The ethane forward contract matureddebt in the first quarter 2010 and as such, there were no unrecognized amounts relating to this contract recordedof fiscal year 2012 are included inAccumulated other comprehensive income (loss)at September 30, 2010. The notional amount of the Company’s commodity contracts at September 30, 2009 was 206,000 gallons of ethane. Note 14.
Risk Exposures Not Hedged
The Company purchases resins, which are oil-based components used in the manufacture of certain products. While the Company has been able to hedge certain purchases of polyethylene, the Company does not currently use any hedges to manage the risk exposures related to other resins. Significant increases in world oil prices that lead to increases in resin purchase costs could impact future operating results. From time to time, the Company has managed price risks associated with other commodity purchases. The Company had no commodity forward contracts outstanding as of September 30, 2011 or 2010.
Effects on Consolidated Balance Sheets
The location and amounts of derivative instrument fair values in the consolidated balance sheet are segregated below between designated, qualifying hedging instruments and ones that are not designated under for hedge accounting.
| | | | | | | | | | | | | | | | | |
| | | September 30, | | | September 30, | |
| | | 2010 | | 2009 | | | 2011 | | 2010 | |
| |
| Asset derivatives-designated for hedge accounting | | | | | | | | | | | | | | | | |
| Forward exchange contracts | | $ | — | | | $ | 618 | | |
| Interest rate swap | | | 8,609 | | | | 1,971 | | |
| | | | | | | |
| Total asset derivatives-designated for hedge accounting | | $ | 8,609 | | | $ | 2,589 | | |
| Interest rate swaps | | | $ | 5,959 | | | $ | 8,609 | |
| | | | | | | | | | | |
| Asset derivatives-undesignated for hedge accounting | | | | | | | | | | | | | | | | |
| Forward exchange contracts | | $ | 32,392 | | | $ | 12,575 | | | $ | 37,198 | | | $ | 32,392 | |
| | | | | | | | | | | |
| Total asset derivatives(A) | | $ | 41,001 | | | $ | 15,164 | | | $ | 43,157 | | | $ | 41,001 | |
| | | | | | | | | | | |
| Liability derivatives-designated for hedge accounting | | | | | | | | | |
| Forward exchange contracts | | $ | — | | | $ | 70,980 | | |
| Commodity forward contracts | | | — | | | | 6 | | |
| | | | | | | |
| Total liability derivatives-designated for hedge accounting | | $ | — | | | $ | 70,986 | | |
| | | | | | | |
| Liability derivatives-undesignated for hedge accounting | | | | | | | | | | | | | | | | |
| Forward exchange contracts | | $ | 21,265 | | | $ | 18,490 | | | $ | 39,589 | | | $ | 21,265 | |
| | | | | | | | | | | |
| Total liability derivatives(B) | | $ | 21,265 | | | $ | 89,476 | | | $ | 39,589 | | | $ | 21,265 | |
| | | | | | | | | | | |
| | |
| (A) | | All asset derivatives are included inPrepaid expenses, deferred taxes and other. |
| |
| (B) | | All liability derivatives are included inAccrued expenses. |
7174
Becton, Dickinson and Company
Notes to Consolidated Financial Statements — (Continued)
Effects on Consolidated Statements of Income
Cash flow hedges
The location and amount of gains and losses on designated derivative instruments recognized in the consolidated statement of income for the years ended September 30, consisted of:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | Location of Gain
| | | | | | | | | | | | | | | Location of Gain
| | | | | | | |
Derivatives Accounted
| | | | | | | | (Loss)
| | | | | | | | | | | | | | | (Loss)
| | | | | | | |
for as Designated
| | Gain (Loss) Recognized in OCI on
| | Reclassified from
| | Gain (Loss) Reclassified from
| | | Gain (Loss) Recognized in OCI on
| | Reclassified from
| | Gain (Loss) Reclassified from
| |
Cash Flow Hedging
| | Derivatives, Net of Tax | | Accumulated OCI
| | Accumulated OCI into Income | | | Derivatives, Net of Tax | | Accumulated OCI
| | Accumulated OCI into Income | |
| Relationships | | 2010 | | 2009 | | 2008 | | into Income | | 2010 | | 2009 | | 2008 | | | 2011 | | 2010 | | 2009 | | into Income | | 2011 | | 2010 | | 2009 | |
| |
| Forward exchange contracts | | $ | 43,624 | | | $ | (81,410 | ) | | $ | 37,786 | | | Revenues | | $ | (31,471 | ) | | $ | 104,858 | | | $ | — | | | $ | — | | | $ | 43,624 | | | $ | (81,410 | ) | | Revenues | | $ | — | | | $ | (31,471 | ) | | $ | 104,858 | |
| Currency options | | | — | | | | — | | | | 4,994 | | | Revenues | | | — | | | | — | | | | (10,860 | ) | |
| Interest rate swaps | | | 1,238 | | | | (641 | ) | | | 1,091 | | | Interest expense | | | (1,996 | ) | | | (1,846 | ) | | | (1,760 | ) | | | (33,200 | ) | | | 1,238 | | | | (641 | ) | | Interest expense | | | (1,656 | ) | | | (1,996 | ) | | | (1,846 | ) |
| Commodity forward contracts | | | 22 | | | | (22 | ) | | | — | | | Cost of products sold | | | (35 | ) | | | (231 | ) | | | — | | | | — | | | | 22 | | | | (22 | ) | | Cost of products sold | | | — | | | | (35 | ) | | | (231 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Total | | $ | 44,884 | | | $ | (82,073 | ) | | $ | 43,871 | | | | | $ | (33,502 | ) | | $ | 102,781 | | | $ | (12,620 | ) | | $ | (33,200 | ) | | $ | 44,884 | | | $ | (82,073 | ) | | | | $ | (1,656 | ) | | $ | (33,502 | ) | | $ | 102,781 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
The Company’s designated derivative instruments are perfectly effective. As such, there were no gains or losses, related to hedge ineffectiveness or amounts excluded from hedge effectiveness testing, recognized immediately in income for the years ended September 30, 2011, 2010 2009 and 2008.2009. The loss recorded inOther comprehensive income (loss)for the year ended September 30, 2011 represents unrealized losses on interest rate swaps entered into during the fourth quarter of fiscal year 2011 in anticipation of issuing long-term debt in the first quarter of fiscal year 2012, partially offset by gains realized on interest rate swaps that were entered into in the first quarter of fiscal year 2011 in anticipation of issuing long-term debt during that quarter. These swaps were designated as hedges of the variability in interest payments attributable to changes in the benchmark interest rates against which the long-term debt was priced. The amounts recorded inOther comprehensive income (loss)relative to these swaps will be amortized, over the life of the respective notes, with an offset toInterest expense.
