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To our shareholders
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Edward J. Ludwig
Chairman, President and
Chief Executive Officer |
I am pleased to report that fiscal 2004 was another very good
year for BD. Our performance provides clear evidence that
the strategy we have been implementing over the past several
years continues to work. The Company achieved its operating
and strategic goals for 2004 and showed solid improvement
over 2003.
Our business strategy has two interrelated objectives that
we are continuing to drive:
- First, we will develop, manufacture and market
innovative, high-quality medical devices that demonstrably
improve the lives of patients, healthcare
workers and researchers.
- Second, we will achieve operating efficiencies that will
exceed customers' demands and expand cash flow and
operating margins.
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Achieving these objectives will enable us to make additional
investments to fuel our innovation and become a
"great company."
A great company achieves great performance for its customers
and shareholders. In the operational effectiveness story
on pages two and three, we focus on the superb job BD associates
are doing in such areas as procurement, manufacturing,
inventory management, distribution and customer service.
A great company makes great contributions to society.
We do this by providing innovations that impact the practices
and delivery of healthcare worldwide. Hence, our theme for
this year's report is "Innovating for Impact."
A great company is a great place to work, where diverse
groups of associates are highly engaged and continuously
developing new skills and capabilities.
Let's look at each of these "Three Greats" as we assess our
accomplishments in 2004:
Great operational performance
Company revenues grew 11 percent overall (6 percent on a
currency-neutral basis) to $4.935 billion. Each of the three
segments contributed to this revenue growth. Our pro forma
gross profit margin increased 100 basis points to 50.2 percent,
driven by our higher margin products, continuing successful
implementation of lean manufacturing, Six Sigma and process
validation, and excellence in program management. Our drive
for operating efficiencies is supported by our SAP-based enterprise
resource planning system (named "Genesis").
Pro forma net income from continuing operations increased
18 percent from 2003, reflecting our revenue growth and
improvement in our pro forma operating margin from 18 percent
to 19 percent.
We generated over $1 billion in operating cash flow during
the year and effectively managed our working capital and capital
expenditures.
We returned $450 million to shareholders by repurchasing
9.6 million common shares and raised our quarterly dividend
payout by 20 percent over 2004. At this rate, our 2005 dividend
payout is 80 percent higher than our 2003 payout.
Three significant transactions
As noted in our reported results for fiscal 2004, there were
three significant transactions that occurred in the year that
are unusual in nature and are, therefore, excluded from our
discussion of pro forma results.
In the first quarter of 2004, we implemented a voluntary
recall of certain lots of our BD Test Strips associated with our
blood glucose monitors. As always, patient care was our priority.
This recall is now fully behind us, and our blood glucose
monitor products are performing at the expected quality level.
In the third quarter, BD and Retractable Technologies, Inc.
(RTI) agreed to settle their legal dispute. Settling this matter
enabled us to avoid protracted, distracting litigation and focus
our efforts on our core strategies.
In the fourth quarter, BD announced plans to sell the
Clontech unit of our BD Biosciences segment. This transaction
allows BD Biosciences to direct resources toward higher growth
opportunities in the pharmaceutical drug discovery arena. We
recorded a charge to reflect the net assets of Clontech at fair
value and have classified the results of Clontech operations as
"discontinued operations" for all periods.
Great contributions to medical care:
Innovating for impact
Revenue growth and new product launches provide indisputable
evidence that we are innovating for impact.
BD Medical revenues rose 9 percent (4 percent excluding
foreign currency translation) to $2.7 billion. Sales of safetyengineered
products worldwide grew 11 percent in this segment,
supported by next-generation safety products, such as
the BD Integra syringe, that provide more value than their
predecessors. New product lines, such as prefilled flush syringes
and auto-disable syringes, further contributed to revenue
growth. In Diabetes Care, we are gaining traction with the
BD Logic and the Paradigm Link® blood glucose monitors. In
our final fiscal quarter, the blood glucose business reached an
annual run rate of $60 million. Additionally, the U.S. Food
and Drug Administration has given clearance for people using
the BD Logic and Paradigm Link® blood glucose monitors to conduct alternate site testing when checking blood glucose levels.
This is great news for people with diabetes, as the ability to
test the palm or forearm provides a more convenient "best-inclass"
approach to checking blood glucose levels.
Sales of safety-engineered products also were a source of
strength this year for BD Diagnostics, where revenues reached
$1.5 billion, up 12 percent (7 percent excluding foreign currency
translation). Sales of safety-engineered products worldwide
increased 27 percent within BD Diagnostics. In addition,
BD Diagnostics' revenues were driven by strong demand for
the BD ProbeTec ET system for amplified infectious disease
testing, and a number of clinical accounts committed to convert
to our BD Phoenix Automated Microbiology System
after we launched it in the U.S. and Japan.
