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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-K)

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11/27/2019 | 04:53pm EST
The following commentary should be read in conjunction with the 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. References
to years throughout this discussion relate to our fiscal years, which end on
September 30.
Company Overview
Description of the Company and Business Segments

Becton, Dickinson and Company ("BD") is a global medical technology company
engaged in the development, manufacture and sale of a broad range of medical
supplies, devices, laboratory equipment and diagnostic products used by
healthcare institutions, physicians, life science researchers, clinical
laboratories, the pharmaceutical industry and the general public. The Company's
organizational structure is based upon 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 countries in East Asia, South Asia, Southeast Asia
and the Oceania region); Latin America (which includes Mexico, Central America,
the Caribbean, and South America); and Canada. We continue to pursue growth
opportunities in emerging markets, which include the following geographic
regions: Eastern Europe, the Middle East, Africa, Latin America and certain
countries within Greater Asia. We are primarily focused on certain countries
whose healthcare systems are expanding.
Strategic Objectives
BD remains focused on delivering sustainable growth and shareholder value, while
making appropriate investments for the future. BD management operates the
business consistent with the following core strategies:
•         To increase revenue growth by focusing on our core products, services

and solutions that deliver greater benefits to patients, healthcare

workers and researchers;

• To supplement our internal growth through strategic acquisitions;


•         To continue investment in research and development for platform
          extensions and innovative new products;

• To make investments in growing our operations in emerging markets;

• To improve operating effectiveness and balance sheet productivity;

• To drive an efficient capital structure and strong shareholder returns.

Our strategy focuses on four specific areas within healthcare and life sciences: • Enabling safer, simpler and more effective parenteral drug delivery;

• Improving clinical outcomes through new, more accurate and faster diagnostics;


•         Providing tools and technologies to the research community that
          facilitate the understanding of the cell, cellular diagnostics, cell
          therapy and immunology;

• Enhancing disease management with our product offerings.



We continue to strive to improve the efficiency of our capital structure and
follow these guiding principles:
• To operate the Company consistent with an investment grade credit profile;


• To ensure access to the debt market for strategic opportunities;

• To optimize the cost of capital based on market conditions.

In assessing the outcomes of these strategies as well as BD's financial condition and operating performance, management generally reviews quarterly forecast data, monthly actual results, segment sales and

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other similar information. We also consider trends related to certain key
financial data, including gross profit margin, selling and administrative
expense, investment in research and development, return on invested capital, and
cash flows.
Summary of Financial Results
Worldwide revenues in 2019 of $17.290 billion increased 8.2% from the prior-year
period. The increase reflected a favorable impact of approximately 6% resulting
from the inclusion of revenues from our acquisition of Bard in the first quarter
of fiscal year 2019 but not in the first quarter of the prior-year period as
operating activities of the business, which was acquired on December 29, 2017,
were not included in our consolidated results of operations until January 1,
2018. Revenues in 2019 also reflected an unfavorable impact of almost 1%
attributable to the Biosciences unit's divestiture of its Advanced Bioprocessing
business at the end of October 2018, as is further discussed in Note 11 to the
consolidated financial statements contained in Item 8. Financial Statements and
Supplementary Data.  Revenue growth in 2019 additionally reflected volume growth
of approximately 5.4%, an unfavorable impact from foreign currency translation
of approximately 2.3% and an unfavorable impact of price of approximately
0.3%. Volume growth in 2019 was as follows:
•      Medical segment growth was driven by sales growth in all of the segment's

units, particularly by growth in the Medication Management Solutions,

Medication Delivery Solutions and Pharmaceutical Systems units.

• Life Sciences segment growth reflected growth in all of the segment's

       units, particularly in the Biosciences unit.


•      Interventional segment growth reflected sales growth in all units,
       particularly in the Surgery unit and the Urology and Critical Care 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.
Our financial position remains strong, with cash flows from operating activities
totaling $3.330 billion in 2019. At September 30, 2019, we had $620 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
fiscal year 2019, we paid cash dividends of $984 million, including $832 million
paid to common shareholders and $152 million paid to preferred shareholders.

Each reporting period, we face currency exposure that arises from translating
the results of our worldwide operations to the U.S. dollar at exchange rates
that fluctuate from the beginning of such period. A stronger U.S. dollar in
2019, compared with 2018, resulted in an unfavorable foreign currency
translation impact to our revenues and earnings during 2019.  We evaluate our
results of operations on both a reported and a foreign currency-neutral basis,
which excludes the impact of fluctuations in foreign currency exchange rates. As
exchange rates are an important factor in understanding period-to-period
comparisons, we believe the presentation of results on a foreign
currency-neutral basis in addition to reported results helps improve investors'
ability to understand our operating results and evaluate our performance in
comparison to prior periods. Foreign currency-neutral ("FXN") information
compares results between periods as if exchange rates had remained constant
period-over-period. We use results on a foreign currency-neutral basis as one
measure to evaluate our performance. We calculate foreign currency-neutral
percentages by converting our current-period local currency financial results
using the prior-period foreign currency exchange rates and comparing these
adjusted amounts to our current-period results. These results should be
considered in addition to, not as a substitute for, results reported in
accordance with U.S. generally accepted accounting principles ("GAAP"). Results
on a foreign currency-neutral basis, as we present them, may not be comparable
to similarly titled

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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 Medical revenues by organizational unit:
                                                               2019 vs. 2018                          2018 vs. 2017
                                                               Estimated                              Estimated
(Millions of                                         Total         FX                       Total        FX
dollars)         2019        2018        2017       Change       Impact      FXN Change    Change      Impact      FXN Change
Medication
Delivery
Solutions      $ 3,859$ 3,644$ 2,812         5.9 %     (2.7 )%         8.6 %      29.6 %       1.9 %         27.7 %
Medication
Management
Solutions        2,629       2,470       2,295         6.4 %     (1.1 )%         7.5 %       7.7 %       1.1 %          6.6 %
Diabetes Care    1,110       1,105       1,056         0.5 %     (2.4 )%         2.9 %       4.6 %       1.7 %          2.9 %
Pharmaceutical
Systems          1,465       1,397       1,256         4.8 %     (3.4 )%         8.2 %      11.2 %       4.8 %          6.4 %
Total Medical
revenues       $ 9,064$ 8,616$ 7,419         5.2 %     (2.3 )%         7.5 %      16.1 %       2.1 %         14.0 %