Fair value hedge
The location and amount of gains or losses on the hedged fixed rate debt attributable to changes in the market interest rates and the offsetting gain (loss) on the related interest rate swap for the years ended September 30 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Income Statement
| | Gain/(Loss) on Swap | | Gain/(Loss) on Borrowings | | | Gain/(Loss) on Swap | | Gain/(Loss) on Borrowings | |
| Classification | | 2010 | | 2009 | | 2008 | | 2010 | | 2009 | | 2008 | | | 2011 | | 2010 | | 2009 | | 2011 | | 2010 | | 2009 | |
| |
| Other income (expense)(A) | | $ | 6,638 | | | $ | (3,402 | ) | | $ | (542 | ) | | $ | (6,638 | ) | | $ | 3,402 | | | $ | 542 | | | $ | (2,650 | ) | | $ | 6,638 | | | $ | (3,402 | ) | | $ | 2,650 | | | $ | (6,638 | ) | | $ | 3,402 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | |
| (A) | | Changes in the fair value of the interest rate swapswaps offset changes in the fair value of the fixed rate debt due to changes in market interest rates. There was no hedge ineffectiveness relating to thisthese interest rate swap.swaps. |
75
Becton, Dickinson and Company
Notes to Consolidated Financial Statements — (Continued)
Undesignated hedges
The location and amount of gains and losses recognized in income on derivatives not designated for hedge accounting for the years ended September 30 were as follows:
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | Amount of Gain (Loss)
| |
Derivatives Not
| | Location of Gain (Loss)
| | Amount of Gain (Loss) Recognized in Income on
| | | Location of Gain (Loss)
| | Recognized in Income on
| |
Designated as
| | Recognized in Income on
| | Derivative | | | Recognized in Income on
| | Derivative | |
| For Hedge Accounting | | Derivatives | | 2010 | | 2009 | | 2008 | | | Derivatives | | 2011 | | 2010 | | 2009 | |
| |
| Forward exchange contracts(B) | | Other income (expense) | | $ | (6,606 | ) | | $ | 138 | | | $ | 10,835 | | | Other income (expense) | | $ | (1,443 | ) | | $ | (6,606 | ) | | $ | 138 | |
| | | | | | | | | | | | | | | |
| | |
| (B) | | The gains and losses on forward contracts and currency options utilized to hedge the intercompany transactional foreign exchange exposures are largely offset by gains and losses on the underlying hedged items inOther (expense) income. |
72
Becton, Dickinson and Company
| |
| Note 13 — | Financial Instruments and Fair Value Measurements |
Notes to Consolidated Financial Statements — (Continued)
Note 13 — Financial Instruments andRecurring Fair Value Measurements
The Company adopted newly-issued fair value measurement requirements for financial assets and liabilities on October 1, 2008 and for nonfinancial assets and liabilities on October 1, 2009. These provisions define fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement provisions require the categorization of assets and liabilities carried at fair value within a three-level hierarchy based upon inputs used in measuring fair value.
The fair values of financial instruments, including those not recognized on the statement of financial position at fair value, carried at September 30, 20102011 and September 30, 20092010 are classified in accordance with the fair value hierarchy in the tables below:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Basis of Fair Value Measurement | | | | | Basis of Fair Value Measurement | |
| | | September 30,
| | Quoted Prices in
| | Significant
| | | | | September 30,
| | Quoted Prices in
| | Significant
| | | |
| | | 2010
| | Active Markets
| | Other
| | Significant
| | | 2011
| | Active Markets
| | Other
| | Significant
| |
| | | Carrying
| | for Identical
| | Observable
| | Unobservable
| | | Carrying
| | for Identical
| | Observable
| | Unobservable
| |
| | | Value | | Assets (Level 1) | | Inputs (Level 2) | | Inputs (Level 3) | | | Value | | Assets (Level 1) | | Inputs (Level 2) | | Inputs (Level 3) | |
| |
| Assets | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Institutional money market investments | | $ | 277,424 | | | $ | 277,424 | | | $ | — | | | $ | — | | | $ | 189,198 | | | $ | 189,198 | | | $ | — | | | $ | — | |
| Forward exchange contracts | | | 32,392 | | | | — | | | | 32,392 | | | | — | | | | 37,198 | | | | — | | | | 37,198 | | | | — | |
| Interest rate swap | | | 8,609 | | | | — | | | | 8,609 | | | | — | | |
| Interest rate swaps | | | | 5,959 | | | | — | | | | 5,959 | | | | — | |
| | | | | | | | | | | | | | | | | | | |
| Total Assets | | $ | 318,425 | | | $ | 277,424 | | | $ | 41,001 | | | $ | — | | | $ | 232,355 | | | $ | 189,198 | | | $ | 43,157 | | | $ | — | |
| | | | | | | | | | | | | | | | | | | |
| Liabilities | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Forward exchange contracts | | $ | 21,265 | | | $ | — | | | $ | 21,265 | | | $ | — | | | $ | 39,589 | | | $ | — | | | $ | 39,589 | | | $ | — | |
| Long-term debt | | | 1,495,357 | | | | — | | | | 1,790,137 | | | | — | | | | 2,484,665 | | | | — | | | | 2,839,697 | | | | — | |
| | | | | | | | | | | | | | | | | | | |
| Total Liabilities | | $ | 1,516,622 | | | $ | — | | | $ | 1,811,402 | | | $ | — | | | $ | 2,524,254 | | | $ | — | | | $ | 2,879,286 | | | $ | — | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | Basis of Fair Value Measurement | |
| | | September 30,
| | | Quoted Prices in
| | | Significant
| | | | |
| | | 2009
| | | Active Markets
| | | Other
| | | Significant
| |
| | | Carrying
| | | for Identical
| | | Observable
| | | Unobservable
| |
| | | Value | | | Assets (Level 1) | | | Inputs (Level 2) | | | Inputs (Level 3) | |
| |
| Assets | | | | | | | | | | | | | | | | |
| Institutional money market investments | | $ | 617,220 | | | $ | 617,220 | | | $ | — | | | $ | — | |
| Forward exchange contracts | | | 13,193 | | | | — | | | | 13,193 | | | | — | |
| Interest rate swap | | | 1,971 | | | | — | | | | 1,971 | | | | — | |
| | | | | | | | | | | | | | | | | |
| Total Assets | | $ | 632,384 | | | $ | 617,220 | | | $ | 15,164 | | | $ | — | |
| | | | | | | | | | | | | | | | | |
| Liabilities | | | | | | | | | | | | | | | | |
| Forward exchange contracts | | $ | 89,470 | | | $ | — | | | $ | 89,470 | | | $ | — | |
| Commodity forward contracts | | | 6 | | | | — | | | | 6 | | | | — | |
| Long-term debt | | | 1,488,460 | | | | — | | | | 1,610,314 | | | | — | |
| | | | | | | | | | | | | | | | | |
| Total Liabilities | | $ | 1,577,936 | | | $ | — | | | $ | 1,699,790 | | | $ | — | |
| | | | | | | | | | | | | | | | | |
76
Becton, Dickinson and Company
Notes to Consolidated Financial Statements — (Continued)
| | | | | | | | | | | | | | | | | |
| | | | | | Basis of Fair Value Measurement | |
| | | September 30,
| | | Quoted Prices in
| | | Significant
| | | | |
| | | 2010
| | | Active Markets
| | | Other
| | | Significant
| |
| | | Carrying
| | | for Identical
| | | Observable
| | | Unobservable
| |
| | | Value | | | Assets (Level 1) | | | Inputs (Level 2) | | | Inputs (Level 3) | |
| |
| Assets | | | | | | | | | | | | | | | | |
| Institutional money market investments | | $ | 277,424 | | | $ | 277,424 | | | $ | — | | | $ | — | |
| Forward exchange contracts | | | 32,392 | | | | — | | | | 32,392 | | | | — | |
| Interest rate swaps | | | 8,609 | | | | — | | | | 8,609 | | | | — | |
| | | | | | | | | | | | | | | | | |
| Total Assets | | $ | 318,425 | | | $ | 277,424 | | | $ | 41,001 | | | $ | — | |
| | | | | | | | | | | | | | | | | |
| Liabilities | | | | | | | | | | | | | | | | |
| Forward exchange contracts | | $ | 21,265 | | | $ | — | | | $ | 21,265 | | | $ | — | |
| Long-term debt | | | 1,495,357 | | | | — | | | | 1,790,137 | | | | — | |
| | | | | | | | | | | | | | | | | |
| Total Liabilities | | $ | 1,516,622 | | | $ | — | | | $ | 1,811,402 | | | $ | — | |
| | | | | | | | | | | | | | | | | |
The Company’s institutional money market accounts permit daily redemption and the fair values of these investments are based upon the quoted prices in active markets provided by the holding financial institutions.
