2014

Boston Scientific Announces Results for Second Quarter Ended June 30, 2010

NATICK, Mass., July 20 /PRNewswire-FirstCall/ -- Boston Scientific Corporation (NYSE: BSX) today announced financial results for the second quarter ended June 30, 2010, as well as guidance for net sales and earnings per share (EPS) for the third quarter and full year 2010. 

Second quarter highlights (sales growth rates are at constant currency):

  • Achieved sales of $1.928 billion, reporting GAAP earnings of $0.06 per share with adjusted EPS of $0.12
  • Maintained leadership position in the global drug-eluting stent (DES) market with 38 percent share worldwide
  • Launched the third-generation TAXUS® Element™ Paclitaxel-Eluting Coronary Stent System in the European Union and other CE Mark countries 
  • Refinanced 2011 debt maturities and have approximately $1 billion cash on hand
  • Increased worldwide Endoscopy sales eight percent
  • Initiated the PLATINUM PLUS "all comers" clinical trial comparing the performance of our PROMUS® Element™ Everolimus-Eluting Coronary Stent System to the Xience Prime™ Everolimus-Eluting Coronary Stent System  

"I am proud of the way the organization executed in a number of key areas during the quarter," said Ray Elliott, President and Chief Executive Officer of Boston Scientific.  "In CRM, we finished the quarter well ahead of where we expected to be, thanks to exceptional execution by the sales team and everyone else involved in our recovery.  The continued success of our PROMUS Element rollout in Europe was another example of outstanding execution to go along with a very strong 46 percent U.S. DES market share.  Once again, our Endoscopy and Women's Health businesses turned in excellent results.  In all, 44 percent of our sales in the quarter came from new products, a testament to the building strength of our R&D pipeline."

Net sales for the second quarter of 2010 were $1.928 billion, as compared to net sales of $2.074 billion for the second quarter of 2009, a decrease of seven percent on both a reported and constant currency basis, driven primarily by the cardiac rhythm management (CRM) ship hold and product removal actions in the first quarter.  

Worldwide CRM net sales for the second quarter -- on a reported basis -- were as follows:

(in millions)


U.S.


International


Worldwide



Q2 2010


Q2 2009


Q2 2010

Q2 2009


Q2 2010

Q2 2009

Defibrillator systems


$       238

*

$       315


$       141

$       139


$       379

$       454

Pacemaker systems


84


90


64

65


148

155












Total CRM products


$       322


$       405


$       205

$       204


$       527

$       609












* On April 15, 2010 the Company resumed U.S. distribution of its COGNIS® CRT-D and TELIGEN®
ICD systems, previously on a 30-day ship hold. COGNIS and TELIGEN represent virtually all of the
Company's defibrillator implant volume in the United States; the Company's remaining defibrillator
systems were removed from ship hold on May 21, 2010.



Worldwide coronary stent system net sales for the second quarter -- on a reported basis -- were as follows:











(in millions)


U.S.


International


Worldwide



Q2 2010

Q2 2009


Q2 2010

Q2 2009


Q2 2010

Q2 2009

Drug-eluting stent systems


$       209

$       238


$       180

$       203


$       389

$       441

Bare-metal stent systems


12

15


21

28


33

43











Total coronary stent systems


$       221

$       253


$       201

$       231


$       422

$       484













Reported net income for the second quarter of 2010 was $98 million, or $0.06 per share.  Reported results included goodwill impairment-related credits; restructuring-related charges; and amortization expense (after-tax) of $92 million, or $0.06 per share, which consisted of:

  • a $31 million (on both a pre-tax and after-tax basis) credit related to the finalization of the Company's goodwill impairment charge recorded in the first quarter;
  • $29 million ($41 million pre-tax) of restructuring and restructuring-related costs associated with the Company's 2010 Restructuring plan, Plant Network Optimization program and 2007 Restructuring plan; and
  • $94 million ($124 million pre-tax) of amortization expense.

Adjusted net income for the second quarter of 2010, excluding these net charges, was $190 million, or $0.12 per share.

