6-K 1 acl6kq32009results.htm Q3 RESULTS acl6kq32009results.htm



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 6-K

REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16 OR 15d-16 UNDER THE SECURITIES EXCHANGE ACT OF 1934

For the month of October 2009

Commission File Number 001-31269

ALCON, INC.
(Translation of registrant's name into English)

Bösch 69
P.O. Box 62
6331 Hünenberg, Switzerland
 41-41-785-8888
(Address of principal executive offices)

Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F.
Form 20-F
x
 
Form 40-F
 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b) (1): ____

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b) (7): ____

Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.
Yes
 
No
x

If "Yes" is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82- ______

Incorporation by Reference

This Report of Foreign Private Issuer on Form 6-K shall be incorporated by reference into the Registration Statement on Form S-8 filed with the Securities and Exchange Commission on April 24, 2002, the Registration Statement on Form S-8 filed with the Securities and Exchange Commission on October 25, 2002 and amended on December 12, 2003 and the Registration Statement on Form S-8 filed with the Securities and Exchange Commission on December 12, 2003.


 
 
 
 



ALCON, INC.

FINANCIAL INFORMATION FOR THE

THREE-MONTH AND NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2009 AND 2008


ITEM 1.
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED):
   
   
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 
 
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
 
ITEM 4.
PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
 
 
ITEM 5.
EXHIBITS
 

 
2
 
 

ITEM 1.                      CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

ALCON, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets (Unaudited)
(in millions, except share data)

   
September 30,
   
December 31,
 
   
2009
   
2008
 
Assets
           
Current assets:
           
Cash and cash equivalents
  $ 2,519     $ 2,449  
Short term investments
    378       564  
Trade receivables, net
    1,332       1,168  
Inventories
    656       574  
Deferred income tax assets
    159       221  
Other current assets
    230       243  
                 
Total current assets
    5,274       5,219  
                 
Long term investments
    150       24  
Property, plant and equipment, net
    1,246       1,138  
Intangible assets, net
    259       91  
Goodwill
    690       645  
Long term deferred income tax assets
    398       342  
Other assets
    138       92  
                 
Total assets
  $ 8,155     $ 7,551  
                 
Liabilities and Shareholders' Equity
               
Current liabilities:
               
Accounts payable
  $ 284     $ 199  
Short term borrowings
    664       1,059  
Current maturities of long term debt
    1       1  
Other current liabilities
    1,003       931  
                 
Total current liabilities
    1,952       2,190  
                 
Long term debt, net of current maturities
    60       61  
Long term deferred income tax liabilities
    62       22  
Other long term liabilities
    681       587  
Contingencies
               
Shareholders' equity:
               
Common shares, par value CHF 0.20 per share; 320,254,200
               
shares authorized, 303,841,904 shares issued and
               
298,983,807 shares outstanding at September 30, 2009;
               
321,297,600 shares authorized, 304,722,706 shares issued and 298,648,353 shares outstanding at December 31, 2008
    42       42  
Additional paid-in capital
    1,508       1,449  
Accumulated other comprehensive income
    213       80  
Retained earnings
    4,076       3,699  
Treasury shares, at cost; 4,858,097 shares at September 30, 2009
               
and 6,074,353 shares at December 31, 2008
    (439 )     (579 )
                 
Total shareholders' equity
    5,400       4,691  
                 
Total liabilities and shareholders' equity
  $ 8,155     $ 7,551  
                 
See accompanying notes to condensed consolidated financial statements.
 
 
 
3
 
 
 
ALCON, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Earnings (Unaudited)
(in millions, except share data)

   
Three months ended
   
Nine months ended
 
   
September 30,
   
September 30,
 
   
2009
   
2008
   
2009
   
2008
 
                         
Sales
  $ 1,614     $ 1,524     $ 4,784     $ 4,796  
Cost of goods sold
    399       348       1,168       1,161  
                                 
Gross profit
    1,215       1,176       3,616       3,635  
                                 
Selling, general and administrative
    474       501       1,414       1,512  
Research and development
    158       174       461       461  
Amortization of intangibles
    5       7       17       22  
                                 
Operating income
    578       494       1,724       1,640  
                                 
Other income (expense):
                               
Gain (loss) from foreign currency, net
    -       (10 )     (1 )     (7 )
Interest income
    13       20       37       66  
Interest expense
    (3 )     (13 )     (13 )     (45 )
Other, net
    6       (42 )     12       (52 )
                                 
Earnings before income taxes
    594       449       1,759       1,602  
                                 
Income taxes
    79       (178 )     210       (21 )
                                 
Net earnings
  $ 515     $ 627     $ 1,549     $ 1,623  
                                 
                                 
Basic earnings per common share
  $ 1.72     $ 2.10     $ 5.19     $ 5.44  
                                 
Diluted earnings per common share
  $ 1.71     $ 2.07     $ 5.15     $ 5.38  
                                 
Basic weighted average common shares
    298,875,564       299,076,483       298,734,923       298,428,116  
                                 
Diluted weighted average common shares
    301,894,468       302,636,080       300,856,409       301,920,346  
                                 
                                 
See accompanying notes to condensed consolidated financial statements.
 


