ý | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
New Jersey | 22-0760120 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
Large accelerated filer | Accelerated filer | ¨ | ||||
Non-accelerated filer | ¨ | Smaller reporting company | ¨ |
Class of Common Stock | Shares Outstanding as of | |
Common stock, par value $1.00 |
March 31, 2016
Page Number | ||||||
Part I. | ||||||
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Item 1. | ||||||
Item 2. | ||||||
Item 3. | ||||||
Item 4. | ||||||
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Item 1. | ||||||
Item 1A. | ||||||
Item 2. | ||||||
Item 3. | ||||||
Item 4. | ||||||
Item 5. | ||||||
Item 6. | ||||||
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June 30, 2015 | September 30, 2014 | |||||||
(Unaudited) | ||||||||
Assets | ||||||||
Current Assets: | ||||||||
Cash and equivalents | $ | 1,559 | $ | 1,861 | ||||
Short-term investments | 29 | 884 | ||||||
Trade receivables, net | 1,645 | 1,187 | ||||||
Current portion of net investment in sales-type leases | 130 | 5 | ||||||
Inventories: | ||||||||
Materials | 393 | 248 | ||||||
Work in process | 300 | 260 | ||||||
Finished products | 1,326 | 987 | ||||||
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2,020 | 1,495 | |||||||
Prepaid expenses, deferred taxes and other | 921 | 698 | ||||||
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Total Current Assets | 6,303 | 6,131 | ||||||
Property, Plant and Equipment | 8,283 | 7,765 | ||||||
Less allowances for depreciation and amortization | 4,236 | 4,160 | ||||||
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Property, Plant and Equipment, Net | 4,047 | 3,605 | ||||||
Goodwill | 7,464 | 1,090 | ||||||
Customer Relationships, Net | 3,313 | 8 | ||||||
Developed Technology, Net | 2,962 | 513 | ||||||
Other Intangibles, Net | 849 | 239 | ||||||
Capitalized Software, Net | 385 | 365 | ||||||
Net Investment in Sales-Type Leases, Less Current Portion | 1,082 | 9 | ||||||
Other Assets | 674 | 488 | ||||||
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Total Assets | $ | 27,079 | $ | 12,447 | ||||
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Liabilities and Shareholders’ Equity | ||||||||
Current Liabilities: | ||||||||
Short-term debt | $ | 1,804 | $ | 203 | ||||
Payables and accrued expenses | 2,713 | 2,031 | ||||||
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Total Current Liabilities | 4,517 | 2,235 | ||||||
Long-Term Debt | 11,367 | 3,768 | ||||||
Long-Term Employee Benefit Obligations | 1,007 | 1,009 | ||||||
Deferred Income Taxes and Other | 2,936 | 383 | ||||||
Commitments and Contingencies | — | — | ||||||
Shareholders’ Equity | ||||||||
Common stock | 333 | 333 | ||||||
Capital in excess of par value | 4,418 | 2,198 | ||||||
Retained earnings | 12,260 | 12,105 | ||||||
Deferred compensation | 19 | 19 | ||||||
Common stock in treasury - at cost | (8,242 | ) | (8,601 | ) | ||||
Accumulated other comprehensive (loss) income | (1,535 | ) | (1,001 | ) | ||||
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Total Shareholders’ Equity | 7,253 | 5,053 | ||||||
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Total Liabilities and Shareholders’ Equity | $ | 27,079 | $ | 12,447 | ||||
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March 31, 2016 | September 30, 2015 | ||||||
(Unaudited) | |||||||
Assets | |||||||
Current Assets: | |||||||
Cash and equivalents | $ | 1,696 | $ | 1,424 | |||
Short-term investments | 15 | 20 | |||||
Trade receivables, net | 1,574 | 1,618 | |||||
Current portion of net investment in sales-type leases | 311 | 75 | |||||
Inventories: | |||||||
Materials | 314 | 384 | |||||
Work in process | 302 | 280 | |||||
Finished products | 1,229 | 1,295 | |||||
1,846 | 1,959 | ||||||
Assets held for sale | 618 | — | |||||
Prepaid expenses and other | 551 | 563 | |||||
Total Current Assets | 6,612 | 5,659 | |||||
Property, Plant and Equipment | 8,170 | 8,277 | |||||
Less allowances for depreciation and amortization | 4,390 | 4,217 | |||||
Property, Plant and Equipment, Net | 3,779 | 4,060 | |||||
Goodwill | 7,448 | 7,537 | |||||
Customer Relationships, Net | 3,128 | 3,250 | |||||
Developed Technology, Net | 2,721 | 2,977 | |||||
Other Intangibles, Net | 682 | 797 | |||||
Capitalized Software, Net | 346 | 362 | |||||
Net Investment in Sales-Type Leases, Less Current Portion | 826 | 1,118 | |||||
Other Assets | 694 | 717 | |||||
Total Assets | $ | 26,236 | $ | 26,478 | |||
Liabilities and Shareholders’ Equity | |||||||
Current Liabilities: | |||||||
Short-term debt | $ | 1,651 | $ | 1,452 | |||
Payables and accrued expenses | 2,527 | 2,930 | |||||
Liabilities held for sale | 202 | — | |||||
Total Current Liabilities | 4,380 | 4,381 | |||||
Long-Term Debt | 10,864 | 11,370 | |||||
Long-Term Employee Benefit Obligations | 1,146 | 1,133 | |||||
Deferred Income Taxes and Other | 2,181 | 2,430 | |||||
Commitments and Contingencies (See Note 5) | |||||||
Shareholders’ Equity | |||||||
Common stock | 333 | 333 | |||||
Capital in excess of par value | 4,600 | 4,475 | |||||
Retained earnings | 12,600 | 12,314 | |||||
Deferred compensation | 20 | 20 | |||||
Common stock in treasury - at cost | (8,240 | ) | (8,239 | ) | |||
Accumulated other comprehensive loss | (1,647 | ) | (1,738 | ) | |||
Total Shareholders’ Equity | 7,666 | 7,164 | |||||
Total Liabilities and Shareholders’ Equity | $ | 26,236 | $ | 26,478 |
Three Months Ended June 30, | Nine Months Ended June 30, | |||||||||||||||
2015 | 2014 | 2015 | 2014 | |||||||||||||
Revenues | $ | 3,120 | $ | 2,157 | $ | 7,222 | $ | 6,244 | ||||||||
Cost of products sold | 1,932 | 1,046 | 3,943 | 3,045 | ||||||||||||
Selling and administrative expense | 764 | 528 | 1,820 | 1,584 | ||||||||||||
Research and development expense | 178 | 137 | 437 | 410 | ||||||||||||
Acquisition-related costs | 108 | — | 244 | — | ||||||||||||
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Total Operating Costs and Expenses | 2,983 | 1,712 | 6,444 | 5,039 | ||||||||||||
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Operating Income | 137 | 445 | 779 | 1,204 | ||||||||||||
Interest expense | (105 | ) | (33 | ) | (272 | ) | (99 | ) | ||||||||
Interest income | 2 | 12 | 20 | 36 | ||||||||||||
Other income (expense), net | 5 | (2 | ) | 23 | 4 | |||||||||||
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Income Before Income Taxes | 39 | 423 | 549 | 1,145 | ||||||||||||
Income tax (benefit) provision | (23 | ) | 97 | 35 | 261 | |||||||||||
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Net Income | 62 | 326 | 514 | 884 | ||||||||||||
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Basic Earnings per Share | $ | 0.30 | $ | 1.69 | $ | 2.58 | $ | 4.57 | ||||||||
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Diluted Earnings per Share | $ | 0.29 | $ | 1.65 | $ | 2.52 | $ | 4.47 | ||||||||
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Dividends per Common Share | $ | 0.600 | $ | 0.545 | $ | 1.800 | $ | 1.635 | ||||||||
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Three Months Ended March 31, | Six Months Ended March 31, | ||||||||||||||
2016 | 2015 | 2016 | 2015 | ||||||||||||
Revenues | $ | 3,067 | $ | 2,051 | $ | 6,054 | $ | 4,102 | |||||||
Cost of products sold | 1,584 | 1,005 | 3,162 | 2,011 | |||||||||||
Selling and administrative expense | 732 | 511 | 1,480 | 1,055 | |||||||||||
Research and development expense | 182 | 129 | 369 | 258 | |||||||||||
Acquisitions and other restructurings | 104 | 113 | 225 | 136 | |||||||||||
Total Operating Costs and Expenses | 2,601 | 1,758 | 5,236 | 3,460 | |||||||||||
Operating Income | 466 | 293 | 818 | 642 | |||||||||||
Interest expense | (99 | ) | (91 | ) | (196 | ) | (167 | ) | |||||||
Interest income | 3 | 8 | 9 | 19 | |||||||||||
Other income, net | 6 | 15 | 11 | 17 | |||||||||||
Income Before Income Taxes | 376 | 225 | 642 | 510 | |||||||||||
Income tax provision | 38 | 9 | 75 | 58 | |||||||||||
Net Income | 338 | 216 | 567 | 452 | |||||||||||
Basic Earnings per Share | $ | 1.59 | $ | 1.10 | $ | 2.67 | $ | 2.32 | |||||||
Diluted Earnings per Share | $ | 1.56 | $ | 1.08 | $ | 2.62 | $ | 2.28 | |||||||
Dividends per Common Share | $ | 0.66 | $ | 0.60 | $ | 1.32 | $ | 1.20 |
Three Months Ended June 30, | Nine Months Ended June 30, | |||||||||||||||
2015 | 2014 | 2015 | 2014 | |||||||||||||
Net Income | $ | 62 | $ | 326 | $ | 514 | $ | 884 | ||||||||
Other Comprehensive Income (Loss), Net of Tax | ||||||||||||||||
Foreign currency translation adjustments | 80 | (11 | ) | (558 | ) | 3 | ||||||||||
Defined benefit pension and postretirement plans | 11 | 8 | 33 | 51 | ||||||||||||
Net unrealized (losses) gains on cash flow hedges, net of reclassifications | (2 | ) | 1 | (8 | ) | 4 | ||||||||||
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Other Comprehensive Income (Loss), Net of Tax | 88 | (2 | ) | (533 | ) | 58 | ||||||||||
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Comprehensive Income | $ | 150 | $ | 324 | $ | (19 | ) | $ | 943 | |||||||
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Three Months Ended March 31, | Six Months Ended March 31, | ||||||||||||||
2016 | 2015 | 2016 | 2015 | ||||||||||||
Net Income | $ | 338 | $ | 216 | $ | 567 | $ | 452 | |||||||
Other Comprehensive Income (Loss), Net of Tax | |||||||||||||||
Foreign currency translation adjustments | 179 | (497 | ) | 63 | (638 | ) | |||||||||
Defined benefit pension and postretirement plans | 12 | 11 | 24 | 22 | |||||||||||
Net unrealized gains (losses) on cash flow hedges, net of reclassifications | 1 | 2 | 4 | (6 | ) | ||||||||||
Other Comprehensive Income (Loss), Net of Tax | 193 | (484 | ) | 91 | (621 | ) | |||||||||
Comprehensive Income (Loss) | $ | 531 | $ | (267 | ) | $ | 658 | $ | (169 | ) |
Nine Months Ended June 30, | ||||||||
2015 | 2014 | |||||||
Operating Activities | ||||||||
Net income | $ | 514 | $ | 884 | ||||
Adjustments to net income to derive net cash provided by operating activities, net of amounts acquired: | ||||||||
Depreciation and amortization | 576 | 413 | ||||||
Share-based compensation | 138 | 91 | ||||||
Deferred income taxes | (137 | ) | (53 | ) | ||||
Change in operating assets and liabilities | (42 | ) | (114 | ) | ||||
Pension obligation | 17 | (41 | ) | |||||
Other, net | (14 | ) | 27 | |||||
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Net Cash Provided by Operating Activities | 1,052 | 1,207 | ||||||
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Investing Activities | ||||||||
Capital expenditures | (387 | ) | (339 | ) | ||||
Capitalized software | (26 | ) | (41 | ) | ||||
Proceeds from (purchases of) investments, net | 837 | (244 | ) | |||||
Acquisitions of businesses, net of cash acquired | (8,334 | ) | (40 | ) | ||||
Other, net | (92 | ) | (66 | ) | ||||
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Net Cash Used for Investing Activities | (8,003 | ) | (730 | ) | ||||
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Financing Activities | ||||||||
Change in short-term debt | 846 | (3 | ) | |||||
Proceeds from long-term debt | 6,164 | — | ||||||
Payments of debt | (3 | ) | — | |||||
Repurchase of common stock | — | (400 | ) | |||||
Excess tax benefits from payments under share-based compensation plans | 48 | 26 | ||||||
Dividends paid | (358 | ) | (316 | ) | ||||
Issuance of common stock and other, net | (30 | ) | (7 | ) | ||||
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Net Cash Provided by (Used for) Financing Activities | 6,667 | (701 | ) | |||||
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Effect of exchange rate changes on cash and equivalents | (17 | ) | (5 | ) | ||||
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Net decrease in cash and equivalents | (302 | ) | (229 | ) | ||||
Opening Cash and Equivalents | 1,861 | 1,890 | ||||||
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Closing Cash and Equivalents | $ | 1,559 | $ | 1,661 | ||||
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Six Months Ended March 31, | |||||||
2016 | 2015 | ||||||
Operating Activities | |||||||
Net income | $ | 567 | $ | 452 | |||
Adjustments to net income to derive net cash provided by operating activities: | |||||||
Depreciation and amortization | 569 | 277 | |||||
Share-based compensation | 119 | 92 | |||||
Deferred income taxes | (112 | ) | (13 | ) | |||
Change in operating assets and liabilities | (194 | ) | (255 | ) | |||
Pension obligation | 40 | (3 | ) | ||||
Other, net | 30 | (37 | ) | ||||
Net Cash Provided by Operating Activities | 1,020 | 514 | |||||
Investing Activities | |||||||
Capital expenditures | (258 | ) | (252 | ) | |||
Capitalized software | (11 | ) | (17 | ) | |||
Proceeds from investments, net | 10 | 813 | |||||
Acquisitions of businesses, net of cash acquired | — | (8,307 | ) | ||||
Divestitures of businesses | 111 | — | |||||
Other, net | (22 | ) | (66 | ) | |||
Net Cash Used for Investing Activities | (170 | ) | (7,829 | ) | |||
Financing Activities | |||||||
Change in short-term debt | (300 | ) | 1,502 | ||||
Proceeds from long-term debt | — | 6,164 | |||||
Payments of debt | (1 | ) | (2 | ) | |||
Excess tax benefits from payments under share-based compensation plans | 51 | 40 | |||||
Dividends paid | (280 | ) | (232 | ) | |||
Issuance of common stock and other, net | (45 | ) | (79 | ) | |||
Net Cash (Used for) Provided by Financing Activities | (576 | ) | 7,392 | ||||
Effect of exchange rate changes on cash and equivalents | (2 | ) | (26 | ) | |||
Net increase in cash and equivalents | 272 | 51 | |||||
Opening Cash and Equivalents | 1,424 | 1,861 | |||||
Closing Cash and Equivalents | $ | 1,696 | $ | 1,912 |
June 30, 2015
2015 and as such, the condensed consolidated balance sheet as of September 30, 2015 reflects the reclassification of current deferred tax assets of $387 million as noncurrent amounts, after giving effect to jurisdictional netting requirements.
