Company Overview

Becton, Dickinson and Company ("BD") is a global medical technology company engaged principally in the development, manufacture and sale of medical devices, instrument systems and reagents used by healthcare institutions, life science researchers, clinical laboratories, the pharmaceutical 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 and directly to end-users by BD and independent sales representatives.

Overview of Financial Results and Financial Condition

Second quarter revenues of $1.991 billion represented an increase of 3.6% from the same period a year ago, and reflected volume increases of approximately 5.7%, partially offset by price decreases of approximately 1.1% and unfavorable foreign currency translation of approximately 1.0%. Solid growth from our Medical and Diagnostics segments was primarily driven by new product launches and growth from recent acquisitions. We continued to experience weaker sales in the U.S. due to an uncertain research spending environment affecting our Biosciences segment as well as increased pricing pressures compared to the prior year's period. International revenues reflected continued strength in emerging market sales and strong sales of safety-engineered products. Sales in the United States of safety-engineered devices in the second quarter of 2012 were $283 million, representing a 7.3% increase from the prior year's period. International sales of safety-engineered devices of $205 million in the second quarter of 2012 grew 15.5% over the prior year's period, including an estimated $4 million, or 2.2%, unfavorable impact due to foreign currency translation. International safety-engineered device revenue growth continues to be driven by strong growth in the Medical segment, with the largest growth in emerging markets, including China and Latin America.

The healthcare industry continues to face a challenging economic environment. The current economic conditions and other circumstances have resulted in pricing pressures for some of our products, and we expect this pricing pressure to continue through fiscal year 2012. In addition, healthcare utilization in the U.S. and Western Europe remains constrained due to decreases in government and private healthcare spending, resulting in less demand for our products, and we also expect these conditions to continue through fiscal 2012. We are also experiencing increased raw material costs.

We continue to invest in research and development spending, geographic expansion, and new product promotions to drive further revenue and profit growth. Our ability to sustain our long-term growth will depend on a number of factors, including our ability to expand our core business (including geographical expansion), develop innovative new products across our business segments, and continue to improve operating efficiency and organizational effectiveness. In addition to the economic conditions in the United States and elsewhere, numerous other factors can affect our ability to achieve these goals including, without limitation, increased competition and healthcare reform initiatives. For example, the U.S. healthcare reform law contains certain tax provisions that will affect BD. The most significant impact is the medical device excise tax, which imposes a 2.3% tax on certain U.S. sales of medical devices, beginning in January 2013. Sales of BD products that we estimate to be subject to this tax represented about 80% of BD's total U.S. revenues in fiscal year 2011.

Our financial condition remains strong, with cash flows from continuing operating activities totaling $610 million in the first six months of 2012. Cash outflows relating to acquisitions included the purchase of KIESTRA Lab Automation BV ("KIESTRA"), a Netherlands-based company that designs, develops, manufactures, markets and sells innovative lab automation solutions for the microbiology lab, for $51 million, net of cash acquired. In November 2011, we issued $500 million of 5-year 1.75% notes and $1 billion of 10-year 3.125% notes, as discussed further below. Also, we continued to return value to our shareholders as we repurchased $1 billion of our common stock and paid cash dividends of $188 million in the first six months of 2012.

In April 2012, we signed a definitive agreement to sell Biosciences' Discovery Labware unit, excluding its Advanced Bioprocessing platform. Cash proceeds from the sale are expected to be approximately $730 million, subject to post-closing adjustments for inventory balances. The transaction is expected to be completed by the end of the calendar year 2012, subject to the satisfaction of customary closing conditions, including consultations and regulatory approvals. For the full fiscal year 2012, revenues and diluted earnings per share associated with the affected asset group are forecasted at about $235 million and $0.23 to $0.27, respectively. We expect to record a gain on the sale when the transaction is completed.

We face currency exposure each reporting period that arises from translating the results of our worldwide operations to the U.S. dollar at exchange rates that fluctuate from the beginning of such period. We evaluate our results of operations on both an as reported and a foreign currency-neutral basis, which excludes the impact of fluctuations in foreign currency exchange rates. We calculate foreign currency-neutral percentages by converting our current-period local currency financial results using the prior-period foreign currency exchange rates and comparing these adjusted amounts to our current-period reported results.

