þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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DELAWARE
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04-2695240
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(State or other jurisdiction of incorporation or organization)
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(I.R.S. Employer Identification No.)
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Large accelerated filer
þ
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Accelerated filer
o
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Non-Accelerated filer
o
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Smaller reporting company
o
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(Do not check if a smaller reporting company)
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|
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Shares outstanding
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Class
|
|
as of July 31, 2012
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Common Stock, $.01 par value
|
|
1,418,982,422
|
|
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Page No.
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Unregistered Sales of Equity Securities and Use of Proceeds
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||
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Three Months Ended
June 30, |
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Six Months Ended
June 30, |
||||||||||||
in millions, except per share data
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2012
|
|
2011
|
|
2012
|
|
2011
|
||||||||
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|
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||||||||
Net sales
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$
|
1,828
|
|
|
$
|
1,975
|
|
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$
|
3,694
|
|
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$
|
3,900
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|
Cost of products sold
|
578
|
|
|
688
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|
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1,209
|
|
|
1,319
|
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||||
Gross profit
|
1,250
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|
|
1,287
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|
|
2,485
|
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2,581
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||||||||
Operating expenses:
|
|
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|
|
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||||||||
Selling, general and administrative expenses
|
648
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|
|
642
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|
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1,306
|
|
|
1,237
|
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||||
Research and development expenses
|
213
|
|
|
223
|
|
|
428
|
|
|
435
|
|
||||
Royalty expense
|
48
|
|
|
52
|
|
|
96
|
|
|
103
|
|
||||
Amortization expense
|
99
|
|
|
96
|
|
|
195
|
|
|
228
|
|
||||
Goodwill impairment charges
|
3,602
|
|
|
|
|
|
3,602
|
|
|
697
|
|
||||
Intangible asset impairment charges
|
129
|
|
|
12
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|
|
129
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|
|
12
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||||
Contingent consideration expense
|
1
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|
|
7
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|
|
11
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|
|
13
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||||
Restructuring charges
|
28
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|
|
18
|
|
|
39
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|
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56
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Litigation-related net charges
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69
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69
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Gain on divestiture
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(760
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)
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||||
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4,837
|
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1,050
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5,875
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|
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2,021
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||||
Operating (loss) income
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(3,587
|
)
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|
237
|
|
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(3,390
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)
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560
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Other (expense) income:
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Interest expense
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(64
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)
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(73
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)
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(132
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)
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(148
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)
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||||
Other, net
|
33
|
|
|
(6
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)
|
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27
|
|
|
19
|
|
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(Loss) income before income taxes
|
(3,618
|
)
|
|
158
|
|
|
(3,495
|
)
|
|
431
|
|
||||
Income tax (benefit) expense
|
(40
|
)
|
|
12
|
|
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(30
|
)
|
|
239
|
|
||||
Net (loss) income
|
$
|
(3,578
|
)
|
|
$
|
146
|
|
|
$
|
(3,465
|
)
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$
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192
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|
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Net (loss) income per common share — basic
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$
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(2.51
|
)
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$
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0.10
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$
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(2.42
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)
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$
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0.12
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Net (loss) income per common share — assuming dilution
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$
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(2.51
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)
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$
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0.10
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$
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(2.42
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)
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$
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0.12
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Weighted-average shares outstanding
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Basic
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1,423.2
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1,528.6
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1,434.2
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1,527.5
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Assuming dilution
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1,423.2
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1,535.8
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1,434.2
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1,536.0
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Three Months Ended
June 30, |
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Six Months Ended
June 30, |
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(in millions)
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|
2012
|
|
2011
|
|
2012
|
|
2011
|
||||||||
Net (loss) income
|
|
$
|
(3,578
|
)
|
|
$
|
146
|
|
|
$
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(3,465
|
)
|
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$
|
192
|
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Other comprehensive (loss) income:
|
|
|
|
|
|
|
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Foreign currency translation adjustment
|
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(19
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)
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18
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|
7
|
|
|
46
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Net change in unrealized gains and losses on derivative financial instruments, net of tax
|
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11
|
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(22
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)
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44
|
|
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(40
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)
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||||
Total other comprehensive (loss) income
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(8
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)
|
|
(4
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)
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51
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6
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Total comprehensive (loss) income
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$
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(3,586
|
)
|
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$
|
142
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|
|
$
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(3,414
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)
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$
|
198
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|
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As of
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||||||
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June 30,
|
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December 31,
|
||||
in millions, except share and per share data
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2012
|
|
2011
|
||||
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(Unaudited)
|
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ASSETS
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Current assets:
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Cash and cash equivalents
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$
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371
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$
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267
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Trade accounts receivable, net
|
1,243
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|
1,246
|
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Inventories
|
898
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931
|
|
||
Deferred income taxes
|
406
|
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|
458
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|
||
Prepaid expenses and other current assets
|
193
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|
203
|
|
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Total current assets
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3,111
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3,105
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Property, plant and equipment, net
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1,632
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|
1,670
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Goodwill
|
6,474
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|
9,761
|
|
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Other intangible assets, net
|
6,249
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|
6,473
|
|
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Other long-term assets
|
352
|
|
|
281
|
|
||
|
$
|
17,818
|
|
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$
|
21,290
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||||
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
||||
Current liabilities:
|
|
|
|
||||
Current debt obligations
|
$
|
4
|
|
|
$
|
4
|
|
Accounts payable
|
263
|
|
|
203
|
|
||
Accrued expenses
|
1,325
|
|
|
1,327
|
|
||
Other current liabilities
|
202
|
|
|
273
|
|
||
Total current liabilities
|
1,794
|
|
|
1,807
|
|
||
Long-term debt
|
4,253
|
|
|
4,257
|
|
||
Deferred income taxes
|
1,803
|
|
|
1,865
|
|
||
Other long-term liabilities
|
2,240
|
|
|
2,008
|
|
||
|
|
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|
||||
Commitments and contingencies
|
|
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|
||||
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|
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|
||||
Stockholders’ equity
|
|
|
|
||||
Preferred stock, $.01 par value - authorized 50,000,000 shares, none issued and outstanding
|
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|
||||
Common stock, $.01 par value - authorized 2,000,000,000 shares
and issued 1,538,999,069 shares as of June 30, 2012 and 1,531,006,390 shares as of December 31, 2011
|
15
|
|
|
15
|
|
||
Treasury stock, at cost - 122,463,958 shares as of June 30, 2012
and 81,950,716 shares as of December 31, 2011
|
(742
|
)
|
|
(492
|
)
|
||
Additional paid-in capital
|
16,388
|
|
|
16,349
|
|
||
Accumulated deficit
|
(7,846
|
)
|
|
(4,381
|
)
|
||
Accumulated other comprehensive loss, net of tax
|
(87
|
)
|
|
(138
|
)
|
||
Total stockholders’ equity
|
7,728
|
|
|
11,353
|
|
||
|
$
|
17,818
|
|
|
$
|
21,290
|
|
|
Six Months Ended
June 30, |
||||||
in millions
|
2012
|
|
2011
|
||||
|
|
|
|
||||
Cash provided by operating activities
|
$
|
619
|
|
|
$
|
293
|
|
|
|
|
|
||||
Investing activities:
|
|
|
|
||||
Purchases of property, plant and equipment, net of proceeds
|
(118
|
)
|
|
(152
|
)
|
||
Proceeds from sales of publicly traded and privately held equity securities and collections of notes receivable
|
|
|
|
1
|
|
||
Payments for acquisitions of businesses, net of cash acquired
|
(134
|
)
|
|
(370
|
)
|
||
Payments relating to prior-period acquisitions
|
(4
|
)
|
|
|
|
||
Payments for investments in companies and acquisitions of certain technologies
|
(1
|
)
|
|
(10
|
)
|
||
Proceeds from business divestitures, net of costs
|
|
|
|
1,417
|
|
||
|
|
|
|
||||
Cash (used for) provided by investing activities
|
(257
|
)
|
|
886
|
|
||
|
|
|
|
||||
Financing activities:
|
|
|
|
||||
Payments on long-term borrowings
|
(9
|
)
|
|
(1,250
|
)
|
||
Proceeds from borrowings on credit facilities, net of debt issuance costs
|
251
|
|
|
250
|
|
||
Payments on borrowings from credit facilities
|
(260
|
)
|
|
(250
|
)
|
||
Payments for acquisitions of treasury stock
|
(250
|
)
|
|
|
|||
Proceeds from issuances of shares of common stock
|
9
|
|
|
9
|
|
||
|
|
|
|
||||
Cash used for financing activities
|
(259
|
)
|
|
(1,241
|
)
|
||
|
|
|
|
||||
Effect of foreign exchange rates on cash
|
1
|
|
|
3
|
|
||
|
|
|
|
||||
Net increase (decrease) in cash and cash equivalents
|
104
|
|
|
(59
|
)
|
||
Cash and cash equivalents at beginning of period
|
267
|
|
|
213
|
|
||
Cash and cash equivalents at end of period
|
$
|
371
|
|
|
$
|
154
|
|
|
|
|
|
||||
Supplemental Information
|
|
|
|
||||
|
|
|
|
||||
Non-cash operating activities:
|
|
|
|
||||
Stock-based compensation expense
|
$
|
57
|
|
|
$
|
65
|
|
Cash, net of cash acquired
|
$
|
134
|
|
Fair value of contingent consideration
|
259
|
|
|
Fair value of prior interests
|
79
|
|
|
Fair value of debt assumed
|
9
|
|
|
|
$
|
481
|
|
Goodwill
|
$
|
315
|
|
Amortizable intangible assets
|
41
|
|
|
Indefinite-lived intangible assets
|
46
|
|
|
Other net assets
|
3
|
|
|
Deferred income taxes
|
76
|
|
|
|
$
|
481
|
|
|
Amount
Assigned
(in millions)
|
|
Weighted
Average Amortization Period
(in years)
|
|
Range of Risk-
Adjusted Discount Rates used in Purchase Price Allocation |
|||
Amortizable intangible assets:
|
|
|
|
|
|
|||
Technology-related
|
$
|
39
|
|
|
11
|
|
14.0
|
%
|
Customer relationships
|
2
|
|
|
5
|
|
14.0
|
%
|
|
Indefinite-lived intangible assets:
|
|
|
|
|
|
|||
Purchased research and development
|
46
|
|
|
|
|
14.0
|
%
|
|
|
$
|
87
|
|
|
|
|
|
U.S.
|
$
|
184
|
|
EMEA
|
97
|
|
|
Inter-Continental
|
27
|
|
|
Japan
|
7
|
|
|
|
$
|
315
|
|
Cash, net of cash acquired
|
$
|
370
|
|
Fair value of contingent consideration
|
287
|
|
|
Prior investments
|
55
|
|
|
|
$
|
712
|
|
Goodwill
|
$
|
266
|
|
Amortizable intangible assets
|
97
|
|
|
Indefinite-lived intangible assets
|
470
|
|
|
Deferred income taxes
|
(121
|
)
|
|
|
$
|
712
|
|
|
Amount
Assigned
(in millions)
|
|
Weighted
Average Amortization Period
(in years)
|
|
Range of Risk-
Adjusted Discount Rates used in Purchase Price Allocation |
|||
Amortizable intangible assets
|
|
|
|
|
|
|||
Technology-related
|
$
|
97
|
|
|
7.4
|
|
|
22.6% - 25.0%
|
|
|
|
|
|
|
|||
Indefinite-lived intangible assets
|
|
|
|
|
|
|||
Purchased research and development
|
470
|
|
|
|
|
23.6% - 30.0%
|
||
|
$
|
567
|
|
|
|
|
|
U.S.