Reported net income for the second quarter of 2009 was $158 million, or $0.10 per share.  Reported results included intangible asset impairment charges; acquisition- and restructuring-related charges; discrete tax benefits; and amortization expense (after-tax) of $139 million, or $0.10 per share.  Adjusted net income for the second quarter of 2009, excluding these net charges, was $297 million, or $0.20 per share.

Guidance for Third Quarter and Full Year 2010

The Company estimates net sales for the third quarter of 2010 of between $1.850 billion and $1.925 billion.  Adjusted earnings, excluding restructuring and restructuring-related costs and amortization expense, are estimated to range between $0.10 and $0.13 per share.  The Company estimates earnings on a GAAP basis of between $0.01 and $0.05 per share.

The Company is revising estimates for the full year ending December 31, 2010.  The Company now estimates net sales for the full year 2010 of between $7.6 billion and $7.9 billion.  Adjusted earnings, excluding goodwill and intangible asset impairment net charges, acquisition-related credits, restructuring and restructuring-related costs, and amortization expense, are estimated to range between $0.54 and $0.62 per share.  The Company now estimates a net loss on a GAAP basis of between $(0.91) and $(0.81) per share.

Boston Scientific officials will be discussing these results with analysts on a conference call at 8:00 a.m. (ET) Wednesday, July 21.  The Company will webcast the call to all interested parties through its website: www.bostonscientific.com.  Please see the website for details on how to access the webcast.  The webcast will be available for one year on the Boston Scientific website.

Boston Scientific is a worldwide developer, manufacturer and marketer of medical devices whose products are used in a broad range of interventional medical specialties. For more information, please visit: www.bostonscientific.com.

Cautionary Statement Regarding Forward-Looking Statements

This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.  Forward-looking statements may be identified by words like "anticipate," "expect," "project," "believe," "plan," "estimate," "intend" and similar words.  These forward-looking statements are based on our beliefs, assumptions and estimates using information available to us at the time and are not intended to be guarantees of future events or performance.  These forward-looking statements include, among other things, statements regarding our expected net sales, GAAP earnings and adjusted earnings for the third quarter and full year 2010; our financial performance; new product approvals and sales; regulatory compliance and product removal actions; our market position; cash flow; the effect of our debt refinancing and repayments; write-down of goodwill and other asset impairments; our capacity to fund acquisitions and other investments; and our restructuring activities.  If our underlying assumptions turn out to be incorrect, or if certain risks or uncertainties materialize, actual results could vary materially from the expectations and projections expressed or implied by our forward-looking statements.  These risks and uncertainties, in some cases, have affected and in the future could affect our ability to implement our business strategy and may cause actual results to differ materially from those contemplated by the statements expressed in this press release.  As a result, readers are cautioned not to place undue reliance on any of our forward-looking statements.

Risks and uncertainties that may cause such differences include, among other things: future economic, competitive, reimbursement and regulatory conditions; new product introductions and the market acceptance of those products; clinical trial results; demographic trends; intellectual property; litigation; financial market conditions; the effect of our goodwill impairment charges and our restructuring initiatives; and future business decisions made by us and our competitors.  New risks and uncertainties may arise from time to time and are difficult to predict.  All of these factors are difficult or impossible to predict accurately and many of them are beyond our control.  For a further list and description of these and other important risks and uncertainties that may affect our future operations, see Part I, Item IA – Risk Factors in our most recent Annual Report on Form 10-K filed with the Securities and Exchange Commission, which we may update in Part II, Item 1A – Risk Factors in Quarterly Reports on Form 10-Q we have filed or will file hereafter.  We disclaim any intention or obligation to publicly update or revise any forward-looking statement to reflect any change in our expectations or in events, conditions, or circumstances on which those expectations may be based, or that may affect the likelihood that actual results will differ from those contained in the forward-looking statements.  This cautionary statement is applicable to all forward-looking statements contained in this press release.  

Use of non-GAAP Financial Information

A reconciliation of the Company's non-GAAP financial measures to the corresponding GAAP measures, and an explanation of the Company's use of these non-GAAP measures, is included in the exhibits attached to this press release. 

