The following commentary should be read in conjunction with the condensed consolidated financial statements and accompanying notes presented in this report. Within the tables presented throughout this discussion, certain columns may not add due to the use of rounded numbers for disclosure purposes. Percentages and earnings per share amounts presented are calculated from the underlying amounts. References to years throughout this discussion relate to our fiscal years, which end on
September 30. Company Overview Becton, Dickinson and Company("BD") is a global medical technology company engaged in the development, manufacture and sale of a broad range of medical supplies, devices, laboratory equipment and diagnostic products used by healthcare institutions, physicians, life science researchers, clinical laboratories, the pharmaceutical industry and the general public. The Company's organizational structure is based upon three principal business segments, BD Medical ("Medical"), BD Life Sciences ("Life Sciences") and BD Interventional ("Interventional"). BD's products are manufactured and sold worldwide. Our products are marketed in the United Statesand internationally through independent distribution channels and directly to end-users by BD and independent sales representatives. We organize our operations outside the United Statesas follows: EMEA (which includes Europe, the Middle Eastand Africa); Greater Asia(which includes countries in Greater China, Japan, South Asia, Southeast Asia, Korea, Australia and New Zealand); Latin America(which includes Mexico, Central America, the Caribbeanand 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 Americaand certain countries within Greater Asia. We are primarily focused on certain countries whose healthcare systems are expanding. BD's Intention to Spin Off Diabetes Care On May 6, 2021, we announced our intention to spin off our Diabetes Care business as a separate publicly traded company, Embecta, to BD's shareholders. The Company believes that as an independent, publicly traded entity, the Diabetes Care business will be positioned to more effectively allocate its capital and operational resources with a dedicated growth strategy. Additional disclosures regarding our planned spin-off of the Diabetes Care business are provided in Note 1 in the Notes to Condensed Consolidated Financial Statements. COVID-19 Pandemic Impacts and Response A novel strain of coronavirus disease ("COVID-19") was officially declared a pandemic by the World Health Organizationin March 2020and governments around the world have implemented various measures to slow and control the ongoing spread of COVID-19. Over the course of the pandemic, these government measures, as well as ongoing shifts in healthcare priorities, have unfavorably impacted demand for certain of our products. Our first quarter fiscal year 2022 revenues reflected an unfavorable comparison to the prior-year quarter, which substantially benefited from sales related to COVID-19 diagnostic testing on the BD VeritorTM Plus and BD MaxTM Systems. The factors that affected our revenue growth in the first quarter of our fiscal year 2022, including those related to the COVID-19 pandemic, are discussed in greater detail further below. Due to the significant uncertainty that exists relative to the duration and overall impact of the COVID-19 pandemic, our future operating performance, particularly in the short-term, may be subject to volatility. While non-acute utilization rates for most of our products have largely recovered compared to pre-pandemic levels, resurgences in COVID-19 infections or new strains of the virus may weaken future demand for certain of our products and/or disrupt our operations. We also continue to see challenges posed by the pandemic to multiple aspects of our supply chain, including the cost and availability of raw materials, as well as cost impacts and logistical challenges affecting freight around the globe. We have also experienced staffing challenges due to higher rates of absenteeism which have been driven by the spread of the Omicron variant. Our suppliers are also experiencing higher rates of absenteeism, impacting the availability of certain raw materials and components. Additionally, the prevalence of the Omicron variant has resulted in hospital staffing shortages which has affected, and may continue to affect, the prioritization of acute and non-acute healthcare utilization. The United Statesand other governments may enact or use laws and regulations, such as the Defense Production Act or export restrictions, to ensure availability of needed COVID-19 testing and vaccination delivery devices. Any such action may impact our global supply chain network. The impacts of the COVID-19 pandemic on our business, results of operations, financial condition and cash flows is dependent on certain factors including: •The extent to which resurgences in COVID-19 infections or new strains of the virus, including the Delta and Omicron variants, result in future deferrals of elective medical procedures and/or the extent to which the imposition of new 19 -------------------------------------------------------------------------------- governmental lockdowns, quarantine requirements or other restrictions may weaken demand for certain of our products and/or disrupt our operations; •The degree to which the pandemic has escalated challenges that existed for global healthcare systems prior to the pandemic, such as staffing shortages, including nursing shortages, and budget constraints; •The continued momentum of the global economy's recovery from the pandemic and the degree of pressure that a weakened macroeconomic environment would put on future healthcare utilization and the global demand for our products. We remain focused on partnering with governments, healthcare systems, and healthcare professionals to navigate the COVID-19 pandemic. This focus includes providing access to our SARS-CoV-2 diagnostics tests and injection devices for global vaccination campaigns, as well as supplying products and solutions for ongoing care for patients around the world. We have also remained focused on protecting the health and safety of BD employees while ensuring continued availability of BD's critical medical devices and technologies during these unprecedented times. Overview of Financial Results and Financial Condition For the three months ended December 31, 2021, worldwide revenues of $4.995 billiondecreased 6.0% from the prior-year period. This decrease reflected the following impacts:
Increase (decrease) in the current period
Volume 5.8 %
Lower period-over-period revenue related to COVID-19 testing
(12.8) % Pricing 1.1 % Foreign currency translation (0.1) % Decrease in revenues from the prior-year period (6.0) % . The period-over-period decline in the Life Sciences segment's Integrated Diagnostic Solutions unit's sales related to COVID-19 diagnostic testing on the BD VeritorTM Plus and BD MaxTM Systems reflected current-period testing revenues of
