Issue link: http://catalog.e-digitaleditions.com/i/275023
13 Dollar amounts in millions except per share amounts or as otherwise specified with a wholly owned subsidiary operating in Puerto Rico for the years 2006 through 2009. The higher interest expense in 2012 due to the effect of the 2011 tax settlements was partially offset by higher interest income on our investments, due to higher cash and cash equivalents and marketable securities balances compared to 2011. Income Taxes Our effective income tax rate on earnings was 17.0%, 23.9% and 20.2% in 2013, 2012 and 2011, respectively. The effective income tax rate for 2013 includes income tax benefits relating to favorable audit resolutions in multiple jurisdictions. The effective income tax rate for 2012 includes the net impact of effective settlement of all tax matters through 2004 relating to two German subsidiaries, and adjustment of the estimate of foreign tax credits to the amount shown on the tax return as filed. The effective income tax rate for 2011 includes the net impact of the settlements with the IRS as described above. The American Taxpayer Relief Act of 2012 (the Act) was signed on January 2, 2013. The Act provided numerous tax provisions for corporations including an extension of the research tax credit and an extension of certain provisions for companies with significant international operations. The provisions originally expired at December 31, 2011 but were retroactively extended through December 31, 2013. In 2013 we recorded tax benefits of $13 related to the 2012 research tax credit and other provision of the Act. Net Earnings Net earnings in 2013 decreased 22.5% to $1,006. Basic net earnings per share in 2013 decreased 22.0% to $2.66, and diluted net earnings per share in 2013 decreased 22.4% to $2.63. Net earnings in 2012 decreased 3.5% to $1,298. Basic net earnings per share in 2012 decreased 2.0% to $3.41, and diluted net earnings per share in 2012 decreased 1.7% to $3.39. Reported net earnings in 2013 includes charges for the Rejuvenate, ABG II and Neptune recalls, acquisition and integration related charges related to the Neurovascular, Surpass, Trauson and MAKO acquisitions, additional cost of sales for inventory sold that was "stepped up" to fair value related to the Trauson and MAKO acquisitions, restructuring and related charges, certain charges related to legal and regulatory matters, a donation to an educational institution and benefits associated with the resolution of certain tax matters. Excluding the impact of these items, adjusted net earnings in 2013 increased 3.6% to $1,616 after increasing 7.7% in 2012. Adjusted diluted net earnings per share in 2013 increased 3.9% to $4.23 after increasing 9.4% in 2012. Non-GAAP Financial Measures The following reconciles the non-GAAP financial measures: adjusted gross profit; adjusted selling, general and administrative expense; adjusted operating income; adjusted other income/(expense); adjusted net earnings; adjusted effective tax rate; and adjusted diluted net earnings per share; with the most directly comparable GAAP financial measures: Year Ended December 31, 2013 Gross Profit Selling, General and Administrative Expenses Operating Income Other Income (Expense) Net Earnings Effective Tax Rate Diluted EPS AS REPORTED $ 6,044 $ 4,066 $ 1,256 $ (44) $ 1,006 17.0% $ 2.63 Acquisition and integration related charges Inventory stepped up to fair value 28 — 28 — 21 0.1 0.06 Other acquisition and integration related — (70) 70 — 51 0.3 0.13 Restructuring and related charges 11 (4) 63 — 46 0.3 0.12 Rejuvenate and recall matters — (622) 622 — 460 2.0 1.20 Regulatory and legal matters 7 (62) 69 2 63 (0.6) 0.17 Donation — (25) 25 — 15 0.3 0.04 Tax matters — — — (13) (46) 2.9 (0.12) ADJUSTED $ 6,090 $ 3,283 $ 2,133 $ (55) $ 1,616 22.3% $ 4.23 Year Ended December 31, 2012 AS REPORTED $ 5,876 $ 3,466 $ 1,741 $ (36) $ 1,298 23.9% $ 3.39 Acquisition and integration related charges Inventory stepped up to fair value 18 — 18 — 13 — 0.03 Other acquisition and integration related — (37) 37 — 24 0.3 0.06 Restructuring and related charges 5 — 80 — 59 0.1 0.15 Rejuvenate and recall matters — (174) 174 — 133 — 0.35 Regulatory and legal matters — (33) 33 — 33 (0.5) 0.09 ADJUSTED $ 5,899 $ 3,222 $ 2,083 $ (36) $ 1,560 23.8% $ 4.07 Year Ended December 31, 2011 AS REPORTED $ 5,496 $ 3,150 $ 1,686 $ — $ 1,345 20.2% $ 3.45 Acquisition and integration related charges Inventory stepped up to fair value 143 — 143 — 97 0.6 0.25 Other acquisition and integration related — (66) 66 — 45 0.3 0.12 Restructuring and related charges — — 76 — 60 (0.2) 0.16 Regulatory and legal matters — (1) 1 — — — — Tax matters — — — (27) (99) 4.7 (0.26) ADJUSTED $ 5,639 $ 3,083 $ 1,972 $ (27) $ 1,448 25.6% $ 3.72 The weighted-average basic and diluted shares outstanding used in the calculation of these non-GAAP financial measures are the same as the weighted-average shares outstanding used in the calculation of the reported per share amounts.