From time to time, we may purchase forward contracts and options to partially protect against adverse foreign exchange rate movements. Gains or losses on our derivative instruments are largely offset by the gains or losses on the underlying hedged transactions. We do not enter into derivative instruments for trading or speculative purposes. As of March 31, 2012, we had not entered into contracts to hedge cash flows in fiscal year 2012.

Results of Operations

Revenues

Refer to Note 6 in the Notes to Condensed Consolidated Financial Statements for segment financial data.

Medical Segment

Second quarter revenues of $1.021 billion represented an increase of 4.1% compared with the prior year's quarter, including an estimated $12 million, or approximately 1.2%, unfavorable impact due to foreign currency translation.

The following is a summary of second quarter Medical revenues by organizational unit:

                                             Three months ended March 31,
                                                                          Estimated
                                                                           Foreign
                                                            Total         Exchange
        (millions of dollars)        2012        2011       Change         Impact
        Medical Surgical Systems   $     519     $ 505          2.8 %           (1.0 )%
        Diabetes Care                    219       208          5.5 %           (1.0 )%
        Pharmaceutical Systems           283       269          5.2 %           (1.9 )%

        Total Revenues*            $   1,021     $ 981          4.1 %           (1.2 )%

* Amounts may not add due to rounding

Medical segment revenue growth was primarily driven by Diabetes Care, with continued strong sales of pen needles, including sales of the BD Ultra-Fine™ Nano. Pharmaceutical Systems revenue growth reflected the favorable timing of certain orders. Medical Surgical Systems revenue reflected solid growth of safety-engineered product sales and growth resulting from the Carmel Pharma, AB ("Carmel") acquisition that occurred in the fourth quarter of fiscal year 2011. Global sales of safety-engineered products were $236 million, compared with $205 million in the prior year's quarter and included an estimated $1 million unfavorable impact due to foreign currency translation. Total Medical revenues for the six-month period ended March 31, 2012 increased by 3.3% from the prior-year six-month period, including an estimated 0.7% unfavorable impact from foreign currency translation. For the six-month period ended March 31, 2012, global sales of safety-engineered products were $476 million, compared with $418 million in the prior year's period, and included an estimated $.5 million unfavorable impact due to foreign currency translation.

Medical operating income for the second quarter was $285 million, or 27.9% of Medical revenues, compared with $287 million, or 29.3% of segment revenues, in the prior year's quarter. Gross profit margin was lower in the current quarter than the second quarter of 2011 due to amortization of intangibles associated with the Carmel acquisition, unfavorable pricing impacts on certain product lines, increases in certain raw material costs and unfavorable foreign currency translation. These unfavorable impacts on gross profit margin were partially offset by lower manufacturing costs from Project ReLoCo, a global, cross-functional business initiative to drive sustained low-cost capability primarily benefitting Medical Surgical Systems. See further discussion on gross profit margin below. Selling and administrative expense as a percentage of Medical revenues in the second quarter of 2012 was higher than in the second quarter of 2011, primarily due to increased spending for expansion in emerging markets and higher expenses resulting from the Carmel acquisition as compared with the prior year's period. These unfavorable impacts were partially offset by favorable foreign currency translation. Research and development expenses for the quarter increased $3 million, or 8.1%, above the prior year's period. Segment operating income for the six-month period was $539 million, or 27.3% of Medical revenues, compared with $563 million, or 29.5% in the prior year's period.

Diagnostics Segment

Second quarter revenues of $630 million represented an increase of 4.1% over the prior year's quarter, including an estimated $5 million, or approximately 0.9%, unfavorable impact due to foreign currency translation.

