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Boston Scientific Exceeds Third Quarter EPS Guidance, Repurchases 30 Million Shares
Date:10/20/2011

NATICK, Mass., Oct. 20, 2011 /PRNewswire/ -- Boston Scientific Corporation (NYSE: BSX) announces financial results for the third quarter ended September 30, 2011, as well as updated sales and earnings per share (EPS) guidance for the fourth quarter and full year 2011. 

Third quarter and other highlights:

  • Achieved sales of $1.874 billion; and reported GAAP earnings of $0.09 per share and adjusted EPS of $0.15, both exceeding previous guidance

  • Invested $192 million to purchase 30 million shares under the Company's estimated $1.25 billion combined share repurchase authorizations

  • Increased constant currency worldwide sales of Endoscopy by 6 percent, Peripheral Interventions by 4 percent and Neuromodulation by 6 percent, all on the continued strength of new products

  • Achieved double digit sales growth in the three largest emerging markets of Brazil, India and China

  • Maintained substantial leadership position in the global drug-eluting stent market with 36 percent share worldwide and U.S. share of 49 percent

  • Generated strong operating cash flow of $366 million, ending the quarter with $276 million of cash on hand

  • Promoted Hank Kucheman to Chief Executive Officer and welcomed Mike Mahoney as President

  • "Boston Scientific's earnings performance remains strong, despite very challenging global economic and end-market conditions that adversely impacted revenue," stated Hank Kucheman, Chief Executive Officer of Boston Scientific Corporation.  "The execution of the Company's POWER strategy is the right top priority for the entire leadership team."Sales for the third quarter of 2011 were $1.874 billion, as compared to sales of $1.916 billion for the third quarter of 2010, a decrease of 2 percent.  Excluding the impact of changes in foreign currency exchange rates and sales from divested businesses, sales decreased 3 percent as compared to the prior period.

    Worldwide sales for the third quarter - on a constant currency and as reported basis - were as follows:ChangeThree Months EndedAs ReportedConstantSeptember 30,CurrencyCurrencyin millions

    20112010 BasisBasisInterventional Cardiology

    $
    3

    $
    40

    %

    (4)

    %Cardiac Rhythm Management

    503

    550(9)

    %

    (12)

    %Endoscopy

    298

    26911

    %

    6

    %Peripheral Interventions

    182

    1679

    %

    4

    %Urology/ Women's Health

    124

    1222

    %

    0

    %Neuromodulation

    84

    796

    %

    6

    %Electrophysiology

    36

    360

    %

    (2)

    %Subtotal Core Businesses1,8401,8370%(3)%Divested Businesses

    34

    79 N/A N/A Worldwide$
    ,874$
    ,916(2)%(6)%On a GAAP basis, net income for the third quarter of 2011 was $142 million, or $0.09 per share.  These results included intangible asset impairment charges, acquisition-related charges, divestiture-related net credits, restructuring-related charges, discrete tax benefits and amortization expense totaling $81 million, or $0.06 per share, which consisted of:

  • $7 million ($9 million pre-tax) of intangible asset impairment charges attributable to lower projected cash flows associated with certain technologies;

  • $7 million ($8 million pre-tax) of acquisition-related expenses;

  • $5 million ($7 million pre-tax) of divestiture-related net credits;

  • $19 million ($29 million pre-tax) of restructuring charges associated with the Company's 2011 Restructuring plan, 2010 Restructuring plan and Plant Network Optimization program;

  • $25 million of discrete tax benefits related to certain tax positions recorded in a prior period; and

  • $78 million ($97 million pre-tax) of amortization expense.

  • Adjusted net income for the third quarter of 2011, excluding these net charges, was $223 million, or $0.15 per share.

    On a GAAP basis, net income for the third quarter of 2010 was $190 million, or $0.12 per share.  Reported results included intangible asset impairment charges, restructuring-related charges, discrete tax items, and amortization expense (after-tax) totaling $106 million, or $0.07 per share.  Adjusted net income for the third quarter of 2010, excluding these net charges, was $296 million, or $0.19 per share.