CONTACT:


Paul Donovan

508-650-8541 (office) 

508-667-5165 (mobile)

Media Relations

Boston Scientific Corporation


Larry Neumann

508-650-8696 (office)

Investor Relations

Boston Scientific Corporation



BOSTON SCIENTIFIC CORPORATION

CONDENSED CONSOLIDATED GAAP RESULTS OF OPERATIONS

(Unaudited)








Three Months Ended
June 30,


Six Months Ended
June 30,

in millions, except per share data

2010

2009


2010

2009







Net sales

$    1,928

$    2,074


$     3,888

$    4,084

Cost of products sold

654

630


1,316

1,237

Gross profit

1,274

1,444


2,572

2,847







Operating expenses:






Selling, general and administrative expenses

634

671


1,262

1,321

Research and development expenses

232

263


485

520

Royalty expense

57

53


108

98

Loss on program termination


16



16

Amortization expense

124

126


252

255

Goodwill impairment net (credits) charges

(31)



1,817


Intangible asset impairment charges


10


60

10

Purchased research and development


17



17

Acquisition-related milestone




(250)


Restructuring charges

27

13


93

36

Litigation-related charges





287


1,043

1,169


3,827

2,560

Operating income (loss)

231

275


(1,255)

287







Other income (expense):






Interest expense

(103)

(92)


(195)

(194)

Other, net

(9)

(3)


(5)

(10)

Income (loss) before income taxes

119

180


(1,455)

83

Income tax expense (benefit)

21

22


36

(62)

Net income (loss)

$        98

$     158


$  (1,491)

$     145







Net income (loss) per common share — basic

$    0.06

$    0.10


$    (0.98)

$    0.10

Net income (loss) per common share — assuming dilution

$    0.06

$    0.10


$    (0.98)

$    0.10







Weighted-average shares outstanding






Basic

1,516.6

1,506.8


1,515.6

1,505.8

Assuming dilution

1,525.3

1,514.5


1,515.6

1,511.6









BOSTON SCIENTIFIC CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS





in millions, except share data

June 30,
2010

December 31,
2009


(Unaudited)


ASSETS



Current assets:



Cash and cash equivalents

$            811

$                  864

Trade accounts receivable, net

1,315

1,375

Inventories

885

920

Deferred income taxes

550

572

Prepaid expenses and other current assets

426

330

Total current assets

3,987

4,061




Property, plant and equipment, net

1,708

1,728

Goodwill

10,582

12,404

Other intangible assets, net

6,416

6,731

Other long-term assets

326

253


$     23,019

$           25,177




LIABILITIES AND STOCKHOLDERS' EQUITY



Current liabilities:



Current debt obligations

$            850

$                      3

Accounts payable

180

212

Accrued expenses

2,325

2,609

Other current liabilities

368

198

Total current liabilities

3,723

3,022




Long-term debt

5,183

5,915

Deferred income taxes

1,982

1,875

Other long-term liabilities

1,238

2,064




Commitments and contingencies






Stockholders' equity



Preferred stock, $ .01 par value - authorized 50,000,000
  shares, none issued and outstanding



Common stock, $ .01 par value - authorized 2,000,000,000
  shares, issued 1,516,901,783 shares as of June 30, 2010 and
  1,510,753,934 shares as of December 31, 2009

15

15

Additional paid-in capital

16,163

16,086

Accumulated deficit

(5,248)

(3,757)

Other stockholders' deficit

(37)

(43)

Total stockholders' equity

10,893

12,301


$     23,019

$           25,177









BOSTON SCIENTIFIC CORPORATION

NON-GAAP NET INCOME AND NET INCOME PER COMMON SHARE RECONCILIATIONS

(Unaudited)


























Three Months Ended June 30,


Six Months Ended June 30,


2010


2009


2010


2009

in millions, except per share data

Net
income

Impact
per diluted
share


Net
income

Impact
per diluted
share


Net
(loss)
income

Impact
per diluted
share


Net
income

Impact
per diluted
share

GAAP results

$      98

$          0.06


$    158

$          0.10


$  (1,491)