The Medical segment's revenues in 2019 were favorably impacted by the inclusion
of revenues associated with certain Bard products within the Medication Delivery
Solutions unit in the first quarter of fiscal year 2019, as noted above, and
also reflected strong growth in this unit's global sales of vascular access
devices. The Medication Management Solutions unit's revenues in 2019 reflected
sales growth attributable to the installations of infusion and dispensing
systems, as well as growth in sales of disposables. The Pharmaceutical Systems
unit's 2019 revenue growth was driven by sales of prefillable products and
self-injection systems. Strength in the Diabetes Care unit's sales of pen
needles in emerging markets was partially offset by lower growth in U.S. sales.
Medical segment revenue growth in 2018 was favorably impacted by the inclusion
of revenues associated with certain Bard products within the Medication Delivery
Solutions unit, beginning on January 1, 2018, as noted above. The Medical
segment's underlying revenue growth was largely driven by sales of the
Medication Delivery Solutions unit's vascular access and vascular care products
as well as by the Medication Management Solutions unit's installations of
dispensing and infusion systems.  Revenue growth in the Medication Management
Solutions unit was partially offset by the unfavorable impact, in the first half
of 2018, of a modification to dispensing equipment lease contracts with
customers, which took place in April 2017. As a result of the lease
modification, substantially all new lease contracts are accounted for as
operating leases with revenue recognized over the agreement term, rather than
upon the placement of capital.  The Medical segment's underlying growth also
reflected sales of the Pharmaceutical Systems unit's prefillable products and
the Diabetes Care unit's pen needles.
Medical segment operating income was as follows:
(Millions of dollars)                               2019        2018        

2017

Medical segment operating income (a)              $ 2,824$ 2,624     $ 

1,907

Segment operating income as % of Medical revenues 31.2 % 30.5 %

 25.7 %


(a)        Operating income in 2019 and 2018 excluded certain general and
           administrative costs, which were allocated to the segment in 2017, due
           to a change in our management reporting approach, as is further
           discussed in Note 7 to the consolidated financial statements contained
           in Item 8. Financial Statements and Supplementary Data.

The Medical segment's operating income was driven by improved gross profit margin and operating expense performance in 2019 and 2018 as discussed in greater detail below:

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•The Medical segment's gross profit margin in 2019 was higher as compared with
2018 primarily due to lower manufacturing costs resulting from continuous
improvement projects which enhanced the efficiency of our operations.
Additionally, the comparison of gross profit margin in 2019 with gross profit
margin in 2018 reflected the unfavorable impacts in 2018 of a fair value step-up
adjustment relating to Bard's inventory on the acquisition date and charges to
write down the value of fixed assets, primarily in the Diabetes Care unit. These
favorable impacts to the Medical segment's gross margin in 2019 were partially
offset by unfavorable foreign currency translation, higher raw material costs
and pricing pressures. The Medical segment's gross profit margin in 2018 was
lower as compared with 2017 primarily due to the expense related to amortization
of intangible assets acquired in the Bard transaction as well as the impact of
the fair value step-up adjustment and write-down charges noted above. The
Medical segment's gross profit margin in 2018 was also unfavorably impacted by
higher raw material costs and pricing pressures. These unfavorable impacts to
the Medical segment's gross margin were partially offset by lower manufacturing
costs resulting from continuous improvement projects which enhanced the
efficiency of our operations and favorable product mix impact relating to the
Bard products reported within the segment.
•Selling and administrative expense as a percentage of revenues in 2019 was
relatively flat compared with 2018. Selling and administrative expense as a
percentage of revenues in 2018 was lower compared with 2017 which primarily
reflected a reduction in the general and administrative costs allocated to the
segment, as noted above.
•Research and development expense as a percentage of revenues was lower in 2019
due to recent completion of projects and the timing of project spending.
Research and development expense as a percentage of revenues in 2018 was higher
compared with 2017 which reflected increased investment in new products and
platforms.
Life Sciences Segment
The following summarizes Life Sciences revenues by organizational unit:
                                                               2019 vs. 2018                          2018 vs. 2017
                                                               Estimated                              Estimated
 (Millions of                                        Total         FX                       Total        FX

dollars) 2019 2018 2017 Change Impact

  FXN Change    Change      Impact       FXN Change
Preanalytical
Systems         $ 1,558$ 1,553$ 1,471       0.3  %     (3.0 )%        3.3  %       5.5 %       1.4 %          4.1 %
Diagnostic
Systems           1,547       1,536       1,378       0.7  %     (2.6 )%        3.3  %      11.5 %       1.9 %          9.6 %
Biosciences       1,194       1,241       1,139      (3.8 )%     (2.2 )%       (1.6 )%       9.0 %       2.2 %          6.8 %
Total Life
Sciences
revenues        $ 4,300$ 4,330$ 3,988      (0.7 )%     (2.6 )%        1.9  %       8.6 %       1.8 %          6.8 %



The Life Sciences segment's revenues in 2019 reflected continued strength in
sales of the Preanalytical Systems unit's sales of core products in emerging
markets. The Diagnostic Systems unit's 2019 revenues reflected growth in its
BD MAXTM molecular platform as well as growth in sales of core microbiology
products. This sales growth in the Diagnostic Systems unit was partially offset
by an unfavorable comparison of the unit's U.S. revenues in 2019 to revenues in
2018, as the prior-year period benefited from a more severe influenza season.
Revenues in the Biosciences unit in 2019 reflected growth in research reagent
sales, as well as growth in U.S. research instrument sales, but were unfavorably
impacted by the divestiture of the Advanced Bioprocessing business, as
previously discussed. The Biosciences unit's results for 2018 and 2017 included
revenues associated with the Advanced Bioprocessing business of $106 million and
$103 million, respectively.
The Life Sciences segment's 2018 revenues was driven by growth across all three
of its organizational units. The Diagnostic Systems unit's revenues were
primarily driven by sales of core microbiology products as well as continued
strength in sales of the unit's BD MAXTM molecular platform. Revenue growth in
the Diagnostic Systems unit also reflected a more severe influenza season in
2018 compared with 2017. The Life Sciences segment's 2018 revenue growth was
also driven by the Biosciences unit's sales of research reagents and recently
launched instruments. Growth in the Preanalytical Systems unit reflected global
sales of core products.

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Life Sciences segment operating income was as follows: (Millions of dollars)

                                     2019        2018  

2017

Life Sciences segment operating income (a)              $ 1,248$ 1,207

$ 772


Segment operating income as % of Life Sciences revenues    29.0 %      27.9 %    19.4 %


(a)        Operating income in 2019 and 2018 excluded certain general and
           administrative costs, which were allocated to the segment in

2017, due

           to a change in our management reporting approach, as noted

above.



The Life Sciences segment's operating income was driven by improved gross profit
margin and operating expense performance in 2019 and 2018 as discussed in
greater detail below:
•      The Life Sciences segment's gross profit margin as a percentage of
       revenues in fiscal year 2019 was relatively flat compared with gross
       margin in 2018. Gross margin in 2019 was favorably impacted by lower
       manufacturing costs resulting from continuous improvement projects which

enhanced the efficiency of our operations, as well as by the unfavorable

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

intangible and other assets. These favorable impacts to gross margin in

2019 were offset by unfavorable foreign currency translation and higher

       raw material costs. The Life Sciences segment's gross profit margin as a
       percentage of revenues was higher in fiscal year 2018 as compared with

2017 primarily due to lower manufacturing costs resulting from continuous

improvement projects, which enhanced the efficiency of our operations, and

favorable foreign currency translation. These favorable impacts to the

Life Sciences segment's gross margin were partially offset by expense

       related to the Biosciences unit's write-down of certain intangible and
       other assets, as well as higher raw material costs.

