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MarketScreener Homepage  >  Equities  >  Nyse  >  Becton, Dickinson and Company    BDX

BECTON, DICKINSON AND COMPANY

(BDX)
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Becton Dickinson and : & CO Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

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08/06/2019 | 02:32pm EST
The following commentary should be read in conjunction with the condensed
consolidated financial statements and accompanying notes presented in this
report. Within the tables presented throughout this discussion, certain columns
may not add due to the use of rounded numbers for disclosure purposes.
Percentages and earnings per share amounts presented are calculated from the
underlying amounts.
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, physicians, life science researchers, clinical
laboratories, the pharmaceutical industry and the general public. The Company's
organizational structure is based upon three principal business segments, BD
Medical ("Medical"), BD Life Sciences ("Life Sciences") and BD Interventional
("Interventional").

BD's products are manufactured and sold worldwide. Our products are marketed in
the United States and internationally through independent distribution channels
and directly to end-users by BD and independent sales representatives. We
organize our operations outside the United States as follows: Europe; EMA (which
includes the Commonwealth of Independent States, the Middle East and Africa);
Greater Asia (which includes 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.
Overview of Financial Results and Financial Condition
For the three months ended June 30, 2019, worldwide revenues of $4.350 billion
increased 1.7% from the prior-year period which reflected volume growth of
approximately 6%, an unfavorable impact from foreign currency translation of
approximately 3.0% and pricing pressures of approximately 0.4%. Revenues for the
three months ended June 30, 2019 also reflected an unfavorable impact of
approximately 1% attributable to the Biosciences unit's divestiture of its
Advanced Bioprocessing business at the end of October 2018, as is further
discussed in Note 10 in the Notes to Condensed Consolidated Financial
Statements. Volume growth in the third quarter of fiscal year 2019 was as
follows:
•      Medical segment growth in the third quarter was driven by the segment's
       Medication Management Solutions, Medication Delivery Solutions and
       Pharmaceutical Systems units.

• Life Sciences segment growth in the third quarter reflected growth in all

of the segment's units.

• Interventional segment growth in the third quarter reflected sales growth

       in all units, particularly in the Urology and Critical Care unit as well
       as in the Surgery unit.


We continue to invest in research and development, geographic expansion, and new
product market programs to drive further revenue and profit growth. Our ability
to sustain our long-term growth will depend on a number of factors, including
our ability to expand our core business (including geographical expansion),
develop innovative new products, and continue to improve operating efficiency
and organizational effectiveness. While the economic environment for the
healthcare industry and healthcare utilization in the United States is generally
stable, destabilization in the future could adversely impact our businesses.
Additionally, macroeconomic challenges in Europe continue to constrain
healthcare utilization, although we currently view the environment as stable. In
emerging markets, the Company's growth is dependent primarily on government
funding for healthcare systems. In addition, pricing pressure exists globally
which could adversely impact our businesses.
Cash flows from operating activities were $1.959 billion in the first nine
months of fiscal year 2019. At June 30, 2019, we had $606 million in cash and
equivalents and short-term investments, including restricted cash. We continued
to return value to our shareholders in the form of dividends. During the first
nine months of fiscal year 2019, we paid cash dividends of $737 million,
including $624 million paid to common shareholders and $114 million paid to
preferred shareholders.
Each reporting period, we face currency exposure that arises from translating
the results of our worldwide operations to the U.S. dollar at exchange rates
that fluctuate from the beginning of such period. A stronger U.S. dollar,
compared to the prior-year period, resulted in an unfavorable foreign currency
translation impact to our revenues and earnings during the third quarter of
fiscal year 2019.  We evaluate our results of operations on both a reported and
a foreign currency-neutral basis, which excludes the impact of fluctuations in
foreign currency exchange rates. As exchange rates are an important factor in
understanding period-to-period comparisons, we believe the presentation of
results on a foreign currency-neutral basis in addition to reported results
helps improve investors' ability to understand our operating results and
evaluate our performance in comparison to prior periods. Foreign
currency-neutral ("FXN") information compares results between periods as if
exchange rates had remained constant period-over-period. We use results on a
foreign currency-neutral basis as one measure to evaluate

                                       24
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our performance. We calculate foreign currency-neutral percentages by converting
our current-period local currency financial results using the prior-period
foreign currency exchange rates and comparing these adjusted amounts to our
current-period results. These results should be considered in addition to, not
as a substitute for, results reported in accordance with U.S. generally accepted
accounting principles ("GAAP"). Results on a foreign currency-neutral basis, as
we present them, may not be comparable to similarly titled measures used by
other companies and are not measures of performance presented in accordance with
U.S. GAAP.
Results of Operations
Medical Segment
The following summarizes third quarter Medical revenues by organizational unit:
                                               Three months ended June 30,
                                                                Estimated
                                                       Total        FX
(Millions of dollars)             2019       2018     Change      Impact      FXN Change
Medication Delivery Solutions   $   984$   977     0.8  %     (3.3 )%         4.1 %
Medication Management Solutions     658        610     7.7  %     (1.5 )%         9.2 %
Diabetes Care                       275        276    (0.4 )%     (3.3 )%         2.9 %
Pharmaceutical Systems              394        383     3.1  %     (4.7 )%         7.8 %
Total Medical Revenues          $ 2,311$ 2,246     2.9  %     (3.1 )%         6.0 %