    Guidance for Fourth Quarter and Full Year 2011The Company estimates sales for the fourth quarter of 2011 in a range of $1.850 to $1.950 billion.  Compared to sales for the fourth quarter of 2010, this range assumes a $64 million negative impact from the divestiture of the Neurovascular business.  Recent acquisitions are not expected to contribute significantly to fourth quarter sales.  The Company estimates earnings on a GAAP basis in a range of $0.05 to $0.11 per share.  Adjusted earnings, excluding restructuring-related net charges and amortization expense, are estimated in a range of $0.13 to $0.16 per share.  Recent acquisitions are expected to dilute fourth quarter 2011 adjusted earnings by approximately $0.01 per share as compared to the prior year, and the divestiture of the Neurovascular business is expected to dilute fourth quarter 2011 adjusted earnings by $0.01 per share.

    The Company now estimates sales for the full year 2011 in a range of $7.624 to $7.724 billion.  Compared to full year 2010 sales, this range now assumes a $204 million negative impact from the divestiture of the Neurovascular business.  Recent acquisitions are not expected to contribute significantly to 2011 sales.  The Company now estimates earnings on a GAAP basis in a range of $0.27 to $0.33 per share.  Adjusted earnings, excluding goodwill and other intangible asset impairment charges; acquisition-, divestiture-, and restructuring-related net credits; discrete tax items; and amortization expense, are being updated from previous guidance of $0.64 to $0.70 per share to an estimated range of $0.67 to $0.70 per share.  Recent acquisitions are expected to dilute full year 2011 adjusted earnings by approximately $0.04 per share as compared to the prior year, and the divestiture of the Neurovascular business is expected to dilute full year 2011 adjusted earnings by $0.04 per share.

    Conference Call InformationBoston Scientific management will be discussing these results with analysts on a conference call today at 8:00 a.m. (ET).  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.

    About Boston ScientificBoston 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 StatementsThis 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 fourth quarter and full year 2011, including expected impacts of acquisitions and the Neurovascular divestiture; our financial performance; and our POWER strategy.
    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; the market for our products, including the U.S. CRM market;  expected pricing environment; expected procedural volumes; clinical trial results; demographic trends; intellectual property rights; litigation; financial market conditions; the effect of our restructuring initiatives; integration of acquired companies; 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 InformationA 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 financial measures, is included in the exhibits attached to this press release. CONTACT:

    Denise Kaigler508-650-8330 (office)Media RelationsBoston Scientific Corporationdenise.kaigler@bsci.comErik Kopp508-650-8660 (office)Media RelationsBoston Scientific Corporationerik.kopp@bsci.comSean Wirtjes508-652-5305 (office)Investor RelationsBoston Scientific Corporationinvestor_relations@bsci.comBOSTON SCIENTIFIC CORPORATIONCONDENSED CONSOLIDATED GAAP RESULTS OF OPERATIONS

    (Unaudited)Three Months EndedNine Months EndedSeptember 30,September 30,in millions, except per share data

    2011201020112010Net sales

    $
    ,874

    $
    ,916$
    5,774

    $
    5,804Cost of products sold

    680

    6231,999

    1,939Gross profit

    1,194

    1,2933,775

    3,865Operating expenses:Selling, general and administrative expenses

    629

    6341,866

    1,897Research and development expenses

    229

    230665

    714Royalty expense

    36

    39140

    147Amortization expense

    97

    129325

    381Goodwill impairment net charges697

    1,817Intangible asset impairment charges

    9

    521

    65Contingent consideration expense

    618Acquisition-related milestone(250)Restructuring charges

    22

    577

    98Gain on divestiture

    (8)(768)1,020

    1,0423,041

    4,869Operating income (loss)

    174

    251734

    (1,004)Other income (expense):Interest expense

    (62)

    (91)(210)

    (286)Other, net

    (1)

    318

    (2)Income (loss) before income taxes

    111

    163542

    (1,292)Income tax (benefit) expense

    (31)

