þ
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
o
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
DELAWARE
|
04-2695240
|
(State or other jurisdiction of incorporation or organization)
|
(I.R.S. Employer Identification No.)
|
Large accelerated filer
þ
|
Accelerated filer
o
|
Non-Accelerated filer
o
|
Smaller reporting company
o
|
|
|
(Do not check if a smaller reporting company)
|
|
|
|
Shares outstanding
|
Class
|
|
as of October 31, 2012
|
Common Stock, $.01 par value
|
|
1,372,983,740
|
|
|
Page No.
|
|
|
|
|
|
|
|
|
|
|
||
|
|
|
|
||
|
|
|
|
||
|
|
|
|
||
|
|
|
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unregistered Sales of Equity Securities and Use of Proceeds
|
||
|
|
|
|
|
|
|
|
Three Months Ended
September 30, |
|
Nine Months Ended
September 30, |
||||||||||||
in millions, except per share data
|
2012
|
|
2011
|
|
2012
|
|
2011
|
||||||||
|
|
|
|
|
|
|
|
||||||||
Net sales
|
$
|
1,735
|
|
|
$
|
1,874
|
|
|
$
|
5,428
|
|
|
$
|
5,774
|
|
Cost of products sold
|
558
|
|
|
680
|
|
|
1,767
|
|
|
1,999
|
|
||||
Gross profit
|
1,177
|
|
|
1,194
|
|
|
3,661
|
|
|
3,775
|
|
||||
|
|
|
|
|
|
|
|
||||||||
Operating expenses:
|
|
|
|
|
|
|
|
||||||||
Selling, general and administrative expenses
|
589
|
|
|
629
|
|
|
1,895
|
|
|
1,866
|
|
||||
Research and development expenses
|
220
|
|
|
229
|
|
|
648
|
|
|
665
|
|
||||
Royalty expense
|
29
|
|
|
36
|
|
|
125
|
|
|
140
|
|
||||
Amortization expense
|
99
|
|
|
97
|
|
|
294
|
|
|
325
|
|
||||
Goodwill impairment charges
|
748
|
|
|
|
|
|
4,350
|
|
|
697
|
|
||||
Intangible asset impairment charges
|
13
|
|
|
9
|
|
|
142
|
|
|
21
|
|
||||
Contingent consideration expense (benefit)
|
(20
|
)
|
|
6
|
|
|
(9
|
)
|
|
18
|
|
||||
Restructuring charges
|
54
|
|
|
22
|
|
|
93
|
|
|
77
|
|
||||
Litigation-related net charges
|
50
|
|
|
|
|
|
119
|
|
|
|
|
||||
Gain on divestiture
|
(11
|
)
|
|
(8
|
)
|
|
(11
|
)
|
|
(768
|
)
|
||||
|
1,771
|
|
|
1,020
|
|
|
7,646
|
|
|
3,041
|
|
||||
Operating (loss) income
|
(594
|
)
|
|
174
|
|
|
(3,985
|
)
|
|
734
|
|
||||
|
|
|
|
|
|
|
|
||||||||
Other (expense) income:
|
|
|
|
|
|
|
|
||||||||
Interest expense
|
(65
|
)
|
|
(62
|
)
|
|
(197
|
)
|
|
(210
|
)
|
||||
Other, net
|
(4
|
)
|
|
(1
|
)
|
|
23
|
|
|
18
|
|
||||
(Loss) income before income taxes
|
(663
|
)
|
|
111
|
|
|
(4,159
|
)
|
|
542
|
|
||||
Income tax (benefit) expense
|
1
|
|
|
(31
|
)
|
|
(30
|
)
|
|
208
|
|
||||
Net (loss) income
|
$
|
(664
|
)
|
|
$
|
142
|
|
|
$
|
(4,129
|
)
|
|
$
|
334
|
|
|
|
|
|
|
|
|
|
||||||||
Net (loss) income per common share — basic
|
$
|
(0.48
|
)
|
|
$
|
0.09
|
|
|
$
|
(2.91
|
)
|
|
$
|
0.22
|
|
Net (loss) income per common share — assuming dilution
|
$
|
(0.48
|
)
|
|
$
|
0.09
|
|
|
$
|
(2.91
|
)
|
|
$
|
0.22
|
|
|
|
|
|
|
|
|
|
||||||||
Weighted-average shares outstanding
|
|
|
|
|
|
|
|
||||||||
Basic
|
1,392.5
|
|
|
1,514.4
|
|
|
1,420.3
|
|
|
1,523.1
|
|
||||
Assuming dilution
|
1,392.5
|
|
|
1,524.0
|
|
|
1,420.3
|
|
|
1,532.0
|
|
|
|
Three Months Ended
September 30, |
|
Nine Months Ended
September 30, |
||||||||||||
(in millions)
|
|
2012
|
|
2011
|
|
2012
|
|
2011
|
||||||||
Net (loss) income
|
|
$
|
(664
|
)
|
|
$
|
142
|
|
|
$
|
(4,129
|
)
|
|
$
|
334
|
|
Other comprehensive (loss) income:
|
|
|
|
|
|
|
|
|
||||||||
Foreign currency translation adjustment
|
|
2
|
|
|
(44
|
)
|
|
9
|
|
|
2
|
|
||||
Net change in unrealized gains and losses on derivative financial instruments, net of tax
|
|
(27
|
)
|
|
35
|
|
|
17
|
|
|
(5
|
)
|
||||
Total other comprehensive (loss) income
|
|
(25
|
)
|
|
(9
|
)
|
|
26
|
|
|
(3
|
)
|
||||
Total comprehensive (loss) income
|
|
$
|
(689
|
)
|
|
$
|
133
|
|
|
$
|
(4,103
|
)
|
|
$
|
331
|
|
|
As of
|
||||||
|
September 30,
|
|
December 31,
|
||||
in millions, except share and per share data
|
2012
|
|
2011
|
||||
|
(Unaudited)
|
|
|
||||
ASSETS
|
|
|
|
||||
Current assets:
|
|
|
|
||||
Cash and cash equivalents
|
$
|
352
|
|
|
$
|
267
|
|
Trade accounts receivable, net
|
1,197
|
|
|
1,246
|
|
||
Inventories
|
911
|
|
|
931
|
|
||
Deferred income taxes
|
483
|
|
|
458
|
|
||
Prepaid expenses and other current assets
|
230
|
|
|
203
|
|
||
Total current assets
|
3,173
|
|
|
3,105
|
|
||
Property, plant and equipment, net
|
1,624
|
|
|
1,670
|
|
||
Goodwill
|
5,724
|
|
|
9,761
|
|
||
Other intangible assets, net
|
6,154
|
|
|
6,473
|
|
||
Other long-term assets
|
223
|
|
|
281
|
|
||
|
$
|
16,898
|
|
|
$
|
21,290
|
|
|
|
|
|
||||
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
||||
Current liabilities:
|
|
|
|
||||
Current debt obligations
|
$
|
3
|
|
|
$
|
4
|
|
Accounts payable
|
228
|
|
|
203
|
|
||
Accrued expenses
|
1,325
|
|
|
1,327
|
|
||
Other current liabilities
|
259
|
|
|
273
|
|
||
Total current liabilities
|
1,815
|
|
|
1,807
|
|
||
Long-term debt
|
4,252
|
|
|
4,257
|
|
||
Deferred income taxes
|
1,705
|
|
|
1,865
|
|
||
Other long-term liabilities
|
2,298
|
|
|
2,008
|
|
||
|
|
|
|
||||
Commitments and contingencies
|
|
|
|
||||
|
|
|
|
||||
Stockholders’ equity
|
|
|
|
||||