 
4
 
 

ALCON, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Unaudited)
(in millions)

   
Nine months ended September 30,
 
   
2009
   
2008
 
             
Cash provided by (used in) operating activities:
           
Net earnings
  $ 1,549     $ 1,623  
Adjustments to reconcile net earnings to cash provided from
               
operating activities:
               
Depreciation
    142       128  
Amortization of intangibles
    17       22  
Share-based payments
    58       70  
Tax benefits from share-based compensation
    2       8  
Deferred income taxes
    41       (118 )
Loss on sale of assets
    61       9  
Unrealized depreciation (appreciation) on trading securities
    (73 )     41  
Other, net
    (3 )     7  
Changes in operating assets and liabilities:
               
Trade receivables
    (123 )     (15 )
Inventories
    (34 )     13  
Other assets
    (22 )     24  
Accounts payable
    79       20  
Other current liabilities
    59       41  
Other long term liabilities
    22       (178 )
                 
Net cash from operating activities
    1,775       1,695  
                 
Cash provided by (used in) investing activities:
               
Purchases of property, plant and equipment
    (226 )     (215 )
Acquisition of business, net of cash acquired
    (149 )     --  
Purchases of intangible assets
    (4 )     (28 )
Purchases of investments
    (795 )     (816 )
Proceeds from sales and maturities of investments
    917       831  
Other, net
    7       4  
                 
Net cash from investing activities
    (250 )     (224 )
                 
Cash provided by (used in) financing activities:
               
Repayment of short term debt
    (436 )     (498 )
Repayment of long term debt
    (1 )     (2 )
Dividends on common shares
    (1,048 )     (750 )
Acquisition of treasury shares
    (5 )     (44 )
Proceeds from exercise of stock options
    21       120  
Tax benefits from share-based payment arrangements
    2       51  
                 
  Net cash from financing activities
    (1,467 )     (1,123 )
                 
Effect of exchange rates on cash and cash equivalents
    12       9  
                 
Net increase (decrease) in cash and cash equivalents
    70       357  
Cash and cash equivalents, beginning of period
    2,449       2,134  
                 
Cash and cash equivalents, end of period
  $ 2,519     $ 2,491  
                 
                 
                 
                 
See accompanying notes to condensed consolidated financial statements.
               

 
5
 
 
ALCON, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
(in millions, except share and per share data)


(1) Condensed Consolidated Financial Statements

Alcon, Inc. ("Alcon"), a Swiss corporation, is a majority owned subsidiary of Nestlé S.A. ("Nestlé"), which owned 156,076,263 common shares of Alcon at September 30, 2009, as discussed in note 13.

The interim condensed consolidated financial statements of Alcon and its subsidiaries (collectively, the "Company") are unaudited.  Amounts presented at December 31, 2008 are based on the audited consolidated financial statements appearing in Alcon's annual report on Form 20-F filed with the U.S. Securities and Exchange Commission.  The interim condensed consolidated financial statements and notes thereto do not include all disclosures required by accounting principles generally accepted in the United States of America ("U.S. GAAP") and should be read in conjunction with the audited consolidated financial statements and the notes thereto included in Alcon's annual report on Form 20-F.

Management of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these financial statements in conformity with U.S. GAAP.  Actual results could differ from those estimates.

In management's opinion, the interim condensed consolidated financial statements reflect all adjustments (consisting only of normal recurring accruals) necessary to present fairly the results for the interim periods presented.  Results for interim periods are not necessarily indicative of results that ultimately will be achieved for a full year.

Management has evaluated subsequent events through the time that this report was filed on October 28, 2009.

(2) Earnings Per Share

Basic earnings per common share were computed by dividing net earnings by the weighted average number of common shares outstanding for the relevant period.  The unvested portion of restricted common shares was excluded in the calculation of basic weighted average common shares outstanding.  Diluted weighted average common shares reflect the potential dilution, using the treasury stock method, that could occur if employee stock options for the purchase of common shares and share-settled stock appreciation rights were exercised and if share-settled restricted share units and contingent restricted common shares granted to employees were vested.

The following table reconciles the weighted average shares of the basic and diluted share computations:

   
Three months ended September 30,
   
Nine months ended September 30,
 
   
2009
   
2008
   
2009
   
2008
 
                         
Basic weighted average common shares
                       
      outstanding
    298,875,564       299,076,483       298,734,923       298,428,116  
Effect of dilutive securities:
                               
      Employee stock options
    2,093,341       2,764,070       1,662,213       2,906,599  
      Share-settled stock appreciation rights
    597,588       567,965       219,180       401,845  
      Share-settled restricted share units
    245,869       82,301       145,650       51,615  
      Contingent restricted common shares
    82,106       145,261       94,443       132,171  
                                 
Diluted weighted average common shares
                               
      outstanding
    301,894,468       302,636,080       300,856,409       301,920,346  
                                 

Certain executives of the Company had deferred the receipt of 118,180 and 146,451 Alcon common shares at September 30, 2009 and 2008, respectively, into the Alcon Executive Deferred Compensation Plan ("DCP").  Alcon
 
 
6
 
 
common shares held in the DCP were reflected as outstanding in the condensed consolidated balance sheets and were included in the applicable basic and diluted earnings per share calculations.