$        (0.98)


$    145

$          0.10

Non-GAAP adjustments:












Goodwill impairment net (credits) charges

(31)

(0.02)





1,817

1.20

*



Intangible asset impairment charges




8

0.01


51

0.03

*

8

0.01

Acquisition-related charges (credits)




17

0.01


(216)

(0.14)

*

17

0.01

Divestiture-related gains










(2)

(0.00)

Restructuring-related charges

29

0.02


22

0.02


85

0.05

*

47

0.03

Litigation-related charges










240

0.15

Discrete tax items




(11)

(0.01)





(74)

(0.05)

Amortization expense

94

0.06


103

0.07


195

0.13

*

205

0.14

Adjusted results

$    190

$          0.12


$    297

$          0.20


$       441

$          0.29


$    586

$          0.39













* Assumes dilution of 9.1 million shares for the six months ended June 30, 2010 for all or a portion of these non-GAAP adjustments.



An explanation of the Company's use of these non-GAAP measures is provided at the end of this document.

BOSTON SCIENTIFIC CORPORATION

NON-GAAP NET INCOME AND NET INCOME PER COMMON SHARE RECONCILIATIONS (CONT.)

(Unaudited)










Three Months Ended


Six Months Ended

(in millions)


June 30,


June 30,



2010

2009


2010

2009

Goodwill impairment net (credits) charges:







Goodwill impairment credits


$     (31)



$        (31)


Goodwill impairment charges





1,848




(31)



1,817


Income tax benefit (a)







Goodwill impairment net (credits) charges, net of tax


$    (31)



$    1,817









Intangible asset impairment charges:







Intangible asset impairment charges



$       10


$          60

$        10

Income tax benefit (a)



(2)


(9)

(2)

Intangible asset impairment charges, net of tax



$        8


$         51

$         8








Acquisition-related charges (credits):







Purchased research and development



$       17



$        17

Acquisition-related milestone





$      (250)





17


(250)

17

Income tax expense (a)





34


Acquisition-related charges (credits), net of tax



$      17


$     (216)

$       17








Divestiture-related gains:







Gain on sale of investments (b)






$        (3)

Income tax expense (a)






1

Divestiture-related gains, net of tax






$        (2)








Restructuring-related charges:







Restructuring charges


$       27

$       13


$          93

$        36

Restructuring-related charges (c)


14

17


28

30



41

30


121

66

Income tax benefit (a)


(12)

(8)


(36)

(19)

Restructuring-related charges, net of tax


$      29

$      22


$         85

$       47








Litigation-related charges:







Litigation-related charges






$      287

Income tax benefit (a)






(47)

Litigation-related charges, net of tax






$     240








Discrete tax items:







Income tax benefit (a)



$     (11)



$      (74)








Amortization expense:







Amortization expense


$     124

$     126


$        252

$      255

Income tax benefit (a)


(30)

(23)


(57)

(50)

Amortization expense, net of tax


$      94

$    103


$       195

$     205















(a) Amounts are tax effected at the Company's effective tax rate, unless the amount is a significant unusual or
infrequently occurring item in accordance with FASB Accounting Standards Codification section 740-270-30,
"General Methodology and Use of Estimated Annual Effective Tax Rate."

(b) Recorded to other, net.

(c) In the second quarter of 2010, recorded $13 million to cost of products sold and $1 million to selling, general and
administrative expenses. In the second quarter of 2009, recorded $12 million to cost of products sold; $4 million to
selling, general and administrative expenses; and $1 million to research and development expenses. In the first half
of 2010, recorded $26 million to cost of products sold and $2 million to selling, general and administrative expenses.
In the first half of 2009, recorded $22 million to cost of products sold; $6 million to selling, general and administrative
expenses; and $2 million to research and development expenses.



An explanation of the Company's use of these non-GAAP measures is provided at the end of this document.

