Form 10-Q
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2011

Commission File Number 1-6926

 

 

C. R. BARD, INC.

(Exact name of registrant as specified in its charter)

 

 

 

New Jersey  

730 Central Avenue

Murray Hill, New Jersey 07974

  22-1454160
(State of incorporation)  

(Address of principal

executive offices)

 

(I.R.S. Employer

Identification No.)

Registrant’s telephone number, including area code: (908) 277-8000

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer  x

 

Accelerated filer  ¨

Non-accelerated filer  ¨

 

Smaller reporting company   ¨

(Do not check if smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

Class

 

Outstanding at September 30, 2011

Common Stock - $0.25 par value

 

85,782,427

 

 

 


Table of Contents

C. R. BARD, INC. AND SUBSIDIARIES

INDEX

 

         Page  

PART I – FINANCIAL INFORMATION

 

Item 1.

  

Financial Statements (unaudited)

 
  

Condensed Consolidated Statements of Income for the Quarter and Nine Months Ended September  30, 2011 and 2010

    3   
  

Condensed Consolidated Balance Sheets – September 30, 2011 and December 31, 2010

    4   
  

Condensed Consolidated Statements of Shareholders’ Investment for the Nine Months Ended September 30, 2011 and 2010

    5   
  

Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September  30, 2011 and 2010

    6   
  

Notes to Condensed Consolidated Financial Statements

    7   

Item 2.

  

Management’s Discussion and Analysis of Financial Condition and Results of Operations

    19   

Item 3.

  

Quantitative and Qualitative Disclosures About Market Risk

    31   

Item 4.

  

Controls and Procedures

    31   

PART II – OTHER INFORMATION

 

Item 1.

  

Legal Proceedings

    32   

Item 1A.

  

Risk Factors

    35   

Item 2.

  

Unregistered Sales of Equity Securities and Use of Proceeds

    35   

Item 5.

  

Other Information

    36   

Item 6.

  

Exhibits

    36   

Signatures

    37   

 

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Table of Contents

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

C. R. BARD, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(dollars in thousands except per share amounts, unaudited)

 

    Quarter
Ended September 30,
    Nine Months
Ended September 30,
 
    2011     2010     2011     2010  

Net sales

  $ 719,200      $ 678,400      $ 2,144,500      $ 2,003,100   

Costs and expenses:

       

Cost of goods sold

    274,900        251,900        815,200        756,300   

Marketing, selling and administrative expense

    189,300        185,900        580,400        555,100   

Research and development expense

    46,900        47,500        141,800        133,200   

Interest expense

    9,000        3,200        27,100        8,900   

Other (income) expense, net

    17,000        6,700        211,200        8,700   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total costs and expenses

    537,100        495,200        1,775,700        1,462,200   
 

 

 

   

 

 

   

 

 

   

 

 

 

Income from operations before income taxes

    182,100        183,200        368,800        540,900   

Income tax provision

    52,000        55,700        154,600        167,500   
 

 

 

   

 

 

   

 

 

   

 

 

 

Net income

    130,100        127,500        214,200        373,400   

Net income attributable to noncontrolling interest

    —          —          —          400   
 

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to common shareholders

  $ 130,100      $ 127,500      $ 214,200      $ 373,000   
 

 

 

   

 

 

   

 

 

   

 

 

 

Basic earnings per share available to common shareholders

  $ 1.48      $ 1.35      $ 2.44      $ 3.91   
 

 

 

   

 

 

   

 

 

   

 

 

 

Diluted earnings per share available to common shareholders

  $ 1.46      $ 1.34      $ 2.40      $ 3.86   
 

 

 

   

 

 

   

 

 

   

 

 

 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

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Table of Contents

C. R. BARD, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(dollars in thousands except share and per share amounts, unaudited)

 

    September  30,
2011
    December  31,
2010
 

ASSETS

   

Current assets

   

Cash and cash equivalents

  $ 767,000      $ 641,400   

Restricted cash

    200,300        —     

Accounts receivable, less allowances of $6,700 and $10,500, respectively

    476,500        460,800   

Inventories

    329,800        308,900   

Short-term deferred tax assets

    42,000        42,700   

Other current assets

    84,600        75,500   
 

 

 

   

 

 

 

Total current assets

    1,900,200        1,529,300   
 

 

 

   

 

 

 

Property, plant and equipment, at cost

    654,600        598,800   

Less accumulated depreciation and amortization

    313,400        270,900   
 

 

 

   

 

 

 

Net property, plant and equipment

    341,200        327,900   

Goodwill

    614,500        607,400   

Core technologies, net

    368,800        397,500   

Other intangible assets, net

    141,300        142,800   

Deferred tax assets

    90,800        78,400   

Other assets

    82,500        88,200   
 

 

 

   

 

 

 

Total assets

  $ 3,539,300      $ 3,171,500   
 

 

 

   

 

 

 

LIABILITIES AND SHAREHOLDERS’ INVESTMENT

   

Current liabilities

   

Short-term borrowings

  $ —        $ 80,500   

Accounts payable

    78,900        51,400   

Accrued expenses

    289,500        142,300   

Accrued compensation and benefits

    110,800        121,600   

Income taxes payable

    28,200        1,900   
 

 

 

   

 

 

 

Total current liabilities

    507,400        397,700   
 

 

 

   

 

 

 

Long-term debt

    908,900        896,900   

Other long-term liabilities

    258,000        230,400   

Deferred income taxes

    16,000        15,000   

Commitments and contingencies

    —          —     

Shareholders’ investment:

   

Preferred stock, $1 par value, authorized 5,000,000 shares; none issued

    —          —     

Common stock, $0.25 par value, authorized 600,000,000 shares; issued and outstanding 85,782,427 shares at September 30, 2011 and 84,973,586 shares at December 31, 2010

    21,500        21,300   

Capital in excess of par value

    1,324,600        1,146,400   

Retained earnings

    517,400        520,000   

Accumulated other comprehensive loss

    (14,500     (56,200
 

 

 

   

 

 

 

Total shareholders’ investment

    1,849,000        1,631,500   
 

 

 

   

 

 

 

Total liabilities and shareholders’ investment

  $ 3,539,300      $ 3,171,500   
 

 

 

   

 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

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Table of Contents

C. R. BARD, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ INVESTMENT

(dollars in thousands except share amounts, unaudited)

 

    Common Stock     Capital in
Excess of Par
Value
    Retained
Earnings
    Accumulated
Other Comp.
(Loss) Inc.
    Noncontrolling
Interest
    Total  
    Shares     Amount            

Balance at December 31, 2010

    84,973,586      $ 21,300      $ 1,146,400      $ 520,000      $ (56,200   $ —        $ 1,631,500   

Net income

    —          —          —          214,200        —          —          214,200   

Change in derivative instruments designated as cash flow hedges (net of $2,300 taxes)

    —          —          —          —          (4,100     —          (4,100

Foreign currency translation adjustment

    —          —          —          —          41,900        —          41,900   

Amortization of items included in net periodic benefit cost (net of $2,100 taxes)

    —          —          —          —          3,900        —          3,900   
             

 

 

 

Total comprehensive income

                255,900   

Cash dividends declared in current year

    —          —          —          (32,700     —          —          (32,700

Issuance of common stock

    2,091,841        500        104,700        —          —          —          105,200   

Share-based compensation

    —          —          36,500        —          —          —          36,500   

Purchase of common stock

    (1,283,000     (300     10,200        (184,100     —          —          (174,200

Tax benefit relating to share-based compensation plans

    —          —          26,800        —          —          —          26,800   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at September 30, 2011

    85,782,427      $ 21,500      $ 1,324,600      $ 517,400      $ (14,500   $ —        $ 1,849,000   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at December 31, 2009

    95,917,095      $ 24,000      $ 1,060,900      $ 1,133,400      $ (24,700   $ 12,300      $ 2,205,900   

Net income

    —          —          —          373,000        —          400        373,400   

Change in derivative instruments designated as cash flow hedges (net of $1,000 taxes)

    —          —          —          —          2,200        —          2,200   

Foreign currency translation adjustment

    —          —          —          —          (60,100     —          (60,100

Amortization of items included in net periodic benefit cost (net of $1,900 taxes)

    —          —          —          —          3,400        —          3,400   
             

 

 

 

Total comprehensive income

                318,900   

Cash dividends declared in current year

    —          —          —          (33,400     —          —          (33,400

Issuance of common stock

    698,250        100        21,600        —          —          —          21,700   

Share-based compensation

    —          —          38,700        —          —          —          38,700   

Purchase of common stock

    (3,712,700     (900     —          (301,100     —          —          (302,000

Tax benefit relating to share-based compensation plans

    —          —          7,200        —          —          —          7,200   

Purchase of noncontrolling interest

    —          —          (13,200     —          —          (12,700     (25,900
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at September 30, 2010

    92,902,645      $ 23,200      $ 1,115,200      $ 1,171,900      $ (79,200   $ —        $ 2,231,100   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

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Table of Contents

C. R. BARD, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(dollars in thousands, unaudited)

 

     Nine Months
Ended September 30,
 
       2011         2010    

Cash flows from operating activities:

    

Net income

   $ 214,200      $ 373,400   

Adjustments to reconcile net income to net cash provided by operating activities:

    

Depreciation and amortization

     84,400        77,300   

Purchased research and development

     3,500        500   

Restructuring, net of payments

     7,800        —     

Impairment charge for foreign government bonds

     7,000        —     

Legal settlements and commitments, net of payments

     184,800        —     

Deferred income taxes

     (12,200     (9,100

Share-based compensation

     36,700        39,000   

Inventory reserves and provision for doubtful accounts

     10,900        14,400   

Other noncash items

     (2,100     (1,900

Changes in assets and liabilities:

    

Accounts receivable

     (14,300     (9,700

Inventories

     (19,800     (38,300

Current liabilities

     2,000        19,600   

Taxes

     36,600        (8,500

Other, net

     9,900        7,000   
  

 

 

   

 

 

 

Net cash provided by operating activities

     549,400        463,700   
  

 

 

   

 

 

 

Cash flows from investing activities:

    

Capital expenditures

     (49,900     (33,300

Change in restricted cash

     (200,300     —     

Payments made for purchases of businesses, net of cash acquired

     —          (286,100

Payments made for intangibles

     (16,600     (3,600
  

 

 

   

 

 

 

Net cash used in investing activities

     (266,800     (323,000
  

 

 

   

 

 

 

Cash flows from financing activities:

    

Change in short-term borrowings, net

     (80,500     216,000   

Purchase of noncontrolling interest

     —          (25,900

Proceeds from exercises under share-based compensation plans, net

     96,100        13,100   

Excess tax benefit relating to share-based compensation plans

     23,800        6,800   

Purchase of common stock

     (155,100     (297,600

Dividends paid

     (48,200     (49,900

Other

     (2,200     (5,200
  

 

 

   

 

 

 

Net cash used in financing activities

     (166,100     (142,700
  

 

 

   

 

 

 

Effect of exchange rate changes on cash and cash equivalents

     9,100        (10,200
  

 

 

   

 

 

 

Increase (decrease) in cash and cash equivalents during the period

     125,600        (12,200
  

 

 

   

 

 

 

Balance at January 1

     641,400        674,400   
  

 

 

   

 

 

 

Balance at September 30

   $ 767,000      $ 662,200   
  

 

 

   

 

 

 

Supplemental cash flow information

    

Cash paid for:

    

Interest

   $ 20,100      $ 6,300   

Income taxes

     106,400        177,500   

Non-cash transactions:

    

Purchase of common stock not settled

   $ 19,100      $ 4,400   

Receipt of foreign government bonds

     16,800        —     

Purchase of business and related costs

     —          5,700   

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

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Table of Contents

C. R. BARD, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of C. R. Bard, Inc. and its subsidiaries (the “company” or “Bard”) should be read in conjunction with the audited consolidated financial statements and notes thereto included in Bard’s 2010 Annual Report on Form 10-K. These financial statements have been prepared on a basis that is substantially consistent with the accounting principles applied in Bard’s 2010 Annual Report on Form 10-K. The preparation of these financial statements requires the company to make estimates and judgments that affect reported amounts of assets, liabilities, revenues and expenses and the related disclosure of contingent assets and liabilities at the date of the financial statements. These financial statements include all normal and recurring adjustments necessary for a fair presentation. The accounts of most foreign subsidiaries are consolidated as of and for the quarters ended August 31, 2011 and August 31, 2010 and as of November 30, 2010. No events occurred related to these foreign subsidiaries during the months of September 2011 (other than the impact of the impairment of the Greek bonds), September 2010 or December 2010 that materially affected the financial position or results of operations of the company. The results for the interim periods presented are not necessarily indicative of the results expected for the year.

New Accounting Pronouncements Not Yet Adopted

In June 2011, the Financial Accounting Standards Board issued a new statement that eliminates the current option to report other comprehensive income and its components in the consolidated statements of shareholders’ investment. Under this statement, the company can elect to present items of net income and other comprehensive income in one continuous statement or in two separate, but consecutive statements. This statement will be effective as of the beginning of Bard’s 2012 fiscal year and will be retrospectively applied to all prior periods presented.

