BECTON, DICKINSON AND COMPANY 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 onSeptember 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 inthe United States and internationally through independent distribution channels and directly to end-users by BD and independent sales representatives. We organize our operations outsidethe United States as follows: EMEA (which includesEurope , theMiddle East andAfrica );Greater Asia (which includes countries inGreater China ,Japan ,South Asia ,Southeast Asia ,Korea ,Australia and New Zealand );Latin America (which includesMexico ,Central America , theCaribbean andSouth America ); andCanada . We continue to pursue growth opportunities in emerging markets, which include the following geographic regions:Eastern Europe , theMiddle East ,Africa ,Latin America and certain countries withinGreater Asia . We are primarily focused on certain countries whose healthcare systems are expanding.
Strategic Objectives
BD remains focused on delivering durable growth, creating shareholder value and making appropriate investments for the future. BD 2025, our vehicle for value creation, is anchored in three key pillars: grow, simplify and empower. BD's management team aligns our operating model and investments with these key strategic pillars through continuous focus on the following underlying objectives:
Grow
•Developing and maintaining a strong portfolio of leading products and solutions that address significant unmet clinical needs, improve outcomes, and reduce costs;
•Focusing on our core products, services and solutions that deliver greater benefits to patients, healthcare workers and researchers;
•Investing in research and development that leads to and expands category leadership, as well as results in a robust product pipeline;
•Accelerating innovation in smart connected care, enabling new care settings and improving chronic disease outcomes;
•Leveraging our global scale to expand our reach in providing access to affordable medical technologies around the world, including emerging markets;
•Supplementing our internal growth through strategic acquisitions in faster growing market segments;
•Driving an efficient capital structure and strong shareholder returns.
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Simplify
•Driving operating effectiveness and margin expansion by increasing factory productivity and asset efficiencies;
•Reducing complexity and improving customer experience by rationalizing our product portfolio and through the simplification and optimization of our operating model;
•Making strategic investments to advance quality culture and our core quality management system to serve our patients and ensure we are a best-in-class, proactive quality-driven organization;
•Working across our supply chain to responsibly source materials and goods, as well as to reduce environmental impacts;
•Creating more resilient operations through investments in an enterprise-wide renewable energy strategy;
•Focusing on cash management in order to improve balance sheet productivity. Empower
•Fostering a purpose-driven culture with a focus on positive impact to all stakeholders-customers, patients, employees and communities;
•Improving our ability to serve customers and enhance customer experiences through the digitalization of internal processes and go-to-market approaches;
•Driving sustainability initiatives within our organizational units to support enterprise-wide collaboration towards our sustainability strategy;
•Cultivating an inclusive work environment that welcomes and celebrates diverse talent and perspectives;
•Growing and enabling talent through training, development and reskilling strategies.
In assessing the outcomes of these strategies as well as BD's financial condition and operating performance, management generally reviews forecast data, monthly actual results, including segment sales, and other similar information. We also consider trends related to certain key financial data, including gross profit margin, selling and administrative expense, investment in research and development, return on invested capital, and cash flows.
BD's Spin-Off of Diabetes Care
OnApril 1, 2022 , BD completed the separation and distribution of Embecta, formerly BD's Diabetes Care business, into a separate, publicly-traded company. The historical results of the Diabetes Care business (previously included in BD's Medical segment), as well as interest expense related to indebtedness incurred by Embecta prior to the spin-off date, have been reflected as discontinued operations in our consolidated financial statements for all periods prior to the spin-off date ofApril 1, 2022 . Additional disclosures regarding our spin-off of the Diabetes Care business are provided in Note 2 to the consolidated financial statements contained in Item 8. Financial Statements and Supplementary Data.
Key Trends Affecting Results of Operations
As noted above, our products are manufactured and sold worldwide, which exposes our operations, supply chain and suppliers to various global macroeconomic factors. The factors which were most impactful to our fiscal year 2022 results and that continue to be impactful to our operating results include the following: •Inflation, which has increased the costs of raw materials, components, labor, energy, and logistical services; •Availability of skilled labor (especially inNorth America ), global energy sources, raw materials and electronic components; and
•Constrained logistics capacity related to the movement of goods around the globe.
During fiscal year 2022, the shortages of certain raw materials and components, delays in global transportation and labor shortages in our manufacturing facilities increased lead times for some of our product
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offerings. Also, significant inflationary pressures impacted our supply chain costs in certain areas throughout 2022. We experienced higher costs for raw materials, particularly resins, as well as for electronic components and freight. These increased costs put pressure on our operating expenses and the costs of our investments. We have been mitigating these inflationary pressures through the following:
•Driving strategic procurement initiatives to leverage alternative sources of raw material and transportation;
•Implementing cost-containment measures, as well as intensifying continuous improvement and restructuring programs in our manufacturing and distribution facilities;
•Continuing strategic product line rationalization programs as part of our simplification strategy; and
•Optimizing our sales through product allocation and customer management.
The COVID-19 pandemic continued to drive volatile global economic conditions during our fiscal year 2022. Utilization rates for most of our products have recovered compared to pre-pandemic levels; however, future resurgences in COVID-19 infections or new strains of the virus may affect the prioritization of non-acute versus acute healthcare utilization, which may temporarily weaken future demand for certain of our products and increase the demand for other of our products. The pandemic has contributed to the inflationary pressures and supply chain disruptions discussed above and these challenges could persist if governments impose lockdowns, quarantine requirements and other restrictions in order to control rates of COVID-19 infections, such as inChina . Additionally, the pandemic has escalated challenges that existed for global healthcare systems prior to the pandemic, including budget constraints and staffing shortages, particularly shortages of nursing staff. Changes in the ways healthcare services are delivered, including the transition of more care from acute to non-acute settings and increased focus on chronic disease management, may place additional financial pressure on hospitals and the broader healthcare system. Healthcare institutions may take actions to mitigate any persistent pressures on their budgets and such actions could impact the future demand for our products and services. Additionally, staffing shortages within healthcare systems may affect the prioritization of healthcare services, which could also impact the demand for certain of our products. Geopolitical conditions may also impact our operations. Our operations inRussia andUkraine are not material to our financial results, and as such, the conflict betweenRussia andUkraine did not materially impact our results of operations in 2022. However, the continuation of theRussia -Ukraine military conflict and/or an escalation of the conflict beyond its current scope may further weaken the global economy and could result in additional inflationary pressures and supply chain constraints, including the unavailability and cost of energy. Due to the significant uncertainty that exists relative to the duration and overall impact of the macroeconomic factors discussed above, our future operating performance, particularly in the short-term, may be subject to volatility. The impacts of macroeconomic conditions on our business, results of operations, financial condition and cash flows are dependent on certain factors, including those discussed in Item 1A. Risk Factors.
