Acquisition

Bard

On December 29, 2017, the Company completed its acquisition of Bard, to create a medical technology company which is uniquely positioned to improve both the treatment of disease for patients and the process of care for health care providers. Under the terms of the transaction, Bard common shareholders received approximately $222.93 in cash and 0.5077 shares of BD stock per Bard share. The Company financed the cash portion of total consideration transferred with available cash, which included net proceeds raised in the third quarter of fiscal year 2017 through registered public offerings of equity securities and debt transactions of approximately $4.8 billion and $9.6 billion, respectively. The operating activities of Bard from the acquisition date through December 31, 2017 were not material to the Company’s consolidated results of operations. As such, Bard's operating results will be included in the Company’s consolidated results of operations beginning on January 1, 2018.

The acquisition-date fair value of consideration transferred consisted of the components below. The fair value of the shares and equity awards issued as consideration was recognized as a $6.5 billion increase to Capital in excess of par value and a $2.1 billion decrease to Common stock in treasury.



(Millions of dollars)
Cash consideration	$	16,400
Noncash consideration-fair value of shares issued	8,004
Noncash consideration-fair value of equity awards issued	613
Total consideration transferred	$	25,017

The acquisition-date fair value of the Company’s ordinary shares issued to Bard shareholders was calculated per the following (shares in millions):



(Millions of dollars, except per share data)
Total Bard shares outstanding	73.359
Conversion factor	0.5077
Conversion of Bard shares outstanding	37.243
Conversion of pre-acquisition equity awards	0.104
Total number of the Company's share issued	37.347
Closing price of the Company’s stock	$	214.32
Fair value of the Company’s issued shares	$	8,004

Allocation of Consideration Transferred to Net Assets Acquired

As discussed in Note 6, the majority of Bard's product offerings will be reported, beginning with the second quarter of fiscal year 2018, under the new Interventional segment and Bard's remaining product offerings will be reported under the Company's Medical segment. The acquisition is being accounted for under the acquisition method of accounting for business combinations. The Company is in the process of finalizing the allocation of the purchase price to the individual assets acquired and liabilities assumed.

The preliminary allocations of the purchase price below provide a reasonable basis for estimating the fair values of assets acquired and liabilities assumed. These provisional estimates will be adjusted upon the availability of further information regarding events or circumstances which existed at the acquisition date and such adjustments may be significant. The assets acquired and liabilities assumed in this acquisition, as recorded in the Company's consolidated balance sheet at December 31, 2017, will largely be allocated to the Company's new Interventional segment.



(Millions of dollars)
Cash and equivalents	$	1,467
Trade receivables	489
Inventories	1,016
Property, plant and equipment	557
Developed technology	11,738
Customer relationships	1,122
Other assets	490
Total identifiable assets acquired	16,879

Payables, accrued expenses and other liabilities	915
Short term and long-term debt	1,692
Product liability reserves	1,560
Deferred tax liabilities	2,749
Total liabilities assumed	6,916

Net identifiable assets acquired	9,963

Goodwill	15,054

Net assets acquired	$	25,017

Identifiable Intangible Assets Acquired

The developed technology assets acquired represented Bard’s developed technologies in the fields of vascular, urology, oncology, and surgical specialties. The technologies’ fair values were determined based on the present value of projected cash flows utilizing an income approach with a risk-adjusted discount rate of 8%. The technologies will be amortized over an estimated weighted-average amortization period of 15 years, which is the weighted average period over which the technologies are expected to generate substantial cash flows.

The customer relationships assets acquired represented Bard’s contractual relationships with its customers. The fair value of these customer relationships was determined based on the present value of projected cash flows utilizing an income approach with a risk-adjusted discount rate of 8%. The estimated weighted-average amortization period of the customer relationships was determined to be 13 years and this period corresponds with the weighted average of lives determined for the product technology which underlies the customer contracts.

Goodwill

Goodwill typically results through expected synergies from combining operations of an acquiree and an acquirer, as well as from intangible assets that do not qualify for separate recognition. The goodwill recognized as a result of this acquisition includes, among other things, the value of combining the Company's leadership in medication management and infection prevention with an expanded offering of solutions across the care continuum. Additionally, Bard's strong product portfolio and innovation pipeline are expected to increase the Company's opportunities in fast-growing clinical areas. Revenue synergies are also expected to result from enhanced growth opportunities for the combined company in non-U.S. markets. No portion of goodwill from this acquisition was deductible for tax purposes.

Amounts Related to Bard's Legal Proceedings and Claims

Accruals for Bard-related product liability and other legal matters represented approximately $1.6 billion of the liabilities assumed. Cash and equivalents include a restricted cash balance acquired which largely represents funds that are restricted for certain product liability matters assumed. Additional disclosures regarding Bard's legal proceedings and claims are provided in Note 5.

The Tax Cuts and Job Act Transition Tax

The net assets acquired included approximately $220 million of transition tax payable based on the Company’s best estimate of its transition tax liability under new U.S. tax legislation which is further discussed in Note 14.

Transaction Costs

Transaction costs incurred during the three months ended December 31, 2017 were approximately $44 million and were recorded as Acquisitions and other restructurings. The transaction costs consisted of legal, advisory and other costs. See Note 9 for discussion regarding restructuring costs incurred relative to the Bard acquisition in the three months ended December 31, 2017.

Unaudited Pro Forma Information

As noted above, Bard's operating activities from the acquisition date through December 31, 2017 were not material and the Company will include Bard in its consolidated results of operations beginning on January 1, 2018. The following table provides the pro forma results for the three months ended December 31, 2017 and 2016 as if Bard had been acquired as of October 1, 2016.




	Three Months Ended December 31,
(Millions of dollars, except per share data)	2017			2016

Revenues	$	4,044		$	3,844

Net (Loss) Income	$	(471	)	$	508

Diluted (Loss) Earnings per Share	$	(1.76	)	$	1.85

The pro forma results above reflect the following adjustments: additional amortization and depreciation expense relating to assets acquired; interest and other financing costs relating to the acquisition transaction; and the elimination of one-time or nonrecurring items. The one-time or nonrecurring items eliminated primarily represented the transaction costs discussed above, as well as the Bard-related restructuring costs disclosed in Note 9. In addition, amounts previously reported by Bard as revenue related to a royalty income stream have been reclassified to other income to reflect the Company's future reporting classification.

The pro forma results do not include any anticipated cost savings or other effects of the planned integration of Bard. 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.