73
Becton, Dickinson and Company
Notes to Consolidated Financial Statements — (Continued)
The Company’s remaining cash equivalents totaling $938,565$986,084 and $777,024$938,565 at September 30, 20102011 and 2009,2010, respectively. Short-term investments are held to their maturities and are carried at cost, which approximates fair value. The cash equivalents consist of liquid investments with a maturity of three months or less and the short-term investments consist of instruments with maturities greater than three months and less than one year. The Company measures the fair value of forward exchange contracts and currency options using an income approach with significant observable inputs, specifically spot currency rates, market designated forward currency prices and a discount rate. The fair value of interest rate swaps are provided by the financial institutions that are counterparties to these arrangements. The fair value of long-term debt is based upon quoted prices in active markets for similar instruments.
The Company’s policy is to recognize any transfers into fair value measurement hierarchy levels and transfers out of levels at the beginning of each reporting period. There were no transfers in and out of Level 1, Level 2 or Level 3 measurements for the years ending September 30, 20102011 and 2009.2010.
Nonrecurring Fair Value Measurements
In the fourth quarter of fiscal year 2011, the Company recorded an impairment charge of $9,270, which was recorded toResearch and development expense, resulting from its discontinuance of a research program within the Diagnostic Systems unit. Based upon an assessment using significant unobservable inputs and the lack of alternative uses for these assets, the assets were determined to have no fair value.
Concentration of Credit Risk
The Company maintains cash deposits in excess of government-provided insurance limits. Such cash deposits are exposed to loss in the event of nonperformance by financial institutions. Substantially all of the Company’s trade receivables are due from public and private entities involved in the healthcare industry. Due to the large size and diversity of the Company’s customer base, concentrations of credit risk with respect to trade receivables are limited. The Company does not normally require collateral. The Company is exposed to credit loss in the event of nonperformance by financial institutions with which it conducts business. However, this loss is limited to the amounts, if any, by which the obligations of the counterparty to the financial
77
Becton, Dickinson and Company
Notes to Consolidated Financial Statements — (Continued)
instrument contract exceed the obligations of the Company. The Company also minimizes exposure to credit risk by dealing with a diversified group of major financial institutions.
Accounts receivable balances include sales to government-owned or government-supported healthcare facilities. Because these customers are government ownedgovernment-owned or supported, wethe Company could be impacted by declines in sovereign credit ratings or by defaults in these countries.
The Company continually evaluates all government receivables, particularly in Greece, Spain, Italy, and other parts of Western Europe, for potential collection risks associated with the availability of government funding and reimbursement practices.
In particular, The Company believes the Company has experienced significant payment delays in Greece due to the government’s current liquidity issues that have affected its ability to process payments to suppliers within Greece’s national healthcare system. During the fourth quarter of fiscal year 2010, the Company accepted a settlement agreement established by Greece’s government to repay all debts associated with its public hospitals’ suppliers, incurred since 2005. Under the plan, suppliers will receive cash for debts incurred from 2005 through 2006 and zero-coupon bonds for debts incurred from 2007 through 2009. The outstanding balances, net of reserves related to such sales, were approximately $37,796government receivables are adequate and $45,072 at September 30, 2010 and September 30, 2009, respectively. Thisthis concentration of credit risk is not expected to have a material adverse impact on ourits financial position or liquidity.
74
Becton, Dickinson and Company
Notes to Consolidated Financial Statements — (Continued)
Short-term debt at September 30 consisted of:
| | | | | | | | | | | | | | | | | |
| | | 2010 | | 2009 | | | 2011 | | 2010 | |
| |
| Loans Payable | | | | | | | | | | | | | | | | |
| Domestic | | $ | 200,000 | | | $ | 200,000 | | | $ | 200,000 | | | $ | 200,000 | |
| Foreign | | | 2,727 | | | | 2,880 | | | | 34,910 | | | | 2,727 | |
| Current portion of long-term debt | | | 31 | | | | 200,085 | | | | 22 | | | | 31 | |
| | | | | | | | | | | |
| | | $ | 202,758 | | | $ | 402,965 | | | $ | 234,932 | | | $ | 202,758 | |
| | | | | | | | | | | |
Domestic loans payable consist of commercial paper. Foreign loans payable consist of short-term borrowings from financial institutions. The weighted average interest rates for Short-term debt were 0.27%1.20% and 3.68%0.27% at September 30, 20102011 and 2009,2010, respectively. The Company has available a $1 billion syndicated credit facility with an expiration date in December 2012. This credit facility provides backup support for the commercial paper program and can also be used for other general corporate purposes. It includes a restrictive covenant that requires a minimum interest coverage ratio, with which the Company was in compliance at September 30, 2010.2011. There were no borrowings outstanding under the facility at September 30, 2010.2011. In addition, the Company had short-term foreign lines of credit pursuant to informal arrangements of approximately $215,840$231,081 at September 30, 2010,2011, almost all of which was unused.
In May 2009,On November 3, 2011, the Company issued $500,000 of10-year5-year 5.00%1.75% notes and $250,000 of30-year 6.00% notes. The net proceeds from these issuances were used for the repayment of $200,000 in 7.15% notes, due October 1, 2009. A swap agreement with a notional amount of $200,000 that was used to convert the payments on the 7.15% notes from the fixed rate to a floating rate also matured on the same date as the loan.
On November 8, 2010, the Company issued $700,000$1 billion of10-year 3.25% notes and $300,000 of30-year 5.00%3.125% notes. The net proceeds from these issuances are expected to be used for general corporate purposes, which may include funding for working capital, capital expenditures, repurchases of the Company’s common stock and acquisitions. On November 8, 2010, the Company issued $700,000 of10-year 3.25% notes and $300,000 of30-year 5.00% notes. The net proceeds from these issuances have been used for general corporate purposes, including funding for working capital, capital expenditures, repurchases of the Company’s common stock and acquisitions.
78
Becton, Dickinson and Company
Notes to Consolidated Financial Statements — (Continued)
Long-Term Debtat September 30 consisted of:
| | | | | | | | | | | | | | | | | |
| | | 2010 | | 2009 | | | 2011 | | 2010 | |
| |
| Domestic notes due through 2013 (average year-end interest rate: 1.0% — 2010; 2.1% — 2009) | | $ | 8,058 | | | $ | 8,079 | | |
| Domestic notes due through 2013 (average year-end interest rate: 1.05% — 2011; 1.0% — 2010) | | | $ | 8,030 | | | $ | 8,058 | |
| 4.55% Notes due April 15, 2013 | | | 207,992 | | | | 201,128 | | | | 205,581 | | | | 207,992 | |
| 4.90% Notes due April 15, 2018 | | | 204,710 | | | | 205,232 | | | | 204,164 | | | | 204,710 | |
| 5.00% Notes due May 15, 2019 | | | 494,196 | | | | 493,678 | | | | 494,743 | | | | 494,196 | |
| 6.00% Notes due May 15, 2039 | | | 245,351 | | | | 245,293 | | |
| 3.25% Notes due November 12, 2020 | | | | 695,461 | | | | — | |
| 7.00% Debentures due August 1, 2027 | | | 168,000 | | | | 168,000 | | | | 168,000 | | | | 168,000 | |
| 6.70% Debentures due August 1, 2028 | | | 167,050 | | | | 167,050 | | | | 167,050 | | | | 167,050 | |
| 6.00% Notes due May 15, 2039 | | | | 245,413 | | | | 245,351 | |
| 5.00% Notes due November 12, 2040 | | | | 296,223 | | | | — | |
| | | | | | | | | | | |
| | | $ | 1,495,357 | | | $ | 1,488,460 | | | $ | 2,484,665 | | | $ | 1,495,357 | |
| | | | | | | | | | | |
Long-term debt balances at September 30, 20102011 and 20092010 have been impacted by certain interest rate swaps that have been designated as fair value hedges, as discussed in Note 12.
The aggregate annual maturities of long-term debt during the fiscal years ending September 30, 20122013 to 20152016 are as follows: 2012 — $34; 2013 — $216,013;$213,603; 2014 — $2;$8; 2015 — $0.