• Selling and administrative expense as a percentage of Life Sciences

revenues in 2019 was lower compared to 2018 primarily due to reduced

general and administrative spending. Selling and administrative expense as

       a percentage of Life Sciences revenues in 2018 was lower compared to 2017
       primarily due to a reduction in the general and administrative costs
       allocated to the segment, as noted above.

• Research and development expense as a percentage of revenues in 2019 was

       lower compared with 2018 primarily due to the Biosciences unit's
       recognition of write-downs in the prior-year period and also due to the
       timing of project spending. Research and development expense as a

percentage of revenues in 2018 was higher compared with 2017 primarily due

to the write-downs noted above.



Interventional Segment
The following summarizes Interventional revenues by organizational unit:
                                                                      2019 vs. 2018               2018 vs. 2017
                                                                       Estimated
 (Millions of                                               Total         FX                          Total
dollars)                2019        2018        2017       Change       Impact      FXN Change       Change
Surgery (a)           $ 1,397$ 1,192$   666        17.3 %      (1.1 )%        18.4 %               NM
Peripheral
Intervention (a)        1,389       1,045          19        33.0 %      (2.8 )%        35.8 %               NM
Urology and Critical
Care                    1,140         800           -        42.4 %      (1.6 )%        44.0 %               NM
Total Interventional
revenues              $ 3,926$ 3,037$   685        29.3 %      (1.8 )%        31.1 %               NM

"NM" denotes that the percentage is not meaningful. (a) Amounts presented in 2017 are associated with certain product offerings

that were moved from the Medical segment to the Interventional segment in

order to align with the reportable segment structure that became effective

beginning in the second quarter of fiscal year 2018.



The Interventional segment's revenues in 2019 were favorably impacted by the
inclusion of revenues associated with Bard's products in the segment's results
for the first quarter of fiscal year 2019, as noted above.

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Interventional segment revenues in 2019 also reflected growth in the Urology and
Critical Care unit's sales of acute urology products and sales by the unit's
home care and targeted temperature management businesses. Fiscal year 2019
revenues in the Surgery unit reflected growth in sales of the unit's biosurgery
and infection prevention products. The Peripheral Intervention unit's 2019
revenues reflected growth in emerging market sales. This growth was partially
offset by an unfavorable impact related to a letter issued in March 2019 by the
FDA to healthcare professionals regarding the use of paclitaxel-coated devices
in the treatment of peripheral artery disease, which impacted sales of our
drug-coated balloon products. The extent and duration of the impact from the FDA
letter on the Peripheral Intervention unit's future revenues is difficult to
predict.
Interventional segment operating income was as follows:
(Millions of dollars)                                     2019      2018    

2017

Interventional segment operating income (a)              $ 903$ 306

$ 248

Segment operating income as % of Interventional revenues 23.0 % 10.1 %

NM

(a) The amount presented in 2017 is associated with certain product offerings

that were moved from the Medical segment to the Interventional segment in

order to align with the reportable segment structure that became effective

beginning in the second quarter of fiscal year 2018.



The Interventional segment's operating income was driven by its performance with
respect to gross profit margin and operating expenses in 2019 as discussed in
greater detail below:
•      Gross profit margin was higher in 2019 as compared with 2018 primarily due

to the unfavorable prior-year impact of recognizing a fair value step-up

       adjustment relating to Bard's inventory on the acquisition date and lower
       manufacturing costs resulting from continuous improvement projects, which
       enhanced the efficiency of our operations, and synergy initiatives. These
       favorable impacts to the Interventional segment's gross margin were
       partially offset by unfavorable product mix and unfavorable foreign
       currency translation.

• Selling and administrative expense as a percentage of revenues in 2019 was

relatively flat compared with 2018.

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

2019 as compared with 2018 primarily due to the Surgery unit's recognition

of a write-down in the current-year period, as further discussed below.



The Interventional segment's operating income in 2018 reflected expense related
to the recognition of a fair value step-up adjustment relating to Bard's
inventory on the acquisition date. The fair value adjustment was a required
non-cash adjustment to the value of acquired inventory and was expensed over a
four-month period, consistent with an estimate of the period of time to sell the
acquired inventory.
Geographic Revenues
BD's worldwide revenues by geography were as follows:
                                                                       2019 vs. 2018                         2018 vs. 2017
                                                                       Estimated                             Estimated
                                                              Total        FX                      Total        FX

(Millions of dollars) 2019 2018 2017 Change Impact FXN Change Change Impact FXN Change United States $ 9,730$ 8,768$ 6,504 11.0 % -

           11.0 %     34.8 %         -           34.8 %
International            7,560        7,215        5,589       4.8 %     

(5.0 )% 9.8 % 29.1 % 4.8 % 24.3 % Total revenues $ 17,290$ 15,983$ 12,093 8.2 % (2.3 )% 10.5 % 32.2 % 2.3 % 29.9 %



U.S. revenues in 2019 reflected growth in all three segments. U.S. revenues in
2019 were favorably impacted by the inclusion of revenues associated with Bard's
products in results for the first quarter of fiscal year 2019, as noted above.
Revenue growth in 2019 was also 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 and Surgery units. U.S. revenue growth in
2019 was unfavorably impacted by results in the Medical segment's Diabetes Care
unit, the Life Sciences segment's Diagnostic Systems unit and the Interventional
segment's Peripheral Intervention unit, as previously noted in the discussions
above.

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U.S. revenues in 2018 benefited from the inclusion of revenues associated with
Bard products in our financial results beginning on January 1, 2018.
Underlying 2018 revenue growth in the United States was driven by revenues in
the Medical segment's Medication Delivery Solutions and Medication Management
Solutions units, as well as by revenues in the Life Sciences segment's
Diagnostic Systems unit.
International revenues in 2019 reflected growth in all three segments.
International revenues in 2019 were favorably impacted by the inclusion of
revenues associated with Bard's products in results for the first quarter of
fiscal year 2019, as noted above. Fiscal year 2019 international revenue growth
was also driven by sales in the Medical segment's Medication Delivery Solutions
and Pharmaceutical Systems units as well as by sales in the Life Sciences
segment's Diagnostic Systems and Preanalytical Systems units.
International revenue growth in 2018 benefited from the inclusion of revenues
associated with Bard products in our financial results. International revenue
growth in 2018 also reflected increased sales in the Medical segment's
Medication Delivery Solutions, Medication Management Solutions and
Pharmaceutical Systems units, as well as growth attributable to sales in all
three of the Life Sciences segment's organizational units.
Emerging market revenues were $2.71 billion, $2.53 billion and $1.95 billion in
2019, 2018 and 2017, respectively. Foreign currency translation unfavorably
impacted emerging market revenues in 2019 by an estimated $155 million and
favorably impacted emerging market revenues in 2018 by an estimated $19 million.
Emerging market revenue growth in 2019 was favorably impacted by the inclusion
of revenues associated with Bard's products in our results for the first quarter
of fiscal year 2019, as noted above. Emerging market revenue growth in 2018
benefited from the inclusion of revenues associated with Bard products in our
financial results beginning on January 1, 2018. Underlying growth in fiscal
years 2019 and 2018 was particularly driven by sales in China and EMA.
Specified Items
Reflected in the financial results for 2019, 2018 and 2017 were the following
specified items:
(Millions of dollars)                                  2019          2018           2017
Integration costs (a)                               $     323$     344$      237
Restructuring costs (a)                                   180           344             85
Transaction costs (a)                                       1            56             39
Financing costs (b)                                         -            49            131
Purchase accounting adjustments (c)                     1,499         1,733            491
Transaction gain/loss, product and other
litigation-related matters (d)                            646             - 