Preferred stock, $.01 par value - authorized 50,000,000 shares, none issued and outstanding
|
|
|
|
||||
Common stock, $.01 par value - authorized 2,000,000,000 shares
and issued 1,541,569,188 shares as of September 30, 2012 and 1,531,006,390 shares as of December 31, 2011
|
15
|
|
|
15
|
|
||
Treasury stock, at cost - 168,697,617 shares as of September 30, 2012
and 81,950,716 shares as of December 31, 2011
|
(992
|
)
|
|
(492
|
)
|
||
Additional paid-in capital
|
16,427
|
|
|
16,349
|
|
||
Accumulated deficit
|
(8,510
|
)
|
|
(4,381
|
)
|
||
Accumulated other comprehensive loss, net of tax
|
(112
|
)
|
|
(138
|
)
|
||
Total stockholders’ equity
|
6,828
|
|
|
11,353
|
|
||
|
$
|
16,898
|
|
|
$
|
21,290
|
|
|
Nine Months Ended
September 30, |
||||||
in millions
|
2012
|
|
2011
|
||||
|
|
|
|
||||
Cash provided by operating activities
|
$
|
891
|
|
|
$
|
659
|
|
|
|
|
|
||||
Investing activities:
|
|
|
|
||||
Purchases of property, plant and equipment, net of proceeds
|
(164
|
)
|
|
(221
|
)
|
||
Proceeds from sales of publicly traded and privately held equity securities and collections of notes receivable
|
|
|
|
2
|
|
||
Payments for acquisitions of businesses, net of cash acquired
|
(134
|
)
|
|
(370
|
)
|
||
Payments for investments in companies and acquisitions of certain technologies
|
(18
|
)
|
|
(10
|
)
|
||
Proceeds from business divestitures, net of costs
|
10
|
|
|
1,426
|
|
||
|
|
|
|
||||
Cash (used for) provided by investing activities
|
(306
|
)
|
|
827
|
|
||
|
|
|
|
||||
Financing activities:
|
|
|
|
||||
Payments on long-term borrowings
|
(9
|
)
|
|
(1,250
|
)
|
||
Proceeds from borrowings on credit facilities, net of debt issuance costs
|
251
|
|
|
425
|
|
||
Payment of contingent consideration
|
(4
|
)
|
|
|
|
||
Payments on borrowings from credit facilities
|
(260
|
)
|
|
(425
|
)
|
||
Payments for acquisitions of treasury stock
|
(500
|
)
|
|
(192
|
)
|
||
Proceeds from issuances of shares of common stock
|
20
|
|
|
22
|
|
||
|
|
|
|
||||
Cash used for financing activities
|
(502
|
)
|
|
(1,420
|
)
|
||
|
|
|
|
||||
Effect of foreign exchange rates on cash
|
2
|
|
|
(3
|
)
|
||
|
|
|
|
||||
Net increase in cash and cash equivalents
|
85
|
|
|
63
|
|
||
Cash and cash equivalents at beginning of period
|
267
|
|
|
213
|
|
||
Cash and cash equivalents at end of period
|
$
|
352
|
|
|
$
|
276
|
|
|
|
|
|
||||
Supplemental Information
|
|
|
|
||||
|
|
|
|
||||
Non-cash operating activities:
|
|
|
|
||||
Stock-based compensation expense
|
$
|
85
|
|
|
$
|
96
|
|
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
|
$
|
314
|
|
Amortizable intangible assets
|
42
|
|
|
Indefinite-lived intangible assets
|
48
|
|
|
Other net assets
|
3
|
|
|
Deferred income taxes
|
74
|
|
|
|
$
|
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
|
$
|
40
|
|
|
11
|
|
14.0
|
%
|
Customer relationships
|
2
|
|
|
5
|
|
14.0
|
%
|
|
Indefinite-lived intangible assets:
|
|
|
|
|
|
|||
Purchased research and development
|
48
|
|
|
|
|
14.0
|
%
|
|
|
$
|
90
|
|
|
|
|
|
U.S.
|
$
|
184
|
|
EMEA
|
97
|
|
|
Inter-Continental
|
27
|
|
|
Japan
|
6
|
|
|
|
$
|
314
|
|
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
|
)
|
Amounts recorded related to new acquisitions
|
(259
|
)
|
|
Net fair value adjustments
|
9
|
|
|
Payments made
|
4
|
|
|
Balance as of September 30, 2012
|
$
|
(604
|
)
|
Contingent Consideration Liability
|
Fair Value as of September 30, 2012
|
Valuation Technique
|
Unobservable Input
|
Range
|
R&D, Regulatory and Commercialization-based Milestones
|
$305 million
|
Probability Weighted Discounted Cash Flow
|
Discount Rate
|
0% - 2.4%
|
Probability of Payment
|
13% - 100%
|
|||
Projected Year of Payment
|
2012 - 2017
|
|||
Revenue-based Payments
|
$185 million
|
Discounted Cash Flow
|
Discount Rate
|
12% - 18%
|
Probability of Payment
|
65% - 100%
|
|||
Projected Year of Payment
|
2012 - 2018
|
|||
$114 million
|
Monte Carlo
|
Revenue Volatility
|
15%
|
|
Risk Free Rate
|
LIBOR Term Structure
|
|||
Projected Year of Payment
|
2013-2018
|
|
|
As of
|
||||||||||||||
|
|
September 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
|
|
$
|
6,745
|
|
|
$
|
(1,906
|
)
|
|
$
|
6,786
|
|
|
$
|
(1,722
|
)
|
Technology - developed
|
|
1,126
|
|
|
(1,019
|
)
|
|
1,037
|
|
|
(1,012
|
)
|
||||
Patents
|
|
561
|
|
|
(348
|
)
|
|
539
|
|
|
(331
|
)
|
||||
Other intangible assets
|
|
808
|
|
|
(415
|
)
|
|
808
|
|
|
(376
|
)
|
||||
|
|
$
|
9,240
|
|
|
$
|
(3,688
|
)
|
|
$
|
9,170
|
|
|
$
|
(3,441
|
)
|
Unamortizable intangible assets
|
|
|
|
|
|
|
|
|
||||||||
Goodwill
|
|
$
|
15,201
|
|
|
$
|
(9,477
|
)
|
|
$
|
14,888
|
|
|
$
|
(5,127
|
)
|
Technology - core
|
|
242
|
|
|
|
|
242
|
|
|
|
||||||
|
|
$
|
15,443
|
|
|
$
|
(9,477
|
)
|
|
$
|
15,130
|
|
|
$
|
(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
|
)
|
|
(1
|
)
|
|
3
|
|
|
(1
|
)
|
|||||
Goodwill acquired
|
|
184
|
|
|
97
|
|
|
6
|
|
|
27
|
|
|
314
|
|
|||||
Goodwill written off
|
|
(748
|
)
|
|
(3,602
|
)
|
|
|
|
|
|
(4,350
|
)
|
|||||||
Balance as of September 30, 2012
|
|
$
|
4,102
|
|
|
$
|
497
|
|
|
$
|
559
|
|
|
$
|
566
|
|
|
$
|
5,724
|
