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Table of Contents
 



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2019
OR
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
 
(201)
847-6800
(Address of principal executive offices) (Zip Code)
 
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
 
Trading Symbol
 
Name of Each Exchange on Which Registered
Common stock, par value $1.00
 
BDX
 
New York Stock Exchange
Depositary Shares, each representing 1/20th of a share of 6.125% Cumulative Preferred Stock Series A
 
BDXA
 
New York Stock Exchange
1.000% Notes due December 15, 2022
 
BDX22A
 
New York Stock Exchange
1.900% Notes due December 15, 2026
 
BDX26
 
New York Stock Exchange
1.401% Notes due May 24, 2023
 
BDX23A
 
New York Stock Exchange
3.020% Notes due May 24, 2025
 
BDX25
 
New York Stock Exchange
0.174% Notes due June 4, 2021
 
BDX/21
 
New York Stock Exchange
0.632% Notes due June 4, 2023
 
BDX/23A
 
New York Stock Exchange
1.208% Notes due June 4, 2026
 
BDX/26A
 
New York Stock Exchange
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  ☒    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  ☒    No   ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of large accelerated filer, accelerated filer, smaller reporting company, and emerging growth company in Rule 12b-2 of the Exchange Act.
Large accelerated filer
 
  
Accelerated filer
 
Non-accelerated filer
 
 
Smaller reporting company
 
Emerging growth company
 
 
 
 
 
 
 
 
 
 
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  ☒
There were 271,173,148 shares of Common Stock, $1.00 par value, outstanding at December 31, 2019.

 



BECTON, DICKINSON AND COMPANY
FORM 10-Q
For the quarterly period ended December 31, 2019
TABLE OF CONTENTS
 
 
Page
Number
Part I.
FINANCIAL INFORMATION
 
 
 
 
Item 1.
 
 
 
 
 
 
Item 2.
Item 3.
Item 4.
 
 
 
Part II.
 
 
 
 
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
 
 
 
 

2



ITEM 1. FINANCIAL STATEMENTS
BECTON, DICKINSON AND COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
Millions of dollars
 
December 31,
2019
 
September 30,
2019
Assets
(Unaudited)
 
 
Current Assets:
 
 
 
Cash and equivalents
$
560

 
$
536

Restricted cash
49

 
54

Short-term investments
8

 
30

Trade receivables, net
2,074

 
2,345

Inventories:
 
 
 
Materials
599

 
544

Work in process
350

 
318

Finished products
1,811

 
1,717

 
2,760

 
2,579

Prepaid expenses and other
987

 
1,119

Total Current Assets
6,438

 
6,664

Property, Plant and Equipment
11,425

 
11,128

Less allowances for depreciation and amortization
5,643

 
5,469

Property, Plant and Equipment, Net
5,782

 
5,659

Goodwill
23,435

 
23,376

Developed Technology, Net
10,848

 
11,054

Customer Relationships, Net
3,345

 
3,424

Other Intangibles, Net
532

 
500

Other Assets
1,573

 
1,088

Total Assets
$
51,952

 
$
51,765

Liabilities and Shareholders’ Equity
 
 
 
Current Liabilities:
 
 
 
Short-term debt
$
2,456

 
$
1,309

Payables, accrued expenses and other current liabilities
4,269

 
4,345

Total Current Liabilities
6,726

 
5,655

Long-Term Debt
16,949

 
18,081

Long-Term Employee Benefit Obligations
1,290

 
1,272

Deferred Income Taxes and Other Liabilities
5,785

 
5,676

Commitments and Contingencies (See Note 5)


 


Shareholders’ Equity
 
 
 
Preferred stock
2

 
2

Common stock
347

 
347

Capital in excess of par value
16,320

 
16,270

Retained earnings
12,938

 
12,913

Deferred compensation
24

 
23

Common stock in treasury - at cost
(6,228
)
 
(6,190
)
Accumulated other comprehensive loss
(2,202
)
 
(2,283
)
Total Shareholders’ Equity
21,202

 
21,081

Total Liabilities and Shareholders’ Equity
$
51,952

 
$
51,765

Amounts may not add due to rounding.
See notes to condensed consolidated financial statements

3



BECTON, DICKINSON AND COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Millions of dollars, except per share data
(Unaudited)
 
Three Months Ended
December 31,
 
2019
 
2018
Revenues
$
4,225

 
$
4,160

Cost of products sold
2,247

 
2,187

Selling and administrative expense
1,121

 
1,073

Research and development expense
270

 
258

Acquisitions and other restructurings
86

 
91

Other operating income, net

 
(335
)
Total Operating Costs and Expenses
3,724

 
3,273

Operating Income
501

 
888

Interest expense
(136
)
 
(171
)
Interest income, net
1

 
(12
)
Other income, net
27

 
10

Income Before Income Taxes
394

 
714

Income tax provision
117

 
115

Net Income
278

 
599

Preferred stock dividends
(38
)
 
(38
)
Net income applicable to common shareholders
$
240

 
$
562

 
 
 
 
 
 
 
 
Basic Earnings per Share
$
0.88

 
$
2.09

Diluted Earnings per Share
$
0.87

 
$
2.05

Dividends per Common Share
$
0.79

 
$
0.77

Amounts may not add due to rounding.
See notes to condensed consolidated financial statements

4



BECTON, DICKINSON AND COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Millions of dollars
(Unaudited)
 
Three Months Ended
December 31,
 
2019
 
2018
Net Income
$
278

 
$
599

Other Comprehensive Income (Loss), Net of Tax
 
 
 
Foreign currency translation adjustments
26

 
(35
)
Defined benefit pension and postretirement plans
17

 
15

Cash flow hedges
39

 
1

Other Comprehensive Income (Loss), Net of Tax
82

 
(18
)
Comprehensive Income
$
359

 
$
581

Amounts may not add due to rounding.
See notes to condensed consolidated financial statements

5



BECTON, DICKINSON AND COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Millions of dollars
(Unaudited)
 
Three Months Ended
December 31,
 
2019
 
2018
Operating Activities
 
 
 