(337 ) Investment gains/losses and asset impairments (e) 17 (151 )

            -
European regulatory initiative-related costs (f)           51             -              -
Impacts of debt extinguishment (g)                         54            16             73
Hurricane recovery-related impacts                        (24 )          17              -
Lease contract modification-related charge (h)              -             -            748
Total specified items                                   2,749         2,409 

1,466

Less: tax impact of specified items and tax reform (i)

                                                       622          (265 )          495
After-tax impact of specified items                 $   2,127$   2,674

$ 971

(a) Represents integration, restructuring and transaction costs, recorded

in Acquisitions and other restructurings, which 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 and other adjustments

related to the purchase accounting for acquisitions. BD's amortization

      expense is primarily recorded in Cost of products sold. The amount in
      2018 included fair value step-up adjustments of $478 million relating to
      Bard's inventory on the acquisition date.

(d) The amount in 2019 includes charges 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. The

amount in 2017 largely represents the reversal of certain reserves related

      to an appellate



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court decision recorded in Other operating expense, net. Further discussion
regarding these amounts recorded to Other operating expense, net is provided
below.
(e)   The amount in 2019 included an unrealized gain of $13 million recorded

within Other income (expense), net relating to an investment and a $30

million non-cash charge recorded within Research and development expense to

write down the carrying value of certain intangible assets in the Surgery

unit. The amounts in 2018 included the net amount of $303 million,

recognized in the period and recorded to Other income (expense),

net, related to BD's sale of its non-controlling interest in Vyaire

Medical. This amount in 2018 was partially offset by $81 million of charges

recorded within Cost of products sold and Research and development expense

to write down the carrying value of certain intangible and other assets in

the Biosciences unit as well as $58 million of charges recorded within Cost

      of products sold to write down the value of fixed assets primarily in the
      Diabetes Care unit.


(f)   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.


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

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

(h) Represents a non-cash charge in 2017, which was recorded in Other operating

expense, net resulting from a modification to our dispensing equipment

lease contracts with customers, as previously discussed.

(i) The amounts in 2019 and 2018 included additional tax (benefit) expense,

net, of $(50) million and $640 million, respectively relating to new U.S.

tax legislation which is further discussed in Note 17 to the consolidated

financial statements contained in Item 8. Financial Statements and

Supplementary Data.



Gross Profit Margin
The comparison of gross profit margins in 2019 and 2018 and the comparison of
gross profit margins in 2018 and 2017 reflected the following impacts:
                                                              2019          

2018

Gross profit margin % prior-year period                        45.5  %        49.3  %
Impact of purchase accounting adjustments, asset
write-downs and other specified items                           2.9  %        (6.9 )%
Operating performance                                           0.1  %         2.7  %
Foreign currency translation                                   (0.6 )%         0.4  %
Gross profit margin % current-year period                      47.9  %      

45.5 %




The impact of purchase accounting adjustments and other specified items in 2019
was favorable due to a comparison to 2018, which included the recognition of
fair value step-up adjustments relating to Bard's inventory on the acquisition
date, as well as write-downs of certain assets in the Biosciences and Diabetes
Care units in 2018 as further discussed above. The operating performance impacts
in 2019 and 2018 reflected lower manufacturing costs resulting from the
continuous improvement projects and synergy initiatives, as well as the
favorable impact of Bard on product mix. Operating performance in 2019 was
unfavorably impacted by higher raw material costs and unfavorable product mix.
Higher raw material costs as well as pricing pressures unfavorably impacted
operating performance in 2018.

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Operating Expenses
Operating expenses in 2019, 2018 and 2017 were as follows:
                                                                                   Increase (decrease) in basis points
(Millions of dollars)                      2019          2018          2017        2019 vs. 2018          2018 vs. 2017
Selling and administrative expense      $   4,332$   4,016$  2,909
% of revenues                                25.1 %        25.1 %       24.1 %              -                    100

Research and development expense $ 1,062$ 1,004$ 770 % of revenues

                                 6.1 %         6.3 %        6.4 %            (20 )                  (10 )

Acquisitions and other restructurings   $     480$     740$    354

Other operating expense, net            $     654     $       -     $    410


Selling and administrative
Selling and administrative expense as a percentage of revenues in 2019 was flat
compared with 2018 as higher revenues and the achievement of cost synergies
offset the impact of higher selling and general administrative costs
attributable to Bard, which had a higher selling and administrative spending
profile than BD, in our results for the first quarter of fiscal year 2019, as
noted above. The increase in selling and administrative expense as a percentage
of revenues in 2018 was primarily attributable to the inclusion of Bard in 2018
results beginning on January 1, 2018.
Research and development

Research and development expense as a percentage of revenues in 2019 and 2018
was relatively flat compared with the prior-year periods. Spending in 2019, 2018
and 2017 reflected our continued commitment to invest in new products and
platforms. As further discussed above, expenses in 2019 included certain
write-down charges in the Surgery unit and expenses in 2018 included write-down
charges in the Biosciences unit.
Acquisitions and other restructurings

Costs relating to acquisitions and other restructurings in 2019 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 2018 included restructuring, integration and
transaction costs incurred due to our acquisition of Bard as well as integration
and restructuring costs related to our fiscal year 2015 CareFusion acquisition
and portfolio rationalization initiatives. Transaction costs incurred in 2017
primarily related to our acquisition of Bard. Substantially all of the
integration and restructuring costs in 2017 were attributable to the CareFusion
acquisition and portfolio rationalization initiatives.  For further disclosures
regarding the costs relating to acquisitions and other restructurings, refer to
Notes 10, 11 and 12 to the consolidated financial statements contained in
Item 8. Financial Statements and Supplementary Data.
Other operating expense, net

Other operating expense in 2019 included charges of approximately $914
million relating to certain product liability matters, as well as an estimated
cost of $75 million relating to a product recall in the Medical segment. Net
other operating expense in 2019 additionally included the pre-tax gain of $336
million recognized on BD's sale of its Advanced Bioprocessing business.
Additional disclosures regarding the product liability matters and divestiture
transaction are provided in Notes 5 and 11, respectively, to the consolidated
financial statements contained in Item 8. Financial Statements and Supplementary
Data.

Other operating expense in 2017 included the $748 million non-cash
charge resulting from the modification to our dispensing equipment lease
contracts with customers. Additional disclosures regarding this lease contract
modification are provided in Note 18 to the consolidated financial statements
contained in Item 8.