2019.
(Millions of dollars) | Total | Foreign Currency Translation Adjustments | Benefit Plans Adjustments | Unrealized Losses on Cash Flow Hedges | ||||||||||||
Balance at September 30, 2014 | $ | (1,001 | ) | $ | (270 | ) | $ | (705 | ) | $ | (26 | ) | ||||
Other comprehensive income before reclassifications, net of taxes | (571 | ) | (558 | ) | — | (12 | ) | |||||||||
Amounts reclassified into income, net of taxes(A) | 38 | — | 33 | 4 | ||||||||||||
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Balance at June 30, 2015 | $ | (1,535 | ) | $ | (828 | ) | $ | (672 | ) | $ | (34 | ) | ||||
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(Millions of dollars) | Total | Foreign Currency Translation | Benefit Plans | Cash Flow Hedges | ||||||||||||||
Balance at September 30, 2015 | $ | (1,738 | ) | $ | (961 | ) | $ | (741 | ) | $ | (36 | ) | ||||||
Other comprehensive income before reclassifications, net of taxes | 61 | 63 | (A) | — | (2 | ) | ||||||||||||
Amounts reclassified into income, net of taxes | 30 | — | 24 | 6 | ||||||||||||||
Balance at March 31, 2016 | $ | (1,647 | ) | $ | (899 | ) | $ | (717 | ) | $ | (32 | ) |
(A) | The |
Three Months Ended March 31, | Six Months Ended March 31, | ||||||||||||||
(Millions of dollars) | 2016 | 2015 | 2016 | 2015 | |||||||||||
Benefit Plans | |||||||||||||||
Reclassification of losses into income | $ | 19 | $ | 17 | $ | 37 | $ | 34 | |||||||
Associated tax benefits | (6 | ) | (6 | ) | (13 | ) | (12 | ) | |||||||
Amounts reclassified into income, net of taxes (A) | $ | 12 | $ | 11 | $ | 24 | $ | 22 | |||||||
Cash Flow Hedges | |||||||||||||||
Reclassification of losses into income | $ | 5 | $ | 2 | $ | 9 | $ | 5 | |||||||
Associated tax benefits | (2 | ) | (1 | ) | (3 | ) | (2 | ) | |||||||
Amounts reclassified into income, net of taxes (B) | $ | 3 | $ | 2 | $ | 6 | $ | 3 |
(A) | These reclassifications were not |
(B) | These reclassifications were recorded to |
The loss in foreign currency translation adjustments for the nine months ended June 30, 2015 was primarily attributable to the weakening of the Euro, and of currencies in Latin America and Asia Pacific, against the U.S. dollar during the period.
The income tax benefits associated with the benefit plan-related reclassification adjustments for amortization of prior service credit and amortization of net actuarial losses for the three months ended June 30, 2015 and 2014 were $6 million and $4 million, respectively. The income tax benefits associated with the benefit plan-related reclassification adjustments for amortization of prior service credit and amortization of net actuarial losses for the nine months ended June 30, 2015 and 2014 were $17 million and $13 million, respectively.
The income tax benefits recorded for losses recognized in other comprehensive income relating to cash flow hedges for the three and nine months ended June 30, 2015 were $2 million and $8 million, respectively. Additional disclosures regarding these losses are provided in Note 12. There were no amounts recognized in other comprehensive income relating to cash flow hedges for the three months or nine months ended June 30, 2014. The income taxes recorded for reclassification adjustments for realized amounts relating to cash flow hedges were immaterial for the three and nine months ended June 30, 2015 and 2014.
Three Months Ended June 30, | Nine Months Ended June 30, | |||||||||||||||
2015 | 2014 | 2015 | 2014 | |||||||||||||
Average common shares outstanding | 210,175 | 193,054 | 199,690 | 193,624 | ||||||||||||
Dilutive share equivalents from share-based plans | 4,753 | 3,951 | 4,546 | 4,189 | ||||||||||||
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Average common and common equivalent shares outstanding – assuming dilution | 214,928 | 197,005 | 204,236 | 197,813 | ||||||||||||
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Upon closing the acquisition of CareFusion Corporation (“CareFusion”) on March 17, 2015, the Company issued approximately 15.9 million of its common shares as part of the purchase consideration. Additional disclosures regarding this acquisition are provided in Note 9.
Three Months Ended March 31, | Six Months Ended March 31, | ||||||||||
2016 | 2015 | 2016 | 2015 | ||||||||
Average common shares outstanding | 212,469 | 196,085 | 212,077 | 194,447 | |||||||
Dilutive share equivalents from share-based plans | 4,069 | 3,853 | 4,618 | 4,046 | |||||||
Average common and common equivalent shares outstanding – assuming dilution | 216,538 | 199,938 | 216,695 | 198,493 |
the District Court judgment of infringement against the Company’s discontinued 1ml BD Integra™ products. On October 31, 2011, the Federal Circuit Court of Appeals denied RTI’s request for an en banc rehearing. In January 2013, RTI’s petition for review with the U.S. Supreme Court was denied. BD’s motion for further proceedings on damages was denied by the District Court on the grounds that the District Court did not have authority to modify the $5 million damage award. BD appealed this ruling to the Federal Circuit Court of Appeals, and on July 7, 2014, the Court affirmed the District Court ruling leaving the damages award intact. On September 19, 2014, the Federal Circuit Court of Appeals denied BD’s request for an en banc rehearing. On January 16, 2015, BD filed a petition for U.S. Supreme Court review of the Federal Circuit Court of Appeals decision leaving the damages award intact. On April 20, 2015, the U.S. Supreme Court denied BD’s petition.
patent cases are now concluded.
On November 4, 2013, the Secretariat of Foreign Trade of the Federal Republic of Brazil initiated an administrative anti-dumping investigation of imports of vacuum plastic tubes for blood collection into Brazil from the United States, the United Kingdom of Great Britain and Northern Ireland, the Federal Republic of Germany and the People’s Republic of China during the period from January 2012 through December 2012. BD, through its United States and international subsidiaries, exports vacuum plastic tubes for blood collection into Brazil from the United States and the United Kingdom of Great Britain and Northern Ireland and cooperated with the investigation. On April 30, 2015, Brazilian Foreign Trade Board (“CAMEX”) issued a decision determining the application of anti-dumping measures including, without limitation, the imposition of duties on such vacuum plastic tubes imported into Brazil of 45.3% for products from the United States of America and 71.5% for products from the United Kingdom of Great Britain and Northern Ireland. These anti-dumping measures, effective from April 30, 2015, will last for a minimum period of five years. Subsequent to
the decision, CAMEX announced that it would initiate a proceeding to assess the duties from a public interest perspective. This proceeding could result in a suspension or modification of the CAMEX decision, although no assurance can be given in that regard. BD has also filed an administrative appeal. In any event, the Company does not believe that the CAMEX decision will materially affect its results of operations.
On October 5, 2014, CareFusion and the Company entered into an Agreement and Plan of Merger (which we refer to as the merger agreement) that provides for the acquisition of CareFusion by the Company. Under the terms of the merger agreement, a subsidiary of the Company (“the merger subsidiary”) merged with and into CareFusion on March 17, 2015, with CareFusion surviving the merger as a wholly owned subsidiary of the Company. Several putative class action lawsuits have been filed against CareFusion, its directors, the Company and the merger subsidiary in the Delaware Court of Chancery and in the Superior Court of California, San Diego County. These lawsuits generally allege that the members of the board of directors of CareFusion breached their fiduciary duties in connection with the merger by, among other things, carrying out a process that plaintiffs allege did not ensure adequate and fair consideration to CareFusion stockholders. The plaintiffs in these actions further allege that CareFusion and the Company aided and abetted the individual defendants’ breaches of their fiduciary duties. The plaintiffs seek, among other things, equitable relief to enjoin consummation of the merger, rescission of the merger and/or rescissory damages, and attorneys’ fees and costs.
On December 30, 2014, the parties to the actions filed in the Delaware Court of Chancery (the “Delaware Actions”) entered into an agreement in principle to settle the Delaware Actions on the basis of additional disclosures made in a CareFusion Schedule 14A, filed with the SEC on January 5, 2015. The settlement terms are reflected in a Memorandum of Understanding (“MOU”). On December 31, 2014, plaintiffs’ counsel notified the Delaware Court of Chancery of the settlement and MOU. The parties to the Delaware Actions have entered into a stipulation and agreement of compromise, settlement and release and presented the matter to the Delaware Court of Chancery for approval. The Delaware Court of Chancery has scheduled a hearing for September 17, 2015 to consider the matter. The actions filed in the Superior Court of California are not part of the proposed settlement and are still pending.
The Company filed a motion to dismiss the complaint which was granted on January 29, 2016. Plaintiffs have sought to file an amended complaint, which BD has opposed.