|
•
|
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,
|
•
|
the level of success in managing the growth of acquired companies, achieving sustained profitability consistent with our expectations, 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
|
(748
|
)
|
|
$
|
(3,602
|
)
|
|
|
|
|
|
(4,350
|
)
|
||
Accumulated write-offs as of September 30, 2012
|
$
|
(5,875
|
)
|
|
$
|
(3,602
|
)
|
|
|
|
|
|
$
|
(9,477
|
)
|
Intangible Asset
|
Fair Value as of September 30, 2012
|
Valuation Technique
|
Unobservable Input
|
Range
|
In-Process R&D
|
$26 million
|
Income Approach - Excess Earnings Method
|
Discount Rate
|
20-25%
|
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 September 30, 2012
|
|
|
|
|
|
||||
Currency hedge contracts
|
$
|
(44
|
)
|
|
$
|
(3
|
)
|
|
Cost of products sold
|
|
$
|
(44
|
)
|
|
$
|
(3
|
)
|
|
|
Three Months Ended September 30, 2011
|
|
|
|
|
|
||||
Currency hedge contracts
|
$
|
29
|
|
|
$
|
(28
|
)
|
|
Cost of products sold
|
|
$
|
29
|
|
|
$
|
(28
|
)
|
|
|
Nine Months Ended September 30, 2012
|
|
|
|
|
|
||||
Currency hedge contracts
|
$
|
2
|
|
|
$
|
(29
|
)
|
|
Cost of products sold
|
|
$
|
2
|
|
|
$
|
(29
|
)
|
|
|
Nine Months Ended September 30, 2011
|
|
|
|
|
|
||||
Currency hedge contracts
|
$
|
(77
|
)
|
|
$
|
(74
|
)
|
|
Cost of products sold
|
|
$
|
(77
|
)
|
|
$
|
(74
|
)
|
|
|
in millions
|
|
Three Months Ended
|
|
Nine Months Ended
|
||||||||||||
|
September 30,
|
|
September 30,
|
|||||||||||||
|
2012
|
|
2011
|
|
2012
|
|
2011
|
|||||||||
Gain (loss) on currency hedge contracts
|
|
$
|
(14
|
)
|
|
$
|
8
|
|
|
|
|
|
$
|
2
|
|
|
Gain (loss) on foreign currency transaction exposures
|
|
11
|
|
|
(12
|
)
|
|
(13
|
)
|
|
(11
|
)
|
||||
Net foreign currency gain (loss)
|
|
$
|
(3
|
)
|
|
$
|
(4
|
)
|
|
$
|
(13
|
)
|
|
$
|
(9
|
)
|
|
|
As of
|
||||||
|
|
September 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
|
$
|
18
|
|
|
$
|
31
|
|
Currency hedge contracts
|
Other long-term assets
|
19
|
|
|
20
|
|
||
|
|
37
|
|
|
51
|
|
||
Non-Designated Hedging Instruments
|
|
|
|
|
||||
Currency hedge contracts
|
Prepaid and other current assets
|
14
|
|
|
36
|
|
||
Total Derivative Assets
|
|
$
|
51
|
|
|
$
|
87
|
|
|
|
|
|
|
||||
Derivative Liabilities:
|
|
|
|
|
||||
Designated Hedging Instruments
|
|
|
|
|
||||
Currency hedge contracts
|
Other current liabilities
|
$
|
55
|
|
|
$
|
69
|
|
Currency hedge contracts
|
Other long-term liabilities
|
25
|
|
|
49
|
|
||
|
|
80
|
|
|
118
|
|
||
Non-Designated Hedging Instruments
|
|
|
|
|
||||
Currency hedge contracts
|
Other current liabilities
|
21
|
|
|
13
|
|
||
Total Derivative Liabilities
|
|
$
|
101
|
|
|
$
|
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 September 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
|
$
|
64
|
|
|
|
|
|
|
$
|
64
|
|
|
$
|
78
|
|
|
|
|
|
|
$
|
78
|
|
||||||||
Currency hedge contracts
|
|
|
$
|
51
|
|
|
|
|
51
|
|
|
|
|
$
|
87
|
|
|
|
|
87
|
|
||||||||||
|
$
|
64
|
|
|
$
|
51
|
|
|
|
|
$
|
115
|
|
|
$
|
78
|
|
|
$
|
87
|
|
|
|
|
$
|
165
|
|
||||
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
Currency hedge contracts
|
|
|
$
|
101
|
|
|
|
|
$
|
101
|
|
|
|
|
$
|
131
|
|
|
|
|
$
|
131
|
|
||||||||
Accrued contingent consideration
|
|
|
|
|
$
|
604
|
|
|
604
|
|
|
|
|
|
|
$
|
358
|
|
|
358
|
|
||||||||||
|
|
|
$
|
101
|
|
|
$
|
604
|
|
|
$
|
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
September 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 September 30, 2012
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
(in millions)
|
Termination
Benefits
|
|
Accelerated
Depreciation
|
|
Transfer
Costs
|
|
Fixed Asset
Write-offs
|
|
Other
|
|
Total
|
||||||||||
Restructuring charges
|
$
|
44
|
|
|
|
|
|
|
|
|
$
|
10
|
|
|
$
|
54
|
|
||||
Restructuring-related expenses:
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Cost of products sold
|
|
|
|
|
|
$
|
1
|
|
|
|
|
|
|
1
|
|
||||||
Selling, general and administrative expenses
|
|
|
|
|
|
|
|
|
3
|
|
|
3
|
|
||||||||
|
|
|
|
|
|
1
|
|
|
|
|
3
|
|
|
4
|
|
||||||
|
$
|
44
|
|
|
|
|
|
$
|
1
|
|
|
|
|
$
|
13
|
|
|
$
|
58
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
(in millions)
|
Termination
Benefits
|
|
Accelerated
Depreciation
|
|
Transfer
Costs
|
|
Fixed Asset
Write-offs
|
|
Other
|
|
Total
|
||||||||||
2011 Restructuring plan
|
$
|
43
|
|
|
|
|
|
|
|
|
$
|
13
|
|
|
$
|
56
|
|
||||
2010 Restructuring plan
|
2
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|||||||
Plant Network Optimization program
|
(1
|
)
|
|
|
|
|
$
|
1
|
|
|
|
|
|
|
|
|
|||||
|
$
|
44
|
|
|
|
|
|
$
|
1
|
|
|
|
|
$
|
13
|
|
|
$
|
58
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Three Months Ended September 30, 2011
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
(in millions)
|
Termination
Benefits
|
|
Accelerated
Depreciation
|
|
Transfer
Costs
|
|
Fixed Asset
Write-offs
|
|
Other
|
|
Total
|
||||||||||
Restructuring charges
|
$
|
12
|
|
|
|
|
|
|
|
|
$
|
10
|
|
|
$
|
22
|
|
||||
Restructuring-related expenses:
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Cost of products sold
