BDX 10-Q Quarterly Report June 30, 2016

BDX 10-Q Quarter ended June 30, 2016

BECTON DICKINSON & CO

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10-Q 1 bdx0630201610-q.htm 10-Q Document

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)



ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2016



¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 001-4802

Becton, Dickinson and Company

(Exact name of registrant as specified in its charter)



New Jersey		22-0760120
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

1 Becton Drive, Franklin Lakes, New Jersey 07417-1880

(Address of principal executive offices)

(Zip Code)

(201) 847-6800

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year,

if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý No ¨

Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No ý

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.



Class of Common Stock		Shares Outstanding as of June 30, 2016
Common stock, par value $1.00		212,925,842

BECTON, DICKINSON AND COMPANY

FORM 10-Q

For the quarterly period ended June 30, 2016

TABLE OF CONTENTS



		Page Number
Part I.	FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited)
	Condensed Consolidated Balance Sheets	3
	Condensed Consolidated Statements of Income	4
	Condensed Consolidated Statements of Comprehensive Income	5
	Condensed Consolidated Statements of Cash Flows	6
	Notes to Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	29
Item 4.	Controls and Procedures	29

Part II.	OTHER INFORMATION

Item 1.	Legal Proceedings	30
Item 1A.	Risk Factors	31
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	31
Item 3.	Defaults Upon Senior Securities	32
Item 4.	Mine Safety Disclosures	32
Item 5.	Other Information	32
Item 6.	Exhibits	32

Signatures		33

Exhibits		34

ITEM 1. FINANCIAL STATEMENTS

BECTON, DICKINSON AND COMPANY

CONDENSED CONSOLIDATED BALANCE SHEETS

Millions of dollars



	June 30, 2016			September 30, 2015
	(Unaudited)
Assets
Current Assets:
Cash and equivalents	$	1,686		$	1,424
Short-term investments	15			20
Trade receivables, net	1,618			1,618
Current portion of net investment in sales-type leases	345			75
Inventories:
Materials	315			384
Work in process	303			280
Finished products	1,218			1,295
	1,835			1,959
Assets held for sale	625			—
Prepaid expenses and other	409			563
Total Current Assets	6,534			5,659
Property, Plant and Equipment	8,282			8,277
Less allowances for depreciation and amortization	4,469			4,217
Property, Plant and Equipment, Net	3,813			4,060
Goodwill	7,425			7,537
Customer Relationships, Net	3,075			3,250
Developed Technology, Net	2,658			2,977
Other Intangibles, Net	673			797
Capitalized Software, Net	340			362
Net Investment in Sales-Type Leases, Less Current Portion	785			1,118
Other Assets	712			717
Total Assets	$	26,016		$	26,478
Liabilities and Shareholders’ Equity
Current Liabilities:
Short-term debt	$	1,351		$	1,452
Payables and accrued expenses	2,672			2,930
Liabilities held for sale	195			—
Total Current Liabilities	4,219			4,381
Long-Term Debt	10,561			11,370
Long-Term Employee Benefit Obligations	1,159			1,133
Deferred Income Taxes and Other	2,045			2,430
Commitments and Contingencies (See Note 5)
Shareholders’ Equity
Common stock	333			333
Capital in excess of par value	4,650			4,475
Retained earnings	12,850			12,314
Deferred compensation	20			20
Common stock in treasury - at cost	(8,215		)	(8,239		)
Accumulated other comprehensive loss	(1,605		)	(1,738		)
Total Shareholders’ Equity	8,033			7,164
Total Liabilities and Shareholders’ Equity	$	26,016		$	26,478

Amounts may not add due to rounding.

See notes to condensed consolidated financial statements

BECTON, DICKINSON AND COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

Millions of dollars, except per share data

(Unaudited)



	Three Months Ended June 30,						Nine Months Ended June 30,
	2016			2015			2016			2015
Revenues	$	3,198		$	3,120		$	9,252		$	7,222
Cost of products sold	1,651			1,946			4,813			3,957
Selling and administrative expense	728			751			2,209			1,806
Research and development expense	207			178			575			436
Acquisitions and other restructurings	96			108			321			244
Total Operating Costs and Expenses	2,682			2,983			7,918			6,444
Operating Income	516			137			1,334			779
Interest expense	(97		)	(105		)	(293		)	(272		)
Interest income	5			2			14			20
Other (expense) income, net	(1		)	5			10			23
Income Before Income Taxes	422			39			1,065			549
Income tax provision (benefit)	32			(23		)	107			35
Net Income	390			62			958			514
Basic Earnings per Share	$	1.83		$	0.30		$	4.51		$	2.58
Diluted Earnings per Share	$	1.80		$	0.29		$	4.41		$	2.52
Dividends per Common Share	$	0.66		$	0.60		$	1.98		$	1.80

Amounts may not add due to rounding.

See notes to condensed consolidated financial statements

BECTON, DICKINSON AND COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Millions of dollars

(Unaudited)



	Three Months Ended June 30,						Nine Months Ended June 30,
	2016			2015			2016			2015
Net Income	$	390		$	62		$	958		$	514
Other Comprehensive Income (Loss), Net of Tax
Foreign currency translation adjustments	38			80			101			(558		)
Defined benefit pension and postretirement plans	12			11			36			33
Net unrealized losses on cash flow hedges, net of reclassifications	(7		)	(2		)	(3		)	(8		)
Other Comprehensive Income (Loss), Net of Tax	43			88			134			(533		)
Comprehensive Income (Loss)	$	433		$	150		$	1,091		$	(19	)

Amounts may not add due to rounding.

See notes to condensed consolidated financial statements

BECTON, DICKINSON AND COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Millions of dollars

(Unaudited)



	Nine Months Ended June 30,
	2016			2015
Operating Activities
Net income	$	958		$	514
Adjustments to net income to derive net cash provided by operating activities:
Depreciation and amortization	841			576
Share-based compensation	158			138
Deferred income taxes	(150		)	(137		)
Change in operating assets and liabilities	(49		)	(42		)
Pension obligation	63			17
Other, net	34			(14		)
Net Cash Provided by Operating Activities	1,854			1,052
Investing Activities
Capital expenditures	(405		)	(387		)
Capitalized software	(19		)	(26		)
Proceeds from investments, net	12			837
Acquisitions of businesses, net of cash acquired	—			(8,334		)
Divestitures of businesses	158			—
Other, net	(64		)	(92		)
Net Cash Used for Investing Activities	(318		)	(8,003		)
Financing Activities
Change in short-term debt	(150		)	846
Proceeds from long-term debt	—			6,164
Payments of debt	(751		)	(3		)
Excess tax benefits from payments under share-based compensation plans	75			48
Dividends paid	(421		)	(358		)
Issuance of common stock and other, net	(29		)	(30		)
Net Cash (Used for) Provided by Financing Activities	(1,276		)	6,667
Effect of exchange rate changes on cash and equivalents	2			(17		)
Net increase (decrease) in cash and equivalents	262			(302		)
Opening Cash and Equivalents	1,424			1,861
Closing Cash and Equivalents	$	1,686		$	1,559

Amounts may not add due to rounding.

See notes to condensed consolidated financial statements

BECTON, DICKINSON AND COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2016

Note 1 – Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and, in the opinion of the management of the Company, include all adjustments which are of a normal recurring nature, necessary for a fair presentation of the financial position and the results of operations and cash flows for the periods presented. However, the financial statements do not include all information and accompanying notes required for a presentation in accordance with U.S. generally accepted accounting principles. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in the Company’s 2015 Annual Report on Form 10-K. Within the financial statements and tables presented, certain columns and rows may not add due to the use of rounded numbers for disclosure purposes. Percentages and earnings per share amounts presented are calculated from the underlying amounts. The results of operations for the interim periods are not necessarily indicative of the results of operations to be expected for the full year.

Note 2 – Accounting Changes

New Accounting Principle Adopted

In November 2015, the Financial Accounting Standards Board ("FASB") issued amended guidance that requires entities to present deferred tax assets and liabilities as noncurrent on the balance sheet instead of separating deferred taxes into current and noncurrent amounts. Early adoption is permitted under the amendments. The Company has retrospectively adopted the guidance effective October 1, 2015 and as such, 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.

New Accounting Principle Not Yet Adopted

In March 2016, the FASB issued guidance which amends certain aspects of the accounting for share-based compensation awards to employees. The aspects of share-based compensation accounting which are affected by the guidance include the timing of recognition for award-related income tax effects and the classification of awards as either equity or liabilities on the balance sheet. The amended guidance is effective for the Company on October 1, 2017 and early adoption is permitted. The Company is currently evaluating the impact that the guidance will have on its consolidated financial statements.

In February 2016, the FASB issued a new lease accounting standard which requires lessees to recognize lease assets and lease liabilities on the balance sheet. The new standard also requires expanded disclosures regarding leasing arrangements. The Company is currently evaluating the impact that this new lease accounting standard will have on its consolidated financial statements upon its adoption of the standard on October 1, 2019.

In May 2014, the FASB issued a new revenue recognition standard. Under this standard, revenue will be recognized upon the transfer of goods or services to customers and the amount of revenue recognized will reflect the consideration to which a reporting entity expects to be entitled in exchange for those goods or services. The Company is currently evaluating the impact that this new revenue recognition standard will have on its consolidated financial statements and the Company currently intends to adopt the standard on October 1, 2018, as is allowed under the FASB's July 2015 amendment which deferred the effective date for this standard.

