BECTON DICKINSON & CO — Interim / Quarterly Report 2006

May 9, 2006

10-Q 1 a41964.htm BECTON, DICKINSON AND COMPANY

FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549

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

For the quarterly period ended March 31, 2006

OR

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

For the transition period from ______ to __

Commission file number 001-4802

Becton, Dickinson and Company
(Exact name of registrant as specified in
its charter)

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

| 1 Becton Drive, Franklin Lakes, New Jersey
07417-1880 |
| --- |
| (Address of principal executive offices) (Zip Code) |
| (201) 847-6800 |
| (Registrant’s telephone number, including
area code) |
| N/A |
| (Former name, former address and former
fiscal year, if changed since last report) |

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

Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer x Accelerated filer o Non-accelerated filer o

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

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

Class of Common Stock	Shares Outstanding as of March 31, 2006
Common stock, par value $1.00	247,317,640

BECTON, DICKINSON AND COMPANY FORM 10-Q For the quarterly period ended March 31, 2006

TABLE OF CONTENTS

| Part I. | FINANCIAL INFORMATION | Page
Number |
| --- | --- | --- |
| Item 1. | Financial Statements (Unaudited) | |
| | Condensed
Consolidated Balance Sheets | 3 |
| | Condensed
Consolidated Statements of Income | 4 |
| | Condensed
Consolidated Statements of Cash Flows | 5 |
| | Notes to
Condensed Consolidated Financial Statements | 6 |
| Item 2. | Management’s Discussion and Analysis of
Financial Condition and Results of Operations | 14 |
| Item 3. | Quantitative and Qualitative Disclosures
About Market Risk | 23 |
| Item 4. | Controls and Procedures | 23 |
| Part II. | OTHER INFORMATION | |
| Item 1. | Legal Proceedings | 24 |
| Item 1A. | Risk Factors | 25 |
| Item 2. | Unregistered Sales of Equity Securities and
Use of Proceeds | 25 |
| Item 3. | Defaults Upon Senior Securities | 25 |
| Item 4. | Submission of Matters to a Vote of Security
Holders | 25 |
| Item 5. | Other Information | 27 |
| Item 6. | Exhibits | 27 |
| Signatures | | 28 |
| Exhibits | | 29 |

2

ITEM 1. FINANCIAL STATEMENTS BECTON, DICKINSON AND COMPANY CONDENSED CONSOLIDATED BALANCE SHEETS Thousands of Dollars

	March 31, 2006
	(Unaudited)
Assets
Current Assets:
Cash and equivalents	$ 776,534	$	1,042,890
Short-term investments	89,751		86,808
Trade receivables, net	864,697		842,806
Inventories:
Materials	107,345		93,963
Work in process	153,124		139,772
Finished products	582,243		542,214
	842,712		775,949
Prepaid expenses, deferred taxes and other	232,917		226,861
Total Current Assets	2,806,611		2,975,314
Property, plant and equipment	4,428,539		4,305,129
Less allowances for depreciation and
amortization	2,472,947		2,371,411
	1,955,592		1,933,718
Goodwill	551,228		470,049
Core and Developed Technology, Net	246,753		165,381
Other Intangibles, Net	102,624		101,558
Capitalized Software, Net	203,744		229,793
Other	256,226		196,156
Total Assets	$ 6,122,778	$	6,071,969
Liabilities and Shareholders’ Equity
Current Liabilities:
Short-term debt	$ 305,998	$	206,509
Payables and accrued expenses	981,301		1,092,866
Total Current Liabilities	1,287,299		1,299,375
Long-Term Debt	956,539		1,060,833
Long-Term Employee Benefit Obligations	204,877		301,933
Deferred Income Taxes and Other	165,188		125,876
Commitments and Contingencies
Shareholders’ Equity:
Common stock	332,662		332,662
Capital in excess of par value	772,677		615,846
Retained earnings	5,071,393		4,805,852
Deferred compensation	10,803		10,280
Common shares in treasury – at cost	(2,491,046	)	(2,297,493	)
Accumulated other comprehensive loss	(187,614	)	(183,195	)
Total Shareholders’ Equity	3,508,875		3,283,952
Total Liabilities and Shareholders’
Equity	$ 6,122,778	$	6,071,969

See notes to condensed consolidated financial statements

3

BECTON, DICKINSON AND COMPANY CONDENSED CONSOLIDATED STATEMENTS OF INCOME Thousands of Dollars, Except Per-share Data (Unaudited)

	Three Months Ended March 31, — 2006		2005	2006			2005
Revenues	$ 1,449,317		$ 1,365,530	$	2,863,378		$ 2,653,899
Cost of products sold	710,635		678,018		1,386,376		1,312,519
Selling and administrative	369,779		366,339		737,653		707,427
Research and development	129,099		65,988		198,424		128,071
Total Operating Costs and Expenses	1,209,513		1,110,345		2,322,453		2,148,017
Operating Income	239,804		255,185		540,925		505,882
Interest expense	(19,805	)	(13,044	)	(36,565	)	(27,371	)
Interest income	16,991		8,488		31,662		13,693
Other expense, net	(451	)	(2,242	)	(1,614	)	(5,103	)
Income From Continuing Operations Before
Income Taxes	236,539		248,387		534,408		487,101
Income tax provision	80,301		61,878		160,310		106,194
Income From Continuing Operations	156,238		186,509		374,098		380,907
(Loss) Income From Discontinued Operations,
net	(2,170	)	1,641		(2,170	)	2,594
Net Income	$ 154,068		$ 188,150	$	371,928		$ 383,501
Basic Earnings Per Share:
Income from Continuing Operations	$ 0.63		$ 0.74	$	1.51		$ 1.51
(Loss) Income from Discontinued Operations	$ (0.01	)	$ 0.01	$	(0.01	)	$ 0.01
Basic Earnings Per Share (A)	$ 0.62		$ 0.74	$	1.50		$ 1.52
Diluted Earnings Per Share:
Income from Continuing Operations	$ 0.60		$ 0.71	$	1.45		$ 1.45
(Loss) Income from Discontinued Operations	$ (0.01	)	$ 0.01	$	(0.01	)	$ 0.01
Diluted Earnings Per Share (A)	$ 0.60		$ 0.72	$	1.45		$ 1.46
Dividends Per Common Share	$ 0.215		$ 0.18	$	0.43		$ 0.36

(A): Total per share amounts may not add due to rounding.