$185 million, compared with sales of testing products in the prior-year period of $866 million. Volume growth in the first quarter of fiscal year 2022 was driven by demand for our core products as follows: •Medical segment revenues were primarily driven by strong demand in the Medication Delivery Solutions and Pharmaceutical Systems units. •The Life Sciences segment revenues reflected strong demand for core products in the Integrated Diagnostic Solutions and Biosciences units. •Interventional segment revenues reflected strong demand in the Surgery and Urology and Critical Care units, which was partially offset by a decline in the Peripheral Intervention unit. Our BD 2025 strategy for growth is anchored in three pillars: grow, simplify and empower. As we execute this strategy, we continue to invest in research and development, strategic tuck-in acquisitions, geographic expansion, and new product programs to drive further revenue and profit growth. Our ability to sustain our long-term growth will depend on a number of factors, including our ability to expand our core business (including geographical expansion), develop innovative new products, and continue to improve operating efficiency and organizational effectiveness. As discussed above, current global economic conditions remain relatively volatile due to the COVID-19 pandemic. In addition, an inability to increase or maintain selling prices globally could adversely impact our businesses. Also, we are experiencing challenges related to global transportation channels and supply chains. These challenges have subjected certain of our costs, specifically raw material and freight costs, to inflationary pressures, which have unfavorably impacted our gross profit and operating margins. Additional discussion regarding the impacts of these inflationary pressures on our operating results for the three months ended December 31, 2021is provided further below. Cash flows from operating activities were $674 millionin the first three months of fiscal year 2022. At December 31, 2021, we had $2.054 billionin cash and equivalents and short-term investments, including restricted cash. We continued to return value to our shareholders in the form of dividends. During the first three months of fiscal year 2022, we paid cash dividends of $271 million, including $248 millionpaid to common shareholders and $23 millionpaid to preferred shareholders. Each reporting period, we face currency exposure that arises from translating the results of our worldwide operations to the U.S.dollar at exchange rates that fluctuate from the beginning of such period. A stronger U.S.dollar, compared to the prior-year period, resulted in an unfavorable foreign currency translation impact to our revenues during the first quarter of fiscal year 2022. A favorable foreign currency impact to our earnings during the first quarter of fiscal year 2022 resulted from current- 20 -------------------------------------------------------------------------------- period sales of inventory recorded on our consolidated balance sheet in fiscal year 2021, when the U.S.dollar was weaker. 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 Medical Segment The following summarizes first quarter Medical revenues by organizational unit: Three months ended December 31, Estimated Total FX (Millions of dollars) 2021 2020 Change Impact FXN Change Medication Delivery Solutions $ 1,084 $ 1,0087.6 % 0.3 % 7.3 % Medication Management Solutions 627 630 (0.4) % 0.1 % (0.5) % Diabetes Care 289 285 1.3 % (0.3) % 1.6 % Pharmaceutical Systems 397 339 16.9 % (1.0) % 17.9 % Total Medical Revenues $ 2,397 $ 2,2616.0 % - % 6.0 % The Medication Delivery Solutions unit's revenue growth in the first quarter of 2022 reflected strong demand for core offerings driven by competitive gains within the U.S. market for catheters and vascular care products. In the Medication Management Solutions unit, an unfavorable comparison of revenues in the first quarter of 2022 to prior-period revenues, which benefited from global pandemic-related infusion pump orders, was partially offset by strong growth in global placements of dispensing systems. Revenues in the Diabetes Care unit benefited from the timing of U.S.orders. The Pharmaceutical Systems unit's revenue growth in the first quarter of 2022 was driven by demand for our pre-filled devices and is enabled by capacity expansion investments.
Medical segment revenues for the three-month period are shown below.
Three months ended December 31, (Millions of dollars) 2021 2020 Medical segment income $ 716
$ 666Segment income as % of Medical revenues 29.9 % 29.4 % The Medical segment's income in the first quarter was primarily driven by higher gross profit margin as discussed in greater detail below: •The Medical segment's higher gross profit margin in the first quarter of 2022 compared with the first quarter of 2021 primarily reflected the following: •Lower manufacturing costs resulting from continuous improvement projects which enhanced the efficiency of our operations, as well as favorable impacts from foreign currency translation, product mix and price initiatives; •Partially offset by the unfavorable impacts of higher raw material costs and product quality remediation expenses. 21 -------------------------------------------------------------------------------- •Selling and administrative expense as a percentage of revenues was higher in the first quarter of 2022 compared with the first quarter of 2021, which benefited from the curtailment of certain selling, travel and other administrative activities due to the COVID-19 pandemic in the prior year. •Research and development expense as a percentage of revenues was higher in the first quarter of 2022 compared with the first quarter of 2021, which reflected the timing of project spending and our continued reinvestment into the segment's growth initiatives. Life Sciences Segment The following summarizes first quarter Life Sciences revenues by organizational unit: Three months ended December 31, Estimated Total FX (Millions of dollars) 2021 2020 Change Impact FXN Change Integrated Diagnostic Solutions $ 1,145 $ 1,667(31.3) % (0.2) % (31.1) % Biosciences 338 312 8.6 % (0.4) % 9.0 % Total Life Sciences Revenues $ 1,483 $ 1,979(25.0) % (0.2) % (24.8) % As previously discussed above, the Integrated Diagnostic Solutions unit's revenues related to COVID-19 diagnostic testing on the BD VeritorTM Plus and BD MaxTM Systems in the first quarter of 2022 were $185 million, compared with revenues from testing products in the prior-year period of $866 million. The Integrated Diagnostic Solutions unit's first quarter revenues were favorably impacted by a recovery of routine lab testing to pre-pandemic levels, as well as high demand for the unit's combination influenza/COVID-19 testing assays. First quarter revenues in the Integrated Diagnostic Solutions unit also benefited from licensing revenues. The Biosciences unit's revenue growth in the first quarter of 2022 reflected strong demand for research reagents and instruments, including two recently launched BD FACSymphony™ instruments, which was driven by a return of lab utilization to normal levels and research efforts relating to COVID-19.