Effective October 1, 2014, the Company’s
Three Months Ended June 30, | Nine Months Ended June 30, | |||||||||||||||
(Millions of dollars) | 2015 | 2014 | 2015 | 2014 | ||||||||||||
Revenues (A) | ||||||||||||||||
Medical | $ | 2,199 | (B) | $ | 1,201 | $ | 4,377 | (B) | $ | 3,381 | ||||||
Life Sciences | 921 | 956 | 2,845 | 2,863 | ||||||||||||
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Total Revenues | $ | 3,120 | $ | 2,157 | $ | 7,222 | $ | 6,244 | ||||||||
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Segment Operating Income | ||||||||||||||||
Medical | $ | 483 | (C) | $ | 356 | (D) | $ | 1,115 | (C) | $ | 968 | (D) | ||||
Life Sciences | 197 | 221 | 610 | 653 | (E) | |||||||||||
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Total Segment Operating Income | 680 | 578 | 1,725 | 1,621 | ||||||||||||
Unallocated Items (F) | (641 | ) (G) | (155 | ) | (1,176 | ) (H) | (476 | ) (I) | ||||||||
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Income Before Income Taxes | $ | 39 | $ | 423 | $ | 549 | $ | 1,145 | ||||||||
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Three Months Ended March 31, | Six Months Ended March 31, | ||||||||||||||
(Millions of dollars) | 2016 | 2015 | 2016 | 2015 | |||||||||||
Revenues (A) | |||||||||||||||
Medical | $ | 2,131 | $ | 1,106 | $ | 4,185 | $ | 2,177 | |||||||
Life Sciences | 936 | 945 | 1,869 | 1,925 | |||||||||||
Total Revenues | $ | 3,067 | $ | 2,051 | $ | 6,054 | $ | 4,102 | |||||||
Income Before Income Taxes | |||||||||||||||
Medical (B) | $ | 513 | $ | 328 | $ | 978 | $ | 632 | |||||||
Life Sciences | 202 | 200 | 404 | 413 | |||||||||||
Total Segment Operating Income | 715 | 528 | 1,381 | 1,045 | |||||||||||
Acquisitions and other restructurings | (104 | ) | (113 | ) | (225 | ) | (136 | ) | |||||||
Net interest expense | (96 | ) | (83 | ) | (187 | ) | (149 | ) | |||||||
Other unallocated items (C) | (139 | ) | (107 | ) | (328 | ) | (250 | ) | |||||||
Income Before Income Taxes | $ | 376 | $ | 225 | $ | 642 | $ | 510 |
(A) | Intersegment revenues are not material. |
(B) |
(C) |
Three Months Ended June 30, | Nine Months Ended June 30, | |||||||||||||||
(Millions of dollars) | 2015 | 2014 | 2015 | 2014 | ||||||||||||
Revenues | ||||||||||||||||
United States | $ | 1,693 | $ | 871 | $ | 3,437 | $ | 2,546 | ||||||||
International | 1,427 | 1,286 | 3,785 | 3,698 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Revenues | $ | 3,120 | $ | 2,157 | $ | 7,222 | $ | 6,244 | ||||||||
|
|
|
|
|
|
|
|
Three Months Ended March 31, | Six Months Ended March 31, | ||||||||||||||
(Millions of dollars) | 2016 | 2015 | 2016 | 2015 | |||||||||||
Revenues | |||||||||||||||
United States | $ | 1,719 | $ | 863 | $ | 3,410 | $ | 1,744 | |||||||
International | 1,349 | 1,188 | 2,644 | 2,358 | |||||||||||
Total Revenues | $ | 3,067 | $ | 2,051 | $ | 6,054 | $ | 4,102 |
2015 | 2014 | |||||||
Risk-free interest rate | 2.20 | % | 2.31 | % | ||||
Expected volatility | 19.00 | % | 19.00 | % | ||||
Expected dividend yield | 1.78 | % | 2.00 | % | ||||
Expected life | 7.6 years | 7.8 years | ||||||
Fair value derived | $ | 24.82 | $ | 19.90 |
2016 | 2015 | ||||||
Risk-free interest rate | 2.17 | % | 2.20 | % | |||
Expected volatility | 19.00 | % | 19.00 | % | |||
Expected dividend yield | 1.76 | % | 1.78 | % | |||
Expected life | 7.6 years | 7.6 years | |||||
Fair value derived | $ | 27.69 | $ | 24.82 |
The amount of unrecognized compensation expense for all non-vested share-based awards as of June 30, 2015 was approximately $205 million, which is expected to be recognized over a weighted-average remaining life of approximately 2.0 years. Included in the unrecognized compensation expense is $52$20 million associated with the CareFusionthese replacement awards described above. As of June 30, 2015, there were approximately 2 million of such replacement awards outstanding.
awards.
Pension Plans | Other Postretirement Benefits | |||||||||||||||
(Millions of dollars) | 2015 | 2014 | 2015 | 2014 | ||||||||||||
Service cost | $ | 20 | $ | 18 | $ | 1 | $ | 1 | ||||||||
Interest cost | 22 | 23 | 2 | 2 | ||||||||||||
Expected return on plan assets | (32 | ) | (32 | ) | — | — | ||||||||||
Amortization of prior service credit | (4 | ) | (4 | ) | (1 | ) | (1 | ) | ||||||||
Amortization of loss | 18 | 12 | 1 | — | ||||||||||||
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|
|
|
|
|
|
| |||||||||
Net pension and postretirement cost | $ | 24 | $ | 18 | $ | 2 | $ | 2 | ||||||||
|
|
|
|
|
|
|
|
March 31:
Pension Plans | Other Postretirement Benefits | ||||||||||||||
(Millions of dollars) | 2016 | 2015 | 2016 | 2015 | |||||||||||
Service cost | $ | 20 | $ | 19 | $ | 1 | $ | 1 | |||||||
Interest cost | 18 | 21 | 1 | 2 | |||||||||||
Expected return on plan assets | (27 | ) | (30 | ) | — | — | |||||||||
Amortization of prior service credit | (4 | ) | (4 | ) | (1 | ) | (1 | ) | |||||||
Amortization of loss | 19 | 17 | — | 1 | |||||||||||
Settlements | 1 | — | — | — | |||||||||||
Net pension and postretirement cost | $ | 27 | $ | 23 | $ | 1 | $ | 2 |
Pension Plans | Other Postretirement Benefits | |||||||||||||||
(Millions of dollars) | 2015 | 2014 | 2015 | 2014 | ||||||||||||
Service cost | $ | 58 | $ | 53 | $ | 2 | $ | 3 | ||||||||
Interest cost | 66 | 69 | 6 | 7 | ||||||||||||
Expected return on plan assets | (93 | ) | (94 | ) | — | — | ||||||||||
Amortization of prior service credit | (12 | ) | (11 | ) | (4 | ) | (3 | ) | ||||||||
Amortization of loss | 52 | 36 | 2 | 2 | ||||||||||||
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| |||||||||
Net pension and postretirement cost | $ | 70 | $ | 53 | $ | 7 | $ | 8 | ||||||||
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|
|
|
|
|
|
March 31:
Pension Plans | Other Postretirement Benefits | ||||||||||||||
(Millions of dollars) | 2016 | 2015 | 2016 | 2015 | |||||||||||
Service cost | $ | 41 | $ | 38 | $ | 1 | $ | 2 | |||||||
Interest cost | 37 | 43 | 3 | 4 | |||||||||||
Expected return on plan assets | (55 | ) | (61 | ) | — | — | |||||||||
Amortization of prior service credit | (7 | ) | (8 | ) | (2 | ) | (2 | ) | |||||||
Amortization of loss | 39 | 34 | 1 | 1 | |||||||||||
Settlements | 1 | — | — | — | |||||||||||
Net pension and postretirement cost | $ | 55 | $ | 46 | $ | 3 | $ | 4 |
11
.Acquisition
Overview of Transaction and Consideration Transferred
(Millions of dollars) | ||||
Cash consideration | $ | 10,085 | ||
Noncash consideration-fair value of shares issued | 2,269 | |||
Noncash consideration-fair value of stock options and other equity awards | 184 | |||
|
| |||
Total consideration transferred | $ | 12,538 | ||
|
|
The acquisition date fair value of the Company’s ordinary shares issued to CareFusion shareholders was calculated per the following (shares in millions):
(Millions of dollars, except per share data) | ||||
Total CareFusion shares outstanding | 205.3 | |||
Conversion factor | 0.0777 | |||
|
| |||
Number of the Company’s shares issued | 15.9 | |||
Closing price of the Company’s stock on March 16, 2015 | $ | 142.29 | ||
|
| |||
Fair value of the Company’s issued shares | $ | 2,269 | ||
|
|
Additional disclosures regarding the financing arrangements the Company entered into to fund the cash portion of the consideration transferred relative to this acquisition are provided in Note 14.
Allocation of Consideration Transferred to Net Assets Acquired
The Company is in the process of finalizing the allocation of the purchase price to the individual assets acquired and liabilities assumed as of the acquisition date. The preliminary allocations of the purchase price below as of June 30, 2015 provide a reasonable basis for estimating the fair values of assets acquired and liabilities assumed. These estimates will be adjusted upon the availability of further information regarding events or circumstances which existed at the acquisition date and such adjustments may be significant.
All of the assets acquired and liabilities assumed in this acquisition have been allocated to the Company’s Medical segment.
(Millions of dollars) | ||||
Cash and equivalents | $ | 1,903 | ||
Trade receivables, net | 486 | |||
Inventories | 828 | |||
Net investment in sales-type leases | 1,208 | |||
Property, plant and equipment | 503 | |||
Customer relationships | 3,360 | |||
Developed technology | 2,510 | |||
Trademarks | 380 | |||
Other intangible assets | 185 | |||
Other assets | 435 | |||
|
| |||
Total identifiable assets acquired | 11,798 | |||
|
| |||
Long-term debt | (2,181 | ) | ||
Deferred tax liabilities | (2,648 | ) | ||
Other liabilities | (764 | ) | ||
|
| |||
Total liabilities assumed | (5,592 | ) | ||
|
| |||
Net identifiable assets acquired | 6,205 | |||
Goodwill | 6,333 | |||
|
| |||
Net assets acquired | $ | 12,538 | ||
|
|
Net Investment in Sales-Type Leases Acquired
The fair value of the net investment in sales-type leases acquired was based upon a determination that the interest rate implicit in the lease contract portfolio represented a market interest rate as well as a determination that the residual value of the overall lease contract portfolio represents fair market value.
Identifiable Intangible Assets Acquired
The customer relationships asset acquired represented CareFusion’s contractual relationships with its customers. The fair value of these customer relationships was determined based on the present value of projected cash flows utilizing an income approach with a risk-adjusted discount rate of 11%. The amortization period of the customer relationships was determined to be 15 years and this period corresponds with the weighted average of lives determined for the product technology which underlies the customer contracts.
The developed technology assets acquired represented CareFusion’s developed technologies in the areas of medication management, infection prevention, operating room and procedural effectiveness, and respiratory care. The technologies’ fair values were determined based on the present value of projected cash flows utilizing an income approach with a risk-adjusted discount rate of 11%. The technologies will be amortized over a weighted-average amortization period of 12 years, which is the weighted average period over which the technologies are expected to generate substantial cash flows.
The trademark assets acquired represented the value of registered trademarks protecting the intellectual property underlying CareFusion’s product technologies. The fair value of the trademarks represents the present value of projected cash flows, specifically the estimated cost savings from not being required to pay royalties for use of these intellectual properties, utilizing an income approach with a risk-adjusted discount rate of 11%. The trademarks will be amortized over a weighted-average amortization period of 22 years, which is the weighted average period over which the trademarks are expected to generate substantial cash flows.
Other intangible assets acquired included $110 million relating to acquired in-process research and development assets representing development projects relating to various product technologies. The probability of success associated with the projects, based upon the applicable technological and commercial risk, was assumed to be 80% to 85%, depending upon the project. The projects’ fair values were determined based on the present value of projected cash flows utilizing an income approach with a risk-adjusted discount rate of 12%. The launches of the various projects are expected to occur from 2016 to 2022.
Other Liabilities Assumed
The balance of other liabilities assumed included a $36 million liability recorded due to a recall relating to AVEA® ventilators, which is one of CareFusion’s respiratory solutions products. The liability represents the costs expected to be incurred in connection with voluntary field corrections for a portion of the installed base of ventilators.
Goodwill
Goodwill typically results through expected synergies from combining operations of an acquiree and an acquirer, as well as from intangible assets that do not qualify for separate recognition. The goodwill recognized as a result of this acquisition includes, among other things, the value of combining the complementary product portfolios of the Company and CareFusion to offer integrated medication management solutions and smart devices. Synergies are expected from combining the two companies’ products to meet unmet needs in hospitals, hospital pharmacies and alternate sites of care to increase efficiencies, reduce medication administration errors and improve patient and healthcare worker safety. Synergies are also expected to result from solid positions in patient safety to maximize outcomes in infection prevention, respiratory care, and acute care procedural effectiveness. No portion of goodwill from this acquisition is currently expected to be deductible for tax purposes.
Financing, Transaction, Integration and Restructuring Costs
In connection with the acquisition, the Company incurred financing, transaction, integration and restructuring costs throughout the first nine months of fiscal year 2015. The financing costs totaled $5 million and $107 million for the three and nine months ended June 30, 2015, respectively, and were recorded asInterest expense. Transaction costs of $9 million and $52 million for the three and nine months ended June 30, 2015, respectively, were recorded asAcquisition-related costs, and consisted of legal, advisory and other costs.
Acquisition-related costs also included $24 million and $75 million of integration and restructuring costs, respectively, in the three months ended June 30, 2015 and $55 million and $136 million of integration and restructuring costs, respectively, for nine months ended June 30, 2015. See Note 10 for further discussion of restructuring activity relating to this acquisition. The Company is in the process of executing its integration plans to combine businesses, sales organizations, systems and locations and, as a result, the Company is expected to continue to incur fairly substantial integration costs through to fiscal year 2016.
