| Notes to Consolidated Financial Statements |
Becton, Dickinson and Company
|
5 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.
Net pension and other postretirement cost included the
following components:
| |
Pension Plans |
Other Postretirement Benefits |
|
| |
2006 |
2005 |
2004 |
2005 |
2005 |
2004 |
|
| Service cost |
$ |
74,111 |
|
$ |
61,836 |
|
$ |
57,013 |
|
$ |
4,164 |
|
$ |
3,657 |
|
$ |
3,510 |
|
| Interest cost |
|
71,997 |
|
|
66,837 |
|
|
62,825 |
|
|
14,873 |
|
|
15,321 |
|
|
14,492 |
|
| Expected return on plan assets |
|
(80,063 |
) |
|
(59,372 |
) |
|
(51,923 |
) |
|
— |
|
|
— |
|
|
— |
|
| Amortization of prior service cost |
|
309 |
|
|
211 |
|
|
180 |
|
|
(6,233 |
) |
|
(6,233 |
) |
|
(6,233 |
) |
| Amortization of loss |
|
27,932 |
|
|
22,951 |
|
|
17,586 |
|
|
7,127 |
|
|
6,164 |
|
|
4,116 |
|
| Amortization of net obligation |
|
(70 |
) |
|
134 |
|
|
132 |
|
|
— |
|
|
— |
|
|
— |
|
| Net curtailment gain |
|
— |
|
|
(300 |
) |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
| Net pension and postretirement costs |
$ |
94,216 |
|
$ |
92,597 |
|
$ |
85,513 |
|
$ |
19,931 |
|
$ |
18,909 |
|
$ |
15,885 |
|
|
Net pension cost attributable to foreign plans included in the
preceding table was $18,639, $16,772 and $16,053 in 2006,
2005 and 2004, 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:
| |
Pension Plans |
Other Postretirement Benefits |
|
| |
2006 |
2005 |
2006 |
2005 |
|
| Change in benefit obligation: |
|
|
|
|
|
|
|
|
|
|
|
|
| Benefit obligation |
$ |
1,413,092 |
|
$ |
1,185,394 |
|
$ |
281,197 |
|
$ |
263,678 |
|
| Service cost |
|
74,111 |
|
|
61,836 |
|
|
4,164 |
|
|
3,657 |
|
| Interest cost |
|
71,997 |
|
|
66,837 |
|
|
14,873 |
|
|
15,321 |
|
| Plan amendments |
|
86 |
|
|
195 |
|
|
— |
|
|
— |
|
| Benefits paid |
|
(75,207 |
) |
|
(57,818 |
) |
|
(22,734 |
) |
|
(22,279 |
) |
| Actuarial loss |
|
(117,307 |
) |
|
164,161 |
|
|
(24,345 |
) |
|
20,820 |
|
| Other, includes translation |
|
17,895 |
|
|
(7,513 |
) |
|
2,571 |
|
|
— |
|
|
| Obligation at September 30 |
$ |
1,384,667 |
|
$ |
1,413,092 |
|
$ |
255,726 |
|
$ |
281,197 |
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Change in fair value of plan assets: |
|
|
|
|
|
|
|
|
|
|
|
|
| Beginning fair value |
$ |
933,920 |
|
$ |
735,167 |
|
$ |
— |
|
$ |
— |
|
| Actual return on plan assets |
|
91,569 |
|
|
109,778 |
|
|
— |
|
|
— |
|
| Employer contribution |
|
160,340 |
|
|
151,439 |
|
|
— |
|
|
— |
|
| Benefits paid |
|
(75,207 |
) |
|
(57,818 |
) |
|
— |
|
|
— |
|
| Other, includes translation |
|
13,943 |
|
|
(4,646 |
) |
|
— |
|
|
— |
|
|
| Fair value at September 30 |
$ |
1,124,565 |
|
$ |
933,920 |
|
$ |
— |
|
$ |
— |
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Funded status at September 30: |
|
|
|
|
|
|
|
|
|
|
|
|
| Unfunded benefit obligation |
$ |
(260,102 |
) |
$ |
(479,172 |
) |
$ |
(255,726 |
) |
$ |
(281,197 |
) |
| Unrecognized net transition obligation |
|
(1,012 |
) |
|
(904 |
) |
|
— |
|
|
— |
|
| Unrecognized prior service cost |
|
6,193 |
|
|
6,154 |
|
|
( |
) |
|
(19,153 |
) |
| Unrecognized net actuarial loss |
|
356,968 |
|
|
509,765 |
|
|
77,392 |
|
|
106,811 |
|
|
| Prepaid (accrued) benefit cost |
$ |
102,047 |
|
$ |
35,843 |
|
$ |
(191,254 |
) |
$ |
(193,539 |
) |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
Amounts recognized in the Consolidated
Balance Sheets at September 30 are as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
| Prepaid benefit cost |
$ |
148,129 |
|
$ |
39,005 |
|
$ |
— |
|
$ |
— |
|
| Intangible asset |
|
2,345 |
|
|
1,327 |
|
|
— |
|
|
— |
|
| Accrued benefit liability |
|
(67,996 |
) |
|
(148,403 |
) |
|
(191,254 |
) |
|
(193,539 |
) |
| Accumulated other comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
| before income taxes |
|
19,569 |
|
|
143,914 |
|
|
— |
|
|
— |
|
|
| Net amount recognized |
$ |
102,047 |
|
$ |
35,843 |
|
$ |
(191,254 |
) |
$ |
(193,539 |
) |
|
Foreign pension plan assets at fair value included in the
preceding table were $299,047 and $261,841 at September 30,
2006 and 2005, respectively. The foreign pension plan projected
benefit obligations were $382,584 and $339,466 at
September 30, 2006 and 2005, respectively.
