Back to GetFilings.com
FORM 10-Q
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 2004
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________________________ to ______________
Commission file number 001-4802
Becton, Dickinson and Company
------------------------------------------------------
(Exact name of registrant as specified in its charter)
New Jersey 22-0760120
- ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1 Becton Drive, Franklin Lakes, New Jersey 07417-1880
-----------------------------------------------------
(Address of principal executive offices)
(Zip Code)
(201) 847-6800
----------------------------------------------------
(Registrant's telephone number, including area code)
N/A
----------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
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 [X] No [ ]
Indicate by checkmark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class of Common Stock Shares Outstanding as of July 31, 2004
----------------------------- --------------------------------------
Common stock, par value $1.00 250,548,119
BECTON, DICKINSON AND COMPANY
FORM 10-Q
For the quarterly period ended June 30, 2004
TABLE OF CONTENTS
Page Number
-----------
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets......................... 3
Condensed Consolidated Statements of Income................... 4
Condensed Consolidated Statements of Cash Flows............... 5
Notes to Condensed Consolidated Financial Statements.......... 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations..................................... 15
Item 3. Quantitative and Qualitative Disclosures About Market Risk....... 30
Item 4. Controls and Procedures.......................................... 30
Part II. OTHER INFORMATION
Item 1. Legal Proceedings................................................ 30
Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of
Equity Securities............................................. 32
Item 3. Defaults Upon Senior Securities.................................. 33
Item 4. Submission of Matters to a Vote of Security Holders.............. 33
Item 5. Other Information................................................ 33
Item 6. Exhibits and Reports on Form 8-K................................. 34
Signatures.................................................................. 35
Exhibits.................................................................... 36
2
ITEM 1. FINANCIAL STATEMENTS
BECTON, DICKINSON AND COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
Thousands of Dollars
June 30, September 30,
2004 2003
----------- -------------
(Unaudited)
Assets
Current Assets:
Cash and equivalents $ 659,511 $ 519,886
Trade receivables, net 806,674 781,342
Inventories:
Materials 124,961 129,958
Work in process 137,779 145,500
Finished products 505,276 519,556
----------- -----------
768,016 795,014
Prepaid expenses, deferred taxes and other 276,265 242,327
----------- -----------
Total Current Assets 2,510,466 2,338,569
Property, plant and equipment 4,053,230 3,905,155
Less allowances for depreciation and amortization 2,207,504 2,060,384
----------- -----------
1,845,726 1,844,771
Goodwill, Net 543,442 536,788
Core and Developed Technology, Net 228,751 242,683
Other Intangibles, Net 104,179 111,713
Capitalized Software, Net 292,837 305,608
Other 193,093 192,121
----------- -----------
Total Assets $ 5,718,494 $ 5,572,253
=========== ===========
Liabilities and Shareholders' Equity
Current Liabilities:
Short-term debt $ 6,063 $ 121,920
Payables and accrued expenses 1,000,045 921,454
----------- -----------
Total Current Liabilities 1,006,108 1,043,374
Long-Term Debt 1,149,173 1,184,031
Long-Term Employee Benefit Obligations 358,223 328,807
Deferred Income Taxes and Other 126,662 119,087
Commitments and Contingencies
Shareholders' Equity:
Preferred stock 31,736 34,448
Common stock 332,662 332,662
Capital in excess of par value 402,423 257,178
Retained earnings 4,235,345 3,950,592
Unearned ESOP compensation (3,708) (3,693)
Deferred compensation 9,955 8,974
Common shares in treasury - at cost (1,721,362) (1,439,934)
Accumulated other comprehensive loss (208,723) (243,273)
----------- -----------
Total Shareholders' Equity 3,078,328 2,896,954
----------- -----------
Total Liabilities and Shareholders' Equity $ 5,718,494 $ 5,572,253
=========== ===========
See notes to condensed consolidated financial statements
3
BECTON, DICKINSON AND COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Thousands of Dollars, Except Per-share Data
(Unaudited)
Three Months Ended Nine Months Ended
June 30, June 30,
----------------------- -----------------------
2004 2003 2004 2003
---------- ---------- ---------- ----------
Revenues $1,257,755 $1,165,369 $3,727,809 3,351,058
Cost of products sold 624,212 622,387 1,903,145 1,750,854
Selling and administrative 338,052 308,475 1,006,300 891,454
Research and development 60,800 60,042 184,007 179,921
Litigation settlement 100,000 -- 100,000 --
---------- ---------- ---------- ----------
Total Operating Costs and Expenses 1,123,064 990,904 3,193,452 2,822,229
---------- ---------- ---------- ----------
Operating Income 134,691 174,465 534,357 528,829
Interest expense, net (4,128) (9,658) (21,018) (26,944)
Other expense, net (701) (2,036) (3,865) (3,799)
---------- ---------- ---------- ----------
Income Before Income Taxes 129,862 162,771 509,474 498,086
Income tax provision 20,466 32,753 109,516 112,390
---------- ---------- ---------- ----------
Net Income $ 109,396 $ 130,018 $ 399,958 $ 385,696
========== ========== ========== ==========
Earnings Per Share:
Basic $ .43 $ .51 $ 1.58 1.51
========== ========== ========== ==========
Diluted $ .41 $ .49 $ 1.51 1.46
========== ========== ========== ==========
Dividends Per Common Share $ .15 $ .10 $ .45 $ .30
========== ========== ========== ==========
See notes to condensed consolidated financial statements
4
BECTON, DICKINSON AND COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Thousands of Dollars
(Unaudited)
Nine Months Ended
June 30,
---------------------
2004 2003
--------- ---------
Operating Activities
Net income $ 399,958 $ 385,696
Adjustments to net income to derive net cash
provided by operating activities:
Depreciation and amortization 273,724 259,632
Pension contribution (18,000) (100,000)
Impairment of intangible assets -- 30,089
BGM charges (Note 9) 38,551 --
Change in working capital 73,053 (90,857)
Other, net 54,351 24,406
--------- ---------
Net Cash Provided by Operating Activities 821,637 508,966
--------- ---------
Investing Activities
Capital expenditures (170,040) (168,181)
Capitalized software (33,280) (47,286)
(Purchases) sales of investments, net (8,179) 1,975
Other, net (47,552) (30,728)
--------- ---------
Net Cash Used for Investing Activities (259,051) (244,220)
--------- ---------
Financing Activities
Change in short-term debt (104,408) (270,145)
Proceeds of long-term debt -- 410,091
Payments of long-term debt (17,202) (1,230)
Repurchase of common stock (350,002) (205,636)
Issuance of common stock from treasury 163,697 81,481
Dividends paid (115,110) (78,839)
--------- ---------
Net Cash Used for Financing Activities (423,025) (64,278)
--------- ---------
Effect of exchange rate changes on cash and equivalents 64 11,634
--------- ---------
Net increase in cash and equivalents 139,625 212,102
Opening Cash and Equivalents 519,886 243,115
--------- ---------
Closing Cash and Equivalents $ 659,511 $ 455,217
========= =========
See notes to condensed consolidated financial statements
5
BECTON, DICKINSON AND COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Dollar and Share Amounts in Thousands, Except Per-share Data
June 30, 2004
Note 1 - Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with the instructions to Form 10-Q and, in the opinion of
the management of the Company, include all adjustments which are of a normal
recurring nature, necessary for a fair presentation of financial position and
the results of operations and cash flows for the periods presented. However, the
financial statements do not include all information and footnotes required for a
presentation in accordance with generally accepted accounting principles. These
condensed consolidated financial statements should be read in conjunction with
the consolidated financial statements and the notes thereto included or
incorporated by reference in the Company's 2003 Annual Report on Form 10-K. The
results of operations for the interim periods are not necessarily indicative of
the results of operations to be expected for the full year.
Stock-based Compensation
Under the provisions of Statement of Financial Accounting Standards ("SFAS") No.