Third quarter Medical segment revenues reflected sales growth attributable to
the Medication Management Solutions unit's installations of infusion systems and
sales of disposables. Revenues in the Medication Delivery Solutions unit
reflected growth in global sales of vascular access devices. The Pharmaceutical
Systems unit's third quarter revenue growth was driven by sales of
self-injection systems. Strength in the Diabetes Care unit's sales of pen
needles in emerging markets was partially offset by weaker U.S. sales in the
current-year period compared with sales in the prior-year period.
Medical segment total revenues for the nine-month period are below. Revenues in
the current-year period were favorably impacted by the inclusion of revenues,
resulting from our acquisition of C.R. Bard, Inc. ("Bard") in December 2017,
associated with certain Bard products within the Medication Delivery Solutions
unit in the first quarter of fiscal year 2019 but not in the first quarter of
the prior-year period as operating activities of the acquired business were not
included in our consolidated results of operations until January 1, 2018.
                                      Nine months ended June 30,
                                                       Estimated
                                              Total        FX

(Millions of dollars) 2019 2018 Change Impact FXN Change Total Medical Revenues $ 6,626$ 6,270 5.7 % (2.6 )% 8.3 %

Medical segment operating income for the three and nine-month periods is provided below. Operating income in the current year's nine-month period reflects the inclusion of results associated with certain Bard products in the first quarter of 2019, as noted above.

                                            Three months ended June 30,          Nine months ended June 30,
(Millions of dollars)                         2019                2018             2019               2018

Medical segment operating income $ 744$ 732

$ 2,008$ 1,943


Segment operating income as % of
Medical revenues                                32.2 %               32.6 %           30.3 %             31.0 %


The Medical segment's operating income in the third quarter was driven by its performance with respect to gross profit margin and operating expenses. • Gross profit margin was lower in the third quarter of 2019 as compared

with the third quarter of 2018 primarily due to unfavorable foreign

currency translation, unfavorable product mix, pricing pressures and

higher raw material costs. These unfavorable impacts to the Medical

segment's gross margin were partially offset by lower manufacturing costs

resulting from continuous improvement projects which enhanced the

efficiency of our operations, as well as the unfavorable prior-year impact

       of recognizing a fair value step-up adjustment relating to Bard's
       inventory on the acquisition date.



                                       25
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• Selling and administrative expense as a percentage of revenues was lower

       in the third quarter of 2019 as compared with the prior-year period
       primarily due to lower selling expenses.

• Research and development expense as a percentage of revenues was lower in

the third quarter of 2019 as compared with the third quarter of 2018 due

to recent completion of projects and the timing of project spending.



Life Sciences Segment
The following summarizes third quarter Life Sciences revenues by organizational
unit:
                                            Three months ended June 30,
                                                             Estimated
                                                    Total        FX
(Millions of dollars)          2019       2018     Change      Impact      FXN Change
Preanalytical Systems        $   407$   404     0.7  %     (4.0 )%        4.7  %
Diagnostic Systems               368        362     1.7  %     (3.9 )%        5.6  %
Biosciences                      284        314    (9.6 )%     (2.9 )%       (6.7 )%
Total Life Sciences Revenues $ 1,058$ 1,079    (2.0 )%     (3.7 )%      

1.7 %



The Life Sciences segment's revenues in the third quarter reflected continued
strength in sales of the Diagnostic Systems unit's BD MAXTM molecular platform
as well as growth in sales of core microbiology products. The Preanalytical
Systems unit's third quarter revenues reflected growth in sales of core products
in emerging markets. Third quarter revenues in the Biosciences unit reflected
growth in research reagent sales, as well as growth in U.S. research instrument
sales, but were unfavorably impacted by the divestiture of the Advanced
Bioprocessing business, as previously discussed. The Biosciences unit's results
for the prior-year period included revenues associated with the Advanced
Bioprocessing business of $35 million.
Life Sciences segment total revenues for the nine-month period were as follows:
                                            Nine months ended June 30,
                                                             Estimated
                                                    Total        FX

(Millions of dollars) 2019 2018 Change Impact FXN Change Total Life Sciences Revenues $ 3,166$ 3,222 (1.7 )% (3.0 )%

1.3 %

Life Sciences segment operating income for the three and nine-month periods was as follows:

                                            Three months ended June 30,           Nine months ended June 30,
(Millions of dollars)                         2019                2018              2019                2018

Life Sciences segment operating income $ 304$ 241

$ 902$ 893


Segment operating income as % of Life
Sciences revenues                               28.7 %               22.4 %           28.5 %               27.7 %


The Life Sciences segment's operating income in the third quarter was driven by its performance with respect to gross profit margin and operating expenses. • Gross profit margin in the third quarter of fiscal year 2019 was higher

compared with the third quarter of 2018 primarily due to the unfavorable

prior-year impact of the Biosciences unit's write-down of certain

intangible and other assets. Gross margin in the third quarter of 2019 was

       also favorably impacted by lower manufacturing costs resulting from
       continuous improvement projects which enhanced the efficiency of our
       operations. These favorable impacts to the Life Sciences segment's gross

margin were partially offset by unfavorable foreign currency translation

       and unfavorable product mix.


•      Selling and administrative expense as a percentage of revenues in the
       third quarter of 2019 was lower compared with the prior-year period
       primarily due to the timing of marketing program spending, offset by
       unfavorable foreign currency translation.

• Research and development expense as a percentage of revenues was lower in

the third quarter of 2019 as compared with the third quarter of 2018

primarily due to the Biosciences unit's recognition of write-downs in the

       prior-year period and also due to the timing of project spending.