See notes to condensed consolidated financial statements

4

BECTON, DICKINSON AND COMPANY CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS Thousands of Dollars (Unaudited)

| | Six Months
Ended | | | |
| --- | --- | --- | --- | --- |
| | March 31, | | | |
| | 2006 | 2005 | | |
| Operating Activities | | | | |
| Net income | $ 371,928 | $ | 383,501 | |
| Loss (Income) from discontinued operations,
net | 2,170 | | (2,594 | ) |
| Income from continuing operations | 374,098 | | 380,907 | |
| Adjustments to income from continuing
operations to derive net cash provided by operating activities: | | | | |
| Depreciation and amortization | 198,123 | | 193,042 | |
| Share-based compensation | 58,447 | | 28,145 | |
| Acquired in-process research and
development | 53,300 | | — | |
| Change in working capital | (227,822 | ) | (82,578 | ) |
| Pension obligation | (104,762 | ) | (62,167 | ) |
| Other, net | 28,847 | | 5,150 | |
| Net Cash Provided by Continuing Operating
Activities | 380,231 | | 462,499 | |
| Investing Activities | | | | |
| Capital expenditures | (151,005 | ) | (108,178 | ) |
| Capitalized software | (10,085 | ) | (10,433 | ) |
| Purchases of investments, net | (5,170 | ) | (19,118 | ) |
| Acquisition of GeneOhm, net of cash
acquired | (230,433 | ) | — | |
| Other, net | (36,456 | ) | (20,849 | ) |
| Net Cash Used for Continuing Investing
Activities | (433,149 | ) | (158,578 | ) |
| Financing Activities | | | | |
| Change in short-term debt | (516 | ) | 91,636 | |
| Payments of long-term debt | (326 | ) | (104,384 | ) |
| Repurchase of common stock | (224,995 | ) | (224,934 | ) |
| Issuance of common stock from treasury | 94,671 | | 97,811 | |
| Excess tax benefit from stock option
exercises | 26,478 | | 26,314 | |
| Dividends paid | (106,728 | ) | (92,326 | ) |
| Net Cash Used for Continuing Financing
Activities | (211,416 | ) | (205,883 | ) |
| Discontinued Operations (Revised – See Note
9) | | | | |
| Net cash (used for) provided by operating
activities | (2,170 | ) | 2,265 | |
| Net cash provided by investing activities | — | | 1,583 | |
| Net cash used for financing activities | — | | (12 | ) |
| Net Cash (Used for) Provided by
Discontinued Operations | (2,170 | ) | 3,836 | |
| Effect of exchange rate changes on cash and
equivalents | 148 | | 4,245 | |
| Net (decrease) increase in cash and
equivalents | (266,356 | ) | 106,119 | |
| Opening Cash and Equivalents | 1,042,890 | | 719,378 | |
| Closing Cash and Equivalents | $ 776,534 | $ | 825,497 | |

See notes to condensed consolidated financial statements

5

BECTON, DICKINSON AND COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Dollar and Share Amounts in Thousands, Except Per-share Data March 31, 2006

Note 1 - Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and, in the opinion of the management of the Company, include all adjustments which are of a normal recurring nature, necessary for a fair presentation of the financial position and the results of operations and cash flows for the periods presented. However, the financial statements do not include all information and footnotes required for a presentation in accordance with U.S. generally accepted accounting principles. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included or incorporated by reference in the Company's 2005 Annual Report on Form 10-K. The results of operations for the interim periods are not necessarily indicative of the results of operations to be expected for the full year. Certain reclassifications have been made to prior year amounts to conform to current year presentation.

Note 2 – Comprehensive Income

Comprehensive income was comprised of the following:

| | Three
Months Ended | | | | | | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
| | March 31, | | | March 31, | | | | |
| | 2006 | 2005 | | 2006 | | 2005 | | |
| Net Income | $ 154,068 | $ | 188,150 | $ | 371,928 | $ | 383,501 | |
| Other Comprehensive (Loss) Income, Net of Tax | | | | | | | | |
| Foreign currency translation adjustments | 24,686 | | (27,284 | ) | (2,919 | ) | 122,647 | |
| Unrealized losses on investments, net of amounts
recognized | (808 | ) | (3,631 | ) | (2,587 | ) | (2,271 | ) |
| Unrealized (losses) gains on cash flow hedges, net
of amounts
realized | (1,647 | ) | 3,117 | | 1,087 | | (2,548 | ) |
| Comprehensive Income | $ 176,299 | $ | 160,352 | $ | 367,509 | $ | 501,329 | |

The amount of unrealized losses or gains on investments and cash flow hedges in comprehensive income has been adjusted to reflect any realized gains and recognized losses included in net income during the three and six months ended March 31, 2006 and 2005.

6

Note 3 - Earnings per Share

The computations of basic and diluted earnings per share (shares in thousands) were as follows:

| | Three
Months Ended | | Six Months
Ended | | |
| --- | --- | --- | --- | --- | --- |
| | March 31, | | March 31, | | |
| | 2006 | 2005 | 2006 | 2005 | |
| Income from continuing operations | $ 156,238 | $ 186,509 | $ 374,098 | $ 380,907 | |
| Preferred stock dividends | — | — | — | (367 | ) |
| Income from continuing operations available
to common shareholders (A) | 156,238 | 186,509 | 374,098 | 380,540 | |
| Preferred stock dividends – using “if
converted” method | — | — | — | 367 | |
| Income from continuing operations available
to common shareholders after assumed conversions (B) | $ 156,238 | $ 186,509 | $ 374,098 | $ 380,907 | |
| Average common shares outstanding (C) | 248,088 | 253,427 | 248,067 | 252,317 | |
| Dilutive stock equivalents from stock plans | 10,211 | 8,589 | 9,078 | 8,848 | |
| Shares issuable upon conversion of
preferred stock | — | — | — | 1,228 | |
| Average common and common equivalent shares
outstanding – assuming dilution (D) | 258,299 | 262,016 | 257,145 | 262,393 | |
| Basic earnings per share – income from
continuing operations (A/C) | $ 0.63 | $ 0.74 | $ 1.51 | $ 1.51 | |
| Diluted earnings per share – income from
continuing operations (B/D) | $ 0.60 | $ 0.71 | $ 1.45 | $ 1.45 | |

7

Note 4 - Contingencies

The Company is involved, both as a plaintiff and a defendant, in various legal proceedings and claims which arise in the ordinary course of business.

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 it is a party. In accordance with U.S. generally accepted accounting principles, the Company establishes accruals to the extent probable future losses are estimable (in the case of environmental matters, without considering possible third-party recoveries). In view of the uncertainties of litigation, the Company could incur charges in excess of any currently established accruals and, to the extent available, excess liability insurance. In the opinion of management, any such future charges, individually or in the aggregate, could have a material adverse effect on the Company’s consolidated results of operations and consolidated net cash flows in the period or periods in which they are recorded or paid. Further discussion of legal proceedings is included in Part II of this report.

