Executive Overview

The company designs, manufacturers, packages, distributes and sells medical, surgical, diagnostic and patient care devices. The company sells a broad, diversified portfolio of products to hospitals, individual healthcare professionals, extended care health facilities and alternate site facilities in the United States and abroad, principally in Europe and Japan. In general, the company's products are intended to be used once and then discarded or implanted either temporarily or permanently. The company reports sales in four major product group categories: vascular, urology, oncology and surgical specialties. The company also has a product group of other products.

The company's earnings are driven by its ability to continue to generate sales of its products and improve operating efficiency. Bard's ability to increase sales over time depends upon its success in developing, acquiring and marketing innovative and differentiated products that meet the needs of clinicians and their patients. For the three months ended March 31, 2009, the company's research and development ("R&D") expense was $36.4 million. The company expects R&D expense to increase in the future. The company also makes selective acquisitions of businesses, products and technologies, generally focusing on small to medium sized transactions to provide ongoing growth opportunities. In addition, the company may from time-to-time consider acquisitions of larger, established companies under appropriate circumstances. The company may also periodically divest lines of business in which it is not able to reasonably attain or maintain a leadership position or for other strategic reasons.

Recent Developments

On April 22, 2009, the company announced a plan to reduce its overall cost structure and improve efficiency. The plan includes the consolidation of certain businesses in the United States and the realignment of certain sales and marketing functions outside the United States. The company expects this plan to result in the elimination of certain positions and other employee terminations worldwide. The company recorded a charge of $9.8 million ($6.5 million after tax) to reflect employee separation costs under the company's existing severance programs. The company expects activities under the plan to be substantially complete in the second quarter of 2009 with the total pre-tax cost estimated to be $14 million to $16 million. Substantially all of these costs are cash expenditures that are related to separation and other employee termination benefits. The company expects this plan to result in pre-tax cost savings of approximately $25 million on an annual basis. See Note 3 of the notes to condensed consolidated financial statements for additional discussion of the restructuring.

In January 2008, the company acquired the assets of the LifeStent ® family of stents from Edwards Lifesciences Corporation ("Edwards Lifesciences"). The company received Pre-Market Approval from the FDA in February 2009 for use of the LifeStent ® in the superficial femoral artery and proximal popliteal artery, which resulted in a contingent milestone payment of $27.0 million. See Note 2 of the notes to condensed consolidated financial statements for additional discussion of the acquisition.

Results of Operations

Net Sales

Bard's consolidated net sales for the quarter ended March 31, 2009 were $596.4 million, an increase of 2% on a reported basis (6% on a constant currency basis) over the quarter ended March 31, 2008 consolidated net sales of $584.0 million. Net sales "on a constant currency basis" is a non-GAAP financial measure and should not be viewed as a replacement of GAAP results. See "Management's Use of Non-GAAP Measures" below.

Price changes had the effect of increasing consolidated net sales for the quarter ended March 31, 2009 by 0.1% compared to the same period in the prior year. Exchange rate fluctuations had the effect of decreasing consolidated net sales for the quarter ended March 31, 2009 by approximately 4% as compared to the same period in the prior year. The primary exchange rate movement that impacts net sales is the movement of the Euro

compared to the U.S. dollar. The impact of exchange rate movements on net sales is not indicative of the impact on net earnings due to the offsetting impact of exchange rate movements on operating costs and expenses, costs incurred in other currencies and the company's hedging activities.

Bard's United States net sales for the quarter ended March 31, 2009 of $422.5 million increased 6% compared to $399.2 million in the prior year quarter. International net sales for the quarter ended March 31, 2009 of $173.9 million decreased 6% on a reported basis (increased 7% on a constant currency basis) compared to $184.8 million in the prior year quarter.

Presented below is a summary of consolidated net sales by disease state.

