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Boston Scientific Second Quarter Results Exceed Consensus Sales and EPS; Full-Year Guidance Raised
Date:7/28/2011

NATICK, Mass., July 28, 2011 /PRNewswire/ --Boston Scientific Corporation (NYSE: BSX) today announces financial results for the second quarter ended June 30, 2011, as well as net sales and earnings per share (EPS) guidance for the third quarter and updated guidance for the full year 2011.  The Company exceeded its EPS guidance range for the quarter and is raising EPS guidance for the remainder of the year.

Delivering strong execution of its POWER business strategy, the Company also announces the prepayment of the remaining $750 million of its term loan borrowings, which reduced its gross debt to $4.2 billion, consistent with the target capital structure, with no further debt maturities until 2014; a new $1.0 billion share repurchase program; and a productivity-enhancing restructuring program as anticipated during the Company’s Investor Day held in November 2010.  Yesterday, the Company announced an additional $150 million investment in China to drive growth and increase market share through local manufacturing, physician training and an expanded commercial footprint.  

Second quarter and other highlights:

  • Achieved second quarter sales of $1.975 billion, at the higher end of the Company's previous guidance range, and reported GAAP earnings of $0.10 per share, a 66 percent increase over the second quarter of 2010, and adjusted EPS of $0.17, a 42 percent increase over the second quarter of 2010, both exceeding previous guidance

  • Received FDA approval and launched in the U.S. the ION™ Paclitaxel-Eluting Platinum Chromium Coronary Stent System, the Company’s third-generation drug-eluting stent (DES) technology, driving its U.S. DES market share to 50 percent and maintaining its worldwide DES market leadership at 36 percent

  • Launched the Company’s next-generation ENERGEN™ and PUNCTUA cardiac resynchronization therapy defibrillator (CRT-D) systems and implantable cardioverter defibrillator (ICD) systems -- the world's smallest and thinnest high-energy devices to treat heart failure and sudden cardiac death -- in Europe and other international markets

  • Increased Neuromodulation sales 16 percent, Peripheral Interventions sales 7 percent, Endoscopy sales 6 percent and Urology sales 6 percent, all on a worldwide constant currency basis, on the strength of new product introductions and continued adoption

  • Reduced gross debt to $4.2 billion, consistent with the target capital structure, with the prepayment of the remaining $750 million of term loan borrowings during the quarter on the strength of $390 million of cash generated from operations ($468 million on an adjusted free cash flow basis), bringing total debt prepayment to over $1.8 billion during the past year

  • Achieved investment grade status with Fitch Ratings and moved to positive outlook by Moody’s Investor Services

  • Announced a new program to repurchase up to $1.0 billion shares of common stock, which is in addition to the approximately 37 million shares remaining under a previous share repurchase program

  • Announced a restructuring program aimed at increasing productivity, which is expected to generate gross annual savings of $225 million to $275 million exiting 2013, composed primarily of  activities under the Company’s corporate Zero-Based Budgeting Initiative and components of its Emerging Markets Initiative, and

  • Announced an additional five-year, $150 million investment in China to leverage critical growth drivers, which include developing local manufacturing capabilities and building a Boston Scientific training center. In addition, the Company expects to increase its employee base in China from approximately 200 to more than 1,200 during the period.  These initiatives are expected to drive an expansion of Boston Scientific’s current sales force to approximately 700 employees and the creation of a fully staffed manufacturing infrastructure.  During the second quarter, Boston Scientific received registration approval for the PROMUS Element™ Everolimus-Eluting Platinum Chromium Coronary Stent from the State Food and Drug Administration of the People’s Republic of China.  The Company expects to launch the product in the fourth quarter of 2011.

  • “Our POWER strategy is gaining traction and beginning to deliver tangible results,” stated Ray Elliott, President and Chief Executive Officer of Boston Scientific Corporation.  “In addition to solid second quarter financial results, we have now announced the prepayment of our remaining term loan borrowings, a share buyback program, a productivity-focused restructuring program and an additional investment in China, all of which are key steps on the path to achieving our goals.  That’s great news for our employees, shareholders and customers!  We remain confident that Boston Scientific is POWERed for long-term, sustainable growth.”

    Net sales for the second quarter of 2011 were $1.975 billion, as compared to net sales of $1.928 billion for the second quarter of 2010, an increase of 2 percent.  Excluding the impact of changes in foreign currency exchange rates and sales from divested businesses, net sales remained flat as compared to the prior period.

