Item 8. Financial Statements and Supplementary Data.

Reports of Management

Management’s Responsibilities

The following financial statements have been prepared by management in conformity with U.S. generally accepted accounting principles and include, where required, amounts based on the best estimates and judgments of management. The integrity and objectivity of data in the financial statements and elsewhere in this Annual Report are the responsibility of management.

In fulfilling its responsibilities for the integrity of the data presented and to safeguard the Company’s assets, management employs a system of internal accounting controls designed to provide reasonable assurance, at appropriate cost, that the Company’s assets are protected and that transactions are appropriately authorized, recorded and summarized. This system of control is supported by the selection of qualified personnel, by organizational assignments that provide appropriate delegation of authority and division of responsibilities, and by the dissemination of written policies and procedures. This control structure is further reinforced by a program of internal audits, including a policy that requires responsive action by management.

The Board of Directors monitors the internal control system, including internal accounting and financial reporting controls, through its Audit Committee, which consists of eight independent Directors. The Audit Committee meets periodically with the independent registered public accounting firm, the internal auditors and management to review the work of each and to satisfy itself that they are properly discharging their responsibilities. The independent registered public accounting firm and the internal auditors have full and free access to the Audit Committee and meet with its members, with and without management present, to discuss the scope and results of their audits including internal control, auditing and financial reporting matters.

Management’s Report on Internal Control Over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rule 13a-15(f) under the Securities Act of 1934. Management conducted an assessment of the effectiveness of internal control over financial reporting based on the criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework).

On December 29, 2017, the Company completed the acquisition of C.R. Bard, Inc. ("Bard"). While the Company has extended its oversight and monitoring processes that support its internal control over financial reporting, as well as its disclosure controls and procedures, the Company continues to integrate the acquired operations of Bard. As such, the Company has excluded Bard from its evaluation of internal control over financial reporting. This exclusion is in accordance with the U.S. Securities and Exchange Commission's general guidance that a recently acquired business may be omitted from the assessment scope for up to one year from the date of acquisition. Bard is a wholly-owned subsidiary with total assets that represented approximately 5% of the Company's consolidated total assets at September 30, 2018 and total revenues that represented approximately 19% of the Company's consolidated revenues for fiscal year 2018.

Based on the Company's assessment of the effectiveness of internal control over financial reporting and the criteria noted above, management concluded that internal control over financial reporting was effective as of September 30, 2018.

The financial statements and internal control over financial reporting have been audited by Ernst & Young LLP, an independent registered public accounting firm. Ernst & Young’s reports with respect to fairness of the presentation of the financial statements, and the effectiveness of internal control over financial reporting, are included herein.

/s/ Vincent A. Forlenza		/s/ Christopher Reidy		/s/ Charles Bodner
Vincent A. Forlenza		Christopher Reidy		Charles Bodner
Chairman and Chief Executive Officer		Executive Vice President, Chief Financial Officer and Chief Administrative Officer		Senior Vice President, Corporate Finance and Chief Accounting Officer

Report of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Directors of

Becton, Dickinson and Company

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Becton, Dickinson and Company (the Company) as of September 30, 2018 and 2017, the related consolidated statements of income, comprehensive income and cash flows for each of the three years in the period ended September 30, 2018, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at September 30, 2018 and 2017, and the results of its operations and its cash flows for each of the three years in the period ended September 30, 2018, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of September 30, 2018, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated November 21, 2018 expressed an unqualified opinion thereon.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ ERNST & YOUNG LLP
We have served as the Company's auditor since 1959.
New York, New York
November 21, 2018

Report of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Directors of

Becton, Dickinson and Company

Opinion on Internal Control over Financial Reporting

We have audited Becton, Dickinson and Company’s internal control over financial reporting as of September 30, 2018, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Becton, Dickinson and Company (the Company) maintained, in all material respects, effective internal control over financial reporting as of September 30, 2018, based on the COSO criteria.

As indicated in the accompanying Management's Report on Internal Control over Financial Reporting, management’s assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of C.R. Bard, Inc., which is included in the 2018 consolidated financial statements of the Company and constituted 5% of total assets as of September 30, 2018 and 19% of net sales for the year then ended. Our audit of internal control over financial reporting of the Company also did not include an evaluation of the internal control over financial reporting of C.R. Bard, Inc.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the 2018 consolidated balance sheets of the Company as of September 30, 2018 and 2017, the related consolidated statements of comprehensive income and cash flows for each of the three years in the period ended September 30, 2018, and the related notes and our report dated November 21, 2018 expressed an unqualified opinion thereon.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management's Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ ERNST & YOUNG LLP
New York, New York
November 21, 2018

Consolidated Statements of Income

Becton, Dickinson and Company

Years Ended September 30

Millions of dollars, except per share amounts	2018				2017				2016
Revenues	$	15,983			$	12,093			$	12,483
Cost of products sold	8,721				6,151				6,492
Selling and administrative expense	4,015				2,925				3,005
Research and development expense	1,006				774				828
Acquisitions and other restructurings	744				354				728
Other operating expense, net	—				410				—
Total Operating Costs and Expenses	14,487				10,615				11,053
Operating Income	1,497				1,478				1,430
Interest expense	(706		)		(521		)		(388		)
Interest income	65				76				21
Other income (expense), net	318				(57		)		11
Income Before Income Taxes	1,173				976				1,074
Income tax provision (benefit)	862				(124		)		97
Net Income	311				1,100				976
Preferred stock dividends	(152		)		(70		)		—
Net income applicable to common shareholders	$	159			$	1,030			$	976
Basic Earnings per Share	$	0.62			$	4.70			$	4.59
Diluted Earnings per Share	$	0.60			$	4.60			$	4.49

Amounts may not add due to rounding.

See notes to consolidated financial statements.

Consolidated Statements of Comprehensive Income

Becton, Dickinson and Company

Years Ended September 30

Millions of dollars	2018				2017				2016
Net Income	$	311			$	1,100			$	976
Other Comprehensive (Loss) Income, Net of Tax
Foreign currency translation adjustments	(161		)		11				(50		)
Defined benefit pension and postretirement plans	(26		)		179				(141		)
Cash flow hedges	1				17				1
Other Comprehensive (Loss) Income, Net of Tax	(186		)		206				(191		)
Comprehensive Income	$	125			$	1,306			$	786

Amounts may not add due to rounding.

See notes to consolidated financial statements.

Consolidated Balance Sheets

Becton, Dickinson and Company

September 30

Millions of dollars, except per share amounts and numbers of shares	2018				2017
Assets
Current Assets
Cash and equivalents	$	1,140			$	14,179
Restricted cash	96				—
Short-term investments	17				21
Trade receivables, net	2,319				1,744
Inventories	2,451				1,818
Assets held for sale	137				—
Prepaid expenses and other	1,251				871
Total Current Assets	7,411				18,633
Property, Plant and Equipment, Net	5,375				4,638
Goodwill	23,600				7,563
Developed Technology, Net	12,184				2,478
Customer Relationships, Net	3,723				2,830
Other Intangibles, Net	534				585
Other Assets	1,078				1,007
Total Assets	$	53,904			$	37,734
Liabilities and Shareholders’ Equity
Current Liabilities
Short-term debt	$	2,601			$	203
Accounts payable	1,106				797
Accrued expenses	2,255				1,393
Salaries, wages and related items	910				773
Income taxes	343				176
Total Current Liabilities	7,216				3,342
Long-Term Debt	18,894				18,667
Long-Term Employee Benefit Obligations	1,056				1,168
Deferred Income Taxes and Other	5,743				1,609
Commitments and Contingencies (See Note 5)
Shareholders’ Equity
Preferred stock	2				2
Common stock — $1 par value: authorized — 640,000,000 shares; issued — 346,687,160 shares in 2018 and 2017.	347				347
Capital in excess of par value	16,179				9,619
Retained earnings	12,596				13,111
Deferred compensation	22				19
Common stock in treasury — at cost — 78,462,971 shares in 2018 and 118,744,758 shares in 2017.	(6,243		)		(8,427		)
Accumulated other comprehensive loss	(1,909		)		(1,723		)
Total Shareholders’ Equity	20,994				12,948
Total Liabilities and Shareholders’ Equity	$	53,904			$	37,734

Amounts may not add due to rounding.

See notes to consolidated financial statements.

Consolidated Statements of Cash Flows

Becton, Dickinson and Company

Years Ended September 30

Millions of dollars	2018				2017				2016
Operating Activities
Net income	$	311			$	1,100			$	976
Adjustments to net income to derive net cash provided by operating activities:
Depreciation and amortization	1,978				1,088				1,114
Share-based compensation	322				174				196
Deferred income taxes	(240		)		(236		)		(426		)
Change in operating assets and liabilities:
Trade receivables, net	(170		)		(93		)		(128		)
Inventories	246				(46		)		69
Prepaid expenses and other	(46		)		(366		)		90
Accounts payable, income taxes and other liabilities	867				134				368
Pension obligation	(263		)		84				(32		)
Excess tax benefits from payments under share-based compensation plans	78				77				—
Lease contract modification-related charge	—				748				—
Gain on sale of Vyaire interest	(303		)		—				—
Other, net	85				(114		)		332
Net Cash Provided by Operating Activities	2,865				2,550				2,559
Investing Activities
Capital expenditures	(895		)		(727		)		(693		)
Proceeds from (purchases of) investments, net	11				13				(1		)
Acquisitions of businesses, net of cash acquired	(15,281		)		(174		)		—
Proceeds from divestitures, net	534				165				158
Other, net	(198		)		(161		)		(133		)
Net Cash Used for Investing Activities	(15,829		)		(883		)		(669		)
Financing Activities
Change in credit facility borrowings	—				(200		)		(500		)
Proceeds from long-term debt and term loans	5,086				11,462				—
Payments of debt and term loans	(3,996		)		(3,980		)		(752		)
Proceeds from issuance of equity securities	—				4,827				—
Repurchase of common stock	—				(220		)		—
Excess tax benefit from payments under share-based compensation plans	—				—				86
Dividends paid	(927		)		(677		)		(562		)
Other, net	(220		)		(234		)		(32		)
Net Cash (Used for) Provided by Financing Activities	(58		)		10,977				(1,761		)
Effect of exchange rate changes on cash and equivalents	(17		)		(6		)		(12		)
Net (Decrease) Increase in Cash and Equivalents	(13,039		)		12,638				117
Opening Cash and Equivalents	14,179				1,541				1,424
Closing Cash and Equivalents	$	1,140			$	14,179			$	1,541
Non-Cash Investing Activities
Fair value of shares issued as acquisition consideration (See Note 9)	$	8,004			$	—			$	—
Fair value of equity awards issued as acquisition consideration (See Note 9)	$	613			$	—			$	—

Amounts may not add due to rounding.

See notes to consolidated financial statements.

Notes to Consolidated Financial Statements

Becton, Dickinson and Company

Millions of dollars, except per share amounts or as otherwise specified

Note 1 — Summary of Significant Accounting Policies

Basis of Presentation

The accompanying Consolidated Financial Statements and Notes to Consolidated Financial Statements of Becton, Dickinson and Company (the “Company”) have been prepared in accordance with U.S. generally accepted accounting principles. 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. Our fiscal year ends on September 30.

Principles of Consolidation

The consolidated financial statements include the Company’s accounts and those of its majority-owned subsidiaries after the elimination of intercompany transactions. The Company has no material interests in variable interest entities.

Cash Equivalents

Cash equivalents consist of all highly liquid investments with a maturity of three months or less at time of purchase.

Restricted Cash

Restricted cash consists of cash restricted from withdrawal and usage and largely represents funds that are restricted for certain product liability matters assumed in the acquisition of C.R. Bard, Inc. ("Bard") which is further discussed in Note 9.

Short-Term Investments

Short-term investments consist of time deposits with maturities greater than three months and less than one year when purchased.

Trade Receivables

The Company grants credit to customers in the normal course of business and the resulting trade receivables are stated at their net realizable value. The allowance for doubtful accounts represents the Company’s estimate of probable credit losses relating to trade receivables and 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.

Inventories

Inventories are stated at the lower of first-in, first-out cost or market.

Property, Plant and Equipment

Property, plant and equipment are stated at cost, less accumulated depreciation and amortization. Depreciation and amortization are principally provided on the straight-line basis over estimated useful lives, which range from 20 to 45 years for buildings, four to 13 years for machinery and equipment and one to 20 years for leasehold improvements. Depreciation and amortization expense was $600 million, $406 million and $452 million in fiscal years 2018, 2017 and 2016, respectively.

Notes to Consolidated Financial Statements — (Continued)

Becton, Dickinson and Company

Goodwill and Other Intangible Assets

The Company’s unamortized intangible assets include goodwill and in-process research and development assets which arise from acquisitions. The Company currently reviews all indefinite-lived assets, including goodwill, for impairment generally using quantitative models. Goodwill is reviewed at least annually for impairment at the reporting unit level, which is defined as an operating segment or one level below an operating segment, referred to as a component. The Company’s reporting units generally represent one level below reporting segments. Potential impairment of goodwill is generally identified by comparing the fair value of a reporting unit, estimated using an income approach, with its carrying value. The annual impairment review performed on July 1, 2018 indicated that all identified reporting units’ fair values exceeded their respective carrying values. The review for impairment of in-process research and development assets is performed by comparing the fair value of the technology or project assets, estimated using an income approach, with their carrying value. In-process research and development assets are considered indefinite-lived assets and are reviewed at least annually for impairment until projects are completed or abandoned.

Amortized intangible assets include developed technology assets which arise from acquisitions. These assets represent acquired intellectual property that is already technologically feasible upon the acquisition date or acquired in-process research and development assets that are completed subsequent to acquisition. Developed technology assets are generally amortized over periods ranging from 15 to 20 years, using the straight-line method. Customer relationship assets are generally amortized over periods ranging from 10 to 15 years, using the straight-line method. Other intangibles with finite useful lives, which include patents, are amortized over periods principally ranging from one to 40 years, using the straight-line method. Finite-lived intangible assets, including developed technology assets, are periodically reviewed when impairment indicators are present to assess recoverability from future operations using undiscounted cash flows. The carrying values of these finite-lived assets are compared to the undiscounted cash flows they are expected to generate and an impairment loss is recognized in operating results to the extent any finite-lived intangible asset’s carrying value exceeds its calculated fair value.

