0000010795 bdx:FloatingRateNotesDueDecember292020Member us-gaap:SeniorNotesMember 2019-01-01 2019-03-31
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(Mark One)
☑ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FORFor the fiscal year ended September 30, 2019
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE FISCAL YEAR ENDED SEPTEMBER 30, 2017SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
COMMISSION FILE NUMBER 1-4802001-4802
BECTON, DICKINSON AND COMPANY
(Exact name of registrant as specified in its charter)
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| New Jersey | | 22-0760120 |
| (State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
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1 Becton Drive, | Franklin Lakes, | New Jersey | | 07417-1880 |
| (Address of principal executive offices) | | 07417-1880
(Zip code) |
Registrant’s telephone number, including area code(201) (201) 847-6800
Securities registered pursuant to Section 12(b) of the Act:
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| Title of Each Class | | Trading Symbol | | Name of Each Exchange on Which Registered |
Common Stock,stock, par value $1.00 | | BDX | | New York Stock Exchange |
Depositary Shares, each representing a 1/20th interest inof a share of 6.125% Cumulative Preferred Stock Series A | | New York Stock Exchange |
0.368% Notes due June 9, 2019BDXA | | New York Stock Exchange |
| 1.000% Notes due December 15, 2022 | | BDX22A | | New York Stock Exchange |
| 1.900% Notes due December 15, 2026 | | BDX26 | | New York Stock Exchange |
| 1.401% Notes due May 24, 2023 | | BDX23A | | New York Stock Exchange |
| 3.020% Notes due May 24, 2025 | | BDX25 | | New York Stock Exchange |
| 0.174% Notes due June 4, 2021 | | BDX/21 | | New York Stock Exchange |
| 0.632% Notes due June 4, 2023 | | BDX/23A | | New York Stock Exchange |
| 1.208% Notes due June 4, 2026 | | BDX/26A | | New York Stock Exchange |
Securities registered pursuant to Section 12(g) of the Act:None
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yesþ ☑ No ¨☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨☐ Noþ ☑
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. Yesþ ☑ No ¨☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yesþ ☑ No ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨☐
Indicate by check mark whether the registrant is a large"large accelerated filer," an accelerated"accelerated filer," a non-accelerated"non-accelerated filer, smaller" "smaller reporting company," or an emerging"emerging growth company." See the definitions of large accelerated filer, accelerated filer, smaller reporting company, and emerging growth company in Rule 12b-2 of the Exchange Act.
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| Large accelerated filer | | ý☑ | | Accelerated filer | | ¨
☐ | | Non-accelerated filer | | ☐ |
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Non-accelerated filer | | ¨
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| Smaller reporting company | | ☐ | | Emerging growth company | | ☐ | | | | |
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| If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. | | ¨
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨☐ No þ
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As of March 31, 2017,2019, the aggregate market value of the registrant’s outstanding common stock held by non-affiliates of the registrant was approximately $39,070,060,303.$67,278,853,280.
As of October 31, 2017, 227,978,3282019, 270,459,892 shares of the registrant’s common stock were outstanding.
Documents Incorporated by Reference
Portions of the registrant’s Proxy Statement for the Annual Meeting of Shareholders to be held January 23, 201828, 2020 are incorporated by reference into Part III hereof.
TABLE OF CONTENTS
PART I
Item 1. Business.
General
Becton, Dickinson and Company (also knownreferred to herein as “BD”) was incorporated under the laws of the State of New Jersey in November 1906, as successor to a New York business started in 1897. BD’s executive offices are located at 1 Becton Drive, Franklin Lakes, New Jersey 07417-1880, and its telephone number is (201) 847-6800. All references in this Form 10-K to “BD”"BD", "the Company", "we", "our" or "us" refer to Becton, Dickinson and Company and its domestic and foreign subsidiaries, unless otherwise indicated by the context.
BD is a global medical technology company engaged in the development, manufacture and sale of a broad range of medical supplies, devices, laboratory equipment and diagnostic products used by healthcare institutions, physicians, life science researchers, clinical laboratories, the pharmaceutical industry and the general public. We provide customer solutions that are focused on improving medication management and patient safety; supporting infection prevention practices; equipping surgical and interventional procedures; improving drug delivery; aiding anesthesiology care; enhancing the diagnosis of infectious diseases and cancers; advancing cellular research and applications; and supporting the management of diabetes.
Business Segments
BD’s operations consist of twothree worldwide business segments: BD Medical, BD Life Sciences and BD Life Sciences.Interventional. As is further described below, BD completed its acquisition of C.R. Bard, Inc. ("Bard") on December 29, 2017, and BD Interventional includes the majority of Bard’s product offerings, along with certain product offerings formerly within BD Medical. Additionally, certain of Bard's product offerings are included within BD Medical as part of the Medication Delivery Solutions unit (formerly Medication and Procedural Solutions). Information with respect to BD’s business segments and the Bard acquisition is included in Note 67 and Note 10, respectively, to the consolidated financial statements contained in Item 8,8. Financial Statements and Supplementary Data, and is incorporated herein by reference.
BD Medical
BD Medical produces a broad array of medical technologies and devices that are used to help improve healthcare delivery in a wide range of settings. The primary customers served by BD Medical are hospitals and clinics; physicians’ office practices; consumers and retail pharmacies; governmental and nonprofit public health agencies; pharmaceutical companies; and healthcare workers. BD Medical consists of the following
organizational units:
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| Organizational Unit | Principal Product Lines |
Medication Delivery Solutions | Peripheral intravenous ("IV") catheters (conventional, safety); advanced peripheral catheters (guidewire assisted peripherally inserted venous catheters, midline catheters, port access); central lines (peripherally inserted central catheters); acute dialysis catheters; vascular access technology (ultrasonic imaging); vascular care (lock solutions, prefilled flush syringes, disinfecting caps); vascular preparation (skin antiseptics, dressings, securement); needle-free IV connectors and extensions sets; closed-system drug transfer devices; hazardous drug detection; conventional and safety hypodermic syringes and needles, anesthesia needles (spinal, epidural) and trays; enteral syringes, sharps disposal systems. |
Medication Management Solutions | IV medication safety and infusion therapy delivery systems, including infusion pumps, dedicated disposables, and IV fluids; medication compounding workflow systems; automated medication dispensing; automated supply management systems; medication inventory optimization and tracking systems; and informatics and analytics solutions for enterprise medication management. |
| Diabetes Care | Syringes, pen needles and other products related to the injection or infusion of insulin and other drugs used in the treatment of diabetes. |
Medication and Procedural SolutionsPharmaceutical Systems | Needles, syringes and intravenous catheters for medication delivery (including safety-engineered and auto-disable devices); prefilled IV flush syringes; regional anesthesia needles and trays; sharps disposal containers; closed-system transfer devices; skin antiseptic products; and surgical and laproscopic instrumentation. |
Medication Management Solutions | Intravenous medication safety and infusion therapy delivery systems, including infusion pumps and dedicated disposables; medication compounding workflow systems; automated medication dispensing; automated supply management systems; medication inventory optimization and tracking systems; and analytics related to all the above products.
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Pharmaceutical Systems | Prefillable drug delivery systems - prefillable syringes, safety, shielding and self-injection systems and support services - provided to pharmaceutical companies for use as containers for injectable pharmaceutical products, which are then placed on the market as drug/device combinations.
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BD Life Sciences
BD Life Sciences provides products for the safe collection and transport of diagnostics specimens, and instruments and reagent systems to detect a broad range of infectious diseases, healthcare-associated infections (“HAIs”) and cancers. In addition, BD Life Sciences produces research and clinical tools that facilitate the study of cells, and the components of cells, to gain a better understanding of normal and disease processes. That information is used to aid the discovery and development of new drugs and vaccines, and to improve the diagnosis and management of diseases. The primary customers served by BD Life Sciences are hospitals, laboratories and clinics; blood banks; healthcare workers; public health agencies; physicians’ office practices; retail pharmacies; academic and government institutions; and pharmaceutical and biotechnology companies. BD Life Sciences consists of the following organizational units:
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| Organizational Unit | Principal Product Lines |
| Preanalytical Systems | Integrated systems for specimen collection; and safety-engineered blood collection products and systems. |
| Diagnostic Systems | Automated blood culturing and tuberculosis culturing systems; molecular testing systems for infectious diseases and women’s health; microorganism identification and drug susceptibility systems; liquid-based cytology systems for cervical cancer screening; rapid diagnostic assays;assays for testing of respiratory infections; microbiology laboratory automation; and plated media.media for clinical and industrial applications. |
| Biosciences | Fluorescence-activated cell sorters and analyzers; monoclonal antibodies and kits for performing cell analysis; reagent systems for life science research; molecular indexingsolutions for high-throughput single-cell gene expression analysis; and next-generation sequencing sample preparation for genomics research; clinical oncology, immunological (HIV) and transplantation diagnostic/monitoring reagents and analyzers;analyzers. |
Effective October 1, 2019, BD Life Sciences joined its Preanalytical Systems and Diagnostic Systems organizational units to create a new Integrated Diagnostic Solutions organizational unit which will focus on driving growth and innovation around integrated specimen management to diagnostic solutions. The new Integrated Diagnostic Solutions organizational unit will consist of the following principal product lines:
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| Organizational Unit | Principal Product Lines |
| Integrated Diagnostic Solutions | Integrated systems for specimen collection; safety-engineered blood collection products and cell culturesystems; automated blood culturing and tuberculosis culturing systems; molecular testing systems for infectious diseases and women’s health; microorganism identification and drug susceptibility systems; liquid-based cytology systems for cervical cancer screening; rapid diagnostic assays for testing of respiratory infections; microbiology laboratory automation; and plated media supplements for biopharmaceutical manufacturing.clinical and industrial applications. |
BD Interventional
BD Interventional provides vascular, urology, oncology and surgical specialty products that are intended, with the exception of the V. Muller™ surgical and laparoscopic instrumentation products, to be used once and then discarded or are either temporarily or permanently implanted. The primary customers served by BD Interventional are hospitals, individual healthcare professionals, extended care facilities, alternate site facilities, and patients via our Homecare business. BD Interventional consists of the following organizational units:
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| Organizational Unit | Principal Product Lines |
| Surgery | Hernia and soft tissue repair, biological grafts, bioresorbable grafts, biosurgery, and other surgical products; BD ChloraPrep™ surgical infection prevention products, and V. Mueller™ surgical and laparoscopic instrumentation products. |
| Peripheral Intervention | Percutaneous transluminal angioplasty (“PTA”) balloon catheters, peripheral vascular stents, self-expanding and balloon-expandable stent grafts, vascular grafts, drug coated balloons, ports, biopsy, chronic dialysis, feeding, IVC filters, endovascular fistula creation devices and drainage products. |
| Urology and Critical Care | Urine management devices, urological drainage products, intermittent catheters, kidney stone management devices, Targeted Temperature Management, and fecal management devices. |
Acquisitions
Definitive Agreement to Acquire TVA Medical, Inc.
In July 2018, BD acquired TVA Medical, Inc., a company that develops minimally invasive vascular access solutions for patients with chronic kidney disease requiring hemodialysis.
C. R. Bard, Inc.
On April 23,December 29, 2017, BD entered intocompleted the acquisition of Bard, a definitive agreement (the “Merger Agreement”) under which BD will acquire C.R. Bard, Inc. (“Bard”) to create a highly differentiatedglobal medical technology company uniquely positioned to improve bothin the processfields of carevascular, urology, oncology and the treatment of disease for patients and healthcare providers.
surgical specialty products. Under the terms of the Merger Agreement, each outstanding share oftransaction, Bard common stock will be converted into the right to receiveshareholders received approximately $222.93 in cash without interest, and 0.5077 shares of a shareBD stock per Bard share. BD financed the cash portion of BD’s common stock. The transaction is subject to regulatory approvals, as well as customary closing conditions, and is expected to close in the fourth calendar quarter of 2017. BD plans to finance the transactiontotal consideration transferred with the issuance of BD’s common stock to Bard’s shareholders and available cash, on hand, which will includeincluded net proceeds raised in the third quarter of fiscal year 2017 through equityregistered public offerings of securities and debt transactions.
The foregoing description of Additional information regarding the Merger Agreement and the transactions contemplated therebyBard acquisition is not complete and is subject to and qualifiedcontained in its entirety by referenceNote 10 to the Merger Agreement, a copy ofconsolidated financial statements contained in Item 8. Financial Statements and Supplementary Data, which is included as an exhibit to the Current Report on Form 8-K filedincorporated herein by BD on April 24, 2017.reference.
Acquisition of CareFusion Corporation
On March 17, 2015, BD completed the acquisition of CareFusion Corporation (“CareFusion”), a global medical technology company with a comprehensive portfolio of products in the areas of medication management, infection prevention, operating room and procedural effectiveness, and respiratory care. The CareFusion acquisition positioned BD as a global leader in medication management.
Acquisition of remainingRemaining interest in Caesarea Medical Electronics
Upon its acquisition of CareFusion, BD acquired a 40% ownership interest in Caesarea Medical Electronics ("CME"), an Israeli-based global infusion pump systems manufacturer. On April 3, 2017, BD acquired the remaining 60% ownership interest in CME.
Additional information regarding these acquisitions is contained in Note 9 to the consolidated financial statements contained in Item 8, Financial Statements and Supplementary Data, which is incorporated herein by reference.
Divestiture
In March 2016, BD signed a definitive agreement to sell 50.1% of its Respiratory Solutions business and form a joint venture with respect to this business. The Respiratory Solutions business was acquired in the CareFusionBard acquisition in 2015 and was a component of the Medical segment. Upon closing of the transaction, which occurred on October 3, 2016, the Company transferred the Respiratory Solutions business to a new standalone entity, retaining a 49.9% non-controlling interest in the new entity. The buyer controls the operations and governance of the new entity. Additional information regarding this transaction is contained in Note 10 to the consolidated financial statements contained in Item 8,8. Financial Statements and Supplementary Data, which is incorporated herein by reference.
Divestitures
Advanced Bioprocessing
In October 2018, BD completed the sale of its Advanced Bioprocessing business pursuant to a definitive agreement that was signed in September 2018.
Respiratory Solutions and Vyaire Medical
On October 3, 2016, BD sold a 50.1% controlling financial interest in its Respiratory Solutions business, a component of the Medical segment, to form a venture, Vyaire Medical. BD retained a 49.9% non-controlling interest in the new standalone entity. BD agreed to various contract manufacturing and certain logistical and transition services agreements with the new entity for a period of up to two years after the sale. In April 2018, BD completed the sale of its remaining interest in Vyaire Medical. BD received gross cash proceeds of approximately $435 million and recognized a pre-tax gain on the sale of approximately $303 million.
Additional information regarding these divestitures is contained in Note 11 to the consolidated financial statements contained in Item 8. Financial Statements and Supplementary Data, which is incorporated herein by reference.
International Operations
BD’s products are manufactured and sold worldwide. For reporting purposes, we organize our operations outside the United States as follows: Europe, EMA (which includes the Commonwealth of Independent States, the Middle East and Africa); Greater Asia (which includes Japancountries in East Asia, South Asia, Southeast Asia and Asia Pacific)the Oceania region); Latin America (which includes Mexico, Central America, the Caribbean and South America); and Canada. The principal products sold by BD outside the United States are hypodermic needles and syringes; insulin syringes and pen needles; BD Hypak™ brand prefillable syringe systems; infusion therapy products, including Alaris™ infusion pumps; pharmacy automation equipment, including Pyxis™ systems; devices and services for the treatment of peripheral arterial and venous disease, cancer detection, and end-stage renal disease and maintenance; synthetic and resorbable mesh, biologic implants and fixation systems to complement innovative techniques for inguinal, ventral and other hernia repair procedures; medical devices for urine drainage in the acute care hospital and home care settings; BD Vacutainer™ brand blood collection products; diagnostic systems and laboratory equipment and products; and flow cytometry instruments and reagents. BD has manufacturing operations outside the United States in Bosnia and Herzegovina, Brazil, Canada, China, Dominican Republic, France, Germany, Hungary, India, Ireland, Israel, Italy, Japan, Malaysia, Mexico, the Netherlands, Singapore, Spain, and the United Kingdom. Geographic information with respect to BD’s operations is included under the heading “Geographic Information” in Note 67 to the consolidated financial statements included in Item 8,8. Financial Statements and Supplementary Data, and is incorporated herein by reference.Data.
Foreign economic conditions and exchange rate fluctuations have caused the profitability related to foreign revenues to fluctuate more than the profitability related to domestic revenues. BD believes its activities in some countries outside the United States involve greater risk than its domestic business due to the factors cited herein, as well as the economic environment, local commercial and economic policies and political uncertainties. See further discussion of this riskthese risks in Item 1A. Risk Factors.
Distribution
BD’s products are marketed and distributed in the United States and internationally through independent distribution channels, and directly to end-usershospitals and other healthcare institutions by BD and independent sales representatives. BD uses acute care, non-acute care, laboratory and drug wholesaler distributors to broadly support our overall disposable product demand from our end user customers in the United States. In international markets, products are distributed either directly or through distributors, with the practice varying by country. Order backlog is not material to BD’s business inasmuch as orders for BD products generally are received and filled on a current basis, except for items temporarily out of stock. BD’s worldwide sales are not generally seasonal, with the exception of certain medical devices in the Medication and ProceduralDelivery Solutions organizationalbusiness unit, and flu diagnostic products in the Diagnostic Systems organizationalbusiness unit, which relate to seasonal diseases such as influenza.
In order to service its customers, optimize logistics, lower facilities costs and reduce finished goods inventory levels, BD operates consolidated distribution facilities in both the United States and Europe. Orders are normally shipped within a matter of days after receipt.
Raw Materials and Components
BD purchases many different types of raw materials and components, including plastics, glass, metals, textiles, paper products, agricultural products, electronic and mechanical sub-assemblies and various biological, chemical and petrochemical products. BD seeks to ensure continuity of supply by securing multiple options for sourcing. However, there are situations where raw materials and components are only available from one supplier, which are referred to as sole sourced. The use of sole sourced materials and components may be due to sourcing of proprietary and/or patented technology and processes that are intended to provide a unique market differentiation to our product. In other cases, while a raw material or component can be sourced from multiple manufacturers, only one supplier is qualified due to quality assurance, cost or other considerations. In order to provide alternate sources, BD must complete a rigorous qualification process, which most often includes completion of regulatory registration and approval. If clinical trials are not required, this qualification process can take 3-18 months depending on the criticality of the change. When clinical trials are required, this process may lengthen the qualification phase from one to three years. BD continuously assesses its sole sourced raw materials and components, and maintains business continuity plans with ourits suppliers. BD’s continuity plans may include securing secondary supply with alternate suppliers, qualification of alternate manufacturing facilities, maintaining contingency stock, internal development of supply and establishment of technology escrow accounts. While BD works closely with its suppliers, no assurance can be given that these efforts will be successful, and there may be events that cause supply interruption, reduction or termination that adversely impacts BD’s ability to manufacture and sell certain products.
Research and Development
BD conducts its research and development (“R&D”) activities at its operating units and at BD Technologies in Research Triangle Park, North Carolina. The majority of BD’s R&D activities are conducted in North America. Outside North America, BD primarily conducts R&D activities in China, France, India, Ireland and Singapore. BD also collaborates with certain universities, medical centers and other entities on R&D programs and retains individual consultants and partners to support its efforts in specialized fields. BD spent approximately $774 million, $828 million and $632 million on research and development during the fiscal years ended September 30, 2017, 2016, and 2015, respectively.
Intellectual Property and Licenses
BD owns significant intellectual property, including patents, patent applications, technology, trade secrets, know-how, copyrights and trademarks in the United States and other countries. BD is also licensed under domestic and foreign patents, patent applications, technology, trade secrets, know-how, copyrights and trademarks owned by others. In the aggregate, these intellectual property assets and licenses are of material importance to BD’s business. BD believes, however, that no single patent, technology, trademark, intellectual property asset or license is material in relation to BD’s business as a whole, or to any business segment.
Competition
BD operates in the increasingly complex and challenging medical technology marketplace. Technological advances and scientific discoveries have accelerated the pace of change in medical technology, the regulatory environment of medical products is becoming more complex and vigorous, and economic conditions have resulted in a challenging market. Companies of varying sizes compete in the global medical technology field. Some are more specialized than BD with respect to particular markets, and some have greater financial resources than BD. New companies have entered the field, particularly in the areas of molecular diagnostics, safety-engineered devices and in the life sciences, and established companies have diversified their business activities into the medical technology area. Other firms engaged in the distribution of medical technology products have become manufacturers of medical devices and instruments as well. Acquisitions and collaborations by and among companies seeking a competitive advantage also affect the competitive environment. In addition, the entry into the market of low-cost manufacturers are creatinghas created increased pricing pressures. Some competitors have also established manufacturing sites or have contracted with suppliers located in these countries as a means to lower their costs.
BD competes in this evolving marketplace on the basis of many factors, including price, quality, innovation, service, reputation, distribution and promotion. The impact of these factors on BD’s competitive position varies among BD’s various product offerings. In order to remain competitive in the industries in which it operates, BD continues to make investments in research and development, quality management, quality improvement, product innovation and productivity improvement in support of its core strategies. See further discussion of the risks relating to competition in the medical technology industry in Item 1A. Risk Factors.
Third-Party Reimbursement
Reimbursement remains an important strategic consideration in the development and marketing of medical technology. Difficulty in obtaining coverage, coding and payment resulting in decreased market access can be a significant barrier to the commercial success of a new product or procedure. The consequences can include slow adoption in the marketplace and inadequate payment levels that can continue for months or even years.
A majority of BD’s customers rely on third-party payers, including government programs and private health insurance plans, to reimburse some or all of the cost of the procedures, products and services they provide. Our technologiesVertical integration has created a very concentrated market among payers. Global payers are subjectincreasingly focused on strategies to worldwide regulations regarding reimbursement developed by government agencies, including the Centers for Medicarecontrol spending on healthcare and Medicaid Services (CMS)reward improvements in the United States; the National Health Service in the United Kingdom; the Joint Federal Committee in Germany; the Commission d’Evaluation des Produits et prestations in France; the Ministry for Health, Laborquality and Welfare in Japan; the Ministry of Health and the National Development and Reform Commission in China; among many others. In addition, our technologies are also subject to reimbursement policies issued by private insurance companies and managed care organizations.patient outcomes.
BD is actively engaged in identifying and communicating value propositions of its products for payer, provider, and patient stakeholders, and it employs various efforts and resources to attempt to positively impact coverage, coding and payment pathways. However, BD has no direct control over payer decision-making with respect to coverage and payment levels for BD products. The manner and level of reimbursement in any given case may depend on the site of care, the procedure(s) performed, the final patient diagnosis, the device(s) and/or drug(s) utilized, the available budget, or a combination of these factors, and coverage and payment levels are determined at each payer’s discretion. As BD’s product offerings are diverse across a variety of healthcare settings, they are affected to varying degrees by the many payment pathways that impact the decisions of healthcare providers regarding which medical products they purchase and the prices they are willing to pay for those products. Therefore, changes in reimbursement levels or methods may either positively or negatively impact sales of BD products in any given country for any given product.
As government programs seek to expand healthcare coverage for their citizens, they have at the same time sought to control costs by limiting the amount of reimbursement they will pay for particular procedures, products or services. Many third-party payers have developed specific payment and delivery mechanisms to support these cost control efforts and to focus on paying for value. These mechanisms include payment reductions, pay for performance measures, quality-based performance payments, restrictive coverage policies, bidding and tender mechanics, studies to compare the effectiveness of therapies and use of technology assessments. These changes, whether the result of legislation, new strategic alliances or market consolidations, have created an increased emphasis on the delivery of more cost-effective and quality-driven healthcare.
In addition,For example, as a result of the Patient Protection and Affordable Care Act (“PPACA”), the U.S. is implementing value basedvalue-based payment methodologies and seeking to create alternative payment models such as bundled payments to continue to drive improved value. We see other governments around the world considering similar bundling reform measures, includingwith the developmentutilization of the Diagnosis Related Group (“DRG”) as a payment mechanism to drive toward quality and resource based reimbursement.reimbursement becoming more common in regions outside the US.
In addition, most payers are seeking price predictability in order to mitigate future exposure to manufacturer price increases. This is coupled with an increase in high deductible private insurance plans, which transfer more pricing exposure and burden directly to the patient.
Regulation
General
BD's operations are global and are affected by complex state, federal and international laws relating to healthcare, environmental protection, antitrust, anti-corruption, marketing, fraud and abuse (including anti-kickback and false claims laws), export control, employment, privacy and other areas.
BD’s medical technology products and operations are subject to regulation by the U.S. Food and Drug Administration (“FDA”) and various other federal and state agencies, as well as by foreign governmental agencies. These agencies enforce laws and regulations that govern the development, testing, manufacturing, labeling, advertising, marketing and distribution, and market surveillance of BD’s medical products. The scope of the activities of these agencies, particularly in the Europe, Japan, and Asia Pacific regions in which BD operates, has been increasing.
BD actively maintains FDA/ISO Quality Systems that establish standards for its product design, manufacturing, and distribution processes. Prior to marketing or selling most of its products, BD must secure approval from the FDA and counterpart non-U.S. regulatory agencies. Following the introduction of a product, these agencies engage in periodic reviews and inspections of BD’s quality systems, as well as product performance and advertising and promotional materials. These regulatory controls, as well as any changes in FDA policies, can affect the time and cost associated with the development, introduction and continued availability of new products. Where possible, BD anticipates these factors in its product development and planning processes. These agencies possess the authority to take various administrative and legal actions against BD, such as product recalls, product seizures and other civil and criminal sanctions. BD also undertakes voluntary compliance actions, such as voluntary recalls.
BD also is subject to various federal and state laws, and laws outside the United States, concerning healthcare fraud and abuse (including false claims laws and anti-kickback laws), global anti-corruption, transportation, safety and health, and customs and exports. Many of the agencies enforcing these laws have increased their enforcement activities with respect to medical device manufacturers in recent years. This appears to be part of a general trend toward increased regulation and enforcement activity within and outside the United States.
In addition, as part of PPACA, the federal government has enacted the Sunshine Act provisions requiring BD to publicly report gifts and payments made to physicians and teaching hospitals. Failure to comply with these provisions could result in a range of fines, penalties and/or other sanctions.
Consent Decree with FDA
Our infusion pump organizational unit is operating under an amended consent decree entered into by CareFusion with the FDA in 2007. CareFusion’s consent decree with the FDA related to its Alaris™ SE infusion pumps. In February 2009, CareFusion and the FDA amended the consent decree to include all infusion pumps manufactured by or for CareFusion 303, Inc., the organizational unit that manufactures and sells infusion pumps in the United States. The amended consent decree does not apply to intravenous administration sets and accessories.
While this BD organizational unit remains subject to the amended consent decree, which includes the requirements of the original consent decree, it has made substantial progress in its compliance efforts. However, we cannot predict the outcome of this matter, and the amended consent decree authorizes the FDA, in the event of any violations in the future, to order us to cease manufacturing and distributing infusion pumps, recall products and take other actions. We may be required to pay damages of $15,000 per day per violation if we fail to comply with any provision of the amended consent decree, up to $15 million per year.
We also cannot currently predict whether additional monetary investment will be incurred to resolve this matter or the matter’s ultimate impact on our business. We may be obligated to pay more costs in the future because, among other things, the FDA may determine that we are not fully compliant with the amended consent decree and therefore impose penalties under the amended consent decree, and/or we may be subject to future proceedings and litigation relating to the matters addressed in the amended consent decree. As of September 30, 2017,2019, we do not believe that a loss is probable in connection with the amended consent decree, and accordingly, we have no accruals associated with compliance with the amended consent decree.
FDA Warning Letter
In May 2017, the FDA conducted inspections at BD’s Preanalytical Systems (“PAS”) facility in Franklin Lakes, New Jersey. In July 2017, the FDA issued a Form 483 to BD PAS in connection with these inspections that contained observations of non-conformance relating to quality system regulations and medical device reporting relating to certain of our BD Vacutainer™ EDTA blood collection tubes. On January 11, 2018, BD received a Warning Letter from the FDA, citing certain alleged violations of quality system regulations and of law. The Warning Letter states that, until BD resolves the outstanding issues covered by the Warning Letter, the FDA will not clear or approve any premarket submissions for Class III devices to which the non-conformances are reasonably related or grant requests for certificates to foreign governments. We submitted our response to the Warning Letter on January 31, 2018.
BD is working closely with the FDA and intends to fully implement corrective actions to address the concerns identified in the Warning Letter. However, BD cannot give any assurances that the FDA will be satisfied with its responses to the Warning Letter or as to the expected date of resolution of matters included in the Warning Letter. While BD does not believe that the issues identified in the Warning Letter will have a material impact on BD’s operation, no assurances can be given that the resolution of this matter will not have a material adverse effect on BD’s business, results of operations, financial conditions and/or liquidity.
Consent order - Covington, Georgia
On October 28, 2019, BD entered into a consent order with the Environmental Protection Division of the Georgia Department of Natural Resources (the “EPD”), following the filing of a complaint and motion for temporary restraining order by the EPD seeking to enjoin BD from continuing sterilization operations at its Covington, Georgia facility. Under the terms of the consent order, BD voluntarily agreed to a number of operational changes at its Covington and Madison, Georgia facilities designed to further reduce ethylene oxide emissions, including but not limited to operating at a reduced capacity. BD does not believe that the consent order will have a material impact on its operations. Violation of the consent order, though, could subject us to additional restrictions on the sterilization operations at our Covington and Madison facilities. BD has business continuity plans in place to mitigate the impact of any additional restrictions on our operations at these facilities, although it is possible that these plans will not be able to fully offset such impact.
For further discussion of risks relating to the regulations to which we are subject, see Item 1A. Risk Factors.
Employees
As of September 30, 2017,2019, BD had 41,93370,093 employees, of which 17,49724,191 were employed in the U.S. (including Puerto Rico). BD believes that its employee relations are satisfactory.
Available Information
BD maintains a website at www.bd.com. BD also makes available its Annual Reports on Form 10-K, its Quarterly Reports on Form 10-Q, and its Current Reports on Form 8-K (and amendments to those reports) as soon as reasonably practicable after those reports are electronically filed with, or furnished to, the Securities and Exchange Commission (“SEC”). These filings may be obtained and printed free of charge at www.bd.com/investors. In addition, the written charters of the Audit Committee,Committee; the Compensation and Management Development Committee,Committee; the Corporate Governance and Nominating Committee,Committee; the Executive CommitteeCommittee; the Quality and Regulatory Committee; and the Science, Marketing, Innovation and Technology Committee of the Board of Directors, BD’s Corporate Governance Principles and its Code of Conduct, are available and may be printed free of charge at BD’s website at www.bd.com/investors/corporate_governance/. Printed copies of these materials, this 20172019 Annual Report on Form 10-K, and BD’s reports and statements filed with, or furnished to, the SEC, may also be obtained, without charge, by contacting the Corporate Secretary, BD, 1 Becton Drive, Franklin Lakes, New Jersey 07417-1880, telephone 201-847-6800. In addition, the SEC maintains an internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC at www.sec.gov.
BD also routinely posts important information for investors on its website at www.bd.com/investors. BD may use this website as a means of disclosing material, non-public information and for complying with its disclosure obligations under Regulation FD adopted by the SEC. Accordingly, investors should monitor the Investor Relations portion of BD’s website noted above, in addition to following BD’s press releases, SEC filings, and public conference calls and webcasts. Our website and the information contained therein or connected thereto shall not be deemed to be incorporated into this Annual Report.
Forward-Looking Statements
BD and its representatives may from time-to-time make certain forward-looking statements in publicly-released materials, both written and oral, including statements contained in filings with the SEC and in its reports to shareholders. Additional information regarding BD’s forward-looking statements is contained in Item 7,7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Item 1A. Risk Factors.
An investment in BD involves a variety of risks and uncertainties. The following describes some of the significant risks that could adversely affect BD’s business, financial condition, operating results or cash flows.
Risks Relating We may also be adversely impacted by other risks not presently known to BDus or that we currently consider immaterial.
A downturn in global economic conditions could adversely affect our operations.
Deterioration in the globaldomestic or international economic environment, particularly in emerging markets and countries with government-sponsored healthcare systems, may cause decreased demand for our products and services and increased competition, which could result in lower sales volume and downward pressure on thelower prices for our products, longer sales cycles, and slower adoption of new technologies. A weakening of macroeconomic conditions may also adversely affect our suppliers, which could result in interruptions in supply. We have also previously experienced delays in collecting government receivables in certain countries in Western Europe due to
economic conditions, and we may experience similar delays in the future in these and other countries or regions experiencing financial problems.
The medical technology industry is very competitive.
We are a global company that faces significant competition from a wide range of companies. These include large medical device companies with multiple product lines, some of which may have greater financial and marketing resources than we do, andas well as firms that are more specialized than we are with respect to particular markets or product lines. Non-traditional entrants, such as technology companies, are also entering into the healthcare industry, some of which may have greater financial and marketing resources than we do. We face competition across all our product lines and in each market in which our products are sold on the basis of product features, clinical or economic outcomes, product quality, availability, price, services and other factors. In addition, we faceOur ability to compete is also impacted by changing customer preferences and requirements, includingsuch as increased customer demand for more environmentally-friendly products.products and for products incorporating digital capabilities, as well as changes in the ways health care services are delivered (including the transition of more care from acute to non-acute settings and increased focus on chronic disease management). Cost containment efforts by governments and the private sector are also resulting in increased emphasis on products that reduce costs, improve clinical results and expand patient access. Our ability to remain competitive will depend on how well we meet these changing market demands in terms of our product offerings and marketing approaches.
The medical technology industry is also subject to rapid technological change and discovery.discovery and frequent product introductions. The development of new or improved products, processes or technologies by other companies (such as needle-free injection technology) that provide better features, pricing, clinical outcomes or economic value may render our products or proposed products obsolete or less competitive. In some instances, competitors, including pharmaceutical companies, also offer, or are attempting to develop, alternative therapies for disease states that may be delivered without a medical device. The entry into the market of manufacturers located in China and other low-cost manufacturing locations hasLower cost producers have also created pricing pressure, particularly in developing markets.
The medical technology industry has also experienced a significant amount of consolidation, resulting in companies with greater scale and market presence than BD. Traditional distributors are also manufacturers of medical devices, providing another source of competition. In addition, health care systems and other providers are consolidating, resulting in greater purchasing power for these companies. As a result, competition among medical device suppliers to provide goods and services has increased. Group purchasing organizations and integrated health delivery networks have also served to concentrate purchasing decisions for some customers, which has led to downward pricing pressure for medical device suppliers. Further consolidation in the industry could intensify competition among medical device suppliers and exert additional pressure on the demand for and prices of our products.
We are subject to foreign currency exchange risk.
A substantial amount of our revenues are derived from international operations, and we anticipate that a significant portion of our sales will continue to come from outside the U.S. in the future. The revenues we report with respect to our operations outside the United States may be adversely affected by fluctuations in foreign currency exchange rates. A discussion of the financial impact of exchange rate fluctuations and the ways and extent to which we may attempt to address any impact is contained in Item 7., Management’s Discussion of Financial Condition and Results of Operations. Any hedging activities we engage in may only offset a portion of the adverse financial impact resulting from unfavorable changes in foreign currency exchange rates. We cannot predict with any certainty changes in foreign currency exchange rates or the degree to which we can mitigate these risks.
Changes in reimbursement practices of third-party payers or other cost containment measures could affect the demand for our products and the prices at which they are sold.
Our sales depend, in part, on the extent to which healthcare providers and facilities are reimbursed by
government authorities (including Medicare, Medicaid and comparable foreign programs) and private insurers and other third-party payers for the costs of our products. The coverage policies and reimbursement levels of third-party payers, which can vary among public and private sources and by country, may affect which products customers purchase and the prices they are willing to pay for those products in a particular jurisdiction. Reimbursement rates can also affect the market acceptance rate of new technologies and products. Legislative or administrative reformsReforms to reimbursement systems in the United States or abroad, changes in coverage or reimbursement rates by private payers, or adverse decisions relating to our products by administrators of these systems could significantly reduce reimbursement for procedures using our products or result in denial of reimbursement for those products, which would adversely affect customer demand or the price customers are willing to pay for such products. See “Third-Party Reimbursement” under Item 1. Business.
Initiatives to limit the growth of healthcare costs in the U.S. and other countries where we do business may also put pressure on medical device pricing. In the U.S., Business.these include, among others, value-based purchasing and managed care arrangements. Governments in China and other countries are also using various mechanisms to control healthcare expenditures, including increased use of competitive bidding and tenders, and price regulation.
The reinstatement of the PPACA's medical device tax may adversely affect our results of operations.
The PPACA imposes on medical device manufacturers, such as BD, a 2.3% excise tax on U.S. sales of certain medical devices. While the excise tax has been suspended until the end of 2017,2019, absent further legislative action, it will be reinstated in 2018.
Consolidation in the healthcare industry could2020, which would adversely affect our future revenues and operating income.
The medical technology industry has experienced a significant amountresults of consolidation, resulting in companies with greater market presence. Health care systems and other health care companies are also consolidating, resulting in greater purchasing power for these companies. As a result, competition among medical device suppliers to provide goods and services has increased. Group purchasing organizations and integrated health delivery networks have also served to concentrate purchasing decisions for some customers, which has led to downward pricing pressure for medical device suppliers. Further consolidation in the industry could intensify competition among medical device suppliers and exert additional pressure on the prices of our products.operation.
Cost volatility could adversely affect our operations.
Our results of operations could be negatively impacted by volatility in the cost of raw materials, components, freight and energy that, in turn, increases the costs of producing and distributing our products. New laws or regulations adopted in response to climate change could also increase energy and transportation costs, as well as the costs of certain raw materials and components. In particular, we purchase supplies of resins, which are oil-based components used in the manufacture of certain products, and any significant increases in resin costs could adversely impact future operating results. Increases in oil prices can also increase our packaging and transportation costs. We may not be able to offset any increases in theseour operational costs.
Breaches of our information technology systems could have a material adverse effect on our operations.
We rely on information technology systems to process, transmit, and store electronic information in our day-to-day operations, including sensitive personal information and proprietary or confidential information. In addition, some of our products include information technology that collects data regarding patients and patient therapy on behalf of our customers and some connect to our systems for maintenance purposes. Our information technology systems have been subjected to attack via malicious code execution, and cyber- or phishing- attacks, and we have experienced instances of unauthorized access to our systems in the past and expect to be subject to similar attacks in the future. In addition to our own information, in the course of doing business, we sometimes store information with third parties that could be subject to these types of attacks.
Cyber-attacks could result in our intellectual property and other confidential information being accessed or stolen.stolen, which could adversely affect our competitive position in the market. Likewise, we could suffer disruption of our operations and other significant negative consequences, including increased costs for security measures or remediation, diversion of management attention, litigation and adverse impact ondamage to our relationships with vendors, business partners and customers. Unauthorized tampering, adulteration or interference with our products may also create issues with product functionality that could result in a loss of data, risk to patient safety, and product recalls or field actions. Cyber-attacks could result in unauthorized access to our systems and products which could also impact our compliance with privacy and other laws and regulations, and result in actions by regulatory bodies or civil litigation. While we will continue to dedicate significant resources to
protect the company against unauthorized access to our systems and products, and work with government authorities and third party providers to detect and reduce the risk of future cyber incidents, cyber-attacks are becoming more sophisticated, frequent and adaptive. There can be no assurances that ourthese protective measures will prevent future attacks that could have a material adverse impact on our business.
Our future growth is dependent in part upon the development of new products, and there can be no assurance that such products will be developed.
A significant element of our strategy is to increase revenue growth by focusing on innovation and new product development. New product development requires significant investment in research and development, clinical trials and regulatory approvals. The results of our product development efforts may be affected by a number of factors, including our ability to anticipate customer needs, innovate and develop new products and technologies, successfully complete clinical trials, obtain regulatory approvals and reimbursement in the United States and abroad, manufacture products in a cost-effective manner, obtain appropriate intellectual property protection for our products, and gain and maintain market acceptance of our products. In addition, patents attained by others can preclude or delay our commercialization of a product. There can be no assurance that any products now in development or that we may seek to develop in the future will achieve technological feasibility, obtain regulatory approval or gain market acceptance.
We cannot guarantee that any of our strategic acquisitions, investments or alliances will be successful.
We may seek to supplement our internal growth through strategic acquisitions, investments and alliances. Such transactions are inherently risky, and the integration of any newly-acquired business requires significant effort and management attention. The success of any acquisition, investment or alliance may be affected by a number of factors, including our ability to properly assess and value the potential business opportunity or to successfully integrate any business we may acquire into our existing business. There can be no assurance that any past or future transaction will be successful.
TheOur international operations of our business may subject us to certain business risks.
A substantial amount of our sales come from our operations outside the United States, and we intend to continue to pursue growth opportunities in foreign markets, especially in emerging markets. Our foreign operations subject us to certain risks including the effects ofrelating to, among other things, fluctuations in foreign currency exchange (discussed above), the effects of local economic and political conditions, competition from local companies, increases in trade protectionism, U.S. relations with the governments of the foreign countries in which we operate, foreign regulatory requirements or changes in such requirements, changes in local health care payment systems and health care delivery systems, local product preferences and product requirements, longer payment terms for account receivables than we experience in the U.S., difficulty in establishing, staffing and managing foreign operations, differing labor regulations, potential changes to international trade agreements and treaties, changes in tax laws, weakening or loss of the protection of intellectual property rights in some countries, and import or export licensing requirements, trade protection measures and restrictions on the transfer of capital across borders.requirements. The success of our operations outside the United States also depends, in part, on our ability to acquire or form and maintain alliances with local companies and make necessary infrastructure enhancements to, among other things, our production facilities and sales and distribution networks. These and other factors may adversely impact our ability to pursue our growth strategy in these markets.
In addition, our international operations are governed by the U.S. Foreign Corrupt Practices Act and similar anti-corruption laws outside the U.S. Global enforcement of anti-corruption laws has increased substantially in recent years, with more enforcement proceedings by U.S. and foreign governmental agencies and the imposition of significant fines and penalties. While we have implemented policies and procedures to enhance compliance with these laws, our international operations, which often involve customer relationships with foreign governments, create the risk that there may be unauthorized payments or offers of payments made by employees, consultants, sales agents or distributors. Any alleged or actual violations of these laws may subject us to government investigations and significant criminal or civil sanctions and other liabilities, and negatively affect our reputation.
Under
Changes in U.S. policy regarding international trade, including import and export regulation and international trade agreements, could also negatively impact our business. The U.S. has imposed tariffs on steel and aluminum as well as on goods imported from China and certain other countries, which has resulted in retaliatory tariffs by China and other countries. Additional tariffs imposed by the U.S. tax code,on a broader range of imports, or further retaliatory trade measures taken by China or other countries in response, could result in an increase in supply chain costs that we may alsonot be subjectable to additional taxation to the extent we repatriate earnings fromoffset or that otherwise adversely impact our foreign operations to the U.S. In the event we require more capital in the United States than is generated by our U.S. operations to fund acquisitions or other activities and elect to repatriate earnings from foreign jurisdictions, our effective tax rate may be higher as a result. Recently in the United States, there have been legislative proposals to tax profits that are earned abroad. These, and other proposals for fundamental U.S. corporate tax reform, if enacted, could have a material impact on our financial results.results of operations.
The June 2016 referendum result in the United Kingdom (“UK”) to exit the European Union (“EU”) (commonly known as “Brexit”) and the subsequent triggering by the UK government in March 2017 of Article 50 of the Lisbon Treaty, which commenced the UK’s official withdrawal process from the EU, has created uncertainties affecting business operations in the UK and the EU. FollowingEU, and possibly other countries, including with respect to compliance with the referendum, there was a significant decline inregulatory regimes regarding the valuelabeling and registration of the British pound comparedproducts we sell in these markets. The possibility that the U.K. may exit the EU without a formal withdrawal agreement in place has increased the uncertainty around Brexit. While we have taken proactive steps to the U.S. dollar, and continuedmitigate any disruption to our operations, we could face increased regulatory costs, volatility in exchange rates, market instability and economic conditions is expected asother risks, depending on the UK negotiates itsfinal terms of the U.K.’s exit from the EU. Until the terms of the UK’s exit from the EU are determined, it is difficult to predict its impact but it is possible that the withdrawal could, among other things, affect the legal and regulatory schemes to which our businesses are subject, impact trade between the UK and the EU and other parties and create economic and political uncertainty in the region.
There have also been recent proposals for the U.S. to significantly modify or withdraw from certain existing international trade agreements, including the North American Free Trade Agreement. While we cannot predict whether any such changes will be implemented, it is possible that changes to international trade agreements could materially impact our business.
Reductions in customers’ research budgets or government funding may adversely affect our business.
We sell products to researchers at pharmaceutical and biotechnology companies, academic institutions, government laboratories and private foundations. Research and development spending of our customers can fluctuate based on spending priorities and general economic conditions. A number of these customers are also dependent for their funding upon grants from U.S. government agencies, such as the U.S. National Institutes of Health (“NIH”) and agencies in other countries. The level of government funding of research and development is unpredictable. For instance, there have been instances where NIH grants have been frozen or otherwise unavailable for extended periods. The availability of governmental research funding may be adversely affected by economic conditions and governmental spending reductions. Any reduction or delay in governmental funding could cause our customers to delay or forego purchases of our products.
A reduction or interruption in the supply of certain raw materials and components wouldcould adversely affect our manufacturing operations and related product sales.operating results.
We purchase many different types of raw materials and components used in our products. Certain raw materials and components are not available from multiple sources. In addition, for quality assurance, cost-effectiveness and other reasons, we elect to purchase certain raw materials and components are purchased from sole suppliers. The price and supply of these materials canand components may be impacted or disrupted for a number of reasons including economic conditions as described above.beyond our control. While we work with suppliers to ensure continuity of supply, no assurance can be given that these efforts will be successful. In addition, due to regulatory requirements relating to the qualification of suppliers, we may not be able to establish additional or replacement sources on a timely basis or without excessive cost. The termination, reduction or interruption in supply of these sole-sourced raw materials and components could adversely impact our ability to manufacture and sell certain of our products.
Interruption of our manufacturing or sterilization operations could adversely affect our future revenues and operating income.business.
We have manufacturing sites all over the world. In some instances, however, the manufacturing of certain of our product lines is concentrated in one or more of our plants. DamageInterruption to one or more of these facilitiesour manufacturing operations resulting from weather or natural disasters, regulatory requirements or issues in our manufacturing process, equipment failure or other factors, could adversely affect our ability to manufacture these products, resultingour products. In some instances, we may not be able to transition manufacturing to other BD sites or a third party to replace the lost production. A significant interruption of our manufacturing operations could result in lost revenues and damage to our relationships with customers.
In particular, damageaddition, many of our products require sterilization prior to sale, and we utilize both BD facilities and third-parties for this process. In some instances, only a few facilities are qualified under applicable regulations to conduct this sterilization. To the extent we or third-parties are unable to sterilize our manufacturing facilitiesproducts, whether due to
lack of capacity, regulatory requirements or otherwise, we may be unable to transition sterilization to other sites or modalities in Puerto Rico resulting from Hurricane Maria in September 2017a timely or cost effective manner, or at all, which could adverselyhave an adverse impact on our revenue and earnings results for fiscal year 2018.operating results.
We are subject to lawsuits.
We are or have been a defendant in a number of lawsuits, including, among others, purported class action lawsuits for alleged antitrust violations, product liability claims (which may involve lawsuits seeking class action status or seeking to establish multi-district litigation proceedings, including claims relating to our hernia repair implant products, surgical continence and pelvic organ prolapse products for women and vena cava filter products), and suits alleging patent infringement, and could beinfringement. We have also been subject to additional lawsuitsgovernment subpoenas seeking information with respect to alleged violations of law, including in connection with federal and/or state healthcare programs (such as Medicare or Medicaid) and/or sales and marketing practices (such as the future.civil investigative demands). A more detailed description of these lawsuitscertain litigation to which we are a party is contained in noteNote 5 to the consolidated financial statements included in Item 8., Financial Statements and Supplementary Data. GivenWe could be subject to additional lawsuits or governmental investigations in the uncertain naturefuture.
Reserves established for estimated losses with respect to legal proceedings do not represent an exact calculation of our actual liability, but instead represent our estimate of the probable loss at the time the reserve is established. Due to the inherent uncertainty of litigation generally,and our underlying loss reserve estimates, additional reserves may be established or current reserves may be significantly increased from time-to-time. Also, in some instances, we are not able in all cases to estimate the amount or range of loss that could result from an unfavorable outcome of the litigation to which we are a party. In view of these uncertainties, we could incur charges materially in excess of any currently established accruals and, to the extent available, excess liability insurance. Any such future charges, individually or in the aggregate, could have a material adverse effect on our results of operations, financial condition and/or liquidity.
With respect to our existing product liability litigation, we believe that some settlements and cash flows.judgments, as well as legal defense costs, may be covered in whole or in part under our product liability insurance policies with a limited number of insurance companies, or, in some circumstances, indemnification obligations to us from other parties. However, amounts recovered under these arrangements may be less than the stated coverage limits or less than otherwise expected and may not be adequate to cover damages and/or costs. In addition, there is no guarantee that insurers or other parties will pay claims or that coverage or indemnity will be otherwise available. For certain product liability claims or lawsuits, BD does not maintain or has limited remaining insurance coverage, and we may not be able to obtain additional insurance on acceptable terms or at all that will provide adequate protection against potential liabilities.
We are subject to extensive regulation.
Our operations are global and are affected by complex state, federal and international laws relating to healthcare, environmental protection, antitrust, anti-corruption, marketing, fraud and abuse (including anti-kickback and false claims laws), export control, employment, privacy and other areas. Violations of these laws can result in criminal or civil sanctions, including substantial fines and, in some cases, exclusion from participation in health care programs such as Medicare and Medicaid. Environmental laws, particularly with respect to the emission of greenhouse gases, are also becoming more stringent throughout the world, which may increase our costs of operations or necessitate closures of or changes into our manufacturing plants or processes or those of our suppliers, or result in liability to BD. The enactment of additional laws in the future may increase our compliance costs or otherwise adversely impact our operations.
We are also subject to extensive regulation by the FDA pursuant to the Federal Food, Drug and Cosmetic Act, by comparable agencies in foreign countries, and by other regulatory agencies and governing bodies. Most of our products must receive clearance or approval from the FDA or counterpart regulatory agencies in other countries before they can be marketed or sold. The process for obtaining marketing approval or clearance may take arequire us to incur significant periodcosts in terms of time and require the expenditure of substantial resources, and these costs have been increasing due to increased requirements from the FDA for supporting data for submissions. The regulatory process may also require changes to our products or result in limitations on the indicated uses of theour products. Governmental
agencies may also impose new requirements regarding registration, labeling or prohibited materials that may require us to modify or re-register products already on the market or otherwise impact our ability to market our products in those countries. Once clearance or approval has been obtained for a product, there is an obligation to ensure that all applicable FDA and other regulatory requirements continue to be met.
Following the introduction of a product, these agencies also periodically review our manufacturing processes and product performance. Our failure to comply with the applicable good manufacturing practices, adverse event reporting, clinical trial and other requirements of these agencies could delay or prevent the production, marketing or sale of our products and result in fines, delays or suspensions of regulatory clearances, warning letters or consent decrees, closure of manufacturing sites, import bans, seizures or recalls of products and damage to our reputation. More stringent oversight by the FDA and other agencies in recent years has resulted in increased enforcement activity, which increases theour compliance risk for us and other companies in our industry.risk.
As a result of the CareFusion acquisition, weWe are operating under a consent decree with the FDA, that was entered into by CareFusion in 2007 and amended in 2009, that affects our Alaris™ infusion pump business in the United States. We are also currently operating under a warning letter issued by the FDA. For more information regarding the consent decree and warning letter, see “Regulation” under Item 1, “Business”.1. Business.
In March 2019, the FDA issued a letter to healthcare professionals regarding the use of paclitaxel-coated devices in the treatment of peripheral artery disease, advising clinicians to consider using alternative treatments. The FDA letter resulted in decreased sales of BD’s drug-coated balloons in fiscal year 2019 compared to the prior year. The extent and duration of the impact from the FDA letter beyond fiscal year 2019, and the likelihood of FDA approval of new drug-coated devices, is difficult to predict, and no assurance can be given that it will not have a material impact on our results of operations in future periods.
In addition, the European Union (“EU”) has adopted the EU Medical Device Regulation (the “EU MDR”) and the In Vitro Diagnostic Regulation (the “EU IVDR”), each of which impose stricter requirements for the marketing and sale of medical devices, including in the area of clinical evaluation requirements, quality systems and post-market surveillance. Manufacturers of currently approved medical devices will have until May 2020 to meet the requirements of the EU MDR and until May 2022 to meet the EU IVDR. Complying with these regulations will require us to incur significant expenditures. Failure to meet these requirements could adversely impact our business in the EU and other regions that tie their product registrations to EU requirements.
We are also subject to complex and frequently changing laws in the U.S. and elsewhere regarding privacy and the collection, use, storage and protection of personal information, and noncompliance with these laws could result in substantial fines or litigation. For instance, the EU has also adopted the General Data Protection Regulation ("GDPR"), which will apply to personal data involved in our operations in the EU or products and services that we offer to EU users involving personal data. The GDPR creates a range of new compliance obligations that could require us to change our existing business practices policies, and significantly increases financial penalties for noncompliance.
Defects or quality issues associated with our products could adversely affect the results of our operations.
The design, manufacture and marketing of medical devices involve certain inherent risks. Manufacturing or design defects, component failures, unapproved or improper use of our products, or inadequate disclosure of risks or other information relating to the use of our products can lead to injury or other serious adverse events. These events could lead to recalls or safety alerts relating to our products (either voluntary or as required by the FDA or similar governmental authorities in other countries), and could result, in certain cases, in the removal of a product from the market. A recall could result in significant costs and lost sales and customers, enforcement actions and/or investigations by state and federal governments or other enforcement bodies, as well as negative publicity and damage to our reputation that could reduce future demand for our products. Personal injuries relating to the use of our products can also result in significant product liability claims being brought against us. In some circumstances, such adverse events could also cause delays in regulatory approval of new products.products or the imposition of post-market approval requirements.
Our operations are dependent in part on patents and other intellectual property assets.
Many of our businesses rely on patent, trademark and other intellectual property assets. These intellectual property assets, in the aggregate, are of material importance to our business. We can lose the protection afforded by these intellectual property assets through patent expirations, legal challenges or governmental action. Patents attained by competitors, particularly as patents on our products expire, may also adversely affect our competitive position. In addition, competitors may seek to invalidate patents on our products or claim that our products infringe upon their intellectual property, which could result in a loss of competitive advantage or the payment of significant legal fees, damage awards and past or future royalties, as well as injunctions against future sales of our products. We also operate in countries that do not protect intellectual property rights to the same extent as in the U.S., which could make it easier for competitors to compete with us in those countries. The loss of a significant portion of our portfolio of intellectual property assets may have an adverse effect on our earnings, financial condition or cash flows.
Natural disasters, war and other events could adversely affect our future revenues and operating income.
Natural disasters (including pandemics), war, terrorism, labor disruptions and international conflicts, and actions taken by the United States and other governments or by our customers or suppliers in response to such events, could cause significant economic disruption and political and social instability in the United States and areas outside of the United States in which we operate. These events could result in decreased demand for our products, adversely affect our manufacturing and distribution capabilities, or increase the costs for or cause interruptions in the supply of materials from our suppliers.
We need to attract and retain key employees to be competitive.
Our ability to compete effectively depends upon our ability to attract and retain executives and other key employees, including people in technical, marketing, sales and research positions. Competition for experienced employees, particularly for persons with specialized skills, can be intense. Our ability to recruit such talent will depend on a number of factors, including compensation and benefits, work location and work environment. If we cannot effectively recruit and retain qualified executives and employees, our business could be adversely affected.
We may not realize all of the anticipated benefits and cost savings resulting from our acquisition of CareFusion.Bard.
While we have realized significant cost savings to date in connection with our acquisition of CareFusion in 2015,Bard, achieving additional cost synergies may prove more difficult than expected, and it is possible that the anticipated cost synergies of the merger may not be realized fully, or may take longer to realize than expected.
Risks Relating To Our Acquisition of Bard
Completion of the Bard acquisition is subject to conditions and if these conditions are not satisfied or waived, the Bard acquisition will not be completed.
The obligations of us and Bard to complete the Bard acquisition are subject to satisfaction or waiver of a number of conditions, the expiration or termination of the applicable waiting period in connection with the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”), the receipt of any authorization or consent from certain other governmental authorities required to be obtained with respect to the merger under applicable foreign antitrust laws, approval of the listing on the NYSE of shares of our common stock to be issued in the Bard acquisition, and the absence of an injunction prohibiting the Bard acquisition. Each party’s obligation to complete the Bard acquisition is subject to the satisfaction or waiver (to the extent permitted under applicable law) of certain other customary conditions, the accuracy of the representations and warranties of the other party under the Merger Agreement (subject to the materiality standards set forth in the Merger Agreement), the performance by the other party of its respective obligations under the Merger Agreement in all material respects and delivery of officer certificates by the other party certifying satisfaction of the two preceding conditions. Either we or Bard may, subject to certain exceptions, terminate the Merger Agreement upon mutual consent or if the Bard acquisition has not been consummated on or before January 23, 2018 (or before April 23, 2018 if all closing conditions have been satisfied other than the receipt of required competition approvals).
The failure to satisfy all of the required conditions could delay the completion of the Bard acquisition for a significant period of time or prevent it from occurring. If the Bard acquisition is not completed, our ongoing business may be materially adversely affected and, without realizing any of the benefits of having completed the Bard acquisition, we will be subject to a number of risks, including the following:
the market price of our common stock could decline;
if the Merger Agreement is terminated and our board of directors seeks another business combination, our stockholders cannot be certain that we will be able to find a party willing to enter into a transaction on terms equivalent to or more attractive than the terms that Bard has agreed to in the Merger Agreement;
time and resources, financial and other, committed by our management to matters relating to the Bard acquisition could otherwise have been devoted to pursuing other beneficial opportunities for our company;
we may experience negative reactions from the financial markets or from our customers or employees; and
we will be required to pay our respective costs relating to the Bard acquisition, including legal, accounting, financial advisory, financing and printing fees, whether or not the Bard acquisition is completed.
