News Column

BECTON DICKINSON & CO - 10-Q - Management's Discussion and Analysis of Financial Condition and Results of Operations

May 5, 2014

The following commentary should be read in conjunction with the condensed consolidated financial statements and accompanying notes. Within the tables presented throughout this discussion, certain columns may not add due to the use of rounded numbers for disclosure purposes. Percentages and earnings per share amounts presented are calculated from the underlying amounts.

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.

BD's products are manufactured and sold worldwide. We organize our operations outside the United States as follows: Europe (which includes the Middle East and Africa); Greater Asia (which includes Japan and Asia Pacific); Latin America (which includes Mexico and Brazil) and Canada. We continue to pursue growth opportunities in emerging markets, which include the following geographic regions: Eastern Europe, the Middle East, Africa, Latin America and Asia Pacific (excluding Japan). We are particularly focused on certain countries whose economic and healthcare sectors are growing rapidly, in particular, China, India, Brazil and Turkey.

Overview of Financial Results and Financial Condition

Second quarter revenues of $2.1 billion represented an increase of 3.6% from the prior year's period and reflected volume increases of approximately 5.1%, partially offset by unfavorable foreign exchange translation of approximately 1.5%. Pricing had an immaterial impact on revenue growth in the quarter, although we contemplate some less favorable pricing in the last half of fiscal year 2014. Revenue growth in the current year's period was driven by strong growth in our Medical and Biosciences segments. Medical segment growth reflected continued strong sales of pen needles in the Diabetes Care unit as well as favorable timing of orders in the Pharmaceutical Systems unit. Second quarter revenues in our Diagnostics segment benefitted from solid growth in our Preanalytical Systems unit but were unfavorably impacted by lower sales from the Women's Health and Cancer platform. Biosciences segment revenue growth reflected solid instrument placements and reagent sales, strong growth in emerging markets and some timing benefits. U.S. revenue growth for the quarter was unfavorably impacted by key challenges in the Diagnostics segment, as discussed further below. Second quarter revenues reflected strong international safety and emerging markets sales as these areas continue to be key growth drivers for the Company. Sales in the United States of safety-engineered devices in the second quarter of 2014 of $287 million were flat compared with the prior year's quarter. International sales of safety-engineered devices of $244 million in the second quarter of fiscal year 2014 grew 7.3% over the prior year's period, including an estimated 3.9% unfavorable impact due to foreign currency translation. International safety-engineered device revenue growth continues to be driven by strong growth in Western Europe and emerging markets.

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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, and continue to improve operating efficiency and organizational effectiveness. While the economic environment for the healthcare industry has stabilized, pricing pressures continue for some of our products. Healthcare utilization has continued to stabilize in the United States; however, any destabilization could adversely impact our U.S. businesses. Additionally, macroeconomic challenges in Europe continue to constrain healthcare utilization, although we currently view the environment as stable. In emerging markets, the Company's growth is dependent on government funding for healthcare systems.

In addition to the economic conditions in the United States and elsewhere, numerous other factors can affect our ability to achieve our goals including, without limitation, increased competition and healthcare reform initiatives. For example, the U.S. Patient Protection and Affordable Care Act contains certain tax provisions that affect BD. The most significant impact is the medical device excise tax that imposed a 2.3% tax on certain U.S. sales of medical devices. This tax became effective at the beginning of BD's second quarter of fiscal year 2013. The incremental first quarter fiscal year 2014 impact of this tax on selling and administrative expense for the first six months of fiscal year 2014 was an increase of $14 million.

Our financial position remains strong, with cash flows from operating activities totaling $768 million in the first six months of 2014. At March 31, 2014, we had $2.6 billion in cash and equivalents and short-term investments. Also, we continued to return value to our shareholders in the form of share repurchases and dividends. During the first six months of 2014, we repurchased $213 million of our common stock and paid cash dividends of $211 million.

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. For further discussion, refer to Note 10 in the Notes to Condensed Consolidated Financial Statements.