Foreign Currency Translation

Generally, foreign subsidiaries’ functional currency is the local currency of operations and the net assets of foreign operations are translated into U.S. dollars using current exchange rates. The U.S. dollar results that arise from such translation, as well as exchange gains and losses on intercompany balances of a long-term investment nature, are included in the foreign currency translation adjustments in Accumulated other comprehensive income (loss).

Revenue Recognition

Revenue from product sales is typically recognized when all of the following criteria have been met: persuasive evidence of an arrangement exists; delivery has occurred or services have been rendered; product price is fixed or determinable; collection of the resulting receivable is reasonably assured. Certain sales arrangements contain multiple deliverables, including equipment and service deliverables, which requires the Company to determine the separate units of account. If the deliverable meets the criteria of a separate unit of accounting, the arrangement consideration is allocated to each element based upon its relative selling price. In determining the best evidence of selling price of a unit of account the Company utilizes vendor-specific objective evidence (“VSOE”), which is the price the Company charges when the deliverable is sold separately. When VSOE is not available, management uses relevant third-party evidence (“TPE”) of selling price, if available. When neither VSOE nor TPE of selling price exists, management uses its best estimate of selling price.

Revenue allocated to certain equipment deliverables is recognized upon customer acceptance, which occurs after the transfer of title and risk of loss to the customer and the completion of installation or training services. When related services are considered inconsequential, delivery is deemed to occur upon the transfer of title and risk of loss, at which time revenue and the costs associated with services are recognized.

Notes to Consolidated Financial Statements — (Continued)

Becton, Dickinson and Company

For equipment lease revenue, transactions are evaluated and classified as either operating leases or sales-type leases. Generally, the Company's lease arrangements with customers are accounted for as operating leases and therefore, revenue is recognized at the contracted rate over the rental period, as defined within the customer agreement.

For products sold and leased with embedded software, if software is considered not essential to the non-software elements of a product but is considered more than incidental to a product as a whole, the product’s software elements must be separated from its non-software elements under the requirements relating to multiple-element arrangements and accounted for under software industry-specific revenue recognition requirements. However, if it is determined that the embedded software is more than incidental to the product as a whole but the non-software elements and software elements work together to deliver the essential functionality of the products as a whole, then the accounting for such product does not fall within the scope of software industry-specific accounting requirements.

The Company’s domestic businesses sell products primarily to distributors that resell the products to end-user customers. Rebates are provided to distributors that sell to end-user customers at prices determined under a contract between the Company and the end-user customer. Provisions for rebates, as well as sales discounts and returns, are based upon estimates and are accounted for as a reduction of revenues when revenue is recognized.

Shipping and Handling Costs

Shipping and handling costs are included in Selling and administrative expense. Shipping expense was $479 million, $365 million and $401 million in 2018, 2017 and 2016, respectively.

Derivative Financial Instruments

All derivatives are recorded in the balance sheet at fair value and changes in fair value are recognized currently in earnings unless specific hedge accounting criteria are met. Any deferred gains or losses associated with derivative instruments are recognized in income in the period in which the underlying hedged transaction is recognized. Additional disclosures regarding the Company's accounting for derivative instruments are provided in Note 13.

Income Taxes

The Company has historically asserted indefinite reinvestment of the earnings of certain non-U.S. subsidiaries outside the United States. New U.S. tax legislation, which is further discussed in Note 16, eliminated certain material tax effects on the repatriation of cash to the United States. Future repatriation of cash and other property held by the Company's foreign subsidiaries will generally not be subject to U.S. federal income tax. As a result, after reevaluation of the permanent reinvestment assertion, the Company is no longer permanently reinvested with respect to its historic unremitted foreign earnings as of September 30, 2018.

The Company conducts business and files tax returns in numerous countries and currently has tax audits in progress in a number of tax jurisdictions. In evaluating the exposure associated with various tax filing positions, the Company records accruals for uncertain tax positions, based on the technical support for the positions, past audit experience with similar situations, and the potential interest and penalties related to the matters.

The Company maintains valuation allowances where it is more likely than not that all or a portion of a deferred tax asset will not be realized. Changes in valuation allowances are included in the tax provision in the period of change. In determining whether a valuation allowance is warranted, management evaluates factors such as prior earnings history, expected future earnings, carryback and carryforward periods and tax strategies that could potentially enhance the likelihood of the realization of a deferred tax asset. Additional disclosures regarding the Company's accounting for income taxes are provided in Note 16.

Earnings per Share

Basic earnings per share are computed by dividing income available to common stockholders by the weighted average number of common shares outstanding. Diluted earnings per share reflect the potential

Notes to Consolidated Financial Statements — (Continued)

Becton, Dickinson and Company

dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. In computing diluted earnings per share, only potential common shares that are dilutive (i.e., those that reduce earnings per share or increase loss per share) are included in the calculation.

Use of Estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions. These estimates or assumptions affect reported assets, liabilities, revenues and expenses as reflected in the consolidated financial statements. Actual results could differ from these estimates.

Note 2 — Accounting Changes

New Accounting Principle Adopted

In the second quarter of its fiscal year 2018, the Company prospectively adopted an accounting standard update issued by the Financial Accounting Standards Board ("FASB") relating to the stranded income tax effects on items within Accumulated other comprehensive income (loss) resulting from the enactment of new U.S. tax legislation, which legislation is further discussed in Note 16. Additional disclosures regarding this accounting standard adoption are provided in Note 3.

On October 1, 2016, the Company prospectively adopted amended requirements issued by the FASB relating to the timing of recognition and classification of share-based compensation award-related income tax effects. Upon adoption of the requirements in 2017, the Company has recorded tax benefits relating to share-based compensation awards within Income tax (benefit) provision on its consolidated statement of income. These tax benefits had been previously recorded within Capital in excess of par value on the Company's consolidated balance sheet. Also upon adoption of the amended guidance in 2017, the Company has classified excess tax benefits on its consolidated statement of cash flows within Net Cash Provided by Operating Activities, rather than Net Cash Provided by (Used for) Financing Activities.

New Accounting Principles Not Yet Adopted

In March 2017, the FASB issued an accounting standard update which requires all components of net periodic pension and postretirement benefit costs to be disaggregated from the service cost component and to be presented on the income statement outside a subtotal of income from operations, if one is presented. The Company's adoption of the new requirements on October 1, 2018 is not expected to have a material impact on its consolidated financial statements.

In February 2016, the FASB issued a new lease accounting standard which requires lessees to recognize lease assets and lease liabilities on the balance sheet. The new standard also requires expanded disclosures regarding leasing arrangements. The Company will adopt the standard on October 1, 2019 and has commenced its initial assessment of the impact on its consolidated financial statements.

In May 2014, the FASB issued a new revenue recognition standard. Under this standard, revenue is recognized upon the transfer of goods or services to customers and the amount of revenue recognized reflects the consideration to which a reporting entity expects to be entitled in exchange for those goods or services. The Company adopted the standard on October 1, 2018 using the modified retrospective method. The Company assessed the impact that this new revenue recognition standard will have on its consolidated financial statements based upon a review of contracts that were not completed as of October 1, 2018. The Company is currently finalizing the changes to its processes, systems and controls which are necessary to support recognition and disclosure under the new revenue recognition standard. The Company does not expect its adoption of the new standard to have a material impact on its consolidated financial statements.

Notes to Consolidated Financial Statements — (Continued)

Becton, Dickinson and Company

Note 3 — Shareholders’ Equity

Changes in certain components of shareholders’ equity 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, 2015	$	333			$	4,475			$	12,314			$	20			(121,967	)		$	(8,239	)
Net income	—				—				976				—				—			—
Cash dividends:
Common ($2.64 per share)	—				—				(562		)		—				—			—
Common stock issued for:
Share-based compensation and other plans, net	—				27				(1		)		2				2,607			26
Share-based compensation	—				191				—				—				—			—
Common stock held in trusts, net (a)	—				—				—				—				(11	)		—
Balance at September 30, 2016	$	333			$	4,693			$	12,727			$	22			(119,371	)		$	(8,212	)
Net income	—				—				1,100				—				—			—
Cash dividends:
Common ($2.92 per share)	—				—				(645		)		—				—			—
Preferred	—				—				(70		)		—				—			—
Common stock issued for:
Public equity offerings (b)	14				4,810				—				—				—			—
Share-based compensation and other plans, net	—				(65		)		(1		)		(3		)		1,908			6
Share-based compensation	—				180				—				—				—			—
Common stock held in trusts, net (a)	—				—				—				—				7			—
Repurchase of common stock (c)	—				—				—				—				(1,289	)		(220		)
Balance at September 30, 2017	$	347			$	9,619			$	13,111			$	19			(118,745	)		$	(8,427	)
Net income	—				—				311				—				—			—
Cash dividends:
Common ($3.00 per share)	—				—				(775		)		—				—			—
Preferred	—				—				(152		)		—				—			—
Common stock issued for:
Acquisition (see Note 9)	—				6,478				—				—				37,306			2,121
Share-based compensation and other plans, net	—				(246		)		(2		)		3				2,982			62
Share-based compensation	—				328				—				—				—			—
Common stock held in trusts, net (a)	—				—				—				—				(6	)		—
Effect of change in accounting principle (see Note 2 and further discussion below)	—				—				103				—				—			—
Balance at September 30, 2018	$	347			$	16,179			$	12,596			$	22			(78,463	)		$	(6,243	)

(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.

Notes to Consolidated Financial Statements — (Continued)

Becton, Dickinson and Company

(b)

In May 2017 and in connection with the Company's acquisition of Bard, which is further discussed in Note 9, the Company completed registered public offerings of equity securities including 14.025 million shares of the Company's common stock and 2.475 million shares of the Company's mandatory convertible preferred stock (ownership is held in the form of depositary shares, each representing a 1/20th interest in a share of preferred stock) for total net proceeds of $4.8 billion. If and when declared, dividends on the mandatory convertible preferred stock are payable on a cumulative basis at an annual rate of 6.125% on the liquidation preference of $1,000 per preferred share ($50 per depositary share). The shares of preferred stock are convertible to a minimum of 11.7 million and up to a maximum of 14.0 million shares of Company common stock at an exchange ratio that is based on the market price of the Company’s common stock at the date of conversion, and no later than the mandatory conversion date of May 1, 2020.

(c)	Using proceeds received from the divestiture of the Respiratory Solutions business in the first quarter of fiscal year 2017, the Company repurchased shares of its common stock under an accelerated share repurchase agreement.

The components and changes of Accumulated other comprehensive income (loss) were as follows:

(Millions of dollars)	Total				Foreign Currency Translation				Benefit Plans				Cash Flow Hedges
Balance at September 30, 2015	$	(1,738	)		$	(961	)		$	(741	)		$	(36	)
Other comprehensive loss before reclassifications, net of taxes	(251		)		(50		)		(190		)		(11		)
Amounts reclassified into income, net of taxes	60				—				48				12
Balance at September 30, 2016	$	(1,929	)		$	(1,011	)		$	(883	)		$	(35	)
Other comprehensive income before reclassifications, net of taxes	140				11				121				8
Amounts reclassified into income, net of taxes	66				—				58				8
Balance at September 30, 2017	$	(1,723	)		$	(1,001	)		$	(703	)		$	(18	)
Other comprehensive (loss) income before reclassifications, net of taxes	(142		)		(161		)		19				—
Amounts reclassified into income, net of taxes	57				—				52				5
Tax effects reclassified to retained earnings	(103		)		—				(99		)		(4		)
Balance at September 30, 2018	$	(1,909	)		$	(1,162	)		$	(729	)		$	(17	)

The amount of foreign currency translation recognized in other comprehensive income during the years ended September 30, 2018 and 2017 included net gains (losses) relating to net investment hedges, as further discussed in Note 13. The amount recognized in other comprehensive income during the year ended September 30, 2017 relating to cash flow hedges represented a net gain on forward starting interest rate swaps, which is further discussed in Note 13.

During the second quarter of 2018, as permitted under U.S. GAAP guidance, the Company reclassified stranded income tax effects on items within Accumulated other comprehensive income (loss) resulting from the enactment of new U.S. tax legislation, which legislation is further discussed in Note 16, to Retained earnings. The reclassified tax effects related to prior service credits and net actuarial losses relating to benefit plans, as well as to terminated cash flow hedges. The tax effects relating to these items are generally recognized as such amounts are amortized into earnings.

Notes to Consolidated Financial Statements — (Continued)

Becton, Dickinson and Company

The tax impacts for amounts recognized in other comprehensive income before reclassifications were as follows:

(Millions of dollars)	2018				2017				2016
Benefit Plans
Income tax (provision) benefit for net gains (losses) recorded in other comprehensive income	$	(19	)		$	(60	)		$	79

The tax impacts for cash flow hedges recognized in other comprehensive income before reclassifications in 2017 and 2016 were immaterial to the Company's consolidated financial results. Reclassifications out of Accumulated other comprehensive income (loss) and the related tax impacts relating to benefit plans and cash flow hedges in 2018, 2017 and 2016 were also immaterial to the Company's consolidated financial results.

Note 4 — Earnings per Share

The weighted average common shares used in the computations of basic and diluted earnings per share (shares in thousands) for the years ended September 30 were as follows:

	2018			2017			2016
Average common shares outstanding	258,354			218,943			212,702
Dilutive share equivalents from share-based plans (a) (b)	6,267			4,645			4,834
Average common and common equivalent shares outstanding — assuming dilution	264,621			223,588			217,536

(a)

For the years ended September 30, 2018 and 2017, dilutive share equivalents associated with mandatory convertible preferred stock of 12 million and 5 million, respectively, were excluded from the diluted shares outstanding calculation because the result would have been antidilutive. The issuance of the convertible preferred stock is further discussed in Note 3. For the years ended September 30, 2018, 2017 and 2016, there were no options to purchase shares of common stock which were excluded from the diluted earnings per share calculation.