BOSTON SCIENTIFIC CORPORATION


WORLDWIDE SALES


(Unaudited)






















Change



Three Months Ended


As Reported


Constant



June 30,


Currency


Currency


in millions

2010

2009


Basis


Basis










United States

$     1,076

$      1,194


(10)

%

(10)

%









EMEA

440

469


(6)

%

(1)

%

Japan

227

240


(6)

%

(11)

%

Inter-Continental

183

169


8

%

(1)

%

International

850

878


(3)

%

(4)

%









Subtotal

1,926

2,072


(7)

%

(7)

%









Divested Businesses

2

2


N/A


N/A










Worldwide

$     1,928

$      2,074


(7)

%

(7)

%































Change



Three Months Ended


As Reported


Constant



June 30,


Currency


Currency


in millions

2010

2009


Basis


Basis










Cardiac Rhythm Management

$        527

$         609


(13)

%

(13)

%









Interventional Cardiology

657

736


(11)

%

(11)

%

Peripheral Interventions

166

171


(3)

%

(4)

%

Cardiovascular Group

823

907


(9)

%

(10)

%









Electrophysiology

37

37


0

%

0

%









Neurovascular

82

87


(5)

%

(6)

%









Endoscopy

265

246


8

%

8

%

Urology/ Women's Health

120

114


4

%

4

%

Endosurgery Group

385

360


7

%

7

%









Neuromodulation

72

72


0

%

0

%









Subtotal

1,926

2,072


(7)

%

(7)

%









Divested Businesses

2

2


N/A


N/A










Worldwide

$     1,928

$      2,074


(7)

%

(7)

%











Growth rates are based on actual, non-rounded amounts and may not recalculate precisely.

An explanation of the Company's use of these non-GAAP measures is provided at the end of this document.

BOSTON SCIENTIFIC CORPORATION


WORLDWIDE SALES


(Unaudited)








Change


Six Months Ended


As Reported


Constant


June 30,


Currency


Currency

in millions

2010

2009


Basis


Basis









United States

$     2,142

$     2,364


(9)

%

(9)

%









EMEA

910

915


(0)

%

(1)

%

Japan

473

482


(2)

%

(6)

%

Inter-Continental

359

316


14

%

0

%

International

1,742

1,713


2

%

(2)

%









Subtotal

3,884

4,077


(5)

%

(6)

%









Divested Businesses

4

7


N/A


N/A










Worldwide

$     3,888

$     4,084


(5)

%

(6)

%




































 Change



Six Months Ended


As Reported


Constant



June 30,


Currency


Currency


in millions

2010

2009


Basis


Basis










Cardiac Rhythm Management

$     1,065

$     1,197


(11)

%

(12)

%









Interventional Cardiology

1,347

1,473


(9)

%

(11)

%

Peripheral Interventions

331

329


0

%

(1)

%

Cardiovascular Group

1,678

1,802


(7)

%

(9)

%









Electrophysiology

75

74


1

%

1

%









Neurovascular

169

174


(3)

%

(6)

%









Endoscopy

525

478


10

%

8

%

Urology/ Women's Health

232

219


6

%

5

%

Endosurgery Group

757

697


9

%

7

%









Neuromodulation

140

133


5

%

4

%









Subtotal

3,884

4,077


(5)

%

(6)

%









Divested Businesses

4

7


N/A


N/A










Worldwide

$     3,888

$     4,084


(5)

%

(6)

%











Growth rates are based on actual, non-rounded amounts and may not recalculate precisely.

An explanation of the Company's use of these non-GAAP measures is provided at the end of this document.