Note 3 – Accumulated Other Comprehensive Income (Loss)

The components and changes of Accumulated other comprehensive income (loss) for the nine -month period ended June 30, 2016 were as follows:



(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 (loss) before reclassifications, net of taxes	89			101			(A)	—			(12		)
Amounts reclassified into income, net of taxes	45			—				36			9
Balance at June 30, 2016	$	(1,605	)	$	(861	)		$	(705	)	$	(39	)


(A)	The gain for the nine months ended June 30, 2016 was primarily attributable to the strengthening of certain European and Asian currencies against the U.S. dollar during the period.

Reclassifications out of Accumulated other comprehensive income (loss) were as follows:



	Three Months Ended June 30,						Nine Months Ended June 30,
(Millions of dollars)	2016			2015			2016			2015
Benefit Plans
Reclassification of losses into income	$	18		$	17		$	55		$	51
Associated tax benefits	(6		)	(6		)	(19		)	(17		)
Amounts reclassified into income, net of taxes (A)	$	12		$	11		$	36		$	33

Cash Flow Hedges
Reclassification of losses into income	$	5		$	2		$	14		$	7
Associated tax benefits	(2		)	(1		)	(5		)	(3		)
Amounts reclassified into income, net of taxes (B)	$	3		$	2		$	9		$	4


(A)	These reclassifications were not recorded into income in their entirety and were included in the computation of net periodic benefit plan costs. Additional details are provided in Note 8 .


(B)	These reclassifications were recorded to Interest expense and Cost of products sold .

Note 4 – Earnings per Share

The weighted average common shares used in the computations of basic and diluted earnings per share (shares in thousands) were as follows:



	Three Months Ended June 30,		Nine Months Ended June 30,
	2016	2015	2016	2015
Average common shares outstanding	213,083	210,175	212,411	199,690
Dilutive share equivalents from share-based plans	4,289	4,753	4,735	4,546
Average common and common equivalent shares outstanding – assuming dilution	217,372	214,928	217,146	204,236

Note 5 – Contingencies

Given the uncertain nature of litigation generally, the Company is not able in all cases to estimate the amount or range of loss that could result from an unfavorable outcome of the litigation to which the Company is a party. In accordance with U.S.

generally accepted accounting principles, the Company establishes accruals to the extent probable future losses are estimable (in the case of environmental matters, without considering possible third-party recoveries). In view of the uncertainties discussed below, the Company could incur charges in excess of any currently established accruals and, to the extent available, liability insurance. In the opinion of management, any such future charges, individually or in the aggregate, could have a material adverse effect on the Company’s consolidated results of operations and consolidated cash flows.

In June 2007, Retractable Technologies, Inc. (“RTI”) filed a complaint against the Company under the caption Retractable Technologies, Inc. vs. Becton Dickinson and Company (Civil Action No. 2:07-cv-250, U.S. District Court, Eastern District of Texas) alleging that the BD Integra™ syringes infringe patents licensed exclusively to RTI. In its complaint, RTI also alleged that the Company engaged in false advertising with respect to certain of the Company’s safety-engineered products in violation of the Lanham Act; acted to exclude RTI from various product markets and to maintain its market share through, among other things, exclusionary contracts in violation of state and federal antitrust laws; and engaged in unfair competition. In January 2008, the court severed the patent and non-patent claims into separate cases, and stayed the non-patent claims during the pendency of the patent claims at the trial court level. On April 1, 2008, RTI filed a complaint against BD under the caption Retractable Technologies, Inc. and Thomas J. Shaw v. Becton Dickinson and Company (Civil Action No. 2:08-cv-141, U.S. District Court, Eastern District of Texas) alleging that the BD Integra™ syringes infringe another patent licensed exclusively to RTI. On August 29, 2008, the court ordered the consolidation of the patent cases. As further set forth in the Company's 2015 Annual Report on Form 10-K, RTI was subsequently awarded $5 million in damages at a jury trial with respect to the patent claims, which has been paid, and the patent cases are now concluded.

On September 19, 2013, a jury returned a verdict against BD with respect to RTI’s Lanham Act claim and claim for attempted monopolization based on deception in the safety syringe market. The jury awarded RTI $113.5 million for its attempted monopolization claim (which will be trebled under the antitrust statute). The jury’s verdict rejected RTI’s monopolization claims in the markets for safety syringes, conventional syringes and safety IV catheters; its attempted monopolization claims in the markets for conventional syringes and safety IV catheters; and its claims for contractual restraint of trade and exclusive dealing in the markets for safety syringes, conventional syringes and safety IV catheters. In connection with the verdict, the Company recorded a pre-tax charge of approximately $341 million in the fourth quarter of fiscal year 2013. With respect to RTI's requested injunction relief, in November 2014, the Court granted RTI’s request that BD be ordered to issue certain corrective statements regarding its advertising and enjoined from making certain advertising claims. The Court denied RTI’s request for injunctive relief relating to BD’s contracting practices and BD’s safety syringe advertising, finding that RTI failed to prove that BD’s contracting practices violated the antitrust laws or that BD’s safety syringe advertising is false. On January 14, 2015, the Court granted in part and denied in part BD’s motion for a stay of the injunction. The Court held that, pending appeal, BD would not be required to send the corrective advertising notices to end-user customers, but only to employees, distributors and Group Purchasing Organizations. On January 15, 2015, the Court entered its Final Judgment in the case ordering that RTI recovers $341 million for its attempted monopolization claim and $12 million for attorneys’ fees, and awarded pre and post-judgment interest and costs. On February 3, 2015, the Court of Appeals for the Fifth Circuit denied BD’s motion for a stay of the injunction pending the final appeal, and BD thereafter complied with the Court’s order. On April 23, 2015, the Court granted BD’s motion to eliminate the award of pre-judgment interest, and entered a new Final Judgment. BD has filed its appeal to the Court of Appeals challenging the entirety of the Final Judgment.

On July 17, 2015, a class action complaint was filed against the Company in the U.S. District Court for the Southern District of Georgia. The plaintiffs, Glynn-Brunswick Hospital Authority, trading as Southeast Georgia Health System, and Southeast Georgia Health System, Inc., seek to represent a class of acute care purchasers of BD syringes and IV catheters. The complaint alleges that BD monopolized the markets for syringes and IV catheters through contracts, theft of technology, false advertising, acquisitions, and other conduct. The complaint seeks treble damages but does not specify the amount of alleged damages. The Company filed a motion to dismiss the complaint which was granted on January 29, 2016. Plaintiffs have sought to file an amended complaint, which BD has opposed.

The Company believes that it has meritorious defenses to each of the above-mentioned suits pending against the Company and is engaged in a vigorous defense of each of these matters.

The Company is also involved both as a plaintiff and a defendant in other legal proceedings and claims that arise in the ordinary course of business.

The Company is a potentially responsible party to a number of federal administrative proceedings in the United States brought under the Comprehensive Environment Response, Compensation and Liability Act, also known as “Superfund,” and similar state laws. The affected sites are in varying stages of development. In some instances, the remedy has been completed, while in others, environmental studies are underway or commencing. For several sites, there are other potentially responsible parties that may be jointly or severally liable to pay all cleanup costs.

Note 6 – Segment Data

The Company's organizational structure is based upon two principal business segments: BD Medical (“Medical”) and BD Life Sciences (“Life Sciences”). These segments are strategic businesses that are managed separately because each one develops, manufactures and markets distinct products and services. The Company evaluates performance of its business segments and allocates resources to them primarily based upon operating income. Segment operating income represents revenues reduced by product costs and operating expenses.

Financial information for the Company’s segments was as follows:



	Three Months Ended June 30,						Nine Months Ended June 30,
(Millions of dollars)	2016			2015			2016			2015
Revenues (A)
Medical	$	2,235		$	2,199		$	6,420		$	4,377
Life Sciences	963			921			2,832			2,845
Total Revenues	$	3,198		$	3,120		$	9,252		$	7,222
Income Before Income Taxes
Medical	$	571		$	483		$	1,549		$	1,115
Life Sciences	200			197			604			610
Total Segment Operating Income	771			680			2,152			1,725
Acquisitions and other restructurings	(96		)	(108		)	(321		)	(244		)
Net interest expense	(92		)	(103		)	(279		)	(252		)
Other unallocated items (B)	(160		)	(430		)	(488		)	(680		)
Income Before Income Taxes	$	422		$	39		$	1,065		$	549


(A)	Intersegment revenues are not material.


(B)	Primarily comprised of foreign exchange, corporate expenses, and share-based compensation expense. The amounts in the three and nine -month periods of fiscal year 2015 also included a fair value step-up adjustment of $281 million recorded relative to CareFusion’s inventory on the acquisition date.

Revenues by geographic areas were as follows:



	Three Months Ended June 30,				Nine Months Ended June 30,
(Millions of dollars)	2016		2015		2016		2015
Revenues
United States	$	1,735	$	1,693	$	5,145	$	3,437
International	1,463		1,427		4,107		3,785
Total Revenues	$	3,198	$	3,120	$	9,252	$	7,222

Note 7 – Share-Based Compensation

The Company grants share-based awards under the 2004 Employee and Director Equity-Based Compensation Plan (the “2004 Plan”), which provides long-term incentive compensation to employees and directors. The Company believes that such awards align the interests of its employees and directors with those of its shareholders.