123 "Accounting for Stock-Based Compensation", the Company accounts for
stock-based employee compensation using the intrinsic value method prescribed by
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees", and related interpretations. Under the intrinsic value method,
compensation cost of stock options is measured as the excess, if any, of the
quoted market price of the Company's stock at the date of the grant over the
exercise price. Accordingly, no stock-based compensation cost relating to stock
options has been reflected in the Company's net income for the three and nine
months ended June 30, 2004 and 2003, as all options granted under the Company's
stock option plans had an exercise price equal to the market value of the
underlying common stock on the date of grant. Stock-based compensation cost
recorded in the nine-month period ended June 30, 2004 related to
performance-based and other stock awards granted under the Company's Stock Award
Plan was not material.
The following table illustrates the effect on net income and earnings per share
if the Company were to have applied the fair value recognition provisions of
SFAS No. 123, as amended, to account for stock-based compensation for the
periods indicated. These pro-forma amounts may not be representative of the
effects on net income in future years since options generally vest over several
years and additional awards may be made each year.
6
Three Months Ended June 30, Nine Months Ended June 30,
--------------------------- --------------------------
2004 2003 2004 2003
-------- -------- -------- --------
Net income, as reported $109,396 $130,018 $399,958 $385,696
Less stock-based compensation expense,
net of tax (7,854) (8,863) (24,175) (26,501)
-------- -------- -------- --------
Pro forma net income $101,542 $121,155 $375,783 $359,195
======== ======== ======== ========
Reported earnings per share:
Basic $ .43 $ .51 $ 1.58 $ 1.51
Diluted $ .41 $ .49 $ 1.51 $ 1.46
======== ======== ======== ========
Pro forma earnings per share:
Basic $ .40 $ .47 $ 1.48 $ 1.40
Diluted $ .39 $ .46 $ 1.43 $ 1.37
======== ======== ======== ========
The Company estimated the fair value of stock options using the Black-Scholes
option-pricing model, modified for dividends and using certain assumptions for
stock price volatility, risk free interest rates, dividend yields and expected
terms until exercise. The value determined by the Black-Scholes option-pricing
model is based on assumptions at the time of grant and subsequent modifications
to such assumptions are not reflected in the value of prior grants. The
Black-Scholes model is a trading option-pricing model that does not reflect
either the non-traded nature of employee stock options or the limited
transferability of such options. This model also does not consider restrictions
on trading for all employees, including certain restrictions imposed on senior
management of the Company. Therefore, if the Company had used an option-pricing
model other than Black-Scholes, pro-forma results different from those shown
above may have been reported.
Note 2 - Comprehensive Income
Comprehensive income for the Company is comprised of the following:
Three Months Ended Nine Months Ended
June 30, June 30,
------------------- -------------------
2004 2003 2004 2003
-------- -------- -------- --------
Net Income $109,396 $130,018 $399,958 $385,696
Other Comprehensive Income, Net of Tax
Foreign currency translation adjustments (26,743) 119,524 29,141 201,099
Unrealized gains on investments,
net of amounts recognized 348 4,081 1,111 6,929
Unrealized gains (losses) on cash flow
hedges, net of amounts realized 9,096 (4,909) 4,298 (6,999)
-------- -------- -------- --------
Comprehensive Income $ 92,097 $248,714 $434,508 $586,725
======== ======== ======== ========
The amount of unrealized gains or losses on investments and cash flow hedges in
comprehensive
7
income has been adjusted to reflect any realized gains and recognized losses
included in net income during the three and nine months ended June 30, 2004 and
2003.
Note 3 - Earnings per Share
The following table sets forth the computations of basic and diluted earnings
per share:
Three Months Ended Nine Months Ended
June 30, June 30,
------------------- -------------------
2004 2003 2004 2003
-------- -------- -------- --------
Net Income $109,396 $130,018 $399,958 $385,696
Preferred stock dividends (520) (578) (1,605) (1,779)
-------- -------- -------- --------
Income available to common
shareholders (A) 108,876 129,440 398,353 383,917
Preferred stock dividends -
using "if converted" method 520 578 1,605 1,779
Additional ESOP contribution -
using "if converted" method (2) (116) (33) (375)
-------- -------- -------- --------
Income available to common
shareholders after assumed
conversions (B) $109,394 $129,902 $399,925 $385,321
======== ======== ======== ========
Average common shares
outstanding (C) 252,433 255,038 252,617 255,008
Dilutive stock equivalents from
stock plans 8,461 6,239 7,949 5,176
Shares issuable upon conversion
of preferred stock 3,442 3,811 3,442 3,811
-------- -------- -------- --------
Average common and common
equivalent shares outstanding
- assuming dilution (D) 264,336 265,088 264,008 263,995
======== ======== ======== ========
Basic earnings per share (A/C) $ .43 $ .51 $ 1.58 $ 1.51
======== ======== ======== ========
Diluted earnings per share (B/D) $ .41 $ .49 $ 1.51 $ 1.46
======== ======== ======== ========
During the three and nine months ended June 30, 2004, 1,076 and 6,946 common
shares, respectively were issued upon exercise of stock options. During the
three and nine months ended June 30, 2003, 2,732 and 4,750 common shares,
respectively were issued upon exercise of stock options.
8
Note 4 - Contingencies
The Company is involved, both as a plaintiff and a defendant, in various legal
proceedings and claims which arise in the ordinary course of business.
Given the uncertain nature of litigation generally, the Company is not able to
estimate the amount or range of loss that could result from an unfavorable
outcome of the litigation to which it is a party. In accordance with generally
accepted accounting principles, the Company establishes reserves to the extent
probable future losses are estimable. While the Company believes that the claims
against it, upon resolution, should not have a material adverse effect on the
Company, in view of the uncertainties discussed above, the Company could incur
charges in excess of any currently established reserves 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 the Company's consolidated results of
operations and consolidated net cash flows in the period or periods in which
they are recorded or paid. The Company continues to believe that it has valid
defenses to each of the suits pending against it and is engaged in a vigorous
defense of each of these matters. Further discussion of legal proceedings is
included in Note 11 in Notes to Condensed Consolidated Financial Statements,
below, and Part II of this Report on Form 10-Q.
Note 5 - Segment Data
The Company's organizational structure is based upon its three principal
business segments: BD Medical ("Medical"), BD Diagnostics ("Diagnostics"), and
BD Biosciences ("Biosciences"). The Company evaluates segment performance based
upon operating income. Segment operating income represents revenues reduced by
product costs and operating expenses. Financial information for the Company's
segments is as follows:
Three Months Ended Nine Months Ended
June 30, June 30,
----------------------- -----------------------
2004 2003 2004 2003
---------- ---------- ---------- ----------
Revenues
Medical $ 682,645 $ 648,428 $1,992,154 $1,821,884
Diagnostics 374,195 338,183 1,158,015 1,026,637
Biosciences 200,915 178,758 577,640 502,537
---------- ---------- ---------- ----------
Total Revenues (A) $1,257,755 $1,165,369 $3,727,809 $3,351,058
========== ========== ========== ==========
9
Three Months Ended Nine Months Ended
June 30, June 30,
----------------------- -----------------------
2004 2003 2004 2003
--------- -------- --------- --------
Segment Operating Income
Medical $ 155,075 $150,218 $ 398,281(B) $402,827
Diagnostics 86,009 72,385 271,135 223,412
Biosciences 41,819 (318)(C) 117,247 46,896(C)
--------- -------- --------- --------
Total Segment Operating
Income 282,903 222,285 786,663 673,135
Unallocated Items (D) (153,041)(E) (59,514) (277,189)(E) (175,049)
--------- -------- --------- --------
Income Before Income Taxes $ 129,862 $162,771 $ 509,474 $498,086
========= ======== ========= ========
Three Months Ended Nine Months Ended
June 30, June 30,
----------------------- -----------------------
2004 2003 2004 2003
---------- ---------- ---------- ----------
Revenues by Organizational
Units
BD Medical
Medical Surgical Systems $ 389,231 $ 370,374 $1,147,554 $1,057,291
Diabetes Care 147,992 137,114 431,086 390,491
Pharmaceutical Systems 131,211 127,348 371,786 334,399
Ophthalmic Systems 14,211 13,592 41,728 39,703
---------- ---------- ---------- ----------
$ 682,645 $ 648,428 $1,992,154 $1,821,884
---------- ---------- ---------- ----------
BD Diagnostics
Preanalytical Systems $ 201,945 $ 180,372 $ 582,868 $ 523,632
Diagnostic Systems 172,250 157,811 575,147 503,005
---------- ---------- ---------- ----------
$ 374,195 $ 338,183 $1,158,015 $1,026,637
---------- ---------- ---------- ----------
BD Biosciences
Immunocytometry Systems $ 102,108 $ 84,081 $ 287,815 $ 231,613
Clontech 14,934 15,811 46,074 48,854
Pharmingen 36,123 32,217 102,565 90,160
Discovery Labware 47,750 46,649 141,186 131,910
---------- ---------- ---------- ----------
$ 200,915 $ 178,758 $ 577,640 $ 502,537
---------- ---------- ---------- ----------
Total $1,257,755 $1,165,369 $3,727,809 $3,351,058
========== ========== ========== ==========
(A) Intersegment revenues are not material.