2. Acquisitions and Initiatives

On September 20, 2011, the company and ClearStream Technologies Group plc (“ClearStream”) entered into an agreement pursuant to which a subsidiary of Bard made a cash offer of 85 pence per share to acquire all of the outstanding shares of ClearStream, subject to certain conditions. The total cash consideration to be paid to ClearStream’s shareholders, assuming the offer is fully accepted, is approximately $68 million. ClearStream, based in Enniscorthy, Co. Wexford, Ireland, is a company that develops and sells proprietary products used in angioplasty. The acquisition complements Bard’s core competencies and enhances Bard’s vascular product portfolio. In connection with the offer, and in order to satisfy local rules in Ireland governing transactions of this type, a subsidiary of Bard deposited $83.7 million into a segregated account in order to ensure the availability of funds to be paid to ClearStream’s shareholders at closing. These funds are recorded as a component of restricted cash at September 30, 2011. The company acquired a controlling interest in ClearStream in October 2011 and expects to complete the acquisition in the fourth quarter of 2011. The company has not yet completed the initial purchase accounting due to the timing of this acquisition.

On December 15, 2010, the company entered into an accelerated share repurchase (“ASR”) agreement with a bank to repurchase $750 million of the company’s outstanding common stock. The company received 8.1 million shares upon initial settlement under the ASR transaction. The initial settlement was subject to an adjustment related to a forward purchase contract based on the volume-weighted average share price of the company’s common stock during a predetermined period, less a discount. On September 9, 2011, the company remitted a cash payment of $58.9 million to the bank counterparty upon final settlement under the ASR agreement. The payment to the bank was recorded as a decrease to shareholders’ investment, consisting of a decrease of $69.1 million in retained earnings and an increase of $10.2 million in capital in excess of par value.

 

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Table of Contents

C. R. BARD, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

3. Restructuring

During the third quarter of 2011, the company initiated certain restructuring actions in order to improve its overall cost structure and enhance operational effectiveness. In connection with these actions, the company recorded employee separation costs under the company’s existing severance programs of $10.3 million ($6.9 million after tax). Substantially all of these costs will be cash expenditures. At September 30, 2011, the remaining liability related to this restructuring charge was $9.2 million, which reflects cash payments of $1.1 million. The company expects activities under these actions to be substantially complete by mid-2012.

On December 9, 2010, the company committed to a plan (the “2010 Restructuring Plan”) to improve its overall cost structure and enhance operational effectiveness. The 2010 Restructuring Plan included the realignment of certain manufacturing, sales and marketing, and administrative functions. In connection with this plan, the company recorded employee separation costs under the company’s existing severance programs and other costs related to one-time employee termination benefits of $16.7 million ($11.4 million after tax) in the fourth quarter of 2010. At September 30, 2011, the remaining liability related to this restructuring charge was $2.3 million, which reflects cash payments of $13.0 million and a reversal of $1.4 million of these costs. The company expects activities under the 2010 Restructuring Plan to be substantially complete by the end of 2011.

4. Earnings per Common Share

Earnings per share (“EPS”) is computed under the two-class method using the following common share information:

 

     Quarter
Ended
September 30,
     Nine Months
Ended
September 30,
 
     2011      2010      2011      2010  
(dollars and shares in millions)                            

EPS Numerator:

           

Net income attributable to common shareholders

   $ 130.1       $ 127.5       $ 214.2       $ 373.0   

Less: Income allocated to participating securities

     2.3         1.3         4.0         4.1   
  

 

 

    

 

 

    

 

 

    

 

 

 

Net income available to common shareholders

   $ 127.8       $ 126.2       $ 210.2       $ 368.9   
  

 

 

    

 

 

    

 

 

    

 

 

 

EPS Denominator:

           

Weighted average common shares outstanding

     86.6         93.3         86.0         94.4   

Dilutive common share equivalents from share-based compensation plans

     1.2         1.0         1.7         1.1   
  

 

 

    

 

 

    

 

 

    

 

 

 

Weighted average common and common equivalent shares outstanding, assuming dilution

     87.8         94.3         87.7         95.5   
  

 

 

    

 

 

    

 

 

    

 

 

 

5. Income Taxes

The effective tax rate for the quarter ended September 30, 2011 was approximately 29% compared to approximately 30% for the same period in 2010. The effective tax rate for the nine months ended September 30, 2011 was approximately 42% compared to approximately 31% for the same period in 2010. The higher tax rate for the current year-to-date period reflected the discrete tax effect of a charge for legal settlements, primarily related to the Hernia Product Claims (see Note 8 of the notes to the condensed financial statements), which were incurred in a low tax jurisdiction. The effective tax rate for both prior year periods reflected the discrete tax effect of a charge of $5.6 million associated with a cash repatriation of approximately $62 million of earnings from operations in certain foreign jurisdictions as a result of tax legislation enacted in the third quarter of 2010. The $5.6 million charge was

 

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C. R. BARD, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

partially offset by the discrete tax effect of $4.2 million associated with certain tax positions being remeasured as a result of new information related to the U.S. Internal Revenue Service examinations of the tax years 2003 and 2004.

At September 30, 2011, the total amount of liability for unrecognized tax benefits related to federal, state and foreign taxes was $49.6 million (of which $47.5 million would impact the effective tax rate, if recognized) plus $7.7 million of accrued interest. At December 31, 2010, the liability for unrecognized tax benefits was $53.6 million plus $11.4 million of accrued interest. Depending upon open tax examinations and/or the expiration of applicable statutes of limitation, the company believes it is reasonably possible that the total amount of unrecognized tax benefits may decrease by up to $19.0 million within the next 12 months.

6. Financial Instruments

Foreign Exchange Derivative Instruments

The company enters into readily marketable forward and option contracts with financial institutions to help reduce its exposure to foreign currency exchange rate fluctuations. These contracts limit volatility because gains and losses associated with foreign currency exchange rate movements are generally offset by movements in the underlying hedged item. The notional value of the company’s forward currency and option currency contracts was $233.8 million and $182.7 million at September 30, 2011 and December 31, 2010, respectively. For further discussion regarding the company’s use of derivative instruments, see Note 1 of the consolidated financial statements in Bard’s 2010 Annual Report on Form 10-K.

Interest Rate Derivative Instrument

The company’s outstanding interest rate swap contract effectively converts its 2.875% fixed-rate notes due 2016 to a floating-rate instrument. The notional value of this interest rate swap contract is $250.0 million.

The location and fair values of derivative instruments segregated between those derivatives that are designated as hedging instruments and those that are not designated as hedging instruments recognized in the condensed consolidated balance sheets are as follows:

 

    

Balance Sheet

Location

   Fair Value
of Derivatives
 

Derivatives Designated as Hedging Instruments

      September 30,
2011
     December 31,
2010
 
(dollars in millions)                   

Forward currency contracts

   Other current assets    $ 1.2       $ 2.8   

Option currency contracts

   Other current assets      1.9         1.5   

Forward currency contracts

   Other assets     
0.4
  
     —     

Option currency contracts

   Other assets      0.6         —     

Interest rate swap contract

   Other assets      12.4         0.7   
     

 

 

    

 

 

 
      $ 16.5       $ 5.0   
     

 

 

    

 

 

 

Forward currency contracts

   Accrued expenses    $ 5.0       $ 1.1   

Forward currency contracts

  

Long-term liabilities

    
1.6
  
     —     
     

 

 

    

 

 

 
      $ 6.6       $ 1.1   
     

 

 

    

 

 

 

Derivatives Not Designated as Hedging Instruments

                  
(dollars in millions)                   

Forward currency contracts

   Other current assets    $ 1.3       $   —     

Forward currency contracts

   Other assets      —           1.8   
     

 

 

    

 

 

 
      $ 1.3       $ 1.8   
     

 

 

    

 

 

 

 

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The location and amounts of gains and losses on derivative instruments designated as cash flow hedges and the impact on the condensed consolidated statements of shareholders’ investment are as follows:

     Gain/(Loss)
Recognized in  Other
Comprehensive

Income
   

Location of

Gain/(Loss) Reclassified

from Accumulated

Other Comp. Loss to
Income

   Gain/(Loss) Reclassified
from Accumulated
Other Comp. Loss
to Income
 
     Quarter Ended
September  30,
       Quarter Ended
September 30,
 
         2011             2010                  2011                 2010        
(dollars in millions)                              

Forward currency contracts

   $ (4.3   $ (0.1   Costs of goods sold    $ (0.1   $ 0.8   

Option currency contracts

     0.2        (1.5   Costs of goods sold      —          0.1   
  

 

 

   

 

 

      

 

 

   

 

 

 
   $ (4.1   $ (1.6      $ (0.1   $ 0.9   
  

 

 

   

 

 

      

 

 

   

 

 

 
     Gain/(Loss)
Recognized in  Other
Comprehensive

Income
   

Location of

Gain/(Loss) Reclassified

from Accumulated

Other Comp. Loss to
Income

   Gain/(Loss) Reclassified
from Accumulated
Other Comp. Loss
to Income
 
     Nine Months Ended
September 30,
       Nine Months Ended
September 30,
 
         2011             2010                  2011                 2010        
(dollars in millions)                              

Forward currency contracts

   $ (4.2   $ 0.5      Costs of goods sold    $ 0.8      $ (0.3

Option currency contracts

     0.1        1.7      Costs of goods sold      —          —     
  

 

 

   

 

 

      

 

 

   

 

 

 
   $ (4.1   $ 2.2         $ 0.8 (A)    $ (0.3 )(A) 
  

 

 

   

 

 

      

 

 

   

 

 

 

 

(A) The tax effect of the amount reclassified from accumulated other comprehensive loss to income was $0.7 million and $0.2 million at September 30, 2011 and 2010, respectively.

The location and amounts of gains and losses on the derivative instrument designated as a fair value hedge are as follows:

 

   

Income Statement
Location

  Gain Recognized on Swap     (Loss) Recognized
on Long-Term Debt
 
      Quarter Ended
September 30,
    Nine Months Ended
September 30,
    Quarter Ended
September 30,
    Nine Months Ended
September 30,
 
      2011     2011     2011     2011  
(dollars in millions)                            
Interest rate swap contract   Interest expense   $ 7.7      $ 11.7      $ (7.7   $ (11.7
   

 

 

   

 

 

   

 

 

   

 

 

 

The location and amounts of gains and losses on derivative instruments not designated as hedging instruments are as follows:

 

        (Loss) Recognized in Earnings      
   

Income Statement
Location

  Quarter Ended
September  30,
    Nine Months  Ended
September 30,
     
      2011     2011      
(dollars in millions)                    
Forward currency contracts(A)   Other (income) expense, net   $ (5.1   $ (0.5  
   

 

 

   

 

 

   

 

(A) 

These derivative contracts mitigate changes in the value of remeasured foreign currency denominated monetary loans attributable to changes in foreign currency exchange rates.

 

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Financial Instruments Measured at Fair Value on a Recurring Basis

Fair value is defined as the exit price that would be received to sell an asset or paid to transfer a liability. Fair value is a market-based measurement that should be determined using assumptions that market participants would use in pricing an asset or liability. The fair value guidance establishes a three-level hierarchy to prioritize the inputs used in measuring fair value. The levels within the hierarchy range from Level 1 having the highest priority to Level 3 having the lowest.

The following table summarizes financial assets and (liabilities) measured at fair value on a recurring basis:

 

     September 30,
2011
    December 31,
2010
 
(dollars in millions)             

Greek government bonds

   $ 12.3      $  —     

Forward currency contracts

     (3.7     3.5   

Option currency contracts

     2.5        1.5   

Interest rate swap contract

     12.4        0.7   

The fair values were measured using significant other observable inputs and valued by reference to similar financial instruments, adjusted for restrictions and other terms specific to each instrument. All of these financial instruments are categorized as Level 2 under the fair value hierarchy.

Financial Instruments not Measured at Fair Value

There were no outstanding short-term borrowings, including commercial paper borrowings, at September 30, 2011. The fair value of commercial paper borrowings of $80.5 million at December 31, 2010 approximated its carrying value. On October 12, 2011, the company entered into a new $600 million five-year committed syndicated bank credit facility that expires in October 2016. The new credit facility replaces the company’s existing $400 million five-year credit agreement that was scheduled to mature in June 2012. The credit facilities support the company’s commercial paper program and can be used for general corporate purposes. The facilities include pricing based on the company’s long-term credit rating and include a financial covenant that limits the amount of total debt to total capitalization.

The estimated fair value of long-term debt, including the effect of the related interest rate swap contract, was $997.9 million and $937.7 million at September 30, 2011 and December 31, 2010, respectively. The fair value was estimated using dealer quotes for similarly-rated debt instruments over the remaining contractual term of the company’s obligation. Long-term debt is categorized as Level 2 under the fair value hierarchy.

Concentration Risk

Accounts receivable balances include sales to government-supported healthcare systems outside the United States. The company continues to monitor sovereign debt issues and economic conditions in Greece, Italy, Spain, Portugal and other countries in Europe and evaluates accounts receivable in these countries for potential collection risks. Deteriorating credit and economic conditions and other factors in these countries have resulted in, and may continue to result in, an increase in the average length of time that it takes to collect these accounts receivable and may require the company to re-evaluate the collectability of these receivables in future periods.