In addition, if the Bard acquisition is not completed, we could be subject to litigation related to any failure to complete the Bard acquisition or related to any enforcement proceeding commenced against us to perform our obligations under the Merger Agreement. The materialization of any of these risks could materially and adversely impact our ongoing business.
Similarly, any delay in completing the Bard acquisition could, among other things, result in additional transaction costs, loss of revenue or other negative effects associated with uncertainty about completion of the Bard acquisition and cause us not to realize some or all of the benefits that we expect to achieve if the Bard acquisition is successfully completed within its expected timeframe. There can be no assurance that the conditions to the closing of the Bard acquisition will be satisfied or waived or that the Bard acquisition will be consummated.
In order to complete the Bard acquisition, we and Bard must make certain governmental filings and obtain certain governmental authorizations, and if such filings and authorizations are not made or granted or are granted with conditions, completion of the Bard acquisition may be jeopardized or the anticipated benefits of the Bard acquisition could be reduced.
Although we and Bard have agreed in the Merger Agreement to use reasonable best efforts, subject to certain limitations, to make certain governmental filings, to obtain the required expiration or termination of the waiting period under the HSR Act and to obtain any authorization or consent from certain other governmental authorities required to be obtained with respect to the merger under applicable foreign antitrust laws, there can be no assurance that such approvals will be obtained. As a condition to granting termination of the waiting period under the HSR Act and to adoption of approvals of the Bard acquisition, governmental authorities may impose requirements, limitations or costs or require divestitures or place restrictions on the conduct of our business after completion of the Bard acquisition.
Under the terms of the Merger Agreement, subject to certain exceptions, we and our subsidiaries are required to accept certain conditions and take certain actions imposed by certain governmental authorities that would apply to, or affect, the businesses, assets or properties of us, our subsidiaries or Bard and its subsidiaries. There can be no assurance that regulators will not impose conditions, terms, obligations or restrictions and that such conditions, terms, obligations or restrictions will not have the effect of (i) delaying completion of the Bard acquisition, (ii) imposing additional material costs on or materially limiting the revenues of the combined company following the Bard acquisition, or (iii) otherwise adversely affecting our businesses and results of operations after completion of the Bard acquisition. In addition, we can provide no assurance that these conditions, terms, obligations or restrictions will not result in the delay or abandonment of the Bard acquisition.
Each party is subject to business uncertainties and contractual restrictions while the proposed merger is pending, which could adversely affect each party’s or the combined company’s business and operations.
In connection with the pendency of the Bard acquisition, it is possible that some customers, suppliers and other persons with whom we or Bard have a business relationship may delay or defer certain business decisions or might decide to seek to terminate, change or renegotiate their relationships with us or Bard, as the case may be, as a result of the Bard acquisition, which could negatively affect our or Bard’s respective revenues, earnings and cash flows, regardless of whether the Bard acquisition is completed. If the Bard acquisition is completed, such terminations, changes or renegotiations could negatively affect the revenues, earnings and cash flows of the combined company. These risks may be exacerbated by delays or other adverse developments with respect to the completion of the Bard acquisition.
Combining the two companies may be more difficult, costly or time consuming than expected and the anticipated benefits and cost savings of the Bard acquisition may not be realized.
We and Bard have operated and, until the completion of the Bard acquisition, will continue to operate, independently. The success of the Bard acquisition, including anticipated benefits and cost savings, will depend, in part, on our ability to successfully combine and integrate our business with the business of Bard.
The Bard acquisition will involve the integration of Bard’s business with our existing business, which is a complex, costly and time-consuming process. It is possible that the pendency of the Bard acquisition and/or the integration process could result in material challenges, including, without limitation:
the diversion of management’s attention from ongoing business concerns and performance shortfalls at one or both of the companies as a result of the devotion of management’s attention to the Bard acquisition;
managing a larger combined company;
maintaining employee morale and retaining key management and other employees;
the possibility of faulty assumptions underlying expectations regarding the integration process;
retaining existing business and operational relationships and attracting new business and operational relationships;
consolidating corporate and administrative infrastructures and eliminating duplicative operations and inconsistencies in standards, controls, procedures and policies;
coordinating geographically separate organizations;
unanticipated issues in integrating information technology, communications and other systems; and
unforeseen expenses or delays associated with the Bard acquisition.
Many of these factors will be outside of the combined company’s control and any one of them could result in delays, increased costs, decreases in revenues and diversion of management’s time and energy, which could materially affect the combined company’s financial position, results of operations and cash flows.
If we experience difficulties with the integration process, the anticipated benefits of the Bard acquisition may not be realized fully or at all, or may take longer to realize than expected. These integration matters could have an adverse effect on (i) each of us and Bard during this transition period and (ii) the combined company for an undetermined period after completion of the Bard acquisition. In addition, the actual cost savings of the Bard acquisition could be less than anticipated.
In addition, certain risks associated with our industry and business described herein and in our public filings may become more significant following consummation of the Bard acquisition, including, but not limited to, risks relating to: the continued focus by third-party payors on cost containment and government scrutiny of the healthcare industry’s sales and marketing practices, various healthcare reform proposals that have emerged on the federal and state levels and in other jurisdictions where the combined company sells its products, collective bargaining and labor activity, and the integrity of our information systems that are run by third party vendors and such vendors’ ability to maintain their systems and reduce any vulnerability to natural and system disruptions and prevent cyber-attacks and other unauthorized access.
The future results of the combined company may be adversely impacted if the combined company does not effectively manage its expanded operations following the completion of the Bard acquisition.
Following the completion of the Bard acquisition, the size of the combined company’s business will be significantly larger than the current size of either our or Bard’s respective businesses. The combined company’s ability to successfully manage this expanded business will depend, in part, upon management’s ability to design and implement strategic initiatives that address not only the integration of two discrete companies, but also the increased scale and scope of the combined business with its associated increased costs and complexity. There can be no assurances that the combined company will be successful or that it will realize the expected operating efficiencies, cost savings and other benefits currently anticipated from the Bard acquisition.
The combined company is expected to incur substantial expenses related to the completion of the Bard acquisition and the integration of BD and Bard.
We and Bard have incurred, and expect to continue to incur, a number of non-recurring costs associated with the Bard acquisition and combining the operations of the two companies. The substantial majority of non-recurring expenses will be comprised of transaction and regulatory costs related to the Bard acquisition.
We also will incur transaction fees and costs related to formulating and implementing integration plans, including facilities and systems consolidation costs and employment-related costs. We continue to assess the magnitude of these costs, and additional unanticipated costs may be incurred in the Bard acquisition and the integration of the two companies’ businesses. Although we expect that the elimination of duplicative costs, as well as the realization of other efficiencies related to the integration of the businesses, should allow us to offset integration-related costs over time, this net benefit may not be achieved in the near term, or at all.
In connection with the Bard acquisition, we have incurred significant additional indebtedness, and certain of Bard’s indebtedness will remain outstanding, which could adversely affect us, including by decreasing our business flexibility, and will increase our interest expense.
We have substantially increased our indebtedness in connection with the pending Bard acquisition through the incurrence of new indebtedness to finance the Bard acquisition and following the Bard acquisition, through the assumption of Bard’s existing indebtedness, in comparison to our indebtedness on a recent historical basis, whichbasis. This could have the effect of, among other things, reducing our flexibility to respond to changing business challenges and economic conditionsopportunities, and increasing our interest expense.
The amount of cash required to pay interest on our increased indebtedness levels following completion of the Bard acquisition, and thus the demands on our cash resources, will beare greater than the amount of cash flows required to service our indebtedness prior to the Bard acquisition. The increased levels of indebtedness following completion of the Bard acquisition couldmay also reduce funds available for working capital, capital expenditures, acquisitions, the repayment or refinancing of our indebtedness as it becomes due and other general corporate purposes, and may create competitive disadvantages for us relative to other companies with lower debt levels. In addition, certain of the indebtedness incurred in connection with the Bard acquisition bears interest at variable interest rates. If interest rates increase, variable rate debt will create higher debt service requirements, which could further adversely affect our cash flows. If we do not achieve the expected benefits
and cost savings from the Bard acquisition, or if the financial performance of theas a combined company does not meet current expectations, then our ability to service our indebtedness may be adversely impacted.
In addition, our credit ratings affect the cost and availability of future borrowings and, accordingly, our cost of capital. Our ratings reflect each rating organization’s opinion of our financial strength, operating performance and ability to meet our debt obligations. There can be no assurance that we will achieve a particular rating or maintain a particular rating in the future or that we will be able to maintain our current rating. Furthermore, we expect that our combined company’s credit ratings will be lowerwere lowered following the Bard acquisition, including below “investment grade” by Moody’s Investors Service, Inc., which may further increase the combined company’sour future borrowing costs and reduce the combined company’sour access to capital.
Moreover, in the future we may be required to raise substantial additional financing to fund working capital, capital expenditures, the repayment or refinancing of our indebtedness, acquisitions or other general corporate requirements. Our ability to arrange additional financing or refinancing will depend on, among other factors, our financial position and performance, as well as prevailing market conditions and other factors beyond our control. We cannot assure youNo assurance can be provided that itwe will be able to obtain additional financing or refinancing on terms acceptable to us or at all.
We may not be able to service all of the combined company’s indebtedness and may be forced to take other actions to satisfy our obligations under our indebtedness, which may not be successful. Our failure to meet our debt service obligations could have a material adverse effect on our business, financial condition and results of operations.indebtedness.
We depend on cash on hand and cash flows from operations to make scheduled debt payments. We expect to be able to meet the estimated cash interest payments on the combined company’s debt following the Bard acquisition through a combination of the expected cash flows from operations of the combined company. However, our ability to generate sufficient cash flow from operations of the combined company and to utilize other methods to make scheduled payments will depend on a range of economic, competitive and business factors, many of which are outside of our control. There can be no assurance that these sources will be adequate. If we are unable to service our indebtedness and fund our operations, we will be forced to reduce or delay capital expenditures, seek additional capital, sell assets or refinance our indebtedness. Any such action may not be successful and we may be unable to service our indebtedness and fund our operations, which could have a material adverse effect on our business, financial condition or results of operations.
The agreements that will govern the indebtedness incurred in connection with the Bard acquisition contain various covenants that impose restrictions on us and certain of our subsidiaries that may affect our ability to operate our businesses.
The agreements that govern the indebtedness incurred in connection with the Bard acquisition contain various affirmative and negative covenants that may, subject to certain significant exceptions, restrict the ability of certain of our subsidiaries to incur debt and the ability of us and certain of our subsidiaries to, among other things, have liens on our property, and/or merge or consolidate with any other person or sell or convey certain of our assets to any one person, engage in certain transactions with affiliates and change the nature of our business. In addition, the agreements also require us to comply with certain financial covenants, including financial ratios. Our ability and the ability of our subsidiaries to comply with these provisions may be affected by events beyond our control. Failure to comply with these covenants could result in an event of default, which, if not cured or waived, could accelerate our repayment obligations and could result in a default and acceleration under other agreements containing cross-default provisions. Under these circumstances, we might not have sufficient funds or other resources to satisfy all of our obligations.
Uncertainties associated with the Bard acquisition may cause a loss of management personnel and other key employees of Bard or us, which could adversely affect the future business and operations of the combined company following the Bard acquisition.
We and Bard are dependent on the experience and industry knowledge of our respective officers and other key employees to execute our respective business plans. The combined company’s success after the Bard acquisition will depend in part upon its ability to retain key management personnel and other key employees of us and Bard. Current and prospective employees of us and Bard may experience uncertainty about their future roles with the combined company following the Bard acquisition, which may materially adversely affect the ability of each of us and Bard to attract and retain key personnel during the pendency of and after the Bard acquisition. Accordingly, no assurance can be given that the combined company will be able to retain key management personnel and other key employees of us and Bard.
Completion of the Bard acquisition will trigger change in control or other provisions in certain agreements to which Bard is a party, which may have an adverse impact on the combined company’s business and results of operations.
The completion of the Bard acquisition will trigger change in control and other provisions in certain agreements to which Bard is a party. If we and Bard are unable to negotiate waivers of those provisions, the counterparties may exercise their rights and remedies under the agreements, potentially terminating the agreements or seeking monetary damages. Even if we and Bard are able to negotiate waivers, the counterparties may require a fee for such waivers or seek to renegotiate the agreements on terms less favorable to Bard or the combined company. Any of the foregoing or similar developments may have an adverse impact on the combined company’s business and results of operations.
For example, if the ratings of certain of Bard’s outstanding senior notes are reduced beyond certain thresholds within certain time periods prior to or following the consummation of the Bard acquisition, Bard could be required to offer to repurchase such notes at 101% of the aggregate principal amount of such notes plus any accrued and unpaid interest to the repurchase date.
Following the consummation of the Bard acquisition, the combined company will assume certain potential liabilities relating to Bard, including certain products liability and mass torts claims.
Following the consummation of the Bard acquisition, the combined company will have assumed certain potential liabilities relating to Bard, including certain products liability and mass tort claims with respect to the design, manufacture and marketing of medical devices and related settlement agreements and judgments. As of September 30, 2017, Bard has reported that there are: (i) approximately 25 federal and 185 state lawsuits involving individual claims by approximately 205 plaintiffs, as well as one putative class action in the United States, are currently pending against Bard’s hernia repair implant products, (ii) product liability lawsuits involving individual claims by approximately 3,285 plaintiffs are currently pending against Bard in various federal and state jurisdictions with respect to Bard’s surgical continence products for women and (iii) product liability lawsuits involving individual claims by approximately 1,755 plaintiffs are currently pending against Bard in various federal and state jurisdictions with respect to Bard’s vena cava filter products.
Bard does not maintain or has limited remaining insurance coverage for certain of these claims and the combined company may not be able to obtain additional insurance on acceptable terms or at all that will provide adequate protection against potential liabilities. Moreover, in some circumstances adverse events arising from or associated with the design, manufacture, quality or marketing of our combined company’s products could result in the FDA suspending or delaying its review of our applications for new product approvals, or imposing post market approval requirements. In addition, reserves established by Bard or the combined company for estimated losses, including with respect to these claims, do not represent an exact calculation of actual liability but instead represent estimates of the probable loss at the time the reserve is established. Due to the inherent uncertainty underlying loss reserve estimates, additional reserves may be established from time-to-time, and actual losses relating to the assumed Bard liabilities may be materially higher or lower than the related reserve. Any of the foregoing could have a material adverse effect on our business, financial condition or results of operations.
Sales of shares of BD common stock after the completion of the transaction may cause the market price of BD equity securities to fall.
We will issue a significant number of shares of our common stock in connection with the Bard acquisition. Many Bard stockholders may decide not to hold the shares of our common stock they will receive in the Bard acquisition. Other Bard stockholders, such as funds with limitations on their permitted holdings of stock in individual issuers, may be required to sell the shares of our common stock that they receive in the Bard acquisition. Such sales of our common stock could have the effect of depressing the market price for our equity securities and may take place promptly following the Bard acquisition.
The mandatory convertible preferred stock underlying the depositary shares issued in connection with the financing of the Bard transaction may adversely affect the market price of BD common stock.
The market price of BD common stock is likely to be influenced by the mandatory convertible preferred stock underlying the depositary shares issued in connection with the financing for the Bard transaction. The market price of BD common stock could become more volatile and could be depressed by:
investors’ anticipation of the potential resale in the market of a substantial number of additional shares of BD common stock received upon conversion of the mandatory convertible preferred stock;
possible sales of BD common stock by investors who view the mandatory convertible preferred stock as a more attractive means of equity participation in BD than owning shares of BD common stock; and
hedging or arbitrage trading activity that may develop involving the mandatory convertible preferred stock and BD common stock.
Item 1B. Unresolved Staff Comments.
None.
Item 2. Properties.
BD’s executive offices are located in Franklin Lakes, New Jersey. As of October 31, 2017,28, 2019, BD owned or leased 289362 facilities throughout the world, comprising approximately 20,462,40525,296,582 square feet of manufacturing, warehousing, administrative and research facilities. The U.S. facilities, including those in Puerto Rico, comprise approximately 7,472,4198,428,226 square feet of owned and 2,976,2674,458,036 square feet of leased space. The international
facilities comprise approximately 7,478,7148,971,758 square feet of owned and 2,535,0053,438,562 square feet of leased space. Sales offices and distribution centers included in the total square footage are also located throughout the world.
Operations in each of BD’s business segments are conducted at both U.S. and international locations. Particularly in the international marketplace, facilities often serve more than one business segment and are used for multiple purposes, such as administrative/sales, manufacturing and/or warehousing/distribution. BD generally seeks to own its manufacturing facilities, although some are leased. The following table summarizes property information by business segment.
|
| | | | | | | | | | |
| Sites | Corporate |
| BD Life Sciences |
| BD Medical |
| Mixed(A) |
| Total |
| Leased | 14 |
| 25 |
| 96 |
| 83 |
| 218 |
|
| Owned | 6 |
| 26 |
| 33 |
| 6 |
| 71 |
|
| Total | 20 |
| 51 |
| 129 |
| 89 |
| 289 |
|
| Square feet | 2,263,694 |
| 4,421,732 |
| 10,838,632 |
| 2,938,347 |
| 20,462,405 |
|
| |
(A) | Facilities used by more than one business segment.
|
BD believes that its facilities are of good construction and in good physical condition, are suitable and adequate for the operations conducted at those facilities, and are, with minor exceptions, fully utilized and operating at normal capacity.
The U.S. facilities are located in Alabama, Arizona, California, Connecticut, Florida, Georgia, Illinois, Indiana, Maryland, Massachusetts, Michigan,Minnesota, Missouri, Montana, Nebraska, New Jersey, New York, North Carolina, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Carolina, Tennessee, Texas, Utah, Virginia, Washington, D.C., Washington, Wisconsin and Puerto Rico.
The international facilities are as follows:
- Europe, Middle East, Africa, which includes facilities in Austria, Belgium, Bosnia, and Herzegovina, the Czech Republic, Denmark, England, Finland, France, Germany, Ghana, Greece, Hungary, Ireland, Israel, Italy, Kenya, Luxembourg, Netherlands, Norway, Pakistan, Poland, Portugal, Russia, Saudi Arabia, South Africa, Spain, Sweden, Switzerland, Turkey, the United Arab Emirates and Zambia.
- Greater Asia, which includes facilities in Australia, Bangladesh, China, India, Indonesia, Japan, Malaysia, New Zealand, the Philippines, Singapore, South Korea, Taiwan, Thailand and Vietnam.
- Latin America, which includes facilities in Argentina, Brazil, Chile, Colombia, Mexico, Peru and the Dominican Republic.
- Canada.
Item 3. Legal Proceedings.
Information with respect to certain legal proceedings is included in Note 5 to the consolidated financial statements contained in Item 8. Financial Statements and Supplementary Data, and is incorporated herein by reference.
Item 4. Mine Safety Disclosures.
Not applicable.
Information about our Executive Officers of the Registrant
The following is a list of the executive officers of BD, their ages and all positions and offices held by each of them during the past five years. There is no family relationship between any executive officer or director of BD.
|
| | |
| Name | Age | Position |
| Vincent A. Forlenza | 6466 | Chairman since July 2012; Chief Executive Officer since October 2011; and President from January 2009 to April 2017; and Chief Operating Officer from July 2010 to October 2011.2017. Mr. Forlenza will become executive Chairman, effective January 28, 2020. |
| Thomas E. Polen | 4446 | Chief Operating Officer since October 2018; President since April 2017; and Executive Vice President and President - Medical Segment from October 2014 to April 2017; Group2017. The BD Board of Directors has elected Mr. Polen to serve as BD's Chief Executive Officer and President, from October 2013 to October 2014; and Worldwide President - BD Diagnostic Systems from October 2010 to October 2013.effective January 28, 2020. |
James W. BorziSimon D. Campion | 5548 | Executive Vice President Global Operations and Chief Supply Chain OfficePresident, Interventional Segment since October 2017; Senior ViceSeptember 2018; Worldwide President, Global OperationsBD Interventional - Surgery from December 2017 to September 2018; President, Davol (now part of our Surgery business), C.R. Bard, Inc. from July 2015 to OctoberDecember 2017; Vice President, Global Manufacturing from 2013 to 2015; and prior thereto, Vice President and General Manager, Hydro Aluminum from 2012 to 2013.Davol. |
| Alexandre Conroy | 5456 | Executive Vice President and Chief Integrated Supply Chain Officer since February 2019; Worldwide President, Medication and Procedural Solutions sincefrom May 2017;2017 to February 2019; and Executive Vice President and President, Europe, EMA and the Americas from June 2012 to May 2017. |
| Roland Goette | 5557 | Executive Vice President and President, EMEA since May 2017; and President, Europe from October 2014 to May 2017. |
| Patrick K. Kaltenbach | 56 | Executive Vice President and President, Life Sciences Segment since May 2018; and Senior Vice President and President, Life Sciences and Applied Markets Group, Agilent Technologies, Inc. from November 2014 to April 2018. |
| Samrat S. Khichi | 52 | Executive Vice President, Public Policy and Regulatory Affairs since May 2019; Executive Vice President and General Counsel from December 2017 to May 2019; and Senior Vice President, General Counsel and Corporate Secretary, C.R. Bard, Inc. from July 2014 to December 2017. |
| Betty D. Larson | 43 | Executive Vice President, Human Resources, and Chief Human Resources Officer since July 2018; Senior Vice President of Human Resources, Interventional Segment from December 2017 to July 2018; Vice President, Human Resources, C.R. Bard, Inc. from September 2017 to December 2017; and prior thereto, Vice President, and General ManagerHuman Resources - Global Medical Surgical Systems, Western Europe.Products Business, C.R. Bard, Inc. |
| James Lim | 5355 | Executive Vice President and President, Greater Asia since June 2012. |
| Alberto Mas | 5658 | Executive Vice President and President - Medical Segment since June 2018; Executive Vice President and President - Life Sciences Segment sincefrom October 2016;2016 to June 2018; and Worldwide President - Life Sciences, Diagnostic Systems from October 2013 to October 2016; and Worldwide President - BD Biosciences from October 2011 to October 2013.2016. |
| Christopher R. Reidy | 6062 | Executive Vice President, Chief Financial Officer and Chief Administrative Officer since July 2013; and prior thereto, Vice President and Chief Financial Officer of ADP Corporation. |
Nabil Shabshab | 52 | Worldwide President, Diabetes Care and Digital Health since August 2017; Executive Vice President and President, Americas and Chief Customer Experience Officer from May 2017 to August 2017; Executive Vice President and Chief Marketing Officer from January 2015 to May 2017; Senior Vice President and Chief Marketing Officer from August 2011 to January 2015. |
Ellen R. Strahlman, M.D. | 60 | Executive Vice President, Research and Development since January 2015, Chief Medical Officer since April 2013; Senior Vice President, Research and Development from April 2013 to January 2015; and prior thereto, Senior Vice President, Office of the CEO and Global Head, Neglected Tropical Diseases of GlaxoSmithKline. |
Linda M. Tharby | 49 | Executive Vice President and Chief Human Resource Officer since October 2016; Executive Vice President and President - Life Sciences Segment from October 2014 to October 2016; Group President from October 2013 to October 2014; and prior thereto, Worldwide President - BD Medical, Diabetes Care.2013. |
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
BD’s common stock is listed on the New York Stock Exchange.Exchange under the symbol "BDX". As of October 31, 2017,2019, there were approximately 13,13413,277 shareholders of record.
Market and Market Prices of Common Stock (per common share)
|
| | | | | | | | |
| | 2016 | 2017 |
| By Quarter | High |
| Low |
| High |
| Low |
|
| First | $156.53 |
| $132.19 |
| $179.17 |
| $162.80 |
|
| Second | 152.54 |
| 132.88 |
| 185.34 |
| 164.80 |
|
| Third | 172.19 |
| 152.86 |
| 195.15 |
| 177.07 |
|
| Fourth | 181.55 |
| 169.64 |
| 205.63 |
| 191.56 |
|
Dividends (per common share)
|
| | | | |
| By Quarter | 2016 |
| 2017 |
|
| First | $ 0.660 |
| $ 0.730 |
|
| Second | 0.660 |
| 0.730 |
|
| Third | 0.660 |
| 0.730 |
|
| Fourth | 0.660 |
| 0.730 |
|
Issuer Purchases of Equity Securities
The table below sets forth certain information regarding BD’s purchases of its common stock during the fiscal quarter ended September 30, 2017.2019.
|
| | | | | | | | | | | |
| Period | Total Number of Shares Purchased(1) | | Average Price Paid per Share | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs(2) | | Maximum Number of Shares that May Yet be Purchased Under the Plans or Programs(2) |
| July 1-31, 2017 | 1,809 |
| | $197.71 |
| | — |
| | 7,857,742 |
|
| August 1-31, 2017 | 240 |
| | $196.39 |
| | — |
| | 7,857,742 |
|
| September 1-30, 2017 | — |
| | — |
| | — |
| | 7,857,742 |
|
| Total | 2,049 |
| | $197.55 | | — |
| | 7,857,742 |
|
|
| | | | | | | | | | | |
| Period | Total Number of Shares Purchased(1) | | Average Price Paid per Share | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | | Maximum Number of Shares that May Yet be Purchased Under the Plans or Programs(2) |
| July 1-31, 2019 | 1,329 |
| | $253.11 | | — |
| | 7,857,742 |
|
| August 1-31, 2019 | 212 |
| | $249.88 | | — |
| | 7,857,742 |
|
| September 1-30, 2019 | — |
| | — |
| | — |
| | 7,857,742 |
|
| Total | 1,541 |
| | $252.66 | | — |
| | 7,857,742 |
|
| |
| (1) | Includes 2,049 shares purchased during the quarter in open market transactions by the trust relating to BD’s Deferred Compensation and Retirement Benefit Restoration Plan and 1996 Directors’ Deferral Plan. |
| |
| (2) | Represents shares available under the repurchase program authorized by the Board of Directors on September 24, 2013 for 10 million shares, for which there is no expiration date. |
Item 6. Selected Financial Data.
FIVE-YEAR SUMMARY OF SELECTED FINANCIAL DATA
Becton, Dickinson and Company |
| | | | | | | | | | | | | | | | | | | |
| | Years Ended September 30 |
| | 2019 | | 2018 | | 2017 | | 2016 | | 2015 |
| | Dollars in millions, except share and per share amounts |
| Operations | | | | | | | | | |
| Revenues | $ | 17,290 |
| | $ | 15,983 |
| | $ | 12,093 |
| | $ | 12,483 |
| | $ | 10,282 |
|
| Gross Profit (a) | 8,288 |
| | 7,269 |
| | 5,965 |
| | 6,018 |
| | 4,719 |
|
| Operating Income (a) | 1,760 |
| | 1,509 |
| | 1,522 |
| | 1,481 |
| | 1,119 |
|
| Income Before Income Taxes | 1,176 |
| | 1,173 |
| | 976 |
| | 1,074 |
| | 739 |
|
| Income Tax (Benefit) Provision | (57 | ) | | 862 |
| | (124 | ) | | 97 |
| | 44 |
|
| Net Income | 1,233 |
| | 311 |
| | 1,100 |
| | 976 |
| | 695 |
|
| Basic Earnings Per Share | 4.01 |
| | 0.62 |
| | 4.70 |
| | 4.59 |
| | 3.43 |
|
| Diluted Earnings Per Share | 3.94 |
| | 0.60 |
| | 4.60 |
| | 4.49 |
| | 3.35 |
|
| Dividends Per Common Share | 3.08 |
| | 3.00 |
| | 2.92 |
| | 2.64 |
| | 2.40 |
|
| Financial Position | | | | | | | | | |
| Total Assets | 51,765 |
| | 53,904 |
| | 37,734 |
| | 25,586 |
| | 26,478 |
|
| Total Long-Term Debt | 18,081 |
| | 18,894 |
| | 18,667 |
| | 10,550 |
| | 11,370 |
|
| Total Shareholders’ Equity | 21,081 |
| | 20,994 |
| | 12,948 |
| | 7,633 |
| | 7,164 |
|
| Additional Data | | | | | | | | | |
| Average Common and Common Equivalent Shares Outstanding — Assuming Dilution (millions) | 274.8 |
| | 264.6 |
| | 223.6 |
| | 217.5 |
| | 207.5 |
|
|
| | | | | | | | | | | | | | | | | | | | |
| | Years Ended September 30 | |
| | 2017 | | 2016 | | 2015 | | 2014 | | 2013 | |
| | Dollars in millions, except share and per share amounts | |
| Operations | | | | | | | | | | |
| Revenues | $ | 12,093 |
| | $ | 12,483 |
| | $ | 10,282 |
| | $ | 8,446 |
| | $ | 8,054 |
| |
| Gross Margin | 5,942 |
| | 5,991 |
| | 4,695 |
| | 4,301 |
| | 4,171 |
| |
| Research and Development Expense | 774 |
| | 828 |
| | 632 |
| | 550 |
| | 494 |
| |
| Operating Income | 1,478 |
| | 1,430 |
| | 1,074 |
| | 1,606 |
| | 1,254 |
| |
| Interest Expense, Net | 445 |
| | 367 |
| | 356 |
| | 89 |
| | 98 |
| |
| Income From Continuing Operations Before Income Taxes | 976 |
| | 1,074 |
| | 739 |
| | 1,522 |
| | 1,165 |
| |
| Income Tax (Benefit) Provision | (124 | ) | | 97 |
| | 44 |
| | 337 |
| | 236 |
| |
| Income from Continuing Operations | 1,100 |
| | 976 |
| | 695 |
| | 1,185 |
| | 929 |
| |
| Net Income | 1,100 |
| | 976 |
| | 695 |
| | 1,185 |
| | 1,293 |
| |
| Basic Earnings Per Share from Continuing Operations | 4.70 |
| | 4.59 |
| | 3.43 |
| | 6.13 |
| | 4.76 |
| |
| Diluted Earnings Per Share from Continuing Operations | 4.60 |
| | 4.49 |
| | 3.35 |
| | 5.99 |
| | 4.67 |
| |
| Dividends Per Common Share | 2.92 |
| | 2.64 |
| | 2.40 |
| | 2.18 |
| | 1.98 |
| |
| Financial Position | | | | | | | | | | |
| Total Current Assets | $ | 18,633 |
| | $ | 6,367 |
| | $ | 5,659 |
| | $ | 5,775 |
| | $ | 5,530 |
| |
| Total Current Liabilities | 3,342 |
| | 4,400 |
| | 4,381 |
| | 2,225 |
| | 2,122 |
| |
| Total PPE, Net | 4,638 |
| | 3,901 |
| | 4,060 |
| | 3,605 |
| | 3,476 |
| |
| Total Assets | 37,734 |
| | 25,586 |
| | 26,478 |
| | 12,384 |
| | 12,029 |
| |
| Total Long-Term Debt | 18,667 |
| | 10,550 |
| | 11,370 |
| | 3,768 |
| | 3,763 |
| |
| Total Shareholders’ Equity | 12,948 |
| | 7,633 |
| | 7,164 |
| | 5,053 |
| | 5,043 |
| |
| Book Value Per Common Share | 56.80 |
| | 35.79 |
| | 34.00 |
| | 26.33 |
| | 25.99 |
| |
| Financial Relationships | | | | | | | | | | |
| Gross Profit Margin | 49.1 | % | | 48.0 | % | | 45.7 | % | | 50.9 | % | | 51.8 | % | |
| Return on Revenues | 9.1 | % | | 7.8 | % | | 6.8 | % | | 14.0 | % | | 11.5 | % | (A) |
| Return on Total Assets(B) | 4.7 | % | | 5.6 | % | | 5.7 | % | | 13.6 | % | | 11.1 | % | (A) |
| Return on Equity | 10.7 | % | | 13.2 | % | | 11.4 | % | | 23.5 | % | | 20.2 | % | (A) |
| Debt to Capitalization(C) | 57.5 | % | | 57.2 | % | | 59.4 | % | | 43.6 | % | | 43.6 | % | (A) |
| Additional Data | | | | | | | | | | |
| Number of Employees | 41,900 |
| | 50,900 |
| | 49,500 |
| | 30,600 |
| | 30,000 |
| |
| Number of Shareholders | 13,183 |
| | 13,788 |
| | 14,547 |
| | 8,210 |
| | 8,412 |
| |
| Average Common and Common Equivalent Shares Outstanding — Assuming Dilution (millions) | 223.6 |
| | 217.5 |
| | 207.5 |
| | 197.7 |
| | 199.2 |
| |
| Depreciation and Amortization | $ | 1,088 |
| | $ | 1,114 |
| | $ | 891 |
| | $ | 562 |
| | $ | 546 |
| |
| Capital Expenditures | 727 |
| | 693 |
| | 596 |
| | 592 |
| | 522 |
| |
| |
(A)(a) | Excludes discontinued operations. |
| |
(B) | Earnings before interest expense and taxes as a percentPrior-year amounts were revised to reflect the recognition of average total assets. |
| |
(C) | Total debt as a percentall components of the sum of total debt, shareholders’ equityCompany’s net periodic pension and non-current deferredpostretirement benefit costs, aside from service cost, to Other income tax liabilities.(expense), net on its consolidated income statements, as is further discussed in Note 2 to the consolidated financial statements contained in Item 8. Financial Statements and Supplementary Data. |
The results above include the impact of thenet expense associated with specified items as detailed below. Additional discussion regarding the specified items in fiscal years 2017, 20162019, 2018 and 20152017 are provided in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
| | | | Years Ended September 30 | Years Ended September 30 |
| Millions of dollars, except per share amounts | 2017 | | 2016 | | 2015 | | 2014 | | 2013 | 2019 | | 2018 | | 2017 | | 2016 | | 2015 |
| Total specified items | $ | 1,466 |
| | $ | 1,261 |
| | $ | 1,186 |
| | $ | 153 |
| | $ | 442 |
| $ | 2,749 |
| | $ | 2,409 |
| | $ | 1,466 |
| | $ | 1,261 |
| | $ | 1,186 |
|
| After-tax impact of specified items | $ | 971 |
| | $ | 892 |
| | $ | 786 |
| | $ | 101 |
| | $ | 279 |
| $ | 2,127 |
| | $ | 2,674 |
| | $ | 971 |
| | $ | 892 |
| | $ | 786 |
|
| Impact of specified items on diluted earnings per share | $ | (4.34 | ) | | $ | (4.10 | ) | | $ | (3.79 | ) | | $ | (0.51 | ) | | $ | (1.40 | ) | $ | (7.74 | ) | | $ | (10.11 | ) | | $ | (4.34 | ) | | $ | (4.10 | ) | | $ | (3.79 | ) |
| Impact of dilution from share issuances | $ | (0.54 | ) | | $ | — |
| | $ | (0.02 | ) | | $ | — |
| | $ | — |
| |
| Dilutive impact from share issuances | | $ | — |
| | $ | (0.30 | ) | | $ | (0.54 | ) | | $ | — |
| | $ | (0.02 | ) |
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following commentary should be read in conjunction with the consolidated financial statements and accompanying notes.notes presented in this report. Within the tables presented throughout this discussion, certain columns may not add due to the use of rounded numbers for disclosure purposes. Percentages and earnings per share amounts presented are calculated from the underlying amounts. References to years throughout this discussion relate to our fiscal years, which end on September 30.
Company Overview
Description of the Company and Business Segments
Becton, Dickinson and Company (“BD”) is a global medical technology company engaged in the development, manufacture and sale of a broad range of medical supplies, devices, laboratory equipment and diagnostic products used by healthcare institutions, physicians, life science researchers, clinical laboratories, the pharmaceutical industry and the general public. The Company's organizational structure is based upon twothree principal business segments, BD Medical (“Medical”) and, BD Life Sciences (“Life Sciences”) and BD Interventional (“Interventional”).
BD’s products are manufactured and sold worldwide. Our products are marketed in the United States and internationally through independent distribution channels and directly to end-users by BD and independent sales representatives. We organize our operations outside the United States as follows: Europe; EMA (which includes the Commonwealth of Independent States, the Middle East and Africa); Greater Asia (which includes Japancountries in East Asia, South Asia, Southeast Asia and Asia Pacific)the Oceania region); Latin America (which includes Mexico, Central America, the Caribbean, and South America); and Canada. We continue to pursue growth opportunities in emerging markets, which include the following geographic regions: Eastern Europe, the Middle East, Africa, Latin America and certain countries within Asia Pacific.Greater Asia. We are primarily focused on certain countries whose healthcare systems are expanding, in particular, China and India.expanding.
Strategic Objectives
BD remains focused on delivering sustainable growth and shareholder value, while making appropriate investments for the future. BD management operates the business consistent with the following core strategies:
To increase revenue growth by focusing on our core products, services and solutions that deliver greater benefits to patients, healthcare workers and researchers;
To supplement our internal growth through strategic acquisitions;
To continue investment in research and development for platform extensions and innovative new products;
To make investments in growing our operations in emerging markets;
To improve operating effectiveness and balance sheet productivity;
To drive an efficient capital structure and strong shareholder returns.
Our strategy focuses on four specific areas within healthcare and life sciences:
Enabling safer, simpler and more effective parenteral drug delivery;
Improving clinical outcomes through new, more accurate and faster diagnostics;
Providing tools and technologies to the research community that facilitate the understanding of the cell, cellular diagnostics, cell therapy and cell therapy;immunology;
Enhancing disease management in diabetes, women’s health and cancer, infectious disease and other targeted conditions.with our product offerings.
We continue to strive to improve the efficiency of our capital structure and follow these guiding principles:
To operate the Company consistent with an investment grade credit profile;
To ensure access to the debt market for strategic opportunities;
To optimize the cost of capital based on market conditions.
In assessing the outcomes of these strategies as well as BD’s financial condition and operating performance, management generally reviews quarterly forecast data, monthly actual results, segment sales and
other similar information. We also consider trends related to certain key financial data, including gross profit margin, selling and administrative expense, investment in research and development, return on invested capital, and cash flows.
Definitive Agreement to Acquire C.R. Bard, Inc.Summary of Financial Results
On April 23, 2017, we announced that we entered intoWorldwide revenues in 2019 of $17.290 billion increased 8.2% from the prior-year period. The increase reflected a definitive agreement under which BD will acquire C. R. Bard, Inc. ("Bard") for an implied value of $317.00 per Bard common share in cash and stock, for estimated total considerationfavorable impact of approximately $24 billion. The combination will create a highly differentiated medical technology company uniquely positioned6% resulting from the inclusion of revenues from our acquisition of Bard in the first quarter of fiscal year 2019 but not in the first quarter of the prior-year period as operating activities of the business, which was acquired on December 29, 2017, were not included in our consolidated results of operations until January 1, 2018. Revenues in 2019 also reflected an unfavorable impact of almost 1% attributable to improve both the processBiosciences unit's divestiture of care andits Advanced Bioprocessing business at the treatmentend of disease for patients and healthcare providers. Additional discussion regarding the acquisition agreement and the related financing the Company has secured, through equity and debt issuances,October 2018, as is providedfurther discussed in Notes 3, 9 and 15Note 11 to the consolidated financial statements contained in Item 8. Financial Statements and Supplementary Data. The transaction is subject to regulatory approval and customary closing conditions, and is expected to close in the fourth calendar quarter of 2017.
Acquisition of CareFusion
On March 17, 2015, BD acquired a 100% interest in CareFusion Corporation ("CareFusion"). CareFusion’s operating results were included in BD’s consolidated results of operations beginning on April 1, 2015 and as such, the consolidated results of operations for the first six months of fiscal year 2015 referenced in the commentary provided further below did not include CareFusion's results. CareFusion operates as part of our Medical segment.
Summary of Financial Results
Worldwide revenues in 2017 of $12.093 billion decreased 3.1% from the prior-year period. The decrease reflected an approximate 7% reduction in revenues due to the divestiture of the Respiratory Solutions business in October 2016. VolumeRevenue growth in 20172019 additionally reflected volume growth of more than 4% for our continuing businesses was partially offset byapproximately 5.4%, an unfavorable impact from foreign currency translation of approximately 2.3% and an unfavorable impact of foreign currency translationprice of less than 1%approximately 0.3%. Pricing did not materially impact 2017 revenues. Additional disclosures regarding our divestiture of the Respiratory Solutions
business are provided in Note 10 to the consolidated financial statements contained in Item 8. Financial Statements and Supplementary Data. Volume growth in 2017 reflected the following:2019 was as follows:
Medical segment volume growth in 2017 was driven by sales growth in all of the segment's units, particularly by growth in the Medication and ProceduralManagement Solutions, Medication ManagementDelivery Solutions and Pharmaceutical Systems units.
Life Sciences segment volume growth in 2017 was driven by growth in all three of its organizational units, particularly in its Preanalytical and Diagnostic Systems units.
U.S. volume growth in 2017 primarily reflected growth in sales in the Medical segment's Medication Management Solutions and Diabetes Care units, as well as in all of the Life Sciences segment's units.units, particularly in the Biosciences unit.
International volumeInterventional segment growth reflected sales growth in 2017 was driven by salesall units, particularly in the Medical segment's MedicationSurgery unit and Procedural Solutions, Medication Management Solutionsthe Urology and Pharmaceutical Systems units, as well as by sales in the Life Sciences segment's Preanalytical Systems and Diagnostic Systems units.Critical Care unit.
We continue to invest in research and development, geographic expansion, and new product promotionsmarket programs to drive further revenue and profit growth. 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, and continue to improve operating efficiency and organizational effectiveness. While the economic environment for the healthcare industry and healthcare utilization in the United States haveis generally stabilized,stable, destabilization in the future could adversely impact our businesses. Additionally, macroeconomic challenges in Europe continue to constrain healthcare utilization, although we currently view the environment as stable. In emerging markets, the Company’s growth is dependent primarily on government funding for healthcare systems. In addition, pricing pressure exists for certain geographies andglobally which could adversely impact our businesses.
Our financial position remains strong, with cash flows from operating activities totaling $2.550$3.330 billion in 2017.2019. At September 30, 2017,2019, we had $14.2 billion$620 million in cash and equivalents and short-term investments, which included net proceeds raised through registered public offerings of equity securities and debt transactions during the third quarter of approximately $4.8 billion and $9.6 billion, respectively.including restricted cash. We continued to return value to our shareholders in the form of dividends. During fiscal year 2017,2019, we paid cash dividends of $677 million. We also repurchased approximately $220$984 million, of ourincluding $832 million paid to common stock during 2017.shareholders and $152 million paid to preferred shareholders.
Each reporting period, we face currency exposure that arises from translating the results of our worldwide operations to the U.S. dollar at exchange rates that fluctuate from the beginning of such period. The ongoing relative strength of theA stronger U.S. dollar in 2019, compared with 2018, resulted in an unfavorable foreign currency translation impact to our revenuerevenues and earnings growth during fiscal year 2017.2019. We evaluate our results of operations on both a reported and a foreign currency-neutral basis, which excludes the impact of fluctuations in foreign currency exchange rates. As exchange rates are an important factor in understanding period-to-period comparisons, we believe the presentation of results on a foreign currency-neutral basis in addition to reported results helps improve investors’ ability to understand our operating results and evaluate our performance in comparison to prior periods. Foreign currency-neutral ("FXN") information compares results between periods as if exchange rates had remained constant period-over-period. We use results on a foreign currency-neutral basis as one measure to evaluate our performance. We calculate foreign currency-neutral percentages by converting our current-period local currency financial results using the prior-period foreign currency exchange rates and comparing these adjusted amounts to our current-period results. These results should be considered in addition to, not as a substitute for, results reported in accordance with U.S. generally accepted accounting principles ("GAAP"). Results on a foreign currency-neutral basis, as we present them, may not be comparable to similarly titled
measures used by other companies and are not measures of performance presented in accordance with U.S. GAAP.
Results of Operations
Medical Segment
The following is a summary ofsummarizes Medical revenues by organizational unit:
| | | | | | | | | | 2017 vs. 2016 | | 2016 vs. 2015 | | | | | | | 2019 vs. 2018 | | 2018 vs. 2017 |
| (Millions of dollars) | 2017 | | 2016 | | 2015 | | Total Change | | Estimated FX Impact | | FXN Change | | Total Change | | Estimated FX Impact | | FXN Change | 2019 | | 2018 | | 2017 | | Total Change | | Estimated FX Impact | | FXN Change | | Total Change | | Estimated FX Impact | | FXN Change |
| Medication and Procedural Solutions | $ | 3,497 |
| | $ | 3,413 |
| | $ | 2,850 |
| | 2.5 | % | | (0.7 | )% | | 3.2 | % | | 19.8 | % | | (3.6 | )% | | 23.4 | % | |
| Medication Delivery Solutions | | $ | 3,859 |
| | $ | 3,644 |
| | $ | 2,812 |
| | 5.9 | % | | (2.7 | )% | | 8.6 | % | | 29.6 | % | | 1.9 | % | | 27.7 | % |
Medication Management Solutions (A) | 2,295 |
| | 2,197 |
| | 1,015 |
| | 4.4 | % | | (0.5 | )% | | 4.9 | % | | 116.6 | % | | (2.3 | )% | | 118.9 | % | 2,629 |
| | 2,470 |
| | 2,295 |
| | 6.4 | % | | (1.1 | )% | | 7.5 | % | | 7.7 | % | | 1.1 | % | | 6.6 | % |
| Diabetes Care | 1,056 |
| | 1,023 |
| | 1,012 |
| | 3.3 | % | | (0.3 | )% | | 3.6 | % | | 1.1 | % | | (3.3 | )% | | 4.4 | % | 1,110 |
| | 1,105 |
| | 1,056 |
| | 0.5 | % | | (2.4 | )% | | 2.9 | % | | 4.6 | % | | 1.7 | % | | 2.9 | % |
| Pharmaceutical Systems | 1,256 |
| | 1,199 |
| | 1,167 |
| | 4.8 | % | | (0.5 | )% | | 5.3 | % | | 2.7 | % | | (2.4 | )% | | 5.1 | % | 1,465 |
| | 1,397 |
| | 1,256 |
| | 4.8 | % | | (3.4 | )% | | 8.2 | % | | 11.2 | % | | 4.8 | % | | 6.4 | % |
| Respiratory Solutions (A) | — |
| | 822 |
| | 417 |
| | NM |
| | — | % | | NM |
| | 97.2 | % | | (2.3 | )% | | 99.5 | % | |
| Total Medical revenues | $ | 8,105 |
| | $ | 8,654 |
| | $ | 6,460 |
| | (6.4 | )% | | (0.6 | )% | | (5.8 | )% | | 34.0 | % | | (3.0 | )% | | 37.0 | % | $ | 9,064 |
| | $ | 8,616 |
| | $ | 7,419 |
| | 5.2 | % | | (2.3 | )% | | 7.5 | % | | 16.1 | % | | 2.1 | % | | 14.0 | % |
| | | | | | | | | | | | | | | | | | | |
| Medical segment safety-engineered products | $ | 1,960 |
| | $ | 1,924 |
| | $ | 1,499 |
| | 1.9 | % | | (0.3 | )% | | 2.2 | % | | 28.3 | % | | (2.9 | )% | | 31.2 | % | |
| |
(A) | The presentation of prior-period amounts has been revised to conform with the presentation of current-period amounts, which does not separately present an immaterial adjustment for the amortization of a deferred revenue balance write-down relating to the CareFusion acquisition. |
| |
(B) | "NM" denotes that the percentage is not meaningful. |
The Medical segment's revenues in 2019 were favorably impacted by the inclusion of revenues associated with certain Bard products within the Medication Delivery Solutions unit in the first quarter of fiscal year 2019, as noted above, and also reflected strong growth in this unit's global sales of vascular access devices. The Medication Management Solutions unit's revenues in 2019 reflected sales growth attributable to the installations of infusion and dispensing systems, as well as growth in sales of disposables. The Pharmaceutical Systems unit's 2019 revenue growth was driven by sales of prefillable products and self-injection systems. Strength in the Diabetes Care unit's sales of pen needles in emerging markets was partially offset by lower growth in U.S. sales.
Medical segment revenue growth in 20172018 was favorably impacted by the inclusion of revenues associated with certain Bard products within the Medication Delivery Solutions unit, beginning on January 1, 2018, as noted above. The Medical segment's underlying revenue growth was largely driven by sales of the Medication Delivery Solutions unit's vascular access and vascular care products as well as by the Medication and ProceduralManagement Solutions unit's salesinstallations of infusion disposables products, particularly in international markets,dispensing and the Pharmaceutical Systems unit’s sales of self-injectioninfusion systems. Revenue growth in 2017 also reflected the Diabetes Care unit's increased sales of pen needlesMedication Management Solutions unit was partially offset by the unfavorable impact, in the United States and emerging markets. International growth in the Diabetes Care unit was impacted by weaker revenues in Europe, primarily in the United Kingdom, due to increasing pressure from government payers as partfirst half of austerity measures. Medical segment revenues in 2017 were unfavorably impacted by the divestiture2018, of the Respiratory Solutions business and thea modification to dispensing equipment lease contracts with customers, in the Medication Management Solutions unit, which took place in April 2017. As a result of the lease modification, substantially all new lease contracts entered into beginning in April 2017 will beare accounted for as operating leases with revenue recognized over the agreement term, rather than upon the placement of capital. In 2017, revenues in the Medication Management Solutions unit included $151 million of revenues relating to amended preexisting lease contracts.
The Medical segment'ssegment’s underlying growth in 2016 largelyalso reflected the inclusion of CareFusion’s sales for a full fiscal year in 2016 compared with half the fiscal year in 2015, as previously discussed. Medical segment revenue growth in 2016 additionally reflected the Medication and Procedural Solutions unit's international sales of safety-engineeredthe Pharmaceutical Systems unit's prefillable products and the Diabetes Care unit’s sales ofunit's pen needles and the Pharmaceutical Systems unit’s sales of self-injection systems. Fiscal year 2016 Medical segment revenue growth was unfavorably impacted by the termination of a distribution contract in the Respiratory Solutions unit.
needles.
Medical segment operating income was as follows:
| | | (Millions of dollars) | 2017 | | 2016 | | 2015 | 2019 | | 2018 | | 2017 |
Medical segment operating income | $ | 2,155 |
| | $ | 2,052 |
| | $ | 1,530 |
| $ | 2,824 |
| | $ | 2,624 |
| | $ | 1,907 |
|
| | | | | | | | | | | |
| Segment operating income as % of Medical revenues | 26.6 | % | | 23.7 | % | | 23.7 | % | 31.2 | % | | 30.5 | % | | 25.7 | % |
| |
| (a) | Operating income in 2019 and 2018 excluded certain general and administrative costs, which were allocated to the segment in 2017, due to a change in our management reporting approach, as is further discussed in Note 7 to the consolidated financial statements contained in Item 8. Financial Statements and Supplementary Data. |
The Medical segment's operating income iswas driven by its performance with respect toimproved gross profit margin and operating expenses. expense performance in 2019 and 2018 as discussed in greater detail below:
•The Medical segment's gross profit margin in 20172019 was higher as compared with 20162018 primarily due to the divestiture of the Respiratory Solutions business, which had products with relatively lower gross profit margins. Gross profit margin in 2017 also reflected lower manufacturing costs resulting from continuous improvement projects which enhanced the efficiency of our operations. Additionally, the comparison of gross profit margin in 2019 with gross profit margin in 2018 reflected the unfavorable impacts in 2018 of a fair value step-up adjustment relating to Bard's inventory on the acquisition date and charges to write down the value of fixed assets, primarily in the Diabetes Care unit. These favorable impacts to the Medical segment's gross margin in 2019 were partially offset by unfavorable foreign currency translation, higher raw material costs and pricing pressures. The Medical segment's gross profit margin as a percentage of revenuesin 2018 was slightly higher in 2016lower as compared with 20152017 primarily due to the expense related to amortization of intangible assets acquired in the Bard transaction as well as the impact of the fair value step-up adjustment and write-down charges noted above. The Medical segment's gross profit margin in 2018 was also unfavorably impacted by higher raw material costs and pricing pressures. These unfavorable impacts to the Medical segment's gross margin were partially offset by lower manufacturing costs resulting from continuous operations improvement projects partially offset bywhich enhanced the recognitionefficiency of a full year of amortizationour operations and favorable product mix impact relating to intangible assets acquired in the CareFusion transaction and by unfavorable foreign currency translation. Bard products reported within the segment.
•Selling and administrative expense as a percentage of revenues in 20172019 was lowerrelatively flat compared with 2016, primarily due to the divestiture of the Respiratory Solutions business, as this business generally had a lower operating margin.2018. Selling and administrative expense as a percentage of revenues in 20162018 was favorably impacted bylower compared with 2017 which primarily reflected a reduction in the suspensiongeneral and administrative costs allocated to the segment, as noted above.
•Research and development expense as a percentage of revenues was lower in 2019 due to recent completion of projects and the medical device excise tax imposed under the U.S. Patient Protection Affordable Care Act.timing of project spending. Research and development expense as a percentage of revenues in 2017 reflected ongoing investment in new products and platforms, but2018 was lowerhigher compared with 2016 as expense in 2016 included a one-time payment relating to one of the segment's ongoing projects. Research and development expense as a percentage of revenues in 2016 increased from 2015,2017 which reflected increased investment in new products and platforms, including the one-time payment noted above.platforms.
Life Sciences Segment
The following is a summary ofsummarizes Life Sciences revenues by organizational unit:
| | | | | | | | | | 2017 vs. 2016 | | 2016 vs. 2015 | | | | | | | 2019 vs. 2018 | | 2018 vs. 2017 |
(Millions of dollars) | 2017 | | 2016 | | 2015 | | Total Change | | Estimated FX Impact | | FXN Change | | Total Change | | Estimated FX Impact | | FXN Change | 2019 | | 2018 | | 2017 | | Total Change | | Estimated FX Impact | | FXN Change | | Total Change | | Estimated FX Impact | | FXN Change |
| Preanalytical Systems | $ | 1,471 |
| | $ | 1,409 |
| | $ | 1,391 |
| | 4.4 | % | | (0.8 | )% | | 5.2 | % | | 1.3 | % | | (3.9 | )% | | 5.2 | % | $ | 1,558 |
| | $ | 1,553 |
| | $ | 1,471 |
| | 0.3 | % | | (3.0 | )% | | 3.3 | % | | 5.5 | % | | 1.4 | % | | 4.1 | % |
| Diagnostic Systems | 1,378 |
| | 1,301 |
| | 1,299 |
| | 5.9 | % | | (0.5 | )% | | 6.4 | % | | 0.1 | % | | (3.2 | )% | | 3.3 | % | 1,547 |
| | 1,536 |
| | 1,378 |
| | 0.7 | % | | (2.6 | )% | | 3.3 | % | | 11.5 | % | | 1.9 | % | | 9.6 | % |
| Biosciences | 1,139 |
| | 1,119 |
| | 1,132 |
| | 1.8 | % | | (0.6 | )% | | 2.4 | % | | (1.2 | )% | | (2.7 | )% | | 1.5 | % | 1,194 |
| | 1,241 |
| | 1,139 |
| | (3.8 | )% | | (2.2 | )% | | (1.6 | )% | | 9.0 | % | | 2.2 | % | | 6.8 | % |
| Total Life Sciences revenues | $ | 3,988 |
| | $ | 3,829 |
| | $ | 3,822 |
| | 4.2 | % | | (0.6 | )% | | 4.8 | % | | 0.2 | % | | (3.2 | )% | | 3.4 | % | $ | 4,300 |
| | $ | 4,330 |
| | $ | 3,988 |
| | (0.7 | )% | | (2.6 | )% | | 1.9 | % | | 8.6 | % | | 1.8 | % | | 6.8 | % |
| | | | | | | | | | | | | | | | | | | |
| Life Sciences segment safety-engineered products | $ | 1,167 |
| | $ | 1,113 |
| | $ | 1,097 |
| | 4.9 | % | | (0.8 | )% | | 5.7 | % | | 1.4 | % | | (3.7 | )% | | 5.1 | % | |
The Life Sciences segment's 2017 revenues in 2019 reflected growthcontinued strength in global sales of the Preanalytical Systems unit's safety-engineeredsales of core products andin emerging markets. The Diagnostic Systems unit's 2019 revenues reflected growth in its BD MAXTM molecular platform as well as growth in sales of core microbiology products. This sales growth in the DiagnosticsDiagnostic Systems unit was partially offset by an unfavorable comparison of the unit's U.S. revenues in 2019 to revenues in 2018, as the prior-year period benefited from a more severe influenza season. Revenues in the Biosciences unit in 2019 reflected growth in research reagent sales, as well as growth in U.S. research instrument sales, but were unfavorably impacted by the divestiture of the Advanced Bioprocessing business, as previously discussed. The Biosciences unit's results for 2018 and 2017 included revenues associated with the Advanced Bioprocessing business of $106 million and $103 million, respectively.
The Life Sciences segment's 2018 revenues was driven by growth across all three of its organizational units. The Diagnostic Systems unit's revenues were primarily driven by sales of core microbiology andproducts as well as continued strength in sales of the unit's BD MAXTM molecular platforms, particularlyplatform. Revenue growth in emerging markets.the Diagnostic Systems unit also reflected a more severe influenza season in 2018 compared with 2017. The segment’s 2017Life Sciences segment's 2018 revenue growth was also driven by increasedthe Biosciences unitunit's sales particularlyof research reagents and recently launched instruments. Growth in developed markets.
Fiscal year 2016 revenues in the Life Sciences segment were driven by the Preanalytical Systems unit's U.S. and internationalunit reflected global sales of safety-engineeredcore products. Segment revenue growth in 2016 also reflected the Diagnostic Systems unit's sales of its core microbiology products, as well as placements of its BD KiestraTM
platform. Fiscal year 2016 revenues in the Life Sciences segment additionally reflected the Biosciences unit’s research instrument and reagent sales, primarily in the United States, which were partially offset by decreased sales of the Biosciences unit's HIV-related clinical products in Africa.