|
|
|
$
|
2
|
|
|
$
|
5
|
|
|
|
|
|
|
7
|
|
|||||
Selling, general and administrative expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
|
|
|
2
|
|
|
5
|
|
|
|
|
|
|
|
7
|
|
||||||
|
$
|
12
|
|
|
$
|
2
|
|
|
$
|
5
|
|
|
|
|
$
|
10
|
|
|
$
|
29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
(in millions)
|
Termination
Benefits
|
|
Accelerated
Depreciation
|
|
Transfer
Costs
|
|
Fixed Asset
Write-offs
|
|
Other
|
|
Total
|
||||||||||
2011 Restructuring plan
|
$
|
9
|
|
|
|
|
|
|
|
|
$
|
6
|
|
|
$
|
15
|
|
||||
2010 Restructuring plan
|
1
|
|
|
|
|
|
|
|
|
4
|
|
|
5
|
|
|||||||
Plant Network Optimization program
|
2
|
|
|
$
|
2
|
|
|
$
|
5
|
|
|
|
|
|
|
9
|
|
||||
|
$
|
12
|
|
|
$
|
2
|
|
|
$
|
5
|
|
|
|
|
$
|
10
|
|
|
$
|
29
|
|
Nine Months Ended September 30, 2012
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
(in millions)
|
Termination
Benefits
|
|
Accelerated
Depreciation
|
|
Transfer
Costs
|
|
Fixed Asset
Write-offs
|
|
Other
|
|
Total
|
||||||||||
Restructuring charges
|
$
|
64
|
|
|
|
|
|
|
|
|
$
|
29
|
|
|
$
|
93
|
|
||||
Restructuring-related expenses:
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Cost of products sold
|
|
|
|
|
|
$
|
7
|
|
|
|
|
|
|
7
|
|
||||||
Selling, general and administrative expenses
|
|
|
|
|
|
|
|
|
8
|
|
|
8
|
|
||||||||
|
|
|
|
|
|
7
|
|
|
|
|
8
|
|
|
15
|
|
||||||
|
$
|
64
|
|
|
|
|
|
$
|
7
|
|
|
|
|
$
|
37
|
|
|
$
|
108
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
(in millions)
|
Termination
Benefits
|
|
Accelerated
Depreciation
|
|
Transfer
Costs
|
|
Fixed Asset
Write-offs
|
|
Other
|
|
Total
|
||||||||||
2011 Restructuring plan
|
$
|
65
|
|
|
|
|
|
|
|
|
$
|
34
|
|
|
$
|
99
|
|
||||
2010 Restructuring plan
|
|
|
|
|
|
|
|
|
|
3
|
|
|
3
|
|
|||||||
Plant Network Optimization program
|
(1
|
)
|
|
|
|
|
$
|
7
|
|
|
|
|
|
|
6
|
|
|||||
|
$
|
64
|
|
|
|
|
|
$
|
7
|
|
|
|
|
$
|
37
|
|
|
$
|
108
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Nine Months Ended September 30, 2011
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
(in millions)
|
Termination
Benefits
|
|
Accelerated
Depreciation
|
|
Transfer
Costs
|
|
Fixed Asset
Write-offs
|
|
Other
|
|
Total
|
||||||||||
Restructuring charges
|
$
|
49
|
|
|
|
|
|
|
|
|
$
|
28
|
|
|
$
|
77
|
|
||||
Restructuring-related expenses:
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Cost of products sold
|
|
|
$
|
8
|
|
|
$
|
20
|
|
|
|
|
|
|
28
|
|
|||||
Selling, general and administrative expenses
|
|
|
|
|
|
|
|
|
4
|
|
|
4
|
|
||||||||
|
|
|
8
|
|
|
20
|
|
|
|
|
4
|
|
|
32
|
|
||||||
|
$
|
49
|
|
|
$
|
8
|
|
|
$
|
20
|
|
|
|
|
$
|
32
|
|
|
$
|
109
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
(in millions)
|
Termination
Benefits
|
|
Accelerated
Depreciation
|
|
Transfer
Costs
|
|
Fixed Asset
Write-offs
|
|
Other
|
|
Total
|
||||||||||
2011 Restructuring plan
|
$
|
9
|
|
|
|
|
|
|
|
|
$
|
6
|
|
|
$
|
15
|
|
||||
2010 Restructuring plan
|
32
|
|
|
$
|
1
|
|
|
|
|
|
|
26
|
|
|
59
|
|
|||||
Plant Network Optimization program
|
8
|
|
|
7
|
|
|
$
|
20
|
|
|
|
|
|
|
35
|
|
|||||
|
$
|
49
|
|
|
$
|
8
|
|
|
$
|
20
|
|
|
|
|
$
|
32
|
|
|
$
|
109
|
|
(in millions)
|
2011
Restructuring
plan
|
|
2010
Restructuring
plan
|
|
Plant
Network
Optimization Program
|
|
Total
|
||||||||
Termination benefits
|
$
|
86
|
|
|
$
|
90
|
|
|
$
|
36
|
|
|
$
|
212
|
|
Fixed asset write-offs
|
|
|
|
11
|
|
|
|
|
11
|
|
|||||
Other
|
39
|
|
|
51
|
|
|
|
|
90
|
|
|||||
Total restructuring charges
|
125
|
|
|
152
|
|
|
36
|
|
|
313
|
|
||||
Accelerated depreciation
|
|
|
|
|
22
|
|
|
22
|
|
||||||
Transfer costs
|
|
|
|
|
73
|
|
|
73
|
|
||||||
Other
|
8
|
|
|
8
|
|
|
|
|
16
|
|
|||||
Restructuring-related expenses
|
8
|
|
|
8
|
|
|
95
|
|
|
111
|
|
||||
|
$
|
133
|
|
|
$
|
160
|
|
|
$
|
131
|
|
|
$
|
424
|
|
(in millions)
|
2011
Restructuring
plan
|
|
2010
Restructuring
plan
|
|
Plant
Network
Optimization Program
|
|
Total
|
||||||||
Three Months Ended September 30, 2012
|
|
|
|
|
|
|
|
||||||||
Termination benefits
|
$
|
8
|
|
|
$
|
1
|
|
|
$
|
4
|
|
|
$
|
13
|
|
Transfer costs
|
|
|
|
|
1
|
|
|
1
|
|
||||||
Other
|
10
|
|
|
|
|
|
|
|
10
|
|
|||||
|
$
|
18
|
|
|
$
|
1
|
|
|
$
|
5
|
|
|
$
|
24
|
|
|
|
|
|
|
|
|
|
||||||||
Nine Months Ended September 30, 2012
|
|
|
|
|
|
|
|
||||||||
Termination benefits
|
$
|
24
|
|
|
$
|
4
|
|
|
$
|
21
|
|
|
$
|
49
|
|
Transfer costs
|
|
|
|
|
7
|
|
|
7
|
|
||||||
Other
|
33
|
|
|
|
|
|
|
|
33
|
|
|||||
|
$
|
57
|
|
|
$
|
4
|
|
|
$
|
28
|
|
|
$
|
89
|
|
|
|
|
|
|
|
|
|
||||||||
Program to Date
|
|
|
|
|
|
|
|
||||||||
Termination benefits
|
$
|
27
|
|
|
$
|
88
|
|
|
$
|
26
|
|
|
$
|
141
|
|
Transfer costs
|
|
|
|
|
73
|
|
|
73
|
|
||||||
Other
|
45
|
|
|
56
|
|
|
|
|
101
|
|
|||||
|
$
|
72
|
|
|
$
|
144
|
|
|
$
|
99
|
|
|
$
|
315
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 (credits)
|
|
65
|
|
|
34
|
|
|
99
|
|
|
|
|
3
|
|
|
3
|
|
|
(1
|
)
|
|
101
|
|
|||||||||
Cash payments
|
|
(24
|
)
|
|
(33
|
)
|
|
(57
|
)
|
|
(4
|
)
|
|
|
|
(4
|
)
|
|
(21
|
)
|
|
(82
|
)
|
|||||||||
Accrued as of
September 30, 2012