Note 5 – Segment Data

The Company’s organizational structure is based upon its three principal business segments: BD Medical (“Medical”), BD Diagnostics (“Diagnostics”), and BD Biosciences (“Biosciences”). The Company evaluates segment performance based upon operating income. Segment operating income represents revenues reduced by product costs and operating expenses. Financial information for the Company’s segments was as follows:

| | Three
Months Ended — March 31, | | Six Months
Ended — March 31, | |
| --- | --- | --- | --- | --- |
| | 2006 | 2005 | 2006 | 2005 |
| Revenues | | | | |
| Medical | $ 795,338 | $ 731,665 | $ 1,566,038 | $ 1,425,487 |
| Diagnostics | 434,079 | 429,769 | 877,933 | 843,552 |
| Biosciences | 219,900 | 204,096 | 419,407 | 384,860 |
| Total Revenues (A) | $ 1,449,317 | $ 1,365,530 | $ 2,863,378 | $ 2,653,899 |

8

| | Three Months
Ended | | | | | | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
| | March 31, | | | March 31, | | | | |
| | 2006 | 2005 | | 2006 | | 2005 | | |
| Segment
Operating Income | | | | | | | | |
| Medical | $ 193,479 | $ | 162,484 | $ | 406,602 | $ | 325,805 | |
| Diagnostics | 59,721 | (B) | 116,779 | | 181,239 | (B) | 219,675 | |
| Biosciences | 54,023 | | 46,178 | | 101,077 | | 83,477 | |
| Total Segment Operating | | | | | | | | |
| Income | 307,223 | | 325,441 | | 688,918 | | 628,957 | |
| Unallocated Items (C) | (70,684 | ) | (77,054 | ) | (154,510 | ) | (141,856 | ) |
| Income from Continuing Operations Before
Income Taxes | $ 236,539 | $ | 248,387 | $ | 534,408 | $ | 487,101 | |

| | Three Months
Ended — March 31, | | Six
Months Ended — March 31, | |
| --- | --- | --- | --- | --- |
| | 2006 | 2005 | 2006 | 2005 |
| Revenues by Organizational | | | | |
| Units | | | | |
| BD Medical | | | | |
| Medical Surgical Systems | $ 424,581 | $ 402,292 | $ 852,744 | $ 811,856 |
| Diabetes Care | 188,294 | 162,196 | 371,990 | 320,874 |
| Pharmaceutical Systems | 167,109 | 152,771 | 310,872 | 263,456 |
| Ophthalmic Systems | 15,354 | 14,406 | 30,432 | 29,301 |
| | $ 795,338 | $ 731,665 | $ 1,566,038 | $ 1,425,487 |
| BD Diagnostics | | | | |
| Preanalytical Systems | $ 226,861 | $ 204,835 | $ 449,024 | $ 413,356 |
| Diagnostic Systems | 207,218 | 224,934 | 428,909 | 430,196 |
| | $ 434,079 | $ 429,769 | $ 877,933 | $ 843,552 |
| BD Biosciences | | | | |
| Immunocytometry Systems | $ 123,574 | $ 113,760 | $ 236,426 | $ 213,860 |
| Pharmingen | 41,597 | 37,925 | 78,543 | 71,626 |
| Discovery Labware | 54,729 | 52,411 | 104,438 | 99,374 |
| | $ 219,900 | $ 204,096 | $ 419,407 | $ 384,860 |
| Total | $ 1,449,317 | $ 1,365,530 | $ 2,863,378 | $ 2,653,899 |

| (A) | Intersegment
revenues are not material. |
| --- | --- |
| (B) | Includes
the in-process research and development charge related to the GeneOhm
acquisition. See Note 8 for
additional information. |
| (C) | Includes
primarily share-based compensation expense; interest, net; foreign exchange;
and corporate expenses. |

9

Note 6 – Share-Based Compensation

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

Beginning with the annual share-based grant in November 2005 under the 2004 Plan, the Company granted stock appreciation rights (“SARs”) in addition to performance-based restricted stock units and time-vested restricted stock units, and discontinued the issuance of stock options. SARs vest over a four-year period and have a ten-year term, similar to the previously granted stock options. 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.

Compensation expense relating to share-based payments is recognized in net income using a fair value measurement method. Under the fair value method, the estimated fair value of awards is charged to income on a straight-line basis over the requisite service period, which is generally the vesting period.

Share-based compensation expense reduced the Company’s results of operations as follows:

	Three Months Ended March 31, — 2006	2005		Six Months Ended March 31, — 2006	2005
Selling and administrative
expense	$ 17,572	$ 12,747		$ 42,574	$ 21,855
Cost of products sold	3,827	2,360		9,679	3,908
Research and development
expense	2,405	1,448		6,194	2,382
Income From Continuing
Operations
Before Income Taxes	$ 23,804	$ 16,555		$ 58,447	$ 28,145
Net Income	$ 15,921	$ 11,963	(A)	$ 39,132	$ 20,457	(A)

(A) Share-based compensation attributable to discontinued operations was not material.

10

The increase in share-based compensation is primarily attributable to higher expense associated with certain fiscal 2005 and fiscal 2006 grants. These grants include a higher percentage of restricted stock units that have a shorter vesting period than previous grants. In addition, these grants reflect a shortened requisite service period resulting from such awards being recognized as of the earlier of the employees’ retirement eligibility date or the vesting date, whereas grants prior to the fiscal 2005 grant were recognized through the vesting date.

The amount of unrecognized compensation expense for all non-vested share-based awards as of March 31, 2006 was approximately $160,555, which is expected to be recognized over a weighted-average remaining life of approximately 2.3 years.

The fair values of SARs granted during the annual share-based grant in November of 2006 and stock options granted during the annual share-based grant in November of 2005 were estimated on the date of grant using a lattice-based binomial valuation model based on the following assumptions: risk-free interest rates of 4.48% and 3.93%, respectively; expected volatility of 28% and 29%, respectively; expected dividend yield of 1.46% and 1.28%, respectively; and expected life of 6.5 years for both periods.

Note 7 – Benefit Plans

The Company has defined benefit pension plans covering substantially all of its employees in the United States and certain foreign locations. The Company also provides certain postretirement healthcare and life insurance benefits to qualifying domestic retirees. Other postretirement benefit plans in foreign countries are not material.

Net pension and postretirement cost included the following components for the three months ended March 31:

| | Pension
Plans — 2006 | 2005 | | 2006 | | 2005 | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Service cost | $ 18,860 | $ | 15,294 | $ | 1,017 | $ | 913 | |
| Interest cost | 18,106 | | 16,698 | | 3,716 | | 3,832 | |
| Expected return on plan
assets | (20,150 | ) | (14,710 | ) | — | | — | |
| Amortization of prior
service cost | 50 | | 83 | | (1,558 | ) | (1,558 | ) |
| Amortization of loss | 6,876 | | 5,708 | | 1,753 | | 1,520 | |
| Other | — | | — | | 16 | | 16 | |
| Net pension and
postretirement cost | $ 23,742 | $ | 23,073 | $ | 4,944 | $ | 4,723 | |

11

Net pension and postretirement cost included the following components for the six months ended March 31:

| | Pension
Plans — 2006 | 2005 | | 2006 | | 2005 | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Service cost | $ 36,495 | $ | 30,588 | $ | 2,034 | $ | 1,826 | |
| Interest cost | 35,355 | | 33,396 | | 7,432 | | 7,664 | |
| Expected return on plan
assets | (39,293 | ) | (29,420 | ) | — | | — | |
| Amortization of prior
service cost | 95 | | 166 | | (3,116 | ) | (3,116 | ) |
| Amortization of loss | 13,672 | | 11,416 | | 3,506 | | 3,040 | |
| Other | — | | — | | 32 | | 32 | |
| Net pension and
postretirement costs | $ 46,324 | $ | 46,146 | $ | 9,888 | $ | 9,446 | |

The Company made discretionary contributions to its U.S. pension plan of $150,000 and $50,000 during the first quarter of 2006 and 2005, respectively and $35,000 in the second quarter of 2005. In addition, the Company made a discretionary contribution to a foreign pension plan of approximately $18,000 during the first quarter of 2005.

