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Proc-Type: 2001,MIC-CLEAR
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<SEC-DOCUMENT>0000950135-01-001146.txt : 20010409
<SEC-HEADER>0000950135-01-001146.hdr.sgml : 20010409
ACCESSION NUMBER: 0000950135-01-001146
CONFORMED SUBMISSION TYPE: 10-K
PUBLIC DOCUMENT COUNT: 9
CONFORMED PERIOD OF REPORT: 20001231
FILED AS OF DATE: 20010402
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: BOSTON SCIENTIFIC CORP
CENTRAL INDEX KEY: 0000885725
STANDARD INDUSTRIAL CLASSIFICATION: SURGICAL & MEDICAL INSTRUMENTS & APPARATUS [3841]
IRS NUMBER: 042695240
STATE OF INCORPORATION: DE
FISCAL YEAR END: 1231
FILING VALUES:
FORM TYPE: 10-K
SEC ACT:
SEC FILE NUMBER: 001-11083
FILM NUMBER: 1591244
BUSINESS ADDRESS:
STREET 1: ONE BOSTON SCIENTIFIC PL
CITY: NATICK
STATE: MA
ZIP: 01760-1537
BUSINESS PHONE: 5086508000
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-K
<SEQUENCE>1
<FILENAME>b38188sse10-k.txt
<DESCRIPTION>BOSTON SCIENTIFIC CORPORATION
<TEXT>
<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------------------------
FORM 10-K
ANNUAL REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2000 Commission File No. 1-11083
--------------------------------------
BOSTON SCIENTIFIC CORPORATION
(Exact name of Company as specified in its charter)
DELAWARE 04-2695240
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
ONE BOSTON SCIENTIFIC PLACE, NATICK, MASSACHUSETTS 01760-1537
(Address, including zip code, of principal executive offices)
(508) 650-8000
(Company's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
COMMON STOCK, $.01 PAR VALUE PER SHARE
(Title of class)
Securities registered pursuant to Section 12(g) of the Act:
NONE
--------------------------------------
Indicate by check mark whether the Company (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Company was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
------ ------
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Company's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to the
Form 10-K.[ ]
<PAGE> 2
The aggregate market value of Common Stock held by non-affiliates (persons other
than directors, executive officers, and related family entities) of the Company
was approximately $4.9 billion based on the closing price of the Common Stock
on March 16, 2001.
The number of shares outstanding of the Company's Common Stock as of March 16,
2001 was 400,296,873.
DOCUMENTS INCORPORATED BY REFERENCE
The Company's 2000 Consolidated Financial Statements for the year ended December
31, 2000 which are filed with the Securities and Exchange Commission (the
"Commission") as an exhibit hereto and the Company's 2001 Proxy Statement to be
filed with the Securities and Exchange Commission on or about April 6, 2001 are
incorporated by reference into Parts I, II and III hereof.
<PAGE> 3
PART I
- --------------------------------------------------------------------------------
ITEM 1. BUSINESS
THE COMPANY
Boston Scientific Corporation (the "Company") is a worldwide developer,
manufacturer and marketer of less invasive medical devices. The Company's
products are used in a broad range of interventional medical specialties,
including interventional cardiology, electrophysiology, gastroenterology,
neuro-endovascular therapy, pulmonary medicine, interventional radiology,
oncology, urology and vascular surgery. The Company's products are generally
inserted into the human body through natural openings or small incisions in the
skin and can be guided to most areas of the anatomy to diagnose and treat a wide
range of medical problems. These products provide effective alternatives to
traditional surgery by reducing risk, trauma, cost, procedure time and the need
for aftercare.
The Company's history began in the late 1960s when the Company's co-founder,
John Abele, acquired an equity interest in Medi-tech, Inc., a development
company. Medi-tech's initial products, a family of steerable catheters, were
introduced in 1969. They were used in some of the first minimally invasive
procedures performed, and versions of these catheters are still being sold
today. In 1979, John Abele joined with Pete Nicholas to form the Company, which
indirectly acquired Medi-tech, Inc. This acquisition began a period of active,
focused marketing, new product development and organizational growth. Since
then, the Company's net sales have increased substantially, growing from $1.8
million in 1979 to $2.7 billion in 2000.
The Company's growth has been fueled in part by strategic acquisitions and
alliances designed to improve the ability of the Company to take advantage of
growth opportunities in less invasive medicine. These acquisitions have helped
the Company to achieve a strategic mass which allows it to offer one of the
broadest product lines in the world for use in less invasive procedures. The
Company's strategic mass has also enabled it to compete more effectively in, and
better absorb the pressures of, the current health care environment of cost
containment, managed care, large buying groups and hospital consolidations.
3
<PAGE> 4
BUSINESS STRATEGY
The Company's mission is to improve the quality of patient care and the
productivity of health care delivery through the development and advocacy of
less invasive medical devices and procedures. The Company seeks to accomplish
this mission through the continuing refinement of existing products and
procedures and the investigation and development of new technologies which can
reduce risk, trauma, cost, procedure time and the need for aftercare. The
Company's strategy has been, and will continue to be, to grow by identifying
those specific therapeutic and diagnostic areas which satisfy the Company's
mission and provide attractive opportunities for long-term growth and by making
the investments necessary to capitalize on these opportunities.
As part of its global operations business strategy, the Company initiated during
2000 a worldwide operations plan to increase productivity and enhance innovation
through a series of initiatives designed to improve supply chain effectiveness,
strengthen manufacturing process control, and optimize the Company's network of
plants. Supply chain and manufacturing process control programs are designed to
lower inventory levels and the cost of manufacturing and to minimize inventory
write-downs. The plant optimization initiative is focused on consolidating
manufacturing operations along product lines and shifting significant amounts of
production to Company facilities in Miami and Ireland and contract
manufacturing. As a result of the shift in manufacturing operations among these
facilities, the Company will discontinue manufacturing operations at three of
its United States facilities. Approximately 1,950 manufacturing, manufacturing
support and management employees are expected to be affected by the plan over
the next twelve months.
Key elements of the Company's business strategy are as follows:
Product Diversity. The Company offers products in numerous product categories
which are used by physicians throughout the world in a broad range of diagnostic
and therapeutic procedures. The breadth and diversity of the Company's product
lines permit medical specialists to satisfy many of their less invasive medical
device requirements from a single source. The scope of its products and markets
also reduces the Company's vulnerability to change in the competitive,
regulatory and technological environments for any single product or market.
Product Innovation. The Company is committed to driving growth through
harnessing technological innovation both in the near and long term. The
Company's approach to enhancing innovation includes a mixture of tactical and
strategic initiatives that are designed to offer sustainable growth through
focusing on and delivering the products currently in its pipeline as well as
strengthening its product development processes and tools. The Company believes
that streamlining and coordinating its technology pipeline and new product
development is essential to its ability to stimulate growth and maintain
leadership positions in its markets. By centralizing platform technology
development at the corporate level, the Company is able to pursue technologies
that can be leveraged across multiple markets. Simultaneously, the interaction
of the Company's product management teams and sales representatives with the
4
<PAGE> 5
worldwide medical community facilitates new product development at the
divisional level to address the needs and desires of the Company's physician
customers.
Operational Excellence. The Company believes that improving its supply chain
effectiveness, strengthening its manufacturing processes and optimizing its
plant network will increase operational efficiencies within the organization and
generate savings. By centralizing its operations at the corporate level and
shifting manufacturing along product lines, the Company will be better
positioned to leverage its existing resources and concentrate on new product
development and launch.
Focused Marketing. The Company markets its products through six principal
divisions: Scimed, EP Technologies, Medi-tech, Target Therapeutics, Microvasive
Endoscopy and Microvasive Urology. Each of the Company's divisions focuses on
physicians who specialize in the diagnosis and treatment of different medical
conditions and offers products to satisfy their needs. The Company believes that
this focused disease state management enables it to develop highly knowledgeable
and dedicated sales representatives and to foster close professional
relationships with physicians.
International Presence. Maintaining and expanding its international presence is
an important component of the Company's long term growth plan. Currently, the
Company operates international manufacturing facilities in Ireland and has
direct marketing and sales subsidiaries or distribution arrangements throughout
the world. Through its international presence, the Company seeks to increase net
sales and market share, accelerate the time within which new products can be
brought to market and gain access to worldwide technological developments that
may be implemented across its product lines.
Active Participation in the Medical Community. The Company believes that it has
excellent working relationships with physicians and others in the medical
industry which enable it to gain a detailed understanding of new therapeutic and
diagnostic alternatives, and to respond quickly to the changing needs of
physicians and patients. The Company enhances its presence in the medical
community through active participation in medical meetings, by conducting
comprehensive training and educational activities and through employee-authored
articles in medical journals and textbooks. The Company believes that these
activities and its advocacy positions contribute to the medical community's
understanding and adoption of less invasive techniques and the expansion of
these techniques into new therapeutic and diagnostic areas.
Corporate Culture. Management believes that success and leadership evolve from a
motivating corporate culture which rewards achievement, respects and values
individual employees and customers, and has a long-term focus on quality,
technology, integrity and service. The Company believes that its success is
attributable in large part to the high caliber of its employees and the
Company's commitment to respecting the values on which its success has been
based.
5
<PAGE> 6
Strategic Acquisitions and Alliances. In recent years, the Company has sought
out strategic acquisitions, alliances and venture opportunities which complement
or expand its existing product lines or enhance its technological position.
Although the Company did not make any significant acquisitions in 2000, it
created several alliances with third parties during the year which further
strengthened and diversified its product offering position.
In addition, during the first quarter of 2001, the Company announced the
following strategic initiatives:
* The Company signed a definitive agreement to acquire Interventional
Therapeutics, Inc.("IVT"), a medical device company that develops,
manufactures and markets less invasive medical devices for use in
interventional cardiology, including the Cutting Balloon(TM) catheter
and the Infiltrator(R) transluminal drug delivery catheter. The
acquisition is scheduled to be completed during the second quarter of
2001.
* The Company acquired Embolic Protection, Inc., a developer of embolic
protection medical devices.
* The Company acquired Quanam Medical Corporation ("Quanam"), a
manufacturer of medical devices that specializes in drug delivery
systems.
* The Company acquired Catheter Innovations, Inc., a developer and
manufacturer of venous access products.
During 2001, the Company expects that it will continue to seek out and review
opportunities for acquisitions and strategic alliances consistent with its
corporate mission.
6
<PAGE> 7
PRODUCTS
The Company's products are broadly categorized as vascular or nonvascular,
depending on the anatomical system and procedure in which a product is intended
to be used. Generally, vascular products are employed in procedures affecting
the heart and systems which carry blood, and nonvascular products are employed
in procedures affecting other systems and organs. In 2000, approximately 79% of
the Company's net sales were derived from its vascular business and
approximately 21% from its nonvascular business.
The Company's principal products are offered in the following medical areas:
Coronary Revascularization. The Company markets a broad line of products used to
treat patients with atherosclerosis. Atherosclerosis, a coronary vessel disease
and a principal cause of heart attacks, is characterized by a thickening of the
walls of the arteries and a narrowing of arterial lumens (openings) caused by
the progressive development of deposits of plaque. Atherosclerosis results in
reduced blood flow to the muscle of the heart. The majority of the Company's
products in this market are used in percutaneous transluminal coronary
angioplasty ("PTCA") and percutaneous transluminal coronary rotational
atherectomy. The Company's products in this market include PTCA balloon
catheters, the Rotablator(R) and Rotalink(R) rotational atherectomy systems,
guide wires, guide catheters and diagnostic catheters. During 2000, the Company
received approval from the United States Food and Drug Administration ("FDA") to
market its Maverick(R) balloon dilatation catheter, available in both Rapid
Exchange and Over-the-Wire versions. The Maverick catheter was introduced for
commercial sale in the United States, Japan and certain European countries
during the first quarter of 2001. The Company's pending acquisition of IVT will
also broaden the Company's interventional cardiology product offerings by adding
the Cutting Balloon(TM), a balloon angioplasty device that combines features of
conventional angioplasty with advanced microsurgical procedures.
Coronary Stents. The Company markets both balloon-expandable and self-expanding
coronary stent systems. Coronary stents are tiny, metal devices used in the
treatment of coronary artery disease and implanted in patients to prop open
arteries and facilitate blood flow to the heart. The Company's most important
products in this category incorporate the NIR(R) balloon-expandable coronary
stent developed and manufactured by Medinol Ltd., Israel, with which the Company
has an exclusive worldwide distribution agreement for stent products. During
2000, the Company introduced the NIR(R) w/ SOX(TM) Monorail(TM) stent system in
certain European countries and the NIRoyal(TM) Advance Coronary Monorail(TM)
stent system in the United States. In addition, during the first quarter of
2001, the Company introduced in the United States the NIRoyal(TM) Elite and
NIR(R) Elite(TM) coronary stent systems, each available in Rapid Exchange
and Over-the-Wire versions. The Company has already launched or intends to
launch in 2001 (pending regulatory approval) these products in selected
international markets.
The Company has also expanded its stent development efforts to include an
internally developed stent platform. Generations of this stainless steel,
balloon-expandable stent are designed to be compatible with the Company's SOX
system technology (a stent sleeve that helps protect the ends of the stent for a
smooth interface between the stent system and arterial wall) and leveragable
into both coronary and peripheral applications. The Company's internally
developed coronary stent is expected to be introduced in certain international
markets later in 2001, pending regulatory approval.
Through a strategic alliance with Angiotech Pharmaceuticals, Inc., the Company
holds a co-exclusive license for the use of paclitaxel on intraluminal devices
to inhibit restenosis as well as other applications. In October, the Company,
with the approval of the Freiburg Ethics Commission International, initiated
Phase I clinical trials in Germany of paclitaxel coated coronary stents.
Further, the Company's acquisition of Quanam will help broaden its drug-delivery
portfolio with additional implant-based technologies and a family of proprietary
biomaterials.
7
<PAGE> 8
Fluid Management. The Company markets a broad line of fluid delivery sets,
pressure monitoring systems, custom kits and accessories that provide for the
injection of contrast and saline, or withdrawal and the disposal of bodily
waste.
Electrophysiology. The Company's electrophysiology product offerings include
catheters and systems for use in less invasive procedures to diagnose and treat
tachyarrhythmias (abnormally fast heart rhythms). The Company markets RF
generators, mapping systems, intracardiac ultrasound and steerable ablation
catheters, many of which incorporate proprietary steering, temperature
monitoring and control technology, as well as a line of diagnostic catheters and
associated accessories.
Peripheral Vascular Intervention and Venous Access. The Company sells various
products designed to treat patients with peripheral vascular disease (disease
which appears in blood vessels other than in the heart), including a broad line
of catheters used in percutaneous transluminal angioplasty. Additionally, the
Company's peripheral vascular product line includes medical devices used in
thrombolysis (the catheter-based delivery of clot dissolving agents directly to
the site of a blood clot) and thrombectomy catheters. The Company also offers
stents to maintain patency of peripheral lumens, including the Wallstent(R)
endoprosthesis. During 2000, the Company introduced the Gazelle(TM) Balloon
Dilatation Catheter (a catheter Monorail system) and the Talon(TM) Balloon
Dilatation Catheter (an Over-the-Wire system) in the United States for use in
the treatment of peripheral vascular disease, including renal applications. The
Company's acquisition of Catheter Innovations, Inc. will also broaden the
Company's portfolio of venous access products to include both valved and
non-valved product offerings.
8
<PAGE> 9
Caval Interruption Systems. The Company markets the Greenfield(R) vena cava
filter system for use in patients who are at risk of developing a pulmonary
embolism due to an existing medical condition or post-surgical complications.
Once the filter is implanted, circulating emboli (blood clots) can be captured
and held by the lattice design of the filter, allowing the clots to dissolve
naturally before they can reach the pulmonary system.
Surgical and Endovascular Grafts. The Company designs vascular grafts and
endovascular stent grafts for the treatment of thoracic dissection, dialysis
access, abdominal aortic aneurysms and peripheral vascular occlusive diseases,
including the Exxcel(TM) vascular graft for peripheral indications and dialysis
access and a line of Hemashield(R) grafts and fabrics for peripheral vascular
and cardiovascular indications.
Intraluminal Ultrasound Imaging. The Company markets a family of intraluminal
catheter-directed ultrasound imaging systems for diagnostic use in blood
vessels, heart chambers and coronary arteries, as well as certain nonvascular
systems. During 2000, the Company introduced the Atlantis(TM) SR 40 mHz imaging
catheter in the United States, Japan and certain European countries. Also during
2000, the Company received FDA clearance to market the Galaxy (TM) ultrasound
imaging console in the United States.