Net income
$
278

 
$
599

Adjustments to net income to derive net cash provided by operating activities:
 
 
 
Depreciation and amortization
530

 
563

Share-based compensation
82

 
93

Deferred income taxes
(71
)
 
(28
)
Change in operating assets and liabilities
102

 
(473
)
Pension obligation
24

 
(225
)
Gain on sale of business

 
(335
)
Other, net
(231
)
 
52

Net Cash Provided by Operating Activities
713

 
245

Investing Activities
 
 
 
Capital expenditures
(173
)
 
(167
)
Proceeds from divestitures, net

 
476

Other, net
(114
)
 
(9
)
Net Cash (Used for) Provided by Investing Activities
(287
)
 
299

Financing Activities
 
 
 
Change in credit facility borrowings
210

 
50

Payments of debt and term loans
(303
)
 
(453
)
Dividends paid
(252
)
 
(245
)
Other, net
(68
)
 
(86
)
Net Cash Used for Financing Activities
(413
)
 
(734
)
Effect of exchange rate changes on cash and equivalents and restricted cash
6

 
(5
)
Net increase (decrease) in cash and equivalents and restricted cash
18

 
(195
)
Opening Cash and Equivalents and Restricted Cash
590

 
1,236

Closing Cash and Equivalents and Restricted Cash
$
609

 
$
1,042

Amounts may not add due to rounding.
See notes to condensed consolidated financial statements

6



BECTON, DICKINSON AND COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019
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 Becton, Dickinson and Company (the "Company" or "BD"), 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 ("U.S. GAAP"). These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in the Company’s 2019 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 2Accounting Changes
New Accounting Principle Adopted
In February 2016, the Financial Accounting Standards Board ("FASB") issued a new lease accounting standard which requires lessees to recognize lease assets and lease liabilities on the balance sheet, as well as requires expanded disclosures regarding leasing arrangements. The Company adopted this standard on October 1, 2019 and elected certain practical expedients permitted under the transition guidance, including a transition method which allows application of the new standard at its adoption date, rather than at the earliest comparative period presented in the financial statements. The Company also elected not to perform any reassessments relative to its expired and existing leases upon its adoption of the new requirements. The Company's adoption of this standard did not materially impact its condensed consolidated financial statements. Additional disclosures regarding the Company’s lease arrangements are provided in Note 14.
New Accounting Principles Not Yet Adopted
In June 2016, the FASB issued a new accounting standard which requires earlier recognition of credit losses on loans and other financial instruments held by entities, including trade receivables. The new standard requires entities to measure all expected credit losses for financial assets held at each reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. The Company is currently evaluating the impact that this new accounting standard will have on its consolidated financial statements upon its adoption on October 1, 2020.
In August 2018, the FASB issued a new accounting standard to align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal use software license). The standard is effective for the Company on October 1, 2020, but early adoption is permitted, including adoption in any interim period. The Company is currently evaluating the impact that this new accounting standard will have on its consolidated financial statements upon its adoption.

7



Note 3Shareholders' Equity
Changes in certain components of shareholders' equity for the first quarters of fiscal years 2020 and 2019 were as follows:
 
Common
Stock  Issued
at Par Value
 
Capital in
Excess of
Par Value
 
Retained
Earnings
 
Deferred
Compensation
 
Treasury Stock
(Millions of dollars)
Shares (in
thousands)
 
Amount
Balance at September 30, 2019
$
347

 
$
16,270

 
$
12,913

 
$
23

 
(76,260
)
 
$
(6,190
)
Net income

 

 
278

 

 

 

Common dividends ($0.79 per share)

 

 
(215
)
 

 

 

Preferred dividends

 

 
(38
)
 

 

 

Common stock issued for share-based compensation and other plans, net

 
(32
)
 

 
1

 
758

 
(38
)
Share-based compensation

 
82

 

 

 

 

Common stock held in trusts, net (a)

 

 

 

 
(12
)
 

Balance at December 31, 2019
$
347

 
$
16,320

 
$
12,938

 
$
24

 
(75,514
)
 
$
(6,228
)
 
Common
Stock  Issued
at Par Value
 
Capital in
Excess of
Par Value
 
Retained
Earnings
 
Deferred
Compensation
 
Treasury Stock
(Millions of dollars)
Shares (in
thousands)
 
Amount
Balance at September 30, 2018
$
347

 
$
16,179

 
$
12,596

 
$
22

 
(78,463
)
 
$
(6,243
)
Net income

 

 
599

 

 

 

Common dividends ($0.77 per share)

 

 
(207
)
 

 

 

Preferred dividends

 

 
(38
)
 

 

 

Common stock issued for share-based compensation and other plans, net

 
(97
)
 

 
2

 
851

 
9

Share-based compensation

 
92

 

 

 

 

Common stock held in trusts, net (a)

 

 

 

 
(12
)
 

Effect of change in accounting principles

 

 
68

 

 

 

Balance at December 31, 2018
$
347

 
$
16,174

 
$
13,018

 
$
24

 
(77,624
)
 
$
(6,235
)
(a)
Common stock held in trusts represents rabbi trusts in connection with deferred compensation under the Company’s employee salary and bonus deferral plan and directors’ deferral plan.

8



The components and changes of Accumulated other comprehensive income (loss) for the first quarters of fiscal years 2020 and 2019 were as follows:
(Millions of dollars)
Total
 
Foreign Currency
Translation
 
Benefit Plans
 

Cash Flow Hedges
Balance at September 30, 2019
$
(2,283
)
 
$
(1,256
)
 
$
(1,005
)
 
$
(23
)
Other comprehensive income before reclassifications, net of taxes
63

 
26

 

 
37

Amounts reclassified into income, net of taxes
19

 

 
17

 
2

Balance at December 31, 2019
$
(2,202
)
 
$
(1,230
)
 
$
(988
)
 
$
16

(Millions of dollars)
Total
 
Foreign Currency
Translation
 
Benefit Plans
 

Cash Flow Hedges
Balance at September 30, 2018
$
(1,909
)
 
$
(1,162
)
 
$
(729
)
 
$
(17
)
Other comprehensive (loss) income before reclassifications, net of taxes
(32
)
 
(35
)
 
3

 
(1
)
Amounts reclassified into income, net of taxes
14

 

 
13

 
1

Balance at December 31, 2018
$
(1,927
)
 
$
(1,197
)
 
$
(714
)
 
$
(16
)
The amounts of foreign currency translation recognized in other comprehensive income during the three months ended December 31, 2019 and 2018 included net (losses) gains relating to net investment hedges. The amount recognized in other comprehensive income relating to cash flow hedges during the three months ended December 31, 2019 related to forward starting interest rate swaps. Additional disclosures regarding the Company's derivatives are provided in Note 12.
 