Life Sciences segment operating income was as follows:
| | | (Millions of dollars) | 2017 | | 2016 | | 2015 | 2019 | | 2018 | | 2017 |
Life Sciences segment operating income | $ | 772 |
| | $ | 793 |
| | $ | 839 |
| $ | 1,248 |
| | $ | 1,207 |
| | $ | 772 |
|
| | | | | | | | | | | |
| Segment operating income as % of Life Sciences revenues | 19.4 | % | | 20.7 | % | | 21.9 | % | 29.0 | % | | 27.9 | % | | 19.4 | % |
| |
| (a) | Operating income in 2019 and 2018 excluded certain general and administrative costs, which were allocated to the segment in 2017, due to a change in our management reporting approach, as noted above. |
The Life Sciences segment's operating income iswas driven by its performance with respect toimproved gross profit margin and operating expenses.expense performance in 2019 and 2018 as discussed in greater detail below:
The Life Sciences segment's gross profit margin as a percentage of revenues in fiscal year 2019 was relatively flat compared with gross margin in 2018. Gross margin in 2019 was favorably impacted by lower manufacturing costs resulting from continuous improvement projects which enhanced the efficiency of our operations, as well as by the unfavorable prior-year impact of the Biosciences unit's write-down of certain intangible and other assets. These favorable impacts to gross margin in 2019 were offset by unfavorable foreign currency translation and higher raw material costs. The Life Sciences segment's gross profit margin as a percentage of revenues was lowerhigher in fiscal year 2018 as compared with 2017 primarily due to unfavorable foreign currency translation, higher raw material costs and unfavorable product mix, partially offset by lower manufacturing costs resulting from continuous improvement projects, which enhanced the efficiency of our operations, improvement projects. Theand favorable foreign currency translation. These favorable impacts to the Life Sciences segment's gross profit margin as a percentage of revenues was lower in fiscal year 2016 compared with 2015 primarily due to unfavorable foreign currency translation,were partially offset by lower manufacturing costs resulting from operations improvement projects.
expense related to the Biosciences unit's write-down of certain intangible and other assets, as well as higher raw material costs.
Selling and administrative expense as a percentage of Life Sciences revenues in 20172019 was higherlower compared to 20162018 primarily due to slightly higherreduced general and administrative costs.spending. Selling and administrative expense as a percentage of Life Sciences revenues decreased in 20162018 was lower compared with 2015,to 2017 primarily due to a reduction in the suspension ofgeneral and administrative costs allocated to the medical device excise tax. segment, as noted above.
Research and development expense as a percentage of revenues in 2019 was lower compared with 2018 primarily due to the Biosciences unit's recognition of write-downs in the prior-year period and also due to the timing of project spending. Research and development expense as a percentage of revenues in 2018 was higher compared with 2017 primarily due to the write-downs noted above.
Interventional Segment
The following summarizes Interventional revenues by organizational unit:
|
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | 2019 vs. 2018 | | 2018 vs. 2017 |
(Millions of dollars) | 2019 | | 2018 | | 2017 | | Total Change | | Estimated FX Impact | | FXN Change | | Total Change |
| Surgery (a) | $ | 1,397 |
| | $ | 1,192 |
| | $ | 666 |
| | 17.3 | % | | (1.1 | )% | | 18.4 | % | | NM |
| Peripheral Intervention (a) | 1,389 |
| | 1,045 |
| | 19 |
| | 33.0 | % | | (2.8 | )% | | 35.8 | % | | NM |
| Urology and Critical Care | 1,140 |
| | 800 |
| | — |
| | 42.4 | % | | (1.6 | )% | | 44.0 | % | | NM |
| Total Interventional revenues | $ | 3,926 |
| | $ | 3,037 |
| | $ | 685 |
| | 29.3 | % | | (1.8 | )% | | 31.1 | % | | NM |
"NM" denotes that the percentage is not meaningful.
| |
| (a) | Amounts presented in 2017 are associated with certain product offerings that were moved from the Medical segment to the Interventional segment in order to align with the reportable segment structure that became effective beginning in the second quarter of fiscal year 2018. |
The Interventional segment's revenues in 2019 were favorably impacted by the inclusion of revenues associated with Bard's products in the segment's results for the first quarter of fiscal year 2019, as noted above.
Interventional segment revenues in 2019 also reflected growth in the Urology and Critical Care unit's sales of acute urology products and sales by the unit's home care and targeted temperature management businesses. Fiscal year 2019 revenues in the Surgery unit reflected growth in sales of the unit's biosurgery and infection prevention products. The Peripheral Intervention unit's 2019 revenues reflected growth in emerging market sales. This growth was partially offset by an unfavorable impact related to a letter issued in March 2019 by the FDA to healthcare professionals regarding the use of paclitaxel-coated devices in the treatment of peripheral artery disease, which impacted sales of our drug-coated balloon products. The extent and duration of the impact from the FDA letter on the Peripheral Intervention unit’s future revenues is difficult to predict.
Interventional segment operating income was as follows:
|
| | | | | | | | | | | |
| (Millions of dollars) | 2019 | | 2018 | | 2017 |
| Interventional segment operating income (a) | $ | 903 |
| | $ | 306 |
| | $ | 248 |
|
| | | | | | |
| Segment operating income as % of Interventional revenues | 23.0 | % | | 10.1 | % | | NM |
|
| |
| (a) | The amount presented in 2017 is associated with certain product offerings that were moved from the Medical segment to the Interventional segment in order to align with the reportable segment structure that became effective beginning in the second quarter of fiscal year 2018. |
The Interventional segment's operating income was driven by its performance with respect to gross profit margin and operating expenses in 2019 as discussed in greater detail below:
Gross profit margin was higher in 2019 as compared with 2018 primarily due to the unfavorable prior-year impact of recognizing a fair value step-up adjustment relating to Bard's inventory on the acquisition date and lower manufacturing costs resulting from continuous improvement projects, which enhanced the efficiency of our operations, and synergy initiatives. These favorable impacts to the Interventional segment's gross margin were partially offset by unfavorable product mix and unfavorable foreign currency translation.
Selling and administrative expense as a percentage of revenues in 2019 was relatively flat compared with 2016, which increased2018.
Research and development expense as a percentage of revenues was higher in 2019 as compared to 2015with 2018 primarily due to increased investmentthe Surgery unit's recognition of a write-down in new productsthe current-year period, as further discussed below.
The Interventional segment's operating income in 2018 reflected expense related to the recognition of a fair value step-up adjustment relating to Bard's inventory on the acquisition date. The fair value adjustment was a required non-cash adjustment to the value of acquired inventory and platforms.was expensed over a four-month period, consistent with an estimate of the period of time to sell the acquired inventory.
Geographic Revenues
BD’s worldwide revenues by geography are provided below.were as follows:
| | | | | | | | | | 2017 vs. 2016 | | 2016 vs. 2015 | | | | | | | 2019 vs. 2018 | | 2018 vs. 2017 |
| (Millions of dollars) | 2017 | | 2016 | | 2015 | | Total Change | | Estimated FX Impact | | FXN Change | | Total Change | | Estimated FX Impact | | FXN Change | 2019 | | 2018 | | 2017 | | Total Change | | Estimated FX Impact | | FXN Change | | Total Change | | Estimated FX Impact | | FXN Change |
| United States | $ | 6,504 |
| | $ | 6,893 |
| | $ | 5,069 |
| | (5.6 | )% | | — |
| | (5.6 | )% | | 36.0 | % | | — |
| | 36.0 | % | $ | 9,730 |
| | $ | 8,768 |
| | $ | 6,504 |
| | 11.0 | % | | — |
| | 11.0 | % | | 34.8 | % | | — |
| | 34.8 | % |
| International | 5,589 |
| | 5,590 |
| | 5,213 |
| | — | % | | (1.2 | )% | | 1.2 | % | | 7.2 | % | | (6.2 | )% | | 13.4 | % | 7,560 |
| | 7,215 |
| | 5,589 |
| | 4.8 | % | | (5.0 | )% | | 9.8 | % | | 29.1 | % | | 4.8 | % | | 24.3 | % |
| Total revenues | $ | 12,093 |
| | $ | 12,483 |
| | $ | 10,282 |
| | (3.1 | )% | | (0.5 | )% | | (2.6 | )% | | 21.4 | % | | (3.1 | )% | | 24.5 | % | $ | 17,290 |
| | $ | 15,983 |
| | $ | 12,093 |
| | 8.2 | % | | (2.3 | )% | | 10.5 | % | | 32.2 | % | | 2.3 | % | | 29.9 | % |
U.S. revenues in 20172019 reflected growth in all three segments. U.S. revenues in 2019 were unfavorablyfavorably impacted by the Medical segment's divestitureinclusion of revenues associated with Bard's products in results for the Respiratory Solutions business and the modificationfirst quarter of fiscal year 2019, as noted above. Revenue growth in 2019 was also attributable to dispensing equipment lease contracts with customerssales in the Medical segment's Medication Management Solutions unit as well as to sales in the Interventional segment's Urology and Critical Care and Surgery units. U.S. revenue growth in 2019 was unfavorably impacted by results in the Medical segment's Diabetes Care unit, the Life Sciences segment's Diagnostic Systems unit and the Interventional segment's Peripheral Intervention unit, as previously discussed. These impacts to noted in the discussions above.
U.S. revenues in 2017 were partially offset by2018 benefited from the inclusion of revenues associated with Bard products in our financial results beginning on January 1, 2018. Underlying 2018 revenue growth in salesthe United States was driven by revenues in the Medical segment's Medication ManagementDelivery Solutions and Diabetes CareMedication Management Solutions units, as well as by revenues in all of the Life Sciences segment's units.
U.S. revenue growth in 2016 primarily reflected the inclusion of CareFusion's U.S. sales for the full fiscal year. U.S. revenues also reflected growth in sales of the Medical segment's legacy products, particularly in the Medication and Procedural Solutions and PharmaceuticalDiagnostic Systems units. U.S. revenue growth in 2016 was also driven by sales in the Life Science's segment's Preanalytical Systems and Biosciences units.unit.
International revenues in 20172019 reflected growth in all three segments. International revenues in 2019 were favorably impacted by the inclusion of revenues associated with Bard's products in results for the first quarter of fiscal year 2019, as noted above. Fiscal year 2019 international revenue growth was also driven by sales in the Medical segment's Medication and Procedural Solutions, Medication ManagementDelivery Solutions and Pharmaceutical Systems units as well as by sales in the Life Sciences segment's Diagnostic Systems and Preanalytical Systems and Diagnostic Systems units. International revenue growth in 2017 was partially offset by the impact of the Medical segment's divestiture of the Respiratory Solutions business.
International revenue growth in 2016 primarily reflected2018 benefited from the inclusion of CareFusion'srevenues associated with Bard products in our financial results. International revenue growth in 2018 also reflected increased sales forin the full fiscal year,Medical segment's Medication Delivery Solutions, Medication Management Solutions and Pharmaceutical Systems units, as well as growth attributable to the Medical segment's legacy productssales in the Medication and Procedural Solutions unit. International revenue growth in 2016 also reflectedall three of the Life Sciences segment's Preanalytical Systems unit's sales, primarily in Western Europe and Asia Pacific. The Life Sciences segment's international revenue growth in 2016 was negatively impacted by a decrease in certain sales in its Biosciences unit in Africa, as previously discussed.organizational units.
Emerging market revenues were $2.71 billion, $2.53 billion and $1.95 billion $1.9 billionin 2019, 2018 and $1.8 billion in 2017, 2016 and 2015, respectively. Emerging market revenues in 2016 related to divested businesses, primarily the Respiratory Solutions business, were approximately $105 million. Unfavorable foreignForeign currency translation unfavorably impacted emerging market revenues in 2017 and 20162019 by an estimated $29$155 million and $156 million, respectively.favorably impacted emerging market revenues in 2018 by an estimated $19 million. Emerging market revenue growth in 20172019 was drivenfavorably impacted by salesthe inclusion of revenues associated with Bard's products in Greater Asia, including China, and Latin America.our results for the first quarter of fiscal year 2019, as noted above. Emerging market revenue growth in 2016 reflected2018 benefited from the inclusion of CareFusion'srevenues associated with Bard products in our financial results beginning on January 1, 2018. Underlying growth in fiscal years 2019 and 2018 was particularly driven by sales for the full fiscal year, as well as growth in China and Latin America, partially offset by declines in the Middle East and Africa.EMA.
Specified Items
Reflected in the financial results for 2017, 20162019, 2018 and 20152017 were the following specified items:
| | | (Millions of dollars) | 2017 | | 2016 | | 2015 | 2019 | | 2018 | | 2017 |
Integration costs (A)(a) | $ | 237 |
| | $ | 192 |
| | $ | 95 |
| $ | 323 |
| | $ | 344 |
| | $ | 237 |
|
Restructuring costs (A)(a) | 85 |
| | 526 |
| | 271 |
| 180 |
| | 344 |
| | 85 |
|
Transaction costs (A)(a) | 39 |
| | 10 |
| | 59 |
| 1 |
| | 56 |
| | 39 |
|
Financing costs (B)(b) | 131 |
| | — |
| | 107 |
| — |
| | 49 |
| | 131 |
|
Purchase accounting adjustments (C)(c) | 491 |
| | 527 |
| | 645 |
| 1,499 |
| | 1,733 |
| | 491 |
|
Lease contract modification-related charge (D) | 748 |
| | — |
| | — |
| |
Litigation-related items (E) | (337 | ) | | — |
| | 12 |
| |
Losses on debt extinguishment (F) | 73 |
| | — |
| | — |
| |
| Pension settlement charges | — |
| | 6 |
| | — |
| |
| Other, net | — |
| | — |
| | (5 | ) | |
Transaction gain/loss, product and other litigation-related matters (d) | | 646 |
| | — |
| | (337 | ) |
Investment gains/losses and asset impairments (e) | | 17 |
| | (151 | ) | | — |
|
European regulatory initiative-related costs (f) | | 51 |
| | — |
| | — |
|
Impacts of debt extinguishment (g) | | 54 |
| | 16 |
| | 73 |
|
| Hurricane recovery-related impacts | | (24 | ) | | 17 |
| | — |
|
Lease contract modification-related charge (h) | | — |
| | — |
| | 748 |
|
| Total specified items | 1,466 |
| | 1,261 |
| | 1,186 |
| 2,749 |
| | 2,409 |
| | 1,466 |
|
| Tax impact of specified items | 495 |
| | 369 |
| | 400 |
| |
Less: tax impact of specified items and tax reform (i) | | 622 |
| | (265 | ) | | 495 |
|
| After-tax impact of specified items | $ | 971 |
| | $ | 892 |
| | $ | 786 |
| $ | 2,127 |
| | $ | 2,674 |
| | $ | 971 |
|
| |
(A)(a) | Represents integration, restructuring and transaction costs, recorded in Acquisitions and other restructurings, which are further discussed below. |
| |
(B)(b) | The amount in 2017 representsRepresents financing costs incurred in connectionimpacts associated with the agreement to acquire Bard including bridge financing commitment fees of $79 million,acquisition, which were recorded in Interest income and Interest expense. The amount in 2015 represents financing costs incurred in connection with the CareFusion acquisition, including bridge financing commitment fees.
|
| |
(C)(c) | Primarily represents non-cash amortization expense associated with acquisition-related identifiable intangible assets.assets and other adjustments related to the purchase accounting for acquisitions. BD’s amortization expense is primarily recorded in Cost of products sold. The adjustmentamount in 2015 also2018 included a fair value step-up adjustmentadjustments of $293$478 million recorded relativerelating to CareFusion’sBard's inventory on the acquisition date. |
| |
(D)(d) | RepresentsThe amount in 2019 includes charges relating to certain product liability matters and the estimated cost of a non-cash charge, which was recorded in Other operating expense, net resulting from a modification to our dispensing equipment lease contracts with customers,product recall, as further discussed below.
|
| |
(E) | well as the pre-tax gain recognized on BD's sale of its Advanced Bioprocessing business. The amount in 2017 largely represents the reversal of certain reserves related to an appellate |
court decision recorded in Other operating expense, net. Further discussion regarding these amounts recorded to Other operating expense, net is provided below.
| |
| (e) | The amount in 2019 included an unrealized gain of $13 million recorded within Other income (expense), net relating to an investment and a $30 million non-cash charge recorded within Research and development expense to write down the carrying value of certain intangible assets in the Surgery unit. The amounts in 2018 included the net amount of $303 million, recognized in the period and recorded to Other operatingincome (expense), net, related to BD's sale of its non-controlling interest in Vyaire Medical. This amount in 2018 was partially offset by $81 million of charges recorded within Cost of products sold and Research and development expense, net to write down the carrying value of certain intangible and other assets in the Biosciences unit as further discussed below.well as $58 million of charges recorded within Cost of products sold to write down the value of fixed assets primarily in the Diabetes Care unit. |
| |
(F)(f) | Represents losses recognizedinitial costs required to develop processes and systems to comply with emerging regulations such as the European Union Medical Device Regulation ("EUMDR") and General Data Protection Regulation ("GDPR"). These costs were recorded in Cost of products sold and Research and development expense. |
| |
| (g) | Represents the impacts, which were primarily recorded in Other income (expense) income, netupon, of our extinguishment of certain long-term senior notesnotes. |
| |
| (h) | Represents a non-cash charge in the first2017, which was recorded in Other operating expense, net resulting from a modification to our dispensing equipment lease contracts with customers, as previously discussed. |
| |
| (i) | The amounts in 2019 and third quarters, as2018 included additional tax (benefit) expense, net, of $(50) million and $640 million, respectively relating to new U.S. tax legislation which is further discussed below.in Note 17 to the consolidated financial statements contained in Item 8. Financial Statements and Supplementary Data. |
Gross Profit Margin
The comparison of gross profit margins in 20172019 and 20162018 and the comparison of gross profit margins in 20162018 and 20152017 reflected the following impacts:
| | | | 2017 | | 2016 | 2019 | | 2018 |
| Gross profit margin % prior-year period | 48.0 | % | | 45.7 | % | 45.5 | % | | 49.3 | % |
| Impact of purchase accounting adjustments, asset write-downs and other specified items | | 2.9 | % | | (6.9 | )% |
| Operating performance | 0.7 | % | | 2.5 | % | 0.1 | % | | 2.7 | % |
| Impact of divestitures | 0.8 | % | | — | % | |
| CareFusion acquisition-related asset depreciation and amortization | — | % | | 0.6 | % | |
| Foreign currency translation | (0.4 | )% | | (0.8 | )% | (0.6 | )% | | 0.4 | % |
| Gross profit margin % current-year period | 49.1 | % | | 48.0 | % | 47.9 | % | | 45.5 | % |
The impact of purchase accounting adjustments and other specified items in 2019 was favorable due to a comparison to 2018, which included the recognition of fair value step-up adjustments relating to Bard's inventory on the acquisition date, as well as write-downs of certain assets in the Biosciences and Diabetes Care units in 2018 as further discussed above. The operating performance impacts in 20172019 and 2016 primarily2018 reflected lower manufacturing costs resulting from the continuous operations improvement projects discussed above. Gross profit marginand synergy initiatives, as well as the favorable impact of Bard on product mix. Operating performance in 20172019 was favorablyunfavorably impacted by businesses divestitures, primarily the divestiture of the Respiratory Solutions business which had products with relatively lower gross profit margins. Gross profit marginhigher raw material costs and unfavorable product mix. Higher raw material costs as well as pricing pressures unfavorably impacted operating performance in 2016 benefited from a favorable comparison to 2015, which reflected the fair value step-up adjustment recorded relative to CareFusion’s inventory on the acquisition date, as previously discussed, partially offset by the recognition in 2016 of a full year of amortization relating to CareFusion's intangible assets.2018.
Operating Expenses
Operating expenses in 2017, 20162019, 2018 and 20152017 were as follows:
| | | | | | | | | | Increase (decrease) in basis points | | | | | | | | Increase (decrease) in basis points |
| (Millions of dollars) | 2017 | | 2016 | | 2015 | | 2017 vs. 2016 | | 2016 vs. 2015 | | 2019 | | 2018 | | 2017 | | 2019 vs. 2018 | | 2018 vs. 2017 |
| Selling and administrative expense | $ | 2,925 |
| | $ | 3,005 |
| | $ | 2,563 |
| | | | | | $ | 4,332 |
| | $ | 4,016 |
| | $ | 2,909 |
| | | | |
| % of revenues | 24.2 | % | | 24.1 | % | | 24.9 | % | | 10 |
| | (80 | ) | | 25.1 | % | | 25.1 | % | | 24.1 | % | | — |
| | 100 |
|
| | | | | | | | | | | | | | | | | | | | |
| Research and development expense | $ | 774 |
| | $ | 828 |
| | $ | 632 |
| | | | | | $ | 1,062 |
| | $ | 1,004 |
| | $ | 770 |
| | | | |
| % of revenues | 6.4 | % | | 6.6 | % | | 6.1 | % | | (20 | ) | | 50 |
| | 6.1 | % | | 6.3 | % | | 6.4 | % | | (20 | ) | | (10 | ) |
| | | | | | | | | | | | | | | | | | | | |
| Acquisitions and other restructurings | $ | 354 |
| | $ | 728 |
| | $ | 426 |
| | | | | | $ | 480 |
| | $ | 740 |
| | $ | 354 |
| | | | |
| | | | | | | | | | | | | | | | | | | | |
| Other operating expense, net | $ | 410 |
| | $ | — |
| | $ | — |
| | | | | | $ | 654 |
| | $ | — |
| | $ | 410 |
| | | | |
Selling and administrative
Selling and administrative expense as a percentage of revenues in 20172019 was relatively flat compared with 2016. Selling2018 as higher revenues and the achievement of cost synergies offset the impact of higher selling and general administrative costs attributable to Bard, which had a higher selling and administrative spending profile than BD, in our results for the first quarter of fiscal year 2019, as noted above. The increase in selling and administrative expense as a percentage of revenues in 2016 as compared with 2015 reflected synergies resulting from2018 was primarily attributable to the CareFusion acquisition, as well as favorable foreign currency translation and a suspensioninclusion of the medical device excise tax, as previously discussed, partially offset by higher selling expenses relating to product launches and higher shipping expenses.Bard in 2018 results beginning on January 1, 2018.
Research and development
Research and development expense as a percentage of revenues in 2019 and 2018 was slightly lowerrelatively flat compared with the prior-year periods. Spending in 2019, 2018 and 2017 which reflected a favorable comparisonour continued commitment to 2016, whichinvest in new products and platforms. As further discussed above, expenses in 2019 included increased investmentcertain write-down charges in high growth opportunities.
the Surgery unit and expenses in 2018 included write-down charges in the Biosciences unit.
Acquisitions and other restructurings
Costs relating to acquisitions and other restructurings in 2017, 2016 and 2015 primarily2019 largely represented integration and restructuring costs substantially associated withincurred due to our acquisition of Bard in the first quarter of fiscal year 2018. Costs relating to acquisitions and other restructurings in 2018 included restructuring, integration and transaction costs incurred due to our acquisition of Bard as well as integration and restructuring costs related to our fiscal year 2015 CareFusion acquisition of CareFusion and other portfolio rationalization initiatives. Integration costs in 2017 also included costs relating to our pending acquisition of Bard. Restructuring costs in 2016 included a $214 million charge recorded to impair capitalized internal-use software assets held for sale as a result of information technology function transformation efforts. Transaction costs were incurred in 2017 in connection with the pending acquisition of Bard and other portfolio rationalization initiatives. Transaction costs were also incurred in 20152017 primarily related to our acquisition of Bard. Substantially all of the integration and restructuring costs in connection with2017 were attributable to the CareFusion acquisition.acquisition and portfolio rationalization initiatives. For further disclosures regarding the costs relating to acquisitions and other restructurings, refer to Notes 7, 9, 10, 11 and 1112 to the consolidated financial statements contained in Item 8. Financial Statements and Supplementary Data.
Other operating (income) expense, net
Other operating expense in 2019 included charges of approximately $914 million relating to certain product liability matters, as well as an estimated cost of $75 million relating to a product recall in the Medical segment. Net other operating expense in 2019 additionally included the pre-tax gain of $336 million recognized on BD's sale of its Advanced Bioprocessing business. Additional disclosures regarding the product liability matters and divestiture transaction are provided in Notes 5 and 11, respectively, to the consolidated financial statements contained in Item 8. Financial Statements and Supplementary Data.
Other operating expense in 2017 included the $748 million non-cash charge resulting from the modification to our dispensing equipment lease contracts with customers. Additional disclosures regarding this lease contract modification are provided in Note 1718 to the consolidated financial statements contained in Item 8.
Financial Statements and Supplementary Data. Other operating income in 2017 included a $336$337 million reversal of certain reserves related to an appellate court decision which, among other things, reversed an unfavorable antitrust judgment in the Retractable Technologies, Inc. case. Additional disclosures regarding this legal matter are provided in Note 5 to the consolidated financial statements contained in Item 8. Financial Statements and Supplementary Datajudgment.
Net Interest Expense
| | | (Millions of dollars) | 2017 | | 2016 | | 2015 | 2019 | | 2018 | | 2017 |
| Interest expense | $ | (521 | ) | | $ | (388 | ) | | $ | (371 | ) | $ | (639 | ) | | $ | (706 | ) | | $ | (521 | ) |
| Interest income | 76 |
| | 21 |
| | 15 |
| 12 |
| | 65 |
| | 76 |
|
| Net interest expense | $ | (445 | ) | | $ | (367 | ) | | $ | (356 | ) | $ | (627 | ) | | $ | (641 | ) | | $ | (445 | ) |
The decrease in interest expense in 2019 compared with 2018 primarily reflected higher fees incurred in 2018 to draw from our term loan facility, which is further discussed below. Interest expense in 2019 was also favorably impacted by debt repayments during the current year, as well as lower overall interest rates on debt outstanding during the current-year period as a result of refinancing activities. The increase in interest expense in 20172018 compared with 2016 primarily2017 reflected higher levels of debt for the full-year period due to our issuances of senior unsecured U.S. notes during the third quarter of 2017, as well as bridge financing commitment fees of $79 million. The increase in interest expense in 2016 reflected a full year of increased financing costs associated with the CareFusion acquisition, including interest on senior unsecured notes issued in December 2014. This increase in financing costs was partially offset by the full year impact of favorable amortization of the acquisition-date fair value step-up on CareFusion’s long-term debt as well as by the prior-year impact of commitment fees incurred for a bridge loan facility.2017. Additional disclosures regarding our financing arrangements and debt instruments are provided in Note 1516 to the consolidated financial statements contained in Item 8. Financial Statements and Supplementary Data.
The increasedecrease in interest income in 20172019 compared with 2016 primarily2018 reflected higher levels of cash on hand as a resultin the first quarter of our third quarter issuancesfiscal year 2018 in anticipation of debt and equity securities, as well as higher investment gains on assets related to our deferred compensation plans.closing the Bard acquisition at the end of the quarter. The increasedecrease in interest income in 2016 reflected the realization of investment gains on assets related to our deferred compensation plans,2018 compared with the realization of losses in 2015, partially offset by2017 reflected lower cash levels outsidein the remaining quarters of 2018, subsequent to the closing of the United States. The offsetting movements in the deferred compensation plan liability were recorded in Selling and administrative expense.
Bard acquisition.
Income Taxes
The income tax rates in 2017, 20162019, 2018 and 20152017 were as follows:
|
| | | | | | | | |
| | 2017 | | 2016 | | 2015 |
| Effective income tax rate - (benefit) provision | (12.7 | )% | | 9.1 | % | | 5.9 | % |
| | | | | | |
| Favorable impact, in basis points, from specified items | 2,790 |
| | 1,090 |
| | 1,720 |
|
|
| | | | | | | | |
| | 2019 | | 2018 | | 2017 |
| Effective income tax rate | (4.8 | )% | | 73.5 | % | | (12.7 | )% |
| | | | | | |
| Impact, in basis points, from specified items and tax reform | (1,920 | ) | | 5,680 |
| | (2,790 | ) |
The decrease in the effective income tax rate in 2017 largely2019 reflected a favorable impact relating to the more favorable tax impact from specifiedtiming of certain discrete items, recognized in 2017 compared with 2016, as well as the recognition of $50 million of tax benefitsbenefit recorded uponfor the settlementimpacts of share-based compensation awardsU.S. tax legislation that was enacted in 2017. The share-based compensation-relatedDecember 2017, compared with additional tax benefits wereexpense of $640 million that was recognized as a result of this legislation in connection with BD's adoption of new accounting requirements relating to the income tax effects of share-based compensation awards. Additional2018. For further disclosures regarding our accounting for this adoption are provided inU.S. tax legislation, refer to Note 217 to the consolidated financial statements contained in Item 8. Financial Statements and Supplementary Data. The increase in the effective income tax rate from 2015in 2018 compared with 2017 reflected the additional tax expense relating to 2016 is primarily due to the decrease inU.S. tax benefits on specified itemslegislation, as the tax benefits onnoted above, as well as a less favorable benefit from specified items in 2015 were primarily incurred in higher tax jurisdictions. The income tax rates in fiscal years 2016 also reflected the extension of the U.S. research and development income tax credit, which was partially offset by the unfavorable impact of one-time discrete items. 2018 compared with 2017.
Net Income and Diluted Earnings per Share
Net Income and Diluted Earnings per Share in 2017, 20162019, 2018 and 20152017 were as follows:
| | | | 2017 | | 2016 | | 2015 | 2019 | | 2018 | | 2017 |
| Net income (Millions of dollars) | $ | 1,100 |
| | $ | 976 |
| | $ | 695 |
| $ | 1,233 |
| | $ | 311 |
| | $ | 1,100 |
|
| Diluted Earnings per Share | $ | 4.60 |
| | $ | 4.49 |
| | $ | 3.35 |
| $ | 3.94 |
| | $ | 0.60 |
| | $ | 4.60 |
|
| | | | | | | | | | | |
| Unfavorable impact-specified items | $ | (4.34 | ) | | $ | (4.10 | ) | | $ | (3.79 | ) | $ | (7.74 | ) | | $ | (10.11 | ) | | $ | (4.34 | ) |
| Unfavorable impact-foreign currency translation | $ | (0.23 | ) | | $ | (0.64 | ) | | $ | (0.69 | ) | |
| (Unfavorable) favorable impact-foreign currency translation | | $ | (0.62 | ) | | $ | 0.32 |
| | $ | (0.23 | ) |
| Dilutive impact from share issuances | $ | (0.54 | ) | | $ | — |
| | $ | (0.02 | ) | $ | — |
| | $ | (0.30 | ) | | $ | (0.54 | ) |
The dilutive impact from share issuancesimpacts in 2018 and 2017 representsinclude the unfavorable impact of BD shares issued through public offerings of equity securities in the third quarter of fiscal year 2017, in anticipation of the pending Bard acquisition. The dilutive impact from share issuances in 2015 represents2018 additionally includes the unfavorable impact fromof BD shares issued as consideration transferred in the first quarter of fiscal year 2018 for the CareFusionBard acquisition prioras is further discussed in Note 10 to the inclusion of CareFusionconsolidated financial statements contained in consolidated results of operations.Item 8. Financial Statements and Supplementary Data.
Financial Instrument Market Risk
We selectively use financial instruments to manage market risk, primarily foreign currency exchange risk and interest rate risk relating to our ongoing business operations. The counterparties to these contracts are highly rated financial institutions. We do not enter into financial instruments for trading or speculative purposes.
Foreign Exchange Risk
BD and its subsidiaries transact business in various foreign currencies throughout Europe, Greater Asia, Canada and Latin America. We face foreign currency exposure from the effect of fluctuating exchange rates on payables and receivables relating to transactions that are denominated in currencies other than our functional currency. These payables and receivables primarily arise from intercompany transactions. We hedge substantially all such exposures, primarily through the use of forward contracts. We also face currency exposure that arises from translating the results of our worldwide operations, including sales, to the U.S. dollar at exchange rates that have fluctuated from the beginning of a reporting period. From time to time, we may
purchase forward contracts and options to hedge certain forecasted transactions that are denominated in foreign currencies in order to partially protect against a reduction in the value of future earnings resulting from adverse foreign exchange rate movements. Gains or losses on derivative instruments are largely offset by the gains or losses on the underlying hedged transactions. We did not enter into contracts to hedge cash flows against foreign currency fluctuations in fiscal year 20172019 or 2016.2018.
Derivative financial instruments are recorded on our balance sheet at fair value. For foreign currency derivatives, market risk is determined by calculating the impact on fair value of an assumed change in foreign exchange rates relative to the U.S. dollar. Fair values were estimated based upon observable inputs, specifically spot currency rates and foreign currency prices for similar assets and liabilities.
With respect to the foreign currency derivative instruments outstanding at September 30, 20172019 and 2016,2018, the impact that changes in the U.S. dollar would have on pre-tax earnings was estimated as follows:
| | | | Increase (decrease) | Increase (decrease) |
| (Millions of dollars) | 2017 | | 2016 | 2019 | | 2018 |
| 10% appreciation in U.S. dollar | $ | (38 | ) | | $ | (67 | ) | $ | (16 | ) | | $ | (59 | ) |
| 10% depreciation in U.S. dollar | $ | 38 |
| | $ | 67 |
| $ | 16 |
| | $ | 59 |
|
These calculations do not reflect the impact of exchange gains or losses on the underlying transactions that would substantially offset the results of the derivative instruments.
Interest Rate Risk
Our primary interest rate risk relates to U.S. dollar borrowings which are partially offset by U.S. dollar cash investments. When managing interest rate exposures, we strive to achieve an appropriate balance between fixed and floating rate instruments. We may enter into interest rate swaps to help maintain this balance and manage debt and interest-bearing investments in tandem, since these items have an offsetting impact on interest rate exposure. For interest rate derivative instruments, fair values are measured based upon the present value of expected future cash flows using market-based observable inputs including credit risk and interest rate yield curves. Market risk for these instruments is determined by calculating the impact to fair value of an assumed change in interest rates across all maturities.
With respect to theThe impact that changes in interest rates would have on interest rate derivatives outstanding at September 30, 20172019 and 2016, a 10% change2018, as well as the effect that changes in interest rates would not materially impact the fair value of these derivatives. Based on our overall interest rate exposure at September 30, 2017 and 2016, a 10% change in interest rates would not have a material effect on our earnings or cash flows over a one-year period.period, based upon our overall interest rate exposure, were estimated as follows:
|
| | | | | | | | | | | | | | | |
| | Increase (decrease) to fair value of interest rate derivatives outstanding | | Increase (decrease) to earnings or cash flows |
| (Millions of dollars) | 2019 | | 2018 | | 2019 | | 2018 |
| 10% increase in interest rates | $ | 19 |
| | $ | (22 | ) | | $ | (4 | ) | | $ | (7 | ) |
| 10% decrease in interest rates | $ | (19 | ) | | $ | 23 |
| | $ | 4 |
| | $ | 7 |
|
Liquidity and Capital Resources
The following table summarizes our consolidated statement of cash flows in 2017, 20162019, 2018 and 2015:2017:
| | | (Millions of dollars) | 2017 | | 2016 | | 2015 | 2019 | | 2018 | | 2017 |
| Net cash provided by (used for) | | | | | | | | | | |
| Operating activities | $ | 2,550 |
| | $ | 2,559 |
| | $ | 1,730 |
| $ | 3,330 |
| | $ | 2,865 |
| | $ | 2,550 |
|
| Investing activities | $ | (883 | ) | | $ | (669 | ) | | $ | (8,318 | ) | $ | (741 | ) | | $ | (15,733 | ) | | $ | (883 | ) |
| Financing activities | $ | 10,977 |
| | $ | (1,761 | ) | | $ | 6,190 |
| $ | (3,223 | ) | | $ | (58 | ) | | $ | 10,977 |
|
Net Cash Flows from Operating Activities
The fiscal year 2017, 2016 and 2015 changes in net cash provided byCash flows from operating activities was primarily attributable toin 2019 reflected net income, as adjusted for depreciation and amortization and other non-cash items. The fiscal year 2017by a change in operating assets and liabilities that was a net use of cash. This net use of cash primarily reflected lower levels of accounts payable and accrued expenses and higher levels of inventory, partially offset by lower levels of prepaid expenses. The lower levels of accounts payable and accrued expenses were primarily attributable to cash paid related to income taxes and our product liability matters, as well as the timing and amount of interest payments due in the period. Cash flows from operating activities in 2019 additionally reflected $200 million of discretionary cash contributions to fund our pension obligation.
Cash flows from operating activities in 2018 reflected net income, adjusted by a change in operating assets and liabilities that was a net source of cash. This net source of cash primarily reflected higher levels of accounts payable and accrued expenses, primarily due to higher income taxes payable as a result of the new U.S. tax legislation discussed above, as well as lower levels of inventory, partially offset by higher levels of trade receivables. The change in cash flows from operating activities in 2018 also reflected a change to deferred tax asset and liability balances which were remeasured under the recently enacted tax legislation, which is further discussed in Note 17 to the consolidated financial statements contained in Item 8. Financial Statements and Supplementary Data. The change in cash flows from operating activities in 2018 additionally reflected discretionary cash contributions of $287 million to fund our pension obligation.
Cash flows from operating activities in 2017 reflected net income, adjusted by a change in operating assets and liabilities that was a net use of cash. This net use of cash primarily reflected higher levels of prepaid expenses, trade receivables and inventory, partially offset by higher levels of accounts payable and accrued expenses. The fiscal year 2016 change in operating assets and liabilities was a net source of cash and
primarily reflected higher levels of accounts payable and accrued expenses as well as lower levels of inventory, prepayments and financing receivables, partially offset by higher levels of accounts receivables. NetAs previously discussed, cash provided byflows from operating activities in 2019, 2018 and 2017 also reflected an adjustment for the non-cash charge resulting from the modification to our dispensing equipment lease contracts with customers, as previously discussed, and the losses recorded upon our extinguishment of certain long-term notes which are included within Other, net. The previously discussed non-cash charge recorded to impair capitalized internal-use software assets held for sale is included within Other, net in 2016. Net cash provided by operating activities in 2016 was reduced by changes in the pension obligation resulting primarily from a discretionary cash contribution of $100 million.
Net Cash Flows from Investing Activities
Capital expenditures
Our investments in capital expenditures are focused on projects that enhance our cost structure and manufacturing capabilities, and support our strategy of geographic expansion with select investments in growing markets. Capital expenditures of $957 million, $895 million and $727 million $693 million, $596 million in 2017, 20162019, 2018 and 2015,2017, respectively, primarily related to manufacturing capacity expansions and detailsexpansions. Details of spending by segment are contained in Note 67 to the consolidated financial statements contained in Item 8. Financial Statements and Supplementary Data.
Investments
Cash inflows from the sales of investments of $840 million in 2015 were attributable to the maturities of time deposits in Europe, Latin America and Asia Pacific.
Acquisitions of Businesses
Cash outflows relatingfor acquisitions in 2018 primarily related to our acquisition of Bard. Cash outflows for acquisitions in 2017 included payments for acquisitions which were immaterial both individually and in the aggregate. Cash outflows relating to acquisitions in 2015 of $8.414 billion were primarily attributable to the completion of the CareFusion acquisition in the second quarter of fiscal year 2015. For further discussion, refer to Note 910 to the consolidated financial statements contained in Item 8. Financial Statements and Supplementary Data.
Divestitures of Businesses
Cash inflows relating to business divestitures in 2019, 2018 and 2017 were $477 million, $534 million and $165 million. Net cash flows from investing activitiesmillion, respectively. For further discussion, refer to Note 11 to the consolidated financial statements contained in 2016 included $158 million of proceeds from the sales of non-core assets.
Item 8. Financial Statements and Supplementary Data.
Net Cash Flows from Financing Activities
Net cash from financing activities in 2017, 20162019, 2018 and 20152017 included the following significant cash flows:
|
| | | | | | | | | | | |
| (Millions of dollars) | 2017 | | 2016 | | 2015 |
| Cash inflow (outflow) | | | | | |
| Increase/(decrease) in borrowings under commercial paper program | $ | (200 | ) | | $ | (500 | ) | | $ | 500 |
|
| Issuances of senior unsecured U.S. notes | $ | 9,616 |
| | $ | — |
| | $ | 6,164 |
|
| Issuances of euro-denominated notes | $ | 1,846 |
| | $ | — |
| | $ | — |
|
| Payments of debt | $ | (3,980 | ) | | $ | (752 | ) | | $ | (6 | ) |
| Issuances of equity securities | $ | 4,827 |
| | $ | — |
| | $ | — |
|
| Share repurchases under accelerated share repurchase agreement | $ | (220 | ) | | $ | — |
| | $ | — |
|
| Dividends paid | $ | (677 | ) | | $ | (562 | ) | | $ | (485 | ) |
|
| | | | | | | | | | | |
| (Millions of dollars) | 2019 | | 2018 | | 2017 |
| Cash inflow (outflow) | | | | | |
| Change in credit facility borrowings | $ | 485 |
| | $ | — |
| | $ | (200 | ) |
| Proceeds from long-term debt and term loans | $ | 2,224 |
| | $ | 5,086 |
| | $ | 11,462 |
|
| Payments of debt and term loans | $ | (4,744 | ) | | $ | (3,996 | ) | | $ | (3,980 | ) |
| Proceeds from issuances of equity securities | $ | — |
| | $ | — |
| | $ | 4,827 |
|
| Share repurchases under accelerated share repurchase agreement | $ | — |
| | $ | — |
| | $ | (220 | ) |
| Dividends paid | $ | (984 | ) | | $ | (927 | ) | | $ | (677 | ) |
Additional disclosures regarding the equity and debt-related financing activities detailed above are provided in Notes 3 and 1516 to the consolidated financial statements contained in Item 8. Financial Statements and Supplementary Data. No further share repurchases are currently planned, as our share repurchase program has been suspended in connection with the announced agreement to acquire Bard.
Debt-Related Activities
Certain measures relating to our total debt were as follows:
| | | | 2017 | | 2016 | | 2015 | 2019 | | 2018 | | 2017 |
| Total debt (Millions of dollars) | $ | 18,870 |
| | $ | 11,551 |
| | $ | 12,822 |
| $ | 19,390 |
| | $ | 21,496 |
| | $ | 18,870 |
|
| | | | | | | | | | | |
| Short-term debt as a percentage of total debt | 1.1 | % | | 8.7 | % | | 11.3 | % | 6.8 | % | | 12.1 | % | | 1.1 | % |
| Weighted average cost of total debt | 3.3 | % | | 3.6 | % | | 3.3 | % | 2.9 | % | | 3.2 | % | | 3.3 | % |
Total debt as a percentage of total capital (A)(a) | 57.5 | % | | 57.2 | % | | 59.4 | % | 45.6 | % | | 47.8 | % | | 57.5 | % |
| |
(A)(a) | Represents shareholders’ equity, net non-current deferred income tax liabilities, and debt. |
The decrease in short-term debt as a percentage of total debt at September 30, 20172019 was largelyprimarily driven by ourthe payment of certain short-term notes as well as the issuance of $9.675 billion of senior unsecured U.S.long-term notes during the third quarter of fiscal year 2017.in 2019. The ratio ofincrease in short-term debt as a percentage of total debt at September 30, 20162018 was primarily reflecteddriven by the reclassificationsreclassification of $800 million ofcertain notes from long-term debt to short-term debt, offset by the repayment of $750 million of floating rate notes during the third quarter of fiscal year 2016 and a reduction of commercial paper borrowings.short-term. Additional disclosures regarding our debt instruments are provided in Note 1516 to the consolidated financial statements contained in Item 8. Financial Statements and Supplementary Data.
Cash and Short-term Investments
At September 30, 2017,2019, total worldwide cash and short-term investments were $14.201 billion, of$620 million, including restricted cash, which $1.196 billion was primarily held in jurisdictions outside of the United States. Total cash at September 30, 2017 included net proceeds raised through public offerings of equity securities and debt transactions which occurred during the third quarter of fiscal year 2017, as previously discussed.
We regularly review the amount of cash and short-term investments held outside the United States and currently intend to use such amounts to fund our international operations and their growth initiatives. In addition, if these amounts were repatriated from foreign jurisdictions to the United States, there could be adverse tax consequences.
CreditFinancing Facilities
We have in place a $1.5 billion syndicated credit facility which can be used for general corporate purposes. There were no borrowings outstanding under this credit facility at September 30, 2017. During the first quarter of fiscal year 2017, we extended the expiration date of this credit facility to January 2022 from the original expiration date of January 2021. We may issue up to $100 million in letters of credit under this facility and it also includes a provision that enables BD, subject to additional commitments made by the lenders, to access up to an additional $500 million in financing through the facility for a maximum aggregate commitment of $2 billion. The credit facility includes a single financial covenant that requires BD to maintain an interest expense coverage ratio of not less than 4-to-1 for the most recent four consecutive fiscal quarters. We were in compliance with this covenant as of September 30, 2017. We also have informal lines of credit outside the United States.
The Company had no commercial paper borrowings outstanding as of September 30, 2017.
The developments discussed below occurred in 2017 relative to our credit facilities in connection with the announcement of the acquisition of Bard.
Term loan and revolving credit facilities
In May 2017, we entered into a three-year $2.25 billion senior unsecured term loan facility. The proceeds from this facility may only be used to fund a portion of the cash consideration for the Bard acquisition, as well as the fees and expenses incurred in connection with this acquisition. Also in May 2017, we entered into a five-year senior unsecured revolving credit facility that will providewhich provides borrowing of up to $2.25 billion when the facility becomes effective upon the closing of the Bard acquisition.billion. This facility will expire in MayDecember 2022. Upon the effective date of the facility, it will replace the $1.5 billion syndicated credit facility discussed further above. We will beare able to issue up to $100 million in letters of credit under this new revolving credit facility and it also includes a provision that enables BD, subject to additional commitments made by the lenders, to access up to an additional $500 million in financing through the facility for a maximum aggregate commitment of $2.75 billion. We will use proceeds from this facility to fund general corporate needs and to redeem, repurchase or defease certain of Bard'sneeds. Borrowings outstanding senior unsecured notes that will be assumed uponunder the closing of the acquisition.
The agreements for both the new term loan and revolving credit facility containat September 30, 2019 were $485 million.
The agreement for our revolving credit facility contained the following financial covenants:covenants. We were in compliance with these covenants as of September 30, 2019.
We are required to maintain an interest expense coverage ratio of not less than 4-to-1 as of the last day of each fiscal quarter. We were in compliance with this covenant relative to the term loan facility as of September 30, 2017. This covenant becomes effective for the revolving credit facility upon the effective date of the facility.
We are required to have a leverage coverage ratio of no more than:
| |
| ◦ | 6-to-1 from the closing date of the Bard acquisition until and including the first fiscal quarter-end thereafter; |
| |
| ◦ | 5.75-to-1 for the subsequent four fiscal quarters thereafter; |
| |
| ◦ | 5.25-to-1 for the subsequent four fiscal quarters thereafter; |
| |
| ◦ | 4.5-to-1 for the subsequent four fiscal quarters thereafter; |
| |
| ◦ | 4-to-1 for the subsequent four fiscal quarters thereafter; |
Bridge facility
Upon securing permanent financing, includingWe also have informal lines of credit outside the issuancesUnited States. During the fourth quarter of 2019, the Company fully repaid its borrowings outstanding on a 364-day senior unsecured U.S. notes and equity securitiesterm loan facility that the Company entered in September 2018. The Company had no commercial paper borrowings outstanding as of September 30, 2019. We may, from time to time, sell certain trade receivable assets to third parties as we manage working capital over the third quarternormal course of fiscal year 2017, as previously discussed above, an agreement for fully committed bridge financing of $15.7 billion we had secured in concurrence with the announcement of the acquisition agreement was terminated.our business activities.
Access to Capital and Credit Ratings
Our ability to generate cash flow from operations, issue debt, enter into other financing arrangements and attract long-term capital on acceptable terms could be adversely affected in the event there was a material decline in the demand for our products, deterioration in our key financial ratios or credit ratings, or other significantly unfavorable changes in conditions.
Our corporate credit ratings with the rating agencies Standard & Poor's Ratings Services ("S&P"), Moody's Investor Service (Moody's) and Fitch Ratings ("Fitch") were as follows at September 30, 2017:2019:
|
| | | | | | |
| | | S&P | | Moody’s | | Fitch |
| Ratings: | | | | | | |
| Senior Unsecured Debt | | BBB+BBB | | Baa2Ba1 | | BBB- |
| Commercial Paper | | A-2 | | P-2NP | | |
| Outlook | | NegativeStable | | NegativePositive | | Stable |
Upon
In May 2019, Moody's Investor Service reaffirmed our announcementSeptember 30, 2018 ratings and revised the agency's outlook regarding the likely direction of the agreement to acquire Bard, S&P placed our corporate credit rating of BBB+ on CreditWatch. The BBB+ rating S&P assigned to our new term loan facility and the senior unsecured U.S. notes we issued in the third quarter of fiscal year 2017 have also been placed on CreditWatch by the ratings agency. S&P has indicated that this placement will be resolved upon the acquisition's closing, which is expected to occur in the fourth calendar quarter of 2017, and that our corporate debt rating by S&P will be lowered one notch to BBB. S&P also assigned a BBB- rating to the previously discussed mandatory convertible preferred stock we issued in May 2017.
Also upon our announcement of the agreement to acquire Bard, Moody's placed our Baa2 and P-2 ratings on review for downgrade and these ratings currently remain under review. Additionally, Moody's assigned a corporate credit rating of Ba1over the medium term from Stable to our new term loan facility and to all of the tranches of senior unsecured U.S. notes issued in the third quarter, except for the tranche of 2.133% notes due June 6, 2019, which was assigned a corporate credit rating of Baa2. Moody's assigned a corporate credit rating of Baa2 to euro-denominated notes we also issued in the third quarter of fiscal year 2017. Moody's has placed the ratings assigned to the tranche of 2.133% notes and the euro-denominated notes on review for downgrade. Moody's also assigned a Ba1 rating to the BD notes we are offering in exchange of exiting Bard notes. Upon the closing of the Bard acquisition, we expect Moody’s to downgrade our credit rating to below investment grade.Positive.
Additionally upon our announcement of the Bard agreement, Fitch assigned corporate debt ratings to BD for the first time and assigned BD a Long-term Issuer Default Rating of BBB- and an outlook of Stable. Fitch also assigned a BBB- rating to the euro-denominated notes we issued in the third quarter.
There were no changes to BD's long-term debt and commercial paper ratings during 2016. Lower corporate debt ratings and further downgrades of our corporate credit ratings or other credit ratings may increase our cost of borrowing. We believe that given our debt ratings, our financial management policies, our ability to generate cash flow and the non-cyclical, geographically diversified nature of our businesses, we would have access to additional short-term and long-term capital should the need arise. A rating reflects only the view of a rating agency and is not a recommendation to buy, sell or hold securities. Ratings can be revised upward or downward at any time by a rating agency if such rating agency decides that circumstances warrant such a change.
Contractual Obligations
In the normal course of business, we enter into contracts and commitments that obligate us to make payments in the future. The table below sets forth BD’s significant contractual obligations and related scheduled payments as of September 30, 2017:
2019:
| | | | Total | | 2018 | | 2019 to 2020 | | 2021 to 2022 | | 2023 and Thereafter | Total | | 2020 | | 2021 to 2022 | | 2023 to 2024 | | 2025 and Thereafter |
| | (Millions of dollars) | (Millions of dollars) |
| Short-term debt | $ | 208 |
| | $ | 208 |
| | $ | — |
| | $ | — |
| | $ | — |
| $ | 1,327 |
| | $ | 1,327 |
| | $ | — |
| | $ | — |
| | $ | — |
|
Long-term debt(A)(a) | 26,897 |
| | 615 |
| | 4,986 |
| | 5,001 |
| | 16,295 |
| 23,694 |
| | 527 |
| | 6,339 |
| | 5,196 |
| | 11,632 |
|
| Operating leases | 277 |
| | 67 |
| | 104 |
| | 66 |
| | 39 |
| 546 |
| | 122 |
| | 187 |
| | 114 |
| | 123 |
|
Purchase obligations(B)(b) | 1,077 |
| | 682 |
| | 330 |
| | 65 |
| | — |
| 1,364 |
| | 1,048 |
| | 303 |
| | 13 |
| | — |
|
Unrecognized tax benefits(C)(c) | — |
| | — |
| | — |
| | — |
| | — |
| — |
| | — |
| | — |
| | — |
| | — |
|
Total(D)(d) | $ | 28,458 |
| | $ | 1,572 |
| | $ | 5,420 |
| | $ | 5,132 |
| | $ | 16,334 |
| $ | 26,931 |
| | $ | 3,025 |
| | $ | 6,829 |
| | $ | 5,323 |
| | $ | 11,755 |
|
| |
(A)(a) | Long-term debt obligations include expected principal and interest obligations. |
| |
(B)(b) | Purchase obligations are for purchases made in the normal course of business to meet operational and capital requirements. |
| |
(C)(c) | Unrecognized tax benefits at September 30, 20172019 of $349$519 million were all long-term in nature. Due to the uncertainty related to the timing of the reversal of these tax positions, the related liability has been excluded from the table. |
| |
(D)(d) | Required funding obligations for 20182020 relating to pension and other postretirement benefit plans are not expected to be material. |
Critical Accounting Policies
The following discussion supplements the descriptions of our accounting policies contained in Note 1 to the consolidated financial statements contained in Item 8. Financial Statements and Supplementary Data. The preparation of the consolidated financial statements requires management to use estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, as well as the disclosure of contingent assets and liabilities at the date of the consolidated financial statements. Some of those judgments can be subjective and complex and, consequently, actual results could differ from those estimates. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. For any given estimate
or assumption made by management, it is possible that other people applying reasonable judgment to the same facts and circumstances could develop different estimates. Actual results that differ from management’s estimates could have an unfavorable effect on our consolidated financial statements. Management believes the following critical accounting policies reflect the more significant judgments and estimates used in the preparation of the consolidated financial statements:
Revenue Recognition
SomeOur revenues are primarily recognized when the customer obtains control of our sales transactions qualify as multiple-element arrangements which require us to identify separate units of accounting within the arrangement and allocate the transaction consideration across these separate accounting units. For arrangements that include software and non-software elements, the transaction consideration is allocated to the software elements as a group as well as to the individual non-software elements that have been separately identified. The identification of accounting units and the allocation of total transaction consideration for multiple-element arrangements may be subjective and requires a degree of management judgment. Management’s judgments relative to multiple-element arrangements may affect the timing of revenue recognition.
Transaction consideration for separately identified non-software units of accounting within an arrangement is recognized upon the completion of each deliverable based on its relative selling price. When applying the relative selling price method, the selling price of each deliverable is determined based upon the following hierarchy of evidence: vendor-specific objective evidence,product sold, which is generally based upon historical prices in stand-alone transactions; third-party evidence, which is generally basedshipment or delivery, depending on market data on sales of similar products and services, if available; and management’s best estimate of selling price. Management’s best estimate of selling price is generally based upon the following considerations: stand-alone sales prices,
established price lists, costs to produce, profit margins for similar products, market conditions, and customer stratification.
For software and software-related products, we use the relative fair value method to allocate transaction consideration to each unit of accounting; whereby the evidence useddelivery terms specified in the determinationsales agreement. Revenues associated with certain instruments and equipment for which installation is complex, and therefore significantly affects the customer’s ability to use and benefit from the product, are recognized when customer acceptance of fair value estimates are based solely on vendor-specific objective evidence. To the extent that vendor specific objective evidence does not exist for delivered elements of the transaction, we apply the residual method.
Thethese installed products has been confirmed. For certain service arrangements, including extended warranty and software maintenance contracts, revenue allocated to equipment or instruments in multiple-element arrangements is recognized upon transferratably over the contract term. The majority of title and risk of loss to the customer. The revenue allocatedrevenues relating to extended warranty contracts associated with certain instruments and software maintenance contracts is deferred and recognized as these deliverables are performed under the arrangement. The majority of deferred revenue relating to extended warranty contractsequipment is generally recognized within a few years whereas deferred revenue relating to software maintenance contracts is generally recognized over a longer period.
Accounting for Sales-Type Leases
Our accounting for sales-type leases, which are primarily associatedagreements with dispensing productscustomers within ourcertain organizational units including Medication Management Solutions, unit,Diagnostic Systems and Biosciences, contain multiple performance obligations including both products and certain services noted above. Determining whether products and services are considered distinct performance obligations that should be accounted for separately may require judgment. The transaction price for these agreements is allocated to each performance obligation based upon certain assumptions including the economic life of our leased products and the fair value of our leased products, which is used to determine the interest rate implicit to the lease. These assumptions affect that amount of gross investment in the lease, unearned income, and the sales price that is recognizedits relative to each sales-type lease transaction. The economic life of our leased products is based on the estimated period during which the leased product is expected to be economically usable, without limitation by the lease term, and includes an estimate of future technological advances.
The fair value of our leased products is estimated on a quarterly basis, based upon transacted cash sales prices during the preceding 12-month period, and represents normalstandalone selling price, reflecting any volume or trade discounts that may apply. Because our products are sold as part of customized systems to a diverse range of customers, many of which are affiliated with a group purchasing organization or integrated delivery network, there is a wide range of negotiated cash selling prices for our products. Accordingly, we stratify our cash selling transactions based on product configuration and customer class to determine an estimate of fair value for each product specific, within determined customer classes. Based upon this stratification, we calculate the weighted average selling price of each configured product using the interquartile range methodology and remove outliers from the population of normal cash selling prices, which narrows the range of selling prices within each stratified customer class. The resulting weighted averageprice. Standalone selling price is the single pointamount at which we would sell a promised good or service separately to a customer. We generally estimate standalone selling prices using its list prices and a consideration of fair value that wetypical discounts offered to customers. The use as the normal selling price and this fair value estimate is used to determine the implicit interest rate for each productof alternative estimates could result in a different amount of revenue deferral.
Our gross revenues are subject to a sales-type lease arrangement. In certain instances, we do not have sufficient corresponding historical cash selling transactions to support fair valuesvariety of specific combinations of product configurationsdeductions, which include rebates and customer classes. In these instances, fair value is estimated by applying the average discount percentage given to the respective customer class, over the trailing 12 months, to the list pricesales discounts. These deductions represent estimates of the products whose fair value was not determined using the interquartile range methodology described above. The resulting fair value(s)related obligations and judgment is then used to derive the implicit rate of the lease. The interest rate implicit to the lease is then used to determine the amount of revenue recognized at the inception of the lease and the revenue recognized over the life of the lease.
Our net investment in sales-type leases primarily arises from the leasing of dispensing equipment and as such, the methodology forrequired when determining the relating allowanceimpact on gross revenues for credit lossesa reporting period. Additional factors considered in the estimate of our rebate liability include the quantification of inventory that is based on the collective population and is not stratified by classeither in stock at or portfolio segment. The allowance for credit losses is based on historical experience loss ratesin transit to our distributors, as well as on management’s judgments regarding the potential impactestimated lag time between the sale of anticipated changes in business practices, market dynamics, and economic conditions. These assumptions are inherently subjective and it is possible that we will experience actual credit losses that are different from our current estimates.