(B) Current year amount includes $45,024 of charges related to blood glucose
monitoring products as discussed further in Note 9 in Notes to the
Condensed Consolidated Financial Statements.
(C) Prior year amounts included $34,231 of charges for the quarter and nine
months related to the write down of intangible assets and inventory.
(D) Includes primarily interest, net; foreign exchange; corporate expenses; and
certain legal costs.
(E) Current year amounts include the litigation settlement of $100,000 as
discussed further in Note 11 in Notes to Condensed Consolidated Financial
Statements.
10
Note 6 - Special Charges
In fiscal year 2002, the Company recorded special charges of $21,508 associated
with a manufacturing restructuring program in the Medical segment that was aimed
at optimizing manufacturing efficiencies and improving the Company's
competitiveness in the different markets in which it operates. This program
involved the termination of 533 employees in China, France, Germany, Ireland,
Mexico and the United States. As of June 30, 2004, 525 of the targeted employees
had been severed. The Company expects the remaining terminations to be
substantially completed and the related accrued severance to be substantially
paid in the first quarter of fiscal 2005.
A summary of the 2002 special charge accrual activity during the first nine
months of fiscal 2004 follows:
Severance Restructuring
--------- -------------
Accrual Balance at September 30, 2003 $ 1,800 $100
Payments (1,000) --
------- ----
Accrual Balance at June 30, 2004 $ 800 $100
======= ====
Note 7 - Goodwill and Other Intangible Assets
The components of intangible assets are as follows:
June 30, 2004 September 30, 2003
----------------------- -----------------------
Gross Gross
Carrying Accumulated Carrying Accumulated
Amount Amortization Amount Amortization
-------- ------------ -------- ------------
Amortized intangible assets:
Core and Developed Technology $353,414 $124,663 $352,372 $109,689
Patents, Trademarks, & Other 318,502 229,460 314,211 217,635
-------- -------- -------- --------
Total $671,916 $354,123 $666,583 $327,324
======== ======== ======== ========
Unamortized intangible assets:
Goodwill $543,442 $536,788
Trademarks 15,137 15,137
-------- --------
Total $558,579 $551,925
======== ========
The change in the carrying amount of goodwill for the nine months ended June 30,
2004 relates to foreign currency translation adjustments.
The estimated intangible amortization expense for the fiscal years ending
September 30, 2004 to 2009 are as follows: 2004 - $35,200; 2005 - $34,600; 2006
- - $31,900; 2007 - $31,700; 2008 - $30,500; 2009 - $29,200.
11
During the third quarter of fiscal 2003, the Company decided to discontinue the
development of certain products and product applications associated with the
BD IMAGN'TM' instrument platform in the Biosciences segment. As a result, the
Company recorded an impairment loss of $26,717 (a component of the total charge
of $34,231 as discussed in Note 5 in Notes to Condensed Consolidated Financial
Statements, above) in cost of products sold. This loss included the write-down
of $25,230 of core and developed technology, $960 of indefinite-lived
trademarks, and $527 of licenses. The impairment loss was calculated using
estimated discounted future cash flows.
Note 8 - Adoption of New Accounting Standards
In January 2003, the Financial Accounting Standards Board ("FASB") issued
Interpretation No. 46, "Consolidation of Variable Interest Entities" ("FIN 46").
FIN 46 significantly changes whether entities included in its scope are
consolidated by their sponsors, transferors or investors. The Interpretation
introduces a new consolidation model, "the variable interests model," which
determines control based on potential variability in gains and losses of the
entity being evaluated for consolidation. Under FIN 46, variable interest
entities are to be consolidated if certain conditions are met. Variable
interests are contractual, ownership or other interests in an entity that expose
their holders to the risks and rewards of the variable interest entity. Variable
interests include equity investments, leases, derivatives, guarantees and other
instruments whose values change with changes in the variable interest entity's
assets. The Company adopted FIN 46 in the second quarter of 2004, which had no
impact on the Company's consolidated financial position, results of operations
or financial disclosures.
In December 2003, the Medicare Prescription Drug, Improvement and Modernization
Act of 2003 (the "Act") was signed into law. The Act introduces a prescription
drug benefit under Medicare, as well as a federal subsidy to sponsors of retiree
health care benefit plans that provide a benefit that is at least actuarially
equivalent to Medicare. Detailed regulations necessary to implement the Act have
not yet been issued. Based upon preliminary analyses, the Company expects the
impact of the Act to have a favorable, yet immaterial, impact on its
consolidated financial position and results of operations.
Note 9 - Blood Glucose Monitoring Charges
The Company recorded a pre-tax charge of $45,024 to cost of products sold in the
Company's results of operations for the three months ended December 31, 2003
related to its blood glucose monitoring ("BGM") products, which included a
reserve of $6,473 in connection with the voluntary product recall of certain
lots of BGM test strips and the write-off of $29,803 of certain test strip
inventories. Based upon internal testing, it was determined that certain BGM
test strip lots, produced by BD's manufacturing partner, were not performing
within BD's specifications. As a result, the Company decided to recall the
affected lots and dispose of the non-conforming product in inventory. In
addition, the charge reflects BD's decision to focus its sales and marketing
efforts on the BD Logic'TM' and Paradigm Link'TM' blood glucose meters in the
United States, and to discontinue support of the BD Latitude'TM' system product
offering in the United States, resulting in a write-off of $8,748 of related
blood glucose meters and fixed assets.
12
Note 10 - 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 benefit plans in foreign countries
are not material.
Net pension and postretirement expense included the following components for the
three months ended June 30:
Pension Plans Other Postretirement Benefits
------------------- -----------------------------
2004 2003 2004 2003
-------- -------- ------- -------
Components of net pension and
postretirement costs:
Service cost $ 14,033 $ 11,200 $ 875 $ 790
Interest cost 15,423 13,518 3,841 3,621
Expected return on plan assets (12,773) (11,798) -- --
Amortization of prior service cost 59 21 (1,559) (1,558)
Amortization of loss 4,337 3,280 1,298 836
Other (76) (34) -- --
-------- -------- ------- -------
Net pension and postretirement costs $ 21,003 $ 16,187 $ 4,455 $ 3,689
======== ======== ======= =======
Net pension expense attributable to foreign plans included in the preceding
table was $3,713 and $3,326 for the three months ended June 30, 2004 and 2003,
respectively.
