UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
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ý | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended MarchDecember 31, 2016
OR
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¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number 001-4802
Becton, Dickinson and Company
(Exact name of registrant as specified in its charter)
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New Jersey | | 22-0760120 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
1 Becton Drive, Franklin Lakes, New Jersey 07417-1880
(Address of principal executive offices)
(Zip Code)
(201) 847-6800
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý No ¨
Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filer | | ý | | Accelerated filer | | ¨ |
Non-accelerated filer | | ¨ | | Smaller reporting company | | ¨ |
Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No ý
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
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Class of Common Stock | | Shares Outstanding as of MarchDecember 31, 2016 |
Common stock, par value $1.00 | | 212,202,004212,825,085 |
BECTON, DICKINSON AND COMPANY
FORM 10-Q
For the quarterly period ended MarchDecember 31, 2016
TABLE OF CONTENTS
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| | Page Number |
Part I. | FINANCIAL INFORMATION | |
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Item 1. | | |
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Item 2. | | |
Item 3. | | |
Item 4. | | |
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Part II. | | |
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Item 1. | | |
Item 1A. | | |
Item 2. | | |
Item 3. | | |
Item 4. | | |
Item 5. | | |
Item 6. | | |
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ITEM 1. FINANCIAL STATEMENTS
BECTON, DICKINSON AND COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
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| | | | | | | |
| December 31, 2016 | | September 30, 2016 |
| (Unaudited) | | |
Assets | | | |
Current Assets: | | | |
Cash and equivalents | $ | 919 |
| | $ | 1,541 |
|
Short-term investments | 18 |
| | 27 |
|
Trade receivables, net | 1,518 |
| | 1,618 |
|
Current portion of net investment in sales-type leases | 346 |
| | 339 |
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Inventories: | | | |
Materials | 298 |
| | 316 |
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Work in process | 275 |
| | 274 |
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Finished products | 1,119 |
| | 1,129 |
|
| 1,692 |
| | 1,719 |
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Assets held for sale | 50 |
| | 642 |
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Prepaid expenses and other | 643 |
| | 480 |
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Total Current Assets | 5,187 |
| | 6,367 |
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Property, Plant and Equipment | 8,101 |
| | 8,419 |
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Less allowances for depreciation and amortization | 4,273 |
| | 4,518 |
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Property, Plant and Equipment, Net | 3,827 |
| | 3,901 |
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Goodwill | 7,363 |
| | 7,419 |
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Customer Relationships, Net | 2,965 |
| | 3,022 |
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Developed Technology, Net | 2,580 |
| | 2,655 |
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Other Intangibles, Net | 584 |
| | 604 |
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Capitalized Software, Net | 68 |
| | 70 |
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Net Investment in Sales-Type Leases, Less Current Portion | 816 |
| | 796 |
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Other Assets | 927 |
| | 753 |
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Total Assets | $ | 24,318 |
| | $ | 25,586 |
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Liabilities and Shareholders’ Equity | | | |
Current Liabilities: | | | |
Short-term debt | $ | 1,974 |
| | $ | 1,001 |
|
Payables and accrued expenses | 2,596 |
| | 3,210 |
|
Liabilities held for sale | — |
| | 189 |
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Total Current Liabilities | 4,570 |
| | 4,400 |
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Long-Term Debt | 9,043 |
| | 10,550 |
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Long-Term Employee Benefit Obligations | 1,323 |
| | 1,319 |
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Deferred Income Taxes and Other | 1,798 |
| | 1,684 |
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Commitments and Contingencies (See Note 5) |
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| |
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Shareholders’ Equity | | | |
Common stock | 333 |
| | 333 |
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Capital in excess of par value | 4,713 |
| | 4,693 |
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Retained earnings | 13,133 |
| | 12,727 |
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Deferred compensation | 23 |
| | 22 |
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Common stock in treasury - at cost | (8,457 | ) | | (8,212 | ) |
Accumulated other comprehensive loss | (2,162 | ) | | (1,929 | ) |
Total Shareholders’ Equity | 7,583 |
| | 7,633 |
|
Total Liabilities and Shareholders’ Equity | $ | 24,318 |
| | $ | 25,586 |
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| March 31, 2016 | | September 30, 2015 |
| (Unaudited) | | |
Assets | | | |
Current Assets: | | | |
Cash and equivalents | $ | 1,696 |
| | $ | 1,424 |
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Short-term investments | 15 |
| | 20 |
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Trade receivables, net | 1,574 |
| | 1,618 |
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Current portion of net investment in sales-type leases | 311 |
| | 75 |
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Inventories: | | | |
Materials | 314 |
| | 384 |
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Work in process | 302 |
| | 280 |
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Finished products | 1,229 |
| | 1,295 |
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| 1,846 |
| | 1,959 |
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Assets held for sale | 618 |
| | — |
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Prepaid expenses and other | 551 |
| | 563 |
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Total Current Assets | 6,612 |
| | 5,659 |
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Property, Plant and Equipment | 8,170 |
| | 8,277 |
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Less allowances for depreciation and amortization | 4,390 |
| | 4,217 |
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Property, Plant and Equipment, Net | 3,779 |
| | 4,060 |
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Goodwill | 7,448 |
| | 7,537 |
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Customer Relationships, Net | 3,128 |
| | 3,250 |
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Developed Technology, Net | 2,721 |
| | 2,977 |
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Other Intangibles, Net | 682 |
| | 797 |
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Capitalized Software, Net | 346 |
| | 362 |
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Net Investment in Sales-Type Leases, Less Current Portion | 826 |
| | 1,118 |
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Other Assets | 694 |
| | 717 |
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Total Assets | $ | 26,236 |
| | $ | 26,478 |
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Liabilities and Shareholders’ Equity | | | |
Current Liabilities: | | | |
Short-term debt | $ | 1,651 |
| | $ | 1,452 |
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Payables and accrued expenses | 2,527 |
| | 2,930 |
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Liabilities held for sale | 202 |
| | — |
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Total Current Liabilities | 4,380 |
| | 4,381 |
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Long-Term Debt | 10,864 |
| | 11,370 |
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Long-Term Employee Benefit Obligations | 1,146 |
| | 1,133 |
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Deferred Income Taxes and Other | 2,181 |
| | 2,430 |
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Commitments and Contingencies (See Note 5) |
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Shareholders’ Equity | | | |
Common stock | 333 |
| | 333 |
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Capital in excess of par value | 4,600 |
| | 4,475 |
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Retained earnings | 12,600 |
| | 12,314 |
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Deferred compensation | 20 |
| | 20 |
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Common stock in treasury - at cost | (8,240 | ) | | (8,239 | ) |
Accumulated other comprehensive loss | (1,647 | ) | | (1,738 | ) |
Total Shareholders’ Equity | 7,666 |
| | 7,164 |
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Total Liabilities and Shareholders’ Equity | $ | 26,236 |
| | $ | 26,478 |
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Amounts may not add due to rounding.See notes to condensed consolidated financial statements
BECTON, DICKINSON AND COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Millions of dollars, except per share data
(Unaudited)
| | | Three Months Ended March 31, | | Six Months Ended March 31, | Three Months Ended December 31, |
| 2016 | | 2015 | | 2016 | | 2015 | 2016 | | 2015 |
Revenues | $ | 3,067 |
| | $ | 2,051 |
| | $ | 6,054 |
| | $ | 4,102 |
| $ | 2,922 |
| | $ | 2,986 |
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Cost of products sold | 1,584 |
| | 1,005 |
| | 3,162 |
| | 2,011 |
| 1,470 |
| | 1,578 |
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Selling and administrative expense | 732 |
| | 511 |
| | 1,480 |
| | 1,055 |
| 709 |
| | 748 |
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Research and development expense | 182 |
| | 129 |
| | 369 |
| | 258 |
| 182 |
| | 187 |
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Acquisitions and other restructurings | 104 |
| | 113 |
| | 225 |
| | 136 |
| 87 |
| | 121 |
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Other operating income (See Note 5) | | (336 | ) | | — |
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Total Operating Costs and Expenses | 2,601 |
| | 1,758 |
| | 5,236 |
| | 3,460 |
| 2,111 |
| | 2,635 |
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Operating Income | 466 |
| | 293 |
| | 818 |
| | 642 |
| 811 |
| | 352 |
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Interest expense | (99 | ) | | (91 | ) | | (196 | ) | | (167 | ) | (95 | ) | | (97 | ) |
Interest income | 3 |
| | 8 |
| | 9 |
| | 19 |
| 5 |
| | 6 |
|
Other income, net | 6 |
| | 15 |
| | 11 |
| | 17 |
| |
Other (expense) income, net | | (29 | ) | | 6 |
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Income Before Income Taxes | 376 |
| | 225 |
| | 642 |
| | 510 |
| 692 |
| | 266 |
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Income tax provision | 38 |
| | 9 |
| | 75 |
| | 58 |
| 131 |
| | 37 |
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Net Income | 338 |
| | 216 |
| | 567 |
| | 452 |
| 562 |
| | 229 |
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Basic Earnings per Share | $ | 1.59 |
| | $ | 1.10 |
| | $ | 2.67 |
| | $ | 2.32 |
| $ | 2.64 |
| | $ | 1.08 |
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Diluted Earnings per Share | $ | 1.56 |
| | $ | 1.08 |
| | $ | 2.62 |
| | $ | 2.28 |
| $ | 2.58 |
| | $ | 1.06 |
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Dividends per Common Share | $ | 0.66 |
| | $ | 0.60 |
| | $ | 1.32 |
| | $ | 1.20 |
| $ | 0.73 |
| | $ | 0.66 |
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Amounts may not add due to rounding.
See notes to condensed consolidated financial statements
BECTON, DICKINSON AND COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Millions of dollars
(Unaudited)
| | | Three Months Ended March 31, | | Six Months Ended March 31, | Three Months Ended December 31, |
| 2016 | | 2015 | | 2016 | | 2015 | 2016 | | 2015 |
Net Income | $ | 338 |
| | $ | 216 |
| | $ | 567 |
| | $ | 452 |
| $ | 562 |
| | $ | 229 |
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Other Comprehensive Income (Loss), Net of Tax | | | | | | | | | | |
Foreign currency translation adjustments | 179 |
| | (497 | ) | | 63 |
| | (638 | ) | (275 | ) | | (116 | ) |
Defined benefit pension and postretirement plans | 12 |
| | 11 |
| | 24 |
| | 22 |
| 15 |
| | 12 |
|
Net unrealized gains (losses) on cash flow hedges, net of reclassifications | 1 |
| | 2 |
| | 4 |
| | (6 | ) | |
Other Comprehensive Income (Loss), Net of Tax | 193 |
| | (484 | ) | | 91 |
| | (621 | ) | |
Comprehensive Income (Loss) | $ | 531 |
| | $ | (267 | ) | | $ | 658 |
| | $ | (169 | ) | |
Net unrealized losses on cash flow hedges, net of reclassifications | | 28 |
| | 3 |
|
Other Comprehensive Loss, Net of Tax | | (233 | ) | | (101 | ) |
Comprehensive Income | | $ | 329 |
| | $ | 127 |
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Amounts may not add due to rounding.
See notes to condensed consolidated financial statements
BECTON, DICKINSON AND COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Millions of dollars
(Unaudited)
| | | Six Months Ended March 31, | Three Months Ended December 31, |
| 2016 | | 2015 | 2016 | | 2015 |
Operating Activities | | | | | | |
Net income | $ | 567 |
| | $ | 452 |
| $ | 562 |
| | $ | 229 |
|
Adjustments to net income to derive net cash provided by operating activities: | | | | | | |
Depreciation and amortization | 569 |
| | 277 |
| 262 |
| | 289 |
|
Share-based compensation | 119 |
| | 92 |
| 61 |
| | 76 |
|
Deferred income taxes | (112 | ) | | (13 | ) | 21 |
| | (29 | ) |
Change in operating assets and liabilities | (194 | ) | | (255 | ) | (506 | ) | | (237 | ) |
Pension obligation | 40 |
| | (3 | ) | 25 |
| | 21 |
|
Excess tax benefits from payments under share-based compensation plans | | 27 |
| | — |
|
Other, net | 30 |
| | (37 | ) | (136 | ) | | 114 |
|
Net Cash Provided by Operating Activities | 1,020 |
| | 514 |
| 315 |
| | 463 |
|
Investing Activities | | | | | | |
Capital expenditures | (258 | ) | | (252 | ) | (112 | ) | | (134 | ) |
Capitalized software | (11 | ) | | (17 | ) | |
Proceeds from investments, net | 10 |
| | 813 |
| |
Acquisitions of businesses, net of cash acquired | — |
| | (8,307 | ) | |
Divestitures of businesses | 111 |
| | — |
| |
Proceeds from sale of investments, net | | 16 |
| | 14 |
|
Proceeds from divestitures, net | | 167 |
| | — |
|
Other, net | (22 | ) | | (66 | ) | (23 | ) | | (25 | ) |
Net Cash Used for Investing Activities | (170 | ) | | (7,829 | ) | |
Net Cash Provided by (Used for) Investing Activities | | 48 |
| | (145 | ) |
Financing Activities | | | | | | |
Change in short-term debt | (300 | ) | | 1,502 |
| 700 |
| | — |
|
Proceeds from long-term debt | — |
| | 6,164 |
| 1,054 |
| | — |
|
Payments of debt | (1 | ) | | (2 | ) | (2,189 | ) | | — |
|
Repurchase of common stock | | (220 | ) | | — |
|
Excess tax benefits from payments under share-based compensation plans | 51 |
| | 40 |
| — |
| | 44 |
|
Dividends paid | (280 | ) | | (232 | ) | (156 | ) | | (140 | ) |
Issuance of common stock and other, net | (45 | ) | | (79 | ) | |
Net Cash (Used for) Provided by Financing Activities | (576 | ) | | 7,392 |
| |
Other, net | | (144 | ) | | (49 | ) |
Net Cash Used for Financing Activities | | (955 | ) | | (145 | ) |
Effect of exchange rate changes on cash and equivalents | (2 | ) | | (26 | ) | (30 | ) | | (14 | ) |
Net increase in cash and equivalents | 272 |
| | 51 |
| |
Net (decrease) increase in cash and equivalents | | (622 | ) | | 158 |
|
Opening Cash and Equivalents | 1,424 |
| | 1,861 |
| 1,541 |
| | 1,424 |
|
Closing Cash and Equivalents | $ | 1,696 |
| | $ | 1,912 |
| $ | 919 |
| | $ | 1,583 |
|
Amounts may not add due to rounding.