The computations of diluted weighted average common shares outstanding for the periods ended September 30, 2009 and 2008 did not include the following instruments, as their exercise prices and unrecognized costs were greater than the average market price of the common shares:

 
2009
   
2008
 
           
Stock options
135,822
   
125
 
Share-settled stock appreciation rights
1,014,895
   
16,916
 
           
The effect of their inclusion would have been anti-dilutive.
 
(3) Cash Flows—Supplemental Disclosure

   
Nine months ended September 30,
 
   
2009
   
2008
 
Supplemental Disclosure of Cash Flow Information:
           
Cash paid during the period for the following:
           
             
Interest expense, net of amount capitalized
  $ 11     $ 45  
                 
Income taxes
  $ 180     $ 176  

Access to Cash Equivalents

During 2008, Lehman Brothers International (Europe) London filed for administration in England.  At that time, the Company's cash and cash equivalents included $707.0 of short term securities held in a segregated custodial account of Lehman Brothers International (Europe) London pursuant to a Custody Agreement.  After the securities were released, Nestlé invoiced the Company in December 2008 and, in 2009, the Company reimbursed Nestlé for a total of $5.2 in fees paid by Nestlé to the Joint Administrators of Lehman Brothers International (Europe) London (in administration) related to the release of the short-term securities held in the custodial account.  This amount of fees is subject to adjustment depending on the final costs incurred to settle the administration of Lehman Brothers International (Europe) London.
 
(4) Supplemental Balance Sheet Information

   
September 30,
   
December 31,
 
   
2009
   
2008
 
Inventories, at Lower of Cost or Market
           
Finished products
  $ 383     $ 358  
Work in process
    56       40  
Raw materials
    217       176  
                 
Total
  $ 656     $ 574  
 

 
7
 
 
   
September 30,
   
December 31,
 
   
2009
   
2008
 
Property, Plant and Equipment, Net
           
Property, plant and equipment, at cost
  $ 2,573     $ 2,318  
Accumulated depreciation
    (1,327 )     (1,180 )
                 
Total
  $ 1,246     $ 1,138  

   
September 30,
2009
   
December 31,
2008
 
             
Accumulated Other Comprehensive Income (Loss)
           
Foreign currency translation adjustment
  $ 274     $ 194  
Unrealized gains (losses) on investments, net of income taxes
    42       (10 )
Unrecognized postretirement benefits (losses) and prior service costs,
               
      net of tax benefits
    (103 )     (104 )
                 
Total
  $ 213     $ 80  
                 
 
(5) Investments

At September 30, 2009 and December 31, 2008, investments were:

   
September 30,
2009
   
December 31,
 2008
 
Short term investments:
           
Trading securities
  $ 31     $ 433  
Available-for-sale investments
    347       131  
                 
Total short term investments
  $ 378     $ 564  
                 
Long term investments—available-for-sale investments
  $ 150     $ 24  
                 

At September 30, 2009 and December 31, 2008, trading securities were:


   
September 30, 2009
   
December 31, 2008
 
   
Net
   
Estimated
   
Net
   
Estimated
 
   
Unrealized
   
Fair
   
Unrealized
   
Fair
 
   
Gains (Losses)
   
Value
   
Gains (Losses)
   
Value
 
                         
Total trading securities
  $ (12 )   $ 31     $ (85 )   $ 433  
                                 
 
 
 
8
 
 
At September 30, 2009, available-for-sale investments were:

         
Gross
   
Gross
   
Estimated
 
   
Amortized
   
Unrealized
   
Unrealized
   
Fair
 
   
Cost
   
Gains
   
Losses
   
Value
 
Short term investments:
                       
U.S. government and agency securities
  $ 88     $ --     $ --     $ 88  
Mortgage-backed securities fund
    72       6       --       78  
Mortgage-backed securities
    8       --       --       8  
Senior secured bank loans fund
    129       21       --       150  
Corporate debt securities
    22       1       --       23  
                                 
Total short term investments
    319       28       --       347  
                                 
Long term investments:
                               
U.S. government and agency securities
    25       --       --       25  
Mortgage-backed securities
    62       4       --       66  
Corporate debt securities
    15       1       --       16  
Equity securities
    20       8       --       28  
Other investments
    14       1       --       15  
                                 
Total long term investments
    136       14       --       150  
                                 
Total available-for-sale investments
  $ 455     $ 42     $ --     $ 497  
                                 

The senior secured bank loans fund is a professionally managed fund investing in loans made by banks to large corporate borrowers whose assets are pledged as collateral.