                                       26
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Interventional Segment
The following summarizes third quarter Interventional revenues by organizational
unit:
                                           Three months ended June 30,
                                                          Estimated
                                                 Total        FX
(Millions of dollars)          2019     2018    Change      Impact      FXN Change
Surgery                       $ 349$ 336     3.9  %     (1.5 )%         5.4 %
Peripheral Intervention         350      353    (0.8 )%     (3.1 )%         2.3 %
Urology and Critical Care       283      265     6.5  %     (2.0 )%         8.5 %
Total Interventional Revenues $ 981$ 954     2.9  %     (2.3 )%         5.2 %


The Interventional segment's revenues in the third quarter reflected growth in
the Urology and Critical Care unit's sales of acute urology products and sales
by the unit's home care and targeted temperature management businesses. Third
quarter revenues in the Surgery unit reflected growth in sales of the unit's
biosurgery and infection prevention products. The Peripheral Intervention unit's
third quarter revenues reflected growth in emerging market sales. This growth
was partially offset by an unfavorable impact related to a letter issued in
March 2019 by the U.S. Food and Drug Administration ("FDA") to healthcare
professionals regarding the use of paclitaxel-coated devices in the treatment of
peripheral artery disease, which impacted sales of our drug-coated balloon
products.
Interventional segment total revenues for the nine-month period are provided
below. Revenues in the current-year period were favorably impacted by the
inclusion of revenues associated with Bard's products in the segment's results
for the first quarter of fiscal year 2019, as further discussed above.
                                             Nine months ended June 30,
                                                              Estimated
                                                     Total        FX
(Millions of dollars)           2019       2018     Change      Impact     FXN Change
Total Interventional Revenues $ 2,914$ 2,089     39.5 %     (2.2 )%     

41.7 %



Interventional segment operating income for the three and nine-month periods is
provided below. Operating income in the current year's nine-month period
reflects the inclusion of Bard results in the first quarter of 2019, as further
discussed above.
                                            Three months ended June 30,           Nine months ended June 30,
(Millions of dollars)                         2019                2018              2019                2018

Interventional segment operating income $ 183$ 175

$ 623$ 102


Segment operating income as % of
Interventional revenues                         18.6 %               18.3 %           21.4 %                4.9 %


The Interventional segment's operating income in the third quarter was driven by its performance with respect to gross profit margin and operating expenses. • Gross profit margin was higher in the third quarter of 2019 as compared

with the third quarter of 2018 primarily due to the unfavorable prior-year

impact of recognizing a fair value step-up adjustment relating to Bard's

inventory on the acquisition date and lower manufacturing costs resulting

from continuous improvement projects, which enhanced the efficiency of our

operations, and synergy initiatives. These favorable impacts to the

Interventional segment's gross margin were partially offset by unfavorable

       foreign currency translation and unfavorable product mix.


•      Selling and administrative expense as a percentage of revenues in the

third quarter of 2019 was relatively flat compared with the prior-year

period.

• Research and development expense as a percentage of revenues was higher in

       the third quarter of 2019 as compared with the third quarter of 2018
       primarily due to the Surgery unit's recognition of a write-down in the
       current-year period, as further discussed below.



                                       27
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Geographic Revenues
BD's worldwide third quarter revenues by geography were as follows:
                                     Three months ended June 30,
                                                      Estimated
                                             Total        FX
(Millions of dollars)   2019       2018     Change      Impact      FXN Change
United States         $ 2,440$ 2,338     4.4  %        -  %         4.4 %
International           1,910      1,941    (1.6 )%     (6.7 )%         5.1 %
Total Revenues        $ 4,350$ 4,278     1.7  %     (3.0 )%         4.7 %


Third quarter U.S. revenues reflected growth in all three segments. Revenue
growth in the current-year period was largely attributable to sales in the
Medical segment's Medication Management Solutions unit as well as to sales in
the Interventional segment's Urology and Critical Care unit. U.S. revenue growth
in the third quarter of 2019 was unfavorably impacted by results in the Medical
segment's Diabetes Care unit and the Interventional segment's Peripheral
Intervention unit, as previously noted in the discussions above.
International revenues in the third quarter of 2019 reflected growth in all
three segments. Third quarter international revenue growth in the Medical
segment was particularly driven by growth in the Pharmaceutical Systems and
Medication Delivery Solutions units as well as by growth in the Life Sciences
segment's Diagnostic Systems and Preanalytical Systems units.
Emerging market revenues for the third quarter were $703 million, compared with
$689 million in the prior year's quarter. Emerging market revenues in the
current-year period also included an estimated $47 million unfavorable impact
due to foreign currency translation. Third quarter revenue growth in emerging
markets was particularly driven by sales in China and EMA.
Specified Items
Reflected in the financial results for the three and nine-month periods of
fiscal years 2019 and 2018 were the following specified items:
                                                 Three months ended June 30,          Nine months ended June 30,
(Millions of dollars)                              2019                2018             2019               2018
Integration costs (a)                        $         63         $        103$        206$        255
Restructuring costs (a)                                27                   33               99                288
Transaction costs (a)                                   -                   11                1                 61
Financing impacts (b)                                   -                    -                -                 49
Purchase accounting adjustments (c)                   378                  433            1,135              1,358
Transaction gain/loss and product-related
matters (d)                                             -                    -               61                  -
European regulatory initiative-related costs
(e)                                                    14                    -               29                  -
Impacts of debt extinguishment (f)                     52                    3               53                 16
Net impact of gain on sale of investment and
asset impairments (g)                                  30                 (214 )             30               (214 )
Hurricane recovery-related impacts                    (10 )                  3              (10 )               15
Total specified items                                 553                  372            1,604              1,830
Less: tax impact of specified items and tax
reform (h)                                            120                  130              263                133
After-tax impact of specified items          $        432$        242$      1,341$      1,697


(a)    Represents integration, restructuring and transaction costs which are
       primarily recorded in Acquisitions and other restructurings and are
       further discussed below.