Life Sciences segment revenues for the three-month period are as follows:
Three months ended December 31, (Millions of dollars) 2021 2020 Life Sciences segment income $ 534
$ 972Segment income as % of Life Sciences revenues 36.0 % 49.1 % The Life Sciences segment's income in the first quarter was driven by lower gross profit margin and higher operating expenses as discussed in greater detail below: •The Life Sciences segment's lower gross profit margin in the first quarter of 2022 compared with the first quarter of 2021 primarily reflected the following: •The decline in COVID-19 testing revenues compared with the prior-year period, which benefited from substantially higher pricing of COVID-19 diagnostic tests; •Partially offset by favorable impacts from price initiatives relating to core products and licensing revenues in the current-year quarter. •Selling and administrative expense as a percentage of revenues was higher in the first quarter of 2022 compared with the first quarter of 2021, primarily due to the current-period decline in revenues. Higher selling and administrative expense as a percentage of revenues in the current-year period also reflected the curtailment of certain selling, travel and other administrative activities in the prior-year period due to the COVID-19 pandemic. •Research and development expense as a percentage of revenues was higher in the first quarter of 2022 compared with the first quarter of 2021, primarily due to the current-period decline in revenues and our continued reinvestment into the segment's growth initiatives. 22 -------------------------------------------------------------------------------- Interventional Segment The following summarizes first quarter Interventional revenues by organizational unit: Three months ended December 31, Estimated Total FX (Millions of dollars) 2021 2020 Change Impact FXN Change Surgery $ 361 $ 3328.8 % (0.1) % 8.9 % Peripheral Intervention 413 426 (2.9) % 0.2 % (3.1) % Urology and Critical Care 340 317 7.2 % (0.5) % 7.7 % Total Interventional Revenues $ 1,115 $ 1,0753.7 % (0.1) % 3.8 % First quarter 2022 revenue growth in the Surgery unit reflected strong sales of hernia, biosurgery and infection prevention platforms. The Surgery unit's current-period revenues reflected a recovery of elective procedure volumes and the unit's acquisition of Tepha, Inc., which occurred in the fourth quarter of fiscal year 2021. First quarter revenues in the Peripheral Intervention unit were unfavorably impacted by a fiscal year 2021 product recall, temporary supply chain disruptions, and strategically planned discontinuations of lower-margin products. These unfavorable impacts to the Peripheral Intervention unit's first quarter 2022 revenues were partially offset by demand for the unit's atherectomy platform in Chinaand by sales attributable to the acquisition of Venclose, Inc., which occurred in the first quarter of 2022. The Urology and Critical Care unit's revenue growth in the first quarter of 2022 showed strong demand for acute urology products, which was partially offset by strategically planned discontinuations of lower-margin products.
The interventional segment revenue for the three-month period is provided below.
Three months ended December 31, (Millions of dollars) 2021 2020 Interventional segment income $ 265
$ 302Segment income as % of Interventional revenues 23.7 % 28.1 % The Interventional segment's income in the first quarter was driven by lower gross profit margin and higher operating expenses as discussed in greater detail below: •The Interventional segment's lower gross profit margin in the first quarter of 2022 compared with the first quarter of 2021 primarily reflected the amortization of recently acquired intangible assets. •Selling and administrative expense as a percentage of revenues was higher in the first quarter of 2022 compared with the first quarter of 2021, which benefited from the curtailment of certain selling, travel and other administrative activities due to the COVID-19 pandemic in the prior year. •Research and development expense as a percentage of revenues was higher in the first quarter of 2022 compared with the first quarter of 2021, which reflected the timing of project spending and our continued reinvestment into the segment's growth initiatives. Geographic Revenues BD's worldwide first quarter revenues by geography were as follows:
Three months completed
Estimated Total FX (Millions of dollars) 2021 2020 Change Impact FXN Change United States
$ 2,853 $ 3,130(8.9) % - % (8.9) % International 2,143 2,186 (2.0) % (0.3) % (1.7) % Total Revenues $ 4,995 $ 5,315(6.0) % (0.1) % (5.9) %
The drop in
23 -------------------------------------------------------------------------------- offset by strong sales in the Medical segment's Medication Delivery Solutions and Pharmaceutical Systems units, as well as by strong sales in the Interventional segment's Surgery and Urology and Critical Care units. The decline in International revenues in the first quarter of 2022 was primarily driven by an unfavorable comparison to the prior-year quarter, which substantially benefited from sales in the Life Sciences segment's Integrated Diagnostic Solutions unit related to COVID-19 diagnostic testing, as further discussed above. This decline in International revenues in the first quarter of 2022 was partially offset by strong sales in the Medical segment's Medication Delivery Solutions and Pharmaceutical Systems units, as well as by strong sales in the Life Sciences segment's Biosciences unit. Emerging market revenues were as follows and reflected strong sales in