The fair values of stock appreciation rights granted during the annual share-based grants in November of 2015 and 2014, respectively, were estimated on the date of grant using a lattice-based binomial valuation model based on the following assumptions:



	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 fair value of share-based payments is recognized as compensation expense in net income. For the three months ended June 30, 2016 and 2015 , compensation expense charged to income was $39 million and $46 million , respectively. For the nine months ended June 30, 2016 and 2015 , compensation expense charged to income was $158 million and $138 million , respectively.

The amount of unrecognized compensation expense for all non-vested share-based awards as of June 30, 2016 was approximately $217 million , which is expected to be recognized over a weighted-average remaining life of approximately 2.1 years . Certain pre-acquisition equity awards of CareFusion were converted into either BD restricted stock awards or BD stock options, as applicable, as of the acquisition date, with substantially the same terms and conditions as were applicable under such CareFusion awards immediately prior to the acquisition date. Included in the unrecognized compensation expense is $14 million associated with these replacement awards.

Note 8 – Benefit Plans

The Company has defined benefit pension plans covering certain employees in the United States and certain foreign locations. The Company also provides certain postretirement healthcare and life insurance benefits to qualifying domestic retirees. Other postretirement benefit plans in foreign countries are not material. The measurement date used for the Company’s employee benefit plans is September 30.

Net pension and postretirement cost included the following components for the three months ended June 30:



	Pension Plans						Other Postretirement Benefits
(Millions of dollars)	2016			2015			2016			2015
Service cost	$	20		$	20		$	1		$	1
Interest cost	18			22			1			2
Expected return on plan assets	(27		)	(32		)	—			—
Amortization of prior service credit	(4		)	(4		)	(1		)	(1		)
Amortization of loss	19			18			—			1
Settlements	3			—			—			—
Net pension and postretirement cost	$	29		$	24		$	1		$	2

Net pension and postretirement cost included the following components for the nine months ended June 30:



	Pension Plans						Other Postretirement Benefits
(Millions of dollars)	2016			2015			2016			2015
Service cost	$	61		$	58		$	2		$	2
Interest cost	54			66			4			6
Expected return on plan assets	(82		)	(93		)	—			—
Amortization of prior service credit	(11		)	(12		)	(4		)	(4		)
Amortization of loss	58			52			1			2
Settlements	4			—			—			—
Net pension and postretirement cost	$	85		$	70		$	4		$	7

The amounts provided above for amortization of prior service credit and amortization of loss represent the reclassifications of prior service credits and net actuarial losses that were recognized in Accumulated other comprehensive income (loss) in prior periods.

Postemployment benefit costs were $10 million for the three-month periods ended June 30, 2016 and 2015 . Postemployment benefit costs were $30 million and $31 million for the nine -month periods ended June 30, 2016 and 2015 , respectively. Employee termination costs associated with the Company's restructuring activities are provided in Note 11 .

Note 9 – Acquisition

CareFusion Corporation

On March 17, 2015, the Company acquired a 100% interest in CareFusion, a global medical technology company with a comprehensive portfolio of products in the areas of medication management, infection prevention, operating room and procedural effectiveness, and respiratory care. The acquisition was accounted for under the acquisition method of accounting for business combinations. The operating activities from the acquisition date through March 31, 2015 were not material to the Company’s consolidated results of operations. As such, CareFusion’s operating results were included in the Company’s consolidated results of operations beginning on April 1, 2015. The revenues and operating income of the acquired CareFusion operation are no longer specifically identifiable due to the progression of the Company's integration activities.

The following table provides the pro forma results for the nine months ended June 30, 2016 and 2015 as if CareFusion had been acquired as of the beginning of the periods presented.



(Millions of dollars, except per share data)	Nine Months Ended June 30,
	2016		2015

Revenues	$	9,263	$	9,301

Net Income	$	1,169	$	966

Diluted Earnings per Share	$	5.38	$	4.49

The pro forma results above reflect the following adjustments, which were adjusted for the applicable tax impact to derive the net income amounts above:


•	Additional amortization expense related to the fair value of intangible assets acquired;


•	Additional depreciation expense related to the fair value of property, plant and equipment acquired;


•	Additional interest expense and financing costs associated with the Company’s financing arrangements relating to this acquisition, as well as the adjustment to interest expense relating to the fair value of long-term debt assumed;


•	Elimination of one-time financing fees, transaction, integration and restructuring costs incurred relative to this acquisition;


•	Exclusion of the income statement effects of the fair value adjustments to inventory and deferred revenue obligations acquired as such adjustments are not recurring in nature.

The pro forma results do not include any anticipated cost savings or other effects of the planned integration of CareFusion. Accordingly, the pro forma results above are not necessarily indicative of the results that would have been if the acquisition had occurred on the dates indicated, nor are the pro forma results indicative of results which may occur in the future.

Note 10 – Divestiture

Respiratory Solutions

In March 2016, the Company signed a definitive agreement to sell 50.1% of its Respiratory Solutions business and form a joint venture with respect to this business. Under the agreement, the Company will transfer the Respiratory Solutions business to a new standalone entity in which it will retain a 49.9% non-controlling interest, and the buyer will own the remainder. The buyer will control the operations and governance of the joint venture. Assets and liabilities held for sale on the condensed consolidated balance sheet at June 30, 2016 include assets and liabilities subject to this agreement of approximately $614 million and $195 million , respectively. The Respiratory Solutions business was acquired in the CareFusion acquisition in 2015 and was a component of the Medical segment. The transaction is expected to close later in 2016, subject to regulatory approvals and the satisfaction of customary closing conditions. The historical financial results for the Respiratory Solutions business have not been classified as a discontinued operation.

Note 11 – Business Restructuring Charges

In connection with the CareFusion acquisition and portfolio rationalization initiatives, the Company incurred restructuring costs during the nine months ended June 30, 2016 , which were recorded as Acquisitions and other restructurings . Restructuring liability activity for the nine months ended June 30, 2016 was as follows:



(Millions of dollars)	Employee Termination			Share-based Compensation (A)			Other (B)			Total
Balance at September 30, 2015	$	62		$	—		$	—		$	62
Charged to expense	53			33			113			199
Cash payments	(65		)	—			(47		)	(112		)
Non-cash settlements	—			(33		)	—			(33		)
Other adjustments	—			—			(66		)	(66		)
Balance at June 30, 2016	$	50		$	—		$	—		$	50


(A)	Additional disclosures are provided in Note 7 .


(B)	Includes a non-cash charge of $28 million , after-tax, relating to the Company's agreement reached in December 2015 to sell a non-core asset.

Note 12 – Intangible Assets

Intangible assets consisted of:



	June 30, 2016				September 30, 2015
(Millions of dollars)	Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization
Amortized intangible assets
Customer relationships	$	3,361	$	286	$	3,370	$	120
Developed technology	3,358		700		3,487		510
Product rights	131		43		128		35
Trademarks	405		41		405		26
Patents and other	342		248		333		212
Amortized intangible assets	$	7,597	$	1,317	$	7,723	$	903
Unamortized intangible assets
Acquired in-process research and development	$	124			$	203
Trademarks	2				2
Unamortized intangible assets	$	126			$	205

Intangible amortization expense for the three months ended June 30, 2016 and 2015 was $133 million and $151 million , respectively. Intangible amortization expense for the nine months ended June 30, 2016 and 2015 was $422 million and $192 million , respectively. The increase in intangible amortization expense in the current nine-month period is primarily attributable to identifiable intangible assets acquired in the CareFusion transaction.

The following is a reconciliation of goodwill by business segment:



(Millions of dollars)	Medical				Life Sciences		Total
Goodwill as of September 30, 2015	$	6,807			$	730	$	7,537
Divestiture	(32		)		—		(32		)
Purchase accounting adjustments/currency translation	(82		)	(A)	2		(80		)
Goodwill as of June 30, 2016	$	6,694			$	732	$	7,425


(A)	Comprised of acquisition accounting adjustments made during the first and second quarters of fiscal year 2016 relating to the CareFusion acquisition of $94 million primarily resulting from adjustment to the deferred tax liability accounts.

Note 13 – Derivative Instruments and Hedging Activities

The Company uses derivative instruments to mitigate certain exposures. The effects these derivative instruments and hedged items have on financial position, financial performance, and cash flows are provided below.

Foreign Currency Risks and Related Strategies

The Company has foreign currency exposures throughout Europe, Greater Asia, Canada and Latin America. Transactional currency exposures that arise from entering into transactions, generally on an intercompany basis, in non-hyperinflationary countries that are denominated in currencies other than the functional currency are mitigated primarily through the use of forward contracts and currency options. Hedges of the transactional foreign exchange exposures resulting primarily from intercompany payables and receivables are undesignated hedges. As such, the gains or losses on these instruments are recognized immediately in income. The offset of these gains or losses against the gains and losses on the underlying hedged items, as well as the hedging costs associated with the derivative instruments, is recognized in Other income (expense), net . The total notional amounts of the Company’s outstanding foreign exchange hedges of transactional foreign exchange exposures were $1.4 billion and $2.2 billion as of June 30, 2016 and September 30, 2015 , respectively.

Interest Rate Risks and Related Strategies

The Company’s primary interest rate exposure results from changes in U.S. dollar interest rates. The Company’s policy is to manage interest cost using a mix of fixed and variable rate debt. The Company periodically uses interest rate swaps to manage such exposures. Under these interest rate swaps, the Company exchanges, at specified intervals, the difference between fixed and floating interest amounts calculated by reference to an agreed-upon notional principal amount. These swaps are designated as either fair value or cash flow hedges.