The following is a summary of second quarter Diagnostics revenues by organizational unit:

                                           Three months ended March 31,
                                                                        Estimated
                                                                         Foreign
                                                          Total         Exchange
         (millions of dollars)    2012         2011       Change         Impact
         Preanalytical Systems   $   323       $ 306          5.6 %           (1.2 )%
         Diagnostic Systems          307         299          2.5 %           (0.7 )%

         Total Revenues          $   630       $ 605          4.1 %           (0.9 )%

Diagnostics segment revenue growth was primarily driven by sales of Preanalytical Systems safety-engineered products and continued strength in our Women's Health and Cancer platforms sales. Segment growth was partially offset by the impact of a mild 2011-2012 flu season. Global sales of safety-engineered products in the Preanalytical Systems unit totaled $252 million, compared with $237 million in the prior year's quarter, and included an estimated $3 million unfavorable impact due to foreign currency translation. Total Diagnostics revenues for the six-month period ended March 31, 2012 increased by 3.6% from the prior-year six-month period, including an estimated 0.5% unfavorable impact from foreign currency translation. For the six-month period ended March 31, 2012, global sales of safety-engineered products in the Preanalytical Systems unit were $500 million, compared with $476 million in the prior year's period, and included an estimated $4 million unfavorable impact due to foreign currency translation.

Diagnostics operating income for the second quarter was $158 million, or 25.1% of Diagnostics revenues, compared with $156 million, or 25.7% of segment revenues, in the prior year's quarter. Gross profit margin was lower in the current quarter than in the prior year's quarter due to unfavorable pricing impacts on certain product lines, increases in certain raw material costs and unfavorable foreign currency translation. These unfavorable impacts on gross profit margin were partially offset by the impact of increased sales of products with relatively higher gross margins. See further discussion on gross profit margin below. Selling and administrative expense as a percentage of Diagnostics revenues in the second quarter of 2012 was higher than in the second quarter of 2011 primarily due to increased spending for expansion in emerging markets and spending for new product launches, partially offset by favorable foreign currency translation. Research and development expenses in the second quarter of 2012 decreased by $2 million compared with the prior year's period. Diagnostics research and development spending for the total fiscal year 2012 is expected to be slightly below, as a percentage of revenues, the spending in total fiscal year 2011. Segment operating income for the six-month period was $323 million, or 25.9% of Diagnostics revenues, compared with $317 million, or 26.3% in the prior year's period.

Biosciences Segment

Second quarter revenues of $340 million represented an increase of 1.3% over the prior year's quarter, including an estimated $1 million, or 0.4%, unfavorable impact due to foreign currency translation.

The following is a summary of second quarter Biosciences revenues by organizational unit:

                                           Three months ended March 31,
                                                                       Estimated
                                                                        Foreign
                                                         Total         Exchange
          (millions of dollars)    2012       2011      Change          Impact
          Cell Analysis           $   262     $ 256         2.4 %            (0.4 )%
          Discovery Labware            78        80        (2.2 )%           (0.1 )%

          Total Revenues*         $   340     $ 335         1.3 %            (0.4 )%

* Amounts may not add due to rounding

Biosciences segment revenues in the current year's quarter experienced moderate growth compared with the prior year's period as strong international revenue growth was offset by reduced research funding in the U.S. and the resulting reduced demand for high-end instruments. Biosciences segment revenues were also unfavorably impacted by increased competition within the market for research reagents. For the six-month period ended March 31, 2012, total Biosciences revenues increased by 1.1% from the prior-year six-month period, including an estimated 0.1% favorable impact from foreign currency translation.

Biosciences operating income for the second quarter was $94 million, or 27.8% of Biosciences revenues, compared with $95 million, or 28.4% of segment revenues, in the prior year's quarter. Gross profit margin, was lower in the current quarter than the first quarter of 2011, primarily due to amortization of intangibles associated with capitalized software and the Accuri Cytometers, Inc. ("Accuri") acquisition that occurred in the second fiscal quarter of 2011. These unfavorable variances from the prior year's period were partially offset by favorable foreign currency translation. See further discussion on gross profit margin below. Selling and administrative expense as a percent of Biosciences revenues for the quarter was relatively flat compared with the prior year's quarter and reflected increased spending for expansion in emerging markets and the effect of moderate revenue growth in the current year's period as compared with the prior year's period. These unfavorable impacts were offset by favorable foreign currency translation. Research and development spending in the quarter was also relatively flat compared with the spending in the prior year's period. Segment operating income for the six-month period was $177 million, or 27.0% of Biosciences revenues, compared with $186 million, or 28.6% in the prior year's period.

