To our shareholders It is my pleasure to report to you that BD achieved its financial and operating goals in fiscal 2006 and showed solid improvement over 2005. Our revenue and earnings growth exceeded our expectations and give us continuing confidence that our strategy is sound and our implementation disciplined.

Edward J. Ludwig, Chairman, President and Chief Executive Officer

We are increasing sustainable revenue growth by designing and marketing innovative new products that address significant healthcare problems and deliver demonstrably higher benefits to patients, healthcare workers and researchers. We are complementing this growth by driving operating effectiveness to meet or exceed our customers’ expectations and expand our operating margins and cash flow. Our revenue and profit growth will enable us to continue progressing toward our vision of becoming a “great company” – one that achieves great performance for its customers and shareholders, makes great contributions to society, and is a great place to work.
     The theme of this report, “Yes, We Can,” is representative of the many ways BD is helping address unmet global healthcare needs in all corners of the world. I hope you will find the stories in this report to be enlightening and inspiring.

Key strategic developments
We are confident that we can achieve our goals by building on our strengths and investing in new capabilities. Our strategy is primarily driven by organic growth and, on occasion, we supplement this growth with well-aligned acquisitions. This year, we announced two acquisitions that are strategically compelling and, in both, dilution is expected to be short-lived. These acquisitions will be implemented with rigor and discipline.
     In February 2006, we acquired GeneOhm Sciences, Inc., a pioneer in the development of molecular diagnostic testing for the rapid detection of bacterial organisms, including those known to cause healthcare-associated infections (HAIs), a growing global healthcare problem. This acquisition, a natural complement to BD’s core strengths in microbiology, delivers on our commitment to expansion in molecular diagnostics and positions us to become a leader in the prevention of HAIs. BD GeneOhm is well positioned, as evidenced by recent initiatives including newly issued Centers for Disease Control and Prevention guidelines for preventing the spread of such infections.
     In September 2006, we announced an agreement to acquire TriPath Imaging. This transaction received U.S. Federal Trade Commission approval in October and is expected to close by the end of our first fiscal quarter 2007. This strategic acquisition will expand and advance BD’s position in cancer diagnostics, aligning innovative new technologies with BD’s existing business strategies. It aligns well with our flow cytometry business and other biomarker research programs. Our cancer diagnostics strategy is to improve, through innovative solutions, the clinical management of cancer, including detection, diagnosis, staging and treatment.

Strong financial results
Our financial results demonstrate that our strategy is working. Company revenues of $5.8 billion represent an increase of 8 percent (reflecting an overall estimated 1 percent unfavorable impact from foreign currency translation that affected all segments). Our adjusted gross profit margin increased 60 basis points to 51.4 percent, continuing a trend of gross profit improvement over the last several years.*
     Continuous improvement activities employing Six Sigma, Lean and Process Validation across the Company drove overall productivity. Significant productivity improvements and successful category management more than overcame substantial energy price increases–primarily natural gas and electricity–during the year, including higher raw material prices in categories that rely on oil. Forecast accuracy was steady for the year, and backorders were maintained at last year’s improved levels, allowing for continued improvements in customer service.
     Adjusted operating income increased over 12 percent from adjusted 2005. Adjusted operating margin as a percentage of sales improved from 19.0 percent to 19.7 percent, reflecting gross profit improvement, productivity gains and SSG&A leverage.*
     BD is committed to a very strong return of cash to our shareholders. This year, we generated over $1.1 billion in operating cash flow. We returned over 60 percent of our operating cash flow to shareholders. We repurchased 7.3 million common shares for $449 million and paid dividends of $212 million. Our balance sheet remains strong and liquid, placing us in a good position for future strategic investments. Our use and deployment of cash is expected to continue on the upward trajectory of the last several years. We expect dividends to keep pace with earnings growth and share buybacks to continue.
     BD Medical revenues rose by 8 percent over 2005 to $3.2 billion. Strong sales in Pharmaceutical Systems and Diabetes Care, especially pen needles, led revenue growth. Sales of safety-engineered products grew 16 percent internationally and 6 percent in the United States. Other key growth drivers included prefilled IV flush syringes and auto-disable syringes for developing world immunization programs. In September, we announced our exit from the blood glucose monitoring (BGM) market. After careful consideration, we concluded that our future outlook in the increasingly competitive BGM market did not justify the levels of investment and additional resources necessary to continue. We remain solidly committed to our overall Diabetes Care business, as we have been since pioneering the area of insulin injection in 1924. Revenue derived from insulin delivery products exceeds $500 million annually and grew more than 9 percent this year over fiscal 2005.
     BD Diagnostics revenues rose by 6 percent over 2005 to $1.8 billion. Sales of safetyengineered products rose by 20 percent internationally and 13 percent in the United States, due in large part to our BD Vacutainer Push Button Blood Collection Sets. Growth in our molecular diagnostics business continues to be favorable, fueled by our BD Viper platform for sexually transmitted diseases.
     BD Biosciences revenues rose by 10 percent over 2005 to $877 million. Research instrument and reagent sales, as well as increased sales of Discovery Labware products, continued to be growth drivers. In particular, we saw strong sales of the new BD FACSCanto II flow cytometer and special order research flow cytometers that provide state-of-the-art capabilities to attack more complex biological problems. We launched the new BD Pathway 400 Series cellular imaging systems and realized continued strong sales of CD4 monitoring systems as we expanded our work in countries battling HIV/AIDS by providing lower-priced products and basic laboratory training.