See notes to condensed consolidated financial statements
BECTON, DICKINSON AND COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MarchDecember 31, 2016
Note 1 – Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and, in the opinion of the management of the Company, include all adjustments which are of a normal recurring nature, necessary for a fair presentation of the financial position and the results of operations and cash flows for the periods presented. However, the financial statements do not include all information and accompanying notes required for a presentation in accordance with U.S. generally accepted accounting principles. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in the Company’s 20152016 Annual Report on Form 10-K. 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. The results of operations for the interim periods are not necessarily indicative of the results of operations to be expected for the full year.
Note 2 – Accounting Changes
New Accounting PrinciplePrinciples Adopted
In November 2015,On October 1, 2016, the Company prospectively adopted amended requirements issued by the Financial Accounting Standards Board ("FASB") issued amended guidance that requires entitiesrelating to present deferredthe timing of recognition and classification of share-based compensation award-related income tax assets and liabilities as noncurrenteffects. Upon the settlement of awards in the first quarter of fiscal year 2017, the Company recorded a tax benefit of $27 million to Income tax provision within its consolidated statement of income. The Company expects to record additional tax benefits throughout fiscal year 2017. These tax benefits were recorded within Capital in excess of par value on the balance sheet instead of separating deferred taxes into current and noncurrent amounts. Early adoption is permitted under the amendments. The Company has retrospectively adopted the guidance effective October 1, 2015 and as such, theCompany's condensed consolidated balance sheet in the prior-year period. Because these excess tax benefits are no longer recorded in Capital in excess of par value, the current-year 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 $27 million of excess tax benefits on its condensed consolidated statement of cash flows within Net Cash Provided by Operating Activities, rather than Net Cash Used for Financing Activities, which included the excess tax benefits for the first quarter of fiscal year 2016. The amended guidance allows entities to account for award forfeitures as they occur; however, the Company has elected to continue its determination of September 30, 2015 reflects the reclassificationcompensation cost recognized in each period based upon an estimate of current deferred tax assets of $387 million as noncurrent amounts, after giving effect to jurisdictional netting requirements.expected future forfeitures.
New Accounting PrinciplePrinciples Not Yet Adopted
In February 2016, the 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 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 is currently in the process of completing the initial assessment of the impact that this new revenue recognition standard will have on its consolidated financial statements.
Note 3 – Accumulated Other Comprehensive Income (Loss)
The components and changes of Accumulated other comprehensive income (loss) for the six-monththree-month period ended MarchDecember 31, 2016 were as follows:
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(Millions of dollars) | Total | | Foreign Currency Translation | | | Benefit Plans | | |
Cash Flow Hedges | |
Balance at September 30, 2015 | $ | (1,738 | ) | | $ | (961 | ) | | | $ | (741 | ) | | | $ | (36 | ) | |
Other comprehensive income before reclassifications, net of taxes | 61 |
| | 63 |
| | (A) | — |
| | | (2 | ) | |
Amounts reclassified into income, net of taxes | 30 |
| | — |
| | | 24 |
| | | 6 |
| |
Balance at March 31, 2016 | $ | (1,647 | ) | | $ | (899 | ) | | | $ | (717 | ) | | | $ | (32 | ) | |
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| | | | | | | | | | | | | | | | |
(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 (loss) income before reclassifications, net of taxes | (251 | ) | | (275 | ) | | — |
| | 24 |
| |
Amounts reclassified into income, net of taxes | 18 |
| | — |
| | 15 |
| | 4 |
| |
Balance at December 31, 2016 | $ | (2,162 | ) | | $ | (1,287 | ) | | $ | (868 | ) | | $ | (7 | ) | |
| |
(A) | The gain for the six months ended March 31, 2016 was primarily attributable to the strengthening of certain European and Asian currencies against the U.S. dollar during the period. |
The amount recognized in other comprehensive income during the three-month period ended December 31, 2016 relating to cash flow hedges represented unrealized gains on forward starting interest rate swaps entered into in fiscal year 2016, which are further discussed in Note 12. The tax provision relating to these gains was $15 million for the three-month period ended December 31, 2016.
Reclassifications out of Accumulated other comprehensive income (loss) were as follows:
| | | Three Months Ended March 31, | | Six Months Ended March 31, | Three Months Ended December 31, |
(Millions of dollars) | 2016 | | 2015 | | 2016 | | 2015 | 2016 | | 2015 |
Benefit Plans | | | | | | | | | | |
Reclassification of losses into income | $ | 19 |
| | $ | 17 |
| | $ | 37 |
| | $ | 34 |
| $ | 22 |
| | $ | 19 |
|
Associated tax benefits | (6 | ) | | (6 | ) | | (13 | ) | | (12 | ) | (7 | ) | | (6 | ) |
Amounts reclassified into income, net of taxes (A) | $ | 12 |
| | $ | 11 |
| | $ | 24 |
| | $ | 22 |
| $ | 15 |
| | $ | 12 |
|
| | | | | | | | | | |
Cash Flow Hedges | | | | | | | | | | |
Reclassification of losses into income | $ | 5 |
| | $ | 2 |
| | $ | 9 |
| | $ | 5 |
| $ | 6 |
| | $ | 4 |
|
Associated tax benefits | (2 | ) | | (1 | ) | | (3 | ) | | (2 | ) | (2 | ) | | (2 | ) |
Amounts reclassified into income, net of taxes (B) | $ | 3 |
| | $ | 2 |
| | $ | 6 |
| | $ | 3 |
| $ | 4 |
| | $ | 3 |
|
| |
(A) | These reclassifications were not recorded into income in their entirety and were included in the computation of net periodic benefit plan costs. Additional details regarding the Company's benefit plans are provided in Note Note 8. |
| |
(B) | These reclassifications were recorded to Interest expense and Cost of products sold. Additional details regarding the Company's cash flow hedges are provided in Note 12. |
Note 4 – Earnings per Share
The weighted average common shares used in the computations of basic and diluted earnings per share (shares in thousands) were as follows:
| | | Three Months Ended March 31, | | Six Months Ended March 31, | Three Months Ended December 31, |
| 2016 | | 2015 | | 2016 | | 2015 | 2016 | | 2015 |
Average common shares outstanding | 212,469 |
| | 196,085 |
| | 212,077 |
| | 194,447 |
| 213,064 |
| | 211,689 |
|
Dilutive share equivalents from share-based plans(A) | 4,069 |
| | 3,853 |
| | 4,618 |
| | 4,046 |
| 4,675 |
| | 4,605 |
|
Average common and common equivalent shares outstanding – assuming dilution | 216,538 |
| | 199,938 |
| | 216,695 |
| | 198,493 |
| 217,739 |
| | 216,294 |
|
| |
(A) | The prior-period adjustment to calculate diluted share equivalents from share-based plans 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 current-year period adjustment excluded these excess tax benefits. |
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 accelerated share repurchase agreement. The repurchased shares were recorded as a $220 million increase to Common stock in treasury.
Note 5 – Contingencies
Given the uncertain nature of litigation generally, the Company is not able in all cases to estimate the amount or range of loss that could result from an unfavorable outcome of the litigation to which the Company is a party. In accordance with U.S. generally accepted accounting principles, the Company establishes accruals to the extent probable future losses are estimable (in the case of environmental matters, without considering possible third-party recoveries). In view of the uncertainties discussed below, the Company could incur charges in excess of any currently established accruals and, to the extent available, 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”) filed a complaint against the Company under the caption Retractable Technologies, Inc. vs. Becton Dickinson and Company (Civil Action No. 2:07-cv-250, U.S. District Court, Eastern District of Texas) alleging that the BD Integra™ syringes infringe patents licensed exclusively to RTI. In its complaint, RTI also alleged that the Company engaged in false advertising with respect to certain of the Company’s safety-engineered products in violation of the Lanham Act; acted to exclude RTI from various product markets and to maintain its market share through, among other things, exclusionary contracts in violation of state and federal antitrust laws; and engaged in unfair competition. In January 2008, the courtCourt severed the patent and non-patent 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: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 courtCourt ordered the consolidation of the patent cases. As further set forth in the Company's 2015
Annual Report on Form 10-K, 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 cases are now concluded.
On September 19, 2013, a jury returned a verdict against BD with respect to RTI’s Lanham Act claim and claim for attempted monopolization based on deception in the safety syringe market. The jury awarded RTI $113.5 million for its attempted monopolization claim (which willwould be trebled under the antitrust statute). The jury’s verdict rejected RTI’s monopolization claims in the markets for safety syringes, conventional syringes and safety IV catheters; its attempted monopolization 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 recovers $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 has filed its appealthereafter 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. 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.
On July 17, 2015, a class action complaint was filed against the Company in the U.S. District Court for the Southern District of Georgia. The plaintiffs, Glynn-Brunswick Hospital Authority, trading as Southeast Georgia Health System, and Southeast Georgia Health System, Inc., seek to represent a class of acute care purchasers of BD syringes and IV catheters. The complaint alleges that BD monopolized the markets for syringes and IV catheters through contracts, theft of technology, false advertising, acquisitions, and other conduct. The complaint seeks treble damages but does not specify the amount of alleged damages. The Company filed a motion to dismiss the complaint which was granted on January 29, 2016. Plaintiffs have soughtOn September 23, 2016, the court
denied plaintiffs’ motion to alter or amend the judgment to allow plaintiffs to file an amended complaint, which BD has opposed.and plaintiffs appealed that decision to the Eleventh Circuit Court of Appeals. The plaintiffs thereafter voluntarily dismissed their appeal, and the Court of Appeals dismissed the case on November 21, 2016.
The Company believes that it has meritorious defenses to each of the above-mentioned suits pending against the Company and is engaged in a vigorous defense of each of these matters.
The Company is also involved both as a plaintiff and a defendant in other legal proceedings and claims that arise in the ordinary course of business.
The Company is a 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 cleanup costs.
Note 6 – Segment Data
The Company's organizational structure is based upon two principal business segments: BD Medical (“Medical”) and BD Life Sciences (“Life Sciences”). These segments are strategic businesses that are managed separately because each one develops, manufactures and markets distinct products and services. The Company evaluates performance of its business segments and allocates resources to them primarily based upon operating income. Segment operating income represents revenues reduced by product costs and operating expenses. As more fully discussed in Note 9, the Company sold a 50.1% controlling financial interest in its Respiratory Solutions business, a component of the Medical segment, in October 2016. This transaction did not meet the criteria established for reporting discontinued operations and as such, the prior-year period included $208 million of revenues which did not occur in the current-year period.
Financial information for the Company’s segments was as follows:
| | | Three Months Ended March 31, | | Six Months Ended March 31, | Three Months Ended December 31, |
(Millions of dollars) | 2016 | | 2015 | | 2016 | | 2015 | 2016 | | 2015 |
Revenues (A) | | | | | | | | | | |
Medical | $ | 2,131 |
| | $ | 1,106 |
| | $ | 4,185 |
| | $ | 2,177 |
| $ | 1,964 |
| | $ | 2,054 |
|
Life Sciences | 936 |
| | 945 |
| | 1,869 |
| | 1,925 |
| 958 |
| | 933 |
|
Total Revenues | $ | 3,067 |
| | $ | 2,051 |
| | $ | 6,054 |
| | $ | 4,102 |
| $ | 2,922 |
| | $ | 2,986 |
|
Income Before Income Taxes | | | | | | | | | | |
Medical (B) | $ | 513 |
| | $ | 328 |
| | $ | 978 |
| | $ | 632 |
| |
Medical | | $ | 548 |
| | $ | 465 |
|
Life Sciences | 202 |
| | 200 |
| | 404 |
| | 413 |
| 198 |
| | 202 |
|
Total Segment Operating Income | 715 |
| | 528 |
| | 1,381 |
| | 1,045 |
| 747 |
| | 667 |
|
Acquisitions and other restructurings | (104 | ) | | (113 | ) | | (225 | ) | | (136 | ) | (87 | ) | | (121 | ) |
Net interest expense | (96 | ) | | (83 | ) | | (187 | ) | | (149 | ) | (89 | ) | | (91 | ) |
Other unallocated items (C)(B) | (139 | ) | | (107 | ) | | (328 | ) | | (250 | ) | 121 |
| | (189 | ) |
Income Before Income Taxes | $ | 376 |
| | $ | 225 |
| | $ | 642 |
| | $ | 510 |
| $ | 692 |
| | $ | 266 |
|
| |
(A) | Intersegment revenues are not material. |
| |
(B) | The amounts for the three and six months ended March 31, 2016 include increases of $116 million and $246 million in the three and six-month periods, respectively, of non-cash amortization expense associated with acquisition-related identifiable intangible assets related to CareFusion. |
| |
(C) | Primarily comprised of foreign exchange, corporate expenses, and share-based compensation expense. The amount for the three months ended December 31, 2016 also included a $336 million 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 this legal matter are provided Note 5. |
Revenues by geographic areas were as follows:
| | | Three Months Ended March 31, | | Six Months Ended March 31, | Three Months Ended December 31, |
(Millions of dollars) | 2016 | | 2015 | | 2016 | | 2015 | 2016 | | 2015 |
Revenues | | | | | | | | | | |
United States | $ | 1,719 |
| | $ | 863 |
| | $ | 3,410 |
| | $ | 1,744 |
| $ | 1,630 |
| | $ | 1,691 |
|
International | 1,349 |
| | 1,188 |
| | 2,644 |
| | 2,358 |
| 1,292 |
| | 1,295 |
|
Total Revenues | $ | 3,067 |
| | $ | 2,051 |
| | $ | 6,054 |
| | $ | 4,102 |
| $ | 2,922 |
| | $ | 2,986 |
|
Note 7 – Share-Based Compensation
The Company grants share-based awards under the 2004 Employee and Director Equity-Based Compensation Plan (the “2004 Plan”), which provides long-term incentive compensation to employees and directors. The Company believes that such awards align the interests of its employees and directors with those of its shareholders.