|
|
$
|
59
|
|
|
$
|
4
|
|
|
$
|
63
|
|
|
$
|
2
|
|
|
$
|
3
|
|
|
$
|
5
|
|
|
$
|
11
|
|
|
$
|
79
|
|
|
|
As of
|
||||||
(in millions)
|
|
September 30, 2012
|
|
December 31, 2011
|
||||
Accounts receivable
|
|
$
|
1,316
|
|
|
$
|
1,362
|
|
Less: allowance for doubtful accounts
|
|
(82
|
)
|
|
(81
|
)
|
||
Less: allowance for sales returns
|
|
(37
|
)
|
|
(35
|
)
|
||
|
|
$
|
1,197
|
|
|
$
|
1,246
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
||||||||||||
(in millions)
|
|
2012
|
|
2011
|
|
2012
|
|
2011
|
||||||||
Beginning balance
|
|
$
|
83
|
|
|
$
|
67
|
|
|
$
|
81
|
|
|
$
|
83
|
|
Charges to expenses
|
|
1
|
|
|
12
|
|
|
7
|
|
|
1
|
|
||||
Utilization of allowances
|
|
(2
|
)
|
|
(4
|
)
|
|
(6
|
)
|
|
(9
|
)
|
||||
Ending balance
|
|
$
|
82
|
|
|
$
|
75
|
|
|
$
|
82
|
|
|
$
|
75
|
|
|
|
As of
|
||||||
(in millions)
|
|
September 30, 2012
|
|
December 31, 2011
|
||||
Finished goods
|
|
$
|
617
|
|
|
$
|
637
|
|
Work-in-process
|
|
79
|
|
|
71
|
|
||
Raw materials
|
|
215
|
|
|
223
|
|
||
|
|
$
|
911
|
|
|
$
|
931
|
|
|
|
As of
|
||||||
(in millions)
|
|
September 30, 2012
|
|
December 31, 2011
|
||||
Land
|
|
$
|
111
|
|
|
$
|
111
|
|
Buildings and improvements
|
|
936
|
|
|
923
|
|
||
Equipment, furniture and fixtures
|
|
1,943
|
|
|
1,919
|
|
||
Capital in progress
|
|
203
|
|
|
230
|
|
||
|
|
3,193
|
|
|
3,183
|
|
||
Less: accumulated depreciation
|
|
1,569
|
|
|
1,513
|
|
||
|
|
$
|
1,624
|
|
|
$
|
1,670
|
|
|
|
As of
|
||||||
(in millions)
|
|
September 30, 2012
|
|
December 31, 2011
|
||||
Payroll and related liabilities
|
|
$
|
422
|
|
|
$
|
466
|
|
Accrued contingent consideration
|
|
198
|
|
|
37
|
|
||
Legal reserves
|
|
94
|
|
|
129
|
|
||
Other
|
|
611
|
|
|
695
|
|
||
|
|
$
|
1,325
|
|
|
$
|
1,327
|
|
|
|
As of
|
||||||
(in millions)
|
|
September 30, 2012
|
|
December 31, 2011
|
||||
Accrued income taxes
|
|
$
|
1,162
|
|
|
$
|
1,095
|
|
Accrued contingent consideration
|
|
406
|
|
|
321
|
|
||
Legal reserves
|
|
317
|
|
|
170
|
|
||
Other long-term liabilities
|
|
413
|
|
|
422
|
|
||
|
|
$
|
2,298
|
|
|
$
|
2,008
|
|
|
|
Nine Months Ended
September 30, |
||||||
|
|
2012
|
|
2011
|
||||
Beginning Balance
|
|
$
|
30
|
|
|
$
|
43
|
|
Provision
|
|
6
|
|
|
4
|
|
||
Settlements/reversals
|
|
(9
|
)
|
|
(12
|
)
|
||
Ending Balance
|
|
$
|
27
|
|
|
$
|
35
|
|
|
|
Three Months Ended
September 30,
|
||||
|
|
2012
|
|
2011
|
||
Reported tax rate
|
|
(0.1
|
)%
|
|
(27.9
|
)%
|
Impact of certain receipts/charges*
|
|
16.2
|
%
|
|
48.0
|
%
|
|
|
16.1
|
%
|
|
20.1
|
%
|
|
|
Nine Months Ended
September 30,
|
||||
|
|
2012
|
|
2011
|
||
Reported tax rate
|
|
0.7
|
%
|
|
38.4
|
%
|
Impact of certain receipts/charges*
|
|
14.5
|
%
|
|
(21.8
|
)%
|
|
|
15.2
|
%
|
|
16.6
|
%
|
|
|
Three Months Ended
September 30, |
|
Nine Months Ended
September 30, |
||||||||
(in millions)
|
|
2012
|
|
2011
|
|
2012
|
|
2011
|
||||
Weighted average shares outstanding - basic
|
|
1,392.5
|
|
|
1,514.4
|
|
|
1,420.3
|
|
|
1,523.1
|
|
Net effect of common stock equivalents
|
|
|
|
*
|
9.6
|
|
|
|
|
*
|
8.9
|
|
Weighted average shares outstanding - assuming dilution
|
|
1,392.5
|
|
|
1,524.0
|
|
|
1,420.3
|
|
|
1,532.0
|
|
|
|
Three Months Ended
September 30, |
|
Nine Months Ended
September 30, |
|
||||||||||||
(in millions)
|
|
2012
|
|
2011
|
*
|
2012
|
|
2011
|
*
|
||||||||
Net sales
|
|
|
|
|
|
|
|
|
|
||||||||
United States
|
|
$
|
907
|
|
|
$
|
990
|
|
|
$
|
2,833
|
|
|
$
|
3,054
|
|
|
EMEA
|
|
394
|
|
|
414
|
|
|
1,281
|
|
|
1,324
|
|
|
||||
Japan
|
|
194
|
|
|
203
|
|
|
614
|
|
|
630
|
|
|
||||
Inter-Continental
|
|
211
|
|
|
189
|
|
|
610
|
|
|
551
|
|
|
||||
Net sales allocated to reportable segments
|
|
1,706
|
|
|
1,796
|
|
|
5,338
|
|
|
5,559
|
|
|
||||
Sales generated from divested businesses
|
|
32
|
|
|
34
|
|
|
91
|
|
|
111
|
|
|
||||
Impact of foreign currency fluctuations
|
|
(3
|
)
|
|
44
|
|
|
(1
|
)
|
|
104
|
|
|
||||
|
|
$
|
1,735
|
|
|
$
|
1,874
|
|
|
$
|
5,428
|
|
|
$
|
5,774
|
|
|
(Loss) income before income taxes
|
|
|
|
|
|
|
|
|
|
||||||||
United States
|
|
$
|
134
|
|
|
$
|
144
|
|
|
$
|
441
|
|
|
$
|
517
|
|
|
EMEA
|
|
155
|
|
|
168
|
|
|
501
|
|
|
557
|
|
|
||||
Japan
|
|
96
|
|
|
82
|
|
|
301
|
|
|
281
|
|
|
||||
Inter-Continental
|
|
73
|
|
|
69
|
|
|
197
|
|
|
197
|
|
|
||||
Operating income allocated to reportable segments
|
|
458
|
|
|
463
|
|
|
1,440
|
|
|
1,552
|
|
|
||||
Manufacturing operations
|
|
(61
|
)
|
|
(63
|
)
|
|
(224
|
)
|
|
(201
|
)
|
|
||||
Corporate expenses and currency exchange
|
|
(53
|
)
|
|
(90
|
)
|
|
(197
|
)
|
|
(206
|
)
|
|
||||
Goodwill and other intangible asset impairment charges; and acquisition-, divestiture-, restructuring-, and litigation related net charges
|
|
(839
|
)
|
|
(39
|
)
|
|
(4,710
|
)
|
|
(86
|
)
|
|
||||
Amortization expense
|
|
(99
|
)
|
|
(97
|
)
|
|
(294
|
)
|
|
(325
|
)
|
|
||||
|
|
(594
|
)
|
|
174
|
|
|
(3,985
|
)
|
|
734
|
|
|
||||
Other expense, net
|
|
(69
|
)
|
|
(63
|
)
|
|
(174
|
)
|
|
(192
|
)
|
|
||||
|
|
$
|
(663
|
)
|
|
$
|
111
|
|
|
$
|
(4,159
|
)
|
|
$
|
542
|
|
|
ITEM 2.