At December 31, 2008, available-for-sale investments were:

         
Gross
   
Gross
   
Estimated
 
   
Amortized
   
Unrealized
   
Unrealized
   
Fair
 
   
Cost
   
Gains
   
Losses
   
Value
 
Short term investments:
                       
Mortgage-backed securities
  $ 58     $ 1     $ --     $ 59  
Senior secured bank loans fund
    83       --       (11 )     72  
                                 
Total short term investments
    141       1       (11 )     131  
                                 
Long term investments:
                               
U.S. government and agency securities
    2       --       --       2  
Equity securities
    20       --       --       20  
Other investments
    2       --       --       2  
                                 
Total long term investments
    24       --       --       24  
                                 
Total available-for-sale investments
  $ 165     $ 1     $ (11 )   $ 155  


 
9
 
 
The contractual maturities of available-for-sale investments at September 30, 2009 were:

   
Amortized
   
Estimated
 
   
Cost
   
Fair Value
 
             
Securities not due at a single maturity date*
$
214
 
$
242
 
Other debt securities, maturing:
           
Within one year
 
67
   
67
 
After 1 year through 10 years
 
78
   
79
 
After 10 years through 15 years
 
11
   
12
 
Beyond 15 years
 
63
   
67
 
             
Total debt securities recorded at market
 
433
   
467
 
             
Equity and other investments
 
22
   
30
 
             
Total available-for-sale investments
$
455
 
$
497
 
             
*Mortgage-backed securities fund, a senior secured bank loans fund and certain other investments.
 
             

Activities related to available-for-sale investments were as shown below.  The cost of securities sold was based on the specific identification method.

   
Three months ended
September 30,
   
Nine months ended
September 30,
 
   
2009
   
2008
   
2009
   
2008
 
                         
Proceeds from sales and principal repayments
  $ 186     $ 2     $ 634     $ 7  
                                 
Gross realized gains on sales
    2       1       5       1  
                                 
Gross realized losses on sales
    (1 )     (1 )     (3 )     (1 )
                                 

The net unrealized holding gains (losses) for available-for-sale investments included in accumulated other comprehensive income (loss) in shareholders’ equity at September 30, 2009 and December 31, 2008 were $42 and $(10), respectively.


 
10
 
 
The changes in net unrealized gains (losses) on investments, net of taxes, included in accumulated other comprehensive income (loss) were:

   
Three months ended
September 30,
   
Nine months ended
September 30,
 
   
2009
   
2008
   
2009
   
2008
 
                         
Changes in unrealized holding gains (losses)  arising during the period
  $ 26     $ (15 )   $ 55     $ (21 )
Reclassification adjustment for losses (gains) included in net income
    (2 )     4       (3 )     5  
                                 
Changes in net unrealized gains (losses) on investments, net of taxes
  $ 24     $ (11 )   $ 52     $ (16 )
                                 

As of September 30, 2009, there were no gross unrealized losses on available-for-sale investments.  As of December 31, 2008, gross unrealized losses and fair value of investments with unrealized losses that were not deemed to be other-than-temporarily impaired, summarized by investment category and length of time the individual securities had been in a continuous unrealized loss position, were:

   
Less than 12 months
   
12 months or greater
   
Total
 
   
Fair
   
Unrealized
   
Fair
   
Unrealized
   
Fair
   
Unrealized
 
   
Value
   
Losses
   
Value
   
Losses
   
Value
   
Losses
 
                                     
Short term investments:
                                   
Senior secured bank loans fund
  $ --     $ --     $ 72     $ (11 )   $ 72     $ (11 )
                                                 
Long term investments:
                                               
Other investments
    2       --       --       --       2       --  
                                                 
Total available-for-sale investments, December 31, 2008
  $ 2     $ --     $ 72     $ (11 )   $ 74     $ (11 )

Investment Income

In the condensed consolidated statements of earnings, other, net, included gains (losses) on investments as follows:

   
Three months ended September 30,
   
Nine months ended September 30,
 
   
2009
   
2008
   
2009
   
2008
 
                         
Realized gains (losses) on sale of investments
  $ (3 )   $ (7 )   $ (61 )   $ (8 )
Net unrealized gains (losses) on investments
                               
     classified as trading securities
    7       (31 )     73       (41 )
                                 
                                 
Net gains (losses) on investments
  $ 4     $ (38 )   $ 12     $ (49 )

 
 
11
 
 
 (6) Fair Value of Financial Instruments

At September 30, 2009 and December 31, 2008, the Company's financial instruments included cash and cash equivalents, investments, trade receivables, accounts payable, short term borrowings and long term debt.  The estimated fair value of certain of these financial instruments is provided below.  Due to the short term maturities of cash and cash equivalents, trade receivables, accounts payable and short term borrowings, the carrying amounts approximate fair values at the respective balance sheet dates.  The fair values of long term debt were based on interest rates then currently available to the Company for issuance of debt with similar terms and remaining maturities.  The fair values of investments were determined as discussed below.