BOSTON SCIENTIFIC CORPORATION

NON-GAAP CONSTANT CURRENCY NET SALES RECONCILIATIONS

(Unaudited)








Q2 2010 Net Sales as compared to Q2 2009



Change

Estimated
Impact of
Foreign
Currency

in millions


As Reported
Currency
Basis

Constant
Currency
Basis






United States


$            (118)

$       (118)







EMEA


(29)

(5)

$           (24)

Japan


(13)

(26)

13

Inter-Continental


14

(1)

15

International


(28)

(32)

4






Subtotal


(146)

(150)

4






Divested Businesses


0

0

0






Worldwide


$            (146)

$       (150)

$              4













Q2 2010 Net Sales as compared to Q2 2009



Change

Estimated
Impact of
Foreign
Currency

in millions


As Reported
Currency
Basis

Constant
Currency
Basis






Cardiac Rhythm Management


$               (82)

$          (79)

$            (3)






Interventional Cardiology


(79)

(84)

5

Peripheral Interventions


(5)

(5)

0

Cardiovascular Group


(84)

(89)

5






Electrophysiology


0

0

(0)






Neurovascular


(5)

(6)

1






Endoscopy


19

18

1

Urology/ Women's Health


6

6

0

Endosurgery Group


25

24

1






Neuromodulation


0

0

0






Subtotal


(146)

(150)

4






Divested Businesses


0

0

0






Worldwide


$            (146)

$       (150)

$              4








An explanation of the Company's use of these non-GAAP measures is provided at the end of this document.

BOSTON SCIENTIFIC CORPORATION

NON-GAAP CONSTANT CURRENCY NET SALES RECONCILIATIONS

(Unaudited)








Q2 2010 YTD Net Sales as compared to Q2 2009



Change

Estimated
Impact of
Foreign
Currency

in millions


As Reported
Currency
Basis

Constant
Currency
Basis






United States


$            (222)

$       (222)







EMEA


(5)

(10)

$               5

Japan


(9)

(30)

21

Inter-Continental


43

2

41

International


29

(38)

67






Subtotal


(193)

(260)

67






Divested Businesses


(3)

(3)

0






Worldwide


$            (196)

$       (263)

$            67













Q2 2010 YTD Net Sales as compared to Q2 2009



Change

Estimated
Impact of
Foreign
Currency

in millions


As Reported
Currency
Basis

Constant
Currency
Basis






Cardiac Rhythm Management


$            (132)

$       (141)

$              9






Interventional Cardiology


(126)

(161)

35

Peripheral Interventions


2

(4)

6

Cardiovascular Group


(124)

(165)

41






Electrophysiology


1

0

1






Neurovascular


(5)

(10)

5






Endoscopy


47

38

9

Urology/ Women's Health


13

11

2

Endosurgery Group


60

49

11






Neuromodulation


7

7

0






Subtotal


(193)

(260)

67






Divested Businesses


(3)

(3)

0






Worldwide


$            (196)

$       (263)

$            67








An explanation of the Company's use of these non-GAAP measures is provided at the end of this document.

BOSTON SCIENTIFIC CORPORATION


ESTIMATED NON-GAAP NET INCOME PER COMMON SHARE RECONCILIATIONS


(Unaudited)



















Q3 2010 Estimate


Full Year 2010 Estimate




Low

High


Low

High


GAAP results


$ 0.01

$ 0.05


$ (0.91)

$ (0.81)










Goodwill impairment net charges





1.20

1.20


Intangible asset impairment charges





0.03

0.03


Acquisition-related credit





(0.14)

(0.14)


Estimated restructuring-related charges


0.02

0.01


0.10

0.08


Estimated amortization expense


0.07

0.07


0.26

0.26










Adjusted results


$ 0.10

$ 0.13


$   0.54

$   0.62












An explanation of the Company's use of these non-GAAP measures is provided at the end of this document.

Use of Non-GAAP Financial Measures

To supplement Boston Scientific's condensed consolidated financial statements presented on a GAAP basis; the Company discloses certain non-GAAP measures that exclude certain amounts, including non-GAAP net income, non-GAAP net income per share, and regional and divisional revenue growth rates that exclude the impact of foreign exchange. These non-GAAP measures are not in accordance with, or an alternative for, generally accepted accounting principles in the United States.

The GAAP measure most comparable to non-GAAP net income is GAAP net income and the GAAP measure most comparable to non-GAAP net income per share is GAAP net income per share. Reconciliations of each of these non-GAAP financial measures to the corresponding GAAP measure are included in the accompanying schedules.