In April 2017, in conjunction with the implementation of a new go-to-market business model for our dispensing business, we amended new and existing leases to provide a limited return option. Prior to the amendment these leases were accounted for as sales-type leases in accordance with Accounting Standards
Codification 840, Leases, as the typical non-cancellable lease term of 5 years exceeded 75% of the equipment’s estimated useful lifeproduct and the present valuepayment of the minimum lease payments exceeded 90% of the equipment’s fair value. As sales-type leases, we recognized revenue upon installation of equipment at a customer site based on the present value of the minimum lease payments. As a result of the contract amendment, the amended lease term is shortened and as a result, the majority of leases no longer meet the criteria for recognition as sales-type leases. Accordingly, the leases have been classified as operating leases as of the modification date and revenue is generally recognized ratably over the lease term.
Accounting for Software Products
We sell and lease products with embedded software and as such, we must evaluate these products to determine if industry-specific revenue recognition requirements apply to these sales transactions. This evaluation process is often complex and subject to significant judgment. If software is considered not essential to the non-software elements of a product but is considered more than incidental to a product as a whole, the product’s software elements must be separated from its non-software elements under the requirements relating to multiple-element arrangements. The product’s software elements must be accounted for under software industry-specific revenue recognition requirements and the application of these requirements may significantly affect the timing and amount of revenue recognized.
While we have determined that the software embedded in the following product groupings is more than incidental to the products as a whole, the non-software elements (i.e., hardware) and software elements work together to deliver the essential functionality of these products as a whole. As such, the accounting for these product offerings does not fall within the scope of software industry-specific accounting requirements:
Infusion products (when sold with safety software, patient identification products and certain diagnostic equipment) within our Medication Management Solutions unit;
Dispensing products within our Medication Management Solutions unit;
Research and clinical instruments within our Biosciences unit.
Our standalone software application sales and any related post-contract support related to these sales are accounted for under the software industry-specific revenue recognition requirements.corresponding rebates.
Impairment of Assets
Goodwill and in-process research and development assets are subject to impairment reviews at least annually, or whenever indicators of impairment arise. Intangible assets with finite lives, including developed technology, and other long-lived assets, are periodically reviewed for impairment when impairment indicators are present.
We assess goodwill for impairment at the reporting unit level, which is defined as an operating segment or
one level below an operating segment, referred to as a component. Our reporting units generally represent one
level below reporting segments and we aggregate components within an operating segment that have similar economic characteristics.segments. Potential impairment of goodwill is generally identified by comparing the fair value of a reporting unit with its carrying value. Our annual goodwill impairment test performed on July 1, 20172019 did not result in any impairment charges, as the fair value of each reporting unit exceeded its carrying value.
We generally use the income approach to derive the fair value for impairment assessments. This approach calculates fair value by estimating future cash flows attributable to the assets and then discounting these cash flows to a present value using a risk-adjusted discount rate. We selected this method because we believe the income approach most appropriately measures our income producing assets. This approach requires significant management judgment with respect to future volume, revenue and expense growth rates, changes in working capital use, appropriate discount rates, terminal values and other assumptions and estimates. The estimates and assumptions used are consistent with BD’s business plans. The use of alternative estimates and assumptions could increase or decrease the estimated fair value of the asset, and potentially result in different impacts to BD’s results of operations. Actual results may differ from management’s estimates.
Income Taxes
BD maintains valuation allowances where it is more likely than not that all or a portion of a deferred tax asset will not be realized. Changes in valuation allowances are included in our tax provision in the period of change. In determining whether a valuation allowance is warranted, management evaluates factors such as prior
earnings history, expected future earnings, carry back and carry forward periods, and tax strategies that could potentially enhance the likelihood of realization of a deferred tax asset.
BD conducts business and files tax returns in numerous countries and currently has tax audits in progress in a number of tax jurisdictions. In evaluating the exposure associated with various tax filing positions, we record accruals for uncertain tax positions based on the technical support for the positions, our past audit experience with similar situations, and the potential interest and penalties related to the matters. BD’s effective tax rate in any given period could be impacted if, upon resolution with taxing authorities, we prevailed in positions for which reserves have been established, or we were required to pay amounts in excess of established reserves.
BD hasWe have reviewed itsour needs in the U.S.United States for possible repatriation of undistributed earnings of itsour foreign subsidiaries and with exception for certain countries, continueswe continue to invest foreign subsidiaries earnings outside of the U.S.United States to fund foreign investments or meet foreign working capital and property, plant and equipment expenditure needs. DeferredAs a result, after reevaluation of the permanent reinvestment assertion, we are permanently reinvested with respect to all of our historical foreign earnings as of September 30, 2019. Additional disclosures regarding our accounting for income taxes are not provided on undistributed earnings of foreign subsidiaries that are indefinitely reinvested. At September 30, 2017, the cumulative amount of such undistributed earnings indefinitely reinvested outside the United States was $9.6 billion. The determination of the amount of the unrecognized deferred tax liability relatedin Note 17 to the undistributed earnings is not practicable because of the complexities associated with its hypothetical calculation.consolidated financial statements contained in Item 8. Financial Statements and Supplementary Data.
Contingencies
We are involved, both as a plaintiff and a defendant, in various legal proceedings that arise in the ordinary course of business, including, without limitation, product liability antitrust and environmental matters, as further discussed in Note 5 to the consolidated financial statements contained in Item 8. Financial Statements and Supplementary Data. We assess the likelihood of any adverse judgments or outcomes to these matters as well as potential ranges of probable losses. We establish accruals to the extent probable future losses are estimable (in the case of environmental matters, without considering possible third-party recoveries). A determination of the amount of accruals if any, for these contingencies is made after careful analysis of each individual issue and, whenissue. When appropriate, the accrual is developed afterwith the consultation withof outside counsel.counsel and, as in the case of certain mass tort litigation, the expertise of an actuarial specialist regarding the nature, timing and extent of each matter. The accruals may change in the future due to new developments in each matter or changes in our strategy in dealing with these matters. We record expected recoveries from product liability insurance carriers or other parties when those recoveries are probable and collectible.
Given the uncertain nature of litigation generally, we are not able in all cases to estimate the amount or range of loss that could result from an unfavorable outcome of the litigation to which we are a party. In view of these uncertainties, we could incur charges in excess of any currently established accruals and, to the extent available, excess liability insurance. In the opinion of management, any such future charges, individually or in the aggregate, could have a material adverse effect on BD’s consolidated results of operations and consolidated net cash flows.
Benefit Plans
We have significant net pension and other postretirement and postemployment benefit costs that are measured using actuarial valuations. These benefit costs include assumptions for the discount rate. Pension benefit costs also include an assumption for the expected return on plan assets. These assumptions have a significant effect on the amounts reported. In addition to the analysis below, see Note 89 to the consolidated financial statements contained in Item 8. Financial Statements and Supplementary Data for additional discussion.
The discount rate is selected each year based on investment grade bonds and other factors as of the measurement date (September 30). Specifically for the U.S. pension plan, we will use a discount rate of 3.73%3.21% for 2018,2020, which was based on an actuarially-determined, company-specific yield curve to measure liabilities as
of the measurement date. To calculate the pension expense in 2018,2020, we will apply the individual spot rates along the yield curve that correspond with the timing of each future cash outflow for benefit payments in order to calculate interest cost and service cost. Additional disclosures regarding the method to be used in calculating the interest cost and service cost components of pension expense for 20182020 are provided in Note 89 to the consolidated financial statements contained in Item 8. Financial Statements and Supplementary Data. The expected long-term rate of return on plan assets assumption, although reviewed each year, changes less frequently due to the long-term nature of the assumption. This assumption does not impact the measurement of assets or liabilities as of the measurement date; rather, it is used only in the calculation of pension expense. To
determine the expected long-term rate of return on pension plan assets, we consider many factors, including our historical assumptions compared with actual results; benchmark data; expected returns on various plan asset classes, as well as current and expected asset allocations. We will use a long-term expected rate of return on plan assets assumption of 7.25% for the U.S. pension plan in 2018.2020. We believe our discount rate and expected long-term rate of return on plan assets assumptions are appropriate based upon the above factors.
Sensitivity to changes in key assumptions for our U.S. pension and other postretirement and postemployment plans are as follows:
Discount rate — A change of plus (minus) 25 basis points, with other assumptions held constant, would have an estimated $5$7 million favorable (unfavorable) impact on the total U.S. net pension and other postretirement and postemployment benefit plan costs. This estimate assumes no change in the shape or steepness of the company-specific yield curve used to plot the individual spot rates that will be applied to the future cash outflows for future benefit payments in order to calculate interest and service cost.
Expected return on plan assets — A change of plus (minus) 25 basis points, with other assumptions held constant, would have an estimated $3$5 million favorable (unfavorable) impact on U.S. pension plan costs.
Share-Based Compensation
Compensation cost relating to share-based payment transactions is recognized in net income using a fair value measurement method. All share-based payments to employees, including grants of employee stock options, are recognized in the statement of operations as compensation expense (based on their fair values) over the vesting period of the awards. We determine the fair value of certain share-based awards using a lattice-based binomial option valuation model that incorporates certain assumptions, such as the risk-free interest rate, expected volatility, expected dividend yield and expected life of the options. See Note 7 to the consolidated financial statements contained in Item 8. Financial Statements and Supplementary Data for additional discussion.
Cautionary Statement Regarding Forward-Looking Statements
BD and its representatives may from time to time make certain forward-looking statements in publicly released materials, both written and oral, including statements contained in filings with the Securities and Exchange Commission, press releases, and our reports to shareholders. Forward-looking statements may be identified by the use of words such as “plan,” “expect,” “believe,” “intend,” “will,”, “may”, “anticipate,” “estimate” and other words of similar meaning in conjunction with, among other things, discussions of future operations and financial performance (including volume growth, pricing, sales and earnings per share growth, and cash flows) and statements regarding our strategy for growth, future product development, regulatory approvals, competitive position and expenditures. All statements that address our future operating performance or events or developments that we expect or anticipate will occur in the future are forward-looking statements.
Forward-looking statements are, and will be, based on management’s then-current views and assumptions regarding future events, developments and operating performance, and speak only as of their dates. Investors should realize that if underlying assumptions prove inaccurate, or risks or uncertainties materialize, actual results could vary materially from our expectations and projections. Investors are therefore cautioned not to place undue reliance on any forward-looking statements. Furthermore, we undertake no obligation to update or revise any forward-looking statements after the date they are made, whether as a result of new information,
future events and developments or otherwise, except as required by applicable law or regulations.
The following are some important factors that could cause our actual results to differ from our expectations in any forward-looking statements. For further discussion of certain of these factors, see Item 1A. Risk Factors.Factors in this report.
Weakness in the global economy and financial markets, which could increase the cost of operating our business, weaken demand for our products and services, negatively impact the prices we can charge for our products and services, or impair our ability to produce our products.
Competitive factors that could adversely affect our operations, including new product introductions and technologies (for example, new forms of drug delivery) by our current or future competitors, consolidation or strategic alliances among healthcare companies, distributors and/or payers of healthcare to improve their competitive position or develop new models for the delivery of healthcare, increased pricing pressure due to the impact of low-cost manufacturers, patents attained by competitors (particularly as patents on our products expire), and new entrants into our markets.markets and changes in the practice of medicine.
Risks relating to our acquisition of Bard, including our ability to successfully combine and integrate the Bard operations in order to obtain the anticipated benefits and costs savings from the transaction, and the significant additional indebtedness we incurred in connection with the financing of the acquisition and the impact it may have on our ability to operate the combined company.
The adverse financial impact resulting from unfavorable changes in foreign currency exchange rates.
Regional, national and foreign economic factors, including inflation, deflation, and fluctuations in interest rates, and their potential effect on our operating performance.
Our ability to achieve our projected level or mix of product sales, as our earnings forecasts are based on projected sales volumes and pricing of many product types, some of which are more profitable than others.
Changes in reimbursement practices of governments or third-party payers, or adverse decisions relating to our products by such payers, which could reduce demand for our products or the price we can charge for such products.
The impact of the medical device excise tax under the Patient Protection and Affordable Care Act (the "PPACA") in the United States. ThisWhile this tax has been suspended through December 31, 2017, and2019, absent further legislative action, it is uncertain whether the suspension will be extended beyond that date.reinstated in 2020.
Healthcare reformCost containment efforts in the U.S. or in other countries in which we do business, that may involve changes in government pricingincluding alternative payment reform and reimbursement policies or other cost containment reforms.increased use of competitive bidding and tenders.
Changes in the domestic and foreign healthcare industry or in medical practices that result in a reduction in procedures using our products or increased pricing pressures, including the continued consolidation among healthcare providers and trends toward managed care and healthcare cost containment.providers.
The impact of changes in U.S. federal laws and policy that could affect fiscal and tax policies, healthcare, and international trade, including import and export regulation and international trade agreements. In particular, tariffs or other trade barriers imposed by the U.S. could adversely impact our supply chain costs or otherwise adversely impact our results of operations.
FluctuationsIncreases in operating costs, including fluctuations in the cost and availability of oil-based resins and other raw materials, as well as certain components, used in our products, the ability to maintain favorable supplier arrangements and relationships (particularly with respect to sole-source suppliers), and the potential adverse effects of any disruption in the availability of such items.
Security breaches of our information technology systems or our products, which could impair our ability to conduct business, result in the loss of BD trade secrets or otherwise compromise sensitive information of BD or its customers, suppliers and other business partners, or of customers' patients, or result in product efficacy or safety concerns for certain of our products.products, and result in actions by regulatory bodies or civil litigation.
Difficulties inherent in product development, including the potential inability to successfully continue technological innovation, successfully complete clinical trials, obtain regulatory approvals in the United States and abroad, obtain intellectual property protection for our products, obtain coverage and adequate reimbursement for new products, or gain and maintain market approval of products, as well as the possibility of infringement claims by competitors with respect to patents or other intellectual property rights, all of which can preclude or delay commercialization of a product. Delays in obtaining necessary approvals or clearances from the FDAUnited States Food and Drug Administration (“FDA”) or other regulatory agencies or changes in the
regulatory process may also delay product launches and increase development costs.
The impact of business combinations or divestitures, including any volatility in earnings relating to acquisition-related costs, and our ability to successfully integrate any business we may acquire.
Our ability to penetrate or expand our operations in emerging markets, which depends on local economic and political conditions, and how well we are able to acquire or form strategic business alliances with local companies and make necessary infrastructure enhancements to production facilities and distribution networks.
Conditions in international markets, including social and political conditions, civil unrest, terrorist activity, governmental changes, restrictions on the ability to transfer capital across borders, tariffs and other protectionist measures, difficulties in protecting and enforcing our intellectual property rights and governmental expropriation of assets. This includes the possible impact of the United Kingdom's exit from the European Union ("EU"), which has created uncertainties affecting our business operations in the United Kingdom and the EU, and possibly other countries. Our international operations also increase our compliance risks, including risks under the Foreign Corrupt Practices Act and other anti-corruption laws, as well as regulatory and privacy laws.
Political conditions in international markets, including civil unrest, terrorist activity, governmental changes, trade barriers, restrictions on the ability to transfer capital across borders and governmental expropriation of assets. This includes the possible impact of the June 2016 advisory referendum by British voters to exit the European Union, which has created uncertainties affecting business operations in the United Kingdom and the EU.
Deficit reduction efforts or other actions that reduce the availability of government funding for healthcare and research, which could weaken demand for our products and result in additional pricing pressures, as well as create potential collection risks associated with such sales.
Fluctuations in university or U.S. and international governmental funding and policies for life sciences research.
Fluctuations in the demand for products we sell to pharmaceutical companies that are used to manufacture, or are sold with, the products of such companies, as a result of funding constraints, consolidation or otherwise.
The effects of weather, regulatory or other events that adversely impact our supply chain, including our ability to manufacture our products (particularly where production of a product line isor sterilization operations are concentrated in one or more plants) or our ability to, source materials or components or services from suppliers (including sole-source suppliers) that are needed for such manufacturing. In particular, damagemanufacturing (including sterilization), or provide products to our manufacturing facilities in Puerto Rico resulting from Hurricane Maria in September 2017 could adverselycustomers, including events that impact our revenue and earnings results for fiscal year 2018.key distributors.
Pending and potential future litigation or other proceedings adverseasserting, and/or subpoenas seeking information with respect to, alleged violations of law (including in connection with federal and/or state healthcare programs (such as Medicare or Medicaid) and/or sales and marketing practices (such as investigative subpoenas and the civil investigative demands received by BD includingand Bard)), antitrust claims, product liability (which may involve lawsuits seeking class action status or seeking to establish multi-district litigation proceedings, including claims relating to our hernia repair implant products, surgical continence products for women and vena cava filter products), claims with respect to environmental matters, and patent infringement, and the availability or collectability of insurance relating to any such claims.
New or changing laws and regulations affecting our domestic and foreign operations, or changes in enforcement practices, including laws relating to trade, monetary and fiscal policies, taxation (including tax reforms that could adversely impact multinational corporations), sales practices, environmental protection, price controls, and licensing and regulatory requirements for new products and products in the postmarketing phase. In particular, the U.S. and other countries may impose new requirements regarding registration, labeling or prohibited materials that may require us to re-register products already on the market or otherwise impact our ability to market our products. Environmental laws, particularly with respect to the emission of greenhouse gases, are also becoming more stringent throughout the world, which may increase our costs of operations or necessitate changes in our manufacturing plants or processes or those of our suppliers, or result in liability to BD.
Product efficacy or safety concerns regarding our products resulting in product holds or recalls, regulatory action on the part of the U.S. Food and Drug Administration (FDA)FDA or foreign counterparts (including restrictions on future product clearances and civil penalties), declining sales and product liability claims, and damage to our reputation. As a result of the CareFusion acquisition, we are operating under a consent decree with the FDA relating to our U.S. infusion pump business. The consent decree authorizes the FDA, in the event of any violations in the future, to order us to cease manufacturing and distributing products, recall products or take other actions, and we may be required to pay significant monetary damages if we fail to comply with any provision of the consent decree.
Risks relating Also, in 2019, the FDA letter to healthcare professionals regarding the use of paclitaxel-coated devices in the treatment of peripheral artery disease resulted in decreased sales of BD’s drug-coated balloons. While we have changed the labeling on our acquisition of CareFusion, including our ability toproducts as required by the FDA and continue to successfully
combinework with the FDA on patient data, the extent and integrateduration of the CareFusion operations in order to fully obtain the anticipated benefits and costs savingsimpact from the transaction.
Risks relatedFDA letter, and the likelihood of FDA approval of new drug-coated devices, is difficult to our pending acquisition of Bard, including:predict.
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◦ | The failure to satisfy the conditions to completing the transaction, including obtaining required regulatory approvals. |
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◦ | Conditions to obtaining regulatory approval that may place restrictions on the business of the combined company. |
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◦ | Our failure to obtain the anticipated benefits and costs savings from the acquisition. |
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◦ | The impact of the additional debt we incurred and the equity and equity-linked securities that we issued to finance the acquisition, including on our credit ratings and costs of borrowing. |
The effect of adverse media exposure or other publicity regarding BD’s business or operations, including the effect on BD’s reputation or demand for its products.
The effect of market fluctuations on the value of assets in BD’s pension plans and on actuarial interest rate and asset return assumptions, which could require BD to make additional contributions to the plans or increase our pension plan expense.
Our ability to obtain the anticipated benefits of restructuring programs, if any, that we may undertake.
Issuance of new or revised accounting standards by the Financial Accounting Standards Board or the Securities and Exchange Commission.
The foregoing list sets forth many, but not all, of the factors that could impact our ability to achieve results described in any forward-looking statements. Investors should understand that it is not possible to predict or identify all such factors and should not consider this list to be a complete statement of all potential risks and uncertainties.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
The information required by this item is included in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, and in Notes 1, 1314 and 1415 to the consolidated financial statements contained in Item 8,8. Financial Statements and Supplementary Data, and is incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data.
Reports of Management
Management’s Responsibilities
The following financial statements have been prepared by management in conformity with U.S. generally accepted accounting principles and include, where required, amounts based on the best estimates and judgments of management. The integrity and objectivity of data in the financial statements and elsewhere in this Annual Report are the responsibility of management.
In fulfilling its responsibilities for the integrity of the data presented and to safeguard the Company’s assets, management employs a system of internal accounting controls designed to provide reasonable assurance, at appropriate cost, that the Company’s assets are protected and that transactions are appropriately authorized, recorded and summarized. This system of control is supported by the selection of qualified personnel, by organizational assignments that provide appropriate delegation of authority and division of responsibilities, and by the dissemination of written policies and procedures. This control structure is further reinforced by a program of internal audits, including a policy that requires responsive action by management.
The Board of Directors monitors the internal control system, including internal accounting and financial reporting controls, through its Audit Committee, which consists of eight independent Directors. The Audit Committee meets periodically with the independent registered public accounting firm, the internal auditors and management to review the work of each and to satisfy itself that they are properly discharging their responsibilities. The independent registered public accounting firm and the internal auditors have full and free access to the Audit Committee and meet with its members, with and without management present, to discuss the scope and results of their audits including internal control, auditing and financial reporting matters.
Management’s Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rule 13a-15(f) under the Securities Act of 1934. Management conducted an assessment of the effectiveness of internal control over financial reporting based on the criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework).
Based on thisthe Company's assessment of the effectiveness of internal control over financial reporting and thosethe criteria noted above, management concluded that internal control over financial reporting was effective as of September 30, 2017.2019.
The financial statements and internal control over financial reporting have been audited by Ernst & Young LLP, an independent registered public accounting firm. Ernst & Young’s reports with respect to fairness of the presentation of the financial statements, and the effectiveness of internal control over financial reporting, are included herein.
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| /s/ Vincent A. Forlenza | | /s/ Christopher Reidy | | /s/ John GallagherThomas J. Spoerel |
| Vincent A. Forlenza | | Christopher Reidy | | John GallagherThomas J. Spoerel |
| Chairman and Chief Executive Officer | | Executive Vice President, Chief Financial Officer and Chief Administrative Officer | | Senior Vice President, Corporate Finance, Controller and Treasurer
Chief Accounting Officer |
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of
Becton, Dickinson and Company
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Becton, Dickinson and Company (the Company) as of September 30, 20172019 and 2016, and2018, the related consolidated statements of income, comprehensive income and cash flows for each of the three years in the period ended September 30, 2017. These2019, and the related notes (collectively referred to as the “consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States)statements”). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Becton, Dickinson andthe Company at September 30, 20172019 and 2016,2018, and the consolidated results of its operations and its cash flows for each of the three years in the period ended September 30, 2017,2019, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), Becton, Dickinson and Company’sthe Company's internal control over financial reporting as of September 30, 2017,2019, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated November 22, 201727, 2019 expressed an unqualified opinion.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion thereon.on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
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| | | Estimation of Product Liability Reserves |
| Description of the Matter | | As described in Note 5 to the consolidated financial statements, the Company is a defendant in various product liability matters in which the plaintiffs allege a wide variety of claims associated with the use of certain Company devices. At September 30, 2019, the Company’s product liability reserves totaled approximately $2.5 billion. The Company engaged an actuarial specialist to perform an analysis to estimate the outstanding liability for indemnity costs related to claims arising from these product liability matters. The methods used by the Company to estimate these reserves are based on reported claims, historical settlement amounts, and stage of litigation, among other items. Auditing management’s estimate of the product liability reserves and related disclosure was challenging due to the significant judgment required to determine the methods used to estimate the amount of unreported product liability claims and the indemnity costs and the key assumptions utilized in those methods given the stages of these matters and the amount of claims history. |
| How We Addressed the Matter in Our Audit | | We obtained an understanding, evaluated the design and tested the operating effectiveness of the controls over the Company’s evaluation of the product liability reserve. For example, we tested controls over management's review of the methods, significant assumptions and the underlying data used by the actuary to estimate the product liability reserve. To evaluate management’s estimate of the product liability reserve, our audit procedures included, among others, testing the completeness and accuracy of the underlying data used by management's actuarial specialist to estimate the amount of unreported claims and the indemnity cost. For example, we compared filed and settled claims data to legal letters obtained from external counsel, and, on a sample basis, compared settlement amounts to the underlying agreements. In addition, we involved our actuarial specialists to assist us in evaluating the methods used to estimate the unreported claims and the indemnity cost used in the calculation of the product liability reserves. We have also assessed the adequacy of the Company’s disclosures in relation to these matters. |
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| | Income taxes - Uncertain tax positions |
| Description of the Matter | | As discussed in Notes 1 and 17 of the consolidated financial statements, the Company has recorded a liability of $624 million related to uncertain tax positions as of September 30, 2019. The Company conducts business in numerous countries and is therefore subject to income taxes in multiple jurisdictions, which impacts the provision for income taxes. Due to the multinational operations of the Company, changes in global income tax laws and regulation result in complexity in the accounting for and monitoring of income taxes including the provision for uncertain tax positions. Auditing the completeness of management’s identification of uncertain tax positions involved complex analysis and auditor judgment related to the evaluation of the income tax consequences of significant transactions, including internal restructurings, and changes in income tax law and regulations in various jurisdictions, which is often subject to interpretation. |
| How We Addressed the Matter in Our Audit | | We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s income tax provision process, such as controls over management’s identification and assessment of changes to tax laws and income tax positions to account for uncertain tax positions, including management’s review of the related tax technical analyses. We performed audit procedures, among others, to evaluate the Company’s assumptions used to develop its uncertain tax positions and related unrecognized income tax benefit amounts by jurisdiction. We obtained an understanding of the Company’s legal structure through our review of organizational charts and related legal documents. We further considered the income tax consequences of significant transactions, including internal restructurings, and assessed management’s interpretation of those changes under the relevant jurisdiction’s tax law. Due to the complexity of tax law, we involved our tax subject matter professionals to assess the Company’s interpretation of and compliance with tax laws in these jurisdictions, as well as to identify tax law changes. We also involved our tax subject matter professionals to evaluate the technical merits of the Company’s accounting for its tax positions, including assessing the Company’s correspondence with the relevant tax authorities and evaluating third-party advice obtained by the Company. We also evaluated the Company’s income tax disclosures included in Note 17 to the consolidated financial statements in relation to these matters. |
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| | Goodwill impairment - Interventional segment |
| Description of the Matter | | At September 30, 2019, the Company’s goodwill assigned to the Interventional segment was $12.6 billion. As discussed in Note 1 of the consolidated financial statements, goodwill is tested for impairment at least annually at the reporting unit level using quantitative models. Auditing management’s annual goodwill impairment test was complex and highly judgmental due to the significant estimation required in determining the fair value of the reporting units. In particular, the fair value estimates were sensitive to significant assumptions such as the discount rate, revenue growth rate, operating margin, and terminal value, which are affected by expectations about future market or economic conditions. |
| How We Addressed the Matter in Our Audit | | We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s goodwill impairment review process. For example, we tested controls over management’s review of the inputs and assumptions to the goodwill impairment analysis. To test the estimated fair value of the Company’s reporting units, our audit procedures included, among others, assessing fair value methodology, evaluating the prospective financial information used by the Company in its valuation analysis and involving our valuation specialists to assist in testing the significant assumptions discussed above. We compared the significant assumptions used by management to current industry and economic trends, historical financial results, and other relevant factors that would affect the significant assumptions. We assessed the historical accuracy of management’s estimates and performed sensitivity analyses of significant assumptions to evaluate the changes in the fair value of the reporting units. In addition, we tested the reconciliation of the fair value of the reporting units to the market capitalization of the Company. |
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| /s/ ERNST & YOUNG LLP | |
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| We have served as the Company's auditor since 1959. | |
| New York, New York | | |
November 22, 2017 | 27, 2019 | |
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of
Becton, Dickinson and Company
Opinion on Internal Control over Financial Reporting
We have audited Becton, Dickinson and Company’s internal control over financial reporting as of September 30, 2017,2019, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission, (2013 framework), (the COSO criteria). In our opinion, Becton, Dickinson and Company (the Company) maintained, in all material respects, effective internal control over financial reporting as of September 30, 2019, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of September 30, 2019 and 2018, the related consolidated statements of income, comprehensive income and cash flows for each of the three years in the period ended September 30, 2019, and the related notes and our report dated November 27, 2019 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the company’sCompany’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, Becton, Dickinson and Company maintained, in all material respects, effective internal control over financial reporting as of September 30, 2017, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Becton, Dickinson and Company as of September 30, 2017 and 2016, and the related consolidated statements of income, comprehensive income and cash flows for each of the three years in the period ended September 30, 2017 of Becton, Dickinson and Company, and our report dated November 22, 2017 expressed an unqualified opinion thereon.
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| | /s/ ERNST & YOUNG LLP | |
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| New York, New York | | |
November 22, 2017 | 27, 2019 | |
Consolidated Statements of Income
Becton, Dickinson and Company
Years Ended September 30
| | | Millions of dollars, except per share amounts | 2017 | | 2016 | | 2015 | 2019 | | 2018 | | 2017 |
| Revenues | $ | 12,093 |
| | $ | 12,483 |
| | $ | 10,282 |
| $ | 17,290 |
| | $ | 15,983 |
| | $ | 12,093 |
|
| | | | | | | | | | | |
| Cost of products sold | 6,151 |
| | 6,492 |
| | 5,587 |
| 9,002 |
| | 8,714 |
| | 6,128 |
|
| Selling and administrative expense | 2,925 |
| | 3,005 |
| | 2,563 |
| 4,332 |
| | 4,016 |
| | 2,909 |
|
| Research and development expense | 774 |
| | 828 |
| | 632 |
| 1,062 |
| | 1,004 |
| | 770 |
|
| Acquisitions and other restructurings | 354 |
| | 728 |
| | 426 |
| 480 |
| | 740 |
| | 354 |
|
| Other operating expense, net | 410 |
| | — |
| | — |
| 654 |
| | — |
| | 410 |
|
| Total Operating Costs and Expenses | 10,615 |
| | 11,053 |
| | 9,207 |
| 15,530 |
| | 14,474 |
| | 10,571 |
|
| Operating Income | 1,478 |
| | 1,430 |
| | 1,074 |
| 1,760 |
| | 1,509 |
| | 1,522 |
|
| Interest expense | (521 | ) | | (388 | ) | | (371 | ) | (639 | ) | | (706 | ) | | (521 | ) |
| Interest income | 76 |
| | 21 |
| | 15 |
| 12 |
| | 65 |
| | 76 |
|
| Other (expense) income, net | (57 | ) | | 11 |
| | 21 |
| |
| Other income (expense), net | | 43 |
| | 305 |
| | (101 | ) |
| Income Before Income Taxes | 976 |
| | 1,074 |
| | 739 |
| 1,176 |
| | 1,173 |
| | 976 |
|
| Income tax (benefit) provision | (124 | ) | | 97 |
| | 44 |
| (57 | ) | | 862 |
| | (124 | ) |
| Net Income | 1,100 |
| | 976 |
| | 695 |
| 1,233 |
| | 311 |
| | 1,100 |
|
| Preferred stock dividends | (70 | ) | | — |
| | — |
| (152 | ) | | (152 | ) | | (70 | ) |
| Net income applicable to common shareholders | $ | 1,030 |
| | $ | 976 |
| | $ | 695 |
| $ | 1,082 |
| | $ | 159 |
| | $ | 1,030 |
|
| | | | | | | | | | | |
| Basic Earnings per Share | $ | 4.70 |
| | $ | 4.59 |
| | $ | 3.43 |
| $ | 4.01 |
| | $ | 0.62 |
| | $ | 4.70 |
|
| | | | | | | | | | | |
| Diluted Earnings per Share | $ | 4.60 |
| | $ | 4.49 |
| | $ | 3.35 |
| $ | 3.94 |
| | $ | 0.60 |
| | $ | 4.60 |
|
Amounts may not add due to rounding.
See notes to consolidated financial statements.
49
Consolidated Statements of Comprehensive Income
Becton, Dickinson and Company
Years Ended September 30
|
| | | | | | | | | | | |
| Millions of dollars | 2017 | | 2016 | | 2015 |
| Net Income | $ | 1,100 |
| | $ | 976 |
| | $ | 695 |
|
| Other Comprehensive Income (Loss), Net of Tax | | | | | |
| Foreign currency translation adjustments | 11 |
| | (50 | ) | | (692 | ) |
| Defined benefit pension and postretirement plans | 179 |
| | (141 | ) | | (36 | ) |
| Cash flow hedges | 17 |
| | 1 |
| | (9 | ) |
| Other Comprehensive Income (Loss), Net of Tax | 206 |
| | (191 | ) | | (737 | ) |
| Comprehensive Income (Loss) | $ | 1,306 |
| | $ | 786 |
| | $ | (42 | ) |
Amounts may not add due to rounding.
See notes to consolidated financial statements.
50
Consolidated Balance Sheets
Becton, Dickinson and Company
September 30
|
| | | | | | | |
| Millions of dollars, except per share amounts and numbers of shares | 2017 | | 2016 |
| Assets | | | |
| Current Assets | | | |
| Cash and equivalents | $ | 14,179 |
| | $ | 1,541 |
|
| Short-term investments | 21 |
| | 27 |
|
| Trade receivables, net | 1,744 |
| | 1,618 |
|
| Current portion of net investment in sales-type leases | 16 |
| | 339 |
|
| Inventories | 1,818 |
| | 1,719 |
|
| Assets held for sale | — |
| | 642 |
|
| Prepaid expenses and other | 856 |
| | 480 |
|
| Total Current Assets | 18,633 |
| | 6,367 |
|
| Property, Plant and Equipment, Net | 4,638 |
| | 3,901 |
|
| Goodwill | 7,563 |
| | 7,419 |
|
| Customer Relationships, Net | 2,830 |
| | 3,022 |
|
| Developed Technology, Net | 2,478 |
| | 2,655 |
|
| Other Intangibles, Net | 585 |
| | 604 |
|
| Net Investment in Sales-Type Leases, Less Current Portion | 38 |
| | 796 |
|
| Other Assets | 968 |
| | 824 |
|
| Total Assets | $ | 37,734 |
| | $ | 25,586 |
|
| Liabilities and Shareholders’ Equity | | | |
| Current Liabilities | | | |
| Short-term debt | $ | 203 |
| | $ | 1,001 |
|
| Accounts payable | 797 |
| | 665 |
|
| Accrued expenses | 1,393 |
| | 1,575 |
|
| Salaries, wages and related items | 773 |
| | 696 |
|
| Income taxes | 176 |
| | 274 |
|
| Liabilities held for sale | — |
| | 189 |
|
| Total Current Liabilities | 3,342 |
| | 4,400 |
|
| Long-Term Debt | 18,667 |
| | 10,550 |
|
| Long-Term Employee Benefit Obligations | 1,168 |
| | 1,319 |
|
| Deferred Income Taxes and Other | 1,609 |
| | 1,684 |
|
| Commitments and Contingencies (See Note 5) |
|
| |
|
|
| Shareholders’ Equity | | | |
| Preferred stock | 2 |
| | — |
|
| Common stock — $1 par value: authorized — 640,000,000 shares; issued — 346,687,160 shares in 2017 and 332,662,160 shares in 2016. | 347 |
| | 333 |
|
| Capital in excess of par value | 9,619 |
| | 4,693 |
|
| Retained earnings | 13,111 |
| | 12,727 |
|
| Deferred compensation | 19 |
| | 22 |
|
| Common stock in treasury — at cost — 118,744,758 shares in 2017 and 119,370,934 shares in 2016. | (8,427 | ) | | (8,212 | ) |
| Accumulated other comprehensive loss | (1,723 | ) | | (1,929 | ) |
| Total Shareholders’ Equity | 12,948 |
| | 7,633 |
|
| Total Liabilities and Shareholders’ Equity | $ | 37,734 |
| | $ | 25,586 |
|
Amounts may not add due to rounding.
See notes to consolidated financial statements.
51
Consolidated Statements of Cash FlowsComprehensive Income
Becton, Dickinson and Company
Years Ended September 30
|
| | | | | | | | | | | |
| Millions of dollars | 2017 | | 2016 | | 2015 |
| Operating Activities | | | | | |
| Net income | $ | 1,100 |
| | $ | 976 |
| | $ | 695 |
|
| Adjustments to net income to derive net cash provided by operating activities: | | | | | |
| Depreciation and amortization | 1,088 |
| | 1,114 |
| | 891 |
|
| Share-based compensation | 174 |
| | 196 |
| | 166 |
|
| Deferred income taxes | (236 | ) | | (426 | ) | | (336 | ) |
| Change in operating assets and liabilities: | | | | | |
| Trade receivables, net | (93 | ) | | (128 | ) | | (2 | ) |
| Net investment in sales-type leases | 14 |
| | 51 |
| | 28 |
|
| Inventories | (46 | ) | | 69 |
| | 200 |
|
| Prepaid expenses and other | (380 | ) | | 39 |
| | (97 | ) |
| Accounts payable, income taxes and other liabilities | 134 |
| | 368 |
| | 145 |
|
| Pension obligation | 84 |
| | (32 | ) | | 28 |
|
| Excess tax benefits from payments under share-based compensation plans | 77 |
| | — |
| | — |
|
| Lease contract modification-related charge | 748 |
| | — |
| | — |
|
| Other, net | (114 | ) | | 332 |
| | 11 |
|
| Net Cash Provided by Operating Activities | 2,550 |
| | 2,559 |
| | 1,730 |
|
| Investing Activities | | | | | |
| Capital expenditures | (727 | ) | | (693 | ) | | (596 | ) |
| Proceeds from (purchases of) investments, net | 13 |
| | (1 | ) | | 840 |
|
| Acquisitions of businesses, net of cash acquired | (174 | ) | | — |
| | (8,414 | ) |
| Divestitures of businesses, net | 165 |
| | 158 |
| | — |
|
| Other, net | (161 | ) | | (133 | ) | | (147 | ) |
| Net Cash Used for Investing Activities | (883 | ) | | (669 | ) | | (8,318 | ) |
| Financing Activities | | | | | |
| Change in short-term debt | (200 | ) | | (500 | ) | | 497 |
|
| Proceeds from long-term debt | 11,462 |
| | — |
| | 6,164 |
|
| Payments of debt | (3,980 | ) | | (752 | ) | | (6 | ) |
| Proceeds from issuance of equity securities | 4,827 |
| | — |
| | — |
|
| Repurchase of common stock | (220 | ) | | — |
| | — |
|
| Excess tax benefit from payments under share-based compensation plans | — |
| | 86 |
| | 48 |
|
| Dividends paid | (677 | ) | | (562 | ) | | (485 | ) |
| Other, net | (234 | ) | | (32 | ) | | (27 | ) |
| Net Cash Provided by (Used for) Financing Activities | 10,977 |
| | (1,761 | ) | | 6,190 |
|
| Effect of exchange rate changes on cash and equivalents | (6 | ) | | (12 | ) | | (38 | ) |
| Net Increase (Decrease) in Cash and Equivalents | 12,638 |
| | 117 |
| | (436 | ) |
| Opening Cash and Equivalents | 1,541 |
| | 1,424 |
| | 1,861 |
|
| Closing Cash and Equivalents | $ | 14,179 |
| | $ | 1,541 |
| | $ | 1,424 |
|
|
| | | | | | | | | | | |
| Millions of dollars | 2019 | | 2018 | | 2017 |
| Net Income | $ | 1,233 |
| | $ | 311 |
| | $ | 1,100 |
|
| Other Comprehensive (Loss) Income, Net of Tax | | | | | |
| Foreign currency translation adjustments | (93 | ) | | (161 | ) | | 11 |
|
| Defined benefit pension and postretirement plans | (275 | ) | | (26 | ) | | 179 |
|
| Cash flow hedges | (6 | ) | | 1 |
| | 17 |
|
| Other Comprehensive (Loss) Income, Net of Tax | (374 | ) | | (186 | ) | | 206 |
|
| Comprehensive Income | $ | 859 |
| | $ | 125 |
| | $ | 1,306 |
|
Amounts may not add due to rounding.
See notes to consolidated financial statements.
52
Consolidated Balance Sheets
Becton, Dickinson and Company
September 30
|
| | | | | | | |
| Millions of dollars, except per share amounts and numbers of shares | 2019 | | 2018 |
| Assets | | | |
| Current Assets | | | |
| Cash and equivalents | $ | 536 |
| | $ | 1,140 |
|
| Restricted cash | 54 |
| | 96 |
|
| Short-term investments | 30 |
| | 17 |
|
| Trade receivables, net | 2,345 |
| | 2,319 |
|
| Inventories | 2,579 |
| | 2,451 |
|
| Assets held for sale | — |
| | 137 |
|
| Prepaid expenses and other | 1,119 |
| | 1,251 |
|
| Total Current Assets | 6,664 |
| | 7,411 |
|
| Property, Plant and Equipment, Net | 5,659 |
| | 5,375 |
|
| Goodwill | 23,376 |
| | 23,600 |
|
| Developed Technology, Net | 11,054 |
| | 12,184 |
|
| Customer Relationships, Net | 3,424 |
| | 3,723 |
|
| Other Intangibles, Net | 500 |
| | 534 |
|
| Other Assets | 1,088 |
| | 1,078 |
|
| Total Assets | $ | 51,765 |
| | $ | 53,904 |
|
| Liabilities and Shareholders’ Equity | | | |
| Current Liabilities | | | |
| Short-term debt | $ | 1,309 |
| | $ | 2,601 |
|
| Accounts payable | 1,092 |
| | 1,106 |
|
| Accrued expenses | 2,127 |
| | 2,255 |
|
| Salaries, wages and related items | 987 |
| | 910 |
|
| Income taxes | 140 |
| | 343 |
|
| Total Current Liabilities | 5,655 |
| | 7,216 |
|
| Long-Term Debt | 18,081 |
| | 18,894 |
|
| Long-Term Employee Benefit Obligations | 1,272 |
| | 1,056 |
|
| Deferred Income Taxes and Other | 5,676 |
| | 5,743 |
|
| Commitments and Contingencies (See Note 5) |
|
| |
|
|
| Shareholders’ Equity | | | |
| Preferred stock | 2 |
| | 2 |
|
| Common stock — $1 par value: authorized — 640,000,000 shares; issued — 346,687,160 shares in 2019 and 2018. | 347 |
| | 347 |
|
| Capital in excess of par value | 16,270 |
| | 16,179 |
|
| Retained earnings | 12,913 |
| | 12,596 |
|
| Deferred compensation | 23 |
| | 22 |
|
| Common stock in treasury — at cost — 76,259,835 shares in 2019 and 78,462,971 shares in 2018. | (6,190 | ) | | (6,243 | ) |
| Accumulated other comprehensive loss | (2,283 | ) | | (1,909 | ) |
| Total Shareholders’ Equity | 21,081 |
| | 20,994 |
|
| Total Liabilities and Shareholders’ Equity | $ | 51,765 |
| | $ | 53,904 |
|
Amounts may not add due to rounding.
See notes to consolidated financial statements.
53
Consolidated Statements of Cash Flows
Becton, Dickinson and Company
Years Ended September 30
|
| | | | | | | | | | | |
| Millions of dollars | 2019 | | 2018 | | 2017 |
| Operating Activities | | | | | |
| Net income | $ | 1,233 |
| | $ | 311 |
| | $ | 1,100 |
|
| Adjustments to net income to derive net cash provided by operating activities: | | | | | |
| Depreciation and amortization | 2,253 |
| | 1,978 |
| | 1,088 |
|
| Share-based compensation | 261 |
| | 322 |
| | 174 |
|
| Deferred income taxes | (381 | ) | | (240 | ) | | (236 | ) |
| Change in operating assets and liabilities: | | | | | |
| Trade receivables, net | (51 | ) | | (170 | ) | | (93 | ) |
| Inventories | (149 | ) | | 246 |
| | (46 | ) |
| Prepaid expenses and other | 299 |
| | (46 | ) | | (366 | ) |
| Accounts payable, income taxes and other liabilities | (470 | ) | | 867 |
| | 134 |
|
| Pension obligation | (123 | ) | | (263 | ) | | 84 |
|
| Excess tax benefits from payments under share-based compensation plans | 55 |
| | 78 |
| | 77 |
|
| Lease contract modification-related charge | — |
| | — |
| | 748 |
|
| Gain on sale of Vyaire interest | — |
| | (303 | ) | | — |
|
| Gain on sale of business | (336 | ) | | — |
| | — |
|
| Product liability-related charges | 914 |
| | — |
| | — |
|
| Other, net | (177 | ) | | 85 |
| | (114 | ) |
| Net Cash Provided by Operating Activities | 3,330 |
| | 2,865 |
| | 2,550 |
|
| Investing Activities | | | | | |
| Capital expenditures | (957 | ) | | (895 | ) | | (727 | ) |
| Acquisitions of businesses, net of cash acquired | — |
| | (15,155 | ) | | (174 | ) |
| Proceeds from divestitures, net | 477 |
| | 534 |
| | 165 |
|
| Other, net | (261 | ) | | (217 | ) | | (148 | ) |
| Net Cash Used for Investing Activities | (741 | ) | | (15,733 | ) | | (883 | ) |
| Financing Activities | | | | | |
| Change in credit facility borrowings | 485 |
| | — |
| | (200 | ) |
| Proceeds from long-term debt and term loans | 2,224 |
| | 5,086 |
| | 11,462 |
|
| Payments of debt and term loans | (4,744 | ) | | (3,996 | ) | | (3,980 | ) |
| Proceeds from issuance of equity securities | — |
| | — |
| | 4,827 |
|
| Repurchase of common stock | — |
| | — |
| | (220 | ) |
| Dividends paid | (984 | ) | | (927 | ) | | (677 | ) |
| Other, net | (205 | ) | | (220 | ) | | (234 | ) |
| Net Cash (Used for) Provided by Financing Activities | (3,223 | ) | | (58 | ) | | 10,977 |
|
| Effect of exchange rate changes on cash and equivalents and restricted cash | (12 | ) | | (17 | ) | | (6 | ) |
| Net (Decrease) Increase in Cash and Equivalents and Restricted Cash | (646 | ) | | (12,943 | ) | | 12,638 |
|
| Opening Cash and Equivalents and Restricted Cash | 1,236 |
| | 14,179 |
| | 1,541 |
|
| Closing Cash and Equivalents and Restricted Cash | $ | 590 |
| | $ | 1,236 |
| | $ | 14,179 |
|
| | | | | | |
| Non-Cash Investing Activities | | | | | |
| Fair value of shares issued as acquisition consideration (See Note 10) | $ | — |
| | $ | 8,004 |
| | $ | — |
|
| Fair value of equity awards issued as acquisition consideration (See Note 10) | $ | — |
| | $ | 613 |
| | $ | — |
|
Amounts may not add due to rounding.
See notes to consolidated financial statements.
54
Notes to Consolidated Financial Statements
Becton, Dickinson and Company
Millions of dollars, except per share amounts and numbers of sharesor as otherwise specified
Note 1 — Summary of Significant Accounting Policies
Basis of Presentation
The accompanying Consolidated Financial Statements and Notes to Consolidated Financial Statements of Becton, Dickinson and Company (the “Company” or "BD") have been prepared in accordance with U.S. generally accepted accounting principles.principles ("U.S. GAAP"). Within the financial statements and tables presented, certain columns and rows may not add due to the use of rounded numbers for disclosure purposes. Percentages and earnings per share amounts presented are calculated from the underlying amounts. Our fiscal year ends on September 30.
Principles of Consolidation
The consolidated financial statements include the Company’s accounts and those of its majority-owned subsidiaries after the elimination of intercompany transactions. The Company has no material interests in variable interest entities.
Cash Equivalents
Cash equivalents consist of all highly liquid investments with a maturity of three months or less at time of purchase.
Short-Term InvestmentsRestricted Cash
Short-term investments consistRestricted cash consists of time deposits with maturities greater than three monthscash restricted from withdrawal and less than one year when purchased.usage and largely represents funds that are restricted for certain product liability matters assumed in the acquisition of C.R. Bard, Inc. ("Bard") which is further discussed in Note 10.
Trade and Financing Receivables
The Company grants credit to customers in the normal course of business and the resulting trade receivables are stated at their net realizable value. The allowance for doubtful accounts represents the Company’s estimate of probable credit losses relating to trade receivables and is determined based on historical experience and other specific account data. Amounts are written off against the allowances for doubtful accounts when the Company determines that a customer account is uncollectible.
Inventories
Inventories are stated at the lower of approximate cost determined on the first-in, first-out costbasis or market.
Property, Plant and Equipment
Property, plant and equipment are stated at cost, less accumulated depreciation and amortization. Depreciation and amortization are principally provided on the straight-line basis over estimated useful lives, which range from 20 to 45 years for buildings, four to 13 years for machinery and equipment and one to 1220 years for leasehold improvements. Depreciation and amortization expense was $406$633 million, $452$600 million and $417$406 million in fiscal years 2019, 2018 and 2017, 2016respectively.
Notes to Consolidated Financial Statements — (Continued)
Becton, Dickinson and 2015, respectively.Company
Goodwill and Other Intangible Assets
The Company’s unamortized intangible assets include goodwill and in-process research and development assets which arise from acquisitions. The Company currently reviews all indefinite-lived assets, including goodwill for impairment using quantitative models. Goodwill is reviewed at least annually for impairment at the reporting unit level, which is defined as an operating segment or one level below an operating segment, referred to as a component. The Company’s reporting units generally represent one level below reporting segments, and components within an operating segment that have similar economic characteristics are
Notes to Consolidated Financial Statements — (Continued)
Becton, Dickinson and Company
aggregated.segments. Potential impairment of goodwill is generally identified by comparing the fair value of a reporting unit, estimated using an income approach, with its carrying value. The annual impairment review performed on July 1, 20172019 indicated that all identified reporting units’ fair values exceeded their respective carrying values.
The review for impairment of in-process research and development assets is performed by comparing the fair value of the technology or project assets, estimated using an income approach, with their carrying value. In-process research and development assets are considered indefinite-lived assets and are reviewed at least annually for impairment until projects are completed or abandoned. Certain trademarks that are considered to generate cash flows indefinitely are also considered to be indefinite-lived intangible assets and these assets are also reviewed at least annually for impairment.
Amortized intangible assets include developed technology assets which arise from acquisitions. These assets represent acquired intellectual property that is already technologically feasible upon the acquisition date or acquired in-process research and development assets that are completed subsequent to acquisition. Developed technology assets are generally amortized over periods ranging from 15 to 20 years, using the straight-line method. Customer relationship assets are generally amortized over periods ranging from 10 to 15 years, using the straight-line method. Other intangibles with finite useful lives, which include patents, are amortized over periods principally ranging from one to 40 years, using the straight-line method. Finite-lived intangible assets, including developed technology assets, are periodically reviewed when impairment indicators are present to assess recoverability from future operations using undiscounted cash flows. The carrying values of these finite-lived assets are compared to the undiscounted cash flows they are expected to generate and an impairment loss is recognized in operating results to the extent any finite-lived intangible asset’s carrying value exceeds its calculated fair value.
Foreign Currency Translation
Generally, foreign subsidiaries’ functional currency is the local currency of operations and the net assets of foreign operations are translated into U.S. dollars using current exchange rates. The U.S. dollar results that arise from such translation, as well as exchange gains and losses on intercompany balances of a long-term investment nature, are included in the foreign currency translation adjustments in Accumulated other comprehensive income (loss).
Revenue Recognition
RevenueThe Company recognizes revenue from product sales is typically recognized when allthe customer obtains control of the following criteria have been met: persuasive evidenceproduct, which is generally upon shipment or delivery, depending on the delivery terms specified in the sales agreement. Revenues associated with certain instruments and equipment for which installation is complex, and therefore significantly affects the customer’s ability to use and benefit from the product, are recognized upon customer acceptance of an arrangement exists; delivery has occurred or services have been rendered; productthese installed products. Revenue for certain service arrangements, including extended warranty and software maintenance contracts, is recognized ratably over the contract term. When arrangements include multiple performance obligations, the total transaction price is fixed or determinable; collection of the resulting receivable is reasonably assured. Certain sales arrangements contain multiple deliverables, including equipment and service deliverables, which requires the Company to determine the separate units of account. If the deliverable meets the criteria of a separate unit of accounting, the arrangement considerationcontract is allocated to each elementperformance obligation based upon itson the estimated relative standalone selling price. In determiningprices of the best evidencepromised goods or services underlying each performance obligation. Variable consideration such as rebates, sales discounts and sales returns are estimated and treated as a reduction of selling price of a unit of accountrevenue in the same period the related revenue is recognized. These estimates are based on contractual terms, historical practices, and current trends, and are adjusted as new information becomes available. Revenues exclude any taxes that the Company utilizes vendor-specific objective evidence (“VSOE”), which is the price the Company charges when the deliverable is sold separately. When VSOE is not available, management uses relevant third-party evidence (“TPE”) of selling price, if available. When neither VSOE nor TPE of selling price exists, management uses its best estimate of selling price.collects from customers and remits to tax authorities.
Revenue allocated to equipment deliverables is recognized upon customer acceptance, which occurs after the transfer of title and risk of loss to the customer and the completion of installation or training services. When related training services are considered inconsequential, delivery is deemed to occur upon the transfer of title and risk of loss, at which time revenue and the costs associatedEquipment lease transactions with installation and training are recognized.
For equipment lease revenue, transactionscustomers are evaluated and classified as either operating leases or sales-type leases. Lease incomeGenerally, these arrangements are accounted for products sold under sales-typeas operating leases is recognized as revenue upon the completion of installation activities in the amount of the present value of the minimum lease payments. The financing component of sales-type leases is recorded as revenue over the lease term. For products sold under operating leases,and therefore, revenue is recognized at the contracted rate over the rental period as defined within the customer agreement.
Additional disclosures regarding the Company's accounting for revenue recognition are provided in Note 6.
Notes to Consolidated Financial Statements — (Continued)
Becton, Dickinson and Company
For products sold and leased with embedded software, if software is considered not essential to the non-software elements of a product but is considered more than incidental to a product as a whole, the product’s software elements must be separated from its non-software elements under the requirements relating to multiple-element arrangements and accounted for under software industry-specific revenue recognition requirements. However, if it is determined that the embedded software is more than incidental to the product as a whole but the non-software elements and software elements work together to deliver the essential functionality of the products as a whole, then the accounting for such product does not fall within the scope of software industry-specific accounting requirements.
The Company’s domestic businesses sell products primarily to distributors that resell the products to end-user customers. Rebates are provided to distributors that sell to end-user customers at prices determined under a contract between the Company and the end-user customer. Provisions for rebates, as well as sales discounts and returns, are based upon estimates and are accounted for as a reduction of revenues when revenue is recognized.
Shipping and Handling Costs
ShippingThe Company considers its shipping and handling costs are included in to be contract fulfillment costs and records them within Selling and administrative expense. expense. Shipping expense was $511 million, $479 million and $365 million $401 millionin 2019, 2018 and $351 million in 2017, 2016 and 2015, respectively.
Derivative Financial Instruments
All derivatives are recorded in the balance sheet at fair value and changes in fair value are recognized currently in earnings unless specific hedge accounting criteria are met. Any deferred gains or losses associated with derivative instruments are recognized in income in the period in which the underlying hedged transaction is recognized. Additional disclosures regarding the Company's accounting for derivative instruments are provided in Note 13.14.
Income Taxes
The Company has reviewed its needs in the United States incomefor possible repatriation of undistributed earnings of its foreign subsidiaries and continues to invest foreign subsidiaries earnings outside of the United States to fund foreign investments or meet foreign working capital and property, plant and equipment expenditure needs. As a result, after reevaluation of the permanent reinvestment assertion, the Company is permanently reinvested with respect to all of its historical foreign earnings as of September 30, 2019. Deferred taxes are not provided on undistributed earnings of foreign subsidiaries where suchthat are indefinitely reinvested. The determination of the amount of the unrecognized deferred tax liability related to the undistributed earnings are indefinitely reinvested outside the United States. Deferred taxes are provided for earnings of foreign subsidiaries when those earnings areis not considered indefinitely reinvested. Income taxes are provided and tax credits are recognized based on tax laws enacted at the datespracticable because of the financial statements.complexities associated with its hypothetical calculation.
The Company conducts business and files tax returns in numerous countries and currently has tax audits in progress in a number of tax jurisdictions. In evaluating the exposure associated with various tax filing positions, the Company records accruals for uncertain tax positions, based on the technical support for the positions, past audit experience with similar situations, and the potential interest and penalties related to the matters.
The Company maintains valuation allowances where it is more likely than not that all or a portion of a deferred tax asset will not be realized. Changes in valuation allowances are included in the tax provision in the period of change. In determining whether a valuation allowance is warranted, management evaluates factors such as prior earnings history, expected future earnings, carryback and carryforward periods and tax strategies that could potentially enhance the likelihood of the realization of a deferred tax asset. Additional disclosures regarding the Company's accounting for income taxes are provided in Note 16.17.
Earnings per Share
Basic earnings per share are computed by dividing income available to common stockholders by the weighted average number of common shares outstanding. Diluted earnings per share reflect the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. In computing diluted earnings per share, only potential common shares that are dilutive (i.e., those that reduce earnings per share or increase loss per share) are included in the calculation.
Notes to Consolidated Financial Statements — (Continued)
Becton, Dickinson and Company
Use of Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principlesGAAP requires management to make estimates and assumptions. These estimates or assumptions affect reported assets, liabilities, revenues and expenses as reflected in the consolidated financial statements. Actual results could differ from these estimates.
Note 2 — Accounting Changes
New Accounting PrinciplePrinciples Adopted
On October 1, 2018, the Company adopted Accounting Standards Codification Topic 606, "Revenue from Contracts with Customers" ("ASC 606") using the modified retrospective method. Under ASC 606, revenue is
Notes to Consolidated Financial Statements — (Continued)
Becton, Dickinson and Company
recognized upon the transfer of control of goods or services to customers and reflects the amount of consideration to which a reporting entity expects to be entitled in exchange for those goods or services. The Company assessed the impact of this new standard on its consolidated financial statements based upon a review of contracts that were not completed as of October 1, 2018. Amounts presented in the Company's financial statements for the prior-year periods have not been revised and are reflective of the revenue recognition requirements which were in effect for those periods. This accounting standard adoption, which is further discussed in Note 6, did not materially impact any line items of the Company's consolidated income statements and balance sheet.
