This management's discussion and analysis provides a review of the results of operations, financial condition and the liquidity and capital resources of C. R. Bard and its subsidiaries (the "company" or "Bard"). The following discussion should be read in conjunction with Bard's 2011 Annual Report on Form 10-K, and the condensed consolidated financial statements and notes thereto included elsewhere in this Form 10-Q. Certain statements contained herein may contain forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995; see "Risks and Uncertainties; Cautionary Statement Regarding Forward-Looking Information" below.

Overview

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

The company's earnings are driven by its ability to continue to generate sales of its products and improve operating efficiency. Bard's ability to increase sales over time depends upon its success in developing, acquiring and marketing differentiated products that meet the needs of clinicians and their patients. For the six months ended June 30, 2012, the company's research and development ("R&D") expense as a percentage of net sales was 6.7%. The company expects R&D expense as a percentage of net sales to increase in future years. 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. The company may also periodically divest lines of business in which it is not able to reasonably attain or maintain a leadership position in the market or for other strategic reasons.

Results of Operations

Net Sales

Bard's consolidated net sales for the quarter ended June 30, 2012 increased 2% on a reported basis (4% on a constant currency basis) compared to the same period in the prior year. Bard's consolidated net sales for the six months ended June 30, 2012 increased 3% on a reported basis (4% on a constant currency basis) compared to the same period in the prior year. Net sales "on a constant currency basis" is a non-GAAP measure and should not be viewed as a replacement of GAAP results. See "Management's Use of Non-GAAP Measures" below. Price changes had the effect of decreasing consolidated net sales for both the quarter and six months ended June 30, 2012 by approximately 150 basis points as compared to the same periods in the prior year. Exchange rate fluctuations had the effect of decreasing consolidated net sales for the quarter and six months ended June 30, 2012 by 2% and 1%, respectively, as compared to the same periods in the prior year. The primary exchange rate movement that impacts net sales is the movement of the Euro compared to the U.S. dollar. The impact of exchange rate movements on net sales is not indicative of the impact on net earnings due to the offsetting impact of exchange rate movements on operating costs and expenses, costs incurred in other currencies and the company's hedging activities.

Bard's United States net sales of $490.0 million for the quarter ended June 30, 2012 increased 2% compared to $479.9 million in the prior year quarter. Growth in United States net sales has moderated in recent quarters, a trend that may continue. International net sales of $252.6 million for the quarter ended June 30, 2012 increased 3% on a reported basis (8% on a constant currency basis) compared to $245.1 million in the prior year quarter. Bard's United States net sales of $986.2 million for the six months ended June 30, 2012 increased 2% compared to $967.0 million in the prior year period. International net sales of $486.4 million for the six months ended June 30, 2012 increased 6% on a reported basis (9% on a constant currency basis) compared to $458.3 million in the prior year period.

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

Product Group Summary of Net Sales

                                               Quarter Ended June 30,                               Six Months Ended June 30,
                                                                        Constant                                                 Constant
                                    2012        2011       Change       Currency          2012          2011        Change       Currency
(dollars in millions)
Vascular                           $ 221.3     $ 215.2          3%              6 %     $   430.5     $   413.5          4%              6 %
Urology                              188.8       182.7          3%              5 %         373.9         362.2          3%              4 %
Oncology                             199.1       192.8          3%              4 %         398.0         379.2          5%              5 %
Surgical Specialties                 111.4       110.9           -              2 %         226.1         225.8           -              1 %
Other                                 22.0        23.4        (6)%             (6 )%         44.1          44.6        (1)%             (1 )%

Total net sales                    $ 742.6     $ 725.0          2%              4 %     $ 1,472.6     $ 1,425.3          3%              4 %

Vascular Products - Bard markets a wide range of products for the peripheral vascular market, including endovascular products, electrophysiology products and vascular graft products. The increase in consolidated net sales of vascular products for the quarter and six months ended June 30, 2012 compared to the prior year periods was due primarily to growth in endovascular products. United States net sales of vascular products for the quarter ended June 30, 2012 decreased 1% compared to the prior year quarter. International net sales of vascular products for the quarter ended June 30, 2012 increased 8% on a reported basis (15% on a constant currency basis) compared to the prior year quarter. United States net sales of vascular products for the six months ended June 30, 2012 were flat compared to the prior year period. International net sales of vascular products for the six months ended June 30, 2012 increased 9% on a reported basis (14% on a constant currency basis) compared to the prior year period.