Unaudited Pro Forma Information
The acquisition was accounted for under the acquisition method of accounting for business combinations. The operating activities from the acquisition date through March 31, 2015 were not material to the Company’s consolidated results of operations. As such, CareFusion’s operating results were included in the Company’s consolidated results of operations beginning on April 1, 2015.
RevenuesThe operating income of the acquired CareFusion operation is no longer specifically identifiable due to the progression of the Company's integration activities.
Three Months Ended June 30, | Nine Months Ended June 30, | |||||||||||||||
(Millions of dollars, except per share data) | 2015 | 2014 | 2015 | 2014 | ||||||||||||
Revenues | $ | 3,133 | $ | 3,279 | $ | 9,301 | $ | 9,256 | ||||||||
|
|
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|
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|
| |||||||||
Net Income | $ | 326 | $ | 361 | $ | 966 | $ | 919 | ||||||||
|
|
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|
|
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|
| |||||||||
Diluted Earnings per Share | $ | 1.52 | $ | 1.69 | $ | 4.49 | $ | 4.28 | ||||||||
|
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|
|
|
the beginning of the periods presented.
(Millions of dollars, except per share data) | Six Months Ended March 31, | |||||||
2016 | 2015 | |||||||
Revenues | $ | 6,063 | $ | 6,168 | ||||
Net Income | $ | 719 | $ | 640 | ||||
Diluted Earnings per Share | $ | 3.32 | $ | 2.98 |
Other Transactions
During the first quarter of fiscal year 2015,
(Millions of dollars) | Total | Employee Termination | Share-based Compensation | Other | ||||||||||||
Balance at September 30, 2014 | $ | — | $ | — | $ | — | $ | — | ||||||||
Assumed liability | 19 | 19 | — | — | ||||||||||||
Charged to expense | 136 | 87 | 37 | 12 | ||||||||||||
Cash payments | (51 | ) | (48 | ) | — | (3 | ) | |||||||||
Non-cash settlements | (37 | ) | — | (37 | ) | — | ||||||||||
Other adjustments | (18 | ) | (9 | ) | — | (9 | ) | |||||||||
|
|
|
|
|
|
|
| |||||||||
Balance at June 30, 2015 | $ | 49 | $ | 49 | $ | — | $ | — | ||||||||
|
|
|
|
|
|
|
|
Additional disclosures regarding these restructuring activities and the related costs are provided in Notes 7, 8 and 9.
(Millions of dollars) | Employee Termination | Share-based Compensation (A) | Other (B) | Total | |||||||||||
Balance at September 30, 2015 | $ | 62 | $ | — | $ | — | $ | 62 | |||||||
Charged to expense | 33 | 25 | 91 | 149 | |||||||||||
Cash payments | (52 | ) | — | (32 | ) | (84 | ) | ||||||||
Non-cash settlements | — | (25 | ) | — | (25 | ) | |||||||||
Other adjustments | — | — | (59 | ) | (59 | ) | |||||||||
Balance at March 31, 2016 | $ | 43 | $ | — | $ | — | $ | 43 |
(A) | Additional disclosures are provided in Note 7. |
(B) | Includes a non-cash charge of $28 million, after-tax, relating to the Company's agreement reached in December 2015 to sell a non-core asset. |
June 30, 2015 | September 30, 2014 | |||||||||||||||
(Millions of dollars) | Gross Carrying Amount | Accumulated Amortization | Gross Carrying Amount | Accumulated Amortization | ||||||||||||
Amortized intangible assets | ||||||||||||||||
Customer relationships | $ | 3,375 | $ | 62 | $ | 10 | 2 | |||||||||
Developed technology | 3,412 | 449 | 893 | 379 | ||||||||||||
Product rights | 130 | 34 | 148 | 31 | ||||||||||||
Trademarks | 405 | 22 | 27 | 19 | ||||||||||||
Patents and other | 331 | 189 | 232 | 163 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Amortized intangible assets | $ | 7,653 | $ | 756 | $ | 1,308 | $ | 594 | ||||||||
|
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|
|
| |||||||||
Unamortized intangible assets | ||||||||||||||||
Acquired in-process research and development | $ | 226 | $ | 44 | ||||||||||||
Trademarks | 2 | 2 | ||||||||||||||
|
|
|
| |||||||||||||
Unamortized intangible assets | $ | 228 | $ | 46 | ||||||||||||
|
|
|
|
Additional information regarding the increases to the intangible asset classes detailed above as a result of the CareFusion acquisition is provided in Note 9. The increase to developed technology assets additionally included $49 million of assets recognized upon the Company’s acquisition of CRISI in the second quarter of fiscal year 2015. The increase in acquired in-process research and development project assets additionally included $81 million of assets recognized upon the Company’s acquisition of GenCell in the first quarter of fiscal year 2015.
March 31, 2016 | September 30, 2015 | ||||||||||||||
(Millions of dollars) | Gross Carrying Amount | Accumulated Amortization | Gross Carrying Amount | Accumulated Amortization | |||||||||||
Amortized intangible assets | |||||||||||||||
Customer relationships | $ | 3,361 | $ | 233 | $ | 3,370 | $ | 120 | |||||||
Developed technology | 3,355 | 635 | 3,487 | 510 | |||||||||||
Product rights | 131 | 40 | 128 | 35 | |||||||||||
Trademarks | 405 | 36 | 405 | 26 | |||||||||||
Patents and other | 338 | 241 | 333 | 212 | |||||||||||
Amortized intangible assets | $ | 7,590 | $ | 1,185 | $ | 7,723 | $ | 903 | |||||||
Unamortized intangible assets | |||||||||||||||
Acquired in-process research and development | $ | 124 | $ | 203 | |||||||||||
Trademarks | 2 | 2 | |||||||||||||
Unamortized intangible assets | $ | 126 | $ | 205 |
The increase in intangible amortization expense in the current-year periods is mostly attributable to identifiable intangible assets acquired in the CareFusion transaction.
(Millions of dollars) | Medical | Life Sciences | Total | |||||||||
Goodwill as of September 30, 2014 | $ | 482 | $ | 608 | $ | 1,090 | ||||||
Acquisitions | 6,585 | (A) | 64 | (B) | 6,649 | |||||||
Currency translation/other (C) | (263 | ) | (12 | ) | (275 | ) | ||||||
|
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| |||||||
Goodwill as of June 30, 2015 | $ | 6,804 | $ | 659 | $ | 7,464 | ||||||
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|
|
(Millions of dollars) | Medical | Life Sciences | Total | |||||||||
Goodwill as of September 30, 2015 | $ | 6,807 | $ | 730 | $ | 7,537 | ||||||
Purchase accounting adjustments/currency translation | (90 | ) | (A) | 1 | (89 | ) | ||||||
Goodwill as of March 31, 2016 | $ | 6,718 | $ | 731 | $ | 7,448 |
(A) |
in
Other comprehensive income (loss). If interest rate derivatives designated as cash flow hedges are terminated, the balance inAccumulated other comprehensive income (loss) attributable to those derivatives is reclassified into earnings over the remaining life of the hedged debt. The net realized loss related to terminated interest rate swaps expected to be reclassified and recorded inInterest expense within the next 12 months is $6 million, net of tax.2015.
are provided below.
Three Months Ended March 31, | Six Months Ended March 31, | ||||||||||||||
(Millions of dollars) | 2016 | 2015 | 2016 | 2015 | |||||||||||
Gain (loss) on fair value hedges | $ | 11 | $ | 6 | $ | 24 | $ | 16 |
respectively.
(Millions of dollars) | June 30, 2015 | September 30, 2014 | ||||||
Asset derivatives-designated for hedge accounting | ||||||||
Interest rate swaps | $ | 9 | $ | 3 | ||||
|
|
|
| |||||
Asset derivatives-undesignated for hedge accounting | ||||||||
Forward exchange contracts | 8 | 20 | ||||||
|
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| |||||
Total asset derivatives (A) | $ | 17 | $ | 23 | ||||
|
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| |||||
Liability derivatives-designated for hedge accounting | ||||||||
Commodity forward contracts | 6 | — | ||||||
|
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| |||||
Liability derivatives-undesignated for hedge accounting | ||||||||
Forward exchange contracts | 13 | 14 | ||||||
|
|
|
| |||||
Total liability derivatives (B) | $ | 19 | $ | 14 | ||||
|
|
|
|
(Millions of dollars) | March 31, 2016 | September 30, 2015 | |||||
Asset derivatives-designated for hedge accounting | |||||||
Interest rate swaps | $ | 24 | $ | 19 | |||
Asset derivatives-undesignated for hedge accounting | |||||||
Forward exchange contracts | 22 | 13 | |||||
Total asset derivatives (A) | $ | 46 | $ | 32 | |||
Liability derivatives-designated for hedge accounting | |||||||
Commodity forward contracts | $ | 5 | $ | 10 | |||
Interest rate swaps | 3 | — | |||||
Liability derivatives-undesignated for hedge accounting | |||||||
Forward exchange contracts | 9 | 21 | |||||
Total liability derivatives (B) | $ | 16 | $ | 30 |
(A) | All asset derivatives are included inPrepaid expenses |
(B) | All liability derivatives are included inPayables and accrued expenses. |
3 Location of Gain Amount of Gain (Loss) Recognized in Income on Derivatives Derivatives Not Designated as Hedging Instruments Forward exchange contracts (A) After-taxof $4 million recognized for the three and six months ended March 31, 2016 inOther other comprehensive income (loss)relating to the previously discussed cash flow hedges were $2 million. There were no amounts recognized in other comprehensive income relating to cash flow hedges for the three months ended June 30,March 31, 2015. After-tax losses of $8 million recognized in Other comprehensive income (loss) for the six months ended March 31, 2015 were attributable to the forward contracts entered into in April 2015 to hedge the risk associated with resin purchases. After-tax losses of $12 million recognized inOther comprehensive income (loss) for the nine months ended June 30, 2015 included the $4 million loss relating to the commodity forward contracts as well as $8 million attributable to interest rate swaps with a total notional amount of $2.3 billion that were entered into during the first quarter of fiscal year 2015 to partially hedge interest rate risk associated with the anticipated issuance of senior unsecured notes in connection with the Company’s acquisition of CareFusion. These swaps were designated as hedges of the variability in interest payments attributable to changes in the benchmark interest rate during the period preceding the Company’s issuance of the notes. The swaps were terminated at losses, concurrent with the pricing of notes issued in December 2014, and the realized losses will be amortized over the lives of the notes with an offset toInterest expense. There were no amounts recognized in other comprehensive income relating to cash flow hedges for the three and nine months ended June 30, 2014. Additional disclosures regarding amounts recognized in the condensed consolidated statements of income for the three and ninesix months ended June 30,March 31, 2016 and 2015 and 2014 relating to cash flow hedges are provided in Note 3. Additional disclosures regarding the acquisition of CareFusion are provided in Note 9 and additional disclosures regarding the Company’s debt issuance during the first quarter of fiscal year 2015 are provided in Note 14.