Comparisons of income from continuing operations between the second quarter and six-month periods of fiscal year 2014 and the prior-year periods of fiscal year 2013 are affected by the following items that were recorded in our financial results during the second quarter and six-month periods ended March 31, 2014:

• Our Biosciences segment results reflect a pre-tax charge of $20 million, or $0.06 diluted earnings per share from continuing operations, in Research and development, for asset write-offs primarily resulting from the discontinuance of an instrument product development program. The charge is largely attributable to capitalized product software, but also includes a lesser amount attributable to fixed assets. 23



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Table of Contents • Our Diagnostics segment results reflect a pre-tax charge of $11 million, or $0.04 diluted earnings per share from continuing operations, in Selling and administrative, for contract termination costs that resulted from the early termination of a European distributor arrangement. • Our unallocated corporate results reflect a pre-tax gain of $8 million, or $0.03 diluted earnings per share from continuing operations, in Other income, net resulting from the Company's receipt of cash proceeds from the sale of a company in which it held a small equity ownership interest. Results of Operations Revenues



Refer to Note 5 in the Notes to Condensed Consolidated Financial Statements for segment financial data.

Medical Segment

Second quarter revenues of $1.1 billion increased 5.1% over the prior year's quarter, which reflected an estimated unfavorable foreign currency translation impact of 1.2%.

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) 2014 2013 Change Impact Medical Surgical Systems $ 551$ 539 2.3 % (2.1 )% Diabetes Care 251 232 8.1 % (2.3 )% Pharmaceutical Systems 314 291 7.9 % 1.3 % Total Revenues $ 1,116$ 1,062 5.1 % (1.2 )%



Medical segment revenue growth was driven by new products, strength of emerging market sales and some timing benefits. Second quarter revenue growth in the Medical Surgical Systems unit reflected both strong emerging market and international safety sales. The Diabetes Care unit's revenue growth reflected continued strong sales of pen needles, particularly the BD Ultra-Fine™ Nano and AutoShield™ Duo products. Revenue growth in the Pharmaceutical Systems unit reflected favorable timing of orders. Global sales of safety-engineered products were $263 million, as compared with $256 million in the prior year's quarter, and included an estimated $4 million unfavorable impact due to foreign currency translation. Total Medical revenues for the six-month period ended March 31, 2014 increased by 6.6% from the prior-year six-month period, including an estimated 0.8% unfavorable impact from foreign currency translation. For the six-month period ended March 31, 2014, global sales of safety-engineered products were $548 million, compared with $508 million in the prior year's period, and included an estimated $7 million unfavorable impact due to foreign currency translation.

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Medical operating income for the second quarter was $317 million, or 28.4% of Medical revenues, compared with $291 million, or 27.4% of segment revenues, in the prior year's quarter. Gross profit margin was higher in the current quarter than the second quarter of 2013 due to lower manufacturing costs resulting from continuous improvement projects, particularly Project ReLoCo, favorable pricing on certain product lines and lower pension costs. Gross profit margin in the current year's quarter also reflected the impact of a favorable product mix resulting from higher relative growth in sales of products which have higher gross margins. These favorable impacts on gross profit margin were partially offset by unfavorable foreign currency translation, higher start-up costs and higher raw material costs. See further discussion on gross profit margin below. Selling and administrative expense as a percent of Medical revenues in the second quarter of 2014 was lower as compared with the second quarter of 2013 primarily due to the favorable impact of higher sales growth in the current year's period. Research and development expenses for the quarter increased $3 million, or 6% above the prior year's period, reflecting ongoing investment in new products and platforms. Segment operating income for the six-month period was $611 million, or 28.0% of Medical revenues, compared with $579 million, or 28.3%, in the prior year's period.

Diagnostics Segment

Second quarter revenues of $653 million decreased 0.9% compared with the prior year's quarter, which reflected an estimated unfavorable foreign currency translation impact of 1.9%.