Summary of Financial Results
Worldwide revenues in 2022 of
Increase (decrease) in current-period
revenues
Volume 6.2 %
Period-over-period decline in revenues related to COVID-19-only testing
(7.5) %
Pricing 2.2 %
Foreign currency translation (2.3) %
Decrease in revenues from the prior-year period (1.4) %
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While resurgences of COVID-19 infections have continued to occur in various countries around the world, demand for our SARS-CoV-2 diagnostics tests and injection devices used for COVID-19 vaccinations has declined from the peak testing and vaccination levels reached earlier in the pandemic. As such, our fiscal year 2022 revenues in our Life Sciences segment reflected sales related to COVID-19-only diagnostic testing on the BD VeritorTM Plus, BD VeritorTM At-Home and BD MaxTM Systems of$511 million , compared with revenues from such testing products in 2021 of$1.956 billion . Volume in 2022 was driven by demand for our core products and reflected strong demand across all of our segments' units, particularly in the Medical segment's Medication Delivery Solutions and Pharmaceutical Systems units, as well as in the Life Sciences segment's Integrated Diagnostic Solutions unit. We continue to invest in research and development, strategic tuck-in acquisitions, geographic expansion, and new product 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. As further discussed above, current global economic conditions have been relatively volatile due to various macroeconomic factors. We are mitigating the inflationary pressures on our businesses through the various strategies discussed above. However, there can be no assurance that we will be able to effectively mitigate such inflationary pressures in future periods, and an inability to offset inflationary pressures, at least in part, through the strategies discussed above could adversely impact our results of operations. Our financial position remains strong, with cash flows from continuing operating activities totaling$2.471 billion in 2022. AtSeptember 30, 2022 , we had$1.167 billion 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 2022, we paid cash dividends of$1.082 billion , including$992 million paid to common shareholders and$90 million paid to preferred shareholders. We also repurchased approximately$500 million of our common stock during fiscal year 2022. Each reporting period, we face currency exposure that arises from translating the results of our worldwide operations to theU.S. dollar at exchange rates that fluctuate from the beginning of such period. A strongerU.S. dollar, compared to the prior-year period, resulted in an unfavorable foreign currency translation impact to our revenues during 2022. The flow of foreign currency impacts to our earnings depends on various factors including our inventory turnover, our ability to leverage our global supply chain and the current-period mix of our sales, from both a product and geographic perspective. These factors resulted in a favorable foreign currency impact to earnings during 2022. 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 withU.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 withU.S. GAAP. 30
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Table of Contents Results of Operations Medical Segment
The following summarizes Medical revenues by organizational unit:
2022 vs. 2021 2021 vs. 2020
Estimated Estimated
Total FX Total FX
(Millions of dollars) 2022 2021 2020 Change Impact FXN Change Change Impact FXN Change
Medication Delivery
Solutions (a) $ 4,308 $ 4,101 $ 3,596 5.0 % (1.8) % 6.8 % 14.0 % 2.3 % 11.7 %
Medication Management
Solutions 2,533 2,432 2,454 4.1 % (1.5) % 5.6 % (0.9) % 1.4 % (2.3) %
Pharmaceutical Systems (a) 2,001 1,828 1,587 9.5 % (5.0) % 14.5 % 15.2 % 4.2 % 11.0 %
Total Medical revenues
5.7 % (2.4) % 8.1 % 9.5 % 2.5 % 7.0 %
(a)Prior-period amounts were recast to reflect former intercompany transactions with Embecta.
The Medication Delivery Solutions unit's revenue growth in 2022 reflected strong global sales of catheters and vascular care products, which were particularly driven by competitive gains for peripherally inserted intravenous catheter and flush products. Fiscal year 2022 revenues in the Medication Management Solutions unit reflected strong growth in global placements of dispensing systems, partially offset by an unfavorable comparison to the prior-year period, which benefited from pandemic-related demand for infusion pumps and sets. Our acquisition ofParata Systems in 2022 also contributed to revenue growth in the Medication Management Solutions unit. The Pharmaceutical Systems unit's strong revenue growth in 2022 reflected continued high demand for our prefillable solutions in the high-growth markets for biologic drugs and vaccines. The Medical segment's revenue growth in 2021 was aided by a favorable comparison to 2020, which was impacted by COVID-19 pandemic-related declines, particularly inthe United States andChina . These prior-year pandemic-related declines impacted our Medication Delivery Solutions unit. Fiscal year 2021 revenue growth in the Medication Delivery Solutions unit reflected strong demand for our core offerings, includingU.S. demand for catheters and vascular care products, as well as strong global demand for syringes resulting from COVID-19 vaccination efforts. In the Medication Management Solutions unit, lower revenues in 2021 reflected an unfavorable comparison to 2020, which benefited from global pandemic-related infusion pump orders. The Pharmaceutical Systems unit's revenue growth in 2021 was enabled by capacity expansion efforts and was driven by continued strong demand for our pre-filled devices, which reflected the vial to pre-filled device conversion for biologics, vaccines, and other injectable drugs.
Medical segment operating income was as follows:
(Millions of dollars) 2022
2021 2020
Medical segment operating income$ 2,215 $
1,985
Segment operating income as % of Medical revenues 25.1 % 23.7 % 21.9 %
The Medical segment's operating income in 2022 was driven by improved gross profit margin and lower operating expenses. Operating income in 2021 was primarily driven by improved gross profit margin.
•The Medical segment's higher gross profit margin in 2022 compared with 2021 primarily reflected the following:
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•Favorable product mix with higher sales of high value-added products in the
Medication Delivery Systems and Medication Management Solutions units.
•Lower manufacturing costs resulting from continuous improvement projects which
enhanced the efficiency of our operations, as well as favorable impacts from
price and foreign currency translation; partially offset by
•Higher raw material and freight costs, a noncash asset impairment charge of $54
million recorded to write down the carrying value of certain fixed assets, as
well as charges of $72 million recorded in 2022 for estimated future costs
within the Medication Management Solutions unit associated with remediation
efforts related to AlarisTM infusion pumps, compared with charges of $56 million
in 2021.