(Loss) Recognized in
Income on
Derivatives Three Months Ended
June 30, Nine Months Ended
June 30, (Millions of dollars) 2015 2014 2015 2014 Other income (expense), net $ 50 $ (10 ) $ (46 ) $ (5 ) Derivatives Not Designated as Hedging Instruments Three Months Ended
March 31, Six Months Ended
March 31,(Millions of dollars) 2016 2015 2016 2015 Forward exchange contracts (A) Other income (expense), net $ 15 $ (94 ) $ 26 $ (96 ) (A)
Basis of Fair Value Measurement | ||||||||||||||||
(Millions of dollars) | June 30, 2015 Total | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | ||||||||||||
Assets | ||||||||||||||||
Institutional money market investments | $ | 217 | $ | 217 | $ | — | $ | — | ||||||||
Interest rate swaps | 9 | — | 9 | — | ||||||||||||
Forward exchange contracts | 8 | — | 8 | — | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Assets | $ | 234 | $ | 217 | $ | 17 | $ | — | ||||||||
|
|
|
|
|
|
|
| |||||||||
Liabilities | ||||||||||||||||
Forward exchange contracts | $ | 13 | $ | — | $ | 13 | $ | — | ||||||||
Commodity forward contracts | 6 | — | 6 | — | ||||||||||||
Contingent consideration liabilities | 50 | — | — | 50 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Liabilities | $ | 69 | $ | — | $ | 19 | $ | 50 | ||||||||
|
|
|
|
|
|
|
|
Basis of Fair Value Measurement | ||||||||||||||||
(Millions of dollars) | September 30, 2014 Total | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | ||||||||||||
Assets | ||||||||||||||||
Institutional money market investments | $ | 1,040 | $ | 1,040 | $ | — | $ | — | ||||||||
Interest rate swaps | 3 | — | 3 | — | ||||||||||||
Forward exchange contracts | 20 | — | 20 | — | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Assets | $ | 1,063 | $ | 1,040 | $ | 23 | $ | — | ||||||||
|
|
|
|
|
|
|
| |||||||||
Liabilities | ||||||||||||||||
Forward exchange contracts | $ | 14 | $ | — | $ | 14 | $ | — | ||||||||
Contingent consideration liabilities | 14 | — | — | 14 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Liabilities | $ | 29 | $ | — | $ | 14 | $ | 14 | ||||||||
|
|
|
|
|
|
|
|
Basis of Fair Value Measurement | |||||||||||||||
(Millions of dollars) | March 31, 2016 Total | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | |||||||||||
Assets | |||||||||||||||
Institutional money market investments | $ | 477 | $ | 477 | $ | — | $ | — | |||||||
Interest rate swaps | 24 | — | 24 | — | |||||||||||
Forward exchange contracts | 22 | — | 22 | — | |||||||||||
Total Assets | $ | 523 | $ | 477 | $ | 46 | $ | — | |||||||
Liabilities | |||||||||||||||
Forward exchange contracts | $ | 9 | $ | — | $ | 9 | $ | — | |||||||
Commodity forward contracts | 5 | — | 5 | — | |||||||||||
Interest rate swaps | 3 | — | 3 | — | |||||||||||
Contingent consideration liabilities | 57 | — | — | 57 | |||||||||||
Total Liabilities | $ | 73 | $ | — | $ | 16 | $ | 57 |
Basis of Fair Value Measurement | |||||||||||||||
(Millions of dollars) | September 30, 2015 Total | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | |||||||||||
Assets | |||||||||||||||
Institutional money market investments | $ | 147 | $ | 147 | $ | — | $ | — | |||||||
Interest rate swaps | 19 | — | 19 | — | |||||||||||
Forward exchange contracts | 13 | — | 13 | — | |||||||||||
Total Assets | $ | 179 | $ | 147 | $ | 32 | $ | — | |||||||
Liabilities | |||||||||||||||
Forward exchange contracts | $ | 21 | $ | — | $ | 21 | $ | — | |||||||
Commodity forward contracts | 10 | — | 10 | — | |||||||||||
Contingent consideration liabilities | 77 | — | — | 77 | |||||||||||
Total Liabilities | $ | 108 | $ | — | $ | 30 | $ | 77 |
2015, respectively.
certain product development milestones.
Note 14 – Debt
As disclosed in Note 9, the Company acquired CareFusion on March 17, 2015. As part of its plan for financing the cash requirements relative to this acquisition, the Company issued senior unsecured notes in December 2014 with a total aggregate principal amount of $6.2 billion. Details regarding this debt issuance were as follows:
Interest Rate and Maturity | Aggregate Principal Amount (Millions of dollars) | |||
Floating Rate Notes due June 15, 2016 | $ | 750 | ||
1.800% Notes due December 15, 2017 | 1,250 | |||
2.675% Notes due December 15, 2019 | 1,250 | |||
3.734% Notes due December 15, 2024 | 1,750 | |||
4.685% Notes due December 15, 2044 | 1,200 | |||
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Total long-term debt issued in connection with CareFusion acquisition | $ | 6,200 | ||
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Also in December 2014, the Company entered into a 364-day term loan agreement that provides for a $1 billion term loan facility, the proceeds under which could only be used to pay the cash consideration due pursuant to the CareFusion acquisition agreement, as well as to pay financing fees, other related fees and other expenses associated with the CareFusion acquisition. In April 2015, the Company made a $650 million principal payment to reduce the outstanding balance of this term loan facility. Borrowings of $350 million were outstanding under this term loan facility at June 30, 2015. In July 2015, the Company made a $250 million payment to further reduce the outstanding balance of this term loan facility.
Concurrent with the execution of the agreement to acquire CareFusion, the Company secured $9.1 billion of fully committed bridge financing to ensure its ability to fund the cash portion of consideration due under the agreement, as well as to pay fees and expenses related to the acquisition. This bridge credit agreement was terminated upon the closing of the CareFusion acquisition in March 2015.
In January 2015, in anticipation of the closing of the CareFusion acquisition, the Company entered into a commercial paper program under which it may issue up to $1 billion in short-term, unsecured commercial paper notes. A former commercial paper program which had been in place to meet short-term financing needs was terminated in February 2015 and the outstanding borrowings of $200 million under the former program were rolled into the new commercial paper program. Borrowings of $700 million were outstanding under the current commercial paper program at June 30, 2015, of which $500 million was used to finance the Company’s acquisition of CareFusion and to pay related fees and expenses.
Upon the closing of the CareFusion acquisition in March 2015, the Company assumed the indebtedness of CareFusion, including senior unsecured notes with an aggregate principal amount of $2 billion, which was recorded on the acquisition date at a fair value of $2.174 billion. In March 2015, subsequent to closing the acquisition of CareFusion, the Company commenced offers to exchange all validly tendered and accepted notes issued by CareFusion for notes to be issued by the Company. This offer expired in April 2015 and the aggregate principal amounts below of each series of the CareFusion notes were validly tendered and exchanged for notes issued by the Company.
Interest Rate and Maturity | Aggregate Principal Amount (Millions of dollars) | Percentage of Total Outstanding Principal Amount of such Series of Existing Notes | ||||||
1.450% senior notes due May 15, 2017 | $ | 293 | 97.64 | % | ||||
6.375% senior notes due August 1, 2019 | 665 | 95.00 | % | |||||
3.300% senior notes due March 1, 2023 | 294 | 97.95 | % | |||||
3.875% senior notes due May 15, 2024 | 397 | 99.37 | % | |||||
4.875% senior notes due May 15, 2044 | 300 | 99.96 | % | |||||
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Total senior notes issued under exchange transaction | $ | 1,949 | ||||||
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This exchange transaction was accounted for as a modification of the original debt instruments. As such, no gain or loss was recognized in the Company’s consolidated results of operations as a result of this exchange transaction. Following the exchange of the notes, the aggregate principal amount of CareFusion notes that remain outstanding across the five series is $51 million.
Note 15 – Financing Receivables
As disclosed in Note 9, the net assets acquired in the Company’s acquisition of CareFusion included a $1.208 billion net investment in sales-type leases which primarily arose from the leasing of dispensing equipment. The methodology for determining the allowance for credit losses for these financing receivables is based on the collective population and is not stratified by class or portfolio segment. Allowances for credit losses on the entire portfolio are recorded based on historical experience loss rates and the potential impact of anticipated changes in business practices, market dynamics, and economic conditions. The net investment in sales-type
leases is predominantly evaluated for impairment on a collective basis; however, some immaterial allowances for individual balances are recorded based on the evaluation of customers’ specific circumstances. No interest is accrued on past due financing receivables, which are generally considered past due 30 days after the billing date. Amounts are written off against the allowance for credit losses when determined to be uncollectible. The allowance for credit losses on these financing receivables was immaterial at June 30, 2015.
India. segment. 2016. the inclusion of CareFusion’s costs in the current period’s results. Financing costs(A) Transaction costs(A) Integration costs(A) Restructuring costs(A) Purchase accounting adjustments Employee termination cost-related amounts(E) Research and development charges(F) Litigation-related charge(G) Other specified items, net(H) Total specified items Tax impact of specified items After-tax impact of specified items principally in the development, manufacture and sale of a broad range of medical supplies, devices, laboratory equipment and diagnostic products used by healthcare institutions, life science researchers, clinical laboratories, the pharmaceutical industry and the general public. Effective October 1, 2014, BD’sThe Company's organizational structure was realigned to better complement its customer-focused solutions strategy and is now based upon two worldwideprincipal business segments, BD Medical (“Medical”) and BD Life Sciences (“Life Sciences”). The composition of the Medical segment was not changed by this realignment and the Life Sciences segment consists of the former BD Diagnostics and BD Biosciences segments. The commentary provided further below reflects this two-segment organizational structure and additional discussion regarding this organization realignment is provided in Note 6 in the Notes to Condensed Consolidated Financial Statements. CareFusion Corporation (“CareFusion”), which was acquired on March 17, 2015, operates as part of our Medical segment, as further discussed below.EuropeEurope; EMA (which includes the Commonwealth of Independent States, the Middle East and Africa); Greater Asia (which includes Japan and Asia Pacific); Latin America (which includes Mexico, Central America, the Caribbean, and Brazil)South America); and Canada. We continue to pursue growth opportunities in emerging markets, which include the following geographic regions: Eastern Europe, the Middle East, Africa, Latin America and certain countries within Asia Pacific. We are particularlyprimarily focused on certain countries whose economichealthcare systems are expanding, in particular, China and healthcare sectors are growing rapidly, in particular: China, India, Brazil and Turkey. pursuant to a definitive agreement announced on October 5, 2014, BD acquired a 100% interest in CareFusion for total consideration of approximately $12.5 billion to create a global leader in medication management and patient safety solutions. The operating activities of CareFusion from the acquisition date through March 31, 2015 were not material to BD’s consolidated results of operations and as such,Corporation ("CareFusion"). CareFusion’s operating results were included in BD’s consolidated results of operations beginning on April 1, 2015.2015 and as such, the consolidated results of operations for the prior-year periods ended March 31, 2015 referenced in the commentary provided further below did not include CareFusion's results. CareFusion operates as part of our Medical segment, which now includes the following organizational units, in addition to the Diabetes Care and Pharmaceutical Systems units: Medication and Procedural Solutions, which encompasses BD’s former Medical Surgical Systems unit; Medication Management Solutions; and Respiratory Solutions. Additional discussion regarding this acquisition is provided in Note 9 in the Notes to Condensed Consolidated Financial Statements and disclosures regarding BD’s financing arrangements relating to this transaction are provided in Note 14 in the Notes to Condensed Consolidated Financial Statements.Third quarter44.6%49.6% to $3.120$3.067 billion from the prior year’s period. This increaseyear, which primarily reflected a favorablean impact of 50.3% due$1.017 billion from the inclusion of CareFusion revenues in the current quarter’s results. Revenue growth for BD's legacy operations was primarily driven by volume, and to a lesser extent price, but was offset by the impact of unfavorable foreign currency translation.current quarter’scurrent-year period's results, as well asvolume increases of approximately 4.7%, partially offset by unfavorable foreign currency translation of approximately 10.4%. Pricing did not materially impact revenues for continued growth attributable to the quarter. The current-year period’s total revenues also reflected solid growthsegment's BD legacy products in BD’s legacy units’ sales. Third quarter Medical segment revenue growth reflected strong growth in ourthe Medication and Procedural Solutions, unit’s international sales of safety-engineered products, as well as the favorable timing of orders in theDiabetes Care and Pharmaceutical Systems unit. Medicalunits.was unfavorably impacted by lower U.S. salesreflected growth in the Diabetes Care unit, as further discussed below, partially offset by solid sales in international markets. Revenue growth in the Life Sciences segment was primarily driven by strong sales in the Preanalytical Systems and BiosciencesDiagnostic Systems units. Growth in the Preanalytical Systems unit’s sales was driven byand sales in emerging markets. The Biosciences unit’s revenues reflected strong growth inthe inclusion of CareFusion's sales of research instruments and reagentssafety-engineered products in the current year's quarter, as well as the favorable timing of orders for Advanced Bioprocessing products in the United States. Thirdgrowth that was attributable to BD's legacy safety-engineered products. Second quarter sales in the United States of safety-engineered devices of $427$443 million increased 40.4% compared with the prior year’s quarter, primarily reflecting the inclusion of CareFusion’s sales of safety-engineered products in the current quarter’s results. Third50.7% and second quarter international sales of safety-engineered devices of $304$290 million grew 14.7%13.1% over the prior year’s period, includinginclusive of an estimated 18.5%12.0% unfavorable impact due to foreign currency translation. International safety-engineered device revenue growth reflected the inclusion of CareFusion’s sales of safety-engineered products in the current period’s results, as well as good performance in Western Europe.