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) 2014 2013 Change Impact Preanalytical Systems $ 342$ 330 3.7 % (1.8 )% Diagnostic Systems 311 329 (5.5 )% (1.9 )% Total Revenues $ 653$ 659 (0.9 )% (1.9 )%



Diagnostics segment revenues for the quarter reflected solid sales of safety-engineered products in the Preanalytical Systems unit. Global sales of safety-engineered products in the Preanalytical Systems unit totaled $268 million, compared with $258 million in the prior year's quarter, and included an estimated $5 million unfavorable impact due to foreign currency translation. Diagnostic Systems revenue growth in the quarter was unfavorably impacted by lower sales from the Women's Health and Cancer platform due to guidelines providing for increased Pap smear testing intervals, as well as share losses in the United States. Total Diagnostics revenues for the six-month period ended March 31, 2014 increased by 1.1% from the prior-year six-month period, including an estimated 1.5% unfavorable impact from foreign currency translation. For the six-month period ended March 31, 2014, global sales of safety-engineered products in the Preanalytical Systems unit were $540 million, compared with $517 million in the prior year's period, and included an estimated $6 million unfavorable impact due to foreign currency translation.

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Diagnostics operating income for the second quarter was $131 million, or 20.1% of Diagnostics revenues, compared with $145 million, or 22.0% of segment revenues, in the prior year's quarter. Gross profit margin was lower in the second quarter of fiscal year 2014 compared with the second quarter of 2013 primarily due to unfavorable foreign currency translation and higher raw material costs. Gross profit margin in the current year's quarter also reflected the impact of an unfavorable product mix resulting from lower relative growth in sales of products which have higher gross margins. These unfavorable impacts on gross profit margin were partially offset by lower manufacturing costs from continuous improvement projects, lower pension costs and the favorable comparison to the prior-year period which was impacted by product remediation costs. See further discussion on gross profit margin below. Selling and administrative expense as a percentage of Diagnostics revenues in the second quarter of 2014 was higher compared with the second quarter of 2013. Aggregate expenses in the second quarter of fiscal year 2014 reflected the charge relating to the early termination of a distributor arrangement previously discussed, partially offset by a reversal of bad debt expense further discussed below. Research and development expenses in the second quarter of 2014 decreased by $3 million, or 8% compared with the prior year's period. Segment operating income for the six-month period was $293 million, or 22.1% of Diagnostics revenues, compared with $315 million, or 24.0%, in the prior year's period.

Biosciences Segment

Second quarter revenues of $302 million increased 8.2% over the prior year's quarter, which reflected an estimated unfavorable foreign currency translation impact of 2.0%. Biosciences segment revenue growth was driven by solid instrument placements, solid clinical and research reagent sales and strong sales growth in emerging markets. Revenue growth in the second quarter also benefitted from the timing of a government order in Latin America, a large tender order in Africa and more normalized stimulus spending in Japan. Growth in the second half of this fiscal year is expected to decelerate, due to these timing items. For the six-month period ended March 31, 2014, total Biosciences revenues increased by 6.8% from the prior-year six-month period, including an estimated 1.2% unfavorable impact from foreign currency translation.

Biosciences operating income for the second quarter was $67 million, or 22.1% of Biosciences revenues, compared with $71 million, or 25.6% of segment revenues, in the prior year's quarter. Gross profit margin as a percent of Biosciences revenues was higher in the current quarter as compared with the prior year's quarter reflecting the favorable impact of a favorable product mix resulting from higher relative growth in sales of products which have higher gross margins. See further discussion on gross profit margin below. Selling and administrative expense as a percentage of Biosciences revenues in the second quarter of 2014 was lower than in the second quarter of 2013 due to the reversal of bad debt expense further discussed below. Selling and administrative expense as a percent of Biosciences revenues also reflected the favorable impact of higher sales growth in the current year's period. Research and development expenses in the second quarter of 2014 increased by $20 million, or 77% compared with the prior year's period, reflecting the asset write-off primarily resulting from the discontinuance of an instrument product development program previously discussed. Segment operating income for the six-month period was $139 million, or 23.9% of Biosciences revenues, compared with $136 million, or 25.1%, in the prior year's period.