    (27)208

    9Net income (loss)$
    42$
    90$
    334$   (1,301)Net income (loss) per common share - basic$
    .09$
    .13$
    .22$
    (0.86)Net income (loss) per common share - assuming dilution$
    .09$
    .12$
    .22$
    (0.86)Weighted-average shares outstandingBasic

    1,514.4

    1,519.81,523.1

    1,517.0Assuming dilution

    1,524.0

    1,529.31,532.0

    1,517.0BOSTON SCIENTIFIC CORPORATIONCONDENSED CONSOLIDATED BALANCE SHEETSAs ofSeptember 30,December 31,in millions, except share and per share data

    20112010(Unaudited)ASSETSCurrent assets:Cash and cash equivalents

    $
    276$
    213Trade accounts receivable, net

    1,2371,320Inventories

    972894Deferred income taxes

    409429Assets held for sale

    5576Prepaid expenses and other current assets

    314183Total current assets

    3,2133,615Property, plant and equipment, net

    1,6841,697Goodwill

    9,76910,186Other intangible assets, net

    6,5646,343Other long-term assets

    272287$
    21,502$
    22,128LIABILITIES AND STOCKHOLDERS' EQUITYCurrent liabilities:Current debt obligations

    $
    4$
    504Accounts payable

    256184Accrued expenses

    1,2961,626Other current liabilities

    331295Total current liabilities

    1,8872,609Long-term debt

    4,2594,934Deferred income taxes

    1,8541,644Other long-term liabilities

    1,9811,645Commitments and contingenciesStockholders' equityPreferred stock, $.01 par value - authorized 50,000,000shares, none issued and outstandingCommon stock, $.01 par value - authorized 2,000,000,000shares and issued 1,531,013,482 shares as of September 30, 2011

    1515and 1,520,780,112 shares as of December 31, 2010Treasury stock, at cost - 30,000,000 shares as of September 30, 2011

    (192)Additional paid-in capital

    16,31816,232Accumulated deficit

    (4,488)(4,822)Accumulated other comprehensive loss, net of tax

    (132)(129)Total stockholders' equity

    11,52111,296$
    21,502$
    22,128BOSTON SCIENTIFIC CORPORATIONNON-GAAP NET INCOME AND NET INCOME PER COMMON SHARE RECONCILIATIONS

    (Unaudited)Three Months Ended September 30,20112010ImpactImpactNetper dilutedNetper dilutedin millions, except per share data

    incomeshareincomeshareGAAP net income$   142$
    .09$
    90$
    .12Non-GAAP adjustments:Intangible asset impairment charges

    7

    0.014

    0.00Acquisition-related charges

    7

    0.01Divestiture-related net credits

    (5)

    0.00Restructuring-related charges

    19

    0.0114

    0.01Discrete tax items

    (25)

    (0.02)(21)

    (0.01)Amortization expense

    78

    0.05109

    0.07Adjusted net income$   223$
    .15$
    296$
    .19Nine Months Ended September 30,20112010ImpactNetImpactNetper diluted(loss)per dilutedin millions, except per share data

    incomeshareincomeshareGAAP net income (loss)$   334$
    .22$   (1,301)$
    (0.86)Non-GAAP adjustments:Goodwill impairment net charges

    697

    0.451,817

    1.20  *Intangible asset impairment charges

    16

    0.0155

    0.03  *Acquisition-related net credits

    (17)

    (0.01)(216)

    (0.14) *Divestiture-related net credits

    (533)

    (0.35)Restructuring-related charges

    75

    0.0599

    0.06  *Discrete tax items

    (21)

    (0.01)(21)

    (0.01) *Amortization expense

    271

    0.18304

    0.20  *Adjusted net income$   822$
    .54$
    737$
    .48* Assumes dilution of 9.2 million shares for the nine months ended September 30, 2010 for all or a portion of these non-GAAP adjustments.

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

    BOSTON SCIENTIFIC CORPORATIONNON-GAAP NET INCOME AND NET INCOME PER COMMON SHARE RECONCILIATIONS (CONT.)