Net pension and postretirement expense included the following components for the
nine months ended June 30:
Pension Plans Other Postretirement Benefits
------------------- -----------------------------
2004 2003 2004 2003
-------- -------- ------- -------
Components of net pension and
postretirement costs:
Service cost $ 42,099 $ 33,600 $ 2,625 $ 2,370
Interest cost 46,269 40,554 11,523 10,863
Expected return on plan assets (38,319) (35,394) -- --
Amortization of prior service cost 177 63 (4,677) (4,674)
Amortization of loss 13,011 9,840 3,894 2,508
Other (228) (102) -- --
-------- -------- ------- -------
Net pension and postretirement costs $ 63,009 $ 48,561 $13,365 $11,067
======== ======== ======= =======
Net pension expense attributable to foreign plans included in the preceding
table was $11,139 and $9,978 for the nine months ended June 30, 2004 and 2003,
respectively.
The Company contributed $18,000, on a discretionary basis, to increase the
funding for the U.S. pension plan during the third quarter of 2004.
13
Note 11 - Litigation Settlement
On July 2, 2004, the Company entered into an agreement to settle the lawsuit
filed against it by Retractable Technologies, Inc. (RTI). The settlement was
paid on July 6, 2004. The Company recorded the related pretax charge of $100,000
($63,000 after taxes and approximately 24 cents per diluted share) in the
Company's results of operations for the three and nine months ended June 30,
2004.
Note 12 - Subsequent Event
On July 1, 2004, the Company acquired the outstanding equity interest in Atto
Bioscience, Inc., a privately-held company specializing in optical
instrumentation, software, and reagents for real-time analysis of interactions
taking place in living cells. The purchase price was approximately $25,300 in
cash, subject to certain post-closing adjustments. The transaction will be
recorded in the Company's financial statements during the fourth quarter of
fiscal 2004.
14
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Company Overview
BD is a medical technology company that serves healthcare institutions, life
science researchers, clinical laboratories, industry and the general public. BD
manufactures and sells a broad range of medical supplies, devices, laboratory
equipment and diagnostic products. We focus strategically on achieving growth in
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,
directly to end users and by sales representatives.
BD's management operates the business consistent with the following core
strategies:
o to increase revenue growth by focusing on products that deliver
greater benefits to patients, healthcare workers and researchers;
o to improve operating effectiveness and balance sheet productivity;
and,
o to strengthen organizational and associate capabilities in the
ever-changing healthcare environment.
In assessing our implementation of these strategies and 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 and cash flows, as further described
below.
The results of our strategies are reflected in our third quarter 2004
performance. BD reported third quarter revenues of $1.258 billion, an increase
of 8% from the same period a year ago. After excluding the favorable impact of
foreign currency translation, revenues for the quarter increased approximately
5%. For the nine-month period, reported revenues of $3.728 billion represented
an 11% increase from a year ago, or approximately 6% at constant foreign
exchange rates. Sales in the United States of safety-engineered devices grew 14%
to $190 million in the third quarter of 2004. International revenue growth of
10% and 16% for the three and nine-month period, respectively, was favorably
affected by foreign currency translation, primarily the Euro. After excluding
the favorable impact of foreign currency translation, international revenues
grew approximately 4% and 5% for the three and nine-month period, respectively.
As further discussed in our 2003 Annual Report on Form 10-K, we face currency
exposure that arises from translating the results of our worldwide operations to
the U.S. dollar at exchange rates that have fluctuated from the beginning of the
period. We purchase option and forward contracts to partially protect against
adverse foreign exchange rate movements.
Our balance sheet remains strong with net cash provided by operations at
approximately $822 million for the nine months ended June 30, 2004 and our
debt-to-capitalization ratio (shareholders'
15
equity, net non-current deferred income tax liabilities, and debt) was reduced
to 26.7% at June 30, 2004 from 30.4% at September 30, 2003.
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. Numerous factors can affect our ability to achieve
these goals, including without limitation, U.S and global economic conditions,
increased competition and healthcare cost containment initiatives.
Our anticipated revenue growth over the next three years is expected to come
from the following:
o Core business growth and expansion, including the continued transition
to safety-engineered devices;
o Expanding the sale of our high quality products around the globe; and,
o Development in each business segment of new products and services that
have higher benefits to patients, healthcare workers and researchers.
Results of Operations
Revenues
Refer to Note 5 in the Notes to Condensed Consolidated Financial Statements for
segment financial data.
Medical Segment - Third quarter revenues of $683 million represented an increase
of 5% from the prior year's period, or 2% at constant foreign exchange rates.
Medical revenues reflect the continued conversion in the United States to
safety-engineered products which had sales of $110 million, as compared with
$101 million in the prior year's quarter. The Medical sales growth rate in the
current quarter was constrained by comparison to a particularly strong quarter
in fiscal 2003. For the nine-month period, Medical revenue of $1.992 billion
represented growth from the prior period of 9%, or 4% excluding the favorable
impact of foreign currency translation.
Diagnostics Segment - Third quarter revenues of $374 million represented an
increase of 11% over the prior year period, or 8% excluding the favorable impact
of foreign currency translation. Diagnostics revenues reflect the continued
conversion in the United States to safety-engineered products which had sales of
$80 million, as compared with $66 million in the prior year's quarter. Revenues
for the Diagnostic Systems unit grew 9% to $172 million reflecting, among other
things, solid worldwide sales of BD ProbeTec'TM' ET instrument platforms. For
the nine-month period, Diagnostics revenues of $1.158 billion represented growth
from the prior year period of 13%, or 8% excluding the favorable impact of
foreign currency translation.
Biosciences Segment - Third quarter revenues of $201 million represented an
increase of 12% over the prior year period, or 9% excluding the favorable impact
of foreign currency translation. Instrument revenue growth was driven by sales
of the recently launched BD FACSCanto'TM' and BD FACSArray'TM' analyzers and
continued strong performance of the BD FACSAria'TM' cell sorter. Sales of flow
cytometry reagents were also strong in both the clinical and research
16
markets. Clontech revenues continue to be negatively affected by a slowdown in
certain segments of the research market, as well as by competitive pressures.
For the nine-month period, Biosciences revenues of $578 million represented
growth from the prior year period of 15%, or 9% excluding the favorable impact
of foreign currency translation.
Segment Operating Income
Medical Segment
Segment operating income for the third quarter was $155 million, an increase of
3% when compared to $150 million in the prior year's third quarter, reflecting
the fluctuations in revenues, as discussed above. In addition, investment
spending associated with our blood glucose monitoring ("BGM") products was
offset, in part by the benefits resulting from the 2002 Medical restructuring
plan (see Note 6 in the Notes to Condensed Consolidated Financial Statements).
Segment operating income for the nine-month period was $398 million (after
taking into account $45 million of BGM charges as discussed in Note 9 in Notes
to the Condensed Consolidated Financial Statements), compared to $403 million in
the prior year period. Segment operating income growth for the nine-month
period, excluding the BGM charges, reflects increased sales of products with
higher gross profit margins and the benefits of the 2002 Medical restructuring
plan.
Diagnostics Segment
Segment operating income for the third quarter was $86 million compared to $72
million in the prior year's third quarter and reflects fluctuations in revenues
as discussed above, as well as solid operational performance. Segment operating
income for the nine-month period was $271 million compared to $223 million in
the prior year period, and reflected increased sales of products with higher
gross profit margins, including safety-engineered products and the
BD ProbeTec'TM' ET instrument platform.
Biosciences Segment
Segment operating income was $42 million for the third quarter compared to a
small loss in the prior year's quarter which included non-cash charges of $34
million, as discussed below. Segment operating income for the nine-month period
was $117 million compared to $47 million in the prior year nine-month period.
Excluding the impact of the non-cash charges, segment operating income growth
resulted from increased sales of flow cytometry products, including the
BD FASCAria'TM' cell sorter and recently launched BD FACSCanto'TM' and
BD FACSArray'TM' analyzers. In addition, segment operating income benefited
from recent reductions in the number of employees of the Clontech and
Pharmingen units.
During the third quarter of the prior year, we recorded non-cash charges of $34
million in cost of products sold. The majority of these charges related to the
third quarter decision to discontinue the development of certain products and
product applications associated with the BD IMAGN'TM' instrument platform in the
Biosciences segment. As a result, we recorded an impairment charge of $27
million for the related intangible assets and inventory. In addition, as the
result of a review of under-performing portions of its molecular biology product
line, the Biosciences segment also wrote down the value of related inventory and
intellectual property by $7 million. See Note 7 in Notes to Condensed
Consolidated Financial Statements for further discussion of the write down of
the intangible assets.