Neuro-Endovascular Therapy. The Company markets a line of micro-guidewires,
micro-catheters, guiding catheters and embolics to treat diseases of the
neurovascular system. The Company also markets the GDC(R) (Guglielmi Detachable
Coil) system to treat and prevent the rupture of cerebral aneurysms that are
otherwise either considered to be inoperable or high risk for surgery. During
2000, the Company introduced the GDC SynerG(TM) Detachment System in the United
States and certain international markets and the GDC(R) Tri-Span (TM) Coil in
certain European markets. Both products are designed for the endovascular
treatment of brain aneurysms.
Esophageal, Gastric and Duodenal (Small Intestine) Intervention. The Company
markets a broad range of products to diagnose, treat and palliate a variety of
gastrointestinal diseases and conditions, including those affecting the
esophagus, stomach, and small intestine. Common disease states include
esophogitis, gastric esophageal reflux disease ("GERD"), portal hypertension,
peptic ulcers and esophageal cancer. The Company's products in this area include
disposable single and multiple biopsy forceps, balloon dilatation catheters,
banding ligation devices and enteral feeding devices. The Company also markets a
family of esophogeal stents designed to offer improved dilatation force and
greater resistance to tumor in-growth. During the first quarter of 2001, the
Company signed an agreement with Enteric Medical Technologies, Inc. ("EMT")
providing for the exclusive distribution of EMT's Enteryx(TM) liquid polymer
technology which is designed to treat symptoms associated with chronic GERD. The
agreement grants the Company exclusive distribution rights in certain
international markets, including most European countries and Japan, and also
includes an option to purchase EMT through the third quarter of 2002.
9
<PAGE> 10
Colorectal Intervention. The Company markets a line of hemostatic catheters,
polypectomy snares and dilatation catheters for the diagnosis and treatment of
polyps, inflammatory bowel disease, diverticulitis and colon cancer. During
2000, the Company introduced the Unistep Plus(TM) Wallstent(R) Enteral
Endoprosthesis, an enteral stent designed to provide relief of malignant
obstructions of the colon and duodenum, in the United States and certain
international markets.
Pancreatico-Biliary Intervention. The Company sells a variety of products to
diagnose, treat and palliate benign and malignant strictures of the
pancreatico-biliary system (the gall bladder, common bile duct, hepatic duct,
pancreatic duct and the pancreas) and to remove stones found in the common bile
and hepatic ducts. The Company's products include diagnostic catheters used with
contrast media, balloon dilatation catheters and sphincterotomes. The Company
also markets temporary biliary stents for palliation and drainage of the common
bile duct. During 2000, the Company introduced the NIR(R) Biliary Stent in the
United States and hopes to introduce the product in certain international
markets later in 2001, pending regulatory approval. The Company also during 2000
introduced in the United States and certain European markets, its Unistep
Plus(TM) Permalume(R) Covered Biliary Wallstent(R), a covered metal biliary
stent designed to palliate malignant obstructions of the bile duct.
Pulmonary Intervention. The Company markets devices to diagnose, treat and
palliate chronic bronchitis and lung cancer, including pulmonary biopsy forceps
and balloon catheters used to dilate strictures or for tumor management. During
2000, the Company received clearance to market its Wallgraft(R) Tracheobronchial
Endoprosthesis in the United States and certain European markets. The
Wallgraft(R) Tracheobronchial Endoprosthesis is a covered Wallstent(R) device
designed to treat tracheobronchial strictures.
Urinary Tract Intervention. The Company sells a variety of products designed
primarily to treat patients with urinary stone disease, either via ureteroscopy
or percutaneous nephrolithotomy. Products within this category include ureteral
dilatation balloons used to dilate strictures or openings for scope access;
stone baskets used to manipulate or remove the stone; intracorporeal shock wave
lithotripsy devices and holmium laser systems used to disintegrate stones
ureteroscopically; ureteral stents implanted temporarily in the urinary tract to
provide either short-term or long-term drainage; and a wide variety of
guidewires used to gain access to a specific site.
Prostate Intervention. For the treatment of Benign Prostatic Hypertrophy
("BPH"), the Company currently markets electro-surgical resection devices
designed to resect large diseased tissue sites and reduce the bleeding
attributable to the resection procedure (a major cause of patient morbidity in
connection with traditional surgical treatments for BPH) and an automatic
disposable needle biopsy system, designed to take rapid core prostate biopsies.
Urinary Incontinence and Bladder Disease. The Company markets a line of
less invasive devices and dermal sling materials to treat stress urinary
incontinence. This affliction is commonly treated with various surgical
procedures. The Company's Precision Tack(TM) and Precision Twist (TM) devices
and Vesica(R) systems offer less invasive alternatives for treating
incontinence. The Company has also developed other devices to diagnose and treat
bladder cancer and bladder obstruction.
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<PAGE> 11
INTERNATIONAL OPERATIONS
In 2000, international sales accounted for approximately 41% of the Company's
net sales. Net sales, operating income (excluding special charges) and total
assets attributable to significant geographic areas are presented in Note O to
the Company's 2000 Consolidated Financial Statements, which are filed with the
Securities and Exchange Commission as an exhibit hereto.
As of December 31, 2000, the Company had direct marketing and sales operations
in 40 countries. In recent years, the Company has expanded its direct sales
presence worldwide so as to be in a position to take advantage of expanding
market opportunities. The Company believes that, during 2001, it will continue
to leverage its infrastructure and will continue to use distributors in those
smaller markets where it is not economical or strategic to establish a direct
presence.
The Company has three international manufacturing facilities in Ireland.
Presently, approximately 53% of the Company's products sold internationally are
manufactured at these facilities. The Company also maintains an international
research and development facility in Ireland and a training center in Miyazaki,
Japan.
The Company's international presence exposes it to certain financial and other
risks. Principal among these is the potentially negative impact of foreign
currency fluctuations on the Company's sales and expenses. Although the Company
engages in hedging transactions that may offset the effect of fluctuations in
foreign currency exchange rates on foreign currency denominated assets,
liabilities, earnings and cash flows, financial exposure may nonetheless result,
primarily from the timing of transactions, forecast volatility and the movement
of exchange rates. International markets are also being affected by economic
pressure to contain reimbursement levels and health care costs. The Company's
ability to benefit from its international expansion may be limited by risks and
uncertainties relating to economic conditions in these regions, regulatory and
reimbursement approvals, competitive offerings, infrastructure development,
rights to intellectual property, and the ability of the Company to implement its
overall business strategy. Any significant changes in the competitive,
political, regulatory or economic environment where the Company conducts
international operations may have a material impact on revenues and profits.
11
<PAGE> 12
MARKETING AND SALES
The Company markets its products through six principal divisions, each focusing
upon physicians who specialize in the diagnosis and treatment of different
medical conditions and disease states. During 2000, the Company realigned
certain of its sales and marketing organizations in order to better service the
growing needs of its customers. As part of this realignment which became
effective January 1, 2001, Scimed, EP Technologies and the peripheral vascular
business of Medi-tech were centralized under the Company's Cardiovascular Group
while Microvasive Endoscopy, Microvasive Urology and the Surgery/Oncology
business of Medi-tech were centralized under the Company's Endosurgery Group.
The Company's Target Therapeutics division remains a distinct sales and
marketing organization reporting to the Company's Group President of
Cardiovascular.
Scimed: markets devices to interventional cardiologists, interventional
radiologists and vascular surgeons for the diagnosis and
treatment of coronary and peripheral vascular disease and other
cardiovascular disorders.
EP offers a line of electrophysiology catheters and systems for
Technologies: use by interventional electrophysiologists in the diagnosis
and treatment of cardiac tachyarrhythmias.
Target: markets a line of micro-guidewires, micro-catheters, coils,
embolics and other medical devices which aid neuroradiologists
and neurosurgeons in the treatment of neurovascular diseases.
Medi-tech: markets devices to interventional radiologists and vascular
surgeons who treat abdominal aortic aneurysmal disease, vascular
and nonvascular large vessel diseases requiring therapeutic
intervention, diseases requiring management of cancerous and
non-cancerous tumors and patients requiring venous access.
Microvasive markets therapeutic, diagnostic and palliative devices which aid
Endoscopy: gastroenterologists and pulmonologists in performing flexible
endoscopic procedures involving the digestive tract and lungs.
Microvasive offers a line of therapeutic and diagnostic devices which
Urology: aid urologists and urogynecologists in performing ureteroscopic
and other less invasive endoscopic procedures as well as devices
to treat urinary incontinence.
12
<PAGE> 13
A dedicated sales force of approximately 1,200 individuals in 40 countries
internationally and over 800 in the United States markets the Company's products
worldwide. Sales in countries where the Company has direct sales organizations
accounted for approximately 99% of the Company's net sales during 2000. A
network of distributors and dealers who offer the Company's products in more
than 25 countries worldwide accounts for the remaining sales. The Company has a
dedicated U.S. corporate sales organization focused principally on selling to
major buying groups and large integrated health care networks. In addition, the
Company joined the Global Healthcare Exchange, an international, supply-side
business-to-business exchange created in 2000 by certain leading health care
companies. The Global Healthcare Exchange is designed to streamline the
procurement of medical products and services for health care professionals by
providing a centralized product procurement system for health care purchases via
the Internet.
In 2000, the Company sold its products to over 10,000 hospitals, clinics,
out-patient facilities and medical offices. The Company is not dependent on any
single institution and no single institution accounted for more than 10% of the
Company's net sales in 2000. Large group purchasing organizations, hospital
networks and other buying groups are, however, becoming increasingly important
to the Company's business. The trend toward managed care and economically
motivated and more sophisticated buyers in the United States may result in
continued pressure on selling prices of certain products and resulting
compression on gross margins. These purchasers of medical devices also tend to
limit the number of suppliers from whom they purchase medical products. There
can be no assurance that these entities will continue to purchase products from
the Company.
The Company markets the NIR ON(R) Ranger(TM), NIR(R) w/SOX(TM), NIROYAL(TM)
Advance and NIR(R) Primo(TM) coronary stent systems which, together with other
NIR(R) coronary stent systems, represented approximately 15% of the Company's
2000 worldwide sales. These stent systems include the NIR(R) coronary stent
which is developed and manufactured by Medinol Ltd., Israel, and a balloon
delivery system which is developed and manufactured by the Company. The Company
also distributes several other products for third parties, including RF
generators, an introducer sheath and certain guidewires. None of these other
products represented more than 10% of the Company's 2000 net sales. Leveraging
its sales and marketing strength, the Company expects to continue to seek out
new opportunities for distributing complementary products as well as new
technologies. Certain of the products distributed by the Company, such as the
NIR(R) stent, are very important to the Company strategically. Any unforeseen
delays, stoppages or interruptions in the supply and/or mix of the NIR(R) stent
or certain other distributed products could adversely affect the Company's
operating results.
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MANUFACTURING; RAW MATERIALS
The Company designs and manufactures the majority of its products in thirteen
manufacturing sites around the world. As part of the Company's global operations
strategy initiated in 2000, the Company will cease manufacturing operations at
three of its thirteen manufacturing facilities over the next twelve months.
Manufacturing operations will be relocated to two of the Company's existing
facilities and contract manufacturing in order to consolidate manufacturing
along product lines.
Most components used in the manufacture of the Company's products are readily
fabricated from commonly available raw materials or off-the-shelf items
available from multiple supply sources. The fabricated items are custom made for
the Company to meet its specifications. The Company believes that in most cases,
redundant capacity exists at the suppliers and that alternative sources of
supply are available or could be developed within a reasonable period of time.
Generally, the Company has been able to obtain adequate supplies of raw
materials and components in a timely manner from established sources. In certain
cases, the Company may not be able to quickly establish additional or
replacement suppliers for specific components or materials, largely due to the
FDA approval system and other regulatory requirements and the complex nature of
the manufacturing processes employed by many suppliers. The reduction or
interruption in supply, an inability to develop alternative sources if required,
or a significant increase in the price of raw materials or components, could
adversely affect the Company's operations and financial condition.
As part of the Company's global operations strategy, the Company initiated a
worldwide operations plan during 2000 to increase productivity and enhance
innovation through a series of initiatives designed to improve supply chain
effectiveness, strengthen manufacturing process control, and optimize the
Company's network of plants. Certain programs under the plan are focused on
reducing inventory levels and write-offs and improving yields and manufacturing
efficiencies. The operational efficiencies and savings resulting under the plan
will help the Company lower its manufacturing costs and improve its cost
competitiveness.
QUALITY ASSURANCE
The Company is committed to providing high quality products to its customers. To
meet this commitment, the Company has implemented modern quality systems and
concepts throughout the organization. The Company's quality system starts with
the initial product specification and continues through the design of the
product, component specification process and the manufacturing, sales and
servicing of the product. The quality system is designed to build in quality and
to utilize continuous improvement concepts throughout the product life.
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<PAGE> 15
Certain of the Company's operations are certified under ISO 9001, ISO 9002, ISO
13485, ISO 13488, EN46001 and EN46002 international quality system standards.
ISO 9002 requires, among other items, an implemented quality system that applies
to component quality, supplier control and manufacturing operations. In
addition, ISO 9001 and EN46001 require an implemented quality system that
applies to product design. These certifications can be obtained only after a
complete audit of a company's quality system by an independent outside auditor.
Maintenance of these certifications require that these facilities undergo
periodic reexamination.
COMPETITION
The Company encounters significant competition across its product lines and in
each market in which its products are sold from various entities, some of which
may have greater financial and marketing resources than the Company. The
Company's primary competitors include C.R. Bard, Inc., Cook, Inc., Guidant
Corporation, Tyco International, Johnson & Johnson (including its subsidiary,
Cordis Corporation), and Medtronic, Inc. (including its subsidiary, Medtronic
AVE, Inc.), as well as a wide range of companies which sell a single or limited
number of competitive products.
In addition, the Company faces competition from non-medical device companies,
such as pharmaceutical companies, which may offer non-surgical alternative
therapies for disease states which are currently treated using the Company's
products.
The Company believes that its products compete primarily on the basis of their
ability to safely and effectively perform diagnostic and therapeutic procedures
in a less invasive manner, ease of product use, product reliability and
physician familiarity. In the current environment of managed care, economically
motivated buyers, consolidation among health care providers, increased
competition and declining reimbursement rates, the Company has also been
increasingly required to compete on the basis of price. The Company believes
that its continued competitive success will depend upon its ability to create or
acquire scientifically advanced technology, apply its technology
cost-effectively across product lines and markets, develop or acquire
proprietary products, attract and retain skilled development personnel, obtain
patent or other protection for its products, obtain required regulatory
approvals, and manufacture and successfully market its products either directly
or through outside parties. There can be no assurance that the Company will be
able to accomplish these objectives or that it will be able to compete
successfully in the future against existing or new competitors.
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<PAGE> 16
RESEARCH AND DEVELOPMENT
The Company is committed to driving growth through harnessing technological
innovation both in the near and long term. The Company believes that
streamlining and coordinating its technology pipeline and new product
development is essential to its ability to stimulate growth and maintain
leadership positions in its markets. By centralizing platform technology
development at the corporate level, the Company is able to pursue technologies
that can be leveraged across multiple markets. Simultaneously, the interaction
of the Company's product management teams and sales representatives with the
worldwide medical community facilitates new product development at the
divisional level to address the needs and desires of the Company's physician
customers. The global operations plan is designed to increase productivity by
creating greater operational efficiencies and generate savings, allowing the
Company to increase its ability to invest in research and development.
In 2000, the Company expended approximately $199 million on research and
development, representing approximately 7% of the Company's 2000 net sales.
These expenditures funded clinical research, licensed technology, regulatory
compliance and a variety of product development programs, including, among
others, its internal stent development program, carotid stenting, molecular
intervention technology (using paclitaxel, angiogenesis technology and gene
therapy) and treatments for cancerous and pre-cancerous conditions.
Enhancements of existing products or expansions of existing product lines, which
are typically developed within the Company's manufacturing and marketing
operations, contribute to each year's sales growth. In addition to internal
development, the Company works with hundreds of leading research institutions,
universities and clinicians around the world in developing, evaluating and
clinically testing its products.
The Company believes its future success will depend upon the strength of its
development efforts. There can be no assurance that the Company will realize
financial benefit from its development programs, will continue to be successful
in identifying, developing and marketing new products or enhancing its existing
products, or that products or technologies developed by others will not render
the Company's products or technologies non-competitive or obsolete.