(b)    Represents financing impacts associated with the Bard acquisition, which
       were recorded in Interest income and Interest expense.


(c)    Primarily represents non-cash amortization expense associated with

acquisition-related identifiable intangible assets. BD's amortization

expense is primarily recorded in Cost of products sold. The three and

nine-month amounts in 2018 also included fair value step-up adjustments of

$56 million and $478 million, respectively, relating to Bard's inventory

       on the acquisition date.



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(d) Represents amounts relating to certain product liability matters and the

estimated cost of a product recall, as well as the pre-tax gain recognized

on BD's sale of its Advanced Bioprocessing business. Further discussion

       regarding these amounts recorded to Other operating expense, net is
       provided below.


(e)    Represents initial costs required to develop processes and systems to

comply with emerging regulations such as the European Union Medical Device

Regulation ("EUMDR") and General Data Protection Regulation ("GDPR").

       These costs were recorded in Cost of products sold and Research and
       development expense.

(f) Represents the impacts, which were primarily recorded in Other income

(expense), net, of our extinguishment of certain long-term senior notes.


(g)    The amounts in 2019 represented a non-cash charge recorded to write down
       the carrying value of certain intangible assets in the Surgery unit. The
       amounts in 2018 included the net amount, recognized in the period and
       recorded to Other income (expense), net, related to BD's sale of its
       non-controlling interest in Vyaire Medical, partially offset by $81

million of charges recorded to write down the carrying value of certain

       intangible and other assets in the Biosciences unit.


(h)    The amounts in the nine-month periods of fiscal years 2019 and 2018

included tax (benefit) expense, net, of $(54) million and $275 million,

respectively, relating to new U.S. tax legislation, as further discussed

       below.


Gross Profit Margin
Gross profit margin for the three and nine-month periods of fiscal year 2019
compared with the prior-year periods in fiscal year 2018 reflected the following
impacts:
                                                  Three-month period      Nine-month period
June 30, 2018 gross profit margin %                       47.1  %                 44.7  %
Impact of purchase accounting adjustments and
other specified items                                      3.1  %                  3.6  %
Operating performance                                     (1.2 )%                  0.2  %
Foreign currency translation                              (1.3 )%                 (1.1 )%
June 30, 2019 gross profit margin %                       47.7  %           

47.4 %



The impact of purchase accounting adjustments and other specified items on the
current-year three and nine-month periods was favorable due to a comparison to
the prior-year periods, which included the recognition of fair value step-up
adjustments relating to Bard's inventory on the acquisition date, as well as
write-downs of certain intangible and other assets in the Biosciences unit, as
previously discussed above. Operating performance for the three-month period
primarily reflected the impact of unfavorable product mix, partially offset by
lower manufacturing costs resulting from continuous operations improvement
projects and synergy initiatives. Operating performance in the current-year
nine-month period primarily reflected the favorable impact of Bard on product
mix as well as lower manufacturing costs resulting from continuous operations
improvement projects and synergy initiatives, partially offset by higher raw
material costs and pricing pressures.

                                       29
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Operating Expenses
A summary of operating expenses for the three and nine-month periods of fiscal
years 2019 and 2018 is as follows:
                                                                    Increase                                  Increase
                                                                   (decrease)       Nine months ended        (decrease)
                                 Three months ended June 30,        in basis             June 30,             in basis
                                   2019               2018           points         2019          2018         points
(Millions of dollars)
Selling and administrative
expense                       $      1,076$      1,086$   3,238$  2,915
% of revenues                         24.7 %             25.4 %        (70 )          25.5 %       25.2 %         30

Research and development
expense                       $        282$        277$     792$    727
% of revenues                          6.5 %              6.5 %          -             6.2 %        6.3 %        (10 )

Acquisitions and other
restructurings                $         90       $        142$     281$    600