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

    20112010 BasisBasisCardiac Rhythm Management$
    544$
    5273%(2)%Interventional Cardiology

    652

    657(1)

    %

    (6)

    %Peripheral Interventions

    189

    16614

    %

    7

    %Cardiovascular Group8418232%(3)%Electrophysiology38372%(1)%Endoscopy29826512%6%Urology/ Women's Health1271206%3%Neuromodulation847217%16%Subtotal1,9321,8445%0%Divested Businesses

    43

    84 N/A N/A Worldwide$
    ,975$
    ,9282%(2)%On a GAAP basis, net income for the second quarter of 2011 was $146 million, or $0.10 per share.  These results included intangible asset impairment charges; acquisition-, divestiture-, and restructuring-related charges; and amortization expense, totaling $116 million, or $0.07 per share, which consisted primarily of:

  • $9 million ($12 million pre-tax) of intangible asset impairment charges associated with changes in the timing and amount of expected cash flows associated with certain acquired in-process research and development projects;

  • $6 million ($7 million pre-tax) of contingent consideration expense;

  • $21 million ($30 million pre-tax) of restructuring charges associated with the Company’s 2010 Restructuring plan and Plant Network Optimization program, and

  • $79 million ($96 million pre-tax) of amortization expense.

  • Adjusted net income for the second quarter of 2011, excluding these net charges, was $262 million, or $0.17 per share.

    On a GAAP basis, 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) totaling $92 million, or $0.06 per share.  Adjusted net income for the second quarter of 2010, excluding these net charges, was $190 million, or $0.12 per share.

    Restructuring Program Demonstrating further progress on its POWER strategy, Boston Scientific also announces a restructuring program designed to strengthen operational effectiveness and efficiencies, increase competitiveness and support new investments, thereby increasing shareholder value.  Key activities under the program, of which the Company’s Zero-Based Budgeting (ZBB) Initiative and components of the Emerging Markets Initiative (EMI) are a part, include standardizing and automating certain processes and activities; relocating select administrative and functional activities; rationalizing organizational reporting structures; leveraging preferred vendors, and taking other actions aimed at increasing overall productivity.

    The Company estimates the program will reduce annual pre-tax operating expenses by approximately $225 million to $275 million exiting 2013, a portion of which will be reinvested in targeted areas necessary for future growth, including the previously announced Priority Growth Initiatives (PGI) and EMI.

    Program activities will start to be initiated in the third quarter of 2011 and are expected to be substantially completed by the end of 2013. The Company anticipates the reduction of 1,200 to 1,400 positions worldwide through a combination of employee attrition and targeted headcount reductions as the program is implemented.  Plans detailing specific employee impacts will be developed for each affected region and business, and the Company will consult in due course with relevant employee representative bodies, where required under local laws.

    The Company estimates the program will result in total pre-tax charges of approximately $155 million to $210 million, and that approximately $150 million to $200 million of these charges will result in future cash outlays.

    The Company anticipates that during the third quarter of 2011, it will record approximately $10 million of restructuring charges associated with the program.  The Company will record the remaining expenses throughout the duration of the program when it identifies with more specificity the head count to be eliminated and as other program-related expenses are incurred. 

    Guidance for Third Quarter and Full Year 2011
     

    The Company estimates net sales for the third quarter of 2011 in a range of $1.870 billion to $1.970 billion.  Compared to net sales for the third quarter of 2010, this range assumes a $40 million negative impact from the divestiture of the Company’s former Neurovascular business.  The Company estimates earnings on a GAAP basis in a range of $0.03 to $0.08 per share.  Adjusted earnings, excluding acquisition-, divestiture- and restructuring-related net charges and amortization expense, are estimated in a range of $0.11 to $0.14 per share.  Recent acquisitions are expected to dilute third 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 third quarter 2011 adjusted earnings by $0.01 per share.

    The Company now estimates net sales for the full year 2011 in a range of $7.675 billion to $7.875 billion.  Compared to full year 2010 net sales, this range now assumes a $201 million negative impact from the divestiture of the Neurovascular business.  Recent acquisitions are not expected to contribute to 2011 sales.  The Company now estimates earnings on a GAAP basis in a range of $0.22 to $0.30 per share for the full year 2011.  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 raised from previous guidance of $0.58 to $0.68 per share to an estimated range of $0.64 to $0.70 per share for the full year 2011.