BD Biosciences revenues grew 14 percent (9 percent
excluding foreign currency translation) to $723 million. The
BD FACSAria cell sorter system represents the most successful
launch of a flow cytometer instrument in the 30-year history of
the business. Sales of flow cytometry reagents remained strong,
and the new BD FACSCanto benchtop cell analyzer received
a highly positive reception in the marketplace. Looking to continued
growth in the future, BD Biosciences acquired Atto
Bioscience, Inc., whose novel technologies for investigating biochemical
and physiological changes in living cells in real time
are a good fit with BD Biosciences' drug discovery portfolio.
We are confident that the products that contributed to our
revenue growth will continue to serve our customers well in
2005 and beyond.
Our drive for innovations with significant impact extends
well beyond today's products. We plan to increase our R&D
spending at a rate of 12 to 15 percent per year beginning in
2005. We are confident that this step-up in our spending will
yield exciting new innovations in advanced drug delivery, superior
diagnostic systems and new bioscience platforms in the
years beyond 2007.
Social responsibility–great companies are called to do more
We are honored to work with great philanthropic institutions
such as The U.S. Fund for UNICEF, the International AIDS
Vaccine Initiative (IAVI), the American Red Cross and Project
HOPE. Together, we are addressing some of the most challenging
healthcare problems in the world, including maternal
and neonatal tetanus, HIV/AIDS, measles and diabetes. BD is
proud to share our time, resources and talents with these
"Trusted Partners" to improve the lives of those most in need.
Please refer to the special insert at page 16 to learn more about
BD's commitment to social responsibility.
Building a great place to work: energizing and
developing our associates
BD is able to achieve higher levels of operating effectiveness
and drive new innovations in healthcare because of the
ever-increasing skills of our associates and the leadership
demonstrated by our executives around the world.
BD University (BDU), our principal process for broadening
the skills and knowledge of BD associates, is closely aligned
with our business strategy. BDU is where we sharpen our
implementation and leadership skills. We learn lean manufacturing,
Six Sigma, program management, sales excellence,
engagement, inclusion and leadership. Our unique "leaders as
teachers" approach is gaining public recognition as a benchmark
for corporate learning and development. More than
500 BD leaders have been certified as teachers and more than
8,000 associates have participated in BDU courses.
Our new long-term equity-based incentive program is
another way we align actions with our quest for greatness. The
program was designed to reward associates based on performance.
This plan is being broadly implemented throughout
the Company and focuses on rewarding successes in innovation
(measured by revenue growth) and operating effectiveness
(measured by return on invested capital) over successive threeyear
intervals.
Key management and Board developments
BD has always been committed to pursuing outstanding
corporate governance on behalf of our shareholders. Great
corporate governance starts with outstanding, independent
and committed board members. I am pleased to welcome
two new members to the BD Board of Directors:
Basil L. Anderson, Vice Chairman of Staples, Inc., was
elected to BD's Board of Directors on March 23, 2004. He
also serves on the Board of Directors of Staples, Inc., is a
board member of Charles River Associates and chairs the
audit committee of the Board of Directors of Hasbro, Inc.
Gary A. Mecklenburg, President and Chief Executive
Officer of Northwestern Memorial HealthCare, was elected
to the Board on November 23, 2004.
I would also like to thank our two retiring directors for
their outstanding service and contributions. They are Harry N.
Beaty, M.D., Emeritus Dean, Northwestern University Medical
School and Chairman of the Board and President of the
Northwestern University Medical Faculty Foundation, and
Frank A. Olson, Chairman Emeritus and retired Chief
Executive Officer of the Hertz Corporation.
Harry and Frank served BD shareholders for a combined
40 years and have greatly contributed to our success with their
counsel and support. We will miss them and we wish them our
very best in all of their future endeavors.
Additionally, it is my pleasure to welcome two new executives
from outside BD to our Leadership Team. Jeffrey Sherman,
our Vice President and General Counsel, joins us from Wyeth.
Peter Natale, a Six Sigma master black belt, serves as Vice
President and Chief Information Officer and joins us from
General Electric.
In summary: progress on the journey toward greatness
2004 marked a year of significant achievements and progress
on our journey toward greatness. I am proud to thank my
fellow associates–25,000 strong, in nearly 50 countries around
the world–for their energy, talents and hard work on behalf
of the people we serve. Across the globe, BD is guided by our
Core Values in every aspect of our business:
- We do what is right
- We always seek to improve
- We accept personal responsibility
- We treat each other with respect
The opportunities to improve healthcare–to "Help All
People Live Healthy Lives"–are extraordinary. Working
together with our trusted partners, all of us at BD will continue
to make a difference in people's lives.
We will stay the course we have set. The course might be
a familiar one, but it will lead us to new and exciting places.
We are committed to delivering ever more innovative healthcare
solutions and outstanding operational performance in
service to our customers and shareholders.
Edward J. Ludwig
Chairman, President and
Chief Executive Officer
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