Other operating expense, net  $          -       $          -               

$ 61 $ -



Selling and administrative expense
The decrease in selling and administrative expense as a percentage of revenues
in the current three-month period primarily reflected higher revenues and the
achievement of cost synergies in the current year's quarter. The increase in
selling and administrative expense as a percentage of revenues in the current
nine-month period compared with the prior-year period primarily reflected higher
selling and general administrative costs attributable to Bard, which had a
higher selling and administrative spending profile than BD, in the
current-year's first quarter results.
Research and development expense
Research and development expense as a percentage of revenues in the current
three and nine-month periods was relatively flat compared with the prior-year
periods. Spending in both the current and prior-year periods reflected our
continued commitment to invest in new products and platforms. Expense in the
current-year periods also included a charge recorded to write down the carrying
value of certain intangible assets in the Surgery unit and expense in the
prior-year periods included certain write-down charges in the Biosciences unit,
as noted above.
Acquisitions and other restructurings
Costs relating to acquisitions and other restructurings in the current year's
three and nine-month periods largely represented integration and restructuring
costs incurred due to our acquisition of Bard in the first quarter of fiscal
year 2018. Costs relating to acquisitions and other restructurings in the prior
year's three and nine-month periods included restructuring, integration and
transaction costs incurred due to our acquisition of Bard as well as integration
and restructuring costs related to our CareFusion acquisition and other
portfolio rationalization initiatives. For further disclosures regarding
restructuring costs, refer to Note 11 in the Notes to Condensed Consolidated
Financial Statements.
Other operating expense, net
Other operating expense in the current nine-month period included a charge of
approximately $331 million relating to certain product liability matters as
further discussed in Note 5 in the Notes to Condensed Consolidated Financial
Statements, as well as the estimated costs of $65 million relating to a product
recall in the Medical segment. Net other operating expense in the current
nine-month period additionally included the pre-tax gain of $336 million
recognized on BD's sale of its Advanced Bioprocessing business. Additional
disclosures regarding this divestiture transaction are provided in Note 10 in
the Notes to Condensed Consolidated Financial Statements.

                                       30
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Nonoperating Income
Net interest expense
The components for the three and nine-month periods of fiscal years 2019 and
2018 were as follows:
                           Three months ended June 30,           Nine months ended June 30,
(Millions of dollars)       2019                 2018              2019              2018
Interest expense      $        (156 )$        (182 )$      (498 )$      (525 )
Interest income                   2                     8               8                55
Net interest expense  $        (154 )$        (174 )$      (490 )$      (470 )


Lower interest expense in the current year's three and nine-month periods
compared with the prior-year periods primarily reflected higher fees incurred in
the prior-year period to draw from our term loan facility, which is further
discussed below. Interest expense in the current-year periods was also favorably
impacted by debt repayments during the current year, as well as lower overall
interest rates on debt outstanding during the current-year period as a result of
refinancing activities.
Interest income was not material to our consolidated financial results in the
current and prior-year three-month periods. The decrease in interest income for
the nine-month period of fiscal year 2019 reflected higher levels of cash on
hand in the first quarter of fiscal year 2018 in anticipation of closing the
Bard acquisition at the end of the quarter.
Other income (expense), net
The components of Other income (expense), net for the three and nine-month
periods of fiscal years 2019 and 2018 were largely not material to our
consolidated financial results. Other income in the three and nine-month periods
of fiscal year 2018 included a net amount related to BD's sale of its
non-controlling interest in Vyaire Medical, as noted above.
Income Taxes
The income tax rates for the three and nine-month periods of fiscal years 2019
and 2018 are provided below.
                                                                              Nine months ended June
                                               Three months ended June 30,              30,
                                                  2019            2018           2019           2018
Effective income tax rate                          2.0 %             8.2 %         9.1 %        41.2 %

Impact, in basis points, from specified items
and tax reform                                  (1,080 )            (980 )  

(420 ) 2,400



The effective income tax rate for the three-month period of fiscal year 2019
reflected a more favorable tax impact from specified items and tax reform
compared with the benefit associated with specified items recognized in the
prior-year period. The effective income tax rate for the nine-month period of
fiscal year 2019 reflected a favorable impact relating to the timing of certain
discrete items, as well as the recognition of $54 million of tax benefit
recorded to adjust our consolidated balance sheet for the impacts of U.S. tax
legislation that was enacted in December 2017, compared with additional tax
expense of $275 million that was recognized as a result of this legislation in
the prior-year period. For further disclosures regarding the finalization of our
accounting for this U.S. tax legislation, refer to Note 16 in the Notes to
Condensed Consolidated Financial Statements.
Net Income and Diluted Earnings per Share
Net Income and Diluted Earnings per Share for the three and nine-month periods
of fiscal years 2019 and 2018 were as follows:
                                                   Three months ended June 

30, Nine months ended June 30,

                                                     2019               2018             2019               2018
Net Income (Millions of dollars)                $        451$        594$      1,071$        446
Diluted Earnings per Share                      $       1.51       $       

2.03 $ 3.49$ 1.27


Unfavorable impact-specified items              $      (1.58 )$      (0.88 )$      (4.88 )$      (6.51 )
Dilutive impact of BD shares                    $          -       $          -     $          -       $      (0.31 )
Unfavorable impact-foreign currency translation $      (0.25 )$      (0.64 )



                                       31
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The dilutive impact for the nine-month period of fiscal year 2018 included the
unfavorable impact of BD shares issued through public offerings of equity
securities in the third quarter of fiscal year 2017, in anticipation of the Bard
acquisition, and BD shares issued as consideration transferred in the first
quarter of fiscal year 2018 for the Bard acquisition.
Liquidity and Capital Resources
The following table summarizes our condensed consolidated statements of cash
flows:
                                    Nine months ended June 30,
(Millions of dollars)                2019                2018
Net cash provided by (used for)
Operating activities            $      1,959$        1,559
Investing activities            $       (300 )$      (15,173 )
Financing activities            $     (2,300 )     $          949