|
$
|
161
|
|
EMEA
|
99
|
|
|
Inter-Continental
|
5
|
|
|
Japan
|
1
|
|
|
|
$
|
266
|
|
Balance as of December 31, 2011
|
$
|
(358
|
)
|
Contingent consideration liability recorded
|
(259
|
)
|
|
Net fair value adjustments
|
(11
|
)
|
|
Payments made
|
4
|
|
|
Balance as of June 30, 2012
|
$
|
(624
|
)
|
Contingent Consideration Liability
|
Fair Value as of June 30, 2012
|
Valuation Technique
|
Unobservable Input
|
Range
|
R&D, Regulatory and Commercialization-based Milestones
|
$311 million
|
Probability Weighted Discounted Cash Flow
|
Discount Rate
|
1.1% - 2.9%
|
Probability of Payment
|
38% - 95%
|
|||
Projected Year of Payment
|
2012 - 2017
|
|||
Revenue-based Payments
|
$196 million
|
Discounted Cash Flow
|
Discount Rate
|
12.0% - 19.5%
|
Probability of Payment
|
65% - 100%
|
|||
Projected Year of Payment
|
2012 - 2018
|
|||
$117 million
|
Monte Carlo
|
Probability of Payment
|
95%
|
|
Risk Free Rate
|
LIBOR Term Structure
|
|||
Projected Year of Payment
|
2013-2018
|
|
|
As of
|
||||||||||||||
|
|
June 30, 2012
|
|
December 31, 2011
|
||||||||||||
|
|
Gross Carrying
|
|
Accumulated
Amortization/
|
|
Gross Carrying
|
|
Accumulated
Amortization/
|
||||||||
(in millions)
|
|
Amount
|
|
Write-offs
|
|
Amount
|
|
Write-offs
|
||||||||
Amortizable intangible assets
|
|
|
|
|
|
|
|
|
||||||||
Technology - core
|
|
$
|
6,786
|
|
|
$
|
(1,872
|
)
|
|
$
|
6,786
|
|
|
$
|
(1,722
|
)
|
Technology - developed
|
|
1,076
|
|
|
(1,016
|
)
|
|
1,037
|
|
|
(1,012
|
)
|
||||
Patents
|
|
546
|
|
|
(342
|
)
|
|
539
|
|
|
(331
|
)
|
||||
Other intangible assets
|
|
812
|
|
|
(402
|
)
|
|
808
|
|
|
(376
|
)
|
||||
|
|
$
|
9,220
|
|
|
$
|
(3,632
|
)
|
|
$
|
9,170
|
|
|
$
|
(3,441
|
)
|
Unamortizable intangible assets
|
|
|
|
|
|
|
|
|
||||||||
Goodwill
|
|
$
|
15,203
|
|
|
$
|
(8,729
|
)
|
|
$
|
14,888
|
|
|
$
|
(5,127
|
)
|
Technology - core
|
|
242
|
|
|
|
|
242
|
|
|
|
||||||
Purchased research and development
|
|
419
|
|
|
|
|
502
|
|
|
|
||||||
|
|
$
|
15,864
|
|
|
$
|
(8,729
|
)
|
|
$
|
15,632
|
|
|
$
|
(5,127
|
)
|
(in millions)
|
|
United States
|
|
EMEA
|
|
Japan
|
|
Inter-Continental
|
|
Total
|
||||||||||
Balance as of December 31, 2011
|
|
$
|
4,667
|
|
|
$
|
4,004
|
|
|
$
|
554
|
|
|
$
|
536
|
|
|
$
|
9,761
|
|
Purchase price adjustments
|
|
|
|
|
(1
|
)
|
|
(2
|
)
|
|
3
|
|
|
—
|
|
|||||
Goodwill acquired
|
|
184
|
|
|
97
|
|
|
7
|
|
|
27
|
|
|
315
|
|
|||||
Goodwill written off
|
|
|
|
|
(3,602
|
)
|
|
|
|
|
|
(3,602
|
)
|
|||||||
Balance as of June 30, 2012
|
|
$
|
4,851
|
|
|
$
|
498
|
|
|
$
|
559
|
|
|
$
|
566
|
|
|
$
|
6,474
|
|
•
|
decreases in estimated market sizes or market growth rates due to greater-than-expected declines in procedural volumes, pricing pressures, product actions, and/or competitive technology developments;
|
•
|
declines in our market share and penetration assumptions due to increased competition, an inability to develop or launch new and next-generation products and technology features in line with our commercialization strategies, and market and/or regulatory conditions that may cause significant launch delays or product recalls;
|
•
|
decreases in our profitability due to an inability to successfully implement and achieve timely and sustainable cost improvement measures consistent with our expectations, increases in our market-participant tax rate, and/or changes in tax laws;
|
•
|
negative developments in intellectual property litigation that may impact our ability to market certain products or increase
|
•
|
the level of success of on-going and future research and development efforts, including those related to recent acquisitions, and increases in the research and development costs necessary to obtain regulatory approvals and launch new products;
|
•
|
the level of success in managing the growth of acquired companies, achieving sustained profitability consistent with our expectations, and establishing government and third-party payer reimbursement, and increases in the costs and time necessary to integrate acquired businesses into our operations successfully;
|
•
|
changes in our reporting units or in the structure of our business as a result of future reorganizations or divestitures of assets or businesses;
|
•
|
increases in our market-participant risk-adjusted WACC; and
|
•
|
declines in revenue as a result of loss of key members of our sales force and other key personnel.
|
|
United
|
|
|
|
|
|
Inter-
|
|
|
||||||
(in millions)
|
States
|
|
EMEA
|
|
Japan
|
|
Continental
|
|
Total
|
||||||
Accumulated write-offs as of December 31, 2011
|
$
|
(5,127
|
)
|
|
|
|
|
|
|
|
$
|
(5,127
|
)
|
||
Goodwill written off
|
|
|
$
|
(3,602
|
)
|
|
|
|
|
|
(3,602
|
)
|
|||
Accumulated write-offs as of June 30, 2012
|
$
|
(5,127
|
)
|
|
$
|
(3,602
|
)
|
|
|
|
|
|
$
|
(8,729
|
)
|
Intangible Asset
|
Fair Value as of June 30, 2012
|
Valuation Technique
|
Unobservable Input
|
Range
|
In-Process R&D
|
$184 million
|
Income Approach - Excess Earnings Method
|
Discount Rate
|
20%
|
|
Amount of Pre-tax
Gain (Loss)
Recognized in OCI
(Effective Portion)
|
|
Amount of Pre-tax Loss Reclassified from AOCI into Earnings
(Effective Portion)
|
|
Location in Statement of
Operations
|
||||
Three Months Ended June 30, 2012
|
|
|
|
|
|
||||
Currency hedge contracts
|
$
|
10
|
|
|
$
|
(10
|
)
|
|
Cost of products sold
|
|
$
|
10
|
|
|
$
|
(10
|
)
|
|
|
Three Months Ended June 30, 2011
|
|
|
|
|
|
||||
Currency hedge contracts
|
$
|
(60
|
)
|
|
$
|
(27
|
)
|
|
Cost of products sold
|
|
$
|
(60
|
)
|
|
$
|
(27
|
)
|
|
|
Six Months Ended June 30, 2012
|
|
|
|
|
|
||||
Currency hedge contracts
|
$
|
46
|
|
|
$
|
(26
|
)
|
|
Cost of products sold
|
|
$
|
46
|
|
|
$
|
(26
|
)
|
|
|
Six Months Ended June 30, 2011
|
|
|
|
|
|
||||
Currency hedge contracts
|
$
|
(107
|
)
|
|
$
|
(46
|
)
|
|
Cost of products sold
|
|
$
|
(107
|
)
|
|
$
|
(46
|
)
|
|
|
|
|
As of
|
||||||
|
|
June 30,
|
|
December 31,
|
||||
(in millions)
|
Location in Balance Sheet (1)
|
2012
|
|
2011
|
||||
Derivative Assets:
|
|
|
|
|
||||
Designated Hedging Instruments
|
|
|
|
|
||||
Currency hedge contracts
|
Prepaid and other current assets
|
$
|
31
|
|
|
$
|
31
|
|
Currency hedge contracts
|
Other long-term assets
|
33
|
|
|
20
|
|
||
|
|
64
|
|
|
51
|
|
||
Non-Designated Hedging Instruments
|
|
|
|
|
||||
Currency hedge contracts
|
Prepaid and other current assets
|
27
|
|
|
36
|
|
||
Total Derivative Assets
|
|
$
|
91
|
|
|
$
|
87
|
|
|
|
|
|
|
||||
Derivative Liabilities:
|
|
|
|
|
||||
Designated Hedging Instruments
|
|
|
|
|
||||
Currency hedge contracts
|
Other current liabilities
|
$
|
46
|
|
|
$
|
69
|
|
Currency hedge contracts
|
Other long-term liabilities
|
19
|
|
|
49
|
|
||
|
|
65
|
|
|
118
|
|
||
Non-Designated Hedging Instruments
|
|
|
|
|
||||
Currency hedge contracts
|
Other current liabilities
|
16
|
|
|
13
|
|
||
Total Derivative Liabilities
|
|
$
|
81
|
|
|
$
|
131
|
|
(1)
|
We classify derivative assets and liabilities as current when the remaining term of the derivative contract is one year or less.
|
•
|
Level 1 – Inputs to the valuation methodology are quoted market prices for identical assets or liabilities.
|
•
|
Level 2 – Inputs to the valuation methodology are other observable inputs, including quoted market prices for similar assets or liabilities and market-corroborated inputs.
|
•
|
Level 3 – Inputs to the valuation methodology are unobservable inputs based on management’s best estimate of inputs market participants would use in pricing the asset or liability at the measurement date, including assumptions about risk.
|
|
As of June 30, 2012
|
|
As of December 31, 2011
|
||||||||||||||||||||||||||||
(in millions)
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
||||||||||||||||
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
Money market and government funds
|
$
|
78
|
|
|
|
|
|
|
$
|
78
|
|
|
$
|
78
|
|
|
|
|
|
|
$
|
78
|
|
||||||||
Currency hedge contracts
|
|
|
$
|
91
|
|
|
|
|
91
|
|
|
|
|
$
|
87
|
|
|
|
|
87
|
|
||||||||||
|
$
|
78
|
|
|
$
|
91
|
|
|
|
|
$
|
169
|
|
|
$
|
78
|
|
|
$
|
87
|
|
|
|
|
$
|
165
|
|
||||
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
Currency hedge contracts
|
|
|
$
|
81
|
|
|
|
|
$
|
81
|
|
|
|
|
$
|
131
|
|
|
|
|
$
|
131
|
|
||||||||
Accrued contingent consideration
|
|
|
|
|
$
|
624
|
|
|
624
|
|
|
|
|
|
|
$
|
358
|
|
|
358
|
|
||||||||||
|
|
|
$
|
81
|
|
|
$
|
624
|
|
|
$
|
705
|
|
|
|
|
$
|
131
|
|
|
$
|
358
|
|
|
$
|
489
|
|
|
|
|
|
||||||||||||||||||||
(in millions)
|
2012
|
|
2013
|
|
2014
|
|
2015
|
|
2016
|
|
Thereafter
|
|
Total
|
||||||||||
Senior notes
|
|
|
|
|
$
|
600
|
|
|
$
|
1,250
|
|
|
$
|
600
|
|
|
$
|
1,750
|
|
|
$
|
4,200
|
|
|
|
|
|
|
$
|
600
|
|
|
$
|
1,250
|
|
|
$
|
600
|
|
|
$
|
1,750
|
|
|
$
|
4,200
|
|
|
Note:
|
|
The table above does not include unamortized discounts associated with our senior notes, or amounts related to interest rate contracts used to hedge the fair value of certain of our senior notes.