Product Group Summary of Net Sales

                                             Quarter Ended March 31,
                                                                     Constant
             (dollars in millions)    2009      2008     Change      Currency
             Vascular                $ 157.4   $ 150.4        5 %          11 %
             Urology                   162.8     168.7       (3 )%         -
             Oncology                  161.0     150.0        7 %          11 %
             Surgical Specialties       94.1      93.0        1 %           4 %
             Other                      21.1      21.9       (4 )%         -

             Total net sales         $ 596.4   $ 584.0        2 %           6 %

Vascular Products - Bard markets a wide range of products for the peripheral vascular market, including endovascular products, electrophysiology products and surgical graft products. Consolidated net sales for the quarter ended March 31, 2009 of vascular products increased 5% on a reported basis (11% on a constant currency basis) compared to the prior year quarter. U.S. net sales for the quarter ended March 31, 2009 of vascular products grew 14% compared to the prior year quarter. International net sales for the quarter ended March 31, 2009 decreased 6% on a reported basis (increased 7% on a constant currency basis) compared to the prior year quarter. The vascular group is the company's most global business, with international net sales comprising 43% and 47% of consolidated net sales of vascular products for the quarters ended March 31, 2009 and 2008, respectively.

Consolidated net sales for the quarter ended March 31, 2009 of endovascular products increased 13% on a reported basis (18% on a constant currency basis) compared to the prior year quarter. The company's percutaneous transluminal angioplasty balloon catheters, vena cava filters, peripheral vascular stent and stent-graft devices, and biopsy products contributed to the growth in this category for the quarter ended March 31, 2009.

Consolidated net sales for the quarter ended March 31, 2009 of electrophysiology products decreased 10% on a reported basis (3% on a constant currency basis) compared to the prior year quarter. The decline in net sales in the company's electrophysiology laboratory systems line as well as the unfavorable impact of exchange rate fluctuations were the primary contributors to this decrease. The company experienced a slowdown in electrophysiology lab system orders during the quarter. The company believes this is due to decreased capital spending in the hospital market in response to current economic conditions, a trend that may continue.

Consolidated net sales for the quarter ended March 31, 2009 of surgical graft products decreased 7% on a reported basis (2% on a constant currency basis) compared to the prior year quarter.

Urology Products - Bard markets a wide range of products for the urology market, including basic drainage products, continence products and urological specialty products. Bard also markets the StatLock® catheter stabilization products, which are used to secure many types of catheters sold by Bard and other companies. The

majority of basic drainage products, StatLock® catheter stabilization devices and urological specialty products are sold through distributors in the United States. Consolidated net sales for the quarter ended March 31, 2009 of urology products decreased 3% on a reported basis (flat on a constant currency basis) compared to the prior year quarter. U.S. net sales of urology products for the quarter ended March 31, 2009 decreased 3% compared to the prior year quarter. During the quarter ended March 31, 2009, U.S. distributors reduced their inventory of the company's products in this category, a trend that may continue. International net sales for the quarter ended March 31, 2009 of urology products decreased 6% on a reported basis (increased 8% on a constant currency basis) compared to the prior year quarter.

Basic drainage products represent the core of the company's urology business. Consolidated net sales for the quarter ended March 31, 2009 of basic drainage products decreased 3% on a reported basis (increased 1% on a constant currency basis) compared to the prior year quarter. Consolidated net sales for the quarter ended March 31, 2009 of infection control Foley catheter products grew 2% on both a reported basis and constant currency basis compared to the prior year quarter. Sales of basic drainage products for the quarter ended March 31, 2009 were impacted by the inventory reductions made by distributors.

Consolidated net sales for the quarter ended March 31, 2009 of urological specialty products, which include brachytherapy products and services, decreased 13% on a reported basis (10% on a constant currency basis) compared to the prior year quarter. The decrease in sales of urological specialty products was primarily driven by a decline in sales of brachytherapy products during the quarter ended March 31, 2009. The company believes that the brachytherapy market has been losing procedural share to alternative therapies, a trend that may continue.