(b)	The adjustment to calculate diluted share equivalents from share-based plans in 2016 included excess tax benefits relating to share-based compensation awards. Upon the Company's adoption, as discussed in Note 2, of new accounting requirements relating to share-based compensation award-related income tax effects, the adjustments in 2018 and 2017 excluded these excess tax benefits.

Note 5 — Commitments and Contingencies

Commitments

Rental expense for all operating leases amounted to $149 million in 2018, $110 million in 2017 and $112 million in 2016. Future minimum rental commitments on non-cancelable leases are as follows: 2019 — $107 million; 2020 — $94 million; 2021 — $76 million; 2022 — $62 million; 2023 — $48 million and an aggregate of $124 million thereafter.

As of September 30, 2018, the Company has certain future purchase commitments aggregating to approximately $1.046 billion, which will be expended over the next several years.

Notes to Consolidated Financial Statements — (Continued)

Becton, Dickinson and Company

Contingencies

Given the uncertain nature of litigation generally, the Company is not able, in all cases, to estimate the amount or range of loss that could result from an unfavorable outcome of the litigation to which the Company is a party. In accordance with U.S. generally accepted accounting principles, the Company establishes accruals to the extent probable future losses are estimable (in the case of environmental matters, without considering possible third-party recoveries). 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 investigative subpoena issued by the Department of Defense Inspector General and the Department of Health and Human Services and 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.

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

As is further discussed in Note 9, the Company completed its acquisition of Bard on December 29, 2017 and the following matters include Bard-related legal proceedings and claims that the Company assumed on the acquisition date (“Bard-related Product Liability Matters”). The Company believes that certain settlements and judgments, as well as some 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 September 30, 2018, the Company is defending approximately 3,154 product liability claims involving Bard’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 2019 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.

Notes to Consolidated Financial Statements — (Continued)

Becton, Dickinson and Company

Women’s Health Product Claims

As of September 30, 2018, the Company is defending approximately 1,322 product liability claims involving Bard’s line of pelvic mesh devices. The majority of those claims are currently pending in a federal MDL in the United States District Court for the Southern District of West Virginia, but claims are also pending in other state and/or federal court jurisdictions, including a coordinated proceeding in New Jersey State Court. In addition, those claims include putative class actions filed in the United States. Not included in the figures above are approximately 1,037 filed and unfiled claims that have been asserted or threatened against Bard but lack sufficient information to determine whether a Bard pelvic mesh device is actually at issue. The claims identified above also include products manufactured by both Bard and two subsidiaries of Medtronic plc (as successor in interest to Covidien plc) (“Medtronic”), each a supplier of Bard. Medtronic has an obligation to defend and indemnify Bard with respect to any product defect liability relating to products its subsidiaries had manufactured. As described below, in July 2015 the Company reached an agreement with Medtronic (which was amended in June 2017) regarding certain aspects of Medtronic’s indemnification obligation. 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 September 30, 2018, the Company has reached agreements or agreements in principle with various plaintiffs’ law firms to settle their respective inventories of cases totaling approximately 15,021 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 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 in 2018 and throughout 2019 in state 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 challenging that verdict. The Company expects additional trials of Women’s Health Product Claims to take place over the next 12 months.

In July 2015, as part of the agreement with Medtronic noted above, Medtronic agreed to take responsibility for pursuing settlement of certain of the Women’s Health Product Claims that relate to products distributed by Bard under supply agreements with Medtronic, and Bard has paid Medtronic $121 million towards these potential settlements. In June 2017, Bard 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. Bard 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 Bard and Medtronic with respect to Women’s Health Product Claims that do not settle, if any.

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.

Notes to Consolidated Financial Statements — (Continued)

Becton, Dickinson and Company

Filter Product Claims

As of September 30, 2018, the Company is defending approximately 4,515 product liability claims involving Bard’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 claims are also pending in other state and/or federal 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. Trials are scheduled throughout 2018 in the MDL and state courts. 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 January 2017, the Company reached an agreement to resolve litigation filed in the Southern District of New York by its insurance carriers in connection with Women’s Health Product Claims and Filter Product Claims. The agreement requires the insurance carriers 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

In June 2007, Retractable Technologies, Inc. (“RTI”) filed a complaint against the Company under the caption Retractable Technologies, Inc. vs. Becton Dickinson and Company (Civil Action No. 2:07-cv-250, U.S. District Court, Eastern District of Texas) alleging that the BD Integra™ syringes infringe patents licensed exclusively to RTI. Included in its complaint, RTI also alleged that the Company engaged in false advertising with respect to certain of the Company’s safety-engineered products in violation of the Lanham Act; acted to exclude RTI from various product markets and to maintain its market share through, among other things, exclusionary contracts in violation of state and federal antitrust laws; and engaged in unfair competition. In January 2008, the Court severed the patent and non-patent claims into separate cases. BD paid a $5 million award following an adverse infringement verdict at the district court and the Company's unsuccessful appeal.

On September 19, 2013, a jury returned a verdict against BD with respect to RTI’s Lanham Act claim and claim for attempted monopolization based on deception in the safety syringe market. The jury awarded RTI $113.5 million for its attempted monopolization claim (which would be trebled under the antitrust statute). Upon issuance of a Court of Appeals decision reversing the attempted monopolization claim, the Company recorded a $337 million reversal of reserves associated with the initial judgment, in Other operating (income) expense, net, in the first quarter of fiscal year 2017. The Court of Appeals affirmed the judgment for Lanham Act liability, and remanded the case to the district court to consider whether and if so how much profit should be disgorged by BD on that claim. The Court of Appeals also vacated and remanded the injunction ordered by the district court. On January 31, 2017, RTI filed a petition for a writ of certiorari with the U.S. Supreme Court.

Notes to Consolidated Financial Statements — (Continued)

Becton, Dickinson and Company

On March 20, 2017, the U.S. Supreme Court denied certiorari, and the district court thereafter heard RTI’s request for disgorgement. On August 17, 2017, the district court entered judgment in favor of BD and ruled that RTI is not entitled to any award of money damages. RTI has appealed this ruling to the Fifth Circuit Court of Appeals. Oral argument on the appeal occurred on October 3, 2018.

Since early 2013, Bard 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 November 2015, the Department of Defense Inspector General issued an investigative subpoena to Bard. The Department of Health and Human Services is also participating in this investigation. The subpoena seeks documents related to the Company’s sales and marketing of certain filter products, drug coated balloon catheters, and peripheral arterial disease detection products. In July 2017, a separate 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 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

Accruals for the Bard product liability claims which are specifically discussed above, as well as the related legal defense costs, amounted to approximately $2.0 billion at September 30, 2018. Such amounts include provisional estimates which have been recorded with respect to the acquired liabilities. These amounts may be adjusted upon the availability of new or additional information regarding facts or circumstances which existed at the acquisition date. As of September 30, 2018, the Company has $94 million in Bard-related 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.

Notes to Consolidated Financial Statements — (Continued)

Becton, Dickinson and Company

The Company's expected recoveries related to Bard-related product liability claims and related legal defense costs were approximately $343 million at September 30, 2018. A substantial amount of these expected recoveries at September 30, 2018 relate to the Company’s agreements with Medtronic related to certain Women’s Health Product Claims. The terms of the Company’s agreements with Medtronic are substantially consistent with the assumptions underlying, and the manner in which, the Company has recorded expected recoveries related to the indemnification obligation. The expected recoveries at September 30, 2018 related to the indemnification obligation are not in dispute with respect to claims that Medtronic settles pursuant to the agreements. As described above, 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, and the Company also may, in its sole discretion, transfer responsibility for settlement of additional Women’s Health Product Claims to Medtronic on similar terms.

Note 6 — Segment Data

Beginning in the second quarter of fiscal year 2018, the Company’s organizational structure was based upon three principal business segments: BD Medical (“Medical”), BD Life Sciences (“Life Sciences”) and BD Interventional ("Interventional"). As is further discussed in Note 9, the Company completed its acquisition of Bard on December 29, 2017. Beginning in the second quarter of fiscal year 2018, the Interventional segment included the majority of Bard’s product offerings and certain product offerings, as further detailed below, which were previously reported in the Medical segment. Certain of Bard's product offerings were included under the Company's Medical segment, specifically within the new Medication Delivery Solutions unit, which was formerly the Medical segment's Medication and Procedural Solutions unit. The Company’s three principal business segments are strategic businesses that are managed separately because each one develops, manufactures and markets distinct products and services.

BD Medical

BD Medical produces a broad array of medical technologies and devices that are used to help improve healthcare delivery in a wide range of settings. The primary customers served by BD Medical are hospitals and clinics; physicians’ office practices; consumers and retail pharmacies; governmental and nonprofit public health agencies; pharmaceutical companies; and healthcare workers. BD Medical consists of the following organizational units:

Notes to Consolidated Financial Statements — (Continued)

Becton, Dickinson and Company

Organizational Unit		Principal Product Lines
Medication Delivery Solutions		Peripheral IV catheters (conventional, safety), advanced peripheral catheters (guidewire assisted peripherally inserted venous catheters, midline catheters, port access), centeral lines (peripherally inserted centeral catheters), acute dialysis catheters; vascular access technology (ultrasonic imaging); vascular care (lock solutions, prefilled flush syringes, disinfecting caps); vascular preparation (skin antiseptics, dressings, securement); needle-free IV connectors and extensions sets, IV fluids; closed-system drug transfer devices, hazardous drug detection; conventional and safety hypodermic syringes and needles, anesthesia needles (spinal, epidural) and trays; enteral syringes, sharps disposal systems.
Medication Management Solutions		Intravenous medication safety and infusion therapy delivery systems, including infusion pumps and dedicated disposables; medication compounding workflow systems; automated medication dispensing; automated supply management systems; medication inventory optimization and tracking systems; and analytics related to all the above products.
Diabetes Care		Syringes, pen needles and other products related to the injection or infusion of insulin and other drugs used in the treatment of diabetes.
Pharmaceutical Systems		Prefillable drug delivery systems - prefillable syringes, safety, shielding and self-injection systems - provided to pharmaceutical companies for use as containers for injectable pharmaceutical products, which are then placed on the market as drug/device combinations.

BD Life Sciences

BD Life Sciences provides products for the safe collection and transport of diagnostics specimens, and instruments and reagent systems to detect a broad range of infectious diseases, healthcare-associated infections (“HAIs”) and cancers. In addition, BD Life Sciences produces research and clinical tools that facilitate the study of cells, and the components of cells, to gain a better understanding of normal and disease processes. That information is used to aid the discovery and development of new drugs and vaccines, and to improve the diagnosis and management of diseases. The primary customers served by BD Life Sciences are hospitals, laboratories and clinics; blood banks; healthcare workers; public health agencies; physicians’ office practices; academic and government institutions; and pharmaceutical and biotechnology companies. BD Life Sciences consists of the following organizational units:

Organizational Unit		Principal Product Lines
Preanalytical Systems		Integrated systems for specimen collection; safety-engineered blood collection products and systems.
Diagnostic 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; microbiology laboratory automation; and plated media.
Biosciences		Fluorescence-activated cell sorters and analyzers; monoclonal antibodies and kits for performing cell analysis; reagent systems for life science research; bench-side solutions for high-throughput targeted single-cell gene expression and RNA-Seq analysis; molecular indexing and next-generation sequencing sample preparation for genomics research; and clinical oncology, immunological (HIV) and transplantation diagnostic/monitoring reagents and analyzers.

Notes to Consolidated Financial Statements — (Continued)

Becton, Dickinson and Company

BD Interventional

BD Interventional provides vascular, urology, oncology and surgical specialty products that are, with the exception of the V. Muller surgical and laparoscopic instrumentation products, intended to be used once and then discarded or are either temporarily or permanently implanted. The primary customers served by BD Interventional are hospitals, individual healthcare professionals, extended care facilities, alternate site facilities and directly to patients via the segment's Homecare business. The Interventional segment consists of the following organizational units:

Organizational Unit		Principal Product Lines
Surgery		Hernia and soft tissue repair, biological grafts, bioresorbable grafts, biosurgery, and other surgical products; BD ChloraPrep™ surgical infection prevention products, thoracic and abdominal drainage products and V. Mueller™ surgical & laparoscopic instrumentation products, which are products previously included within the former Medication and Procedural Solutions unit of BD Medical.
Peripheral Intervention		Percutaneous transluminal angioplasty (“PTA”) balloon catheters, peripheral vascular stents, self-expanding and balloon-expandable stent grafts, vascular grafts, drug coated balloons, ports, biopsy, chronic dialysis, feeding, IVC filters, endovascular fistula creation devices and drainage products.
Urology and Critical Care		Urological drainage products, intermittent catheters, urinary and fecal management devices, kidney stone management devices, and Targeted Temperature Management.

Additional Segment Information

Distribution of products is primarily through independent distribution channels, and directly to end-users by BD and independent sales representatives. No customer accounted for 10% or more of revenues in any of the three years presented.

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 operating income, which represents revenues reduced by product costs and operating expenses. Segment operating income represents revenues reduced by product costs and operating expenses. Beginning with its first quarter fiscal year 2018, the Company changed its management reporting approach so that certain general and administrative costs, which were previously allocated to the segments, are now excluded from the segments' operating expenses. The Medical and Life Sciences segments' operating income for the year ended September 30, 2017 included allocated general corporate costs of $166 million and $113 million, respectively. The Medical and Life Sciences segments' operating income for the year ended September 30, 2016 included allocated general corporate costs of $175 million and $95 million, respectively. No such allocations were made in the year ended September 30, 2018.