Note 8 – Acquisition

On February 14, 2006, the Company acquired GeneOhm Sciences, Inc. (“GeneOhm”), a company that develops molecular diagnostic testing for the rapid detection of bacterial organisms, including those known to cause healthcare-associated infections. The acquisition provides the Company with expanded entry into the emerging field of healthcare-associated infections. The acquisition was accounted for as a business combination and the results of operations of GeneOhm were included in the Company’s results as of the acquisition date. Proforma information was not provided as the impact of the acquisition did not have a material effect on the Company’s consolidated results. The purchase price consisted of an up-front cash payment of $230,433, including transaction costs, and may include additional contingent payments of up to $25,000, based on future events occurring on or before December 31, 2007. The purchase price was allocated based upon the fair values of the assets and liabilities acquired. The allocation of the purchase price resulted in deferred tax assets of $34,888 consisting of net operating loss carry forwards and credits; other intangible assets, primarily core and developed technology, of $92,300; deferred tax liabilities of $31,400 associated with other intangible assets, and other net assets of $2,508. Core and developed technology will be amortized on a straight-line basis over its estimated useful life of approximately 15 years. The excess of the purchase price over the fair value of the assets acquired of $78,837 was recorded as goodwill, which was allocated to the Diagnostics segment. In connection with the acquisition, the Company also incurred a charge of $53,300 for acquired in-process research and development, which was recorded as Research and development expense. This charge, based on fair value, is associated with several products that have not reached technological feasibility and do not have alternative future use at the acquisition date. The fair value of each product was determined based upon the present value of projected cash flows utilizing an income approach reflecting the appropriate risk-adjusted discount rate based on the applicable technological and commercial risk of each product. These cash flows took into account the income and expenses associated with the further development and commercialization of the underlying products. The ongoing activity associated with each of these products is not material to the Company’s research and development expense.

12

Note 9 – Discontinued Operations

In August 2005, the Company completed the sale of the Clontech unit of the Biosciences segment. Clontech’s results of operations are reported separately as discontinued operations. During the three months ended March 31, 2006, the Company recorded certain post-closing adjustments to discontinued operations.

Results of discontinued operations were as follows:

| | Three
Months Ended March 31, — 2006 | | 2005 | 2006 | | | 2005 | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Revenues | $ — | | $ 15,236 | $ | — | | $ 28,675 | |
| (Loss) income from discontinued operations before
income taxes | (3,500 | ) | 2,656 | | (3,500 | ) | 4,232 | |
| Income tax benefit (provision) | 1,330 | | (1,015 | ) | 1,330 | | (1,638 | ) |
| (Loss) income From discontinued operations,
net | $ (2,170 | ) | $ 1,641 | $ | (2,170 | ) | $ 2,594 | |

The Company has separately presented operating, investing and financing cash flows attributable to discontinued operations, which in the prior year were reported on a combined basis. In addition, the Consolidated Statements of Cash Flows for prior annual and interim periods were revised as follows:

| | Three
Months Ended December 31, — 2005 | 2004 | | Years
Ended September 30, — 2005 | 2004 | | | 2003 | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Discontinued Operations (Revised) | | | | | | | | | |
| Net cash (used for) provided by operating
activities | $ — | $ (1,458 | ) | $ 1,000 | $ | (1,063 | ) | $ 2,153 | |
| Net cash (used for) provided by investing
activities | — | (53 | ) | 1,260 | | (1,601 | ) | (330 | ) |
| Net cash used for financing activities | — | (6 | ) | (15 | ) | (62 | ) | (2,826 | ) |
| Net Cash (Used for) Provided by
Discontinued | | | | | | | | | |
| Operations | $ — | $ (1,517 | ) | $ 2,245 | $ | (2,726 | ) | $ (1,003 | ) |

13

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

Company Overview Becton, Dickinson and Company (“BD”) is a medical technology company engaged principally in the manufacture and sale of a broad range of medical supplies, devices, laboratory equipment and diagnostic products used by healthcare institutions, life science researchers, clinical laboratories, industry and the general public. Our business consists of three worldwide business segments – BD Medical (“Medical”), BD Diagnostics (“Diagnostics”) and BD Biosciences (“Biosciences”). Our products are marketed in the United States and internationally through independent distribution channels, directly to end-users and by independent sales representatives.

BD’s management operates the business consistent with the following core strategies:

| • | to increase
revenue growth by focusing on products that deliver greater benefits to
patients, healthcare workers and researchers; |
| --- | --- |
| • | to improve
operating effectiveness and balance sheet productivity; and, |
| • | to
strengthen organizational and associate capabilities in the ever-changing
healthcare environment. |

In assessing the outcomes of these strategies and BD’s financial condition and operating performance, management generally reviews quarterly forecast data, monthly actual results, segment sales and other similar information. We also consider trends related to certain key financial data, including gross profit margin, selling and administrative expense, investment in research and development and cash flows.

The results of our strategies are reflected in our second quarter 2006 financial and operational performance. BD reported second quarter revenues of $1.449 billion, an increase of 6% from the same period a year ago, and reflected volume increases of approximately 9%, offset by a decrease due to unfavorable foreign currency translation of approximately 3%. Sales in the United States of safety-engineered devices grew 13% to $220 million in the second quarter of 2006.International sales of safety-engineered devices grew 14% to $77 million in the second quarter of 2006, including an estimated 4 to 5 percent unfavorable impact due to foreign currency translation. Overall, international revenue growth of 2% for the three-month period included a 5% unfavorable impact of foreign currency translation for the three-month period. As further discussed in our 2005 Annual Report on Form 10-K, we face currency exposure that arises from translating the results of our worldwide operations to the U.S. dollar at exchange rates that have fluctuated from the beginning of the period. We purchase option and forward contracts to partially protect against adverse foreign exchange rate movements.

14

Our balance sheet remains strong with net cash provided by continuing operations at approximately $380 million for the six months ended March 31, 2006, and our debt-to-capitalization ratio (shareholders’ equity, net non-current deferred income tax liabilities, and debt) decreasing to 25.7% at March 31, 2006 from 27.3% at September 30, 2005.