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<PAGE> 17
REGULATION
The medical devices manufactured and marketed by the Company are subject to
regulation by numerous regulatory bodies, including the FDA and comparable
international regulatory agencies. These agencies require manufacturers of
medical devices to comply with applicable laws and regulations governing the
development, testing, manufacturing, labeling, marketing and distribution of
medical devices. Devices are generally subject to varying levels of regulatory
control, the most comprehensive of which requires that a clinical evaluation
program be conducted before a device receives approval for commercial
distribution.
In the United States, permission to distribute a new device generally can be met
in one of two ways. The first process applies to any new device that is
substantially equivalent to a device first marketed prior to May 1976 and does
not require pre-market approval ("PMA"). In this case, FDA permission to
distribute the device can be accomplished by submission of a pre-market
notification application (a "510(k) Submission"), and issuance by the FDA of an
order permitting commercial distribution of that device for its intended use. A
510(k) Submission must provide information supporting its claim of substantial
equivalence. If clinical data from human experience is required to support a
510(k) Submission, this data must be gathered in compliance with investigational
device exemption ("IDE") regulations for investigations performed in the United
States. The FDA must issue an order finding substantial equivalence before
commercial distribution can occur. Changes to existing devices which do not
significantly affect safety or effectiveness can generally be made by the
Company without additional 510(k) Submissions.
The second, more comprehensive, approval process applies to a new device that is
not substantially equivalent to a pre-1976 product. In this case, two steps of
FDA approval are generally required before marketing in the United States can
begin. First, the Company must comply with IDE regulations in connection with
any human clinical investigation of the device in the United States. Second, the
FDA must review the Company's PMA application which contains, among other
things, clinical information acquired under the IDE. The FDA will approve the
PMA application if it finds that there is a reasonable assurance that the device
is safe and effective for its intended purpose.
The FDA can ban certain medical devices, detain or seize adulterated or
misbranded medical devices, order repair, replacement or refund of these
devices, and require notification of health professionals and others with regard
to medical devices that present unreasonable risks of substantial harm to the
public health. The FDA may also enjoin and restrain certain violations of the
Food, Drug and Cosmetic Act and the Safe Medical Devices Act pertaining to
medical devices, or initiate action for criminal prosecution of such violations.
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<PAGE> 18
International sales of medical devices manufactured in the United States that
are not approved by the FDA for use in the United States, or are banned or
deviate from lawful performance standards, are subject to FDA export
requirements. The Export Reform Act of 1996 has simplified the process of
exporting devices which have not been approved for sale in the United States.
Exported devices are subject to the regulatory requirements of each country to
which the device is exported. In many foreign countries, all regulated medical
products are treated as drugs and the majority of the Company's products are
expected to be so regulated in these countries. Frequently, regulatory approval
may first be obtained in a foreign country prior to application in the United
States to take advantage of differing regulatory requirements. The Company has
achieved International Standards Organization or European Union certification
for its Irish and United States manufacturing facilities. In addition, the
Company has completed CE Mark registrations for substantially all of its
products in accordance with the implementation of various medical device
directives in the European Union.
The process of obtaining clearance to market products is costly and
time-consuming in virtually all of the major markets in which the Company sells
products and can delay the marketing and sale of new products. Countries around
the world have recently adopted more stringent regulatory requirements which are
expected to add to the delays and uncertainties associated with new product
releases, as well as the clinical and regulatory costs of supporting such
releases. No assurance can be given that any of the Company's new medical
devices will be approved on a timely basis, if at all.
In addition, regulations regarding the development, manufacture and sale of
medical devices are subject to future change. The Company cannot predict what
impact, if any, such changes might have on its business. Failure to comply with
regulatory requirements could have a material adverse effect on the Company's
business, financial condition and results of operations.
The Company is also subject to environmental laws and regulations both in the
United States and abroad. The operations of the Company, like those of other
medical device companies, involve the use of substances regulated under
environmental laws, primarily in manufacturing and sterilization processes. The
Company believes that compliance with environmental laws will not have a
material impact on its financial position, results of operations, or liquidity.
Given the scope and nature of these laws, there can, however, be no assurance
that environmental laws will not have a material impact on the Company.
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<PAGE> 19
THIRD-PARTY COVERAGE AND REIMBURSEMENT
The Company's products are purchased by hospitals, doctors and other health care
providers who are reimbursed for the health care services provided to their
patients by third-party payors, such as governmental programs (e.g., Medicare
and Medicaid), private insurance plans and managed care programs. Third party
payors may deny coverage for certain technologies based on assessment criteria
as determined by the third-party payor. Also, third-party payors are
increasingly challenging the prices charged for medical products and services.
There can be no assurance that the Company's products will be automatically
covered by third-party payors, that reimbursement will be available or, if
available, that the third-party payors' coverage policies will not adversely
affect the Company's ability to sell its products profitably.
PROPRIETARY RIGHTS AND PATENT LITIGATION
The Company relies on a combination of patents, trademarks, trade secrets and
non-disclosure agreements to protect its intellectual property. The Company
generally files patent applications in the United States and foreign countries
where patent protection for its technology is appropriate and available. The
Company holds more than 1,900 United States patents (many of which have foreign
counterparts) and has more than 3,500 patent applications pending worldwide that
cover various aspects of its technology. In addition, the Company holds
exclusive and non-exclusive licenses to a variety of third party technologies
covered by patents and patent applications. There can be no assurance that
pending patent applications will result in issued patents, that patents issued
to or licensed by the Company will not be challenged or circumvented by
competitors, or that such patents will be found to be valid or sufficiently
broad to protect the Company's technology or to provide the Company with a
competitive advantage. The Company relies on non-disclosure and non-competition
agreements with employees, consultants and other parties to protect, in part,
trade secrets and other proprietary technology. There can be no assurance that
these agreements will not be breached, that the Company will have adequate
remedies for any breach, that others will not independently develop equivalent
proprietary information or that third parties will not otherwise gain access to
the Company's trade secrets and proprietary knowledge.
There has been substantial litigation regarding patent and other intellectual
property rights in the medical device industry, particularly in the areas in
which the Company competes. The Company has defended, and will likely continue
to defend, itself against claims and legal actions alleging infringement of the
patent rights of others. Adverse determinations in any patent litigation could
subject the Company to significant liabilities to third parties, could require
the Company to seek licenses from third parties and could, if licenses are not
available, prevent the Company from manufacturing, selling or using certain of
its products, any of which could have a material adverse effect on the Company.
Additionally, the Company may find it necessary to initiate litigation to
enforce its patent rights, to protect its trade secrets or know-how and to
determine the scope and validity of the proprietary rights of others. Patent
litigation can be costly and time-consuming, and there can be no assurance that
the Company's litigation
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<PAGE> 20
expenses will not be significant in the future or that the outcome of litigation
will be favorable to the Company. Accordingly, the Company may seek to settle
some or all of its pending litigation. Settlement may include cross-licensing of
the patents which are the subject of the litigation as well as other
intellectual property of the Company and may involve monetary payments to or
from third parties. See the "Legal Proceedings" section below and Note L to the
Company's 2000 Consolidated Financial Statements (Exhibit 13.1 filed herewith)
for a further discussion of patent and other litigation and proceedings
involving the Company.
The Company and its affiliates own the following registered trademarks that are
referred to in this document: Maverick, Rotablator, RotaLink, Wallstent,
Greenfield, Hemashield, GDC, Permalume, Wallgraft, and Vesica. The Company and
its affiliates own the following trademarks that are referred to in this
document: Sox, Monorail, Gazelle, Talon, Exxcel, Atlantis, Galaxy, SynerG,
Tri-Span, Unistep Plus, Precision Twist, Precision Tack, Ranger, and Primo.
The Company references the following registered and unregistered trademarks of
third parties in this document: Bx Velocity is a trademark of Cordis
Corporation. Enteryx is a trademark of EMT. Cutting Balloon is a trademark and
Infiltrator is a registered trademark of IVT, NIR and NIR ON are registered
trademarks and NIROYAL is a trademark of Medinol, Ltd. Jerusalem, Israel. Quanam
is a trademark of Quanam Medical Corporation.
OTHER LITIGATION
The testing, marketing and sale of human health care products entails an
inherent risk of product liability claims. The Company is involved in various
lawsuits arising in the normal course of business from product liability claims,
and product liability claims may be asserted in the future relative to events
not known to management at the present time. The Company has insurance coverage
which management believes is adequate to protect against product liability
losses as could otherwise materially affect the Company's financial position.
However, there can be no assurance that product liability claims will not exceed
such insurance coverage limits or that such insurance will be available in the
future on commercially reasonable terms, if at all. The Company is aware that
the U.S. Department of Justice is conducting an investigation of matters that
include the Company's decision to voluntarily recall the NIR ON(R) Ranger(TM)
with Sox(TM) coronary stent system in the U.S. The Company is cooperating fully
in the investigation. In addition, the U.S. Federal Trade Commission has filed
suit against the Company alleging it has breached a Consent Order dated May 5,
1995, pursuant to which the Company licensed certain intravascular ultrasound
technology to Hewlett-Packard Company. The Company has denied the allegations of
the complaint and intends to vigorously defend itself.
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<PAGE> 21
EMPLOYEES
As of December 31, 2000, the Company had 13,720 employees, including
approximately 8,685 in operations, 924 in administration, 1,322 in research and
development and 2,789 in selling, marketing, distribution and related
administrative support. Of these employees, approximately 2,788 were employed in
the Company's international operations. The Company believes that the continued
success of its business will depend, in part, on its ability to attract and
retain qualified personnel. Competition for qualified, skilled personnel is
intense in the medical device industry. There can be no assurance that the
Company will be able in the future to attract and retain such personnel.
SEASONALITY
Worldwide sales do not reflect any significant degree of seasonality, however
customer purchases have been lighter in the third quarter of prior years than in
other quarters. This reflects, among other factors, lower demand during summer
months, particularly in European countries.
CAUTIONARY STATEMENT FOR PURPOSES OF THE SAFE HARBOR PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995
The Cautionary Statement for Purposes of the Safe Harbor Provisions of the
Private Securities Litigation Reform Act of 1995 appearing on page F-11 through
F-12 of the Company's 2000 Consolidated Financial Statements (Exhibit 13.1 filed
herewith) is incorporated herein by reference.
ITEM 2. PROPERTIES
The Company's world headquarters are located in Natick, Massachusetts. It
maintains regional headquarters in Tokyo, Japan; Paris, France; Buenos Aires,
Argentina; and Singapore. As of December 31, 2000, the Company's worldwide
facilities (including administration, research, manufacturing, distribution and
sales and marketing space) totaled approximately 5.1 million square feet, of
which approximately 77% was owned by the Company and the balance was leased. As
of December 31, 2000, the Company's principal technology centers were located in
Massachusetts, Indiana, Minnesota, New Jersey, Florida, California, Washington,
New York and Ireland, and its major distribution centers were located in
Massachusetts, The Netherlands, Japan and Singapore. As of December 31, 2000,
the Company maintained thirteen manufacturing facilities, ten in the United
States and three in Ireland. Many of these manufacturing facilities produce and
manufacture products for more than one of the Company's divisions and include
research facilities. The Company believes that its facilities are adequate to
meet its current needs and continues to assess its plant network strategy. The
Company has announced that over the next twelve months, it will cease
manufacturing operations in its Washington facility, one of its Massachusetts
facilities and one of its Minnesota facilities.
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ITEM 3. LEGAL PROCEEDINGS
Note L to the Company's 2000 Consolidated Financial Statements, appearing on
pages F-30 through F-35 thereto (Exhibit 13.1 filed herewith), is incorporated
herein by reference. The following paragraphs update the disclosure appearing in
Note L.
RECENT PATENT LITIGATION ACTIVITY
On May 31, 1994, SCIMED Life Systems, Inc. (SCIMED), a subsidiary of the
Company, filed a suit for patent infringement against Advanced Cardiovascular
Systems, Inc. (ACS), a subsidiary of Guidant Corporation, alleging willful
infringement of two of SCIMED's U.S. patents by ACS's RX ELIPSE(TM) PTCA
catheter. The suit was filed in the U.S. District Court for the Northern
District of California seeking monetary and injunctive relief. In January 1998,
the Company added the ACS RX MULTILINK(TM) stent delivery system to its
complaint. On June 6, 1999, the Court granted summary judgment in favor of ACS
affirming that SCIMED'S patents were not infringed. SCIMED appealed the judgment
and a hearing was held on October 2, 2000. On March 14, 2001, the Court affirmed
the judgment in favor of ACS.
On March 24, 2000, the Company (through its subsidiaries) and Medinol Ltd. filed
a cross-border suit against Johnson & Johnson, Cordis Corporation ("Cordis") and
certain of their foreign subsidiaries in The Netherlands alleging Cordis' BX
Velocity(TM) stent delivery system infringes one of Medinol's European patents.
In this action, the Company and Medinol requested monetary and injunctive relief
covering The Netherlands, Austria, Belgium, Switzerland, Germany, Denmark,
Spain, France, Greece, Ireland, Italy, Liechtenstein, Luxembourg, Monaco,
Portugal and Sweden. A hearing was held January 12, 2001. On March 19, 2001, the
Company's request for preliminary injunction was denied by the Court. The
Company intends to appeal this decision.
On March 30, 2000, the Company (through its subsidiary) filed suit for patent
infringement against two subsidiaries of Cordis alleging that Cordis' BX
Velocity stent delivery system infringes a published utility model owned by
Medinol and exclusively licensed to the Company. The complaint was filed in the
District Court of Dusseldorf, Germany seeking monetary and injunctive relief. A
hearing was held on March 15, 2001 and a decision is expected in May 2001.
On July 28, 2000, Dr. Tassilo Bonzel filed a complaint naming certain of the
Company's Schneider Worldwide subsidiaries and Pfizer Inc. ("Pfizer") and
certain of its affiliates as defendants, alleging that Pfizer failed to pay Dr.
Bonzel amounts owed under a license agreement involving Dr. Bonzel's patented
Rapid Exchange technology. The suit was filed in the District Court for the
State of Minnesota seeking monetary relief. Dr. Bonzel has also provided a
notice of breach of the agreement which could lead to its termination. On
September 5, 2000, the Company and Boston Scientific Scimed, Inc. (formerly
known as Schneider (USA), Inc.) filed suit against Dr. Bonzel in the U.S.
District Court for the District of Massachusetts seeking declaratory judgment of
non-infringement because the Company has not breached the terms of the license
agreement and that Dr. Bonzel is estopped from asserting infringement. Dr.
Bonzel filed a motion to dismiss or stay the Massachusetts action and in
February 2001, the Court dismissed the Massachusetts case.
The Company is involved in various lawsuits from time to time. In management's
opinion, the Company is not currently involved in any legal proceedings other
than those specifically identified above or in Note L to the Company's 2000
Consolidated Financial Statements which, individually or in the aggregate, could
have a material effect on the financial condition, operations or cash flows of
the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The Directors and executive officers of the Company as of December 31, 2000 were
as follows:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
John E. Abele 63 Director, Founder Chairman
Lawrence C. Best 50 Senior Vice President--Finance & Administration
and Chief Financial Officer
Joseph A. Ciffolillo 62 Director, Private Investor
Paul Donovan 45 Vice President -- Corporate Communications
Joel L. Fleishman 66 Director, Senior Advisor to The Atlantic Philanthropic Service
Company, Inc. and Professor of Law and Public Policy, Duke
University
Ray J. Groves 65 Director, Chairman of Legg Mason Merchant Banking Inc.
Lawrence L. Horsch 66 Director, Chairman of Eagle Management & Financial Corp.
Paul A. LaViolette 43 Senior Vice President and President, Boston Scientific
International, and Group President Cardiovascular
Robert G. MacLean 57 Senior Vice President--Human Resources
Kshitij Mohan, Ph.D. 55 Senior Vice President and Chief Technology Officer
Stephen F. Moreci 49 Senior Vice President and Group President Endosurgery
N.J. Nicholas, Jr. 61 Director, Private Investor
Pete Nicholas 59 Director, Founder and Chairman of the Board
John E. Pepper 62 Director, Chairman of the Board of Directors, The Procter & Gamble
Company
Arthur L. Rosenthal, Ph.D. 54 Senior Vice President and Chief Scientific Officer
Warren B. Rudman 70 Director, Former U.S. Senator, Partner, Paul, Weiss, Rifkind,
Wharton & Garrison
Paul W. Sandman 53 Senior Vice President, Secretary and General Counsel
James H. Taylor, Jr. 61 Senior Vice President -- Corporate Operations
James R. Tobin 56 Director, President and Chief Executive Officer
</TABLE>
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COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors of the Company has standing Audit, Executive Compensation
and Human Resources, and Corporate Governance Committees. Mr. Fleishman, Mr.