Innovating for the future
We continue to increase the pace of our R&D spending to fuel growth through innovation. This year, our adjusted R&D spending increased by a rate of 13 percent, and we expect to sustain that rate in the future.*
     More spending is necessary, but not sufficient, to fuel innovation. We also must ensure that we are using the right processes to develop new products. In 2006, we made significant gains in our innovation processes by continuing to implement our Global Product Development System, which standardizes and harmonizes common product development practices and provides a more holistic view of our product portfolio. It helps us focus our efforts and critical product development resources on the opportunities that will fuel our growth objectives at all levels of the Company. We are in the early stages of this multi-year project and are committed to becoming a best-in-class product development company.

Making a difference
We are pleased that Business Ethics named BD to its 2006 list of the “100 Best Corporate Citizens,” recognizing our efforts in the area of corporate social responsibility. Additionally, this year BD was selected as a component of the Dow Jones Sustainability World Index, widely considered to be the premier socially responsible investing index–one of just 10 U.S. companies added to the index this year. BD was previously selected for the Dow Jones Sustainability North America Index.
     I’d like to highlight just a few of the many wide-ranging efforts we undertook this year that are making a significant impact on global healthcare.
     We completed eight years of support for the U.S. Fund for UNICEF’s campaign to eliminate maternal and neonatal tetanus. Since the partnership began, nearly 64 million women in 37 countries have been protected against tetanus, preventing tens of thousands of deaths. We also partnered with The Academic Alliance Foundation and the Millennium Village Project in support of their respective efforts that focus on infectious diseases, especially HIV/AIDS programs, and healthcare infrastructure support. BD continues to make cash and product donations through our nonprofit partners, including Direct Relief International and AmeriCares, for emergency humanitarian aid in natural disasters such as earthquakes and hurricanes. At the individual level, BD associates continue to live our corporate purpose of “Helping all people live healthy lives” through their many volunteer activities in communities around the globe.
     I invite you to learn more about BD’s commitment to community, volunteerism and the environment by reading the special insert, “Pursuing our corporate purpose while living our values every day,” following this letter, and the “BD Citizenship Report” on our website.

Office of the Chief Executive Officer Left to right, William A. Kozy, Executive Vice President; John R. Considine, Senior Executive Vice President and Chief Financial Officer; Vincent A. Forlenza, Executive Vice President; Edward J. Ludwig, Chairman, President and Chief Executive Officer; A. John Hanson, Executive Vice President; and Gary M. Cohen, Executive Vice President.

Investing in our people
We continue to invest in our people, as the competency and capabilities of our associates propel our strategy to drive innovation and operating effectiveness. Our corporate learning initiative, BD University (BDU), has further strengthened its role as a key vehicle for organizational learning, development and communication. BDU is in the process of developing and expanding its program offerings for thousands of leaders in the areas of leadership, business skills, career development and sales effectiveness.
     We are also committed to fostering a culture that values and respects each individual, and our diversity and inclusion initiative is a global business imperative. BD offers diversity awareness workshops worldwide and integrates related concepts and principles into our human resource systems. BD associates at all levels, all over the world, are working toward a culture that fully embraces and embodies diversity and inclusion.
     To ensure that we recruit, develop and retain highly skilled individuals, we are committed to disciplined execution of effective talent management practices, and we are committed to making the needed investments to attract the most talented individuals.
     BD is dedicated to fostering strong ethics and compliance company-wide. This is done in part through training, including an online program that is widely translated and available globally, as well as continuing to promote an organizational culture of compliance and ethics. These efforts are supported by a strong “tone at the top” among senior management.

Key management developments
We are deeply committed to our purpose of “Helping all people live healthy lives” and we are working hard to provide unique solutions to difficult global healthcare problems. The more we direct our work toward global health issues, the more synergies we see across BD segments and product platforms. As such, we realigned our organization this year in order to allow us to implement our strategy even more effectively and accelerate the pace of progress on our journey toward greatness. This realignment included the creation of an Office of the Chief Executive Officer, a focused executive team responsible for global strategy formulation and execution. This new structure better positions BD to address future challenges, discover and optimize growth opportunities, and continue to achieve success.
     Last year on these pages, I reported to you the creation of a task force focused on creating greater value and seamless integration in our end-to-end processes. This year, I can report that a group of dedicated senior managers, led by our Operational Effectiveness Executive Team, is devoted to this effort. This team’s important work is creating operational advantages for BD to ensure greater resources for investments in future innovations and to provide value to shareholders.

Key Board developments
In addition to our strong executive team, we have an active, engaged Board of Directors. This year, we are pleased to welcome two distinguished individuals to the Board. Dr. Adel A.F. Mahmoud, former Chief Medical Advisor, Vaccines and Infectious Diseases at Merck & Co., Inc., is a leading infectious disease expert with significant achievements in the field of vaccines. Dr. Claire Fraser-Liggett, President and Director of The Institute for Genomic Research, offers a significant depth of expertise in molecular biology as an international leader in the field of microbial genomics and forensics.
     We would also like to thank a retiring director, Margaretha af Ugglas, for her nine years of service and her many contributions to our success. In particular, Mrs. Ugglas’ experience in foreign affairs allowed her to bring a unique international perspective to the Board that has been invaluable. She also provided leadership as Chair of the Board’s committee that oversees BD’s standing as a responsible corporate citizen. We wish her all the best.

Closing reflections
In summary, 2006 marked another year of excellent progress and our achievements affirm that our strategy is working. I am especially proud of the many accomplishments of our 25,000 associates around the world who have contributed so much to our strong performance. We remain committed to serving our customers with products that make a difference in healthcare, and we will continue to work diligently to deliver excellent value to our shareholders.