Our ability to sustain our long-term growth will depend on a number of factors, including our ability to expand our core business (including geographical expansion), develop innovative new products with higher gross profit margins across our business segments, and continue to improve operating efficiency and organizational effectiveness. Numerous factors can affect our ability to achieve these goals, including without limitation, U.S. and global economic conditions, increased competition and healthcare cost containment initiatives. We believe that there are several important factors relating to our business that tend to reduce the impact on BD of any potential economic or political events in countries in which we do business, including the effects of possible healthcare system reforms. These include the non-discretionary nature of the demand for many of our core products, which may reduce the impact of economic downturns, the international nature of our business and our ability to meet the needs of the worldwide healthcare industry with cost-effective and innovative products.

During fiscal 2006, we continued to experience higher resin purchase costs, primarily due to recent increases in world oil prices. BD purchases supplies of resins, which are oil-based components used in the manufacture of certain products. The impact of any further increases in resin purchase costs for the remainder of the year are expected to be mitigated through continued improvement in our profit margins resulting from increased sales of products with higher margins, cost reduction programs, productivity improvements and, to a lesser extent, periodic price increases and adjustments.

Our anticipated revenue growth over the next three years, excluding any impact relating to foreign exchange, is expected to come from the following:

| • | Core
business growth and expansion, including the continued transition to
safety-engineered devices; and |
| --- | --- |
| • | Development
in each business segment of new products and services that provide increased
benefits to patients, healthcare workers and researchers. |

On February 14, 2006, BD acquired GeneOhm Sciences, Inc. (“GeneOhm”), a company that has developed molecular diagnostic testing for the rapid detection of bacterial organisms, including those known to cause healthcare-associated infections. In connection with the acquisition, BD incurred a charge of $53 million for acquired in-process research and development. See Note 8 for additional discussion.

Results of Operations

Revenues

Refer to Note 5 in the Notes to Condensed Consolidated Financial Statements for segment financial data.

15

Medical Segment – Second quarter revenues of $795 million represented an increase of $64 million, or 9%, from the prior year’s quarter, including an estimated $19 million or a 3% unfavorable impact due to foreign currency translation. Primary drivers of this growth were strong sales in the Diabetes Care and Pharmaceutical Systems units. Medical revenues also reflect the continued conversion in the United States to safety-engineered products, which accounted for sales of $123 million, as compared with $115 million in the prior year’s quarter. The growth rate of safety-engineered products benefited, in part, from a favorable comparison to the prior year’s second quarter revenues, which were negatively impacted by reductions in inventory by a major U.S. distributor. International sales of safety-engineered products of $22 million grew 7% from the prior year’s quarter, including an estimated 3 to 4 percent unfavorable impact due to foreign currency translation. For the six-month period ended March 31, 2006, U.S. sales of safety-engineered products were $255 million, as compared with $241 million in the prior year’s period. In addition, international sales of safety-engineered products of $44 million grew 13% from the prior year’s period, including an estimated 2 to 3 percent unfavorable impact due to foreign currency translation. For the six-month period ended March 31, 2006, total BD Medical segment revenues increased by 10% from the prior year period.

Diagnostics Segment – Second quarter revenues of $434 million represented an increase of $4 million, or 1%, over the prior year quarter, including an estimated $10 million, or 2%, unfavorable impact due to foreign currency translation. The Preanalytical Systems unit of the segment reported revenue growth of 11 percent over the prior year’s quarter, benefiting from both BD Vacutainer Push Button Blood Collection Set sales in the current year’s quarter and a favorable comparison to the prior year’s revenues, which were negatively impacted by reductions in inventory by a major U.S. distributor. U.S. sales of safety-engineered products totaled $97 million, compared with $79 million in the prior year’s quarter. International sales of safety-engineered products of $55 million grew 16% from the prior year’s quarter, including an estimated 4 to 5 percent unfavorable impact due to foreign currency translation. For the six-month period ended March 31, 2006, the Preanalytical Systems unit of the segment reported 9% revenue growth and included U.S. sales of safety-engineered products of $193 million, compared with $165 million in the prior year’s period. Preanalytical Systems revenues for the six-month period also included international sales of safety-engineered products of $107 million, which grew 18% from the prior year’s period, including an estimated 3 to 4 percent unfavorable impact due to foreign currency translation. Second quarter revenues in the Diagnostics Systems unit of the segment declined 8%, despite strong sales from diagnostic instrument platforms. This decline in revenues was primarily due to a relatively mild flu season in fiscal 2006 compared with 2005, in both Japan and the United States. In addition, second quarter revenues were negatively impacted by the timing of early sales of flu diagnostic tests in the first fiscal quarter of 2006 and a comparison to strong sales of flu diagnostic tests in the prior year’s quarter in Japan. For the six-month period ended March 31, 2006, total BD Diagnostics segment revenues increased by 4% from the prior year period.

Biosciences Segment – Second quarter revenues of $220 million represented an increase of $16 million or 8% over the prior year’s quarter, including an estimated $7 million, or 3%, unfavorable impact due to foreign currency translation. Flow cytometry instruments and reagent sales continued to be the primary growth contributors. Sales in the Discovery Labware unit as well as sales of cell imaging products also contributed to sales growth. For the six-month period ended March 31, 2006, total BD Biosciences segment revenues increased by 9% from the prior year period, representing continued strong sales of flow cytometry instruments and reagents.

16

Segment Operating Income

Medical Segment Segment operating income for the second quarter was $193 million, or 24.3% of Medical revenues, compared to $162 million, or 22.2%, in the prior year’s quarter. The increase in operating income as a percentage of revenues reflected increased sales of products that have relatively high gross profit margins, in particular insulin delivery products, and improved manufacturing efficiencies which more than offset higher raw material costs associated with resin-based products. See further discussion on gross profit margin below. Selling and administrative expense as a percent of Medical revenues in the second quarter of 2006 was low compared with the second quarter of 2005. Certain incremental investments to support the BGM initiative were more than offset by tight controls on base spending. Research and development expenses for the quarter grew 8.3% as the segment continues to invest in the development of innovative products. Segment operating income for the six-month period was $407 million, or 26.0% of Medical revenues, compared to $326 million, or 22.9%, in the prior year’s period.

Diagnostics Segment Segment operating income for the second quarter was $60 million, or 13.8% of Diagnostics revenues, compared to $117 million, or 27.2%, in the prior year’s quarter. Segment operating income for the current quarter includes the in-process research and development charge of $53 million associated with the GeneOhm acquisition, as further discussed above, which reduced operating income as a percentage of Diagnostics revenues by 12.3%. Gross profit margin was slightly lower than the second quarter of 2005, in part, due to lower flu diagnostic revenues, which have relatively high overall gross profit margins. See further discussion on gross profit margin below. Selling and administrative expense as a percentage of Diagnostics revenues in the second quarter of 2006 was slightly below the comparable amount in the second quarter of 2005 primarily due to tight controls on spending. Research and development expenses in the second quarter of 2006 increased $56 million, which includes the in-process research and development charge. Segment operating income for the six-month period was $181 million, or 20.6% of Diagnostics revenues, compared to $220 million, or 26.0%, in the prior year’s period.