As more fully discussed in Note 10, the Company sold a 50.1% controlling financial interest in its Respiratory Solutions business, a component of the Medical segment, in October 2016. This transaction did not meet the criteria established for reporting discontinued operations and as such, results for the year ended September 30, 2016 included $822 million of revenues which did not occur in 2018 and 2017.

Notes to Consolidated Financial Statements — (Continued)

Becton, Dickinson and Company

(Millions of dollars)	2018				2017				2016
Revenues (a)
Medical (b)	$	8,616			$	7,419			$	7,965
Life Sciences	4,330				3,988				3,829
Interventional (b)	3,037				685				689
Total Revenues	$	15,983			$	12,093			$	12,483
Income Before Income Taxes
Medical (b) (c) (d)	$	2,624			$	1,907			$	1,807
Life Sciences (e)	1,207				772				793
Interventional (b) (c)	306				248				245
Total Segment Operating Income	4,137				2,927				2,845
Acquisitions and other restructurings	(744		)		(354		)		(728		)
Net interest expense	(641		)		(445		)		(367		)
Other unallocated items (f)	(1,578		)		(1,152		)		(676		)
Total Income Before Income Taxes	$	1,173			$	976			$	1,074
Assets
Medical (b)	$	23,493			$	15,552			$	16,370
Life Sciences	4,225				4,056				3,848
Interventional (b)	23,219				2,780				2,784
Total Segment Assets	50,938				22,388				23,002
Corporate and All Other (g)	2,966				15,347				2,584
Total Assets	$	53,904			$	37,734			$	25,586
Capital Expenditures
Medical (b)	$	560			$	486			$	464
Life Sciences	255				212				200
Interventional (b)	65				16				18
Corporate and All Other	14				13				12
Total Capital Expenditures	$	895			$	727			$	693
Depreciation and Amortization
Medical (b)	$	1,028			$	773			$	801
Life Sciences	275				254				254
Interventional (b)	658				52				56
Corporate and All Other	17				10				3
Total Depreciation and Amortization	$	1,978			$	1,088			$	1,114

(a)The Company has no material intersegment revenues.

(b)Prior-year amounts have been reclassified to reflect the movement of certain product offerings previously reported in the Medical segment and which are now reported in the Interventional segment, as further discussed above. Accordingly, all amounts presented in 2017 and 2016 for the Interventional segment are associated with these products.

(c)The amounts in 2018 included expense related to the recognition of a $478 million fair value step-up adjustment related to Bard's inventory on the acquisition date. The step-up adjustments recognized by the Medical and Interventional segments in 2018 were $60 million and $418 million, respectively.

Notes to Consolidated Financial Statements — (Continued)

Becton, Dickinson and Company

(d)The amount in 2018 included $58 million of charges to write down the value of fixed assets primarily in the Diabetes Care unit.

(e)The amount in 2018 included $81 million of charges recorded to write down the carrying value of certain intangible and other assets in the Biosciences unit.

(f)The amounts in 2018, 2017 and 2016 comprised of foreign exchange, corporate expenses, and share-based compensation expense. Results in 2018 were impacted by the Company's change in its management reporting approach, as further discussed above. Results in 2017 included a $748 million non-cash charge resulting from a modification to the Company's dispensing equipment lease contracts with customers, as well as the reversal of certain litigation reserves as further discussed in Note 5.

(g)Includes cash and investments and corporate assets.

Geographic Information

The countries in which the Company has local revenue-generating operations have been combined into the following geographic areas: the United States (including Puerto Rico); Europe; Greater Asia (which includes Japan and Asia Pacific); and Other, which is comprised of Latin America, Canada, and EMA (which includes the Commonwealth of Independent States, Middle East and Africa).

Revenues to unaffiliated customers are generally based upon the source of the product shipment. Long-lived assets, which include net property, plant and equipment, are based upon physical location.

(Millions of dollars)	2018				2017				2016
Revenues
United States	$	8,768			$	6,504			$	6,893
Europe	3,298				2,588				2,674
Greater Asia	2,460				1,744				1,692
Other	1,457				1,257				1,225
	$	15,983			$	12,093			$	12,483
Long-Lived Assets
United States	$	38,982			$	13,151			$	14,075
Europe	5,640				4,421				3,747
Greater Asia	851				578				586
Other	645				584				483
Corporate	375				366				329
	$	46,494			$	19,101			$	19,220

Note 7 — Share-Based Compensation

The Company grants share-based awards under the 2004 Employee and Director Equity-Based Compensation Plan (“2004 Plan”), which provides long-term incentive compensation to employees and directors consisting of: stock appreciation rights (“SARs”), performance-based restricted stock units, time-vested restricted stock units and other stock awards.

Notes to Consolidated Financial Statements — (Continued)

Becton, Dickinson and Company

The fair value of share-based payments is recognized as compensation expense in net income. The amounts and location of compensation cost relating to share-based payments included in the consolidated statements of income is as follows:

(Millions of dollars)	2018				2017				2016
Cost of products sold	$	36			$	30			$	29
Selling and administrative expense	136				113				106
Research and development expense	29				24				22
Acquisitions and other restructurings	130				10				39
	$	332			$	177			$	196
Tax benefit associated with share-based compensation costs recognized	$	79			$	61			$	69

Upon the Company's acquisition of Bard in 2018, certain pre-acquisition equity awards of Bard were converted into either BD SARs or BD restricted stock awards, as applicable. These awards have substantially the same terms and conditions as the converted Bard awards immediately prior to the acquisition date. The compensation expense of $126 million associated with these replacement awards was recorded in Acquisitions and other restructurings.

Stock Appreciation Rights

SARs represent the right to receive, upon exercise, shares of common stock having a value equal to the difference between the market price of common stock on the date of exercise and the exercise price on the date of grant. SARs vest over a four-year period and have a ten-year term. The fair value was estimated on the date of grant using a lattice-based binomial option valuation model that uses the following weighted-average assumptions:

	2018		2017		2016
Risk-free interest rate	2.32%		2.33%		2.17%
Expected volatility	19.0%		20.0%		19.0%
Expected dividend yield	1.33%		1.71%		1.76%
Expected life	7.4 years		7.5 years		7.6 years
Fair value derived	$46.10		$33.81		$27.69

Expected volatility is based upon historical volatility for the Company’s common stock and other factors. The expected life of SARs granted is derived from the output of the lattice-based model, using assumed exercise rates based on historical exercise and termination patterns, and represents the period of time that SARs granted are expected to be outstanding. The risk-free interest rate used is based upon the published U.S. Treasury yield curve in effect at the time of grant for instruments with a similar life. The dividend yield is based upon the most recently declared quarterly dividend as of the grant date. The Company issued 1.4 million shares during 2018 to satisfy the SARs exercised.

Notes to Consolidated Financial Statements — (Continued)

Becton, Dickinson and Company

A summary of SARs outstanding as of September 30, 2018 and changes during the year then ended is as follows:

	SARs (in thousands)			Weighted Average Exercise Price				Weighted Average Remaining Contractual Term (Years)		Aggregate Intrinsic Value (Millions of dollars)
Balance at October 1	6,466			$	117.94
Granted	4,295			123.97
Exercised	(2,511	)		98.67
Forfeited, canceled or expired	(264	)		163.69
Balance at September 30	7,986			$	125.73			5.88		$	1,080
Vested and expected to vest at September 30	7,732			$	124.10			5.81		$	1,059
Exercisable at September 30	5,450			$	102.66			4.90		$	863

A summary of SARs exercised 2018, 2017 and 2016 is as follows:

(Millions of dollars)	2018				2017				2016
Total intrinsic value of SARs exercised	$	333			$	148			$	148
Tax benefit realized from SAR exercises	$	90			$	53			$	52
Total fair value of SARs vested	$	107			$	30			$	24

Stock Options

The Company has not granted stock options since 2005. Certain pre-acquisition equity awards of CareFusion were converted on March 17, 2015 into BD stock options with accelerated vesting terms and there were 166 thousand of these awards outstanding at September 30, 2018. Amounts recognized or realized in 2018, 2017 and 2016 relative to stock option exercises, including cash received, the tax benefit realized and the total intrinsic value, were immaterial to the Company’s consolidated financial results.

Performance-Based and Time-Vested Restricted Stock Units

Performance-based restricted stock units cliff vest three years after the date of grant. These units are tied to the Company’s performance against pre-established targets over a three-year performance period. The performance measures for fiscal years 2018, 2017 and 2016 were relative total shareholder return (measures the Company’s stock performance during the performance period against that of peer companies) and average annual return on invested capital. Under the Company’s long-term incentive program, the actual payout under these awards may vary from zero to 200% of an employee’s target payout, based on the Company’s actual performance over the three-year performance period. The fair value is based on the market price of the Company’s stock on the date of grant. Compensation cost initially recognized assumes that the target payout level will be achieved and is adjusted for subsequent changes in the expected outcome of performance-related conditions. For units for which the performance conditions are modified after the date of grant, any incremental increase in the fair value of the modified units, over the original units, is recorded as compensation expense on the date of the modification for vested units, or over the remaining performance period for units not yet vested.

Time-vested restricted stock unit awards granted after January 2015 vest on a graded basis over a three-year period. Time-vested restricted stock units granted before January 2015 cliff vest three years after the date of grant, except for certain key executives of the Company, including the executive officers, for which such units generally vest one year following the employee’s retirement. The related share-based compensation expense is recorded over the requisite service period, which is the vesting period or is based on retirement eligibility. The fair value of all time-vested restricted stock units is based on the market value of the Company’s stock on the date of grant.

Notes to Consolidated Financial Statements — (Continued)

Becton, Dickinson and Company

A summary of restricted stock units outstanding as of September 30, 2018 and changes during the year then ended is as follows:

	Performance-Based								Time-Vested
	Stock Units (in thousands)				Weighted Average Grant Date Fair Value				Stock Units (in thousands)			Weighted Average Grant Date Fair Value
Balance at October 1	1,080				$	161.64			2,136			$	142.06
Granted	338				251.75				2,903			216.06
Distributed	(119	)			156.65				(1,368	)		167.86
Forfeited or canceled	(267	)			173.67				(906	)		178.87
Balance at September 30	1,032		(a)		$	190.57			2,765			$	194.92
Expected to vest at September 30	548		(b)		$	192.35			2,585			$	193.90

(a)	Based on 200% of target payout.

(b)	Net of expected forfeited units and units in excess of the expected performance payout of 64 thousand and 420 thousand shares, respectively.

The weighted average grant date fair value of restricted stock units granted during the years 2018, 2017 and 2016 are as follows:

	Performance-Based												Time-Vested
	2018				2017				2016				2018				2017				2016
Weighted average grant date fair value of units granted	$	251.75			$	174.92			$	153.73			$	216.06			$	165.96			$	145.57

The total fair value of stock units vested during 2018, 2017 and 2016 was as follows:

	Performance-Based												Time-Vested
(Millions of dollars)	2018				2017				2016				2018				2017				2016
Total fair value of units vested	$	31			$	32			$	22			$	362			$	139			$	114

At September 30, 2018, the weighted average remaining vesting term of performance-based and time vested restricted stock units is 0.79 and 1.05 year, respectively.

Unrecognized Compensation Expense and Other Stock Plans

The amount of unrecognized compensation expense for all non-vested share-based awards as of September 30, 2018, is approximately $307 million, which is expected to be recognized over a weighted-average remaining life of approximately 2.04 years. At September 30, 2018, 7.1 million shares were authorized for future grants under the 2004 Plan. The Company has a policy of satisfying share-based payments through either open market purchases or shares held in treasury. At September 30, 2018, the Company has sufficient shares held in treasury to satisfy these payments.

As of September 30, 2018, 135 thousand shares were held in trust relative to a Director's Deferral plan, which provides a means to defer director compensation, from time to time, on a deferred stock or cash basis. Also as of September 30, 2018, 338 thousand shares were issuable under a Deferred Compensation Plan that allows certain highly-compensated employees, including executive officers, to defer salary, annual incentive awards and certain equity-based compensation.

Notes to Consolidated Financial Statements — (Continued)

Becton, Dickinson and Company

Note 8 — Benefit Plans

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

Effective January 1, 2018, the legacy U.S. pension plan was frozen to limit the participation of employees who are hired or re-hired by the Company, or who transfer employment to the Company, on or after January 1, 2018.

Net pension cost for the years ended September 30 included the following components:

	Pension Plans
(Millions of dollars)	2018				2017				2016
Service cost	$	136			$	110			$	81
Interest cost	90				61				72
Expected return on plan assets	(154		)		(112		)		(109		)
Amortization of prior service credit	(13		)		(14		)		(15		)
Amortization of loss	78				92				77
Settlements	2				—				7
Net pension cost	$	137			$	138			$	113
Net pension cost included in the preceding table that is attributable to international plans	$	34			$	43			$	35

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. The settlement losses recorded in 2018 and 2016 primarily included lump sum benefit payments associated with the Company’s U.S. supplemental pension plan. The Company recognizes pension settlements when payments from the supplemental plan exceed the sum of service and interest cost components of net periodic pension cost associated with this plan for the fiscal year.