    (Unaudited)Three Months EndedNine Months Endedin millions

    September 30,September 30,2011201020112010Goodwill impairment net charges:Goodwill impairment net charges$
    97

    $   1,817Income tax benefit (a)Goodwill impairment net charges, net of tax$
    97$   1,817Intangible asset impairment charges:Intangible asset impairment charges

    $
    9

    $
    5$
    21

    $
    5Income tax benefit (a)(2)

    (1)(5)

    (10)Intangible asset impairment charges, net of tax

    $
    7$
    4$$
    55Acquisition-related net charges (credits):Contingent consideration expense

    $$
    8Acquisition-related milestone$
    (250)Acquisition-related costs (b)13Inventory step-up adjustment (c)12Gain on previously held equity interests (e)(38)8(15)

    (250)Income tax (benefit) expense (a)(1)(2)

    34Acquisition-related net charges (credits), net of tax

    $
    7$
    (17)$
    (216)Divestiture-related net credits:Gain on divestiture

    $
    (8)$   (768)Divestiture-related costs (d)14(7)(764)Income tax expense (a)2231Divestiture-related net credits, net of tax

    $
    (5)$   (533)Restructuring-related charges:Restructuring charges

    $   22

    $
    5$
    77

    $
    98Restructuring-related charges (f)7

    1332

    4129

    18109

    139Income tax benefit (a)(10)

    (4)(34)

    (40)Restructuring-related charges, net of tax

    $   19$
    4$
    75$
    99Discrete tax items:Income tax benefit (a)$   (25)$
    (21)$
    (21)$
    (21)Amortization expense:Amortization expense

    $   97

    $   129$
    325

    $
    381Income tax benefit (a)(19)

    (20)(54)

    (77)Amortization expense, net of tax

    $   78$   109$
    271$
    304(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 selling, general and administrative expenses.

    (c)  Recorded to cost of products sold.

    (d)  In the third quarter of 2011, recorded $1 million to cost of products sold. In the first nine months of 2011, recorded $2 million to cost of products sold, $1 million to selling, general and administrative expenses and $1 million to research and development expenses.

    (e)  Recorded to other, net.

    (f)  In the third quarter of 2011, recorded $7 million to cost of products sold. In the third quarter of 2010, recorded $12 million to cost of products sold and $1 million to selling, general and administrative expenses. In the first nine months of 2011, recorded $28 million to cost of products sold and $4 million to selling, general and administrative expenses. In the first nine months of 2010, recorded $38 million to cost of products sold and $3 million to selling, general and administrative expenses.

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

    BOSTON SCIENTIFIC CORPORATIONWORLDWIDE SALES

    (Unaudited)ChangeThree Months EndedAs ReportedConstantSeptember 30,CurrencyCurrencyin millions

    20112010BasisBasisUnited States$
    990$   1,077(8)%(8)%EMEA

    416

    37810 %2 %Japan

    235

    21311 %0 %Inter-Continental

    199

    16917 %9 %International85076012 %3 %Subtotal Core Businesses1,8401,8370 %(3)%Divested Businesses

    34

    79N/AN/AWorldwide$   1,874$   1,916(2)%(6)%ChangeThree Months EndedAs ReportedConstantSeptember 30,CurrencyCurrencyin millions

    20112010BasisBasisInterventional Cardiology

    $
    3

    $
    40 %(4)%Cardiac Rhythm Management

    503

    550(9)%(12)%Endoscopy

    298

    26911 %6 %Peripheral Interventions

    182

    1679 %4 %Urology/Women's Health

    124

    1222 %0 %Neuromodulation

    84

    796 %6 %Electrophysiology

    36

    360 %(2)%Subtotal Core Businesses1,8401,8370 %(3)%Divested Businesses

    34

    79N/AN/AWorldwide$   1,874$   1,916(2)%(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 financial measures is provided at the end of this document.