Biosciences Segment Segment operating income for the second quarter was $54 million, or 24.6% of Biosciences revenues, compared to $46 million, or 22.6%, in the prior year’s quarter. The increase in operating income as a percentage of revenues reflected an increase in sales of products, in particular, flow cytometry instruments and reagents. Selling and administrative expense as a percent of Biosciences revenues for the quarter was lower compared with the prior year’s quarter. This decrease was attributable to revenue growth combined with continued effective spending control. Research and development expenses in the prior year’s quarter increased $1.4 million, or 8.8%, reflecting spending on new product development. Segment operating income for the six-month period was $101 million, or 24.1% of Biosciences revenues, compared to $83 million, or 21.7%, in the prior year’s period.

Gross Profit Margin Gross profit margin was 51.0% for the second quarter and 51.6% for the six-month period, compared with 50.3% and 50.5%, respectively, for the comparable prior year periods. Gross profit margin in the second quarter of fiscal 2006 as compared to the prior period reflected an

17

estimated 1.0% improvement relating to increased sales of products with relatively high margins. This improvement was partially offset by an estimated 0.3%, primarily relating to higher raw material costs and an increase in share-based compensation. Gross profit margin in the six-month period of fiscal 2006 as compared to the prior period reflected an estimated 1.0% improvement relating to increased sales of products with relatively high margins, an estimated 0.3% improvement associated primarily with productivity gains and a 0.2% improvement resulting from foreign currency activity. These gross profit margin improvements were partially offset by an estimated 0.2% relating to higher raw material costs and an increase in share-based compensation of 0.2%. We expect gross profit margin to improve, on a reported basis, by about 50 to 60 basis points in fiscal 2006.

Selling and Administrative Expense Selling and administrative expense was 25.5% of revenues for the second quarter and 25.8% for the six-month period, compared with 26.8% and 26.7%, respectively, for the prior year’s periods. Aggregate expenses for the current period reflect increases in base spending of $10 million, in line with inflation, in expenses related to the BGM initiative of $7 million and in share-based compensation expense of $5 million. These increases in selling and administrative expense were partially offset by proceeds from an insurance settlement of $10 million received in connection with the Company’s previously owned latex glove business and a favorable foreign exchange impact of $9 million. Aggregate expenses in the six-month period reflect increases in share-based compensation expense of $21 million, in base spending of $16 million, in line with inflation, and in expenses related to the BGM initiative of $15 million. These increases were partially offset by proceeds from insurance settlements of $17 million, as further discussed above, and a favorable foreign exchange impact of $14 million. Selling and administrative expense as a percentage of revenues is expected to decrease, on a reported basis, by about 40 basis points in fiscal 2006.

Research and Development Expense Research and development expense was $129 million, or 8.9% of revenues for the second quarter, compared with the prior year’s amount of $66 million, or 4.8% of revenues. Research and development expense was $198 million, or 6.9% of revenues for the six-month period in the current year, compared with the prior year’s amount of $128 million, or 4.8% of revenues. The in-process research and development charge of $53 million associated with the GeneOhm acquisition was recorded to research and development expense in the three and six-month periods of 2006, respectively. Research and development expenditures also reflect increased spending for new programs in each of our segments for the three and six-month periods of 2006. We anticipate research and development expense to increase, on a reported basis, about 33% for fiscal 2006, including the in-process research and development charge.

Non-Operating Expense and Income Interest expense increased to $20 million in the second quarter and $37 million in the six-month period compared with $13 million and $27 million, respectively, for the prior year’s periods. These increases reflect higher debt levels and the impact of higher interest rates on floating rate debt and on interest rate swap transactions, consisting of fair value hedges of certain fixed-rate debt instruments, under which the difference between fixed and floating interest rates is exchanged at specified intervals. Interest income increased to $17 million in the second quarter and $32 million in the six-month period from $8 million and $14 million, respectively, in the prior year’s periods. These increases reflect higher interest rates and cash balances.

18

Income Taxes The income tax rate was 33.9% for the second quarter. The six-month tax rate was 30.0% compared with the prior year’s rate of 21.8%. The increase is principally due to the lack of a tax benefit related to the acquired in-process research and development charge associated with the GeneOhm acquisition. The six-month rate reflected a provision of approximately 0.3% relating to proceeds received from insurance settlements, as further discussed above. The prior year’s rate reflected an estimated 2.3% benefit due to the reversal of tax reserves in the first quarter in connection with the conclusion of tax examinations in four non-U.S. jurisdictions. The Company expects the reported tax rate for the full year to be approximately 27%.

Income from Continuing Operations and Diluted Earnings Per Share from Continuing Operations Income from continuing operations and diluted earnings per share from continuing operations for the second quarter of 2006 were $156 million and 60 cents, respectively. This compared with income from continuing operations and diluted earnings per share from continuing operations for the prior year’s second quarter of $187 million and 71 cents, respectively. The in-process research and development charge associated with the GeneOhm acquisition reduced income from continuing operations for the current quarter by $53 million and diluted earnings per share from continuing operations by 21 cents. Proceeds from an insurance settlement increased income from continuing operations for the current quarter by $10 million and diluted earnings per share from continuing operations by 2 cents. For the six-month periods, income from continuing operations and diluted earnings per share from continuing operations were $374 million and $1.45, respectively, in 2006, which reflected the in-process research and development charge, and $381 million and $1.45, respectively, in 2005. Proceeds from insurance settlements increased income from continuing operations in the six-month period by $17 million and diluted earnings per share from continuing operations by 4 cents. The prior year’s six-month period included the effect of the reversal of tax reserves, as further discussed above, which increased income from continuing operations by $11 million and diluted earnings per share from continuing operations by 4 cents.

Liquidity and Capital Resources Net cash provided by continuing operating activities, which continues to be our primary source of funds to finance operating needs and capital expenditures, was $380 million during the first six months of fiscal 2006, and $462 million in the same period in fiscal 2005. The decrease to the change in working capital of $228 million in the first six months of fiscal 2006, as compared to the prior year’s period of $83 million, was primarily due to a decrease in accounts payable and accrued expenses. Net cash provided by operations in the current period was reduced by a change in the pension obligation of $105 million, which reflected a discretionary cash contribution of $150 million in the first quarter of 2006.

Net cash used for continuing investing activities for the first six months of the current year was $433 million, compared to $159 million in the prior year period. The current year amount reflects $230 million of cash paid for the GeneOhm acquisition. Capital expenditures were $151 million in the first six months of fiscal 2006 and $108 million in the same period in fiscal 2005. We expect capital spending for fiscal 2006 to be in the $400 million range.