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
|
|
Three Months Ended September 30, 2011
|
|
||||||||||||||
|
|
|
|
Tax
|
|
|
|
Impact per
|
|
||||||||
in millions, except per share data
|
|
Pre-Tax
|
|
Impact
|
|
After-Tax
|
|
share
|
|
||||||||
GAAP net income
|
|
$
|
111
|
|
|
$
|
31
|
|
|
$
|
142
|
|
|
$
|
0.09
|
|
|
Non-GAAP adjustments:
|
|
|
|
|
|
|
|
|
|
||||||||
Intangible asset impairment charge
|
|
9
|
|
|
(2
|
)
|
|
7
|
|
|
0.01
|
|
|
||||
Acquisition-related net charges
|
|
8
|
|
|
(1
|
)
|
|
7
|
|
|
0.01
|
|
|
||||
Divestiture-related net credits
|
|
(7
|
)
|
|
2
|
|
|
(5
|
)
|
|
0.00
|
|
|
||||
Restructuring-related charges
|
|
29
|
|
|
(10
|
)
|
|
19
|
|
|
0.01
|
|
|
||||
Discrete tax items
|
|
|
|
(25
|
)
|
|
(25
|
)
|
|
(0.02
|
)
|
|
|||||
Amortization expense
|
|
97
|
|
|
(19
|
)
|
|
78
|
|
|
0.05
|
|
|
||||
Adjusted net income
|
|
$
|
247
|
|
|
$
|
(24
|
)
|
|
$
|
223
|
|
|
$
|
0.15
|
|
|
|
|
Nine Months Ended September 30, 2011
|
|
||||||||||||||
|
|
|
|
Tax
|
|
|
|
Impact per
|
|
||||||||
in millions, except per share data
|
|
Pre-Tax
|
|
Impact
|
|
After-Tax
|
|
share
|
|
||||||||
GAAP net income
|
|
$
|
542
|
|
|
$
|
(208
|
)
|
|
$
|
334
|
|
|
$
|
0.22
|
|
|
Non-GAAP adjustments:
|
|
|
|
|
|
|
|
|
|
||||||||
Goodwill impairment charge
|
|
697
|
|
|
|
|
697
|
|
|
0.45
|
|
|
|||||
Intangible asset impairment charge
|
|
21
|
|
|
(5
|
)
|
|
16
|
|
|
0.01
|
|
|
||||
Acquisition-related net credits
|
|
(15
|
)
|
|
(2
|
)
|
|
(17
|
)
|
|
(0.01)
|
|
|
||||
Divestiture-related net credits
|
|
(764
|
)
|
|
231
|
|
|
(533
|
)
|
|
(0.35)
|
|
|
||||
Restructuring-related charges
|
|
109
|
|
|
(34
|
)
|
|
75
|
|
|
0.05
|
|
|
||||
Discrete tax items
|
|
|
|
(21
|
)
|
|
(21
|
)
|
|
(0.01)
|
|
|
|||||
Amortization expense
|
|
325
|
|
|
(54
|
)
|
|
271
|
|
|
0.18
|
|
|
||||
Adjusted net income
|
|
$
|
915
|
|
|
$
|
(93
|
)
|
|
$
|
822
|
|
|
$
|
0.54
|
|
|
|
|
Three Months Ended
|
|
Three Months Ended
|
||||||||||||||||||||
(in millions)
|
|
September 30, 2012
|
|
September 30, 2011
|
||||||||||||||||||||
|
|
U.S.
|
|
International
|
|
Total
|
|
U.S.
|
|
International
|
|
Total
|
||||||||||||
ICD systems
|
|
$
|
205
|
|
|
$
|
122
|
|
|
$
|
327
|
|
|
$
|
225
|
|
|
$
|
135
|
|
|
$
|
360
|
|
Pacemaker systems
|
|
68
|
|
|
67
|
|
|
135
|
|
|
71
|
|
|
72
|
|
|
143
|
|
||||||
CRM products
|
|
$
|
273
|
|
|
$
|
189
|
|
|
$
|
462
|
|
|
$
|
296
|
|
|
$
|
207
|
|
|
$
|
503
|
|
•
|
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 competitive products and technologies worldwide, in line with our commercialization strategies, including the S-ICD® system;
|
•
|
new product launches by our competitors;
|
•
|
variations in clinical results, reliability or product performance of our and our competitors’ products; and
|
•
|
delayed or limited regulatory approvals and unfavorable reimbursement policies.
|
|
|
Three Months Ended
|
|
Three Months Ended
|
||||||||||||||||||||
(in millions)
|
|
September 30, 2012
|
|
September 30, 2011
|
||||||||||||||||||||
|
|
U.S.
|
|
International
|
|
Total
|
|
U.S.
|
|
International
|
|
Total
|
||||||||||||
Drug-eluting
|
|
$
|
123
|
|
|
$
|
160
|
|
|
$
|
283
|
|
|
$
|
191
|
|
|
$
|
184
|
|
|
$
|
375
|
|
Bare-metal
|
|
6
|
|
|
15
|
|
|
21
|
|
|
7
|
|
|
20
|
|
|
27
|
|
||||||
|
|
$
|
129
|
|
|
$
|
175
|
|
|
$
|
304
|
|
|
$
|
198
|
|
|
$
|
204
|
|
|
$
|
402
|
|
•
|
the performance benefits of our current and future technology;
|
•
|
the strength of our pipeline of drug-eluting stent products, 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 overall position in the interventional medical device 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
September 30,
|
|
As Reported
Currency
Basis
|
|
Constant
Currency
Basis
|
||||||||||
(in millions)
|
|
2012
|
|
2011
|
|
|
||||||||||
|
|
|
|
|
|
|
|
|
|
|
||||||
United States
|
|
$
|
907
|
|
|
$
|
990
|
|
|
(8
|
)
|
%
|
|
(8
|
)
|
%
|
EMEA
|
|
355
|
|
|
411
|
|
|
(14
|
)
|
%
|
|
(5
|
)
|
%
|
||
Japan
|
|
222
|
|
|
235
|
|
|
(6
|
)
|
%
|
|
(5
|
)
|
%
|
||
Inter-Continental
|
|
219
|
|
|
204
|
|
|
7
|
|
%
|
|
12
|
|
%
|
||
International
|
|
796
|
|
|
850
|
|
|
(6
|
)
|
%
|
|
(1
|
)
|
%
|
||
Subtotal Core Businesses
|
|
1,703
|
|
|
1,840
|
|
|
(7
|
)
|
%
|
|
(5
|
)
|
%
|
||
Divested Businesses
|
|
32
|
|
|
34
|
|
|
N/A
|
|
|
|
N/A
|
|
|
||
Worldwide
|
|
$
|
1,735
|
|
|
$
|
1,874
|
|
|
(7
|
)
|
%
|
|
(5
|
)
|
%
|
|
|
|
|
|
|
Change
|
||||||||||
|
|
Nine Months Ended
September 30,
|
|
As Reported
Currency
Basis
|
|
Constant
Currency
Basis
|
||||||||||
(in millions)
|
|
2012
|
|
2011
|
|
|
||||||||||
|
|
|
|
|
|
|
|
|
|
|
||||||
United States
|
|
$
|
2,833
|
|
|
$
|
3,054
|
|
|
(7
|
)
|
%
|
|
(7
|
)
|
%
|
EMEA
|
|
1,172
|
|
|
1,311
|
|
|
(11
|
)
|
%
|
|
(3
|
)
|
%
|
||
Japan
|
|
695
|
|
|
705
|
|
|
(1
|
)
|
%
|
|
(3
|
)
|
%
|
||
Inter-Continental
|
|
637
|
|
|
593
|
|
|
7
|
|
%
|
|
11
|
|
%
|
||
International
|
|
2,504
|
|
|
2,609
|
|
|
(4
|
)
|
%
|
|
—
|
|
%
|
||
Subtotal Core Businesses
|
|
5,337
|
|
|
5,663
|
|
|
(6
|
)
|
%
|
|
(4
|
)
|
%
|
||
Divested Businesses
|
|
91
|
|
|
111
|
|
|
N/A
|
|
|
|
N/A
|
|
|
||
Worldwide
|
|
$
|
5,428
|
|
|
$
|
5,774
|
|
|
(6
|
)
|
%
|
|
(4
|
)
|
%
|
|
|
|
|
|
|
Change
|
||||||||||
|
|
Three Months Ended
September 30,
|
|
As Reported
Currency
Basis
|
|
Constant
Currency
Basis
|
||||||||||
(in millions)
|
|
2012
|
|
2011
|
|
|
||||||||||
Interventional Cardiology
|
|
$
|
494
|
|
|
$
|
613
|
|
|
(20
|
)
|
%
|
|
(17
|
)
|
%
|
Cardiac Rhythm Management
|
|
462
|
|
|
503
|
|
|
(8
|
)
|
%
|
|
(6
|
)
|
%
|
||
Endoscopy
|
|
310
|
|
|
298
|
|
|
4
|
|
%
|
|
7
|
|
%
|
||
Peripheral Interventions
|
|
189
|
|
|
182
|
|
|
4
|
|
%
|
|
7
|
|
%
|
||