75
Becton, Dickinson and Company
Notes to Consolidated Financial Statements$0; 2016 — (Continued)$0.
The Company capitalizes interest costs as a component of the cost of construction in progress. A summary of interest costs and payments for the years ended September 30 is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 2010 | | 2009 | | 2008 | | | 2011 | | 2010 | | 2009 | |
| |
| Charged to operations | | $ | 51,263 | | | $ | 40,389 | | | $ | 36,343 | | | $ | 84,019 | | | $ | 51,263 | | | $ | 40,389 | |
| Capitalized | | | 36,436 | | | | 29,360 | | | | 29,862 | | | | 37,929 | | | | 36,436 | | | | 29,360 | |
| | | | | | | | | | | | | | | |
| Total interest costs | | $ | 87,699 | | | $ | 69,749 | | | $ | 66,205 | | | $ | 121,948 | | | $ | 87,699 | | | $ | 69,749 | |
| | | | | | | | | | | | | | | |
| Interest paid, net of amounts capitalized | | $ | 58,401 | | | $ | 25,544 | | | $ | 36,222 | | | $ | 68,447 | | | $ | 58,401 | | | $ | 25,544 | |
| | | | | | | | | | | | | | | |
The provision for income taxes from continuing operations for the years ended September 30 consisted of:
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 2010 | | 2009 | | 2008 | | | 2011 | | 2010 | | 2009 | |
| |
| Current: | | | | | | | | | | | | | | | | | | | | | | | | |
| Federal | | $ | 307,236 | | | $ | 153,030 | | | $ | 262,289 | | | $ | 189,997 | | | $ | 307,236 | | | $ | 153,030 | |
| State and local, including Puerto Rico | | | 23,441 | | | | 9,626 | | | | 13,045 | | | | 23,394 | | | | 23,441 | | | | 9,626 | |
| Foreign | | | 170,218 | | | | 135,931 | | | | 143,330 | | | | 220,386 | | | | 170,218 | | | | 135,931 | |
| | | | | | | | | | | | | | | |
| | | $ | 500,895 | | | $ | 298,587 | | | $ | 418,664 | | | $ | 433,777 | | | $ | 500,895 | | | $ | 298,587 | |
| | | | | | | | | | | | | | | |
| Deferred: | | | | | | | | | | | | | | | | | | | | | | | | |
| Domestic | | $ | (32,762 | ) | | $ | 109,925 | | | $ | 13,481 | | | $ | (14,466 | ) | | $ | (32,762 | ) | | $ | 109,925 | |
| Foreign | | | 16,687 | | | | 2,734 | | | | (20,214 | ) | | | 32,100 | | | | 16,687 | | | | 2,734 | |
| | | | | | | | | | | | | | | |
| | | | (16,075 | ) | | | 112,659 | | | | (6,733 | ) | | | 17,634 | | | | (16,075 | ) | | | 112,659 | |
| | | | | | | | | | | | | | | |
| | | $ | 484,820 | | | $ | 411,246 | | | $ | 411,931 | | | $ | 451,411 | | | $ | 484,820 | | | $ | 411,246 | |
| | | | | | | | | | | | | | | |
79
Becton, Dickinson and Company
Notes to Consolidated Financial Statements — (Continued)
The components ofIncome From Continuing Operations Before Income Taxesfor the years ended September 30 consisted of:
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 2010 | | 2009 | | 2008 | | | 2011 | | 2010 | | 2009 | |
| |
| Domestic, including Puerto Rico | | $ | 889,254 | | | $ | 890,934 | | | $ | 802,073 | | | $ | 908,179 | | | $ | 889,254 | | | $ | 890,934 | |
| Foreign | | | 771,906 | | | | 687,657 | | | | 687,612 | | | | 808,084 | | | | 771,906 | | | | 687,657 | |
| | | | | | | | | | | | | | | |
| | | $ | 1,661,160 | | | $ | 1,578,591 | | | $ | 1,489,685 | | | $ | 1,716,263 | | | $ | 1,661,160 | | | $ | 1,578,591 | |
| | | | | | | | | | | | | | | |
Deferred tax assets and liabilities are netted on the balance sheet by separate tax jurisdictions. At September 30, 20102011 and 2009,2010, net current deferred tax assets of $217,865$287,143 and $169,505,$217,865, respectively, were included inPrepaid expenses, deferred taxes and other. Net non-current deferred tax assets of $152,334$111,786 and $156,288,$152,334, respectively, were included inOther. Net current deferred tax liabilities of $2,587$7,522 and $3,665,$2,587, respectively, were included inCurrent Liabilities -— Income taxes. Net non-current deferred tax liabilities of $21,558$58,553 and $18,191,$21,558, respectively, were included inDeferred Income Taxes and Other. Deferred taxes are not provided on undistributed earnings of foreign subsidiaries that are indefinitely reinvested. At September 30, 2010,2011, the cumulative amount of such undistributed earnings indefinitely reinvested outside the United States was $3.3$3.8 billion. Determining the tax liability that would arise if these earnings were remitted is not practicable. Deferred taxes are provided for earnings outside the United States when those earnings are not considered indefinitely reinvested.
76
Becton, Dickinson and Company
Notes to Consolidated Financial Statements — (Continued)
The following table summarizes the gross amounts of unrecognized tax benefits without regard to reduction in tax liabilities or additions to deferred tax assets and liabilities if such unrecognized tax benefits were settled:
| | | | | | | | | | | | | | | | | |
| September 30, 2007 | | $ | 71,782 | | |
| Increase due to current year tax positions | | | 5,411 | | |
| Increase due to prior year tax positions | | | 535 | | |
| Decrease due to settlements and lapse of statute of limitations | | | (8,030 | ) | |
| | | | | | 2011 | | 2010 | | 2009 | |
| September 30, 2008 | | $ | 69,698 | | |
| Increase due to current year tax positions | | | 8,901 | | |
| Increase due to prior year tax positions | | | 1,872 | | |
| Decrease due to settlements and lapse of statute of limitations | | | (29,924 | ) | |
| | | | |
| September 30, 2009 | | | 50,547 | | |
| Balance at October 1 | | | $ | 90,064 | | | $ | 50,547 | | | $ | 69,698 | |
| Increase due to current year tax positions | | | 27,662 | | | | 37,792 | | | | 27,662 | | | | 8,901 | |
| Increase due to prior year tax positions | | | 25,837 | | | | 12,349 | | | | 25,837 | | | | 1,872 | |
| Decreases due to prior year tax positions | | | (11,509 | ) | | | (1,815 | ) | | | (11,509 | ) | | | — | |
| Decrease due to settlements and lapse of statute of limitations | | | (2,473 | ) | | | (2,896 | ) | | | (2,473 | ) | | | (29,924 | ) |
| | | | | | | | | | | |
| September 30, 2010 | | $ | 90,064 | | |
| Balance at September 30 | | | $ | 135,494 | | | $ | 90,064 | | | $ | 50,547 | |
| | | | | | | | | | | |
The total amount of unrecognized tax benefits, if recognized, would favorably impact the effective tax rate. Included in the above total is approximately $7,536$8,977 of interest and penalties, of which approximately $(1,372)$656 are reflected in the current year statement of operations. The Company includes interest and penalties associated with unrecognized tax benefits as a component of the Income tax provision on the Consolidated Statements of Income. The Company expects changes in the aggregate amount of unrecognized tax benefits that may occur within the next twelve months to be similar to the changes that occurred in the prior twelve months.
The Company conducts business and files tax returns in numerous countries and currently has tax audits in progress in a number of tax jurisdictions. The IRS has completed its audit for the tax years through 2005. For the Company’s other major tax jurisdictions where it conducts business, the Company’s tax years are generally open after 2004.2005.