Net cash used for continuing financing activities in the first six months of the current year was

19

$211 million, compared to $206 million in the prior year period. As of March 31, 2006, total debt of $1.3 billion represented 25.7% of total capital (shareholders’ equity, net non-current deferred income tax liabilities, and debt), versus 27.3% at September 30, 2005. Short-term debt increased to 24% of total debt at the end of the six month period, from 16% at September 30, 2005.

For the first six months of the current and prior year, the Company repurchased approximately $225 million of its common stock. At March 31, 2006, approximately 0.7 million common shares remained available for purchase pursuant to a repurchase program for 10 million shares authorized by the Board of Directors (the “Board”) in November 2004. The Board authorized an additional repurchase program for 10 million shares in November 2005. Stock repurchases were offset, in part, by the issuance of common stock from treasury due to the exercising of stock options by employees.

We have in place a commercial paper borrowing program that is available to meet our short-term financing needs, including working capital requirements. Borrowings outstanding under this program were $200 million at March 31, 2006. We maintain a $900 million syndicated credit facility in order to provide backup support for our commercial paper program and for other general corporate purposes. This credit facility expires in August 2009 and includes a single financial covenant that requires BD to maintain an interest expense coverage ratio (ratio of earnings before income taxes, depreciation and amortization to interest expense) of not less than 5-to-1 for the most recent four consecutive fiscal quarters. On the last eight measurement dates, this ratio had ranged from 19-to-1 to 21-to-1. The facility, under which there were no borrowings outstanding at March 31, 2006, can be used to support the commercial paper program or for general corporate purposes. In addition, we have informal lines of credit outside the United States.

BD’s ability to generate cash flow from operations, issue debt, enter into other financing arrangements and attract long-term capital on acceptable terms could be adversely affected in the event there was a material decline in the demand for BD’s products, deterioration in BD’s key financial ratios or credit ratings or other significantly unfavorable changes in conditions. While a deterioration in the Company’s credit ratings would increase the costs associated with maintaining and borrowing under its existing credit arrangements, such a downgrade would not affect the Company’s ability to draw on these credit facilities, nor would it result in an acceleration of the scheduled maturities of any outstanding debt.

As of March 31, 2006, we repatriated approximately $690 million of the approximately $1.3 billion of foreign earnings expected to be repatriated pursuant to our approved plan under the American Jobs Creation Act of 2004.

Cautionary Statement Pursuant to Private Securities Litigation Reform Act of 1995 — “Safe Harbor” for Forward-Looking Statements The Private Securities Litigation Reform Act of 1995 (the “Act”) provides a safe harbor for forward-looking statements made by or on behalf of BD. BD and its representatives may from time to time make certain forward-looking statements, both written and oral, including statements contained in this report and filings with the Securities and Exchange Commission (“SEC”) and in our other reports to shareholders. Forward-looking statements may be identified

20

by the use of words like “plan,” “expect,” “believe,” “intend,” “will,” “anticipate,” “estimate” and other words of similar meaning in conjunction with, among other things, discussions of future operations and financial performance, as well as our strategy for growth, product development, regulatory approvals, market position and expenditures. All statements which address operating performance or events or developments that we expect or anticipate will occur in the future — including statements relating to volume growth, sales and earnings per share growth, gross profit margins, various expenditures and statements expressing views about future operating results — are forward-looking statements within the meaning of the Act.

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

The following are some important factors that could cause our actual results to differ from our expectations in any forward-looking statements:

| • | Regional,
national and foreign economic factors, including inflation and fluctuations
in interest rates and foreign currency exchange rates and the potential
effect of such fluctuations on revenues, expenses and resulting margins. |
| --- | --- |
| • | We operate
in a highly competitive environment. New product introductions by our current
or future competitors could adversely affect our ability to compete in the
global market. Patents attained by competitors, particularly as patents on
our products expire, may also adversely impact our competitive position. |
| • | Recently,
the U.S. Food and Drug Administration (“FDA”) and European authorities have
approved a new inhaled form of insulin for adults, which could adversely
impact sales of our insulin injection devices. |
| • | Changes in
domestic and foreign healthcare industry practices and regulations resulting
in increased pricing pressures, including the continued consolidation among
healthcare providers; trends toward managed care and healthcare cost
containment and government laws and regulations relating to sales and
promotion, reimbursement and pricing generally. |
| • | The effects,
if any, of governmental and media activities relating to U.S. Congressional
hearings regarding the business practices of group purchasing organizations,
which negotiate product prices on behalf of their member hospitals with BD
and other suppliers. |
| • | Fluctuations
in energy costs and their effect on, among other things, the costs of
producing our products. |
| • | Fluctuations
in the cost and availability of raw materials and the ability to maintain
favorable supplier arrangements and relationships (particularly with respect
to sole-source suppliers) |

21

| | and the
potential adverse effects of any disruption in the availability of such raw
materials. |
| --- | --- |
| • | Our ability
to obtain the anticipated benefits of any restructuring programs, if any,
that we may undertake. |
| • | Adoption of
or changes in government laws and regulations affecting domestic and foreign
operations, including those relating to trade, monetary and fiscal policies,
taxation, environmental matters, sales practices, price controls, licensing
and regulatory approval of new products, or changes in enforcement practices
with respect to any such laws and regulations. |
| • | Fluctuations
in U.S. and international governmental funding and policies for life science
research. |
| • | Difficulties
inherent in product development, including the potential inability to
successfully continue technological innovation, complete clinical trials,
obtain regulatory approvals in the United States and abroad, or gain and
maintain market approval of products, as well as the possibility of
encountering infringement claims by competitors with respect to patent or
other intellectual property rights, all of which can preclude or delay
commercialization of a product. |
| • | Pending and
potential litigation or other proceedings adverse to BD, including antitrust
claims, product liability claims, and patent infringement claims, as well as
other risks and uncertainties detailed from time to time in our SEC filings. |
| • | The effects,
if any, of adverse media exposure or other publicity regarding BD’s business
or operations. |
| • | Our ability
to achieve earnings forecasts, which are generated based on projected volumes
and sales of many product types, some of which are more profitable than
others. There can be no assurance that we will achieve the projected level or
mix of product sales. |
| • | The effect
of market fluctuations on the value of assets in BD’s pension plans and the
possibility that BD may need to make additional contributions to the plans as
a result of any decline in the value of such assets. |
| • | Our ability
to effect infrastructure enhancements and incorporate new systems
technologies into our operations. |
| • | Product
efficacy or safety concerns resulting in product recalls, regulatory action
on the part of the FDA (or foreign counterparts) or declining sales. |
| • | Economic and
political conditions in international markets, including civil unrest,
governmental changes and restrictions on the ability to transfer capital
across borders. |
| • | The effects
of natural disasters, including hurricanes or pandemic diseases, on our
ability to manufacture our products, particularly where production of a
product line is concentrated in |

22

| | one or more
plants, or on our ability to source components from suppliers that are needed
for such manufacturing. |
| --- | --- |
| • | Our ability
to penetrate developing and emerging markets, which also depends on economic
and political conditions, and how well we are able to acquire or form
strategic business alliances with local companies and make necessary
infrastructure enhancements to production facilities, distribution networks,
sales equipment and technology. |
| • | The impact
of business combinations, including acquisitions and divestitures, both
internally for BD and externally, in the healthcare industry. |
| • | Issuance of
new or revised accounting standards by the Financial Accounting Standards
Board or the SEC. |

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

Item 3. Quantitative and Qualitative Disclosures About Market Risk

There have been no material changes in information reported since the end of the fiscal year ended September 30, 2005.