   
September 30, 2009
   
December 31, 2008
 
   
Carrying Amounts
   
Fair Value
   
Carrying Amounts
   
Fair Value
 
Assets:
                       
Short term trading and available-for-sale investments
  $ 378     $ 378     $ 564     $ 564  
Long term available-for-sale investments
    150       150       24       24  
Forward exchange contracts
    4       4       10       10  
Interest rate swaps
    1       1       1       1  
                                 
Liabilities:
                               
Long term debt, excluding capital lease obligations
    61       61       62       62  
Forward exchange and option contracts
    2       2       5       5  

Financial instruments, such as equity and fixed income securities, other investments and derivatives, were presented at fair value.  Fair value is defined as the price at which an asset could be exchanged or a liability could be transferred in an orderly transaction between knowledgeable and willing market participants within the principal or most advantageous market at the measurement date.  Where available, fair value is based on or derived from observable market prices or parameters.  Where observable prices or inputs are not available, pricing for similar financial assets or liabilities, dealer quotes or valuation models are applied.  These valuation techniques involve some level of management estimation and judgment, the degree of which is dependent on the price transparency for the instruments or market and the instruments’ complexity.

Financial assets and liabilities recorded at fair value in the condensed consolidated balance sheets were categorized based upon the level of judgment associated with the inputs used to measure their fair value.  These categories, from lowest to highest based on the amount of subjectivity associated with the inputs to fair valuation of these assets and liabilities are as follows:

Level 1 – Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date.

The types of Company assets carried at Level 1 fair value are equities listed in active markets.

Level 2 – Inputs (other than quoted prices included in Level 1) are either directly or indirectly observable for the assets or liabilities through correlation with market data at the measurement date and for the duration of each instrument's anticipated life.

The Company's assets generally included in this fair value category are various government agency securities, certain investment funds, mortgage backed securities, collateralized mortgage obligations, foreign exchange derivatives and interest rate derivatives.  Foreign exchange derivatives and interest rate derivatives are valued using corroborated, observable market data.  The Company's liabilities generally included in this fair value category consist of certain foreign exchange derivatives.

Level 3 – Inputs are unobservable inputs for the assets or liabilities.  These inputs reflect management’s best estimate of what market participants would use in pricing the assets or liabilities at the measurement date.
 
 
12
 
 
Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model.

Generally, the Company's assets carried at fair value included in this category are various investment funds.  The Company had no liabilities carried at fair value in this category at September 30, 2009 and December 31, 2008.

The Company's level 3 financial investments are held in funds professionally managed by investment managers.  The net asset values are furnished in statements received from fund custodians whose statements reflect valuations conducted according to their respective fund pricing policies and asset types.  The complete details of the fund holdings of several of the Company's professionally managed funds may be unavailable at times, limiting the Company’s ability to look through to the underlying assets at the date the financial statements are prepared.  Because of these constraints, the Company classifies these fund investments as Level 3.

Fair Value by Category

Financial assets and financial liabilities measured at fair value on a recurring basis were categorized in the tables below based upon the lowest level of input that is significant to the fair value measurement.

   
Fair Value as of September 30, 2009
 
   
Level 1
   
Level 2
   
Level 3
   
Total
 
                         
Financial Assets
                       
Trading securities
  $ --     $ --     $ 31     $ 31  
Available-for-sale securities
    30       467       --       497  
Foreign exchange derivatives
    --       4       --       4  
Interest rate derivatives
    --       1       --       1  
                                 
Total
  $ 30     $ 472     $ 31     $ 533  
                                 
Financial Liabilities
                               
Foreign exchange derivatives
  $ --     $ 2     $ --     $ 2  
                                 
Total
  $ --     $ 2     $ --     $ 2  
 

   
Fair Value as of December 31 , 2008
 
   
Level 1
   
Level 2
   
Level 3
   
Total
 
                         
Financial Assets
                       
Trading securities
  $ --     $ 172     $ 261     $ 433  
Available-for-sale securities
    22       133       --       155  
Foreign exchange derivatives
    --       10       --       10  
Interest rate derivatives
    --       1       --       1  
                                 
Total
  $ 22     $ 316     $ 261     $ 599  
                                 
Financial Liabilities
                               
Foreign exchange derivatives
  $ --     $ 5     $ --     $ 5  
                                 
Total
  $ --     $ 5     $ --     $ 5  
 

 
13
 
 
Level 3 Gains and Losses

At September 30, 2009, trading securities were the only type of financial assets included in Level 3.  The trading securities were professionally managed investment funds, which included hedge funds of $31.  The financial assets and liabilities included in Level 3 were approximately 6% of the total amounts measured at fair value on a recurring basis.  The fair value of the investment funds classified as Level 3 could not be determined by independent market observation or through the use of correlation valuation techniques. The valuation was based on the net asset values as furnished by the funds' custodians.  If more than an insignificant proportion of a particular fund's assets were Level 3, the entire fund was classified as Level 3, even though many of such fund's individual holdings may meet the definition of Level 1 or Level 2.