Geographic Revenues

Revenues in the United States for the second quarter of $848 million represented an increase of $18 million, or 2.2%, over the prior year's quarter. Growth in U.S. Medical revenues reflected strong sales of Pharmaceutical Systems and Diabetes Care products, which were partially offset

as a result of pricing pressures for Medical Surgical Systems products. U.S. Diagnostics revenue growth was driven by solid sales of Preanalytical Systems' safety-engineered products. Diagnostic Systems revenue growth in the U.S. was unfavorably affected by the mild 2011-2012 flu season. Sales from our healthcare-associated infection platform also adversely affected U.S. Diagnostic Systems revenue growth due to a challenging competitive environment. Biosciences revenue in the U.S. declined in the current year's quarter compared with the prior year's quarter due to reduced research funding for reagents as well as reduced demand for high-end instruments.

International revenues for the second quarter of $1.143 billion represented an increase of $50 million, or 4.6%, over the prior year's quarter, including an estimated $19 million, or 1.7%, unfavorable impact due to foreign currency translation. International revenues for the second quarter of 2012 reflected growth from all segments, including growth attributable to emerging markets, as well as strong sales of safety-engineered products.

Gross Profit Margin

Gross profit margin was 51.2% for the second quarter, compared with 52.1% for the comparable prior-year period. The decrease in gross profit margin reflected the estimated net unfavorable impact of 60 basis points relating to operating performance and an estimated 30 basis points relating to unfavorable foreign currency translation. Operating performance was adversely affected by an estimated 60 basis points due to amortization of intangibles associated with the fiscal year 2011 acquisitions, Biosciences software amortization and the impact of decreased sales of Biosciences products, which have higher gross margins. Operating performance was also adversely impacted by approximately 50 basis points due to unfavorable pricing impacts on certain product lines and 20 basis points due to increases in certain raw material costs. The unfavorable impacts on operating performance for the current year's quarter were partially offset by an estimated 70 basis points due to lower manufacturing costs from continuous improvement projects, such as Project ReLoCo, lower manufacturing start-up costs and lower pension costs.

Gross profit margin in the six-month period of 2012 was 51.1% compared with the prior year's period gross profit margin of 52.6%. The decrease in gross profit margin reflected the estimated net unfavorable impact of 130 basis points relating to operating performance and an estimated 20 basis points relating to unfavorable foreign currency translation. Operating performance was adversely affected by an estimated 90 basis points due to amortization of intangibles associated with the fiscal year 2011 acquisitions, Biosciences software amortization and the impact of decreased sales of Biosciences products, which have higher gross margins. Operating performance also reflected the estimated impacts of 60 basis points due to unfavorable pricing impacts on certain product lines and 40 basis points due to increases in certain raw material costs. The unfavorable impacts on operating performance for the current year's six-month period were partially offset by an estimated 60 basis points due to lower manufacturing costs from continuous improvement projects, such as Project ReLoCo, lower manufacturing start-up costs and lower pension costs.

Selling and Administrative Expense

Selling and administrative expense was 24.9% of revenues for the second quarter of fiscal year 2012, compared with 23.0% for the prior year's period. Aggregate expenses for the second quarter of 2012 reflected an increase in core spending of $45 million, primarily relating to expansion of our business in emerging markets, transactions costs relating to the KIESTRA

acquisition and higher expenses resulting from the Carmel acquisition. Aggregate expenses for the second quarter also included $7 million in corporate legal fees and increased spending of $6 million related to our global enterprise resource planning initiative to update our business information systems. Additionally, aggregate expenses included a $3 million increase in the deferred compensation plan liability, as further discussed below. These second quarter 2012 spending increases were partially offset by lower pension costs of $4 million and favorable foreign currency translation of $4 million.