 
 
 
 
 
 
 

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
December 31,
 
2019
 
2018
Average common shares outstanding
271,102

 
269,035

Dilutive share equivalents from share-based plans
3,850

 
5,221

Average common and common equivalent shares outstanding – assuming dilution
274,952

 
274,256

 
 
 
 
Share equivalents excluded from the diluted shares outstanding calculation because the result would have been antidilutive:
 
 
 
Mandatory convertible preferred stock
11,685

 
11,685


Note 5Contingencies
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. GAAP, the Company establishes accruals to the extent probable future losses are estimable (in the case of environmental matters, without considering possible third-party recoveries). With respect to putative class action lawsuits in the United States and certain of the Canadian lawsuits described below relating to product liability matters, the Company is unable to estimate a range of reasonably possible losses for the following reasons: (i) all or certain of the proceedings are in early stages; (ii) the Company has not received and reviewed complete information regarding all or certain of the plaintiffs and their medical conditions; and/or (iii) there are significant factual issues to be resolved. In addition, there is uncertainty as to the likelihood of a class being certified or the ultimate size of the class. With respect to the civil investigative demand served by the Department of Justice, as discussed below, the Company is unable to estimate a range of reasonably possible losses for the following reasons: (i) all or certain of the proceedings are in early stages; and/or (ii) there are significant factual and legal issues to be resolved.

9



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.
Product Liability Matters
The Company believes that certain settlements and judgments, as well as legal defense costs, relating to product liability matters are or may be covered in whole or in part under its product liability insurance policies with a limited number of insurance carriers, or, in some circumstances, indemnification obligations to the Company from other parties, which if disputed, the Company intends to vigorously contest. Amounts recovered under the Company’s product liability insurance policies or indemnification arrangements may be less than the stated coverage limits or less than otherwise expected and may not be adequate to cover damages and/or costs relating to claims. In addition, there is no guarantee that insurers or other parties will pay claims or that coverage or indemnity will be otherwise available.
Hernia Product Claims
As of December 31, 2019, the Company is defending approximately 14,330 product liability claims involving the Company’s line of hernia repair devices (collectively, the “Hernia Product Claims”). The majority of those claims are currently pending in a coordinated proceeding in Rhode Island State Court, but claims are also pending in other state and/or federal court jurisdictions. In addition, those claims include multiple putative class actions in Canada. Generally, the Hernia Product Claims seek damages for personal injury allegedly resulting from use of the products. From time to time, the Company engages in resolution discussions with plaintiffs’ law firms regarding certain of the Hernia Product Claims, but the Company also intends to vigorously defend Hernia Product Claims that do not settle, including through litigation. Trials are scheduled throughout 2020 in various state and/or federal courts. The Company expects additional trials of Hernia Product Claims to take place over the next 12 months. In August 2018, a new hernia multi-district litigation (“MDL”) was ordered to be established in the Southern District of Ohio. The Company cannot give any assurances that the resolution of the Hernia Product Claims that have not settled, including asserted and unasserted claims and the putative class action lawsuits, will not have a material adverse effect on the Company’s business, results of operations, financial condition and/or liquidity.
Women’s Health Product Claims
As of December 31, 2019, the Company is defending approximately 750 product liability claims involving the Company’s line of pelvic mesh devices. The majority of those claims are currently pending in various federal court jurisdictions, and a coordinated proceeding in New Jersey State Court, but claims are also pending in other state court jurisdictions. In addition, those claims include putative class actions filed in the United States. Not included in the figures above are approximately 1,010 filed and unfiled claims that have been asserted or threatened against the Company but lack sufficient information to determine whether a pelvic mesh device of the Company is actually at issue.
The claims identified above also include products manufactured by both the Company and two subsidiaries of Medtronic plc (as successor in interest to Covidien plc) (“Medtronic”), each a supplier of the Company. Medtronic has an obligation to defend and indemnify the Company with respect to any product defect liability relating to products its subsidiaries had manufactured. In July 2015, the Company reached an agreement with Medtronic in which Medtronic agreed to take responsibility for pursuing settlement of certain of the Women’s Health Product Claims that relate to products distributed by the Company under supply agreements with Medtronic. In June 2017, the Company amended the agreement with Medtronic to transfer responsibility for settlement of additional Women’s Health Product Claims to Medtronic on terms similar to the July 2015 agreement, including with respect to the obligation to make payments to Medtronic towards these potential settlements. As of December 31, 2019, the Company has paid Medtronic $141 million towards these potential settlements. The Company also may, in its sole discretion, transfer responsibility for settlement of additional Women’s Health Product Claims to Medtronic on similar terms. The agreements do not resolve the dispute between the Company and Medtronic with respect to Women’s Health Product Claims that do not settle, if any. The foregoing lawsuits, unfiled claims, putative class actions, and other claims, together with claims that have settled or are the subject of agreements or agreements in principle to settle, are referred to collectively as the “Women’s Health Product Claims.” The Women’s Health Product Claims generally seek damages for personal injury allegedly resulting from use of the products.
As of December 31, 2019, the Company has reached agreements or agreements in principle with various plaintiffs’ law firms to settle their respective inventories of cases totaling approximately 15,165 of the Women’s Health Product Claims. The Company believes that these Women’s Health Product Claims are not the subject of Medtronic’s indemnification obligation. These settlement agreements and agreements in principle include unfiled and previously unknown claims held by various plaintiffs’ law firms, which are not included in the approximate number of lawsuits set forth in the first paragraph of this section. Each agreement is subject to certain conditions, including requirements for participation in the proposed settlements by a certain