The company is experiencing significant delays in the collection of accounts receivable associated with the national healthcare system in Greece, which amounted to $13.9 million and $32.8 million, at September 30, 2011 and December 31, 2010, respectively. The Greek government adopted as law in August 2010 a plan to settle its

 

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outstanding debts from 2007 through 2009, primarily by issuing non-interest bearing bonds with maturities of one to three years. As of September 30, 2011, the company had received $16.8 million of bonds, net of discount, in settlement of 2007 through 2009 accounts receivable. These bonds are classified as available-for-sale investments and reported at fair value. During the quarter ended September 30, 2011, the company recorded to other (income) expense, net, a charge of $7.0 million related to an other-than-temporary impairment of these bonds.

7. Inventories

Inventories consisted of:

 

     September 30,
2011
     December 31,
2010
 

(dollars in millions)

     

Finished goods

   $ 197.1       $ 176.3   

Work in process

     23.0         18.6   

Raw materials

     109.7         114.0   
  

 

 

    

 

 

 
   $ 329.8       $ 308.9   
  

 

 

    

 

 

 

8. Contingencies

General

In the ordinary course of business, the company is subject to various legal proceedings and claims, including, for example, product liability matters, environmental matters, employment disputes, disputes on agreements and other commercial disputes. In addition, the company operates in an industry susceptible to significant patent legal claims. The company accounts for estimated losses with respect to legal proceedings and claims when such losses are probable and reasonably estimable. Legal costs associated with these matters are expensed as incurred. At any given time, in the ordinary course of business, the company is involved as either a plaintiff or defendant in a number of patent infringement actions. If a third party’s patent infringement claim were to be determined against the company, the company might be required to make significant royalty or other payments or might be subject to an injunction or other limitation on its ability to manufacture or distribute one or more products. If a patent owned by or licensed to the company were to be determined to be invalid or unenforceable, the company might be required to reduce the value of the patent on the company’s balance sheet and to record a corresponding charge, which could be significant in amount. The company believes that any of these proceedings and claims could have a material adverse effect on its business, results of operations, financial condition and/or liquidity.

Product Liability Matters

As of October 20, 2011, approximately 1,910 federal and 1,720 state lawsuits involving individual claims by approximately 3,770 plaintiffs, as well as two putative class actions in the United States and four putative class actions in various Canadian provinces, have been filed or asserted against the company with respect to its Composix® Kugel® and certain other hernia repair implant products (collectively, the “Hernia Product Claims”). One of the U.S. class action lawsuits consolidates ten previously-filed U.S. class action lawsuits. The putative class actions, none of which has been certified, seek (i) medical monitoring, (ii) compensatory damages, (iii) punitive damages, (iv) a judicial finding of defect and causation and/or (v) attorneys’ fees. Approximately 1,695 of the state lawsuits, involving individual claims by a substantially equivalent number of plaintiffs, are pending in the Superior Court of the State of Rhode Island, with the remainder in various other jurisdictions. The Hernia Product Claims also generally seek damages for personal injury resulting from use of the products. The company voluntarily recalled certain sizes and lots of the Composix® Kugel® products beginning in December 2005.

 

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In June 2007, the Judicial Panel on Multidistrict Litigation (“JPML”) transferred Composix® Kugel® lawsuits pending in federal courts nationwide into one Multidistrict Litigation (“MDL”) for coordinated pre-trial proceedings in the United States District Court for the District of Rhode Island. The MDL court subsequently determined to include other hernia repair products of the company in the MDL proceeding. The first MDL trial was completed in April 2010 and resulted in a judgment for the company based on the jury’s finding that the company was not liable for the plaintiff’s damages. The second MDL trial was completed in August 2010 and resulted in a judgment for the plaintiff of $1.5 million. On June 30, 2011, the company announced that it had reached agreements in principle with various plaintiffs’ law firms to settle the majority of its existing Hernia Product Claims. Each agreement is subject to certain conditions, including requirements for participation in the proposed settlements by a certain minimum number of plaintiffs. In addition, the company is engaging in discussions with other plaintiffs’ law firms regarding potential resolution of unsettled Hernia Product Claims, and intends to vigorously defend Hernia Product Claims that do not settle, including through litigation. Based on these events, the company recorded to other (income) expense, net, a charge of $184.3 million ($180.6 million after tax) in the second quarter of 2011, which recognized the estimated costs of settling all Hernia Product Claims, including asserted and unasserted claims, and costs to administer the settlements. The charge excludes any costs associated with pending putative class action lawsuits. The company cannot give any assurances that the actual costs incurred with respect to the Hernia Product Claims will not exceed the amount of the charge together with amounts previously accrued. The company cannot give any assurances that the resolution of the Hernia Product Claims that have not settled, including asserted and unasserted claims and the putative class action lawsuits, will not have a material adverse effect on the company’s business, results of operations, financial condition and/or liquidity. For more information, see Item 1A. “Risk Factors” in Bard’s 2010 Annual Report on Form 10-K.

As of October 20, 2011, product liability lawsuits involving individual claims by approximately 280 plaintiffs have been filed or asserted against the company in various federal and state jurisdictions alleging personal injuries associated with the use of certain of the company’s surgical continence products for women, principally its Avaulta® line of products (collectively, the “Women’s Health Product Claims”). The Women’s Health Product Claims generally seek damages for personal injury resulting from use of the products. With respect to certain of these claims, the company believes that one of its suppliers has an obligation to defend and indemnify the company. In October 2010, the JPML transferred the Women’s Health Product Claims involving solely Avaulta® products pending in federal courts nationwide into an MDL for coordinated pre-trial proceedings in the United States District Court for the Southern District of West Virginia. In October 2011, the JPML ordered that 35 lawsuits involving other women’s surgical continence products of the company be transferred to the pending MDL in West Virginia. In total, approximately 150 of the Women’s Health Product Claims are pending in federal courts and have been or will be transferred to the MDL in West Virginia, with the remainder of the Women’s Health Product Claims in other jurisdictions. While the company intends to vigorously defend the Women’s Health Product Claims, it cannot give any assurances that the resolution of these claims will not have a material adverse effect on the company’s business, results of operations, financial condition and/or liquidity.

As of October 20, 2011, product liability lawsuits involving individual claims by approximately 40 plaintiffs have been filed or asserted against the company in various federal and state jurisdictions alleging personal injuries associated with the use of the company’s vena cava filter products. In addition, a putative class action lawsuit has been filed against the company in California state court on behalf of plaintiffs who are alleged to have no present injury (all lawsuits, collectively, the “Filter Product Claims”). The putative class action, which has not been certified, seeks: (i) medical monitoring; (ii) punitive damages; (iii) a judicial finding of defect and causation; and/or (iv) attorneys’ fees. While the company intends to vigorously defend the Filter Product Claims, it cannot give any assurances that the resolution of these claims will not have a material adverse effect on the company’s business, results of operations, financial condition and/or liquidity.

 

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In most product liability litigations of this nature, including the Hernia Product Claims, the Women’s Health Product Claims and the Filter Product Claims, plaintiffs allege a wide variety of claims, ranging from allegations of serious injury caused by the products to efforts to obtain compensation notwithstanding the absence of any injury. In many of these cases, the company has not yet received and reviewed complete information regarding the plaintiffs and their medical conditions, and consequently, is unable to fully evaluate the claims. The company expects that it will receive and review additional information regarding the unsettled Hernia Product Claims, the Women’s Health Product Claims, the Filter Product Claims and related matters as these cases progress.

The company believes that many settlements and judgments, as well as legal defense costs, relating to product liability matters are or may be covered in whole or in part under its product liability insurance policies with a limited number of insurance carriers. In certain circumstances, insurance carriers reserve their rights with respect to coverage, or contest or deny coverage, as has occurred with respect to certain claims. When this occurs, the company intends to vigorously contest disputes with respect to its insurance coverage and to enforce its rights under the terms of its insurance policies, and accordingly, may record receivables with respect to amounts due under these policies. Amounts recovered under the company’s product liability insurance policies may be less than the stated coverage limits and may not be adequate to cover damages and/or costs relating to claims. In addition, there is no guarantee that insurers will pay claims or that coverage will otherwise be available.

In connection with the Hernia Product Claims, the company is in dispute with one of its excess insurance carriers relating to an aggregate of $25 million of insurance coverage. Regardless of the outcome of this dispute, the company’s insurance coverage with respect to the Hernia Product Claims has been depleted.

Other Legal Matters

In November 2006, the company received a subpoena issued by the U.S. Department of Health and Human Services, Office of Inspector General, under the authority of the federal healthcare fraud and false claims statutes. The subpoena seeks documents related to the company’s brachytherapy business. The company has responded to the subpoena and is cooperating with the government in this matter. Although the company continues to engage in discussions with representatives of the civil and criminal divisions of the United States Attorney’s Office for the Northern District of Georgia with respect to a potential resolution of this matter, the company cannot give any assurances that a resolution will be reached or what the terms of any such resolution may be. At this time, it is not possible to determine an estimate, or a range of estimates, of potential damages. In addition, the company cannot give any assurances that this matter will not have a material adverse effect on the company’s business, results of operations, financial condition and/or liquidity.

On February 21, 2007, Southeast Missouri Hospital (“Southeast”) filed a putative class action complaint on behalf of itself and all others similarly situated against the company and another manufacturer, Tyco International, Inc., which was subsequently dismissed from the action. The complaint was later amended to add St. Francis Medical Center (“St. Francis”) as an additional named plaintiff. The action was re-named as St. Francis Medical Center, et al. v. C. R. Bard, Inc., et al. (Civil Action No. 1:07-cv-00031, United States District Court, Eastern District of Missouri, Southeastern District) when the court denied Southeast’s motion to serve as a class representative and dismissed Southeast from the lawsuit. In September 2008, the court granted St. Francis’s motion for class certification and determined the measurement period for any potential damages. St. Francis alleges that the company conspired to exclude competitors from the urological catheter market and that the company sought to maintain market share by engaging in conduct in violation of state and federal antitrust laws. St. Francis seeks injunctive relief and presented an expert report that calculates damages of up to approximately $320 million, a figure that the company believes is unsupported by the facts. The company’s expert report

 

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establishes that, even assuming a determination adverse to the company, the plaintiffs suffered no damages. In September 2009, the District Court granted the company’s summary judgment motion and dismissed with prejudice all counts in this action. St. Francis appealed the Court’s decision to the Eighth Circuit Court of Appeals (“Court of Appeals”). In August 2010, the Court of Appeals affirmed the decision of the District Court. In October 2010, the Court of Appeals granted St. Francis’s request for a re-hearing of its appeal. In June 2011, the Court of Appeals again affirmed the decision of the District Court. St. Francis filed another request for a re-hearing of its appeal to the Court of Appeals, which was denied in August 2011. St. Francis may request a review of the decision by the U.S. Supreme Court. If St. Francis continues to pursue this case, the company intends to defend this matter vigorously. If St. Francis is ultimately successful, any damages awarded under the federal antitrust laws will be subject to statutory trebling and St. Francis’s attorneys would be entitled to an award of reasonable fees and costs. At this time, it is not possible to assess the likelihood of an adverse outcome or determine an estimate, or a range of estimates, of potential damages. The company cannot give any assurances that this matter will not have a material adverse effect on the company’s business, results of operations, financial condition and/or liquidity.

In December 2007, a U.S. District Court jury in Arizona found that certain of W.L. Gore & Associates Inc.’s (“Gore”) ePTFE vascular grafts and stent-grafts infringe the company’s patent number 6,436,135. The jury upheld the validity of the patent and awarded the company $185 million in past damages. The jury also found that Gore willfully infringed the patent. In a second phase of the trial, the Court ruled that Gore failed to prove that the patent is unenforceable due to inequitable conduct. In March 2009, the U.S. District Court doubled the jury award to approximately $371 million for damages through June 2007. The Court also awarded the company attorneys’ fees of $19 million and prejudgment interest of approximately $20 million. In addition, the Court denied Gore’s remaining motions, including its motions for a new trial and to set aside the jury’s verdict. In July 2010, the U.S. District Court awarded the company approximately $109 million in additional damages for the period from July 2007 through March 2009. The Court also assessed a royalty rate of between 12.5% and 20%, depending on the product, that will be used to calculate damages for Gore’s infringing sales from April 2009 through the expiration of the patent. Gore made additional deposits with the Court of approximately $264 million, representing Gore’s calculation of royalties for its infringing sales through June 2011. Gore has appealed this matter to the Court of Appeals for the Federal Circuit and oral argument was heard on May 3, 2011. Because the company considers this matter a gain contingency, no amounts have been recorded as of September 30, 2011. Even if the company is ultimately successful in this lawsuit, it cannot give any assurances that royalties for Gore’s future infringing sales will remain at or near historic levels.