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 2019. Normal operating needs in fiscal year 2019
include working capital, capital expenditures, and cash dividends.
Net Cash Flows from Operating Activities
Cash flows from operating activities in the first nine months of fiscal year
2019 reflected net income, adjusted by a change in operating assets and
liabilities that was a net use of cash. This net use of cash primarily reflected
lower levels of accounts payable and accrued expenses and higher levels of
inventory, partially offset by lower levels of trade receivables. Accounts
payable and accrued expenses were lower primarily due to the timing and amount
of interest payments due as well as cash paid related to our product liability
matters and income taxes payable. Cash flows from operating activities in the
current-year period were adjusted by the charge of $331 million relating to
certain product liability matters, which is noted above and further discussed in
Note 5 in the Notes to Condensed Consolidated Financial Statements. Cash flows
from operating activities in the current-year period additionally reflected an
adjustment for a gain of $336 million on our sale of a business, which is
further discussed in Note 10 in the Notes to Condensed Consolidated Financial
Statements, as well as $200 million of discretionary cash contributions to fund
our pension obligation.
Cash flows from operating activities in the prior-year period reflected a
non-cash change to deferred tax asset and liability balances which were
remeasured during the prior-year period under new tax legislation, as further
discussed above. Cash flows from operating activities in the prior-year period
additionally reflected a change in operating assets and liabilities that was a
net source of cash, a $308 million gain on the sale of our remaining interest in
the Vyaire Medical venture, as well as discretionary cash contributions to fund
our pension obligation of $287 million.
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.  Net outflows
from investing activities in the first nine months of fiscal year 2019 included
capital expenditure-related outflows of $599 million, compared with $588 million
in the prior-year period. Net cash flows from investing activities in the first
nine months of fiscal year 2019 also included $477 million of proceeds from our
sale of a business during the period, as further discussed above, compared with
$534 million of proceeds from divestitures in the prior-year period. Cash
outflows for acquisitions in the prior-year period of $15.0 billion related to
our acquisition of Bard.

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Net Cash Flows from Financing Activities
Net cash from financing activities in the first nine months of fiscal years 2019
and 2018 included the following significant cash flows:
                                                Nine months ended June 30,
(Millions of dollars)                             2019               2018
Cash inflow (outflow)
Change in credit facility borrowings        $         300       $         200
Proceeds from long-term debt and term loans $       2,224$       4,335
Payments of debt and term loans             $      (3,882 )$      (2,723 )
Dividends paid                              $        (737 )$        (687 )


Certain measures relating to our total debt were as follows:
(Millions of dollars)                          June 30, 2019     September 30, 2018
Total debt                                    $      20,184     $           21,496

Short-term debt as a percentage of total debt          10.7 %                 12.1 %
Weighted average cost of total debt                     2.9 %                  3.2 %
Total debt as a percentage of total capital*           45.9 %               

47.8 %



*  Represents shareholders' equity, net non-current deferred income tax
liabilities, and debt.
The decrease in the ratio of short-term debt as a percentage of total debt at
June 30, 2019 was primarily driven by the payment of certain short-term notes as
well as the issuance of long-term notes in 2019. Further disclosures regarding
these transactions are provided in Note 15 in the Notes to Condensed
Consolidated Financial Statements.
Cash and Short-term Investments
At June 30, 2019, total worldwide cash and short-term investments, including
restricted cash, were approximately $606 million, which were primarily held in
jurisdictions outside of the United States.
Financing Facilities
In September 2018, we entered into a 364-day $750 million senior unsecured term
loan facility. Borrowings outstanding under the term loan facility were $35
million at June 30, 2019. We also have a five-year senior unsecured revolving
credit facility in place which provides borrowing of up to $2.25 billion. This
facility will expire in December 2022. We are able to issue up to $100 million
in letters of credit under this new revolving credit facility and it also
includes a provision that enables BD, subject to additional commitments made by
the lenders, to access up to an additional $500 million in financing through the
facility for a maximum aggregate commitment of $2.75 billion. We use proceeds
from this facility to fund general corporate needs. Borrowings outstanding under
the revolving credit facility at June 30, 2019 were $300 million.
The agreements for our term loan and revolving credit facility contained the
following financial covenants. We were in compliance with these covenants as of
June 30, 2019.
•      We are required to maintain an interest expense coverage ratio of not less

than 4-to-1 as of the last day of each fiscal quarter.

• We are required to have a leverage coverage ratio, as applicable depending

       upon commencement and maturity of the facility, of no more than:


•            6-to-1 from the closing date of the Bard acquisition until and
             including the first fiscal quarter-end thereafter;

• 5.75-to-1 for the subsequent four fiscal quarters thereafter;

• 5.25-to-1 for the subsequent four fiscal quarters thereafter;

• 4.5-to-1 for the subsequent four fiscal quarters thereafter;

• 4-to-1 for the subsequent four fiscal quarters thereafter;

• 3.75-to-1 thereafter.



We also have informal lines of credit outside the United States. The Company had
no commercial paper borrowings outstanding as of June 30, 2019. We may, from
time to time, sell certain trade receivable assets to third parties as we manage
working capital over the normal course of our business activities.