17
Gross Profit Margin
Gross profit margin was 50.4% for the third quarter and 48.9% for the nine-month
period, compared with 46.6% and 47.8%, respectively, for the comparable prior
year periods. Excluding the BGM charges (see Note 9 in the Notes to Condensed
Consolidated Financial Statements) in the current year and the $34 million
non-cash charges in the prior year, as described above, the increase in gross
profit margin for the third quarter and nine-month period reflected increased
sales of products with higher gross profit margins, including safety-engineered
products, diabetes-related products and the BD ProbeTec'TM' ET instrument
platform. In addition, gross profit margin benefited from the effects of the
2002 Medical restructuring plan, discussed above.
Selling and Administrative Expense
Selling and administrative expense increased to 26.9% of revenues for the third
quarter and 27.0% of revenues for the nine-month period, compared with the prior
year's ratios of 26.5% and 26.6%, respectively. Aggregate expenses were higher
for these periods, reflecting increased investment in various strategic
initiatives, in particular, blood glucose monitoring products.
Litigation Settlement
As discussed in Note 11 in Notes to Condensed Consolidated Financial Statements,
BD recorded a pretax charge of $100 million (approximately $63 million after
taxes and approximately 24 cents per diluted share) in its results of operations
for the three and nine months ended June 30, 2004 related to the settlement of
the litigation brought by Retractable Technologies, Inc. (RTI).
Interest Expense, Net
Interest expense, net, decreased to $4.1 million in the current quarter from
$9.7 million in the prior year's quarter. This decrease was primarily due to the
conclusion of certain tax examinations during the current quarter which resulted
in the recognition of interest income.
Income Taxes
The reported income tax rate was 16% for the third quarter and 21% for the
nine-month period in the current year. The prior year's tax rates were 20% for
the quarter, and 23% for the nine-month period which includes the effect of the
non-cash charges discussed above. We expect the tax rate for the 2004 fiscal
year to be approximately 23%, which reflects a 1% benefit due to the BGM
charges, and a 1% benefit due to the settlement of litigation.
Net Income and Earnings Per Share
Net income and diluted earnings per share for the third quarter were $109
million and 41 cents, respectively, compared with $130 million and 49 cents in
the comparable prior year period. The litigation settlement in the third quarter
reduced net income by approximately $63 million and diluted earnings per share
by 24 cents. Non-cash charges in the prior year's quarter, as discussed above,
reduced net income by approximately $20 million and diluted earnings per share
by 8 cents. Net income and diluted earnings per share for the current nine-month
period were $400 million and $1.51, respectively, compared with $386 million and
$1.46 in the prior year. BGM charges in the first quarter of 2004 reduced net
income by $28 million and diluted earnings per share by 11 cents.
18
Liquidity and Capital Resources
Net cash provided by operating activities, which continues to be our primary
source of funds to finance operating needs and capital expenditures, was $822
million during the nine-month period of fiscal 2004, and $509 million in the
same period in fiscal 2003. Net cash provided by operations was reduced by $18
million and $100 million in discretionary cash contributions to the U.S. pension
plan during the first nine months of fiscal 2004 and fiscal 2003, respectively.
BD's funding policy for its defined benefit pension plans is to contribute
amounts sufficient to meet the minimum funding requirement of the Employee
Retirement Income Security Act of 1974, plus any additional amounts that
management may determine to be appropriate considering the funded status of the
plans, tax deductibility, our cash flows, and other factors. As further
discussed in our fiscal year 2003 Annual Report on Form 10-K, changes in pension
costs may occur in the future due to changes in assumptions inherent in the
actuarial valuations used, in part, to determine the Company's minimum funding
obligations. The litigation settlement, referred to above, was paid in July 2004
and the payment will be reflected in the Consolidated Statement of Cash Flows
during the fourth quarter of fiscal 2004.
Net cash used for investing activities for the nine-month period of the current
year was $259 million, compared to $244 million in the same period a year ago.
Capital expenditures were $170 million in the first nine months of fiscal 2004
and $168 million in the same period in fiscal 2003. We expect capital spending
for fiscal 2004 to be between $275 million and $300 million. Capitalized
software in the nine-month period of fiscal 2004 included approximately $19
million of costs associated with a business information systems upgrade within
our Biosciences segment in the United States, which was not within the scope of
our "Genesis" worldwide systems implementation which was substantially completed
in 2003. Similar to our accounting for the costs of Genesis, these costs are
capitalized in accordance with the AICPA's Statement of Position 98-1
"Accounting for Costs of Computer Software Developed or Obtained for Internal
Use."
Net cash used for financing activities in the nine-month period of the current
year was $423 million, compared to $64 million in the prior year period, and
included the repurchase of shares of our common stock for approximately $350
million, compared to approximately $206 million in the prior year period. As of
June 30, 2004, authorization to repurchase an additional 6.2 million common
shares remained under a January 2004 resolution of the Board of Directors.
Stock repurchases were offset, in part, by the issuance of common stock from
treasury due to the exercising of stock options by employees. In the current
year, cash used for the repayment of debt was approximately $122 million while,
in the prior year, proceeds from the issuance of debt were approximately $410
million, of which $270 million was used to repay short-term debt. As of June 30,
2004, total debt of $1.2 billion represented 26.7% of total capital
(shareholders' equity, net non-current deferred income tax liabilities, and
debt), down from 30.4% at September 30, 2003. We have in place a commercial
paper borrowing program that is available to meet our short-term financing
needs, including working capital requirements. There were no borrowings
outstanding under this program as of June 30, 2004. As discussed in our fiscal
year 2003 Annual Report on Form 10-K, we had in place two syndicated credit
facilities totaling $900 million in order to provide backup support for our
commercial paper program and for other general corporate purposes. These
consisted of a $450 million 364-day Credit Agreement expiring in August 2004
and a $450 million Five Year Credit Agreement expiring in August 2006. In
August 2004, we amended and restated the Five Year Credit Agreement, increasing
the amount available from $450 million to $900 million and extending the
expiration date from August 2006
19
to August 2009. At the same time, we terminated the $450 million 364-day Credit
Agreement due to expire in August 2004. Therefore, total syndicated credit
facilities continue to be $900 million. The amended and restated facility
contains 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. For the last eight consecutive fiscal
quarters, this ratio has ranged from 16-to-1 up to 20-to-1. Given the
availability of this facility and our strong credit ratings, we continue to have
a high degree of confidence in our ability to refinance debt maturities, as well
as to incur substantial additional debt, if required.
BD's 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's products, deterioration in BD's key financial ratios or credit ratings,
or other significantly unfavorable changes in conditions. While a deterioration
in the Company's credit ratings would increase the costs associated with
maintaining and borrowing under its existing credit arrangements, such a
downgrade would not affect the Company's ability to draw on these credit
facilities, nor would it result in an acceleration of the scheduled maturities
of any outstanding debt.
Critical Accounting Policies
The preparation of financial statements in accordance with generally accepted
accounting principles ("GAAP") requires management to make estimates and
judgments that affect the reported amounts of assets, liabilities, revenues and
expenses. A summary of our significant accounting policies is included in Note 1
to our consolidated financial statements for the year ended September 30, 2003,
which are incorporated by reference in our 2003 Annual Report on Form 10-K.
Certain of our accounting policies are considered critical, as summarized in the
Financial Review section of our 2003 Annual Report on Form 10-K, as these
policies are the most important to the depiction of our financial statements and
require significant, difficult or complex judgments by management, often
employing the use of estimates about the effects of matters that are inherently
uncertain. Estimation methodologies are applied consistently from year to year.
There have been no significant changes in the application of the critical
accounting policies since September 30, 2003. These critical accounting policies
have been reviewed with the Audit Committee of the Board of Directors.