The fair values of stock appreciation rights granted during the annual share-based grants in November of 20152016 and 2014,2015, respectively, were estimated on the date of grant using a lattice-based binomial valuation model based on the following assumptions:
| | | 2016 | | 2015 | 2017 | | 2016 |
Risk-free interest rate | 2.17 | % | | 2.20 | % | 2.33 | % | | 2.17 | % |
Expected volatility | 19.00 | % | | 19.00 | % | 20.00 | % | | 19.00 | % |
Expected dividend yield | 1.76 | % | | 1.78 | % | 1.71 | % | | 1.76 | % |
Expected life | 7.6 years |
| | 7.6 years |
| 7.5 years |
| | 7.6 years |
|
Fair value derived | $ | 27.69 |
| | $ | 24.82 |
| $ | 33.81 |
| | $ | 27.69 |
|
The fair value of share-based payments is recognized as compensation expense in net income. For the three months ended MarchDecember 31, 2016 and 2015, compensation expense charged to income was $43$61 million and $44 million, respectively. For the six months ended March 31, 2016 and 2015, compensation expense charged to income was $119 million and $92$76 million, respectively.
The amount of unrecognized compensation expense for all non-vested share-based awards as of MarchDecember 31, 2016 was approximately $259$293 million, which is expected to be recognized over a weighted-average remaining life of approximately 2.22.4 years. Certain pre-acquisition equity awards of CareFusion were converted into either BD restricted stock awards or BD stock options, as applicable, as of the acquisition date, with substantially the same terms and conditions as were applicable under such CareFusion awards immediately prior to the acquisition date. Included in the unrecognized compensation expense is $20 million associated with these replacement awards.
Note 8 – Benefit Plans
The Company has defined benefit pension plans covering certain employees in the United States and certain foreign locations. The Company also provides certain postretirement healthcare and life insurance benefits to qualifying domestic retirees. Other postretirement benefit plans in foreign countries are not material. The measurement date used for the Company’s employee benefit plans is September 30.
Net pension and postretirement cost included the following components for the three months ended MarchDecember 31:
|
| | | | | | | | | | | | | | | |
| Pension Plans | | Other Postretirement Benefits |
(Millions of dollars) | 2016 | | 2015 | | 2016 | | 2015 |
Service cost | $ | 20 |
| | $ | 19 |
| | $ | 1 |
| | $ | 1 |
|
Interest cost | 18 |
| | 21 |
| | 1 |
| | 2 |
|
Expected return on plan assets | (27 | ) | | (30 | ) | | — |
| | — |
|
Amortization of prior service credit | (4 | ) | | (4 | ) | | (1 | ) | | (1 | ) |
Amortization of loss | 19 |
| | 17 |
| | — |
| | 1 |
|
Settlements | 1 |
| | — |
| | — |
| | — |
|
Net pension and postretirement cost | $ | 27 |
| | $ | 23 |
| | $ | 1 |
| | $ | 2 |
|
Net pension and postretirement cost included the following components for the six months ended March 31:
| | | Pension Plans | | Other Postretirement Benefits | Pension Plans | | Other Postretirement Benefits |
(Millions of dollars) | 2016 | | 2015 | | 2016 | | 2015 | 2016 | | 2015 | | 2016 | | 2015 |
Service cost | $ | 41 |
| | $ | 38 |
| | $ | 1 |
| | $ | 2 |
| $ | 24 |
| | $ | 21 |
| | $ | 1 |
| | $ | 1 |
|
Interest cost | 37 |
| | 43 |
| | 3 |
| | 4 |
| 16 |
| | 19 |
| | 1 |
| | 1 |
|
Expected return on plan assets | (55 | ) | | (61 | ) | | — |
| | — |
| (30 | ) | | (29 | ) | | — |
| | — |
|
Amortization of prior service credit | (7 | ) | | (8 | ) | | (2 | ) | | (2 | ) | (4 | ) | | (4 | ) | | (1 | ) | | (1 | ) |
Amortization of loss | 39 |
| | 34 |
| | 1 |
| | 1 |
| 25 |
| | 20 |
| | — |
| | — |
|
Settlements | 1 |
| | — |
| | — |
| | — |
| |
Net pension and postretirement cost | $ | 55 |
| | $ | 46 |
| | $ | 3 |
| | $ | 4 |
| $ | 32 |
| | $ | 28 |
| | $ | 1 |
| | $ | 1 |
|
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.
Postemployment benefit costs were $10 million for the three-month periodsthree-months ended MarchDecember 31, 2016 and 2015. Postemployment benefit costs were $20 million and $21 million for the six-month periods ended March 31, 2016 and 2015, respectively. Employee termination costs associated with the Company's restructuring activities are provided in Note Note 1110.
Note 9 – Acquisition
CareFusion Corporation
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. The acquisition was accounted for under the acquisition method of accounting for business combinations. The operating activities from the acquisition date through March 31, 2015 were not material to the Company’s consolidated results of operations. As such, CareFusion’s operating results were included in the Company’s consolidated results of operations beginning on April 1, 2015. Revenues for the three and six months ended March 31, 2016 include revenues attributable to CareFusion of $1.017 billion and $2.033 billion, respectively. The operating income of the acquired CareFusion operation is no longer specifically identifiable due to the progression of the Company's integration activities.
The following table provides the pro forma results for the six months ended March 31, 2016 and 2015 as if CareFusion had been acquired as of the beginning of the periods presented.
|
| | | | | | | | |
(Millions of dollars, except per share data) | | Six Months Ended March 31, |
| | 2016 | | 2015 |
| | | | |
Revenues | | $ | 6,063 |
| | $ | 6,168 |
|
| | | | |
Net Income | | $ | 719 |
| | $ | 640 |
|
| | | | |
Diluted Earnings per Share | | $ | 3.32 |
| | $ | 2.98 |
|
The pro forma results above reflect the following adjustments, which were adjusted for the applicable tax impact to derive the net income amounts above:
Additional amortization expense related to the fair value of intangible assets acquired;
Additional depreciation expense related to the fair value of property, plant and equipment acquired;
Additional interest expense and financing costs associated with the Company’s financing arrangements relating to this acquisition, as well as the adjustment to interest expense relating to the fair value of long-term debt assumed;
Elimination of one-time financing fees, transaction, integration and restructuring costs incurred relative to this acquisition;
Exclusion of the income statement effects of the fair value adjustments to inventory and deferred revenue obligations acquired as such adjustments are not recurring in nature.
The pro forma results do not include any anticipated cost savings or other effects of the planned integration of CareFusion. 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, nor are the pro forma results indicative of results which may occur in the future.
Note 10 – Divestiture
Respiratory Solutions
In MarchOn October 3, 2016, the Company signedsold a definitive agreement to sell 50.1% ofcontrolling financial interest in its Respiratory Solutions business, anda component of the Medical segment, to form a joint venture with respect to this business. Under the agreement, theventure. The Company will transfer the Respiratory Solutions business to a new standalone entity in which it will retainretained a 49.9% non-controlling interest andin the buyer will own the remainder.new standalone entity. The buyer will control the operations and governance of the joint venture.new entity. The condensed consolidated balance sheet at March 31, 2016 includes assets and liabilities heldCompany will account for sale under this agreement of approximately $588 million and $202 million, respectively. The Respiratory Solutions business was acquiredits remaining interest in the CareFusion acquisition in 2015new entity as an equity method investment and was a componentwill record its share of the Medical segment.new entity's earnings or losses, on a one-quarter lag beginning on January 1, 2017, to Other income (expense), net. The transaction is expectedCompany has agreed to close later in 2016, subjectvarious contract manufacturing and certain logistical and transition services agreements with the new entity for a period of up to regulatory approvals andtwo years after the satisfaction of
customary closing conditions.sale. The historical financial results for the Respiratory Solutions business, willwhich included approximately $208 million of revenues for the three months ended December 31, 2015, have not bebeen classified as a discontinued operation.
Note 1110 – Business Restructuring Charges
In connection with the Company's fiscal year 2015 acquisition of CareFusion acquisition and other portfolio rationalization initiatives, the Company incurred restructuring costs during the sixthree months ended MarchDecember 31, 2016, which were recorded as Acquisitions and other restructurings. Restructuring liability activity for the sixthree months ended MarchDecember 31, 2016 was as follows:
| | (Millions of dollars) | Employee Termination | | Share-based Compensation (A) | | Other (B) | | Total | Employee Termination | | Other | | Total |
Balance at September 30, 2015 | $ | 62 |
| | $ | — |
| | $ | — |
| | $ | 62 |
| |
Balance at September 30, 2016 | | $ | 67 |
| | $ | 2 |
| | $ | 69 |
|
Charged to expense | 33 |
| | 25 |
| | 91 |
| | 149 |
| 9 |
| | 26 |
| | 35 |
|
Cash payments | (52 | ) | | — |
| | (32 | ) | | (84 | ) | (11 | ) | | (17 | ) | | (28 | ) |
Non-cash settlements | — |
| | (25 | ) | | — |
| | (25 | ) | — |
| | (4 | ) | | (4 | ) |
Other adjustments | — |
| | — |
| | (59 | ) | | (59 | ) | — |
| | (5 | ) | | (5 | ) |
Balance at March 31, 2016 | $ | 43 |
| | $ | — |
| | $ | — |
| | $ | 43 |
| |
Balance at December 31, 2016 | | $ | 65 |
| | $ | 2 |
| | $ | 67 |
|
| |
(A) | Additional disclosures are provided in Note 7.
|
| |
(B) | Includes a non-cash charge of $28 million, after-tax, relating to the Company's agreement reached in December 2015 to sell a non-core asset. |
Note 1211 – Intangible Assets
Intangible assets consisted of:
| | | March 31, 2016 | | September 30, 2015 | December 31, 2016 | | September 30, 2016 |
(Millions of dollars) | Gross Carrying Amount | | Accumulated Amortization | | Gross Carrying Amount | | Accumulated Amortization | Gross Carrying Amount | | Accumulated Amortization | | Gross Carrying Amount | | Accumulated Amortization |
Amortized intangible assets | | | | | | | | | | | | | | |
Customer relationships | $ | 3,361 |
| | $ | 233 |
| | $ | 3,370 |
| | $ | 120 |
| $ | 3,360 |
| | $ | 395 |
| | $ | 3,360 |
| | $ | 339 |
|
Developed technology | 3,355 |
| | 635 |
| | 3,487 |
| | 510 |
| 3,385 |
| | 805 |
| | 3,409 |
| | 754 |
|
Product rights | 131 |
| | 40 |
| | 128 |
| | 35 |
| 115 |
| | 41 |
| | 125 |
| | 43 |
|
Trademarks | 405 |
| | 36 |
| | 405 |
| | 26 |
| 405 |
| | 50 |
| | 405 |
| | 45 |
|
Patents and other | 338 |
| | 241 |
| | 333 |
| | 212 |
| 351 |
| | 261 |
| | 349 |
| | 254 |
|
Amortized intangible assets | $ | 7,590 |
| | $ | 1,185 |
| | $ | 7,723 |
| | $ | 903 |
| $ | 7,616 |
| | $ | 1,553 |
| | $ | 7,648 |
| | $ | 1,435 |
|
Unamortized intangible assets | | | | | | | | | | | | | | |
Acquired in-process research and development | $ | 124 |
| | | | $ | 203 |
| | | $ | 64 |
| | | | $ | 66 |
| | |
Trademarks | 2 |
| | | | 2 |
| | | 2 |
| | | | 2 |
| | |
Unamortized intangible assets | $ | 126 |
| | | | $ | 205 |
| | | $ | 66 |
| | | | $ | 68 |
| | |
Intangible amortization expense for the three months ended MarchDecember 31, 2016 and 2015 was $138$137 million and $20$152 million, respectively. Intangible amortization expense for the six months ended March 31, 2016 and 2015 was $289 million and $40 million, respectively. The increase in intangible amortization expense in the current-year periods is mostly attributable to identifiable intangible assets acquired in the CareFusion transaction.