Notes to Consolidated Financial Statements — (Continued)

Becton, Dickinson and Company

The change in benefit obligation, change in fair value of pension plan assets, funded status and amounts recognized in the Consolidated Balance Sheets for these plans were as follows:

	Pension Plans
(Millions of dollars)	2018				2017
Change in benefit obligation:
Beginning obligation	$	2,647			$	2,719
Service cost	136				110
Interest cost	90				61
Plan amendments	—				(1		)
Benefits paid	(162		)		(123		)
Impact of acquisitions (divestitures)	758				(19		)
Actuarial gain	(82		)		(134		)
Settlements	(122		)		(1		)
Other, includes translation	(19		)		36
Benefit obligation at September 30	$	3,246			$	2,647
Change in fair value of plan assets:
Beginning fair value	$	1,932			$	1,855
Actual return on plan assets	70				134
Employer contribution	400				54
Benefits paid	(162		)		(123		)
Impact of acquisitions (divestitures)	539				(13		)
Settlements	(122		)		(1		)
Other, includes translation	(15		)		26
Plan assets at September 30	$	2,642			$	1,932
Funded Status at September 30:
Unfunded benefit obligation	$	(604	)		$	(715	)
Amounts recognized in the Consolidated Balance Sheets at September 30:
Other	$	15			$	9
Salaries, wages and related items	(15		)		(17		)
Long-term Employee Benefit Obligations	(604		)		(707		)
Net amount recognized	$	(604	)		$	(715	)
Amounts recognized in Accumulated other comprehensive income (loss) before income taxes at September 30:
Prior service credit	$	60			$	74
Net actuarial loss	(982		)		(1,065		)
Net amount recognized	$	(921	)		$	(991	)

International pension plan assets at fair value included in the preceding table were $821 million and $678 million at September 30, 2018 and 2017, respectively. The international pension plan projected benefit obligations were $1.064 billion and $917 million at September 30, 2018 and 2017, respectively.

Notes to Consolidated Financial Statements — (Continued)

Becton, Dickinson and Company

The benefit obligation associated with postretirement healthcare and life insurance plans provided to qualifying domestic retirees, which was largely recorded to Long-Term Employee Benefit Obligations, was $148 million and $165 million at September 30, 2018 and 2017, respectively.

Pension plans with accumulated benefit obligations in excess of plan assets and plans with projected benefit obligations in excess of plan assets consist of the following at September 30:

	Accumulated Benefit Obligation Exceeds the Fair Value of Plan Assets								Projected Benefit Obligation Exceeds the Fair Value of Plan Assets
(Millions of dollars)	2018				2017				2018				2017
Projected benefit obligation	$	2,618			$	2,551			$	3,121			$	2,613
Accumulated benefit obligation	$	2,533			$	2,470
Fair value of plan assets	$	2,012			$	1,833			$	2,502			$	1,889

The estimated net actuarial loss and prior service credit for pension benefits that will be amortized from Accumulated other comprehensive income (loss) into net pension costs over the next fiscal year are expected to be $79 million and $14 million, respectively. The net actuarial loss for other postretirement benefits that will be amortized from Accumulated other comprehensive income (loss) into net other postretirement costs over the next fiscal year is immaterial. The estimated prior service credit that will be amortized from Accumulated other comprehensive income (loss) into net other postretirement costs over the next fiscal year is expected to be $5 million.

The weighted average assumptions used in determining pension plan information were as follows:

	2018			2017			2016
Net Cost
Discount rate:
U.S. plans (a)	3.71	%		3.42	%		4.15	%
International plans	2.30			1.70			2.84
Expected return on plan assets:
U.S. plans	7.20			7.25			7.50
International plans	4.95			4.65			5.02
Rate of compensation increase:
U.S. plans	4.51			4.25			4.25
International plans	2.31			2.33			2.33
Benefit Obligation
Discount rate:
U.S. plans	4.26			3.72			3.42
International plans	2.30			2.25			1.70
Rate of compensation increase:
U.S. plans	4.29			4.51			4.25
International plans	2.36			2.30			2.33

(a)	The Company calculated the service and interest components utilizing an approach that discounts the individual expected cash flows using the applicable spot rates derived from the yield curve over the projected cash flow period.

Notes to Consolidated Financial Statements — (Continued)

Becton, Dickinson and Company

Expected Rate of Return on Plan Assets

The expected rate of return on plan assets is based upon expectations of long-term average rates of return to be achieved by the underlying investment portfolios. In establishing this assumption, the Company considers many factors, including historical assumptions compared with actual results; benchmark data; expected returns on various plan asset classes, as well as current and expected asset allocations.

Expected Funding

The Company’s funding policy for its defined benefit pension plans is to contribute amounts sufficient to meet legal funding requirements, plus any additional amounts that may be appropriate considering the funded status of the plans, tax consequences, the cash flow generated by the Company and other factors. The Company made discretionary contributions of $287 million to its U.S. pension plans in 2018. The Company also made a discretionary contribution of $200 million to its BD U.S. pension in October 2018. The Company does not anticipate any significant required contributions to its pension plans in 2019.

Expected benefit payments are as follows:

(Millions of dollars)	Pension Plans				Other Postretirement Benefits
2019	$	213			$	14
2020	202				14
2021	208				13
2022	209				13
2023	214				12
2024-2028	1,096				54

Investments

The Company’s primary objective is to achieve returns sufficient to meet future benefit obligations. It seeks to generate above market returns by investing in more volatile asset classes such as equities while at the same time controlling risk through diversification in non-correlated asset classes and through allocations to more stable asset classes like fixed income.

U.S. Plans

The Company’s U.S. pension plans comprise 69% of total benefit plan investments, based on September 30, 2018 market values and have a target asset mix of 40% fixed income, 28% diversifying investments and 32% equities. This mix was established based on an analysis of projected benefit payments and estimates of long-term returns, volatilities and correlations for various asset classes. The asset allocations to diversifying investments include high-yield bonds, hedge funds, real estate, infrastructure, commodities, leveraged loans and emerging markets bonds.

The actual portfolio investment mix may, from time to time, deviate from the established target mix due to various factors such as normal market fluctuations, the reliance on estimates in connection with the determination of allocations and normal portfolio activity such as additions and withdrawals. Rebalancing of the asset portfolio on a quarterly basis is required to address any allocations that deviate from the established target allocations in excess of defined allowable ranges. The target allocations are subject to periodic review, including a review of the asset portfolio’s performance, by the named fiduciary of the plans. Any tactical deviations from the established asset mix require the approval of the named fiduciary.

The U.S. plans may enter into both exchange traded and non-exchange traded derivative transactions in order to manage interest rate exposure, volatility, term structure of interest rates, and sector and currency exposures within the fixed income portfolios. The Company has established minimum credit quality standards for counterparties in such transactions.

Notes to Consolidated Financial Statements — (Continued)

Becton, Dickinson and Company

The following table provides the fair value measurements of U.S. plan assets, as well as the measurement techniques and inputs utilized to measure fair value of these assets, at September 30, 2018 and 2017. The categorization of fund investments is based upon the categorization of these funds’ underlying assets.

(Millions of dollars)	Total U.S. Plan Asset Balances								Investments Measured at Net Asset Value (a)								Quoted Prices in Active Markets for Identical Assets (Level 1)								Significant Other Observable Inputs (Level 2)								Significant Unobservable Inputs (Level 3)
	2018				2017				2018				2017				2018				2017				2018				2017				2018				2017
Fixed Income:
Mortgage and asset-backed securities	$	28			$	155			$	—			$	—			$	—			$	—			$	28			$	155			$	—			$	—
Corporate bonds	484				232				—				—				101				89				383				144				—				—
Government and agency-U.S.	257				107				—				—				199				83				57				25				—				—
Government and agency-Foreign	122				98				8				12				85				63				28				22				—				—
Equity securities	536				369				360				307				176				62				—				—				—				—
Cash and cash equivalents	39				40				—				—				39				40				—				—				—				—
Other	356				252				356				217				—				34				—				—				—				—
Fair value of plan assets	$	1,821			$	1,254			$	724			$	537			$	600			$	371			$	497			$	346			$	—			$	—

(a)	As per applicable disclosure requirements, certain investments that were measured at net asset value per share or its equivalent have not been categorized within the fair value hierarchy. Values of such assets are based on the corroborated net asset value provided by the fund administrator.

Fixed Income Securities

U.S. pension plan assets categorized above as fixed income securities include fund investments comprised of mortgage-backed, corporate, government and agency and asset-backed instruments. Mortgage-backed securities consist of residential mortgage pass-through certificates. Investments in corporate bonds are diversified across industry and sector and consist of investment-grade, as well as high-yield debt instruments. U.S. government investments consist of obligations of the U.S. Treasury, other U.S. government agencies, state governments and local municipalities. Assets categorized as foreign government and agency debt securities included investments in developed and emerging markets.

The values of fixed income investments classified within Level 1 are based on the closing price reported on the major market on which the investments are traded. A portion of the fixed income instruments classified within Level 2 are valued based upon estimated prices from independent vendors’ pricing models and these prices are derived from market observable sources including: benchmark yields, reported trades, broker/dealer quotes, issuer spreads, benchmark securities, bids, offers and other market-related data.

Equity Securities

U.S. pension plan assets categorized as equity securities consist of fund investments in publicly-traded U.S. and non-U.S. equity securities. In order to achieve appropriate diversification, these portfolios are invested across market sectors, investment styles, capitalization weights and geographic regions. The values of equity securities classified within Level 1 are based on the closing price reported on the major market on which the investments are traded.

Notes to Consolidated Financial Statements — (Continued)

Becton, Dickinson and Company

Cash and Cash Equivalents

A portion of the U.S. plans’ assets consists of investments in cash and cash equivalents, primarily to accommodate liquidity requirements relating to trade settlement and benefit payment activity, and the values of these assets are based upon quoted market prices.

Other Securities

Other U.S. pension plan assets include fund investments comprised of underlying assets of real estate, infrastructure, commodities and hedge funds. The values of such instruments classified within Level 1 are based on the closing price reported on the major market on which the investments are traded.

International Plans

International plan assets comprise 31% of the Company’s total benefit plan assets, based on market value at September 30, 2018. Such plans have local independent fiduciary committees, with responsibility for development and oversight of investment policy, including asset allocation decisions. In making such decisions, consideration is given to local regulations, investment practices and funding rules.

The following table provides the fair value measurements of international plan assets, as well as the measurement techniques and inputs utilized to measure fair value of these assets, at September 30, 2018 and 2017.

(Millions of dollars)	Total International Plan Asset Balances								Investments Measured at Net Asset Value (a)								Quoted Prices in Active Markets for Identical Assets (Level 1)								Significant Other Observable Inputs (Level 2)								Significant Unobservable Inputs (Level 3)
	2018				2017				2018				2017				2018				2017				2018				2017				2018				2017
Fixed Income:
Corporate bonds	$	28			$	14			$	—			$	—			$	14			$	—			$	14			$	13			$	—			$	—
Government and agency-U.S.	6				5				—				—				3				1				3				3				—				—
Government and agency-Foreign	150				127				—				—				104				83				46				45				—				—
Other fixed income	96				64				—				—				63				57				33				7				—				—
Equity securities	314				256				15				13				299				242				—				—				—				—
Cash and cash equivalents	9				28				—				—				9				28				—				—				—				—
Real estate	30				26				—				—				—				—				30				26				—				—
Insurance contracts	114				98				—				—				—				—				—				—				114				98
Other	74				62				—				—				55				47				20				15				—				—
Fair value of plan assets	$	821			$	678			$	15			$	13			$	546			$	459			$	146			$	108			$	114			$	98

(a)	As per applicable disclosure requirements, certain investments that were measured at net asset value per share or its equivalent have not been categorized within the fair value hierarchy. Values of such assets are based on the corroborated net asset value provided by the fund administrator.

Notes to Consolidated Financial Statements — (Continued)

Becton, Dickinson and Company

Fixed Income Securities

Fixed income investments held by international pension plans include corporate, U.S. government and non-U.S. government securities. The values of fixed income securities classified within Level 1 are based on the closing price reported on the major market on which the investments are traded. Values of investments classified within Level 2 are based upon estimated prices from independent vendors’ pricing models and these prices are derived from market observable sources.

Equity Securities

Equity securities included in the international plan assets consist of publicly-traded U.S. and non-U.S. equity securities. The values of equity securities classified within Level 1 are based on the closing price reported on the major market on which the investments are traded.

Other Securities

The international plans hold a portion of assets in cash and cash equivalents, in order to accommodate liquidity requirements and the values are based upon quoted market prices. Real estate investments consist of investments in funds holding an interest in real properties and the corresponding values represent the estimated fair value based on the fair value of the underlying investment value or cost, adjusted for any accumulated earnings or losses. The values of insurance contracts approximately represent cash surrender value. Other investments include fund investments for which values are based upon either quoted market prices or market observable sources.

The following table summarizes the changes, for the years ended September 30, 2018 and 2017, in the fair value of international pension assets measured using Level 3 inputs:

(Millions of dollars)	Insurance Contracts
Balance at September 30, 2016	$	102
Actual return on plan assets:
Relating to assets held at September 30, 2016	1
Purchases, sales and settlements, net	(11		)
Transfers in from other categories	1
Exchange rate changes	4
Balance at September 30, 2017	$	98
Actual return on plan assets:
Relating to assets held at September 30, 2017	2
Purchases, sales and settlements, net	15
Transfers in from other categories	1
Exchange rate changes	(2		)
Balance at September 30, 2018	$	114

Defined Contribution Plans

The Company has voluntary defined contribution plans covering eligible employees in the United States which provide for a Company match as well as a Company contribution for Bard associates and for associates hired or rehired after December 31, 2017. The cost of these plans was $89 million in 2018, $67 million in 2017 and $61 million in 2016. The 2018 increase in the cost associated with these plans is attributable to the Company's acquisition of Bard.

Notes to Consolidated Financial Statements — (Continued)

Becton, Dickinson and Company

Note 9 – Acquisitions

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 were 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
Non-cash consideration-fair value of shares issued	8,004
Non-cash 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 are reported, beginning with the second quarter of fiscal year 2018, under the Interventional segment and Bard's remaining product offerings are reported under the Company's Medical segment. The acquisition was 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.

Notes to Consolidated Financial Statements — (Continued)

Becton, Dickinson and Company

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 September 30, 2018, were largely allocated to the Company's new Interventional segment.

(Millions of dollars)
Cash and equivalents	$	1,480
Trade receivables	472
Inventories	974
Property, plant and equipment	553
Developed technology	10,469
Customer relationships	1,146
Other assets	624
Total identifiable assets acquired	15,718
Payables, accrued expenses and other liabilities	1,276
Short term and long-term debt	1,692
Product liability and other legal reserves	2,029
Deferred tax liabilities	1,713
Total liabilities assumed	6,711
Net identifiable assets acquired	9,007
Goodwill	16,009
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 14 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 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 the acquiree and the 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

Notes to Consolidated Financial Statements — (Continued)

Becton, Dickinson and Company

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 $2.0 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 $175 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 16.