                                       33
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Access to Capital and Credit Ratings
Our corporate credit ratings with the rating agencies Standard & Poor's Ratings
Services and Fitch Ratings at June 30, 2019 were unchanged compared with our
ratings at September 30, 2018. In May 2019, Moody's Investor Service reaffirmed
our September 30, 2018 ratings and revised the agency's outlook regarding the
likely direction of these ratings over the medium term from Stable to Positive.
Lower corporate debt ratings and downgrades of our corporate credit ratings or
other credit ratings may increase our cost of borrowing. We believe that given
our debt ratings, our financial management policies, our ability to generate
cash flow and the non-cyclical, geographically diversified nature of our
businesses, we would have access to additional short-term and long-term capital
should the need arise. A rating reflects only the view of a rating agency and is
not a recommendation to buy, sell or hold securities. Ratings can be revised
upward or downward at any time by a rating agency if such rating agency decides
that circumstances warrant such a change.
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 these receivables
will not have a material adverse impact on our financial position or liquidity.
Regulatory Matters

In January 2018, BD received a Warning Letter from the U.S. FDA, citing certain
alleged violations of quality system regulations and of law with respect to our
Preanalytical Systems facility in Franklin Lakes, New Jersey. The Warning Letter
states that, until BD resolves the outstanding issues covered by the Warning
Letter, the FDA will not clear or approve any premarket submissions for Class
III devices to which the non-conformances are reasonably related or grant
requests for certificates to foreign governments. BD is working closely with the
FDA and intends to fully implement corrective actions to address the concerns
identified in the Warning Letter. However, BD cannot give any assurances that
the FDA will be satisfied with its responses to the Warning Letter or as to the
expected date of resolution of matters included in the Warning Letter. While BD
does not believe that the issues identified in the Warning Letter will have a
material impact on BD's operation, no assurances can be given that the
resolution of this matter will not have a material adverse effect on BD's
business, results of operations, financial conditions and/or liquidity.
Cautionary Statement Regarding Forward-Looking Statements
BD and its representatives may from time to time make certain forward-looking
statements in publicly released materials, both written and oral, including
statements contained in filings with the Securities and Exchange Commission,
press releases, and our reports to shareholders. Forward-looking statements may
be identified by the use of words such as "plan," "expect," "believe," "intend,"
"will,", "may", "anticipate," "estimate" and other words of similar meaning in
conjunction with, among other things, discussions of future operations and
financial performance (including volume growth, pricing, sales and earnings per
share growth, and cash flows) and statements regarding our strategy for growth,
future product development, regulatory approvals, competitive position and
expenditures. All statements that address our future operating performance or
events or developments that we expect or anticipate will occur in the future are
forward-looking statements.
Forward-looking statements are, and will be, based on management's then-current
views and assumptions regarding future events, developments and operating
performance, and speak only as of their dates. Investors should realize that if
underlying assumptions prove inaccurate, or risks or uncertainties materialize,
actual results could vary materially from our expectations and projections.
Investors are therefore cautioned not to place undue reliance on any
forward-looking statements. Furthermore, we undertake no obligation to update or
revise any forward-looking statements after the date they are made, whether as a
result of new information, future events and developments or otherwise, except
as required by applicable law or regulations.
The following are some important factors that could cause our actual results to
differ from our expectations in any forward-looking statements. For further
discussion of certain of these factors, see Item 1A. Risk Factors in our 2018
Annual Report on Form 10-K.
•     Weakness in the global economy and financial markets, which could increase
      the cost of operating our business, weaken demand for our products and
      services, negatively impact the prices we can charge for our products and
      services, or impair our ability to produce our products.



                                       34
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• Competitive factors that could adversely affect our operations, including

new product introductions and technologies (for example, new forms of drug

delivery) by our current or future competitors, consolidation or strategic

alliances among healthcare companies, distributors and/or payers of

healthcare to improve their competitive position or develop new models for

the delivery of healthcare, increased pricing pressure due to the impact of

      low-cost manufacturers, patents attained by competitors (particularly as
      patents on our products expire), and new entrants into our markets.


•     Risks relating to our acquisition of Bard, including our ability to

successfully combine and integrate the Bard operations in order to obtain

      the anticipated benefits and costs savings from the transaction, and the
      significant additional indebtedness we incurred in connection with the

financing of the acquisition and the impact this increased indebtedness may

have on our ability to operate the combined company.

• The adverse financial impact resulting from unfavorable changes in foreign

currency exchange rates.

• Regional, national and foreign economic factors, including inflation,

deflation, and fluctuations in interest rates, and their potential effect

on our operating performance.

• Our ability to achieve our projected level or mix of product sales, as our

earnings forecasts are based on projected sales volumes and pricing of many

      product types, some of which are more profitable than others.


•     Changes in reimbursement practices of third-party payers or adverse
      decisions relating to our products by such payers, which could reduce
      demand for our products or the price we can charge for such products.

• The impact of the medical device excise tax under the Patient Protection

and Affordable Care Act in the United States. While this tax has been

suspended through December 31, 2019, it is uncertain whether the suspension

will be extended beyond that date.

• Healthcare reform in the U.S. or in other countries in which we do business

that may involve changes in government pricing and reimbursement policies

or other cost containment reforms.

• Changes in the domestic and foreign healthcare industry or in medical

practices that result in a reduction in procedures using our products or

increased pricing pressures, including the continued consolidation among

healthcare providers and trends toward managed care and healthcare cost

containment.

• The impact of changes in U.S. federal laws and policy that could affect

fiscal and tax policies, healthcare, and international trade, including

import and export regulation and international trade agreements. Recently,

the U.S., China and other countries have imposed tariffs on certain

products imported into their respective countries. Additional tariffs or

other trade barriers imposed by the U.S., China or other countries could

      adversely impact our supply chain costs or otherwise adversely impact our
      results of operations.

• Fluctuations in the cost and availability of oil-based resins and other raw

materials, as well as certain components, used in our products, the ability

to maintain favorable supplier arrangements and relationships (particularly

with respect to sole-source suppliers), and the potential adverse effects

of any disruption in the availability of such items.