On October 1, 2018, the Company retrospectively adopted an accounting standard update which requires all components of net periodic pension and postretirement benefit costs to be disaggregated from the service cost component and to be presented on the income statement outside a subtotal of income from operations, if one is presented. Upon the Company's adoption of the accounting standard update, which did not have a material impact on its consolidated financial statements, all components of the Company’s net periodic pension and postretirement benefit costs, aside from service cost, are recorded to Other income (expense), net on its consolidated income statements for all periods presented. Revisions of prior-year amounts were estimated based upon previously disclosed amounts.
On October 1, 2018, the Company adopted an accounting standard update which requires that the income tax effects of intercompany sales or transfers of assets, except those involving inventory, be recognized in the income statement as income tax expense (or benefit) in the period that the sale or transfer occurs. The Company adopted this accounting standard update, which did not have a material impact on its consolidated financial statements, using the modified retrospective method.
In the second quarter of its fiscal year 2018, the Company prospectively adopted an accounting standard update relating to the stranded income tax effects on items within Accumulated other comprehensive income (loss) resulting from the enactment of new U.S. tax legislation, which legislation is further discussed in Note 17. Additional disclosures regarding this accounting standard adoption are provided in Note 3.
On October 1, 2016, the Company prospectively adopted amended requirements issued by the Financial Accounting Standards Board ("FASB") relating to the timing of recognition and classification of share-based compensation award-related income tax effects. Upon adoption of the settlement of awards during fiscal yearrequirements in 2017, the Company has recorded tax benefits for the year ended of $77 millionrelating to share-based compensation awards within Income tax (benefit) provision (benefit) within on its consolidated statement of income. These tax benefits werehad been previously recorded within Capital in excess of par value on the Company's consolidated balance sheetsheet. Also upon adoption of the amended guidance in 2017, the prior-year period. Because theseCompany has classified excess tax benefits are no longer recorded in Capital in excess of par value, the current period adjustment for the dilutive impact of share equivalents from share-based plans, which is used in the Company's computation of diluted earnings per share, increased by approximately 1 million shares. Also per the amended guidance, the Company classified the $77 million of excess tax benefits for the year ended September 30, 2017 on its consolidated statement of cash flows within Net Cash Provided by Operating Activities, rather than Net Cash (Used for) Provided by (Used for) Financing Activities which included the excess tax benefits for the years ended September 30, 2016.
Notes to Consolidated Financial Statements — (Continued)
Becton, Dickinson and 2015. The amended guidance allows entities to account for award forfeitures as they occur; however, the Company has elected to continue its determination of compensation cost recognized in each period based upon an estimate of expected future forfeitures.
New Accounting Principles Not Yet Adopted
In February 2016, the FASBFinancial Accounting Standards Board ("FASB") issued a new lease accounting standard which requires lessees to recognize lease assets and lease liabilities on the balance sheet. The new standard also requires expanded disclosures regarding leasing arrangements. The Company will adopt the standard on October 1, 2019 and expects to elect certain practical expedients permitted under the transition guidance, including a transition method which allows application of the new standard at its adoption date, rather than at the earliest comparative period presented in the financial statements. The Company has also elected a practical expedient which allows entities to account for the lease and non-lease components in an arrangement as a single lease component. Upon adoption of the standard, the Company's operating leases will be recognized as right-of-use assets and corresponding lease liabilities on its consolidated balance sheet. The Company's measurement of these assets and liabilities will be finalized during the first quarter of fiscal year 2020. The Company does not expect the adoption of this standard to materially impact its consolidated financial statements.
In June 2016, the FASB issued a new accounting standard which requires earlier recognition of credit losses on loans and other financial instruments held by entities, including trade receivables. The new standard requires entities to measure all expected credit losses for financial assets held at each reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. The Company is currently evaluating the impact that this new lease accounting standard will have on its consolidated financial statements upon its adoption of the standard on October 1, 2019.
In May 2014, the FASB issued a new revenue recognition standard. Under this standard, revenue will be recognized upon the transfer of goods or services to customers and the amount of revenue recognized will reflect the consideration to which a reporting entity expects to be entitled in exchange for those goods or services. The Company intends to adopt the standard, as required, on October 1, 2018 and recently completed an initial assessment to identify the potential areas of impact that this new revenue recognition standard will have on its consolidated financial statements. As part of the initial assessment, the Company reviewed a representative sample of its contracts across its various businesses and geographies to identify potential differences that could result from applying the requirements of the new standard. The analysis included identifying whether there may be differences in timing of revenue recognition under the new standard as well as assessing performance obligations, variable consideration, and contract costs. The Company has not yet estimated the impact of the new standard on the timing and pattern of its revenue recognition. The Company continues to evaluate the available adoption methods, and apprises its audit committee of the project status regularly.
2020.
Notes to Consolidated Financial Statements — (Continued)
Becton, Dickinson and Company
Note 3 — Shareholders’ Equity
Changes in certain components of shareholders’ equity were as follows: |
| | | | | | | | | | | | | | | | | | | | | | |
| | Common Stock Issued at Par Value | | Capital in Excess of Par Value | | Retained Earnings | | Deferred Compensation | | Treasury Stock |
| (Millions of dollars) | Shares (in thousands) | | Amount |
| Balance at September 30, 2016 | $ | 333 |
| | $ | 4,693 |
| | $ | 12,727 |
| | $ | 22 |
| | (119,371 | ) | | $ | (8,212 | ) |
| Net income | — |
| | — |
| | 1,100 |
| | — |
| | — |
| | — |
|
| Cash dividends: | | | | | | | | | | | |
| Common ($2.92 per share) | — |
| | — |
| | (645 | ) | | — |
| | — |
| | — |
|
| Preferred | — |
| | — |
| | (70 | ) | | — |
| | — |
| | — |
|
| Common stock issued for: | | | | | | | | | | | |
| Public equity offerings (a) | 14 |
| | 4,810 |
| | — |
| | — |
| | — |
| | — |
|
| Share-based compensation and other plans, net | — |
| | (65 | ) | | (1 | ) | | (3 | ) | | 1,908 |
| | 6 |
|
| Share-based compensation | — |
| | 180 |
| | — |
| | — |
| | — |
| | — |
|
| Common stock held in trusts, net (b) | — |
| | — |
| | — |
| | — |
| | 7 |
| | — |
|
| Repurchase of common stock (c) | — |
| | — |
| | — |
| | — |
| | (1,289 | ) | | (220 | ) |
| Balance at September 30, 2017 | $ | 347 |
| | $ | 9,619 |
| | $ | 13,111 |
| | $ | 19 |
| | (118,745 | ) | | $ | (8,427 | ) |
| Net income | — |
| | — |
| | 311 |
| | — |
| | — |
| | — |
|
| Cash dividends: | | | | | | | | | | | |
| Common ($3.00 per share) | — |
| | — |
| | (775 | ) | | — |
| | — |
| | — |
|
| Preferred | — |
| | — |
| | (152 | ) | | — |
| | — |
| | — |
|
| Common stock issued for: | | | | | | | | | | | |
| Acquisition (see Note 10) | — |
| | 6,478 |
| | — |
| | — |
| | 37,306 |
| | 2,121 |
|
| Share-based compensation and other plans, net | — |
| | (246 | ) | | (2 | ) | | 3 |
| | 2,982 |
| | 62 |
|
| Share-based compensation | — |
| | 328 |
| | — |
| | — |
| | — |
| | — |
|
| Common stock held in trusts, net (b) | — |
| | — |
| | — |
| | — |
| | (6 | ) | | — |
|
| Effect of change in accounting principle (see Note 2 and further discussion below) | — |
| | — |
| | 103 |
| | — |
| | — |
| | — |
|
| Balance at September 30, 2018 | $ | 347 |
| | $ | 16,179 |
| | $ | 12,596 |
| | $ | 22 |
| | (78,463 | ) | | $ | (6,243 | ) |
| Net income | — |
| | — |
| | 1,233 |
| | — |
| | — |
| | — |
|
| Cash dividends: | | | | | | | | | | | |
| Common ($3.08 per share) | — |
| | — |
| | (832 | ) | | — |
| | — |
| | — |
|
| Preferred | — |
| | — |
| | (152 | ) | | — |
| | — |
| | — |
|
| Common stock issued for share-based compensation and other plans, net | — |
| | (170 | ) | | (1 | ) | | 1 |
| | 2,155 |
| | 53 |
|
| Share-based compensation | — |
| | 261 |
| | — |
| | — |
| | — |
| | — |
|
| Common stock held in trusts, net (b) | — |
| | — |
| | — |
| | — |
| | 48 |
| | — |
|
| Effect of change in accounting principle (see Note 2) | — |
| | — |
| | 68 |
| | — |
| | — |
| | — |
|
| Balance at September 30, 2019 | $ | 347 |
| | $ | 16,270 |
| | $ | 12,913 |
| | $ | 23 |
| | (76,260 | ) | | $ | (6,190 | ) |
|
| | | | | | | | | | | | | | | | | | | | | | |
| | Common Stock Issued at Par Value | | Capital in Excess of Par Value | | Retained Earnings | | Deferred Compensation | | Treasury Stock |
| (Millions of dollars) | Shares (in thousands) | | Amount |
| Balance at September 30, 2014 | $ | 333 |
| | $ | 2,198 |
| | $ | 12,105 |
| | $ | 19 |
| | (140,770 | ) | | $ | (8,601 | ) |
| Net income | — |
| | — |
| | 695 |
| | — |
| | — |
| | — |
|
| Cash dividends: | | | | | | | | | | | |
| Common ($2.40 per share) | — |
| | — |
| | (485 | ) | | — |
| | — |
| | — |
|
| Common stock issued for: | | | | | | | | | | | |
| Share-based compensation and other plans, net | — |
| | 30 |
| | (2 | ) | | 1 |
| | 2,839 |
| | (6 | ) |
| Acquisitions | — |
| | 2,083 |
| | — |
| | — |
| | 15,959 |
| | 368 |
|
| Share-based compensation | — |
| | 164 |
| | — |
| | — |
| | — |
| | — |
|
| Common stock held in trusts, net | — |
| | — |
| | — |
| | — |
| | 5 |
| | — |
|
| Balance at September 30, 2015 | $ | 333 |
| | $ | 4,475 |
| | $ | 12,314 |
| | $ | 20 |
| | (121,967 | ) | | $ | (8,239 | ) |
| Net income | — |
| | — |
| | 976 |
| | — |
| | — |
| | — |
|
| Cash dividends: | | | | | | | | | | | |
| Common ($2.64 per share) | — |
| | — |
| | (562 | ) | | — |
| | — |
| | — |
|
| Common stock issued for: | | | | | | | | | | | |
| Share-based compensation and other plans, net | — |
| | 27 |
| | (1 | ) | | 2 |
| | 2,607 |
| | 26 |
|
| Share-based compensation | — |
| | 191 |
| | — |
| | — |
| | — |
| | — |
|
| Common stock held in trusts, net | — |
| | — |
| | — |
| | — |
| | (11 | ) | | — |
|
| Balance at September 30, 2016 | $ | 333 |
| | $ | 4,693 |
| | $ | 12,727 |
| | $ | 22 |
| | (119,371 | ) | | $ | (8,212 | ) |
| Net income | — |
| | — |
| | 1,100 |
| | — |
| | — |
| | — |
|
| Cash dividends: | | | | | | | | | | | |
| Common ($2.92 per share) | — |
| | — |
| | (645 | ) | | — |
| | — |
| | — |
|
| Preferred | — |
| | — |
| | (70 | ) | | — |
| | — |
| | — |
|
| Common stock issued for: | | | | | | | | | | | |
| Public equity offerings | 14 |
| | 4,810 |
| | — |
| | — |
| | — |
| | — |
|
| Share-based compensation and other plans, net | — |
| | (65 | ) | | (1 | ) | | (3 | ) | | 1,908 |
| | 6 |
|
| Share-based compensation | — |
| | 180 |
| | — |
| | — |
| | — |
| | — |
|
| Common stock held in trusts, net | — |
| | — |
| | — |
| | — |
| | 7 |
| | — |
|
| Repurchase of common stock | — |
| | — |
| | — |
| | — |
| | (1,289 | ) | | (220 | ) |
| Balance at September 30, 2017 | $ | 347 |
| | $ | 9,619 |
| | $ | 13,111 |
| | $ | 19 |
| | (118,745 | ) | | $ | (8,427 | ) |
Common stock held in trusts represents rabbi trusts in connection with deferred compensation under the Company’s employee salary and bonus deferral plan and directors’ deferral plan.
Accelerated Share Repurchase Agreement
Using proceeds received from the divestiture of the Respiratory Solutions business in the first quarter of fiscal year 2017, the Company repurchased approximately 1.3 million shares of its common stock under an | |
| (a) | In May 2017 and in connection with the Company's acquisition of Bard, which is further discussed in Note 10, the Company completed registered public offerings of equity securities including 14.025 million shares of the Company's common stock and 2.475 million shares of the Company's mandatory convertible preferred stock (ownership is held in the form of depositary shares, each |
Notes to Consolidated Financial Statements — (Continued)
Becton, Dickinson and Company
accelerated share repurchase agreement. The repurchased shares were recorded as a $220 million increase to Common stock in treasury.
Common and Preferred Stock Offerings
In May 2017 and in connection with the Company's pending agreement to acquire C.R. Bard, Inc. ("Bard"), which is further discussed in Note 9, the Company completed registered public offerings of equity securities including:
14.025 million shares of the Company's common stock for net proceeds of $2.4 billion (gross proceeds of $2.5 billion).
2.475 million shares of the Company's mandatory convertible preferred stock (ownership is held in the form of depositary shares, each representing a 1/20th interest in a share of preferred stock) for total net proceeds of $2.4 billion (gross proceeds of $2.5 billion).$4.8 billion. If and when declared, dividends on the mandatory convertible preferred stock will beare payable on a cumulative basis at an annual rate of 6.125% on the liquidation preference of $1,000 per preferred share ($50 per depositary share). The shares of preferred stock are convertible to a minimum of 11.7 million and up to a maximum of 14.0 million shares of Company common stock at an exchange ratio that is based on the market price of the Company’s common stock at the date of conversion, and no later than the mandatory conversion date of May 1, 2020.
| |
| (b) | Common stock held in trusts represents rabbi trusts in connection with deferred compensation under the Company’s employee salary and bonus deferral plan and directors’ deferral plan. |
| |
| (c) | Using proceeds received from the divestiture of the Respiratory Solutions business in the first quarter of fiscal year 2017, the Company repurchased shares of its common stock under an accelerated share repurchase agreement. |
The Company will use the net proceeds from these offerings to finance a portion of the cash consideration payable upon the closing of the Bard acquisition, which the Company expects to occur in the fourth calendar quarter of 2017.
The components and changes of Accumulated other comprehensive income(loss) were as follows:
|
| | | | | | | | | | | | | | | |
| (Millions of dollars) | Total | | Foreign Currency Translation | | Benefit Plans | | Cash Flow Hedges |
| Balance at September 30, 2016 | $ | (1,929 | ) | | $ | (1,011 | ) | | $ | (883 | ) | | $ | (35 | ) |
| Other comprehensive income before reclassifications, net of taxes | 140 |
| | 11 |
| | 121 |
| | 8 |
|
Amounts reclassified into income, net of
taxes | 66 |
| | — |
| | 58 |
| | 8 |
|
| Balance at September 30, 2017 | $ | (1,723 | ) | | $ | (1,001 | ) | | $ | (703 | ) | | $ | (18 | ) |
| Other comprehensive (loss) income before reclassifications, net of taxes | (142 | ) | | (161 | ) | | 19 |
| | — |
|
Amounts reclassified into income, net of
taxes | 57 |
| | — |
| | 52 |
| | 5 |
|
| Tax effects reclassified to retained earnings | (103 | ) | | — |
| | (99 | ) | | (4 | ) |
| Balance at September 30, 2018 | $ | (1,909 | ) | | $ | (1,162 | ) | | $ | (729 | ) | | $ | (17 | ) |
| Other comprehensive loss before reclassifications, net of taxes | (427 | ) | | (93 | ) | | (325 | ) | | (9 | ) |
Amounts reclassified into income, net of taxes | 52 |
| | — |
| | 49 |
| | 3 |
|
| Balance at September 30, 2019 | $ | (2,283 | ) | | $ | (1,256 | ) | | $ | (1,005 | ) | | $ | (23 | ) |
|
| | | | | | | | | | | | | | | |
| (Millions of dollars) | Total | | Foreign Currency Translation | | Benefit Plans | | Cash Flow Hedges |
| Balance at September 30, 2014 | $ | (1,001 | ) | | $ | (270 | ) | | $ | (705 | ) | | $ | (26 | ) |
| Other comprehensive loss before reclassifications, net of taxes | (787 | ) | | (692 | ) | | (80 | ) | | (16 | ) |
Amounts reclassified into income, net of
taxes | 50 |
| | — |
| | 44 |
| | 6 |
|
| Balance at September 30, 2015 | $ | (1,738 | ) | | $ | (961 | ) | | $ | (741 | ) | | $ | (36 | ) |
| Other comprehensive loss before reclassifications, net of taxes | (251 | ) | | (50 | ) | | (190 | ) | | (11 | ) |
Amounts reclassified into income, net of
taxes | 60 |
| | — |
| | 48 |
| | 12 |
|
| Balance at September 30, 2016 | $ | (1,929 | ) | | $ | (1,011 | ) | | $ | (883 | ) | | $ | (35 | ) |
| Other comprehensive income before reclassifications, net of taxes | 140 |
| | 11 |
| | 121 |
| | 8 |
|
Amounts reclassified into income, net of taxes | 66 |
| | — |
| | 58 |
| | 8 |
|
| Balance at September 30, 2017 | $ | (1,723 | ) | | $ | (1,001 | ) | | $ | (703 | ) | | $ | (18 | ) |
The amount of foreign currency translation recognized in other comprehensive income during the yearyears ended September 30, 2019, 2018 and 2017 included net lossesgains (losses) relating to net investment hedges, as further discussed in Note 1314. The amountamounts recognized in other comprehensive income during the year ended September 30, 2017 relating to cash flow hedges represented a net gain onin 2019 and 2017 related to forward starting interest rate swaps,swaps. Additional disclosures regarding the Company's cash flow hedge activities are provided in Note 14.
During the second quarter of 2018, as permitted under U.S. GAAP guidance, the Company reclassified stranded income tax effects on items within Accumulated other comprehensive income (loss) resulting from the enactment of new U.S. tax legislation, which legislation is further discussed in Note 1317, to Retained earnings. The reclassified tax effects related to prior service credits and net actuarial losses relating to benefit plans, as well as to terminated cash flow hedges. The tax effects relating to these items are generally recognized as such amounts are amortized into earnings.
Notes to Consolidated Financial Statements — (Continued)
Becton, Dickinson and Company
The tax impacts for amounts recognized in other comprehensive income before reclassifications were as follows:
|
| | | | | | | | | | | |
| (Millions of dollars) | 2019 | | 2018 | | 2017 |
| Benefit Plans | | | | | |
| Income tax benefit (provision) for net (losses) gains recorded in other comprehensive income | $ | 91 |
| | $ | (19 | ) | | $ | (60 | ) |
|
| | | | | | | | | | | |
| (Millions of dollars) | 2017 | | 2016 | | 2015 |
| Benefit Plans | | | | | |
| Income tax (provision) benefit for net gains (losses) recorded in other comprehensive income | $ | (60 | ) | | $ | 79 |
| | $ | 47 |
|
| | | | | | |
| Cash Flow Hedges | | | | | |
| Income tax (provision) benefit for net gains (losses) recorded in other comprehensive income | $ | (5 | ) | | $ | 7 |
| | $ | 10 |
|
The tax impacts for cash flow hedges recognized in other comprehensive income before reclassifications in 2019 and 2017 were immaterial to the Company's consolidated financial results. Reclassifications out of Accumulated other comprehensive income (loss) and the related tax impacts relating to benefit plans and cash flow hedges in 2019, 2018 and 2017 2016 and 2015 were also immaterial to the Company's consolidated financial results results.
Note 4 — Earnings per Share
The weighted average common shares used in the computations of basic and diluted earnings per share (shares in thousands) for the years ended September 30 were as follows:
|
| | | | | | | | |
| | 2019 | | 2018 | | 2017 |
| Average common shares outstanding | 269,943 |
| | 258,354 |
| | 218,943 |
|
| Dilutive share equivalents from share-based plans (a) | 4,832 |
| | 6,267 |
| | 4,645 |
|
| Average common and common equivalent shares outstanding — assuming dilution | 274,775 |
| | 264,621 |
| | 223,588 |
|
|
| | | | | | | | |
| | 2017 | | 2016 | | 2015 |
| Average common shares outstanding | 218,943 |
| | 212,702 |
| | 202,537 |
|
| Dilutive share equivalents from share-based plans (A) (B) | 4,645 |
| | 4,834 |
| | 4,972 |
|
| Average common and common equivalent shares outstanding — assuming dilution | 223,588 |
| | 217,536 |
| | 207,509 |
|
| |
(A)(a) | For the yearyears ended September 30, 2019, 2018 and 2017, 5 million dilutive share equivalents associated with mandatory convertible preferred stock issued during 2017, as further discussed in Note 3,of 12 million, 12 million and 5 million, respectively, were excluded from the diluted shares outstanding calculation because the result would have been antidilutive. The issuance of the convertible preferred stock is further discussed in Note 3. For the years ended September 30, 2017, 20162019, 2018 and 20152017, there were no0 options to purchase shares of common stock which were excluded from the diluted earnings per share calculation. |
| |
(B) | The adjustments to calculate diluted share equivalents from share-based plans in 2016 and 2015 included excess tax benefits relating to share-based compensation awards. Upon the Company's adoption, as discussed in Note 2, of new accounting requirements relating to share-based compensation award-related income tax effects, the adjustment in 2017 excluded these excess tax benefits.
|
Note 5 — Commitments and Contingencies
Commitments
Rental expense for all operating leases amounted to $169 million in 2019, $149 million in 2018 and $110 million in 2017, $112 million in 2016 and $89 million in 2015.2017. Future minimum rental commitments on non-cancelable leases are as follows: 2018 — $67 million; 2019 — $57 million; 2020 — $47 million; 2021 — $35 million; 2022 — $31 million and an aggregate of $39 million thereafter.
|
| | | |
| (Millions of dollars) | Future minimum rental commitments on non-cancelable leases |
| 2020 | $ | 122 |
|
| 2021 | 103 |
|
| 2022 | 83 |
|
| 2023 | 57 |
|
| 2024 | 56 |
|
| Thereafter | 123 |
|
As of September 30, 2017,2019, the Company has certain future purchase commitments aggregating to approximately $1.077$1.364 billion, which will be expended over the next several years.
Notes to Consolidated Financial Statements — (Continued)
Becton, Dickinson and Company
Contingencies
Given the uncertain nature of litigation generally, the Company is not able, in all cases, to estimate the amount or range of loss that could result from an unfavorable outcome of the litigation to which the Company is a party. In accordance with U.S. generally accepted accounting principles,GAAP, the Company establishes accruals to the extent probable future losses are estimable (in the case of environmental matters, without considering possible third-party recoveries). With respect to putative class action lawsuits in the United States and certain of the Canadian lawsuits described below relating to product liability matters, the Company is unable to estimate a range of reasonably possible losses for the following reasons: (i) all or certain of the proceedings are in early stages; (ii) the Company has not received and reviewed complete information regarding all or certain of the plaintiffs and their medical conditions; and/or (iii) there are significant factual issues to be resolved. In addition, there is uncertainty as to the likelihood of a class being certified or the ultimate size of the class. With respect to the civil investigative demand served by the Department of Justice, as discussed below, the Company is unable to estimate a range of reasonably possible losses for the following reasons: (i) all or certain of the proceedings are in early stages; and/or (ii) there are significant factual and legal issues to be resolved.
In view of the uncertainties discussed below, the Company could incur charges in excess of any currently established accruals and, to the extent available, liability insurance. In the opinion of management, any such future charges, individually or in the aggregate, could have a material adverse effect on the Company’s consolidated results of operations and consolidated cash flows.
In June 2007, Retractable Technologies, Inc. (“RTI”) filedProduct Liability Matters
The Company believes that certain settlements and judgments, as well as legal defense costs, relating to product liability matters are or may be covered in whole or in part under its product liability insurance policies with a complaint againstlimited number of insurance carriers, or, in some circumstances, indemnification obligations to the Company from other parties, which if disputed, the Company intends to vigorously contest. Amounts recovered under the caption Retractable Technologies, Inc. vs. Becton DickinsonCompany’s product liability insurance policies or indemnification arrangements may be less than the stated coverage limits or less than otherwise expected and Company (Civil Action No. 2:07-cv-250, U.S. District Court, Eastern Districtmay not be adequate to cover damages and/or costs relating to claims. In addition, there is no guarantee that insurers or other parties will pay claims or that coverage or indemnity will be otherwise available.
Hernia Product Claims
As of Texas) alleging that the BD Integra™ syringes infringe patents licensed exclusively to RTI. In its complaint, RTI also alleged thatSeptember 30, 2019, the Company engagedis defending approximately 12,040 product liability claims involving the Company’s line of hernia repair devices (collectively, the “Hernia Product Claims”). The majority of those claims are currently pending in false advertisinga coordinated proceeding in Rhode Island State Court, but claims are also pending in other state and/or federal court jurisdictions. In addition, those claims include multiple putative class actions in Canada. Generally, the Hernia Product Claims seek damages for personal injury allegedly resulting from use of the products. From time to time, the Company engages in resolution discussions with respect toplaintiffs’ law firms regarding certain of the Company’s safety-engineered productsHernia Product Claims, but the Company also intends to vigorously defend Hernia Product Claims that do not settle, including through litigation. Trials are scheduled throughout 2020 in violationvarious state and/or federal courts. The Company expects additional trials of Hernia Product Claims to take place over the next 12 months. In August 2018, a new hernia multi-district litigation (“MDL”) was ordered to be established in the Southern District of Ohio. The Company cannot give any assurances that the resolution of the Lanham Act; acted to exclude RTI from various product marketsHernia Product Claims that have not settled, including asserted and to maintain its market share through, among other things, exclusionary contracts in violation of state and federal antitrust laws; and engaged in unfair competition. In January 2008, the Court severed the patent and non-patentunasserted claims into separate cases, and stayed the non-patent claims during the pendency of the patent claims at the trial court level. On April 1, 2008, RTI filed a complaint against BD under the caption Retractable Technologies, Inc. and Thomas J. Shaw v. Becton Dickinson and Company (Civil Action No. 2:08-cv-141, U.S. District Court, Eastern District of Texas) alleging that the BD Integra™ syringes infringe another patent licensed exclusively to RTI. On August 29, 2008, the Court ordered the consolidation of the patent cases. RTI was subsequently awarded $5 million in damages at a jury trial with respect to the patent claims, which has been paid, and the patent casesputative class action lawsuits, will not have a material adverse effect on the Company’s business, results of operations, financial condition and/or liquidity.
Women’s Health Product Claims
As of September 30, 2019, the Company is defending approximately 885 product liability claims involving the Company’s line of pelvic mesh devices. The majority of those claims are now concluded.
On September 19, 2013,currently pending in various federal court jurisdictions, and a jury returned a verdict against BD with respect to RTI’s Lanham Act claim and claim for attempted monopolization based on deceptioncoordinated proceeding in New Jersey State Court, but claims are also pending in other state court jurisdictions. In addition, those claims include putative class actions filed in the safety syringe market. The jury awarded RTI $113.5 million for its attempted monopolization claim (which would be trebled under the antitrust statute). The jury’s verdict rejected RTI’s monopolization claimsUnited States. Not included in the markets for safety syringes, conventional syringesfigures above are approximately 1,010 filed and safety IV catheters; its attempted monopolizationunfiled claims in the markets for conventional syringes and safety IV catheters; and its claims for contractual restraint of trade and exclusive dealing in the markets for safety syringes, conventional syringes and safety IV catheters. In connection with the verdict, the Company recorded a pre-tax charge of approximately $341 million in the fourth quarter of fiscal year 2013. With respect to RTI's requested injunction relief, in November 2014, the Court granted RTI’s request that BD be ordered to issue certain corrective statements regarding its advertising and enjoined from making certain advertising claims. The Court denied RTI’s request for injunctive relief relating to BD’s contracting practices and BD’s safety syringe advertising, finding that RTI failed to prove that BD’s contracting practices violated the antitrust laws or that BD’s safety syringe advertising is false. On January 14, 2015, the Court granted in part and denied in part BD’s motion for a stay of the injunction. The Court held that, pending appeal, BD would not be required to send the corrective advertising notices to end-user customers, but only to employees, distributors and Group Purchasing Organizations. On January 15, 2015, the Court entered its Final Judgment in the case ordering that RTI recover $341 million for its attempted monopolization claim and $12 million for attorneys’ fees, and awarded pre and post-judgment interest and costs. On February 3, 2015, the Court of Appeals for the Fifth Circuit denied BD’s motion for a stay of the injunction pending the final appeal, and BD thereafter complied with the Court’s order. On April 23, 2015, the Court granted BD’s motion to eliminate the award of pre-judgment interest, and entered a new Final Judgment. BD thereafter appealed to the Court of Appeals challenging the entirety of the Final Judgment. On December 2, 2016, the Court of Appeals issued an opinion reversing the judgment as to RTI’s attempted monopolization claim and rendered judgment on that claim in favor of BD. As a result, the Company reversed $336 million of reserves associated with this judgment, which was recorded in Other operating (income) expense, net. The Court of Appeals affirmed the judgment for Lanham Act liability, and remanded the case to the district court to consider whether and if so how much profit should be disgorged by BD on that claim. The Court of Appeals vacated and remanded the injunction ordered by the Court. On January 31, 2017, RTI filed a petition for a writ of certiorari with the U.S. Supreme Court.have been
Notes to Consolidated Financial Statements — (Continued)
Becton, Dickinson and Company
On March 20, 2017,asserted or threatened against the U.S. Supreme Court denied certiorari,Company but lack sufficient information to determine whether a pelvic mesh device of the Company is actually at issue. The claims identified above also include products manufactured by both the Company and two subsidiaries of Medtronic plc (as successor in interest to Covidien plc) (“Medtronic”), each a supplier of the district court thereafter heard RTI’s requestCompany. Medtronic has an obligation to defend and indemnify the Company with respect to any product defect liability relating to products its subsidiaries had manufactured. As described below, in July 2015 the Company reached an agreement with Medtronic (which was amended in June 2017) regarding certain aspects of Medtronic’s indemnification obligation. The foregoing lawsuits, unfiled claims, putative class actions, and other claims, together with claims that have settled or are the subject of agreements or agreements in principle to settle, are referred to collectively as the “Women’s Health Product Claims.” The Women’s Health Product Claims generally seek damages for disgorgement. On August 17, 2017,personal injury allegedly resulting from use of the districtproducts.
As of September 30, 2019, the Company has reached agreements or agreements in principle with various plaintiffs’ law firms to settle their respective inventories of cases totaling approximately 15,160 of the Women’s Health Product Claims. The Company believes that these Women’s Health Product Claims are not the subject of Medtronic’s indemnification obligation. These settlement agreements and agreements in principle include unfiled and previously unknown claims held by various plaintiffs’ law firms, which are not included in the approximate number of lawsuits set forth in the first paragraph of this section. Each agreement is subject to certain conditions, including requirements for participation in the proposed settlements by a certain minimum number of plaintiffs. The Company continues to engage in discussions with other plaintiffs’ law firms regarding potential resolution of unsettled Women’s Health Product Claims, which may include additional inventory settlements.
Starting in 2014 in the MDL, the court entered judgmentcertain pre-trial orders requiring trial work up and remand of a significant number of Women’s Health Product Claims, including an order entered in favorthe MDL on January 30, 2018, that requires the work up and remand of BDall remaining unsettled cases (the “WHP Pre-Trial Orders”). The WHP Pre-Trial Orders may result in material additional costs or trial verdicts in future periods in defending Women’s Health Product Claims. Trials are anticipated throughout 2020 in state and ruled that RTI is not entitled to any award of money damages. RTI has appealed this ruling tofederal courts. A trial in the Fifth Circuit Court of Appeals.
On July 17, 2015,New Jersey coordinated proceeding began in March 2018, and in April 2018 a class action complaint was filedjury entered a verdict against the Company in the U.S.total amount of $68 million ($33 million compensatory; $35 million punitive). The Company is in the process of appealing that verdict. A consolidated trial involving three plaintiffs is scheduled to begin in January 2020 in the New Jersey coordinated proceeding. The Company expects additional trials of Women’s Health Product Claims to take place over the next 12 months, which may potentially include consolidated trials.
In July 2015, as part of the agreement with Medtronic noted above, Medtronic agreed to take responsibility for pursuing settlement of certain of the Women’s Health Product Claims that relate to products distributed by the Company under supply agreements with Medtronic, and the Company has paid Medtronic $121 million towards these potential settlements. In June 2017, the Company amended the agreement with Medtronic to transfer responsibility for settlement of additional Women’s Health Product Claims to Medtronic on terms similar to the July 2015 agreement, including with respect to the obligation to make payments to Medtronic towards these potential settlements. In August 2019, the Company paid Medtronic an additional $20 million toward additional settlements. The Company also may, in its sole discretion, transfer responsibility for settlement of additional Women’s Health Product Claims to Medtronic on similar terms. The agreements do not resolve the dispute between the Company and Medtronic with respect to Women’s Health Product Claims that do not settle, if any.
During the course of engaging in settlement discussions with plaintiffs’ law firms, the Company has learned, and may in future periods learn, additional information regarding these and other unfiled claims, or other lawsuits, which could materially impact the Company’s estimate of the number of claims or lawsuits against the Company.
Notes to Consolidated Financial Statements — (Continued)
Becton, Dickinson and Company
Filter Product Claims
As of September 30, 2019, the Company is defending approximately 4,485 product liability claims involving the Company’s line of inferior vena cava filters (collectively, the “Filter Product Claims”). The majority of those claims are currently pending in an MDL in the United States District Court for the District of Arizona, but those MDL claims are in the process of bring remanded to various federal jurisdictions. Filter Product Claims are also pending in various state court jurisdictions, including a coordinated proceeding in Arizona State Court. In addition, those claims include putative class actions filed in the United States and Canada. The Filter Product Claims generally seek damages for personal injury allegedly resulting from use of the products. The Company has limited information regarding the nature and quantity of certain of the Filter Product Claims. The Company continues to receive claims and lawsuits and may in future periods learn additional information regarding other unfiled or unknown claims, or other lawsuits, which could materially impact the Company’s estimate of the number of claims or lawsuits against the Company. On May 31, 2019, the MDL Court ceased accepting direct filings or transfers into the Filter Product Claims MDL and, as noted above, remands for non-settled cases have begun and are expected to continue over the next three to six months. Federal and state court trials are scheduled throughout 2020. As of September 30, 2019, the Company entered into settlement agreements and/or settlement agreements in principle for approximately 4,200 cases. On March 30, 2018, a jury in the first MDL trial found the Company liable for negligent failure to warn and entered a verdict in favor of plaintiffs. The jury found the Company was not liable for (a) strict liability design defect; (b) strict liability failure to warn; and (c) negligent design. The Company has appealed that verdict. On June 1, 2018, a jury in the second MDL trial unanimously found in favor of the Company on all claims. On August 17, 2018, the Court entered summary judgment in favor of the Company on all claims in the third MDL trial. On October 5, 2018, a jury in the fourth MDL trial unanimously found in favor of the Company on all claims. The Company expects additional trials of Filter Product Claims may take place over the next 12 months.
In most product liability litigations (like those described above), plaintiffs allege a wide variety of claims, ranging from allegations of serious injury caused by the products to efforts to obtain compensation notwithstanding the absence of any injury. In many of these cases, the Company has not yet received and reviewed complete information regarding the plaintiffs and their medical conditions and, consequently, is unable to fully evaluate the claims. The Company expects that it will receive and review additional information regarding any remaining unsettled product liability matters.
In January 2017, the Company reached an agreement to resolve litigation filed in the Southern District of Georgia.New York by its insurance carriers in connection with Women’s Health Product Claims and Filter Product Claims. The plaintiffs, Glynn-Brunswick Hospital Authority, trading as Southeast Georgia Health System, and Southeast Georgia Health System, Inc., seekagreement requires the insurance carriers to represent a class of acute care purchasers of BD syringes and IV catheters. The complaint alleges that BD monopolizedreimburse the marketsCompany for syringes and IV catheters through contracts, theft of technology, false advertising, acquisitions, and other conduct. The complaint seeks treble damages butcertain future costs incurred in connection with Filter Product Claims up to an agreed amount. For certain product liability claims or lawsuits, the Company does not specifymaintain or has limited remaining insurance coverage.
Other Legal Matters
Since early 2013, the amountCompany has received subpoenas or Civil Investigative Demands from a number of alleged damages. The Company filed a motion to dismiss the complaint which was granted on January 29, 2016. On September 23, 2016, the court denied plaintiffs’ motion to alter or amend the judgment to allow plaintiffs to file an amended complaint, and plaintiffs appealed that decisionState Attorneys General seeking information related to the Eleventh Circuit Courtsales and marketing of Appeals. The plaintiffs thereafter voluntarily dismissed their appeal,certain of the Company’s products that are the subject of the Hernia Product Claims and the Court of Appeals dismissed the case on November 21, 2016.
Women’s Health Product Claims. The Company is also involved both ascooperating with these requests. Although the Company has had, and continues to have, discussions with the State Attorneys General with respect to overall potential resolution of this matter, there can be no assurance that a plaintiffresolution will be reached or what the terms of any such resolution may be.
In July 2017, a civil investigative demand was served by the Department of Justice seeking documents and a defendantinformation relating to an investigation into possible violations of the False Claims Act in other legal proceedingsconnection with the sales and claims that arise in the ordinary coursemarketing of business.FloChec® and QuantaFloTM devices. The Company believes thatis cooperating with these requests. Since it has meritorious defensesis not feasible to predict the suits pending againstoutcome of these matters, the Company and is engaged in a vigorous defense of eachcannot give any assurances that the resolution of these matters.matters will not have a material adverse effect on the Company’s business, results of operations, financial condition and/or liquidity.
Notes to Consolidated Financial Statements — (Continued)
Becton, Dickinson and Company
The Company is a potentially responsible party to a number of federal administrative proceedings in the United States brought under the Comprehensive Environment Response, Compensation and Liability Act, also known as “Superfund,” and similar state laws. The affected sites are in varying stages of development. In some instances, the remedy has been completed, while in others, environmental studies are underway or commencing. For several sites, there are other potentially responsible parties that may be jointly or severally liable to pay all or part of cleanup costs. While it is not feasible to predict the outcome of these proceedings, based upon the Company’s experience, current information and applicable law, the Company does not expect these proceedings to have a material adverse effect on its financial condition and/or liquidity. However, one or more of the proceedings could be material to the Company’s business and/or results of operations.
The Company is also involved both as a plaintiff and a defendant in other legal proceedings and claims that arise in the ordinary course of business. The Company believes that it has meritorious defenses to these suits pending against the Company and is engaged in a vigorous defense of each of these matters.
The Company regularly monitors and evaluates the status of product liability and other legal matters, and may, from time-to-time, engage in settlement and mediation discussions taking into consideration developments in the matters and the risks and uncertainties surrounding litigation. These discussions could result in settlements of one or more of these claims at any time.
During fiscal year 2019, the Company recorded pre-tax charges to Other operating expense, net, of approximately $914 million related to certain of the product liability matters discussed above under the heading “Product Liability Matters,” including the related legal defense costs. The Company recorded these charges based on additional information obtained during the year, including but not limited to: the nature and quantity of unfiled and filed claims and the continued rate of claims being filed in certain product liability matters; the status of certain settlement discussions with plaintiffs’ counsel; the allegations and documentation supporting or refuting such allegations; publicly available information regarding similar medical device mass tort settlements; historical information regarding other product liability settlements involving the Company; and the stage of litigation.
Accruals for the Company's product liability claims which are specifically discussed above, as well as the related legal defense costs, amounted to approximately $2.5 billion at September 30, 2019 and $2.0 billion at September 30, 2018. These accruals, which are generally long-term in nature, are largely recorded within Deferred Income Taxes and Other on the Company's consolidated balance sheets. As of September 30, 2019 and 2018, the Company had $53 million and $94 million, respectively, in qualified settlement funds (“QSFs”), subject to certain settlement conditions, for certain product liability matters. Payments to QSFs are recorded as a component of Restricted cash. The Company's expected recoveries related to product liability claims and related legal defense costs were approximately $150 million and $343 million at September 30, 2019 and 2018, respectively. A substantial amount of these expected recoveries at September 30, 2019 and 2018 related to the Company’s agreements with Medtronic related to certain Women’s Health Product Claims. During fiscal year 2019, Medtronic provided the Company with releases from liability for certain claims that were the subject of the agreement discussed further above. Accordingly, adjustments to reduce accruals for the Company's product liability claims, as well as the balance recorded for expected recoveries related to product liability claims, were recorded during fiscal year 2019.
The terms of the Company’s agreements with Medtronic are substantially consistent with the assumptions underlying, and the manner in which, the Company has recorded expected recoveries related to the indemnification obligation. The expected recoveries at September 30, 2019 related to the indemnification obligation are not in dispute with respect to claims that Medtronic settles pursuant to the agreements. As described above, the agreements do not resolve the dispute between the Company and Medtronic with respect to Women’s Health Product Claims that do not settle, if any, and the Company also may, in its sole discretion, transfer responsibility for settlement of additional Women’s Health Product Claims to Medtronic on similar terms.
Notes to Consolidated Financial Statements — (Continued)
Becton, Dickinson and Company
Note 6 — Segment DataRevenues
As previously discussed in Note 2, the Company adopted ASC 606 using the modified retrospective method. The Company sells a broad range of medical supplies, devices, laboratory equipment and diagnostic products which are distributed through independent distribution channels and directly by BD through sales representatives. End-users of the Company's products include healthcare institutions, physicians, life science researchers, clinical laboratories, the pharmaceutical industry and the general public.
Timing of Revenue Recognition
The Company's revenues are primarily recognized when the customer obtains control of the product sold, which is generally upon shipment or delivery, depending on the delivery terms specified in the sales agreement. Revenues associated with certain instruments and equipment for which installation is complex, and therefore significantly affects the customer’s ability to use and benefit from the product, are recognized when customer acceptance of these installed products has been confirmed. For certain service arrangements, including extended warranty and software maintenance contracts, revenue is recognized ratably over the contract term. The majority of revenues relating to extended warranty contracts associated with certain instruments and equipment is generally recognized within a few years whereas deferred revenue relating to software maintenance contracts is generally recognized over a longer period.
Measurement of Revenues
The Company acts as the principal in substantially all of its customer arrangements and as such, generally records revenues on a gross basis. Revenues exclude any taxes that the Company collects from customers and remits to tax authorities. The Company considers its shipping and handling costs to be costs of contract fulfillment and has made the accounting policy election to record these costs within Selling and administrative expense.
Payment terms extended to the Company's customers are based upon commercially reasonable terms for the markets in which the Company's products are sold. Because the Company generally expects to receive payment within one year or less from when control of a product is transferred to the customer, the Company does not generally adjust its revenues for the effects of a financing component. The Company’s estimate of probable credit losses relating to trade receivables is determined based on historical experience and other specific account data. Amounts are written off against the allowances for doubtful accounts when the Company determines that a customer account is uncollectible. Such amounts are not material to the Company's consolidated financial results.
The Company's gross revenues are subject to a variety of deductions which are recorded in the same period that the underlying revenues are recognized. Such variable consideration include rebates, sales discounts and sales returns. Because these deductions represent estimates of the related obligations, judgment is required when determining the impact of these revenue deductions on gross revenues for a reporting period. Rebates provided by the Company are based upon prices determined under the Company's agreements with its end-user customers. Additional factors considered in the estimate of the Company's rebate liability include the quantification of inventory that is either in stock at or in transit to the Company's distributors, as well as the estimated lag time between the sale of product and the payment of corresponding rebates. The impact of other forms of variable consideration, including sales discounts and sales returns, is not material to the Company's revenues. Additional disclosures relating to sales discounts and sales returns are provided in Note 19.
The Company's agreements with customers within certain organizational units including Medication Management Solutions, Diagnostic Systems and Biosciences, contain multiple performance obligations including both products and certain services noted above. The transaction price for these agreements is allocated to each performance obligation based upon its relative standalone selling price. Standalone selling price is the amount at which the Company would sell a promised good or service separately to a customer. The Company generally estimates standalone selling prices using its list prices and a consideration of typical discounts offered to customers.
Notes to Consolidated Financial Statements — (Continued)
Becton, Dickinson and Company
Effects of Revenue Arrangements on Consolidated Balance Sheet
Due to the nature of the majority of the Company's products and services, the Company typically does not incur costs to fulfill a contract in advance of providing the customer with goods or services. Capitalized contract costs associated with the costs to fulfill contracts for certain products in the Medication Management Solutions organizational unit are immaterial to the Company's consolidated balance sheets. The Company’sCompany's costs to obtain contracts are comprised of sales commissions which are paid to the Company's employees or third party agents. The majority of the sales commissions incurred by the Company relate to revenue that is recognized over a period that is less than one year and as such, the Company has elected a practical expedient provided under ASC 606 to record the majority of its expense associated with sales commissions as it is incurred. Commissions relating to revenues recognized over a period longer than one year are recorded as assets which are amortized over the period over which the revenues underlying the commissions are recognized. Capitalized contract costs related to such commissions are immaterial to the Company's consolidated balance sheets.
The Company records contract liabilities for unearned revenue that is allocable to performance obligations, such as extended warranty and software maintenance contracts, which are performed over time as discussed further above. These contract liabilities are immaterial to the Company's consolidated financial results. The Company's liability for product warranties provided under its agreements with customers is not material to its consolidated balance sheets.
Remaining Performance Obligations
The Company's obligations relative to service contracts, which are further discussed above, and pending installations of equipment, primarily in the Company's Medication Management Solutions unit, represent unsatisfied performance obligations of the Company. The revenues under existing contracts with original expected durations of more than one year, which are attributable to products and/or services that have not yet been installed or provided, are estimated to be approximately $1.8 billion at September 30, 2019. The Company expects to recognize the majority of this revenue over the next three years.
Within the Company's Medication Management Solutions, Medication Delivery Solutions, Diagnostic Systems, and Biosciences units, some contracts also contain minimum purchase commitments of reagents or other consumables and the future sales of these consumables represent additional unsatisfied performance obligations of the Company. The revenue attributable to the unsatisfied minimum purchase commitment-related performance obligations, for contracts with original expected durations of more than one year, is estimated to be approximately $2.8 billion at September 30, 2019. This revenue will be recognized over the customer relationship period.
Disaggregation of Revenues
A disaggregation of the Company's revenues by segment, organizational unit and geographic region is provided in Note 7.
Note 7 — Segment Data
The Company's organizational structure is based upon two3 principal business segments: BD Medical (“Medical”) and, BD Life Sciences (“Life Sciences”) and BD Interventional ("Interventional"). The Company’s two principal business segments are strategic businesses that are managed separately because each one develops, manufactures and markets distinct products and services.
BD Medical
BD Medical produces a broad array of medical technologies and devices that are used to help improve healthcare delivery in a wide range of settings. The primary customers served by BD Medical are hospitals and clinics; physicians’ office practices; consumers and retail pharmacies; governmental and nonprofit public health
Notes to Consolidated Financial Statements — (Continued)
Becton, Dickinson and Company
agencies; pharmaceutical companies; and healthcare workers. BD Medical consists of the following organizational units:
|
| | |
| Organizational Unit | | Principal Product Lines |
| Medication Delivery Solutions | | Peripheral intravenous ("IV") catheters (conventional, safety); advanced peripheral catheters (guidewire assisted peripherally inserted venous catheters, midline catheters, port access); central lines (peripherally inserted central catheters); acute dialysis catheters; vascular access technology (ultrasonic imaging); vascular care (lock solutions, prefilled flush syringes, disinfecting caps); vascular preparation (skin antiseptics, dressings, securement); needle-free IV connectors and extensions sets; closed-system drug transfer devices; hazardous drug detection; conventional and safety hypodermic syringes and needles, anesthesia needles (spinal, epidural) and trays; enteral syringes, sharps disposal systems. |
| Medication Management Solutions | | IV medication safety and infusion therapy delivery systems, including infusion pumps, dedicated disposables, and IV fluids; medication compounding workflow systems; automated medication dispensing; automated supply management systems; medication inventory optimization and tracking systems; and informatics and analytics solutions for enterprise medication management. |
| Diabetes Care | | Syringes, pen needles and other products related to the injection or infusion of insulin and other drugs used in the treatment of diabetes. |
Medication and Procedural Solutions | | Needles, syringes and intravenous catheters for medication delivery (including safety-engineered and auto-disable devices); prefilled IV flush syringes; regional anesthesia needles and trays; sharps disposal containers; closed-system transfer devices; skin antiseptic products; and surgical and laproscopic instrumentation. |
Medication Management Solutions | | Intravenous medication safety and infusion therapy delivery systems, including infusion pumps and dedicated disposables; medication compounding workflow systems; and automated medication dispensing; automated supply management systems; medication inventory optimization and tracking systems; and analytics related to all the above products. |
| Pharmaceutical Systems | | Prefillable drug delivery systems - prefillable syringes, safety, shielding and self-injection systems and support services - provided to pharmaceutical companies for use as containers for injectable pharmaceutical products, which are then placed on the market as drug/device combinations. |
BD Life Sciences
BD Life Sciences provides products for the safe collection and transport of diagnostics specimens, and instruments and reagent systems to detect a broad range of infectious diseases, healthcare-associated infections (“HAIs”) and cancers. In addition, BD Life Sciences produces research and clinical tools that facilitate the study of cells, and the components of cells, to gain a better understanding of normal and disease processes. That information is used to aid the discovery and development of new drugs and vaccines, and to improve the diagnosis and management of diseases. The primary customers served by BD Life Sciences are hospitals, laboratories and clinics; blood banks; healthcare workers; public health agencies; physicians’ office practices; retail pharmacies; academic and government institutions; and pharmaceutical and biotechnology companies. BD Life Sciences consists of the following organizational units:
Notes to Consolidated Financial Statements — (Continued)
Becton, Dickinson and Company
|
| | |
| Organizational Unit | | Principal Product Lines |
| Preanalytical Systems | | Integrated systems for specimen collection; and safety-engineered blood collection products and systems. |
| Diagnostic Systems | | Automated blood culturing and tuberculosis culturing systems; molecular testing systems for infectious diseases and women’s health; microorganism identification and drug susceptibility systems; liquid-based cytology systems for cervical cancer screening; rapid diagnostic assays;assays for testing of respiratory infections; microbiology laboratory automation;automation and plated media.media for clinical and industrial applications. |
| Biosciences | | Fluorescence-activated cell sorters and analyzers; monoclonal antibodies and kits for performing cell analysis; reagent systems for life science research; molecular indexingsolutions for high-throughput single-cell gene expression analysis; and next-generation sequencing sample preparation for genomics research; clinical oncology, immunological (HIV) and transplantation diagnostic/monitoring reagents and analyzers;analyzers. |
Notes to Consolidated Financial Statements — (Continued)
Becton, Dickinson and Company
Effective October 1, 2019, Life Sciences joined its Preanalytical Systems and Diagnostic Systems organizational units to create a new Integrated Diagnostic Solutions organizational unit which will focus on driving growth and innovation around integrated specimen management to diagnostic solutions. The new Integrated Diagnostic Solution organizational unit will consist of the following principal product lines:
|
| | |
| Organizational Unit | | Principal Product Lines |
| Integrated Diagnostic Solutions | | Integrated systems for specimen collection; safety-engineered blood collection products and cell culturesystems; automated blood culturing and tuberculosis culturing systems; molecular testing systems for infectious diseases and women’s health; microorganism identification and drug susceptibility systems; liquid-based cytology systems for cervical cancer screening; rapid diagnostic assays for testing of respiratory infections; microbiology laboratory automation and plated media supplements for biopharmaceutical manufacturing.clinical and industrial applications. |
Interventional
Interventional provides vascular, urology, oncology and surgical specialty products that are, with the exception of the V. Muller surgical and laparoscopic instrumentation products, intended to be used once and then discarded or are either temporarily or permanently implanted. The primary customers served by Interventional are hospitals, individual healthcare professionals, extended care facilities, alternate site facilities and patients via the segment's Homecare business. The Interventional segment consists of the following organizational units:
|
| | |
| Organizational Unit | | Principal Product Lines |
| Surgery | | Hernia and soft tissue repair, biological grafts, bioresorbable grafts, biosurgery, and other surgical products; BD ChloraPrep™ surgical infection prevention products, and V. Mueller™ surgical and laparoscopic instrumentation products. |
| Peripheral Intervention | | Percutaneous transluminal angioplasty (“PTA”) balloon catheters, peripheral vascular stents, self-expanding and balloon-expandable stent grafts, vascular grafts, drug-coated balloons, ports, biopsy, chronic dialysis, feeding, IVC filters, endovascular fistula creation devices and drainage products. |
| Urology and Critical Care | | Urine management devices, urological drainage products, intermittent catheters, kidney stone management devices, Targeted Temperature Management, and fecal management devices. |
Additional Segment Information
Distribution of products is primarily through independent distribution channels, and directly to end-users by BD and independent sales representatives. NoNaN customer accounted for 10% or more of revenues in any of the three years presented.
Segment disclosures are on a performance basis consistent with internal management reporting. The Company evaluates performance of its business segments and allocates resources to them primarily based upon operating income. Segment operating income, which represents revenues reduced by product costs and operating expenses. As more fully discussed in Note 10,Beginning with its first quarter fiscal year 2018, the Company sold a 50.1% controlling financial interest inchanged its Respiratory Solutions business, a component ofmanagement reporting approach so that certain general and administrative costs, which were previously allocated to the segments, are now excluded from the segments' operating expenses. The Medical segment, in October 2016. This transaction did not meet the criteria established for reporting discontinued operations and as such, resultsLife Sciences segments' operating income for the yearsyear ended September 30, 2016 and 20152017 included $822allocated general corporate costs of $166 million and $417$113 million, respectively, of revenues which did not occurrespectively. No such allocations were made in the current year.
year ended September 30, 2019 or September 30, 2018.
Notes to Consolidated Financial Statements — (Continued)
Becton, Dickinson and Company
Financial information for the Company’s segments is detailed below. The Company has no material intersegment revenues. As discussed in Note 10, the Company completed its acquisition of Bard on December 29, 2017. Bard's operating results were included in the Company’s consolidated results of operations beginning on January 1, 2018.
|
| | | | | | | | | | | | |
| (Millions of dollars) | 2017 | | 2016 | | 2015 | |
| Revenues (A) | | | | | | |
| Medical | $ | 8,105 |
| | $ | 8,654 |
| | $ | 6,460 |
| |
| Life Sciences | 3,988 |
| | 3,829 |
| | 3,822 |
| |
| Total Revenues | $ | 12,093 |
| | $ | 12,483 |
| | $ | 10,282 |
| |
| Income Before Income Taxes | | | | | | |
| Medical | $ | 2,155 |
| | $ | 2,052 |
| | $ | 1,530 |
| |
| Life Sciences | 772 |
| | 793 |
| | 839 |
| |
| Total Segment Operating Income | 2,927 |
| | 2,845 |
| | 2,368 |
| |
| Acquisitions and other restructurings | (354 | ) | | (728 | ) | | (426 | ) | |
| Net interest expense | (445 | ) | | (367 | ) | | (356 | ) | |
| Other unallocated items (B) | (1,152 | ) | | (676 | ) |
| (847 | ) | |
| Income Before Income Taxes | $ | 976 |
| | $ | 1,074 |
| | $ | 739 |
| |
| Segment Assets | | | | | | |
| Medical | $ | 18,332 |
| | $ | 19,154 |
| | $ | 20,055 |
| |
| Life Sciences | 4,056 |
| | 3,848 |
| | 3,932 |
| |
| Total Segment Assets | 22,388 |
| | 23,002 |
| | 23,987 |
| |
| Corporate and All Other (C) | 15,347 |
| | 2,584 |
| | 2,491 |
| |
| Total Assets | $ | 37,734 |
| | $ | 25,586 |
| | $ | 26,478 |
| |
| Capital Expenditures | | | | | | |
| Medical | $ | 502 |
| | $ | 482 |
| | $ | 414 |
| |
| Life Sciences | 212 |
| | 200 |
| | 168 |
| |
| Corporate and All Other | 13 |
| | 12 |
| | 14 |
| |
| Total Capital Expenditures | $ | 727 |
| | $ | 693 |
| | $ | 596 |
| |
| Depreciation and Amortization | | | | | | |
| Medical | $ | 825 |
| | $ | 857 |
| | $ | 619 |
| |
| Life Sciences | 254 |
| | 254 |
| | 256 |
| |
| Corporate and All Other | 10 |
| | 3 |
| | 17 |
| |
| Total Depreciation and Amortization | $ | 1,088 |
| | $ | 1,114 |
| | $ | 891 |
| |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (Millions of dollars) | 2019 | | 2018 | | 2017 |
| | United States | | International | | Total | | United States | | International | | Total | | United States | | International | | Total |
| Medical | | | | | | | | | | | | | | | | | |
| Medication Delivery Solutions | $ | 2,048 |
| | $ | 1,811 |
| | $ | 3,859 |
| | $ | 1,892 |
| | $ | 1,752 |
| | $ | 3,644 |
| | $ | 1,378 |
| | $ | 1,434 |
| | $ | 2,812 |
|
| Medication Management Solutions | 2,104 |
| | 525 |
| | 2,629 |
| | 1,957 |
| | 513 |
| | 2,470 |
| | 1,843 |
| | 452 |
| | 2,295 |
|
| Diabetes Care | 573 |
| | 538 |
| | 1,110 |
| | 564 |
| | 541 |
| | 1,105 |
| | 546 |
| | 510 |
| | 1,056 |
|
| Pharmaceutical Systems | 392 |
| | 1,073 |
| | 1,465 |
| | 357 |
| | 1,040 |
| | 1,397 |
| | 328 |
| | 929 |
| | 1,256 |
|
| Total segment revenues | $ | 5,116 |
| | $ | 3,947 |
| | $ | 9,064 |
| | $ | 4,770 |
| | $ | 3,846 |
| | $ | 8,616 |
| | $ | 4,095 |
| | $ | 3,325 |
| | $ | 7,419 |
|
| | | | | | | | | | | | | | | | | | |
| Life Sciences | | | | | | | | | | | | | | | | | |
| Preanalytical Systems | $ | 774 |
| | $ | 784 |
| | $ | 1,558 |
| | $ | 761 |
| | $ | 792 |
| | $ | 1,553 |
| | $ | 741 |
| | $ | 730 |
| | $ | 1,471 |
|
| Diagnostic Systems | 672 |
| | 875 |
| | 1,547 |
| | 678 |
| | 858 |
| | 1,536 |
| | 622 |
| | 756 |
| | 1,378 |
|
| Biosciences | 485 |
| | 709 |
| | 1,194 |
| | 475 |
| | 766 |
| | 1,241 |
| | 455 |
| | 684 |
| | 1,139 |
|
| Total segment revenues | $ | 1,931 |
| | $ | 2,368 |
| | $ | 4,300 |
| | $ | 1,914 |
| | $ | 2,416 |
| | $ | 4,330 |
| | $ | 1,818 |
| | $ | 2,170 |
| | $ | 3,988 |
|
| | | | | | | | | | | | | | | | | | |
| Interventional | | | | | | | | | | | | | | | | | |
| Surgery (a) | $ | 1,098 |
| | $ | 299 |
| | $ | 1,397 |
| | $ | 946 |
| | $ | 245 |
| | $ | 1,192 |
| | $ | 577 |
| | $ | 89 |
| | $ | 666 |
|
| Peripheral Intervention (a) | 787 |
| | 602 |
| | 1,389 |
| | 594 |
| | 451 |
| | 1,045 |
| | 14 |
| | 6 |
| | 19 |
|
| Urology and Critical Care | 797 |
| | 342 |
| | 1,140 |
| | 544 |
| | 256 |
| | 800 |
| | — |
| | — |
| | — |
|
| Total segment revenues | $ | 2,682 |
| | $ | 1,244 |
| | $ | 3,926 |
| | $ | 2,084 |
| | $ | 953 |
| | $ | 3,037 |
| | $ | 591 |
| | $ | 95 |
| | $ | 685 |
|
| | | | | | | | | | | | | | | | | | |
| Total Company revenues | $ | 9,730 |
| | $ | 7,560 |
| | $ | 17,290 |
| | $ | 8,768 |
| | $ | 7,215 |
| | $ | 15,983 |
| | $ | 6,504 |
| | $ | 5,589 |
| | $ | 12,093 |
|
(A)Intersegment revenues(a)Amounts presented in 2017 are not material.associated with certain product offerings that were moved from the Medical segment to the Interventional segment in order to align with the reportable segment structure that became effective beginning in the second quarter of fiscal year 2018.