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Financial Statements and Supplementary Data. Other operating income in 2017
included a $337 million reversal of certain reserves related to an appellate
court decision which, among other things, reversed an unfavorable antitrust
judgment.
Net Interest Expense
(Millions of dollars)   2019       2018       2017
Interest expense      $ (639 )$ (706 )$ (521 )
Interest income           12         65         76

Net interest expense $ (627 )$ (641 )$ (445 )




The decrease in interest expense in 2019 compared with 2018 primarily reflected
higher fees incurred in 2018 to draw from our term loan facility, which is
further discussed below. Interest expense in 2019 was also favorably impacted by
debt repayments during the current year, as well as lower overall interest rates
on debt outstanding during the current-year period as a result of refinancing
activities. The increase in interest expense in 2018 compared with 2017
reflected higher levels of debt for the full-year period due to our issuances of
senior unsecured U.S. notes during the third quarter of 2017. Additional
disclosures regarding our financing arrangements and debt instruments are
provided in Note 16 to the consolidated financial statements contained in
Item 8. Financial Statements and Supplementary Data.

The decrease in interest income in 2019 compared with 2018 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. The decrease in
interest income in 2018 compared with 2017 reflected lower cash levels in the
remaining quarters of 2018, subsequent to the closing of the Bard acquisition.
Income Taxes

The income tax rates in 2019, 2018 and 2017 were as follows:

                                                       2019          2018         2017
Effective income tax rate                               (4.8 )%       73.5 %      (12.7 )%

Impact, in basis points, from specified items and
tax reform                                            (1,920 )       5,680       (2,790 )



The effective income tax rate in 2019 reflected a favorable impact relating to
the timing of certain discrete items, as well as the recognition of $50 million
of tax benefit recorded for the impacts of U.S. tax legislation that was enacted
in December 2017, compared with additional tax expense of $640 million that was
recognized as a result of this legislation in 2018. For further disclosures
regarding our accounting for this U.S. tax legislation, refer to Note 17 to the
consolidated financial statements contained in Item 8. Financial Statements and
Supplementary Data. The increase in the effective income tax rate in 2018
compared with 2017 reflected the additional tax expense relating to U.S. tax
legislation, as noted above, as well as a less favorable benefit from specified
items in 2018 compared with 2017.

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Net Income and Diluted Earnings per Share Net Income and Diluted Earnings per Share in 2019, 2018 and 2017 were as follows:

                                                     2019           2018    

2017

Net income (Millions of dollars)                 $    1,233$      311$    1,100
Diluted Earnings per Share                       $     3.94$     0.60

$ 4.60


Unfavorable impact-specified items               $    (7.74 )$   (10.11 )$    (4.34 )
(Unfavorable) favorable impact-foreign currency
translation                                      $    (0.62 )$     0.32$    (0.23 )
Dilutive impact from share issuances             $        -     $    (0.30 

) $ (0.54 )




The dilutive impacts in 2018 and 2017 include 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. The dilutive
impact in 2018 additionally includes the unfavorable impact of BD shares issued
as consideration transferred in the first quarter of fiscal year 2018 for the
Bard acquisition as is further discussed in Note 10 to the consolidated
financial statements contained in Item 8. Financial Statements and Supplementary
Data.
Financial Instrument Market Risk
We selectively use financial instruments to manage market risk, primarily
foreign currency exchange risk and interest rate risk relating to our ongoing
business operations. The counterparties to these contracts are highly rated
financial institutions. We do not enter into financial instruments for trading
or speculative purposes.
Foreign Exchange Risk
BD and its subsidiaries transact business in various foreign currencies
throughout Europe, Greater Asia, Canada and Latin America. We face foreign
currency exposure from the effect of fluctuating exchange rates on payables and
receivables relating to transactions that are denominated in currencies other
than our functional currency. These payables and receivables primarily arise
from intercompany transactions. We hedge substantially all such exposures,
primarily through the use of forward contracts. We also face currency exposure
that arises from translating the results of our worldwide operations, including
sales, to the U.S. dollar at exchange rates that have fluctuated from the
beginning of a reporting period. From time to time, we may purchase forward
contracts and options to hedge certain forecasted transactions that are
denominated in foreign currencies in order to partially protect against a
reduction in the value of future earnings resulting from adverse foreign
exchange rate movements. Gains or losses on derivative instruments are largely
offset by the gains or losses on the underlying hedged transactions. We did not
enter into contracts to hedge cash flows against foreign currency fluctuations
in fiscal year 2019 or 2018.
Derivative financial instruments are recorded on our balance sheet at fair
value. For foreign currency derivatives, market risk is determined by
calculating the impact on fair value of an assumed change in foreign exchange
rates relative to the U.S. dollar. Fair values were estimated based upon
observable inputs, specifically spot currency rates and foreign currency prices
for similar assets and liabilities.
With respect to the foreign currency derivative instruments outstanding at
September 30, 2019 and 2018, the impact that changes in the U.S. dollar would
have on pre-tax earnings was estimated as follows:
                                    Increase (decrease)
(Millions of dollars)               2019           2018

10% appreciation in U.S. dollar $ (16 )$ (59 ) 10% depreciation in U.S. dollar $ 16$ 59

These calculations do not reflect the impact of exchange gains or losses on the underlying transactions that would substantially offset the results of the derivative instruments.

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Interest Rate Risk
When managing interest rate exposures, we strive to achieve an appropriate
balance between fixed and floating rate instruments. We may enter into interest
rate swaps to help maintain this balance and manage debt and interest-bearing
investments in tandem, since these items have an offsetting impact on interest
rate exposure. For interest rate derivative instruments, fair values are
measured based upon the present value of expected future cash flows using
market-based observable inputs including credit risk and interest rate yield
curves. Market risk for these instruments is determined by calculating the
impact to fair value of an assumed change in interest rates across all
maturities.
The impact that changes in interest rates would have on interest rate
derivatives outstanding at September 30, 2019 and 2018, as well as the effect
that changes in interest rates would have on our earnings or cash flows over a
one-year period, based upon our overall interest rate exposure, were estimated
as follows:
                                Increase (decrease) to fair
                                  value of interest rate
                                  derivatives outstanding         Increase (decrease) to earnings or cash flows
(Millions of dollars)              2019            2018                 2019                         2018
10% increase in interest rates $        19$       (22 )   $             (4 )           $             (7 )
10% decrease in interest rates $       (19 )$        23     $              4             $              7


Liquidity and Capital Resources


The following table summarizes our consolidated statement of cash flows in 2019,
2018 and 2017:
(Millions of dollars)              2019         2018          2017
Net cash provided by (used for)
Operating activities            $  3,330$   2,865$  2,550
Investing activities            $   (741 )$ (15,733 )$   (883 )
Financing activities            $ (3,223 )$     (58 )$ 10,977

Net Cash Flows from Operating Activities


Cash flows from operating activities in 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
prepaid expenses. The lower levels of accounts payable and accrued expenses were
primarily attributable to cash paid related to income taxes and our product
liability matters, as well as the timing and amount of interest payments due in
the period. Cash flows from operating activities in 2019 additionally reflected
$200 million of discretionary cash contributions to fund our pension obligation.

