Notes to Consolidated Financial Statements

Becton, Dickinson and Company

2 Accounting Changes

Share-Based Compensation
As a result of the adoption of SFAS No. 123(R), 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 to employees is charged to income on a straight-line basis over the requisite service period, which is the earlier of the employee’s retirement eligibility date or the vesting period of the award. The Company elected the modified prospective method of adoption as prescribed in SFAS No. 123(R) and therefore, prior periods were not restated. Under the modified prospective method, this statement was applied to new awards granted after the time of adoption, as well as to the unvested portion of previously granted equity-based awards for which the requisite service had not been rendered as of October 1, 2004. The Company granted stock options and restricted stock unit awards in November 2004 under the 2004 Employee and Director Equity-Based Compensation Plan (the “2004 Plan”), its current long-term incentive program. See Note 13 for further discussion.

     Share-based compensation expense in 2006 and 2005 reduced the Company’s results of operations as follows:

	2006			2005
Selling and Administrative Expense	$	79,211		$	54,454
Cost of Products Sold		18,046			9,749
Research and Development Expense		11,356			5,996
Income From Continuing Operations    Before Income Taxes	$	108,613		$	70,199
Net Income(A)	$	73,458		$	50,258

     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 through the period ending of the earlier of the employees’ retirement eligibility date or the vesting date. Prior to fiscal 2005, grants were recognized through the vesting date.

     In the fourth quarter of 2006, the Company adopted Financial Accounting Standards Board Staff Position 123(R)-3, “Transition Election Related to Accounting for the Tax Effects of Share-Based Payment Awards” (“FSP 123(R)-3”), which provides the Company an alternative method for calculating the historical pool of tax benefits upon adopting SFAS No. 123(R). The adoption of FSP 123(R)-3 did not have a material effect on the presentation of the tax benefits in the Consolidated Statements of Cash Flows.

     Prior to October 1, 2004, the Company accounted for share-based employee compensation under SFAS No. 123 using the intrinsic value method prescribed by APB No. 25 and related interpretations. Under the intrinsic value method, no compensation expense was recognized for stock options, as the exercise price of employee stock options equaled the market value of the Company’s stock on the date of grant. The following pro-forma net income and earnings per share information has been determined as if the Company had accounted for its share-based compensation awards issued using the fair value method in 2004.

	2004
Net Income, as reported	$	467,402	(A)
Less pro-forma share-based compensation expense, net of tax		32,027
Pro-forma net income	$	435,375
Reported earnings per share:    Basic	$	1.85
Diluted	$	1.77
Pro-forma earnings per share:    Basic	$	1.72
Diluted	$	1.66

     The 2004 pro-forma amounts and fair value of each option grant were estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions used for grants in 2004: risk-free interest rate of 3.85%; expected volatility of 32.5%; expected dividend yield of 1.16%; and expected life of six years.

Adoption of New Accounting Standards
In March 2005, the Financial Accounting Standards Board (the “FASB”) issued Interpretation No. 47 “Accounting for Conditional Asset Retirement Obligations” (“FIN 47”). FIN 47 clarifies that the term “conditional asset retirement obligation” as used in SFAS No. 143, “Accounting for Asset Retirement Obligations” refers to a legal obligation to perform an asset retirement activity in which the timing and/or method of settlement are conditional on a future event that may or may not be within the control of the Company. Accordingly, the Company is required to recognize a liability for the fair value of a conditional asset retirement obligation if the fair value can be reasonably estimated. The Company adopted this interpretation in the fourth quarter of 2006, as required. The adoption of FIN 47 did not have a material impact on BD’s consolidated financial statements.

     In July 2006, the FASB issued Interpretation No. 48 “Accounting for Uncertainty in Income Taxes” (“FIN 48”). FIN 48 prescribes guidance for recognition, measurement, and disclosure of uncertain tax positions recognized in financial statements in accordance with SFAS No. 109 “Accounting for Income Taxes”. The provisions of this interpretation will be applied to all tax positions upon its initial adoption. The Company is required to adopt this interpretation in fiscal year 2008 and the cumulative effect, if any, of applying this interpretation will be reported as an adjustment to the opening balance of retained earnings for such fiscal year. The Company is currently evaluating the impact of FIN 48 on its consolidated financial statements.

     In September 2006, the FASB issued SFAS No. 158 “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106 and 132(R)” (“SFAS No. 158”). This statement requires the Company to recognize the overfunded or underfunded status of a defined benefit postretirement plan as an asset or liability in its consolidated balance sheet and to recognize changes in the funded status in the year in which the changes occur through comprehensive income. SFAS No. 158 also requires the funded status of a plan to be measured as of the balance sheet date and provides for additional disclosure requirements. As required, the Company will adopt the recognition and disclosure provision of this statement at the end of fiscal year 2007. Based on the underfunded status of the plans as of September 30, 2006, this provision is expected to be material to the Company’s consolidated balance sheet. See Note 5 for further discussion regarding benefit plans. The Company expects no impact to the measurement date of its plans, as the plans are currently measured at its fiscal year-end.