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 |
|
Purchase accounting adjustments/currency translation | (90 | ) | (A) | | 1 |
| | (89 | ) |
Goodwill as of March 31, 2016 | $ | 6,718 |
| | | $ | 731 |
| | $ | 7,448 |
|
|
| | | | | | | | | | | |
(Millions of dollars) | Medical | | Life Sciences | | Total |
Goodwill as of September 30, 2016 | $ | 6,688 |
| | $ | 731 |
| | $ | 7,419 |
|
Divestiture (A) | (25 | ) | | — |
| | (25 | ) |
Currency translation | (25 | ) | | (7 | ) | | (32 | ) |
Goodwill as of December 31, 2016 | $ | 6,639 |
| | $ | 724 |
| | $ | 7,363 |
|
| |
(A) | ComprisedRepresents goodwill derecognized upon the Company's sale of acquisition accounting adjustments made duringa 50.1% controlling financial interest in the period relating to the CareFusion acquisition of $94 million primarily resulting from adjustment to the deferred tax liability accounts.Respiratory Solutions business, as further discussed in Note 9. |
Note 1312 – Derivative Instruments and Hedging Activities
The Company uses derivative instruments to mitigate certain exposures. The effects these derivative instruments and hedged items have on financial position, financial performance, and cash flows are provided below.
Foreign Currency Risks and Related Strategies
The Company has foreign currency exposures throughout Europe, 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 contracts and currency options. Hedges of the transactional foreign exchange exposures resulting primarily from intercompany payables and receivables are undesignated hedges. As such, the gains or losses on these instruments are recognized immediately in income. The offset of these gains or losses against the gains and losses on the underlying hedged items, as well as the hedging costs associated with the derivative instruments, is recognized in Other income (expense), net.
The total notional amounts of the Company’s outstanding foreign exchange contracts as of MarchDecember 31, 2016 and September 30, 20152016 were $1.3 billion and $2.2$2.3 billion, respectively.
In order to mitigate foreign currency exposure relating to its investments in certain foreign subsidiaries, the Company has designated $1.1 billion of euro-denominated debt, issued in December 2016, as net investment hedges. Accordingly, net gains or losses relating to this debt, which are attributable to changes in the euro to U.S. dollar spot exchange rate, are recorded as accumulated foreign currency translation in Other comprehensive income (loss). Recognition of hedge ineffectiveness into earnings will occur if the notional amount of the euro-denominated debt no longer matches the portion of the net investments in foreign subsidiaries which underlie the hedges. The Company's balance of Accumulated other comprehensive income (loss) as of December 31, 2016 included a gain relating to these net investment hedges of $23 million. Additional disclosures regarding the Company's issuance of the euro-denominated debt in December 2016 are provided in Note 14.
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.
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 $6$5 million, net of tax.
The total notional value of the Company's outstanding forward starting interest rate swaps designated as cash flow hedges was $250$500 million at MarchDecember 31, 2016 and September 30, 2016. The Company entered into these contracts in March and April 2016 to mitigate its exposure to interest rate risk. The Company had no outstanding interest rate swaps designated as cash flow hedges as of September 30, 2015.
The total notional amount of the Company’s outstanding interest rate swaps designated as fair value hedges was $375 million at MarchDecember 31, 2016 and September 30, 2015.2016. 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 gains (losses) recorded on these fair value hedges, which were offset by losses (gains) recorded to the underlying debt instruments, are provided below.
| | | Three Months Ended March 31, | | Six Months Ended March 31, | Three Months Ended December 31, |
(Millions of dollars) | 2016 | | 2015 | | 2016 | | 2015 | 2016 | | 2015 |
Gain (loss) on fair value hedges | $ | 11 |
| | $ | 6 |
| | $ | 24 |
| | $ | 16 |
| |
(Losses) gains on fair value hedges | | $ | (14 | ) | | $ | 13 |
|
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. The total notional amount of cash-settled forward contracts entered into in April 2015 to hedge global resin purchase volume throughout 2015 and 2016 was 24 million pounds ($13 million) and 49 million pounds ($25 million) at March 31, 2016 and September 30, 2015, respectively.
Effects on Consolidated Balance Sheets
The location and amounts of derivative instrument fair values in the consolidated balance sheet are segregated below between designated, qualifying hedging instruments and ones that are not designated for hedge accounting.
| | (Millions of dollars) | March 31, 2016 | | September 30, 2015 | December 31, 2016 | | September 30, 2016 |
Asset derivatives-designated for hedge accounting | | | | | | |
Interest rate swaps | $ | 24 |
| | $ | 19 |
| $ | 30 |
| | $ | 23 |
|
Asset derivatives-undesignated for hedge accounting | | | | | | |
Forward exchange contracts | 22 |
| | 13 |
| 8 |
| | 3 |
|
Total asset derivatives (A) | $ | 46 |
| | $ | 32 |
| $ | 38 |
| | $ | 25 |
|
Liability derivatives-designated for hedge accounting | | | | | | |
Commodity forward contracts | $ | 5 |
| | $ | 10 |
| |
Interest rate swaps | 3 |
| | — |
| — |
| | 18 |
|
Liability derivatives-undesignated for hedge accounting | | | | | | |
Forward exchange contracts | 9 |
| | 21 |
| 15 |
| | 13 |
|
Total liability derivatives (B) | $ | 16 |
| | $ | 30 |
| $ | 15 |
| | $ | 31 |
|
| |
(A) | All asset derivatives are included in Prepaid expenses and other. |
| |
(B) | All liability derivatives are included in Payables and accrued expenses. |
Effects on Consolidated Statements of Income
Cash flow hedges
The after-tax losses recognized for the three and six months ended March 31, 2016 in other comprehensive income relating to the previously discussed cash flow hedges were $2 million. There were no amountsamount recognized in other comprehensive income relatingduring the three-month period ended December 31, 2016 related to the previously discussed forward starting interest rate swaps entered into in fiscal year 2016.
|
| | | | | | | |
| Three Months Ended December 31, |
(Millions of dollars) | 2016 | | 2015 |
After-tax gains relating to cash flow hedges recognized in other comprehensive income (loss) | $ | 24 |
| | $ | — |
|
The Company’s derivative instruments designated as cash flow hedges for the three months ended March 31, 2015. After-tax losses of $8 million recognized in Other comprehensive income (loss) for the six months ended March 31, 2015 were attributable to interest rate swaps that were entered into during the first quarter of fiscal year 2015 to partially hedge interest rate risk associated with the anticipated issuance of senior unsecured notes in connection with the Company’s acquisition of CareFusion. Additional disclosures regarding amounts recognized in the condensed consolidated statements of income for the three and six months ended March 31, 2016 and 2015 relating to cash flow hedges are provided in Note 3.
The Company’s designated derivative instruments are highly effective. As such, there are no gains or losses, related to hedge ineffectiveness or amounts excluded from hedge effectiveness testing, recognized immediately in income relative to derivative contractscash flow hedges outstanding in the periods presented.
Undesignated hedges
The location and amount of gains and losses recognized in income on derivatives not designated for hedge accounting were as follows:
| | | Location of Gain (Loss) Recognized in Income on Derivatives | | Amount of Gain (Loss) Recognized in Income on Derivatives | Location of (Loss) Gain Recognized in Income on Derivatives | | Amount of (Loss) Gain Recognized in Income on Derivatives |
Derivatives Not Designated as Hedging Instruments | Three Months Ended March 31, | | Six Months Ended March 31, | Three Months Ended December 31, |
(Millions of dollars) | | | 2016 | | 2015 | | 2016 | | 2015 | | | 2016 | | 2015 |
Forward exchange contracts (A) | Other income (expense), net | | $ | 15 |
| | $ | (94 | ) | | $ | 26 |
| | $ | (96 | ) | Other income (expense), net | | $ | (22 | ) | | $ | 11 |
|
| |
(A) | The gains and losses on forward contracts and currency options utilized to hedge the intercompany transactional foreign exchange exposures are largely offset by gains and losses on the underlying hedged items in Other income (expense), net. |
Note 1413 – Financial Instruments and Fair Value Measurements
The fair values of financial instruments, including those not recognized on the statement of financial position at fair value, carried at MarchDecember 31, 2016 and September 30, 20152016 are classified in accordance with the fair value hierarchy in the following tables:
| | | | | Basis of Fair Value Measurement | | | Basis of Fair Value Measurement |
(Millions of dollars) | March 31, 2016 Total | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | December 31, 2016 Total | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
Assets | | | | | | | | | | | | | | |
Institutional money market investments | $ | 477 |
| | $ | 477 |
| | $ | — |
| | $ | — |
| $ | 82 |
| | $ | 82 |
| | $ | — |
| | $ | — |
|
Interest rate swaps | 24 |
| | — |
| | 24 |
| | — |
| 30 |
| | — |
| | 30 |
| | — |
|
Forward exchange contracts | 22 |
| | — |
| | 22 |
| | — |
| 8 |
| | — |
| | 8 |
| | — |
|
Total Assets | $ | 523 |
| | $ | 477 |
| | $ | 46 |
| | $ | — |
| $ | 120 |
| | $ | 82 |
| | $ | 38 |
| | $ | — |
|
Liabilities | | | | | | | | | | | | | | |
Forward exchange contracts | $ | 9 |
| | $ | — |
| | $ | 9 |
| | $ | — |
| $ | 15 |
| | $ | — |
| | $ | 15 |
| | $ | — |
|
Commodity forward contracts | 5 |
| | — |
| | 5 |
| | — |
| |
Interest rate swaps | 3 |
| | — |
| | 3 |
| | — |
| |
Contingent consideration liabilities | 57 |
| | — |
| | — |
| | 57 |
| 50 |
| | — |
| | — |
| | 50 |
|
Total Liabilities | $ | 73 |
| | $ | — |
| | $ | 16 |
| | $ | 57 |
| $ | 65 |
| | $ | — |
| | $ | 15 |
| | $ | 50 |
|
| | | | | Basis of Fair Value Measurement | | | Basis of Fair Value Measurement |
(Millions of dollars) | September 30, 2015 Total | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | September 30, 2016 Total | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
Assets | | | | | | | | | | | | | | |
Institutional money market investments | $ | 147 |
| | $ | 147 |
| | $ | — |
| | $ | — |
| $ | 224 |
| | $ | 224 |
| | $ | — |
| | $ | — |
|
Interest rate swaps | 19 |
| | — |
| | 19 |
| | — |
| 23 |
| | — |
| | 23 |
| | — |
|
Forward exchange contracts | 13 |
| | — |
| | 13 |
| | — |
| 3 |
| | — |
| | 3 |
| | — |
|
Total Assets | $ | 179 |
| | $ | 147 |
| | $ | 32 |
| | $ | — |
| $ | 249 |
| | $ | 224 |
| | $ | 25 |
| | $ | — |
|
Liabilities | | | | | | | | | | | | | | |
Forward exchange contracts | $ | 21 |
| | $ | — |
| | $ | 21 |
| | $ | — |
| $ | 13 |
| | $ | — |
| | $ | 13 |
| | $ | — |
|
Commodity forward contracts | 10 |
| | — |
| | 10 |
| | — |
| |
Interest rate swaps | | 18 |
| | — |
| | 18 |
| | — |
|
Contingent consideration liabilities | 77 |
| | — |
| | — |
| | 77 |
| 54 |
| | — |
| | — |
| | 54 |
|
Total Liabilities | $ | 108 |
| | $ | — |
| | $ | 30 |
| | $ | 77 |
| $ | 86 |
| | $ | — |
| | $ | 31 |
| | $ | 54 |
|
The Company’s institutional money market accounts permit daily redemption and the fair values of these investments are based upon the quoted prices in active markets provided by the holding financial institutions. The Company’s remaining cash
equivalents were $1.219 billion$838 million and $1.277$1.317 billion at MarchDecember 31, 2016 and September 30, 2015,2016, respectively. Short-term investments are held to their maturities and are carried at cost, which approximates fair value. The cash equivalents consist of liquid investments with a maturity of three months or less and the short-term investments consist of instruments with maturities greater than three months and less than one year.
The Company measures the fair value of forward exchange contracts and 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 $11.5$9.4 billion and $11.6$11.3 billion at MarchDecember 31, 2016 and September 30, 2015,2016, respectively. During the first quarter of fiscal year 2016, the Company reclassified $500 million of 1.75% notes due on November 8, 2016 from Long-Term Debt to Short-term debt. During the third quarter of fiscal year 2015, the Company reclassified $750 million of floating rates due on June 15, 2016 from Long-Term Debt to Short-term debt. The fair value of reclassified notesthe current portion of long-term debt was $1.3$1.1 billion and $750$798 million at MarchDecember 31, 2016 and September 30, 2015,2016, respectively.
The contingent consideration liabilities were recognized as part of the consideration transferred by the Company for certain acquisitions. The 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 the contingent consideration liabilities are remeasured each reporting period based upon increases or decreases in the probability of the contingent payments. The change to the contingent consideration liability as of March 31, 2016 reflected the impact of a net decrease recorded in the second quarter of $22 million in the fair value of contingent consideration liabilities associated with certain product development milestones.
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 three and six months ended MarchDecember 31, 2016 and 2015.
Note 14 – Debt
In December 2016, the Company issued euro-denominated debt consisting of 500 million euros ($531 million) of 1.000% notes due December 15, 2022 and 500 million euros ($531 million) of 1.900% notes due December 15, 2026. The Company used the net proceeds from this long-term debt offering, together with other sources of liquidity, to fund the Company's repurchase of certain of its long-term senior notes outstanding. Under this cash tender offer, the Company repurchased the following aggregate principal amounts of its long-term debt at an aggregate market price of $1.764 billion:
|
| | | | |
Interest Rate and Maturity | | Aggregate Principal Amount (Millions of dollars) |
1.450% Notes due May 15, 2017 | | $ | 226 |
|
1.800% Notes due December 15, 2017 | | 250 |
|
5.000% Notes due May 15, 2019 | | 153 |
|
6.375% Notes due August 1, 2019 | | 338 |
|
2.675% Notes due December 15, 2019 | | 125 |
|
3.875% Notes due May 15, 2024 | | 221 |
|
3.734% Notes due December 15, 2024 | | 375 |
|
Total notes purchased | | $ | 1,689 |
|
The carrying value of these long-term notes was $1.727 billion, and the Company recognized a loss on this debt extinguishment of $42 million, which was recorded in December 2016 as Other income (expense), net, on the Company’s condensed consolidated statements of income.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following commentary should be read in conjunction with the condensed consolidated financial statements and accompanying notes. 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.