Horsch and Mr. Pepper currently serve on the Audit Committee. Mr. Fleishman, Mr.
Groves, Mr. Horsch, and Senator Rudman currently serve on the Executive
Compensation and Human Resources Committee. Mr. Fleishman, Mr. Groves, Mr. Pete
Nicholas, Mr. Pepper and Senator Rudman currently serve on the Corporate
Governance Committee. A description of the committees of the Board of Directors
of the Company is set forth in the Company's definitive Proxy Statement to be
filed with the Commission on or about April 6, 2001 and is incorporated herein
by reference.
BIOGRAPHICAL SUMMARIES
John E. Abele, a co-founder of the Company, has been a Director of the Company
since 1979, Founder Chairman since 1995 and Co-Chairman from 1979 to 1995. Mr.
Abele held the position of Treasurer from 1979 to 1992 and Vice Chairman and
Founder, Office of the Chairman from February 1995 to March 1996. He was
President of Medi-tech, Inc. from 1970 to 1983, and prior to that served in
sales, technical and general management positions for Advanced Instruments, Inc.
Mr. Abele received a B.A. degree from Amherst College.
Lawrence C. Best joined the Company in August 1992 as Senior Vice
President--Finance & Administration and Chief Financial Officer. Previously, Mr.
Best had been a partner at Ernst & Young, certified public accountants, since
1981. From 1979 to 1981, Mr. Best served a two year term as a Professional
Accounting Fellow in the Office of Chief Accountant at the Securities and
Exchange Commission in Washington, D.C. Mr. Best received a B.B.A. degree from
Kent State University.
Joseph A. Ciffolillo joined the Company in 1983 as President of Medi-tech, Inc.
During his tenure at the Company, he also served as President of Microvasive,
Inc. and as Executive Vice President and Chief Operating Officer from 1989 until
his retirement in 1996. In 1992, Mr. Ciffolillo became a director of the
Company. Previously, Mr. Ciffolillo spent twenty years with Johnson & Johnson
where he held a number of management positions including Executive Vice
President, Codman and President, Johnson & Johnson Orthopedic Company, a company
of which he was also a co-founder. Mr. Ciffolillo is a member of the Spray
Venture Fund Investment Committee and serves on a number of for profit and
not-for-profit boards. Mr. Ciffolillo also serves as Chairman of the Advisory
Board of the Health Science Technology Division of Harvard University and the
Massachusetts Institute of Technology. Mr. Ciffolillo received his B.A. from
Bucknell University where he also serves as a Member of the Board of Trustees.
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<PAGE> 25
Paul Donovan joined the Company in March 2000 as Vice President, Corporate
Communications. Most recently, Mr. Donovan was the Executive Director of
External Affairs at Georgetown University Medical Center, where he directed
media, government and community relations as well as employee communications
since 1998. From 1997 to 1998, Mr. Donovan was Chief of Staff at the United
States Department of Commerce. From 1993 to 1997, Mr. Donovan served as Chief of
Staff to Senator Edward M. Kennedy and from 1989 to 1993 as Press Secretary to
Senator Kennedy. Mr. Donovan received a B.A. degree from Dartmouth College.
Joel L. Fleishman joined the Company as a Director in October 1992. Mr.
Fleishman served as President of The Atlantic Philanthropic Service Company,
Inc. from September 1993 until January 2001, when he become Senior Advisor of
that organization. He is also Professor of Law and Public Policy and has served
in various administrative positions, including First Senior Vice President, at
Duke University, since 1971. Mr. Fleishman is a founding member of the governing
board of the Duke Center for Health Policy Research and Education and was the
founding director of Duke University's Terry Sanford Institute of Public Policy.
He is the director of the Samuel and Ronnie Heyman Center for Ethics, Public
Policy and the Professions. Mr. Fleishman also serves as Vice-Chairman of the
Board of Trustees of the Urban Institute and as a director of Polo Ralph Lauren
Corporation. Mr. Fleishman received A.B., M.A. and J.D. degrees from the
University of North Carolina at Chapel Hill, and an LL.M. degree from Yale
University.
Ray J. Groves joined the Company as a Director in May 1999. Mr. Groves is
Chairman of Legg Mason Merchant Banking, Inc., a subsidiary of Legg Mason, Inc.
Mr. Groves served as Chairman and Chief Executive Officer of Ernst & Young for
17 years until his retirement in 1994. Mr. Groves currently serves as a member
of the Boards of Directors of Allegheny Technologies Incorporated, American
Water Works Company, Inc., Electronic Data Systems Corporation, Marsh & McLennan
Companies, Inc., and The New Power Company. Mr. Groves is a managing director,
treasurer and secretary of the Metropolitan Opera Association. He is also Chair
of the Board of Directors of The Ohio State University Foundation and a member
of the Dean's Advisory Council of the Fisher College of Business. Mr. Groves
received a B.S. degree from The Ohio State University.
Lawrence L. Horsch joined the Company as a Director in February 1995.
Previously, he had been Chairman of the Board of SCIMED Life Systems, Inc. from
1977 to 1994, director from 1977 to 1995 and Acting Chief Financial Officer from
1994 to 1995. Since 1990, Mr. Horsch has served as Chairman of Eagle Management
& Financial Corp., a management consulting firm. He was Chairman and Chief
Executive Officer of Munsingwear, Inc., from 1987 to 1990. Mr. Horsch also
serves on several private company boards. Mr. Horsch received a B.A. degree from
the University of St. Thomas and an M.B.A. degree from Northwestern University.
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<PAGE> 26
Paul A. LaViolette joined the Company as President, Boston Scientific
International, and Vice President--International in January 1994. In February
1995, Mr. LaViolette was elected to the position of Senior Vice President and
Group President--Nonvascular Businesses. In October 1998, Mr. LaViolette was
appointed President, Boston Scientific International, and in February 2000
assumed responsibility for the Company's Scimed, EPT and Target businesses as
Group President, Cardiovascular. Prior to joining the Company, he was employed
by C.R. Bard, Inc. in various capacities, including President, U.S.C.I.
Division, from July 1993 to November 1993, President, U.S.C.I. Angioplasty
Division, from January 1993 to July 1993, Vice President and General Manager,
U.S.C.I. Angioplasty Division, from August 1991 to January 1993, and Vice
President U.S.C.I. Division, from January 1990 to August 1991. Mr. LaViolette
received his B.A. degree from Fairfield University and an M.B.A. degree from
Boston College.
Robert G. MacLean joined the Company as Senior Vice President--Human Resources
in April 1996. Prior to joining the Company, he was Vice President--Worldwide
Human Resources for National Semiconductor Corporation in Santa Clara,
California from October 1992 to March 1996. Mr. MacLean has held various human
resources management positions in the U.S. and Europe during his career. Prior
to his business endeavors, he was Economics Professor at the University of the
Pacific. Mr. MacLean received his B.A. and M.A. degrees and completed his
doctoral studies in economics from Stanford University.
Dr. Kshitij Mohan joined the Company as Senior Vice President and Chief
Technology Officer in April 2000. Dr. Mohan served most recently as Corporate
Vice President, Research and Technical Services at Baxter International, Inc.,
where he had held a variety of positions since 1988. From 1983 to 1988, Dr.
Mohan served in various senior positions in the United States Food and Drug
Administration. Prior to that, Dr. Mohan served in the White House Office of
Management and Budget from 1979 to 1983. Dr. Mohan currently serves on the Board
of Directors of the Health Industry Manufacturer's Association, the Advisory
Board of Bourne's College of Engineering at the University of California, and
the Editorial Advisory Board for the Medical Device and Diagnostic Industry
magazine. Dr. Mohan holds a Ph.D. in Physics from Georgetown University.
Stephen F. Moreci was appointed to the Executive Committee of the Company as
Senior Vice President and Group President, Endosurgery in December 2000. Mr.
Moreci joined the Company in 1989 and most recently served as the Company's
President of its Medi-tech division since 1999. From 1989 until 1999, Mr. Moreci
held a variety of management positions within the Company, including Vice
President and General Manager of Cardiac Assist from 1989 to 1991, Vice
President and General Manager of Microvasive Endoscopy from 1991 until 1995,
Group Vice President of Nonvascular from 1995 until 1996 and President of
Microvasive Endoscopy from 1996 until 1999. Mr. Moreci received a B.S. degree
from Pennsylvania State University.
26
<PAGE> 27
N.J. Nicholas, Jr. joined the Company as a Director in October 1994. Mr.
Nicholas served as President of Time, Inc. from September 1986 to May 1990 and
Co-Chief Executive Officer of Time Warner, Inc. from May 1990 until February
1992. N.J. Nicholas, Jr. is a director of Xerox Corporation and Priceline.com.
and also serves on the board of several privately-owned media companies. Mr.
Nicholas received an A.B. degree from Princeton University and an M.B.A. degree
from Harvard Business School. He is also the brother of Pete Nicholas, Chairman
of the Board of the Company.
Pete Nicholas, a co-founder of the Company, has been the Chairman of the Board
of the Company since 1995. He has been a Director since 1979 and served as the
Chief Executive Officer from 1979 to March 1999 and Co-Chairman of the Board
from 1979 to 1995. Prior to joining the Company, he was corporate director of
marketing and general manager of the Medical Products Division at Millipore
Corporation, a medical device company, and served in various sales, marketing
and general management positions at Eli Lilly and Company. He is currently Vice
Chairman of the Board of Trustees of Duke University and a member of the Board's
Executive Committee. Mr. Nicholas is also a member of the American Academy of
Achievement and has recently received the Phoenix Lifetime Achievement Award. He
is also a recent recipient of the Ellis Island Medal of Honor, and is a Fellow
of the American Academy of Arts and Sciences. He is a member of the
Massachusetts Business Roundtable and currently serves on the boards of the Boys
& Girls Club of Boston, Massachusetts High Technology Council, and CEO's for
Charter Schools. Mr. Nicholas also serves on several for profit and
not-for-profit boards. After college, Mr. Nicholas served as an officer in the
U.S. Navy, resigning his commission as lieutenant in 1968. Mr. Nicholas received
a B.A. degree from Duke University, and an M.B.A. degree from The Wharton School
of the University of Pennsylvania. He is also the brother of N.J. Nicholas, Jr.,
a Director of the Company.
John E. Pepper joined the Company as a Director in October 1999. Mr. Pepper is
Chairman of the Board of Directors of Procter & Gamble where he also had been
Chief Executive Officer and Chairman of the Board from 1995 to 1999, President
from 1986 to 1995, director since 1984 and served in various positions since
1963. Mr. Pepper is a member of the Board of Directors of Xerox Corporation and
Motorola Inc. Mr. Pepper is a Fellow of The Yale Corporation and a Trustee of
the Christ Church Endowment Fund. He serves on the boards of Partnership for a
Drug Free America and the National Advisory Board of the National Underground
Railroad Freedom Center. Mr. Pepper graduated from Yale University in 1960 and
holds honorary doctorate degrees from Xavier University, The Ohio State
University, Mount St. Joseph College and St. Petersburg University (Russia).
27
<PAGE> 28
Dr. Arthur L. Rosenthal joined the Company in January 1994 as Senior Vice
President and Chief Development Officer and became Chief Scientific Officer in
February 2000. Prior to joining the Company, he was Vice President--Research &
Development at Johnson & Johnson Medical, Inc., from April 1990 to January 1994.
Between 1973 and 1990, Dr. Rosenthal held several executive technical management
positions at Pfizer Inc., 3M and C.R. Bard, Inc., primarily in the fields of
device clinical research and biomedical engineering. Dr. Rosenthal received his
B.A. in bacteriology from the University of Connecticut, and his Ph.D. in
biochemistry from the University of Massachusetts.
Senator Warren B. Rudman joined the Company as a Director in October 1999.
Senator Rudman became a partner in the international law firm Paul, Weiss,
Rifkind, Wharton, and Garrison in 1992 after serving two terms as a U.S. Senator
from New Hampshire from 1980 to 1992. Senator Rudman serves as Chairman of the
President's Foreign Intelligence Advisory Board and serves on the Boards of
Trustees of Valley Forge Military Academy, the Brookings Institution, and the
Council on Foreign Relations. He also serves on the boards of Allied Waste
Industries, Inc., the American Stock Exchange, Inc., The Chubb Corporation,
Collins & Aikman Corporation, Raytheon Corporation and several funds managed by
the Dreyfus Corporation. He is also the founding co-chairman of the Concord
Coalition. Senator Rudman received a B.S. from Syracuse University and a LL.B.
from Boston College Law School and served in the U.S. Army during the Korean
War.
Paul W. Sandman joined the Company as Senior Vice President, Secretary and
General Counsel in May 1993. From March 1992 through April 1993, he was Senior
Vice President, General Counsel and Secretary of Wang Laboratories, Inc., where
he was responsible for legal affairs. From 1984 to 1992, Mr. Sandman was Vice
President and Corporate Counsel of Wang Laboratories, Inc., where he was
responsible for corporate and international legal affairs. Mr. Sandman received
his A.B. from Boston College, and his J.D. from Harvard Law School.
James H. Taylor, Jr. joined the Company as Senior Vice President of Corporate
Operations in August 1999. Mr. Taylor most recently served as Vice President of
Global Technology at Nestle Clinical Nutrition from 1995 to 1997. Prior to
joining Nestle, he completed a thirty-year career at Baxter International, where
he held a broad range of positions in operations management, including from 1992
to 1995, the position of Corporate Vice President of Manufacturing Operations
and Strategy. Mr. Taylor received his B.A. degree from the University of North
Carolina.
James R. Tobin joined the Company as Director, President and Chief Executive
Officer in March 1999. Prior to joining the Company, Mr. Tobin served as
President and Chief Executive Officer of Biogen, Inc. from 1997 to 1998 and
Chief Operating Officer of Biogen from 1994 to 1997. From 1972 to 1994, Mr.
Tobin served in a variety of executive positions with Baxter International,
including President and Chief Operating Officer from 1992 to 1994. Previously,
he served at Baxter as Managing Director in Japan, Managing Director in Spain,
President of Baxter's I.V. Systems Group and Executive Vice President. Mr. Tobin
currently serves on the Boards of Directors of Beth Israel Deaconess Medical
Center, the Carl J. Shapiro Institute for Education and Research, Curis, Inc.
and Applera Corporation (formerly PE Corporation). Mr. Tobin holds an A.B. from
Harvard College and an M.B.A. from Harvard Business School. Mr. Tobin also
served as a lieutenant in the U.S. Navy from 1968 to 1972.
28
<PAGE> 29
PART II
- --------------------------------------------------------------------------------
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock is traded on the New York Stock Exchange under the
symbol "BSX".
The information set forth under the caption "Market for the Company's Common
Stock and Related Matters" included in the Company's 2000 Consolidated Financial
Statements (Exhibit 13.1 filed herewith) is incorporated herein by reference.
The closing price of the Company's Common Stock on March 16, 2001 was $18.45.
ITEM 6. SELECTED FINANCIAL DATA
The information set forth under the caption "Five-Year Selected Financial Data"
included in the Company's 2000 Consolidated Financial Statements (Exhibit 13.1
filed herewith) is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The statements and information set forth under the caption "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included in the Company's 2000 Consolidated Financial Statements (Exhibit 13.1
filed herewith) are incorporated herein by reference.
ITEM 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information set forth under the subcaption "Market Risk Disclosures"
contained under the caption "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included on pages F-10 through F-11 of the
Company's 2000 Consolidated Financial Statements (Exhibit 13.1 filed herewith)
is incorporated herein by reference.
29
<PAGE> 30
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements of the Company and its subsidiaries
included in the Company's 2000 Consolidated Financial Statements (Exhibit 13.1
filed herewith) are incorporated herein by reference.
The statements and information set forth under the caption "Quarterly Results of
Operations" included in the Company's 2000 Consolidated Financial Statements
(Exhibit 13.1 filed herewith) are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The required information concerning directors and executive officers set forth
in the Company's definitive Proxy Statement to be filed with the Commission on
or about April 6, 2001 is incorporated herein by reference. See also "Directors
and Executive Officers of the Company" following Item 4 herein.