The company is subject to numerous federal, state, local and foreign environmental protection laws governing, among other things, the generation, storage, use and transportation of hazardous materials and emissions or discharges into the ground, air or water. The company is or may become a party to proceedings brought under various federal laws including the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA), commonly known as Superfund, the Resource Conservation and Recovery Act, the Clean Water Act, the Clean Air Act and similar state laws. These proceedings seek to require the owners or operators of contaminated sites, transporters of hazardous materials to the sites and generators of hazardous materials disposed of at the sites to clean up the sites or to reimburse the government for cleanup costs. In most cases, there are other potentially responsible parties that may be liable for any remediation costs. In these cases, the government alleges that the defendants are jointly and severally liable for the cleanup costs; however, these proceedings are frequently resolved so that the allocation of cleanup costs among the parties more closely reflects the relative contributions of the parties to the site contamination. The company’s potential liability varies greatly from site to site. For some sites, the potential liability is de minimis and for others the costs of cleanup have not yet been determined. Accruals for estimated losses from environmental remediation obligations generally are recognized no later than completion of the remedial feasibility study and are adjusted as further information

 

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develops or circumstances change. Costs of future expenditures for environmental remediation obligations are not discounted to their present value. Recoveries of environmental remediation costs from other parties are recorded as assets when their receipt is deemed probable. The company believes that the proceedings and claims described above will likely be resolved over an extended period of time. While it is not feasible to predict the outcome of these proceedings, based upon the company’s experience, current information and applicable law, the company does not expect these proceedings to have a material adverse effect on its financial condition and/or liquidity. However, one or more of the proceedings could be material to the company’s business and/or results of operations.

The company is unable to estimate the reasonably possible losses or range of losses, if any, arising from product liability matters and other legal matters. Under U.S. generally accepted accounting principles, an event is “reasonably possible” if “the chance of the future event or events occurring is more than remote but less than likely” and an event is “remote” if “the chance of the future event or events occurring is slight”. With respect to the Women’s Health Product Claims, the Filter Product Claims and the putative class action lawsuits that are part of the Hernia Product Claims, the company is unable to estimate a range of reasonably possible losses for the following reasons: (i) the proceedings are in early stages; (ii) the company has not received and reviewed complete information regarding the plaintiffs and their medical conditions; and/or (iii) there are significant factual issues to be resolved. In addition, with respect to the putative class action lawsuits that are part of the Hernia Product Claims and the Filter Product Claims, there is uncertainty as to the likelihood of a class being certified or the ultimate size of the class.

The company regularly monitors and evaluates the status of product liability and other legal matters, and may from time-to-time engage in settlement and mediation discussions taking into consideration developments in the matters and the risks and uncertainties surrounding litigation. These discussions could result in settlements of one or more of these claims at any time.

Accruals for product liability and other legal matters amounted to $241.6 million and $54.4 million at September 30, 2011 and December 31, 2010, respectively. On July 13, 2011, the company made a payment of $116.6 million to an escrow account, subject to certain settlement conditions, for certain of these claims. This payment is recorded as a component of restricted cash at September 30, 2011. The company also has receivables from insurance companies amounting to $51.8 million and $54.6 million at September 30, 2011 and December 31, 2010, respectively, of which $25 million, at September 30, 2011, is the subject of a dispute with an excess insurance carrier, as noted above. After considering the nature of the claims, coverage provisions under the policies, relevant legal issues, the advice and judgment of outside legal counsel, and other pertinent factors, the company believes its claims are meritorious and that it will collect these receivables.

9. Share-Based Compensation Plans

The company may grant a variety of share-based payments under the 2003 Long Term Incentive Plan of C. R. Bard, Inc., as amended and restated (the “2003 Plan”), and the 2005 Directors’ Stock Award Plan of C. R. Bard, Inc., as amended and restated (the “Directors’ Plan”), to certain directors, officers and employees. The total number of remaining shares at September 30, 2011 that may be issued under the 2003 Plan was 4,439,077 and under the Directors’ Plan was 58,366. Awards under the 2003 Plan may be in the form of stock options, stock appreciation rights, limited stock appreciation rights, restricted stock, unrestricted stock and other stock-based awards. Awards under the Directors’ Plan may be in the form of stock awards, stock options or stock appreciation rights. The company has two employee stock purchase programs.

 

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Amounts recognized for share-based compensation are as follows:

 

     Quarter Ended
September 30,
    Nine Months Ended
September 30,
 
     2011     2010     2011     2010  
(dollars in millions)                         

Total cost of share-based compensation plans

   $ 11.1      $ 11.3      $ 36.5      $ 38.7   

Amounts capitalized in inventory and fixed assets

     (0.3     (0.1     (1.0     (0.9

Amounts recognized in income for amounts previously capitalized in inventory and fixed assets

     0.3        0.3        1.2        1.2   
  

 

 

   

 

 

   

 

 

   

 

 

 

Amounts charged against income

   $ 11.1      $ 11.5      $ 36.7      $ 39.0   
  

 

 

   

 

 

   

 

 

   

 

 

 

The anticipated purchases under the Management Stock Purchase Program (the “MSPP”) were approximately 0.2 million shares in each year presented and the fair value per share related to these purchases was $38.25 and $27.42, respectively. The fair value of the 2011 and 2010 annual MSPP purchases were estimated in July 2011 and July 2010, respectively, using the Black-Sholes model based on the following assumptions: risk-free interest rate of 0.12% and 0.22%, respectively; expected volatility of 16% and 20%, respectively; dividend yield of 0.8% and 0.9%, respectively; and expected life of 0.6 years for both valuations.

As of September 30, 2011, there were $70.9 million of unrecognized compensation expenses related to share-based payment arrangements. These costs are expected to be recognized over a weighted-average period of approximately three years. The company has sufficient shares to satisfy expected share-based payment arrangements in 2011.

10. Pension and Other Postretirement Benefit Plans

Defined Benefit Pension Plans - The company has both tax-qualified and nonqualified, noncontributory defined benefit pension plans that together cover certain domestic and foreign employees. These plans provide benefits based upon a participant’s compensation and years of service.

The components of net periodic pension cost are as follows:

 

     Quarter Ended
September 30,
    Nine Months Ended
September 30,
 
         2011             2010             2011             2010      
(dollars in millions)                         

Service cost, net of employee contributions

   $ 6.8      $ 6.1      $ 20.3      $ 18.4   

Interest cost

     4.8        4.7        14.2        14.2   

Expected return on plan assets

     (5.9     (5.5     (17.6     (16.5

Amortization

     1.9        1.8        5.9        5.2   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net periodic pension cost

   $ 7.6      $ 7.1      $ 22.8      $ 21.3   
  

 

 

   

 

 

   

 

 

   

 

 

 

Other Postretirement Benefit Plan - The company does not provide subsidized postretirement healthcare benefits and life insurance coverage except for a limited number of former employees. As this plan is unfunded, contributions are made as benefits are incurred. The net periodic benefit expense was $0.2 million for both quarters ended September 30, 2011 and 2010. The net periodic benefit expense was $0.5 million and $0.6 million for the nine months ended September 30, 2011 and 2010, respectively.

 

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C. R. BARD, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

11. Segment Information

The company’s management considers its business to be a single segment entity—the manufacture and sale of medical devices. The company’s products generally share similar distribution channels and customers. The company designs, develops, manufactures, packages, distributes and sells medical, surgical, diagnostic and patient care devices. The company sells a broad range of products to hospitals, individual healthcare professionals, extended care health facilities and alternate site facilities on a global basis. In general, the company’s products are intended to be used once and then discarded or implanted either temporarily or permanently. The company’s chief operating decision makers evaluate their various global product portfolios on a net sales basis and generally evaluate profitability and associated investment on an enterprise-wide basis due to shared geographic infrastructures.

Net sales based on the location of external customers by geographic region are:

 

     Quarter Ended
September 30,
     Nine Months Ended
September 30,
 
     2011      2010      2011      2010  
(dollars in millions)                     

United States

   $ 486.5       $ 479.3       $ 1,453.5       $ 1,398.7   

Europe

     124.2         108.2         380.3         346.5   

Japan

     36.1         36.0         103.9         97.6   

Other

     72.4         54.9         206.8         160.3   
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 719.2       $ 678.4       $ 2,144.5       $ 2,003.1   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

Total net sales by product group category are:

 

  

     Quarter Ended
September 30,
     Nine Months Ended
September 30,
 
     2011      2010      2011      2010  
(dollars in millions)                     

Vascular

   $ 208.2       $ 190.7       $ 621.7       $ 550.6   

Urology

     182.2         179.0         544.4         533.0   

Oncology

     198.9         183.3         578.1         535.6   

Surgical Specialties

     107.6         104.6         333.4         320.0   

Other

     22.3         20.8         66.9         63.9   
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 719.2       $ 678.4       $ 2,144.5       $ 2,003.1   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

Other information is:

 

  

     Quarter Ended
September 30,
     Nine Months Ended
September 30,
 
     2011      2010      2011      2010  
(dollars in millions)                     

Depreciation

   $ 12.2       $ 13.1       $ 39.0       $ 38.9   
  

 

 

    

 

 

    

 

 

    

 

 

 

Amortization

   $ 15.4       $ 14.7       $ 45.4       $ 38.4   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Executive Overview

The company designs, develops, manufactures, packages, distributes and sells medical, surgical, diagnostic and patient care devices. The company sells a broad range of products to hospitals, individual healthcare professionals, extended care health facilities and alternate site facilities on a global basis. Outside the United States, Europe and Japan are the company’s largest markets, while certain emerging markets in Asia and Latin America are the company’s fastest growing markets. In general, the company’s products are intended to be used once and then discarded or implanted either temporarily or permanently. The company reports sales in four major product group categories: vascular; urology; oncology; and surgical specialties. The company also has a product group of other products.

The company’s earnings are driven by its ability to continue to generate sales of its products and improve operating efficiency. Bard’s ability to increase sales over time depends upon its success in developing, acquiring and marketing differentiated products that meet the needs of clinicians and their patients. For the nine months ended September 30, 2011, the company’s research and development (“R&D”) expense as a percentage of net sales was 6.6%. The company expects R&D expense as a percentage of net sales to increase up to a range of 9% to 10% over the course of the next several years. The company also makes selective acquisitions of businesses, products and technologies, generally focusing on small-sized transactions to provide ongoing growth opportunities. In addition, the company may from time-to-time consider acquisitions of larger, established companies. The company may also periodically divest lines of business in which it is not able to reasonably attain or maintain a leadership position in the market or for other strategic reasons.

Recent Developments

On October 24, 2011, the company entered into a definitive agreement to acquire all of the outstanding stock of Medivance, Inc. (“Medivance”), subject to certain conditions, for an aggregate purchase price of $250 million, subject to adjustment upon closing. Medivance develops and sells critical care products in the Targeted Temperature Management area. Medivance’s core product is the ArticSun®, a noninvasive technology that utilizes a proprietary system that incorporates a hydrogel adhesive pad to control a patient’s core body temperature at a targeted level. The acquisition is expected to close during the fourth quarter of 2011. The purchase price of the acquisition is expected to be funded through a mixture of available cash and short term debt.

During the third quarter of 2011, the company initiated certain restructuring actions in order to improve its overall cost structure and enhance operational effectiveness. In connection with these actions, the company recorded employee separation costs under the company’s existing severance programs of $10.3 million ($6.9 million after tax). Substantially all of these costs will be cash expenditures. The company expects these restructuring costs to result in pre-tax cost savings of approximately $16 million on an annual basis. See Note 3 of the notes to the condensed consolidated financial statements.

On September 20, 2011, the company and ClearStream Technologies Group plc (“ClearStream”) entered into an agreement pursuant to which a subsidiary of Bard made a cash offer of 85 pence per share to acquire all of the outstanding shares of ClearStream, subject to certain conditions. The total cash consideration to be paid to ClearStream’s shareholders, assuming the offer is fully accepted, is approximately $68 million. ClearStream, based in Enniscorthy, Co. Wexford, Ireland, is a company that develops and sells proprietary products used in angioplasty. The acquisition complements Bard’s core competencies and enhances Bard’s vascular product portfolio. In connection with the offer, and in order to satisfy local rules in Ireland governing transactions of this type, a subsidiary of Bard deposited $83.7 million into a segregated account in order to ensure the availability of funds to be paid to ClearStream’s shareholders at closing. These funds are recorded as a component of restricted cash at September 30, 2011. The company acquired a controlling interest in ClearStream in October 2011 and expects to complete the acquisition in the fourth quarter of 2011.

 

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On June 30, 2011, the company announced that it had reached agreements in principle with various plaintiffs’ law firms to settle the majority of its existing Hernia Product Claims (see Note 8 of the notes to condensed consolidated financial statements). Based on these events, the company recorded to other (income) expense, net, a charge of $184.3 million ($180.6 million after tax) in the second quarter of 2011 which recognizes the estimated costs of settling all Hernia Product Claims, including asserted and unasserted claims, and costs to administer the settlements. The charge excludes any costs associated with pending putative class action lawsuits. In July 2011, the company made a payment of $116.6 million to an escrow account, subject to settlement conditions, for certain of these claims. This payment is recorded as a component of restricted cash at September 30, 2011. The remaining payments for settled Hernia Product Claims are expected to be made over the next several quarters. All of the settlement amounts were funded or are expected to be funded using cash from a foreign subsidiary that manufactured these products.