10



minimum number of plaintiffs. The Company continues to engage in discussions with other plaintiffs’ law firms regarding potential resolution of unsettled Women’s Health Product Claims, which may include additional inventory settlements.
Starting in 2014 in the MDL, the court entered certain pre-trial orders requiring trial work up and remand of a significant number of Women’s Health Product Claims, including an order entered in the MDL on January 30, 2018, that requires the work up and remand of all remaining unsettled cases (the “WHP Pre-Trial Orders”). The WHP Pre-Trial Orders may result in material additional costs or trial verdicts in future periods in defending Women’s Health Product Claims. Trials are anticipated throughout 2020 in state and federal courts. A trial in the New Jersey coordinated proceeding began in March 2018, and in April 2018 a jury entered a verdict against the Company in the total amount of $68 million ($33 million compensatory; $35 million punitive). The Company is in the process of appealing that verdict. The Company expects additional trials of Women’s Health Product Claims to take place over the next 12 months, which may potentially include consolidated trials.
During the course of engaging in settlement discussions with plaintiffs’ law firms, the Company has learned, and may in future periods learn, additional information regarding these and other unfiled claims, or other lawsuits, which could materially impact the Company’s estimate of the number of claims or lawsuits against the Company.
Filter Product Claims
As of December 31, 2019, the Company is defending approximately 2,650 product liability claims involving the Company’s line of inferior vena cava filters (collectively, the “Filter Product Claims”). The majority of those claims are currently pending in an MDL in the United States District Court for the District of Arizona, but those MDL claims either have been, or are in the process of being, remanded to various federal jurisdictions. Filter Product Claims are also pending in various state court jurisdictions, including a coordinated proceeding in Arizona State Court. In addition, those claims include putative class actions filed in the United States and Canada. The Filter Product Claims generally seek damages for personal injury allegedly resulting from use of the products. The Company has limited information regarding the nature and quantity of certain of the Filter Product Claims. The Company continues to receive claims and lawsuits and may in future periods learn additional information regarding other unfiled or unknown claims, or other lawsuits, which could materially impact the Company’s estimate of the number of claims or lawsuits against the Company. On May 31, 2019, the MDL Court ceased accepting direct filings or transfers into the Filter Product Claims MDL and, as noted above, remands for non-settled cases have begun and are expected to continue over the next three months. Federal and state court trials are scheduled throughout 2020. As of December 31, 2019, the Company entered into settlement agreements and/or settlement agreements in principle for approximately 6,400 cases. On March 30, 2018, a jury in the first MDL trial found the Company liable for negligent failure to warn and entered a verdict in favor of plaintiffs. The jury found the Company was not liable for (a) strict liability design defect; (b) strict liability failure to warn; and (c) negligent design. The Company has appealed that verdict. On June 1, 2018, a jury in the second MDL trial unanimously found in favor of the Company on all claims. On August 17, 2018, the Court entered summary judgment in favor of the Company on all claims in the third MDL trial. On October 5, 2018, a jury in the fourth MDL trial unanimously found in favor of the Company on all claims. The Company expects additional trials of Filter Product Claims may take place over the next 12 months.
In most product liability litigations (like those described above), plaintiffs allege a wide variety of claims, ranging from allegations of serious injury caused by the products to efforts to obtain compensation notwithstanding the absence of any injury. In many of these cases, the Company has not yet received and reviewed complete information regarding the plaintiffs and their medical conditions and, consequently, is unable to fully evaluate the claims. The Company expects that it will receive and review additional information regarding any remaining unsettled product liability matters.
In connection with the settlement of a prior litigation with certain of the Company's insurance carriers, an agreement with the Company's insurance carriers was reached to reimburse the Company for certain future costs incurred in connection with Filter Product Claims up to an agreed amount. For certain product liability claims or lawsuits, the Company does not maintain or has limited remaining insurance coverage.
Other Legal Matters
Since early 2013, the Company has received subpoenas or Civil Investigative Demands from a number of State Attorneys General seeking information related to the sales and marketing of certain of the Company’s products that are the subject of the Hernia Product Claims and the Women’s Health Product Claims. The Company is cooperating with these requests. Although the Company has had, and continues to have, discussions with the State Attorneys General with respect to overall potential resolution of this matter, there can be no assurance that a resolution will be reached or what the terms of any such resolution may be.
In July 2017, a civil investigative demand was served by the Department of Justice seeking documents and information relating to an investigation into possible violations of the False Claims Act in connection with the sales and marketing of FloChec® and