Chinaand Latin America: Three months ended December 31, Estimated Total FX (Millions of dollars) 2021 2020 Change Impact FXN Change Emerging markets $ 766 $ 65017.8 % 1.3 % 16.5 % Specified Items Reflected in the financial results for the three-month periods of fiscal years 2022 and 2021 were the following specified items: Three months ended December 31, (Millions of dollars) 2021 2020 Integration costs (a) $ 17 $ 33 Restructuring costs (a) 17 17 Separation and related costs (b) 25 - Purchase accounting adjustments (c) 364 353 European regulatory initiative-related costs (d) 31 26 Investment gains/losses and asset impairments (e) 17 -
Transaction Gain/Loss, Proceeds and Other Litigation Matters
5 (5) Impacts of debt extinguishment - 11 Total specified items 477 435 Less: tax impact of specified items 88 79 After-tax impact of specified items $
(a)Represents amounts associated with integration and restructuring activities which are primarily recorded in Acquisitions and other restructurings and are further discussed below. (b)Represents costs recorded to Other operating expense, net which were incurred for consulting, legal, tax and other advisory services associated with the planned spin-off of BD's Diabetes Care business. (c)Includes amortization and other adjustments related to the purchase accounting for acquisitions impacting identified intangible assets and valuation of fixed assets and debt. BD's amortization expense is primarily recorded in Cost of products sold. (d)Represents costs required to develop processes and systems to comply with regulations such as the European Union Medical Device Regulation ("EUMDR") and General Data Protection Regulation ("GDPR"). These costs were recorded in Research and development expense and Cost of products sold. (e)Represents unrealized losses recorded within Other income, net relating to certain investments. 24
-------------------------------------------------------------------------------- Gross Profit Margin Gross profit margin for the three-month period of fiscal year 2022 compared with the prior-year period in fiscal year 2021 reflected the following impacts: Three-month period
December 31, 2020gross profit margin % 51.4 %
Impact of accounting adjustments on purchases and other specified items
(0.6) % Period-over-period decline in COVID-19 testing profitability (2.2) % Operating performance (0.6) % Foreign currency translation 0.5 % December 31, 2021 gross profit margin % 48.5 % Operating performance in the three-month period of 2022 primarily reflected higher raw material costs, partially offset by the favorable impact of price initiatives. Operating Expenses A summary of operating expenses for the three-month periods of fiscal years 2022 and 2021 is as follows: Three months ended December 31, Increase (decrease) in 2021 2020 basis points (Millions of dollars) Selling and administrative expense
$ 1,223 $ 1,149% of revenues 24.5 % 21.6 % 290 Research and development expense $ 329 $ 291% of revenues 6.6 % 5.5 % 110 Acquisitions and other restructurings $ 34 $ 50Other operating expense, net $ 21 $ - Selling and administrative expense Higher selling and administrative expense as a percentage of revenues in the three-month period of 2022 compared with the prior-year period reflected the current-period decline in revenues, higher shipping costs in the current-year period, as well as the curtailment of certain selling, travel and other administrative activities in the prior-year period due to the COVID-19 pandemic. Research and development expense Research and development expense as a percentage of revenues in the three-month period of 2022 was higher compared with the prior-year period, which primarily reflected the current-period decline in revenues and the timing of project spending. Spending in both the current and prior-year periods reflected our continued commitment to drive innovation and growth with new products and platforms. Acquisitions and other restructurings Costs relating to acquisitions and other restructurings in the three-month periods of 2022 and 2021 included restructuring costs related to simplification and other cost saving initiatives, as well as system integration costs. For further disclosures regarding restructuring costs, refer to Note 8 in the Notes to Condensed Consolidated Financial Statements. Other operating expense, net Other operating expense in the three-month period of 2022 included consulting, legal, tax and other advisory expenses associated with the planned spin-off of BD's Diabetes Care business. 25 -------------------------------------------------------------------------------- Nonoperating Income Net interest expense The components for the three-month periods of fiscal years 2022 and 2021 were as follows: Three months ended December 31, (Millions of dollars) 2021 2020 Interest expense $ (98) $ (118)Interest income 2 2 Net interest expense $ (96) $ (116)Lower interest expense in the current-year period compared with the prior-year period primarily reflected debt repayments and lower overall interest rates on debt outstanding during the current-year period. Income Taxes The income tax rates for the three-month periods of fiscal years 2022 and 2021 are provided below.