•The Medical segment's higher gross profit margin in 2021 compared with 2020 primarily reflected the following:
•A favorable comparison to 2020, which was unfavorably impacted by increased levels of manufacturing overhead costs that were recognized in the period because of the COVID-19 pandemic, rather than capitalized within inventory, and$244 million of net charges recorded in 2020, compared with charges of$56 million in 2021, for remediation efforts related to AlarisTM infusion pumps, as also discussed above;
•Lower manufacturing costs resulting from continuous improvement projects which enhanced the efficiency of our operations;
•The unfavorable impacts from foreign currency translation, investments in simplification and other cost saving initiatives, higher raw material and freight costs, as well as product quality remediation expenses.
•Selling and administrative expense as a percentage of revenues in 2022 was lower compared with 2021, which reflected efforts to contain certain selling, travel and other administrative activities, partially offset by higher shipping costs. Selling and administrative expense as a percentage of revenues in 2021 was flat compared with 2020 primarily due to the increase in revenues in 2021, offset by higher travel and other administrative costs compared with 2020, which benefited from cost containment measures enacted in response to the COVID-19 pandemic. •Research and development expense as a percentage of revenues was lower in 2022 compared with 2021, which reflected revenue growth that outpaced the timing of project spending. Research and development expense as a percentage of revenues was higher in 2021 compared with 2020, which reflected our commitment to research and development through continued reinvestment into our growth initiatives.
Life Sciences Segment
The following summarizes Life Sciences revenues by organizational unit:
2022 vs. 2021 2021 vs. 2020
Estimated Estimated
Total FX Total FX
(Millions of dollars) 2022 2021 2020 Change Impact FXN Change Change Impact FXN Change
Integrated Diagnostic
Solutions $ 4,185 $ 5,225 $ 3,532 (19.9) % (2.2) % (17.7) % 47.9 % 3.8 % 44.1 %
Biosciences 1,379 1,305 1,143 5.7 % (3.3) % 9.0 % 14.2 % 3.1 % 11.1 %
Total Life Sciences
revenues $ 5,564 $ 6,530 $ 4,675 (14.8) % (2.4) % (12.4) % 39.7 % 3.6 % 36.1 %
32-------------------------------------------------------------------------------- Table of Contents The Integrated Diagnostic Solutions unit's revenues related to COVID-19-only diagnostic testing on the BD VeritorTM Plus, BD VeritorTM At-Home and BD MaxTM Systems in 2022 of$511 million , were lower as compared with revenues from such testing products in 2021 of$1.956 billion . The Integrated Diagnostic Solutions unit's fiscal year 2022 revenues benefited from wide clinical adoption of our broader respiratory panel and the expanded base of instruments we installed during the peak levels of the pandemic to facilitate COVID-19-only testing. The Integrated Diagnostic Solutions unit's revenues also reflected growth in sales of our specimen management products due to a recovery of routine lab testing to pre-pandemic levels. The Biosciences unit's revenue growth in 2022 was driven by strong growth in sales of our reagents and instruments, including our recently launched research instruments. Demand for the Biosciences unit's research reagents was favorably impacted by continued adoption of the unit's e-commerce platform. The Life Sciences segment's revenues in 2021 primarily reflected a favorable comparison to 2020, which was significantly impacted by pandemic-related declines in both units. Revenue growth in the Integrated Diagnostic Solutions unit was also driven by sales related to COVID-19-only diagnostic testing on the BD VeritorTM Plus and BD MaxTM Systems. Routine diagnostic testing levels in the Integrated Diagnostic Solutions unit continued to improve over the course of 2021 and the unit benefited from high demand for our specimen management portfolio, automated blood cultures and ID/AST testing solutions. The Biosciences unit's revenue growth in 2021 benefited from strong demand for instruments and reagents as lab utilization returned to normal levels.
Life Sciences segment operating income was as follows:
(Millions of dollars) 2022 2021 2020
Life Sciences segment operating income
Segment operating income as % of Life Sciences revenues 30.7 % 36.6 % 30.0 % The Life Sciences segment's operating income in 2022 was driven by lower gross profit margin and higher operating expenses as a percentage of revenues. Operating income in 2021 reflected improved gross profit margin and operating expense performance.
•The Life Sciences segment's lower gross profit margin in 2022 compared with 2021 primarily reflected the following:
•The decline in COVID-19-only testing revenues compared with the prior-period, as well as higher raw material and freight costs; partially offset by •A favorable comparison to the prior-year period, which reflected approximately$93 million of excess and obsolete inventory expenses related to COVID-19-only testing inventory, as well as favorable impacts in 2022 from continuous improvement projects in our manufacturing facilities, price, product mix, foreign currency translation and a one-time benefit from licensing income.
•The Life Sciences segment's higher gross profit margin in fiscal year 2021 compared with 2020 primarily reflected the following:
•A favorable impact on product mix from the Integrated Diagnostic Solutions unit's sales related to COVID-19 testing and the recovery of demand for other products with higher margins; •A favorable comparison to the prior-year period which was unfavorably impacted by increased levels of manufacturing overhead costs that were recognized in the period because of the COVID-19 pandemic, rather than capitalized within inventory; •The unfavorable impacts of foreign currency translation and the recognition of approximately$93 million of excess and obsolete inventory expenses, as noted above. 33
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•Selling and administrative expense as a percentage of revenues in 2022 was higher compared with 2021 primarily due to the current-period decline in revenues. Selling and administrative expense as a percentage of Life Sciences revenues in 2021 was lower compared with 2020 primarily due to the increase in revenues in 2021, partially offset by higher travel and other administrative costs compared with 2020, which benefited from cost containment measures enacted in response to the COVID-19 pandemic, as well as higher shipping costs and selling costs in 2021 associated with COVID-19 testing solutions. •Research and development expense as a percentage of revenues was higher in 2022 compared with 2021, primarily due to the current-period decline in revenues. Research and development expense as a percentage of revenues in 2021 was lower compared with 2020, primarily due to the increase in revenues in 2021, partially offset by additional investments in COVID-19 testing solutions.