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Geographic Revenues

Revenues in the United States for the second quarter of $826 million were flat compared to the prior year's period with growth of 0.2%. U.S. revenue growth in our Medical segment was attributable to continued strong sales of pen needles in the Diabetes Care unit and the favorable timing of orders in the Pharmaceutical Systems unit. U.S. Diagnostics growth was unfavorably impacted by the continued decline in Women's Health and Cancer platform sales, as previously discussed, coupled with a mild influenza season. These unfavorable impacts were partially offset by solid growth in the Preanalytical Systems unit and strong growth in sales of the BD MaxTM platform. U.S. Biosciences revenues reflected continued stability in the U.S. market.

International revenues for the second quarter of $1.2 billion represented an increase of 5.9% over the prior year's quarter, including a 2.6% unfavorable impact due to foreign currency translation. International revenues for the second quarter of fiscal year 2014 reflected strong performance across all segments, including double-digit growth, on a foreign currency-neutral basis, in emerging markets, including China. International Medical and Diagnostics revenue growth also reflected strong sales of safety-engineered products. Biosciences international revenue growth reflected some timing benefits, as previously discussed.

Gross Profit Margin

Gross profit margin was 50.8% for the second quarter, compared with 50.9% for the comparable prior-year period. The decrease in gross profit margin reflected an estimated unfavorable impact of 70 basis points relating to foreign currency translation. Operating performance was favorably impacted by approximately 90 basis points primarily due to lower manufacturing costs from continuous improvement projects, lower pension costs and net favorable product mix resulting from higher relative growth in sales of products which have higher gross margins. These favorable impacts on operating performance were partially offset by approximately 30 basis points primarily due to higher start-up costs and higher raw material costs.

Gross profit margin was 51.1% in the six-month period of 2014, compared with 51.9% for the comparable prior-year period. The decrease in gross profit margin reflected an estimated unfavorable impact of 90 basis points relating to foreign currency translation. Operating performance was favorably impacted by approximately 85 basis points primarily due to lower manufacturing costs from continuous improvement projects and lower pension costs. These favorable impacts on operating performance were partially offset by approximately 75 basis points primarily due to net unfavorable product mix resulting from lower relative growth in sales of products which have higher gross margins, as well as higher start-up costs and raw material costs.

Selling and Administrative Expense

Selling and administrative expense was 25.3% of revenues for the second quarter, compared with 25.7% for the prior year's period. Aggregate expenses for the second quarter reflected an increase in core spending of $22 million, including spending relating to the expansion of our business in emerging markets. Aggregate expenses for the second quarter of 2014 also reflected the $11 million charge relating to the early termination of a distributor arrangement previously discussed. Selling and administrative expense in the current year's period was favorably

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impacted by lower pension costs of approximately $6 million, favorable foreign currency translation of approximately $8 million and a decrease in the deferred compensation liability of $3 million. This change in the deferred compensation liability is further discussed below. Selling and administrative expense in the current year's period was also favorably impacted by the reversal of $6 million of bad debt expense relating to the collection of government receivable balances in Spain, as further discussed below.

Selling and administrative expense was 25.8% of revenues for the six-month period of fiscal year 2014, compared with 25.9% for the prior year's period. Aggregate expenses for the second quarter reflected an increase in core spending of $48 million, including spending relating to the expansion of our business in emerging markets. Aggregate expenses for the second quarter of 2014 also reflected the incremental first quarter fiscal year 2014 impact of $14 million related to the medical device excise tax previously discussed, as well as the $11 million early termination charge. Aggregate expenses in the current year-to-date period also reflected an increase in the deferred compensation liability of $2 million. These increases were partially offset by favorable foreign currency translation of $12 million, lower pension costs of approximately $12 million and the $6 million reversal of bad debt expense.