Item 4. Controls and Procedures

An evaluation was carried out by BD’s management, with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of BD’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934) as of March 31, 2006. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the design and operation of these disclosure controls and procedures were, as of the end of the period covered by this report, adequate and effective to ensure that material information relating to BD and its consolidated subsidiaries would be made known to them by others within these entities. There were no changes in our internal control over financial reporting during the fiscal quarter ended March 31, 2006 identified in connection with the above-referenced evaluation that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

23

PART II - OTHER INFORMATION

| Item 1. |
| --- |
| We are
involved, both as a plaintiff and a defendant, in various legal proceedings
which arise in the ordinary course of business, including product liability
and environmental matters as set forth in our 2005 Annual Report on Form 10-K
and in our Quarterly Report on Form 10-Q for the first quarter of fiscal year
2006. |
| Given the
uncertain nature of litigation generally, BD is not able in all cases to
estimate the amount or range of loss that could result from an unfavorable
outcome of the litigation to which BD is a party. In accordance with U.S.
generally accepted accounting principles, BD establishes accruals to the
extent probable future losses are estimable (in the case of environmental
matters, without considering possible third-party recoveries). In view of the
uncertainties of litigation, BD could incur charges in excess of any
currently established accruals and, to the extent available, excess liability
insurance. In the opinion of management, any such future charges,
individually or in the aggregate, could have a material adverse effect on
BD’s consolidated results of operations and consolidated cash flows in the
period or periods in which they are recorded or paid. |

24

Item 1A.	Risk Factors
	Not applicable.
I tem 2.	Unregistered Sales of Equity
Securities and Use of Proceeds
	The table below sets forth
certain information regarding our purchases of common stock of BD during the
fiscal quarter ended March 31, 2006.

Issuer Purchases of Equity Securities

For the three months ended March 31, 2006 — January 1 – 31, 2006	22,449	Average Price Paid per Share — $ 63.64	—	12,644,914
February 1 – 28, 2006	1,160,213	$ 64.19	1,150,000	11,494,914
March 1 – 31, 2006	794,900	$ 63.70	794,900	10,700,014
Total	1,977,562	$ 63.99	1,944,900	10,700,014

| (1) | Includes for the quarter 4,747
shares purchased in open market transactions by the trustee under BD’s
Deferred Compensation Plan and 1996 Directors’ Deferral Plan. Also includes 27,915
shares delivered to the Company in connection with stock option exercises. |
| --- | --- |
| (2) | These repurchases were made
pursuant to a repurchase program for 10 million shares announced on November
23, 2004 (the “2004 Program”). There is no expiration date for the 2004
Program. On November 22, 2005, the Board of Directors of BD authorized an
additional repurchase program for 10 million shares. |

| Item 3. | Defaults Upon Senior
Securities. |
| --- | --- |
| | Not applicable. |
| Item 4. | Submission of Matters to a
Vote of Security Holders. |
| | Our
Annual Meeting of Shareholders was held on January 31, 2006, at which the
following matters were voted upon: |

i.) A management proposal for the election of three directors for the terms indicated below was voted upon as follows:

25

Nominee	Term	Votes — For	Withheld
Edward
J. Ludwig	3
Years	208,868,737	6,905,452
Willard
J. Overlock, Jr.	3
Years	212,162,197	3,611,992
Bertram
L. Scott	3
Years	209,297,765	6,476,424

| | The
other directors whose term of office as a director continued after the
meeting are: Basil L. Anderson, Henry P. Becton, Jr., Edward F. DeGraan, Gary
A. Mecklenburg, James F. Orr, James E. Perrella, Alfred Sommer and Margaretha
af Ugglas. |
| --- | --- |
| ii.) | A
management proposal to ratify the selection of Ernst & Young LLP as
independent registered public accounting firm for the fiscal year ending
September 30, 2006 was voted upon. 211,302,059 shares were voted for the
proposal, 2,964,216 shares were voted against, and 1,507,914 shares
abstained. |
| iii.) | A
shareholder proposal requesting that the Board of Directors publish a report evaluating
the Company’s policies on brominated flame retardants and other toxic
chemicals was voted upon. 14,393,882 shares were voted for the proposal,
150,699,713 shares were voted against, 26,390,342 shares abstained, and there
were 24,290,252 broker non-votes. |
| iv.) | A
shareholder proposal requesting that the Board of Directors take the
necessary steps to provide for cumulative voting in the election of directors
was voted upon. 74,079,013 shares were voted for the proposal, 97,376,269
shares were voted against, 20,028,655 shares abstained, and there were
24,290,252 broker non-votes. |

26

Item 5.	Other Information.
	Not
applicable.
Item 6.	Exhibits

| Exhibit 10(s) | Amended and Restated Aircraft
Time Sharing Agreement between Becton, Dickinson and Company and Edward J.
Ludwig dated as of March 28, 2006. |
| --- | --- |
| Exhibit 31 | Certifications of Chief Executive Officer and Chief
Financial Officer, pursuant to SEC Rule 13a - 14(a). |
| Exhibit 32 | Certifications of Chief Executive Officer and Chief
Financial Officer, pursuant to Rule 13a - 14(b) and Section 1350 of Chapter
63 of Title 18 of the U.S. Code. |

27

SIGNATURES

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

Becton, Dickinson and Company
(Registrant)

Dated: May 9, 2006

/s/ John R. Considine
John R. Considine
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
/s/ William A. Tozzi
William A. Tozzi
Vice President and Controller
(Chief Accounting Officer)

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INDEX TO EXHIBITS

| Exhibit
Number | Description
of Exhibits |
| --- | --- |
| 10(s) | Amended and Restated Aircraft Time Sharing Agreement
between Becton, Dickinson and Company and Edward J. Ludwig dated as of March
28, 2006. |
| 31 | Certifications of Chief Executive Officer and Chief
Financial Officer, pursuant to SEC Rule 13a - 14(a). |
| 32 | Certifications of Chief Executive Officer and Chief
Financial Officer, pursuant to Rule 13a - 14(b) and Section 1350 of Chapter
63 of Title 18 of the U.S. Code. |

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