80
Becton, Dickinson and Company
Notes to Consolidated Financial Statements — (Continued)
Deferred income taxes at September 30 consisted of:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 2010 | | 2009 | | | 2011 | | 2010 | |
| | | Assets | | Liabilities | | Assets | | Liabilities | | | Assets | | Liabilities | | Assets | | Liabilities | |
| |
| Compensation and benefits | | $ | 484,767 | | | $ | — | | | $ | 416,849 | | | $ | — | | | $ | 590,311 | | | $ | — | | | $ | 484,767 | | | $ | — | |
| Property and equipment | | | — | | | | 318,640 | | | | — | | | | 227,347 | | | | — | | | | 433,163 | | | | — | | | | 318,640 | |
| Loss and credit carryforwards | | | 116,478 | | | | — | | | | 153,036 | | | | — | | | | 85,731 | | | | — | | | | 116,478 | | | | — | |
| Other | | | 293,246 | | | | 173,372 | | | | 241,080 | | | | 185,047 | | | | 360,893 | | | | 218,571 | | | | 293,246 | | | | 173,372 | |
| | | | | | | | | | | | | | | | | | | |
| | | | 894,491 | | | | 492,012 | | | | 810,965 | | | | 412,394 | | | | 1,036,935 | | | | 651,734 | | | | 894,491 | | | | 492,012 | |
| Valuation allowance | | | (56,425 | ) | | | — | | | | ( 94,634 | ) | | | — | | | | (52,347 | ) | | | — | | | | (56,425 | ) | | | — | |
| | | | | | | | | | | | | | | | | | | |
| | | $ | 838,066 | | | $ | 492,012 | | | $ | 716,331 | | | $ | 412,394 | | | $ | 984,588 | | | $ | 651,734 | | | $ | 838,066 | | | $ | 492,012 | |
| | | | | | | | | | | | | | | | | | | |
Valuation allowances have been established for capital loss carryforwards, state deferred tax assets, net of federal tax, related to net operating losses and credits and other deferred tax assets for which the Company has determined it is more likely than not that these benefits will not be realized. At September 30, 2010,2011, the
77
Becton, Dickinson and Company
Notes to Consolidated Financial Statements — (Continued)
Company had deferred state tax assets for net state operating losses and credit carryforwards of $46,882$40,653 for which a valuation allowance of $27,999$26,800 has been established due to the uncertainty of generating sufficient taxable income in the state jurisdictions to utilize the deferred tax assets before they principally expire between 20112012 and 2014.
A reconciliation of the federal statutory tax rate to the Company’s effective tax rate was as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 2010 | | 2009 | | 2008 | | | 2011 | | 2010 | | 2009 | |
| |
| Federal statutory tax rate | | | 35.0 | % | | | 35.0 | % | | | 35.0 | % | | | 35.0 | % | | | 35.0 | % | | | 35.0 | % |
| State and local income taxes, net of federal tax benefit | | | 0.9 | | | | 0.6 | | | | 1.5 | | | | 1.1 | | | | 0.9 | | | | 0.6 | |
| Effect of foreign and Puerto Rico earnings and foreign tax credits | | | (5.3 | ) | | | (7.4 | ) | | | (8.4 | ) | | | (7.2 | ) | | | (5.3 | ) | | | (7.4 | ) |
| Effect of Research Credits and Domestic Production Activities, | | | (1.6 | ) | | | (2.7 | ) | | | (0.9 | ) | | | (2.6 | ) | | | (1.6 | ) | | | (2.7 | ) |
| Other, net | | | 0.2 | | | | 0.6 | | | | 0.5 | | | | — | | | | 0.2 | | | | 0.6 | |
| | | | | | | | | | | | | | | |
| | | | 29.2 | % | | | 26.1 | % | | | 27.7 | % | | | 26.3 | % | | | 29.2 | % | | | 26.1 | % |
| | | | | | | | | |
The approximate dollar and diluted earnings per share amounts of tax reductions related to tax holidays in various countries in which the Company does business were: 2010 —were $60,275, $51,300 and $0.21;$44,800, in 2011, 2010 and 2009, — $44,800 and $0.18; and 2008 — $42,000 and $0.17.respectively. The tax holidays expire at various dates through 2023.
The Company made income tax payments, net of refunds, of $512,092 in 2011, $391,965 in 2010 and $368,724 in 2009 and $330,709 in 2008.2009.
Note 16 — Supplemental Financial Information
| |
| Note 16 — | Supplemental Financial Information |
Other Income (Expense), Net
Other income (expense),net in 2011 was $(6,209), which primarily included gains recognized on the sale of assets of $2,857, equity investment net income of $3,017 and income from license and other agreements of $4,479, partially offset by foreign exchange losses (inclusive of hedging costs) of $(13,144) and the write-down of investments of $(3,304).
Other income (expense),net in 2010 was $497, which primarily included the gain recognized on the sale of the extended dwell catheter product platform of $18,039, equity investment income of $4,848 and income from license and other agreements of $6,063, partially offset by foreign exchange losses (inclusive of hedging costs) of $(14,756) and the write-down of investments of $(14,024).
81
Becton, Dickinson and Company
Notes to Consolidated Financial Statements — (Continued)
Other income (expense),net in 2009 was $(3,850), which primarily included foreign exchange losses (inclusive of hedging costs) of $(14,973), partially offset by equity investment income of $4,542 and income from license and other agreements of $6,387.
Other income (expense),net in 2008 was $(1,484), which primarily included foreign exchange losses (inclusive of hedging costs) of $(10,303), partially offset by equity investment income of $4,642 and income from license and other agreements of $3,386.
78
Becton, Dickinson and Company
Notes to Consolidated Financial Statements — (Continued)
Trade Receivables, Net
Allowances for doubtful accounts and cash discounts netted against trade receivables were $46,318$43,283 and $48,509$46,318 at September 30, 20102011 and 2009,2010, respectively. The amounts recognized in 2011, 2010 2009 and 20082009 relating to these valuation accounts are provided in the following table:
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Allowance for
| | | | | | | Allowance for
| | | | | |
| | | Doubtful
| | Allowance for
| | | | | Doubtful
| | Allowance for
| | | |
| | | Accounts | | Cash Discounts | | Total | | | Accounts | | Cash Discounts | | Total | |
| | |
| Balance at September 30, 2007 | | $ | 29,238 | | | $ | 10,412 | | | $ | 39,650 | | |
| Additions charged to costs and expenses | | | 5,405 | | | | 50,055 | | | | 55,460 | | |
| Deductions and other | | | (7,934 | )(A) | | | (51,562 | ) | | | (59,496 | ) | |
| | | | | | | | |
| Balance at September 30, 2008 | | | 26,709 | | | | 8,905 | | | | 35,614 | | | | 26,709 | | | | 8,905 | | | | 35,614 | |
| Additions charged to costs and expenses | | | 18,321 | | | | 48,025 | | | | 66,346 | | | | 18,321 | | | | 48,025 | | | | 66,346 | |
| Deductions and other | | | (4,745 | )(A) | | | (48,706 | ) | | | (53,451 | ) | | | (4,745 | )(A) | | | (48,706 | ) | | | (53,451 | ) |
| | | | | | | | | | | | | | | |
| Balance at September 30, 2009 | | | 40,285 | | | | 8,224 | | | | 48,509 | | | | 40,285 | | | | 8,224 | | | | 48,509 | |
| Additions charged to costs and expenses | | | 6,487 | | | | 31,944 | | | | 38,431 | | | | 6,487 | | | | 31,944 | | | | 38,431 | |
| Deductions and other | | | (6,373 | )(A) | | | (34,249 | ) | | | (40,622 | ) | | | (6,373 | )(A) | | | (34,249 | ) | | | (40,622 | ) |
| | | | | | | | | | | | | | | |