Research and Development Expense

Research and development expense was $147 million, or 7.1% of revenues, for the second quarter, representing an increase of 20.0% compared with the prior year's amount of $122 million, or 6.1% of revenues. Research and development expense was $273 million, or 6.7% of revenues, for the six-month period in the current year, representing an increase of 13.4% compared with the prior year's amount of $241 million, or 6.2% of revenues. These increases in research and development expense compared with the prior year's periods reflected the $20 million asset write-off primarily resulting from the discontinuance of an instrument product development program previously discussed. The increases also reflected increased investment in new products and platforms within the Medical segment.

Non-Operating Expense and Income

Interest income was $10 million in the second quarter, compared with $12 million in the prior year's period. The decrease in the current year's quarter compared with the prior year's period primarily reflected the impact of lower investment gains on assets related to our deferred compensation plan, partially offset by the impact of higher interest rates on investments outside the United States. Interest income was $24 million in the current year's six-month period, compared with $20 million in the prior year's period. The increase in the current year-to-date period compared with the prior year's period primarily reflected the impact of higher investment gains on assets related to our deferred compensation plan and the impact of higher interest rates on investments outside the United States. The offsetting movements in the deferred compensation plan liability were recorded in selling and administrative expense. Interest expense was $33 million in the second quarter and $67 million in the six-month period of 2014, compared with $35 million and $70 million, respectively, in the prior year's periods. These decreases were primarily due to lower levels of long-term fixed-rate debt.

Income Taxes

The income tax rate was 20.9% for the second quarter, compared with the prior year's rate of 23.4%. The decrease in the income tax rate in the second quarter of fiscal year 2014 was primarily attributable to geographic mix and the benefit of some discrete one-time items. The

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six-month tax rate was 22.7% compared with the prior year's rate of 24.8%. In addition to the second quarter events discussed above, the decrease in the income tax rate in the first six months of 2014 reflected a favorable comparison to the prior-year period which was unfavorably impacted by some discrete tax expenses.

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 2014 were $287 million and $1.45, respectively. Income from continuing operations and diluted earnings per share from continuing operations for the prior year's second quarter were $276 million and $1.39, respectively. The current quarter's earnings reflected an estimated $0.08 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 $558 million and $2.82, respectively, in 2014 and $546 million and $2.74, respectively, in 2013. The incremental first quarter fiscal year 2014 impact of the medical device excise tax decreased income from continuing operations for the six-month period of fiscal year 2014 by $9 million, or $0.05 diluted earnings per share. The current year-to-date period's earnings reflected an estimated $0.17 unfavorable impact due to foreign currency translation. The after-tax asset write-off and contract termination charges previously discussed decreased income from continuing operations for the second-quarter and six-month periods ended March 31, 2014 by $12 million, or $0.06 per share, and $8 million, or $0.04 per share, respectively. The after-tax gain from the sale of an investment previously discussed increased income from continuing operations for the second-quarter and six-month periods ended March 31, 2014 by $5 million, or $0.03 per share.

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 fiscal year 2014. Normal operating needs in fiscal year 2014 include working capital, capital expenditures, cash dividends and common stock repurchases. Net cash provided by continuing operating activities was $768 million during the first six months of 2014, compared with $543 million in the same period in 2013. The current period change in operating assets and liabilities was a net use of cash and primarily reflected higher levels of inventory and prepaid expenses and lower levels of accounts payable and accrued expenses. These net uses of cash were partially offset by lower levels of accounts receivable. The decrease in accrued expenses included the payment of $22 million into a fund under a settlement agreement related to indirect purchaser antitrust class action cases. Refer to Note 4 in the Notes to Condensed Consolidated Financial Statements for further discussion regarding this matter. The decrease in accounts receivable reflects a $36 million payment of government receivables balances in Spain. This payment is further discussed below. Net cash provided by continuing operating activities in the second quarter of 2014 was reduced by changes in the pension obligation resulting primarily from discretionary cash contributions of $40 million. Net cash provided by continuing operating activities in the prior-year period was also reduced by changes in the pension obligation resulting primarily from discretionary cash contributions of approximately $132 million.