The projected benefit obligation, accumulated benefit obligation
and fair value of plan assets for the pension plans with
accumulated benefit obligations in excess of plan assets were
$126,545, $100,473 and $41,576, respectively as of September
30, 2006, and $1,149,504, $840,405 and $695,635, respectively
as of September 30, 2005.
The assumptions used in determining pension plan information
were as follows:
| |
2006 |
2005 |
2004 |
|
Net Cost
Discount rate:
U.S. plans(A) |
|
5.50 |
% |
|
6.00 |
% |
|
6.25 |
% |
| Foreign plans (average) |
|
4.19 |
|
|
4.95 |
|
|
4.90 |
|
Expected return on plan assets:
U.S. plans |
|
8.00 |
|
|
8.00 |
|
|
8.00 |
|
| Foreign plans (average) |
|
6.02 |
|
|
6.60 |
|
|
6.72 |
|
Rate of compensation increase:
U.S. plans(A) |
|
4.25 |
|
|
4.25 |
|
|
4.25 |
|
| Foreign plans (average) |
|
2.92 |
|
|
2.98 |
|
|
2.92 |
|
Benefit Obligation
Discount rate:
U.S. plans(A) |
|
5.95 |
|
|
5.50 |
|
|
6.00 |
|
| Foreign plans (average) |
|
4.65 |
|
|
4.19 |
|
|
4.95 |
|
Rate of compensation increase:
U.S. plans(A) |
|
4.50 |
|
|
4.25 |
|
|
4.25 |
|
| Foreign plans (average) |
|
3.08 |
|
|
2.92 |
|
|
2.98 |
|
|
| (A) | Also used to determine other postretirement benefit plan information. |
At September 30, 2006 the assumed healthcare trend rates
were 10% pre and post age 65, gradually decreasing to an ultimate
rate of 5% beginning in 2012. At September 30, 2005, the
corresponding assumed healthcare trend rates were 10% pre
and post age 65, gradually decreasing to an ultimate rate of 5%
beginning in 2011. 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,
2006, by $14,259 and the aggregate of the service cost and
interest cost components of 2006 annual expense by $885. 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, 2006, by
$12,595 and the aggregate of the 2006 service cost and interest
cost by $777.
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. While the Company will not be required to
fund any of its pension plans in 2007, the Company made a
discretionary contribution to its U.S. pension plan in October
2006 of $75 million.
Expected benefit payments are as follows:
| | Pension
Plans | Other
Postretirement
Benefits |
|
| 2007 | $ 73,821 | $ 20,488 |
| 2008 | 63,096 | 21,219 |
| 2009 | 68,765 | 21,837 |
| 2010 | 72,010 | 22,470 |
| 2011 | 75,391 | 22,907 |
| 2012 - 2016 | 452,840 | 115,931 |
|
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: 2007, $1,838; 2008, $1,911; 2009, $1,964;
2010, $1,987; 2011, $1,982; 2012-2016, $9,107.
The Company’s asset allocation for its defined benefit
pension plans at September 30 were as follows:
| |
2006 |
2005 |
|
| Equity securities |
64.4 |
% |
63.0 |
% |
| Debt securities |
33.0 |
|
34.1 |
|
| Other |
2.6 |
|
2.9 |
|
|
| Total |
100.0 |
% |
100.0 |
% |
|
Investment Strategy
The Company’s investment objective is to achieve superior
returns on plan assets, subject to a prudent level of portfolio
risk, for the purpose of enhancing the security of benefits for
participants. The Company’s investments include a broad
range of equity and fixed income securities. These investments
are diversified in terms of domestic and international equity
securities, short-term and long-term securities, growth and
value styles, as well as small and large capitalization stocks. The Company’s target allocation percentages are as follows: equity securities (58%-69%); fixed-income securities (31%-39%); and cash (0%-3%). Equity securities are held for their expected high return and excess return over inflation. Fixed-income securities are held for diversification relative to equities. The plans may also hold cash to meet liquidity requirements. Due to short-term fluctuations in market conditions, allocation percentages may temporarily deviate from these target allocation percentages before a rebalancing occurs. Investment risks and returns are measured and monitored on an on-going basis through annual liability measurements and quarterly investment portfolio reviews to determine whether the asset allocation targets continue to represent an appropriate balance of expected risk and reward.
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 historical and expected rates of return for the asset classes in which the plan’s assets are invested, as well as current economic and capital market conditions.
The Company utilizes a service-based approach in applying SFAS No. 112, “Employers’ Accounting for Postemployment Benefits,” for most of its postemployment benefits. This approach recognizes that actuarial gains and losses may result from experience that differs from baseline assumptions. Postemployment benefit costs were $25,296, $22,680 and $17,295 in 2006, 2005, and 2004, respectively.
Savings Incentive Plan
The Company has a voluntary defined contribution plan (“Savings Incentive Plan”) covering eligible employees in the United States. The Company matches 50% of employees’ contributions, up to a maximum of 3% of each employee’s salary. Beginning on September 1, 2006, the Savings Incentive Plan provides for matching contributions to be allocated in the same proportion as the employees’ contribution elections. Prior to that date, the matching contribution was in Company stock. All contributions in Company stock are held in an Employee Stock Ownership Plan (“ESOP”). See Note 10 for further discussion. The cost of the Savings Incentive Plan was $16,626 in 2006, $6,905 in 2005 and $2,252 in 2004. 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 $141,784 at September 30, 2006.
|