Interventional Segment
The following summarizes Interventional revenues by organizational unit:
2022 vs. 2021 2021 vs. 2020
Estimated Estimated
Total FX Total FX
(Millions of dollars) 2022 2021 2020 Change Impact FXN Change Change Impact FXN Change
Surgery $ 1,400 $ 1,296 $ 1,121 8.0 % (1.3) % 9.3 % 15.7 % 1.3 % 14.4 %
Peripheral Intervention 1,759 1,711 1,511 2.8 % (2.0) % 4.8 % 13.2 % 3.0 % 10.2 %
Urology and Critical Care 1,305 1,232 1,130 5.9 % (1.9) % 7.8 % 9.0 % 1.4 % 7.6 %
Total Interventional
revenues $ 4,464 $ 4,239 $ 3,762 5.3 % (1.8) % 7.1 % 12.7 % 2.0 % 10.7 %
The Surgery unit's revenues in 2022 reflected strong global sales of our
advanced repair and reconstruction platforms, as well as a benefit from the
unit's fiscal year 2021 acquisition of Tepha, Inc. Fiscal year 2022 revenues in
the Peripheral Intervention unit reflected strong sales of our oncology products
and growth attributable to the unit's fiscal year 2022 acquisition of Venclose,
Inc. and the relaunch of our VenovoTM system. The Peripheral Intervention unit's
revenues in 2022 were unfavorably impacted during the second half of the fiscal
year by supply constraints and hospital labor shortages. The Urology and
Critical Care unit's revenue growth in 2022 was driven by strong demand for
acute urology products.
The Interventional segment's revenues in 2021 reflected a favorable comparison
to 2020, which was significantly impacted by pandemic-related declines in our
Surgery and Peripheral Intervention units. Fiscal year 2021 revenue growth in
the Interventional segment was also driven by stronger market demand for the
Surgery unit's infection prevention platform and the Peripheral Intervention
unit's oncology products. Revenues in the Peripheral Intervention unit
additionally benefited from sales attributable to its fiscal year 2020
acquisition of Straub Medical AG . Fiscal year 2021 revenue growth in our Surgery
and Peripheral Intervention units was unfavorably impacted by resurgences in
COVID-19 infections. The Urology and Critical Care unit's growth in 2021 showed
strong demand for acute urology products and the unit's targeted temperature
management portfolio.
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Interventional segment operating income was as follows:
(Millions of dollars) 2022
2021 2020
Interventional segment operating income$ 1,081
Segment operating income as % of Interventional revenues 24.2 % 22.0 % 19.2 %
The Interventional segment's operating income in 2022 and 2021 was primarily driven by improved gross profit margin.
•The Interventional segment's higher gross profit margin in 2022 compared with 2021 primarily reflected favorable impacts from price, favorable product mix and foreign currency translation, which were partially offset by higher freight costs. •The Interventional segment's higher gross profit margin in 2021 compared with 2020 primarily reflected the recovery of demand for products with higher margins and a favorable comparison to the prior-year period, which was unfavorably impacted by increased levels of manufacturing overhead costs that were recognized in the period because of the COVID-19 pandemic, rather than capitalized within inventory. •Selling and administrative expense as a percentage of revenues was higher in 2022 compared with 2021, as the prior-year period benefited from the curtailment of certain selling, travel and other administrative activities due to the COVID-19 pandemic in the prior year. Selling and administrative expense as a percentage of revenues in 2021 was lower compared with 2020 primarily due the recovery of segment revenues. •Research and development expense as a percentage of revenues was lower in 2022 compared with 2021, as the increase in current-period revenues outpaced the timing of project spending. Research and development expense as a percentage of revenues was higher in 2021 compared with 2020 which primarily reflected reinvestment into our growth initiatives.
Geographic Revenues
BD's worldwide revenues by geography were as follows:
2022 vs. 2021 2021 vs. 2020
Estimated Estimated
Total FX Total FX
(Millions of dollars) 2022 2021 2020 Change Impact FXN Change Change Impact FXN Change
United States $ 10,722 $ 10,371 $ 9,161 3.4 % - 3.4 % 13.2 % - 13.2 %
International 8,148 8,760 6,912 (7.0) % (4.9) % (2.1) % 26.7 % 6.2 % 20.5 %
Total revenues $ 18,870 $ 19,131 $ 16,074 (1.4) % (2.3) % 0.9 % 19.0 % 2.7 % 16.3 %
U.S. revenue growth in 2022 was driven by strong sales in all of the Medical
segment's units, as well as in the Interventional segment's Surgery and Urology
and Critical Care units. U.S. revenue growth in 2022 was unfavorably impacted by
a comparison to 2021, which substantially benefited from sales in the Life
Sciences segment's Integrated Diagnostic Solutions unit related to COVID-19-only
diagnostic testing, as further discussed above.
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by COVID-19 pandemic-related declines, as well as growth attributable to core
products.
The decline in international revenues in 2022 was primarily driven by an unfavorable comparison to 2021, which substantially benefited from sales in the Life Sciences segment's Integrated Diagnostic Solutions unit related to COVID-19-only diagnostic testing, as further discussed above. This fiscal year 2022 decline in international revenues was partially offset by strong sales in all of the Medical segment's units, as well as in the Life Sciences segment's Biosciences unit and the Interventional segment's Surgery and Peripheral Intervention units. International revenue growth in 2021 was largely driven by COVID-19-only diagnostic testing-related sales in the Life Sciences segment's Integrated Diagnostic Solutions unit, as discussed further above, and by demand in the Medical segment's Pharmaceutical Systems unit. Fiscal year 2021 international revenue growth was also driven by results in the Medical segment's Medication Delivery Solutions and the Interventional segment's Peripheral Intervention unit due to favorable comparisons to prior-year period results, which were impacted by COVID-19 pandemic-related declines, and growth attributable to core products. Fiscal year 2021 international revenue growth was unfavorably impacted by a decline in the Medical segment's Medication Management Solutions unit, as further discussed above.
Emerging market revenues were as follows:
2022 vs. 2021 2021 vs. 2020
Estimated Estimated
Total FX Total FX
(Millions of dollars) 2022 2021 2020 Change Impact FXN Change Change Impact FXN Change
Emerging markets $ 2,904 $ 2,677 $ 2,240 8.5 % (1.7) % 10.2 % 19.5 % 3.0 % 16.5 %
Emerging market revenues in 2022 primarily reflected strong growth in Latin
America and China , despite an unfavorable impact from pandemic-related lockdowns
in China during 2022. Revenues in emerging markets in 2021 benefited from a
favorable comparison to 2020 which was impacted by COVID-19 pandemic-related
declines.