Consolidated net sales of endovascular products for the quarter ended June 30, 2012 increased 7% on a reported basis (9% on a constant currency basis) compared to the prior year quarter. Consolidated net sales of endovascular products for the six months ended June 30, 2012 increased 8% on a reported basis (9% on a constant currency basis) compared to the prior year period. Stents and percutaneous transluminal angioplasty balloon catheters were primary contributors to the growth in this category for the quarter and six months ended June 30, 2012. Net sales of stents for the quarter and six months ended June 30, 2012 have benefited from an issue with the availability of a competitor's products.

Consolidated net sales of electrophysiology products for the quarter ended June 30, 2012 decreased 6% on a reported basis (2% on a constant currency basis) compared to the prior year quarter. Consolidated net sales of electrophysiology products for the six months ended June 30, 2012 decreased 4% on a reported basis (2% on a constant currency basis) compared to the prior year period.

Consolidated net sales of vascular graft products for the quarter ended June 30, 2012 decreased 10% on a reported basis (7% on a constant currency basis) compared to the prior year quarter. Consolidated net sales of vascular graft products for the six months ended June 30, 2012 decreased 8% on a reported basis (6% on a constant currency basis) compared to the prior year period.

Urology Products - Bard markets a wide range of products for the urology market, including basic drainage products, continence products and urological specialty products. Bard also markets StatLock®catheter stabilization products, which are used to secure many types of catheters sold by Bard and other companies. The majority of basic drainage products, StatLock® catheter stabilization devices and certain urological specialty products are sold through distributors. Bard also markets Targeted Temperature Management ™ products, acquired in November 2011, for therapeutic hypothermia. The increase in consolidated net sales of urology products for the quarter and six months ended June 30, 2012 compared to the prior year period included 5 percentage points of growth on a reported basis (6 percentage points of growth on a constant currency basis) from the addition of Targeted Temperature Management™ products. This growth was partially offset by declines in sales of continence products and urological specialty products, a trend that may continue. United States net sales of urology products for the quarter ended June 30, 2012 increased 5% compared to the prior year quarter. International net sales of urology products for the quarter ended June 30, 2012 were flat on a reported basis (increased 4% on a constant currency basis) compared to the prior year quarter. United States net sales of urology products for the six months ended June 30, 2012 increased 3% compared to the prior year period. International net sales of urology products for the six months ended June 30, 2012 increased 3% on a reported basis (6% on a constant currency basis) compared to the prior year period.

Consolidated net sales of basic drainage products for the quarter ended June 30, 2012 were flat on a reported basis (increased 1% on a constant currency basis) compared to the prior year quarter. Consolidated net sales of infection control Foley catheter products for the quarter ended June 30, 2012 decreased 3% on a reported basis (2% on a constant currency basis) compared to the prior year quarter. Consolidated net sales of basic drainage products for the six months ended June 30, 2012 were flat on both a reported basis and constant currency basis compared to the prior year period. Consolidated net sales of infection control Foley catheter products for the six months ended June 30, 2012 decreased 3% on both a reported basis and constant currency basis compared to the prior year period.

Consolidated net sales of urological specialty products, which include brachytherapy products, for the quarter ended June 30, 2012 decreased 13% on a reported basis (10% on a constant currency basis) compared to the prior year quarter. Consolidated net sales of brachytherapy products for the quarter ended June 30, 2012 decreased 18% on a reported basis (14% on a constant currency basis) compared to the prior year quarter. Consolidated net sales of urological specialty products for the six months ended June 30, 2012 decreased 7% on a reported basis (5% on a constant currency basis) compared to the prior year period. Consolidated net sales of brachytherapy products for the six months ended June 30, 2012 decreased 9% on a reported basis (7% on a constant currency basis) compared to the prior year period. The brachytherapy market has been losing procedural share to alternative therapies, a trend that may continue.