| Balance at September 30, 2010 | | $ | 40,399 | | | $ | 5,919 | | | $ | 46,318 | | | $ | 40,399 | | | $ | 5,919 | | | $ | 46,318 | |
| Additions charged to costs and expenses | | | | 12,510 | | | | 26,147 | | | | 38,657 | |
| Deductions and other | | | | (17,360 | )(A) | | | (24,332 | ) | | | (41,692 | ) |
| | | | | | | | | | | | | | | |
| Balance at September 30, 2011 | | | $ | 35,549 | | | $ | 7,734 | | | $ | 43,283 | |
| | | | | | | | | |
Inventories
Inventories at September 30 consisted of:
| | | | | | | | | | | | | | | | | |
| | | 2010 | | 2009 | | | 2011 | | 2010 | |
| |
| Materials | | $ | 169,268 | | | $ | 171,449 | | | $ | 176,955 | | | $ | 169,268 | |
| Work in process | | | 225,878 | | | | 223,094 | | | | 233,538 | | | | 225,878 | |
| Finished products | | | 750,191 | | | | 762,219 | | | | 834,479 | | | | 750,191 | |
| | | | | | | | | | | |
| | | $ | 1,145,337 | | | $ | 1,156,762 | | | $ | 1,244,972 | | | $ | 1,145,337 | |
| | | | | | | | | | | |
Property, Plant and Equipment, Net
Property, Plant and Equipment, Net at September 30 consisted of:
| | | | | | | | | | | | | | | | | |
| | | 2010 | | 2009 | | | 2011 | | 2010 | |
| |
| Land | | $ | 100,988 | | | $ | 95,818 | | | $ | 98,418 | | | $ | 100,988 | |
| Buildings | | | 2,095,254 | | | | 1,984,852 | | | | 2,153,362 | | | | 2,095,254 | |
| Machinery, equipment and fixtures | | | 4,259,140 | | | | 4,078,768 | | | | 4,549,805 | | | | 4,259,140 | |
| Leasehold improvements | | | 76,680 | | | | 81,891 | | | | 78,624 | | | | 76,680 | |
| | | | | | | | | | | |
| | | | 6,532,062 | | | | 6,241,329 | | | | 6,880,209 | | | | 6,532,062 | |
| Less accumulated depreciation and amortization | | | 3,431,570 | | | | 3,274,700 | | | | 3,669,012 | | | | 3,431,570 | |
| | | | | | | | | | | |
| | | $ | 3,100,492 | | | $ | 2,966,629 | | | $ | 3,211,197 | | | $ | 3,100,492 | |
| | | | | | | | | | | |
7982
Becton, Dickinson and Company
SUPPLEMENTARY DATA (UNAUDITED)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 2010 | | 2011 |
| | | 1st | | 2nd | | 3rd | | 4th | | Year | | 1st | | 2nd | | 3rd | | 4th | | Year |
| | | Thousands of dollars, except per share amounts | | Thousands of dollars, except per share amounts |
| |
| Revenues | | $ | 1,868,818 | | | $ | 1,799,409 | | | $ | 1,830,911 | | | $ | 1,873,195 | | | $ | 7,372,333 | | | $ | 1,842,005 | | | $ | 1,922,023 | | | $ | 2,014,081 | | | $ | 2,050,795 | | | $ | 7,828,904 | |
| Gross Profit | | | 974,494 | | | | 934,917 | | | | 947,477 | | | | 972,262 | | | | 3,829,150 | | | | 976,574 | | | | 1,001,434 | | | | 1,062,101 | | | | 1,051,443 | | | | 4,091,552 | |
| Income from Continuing Operations | | | 304,093 | | | | 285,034 | | | | 294,160 | | | | 293,053 | | | | 1,176,340 | | | | 314,276 | | | | 311,062 | | | | 338,110 | | | | 301,404 | | | | 1,264,852 | |
| Earnings per Share(A): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Income from Continuing Operations | | | 1.28 | | | | 1.21 | | | | 1.26 | | | | 1.27 | | | | 5.02 | | | | 1.38 | | | | 1.41 | | | | 1.54 | | | | 1.39 | | | | 5.72 | |
| Income from Discontinued Operations | | | 0.05 | | | | 0.05 | | | | 0.05 | | | | 0.45 | | | | 0.60 | | |
| Income (Loss) from Discontinued Operations | | | | 0.01 | | | | — | | | | 0.02 | | | | (0.01 | ) | | | 0.03 | |
| Basic Earnings per Share | | | 1.33 | | | | 1.26 | | | | 1.32 | | | | 1.71 | | | | 5.62 | | | | 1.39 | | | | 1.41 | | | | 1.57 | | | | 1.38 | | | | 5.75 | |
| Income from Continuing Operations | | | 1.25 | | | | 1.18 | | | | 1.23 | | | | 1.24 | | | | 4.90 | | | | 1.35 | | | | 1.38 | | | | 1.51 | | | | 1.36 | | | | 5.59 | |
| Income from Discontinued Operations | | | 0.05 | | | | 0.05 | | | | 0.05 | | | | 0.44 | | | | 0.59 | | |
| Income (Loss) from Discontinued Operations | | | | 0.01 | | | | — | | | | 0.02 | | | | (0.01 | ) | | | 0.03 | |
| Diluted Earnings per Share | | | 1.30 | | | | 1.24 | | | | 1.29 | | | | 1.68 | | | | 5.49 | | | | 1.36 | | | | 1.38 | | | | 1.53 | | | | 1.36 | | | | 5.62 | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | 2010 |
| | | 2009 | | 1st | | 2nd | | 3rd | | 4th | | Year |
| | | 1st | | 2nd | | 3rd | | 4th | | Year | | Thousands of dollars, except per share amounts |
| |
| Revenues | | $ | 1,673,148 | | | $ | 1,683,142 | | | $ | 1,776,409 | | | $ | 1,854,023 | | | $ | 6,986,722 | | | $ | 1,868,818 | | | $ | 1,799,409 | | | $ | 1,830,911 | | | $ | 1,873,195 | | | $ | 7,372,333 | |
| Gross Profit | | | 897,606 | | | | 875,760 | | | | 937,854 | | | | 963,826 | | | | 3,675,046 | | | | 974,494 | | | | 934,917 | | | | 947,477 | | | | 972,262 | | | | 3,829,150 | |
| Income from Continuing Operations | | | 296,607 | | | | 248,866 | | | | 327,445 | | | | 294,427 | | | | 1,167,345 | | | | 304,093 | | | | 285,034 | | | | 294,160 | | | | 293,053 | | | | 1,176,340 | |
| Earnings per Share(A): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Income from Continuing Operations | | | 1.22 | | | | 1.04 | | | | 1.36 | | | | 1.23 | | | | 4.85 | | | | 1.28 | | | | 1.21 | | | | 1.26 | | | | 1.27 | | | | 5.02 | |
| Income from Discontinued Operations | | | 0.06 | | | | 0.05 | | | | 0.06 | | | | 0.10 | | | | 0.27 | | | | 0.05 | | | | 0.05 | | | | 0.05 | | | | 0.45 | | | | 0.60 | |
| Basic Earnings per Share | | | 1.29 | | | | 1.09 | | | | 1.42 | | | | 1.33 | | | | 5.12 | | | | 1.33 | | | | 1.26 | | | | 1.32 | | | | 1.71 | | | | 5.62 | |
| Income from Continuing Operations | | | 1.19 | | | | 1.01 | | | | 1.33 | | | | 1.20 | | | | 4.73 | | | | 1.25 | | | | 1.18 | | | | 1.23 | | | | 1.24 | | | | 4.90 | |
| Income from Discontinued Operations | | | 0.06 | | | | 0.05 | | | | 0.06 | | | | 0.09 | | | | 0.26 | | | | 0.05 | | | | 0.05 | | | | 0.05 | | | | 0.44 | | | | 0.59 | |
| Diluted Earnings per Share | | | 1.26 | | | | 1.06 | | | | 1.39 | | | | 1.29 | | | | 4.99 | | | | 1.30 | | | | 1.24 | | | | 1.29 | | | | 1.68 | | | | 5.49 | |
| | |
| (A) | | Total per share amounts may not add due to rounding. |
8083
| |
| Item 9. | Changes in and Disagreements With Accountants on Accounting and Financial Disclosure. |
None.
| |
| Item 9A. | Controls and Procedures. |
An evaluation was conducted by BD’s management, with the participation of BD’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of BD’s disclosure controls and procedures (as defined inRule 13a-15(e) under the Securities Exchange Act of 1934) as of September 30, 2010.2011. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the design and operation of these disclosure controls and procedures were, as of the end of the period covered by this report, effective and designed to ensure that material information relating to BD and its consolidated subsidiaries would be made known to them by others within these entities. There were no changes in BD’s internal control over financial reporting during the fiscal quarter ended September 30, 20102011 identified in connection with the above-referenced evaluations that has materially affected, or is reasonably likely to materially affect, the internal control over financial reporting.