Results of Operations

Net Sales

Bard’s consolidated net sales for the quarter ended September 30, 2011 increased 6% on a reported basis (3% on a constant currency basis) compared to the same period in the prior year. Bard’s consolidated net sales for the nine months ended September 30, 2011 increased 7% on a reported basis (5% on a constant currency basis) compared to the same period in the prior year. Net sales “on a constant currency basis” is a non-GAAP measure and should not be viewed as a replacement of GAAP results. See “Management’s Use of Non-GAAP Measures” below. Price changes had the effect of decreasing consolidated net sales for the quarter and nine months ended September 30, 2011 by approximately 110 and 70 basis points, respectively, as compared to the same periods in the prior year. Exchange rate fluctuations had the effect of increasing consolidated net sales for the quarter and nine months ended September 30, 2011 by 3% and 2% respectively, as compared to the same periods in the prior year. The primary exchange rate movement that impacts net sales is the movement of the Euro compared to the U.S. dollar. The impact of exchange rate movements on net sales is not indicative of the impact on net earnings due to the offsetting impact of exchange rate movements on operating costs and expenses, costs incurred in other currencies and the company’s hedging activities.

Bard’s United States net sales of $486.5 million for the quarter ended September 30, 2011 increased 2% compared to $479.3 million in the prior year quarter. Growth in United States net sales for the current quarter was lower than in recent quarters, a trend that may continue. International net sales of $232.7 million for the quarter ended September 30, 2011 increased 17% on a reported basis (7% on a constant currency basis) compared to $199.1 million in the prior year quarter. Bard’s United States net sales of $1,453.5 million for the nine months ended September 30, 2011 increased 4% compared to $1,398.7 million in the prior year period. International net sales of $691.0 million for the nine months ended September 30, 2011 increased 14% on a reported basis (9% on a constant currency basis) compared to $604.4 million in the prior year period.

A summary of net sales by product group category is as follows:

Product Group Summary of Net Sales

 

     Quarter Ended September 30,     Nine Months Ended September 30,  
     2011      2010      Change   Constant
Currency
    2011      2010      Change     Constant
Currency
 
(dollars in millions)                                                   

Vascular

   $ 208.2       $ 190.7       9%     5   $ 621.7       $ 550.6         13     10

Urology

     182.2         179.0       2%            544.4         533.0         2     1

Oncology

     198.9         183.3       9%     6     578.1         535.6         8     6

Surgical Specialties

     107.6         104.6       3%     1     333.4         320.0         4     3

Other

     22.3         20.8       7%     5     66.9         63.9         5     4
  

 

 

    

 

 

        

 

 

    

 

 

      

Total net sales

   $ 719.2       $ 678.4       6%     3   $ 2,144.5       $ 2,003.1         7     5
  

 

 

    

 

 

        

 

 

    

 

 

      

 

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Vascular Products - Bard markets a wide range of products for the peripheral vascular market, including endovascular products, electrophysiology products and vascular graft products. The increase in consolidated net sales of vascular products for the quarter and nine months ended September 30, 2011 compared to the prior year periods was due primarily to growth in endovascular products. United States net sales of vascular products for the quarter ended September 30, 2011 increased 2% compared to the prior year quarter. International net sales of vascular products for the quarter ended September 30, 2011 increased 20% on a reported basis (8% on a constant currency basis) compared to the prior year quarter. United States net sales of vascular products for the nine months ended September 30, 2011 increased 11% compared to the prior year period. International net sales of vascular products for the nine months ended September 30, 2011 increased 16% on a reported basis (10% on a constant currency basis) compared to the prior year period.

Consolidated net sales of endovascular products for the quarter ended September 30, 2011 increased 10% on a reported basis (6% on a constant currency basis) compared to the prior year quarter. Consolidated net sales of endovascular products for the nine months ended September 30, 2011 increased 17% on a reported basis (15% on a constant currency basis) compared to the prior year period (including 8 percentage points on both a reported and constant currency basis from the SenoRx® biopsy products acquired in July 2010). Percutaneous transluminal angioplasty balloon catheters and biopsy products were also contributors to the growth in this category for the quarter and nine months ended September 30, 2011.

Consolidated net sales of electrophysiology products for the quarter ended September 30, 2011 increased 11% on a reported basis (4% on a constant currency basis) compared to the prior year quarter. The net sales increase for the quarter ended September 30, 2011 was driven primarily by sales of electrophysiology laboratory systems. Consolidated net sales of electrophysiology products for the nine months ended September 30, 2011 increased 4% on a reported basis (flat on a constant currency basis) compared to the prior year period. The net sales increase for the nine months ended September 30, 2011 was driven primarily by sales of steerable diagnostic catheters.

Consolidated net sales of vascular graft products for the quarter ended September 30, 2011 increased 2% on a reported basis (decreased 3% on a constant currency basis) compared to the prior year quarter. Consolidated net sales of vascular graft products for the nine months ended September 30, 2011 remained flat on a reported basis (decreased 3% on a constant currency basis) compared to the prior year period.

Urology Products - Bard markets a wide range of products for the urology market, including basic drainage products, continence products and urological specialty products. Bard also markets StatLock® catheter stabilization products, which are used to secure many types of catheters sold by Bard and other companies. The majority of basic drainage products, StatLock® catheter stabilization products and certain urological specialty products are sold through distributors. The increase in consolidated net sales of urology products for the quarter and nine months ended September 30, 2011 compared to the prior year periods was led by growth in sales of basic drainage products and StatLock® products partially offset by a decrease in the sales of continence products. United States net sales of urology products for the quarter ended September 30, 2011 decreased 3% compared to the prior year quarter. International net sales of urology products for the quarter ended September 30, 2011 increased 14% on a reported basis (6% on a constant currency basis) compared to the prior year quarter. United States net sales of urology products for the nine months ended September 30, 2011 decreased 2% compared to the period year period. International net sales of urology products for the nine months ended September 30, 2011 increased 12% on a reported basis (8% on a constant currency basis) compared to the prior year period.

Consolidated net sales of basic drainage products for the quarter ended September 30, 2011 increased 3% on a reported basis (1% on a constant currency basis) compared to the prior year quarter. Consolidated net sales of infection control Foley catheter products for the quarter ended September 30, 2011 decreased 4% on both a reported and constant currency basis compared to the prior year quarter. Consolidated net sales of basic drainage products for the nine months ended September 30, 2011 increased 4% on a reported basis (3% on a constant currency basis). Consolidated net sales of infection control Foley catheter products for the nine months ended September 30, 2011 decreased 1% on both a reported and constant currency basis compared to the prior year period.

 

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Consolidated net sales of continence products for the quarter ended September 30, 2011 decreased 18% on a reported basis (20% on a constant currency basis) compared to the prior year quarter. Consolidated net sales of continence products for the nine months ended September 30, 2011 decreased 13% on a reported basis (14% on a constant currency basis) compared to the prior year period. Net sales for the quarter and nine months ended September 30, 2011 were impacted by the discontinuation of sales of a bulking continence product and by a decline in sales of surgical continence products, a trend that may continue.

Consolidated net sales of urological specialty products for the quarter ended September 30, 2011 increased 8% on a reported basis (4% on a constant currency basis) compared to the prior year quarter. Consolidated net sales of brachytherapy products for the quarter ended September 30, 2011 increased 10% on a reported basis (5% on a constant currency basis) compared to the prior year quarter. Consolidated net sales of urological specialty products for the nine months ended September 30, 2011 increased 4% on a reported basis (2% on a constant currency basis) compared to the prior year period. Consolidated net sales of brachytherapy products for the nine months ended September 30, 2011 increased 1% on a reported basis (decreased 1% on a constant currency basis) compared to the prior year period. Despite growth in the current quarter, the brachytherapy market has been losing procedural share to alternative therapies, a trend that may continue.

Consolidated net sales of the StatLock® catheter stabilization product line for the quarter ended September 30, 2011 increased 6% on a reported basis (5% on a constant currency basis) compared to the prior year quarter. Consolidated net sales of the StatLock® catheter stabilization product line for the nine months ended September 30, 2011 increased 7% on a reported basis (6% on a constant currency basis) compared to the prior year period.

Oncology Products - Bard’s oncology business includes specialty vascular access products and enteral feeding devices. Specialty vascular access products include peripherally inserted central catheters (“PICCs”), used for intermediate to long-term central venous access, specialty access ports and accessories (“Ports”), used most commonly for chemotherapy, dialysis access catheters and vascular access ultrasound devices, which help facilitate the placement of PICCs.

The increase in consolidated net sales for the quarter and nine months ended September 30, 2011 of oncology products compared to the prior year periods was due primarily to growth in sales of PICCs and Ports. United States net sales of oncology products for the quarter ended September 30, 2011 increased 6% compared to the prior year quarter. International net sales of oncology products for the quarter ended September 30, 2011 increased 18% on a reported basis (7% on a constant currency basis) compared to the prior year quarter. United States net sales of oncology products for the nine months ended September 30, 2011 increased 5% compared to the prior year period. International net sales of oncology products for the nine months ended September 30, 2011 increased 16% on a reported basis (9% on a constant currency basis) compared to the prior year period.

Consolidated net sales of PICCs for the quarter ended September 30, 2011 increased 11% on a reported basis (10% on a constant currency basis) compared to the prior year quarter. Consolidated net sales of PICCS for the nine months ended September 30, 2011 increased 9% on both a reported and constant currency basis compared to the prior year period. Consolidated net sales of Ports for the quarter ended September 30, 2011 increased 5% on a reported basis (3% on a constant currency basis) compared to the prior year quarter. Consolidated net sales of Ports for the nine months ended September 30, 2011 increased 7% on a reported basis (5% on a constant currency basis) compared to the prior year period.

Consolidated net sales of dialysis access catheters for the quarter ended September 30, 2011 increased 11% on a reported basis (8% on a constant currency basis) compared to the prior year quarter. Consolidated net sales of dialysis access catheters for the nine months ended September 30, 2011 increased 10% on a reported basis (8% on a constant currency basis) compared to the prior year period. Consolidated net sales of vascular access ultrasound devices for the quarter ended September 30, 2011 increased 6% on a reported basis (4% on a constant currency basis) compared to the prior year quarter. Consolidated net sales of vascular access ultrasound devices

 

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for the nine months ended September 30, 2011 increased 7% on a reported basis (6% on a constant currency basis) compared to the prior year period.

Surgical Specialty Products - Surgical specialty products include soft tissue repair, performance irrigation and hemostasis product lines. The increase in consolidated net sales of surgical specialty products for the quarter and nine months ended September 30, 2011 compared to the prior year periods was due primarily to growth in soft tissue repair products. United States net sales of surgical specialty products for the quarter ended September 30, 2011 decreased 1% compared to the prior year quarter. International net sales of surgical specialty products for the quarter ended September 30, 2011 increased 16% on a reported basis (6% on a constant currency basis) compared to the prior year quarter. United States net sales of surgical specialty products for the nine months ended September 30, 2011 increased 2% compared to the prior year period. International net sales of surgical specialty products for the nine months ended September 30, 2011 increased 12% on a reported basis (7% on a constant currency basis) compared to the prior year period.

The soft tissue repair product line includes synthetic and natural-tissue hernia repair implants, natural-tissue breast reconstruction products and hernia fixation products. Consolidated net sales of soft tissue repair products for the quarter ended September 30, 2011 increased 6% on a reported basis (4% on a constant currency basis) compared to the prior year quarter. Consolidated net sales of soft tissue repair products for the nine months ended September 30, 2011 increased 7% on a reported basis (6% on a constant currency basis) compared to the prior year period. The company’s net sales in this category for the quarter and nine months ended September 30, 2011 were favorably impacted by growth in sales of synthetic and natural-tissue hernia repair implants and natural-tissue breast reconstruction products.

Other Products - The other product group includes irrigation, wound drainage and certain original equipment manufacturers’ products. Consolidated net sales of other products for the quarter ended September 30, 2011 increased 7% on a reported basis (5% on a constant currency basis) compared to the prior year quarter. Consolidated net sales of other products for the nine months ended September 30, 2011 increased 5% on a reported (4% on a constant currency basis) compared to the prior year period.

Costs and Expenses

A summary of costs and expenses as a percentage of net sales is as follows:

 

     Quarter Ended
September 30,
    Nine Months Ended
September 30,
 
     2011     2010     2011     2010(A)  

Cost of goods sold

     38.2     37.1     38.0     37.8

Marketing, selling and administrative expense

     26.3     27.4     27.1     27.7

Research and development expense

     6.5     7.0     6.6     6.6

Interest expense

     1.3     0.5     1.3     0.4

Other (income) expense, net

     2.4     1.0     9.8     0.4
  

 

 

   

 

 

   

 

 

   

 

 

 

Total costs and expenses

     74.7     73.0     82.8     73.0
  

 

 

   

 

 

   

 

 

   

 

 

 

 

(A) Amounts do not add due to rounding.