Three months completed
2021 2020 Effective income tax rate 6.3 % 13.3 % Impact, in basis points, from specified items (480) (130) The effective income tax rate for the three-month period of fiscal year 2022 reflected a tax impact from specified items that was more favorable compared with the benefit associated with specified items recognized in the prior-year period, as well as a favorable impact relating to the timing of certain discrete items. Net Income and Diluted Earnings per Share Net Income and Diluted Earnings per Share for the three-month periods of fiscal years 2022 and 2021 were as follows:
Three months completed
2021 2020 Net Income (Millions of dollars) $ 677
$ 1,003Diluted Earnings per Share $
Unfavorable impact-specified items $ (1.36)
$ (1.22)Favorable impact-foreign currency translation $ 0.07 Dilutive impact (a) $ 0.02(a)Represents the dilutive impact of convertible preferred shares outstanding which were excluded from the reported diluted earnings per share calculation because these share equivalents would have been antidilutive. Additional details regarding the computation of diluted earnings per share are provided in Note 3 in the Notes to Condensed Consolidated Financial Statements. 26 -------------------------------------------------------------------------------- Liquidity and Capital Resources The following table summarizes our condensed consolidated statements of cash flows: Three months ended December 31, (Millions of dollars) 2021 2020 Net cash provided by (used for) Operating activities $ 674 $ 1,533Investing activities $ (686) $ (430)Financing activities $ (327) $ (592)Net Cash Flows from Operating Activities Cash flows from operating activities in the first three months of fiscal year 2022 reflected net income, adjusted by a change in operating assets and liabilities that was a net use of cash. This net use of cash primarily reflected lower levels of accounts payable and accrued expenses and higher levels of inventory, partially offset by lower levels of trade receivables and prepaid expenses. Cash flows from operating activities in the first three months of fiscal year 2021 reflected net income, adjusted by a change in operating assets and liabilities that was a net source of cash. This net source of cash primarily reflected lower levels of trade receivables, partially offset by lower levels of accounts payable and accrued expenses and higher levels of inventory. Net Cash Flows from Investing Activities Our investments in capital expenditures are focused on projects that enhance our cost structure and manufacturing capabilities, as well as support our BD 2025 strategy for growth. Net outflows from investing activities in the first three months of fiscal year 2022 included capital expenditure-related outflows of $188 million, compared with $246 millionin the prior-year period. Net outflows from investing activities in the first three months of fiscal years 2022 and 2021 also included cash payments of $415 millionrelating to various strategic acquisitions we have executed as part of our growth strategy, including our acquisitions of Scanwell Health, Inc, Tissuemed, Ltd., and Venclose, Inc.in the first three months of fiscal year 2022. Net Cash Flows from Financing Activities Net cash from financing activities in the first three months of fiscal years 2022 and 2021 included the following significant cash flows: Three months ended December 31, (Millions of dollars) 2021 2020 Cash inflow (outflow) Payments of debt $ - $ (267)Dividends paid $ (271) $ (264)Certain measures relating to our total debt were as follows: (Millions of dollars) December 31, 2021 September 30, 2021 Total debt $ 17,424 $ 17,610 Weighted average cost of total debt 2.5 % 2.4 % Total debt as a percentage of total capital* 40.4 % 41.0 %
* Represents shareholders’ equity, net non-current deferred tax liabilities and debt.
27 -------------------------------------------------------------------------------- Cash and Short-Term Investments At
December 31, 2021, total worldwide cash and equivalents and short-term investments, including restricted cash, were approximately $2.054 billion. These assets were largely held in jurisdictions outside of the United States. We regularly review the amount of cash and short-term investments held outside of the United Statesand our historical foreign earnings are used to fund foreign investments or meet foreign working capital and property, plant and equipment expenditure needs. To fund cash needs in the United States, we rely on ongoing cash flow from U.S.operations, access to capital markets and remittances from foreign subsidiaries of earnings that are not considered to be permanently reinvested. Financing Facilities We have a five-year senior unsecured revolving credit facility in place which will expire in September 2026. The credit facility provides borrowings of up to $2.75 billion, with separate sub-limits of $100 millionfor letters of credit and swingline loans. The expiration date of the credit facility may be extended for up to two additional one year periods, subject to certain restrictions (including the consent of the lenders). The credit facility provides that we may, subject to additional commitments by lenders, request an additional $500 millionof financing, for a maximum aggregate commitment under the credit facility of up to $3.25 billion. Proceeds from this facility may be used for general corporate purposes. There were no borrowings outstanding under the revolving credit facility at December 31, 2021. The agreement for our revolving credit facility contains the following financial covenants. We were in compliance with these covenants, as applicable, as of December 31, 2021. •We are required to have a leverage coverage ratio of no more than: •4.25-to-1 as of the last day of each fiscal quarter following the closing of the credit facility; or •4.75-to-1 for the four full fiscal quarters following the consummation of a material acquisition. We also have informal lines of credit outside the United States. We may, from time to time, access the commercial paper market as we manage working capital over the normal course of our business activities. We had no commercial paper borrowings outstanding as of December 31, 2021. Also, over the normal course of our business activities, we transfer certain trade receivable assets to third parties under factoring agreements. Additional disclosures regarding sales of trade receivable assets are provided in Note 11 in the Notes to Condensed Consolidated Financial Statements. Access to Capital and Credit Ratings Our corporate credit ratings with the rating agencies Standard & Poor's Ratings Services, Moody's Investor Service and Fitch Ratings at December 31, 2021were unchanged compared with our ratings at September 30, 2021. Lower corporate debt ratings and downgrades of our corporate credit ratings or other credit ratings may increase our cost of borrowing. We believe that given our debt ratings, our financial management policies, our ability to generate cash flow and the non-cyclical, geographically diversified nature of our businesses, we would have access to additional short-term and long-term capital should the need arise. A rating reflects only the view of a rating agency and is not a recommendation to buy, sell or hold securities. Ratings can be revised upward or downward at any time by a rating agency if such rating agency decides that circumstances warrant such a change. Concentrations of Credit Risk We continually evaluate our accounts receivables for potential credit losses, 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. In addition to continually evaluating all governmental receivables for potential credit losses based upon historical loss experiences, we also evaluate such receivables based upon 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. To date, we have not experienced a significant increased risk of credit losses in general as a result of the COVID-19 pandemic. No assurances can be given that the risk of credit losses will not increase