Net cash used for continuing investing activities for the first six months of the current year was $498 million, compared with net cash provided by continuing investing activities of $415 million in the prior-year period. Cash outflows relating to acquisitions were $40 million in the first six

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months of the current year as a result of the Company's acquisition of Alverix in the second quarter of fiscal year 2014. Cash outflows relating to acquisitions of $138 million in the prior year's period related to the Company's acquisitions of Safety Syringes and Cato in the first and second quarters of fiscal year 2013, respectively. The prior period's net cash provided by continuing investing activities included approximately $720 million of net proceeds from the sale of the Discovery Labware disposal group. Capital expenditures were $214 million in the first six months of 2014 and $197 million in the same period in 2013.

Net cash used for financing activities for the first six months of the current year was $422 million, compared with $500 million in the prior-year period. For the first six months of the current year, we repurchased approximately 2 million shares of our common stock for $213 million, compared with approximately 4.5 million shares of our common stock for $356 million in the prior-year period. Aggregate common stock repurchases are estimated to be approximately $450 million for the full fiscal year 2014, subject to market conditions. At March 31, 2014, a total of approximately 10.8 million common shares remained available for purchase under the Board of Directors' July 2011 and September 2013 repurchase authorizations.

At March 31, 2014, total worldwide cash and short-term investments were approximately $2.6 billion, of which $2.2 billion was held in jurisdictions outside of the United States. We regularly review the amount of cash and short-term investments held outside the United States and currently intend to use most of such amounts to fund our international operations and their growth initiatives. However, if these amounts were moved out of these jurisdictions or repatriated to the United States, there could be adverse tax consequences.

As of March 31, 2014, total debt of $4.0 billion represented 41.8% of total capital (shareholders' equity, net non-current deferred income tax liabilities, and debt), versus 43.1% at September 30, 2013. Short-term debt represented 5.1% and 5.2% of total debt at March 31, 2014 and September 30, 2013, respectively.

We have in place a commercial paper borrowing program that is available to meet our short-term financing needs, including working capital requirements. Borrowings outstanding under this program were $200 million at March 31, 2014. We have available a $1 billion syndicated credit facility. This credit facility, under which there were no borrowings outstanding at March 31, 2014, provides backup support for our commercial paper program and can also be used for other general corporate purposes. It includes a provision that enables BD, subject to additional commitments made by the lenders, to access up to an additional $500 million in financing through the facility, for a maximum aggregate commitment of $1.5 billion. During the third quarter of fiscal year 2014, we extended the expiration date of this credit facility to May 2018 from the original expiration date of May 2017. The credit facility includes a single financial covenant that requires BD to maintain an interest expense coverage ratio (ratio of earnings before income taxes, depreciation and amortization to interest expense) of not less than 5-to-1 for the most recent four consecutive fiscal quarters. On the last eight measurement dates, this ratio has ranged from 11-to-1 to 16-to-1. In addition, we have informal lines of credit outside the United States.

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Government Receivables

Accounts receivable balances include sales to government-owned or government-supported healthcare facilities in several countries, which are subject to payment delays. Payment may be dependent upon the financial stability and creditworthiness of those countries' national economies. In recent years, due to economic conditions in parts of Western Europe, particularly in Italy and Spain, the average length of time it takes us to collect our accounts receivable in certain regions within these countries has increased. Outstanding governmental receivable balances, net of reserves, in Italy at March 31, 2014 and September 30, 2013 were $65 million and $73 million, respectively. Outstanding governmental receivable balances, net of reserves, in Spain were $33 million and $61 million at March 31, 2014 and September 30, 2013, respectively. The March 31, 2014 balance in Spain reflects a $36 million payment received from the Spanish government in the second quarter of fiscal year 2014. As a result of this payment, we reversed $6 million of bad debt expense that was previously recorded to reserve for uncollected outstanding government receivable balances in Spain.