Urology/Women’s Health
|
|
125
|
|
|
124
|
|
|
—
|
|
%
|
|
1
|
|
%
|
||
Neuromodulation
|
|
88
|
|
|
84
|
|
|
5
|
|
%
|
|
5
|
|
%
|
||
Electrophysiology
|
|
35
|
|
|
36
|
|
|
(2
|
)
|
%
|
|
—
|
|
%
|
||
Subtotal Core Businesses
|
|
1,703
|
|
|
1,840
|
|
|
(7
|
)
|
%
|
|
(5
|
)
|
%
|
||
Divested Businesses
|
|
32
|
|
|
34
|
|
|
N/A
|
|
|
|
N/A
|
|
|
||
Worldwide
|
|
$
|
1,735
|
|
|
$
|
1,874
|
|
|
(7
|
)
|
%
|
|
(5
|
)
|
%
|
|
|
|
|
|
|
Change
|
||||||||||
|
|
Nine Months Ended
September 30,
|
|
As Reported
Currency
Basis
|
|
Constant
Currency
Basis
|
||||||||||
(in millions)
|
|
2012
|
|
2011
|
|
|
||||||||||
Interventional Cardiology
|
|
$
|
1,646
|
|
|
$
|
1,901
|
|
|
(13
|
)
|
%
|
|
(11
|
)
|
%
|
Cardiac Rhythm Management
|
|
1,451
|
|
|
1,606
|
|
|
(10
|
)
|
%
|
|
(8
|
)
|
%
|
||
Endoscopy
|
|
922
|
|
|
883
|
|
|
4
|
|
%
|
|
6
|
|
%
|
||
Peripheral Interventions
|
|
575
|
|
|
547
|
|
|
5
|
|
%
|
|
7
|
|
%
|
||
Urology/Women’s Health
|
|
371
|
|
|
371
|
|
|
—
|
|
%
|
|
—
|
|
%
|
||
Neuromodulation
|
|
263
|
|
|
245
|
|
|
7
|
|
%
|
|
8
|
|
%
|
||
Electrophysiology
|
|
109
|
|
|
110
|
|
|
(1
|
)
|
%
|
|
—
|
|
%
|
||
Subtotal Core Businesses
|
|
5,337
|
|
|
5,663
|
|
|
(6
|
)
|
%
|
|
(4
|
)
|
%
|
||
Divested Businesses
|
|
91
|
|
|
111
|
|
|
N/A
|
|
|
|
N/A
|
|
|
||
Worldwide
|
|
$
|
5,428
|
|
|
$
|
5,774
|
|
|
(6
|
)
|
%
|
|
(4
|
)
|
%
|
|
|
Q3
2012 Net Sales as compared to Q3 2011
|
||||||||||
|
|
Change
|
|
Estimated
Impact of
Foreign
Currency
|
||||||||
|
|
As Reported
Currency
Basis
|
|
Constant
Currency
Basis
|
|
|||||||
(in millions)
|
|
|
|
|||||||||
Interventional Cardiology
|
|
$
|
(119
|
)
|
|
$
|
(99
|
)
|
|
$
|
(20
|
)
|
Cardiac Rhythm Management
|
|
(41
|
)
|
|
(29
|
)
|
|
(12
|
)
|
|||
Endoscopy
|
|
12
|
|
|
20
|
|
|
(8
|
)
|
|||
Peripheral Interventions
|
|
7
|
|
|
13
|
|
|
(6
|
)
|
|||
Urology/Women’s Health
|
|
1
|
|
|
2
|
|
|
(1
|
)
|
|||
Neuromodulation
|
|
4
|
|
|
4
|
|
|
|
||||
Electrophysiology
|
|
(1
|
)
|
|
(1
|
)
|
|
|
||||
Subtotal Core Businesses
|
|
(137
|
)
|
|
(90
|
)
|
|
(47
|
)
|
|||
Divested Businesses
|
|
(2
|
)
|
|
(2
|
)
|
|
|
||||
Worldwide
|
|
$
|
(139
|
)
|
|
$
|
(92
|
)
|
|
$
|
(47
|
)
|
|
|
Q3 2012 YTD Net Sales as compared to Q3 2011 YTD
|
||||||||||
|
|
Change
|
|
Estimated
Impact of
Foreign
Currency
|
||||||||
|
|
As Reported
Currency
Basis
|
|
Constant
Currency
Basis
|
|
|||||||
(in millions)
|
|
|
|
|||||||||
Interventional Cardiology
|
|
$
|
(255
|
)
|
|
$
|
(213
|
)
|
|
$
|
(42
|
)
|
Cardiac Rhythm Management
|
|
(155
|
)
|
|
(124
|
)
|
|
(31
|
)
|
|||
Endoscopy
|
|
39
|
|
|
55
|
|
|
(16
|
)
|
|||
Peripheral Interventions
|
|
28
|
|
|
39
|
|
|
(11
|
)
|
|||
Urology/Women’s Health
|
|
|
|
2
|
|
|
(2
|
)
|
||||
Neuromodulation
|
|
18
|
|
|
19
|
|
|
(1
|
)
|
|||
Electrophysiology
|
|
(1
|
)
|
|
|
|
(1
|
)
|
||||
Subtotal Core Businesses
|
|
(326
|
)
|
|
(222
|
)
|
|
(104
|
)
|
|||
Divested Businesses
|
|
(20
|
)
|
|
(19
|
)
|
|
(1
|
)
|
|||
Worldwide
|
|
$
|
(346
|
)
|
|
$
|
(241
|
)
|
|
$
|
(105
|
)
|
|
Three Months
|
Nine Months
|
||
Gross profit margin - period ended September 30, 2011
|
63.7
|
%
|
65.4
|
%
|
PROMUS® profit sharing savings
|
2.2
|
|
2.0
|
|
PROMUS® supply true-up
|
—
|
|
(0.9
|
)
|
Manufacturing cost reductions
|
1.6
|
|
0.7
|
|
Transition-related inventory charges
|
1.1
|
|
0.4
|
|
All other, including other inventory charges, other period expense and net impact of foreign currency
|
1.9
|
|
1.3
|
|
Sales mix and pricing
|
(2.7
|
)
|
(1.4
|
)
|
Gross profit margin - period ended September 30, 2012
|
67.8
|
%
|
67.5
|
%
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
||||||||||||||||||||
|
|
2012
|
|
2011
|
|
2012
|
|
2011
|
||||||||||||||||
|
|
|
|
% of Net
|
|
|
|
% of Net
|
|
|
|
% of Net
|
|
|
|
% of Net
|
||||||||
(in millions)
|
|
$
|
|
Sales
|
|
$
|
|
Sales
|
|
$
|
|
Sales
|
|
$
|
|
Sales
|
||||||||
Selling, general and administrative expenses
|
|
589
|
|
|
33.9
|
%
|
|
629
|
|
|
33.6
|
%
|
|
1,895
|
|
|
34.9
|
%
|
|
1,866
|
|
|
32.3
|
%
|
Research and development expenses
|
|
220
|
|
|
12.7
|
%
|
|
229
|
|
|
12.2
|
%
|
|
648
|
|
|
11.9
|
%
|
|
665
|
|
|
11.5
|
%
|
Royalty expense
|
|
29
|
|
|
1.7
|
%
|
|
36
|
|
|
1.9
|
%
|
|
125
|
|
|
2.3
|
%
|
|
140
|
|
|
2.4
|
%
|
•
|
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, 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
September 30,
|
|
Nine Months Ended
September 30,
|
||||||||||||
|
|
|
||||||||||||||
(in millions)
|
|
2012
|
|
2011
|
|
2012
|
|
2011
|
||||||||
Interest income
|
|
$
|
1
|
|
|
$
|
1
|
|
|
$
|
2
|
|
|
$
|
5
|
|
Foreign currency losses
|
|
(3
|
)
|
|
(4
|
)
|
|
(13
|
)
|
|
(9
|
)
|
||||
Net gains (losses) on investments
|
|
1
|
|
|
1
|
|
|
37
|
|
|
24
|
|
||||
Other income (expense), net
|
|
(3
|
)
|
|
1
|
|
|
(3
|
)
|
|
(2
|
)
|
||||
|
|
$
|
(4
|
)
|
|
$
|
(1
|
)
|
|
$
|
23
|
|
|
$
|
18
|
|
|
|
Three Months Ended
September 30,
|
||||
|
|
2012
|
|
2011
|
||
Reported tax rate
|
|
(0.1
|
)%
|
|
(27.9
|
)%
|
Impact of certain receipts/charges*
|
|
16.2
|
%
|
|
48.0
|
%
|
|
|
16.1
|
%
|
|
20.1
|
%
|
|
|
Nine Months Ended
September 30,
|
||||
|
|
2012
|
|
2011
|
||
Reported tax rate
|
|
0.7
|
%
|
|
38.4
|
%
|
Impact of certain receipts/charges*
|
|
14.5
|
%
|
|
(21.8
|
)%
|
|
|
15.2
|
%
|
|
16.6
|
%
|
|
|
Nine Months Ended
September 30,
|
||||||
(in millions)
|
|
2012
|
|
2011
|
||||
Cash provided by operating activities
|
|
$
|
891
|
|
|
$
|
659
|
|
Cash (used for) provided by investing activities
|
|
(306
|
)
|
|
827
|
|
||
Cash used for financing activities
|
|
(502
|
)
|
|
(1,420
|
)
|
|
|
|
|
|
||||||||||||||||||||
(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