(B)
Notes to Consolidated Financial Statements — (Continued)
Becton, Dickinson and Company
|
| | | | | | | | | | | |
| (Millions of dollars) | 2019 | | 2018 | | 2017 |
| Income Before Income Taxes | | | | | |
| Medical (a) (b) (c) | $ | 2,824 |
| | $ | 2,624 |
| | $ | 1,907 |
|
| Life Sciences (d) | 1,248 |
| | 1,207 |
| | 772 |
|
| Interventional (b) (e) (f) | 903 |
| | 306 |
| | 248 |
|
| Total Segment Operating Income | 4,976 |
| | 4,137 |
| | 2,927 |
|
| Acquisitions and other restructurings | (480 | ) | | (740 | ) | | (354 | ) |
| Net interest expense | (627 | ) | | (641 | ) | | (445 | ) |
| Other unallocated items (g) | (2,693 | ) | | (1,583 | ) |
| (1,152 | ) |
| Total Income Before Income Taxes | $ | 1,176 |
| | $ | 1,173 |
| | $ | 976 |
|
| Assets | | | | | |
| Medical | $ | 22,925 |
| | $ | 23,493 |
| | $ | 15,552 |
|
| Life Sciences | 4,135 |
| | 4,225 |
| | 4,056 |
|
| Interventional (f) | 22,157 |
| | 23,219 |
| | 2,780 |
|
| Total Segment Assets | 49,217 |
| | 50,938 |
| | 22,388 |
|
| Corporate and All Other (h) | 2,548 |
| | 2,966 |
| | 15,347 |
|
| Total Assets | $ | 51,765 |
| | $ | 53,904 |
| | $ | 37,734 |
|
| Capital Expenditures | | | | | |
| Medical | $ | 577 |
| | $ | 560 |
| | $ | 486 |
|
| Life Sciences | 230 |
| | 255 |
| | 212 |
|
| Interventional (f) | 120 |
| | 65 |
| | 16 |
|
| Corporate and All Other | 30 |
| | 14 |
| | 13 |
|
| Total Capital Expenditures | $ | 957 |
| | $ | 895 |
| | $ | 727 |
|
| Depreciation and Amortization | | | | | |
| Medical | $ | 1,073 |
| | $ | 1,028 |
| | $ | 773 |
|
| Life Sciences | 284 |
| | 275 |
| | 254 |
|
| Interventional (f) | 881 |
| | 658 |
| | 52 |
|
| Corporate and All Other | 14 |
| | 17 |
| | 10 |
|
| Total Depreciation and Amortization | $ | 2,253 |
| | $ | 1,978 |
| | $ | 1,088 |
|
(a)The amount in 2019 included $75 million of estimated remediation costs recorded to Other operating expense, net relating to a recall of a product component, which generally pre-dated the Company's acquisition of CareFusion in fiscal year 2015, within the Medication Management Solutions unit's infusion systems platform.
(b)The amounts in 2018 included expense related to the recognition of a $478 million fair value step-up adjustment related to Bard's inventory on the acquisition date. The step-up adjustments recognized by the Medical and Interventional segments in 2018 were $60 million and $418 million, respectively.
(c)The amount in 2018 included $58 million of charges to write down the value of fixed assets primarily in the Diabetes Care unit.
(d)The amount in 2018 included $81 million of charges recorded to write down the carrying value of certain intangible and other assets in the Biosciences unit.
(e)The amount in 2019 included a charge of $30 million recorded to write down the carrying value of certain intangible assets in the Surgery unit.
Notes to Consolidated Financial Statements — (Continued)
Becton, Dickinson and Company
(f)Amounts presented in 2017 are associated with certain product offerings that were moved from the Medical segment to the Interventional segment in order to align with the reportable segment structure that became effective beginning in the second quarter of fiscal year 2018.
(g)Primarily comprised of foreign exchange, corporate expenses, and share-based compensation expense. The amount in 2019 included a pre-tax charge of $914 million related to certain product liability matters, which is further discussed in Note 5, and also included the pre-tax gain recognized on the Company's sale of its Advanced Bioprocessing business of approximately $336 million, which is further discussed in Note 11. Results in 2019 and 2018 were impacted by the Company's change in its management reporting approach, as further discussed above. The amount in 2018 included the pre-tax gain recognized on the Company's sale of its non-controlling interest in Vyaire Medical of approximately $303 million. Results in 2017 included a $748 million non-cash charge resulting from a modification to the Company's dispensing equipment lease contracts with customers, as well as a $336 millionthe reversal of certain reserves related to an appellate court decision which, among other things, reversed an unfavorable antitrust judgment in the RTI case. Additional disclosures regarding the legal matter and the lease contract modification are provided in Notes 5 and 17, respectively. Results in 2015 reflected $293 million in recognition of the fair value step-up adjustment recorded relative to CareFusion’s inventory on the acquisition date.litigation reserves.
(C)(h)Includes cash and investments and corporate assets.
Geographic Information
The countries in which the Company has local revenue-generating operations have been combined into the following geographic areas: the United States (including Puerto Rico); Europe; Greater Asia (which includes
Notes to Consolidated Financial Statements — (Continued)
Becton, Dickinson countries in East Asia, South Asia, Southeast Asia and Company
Japan and Asia Pacific)the Oceania region); and Other, which is comprised of Latin America, Canada, and EMA (which includes the Commonwealth of Independent States, Middle East and Africa).
Revenues to unaffiliated customers are generally based upon the source of the product shipment. Long-lived assets, which include net property, plant and equipment, are based upon physical location.
|
| | | | | | | | | | | |
| (Millions of dollars) | 2019 | | 2018 | | 2017 |
| Revenues | | | | | |
| United States | $ | 9,730 |
| | $ | 8,768 |
| | $ | 6,504 |
|
| Europe | 3,359 |
| | 3,298 |
| | 2,588 |
|
| Greater Asia | 2,726 |
| | 2,460 |
| | 1,744 |
|
| Other | 1,476 |
| | 1,457 |
| | 1,257 |
|
| | $ | 17,290 |
| | $ | 15,983 |
| | $ | 12,093 |
|
| Long-Lived Assets | | | | | |
| United States | $ | 37,053 |
| | $ | 38,982 |
| | $ | 13,151 |
|
| Europe | 5,483 |
| | 5,640 |
| | 4,421 |
|
| Greater Asia | 1,328 |
| | 851 |
| | 578 |
|
| Other | 861 |
| | 645 |
| | 584 |
|
| Corporate | 377 |
| | 375 |
| | 366 |
|
| | $ | 45,101 |
| | $ | 46,494 |
| | $ | 19,101 |
|
|
| | | | | | | | | | | |
| (Millions of dollars) | 2017 | | 2016 | | 2015 |
| Revenues | | | | | |
| United States | $ | 6,504 |
| | $ | 6,893 |
| | $ | 5,069 |
|
| Europe | 2,588 |
| | 2,674 |
| | 2,434 |
|
| Greater Asia | 1,744 |
| | 1,692 |
| | 1,545 |
|
| Other | 1,257 |
| | 1,225 |
| | 1,234 |
|
| | $ | 12,093 |
| | $ | 12,483 |
| | $ | 10,282 |
|
| Long-Lived Assets | | | | | |
| United States | $ | 13,151 |
| | $ | 14,075 |
| | $ | 15,513 |
|
| Europe | 4,421 |
| | 3,747 |
| | 3,908 |
|
| Greater Asia | 578 |
| | 586 |
| | 573 |
|
| Other | 584 |
| | 483 |
| | 494 |
|
| Corporate | 366 |
| | 329 |
| | 332 |
|
| | $ | 19,101 |
| | $ | 19,220 |
| | $ | 20,819 |
|
Note 78 — Share-Based Compensation
The Company grants share-based awards under the 2004 Employee and Director Equity-Based Compensation Plan (“2004 Plan”), which provides long-term incentive compensation to employees and directors consisting of: stock appreciation rights (“SARs”), stock options, performance-based restricted stock units, time-vested restricted stock units and other stock awards.
Notes to Consolidated Financial Statements — (Continued)
Becton, Dickinson and Company
The fair value of share-based payments is recognized as compensation expense in net income. The amounts and location of compensation cost relating to share-based payments included in the consolidated statements of income is as follows:
|
| | | | | | | | | | | |
| (Millions of dollars) | 2019 | | 2018 | | 2017 |
| Cost of products sold | $ | 37 |
| | $ | 36 |
| | $ | 30 |
|
| Selling and administrative expense | 145 |
| | 136 |
| | 113 |
|
| Research and development expense | 32 |
| | 29 |
| | 24 |
|
| Acquisitions and other restructurings | 50 |
| | 130 |
| | 10 |
|
| | $ | 265 |
| | $ | 332 |
| | $ | 177 |
|
| | | | | | |
| Tax benefit associated with share-based compensation costs recognized | $ | 62 |
| | $ | 79 |
| | $ | 61 |
|
|
| | | | | | | | | | | |
| (Millions of dollars) | 2017 | | 2016 | | 2015 |
| Cost of products sold | $ | 30 |
| | $ | 29 |
| | $ | 23 |
|
| Selling and administrative expense | 113 |
| | 106 |
| | 82 |
|
| Research and development expense | 24 |
| | 22 |
| | 17 |
|
| Acquisitions and other restructurings | 10 |
| | 39 |
| | 44 |
|
| | $ | 177 |
| | $ | 196 |
| | $ | 166 |
|
| | | | | | |
| Tax benefit associated with share-based compensation costs recognized | $ | 61 |
| | $ | 69 |
| | $ | 59 |
|
In 2015,Upon the Company's acquisition of Bard in 2018, certain pre-acquisition equity awards of CareFusion were converted into BD restricted stock awards or BD stock options with accelerated vesting terms at the acquisition date. In addition, as an incentive to encourage post-acquisition employee retention, certain pre-acquisition equity awards of CareFusionBard were converted into either BD SARs or BD restricted stock awards, or BD stock options, as applicable, as of the acquisition date, withapplicable. These awards have substantially the same terms and conditions as were applicable under such CareFusionthe converted Bard awards immediately prior to the acquisition date. The compensationCompensation expense of $40 million and $126 million associated with these replacement awards was recorded in Acquisitions and other restructurings.
Notes to Consolidated Financial Statements — (Continued)
Becton, Dickinson in 2019 and Company
2018, respectively.
Stock Appreciation Rights
SARs represent the right to receive, upon exercise, shares of common stock having a value equal to the difference between the market price of common stock on the date of exercise and the exercise price on the date of grant. SARs vest over a four-year period of four years and have a ten-year term.term of ten years. The fair value was estimated on the date of grant using a lattice-based binomial option valuation model that uses the following weighted-average assumptions:
|
| | | | | |
| | 2019 | | 2018 | | 2017 |
| Risk-free interest rate | 3.05% | | 2.32% | | 2.33% |
| Expected volatility | 18.0% | | 19.0% | | 20.0% |
| Expected dividend yield | 1.27% | | 1.33% | | 1.71% |
| Expected life | 7.2 years | | 7.4 years | | 7.5 years |
| Fair value derived | $51.86 | | $46.10 | | $33.81 |
|
| | | | | |
| | 2017 | | 2016 | | 2015 |
| Risk-free interest rate | 2.33% | | 2.17% | | 2.20% |
| Expected volatility | 20.0% | | 19.0% | | 19.0% |
| Expected dividend yield | 1.71% | | 1.76% | | 1.78% |
| Expected life | 7.5 years | | 7.6 years | | 7.6 years |
| Fair value derived | $33.81 | | $27.69 | | $24.82 |
Expected volatility is based upon historical volatility for the Company’s common stock and other factors. The expected life of SARs granted is derived from the output of the lattice-based model, using assumed exercise rates based on historical exercise and termination patterns, and represents the period of time that SARs granted are expected to be outstanding. The risk-free interest rate used is based upon the published U.S. Treasury yield curve in effect at the time of grant for instruments with a similar life. The dividend yield is based upon the most recently declared quarterly dividend as of the grant date. The Company issued 793 thousand1.0 million shares during 20172019 to satisfy the SARs exercised.
A summary of SARs outstanding as of September 30, 2017 and changes during the year then ended is as follows:
|
| | | | | | | | | | | | |
| | SARs (in thousands) | | Weighted Average Exercise Price | | Weighted Average Remaining Contractual Term (Years) | | Aggregate Intrinsic Value (Millions of dollars) |
| Balance at October 1 | 7,027 |
| | $ | 103.83 |
| | | | |
| Granted | 996 |
| | 170.69 |
| | | | |
| Exercised | (1,445 | ) | | 83.81 |
| | | | |
| Forfeited, canceled or expired | (112 | ) | | 142.04 |
| | | | |
| Balance at September 30 | 6,466 |
| | $ | 117.94 |
| | 6.24 | | $ | 504 |
|
| Vested and expected to vest at September 30 | 6,215 |
| | $ | 116.54 |
| | 6.16 | | $ | 493 |
|
| Exercisable at September 30 | 3,952 |
| | $ | 96.00 |
| | 4.98 | | $ | 395 |
|
A summary of SARs exercised 2017, 2016 and 2015 is as follows:
|
| | | | | | | | | | | |
| (Millions of dollars) | 2017 | | 2016 | | 2015 |
| Total intrinsic value of SARs exercised | $ | 148 |
| | $ | 148 |
| | $ | 96 |
|
| Tax benefit realized from SAR exercises | $ | 53 |
| | $ | 52 |
| | $ | 34 |
|
| Total fair value of SARs vested | $ | 30 |
| | $ | 24 |
| | $ | 22 |
|
Stock Options
The Company has not granted stock options since 2005. As previously discussed, certain pre-acquisition equity awards of CareFusion were converted on March 17, 2015 into BD stock options with accelerated vesting terms. A summary of these stock options outstanding as of September 30, 2017 and changes during the year then ended is as follows:
Notes to Consolidated Financial Statements — (Continued)
Becton, Dickinson and Company
|
| | | | | | | | | | | | |
| | Stock Options (in thousands) | | Weighted Average Exercise Price | | Weighted Average Remaining Contractual Term (Years) | | Aggregate Intrinsic Value (Millions of dollars) |
| Balance at October 1 | 495 |
| | $ | 79.99 |
| | | | |
| Exercised | (186 | ) | | 77.66 |
| | | | |
| Forfeited, canceled or expired | (6 | ) | | 81.30 |
| | | | |
| Balance at September 30 | 303 |
| | $ | 81.40 |
| | 2.56 | | $ | 35 |
|
| Vested at September 30 | 303 |
| | $ | 81.40 |
| | 2.56 | | $ | 35 |
|
| Exercisable at September 30 | 303 |
| | $ | 81.40 |
| | 2.56 | | $ | 35 |
|
A summary of options exercised 2017, 2016SARs outstanding as of September 30, 2019 and 2015changes during the year then ended is as follows:
|
| | | | | | | | | | | | |
| | SARs (in thousands) | | Weighted Average Exercise Price | | Weighted Average Remaining Contractual Term (Years) | | Aggregate Intrinsic Value (Millions of dollars) |
| Balance at October 1 | 7,986 |
| | $ | 125.73 |
| | | | |
| Granted | 859 |
| | 242.10 |
| | | | |
| Exercised | (1,779 | ) | | 102.14 |
| | | | |
| Forfeited, canceled or expired | (168 | ) | | 186.18 |
| | | | |
| Balance at September 30 | 6,899 |
| | $ | 144.84 |
| | 5.70 | | $ | 746 |
|
| Vested and expected to vest at September 30 | 6,692 |
| | $ | 142.87 |
| | 5.62 | | $ | 737 |
|
| Exercisable at September 30 | 4,833 |
| | $ | 117.65 |
| | 4.69 | | $ | 654 |
|
|
| | | | | | | | | | | |
| (Millions of dollars) | 2017 | | 2016 | | 2015 |
| Cash received from stock option exercises | $ | 14 |
| | $ | 50 |
| | $ | 75 |
|
| Tax benefit realized from stock option exercises | $ | 8 |
| | $ | 17 |
| | $ | 20 |
|
| Total intrinsic value of stock options exercised | $ | 20 |
| | $ | 51 |
| | $ | 52 |
|
| Total fair value of stock options vested | $ | 2 |
| | $ | 11 |
| | $ | 59 |
|
|
| | | | | | | | | | | |
| (Millions of dollars) | 2019 | | 2018 | | 2017 |
| Total intrinsic value of SARs exercised | $ | 260 |
| | $ | 333 |
| | $ | 148 |
|
| Tax benefit realized from SAR exercises | $ | 62 |
| | $ | 90 |
| | $ | 53 |
|
| Total fair value of SARs vested | $ | 66 |
| | $ | 107 |
| | $ | 30 |
|
Performance-Based and Time-Vested Restricted Stock Units
Performance-based restricted stock units cliff vest three years after the date of grant. These units are tied to the Company’s performance against pre-established targets over a three-year performance period.period of three years. The performance measures for fiscal years 2017, 20162019, 2018 and 20152017 were relative total shareholder return (measures the Company’s stock performance during the performance period against that of peer companies) and average annual return on invested capital. Under the Company’s long-term incentive program, the actual payout under these awards may vary from zero0 to 200% of an employee’s target payout, based on the Company’s actual performance over the three-year performance period.period of three years. The fair value is based on the market price of the Company’s stock on the date of grant. Compensation cost initially recognized assumes that the target payout level will be achieved and is adjusted for subsequent changes in the expected outcome of performance-related conditions. For units for which the performance conditions are modified after the date of grant, any incremental increase in the fair value of the modified units, over the original units, is recorded as compensation expense on the date of the modification for vested units, or over the remaining performance period for units not yet vested.
Time-vested restricted stock unit awards granted after January 2015 vest on a graded basis over a three-year period. Time-vested restricted stock units granted before January 2015 cliff vestperiod of three years, after the date of grant, except for certain key executives of the Company, including the executive officers, for which such units generally vest one year following the employee’s retirement. The related share-based compensation expense is recorded over the requisite service period, which is the vesting period or is based on retirement eligibility. The fair value of all time-vested restricted stock units is based on the market value of the Company’s stock on the date of grant.
Notes to Consolidated Financial Statements — (Continued)
Becton, Dickinson and Company
A summary of restricted stock units outstanding as of September 30, 20172019 and changes during the year then ended is as follows:
| | | | Performance-Based | | Time-Vested | Performance-Based | | Time-Vested |
| | Stock Units (in thousands) | | Weighted Average Grant Date Fair Value | | Stock Units (in thousands) | | Weighted Average Grant Date Fair Value | Stock Units (in thousands) | | Weighted Average Grant Date Fair Value | | Stock Units (in thousands) | | Weighted Average Grant Date Fair Value |
| Balance at October 1 | 1,112 |
| | $ | 148.27 |
| | 2,584 |
| | $ | 123.16 |
| 1,032 |
| | $ | 190.57 |
| | 2,765 |
| | $ | 194.92 |
|
| Granted | 381 |
| | 174.92 |
| | 845 |
| | 165.96 |
| 381 |
| | 237.55 |
| | 755 |
| | 235.50 |
|
| Distributed | (145 | ) | | 134.19 |
| | (799 | ) | | 117.06 |
| (142 | ) | | 153.73 |
| | (906 | ) | | 189.06 |
|
| Forfeited or canceled | (268 | ) | | 139.93 |
| | (494 | ) | | 124.52 |
| (316 | ) | | 182.50 |
| | (546 | ) | | 201.85 |
|
| Balance at September 30 | 1,080 |
| (A) | | $ | 161.64 |
| | 2,136 |
| | $ | 142.06 |
| 955 |
| (a) | | $ | 221.73 |
| | 2,068 |
| | $ | 210.48 |
|
| Expected to vest at September 30 | 428 |
| (B) | | $ | 159.22 |
| | 2,052 |
| | $ | 141.36 |
| 306 |
| (b) | | $ | 218.06 |
| | 1,964 |
| | $ | 209.67 |
|
| |
(A)(a) | Based on 200% of target payout. |
| |
(B)(b) | Net of expected forfeited units and units in excess of the expected performance payout of 7965 thousand and 573585 thousand shares, respectively. |
The weighted average grant date fair value of restricted stock units granted during the years 2017, 20162019, 2018 and 20152017 are as follows:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Performance-Based | | Time-Vested |
| | 2019 | | 2018 | | 2017 | | 2019 | | 2018 | | 2017 |
| Weighted average grant date fair value of units granted | $ | 237.55 |
| | $ | 251.75 |
| | $ | 174.92 |
| | $ | 235.50 |
| | $ | 216.06 |
| | $ | 165.96 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Performance-Based | | Time-Vested |
| | 2017 | | 2016 | | 2015 | | 2017 | | 2016 | | 2015 |
| Weighted average grant date fair value of units granted | $ | 174.92 |
| | $ | 153.73 |
| | $ | 156.65 |
| | $ | 165.96 |
| | $ | 145.57 |
| | $ | 136.30 |
|
The total fair value of stock units vested during 2017, 20162019, 2018 and 20152017 was as follows:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Performance-Based | | Time-Vested |
| (Millions of dollars) | 2019 | | 2018 | | 2017 | | 2019 | | 2018 | | 2017 |
| Total fair value of units vested | $ | 33 |
| | $ | 31 |
| | $ | 32 |
| | $ | 254 |
| | $ | 362 |
| | $ | 139 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Performance-Based | | Time-Vested |
| (Millions of dollars) | 2017 | | 2016 | | 2015 | | 2017 | | 2016 | | 2015 |
| Total fair value of units vested | $ | 32 |
| | $ | 22 |
| | $ | 16 |
| | $ | 139 |
| | $ | 114 |
| | $ | 181 |
|
At September 30, 2017,2019, the weighted average remaining vesting term of performance-based and time vested restricted stock units is 1.22 and 1 year,0.90 years, respectively.
Unrecognized Compensation Expense and Other Stock Plans
The amount of unrecognized compensation expense for all non-vested share-based awards as of September 30, 2017,2019, is approximately $182$266 million, which is expected to be recognized over a weighted-average remaining life of approximately 1.931.91 years. At September 30, 2017, 8.82019, 5.6 million shares were authorized for future grants under the 2004 Plan. The Company has a policy of satisfying share-based payments through either open market purchases or shares held in treasury. At September 30, 2017,2019, the Company has sufficient shares held in treasury to satisfy these payments.
AtAs of September 30, 2017 and 2016, awards for 29 thousand and 432019, 105 thousand shares respectively, were outstanding underheld in trust relative to a plan, that was terminated in 2004, which allowed for grants of common shares to certain key employees. The Company has a Directors’Director's Deferral Plan,plan, which provides a means to defer director compensation, from time to time, on a deferred stock or cash basis. AsAlso as of September 30, 2017, 1302019, 320 thousand shares were held in trust, of which one thousand shares represented Directors’ compensation in 2017, in accordance with the provisions of the plan. Under this plan, which is unfunded, directors have an unsecured contractual commitment from the Company. The Company also hasissuable under a Deferred Compensation Plan that allows
Notes to Consolidated Financial Statements — (Continued)
Becton, Dickinson and Company
certain highly-compensated employees, including executive officers, to defer salary, annual incentive awards and certain equity-based compensation. As of September 30, 2017, 338 thousand shares were issuable under this plan.
Notes to Consolidated Financial Statements — (Continued)
Becton, Dickinson and Company
Note 89 — Benefit Plans
The Company has defined benefit pension plans covering certain employees in the United States and certain international locations. The Company also provides certain postretirementPostretirement healthcare and life insurance benefits provided to qualifying domestic retirees. Otherretirees as well as other postretirement benefit plans in international countries are not material. The measurement date used for the Company’s employee benefit plans is September 30.
Effective January 1, 2018, the legacy U.S. pension plan was frozen to limit the participation of employees who are hired or re-hired by the Company, or who transfer employment to the Company, on or after January 1, 2018.
Net pension and other postretirement cost for the years ended September 30 included the following components:
|
| | | | | | | | | | | |
| | Pension Plans |
| (Millions of dollars) | 2019 | | 2018 | | 2017 |
| Service cost | $ | 134 |
| | $ | 136 |
| | $ | 110 |
|
| Interest cost | 107 |
| | 90 |
| | 61 |
|
| Expected return on plan assets | (180 | ) | | (154 | ) | | (112 | ) |
| Amortization of prior service credit | (13 | ) | | (13 | ) | | (14 | ) |
| Amortization of loss | 78 |
| | 78 |
| | 92 |
|
| Settlements | 10 |
| | 2 |
| | — |
|
| Net pension cost | $ | 135 |
| | $ | 137 |
| | $ | 138 |
|
| | | | | | |
| Net pension cost included in the preceding table that is attributable to international plans | $ | 32 |
| | $ | 34 |
| | $ | 43 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Pension Plans | | Other Postretirement Benefits |
| (Millions of dollars) | 2017 | | 2016 | | 2015 | | 2017 | | 2016 | | 2015 |
| Service cost | $ | 110 |
| | $ | 81 |
| | $ | 77 |
| | $ | 3 |
| | $ | 3 |
| | $ | 3 |
|
| Interest cost | 61 |
| | 72 |
| | 87 |
| | 4 |
| | 5 |
| | 7 |
|
| Expected return on plan assets | (112 | ) | | (109 | ) | | (123 | ) | | — |
| | — |
| | — |
|
| Amortization of prior service credit | (14 | ) | | (15 | ) | | (15 | ) | | (5 | ) | | (5 | ) | | (5 | ) |
| Amortization of loss | 92 |
| | 77 |
| | 68 |
| | 2 |
| | 2 |
| | 3 |
|
| Settlements | — |
| | 7 |
| | — |
| | — |
| | — |
| | — |
|
| Net pension and postretirement cost | $ | 138 |
| | $ | 113 |
| | $ | 93 |
| | $ | 4 |
| | $ | 5 |
| | $ | 9 |
|
| | | | | | | | | | | | |
| Net pension cost attributable to international plans | $ | 43 |
| | $ | 35 |
| | $ | 32 |
| | | | | | |
The amounts provided above for amortization of prior service credit and amortization of loss represent the reclassifications of prior service credits and net actuarial losses that were recognized in Accumulated other comprehensive income (loss) in prior periods. The settlement losslosses recorded in 20162019 and 2018 primarily included lump sum benefit payments associated with the Company’s U.S. supplemental pension plan. The Company recognizes pension settlements when payments from the supplemental plan exceed the sum of service and interest cost components of net periodic pension cost associated with this plan for the fiscal year.
As further discussed in Note 2, upon adopting an accounting standard update on October 1, 2018, all components of the Company’s net periodic pension and postretirement benefit costs, aside from service cost, are recorded to Other income (expense), net on its consolidated statements of income, for all periods presented.
Notes to Consolidated Financial Statements — (Continued)
Becton, Dickinson and Company
The change in benefit obligation, change in fair value of pension plan assets, funded status and amounts recognized in the Consolidated Balance Sheets for these plans were as follows:
|
| | | | | | | |
| | Pension Plans |
| (Millions of dollars) | 2019 | | 2018 |
| Change in benefit obligation: | | | |
| Beginning obligation | $ | 3,246 |
| | $ | 2,647 |
|
| Service cost | 134 |
| | 136 |
|
| Interest cost | 107 |
| | 90 |
|
| Plan amendments | 3 |
| | — |
|
| Benefits paid | (153 | ) | | (162 | ) |
| Impact of (divestitures) acquisitions | (9 | ) | | 758 |
|
| Actuarial loss (gain) | 514 |
| | (82 | ) |
| Settlements | (63 | ) | | (122 | ) |
| Other, includes translation | (49 | ) | | (19 | ) |
| Benefit obligation at September 30 | $ | 3,731 |
| | $ | 3,246 |
|
| Change in fair value of plan assets: | | | |
| Beginning fair value | $ | 2,642 |
| | $ | 1,932 |
|
| Actual return on plan assets | 279 |
| | 70 |
|
| Employer contribution | 258 |
| | 400 |
|
| Benefits paid | (153 | ) | | (162 | ) |
| Impact of (divestitures) acquisitions | (7 | ) | | 539 |
|
| Settlements | (63 | ) | | (122 | ) |
| Other, includes translation | (30 | ) | | (15 | ) |
| Plan assets at September 30 | $ | 2,926 |
| | $ | 2,642 |
|
| Funded Status at September 30: | | | |
| Unfunded benefit obligation | $ | (804 | ) | | $ | (604 | ) |
Amounts recognized in the Consolidated Balance Sheets at September 30: | | | |
| Other | $ | 11 |
| | $ | 15 |
|
| Salaries, wages and related items | (22 | ) | | (15 | ) |
| Long-term Employee Benefit Obligations | (793 | ) | | (604 | ) |
| Net amount recognized | $ | (804 | ) | | $ | (604 | ) |
Amounts recognized in Accumulated other comprehensive income (loss) before income taxes at September 30: | | | |
| Prior service credit | $ | 44 |
| | $ | 60 |
|
| Net actuarial loss | (1,289 | ) | | (982 | ) |
| Net amount recognized | $ | (1,246 | ) | | $ | (921 | ) |
|
| | | | | | | | | | | | | | | |
| | Pension Plans | | Other Postretirement Benefits |
| (Millions of dollars) | 2017 | | 2016 | | 2017 | | 2016 |
| Change in benefit obligation: | | | | | | | |
| Beginning obligation | $ | 2,719 |
| | $ | 2,426 |
| | $ | 184 |
| | $ | 186 |
|
| Service cost | 110 |
| | 81 |
| | 3 |
| | 3 |
|
| Interest cost | 61 |
| | 72 |
| | 4 |
| | 5 |
|
| Plan amendments | (1 | ) | | — |
| | — |
| | (1 | ) |
| Benefits paid | (123 | ) | | (116 | ) | | (16 | ) | | (17 | ) |
| Impact of divestitures | (19 | ) | | — |
| | — |
| | — |
|
| Actuarial (gain) loss | (134 | ) | | 302 |
| | (15 | ) | | 3 |
|
| Settlements | (1 | ) | | (15 | ) | | — |
| | — |
|
| Other, includes translation | 36 |
| | (30 | ) | | 4 |
| | 4 |
|
| Benefit obligation at September 30 | $ | 2,647 |
| | $ | 2,719 |
| | $ | 165 |
| | $ | 184 |
|
| Change in fair value of plan assets: | | | | | | | |
| Beginning fair value | $ | 1,855 |
| | $ | 1,732 |
| | $ | — |
| | $ | — |
|
| Actual return on plan assets | 134 |
| | 131 |
| | — |
| | — |
|
| Employer contribution | 54 |
| | 145 |
| | — |
| | — |
|
| Benefits paid | (123 | ) | | (116 | ) | | — |
| | — |
|
| Impact of divestitures | (13 | ) | | — |
| | — |
| | — |
|
| Settlements | (1 | ) | | (15 | ) | | — |
| | — |
|
| Other, includes translation | 26 |
| | (21 | ) | | — |
| | — |
|
| Plan assets at September 30 | $ | 1,932 |
| | $ | 1,855 |
| | $ | — |
| | $ | — |
|
| Funded Status at September 30: | | | | | | | |
| Unfunded benefit obligation | $ | (715 | ) | | $ | (864 | ) | | $ | (165 | ) | | $ | (184 | ) |
Amounts recognized in the Consolidated Balance Sheets at September 30: | | | | | | | |
| Other | $ | 9 |
| | $ | 5 |
| | $ | — |
| | $ | — |
|
| Salaries, wages and related items | (17 | ) | | (12 | ) | | (14 | ) | | (15 | ) |
| Long-term Employee Benefit Obligations | (707 | ) | | (857 | ) | | (150 | ) | | (169 | ) |
| Net amount recognized | $ | (715 | ) | | $ | (864 | ) | | $ | (165 | ) | | $ | (184 | ) |
Amounts recognized in Accumulated other comprehensive income (loss) before income taxes at September 30: | | | | | | | |
| Prior service credit | 74 |
| | 87 |
| | 28 |
| | 33 |
|
| Net actuarial loss | (1,065 | ) | | (1,307 | ) | | (15 | ) | | (32 | ) |
| Net amount recognized | $ | (991 | ) | | $ | (1,221 | ) | | $ | 14 |
| | $ | 1 |
|
International pension plan assets at fair value included in the preceding table were $678$859 million and $624$821 million at September 30, 20172019 and 2016,2018, respectively. The international pension plan projected benefit obligations were $917 million$1.244 billion and $951 million$1.064 billion at September 30, 20172019 and 2016,2018, respectively.
Notes to Consolidated Financial Statements — (Continued)
Becton, Dickinson and Company
The benefit obligation associated with postretirement healthcare and life insurance plans provided to qualifying domestic retirees, which was largely recorded to Long-Term Employee Benefit Obligations, was $153 million and $148 million at September 30, 2019 and 2018, respectively.
Pension plans with accumulated benefit obligations in excess of plan assets and plans with projected benefit obligations in excess of plan assets consist of the following at September 30:
|
| | | | | | | | | | | | | | | |
| | Accumulated Benefit Obligation Exceeds the Fair Value of Plan Assets | | Projected Benefit Obligation Exceeds the Fair Value of Plan Assets |
| (Millions of dollars) | 2019 | | 2018 | | 2019 | | 2018 |
| Projected benefit obligation | $ | 3,623 |
| | $ | 2,618 |
| | $ | 3,698 |
| | $ | 3,121 |
|
| Accumulated benefit obligation | $ | 3,476 |
| | $ | 2,533 |
| | | | |
| Fair value of plan assets | $ | 2,821 |
| | $ | 2,012 |
| | $ | 2,882 |
| | $ | 2,502 |
|
|
| | | | | | | | | | | | | | | |
| | Accumulated Benefit Obligation Exceeds the Fair Value of Plan Assets | | Projected Benefit Obligation Exceeds the Fair Value of Plan Assets |
| (Millions of dollars) | 2017 | | 2016 | | 2017 | | 2016 |
| Projected benefit obligation | $ | 2,551 |
| | $ | 2,616 |
| | $ | 2,613 |
| | $ | 2,682 |
|
| Accumulated benefit obligation | $ | 2,470 |
| | $ | 2,529 |
| | | | |
| Fair value of plan assets | $ | 1,833 |
| | $ | 1,757 |
| | $ | 1,889 |
| | $ | 1,813 |
|
The estimated net actuarial loss and prior service credit for pension benefits that will be amortized from Accumulated other comprehensive income (loss) into net pension costs over the next fiscal year are expected to be $76 millionfor pension benefits and $13 million, respectively. The net actuarial loss for other postretirement benefits that will be amortized from Accumulated other comprehensive income(loss) into net other postretirement costs over the next fiscal year is immaterial. The estimated prior service credit that will be amortized from Accumulated other comprehensive income(loss) into net other postretirement costs over the next fiscal year is expected to be $5 million.are not material.
The weighted average assumptions used in determining pension plan information were as follows:
|
| | | | | | | | |
| | 2019 | | 2018 | | 2017 |
| Net Cost | | | | | |
| Discount rate: | | | | | |
| U.S. plans (a) | 4.26 | % | | 3.71 | % | | 3.42 | % |
| International plans | 2.30 |
| | 2.30 |
| | 1.70 |
|
| Expected return on plan assets: | | | | | |
| U.S. plans | 7.25 |
| | 7.20 |
| | 7.25 |
|
| International plans | 4.98 |
| | 4.95 |
| | 4.65 |
|
| Rate of compensation increase: | | | | | |
| U.S. plans | 4.29 |
| | 4.51 |
| | 4.25 |
|
| International plans | 2.36 |
| | 2.31 |
| | 2.33 |
|
| Benefit Obligation | | | | | |
| Discount rate: | | | | | |
| U.S. plans | 3.21 |
| | 4.26 |
| | 3.72 |
|
| International plans | 1.39 |
| | 2.30 |
| | 2.25 |
|
| Rate of compensation increase: | | | | | |
| U.S. plans | 4.29 |
| | 4.29 |
| | 4.51 |
|
| International plans | 2.35 |
| | 2.36 |
| | 2.30 |
|
|
| | | | | | | | | |
| | 2017 | | 2016 | | 2015 | |
| Net Cost | | | | | | |
| Discount rate: | | | | | | |
| U.S. plans (A) | 3.42 | % | | 4.15 | % | | 4.15 | % | |
| International plans | 1.70 |
| | 2.84 |
| | 3.14 |
| |
| Expected return on plan assets: | | | | | | |
| U.S. plans | 7.25 |
| | 7.50 |
| | 7.50 |
| |
| International plans | 4.65 |
| | 5.02 |
| | 5.45 |
| |
| Rate of compensation increase: | | | | | | |
| U.S. plans | 4.25 |
| | 4.25 |
| | 4.25 |
| |
| International plans | 2.33 |
| | 2.33 |
| | 2.49 |
| |
| Benefit Obligation | | | | | | |
| Discount rate: | | | | | | |
| U.S. plans | 3.72 |
| | 3.42 |
| | 4.15 |
| |
| International plans | 2.25 |
| | 1.70 |
| | 2.84 |
| |
| Rate of compensation increase: | | | | | | |
| U.S. plans | 4.51 |
| | 4.25 |
| | 4.25 |
| |
| International plans | 2.30 |
| | 2.33 |
| | 2.33 |
| |
| |
(A)(a) | In 2015 theThe Company calculated the service and interest components utilizing a single weighted-average discount rate derived from the yield curve used to measure the benefit obligation at the beginning of the period. Effective September 30, 2015, the Company elected to utilize an approach that discounts the individual expected cash flows using the applicable spot rates derived from the yield curve over the projected cash flow period. The Company accounted for this change as a change in accounting estimate that is inseparable from a change in accounting principle and as such, the change was accounted for prospectively. |
At September 30, 2017 the assumed healthcare trend rates were 7.0%, gradually decreasing to an ultimate rate of 5.0% beginning in 2027. At September 30, 2016 the assumed healthcare trend rates were 6.6% pre and post age 65, gradually decreasing to an ultimate rate of 5.0% beginning in 2024. A one percentage point
Notes to Consolidated Financial Statements — (Continued)
Becton, Dickinson and Company
increase or decrease in assumed healthcare cost trend rates in each year would not materially impact the accumulated postretirement benefit obligation as of September 30, 2017 or the aggregate of the service cost and interest cost components of 2017 annual expense.
Expected Rate of Return on Plan Assets
The expected rate of return on plan assets is based upon expectations of long-term average rates of return to be achieved by the underlying investment portfolios. In establishing this assumption, the Company considers many factors, including historical assumptions compared with actual results; benchmark data; expected returns on various plan asset classes, as well as current and expected asset allocations.
Notes to Consolidated Financial Statements — (Continued)
Becton, Dickinson and Company
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. The Company made a discretionary contribution of $112$200 million to its BD U.S. pension plan in October 2017.2018. The Company does not anticipate any significant required contributions to its pension plans in 2018.2020.
Expected benefit payments are as follows:
|
| | | |
| (Millions of dollars) | Pension Plans |
| 2020 | $ | 212 |
|
| 2021 | 171 |
|
| 2022 | 173 |
|
| 2023 | 185 |
|
| 2024 | 190 |
|
| 2025-2029 | 1,066 |
|
|
| | | | | | | |
| (Millions of dollars) | Pension Plans | | Other Postretirement Benefits |
| 2018 | $ | 173 |
| | $ | 14 |
|
| 2019 | 158 |
| | 14 |
|
| 2020 | 159 |
| | 14 |
|
| 2021 | 163 |
| | 13 |
|
| 2022 | 165 |
| | 13 |
|
| 2023-2027 | 859 |
| | 56 |
|
Investments
The Company’s primary objective is to achieve returns sufficient to meet future benefit obligations. It seeks to generate above market returns by investing in more volatile asset classes such as equities while at the same time controlling risk through diversification in non-correlated asset classes and through allocations to more stable asset classes like fixed income.
U.S. Plans
The Company’s U.S. pension plans comprise 65%71% of total benefit plan investments, based on September 30, 20172019 market values and have a target asset mix of 40% fixed income, 28%25% diversifying investments and 32%35% equities. This mix was established based on an analysis of projected benefit payments and estimates of long-term returns, volatilities and correlations for various asset classes. The asset allocations to diversifying investments include high-yield bonds, hedge funds, real estate, infrastructure, commodities, leveraged loans and emerging markets bonds.
The actual portfolio investment mix may, from time to time, deviate from the established target mix due to various factors such as normal market fluctuations, the reliance on estimates in connection with the determination of allocations and normal portfolio activity such as additions and withdrawals. Rebalancing of the asset portfolio on a quarterly basis is required to address any allocations that deviate from the established target allocations in excess of defined allowable ranges. The target allocations are subject to periodic review, including a review of the asset portfolio’s performance, by the named fiduciary of the plans. Any tactical deviations from the established asset mix require the approval of the named fiduciary.
The U.S. plans may enter into both exchange traded and non-exchange traded derivative transactions in order to manage interest rate exposure, volatility, term structure of interest rates, and sector and currency
Notes to Consolidated Financial Statements — (Continued)
Becton, Dickinson and Company
exposures within the fixed income portfolios. The Company has established minimum credit quality standards for counterparties in such transactions.
Notes to Consolidated Financial Statements — (Continued)
Becton, Dickinson and Company
The following table provides the fair value measurements of U.S. plan assets, as well as the measurement techniques and inputs utilized to measure fair value of these assets, at September 30, 20172019 and 2016.2018. The categorization of fund investments is based upon the categorization of these funds’ underlying assets.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (Millions of dollars) | Total U.S.
Plan Asset
Balances | | Investments Measured at Net Asset Value (a) | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
| | 2019 | | 2018 | | 2019 | | 2018 | | 2019 | | 2018 | | 2019 | | 2018 | | 2019 | | 2018 |
| Fixed Income: | | | | | | | | | | | | | | | | | | | |
| Mortgage and asset-backed securities | $ | — |
| | $ | 28 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 28 |
| | $ | — |
| | $ | — |
|
| Corporate bonds | 401 |
| | 484 |
| | — |
| | — |
| | 48 |
| | 101 |
| | 353 |
| | 383 |
| | — |
| | — |
|
| Government and agency-U.S. | 108 |
| | 257 |
| | — |
| | — |
| | 85 |
| | 199 |
| | 23 |
| | 57 |
| | — |
| | — |
|
| Government and agency-Foreign | 85 |
| | 122 |
| | — |
| | 8 |
| | 69 |
| | 85 |
| | 16 |
| | 28 |
| | — |
| | — |
|
| Other fixed income | 37 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 37 |
| | — |
| | — |
| | — |
|
| Equity securities | 922 |
| | 536 |
| | 782 |
| | 360 |
| | 140 |
| | 176 |
| | — |
| | — |
| | — |
| | — |
|
| Cash and cash equivalents | 254 |
| | 39 |
| | — |
| | — |
| | 254 |
| | 39 |
| | — |
| | — |
| | — |
| | — |
|
| Other | 261 |
| | 356 |
| | 124 |
| | 356 |
| | 138 |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Fair value of plan assets | $ | 2,068 |
| | $ | 1,821 |
| | $ | 906 |
| | $ | 724 |
| | $ | 733 |
| | $ | 600 |
| | $ | 429 |
| | $ | 497 |
| | $ | — |
| | $ | — |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (Millions of dollars) | Total U.S.
Plan Asset
Balances | | Investments Measured at Net Asset Value (A) | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
| | 2017 | | 2016 | | 2017 | | 2016 | | 2017 | | 2016 | | 2017 | | 2016 | | 2017 | | 2016 |
| Fixed Income: | | | | | | | | | | | | | | | | | | | |
| Mortgage and asset-backed securities | $ | 155 |
| | $ | 169 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 155 |
| | $ | 169 |
| | $ | — |
| | $ | — |
|
| Corporate bonds | 232 |
| | 197 |
| | — |
| | — |
| | 89 |
| | 68 |
| | 144 |
| | 129 |
| | — |
| | — |
|
| Government and agency-U.S. | 107 |
| | 103 |
| | — |
| | — |
| | 83 |
| | 67 |
| | 25 |
| | 36 |
| | — |
| | — |
|
| Government and agency-Foreign | 98 |
| | 90 |
| | 12 |
| | 32 |
| | 63 |
| | 52 |
| | 22 |
| | 6 |
| | — |
| | — |
|
| Equity securities | 369 |
| | 348 |
| | 307 |
| | 287 |
| | 62 |
| | 61 |
| | — |
| | — |
| | — |
| | — |
|
| Cash and cash equivalents | 40 |
| | 89 |
| | — |
| | — |
| | 40 |
| | 89 |
| | — |
| | — |
| | — |
| | — |
|
| Other | 252 |
| | 234 |
| | 217 |
| | 201 |
| | 34 |
| | 33 |
| | — |
| | — |
| | — |
| | — |
|
| Fair value of plan assets | $ | 1,254 |
| | $ | 1,231 |
| | $ | 537 |
| | $ | 520 |
| | $ | 371 |
| | $ | 371 |
| | $ | 346 |
| | $ | 340 |
| | $ | — |
| | $ | — |
|
| |
(A)(a) | As per applicable disclosure requirements, certain investments that were measured at net asset value per share or its equivalent have not been categorized within the fair value hierarchy. Values of such assets are based on the corroborated net asset value provided by the fund administrator. |
Fixed Income Securities
U.S. pension plan assets categorized above as fixed income securities include fund investments comprised of mortgage-backed, corporate, government and agency and asset-backed instruments. Mortgage-backed securities consist of residential mortgage pass-through certificates. Investments in corporate bonds are diversified across industry and sector and consist of investment-grade, as well as high-yield debt instruments. U.S. government investments consist of obligations of the U.S. Treasury, other U.S. government agencies, state governments and local municipalities. Assets categorized as foreign government and agency debt securities included investments in developed and emerging markets.
The values of fixed income investments classified within Level 1 are based on the closing price reported on the major market on which the investments are traded. A portion of the fixed income instruments classified within Level 2 are valued based upon estimated prices from independent vendors’ pricing models and these prices are derived from market observable sources including: benchmark yields, reported trades, broker/dealer quotes, issuer spreads, benchmark securities, bids, offers and other market-related data.
Equity Securities
U.S. pension plan assets categorized as equity securities consist of fund investments in publicly-traded U.S. and non-U.S. equity securities. In order to achieve appropriate diversification, these portfolios are invested across market sectors, investment styles, capitalization weights and geographic regions. The values of equity
Notes to Consolidated Financial Statements — (Continued)
Becton, Dickinson and Company
across market sectors, investment styles, capitalization weights and geographic regions. The values of equity securities classified within Level 1 are based on the closing price reported on the major market on which the investments are traded.
Cash and Cash Equivalents
A portion of the U.S. plans’ assets consists of investments in cash and cash equivalents, primarily to accommodate liquidity requirements relating to trade settlement and benefit payment activity, and the values of these assets are based upon quoted market prices.
Other Securities
Other U.S. pension plan assets include fund investments comprised of underlying assets of real estate, infrastructure, commodities and hedge funds. The values of such instruments classified within Level 1 are based on the closing price reported on the major market on which the investments are traded.
International Plans
International plan assets comprise 35%29% of the Company’s total benefit plan assets, based on market value at September 30, 2017.2019. Such plans have local independent fiduciary committees, with responsibility for development and oversight of investment policy, including asset allocation decisions. In making such decisions, consideration is given to local regulations, investment practices and funding rules.
The following table provides the fair value measurements of international plan assets, as well as the measurement techniques and inputs utilized to measure fair value of these assets, at September 30, 20172019 and 2016.2018.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (Millions of dollars) | Total International Plan Asset Balances | | Investments Measured at Net Asset Value (A) | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant
Other
Observable
Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
| | 2017 | | 2016 | | 2017 | | 2016 | | 2017 | | 2016 | | 2017 | | 2016 | | 2017 | | 2016 |
| Fixed Income: |
|
| | | | | | |
|
| | |
|
| | |
| | |
| Corporate bonds | $ | 14 |
| | $ | 34 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 13 |
| | $ | 34 |
| | $ | — |
| | $ | — |
|
| Government and agency-U.S. | 5 |
| | 5 |
| | — |
| | — |
| | 1 |
| | 2 |
| | 3 |
| | 3 |
| | — |
| | — |
|
| Government and agency-Foreign | 127 |
| | 119 |
| | — |
| | — |
| | 83 |
| | 73 |
| | 45 |
| | 46 |
| | — |
| | — |
|
| Other fixed income | 64 |
| | 51 |
| | — |
| | — |
| | 57 |
| | 46 |
| | 7 |
| | 5 |
| | — |
| | — |
|
| Equity securities | 256 |
| | 228 |
| | 13 |
| | 14 |
| | 242 |
| | 214 |
| | — |
| | — |
| | — |
| | — |
|
| Cash and cash equivalents | 28 |
| | 13 |
| | — |
| | — |
| | 28 |
| | 13 |
| | — |
| | — |
| | — |
| | — |
|
| Real estate | 26 |
| | 17 |
| | — |
| | — |
| | — |
| | — |
| | 26 |
| | 17 |
| | — |
| | — |
|
| Insurance contracts | 98 |
| | 102 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 98 |
| | 102 |
|
| Other | 62 |
| | 57 |
| | — |
| | — |
| | 47 |
| | 43 |
| | 15 |
| | 14 |
| | — |
| | — |
|
| Fair value of plan assets | $ | 678 |
| | $ | 624 |
| | $ | 13 |
| | $ | 14 |
| | $ | 459 |
| | $ | 391 |
| | $ | 108 |
| | $ | 119 |
| | $ | 98 |
| | $ | 102 |
|
Notes to Consolidated Financial Statements — (Continued)
Becton, Dickinson and Company
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (Millions of dollars) | Total International Plan Asset Balances | | Investments Measured at Net Asset Value (a) | | Quoted Prices in
Active Markets
for Identical
Assets (Level 1) | | Significant
Other
Observable
Inputs (Level 2) | | Significant
Unobservable
Inputs (Level 3) (b) |
| | 2019 | | 2018 | | 2019 | | 2018 | | 2019 | | 2018 | | 2019 | | 2018 | | 2019 | | 2018 |
| Fixed Income: |
|
| | | | | | |
|
| | |
|
| | |
| | |
| Corporate bonds | $ | 33 |
| | $ | 28 |
| | $ | — |
| | $ | — |
| | $ | 15 |
| | $ | 14 |
| | $ | 18 |
| | $ | 14 |
| | $ | — |
| | $ | — |
|
| Government and agency-U.S. | 3 |
| | 6 |
| | — |
| | — |
| | — |
| | 3 |
| | 3 |
| | 3 |
| | — |
| | — |
|
| Government and agency-Foreign | 199 |
| | 150 |
| | — |
| | — |
| | 105 |
| | 104 |
| | 94 |
| | 46 |
| | — |
| | — |
|
| Other fixed income | 100 |
| | 96 |
| | — |
| | — |
| | 63 |
| | 63 |
| | 37 |
| | 33 |
| | — |
| | — |
|
| Equity securities | 319 |
| | 314 |
| | 14 |
| | 15 |
| | 305 |
| | 299 |
| | — |
| | — |
| | — |
| | — |
|
| Cash and cash equivalents | 8 |
| | 9 |
| | — |
| | — |
| | 8 |
| | 9 |
| | — |
| | — |
| | — |
| | — |
|
| Real estate | 30 |
| | 30 |
| | — |
| | — |
| | — |
| | — |
| | 30 |
| | 30 |
| | — |
| | — |
|
| Insurance contracts | 113 |
| | 114 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 113 |
| | 114 |
|
| Other | 53 |
| | 74 |
| | — |
| | — |
| | 52 |
| | 55 |
| | 1 |
| | 20 |
| | — |
| | — |
|
| Fair value of plan assets | $ | 859 |
| | $ | 821 |
| | $ | 14 |
| | $ | 15 |
| | $ | 549 |
| | $ | 546 |
| | $ | 182 |
| | $ | 146 |
| | $ | 113 |
| | $ | 114 |
|
| |
(A)(a) | As per applicable disclosure requirements, certain investments that were measured at net asset value per share or its equivalent have not been categorized within the fair value hierarchy. Values of such assets are based on the corroborated net asset value provided by the fund administrator. |
Notes to Consolidated Financial Statements — (Continued)
Becton, Dickinson and Company
| |
| (b) | Changes in the fair value of international pension assets measured using Level 3 inputs for the years ended September 30, 2019 and 2018 were immaterial. |
Fixed Income Securities
Fixed income investments held by international pension plans include corporate, U.S. government and non-U.S. government securities. The values of fixed income securities classified within Level 1 are based on the closing price reported on the major market on which the investments are traded. Values of investments classified within Level 2 are based upon estimated prices from independent vendors’ pricing models and these prices are derived from market observable sources.
Equity Securities
Equity securities included in the international plan assets consist of publicly-traded U.S. and non-U.S. equity securities. The values of equity securities classified within Level 1 are based on the closing price reported on the major market on which the investments are traded.
Other Securities
The international plans hold a portion of assets in cash and cash equivalents, in order to accommodate liquidity requirements and the values are based upon quoted market prices. Real estate investments consist of investments in funds holding an interest in real properties and the corresponding values represent the estimated fair value based on the fair value of the underlying investment value or cost, adjusted for any accumulated earnings or losses. The values of insurance contracts approximately represent cash surrender value. Other investments include fund investments for which values are based upon either quoted market prices or market observable sources.
The following table summarizes the changes, for the years ended September 30, 2017 and 2016, in the fair value of international pension assets measured using Level 3 inputs:
|
| | | |
| (Millions of dollars) | Insurance Contracts |
| Balance at September 30, 2015 | $ | 90 |
|
| Actual return on plan assets: | |
| Relating to assets held at September 30, 2015 | 8 |
|
| Purchases, sales and settlements, net | 2 |
|
| Exchange rate changes | 1 |
|
| Balance at September 30, 2016 | $ | 102 |
|
| Actual return on plan assets: | |
| Relating to assets held at September 30, 2016 | 1 |
|
| Purchases, sales and settlements, net | (11 | ) |
| Transfers in from other categories | 1 |
|
| Exchange rate changes | 4 |
|
| Balance at September 30, 2017 | $ | 98 |
|
Savings Incentive PlanDefined Contribution Plans
The Company hascost of voluntary defined contribution plans covering eligible employees in the United States which provide for a Company match.match or contribution was $126 million in 2019, $108 million in 2018 and $83 million in 2017. The 2018 increase in the cost ofassociated with these plans was $67 million in 2017, $61 million in 2016 and $54 million in 2015.
is attributable to the Company's acquisition of Bard.
Notes to Consolidated Financial Statements — (Continued)
Becton, Dickinson and Company
Note 910 – Acquisitions
Definitive Agreement to Acquire Bard
On April 23,December 29, 2017, the Company announced that it had entered into a definitive agreement under which BD will acquirecompleted its acquisition of Bard, for an implied value of $317.00 per Bard common share in cash and stock, for estimated total consideration of approximately $24 billion. The combination willto create a highly differentiated medical technology company which is uniquely positioned to improve both the process of care and the treatment of disease for patients and healthcarethe process of care for health care providers.
Under the terms of the transaction, Bard common shareholders will be entitled to receivereceived approximately $222.93 in cash and 0.5077 shares of BD common stock per Bard share, or an implied value of $317.00 per Bard common share based on BD's closing price on April 21, 2017. At closing, Bard shareholders will own approximately 15 percent of the combined company.share. The Company will financefinanced the cash portion of total consideration transferred with available cash, which will include $4.8 billion ofincluded net proceeds raised in the third quarter of fiscal year 2017 through registered public offerings of equity securities and debt transactions of approximately $4.8 billion and $9.6 billion, respectively. The operating activities of net proceeds also raisedBard from the acquisition date through December 31, 2017 were not material to the Company’s consolidated results of operations. As such, Bard's operating results were included in the third quarter through debt transactions. Company’s consolidated results of operations beginning on January 1, 2018.
The total consideration transferred will also include an estimated $8 billion of BD common stock. The transaction is subject to regulatory approval and customary closing conditions, and is expected to close in the fourth calendar quarter of 2017.