11



QuantaFloTM devices. The Company is cooperating with these requests. Since it is not feasible to predict the outcome of these matters, the Company cannot give any assurances that the resolution of these matters will not have a material adverse effect on the Company’s business, results of operations, financial condition and/or liquidity.
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 or part of cleanup costs. While it is not feasible to predict the outcome of these proceedings, based upon the Company’s experience, current information and applicable law, the Company does not expect these proceedings to have a material adverse effect on its financial condition and/or liquidity. However, one or more of the proceedings could be material to the Company’s business and/or results of operations.
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 believes that it has meritorious defenses to these suits pending against the Company and is engaged in a vigorous defense of each of these matters.
Litigation Reserves
The Company regularly monitors and evaluates the status of product liability and other legal matters, and may, from time-to-time, engage in settlement and mediation discussions taking into consideration developments in the matters and the risks and uncertainties surrounding litigation. These discussions could result in settlements of one or more of these claims at any time.
In the second and fourth quarters of fiscal year 2019, the Company recorded pre-tax charges to Other operating expense, net, of approximately $331 million and $582 million, respectively, related to certain of the product liability matters discussed above under the heading “Product Liability Matters,” including the related legal defense costs. The Company recorded these charges based on additional information obtained during the second and fourth quarters of fiscal year 2019, including but not limited to: the nature and quantity of unfiled and filed claims and the continued rate of claims being filed in certain product liability matters; the status of certain settlement discussions with plaintiffs’ counsel; the allegations and documentation supporting or refuting such allegations; publicly available information regarding similar medical device mass tort settlements; historical information regarding other product liability settlements involving the Company; and the stage of litigation.
Accruals for the Company's product liability claims which are discussed above, as well as the related legal defense costs, amounted to approximately $2.4 billion at December 31, 2019 and $2.5 billion at September 30, 2019. These accruals, which are generally long-term in nature, are largely recorded within Deferred Income Taxes and Other Liabilities on the Company's condensed consolidated balance sheets. As of December 31, 2019 and September 30, 2019, the Company had $48 million and $53 million, respectively, in qualified settlement funds (“QSFs”), subject to certain settlement conditions, for certain product liability matters. Payments to QSFs are recorded as a component of Restricted cash. The Company's expected recoveries related to product liability claims and related legal defense costs were approximately $152 million and $150 million at December 31, 2019 and September 30, 2019, respectively. A substantial amount of these expected recoveries at December 31, 2019 and September 30, 2019 related to the Company’s agreements with Medtronic related to certain Women’s Health Product Claims. The expected recoveries at December 31, 2019 related to the indemnification obligation are not in dispute with respect to claims that Medtronic settles pursuant to the agreements.
Note 6Revenues
The Company’s policies for recognizing sales have not changed from those described in the Company’s 2019 Annual Report on Form 10-K. The Company sells a broad range of medical supplies, devices, laboratory equipment and diagnostic products which are distributed through independent distribution channels and directly by BD through sales representatives. End-users of the Company's products include healthcare institutions, physicians, life science researchers, clinical laboratories, the pharmaceutical industry and the general public.

12



Measurement of Revenues
The Company’s estimate of probable credit losses relating to trade receivables is determined based on historical experience and other specific account data. Amounts are written off against the allowances for doubtful accounts when the Company determines that a customer account is uncollectible. Such amounts are not material to the Company's consolidated financial results.
The Company's gross revenues are subject to a variety of deductions which are recorded in the same period that the underlying revenues are recognized. Such variable consideration includes rebates, sales discounts and sales returns. The impact of variable consideration, including sales discounts and sales returns, is not material to the Company's revenues.
Effects of Revenue Arrangements on Consolidated Balance Sheets
Capitalized contract costs associated with the costs to fulfill contracts for certain products in the Medication Management Solutions organizational unit are immaterial to the Company's condensed consolidated balance sheets. Commissions relating to revenues recognized over a period longer than one year are recorded as assets which are amortized over the period over which the revenues underlying the commissions are recognized. Capitalized contract costs related to such commissions are immaterial to the Company's condensed consolidated balance sheets.
Contract liabilities for unearned revenue that is allocable to performance obligations, such as extended warranty and software maintenance contracts, which are performed over time are immaterial to the Company's consolidated financial results. The Company's liability for product warranties provided under its agreements with customers is not material to its condensed consolidated balance sheets.
Remaining Performance Obligations
The Company's obligations relative to service contracts and pending installations of equipment, primarily in the Company's Medication Management Solutions unit, represent unsatisfied performance obligations of the Company. The revenues under existing contracts with original expected durations of more than one year, which are attributable to products and/or services that have not yet been installed or provided are estimated to be approximately $1.8 billion at December 31, 2019. The Company expects to recognize the majority of this revenue over the next three years.
Within the Company's Medication Management Solutions, Medication Delivery Solutions, Integrated Diagnostic Solutions, and Biosciences units, some contracts also contain minimum purchase commitments of reagents or other consumables and the future sales of these consumables represent additional unsatisfied performance obligations of the Company. The revenue attributable to the unsatisfied minimum purchase commitment-related performance obligations, for contracts with original expected durations of more than one year, is estimated to be approximately $2.7 billion at December 31, 2019.  This revenue will be recognized over the customer relationship period.
Disaggregation of Revenues
A disaggregation of the Company's revenues by segment, organizational unit and geographic region is provided in Note 7.
Note 7Segment Data
The Company's organizational structure is based upon three principal business segments: BD Medical (“Medical”), BD Life Sciences (“Life Sciences”) and BD Interventional ("Interventional"). The Company's segments are strategic businesses that are managed separately because each one develops, manufactures and markets distinct products and services. Segment disclosures are on a performance basis consistent with internal management reporting. The Company evaluates performance of its business segments and allocates resources to them primarily based upon segment operating income, which represents revenues reduced by product costs and operating expenses.

13



Effective October 1, 2019, Life Sciences joined its former Preanalytical Systems and Diagnostic Systems organizational units to create a new Integrated Diagnostic Solutions organizational unit which focuses on driving growth and innovation around integrated specimen management to diagnostic solutions. The Integrated Diagnostic Solutions organizational unit consists of the following principal product lines:
Organizational Unit
 
Principal Product Lines
Integrated Diagnostic Solutions
 
Integrated systems for specimen collection; safety-engineered blood collection products and systems; automated blood culturing and tuberculosis culturing systems; molecular testing systems for infectious diseases and women’s health; microorganism identification and drug susceptibility systems; liquid-based cytology systems for cervical cancer screening; rapid diagnostic assays for testing of respiratory infections; microbiology laboratory automation and plated media for clinical and industrial applications.
Revenues by segment, organizational unit and geographical areas for the three-month periods are detailed below. The Company has no material intersegment revenues.
 