September 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 represent non-cash write-downs of our goodwill balances attributable to its (a) U.S. Cardiac Rhythm Management reporting unit in the third quarter of 2012, (b) Europe/Middle East/Africa (EMEA) reporting unit recorded in the second quarter of 2012, and (c) U.S. Cardiac Rhythm Management reporting unit recorded in the first quarter of 2011 and non-cash write-downs of certain other intangible asset balances. Management removes the impact of non-cash impairment charges from the Company's operating performance to assist in assessing the Company's cash generated from operations. Management believes this is a critical metric for the Company in measuring the Company's ability to generate cash and invest in the Company's 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 the Company's current operating performance and a comparison to the Company's 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) inventory step-up adjustments. 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 represent 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 charge related to acquired inventory directly attributable to prior acquisitions and is not indicative of the Company's 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 the Company's current operating performance and a comparison to the Company's past operating performance.
|
•
|
Divestiture-related net 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 periods as a result of intangible asset impairment charges; acquisition-, divestiture-, restructuring- or litigation-related charges (credits). These adjustments do not reflect expected on-going operating results. 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.
|
•
|
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 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;
|
•
|
The overall reliability or performance of, and referring physician, implanting physician and patient confidence in, our and our competitors' CRM products and technologies;
|
•
|
The results of CRM clinical trials and market studies undertaken by us, our competitors or other third parties;
|
•
|
Our ability to timely and successfully acquire or develop and launch new or next-generation competitive products and technologies, in line with our commercialization strategies, including the S-ICD® 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 obtain reimbursement for our products;
|
•
|
New product launches by our competitors; 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, and our ability to obtain reimbursement for such technologies;
|
•
|
Our ability to timely and successfully launch new or next-generation products and technologies in line with our commercialization strategies, and the impact of our competitive launches;
|
•
|
The impact and outcome of on-going and future coronary stent clinical trials undertaken by us, our competitors or other third parties, and perceived product performance of our or our competitors' products;
|
•
|
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 physician and patient 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 new or next-generation products and technologies 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;
|
•
|
Risks associated with protecting our intellectual property portfolio;
|
•
|
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, as well as other healthcare reform legislation.
|
•
|
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 and at comparable cost;
|
•
|
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 Brazil, 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;
|
•
|
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;
|
•
|
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; and
|
•
|
The impact of goodwill and other intangible asset impairment charges, including on our results of operations.
|
•
|
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
|
|
|
|
10.1*
|
|
Form of Third Amendment of the Boston Scientific Corporation 401(k) Retirement Savings Plan, Amended and Restated #
|
|
|
|
10.2*
|
|
Form of Amendment of the Boston Scientific Corporation Amended and Restated 2006 Global Employee Stock Ownership Plan #
|
|
|
|
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 nine months ended September 30, 2012 and 2011, (ii) the Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2012 and 2011, (iii) the Condensed Consolidated Balance Sheets as of September 30, 2012 and December 31, 2011, (iv) the Condensed Consolidated Statements of Cash Flows for the nine months ended September 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
|
3.
|
Effective January 1, 2013, Section 4.4(b) of the Plan is amended to read as follows:
|
(a)
|
the Participant's attainment of age 65 while an Employee or, for a Participant who has completed at least three Years of Service for Vesting by December 31, 2012, the Participant's attainment of age 62 while an Employee;
|
6.
|
Effective January 1, 2013, Section 11.5 of the Plan is amended to read as follows:
|
BOSTON SCIENTIFIC CORPORATION
|
|
By:
|
|
|
Signature
|
|
|
|
Printed
|
|
|
|
Title
|
BOSTON SCIENTIFIC CORPORATION
|
|
|
|
By:
|
|
Its:
|
|
ATTEST
|
|
|
|
By:
|
|
Its:
|
|
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: November 6, 2012
|
|
/s/ Michael F. Mahoney
|
||
|
|
Michael F. Mahoney
|
||
|
|
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: November 6, 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/ Michael F. Mahoney
|
|
|
Michael F. Mahoney
|
|
|
Chief Executive Officer
|
|
|
|
|
|
November 6, 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
|
|
|
|
|
|
November 6, 2012
|
|