Total gains or losses (realized and unrealized) for financial assets and liabilities classified as Level 3 that were included in earnings were a component of other, net, in the condensed consolidated statements of earnings.  For the nine months ended September 30, 2009, there were net gains (realized and unrealized) of $6 from trading securities, and the Company received proceeds from sales of Level 3 trading securities of $236.  Realized and unrealized net gains during the period were approximately 3% of the beginning balance for Level 3 trading securities and did not negatively affect or materially impact operations, liquidity or capital resources.

The table presented below summarizes the change in carrying values associated with Level 3 financial instruments during the nine months ended September 30, 2009:

   
Nine Months Ended September 30, 2009
 
   
Fair Value Measurements Using
 
   
Significant Unobservable Inputs (Level 3)
 
         
Trading
       
         
Securities
       
                   
Beginning balance
     
$
261
       
Total gains or losses (realized/unrealized)
       
    6
       
Included in earnings
                 
                   
Proceeds on sales and maturities
       
(236)
       
                   
Ending balance
     
$
                     31
       

Gains and losses (realized and unrealized) on Level 3 financial instruments included in earnings were reported in other, net, as follows:

   
Three months ended
   
Nine months ended
 
   
September 30, 2009
   
September 30, 2009
 
             
Total gains or losses included in earnings for the period
  $ 2     $ 6  
                 
Change in unrealized gains (losses) related to assets held at
               
      reporting date
  $ 3     $ 3  
                 

At September 30, 2008, there were two types of financial assets and liabilities included in Level 3:  trading securities and interest rate derivatives.

Total gains or losses (realized and unrealized) included in earnings before income taxes for financial assets and liabilities classified as Level 3 were a component of other, net, in the condensed consolidated statements of earnings.  For the nine months ended September 30, 2008, there were losses (realized and unrealized) of $38 from trading
 
 
14
 
 
securities, and the Company received proceeds from sales of Level 3 trading securities of $153.  No amounts were recognized in other comprehensive income related to the foreign exchange impact on the Level 3 interest rate derivatives.  Realized and unrealized losses during the period were approximately 7.9% of the beginning balance for Level 3 trading securities and did not negatively affect or impact operations, liquidity, or capital resources.

The table presented below summarizes the change in carrying values associated with Level 3 financial instruments during the nine months ended September 30, 2008:

   
Fair Value Measurements Using
 
   
Significant Unobservable Inputs (Level 3)
 
   
Trading
   
Interest Rate
       
   
Securities
   
Derivatives
   
Total
 
                   
Beginning balance
  $ 486     $ (3 )   $ 483  
Total gains or losses (realized/unrealized)
                       
Included in earnings
    (38 )     --       (38 )
                         
Proceeds on sales
    (153 )     3       (150 )
                         
Ending balance
  $ 295     $ --     $ 295  
                         

Gains and losses (realized and unrealized) on Level 3 financial instruments included in earnings were reported in other, net, as follows:

   
Three months ended
   
Nine months ended
 
   
September 30, 2008
   
September 30, 2008
 
             
Total gains (losses) included in earnings for the period
  $ (31 )   $ (38 )
                 
Change in unrealized gains (losses) related to assets held at
               
      reporting date
  $ (24 )   $ (30 )

Valuation Techniques

Valuation techniques used for financial assets and liabilities accounted for at fair value are generally categorized into three types:  market approach, income approach and cost approach.  The Company valued its Level 3 financial assets and liabilities at September 30, 2009 and 2008 primarily using the market approach and, to a lesser extent, the income approach.

Market Approach.  The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities.  Valuation techniques consistent with the market approach include comparables.  A majority of the Company's balances measured at fair value on a recurring basis were valued using the market approach.  Most measurements were market quotes or were obtained from other reliable market sources.  The Company did not use market indices for valuing material balances measured at fair value.

Income Approach.  Income approach valuation techniques convert future amounts, such as cash flows or earnings, to a single present or discounted amount.  The measurement is based on the value indicated by current market expectations about those future amounts.  Examples of income approach valuation techniques include present value techniques, option-pricing models, and binomial or lattice models that incorporate present value techniques and option-pricing models.  The Company valued certain derivatives, in part or whole, using the income approach.

 
15
 
 
Cost Approach.  The cost approach is based on the amount that currently would be required to replace the service capacity of an asset.  The Company did not employ the cost approach for determining fair value of financial assets and liabilities.

These valuation approaches are consistent with generally accepted valuation methodologies.  While all three approaches are not applicable to all assets or liabilities accounted for at fair value, where appropriate and possible, one or more valuation technique(s) may be used.  Professionally managed investment funds may use a combination of market, income and cost approaches.  The process of selecting which valuation method(s) to apply considers the definition of an exit price and the nature of the asset or liability being valued and significant expertise and judgment is required.