Selling and administrative expense was 25.4% of revenues for the six-month period of fiscal year 2012, compared with 23.6% for the prior year's period. Aggregate expenses for the six-month period of 2012 reflected an increase in core spending of $67 million, primarily relating to expansion of our business in emerging markets, transactions costs relating to the KIESTRA acquisition and higher expenses resulting from the Carmel acquisition. Aggregate expenses for the six-month period also included $21 million in corporate legal fees and increased spending of $10 million related to our global enterprise resource planning initiative to update our business information systems. Additionally, aggregate expenses in the six-month period included a $4 million increase in the deferred compensation plan liability, as further discussed below. These increases were partially offset by lower pension costs of $4 million and favorable foreign currency translation of $4 million.

Research and Development Expense

Research and development expense was $119 million, or 6.0% of revenues, for the second quarter, compared with the same amount, or 6.2% of revenues, in the prior year's period. Research and development expense was $232 million, or 6.0% of revenues, for the six-month period in the current year, compared with the prior year's amount of $235 million, or 6.2% of revenues. This decrease in research and development expenses compared with the prior year's period reflected the timing of expenses. Research and development spending for the total fiscal year 2012 is expected to be comparable, as a percentage of revenues, with the spending in total fiscal year 2011.

Non-Operating Expense and Income

Interest income was $17 million in the second quarter and $32 million in the six-month period of 2012, compared with $15 million and $30 million, respectively, in the prior year's periods. These increases are largely the result of investment gains on assets related to our deferred compensation plan, partially offset by the impact of lower interest rates and lower investment levels in certain non-U.S. locations. The related increase in the deferred compensation plan liability was recorded as an increase in selling and administrative expenses. Interest expense was $35 million in the second quarter and $65 million in the six-month period of 2012, compared with $24 million and $39 million, respectively, in the prior year's periods. The increases reflect higher levels of long-term fixed-rate debt, partially offset by lower average interest rates on this debt.

Income Taxes

The income tax rate was 26.0% for the second quarter, compared with the prior year's rate of 27.4%. The six-month tax rate was 24.9% compared with the prior year's rate of 25.3%. The income tax rate in the first six months of 2012 reflected the favorable impact of various tax settlements in multiple jurisdictions. The income tax rate in the first six months of 2011 reflected the favorable impact due to the timing of certain tax benefits resulting from the retroactive extension of the U.S. research tax credit and a European restructuring transaction.

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 2012 were $291 million and $1.38, respectively. Income from continuing operations and diluted earnings per share from continuing operations for the prior year's second quarter were $311 million and $1.38, respectively. The current quarter's earnings reflected an estimated $0.04 unfavorable impact due to foreign currency translation. For the six-month periods, income from continuing operations and diluted earnings per share from continuing operations were $554 million and $2.59, respectively, in 2012 and $625 million and $2.72, respectively, in 2011. The current period's earnings reflected an estimated $0.04 unfavorable impact due to foreign currency translation.

Liquidity and Capital Resources

Cash generated from operations, along with available cash and cash equivalents, is expected to be sufficient to fund our normal operating needs in 2012. Normal operating needs in fiscal year 2012 include working capital, capital expenditures, cash dividends and common stock repurchases. Net cash provided by continuing operating activities was $610 million during the first six months of 2012, compared with $707 million in the same period in 2011. The current period change in operating assets and liabilities was a net use of cash and primarily reflected higher levels of inventory and lower levels of accounts payable and accrued expenses. Net cash provided by continuing operating activities in the first six months of 2012 was reduced by changes in the pension obligation resulting primarily from discretionary cash contributions of approximately $100 million.

Net cash used for continuing investing activities for the first six months of the current year was $226 million, compared with $1.024 billion in the prior-year period. Capital expenditures were $215 million in the first six months of 2012 and $194 million in the same period in 2011. Acquisitions of businesses in the current period reflected the payment of $51 million, net of cash acquired, relating to the KIESTRA acquisition. For further discussion of this acquisition, refer to Note 9 in the Notes to Condensed Consolidated Financial Statements. Acquisitions of businesses in the prior-year period reflected the payment of $205 million, net of cash acquired, relating to the Accuri acquisition. Cash used for purchases of investments in the first six months of 2011 reflected the extension of maturities of certain highly liquid investments beyond three months.

Net cash provided by continuing financing activities for the first six months of . . .