    BOSTON SCIENTIFIC CORPORATIONWORLDWIDE SALES

    (Unaudited)ChangeNine Months EndedAs ReportedConstantSeptember 30,CurrencyCurrencyin millions

    20112010BasisBasisUnited States$   3,054$   3,159(3)%(3)%EMEA

    1,328

    1,2486 %0 %Japan

    705

    6479 %(2)%Inter-Continental

    576

    49816 %8 %International2,6092,3939 %1 %Subtotal Core Businesses5,6635,5522 %(1)%Divested Businesses

    111

    252N/AN/AWorldwide$   5,774$   5,804(1)%(4)%ChangeNine Months EndedAs ReportedConstantSeptember 30,CurrencyCurrencyin millions

    20112010BasisBasisInterventional Cardiology

    $   1,901

    $   1,961(3)%(7)%Cardiac Rhythm Management

    1,606

    1,615(1)%(4)%Endoscopy

    883

    79411 %6 %Peripheral Interventions

    547

    49810 %5 %Urology/Women's Health

    371

    3545 %3 %Neuromodulation

    245

    21912 %12 %Electrophysiology

    110

    111(1)%(2)%Subtotal Core Businesses5,6635,5522 %(1)%Divested Businesses

    111

    252N/AN/AWorldwide$   5,774$   5,804(1)%(4)%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 financial measures is provided at the end of this document.

    BOSTON SCIENTIFIC CORPORATIONNON-GAAP CONSTANT CURRENCY NET SALES RECONCILIATIONS

    (Unaudited)Q3 2011 Net Sales as compared to Q3 2010ChangeEstimatedAs ReportedConstantImpact ofCurrencyCurrencyForeignin millions

    BasisBasisCurrencyUnited States$
    (87)$
    (87)EMEA

    38

    9

    $
    29Japan

    22

    0

    22Inter-Continental

    30

    15

    15International902466Subtotal Core Businesses3(63)66Divested Businesses

    (45)

    (45)

    0Worldwide$
    (42)$
    (108)$Q3 2011 Net Sales as compared to Q3 2010ChangeEstimatedAs ReportedConstantImpact ofCurrencyCurrencyForeignin millions

    BasisBasisCurrencyInterventional Cardiology

    $
    (1)

    $
    (25)

    $
    24Cardiac Rhythm Management

    (47)

    (65)

    18Endoscopy

    29

    16

    13Peripheral Interventions

    15

    7

    8Urology/Women's Health

    2

    0

    2Neuromodulation

    5

    5

    0Electrophysiology

    0

    (1)

    1Subtotal Core Businesses3(63)66Divested Businesses

    (45)

    (45)

    0Worldwide$
    (42)$
    (108)$An explanation of the Company's use of these non-GAAP financial measures is provided at the end of this document.

    BOSTON SCIENTIFIC CORPORATIONNON-GAAP CONSTANT CURRENCY NET SALES RECONCILIATIONS

    (Unaudited)Q3 2011 YTD Net Sales as compared to Q3 2010 YTDChangeEstimatedAs ReportedConstantImpact ofCurrencyCurrencyForeignin millions

    BasisBasisCurrencyUnited States$
    (105)$
    (105)EMEA

    80

    0

    $
    80Japan

    58

    (14)

    72Inter-Continental

    78

    39

    39International21625191Subtotal Core Businesses111(80)191Divested Businesses

    (141)

    (145)

    4Worldwide$
    (30)$
    (225)$
    95Q3 2011 YTD Net Sales as compared to Q3 2010 YTDChangeEstimatedAs ReportedConstantImpact ofCurrencyCurrencyForeignin millions

    BasisBasisCurrencyInterventional Cardiology

    $
    (60)

    $
    (132)

    $
    72Cardiac Rhythm Management

    (9)

    (58)

    49Endoscopy

    89

    53

    36Peripheral Interventions

    49

    25

    24Urology/Women's Health

    17

    10

    7Neuromodulation

    26

    25

    1Electrophysiology

    (1)

    (3)

    2Subtotal Core Businesses111(80)191Divested Businesses

    (141)

    (145)

    4Worldwide$
    (30)$
    (225)$
    95An explanation of the Company's use of these non-GAAP financial measures is provided at the end of this document.