Specified Items
Reflected in the financial results for 2022, 2021 and 2020 were the following
specified items:
(Millions of dollars) 2022 2021 2020
Integration costs (a) $ 68 $ 135 $ 214
Restructuring costs (a) 123 44 84
Separation-related items (b) 20 - -
Purchase accounting adjustments (c) 1,431 1,405 1,355
Transaction gain/loss, product and other litigation-related matters (d)
174 272 631
Investment gains/losses and asset impairments (e) 94 (46) 100
European regulatory initiative-related costs (f) 146 134 105
Impacts of debt extinguishment 24 185 8
Total specified items 2,082 2,128 2,497
Less: tax impact of specified items 366 348 392
After-tax impact of specified items $ 1,716 (a)Represents amounts associated with integration and restructuring activities which are primarily recorded in Acquisition-related integration and restructuring expense and are further discussed below.
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(b)Represents costs recorded to Other operating expense, net and incurred in
connection with the separation of BD's former Diabetes Care business.
(c)Includes amortization and other adjustments related to the purchase
accounting for acquisitions. BD's amortization expense is recorded in Cost of
products sold.
(d)Includes certain amounts recorded to Other operating expense, net which are
detailed further below. The amounts in 2022, 2021 and 2020 also included net
charges of $72 million , $56 million and $244 million , respectively, which were
recorded within Cost of products sold related to the estimate of probable future
product remediation costs, as further discussed below. The amount in 2022
additionally includes pension settlement costs of $73 million which were
recorded to Other (expense) income, net.
(e)Includes non-cash (gains) losses recorded within Other (expense) income, net
relating to certain investments. The amounts in 2022 and 2020 included total
charges of $54 million and $98 million , respectively, recorded in Cost of
products sold to write down the carrying value of certain assets.
(f)Represents costs incurred to develop processes and systems to establish
initial compliance with the European Union Medical Device Regulation and the
European Union In Vitro Diagnostic Medical Device Regulation, which represent a
significant, unusual change to the existing regulatory framework. We consider
these costs to be duplicative of previously incurred costs and/or one-off costs,
which are limited to a specific period of time. These expenses, which are
recorded in Cost of products sold and Research and development expense, include
the cost of labor, other services and consulting (in particular, research and
development and clinical trials) and supplies, travel and other miscellaneous
costs.
Gross Profit Margin
The comparison of gross profit margins in 2022 and 2021 and the comparison of gross profit margins in 2021 and 2020 reflected the following impacts:
2022 2021
Gross profit margin % prior-year period 45.1 % 42.3 % Impact of purchase accounting adjustments and other specified items (0.5) % 2.9 %
Operating performance (0.4) % 0.4 % Foreign currency translation 0.7 % (0.5) % Gross profit margin % current-year period 44.9
% 45.1 %
The impact of other specified items on gross profit margin in 2022 included a non-cash asset impairment charge of$54 million in the Medical segment, as well as net charges of$72 million , compared with charges of$56 million in 2021, recorded for estimated future costs within the Medication Management Solutions unit associated with remediation efforts related to AlarisTM infusion pumps. Operating performance in 2022 and 2021 reflected favorable impacts attributable to our ongoing continuous improvement projects. Operating performance in 2022 and 2021 were unfavorably impacted by higher raw material costs. Operating performance in 2022 was also impacted by higher labor costs, as well as by the following:
•Favorable impacts attributable to price, the optimization of our product mix, and the recovery of pre-pandemic demand for products with higher margins;
•A favorable comparison to 2021, which included approximately
Operating performance in 2021 additionally reflected the following:
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•The recovery of demand for products with higher margins and the Integrated Diagnostic Solutions unit's COVID-19-only testing sales. We re-invested over$200 million of the profits from these sales into our BD 2025 strategy focus on growth, simplification and empowerment.
•A favorable comparison to 2020 which was unfavorably impacted by increased levels of manufacturing overhead costs that were recognized in the period because of the COVID-19 pandemic, rather than capitalized within inventory; partially offset by
•The
Operating Expenses
Operating expenses in 2022, 2021 and 2020 were as follows:
Increase (decrease) in basis points
(Millions of dollars) 2022 2021 2020 2022 vs. 2021 2021 vs. 2020
Selling and administrative expense $ 4,709 $ 4,719 $ 4,185
% of revenues 25.0 % 24.7 % 26.0 % 30 (130)
Research and development expense $ 1,256 $ 1,279 $ 1,039
% of revenues 6.7 % 6.7 % 6.5 % - 20
Acquisition-related integration and restructuring expense
$ 179 $ 299 Other operating expense, net$ 37 $ 203 $ 363 Selling and administrative Higher selling and administrative expense as a percentage of revenues in 2022 compared with 2021 primarily reflected higher shipping and selling costs in the current-year period, partially offset by a decrease in our deferred compensation plan liability due to market performance and favorable foreign currency translation. The investment losses on deferred compensation plan assets were recorded to Other (expense) income, net. Selling and administrative expense as a percentage of revenues in 2021 was lower compared with 2020 due to the recovery of revenues in 2021. Selling and administrative expense as a percentage of revenues in 2021 was unfavorably impacted by foreign currency translation and higher shipping costs as a result of expedited shipments relating to COVID-19, as well as by higher selling, travel and other administrative costs compared with 2020, which benefited from cost containment measures enacted in response to the COVID-19 pandemic.
Research and development
Research and development expense as a percentage of revenues in 2022 primarily reflected the timing of project spending. Research and development expense as a percentage of revenues in 2021 was higher compared with 2020 which reflected our reinvestment of COVID-19 testing-related sales profits into our growth initiatives and additional investments in COVID-19 testing solutions, as further discussed above. Spending in 2022, 2021 and 2020 reflected our continued commitment to invest in new products and platforms.