For interest rate swaps designated as fair value hedges (i.e., hedges against the exposure to changes in the fair value of an asset or a liability or an identified portion thereof that is attributable to a particular risk), changes in the fair value of the interest rate swaps offset changes in the fair value of the fixed rate debt due to changes in market interest rates.

Changes in the fair value of the interest rate swaps designated as cash flow hedges (i.e., hedging the exposure to variability in expected future cash flows that is attributable to a particular risk) are offset by amounts recorded in Other comprehensive income (loss) . If interest rate derivatives designated as cash flow hedges are terminated, the balance in Accumulated other comprehensive income (loss) attributable to those derivatives is reclassified into earnings over the remaining life of the hedged debt. The net realized loss related to terminated interest rate swaps expected to be reclassified and recorded in Interest expense within the next 12 months is $5 million , net of tax.

The total notional value of the Company's outstanding forward starting interest rate swaps designated as cash flow hedges was $500 million at June 30, 2016 . The Company entered into these contracts in March and April 2016 to mitigate its exposure to interest rate risk. The Company had no outstanding interest rate swaps designated as cash flow hedges as of September 30, 2015 .

The total notional amount of the Company’s outstanding interest rate swaps designated as fair value hedges was $375 million at June 30, 2016 and September 30, 2015 . The outstanding swaps represent fixed-to-floating interest rate swap agreements the Company entered into to convert the interest payments on $375 million of the Company’s 3.125% notes due 2021 from the fixed rate to a floating interest rate based on LIBOR. Changes in the fair value of the interest rate swaps offset changes in the fair value of the fixed rate debt. The gains (losses) recorded on these fair value hedges, which were offset by losses (gains) recorded to the underlying debt instruments, are provided below.



	Three Months Ended June 30,					Nine Months Ended June 30,
(Millions of dollars)	2016		2015			2016		2015
Gains (losses) on fair value hedges	$	3	$	(7	)	$	9	$	9

Other Risk Exposures

The Company purchases resins, which are oil-based components used in the manufacture of certain products. Significant increases in world oil prices that lead to increases in resin purchase costs could impact future operating results. From time to time, the Company has managed price risks associated with these commodity purchases. The total notional amount of cash-settled forward contracts entered into in April 2015 to hedge global resin purchase volume throughout 2015 and 2016 was 12 million pounds ( $6 million ) and 49 million pounds ( $25 million ) at June 30, 2016 and September 30, 2015 , respectively.

Effects on Consolidated Balance Sheets

The location and amounts of derivative instrument fair values in the consolidated balance sheet are segregated below between designated, qualifying hedging instruments and ones that are not designated for hedge accounting.



(Millions of dollars)	June 30, 2016		September 30, 2015
Asset derivatives-designated for hedge accounting
Interest rate swaps	$	27	$	19
Asset derivatives-undesignated for hedge accounting
Forward exchange contracts	12		13
Total asset derivatives (A)	$	39	$	32
Liability derivatives-designated for hedge accounting
Commodity forward contracts	$	2	$	10
Interest rate swaps	19		—
Liability derivatives-undesignated for hedge accounting
Forward exchange contracts	8		21
Total liability derivatives (B)	$	30	$	30


(A)	All asset derivatives are included in Prepaid expenses and other .


(B)	All liability derivatives are included in Payables and accrued expenses .

Effects on Consolidated Statements of Income

Cash flow hedges

All derivative instrument-related amounts recognized in other comprehensive income and earnings during the three and nine-month periods ended June 30, 2016 and 2015 relate to interest rate swaps and commodity forward contracts.



	Three Months Ended June 30,						Nine Months Ended June 30,
(Millions of dollars)	2016			2015			2016			2015
After-tax losses relating to cash flow hedges recognized in other comprehensive income (loss)	$	(10	)	$	(4	)	$	(12	)	$	(12	)

The losses recognized for the three and nine-month periods ended June 30, 2016 primarily related to the previously discussed forward starting interest rate swaps entered into in fiscal year 2016. The losses recognized for the three months ended June 30, 2015 were attributable to the previously discussed commodity forward contracts entered into in April 2015. The losses for the nine months ended June 30, 2015 included the losses relating to the commodity forward contracts as well as $8 million attributable to interest rate swaps entered into during the first quarter of fiscal year 2015 to partially hedge interest rate risk associated with the anticipated issuance of senior unsecured notes in connection with the Company’s acquisition of CareFusion. Additional disclosures regarding amounts recognized in the condensed consolidated statements of income relating to cash flow hedges are provided in Note 3 .

The Company’s designated derivative instruments are highly effective. As such, there are no gains or losses, related to hedge ineffectiveness or amounts excluded from hedge effectiveness testing, recognized immediately in income relative to derivative contracts outstanding in the periods presented.

Undesignated hedges

The location and amount of gains and losses recognized in income on derivatives not designated for hedge accounting were as follows:



	Location of (Loss) Gain Recognized in Income on Derivatives	Amount of (Loss) Gain Recognized in Income on Derivatives
Derivatives Not Designated as Hedging Instruments		Three Months Ended June 30,					Nine Months Ended June 30,
(Millions of dollars)		2016			2015		2016		2015
Forward exchange contracts (A)	Other income (expense), net	$	(13	)	$	50	$	13	$	(46	)


(A)	The gains and losses on forward contracts and currency options utilized to hedge the intercompany transactional foreign exchange exposures are largely offset by gains and losses on the underlying hedged items in Other income (expense), net .

Note 14 – Financial Instruments and Fair Value Measurements

The fair values of financial instruments, including those not recognized on the statement of financial position at fair value, carried at June 30, 2016 and September 30, 2015 are classified in accordance with the fair value hierarchy in the following tables:



			Basis of Fair Value Measurement
(Millions of dollars)	June 30, 2016 Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets
Institutional money market investments	$	404	$	404	$	—	$	—
Interest rate swaps	27		—		27		—
Forward exchange contracts	12		—		12		—
Total Assets	$	442	$	404	$	39	$	—
Liabilities
Forward exchange contracts	$	8	$	—	$	8	$	—
Commodity forward contracts	2		—		2		—
Interest rate swaps	19		—		19		—
Contingent consideration liabilities	53		—		—		53
Total Liabilities	$	83	$	—	$	30	$	53



			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

The Company’s institutional money market accounts permit daily redemption and the fair values of these investments are based upon the quoted prices in active markets provided by the holding financial institutions. The Company’s remaining cash equivalents were $1.283 billion and $1.277 billion at June 30, 2016 and September 30, 2015 , respectively. Short-term investments are held to their maturities and are carried at cost, which approximates fair value. The cash equivalents consist of liquid investments with a maturity of three months or less and the short-term investments consist of instruments with maturities greater than three months and less than one year .

The Company measures the fair value of forward exchange contracts and interest rate swaps based upon the present value of expected future cash flows using market-based observable inputs including credit risk, interest rate yield curves, foreign currency spot prices and forward prices.

Long-term debt is recorded at amortized cost. The fair value of long-term debt is measured based upon quoted prices in active markets for similar instruments, which are considered Level 2 inputs in the fair value hierarchy. The fair value of long-term debt was $11.4 billion and $11.6 billion at June 30, 2016 and September 30, 2015 , respectively. During the first and third quarters of fiscal year 2016, the Company reclassified $500 million of 1.750% notes due on November 8, 2016 and $300 million of 1.450% notes due on May 15, 2017, respectively, from Long-Term Debt to Short-term debt . The fair value of reclassified notes was $802 million and $750 million at June 30, 2016 and September 30, 2015 , respectively. The balance of reclassified notes at September 30, 2015, which has been repaid, represented $750 million of floating rate notes due on June 15, 2016.

The contingent consideration liabilities were recognized as part of the consideration transferred by the Company for certain acquisitions. The fair values of the contingent consideration liabilities were estimated using probability-weighted discounted cash flow models that were based upon the probabilities assigned with regard to achievement of the contingent events. The estimated fair values of the contingent consideration liabilities are remeasured each reporting period based upon increases or decreases in the probability of the contingent payments. The change to the contingent consideration liability for the nine months ended June 30, 2016 primarily reflected a net decrease of $26 million , which was recorded in Selling and administrative expense, in the fair value of contingent consideration liabilities associated with certain product development milestones.

The Company’s policy is to recognize any transfers into fair value measurement hierarchy levels and transfers out of levels at the beginning of each reporting period. There were no transfers in and out of Level 1, Level 2 or Level 3 measurements for the three and nine months ended June 30, 2016 and 2015 .

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following commentary should be read in conjunction with the condensed consolidated financial statements and accompanying notes. Within the tables presented throughout this discussion, certain columns may not add due to the use of rounded numbers for disclosure purposes. Percentages and earnings per share amounts presented are calculated from the underlying amounts.

Company Overview

Becton, Dickinson and Company (“BD”) is a global medical technology company engaged in the development, manufacture and sale of a broad range of medical supplies, devices, laboratory equipment and diagnostic products used by healthcare institutions, life science researchers, clinical laboratories, the pharmaceutical industry and the general public. The Company's organizational structure is based upon two principal business segments, BD Medical (“Medical”) and BD Life Sciences (“Life Sciences”).

BD’s products are manufactured and sold worldwide. Our products are marketed in the United States and internationally through independent distribution channels and directly to end-users by BD and independent sales representatives. We organize our operations outside the United States as follows: Europe; EMA (which includes the Commonwealth of Independent States, the Middle East and Africa); Greater Asia (which includes Japan and Asia Pacific); Latin America (which includes Mexico, Central America, the Caribbean, and South America); and Canada. We continue to pursue growth opportunities in emerging markets, which include the following geographic regions: Eastern Europe, the Middle East, Africa, Latin America and certain countries within Asia Pacific. We are primarily focused on certain countries whose healthcare systems are expanding, in particular, China and India.