In April 2009, the Financial Accounting Standards Board ("FASB") issued guidance for both estimating fair value when the volume and level of activity for the asset or liability have significantly decreased and identifying circumstances that indicate a transaction is not orderly.  If there has been a significant decrease in the volume and level of activity for an asset or liability, transactions or quoted prices may not be determinative of fair value and would require further analysis or adjustment in a fair value assessment.  Similarly, if a transaction is determined to be not orderly, significant adjustment to transaction prices may be necessary in order to estimate fair value using those prices.  This guidance became effective for periods ending after June 15, 2009.  The Company determined the impact of its adoption on the Company’s consolidated financial statements was not significant.

Other-Than-Temporary Impairment of Available-for-Sale Investments

The Company reviews quarterly its available-for-sale investments to identify impaired equity and debt securities.  An individual security is impaired if the fair value of the investment is less than its amortized cost basis.  Impairment may be either temporary or other-than-temporary.

The Company normally reviews securities held in its portfolio that have been in a continuous loss position for twelve months or longer and securities whose fair value is significantly lower than its amortized cost basis.  Impairment is evaluated using a combination of quantitative and qualitative factors such as considering the length of time and extent to which the fair value has been below cost, the financial condition and near-term prospects of the issuer, as well as the Company's ability and intent to hold the investments for an adequate period of time until an anticipated market price recovery or maturity.  If impairment is determined to be other-than-temporary, the investment is written down to fair value, and a loss is recognized immediately through earnings.

In April 2009, the FASB issued guidance on assessing other-than-temporary investments on debt securities.  Under U.S. GAAP, if debt securities are evaluated for impairment, management must assess its intent and ability to hold the security until recovery in its impairment analysis.  The additional guidance states that, in its impairment analysis of debt securities, management must assess whether it does not have the intent to sell the security before maturity and it is more likely than not that it will not have to sell the security before recovery of its cost basis.  This guidance became effective for periods ending after June 15, 2009.  The Company determined the impact of its adoption on the Company’s consolidated financial statements was not significant.

In addition, the Company assesses whether there are probable credit losses associated with impaired available-for-sale debt securities.  The portion of an other-than-temporary impairment of an available-for-sale debt security that is related to credit loss is recognized in earnings and the remainder of the difference between the cost basis of the debt security and its fair value is recorded in other comprehensive income.

The Company determined that, at September 30, 2009, there were no unrealized losses on available-for-sale investments that were other-than-temporarily impaired.

 
 
16
 
 
(7) Intangible Assets and Goodwill

   
September 30, 2009
   
December 31, 2008
 
   
Gross
         
Gross
       
   
Carrying
   
Accumulated
   
Carrying
   
Accumulated
 
   
Amount
   
Amortization
   
Amount
   
Amortization
 
                         
Intangible Assets
                       
Subject to Amortization:
                       
Licensed technology
  $ 333     $ (294 )   $ 328     $ (284 )
Patents
    106       (23 )     29       (22 )
Other
    124       (91 )     129       (89 )
      563       (408 )     486       (395 )
Not Subject to Amortization:
                               
Purchased in process research and development assets
    104       --       --       --  
                                 
Total Intangible Assets
  $ 667     $ (408 )   $ 486     $ (395 )
                                 
Certain 2008 details have been reclassified in the table above to conform to the current period presentation.

For an explanation of significant changes to intangible assets, see note 15, "ESBATech AG Acquisition."


   
United States
   
International
       
   
Segment
   
Segment
   
Total
 
Goodwill
                 
Balance, December 31, 2008
  $ 403     $ 242     $ 645  
Business acquisition
    18       22       40  
Impact of changes in foreign exchange rates
    3       2       5  
                         
Balance, September 30, 2009
  $ 424     $ 266     $ 690  
                         
 
(8) Short Term Borrowings and Long Term Debt

   
September 30,
   
December 31,
 
   
2009
   
2008
 
             
Short Term Borrowings
           
Lines of credit
  $ 285     $ 311  
Commercial paper
    308       622  
From affiliates
    25       97  
Bank overdrafts
    46       29  
                 
Total short term borrowings
  $ 664     $ 1,059  

 
17
 
 

At September 30, 2009, the Company had unsecured credit and commercial paper facilities totaling $2,706, including bank overdraft agreements, with third parties that were denominated in various currencies.  As of September 30, 2009, total borrowings from Nestlé and its subsidiaries were $25 under unsecured revolving credit facilities of $269.