Consolidated net sales for the quarter ended March 31, 2009 of continence products decreased 5% on a reported basis (increased 2% on a constant currency basis) compared to the prior year quarter. Sales of continence products for the quarter were primarily impacted by slower growth in pelvic floor reconstruction products, a trend that may continue.

Consolidated net sales for the quarter ended March 31, 2009 of the StatLock ® catheter stabilization product line increased 8% on a reported basis (10% on a constant currency basis) compared to the prior year quarter.

Oncology Products - The company's oncology products include specialty access products used primarily for chemotherapy. Consolidated net sales for the quarter ended March 31, 2009 of oncology products grew 7% on a reported basis (11% on a constant currency basis) compared to the prior year quarter. U.S. net sales represented 78% of consolidated net sales of oncology products for the quarter ended March 31, 2009 and grew 10% compared to the prior year quarter. International net sales for the quarter ended March 31, 2009 of oncology products was flat on a reported basis (increased 15% on a constant currency basis) compared to the prior year quarter. The company's specialty access ports and accessories and peripherally inserted central catheters ("PICCs") were the primary contributors to the growth in the oncology category for the quarter ended March 31, 2009.

Surgical Specialty Products - Surgical specialty products include soft tissue repair, performance irrigation and hemostasis product lines. Consolidated net sales for the quarter ended March 31, 2009 of surgical specialty products increased 1% on a reported basis (4% on a constant currency basis) compared to the prior year quarter. U.S. net sales for the quarter ended March 31, 2009 of surgical specialty products increased 7% compared to the prior year quarter. International net sales for the quarter ended March 31, 2009 of surgical specialty products decreased 13% on a reported basis (2% on a constant currency basis) compared to the prior year quarter.

Consolidated net sales for the quarter ended March 31, 2009 of the company's soft tissue repair product line, which includes core hernia repair and hernia fixation products, decreased 2% on a reported basis (increased 2% on a constant currency basis) compared to the prior year quarter. Sales in this category were impacted by growth in both biologic hernia repair and hernia fixation products and a decline in synthetic hernia products, a trend that may continue.

On December 29, 2005, the company initiated a voluntary Class I product recall of its Bard® Composix® Kugel® Mesh X-Large Patch intended for ventral hernia repair. Following the recall, the U.S. Food and Drug Administration ("FDA") conducted an inspection and issued a Form-483 notice to the company's Davol, Inc. subsidiary identifying certain observations. The company completed corrective actions to address the observations.

On March 15, 2006, the company voluntarily expanded the December 2005 recall to include certain manufacturing lots of the large Composix® Kugel ® patch and large Composix® circle. In December 2006, the company decided to voluntarily expand the March 2006 recall to include additional manufacturing lots and initiated the expanded recall on January 10, 2007.

Following the expanded recall, the FDA conducted a follow-up inspection and issued a Form-483 notice to Davol identifying certain observations regarding Davol's quality systems. The company completed corrective actions to address the observations. On April 25, 2007, Davol received a Warning Letter from the New England District Office of the FDA resulting from the follow-up inspection. The Warning Letter relates specifically to non-conformances in Davol's quality systems previously identified in the related Form-483 notice. The Warning Letter stated that, until Davol resolves the outstanding issues covered by the Warning Letter, no premarket submissions for Class III devices to which the non-conformances are reasonably related will be cleared or approved. Davol presently has no such submissions before the FDA. The company responded to the Warning Letter and completed corrective actions to address the observations. The FDA conducted a planned re-inspection of the Davol facility in the third quarter of 2008, which resulted in the issuance of a Form-483 notice. The company responded to the FDA's observations and has completed corrective actions to address them. The FDA recently notified the company that it was satisfied with the company's responses to the Form-483 notices. The company cannot, however, give any assurances as to the expected date of resolution of the matters included in the Warning Letter.