Acquisitions and other restructurings
Acquisition-related integration and restructuring expense in 2022 included restructuring costs related to simplification and other cost saving initiatives, as well as system integration costs. Restructuring expenses in 2022 included non-cash asset impairment charges of$19 million , as further discussed in Note 15 to the 38
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consolidated financial statements contained in Item 8. Financial Statements and Supplementary Data. Costs in 2021 and 2020 included restructuring costs related to simplification and other cost saving initiatives, as well as restructuring and integration costs incurred due to our acquisition ofC.R. Bard, Inc. in the first quarter of fiscal year 2018. For further disclosures regarding the costs relating to restructurings, refer to Note 12 to the consolidated financial statements contained in Item 8. Financial Statements and Supplementary Data. Other operating expense, net
Other operating expense in 2022, 2021 and 2020 included the following items which are further discussed in the Notes to the consolidated financial statements contained in Item 8. Financial Statements and Supplementary Data:
(Millions of dollars) 2022 2021 2020
Charges to record product liability reserves, including related defense costs (See Note 6)
$ 21 $ 361 $ 378 Gains on sale-leaseback transactions (See Note 18) - (158) - Separation-related items 20 - - Other (4) - (15) Other operating expense, net$ 37 $ 203 $ 363 Net Interest Expense
(Millions of dollars) 2022 2021 2020
Interest expense $ (398) $ (469) $ (528)
Interest income 16 9 7
Net interest expense $ (382) $ (460) $ (521)
Lower interest expense in 2022 and 2021 compared with the prior-year periods
reflected lower overall interest rates on debt outstanding during 2022 and 2021,
as well as the impact of debt repayments, particularly in 2021. 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.
Income Taxes
The income tax rates for continuing operations in 2022, 2021 and 2020 were as
follows:
2022 2021 2020Effective income tax rate for continuing operations 8.3 % 5.2 % 14.9 %
Impact, in basis points, from specified items (500) (620) (70)
The effective income tax rate for continuing operations in 2022 primarily
reflected a tax impact from specified items that was less favorable compared
with the benefits associated with specified items recognized in 2021. The
effective income tax rate for continuing operations in 2021 reflected the impact
of discrete tax items, as well as an impact from specified items in 2021 that
was more favorable compared with the benefit associated with specified items in
2020.
39-------------------------------------------------------------------------------- Table of Contents Net Income and Diluted Earnings per Share from Continuing Operations
Net income and diluted earnings per share from continuing operations in 2022, 2021 and 2020 were as follows:
2022 2021 2020
Net income from continuing operations (Millions of dollars)
$ 1,635
Unfavorable impact-specified items$ 5.97 $ 6.10 $ 7.45 Favorable (unfavorable) impact-foreign currency translation$ 0.14
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 throughoutEurope ,Greater Asia ,Canada andLatin 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 have also hedged the currency exposure associated with investments in certain foreign subsidiaries with instruments such as foreign currency-denominated debt and cross-currency swaps, which are designated as net investment hedges, as well as currency exchange contracts. We also face currency exposure that arises from translating the results of our worldwide operations, including sales, to theU.S. dollar at exchange rates that have fluctuated from the beginning of a reporting period. We did not enter into contracts to hedge cash flows against these foreign currency fluctuations in fiscal year 2022 or 2021. 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 theU.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
Increase (decrease)
(Millions of dollars) 2022 2021
10% appreciation in U.S. dollar $ (63) $ (66)
10% depreciation in U.S. dollar $ 63 $ 66 These calculations do not reflect the impact of exchange gains or losses on the underlying transactions that would substantially offset the results of the derivative instruments.
Interest Rate Risk
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
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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 atSeptember 30, 2022 and 2021, 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 Increase (decrease) to earnings or cash outstanding flows (Millions of dollars) 2022 2021 2022 2021 10% increase in interest rates$ (4) $ 7 $ (1) $ - 10% decrease in interest rates $ 4$ (7) $ 1 $ -
Liquidity and Capital Resources
Our strong financial position and cash flow performance have provided us with the capacity to accelerate our innovation pipeline through investments in research and development, as well as through strategic acquisitions. We believe that our available cash and cash equivalents, our ability to generate operating cash flow, and if needed, our access to borrowings from our financing facilities provide us with sufficient liquidity to satisfy our foreseeable operating needs. The following table summarizes our consolidated statement of cash flows in 2022, 2021 and 2020: (Millions of dollars) 2022 2021 2020
Net cash provided by (used for) continuing operations
Operating activities$ 2,471 $ 4,126 $ 2,937 Investing activities$ (3,220) $ (1,843) $ (1,190) Financing activities$ (736) $ (3,306) $ 22
Net Cash Flows from Continuing Operating Activities
Cash flows from continuing operating activities in 2022 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 inventory and prepaid expenses, as well as lower levels of accounts payable and accrued expenses. Cash flows from continuing operating activities in 2022 additionally reflected a discretionary cash contribution of$134 million to fund our pension obligation. Cash flows from continuing operating activities in 2021 reflected higher net income, which was driven by strong revenue performance, 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, partially offset by higher levels of prepaid expenses, inventory and trade receivables. Cash flows from continuing operating activities in 2021 additionally reflected a$16 million discretionary cash contribution to fund our pension obligation. Cash flows from continuing operating activities in 2020 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 and lower levels of prepaid expenses, partially offset by higher levels of inventory and trade receivables.
Net Cash Flows from Continuing Investing Activities
Capital expenditures
Our investments in capital expenditures are focused on projects that enhance our
cost structure and manufacturing capabilities, as well as support our BD 2025
strategy for growth and simplification. Capital
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expenditures of$973 million ,$1.194 billion and$769 million in 2022, 2021 and 2020, respectively, primarily related to manufacturing capacity expansions. Details of spending by segment are contained in Note 8 to the consolidated financial statements contained in Item 8. Financial Statements and Supplementary Data. Acquisitions Cash outflows for acquisitions in 2022 included a cash payment of$1.548 billion associated with our acquisition ofParata Systems in the fourth quarter of 2022, as well as cash payments relating to various strategic acquisitions we have executed as part of our growth strategy, including our acquisitions of MedKeeper,Scanwell Health, Inc ,Tissuemed, Ltd. , andVenclose, Inc. Cash outflows for acquisitions in 2021 and 2020 included cash payments relating to the strategic acquisitions ofTepha, Inc. andStraub Medical AG , respectively.