|
|
Covenant
Requirement
|
|
Actual as of
June 30, 2012
|
Maximum leverage ratio (1)
|
3.5 times
|
|
2.4 times
|
Minimum interest coverage ratio (2)
|
3.0 times
|
|
6.6 times
|
(1)
|
Ratio of total debt to consolidated EBITDA, as defined by the credit agreement, for the preceding four consecutive fiscal quarters.
|
(2)
|
Ratio of consolidated EBITDA, as defined by the credit agreement, to interest expense for the preceding four consecutive fiscal quarters.
|
Type of cost
|
Total estimated amount expected to
be incurred
|
Restructuring charges:
|
|
Termination benefits
|
$125 million to $150 million
|
Other (1)
|
$20 million to $40 million
|
Restructuring-related expenses:
|
|
Other (2)
|
$10 million to $20 million
|
|
$155 million to $210 million
|
(1)
|
Includes primarily consulting fees and costs associated with contractual cancellations.
|
(2)
|
Comprised of other costs directly related to the 2011 Restructuring plan, including program management, accelerated depreciation, retention and infrastructure-related costs.
|
Type of cost
|
Total estimated amount expected to
be incurred
|
Restructuring charges:
|
|
Termination benefits
|
$95 million to $100 million
|
Fixed asset write-offs
|
$10 million to $15 million
|
Other (1)
|
$50 million to $55 million
|
Restructuring-related expenses:
|
|
Other (2)
|
$10 million to $15 million
|
|
$165 million to $185 million
|
(1)
|
Includes primarily consulting fees and costs associated with contractual cancellations.
|
(2)
|
Comprised of other costs directly related to the 2010 Restructuring plan, including accelerated depreciation and infrastructure-related costs.
|
Type of cost
|
Total estimated amount expected to
be incurred
|
Restructuring charges:
|
|
Termination benefits
|
$35 million to $40 million
|
|
|
Restructuring-related expenses:
|
|
Accelerated depreciation
|
$20 million to $25 million
|
Transfer costs (1)
|
$75 million to $80 million
|
|
$130 million to $145 million
|
(1)
|
Consists primarily of costs to transfer product lines among facilities, including costs of transfer teams, freight, idle facility and product line validations.
|
Three Months Ended June 30, 2012
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
(in millions)
|
Termination
Benefits
|
|
Accelerated
Depreciation
|
|
Transfer
Costs
|
|
Fixed Asset
Write-offs
|
|
Other
|
|
Total
|
||||||||||
Restructuring charges
|
$
|
22
|
|
|
|
|
|
|
|
|
$
|
6
|
|
|
$
|
28
|
|
||||
Restructuring-related expenses:
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Cost of products sold
|
|
|
|
|
|
$
|
2
|
|
|
|
|
|
|
2
|
|
||||||
Selling, general and administrative expenses
|
|
|
|
|
|
|
|
|
3
|
|
|
3
|
|
||||||||
|
|
|
|
|
|
2
|
|
|
|
|
3
|
|
|
5
|
|
||||||
|
$
|
22
|
|
|
|
|
|
$
|
2
|
|
|
|
|
$
|
9
|
|
|
$
|
33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
(in millions)
|
Termination
Benefits
|
|
Accelerated
Depreciation
|
|
Transfer
Costs
|
|
Fixed Asset
Write-offs
|
|
Other
|
|
Total
|
||||||||||
2011 Restructuring plan
|
$
|
20
|
|
|
|
|
|
|
|
|
$
|
8
|
|
|
$
|
28
|
|
||||
2010 Restructuring plan
|
|
|
|
|
|
|
|
|
|
1
|
|
|
1
|
|
|||||||
Plant Network Optimization program
|
2
|
|
|
|
|
|
$
|
2
|
|
|
|
|
|
|
4
|
|
|||||
|
$
|
22
|
|
|
|
|
|
$
|
2
|
|
|
|
|
$
|
9
|
|
|
$
|
33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Three Months Ended June 30, 2011
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
(in millions)
|
Termination
Benefits
|
|
Accelerated
Depreciation
|
|
Transfer
Costs
|
|
Fixed Asset
Write-offs
|
|
Other
|
|
Total
|
||||||||||
Restructuring charges
|
$
|
8
|
|
|
|
|
|
|
|
|
$
|
10
|
|
|
$
|
18
|
|
||||
Restructuring-related expenses:
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Cost of products sold
|
|
|
$
|
3
|
|
|
$
|
8
|
|
|
|
|
|
|
11
|
|
|||||
Selling, general and administrative expenses
|
|
|
|
|
|
|
|
|
1
|
|
|
1
|
|
||||||||
|
|
|
3
|
|
|
8
|
|
|
|
|
1
|
|
|
12
|
|
||||||
|
$
|
8
|
|
|
$
|
3
|
|
|
$
|
8
|
|
|
|
|
$
|
11
|
|
|
$
|
30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
(in millions)
|
Termination
Benefits
|
|
Accelerated
Depreciation
|
|
Transfer
Costs
|
|
Fixed Asset
Write-offs
|
|
Other
|
|
Total
|
||||||||||
2010 Restructuring plan
|
$
|
2
|
|
|
|
|
|
|
|
|
$
|
11
|
|
|
$
|
13
|
|
||||
Plant Network Optimization program
|
6
|
|
|
$
|
3
|
|
|
$
|
8
|
|
|
|
|
|
|
17
|
|
||||
|
$
|
8
|
|
|
$
|
3
|
|
|
$
|
8
|
|
|
|
|
$
|
11
|
|
|
$
|
30
|
|
Six Months Ended June 30, 2012
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
(in millions)
|
Termination
Benefits
|
|
Accelerated
Depreciation
|
|
Transfer
Costs
|
|
Fixed Asset
Write-offs
|
|
Other
|
|
Total
|
||||||||||
Restructuring charges
|
$
|
20
|
|
|
|
|
|
|
|
|
$
|
19
|
|
|
$
|
39
|
|
||||
Restructuring-related expenses:
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Cost of products sold
|
|
|
|
|
|
$
|
6
|
|
|
|
|
|
|
6
|
|
||||||
Selling, general and administrative expenses
|
|
|
|
|
|
|
|
|
5
|
|
|
5
|
|
||||||||
|
|
|
|
|
|
6
|
|
|
|
|
5
|
|
|
11
|
|
||||||
|
$
|
20
|
|
|
|
|
|
$
|
6
|
|
|
|
|
$
|
24
|
|
|
$
|
50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
(in millions)
|
Termination
Benefits
|
|
Accelerated
Depreciation
|
|
Transfer
Costs
|
|
Fixed Asset
Write-offs
|
|
Other
|
|
Total
|
||||||||||
2011 Restructuring plan
|
$
|
22
|
|
|
|
|
|
|
|
|
$
|
21
|
|
|
$
|
43
|
|
||||
2010 Restructuring plan
|
(2
|
)
|
|
|
|
|
|
|
|
3
|
|
|
1
|
|
|||||||
Plant Network Optimization program
|
|
|
|
|
|
|
$
|
6
|
|
|
|
|
|
|
6
|
|
|||||
|
$
|
20
|
|
|
|
|
|
$
|
6
|
|
|
|
|
$
|
24
|
|
|
$
|
50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Six Months Ended June 30, 2011
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
(in millions)
|
Termination
Benefits
|
|
Accelerated
Depreciation
|
|
Transfer
Costs
|
|
Fixed Asset
Write-offs
|
|
Other
|
|
Total
|
||||||||||
Restructuring charges
|
$
|
36
|
|
|
|
|
|
|
|
|
$
|
20
|
|
|
$
|
56
|
|
||||
Restructuring-related expenses:
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Cost of products sold
|
|
|
$
|
6
|
|
|
$
|
16
|
|
|
|
|
|
|
22
|
|
|||||
Selling, general and administrative expenses
|
|
|
|
|
|
|
|
|
2
|
|
|
2
|
|
||||||||
|
|
|
6
|
|
|
16
|
|
|
|
|
2
|
|
|
24
|
|
||||||
|
$
|
36
|
|
|
$
|
6
|
|
|
$
|
16
|
|
|
|
|
$
|
22
|
|
|
$
|
80
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
(in millions)
|
Termination
Benefits
|
|
Accelerated
Depreciation
|
|
Transfer
Costs
|
|
Fixed Asset
Write-offs
|
|
Other
|
|
Total
|
||||||||||
2010 Restructuring plan
|
$
|
29
|
|
|
|
|
|
|
|
|
$
|
22
|
|
|
$
|
51
|
|
||||
Plant Network Optimization program
|
7
|
|
|
$
|
6
|
|
|
$
|
16
|
|
|
|
|
|
|
29
|
|
||||
|
$
|
36
|
|
|
$
|
6
|
|
|
$
|
16
|
|
|
|
|
$
|
22
|
|
|
$
|
80
|
|
(in millions)
|
2011
Restructuring
plan
|
|
2010
Restructuring
plan
|
|
Plant
Network
Optimization Program
|
|
Total
|
||||||||
Termination benefits
|
$
|
43
|
|
|
$
|
88
|
|
|
$
|
36
|
|
|
$
|
167
|
|
Fixed asset write-offs
|
|
|
|
11
|
|
|
|
|
11
|
|
|||||
Other
|
29
|
|
|
51
|
|
|
|
|
80
|
|
|||||
Total restructuring charges
|
72
|
|
|
150
|
|
|
36
|
|
|
258
|
|
||||
Accelerated depreciation
|
|
|
|
|
22
|
|
|
22
|
|
||||||
Transfer costs
|
|
|
|
|
71
|
|
|
71
|
|
||||||
Other
|
6
|
|
|
9
|
|
|
|
|
15
|
|
|||||
Restructuring-related expenses
|
6
|
|
|
9
|
|
|
93
|
|
|
108
|
|
||||
|
$
|
78
|
|
|
$
|
159
|
|
|
$
|
129
|
|
|
$
|
366
|
|
