Company Overview
Becton, Dickinson and Company ("BD") is a medical technology company that serves healthcare institutions, life science researchers, clinical laboratories, industry and the general public. BD manufactures and sells a broad range of medical supplies, devices, laboratory equipment and diagnostic products. We focus strategically on achieving growth in three worldwide business segments-BD Medical Systems ("Medical"), BD Clinical Laboratory Solutions ("Clinical Lab") and BD Biosciences ("Biosciences"). Our products are marketed in the United States and internationally through independent distribution channels, directly to end users and by sales representatives. The following references to years relate to our fiscal year, which ends on September 30.

Adoption of New Accounting Standards
Effective October 1, 2001, we adopted the provisions of Statement of Financial Accounting Standard ("SFAS") No. 141, "Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible Assets," as more fully discussed in Note 2 of the Notes to Consolidated Financial Statements. As a result of the adoption of these Statements, we are no longer amortizing goodwill and indefinite-lived intangible assets, and have reclassified certain assets to Goodwill, Net from Other Intangibles, Net that did not meet the criteria for recognition apart from goodwill.

Revenues and Earnings
Worldwide revenues in 2002 were $4 billion, an increase of 8% over 2001 and resulted primarily from volume increases in all segments. Sales of safety-engineered devices grew 38% to $573 million. As more fully discussed in Note 10 of the Notes to Consolidated Financial Statements, $8 million of hedging costs relating to currency option contracts that were originally recorded in Other Expense, Net in 2001 have been reclassified as a reduction of revenues to conform to the current year presentation.
    Medical revenues in 2002 of $2.2 billion increased 7% over 2001, or 8% excluding unfavorable foreign currency translation. The primary growth drivers were the conversion to safetyengineered devices, which accounted for $353 million in revenues compared with $253 million in the prior year. Also contributing to the growth of this segment were sales of worldwide prefillable drug delivery devices, which grew $48 million or 17%. Medical revenue growth was partially offset by reduced sales of conventional devices in the United States due to the transition to safetyengineered devices and, to a lesser extent, by lower U.S. sales of consumer healthcare products, reflecting the impact of redirecting promotional efforts toward branded insulin syringe sales at the retail level. See discussion on revenue recognition in "Critical Accounting Policies" below.
    Medical operating income was $470 million in 2002 compared with $447 million in 2001. Medical operating income in 2002 was negatively impacted by special charges and related manufacturing restructuring costs, as discussed below. Excluding these charges, Medical operating income grew 8%, when compared to 2001, adjusted to exclude goodwill amortization recorded in 2001 prior to the adoption of SFAS Nos. 141 and 142, as discussed above. This increase reflects the gross profit margin improvement resulting from continued conversion to safety-engineered devices from conventional products. Medical operating income was negatively impacted by economic conditions in Latin America and the redirection of promotional efforts, as noted above.
    Clinical Lab revenues in 2002 of $1.2 billion rose 7% over 2001, or 8% excluding unfavorable foreign currency translation. Major elements comprising this underlying revenue growth were the continued conversion to safety-engineered products in the Preanalytical Solutions component of the segment, which accounted for $220 million in revenues compared with $163 million in the prior year. Clinical Lab revenue growth was partially offset by reduced sales of conventional devices in the United States. Revenue growth was favorably impacted by incremental BD ProbeTec ET System sales of $19 million over 2001 in the Diagnostic Systems component of the segment.
    Clinical Lab operating income was $251 million in 2002 compared with $213 million last year. Excluding goodwill amortization in 2001, Clinical Lab operating income grew 14%. This increase reflects gross profit margin improvement resulting from continued conversion to safety-engineered devices from conventional products and the improved profitability of the BD ProbeTec ET platform.
    Biosciences revenues in 2002 of $645 million increased 9% over 2001, or 10% excluding unfavorable foreign currency translation. This growth was led by sales of immunocytometry products, particularly the BD FACS brand flow cytometry systems, which contributed approximately 5% of the underlying revenue growth. In addition, sales of discovery labware products and immunology/ cell biology reagents each contributed about 3% of the underlying revenue growth. Molecular biology reagent revenues decreased about $6 million from the prior year due to continued weakness in some portions of the molecular biology market, largely due to a softness in pharmaceutical/biotech research and development spending, and a shift in pharmaceutical focus from early stage drug target identification to later stage drug development. As a result, we are refocusing our research and development efforts in the area of molecular biology toward producing a product portfolio aligned with changing customer focus, as well as streamlining our operations.
    Biosciences operating income in 2002 was $117 million compared with $97 million in 2001. Excluding goodwill amortization in 2001, Biosciences operating income grew 6%. Profit margins on immunology/cell biology reagents and discovery labware products improved due to lower manufacturing costs and shifts to sales of products with higher gross profit margins than the mix of products sold in 2001. Biosciences operating income was negatively impacted primarily by lower margins on molecular biology reagents due to the market weakness described above and to a lesser extent by lower margins on flow cytometry products.