To calculate regional and divisional revenue growth rates that exclude the impact of foreign exchange, the Company converts actual current-period net sales from local currency to U.S. dollars using constant foreign exchange rates. The GAAP measure most comparable to this non-GAAP measure is growth rate percentages based on GAAP revenue. A reconciliation of this non-GAAP financial measure to the corresponding GAAP measure is included in the accompanying schedules.

Use and Economic Substance of Non-GAAP Financial Measures Used by Boston Scientific

Management uses these supplemental non-GAAP measures to evaluate performance period over period, to analyze the underlying trends in the Company's business, to assess its performance relative to its competitors, and to establish operational goals and forecasts that are used in allocating resources. In addition, management uses these non-GAAP measures to further its understanding of the performance of the Company's operating segments. The adjustments excluded from the Company's non-GAAP measures are consistent with those excluded from its reportable segments' measure of profit or loss. These adjustments are excluded from the segment measures that are reported to the Company's chief operating decision maker and are used to make operating decisions and assess performance.

The following is an explanation of each of the adjustments that management excluded as part of its non-GAAP measures for the three and six months ended June 30, 2010 and 2009 and for the forecasted three month period ending September 30, 2010 and full year ending December 31, 2010, as well as reasons for excluding each of these individual items:

  • Goodwill and other intangible asset impairment (credits) charges - These amounts represent non-cash net write-downs of certain of the Company's intangible assets and goodwill balances attributable to its U.S. Cardiac Rhythm Management business unit. Following the Company's acquisition of Guidant Corporation in 2006, and the related increase in the Company's debt, management has heightened its focus on cash generation and debt pay down. Management removes the impact of these charges from the Company's operating performance to assist in assessing the Company's cash generated from operations. Management believes this is a critical metric for the Company in measuring the Company's ability to generate cash and pay down debt. Therefore, these charges are excluded from management's assessment of operating performance and are also excluded from the measures management uses to set employee compensation. Accordingly, management believes this may be useful information to users of its financial statements and therefore has excluded these charges for purposes of calculating these non-GAAP measures to facilitate an evaluation of the Company's current operating performance, particularly in terms of liquidity.

  • Acquisition-related charges (credits) – These adjustments consist of purchased research and development and a gain on an acquisition-related milestone receipt. Purchased research and development is a highly variable charge based on the extent and nature of external technology acquisitions during the period. The acquisition-related gain resulted from a receipt related to Guidant Corporation's sale of its vascular intervention and endovascular solutions businesses to Abbott Laboratories. These adjustments are not indicative of future operating results. Management removes the impact of these charges (credits) from the Company's operating results to facilitate an evaluation of the Company's current operating performance and a comparison to the Company's past operating performance.  

  • Divestiture-related gains – These amounts represent gains and related tax impacts that the Company recognized related to the sale of certain non-strategic investments. The sale of these non-strategic investments was completed during 2009. These gains are not indicative of future operating performance and are not used by management to assess operating performance. Accordingly, management excluded these amounts for purposes of calculating these non-GAAP measures to facilitate an evaluation of the Company's current operating performance and a comparison to the Company's past operating performance.  

  • Restructuring and restructuring-related costs – These adjustments represent primarily severance, asset write-offs, costs to transfer production lines from one facility to another, and other costs associated with the Company's 2010 Restructuring plan, Plant Network Optimization program and 2007 Restructuring plan. These expenses are excluded by management in assessing the Company's operating performance, as well as from the Company's operating segments' measures of profit and loss used for making operating decisions and assessing performance. Accordingly, management excluded these charges for purposes of calculating these non-GAAP measures to facilitate an evaluation of the Company's current operating performance and a comparison to the Company's past operating performance.  

  • Litigation-related charges – These charges are attributable to certain patent litigation and other legal matters. These amounts represent significant charges during the first quarter of 2009 and do not reflect expected on-going operating expenses. Accordingly, management excluded these charges for purposes of calculating these non-GAAP measures to facilitate an evaluation of the Company's current operating performance and for comparison to the Company's past operating performance.