Three Months Ended December 31,
(Millions of dollars)
2019
 
2018
 
United States
 
International
 
Total
 
United States
 
International
 
Total
Medical
 
 
 
 
 
 
 
 
 
 
 
Medication Delivery Solutions (a)
$
520

 
$
428

 
$
948

 
$
519

 
$
438

 
$
956

Medication Management Solutions (a)
462

 
113

 
575

 
508

 
118

 
625

Diabetes Care
139

 
129

 
268

 
145

 
129

 
274

Pharmaceutical Systems
84

 
215

 
299

 
68

 
212

 
280

Total segment revenues
$
1,204

 
$
886

 
$
2,090

 
$
1,239

 
$
896

 
$
2,135

 
 
 
 
 
 
 
 
 
 
 
 
Life Sciences
 
 
 
 
 
 
 
 
 
 
 
Integrated Diagnostic Solutions
 
 
 
 
 
 
 
 
 
 
 
Preanalytical Systems
$
202

 
$
196

 
$
398

 
$
201

 
$
192

 
$
393

Diagnostic Systems
184

 
218

 
402

 
175

 
207

 
382

Total Integrated Diagnostic Solutions
386

 
414

 
800

 
376

 
399

 
774

Biosciences
152

 
171

 
323

 
108

 
173

 
281

Total segment revenues
$
538

 
$
585

 
$
1,123

 
$
484

 
$
572

 
$
1,056

 
 
 
 
 
 
 
 
 
 
 
 
Interventional
 
 
 
 
 
 
 
 
 
 
 
Surgery (b)
$
256

 
$
70

 
$
326

 
$
246

 
$
64

 
$
310

Peripheral Intervention (b)
225

 
170

 
395

 
223

 
160

 
382

Urology and Critical Care (b)
206

 
85

 
291

 
195

 
83

 
277

Total segment revenues
$
688

 
$
325

 
$
1,012

 
$
664

 
$
306

 
$
970

 
 
 
 
 
 
 
 
 
 
 
 
Total Company revenues
$
2,430

 
$
1,795

 
$
4,225

 
$
2,387

 
$
1,773

 
$
4,160

(a)
Prior-period amounts reflect the reclassification of U.S. revenues of $2 million associated with the movement, effective on October 1, 2019, of certain products from the Medication Delivery Solutions unit to the Medication Management Solutions unit.
(b)Prior-period amounts reflect the total reclassifications of $31 million of U.S. revenues and $14 million of international revenues associated with the movement, effective on October 1, 2019, of certain products from the Surgery unit and the Urology and Critical Care unit to the Peripheral Intervention unit.
 
 
 
 
 
 
 
 
 
 
 
 

14



Segment income for the three-month periods was as follows:
 
Three Months Ended
December 31,
(Millions of dollars)
2019
 
2018
Income Before Income Taxes
 
 
 
Medical (a)
$
564

 
$
665

Life Sciences
361

 
305

Interventional
243

 
209

Total Segment Operating Income
1,167

 
1,180

Acquisitions and other restructurings
(86
)
 
(91
)
Net interest expense
(134
)
 
(183
)
Other unallocated items (b)
(553
)
 
(192
)
Total Income Before Income Taxes
$
394

 
$
714

(a)
The amount for the three months ended December 31, 2019 included the estimated cost of a product recall of $59 million which was recorded to Cost of products sold and is further discussed in Note 15.
(b)
Primarily comprised of foreign exchange, certain general and administrative expenses and share-based compensation expense. The amount for the three months ended December 31, 2018 included the pre-tax gain recognized on the Company's sale of its Advanced Bioprocessing business of approximately $335 million, which is further discussed in Note 9.
Note 8Benefit Plans
The Company has defined benefit pension plans covering certain employees in the United States and certain international locations. The measurement date used for these plans is September 30.
Net pension cost included the following components for the three months ended December 31:
 
Three Months Ended
December 31,
(Millions of dollars)
2019
 
2018
Service cost
$
40

 
$
35

Interest cost
22

 
28

Expected return on plan assets
(49
)
 
(47
)
Amortization of prior service credit
(3
)
 
(3
)
Amortization of loss
25

 
20

Net pension cost
$
35

 
$
32

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. All components of the Company’s net periodic pension cost, aside from service cost, are recorded to Other income (expense), net on its condensed consolidated statements of income.
Note 9Divestiture
The Company completed the sale of its Life Sciences segment's Advanced Bioprocessing business in October 2018 pursuant to a definitive agreement that was signed in September 2018. The Company recognized a pre-tax gain on the sale of approximately $335 million which was recorded as a component of Other operating income, net in the first quarter of fiscal year 2019.

15



Note 10Business Restructuring Charges
The Company incurred restructuring costs during the three months ended December 31, 2019, in connection with the Company's acquisition of C.R. Bard, Inc. ("Bard") and portfolio rationalization initiatives, which were largely recorded within Acquisitions and other restructurings. Restructuring liability activity for the three months ended December 31, 2019 was as follows:
(Millions of dollars)
Employee
Termination
 
Other
 
Total
 
Bard
 
Other Initiatives
 
Bard (a)
 
Other Initiatives
 
Bard
 
Other Initiatives
Balance at September 30, 2019
$
22

 
$
31

 
$
1

 
$
3

 
$
23

 
$
34

Charged to expense
4

 
2

 
13

 
4

 
17

 
6

Cash payments
(7
)
 
(12
)
 
(6
)
 
(4
)
 
(13
)
 
(16
)
Non-cash settlements

 

 
(7
)
 

 
(7
)
 

Balance at December 31, 2019
$
19

 
$
21

 
1

 
$
3

 
$
20

 
$
24


(a)
Largely represents the cost associated with certain pre-acquisition equity awards of Bard which, to encourage post-acquisition employee retention, were converted to BD equity awards with substantially the same terms and conditions as were applicable under such Bard awards immediately prior to the acquisition date. 
Note 11Intangible Assets
Intangible assets consisted of:
 
December 31, 2019
 
September 30, 2019
(Millions of dollars)
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Gross
Carrying
Amount
 
Accumulated
Amortization
Amortized intangible assets
 
 
 
 
 
 
 
Developed technology
$
14,010

 
$
3,161

 
$
13,960

 
$
2,906

Customer relationships
4,610

 
1,265

 
4,608

 
1,183

Product rights
115

 
65

 
110

 
60

Trademarks
407

 
106

 
407

 
102

Patents and other
488

 
311

 
445

 
305

Amortized intangible assets
$
19,630

 
$
4,908

 
$
19,530

 
$
4,555

Unamortized intangible assets
 
 
 