Cost of goods sold - Cost of goods sold consists principally of the manufacturing and distribution costs of the company’s products. The category also includes royalties, amortization of intangible assets and the impact of certain hedging activities. Cost of goods sold as a percentage of net sales for the quarter ended September 30, 2011 increased 110 basis points compared to the prior year quarter. Cost of goods sold as a percentage of net sales for the nine months ended September 30, 2011 increased 20 basis points compared to the prior year period. Incremental amortization of intangible assets acquired in 2010 and 2011 increased the cost of goods sold as a percentage of net sales by approximately 10 basis points over the prior year quarter and 30 basis points over the nine month period.

 

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Marketing, selling and administrative expense - Marketing, selling and administrative expense consists principally of the costs associated with the company’s sales and administrative organizations. These costs, as a percentage of net sales for the quarter ended September 30, 2011, decreased 110 basis points compared to the prior year quarter. These costs as a percentage of net sales for the nine months ended September 30, 2011 decreased 60 basis points compared to the prior year period.

Research and development expense - Research and development expense consists principally of costs related to internal research and development activities, milestone payments for third-party research and development activities, and purchased R&D costs arising from the company’s business development activities. Purchased R&D may impact the comparability of the company’s results of operations between periods. Research and development expense for the quarter ended September 30, 2011 was $46.9 million, a decrease of approximately 1% compared to the prior year quarter. A purchased R&D charge of $0.5 million was recorded for the quarter ended September 30, 2011. Research and development expense for the nine months ended September 30, 2011 was $141.8 million, an increase of approximately 6% compared to the prior year period. Purchased R&D charges of $3.5 million and $0.5 million were recorded for the nine months ended September 30, 2011 and September 30, 2010, respectively.

Interest expense - Interest expense was $9.0 million and $3.2 million for the quarters ended September 30, 2011 and 2010, respectively. Interest expense was $27.1 million and $8.9 million for the nine months ended September 30, 2011 and 2010, respectively. The increase in interest expense was due to the issuance of $750 million of senior unsecured notes in December 2010.

Other (income) expense, net - The components of other (income) expense, net, are as follows:

 

     Quarter Ended
September 30,
    Nine Months Ended
September 30,
 
     2011     2010     2011     2010  
(dollars in millions)                         

Interest income

   $ (1.2   $ (1.1   $ (3.1   $ (2.7

Foreign exchange losses

     0.8        (0.8     0.9        0.2   

Legal settlements and commitments

     —          —          195.5        —     

Restructuring

     10.0        —          8.9        —     

Impairment charge for bonds

     7.0        —          7.0        —     

Acquisition related items

     —          7.7        0.3        9.3   

Other, net

     0.4        0.9        1.7        1.9   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total other (income) expense, net

   $ 17.0      $ 6.7      $ 211.2      $ 8.7   
  

 

 

   

 

 

   

 

 

   

 

 

 

Legal settlements and commitments—For the nine months ended September 30, 2011, the amounts reflect the estimated costs of settling all Hernia Product Claims (other than the putative class action lawsuits), including costs to administer the settlements (see Note 8 of the notes to the condensed consolidated financial statements), and certain other legal settlements and commitments.

RestructuringSee Note 3 of the notes to the condensed consolidated financial statements.

Acquisition related items—The amounts consist of acquisition related integration costs.

Impairment charge for bonds—See Note 6 of the notes to the condensed consolidated financial statements.

 

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Income tax provision

The effective tax rate for the quarter ended September 30, 2011 was approximately 29% compared to approximately 30% for the same period in 2010. The effective tax rate for the nine months ended September 30, 2011 was approximately 42% compared to approximately 31% for the same period in 2010. The higher tax rate for the current year-to-date period reflected the discrete tax effect of a charge for legal settlements, primarily related to the Hernia Product Claims, which were incurred in a low tax jurisdiction. The effective tax rate for both prior year periods reflected the discrete tax effect of a charge of $5.6 million associated with a cash repatriation of approximately $62 million of earnings from operations in certain foreign jurisdictions as a result of tax legislation enacted in the third quarter of 2010. The $5.6 million charge was partially offset by the discrete tax effect of $4.2 million associated with certain tax positions being remeasured as a result of new information related to the U.S. Internal Revenue Service examinations of the tax years 2003 and 2004.

Net Income Attributable to Common Shareholders and Earnings Per Share Available to Common Shareholders

The company reported net income attributable to common shareholders and diluted earnings per share available to common shareholders for the quarter ended September 30, 2011 of $130.1 million and $1.46, respectively. Net income attributable to common shareholders and diluted earnings per share available to common shareholders for the prior year quarter were $127.5 million and $1.34, respectively. The current year quarter reflects net restructuring costs of $6.7 million, or $0.08 per diluted share, an impairment charge for Greek bonds of $7.0 million, or $0.08 per diluted share, and acquisition related items, primarily consisting of transaction costs and a purchased R&D charge of $2.2 million, or $0.03 per diluted share. The current year quarter also reflects a decrease to the income tax provision of $1.1 million, or $0.01 per diluted share, due to an audit adjustment. The prior year quarter reflects acquisition related items, consisting of transaction costs (primarily legal and valuation costs), integration costs and purchase accounting adjustments of $7.0 million, or $0.07 per diluted share. The prior year quarter also reflects a net increase to the income tax provision of $1.4 million, or $0.01 per diluted share, as a result of the cash repatriation and the reduction of certain tax positions as discussed above.

The company reported net income attributable to common shareholders and diluted earnings per share available to common shareholders for the nine months ended September 30, 2011 of $214.2 million and $2.40, respectively. Net income attributable to common shareholders and diluted earnings per share available to common shareholders for the nine months ended September 30, 2010 were $373.0 million and $3.86, respectively. The current year to date period reflects legal settlements and commitments of $189.5 million, or $2.12 per diluted share, and net restructuring costs of $5.9 million, or $0.07 per diluted share and an impairment charge for Greek bonds of $7.0 million, or $0.08 per diluted share. The current year to date period also reflects acquisition related items, primarily consisting of transaction costs and purchased R&D charges of $4.8 million, or $0.06 per diluted share, and a decrease to the income tax provision of $1.1 million, or $0.01 per diluted share, due to an audit adjustment. The prior year to date period reflects acquisition related items, consisting of transaction costs (primarily legal and valuation costs), integration costs and purchase accounting adjustments of $14.1 million, or $0.15 per diluted share. The prior year nine month period also reflects bad debt expense of $3.8 million or $0.04 per diluted share related to the write-down of accounts receivable in Greece and a net increase to the income tax provision of $1.4 million, or $0.01 per diluted share, as a result of the cash repatriation and the reduction of certain tax positions as discussed above.

Liquidity and Capital Resources

The company assesses its liquidity in terms of its ability to generate cash to fund its operating, investing and financing activities. Significant factors affecting the management of liquidity are cash flows generated from operating activities, capital expenditures, acquisitions of businesses and technologies, cash dividends and common stock repurchases. Cash provided from operations continues to be the company’s primary source of

 

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funds. The company believes that it could borrow adequate funds at competitive terms should it be necessary. The company also believes that its overall financial strength gives it sufficient financial flexibility. A summary of certain liquidity measures for Bard as of September 30 is as follows:

 

     2011      2010  
(dollars in millions)              

Working capital

   $ 1,392.8       $ 1,001.4   
  

 

 

    

 

 

 

Current ratio

     3.74/1         2.93/1   
  

 

 

    

 

 

 

Cash and cash equivalents held by the company’s foreign subsidiaries were $614.0 million and $641.4 million at September 30, 2011 and December 31, 2010, respectively. It is the company’s intention to permanently reinvest the majority of these funds outside the United States to finance foreign operations, and the company’s plans do not demonstrate a need to repatriate these funds. If these funds are needed for U.S. operations or can no longer be permanently reinvested outside the United States, the company would be required to accrue and pay U.S. taxes to repatriate these funds.

For the nine months ended September 30, 2011 and 2010, net cash provided by operating activities was $549.4 million and $463.7 million, respectively. The increase in net cash provided by operating activities reflects higher net income, excluding non-cash items, and the timing of tax payments.

For the nine months ended September 30, 2011, the company used $266.8 million in cash for investing activities, compared to the $323.0 million used in the prior year period. The current year period reflects an increase of $200.3 million in restricted cash related to a payment for certain Hernia Product Claims pursuant to the proposed settlements and a payment in anticipation of the acquisition of ClearStream. The prior year period reflects the acquisitions of SenoRx, Inc. and FlowCardia, Inc. for a total of $286.1 million. Capital expenditures were approximately $49.9 million and $33.3 million for the nine month periods ended September 30, 2011 and 2010, respectively.

For the nine months ended September 30, 2011, the company used $166.1 million in cash for financing activities, compared to the $142.7 million used in the prior year period. Total debt was $908.9 million and $977.4 million at September 30, 2011 and December 31, 2010, respectively. Total debt to total capitalization was 33% and 37.5% at September 30, 2011 and December 31, 2010, respectively. The company spent approximately $96.2 million to repurchase 1,068,200 shares of common stock in the nine months ended September 30, 2011 compared to approximately $297.6 million to repurchase 3,658,250 shares of common stock in the prior year period. Included in purchases of common stock in 2011 is a payment of $58.9 million in cash remitted to the bank counterparty upon final settlement under an accelerated share repurchase agreement. The company paid cash dividends of $0.55 per share and $0.52 per share for the nine month periods ended September 30, 2011 and 2010, respectively. In the prior year period, the company purchased the noncontrolling interest in its Malaysian operation for $25.9 million.

On October 12, 2011, the company entered into a new $600 million five-year committed syndicated bank credit facility that expires in October 2016. The new credit facility replaces the company’s existing $400 million five-year credit agreement that was scheduled to mature in June 2012. The credit facilities support the company’s commercial paper program and can be used for general corporate purposes. The facilities include pricing based on the company’s long-term credit rating and include a financial covenant that limits the amount of total debt to total capitalization. There were no outstanding short-term borrowings, including commercial paper borrowings, at September 30, 2011. The company had outstanding commercial paper borrowings of $80.5 million at December 31, 2010.

 

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Contingencies

In the ordinary course of business, the company is subject to various legal proceedings and claims, including product liability matters, environmental matters, employment disputes, disputes on agreements and other commercial disputes. In addition, the company operates in an industry susceptible to significant patent legal claims. At any given time in the ordinary course of business, the company is involved as either a plaintiff or defendant in a number of patent infringement actions. See Note 8 of the notes to condensed consolidated financial statements.

Management’s Use of Non-GAAP Measures

Net sales “on a constant currency basis” is a non-GAAP measure. The company analyzes net sales on a constant currency basis to better measure the comparability of results between periods. Because changes in foreign currency exchange rates have a non-operating impact on net sales, the company believes that evaluating growth in net sales on a constant currency basis provides an additional and meaningful assessment of net sales to both management and the company’s investors. Constant currency growth rates are calculated by translating the prior year’s local currency sales by the current period’s exchange rate. Constant currency growth rates are not indicative of changes in corresponding cash flows. The limitation of non-GAAP measures is that they do not reflect results on a standardized reporting basis. Non-GAAP measures are intended to supplement the applicable GAAP disclosures and should not be viewed as a replacement of GAAP results.

Critical Accounting Policies

The preparation of financial statements requires the company’s management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Critical accounting policies are those that require application of management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods. Such policies are summarized in the Management’s Discussion and Analysis of Financial Condition and Results of Operations section in Bard’s 2010 Annual Report on Form 10-K. There have been no significant changes to the company’s critical accounting policies since December 31, 2010.

Risks and Uncertainties; Cautionary Statement Regarding Forward-Looking Information

Certain statements contained herein or in other company documents and certain statements that may be made by management of the company orally may contain forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. You can identify these statements by the fact that they do not relate strictly to historical or current facts. They use words such as “anticipate,” “estimate,” “expect,” “project,” “intend,” “forecast,” “plan,” “believe” and other words and terms of similar meaning in connection with any discussion of future operating or financial performance. In particular, these include statements relating to product approvals, future performance of current and anticipated products, sales efforts, expenses, the outcome of contingencies, such as legal proceedings, and financial results. The company’s forward-looking statements speak only as of the date of this report or as of the date they are made, and the company undertakes no obligation to update its forward-looking statements.

In addition, there are substantial risks inherent in the medical device business. The company’s business involves the design, development, manufacture, packaging, distribution and sale of medical, surgical, diagnostic and patient care devices. These devices are often used on, or permanently or temporarily implanted in patients in clinically demanding circumstances, such as operating rooms, emergency units, intensive care and critical care settings, among others. These circumstances, among other factors, can cause the products to become associated with adverse clinical events, including patient mortality and injury, and could lead to product liability claims

 

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(including lawsuits seeking class action status or seeking to establish multi-district litigation proceedings) and other litigation, product withdrawals, Warning Letters, recalls, field corrections or regulatory enforcement actions relating to one or more of the company’s products, any of which could have a material adverse effect on our business, results of operations, financial condition and/or liquidity. For further discussion of risks applicable to our business, see “Risk Factors” in Bard’s 2010 Annual Report on Form 10-K.