Net Cash Flows from Continuing Financing Activities
Net cash from continuing financing activities in 2022, 2021 and 2020 included the following significant cash flows:
(Millions of dollars) 2022 2021 2020
Cash inflow (outflow)
Change in short term debt $ 230 $ - $ -
Change in credit facility borrowings $ - $ - $ (485)
Proceeds from long-term debt and term loans $ 497 $ 4,869 $ 3,389
Distribution from Embecta Corp. (see Note 2) $ 1,266 $ - $ -
Net transfer of cash to Embecta upon spin-off $ (265) $ - $ -
Payments of debt and term loans $ (805) $
(5,112)
Proceeds from issuances of equity securities $ - $ -
$ 2,917 Share repurchases$ (500) $ (1,750) $ - Dividends paid$ (1,082) $ (1,048) $ (1,026) Additional disclosures regarding the equity and debt-related financing activities detailed above are provided in Notes 4 and 16 to the consolidated financial statements contained in Item 8. Financial Statements and Supplementary Data. Debt-Related Activities
Certain measures relating to our total debt were as follows:
2022 2021 2020
Total debt (Millions of dollars)$ 16,065 $ 17,610
Weighted average cost of total debt 2.8 % 2.4 % 2.8 % Total debt as a percentage of total capital (a) 37.3 % 41.1
% 41.3 %
(a) Represents shareholders' equity, net non-current deferred income tax liabilities, and debt.
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.
42-------------------------------------------------------------------------------- Table of Contents Cash and Short-term Investments AtSeptember 30, 2022 , total worldwide cash and equivalents and short-term investments, including restricted cash, were$1.167 billion . Approximately half of these assets were held outside ofthe United States . We regularly review the amount of cash and short-term investments held outside ofthe United States and our historical foreign earnings are used to fund foreign investments or meet foreign working capital and property, plant and equipment expenditure needs. To fund cash needs inthe United States , we rely on ongoing cash flow fromU.S. operations, access to capital markets and remittances from foreign subsidiaries of earnings that are not considered to be permanently reinvested.
Financing Facilities
We have a five-year senior unsecured revolving credit facility in place which will expire inSeptember 2026 . The credit facility provides borrowings of up to$2.75 billion , with separate sub-limits of$100 million for letters of credit and swingline loans. The expiration date of the credit facility may be extended for up to two additional one year periods, subject to certain restrictions (including the consent of the lenders). The credit facility provides that we may, subject to additional commitments by lenders, request an additional$500 million of financing, for a maximum aggregate commitment under the credit facility of up to$3.25 billion . Proceeds from this facility may be used for general corporate purposes. There were no borrowings outstanding under the revolving credit facility atSeptember 30, 2022 . The agreement for our revolving credit facility contains the following financial covenants. We were in compliance with these covenants, as applicable, as ofSeptember 30, 2022 . •We are required to have a leverage coverage ratio of no more than: •4.25-to-1 as of the last day of each fiscal quarter following the closing of the credit facility; or •4.75-to-1 for the four full fiscal quarters following the consummation of a material acquisition. We also have informal lines of credit outsidethe United States . We may, from time to time, access the commercial paper market as we manage working capital over the normal course of our business activities. We had$230 million commercial paper borrowings outstanding as ofSeptember 30, 2022 . Also, over the normal course of our business activities, we transfer certain trade receivable assets to third parties under factoring agreements. Additional disclosures regarding sales of trade receivable assets are provided in Note 15 to the consolidated financial statements contained in Item 8. Financial Statements and Supplementary Data.
Access to Capital and Credit Ratings
Our corporate credit ratings with the rating agencies
S&P Moody's Fitch
Ratings:
Senior Unsecured Debt BBB Baa2 BBB
Commercial Paper A-2 P-2 F2
Outlook Stable Stable Stable
In June 2022 , Moody's Investors Service ("Moody's") upgraded our senior
unsecured rating to Baa2 from Baa3. Moody's also updated BD's commercial paper
rating to P-2 from P-3 and revised its outlook on our ratings from Positive to
Stable. Also in June 2022 , Fitch Ratings ("Fitch") upgraded our senior unsecured
rating to BBB from BBB- and revised its outlook on our ratings from Positive to
Stable. In addition, Fitch assigned us with a commercial paper rating of F2. Our
corporate credit ratings with Standard & Poor's Ratings Services at
September 30, 2022 were unchanged compared with our ratings at September 30,
2021 .
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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.
Contractual Obligations
In the normal course of business, we enter into contracts and commitments that obligate us to make payments in the future. Information regarding our obligations under purchase, debt and lease arrangements are provided in Notes 6, 16 and 18, respectively, to the consolidated financial statements contained in Item 8. Financial Statements and Supplementary Data.
Critical Accounting Policies
The following discussion supplements the descriptions of our accounting policies contained in Note 1 to the consolidated financial statements contained in Item 8. Financial Statements and Supplementary Data. The preparation of the consolidated financial statements requires management to use estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, as well as the disclosure of contingent assets and liabilities at the date of the consolidated financial statements. Some of those judgments can be subjective and complex and, consequently, actual results could differ from those estimates. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. For any given estimate or assumption made by management, it is possible that other people applying reasonable judgment to the same facts and circumstances could develop different estimates. Actual results that differ from management's estimates could have an unfavorable effect on our consolidated financial statements. Management believes the following critical accounting policies reflect the more significant judgments and estimates used in the preparation of the consolidated financial statements:
Revenue Recognition
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, Integrated Diagnostic Solutions 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 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
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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. Our review of goodwill for each reporting unit compares the fair value of the reporting unit, estimated using an income approach, with its carrying value. Our annual goodwill impairment test performed onJuly 1, 2022 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 the value of 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. Actual results may differ from management's estimates. Income Taxes BD maintains valuation allowances where it is more likely than not that all or a portion of a deferred tax asset will not be realized. Changes in valuation allowances are included in our tax provision in the period of change. In determining whether a valuation allowance is warranted, management evaluates factors such as prior earnings history, expected future earnings, carryback and carryforward 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 inthe United States for possible repatriation of undistributed earnings of our foreign subsidiaries and we continue to invest foreign subsidiaries earnings outside ofthe United States to fund foreign investments or meet foreign working capital and property, plant and equipment expenditure needs. As a result, we are permanently reinvested with respect to all of our historical foreign earnings as ofSeptember 30, 2022 . 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 6 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 45
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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 matter. 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 litigation strategy. We record expected recoveries from product liability insurance carriers or other parties when realization of recovery is deemed probable. 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 obligations that are measured using actuarial valuations which include assumptions for the discount rate and the expected return on plan assets. These assumptions have a significant effect on the amounts reported. In addition to the analysis below, see Note 10 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 theU.S. plans, we will use a discount rate of 5.62% for 2023, 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 2023, 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 2023 are provided in Note 10 to the consolidated financial statements contained in Item 8. Financial Statements and Supplementary Data. The expected long-term rate of return on plan assets assumption, although reviewed each year, changes less frequently due to the long-term nature of the assumption. This assumption does not impact the measurement of assets or liabilities as of the measurement date; rather, it is used only in the calculation of pension expense. To determine the expected long-term rate of return on pension plan assets, we consider many factors, including our historical assumptions compared with actual results; benchmark data; expected returns on various plan asset classes, as well as current and expected asset allocations. We will use a long-term expected rate of return on plan assets assumption of 7.25% for theU.S. pension plan in 2023. 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
•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 totalU.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$4 million favorable (unfavorable) impact onU.S. pension plan costs.