We continually evaluate all governmental receivables for potential collection risks associated with the availability of government funding and reimbursement practices. We believe the current reserves related to all governmental receivables are adequate and that this concentration of credit risk will not have a material adverse impact on our financial position or liquidity.

Cautionary Statement Regarding Forward-Looking Statements

BD and its representatives may from time to time make certain forward-looking statements in publicly released materials, both written and oral, including statements contained in filings with the Securities and Exchange Commission, press releases, and our reports to shareholders. Forward-looking statements may be identified by the use of words such as "plan," "expect," "believe," "intend," "will," "anticipate," "estimate" and other words of similar meaning in conjunction with, among other things, discussions of future operations and financial performance, as well as our strategy for growth, product development, regulatory approvals, market position and expenditures. All statements that address operating performance or events or developments that we expect or anticipate will occur in the future - including statements relating to volume growth, sales and earnings per share growth, cash flows or uses, and statements expressing views about future operating results - are forward-looking statements.

Forward-looking statements are based on current expectations of future events. The forward-looking statements are, and will be, based on management's then-current views and assumptions regarding future events and operating performance, and speak only as of their dates. Investors should realize that if underlying assumptions prove inaccurate or unknown risks or uncertainties materialize, actual results could vary materially from our expectations and projections. Investors are therefore cautioned not to place undue reliance on any forward-looking statements. Furthermore, we undertake no obligation to update or revise any forward-looking statements after the date they are made, whether as a result of new information, future events and developments or otherwise, except as required by applicable law or regulations.

The following are some important factors that could cause our actual results to differ from our expectations in any forward-looking statements. For further discussion of certain of these factors, see Item 1A. Risk Factors in our 2013 Annual Report on Form 10-K.

• Weakness in the global economy and financial markets, and the potential adverse effect on the cost of operating our business, the demand for our products and services, prices for our products and services due to increases in pricing pressure, or our ability to produce our products, including the impact on developing countries. 31



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Table of Contents • Deficit reduction efforts or other adverse changes in the availability of government funding for healthcare and research, particularly in the United States and Europe, that could further weaken demand for our products and result in additional pricing pressures, as well as create potential collection risks associated with such sales, and any future U.S. federal government shutdown. • The consequences of the Patient Protection and Affordable Care Act in the United States, which implemented an excise tax on U.S. sales of certain medical devices, and which could result in reduced demand for our products, increased pricing pressures or otherwise adversely affect BD's business. • Future healthcare reform in the countries in which we do business may also involve changes in government pricing and reimbursement policies or other cost containment reforms. • Changes in domestic and foreign healthcare industry practices that result in a reduction in procedures using our products or increased pricing pressures, including the continued consolidation among healthcare providers and trends toward managed care and healthcare cost containment. • Changes in reimbursement practices of third-party payers. • Our ability to penetrate developing and emerging markets, which depends on local economic and political conditions and how well we are able to acquire or form strategic business alliances with local companies and make necessary infrastructure enhancements to production facilities, distribution networks, sales equipment and technology. Our international operations also increase our compliance risks under the Foreign Corrupt Practices Act and other anti-corruption laws. • Political conditions in international markets, including civil unrest, terrorist activity, governmental changes, restrictions on the ability to transfer capital across borders and expropriation of assets by a government. • Security breaches of our computer and communications systems, including computer viruses, "hacking" and "cyber-attacks," which could impair our ability to conduct business, or result in the loss of BD trade secrets or otherwise compromise sensitive information of BD or its customers, suppliers and other business partners. • Fluctuations in the cost and availability of oil-based resins and other raw materials, as well as certain sub-assemblies and finished goods, the ability to maintain favorable supplier arrangements and relationships (particularly with respect to sole-source suppliers), and the potential adverse effects of any disruption in the availability of such items. 32