Company Overview
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, life science researchers, clinical laboratories, the pharmaceutical industry and the general public. The Company's organizational structure is based upon two principal business segments, BD Medical (“Medical”) and BD Life Sciences (“Life Sciences”).
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 Japan and Asia Pacific); 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. We are primarily focused on certain countries whose healthcare systems are expanding, in particular, China and India.
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 prior-year periods ended March 31, 2015 referenced in the commentary provided further below did not include CareFusion's results. CareFusion operates as part of our Medical segment.
Overview of Financial Results and Financial Condition
For the three months ended MarchDecember 31, 2016, worldwide revenues increased 49.6% to $3.067of $2.922 billion decreased 2.1% from the prior year, whichprior-year period. The decrease in revenue reflected the unfavorable impact from divestitures, primarily reflected an impactthe Respiratory Solutions business divestiture, of $1.017 billion from the inclusion of CareFusion revenuesapproximately 7%. Revenues in the current quarter’s results. Revenuefirst quarter of fiscal year 2017 also reflected volume growth for BD's legacy operations was primarily driven by volume,our continuing businesses of approximately 6% and to a lesser extent price, but was offset by the impact ofan unfavorable foreign currency translation.
The current-year period’s total revenuestranslation impact of approximately 1%. Pricing did not materially impact first quarter revenues. Additional disclosures regarding our divestiture of the Respiratory Solutions business are provided in Note 9 in the Notes to Condensed Consolidated Financial Statements. Volume growth in the first quarter of fiscal year 2017 reflected the following:
Second quarter Medical segment revenuevolume growth reflected the inclusion of CareFusion’s sales in the current-year period's results, as well as continuedfirst quarter reflected earlier than anticipated timing of capital placements by the Medication Management Solutions unit and order placements for the Pharmaceutical Systems unit. Medical segment volume growth attributable toin the segment's BD legacy products infirst quarter additionally reflected the Medication and Procedural Solutions unit's sales of flush and infection prevention products, the Pharmaceutical Systems unit's sales of self-injections systems, as well as the Diabetes Care and Pharmaceutical Systems units.unit’s sales of pen needles.
Life Sciences segment revenuevolume growth in the secondfirst quarter primarily reflected the Preanalytical Systems unit's sales of safety-engineered products in emerging markets, the Diagnostic Systems unit's sales of certain platforms, and the Biosciences unit's sales of its advanced bioprocessing platform and research instruments. Life Sciences segment volume growth in the Preanalytical Systems and Diagnostic Systems units.first quarter was partially offset by an unfavorable comparison of the current period's international revenues in the Biosciences unit to the prior-year period.
Worldwide sales of safety-engineered products reflected the inclusion of CareFusion's sales of safety-engineered products in the current year's quarter, as well as growth that was attributable to BD's legacy safety-engineered products. Secondboth segments. First quarter sales in the United States of safety-engineered devices of $443$454 million increased 50.7%1.6% and secondfirst quarter international sales of safety-engineered devices of $290$308 million grew 13.1%6.3% over the prior year’s period, inclusive of an estimated 12.0%1.3% unfavorable impact due to foreign currency translation.
We continue to invest in research and development, geographic expansion, and new product promotions 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, including through the integration of CareFusion.effectiveness. While the economic environment for the healthcare industry has generally stabilized, pricing pressures continue for some of our products. Healthcare utilization and research spending has stabilized and slightly improved in the United States; however, any destabilization in the future could adversely impact our U.S. 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.
Our financial position remains strong, with cash flows from operating activities totaling $1.020 billion$315 million in the first sixthree months of fiscal year 2016.2017. At MarchDecember 31, 2016, we had $1.7$0.9 billion in cash and equivalents and short-term investments. We continued to
return value to our shareholders in the form of dividends. During the first sixthree months of fiscal year 2016,2017, we
paid cash dividends of $280$156 million. No shares wereWe also repurchased approximately $220 million of our common stock under an accelerated share repurchase agreement during the first sixthree months of fiscal year 2016.2017. Additional disclosures regarding this share repurchase agreement are provided in Note 4 in the Notes to Condensed Consolidated Financial Statements.
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 the U.S. dollar resulted in an unfavorable foreign currency translation impact to our revenue and earnings growth during the quarter.first quarter of fiscal year 2017. 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
Revenues
Medical Segment
The following summarizes secondfirst quarter Medical revenues by organizational unit, as well as secondfirst quarter Medical sales of safety-engineered products:
| | | Three months ended March 31, | Three months ended December 31, |
(Millions of dollars) | 2016 | | 2015 | | Total Change | | Estimated FX Impact | | FXN Change | 2016 | | 2015 | | Total Change (B) | | Estimated FX Impact | | FXN Change (B) |
Medication and Procedural Solutions | $ | 831 |
| | $ | 565 |
| | 47.2 | % | | (6.0 | )% | | 53.2 | % | $ | 869 |
| | $ | 848 |
| | 2.4 | % | | (1.0 | )% | | 3.4 | % |
Medication Management Solutions(A) | 536 |
| | — |
| | NM |
| | NM |
| | NM |
| 601 |
| | 545 |
| | 10.2 | % | | (0.8 | )% | | 11.0 | % |
Diabetes Care | 243 |
| | 247 |
| | (1.3 | )% | | (4.9 | )% | | 3.6 | % | 267 |
| | 256 |
| | 4.6 | % | | 0.1 | % | | 4.5 | % |
Pharmaceutical Systems | 311 |
| | 294 |
| | 5.6 | % | | (5.4 | )% | | 11.0 | % | 227 |
| | 197 |
| | 15.6 | % | | 0.1 | % | | 15.5 | % |
Respiratory Solutions(A) | 213 |
| | — |
| | NM |
| | NM |
| | NM |
| — |
| | 208 |
| | NM |
| | — | % | | NM |
|
Deferred revenue adjustment (A) | (4 | ) | | — |
| | NM |
| | NM |
| | NM |
| |
Total Medical Revenues | $ | 2,131 |
| | $ | 1,106 |
| | 92.8 | % | | (6.4 | )% | | 99.2 | % | $ | 1,964 |
| | $ | 2,054 |
| | (4.4 | )% | | (0.6 | )% | | (3.8 | )% |
| | | | | | | | | | | | | | | | | | |
Medical segment safety-engineered products | $ | 465 |
| | $ | 281 |
| | 65.5 | % | | (6.1 | )% | | 71.6 | % | $ | 483 |
| | $ | 467 |
| | 3.4 | % | | (0.3 | )% | | 3.7 | % |
| |
(A) | In accordanceThe presentation of prior-period amounts has been revised to conform with U.S. GAAP business combination accounting rules, CareFusion’sthe presentation of current-period amounts, which does not separately present an immaterial adjustment for the amortization of a deferred revenue balance was written downwrite-down relating to reflect a fair value measurement as of the acquisition date. The deferred revenue adjustment represents the amortization of this write-down which primarily relates to software maintenance contracts in the United States. Revenues for these contracts is typically deferred and recognized over the term of the contracts.CareFusion acquisition. |
(B)"NM" denotes that the percentage is not meaningful.
OverallThe decrease in total Medical segment revenues in the first quarter of 2017 compared with the prior-year period reflected the divestiture of the Respiratory Solutions business, as previously discussed. Medical segment revenue growth in the current year'sfirst quarter largely reflectedwas favorably impacted by placements of both dispensing and infusion capital by the inclusionMedication Management Solutions unit, a portion of CareFusion’s saleswhich occurred earlier than anticipated in the current period’s results. Revenuefiscal year. Earlier than anticipated order placements in Europe for the Pharmaceutical Systems unit also favorably impacted Medical segment revenue growth in ourthe first quarter of 2017. Medical segment revenues in the current-year period additionally reflected the Medication and Procedural Solutions unit, which includes our former Medical Surgical Systems unit, additionally reflected growth inunit's sales of safety-engineeredflush and infusion therapy products. Revenue growth forinfection prevention products as well as the Pharmaceutical Systems unit's sales of self-injections systems. Medical segment revenues in the first quarter of 2017 also reflected the Diabetes Care unit was driven byunit’s sales of pen needles, and syringes. The Pharmaceutical Systems unit's revenue growth reflected saleswhich were favorably impacted by the timing of self-injection systems and the earlier than anticipated placement of orders within the current fiscal year.U.S. customer orders.
Medical segment revenues and sales of safety-engineered products for the six-month period were as follows:
|
| | | | | | | | | | | | | | | | |
| Six months ended March 31, |
(Millions of dollars) | 2016 | | 2015 | | Total Change | | Estimated FX Impact | | FXN Change |
Total Medical Revenues | $ | 4,185 |
| | $ | 2,177 |
| | 92.2 | % | | (7.8 | )% | | 100.0 | % |
| | | | | | | | | |
Medical segment safety-engineered products | $ | 932 |
| | $ | 577 |
| | 61.6 | % | | (6.4 | )% | | 68.0 | % |
Medical segment operating income for the three-month and six-month periods werefirst quarter was as follows:
| | | Three months ended March 31, | | Six months ended March 31, | Three months ended December 31, |
(Millions of dollars) | 2016 | | 2015 | | 2016 | | 2015 | 2016 | | 2015 |
Medical segment operating income | $ | 513 |
| | $ | 328 |
| | $ | 978 |
| | $ | 632 |
| $ | 548 |
| | $ | 465 |
|
| | | | | | | | | | |
Segment operating income as % of Medical revenues | 24.1 | % | | 29.7 | % | | 23.4 | % | | 29.0 | % | 27.9 | % | | 22.6 | % |
The Medical segment's operating income is driven by its performance with respect to gross profit margin and other operating expenses. Gross profit margin was lowerhigher in the currentfirst quarter of 2017 as compared with the secondfirst quarter of 20152016 primarily due to amortizationthe divestiture of $116 million for intangible assets acquired in the CareFusion transaction. This unfavorable impact onRespiratory Solutions business, which had products with lower gross profit margins. Gross profit margin was partially offset byalso reflected lower manufacturing costs resulting from continuous improvement projects improvingwhich enhanced the efficiency of our operations.operations, partially offset by higher raw material costs. Selling and administrative expense as a percentage of revenues for the secondfirst quarter of fiscal year 20162017 was higher due to depreciationlower as a result of fixed assets acquiredthe divestiture of the Respiratory Solutions business as this business generally had a lower operating margin. Selling administrative expense as a percentage of revenues in the CareFusion acquisition.current-year period additionally benefited from the suspension of the medical device excise tax imposed under the U.S. Patient Protection Affordable Care Act. Research and development expenses for the quarter increased $57 million, or 148% above the prior year’s period, primarily due to the inclusionexpense as a percentage of CareFusion’s costsrevenues was relatively flat in the current period’s results.first quarter of 2017 as compared with the first quarter of 2016.
Life Sciences Segment
The following is a summary of secondsummarizes first quarter Life Sciences revenues by organizational unit, as well as secondfirst quarter Life Sciences sales of safety-engineered products:
| | | Three months ended March 31, | Three months ended December 31, |
(Millions of dollars) | 2016 | | 2015 | | Total Change | | Estimated FX Impact | | FXN Change | 2016 | | 2015 | | Total Change | | Estimated FX Impact | | FXN Change |
Preanalytical Systems | $ | 340 |
| | $ | 339 |
| | 0.4 | % | | (5.3 | )% | | 5.7 | % | $ | 355 |
| | $ | 344 |
| | 3.3 | % | | (0.9 | )% | | 4.2 | % |
Diagnostic Systems | 319 |
| | 318 |
| | 0.4 | % | | (4.2 | )% | | 4.6 | % | 334 |
| | 313 |
| | 6.4 | % | | — | % | | 6.4 | % |
Biosciences | 277 |
| | 289 |
| | (4.1 | )% | | (3.6 | )% | | (0.5 | )% | 270 |
| | 276 |
| | (2.2 | )% | | (0.5 | )% | | (1.7 | )% |
Total Life Sciences Revenues | $ | 936 |
| | $ | 945 |
| | (1.0 | )% | | (4.4 | )% | | 3.4 | % | $ | 958 |
| | $ | 933 |
| | 2.7 | % | | (0.5 | )% | | 3.2 | % |
| | | | | | | | | | | | | | | | | | |
Life Sciences segment safety-engineered products | $ | 268 |
| | $ | 269 |
| | (0.5 | )% | | (5.1 | )% | | 4.6 | % | $ | 280 |
| | $ | 270 |
| | 3.5 | % | | (0.9 | )% | | 4.4 | % |
Life Sciences segment revenues in the first quarter were aided by the Diagnostics Systems unit, which experienced an earlier start to the current year’s influenza season compared to prior year, as well as growth relating to the BD KiestraTMand BD MAXTMplatforms. The segment’s first quarter revenue growth for the quarter was driven byalso reflected sales of the Preanalytical Systems and Diagnostic Systems units. The Preanalytical Systems unit's revenue growthsafety-engineered products, primarily in emerging markets. Lastly, within the Biosciences unit, an unfavorable comparison of the current period's international revenues to the prior-year period was drivenpartially offset by U.S. sales of safety-engineered products as well as by sales in Europeits advanced bioprocessing platform and emerging markets. The Diagnostic Systems unit's second quarter revenue growth rates reflected growth in sales of microbiology products. The Diagnostic Systems unit's second quarter revenues also benefited from a late start to the influenza season compared with the prior-year period. The Biosciences unit’s second quarter revenues were relatively flat compared with the prior-year period. Introductions of new products, continued increased demand for high-parameterresearch instruments and growth in research reagents was offset by unfavorable timing of orders in Europe and delayed clinical tenders in Africa.