$1.052$1.020 billion in the first ninesix months of fiscal year 2015.2016. At June 30, 2015,March 31, 2016, we had $1.6$1.7 billion in cash and equivalents and short-term investments. We continued toninesix months of fiscal year 2015,2016, we paid cash dividends of $358$280 million. No shares were repurchased during the first ninesix months of fiscal year 2015 and no share repurchases are planned for the remainder of fiscal year 2015 as our share repurchase program has been suspended in connection with the CareFusion acquisition.strengtheningrelative strength of the U.S. dollar resulted in an unfavorable foreign currency translation impact to our revenue growth during the quarter, as discussed above.quarter. 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. From timeAs 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 time,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 purchase forward contractsnot be comparable to similarly titled measures used by other companies and optionsare not measures of performance presented in accordance with U.S. GAAP. Three months ended March 31, (Millions of dollars) 2016 2015 FXN Change Medication and Procedural Solutions $ 831 $ 565 47.2 % (6.0 )% 53.2 % Medication Management Solutions 536 — NM NM NM Diabetes Care 243 247 (1.3 )% (4.9 )% 3.6 % Pharmaceutical Systems 311 294 5.6 % (5.4 )% 11.0 % Respiratory Solutions 213 — NM NM NM (4 ) — NM NM NM Total Medical Revenues $ 2,131 $ 1,106 92.8 % (6.4 )% 99.2 % Medical segment safety-engineered products $ 465 $ 281 65.5 % (6.1 )% 71.6 % (A) In accordance with U.S. GAAP business combination accounting rules, CareFusion’s deferred revenue balance was written down to reflect a fair value measurement as of the acquisition date. The deferred revenue adjustment represents the amortization of this write-down which primarily relates to software maintenance contracts in the United States. Revenues for these contracts is typically deferred and recognized over the term of the contracts. Six months ended March 31, (Millions of dollars) 2016 2015 FXN Change Total Medical Revenues $ 4,185 $ 2,177 92.2 % (7.8 )% 100.0 % Medical segment safety-engineered products $ 932 $ 577 61.6 % (6.4 )% 68.0 % Three months ended March 31, Six months ended March 31, (Millions of dollars) 2016 2015 2016 2015 Medical segment operating income $ 513 $ 328 $ 978 $ 632 Segment operating income as % of Medical revenues 24.1 % 29.7 % 23.4 % 29.0 % partially protect against adverse foreign exchange rate movements. Gains or lossesgross profit margin and other operating expenses. Gross profit margin was lower in the current quarter as compared with the second quarter of 2015 primarily due to amortization of $116 million for intangible assets acquired in the CareFusion transaction. This unfavorable impact on our derivative instruments are largelygross margin was partially offset by lower manufacturing costs resulting from continuous improvement projects improving the gains or losses onefficiency of our operations. Selling and administrative expense for the underlying hedged transactions. We do not enter into derivative instruments for trading or speculative purposes. For further discussion, refersecond quarter of fiscal year 2016 was higher due to Note 12depreciation of fixed assets acquired in the NotesCareFusion acquisition. Research and development expenses for the quarter increased $57 million, or 148% above the prior year’s period, primarily due to Condensed Consolidated Financial Statements. Three months ended March 31, (Millions of dollars) 2016 2015 FXN Change Preanalytical Systems $ 340 $ 339 0.4 % (5.3 )% 5.7 % Diagnostic Systems 319 318 0.4 % (4.2 )% 4.6 % Biosciences 277 289 (4.1 )% (3.6 )% (0.5 )% Total Life Sciences Revenues $ 936 $ 945 (1.0 )% (4.4 )% 3.4 % Life Sciences segment safety-engineered products $ 268 $ 269 (0.5 )% (5.1 )% 4.6 % Six months ended March 31, (Millions of dollars) 2016 2015 FXN Change Total Life Sciences Revenues $ 1,869 $ 1,925 (2.9 )% (5.4 )% 2.5 % Life Sciences segment safety-engineered products $ 538 $ 547 (1.6 )% (5.9 )% 4.3 % Three months ended March 31, Six months ended March 31, (Millions of dollars) 2016 2015 2016 2015 Life Sciences segment operating income $ 202 $ 200 $ 404 $ 413 Segment operating income as % of Life Sciences revenues 21.6 % 21.1 % 21.6 % 21.5 % Three months ended March 31, (Millions of dollars) 2016 2015 FXN Change United States $ 1,719 $ 863 99.2 % — 99.2 % International 1,349 1,188 13.5 % (9.5 )% 23.0 % Total Revenues $ 3,067 $ 2,051 49.6 % (5.5 )% 55.1 % nine-monthsix-month periods of fiscal years 20152016 and 20142015 are the following specified items: Three months ended June 30, Nine months ended June 30, (Millions of dollars) 2015 2014 2015 2014 $ 5 $ — $ 107 $ — 9 — 52 — 24 — 55 — 75 — 136 — 439 (B) 19 (D) 466 (C) 56 (D) (5 ) — (5 ) — — 9 — 29 — — 12 — — — — 2 548 28 824 88 169 10 277 29 $ 379 $ 19 $ 547 $ 59 Three months ended March 31, Six months ended March 31, (Millions of dollars) 2016 2015 2016 2015 Financing costs (A) $ — $ 58 $ — $ 102 Transaction costs (A) — 33 — 43 Integration costs (A) 40 18 75 31 Restructuring costs (A) 64 62 149 62 Purchase accounting adjustments (B) 115 9 268 27 Litigation-related charge (C) — — — 12 Total specified items 218 180 492 277 Tax impact of specified items 85 77 164 108 After-tax impact of specified items $ 134 $ 102 $ 329 $ 169 (A) acquisition.acquisition and portfolio rationalization. The financing costs were recorded inInterest expense. The transaction, integration and restructuring costs were recorded inAcquisition-related costsAcquisitions and other restructurings. For further discussion, refer to Note 9 in the Notes to Condensed Consolidated Financial Statements.(B) Representsof $148 million pre-tax associated with acquisition relatedacquisition-related identifiable intangible assets, including CareFusion, as well as$116 million and $246 million in the net amortization of purchase accounting adjustments of $291 million pre-taxcurrent quarter and six-month period, respectively, related to reflect CareFusion’s inventory, fixed assets, debt and deferred revenue balances at fair value as of the acquisition date.CareFusion. BD’s amortization expense is primarily recorded inCosts of products sold.(C)Represents non-cash amortization expense The adjustments in the three and six-month periods of $184 million pre-tax associated with acquisition related identifiable intangible assets, including CareFusion, as well asfiscal year 2016 also include a net decrease in the net amortization of purchase accounting adjustments of $291 million pre-tax to reflect CareFusion’s inventory, fixed assets, debt and deferred revenue balances at fair value as of certain contingent consideration liabilities of $22 million that was recognized in the acquisition date.second quarter. The adjustment alsofor the three and six months ended March 31, 2015 additionally reflected a pre-tax acquisition-date accounting gain of $9 million on thea previously held investment in CRISI Medical Systems, Inc., a company BD fully acquired in March 2015.investment.(D)Includes the non-cash expense associated with the amortization of acquisition-related identifiable intangible assets.(E)(C)Represents an adjustment to decrease the liability for employee termination costs recorded relative to workforce reduction actions taken in the fourth quarter of fiscal year 2014. For further discussion, refer to Note 8 in the Notes to Condensed Consolidated Financial Statements.(F)Includes a $9 million charge associated with the decision to terminate a research and development program in the Medical segment; the charge relates to program asset write-offs and obligations. The amount for the nine months ended June 30, 2014 additionally includes a $20 million charge recorded by our Life Sciences segment for asset write-offs primarily resulting from the discontinuance of an instrument product development program. The asset write-offs were largely attributable to capitalized product software, but also included a lesser amount attributable to fixed assets.(G)RTI’splaintiff attorneys’ fees, recorded inSelling and administrative expense, associated with the unfavorable verdict returned in the antitrust and false advertising lawsuit RTI filed against BD. For further discussion, refer to Note 5 in the Notes to Condensed Consolidated Financial Statements.(H)Includes an $11 million charge recorded by our Life Sciences segment inSelling and administrative expense for contract termination costs that resulted from the early termination of a European distributor arrangement. Also includes a gain of $8 million inOther income (expense), net, resulting from the sale of a company in which we held a small equity ownership interest.
Results of Operations
Revenues
Refer to Note 6 in the Notes to Condensed Consolidated Financial Statements for segment financial data.
Medical Segment
The following is a summary of third quarter Medical revenues by organizational unit:
Three months ended June 30, | ||||||||||||||||
(Millions of dollars) | 2015 | 2014 | Total Change | Estimated FX Impact | ||||||||||||
Medication and Procedural Solutions | $ | 848 | $ | 590 | 43.8 | % | (8.4 | )% | ||||||||
Medication Management Solutions | 554 | — | NM | NM | ||||||||||||
Diabetes Care | 245 | 258 | (5.2 | )% | (8.6 | )% | ||||||||||
Pharmaceutical Systems | 333 | 353 | (5.5 | )% | (13.5 | )% | ||||||||||
Respiratory Solutions | 232 | — | NM | NM | ||||||||||||
Deferred revenue adjustment(A) | (13 | ) | — | NM | NM | |||||||||||
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Total Medical Revenues | $ | 2,199 | $ | 1,201 | 83.1 | % | (12.4 | )% | ||||||||
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Medical segment revenue growth in the current quarter largely reflected the inclusion of CareFusion’s sales in the current period’s results beginning on April 1, 2015. Segment revenue growth additionally reflected strong growth in international sales of flush and safety-engineered products in our Medication and Procedural Solutions unit, which includes our former Medical Surgical Systems unit. Revenue growth for the Diabetes Care unit was unfavorably impacted by lower sales growth in the United States due primarily to the slowing of the conversion from syringes to pen needles and the flattening of price trends. This unfavorable impact to the Diabetes Care unit’s revenues in the quarter was partially offset by solid sales in international markets. The Pharmaceutical Systems unit’s revenue growth reflected a favorable timing of orders during the quarter. Global sales of safety-engineered products were $456 million, as compared with $284 million in the prior year’s quarter, reflecting the inclusion of CareFusion’s sales in the current quarter’s results. Global sales of safety-engineered products in the quarter also included an estimated $27 million unfavorable impact due to foreign currency translation. Total Medical revenues for the nine-month period ended June 30, 2015 increased by 29.5% from the prior-year nine-month period, reflecting the inclusion of CareFusion’s current quarter’s sales in the current year-to-date period’s results and an estimated 7.5% unfavorable impact from foreign currency translation. For the nine-month period ended June 30, 2015, global sales of safety-engineered products were $1.033 billion, compared with $832 million in the prior year’s period, reflecting the inclusion of CareFusion’s safety-engineered sales in the current quarter’s results. Global sales of safety-engineered products in the nine-month period also included an estimated $47 million unfavorable impact due to foreign currency translation.
Medical operating income for the third quarter was $483 million, or 22.0% of Medical revenues, compared with $356 million, or 29.7% of segment revenues, in the prior year’s quarter.
Three-month period | Six-month period | ||||
March 31, 2015 gross profit margin % | 51.0 | % | 51.0 | % | |
CareFusion acquisition-related asset depreciation and amortization | (4.0 | )% | (4.4 | )% | |
Foreign currency translation | (0.2 | )% | (0.6 | )% | |
Operating performance | 1.6 | % | 1.8 | % | |
March 31, 2016 gross profit margin % | 48.4 | % | 47.8 | % |
six-month period reflected lower manufacturing costs resulting from continuous improvement projects. Aggregate sellingprojects improving the efficiency of our operations.
Three months ended March 31, | Increase (decrease) in basis points | Six months ended March 31, | Increase (decrease) in basis points | ||||||||||||||||||
2016 | 2015 | 2016 | 2015 | ||||||||||||||||||
(Millions of dollars) | |||||||||||||||||||||
Selling and administrative expense | $ | 732 | $ | 511 | $ | 1,480 | $ | 1,055 | |||||||||||||
% of revenues | 23.9 | % | 24.9 | % | (100 | ) | 24.5 | % | 25.7 | % | (120 | ) | |||||||||
Research and development expense | $ | 182 | $ | 129 | $ | 369 | $ | 258 | |||||||||||||
% of revenues | 5.9 | % | 6.3 | % | (40 | ) | 6.1 | % | 6.3 | % | (20 | ) | |||||||||
Acquisitions and other restructurings | $ | 104 | $ | 113 | $ | 225 | $ | 136 |
Life Sciences Segment
The following is a summary of third quarter Life Sciences revenues by organizational unit:
Three months ended June 30, | ||||||||||||||||
(Millions of dollars) | 2015 | 2014 | Total Change | Estimated FX Impact | ||||||||||||
Preanalytical Systems | $ | 349 | $ | 364 | (4.0 | )% | (8.1 | )% | ||||||||
Diagnostic Systems | 302 | 315 | (4.2 | )% | (7.9 | )% | ||||||||||
Biosciences | 269 | 277 | (2.7 | )% | (7.8 | )% | ||||||||||
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Total Life Sciences Revenues | $ | 921 | $ | 956 | (3.7 | )% | (7.9 | )% | ||||||||
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Life Sciences segment revenue growth for the quarter was primarily driven by growth in the Preanalytical and Biosciences units. Revenue growth in the Diagnostic Systems unit reflected solid growth in sales of core microbiology platforms and double-digit growth in sales of the BD Max™ molecular platform, partially offset by the impact of guidelines providing for increased Pap smear testing intervals and continued pressure on sales of the BD ProbeTec™ ET and BD Viper™ platforms. The Preanalytical Systems unit’s revenue growth was driven by sales of safety-engineered products and sales in emerging markets. Global sales of safety-engineered products in the Preanalytical Systems unit totaled $275 million, compared with $285 million in the prior year’s quarter, and included an estimated $23 million unfavorable impact due to foreign currency translation. The Biosciences unit’s revenue growth reflected strong growth in sales of research instruments and reagents as well as the favorable timing of orders for Advanced Bioprocessing products in the United States. Total Life Sciences revenues for the nine-month period ended June 30, 2015 decreased by 0.6% from the prior-year nine-month period, including an estimated 5.7% unfavorable impact from foreign currency translation. For the nine-month period ended June 30, 2015, global sales of safety-engineered products in the Preanalytical Systems unit were $822 million, compared with $825 million in the prior year’s period, and included an estimated $46 million unfavorable impact due to foreign currency translation.