(in millions)
|
2011
Restructuring
plan
|
|
2010
Restructuring
plan
|
|
Plant
Network
Optimization Program
|
|
Total
|
||||||||
Three Months Ended June 30, 2012
|
|
|
|
|
|
|
|
||||||||
Termination benefits
|
$
|
8
|
|
|
$
|
1
|
|
|
$
|
6
|
|
|
$
|
15
|
|
Transfer costs
|
|
|
|
|
2
|
|
|
2
|
|
||||||
Other
|
13
|
|
|
|
|
|
|
|
13
|
|
|||||
|
$
|
21
|
|
|
$
|
1
|
|
|
$
|
8
|
|
|
$
|
30
|
|
|
|
|
|
|
|
|
|
||||||||
Six Months Ended June 30, 2012
|
|
|
|
|
|
|
|
||||||||
Termination benefits
|
$
|
16
|
|
|
$
|
3
|
|
|
$
|
17
|
|
|
$
|
36
|
|
Transfer costs
|
|
|
|
|
6
|
|
|
6
|
|
||||||
Other
|
23
|
|
|
|
|
|
|
|
23
|
|
|||||
|
$
|
39
|
|
|
$
|
3
|
|
|
$
|
23
|
|
|
$
|
65
|
|
|
|
|
|
|
|
|
|
||||||||
Program to Date
|
|
|
|
|
|
|
|
||||||||
Termination benefits
|
$
|
19
|
|
|
$
|
87
|
|
|
$
|
23
|
|
|
$
|
129
|
|
Transfer costs
|
|
|
|
|
71
|
|
|
71
|
|
||||||
Other
|
35
|
|
|
56
|
|
|
|
|
91
|
|
|||||
|
$
|
54
|
|
|
$
|
143
|
|
|
$
|
94
|
|
|
$
|
291
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plant
|
|
|
||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Network
|
|
|
||||||||||||||||
|
|
2011 Restructuring plan
|
|
2010 Restructuring plan
|
|
Optimization Program
|
|
|
||||||||||||||||||||||||
(in millions)
|
|
Termination
Benefits
|
|
Other
|
|
Subtotal
|
|
Termination
Benefits
|
|
Other
|
|
Subtotal
|
|
Termination
Benefits
|
|
Total
|
||||||||||||||||
Accrued as of December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
22
|
|
|
$
|
22
|
|
||||||||||||
Charges
|
|
|
|
|
|
|
|
|
|
|
$
|
66
|
|
|
$
|
28
|
|
|
$
|
94
|
|
|
4
|
|
|
98
|
|
|||||
Cash payments
|
|
|
|
|
|
|
|
|
|
|
(45
|
)
|
|
(20
|
)
|
|
(65
|
)
|
|
|
|
(65
|
)
|
|||||||||
Accrued as of December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
21
|
|
|
8
|
|
|
29
|
|
|
26
|
|
|
55
|
|
||||||||
Charges
|
|
$
|
21
|
|
|
$
|
13
|
|
|
$
|
34
|
|
|
24
|
|
|
24
|
|
|
48
|
|
|
10
|
|
|
92
|
|
|||||
Cash payments
|
|
(3
|
)
|
|
(10
|
)
|
|
(13
|
)
|
|
(39
|
)
|
|
(32
|
)
|
|
(71
|
)
|
|
(3
|
)
|
|
(87
|
)
|
||||||||
Accrued as of December 31, 2011
|
|
18
|
|
|
3
|
|
|
21
|
|
|
6
|
|
|
|
|
|
6
|
|
|
33
|
|
|
60
|
|
||||||||
Charges
|
|
22
|
|
|
21
|
|
|
43
|
|
|
(2
|
)
|
|
2
|
|
|
|
|
|
1
|
|
|
44
|
|
||||||||
Cash payments
|
|
(16
|
)
|
|
(23
|
)
|
|
(39
|
)
|
|
(3
|
)
|
|
|
|
|
(3
|
)
|
|
(17
|
)
|
|
(59
|
)
|
||||||||
Accrued as of
June 30, 2012
|
|
$
|
24
|
|
|
$
|
1
|
|
|
$
|
25
|
|
|
$
|
1
|
|
|
$
|
2
|
|
|
$
|
3
|
|
|
$
|
17
|
|
|
$
|
45
|
|
|
|
As of
|
||||||
(in millions)
|
|
June 30, 2012
|
|
December 31, 2011
|
||||
Accounts receivable
|
|
$
|
1,360
|
|
|
$
|
1,362
|
|
Less: allowance for doubtful accounts
|
|
(83
|
)
|
|
(81
|
)
|
||
Less: allowance for sales returns
|
|
(34
|
)
|
|
(35
|
)
|
||
|
|
$
|
1,243
|
|
|
$
|
1,246
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
||||||||||||
(in millions)
|
|
2012
|
|
2011
|
|
2012
|
|
2011
|
||||||||
Beginning balance
|
|
$
|
90
|
|
|
$
|
61
|
|
|
$
|
81
|
|
|
$
|
83
|
|
Net (credits) charges to expenses
|
|
(3
|
)
|
|
8
|
|
|
6
|
|
|
(11
|
)
|
||||
Utilization of allowances
|
|
(4
|
)
|
|
(2
|
)
|
|
(4
|
)
|
|
(5
|
)
|
||||
Ending balance
|
|
$
|
83
|
|
|
$
|
67
|
|
|
$
|
83
|
|
|
$
|
67
|
|
|
|
As of
|
||||||
(in millions)
|
|
June 30, 2012
|
|
December 31, 2011
|
||||
Finished goods
|
|
$
|
596
|
|
|
$
|
637
|
|
Work-in-process
|
|
78
|
|
|
71
|
|
||
Raw materials
|
|
224
|
|
|
223
|
|
||
|
|
$
|
898
|
|
|
$
|
931
|
|
|
|
As of
|
||||||
(in millions)
|
|
June 30, 2012
|
|
December 31, 2011
|
||||
Land
|
|
$
|
111
|
|
|
$
|
111
|
|
Buildings and improvements
|
|
930
|
|
|
923
|
|
||
Equipment, furniture and fixtures
|
|
1,985
|
|
|
1,919
|
|
||
Capital in progress
|
|
196
|
|
|
230
|
|
||
|
|
3,222
|
|
|
3,183
|
|
||
Less: accumulated depreciation
|
|
1,590
|
|
|
1,513
|
|
||
|
|
$
|
1,632
|
|
|
$
|
1,670
|
|
|
|
As of
|
||||||
(in millions)
|
|
June 30, 2012
|
|
December 31, 2011
|
||||
Legal reserves
|
|
$
|
98
|
|
|
$
|
129
|
|
Payroll and related liabilities
|
|
415
|
|
|
466
|
|
||
Accrued contingent consideration
|
|
184
|
|
|
37
|
|
||
Other
|
|
628
|
|
|
695
|
|
||
|
|
$
|
1,325
|
|
|
$
|
1,327
|
|
|
|
As of
|
||||||
(in millions)
|
|
June 30, 2012
|
|
December 31, 2011
|
||||
Legal reserves
|
|
$
|
277
|
|
|
$
|
170
|
|
Accrued income taxes
|
|
1,136
|
|
|
1,095
|
|
||
Accrued contingent consideration
|
|
440
|
|
|
321
|
|
||
Other long-term liabilities
|
|
387
|
|
|
422
|
|
||
|
|
$
|
2,240
|
|
|
$
|
2,008
|
|
|
|
Six Months Ended
June 30, |
||||||
|
|
2012
|
|
2011
|
||||
Beginning Balance
|
|
$
|
30
|
|
|
$
|
43
|
|
Provision
|
|
2
|
|
|
7
|
|
||
Settlements/reversals
|
|
(7
|
)
|
|
(13
|
)
|
||
Ending Balance
|
|
$
|
25
|
|
|
$
|
37
|
|
|
|
Three Months Ended
June 30,
|
||||
|
|
2012
|
|
2011
|
||
Reported tax rate
|
|
1.1
|
%
|
|
7.6
|
%
|
Impact of certain receipts/charges*
|
|
13.4
|
%
|
|
9.8
|
%
|
|
|
14.5
|
%
|
|
17.4
|
%
|
|
|
Six Months Ended
June 30,
|
||||
|
|
2012
|
|
2011
|
||
Reported tax rate
|
|
0.9
|
%
|
|
55.5
|
%
|
Impact of certain receipts/charges*
|
|
13.8
|
%
|
|
(40.0
|
)%
|
|
|
14.7
|
%
|
|
15.5
|
%
|
|
|
Three Months Ended
June 30, |
|
Six Months Ended
June 30, |
||||||||
(in millions)
|
|
2012
|
|
2011
|
|
2012
|
|
2011
|
||||
Weighted average shares outstanding - basic
|
|
1,423.2
|
|
|
1,528.6
|
|
|
1,434.2
|
|
|
1,527.5
|
|
Net effect of common stock equivalents
|
|
|
|
*
|
7.2
|
|
|
|
|
*
|
8.5
|
|
Weighted average shares outstanding - assuming dilution
|
|
1,423.2
|
|
|
1,535.8
|
|
|
1,434.2
|
|
|
1,536.0
|
|
|
|
Three Months Ended
June 30, |
|
Six Months Ended
June 30, |
||||||||||||
(in millions)
|
|
2012
|
|
2011
|
|
2012
|
|
2011
|
||||||||
Net sales
|
|
|
|
(restated)
|
|
|
|
(restated)
|
||||||||
United States
|
|
$
|
947
|
|
|
$
|
1,040
|
|
|
$
|
1,926
|
|
|
$
|
2,063
|
|
EMEA
|
|
440
|
|
|
448
|
|
|
887
|
|
|
911
|
|
||||
Japan
|
|
209
|
|
|
213
|
|
|
420
|
|
|
427
|
|
||||
Inter-Continental
|
|
208
|
|
|
188
|
|
|
399
|
|
|
362
|
|
||||
Net sales allocated to reportable segments
|
|
1,804
|
|
|
1,889
|
|
|
3,632
|
|
|
3,763
|
|
||||
Sales generated from divested businesses
|
|
31
|
|
|
42
|
|
|
59
|
|
|
78
|
|
||||
Impact of foreign currency fluctuations
|
|
(7
|
)
|
|
44
|
|
|
3
|
|
|
59
|
|
||||
|
|
$
|
1,828
|
|
|
$
|
1,975
|
|
|
$
|
3,694
|
|
|
$
|
3,900
|
|
(Loss) income before income taxes
|
|
|
|
|
|
|
|
|
||||||||
United States
|
|
$
|
162
|
|
|
$
|
157
|
|
|
$
|
307
|
|
|
$
|
373
|
|
EMEA
|
|
179
|
|
|
185
|
|
|
346
|
|
|
389
|
|
||||
Japan
|
|
105
|
|
|
99
|
|
|
205
|
|
|
199
|
|
||||
Inter-Continental
|
|
65
|
|
|
66
|
|
|
125
|
|
|
128
|
|
||||
Operating income allocated to reportable segments
|
|
511
|
|
|
507
|
|
|
983
|
|
|
1,089
|
|
||||
Manufacturing operations
|
|
(94
|
)
|
|
(71
|
)
|
|
(163
|
)
|
|
(138
|
)
|
||||
Corporate expenses and currency exchange
|
|
(66
|
)
|
|
(53
|
)
|
|
(145
|
)
|
|
(116
|
)
|
||||
Goodwill and other intangible asset impairment charges; and acquisition-, divestiture-, restructuring-, and litigation-related net (charges) credits
|
|
(3,839
|
)
|
|
(50
|
)
|
|
(3,870
|
)
|
|
(47
|
)
|
||||
Amortization expense
|
|
(99
|
)
|
|
(96
|
)
|
|
(195
|
)
|
|
(228
|
)
|
||||
|
|
(3,587
|
)
|
|
237
|
|
|
(3,390
|
)
|
|
560
|
|
||||
Other expense, net
|
|
(31
|
)
|
|
(79
|
)
|
|
(105
|
)
|
|
(129
|
)
|
||||
|
|
$
|
(3,618
|
)
|
|
$
|
158
|
|
|
$
|
(3,495
|
)
|
|
$
|
431
|
|
ITEM 2.