    Conference Call InformationBoston Scientific management will be discussing these results with analysts on a conference call at 8:00 a.m. (ET) today.  The Company will webcast the call to all interested parties through its website at www.bostonscientific.com/investors.  Please visit 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 third quarter and full year 2011, including expected impacts of acquisitions and the Neurovascular divestiture; our financial performance; the market for our products and our share of such markets; the strength of our cash flows and balance sheet; our POWER business and investment strategy; growth initiatives and prospects, including in China and other emerging markets; functional and operational productivity goals; product launches; hiring plans in China 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 political, environmental, economic, competitive, reimbursement, legal 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 and related and other litigation; financial market conditions; the effect of our goodwill impairment charges and 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 EndedSix Months EndedJune 30,June 30,in millions, except per share data

    2011201020112010Net sales

    $
    ,975

    $
    ,928$
    3,900

    $
    3,888Cost of products sold

    688

    6541,319

    1,316Gross profit

    1,287

    1,2742,581

    2,572Operating expenses:Selling, general and administrative expenses

    642

    6341,237

    1,262Research and development expenses

    223

    232435

    485Royalty expense

    52

    57103

    108Amortization expense

    96

    124228

    252Goodwill impairment (credits) charges(31)697

    1,817Intangible asset impairment charges

    1212

    60Contingent consideration expense

    713Acquisition-related milestone(250)Restructuring charges

    18

    2756

    93Gain on divestiture(760)1,050

    1,0432,021

    3,827Operating income (loss)

    237

    231560

    (1,255)Other income (expense):Interest expense

    (73)

    (103)(148)

    (195)Other, net

    (6)

    (9)19

    (5)Income (loss) before income taxes

    158

    119431

    (1,455)Income tax expense

    12

    21239

    36Net income (loss)$
    46$
    98$
    92$   (1,491)Net income (loss) per common share - basic$
    .10$
    .06$
    .12$
    (0.98)Net income (loss) per common share - assuming dilution$
    .10$
    .06$
    .12$
    (0.98)Weighted-average shares outstandingBasic

    1,528.6

    1,516.61,527.5

    1,515.6Assuming dilution

    1,535.8

    1,525.31,536.0

    1,515.6BOSTON SCIENTIFIC CORPORATIONCONDENSED CONSOLIDATED BALANCE SHEETSAs ofJune 30,December 31,in millions, except share data

    20112010(Unaudited)ASSETSCurrent assets:Cash and cash equivalents

    $
    54$
    213Trade accounts receivable, net

    1,3341,320Inventories

    927894Deferred income taxes

    417429Assets held for sale

    7576Prepaid expenses and other current assets

    310183Total current assets

    3,1493,615Property, plant and equipment, net

    1,7021,697Goodwill

    9,75810,186Other intangible assets, net

    6,6846,343Other long-term assets

    266287$   21,559$
    22,128LIABILITIES AND STOCKHOLDERS' EQUITYCurrent liabilities:Current debt obligations

    $
    4$
    504Accounts payable

    223184Accrued expenses

    1,3291,626Other current liabilities

    336295Total current liabilities

    1,8922,609Long-term debt

    4,1974,934Deferred income taxes

    1,9161,644Other long-term liabilities

    2,0141,645Commitments and contingenciesStockholders' equityPreferred stock, $.01 par value - authorized 50,000,000shares, none issued and outstandingCommon stock, $.01 par value - authorized 2,000,000,000shares, issued 1,528,799,782 shares as of June 30, 2011 and

    15151,520,780,112 shares as of December 31, 2010Additional paid-in capital

    16,27816,232Accumulated deficit

    (4,630)(4,822)Other stockholders' deficit

    (123)(129)Total stockholders' equity

    11,54011,296$   21,559$
    22,128BOSTON SCIENTIFIC CORPORATIONNON-GAAP NET INCOME AND NET INCOME PER COMMON SHARE RECONCILIATIONS

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

    incomeshareincomeshareGAAP net income$   146$
    .10$
    98$
    .06Non-GAAP adjustments:Goodwill impairment charge(31)