Consolidated net sales of continence products for the quarter ended June 30, 2012 decreased 8% on a reported basis (6% on a constant currency basis) compared to the prior year quarter. Consolidated net sales of continence products for the six months ended June 30, 2012 decreased 12% on a reported basis (10% on a constant currency basis) compared to the prior year period. Net sales for the quarter and six months ended June 30, 2012 were impacted by the discontinuation of sales of a bulking continence product and by a decline in sales of surgical continence products, a trend that may continue.

Consolidated net sales of the StatLock® catheter stabilization product line for the quarter ended June 30, 2012 increased 1% on both a reported basis and constant currency basis compared to the prior year quarter. Consolidated net sales of the StatLock® catheter stabilization product line for the six months ended June 30, 2012 were flat on both a reported basis and constant currency basis compared to the prior year period.

Oncology Products - Bard's oncology business includes specialty vascular access products and enteral feeding devices. Specialty vascular access products include peripherally inserted central catheters ("PICCs") used for intermediate to long-term central venous access, specialty access ports and accessories ("Ports") used most commonly for chemotherapy, dialysis access catheters and vascular access ultrasound devices which help facilitate the placement of PICCs. The increase in consolidated net sales of oncology products for the quarter ended June 30, 2012 compared to the prior year quarter was due primarily to growth in sales of PICCs. United States net sales of oncology products for the quarter ended June 30, 2012 increased 3% compared to the prior year quarter. International net sales of oncology products for the quarter ended June 30, 2012 increased 3% on a reported basis (6% on a constant currency basis) compared to the prior year quarter. United States net sales of oncology products for the six months ended June 30, 2012 increased 4% compared to the prior year period. International net sales of oncology products for the six months ended June 30, 2012 increased 8% on a reported basis (10% on a constant currency basis) compared to the prior year period.

Consolidated net sales of PICCs for the quarter ended June 30, 2012 increased 6% on a reported basis (7% on a constant currency basis) compared to the prior year quarter. Consolidated net sales of PICCs for the six months ended June 30, 2012 increased 7% on a reported basis (8% on a constant currency basis) compared to the prior year period. Consolidated net sales of Ports for the quarter ended June 30, 2012 decreased 1% on a reported basis (were flat on a constant currency basis) compared to the prior year quarter. Consolidated net sales of Ports for the six months ended June 30, 2012 increased 1% on a reported basis (2% on a constant currency basis) compared to the prior year period.

Consolidated net sales of dialysis access catheters for the quarter ended June 30, 2012 increased 2% on a reported basis (3% on a constant currency basis) compared to the prior year quarter. Consolidated net sales of dialysis access catheters for the six months ended June 30, 2012 increased 1% on a reported basis (2% on a constant currency basis) compared to the prior year period. Consolidated net sales of vascular access ultrasound devices for the quarter ended June 30, 2012 increased 9% on a reported basis (10% on a constant currency basis) compared to the prior year quarter. Consolidated net sales of vascular access ultrasound devices for the six months ended June 30, 2012 increased 11% on a reported basis (12% on a constant currency basis) compared to the prior year period.

Surgical Specialty Products - Surgical specialty products include soft tissue repair, performance irrigation and hemostasis product lines. United States net sales of surgical specialty products for the quarter ended June 30, 2012 increased 3% compared to the prior year quarter. International net sales of surgical specialty products for the quarter ended June 30, 2012 decreased 5% on a reported basis (1% on a constant currency basis) compared to the prior year quarter. United States net sales of surgical specialty products for the six months ended June 30, 2012 were flat compared to the prior year period. International net sales of surgical specialty products for the six months ended June 30, 2012 were flat on a reported basis (increased 3% on a constant currency basis) compared to the prior year period.