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
|
|
Three Months Ended June 30, 2011
|
|
||||||||||||||
|
|
|
|
Tax
|
|
|
|
Impact per
|
|
||||||||
in millions, except per share data
|
|
Pre-Tax
|
|
Impact
|
|
After-Tax
|
|
share
|
|
||||||||
GAAP net income
|
|
$
|
158
|
|
|
$
|
(12
|
)
|
|
$
|
146
|
|
|
$
|
0.10
|
|
|
Non-GAAP adjustments:
|
|
|
|
|
|
|
|
|
|
||||||||
Intangible asset impairment charge
|
|
12
|
|
|
(3
|
)
|
|
9
|
|
|
0.01
|
|
|
||||
Acquisition-related net charges
|
|
7
|
|
|
(1
|
)
|
|
6
|
|
|
0.00
|
|
|
||||
Divestiture-related charges
|
|
1
|
|
|
|
|
1
|
|
|
0.00
|
|
|
|||||
Restructuring-related charges
|
|
30
|
|
|
(9
|
)
|
|
21
|
|
|
0.01
|
|
|
||||
Amortization expense
|
|
96
|
|
|
(17
|
)
|
|
79
|
|
|
0.05
|
|
|
||||
Adjusted net income
|
|
$
|
304
|
|
|
$
|
(42
|
)
|
|
$
|
262
|
|
|
$
|
0.17
|
|
|
|
|
Six Months Ended June 30, 2011
|
|
||||||||||||||
|
|
|
|
Tax
|
|
|
|
Impact per
|
|
||||||||
in millions, except per share data
|
|
Pre-Tax
|
|
Impact
|
|
After-Tax
|
|
share
|
|
||||||||
GAAP net income
|
|
$
|
431
|
|
|
$
|
(239
|
)
|
|
$
|
192
|
|
|
$
|
0.12
|
|
|
Non-GAAP adjustments:
|
|
|
|
|
|
|
|
|
|
||||||||
Goodwill impairment charge
|
|
697
|
|
|
|
|
697
|
|
|
0.45
|
|
|
|||||
Intangible asset impairment charge
|
|
12
|
|
|
(3
|
)
|
|
9
|
|
|
0.00
|
|
|
||||
Acquisition-related net credits
|
|
(22
|
)
|
|
(1
|
)
|
|
(23
|
)
|
|
(0.01)
|
|
|
||||
Divestiture-related net credits
|
|
(758
|
)
|
|
228
|
|
|
(530
|
)
|
|
(0.34)
|
|
|
||||
Restructuring-related charges
|
|
80
|
|
|
(24
|
)
|
|
56
|
|
|
0.04
|
|
|
||||
Discrete tax items
|
|
|
|
4
|
|
|
4
|
|
|
0.00
|
|
|
|||||
Amortization expense
|
|
228
|
|
|
(35
|
)
|
|
193
|
|
|
0.13
|
|
|
||||
Adjusted net income
|
|
$
|
668
|
|
|
$
|
(70
|
)
|
|
$
|
598
|
|
|
$
|
0.39
|
|
|
|
|
Three Months Ended
|
|
Three Months Ended
|
||||||||||||||||||||
(in millions)
|
|
June 30, 2012
|
|
June 30, 2011
|
||||||||||||||||||||
|
|
U.S.
|
|
International
|
|
Total
|
|
U.S.
|
|
International
|
|
Total
|
||||||||||||
ICD systems
|
|
$
|
220
|
|
|
$
|
135
|
|
|
$
|
355
|
|
|
$
|
243
|
|
|
$
|
150
|
|
|
$
|
393
|
|
Pacemaker systems
|
|
64
|
|
|
69
|
|
|
133
|
|
|
72
|
|
|
79
|
|
|
151
|
|
||||||
CRM products
|
|
$
|
284
|
|
|
$
|
204
|
|
|
$
|
488
|
|
|
$
|
315
|
|
|
$
|
229
|
|
|
$
|
544
|
|
•
|
the on-going impact of physician alignment to hospitals, government investigations and audits of hospitals, and other market and economic conditions on the overall number of procedures performed and average selling prices;
|
•
|
our ability to retain and attract key members of our CRM sales force and other key CRM personnel;
|
•
|
the ability of CRM manufacturers to maintain the trust and confidence of the implanting physician community, the referring physician community and prospective patients in CRM technologies;
|
•
|
future product field actions or new physician advisories issued by us or our competitors;
|
•
|
our ability to timely and successfully acquire or develop and launch new or next-generation products and technologies worldwide, including the S-ICD® system in the U.S.;
|
•
|
variations in clinical results, reliability or product performance of our and our competitors’ products;
|
•
|
delayed or limited regulatory approvals and unfavorable reimbursement policies; and
|
•
|
new product launches by our competitors.
|
|
|
Three Months Ended
|
|
Three Months Ended
|
||||||||||||||||||||
(in millions)
|
|
June 30, 2012
|
|
June 30, 2011
|
||||||||||||||||||||
|
|
U.S.
|
|
International
|
|
Total
|
|
U.S.
|
|
International
|
|
Total
|
||||||||||||
Drug-eluting
|
|
140
|
|
|
178
|
|
|
318
|
|
|
208
|
|
|
192
|
|
|
400
|
|
||||||
Bare-metal
|
|
6
|
|
|
16
|
|
|
22
|
|
|
8
|
|
|
20
|
|
|
28
|
|
||||||
|
|
$
|
146
|
|
|
$
|
194
|
|
|
$
|
340
|
|
|
$
|
216
|
|
|
$
|
212
|
|
|
$
|
428
|
|
•
|
the performance benefits of our current and future technology;
|
•
|
the strength of our pipeline of drug-eluting stent products, including our SYNERGY® stent system, which has shown favorable results in clinical trials to date;
|
•
|
the broad and consistent long-term results of our TAXUS® clinical trials, and the favorable results of PROMUS® Element™ and TAXUS® Element™ (ION™) stent system clinical trials to date;
|
•
|
our two-drug platform;
|
•
|
our overall position in the worldwide interventional medicine market and our experienced interventional cardiology sales force;
|
•
|
the strength of our clinical, selling, marketing and manufacturing capabilities; and
|
•
|
our increased presence and investment in rapidly growing emerging markets, including China and India.
|
•
|
the impact of competitive pricing pressure on average selling prices of drug-eluting stent systems available in the market;
|
•
|
the impact and outcomes of on-going and future clinical results involving our or our competitors’ products, including those trials sponsored by our competitors, or perceived product performance of our or our competitors’ products;
|
•
|
new product launches by our competitors;
|
•
|
our ability to timely and successfully launch new or next-generation products and technologies, in line with our commercialization strategies;
|
•
|
physician and patient confidence in our current and next-generation technology;
|
•
|
changes in the overall number of percutaneous coronary intervention procedures performed, drug-eluting stent penetration rates and the average number of stents used per procedure;
|
•
|
delayed or limited regulatory approvals and unfavorable reimbursement policies; and
|
•
|
the outcome of intellectual property litigation.
|
|
|
|
|
|
|
Change
|
||||||||||
|
|
Three Months Ended
June 30,
|
|
As Reported
Currency
Basis
|
|
Constant
Currency
Basis
|
||||||||||
(in millions)
|
|
2012
|
|
2011
|
|
|
||||||||||
|
|
|
|
|
|
|
|
|
|
|
||||||
United States
|
|
$
|
947
|
|
|
$
|
1,040
|
|
|
(9
|
)
|
%
|
|
(9
|
)
|
%
|
EMEA
|
|
402
|
|
|
452
|
|
|
(11
|
)
|
%
|
|
(2
|
)
|
%
|
||
Japan
|
|
235
|
|
|
235
|
|
|
0
|
|
%
|
|
(2
|
)
|
%
|
||
Inter-Continental
|
|
214
|
|
|
205
|
|
|
4
|
|
%
|
|
11
|
|
%
|
||
International
|
|
851
|
|
|
892
|
|
|
(5
|
)
|
%
|
|
1
|
|
%
|
||
Subtotal Core Businesses
|
|
1,798
|
|
|
1,932
|
|
|
(7
|
)
|
%
|
|
(4
|
)
|
%
|
||
Divested Businesses
|
|
30
|
|
|
43
|
|
|
N/A
|
|
|
|
N/A
|
|
|
||
Worldwide
|
|
$
|
1,828
|
|
|
$
|
1,975
|
|
|
(7
|
)
|
%
|
|
(5
|
)
|
%
|
|
|
|
|
|
|
Change
|
||||||||||
|
|
Six Months Ended
June 30,
|
|
As Reported
Currency
Basis
|
|
Constant
Currency
Basis
|
||||||||||
(in millions)
|
|
2012
|
|
2011
|
|
|
||||||||||
|
|
|
|
|
|
|
|
|
|
|
||||||
United States
|
|
$
|
1,926
|
|
|
$
|
2,063
|
|
|
(7
|
)
|
%
|
|
(7
|
)
|
%
|
EMEA
|
|
817
|
|
|
900
|
|
|
(9
|
)
|
%
|
|
(3
|
)
|
%
|
||
Japan
|
|
474
|
|
|
470
|
|
|
1
|
|
%
|
|
(2
|
)
|
%
|
||
Inter-Continental
|
|
418
|
|
|
390
|
|
|
7
|
|
%
|
|
10
|
|
%
|
||
International
|
|
1,709
|
|
|
1,760
|
|
|
(3
|
)
|
%
|
|
0
|
|
%
|
||
Subtotal Core Businesses
|
|
3,635
|
|
|
3,823
|
|
|
(5
|
)
|
%
|
|
(4
|
)
|
%
|
||
Divested Businesses
|
|
59
|
|
|
77
|
|
|
N/A
|
|
|
|
N/A
|
|
|
||
Worldwide
|
|
$
|
3,694
|
|
|
$
|
3,900
|
|
|
(5
|
)
|
%
|
|
(4
|
)
|
%
|
|
|
|
|
|
|
Change
|
||||||||||
|
|
Three Months Ended
June 30,
|
|
As Reported
Currency
Basis
|
|
Constant
Currency
Basis
|
||||||||||
(in millions)
|
|
2012
|
|
2011
|
|
|
||||||||||
Interventional Cardiology
|
|
$
|
549
|
|
|
$
|
652
|
|
|
(16
|
)
|
%
|
|
(13
|
)
|
%
|
Cardiac Rhythm Management
|
|
488
|
|
|
544
|
|
|
(10
|
)
|
%
|
|
(8
|
)
|
%
|
||
Endoscopy
|
|
311
|
|
|
298
|
|
|
4
|
|
%
|
|
7
|
|
%
|
||
Peripheral Interventions
|
|
196
|
|
|
189
|
|
|
4
|
|
%
|
|
7
|
|
%
|
||
Urology/Women’s Health
|
|
126
|
|
|
127
|
|
|
(1
|
)
|
%
|
|
0
|
|
%
|
||
Neuromodulation
|
|
91
|
|
|
84
|
|
|
9
|
|
%
|
|
10
|
|
%
|
||
Electrophysiology
|
|
37
|
|
|
38
|
|
|
(2
|
)
|
%
|
|
0
|
|
%
|
||
Subtotal Core Businesses
|
|
1,798
|
|
|
1,932