Because actual results are affected by these and other risks and uncertainties, the company cautions investors that actual results may differ materially from those expressed or implied. It is not possible to predict or identify all risks and uncertainties, but the most significant factors, in addition to those addressed above, that could adversely affect our business or cause the actual results to differ materially from those expressed or implied include, but are not limited to:

Effective management of and reaction to risks involved in our business, including:

 

   

the ability to achieve manufacturing or administrative efficiencies, including gross margin benefits from our manufacturing processes and supply chain programs or in connection with the integration of acquired businesses;

 

   

the effects of negative publicity concerning our products, which could result in product withdrawals or decreased product demand and which could reduce market or governmental acceptance of our products;

 

   

the ability to identify appropriate companies, businesses and technologies as potential acquisition candidates, to consummate and successfully integrate such transactions or to obtain agreements for such transactions with favorable terms;

 

   

the reduction in the number of procedures using our devices caused by customers’ cost-containment pressures or preferences for alternate therapies;

 

   

the ability to maintain or increase research and development expenditures;

 

   

the uncertainty of whether increased research and development expenditures and sales force expansion will result in increased sales;

 

   

the ability to maintain our effective tax rate and uncertainty related to tax audits, appeals and litigation;

 

   

internal factors, such as retention of key employees, including sales force employees;

 

   

the ability to achieve earnings forecasts, which are generated based, among other things, on projected volumes and sales of many product types, some of which are more profitable than others;

 

   

changes in factors and assumptions or actual results that differ from our assumptions on stock valuation and employee stock option exercise patterns, which could cause compensation expense recorded in future periods to differ significantly from the compensation expense recorded in the current period;

 

   

changes in factors and assumptions could cause pension cost recorded in future periods to differ from the pension cost recorded in the current period;

 

   

the effect of market fluctuations on the value of assets in the company’s pension plans and the possibility that the company may need to make additional contributions to the plans as a result of any decline in the fair value of such assets;

 

   

damage to a facility where our products are manufactured or distributed, which could render the company unable to manufacture or distribute one or more products and may require the company to reduce the output of products at the damaged facility thereby making it difficult to meet product shipping targets;

 

   

the potential impairment of goodwill and intangible assets of the company resulting from insufficient cash flow generated from such assets specifically, or our business more broadly, so as to not allow the company to justify the carrying value of the assets;

 

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the ability to obtain appropriate levels of product liability insurance on reasonable terms;

 

   

the ability to recover for claims made to our insurance companies; and

 

   

the ability to realize the anticipated benefits of the 2010 Restructuring Plan and 2011 restructuring activities to improve overall cost structure and efficiency.

Competitive factors, including:

 

   

the trend of consolidation in the medical device industry as well as among our customers, resulting in potentially greater pricing pressures and more significant and complex contracts than in the past, both in the United States and abroad;

 

   

development of new products or technologies by competitors having superior performance compared to our current products or products under development which could negatively impact sales of our products or render one or more of our products obsolete;

 

   

technological advances, patents and registrations obtained by competitors that would have the effect of excluding the company from new market segments or preventing the company from selling a product or including key features in the company’s products;

 

   

attempts by competitors to gain market share through aggressive marketing programs; and

 

   

reprocessing by third-party reprocessors of our products designed and labeled for single use.

Difficulties and delays inherent in the development, manufacturing, marketing and sale of medical products, including:

 

   

the ability to complete planned clinical trials successfully, to develop and obtain regulatory approval for products on a timely basis and to launch products on a timely basis within cost estimates;

 

   

lengthy and costly regulatory approval processes, which may result in lost market opportunities and/or delayed product launches;

 

   

delays or denials of, or grants of low or reduced levels of reimbursement for, procedures using newly developed products;

 

   

the suspension or revocation of authority to manufacture, market or distribute existing products;

 

   

the imposition of additional or different regulatory requirements, such as those affecting manufacturing and labeling;

 

   

performance, efficacy or safety concerns for existing products, whether scientifically justified or not, that may lead to product discontinuations, product withdrawals, recalls, field corrections, regulatory enforcement actions, litigation or declining sales, including adverse events relating to the company’s vena cava filters, pelvic floor repair products and hernia repair products;

 

   

FDA inspections resulting in Form-483 notices and/or Warning Letters identifying deficiencies in the company’s manufacturing practices and/or quality systems; Warning Letters identifying violations of FDA regulations that could result in product holds, recalls, restrictions on future clearances by the FDA and/or civil penalties;

 

   

the failure to obtain, limitations on the use of, or the loss of, patent and other intellectual property rights, and the failure of efforts to protect our intellectual property rights against infringement and legal challenges that can increase our costs;

 

   

difficulties obtaining necessary components or raw materials used in the company’s products and/or price increases from the company’s suppliers of critical components or raw materials, including oil-based resins, or other interruptions of the supply chain; and

 

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customers that may limit the number of manufacturers or vendors from which they will purchase products, which can result in the company’s inability to sell products to or contract with large hospital systems, integrated delivery networks or group purchasing organizations.

Governmental action, including:

 

   

the impact of continued healthcare cost containment;

 

   

new laws and judicial decisions related to healthcare availability, healthcare reform, payment for healthcare products and services or the marketing and distribution of products, including legislative or administrative reforms to the United States Medicare and Medicaid systems or other United States or international reimbursement systems in a manner that would significantly reduce or eliminate reimbursements for procedures that use the company’s products;

 

   

changes in the FDA and/or foreign regulatory approval processes that may delay or prevent the approval of new products and result in lost market opportunity;

 

   

the impact of more vigorous compliance and enforcement activities affecting the healthcare industry in general or the company in particular;

 

   

changes in the tax laws affecting our business, such as the recently-enacted excise tax in Puerto Rico;

 

   

changes in the environmental laws or standards affecting our business;

 

   

changes in laws that could require facility upgrades or process changes and could affect production rates and output; and

 

   

compliance costs and potential penalties and remediation obligations in connection with environmental laws, including regulations regarding air emissions, waste water discharges and solid waste.

Legal disputes, including:

 

   

disputes over intellectual property rights;

 

   

product liability claims, which may involve lawsuits seeking class action status or seeking to establish multi-district litigation proceedings, including the Hernia Product Claims, the Women’s Health Product Claims and the Filter Product Claims;

 

   

claims asserting securities law violations;

 

   

claims asserting, and/or subpoenas seeking information regarding, violations of law in connection with federal and/or state healthcare programs such as Medicare or Medicaid;

 

   

derivative shareholder actions;

 

   

claims and subpoenas asserting antitrust violations;

 

   

environmental claims, including risks relating to accidental contamination or injury from the use of hazardous materials in the company’s manufacturing, sterilization and research activities and the potential for the company to be held liable for any resulting damages; and

 

   

commercial disputes, including disputes over distribution agreements, license agreements, manufacturing/supply agreements, development/research agreements, acquisition or sale agreements, and insurance policies.

General economic conditions, including:

 

   

international and domestic business conditions;

 

   

political or economic instability in foreign countries;

 

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interest rates;

 

   

foreign currency exchange rates;

 

   

changes in the rate of inflation; and

 

   

instability of global financial markets and economies, including Greece, Italy, Spain, Portugal and other countries in Europe.

 

     Other factors beyond our control, including catastrophes, both natural and man-made, earthquakes, floods, fires, explosions, acts of terrorism or war.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

The quantitative and qualitative disclosures about market risk are discussed in Part II, Item 7A. in Bard’s 2010 Annual Report on Form  10-K. There have been no material changes in the information reported since the year ended December 31, 2010.

Item 4. Controls and Procedures

The company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the company’s reports under the Securities Exchange Act of 1934 (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosures. Any controls and procedures, no matter how well defined and operated, can provide only reasonable assurance of achieving the desired control objectives.

The company’s management, with the participation of the company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the design and operation of the company’s disclosure controls and procedures as of September 30, 2011. Based upon that evaluation, the company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of September 30, 2011, the design and operation of the company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) were effective to accomplish their objectives at the reasonable assurance level.

 

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PART II – OTHER INFORMATION

Item 1. Legal Proceedings

General

In the ordinary course of business, the company is subject to various legal proceedings and claims, including, for example, product liability matters, environmental matters, employment disputes, disputes on agreements and other commercial disputes. In addition, the company operates in an industry susceptible to significant patent legal claims. At any given time, in the ordinary course of business, the company is involved as either a plaintiff or defendant in a number of patent infringement actions. If a third party’s patent infringement claim were to be determined against the company, the company might be required to make significant royalty or other payments or might be subject to an injunction or other limitation on its ability to manufacture or distribute one or more products. If a patent owned by or licensed to the company were to be determined to be invalid or unenforceable, the company might be required to reduce the value of the patent on the company’s balance sheet and to record a corresponding charge, which could be significant in amount. The company believes that any of these proceedings and claims could have a material adverse effect on its business, results of operations, financial condition and/or liquidity.

Product Liability Matters

As of October 20, 2011, approximately 1,910 federal and 1,720 state lawsuits involving individual claims by approximately 3,770 plaintiffs, as well as two putative class actions in the United States and four putative class actions in various Canadian provinces, have been filed or asserted against the company with respect to its Composix® Kugel® and certain other hernia repair implant products (collectively, the “Hernia Product Claims”). One of the U.S. class action lawsuits consolidates ten previously-filed U.S. class action lawsuits. The putative class actions, none of which has been certified, seek (i) medical monitoring, (ii) compensatory damages, (iii) punitive damages, (iv) a judicial finding of defect and causation and/or (v) attorneys’ fees. Approximately 1,695 of the state lawsuits, involving individual claims by a substantially equivalent number of plaintiffs, are pending in the Superior Court of the State of Rhode Island, with the remainder in various other jurisdictions. The Hernia Product Claims also generally seek damages for personal injury resulting from use of the products. The company voluntarily recalled certain sizes and lots of the Composix® Kugel® products beginning in December 2005.

In June 2007, the Judicial Panel on Multidistrict Litigation (“JPML”) transferred Composix® Kugel® lawsuits pending in federal courts nationwide into one Multidistrict Litigation (“MDL”) for coordinated pre-trial proceedings in the United States District Court for the District of Rhode Island. The MDL court subsequently determined to include other hernia repair products of the company in the MDL proceeding. The first MDL trial was completed in April 2010 and resulted in a judgment for the company based on the jury’s finding that the company was not liable for the plaintiff’s damages. The second MDL trial was completed in August 2010 and resulted in a judgment for the plaintiff of $1.5 million. On June 30, 2011, the company announced that it had reached agreements in principle with various plaintiffs’ law firms to settle the majority of its existing Hernia Product Claims. Each agreement is subject to certain conditions, including requirements for participation in the proposed settlements by a certain minimum number of plaintiffs. In addition, the company is engaging in discussions with other plaintiffs’ law firms regarding potential resolution of unsettled Hernia Product Claims, and intends to vigorously defend Hernia Product Claims that do not settle, including through litigation. Based on these events, the company incurred a charge of $184.3 million ($180.6 million after tax) in the second quarter of 2011, which recognized the estimated costs of settling all Hernia Product Claims, including asserted and unasserted claims, and costs to administer the settlements. The charge excludes any costs associated with pending putative class action lawsuits. The company cannot give any assurances that the actual costs incurred with respect to the Hernia Product Claims will not exceed the amount of the charge together with amounts previously accrued. The company cannot give any assurances that the resolution of the Hernia Product Claims that have not settled, including asserted and unasserted claims and the putative class action lawsuits, will not have a material adverse effect on the company’s business, results of operations, financial condition and/or liquidity. For more information, see Item 1A. “Risk Factors” in Bard’s 2010 Annual Report on Form 10-K.

 

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As of October 20, 2011, product liability lawsuits involving individual claims by approximately 280 plaintiffs have been filed or asserted against the company in various federal and state jurisdictions alleging personal injuries associated with the use of certain of the company’s surgical continence products for women, principally its Avaulta® line of products (collectively, the “Women’s Health Product Claims”). The Women’s Health Product Claims generally seek damages for personal injury resulting from use of the products. With respect to certain of these claims, the company believes that one of its suppliers has an obligation to defend and indemnify the company. In October 2010, the JPML transferred the Women’s Health Product Claims involving solely Avaulta® products pending in federal courts nationwide into an MDL for coordinated pre-trial proceedings in the United States District Court for the Southern District of West Virginia. In October 2011, the JPML ordered that 35 lawsuits involving other women’s surgical continence products of the company be transferred to the pending MDL in West Virginia. In total, approximately 150 of the Women’s Health Product Claims are pending in federal courts and have been or will be transferred to the MDL in West Virginia, with the remainder of the Women’s Health Product Claims in other jurisdictions. While the company intends to vigorously defend the Women’s Health Product Claims, it cannot give any assurances that the resolution of these claims will not have a material adverse effect on the company’s business, results of operations, financial condition and/or liquidity.