in the future given the uncertainty around the duration of the pandemic and its economic impact. Regulatory Matters FDA Warning Letter On January 11, 2018, BD received a Warning Letter from the FDA with respect to our former BD Preanalytical Systems ("PAS") unit, citing certain alleged violations of quality system regulations and of law. The Warning Letter states that, until BD resolves the outstanding issues covered by the Warning Letter, the FDA will not clear or approve any premarket submissions 28 -------------------------------------------------------------------------------- for Class III devices to which the non-conformances are reasonably related or grant requests for certificates to foreign governments. BD has worked closely with the FDA and implemented corrective actions to address the quality management system concerns identified in the warning letter. In March 2020, the FDA conducted a subsequent inspection of PAS, which it classified as Voluntary Action Indicated, which means the FDA will not take or recommend any administrative or regulatory action as a result of the unit's response to the observations associated with the quality management concerns in the inspection. BD continues to work with the FDA to generate additional clinical evidence and file 510(k)s as remaining commitments associated with the Warning Letter. In January 2022, BD received FDA clearance for its BD Vacutainer® ACD Blood Collection Tubes used in immunohematology. The FDA review of these remaining commitments is ongoing and no assurances can be given regarding further action by the FDA as a result of these commitments, including but not limited to action pursuant to the Warning Letter. Consent Order - Covington, Georgia, USA On October 28, 2019, BD entered into a consent order with the Environmental Protection Division of the Georgia Department of Natural Resources(the "EPD"), following the filing of a complaint and motion for temporary restraining order by the EPD seeking to enjoin BD from continuing sterilization operations at its Covington, Georgiafacility. Under the terms of the consent order, which has been amended two times upon mutual agreement of BD and EPD, BD voluntarily agreed to a number of operational changes at its Covingtonand Madison, Georgiafacilities, as well as at its distribution center in Covington, designed to further reduce ethylene oxide emissions, including but not limited to operating at a reduced capacity until successful implementation of fugitive emission control technology, ongoing ambient air monitoring and operational controls at such facilities. Following submission of data relating to the implementation of these operational changes, BD was permitted to return to normal operations in December 2021at its facilities in Georgiain accordance with the operating conditions set forth in its permit applications, including a condition to continue ambient air monitoring. However, BD's sterilization operations in Georgiaremain subject to the EPD's final approval of BD's permit applications and could be subject to additional restrictions. BD has business continuity plans in place to mitigate the impact of any additional restrictions on our operations at these facilities, although it is possible that these plans will not be able to fully offset such impact, especially considering the reduced capacity of third-party sterilization service providers and the regulatory timelines associated with transferring sterilization operations for regulated products. At a broader level, several states have increased the regulatory requirements associated with the use and emission of ethylene oxide, the most frequently used sterilant for medical devices and health care products in the U.S.This increased regulation could require BD or sterilization service providers, including providers used by BD, to temporarily suspend operations to install additional fugitive emissions control technology, limit the use of ethylene oxide or take other actions, which would further reduce the available capacity of third-party providers to sterilize medical devices and health care products. A few states have filed lawsuits to require additional air quality controls and expand limitations on the use of ethylene oxide at sterilization facilities. For example, in December 2020, the State of New Mexicofiled a lawsuit seeking a temporary restraining order and a preliminary and permanent injunction against a major medical device sterilizer, which sterilizes certain of our surgery products, to reduce ethylene oxide emissions associated with their sterilization process. On the federal level, in late 2019, the U.S. Environmental Protection Agencyprovided notice that it would be conducting rulemaking to reconsider federal regulations applicable to the use and emission of ethylene oxide. If any such proceedings or rulemaking result in the suspension of sterilization operations at BD or at medical device sterilizers used by BD, or otherwise limit the availability of third-party sterilization capacity, this could interrupt or otherwise adversely impact production of certain of our products. BD has business continuity plans in place to mitigate the impact of any such disruptions, although these plans may not be able to fully offset such impact, for the reasons noted above. Consent Decree with FDA As previously reported, our BD AlarisTM infusion pump organizational unit is operating under an amended consent decree entered into by CareFusion(the "Consent Decree") that includes all infusion pumps manufactured by or for CareFusion 303, Inc., the organizational unit that manufactures and sells AlarisTM infusion pumps in the United States. Following an inspection that began in March 2020of our Medication Management Systems facility ( CareFusion 303, Inc.) in San Diego, California, the FDA issued to BD a Form 483 Notice (the "Form 483 Notice") that contains a number of observations of non-conformance with quality system regulations. In addition, in December 2021, the FDA issued to CareFusion 303, Inc.a letter of non-compliance with respect to the Consent Decree (the "Non-Compliance Letter") stating that, among other things, it had determined that certain of BD's corrective actions with respect to the Form 483 Notice appeared to be adequate, some were still in progress such that adequacy could not be determined yet, and certain others were not adequate (e.g., complaint handling and corrective and preventive actions (CAPA), design verification and medical device reporting). Per the terms of the Non-Compliance Letter, CareFusion 303, Inc.provided the FDA with a proposed comprehensive corrective action plan and has retained an independent expert to conduct periodic audits of CareFusion 303, Inc.infusion pump facilities over the next four years. CareFusion 303, Inc.will update its corrective action plan to address any observations that may arise 29 -------------------------------------------------------------------------------- during the course of these audits, and these updates, as well as the audit reports, will be shared with FDA in accordance with the terms of the Non-Compliance Letter. The FDA'sreview of the items raised in the Form 483 Notice and Non-Compliance Letter remains ongoing, and no assurances can be given regarding further action by the FDA as a result of the observations, including but not limited to action pursuant to the Consent Decree, or that the corrective actions proposed by CareFusion 303, Inc.will be adequate to address these observations. Additionally, we cannot currently predict the amount of additional monetary investment that will be incurred to resolve this matter or the matter's ultimate impact on our business. The Consent Decree authorizes the FDA, in the event of any violations in the future, to order us to cease manufacturing and distributing infusion pumps, recall products and take other actions. We may be required to pay damages of $15,000per day per violation if we fail to comply with any provision of the Consent Decree, up to $15 millionper year. We may also be subject