Life Sciences segment total revenues and sales of safety-engineered products for the six-month period were as follows:
|
| | | | | | | | | | | | | | | | |
| Six months ended March 31, |
(Millions of dollars) | 2016 | | 2015 | | Total Change | | Estimated FX Impact | | FXN Change |
Total Life Sciences Revenues | $ | 1,869 |
| | $ | 1,925 |
| | (2.9 | )% | | (5.4 | )% | | 2.5 | % |
| | | | | | | | | |
Life Sciences segment safety-engineered products | $ | 538 |
| | $ | 547 |
| | (1.6 | )% | | (5.9 | )% | | 4.3 | % |
reagents.
Life Sciences segment operating income for the three-month and six-month periods werefirst quarter was as follows:
| | | Three months ended March 31, | | Six months ended March 31, | Three months ended December 31, |
(Millions of dollars) | 2016 | | 2015 | | 2016 | | 2015 | 2016 | | 2015 |
Life Sciences segment operating income | $ | 202 |
| | $ | 200 |
| | $ | 404 |
| | $ | 413 |
| $ | 198 |
| | $ | 202 |
|
| | | | | | | | | | |
Segment operating income as % of Life Sciences revenues | 21.6 | % | | 21.1 | % | | 21.6 | % | | 21.5 | % | 20.7 | % | | 21.6 | % |
The Life Sciences segment's operating income is driven by its performance with respect to gross profit margin and other operating expenses. Gross profit margin in the secondfirst quarter of fiscal year 20162017 was in linelower compared with the secondfirst quarter of 2015 as the2016 primarily due to unfavorable impact of foreign currency translation wasand higher unfavorable manufacturing variances, partially offset by margin gains primarilylower manufacturing costs resulting from operational efficiencies.continuous improvement projects which enhanced the efficiency of our operations. Selling and administrative expense as a percentage of Life Sciences revenues in the secondfirst quarter of 20162017 was also in line withslightly higher compared to the second quarterprior-year period reflecting higher shipping costs which were partially offset by the suspension of 2015. the medical device excise tax.
Research and development expense as a percentage of revenues was relatively flat in the secondfirst quarter of 2016 decreased by $4 million, or 5%, which was primarily influenced by2017 as compared with the timingfirst quarter of project spending.2016.
Geographic Revenues
BD’s worldwide secondfirst quarter revenues by geography were as follows:
| | | Three months ended March 31, | Three months ended December 31, |
(Millions of dollars) | 2016 | | 2015 | | Total Change | | Estimated FX Impact | | FXN Change | 2016 | | 2015 | | Total Change | | Estimated FX Impact | | FXN Change |
United States | $ | 1,719 |
| | $ | 863 |
| | 99.2 | % | | — |
| | 99.2 | % | $ | 1,630 |
| | $ | 1,691 |
| | (3.6 | )% | | — |
| | (3.6 | )% |
International | 1,349 |
| | 1,188 |
| | 13.5 | % | | (9.5 | )% | | 23.0 | % | 1,292 |
| | 1,295 |
| | (0.2 | )% | | (1.3 | )% | | 1.1 | % |
Total Revenues | $ | 3,067 |
| | $ | 2,051 |
| | 49.6 | % | | (5.5 | )% | | 55.1 | % | $ | 2,922 |
| | $ | 2,986 |
| | (2.1 | )% | | (0.5 | )% | | (1.6 | )% |
U.S. revenues reflected growth from both segments. The Medical segment's U.S. revenues in the first quarter reflected the inclusiondivestiture of CareFusion’sthe Respiratory Solutions business, as previously discussed. This impact was partially offset by sales in the Medication Management Solutions unit, which benefited from the favorable timing of capital placements, and in the Diabetes Care unit, which benefited from the favorable timing of customer orders. The Medical segment's U.S. sales of approximately $806 million as well asrevenues in the first quarter were also aided by revenue growth in sales offrom the Medication and Procedural Solutions unit's infusion therapy products and the earlier than anticipated placement of orders within the fiscal year in the Pharmaceutical Systems unit, as previously discussed.disposable products. U.S. Life Sciences revenue growth in the secondfirst quarter of fiscal year 20162017 was driven by new product introductions, continued increased demand for high-parameter instruments and growth in research reagents in the Biosciences unit. U.S. Life Sciences revenue growth was also driven by the Diagnostic Systems unit's higher influenza-related sales of microbiology products and molecular diagnostic platforms as well as sales for the microbiology platform. U.S. Life Sciences segment's revenue growth also reflected the favorable timing of customer orders relative to the advanced bioprocessing platform and sales of research instruments and reagents in the Biosciences unit. The Life Sciences segment's U.S. revenues were unfavorably impacted by limited availability of a product line in the Preanalytical Systems unit's sales of safety-engineered products. unit.
The Diagnostic Systems unit's secondMedical segment's international first quarter revenues also benefited from a late start toreflected the influenza season compared withdivestiture of the prior-year period.
In addition toRespiratory Solutions business, partially offset by the inclusionfavorable timing of CareFusion’s sales of approximately $211 million in the current year’s quarter, the Medical segment's international revenue growth reflected growth in the Medication and Procedural Solutions unit's sales of safety-engineered products, particularly in China. International revenue growth in the Medical segment also benefited from the earlier placement ofcustomer orders in the Pharmaceutical Systems unit, as previously discussed. International Medical segment revenue growth was aided by the Medication and Procedural Solutions unit's sales of infusion disposable and infection prevention products and the Medication Management Solutions unit's capital placements. The Life Sciences segment's secondfirst quarter international revenue growth reflected growth ofwas aided by the Preanalytical Systems unit's sales of safety-engineered products in Western Europe and Asia Pacific and ofemerging markets. International Life Sciences revenue growth in the current-year period was also aided by the Diagnostic Systems unit's sales of microbiology products in Western EuropeLatin America and Latin America. International revenue growth in the Life Sciences segment was negatively impacted by both the unfavorable timing of orders in Europe and delayed clinical tenders in Africa for the Biosciences unit.
Effective October 1, 2015, we changed the composition of countries that we define as emerging markets within the Asia Pacific region. On this redefined basis, emergingas well as higher influenza-related sales, but were offset by an unfavorable comparison of the current period's Biosciences unit's revenues to the prior-year period, as previously discussed.
Emerging market revenues for the secondfirst quarter were $443$456 million, compared with $428$465 million in the prior year’s quarter, andwhich included approximately $30 million of revenues associated with divested businesses, primarily the Respiratory Solutions business. Emerging market revenues in the current-year period also included an estimated $46$14 million unfavorable impact due to foreign currency
translation. RevenueFirst quarter revenue growth in emerging markets for the second quarter was primarily driven by the inclusion of CareFusion's sales in China and Latin America, which were partially offset by declines in the period.Middle East and Africa.
Specified Items
Reflected in the financial results for the three and six-month periodsfirst quarters of fiscal years 2017 and 2016 and 2015 arewere the following specified items:
| | | Three months ended March 31, | | Six months ended March 31, | | Three months ended December 31, |
(Millions of dollars) | 2016 | | 2015 | | 2016 | | 2015 | | 2016 | | 2015 |
Financing costs (A) | $ | — |
| | $ | 58 |
| | $ | — |
| | $ | 102 |
| | |
Transaction costs (A) | — |
| | 33 |
| | — |
| | 43 |
| | |
Integration costs (A) | 40 |
| | 18 |
| | 75 |
| | 31 |
| | 46 |
| | 35 |
|
Restructuring costs (A) | 64 |
| | 62 |
| | 149 |
| | 62 |
| | 35 |
| | 85 |
|
Transaction costs (A) | | 6 |
| | — |
|
Purchase accounting adjustments (B) | 115 |
| | 9 |
| | 268 |
| | 27 |
| | 126 |
| | 153 |
|
Litigation-related charge (C) | — |
| | — |
| | — |
| | 12 |
| | |
Litigation-related item (C) | | (336 | ) | | — |
|
Loss on debt extinguishment (D) | | 42 |
| | — |
|
Total specified items | 218 |
| | 180 |
| | 492 |
| | 277 |
| | (81 | ) | | 274 |
|
Tax impact of specified items | 85 |
| | 77 |
| | 164 |
| | 108 |
| | (27 | ) | | 79 |
|
After-tax impact of specified items | $ | 134 |
| | $ | 102 |
| | $ | 329 |
| | $ | 169 |
| | $ | (54 | ) | | $ | 195 |
|
| |
(A) | Represents financing,integration, restructuring and transaction integration and restructuring costs substantially associated with theour fiscal year 2015 acquisition of CareFusion acquisition and other portfolio rationalization.rationalization initiatives. The financing costs were recorded in Interest expense. Theintegration, restructuring and transaction integration and restructuring costs were recorded in Acquisitions and other restructurings. |
| |
(B) | Primarily represents non-cash amortization expense associated with acquisition-related identifiable intangible assets, including $116 million and $246 million in the current quarter and six-month period, respectively, related to CareFusion.assets. BD’s amortization expense is primarily recorded in Costs of products sold. The adjustments in the three and six-month periods of fiscal year 2016 also include a net decrease in the fair value of certain contingent consideration liabilities of $22 million that was recognized in the second quarter. The adjustment for the three and six months ended March 31, 2015 additionally reflected a pre-tax acquisition-date accounting gain of $9 million on a previously held investment. |
| |
(C) | Represents a charge for plaintiff attorneys’ fees,the reversal of certain reserves related to an appellate court decision recorded in Selling and administrative expense,Other operating income, as further discussed below. |
| |
(D) | Represents a loss recognized in Other (expense) income, net associated with the antitrust and false advertising lawsuit RTI filed against BD. Forupon our extinguishment of certain long-term senior notes, as further discussion, refer to Note 5 in the Notes to Condensed Consolidated Financial Statements.discussed below |
Gross Profit Margin
Gross profit margin for the three and six-month periodsfirst quarter of fiscal year 20162017 compared with the prior-year periodsperiod in 20152016 reflected the following impacts:
|
| | | | | |
| Three-month period | | Six-month period |
March 31, 2015 gross profit margin % | 51.0 | % | | 51.0 | % |
CareFusion acquisition-related asset depreciation and amortization | (4.0 | )% | | (4.4 | )% |
Foreign currency translation | (0.2 | )% | | (0.6 | )% |
Operating performance | 1.6 | % | | 1.8 | % |
March 31, 2016 gross profit margin % | 48.4 | % | | 47.8 | % |
|
| | |
| Three-month period |
December 31, 2015 gross profit margin % | 47.1 | % |
Operating performance | 1.7 | % |
Impact of divestitures | 0.8 | % |
Foreign currency translation | 0.1 | % |
December 31, 2016 gross profit margin % | 49.7 | % |
The operatingOperating performance impacts forin the current year's quarter and six-monthcurrent-year period reflected lower manufacturing costs resulting from the continuous operations improvement projects improvingdiscussed above, partially offset by higher raw material costs. Gross profit margin for the efficiencyfirst quarter of our operations.
fiscal year 2017 was favorably impacted by businesses divestitures, primarily the divestiture of the Respiratory Solutions business, which as previously discussed, had products with lower gross profit margins.
Operating Expenses
A summary of operating expenses for the threefirst quarters of fiscal years 2017 and six months ended March 31, 2016 and 2015 is as follows:
| | | Three months ended March 31, | | Increase (decrease) in basis points | | Six months ended March 31, | | Increase (decrease) in basis points | Three months ended December 31, | | Increase (decrease) in basis points |
| 2016 | | 2015 | | 2016 | | 2015 | | 2016 | | 2015 | |
(Millions of dollars) | | | | | | | | | | | | | | | | |
Selling and administrative expense | $ | 732 |
| | $ | 511 |
| | | | $ | 1,480 |
| | $ | 1,055 |
| | | $ | 709 |
| | $ | 748 |
| | |
% of revenues | 23.9 | % | | 24.9 | % | | (100 | ) | | 24.5 | % | | 25.7 | % | | (120 | ) | 24.3 | % | | 25.1 | % | | (80 | ) |
| | | | | | | | | | | | | | | | |
Research and development expense | $ | 182 |
| | $ | 129 |
| | | | $ | 369 |
| | $ | 258 |
| | | $ | 182 |
| | $ | 187 |
| | |
% of revenues | 5.9 | % | | 6.3 | % | | (40 | ) | | 6.1 | % | | 6.3 | % | | (20 | ) | 6.2 | % | | 6.3 | % | | (10 | ) |
| | | | | | | | | | | | | | | | |
Acquisitions and other restructurings | $ | 104 |
| | $ | 113 |
| | | | $ | 225 |
| | $ | 136 |
| | | $ | 87 |
| | $ | 121 |
| | |
| | | | | | |
Other operating income | | $ | (336 | ) | | $ | — |
| | |
Selling and administrative expense
Selling and administrative expense as a percentage of revenues in the current year’s three and six-month periodsthree-month period reflected cost synergies resultingthe divestiture of the Respiratory Solutions business, as this business generally had a lower operating margin, as well as the benefit from the CareFusion acquisition and favorable foreign currency translation, partially offset bysuspension of the depreciation of fixed assets acquired in the CareFusion acquisition. Selling and administrative expense as a percentage of revenues in the prior-year six-month period reflected a charge of $12 million relating to the RTI litigation matter,medical device excise tax, as previously discussed.