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Table of Contents • Regional, national and foreign economic factors, including inflation, deflation, fluctuations in interest rates and, in particular, foreign currency exchange rates, and the potential effect on our revenues, expenses, margins and credit ratings. • New or changing laws and regulations affecting our domestic and foreign operations, or changes in enforcement practices, including laws relating to trade, monetary and fiscal policies, taxation (including tax reforms that could adversely impact multinational corporations), sales practices, environmental protection, price controls and licensing and regulatory requirements for new products and products in the postmarketing phase. In particular, the U.S. and other countries may impose new requirements regarding registration, labeling or prohibited materials that may require us to re-register products already on the market or otherwise impact our ability to market our products. Environmental laws, particularly with respect to the emission of greenhouse gases, are also becoming more stringent throughout the world, which may increase our costs of operations or necessitate changes in our manufacturing plants or processes or those of our suppliers, or result in liability to BD. • Product efficacy or safety concerns regarding our products resulting in product recalls, regulatory action on the part of the U.S. Food and Drug Administration (FDA) or foreign counterparts, declining sales and product liability claims, particularly in light of the current regulatory environment, including increased enforcement activity by the FDA. • Competitive factors that could adversely affect our operations, including new product introductions (for example, new forms of drug delivery) by our current or future competitors, increased pricing pressure due to the impact of low-cost manufacturers as certain competitors have established manufacturing sites or have contracted with suppliers in low-cost manufacturing locations as a means to lower their costs, patents attained by competitors (particularly as patents on our products expire), and new entrants into our markets. • The effects of events that adversely impact our ability to manufacture our products (particularly where production of a product line is concentrated in one or more plants) or our ability to source materials or components from suppliers (including sole-source suppliers) that are needed for such manufacturing, including pandemics, natural disasters, or environmental factors. • Difficulties inherent in product development, including the potential inability to successfully continue technological innovation, complete clinical trials, obtain regulatory approvals in the United States and abroad, obtain intellectual property protection for our products, obtain coverage and adequate reimbursement for new products, or gain and maintain market approval of products, as well as the possibility of infringement claims by competitors with respect to patents or other intellectual property rights, all of which can preclude or delay commercialization of a product. Delays in obtaining necessary approvals or clearances from the FDA or other regulatory agencies or changes in the regulatory process may also delay product launches and increase development costs. 33



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Table of Contents • Fluctuations in the demand for products we sell to pharmaceutical companies that are used to manufacture, or are sold with, the products of such companies, as a result of funding constraints, consolidation or otherwise. • Fluctuations in university or U.S. and international governmental funding and policies for life sciences research. • Our ability to achieve our projected level or mix of product sales, as our earnings forecasts are based on projected volumes and sales of many product types, some of which are more profitable than others. • Our ability to implement our ongoing upgrade of our enterprise resource planning system, as any delays or deficiencies in the design and implementation of our upgrade could adversely affect our business. • Pending and potential future litigation or other proceedings adverse to BD, including antitrust claims, product liability claims, environmental claims and patent infringement claims, and the availability or collectability of insurance relating to any such claims. • The effect of adverse media exposure or other publicity regarding BD's business or operations, including the effect on BD's reputation or demand for its products. • The effects, if any, of governmental and media activities regarding the business practices of group purchasing organizations, which negotiate product prices on behalf of their member hospitals with BD and other suppliers. • The effect of market fluctuations on the value of assets in BD's pension plans and on actuarial interest rate and asset return assumptions, which could require BD to make additional contributions to the plans or increase our pension plan expense. • The impact of business combinations, including any volatility in earnings relating to acquired in-process research and development assets, and our ability to successfully integrate any business we may acquire. • Our ability to obtain the anticipated benefits of restructuring programs, if any, that we may undertake. • Issuance of new or revised accounting standards by the Financial Accounting Standards Board or the Securities and Exchange Commission.



The foregoing list sets forth many, but not all, of the factors that could impact our ability to achieve results described in any forward-looking statements. Investors should understand that it is not possible to predict or identify all such factors and should not consider this list to be a complete statement of all potential risks and uncertainties.

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