Becton, Dickinson and Company (“BD”) is a medical technology company that manufactures and sells a broad range of supplies, devices and systems for use by health care professionals, medical research institutions, industry and the general public. We focus strategically on achieving growth in three worldwide business segments-BD Medical Systems (“Medical”), BD Biosciences (“Biosciences”) and BD Preanalytical Solutions (“Preanalytical”). Our products are marketed in the United States both through independent distribution channels and directly to end-users. Our products are marketed outside the United States through independent distribution channels and sales representatives, and, in some markets, directly to end-users.

We now generate close to 50% of our revenues outside the United States. Demand for health care products and services continues to be strong worldwide, despite the ongoing focus on health care cost containment around the world. The health care marketplace continues to be competitive and consolidation in our customer base has resulted in recent pricing pressures, particularly in the Medical segment. We will continue to manage these issues by capitalizing on our market-leading positions in many of our product offerings and by leveraging our cost structure. The health care environment favors good continued growth in medical delivery systems due to new products and opportunities. In particular, the U.S. market is poised for broad scale conversion to advanced protection devices due to the growing awareness of benefits of protecting health care workers against accidental needlesticks and a high level of current legislative and regulatory activity favoring conversion. We are a leader in a number of platforms in the Biosciences segment. In the last few years, we made key acquisitions in the areas of immunology, cell biology and molecular biology. Growth in research products is driven by the expansion in genomic research and increased pharmaceutical and government spending in this area. In the Preanalytical segment, we have strong market-leading positions. We also have opportunities for further growth in this segment. For example, nearly half of the world’s population lives in medical markets that do not currently use evacuated blood collection systems, one of our principal products in this segment.

We continue to improve operating effectiveness by focusing on four key initiatives. The first is “One Company” selling which takes advantage of our broad market presence to cross-sell our products to our medical and clinical customers. The second initiative is “One Company” manufacturing, where we are leveraging our worldwide manufacturing network to improve our cost effectiveness. The third area is procurement, where we are making efforts across our operations to be more focused and systematic. Finally, efforts continue to implement an enterprise-wide program to upgrade our business information systems (“Genesis”) which began in 1998 and are expected to be completed by the end of year 2001. Anticipated benefits from this project include inventory reductions, operating improvements and more complete and timely access to information throughout our enterprise.

Our financial results and the operating performance of our segments are discussed below. The following references to years relate to our fiscal year, which ends on September 30.

We recorded special charges in 1999 and 1998 associated with two restructuring programs. The third quarter 1999 special charges of $76 million were associated with the exiting of product lines and other activities, primarily in the area of home health care, the impairment of assets, and an enhanced voluntary retirement incentive program. We also recorded charges of $27 million in cost of products sold in the third quarter of 1999 to reflect the write-off of inventories and to provide appropriate reserves for expected future returns relating to the exited product lines. We have completed implementation of the exit plans. We also reversed $6 million of 1998 special charges in the third quarter of 1999 as a result of our decision not to exit certain activities as originally planned.

The 1998 special charges of $91 million were primarily associated with the restructuring of certain manufacturing operations and the write-down of impaired assets. The plan for restructuring our manufacturing operations included the closure of a surgical blade plant in the United States, scheduled for the latter part of fiscal year 2001. We also recorded $22 million of charges in 1998 associated with the reengineering component of Genesis. The majority of these charges were included in selling and administrative expense.

For additional discussion of the above charges, see Note 5 of the Notes to Consolidated Financial Statements.

During 1999, we acquired ten businesses for an aggregate of $382 million in cash and 357,522 shares of our common stock. We also granted options to purchase an aggregate of 73,074 shares of our common stock to eligible employees of one of the acquired companies. These acquisitions included the August 1999 purchase for $201 million in cash, subject to certain post-closing adjustments, of Clontech Laboratories, Inc. (“Clontech”). Clontech is a privately-held company serving the life sciences market in the areas of gene-based life science research and drug discovery. We recorded a total charge of $49 million for purchased in-process research and development in connection with the current year acquisitions, of which $32 million related to the Clontech acquisition. These charges represented the fair value of certain acquired research and development projects relating to gene chip technology, gene expression, gene cloning and fluorescent gene reporter tools which were determined not to have reached technological feasibility and which do not have alternative future uses. During 1998, we acquired six businesses for an aggregate of $546 million in cash and 595,520 shares of our common stock. These acquisitions included the Medical Devices Division (“MDD”) of the BOC Group for approximately $457 million in cash. In connection with this acquisition, we recorded a charge of $30 million in 1998 for purchased in-process research and development relating to projects associated with the development of medical catheters and other devices. All acquisitions were recorded using the purchase method of accounting and the results of operations of the acquired companies are included in our consolidated results from their respective acquisition dates.