Research and development expense
The increases in research and development expense for three and six-month periods of fiscal year 2016 compared with the prior-year periods in 2015 primarily reflected the inclusion of CareFusion’s research and development expenses in the current periods' results. The decreases in researchResearch and development expense as a percentage of revenues in the current year's periods reflectedthree-month period of fiscal year 2017 was relatively flat compared with the timing of project spending.prior-year period in 2016 reflecting ongoing investment in new products and platforms.
Acquisitions and other restructurings
Costs relating to acquisitions and other restructurings in the three and six-monththree-month periods represented integration, restructuring and transaction integration and restructuring costs substantially associated with theour fiscal year 2015 acquisition of CareFusion acquisition and portfolio rationalization. The transaction and integration costs specifically included advisory, legal, and other costs incurred in connection with the CareFusion acquisition.portfolio rationalization
initiatives. For further disclosures regarding the restructuring costs, refer to Note 1110 in the Notes to Condensed Consolidated Financial Statements.
Other operating (income) expense, net
Other operating income in the current-year period represented the $336 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 Note 5 in the Notes to Condensed Consolidated Financial Statements.
Nonoperating Income
Net Interest Expenseinterest expense
The components of net interest expense for the threefirst quarters of fiscal years 2017 and six-month periods2016 were as follows:
| | | Three months ended March 31, | | Six months ended March 31, | Three months ended December 31, |
(Millions of dollars) | 2016 | | 2015 | | 2016 | | 2015 | 2016 | | 2015 |
Interest expense | $ | (99 | ) | | $ | (91 | ) | | $ | (196 | ) | | $ | (167 | ) | $ | (95 | ) | | $ | (97 | ) |
Interest income | 3 |
| | 8 |
| | 9 |
| | 19 |
| 5 |
| | 6 |
|
Net interest expense | $ | (96 | ) | | $ | (83 | ) | | $ | (187 | ) | | $ | (149 | ) | $ | (89 | ) | | $ | (91 | ) |
The increasesdecrease in interest expense for the three and six-month periodsthree-month period of fiscal year 20162017 compared with the prior year's periodsperiod primarily reflected increased financing costs associated with the CareFusion acquisition, partially offset by favorable amortizationlower levels of the acquisition-date fair value-step recorded on CareFusion’s long-term debt as well as by favorable comparisoncertain senior notes matured in June and November 2016 and we repurchased certain senior notes in December 2016. Additional disclosures regarding this debt repurchase are provided in Note 14 in the Notes to the prior-year periods, which included commitment fees for a bridge loan facility that was terminated in March 2015.
Condensed Consolidated Financial Statements. The decreasesdecrease in interest income for the three and six-month periodsthree-month period of fiscal year 20162017 compared with the prior year’s periodsperiod primarily reflected lower cash levels outside of the United States and lower investment gains on assets related to our deferred compensation plans. The offsetting movementsmovement in the deferred compensation plan liability werewas recorded in Selling and administrative expense.
Other (expense) income, net
The components for the first quarters of fiscal years 2017 and 2016 were as follows:
|
| | | | | | | |
| Three months ended December 31, |
(Millions of dollars) | 2016 | | 2015 |
Loss on debt extinguishment | $ | (42 | ) | | $ | — |
|
Transition service agreement income, net | 14 |
| | — |
|
Losses on undesignated foreign exchange derivatives, net | (4 | ) | | — |
|
Other | 2 |
| | 6 |
|
Other (expense) income, net | $ | (29 | ) | | $ | 6 |
|
As discussed above, we repurchased certain senior notes in December 2016 and recognized a loss on this extinguishment of debt. The transition service agreement income relates to our divestiture of the Respiratory Solutions business which is further discussed in Note 9 in the Notes to Condensed Consolidated Financial Statements.
Income Taxes
The income tax rates for the threefirst quarters of fiscal years 2017 and six-month periods2016 are provided below. The tax benefits of the specified items shown earlier reduced the current and prior-year periods' income tax rates as the tax benefits on these specified items were primarily incurred in higher tax jurisdictions.
| | | Three months ended March 31, | | Six months ended March 31, | Three months ended December 31, |
| 2016 | | 2015 | | 2016 | | 2015 | 2016 | | 2015 |
Effective income tax rate | 10.0 | % | | 3.9 | % | | 11.7 | % | | 11.4 | % | 18.9 | % | | 14.0 | % |
| | | | | | | | | | |
Favorable impact, in basis points, from tax benefits of specified items | 1,060 |
| | 1,740 |
| | 930 |
| | 980 |
| |
(Unfavorable) favorable impact, in basis points, from specified items | | (190 | ) | | 750 |
|
The increase in the current-year period's effective income tax rate is due to BD's geographical mix of income and the unfavorable tax impact from specified items, which included the reversal of certain reserves related to an appellate court decision, as previously discussed. The unfavorable impact on specified items in the current-year period was partially offset by a $27 million tax benefit recognized upon the settlement of share-based compensation awards during the first quarter of fiscal
year 2017, in connection with BD's adoption of new accounting requirements relating to share-based compensation award-related income tax effects. Additional disclosures regarding this adoption are provided in Note 2 in the Notes to Condensed Consolidated Financial Statements.
Net Income and Diluted Earnings per Share
Net Income and Diluted Earnings per Share for the threefirst quarters of fiscal years 2017 and six-month periods2016 were as follows:
| | | Three months ended March 31, | | Six months ended March 31, | Three months ended December 31, |
| 2016 | | 2015 | | 2016 | | 2015 | 2016 | | 2015 |
Net Income (Millions of dollars) | $ | 338 |
| | $ | 216 |
| | $ | 567 |
| | $ | 452 |
| $ | 562 |
| | $ | 229 |
|
Diluted Earnings per Share | $ | 1.56 |
| | $ | 1.08 |
| | $ | 2.62 |
| | $ | 2.28 |
| $ | 2.58 |
| | $ | 1.06 |
|
| | | | | | | | | | |
Unfavorable impact-specified items | $ | (0.62 | ) | | $ | (0.51 | ) | | $ | (1.52 | ) | | $ | (0.85 | ) | |
Favorable (unfavorable) impact-specified items | | $ | 0.25 |
| | $ | (0.90 | ) |
Unfavorable impact-foreign currency translation | $ | (0.14 | ) | | | | $ | (0.40 | ) | | | $ | (0.01 | ) | | $ | (0.26 | ) |
Liquidity and Capital Resources
The following table summarizes our condensed consolidated statement of cash flows:
| | | Six months ended March 31, | Three months ended December 31, |
(Millions of dollars) | 2016 | | 2015 | 2016 | | 2015 |
Net cash provided by (used for) | | | | | | |
Operating activities | $ | 1,020 |
| | $ | 514 |
| $ | 315 |
| | $ | 463 |
|
Investing activities | $ | (170 | ) | | $ | (7,829 | ) | $ | 48 |
| | $ | (145 | ) |
Financing activities | $ | (576 | ) | | $ | 7,392 |
| $ | (955 | ) | | $ | (145 | ) |
Net Cash Flows from Operating Activities
Cash generated from operations, along with available cash and cash equivalents, is expected to be sufficient to fund our normal operating needs for the remainder of fiscal year 2016.2017. Normal operating needs in fiscal year 20162017 include working capital, capital expenditures, and cash dividends. The change in net cash provided by operating activities was primarily attributable to net income, from continuing operations, as adjusted for depreciation and amortization and other non-cash items. The current period change in operating assets and liabilities was a net use of cash and primarily reflected higher levels of prepaid expenses and lower levels of accounts payable and accrued expenses and higher levelsexpenses. The current-year period also reflected the loss recorded upon our extinguishment of accounts receivables. Net cash provided by operating activitiescertain long-term notes in the first six months of fiscal year 2015 was reduced by a discretionary cash contribution of $40 million to fund our pension obligation.December 2016, which is included within Other, net.
Net Cash Flows from Investing Activities
Our investments in capital expenditures are focused on projects that enhance our cost structure and manufacturing capabilities, and support our strategy of geographic expansion with select investments in growing markets. Capital expenditures were $258expenditure-related cash outflows of $112 million in the first sixthree months of fiscal year 20162017, compared with $252$134 million in the prior-year period. Net cash used for investing activities in the current-year period reflected $111 million of proceeds from the sale of a non-core asset. Net cash used for investing activities in the prior-year period reflected cash outflows of $8.3 billion related to our acquisition of CareFusion and other smaller acquisitions occurring in the prior-year period. These cash outflows in the prior-year period, were partially offset by salescash inflows in the current-year period of investments of $813$167 million due to the maturities of time deposits in Europe, Latin America and Asia Pacific.
from business divestitures.
Net Cash Flows from Financing Activities
Net cash used for financing activities in the first sixthree months of fiscal year 2017 included cash inflows relating to the issuance of euro-denominated notes in December 2016 included a payment of $300 to reduceand our borrowings during the balance ofquarter under our commercial paper program.program of $1,054 million and $700 million, respectively. Net cash used for financing activities during the first three months of fiscal year 2017 also reflected $2,189 million of cash outflows associated with our repurchase of certain long-term notes in December 2016 and our repayment of 1.75% notes due on November 8, 2016. Additional disclosures regarding our issuance and repurchase of debt during the first quarter of fiscal year 2017 are provided byin Note 14 in the Notes to Condensed Consolidated Financial Statements. Net cash used for financing activities in the prior-year period included the proceeds from $6.2 billionfirst three months of notes issued in December 2014fiscal year 2017 also reflected our repurchase of $220 million of common stock under an accelerated share repurchase agreement, as well as $1.5 billion total proceeds from net borrowings under commercial paper programs and a term loan facility. These proceeds were used to finance the completion of our acquisition of CareFusion in March 2015.previously discussed.
Debt-related Activities
Certain measures relating to our total debt were as follows:
| | (Millions of dollars) | March 31, 2016 | | September 30, 2015 | December 31, 2016 | | September 30, 2016 |
Total debt | $ | 12,515 |
| | $ | 12,822 |
| $ | 11,017 |
| | $ | 11,551 |
|
| | | | | | |
Short-term debt as a percentage of total debt | 13.2 | % | | 11.3 | % | 17.9 | % | | 8.7 | % |
Weighted average cost of total debt | 3.4 | % | | 3.3 | % | 3.3 | % | | 3.6 | % |
Total debt as a percentage of total capital* | 58.1 | % | | 59.4 | % | 55.8 | % | | 57.2 | % |
* Represents shareholders’ equity, net non-current deferred income tax liabilities, and debt.
The ratio of short-term debt as a percentage of total debt at March 31,September 30, 2016 reflectedincreased as a result of a $700 million net increase in borrowings under our commercial paper program, our repurchase of certain long-term debt, as previously discussed, and the reclassification, from long-term debt to short-term debt, of $500 million of 1.75% notes due on November 8, 2016. Thein December 2017. These impacts to the ratio of short-term debt as a percentage of total capital at September 30, 2015 reflects adjustments todebt were partially offset by the condensed consolidated balance sheet resulting fromrepayment of $500 million of notes due in November 2016 and our adoptionissuance of revised presentation requirements relating to deferred taxes. Additional information regarding this adoption is provided in Note 2 in the Notes to Condensed Consolidated Financial Statements.euro-denominated senior notes, also as previously discussed.
Cash and Short-term Investments
At MarchDecember 31, 2016, total worldwide cash and short-term investments were approximately $1.7$0.9 billion, of which $1.05$0.7 billion was held in jurisdictions outside of the United States. We regularly review the amount of cash and short-term investments held outside the United States and currently intend to use 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.
Credit Facilities
We have in place a commercial paper borrowing program which allows us to issue a maximum of $1.5 billion in notes and which is available to meet our short-term financing needs, including working capital requirements. In February 2016, we increased the size of this program by $500 million so that it allows us to issue a maximum of $1.5 billion in notes. Borrowings outstanding under this program were $400$900 million at MarchDecember 31, 2016, which reflected a paymentnet increase of $300$700 million during the second quarterfrom our outstanding balance of fiscal yearcommercial paper borrowing at September 30, 2016, as previously discussed.
In January 2016, we replaced an existing $1 billion syndicated credit facility withWe also have in place a $1.5 billion syndicated credit facility that has an expiration date of January 2021. There were no borrowings outstanding under this credit facility at March 31, 2016. The credit facility, under which we may issue up to $100 million in letters of credit, provides backup support for our commercial paper program and can also be used for other general corporate purposes. ItThere were no borrowings outstanding under this credit facility at December 31, 2016. 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 5-to-1 for the most recent four consecutive fiscal quarters. We were in compliance with this covenant as of MarchDecember 31, 2016. We also have informal lines of credit outside the United States.
Concentrations of Credit Risk
We continually evaluate our 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. We continually evaluate all governmental receivables for potential collection risks associated with the availability of government funding and reimbursement practices. We believe the current reserves related to all governmental receivables are adequate and that this concentration of credit riskthese receivables will not have a material adverse impact on our financial position or liquidity.
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 as well as(including volume growth, sales and earnings per share growth, and changes in cash flows) and statements regarding our strategy for growth, future product development, regulatory approvals, marketcompetitive 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 – including statements relating to volume growth, sales and earnings per share growth, cash flows or uses, and statements expressing views about future operating results – are forward-looking statements.
Forward-looking statements are based on our current expectations of future events. The forward-looking statements are, and will be, based on management’s then-current views and assumptions regarding future events, developments and operating performance, and speak only as of their dates. Investors should realize that if underlying assumptions prove inaccurate, or unknown risks or uncertainties materialize, actual results could vary materially from our expectations and projections. Investors are therefore cautioned not to place undue reliance on any forward-looking statements. Furthermore, we undertake no obligation to update or revise any forward-looking statements after the date they are made, whether as a result of new information, future events and developments or otherwise, except as required by applicable law or regulations.