Cautionary Statement Regarding Forward-Looking Statements
This report includes forward-looking statements within the meaning of the federal securities laws. BD and its representatives may also, from time to time, make certain forward-looking statements in publicly released
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materials, both written and oral, including statements contained in filings with theSecurities 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. TheRussia andUkraine conflict may also heighten the impact of certain of these factors described below and the Risk Factors in Item 1A. Risk Factors in this report. For further discussion of certain of these factors, see Item 1A. Risk Factors in this report and our subsequent Quarterly Reports on Form 10-Q. •The impact of inflation and disruptions in our global supply chain on BD and our suppliers (particularly sole-source suppliers and providers of sterilization services), including fluctuations in the cost and availability of oil-based resins and other raw materials, as well as certain components, used in the production or sterilization of our products, transportation constraints and delays, product shortages, energy shortages or increased energy costs, labor shortages inthe United States and elsewhere, and increased operating and labor costs. •Any impact the COVID-19 pandemic, including resurgences in COVID-19 infections or new strains of the virus or additional or extended lockdowns or other restrictions imposed by government entities, may have on our business, the global economy and the global healthcare system. This may include decreases in the demand for our products, disruptions to our operations or the operations of our suppliers and customers (including employee absenteeism) or disruptions to our supply chain. •Factors such as the rate of vaccination, the effectiveness of vaccines against different strains, the rate of infections, and competitive factors that could impact the demand and pricing for our COVID-19 diagnostics testing. •General global, regional or national economic downturns and macroeconomic trends, including heightened inflation, capital market volatility, interest rate and currency rate fluctuations, and economic slowdown or recession, that may result in unfavorable conditions that could negatively affect demand for our products and services, impact the prices we can charge for our products and services, or impair our ability to produce our products. •Changes in the way healthcare services are delivered, including transition of more care from acute to non-acute settings and increased focus on chronic disease management, which may affect the demand for our products and services. Additionally, budget constraints and staffing shortages, particularly shortages of nursing staff may affect the prioritization of healthcare services, which could also impact the demand for certain of our products and services. •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 47
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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 overall level of indebtedness, including our ability to service our debt and refinance our indebtedness, which is dependent upon the capital markets and the overall macroeconomic environment and our financial condition at such time.
•The adverse financial impact resulting from unfavorable changes in foreign currency exchange rates.
•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. •Cost-containment efforts in theU.S. or in other countries in which we do business, such as alternative payment reform and increased use of competitive bidding and tenders, including, without limitation, any expansion of the volume-based procurement process inChina or implementation of similar cost-containment efforts. •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 cost-reduction measures instituted by and the continued consolidation among healthcare providers. •Changing customer preferences and requirements, such as increased demand for products with lower environmental footprint, and for companies to produce and demonstrate progress against GHG reduction plans and targets. •The impact of changes inU.S. federal laws and policies 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 theU.S. or other countries could adversely impact our supply chain costs or otherwise adversely impact our results of operations. •The risks associated with the spin-off of our former Diabetes Care business, including factors that could adversely affect our ability to realize the expected benefits of the spin-off, or the qualification of the spin-off as a tax-free transaction forU.S. federal income tax purposes. •Security breaches of our information 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, including sensitive personal data, 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 and maintain regulatory approvals and registrations inthe 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 could preclude or delay commercialization of a product. Delays in obtaining necessary approvals or clearances from the FDA or other regulatory agencies or changes in the regulatory process may also delay product launches and increase development costs.
•The impact of business combinations or divestitures, including any volatility in earnings relating to acquisition-related costs, and our ability to successfully integrate any business we may acquire.
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•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. 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. •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
•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 regulatory or other events that adversely impact our supply chain, including our ability to manufacture (including sterilize) 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. •Natural disasters, including the impacts of climate change, hurricanes, tornadoes, windstorms, fires, earthquakes and floods and other extreme weather events, global health pandemics, war, terrorism, labor disruptions and international conflicts that could cause significant economic disruption and political and social instability, resulting in decreased demand for our products, or adversely affecting our manufacturing and distribution capabilities or causing interruptions in our supply chain. •Pending and potential future litigation or other proceedings asserting, and/or investigations concerning and/or subpoenas and requests 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)), potential anti-corruption and related internal control violations under the Foreign Corrupt Practices Act, antitrust claims, securities law claims, product liability (which may involve lawsuits seeking class action status or seeking to establish multi-district litigation proceedings, including pending claims relating to our hernia repair implant products, surgical continence products for women and vena cava filter products), claims with respect to environmental matters, data privacy breaches 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 post-marketing phase. In particular, theU.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. 49
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•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 theCareFusion acquisition, ourU.S. infusion pump business is operating under a Consent Decree with the FDA. The Consent Decree authorizes the FDA, in the event of any violations in the future, to order ourU.S. infusion pump business to cease manufacturing and distributing products, recall products or take other actions, and order the payment of significant monetary damages if the business subject to the decree fails to comply with any provision of the Consent Decree. We are undertaking certain remediation of our BD AlarisTM System, and are currently shipping the product in theU.S. , only in cases of medical necessity and to remediate recalled software versions. We will not be able to fully resume commercial operations for the BD Alaris System in theU.S. until BD's 510(k) submission relating to the product has been cleared by the FDA. No assurances can be given as to when or if clearance will be obtained from the FDA.
•The effect of adverse media exposure or other publicity regarding BD's business or operations, including the effect on BD's reputation or demand for its products.
•The effect of market fluctuations on the value of assets in BD's pension plans and on actuarial interest rate and asset return assumptions, which could require BD to make additional contributions to the plans or increase our pension plan expense.
•Our ability to obtain the anticipated benefits of restructuring programs, if any, that we may undertake.
•Issuance of new or revised accounting standards by the FASB or the
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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