Cash flows from operating activities in 2018 reflected net income, adjusted by a
change in operating assets and liabilities that was a net source of cash. This
net source of cash primarily reflected higher levels of accounts payable and
accrued expenses, primarily due to higher income taxes payable as a result of
the new U.S. tax legislation discussed above, as well as lower levels of
inventory, partially offset by higher levels of trade receivables. The change in
cash flows from operating activities in 2018 also reflected a change to deferred
tax asset and liability balances which were remeasured under the recently
enacted tax legislation, which is further discussed in Note 17 to the
consolidated financial statements contained in Item 8. Financial Statements and
Supplementary Data. The change in cash flows from operating activities in
2018 additionally reflected discretionary cash contributions of $287 million to
fund our pension obligation.

Cash flows from operating activities in 2017 reflected net income, adjusted by a
change in operating assets and liabilities that was a net use of cash. This net
use of cash primarily reflected higher levels of prepaid expenses, trade
receivables and inventory, partially offset by higher levels of accounts payable
and accrued expenses.


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As previously discussed, cash flows from operating activities in 2019, 2018 and
2017 reflected losses recorded upon our extinguishment of certain long-term
notes which are included within Other, net.
Net Cash Flows from Investing Activities
Capital expenditures

Our investments in capital expenditures are focused on projects that enhance our
cost structure and manufacturing capabilities, and support our strategy of
geographic expansion with select investments in growing markets. Capital
expenditures of $957 million, $895 million and $727 million in 2019, 2018 and
2017, respectively, primarily related to manufacturing capacity expansions.
Details of spending by segment are contained in Note 7 to the consolidated
financial statements contained in Item 8. Financial Statements and Supplementary
Data.
Acquisitions of Businesses
Cash outflows for acquisitions in 2018 primarily related to our acquisition of
Bard. Cash outflows for acquisitions in 2017 included payments for acquisitions
which were immaterial both individually and in the aggregate. For further
discussion, refer to Note 10 to the consolidated financial statements contained
in Item 8. Financial Statements and Supplementary Data.
Divestitures
Cash inflows relating to divestitures in 2019, 2018 and 2017 were $477 million,
$534 million and $165 million, respectively. For further discussion, refer to
Note 11 to the consolidated financial statements contained in Item 8. Financial
Statements and Supplementary Data.
Net Cash Flows from Financing Activities
Net cash from financing activities in 2019, 2018 and 2017 included the following
significant cash flows:
(Millions of dollars)                                             2019         2018         2017
Cash inflow (outflow)
Change in credit facility borrowings                           $    485     $      -     $   (200 )
Proceeds from long-term debt and term loans                    $  2,224$  5,086$ 11,462
Payments of debt and term loans                                $ (4,744 )$ (3,996 )$ (3,980 )
Proceeds from issuances of equity securities                   $      -     $      -     $  4,827
Share repurchases under accelerated share repurchase agreement $      -     $      -     $   (220 )
Dividends paid                                                 $   (984 )$   (927 )$   (677 )



Additional disclosures regarding the equity and debt-related financing
activities detailed above are provided in Notes 3 and 16 to the consolidated
financial statements contained in Item 8. Financial Statements and Supplementary
Data.

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Debt-Related Activities

Certain measures relating to our total debt were as follows:

                                                   2019         2018        

2017

Total debt (Millions of dollars)                $ 19,390$ 21,496     $ 

18,870

Short-term debt as a percentage of total debt 6.8 % 12.1 %

    1.1 %
Weighted average cost of total debt                  2.9 %        3.2 %        3.3 %
Total debt as a percentage of total capital (a)     45.6 %       47.8 %     

57.5 %


(a)     Represents shareholders' equity, net non-current deferred income tax
       liabilities, and debt.



The decrease in short-term debt as a percentage of total debt at September 30,
2019 was primarily driven by the payment of certain short-term notes as well as
the issuance of long-term notes in 2019. The increase in short-term debt as a
percentage of total debt at September 30, 2018 was primarily driven by the
reclassification of certain notes from long-term to short-term. Additional
disclosures regarding our debt instruments are provided in Note 16 to the
consolidated financial statements contained in Item 8. Financial Statements and
Supplementary Data.
Cash and Short-term Investments
At September 30, 2019, total worldwide cash and short-term investments were $620
million, including restricted cash, which was primarily held in jurisdictions
outside of the United States.
Financing Facilities

In May 2017, we entered into a five-year senior unsecured revolving credit
facility 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 September 30, 2019 were $485 million.

The agreement for our revolving credit facility contained the following financial covenants. We were in compliance with these covenants as of September 30, 2019. • We are required to maintain an interest expense coverage ratio of not less

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

• We are required to have a leverage coverage ratio of no more than:


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

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

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

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

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


• 3.75-to-1 thereafter.



We also have informal lines of credit outside the United States. During the
fourth quarter of 2019, the Company fully repaid its borrowings outstanding on a
364-day senior unsecured term loan facility that the Company entered in
September 2018.  The Company had no commercial paper borrowings outstanding as
of September 30, 2019. We may, from time to time, sell certain trade receivable
assets to third parties as we manage working capital over the normal course of
our business activities.

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Access to Capital and Credit Ratings
Our corporate credit ratings with the rating agencies Standard & Poor's Ratings
Services ("S&P"), Moody's Investor Service (Moody's) and Fitch Ratings ("Fitch")
were as follows at September 30, 2019:
                         S&P     Moody's    Fitch
Ratings:
Senior Unsecured Debt    BBB       Ba1       BBB-
Commercial Paper         A-2        NP
Outlook                 Stable   Positive   Stable



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 further downgrades of our corporate credit
ratings or other credit ratings may increase our cost of borrowing. We believe
that given our debt ratings, our financial management policies, our ability to
generate cash flow and the non-cyclical, geographically diversified nature of
our businesses, we would have access to additional short-term and long-term
capital should the need arise. A rating reflects only the view of a rating
agency and is not a recommendation to buy, sell or hold securities. Ratings can
be revised upward or downward at any time by a rating agency if such rating
agency decides that circumstances warrant such a change.
Contractual Obligations
In the normal course of business, we enter into contracts and commitments that
obligate us to make payments in the future. The table below sets forth BD's
significant contractual obligations and related scheduled payments as of
September 30, 2019:
                                                      2021 to     2023 to      2025 and
                                Total       2020       2022        2024       Thereafter
                                                 (Millions of dollars)
Short-term debt               $  1,327$ 1,327    $      -    $      -    $          -
Long-term debt (a)              23,694        527       6,339       5,196          11,632
Operating leases                   546        122         187         114             123
Purchase obligations (b)         1,364      1,048         303          13               -
Unrecognized tax benefits (c)        -          -           -           -               -
Total (d)                     $ 26,931$ 3,025$  6,829$  5,323$     11,755



(a)   Long-term debt obligations include expected principal and interest
      obligations.


(b)   Purchase obligations are for purchases made in the normal course of
      business to meet operational and capital requirements.


(c)   Unrecognized tax benefits at September 30, 2019 of $519 million were all
      long-term in nature. Due to the uncertainty related to the timing of the

reversal of these tax positions, the related liability has been excluded

      from the table.