20
Use of Non-GAAP Financial Measures
When discussing BD's financial performance, we at times will present certain
non-GAAP financial measures, as follows:
o BD presents its revenue growth rates at constant foreign exchange rates.
Management believes that presenting growth rates at constant foreign
exchange rates allows investors to view the actual operating results of BD
and of its segments without the impact of fluctuations in foreign currency
exchange rates, thereby facilitating comparisons to prior periods.
o BD presents its earnings per share and other financial measures after
excluding the impact of significant charges and the impact of unusual or
non-recurring items. Management believes that excluding such impact from
earnings per share and other financial measures allows investors to more
easily compare BD's financial performance to prior periods and to
understand the operating results of BD without the effects of these
significant charges and unusual or non-recurring items.
BD's management considers these non-GAAP financial measures internally in
evaluating our performance for the reasons expressed above. Investors should
consider these non-GAAP measures in addition to, not as a substitute for, or as
superior to, measures of financial performance prepared in accordance with GAAP.
21
BECTON, DICKINSON AND COMPANY
SUPPLEMENTAL REVENUE INFORMATION
REVENUES BY BUSINESS SEGMENTS AND UNITS
Three Months Ended June 30,
(Unaudited; Amounts in thousands)
U.S. Revenues
------------------------------
2004 2003 % Change
------------------------------
BD MEDICAL
Medical Surgical Systems $200,407 $190,831 5.0
Diabetes Care 85,693 81,329 5.4
Pharmaceutical Systems 24,382 28,029 (13.0)
Ophthalmic Systems 5,830 5,847 (0.3)
- --------------------------------------------------------------------------------
TOTAL $316,312 $306,036 3.4
- --------------------------------------------------------------------------------
BD DIAGNOSTICS
Preanalytical Systems $113,305 $102,869 10.1
Diagnostic Systems 93,537 88,019 6.3
- --------------------------------------------------------------------------------
TOTAL $206,842 $190,888 8.4
- --------------------------------------------------------------------------------
BD BIOSCIENCES
Discovery Labware $ 26,353 $ 25,053 5.2
Immunocytometry Systems 39,871 34,960 14.0
Clontech 8,076 8,091 (0.2)
Pharmingen 19,156 18,060 6.1
- --------------------------------------------------------------------------------
TOTAL $ 93,456 $ 86,164 8.5
- --------------------------------------------------------------------------------
TOTAL UNITED STATES $616,610 $583,088 5.7
- --------------------------------------------------------------------------------
22
BECTON, DICKINSON AND COMPANY
SUPPLEMENTAL REVENUE INFORMATION
REVENUES BY BUSINESS SEGMENTS AND UNITS
Three Months Ended June 30, (continued)
(Unaudited; Amounts in thousands)
International Revenues
----------------------------------------------------
% Change
------------------------------
FX
2004 2003 Reported FX Neutral Impact
----------------------------------------------------
BD MEDICAL
Medical Surgical Systems $188,824 $179,543 5.2 0.2 5.0
Diabetes Care 62,299 55,785 11.7 5.2 6.5
Pharmaceutical Systems 106,829 99,319 7.6 0.4 7.2
Ophthalmic Systems 8,381 7,745 8.2 (0.1) 8.3
- ----------------------------------------------------------------------------------
TOTAL $366,333 $342,392 7.0 1.0 6.0
- ----------------------------------------------------------------------------------
BD DIAGNOSTICS
Preanalytical Systems $ 88,640 $ 77,503 14.4 7.8 6.6
Diagnostic Systems 78,713 69,792 12.8 6.2 6.6
- ----------------------------------------------------------------------------------
TOTAL $167,353 $147,295 13.6 7.0 6.6
- ----------------------------------------------------------------------------------
BD BIOSCIENCES
Discovery Labware $ 21,397 $ 21,596 (0.9) (7.4) 6.5
Immunocytometry Systems 62,237 49,121 26.7 20.0 6.7
Clontech 6,858 7,720 (11.2) (17.1) 5.9
Pharmingen 16,967 14,157 19.8 11.6 8.2
- ----------------------------------------------------------------------------------
TOTAL $107,459 $ 92,594 16.1 9.2 6.9
- ----------------------------------------------------------------------------------
TOTAL INTERNATIONAL $641,145 $582,281 10.1 3.9 6.2
- ----------------------------------------------------------------------------------
23
BECTON, DICKINSON AND COMPANY
SUPPLEMENTAL REVENUE INFORMATION
REVENUES BY BUSINESS SEGMENTS AND UNITS
Three Months Ended June 30, (continued)
(Unaudited; Amounts in thousands)
Total Revenues
--------------------------------------------------------
% Change
------------------------------
FX
2004 2003 Reported FX Neutral Impact
--------------------------------------------------------
BD MEDICAL
Medical Surgical Systems $ 389,231 $ 370,374 5.1 2.7 2.4
Diabetes Care 147,992 137,114 7.9 5.3 2.6
Pharmaceutical Systems 131,211 127,348 3.0 (2.6) 5.6
Ophthalmic Systems 14,211 13,592 4.6 (0.2) 4.8
- --------------------------------------------------------------------------------------
TOTAL $ 682,645 $ 648,428 5.3 2.1 3.2
- --------------------------------------------------------------------------------------
BD DIAGNOSTICS
Preanalytical Systems $ 201,945 $ 180,372 12.0 9.1 2.9
Diagnostic Systems 172,250 157,811 9.1 6.2 2.9
- --------------------------------------------------------------------------------------
TOTAL $ 374,195 $ 338,183 10.6 7.8 2.8
- --------------------------------------------------------------------------------------
BD BIOSCIENCES
Discovery Labware $ 47,750 $ 46,649 2.4 (0.7) 3.1
Immunocytometry Systems 102,108 84,081 21.4 17.5 3.9
Clontech 14,934 15,811 (5.5) (8.5) 3.0
Pharmingen 36,123 32,217 12.1 8.5 3.6
- --------------------------------------------------------------------------------------
TOTAL $ 200,915 $ 178,758 12.4 8.9 3.5
- --------------------------------------------------------------------------------------
TOTAL REVENUES $1,257,755 $1,165,369 7.9 4.8 3.1
- --------------------------------------------------------------------------------------
24
BECTON, DICKINSON AND COMPANY
SUPPLEMENTAL REVENUE INFORMATION
REVENUES BY BUSINESS SEGMENTS AND UNITS
Nine Months Ended June 30,
(Unaudited; Amounts in thousands)
U.S. Revenues
----------------------------------
2004 2003 % Change
----------------------------------
BD MEDICAL
Medical Surgical Systems $ 595,344 $ 564,313 5.5
Diabetes Care 249,272 240,483 3.7
Pharmaceutical Systems 79,013 72,351 9.2
Ophthalmic Systems 17,118 18,109 (5.5)
- --------------------------------------------------------------------------------
TOTAL $ 940,747 $ 895,256 5.1
- --------------------------------------------------------------------------------
BD DIAGNOSTICS
Preanalytical Systems $ 329,396 $ 306,850 7.3
Diagnostic Systems 301,782 281,776 7.1
- --------------------------------------------------------------------------------
TOTAL $ 631,178 $ 588,626 7.2
- --------------------------------------------------------------------------------
BD BIOSCIENCES
Discovery Labware $ 74,233 $ 71,399 4.0
Immunocytometry Systems 104,768 87,300 20.0
Clontech 23,163 24,353 (4.9)
Pharmingen 53,638 50,994 5.2
- --------------------------------------------------------------------------------
TOTAL $ 255,802 $ 234,046 9.3
- --------------------------------------------------------------------------------
TOTAL UNITED STATES $1,827,727 $1,717,928 6.4
- --------------------------------------------------------------------------------
25
BECTON, DICKINSON AND COMPANY
SUPPLEMENTAL REVENUE INFORMATION
REVENUES BY BUSINESS SEGMENTS AND UNITS
Nine Months Ended June 30, (continued)
(Unaudited; Amounts in thousands)
International Revenues
-----------------------------------------------------------
% Change
---------------------------------
2004 2003 Reported FX Neutral FX Impact
-----------------------------------------------------------
BD MEDICAL
Medical Surgical Systems $ 552,210 $ 492,978 12.0 2.6 9.4
Diabetes Care 181,814 150,008 21.2 9.0 12.2
Pharmaceutical Systems 292,773 262,048 11.7 (0.8) 12.5
Ophthalmic Systems 24,610 21,594 14.0 2.5 11.5
- -----------------------------------------------------------------------------------------
TOTAL $1,051,407 $ 926,628 13.5 2.7 10.8
- -----------------------------------------------------------------------------------------
BD DIAGNOSTICS
Preanalytical Systems $ 253,472 $ 216,782 16.9 5.5 11.4
Diagnostic Systems 273,365 221,229 23.6 12.5 11.1
