This management's discussion and analysis provides a review of the results of operations, financial condition and the liquidity and capital resources of the company and its subsidiaries. The following discussion should be read in conjunction with the consolidated financial statements and notes thereto included elsewhere in this Form 10-K. 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, 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 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. In 2012, the company's research and development ("R&D") expense as a percentage of net sales was 6.9%. The company expects R&D expense as a percentage of net sales to increase in future years. The company also makes and expects to continue to make 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. The company spent $159.3 million in 2012, including acquired in-process R&D ("IPR&D"), for the acquisition of businesses, products and technologies.

Acquisitions and Other Initiatives

On October 19, 2012, the company acquired all of the outstanding shares of Neomend, Inc. ("Neomend"), a privately-held company engaged in the development and commercialization of innovative surgical sealants. The total purchase consideration of $133.7 million included the fair value of contingent consideration of up to $25 million, which is based on the achievement of sales-based milestones through 2016. Neomend's products expand Bard's existing surgical specialties product portfolio to include the only product approved by the U.S. Food and Drug Administration for the treatment of intraoperative air leaks in connection with thoracic surgery. Neomend's proprietary technology and pipeline provide the opportunity for future clinical indications across a variety of surgical specialty applications. For more information on acquisitions, see Note 2 of the notes to consolidated financial statements.

During the fourth quarter of 2012, the company committed to a plan (the "2012 Restructuring Plan") to improve its overall cost structure and enhance operational effectiveness. The company expects the 2012 Restructuring Plan to result in the elimination of certain positions and other employee terminations worldwide. In connection with this plan, the company recorded employee separation costs under the company's existing severance programs and other costs related to one-time employee termination benefits of $19.2 million ($13.0 million after tax). Substantially all of these costs are expected to be cash expenditures. The company expects these restructuring costs to result in pre-tax cost savings of approximately $15 million on an annual basis. See Note 3 of the notes to consolidated financial statements.

On October 30, 2012, the company issued $500 million aggregate principal amount of 1.375% senior unsecured notes due 2018. Interest on the notes is payable semi-annually. Net proceeds from this offering were $495.4 million, after deducting debt offering costs, consisting of underwriting commissions and offering expenses, and a debt issuance discount. Net proceeds from the issuance of the notes were used for general corporate purposes, including repayment of commercial paper and acquisitions. See Note 9 of the notes to consolidated financial statements.

Healthcare Reform

Significant reforms to the U.S. healthcare system were adopted in 2010 in the form of the Patient Protection and Affordable Care Act (the "PPACA"). The PPACA requires, among other things, the company to pay a 2.3% excise tax on most U.S. medical device sales beginning in 2013. The company has evaluated the impact of this tax on its overall business. Based on forecasted 2013 annual U.S. sales, the excise tax is expected to be approximately $40 million.

Results of Operations

Net Sales

Bard's 2012 consolidated net sales increased 2% on a reported basis (3% on a constant currency basis) over 2011 consolidated net sales. Bard's 2011 consolidated net sales increased 6% on a reported basis (5% on a constant currency basis) over 2010 consolidated net sales. 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 by approximately 140 basis points and 70 basis points for 2012 and 2011, respectively, compared to the prior years. 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 2012 United States net sales of $1,967.7 million increased 1% compared to $1,956.0 million in 2011. Bard's 2012 international net sales of $990.4 million increased 5% on a reported basis (9% on a constant currency basis) compared to $940.4 million in 2011. Bard's 2011 United States net sales increased 4% compared to $1,889.0 million in 2010. Bard's 2011 international net sales increased 13% on a reported basis (9% on a constant currency basis) compared to $831.2 million in 2010.

Presented below is a summary of consolidated net sales by product group category.

                       Product Group Summary of Net Sales



                                                               For the Years Ended December 31,
                                                                           Constant                                        Constant
                             2012            2011          Change          Currency           2010          Change         Currency
(dollars in millions)
Vascular                   $   845.0       $   842.4             -                 3 %      $   755.9            11 %             10 %
Urology                        757.8           734.8             3 %               4 %          718.1             2 %              1 %
Oncology                       812.4           779.5             4 %               5 %          724.8             8 %              6 %
Surgical Specialties           455.1           450.0             1 %               2 %          434.6             4 %              3 %
Other                           87.8            89.7            (2 )%             (2 )%          86.8             3 %              3 %

Total net sales            $ 2,958.1       $ 2,896.4             2 %               3 %      $ 2,720.2             6 %              5 %