ITEM 11. EXECUTIVE COMPENSATION
The required information concerning executive compensation set forth in the
Company's definitive Proxy Statement to be filed with the Commission on or about
April 6, 2001 is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The required statements concerning security ownership of certain beneficial
owners and management set forth in the Company's definitive Proxy Statement to
be filed with the Commission on or about April 6, 2001 are incorporated herein
by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The required statements concerning certain relationships and related
transactions set forth in the Company's definitive Proxy Statement to be filed
with the Commission on or about April 6, 2001 are incorporated herein by
reference.
30
<PAGE> 31
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) Financial Statements.
The response to this portion of Item 14 is set forth under Item 8.
(a)(2) Financial Schedules.
The response to this portion of Item 14 is filed herewith as a
separate attachment to this report.
(a)(3) Exhibits (* documents filed herewith).
Exhibit
No. Title
------- -----
3.1 Second Restated Certificate of Incorporation of the Company
(Exhibit 3.1, Annual Report on Form 10-K for the year ended
December 31, 1993, File No. 1-11083).
3.2 Certificate of Amendment of the Second Restated Certificate
of Incorporation of the Registrant (Exhibit 3.2, Annual
Report on Form 10-K for the year ended December 31, 1994,
File No. 1-11083).
3.3 Certificate of Second Amendment of the Second Restated
Certificate of Incorporation of the Registrant (Exhibit 3.3,
Annual Report on Form 10-K for the year ended December 31,
1998, File No. 1-11083).
3.4 Restated By-laws of the Company (Exhibit 3.2, Registration
No. 33-46980).
4.1 Specimen Certificate for shares of the Company's Common
Stock (Exhibit 4.1, Registration No. 33-46980).
4.2 Description of Capital Stock contained in Exhibits 3.1, 3.2,
3.3 and 3.4.
31
<PAGE> 32
4.3 Form of Debt Securities Indenture (Exhibit 4.4, Registration
Statement on Form S-3 of the Company, BSC Capital Trust, BSC
Capital Trust II and BSC Capital Trust III, File No.
333-64887).
10.1 Boston Scientific Corporation 1992 Long-Term Incentive Plan,
as amended (Exhibit 10.1, Annual Report on Form 10-K for the
year ended December 31, 1996, File No. 1-11083).
10.2 Boston Scientific Corporation 1992 Non-Employee Directors'
Stock Option Plan, as amended (Exhibit 10.2, Annual Report
on Form 10-K for the year ended December 31, 1996, File No.
1-11083).
*10.3 Form of Amendment to Boston Scientific Corporation 1992 Non-
Employee Directors' Stock Option Plan, as amended.
10.4 Boston Scientific Corporation 1995 Long-Term Incentive Plan,
as amended (Exhibit 10.1, Annual Report on Form 10-K for the
year ended December 31, 1996, File No. 1-11083).
10.5 SCIMED Life Systems, Inc. 1987 Non-Qualified Stock Option
Plan, amended and restated (Exhibit 4.3, Registration No.
33-89772 which was incorporated by reference to Exhibit A to
SCIMED's Proxy Statement dated May 23, 1991 for its 1991
Annual Meeting of Shareholders, Commission File No. 0-9301).
10.6 SCIMED Life Systems, Inc. 1991 Directors Stock Option Plan,
as amended (Exhibit 4.2, Registration No. 33-89772 which was
incorporated by reference to Exhibit A to SCIMED's Proxy
Statement dated June 8, 1994 for its 1994 Annual Meeting of
Shareholders, Commission File No. 0-9301).
10.7 SCIMED Life Systems, Inc. 1992 Stock Option Plan (Exhibit
4.1, Registration No. 33-89772 which was incorporated by
reference to Exhibit A to SCIMED's Proxy Statement dated May
26, 1992 for its 1992 Annual Meeting of Shareholders,
Commission File No. 0-9301).
10.8 Heart Technology, Inc. Restated 1989 Stock Option Plan
(Exhibit 4.5, Registration No. 33-99766 which was
incorporated by reference to Exhibit 10.4 to the
Registration Statement on Form S-1 of Heart Technology,
Registration No. 33-45203).
10.9 Heart Technology, Inc. 1992 Stock Option Plan for
Non-Employee Directors (Exhibit 4.6, Registration No.
33-99766 which was incorporated by reference to Exhibit 10.5
to the Registration Statement on Form S-1 of Heart
Technology, Registration No. 33-45203).
32
<PAGE> 33
10.10 Heart Technology, Inc. 1995 Stock and Incentive Plan
(Exhibit 4.7, Registration No. 33-99766 which was
incorporated by reference to Exhibit 10.4 to the Quarterly
Report on 10-Q/A of Heart Technology for its fiscal quarter
ended June 30, 1995, filed on August 30, 1995, File No.
0-19812).
10.11 EP Technologies, Inc. 1988 Stock Plan (Exhibit 4.7,
Registration No. 33- 80265 which was incorporated by
reference to EPT's Registration Statement on Form S-8, File
No. 33-67020).
10.12 EP Technologies, Inc. 1991 Stock Option/Stock Issuance Plan
(Exhibit 4.6, Registration No. 33-80265 which was
incorporated by reference to EPT's Registration Statement on
Form S-8, File No. 33-82140).
10.13 EP Technologies, Inc. 1993 Stock Option/Stock Issuance Plan,
(Exhibit 4.5, Registration No. 33-80265 which was
incorporated by reference to EPT's Registration Statement on
Form S-8, File No. 33-93196).
10.14 Target Therapeutics, Inc. 1988 Stock Option Plan,
incorporated by reference to Exhibit 10.2 to Target
Therapeutics, Inc.'s Quarterly Report on Form 10-Q for the
quarter ended September 30, 1996 (File No. 0-19801).
10.15 Target Therapeutics, Inc. 1988 Stock Option Plan,
incorporated by reference to Exhibit 10.3 to Target
Therapeutics, Inc.'s Quarterly Report on Form 10-Q for the
quarter ended September 30, 1996 (File No. 0-19801).
10.16 Boston Scientific Corporation 401(k) Savings Plan, Amended
and Restated, Effective January 1, 1997 (Exhibit 10.17,
Annual Report on Form 10-K for the year ended December 31,
1997, File No. 1-11083).
10.17 Second Amendment to Boston Scientific Corporation 401(k)
Plan (Exhibit 10.1, Quarterly Report on Form 10-Q for the
quarter ended March 31, 1999, File No. 1-11083).
10.18 Third Amendment to Boston Scientific Corporation 401(k) Plan
(Exhibit 10.1, Quarterly Report on Form 10-Q for the quarter
ended September 30, 1999, File No. 1-11083).
*10.19 Form of Fourth Amendment to Boston Scientific Corporation
401(k) Plan.
10.20 Boston Scientific Corporation Global Employee Stock
Ownership Plan, as Amended and Restated (Exhibit 10.18,
Annual Report on Form 10-K for the year ended December 31,
1997, File No. 1-11083).
33
<PAGE> 34
*10.21 Form of First Amendment to the Boston Scientific Corporation
Global Employee Stock Ownership Plan, as Amended and
Restated.
*10.22 Form of Second Amendment to the Boston Scientific
Corporation Global Employee Stock Ownership Plan, as
Amended and Restated.
10.23 Boston Scientific Corporation Deferred Compensation Plan,
Effective January 1, 1996 (Exhibit 10.17, Annual Report on
Form 10-K for the year ended December 31, 1996, File No.
1-11083).
10.24 Boston Scientific Corporation 2000 Long Term Incentive Plan
(Exhibit 10.20, Annual Report on Form 10-K for the year
ended December 31, 1999, File No. 1-11083).
10.25 Form of Second Amended and Restated Credit Agreement, dated
September 4, 1998 among the Company, The Several Lenders and
certain other parties (Exhibit 10.1, Current Report on Form
8-K dated September 25, 1998, File No. 1-11083).
10.26 Form of Amendment dated February 23, 1999 to Second Amended
and Restated Credit Agreement dated September 4, 1998 among
the Company, The Several Lenders and certain other parties
(Exhibit 10.21, Annual Report on Form 10-K for the year
ended December 31, 1998, File No. 1-11083).
10.27 Form of Second Amendment to the Second Amended and Restated
Credit Agreement among Boston Scientific Corporation, The
Several Lenders and The Chase Manhattan Bank dated as of
June 20, 2000. (Exhibit 10.1, Quarterly Report on Form 10-Q
for the quarter ended June 30, 2000, File No. 1-11083).
34
<PAGE> 35
10.28 Form of Second Amended and Restated Credit Agreement among
Boston Scientific Corporation, The Several Lenders and The
Chase Manhattan Bank dated as of August 21, 2000 (Exhibit
10.1, Quarterly Report on Form 10-Q for the quarter ended
September 30, 2000, File No. 1-11083).
10.29 Form of Indemnification Agreement between the Company and
certain Directors and Officers (Exhibit 10.16, Registration
No. 33-46980).
10.30 Letter Agreement, dated June 22, 1992, between the Company
and Lawrence C. Best (Exhibit 10.11, Annual Report on Form
10-K for the year ended December 31, 1993, File No.
1-11083).
10.31 Form of Retention Agreement between the Company and certain
Executive Officers (Exhibit 10.23, Annual Report on Form
10-K for the year ended December 31, 1996, File No.
1-11083).
10.32 Letter Agreement dated March 17, 1999, between the Company
and James R. Tobin (Exhibit 10.34, Annual Report on Form
10-K for the year ended December 31, 1998, File No.
1-11083).
10.33 Agreement Containing Consent Decree, dated as of February
23, 1995, between the Company and the Federal Trade
Commission (Exhibit 10.16, Annual Report on Form 10-K for
the year ended December 31, 1994, File No. 1-11083).
10.34 6.625% Promissory Notes due March 15, 2005 issued by the
Company in the aggregate principal amount of $500 million,
each dated as of March 10, 1998 (Exhibit Nos. 4.1, 4.2 and
4.3 to the Company's Current Report on Form 8-K dated March
10, 1998, File No. 1-11083).
11. Statement regarding computation of per share earnings
(included in Note J to the Company's 2000 Consolidated
Financial Statements for the year ended December 31, 2000,
filed as Exhibit 13.1 hereto).
*12.1 Statement regarding computation of ratios of earnings to
fixed charges.
35
<PAGE> 36
*13.1 The Company's 2000 Consolidated Financial Statements for the
year ended December 31, 2000.
13.2 Report of Independent Auditors, Ernst & Young LLP (included
in the Company's 2000 Consolidated Financial Statements for
the year ended December 31, 2000, filed as Exhibit 13.1
hereto).
*21. List of the Company's subsidiaries as of March 9, 2001.
Each subsidiary does business under the corporate name
indicated.
*23.1 Consent of Independent Auditors, Ernst & Young LLP.
(b) Reports on Form 8-K.
None.
36
<PAGE> 37
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Dated: March 30, 2001
BOSTON SCIENTIFIC CORPORATION
By: /s/ LAWRENCE C. BEST
----------------------------------------
Lawrence C. Best
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Company and in the capacities and on the dates indicated.
Dated: March 30, 2001 /s/ JOHN E. ABELE
----------------------------------------
John E. Abele
Director, Founder
Dated: March 30, 2001 /s/ LAWRENCE C. BEST
----------------------------------------
Lawrence C. Best
Senior Vice President--Finance and
Administration and Chief Financial
Officer (Principal Financial and
Accounting Officer)
Dated: March 30, 2001 /s/ JOSEPH A. CIFFOLILLO
----------------------------------------
Joseph A. Ciffolillo
Director
Dated: March 30, 2001 /s/ JOEL L. FLEISHMAN
----------------------------------------
Joel L. Fleishman
Director
37
<PAGE> 38
Dated: March 30, 2001 /s/ RAY J. GROVES
----------------------------------------
Ray J. Groves
Director
Dated: March 30, 2001 /s/ LAWRENCE L. HORSCH
----------------------------------------
Lawrence L. Horsch
Director
Dated: March 30, 2001 /s/ N.J. NICHOLAS, JR.
----------------------------------------
N.J. Nicholas, Jr.
Director
Dated: March 30, 2001 /s/ PETER M. NICHOLAS
----------------------------------------
Peter M. Nicholas
Director, Founder, Chairman of the Board
Dated: March 30, 2001 /s/ JOHN E. PEPPER
----------------------------------------
John E. Pepper
Director
Dated: March 30, 2001 /s/ WARREN B. RUDMAN
----------------------------------------
Warren B. Rudman
Director
Dated: March 30, 2001 /s/ JAMES R. TOBIN
----------------------------------------
James R. Tobin
Director, President and
Chief Executive Officer
(Principal Executive Officer)
38
<PAGE> 39
FINANCIAL STATEMENT SCHEDULE
The following additional consolidated financial statement schedule should be
considered in conjunction with the Company's 2000 Consolidated Financial
Statements (Exhibit 13.1 filed herewith):
Schedule II - Valuation and Qualifying Accounts
All other schedules have been omitted since the required information is not
present or not sufficiently material to require submission of the schedule, or
because the information required is included in the consolidated financial
statements or the notes thereto.
39
<PAGE> 40
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
ADDITIONS
--------------------------------------------
Balance at Charged to Charged to Balance at
Beginning Costs and Other End of
Description of Period Expenses Accounts Deductions Period
- ----------- ------------------------------------------------------------------------------
(In millions)
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 2000
Reserves and allowances deducted from
asset accounts:
Allowances for uncollectible
amounts and sales returns and allowances......... $63 8 5 (1) 9 (2) $67
YEAR ENDED DECEMBER 31, 1999
Reserves and allowances deducted from
asset accounts:
Allowances for uncollectible
amounts and sales returns and allowances......... $49 11 13 (1) 10 (2) $63
YEAR ENDED DECEMBER 31, 1998
Reserves and allowances deducted from
asset accounts:
Allowances for uncollectible
amounts and sales returns and allowances......... $30 15 16 (1) 12 (2) $49
</TABLE>
(1) Charges for sales returns and allowances, net of actual sales returns
(2) Uncollectible accounts written off.
Certain prior years' amounts have been reclassified to conform to the
current year's presentation.
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.3
<SEQUENCE>2
<FILENAME>b38188ssex10-3.txt
<DESCRIPTION>AMEND TO 1992 NON EMPLOYEE DIRECTORS SOP
<TEXT>
<PAGE> 1
Exhibit 10.3
FORM OF
AMENDMENT TO THE
BOSTON SCIENTIFIC CORPORATION
1992 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
Section 6(b) of the Boston Scientific Corporation 1992 Non-Employee Directors'
Stock Option Plan shall be deleted in its entirety and replaced with the
following:
"(b) OPTION GRANT. Each Option grant shall consist of an Option to
acquire in aggregate 2,000 shares of Stock and shall be exercisable at a price
equal to the Fair Market Value of the Stock at the time of the grant. No Option
granted hereunder is intended to qualify as an incentive stock option within the
meaning of Section 422 of the Code."
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.19
<SEQUENCE>3
<FILENAME>b38188ssex10-19.txt
<DESCRIPTION>FOURTH AMENDMENT TO BSC 401(K) PLAN
<TEXT>
<PAGE> 1
Exhibit 10.19
FORM OF
BOSTON SCIENTIFIC CORPORATION 401(K) PLAN
FOURTH AMENDMENT
Pursuant to Section 10.1 of the Boston Scientific Corporation 401(k) Plan
(the "Plan"), Boston Scientific Corporation hereby amends the Plan as follows,
effective as of the date set forth herein:
1. Effective as of January 1, 2001, Sections 3.3(a) and (b) are amended
by deleting such sections in their entirety and by inserting the following
therefor:
"(a) On a bi-weekly basis, each Participating Employer will make a
Matching Contribution to the Trust for the benefit of each Participant on
whose behalf it made Elective Contributions for the period. The amount of
Matching Contributions made by a Participating Employer for the period
shall be equal to (i) 100% of the Elective Contributions made on behalf of
the Participant for the period which do not exceed 2% of the Participant's
Compensation for such period, plus (ii) 50% of the Elective Contributions
made on behalf of the Participant for the period which exceed 2% but do not
exceed 4% of the Participant's Compensation for such period.