CareFusion Corporation
Overview of Transaction and Consideration Transferred
On March 17, 2015, the Company acquired a 100% interest in CareFusion, a global medical technology company with a comprehensive portfolio of products in the areas of medication management, infection prevention, operating room and procedural effectiveness, and respiratory care, to create a global leader in medication management and patient safety solutions. Theacquisition-date fair value of consideration transferred consisted of the components below.
|
| | | |
| (Millions of dollars) | |
| Cash consideration | $ | 10,085 |
|
| Noncash consideration-fair value of shares issued | 2,269 |
|
| Noncash consideration-fair value of stock options and other equity awards | 184 |
|
| Total consideration transferred | $ | 12,538 |
|
Additional disclosures regarding the financing arrangements the Company entered into to fund the cash portion The fair value of the shares and equity awards issued as consideration transferred relativewas recognized as a $6.5 billion increase to this acquisitionCapital in excess of par value and a $2.1 billion decrease to Common stock in treasury.
|
| | | |
| (Millions of dollars) | |
| Cash consideration | $ | 16,400 |
|
| Non-cash consideration-fair value of shares issued | 8,004 |
|
| Non-cash consideration-fair value of equity awards issued | 613 |
|
| Total consideration transferred | $ | 25,017 |
|
The acquisition-date fair value of the Company’s ordinary shares issued to Bard shareholders was calculated per the following (shares in millions):
|
| | | |
| (Millions of dollars, except per share data) | |
| Total Bard shares outstanding | 73.359 |
|
| Conversion factor | 0.5077 |
|
| Conversion of Bard shares outstanding | 37.243 |
|
| Conversion of pre-acquisition equity awards | 0.104 |
|
| Total number of the Company's share issued | 37.347 |
|
| Closing price of the Company’s stock | $ | 214.32 |
|
| Fair value of the Company’s issued shares | $ | 8,004 |
|
Allocation of Consideration Transferred to Net Assets Acquired
The majority of Bard's product offerings are provided in Note 15.
Unaudited Pro Forma Information
reported, beginning with the second quarter of fiscal year 2018, under the Interventional segment and Bard's remaining product offerings are reported under the Company's Medical segment. The acquisition was accounted for under the acquisition method of accounting for business combinations. The operating activities fromDuring the acquisition date through March 31, 2015 were not materialfirst quarter of fiscal year 2019, the Company finalized its allocation of the fair value of consideration transferred to the Company’s consolidated results of operations. As such, CareFusion’s operating results were includedindividual assets acquired and liabilities assumed in the Company’s consolidated results of operations beginning on April 1, 2015. Revenues and Operating Income arethis acquisition, which resulted in no longer specifically identifiable duematerial adjustments to the progressionallocation. The allocations of the purchase price below represent the estimated fair values of assets acquired and liabilities assumed in this acquisition, which were largely allocated to the Company's integration activities. Revenues and Operating Income for the year ended September 30, 2015 included revenues and operating loss attributable to CareFusion of $2 billion and $242 million, respectively.Interventional segment.
Notes to Consolidated Financial Statements — (Continued)
Becton, Dickinson and Company
|
| | | |
| (Millions of dollars) | |
| Cash and equivalents | $ | 1,480 |
|
| Trade receivables | 472 |
|
| Inventories | 974 |
|
| Property, plant and equipment | 553 |
|
| Developed technology | 10,469 |
|
| Customer relationships | 1,146 |
|
| Other assets | 661 |
|
| Total identifiable assets acquired | 15,755 |
|
| | |
| Payables, accrued expenses and other liabilities | 1,280 |
|
| Short term and long-term debt | 1,692 |
|
| Product liability and other legal reserves | 2,004 |
|
| Deferred tax liabilities | 1,686 |
|
| Total liabilities assumed | 6,663 |
|
| | |
| Net identifiable assets acquired | 9,093 |
|
| | |
| Goodwill | 15,924 |
|
| | |
| Net assets acquired | $ | 25,017 |
|
Identifiable Intangible Assets Acquired
The developed technology assets acquired represented Bard’s developed technologies in the fields of vascular, urology, oncology, and surgical specialties. The technologies’ fair values were determined based on the present value of projected cash flows utilizing an income approach with a risk-adjusted discount rate of 8%. The technologies will be amortized over an estimated weighted-average amortization period of 14 years, which is the weighted average period over which the technologies are expected to generate substantial cash flows.
The customer relationships assets acquired represented Bard’s relationships with its customers. The fair value of these customer relationships was determined based on the present value of projected cash flows utilizing an income approach with a risk-adjusted discount rate of 8%. The estimated weighted-average amortization period of the customer relationships was determined to be 13 years and this period corresponds with the weighted average of lives determined for the product technology which underlies the customer contracts.
Goodwill
Goodwill typically results through expected synergies from combining operations of the acquiree and the acquirer, as well as from intangible assets that do not qualify for separate recognition. The goodwill recognized as a result of this acquisition includes, among other things, the value of combining the Company's leadership in medication management and infection prevention with an expanded offering of solutions across the care continuum. Additionally, Bard's strong product portfolio and innovation pipeline are expected to increase the Company's opportunities in fast-growing clinical areas. Revenue synergies are also expected to result from enhanced growth opportunities for the combined company in non-U.S. markets. NaN portion of goodwill from this acquisition was deductible for tax purposes.
Notes to Consolidated Financial Statements — (Continued)
Becton, Dickinson and Company
Amounts Related to Bard's Legal Proceedings and Claims
Accruals for Bard-related product liability and other legal matters represented approximately $2.0 billion of the liabilities assumed. Cash and equivalents include a restricted cash balance acquired which largely represents funds that are restricted for certain product liability matters assumed. Additional disclosures regarding Bard's legal proceedings and claims are provided in Note 5.
The Tax Cuts and Job Act Transition Tax
The net assets acquired included approximately $183 million of transition tax payable based on the Company’s best estimate of its transition tax liability under U.S. tax legislation which is further discussed in Note 17.
Transaction Costs
Transaction costs related to this acquisition incurred during the years ended September 30, 2018 and 2017 were approximately $56 million and $25 million, respectively. These transaction costs were recorded as Acquisitions and other restructurings and consisted of legal, advisory and other costs.See Note 12 for discussion regarding restructuring costs incurred relative to the Bard acquisition.
Unaudited Pro Forma Information
As noted above, Bard's operating activities from the acquisition date through December 31, 2017 were not material and the Company included Bard in its consolidated results of operations beginning on January 1, 2018. Revenues in 2018 were $3 billion. Net Income in 2018 included loss attributable to Bard of $(107) million. The following table provides the pro forma results for the fiscal years ended September 30, 20162018 and 20152017 as if CareFusionBard had been acquired as of October 1, 2013.2016.
|
| | | | | | | |
| (Millions of dollars, except per share data) | | | |
| | 2018 | | 2017 |
| Revenues | $ | 16,947 |
| | $ | 15,781 |
|
| | | | |
| Net Income | $ | 390 |
| | $ | 1,145 |
|
| | | | |
| Diluted Earnings per Share | $ | 0.90 |
| | $ | 3.60 |
|
|
| | | | | | | |
| (Millions of dollars, except per share data) | | | |
| | 2016 | | 2015 |
| | | | |
| Revenues | $ | 12,497 |
| | $ | 12,368 |
|
| | | | |
| Net Income | $ | 1,453 |
| | $ | 1,276 |
|
| | | | |
| Diluted Earnings per Share | $ | 6.68 |
| | $ | 5.92 |
|
The pro forma net income amountsresults above reflectinclude the impact of the following adjustments, which were adjusted for the applicable tax impact, including the following:as necessary: additional amortization and depreciation expense relating to assets acquired; interest and other financing costs relating to the acquisition transaction; and the elimination of one-time or nonrecurring items. The one-time or nonrecurring items eliminated for the year ended September 30, 2018 were primarily comprised of fair value step-up adjustments of $478 million recorded relative to Bard's inventory on the acquisition date, the transaction costs discussed above, as well as certain Bard-related restructuring costs disclosed in Note 12. In addition, amounts previously reported by Bard as revenues related to a royalty income stream have been reclassified to Other income (expense), net to conform to the Company's reporting classification.
The pro forma results do not include any anticipated cost savings or other effects of the planned integration of CareFusion.Bard. Accordingly, the pro forma results above are not necessarily indicative of the results that would have been if the acquisition had occurred on the dates indicated.indicated, nor are the pro forma results indicative of results which may occur in the future.
Fiscal year 2017 acquisition of remaining interest in Caesarea Medical ElectronicsNote 11 — Divestitures
Upon the Company's acquisition of CareFusion, it acquired a 40% ownership interest in Caesarea Medical Electronics ("CME"), an Israeli-based global infusion pump systems manufacturer. The Company previously accounted for this interest as an equity investment. On April 3, 2017, the Company acquired the remaining 60% ownership interest in CME. This acquisition did not materially impact the Company's consolidated financial results.
Transaction and other Acquisition-Related CostsAdvanced Bioprocessing
The Company incurred integration, restructuring and transaction costs relatingcompleted the sale of its Life Sciences segment's Advanced Bioprocessing business in October 2018 pursuant to acquisitionsa definitive agreement that was signed in 2017, 2016 and 2015:
|
| | | | | | | | | | | |
| (Millions of dollars) | 2017 | | 2016 | | 2015 |
| Integration costs | $ | 237 |
| | $ | 192 |
| | $ | 95 |
|
| Restructuring costs | 85 |
| | 526 |
| | 271 |
|
| Transaction costs | 39 |
| | 10 |
| | 59 |
|
The Company's integration costs incurred in 2017, 2016 and 2015 were substantially associated withSeptember 2018. Assets held for sale on the CareFusion acquisition and a small portion of costs incurred in 2017 related to the pending Bard acquisition. The restructuring costs incurred in 2017, 2016 and 2015, which related to CareFusion and other portfolio rationalization initiatives, are further discussed in Note 11. Transaction costs, which primarily consisted of legal, advisory and other costs, were largely incurred in 2017 in connection with the pending agreement to acquire Bard and other portfolio rationalization initiatives. Transaction costs were also incurred in 2015 in connection with the CareFusion acquisition. The Company's integration, restructuring and transaction costs were primarily recorded as Acquisitions and other restructurings.
Discussion regarding the financing costs relating to the pending Bard acquisition and the CareFusion acquisition, which were recorded as Interest expense, are provided in Note 15.
Notes to Consolidated Financial Statements — (Continued)
Becton, Dickinson and Company
Note 10 — Divestitureconsolidated balance sheet at September 30, 2018, subject to this agreement, were approximately $137 million. Liabilities held for sale under the agreement were immaterial. The Company recognized a pre-tax gain on the sale of approximately $336 million which was recorded as a component of Other operating expense, net in fiscal year 2019. The historical financial results for the Advanced Bioprocessing business have not been classified as a discontinued operation.
Respiratory Solutions and Vyaire Medical
On October 3, 2016, the Company sold a 50.1% controlling financial interest in its Respiratory Solutions business, a component of the Medical segment, to form a venture, Vyaire Medical. The Company retained a 49.9% non-controlling interest in the new standalone entity. The buyer controls the operations and governance of the new entity. The Company accounts for its remaining interest in the new entity as an equity method investment and, beginning on January 1, 2017, records its share of the new entity's earnings or losses on a one-quarter lag to Other income (expense), net. The Company has agreed to various contract manufacturing and certain logistical and transition services agreements with the new entity for a period of up to two years after the sale. AssetsThe Company accounted for its remaining interest in the new entity as an equity method investment and liabilities held forrecorded its share of the new entity's earnings or losses on a one-quarter lag to Other income (expense), net.
In April 2018, the Company completed the sale of its remaining interest in Vyaire Medical. The Company received gross cash proceeds of approximately $435 million and recognized a pre-tax gain on the sale of approximately $303 million, which was recognized in Other income (expense), net.
Note 12 — Business Restructuring Charges
In connection with the Company's acquisition of Bard, the 2015 acquisition of CareFusion and portfolio rationalization initiatives, the Company incurred restructuring costs which were largely recorded within Acquisitions and other restructurings on its consolidated balance sheetstatements of income. Additional disclosures regarding these restructuring activities and the related costs are provided in Notes 8, 10 and 11. Restructuring liability activity in 2019, 2018 and 2017 was as follows:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Employee Termination | | Other | | Total |
| (Millions of dollars) | Bard | | Other Initiatives (a) | | Bard (b) | | Other Initiatives (a) | | Bard | | Other Initiatives (a) |
| Balance at September 30, 2016 | $ | — |
| | $ | 67 |
| | $ | — |
| | $ | 2 |
| | $ | — |
| | $ | 69 |
|
| Charged to expense | — |
| | 27 |
| | — |
| | 58 |
| | — |
| | 85 |
|
| Cash payments | — |
| | (45 | ) | | — |
| | (12 | ) | | — |
| | (57 | ) |
| Non-cash settlements | — |
| | — |
| | — |
| | (9 | ) | | — |
| | (9 | ) |
| Other adjustments | — |
| | — |
| | — |
| | (33 | ) | | — |
| | (33 | ) |
| Balance at September 30, 2017 | $ | — |
| | $ | 49 |
| | $ | — |
| | $ | 6 |
| | $ | — |
| | $ | 55 |
|
| Charged to expense | 136 |
| | 30 |
| | 156 |
| | 22 |
| | 292 |
| | 52 |
|
| Cash payments | (103 | ) | | (56 | ) | | (3 | ) | | (23 | ) | | (106 | ) | | (79 | ) |
| Non-cash settlements | — |
| | — |
| | (153 | ) | | (1 | ) | | (153 | ) | | (1 | ) |
| Balance at September 30, 2018 | $ | 33 |
| | $ | 23 |
| | $ | — |
| | $ | 4 |
| | $ | 33 |
| | $ | 27 |
|
| Charged to expense | 23 |
| | 29 |
| | 95 |
| | 33 |
| | 118 |
| | 62 |
|
| Cash payments | (34 | ) | | (21 | ) | | (5 | ) | | (31 | ) | | (39 | ) | | (52 | ) |
| Non-cash settlements | — |
| | — |
| | (89 | ) | | (3 | ) | | (89 | ) | | (3 | ) |
| Balance at September 30, 2019 | $ | 22 |
| | $ | 31 |
| | $ | 1 |
| | $ | 3 |
| | $ | 23 |
| | $ | 34 |
|
| |
| (a) | Restructuring costs in 2019, 2018 and 2017 included expenses related to the Company's acquisition of CareFusion in fiscal year 2015 and other initiatives. |
Notes to Consolidated Financial Statements — (Continued)
Becton, Dickinson and Company
| |
| (b) | Expenses in 2019 and 2018 largely represented the costs associated with the conversion of certain pre-acquisition equity awards of Bard which, to encourage post-acquisition employee retention, were converted to BD equity awards with substantially the same terms and conditions as were applicable under such Bard awards immediately prior to the acquisition date. Expenses in 2018 also included costs relating to Bard’s pension plan, partially offset by a gain on the sale of the Company's soft tissue core needle biopsy product line which was recorded in the second quarter of fiscal year 2018. |
Note 13 — Intangible Assets
Intangible assets at September 30 2016 includedconsisted of:
|
| | | | | | | | | | | | | | | |
| | 2019 | | 2018 |
| (Millions of dollars) | Gross Carrying Amount | | Accumulated Amortization | | Gross Carrying Amount | | Accumulated Amortization |
| Amortized intangible assets | | | | | | | |
| Developed technology | $ | 13,960 |
| | $ | 2,906 |
| | $ | 13,966 |
| | $ | 1,782 |
|
| Customer relationships | 4,608 |
| | 1,183 |
| | 4,584 |
| | 861 |
|
| Product rights | 110 |
| | 60 |
| | 121 |
| | 58 |
|
| Trademarks | 407 |
| | 102 |
| | 407 |
| | 84 |
|
| Patents and other | 445 |
| | 305 |
| | 397 |
| | 288 |
|
| Amortized intangible assets | $ | 19,530 |
| | $ | 4,555 |
| | $ | 19,475 |
| | $ | 3,073 |
|
| | | | | | | | |
| Unamortized intangible assets | | | | | | | |
| Acquired in-process research and development (a) | $ | 1 |
| | | | $ | 37 |
| | |
| Trademarks | 2 |
| | | | 2 |
| | |
| Unamortized intangible assets | $ | 3 |
| | | | $ | 39 |
| | |
| |
| (a) | The decrease in the carrying value of assets in 2019 primarily reflected a write-down recorded in the third quarter by the Interventional segment's Surgery unit. |
Intangible amortization expense was $1.497 billion, $1.255 billion and liabilities subject to this agreement of approximately $578 million$0.553 billion in 2019, 2018 and $189 million,2017, respectively. The historical financial resultsincreases in intangible amortization expense beginning in 2018 were attributable to assets acquired in the Bard transaction, which is further discussed in Note 10. The estimated aggregate amortization expense for the Respiratory Solutions business, which included approximately $822 million and $417 million of revenues forfiscal years endedending September 30, 2016 and 2015, respectively, have not been classified2020 to 2024 are as a discontinued operation.
follows: 2020 — $1.350 billion; 2021 — $1.346 billion; 2022 — $1.336 billion; 2023 — $1.331 billion; 2024 — $1.311 billion.
Notes to Consolidated Financial Statements — (Continued)
Becton, Dickinson and Company
Note 11 — Business Restructuring Charges
In connection with the CareFusion acquisition and portfolio rationalization initiatives, the Company incurred restructuring costs which were recorded as Acquisitions and other restructurings. Additional disclosures regarding these restructuring activities and the related costs are provided in Notes 7, 9 and 10. Restructuring liability activity in 2017, 2016 and 2015 was as follows:
|
| | | | | | | | | | | | |
| (Millions of dollars) | | Employee Termination (A) | | Other (B) | | Total |
| Balance at September 30, 2014 | | $ | — |
| | $ | — |
| | $ | — |
|
| Assumed liability | | 19 |
| | — |
| | 19 |
|
| Charged to expense | | 126 |
| | 146 |
| | 271 |
|
| Cash payments | | (74 | ) | | (20 | ) | | (94 | ) |
| Non-cash settlements | | — |
| | (44 | ) | | (44 | ) |
| Other adjustments | | (9 | ) | | (81 | ) | | (91 | ) |
| Balance at September 30, 2015 | | $ | 62 |
| | $ | — |
| | $ | 62 |
|
| Charged to expense | | 81 |
| | 445 |
| | 526 |
|
| Cash payments | | (76 | ) | | (72 | ) | | (148 | ) |
| Non-cash settlements | | — |
| | (39 | ) | | (39 | ) |
| Other adjustments | | — |
| | (332 | ) | | (332 | ) |
| Balance at September 30, 2016 | | $ | 67 |
| | $ | 2 |
| | $ | 69 |
|
| Charged to expense | | 27 |
| | 58 |
| | 85 |
|
| Cash payments | | (45 | ) | | (12 | ) | | (57 | ) |
| Non-cash settlements | | — |
| | (9 | ) | | (9 | ) |
| Other adjustments | | — |
| | (33 | ) | | (33 | ) |
| Balance at September 30, 2017 | | $ | 49 |
| | $ | 6 |
| | $ | 55 |
|
| |
(A) | Expenses in fiscal year 2016 included $40 million relating to the CareFusion acquisition as well as $13 million for employee termination costs resulting from the Company's transition of certain elements of its information technology function to an outsourced model as further disclosed below. Expenses in fiscal year 2015 were primarily related to the CareFusion acquisition. |
| |
(B) | In the fourth quarter of fiscal year 2015, the Company initiated a plan to transition certain elements of its global information technology function from Company-owned assets to an outsourced, cloud-based model. Restructuring expenses recorded in 2015 included non-cash asset impairment charges relating to assets held for sale as a result of this plan. In the fourth quarter of fiscal year 2016, the Company expanded the scope of this plan to include the transition of certain business information systems assets to a third-party and as a result, the Company recorded a $214 million non-cash charge to recognize the impairment of capitalized internal-use software assets held for sale. Expenses in 2016 also included non-cash impairment charges of $81 million, after-tax, relating to the Company's disposition of certain non-core businesses, including the Company's sale of a majority interest in its Respiratory Solutions business during the first quarter of fiscal year 2017, which is further discussed in Note 10.
|
Notes to Consolidated Financial Statements — (Continued)
Becton, Dickinson and Company
Note 12 — Intangible Assets
Intangible assets at September 30 consisted of:
|
| | | | | | | | | | | | | | | |
| | 2017 | | 2016 |
| (Millions of dollars) | Gross Carrying Amount | | Accumulated Amortization | | Gross Carrying Amount | | Accumulated Amortization |
| Amortized intangible assets | | | | | | | |
| Customer relationships | $ | 3,393 |
| | $ | 564 |
| | $ | 3,360 |
| | $ | 339 |
|
| Developed technology | 3,508 |
| | 1,029 |
| | 3,409 |
| | 754 |
|
| Product rights | 131 |
| | 54 |
| | 125 |
| | 43 |
|
| Trademarks | 408 |
| | 65 |
| | 405 |
| | 45 |
|
| Patents and other | 370 |
| | 274 |
| | 349 |
| | 254 |
|
| Amortized intangible assets | $ | 7,811 |
| | $ | 1,986 |
| | $ | 7,648 |
| | $ | 1,435 |
|
| | | | | | | | |
| Unamortized intangible assets | | | | | | | |
| Acquired in-process research and development | $ | 67 |
| | | | $ | 66 |
| | |
| Trademarks | 2 |
| | | | 2 |
| | |
| Unamortized intangible assets | $ | 69 |
| | | | $ | 68 |
| | |
Intangible amortization expense was $533 million, $552 million and $346 million in 2017, 2016 and 2015, respectively. The estimated aggregate amortization expense for the fiscal years ending September 30, 2018 to 2022 are as follows: 2018 — $526 million; 2019 — $519 million; 2020 — $518 million; 2021 — $514 million; 2022 — $503 million.
Notes to Consolidated Financial Statements — (Continued)
Becton, Dickinson and Company
The following is a reconciliation of goodwill by business segment:
|
| | | | | | | | | | | |
| (Millions of dollars) | Medical | | Life Sciences | | Total |
| Goodwill as of September 30, 2015 | $ | 6,807 |
| | $ | 730 |
| | $ | 7,537 |
|
| Divestiture (A) | (32 | ) | | — |
| | (32 | ) |
| Purchase accounting adjustments (B) | (79 | ) | | 1 |
| | (78 | ) |
| Currency translation | (8 | ) | | — |
| | (8 | ) |
| Goodwill as of September 30, 2016 | $ | 6,688 |
| | $ | 731 |
| | $ | 7,419 |
|
| Acquisitions (C) | 119 |
| | 24 |
| | 143 |
|
| Divestiture (A) | (25 | ) | | — |
| | (25 | ) |
| Purchase accounting adjustments | 4 |
| | — |
| | 4 |
|
| Currency translation | 16 |
| | 6 |
| | 22 |
|
| Goodwill as of September 30, 2017 | $ | 6,802 |
| | $ | 761 |
| | $ | 7,563 |
|
|
| | | | | | | | | | | | | | | |
| (Millions of dollars) | Medical | | Life Sciences | | Interventional | | Total |
| Goodwill as of September 30, 2017 | $ | 6,802 |
| | $ | 761 |
| | $ | — |
| | $ | 7,563 |
|
| Acquisitions (a) | 3,923 |
| | 76 |
| | 11,218 |
| | 15,217 |
|
| Divestitures and related adjustments (b) | — |
| | (59 | ) | | (57 | ) | | (116 | ) |
| Reallocation of goodwill for change in segment and reporting unit composition (c) | (877 | ) | | — |
| | 877 |
| | — |
|
| Purchase price allocation adjustments (d) | 228 |
| | (2 | ) | | 732 |
| | 959 |
|
| Currency translation | (22 | ) | | (2 | ) | | — |
| | (24 | ) |
| Goodwill as of September 30, 2018 | $ | 10,054 |
| | $ | 775 |
| | $ | 12,771 |
| | $ | 23,600 |
|
| Divestitures and related adjustments (b) | — |
| | 3 |
| | — |
| | 3 |
|
| Purchase price allocation adjustments (e) | (15 | ) | | — |
| | (75 | ) | | (90 | ) |
| Currency translation | (50 | ) | | (6 | ) | | (81 | ) | | (137 | ) |
| Goodwill as of September 30, 2019 | $ | 9,989 |
| | $ | 772 |
| | $ | 12,615 |
| | $ | 23,376 |
|
| |
(A)(a) | Represents goodwill primarily recognized upon the Company's acquisition of Bard in fiscal year 2018, which is further discussed in Note 10. Also includes goodwill recognized relative to certain acquisitions which were not material individually or in the aggregate. |
| |
| (b) | Represents goodwill derecognized upon the Company's sale of a 50.1% controlling financial interest in the Respiratory Solutions business,certain businesses, as further discussed in Note 1011. |
| |
(B)(c) | Primarily represents $94 million resultingRepresents the reassignment of goodwill, determined based upon a relative fair value allocation approach, associated with the movement of certain product offerings from adjustmentsthe Medical segment to the deferred tax liability accounts recorded uponInterventional segment in order to align with the Company's acquisitionreportable segment structure that became effective beginning in the second quarter of CareFusion.fiscal year 2018. |
| |
(C)(d) | RepresentsThe purchase price allocation adjustments increasing goodwill recognizedwere primarily driven by the valuation of Bard developed technology assets, the associated deferred tax liability changes, increases to legal reserves and the alignment of the combined organization's accounting policies with respect to accrued liabilities and other accounts. |
| |
| (e) | The purchase price allocation adjustments were primarily driven by adjustments to tax-related balances recorded upon the Company's acquisitions duringfinalization of the current year. Such acquisitions were not material individually or inBard acquisition allocation within one year of the aggregate.transaction's closing. |
Note 1314 — Derivative Instruments and Hedging Activities
The Company uses derivative instruments to mitigate certain exposures. The Company does not enter into derivative financial instruments for trading or speculative purposes. The effects these derivative instruments and hedged items have on financial position, financial performance, and cash flows are provided below.
Foreign Currency Risks and Related Strategies
The Company has foreign currency exposures throughout Europe, Greater Asia, Canada and Latin America. Transactional currency exposures that arise from entering into transactions, generally on an intercompany basis, in non-hyperinflationary countries that are denominated in currencies other than the functional currency are mitigated primarily through the use of forward contractscontracts. In order to mitigate foreign currency exposure relating to its investments in certain foreign subsidiaries, the Company has hedged the currency risk associated with those investments with instruments, such as foreign currency-denominated debt, cross-currency swaps and currency options. exchange contracts, which are designated as net investment hedges.
Notes to Consolidated Financial Statements — (Continued)
Becton, Dickinson and Company
Hedges of the transactional foreign exchange exposures resulting primarily from intercompany payables and receivables are undesignated hedges. As such, the gains or losses on these instruments are recognized immediately in income. These gains and losses are largely offset by gains and losses on the underlying hedged items, as well as the hedging costs associated with the derivative instruments. The net amounts in 2017, 2016 and 2015, which are recognized in Other income (expense), net, during the years ending September 30, 2019, 2018 and 2017 were immaterial to the Company's consolidated financial results.
The total notional amounts of the Company’s outstanding foreign exchange contracts as of September 30, 20172019 and 20162018 were $2.5$2.3 billion and $2.3$3.1 billion, respectively.
In order to mitigateCertain of the Company's foreign currency exposure relating to itscurrency-denominated long-term notes outstanding, which had a total carrying value of $1.4 billion and $3.0 billion, as of September 30, 2019 and 2018, respectively, were designated as, and were effective as, economic hedges of net investments in certain of the Company's foreign subsidiaries,subsidiaries. In connection with the Company has designated $2 billionCompany's issuance of euro-denominated debt, issuedEuro-denominated notes during the first and third quartersquarter of fiscal year 2017,2019, the Company entered into cross-currency swaps, as well as a forward contract, which were designated and effective as economic hedges of net investment hedges. Accordingly, netinvestments in certain of the Company's foreign subsidiaries. The notional amount of the cross-currency swaps was $2.3 billion as of September 30, 2019. The forward contract was terminated in the third quarter, in conjunction with the Company's issuance of the Euro-denominated notes. Additional disclosures regarding the Company's issuance of Euro-denominated notes in the third quarter of fiscal year 2019 are provided in Note 16.
Net gains or losses relating to this debt,the net investment hedges, which are attributable to changes in the euroforeign currencies to U.S. dollar spot exchange rate,rates, are recorded as accumulated foreign currency translation in Other comprehensive income (loss). RecognitionUpon the termination of a net investment hedge, ineffectiveness into earnings will occur if the notional amount of the euro-denominated debt no longer matches the portion of theany net investmentsgain or loss included in foreign subsidiaries which underlie the hedges. The Company's balance of Accumulated other comprehensive income (loss) relative to the investment hedge remains until the foreign subsidiary investment is disposed of or is substantially liquidated.
Net gains (losses) recorded to Accumulated other comprehensive income (loss) relating to the Company's net investment hedges as of September 30, 2017 included net losses relating to these net investment2019 and 2018 were as follows:
|
| | | | | | | |
| (Millions of dollars) | 2019 | | 2018 |
| Foreign currency-denominated debt | $ | 138 |
| | $ | 81 |
|
| Cross-currency swaps | $ | 73 |
| | $ | — |
|
| Foreign currency forward contract | $ | (9 | ) | | $ | — |
|
Notes to Consolidated Financial Statements — (Continued)
Becton, Dickinson and Company
hedges of $159 million. Additional disclosures regarding the Company's issuances of the euro-denominated debt in fiscal year 2017 are provided in Note 15.
Interest Rate Risks and Related Strategies
The Company’s primary interest rate exposure results from changes in U.S. dollar interest rates. The Company’s policy is to manage interest cost using a mix of fixed and variable rate debt. The Company periodically uses interest rate swaps to manage such exposures. Under these interest rate swaps, the Company exchanges, at specified intervals, the difference between fixed and floating interest amounts calculated by reference to an agreed-upon notional principal amount. These swaps are designated as either fair value or cash flow hedges.
For interest rate swaps designated as fair value hedges (i.e., hedges against the exposure to changes in the fair value of an asset or a liability or an identified portion thereof that is attributable to a particular risk), changes in the fair value of the interest rate swaps offset changes in the fair value of the fixed rate debt due to changes in market interest rates.
The total notional amount of the Company’s outstanding interest rate swaps designated as fair value hedges was $375 million and $1.2 billion at September 30, 2019 and 2018, respectively. The outstanding swaps represent fixed-to-floating interest rate swap agreements the Company entered into to convert the interest payments on certain long-term notes from the fixed rate to a floating interest rate based on LIBOR. Changes in the fair value of the interest rate swaps offset changes in the fair value of the fixed rate debt. The amounts recorded during the years ended September 30, 2019 and 2018 for changes in the fair value of these hedges were immaterial to the Company's consolidated financial results.
Notes to Consolidated Financial Statements — (Continued)
Becton, Dickinson and Company
Changes in the fair value of the interest rate swaps designated as cash flow hedges (i.e., hedging the exposure to variability in expected future cash flows that is attributable to a particular risk) are offset by amounts recorded in Other comprehensive income (loss). If interest rate derivatives designated as cash flow hedges are terminated, the balance in Accumulated other comprehensive income (loss) attributable to those derivatives is reclassified into earnings over the remaining life of the hedged debt. The net realized loss related to terminated interest rate swaps expected to be reclassified and recorded in Interest expense within the next 12 months is $4$6 million, net of tax.
At September 30, 2016, theThe total notional value of the Company's outstanding forward starting interest rate swaps which werewas $1.5 billion at September 30, 2019. The Company entered into these contracts in August 2019 to mitigate the Company'sits exposure to interest rate risk and were designated as cash flow hedges, was $500 million. In the third quarter of 2017, prior to its issuance of senior unsecured U.S. notes during same quarter, the Company entered into additional forward starting interest rate swaps, which were also designated as cash flow hedges, with a notional amount of $1.75 billion.risk. The Company's recognition of unrealized and realized amounts including net realized losses recognized upon the termination of all of the Company's outstanding interest rate hedges in the third quarter of 2017 concurrently with its issuance of the senior unsecured notes noted above, resulted in the Company's recognition of a net gain in other comprehensive income relating to interest rate hedges during the year ended September 30, 2017. Additional disclosures regarding the Company's issuance of notes are provided in Note 15 and additional disclosures regarding the net gain recognized on terminated cash flow hedges during 2017 are provided in Note 3.
2019 were immaterial. The total notional amount of the Company’sCompany had 0 outstanding interest rate swaps designated as fair valuecash flow hedges was $375 million at September 30, 2017 and 2016. The outstanding swaps represent fixed-to-floating interest rate swap agreements the Company entered into to convert the interest payments on $375 million of the Company’s 3.125% notes due 2021 from the fixed rate to a floating interest rate based on LIBOR. Changes in the fair value of the interest rate swaps offset changes in the fair value of the fixed rate debt. The (losses) gains recorded on these fair value hedges, which were offset by (gains) losses recorded to the underlying debt instruments, were immaterial to the Company's consolidated financial results. 2018.
Other Risk Exposures
The Company purchases resins, which are oil-based components used in the manufacture of certain products. Significant increases in world oil prices that lead to increases in resin purchase costs could impact future operating results. From time to time, the Company has managed price risks associated with these commodity purchases through commodity derivative forward contracts. The Company had noCompany's outstanding commodity derivative forward contracts at September 30, 2017 and 2016.2019 were immaterial to the Company's consolidated financial results. The Company had 0 outstanding commodity derivative forward contracts at September 30, 2018.
Notes to Consolidated Financial Statements — (Continued)
Becton, Dickinson and Company
Statement Effects on Consolidated Balance Sheets
The location and amountsfair values of derivative instrument fair values ininstruments outstanding at September 30, 2019 and 2018 were not material to the Company's consolidated balance sheet are segregated below between designated, qualifying hedging instrumentssheets.
The amounts reclassified from accumulated other comprehensive income relating to cash flow hedges during 2019, 2018 and ones that are2017 were not designated for hedge accounting.material to the Company's consolidated financial results.
|
| | | | | | | |
| (Millions of dollars) | September 30,
2017 | | September 30,
2016 |
| Asset derivatives-designated for hedge accounting | | | |
| Interest rate swaps | $ | 7 |
| | $ | 23 |
|
| Asset derivatives-undesignated for hedge accounting | | | |
| Forward exchange contracts | 8 |
| | 3 |
|
| Total asset derivatives (A) | $ | 15 |
| | $ | 25 |
|
| | | | |
| Liability derivatives-designated for hedge accounting | | | |
| Interest rate swaps | — |
| | 18 |
|
| Liability derivatives-undesignated for hedge accounting | | | |
| Forward exchange contracts | 7 |
| | 13 |
|
| Total liability derivatives (B) | $ | 7 |
| | $ | 31 |
|
|
| | | |
(A) | All asset derivatives are included in Prepaid expenses and other.
| | |
| |
(B) | All liability derivatives are included in Accrued expenses.
|
Effects on Consolidated Statements of IncomeThe amounts recognized in other comprehensive income during 2017, 2016 and 2015 relating to cash flow hedges were not material to the Company's consolidated financial results. The Company’s designated derivative instruments are highly effective. As such, there were no gains or losses, related to hedge ineffectiveness or amounts excluded from hedge effectiveness testing, recognized immediately in income relative to derivative contracts outstanding in the periods presented.
Notes to Consolidated Financial Statements — (Continued)
Becton, Dickinson and Company
Note 1415 — Financial Instruments and Fair Value Measurements
Recurring Fair Value Measurements
The fair values of financial instruments, including those not recognized onfollowing reconciles cash and equivalents and restricted cash reported within the statement of financial position at fair value, carriedCompany's consolidated balance sheets at September 30, 20172019 and 2016 are classified in accordance with2018 to the fair value hierarchy intotal of these amounts shown on the following table:Company's consolidated statements of cash flows:
|
| | | | | | | |
| (Millions of dollars) | September 30, 2019 | | September 30, 2018 |
| Cash and equivalents | $ | 536 |
| | $ | 1,140 |
|
| Restricted cash | 54 |
| | 96 |
|
| Cash and equivalents and restricted cash | $ | 590 |
| | $ | 1,236 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | Basis of Fair Value Measurement |
| (Millions of dollars) | | Total | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
| | | 2017 | | 2016 | | 2017 | | 2016 | | 2017 | | 2016 | | 2017 | | 2016 |
| Assets | | | | | | | | | | | | | | | | |
| Institutional money market investments | | $ | 2,026 |
| | $ | 224 |
| | $ | 2,026 |
| | $ | 224 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
| Interest rate swaps | | 7 |
| | 23 |
| | — |
| | — |
| | 7 |
| | 23 |
| | — |
| | — |
|
| Forward exchange contracts | | 8 |
| | 3 |
| | — |
| | — |
| | 8 |
| | 3 |
| | — |
| | — |
|
| Total Assets | | $ | 2,042 |
| | $ | 249 |
| | $ | 2,026 |
| | $ | 224 |
| | $ | 15 |
| | $ | 25 |
| | $ | — |
| | $ | — |
|
| Liabilities | | | | | | | | | | | | | | | | |
| Interest rate swaps | | $ | — |
| | $ | 18 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 18 |
| | $ | — |
| | $ | — |
|
| Forward exchange contracts | | 7 |
| | 13 |
| | — |
| | — |
| | 7 |
| | 13 |
| | — |
| | — |
|
| Contingent consideration liabilities | | 13 |
| | 54 |
| | — |
| | — |
| | — |
| | — |
| | 13 |
| | 54 |
|
| Total Liabilities | | $ | 20 |
| | $ | 86 |
| | $ | — |
| | $ | — |
| | $ | 7 |
| | $ | 31 |
| | $ | 13 |
| | $ | 54 |
|
The Company’s cash and equivalents include institutional money market accounts which permit daily redemption and the fair values of these investments are based upon the quoted prices in active markets provided by the holding financial institutions.institutions, which are considered Level 1 inputs in the fair value hierarchy. The fair values of these accounts were $39 million and $228 million at September 30, 2019 and 2018, respectively. The Company’s remaining cash and equivalents, excluding restricted cash, were $12.153 billion$497 million and $1.317 billion$913 million at September 30, 20172019 and 2016,2018, respectively.
Notes to Consolidated Financial Statements — (Continued)
Becton, Dickinson and Company
Short-term investments are held to their maturities and are carried at cost, which approximates fair value. The cash equivalents consist of liquid investments with a maturity of three months or less and the short-term investments consist of instruments with maturities greater than three months and less than one year.
The Company measures the fair value of forward exchange contracts and interest rate swaps based upon the present value of expected future cash flows using market-based observable inputs including credit risk, interest rate yield curves, foreign currency spot prices and forward prices.
Long-term debt is recorded at amortized cost. The fair value of long-term debt is measured based upon quoted prices in active markets for similar instruments, which are considered Level 2 inputs in the fair value hierarchy. The fair value of long-term debt was $19.2 billion and $11.3$18.8 billion at September 30, 20172019 and 2016,2018, respectively. The fair value of the current portion of long-term debt was $206 million$1.3 billion and $798 million$1.9 billion at September 30, 20172019 and 2016,2018, respectively.
The contingent consideration liabilities were recognized as part of the consideration transferredAll other instruments measured by the Company for certain acquisitions. Theat fair values of the contingent consideration liabilities were estimated using probability-weighted discounted cash flow models that were based upon the probabilities assigned with regard to achievement of the contingent events. The estimated fair values of thevalue, including derivatives and contingent consideration liabilities, are remeasured each reporting period based upon increases or decreases in the probability of the contingent payments. The decreaseimmaterial to the total contingent consideration liability in fiscal year 2017 is primarily
Notes to Consolidated Financial Statements — (Continued)
Becton, Dickinson and Company
attributable to a $40 million payment of a contingent consideration liability recorded in connection with a previously closed acquisition.
The Company’s policy is to recognize any transfers into fair value measurement hierarchy levels and transfers out of levels at the beginning of each reporting period. There were no transfers in and out of Level 1, Level 2 or Level 3 measurements for the years ending September 30, 2017 and 2016.Company's consolidated balance sheets.
Nonrecurring Fair Value Measurements
In fiscal year 2016,2019, the Company recorded a charge of $214$30 million to impair capitalized internal-use software assets held for sale as a result ofwrite down the Company's transitioncarrying value of certain elements of its information technology infrastructure to an outsourced model. Impairment charges recordedintangible assets in 2015 of $72 million primarily related to information technology assets held for sale as a result of these same transition efforts. Also inthe Surgery unit. In fiscal year 2016,2018, the Company recorded lossescharges of $58 million to write down the value of fixed assets, primarily in the Diabetes Care unit, as well as charges of $81 million onto write down the held for sale assetscarrying value of certain non-core businesses.intangible and other assets in the Biosciences unit. The amounts recognized in 20162019 and 20152018 were recorded to Acquisitions and other restructurings to adjust the carrying amount of assets held for sale to an estimate of the assets' fair values, less the estimated costs to sell these assets. The fair values of the assets adjusted in 2016 and 2015which were estimated, based upon a market participant's perspective, using a market approach andeither Level 2 inputs, including quoted prices for similar assets.assets, or Level 3 inputs, including values estimated using the income approach.
Concentration of Credit Risk
The Company maintains cash deposits in excess of government-provided insurance limits. Such cash deposits are exposed to loss in the event of nonperformance by financial institutions. Substantially all of the Company’s trade receivables are due from public and private entities involved in the healthcare industry. Due to the large size and diversity of the Company’s customer base, concentrations of credit risk with respect to trade receivables are limited. The Company does not normally require collateral. The Company is exposed to credit loss in the event of nonperformance by financial institutions with which it conducts business. However, this loss is limited to the amounts, if any, by which the obligations of the counterparty to the financial instrument contract exceed the obligations of the Company. The Company also minimizes exposure to credit risk by dealing with a diversified group of major financial institutions.
The Company continually evaluates its accounts receivables for potential collection risks particularly those resulting from sales to government-owned or government-supported healthcare facilities in certain countries as payment may be dependent upon the financial stability and creditworthiness of those countries’ national economies. The Company continually evaluates all governmental receivables for potential collection risks associated with the availability of government funding and reimbursement practices. The Company believes the current reserves related to all governmental receivables are adequate and that this concentration of credit risk will not have a material adverse impact on its financial position or liquidity.
Notes to Consolidated Financial Statements — (Continued)
Becton, Dickinson and Company
Note 1516 — Debt
Short-term debt
The carrying value of Short-term debt, net of unamortized debt issuance costs, at September 30 consisted of:
|
| | | | | | | | | |
| (Millions of dollars) | | | 2019 | | 2018 |
| Current portion of long-term debt | | | | | |
| 2.675% Notes due December 15, 2019 | (a) | | $ | 300 |
| | $ | — |
|
| 2.404% Notes due June 5, 2020 | | | 999 |
| | — |
|
| 2.133% Notes due June 6, 2019 | | | — |
| | 724 |
|
| 0.368% Notes due June 6, 2019 | (a) | | — |
| | 1,157 |
|
| Term Loan Facility due September 5, 2019 | (b) | | — |
| | 710 |
|
| Other | | | 10 |
| | 10 |
|
| Total short-term debt | | | $ | 1,309 |
| | $ | 2,601 |
|
|
| | | | | | | | | |
| (Millions of dollars) | | | 2017 | | 2016 |
| Commercial paper borrowings | | | $ | — |
| | $ | 200 |
|
| Current portion of long-term debt | | | | | |
| 4.900% Notes due April 15, 2018 | | | 200 |
| | — |
|
| 1.450% Notes due May 15, 2017 | (A) | | — |
| | 300 |
|
| 1.750% Notes due November 8, 2016 | | | — |
| | 500 |
|
| Other | | | 3 |
| | 1 |
|
| Total short-term debt | | | $ | 203 |
| | $ | 1,001 |
|
| |
(A)(a) | All or a portion of the aggregate principal amount outstanding was repurchasedredeemed or repaid during 2019, as further discussed below. |
| |
| (b) | Term loan facility entered into during the firstfourth quarter of 2017,fiscal year 2018, as further discussed below. |
The weighted average interest rates for short-term debt were 4.90%2.48% and 1.49%1.58% at September 30, 20172019 and 2016,2018, respectively.
Notes to Consolidated Financial Statements — (Continued)
Becton, Dickinson and Company
Long-term debt
The carrying value of Long-Term Debt, net of unamortized debt issuance costs, at September 30 consisted of:
| | | (Millions of dollars) | | 2017 | | 2016 | | 2019 | | 2018 |
| 1.800% Notes due December 15, 2017 | (A) (C) | | — |
| | 1,248 |
| |
| 4.900% Notes due April 15, 2018 | | — |
| | 201 |
| |
| 5.000% Notes due May 15, 2019 | (A) (C) | | — |
| | 498 |
| |
| 2.133% Notes due June 6, 2019 | (B) | | 723 |
| | — |
| |
| 0.368% Notes due June 6, 2019 | (B) | | 823 |
| | — |
| |
| 6.375% Notes due August 1, 2019 | (A) (C) | | — |
| | 776 |
| |
| 2.675% Notes due December 15, 2019 | (A) | | 1,121 |
| | 1,245 |
| | $ | — |
| | $ | 1,123 |
|
| 2.404% Notes due June 5, 2020 | (B) | | 996 |
| | — |
| | — |
| | 998 |
|
| 3.250% Notes due November 12, 2020 | | 698 |
| | 698 |
| | 699 |
| | 699 |
|
| Floating Rate Notes due December 29, 2020 | | (a) | | 748 |
| | 996 |
|
| 0.174% Notes due June 4, 2021 | | (b) | | 651 |
| | — |
|
| 3.125% Notes due November 8, 2021 | | 1,003 |
| | 1,018 |
| | 1,004 |
| | 990 |
|
| 2.894% Notes due June 6, 2022 | (B) | | 1,791 |
| | — |
| | 1,795 |
| | 1,793 |
|
| Floating Rate Notes due June 6, 2022 | (B) | | 497 |
| | — |
| | 498 |
| | 498 |
|
| 1.000% Notes due December 15, 2022 | (D) | | 586 |
| | — |
| | 542 |
| | 576 |
|
| Revolving Credit Facility due December 29, 2022 | | | 480 |
| | — |
|
| 3.300% Notes due March 1, 2023 | (C) | | 296 |
| | 304 |
| | 295 |
| | 296 |
|
| 1.401% Notes due May 24, 2023 | | | 325 |
| | 346 |
|
| 0.632% Notes due June 4, 2023 | | (b) | | 867 |
| | — |
|
| 3.875% Notes due May 15, 2024 | (A) (C) | | 182 |
| | 417 |
| | 181 |
| | 182 |
|
| 3.363% Notes due June 6, 2024 | (B) | | 1,736 |
| | — |
| | 1,740 |
| | 1,738 |
|
| 3.734% Notes due December 15, 2024 | (A) | | 1,367 |
| | 1,740 |
| | 1,369 |
| | 1,368 |
|
| 3.020% Notes due May 24, 2025 | | | 306 |
| | 324 |
|
| 1.208% Notes due June 4, 2026 | | (b) | | 649 |
| | — |
|
| 6.700% Notes due December 1, 2026 | | (c) | | 174 |
| | 177 |
|
| 1.900% Notes due December 15, 2026 | (D) | | 585 |
| | — |
| | 541 |
| | 575 |
|
| 3.700% Notes due June 6, 2027 | (B) | | 2,381 |
| | — |
| (a) | | 1,714 |
| | 2,383 |
|
| 7.000% Debentures due August 1, 2027 | | 166 |
| | 168 |
| | 175 |
| | 156 |
|
| 6.700% Debentures due August 1, 2028 | | 164 |
| | 167 |
| | 175 |
| | 154 |
|
| 6.000% Notes due May 15, 2039 | | 246 |
| | 246 |
| | 246 |
| | 246 |
|
| 5.000% Notes due November 12, 2040 | | 296 |
| | 297 |
| (a) | | 124 |
| | 296 |
|
| 4.875% Notes due May 15, 2044 | (C) | | 331 |
| | 333 |
| (a) | | 248 |
| | 331 |
|
| 4.685% Notes due December 15, 2044 | | 1,189 |
| | 1,190 |
| (a) | | 1,045 |
| | 1,159 |
|
| 4.669% Notes due June 6, 2047 | (B) | | 1,484 |
| | — |
| | 1,485 |
| | 1,484 |
|
| Other long-term debt | | 3 |
| | 4 |
| | 5 |
| | 8 |
|
| Total Long-Term Debt | | $ | 18,667 |
| | $ | 10,550 |
| | $ | 18,081 |
| | $ | 18,894 |
|
| |
(A)(a) | All or aA portion of the aggregate principal amount outstanding was redeemed or repurchased during the first quarter of 2017,2019, as further discussed below. |
| |
(B)(b) | NotesIncludes notes issued during the third quarter of fiscal year 2017,2019, as further discussed below. |
| |
(C)(c) | All or a portionIncludes notes assumed in connection with the Company's acquisition of the aggregate principal amount outstanding was redeemed during the third quarter of 2017, as further discussed below. |
| |
(D) | Notes issued during the first quarter of fiscal year 2017,Bard, as further discussed below. |
The aggregate annual maturities of long-term debt including interest during the fiscal years ending September 30, 20182020 to 20222024 are as follows: 2018 — $823 million; 2019 — $2.2 billion; 2020 — $2.8$1.9 billion; 2021 — $1.2$2.6 billion; 2022 — $3.8$3.7 billion; 2023 — $2.9 billion; 2024 — $2.3 billion.
Other current credit facilities
In January 2016, the Company replaced an existing $1 billion syndicated credit facility with a $1.5 billion syndicated credit facility. During the first quarter of fiscal year 2017, the Company extended the expiration date of this credit facility to January 2022 from the original expiration date of January 2021. There were no
Notes to Consolidated Financial Statements — (Continued)
Becton, Dickinson and Company
borrowings outstanding under thisOther current credit facilities
In May 2017, the Company entered into a five-year senior unsecured revolving credit facility at September 30, 2017. The creditwhich provides borrowing of up to $2.25 billion. This facility under whichwill expire in December 2022. Under the revolving facility, the Company mayis able to issue up to $100 million in letters of credit can be used for general corporate purposes. Itand it also includes a provision that enables BD,the Company, subject to additional commitments made by the lenders, to access up to an additional $500 million in financing through the facility for a maximum aggregate commitment of $2$2.75 billion. The credit facility includes a single financial covenant that requires BD to maintain an interest expense coverage ratio of not less than 4-to-1 forBorrowings outstanding under the most recent four consecutive fiscal quarters. The Company was in compliance with this covenant as of September 30, 2017. The Company will replace this existing syndicated credit facility with a five-year senior unsecured revolving credit facility uponat September 30, 2019 were $485 million. There were 0 borrowings outstanding under the closing of the Bard acquisition, as further discussed below.revolving credit facility at September 30, 2018. In addition, the Company has informal lines of credit outside of the United States.
First Quarter Fiscal Year 2017During the fourth quarter of 2019, the Company fully repaid its borrowings outstanding on a 364-day senior unsecured term loan facility that the Company entered in September 2018. The Company had 0 commercial paper borrowings outstanding as of September 30, 2019.
2019 Debt-Related Transactions
In March 2019, the Company redeemed an aggregate principal amount of $250 million of its outstanding floating rate senior unsecured U.S. notes due December 2016,29, 2020. Based upon the $249 million carrying value of the notes redeemed and the $250 million the Company paid to redeem the aggregate principal amount of the notes, the Company recorded a loss on this debt extinguishment transaction in the second quarter of fiscal year 2019 of $1 million as Other income (expense), net, on its consolidated statements of income.
In June 2019, Becton Dickinson Euro Finance S.à r.l., a private limited liability company (société à responsabilité limitée), which is an indirect, wholly-owned finance subsidiary of the Company, issued euro-denominatedEuro-denominated debt consisting of 500600 million eurosEuros ($672 million) of 1.000%0.174% notes due June 4, 2021, 800 million Euros ($896 million) of 0.632% notes due June 4, 2023, and 500600 million eurosEuros ($672 million) of 1.900%1.208% notes due June 4, 2026. The notes are fully and unconditionally guaranteed on a senior unsecured basis by the Company. No other of the Company's subsidiaries provide any guarantees with respect to these notes. The indenture covenants include a limitation on liens and a restriction on sale and leasebacks, change of control and consolidation, merger and sale of assets covenants. These covenants are subject to a number of exceptions, limitations and qualifications. The indenture does not restrict the Company, Becton Dickinson Euro Finance S.à r.l., or any other of the Company's subsidiaries from incurring additional debt or other liabilities, including additional senior debt. Additionally, the indenture does not restrict Becton Dickinson Euro Finance S.à r.l. and the Company from granting security interests over its assets.
The Company used the net proceeds from this long-term debt offering, together with other sourcescash on hand, to repay all the 1.000 billion Euros ($1.120 billion) of liquidity,principal outstanding on 0.368% notes due June 6, 2019, as well as to fund the Company's repurchase of certain of its long-term senior notes outstanding. Under this cash tender offer, the Company repurchased all or a portion of the following aggregate principal amounts of certain of its long-term notes outstanding, totaling $1.689 billion,debt at an aggregate market price of $1.764 billion. $1.169 billion:
|
| | | | |
| Interest Rate and Maturity | | Aggregate Principal Amount (Millions of dollars) |
| 3.700% Notes due June 6, 2027 | | $ | 675 |
|
| 5.000% Notes due November 12, 2040 | | 175 |
|
| 4.875% Notes due May 15, 2044 | | 75 |
|
| 4.685% Notes due December 15, 2044 | | 175 |
|
| Total notes purchased | | $ | 1,100 |
|
The carrying value of these long-term notes was $1.727$1.112 billion, and the Company recognized a loss on this debt extinguishment of $42$57 million, which was recorded in December 2016June 2019 as Other income (expense), net, on the Company’s consolidated statements of income.
Third Quarter Fiscal Year 2017 Debt-Related Transactions
In connection with the Company's agreement to acquire Bard, as previously discussed in Note 9, the Company's capital structure was impacted in the third quarter by the debt-related transactions discussed below.
The Company entered into a three-year senior unsecured term loan facility of $2.25 billion. The proceeds from this facility may only be used to fund a portion of the cash consideration for the Bard acquisition, as well as the fees and expenses incurred in connection with this acquisition, which is expected to close in the fourth calendar quarter of 2017.
The Company also entered into a five-year senior unsecured revolving credit facility that will provide borrowing of up to $2.25 billion when the facility becomes effective upon the closing of the Bard acquisition. The facility, which will expire in May 2022, will replace the syndicated credit facility the Company currently has in place, as discussed above. The Company intends to use the new revolving facility to fund general corporate needs and to redeem, repurchase or defease certain of Bard's outstanding senior unsecured notes that will be assumed upon the closing of the acquisition.
The Company issued senior unsecured U.S. notes with an aggregate principal amount of $9.675 billion. If the Company's acquisition of Bard does not close by April 23, 2018, or if the agreement to acquire Bard is terminated prior to this date, the Company will be required to redeem all of the senior unsecured U.S. notes issued as detailed above, except for the notes which are due in 2019. The notes would be redeemed at a special mandatory redemption price equal to 101% of their aggregate principal amount, plus accrued and unpaid interest to, but excluding, the redemption date.
The Company issued Euro-denominated debt consisting of 700 million euros of 0.368% Notes due June 6, 2019.
The Company redeemed all or a portion of the aggregate principal amounts of certain of its long-term senior notes outstanding, totaling $1.717 billion, at an aggregate market price of $1.776 billion. The carrying value of these long-term notes was $1.745 billion and the Company recognized a loss on this debt extinguishment of $31 million, which was recorded in June 2017 as Other income (expense), net, on the Company’s consolidated statements of income.
Notes to Consolidated Financial Statements — (Continued)
Becton, Dickinson and Company
Upon securingIn September 2019, the permanent financing arrangements discussed above,Company redeemed an agreement for $15.7 billionaggregate principal amount of fully committed bridge financing that was entered into concurrently with$825 million of its outstanding 2.675% notes due December 15, 2019. Based upon the execution$825 million carrying value of the agreementnotes redeemed and the $826 million the Company paid to acquire Bard was terminated.redeem the aggregate principal amount of the notes, the Company recorded a loss on this debt extinguishment transaction in the fourth quarter of fiscal year 2019 of $1 million as Other income (expense), net, on its consolidated statements of income.
Also in2018 Debt-Related Transactions
In connection with the Company's agreement to acquireacquisition of Bard, the Company commenced offers to exchangeexchanged certain outstanding notes issued by Bard for a like-amount of new notes to be issued by the Company. The exchange offers, arewhich were conditioned upon the closing of the Bard acquisition, and the expiration of these offers will be extended until the acquisition closes.expired on December 29, 2017. The aggregate principal amounts of Bard notes which have beenwere validly tendered for notes issued by the Company since the offers were commenced in May are provided below.
|
| | | | | | | | |
| (Millions of dollars) | | | | |
| Interest Rate and Maturity | | Aggregate Principal Amount | | Principal Amount Accepted for Exchange |
| 4.400% Notes due January 15, 2021 | | $ | 500 |
| | $ | 432 |
|
| 3.000% Notes due May 15, 2026 | | 500 |
| | 470 |
|
| 6.700% Notes due December 1, 2026 | | 150 |
| | 137 |
|
| Total | | $ | 1,150 |
| | $ | 1,039 |
|
This exchange transaction was accounted for as a modification of the assumed debt instruments. Following the exchange of the notes, the aggregate principal amount of Bard notes that remained outstanding after settlement of the exchange transaction was $111 million.
In January 2018, the Company commenced an offer to repurchase any and all of the outstanding 3.000% Notes due May 15, 2026 that were issued as a result of the exchange transaction discussed above. Under the terms of the repurchase offer, holders were entitled to receive cash equal to 101% of the principal amount of notes validly tendered, plus accrued and unpaid interest, if any, to the date of purchase. The offer to repurchase the 3.000% Notes expired on March 1, 2018 and a total of $461 million aggregate principal amount of notes were validly tendered at a market price of $465 million. Based upon the carrying value of $452 million, the Company recorded a loss relating to this debt extinguishment in the second quarter of fiscal year 2018 of $13 million as Other income (expense), net, on its consolidated statements of income.
During the second quarter of fiscal year 2018, the Company issued Euro-denominated debt consisting of 300 million Euros ($370 million) of 0.368% notes due June 6, 2019 under an indenture pursuant to which the Company previously issued, in the third quarter of fiscal year 2017, 0.368% notes due June 6, 2019. Also in the second quarter of fiscal year 2018, the Company issued $1 billion of floating rate senior unsecured U.S. notes due December 29, 2020. The Company used the net proceeds from these long-term debt offerings to repay portions of the balances outstanding on its term loan and revolving credit facilities, which are discussed above, as well as accrued interest, related premiums, fees and expenses related to these repaid amounts.