   
September 30,
   
December 31,
 
   
2009
   
2008
 
             
Long Term Debt
           
License obligations
  $ 4     $ 5  
Bank loan
    57       56  
Other
    --       1  
                 
Total long term debt
    61       62  
Less current maturities of long term debt
    1       1  
                 
Long term debt, net of current maturities
  $ 60     $ 61  
                 
 
(9) Income Taxes

The Company or one of its subsidiaries files income tax returns in Switzerland, the U.S. federal jurisdiction, and various state and other foreign jurisdictions.  With few exceptions, the Company is no longer subject to Swiss, U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for years before 2003.  In the first quarter of 2007, the Internal Revenue Service ("IRS") commenced an examination of the Company's U.S. income tax returns for 2003 through 2005 that was substantially completed in May 2009.  In June 2009, the IRS commenced an examination of the Company’s U.S. income tax returns for 2006 and 2007 that is anticipated to be completed by the end of 2010.  In May 2009, the IRS and the Company entered the Compliance Assurance Process (“CAP”) program for 2009.  The Company also currently is subject to income tax examinations by various state, local and other foreign tax authorities.  In addition, in June 2009, the Company and the IRS signed an advance pricing agreement (“APA”) contract memorializing the mutual agreement letter between Switzerland and the United States for years through 2014 that covers all material intercompany transactions involving the Company and its subsidiaries in these two jurisdictions.  Finally, during the fourth quarter of 2007, the Company submitted a similar request for a bilateral APA between Japanese and Swiss tax authorities that would cover the tax years 2008 through 2012.  The Company expects that the Japanese-Swiss APA will be concluded in 2010.

The Company believes that it takes reasonable positions on its tax returns filed throughout the world; however, tax laws are complex and susceptible to differing interpretations.  Tax authorities throughout the world, from time to time, routinely challenge positions taken by the Company, particularly in the case of transfer pricing issues.  The Company has identified its uncertain tax positions and prepared its reserve for contingent tax liabilities to reflect the associated unrecognized tax benefits (the "Tax Reserves").  Management believes that the Tax Reserves are fairly stated and that the possibility of a significant increase during the next 12 months in the total amounts of unrecognized tax benefits reflected in the Tax Reserves related to periods through the end of this reporting period is remote.  However, the Company believes it is reasonably possible that approximately 80% of the Tax Reserves could be eliminated during the next 12 months as a result of actual payment of amounts included in the Tax Reserves and/or developments in various audits concerning multiple issues, including transfer pricing concerns.

The total amount of gross unrecognized tax benefits included in the Tax Reserves decreased by $13 to $117 in the first nine months of 2009.  The net decrease in unrecognized tax benefits reflects net reductions related to progress on audit settlements, APA negotiations, the lapse of statutes of limitations and other minor items.  The amount that would impact the effective tax rate, if recognized, decreased by $6 to $114 for the first nine months of 2009.  The Company's policy is to classify interest and penalties in income tax expense.  The gross amount of interest and penalties accrued as part of Tax Reserves did not change significantly during the first nine months of 2009.  At September 30, 2009, the
 
 
18
 
 
condensed consolidated balance sheet included $16 in other current liabilities and $18 in other long term liabilities for the Tax Reserves, net of deposits with statutory authorities.

(10) Business Segments

The Company conducts its global business through two business segments:  Alcon United States and Alcon International.  Alcon United States includes sales to unaffiliated customers located in the United States of America, excluding Puerto Rico.  Alcon United States operating income is derived from operating profits within the United States.  Alcon International includes sales to all other unaffiliated customers.

Each business segment markets and sells products principally in three product categories of the ophthalmic market: (1) pharmaceutical (prescription drugs), (2) surgical equipment and devices (cataract, vitreoretinal and refractive) and (3) consumer eye care (contact lens disinfectants and cleaning solutions, artificial tears and ocular vitamins).  Business segment operations generally do not include research and development, certain manufacturing and other corporate functions.

Certain manufacturing costs and manufacturing variances are not assigned to business segments because most manufacturing operations produce products for more than one business segment.  Research and development costs, excluding regulatory costs which are included in the business segments, are treated as general corporate costs and are not assigned to business segments.

Identifiable assets are not assigned by business segment and are not considered in evaluating the performance of the business segments.

                           
Depreciation and
 
   
Sales
   
Operating Income
   
Amortization
 
Three months ended September 30,
 
2009
   
2008
   
2009
   
2008
   
2009
   
2008
 
                                     
United States
  $ 733     $ 681     $ 438     $ 382     $ 12     $ 10  
International
    881       843       357       339       23       22  
                                                 
Segments total
    1,614       1,524       795       721       35       32  
                                                 
Manufacturing operations
    --       --       (14 )     (18 )     13       11  
Research and development
    --       --       (136 )     (152 )     4       4  
General corporate
    --       --       (50 )     (40 )     3       3  
Share-based compensation
    --       --       (17 )     (17 )     --       --  
                                                 
Total
  $ 1,614     $ 1,524     $ 578     $ 494     $ 55     $ 50  
                                                 

 
19
 
 
 
                           
Depreciation and
 
   
Sales
   
Operating Income
   
Amortization
 
Nine months ended September 30,
 
2009
   
2008
   
2009
   
2008
   
2009
   
2008
 
                                     
United States
  $ 2,181     $ 2,141     $ 1,266     $ 1,186     $ 35     $ 34  
International
    2,603       2,655       1,108       1,084       65       63  
                                                 
Segments total
    4,784       4,796       2,374       2,270       100       97  
                                                 
Manufacturing operations
    --       --       (50