  • Discrete tax items – These items represent adjustments of certain tax positions, which were initially established in prior periods as a result of acquisitions or as a result of divestiture- and litigation-related charges or credits, or restructuring and restructuring-related costs. These adjustments do not reflect expected on-going operating results. Accordingly, management excluded these amounts for purposes of calculating these non-GAAP measures to facilitate an evaluation of the Company's current operating performance and for comparison to the Company's past operating performance.

  • Amortization expense – Amortization expense is a non-cash charge and does not impact the Company's liquidity or compliance with the covenants included in its debt agreements. Management removes the impact of amortization from the Company's operating performance to assist in assessing the Company's cash generated from operations. Management believes this is a critical metric for the Company in measuring the Company's ability to generate cash and pay down debt. Therefore, amortization expense is excluded from management's assessment of operating performance and is also excluded from the measures management uses to set employee compensation. Accordingly, management believes this may be useful information to users of its financial statements and therefore has excluded amortization expense for purposes of calculating these non-GAAP measures to facilitate an evaluation of the Company's current operating performance, particularly in terms of liquidity.

  • Foreign exchange on net sales – The impact of foreign exchange is highly variable and difficult to predict. Accordingly, management excludes the impact of foreign exchange for purposes of reviewing regional and divisional revenue growth rates to facilitate an evaluation of the Company's current operating performance and comparison to the Company's past operating performance.

Material Limitations Associated with the Use of Non-GAAP Financial Measures

Non-GAAP net income, non-GAAP net income per diluted share, and regional and divisional revenue growth rates that exclude the impact of foreign exchange may have limitations as analytical tools, and these non-GAAP measures should not be considered in isolation from or as a replacement for GAAP financial measures. Some of the limitations associated with the use of these non-GAAP financial measures are:

  • Amortization expense and goodwill and other intangible asset impairment (credits) charges, though not directly affecting Boston Scientific's cash flows, represent a net reduction in value of goodwill and other intangible assets. The (gain) loss associated with this reduction in value is not included in Boston Scientific's non-GAAP net income or non-GAAP net income per diluted share and therefore these measures do not reflect the full effect of the reduction in value of those assets.

  • Items such the gain on acquisition-related milestone receipt and divestiture-related gains reflect economic benefits to the Company and are not reflected in non-GAAP net income and non-GAAP net income per diluted share.

  • Items such as purchased research and development, restructuring and restructuring-related costs, litigation-related charges, and discrete tax items that are excluded from non-GAAP net income and non-GAAP net income per diluted share can have a material impact on cash flows and GAAP net income and net income per diluted share.

  • Revenue growth rates stated on a constant currency basis, by their nature, exclude the impact of foreign exchange, which may have a material impact on GAAP net sales.

  • Other companies may calculate non-GAAP net income, non-GAAP net income per diluted share, or regional and divisional revenue growth rates that exclude the impact of foreign exchange differently than Boston Scientific does, limiting the usefulness of those measures for comparative purposes.

Compensation for Limitations Associated with Use of Non-GAAP Financial Measures

Boston Scientific compensates for the limitations on its non-GAAP financial measures by relying upon its GAAP results to gain a complete picture of the Company's performance. The non-GAAP numbers focus instead upon the core business of the Company, which is only a subset, albeit a critical one, of the Company's performance.

The Company provides detailed reconciliations of each non-GAAP financial measure to its most directly comparable GAAP measure in the accompanying schedules, and Boston Scientific encourages investors to review these reconciliations.

Usefulness of Non-GAAP Financial Measures to Investors

The Company believes that presenting non-GAAP net income, non-GAAP net income per share, and regional and divisional revenue growth rates that exclude the impact of foreign exchange in addition to the related GAAP measures provides investors greater transparency to the information used by Boston Scientific management for its financial and operational decision-making and allows investors to see Boston Scientific's results "through the eyes" of management. The Company further believes that providing this information better enables Boston Scientific's investors to understand the Company's operating performance and to evaluate the methodology used by management to evaluate and measure such performance.

SOURCE Boston Scientific Corporation



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