 
 
 
 
Acquired in-process research and development
$
1

 
 
 
$
1

 
 
Trademarks
2

 
 
 
2

 
 
Unamortized intangible assets
$
3

 
 
 
$
3

 
 

Intangible amortization expense for the three months ended December 31, 2019 and 2018 was $345 million and $378 million, respectively.
The following is a reconciliation of goodwill by business segment:
(Millions of dollars)
Medical
 
Life Sciences
 
Interventional
 
Total
Goodwill as of September 30, 2019
$
9,989

  
$
772

 
$
12,615

  
$
23,376

Acquisitions (a)
10

 

 

 
10

Currency translation
17

 
2

 
30

 
49

Goodwill as of December 31, 2019
$
10,016

  
$
774

 
$
12,645

  
$
23,435

(a)
Represents goodwill recognized relative to certain acquisitions which were not material individually or in the aggregate.

16



Note 12Derivative Instruments and Hedging Activities
The Company uses derivative instruments to mitigate certain exposures. The Company does not enter into derivative financial instruments for trading or speculative purposes. 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. In order to mitigate foreign currency exposure relating to its investments in certain foreign subsidiaries, the Company has hedged the currency risk associated with those investments with instruments, such as foreign currency-denominated debt, cross-currency swaps and currency exchange contracts, which are designated as net investment hedges.
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. These gains and losses are largely offset by gains and losses on the underlying hedged items, as well as the hedging costs associated with the derivative instruments. The net amounts recognized in Other income, net, during the three months ended December 31, 2019 and 2018 were immaterial to the Company's consolidated financial results. The total notional amounts of the Company’s outstanding foreign exchange contracts as of December 31, 2019 and September 30, 2019 were $1.2 billion and $2.3 billion, respectively.
Certain of the Company's foreign currency-denominated long-term notes outstanding, which had a total carrying value of $1.4 billion as of December 31, 2019 and September 30, 2019, were designated as, and were effective as, economic hedges of net investments in certain of the Company's foreign subsidiaries. The Company has entered into cross-currency swaps, all of which are designated and effective as economic hedges of net investments in certain of the Company's foreign subsidiaries. The notional amounts of the cross-currency swaps were $3.0 billion and $2.3 billion as of December 31, 2019 and September 30, 2019, respectively.
Net gains or losses relating to the net investment hedges, which are attributable to changes in the foreign currencies to U.S. dollar spot exchange rates, are recorded as accumulated foreign currency translation in Other comprehensive income (loss). Upon the termination of a net investment hedge, any net gain or loss included in Accumulated other comprehensive income (loss) relative to the investment hedge remains until the foreign subsidiary investment is disposed of or is substantially liquidated.
Net (losses) gains recorded to Accumulated other comprehensive income (loss) relating to the Company's net investment hedges for the three-month periods were as follows:
 
Three Months Ended
December 31,
(Millions of dollars)
2019
 
2018
Foreign currency-denominated debt
$
(34
)
 
$
59

Cross-currency swaps
$
(52
)
 
$


Interest Rate Risks and Related Strategies
The Company’s policy is to manage interest rate exposure 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.
The total notional amount of the Company’s outstanding interest rate swaps designated as fair value hedges was $375 million at December 31, 2019 and September 30, 2019. The outstanding swaps represent fixed-to-floating interest rate swap agreements the Company entered into to convert the interest payments on certain long-term notes 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 amounts recorded during the three months ended December 31, 2019 and 2018 for changes in the fair value of these hedges were immaterial to the Company's consolidated financial results.

17



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 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 $6 million, net of tax.
The total notional amount of the Company's outstanding forward starting interest rate swaps was $1.5 billion at December 31, 2019 and September 30, 2019. The Company entered into these contracts in the fourth quarter of fiscal year 2019 to mitigate its exposure to interest rate risk. The Company recognized an after-tax gain of $37 million in other comprehensive income relating to these interest rate hedges during the three months ended December 31, 2019.
 
 
 
 
 
 
 
 

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 through commodity derivative forward contracts. The Company's outstanding commodity derivative forward contracts at December 31, 2019 and September 30, 2019 were immaterial to the Company's consolidated financial results.
Financial Statement Effects
The fair values of derivative instruments outstanding at December 31, 2019 and September 30, 2019 were not material to the Company's consolidated balance sheets.
 

The amounts reclassified from accumulated other comprehensive income relating to cash flow hedges during the three months ended December 31, 2019 and 2018 were not material to the Company's consolidated financial results.
 
 
 
 
 
 
 
 

 
 
 
 
 
 
 
 
 
 

Note 13Financial Instruments and Fair Value Measurements
The following reconciles cash and equivalents and restricted cash reported within the Company's consolidated balance sheets at December 31, 2019 and September 30, 2019 to the total of these amounts shown on the Company's consolidated statements of cash flows:
(Millions of dollars)
December 31, 2019
 
September 30, 2019
Cash and equivalents
$
560

 
$
536

Restricted cash
49

 
54

Cash and equivalents and restricted cash
$
609

 
$
590


Cash equivalents consist of all highly liquid investments with a maturity of three months or less at time of purchase. Restricted cash consists of cash restricted from withdrawal and usage except for certain product liability matters.
The Company’s cash and equivalents include institutional money market accounts which 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, which are considered Level 1 inputs in the fair value hierarchy. The fair value of these accounts was immaterial at December 31, 2019 and the fair value of these accounts at September 30, 2019 was $39 million. The Company’s remaining cash and equivalents, excluding restricted cash, were $560 million and $497 million at December 31, 2019 and September 30, 2019, respectively.
Short-term investments are held to their maturities and are carried at cost, which approximates fair value. The short-term investments consist of instruments with maturities greater than three months and less than one year.
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 $18.1 billion and $19.2 billion at December 31, 2019 and September 30, 2019, respectively. The fair value of the current portion of long-term debt was $2.5 billion and $1.3 billion at December 31, 2019 and September 30, 2019, respectively.
All other instruments measured by the Company at fair value, including derivatives and contingent consideration liabilities, are immaterial to the Company's consolidated balance sheets.