Management’s Report on Internal Control Over Financial Reporting and the Report of Independent Registered Public Accounting Firm are contained in Item 8, Financial Statements and Supplementary Data, and are incorporated herein by reference.
| |
| Item 9B. | Other Information. |
Not applicable.
PART III
| |
| Item 10. | Directors, Executive Officers and Corporate Governance. |
The information relating to directors and the Audit Committee of the BD Board of Directors required by this item will be contained under the captions “Proposal 1. Election of Directors” and “Board of Directors — Committee Membership and Function — Audit Committee” in a definitive proxy statement involving the election of directors, which the registrant will file with the SEC not later than 120 days after September 30, 20102011 (the “2011“2012 Proxy Statement”), and such information is incorporated herein by reference.
The information relating to executive officers required by this item is included herein in Part I under the caption “Executive Officers of the Registrant.”
Certain other information required by this item will be contained under the captions “Ownership of BD Common Stock — Section 16(a) Beneficial Ownership Reporting Compliance” and “Corporate Governance — Business Conduct and Compliance Guide”Code of Conduct” in BD’s 20112012 Proxy Statement, and such information is incorporated herein by reference.
| |
| Item 11. | Executive Compensation. |
The information required by this item will be contained under the captions “Board of Directors —Non-Management Directors’ Compensation,” “Compensation Discussion and Analysis,” “Report of the Compensation and Benefits Committee,” and “Compensation of Named Executive Officers” in BD’s 20112012 Proxy Statement, and such information is incorporated herein by reference.
| |
| Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. |
The information required by this item will be contained under the caption “Ownership of BD Common Stock” in BD’s 20112012 Proxy Statement, and such information is incorporated herein by reference.
8184
| |
| Item 13. | Certain Relationships and Related Transactions, and Director Independence. |
The information required by this item will be contained under the caption “Corporate Governance — Director Independence; Policy Regarding Related Person Transactions” in BD’s 20112012 Proxy Statement, and such information is incorporated herein by reference.
| |
| Item 14. | Principal Accounting Fees and Services. |
The information required by this item will be contained under the caption “Proposal 2. Ratification of Selection of Independent Registered Public Accounting Firm” in BD’s 20112012 Proxy Statement, and such information is incorporated herein by reference.
PART IV
| |
| Item 15. | Exhibits, Financial Statement Schedules. |
The following consolidated financial statements of BD are included in Item 8 of this report:
| | |
| | • | Reports of Independent Registered Public Accounting Firm |
| |
| | • | Consolidated Statements of Income — Years ended September 30, 2011, 2010 2009 and 20082009 |
| |
| | • | Consolidated Statements of Comprehensive Income — Years ended September 30, 2011, 2010 2009 and 20082009 |
| |
| | • | Consolidated Balance Sheets — September 30, 20102011 and 20092010 |
| |
| | • | Consolidated Statements of Cash Flows — Years ended September 30, 2011, 2010 2009 and 20082009 |
| |
| | • | Notes to Consolidated Financial Statements |
| |
| (b) | Financial Statement Schedules |
See Note 16 to the Consolidated Financial Statements included in Item 8, Financial Statements and Supplementary Data.
See the Exhibit Index beginning on page 8588 hereof for a list of all management contracts, compensatory plans and arrangements required by this item (Exhibit Nos. 10(a)(i) through 10(o)), and all other Exhibits filed or incorporated by reference as a part of this report.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Becton, Dickinson and Company
| | |
| | By: | /s/ Dean J. ParanicasGary DeFazio |
Dean J. ParanicasGary DeFazio
Vice President and Corporate Secretary
and Public Policy
Dated: November 24, 201023, 2011
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on the 2423thrd day of November, 20102011 by the following persons on behalf of the registrant and in the capacities indicated.
| | | | | | | |
Name | | Capacity | | |
| |
| | | | | |
/s/ Edward J. LudwigVincent A. Forlenza
(Edward J. Ludwig)Vincent A. Forlenza) | | Chairman and Chief Executive Officer and President
(Principal Executive Officer) | | |
| | | | | |
/s/ David V. Elkins
(David V. Elkins) | | Executive Vice President and
Chief Financial Officer
(Principal Financial Officer) | | |
| | | | | |
/s/ William A. Tozzi
(William A. Tozzi) | | Senior Vice President and Controller
(Principal Accounting Officer) | | |
| | | | | |
Basil L. Anderson* | | Director | | |
| | | | | |
Henry P. Becton, Jr.* | | Director | | |
| | | | | |
Edward F. DeGraan* | | Director | | |
| | | | | |
Claire M. Fraser-Liggett* | | Director | | |
| | | | | |
Christopher Jones* | | Director | | |
| | | | | |
Marshall O. Larsen* | | Director | | |
| | | | | |
Adel A.F. Mahmoud*Edward J. Ludwig* | | Director | | |
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| | | | | | | |
Name | | Capacity | | |
|
| | | | |
Adel A.F. Mahmoud* | | Director | | |
| | | | |
Gary A. Mecklenburg* | | Director | | |
| | | | | |
Cathy E. Minehan* | | Director | | |
| | | | |
James F. Orr* | | Director | | |
| | | | | |
Willard J. Overlock, Jr.* | | Director | | |
| | | | | |
Bertram L. Scott* | | Director | | |
| | | | | |
Alfred Sommer* | | Director | | |
| | |
| | | | | | | |
| *By: | | /s/ Dean J. ParanicasGary DeFazio
Dean J. Paranicas
Attorney-in-fact | | | | |
Gary DeFazio
Attorney-in-fact
8487
EXHIBIT INDEX
| | | | | | | |
Exhibit
| | | | |
Number | | Description | | Method of Filing |
|
| | | | | | |
| | 3 | (a)(i) | | Restated Certificate of Incorporation, dated as of February 3, 2009 | | Incorporated by reference to Exhibit 3(a) to the registrant’s Quarterly Report on Form 10-Q for the period ended December 31, 2008 |
| | | | | | | |
| | | | | | |
| 3 | (b) | | By-Laws, as amended and restated as of February 10, 2010July 26, 2011 | | Incorporated by reference to Exhibit 10(o)3.1 to the registrant’s QuarterlyCurrent Report on Form 10-Q for the period ended December 31, 20098-K dated July 26, 2011 |
| | 4 | (d) | | Indenture, dated as of March 1, 1997, between the registrant and The Bank of New York Mellon Trust Company, N.A. (as successor to JPMorgan Chase Bank) | | Incorporated by reference to Exhibit 4(a) to Form 8-K filed by the registrant on July 31, 1997 |
| | | | | | | |
| | | | | | |
| | | | The registrant hereby agrees to furnish to the Commission upon request a copy of any other instruments which define the rights of holders of long-term debt of the registrant. | | |
| | | | | | |
| | | | | | |
| | 10 | (a) | | Form of Employment Agreement with executive officers relating to employment following a change of control of the registrant | | Incorporated by reference to Exhibit 10(a) to the registrant’s Quarterly Report on Form 10-Q for the period ended December 31, 2008 |