    On a geographic basis, revenues outside the United States in 2002 increased 8% to $ 1.9 billion. Excluding the estimated impact of unfavorable foreign currency translation, underlying revenue growth outside the United States was 9%. Revenues in Europe accounted for 5% of the underlying revenue growth and were led by strong sales of prefillable syringes, BD FACS brand flow cytometry systems and hypodermic products. Revenues in the Asia Pacific region contributed 2% of the underlying revenue growth and were led by strong sales growth of immunocytometry products and I.V. catheters. As indicated earlier, revenues were adversely impacted by economic conditions in Latin America.
    Revenues in the United States in 2002 of $2.2 billion increased 8%, primarily from strong sales of safety-engineered devices. Revenue growth was partially offset by lower sales of diabetes healthcare products and molecular biology reagent revenues, as discussed above.
    Gross profit margin was 48.3% in 2002, compared with 48.9% last year. Excluding costs related to the restructuring program discussed below, gross profit margin would have been 48.5% compared with 49% in 2001, adjusted to exclude goodwill amortization. Higher gross margins from sales of our safety-engineered products were more than offset by lower sales of products with overall higher gross profit margins, including insulin syringes and molecular biology products in the Biosciences segment, as discussed earlier.
    Selling and administrative expense of $1 billion in 2002 was 25.6% of revenues, compared to $983 million in 2001, or 26.2% of revenues. Excluding goodwill amortization in 2001, the prior year's selling and administrative expense as a percent of revenues would have been 25.4%.
    Investment in research and development in 2002 was $220 million, or 5.5% of revenues, compared with $212 million, or 5.7% of revenues in 2001. Incremental spending was concentrated primarily in the Biosciences segment and in key initiatives, including blood glucose monitoring.
    Included in the 2002 special charges were $26 million of charges related to a manufacturing restructuring program in the Medical segment, as more fully described in Note 5 of the Notes to Consolidated Financial Statements. Special charges were net of the reversal of $4 million of fiscal 2000 special charges, primarily due to lower-than-anticipated employee severance and lease cancellation costs. Fiscal 2002 results also reflect $7 million of other manufacturing restructuring costs, primarily accelerated depreciation, related to the restructuring program that are included in cost of products sold. For 2003, we expect manufacturing restructuring costs to be fully offset by related cost savings. For 2004, we expect to achieve total savings of approximately $8 million relating to this restructuring program.
    Operating margin in 2002 was 16.8% of revenues, compared with 17% in 2001. Excluding the aforementioned impact of special charges and related other manufacturing restructuring costs in the current year and goodwill amortization in the prior year, operating margin as a percent of revenue would have been 17.5% in 2002 compared with 18% in 2001. This decline primarily reflects the decrease in gross profit margin.
    Net interest expense of $33 million in 2002 was $22 million lower than in 2001. This decline is primarily due to lower interest rates, partially offset by lower capitalized interest in 2002.
    Other Expense, Net of $14 million in 2002 included net losses on equity investments of $19 million, which reflect declines in fair values that were deemed other than temporary. Also included in Other Expense, Net in 2002 were foreign exchange gains of $16 million that were substantially offset by other asset write-downs of $14 million. Other Expense, Net in 2001 of $6 million included write-downs of equity investments to fair value of $6 million.
    The effective tax rate in 2002 was 23.6% compared to 24% in 2001.
    Net income and diluted earnings per share in 2002 were $480 million, or $1.79, respectively, compared with $438 million, or $1.63 in 2001, before the cumulative effect of accounting change, as described below. Excluding the impact of special charges in 2002 and goodwill amortization in 2001, net income and diluted earnings per share before the cumulative effect of accounting change in 2002 were $497 million, or $1.85, respectively, compared with $466 million, or $1.73, in 2001.
    We adopted the provisions of Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements,"("SAB 101") in the fourth quarter of 2001 and, as a result, recorded the following accounting changes, described below, effective October 1, 2000 (beginning of fiscal 2001). We changed our method of accounting for revenue related to branded insulin syringe products that are sold to distributors in the U.S. consumer trade channel. These products were predominantly sold under incentive programs and we concluded that the preferable method is to defer revenue recognition until such product is sold by the distributor to the end customer. We also changed our accounting method for Biosciences instruments to defer revenue from these products until completion of installation at the customer's site. As a result of these accounting changes, we recorded a total cumulative effect of change in accounting principle of $37 million, net of tax in 2001. See Note 2 of the Notes to Consolidated Financial Statements for additional discussion of the accounting change. Net income and diluted earnings per share in 2001 were $402 million, or $1.49 per share, after reflecting the after-tax cumulative effect of accounting change of $.14 per share.

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