- -----------------------------------------------------------------------------------------
TOTAL $ 526,837 $ 438,011 20.3 9.1 11.2
- -----------------------------------------------------------------------------------------
BD BIOSCIENCES
Discovery Labware $ 66,953 $ 60,511 10.6 (0.2) 10.8
Immunocytometry Systems 183,047 144,313 26.8 15.6 11.2
Clontech 22,911 24,501 (6.5) (15.5) 9.0
Pharmingen 48,927 39,166 24.9 11.7 13.2
- -----------------------------------------------------------------------------------------
TOTAL $ 321,838 $ 268,491 19.9 8.6 11.3
- -----------------------------------------------------------------------------------------
TOTAL INTERNATIONAL $1,900,082 $1,633,130 16.3 5.4 10.9
- -----------------------------------------------------------------------------------------
26
BECTON, DICKINSON AND COMPANY
SUPPLEMENTAL REVENUE INFORMATION
REVENUES BY BUSINESS SEGMENTS AND UNITS
Nine Months Ended June 30, (continued)
(Unaudited; Amounts in thousands)
Total
-----------------------------------------------------------
% Change
---------------------------------
2004 2003 Reported FX Neutral FX Impact
-----------------------------------------------------------
BD MEDICAL
Medical Surgical Systems $1,147,554 $1,057,291 8.5 4.1 4.4
Diabetes Care 431,086 390,491 10.4 5.7 4.7
Pharmaceutical Systems 371,786 334,399 11.2 1.4 9.8
Ophthalmic Systems 41,728 39,703 5.1 (1.1) 6.2
- -----------------------------------------------------------------------------------------
TOTAL $1,992,154 $1,821,884 9.3 3.9 5.4
- -----------------------------------------------------------------------------------------
BD DIAGNOSTICS
Preanalytical Systems $ 582,868 $ 523,632 11.3 6.6 4.7
Diagnostic Systems 575,147 503,005 14.3 9.5 4.8
- -----------------------------------------------------------------------------------------
TOTAL $1,158,015 $1,026,637 12.8 8.0 4.8
- -----------------------------------------------------------------------------------------
BD BIOSCIENCES
Discovery Labware $ 141,186 $ 131,910 7.0 2.1 4.9
Immunocytometry Systems 287,815 231,613 24.3 17.2 7.1
Clontech 46,074 48,854 (5.7) (10.2) 4.5
Pharmingen 102,565 90,160 13.8 8.0 5.8
- -----------------------------------------------------------------------------------------
TOTAL $ 577,640 $ 502,537 14.9 8.9 6.0
- -----------------------------------------------------------------------------------------
TOTAL REVENUES $3,727,809 $3,351,058 11.2 5.9 5.3
- -----------------------------------------------------------------------------------------
Cautionary Statement Pursuant to Private Securities Litigation Reform Act of
1995 -- "Safe Harbor" for Forward-Looking Statements
The Private Securities Litigation Reform Act of 1995 (the "Act") provides a safe
harbor for forward-looking statements made by or on behalf of Becton, Dickinson
and Company ("BD"). 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 this report and filings with the
Securities and Exchange Commission and in our other reports to shareholders.
Forward-looking statements may be identified by the use of words like "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 which 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 and statements expressing
views about future operating results -- are forward-looking statements within
the meaning of the Act.
27
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 whether as a result of new
information, future events and developments or otherwise.
The following are some important factors that could cause our actual results to
differ from our expectations in any forward-looking statements:
o Regional, national and foreign economic factors, including inflation and
fluctuations in interest rates and foreign currency exchange rates and the
potential effect of such fluctuations on revenues, expenses and resulting
margins.
o Competitive product and pricing pressures and our ability to gain or
maintain market share in the global market as a result of actions by
competitors, including technological advances achieved and patents attained
by competitors, particularly as patents on our products expire. While we
believe our opportunities for sustained, profitable growth are
considerable, actions of competitors could impact our earnings, share of
sales and volume growth.
o Changes in domestic and foreign healthcare industry practices and
regulations resulting in increased pricing pressures, including the
continued consolidation among healthcare providers, trends toward managed
care and healthcare cost containment and government laws and regulations
relating to sales and promotion, reimbursement and pricing generally.
o The effects, if any, of governmental and media activities relating to U.S.
Congressional hearings regarding the business practices of group purchasing
organizations, which negotiate product prices on behalf of their member
hospitals with BD and other suppliers.
o Fluctuations in the cost and availability of raw materials and the ability
to maintain favorable supplier arrangements and relationships.
o Our ability to obtain the anticipated benefits of any restructuring
programs that we may undertake.
o Adoption of or changes in government laws and regulations affecting
domestic and foreign operations, including those relating to trade,
monetary and fiscal policies, taxation, environmental matters, sales
practices, price controls, licensing and regulatory approval of new
products, or changes in enforcement practices with respect to any such laws
and regulations.
o 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, or gain and maintain market approval of products, and the
possibility of encountering infringement claims by competitors with respect
to patent or other
28
intellectual property rights, all of which can preclude or delay
commercialization of a product.
o Pending and potential litigation or other proceedings adverse to BD,
including product liability claims, patent infringement claims, and
antitrust claims, as well as other risks and uncertainties detailed from
time to time in our Securities and Exchange Commission filings.
o The effects, if any, of adverse media exposure or other publicity regarding
BD's business or operations.
o Our ability to achieve earnings forecasts, which are generated based on
projected volumes and sales of many product types, some of which are more
profitable than others. There can be no assurance that we will achieve the
projected level or mix of product sales.
o The effect of market fluctuations on the value of assets in BD's pension
plans and the possibility that BD may need to make additional contributions
to the plans as a result of any decline in the value of such assets.
o Our ability to effect infrastructure enhancements and incorporate new
systems technologies into our operations.
o Product efficacy or safety concerns resulting in product recalls,
regulatory action on the part of the Food and Drug Administration (or
foreign counterparts) or declining sales.
o Economic and political conditions in international markets, including civil
unrest, governmental changes and restrictions on the ability to transfer
capital across borders.
o Our ability to penetrate developing and emerging markets, which also
depends on economic and political conditions, and our ability to
successfully acquire or form strategic business alliances with local
companies and make necessary infrastructure enhancements to production
facilities, distribution networks, sales equipment and technology.
o The impact of business combinations, including acquisitions and
divestitures, both internally for BD and externally, in the healthcare
industry.
o Issuance of new or revised accounting standards by the Financial Accounting
Standards Board, the Securities and Exchange Commission or the Public
Company Accounting Oversight Board.
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.
29
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There have been no material changes in information reported since the fiscal
year ended September 30, 2003.
Item 4. Controls and Procedures
An evaluation was carried out by BD's management, with the participation of our
Chief Executive Officer and Chief Financial Officer, of the effectiveness of the
design and operation of BD's disclosure controls and procedures (as defined in
Rule 13a-15(e) under the Securities Exchange Act of 1934) as of June 30, 2004.