to future proceedings and litigation relating to the matters addressed in the Consent Decree, including, but not limited to, additional fines, penalties, other monetary remedies, and expansion of the terms of the Consent Decree. We are undertaking certain remediation of our BD AlarisTM System, and are currently shipping the product in the United States, only in cases of medical necessity and to remediate recalled software versions. As previously disclosed, we submitted our 510(k) premarket notification to the FDA for the BD Alaris™ System in April 2021. The 510(k) submission is intended to bring the regulatory clearance for the BD Alaris™ System up-to-date, address open recall issues and provide other updates and features, including a new version of BD Alaris™ System software that will provide clinical, operational and cybersecurity updates. We will not be able to fully resume commercial operations for the BD Alaris™ System in the United Statesuntil BD's 510(k) submission relating to the product has been cleared by the FDA. No assurances can be given as to when or if clearance will be obtained from the FDA. For further discussion of risks relating to the regulations to which we are subject, see Part I, Item 1A, of our 2021 Annual Report on Form 10-K (the "2021 Annual Report"). Cautionary Statement Regarding Forward-Looking Statements This report includes forward-looking statements within the meaning of the federal securities laws. BD and its representatives may also, from time to time, make certain forward-looking statements in publicly released materials, both written and oral, including statements contained in filings with the SEC, press releases, and our reports to shareholders. Forward-looking statements may be identified by the use of words such as "plan," "expect," "believe," "intend," "will," "may," "anticipate," "estimate" and other words of similar meaning in conjunction with, among other things, discussions of future operations and financial performance (including volume growth, pricing, sales and earnings per share growth, and cash flows) and statements regarding our strategy for growth, future product development, regulatory approvals, competitive position and expenditures. This report also includes forward-looking statements regarding the proposed spin-off of the Diabetes Care business, including the anticipated benefits of the spin-off and the expected timing of completion of the spin-off. All statements that address our future operating performance or events or developments that we expect or anticipate will occur in the future are forward-looking statements. Forward-looking statements are, and will be, based on management's then-current views and assumptions regarding future events, developments and operating performance, and speak only as of their dates. Investors should realize that if underlying assumptions prove inaccurate, or risks or uncertainties materialize, actual results could vary materially from our expectations and projections. Investors are therefore cautioned not to place undue reliance on any forward-looking statements. Furthermore, we undertake no obligation to update or revise any forward-looking statements after the date they are made, whether as a result of new information, future events and developments or otherwise, except as required by applicable law or regulations. The following are some important factors that could cause our actual results to differ from our expectations in any forward-looking statements. For further discussion of certain of these factors, see Item 1A. Risk Factors in our 2021 Annual Report. •Any impact of the COVID-19 pandemic, including resurgences in COVID-19 infections or new strains of the virus, may have on our business, the global economy's recovery and the global healthcare system, which may include decreases in the demand for our products, disruptions to our operations (including employee absenteeism) or disruptions to our supply chain. •Factors such as the rate of vaccination, the effectiveness of vaccines against different strains, the rate of infections, and competitive factors that could impact the demand and pricing for our COVID-19 diagnostics testing. •Weakness in the global economy and financial markets, which could increase the cost of operating our business, weaken demand for our products and services, negatively impact the prices we can charge for our products and services, or impair our ability to produce our products. 30 -------------------------------------------------------------------------------- •The risks associated with the proposed spin-off of our Diabetes Care business, including factors that could delay, prevent or otherwise adversely affect the completion, timing or terms of the spin-off, our ability to realize the expected benefits of the spin-off, or the qualification of the spin-off as a tax-free transaction for U.S.federal income tax purposes. •Competitive factors that could adversely affect our operations, including new product introductions and technologies (for example, new forms of drug delivery) by our current or future competitors, consolidation or strategic alliances among healthcare companies, distributors and/or payers of healthcare to improve their competitive position or develop new models for the delivery of healthcare, increased pricing pressure due to the impact of low-cost manufacturers, patents attained by competitors (particularly as patents on our products expire), new entrants into our markets and changes in the practice of medicine. •Risks relating to our overall level of indebtedness, including our ability to service our debt and refinance our indebtedness, which is dependent upon the capital markets and our overall financial condition at such time. •The adverse financial impact resulting from unfavorable changes in foreign currency exchange rates. •Regional, national and foreign economic factors, including inflation, deflation and fluctuations in interest rates, and their potential effect on our operating performance. •Our ability to achieve our projected level or mix of product sales, as our earnings forecasts are based on projected sales volumes and pricing of many product types, some of which are more profitable than others. •Changes in reimbursement practices of governments or third-party payers, or adverse decisions relating to our products by such payers, which could reduce demand for our products or the price we can charge for such products. •Cost containment efforts in the U.S.or in other countries in which we do business, such as alternative payment reform and increased use of competitive bidding and tenders, including, without limitation, any expansion of the volume-based procurement process in China. •Changes in the domestic and foreign healthcare industry or in medical practices that result in a reduction in procedures using our products or increased pricing pressures, including cost reduction measures instituted by and the continued consolidation among healthcare providers. •The impact of changes in U.S.federal laws and policies that could affect fiscal and tax policies, healthcare and international trade, including import and export regulation and international trade agreements. In particular, tariffs or other trade barriers imposed by the U.S.or other countries could adversely impact our supply chain costs or otherwise adversely impact our results of operations. •Increases in operating costs, including fluctuations in the cost and availability of oil-based resins and other raw materials, as well as certain components, used in our products, including increases resulting from any transportation issues, product shortages or other disruptions in the global supply chain, inflationary pricing pressure, labor shortages, primarily in the United States, and increased labor costs, the ability to maintain favorable supplier and service arrangements and relationships (particularly with respect to sole-source suppliers and sterilization services), and the potential adverse effects of any disruption in the availability of such