    (0.02)Intangible asset impairment charges

    9

    0.01Acquisition-related net credits

    6

    0.00Divestiture-related net credits

    1

    0.00Restructuring-related charges

    21

    0.0129

    0.02Amortization expense

    79

    0.0594

    0.06Adjusted net income$   262$
    .17$
    90$
    .12Six Months Ended June 30,20112010ImpactNetImpactNetper diluted(loss)per dilutedin millions, except per share data

    incomeshareincomeshareGAAP net income (loss)$   192$
    .12$   (1,491)$
    (0.98)Non-GAAP adjustments:Goodwill impairment charge

    697

    0.451,817

    1.20

    *Intangible asset impairment charges

    9

    0.0051

    0.03

    *Acquisition-related net credits

    (23)

    (0.01)(216)

    (0.14)

    *Divestiture-related net credits

    (530)

    (0.34)Restructuring-related charges

    56

    0.0485

    0.05

    *Discrete tax items

    4

    0.00Amortization expense

    193

    0.13195

    0.13

    *Adjusted net income$   598$
    .39$
    441$
    .29* 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 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 EndedSix Months Endedin millions

    June 30,June 30,2011201020112010Goodwill impairment net (credits) charges:Goodwill impairment credits$
    (31)$
    (31)Goodwill impairment charge$
    97

    1,848(31)697

    1,817Income tax benefit (a)Goodwill impairment net (credits) charges, net of tax$
    (31)$
    97$   1,817Intangible asset impairment charges:Intangible asset impairment charges

    $   12$
    2

    $Income tax benefit (a)(3)(3)

    (9)Intangible asset impairment charges, net of tax

    $
    9$
    9$
    51Acquisition-related net charges (credits):Contingent consideration expense

    $
    7$
    3Acquisition-related milestone$
    (250)Acquisition-related costs (b)2Inventory step-up adjustment (c)1Gain on previously held equity interests (d)(38)7(22)

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

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

    $$
    (23)$
    (216)Divestiture-related net charges (credits):Gain on divestiture$   (760)Divestiture-related costs (c)$21(758)Income tax expense (a)228Divestiture-related net charges (credits), net of tax

    $$   (530)Restructuring-related charges:Restructuring charges

    $   18

    $
    27$
    56

    $
    93Restructuring-related charges (e)12

    1424

    2830

    4180

    121Income tax benefit (a)(9)

    (12)(24)

    (36)Restructuring-related charges, net of tax

    $   21$
    29$
    56$
    85Discrete tax items:Income tax benefit (a)$
    4Amortization expense:Amortization expense

    $   96

    $   124$
    228

    $
    252Income tax benefit (a)(17)

    (30)(35)

    (57)Amortization expense, net of tax

    $   79$
    94$
    93$
    95(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)
    Recorded to other, net.

    (e)
    In the second quarter of 2011, recorded $10 million to cost of products sold and $2 million to selling, general and administrative expenses. 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 first half of 2011, recorded $21 million to cost of products sold and $3 million to selling, general and administrative expenses. In the first half of 2010, recorded $26 million to cost of products sold and $2 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 ReportedConstantJune 30,CurrencyCurrencyin millions

    20112010BasisBasisUnited States$   1,040$   1,046(1)%(1)%EMEA

    459

    4219 %(3)%Japan

    235

    20912 %0 %Inter-Continental

    198

    16818 %8 %International89279812 %0 %Subtotal1,9321,8445 %0 %Divested Businesses

    43

    84N/AN/AWorldwide$   1,975$   1,9282 %(2)%ChangeThree Months EndedAs ReportedConstantJune 30,CurrencyCurrencyin millions

    20112010BasisBasisCardiac Rhythm Management$
    544$
    5273 %(2)%Interventional Cardiology

    652

    657(1)%(6)%Peripheral Interventions

    189

    16614 %7 %Cardiovascular Group8418232 %(3)%Electrophysiology38372 %(1)%Endoscopy29826512 %6 %Urology/Women's Health1271206 %3 %Neuromodulation847217 %16 %Subtotal1,9321,8445 %0 %Divested Businesses

    43

    84N/AN/AWorldwide$   1,975$   1,9282 %(2)%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 documentBOSTON SCIENTIFIC CORPORATIONWORLDWIDE SALES

    (Unaudited)ChangeSix Months EndedAs ReportedConstantJune 30,CurrencyCurrencyin millions

    20112010BasisBasisUnited States$   2,063$   2,082(1)%(1)%EMEA

    912

    8705 %(1)%Japan

    470

    4358 %(3)%Inter-Continental

    378

    32815 %8 %International1,7601,6338 %0 %Subtotal3,8233,7153 %0 %Divested Businesses