Acquisition of CareFusion

On March 17, 2015, BD acquired a 100% interest in CareFusion Corporation ("CareFusion"). CareFusion’s operating results were included in BD’s consolidated results of operations beginning on April 1, 2015 and as such, the consolidated results of operations for the first six months of the nine-month period ended June 30, 2015 referenced in the commentary provided further below did not include CareFusion's results. CareFusion operates as part of our Medical segment.

Overview of Financial Results and Financial Condition

For the three months ended June 30, 2016 , revenues of $3.198 billion increased 2.5% from the prior year period. The increase in revenue was attributable to volume growth of 3.5%, which includes a net unfavorable impact of 0.5% resulting from the termination of a distribution agreement in the Respiratory Solutions unit and, to a lesser extent, the impact of purchase accounting on deferred revenue related to the acquisition of CareFusion. Revenue growth attributable to volume was offset by approximately 0.9% of foreign currency translation. Price was not a material driver of growth for the period and accounted for approximately 0.1% of growth.

The current-year period’s volume impact reflected the following:


•	Third quarter Medical segment sales were driven by growth in the Medication Management Solutions, Diabetes Care and Medication and Procedural Solutions units. Third quarter revenues in the Respiratory Solutions unit were unfavorably impacted by the termination of a distribution contract, as noted above.


•	Life Sciences segment sales in the third quarter primarily reflected growth in the Diagnostic Systems and Preanalytical Systems units.

•

Worldwide sales of safety-engineered products reflected growth that was attributable to both segments. Third quarter sales in the United States of safety-engineered devices of $ 450 million increased 5.3% and third quarter international sales of safety-engineered devices of $ 334 million grew 10.8% over the prior year’s period, inclusive of an estimated 3.1% unfavorable impact due to foreign currency translation.

We continue to invest in research and development, geographic expansion, and new product promotions to drive further revenue and profit growth. Our ability to sustain our long-term growth will depend on a number of factors, including our ability to expand our core business (including geographical expansion), develop innovative new products, and continue to improve operating efficiency and organizational effectiveness, including through the integration of CareFusion. While the economic environment for the healthcare industry has stabilized, pricing pressures continue for some of our products. Healthcare utilization and research spending has stabilized and slightly improved in the United States; however, any destabilization in the future could adversely impact our U.S. businesses. Additionally, macroeconomic challenges in Europe continue to constrain healthcare utilization, although we currently view the environment as stable. In emerging markets, the Company’s growth is dependent primarily on government funding for healthcare systems.

Our financial position remains strong, with cash flows from operating activities totaling $1.854 billion in the first nine months of fiscal year 2016 . At June 30, 2016 , we had $1.7 billion in cash and equivalents and short-term investments. We continued to return value to our shareholders in the form of dividends. During the first nine months of fiscal year 2016 , we paid cash dividends of $421 million . No shares were repurchased during the first nine months of fiscal year 2016 .

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

Results of Operations

Revenues

Medical Segment

The following summarizes third quarter Medical revenues by organizational unit, as well as third quarter Medical sales of safety-engineered products:



	Three months ended June 30,
(Millions of dollars)	2016			2015			Total Change		Estimated FX Impact		FXN Change
Medication and Procedural Solutions	$	851		$	848		0.3	%	(1.8	)%	2.1	%
Medication Management Solutions	587			554			5.9	%	(0.3	)%	6.2	%
Diabetes Care	258			245			5.5	%	(1.1	)%	6.6	%
Pharmaceutical Systems	342			333			2.5	%	1.0	%	1.5	%
Respiratory Solutions	199			232			(13.9	)%	(0.2	)%	(13.7	)%
Deferred revenue adjustment (A)	(2		)	(13		)	(82.9	)%	—	%	(82.9	)%
Total Medical Revenues	$	2,235		$	2,199		1.6	%	(0.8	)%	2.4	%

Medical segment safety-engineered products	$	493		$	454		8.6	%	(1.0	)%	9.6	%

(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.

Third quarter revenues in the Medication and Procedural Solutions unit reflected growth in sales of infusion therapy and safety-engineered products. The Medication Management Solutions unit's revenue growth reflected installations of dispensing capital and sales of infusion systems. The Diabetes Care unit's revenue growth in the quarter was driven by sales of pen needles. Third quarter revenue growth in the Pharmaceutical Systems unit reflected growth in sales of self-injection systems and safety-engineered products. The timing, in the second quarter of the current fiscal year, of earlier than anticipated customer orders in the Pharmaceutical Systems and capital placements in the Respiratory Solutions unit unfavorably impacted third quarter revenues as compared to the prior-year period. Third quarter revenues, as compared to the prior year, in the Respiratory Solutions unit were also unfavorably impacted by the termination of a distribution contract, as previously discussed.

Medical segment revenues and sales of safety-engineered products for the nine-month period were as follows:



	Nine months ended June 30,
(Millions of dollars)	2016		2015		Total Change		Estimated FX Impact		FXN Change
Total Medical Revenues	$	6,420	$	4,377	46.7	%	(4.2	)%	50.9	%

Medical segment safety-engineered products	$	1,425	$	1,031	38.2	%	(4.0	)%	42.2	%

Medical segment operating income for the three-month and nine-month periods were as follows:



	Three months ended June 30,						Nine months ended June 30,
(Millions of dollars)	2016			2015			2016			2015
Medical segment operating income	$	571		$	483		$	1,549		$	1,115

Segment operating income as % of Medical revenues	25.5		%	22.0		%	24.1		%	25.5		%

The Medical segment's operating income is driven by its performance with respect to gross profit margin and operating expenses. Gross profit margin was higher in the current quarter as compared with the third quarter of 2015 primarily due to lower manufacturing costs resulting from continuous improvement projects improving the efficiency of our operations and lower raw material costs, partially offset by unfavorable foreign currency translation. Selling and administrative expense for the third quarter of fiscal year 2016 was lower primarily due to the suspension of the medical device excise tax imposed under the U.S. Patient Protection Affordable Care Act. Research and development expenses for the quarter increased $18 million, or 19% above the prior year’s period, which reflected increased investment in new products and platforms.

Life Sciences Segment

The following is a summary of third quarter Life Sciences revenues by organizational unit, as well as third quarter Life Sciences sales of safety-engineered products:



	Three months ended June 30,
(Millions of dollars)	2016		2015		Total Change		Estimated FX Impact		FXN Change
Preanalytical Systems	$	366	$	349	4.8	%	(1.8	)%	6.6	%
Diagnostic Systems	327		302		8.2	%	(1.3	)%	9.5	%
Biosciences	270		269		0.4	%	(0.8	)%	1.2	%
Total Life Sciences Revenues	$	963	$	921	4.6	%	(1.4	)%	6.0	%

Life Sciences segment safety-engineered products	$	291	$	275	5.9	%	(1.7	)%	7.6	%

The Preanalytical Systems unit's revenue growth was driven by U.S. and international sales of safety-engineered products. Growth in the Diagnostic Systems unit was driven by core microbiology sales, including BD Kiestra ^TM installations, and sales of molecular diagnostic platforms during the quarter. The Biosciences unit’s third quarter revenues reflected pressure on sales of HIV-related clinical products in Africa and delayed government funding, primarily in Western Europe and Japan, offset by growth in sales of research instruments in the United States and global sales of research reagents.

Life Sciences segment total revenues and sales of safety-engineered products for the nine-month period were as follows:



	Nine months ended June 30,
(Millions of dollars)	2016		2015		Total Change		Estimated FX Impact		FXN Change
Total Life Sciences Revenues	$	2,832	$	2,845	(0.5	)%	(4.2	)%	3.7	%

Life Sciences segment safety-engineered products	$	829	$	822	0.9	%	(4.5	)%	5.4	%

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



	Three months ended June 30,						Nine months ended June 30,
(Millions of dollars)	2016			2015			2016			2015
Life Sciences segment operating income	$	200		$	197		$	604		$	610

Segment operating income as % of Life Sciences revenues	20.8		%	21.4		%	21.3		%	21.4		%

The Life Sciences segment's operating income is driven by its performance with respect to gross profit margin and operating expenses. Gross profit margin in the third quarter of fiscal year 2016 was lower compared with the third quarter of 2015 primarily due to the unfavorable impact of foreign currency translation, partially offset by lower manufacturing costs resulting from continuous improvement projects improving the efficiency of our operations. Selling and administrative expense as a percentage of Life Sciences revenues in the third quarter of 2016 was also lower compared to the prior-year period primarily due to the suspension of the medical device excise tax. Research and development expense in the third quarter of 2016 increased by $7 million, or 10% above the prior year’s period, which reflected increased investment in new products and platforms.