items and services. •Security breaches of our information systems or our products, which could impair our ability to conduct business, result in the loss of BD trade secrets or otherwise compromise sensitive information of BD or its customers, suppliers and other business partners, or of customers' patients, including sensitive personal data, or result in product efficacy or safety concerns for certain of our products, and result in actions by regulatory bodies or civil litigation. •Difficulties inherent in product development, including the potential inability to successfully continue technological innovation, successfully complete clinical trials, obtain and maintain regulatory approvals and registrations in the United Statesand abroad, obtain intellectual property protection for our products, obtain coverage and adequate reimbursement for new products, or gain and maintain market approval of products, as well as the possibility of infringement claims by competitors with respect to patents or other intellectual property rights, all of which could preclude or delay commercialization of a product. Delays in obtaining necessary approvals or clearances from the FDA or other regulatory agencies or changes in the regulatory process may also delay product launches and increase development costs. •The impact of business combinations or divestitures, including any volatility in earnings relating to acquisition-related costs, and our ability to successfully integrate any business we may acquire. •Our ability to penetrate or expand our operations in emerging markets, which depends on local economic and political conditions, and how well we are able to make necessary infrastructure enhancements to production facilities and distribution networks. 31 -------------------------------------------------------------------------------- •Conditions in international markets, including social and political conditions, civil unrest, terrorist activity, governmental changes, restrictions on the ability to transfer capital across borders, tariffs and other protectionist measures, difficulties in protecting and enforcing our intellectual property rights and governmental expropriation of assets. Our international operations also increase our compliance risks, including risks under the Foreign Corrupt Practices Act and other anti-corruption laws, as well as regulatory and privacy laws. •Deficit reduction efforts or other actions that reduce the availability of government funding for healthcare and research, which could weaken demand for our products and result in additional pricing pressures, as well as create potential collection risks associated with such sales. •Fluctuations in university or U.S.and international governmental funding and policies for life sciences research. •Fluctuations in the demand for products we sell to pharmaceutical companies that are used to manufacture, or are sold with, the products of such companies, as a result of funding constraints, consolidation or otherwise. •The effects of climate change, weather, regulatory or other events that adversely impact our supply chain, including our ability to manufacture our products (particularly where production of a product line or sterilization operations are concentrated in one or more plants), source materials or components or services from suppliers (including sole-source suppliers) that are needed for such manufacturing (including sterilization), or provide products to our customers, including events that impact key distributors. •Natural disasters, including the impacts of climate change, hurricanes, tornadoes, windstorms, fires, earthquakes and floods and other extreme weather events, global health pandemics, war, terrorism, labor disruptions and international conflicts that could cause significant economic disruption and political and social instability, resulting in decreased demand for our products, or adversely affecting our manufacturing and distribution capabilities or causing interruptions in our supply chain. •Pending and potential future litigation or other proceedings asserting, and/or investigations concerning and/or subpoenas and requests seeking information with respect to, alleged violations of law (including in connection with federal and/or state healthcare programs (such as Medicare or Medicaid) and/or sales and marketing practices (such as investigative subpoenas and the civil investigative demands received by BD)), potential anti-corruption and related internal control violations under the Foreign Corrupt Practices Act, antitrust claims, securities law claims, product liability (which may involve lawsuits seeking class action status or seeking to establish multi-district litigation proceedings, including pending claims relating to our hernia repair implant products, surgical continence products for women and vena cava filter products), claims with respect to environmental matters, data privacy breaches and patent infringement, and the availability or collectability of insurance relating to any such claims. •New or changing laws and regulations affecting our domestic and foreign operations, or changes in enforcement practices, including laws relating to trade, monetary and fiscal policies, taxation (including tax reforms that could adversely impact multinational corporations), sales practices, environmental protection, price controls, and licensing and regulatory requirements for new products and products in the post-marketing phase. In particular, the U.S.and other countries may impose new requirements regarding registration, labeling or prohibited materials that may require us to re-register products already on the market or otherwise impact our ability to market our products. Environmental laws, particularly with respect to the emission of greenhouse gases, are also becoming more stringent throughout the world, which may increase our costs of operations or necessitate changes in our manufacturing plants or processes or those of our suppliers, or result in liability to BD. •Product efficacy or safety concerns regarding our products resulting in product holds or recalls, regulatory action on the part of the FDA or foreign counterparts (including restrictions on future product clearances and civil penalties), declining sales and product liability claims, and damage to our reputation. As a result of the CareFusionacquisition, our U.S.infusion pump business is operating under a Consent Decree with the FDA. The Consent Decree authorizes the FDA, in the event of any violations in the future, to order our U.S.infusion pump business to cease manufacturing and distributing products, recall products or take other actions, and order the payment of significant monetary damages if the business subject to the decree fails to comply with any provision of the Consent Decree. We are undertaking certain remediation of our BD AlarisTM System, and are currently shipping the product in the U.S., only in cases of medical necessity and to remediate recalled software versions. We will not be able to fully resume commercial operations for the BD Alaris System in the U.S.until BD's 510(k) submission relating to the product has been cleared by the FDA. No assurances can be given as to when or if clearance will be obtained from the FDA. •The effect of adverse media exposure or other publicity regarding BD's business or operations, including the effect on BD's reputation or demand for its products. 32 -------------------------------------------------------------------------------- •The effect of market fluctuations on the value of assets in BD's pension plans and on actuarial interest rate and asset return assumptions, which could require BD to make additional contributions to the plans or increase our pension plan expense. •Our ability to obtain the anticipated benefits of restructuring programs, if any, that we may undertake. •Issuance of new or revised accounting standards by the FASB or the SEC. 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. 33
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