    77

    173N/AN/AWorldwide$   3,900$   3,8880 %(3)%ChangeSix Months EndedAs ReportedConstantJune 30,CurrencyCurrencyin millions

    20112010BasisBasisCardiac Rhythm Management$   1,103$   1,0654 %1 %Interventional Cardiology

    1,288

    1,347(4)%(8)%Peripheral Interventions

    365

    33110 %6 %Cardiovascular Group1,6531,678(1)%(5)%Electrophysiology7475(1)%(3)%Endoscopy58552511 %7 %Urology/Women's Health2472326 %4 %Neuromodulation16114016 %15 %Subtotal3,8233,7153 %0 %Divested Businesses

    77

    173N/AN/AWorldwide$   3,900$   3,8880 %(3)%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)Q2 2011 Net Sales as compared to Q2 2010ChangeEstimatedAs ReportedConstantImpact ofCurrencyCurrencyForeignin millions

    BasisBasisCurrencyUnited States$
    (6)$
    (6)EMEA

    38

    (12)

    $
    50Japan

    26

    (1)

    26Inter-Continental

    30

    14

    17International94193Subtotal88(5)93Divested Businesses

    (41)

    (44)

    3Worldwide$
    47$
    (49)$
    96Q2 2011 Net Sales as compared to Q2 2010ChangeEstimatedAs ReportedConstantImpact ofCurrencyCurrencyForeignin millions

    BasisBasisCurrencyCardiac Rhythm Management$
    7$
    (10)$
    27Interventional Cardiology

    (5)

    (39)

    34Peripheral Interventions

    23

    12

    11Cardiovascular Group18(27)45Electrophysiology101Endoscopy331617Urology/Women's Health743Neuromodulation12120Subtotal88(5)93Divested Businesses

    (41)

    (44)

    3Worldwide$
    47$
    (49)$
    96An 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)Q2 2011 YTD Net Sales as compared to Q1 2010 YTDChangeEstimatedAs ReportedConstantImpact ofCurrencyCurrencyForeignin millions

    BasisBasisCurrencyUnited States$
    (19)$
    (19)EMEA

    42

    (9)

    $
    51Japan

    35

    (14)

    49Inter-Continental

    50

    25

    25International1272125Subtotal108(17)125Divested Businesses

    (96)

    (100)

    4Worldwide$
    2$
    (117)$
    29Q2 2011 YTD Net Sales as compared to Q2 2010 YTDChangeEstimatedAs ReportedConstantImpact ofCurrencyCurrencyForeignin millions

    BasisBasisCurrencyCardiac Rhythm Management$
    38$$
    32Interventional Cardiology

    (59)

    (107)

    48Peripheral Interventions

    34

    19

    15Cardiovascular Group(25)(88)63Electrophysiology(1)(2)1Endoscopy603624Urology/Women's Health15105Neuromodulation21210Subtotal108(17)125Divested Businesses

    (96)

    (100)

    4Worldwide$
    2$
    (117)$
    29An 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 June 30in millionsU.S.InternationalWorldwideQ2 2011Q2 2010Q2 2011Q2 2010Q2 2011Q2 2010Defibrillator systems$
    243

    $
    238

    *$
    50

    $
    41$
    393

    $
    379Pacemaker systems72

    8479

    64151

    148Total CRM products$
    315$
    322$
    229$
    205$
    544$
    527in millionsU.S.InternationalWorldwideQ2 2011Q2 2010Q2 2011Q2 2010Q2 2011Q2 2010Drug-eluting stent systems$
    208

    $
    209$
    92

    $
    80$
    400

    $
    389Bare-metal stent systems8

    1220

    2128

    33Total coronary stent systems$
    216$
    221$
    212$
    201$
    428$
    422Six Months Ended June 30in millionsU.S.InternationalWorldwideYTD 2011YTD 2010YTD 2011YTD 2010YTD 2011YTD 2010Defibrillator systems$
    509

    $
    484

    *$
    301

    $
    285$
    810

    $
    769Pacemaker systems145

    164148

    132293

    296Total CRM products$
    54$
    48$
    449$
    417$   1,103$   1,065in millionsU.S.InternationalWorldwideYTD 2011YTD 2010YTD 2011YTD 2010YTD 2011YTD 2010Drug-eluting stent systems$
    392