18



Transfers of trade receivables
Over the normal course of its business activities, the Company transfers certain trade receivable assets to third parties under factoring agreements. Per the terms of these agreements, the Company surrenders control over its trade receivables upon transfer.  Accordingly, the Company accounts for the transfers as sales of trade receivables by recognizing an increase to Cash and equivalents and a decrease to Trade receivables, net when proceeds from the transactions are received.  The Company’s balance of Trade receivables, net at December 31, 2019 excludes trade receivables of $328 million that have been transferred to third parties under factoring arrangements.  The costs incurred by the Company in connection with factoring activities were not material to its consolidated financial results.  The Company’s transfers of trade receivables during the three months ended December 31, 2018 were not material to its consolidated financial results.

Note 14Leases
The Company leases real estate, vehicles and other equipment which are used in the Company’s manufacturing, administrative and research and development activities. The Company identifies a contract that contains a lease as one which conveys a right, either explicitly or implicitly, to control the use of an identified asset in exchange for consideration. The Company’s lease arrangements are generally classified as operating leases. These arrangements have remaining terms ranging from less than one year to approximately 25 years and the weighted-average remaining lease term of the Company’s leases is approximately 7.5 years. An option to renew or terminate the current term of a lease arrangement is included in the lease term if the Company is reasonably certain to exercise that option.
The Company does not recognize a right-of-use asset and lease liability for short-term leases, which have terms of 12 months or less, on its consolidated balance sheet. For the longer-term lease arrangements that are recognized on the Company’s consolidated balance sheet, the right-of-use asset and lease liability is initially measured at the commencement date based upon the present value of the lease payments due under the lease. These payments represent the combination of the fixed lease and fixed non-lease components that are due under the arrangement. The costs associated with the Company’s short-term leases, as well as variable costs relating to the Company’s lease arrangements, are not material to its consolidated financial results.
The implicit interest rates of the Company’s lease arrangements are generally not readily determinable and as such, the Company applies an incremental borrowing rate, which is established based upon the information available at the lease commencement date, to determine the present value of lease payments due under an arrangement. The weighted-average incremental borrowing rate that has been applied to measure the Company’s lease liabilities is 2.3%.
The Company’s lease costs recorded in its consolidated statement of income for the three months ended December 31, 2019 were $34 million. Cash payments arising from the Company’s lease arrangements are reflected on its condensed consolidated statement of cash flows as outflows used for operating activities. The right-of-use assets and lease liabilities recognized on the Company’s condensed consolidated balance sheet as of December 31, 2019 were as follows:
(Millions of dollars)
December 31, 2019
Right-use-assets recorded in Other Assets
$
426

Current lease liabilities recorded in Payables, accrued expenses and other current liabilities
$
105

Non-current lease liabilities recorded in Deferred Income Taxes and Other Liabilities
$
340


The Company’s payments due under its operating leases are as follows:
(Millions of dollars)
 
Remaining for 2020
$
86

2021
95

2022
74

2023
49

2024
33

Thereafter
158

Total payments due
494

Less: imputed interest
49

Total
$
445



19



The Company’s future minimum rental commitments on non-cancelable leases at September 30, 2019, as disclosed in the Company’s 2019 Annual Report on Form 10-K, were as follows:
(Millions of dollars)
 
2020
$
122

2021
103

2022
83

2023
57

2024
56

Thereafter
123

Total
$
546


Note 15 – Subsequent Event
On February 4, 2020, the Company initiated a voluntary recall of certain AlarisTM pump systems in order to address software errors and other alarm prioritization matters. The estimated cost of this recall of $59 million was recorded to Cost of products sold during the three months ended December 31, 2019. The Company may record incremental charges in future periods associated with this recall.

20




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 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.
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 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 countries in East Asia, South Asia, Southeast Asia and the Oceania region); 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 Greater Asia. We are primarily focused on certain countries whose healthcare systems are expanding.
Overview of Financial Results and Financial Condition
For the three months ended December 31, 2019, worldwide revenues of $4.225 billion increased 1.6% from the prior-year period which reflected volume growth of approximately 3.5%, an unfavorable impact from foreign currency translation of approximately 0.9% and pricing pressures of approximately 0.8%. Revenue growth in the first quarter also reflected an unfavorable impact of 0.2% attributable to the Biosciences unit's divestiture of its Advanced Bioprocessing business at the end of October 2018, as is further discussed in Note 9 in the Notes to Condensed Consolidated Financial Statements. Volume growth in the first quarter of fiscal year 2020 reflected the following:
Medical segment revenues in the first quarter reflected strong growth in the Pharmaceutical Systems unit.
Life Sciences segment revenues in the first quarter reflected growth in both of the segment's units, particularly in the Biosciences unit.
Interventional segment revenues in the first quarter reflected sales growth in all units.
First quarter Medical segment revenues were unfavorably impacted by the Medication Management Solutions unit's delay of shipments of AlarisTM infusion pumps pending compliance with certain regulatory filing requirements of the U.S. Food and Drug Administration ("FDA").  Currently, BD will only sell pumps to existing customers who demonstrate a medical necessity for the pumps.  As a result, we expect revenues from our Medication Management Solutions unit for the current fiscal year to decline significantly compared to the prior year. We expect the filing with the FDA to be made in BD’s fourth fiscal quarter.
We continue to invest in research and development, geographic expansion, and new product development 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. While the economic environment for the healthcare industry and healthcare utilization in the United States is generally stable, destabilization in the future could adversely impact our 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. In addition, pricing pressure exists globally which could adversely impact our businesses. 
Cash flows from operating activities were $713 million in the first three months of fiscal year 2020. At December 31, 2019, we had $617 million in cash and equivalents and short-term investments, including restricted cash. We continued to return value to our shareholders in the form of dividends. During the first three months of fiscal year 2020, we paid cash dividends of $252 million, including $215 million paid to common shareholders and $38 million paid 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 un