| | | | | | | |
| | | | | | |
| 10 | (b) | | Stock Award Plan, as amended and restated as of January 31, 2006 | | Incorporated by reference to Exhibit 10(a) to the registrant’s Quarterly Report on Form 10-Q for the period ended December 31, 2005 |
| | | | | | | |
| | | | | | |
| 10 | (c) | | Performance Incentive Plan, as amended and restated September 23, 2008 | | Incorporated by reference to Exhibit 10(c) to the registrant’s Current Report on Form 8-K dated September 26, 2008 |
| | | | | | |
| | | | | | |
| | 10 | (d)(i) | | Deferred Compensation and Retirement Benefit Restoration Plan, as amended and restated as of October 1, 2009 | | Incorporated by reference to Exhibit 10(d)(i) to the registrant’s Annual Report on Form 10-K for the fiscal year ended September 30, 2009 |
| | | | | | | |
| | | | | | |
| 10 | (d)(ii) | | 1996 Directors’ Deferral Plan, as amended and restated as of October 1, 2009 | | Incorporated by reference to Exhibit 10(d)(ii) to the registrant’s Annual Report on Form 10-K for the fiscal year ended September 30, 2009 |
| | | | | | | |
| | | | | | |
| 10 | (e)(i) | | 1994 Restricted Stock Plan for Non Employee Directors | | Incorporated by reference to Exhibit A to the registrant’s Proxy Statement dated January 5, 1994 |
| | | | | | |
| | | | | | |
| | 10 | (e)(ii) | | Amendment to the 1994 Restricted Stock Plan for Non-Employee Directors as of November 26, 1996 | | Incorporated by reference to Exhibit 10(j)(ii) to the registrant’s Annual Report on Form 10-K for the fiscal year ended September 30, 1996 |
| | | | | | | |
| | | | | | |
| 10 | (f)(i) | | 1995 Stock Option Plan, as amended and restated January 27, 1998 | | Incorporated by reference to Exhibit 10(k) to the registrant’s Annual Report on Form 10-K for the fiscal year ended September 30, 1998 |
| | | | | | |
| | | | | | |
| | 10 | (f)(ii) | | Amendments dated as of April 24, 2000 to the 1995 Stock Option Plan, as amended and restated January 27, 1998 | | Incorporated by reference to Exhibit 10(k) to the registrant’s Quarterly Report on Form 10-Q for the period ended June 30, 2000 |
| | | | | | | |
| | | | | | |
| 10 | (g)(i) | | 1998 Stock Option Plan | | Incorporated by reference to Exhibit 10.1 to the registrant’s Quarterly Report onForm 10-Q/A for the period ended March 31, 1998 |
| | | | | | |
| | | | | | |
| | 10 | (g)(ii) | | Amendments dated as of April 24, 2000 to the 1998 Stock Option Plan | | Incorporated by reference to Exhibit 10(l) to the registrant’s Quarterly Report on Form 10-Q for the period ended June 30, 2000 |
| | | | | | | |
| | | | | | |
| 10 | (h) | | Australian, French and Spanish addenda to the Becton, Dickinson and Company Stock Option Plans | | Incorporated by reference to Exhibit 10(m) to the registrant’s Annual Report on Form 10-K for the fiscal year ended September 30, 1998 |
| | | | | | |
8588
| | | | | | | |
Exhibit
| | | | |
Number | | Description | | Method of Filing |
| |
| | 10 | (i) | | Indian addendum to the Becton, Dickinson and Company Stock Option Plans | | Incorporated by reference to Exhibit 10(n) to registrant’s Annual Report on Form 10-K for the fiscal year ended September 30, 1999 |
| | | | | | | |
| | | | | | |
| 10 | (j) | | China and Japan addenda to Becton, Dickinson and Company Stock Option Plans | | Incorporated by reference to Exhibit 10(n)(i) to registrant’s Annual Report on Form 10-K for the fiscal year ended September 30, 2002 |
| | | | | | | |
| | | | | | |
| 10 | (k)(i) | | Non-Employee Directors 2000 Stock Option Plan | | Incorporated by reference to Exhibit 10(o) to the registrant’s Quarterly Report on Form 10-Q for the period ended March 31, 2000 |
| | | | | | |
| | | | | | |
| | 10 | (k)(ii) | | Amendments dated as of April 24, 2000 to the Non-Employee Directors 2000 Stock Option Plan | | Incorporated by reference to Exhibit 10(o) to the registrant’s Quarterly Report on Form 10-Q for the period ended June 30, 2000 |
| | | | | | |
| | | | | | |
| | 10 | (l) | | 2002 Stock Option Plan | | Incorporated by reference to Appendix A to the registrant’s Proxy Statement dated January 3, 2002 |
| | | | | | |
| | | | | | |
| | 10 | (m) | | 2004 Employee and Director Equity-Based Compensation Plan, as amended and restated as of July 27, 2010 | | Incorporated by reference to Exhibit 10 to the registrant’s Quarterly Report on Form 10-Q for the period ended June 30, 2010 |
| | | | | | | |
| | | | | | |
| 10 | (n) | | Terms of Awards under 2004 Employee and Director Equity-Based Compensation Plan | | Incorporated by reference to Exhibit 10(p) to the registrant’s Annual Report on Form 10-K for the fiscal year ended September 30, 2008 |
| | | | | | |
| | | | | | |
| | 10 | (o) | | Amended and Restated Aircraft Time Sharing Agreement between Becton, Dickinson and Company and Edward J. Ludwig dated as of September 21, 2006 | | Incorporated by reference to Exhibit 10(r) to the registrant’s Annual Report on Form 10-K for the fiscal year ended September 30, 2006 |
| | | | | | | |
| | | | | | |
| 10 | (p)(i) | | Amended and Restated Five-Year Credit Agreement, dated as of December 1, 2006 among the registrant and the banks named therein | | Filed with this report |
| | | | | | |
| | | | | | Incorporated by reference to Exhibit 10(p)(i) to the registrant’s Annual Report on Form 10-K for the fiscal year ended September 30, 2010 |
| | 10 | (p)(ii) | | Extension of term of Amended and Restated Five-Year Credit Agreement | | Filed with this report |
| | | | | | |
| | | | | | Incorporated by reference to Exhibit 10(p)(ii) to the registrant’s Annual Report on Form 10-K for the fiscal year ended September 30, 2010 |
| | 21 | | | Subsidiaries of the registrant | | Filed with this report |
| | | | | | |
| | | | | | |
| | 23 | | | Consent of independent registered public accounting firm | | Filed with this report |
| | | | | | | |
| | | | | | |
| 24 | | | Power of Attorney | | Filed with this report |
| | | | | | |
| | | | | | |
| | 31 | | | Certifications of Chief Executive Officer and Chief Financial Officer, pursuant to SECRule 13(a)-14(a) | | Filed with this report |
| | | | | | |
| | | | | | |
| | 32 | | | Certifications of Chief Executive Officer and Chief Financial Officer, pursuant to Section 1350 of Chapter 63 of Title 18 of the U.S. Code | | Filed with this report |
| | | | | | | |
| | | | | | |
| 101 | | | The following materials from this report, formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Balance Sheets,Statements of Income, (ii) the Consolidated Statements of Comprehensive Income, (iii) the Consolidated Balance Sheets, (iv) the Consolidated Statements of Cash Flows, and (iv)(v) Notes to Consolidated Financial Statements, are tagged as blocks of text.Statements. | | |
Copies of any Exhibits not accompanying thisForm 10-K are available at a charge of 10 cents per page by contacting: Investor Relations, Becton, Dickinson and Company, 1 Becton Drive, Franklin Lakes,New Jersey07417-1880, Phone:1-800-284-6845.
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