The soft tissue repair product line includes synthetic and natural-tissue hernia repair implants, natural-tissue breast reconstruction implants and hernia fixation products. Consolidated net sales of soft tissue repair products for the quarter ended June 30, 2012 increased 1% on a reported basis (2% on a constant currency basis) compared to the prior year quarter. Consolidated net sales of soft tissue repair products for the six months ended June 30, 2012 increased 1% on a reported basis (2% on a constant currency basis) compared to the prior year period. The company's net sales in this category for the quarter and six months ended June 30, 2012 were favorably impacted by growth in sales of synthetic hernia repair implants and natural-tissue breast reconstruction implants. This growth was partially offset by declines in natural-tissue hernia repair implants and hernia fixation products, a trend that may continue.

Other Products - The other product group includes irrigation, wound drainage and certain original equipment manufacturers' products.

Costs and Expenses

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



                                                         Quarter Ended             Six Months Ended
                                                           June 30,                    June 30,
                                                       2012         2011        2012(A)          2011
Cost of goods sold                                      38.5 %       38.0 %         38.4 %        37.9 %
Marketing, selling and administrative expense           27.7 %       27.1 %         27.7 %        27.4 %
Research and development expense                         6.7 %        6.5 %          6.7 %         6.7 %
Interest expense                                         1.3 %        1.2 %          1.3 %         1.3 %
Other (income) expense, net                              0.8 %       26.8 %          0.4 %        13.6 %

Total costs and expenses                                75.0 %       99.6 %         74.4 %        86.9 %

(A) Amounts do not add due to rounding.

Cost of goods sold - Cost of goods sold consists principally of the manufacturing and distribution costs of the company's products. The category also includes royalties, amortization of intangible assets and the impact of certain hedging activities. Cost of goods sold as a percentage of net sales for both the quarter and six months ended June 30, 2012 increased 50 basis points compared to the prior year periods. Incremental amortization of intangible assets acquired in 2011 and 2012 increased the cost of goods sold as a percentage of net sales by approximately 70 basis points over both the prior year quarter and six month period.

Marketing, selling and administrative expense - Marketing, selling and administrative expense consists principally of the costs associated with the company's sales and administrative organizations. These costs as a percentage of net sales for the quarter ended June 30, 2012 increased 60 basis points compared to the prior year quarter. These costs as a percentage of net sales for the six months ended June 30, 2012 increased 30 basis points compared to the prior year period.

Research and development expense - Research and development expense consists principally of costs related to internal research and development activities, milestone payments for third-party research and development activities, and acquired in-process R&D ("IPR&D") costs arising from the company's business development activities. IPR&D payments may impact the comparability of the company's results of operations between periods. Research and development expense for the quarter ended June 30, 2012 was $50.1 million, an increase of approximately 7% compared to the prior year quarter. Research and development expense for the six months ended June 30, 2012 was $98.3 million, an increase of approximately 4% compared to the prior year period. An IPR&D charge of $3.0 million was recorded for the six months ended June 30, 2011.

Interest expense - Interest expense was $9.7 million and $9.0 million for the quarters ended June 30, 2012 and 2011, respectively. Interest expense was $19.2 million and $18.1 million for the six months ended June 30, 2012 and 2011, respectively.

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

                                            Quarter Ended           Six Months Ended
                                              June 30,                  June 30,
                                          2012        2011          2012         2011
     (dollars in millions)
     Interest income                     $ (3.2 )    $  (1.2 )    $   (3.6 )    $  (1.9 )
     Foreign exchange losses                1.5          0.2           0.4          0.1
     Asset impairments                      9.0           -            9.0           -
     Restructuring                         (1.6 )       (1.1 )        (1.6 )       (1.1 )
     Legal settlements and commitments       -         195.5            -         195.5
     Other, net                             0.5          0.7           1.2          1.6

     Total other (income) expense, net   $  6.2      $ 194.1      $    5.4      $ 194.2

Asset impairments - For the quarter and six months ended June 30, 2012, the amounts reflect impairments of assets not related to operations.

Restructuring - For the quarter and six months ended June 30, 2012, the amounts reflect the reversal of certain restructuring costs recognized in the second half of 2011. For the quarter and six months ended June 30, 2011, the amounts reflect the reversal of certain restructuring costs recognized in the second half of 2010.