|
|
|
(7
|
)
|
%
|
|
(4
|
)
|
%
|
||
Divested Businesses
|
|
30
|
|
|
43
|
|
|
N/A
|
|
|
|
N/A
|
|
|
||
Worldwide
|
|
$
|
1,828
|
|
|
$
|
1,975
|
|
|
(7
|
)
|
%
|
|
(5
|
)
|
%
|
|
|
|
|
|
|
Change
|
||||||||||
|
|
Six Months Ended
June 30,
|
|
As Reported
Currency
Basis
|
|
Constant
Currency
Basis
|
||||||||||
(in millions)
|
|
2012
|
|
2011
|
|
|
||||||||||
Interventional Cardiology
|
|
$
|
1,153
|
|
|
$
|
1,288
|
|
|
(11
|
)
|
%
|
|
(9
|
)
|
%
|
Cardiac Rhythm Management
|
|
989
|
|
|
1,103
|
|
|
(10
|
)
|
%
|
|
(9
|
)
|
%
|
||
Endoscopy
|
|
612
|
|
|
585
|
|
|
5
|
|
%
|
|
6
|
|
%
|
||
Peripheral Interventions
|
|
386
|
|
|
365
|
|
|
6
|
|
%
|
|
7
|
|
%
|
||
Urology/Women’s Health
|
|
246
|
|
|
247
|
|
|
0
|
|
%
|
|
0
|
|
%
|
||
Neuromodulation
|
|
175
|
|
|
161
|
|
|
9
|
|
%
|
|
9
|
|
%
|
||
Electrophysiology
|
|
74
|
|
|
74
|
|
|
(1
|
)
|
%
|
|
0
|
|
%
|
||
Subtotal Core Businesses
|
|
3,635
|
|
|
3,823
|
|
|
(5
|
)
|
%
|
|
(4
|
)
|
%
|
||
Divested Businesses
|
|
59
|
|
|
77
|
|
|
N/A
|
|
|
|
N/A
|
|
|
||
Worldwide
|
|
$
|
3,694
|
|
|
$
|
3,900
|
|
|
(5
|
)
|
%
|
|
(4
|
)
|
%
|
|
|
Q2
2012 Net Sales as compared to Q2 2011
|
||||||||||
|
|
Change
|
|
Estimated
Impact of
Foreign
Currency
|
||||||||
|
|
As Reported
Currency
Basis
|
|
Constant
Currency
Basis
|
|
|||||||
(in millions)
|
|
|
|
|||||||||
Interventional Cardiology
|
|
$
|
(103
|
)
|
|
$
|
(85
|
)
|
|
$
|
(18
|
)
|
Cardiac Rhythm Management
|
|
(56
|
)
|
|
(40
|
)
|
|
(16
|
)
|
|||
Endoscopy
|
|
13
|
|
|
20
|
|
|
(7
|
)
|
|||
Peripheral Interventions
|
|
7
|
|
|
12
|
|
|
(5
|
)
|
|||
Urology/Women’s Health
|
|
(1
|
)
|
|
0
|
|
|
(1
|
)
|
|||
Neuromodulation
|
|
7
|
|
|
8
|
|
|
(1
|
)
|
|||
Electrophysiology
|
|
(1
|
)
|
|
0
|
|
|
(1
|
)
|
|||
Subtotal Core Businesses
|
|
(134
|
)
|
|
(85
|
)
|
|
(49
|
)
|
|||
Divested Businesses
|
|
(13
|
)
|
|
(11
|
)
|
|
(2
|
)
|
|||
Worldwide
|
|
$
|
(147
|
)
|
|
$
|
(96
|
)
|
|
$
|
(51
|
)
|
|
|
Q2 2012 YTD Net Sales as compared to Q2 2011 YTD
|
||||||||||
|
|
Change
|
|
Estimated
Impact of
Foreign
Currency
|
||||||||
|
|
As Reported
Currency
Basis
|
|
Constant
Currency
Basis
|
|
|||||||
(in millions)
|
|
|
|
|||||||||
Interventional Cardiology
|
|
$
|
(135
|
)
|
|
$
|
(113
|
)
|
|
$
|
(22
|
)
|
Cardiac Rhythm Management
|
|
(114
|
)
|
|
(96
|
)
|
|
(18
|
)
|
|||
Endoscopy
|
|
27
|
|
|
36
|
|
|
(9
|
)
|
|||
Peripheral Interventions
|
|
21
|
|
|
26
|
|
|
(5
|
)
|
|||
Urology/Women’s Health
|
|
(1
|
)
|
|
0
|
|
|
(1
|
)
|
|||
Neuromodulation
|
|
14
|
|
|
14
|
|
|
0
|
|
|||
Electrophysiology
|
|
0
|
|
|
0
|
|
|
0
|
|
|||
Subtotal Core Businesses
|
|
(188
|
)
|
|
(133
|
)
|
|
(55
|
)
|
|||
Divested Businesses
|
|
(18
|
)
|
|
(17
|
)
|
|
(1
|
)
|
|||
Worldwide
|
|
$
|
(206
|
)
|
|
$
|
(150
|
)
|
|
$
|
(56
|
)
|
|
Three Months
|
Six Months
|
||
Gross profit margin - period ended June 30, 2011
|
65.2
|
%
|
66.2
|
%
|
PROMUS® supply true-up
|
|
(1.3
|
)%
|
|
Sales mix and pricing
|
(1.9
|
)%
|
(1.5
|
)%
|
PROMUS® profit sharing savings
|
2.1
|
%
|
1.9
|
%
|
Manufacturing cost reductions
|
1.7
|
%
|
1.0
|
%
|
All other, including inventory charges, other period expense and net impact of foreign currency
|
1.3
|
%
|
1.0
|
%
|
Gross profit margin - period ended June 30, 2012
|
68.4
|
%
|
67.3
|
%
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
||||||||||||||||
|
|
2012
|
|
2011
|
|
2012
|
|
2011
|
||||||||||||
|
|
|
|
% of Net
|
|
|
|
% of Net
|
|
|
|
% of Net
|
|
|
|
% of Net
|
||||
(in millions)
|
|
$
|
|
Sales
|
|
$
|
|
Sales
|
|
$
|
|
Sales
|
|
$
|
|
Sales
|
||||
Selling, general and administrative expenses
|
|
648
|
|
|
35.4%
|
|
642
|
|
|
32.5%
|
|
1,306
|
|
|
35.4%
|
|
1,237
|
|
|
31.7%
|
Research and development expenses
|
|
213
|
|
|
11.7%
|
|
223
|
|
|
11.3%
|
|
428
|
|
|
11.6%
|
|
435
|
|
|
11.2%
|
Royalty expense
|
|
48
|
|
|
2.6%
|
|
52
|
|
|
2.6%
|
|
96
|
|
|
2.6%
|
|
103
|
|
|
2.6%
|
•
|
decreases in estimated market sizes or market growth rates due to greater-than-expected declines in procedural volumes, pricing pressures, product actions, and/or competitive technology developments;
|
•
|
declines in our market share and penetration assumptions due to increased competition, an inability to develop or launch new and next-generation products and technology features in line with our commercialization strategies, and market and/or regulatory conditions that may cause significant launch delays or product recalls;
|
•
|
decreases in our profitability due to an inability to successfully implement and achieve timely and sustainable cost improvement measures consistent with our expectations, increases in our market-participant tax rate, and/or changes in tax laws;
|
•
|
negative developments in intellectual property litigation that may impact our ability to market certain products or increase our costs to sell certain products;
|
•
|
the level of success of on-going and future research and development efforts, including those related to recent acquisitions, and increases in the research and development costs necessary to obtain regulatory approvals and launch new products;
|
•
|
the level of success in managing the growth of acquired companies, achieving sustained profitability consistent with our expectations, and establishing government and third-party payer reimbursement, and increases in the costs and time necessary to integrate acquired businesses into our operations successfully;
|
•
|
changes in our reporting units or in the structure of our business as a result of future reorganizations or divestitures of assets or businesses;
|
•
|
increases in our market-participant risk-adjusted WACC; and
|
•
|
declines in revenue as a result of loss of key members of our sales force and other key personnel.
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
||||||||||||
|
|
|
||||||||||||||
(in millions)
|
|
2012
|
|
2011
|
|
2012
|
|
2011
|
||||||||
Interest income
|
|
$
|
1
|
|
|
$
|
1
|
|
|
$
|
2
|
|
|
$
|
5
|
|
Foreign currency losses
|
|
(7
|
)
|
|
(4
|
)
|
|
(10
|
)
|
|
(5
|
)
|
||||
Net gains (losses) on investments
|
|
39
|
|
|
(1
|
)
|
|
36
|
|
|
23
|
|
||||
Other expense, net
|
|
|
|
(2
|
)
|
|
(1
|
)
|
|
(4
|
)
|
|||||
|
|
$
|
33
|
|
|
$
|
(6
|
)
|
|
$
|
27
|
|
|
$
|
19
|
|
|
|
Three Months Ended
June 30,
|
||||
|
|
2012
|
|
2011
|
||
Reported tax rate
|
|
1.1
|
%
|
|
7.6
|
%
|
Impact of certain receipts/charges*
|
|
13.4
|
%
|
|
9.8
|
%
|
|
|
14.5
|
%
|
|
17.4
|
%
|
|
|
Six Months Ended
June 30,
|
||||
|
|
2012
|
|
2011
|
||
Reported tax rate
|
|
0.9
|
%
|
|
55.5
|
%
|
Impact of certain receipts/charges*
|
|
13.8
|
%
|
|
(40.0
|
)%
|
|
|
14.7
|
%
|
|
15.5
|
%
|
|
|
Six Months Ended
June 30,
|
||||||
(in millions)
|
|
2012
|
|
2011
|
||||
Cash provided by operating activities
|
|
$
|
619
|
|
|
$
|
293
|
|
Cash (used for) provided by investing activities
|
|
(257
|
)
|
|
886
|
|
||
Cash used for financing activities
|
|
(259
|
)
|
|
(1,241
|
)
|
|
|
|
|
|
||||||||||||||||||||
(in millions)
|
|
2012
|
|
2013
|
|
2014
|
|
2015
|
|
2016
|
|
Thereafter
|
|
Total
|
||||||||||
Senior notes
|
|
|
|
|
|
$
|
600
|
|
|
$
|
1,250
|
|
|
$
|
600
|
|
|
$
|
1,750
|
|
|
$
|
4,200
|
|
|
|
|
|
|
|
$
|
600
|
|
|
$
|
1,250
|
|
|
$
|
600
|
|
|
$
|
1,750
|
|
|
$
|
4,200
|
|
Note:
|
The table above does not include unamortized discounts associated with our senior notes, or amounts related to terminated interest rate contracts used to hedge the fair value of certain of our senior notes.
|
|
Covenant
Requirement
|
|
Actual as of
June 30, 2012
|
Maximum leverage ratio (1)
|
3.5 times
|
|
2.4 times
|
Minimum interest coverage ratio (2)
|
3.0 times
|
|
6.6 times
|
(1)
|
Ratio of total debt to consolidated EBITDA, as defined by the credit agreement, for the preceding four consecutive fiscal quarters.
|
(2)
|
Ratio of consolidated EBITDA, as defined by the credit agreement, to interest expense for the preceding four consecutive fiscal quarters.