(b) If (i) a Participant is an Eligible Employee on the last day of
the Plan Year, and (ii) the aggregate Matching Contributions made by his or
her Participating Employer under paragraph (a) above to the Trust for the
benefit of such Participant with respect to such Plan Year are less than
the lesser of (1) 100% of the Participant's Elective Contributions for such
Plan Year which do not exceed 2% of the Participant's Compensation for such
Year plus 50% of the Participant's Elective Contributions for such Plan
Year which exceed 2% but do not exceed 4% of the Participant's Compensation
for such Year; or (2) 3% of such Participant's Compensation in such Plan
Year, then the Participating Employer shall make a further contribution to
the Trust, for the benefit of such Participant, to be credited to his or
her Matching Contribution Account, such that the aggregate Matching
Contributions made by the Participating Employer for the benefit of such
Participant for the Plan Year under this Section shall equal the lesser of
the amounts set forth in clauses (1) and (2) above."
3. Effective as of January 1, 2000, Section 14.8(d) is amended by
deleting such section in its entirety and by inserting the following therefor:
"(d) for all other purposes under the Plan, the same as in (a) above,
reduced by all of the following items (even if includable in gross income):
reimbursements or other expense allowances, bonuses, deferred compensation,
payments under the Supplemental Severance Plan, and moving expenses,
provided however that any elective contributions made by the Participating
Employer that are not includible in gross income by reason of Code section
125 or 402(e)(3) shall in all cases be includible
<PAGE> 2
as "Compensation" for purposes of this paragraph (d). Notwithstanding the
foregoing, for purposes of allocating Discretionary Contributions for a
Plan Year, commissions paid to any field sales commissioned Employee who is
a Highly Compensated Employee for such Plan Year shall be taken into
consideration only to the extent of the lesser of (i) fifty percent of the
amount of the commissions so paid, or (ii) the amount, not in excess of the
commissions so paid, which when added to all other amounts paid such
Employee and qualifying as Compensation results in an aggregate amount of
Compensation of $85,000."
3. Effective as of January 1, 2001, Section 14.8(d) is amended by
deleting the words "reimbursements or other expense allowances," therein and by
inserting the following therefor:
"cost-of-living adjustments, reimbursements or other expense allowances,
pay in lieu of vacation upon termination of employment,".
IN WITNESS WHEREOF, Boston Scientific Corporation has caused this amendment
to be executed in its name and on its behalf this __ day of _____________, 2000
BOSTON SCIENTIFIC CORPORATION
By: ________________________________
Title: ______________________________
-2-
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.21
<SEQUENCE>4
<FILENAME>b38188ssex10-21.txt
<DESCRIPTION>FIRST AMENDMENT TO BSC GLOBAL EMPLOYEE STOCK PLAN
<TEXT>
<PAGE> 1
Exhibit 10.21
FORM OF
FIRST AMENDMENT OF BOSTON SCIENTIFIC CORPORATION
GLOBAL EMPLOYEE STOCK OWNERSHIP PLAN
WHEREAS, Boston Scientific Corporation (the "Company") has established and
maintains the Boston Scientific Corporation Global Employee Stock Ownership Plan
(the "Plan"); and
WHEREAS, it is now considered desirable to amend the Plan;
NOW, THEREFORE, by virtue and in exercise of the power reserved to the
Company by Section 5 of the Plan, and pursuant to the authority delegated to the
undersigned officer of the Company by resolution of its Board of Directors, the
Plan be and it is hereby amended, effective January 1, 2001, in the following
particulars:
1. By substituting for the first sentence of Section 8.2(a) of the Plan
the following:
"An Eligible Employee may elect to purchase shares of Stock under his or
her Option during an Offering Period by completing a Membership Agreement
and returning it to the personnel department of the Participating Employer
on or prior to the first business day of such Offering Period."
2. By substituting for the last sentence of Section 8.2(b) of the Plan
the following:
"As soon as practicable following receipt of the Eligible Employee's
written request, the Eligible Employee shall receive a distribution of the
accumulated payroll deductions, without interest."
3. By substituting for the first and second sentences of Section 8.5(b)
of the Plan the following:
"Notwithstanding the foregoing, in the event that shares are subject to a
transferability restriction established by the Committee, as provided in
Section 8.6(b), the Company may elect to hold for the benefit of the
Optionee any shares otherwise to be delivered to the Optionee pursuant to
this Section 8.5, or to deliver the same to such agents, trustees and
fiduciaries for the benefit of the Optionee as the Company may select, for
the period transfer of such shares is limited by this Plan, if any, (and
thereafter, until the Optionee requests delivery of such stock in writing).
In that event, the Optionee shall have all of the rights of a shareholder
in the shares so held by the Company or its agent, except as limited by the
restriction on transferability, if any, from and after the issuance of the
same
<PAGE> 2
and the Company or its agent shall adopt reasonable procedures to enable
the Optionee to exercise such rights."
4. By substituting for the first sentence of Section 8.6(b) of the Plan
the following:
"Except as otherwise determined by the Committee, stock acquired by
exercise of an Option hereunder may not be assigned, transferred, pledged
or other disposed of, except by will or under the laws of descent and
distribution, until the date which is three (3) months after the last day
of the Offering Period as of which such shares were acquired (or the date
of the death of the Optionee, if earlier), but thereafter may be sold or
otherwise transferred without restriction."
5. By substituting for the last sentence of Section 8.6(b) of the Plan
the following:
"The Company shall also have the right to place a legend on certificates
setting forth the restriction on transferability, if any, of such shares."
6. By substituting "one-hundred eightieth (180th)" for "ninety-first
(91st)" where it appears in the third sentence of Section 8.8 of the Plan.
7. By substituting for the first sentence in Section 8.10 of the Plan the
following:
"In the event that the Optionee or his or her Beneficiary is entitled to
the return of accumulated payroll deductions, whether by reason of an
election to discontinue and withdraw payroll deductions, termination of
employment, retirement, death or in the event that accumulated payroll
deductions exceed the price of shares purchased or exceed the $25,000 limit
described in Section 8.2(d), such amount shall be returned by the
Participating Employer to the Optionee or the Beneficiary, as the case may
be, as soon as practicable."
IN WITNESS WHEREOF, the Company has caused this amendment to be executed by
its duly authorized officers, this ______ day of December, 2000.
BOSTON SCIENTIFIC CORPORATION
By:
---------------------------------------
Its:
--------------------------------------
ATTEST:
By:
------------------------------
Its
-------------------------------
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.22
<SEQUENCE>5
<FILENAME>b38188ssex10-22.txt
<DESCRIPTION>SECOND AMMENDMENT TO BSC GLOBAL EMPLOYEE STOCK
<TEXT>
<PAGE> 1
Exhibit 10.22
FORM OF
SECOND AMENDMENT TO THE
BOSTON SCIENTIFIC CORPORATION
GLOBAL EMPLOYEE STOCK OWNERSHIP PLAN
Section 6 of the Boston Scientific Corporation Global Employee Stock Ownership
Plan shall be deleted in its entirety and replaced with the following:
6. SHARES OF STOCK SUBJECT TO THE PLAN. No more than an aggregate of 7,500,000
share of Stock may be issued or delivered pursuant to the exercise of Options
granted under the Plan. Shares to be delivered upon the exercise of Options may
be either shares of Stock which are authorized but unissued or shares of Stock
held by the Company in its treasury or shares of Stock purchased on the open
market by the Company for issuance under this Plan. If an Option expires or
terminates for any reason without having been exercised in full, the unpurchased
shares subject to the Option shall become available for other Options granted
under the Plan. The Company shall, at all times during which Options are
outstanding, reserve and keep available shares of Stock sufficient to satisfy
such Options, and shall pay all fees and expenses incurred by the Company in
connection therewith. In the event of any capital change in the outstanding
Stock as contemplated by Section 8.9, the number and kind of shares of Stock
reserved and kept available by the Company shall be appropriately adjusted.
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-12.1
<SEQUENCE>6
<FILENAME>b38188ssex12-1.txt
<DESCRIPTION>STATEMENT REGARDING COMPUTATION OF RATIOS
<TEXT>
<PAGE> 1
EXHIBIT 12.1
BOSTON SCIENTIFIC CORPORATION
STATEMENT OF COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES (Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------------
2000 1999 1998 1997 1996
------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Fixed charges:
Interest expense $ 69,502 $ 117,567 $ 67,573 $ 14,285 $ 11,518
Capitalized interest 650 4,460 4,976
Debt issuance costs 1,300 3,521 1,675 65 501
Interest portion of rental expense 14,748 15,126 16,361 14,354 8,534
-------------------------------------------------------------
Total fixed charges $ 85,550 $ 136,864 $ 90,069 $ 33,680 $ 20,553
=============================================================
Earnings:
Income (loss) before income taxes and cumulative
effect of change in accounting $526,751 $ 562,468 ($275,314) $215,131 $303,330
Fixed charges per above 85,550 136,864 90,069 33,680 20,553
Net distributed/(undistributed) equity in earnings of
equity investees 12,926 (1,375)
Less: capitalized interest 650 4,460 4,976
-------------------------------------------------------------
Total earnings, as adjusted $625,227 $ 697,307 ($189,705) $243,835 $323,883
=============================================================
Ratio of earnings to fixed charges 7.31 5.09 7.24 15.76
=============================================================
Coverage deficiency (1) ($279,774)
==============
Supplemental pro forma coverage deficiency (2) ($345,507)
==============
</TABLE>
(1) Includes noncash special charges of $646 million recorded in connection
with the acquisition of Schneider Worldwide and other merger-related
initiatives.
(2) Reflects the coverage deficiency as if the acquisition of Schneider
Worldwide occurred at the beginning of 1998, with pro forma adjustments to
give effect to amortization of intangibles, an increase in interest expense
on acquisition, financing and certain other adjustments.
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-13.1
<SEQUENCE>7
<FILENAME>b38188ssex13-1.txt
<DESCRIPTION>ANNUAL REPORT
<TEXT>
<PAGE> 1
Exhibit 13
FOR THE YEAR 2000
BOSTON SCIENTIFIC AND SUBSIDIARIES
CONSOLIDATED
FINANCIAL STATEMENTS
FINANCIAL TABLE OF CONTENTS
<TABLE>
<S> <C>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS ................... F-2
CONSOLIDATED STATEMENTS OF OPERATIONS ........................... F-13
CONSOLIDATED BALANCE SHEETS ..................................... F-14
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY ................. F-16
CONSOLIDATED STATEMENTS OF CASH FLOWS ........................... F-17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ...................... F-18
REPORT OF INDEPENDENT AUDITORS .................................. F-42
FIVE-YEAR SELECTED FINANCIAL DATA ............................... F-43
QUARTERLY RESULTS OF OPERATIONS ................................. F-44
MARKET FOR THE COMPANY'S COMMON STOCK
AND RELATED MATTERS ............................................. F-45
</TABLE>
<PAGE> 2
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 2000 AND 1999
Net sales for the year ended December 31, 2000 were $2,664 million as compared
to $2,842 million in 1999, a decline of 6 percent. Net sales were adversely
affected by approximately $30 million arising from foreign currency fluctuations
compared to the prior year. Net income for 2000 was $373 million, or $0.91 per
share (diluted), as compared to net income for 1999 of $371 million, or $0.90
per share.
United States (U.S.) revenues decreased approximately 9% to $1,577 million
during 2000, while international revenues decreased approximately 1% to $1,087
million. The decrease in worldwide sales was principally attributable to a
decline in the Company's sales of coronary stents and balloons, primarily in the
U.S. Worldwide coronary stent revenues and worldwide coronary balloon revenues
were approximately $427 million and $357 million, respectively, during 2000,
compared to $604 million and $429 million, respectively, during 1999.
The worldwide coronary stent market is dynamic and highly competitive, with
significant market share volatility. In addition, technology and competitive
offerings in the market are constantly changing. The Company's reduction in
coronary stent revenues during 2000 reflects this volatility. The decline in
balloon revenues during 2000 results from new product offerings by the Company's
competitors as well as a trend towards fewer balloons being used in stent
procedures. In early 2001, the Company received approval from the U.S. Food and
Drug Administration to market four NIR(R) coronary stent systems as well as its
Maverick(R) balloon dilatation catheter in the U.S. The Company believes the
launch of these new products will enable the Company to remain competitive in
these markets. However, stent revenues for 2001 will be impacted by continued
volatility in the worldwide coronary stent market, product development and the
timing of submission for and receipt of regulatory approvals to market next
generation coronary and peripheral stent platforms in the U.S. and international
markets. All of these factors could also negatively impact the Company's ability
to transition to new products and to continue to offer competitive stent
products. Stent revenues for 2001 may be negatively impacted by a reduction in
average selling prices due to competitive pressures.
Gross profit as a percentage of net sales increased from 65.3% in 1999 to 68.8%
in 2000. The improvement in gross margin in 2000 is due primarily to the
recording of a pre-tax provision of $62 million for excess NIR(R) stent
inventories and purchase commitments during the third quarter of 1999. The
improvement is also due to benefits that the Company realized through its
increased ability to better manage inventory and lower product costs, partially
offset by a shift in the Company's product sales mix.
The Company's new stent systems launched in the U.S. in the first quarter of
2001 will negatively impact gross margins because the systems include more
expensive gold-coated stents with higher costing delivery systems. Further, the
Company's ability to effectively manage its mix and levels of inventory,
including consignment inventory, as the Company transitions to new products will
be critical in minimizing excess inventories.
Medinol Ltd. (Medinol), an Israeli company, is the supplier of the NIR(R)
coronary stent. Any unforeseen delays, stoppages or interruptions in the supply
and/or mix of NIR(R) stent inventory could adversely affect the operating
results and/or revenues of the Company. Generally, the Company has less control
over inventory manufactured by third parties as compared to inventory
manufactured internally. Furthermore, the purchase price of NIR(R) coronary
stents, the amount of NIR(R) coronary stent sales as a percentage of worldwide
sales and the mix of coronary stent platforms could significantly impact gross
margins. As average selling prices for the NIR(R) stents fluctuate, the
Company's cost to purchase the stents will change, because cost is based on a
constant percentage of average selling prices. Therefore, if higher-costing
NIR(R) stents are being sold as average selling prices are declining, gross
margins could be negatively impacted. At December 31, 2000, the Company had
approximately $149 million of net NIR(R) coronary stent inventory and was
committed to purchase approximately $32 million of NIR(R) stents from Medinol.
Worldwide NIR(R) coronary stent sales as a percentage of worldwide sales were
approximately 15% in 2000 compared to approximately 20% in 1999. The Company's
relationship with Medinol has been contentious, and the Company's ability to
manage its relationship with Medinol could impact the future operating results
of the Company.
F-2 BOSTON SCIENTIFIC AND SUBSIDIARIES
<PAGE> 3
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
During the third quarter of 2000, the Company approved and committed to a global
operations plan which encompasses a series of strategic initiatives to increase
productivity and enhance innovation. The plan includes manufacturing process and
supply chain programs and a plant optimization initiative. The manufacturing
process and supply chain programs are designed to lower inventory levels and the
cost of manufacturing and to minimize inventory write-downs. Gross margin
benefits will not be fully realized until manufacturing processes are improved
and historical inventories are sold.
The intent of the plant optimization initiative is to better allocate the
Company's resources by creating a more effective network of manufacturing and
research and development facilities. It will consolidate manufacturing
operations along product lines and shift significant amounts of production to
Company facilities in Miami and Ireland and to contract manufacturing. The
Company's plan includes the discontinuation of manufacturing activities at two
facilities in the U.S. and the closure of a third facility. The Company expects
that the plan will be substantially completed over the next twelve months.
During 2000, the Company recorded a pre-tax special charge of approximately $58
million associated with the plant optimization initiative. The charge relates to
severance and outplacement costs for the approximately 1,950 manufacturing,
manufacturing support and management employees who are expected to be affected
by the plan over the next twelve months. Less than $1 million had been charged
against the related accrual for the approximately 10 employees terminated
pursuant to the plan as of December 31, 2000. In addition, during 2000, the
Company recorded pre-tax costs of $11 million as cost of sales related to
transition costs associated with the plant optimization plan and accelerated
depreciation on fixed assets whose useful lives have been reduced as a result of
the initiative. During 2001, the Company estimates that it will record pre-tax
expenses of approximately $70 million as cost of sales related to the plant
optimization initiative, primarily for transition costs, accelerated
depreciation and abnormal production variances related to underutilized plant
capacity.