    $
    419$
    387

    $
    377$
    779

    $
    796Bare-metal stent systems17

    2441

    4658

    70Total coronary stent systems$
    409$
    443$
    428$
    423$
    837$
    866* Q2 2010 U.S. sales of the Company's defibrillator systems included an estimated $62 million negative impact associated with being off the market in the U.S. for a portion of Q2 due to the ship hold and product removal actions related to these products. Q2 2010 YTD sales were negatively impacted by an estimated $134 million.BOSTON SCIENTIFIC CORPORATIONSUPPLEMENTAL NON-GAAP RECONCILIATIONS

    (Unaudited)Adjusted Free Cash FlowThree Months Ended
    June 30, 2011in millionsCash generated from operations$
    390Less: Capital expenditures

    82Free cash flow308Plus: Restructuring payments

    38Plus: Special tax items

    122Adjusted free cash flow$
    468Urology/Women's Health Sales GrowthChangeThree Months EndedAs ReportedConstantJune 30,CurrencyCurrencyin millions

    20112010BasisBasisUrology

    $

    87$

    809%

    6%Women's Health

    40400%

    (3)%Urology/Women's Health$127$1206%3%Q2 2011 Net Sales as compared to Q2 2010ChangeEstimatedAs ReportedConstantImpact ofCurrencyCurrencyForeignin millions

    BasisBasisCurrencyUrology

    $

    7

    $

    5

    $

    2Women's Health

    0

    (1)

    1Urology/Women's Health$74$3Q3 and Full Year 2011 EPS GuidanceQ3 2011 EstimateFull Year 2011 Estimate(Low)(High)(Low)(High)GAAP results$   0.03$   0.08$   0.22$   0.30Goodwill impairment charge0.45

    0.45Other intangible asset impairment charges0.01

    0.01Estimated acquisition-related net charges

    0.01

    0.000.00

    0.00Estimated divestiture-related net charges (credits)

    0.00

    0.00(0.34)

    (0.35)Estimated restructuring-related charges

    0.02

    0.010.07

    0.06Discrete tax items0.00

    0.00Estimated amortization expense

    0.05

    0.050.23

    0.23Adjusted results$   0.11$   0.14$   0.64$   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, regional and divisional revenue growth rates that exclude the impact of changes in foreign currency exchange rates, and adjusted free cash flow. 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. The GAAP financial measure most directly comparable to adjusted free cash flow is cash generated from operations. 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. 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, regional and divisional revenue growth rates that exclude the impact of changes in foreign currency exchange rates, and adjusted free cash flow 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 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.

    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 six months ended June 30, 2011 and 2010 and for the forecasted three month period ending September 30, 2011 and full year 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 (credits) - These amounts represent non-cash write-downs and related true-ups 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 (credits) 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 (credits) 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 charges (credits) 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 (credits) charges - 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 receipt 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 and other one time 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, fixed 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 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 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 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 comparison to the Company's past operating performance.

    Adjusted Free Cash Flow

    Capital expenditures - This adjustment represents additions to property, plant and equipment necessary to fund the Company's future growth. The Company adjusts its cash generated from operations by these recurring expenditures, as management believes this measurement to be useful as an indicator of the Company's ability to service its debt, meet other payment obligations and make strategic acquisitions and fund other corporate initiatives. Accordingly, management included these payments to facilitate an evaluation of the Company's current operating performance and comparison to the Company's past operating performance.

    Restructuring payments - This adjustment represents cash payments associated primarily with severance, 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 represent non-operational uses of cash and are excluded from the calculation of the covenants included in the Company's revolving credit facility agreement. Accordingly, management adds back these payments to cash generated from operations for purposes of calculating this non-GAAP financial measure in order to facilitate an evaluation of the Company's current operating cash flow and a comparison to the Company's past operating cash flow.

    Special tax items - This adjustment represents net tax amounts associated with the Company's sale of its Neurovascular business, and are not indicative of future periods or comparable to prior periods. Accordingly, management adds back these items to cash generated from operations for purposes of calculating this non-GAAP financial measure in order to facilitate an evaluation of the Company's current operating cash flow and a comparison to the Company's past operating cash flow.

    Adjusted net income, adjusted net income per share, regional and divisional revenue growth rates that exclude the impact of changes in foreign currency exchange rates, and adjusted free cash flow 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
    Copyright©2010 PR Newswire.
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