Transaction Costs

Transaction costs related to this acquisition incurred during the years ended September 30, 2018 and 2017 were approximately $56 million and $25 million, respectively. These transaction costs were recorded as Acquisitions and other restructurings and consisted of legal, advisory and other costs. See Note 11 for discussion regarding restructuring costs incurred relative to the Bard acquisition in 2018.

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 included Bard in its consolidated results of operations beginning on January 1, 2018. Revenues in 2018 were $3 billion. Net Income in 2018 included loss attributable to Bard of $(107) million. The following table provides the pro forma results for the fiscal years 2018 and 2017 as if Bard had been acquired as of October 1, 2016.

(Millions of dollars, except per share data)
	2018				2017
Revenues	$	16,947			$	15,781
Net Income	$	390			$	1,145
Diluted Earnings per Share	$	0.90			$	3.60

The pro forma results above include the impact of the following adjustments, as necessary: 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 for the year ended September 30, 2018 were primarily comprised of fair value step-up adjustments of $478 million recorded relative to Bard's inventory on the acquisition date, the transaction costs discussed above, as well as certain Bard-related restructuring costs disclosed in Note 11. In addition, amounts previously reported by Bard as revenues related to a royalty income stream have been reclassified to Other income (expense), net to conform to the Company's 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.

Notes to Consolidated Financial Statements — (Continued)

Becton, Dickinson and Company

Other Transactions

During the fourth quarter of fiscal year 2018, the Company acquired TVA Medical, Inc., a company that develops minimally invasive vascular access solutions for patients with chronic kidney disease requiring hemodialysis. This acquisition did not materially impact the Company's consolidated financial results.

The Company has completed various other acquisitions during fiscal year 2018 which were not material individually or in the aggregate.

Upon the Company's acquisition of CareFusion, it acquired a 40% ownership interest in Caesarea Medical Electronics ("CME"), an Israeli-based global infusion pump systems manufacturer. The Company previously accounted for this interest as an equity investment. On April 3, 2017, the Company acquired the remaining 60% ownership interest in CME. This acquisition did not materially impact the Company's consolidated financial results.

Notes to Consolidated Financial Statements — (Continued)

Becton, Dickinson and Company

Note 10 — Divestiture

Advanced Bioprocessing

The Company completed the sale of its Advanced Bioprocessing business in October 2018 per a definitive agreement that was signed in September 2018. Assets held for sale on the consolidated balance sheet at September 30, 2018, subject to this agreement, were approximately $137 million. Liabilities held for sale under the agreement were immaterial. The Company estimates that its gross cash proceeds received will be approximately $475 million, subject to post-closing adjustments. The historical financial results for the Advanced Bioprocessing business, which included approximately $106 million, $103 million and $95 million of revenues for the years ended September 30, 2018, 2017 and 2016, respectively, have not been classified as a discontinued operation.

Respiratory Solutions and Vyaire Medical

On October 3, 2016, the Company sold a 50.1% controlling financial interest in its Respiratory Solutions business, a component of the Medical segment, to form a venture, Vyaire Medical. The Company retained a 49.9% non-controlling interest in the new standalone entity. The Company agreed to various contract manufacturing and certain logistical and transition services agreements with the new entity for a period of up to two years after the sale. The Company accounted for its remaining interest in the new entity as an equity method investment and recorded its share of the new entity's earnings or losses on a one-quarter lag to Other income (expense), net.

In April 2018, the Company completed the sale of its remaining interest in Vyaire Medical. The Company received gross cash proceeds of approximately $435 million and recognized a pre-tax gain on the sale of approximately $303 million, which was recognized in Other income (expense), net.

Notes to Consolidated Financial Statements — (Continued)

Becton, Dickinson and Company

Note 11 — Business Restructuring Charges

In connection with the Company's acquisition of Bard, the 2015 acquisition of CareFusion and other portfolio rationalization initiatives, the Company incurred restructuring costs which were recorded as Acquisitions and other restructurings. Additional disclosures regarding these restructuring activities and the related costs are provided in Notes 7, 9 and 10. Restructuring liability activity in 2018, 2017 and 2016 was as follows:

	Employee Termination								Other								Total
(Millions of dollars)	Bard				CareFusion/Other Initiatives (a)				Bard (b)				CareFusion/Other Initiatives (c)				Bard				CareFusion/Other Initiatives
Balance at September 30, 2015	$	—			$	62			$	—			$	—			$	—			$	62
Charged to expense	—				81				—				445				—				526
Cash payments	—				(76		)		—				(72		)		—				(148		)
Non-cash settlements	—				—				—				(39		)		—				(39		)
Other adjustments	—				—				—				(332		)		—				(332		)
Balance at September 30, 2016	$	—			$	67			$	—			$	2			$	—			$	69
Charged to expense	—				27				—				58				—				85
Cash payments	—				(45		)		—				(12		)		—				(57		)
Non-cash settlements	—				—				—				(9		)		—				(9		)
Other adjustments	—				—				—				(33		)		—				(33		)
Balance at September 30, 2017	$	—			$	49			$	—			$	6			$	—			$	55
Charged to expense	136				30				156				22				292				52
Cash payments	(103		)		(56		)		(3		)		(23		)		(106		)		(79		)
Non-cash settlements	—				—				(153		)		(1		)		(153		)		(1		)
Other adjustments	—				—				—				—				—				—
Balance at September 30, 2018	$	33			$	23			$	—			$	4			$	33			$	27

(a)	Expenses in fiscal year 2016 included $40 million relating to the CareFusion acquisition as well as $13 million for employee termination costs resulting from the Company's transition of certain elements of its information technology function to an outsourced model as further disclosed below.

(b)	Expenses in 2018 represented the cost associated with the conversion of certain pre-acquisition equity awards of Bard to BD equity awards as well as costs relating to Bard’s pension plan, partially offset by a gain on the sale of the Company's soft tissue core needle biopsy product line which was recorded in the second quarter of fiscal year 2018.

(c)

Expenses in 2016 included $214 million non-cash charge to recognize the impairment of capitalized internal-use software assets held for sale upon the Company’s decision to transition certain business information systems assets to a third party. Expenses in 2016 also included non-cash impairment charges of $81 million, after-tax, relating to the Company's disposition of certain non-core businesses, including the Company's sale of a majority interest in its Respiratory Solutions business during the first quarter of fiscal year 2017, which is further discussed in Note 10.

Notes to Consolidated Financial Statements — (Continued)

Becton, Dickinson and Company

Note 12 — Intangible Assets

Intangible assets at September 30 consisted of:

	2018								2017
(Millions of dollars)	Gross Carrying Amount				Accumulated Amortization				Gross Carrying Amount				Accumulated Amortization
Amortized intangible assets
Developed technology	$	13,966			$	1,782			$	3,508			$	1,029
Customer relationships	4,584				861				3,393				564
Product rights	121				58				131				54
Trademarks	407				84				408				65
Patents and other	397				288				370				274
Amortized intangible assets	$	19,475			$	3,073			$	7,811			$	1,986
Unamortized intangible assets
Acquired in-process research and development	$	37							$	67
Trademarks	2								2
Unamortized intangible assets	$	39							$	69

Additional disclosures regarding the increases to the developed technology assets and customer relationships as a result of the Bard acquisition are provided in Note 9. Intangible amortization expense was $1.255 billion, $0.533 billion and $0.552 billion in 2018, 2017 and 2016, respectively. The estimated aggregate amortization expense for the fiscal years ending September 30, 2019 to 2023 are as follows: 2019 — $1.472 billion; 2020 — $1.350 billion; 2021 — $1.347 billion; 2022 — $1.338 billion; 2023 — $1.333 billion.

The following is a reconciliation of goodwill by business segment:

(Millions of dollars)	Medical				Life Sciences				Interventional				Total
Goodwill as of September 30, 2016	$	6,688			$	731			$	—			$	7,419
Acquisitions (a)	119				24				—				143
Divestiture (b)	(25		)		—				—				(25		)
Purchase accounting adjustments	4				—				—				4
Currency translation	16				6				—				22
Goodwill as of September 30, 2017	$	6,802			$	761			$	—			$	7,563
Acquisitions (c)	3,923				76				11,218				15,217
Divestiture (b)	—				(59		)		(57		)		(116		)
Reallocation of goodwill for change in segment and reporting unit composition (d)	(877		)		—				877				—
Purchase accounting adjustments (e)	228				(2		)		732				959
Currency translation	(22		)		(2		)		—				(24		)
Goodwill as of September 30, 2018	$	10,054			$	775			$	12,771			$	23,600

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

(b)	Represents goodwill derecognized upon the Company's sale of certain businesses, as further discussed in Note 10.

Notes to Consolidated Financial Statements — (Continued)

Becton, Dickinson and Company

(c)	Represents goodwill primarily recognized upon the Company's acquisition of Bard in fiscal year 2018, which is further discussed in Note 9. Also includes goodwill recognized relative to certain acquisitions which were not material individually or in the aggregate.

(d)	Represents the reassignment of goodwill, determined based upon a relative fair value allocation approach, associated with the movement of certain product offerings which were previously reported in the Medical segment and which are now reported in the Interventional segment as further discussed in Note 6.

(e)	The purchase accounting adjustments increasing goodwill were primarily driven by the valuation of Bard developed technology assets, the associated deferred tax liability changes, increases to legal reserves and the alignment of the combined organization's accounting policies with respect to accrued liabilities and other accounts.

Note 13 — Derivative 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 and currency options. Hedges of the transactional foreign exchange exposures resulting primarily from intercompany payables and receivables are undesignated hedges. As such, the gains or losses on these instruments are recognized immediately in income. 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 (expense), net, during the years ending September 30, 2018, 2017 and 2016 were immaterial to the Company's consolidated financial results.

The total notional amounts of the Company’s outstanding foreign exchange contracts as of September 30, 2018 and 2017 were $3.1 billion and $2.5 billion, respectively.

In order to mitigate foreign currency exposure relating to its investments in certain foreign subsidiaries, the Company has designated $2.7 billion of Euro-denominated debt and $324 million of British Pound-denominated debt as net investment hedges. Accordingly, net gains or losses relating to this debt, 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). The Company has recorded net gains (losses) relating to these net investment hedges of $81 million and $(159) million to Accumulated other comprehensive income (loss) as of September 30, 2018 and 2017, respectively. Additional disclosures regarding the Company's issuances of the Euro-denominated debt and British Pound-denominated in fiscal year 2018 are provided in Note 15.

Interest Rate Risks and Related Strategies

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

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

Notes to Consolidated Financial Statements — (Continued)

Becton, Dickinson and Company

changes in the fair value of the interest rate swaps offset changes in the fair value of the fixed rate debt due to changes in market interest rates.

Changes in the fair value of the interest rate swaps designated as cash flow hedges (i.e., hedging the exposure to variability in expected future cash flows that is attributable to a particular risk) are offset by amounts recorded in Other comprehensive income (loss). If interest rate derivatives designated as cash flow hedges are terminated, the balance in Accumulated other comprehensive income (loss) attributable to those derivatives is reclassified into earnings over the remaining life of the hedged debt. The net realized loss related to terminated interest rate swaps expected to be reclassified and recorded in Interest expense within the next 12 months is $6 million, net of tax.

The total notional amount of the Company’s outstanding interest rate swaps designated as fair value hedges was $1.2 billion and $375 million at September 30, 2018 and 2017, respectively. 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 years ended September 30, 2018 and 2017 for changes in the fair value of these hedges were immaterial to the Company's consolidated financial results.

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 had no outstanding commodity derivative forward contracts at September 30, 2018 and 2017.

Financial Statement Effects

Effects on Consolidated Balance Sheets

The fair values of derivative instruments outstanding at September 30, 2018 and 2017 were not material to the Company's consolidated balance sheets.

Effects on Consolidated Statements of Income

The amounts recognized from other comprehensive income relating to cash flow hedges during 2018, 2017 and 2016 were not material to the Company's consolidated financial results.

Notes to Consolidated Financial Statements — (Continued)

Becton, Dickinson and Company

Note 14 — Financial Instruments and Fair Value Measurements

The Company’s institutional money market accounts permit daily redemption and the fair values of these investments are based upon the quoted prices in active markets provided by the holding financial institutions, which are considered Level 1 inputs in the fair value hierarchy. The fair values of these accounts were $228 million and $2.026 billion at September 30, 2018 and 2017, respectively. The Company’s remaining cash and equivalents, excluding restricted cash, were $913 million and $12.153 billion at September 30, 2018 and 2017, respectively. Short-term investments are held to their maturities and are carried at cost, which approximates fair value. The cash equivalents consist of liquid investments with a maturity of three months or less and the short-term investments consist of instruments with maturities greater than three months and less than one year.

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 $18.8 billion and $19.2 billion at September 30, 2018 and 2017, respectively. The fair value of the current portion of long-term debt was $1.893 billion and $206 million at September 30, 2018 and 2017, 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.

Nonrecurring Fair Value Measurements

In fiscal year 2018, the Company recorded charges of $58 million to write down the value of fixed assets, primarily in the Diabetes Care unit, as well as charges of $81 million to write down the carrying value of certain intangible and other assets in the Biosciences unit. In fiscal year 2016, the Company recorded a charge to Acquisitions and other restructurings of $214 million to impair capitalized internal-use software assets held for sale as a result of the Company's transition of certain elements of its information technology infrastructure to an outsourced model. Also in fiscal year 2016, the Company recorded losses of $81 million on the held for sale assets of certain non-core businesses. The amounts recognized in 2018 and 2016 were recorded to adjust the carrying amount of assets to the assets' fair values, which were estimated, based upon a market participant's perspective, using either Level 2 inputs, including quoted prices for similar assets, or Level 3 inputs, including values estimated using the income approach.