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 our internal control over financial reporting
during the fiscal quarter ended June 30, 2004 identified in connection with the
above-referenced evaluation that has materially affected, or is reasonably
likely to materially affect, our internal control over financial reporting.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
We are involved, both as a plaintiff and a defendant, in various legal
proceedings which arise in the ordinary course of business, including
product liability and environmental matters.
A more complete description of legal proceedings has been set forth in our
2003 Annual Report on Form 10-K (the "10-K") and our Form 10-Q for the
quarter ended March 31, 2004. During the quarter ended June 30, 2004 and
subsequent thereto, the following changes have occurred.
Litigation - Other than Environmental
RTI Litigation
The action entitled Retractable Technologies, Inc. ("RTI") vs. Becton
Dickinson and Company, et al. (Civil Action No. 501 CV 036, United States
District Court, Eastern District of Texas) was settled on July 2, 2004.
Under the terms of the settlement, the Company paid $100 million to the
plaintiff, in exchange for a general release of all claims (excluding
certain patent matters) and a dismissal of the case with prejudice, which
means that this case cannot be re-filed.
Greiner Litigation
In the suit brought by C.A. Greiner & Soehne GmbH ("Greiner") against BD UK
Limited in the Patent Court of the Central London County Court in London,
England, a trial date has been set for May 9, 2005.
30
Therasense Litigation
On May 28, 2004, Therasense, Inc. ("Therasense") filed suit against BD in
the U.S. District Court for the Northern District of California (Case
Number: C 04-02123 WDB) asserting that BD's Blood Glucose Monitoring
products infringe certain Therasense patents. On August 10, 2004, in
response to a motion filed by Therasense in the U.S. District Court for
the District of Massachusetts, the court transferred to the court in
California an action previously filed by BD against Therasense requesting
a declaratory judgment that BD's products do not infringe the Therasense
patents and that the Therasense patents are invalid. BD believes that
Therasense's infringement allegations are without merit and intends to
vigorously defend the lawsuit.
Qui Tam Lawsuit
The Company has been informed by the Civil Division of the U.S. Department
of Justice (the "Civil Division") that a private party has filed a qui tam
complaint against the Company alleging violations of the Federal False
Claims Act. Under the FCA, the Civil Division has a certain period of
time in which to decide whether to join the claim against the Company
as an additional plaintiff; if not, the private plaintiff is free to
pursue the claim on its own. To the Company's knowledge, no decision
has yet been made by the Civil Division whether to join this claim. As
of this date, no complaint has been served upon the Company, and this
matter is currently under seal by the Court. We believe that our
business practices have complied with applicable laws.
Other
BD has been informed that the U.S. Attorney's Office is conducting an
investigation of transactions between a company and certain of its
suppliers, including BD and, in connection with this investigation,
certain administrative subpoenas requesting BD documents have been
issued. BD believes that its transactions with the other company have
fully complied with the law and that BD is not currently a target of
this investigation. BD intends to cooperate fully in responding to its
subpoena.
Summary
Given the uncertain nature of litigation generally, we are not able 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 accordance with
generally accepted accounting principles, BD establishes reserves to the
extent probable future losses are estimable. While we believe that the
claims against BD are without merit and, upon resolution, should not have a
material adverse effect on BD, in view of the uncertainties discussed
above, we could incur charges in excess of any currently established
reserves 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 in
the period or periods in which they are recorded or paid. We continue to
believe that we have valid defenses to each of the suits pending against BD
and are engaged in a vigorous defense of each of these matters.
Environmental Matters
We are also 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. For all
sites, there are other potentially responsible parties that may be jointly
or severally liable to pay all cleanup costs. We accrue costs for estimated
environmental liabilities based upon our best estimate within the range of
probable losses, without considering possible third-party recoveries. While
we believe that, upon resolution, the environmental claims against BD
should not have a material adverse effect on BD, we could incur charges in
excess of presently established reserves 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 in the period or periods in which they are
recorded or paid.
31
Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity
Securities.
The table below sets forth certain information regarding our purchases of common
stock of BD during the fiscal quarter ended June 30, 2004.
Issuer Repurchases of Equity Securities
- -----------------------------------------------------------------------------------------------------------------
Total Number of Shares
Total Number of Purchased as Part of Maximum Number of Shares
For the three months Shares Purchased Average Price Publicly Announced Plans that may yet be Purchased
ended June 30, 2004 (1) Paid per Share or Programs (2) Under the Plans or Programs
- -----------------------------------------------------------------------------------------------------------------
April 1 - 30, 2004 402,959 $50.58 400,000 9,281,000
- -----------------------------------------------------------------------------------------------------------------
May 1 - 31, 2004 2,615,439 $49.29 2,615,000 6,666,000
- -----------------------------------------------------------------------------------------------------------------
June 1 - 30, 2004 505,704 $51.42 505,286 6,160,714
- -----------------------------------------------------------------------------------------------------------------
Total 3,524,102 $49.74 3,520,286 6,160,714
- -----------------------------------------------------------------------------------------------------------------
(1) Includes 3,816 shares purchased during the third quarter in open
market transactions by the trustee under the Deferred
Compensation Plan and the 1996 Directors' Deferral Plan.
(2) These repurchases were made pursuant to a repurchase program for
10 million shares announced on January 27, 2004 (the "2004
Program"). There is no expiration date for the 2004 Program.
32
Item 3. Defaults Upon Senior Securities.
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
Item 5. Other Information.
Not applicable.
33
Item 6. Exhibits and Reports on Form 8-K.
a) Exhibits
Exhibit 3 By-Laws, as amended and restated as of July 27, 2004
Exhibit 10(a) 1996 Directors' Deferral Plan, as amended as of May
25, 2004
Exhibit 10(b) Deferred Compensation Plan, as amended and restated
as of March 22, 2004
Exhibit 10(c) Stock Award Plan, as amended and restated as of May
25, 2004
Exhibit 10(d) Amended and Restated Five-Year Credit Agreement,
dated as of August 13, 2004 among the registrant and
the banks named therein.
Exhibit 31 Certifications of Chief Executive Officer and Chief
Financial Officer, pursuant to SEC Rule 13a - 14(a).
Exhibit 32 Certifications of Chief Executive Officer and Chief
Financial Officer, pursuant to Rule 13a - 14(b) and
Section 1350 of Chapter 63 of Title 18 of the U.S.
Code.
b) Reports on Form 8-K
During the three-month period ended June 30, 2004, we filed a Current
Report on Form 8-K to report the declaration of our quarterly
dividend.
In addition, during the three-month period ended June 30, 2004, we
furnished the following information pursuant to a Current Report on
Form 8-K:
(1) In a report dated April 22, 2004, we announced our results for
the second quarter ended March 31, 2004.
(2) In a report dated May 27, 2004, we furnished information
regarding a change in beneficial ownership by an executive
officer.
34
SIGNATURES
Pursuant to the requirements 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
(Registrant)
Dated: August 13, 2004
/s/ John R. Considine
----------------------------------------------------
John R. Considine
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
/s/ William A. Tozzi
----------------------------------------------------
William A. Tozzi
Vice President and Controller
(Chief Accounting Officer)
35
INDEX TO EXHIBITS
Exhibit Number Description of Exhibits
- -------------- -----------------------
3 By-Laws, as amended and restated as of July 27, 2004
10(a) 1996 Directors' Deferral Plan, as amended as of May 25, 2004
10(b) Deferred Compensation Plan, as amended and restated as of March
22, 2004
10(c) Stock Award Plan, as amended and restated as of May 25, 2004
10(d) Amended and Restated Five-Year Credit Agreement, dated as of
August 13, 2004 among the registrant and the banks named
therein.
31 Certifications of Chief Executive Officer and Chief Financial
Officer, pursuant to SEC Rule 13a - 14(a).
32 Certifications of Chief Executive Officer and Chief Financial
Officer, pursuant to Rule 13a - 14(b) and Section 1350 of
Chapter 63 of Title 18 of the U.S. Code.
STATEMENT OF DIFFERENCES
The trademark symbol shall be expressed as............................ 'TM'
The section symbol shall be expressed as.............................. 'SS'