Vascular Products - Bard markets a wide range of products for the peripheral vascular market, including endovascular products, electrophysiology products and vascular graft products. Consolidated net sales of vascular products in 2012 were flat on a reported basis (increased 3% on a constant currency basis) compared to

the prior year due to an increase in sales of endovascular products offset by a decline in sales of electrophysiology and vascular graft products. United States net sales of vascular products in 2012 decreased 3% compared to the prior year. International net sales of vascular products in 2012 increased 4% on a reported basis (10% on a constant currency basis) compared to the prior year. The increase in consolidated net sales of vascular products in 2011 was due primarily to growth in endovascular products. United States net sales of vascular products in 2011 increased 9% compared to the prior year. International net sales in 2011 increased 15% on a reported basis (10% on a constant currency basis) compared to the prior year.

Consolidated net sales of endovascular products in 2012 increased 2% on a reported basis (5% on a constant currency basis) compared to the prior year. Consolidated net sales of endovascular products in 2011 increased 16% on a reported basis (14% on a constant currency basis) compared to the prior year. Stents and percutaneous transluminal angioplasty balloon catheters were the primary contributors to the growth in this product line in 2012. Net sales of stents in 2012 benefited from an issue with the availability of a competitor's products. Percutaneous transluminal angioplasty balloon catheters, stents and biopsy products were the primary contributors to the growth in this product line in 2011.

Consolidated net sales of electrophysiology products in 2012 decreased 6% on a reported basis (2% on a constant currency basis) compared to the prior year. Consolidated net sales of electrophysiology products in 2011 increased 2% on a reported basis (decreased 1% on a constant currency basis) compared to the prior year.

Consolidated net sales of vascular graft products in 2012 decreased 6% on a reported basis (3% on a constant currency basis) compared to the prior year. Consolidated net sales of vascular graft products in 2011 decreased 2% on a reported basis (4% on a constant currency basis) compared to the prior year. Declining sales in peripheral vascular grafts were the primary drivers of the decrease in both 2012 and 2011.

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. Bard also markets Targeted Temperature Management™ products, acquired in November 2011, for therapeutic hypothermia. In 2012, consolidated net sales of urology products increased 3% on a reported basis (4% on a constant currency basis) compared to the prior year. This increase included 5 percentage points of growth on both a reported basis and constant currency basis from the addition of Targeted Temperature Management™ products. This growth was offset by declines in sales of urological specialty products, StatLock® catheter stabilization products and continence products, a trend that may continue. United States net sales of urology products in 2012 increased 2% compared to the prior year. International net sales in 2012 increased 6% on a reported basis (9% on a constant currency basis) compared to the prior year. The increase in consolidated net sales of urology products in 2011 compared to the prior year was led by growth in sales of basic drainage products, StatLock® catheter stabilization products and the addition of Targeted Temperature Management™ products, partially offset by a decrease in sales of continence products. United States net sales in 2011 decreased 1% compared to the prior year. International net sales in 2011 increased 12% on a reported basis (8% on a constant currency basis) compared to the prior year.

Consolidated net sales of basic drainage products in 2012 increased 1% on both a reported basis and constant currency basis compared to the prior year. Consolidated net sales of basic drainage products in 2011 increased 3% on both a reported basis and constant currency basis compared to the prior year. Consolidated net sales of infection control Foley catheter products in 2012 decreased 3% on both a reported basis and constant currency basis compared to the prior year. Consolidated net sales of infection control Foley catheter products in 2011 were flat on both a reported basis and constant currency basis compared to the prior year.

Consolidated net sales of urological specialty products, which include brachytherapy products, in 2012 decreased 6% on a reported basis (4% on a constant currency basis) compared to the prior year. Consolidated net sales of brachytherapy products in 2012 decreased 15% on a reported basis (11% on a constant currency basis)

compared to the prior year. Consolidated net sales of urological specialty products in 2011 increased 2% on a reported basis (1% on a constant currency basis) compared to the prior year. Consolidated net sales of brachytherapy products in 2011 increased 1% on a reported basis (decreased 1% on a constant currency basis) compared to the prior year. The brachytherapy market has been losing procedural share to alternative therapies in the United States, a trend that may continue.