Geographic Revenues

BD’s worldwide third quarter revenues by geography were as follows:



	Three months ended June 30,
(Millions of dollars)	2016		2015		Total Change		Estimated FX Impact		FXN Change
United States	$	1,735	$	1,693	2.5	%	—		2.5	%
International	1,463		1,427		2.5	%	(2.1	)%	4.6	%
Total Revenues	$	3,198	$	3,120	2.5	%	(0.9	)%	3.4	%

U.S. revenues reflected growth from both segments. The Medical segment's U.S. revenues reflected growth in sales of the Diabetes Care unit's pen needles as well as growth from the Medication Management Solutions unit's dispensing equipment and infusion systems. U.S. revenue growth in the Medical segment also reflected sales of self-injection systems and safety-engineered products in the Pharmaceutical Systems unit. U.S. growth in the Respiratory Solutions unit was negatively impacted by the termination of a distribution contract, as previously discussed. U.S. Life Sciences revenue growth in the third quarter of fiscal year 2016 was driven by sales of the Preanalytical Systems unit's products as well as the Diagnostic Systems unit's blood culture and molecular diagnostic platforms. U.S. Life Sciences revenue growth also reflected research instrument placements and research reagent sales in the Biosciences unit.

The Medical segment's international revenue growth was driven by sales in China and by sales of safety-engineered products. The Medication Management Solutions unit's international revenue growth was driven by dispensing equipment installations. International revenue growth in the Medical segment was negatively impacted by the timing of orders in the Pharmaceutical Systems unit and by the timing of the Respiratory Solutions unit's capital placements, as previously discussed. The Life Sciences segment's third quarter international revenue growth reflected the Diagnostic Systems unit's BD Kiestra ^TM installations in Western Europe as well as sales of core microbiology products and cervical cancer-related product offerings. The Preanalytical Systems unit's international revenue growth was driven by sales of safety-engineered products in all regions. International revenue growth in the Biosciences unit was negatively impacted by the previously discussed funding delays and pressure on sales of HIV-related clinical products in Africa.

Effective October 1, 2015, we changed the composition of countries that we define as emerging markets within the Asia Pacific region. On this redefined basis, emerging market revenues for the third quarter were $485 million, compared with $491 million in the prior year’s quarter, and included an estimated $31 million unfavorable impact due to foreign currency translation. Third quarter revenue growth in emerging markets reflected growth in China and Latin America, partially offset by declines in the Middle East and Africa.

Specified Items

Reflected in the financial results for the three and nine -month periods of fiscal years 2016 and 2015 are the following specified items:



	Three months ended June 30,					Nine months ended June 30,
(Millions of dollars)	2016		2015			2016		2015
Financing costs (A)	$	—	$	5		$	—	$	107
Transaction costs (A)	7		9			7		52
Integration costs (A)	40		24			115		55
Restructuring costs (A)	49		75			198		136
Purchase accounting adjustments (B)	127		439			395		466
Pension settlement charges	3		—			3		—
Other (C)	—		(5		)	—		7
Total specified items	226		548			718		824
Tax impact of specified items	106		169			270		277
After-tax impact of specified items	$	120	$	379		$	449	$	547


(A)	Represents financing, transaction, integration and restructuring costs substantially associated with the CareFusion acquisition and portfolio rationalization. The financing costs were recorded in Interest expense . The transaction, integration and restructuring costs were recorded in Acquisitions and other restructurings .

(B)

Primarily represents non-cash amortization expense associated with acquisition-related identifiable intangible assets. BD’s amortization expense is primarily recorded in Costs of products sold . The adjustment in the nine-month period of fiscal year 2016 also included a net decrease in the fair value of certain contingent consideration liabilities of $26 million. The adjustments in the three and nine -month periods of fiscal year 2015 also included a fair value step-up adjustment of $281 million recorded relative to CareFusion’s inventory on the acquisition date. The adjustment for the nine months ended June 30, 2015 additionally reflected a pre-tax acquisition-date accounting gain of $9 million on a previously held investment.

(C)

The adjustments in the three and nine-month periods ended June 30, 2015 include a decrease to the liability for employee termination costs recorded relative to workforce reduction actions taken in the fourth quarter of fiscal year 2014. The adjustment in the nine-month period additionally includes a charge for plaintiff attorneys’ fees, recorded in Selling and administrative expense, associated with 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.

Gross Profit Margin

Gross profit margin for the three and nine -month periods of fiscal year 2016 compared with the prior-year periods in 2015 reflected the following impacts:



	Three-month period		Nine-month period
June 30, 2015 gross profit margin %	37.6	%	45.2	%
CareFusion acquisition-related asset depreciation and amortization	9.4	%	0.4	%
Operating performance	2.0	%	3.0	%
Foreign currency translation	(0.6	)%	(0.6	)%
June 30, 2016 gross profit margin %	48.4	%	48.0	%

Gross profit margin in the current-year periods benefited from a favorable comparison to the prior-year periods, which reflected the recognition of a fair value step-up adjustment recorded relative to CareFusion’s inventory on the acquisition date, as previously discussed. The operating performance impacts for the current year's quarter and nine-month period primarily reflected lower manufacturing costs resulting from continuous improvement projects improving the efficiency of our operations, as well as lower raw material costs.

Operating Expenses

A summary of operating expenses for the three and nine months ended June 30, 2016 and 2015 is as follows:



	Three months ended June 30,						Increase (decrease) in basis points		Nine months ended June 30,						Increase (decrease) in basis points
	2016			2015			Increase (decrease) in basis points		2016			2015			Increase (decrease) in basis points
(Millions of dollars)
Selling and administrative expense	$	728		$	751				$	2,209		$	1,806
% of revenues	22.8		%	24.1		%	(130	)	23.9		%	25.0		%	(110	)

Research and development expense	$	207		$	178				$	575		$	436
% of revenues	6.5		%	5.7		%	80		6.2		%	6.0		%	20

Acquisitions and other restructurings	$	96		$	108				$	321		$	244

Selling and administrative expense

Selling and administrative expense as a percentage of revenues in the current year’s three and nine -month periods reflected cost synergies resulting from the CareFusion acquisition as well as the benefit from suspension of the medical device excise tax, as previously discussed. Selling and administrative expense as a percentage of revenues in the current year’s nine-month period also reflected favorable foreign currency translation, partially offset by the unfavorable impact of depreciation recorded in the first half of the fiscal year relating to fixed assets acquired in the CareFusion acquisition.

Research and development expense

The increase in research and development expense for the three-month period of fiscal year 2016 compared with the prior-year period in 2015 primarily reflected the timing of project spending and an increase in the number of ongoing projects. Research and development expense for nine-month period of fiscal year 2016 was also higher compared with the prior-year period due to the inclusion of CareFusion’s research and development expenses in the Company's results during the first half of fiscal year 2016.

Acquisitions and other restructurings

Costs relating to acquisitions and other restructurings in the three and nine -month periods represented transaction, integration and restructuring costs substantially associated with the CareFusion acquisition and portfolio rationalization. The transaction and integration costs specifically included advisory, legal, and other costs substantially incurred in connection with the CareFusion acquisition. For further disclosures regarding the restructuring costs, refer to Note 11 in the Notes to Condensed Consolidated Financial Statements.

Net Interest Expense

The components of net interest expense for the three and nine -month periods were as follows:



	Three months ended June 30,						Nine months ended June 30,
(Millions of dollars)	2016			2015			2016			2015
Interest expense	$	(97	)	$	(105	)	$	(293	)	$	(272	)
Interest income	5			2			14			20
Net interest expense	$	(92	)	$	(103	)	$	(279	)	$	(252	)

The decrease in interest expense for the three-month period of fiscal year 2016 compared with the prior year's period primarily reflected a favorable comparison to the prior-year period, which included fees incurred to exchange CareFusion notes assumed in the acquisition for BD notes. The increase in interest expense for the nine-month period of fiscal year 2016 reflected increased financing costs, recorded in the first half of fiscal year 2016, associated with the CareFusion acquisition, partially offset by favorable amortization of the acquisition-date fair value-step, recorded in the first half of fiscal year 2016, on CareFusion’s long-term debt. This net year-to-date increase in financing costs relating to the CareFusion acquisition was partially offset by the prior-year impact of fees incurred to exchange CareFusion's notes, as discussed above, and commitment fees incurred for a bridge loan facility that was terminated in March 2015.

The increase in interest income for the three-month period of fiscal year 2016 compared with the prior year’s period primarily reflected the realization of investment gains on assets related to our deferred compensation plans, compared with the realization

of losses in the prior year's quarter. The decrease in interest income for the nine-month period of fiscal year 2016 reflected lower cash levels outside of the United States, partially offset by higher investment gains on assets related to our deferred compensation plans. The offsetting movements in the deferred compensation plan liability were recorded in Selling and administrative expense .

Income Taxes

The income tax rates for the three and nine -month periods are provided below. The tax benefits of the specified items shown earlier reduced the current and prior-year periods' income tax rates, as the tax benefits on these specified items were primarily incurred in higher tax jurisdictions. The income tax rates for the current-year periods are higher compared with the prior periods' rates as the specified charges incurred in the current-year periods were lower compared with charges incurred in the prior-year periods.