Life Sciences operating income for the third quarter was $197 million, or 21.4% of Life Sciences revenues, compared with $221 million, or 23.1% of segment revenues, in the prior year’s quarter. Gross profit margin was lower in the third quarter of fiscal year 2015 compared with the third quarter of 2014 primarily due to unfavorable foreign currency translation, as well as other various immaterial items.
Geographic Revenues
BD’s worldwide third quarter revenues by geography were as follows:
Three months ended June 30, | ||||||||||||||||
(Millions of dollars) | 2015 | 2014 | Total Change | Estimated FX Impact | ||||||||||||
United States | $ | 1,693 | $ | 871 | 94.4 | % | — | |||||||||
International | 1,427 | 1,286 | 10.9 | % | (17.5 | )% | ||||||||||
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Total Revenues | $ | 3,120 | $ | 2,157 | 44.6 | % | (10.4 | )% | ||||||||
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U.S. revenue growth in our Medical segment reflected the inclusion of CareFusion’s sales in the current year’s quarter. U.S. Medical segment growth was unfavorably impacted by weaker U.S. sales inthree and six-month periods reflected cost synergies resulting from the Diabetes Care unitCareFusion acquisition and an unfavorable comparison to the prior-year period for the Pharmaceutical Systems unit due to relatively strong sales in the prior-year period. U.S. Life Sciences revenue growth reflected strong growth in sales of research instruments and reagents, as well as the favorable timing of orders for Advanced Bioprocessing products in the Biosciences unit. U.S. Life Sciences revenue growth also reflected continued growth in the Diagnostic Systems unit’s sales of its core microbiology platforms and its BD MaxTM molecular platform,foreign currency translation, partially offset by the impact of increased testing intervals, as previously discussed, and continued pressure on sales of the unit’s BD Probe TecTM ET and BD ViperTM platforms in the United States.
International revenue growth in the Medical segment reflected the inclusion of CareFusion’s sales in the current year’s quarter. International Medical growth also reflected strong performance in the Pharmaceutical Systems unit’s international sales as well as in the Medication and Procedural Solutions unit’s sales of its safety engineered products. The Diabetes Care unit’s revenues reflected solid sales in international markets. International revenue growth in the Life Sciences segment reflected strong growth in the Preanalytical Systems and Diagnostic Systems units. Emerging market revenues for the third quarter of $539 million represented an increase of 1.6% over the prior year’s quarter, including a 9.4% unfavorable impact due to foreign currency translation. Revenue growth in emerging markets for the third quarter was driven by sales in Latin America and China.
Gross Profit Margin and Operating Expenses
A summary of gross profit margin, selling and administrative expense and research and development expense for the three and nine months ended June 30, 2015 and 2014 is as follows:
Three months ended June 30, | Nine months ended June 30, | |||||||||||||||
2015 | 2014 | 2015 | 2014 | |||||||||||||
(Millions of dollars) | ||||||||||||||||
Gross profit margin % | 38.1 | % | 51.5 | % | 45.4 | % | 51.2 | % | ||||||||
Selling and administrative expense | $ | 764 | $ | 528 | $ | 1,820 | $ | 1,584 | ||||||||
% of revenues | 24.5 | % | 24.5 | % | 25.2 | % | 25.4 | % | ||||||||
Research and development expense | $ | 178 | $ | 137 | $ | 437 | $ | 410 | ||||||||
% of revenues | 5.7 | % | 6.4 | % | 6.0 | % | 6.6 | % |
Gross profit margin
The decrease in gross profit margin for the third quarter of fiscal year 2015 compared with the prior-year period in 2014 primarily reflected an unfavorable impact of 1,230 basis points due to the recognition of the fair value step-up adjustment recorded relative to CareFusion’s inventory on the acquisition date as well as the amortization and depreciation of intangible and fixed assets, respectively, that were acquired in the CareFusion transaction. For further discussion regarding the inventory and intangible assets acquired in the CareFusion transaction, refer to Note 9 in the Notes to Condensed Consolidated Financial Statements. The decrease in gross profit margin for the third quarter of fiscal year 2015 also reflected an estimated unfavorable impact of 140 basis points relating to foreign currency translation. The favorable impact in the current year’s quarter from operating performance of 30 basis points was primarily driven by lower manufacturing costs from continuous improvement projects and lower raw material costs, partially offset by higher pension costs.
The decrease in gross profit margin for the nine-month period reflected an unfavorable impact of 540 basis points due to the inventory step-up adjustment, intangible asset amortization and fixed asset depreciation impacts noted above. Gross margin for the current nine-month period also reflected an estimated unfavorable impact of 70 basis points relating to foreign currency translation and a favorable operating performance impact of approximately 30 basis points. Operating performance in the nine-month period reflected lower manufacturing costs from continuous improvement projects, favorable product mix and lower raw material costs, partially offset by higher pension costs and price decreases.
Selling and administrative expense
Aggregate expenses in the current year’s period primarily reflected the inclusion of CareFusion’s selling and administrative expenses in the current quarter’s results, as well as depreciation of the fair value step-up adjustment recorded upon the acquisition date relative to CareFusion’s fixed assets.acquisition. Selling and administrative expense foras a percentage of revenues in the third quarter of fiscal year 2015 was favorably impacted by foreign currency translation of approximately $46 million.
Aggregate expenses for the current nine-monthprior-year six-month period reflected the inclusiona charge of CareFusion’s selling and administrative expenses in the current quarter’s results, as well as the depreciation of the fair value step-up adjustment, as noted above. Selling and administrative expense in the current year’s nine-month period was favorably impacted by foreign currency translation of approximately $88 million. Aggregate expenses for the current year’s nine-month period also included increased spending of $38 million relating to the expansion of our business in emerging markets and the global enterprise resource planning initiative to update our business information systems, as well as a $12 million charge relating to the RTI litigation matter, as previously discussed. Aggregate expenses in the prior year’s nine-month period included the $11 million charge relating to the early termination of a distributor arrangement previously discussed as well as the favorable impact of a $6 million reversal of bad debt expense that was recorded upon receiving a payment relating to outstanding receivables due from the Spanish government.
The increasedecreases in research and development expense for the nine-month period reflected the inclusionas a percentage of CareFusion’s current quarter’s research and development expensesrevenues in the current quarter’s results. Research
year's periods reflected the timing of project spending.
Acquisition-related costs
Acquisition-related costs were $108 million in the third quarter of fiscal year 2015, which reflectedthree and six-month periods represented transaction, integration and restructuring costs of $9 million, $24 millionassociated with the CareFusion acquisition and $75 million, respectively. Acquisition-related costs in the nine-month period ending June 30, 2015 were $244 million which reflected transaction, integration and restructuring costs of $52 million, $55 million and $136 million, respectively.portfolio rationalization. The transaction and integration costs in both the three and nine-month periods reflectedspecifically included advisory, legal, and other costs incurred in connection with the CareFusion acquisition. The restructuring costs in the current quarter reflected employee termination costs, share-based compensation expense and other restructuring costs relating to the acquisition. For further discussiondisclosures regarding thesethe restructuring costs, refer to Notes 7, 8 and 9
Three months ended June 30, | Nine months ended June 30, | |||||||||||||||
(Millions of dollars) | 2015 | 2014 | 2015 | 2014 | ||||||||||||
Interest expense | $ | (105 | ) | $ | (33 | ) | $ | (272 | ) | $ | (99 | ) | ||||
Interest income | 2 | 12 | 20 | 36 | ||||||||||||
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Net interest expense | $ | (103 | ) | $ | (20 | ) | $ | (252 | ) | $ | (63 | ) | ||||
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Three months ended March 31, | Six months ended March 31, | ||||||||||||||
(Millions of dollars) | 2016 | 2015 | 2016 | 2015 | |||||||||||
Interest expense | $ | (99 | ) | $ | (91 | ) | $ | (196 | ) | $ | (167 | ) | |||
Interest income | 3 | 8 | 9 | 19 | |||||||||||
Net interest expense | $ | (96 | ) | $ | (83 | ) | $ | (187 | ) | $ | (149 | ) |
March 2015.
year’s nine-month period would have been higher by 1,630 basis points excluding the impact on BD’s income mix of the third quarter specified items, which, as discussed above, were affected by higher tax benefits, as well as the impact of previously discussed specified items recorded in the first and second quarters of fiscal year 2015. The decrease in the income tax rate for the nine-month period of 2015 additionally reflected the extension of the U.S. research and development income tax credit, which was partially offset by the unfavorable impact of one-time discrete items.
Three months ended March 31, | Six months ended March 31, | ||||||||||
2016 | 2015 | 2016 | 2015 | ||||||||
Effective income tax rate | 10.0 | % | 3.9 | % | 11.7 | % | 11.4 | % | |||
Favorable impact, in basis points, from tax benefits of specified items | 1,060 | 1,740 | 930 | 980 |
follows:
Three months ended March 31, | Six months ended March 31, | ||||||||||||||
2016 | 2015 | 2016 | 2015 | ||||||||||||
Net Income (Millions of dollars) | $ | 338 | $ | 216 | $ | 567 | $ | 452 | |||||||
Diluted Earnings per Share | $ | 1.56 | $ | 1.08 | $ | 2.62 | $ | 2.28 | |||||||
Unfavorable impact-specified items | $ | (0.62 | ) | $ | (0.51 | ) | $ | (1.52 | ) | $ | (0.85 | ) | |||
Unfavorable impact-foreign currency translation | $ | (0.14 | ) | $ | (0.40 | ) |
Six months ended March 31, | |||||||
(Millions of dollars) | 2016 | 2015 | |||||
Net cash provided by (used for) | |||||||
Operating activities | $ | 1,020 | $ | 514 | |||
Investing activities | $ | (170 | ) | $ | (7,829 | ) | |
Financing activities | $ | (576 | ) | $ | 7,392 |
to fund our pension obligation.
Debt-related Activities
first six months of fiscal year 2016 included a payment of $300 to reduce the balance of our commercial paper program. Net cash provided by financing activities in the currentprior-year period included the proceeds from $6.2 billion of notes issued in December 2014 as well as $850 million$1.5 billion total proceeds from net borrowings under commercial paper programs and a term loan facility. These proceeds were used to finance the completion of our acquisition of CareFusion in March 2015. For additional information regarding these financing arrangements, refer to Note 14 in the Notes to Condensed Consolidated Financial Statements and for additional information regarding the CareFusion acquisition, refer to Note 9 in the Notes to Condensed Consolidated Financial Statements.
June 30, 2015 | September 30, 2014 | |||||||
Short-term debt as a percentage of total debt | 13.7 | % | 5.1 | % | ||||
Weighted average cost of total debt | 3.2 | % | 3.7 | % | ||||
Total debt as a percentage of total capital* | 58.3 | % | 43.4 | % |
(Millions of dollars) | March 31, 2016 | September 30, 2015 | |||||
Total debt | $ | 12,515 | $ | 12,822 | |||
Short-term debt as a percentage of total debt | 13.2 | % | 11.3 | % | |||
Weighted average cost of total debt | 3.4 | % | 3.3 | % | |||
Total debt as a percentage of total capital* | 58.1 | % | 59.4 | % |
Repurchase The ratio of Common Stock
There were no share repurchases during the first nine monthsdebt as a percentage of fiscal year 2015 as our share repurchase program has been suspended throughout fiscal year 2015 beginning with our announced agreement to acquire CareFusion. For the first nine months of fiscal year 2014, we repurchased approximately 3.6 million shares of our common stock for $400 million. At Junetotal capital at September 30, 2015 a totalreflects adjustments to the condensed consolidated balance sheet resulting from our adoption of approximately 9.1 million common shares remained available for purchase underrevised presentation requirements relating to deferred taxes. Additional information regarding this adoption is provided in Note 2 in the Board of Directors’ September 2013 repurchase authorization.
Notes to Condensed Consolidated Financial Statements.