In June 2018, the Company redeemed all of the 4.400% Notes due January 15, 2021 and 3.000% Notes due May 15, 2026 which were issued by Bard and that remained outstanding after the exchange offer discussed above. Also in June 2018, the Company redeemed all of the 4.400% Notes due January 15, 2021 which were issued by the Company upon the exchange offer, as well as all of the 3.000% Notes due May 15, 2026 issued by the Company which remained outstanding after the repurchase offer also discussed above. The total aggregate principal amount of notes redeemed was $539 million. Based upon the $556 million carrying value of these notes and the $559 million the Company paid to redeem the aggregate principal amount of the notes, the Company recorded a loss on these debt extinguishment transactions in the third quarter of fiscal year 2018 of $3 million as Other income (expense), net, on its consolidated statements of income.
Notes to Consolidated Financial Statements — (Continued)
Becton, Dickinson and Company
|
| | | | | | | |
| (Millions of dollars) | Aggregate Principal Amount | | Principal Amount Accepted for Exchange |
| 4.400% Notes due January 15, 2021 | $ | 500 |
| | $ | 428 |
|
| 3.000% Notes due May 15, 2026 | 500 |
| | 470 |
|
| 6.700% Notes due December 1, 2026 | 150 |
| | 137 |
|
| Total | $ | 1,150 |
| | $ | 1,035 |
|
During the third quarter of fiscal year 2018, the Company issued Euro-denominated debt consisting of 300 million Euros ($354 million) of 1.401% notes due May 24, 2023. Also in the third quarter of fiscal year 2018, the Company issued British Pound-denominated debt of 250 million British Pounds ($337.5 million) of 3.02% notes due May 24, 2025. The Company used the net proceeds from these long-term debt offerings to redeem certain notes in the third quarter and to repay a portion of the balance outstanding on its term loan, as well as accrued interest, related premiums, fees and expenses related to this repaid amount.
Capitalized interest
The Company capitalizes interest costs as a component of the cost of construction in progress. A summary of interest costs and payments for the years ended September 30 is as follows:
|
| | | | | | | | | | | |
| (Millions of dollars) | 2019 | | 2018 | | 2017 |
| Charged to operations | $ | 639 |
| | $ | 706 |
| | $ | 521 |
|
| Capitalized | 44 |
| | 42 |
| | 32 |
|
| Total interest costs | $ | 683 |
| | $ | 748 |
| | $ | 553 |
|
| Interest paid, net of amounts capitalized | $ | 658 |
| | $ | 674 |
| | $ | 435 |
|
|
| | | | | | | | | | | |
| (Millions of dollars) | 2017 | | 2016 | | 2015 |
| Charged to operations | $ | 521 |
| | $ | 388 |
| | $ | 371 |
|
| Capitalized | 32 |
| | 30 |
| | 30 |
|
| Total interest costs | $ | 553 |
| | $ | 418 |
| | $ | 401 |
|
| Interest paid, net of amounts capitalized | $ | 435 |
| | $ | 392 |
| | $ | 313 |
|
Note 17 — Income Taxes
Note 16 —Provision for Income Taxes
The provision for income taxes the years ended September 30 consisted of:
|
| | | | | | | | | | | |
| (Millions of dollars) | 2019 | | 2018 | | 2017 |
| Current: | | | | | |
| Federal | $ | 235 |
| | $ | 665 |
| | $ | (230 | ) |
| State and local, including Puerto Rico | 41 |
| | 73 |
| | (20 | ) |
| Foreign | 300 |
| | 387 |
| | 200 |
|
| | $ | 576 |
| | $ | 1,124 |
| | $ | (50 | ) |
| Deferred: | | | | | |
| Domestic | $ | (566 | ) | | $ | (201 | ) | | $ | (64 | ) |
| Foreign | (67 | ) | | (61 | ) | | (10 | ) |
| | (633 | ) | | (262 | ) | | (74 | ) |
| Income tax (benefit) provision | $ | (57 | ) | | $ | 862 |
| | $ | (124 | ) |
|
| | | | | | | | | | | |
| (Millions of dollars) | 2017 | | 2016 | | 2015 |
| Current: | | | | | |
| Federal | $ | (230 | ) | | $ | 312 |
| | $ | 50 |
|
| State and local, including Puerto Rico | (20 | ) | | 17 |
| | 15 |
|
| Foreign | 200 |
| | 286 |
| | 252 |
|
| | $ | (50 | ) | | $ | 616 |
| | $ | 318 |
|
| Deferred: | | | | | |
| Domestic | $ | (64 | ) | | $ | (441 | ) | | $ | (238 | ) |
| Foreign | (10 | ) | | (78 | ) | | (37 | ) |
| | (74 | ) | | (519 | ) | | (274 | ) |
| Income tax provision | $ | (124 | ) | | $ | 97 |
| | $ | 44 |
|
|
| | | | | | | | | | | |
| (Millions of dollars) | 2019 | | 2018 | | 2017 |
| Domestic, including Puerto Rico | $ | 1,340 |
| | $ | (135 | ) | | $ | (386 | ) |
| Foreign | (164 | ) | | 1,308 |
| | 1,362 |
|
| Income Before Income Taxes | $ | 1,176 |
| | $ | 1,173 |
| | $ | 976 |
|
U.S. tax legislation, commonly referred to as the Tax Cuts and Jobs Act (the "Act"), was enacted on December 22, 2017. The Act reduced the U.S. federal corporate tax rate from 35% to 21%, required companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred, and created new taxes on certain foreign-sourced earnings.
During fiscal year 2019, the Company finalized its accounting for the income tax effects of the Act, and all adjustments related to finalization of its calculations were included as a component of Income tax (benefit) provision in fiscal year 2019. The Company recognized additional tax benefit of $50 million and additional tax cost of $640 million in 2019 and 2018, respectively, as a result of this legislation. These amounts are reflected in the Company's consolidated statements of income within Income tax (benefit) provision.
Notes to Consolidated Financial Statements — (Continued)
Becton, Dickinson and Company
The componentsAct subjects a U.S. shareholder to tax on global intangible low-taxed income ("GILTI") earned by certain foreign subsidiaries. The Company has elected to account for its GILTI tax due as a period expense in the year the tax is incurred.
The Company has analyzed its U.S. cash needs in conjunction with the Internal Revenue Service ("IRS") and Treasury Regulations that were released during fiscal year 2019 and has concluded that it will assert indefinite reinvestment for all historical unremitted foreign earnings as ofIncome Before Income Taxes for the years ended September 30, consisted of:2019. As a result of the change in assertion, the deferred tax liability recorded in connection with the hypothetical repatriation of the unremitted foreign earnings was reversed during the fourth quarter of fiscal 2019. The change in assertion resulted in a total tax benefit of $138 million, of which $67 million is related to the tax legislation benefit previously recorded, and is included as a component of Income tax (benefit) provision in fiscal 2019.
|
| | | | | | | | | | | |
| (Millions of dollars) | 2017 | | 2016 | | 2015 |
| Domestic, including Puerto Rico | $ | (386 | ) | | $ | (232 | ) | | $ | (408 | ) |
| Foreign | 1,362 |
| | 1,306 |
| | 1,147 |
|
| Income Before Income Taxes | $ | 976 |
| | $ | 1,074 |
| | $ | 739 |
|
The table below summarizes the gross amounts of unrecognized tax benefits without regard to reduction in tax liabilities or additions to deferred tax assets and liabilities if such unrecognized tax benefits were settled. The Company believes it is reasonably possible that certain auditsthe amount of unrecognized benefits will close withinchange due to one or more of the following events in the next twelve months but no significant increasesmonths: expiring statutes, audit activity, tax payments, other activity, or decreasesfinal decisions in matters that are the amountsubject of the unrecognized tax benefits are expected to result.controversy in various taxing jurisdictions in which we operate.
|
| | | | | | | | | | | |
| (Millions of dollars) | 2019 | | 2018 | | 2017 |
| Balance at October 1 | $ | 543 |
| | $ | 349 |
| | $ | 469 |
|
| Increase due to acquisitions | 3 |
| | 140 |
| | — |
|
| Increase due to current year tax positions | 11 |
| | 43 |
| | 41 |
|
| Increase due to prior year tax positions | 6 |
| | 43 |
| | 19 |
|
| Decreases due to prior year tax positions | (39 | ) | | — |
| | (30 | ) |
| Decrease due to settlements with tax authorities | — |
| | (29 | ) | | (145 | ) |
| Decrease due to lapse of statute of limitations | (5 | ) | | (3 | ) | | (5 | ) |
| Balance at September 30 | $ | 519 |
| | $ | 543 |
| | $ | 349 |
|
|
| | | | | | | | | | | |
| (Millions of dollars) | 2017 | | 2016 | | 2015 |
| Balance at October 1 | $ | 469 |
| | $ | 593 |
| | $ | 206 |
|
| Increase due to acquisitions | — |
| | — |
| | 326 |
|
| Increase due to current year tax positions | 41 |
| | 81 |
| | 62 |
|
| Increase due to prior year tax positions | 19 |
| | 10 |
| | 14 |
|
| Decreases due to prior year tax positions | (30 | ) | | (3 | ) | | (2 | ) |
| Decrease due to settlements with tax authorities | (145 | ) | | (147 | ) | | (10 | ) |
| Decrease due to lapse of statute of limitations | (5 | ) | | (65 | ) | | (3 | ) |
| Balance at September 30 | $ | 349 |
| | $ | 469 |
| | $ | 593 |
|
Upon the Company's acquisition of CareFusion in 2015, the Company became a party to a tax matters agreement with Cardinal Health resulting from Cardinal Health's spin-off of CareFusion in fiscal year 2010. Under the tax matters agreement, the Company is obligated to indemnify Cardinal Health for certain tax exposures and transaction taxes prior to CareFusion’s spin-off from Cardinal Health. The indemnification payable is approximately $134$156 million at September 30, 20172019 and is included in Deferred Income Taxes and Other on the consolidated balance sheet.
At September 30, 2017, 20162019, 2018 and 2015,2017, there are $415$624 million, $478$632 million and $620$415 million of unrecognized tax benefits that if recognized, would affect the effective tax rate. During the fiscal years ended September 30, 2017, 20162019, 2018 and 2015,2017, the Company reported interest and penalties associated with unrecognized tax benefits of $57$26 million, $(38)$20 million and $5$57 million on the consolidated statements of income as a component of Income tax (benefit) provision.
The Company conducts business and files tax returns in numerous countries and currently has tax audits in progress in a number of tax jurisdictions. While theThe IRS has completed its audit for the BD legacy fiscal year 2014 and combined company fiscal year 2016,for the BD business prior to its acquisition of CareFusion. The IRS has recently commenced thealso completed its audit for fiscal years 2016 and 2017 for the combined BD and CareFusion legacy fiscal year 2014 and short period 2015.business. For the BD legacy business, all years are effectively settled with the exception of 2015 for which the Company believes it is adequately reserved for any potential exposures. The IRS is currently examining the CareFusion legacy fiscal year 2014 and short period 2015. With the exception of the CareFusion legacy fiscal year 2010 audit, all other periods are at various stages of appeals or protests. With regard to Bard, all examinations have been completed through calendar year 2014. The IRS has commenced the examination of calendar years 2015, 2016 and 2017. For the Company’s other major tax jurisdictions where itthe Company conducts business, the Company’s tax years are generally open after 2011.2013.
Notes to Consolidated Financial Statements — (Continued)
Becton, Dickinson and Company
Deferred Income Taxes
Deferred income taxes at September 30 consisted of:
|
| | | | | | | | | | | | | | | |
| | 2019 | | 2018 |
| (Millions of dollars) | Assets | | Liabilities | | Assets | | Liabilities |
| Compensation and benefits | $ | 513 |
| | $ | — |
| | $ | 458 |
| | $ | — |
|
| Property and equipment | — |
| | 255 |
| | — |
| | 253 |
|
| Intangibles | — |
| | 2,624 |
| | — |
| | 2,948 |
|
| Loss and credit carryforwards | 1,327 |
| | — |
| | 1,290 |
| | — |
|
| Other | 634 |
| | 189 |
| | 707 |
| | 384 |
|
| | 2,474 |
| | 3,068 |
| | 2,455 |
| | 3,585 |
|
| Valuation allowance | (1,240 | ) | | — |
| | (1,181 | ) | | — |
|
| Net (a) | $ | 1,234 |
| | $ | 3,068 |
| | $ | 1,275 |
| | $ | 3,585 |
|
|
| | | | | | | | | | | | | | | |
| | 2017 | | 2016 |
| (Millions of dollars) | Assets | | Liabilities | | Assets | | Liabilities |
| Compensation and benefits | $ | 618 |
| | $ | — |
| | $ | 720 |
| | $ | — |
|
| Property and equipment | — |
| | 244 |
| | — |
| | 164 |
|
| Intangibles | — |
| | 1,584 |
| | — |
| | 1,571 |
|
| Loss and credit carryforwards | 1,098 |
| | — |
| | 1,101 |
| | — |
|
| Other | 531 |
| | 164 |
| | 783 |
| | 664 |
|
| | 2,247 |
| | 1,992 |
| | 2,604 |
| | 2,399 |
|
| Valuation allowance | (1,032 | ) | | — |
| | (997 | ) | | — |
|
| Net (A) | $ | 1,216 |
| | $ | 1,992 |
| | $ | 1,606 |
| | $ | 2,399 |
|
(A)Net deferred tax assets are included in Other Assets and net deferred tax liabilities are included in Deferred Income Taxes and Other. | |
| (a) | Net deferred tax assets are included in Other Assets and net deferred tax liabilities are included in Deferred Income Taxes and Other on the consolidated balance sheets. |
Deferred tax assets and liabilities are netted on the balance sheet by separate tax jurisdictions. Deferred taxes arehave not been provided on undistributed earnings of foreign subsidiaries that are indefinitely reinvested. Atas of September 30, 2017,2019 since the cumulativedetermination of the total amount of such undistributed earnings indefinitely reinvested outside the United States was $9.6 billion. Determining theunrecognized deferred tax liability that would arise if these earnings were remitted is not practicable. Deferred taxes are provided for earnings outside the United States when those earnings are not considered indefinitely reinvested.
Generally, deferred tax assets have been established as a result of net operating losses and credit carryforwards with expiration dates from 20182020 to an unlimited expiration date. Valuation allowances have been established as a result of an evaluation of the uncertainty associated with the realization of certain deferred tax assets on these losses and credit carryforwards. The valuation allowance for 2017at September 30, 2019 is primarily the result of foreign losses due to the Company’s global re-organization of its foreign entities and these generally have no expiration date. Valuation allowances are also maintained with respect to deferred tax assets for certain federal and state carryforwards that may not be realized and that principally expire in 2021.2022.
Tax Rate Reconciliation
A reconciliation of the federal statutory tax rate to the Company’s effective income tax rate was as follows:
|
| | | | | | | | |
| | 2019 | | 2018 | | 2017 |
| Federal statutory tax rate | 21.0 | % | | 24.5 | % | | 35.0 | % |
| New U.S. tax legislation (see discussion above) | (4.3 | ) | | 54.6 |
| | — |
|
| State and local income taxes, net of federal tax benefit | 0.1 |
| | 0.8 |
| | (2.6 | ) |
| Effect of foreign and Puerto Rico (losses) earnings and foreign tax credits | (12.2 | ) | | 7.3 |
| | (40.8 | ) |
| Effect of Research Credits and FDII/Domestic Production Activities | (3.3 | ) | | (2.8 | ) | | (2.7 | ) |
| Effect of change in accounting for excess tax benefit relating to share-based compensation (see Note 2) | (4.7 | ) | | (6.7 | ) | | (7.9 | ) |
| Effect of gain on divestitures | (2.0 | ) | | 1.3 |
| | — |
|
| Effect of uncertain tax position | — |
| | 3.3 |
| | — |
|
| Effect of valuation allowance release | — |
| | (4.8 | ) | | — |
|
| Effect of application for change in accounting method | — |
| | (4.5 | ) | | — |
|
| Effect of nondeductible compensation | — |
| | 1.6 |
| | — |
|
| Other, net | 0.6 |
| | (1.1 | ) | | 6.3 |
|
| Effective income tax rate | (4.8 | )% | | 73.5 | % | | (12.7 | )% |
Notes to Consolidated Financial Statements — (Continued)
Becton, Dickinson and Company
|
| | | | | | | | |
| | 2017 | | 2016 | | 2015 |
| Federal statutory tax rate | 35.0 | % | | 35.0 | % | | 35.0 | % |
| State and local income taxes, net of federal tax benefit | (2.6 | ) | | 1.5 |
| | (3.6 | ) |
| Effect of foreign and Puerto Rico earnings and foreign tax credits | (40.8 | ) | | (23.7 | ) | | (24.5 | ) |
| Effect of Research Credits and Domestic Production Activities | (2.7 | ) | | (4.4 | ) | | (1.6 | ) |
| Effect of change in accounting for excess tax benefit relating to share-based compensation (see Note 2) | (7.9 | ) | | — |
| | — |
|
| Other, net | 6.3 |
| | 0.7 |
| | 0.6 |
|
| Effective income tax rate | (12.7 | )% | | 9.1 | % | | 5.9 | % |
The Company has reassessed its permanent reinvestment assertion that was in effect as of September 30, 2018 in light of the IRS and Treasury Regulations that were released in June of 2019 and the impact of certain transactions that were executed in the fourth quarter of fiscal 2019. The Company changed its assertion such that the Company is now permanently reinvested with respect to all of its historical foreign earnings as of September 30, 2019. The Company recorded a benefit of $138 million within Income tax (benefit) provision in 2019 as a result of this change in its permanent reinvestment assertion.
Tax Holidays and Payments
The approximate amounts of tax reductions related to tax holidays in various countries in which the Company does business were $144$157 million, $121$107 million and $103$146 million, in 2017, 20162019, 2018 and 2015,2017, respectively. The benefit of the tax holiday on diluted earnings per share was approximately $0.64, $0.56,$0.57, $0.40 and $0.48$0.65 for fiscal years 2017, 20162019, 2018 and 2015,2017, respectively. The tax holidays expire at various dates through 2026.2028.
The Company made income tax payments, net of refunds, of $536 million in 2019, $235 million in 2018 and $265 million in 2017, $218 million in 2016 and $240 million in 2015.2017.
Notes to Consolidated Financial Statements — (Continued)
Becton, Dickinson and Company
Note 1718 — Sales-Type Leases and Financing Receivables
In April 2017, in conjunction with the implementation of a new “go-to-market” business model for the Company's U.S. dispensing business within the Medication Management Solutions (“MMS”) unit of the Medical segment, the Company amended the terms of certain customer leases for dispensing equipment within the MMS unit. The modification provided customers the ability to reduce its dispensing asset base via a return provision, resulting in a more flexible lease term. Prior to the modification, these leases were accounted for as sales-type leases in accordance with Accounting Standards Codification Topic 840, "Leases", as the non-cancellable lease term of 5 years exceeded 75% of the equipment’s estimated useful life and the present value of the minimum lease payments exceeded 90% of the equipment’s fair value. As a result of the lease modification, the Company was required to reassess the classification of the leases due to the amended lease term. Accordingly, most amended lease contracts were classified as operating leases beginning in April 2017. The change in lease classification resulted in a pre-tax charge to earnings in fiscal year 2017 of $748 million, which was recorded in Other operating (income) expense, net, relating to the derecognition of the net investment in sales-type leases of $1.065 billion, partially offset by the recognition of the underlying leased assets, as Property, Plant and Equipment, Net on the Company’s balance sheet, as of the effective date of $317 million. net. Beginning April 1, 2017, revenue associated with these modified contracts ishas been recognized on a straight-line basis over the remaining lease term, along with depreciation on the reinstated leased assets.
The Company's consolidated financial results in 20172019 and 2018 were not materially impacted by the financing receivables remaining subsequent to the lease modification discussed above.
Notes to Consolidated Financial Statements — (Continued)
Becton, Dickinson and Company
Note 1819 — Supplemental Financial Information
Other Income (Expense), Net
|
| | | | | | | | | | | |
| (Millions of dollars) | 2019 | | 2018 | | 2017 |
| Royalty income (a) | $ | 64 |
| | $ | 51 |
| | $ | — |
|
| Hurricane-related insurance proceeds | 35 |
| | — |
| | — |
|
| Vyaire Medical-related amounts and other income from divestitures (b) | 6 |
| | 288 |
| | (3 | ) |
| Other investment gains/losses | 18 |
| | 8 |
| | 3 |
|
| Net pension and postretirement benefit cost (c) | (2 | ) | | (13 | ) | | (44 | ) |
| Losses on undesignated foreign exchange derivatives, net | (23 | ) | | (14 | ) | | (11 | ) |
| Losses on debt extinguishment (d) | (59 | ) | | (16 | ) | | (73 | ) |
| Gains on previously held investments (e) | — |
| | — |
| | 24 |
|
| Other | 4 |
| | — |
| | 3 |
|
| Other income (expense), net | $ | 43 |
| | $ | 305 |
| | $ | (101 | ) |
| |
| (a) | Primarily represents the royalty income stream acquired in the Bard transaction, net of non-cash purchase accounting amortization. The royalty income stream was previously reported by Bard as revenues. |
| |
| (b) | The amount in 2019 represents income from transition services agreements (“TSA”) related to the Company’s 2018 and 2017 divestitures. The amount in 2018 includes the gain on the sale of the remaining ownership interest in its former Respiratory Solutions business and subsequent TSA income, net of the Company's share of equity investee results in the business. The amount in 2017 represents the Company’s share of equity investee results in the former business, net of TSA income. Additional disclosures regarding the Company’s divestiture transactions are provided in Note 11. |
| |
| (c) | Represents all components of the Company’s net periodic pension and postretirement benefit costs, aside from service cost, as a result of the adoption of an accounting standard as further discussed in Note 2. |
| |
| (d) | Represents losses recognized upon the extinguishment of certain senior notes, as further discussed in Note 16. |
| |
| (e) | Represents an acquisition-date accounting gain related to a previously-held equity method investment in an entity the Company acquired. |
|
| | | | | | | | | | | |
| (Millions of dollars) | 2017 | | 2016 | | 2015 |
| Losses on debt extinguishment | $ | (73 | ) | | $ | — |
| | $ | — |
|
| Share of Vyaire Medical venture results, net of income from transition services agreements | (3 | ) | | — |
| | — |
|
| Other equity investment income | 3 |
| | 8 |
| | 9 |
|
| Losses on undesignated foreign exchange derivatives, net | (11 | ) | | (3 | ) | | — |
|
| Gains on previously held investments | 24 |
| | — |
| | 9 |
|
| Other | 3 |
| | 7 |
| | 3 |
|
| Other (expense) income, net | $ | (57 | ) | | $ | 11 |
| | $ | 21 |
|
Additional disclosures regarding the losses recognized on the extinguishment of debt are provided in Note 15. Additional disclosures regarding the Company's divestiture of the Respiratory Solutions business and the Vyaire Medical venture formed with this business are provided in Note 10. The Company recognized an acquisition-date accounting gain related to a previously-held equity method investment in an entity that the Company acquired during the third quarter of fiscal year 2017. The Company also recognized such a gain in 2015, when it acquired another entity in which an equity method investment was held prior to the acquisition date.
Notes to Consolidated Financial Statements — (Continued)
Becton, Dickinson and Company
Trade Receivables, Net
The amounts recognized in 2017, 20162019, 2018 and 20152017 relating to allowances for doubtful accounts and cash discounts, which are netted against trade receivables, are provided in the following table:
| | | (Millions of dollars) | Allowance for Doubtful Accounts | | Allowance for Cash Discounts | | Total | Allowance for Doubtful Accounts | | Allowance for Cash Discounts | | Total |
| Balance at September 30, 2014 | $ | 30 |
| | $ | 12 |
| | $ | 42 |
| |
| Additions charged to costs and expenses | 33 |
| | 47 |
| | 80 |
| |
| Deductions and other | (11 | ) | (A) | (50 | ) | | (61 | ) | |
| Balance at September 30, 2015 | $ | 53 |
| | $ | 9 |
| | $ | 62 |
| |
| Additions charged to costs and expenses | 23 |
| | 37 |
| | 60 |
| |
| Deductions and other | (14 | ) | (A) | (40 | ) | | (55 | ) | |
| Balance at September 30, 2016 | $ | 61 |
| | $ | 6 |
| | $ | 67 |
| $ | 61 |
| | $ | 6 |
| | $ | 67 |
|
| Additions charged to costs and expenses | 25 |
| | 43 |
| | 68 |
| 25 |
| | 43 |
| | 68 |
|
| Deductions and other | (32 | ) | (A) | (45 | ) | | (76 | ) | (32 | ) | (a) | (45 | ) | | (76 | ) |
| Balance at September 30, 2017 | $ | 54 |
| | $ | 4 |
| | $ | 58 |
| $ | 54 |
| | $ | 4 |
| | $ | 58 |
|
| Additions charged to costs and expenses | | 31 |
| | 58 |
| | 89 |
|
| Deductions and other | | (11 | ) | (a) | (50 | ) | | (61 | ) |
| Balance at September 30, 2018 | | $ | 75 |
| | $ | 12 |
| | $ | 86 |
|
| Additions charged to costs and expenses | | 31 |
| | 94 |
| | 125 |
|
| Deductions and other | | (31 | ) | (a) | (92 | ) | | (123 | ) |
| Balance at September 30, 2019 | | $ | 75 |
| | $ | 13 |
| | $ | 88 |
|
| |
(A)(a) | Accounts written off. |
Inventories
Inventories at September 30 consisted of: |
| | | | | | | |
| (Millions of dollars) | 2019 | | 2018 |
| Materials | $ | 544 |
| | $ | 510 |
|
| Work in process | 318 |
| | 297 |
|
| Finished products | 1,717 |
| | 1,644 |
|
| | $ | 2,579 |
| | $ | 2,451 |
|
|
| | | | | | | |
| (Millions of dollars) | 2017 | | 2016 |
| Materials | $ | 313 |
| | $ | 316 |
|
| Work in process | 271 |
| | 274 |
|
| Finished products | 1,234 |
| | 1,129 |
|
| | $ | 1,818 |
| | $ | 1,719 |
|
Property, Plant and Equipment, Net
Property, Plant and Equipment, Net at September 30 consisted of:
|
| | | | | | | |
| (Millions of dollars) | 2019 | | 2018 |
| Land | $ | 164 |
| | $ | 173 |
|
| Buildings | 2,842 |
| | 2,724 |
|
| Machinery, equipment and fixtures | 7,932 |
| | 7,405 |
|
| Leasehold improvements | 190 |
| | 182 |
|
| | 11,128 |
| | 10,485 |
|
| Less accumulated depreciation and amortization | 5,469 |
| | 5,111 |
|
| | $ | 5,659 |
| | $ | 5,375 |
|
|
| | | | | | | |
| (Millions of dollars) | 2017 | | 2016 |
| Land | $ | 146 |
| | $ | 151 |
|
| Buildings | 2,496 |
| | 2,397 |
|
| Machinery, equipment and fixtures | 6,584 |
| | 5,749 |
|
| Leasehold improvements | 163 |
| | 121 |
|
| | 9,389 |
| | 8,419 |
|
| Less accumulated depreciation and amortization | 4,752 |
| | 4,518 |
|
| | $ | 4,638 |
| | $ | 3,901 |
|
The increase in Machinery, equipment and fixtures included $317 million of assets recognized as Property, Plant and Equipment, Net on the Company’s balance sheet, resulting from a modification to the Company's dispensing equipment lease contracts with customers. Additional disclosures regarding this modification are provided in Note 17.
Becton, Dickinson and Company
SUPPLEMENTARY QUARTERLY DATA (UNAUDITED)
| | | Millions of dollars, except per share amounts | | 2017 | | 2019 |
| | | 1st | | 2nd | | 3rd | | 4th | | Year | | 1st | | 2nd | | 3rd | | 4th | | Year (a) |
| Revenues | | $ | 2,922 |
| | $ | 2,969 |
| | $ | 3,035 |
| | $ | 3,166 |
| | $ | 12,093 |
| | $ | 4,160 |
| | $ | 4,195 |
| | $ | 4,350 |
| | $ | 4,584 |
| | $ | 17,290 |
|
| Gross Profit | | 1,452 |
| | 1,432 |
| | 1,504 |
| | 1,554 |
| | 5,942 |
| | 1,974 |
| | 1,974 |
| | 2,074 |
| | 2,266 |
| | 8,288 |
|
| Net Income (Loss) | | 562 |
| | 344 |
| | (132 | ) | | 327 |
| | 1,100 |
| |
| Earnings per Share: | | | | | | | | | | | |
| Net Income | | | 599 |
| | 20 |
| | 451 |
| | 163 |
| | 1,233 |
|
| Earnings (loss) per Share: | | | | | | | | | | | |
| Basic | | 2.64 |
| | 1.61 |
| | (0.75 | ) | | 1.27 |
| | 4.70 |
| | 2.09 |
| | (0.07 | ) | | 1.53 |
| | 0.46 |
| | 4.01 |
|
| Diluted | | 2.58 |
| | 1.58 |
| | (0.75 | ) | | 1.24 |
| | 4.60 |
| | 2.05 |
| | (0.07 | ) | | 1.51 |
| | 0.45 |
| | 3.94 |
|
|
| | | | | | | | | | | | | | | | | | | | |
| | | 2018 |
| | | 1st | | 2nd | | 3rd | | 4th | | Year (a) |
| Revenues | | $ | 3,080 |
| | $ | 4,222 |
| | $ | 4,278 |
| | $ | 4,402 |
| | $ | 15,983 |
|
| Gross Profit | | 1,553 |
| | 1,606 |
| | 2,017 |
| | 2,094 |
| | 7,269 |
|
| Net (Loss) Income | | (136 | ) | | (12 | ) | | 594 |
| | (135 | ) | | 311 |
|
| (Loss) earnings per Share: (b) | | | | | | | | | | |
| Basic | | (0.76 | ) | | (0.19 | ) | | 2.08 |
| | (0.64 | ) | | 0.62 |
|
| Diluted | | (0.76 | ) | | (0.19 | ) | | 2.03 |
| | (0.64 | ) | | 0.60 |
|
|
| | | | | | | | | | | | | | | | | | | | |
| | | 2016 |
| | | 1st | | 2nd | | 3rd | | 4th | | Year |
| Revenues | | $ | 2,986 |
| | $ | 3,067 |
| | $ | 3,198 |
| | $ | 3,231 |
| | $ | 12,483 |
|
| Gross Profit | | 1,408 |
| | 1,484 |
| | 1,547 |
| | 1,552 |
| | 5,991 |
|
| Net Income | | 229 |
| | 338 |
| | 390 |
| | 19 |
| | 976 |
|
| Earnings per Share: | | | | | | | | | | |
| Basic | | 1.08 |
| | 1.59 |
| | 1.83 |
| | 0.09 |
| | 4.59 |
|
| Diluted | | 1.06 |
| | 1.56 |
| | 1.80 |
| | 0.09 |
| | 4.49 |
|
Certain quarterly amounts may not add to the year-to-date totals due to rounding. Earnings per share amounts are calculated from the underlying whole-dollar amounts. As of May 2017, the weighted average common shares used in the computations of basic and diluted earnings per share reflect shares issued in anticipation of the pending acquisition of Bard. Additional disclosures regarding this issuance of shares and the pending acquisition are provided in Notes 3 and 9.
| |
| (a) | Quarterly amounts may not add to the year-to-date totals due to rounding. Earnings per share amounts are calculated from the underlying whole-dollar amounts. |
| |
| (b) | The sums of basic and diluted earnings per share for the quarters of 2018 do not equal year-to-date amounts due to the impacts of shares issued during this fiscal year, in connection with the Bard acquisition, on the weighted average common shares included in the calculations of basic and diluted earnings per share. Additional disclosures regarding shares issued related to the Bard acquisition are provided in Notes 3 and 10. |
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.
None.
Item 9A. Controls and Procedures.
An evaluation was conducted by BD’s management, with the participation of BD’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of BD’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934) as of September 30, 2017.2019. 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 September 30, 20172019 identified in connection with the above-referenced evaluation that have materially affected, or are reasonably likely to materially affect, BD’s internal control over financial reporting.
Management’s Report on Internal Control Over Financial Reporting and the Report of Independent Registered Public Accounting Firm are contained in Item 8,8. Financial Statements and Supplementary Data, and are incorporated herein by reference.
Item 9B. Other Information.
None.As previously reported, the Board of Directors elected Thomas E. Polen to serve as BD’s Chief Executive Officer and President, effective upon the conclusion of BD’s 2020 annual meeting of shareholders. Upon assuming the role of Chief Executive Officer and President, Mr. Polen’s base salary will increase to $1,150,000 and his annual incentive award target will increase to 150% of base salary.
PART III
Item 10. Directors, Executive Officers and Corporate Governance.
The information relating to directors and the Audit Committee of the BD Board of Directors required by this item will be contained under the captions “Proposal 1. Election of Directors” and “Board of Directors - Committee Membershipmembership and Functionfunction - Audit Committee” in a definitive proxy statement involving the election of directors, which the registrant will file with the SEC not later than 120 days after September 30, 20172019 (the “2018“2020 Proxy Statement”), and such information is incorporated herein by reference.
The information relating to executive officers required by this item is included herein in Part I under the caption “Executive Officers of the Registrant.“Information about our Executive Officers.”
Certain other information required by this item will be contained under the captions “Ownership of BD Common Stock - Section 16(a) beneficial ownership reporting compliance”Stock”, “Corporate Governance - Director nomination process" and Corporate"Corporate Governance - Code of Conduct” in BD’s 20182020 Proxy Statement, and such information is incorporated herein by reference.
Item 11. Executive Compensation.
The information required by this item will be contained under the captions “Board of Directors - Non‑Management Directors’ Compensation,” “Compensation Discussion and Analysis,” “Report of the Compensation and Management Development Committee,” “Compensation of Named Executive Officers” and, “Board of Directors - Committee membershipNon‑management directors’ compensation,” and function - Compensation and Management Development Committee”“CEO Pay Ratio" in BD’s 20182020 Proxy Statement, and such information is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The information required by this item will be contained under the caption “Ownership of BD Common Stock” and "Proposal 4. Approval of Amendment to 2004 Plan" in BD’s 20182020 Proxy Statement, and such information is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
The information required by this item will be contained under the caption “Corporate Governance - Director Independence;independence; Policy Regarding Related Person Transactions”regarding related person transactions” in BD’s 20182020 Proxy Statement, and such information is incorporated herein by reference.
Item 14. Principal Accounting Fees and Services.
The information required by this item will be contained under the caption “Proposal 2. Ratification of Selection of Independent Registered Public Accounting Firm” in BD’s 20182020 Proxy Statement, and such information is incorporated herein by reference.
PART IV
Item 15. Exhibits, Financial Statement Schedules.
| |
| (a)(1) | Financial Statements |
The following consolidated financial statements of BD are included in Item 8 of this report:
Reports of Independent Registered Public Accounting Firm
Consolidated Statements of Income — Years ended September 30, 2017, 20162019, 2018 and 20152017
Consolidated Statements of Comprehensive Income — Years ended September 30, 2017, 20162019, 2018 and 20152017
Consolidated Balance Sheets — September 30, 20172019 and 20162018
Consolidated Statements of Cash Flows — Years ended September 30, 2017, 20162019, 2018 and 20152017
Notes to Consolidated Financial Statements
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| (2) | Financial Statement Schedules |
See Note 1819 to the Consolidated Financial Statements included in Item 8,8. Financial Statements and Supplementary Data.
See the Exhibit Index beginning on page 99 hereofbelow for a list of all management contracts, compensatory plans and arrangements required by this item, and all other Exhibits filed or incorporated by reference as a part of this report.
SIGNATURESItem 16. Form 10-K Summary
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
BECTON, DICKINSONAND COMPANY
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| | | |
| | | |
| By: | | /s/ GARY DEFAZIO
|
| | | Gary DeFazio |
| | | Senior Vice President and Corporate Secretary |
Dated: November 22, 2017
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on the 22nd day of November, 2017 by the following persons on behalf of the registrant and in the capacities indicated.
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| | |
Name | | Capacity |
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/S/ VINCENT A. FORLENZA
| | Chairman and Chief Executive Officer |
Vincent A. Forlenza | | (Principal Executive Officer) |
| | |
/S/ CHRISTOPHER R. REIDY
| | Executive Vice President, Chief Financial Officer |
Christopher R. Reidy | | and Chief Administrative Officer |
| | (Principal Financial Officer) |
| | |
/S/ JOHN GALLAGHER
| | Senior Vice President, Corporate Finance, |
John Gallagher | | Controller and Treasurer |
| | (Principal Accounting Officer) |
| | |
Basil L. Anderson* | | Director |
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Catherine M. Burzik* | | Director |
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R. Andrew Eckert* | | Director |
| | |
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Claire M. Fraser* | | Director |
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| | |
Christopher Jones* | | Director |
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Marshall O. Larsen* | | Director |
| | |
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Gary A. Mecklenburg* | | Director |
BD is not providing summary information.
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Name | | Capacity |
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| | |
James F. Orr* | | Director |
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Willard J. Overlock, Jr.* | | Director |
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Claire Pomeroy* | | Director |
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Rebecca W. Rimel* | | Director |
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Bertram L. Scott* | | Director |
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| *By: | /s/ GARY DEFAZIO
|
| | Gary DeFazio |
| | Attorney-in-fact |
EXHIBIT INDEX
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| | | | |
Exhibit Number | | Description | | Method of Filing |
| | Agreement and Plan of Merger, dated as of April 23, 2017, among C.R. Bard, Inc., Becton, Dickinson and Company and Lambda Corp. + | | Incorporated by reference to Exhibit 2.1 to the registrant’s Current Report on Form 8-K datedfiled on April 24, 2017. |
| | Amendment No. 1, dated July 28, 2017, to the Agreement and Plan of Merger, dated as of April 23, 2017, among C.R. Bard, Inc., Becton, Dickinson and Company and Lambda Corp. | | Incorporated by reference to Exhibit 2.1 to the registrant’s Current Report on Form 8-K datedfiled on July 28, 2017. |
| | Restated Certificate of Incorporation, dated as of January 29, 2013.30, 2019. | | Incorporated by reference to Exhibit 3(a)3 to the registrant’s Quarterly Report on Form 10-Q for the period ended Marchending December 31, 2013.2018. |
| | Certificate of Amendment of the Restated Certificate of Incorporation, filed with the State of New Jersey Department of Treasury and effective May 15, 2017. | | Incorporated by reference to Exhibit 4.1 to the registrant’s registration statement on Form 8-A filed on May 16, 2017. |
| | By-Laws, as amended and restated as of April 23, 2017.24, 2018. | | Incorporated by reference to Exhibit 3.1 to the registrant’s Current Report on Form 8-K datedfiled on April 24, 2017.25, 2018. |
| | Indenture, dated as of March 1, 1997, between the registrant and The Bank of New York Mellon Trust Company, N.A. (as successor to JPMorgan Chase Bank) | | Incorporated by reference to Exhibit 4(a) to Form 8-K filed by the registrant on July 31, 19971997. |
| | Form of 7% Debentures due August 1, 2027. | | Incorporated by reference to Exhibit 4(d) of the registrant’s Current Report on Form 8-K filed on July 31, 1997. |
| | Form of 6.70% Debentures due August 1, 2028. | | Incorporated by reference to Exhibit 4(d) of the registrant’s Current Report on Form 8-K filed on July 29, 1999. |
| | Form of 4.90%6.00% Notes due AprilMay 15, 2018.2039. | | Incorporated by reference to Exhibit 4(i)4.2 of the registrant's AnnualCurrent Report on form 10-K for the fiscal year ended September 30, 2016.Form 8-K filed on May 13, 2009. |
| | Form of 2.133%3.25% Notes due June 6, 2019.November 12, 2020. | | Incorporated by reference to Exhibit 4.1 of the registrant’s Current Report on Form 8-K filed on June 5, 2017.November 12, 2010. |
| | Form of 5.00% Notes due November 12, 2040. | | Incorporated by reference to Exhibit 4.2 of the registrant’s Current Report on Form 8-K filed on November 12, 2010. |
| | Form of 3.125% Notes due November 8, 2021. | | Incorporated by reference to Exhibit 4.2 of the registrant’s Current Report on Form 8-K filed on November 8, 2011. |
| | Form of 2.675% Notes due December 15, 2019. | | Incorporated by reference to Exhibit 4.3 of the registrant’s Current Report on Form 8-K filed on December 15, 2014. |
| | Form of 2.404% Notes due June 5, 2020. | | Incorporated by reference to Exhibit 4.2 of the registrant’s Current Report on Form 8-K filed on June 5, 2017. |
| | Form of 3.25% Notes due November 12, 2020. | | Incorporated by reference to Exhibit 4.1 of the registrant’s Current Report on Form 8-K filed on November 12, 2010. |
| | Form of 3.125% Notes due November 8, 2021. | | Incorporated by reference to Exhibit 4.2 of the registrant’s Current Report on Form 8-K filed on November 8, 2011. |
| | Form of 2.894% Notes due June 6, 2022. | | Incorporated by reference to Exhibit 4.3 of the registrant’s Current Report on Form 8-K filed on June 5, 2017. |
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| | | | |
Exhibit
Number
| | Description | | Method of Filing |
| | Form of 3.363% Notes due June 6, 2024. | | Incorporated by reference to Exhibit 4.5 of the registrant’s Current Report on Form 8-K filed on June 5, 2017. |
| | Form of 3.734% Notes due December 15, 2024. | | Incorporated by reference to Exhibit 4.4 of the registrant’s Current Report on Form 8-K filed on December 15, 2014. |
| | Form of 3.700% Notes due June 6, 2027. | | Incorporated by reference to Exhibit 4.6 of the registrant’s Current Report on Form 8-K filed on June 5, 2017. |
| | Form of 6.00% Notes due May 15, 2039. | | Incorporated by reference to Exhibit 4.2 of the registrant’s Current Report on Form 8-K filed on May 13, 2009. |
| | Form of 5.00% Notes due November 12, 2040. | | Incorporated by reference to Exhibit 4.2 of the registrant’s Current Report on Form 8-K filed on November 12, 2010. |
| | Form of 4.685% Notes due December 15, 2044. | | Incorporated by reference to Exhibit 4.5 of the registrant’s Current Report on Form 8-K filed on December 15, 2014. |
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| | | | |
Number | | Form of 4.669% Notes due June 6, 2047.Description | | Incorporated by reference to Exhibit 4.7Method of the registrant’s Current Report on Form 8-K filed on June 5, 2017.Filing |
| | Form of Floating Rate Notes due June 6, 2022. | | Incorporated by reference to Exhibit 4.4 of the registrant’s Current Report on Form 8-K filed on June 5, 2017. |
| | Form of 3.300% Senior Notes due March 1, 2023. | | Incorporated by reference to Exhibit 4.4 of the registrant’s Current Report on Form 8-K filed on April 29, 2015. |
| | Form of 3.875% Senior Notes due May 15, 2024. | | Incorporated by reference to Exhibit 4.5 of the registrant’s Current Report on Form 8-K filed on April 29, 2015. |
| | Form of 4.875% Senior Notes due May 15, 2044. | | Incorporated by reference to Exhibit 4.6 of the registrant’s Current Report on Form 8-K filed on April 29, 2015. |
| | Form of 1.000% Notes due December 15, 2022. | | Incorporated by reference to Exhibit 4.1 of the registrant's Current Report on Form 8-K filed on December 9, 2016. |
| | Form of 1.900% Notes due December 15, 2026. | | Incorporated by reference to Exhibit 4.2 of the registrant's Current Report on Form 8-K filed on December 9, 2016. |
| | Form of 2.404% Notes due June 5, 2020. | | Incorporated by reference to Exhibit 4.2 of the registrant’s Current Report on Form 8-K filed on June 6, 2017. |
| | Form of 2.894% Notes due June 6, 2022. | | Incorporated by reference to Exhibit 4.3 of the registrant’s Current Report on Form 8-K filed on June 6, 2017. |
| | Form of Floating Rate Notes due June 6, 2022. | | Incorporated by reference to Exhibit 4.4 of the registrant’s Current Report on Form 8-K filed on June 6, 2017. |
| | Form of 3.363% Notes due June 6, 2024. | | Incorporated by reference to Exhibit 4.5 of the registrant’s Current Report on Form 8-K filed on June 6, 2017. |
| | Form of 3.700% Notes due June 6, 2027. | | Incorporated by reference to Exhibit 4.6 of the registrant’s Current Report on Form 8-K filed on June 6, 2017. |
| | Form of 4.669% Notes due June 6, 2047. | | Incorporated by reference to Exhibit 4.7 of the registrant’s Current Report on Form 8-K filed on June 6, 2017. |
| | Form of Certificate for the 6.125% Mandatory Convertible Preferred Stock, Series A. | | Incorporated by reference to Exhibit 4.2 to the registrant’s registration statement on Form 8-A filed on May 16, 2017. |
| | Deposit Agreement, dated as of May 16, 2017, among Becton, Dickinson and Company and Computershare Inc. and Computershare Trust Company, N.A., acting jointly as depositary and Computershare Trust company, N.A., acting as Registrar and Transfer Agent, on behalf of the holders from time to time of the depositary receipts described therein. | | Incorporated by reference to Exhibit 4.3 to the registrant’s registration statement on Form 8-A filed on May 16, 2017. |
| | Form of Depositary Receipt for the Depositary Shares. | | Incorporated by reference to Exhibit 4.4 to the registrant’s registration statement on Form 8-A filed on May 16, 2017. |
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| | | | |
Exhibit Number | | Description | | Method of Filing |
| | Registration Rights Agreement, dated as of December 29, 2017, between Becton, Dickinson and Company and Citigroup Global Markets Inc. | | Incorporated by reference to Exhibit 4.1 of the registrant's Current Report on Form 8-K filed on December 29, 2017.
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| | Form of 6.700% Notes due December 1, 2026. | | Incorporated by reference to Exhibit 4.4 of the registrant's Current Report on Form 8-K filed on December 29, 2017. |
| | Indenture, dated as of December 1, 1996 between C.R. Bard, Inc. and The Bank of New York Mellon Trust Company, N.A., a national banking association, as trustee. | | Incorporated by reference to Exhibit 4.1 to C.R. Bard, Inc.'s Registration Statement on Form S-3 (File No. 333-05997). |
| | First Supplemental Indenture, dated May 18, 2017, between C. R. Bard, Inc. and The Bank of New York Mellon Trust Company, N.A., as trustee. | | Incorporated by reference to Exhibit 4.2 of the Current Report on Form 8-K of C.R. Bard, Inc. filed on May 23, 2017. |
| | Form of Floating Rate Notes due December 29, 2020. | | Incorporated by reference to Exhibit 4.1 of the registrant's Current Report on Form 8-K filed on March 1, 2018. |
| | Form of 1.401% Notes due May 24, 2023. | | Incorporated by reference to Exhibit 4.1 of the registrant's Current Report on Form 8-K filed on May 24, 2018. |
| | Form of 3.02% Notes due May 24, 2025. | | Incorporated by reference to Exhibit 4.2 of the registrant's Current Report on Form 8-K filed on May 24, 2018. |
| | First Supplemental Indenture, dated as of June 4, 2019, among Becton Finance, as issuer, Becton, Dickinson and Company, as guarantor, and The Bank of New York Mellon Trust Company, N.A., as trustee. | | Incorporated by reference to Exhibit 4.1 of the registrant's Current Report on Form 8-K filed on June 4, 2019. |
| | Form of 0.174% Note due June 4, 2021. | | Incorporated by reference to Exhibit 4.2 of the registrant's Current Report on Form 8-K filed on June 4, 2019. |
| | Form of 0.632% Note due June 4, 2023. | | Incorporated by reference to Exhibit 4.3 of the registrant's Current Report on Form 8-K filed on June 4, 2019. |
| | Form of 1.208% Note due June 4, 2026. | | Incorporated by reference to Exhibit 4.4 of the registrant's Current Report on Form 8-K filed on June 4, 2019. |
| | Form of Employment Agreement with executive officers relating to employment following a change of control of the registrant (with tax reimbursement provisions).* | | Incorporated by reference to Exhibit 10(a) to the registrant’s Quarterly Report on Form 10-Q for the period ended December 31, 2008. |
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| | | | |
Exhibit
Number
| | Description | | Method of Filing |
| | Form of Employment Agreement with executive officers relating to employment following a change of control of the registrant (without tax reimbursement provisions).* | | Incorporated by reference to Exhibit 10(a)(ii) to the registrant’s Annual Report on Form 10-K for the fiscal year ended September 30, 2013. |
| | Stock Award Plan, as amended and restated as of January 31, 2006.* | | Incorporated by reference to Exhibit 10(a) to the registrant’s Quarterly Report on Form 10-Q for the period ended December 31, 2005. |
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| | | | |
Exhibit Number | | Description | | Method of Filing |
| | Performance Incentive Plan, as amended and restated January 24, 2017.* | | Incorporated by reference to Exhibit 10.1 to the registrant’sregistrant's Quarterly Report on Form 10-Q for the period ended March 31, 2017. |
| | Deferred Compensation and Retirement Benefit Restoration Plan, as amended and restated as of September 27, 2016.January 1, 2019. * | | Incorporated by reference to Exhibit 10(d)10.2 to the registrant’s AnnualQuarterly Report on Form 10-K10-Q for the fiscal year ended September 30, 2016.period ending December 31, 2018. |
| | 1996 Directors’ Deferral Plan, as amended and restated as of November 25, 2014.* | | Incorporated by reference to Exhibit 10.2 to the registrant’s Current Report on Form 8-K datedfiled on December 2, 2014. |
| | Amended and Restated Aircraft Time Sharing Agreement between Becton, Dickinson and Company and Vincent A. Forlenza dated as of March 21, 2012.* | | Incorporated by reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K datedfiled on March 27, 2012. |
| | 2004 Employee and Director Equity-Based Compensation Plan, as amended and restated as of JanuaryNovember 26, 2016.2019.* | | Incorporated by reference to Exhibit 10 to the registrant’s Current Report on Form 8-K dated January 29, 2016.Filed with this report. |
| | Terms of Awards under 2004 Employee and Director Equity-Based Compensation Plan and Stock Award Plan.* | | Incorporated by reference to Exhibit 10(g)(ii) to the registrant’s Annual Report on Form 10-K for the fiscal year ended September 30, 2016. |
| | Five-Year Credit Agreement, dated January 29, 2016 among the registrant and the banks named therein (term has been extended to January 24, 2022). | | Incorporated by reference to Exhibit 10 to the registrant’s Current Report on Form 8-K dated February 4, 2016. |
| | 364-Day Term Loan Agreement, dated December 19, 2014, by and among Becton, Dickinson and Company, as borrower, Goldman Sachs Bank USA, as administrative agent, and the lenders party thereto. | | Incorporated by reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K filed December 14, 2014. |
| | Form of Commercial Paper Dealer Agreement. | | Incorporated by reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K filed on January 6, 2015. |
| | Tax Matters Agreement, dated August 31, 2009, by and between Cardinal Health, Inc. and CareFusion Corporation. | | Incorporated by reference to Exhibit 10.3 to Cardinal Health, Inc.’s Current Report on Form 8-K filed on September 4, 2009. |
| | Letter of Understanding dated March 28, 2016 between Becton, Dickinson and Company and Alexandre Conroy.* | | Incorporated by reference to Exhibit 10 to the registrant’s Quarterly Report on Form 10-Q for the period ended December 31, 2016. |
| | Three-Year Term Loan Agreement, dated as of May 12, 2017, by and among Becton, Dickinson and Company, the lenders party thereto, and Citibank, N.A., as administrative agent. | | Incorporated by reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K filed May 10, 2017. |
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Exhibit
Number
| | Description | | Method of Filing |
| | Credit Agreement, dated as of May 12, 2017, by and among Becton, Dickinson and Company, the banks and issuers of letters of credit party thereto and Citibank, N.A., as administrative agent. | | Incorporated by reference to Exhibit 10.2 to the registrant’s Current Report on Form 8-K filed May 10,16, 2017. |
| | Term sheet, dated August 25, 2017, between the registrant and Samrat Khichi.* | | Incorporated by reference to Exhibit 10(o) to the registrant’s Annual Report on Form 10-K for the fiscal year ended September 30, 2018. |
| | C. R. Bard, Inc. Supplemental Executive Retirement Plan, dated as of July 13, 1988.* | | Incorporated by reference to Exhibit 10p of the C.R. Bard, Inc. Annual Report on Form 10-K for the fiscal year ending December 31, 1993. |
| | Supplemental Insurance/Retirement Plan Agreement (as Amended and Restated) between C.R. Bard, Inc. and its executive officers.* | | Incorporated by reference to Exhibit 10be of the C.R. Bard, Inc. Quarterly Report on Form 10-Q for the period ending September 30, 2005. |
| | 2005 Directors’ Stock Award Plan of C. R. Bard, Inc. (as Amended and Restated).*
| | Incorporated by reference to Exhibit 10bw of the C.R. Bard, Inc. Annual Report on Form 10-K for the fiscal year ending December 31, 2010. |
| | Offer letter of Patrick Kaltenbach, dated March 29, 2018 | | Incorporated by reference to Exhibit 10.1 of the registrant's Quarterly Report on Form 10-Q for the period ending March 31, 2019. |
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Exhibit Number | | Description | | Method of Filing |
| | Subsidiaries of the registrant. | | Filed with this reportreport. |
| | Consent of independent registered public accounting firm. | | Filed with this reportreport. |
| | Power of Attorney. | | Filed with this reportIncluded on signature page. |
| | Certifications of Chief Executive Officer and Chief Financial Officer, pursuant to SEC Rule 13(a)-14(a). | | Filed with this reportreport. |
| | Certifications of Chief Executive Officer and Chief Financial Officer, pursuant to Section 1350 of Chapter 63 of Title 18 of the U.S. Code. | | Filed with this reportreport. |
| 101 | | The following materials from this report, formatted in XBRL (ExtensibleiXBRL (Inline eXtensible Business Reporting Language): (i) the Consolidated Statements of Income, (ii) the Consolidated Statements of Comprehensive Income, (iii) the Consolidated Balance Sheets, (iv) the Consolidated Statements of Cash Flows, and (v) Notes to Consolidated Financial Statements. | | Filed with this reportreport. |
| 104 | | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
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| |
| + | Pursuant to Item 601(b)(2) of Regulation S-K, the schedules to the Agreement and Plan of Merger have been omitted from this Report and will be furnished supplementally to the SEC upon request. |
| |
| * | Denotes a management contract or compensatory plan or arrangement. |
Copies of any Exhibits not accompanying this Form 10-K are available at a charge of 10 cents per page by contacting: Investor Relations, Becton, Dickinson and Company, 1 Becton Drive, Franklin Lakes, New Jersey 07417-1880, Phone: 1-800-284-6845.
SIGNATURES
102Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
BECTON, DICKINSONAND COMPANY
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| | | |
| By: | | /s/ GARY DEFAZIO |
| | | Gary DeFazio |
| | | Senior Vice President and Corporate Secretary |
Dated: November ___, 2019
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned hereby constitutes and appoints Vincent A. Forlenza, Samrat S. Khichi, Christopher R. Reidy and Gary DeFazio, and each of them, acting individually and without the other, as his or her true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign the Company’s Annual Report on Form 10-K for the Company’s fiscal year ended September 30, 2019, and any amendments thereto, each in such form as they or any one of them may approve, and to file the same with all exhibits thereto and other documents in connection therewith with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done so that such Annual Report shall comply with the Securities Exchange Act of 1934, as amended, and the applicable Rules and Regulations adopted or issued pursuant thereto, as fully and to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them or their substitute or resubstitute, may lawfully do or cause to be done by virtue hereof.
This Power of Attorney shall not revoke any powers of attorney previously executed by the undersigned. This Power of Attorney shall not be revoked by any subsequent power of attorney that the undersigned may execute, unless such subsequent power of attorney specifically provides that it revokes this Power of Attorney by referring to the date of the undersigned’s execution of this Power of Attorney. For the avoidance of doubt, whenever two or more powers of attorney granting the powers specified herein are valid, the agents appointed on each shall act separately unless otherwise specified.
Pursuant to the requirements of the Securities Act of 1934, as amended, this Annual Report and power of attorney have been signed as of November ___, 2019 by the following persons in the capacities indicated.
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| | |
| Name | | Capacity |
| | |
/S/ VINCENT A. FORLENZA | | Chairman and Chief Executive Officer |
| Vincent A. Forlenza | | (Principal Executive Officer) |
| | |
/S/ CHRISTOPHER R. REIDY | | Executive Vice President, Chief Financial Officer |
| Christopher R. Reidy | | and Chief Administrative Officer |
| | (Principal Financial Officer) |
| | |
| /S/ THOMAS J. SPOEREL | | Vice President, Controller, |
| Thomas J. Spoerel | | and Chief Accounting Officer |
| | (Principal Accounting Officer) |
| | |
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| | |
| Name | | Capacity |
| | |
| /S/ CATHERINE M. BURZIK | | |
| Catherine M. Burzik | | Director |
| | |
| | |
| /S/ R. ANDREW ECKERT | | |
| R. Andrew Eckert | | Director |
| | |
| | |
| /S/ CLAIRE M. FRASER | | |
| Claire M. Fraser | | Director |
| | |
| | |
| /S/ JEFFREY W. HENDERSON | | |
| Jeffrey W. Henderson | | Director |
| | |
| | |
| /S/ CHRISTOPHER JONES | | |
| Christopher Jones | | Director |
| | |
| | |
| /S/ MARSHALL O. LARSEN | | |
| Marshall O. Larsen | | Director |
| | |
| | |
| /S/ DAVID F. MELCHER | | |
| David F. Melcher | | Director |
| | |
| | |
| /S/ CLAIRE POMEROY | | |
| Claire Pomeroy | | Director |
| | |
| | |
| /S/ REBECCA W. RIMEL | | |
| Rebecca W. Rimel | | Director |
| | |
| | |
| /S/ TIMOTHY M. RING | | |
| Timothy M. Ring | | Director |
| | |
| | |
| /S/ BERTRAM L. SCOTT | | |
| Bertram L. Scott | | Director |