	Three months ended June 30,				Nine months ended June 30,
	2016		2015		2016		2015
Effective income tax rate	7.6	%	(60.0	)%	10.1	%	6.4	%

Favorable impact, in basis points, from tax benefits of specified items	1,370		8,480		1,100		1,630

Net Income and Diluted Earnings per Share

Net Income and Diluted Earnings per Share for the three and nine -month periods were as follows:



	Three months ended June 30,						Nine months ended June 30,
	2016			2015			2016			2015
Net Income (Millions of dollars)	$	390		$	62		$	958		$	514
Diluted Earnings per Share	$	1.80		$	0.29		$	4.41		$	2.52

Unfavorable impact-specified items	$	(0.55	)	$	(1.76	)	$	(2.07	)	$	(2.68	)
Unfavorable impact-foreign currency translation	$	(0.10	)				$	(0.51	)

Liquidity and Capital Resources

The following table summarizes our consolidated statement of cash flows:



	Nine months ended June 30,
(Millions of dollars)	2016			2015
Net cash provided by (used for)
Operating activities	$	1,854		$	1,052
Investing activities	$	(318	)	$	(8,003	)
Financing activities	$	(1,276	)	$	6,667

Net Cash Flows from Operating Activities

Cash generated from operations, along with available cash and cash equivalents, is expected to be sufficient to fund our normal operating needs for the remainder of fiscal year 2016 . Normal operating needs in fiscal year 2016 include working capital, capital expenditures, and cash dividends. The change in net cash provided by operating activities was primarily attributable to income from continuing operations, as adjusted for depreciation and amortization and other non-cash items. The current period change in operating assets and liabilities was a net use of cash and primarily reflected higher levels of accounts receivables and lower levels of accounts payable and accrued expenses, partially offset by lower levels of prepaid expenses and financing receivables. Net cash provided by operating activities in the first nine months of fiscal year 2015 was reduced by a discretionary cash contribution of $40 million to fund our pension obligation.

Net Cash Flows from Investing Activities

Capital expenditures were $405 million in the first nine-month s of fiscal year 2016 compared with $387 million in the prior-year period. Net cash used for investing activities in the current-year period reflected $ 158 million of proceeds from the sales

of non-core assets. Net cash used for investing activities in the prior-year period reflected cash outflows of $8.3 billion related to our acquisition of CareFusion and other smaller acquisitions occurring in the prior-year period. These cash outflows in the prior-year period were partially offset by sales of investments of $837 million due to the maturities of time deposits in Europe, Latin America and Asia Pacific.

Net Cash Flows from Financing Activities

Net cash used for financing activities in the first nine-month s of fiscal year 2016 included a net $150 million reduction of our commercial paper program balance and the third quarter repayment of $750 million of floating rate notes due on June 15, 2016. Net cash provided by financing activities in the prior-year period included the proceeds from $6.2 billion of notes issued in December 2014 as well as $850 million 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.

Debt-related Activities

Certain measures relating to our total debt were as follows:



(Millions of dollars)	June 30, 2016			September 30, 2015
Total debt	$	11,913		$	12,822

Short-term debt as a percentage of total debt	11.3		%	11.3		%
Weighted average cost of total debt	3.5		%	3.3		%
Total debt as a percentage of total capital*	56.0		%	59.4		%

* Represents shareholders’ equity, net non-current deferred income tax liabilities, and debt.

The ratio of short-term debt as a percentage of total debt at June 30, 2016 reflected the reclassifications, from long-term debt to short-term debt, of $500 million of 1.75% notes due on November 8, 2016 and $300 million of 1.450% notes due May 15, 2017, offset by the repayment of $750 million of floating rate notes, as previously discussed. The ratio of debt as a percentage of total capital at September 30, 2015 reflects adjustments to the condensed consolidated balance sheet resulting from our adoption of revised presentation requirements relating to deferred taxes. Additional information regarding this adoption is provided in Note 2 in the Notes to Condensed Consolidated Financial Statements.

Cash and Short-term Investments

At June 30, 2016 , total worldwide cash and short-term investments were approximately $1.70 billion , of which $1.25 billion was held in jurisdictions outside of the United States. We regularly review the amount of cash and short-term investments held outside the United States and currently intend to use such amounts to fund our international operations and their growth initiatives. In addition, if these amounts were repatriated from foreign jurisdictions to the United States, there could be adverse tax consequences.

Credit Facilities

We have in place a commercial paper borrowing program which is available to meet our short-term financing needs, including working capital requirements. In February 2016, we increased the size of this program by $500 million so that it allows us to issue a maximum of $1.5 billion in notes. Borrowings outstanding under this program were $550 million at June 30, 2016 , which reflected a net reduction of $150 million from our outstanding balance of commercial paper borrowings at September 30, 2015, as previously discussed.

In January 2016, we replaced an existing $1 billion syndicated credit facility with a $1.5 billion syndicated credit facility that has an expiration date of January 2021. There were no borrowings outstanding under this credit facility at June 30, 2016 . The credit facility, under which we may issue up to $100 million in letters of credit, provides backup support for our commercial paper program and can also be used for other general corporate purposes. It includes a provision that enables BD, subject to additional commitments made by the lenders, to access up to an additional $500 million in financing through the facility for a maximum aggregate commitment of $2 billion. The credit facility includes a single financial covenant that requires BD to maintain an interest expense coverage ratio of not less than 5-to-1 for the most recent four consecutive fiscal quarters. We were in compliance with this covenant as of June 30, 2016 . We also have informal lines of credit outside the United States.

Concentrations of Credit Risk

We continually evaluate our accounts receivables for potential collection risks, particularly those resulting from sales to government-owned or government-supported healthcare facilities in certain countries, as payment may be dependent upon the

financial stability and creditworthiness of those countries’ national economies. We continually evaluate all governmental receivables for potential collection risks associated with the availability of government funding and reimbursement practices. We believe the current reserves related to all governmental receivables are adequate and that these receivables will not have a material adverse impact on our financial position or liquidity.

Cautionary Statement Regarding Forward-Looking Statements

BD and its representatives may from time to time make certain forward-looking statements in publicly released materials, both written and oral, including statements contained in filings with the Securities and Exchange Commission, press releases, and our reports to shareholders. Forward-looking statements may be identified by the use of words such as “plan,” “expect,” “believe,” “intend,” “will,” “anticipate,” “estimate” and other words of similar meaning in conjunction with, among other things, discussions of future operations and financial performance, as well as our strategy for growth, product development, regulatory approvals, market position and expenditures. All statements that address operating performance or events or developments that we expect or anticipate will occur in the future – including statements relating to volume growth, sales and earnings per share growth, cash flows or uses, and statements expressing views about future operating results – are forward-looking statements.

Forward-looking statements are based on our current expectations of future events. The forward-looking statements are, and will be, based on management’s then-current views and assumptions regarding future events, developments and operating performance, and speak only as of their dates. Investors should realize that if underlying assumptions prove inaccurate or unknown risks or uncertainties materialize, actual results could vary materially from our expectations and projections. Investors are therefore cautioned not to place undue reliance on any forward-looking statements. Furthermore, we undertake no obligation to update or revise any forward-looking statements after the date they are made, whether as a result of new information, future events and developments or otherwise, except as required by applicable law or regulations.

The following are some important factors that could cause our actual results to differ from our expectations in any forward-looking statements. For further discussion of certain of these factors, see Item 1A. Risk Factors in our 2015 Annual Report on Form 10-K.


•	Weakness in the global economy and financial markets, and the potential adverse effect on the cost of operating our business, the demand for our products and services, the prices for our products and services due to increases in pricing pressure, or our ability to produce our products, including the impact on developing countries.


•	Deficit reduction efforts or other adverse changes in the availability of government funding for healthcare and research that could further weaken demand for our products and result in additional pricing pressures, as well as create potential collection risks associated with such sales.

•

Risks relating to our acquisition of CareFusion, including our ability to successfully combine and integrate the CareFusion operations in order to obtain the anticipated benefits and costs savings from the transaction, and the significant additional indebtedness we incurred in connection with the financing of the acquisition and the impact this increased indebtedness may have on our ability to operate the combined company.


•	The consequences of the Patient Protection and Affordable Care Act in the United States, which implemented an excise tax on U.S. sales of certain medical devices (which has been suspended until January 1, 2018), and which could result in reduced demand for our products, increased pricing pressures or otherwise adversely affect our business.


•	Future healthcare reform in the countries in which we do business that may involve changes in government pricing and reimbursement policies or other cost containment reforms.

•

Changes in domestic and foreign healthcare industry practices that result in a reduction in procedures using our products or increased pricing pressures, including the continued consolidation among healthcare providers and trends toward managed care and healthcare cost containment. For example, changes to guidelines providing for increased cervical cancer screening intervals has and may continue to negatively impact sales of our Women’s Health and Cancer platform.


•	Changes in reimbursement practices of private third-party payers.

•

Our ability to penetrate or expand our operations in emerging markets, which depends on local economic and political conditions, and how well we are able to acquire or form strategic business alliances with local companies and make necessary infrastructure enhancements to production facilities and distribution networks. Our international operations also increase our compliance risks, including risks under the Foreign Corrupt Practices Act and other anti-corruption laws.


•	Political conditions in international markets, including civil unrest, terrorist activity, governmental changes, trade barriers, restrictions on the ability to transfer capital across borders and expropriation of assets by a government.

•

Security breaches of our computer and communications systems or our products, including computer viruses, “hacking” and “cyber-attacks,” which could impair our ability to conduct business, result in the loss of BD trade secrets or otherwise compromise sensitive information of BD or its customers, suppliers and other business partners, or of customers' patients, or result in product efficacy or safety concerns.


•	Fluctuations in the cost and availability of oil-based resins and other raw materials, as well as certain components, the ability to maintain favorable supplier arrangements and relationships (particularly with respect to sole-source suppliers), and the potential adverse effects of any disruption in the availability of such items.

•

Regional, national and foreign economic factors, including inflation, deflation, fluctuations in interest rates and, in particular, foreign currency exchange rates, and the potential effect on our revenues, expenses, margins and credit ratings. The June 23, 2016 advisory referendum by British voters to exit the European Union (“EU”) has created uncertainties affecting business operations in the United Kingdom (“UK”) and the EU. Following the vote, there was a significant decline in the value of the British pound compared to the U.S. dollar, and there may be continued volatility in exchange rates and economic conditions as the UK negotiates its exit from the EU. Until the terms and timing of the UK’s exit from the EU are determined, it is difficult to predict its impact. It is possible that the referendum and proposed withdrawal could, among other things, affect the legal and regulatory schemes to which our businesses are subject, impact trade between the UK and the EU and other parties and create economic uncertainty in the region.