Consolidated net sales of continence products in 2012 decreased 8% on a reported basis (7% on a constant currency basis) compared to the prior year. Consolidated net sales of continence products in 2011 decreased 14% on a reported basis (15% on a constant currency basis) compared to the prior year. Net sales in 2012 and 2011 were impacted by the discontinuation of sales of a bulking continence product and a decline in sales of surgical continence products, a trend that may continue. Consolidated net sales of the StatLock ® catheter stabilization product line in 2012 decreased 2% on both a reported basis and constant currency basis compared to the prior year. Consolidated net sales of the StatLock® catheter stabilization product line in 2011 increased 6% on a reported basis (5% on a constant currency basis) compared to the prior year.

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. In 2012, consolidated net sales of oncology products increased 4% on a reported basis (5% on a constant currency basis) compared to the prior year. This increase was due primarily to growth in net sales of PICCs. United States net sales of oncology products in 2012 increased 3% compared to the prior year. International net sales in 2012 increased 9% on a reported basis (11% on a constant currency basis) compared to the prior year. The increase in consolidated net sales of oncology products in 2011 compared to the prior year was due primarily to growth in net sales of PICCs and Ports. United States net sales of oncology products in 2011 increased 5% compared to the prior year. International net sales in 2011 increased 15% on a reported basis (9% on a constant currency basis) compared to the prior year.

Consolidated net sales of PICCs in 2012 increased 6% on both a reported basis and constant currency basis compared to the prior year. Consolidated net sales of Ports in 2012 increased 1% on a reported basis (2% on a constant currency basis) compared to the prior year. Consolidated net sales of PICCs in 2011 increased 9% on a reported basis (8% on a constant currency basis) compared to the prior year. Consolidated net sales of Ports in 2011 increased 6% on a reported basis (5% on a constant currency basis) compared to the prior year.

Consolidated net sales of dialysis access catheters in 2012 increased 2% on a reported basis (3% on a constant currency basis) compared to the prior year. Consolidated net sales of vascular access ultrasound devices in 2012 increased 8% on a reported basis (9% on a constant currency basis) compared to the prior year. Consolidated net sales of dialysis access catheters in 2011 increased 10% on a reported basis (8% on a constant currency basis) compared to the prior year. Consolidated net sales of vascular access ultrasound devices in 2011 increased 10% on a reported basis (9% on a constant currency basis) compared to the prior year.

Surgical Specialty Products - Surgical specialty products include soft tissue repair, performance irrigation and sealant product lines. In 2012, consolidated net sales of surgical specialty products increased 1% on a reported basis (2% on a constant currency basis) compared to the prior year. This increase included 1 percentage point of growth on both a reported basis and constant currency basis from the addition of surgical sealant products from the acquisition of Neomend. United States net sales of surgical specialty products in 2012 increased 1% compared to the prior year. International net sales in 2012 increased 3% on a reported basis (6% on a constant currency basis) compared to the prior year. United States net sales of surgical specialty products in 2011 increased 2% compared to the prior year. International net sales in 2011 increased 10% on a reported basis (6% on a constant currency basis) compared to the prior year. The increase in consolidated net sales of surgical specialty products in 2011 compared to the prior year was due to growth in soft tissue repair products.

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 in 2012 increased 1% on a reported basis (2% on a constant currency basis) compared to the prior year. Net sales in this product line in 2012 were favorably impacted by growth in sales of synthetic hernia repair implants and natural-tissue breast reconstruction implants, offset by declines in natural-tissue hernia repair implants and hernia fixation products, a trend that may continue. Consolidated net sales of soft tissue repair products in 2011 increased 6% on a reported basis (5% on a constant currency basis) compared to the prior year. Net sales in this product line in 2011 were favorably impacted by growth in sales of synthetic and natural-tissue hernia repair implants and natural-tissue breast reconstruction implants, partially offset by declines in hernia fixation products.

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

Costs and Expenses

The following is a summary of costs and expenses as a percentage of net sales
for the following years ended December 31:



                                                      2012        2011        2010
     Cost of goods sold                                38.0 %      37.9 %      37.5 %
     Marketing, selling and administrative expense     27.6 %      27.4 %      27.9 %
     Research and development expense                   6.9 %       6.4 %       6.8 %
     Interest expense                                   1.3 %       1.3 %       0.5 %
     Other (income) expense, net                        1.4 %       9.4 %       0.9 %

     Total costs and expenses                          75.2 %      82.4 %      73.6 %

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 2012 increased 10 basis points compared to the prior year. Incremental amortization of intangible assets acquired in 2011 and 2012 increased cost of goods sold as a percentage of net sales by approximately 70 basis points over the prior year. This increase was largely offset by cost improvements. Cost of goods sold as a percentage of net sales for 2011 increased 40 basis points compared to the prior year. Incremental amortization of intangible assets acquired in 2010 and 2011 increased cost of goods sold in 2011 as a percentage of net sales by approximately 40 basis points over the prior year.