• Security breaches of our information technology systems or our products,

which could impair our ability to conduct business, result in the loss of

BD trade secrets or otherwise compromise sensitive information of BD or its

customers, suppliers and other business partners, or of customers'

patients, or result in product efficacy or safety concerns for certain of

      our products, and result in actions by regulatory bodies or civil
      litigation.

• Difficulties inherent in product development, including the potential

inability to successfully continue technological innovation, successfully

complete clinical trials, obtain regulatory approvals in the United States

      and abroad, obtain intellectual property protection for our products,
      obtain coverage and adequate reimbursement for new products, or gain and
      maintain market approval of products, as well as the possibility of
      infringement claims by competitors with respect to patents or other
      intellectual property rights, all of which can preclude or delay

commercialization of a product. Delays in obtaining necessary approvals or

clearances from FDA or other regulatory agencies or changes in the

regulatory process may also delay product launches and increase development

      costs.


•     The impact of business combinations or divestitures, including any
      volatility in earnings relating to acquisition-related costs, and our
      ability to successfully integrate any business we may acquire.

• Our ability to penetrate or expand our operations in emerging markets,

which depends on local economic and political conditions, and how well we

are able to 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, as well as regulatory and
      privacy laws.


•     Conditions in international markets, including social and political

conditions, civil unrest, terrorist activity, governmental changes, trade

barriers, restrictions on the ability to transfer capital across borders,

      difficulties in



                                       35
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protecting and enforcing our intellectual property rights and governmental
expropriation of assets. This includes the possible impact of the United
Kingdom's exit from the European Union ("Brexit"), which has created
uncertainties affecting our business operations in the United Kingdom and the
EU, and possibly other countries, including with respect to compliance with the
regulatory regimes regarding the labeling and registration of the products we
sell in these markets. The limited progress in the negotiations of the terms of
the U.K.'s withdraw and the possibility that the U.K. may exit the EU without a
formal withdrawal agreement in place has increased the uncertainty around
Brexit. While we have taken proactive steps to mitigate any disruption to our
operations, we could face increased regulatory costs, volatility in exchange
rates, market instability and other risks, depending on the final terms of the
U.K.'s exit from the EU.
•     Deficit reduction efforts or other actions that reduce the availability of

government funding for healthcare and research, which could weaken demand

      for our products and result in additional pricing pressures, as well as
      create potential collection risks associated with such sales.

• Fluctuations in university or U.S. and international governmental funding

and policies for life sciences research.

• Fluctuations in the demand for products we sell to pharmaceutical companies

that are used to manufacture, or are sold with, the products of such

companies, as a result of funding constraints, consolidation or otherwise.

• The effects of weather, regulatory or other events that adversely impact

our supply chain, including our ability to manufacture our products

(particularly where production of a product line is concentrated in one or

more plants) or source materials or components from suppliers (including

sole-source suppliers) that are needed for such manufacturing, or our

ability to provide products to our customers, including events that impact

key distributors.

• Pending and potential future litigation or other proceedings asserting,

and/or subpoenas seeking information with respect to, alleged violations of

law (including in connection with federal and/or state healthcare programs

such as Medicare or Medicaid, and/or sales and marketing practices such as

investigative subpoenas and the civil investigative demands received by BD

and Bard), antitrust claims, product liability claims (which may involve

lawsuits seeking class action status or seeking to establish multi-district

litigation proceedings, including claims relating to our hernia repair

implant products, surgical continence products for women and vena cava

filter products), claims with respect to environmental matters, and patent

infringement actions, and the availability or collectability of insurance

relating to any such claims.

• New or changing laws and regulations affecting our domestic and foreign

operations, or changes in enforcement practices, including laws relating to

trade, monetary and fiscal policies, taxation (including tax reforms that

could adversely impact multinational corporations), sales practices,

environmental protection, price controls, and licensing and regulatory

requirements for new products and products in the postmarketing phase. In

particular, the U.S. and other countries may impose new requirements

regarding registration, labeling or prohibited materials that may require

      us to re-register products already on the market or otherwise impact our
      ability to market our products. Environmental laws, particularly with
      respect to the emission of greenhouse gases, are also becoming more

stringent throughout the world, which may increase our costs of operations

or necessitate changes in our manufacturing plants or processes or those of

our suppliers, or result in liability to BD.

• Product efficacy or safety concerns regarding our products resulting in

product holds or recalls, regulatory action on the part of the FDA or

foreign counterparts (including restrictions on future product clearances

and civil penalties), declining sales and product liability claims, and

damage to our reputation. As a result of the CareFusion acquisition, we are

operating under a consent decree with the FDA relating to our U.S. infusion

pump business. The consent decree authorizes the FDA, in the event of any

violations in the future, to order us to cease manufacturing and

distributing products, recall products or take other actions, and we may be

required to pay significant monetary damages if we fail to comply with any

provision of the consent decree. Also, in March 2019, the FDA issued a

letter to healthcare professionals regarding the use of paclitaxel-coated

devices in the treatment of peripheral artery disease, advising clinicians

to consider using alternative treatments. We estimate that the FDA letter

will lead to a fifty percent decrease in sales of BD's drug-coated balloons

for the balance of fiscal year 2019 compared to our original forecast,

although the actual impact could be greater. The extent and duration of the

impact from the FDA letter beyond fiscal year 2019, and the likelihood of

      FDA approval of new drug-coated devices, is difficult to predict, and no
      assurance can be given that it will not have a material impact on our
      results of operations in future periods.


•     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.



                                       36
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• 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.

                                       37

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