The following are some important factors that could cause our actual results to differ from our expectations in any forward-looking statements. For further discussion of certain of these factors, see Item 1A. Risk Factors in our 20152016 Annual Report on Form 10-K.
Weakness in the global economy and financial markets, and the potential adverse effect onwhich could increase the cost of operating our business, theweaken demand for our products and services, negatively impact the prices we can charge for our products and services, due to increases in pricing pressure, or impair our ability to produce our products,products.
Competitive factors that could adversely affect our operations, including new product introductions (for example, new forms of drug delivery) by our current or future competitors, increased pricing pressure due to the impact of low-cost manufacturers as certain competitors have established manufacturing sites or have contracted with suppliers in low-cost manufacturing locations as a means to lower their costs, patents attained by competitors (particularly as patents on developing countries.our products expire), and new entrants into our markets.
Deficit reduction efforts or otherThe adverse financial impact resulting from unfavorable changes in the availabilityforeign 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 government funding for healthcareproduct sales, as our earnings forecasts are based on projected sales volumes and research thatpricing of many product types, some of which are more profitable than others.
Changes in reimbursement practices of third-party payers or adverse decisions relating to our products by such payers, which could further weakenreduce demand for our products and result in additional pricing pressures, as well as create potential collection risks associated withor the price we can charge for such sales.
Risks relating to our acquisition of CareFusion, including our ability to successfully combine and integrate the CareFusion 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 this increased indebtedness may have on our ability to operate the combined company.products.
The consequencesimpact of the Patient Protection and Affordable Care Act (the "PPACA") in the United States, which implemented an excise tax on U.S. sales of certain medical devices (which has been suspended until January 1, 2018), and which could result in reduced demand for our products, increased pricing pressures or otherwise adversely affect our business.
Future healthcare reform in the United States and other countries in which we do business that may involve changes in government pricing and reimbursement policies or other cost containment reforms.
Changes in domestic and foreign healthcare industry practices that result in a reduction in procedures using our products or increased pricing pressures, including the continued consolidation among healthcare providers and trends toward managed care and healthcare cost containment. For example,
The impact of changes in U.S. federal laws and policy adopted under the new administration and Congress, including the effect that such changes will have on fiscal and tax policies, the potential repeal of all or portions of the PPACA, and international trade agreements and policies.
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 guidelines providing for increased cervical cancer screening intervals hasmaintain favorable supplier arrangements and may continuerelationships (particularly with respect to negatively impact salessole-source suppliers), and the potential adverse effects of any disruption in the availability of such items.
Security breaches of our Women’s Healthinformation 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 Cancer platform.other business partners, or of customers' patients, or result in product efficacy or safety concerns for certain of our products.
ChangesDifficulties 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 practicesfor new products, or gain and maintain market approval of governmentalproducts, as well as the possibility of infringement claims by competitors with respect to patents or private third-party payers.other intellectual property rights, all of which can preclude or delay commercialization of a product. Delays in obtaining necessary approvals or clearances from the FDA or other regulatory agencies or changes in the regulatory process may also delay product launches and increase development costs.
The impact of business combinations, 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. Our international operations also increase our compliance risks, including risks under the Foreign Corrupt Practices Act and other anti-corruption 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 assetsassets. This includes the possible impact of the June 2016 advisory referendum by a government.British voters to exit the European Union, which has created uncertainties affecting business operations in the United Kingdom and the EU.
Security breachesDeficit reduction efforts or other actions that reduce the availability of our computergovernment funding for healthcare and communications systems orresearch, which could weaken demand for our products including computer viruses, “hacking” and “cyber-attacks,” which could impair our ability to conduct business, result in the loss of BD trade secretsadditional pricing pressures, as well as create potential collection risks associated with such sales.
Fluctuations in university or otherwise compromise sensitive information of BD or its customers, suppliersU.S. and other business partners, or of customers' patients, or result in product efficacy or safety concerns.international governmental funding and policies for life sciences research.
Fluctuations in the cost and availabilitydemand for products we sell to pharmaceutical companies that are used to manufacture, or are sold with, the products of oil-based resins and other raw materials,such companies, as well as certain components, thea result of funding constraints, consolidation or otherwise.
The effects of events that adversely impact our ability to maintain favorable supplier arrangementsmanufacture our products (particularly where production of a product line is concentrated in one or more plants) or our ability to source materials or components from suppliers (including sole-source suppliers) that are needed for such manufacturing.
Pending and relationships (particularly with respectpotential future litigation or other proceedings adverse to sole-source suppliers),BD, including antitrust, product liability, environmental and patent infringement, and the potential adverse effectsavailability or collectability of insurance relating to any disruption in the availability of such items.
Regional, national and foreign economic factors, including inflation, deflation, fluctuations in interest rates and, in particular, foreign currency exchange rates, and the potential effect on our revenues, expenses, margins and credit ratings.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 recalls, regulatory action on the part of the U.S. Food and Drug Administration (FDA) or foreign counterparts, declining sales and product liability claims, particularly in light of the current regulatory environment, in which there has been increased enforcement activity by the FDA. 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.
Competitive factors that could adversely affectRisks relating to our operations,acquisition of CareFusion, including new product introductions (for example, new forms of drug delivery) by our current or future competitors, increased pricing pressure due to the impact of low-cost manufacturers as certain competitors have established manufacturing sites or have contracted with suppliers in low-cost manufacturing locations as a means to lower their costs, patents attained by competitors (particularly as patents on our products expire), and new entrants into our markets.
The effects of events that adversely impact our ability to manufacture our products (particularly where productionsuccessfully combine and integrate the CareFusion 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 a product line is concentrated in one or more plants) orthe acquisition and the impact this increased indebtedness may have on our ability to source materials or components from suppliers (including sole-source suppliers) that are needed for such manufacturing, including pandemics, natural disasters, or environmental factors.
Difficulties inherent in product development, includingoperate the potential inability to successfully continue technological innovation, 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 FDA or other regulatory agencies or changes in the regulatory process may also delay product launches and increase development costs.
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.
Fluctuations in university or U.S. and international governmental funding and policies for life sciences research.
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.
Pending and potential future litigation or other proceedings adverse to BD, including antitrust, product liability, environmental and patent infringement, and the availability or collectability of insurance relating to any such claims.combined company.
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.
The impact of business combinations, including any volatility in earnings relating to acquired in-process research and development assets, and our ability to successfully integrate any business we may acquire.
Our ability to obtain the anticipated benefits of restructuring programs, if any, that we may undertake.
Issuance of new or revised accounting standards by the Financial Accounting Standards Board or the Securities and Exchange Commission.
The foregoing list sets forth many, but not all, of the factors that could impact our ability to achieve results described in any
forward-looking statements. Investors should understand that it is not possible to predict or identify all such factors and should not consider this list to be a complete statement of all potential risks and uncertainties.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There have been no material changes in information reported since the end of the fiscal year ended September 30, 2015.2016.
Item 4. Controls and Procedures
An evaluation was carried out 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 MarchDecember 31, 2016. 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 MarchDecember 31, 2016 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.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
We are involved, both as a plaintiff and a defendant, in various legal proceedings which arise in the ordinary course of business, including product liability and environmental matters as set forth in our 20152016 Annual Report on Form 10-K and in Note Note 5 of the Notes to Condensed Consolidated Financial Statements in this report. Since December 31, 2015, the followingSeptember 30, 2016, there have been no material developments have occurred with respect to the legal proceedings in which we are involved:involved, except as provided below.
Glynn-Brunswick Hospital Authority
Plaintiffs have soughtAntitrust and False Advertising Action
On December 2, 2016, the Court of Appeals issued an opinion reversing the district court judgment as to file an amended complaint, whichRTI’s attempted monopolization claim and rendered judgment on that claim in favor of BD. The Court of Appeals affirmed the district court 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 has opposed.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.
Summary
Given the uncertain nature of litigation generally, BD is not able in all cases to estimate the amount or range of loss that could result from an unfavorable outcome of the litigation to which BD is a party. In accordance with U.S. generally accepted accounting principles, BD establishes accruals to the extent probable future losses are estimable (in the case of environmental matters, without considering possible third-party recoveries). In view of the uncertainties discussed above, BD 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 cash flows.
Item 1A. Risk Factors
There were no material changes in the risk factors previously disclosed in Part I, Item 1A, of our 20152016 Annual Report on Form 10-K during the period covered by this report.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The table below sets forth certain information regarding our purchases of common stock of BD during the quarter ended MarchDecember 31, 2016.
Issuer Purchases of Equity Securities
|
| | | | | | | | | | | | |
For the three months ended March 31, 2016 | 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) |
January 1 – 31, 2016 | 2,166 |
| | $ | 144.66 |
| | — |
| | 9,147,060 |
|
February 1 – 29, 2016 | 966 |
| | 145.41 |
| | — |
| | 9,147,060 |
|
March 1 – 31, 2016 | — |
| | — |
| | — |
| | 9,147,060 |
|
Total | 3,132 |
| | $ | 144.89 |
| | — |
| | 9,147,060 |
|
|
| | | | | | | | | | | | |
For the three months ended December 31, 2016 | Total Number of Shares Purchased (1) | | Average Price Paid per Share (2) | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (3) | | Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs (3) |
October 1 – 31, 2016 | 993,733 |
| | $ | 177.11 |
| | 993,733 |
| | 8,153,327 |
|
November 1 – 30, 2016 | 297,877 |
| | 149.03 |
| | 295,585 |
| | 7,857,742 |
|
December 1 – 31, 2016 | — |
| | — |
| | — |
| | 7,857,742 |
|
Total | 1,291,610 |
| | $ | 170.63 |
| | 1,289,318 |
| | 7,857,742 |
|
| |
(1) | Represents 3,132Includes 2,292 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) | AnyThe total average price paid per share reflects the volume weighted average price of BD's shares over the term of an accelerated share repurchase agreement ("ASR"). |
| |
(3) | Represents shares purchased under the ASR noted above. The repurchases would bewere made pursuant to 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 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
Not applicable.
Item 6. Exhibits
| |
Exhibit 10(a) 4.1 | 2004 Employee and Director Equity-Based Compensation Plan, as amended and restated asForm of January 26, 20161.000% Notes due December 15, 2022 (incorporated by reference to Exhibit 104.1 of the registrant’s Current Report on Form 10-K dated January 29,8-K filed December 9, 2016). |
| |
Exhibit 10(b) 4.2 | Five Year Credit Agreement, dated asForm of January 29, 2016, among Becton, Dickinson and Company, the banks named therein and Citibank, N.A., as administrative agent1.900% Notes due December 15, 2026 (incorporated by reference to Exhibit 104.2 of the registrant’s Current Report on Form 10-K8-K filed December 9, 2016). |
| |
Exhibit 10 | Letter of Understanding, dated February 4, 2016).March 28, 2016 between the registrant and Alexandre Conroy. |
| |
Exhibit 31 | Certifications of Chief Executive Officer and Chief Financial Officer, pursuant to SEC Rule 13a - 14(a). |
| |
Exhibit 32 | Certifications of Chief Executive Officer and Chief Financial Officer, pursuant to Rule 13a - 14(b) and Section 1350 of Chapter 63 of Title 18 of the U.S. Code. |
| |
Exhibit 101 | The following materials from this report, formatted in XBRL (Extensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Income, (iii) the Condensed Consolidated Statements of Comprehensive Income, (iv) the Condensed Consolidated Statements of Cash Flows, and (v) Notes to Condensed Consolidated Financial Statements. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
| |
| Becton, Dickinson and Company |
| (Registrant) |
Dated: May 6, 2016February 2, 2017
|
| |
| /s/ Christopher Reidy |
| Christopher Reidy |
| Executive Vice President, Chief Financial Officer and Chief Administrative Officer |
| (Principal Financial Officer) |
| |
| /s/ John Gallagher |
| John Gallagher |
| Senior Vice President, Corporate Finance, Controller and Treasurer |
| (Principal Accounting Officer) |
INDEX TO EXHIBITS
|
| | |
Exhibit Number | | Description of Exhibits |
| | |
10(a) 4.1 | | 2004 Employee and Director Equity-Based Compensation Plan, as amended and restated asForm of January 26, 20161.000% Notes due December 15, 2022 (incorporated by reference to Exhibit 104.1 of the registrant’s Current Report on Form 10-K dated January 29,8-K filed December 9, 2016). |
10(b) | | Five Year Credit Agreement, dated as |
4.2 | | Form of January 29, 2016, among Becton, Dickinson and Company, the banks named therein and Citibank, N.A., as administrative agent1.900% Notes due December 15, 2026 (incorporated by reference to Exhibit 104.2 of the registrant’s Current Report on Form 10-K8-K filed December 9, 2016). |
| | |
10 | | Letter of Understanding, dated February 4, 2016).March 28, 2016 between the registrant and Alexandre Conroy. |
| | |
31 | | Certifications of Chief Executive Officer and Chief Financial Officer, pursuant to SEC Rule 13a - 14(a). |
| | |
32 | | Certifications of Chief Executive Officer and Chief Financial Officer, pursuant to Rule 13a - 14(b) and Section 1350 of Chapter 63 of Title 18 of the U.S. Code. |
| | |
101 | | The following materials from this report, formatted in XBRL (Extensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Income, (iii) the Condensed Consolidated Statements of Comprehensive Income, (iv) the Condensed Consolidated Statements of Cash Flows, and (v) Notes to Condensed Consolidated Financial Statements. |