Concentration of Credit Risk

The Company maintains cash deposits in excess of government-provided insurance limits. Such cash deposits are exposed to loss in the event of nonperformance by financial institutions. Substantially all of the Company’s trade receivables are due from public and private entities involved in the healthcare industry. Due to the large size and diversity of the Company’s customer base, concentrations of credit risk with respect to trade receivables are limited. The Company does not normally require collateral. The Company is exposed to credit loss in the event of nonperformance by financial institutions with which it conducts business. However, this loss is limited to the amounts, if any, by which the obligations of the counterparty to the financial instrument contract exceed the obligations of the Company. The Company also minimizes exposure to credit risk by dealing with a diversified group of major financial institutions.

The Company continually evaluates its accounts receivables for potential collection risks particularly those resulting from sales to government-owned or government-supported healthcare facilities in certain countries as payment may be dependent upon the financial stability and creditworthiness of those countries’ national economies. The Company continually evaluates all governmental receivables for potential collection risks associated with the availability of government funding and reimbursement practices. The Company believes the current reserves related to all governmental receivables are adequate and that this concentration of credit risk will not have a material adverse impact on its financial position or liquidity.

Notes to Consolidated Financial Statements — (Continued)

Becton, Dickinson and Company

Note 15 — Debt

Short-term debt

Short-term debt at September 30 consisted of:

(Millions of dollars)			2018				2017
Current portion of long-term debt
2.133% Notes due June 6, 2019			724				—
0.368% Notes due June 6, 2019	(a)		1,157				—
4.900% Notes due April 15, 2018			—				200
Term Loan Facility due September 5, 2019	(b)		710				—
Other			10				3
Total short-term debt			$	2,601			$	203

(a)	Includes notes issued during fiscal year 2018, as further discussed below.

(b)	Term loan facility entered into during the fourth quarter of fiscal year 2018, as further discussed below.

The weighted average interest rates for short-term debt were 1.58% and 4.90% at September 30, 2018 and 2017, respectively.

Notes to Consolidated Financial Statements — (Continued)

Becton, Dickinson and Company

Long-term debt

Long-Term Debt at September 30 consisted of:

(Millions of dollars)			2018				2017
2.133% Notes due June 6, 2019			$	—			$	723
0.368% Notes due June 6, 2019			—				823
2.675% Notes due December 15, 2019			1,123				1,121
2.404% Notes due June 5, 2020			998				996
3.250% Notes due November 12, 2020			699				698
Floating Rate Notes due December 29, 2020	(a)		996				—
3.125% Notes due November 8, 2021			990				1,003
2.894% Notes due June 6, 2022			1,793				1,791
Floating Rate Notes due June 6, 2022			498				497
1.000% Notes due December 15, 2022			576				586
3.300% Notes due March 1, 2023			296				296
1.401% Notes due May 24, 2023	(a)		346				—
3.875% Notes due May 15, 2024			182				182
3.363% Notes due June 6, 2024			1,738				1,736
3.734% Notes due December 15, 2024			1,368				1,367
3.020% Notes due May 24, 2025	(a)		324				—
6.700% Notes due December 1, 2026	(b)		177				—
1.900% Notes due December 15, 2026			575				585
3.700% Notes due June 6, 2027			2,383				2,381
7.000% Debentures due August 1, 2027			156				166
6.700% Debentures due August 1, 2028			154				164
6.000% Notes due May 15, 2039			246				246
5.000% Notes due November 12, 2040			296				296
4.875% Notes due May 15, 2044			331				331
4.685% Notes due December 15, 2044			1,159				1,189
4.669% Notes due June 6, 2047			1,484				1,484
Other long-term debt			8				3
Total Long-Term Debt			$	18,894			$	18,667

(a)	Includes notes issued during fiscal year 2018, as further discussed below.

(b)	Includes notes assumed in connection with the Company's acquisition of Bard, as further discussed below.

The aggregate annual maturities of debt including interest during the fiscal years ending September 30, 2019 to 2023 are as follows: 2019 — $3.3 billion; 2020 — $2.8 billion; 2021 — $2.3 billion; 2022 — $3.8 billion; 2023 — $1.7 billion.

Other current credit facilities

In connection with the Company's agreement to acquire Bard, the Company entered into a three-year senior unsecured term loan facility of $2.25 billion during the third quarter of fiscal year 2017. During the first quarter of fiscal year 2018, the proceeds from this facility were used to fund a portion of the cash consideration for the Bard acquisition, as well as the fees and expenses incurred in connection with the acquisition. In September 2018, the Company entered into a 364-day $750 million senior unsecured term loan facility. The Company used $230 million of proceeds drawn from this facility in September 2018 to repay all borrowings

Notes to Consolidated Financial Statements — (Continued)

Becton, Dickinson and Company

outstanding under the three-year term loan facility discussed above. Borrowings outstanding under the new, 364-day term loan facility were $710 million at September 30, 2018. The Company also entered into a five-year senior unsecured revolving credit facility in the third quarter of fiscal year 2017 which became effective upon the closing of the Bard acquisition and which provides borrowing of up to $2.25 billion. This facility will expire in December 2022 and replaced the $1.5 billion syndicated credit facility the Company previously had in place for general corporate purposes. Under the new revolving facility, the Company will be able to issue up to $100 million in letters of credit under this new revolving credit facility and it also includes a provision that enables the Company, subject to additional commitments made by the lenders, to access up to an additional $500 million in financing through the facility for a maximum aggregate commitment of $2.75 billion. There were no borrowings outstanding under the revolving credit facility at September 30, 2018. In addition, the Company has informal lines of credit outside of the United States.

Exchange of Bard Notes

Also in connection with the Company's acquisition of Bard, the Company exchanged certain outstanding notes issued by Bard for a like-amount of new notes issued by the Company. The exchange offers, which were conditioned upon the closing of the Bard acquisition, expired on December 29, 2017. The aggregate principal amounts of Bard notes which were validly tendered for notes issued by the Company are provided below.

(Millions of dollars)
Interest Rate and Maturity		Aggregate Principal Amount				Principal Amount Accepted for Exchange
4.400% Notes due January 15, 2021		$	500			$	432
3.000% Notes due May 15, 2026		500				470
6.700% Notes due December 1, 2026		150				137
Total		$	1,150			$	1,039

This exchange transaction was accounted for as a modification of the assumed debt instruments. Following the exchange of the notes, the aggregate principal amount of Bard notes that remained outstanding after settlement of the exchange transaction was $111 million.

2018 Debt-Related Transactions

In January 2018, the Company commenced an offer to repurchase any and all of the outstanding 3.000% Notes due May 15, 2026 that were issued as a result of the exchange transaction discussed above. Under the terms of the repurchase offer, holders were entitled to receive cash equal to 101% of the principal amount of notes validly tendered, plus accrued and unpaid interest, if any, to the date of purchase. The offer to repurchase the 3.000% Notes expired on March 1, 2018 and a total of $461 million aggregate principal amount of notes were validly tendered at a market price of $465 million. Based upon the carrying value of $452 million, the Company recorded a loss relating to this debt extinguishment in the second quarter of fiscal year 2018 of $13 million as Other income (expense), net, on its consolidated statements of income.

During the second quarter of fiscal year 2018, the Company issued Euro-denominated debt consisting of 300 million Euros ($370 million) of 0.368% notes due June 6, 2019 under an indenture pursuant to which the Company previously issued, in the third quarter of fiscal year 2017, 0.368% notes due June 6, 2019. Also in the second quarter of fiscal year 2018, the Company issued $1 billion of floating rate senior unsecured U.S. notes due December 29, 2020. The Company used the net proceeds from these long-term debt offerings to repay portions of the balances outstanding on its term loan and revolving credit facilities, which are discussed above, as well as accrued interest, related premiums, fees and expenses related to these repaid amounts.

In June 2018, the Company redeemed all of the 4.400% Notes due January 15, 2021 and 3.000% Notes due May 15, 2026 which were issued by Bard and that remained outstanding after the exchange offer discussed further above. Also in June 2018, the Company redeemed all of the 4.400% Notes due January 15, 2021 which were issued by the Company upon the exchange offer, as well as all of the 3.000% Notes due May 15, 2026

Notes to Consolidated Financial Statements — (Continued)

Becton, Dickinson and Company

issued by the Company which remained outstanding after the repurchase offer also discussed above. The total aggregate principal amount of notes redeemed was $539 million. Based upon the $556 million carrying value of these notes and the $559 million the Company paid to redeem the aggregate principal amount of the notes, the Company recorded a loss on these debt extinguishment transactions in the third quarter of fiscal year 2018 of $3 million as Other income (expense), net, on its consolidated statements of income.

During the third quarter of fiscal year 2018, the Company issued Euro-denominated debt consisting of 300 million Euros ($354 million) of 1.401% notes due May 24, 2023. Also in the third quarter of fiscal year 2018, the Company issued British Pound-denominated debt of 250 million British Pounds ($337.5 million) of 3.02% notes due May 24, 2025. The Company used the net proceeds from these long-term debt offerings to redeem certain notes in the third quarter, as further discussed above, and to repay a portion of the balance outstanding on its term loan, as well as accrued interest, related premiums, fees and expenses related to this repaid amount.

2017 Debt-Related Transactions

In December 2016, the Company issued euro-denominated debt consisting of 500 million Euros of 1.000% notes and 500 million Euros of 1.900% notes. The Company used the net proceeds from this long-term debt offering, together with other sources of liquidity, to fund the Company's repurchase of certain of its senior notes outstanding. Under this cash tender offer, the Company repurchased all or a portion of the aggregate principal amounts of certain of its long-term notes outstanding, totaling $1.689 billion, at an aggregate market price of $1.764 billion. The carrying value of these long-term notes was $1.727 billion, and the Company recognized a loss on this debt extinguishment of $42 million, which was recorded in December 2016 as Other income (expense), net, on the Company’s consolidated statements of income.

During the third quarter of 2017 and in connection with the Company's acquisition of Bard, as previously discussed in Note 9, the Company issued senior unsecured U.S. notes with an aggregate principal amount of $9.675 billion. Also during the third quarter of 2017, the Company issued Euro-denominated debt consisting of 700 million Euros of 0.368% Notes due June 6, 2019.

Also in 2017, the Company redeemed all or a portion of the aggregate principal amounts of certain of its long-term senior notes outstanding, totaling $1.717 billion, at an aggregate market price of $1.776 billion. The carrying value of these long-term notes was $1.745 billion and the Company recognized a loss on this debt extinguishment of $31 million, which was recorded in June 2017 as Other income (expense), net, on the Company’s consolidated statements of income.

Capitalized interest

The Company capitalizes interest costs as a component of the cost of construction in progress. A summary of interest costs and payments for the years ended September 30 is as follows:

(Millions of dollars)	2018				2017				2016
Charged to operations	$	706			$	521			$	388
Capitalized	42				32				30
Total interest costs	$	748			$	553			$	418
Interest paid, net of amounts capitalized	$	674			$	435			$	392

Note 16 — Income Taxes

New U.S. Tax Legislation

New U.S. tax legislation, which is commonly referred to as the Tax Cuts and Job Act (the "Act") and which was enacted on December 22, 2017, reduces the U.S. federal corporate tax rate from 35% to 21%, requires companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred, and creates new taxes on certain foreign-sourced earnings. Under U.S. generally accepted accounting principles, companies must account for the effects of changes in income tax rates and laws

Notes to Consolidated Financial Statements — (Continued)

Becton, Dickinson and Company

in the period in which the legislation is enacted. However, the U.S. Securities and Exchange Commission (the "SEC") has provided guidance which allows companies to report financial results including provisional amounts that have been recorded for the income tax effects of the Act based upon a reasonable estimate of those effects. The SEC expects that accounting for the Act should be completed by companies by no later than one year from the enactment date of the Act.

As of September 30, 2018, the Company has not completed its accounting for the tax effects of enactment of the Act; however, the Company has made what it believes is a reasonable estimate of the effects on the remeasurement of U.S. deferred tax balances, the one-time transition tax, and the taxes accrued relating to the change in permanent reinvestment assertion for unremitted earnings of its foreign subsidiaries. As a result of these estimates, the Company recognized a provisional expense in the amount of $640 million, which is reflected in the Company's consolidated statement of income within Income tax provision. The Company also recorded a charge, which is further discussed below, relating to historic unremitted foreign earnings as of September 30, 2018.

The Company will continue to gather information and perform additional analysis on these estimates, including, but not limited to, the amount of earnings and profits subject to the transition tax, the calculation of foreign tax credits, the local tax treatment of future distributions of unremitted earnings and the remeasurement of U.S. deferred taxes. Any measurement period adjustments will be reported as a component of Income tax provision in the reporting period the amounts are determined. The final accounting will be completed no later than one year from the enactment of the Act.

The Company is currently in the process of evaluating the new Global Intangible Low-Taxed Income’s ("GILTI") provisions and has not yet elected an accounting policy regarding whether to record deferred taxes related to GILTI. Therefore, the Company has not made any adjustments related to the GILTI tax in its financial statements. Under the SEC guidance noted above, the Company will continue to analyze and assess the effects of the GILTI provisions of the Act.

Provisional Amounts

The Company believes that all provisional amounts reflected in its financial statements are based on the best estimates that can be made at this time. The Company will continue to analyze all impacts of the Act and will update provisional amounts as required.

Deferred tax assets and liabilities

The Company remeasured certain deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future, which is generally 21%. However, the Company is still analyzing certain aspects of the Act and refining its calculations, which could potentially affect the measurement of these balances or potentially give rise to new deferred tax amounts. The Company recorded a provisional tax benefit of $182 million related to the re-measurement of the Company's deferred tax balances.