As of October 20, 2011, product liability lawsuits involving individual claims by approximately 40 plaintiffs have been filed or asserted against the company in various federal and state jurisdictions alleging personal injuries associated with the use of the company’s vena cava filter products. In addition, a putative class action lawsuit has been filed against the company in California state court on behalf of plaintiffs who are alleged to have no present injury (all lawsuits, collectively, the “Filter Product Claims”). The putative class action, which has not been certified, seeks: (i) medical monitoring; (ii) punitive damages; (iii) a judicial finding of defect and causation; and/or (iv) attorneys’ fees. While the company intends to vigorously defend the Filter Product Claims, it cannot give any assurances that the resolution of these claims will not have a material adverse effect on the company’s business, results of operations, financial condition and/or liquidity.

In most product liability litigations of this nature, including the Hernia Product Claims, the Women’s Health Product Claims and the Filter Product Claims, plaintiffs allege a wide variety of claims, ranging from allegations of serious injury caused by the products to efforts to obtain compensation notwithstanding the absence of any injury. In many of these cases, the company has not yet received and reviewed complete information regarding the plaintiffs and their medical conditions, and consequently, is unable to fully evaluate the claims. The company expects that it will receive and review additional information regarding the unsettled Hernia Product Claims, the Women’s Health Product Claims, the Filter Product Claims and related matters as these cases progress.

The company believes that many settlements and judgments, as well as legal defense costs, relating to product liability matters are or may be covered in whole or in part under its product liability insurance policies with a limited number of insurance carriers. In certain circumstances, insurance carriers reserve their rights with respect to coverage, or contest or deny coverage, as has occurred with respect to certain claims. When this occurs, the company intends to vigorously contest disputes with respect to its insurance coverage and to enforce its rights under the terms of its insurance policies, and accordingly, may record receivables with respect to amounts due under these policies. Amounts recovered under the company’s product liability insurance policies may be less than the stated coverage limits and may not be adequate to cover damages and/or costs relating to claims. In addition, there is no guarantee that insurers will pay claims or that coverage will otherwise be available.

In connection with the Hernia Product Claims, the company is in dispute with one of its excess insurance carriers relating to an aggregate of $25 million of insurance coverage. Regardless of the outcome of this dispute, the company’s insurance coverage with respect to the Hernia Product Claims has been depleted.

 

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Other Legal Matters

 

In November 2006, the company received a subpoena issued by the U.S. Department of Health and Human Services, Office of Inspector General, under the authority of the federal healthcare fraud and false claims statutes. The subpoena seeks documents related to the company’s brachytherapy business. The company has responded to the subpoena and is cooperating with the government in this matter. Although the company continues to engage in discussions with representatives of the civil and criminal divisions of the United States Attorney’s Office for the Northern District of Georgia with respect to a potential resolution of this matter, the company cannot give any assurances that a resolution will be reached or what the terms of any such resolution may be. At this time, it is not possible to determine an estimate, or a range of estimates, of potential damages. In addition, the company cannot give any assurances that this matter will not have a material adverse effect on the company’s business, results of operations, financial condition and/or liquidity.

On February 21, 2007, Southeast Missouri Hospital (“Southeast”) filed a putative class action complaint on behalf of itself and all others similarly situated against the company and another manufacturer, Tyco International, Inc., which was subsequently dismissed from the action. The complaint was later amended to add St. Francis Medical Center (“St. Francis”) as an additional named plaintiff. The action was re-named as St. Francis Medical Center, et al. v. C. R. Bard, Inc., et al. (Civil Action No. 1:07-cv-00031, United States District Court, Eastern District of Missouri, Southeastern District) when the court denied Southeast’s motion to serve as a class representative and dismissed Southeast from the lawsuit. In September 2008, the court granted St. Francis’s motion for class certification and determined the measurement period for any potential damages. St. Francis alleges that the company conspired to exclude competitors from the urological catheter market and that the company sought to maintain market share by engaging in conduct in violation of state and federal antitrust laws. St. Francis seeks injunctive relief and presented an expert report that calculates damages of up to approximately $320 million, a figure that the company believes is unsupported by the facts. The company’s expert report establishes that, even assuming a determination adverse to the company, the plaintiffs suffered no damages. In September 2009, the District Court granted the company’s summary judgment motion and dismissed with prejudice all counts in this action. St. Francis appealed the Court’s decision to the Eighth Circuit Court of Appeals (“Court of Appeals”). In August 2010, the Court of Appeals affirmed the decision of the District Court. In October 2010, the Court of Appeals granted St. Francis’s request for a re-hearing of its appeal. In June 2011, the Court of Appeals again affirmed the decision of the District Court. St. Francis filed another request for a re-hearing of its appeal to the Court of Appeals, which was denied in August 2011. St. Francis may request a review of the decision by the U.S. Supreme Court. If St. Francis continues to pursue this case, the company intends to defend this matter vigorously. If St. Francis is ultimately successful, any damages awarded under the federal antitrust laws will be subject to statutory trebling and St. Francis’s attorneys would be entitled to an award of reasonable fees and costs. At this time, it is not possible to assess the likelihood of an adverse outcome or determine an estimate, or a range of estimates, of potential damages. The company cannot give any assurances that this matter will not have a material adverse effect on the company’s business, results of operations, financial condition and/or liquidity.

In December 2007, a U.S. District Court jury in Arizona found that certain of W.L. Gore & Associates Inc.’s (“Gore”) ePTFE vascular grafts and stent-grafts infringe the company’s patent number 6,436,135. The jury upheld the validity of the patent and awarded the company $185 million in past damages. The jury also found that Gore willfully infringed the patent. In a second phase of the trial, the Court ruled that Gore failed to prove that the patent is unenforceable due to inequitable conduct. In March 2009, the U.S. District Court doubled the jury award to approximately $371 million for damages through June 2007. The Court also awarded the company attorneys’ fees of $19 million and prejudgment interest of approximately $20 million. In addition, the Court denied Gore’s remaining motions, including its motions for a new trial and to set aside the jury’s verdict. In July 2010, the U.S. District Court awarded the company approximately $109 million in additional damages for the period from July 2007 through March 2009. The Court also assessed a royalty rate of between 12.5% and 20%, depending on the product, that will be used to calculate damages for Gore’s infringing sales from April 2009 through the expiration of the patent. Gore made additional deposits with the Court of approximately $264 million, representing Gore’s calculation of royalties for its infringing sales through June 2011. Gore has appealed this matter to the Court of Appeals for the Federal Circuit and

 

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oral argument was heard on May 3, 2011. Because the company considers this matter a gain contingency, no amounts have been recorded as of September 30, 2011. Even if the company is ultimately successful in this lawsuit, it cannot give any assurances that royalties for Gore’s future infringing sales will remain at or near historic levels.

The company is subject to numerous federal, state, local and foreign environmental protection laws governing, among other things, the generation, storage, use and transportation of hazardous materials and emissions or discharges into the ground, air or water. The company is or may become a party to proceedings brought under various federal laws including the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA), commonly known as Superfund, the Resource Conservation and Recovery Act, the Clean Water Act, the Clean Air Act and similar state laws. These proceedings seek to require the owners or operators of contaminated sites, transporters of hazardous materials to the sites and generators of hazardous materials disposed of at the sites to clean up the sites or to reimburse the government for cleanup costs. In most cases, there are other potentially responsible parties that may be liable for any remediation costs. In these cases, the government alleges that the defendants are jointly and severally liable for the cleanup costs; however, these proceedings are frequently resolved so that the allocation of cleanup costs among the parties more closely reflects the relative contributions of the parties to the site contamination. The company’s potential liability varies greatly from site to site. For some sites, the potential liability is de minimis and for others the costs of cleanup have not yet been determined. The company believes that the proceedings and claims described above will likely be resolved over an extended period of time. While it is not feasible to predict the outcome of these proceedings, based upon the company’s experience, current information and applicable law, the company does not expect these proceedings to have a material adverse effect on its financial condition and/or liquidity. However, one or more of the proceedings could be material to the company’s business and/or results of operations.

The company regularly monitors and evaluates the status of product liability and other legal matters, and may from time-to-time engage in settlement and mediation discussions taking into consideration developments in the matters and the risks and uncertainties surrounding litigation. These discussions could result in settlements of one or more of these claims at any time.

Item 1A. Risk Factors

There have been no material changes to the risk factors disclosed in Part I, Item 1A. in Bard’s 2010 Annual Report on Form 10-K.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

    Issuer Purchases of Equity Securities  

Period

  Total
Number
of Shares
Purchased(1)
    Average
Price
Paid
Per Share
    Total Number
of Shares

Purchased as
Part of  Publicly
Announced
Programs(2)
    Maximum
Approximate
Dollar Value of
Shares

that May Yet
Be Purchased

Under Plans or
Programs(2)
 

July 1 - July 31, 2011

    1,110      $ 112.64        —        $ 487,184,378   

August 1 - August 31, 2011

    62,352        89.16        —          487,184,378   

September 1 - September 30, 2011

    1,283,783        89.93        1,283,000        371,805,678   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total

    1,347,245      $ 89.91        1,283,000      $ 371,805,678   
 

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) The company repurchased 64,245 shares during the three month period ended September 30, 2011 that were not part of the publicly announced share repurchase authorization. These shares were purchased from employees to satisfy tax withholding requirements on the vesting of restricted shares from equity-based awards.

 

(2) On June 9, 2010, the Board of Directors approved the repurchase of up to $500 million of common stock.

 

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Item 5. Other Information

The company’s policy governing transactions in its securities by the company’s directors, executive officers and other specified employees permits such persons to adopt trading plans pursuant to Rule 10b5-1 of the Exchange Act. From time-to-time, the company’s executive officers have established trading plans relating to the company’s common stock under Rule 10b5-1 and the company anticipates additional trading plans may be established in the future. The company currently discloses details regarding individual trading plans on its website.

Item 6. Exhibits

 

(a) Exhibit 10cd – Agreement between Todd C. Schermerhorn and C. R. Bard, Inc. dated as of July 28, 2011.
(b) Exhibit 10ce – Credit Agreement dated as of October 12, 2011, among C. R. Bard, Inc., J.P. Morgan Securities LLC and Merrill Lynch, Pierce, Fenner & Smith Incorporated (as Joint Lead Arrangers and Joint Bookrunners), JPMorgan Chase Bank, N.A. (as Administrative Agent), Bank of America, N.A. (as Syndication Agent) and Barclays Bank PLC, Goldman Sachs Bank USA, Wells Fargo Bank, National Association and Royal Bank of Canada (each as Documentation Agents).
(c) Exhibit 12.1 – Computation of Ratio of Earnings to Fixed Charges
(d) Exhibit 31.1 – Rule 13a-14(a) / 15d-14(a) Certification of Chief Executive Officer
(e) Exhibit 31.2 – Rule 13a-14(a) / 15d-14(a) Certification of Chief Financial Officer
(f) Exhibit 32.1 – Section 1350 Certification of Chief Executive Officer
(g) Exhibit 32.2 – Section 1350 Certification of Chief Financial Officer
(h) 101.INS     XBRL Instance Document
(i) 101.SCH    XBRL Taxonomy Extension Schema Document
(j) 101.CAL    XBRL Taxonomy Extension Calculation Linkbase Document
(k) 101.DEF    XBRL Taxonomy Extension Definition Linkbase Document
(l) 101.LAB    XBRL Taxonomy Extension Label Linkbase Document
(m) 101.PRE    XBRL Taxonomy Extension Presentation Linkbase Document

 

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Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

    C. R. BARD, INC.
          (Registrant)

Date: October 26, 2011

   
   

/s/    TODD C. SCHERMERHORN        

   

Todd C. Schermerhorn

Senior Vice President and

Chief Financial Officer

   
   

/s/    FRANK LUPISELLA JR.        

   

Frank Lupisella Jr.

Vice President and Controller

INDEX TO EXHIBITS

 

Number   
10cd    Agreement between Todd C. Schermerhorn and C. R. Bard, Inc. dated as of July 28, 2011.
10ce    Credit Agreement dated as of October 12, 2011, among C. R. Bard, Inc., J.P. Morgan Securities LLC and Merrill Lynch, Pierce, Fenner & Smith Incorporated (as Joint Lead Arrangers and Joint Bookrunners), JPMorgan Chase Bank, N.A. (as Administrative Agent), Bank of America, N.A. (as Syndication Agent) and Barclays Bank PLC, Goldman Sachs Bank USA, Wells Fargo Bank, National Association and Royal Bank of Canada (each as Documentation Agents).
12.1    Computation of Ratio of Earnings to Fixed Charges
31.1    Rule 13a-14(a) / 15d-14(a) Certification of Chief Executive Officer
31.2    Rule 13a-14(a) / 15d-14(a) Certification of Chief Financial Officer
32.1    Section 1350 Certification of Chief Executive Officer
32.2    Section 1350 Certification of Chief Financial Officer
101.INS    XBRL Instance Document
101.SCH    XBRL Taxonomy Extension Schema Document
101.CAL    XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF    XBRL Taxonomy Extension Definition Linkbase Document
101.LAB    XBRL Taxonomy Extension Label Linkbase Document
101.PRE    XBRL Taxonomy Extension Presentation Linkbase Document

 

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