The Company expects that it will make total cash outlays, net of proceeds from
building and fixed asset sales, of approximately $115 million for the plant
optimization initiative, $85 million of which the Company expects to make during
2001 with the remainder being primarily severance costs for employees terminated
during 2001 but paid out in 2001 and 2002. The Company anticipates that these
cash outlays will be funded from cash flows from operating activities and from
the Company's borrowing capacity. The cash outlays include severance and
outplacement costs, transition costs and capital expenditures related to the
plan. The success of the initiative may be dependent on the Company's ability to
retain existing employees and attract new employees during the transition
period.
The Company estimates that the global operations plan will achieve pre-tax
operating savings, relative to the base year of 1999, of approximately $100
million in 2001, $220 million in 2002 and $250 million in annualized savings
thereafter. Incremental pre-tax savings expected to be realized in 2001 relative
to 2000 are estimated to be approximately $30 million. These savings will be
realized primarily as reduced cost of sales and are expected to help mitigate
gross margin pressures resulting from the launch of higher costing stents and
stent delivery systems. Additionally, the Company intends to use a portion of
these savings, when generated, to increase its investment in research and
development.
Selling, general and administrative expenses as a percentage of sales increased
from 30% of sales in 1999 to 33% in 2000 and increased approximately $25 million
from 1999 to $867 million. The increase in expenses as a percentage of sales in
2000 is primarily attributable to the reduction in sales combined with an
increase in costs incurred to strengthen and retain the Company's field sales
force and to expand its direct sales presence in international regions. The
Company's ability to retain its established sales force may impact the operating
results of the Company.
Amortization expense remained at approximately 3% of net sales while decreasing
1% from $92 million in 1999 to $91 million in 2000.
Royalties decreased approximately 20% from $46 million in 1999 to $37 million in
2000. The reduction in royalties is primarily due to non-recurring expenses of
approximately $7 million recorded during 1999. The Company continues to enter
into strategic technological alliances, some of which include royalty
commitments.
BOSTON SCIENTIFIC AND SUBSIDIARIES F-3
<PAGE> 4
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Research and development expenses remained at approximately 7% of net sales
while increasing 1% from $197 million in 1999 to $199 million in 2000. The
investment in research and development dollars reflects spending on new product
development programs as well as regulatory compliance and clinical research. The
Company continues to be committed to refining existing products and procedures
and to developing new technologies that can reduce risk, trauma, cost, procedure
time and the need for aftercare. In 2001, the Company expects to increase its
investment in research and development over 2000 levels to fund the development
of new products and clinical trials, including the Company's drug-coated stent
program, the carotid program and an internally developed stent platform.
Additionally, the Company plans to expand its research and development teams to
enhance the Company's product development, clinical affairs and regulatory
compliance capabilities in 2001 and beyond.
Interest expense decreased from $118 million in 1999 to $70 million in 2000. The
overall decrease in interest expense is primarily attributable to a lower
average debt balance. Other income (expense), net, changed from expense of
approximately $9 million in 1999 to income of approximately $17 million in 2000.
The change is primarily due to an increase in net gains recognized on sales of
available-for-sale securities and to an increase in gains on derivative
financial instruments.
The Company's effective tax rate, including the impact of restructuring-related
charges and credits, decreased from 34% in 1999 to 29% in 2000. Excluding the
impact of restructuring-related charges and credits, the Company's effective tax
rate decreased from 34% in 1999 to 30% in 2000. The decrease is primarily
attributable to a shift in the mix of the Company's U.S. and international
businesses. Management currently estimates that the 2001 effective tax rate will
remain at approximately 30%. However, the effective tax rate could be negatively
impacted by acquisitions of businesses contemplated by the Company in 2001.
Uncertainty remains with regard to future changes within the health care
industry. The trend toward managed care and economically motivated and more
sophisticated buyers in the U.S. may result in continued pressure on selling
prices of certain products and resulting compression on gross margins. In
addition to impacting selling prices, the trend to managed care in the U.S. has
also resulted in more complex billing and collection procedures. The Company's
ability to react effectively to the changing environment may impact its bad debt
and sales allowances in the future. Further, the U.S. marketplace is
increasingly characterized by consolidation among health care providers and
purchasers of medical devices that prefer to limit the number of suppliers from
which they purchase medical products. There can be no assurance that these
entities will continue to purchase products from the Company.
International markets are also being affected by economic pressure to contain
reimbursement levels and health care costs. The Company's ability to benefit
from its international expansion may be limited by risks and uncertainties
related to economic conditions in these regions, regulatory and reimbursement
approvals, competitive offerings, infrastructure development, rights to
intellectual property and the ability of the Company to implement its overall
business strategy. Any significant changes in the competitive, political,
regulatory or economic environment where the Company conducts international
operations may have a material impact on revenues and profits, especially in
Japan given its high profitability relative to its contribution to revenues.
Deterioration in the Japanese and/or emerging markets economies may impact the
Company's ability to grow its business and to collect its accounts receivable.
Additionally, the trend in countries around the world toward more stringent
regulatory requirements for product clearance and more vigorous enforcement
activities has generally caused or may cause medical device manufacturers to
experience more uncertainty, greater risk and higher expenses. These factors may
impact the rate at which Boston Scientific can grow. In addition, the impact of
selling higher costing stents, the cost of maintaining the Company's sales force
and increasing its investment in research and development is expected to result
in lower operating margins for 2001. However, management believes that it is
positioning the Company to take advantage of opportunities that exist in the
markets it serves.
F-4 BOSTON SCIENTIFIC AND SUBSIDIARIES
<PAGE> 5
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999 AND 1998
Net sales increased 27% in 1999 to $2,842 million as compared to $2,234 million
in 1998. The 1999 results include the operations of Schneider Worldwide
(Schneider), which was acquired in the third quarter of 1998. On a pro forma
basis, assuming Schneider revenues had been included in all of 1998, net sales
in 1999 increased approximately 14%. Net income for 1999 was $371 million or
$0.90 per share (diluted) as compared to a reported net loss for 1998 of $264
million, or $0.68 per share, including merger-related charges and credits of
$667 million ($527 million, net of tax).
U.S. revenues increased approximately 25% to $1,741 million during 1999, while
international revenues increased approximately 31% to $1,101 million. Without
the impact of foreign currency exchange rates on translation of international
revenues, worldwide sales for 1999 increased approximately 25%. The increase in
sales was primarily attributable to the inclusion of Schneider sales for the
entire year and the Company's sales of coronary stents in the U.S. and Japan.
U.S. coronary stent revenues and worldwide coronary stent revenues, primarily
sales of the NIR(R) stent, were approximately $409 million and $604 million,
respectively, during 1999, compared to $211 million and $324 million,
respectively, during 1998. Worldwide NIR(R) coronary stent sales as a percentage
of worldwide sales were approximately 20% in 1999 compared to approximately 13%
in 1998.
Gross profit as a percentage of net sales decreased from 67.1% in 1998 to 65.3%
in 1999. The decrease in gross margin is primarily due to a provision recorded
in the third quarter of 1999 of $62 million for excess NIR(R) stent inventories
and purchase commitments. The excess position was driven primarily by a
shortfall in planned third-quarter NIR(R) stent revenues, a reduction in NIR(R)
stent sales forecasted for 1999 and 2000, and strategic decisions regarding
versions of the NIR(R) stent system to be launched. In the third quarter of
1998, the Company provided $31 million for costs associated with the Company's
decision to recall voluntarily the NIR ON(R) Ranger(TM) with Sox(TM) coronary
stent system in the U.S. Excluding these charges, gross margins were 67.5% and
68.1% for 1999 and 1998, respectively. Gross margins during 1999 were positively
impacted compared to 1998 by a reduction in other inventory charges. However,
the reduction was offset by a decrease in average selling prices and increased
manufacturing costs.
Selling, general and administrative expenses as a percentage of sales decreased
from 34% of sales in 1998 to 30% of sales in 1999 and increased approximately
$87 million from 1998 to $842 million. The decrease as a percentage of sales is
primarily attributable to the increase in sales due to the launch of coronary
stents in the U.S. and Japan, the realization of synergies as the Company
integrated Schneider into its organization, and improved returns in Asia Pacific
and Latin America as the Company continued to leverage its direct sales
infrastructure. The increase in expense dollars is primarily attributable to
higher selling expenses as a result of the launch of coronary stents in the
U.S., increased costs to expand the Company's direct sales presence in Asia
Pacific and Latin America, and increased legal expenses.
Amortization expense increased from $53 million in 1998 to $92 million in 1999
and increased as a percentage of sales from 2% to 3%. The increase is primarily
a result of the amortization of intangibles related to the purchase of
Schneider.
Royalty expense increased approximately 48% from $31 million in 1998 to $46
million in 1999. The increase in royalties is primarily due to royalty
obligations assumed in connection with the Schneider acquisition and payments
made to Medinol on sales of internally developed stent platforms.
Research and development expenses decreased as a percentage of sales from 9% in
1998 to 7% in 1999. Research and development expenses were $200 million in 1998
and $197 million in 1999. The decrease as a percentage of sales is primarily
attributable to the launch of coronary stents in the U.S. and Japan and the
realization of synergies in connection with the Schneider acquisition.
During 1999, the Company identified and reversed restructuring and
merger-related charges of $10 million no longer deemed necessary. These amounts
related primarily to the restructuring charges accrued in the fourth quarter of
1998 and reflect the reclassification of assets from held-for-disposal to
held-for-use resulting from management's decision to resume a development
program previously planned to be eliminated. In addition, estimated severance
costs for 1998 initiatives were reduced as a result of attrition. During 1998,
the Company recorded merger-related charges and credits of $667 million ($527
million, net of tax) primarily related to purchased research and development
acquired in the $2.1 billion cash purchase of
BOSTON SCIENTIFIC AND SUBSIDIARIES F-5
<PAGE> 6
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Schneider. On September 10, 1998, the Company consummated its acquisition of
Schneider, formerly a member of the Medical Technology Group of Pfizer Inc. The
acquisition was accounted for using the purchase method of accounting. The
consolidated financial statements include Schneider's operating results from the
date of acquisition.
The aggregate purchase price of the Schneider acquisition has been allocated to
the assets acquired and liabilities assumed based on their estimated fair values
at the date of acquisition. The estimated excess of purchase price over the fair
value of the net tangible assets acquired was allocated to specific intangible
asset categories with the remainder assigned to excess of cost over net assets
acquired. At December 31, 2000, the net intangibles recorded in connection with
the Schneider acquisition, including the excess of cost over net assets
acquired, represented 39% and 70% of the Company's total assets and
stockholders' equity, respectively. Core technology, developed technology,
assembled workforce, trademarks and patents are being amortized on a
straight-line basis over periods ranging from 9 to 25 years. The Company is
amortizing the value assigned to customer lists (relationships) over 25 years
because it has been the Company's experience that physician and hospital
relationships are built for the long term and fundamental to the Company's
business of bringing innovative products to market. The Company realizes that
maintaining these and similar relationships will require ongoing efforts.
However, both Schneider and the Company have over a 20-year history of working
closely with interventionalists and their institutions for both vascular and
nonvascular applications, and management believes these relationships will
continue to benefit the Company. In addition, after considering the long-term
prospects for the less invasive medical device industry and the fundamental role
of catheter-based interventional medicine, as well as Schneider's competitive
position within the industry, management concluded that it is appropriate to
amortize the excess of the Schneider purchase price over the fair value of the
assets acquired over 40 years. Finally, the Company recorded a $671 million
($524 million, net of tax) charge to account for purchased research and
development. The valuation of purchased research and development, for which
management is primarily responsible, represents the estimated fair value at the
date of acquisition related to in-process projects. As of the date of
acquisition, the in-process projects had not yet reached technological
feasibility and had no alternative future uses. Accordingly, the value
attributable to these projects was immediately expensed at acquisition. If the
projects are not successful or completed in a timely manner, the Company may not
realize the financial benefits expected for these projects.
The income approach was used to establish the fair values of the purchased
research and development. This approach established the fair value of an asset
by estimating the after-tax cash flows attributable to the in-process project
over its useful life and then discounting these after-tax cash flows back to a
present value. Revenue estimates were based on estimates of relevant market
sizes, expected market growth rates, expected trends in technology and expected
product introductions by competitors. In arriving at the value of the in-process
research and development projects, the Company considered, among other factors,
the in-process project's stage of completion, the complexity of the work
completed as of the acquisition date, the costs already incurred, the projected
costs to complete, the contribution of core technologies and other acquired
assets, the expected introduction date, and the estimated useful life of the
technology. The discount rate used to arrive at a present value as of the date
of acquisition was based on the time value of money and medical technology
investment risk factors. For the Schneider purchased research and development
programs, a risk-adjusted discount rate of 28% was utilized to discount the
projected cash flows. The Company believes that the estimated purchased research
and development amounts so determined represent the fair value at the date of
acquisition and do not exceed the amount a third party would pay for the
projects.
The most significant Schneider purchased research and development projects that
were in-process at the date of acquisition were brachytherapy, devices for
aneurysmal disease and coronary stents, which represented approximately 26%, 20%
and 16% of the in-process value, respectively. Set forth below are descriptions
of these in-process projects, including their status at the end of 2000.
The brachytherapy system is an intravascular radiation system designed to reduce
clinical restenosis after a balloon angioplasty and/or a stent procedure. The
system consists of a computer-controlled afterloader, beta radiation source,
centering catheter, source delivery wire and dummy wire. As of the date of
acquisition, the project was expected to be completed and the products
commercially available in the U.S. within
F-6 BOSTON SCIENTIFIC AND SUBSIDIARIES
<PAGE> 7
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
two to three years, with an estimated cost to complete of approximately $5
million to $10 million.
The aneurysmal disease projects are endoluminal grafts for the treatment of late
stage vascular aneurysms and occlusions. The most significant of the projects in
this category at the date of acquisition was the endoluminal graft for the
treatment of abdominal aortic aneurysms. As of the date of acquisition, the
projects were expected to be completed and the products commercially available
in the U.S. within two to three years, with an estimated cost to complete of
approximately $10 million to $15 million.
Coronary stent systems underway at the date of acquisition were stent systems
for native coronary artery disease, saphenous vein graft disease, and versions
with novel delivery systems. The Company believes that the stent systems will be
especially helpful in the treatment of saphenous vein graft disease. As of the
date of acquisition, the projects were expected to be completed and the products
commercially available for sale in the U.S. within one year with an estimated
cost to complete of approximately $1 million to $3 million.
In the second quarter of 2000, the brachytherapy project was discontinued due to
system performance issues. However, the Company recently outsourced this project
to a third party in which it holds a minority interest. As part of a subsequent
project consolidation program, the Schneider abdominal aortic aneurysm project
has been integrated with another internal project. As a result, the Company will
pursue the development of next-generation products for aortic aneurysmal disease
with an integrated platform while minimizing duplicative research and
development. The cost of the development is still estimated to be in the range
of approximately $10 million to $15 million. The coronary stent projects have
been completed.
During 1998, the Company established a rationalization plan in conjunction with
the consummation of the Schneider acquisition, taking into consideration
duplicate capacity as well as opportunities for further leveraging of cost and
technology platforms. The Company's actions, approved and committed to in the
fourth quarter of 1998, included the planned displacement of approximately 2,000
positions, over half of which were manufacturing positions and would result in
annualized cost savings of approximately $50 million to $75 million. During the
fourth quarter of 1998, the Company estimated the costs associated with these
activities, excluding transition costs, to be approximately $62 million, most of
which represented severance and related costs. Approximately $36 million of the
total was capitalized as part of the purchase price of Schneider. The remaining
$26 million was charged to operations during 1998. In addition, as part of the
Schneider acquisition, the Company capitalized estimated costs of approximately
$16 million to cancel Schneider's contractual obligations, primarily with its
distributors.
The Company substantially completed its rationalization plan in 1999, including
the closure of five Schneider facilities as well as the transition of
manufacturing for selected Boston Scientific product lines to different sites.
Approximately 1,800 positions were eliminated (resulting in the termination of
approximately 1,500 employees) in connection with the rationalization plan, and
the anticipated cost savings have been achieved. As noted previously, in the
third quarter of 1999, the Company identified and reversed restructuring and
merger-related charges of $10 million no longer deemed necessary. During 1999,
the costs related to the transition of manufacturing operations were not
significant and were recognized in operations as incurred.
The 1998 rationalization plan also resulted in the decision to expand, not
close, the Target Therapeutics, Inc. (Target) facilities originally provided for
in a 1997 merger-related charge and to relocate other product lines to those
Target facilities. In the fourth quarter of 1998, the Company reversed $21
million of previously recorded merger-related charges, of which $4 million
related to facility costs and which also included reductions for revisions of
estimates relating to contractual commitment payments, associated legal costs
and other asset write-downs originally provided for as a 1997 merger-related
charge.