Foreign tax effects

The one-time transition tax is based on the Company's total post-1986 earnings and profits ("E&P") that the Company previously deferred from U.S. income taxes. The Company recorded a provisional amount for its one-time transition tax liability for all of its foreign subsidiaries, resulting in an increase in income tax expense of $822 million. However, the Company has not yet completed its calculation of the total post-1986 E&P for these foreign subsidiaries. Further, the transition tax is based in part on the amount of those earnings held in cash and other specified assets. This amount may change when the Company finalizes the calculation of post-1986 foreign E&P previously deferred from U.S. federal taxation and finalizes the amounts held in cash or other specified assets. As discussed in Note 9, the Company completed its acquisition of Bard on December 29, 2017. The net assets acquired included approximately $175 million of transition tax payable based on the Company's best estimate of its transition tax liability. The combined company's transition tax liability, 8% of which is payable per year over the next five years with the balance payable over the following three years, is approximately $1 billion. The anticipated payment of this tax is expected to begin on January 15, 2019.

Notes to Consolidated Financial Statements — (Continued)

Becton, Dickinson and Company

The Company has historically asserted indefinite reinvestment of the earnings of certain non-U.S. subsidiaries outside the United States. The Act eliminated certain material tax effects on the repatriation of cash to the United States. Future repatriation of cash and other property held by our foreign subsidiaries will generally not be subject to U.S. federal income tax. As a result, after reevaluation of the permanent reinvestment assertion, the Company is no longer permanently reinvested with respect to its historic unremitted foreign earnings as of September 30, 2018. As a result of the change in the assertion, during fiscal 2018, the Company recorded a charge of $134 million to Income tax provision related to historic unremitted foreign earnings as of September 30, 2018.

Provision for Income Taxes

The provision for income taxes the years ended September 30 consisted of:

(Millions of dollars)	2018				2017				2016
Current:
Federal	$	665			$	(230	)		$	312
State and local, including Puerto Rico	73				(20		)		17
Foreign	387				200				286
	$	1,124			$	(50	)		$	616
Deferred:
Domestic	$	(201	)		$	(64	)		$	(441	)
Foreign	(61		)		(10		)		(78		)
	(262		)		(74		)		(519		)
Income tax provision (benefit)	$	862			$	(124	)		$	97

The components of Income Before Income Taxes for the years ended September 30 consisted of:

(Millions of dollars)	2018				2017				2016
Domestic, including Puerto Rico	$	(135	)		$	(386	)		$	(232	)
Foreign	1,308				1,362				1,306
Income Before Income Taxes	$	1,173			$	976			$	1,074

Unrecognized Tax Benefits

The table below summarizes the gross amounts of unrecognized tax benefits without regard to reduction in tax liabilities or additions to deferred tax assets and liabilities if such unrecognized tax benefits were settled. The Company believes it is reasonably possible that certain audits will close within the next twelve months but no significant increases or decreases in the amount of the unrecognized tax benefits are expected to result.

(Millions of dollars)	2018				2017				2016
Balance at October 1	$	349			$	469			$	593
Increase due to acquisitions	140				—				—
Increase due to current year tax positions	43				41				81
Increase due to prior year tax positions	43				19				10
Decreases due to prior year tax positions	—				(30		)		(3		)
Decrease due to settlements with tax authorities	(29		)		(145		)		(147		)
Decrease due to lapse of statute of limitations	(3		)		(5		)		(65		)
Balance at September 30	$	543			$	349			$	469

Upon the Company's acquisition of CareFusion in 2015, the Company became a party to a tax matters agreement with Cardinal Health resulting from Cardinal Health's spin-off of CareFusion in fiscal year 2010. Under the tax matters agreement, the Company is obligated to indemnify Cardinal Health for certain tax

Notes to Consolidated Financial Statements — (Continued)

Becton, Dickinson and Company

exposures and transaction taxes prior to CareFusion’s spin-off from Cardinal Health. The indemnification payable is approximately $140 million at September 30, 2018 and is included in Deferred Income Taxes and Other on the consolidated balance sheet.

At September 30, 2018, 2017 and 2016, there are $632 million, $415 million and $478 million of unrecognized tax benefits that if recognized, would affect the effective tax rate. During the fiscal years ended September 30, 2018, 2017 and 2016, the Company reported interest and penalties associated with unrecognized tax benefits of $20 million, $57 million and $(38) million on the consolidated statements of income as a component of Income tax provision. The Company conducts business and files tax returns in numerous countries and currently has tax audits in progress in a number of tax jurisdictions. The IRS has completed its audit for the BD Legacy fiscal year 2014 and combined company fiscal years 2016 and 2017. For the BD legacy business, all years are effectively settled with the exception of 2015 for which the Company believes it is adequately reserved for any potential exposures. The IRS is currently examining the CareFusion legacy fiscal year 2014 and short period 2015. With the exception of the CareFusion legacy fiscal year 2010 audit, all other periods are at various stages of appeals or protests. With regard to Bard, all examinations have been completed through calendar year 2014. The IRS has commenced the examination of calendar years 2015 and 2016. For the other major tax jurisdictions where the Company conducts business, tax years are generally open after 2012.

Deferred Income Taxes

Deferred income taxes at September 30 consisted of:

	2018								2017
(Millions of dollars)	Assets				Liabilities				Assets				Liabilities
Compensation and benefits	$	458			$	—			$	618			$	—
Property and equipment	—				253				—				244
Intangibles	—				2,948				—				1,584
Loss and credit carryforwards	1,290				—				1,098				—
Other	707				384				531				164
	2,455				3,585				2,247				1,992
Valuation allowance	(1,181		)		—				(1,032		)		—
Net (a)	$	1,275			$	3,585			$	1,216			$	1,992

(a)	Net deferred tax assets are included in Other Assets and net deferred tax liabilities are included in Deferred Income Taxes and Other on the consolidated balance sheets.

Deferred tax assets and liabilities are netted on the balance sheet by separate tax jurisdictions. Deferred taxes have been provided on undistributed earnings of foreign subsidiaries as of September 30, 2018.

Generally, deferred tax assets have been established as a result of net operating losses and credit carryforwards with expiration dates from 2019 to an unlimited expiration date. Valuation allowances have been established as a result of an evaluation of the uncertainty associated with the realization of certain deferred tax assets on these losses and credit carryforwards. The valuation allowance for 2018 is primarily the result of foreign losses due to the Company’s global re-organization of its foreign entities and these generally have no expiration date. Valuation allowances are also maintained with respect to deferred tax assets for certain federal and state carryforwards that may not be realized and that principally expire in 2038.

Notes to Consolidated Financial Statements — (Continued)

Becton, Dickinson and Company

Tax Rate Reconciliation

A reconciliation of the federal statutory tax rate to the Company’s effective income tax rate was as follows:

	2018			2017			2016
Federal statutory tax rate	24.5	%		35.0	%		35.0	%
New U.S. tax legislation (see discussion above)	54.6			—			—
State and local income taxes, net of federal tax benefit	0.8			(2.6	)		1.5
Effect of foreign and Puerto Rico earnings and foreign tax credits	7.3			(40.8	)		(23.7	)
Effect of Research Credits and Domestic Production Activities	(2.8	)		(2.7	)		(4.4	)
Effect of change in accounting for excess tax benefit relating to share-based compensation (see Note 2)	(6.7	)		(7.9	)		—
Effect of gain on divestitures	1.3			—			—
Effect of uncertain tax position	3.3			—			—
Effect of valuation allowance release	(4.8	)		—			—
Effect of application for change in accounting method	(4.5	)		—			—
Effect of nondeductible compensation	1.6			—			—
Other, net	(1.1	)		6.3			0.7
Effective income tax rate	73.5	%		(12.7	)%		9.1	%

Tax Holidays and Payments

The approximate amounts of tax reductions related to tax holidays in various countries in which the Company does business were $101 million, $144 million and $121 million, in 2018, 2017 and 2016, respectively. The benefit of the tax holiday on diluted earnings per share was approximately $0.38, $0.64 and $0.56 for fiscal years 2018, 2017 and 2016, respectively. The tax holidays expire at various dates through 2028.

The Company made income tax payments, net of refunds, of $235 million in 2018, $265 million in 2017 and $218 million in 2016.

Notes to Consolidated Financial Statements — (Continued)

Becton, Dickinson and Company

Note 17 — Sales-Type Leases and Financing Receivables

In April 2017, in conjunction with the implementation of a new “go-to-market” business model for the Company's U.S. dispensing business within the Medication Management Solutions (“MMS”) unit of the Medical segment, the Company amended the terms of certain customer leases for dispensing equipment within the MMS unit. The modification provided customers the ability to reduce its dispensing asset base via a return provision, resulting in a more flexible lease term. Prior to the modification, these leases were accounted for as sales-type leases in accordance with Accounting Standards Codification Topic 840, "Leases", as the non-cancellable lease term of 5 years exceeded 75% of the equipment’s estimated useful life and the present value of the minimum lease payments exceeded 90% of the equipment’s fair value. As a result of the lease modification, the Company was required to reassess the classification of the leases due to the amended lease term. Accordingly, most amended lease contracts were classified as operating leases beginning in April 2017. The change in lease classification resulted in a pre-tax charge to earnings in fiscal year 2017 of $748 million, which was recorded in Other operating expense, net. Beginning April 1, 2017, revenue associated with these modified contracts has been recognized on a straight-line basis over the remaining lease term, along with depreciation on the reinstated leased assets.

The Company's consolidated financial results in 2018 and 2017 were not materially impacted by the financing receivables remaining subsequent to the lease modification discussed above.

Note 18 — Supplemental Financial Information

Other Income (Expense), Net

(Millions of dollars)	2018				2017				2016
Losses on debt extinguishment (a)	$	(16	)		$	(73	)		$	—
Vyaire Medical-related amounts (b)	288				(3		)		—
Other equity investment income	8				3				8
Losses on undesignated foreign exchange derivatives, net	(14		)		(11		)		(3		)
Royalty income (c)	51				—				—
Gains on previously held investments (d)	—				24				—
Other	—				3				7
Other income (expense), net	$	318			$	(57	)		$	11

(a)	Represents losses recognized upon our repurchase and extinguishment of certain senior notes, as further discussed in Note 15.

(b)

Represents amounts related to the Company’s 2017 divestiture of a controlling interest in its former Respiratory Solutions business and the subsequent sale in 2018 of the remaining ownership interest. The amount in 2018 includes the gain on the sale of the remaining non-controlling interest and transition services agreement income, net of the Company's share of equity investee results. The amount in 2017 represents the Company’s share of equity investee results, net of transition services agreement income. Additional disclosures regarding these divestiture transactions are provided in Note 10 in the Notes to Consolidated Financial Statements.

(c)	Represents the royalty income stream acquired in the Bard transaction, net of non-cash purchase accounting amortization. The royalty income stream was previously reported by Bard as revenues.

(d)	Represents an acquisition-date accounting gain related to a previously-held equity method investment in an entity the Company acquired.

Notes to Consolidated Financial Statements — (Continued)

Becton, Dickinson and Company

Trade Receivables, Net

The amounts recognized in 2018, 2017 and 2016 relating to allowances for doubtful accounts and cash discounts, which are netted against trade receivables, are provided in the following table:

(Millions of dollars)	Allowance for Doubtful Accounts				Allowance for Cash Discounts				Total
Balance at September 30, 2015	$	53			$	9			$	62
Additions charged to costs and expenses	23				37				60
Deductions and other	(14		)	(a)	(40		)		(55		)
Balance at September 30, 2016	$	61			$	6			$	67
Additions charged to costs and expenses	25				43				68
Deductions and other	(32		)	(a)	(45		)		(76		)
Balance at September 30, 2017	$	54			$	4			$	58
Additions charged to costs and expenses	31				58				89
Deductions and other	(11		)	(a)	(50		)		(61		)
Balance at September 30, 2018	$	75			$	12			$	86

(a)	Accounts written off.

Inventories

Inventories at September 30 consisted of:

(Millions of dollars)	2018				2017
Materials	$	510			$	313
Work in process	297				271
Finished products	1,644				1,234
	$	2,451			$	1,818

The Company acquired $974 million of inventories in the Bard transaction which is further discussed in Note 9.

Property, Plant and Equipment, Net

Property, Plant and Equipment, Net at September 30 consisted of:

(Millions of dollars)	2018				2017
Land	$	173			$	146
Buildings	2,724				2,496
Machinery, equipment and fixtures	7,405				6,584
Leasehold improvements	182				163
	10,485				9,389
Less accumulated depreciation and amortization	5,111				4,752
	$	5,375			$	4,638

The Company acquired $553 million of property, plant and equipment assets, which largely consisted of machinery, equipment and fixtures, in the Bard transaction.

Becton, Dickinson and Company

SUPPLEMENTARY QUARTERLY DATA (UNAUDITED)

Millions of dollars, except per share amounts		2018
		1st				2nd				3rd				4th				Year
Revenues		$	3,080			$	4,222			$	4,278			$	4,402			$	15,983
Gross Profit		1,550				1,604				2,017				2,091				7,262
Net (Loss) Income		(136		)		(12		)		594				(135		)		311
(Loss) earnings per Share: (a)
Basic		(0.76		)		(0.19		)		2.08				(0.64		)		0.62
Diluted		(0.76		)		(0.19		)		2.03				(0.64		)		0.60

		2017
		1st				2nd				3rd				4th				Year
Revenues		$	2,922			$	2,969			$	3,035			$	3,166			$	12,093
Gross Profit		1,452				1,432				1,504				1,554				5,942
Net Income (Loss)		562				344				(132		)		327				1,100
Earnings (loss) per Share: (a)
Basic		2.64				1.61				(0.75		)		1.27				4.70
Diluted		2.58				1.58				(0.75		)		1.24				4.60

(a)

Earnings per share amounts are calculated from the underlying whole-dollar amounts. The sums of basic and diluted earnings per share for the quarters of 2018 and 2017 do not equal year-to-date amounts due to the impacts of shares issued during these fiscal years, in connection with the Bard acquisition, on the weighted average common shares included in the calculations of basic and diluted earnings per share. Additional disclosures regarding shares issued related to the Bard acquisition are provided in Notes 3 and 9.