(d)   Required funding obligations for 2020 relating to pension and other
      postretirement benefit plans are not expected to be material.


Critical Accounting Policies
The following discussion supplements the descriptions of our accounting policies
contained in Note 1 to the consolidated financial statements contained in
Item 8. Financial Statements and Supplementary Data. The preparation of the
consolidated financial statements requires management to use estimates and
assumptions that affect the reported amounts of assets, liabilities, revenues
and expenses, as well as the disclosure of contingent assets and liabilities at
the date of the consolidated financial statements. Some of those judgments can
be subjective and complex and, consequently, actual results could differ from
those estimates. Management bases its estimates and judgments on historical
experience and on various other factors that are believed to be reasonable under
the circumstances, the results of which form the basis for making judgments
about the carrying values of assets and liabilities that are not readily
apparent from other sources. For any given estimate

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or assumption made by management, it is possible that other people applying
reasonable judgment to the same facts and circumstances could develop different
estimates. Actual results that differ from management's estimates could have an
unfavorable effect on our consolidated financial statements. Management believes
the following critical accounting policies reflect the more significant
judgments and estimates used in the preparation of the consolidated financial
statements:
Revenue Recognition
Our revenues are primarily recognized when the customer obtains control of the
product sold, which is generally upon shipment or delivery, depending on the
delivery terms specified in the sales agreement. Revenues associated with
certain instruments and equipment for which installation is complex, and
therefore significantly affects the customer's ability to use and benefit from
the product, are recognized when customer acceptance of these installed products
has been confirmed. For certain service arrangements, including extended
warranty and software maintenance contracts, revenue is recognized ratably over
the contract term. The majority of revenues relating to extended warranty
contracts associated with certain instruments and equipment is generally
recognized within a few years whereas deferred revenue relating to software
maintenance contracts is generally recognized over a longer period.
Our agreements with customers within certain organizational units including
Medication Management Solutions, Diagnostic Systems and Biosciences, contain
multiple performance obligations including both products and certain services
noted above. Determining whether products and services are considered distinct
performance obligations that should be accounted for separately may require
judgment. The transaction price for these agreements is allocated to each
performance obligation based upon its relative standalone selling price.
Standalone selling price is the amount at which we would sell a promised good or
service separately to a customer. We generally estimate standalone selling
prices using its list prices and a consideration of typical discounts offered to
customers. The use of alternative estimates could result in a different amount
of revenue deferral.
Our gross revenues are subject to a variety of deductions, which include rebates
and sales discounts. These deductions represent estimates of the related
obligations and judgment is required when determining the impact on gross
revenues for a reporting period. Additional factors considered in the estimate
of our rebate liability include the quantification of inventory that is either
in stock at or in transit to our distributors, as well as the estimated lag time
between the sale of product and the payment of corresponding rebates.
Impairment of Assets
Goodwill assets are subject to impairment reviews at least annually, or whenever
indicators of impairment arise. Intangible assets with finite lives, including
developed technology, and other long-lived assets, are periodically reviewed for
impairment when impairment indicators are present.

We assess goodwill for impairment at the reporting unit level, which is defined
as an operating segment or
one level below an operating segment, referred to as a component. Our reporting
units generally represent one
level below reporting segments. Potential impairment of goodwill is generally
identified by comparing the fair value of a reporting unit with its carrying
value. Our annual goodwill impairment test performed on July 1, 2019 did not
result in any impairment charges, as the fair value of each reporting unit
exceeded its carrying value.
We generally use the income approach to derive the fair value for impairment
assessments. This approach calculates fair value by estimating future cash flows
attributable to the assets and then discounting these cash flows to a present
value using a risk-adjusted discount rate. We selected this method because we
believe the income approach most appropriately measures our income producing
assets. This approach requires significant management judgment with respect to
future volume, revenue and expense growth rates, changes in working capital use,
appropriate discount rates, terminal values and other assumptions and estimates.
The estimates and assumptions used are consistent with BD's business plans. The
use of alternative estimates and assumptions could increase or decrease the
estimated fair value of the asset, and potentially result in different impacts
to BD's results of operations. Actual results may differ from management's
estimates.
Income Taxes
BD maintains valuation allowances where it is more likely than not that all or a
portion of a deferred tax asset will not be realized. Changes in valuation
allowances are included in our tax provision in the period of change. In
determining whether a valuation allowance is warranted, management evaluates
factors such as prior

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earnings history, expected future earnings, carry back and carry forward
periods, and tax strategies that could potentially enhance the likelihood of
realization of a deferred tax asset.
BD conducts business and files tax returns in numerous countries and currently
has tax audits in progress in a number of tax jurisdictions. In evaluating the
exposure associated with various tax filing positions, we record accruals for
uncertain tax positions based on the technical support for the positions, our
past audit experience with similar situations, and the potential interest and
penalties related to the matters. BD's effective tax rate in any given period
could be impacted if, upon resolution with taxing authorities, we prevailed in
positions for which reserves have been established, or we were required to pay
amounts in excess of established reserves.
We have reviewed our needs in the United States for possible repatriation of
undistributed earnings of our foreign subsidiaries and we continue to invest
foreign subsidiaries earnings outside of the United States to fund foreign
investments or meet foreign working capital and property, plant and equipment
expenditure needs. As a result, after reevaluation of the permanent reinvestment
assertion, we are permanently reinvested with respect to all of our historical
foreign earnings as of September 30, 2019. Additional disclosures regarding our
accounting for income taxes are provided in Note 17 to the consolidated
financial statements contained in Item 8. Financial Statements and Supplementary
Data.
Contingencies
We are involved, both as a plaintiff and a defendant, in various legal
proceedings that arise in the ordinary course of business, including, without
limitation, product liability and environmental matters, as further discussed in
Note 5 to the consolidated financial statements contained in Item 8. Financial
Statements and Supplementary Data. We assess the likelihood of any adverse
judgments or outcomes to these matters as well as potential ranges of probable
losses. We establish accruals to the extent probable future losses are estimable
(in the case of environmental matters, without considering possible third-party
recoveries). A determination of the amount of accruals for these contingencies
is made after careful analysis of each individual issue. When appropriate, the
accrual is developed with the consultation of outside counsel and, as in the
case of certain mass tort litigation, the expertise of an actuarial specialist
regarding the nature, timing and extent of each matter. The accruals may change
in the future due to new developments in each matter or changes in our strategy
in dealing with these matters. We record expected recoveries from product
liability insurance carriers or other parties when those recoveries are probable
and collectible.
Given the uncertain nature of litigation generally, we are not able in all cases
to estimate the amount or range of loss that could result from an unfavorable
outcome of the litigation to which we are a party. In view of these
uncertainties, we could incur charges in excess of any currently established
accruals and, to the extent available, liability insurance. In the opinion of
management, any such future charges, individually or in the aggregate, could
have a material adverse effect on BD's consolidated results of operations and
consolidated net cash flows.
Benefit Plans
We have significant net pension and other postretirement and postemployment
benefit costs that are measured using actuarial valuations. These benefit costs
include assumptions for the discount rate. Pension benefit costs also include an
assumption for the expected return on plan assets. These assumptions have a
significant effect on the amounts reported. In addition to the analysis below,
see Note 9 to the consolidated financial statements contained in Item 8.
Financial Statements and Supplementary Data for additional discussion.
The discount rate is selected each year based on investment grade bonds and
other factors as of the measurement date (September 30). Specifically for the
U.S. pension plan, we will use a discount rate of 3.21% for 2020, which was
based on an actuarially-determined, company-specific yield curve to measure
liabilities as of the measurement date. To calculate the pension expense in
2020, we will apply the individual spot rates along the yield curve that
correspond with the timing of each future cash outflow for benefit payments in
order to calculate interest cost and service cost. Additional disclosures
regarding the method to be used in calculating the interest cost and service
cost components of pension expense for 2020 are provided in Note 9 to the
consolidated financial statements contained in Item 8. Financial Statements and
Supplementary Data. The expected long-term rate of return on plan assets
assumption, although reviewed each year, changes less frequently due to the
long-term nature of the assumption. This assumption does not impact the
measurement of assets or liabilities as of the measurement date; rather, it is
used only in the calculation of pension expense. To