Marketing, selling and administrativeexpense - 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 2012 increased 20 basis points from the prior year primarily due to related costs from operations acquired in 2011 and continued investments in emerging markets. These costs as a percentage of net sales for 2011 decreased 50 basis points from the prior year primarily due to company-wide spending controls, including the impact of restructuring activities, partially offset by investments in emerging markets.

Research and development expense - Research and development expense consists principally of the costs related to internal research and development activities, milestone payments for third-party research and development activities, and IPR&D arising from business development activities. IPR&D payments may impact the comparability of the company's results of operations between periods. The following table presents a summary of research and development expense for the following years ended December 31:

                                                   2012        2011        2010
         (dollars in millions)
         Research and development                 $ 199.7     $ 181.9     $ 182.8
         In-process research and development          3.5         3.5         2.6

         Total research and development expense   $ 203.2     $ 185.4     $ 185.4

Research and development expense in 2012 increased approximately 10% compared to the prior year driven by the operations of recent acquisitions. Research and development expense in 2011 was flat compared to the prior year.

Interest expense - Interest expense in 2012 was $39.6 million as compared with 2011 interest expense of $36.4 million and 2010 interest expense of $12.7 million. The increase in interest expense in 2012 was due to higher average short-term borrowings and the issuance of $500 million of senior unsecured notes in October 2012. The increase in interest expense in 2011 was due to the issuance of $750 million of senior unsecured notes in December 2010.

Other (income) expense, net - Other (income) expense, net, was $40.3 million, $271.9 million and $24.6 million for 2012, 2011 and 2010, respectively. Other (income) expense, net, in 2012 included charges related to asset impairments of $22.2 million and net restructuring costs of $17.4 million. Other (income) expense, net, in 2011 included charges related to legal settlements and commitments of $246.5 million, charges for the impairment of Greek bonds of $11.5 million and net restructuring costs of $7.8 million. See Note 13 of the notes to consolidated financial statements.

Income Tax Provision

The company's effective tax rate for 2012 was approximately 28% compared to approximately 36% in 2011 and approximately 29% in 2010. The effective tax rate for 2011 reflected the tax effect of a charge for legal settlements related to the Hernia Product Claims, which were incurred in a low tax jurisdiction, and a charge related to the Brachytherapy Matter, part of which is not expected to be tax deductible. The tax rate in 2011 also reflected a tax benefit of $17.6 million for certain tax positions being settled as a result of the completion of U.S. Internal Revenue Service ("IRS") examinations for the tax years from 2005 through 2007 and certain examinations in other jurisdictions.

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

The company reported 2012 net income attributable to common shareholders of $530.1 million, an increase of 62% from 2011 net income attributable to common shareholders of $328.0 million. The company reported 2012 diluted earnings per share available to common shareholders of $6.16, an increase of 67% from 2011 diluted earnings per share available to common shareholders of $3.69. Net income attributable to common shareholders in 2012 reflects asset impairments of $13.8 million, or $0.16 per diluted share, net restructuring costs of $11.8 million, or $0.14 per diluted share, and acquisition-related items (purchase accounting adjustments, transaction and integration costs and IPR&D) of $8.5 million, or $0.10 per diluted share. Net income for 2012 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 company reported 2011 net income attributable to common shareholders of $328.0 million, a decrease of 36% from 2010 net income attributable to common shareholders of $509.2 million. The company reported 2011 diluted earnings per share available to common shareholders of $3.69, a decrease of 31% from 2010 diluted earnings per share available to common shareholders of $5.32. Net income attributable to common shareholders in 2011 reflects charges for legal settlements and commitments of $230.3 million, or $2.59 per diluted share, acquisition-related items (primarily integration and transaction costs and IPR&D) of $11.7 million, or $0.13 per diluted share, and charges for the impairment of Greek bonds of $11.5 million, or $0.13 per diluted share. Net income for 2011 also reflects restructuring costs of $5.0 million, or $0.06 per diluted share and a decrease to the income tax provision of $17.6 million, or $0.20 per diluted share, as a result of the reduction of certain tax positions as discussed above.

Liquidity and Capital Resources

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