On February 13, 2008, the FDA issued a Form-483 notice to the company in connection with an inspection of the company's manufacturing facility located in Humacao, Puerto Rico. The Form-483 notice identified certain observations regarding the facility's quality systems. The facility manufactures products for many of the company's divisions and subsidiaries, including soft tissue repair products for the company's Davol subsidiary. The company has responded to the FDA and is in the process of addressing these observations. On July 28, 2008, the company received a Warning Letter from the San Juan District office of the FDA. The Warning Letter related specifically to non-conformances in quality systems previously identified in the related Form-483 notice. The Warning Letter states that, until the company resolves the outstanding issues covered by the Warning Letter, no premarket submissions for Class III devices to which the non-conformances are reasonably related will be cleared or approved. The company presently has no such submissions before the FDA. The company has responded to the Warning Letter and completed corrective actions to address the observations. However, the company cannot give any assurances that the FDA will be satisfied with its response to the Warning Letter and the associated corrective actions or as to the expected date of resolution of the matters included in the Warning Letter.

Other Products - The other product group includes irrigation, wound drainage and certain original equipment manufacturers' products. Consolidated net sales of other products for the quarter ended March 31, 2009 decreased 4% on a reported basis (flat on a constant currency basis) compared to the prior year quarter.

Costs and Expenses

The following is a summary of major costs and expenses as a percentage of net
sales for the quarters ended March 31:



                                                         2009         2008
       Cost of goods sold                                  37.6 %       38.6 %
       Marketing, selling and administrative expense       27.5 %       28.9 %
       Research and development expense                     6.1 %       14.7 %
       Interest expense                                     0.5 %        0.5 %
       Other (income) expense, net                          1.6 %       (0.7 )%

       Total costs and expenses                            73.3 %       82.0 %

Cost of goods sold - Cost of goods sold consists principally of the manufacturing and distribution costs of the company's products. The category also includes royalties and the amortization of intangible assets. The impact of incremental amortization of intangible assets acquired in the past 12 months increased cost of goods sold over the prior year quarter by approximately 30 basis points. Reductions in cost of goods sold were attributed primarily to cost improvements, which more than offset the impact of incremental amortization of intangible assets.

Marketing, selling and administrative expense - Marketing, selling and administrative expense consists principally of the costs associated with the company's sales and administrative organizations. The company's marketing, selling and administrative expense as a percentage of net sales for the quarter ended March 31, 2009 was 27.5%, a decrease of 140 basis points, compared to the prior year period due to company-wide spending controls.

Research and development expense - Research and development expense consists principally of costs related to internal research and development activities, milestone payments for third-party research and development activities and purchased R&D costs arising from the company's business development activities. Purchased R&D payments may impact the comparability of the company's results of operations between periods. All research and development costs are expensed as incurred. For the quarter ended March 31, 2009, the company spent approximately $36.4 million on research and development activities compared to $85.8 million in the prior year quarter. Included in the research and development costs for the quarter ended March 31, 2008 was purchased R&D of approximately $49.3 million primarily associated with the acquisition of the LifeStent® family of stents from Edwards Lifesciences.

Interest expense - Interest expense was $3.0 million for both quarters ended March 31, 2009 and 2008.

Other (income) expense, net - The table below presents the components of other (income) expense, net for the quarter ended March 31:

            (dollars in millions)                  2009           2008
            Interest income                     $     (1.4 )   $     (5.6 )
            Foreign exchange losses                    0.7            1.0
            Restructuring charge                       9.8             -
            Other, net                                 0.2            0.6

            Total other (income) expense, net   $      9.3     $     (4.0 )

Interest income - For the quarter ended March 31, 2009, interest income was approximately $1.4 million, compared to approximately $5.6 million for the prior year quarter. The decrease in 2009 was primarily due to lower interest rates.