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determine the expected long-term rate of return on pension plan assets, we
consider many factors, including our historical assumptions compared with actual
results; benchmark data; expected returns on various plan asset classes, as well
as current and expected asset allocations. We will use a long-term expected rate
of return on plan assets assumption of 7.25% for the U.S. pension plan in 2020.
We believe our discount rate and expected long-term rate of return on plan
assets assumptions are appropriate based upon the above factors.
Sensitivity to changes in key assumptions for our U.S. pension and other
postretirement and postemployment plans are as follows:
•     Discount rate - A change of plus (minus) 25 basis points, with other

assumptions held constant, would have an estimated $7 million favorable

(unfavorable) impact on the total U.S. net pension and other postretirement

and postemployment benefit plan costs. This estimate assumes no change in

the shape or steepness of the company-specific yield curve used to plot the

individual spot rates that will be applied to the future cash outflows for

future benefit payments in order to calculate interest and service cost.

• Expected return on plan assets - A change of plus (minus) 25 basis points,

with other assumptions held constant, would have an estimated $5 million

favorable (unfavorable) impact on U.S. pension plan costs.

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 this
report.
•     Weakness in the global economy and financial markets, which could increase
      the cost of operating our business, weaken demand for our products and
      services, negatively impact the prices we can charge for our products and
      services, or impair our ability to produce our products.

• Competitive factors that could adversely affect our operations, including

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

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

alliances among healthcare companies, distributors and/or payers of

healthcare to improve their competitive position or develop new models for

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

low-cost manufacturers, patents attained by competitors (particularly as

patents on our products expire), new entrants into our markets and changes

      in the practice of medicine.


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

successfully combine and integrate the Bard operations in order to obtain

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

financing of the acquisition and the impact it may have on our ability to

operate the combined company.

• The adverse financial impact resulting from unfavorable changes in foreign

      currency exchange rates.



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

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

on our operating performance.

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

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

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

• Changes in reimbursement practices of governments or third-party payers, or

adverse decisions relating to our products by such payers, which could

      reduce demand for our products or the price we can charge for such
      products.

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

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

suspended through December 31, 2019, absent further legislative action, it

will be reinstated in 2020.

• Cost containment efforts in the U.S. or in other countries in which we do

      business, including alternative payment reform and increased use of
      competitive bidding and tenders.

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

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

increased pricing pressures, including the continued consolidation among

healthcare providers.

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

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

      import and export regulation and international trade agreements. In
      particular, tariffs or other trade barriers imposed by the U.S. could
      adversely impact our supply chain costs or otherwise adversely impact our
      results of operations.


•     Increases in operating costs, including fluctuations in the cost and
      availability of oil-based resins and other raw materials, as well as

certain components, used in our products, the ability to maintain favorable

supplier arrangements and relationships (particularly with respect to

sole-source suppliers), and the potential adverse effects of any disruption

in the availability of such items.

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

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

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

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

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

      our products, 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 United States Food and Drug Administration ("FDA") or other

regulatory agencies or changes in the regulatory process may also delay

      product launches and increase development costs.


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

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

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

are able to make necessary infrastructure enhancements to production

facilities and distribution networks.

• Conditions in international markets, including social and political

conditions, civil unrest, terrorist activity, governmental changes,

restrictions on the ability to transfer capital across borders, tariffs and

other protectionist measures, difficulties in protecting and enforcing our

intellectual property rights and governmental expropriation of assets. This

includes the possible impact of the United Kingdom's exit from the European

Union ("EU"), which has created uncertainties affecting our business

operations in the United Kingdom and the EU, and possibly other

countries. Our international operations also increase our compliance risks,

      including risks under the Foreign Corrupt Practices Act and other
      anti-corruption laws, as well as regulatory and privacy laws.



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• 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 or sterilization
      operations are concentrated in one or more plants), source materials or

components or services from suppliers (including sole-source suppliers)

      that are needed for such manufacturing (including sterilization), or
      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 (which may involve

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

litigation proceedings, including claims relating to our hernia repair

implant products, surgical continence products for women and vena cava

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

infringement, and the availability or collectability of insurance relating

to any such claims.

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

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

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

could adversely impact multinational corporations), sales practices,

environmental protection, price controls, and licensing and regulatory

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

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

regarding registration, labeling or prohibited materials that may require

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

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

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

our suppliers, or result in liability to BD.

• Product efficacy or safety concerns regarding our products resulting in

product holds or recalls, regulatory action on the part of the 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 2019, the FDA letter to

healthcare professionals regarding the use of paclitaxel-coated devices in

the treatment of peripheral artery disease resulted in decreased sales of

BD's drug-coated balloons. While we have changed the labeling on our

products as required by the FDA and continue to work with the FDA on

patient data, the extent and duration of the impact from the FDA letter,

and the likelihood of FDA approval of new drug-coated devices, is difficult

      to predict.


•     The effect of adverse media exposure or other publicity regarding BD's

business or operations, including the effect on BD's reputation or demand

for its products.

• The effect of market fluctuations on the value of assets in BD's pension

plans and on actuarial interest rate and asset return assumptions, which

could require BD to make additional contributions to the plans or increase

our pension plan expense.

• Our ability to obtain the anticipated benefits of restructuring programs,

      if any, that we may undertake.



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• Issuance of new or revised accounting standards by the Financial Accounting

Standards Board or the Securities and Exchange Commission.



The foregoing list sets forth many, but not all, of the factors that could
impact our ability to achieve results described in any forward-looking
statements. Investors should understand that it is not possible to predict or
identify all such factors and should not consider this list to be a complete
statement of all potential risks and uncertainties.
Item 7A.  Quantitative and Qualitative Disclosures About Market Risk.
The information required by this item is included in Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations, and in
Notes 1, 14 and 15 to the consolidated financial statements contained in Item 8.
Financial Statements and Supplementary Data, and is incorporated herein by
reference.


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