|
•
|
Goodwill and other intangible asset impairment charges - These amounts represents a) a non-cash write-down of the goodwill balance attributable to our Europe/Middle East/Africa (EMEA) reporting unit recorded in the second quarter of 2012, b) a non-cash write-down of the goodwill balance attributable to our U.S. CRM reporting unit recorded in the first quarter of 2011 and c) non-cash write-downs of certain intangible asset balances. Management removes the impact of non-cash impairment charges from our operating performance to assist in assessing our cash generated from operations. Management believes this is a critical metric for measuring our ability to generate cash and invest in our growth. Therefore, these charges are excluded from management's assessment of operating performance and are also excluded for purposes of calculating these non-GAAP financial measures to facilitate an evaluation of our current operating performance and a comparison to our past operating performance, particularly in terms of liquidity.
|
•
|
Acquisition-related charges (credits) - These adjustments consist of (a) acquisition-related gains on previously held investments, (b) contingent consideration fair value adjustments, (c) due diligence, other fees and exit costs, and (d) an inventory step-up adjustment. The acquisition-related gains on previously held investments are non-recurring benefits associated with acquisitions completed in the second quarter of 2012 and the first quarter of 2011. The contingent consideration adjustments are non-cash charges representing accounting adjustments to state contingent consideration liabilities at their estimated fair value. These adjustments can be highly variable depending on the assessed likelihood and amount of future contingent consideration payments. Due diligence, other fees and exit costs include legal, tax, severance and other expenses associated with prior acquisitions that are not representative of on-going operations. The inventory step-up adjustment is a non-cash charge related to acquired inventory directly attributable to prior acquisitions and is not indicative of our on-going operations, or on-going cost of products sold. Accordingly, management excluded these amounts for purposes of calculating these non-GAAP financial measures to facilitate an evaluation of our current operating performance and a comparison to the Company's past operating performance.
|
•
|
Divestiture-related charges (credits) - These amounts represent (a) gains resulting from business divestitures and (b) fees and separation costs associated with business divestitures. We completed the sale of our Neurovascular business in January 2011 and the resulting gain is not indicative of future operating performance and is not used by management to assess operating performance. Fees and separation costs represent those associated with the divestiture of our Neurovascular business and are not representative of on-going operations. Accordingly, management excluded these amounts for purposes of calculating these non-GAAP financial measures to facilitate an evaluation of our current operating performance and a comparison to our past operating performance.
|
•
|
Restructuring and restructuring-related costs - These adjustments represent primarily severance, costs to transfer production lines from one facility to another, and other direct costs associated with the 2011 Restructuring plan, 2010 Restructuring plan and Plant Network Optimization program. These expenses are excluded by management in assessing our operating performance, as well as from our operating segments' measures of profit and loss used for making operating decisions and assessing performance. Accordingly, management excluded these charges for purposes of calculating these non-GAAP financial measures to facilitate an evaluation of our current operating performance and a comparison to our past operating performance.
|
•
|
Litigation-related net charges - These adjustments include certain significant product liability and other litigation-related charges and credits. These amounts are excluded by management in assessing our operating performance, as well as from our operating segments' measures of profit and loss used for making operating decisions and assessing performance. Accordingly, management excluded these amounts for purposes of calculating these non-GAAP financial measures to facilitate an evaluation of our current operating performance and a comparison to our past operating performance.
|
•
|
Discrete tax items - These items represent adjustments of certain tax positions, which were initially established in prior
|
•
|
Amortization expense - Amortization expense is a non-cash charge and does not impact our liquidity or compliance with the covenants included in our credit facility agreement. Management removes the impact of amortization from our operating performance to assist in assessing our cash generated from operations. Management believes this is a critical metric for measuring our ability to generate cash and invest in our growth. Therefore, amortization expense is excluded from management's assessment of operating performance and is also excluded from the measures management uses to set employee compensation. Accordingly, management has excluded amortization expense for purposes of calculating these non-GAAP financial measures to facilitate an evaluation of our current operating performance, particularly in terms of liquidity.
|
•
|
Changes in foreign currency exchange rates - The impact of changes in foreign currency exchange rates is highly variable and difficult to predict. Accordingly, management excludes the impact of changes in foreign currency exchange rates for purposes of reviewing regional and divisional revenue growth rates to facilitate an evaluation of our current operating performance and a comparison to our past operating performance.
|
•
|
Our estimates for the U.S. and worldwide CRM markets, as well as our ability to increase CRM net sales and recapture market share;
|
•
|
The overall performance of, and referring physician, implanting physician and patient confidence in, our and our competitors' CRM products and technologies, including our INGENIO™ family of pacemaker systems, our next-generation INCEPTA™, ENERGEN™ and PUNCTUA™ defibrillators, and our LATITUDE® Patient Management System;
|
•
|
The results of CRM clinical trials and market studies undertaken by us, our competitors or other third parties;
|
•
|
Our ability to successfully launch next-generation products and technology features in line with our commercialization strategies, including our INGENIO™ pacemaker system;
|
•
|
Our ability to grow sales of both new and replacement implant units;
|
•
|
Competitive offerings in the CRM market and related declines in average selling prices, as well as the timing of receipt of regulatory approvals to market existing and anticipated CRM products and technologies; and
|
•
|
Our ability to retain and attract key members of our CRM sales force and other key CRM personnel.
|
•
|
Volatility in the coronary stent market, our estimates for the worldwide coronary stent market, our ability to increase coronary stent system net sales, competitive offerings and the timing of receipt of regulatory approvals, both in the U.S. and internationally, to market existing and anticipated drug-eluting stent technology and other stent platforms;
|
•
|
Our ability to timely and successfully launch next-generation products and technology features in line with our commercialization strategies, and the impact of our competitive launches;
|
•
|
The results of coronary stent clinical trials undertaken by us, our competitors or other third parties;
|
•
|
Our ability to maintain or expand our worldwide market positions;
|
•
|
Our share of the U.S. and worldwide drug-eluting stent markets, procedural volumes, the average number of stents used per procedure, average selling prices, and the penetration rate of drug-eluting stent technology in the U.S. and international markets;
|
•
|
The overall performance of, and continued physician confidence in, our and other drug-eluting stent systems, including our PROMUS
®
Element™ stent systems;
|
•
|
Enhanced requirements to obtain regulatory approval in the U.S. and around the world and the associated impact on new product launch schedules and the cost of product approval and compliance; and
|
•
|
Our ability to retain and attract key members of our cardiology sales force and other key personnel.
|
•
|
The overall performance of, and continued physician confidence in, our products and technologies;
|
•
|
Our ability to timely and successfully launch next-generation products and technology features in line with our commercialization strategies, and the impact of competitive launches;
|
•
|
The results of clinical trials undertaken by us, our competitors or other third parties;
|
•
|
Our ability to maintain or expand our worldwide market positions through investments in next-generation technologies; and
|
•
|
Our ability to attract and retain key members of our sales force and other key personnel.
|
•
|
Risks generally associated with our regulatory compliance and quality systems in the U.S. and around the world;
|
•
|
Our ability to minimize or avoid future field actions or FDA warning letters relating to our products and the on-going inherent risk of potential physician advisories or field actions related to medical devices;
|
•
|
Heightened global regulatory enforcement arising from political and regulatory changes as well as economic pressures;
|
•
|
The effect of our litigation and risk management practices, including self-insurance, and compliance activities on our loss contingencies, legal provision and cash flows;
|
•
|
The impact of, diversion of management attention, and costs to resolve, our stockholder derivative and class action, patent, product liability, contract and other litigation, governmental investigations and legal proceedings;
|
•
|
Costs associated with our on-going compliance and quality activities and sustaining organizations;
|
•
|
The impact of increased pressure on the availability and rate of third-party reimbursement for our products and procedures worldwide; and
|
•
|
Legislative or regulatory efforts to modify the product approval or reimbursement process, including a trend toward demonstrating clinical outcomes, comparative effectiveness and cost efficiency.
|
•
|
Our ability to complete planned clinical trials successfully, to obtain regulatory approvals and to develop and launch products on a timely basis within cost estimates, including the successful completion of in-process projects from purchased research and development;
|
•
|
Our ability to manage research and development and other operating expenses consistent with our expected net sales growth;
|
•
|
Our ability to develop and launch next-generation products and technologies successfully across all of our businesses;
|
•
|
Our ability to avoid disruption in the supply of certain components, materials or products, or to quickly secure additional or replacement components, materials or products on a timely basis;
|
•
|
Our ability to fund with cash or common stock any acquisitions or alliances, or to fund contingent payments associated with these acquisitions or alliances;
|
•
|
Our ability to achieve benefits from our focus on internal research and development and external alliances and acquisitions as well as our ability to capitalize on opportunities across our businesses;
|
•
|
Our failure to succeed at, or our decision to discontinue, any of our growth initiatives, as well as competitive interest in the same or similar technologies;
|
•
|
Our ability to integrate and realize anticipated benefits of the strategic acquisitions we have consummated or may consummate in the future;
|
•
|
Our ability to prioritize our internal research and development project portfolio and our external investment portfolio to identify profitable revenue growth opportunities and keep expenses in line with expected revenue levels, or our decision to sell, discontinue, write down or reduce the funding of any of these projects;
|
•
|
The timing, size and nature of strategic initiatives, market opportunities and research and development platforms available to us and the ultimate cost and success of these initiatives; and
|
•
|
Our ability to successfully identify, develop and market new products or the ability of others to develop products or technologies that render our products or technologies noncompetitive or obsolete.
|
•
|
Our dependency on international net sales to achieve growth, in particular, with respect to emerging markets, including India and China;
|
•
|
Changes in our international structure and leadership;
|
•
|
Risks associated with international operations and investments, including compliance with local legal and regulatory requirements, changes in reimbursement practices and policies, and enforcement and protection of intellectual property rights;
|
•
|
Our ability to maintain or expand our worldwide market positions through investments in emerging markets;
|
•
|
Our ability to execute and realize anticipated benefits from our investments in emerging markets, including our plan to build a manufacturing facility in China to serve local market needs;
|
•
|
The potential effect of foreign currency fluctuations and interest rate fluctuations on our net sales, expenses and resulting margins; and
|
•
|
Uncertainties related to economic, political and legal conditions.
|
•
|
Our ability to generate sufficient cash flow to fund operations, capital expenditures, global expansion initiatives, litigation settlements, share repurchases, and strategic investments and acquisitions, as well as to effectively manage our debt levels and covenant compliance;
|
•
|
Our ability to access the public and private capital markets when desired and to issue debt or equity securities on terms reasonably acceptable to us;
|
•
|
Our ability to resolve open tax matters favorably and realize substantially all of our deferred tax assets and the impact of changes in tax laws;
|
•
|
The impact of examinations and assessments by domestic and international taxing authorities on our tax provision, financial condition or results of operations; and
|
•
|
The impact of the European sovereign debt crisis on our ability to collect outstanding and future receivables and/or sell receivables under our factoring programs.