Restructuring charge - The amount reflects restructuring costs. See Note 3 to the notes to condensed consolidated financial statements for additional discussion of the charge.

Income tax provision

The company's effective tax rate for the quarter ended March 31, 2009 increased to approximately 29% compared to approximately 25% for the same period in 2008. The prior year's quarter tax rate reflected a reduction from the discrete tax effect of the purchased R&D charges primarily associated with the acquisition of the assets of the Lifestent® family of stents from Edwards Lifesciences.

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

Net income attributable to common shareholders and diluted earnings per share available to common shareholders for the first quarter of 2009 were $112.5 million and $1.10, respectively. The current year period reflects an after tax restructuring charge of $6.5 million, or $0.07 per diluted share. Net income attributable to common shareholders and diluted earnings per share available to common shareholders for the prior year quarter were $78.0 million and $0.75, respectively. The prior year period reflects after tax purchased R&D charges of $31.1 million, or $0.30 per diluted share, primarily associated with the acquisition of the assets of the Lifestent® family of stents from Edwards Lifesciences.

Liquidity and Capital Resources

The company assesses its liquidity in terms of its ability to generate cash to fund its operating, investing and financing activities. Significant factors affecting the management of liquidity are cash flows generated from operating activities, capital expenditures, acquisitions of businesses and technologies, cash dividends and common stock repurchases. Cash balances and cash provided from operations continue to be the company's primary source of funds. Although the global financial markets and worldwide economies continue to experience extreme disruption and volatility, the company believes that its overall financial strength gives it sufficient financial flexibility. The table below summarizes certain liquidity measures as of March 31:

                                               2009        2008
                     (dollars in millions)
                     Working capital         $ 1,173.2   $  879.2

                     Current ratio              5.75/1     3.99/1

For the three months ended March 31, 2009, the company generated $170.9 million in cash flow from operations, compared to the $106.6 million generated in the prior year period. The increase in net cash provided by operating activities reflects improvements in working capital.

For the three months ended March 31, 2009, the company used $40.3 million in cash for investing activities, compared to the $45.2 million used in the prior year period. The current year period includes a contingent milestone payment of $27.0 million associated with the acquisition of assets of the LifeStent ® family of stents from Edwards Lifesciences, and the prior year period includes the payment of $75.7 million for the acquisition of these assets. Net cash provided by the change in short-term investments, net, which matured throughout 2008, was $48.9 million in the prior year period. Capital expenditures were approximately $11.1 million and $10.4 million for the three months ended March 31, 2009 and 2008, respectively.

For the three months ended March 31, 2009, the company used $49.0 million in cash for financing activities, compared to the $135.9 million used in the prior year period. Total debt was $149.8 million at both March 31, 2009 and December 31, 2008. Total debt to total capitalization was 6.7% and 7.0% at March 31, 2009 and December 31, 2008, respectively. The company spent approximately $36.4 million to repurchase 425,000 shares of common stock in the three months ended March 31, 2009 compared with approximately $158.3 million to repurchase 1,632,000 shares of common stock in the prior year period. The company paid cash dividends of $0.16 per share and $0.15 per share for the three months ended March 31, 2009 and 2008, respectively.

The company maintains a committed syndicated bank credit facility with a $400 million five-year credit agreement that expires in June 2012. The credit facility supports the company's commercial paper program and can be used for general corporate purposes. The facility includes pricing based on the company's long-term credit rating and includes a financial covenant that limits the amount of total debt to total capitalization. There were no outstanding borrowings or commercial paper borrowings at March 31, 2009 and December 31, 2008.

Contingencies

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

Management's Use of Non-GAAP Measures

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

Critical Accounting Policies

The preparation of financial statements requires the company's management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Critical accounting policies are those that require application of management's most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods. Such policies are summarized in the Management's Discussion and Analysis of Financial Condition and Results of Operations section in the company's 2008 Annual Report on Form 10-K. There have been no significant changes to the company's critical . . .