    BOSTON SCIENTIFIC CORPORATIONWORLDWIDE CARDIAC RHYTHM MANAGEMENT AND CORONARY STENT SYSTEM SALES

    (Unaudited)Three Months Ended September 30in millionsU.S.InternationalWorldwideQ3 2011Q3 2010Q3 2011Q3 2010Q3 2011Q3 2010Defibrillator systems$
    225

    $
    280$
    35

    $
    26$
    360

    $
    406Pacemaker systems71

    8272

    62143

    144Total CRM products$
    296$
    362$
    207$
    88$
    503$
    550in millionsU.S.InternationalWorldwideQ3 2011Q3 2010Q3 2011Q3 2010Q3 2011Q3 2010Drug-eluting stent systems$
    91

    $
    99$
    84

    $$
    375

    $
    365Bare-metal stent systems7

    1120

    2027

    31Total coronary stent systems$
    98$
    210$
    204$
    86$
    402$
    396Nine Months Ended September 30in millionsU.S.InternationalWorldwideYTD 2011YTD 2010YTD 2011YTD 2010YTD 2011YTD 2010Defibrillator systems$
    734

    $
    764$
    436

    $
    411$   1,170

    $   1,175Pacemaker systems216

    246220

    194436

    440Total CRM products$
    950$   1,010$
    56$
    5$   1,606$   1,615in millionsU.S.InternationalWorldwideYTD 2011YTD 2010YTD 2011YTD 2010YTD 2011YTD 2010Drug-eluting stent systems$
    583

    $
    8$
    571

    $
    542$   1,154

    $   1,160Bare-metal stent systems24

    3562

    6786

    102Total coronary stent systems$
    7$
    53$
    33$
    9$   1,240$   1,262BOSTON SCIENTIFIC CORPORATIONSUPPLEMENTAL NON-GAAP RECONCILIATIONS, CONT.

    (Unaudited)Q4 and Full Year 2011 EPS GuidanceQ4 2011 EstimateFull Year 2011 Estimate(Low)(High)(Low)(High)GAAP results$   0.05$   0.11$   0.27$   0.33Goodwill impairment charge0.45

    0.45Other intangible asset impairment charges0.01

    0.01Estimated acquisition-related net charges (credits)

    0.01

    0.000.00

    (0.01)Estimated divestiture-related net charges (credits)

    0.00

    (0.01)(0.35)

    (0.36)Estimated restructuring-related charges

    0.02

    0.010.07

    0.06Discrete tax items(0.01)

    (0.01)Estimated amortization expense

    0.05

    0.050.23

    0.23Adjusted results$   0.13$   0.16$   0.67$   0.70An explanation of the Company's use of these non-GAAP measures is provided at the end of this document.

    Use of Non-GAAP Financial MeasuresTo supplement Boston Scientific's consolidated financial statements presented on a GAAP basis, the Company discloses certain non-GAAP financial measures, including adjusted net income and adjusted net income per share that exclude certain amounts and regional and divisional revenue growth rates that exclude the impact of changes in foreign currency exchange rates. These non-GAAP financial measures are not in accordance with generally accepted accounting principles in the United States.

    The GAAP financial measure most directly comparable to adjusted net income is GAAP net income and the GAAP financial measure most directly comparable to adjusted net income per share is GAAP net income per share. To calculate regional and divisional revenue growth rates that exclude the impact of changes in foreign currency exchange rates, the Company converts actual net sales from local currency to U.S. dollars using constant foreign currency exchange rates in the current and prior period. The GAAP financial measure most directly comparable to this non-GAAP financial measure is growth rate percentages using net sales on a GAAP basis. Reconciliations of each of these non-GAAP financial measures to the corresponding GAAP financial measure are included in the accompanying schedules.

    Management uses these supplemental non-GAAP financial 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 financial measures to further its understanding of the performance of the Company's operating segments. The adjustments excluded from the Company's non-GAAP financial 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 Company believes that presenting adjusted net income, adjusted net income per share and regional and divisional revenue growth rates that exclude the impact of changes in foreign currency exchange rates, in addition to the corresponding GAAP financial 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 assists Boston Scientific's investors in understanding the Company's operating performance and the methodology used by management to evaluate and measure such performance.