Legal settlements and commitments - For the quarter and six months ended June 30, 2011, the amounts reflect the estimated costs of settling all Hernia Product Claims (other than the putative class action lawsuits), including costs to administer the settlements, (see Note 7 of the notes to condensed consolidated financial statements) and certain other legal settlements and commitments.

Income Tax Provision

The effective tax rate for both the quarter and six months ended June 30, 2012 was approximately 28%. The effective tax rate in both the prior year quarter and prior six month period reflected the discrete tax effect for legal settlements, primarily related to Hernia Product Claims, which were incurred in a low tax jurisdiction.

Net Income (Loss) and Earnings (Loss) Per Share Available to Common Shareholders

The company reported net income and diluted earnings per share available to common shareholders for the quarter ended June 30, 2012 of $133.9 million and $1.54, respectively. Net loss and diluted loss per share available to common shareholders for the prior year quarter was $(47.8) million and $(0.55), respectively. The current year quarter reflects asset impairments of $5.8 million, or $0.07 per diluted share, a reversal of certain restructuring costs of $1.1 million, or $0.01 per diluted share, and acquisition-related items, primarily consisting of purchase accounting adjustments, of $0.8 million, or $0.01 per diluted share. The current year quarter also reflects an increase to the income tax provision of $1.1 million, or $0.01 per diluted share, due to the write-down of a tax receivable in a foreign jurisdiction. The prior year quarter reflects legal settlements and commitments of $189.5 million, or $2.10 per diluted share. The prior year quarter also reflects acquisition-related items, consisting of transaction costs (primarily legal costs), of $0.8 million, or $0.01 per diluted share and reflects a reversal of certain restructuring costs of $0.8 million or $0.01 per diluted share.

The company reported net income and diluted earnings per share available to common shareholders for the six months ended June 30, 2012 of $272.6 million and $3.14, respectively. Net income and diluted earnings per share available to common shareholders for the six months ended June 30, 2011 was $84.1 million and $0.94, respectively. The current six month period reflects asset impairments of $5.8 million, or $0.07 per diluted share, acquisition-related items, primarily consisting of purchase accounting adjustments and integration costs, of $1.6 million, or $0.02 per diluted share, and a reversal of certain restructuring costs of $1.1 million, or $0.01 per diluted share. The current six month period also reflects an increase to the income tax provision of $1.1 million, or $0.01 per diluted share, due to the write-down of a tax receivable in a foreign jurisdiction. The prior six month period reflects legal settlements and commitments of $189.5 million, or $2.12 per diluted share. The prior six month period also reflects acquisition-related items, primarily consisting of an IPR&D charge, of $2.6 million, or $0.03 per diluted share and reflects a reversal of certain restructuring cost of $0.8 million, or $0.01 per diluted share.

Liquidity and Capital Resources

The company assesses its liquidity in terms of its ability to generate cash to fund its operating, investing and financing activities. Significant factors affecting the management of liquidity are cash flows generated from operating activities, capital expenditures, acquisitions of businesses and technologies, cash dividends and common stock repurchases. Cash provided from operations continues to be the company's primary source of funds. The company believes that it could borrow adequate funds at competitive terms should it be necessary. The company also believes that its overall financial strength gives it sufficient financial flexibility. A summary of certain liquidity measures for Bard as of June 30 is as follows:

                                             2012          2011
                   (dollars in millions)
                   Working capital         $ 1,009.5     $ 1,421.1

                   Current ratio              2.37/1        4.14/1

Cash and cash equivalents held by the company's foreign subsidiaries were $711.5 million and $586.9 million at June 30, 2012 and December 31, 2011, respectively. It is the company's intention to permanently reinvest the majority of these funds outside the United States to finance foreign operations, and the company's plans do not demonstrate a need to repatriate these funds. If these funds are needed for U.S. operations or can no longer be permanently reinvested outside the United States, the company would be required to accrue and pay U.S. taxes on the earnings associated with these funds. In the United States, ongoing operating cash flows and available borrowings under the company's committed syndicated bank credit facility provide it with sufficient liquidity.

For the six months ended June 30, 2012 and 2011, net cash provided by operating activities was $233.7 million and $309.4 million, respectively. The decrease in net cash provided by operating activities reflects current year payments to . . .