|
•
|
Our ability to implement, fund, and achieve timely and sustainable restructuring, efficiency and cost improvement measures consistent with our expectations, including our 2011 Restructuring plan, 2010 Restructuring plan and Plant Network Optimization program;
|
•
|
Our ability to maintain or expand our worldwide market positions in the various markets in which we compete or seek to compete, as we diversify our product portfolio and focus on emerging markets;
|
•
|
Risks associated with significant changes made or to be made to our organizational and operational structure, including as a result of the realignment of our international structure, pursuant to our 2011 Restructuring plan, 2010 Restructuring plan and Plant Network Optimization program, or to the membership and responsibilities of our executive committee or Board of Directors;
|
•
|
Our ability to direct our research and development efforts to conduct more cost-effective clinical studies, accelerate the time to bring new products to market, and develop products with higher returns;
|
•
|
The successful separation of divested businesses, including the performance of related supply, manufacturing and transition services;
|
•
|
Our ability to retain and attract key employees and avoid business disruption and employee distraction as we execute our global compliance program, restructuring plans and divestitures of assets or businesses; and
|
•
|
Our ability to maintain management focus on core business activities while also concentrating on implementing strategic and restructuring initiatives.
|
ITEM 3.
|
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
ITEM 4.
|
CONTROLS AND PROCEDURES
|
Period
|
Total Number of Shares Purchased
|
Average Price Paid per Share
|
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs *
|
Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs *
|
||||||
04/01/12 - 04/30/12
|
5,000,000
|
|
$
|
6.15
|
|
5,000,000
|
|
$
|
549,185,126
|
|
05/01/12 - 05/31/12
|
13,013,200
|
|
$
|
6.23
|
|
13,013,200
|
|
$
|
467,885,030
|
|
06/01/12 - 06/30/12
|
|
|
|
$
|
467,885,030
|
|
||||
Total
|
18,013,200
|
|
$
|
6.21
|
|
18,013,200
|
|
$
|
467,885,030
|
|
|
|
|
|
|
||||||
* In July 2011, we announced that our Board of Directors had approved a new program authorizing the repurchase of up to $1.0 billion of our common stock and re-approved approximately 37 million shares remaining under an existing share repurchase program. The approximate aggregate dollar value of the shares that may yet be purchased under the plans or programs, in the table above, was calculated using a stock price of $5.67 for the 37 million shares authorized under the existing repurchase program, which was the closing price of our common stock on June 30, 2012, as reported on the New York Stock Exchange.
|
10.1*
|
|
Form of Restricted Stock Award Agreement (Non-Employee Directors) under the 2011 Long-Term Incentive Plan#
|
|
|
|
10.2*
|
|
Form of Second Amendment of Boston Scientific Corporation 401(k) Retirement Savings Plan, Amended and Restated#
|
|
|
|
10.3*
|
|
Boston Scientific Corporation Executive Retirement Plan as Amended and Restated, effective August 1, 2012#
|
|
|
|
10.4*
|
|
First Amendment to the Boston Scientific Corporation U.S. Severance Plan for Exempt Employees, effective August 1, 2012#
|
|
|
|
10.5*
|
|
First Amendment to the Boston Scientific Corporation Severance Pay and Layoff Notification Plan as Amended and Restated, effective August 1, 2012#
|
|
|
|
10.6
|
|
Credit Agreement, dated as of April 18, 2012, by and among Boston Scientific Corporation, the several lenders parties thereto, and Bank of America, N.A., as Syndication Agent, and JPMorgan Chase Bank, N.A., as Administrative Agent (incorporated herein by reference to Exhibit 10.1, Current Report on Form 8-K dated April 18, 2012, File No. 1-11083)
|
|
|
|
10.7
|
|
Amendment #6 to Amended and Restated Credit and Security Agreement, Amendment #2 to Amended and Restated Receivables Sale Agreement and Restatement of Amended Fee Letter, dated as of June 29, 2012, by and among Boston Scientific Funding LLC; Boston Scientific Corporation; Old Line Funding, LLC; Royal Bank of Canada; Liberty Street Funding LLC; and The Bank of Nova Scotia (incorporated herein by reference to Exhibit 10.1, Current Report on Form 8-K dated June 29, 2012, File No. 1-11083)
|
|
|
|
31.1*
|
|
Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
|
|
|
31.2*
|
|
Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
|
|
|
32.1*
|
|
Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, Chief Executive Officer
|
|
|
|
32.2*
|
|
Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, Executive Vice President and Chief Financial Officer
|
|
|
|
101*
|
|
Interactive Data Files Pursuant to Rule 405 of Regulation S-T: (i) the Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2012 and 2011, (ii) the Condensed Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2012 and 2011, (iii) the Condensed Consolidated Balance Sheets as of June 30, 2012 and December 31, 2011, (iv) the Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2012 and 2011 and (v) the notes to the Condensed Consolidated Financial Statements.
|
|
BOSTON SCIENTIFIC CORPORATION
|
||
|
By:
|
/s/ Jeffrey D. Capello
|
|
|
|
|
|
|
|
Name:
|
Jeffrey D. Capello
|
|
|
Title:
|
Executive Vice President and
Chief Financial Officer
|
•
|
A position on the Executive Committee
|
•
|
A Division President position
|
•
|
The sum of your age and number of your Years of Service exceeds 65;
|
•
|
You are at least age 55 and have completed at least five (5) continuous Years of Service; and
|
•
|
You have been continuously employed by Boston Scientific during the 5-year period immediately preceding your Separation From Service. For this purpose, “Boston Scientific” does not include any business entity that was acquired by or otherwise became an Affiliate of the Company during that 5-year period.
|
•
|
You qualify as a Participant under the terms of Section 2.
|
•
|
You timely sign, and do not timely revoke, a Separation Agreement. The Separation Agreement will be a written agreement, in a form determined by the Company, that will contain, among other things, a release of employment claims against BSC and certain related entities and individuals, the restrictive covenants described in Section 12, and agreements by you not to use or disclose confidential information or make detrimental communications, to cooperate in litigation and other proceedings, and to return all BSC property.
|
•
|
You comply with the restrictive covenants described in Section 12 and included in your Separation Agreement. You will be required to repay your Plan benefit if you breach these covenants. See Section 12 for details.
|
•
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service to BSC other than in a Regular Position (for example, service as an independent contractor or other non-employee capacity under a consulting or similar arrangement);
|
•
|
service to BSC in a Transitional Position; and
|
•
|
any vacation accrued, but not taken, at the time of Retirement.
|
•
|
If you have been serving as an
Executive Committee member for the entire One-Year Covered Position Period, the gross amount of your benefit will be equal to 2.5 months of your base salary, multiplied by the number of your Years of Service, to a maximum benefit of 36 months of base salary.
|
•
|
If you have not been serving as an Executive Committee member for the entire One-Year Covered Position Period, the gross amount of your benefit will be equal to 1.5 months of your base salary, multiplied by the number of your Years of Service, to a maximum benefit of 24 months of base salary.
|
a)
|
During the 12-month period beginning as of your Retirement date (or such other period as is specified in your Employment Agreement), you cannot engage in solicitation of customers or employees of Boston Scientific, as defined in the Employment Agreement, unless the Chief Executive Officer or his or her designee gives prior written approval. In the absence of an Employment Agreement defining these terms, the Separation Agreement shall set forth the definition of solicitation and of BSC customers and employees as set forth in Boston Scientific's then current form of Employment Agreement for similar level employees.
|
b)
|
During the 12-month period beginning as of your Retirement date (or such other period as is specified in your Employment Agreement), you cannot directly or indirectly, engage in unfair competition with Boston Scientific, as defined in the Employment Agreement unless the Chief Executive Officer or his or her designee gives prior written approval. In the absence of an Employment Agreement defining these terms, the Separation Agreement shall set forth the definition of unfair competition as set forth in Boston Scientific's then current form of Employment Agreement for similar level employees.
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c)
|
In the event you breach any of the provisions of this Section 12, you must repay to the Company all of the amounts paid under this Plan, and you will also be liable for any damages that a court may determine, and you will be subject to injunctive relief and any other relief that a court may award as set forth in Boston Scientific's then current form of Employment Agreement for similar level employees.
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•
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the specific reason(s) for denying the claim;
|
•
|
specific reference to the Plan provision(s) on which the denial is based;
|
•
|
a description of any additional material or information that you may need to provide with respect to the claim, with an explanation of why the material or information is necessary; and
|
•
|
an explanation of your right to appeal the claim denial under the Plan's review procedures and your right to bring a civil court action following any further denial of your claim on review.
|
•
|
You or your duly authorized representative must file a written request for review with the Administrator within 60 days after you receive the Administrator's written denial of your claim or within 150 days after the Administrator received your claim if you have not received a written response.
|
•
|
Your written request for review must be signed by you or your authorized representative.
|
•
|
Upon reasonable request and free of charge, you may review, or obtain copies of, records, documents, or other information in the Administrator's possession or control relevant to your claim.
|
•
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You may also submit issues, arguments, and other comments in writing to the Administrator, along with any documentary evidence in support of your claim.
|
•
|
You may have representation throughout the appeal procedure.
|
•
|
the specific reason(s) for the denial;
|
•
|
specific references to the Plan provision(s) on which the denial is based;
|
•
|
a description of your right to receive, upon request and free of charge, reasonable access to, and copies of, all documents, records, and other information in the Administrator's possession or control relating to your claim;. and
|
•
|
an explanation of your right to bring a civil court action under Section 502(a) of ERISA.
|
•
|
You serve as a Division President or a member of the Executive Committee immediately prior to your service in the position;
|
•
|
The Company, at its own initiative and in its sole discretion, and with the express approval of the Compensation Committee, asks you to serve in the position for the purpose of effecting an orderly transition of responsibilities to your successor; and
|
•
|
You serve in the position for a limited period of not greater than 12 months.
|
1
|
I have reviewed this Quarterly Report on Form 10-Q of Boston Scientific Corporation;
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|
|
|
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2
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
|
|
|
|
3
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
|
|
|
|
4
|
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
|
|
|
|
|
a)
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
|
|
|
|
b)
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
|
|
|
|
c)
|
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
|
|
|
|
d)
|
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
|
|
|
|
5
|
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
|
|
|
|
|
|
a)
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
|
|
|
|
|
b)
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
|
Date: August 7, 2012
|
|
/s/ William H. Kucheman
|
|
||
|
|
William H. Kucheman
|
|
||
|
|
Chief Executive Officer
|
|
1
|
I have reviewed this Quarterly Report on Form 10-Q of Boston Scientific Corporation;
|
|
2
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
|
|
|
|
3
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
|
|
|
|
4
|
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
|
|
|
|
|
a)
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
|
|
|
|
b)
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
|
|
|
|
c)
|
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
|
|
|
|
d)
|
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
|
|
|
|
5
|
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
|
|
|
|
|
|
a)
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
|
|
|
|
|
b)
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
|
Date: August 7, 2012
|
|
/s/ Jeffrey D. Capello
|
|
||
|
|
Jeffrey D. Capello
|
|
||
|
|
Executive Vice President and Chief Financial Officer
|
|
|
(1)
|
the Report fully complies with the requirements of Section 13 (a) or 15 (d) of the Securities Exchange Act of 1934; and
|
|
(2)
|
the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Boston Scientific Corporation.
|
|
|
|
By:
|
/s/ William H. Kucheman
|
|
|
William H. Kucheman
|
|
|
Chief Executive Officer
|
|
|
|
|
|
August 7, 2012
|
|
|
(1)
|
the Report fully complies with the requirements of Section 13 (a) or 15 (d) of the Securities Exchange Act of 1934; and
|
|
(2)
|
the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Boston Scientific Corporation.
|
|
|
|
By:
|
/s/ Jeffrey D. Capello
|
|
|
Jeffrey D. Capello
|
|
|
Executive Vice President and Chief Financial Officer
|
|
|
|
|
|
August 7, 2012
|
|