    The following is an explanation of each of the adjustments that management excluded as part of these non-GAAP financial measures for the three and nine months ended September 30, 2011 and 2010 and for the forecasted three month and full year periods ending December 31, 2011, as well as reasons for excluding each of these individual items:

    Adjusted Net Income and Adjusted Net Income per Share

    Goodwill and other intangible asset impairment charges - These amounts represent non-cash net write-downs of the Company's goodwill balance attributable to its U.S. Cardiac Rhythm Management business, as well as certain intangible asset balances. 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 invest in the Company's growth. 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 has excluded these amounts for purposes of calculating these non-GAAP financial measures to facilitate an evaluation of the Company's current operating performance and a comparison to the Company's past operating performance, particularly in terms of liquidity.

    Acquisition-related charges (credits) - These adjustments consist of (a) acquisition-related gains on previously held equity interests, (b) contingent consideration expense, (c) a gain on an acquisition-related milestone receipt, (d) due diligence, other fees and exit costs, and (e) an inventory step-up adjustment. The acquisition-related gains on previously held equity interests is a non-recurring benefit associated with acquisitions completed in the first quarter of 2011. Contingent consideration expense is a non-cash charge representing accounting adjustments to state contingent consideration liabilities at their estimated fair value. These adjustments can be highly variable depending on the assessed likelihood and amount of future contingent consideration payments. The gain on an acquisition-related milestone resulted from a 2010 receipt related to Guidant Corporation's sale of its vascular intervention and endovascular solutions businesses to Abbott Laboratories, and is not indicative of future operating results.  Due diligence, other fees and exit costs include legal, tax, severance and other expenses associated with prior acquisitions that are not representative of on-going operations. The inventory step-up adjustment is a non-cash charge related to acquired inventory directly attributable to prior acquisitions and is not indicative of the Company's on-going operations, or on-going cost of products sold. Accordingly, management excluded these amounts for purposes of calculating these non-GAAP financial measures to facilitate an evaluation of the Company's current operating performance and a comparison to the Company's past operating performance.

    Divestiture-related (credits) charges - These amounts represent (a) gains resulting from business divestitures and (b) fees and separation costs associated with business divestitures. The Company completed the sale of its Neurovascular business in January 2011 and the resulting gain is not indicative of future operating performance and is not used by management to assess operating performance. Fees and separation costs represent those associated with the Company's divestiture of its Neurovascular business and are not representative of on-going operations. Accordingly, management excluded these amounts for purposes of calculating these non-GAAP financial 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, costs to transfer production lines from one facility to another, and other direct costs associated with the Company's 2011 Restructuring plan, 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 financial measures to facilitate an evaluation of the Company's current operating performance and a 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 intangible asset impairment charges; acquisition-, divestiture-, restructuring- or litigation-related charges (credits). These adjustments do not reflect expected on-going operating results. Accordingly, management excluded these amounts for purposes of calculating these non-GAAP financial measures to facilitate an evaluation of the Company's current operating performance and a 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 credit facility agreement. 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 invest in the Company's growth. 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 has excluded amortization expense for purposes of calculating these non-GAAP financial measures to facilitate an evaluation of the Company's current operating performance, particularly in terms of liquidity.

    Regional and Divisional Revenue Growth Rates Excluding the Impact of Changes in Foreign Currency Exchange Rates

    Changes in foreign currency exchange rates - The impact of changes in foreign currency exchange rates is highly variable and difficult to predict. Accordingly, management excludes the impact of changes in foreign currency exchange rates for purposes of reviewing regional and divisional revenue growth rates to facilitate an evaluation of the Company's current operating performance and a comparison to the Company's past operating performance.

    Adjusted net income, adjusted net income per share and regional and divisional revenue growth rates that exclude the impact of changes in foreign currency exchange rates are not in accordance with generally accepted accounting principles in the United States and should not be considered in isolation from or as a replacement for the most directly comparable GAAP financial measures. Further, other companies may calculate these non-GAAP financial measures differently than Boston Scientific does, which may limit the usefulness of those measures for comparative purposes.


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    SOURCE Boston Scientific Corporation
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