•

New or changing laws and regulations affecting our domestic and foreign operations, or changes in enforcement practices, including laws relating to trade, monetary and fiscal policies, taxation (including tax reforms that could adversely impact multinational corporations), sales practices, environmental protection, price controls and licensing and regulatory requirements for new products and products in the postmarketing phase. In particular, the U.S. and other countries may impose new requirements regarding registration, labeling or prohibited materials that may require us to re-register products already on the market or otherwise impact our ability to market our products. Environmental laws, particularly with respect to the emission of greenhouse gases, are also becoming more stringent throughout the world, which may increase our costs of operations or necessitate changes in our manufacturing plants or processes or those of our suppliers, or result in liability to BD.

•

Product efficacy or safety concerns regarding our products resulting in product recalls, regulatory action on the part of the U.S. Food and Drug Administration (FDA) or foreign counterparts, declining sales and product liability claims, particularly in light of the current regulatory environment, in which there has been increased enforcement activity by the FDA. As a result of the CareFusion acquisition, we are operating under a consent decree with the FDA relating to our U.S. infusion pump business. The consent decree authorizes the FDA, in the event of any violations in the future, to order us to cease manufacturing and distributing products, recall products or take other actions, and we may be required to pay significant monetary damages if we fail to comply with any provision of the consent decree.

•

Competitive factors that could adversely affect our operations, including new product introductions (for example, new forms of drug delivery) by our current or future competitors, increased pricing pressure due to the impact of low-cost manufacturers as certain competitors have established manufacturing sites or have contracted with suppliers in low-cost manufacturing locations as a means to lower their costs, patents attained by competitors (particularly as patents on our products expire), and new entrants into our markets.


•	The effects of events that adversely impact our ability to manufacture our products (particularly where production of a product line is concentrated in one or more plants) or our ability to source materials or components from suppliers (including sole-source suppliers) that are needed for such manufacturing, including pandemics, natural disasters, or environmental factors.

•

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.


•	Fluctuations in the demand for products we sell to pharmaceutical companies that are used to manufacture, or are sold with, the products of such companies, as a result of funding constraints, consolidation or otherwise.


•	Fluctuations in university or U.S. and international governmental funding and policies for life sciences research.


•	Our ability to achieve our projected level or mix of product sales, as our earnings forecasts are based on projected sales volumes and pricing of many product types, some of which are more profitable than others.


•	Pending and potential future litigation or other proceedings adverse to BD, including antitrust, product liability, environmental and patent infringement, and the availability or collectability of insurance relating to any such claims.


•	The effect of adverse media exposure or other publicity regarding BD’s business or operations, including the effect on BD’s reputation or demand for its products.


•	The effect of market fluctuations on the value of assets in BD’s pension plans and on actuarial interest rate and asset return assumptions, which could require BD to make additional contributions to the plans or increase our pension plan expense.


•	The impact of business combinations, including any volatility in earnings relating to acquired in-process research and development assets, and our ability to successfully integrate any business we may acquire.


•	Our ability to obtain the anticipated benefits of restructuring programs, if any, that we may undertake.


•	Issuance of new or revised accounting standards by the Financial Accounting Standards Board or the Securities and Exchange Commission.

The foregoing list sets forth many, but not all, of the factors that could impact our ability to achieve results described in any forward-looking statements. Investors should understand that it is not possible to predict or identify all such factors and should not consider this list to be a complete statement of all potential risks and uncertainties.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

There have been no material changes in information reported since the end of the fiscal year ended September 30, 2015.

Item 4. Controls and Procedures

An evaluation was carried out by BD’s management, with the participation of BD’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of BD’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934) as of June 30, 2016 . Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the design and operation of these disclosure controls and procedures were, as of the end of the period covered by this report, effective and designed to ensure that material information relating to BD and its consolidated subsidiaries would be made known to them by others within these entities. There were no changes in our internal control over financial reporting during the fiscal quarter ended June 30, 2016 identified in connection with the above-referenced evaluation that have materially affected, or are reasonably likely to materially affect, BD’s internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

We are involved, both as a plaintiff and a defendant, in various legal proceedings which arise in the ordinary course of business, including product liability and environmental matters as set forth in our 2015 Annual Report on Form 10-K and in Note 5 of the Notes to Condensed Consolidated Financial Statements in this report. Since March 31, 2016, there have been no material developments with respect to the legal proceedings in which we are involved.

Summary

Given the uncertain nature of litigation generally, BD is not able in all cases to estimate the amount or range of loss that could result from an unfavorable outcome of the litigation to which BD is a party. In accordance with U.S. generally accepted accounting principles, BD establishes accruals to the extent probable future losses are estimable (in the case of environmental matters, without considering possible third-party recoveries). In view of the uncertainties discussed above, BD could incur charges in excess of any currently established accruals and, to the extent available, excess liability insurance. In the opinion of management, any such future charges, individually or in the aggregate, could have a material adverse effect on BD’s consolidated results of operations and consolidated cash flows.

Item 1A. Risk Factors

There were no material changes in the risk factors previously disclosed in Part I, Item 1A, of our 2015 Annual Report on Form 10-K during the period covered by this report.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The table below sets forth certain information regarding our purchases of common stock of BD during the quarter ended June 30, 2016 .

Issuer Purchases of Equity Securities



For the three months ended June 30, 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)
April 1 – 30, 2016	2,063	$	152.84	—	9,147,060
May 1 – 31, 2016	571	160.82		—	9,147,060
June 1 – 30, 2016	—	—		—	9,147,060
Total	2,634	$	154.57	—	9,147,060


(1)	Represents 2,634 shares purchased during the quarter in open market transactions by the trust relating to BD’s Deferred Compensation and Retirement Benefit Restoration Plan and 1996 Directors’ Deferral Plan.


(2)	Any repurchases would be made pursuant to the repurchase program authorized by the Board of Directors on September 24, 2013 for 10 million shares, for which there is no expiration date.

Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

Not applicable.

Item 6. Exhibits


Exhibit 3.1	By-laws, as amended and restated as of July 26, 2016 (incorporated by reference to Exhibit 3.1 of the registrant’s Current Report on Form 8-K filed July 28, 2016).


Exhibit 31	Certifications of Chief Executive Officer and Chief Financial Officer, pursuant to SEC Rule 13a - 14(a).


Exhibit 32	Certifications of Chief Executive Officer and Chief Financial Officer, pursuant to Rule 13a - 14(b) and Section 1350 of Chapter 63 of Title 18 of the U.S. Code.


Exhibit 101	The following materials from this report, formatted in XBRL (Extensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Income, (iii) the Condensed Consolidated Statements of Comprehensive Income, (iv) the Condensed Consolidated Statements of Cash Flows, and (v) Notes to Condensed Consolidated Financial Statements.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



	Becton, Dickinson and Company
	(Registrant)

Dated: August 4, 2016



	/s/ Christopher Reidy
	Christopher Reidy
	Executive Vice President, Chief Financial Officer and Chief Administrative Officer
	(Principal Financial Officer)

	/s/ John Gallagher
	John Gallagher
	Senior Vice President, Corporate Finance, Controller and Treasurer
	(Principal Accounting Officer)

INDEX TO EXHIBITS



Exhibit Number		Description of Exhibits

3.1		By-laws, as amended and restated as of July 26, 2016 (incorporated by reference to Exhibit 3.1 of the registrant’s Current Report on Form 8-K filed July 28, 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.

TABLE OF CONTENTS

Item 1. Financial Statementsprint Note 1 Basis Of Presentationprint Note 2 Accounting Changesprint Note 3 Accumulated Other Comprehensive Income (loss)print Note 4 Earnings Per Shareprint Note 5 Contingenciesprint Note 6 Segment Dataprint Note 7 Share-based Compensationprint Note 8 Benefit Plansprint Note 9 Acquisitionprint Note 10 Divestitureprint Note 11 Business Restructuring Chargesprint Note 12 Intangible Assetsprint Note 13 Derivative Instruments and Hedging Activitiesprint Note 14 Financial Instruments and Fair Value Measurementsprint Item 2. Management S Discussion and Analysis Of Financial Condition and Results Of Operationsprint Item 3. Quantitative and Qualitative Disclosures About Market Riskprint Item 4. Controls and Proceduresprint Part II - Other Informationprint Item 1. Legal Proceedingsprint Item 1A. Risk Factorsprint Item 2. Unregistered Sales Of Equity Securities and Use Of Proceedsprint Item 3. Defaults Upon Senior Securitiesprint Item 4. Mine Safety Disclosuresprint Item 5. Other Informationprint Item 6. Exhibitsprint

Customer name	Ticker
Amgen Inc.	AMGN
Amgen Inc.	AMGN
Laboratory Corporation of America Holdings	LH
Quest Diagnostics Incorporated	DGX

Supplier name	Ticker
Thermo Fisher Scientific Inc.	TMO
Exxon Mobil Corporation	XOM
Chevron Corporation	CVX
Illinois Tool Works Inc.	ITW
Veeva Systems Inc.	VEEV
Boston Scientific Corporation	BSX
Dow Inc.	DOW
Corning Incorporated	GLW

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company