In January 2015 and
BD is required to maintain a leverage ratio (ratio of debt to earnings as defined under the agreement) as of the last day of any fiscal quarter of no greater than 4.75-to-1. We were in compliance with these covenants as of June 30, 2015.
At June 30, 2015, subsequent to the completion of the CareFusion acquisition on March 17, 2015, borrowings outstanding under the current commercial paper program were $700 million. At June 30, 2015, borrowings outstanding under the term loan agreement were $350 million reflecting a $650 million principal payment made in April 2015. In July 2015, we made a $250 million principal payment to further reduce the outstanding balance on the term loan facility. The $9.1 billion of fully committed bridge financing we secured in the firstsecond quarter of fiscal year 2015, concurrently with our execution of the agreement to acquire CareFusion, was terminated upon completion of the acquisition. Additional disclosures regarding BD’s financing arrangements relating to the CareFusion acquisition are provided in Note 14 in the Notes to Condensed Consolidated Financial Statements.
We have available a2016, as previously discussed.
CareFusion Debt Assumed
Upon the closing of the CareFusion acquisition in March 2015, BD assumed senior unsecured notes issued by CareFusion with an aggregate principal amount of $2 billion. Subsequent to closing the acquisition, BD commenced offers to exchange these CareFusion notes for notes issued by BD and this exchange offer expired in April 2015. Additional disclosures regarding this exchange offer are provided in Note 14 in the Notes to Condensed Consolidated Financial Statements.
Access to Capital and Credit Ratings
Subsequent to BD’s announcement regarding our acquisition of CareFusion, the two major corporate debt rating organizations, Moody’s Investors Service (Moody’s) and Standard & Poor’s Ratings Services (S&P), provided guidance that they expected to downgrade our debt ratings as a result of the anticipated increase in BD’s net leverage. In December 2014, S&P downgraded BD’s long-term debt and commercial paper ratings from A to BBB+ and from A-1 to A-2, respectively. Following our announced completion of the CareFusion acquisition on March 17, 2015, Moody’s converted its provisional downgrade of BD’s long-term debt rating, from A3 to Baa2, to a definitive downgrade. Concurrently with these downgrade actions, BD’s ratings with both S&P and Moody’s were removed from further review.
BD’s credit ratings remain investment grade after these downgrades. As such, we do not expect these downgrades to have a significant impact on our liquidity or future flexibility to access additional liquidity given our strong balance sheet, our syndicated credit facility, and our commercial paper program. While such downgrades in our credit ratings may increase the costs associated with maintaining and borrowing under our existing credit arrangements, the downgrades do not affect our ability to draw on these credit facilities, nor do they result in an acceleration of the scheduled maturities of any outstanding debt. 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.
Update of Critical Accounting Policies
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. Upon our acquisition of CareFusion on March 17, 2015, we have implemented the following critical accounting policies. There have been no other material changes to our critical accounting policies since September 30, 2014.
Accounting for Sales-Type Leases
Our accounting for sales-type leases is based upon certain assumptions including the economic life of our leased products and the fair value of our leased products, which is used to determine the interest rate implicit to the lease. These assumptions affect that amount of gross investment in the lease, unearned income, and the sales price that is recognized relative to each sales-type lease transaction. Based upon our anticipation of future technological advances of our products or that of our competitors, the economic life of our leased products is five years as this is the estimated period during which the leased product is expected to be economically usable, without limitation by the lease term. Additionally, five years represents the most frequent contractual lease term for our leased products. Our product configurations are customized for each customer’s specific specifications, and as such, there is no significant after-market for our used equipment. Residual values, if any, are established at lease inception using estimates of the fair value of reclaimable component parts of the products at the end of the lease term.
The fair value of our leased products is estimated on a quarterly basis, based upon transacted cash sales prices during the preceding twelve-month period, and represents normal selling price, reflecting any volume or trade discounts that may apply. Because our products are sold as part of customized systems to a diverse range of customers, many of which are affiliated with a group purchasing organization or integrated delivery network,
there is a wide range of negotiated cash selling prices for our products. Accordingly, we stratify our cash selling transactions based on product configuration and customer class to determine a best estimate of fair value for each product specific, within determined customer classes. Based upon this stratification, we calculate the weighted average selling price of each configured product using the interquartile range methodology and remove outliers from the population of normal cash selling prices, which narrows the range of selling prices within each stratified customer class. The resulting weighted average selling price is the single point estimate of fair value that we use as the normal selling price and this fair value estimate is used to determine the implicit interest rate for each product subject to a sales-type lease arrangement. The interest rate implicit to the lease is then used to determine the amount of revenue recognized at the inception of the lease and the revenue recognized over the life of the lease.
Approximately 15-25% of our lease transactions in a given year do not have corresponding cash selling transactions for the same product configuration and customer class. Therefore, for these transactions, the estimated fair value is determined by: (1) reviewing the estimated fair value of the same product line with the closest similar configuration sold to the same customer class and adjusting this fair value by the expected pricing impact of the difference in product configuration; or (2) reviewing the estimated fair value of the same product configuration sold to a different customer class and adjusting this fair value by the expected pricing impact of the difference in customer class.
Our net investment in sales-type leases primarily arises from the leasing of dispensing equipment and as such, the methodology for determining the relating allowance for credit losses is based on the collective population and is not stratified by class or portfolio segment. The allowance for credit losses is based on historical experience loss rates as well as on management’s judgments regarding the potential impact of anticipated changes in business practices, market dynamics, and economic conditions. These assumptions are inherently subjective and it is possible that we will experience actual credit losses that are different from our current estimates.
Accounting for Software Products
We sell and lease products with embedded software and as such, we must evaluate these products to determine if industry-specific revenue recognition requirements apply to these sales transactions. This evaluation process is often complex and subject to significant judgment. If software is considered not essential to the non-software elements of a product but is considered more than incidental to a product as a whole, the product’s software elements must be separated from its non-software elements under the requirements relating to multiple-element arrangements. The product’s software elements must be accounted for under software industry-specific revenue recognition requirements and the application of these requirements may significantly affect the timing and amount of revenue recognized.
We have determined that the software embedded within our infusion products, when sold with safety software, patient identification products, and certain diagnostic equipment, as well as the software embedded within our research and clinical instruments sold by our Biosciences unit, is more than incidental to these product offerings as a whole. However, we have determined that the non-software elements and software elements in these product offerings work together to deliver the essential functionality of these products as a whole. As such, the accounting for these product offerings does not fall within the scope of software industry-specific accounting requirements. We have determined the embedded software within certain other products, primarily dispensing and respiratory products, is incidental to the products as a whole and therefore the accounting for these products also falls outside the scope of software-specific requirements. Generally, our standalone software application sales and any related post-contract support related to these sales are accounted for under the software industry-specific revenue recognition requirements.
Accounting for Multiple-Element Arrangements
Some of our sales transactions qualify as multiple-element arrangements which require us to identify separate units of accounting within the arrangement and allocate the transaction consideration across these separate accounting units. For arrangements that include software and non-software elements, the transaction consideration is allocated to the software elements as a group as well as to the individual non-software elements that have been separately identified. The identification of accounting units and the allocation of total transaction consideration for multiple-element arrangements may be subjective and requires a degree of management judgment. Management’s judgments relative to multiple-element arrangements may significantly affect the timing of revenue recognition.
Transaction consideration for separately identified non-software units of accounting within an arrangement is recognized upon the completion of each deliverable based on its relative selling price. When applying the relative selling price method, the selling price of each deliverable is determined based upon the following hierarchy of evidence: vendor-specific objective evidence, which is generally based upon historical prices in stand-alone transactions; third-party evidence, which is generally based on market data on sales of similar products and services, if available; and management’s best estimate of selling price. Management’s best estimate of selling price is generally based upon the following considerations: stand-alone sales prices, established price lists, costs to produce, profit margins for similar products, market conditions, and customer stratification.
For software and software-related products, we use the relative fair value method to allocate transaction consideration to each unit of accounting; whereby the evidence used in the determination of fair value estimates are based solely on vendor-specific objective evidence. To the extent that vendor specific objective evidence does not exist for delivered elements of the transaction, we apply the residual method.
The revenue allocated to equipment or instruments in multiple-element arrangements is recognized upon transfer of title and risk of loss to the customer. The revenue allocated to extended warranty contracts and software maintenance contracts is deferred and recognized as these deliverables are performed under the arrangement. The majority of deferred revenue relating to extended warranty contracts is generally recognized within a few years whereas deferred revenue relating to software maintenance contracts is generally recognized over several years.
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.
Difficulties inherent in product development, including the potential inability to successfully continue technological innovation, complete clinical trials, obtain regulatory approvals in the United States and
abroad, obtain intellectual property protection for our products, obtain coverage and adequate reimbursement for new products, or gain and maintain market approval of products, as well as the possibility of infringement claims by competitors with respect to patents or other intellectual property rights, all of which can preclude or delay commercialization of a product. Delays in obtaining necessary approvals or clearances from the FDA or other regulatory agencies or changes in the regulatory process may also delay product launches and increase development costs.
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Brazil
BD has filed an administrative appeal relating to the Brazilian Foreign Trade Board’s decision regarding anti-dumping measures.
CareFusion Shareholder Litigation
The parties to the action filed in the Delaware Court of Chancery have entered into a stipulation and agreement of compromise, settlement and release and presented the matter to the Delaware Court of Chancery for approval. The Delaware Court of Chancery has scheduled a hearing for September 17, 2015 to consider the matter.
Antitrust Class Action Complaint
On July 17, 2015, a class action complaint was filed against the Company in the U.S. District Court for the Southern District of Georgia. The plaintiffs,
has opposed.
March 31, 2016.
For the three months ended June 30, 2015 | Total Number of Shares Purchased (1) | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (2) | Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs (2) | ||||||||||||
April 1 – 30, 2015 | 1,957 | 141.77 | — | 9,147,060 | ||||||||||||
May 1 – 31, 2015 | 817 | 143.85 | — | 9,147,060 | ||||||||||||
June 1 – 30, 2015 | — | — | — | 9,147,060 | ||||||||||||
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Total | 2,774 | 142.39 | — | 9,147,060 | ||||||||||||
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For the three months ended March 31, 2016 | Total Number of Shares Purchased (1) | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (2) | Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs (2) | ||||||||
January 1 – 31, 2016 | 2,166 | $ | 144.66 | — | 9,147,060 | |||||||
February 1 – 29, 2016 | 966 | 145.41 | — | 9,147,060 | ||||||||
March 1 – 31, 2016 | — | — | — | 9,147,060 | ||||||||
Total | 3,132 | $ | 144.89 | — | 9,147,060 |
(1) | Represents |
(2) |
Exhibit |
Exhibit 10(b) | Five Year Credit Agreement, dated as of January 29, 2016, among Becton, Dickinson and Company, the banks named therein and Citibank, N.A., as administrative agent (incorporated by reference to Exhibit 10 of the registrant’s Current Report on |
Exhibit 31 | Certifications of Chief Executive Officer and Chief Financial Officer, pursuant to SEC Rule 13a - 14(a). |
Exhibit 32 | Certifications of Chief Executive Officer and Chief Financial Officer, pursuant to Rule 13a - 14(b) and Section 1350 of Chapter 63 of Title 18 of the U.S. Code. |
Exhibit 101 | The following materials from this report, formatted in XBRL (Extensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Income, (iii) the Condensed Consolidated Statements of Comprehensive Income, (iv) the Condensed Consolidated Statements of Cash Flows, and (v) Notes to Condensed Consolidated Financial Statements. |
Becton, Dickinson and Company | |
(Registrant) |
/s/ Christopher Reidy | |
Christopher Reidy | |
Executive Vice President, Chief Financial Officer and | |
(Principal Financial Officer) | |
/s/ John Gallagher | |
John Gallagher | |
Senior Vice President, Corporate Finance, | |
(Principal Accounting Officer) |
Exhibit Number | Description of Exhibits | |
10(a) | 2004 Employee and Director Equity-Based Compensation Plan, as amended and restated as of | |
10(b) | Five Year Credit Agreement, dated as of January 29, 2016, among Becton, Dickinson and Company, the banks named therein and Citibank, N.A., as administrative agent (incorporated by reference to Exhibit 10 of the registrant’s Current Report on Form 10-K dated February 4, 2016). | |
31 | Certifications of Chief Executive Officer and Chief Financial Officer, pursuant to SEC Rule 13a - 14(a). | |
32 | Certifications of Chief Executive Officer and Chief Financial Officer, pursuant to Rule 13a - 14(b) and Section 1350 of Chapter 63 of Title 18 of the U.S. Code. | |
101 | The following materials from this report, formatted in XBRL (Extensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Income, (iii) the Condensed Consolidated Statements of Comprehensive Income, (iv) the Condensed Consolidated Statements of Cash Flows, and (v) Notes to Condensed Consolidated Financial Statements. |
49