In the second quarter of 1998, the Company realigned its operating units and
decided to operate Target independently instead of as a part of its vascular
division as was planned at the date of the Target acquisition. Management
believed that an independent Target would allow the business unit to develop its
technologies and markets more effectively than it would as part of the vascular
division. As a result of this decision, the Company reversed $20 million of 1997
Target merger-related charges primarily related to revised estimates for costs
of workforce reductions and costs of canceling contractual commitments. In
addition, the Company recorded purchased research and development of
approximately $11 million in connection
BOSTON SCIENTIFIC AND SUBSIDIARIES F-7
<PAGE> 8
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
with another acquisition consummated during 1998, and, in the fourth quarter of
1998, the Company recorded $30 million of year-end adjustments related primarily
to write-downs of assets no longer deemed to be strategic. The assets related
primarily to inventory, long-lived and intangible assets that the Company did
not believe would be sold or realized, respectively, because of revisions to and
terminations of strategic alliances. The provisions were recorded as costs of
sales ($12 million), selling, general and administrative expenses ($12 million),
amortization expenses ($2 million), royalties ($2 million), research and
development expenses ($1 million) and other expenses ($1 million).
Interest expense increased from $68 million in 1998 to $118 million in 1999. The
overall increase in interest expense was primarily attributable to a higher
average outstanding debt balance borrowed in conjunction with the Schneider
acquisition.
The Company's effective tax rate, including the impact of merger-related charges
and credits, was approximately 4% in 1998 and 34% in 1999. The Company's
pro-forma effective tax rate, excluding the impact of merger-related charges and
credits, increased from approximately 33% in 1998 to 34% in 1999. The increase
is primarily attributable to a shift in the mix of the Company's U.S. and
international business.
LIQUIDITY AND CAPITAL RESOURCES
Cash and short-term investments totaled $60 million at December 31, 2000,
compared to $78 million at December 31, 1999. The Company had $173 million of
working capital at December 31, 2000 as compared to current assets equaling
current liabilities at December 31, 1999. The increase in working capital is
primarily due to the repayment of approximately $340 million of short-term debt
obligations using the Company's cash flows from operations, partially offset by
changes in other working capital accounts. Cash proceeds during 2000 were
generated primarily from operating activities. Cash proceeds during the period
were partially offset by the repayment of approximately $447 million of
outstanding short-term and long-term debt obligations and purchases of the
Company's common stock of approximately $222 million.
The Company had approximately $56 million and $277 million of commercial paper
outstanding at December 31, 2000, and 1999, respectively, at weighted-average
interest rates of 8.00% and 6.70%, respectively. In addition, the Company had
approximately $187 million and $421 million in revolving credit facility
borrowings outstanding at December 31, 2000 and 1999, respectively, at
weighted-average interest rates of 4.54% and 6.66%, respectively. At December
31, 2000, the revolving credit facilities totaled $1.65 billion, consisting of a
$1.0 billion credit facility that terminates in June 2002, a $600 million
364-day credit facility that terminates in September 2001 and a $50 million
uncommitted credit facility. The revolving credit facilities also support the
Company's commercial paper borrowings. Use of the borrowings is unrestricted and
the borrowings are unsecured. The revolving credit facilities require the
Company to maintain a specific ratio of consolidated funded debt (as defined) to
consolidated net worth (as defined) plus consolidated funded debt of less than
or equal to 60%. As of December 31, 2000, the ratio was approximately 26%.
The Company has the ability to refinance a portion of its short-term debt on a
long-term basis through its revolving credit facilities. The Company does not
expect that its short-term borrowings as of December 31, 2000, will remain
outstanding beyond the next twelve months and, accordingly, the Company has not
reclassified any of the short-term borrowings as long-term at December 31, 2000,
compared to $108 million of such reclassifications at December 31, 1999.
In March 1998, the Company issued $500 million of seven-year senior notes. The
senior notes bear a coupon of 6.625% payable semi-annually, and are not
redeemable prior to maturity or subject to any sinking fund requirements.
The Company had 6.0 billion Japanese yen (translated to approximately $53
million and $58 million at December 31, 2000 and 1999, respectively) of
borrowings outstanding with a syndicate of Japanese banks. The interest rate on
the borrowings is 2.37% and the borrowings are payable in 2002. In addition, the
Company had approximately 1.1 billion Japanese yen (translated to approximately
$9 million) and 1.2 billion Japanese yen (translated to approximately $12
million) of borrowings outstanding from a Japanese bank used to finance a
facility construction project at December 31, 2000, and 1999, respectively. The
interest rate on the borrowings is 2.1% and principal payments are due
semi-annually through 2012.
F-8 BOSTON SCIENTIFIC AND SUBSIDIARIES
<PAGE> 9
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
The Company has uncommitted Japanese credit facilities with several Japanese
banks, which provided for borrowings and promissory notes discounting of up to
15.0 billion Japanese yen (translated to approximately $131 million) and 11.5
billion Japanese yen (translated to approximately $112 million) at December 31,
2000 and 1999, respectively. There was $12 million in borrowings outstanding
under the Japanese credit facilities at an interest rate of 1.5% at December 31,
2000 compared to no borrowings at December 31, 1999. At December 31, 2000,
approximately $108 million of notes receivable were discounted at average
interest rates of approximately 1.5% compared to $112 million of discounted
notes receivable at average interest rates of approximately 1.4% at December 31,
1999.
The Company has recognized net deferred tax assets aggregating $226 million at
December 31, 2000, and $238 million at December 31, 1999. The assets relate
principally to the establishment of inventory and product-related reserves and
purchased research and development. In light of the Company's historical
financial performance, the Company believes that these assets will be
substantially recovered.
The Company is authorized to purchase on the open market and in private
transactions up to approximately 60 million shares of the Company's common
stock. Stock repurchased under the Company's systematic plan will be used to
satisfy its obligations pursuant to its equity incentive plans. Under the
authorization, the Company may also repurchase shares outside of the Company's
systematic plan. These additional shares would principally be used to satisfy
the Company's obligations pursuant to its equity incentive plans, but may also
be used for general corporate purposes, including acquisitions. During 2000, the
Company repurchased approximately 12 million shares at an aggregate cost of $222
million. As of December 31, 2000, a total of approximately 38 million shares of
the Company's common stock have been repurchased.
In December 2000, a jury found that the Company's NIR(R) coronary stent
infringed one claim of a patent owned by Johnson & Johnson. A final decision has
not yet been entered pending post trial motions. The Company could be found
liable and owe damages of approximately $324 million for past sales, plus
interest, and additional damages for sales occurring after the jury verdict. The
Company expects to appeal any adverse determination and post the necessary bond
pending appeal.
On February 15, 2001, the Company announced the signing of a definitive
agreement to acquire Interventional Technologies, Inc (IVT). IVT develops,
manufactures and markets minimally invasive devices for use in interventional
cardiology, including the Cutting Balloon(TM) catheter and the Infiltrator(R)
transluminal drug delivery catheter. Boston Scientific will pay approximately
$345 million in cash plus additional cash amounts contingent upon achieving
performance and other milestones. The transaction is subject to regulatory
approval and is expected to be consummated in the second quarter of 2001.
On February 27, 2001, the Company acquired privately held Embolic Protection,
Inc., a developer of embolic protection medical devices. Boston Scientific will
pay approximately $75 million in cash and assumed restricted stock and options
plus additional amounts contingent upon achieving certain performance
milestones. Contingent payments would be made in cash or stock of Boston
Scientific at the Company's election.
On February 28, 2001, the Company announced the signing of a definitive
agreement to acquire Quanam Medical Corporation, (Quanam) a manufacturer of
medical devices that specializes in drug delivery systems. Boston Scientific
will pay an immaterial amount in stock as initial consideration plus additional
payments contingent upon achieving performance and other milestones. Contingent
payments would be made in stock of Boston Scientific.
On March 5, 2001, the Company announced the acquisition of Catheter Innovations,
Inc., a manufacturer of vascular access products. Boston Scientific will pay an
immaterial amount as initial consideration plus additional payments contingent
upon achieving performance and other milestones. Contingent payments would be
made in cash or stock of Boston Scientific at the Company's election.
These acquisition transactions involve contingent payments. The Company expects
to make contingent payments in 2001 of approximately $100 million to $200
million for performance and other milestones achieved in connection with these
transactions. All of these transactions will be accounted for using the purchase
method of accounting.
Management believes it is developing a sound plan to integrate these businesses.
The failure to successfully integrate these businesses effectively could impair
the Company's ability to realize the strategic and financial
BOSTON SCIENTIFIC AND SUBSIDIARIES F-9
<PAGE> 10
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
objectives of these transactions. As the health care environment continues to
undergo rapid change, management expects that it will continue to focus on
strategic initiatives and/or make additional investments in existing
relationships. In connection with these and other acquisitions consummated
during the last five years, the Company has acquired numerous in-process
research and development projects. As the Company continues to build its
research base, it is reasonable to assume that it will acquire additional
research and development platforms.
Additionally, the Company expects to incur capital expenditures of approximately
$100 million during 2001. The Company expects that its cash and cash
equivalents, marketable securities, cash flows from operating activities and
borrowing capacity will be sufficient to meet its projected operating cash
needs, including capital expenditures, restructuring initiatives, and the
above-mentioned acquisitions of businesses.
Further, the Company continues to engage in negotiations to acquire Medinol. If
the Company is successful in its attempt to acquire Medinol, the Company will
need additional financing capacity to consummate the transaction. Although the
Company believes it will be able to obtain additional financing, there are no
assurances that additional financing can be or will be obtained.
MARKET RISK DISCLOSURES
In the normal course of business, the Company is exposed to market risk from
changes in interest rates and foreign currency exchange rates. The Company
addresses these risks through a risk management program that includes the use of
derivative financial instruments. The program is operated pursuant to documented
corporate risk management policies. The Company does not enter into any
derivative transactions for speculative purposes.
The Company's floating and fixed-rate investments and debt obligations are
subject to interest rate risk. As of December 31, 2000, a 100-basis-point
increase in interest rates, assuming the amount invested and borrowed remained
constant, would not result in a material increase in the Company's then current
net interest.
The Company enters into foreign exchange forward contracts to hedge its net
recognized foreign currency transaction exposures for periods consistent with
commitments, generally one to six months. In addition, on January 1, 2000, the
Company initiated a program to hedge a portion of its forecasted intercompany
and third-party transactions with foreign exchange forward and option contracts
upon adoption of the Financial Accounting Standards Board Statement No. 133,
"Accounting for Derivative Instruments and Hedging Activities." Hedging activity
is intended to offset the impact of currency fluctuations on forecasted earnings
and cash flow. However, the Company may be impacted by changes in foreign
currency exchange rates related to the unhedged portion. The success of the
hedging program depends, in part, on forecasts of transaction activity in
various currencies (currently the Japanese yen and the euro). The Company may
experience unanticipated foreign currency exchange gains or losses to the extent
that there are timing differences between forecasted and actual activity during
periods of currency volatility. The Company had foreign exchange forward and
option contracts outstanding in the total notional amount of $452 million and
$128 million as of December 31, 2000, and 1999, respectively. The Company has
recorded approximately $37 million of assets and $1 million of liabilities to
recognize the fair value of its contracts outstanding on December 31, 2000, as
compared to an immaterial amount at December 31, 1999. Foreign exchange
contracts that hedge net recognized foreign currency transaction exposures
should not subject the Company's earnings and cash flow to material risk due to
exchange rate movements because gains and losses on these contracts should
offset losses and gains on the transactions being hedged. Hedges of anticipated
transactions may subject the income statement to volatility.
A sensitivity analysis of changes in the fair value of foreign exchange
contracts outstanding at December 31, 2000 indicates that, if the U.S. dollar
uniformly weakened by 10% against all currencies, the fair value of these
contracts would decrease by $37 million as compared to a $9 million decrease
based on foreign exchange contracts outstanding at December 31, 1999. While
these hedging instruments are subject to fluctuations in value, such
fluctuations are generally offset by changes in the value of the underlying
exposures being hedged. As the Company has expanded its international
operations, its sales and expenses denominated
F-10 BOSTON SCIENTIFIC AND SUBSIDIARIES
<PAGE> 11
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
in foreign currencies have expanded, and that trend is expected to continue.
Therefore, most international sales and expenses have been, and are expected to
be, subject to the effect of foreign currency fluctuations, and these
fluctuations may have an impact on margins. The Company's sensitivity analysis
of the effects of changes in foreign currency exchange rates does not factor in
a potential change in sales levels or local currency selling prices.
Although the Company engages in hedging transactions that may offset the effect
of fluctuations in foreign currency exchange rates on foreign currency
denominated assets, liabilities, earnings and cash flows, financial exposure may
nonetheless result, primarily from the timing of transactions, forecast
volatility and the movement of exchange rates.
EURO CONVERSION
On January 1, 1999, eleven of the fifteen member countries of the European Union
established fixed conversion rates among existing sovereign currencies and the
euro. On January 1, 2001, Greece became the twelfth member of the participating
countries that have agreed to adopt the euro as their common legal currency.
Fixed conversion rates among the participating countries' existing currencies
(the legacy currencies) and the euro have been established. The legacy
currencies are scheduled to remain legal tender as denominations of the euro
until at least January 1, 2002 (but not later than July 1, 2002). During this
transition period, parties may settle transactions using either the euro or a
participating country's legacy currency. The Company has addressed and/or
continues to address the potential impact resulting from the euro conversion,
including adaptation of information technology systems, competitive implications
related to pricing and foreign currency considerations.
Management currently believes that the euro conversion will not have a material
impact related to its overall business in Europe or elsewhere. The increased
price transparency resulting from the use of a single currency in the twelve
participating countries may affect the ability of the Company to price its
products differently in the various European markets. A possible result of this
is price harmonization at lower average prices for products sold in some
markets. However, uncertainty exists as to the effects the euro will have on the
marketplace.
LITIGATION
The Company is involved in various lawsuits, including patent infringement and
product liability suits, from time to time in the normal course of business. In
management's opinion, the Company is not currently involved in any legal
proceeding other than those specifically identified in the notes to the
consolidated financial statements which, individually or in the aggregate, could
have a material effect on the financial condition, operations and cash flows of
the Company. Additionally, legal costs associated with asserting the Company's
patent portfolio and defending against claims that the Company's products
infringe the intellectual property of others are significant, and legal costs
associated with non-patent litigation and compliance activities are rising.
Depending upon the prevalence, significance and complexity of these matters, the
Company's legal provision could be adversely affected in the future.
Further, product liability claims may be asserted in the future relative to
events not known to management at the present time. The Company has insurance
coverage that management believes is adequate to protect against such product
liability losses as could otherwise materially affect the Company's financial
position.
CAUTIONARY STATEMENTS FOR PURPOSES OF THE SAFE HARBOR PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995
This report contains forward-looking statements. The Company desires to take
advantage of the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995 and is including this statement for the express purpose of
availing itself of the protections of the safe harbor with respect to all
forward-looking statements. Forward-looking statements discussed in this report
include, but are not limited to, statements with respect to, and the Company's
performance may be affected by: (a) the Company's ability to timely implement
the global operations plan within its cost estimates, to retain and attract
employees as it implements its plant optimization initiative and to achieve
estimated operating savings; (b) the Company's ability to achieve manufacturing
cost declines, gross margin benefits and inventory reductions from its
manufacturing process and supply chain programs; (c) the Company's ability to
continue to realize benefits from
BOSTON SCIENTIFIC AND SUBSIDIARIES F-11
<PAGE> 12
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
the Schneider acquisition, including purchased research and development and
physician and hospital relationships; (d) the ability of the Company to manage
accounts receivable, manufacturing costs and inventory levels and mix, and to
react effectively to changing managed care environment, reimbursement levels and
worldwide economic conditions; (e) the potential impacts of continued
consolidation among health care providers, trends toward managed care, disease
state management and economically motivated buyers, health care cost
containment, the financial viability of health care providers, more stringent
regulatory requirements and more vigorous enforcement activities; (f)
management's ability to position the Company to take advantage of opportunities
that exist in the markets it serves; (g) the Company's ability to retain its
established sales force; (h) the Company's continued commitment to refine
existing products and procedures and to develop new technologies that can reduce
risk, trauma, cost, procedure time, and the need for aftercare; (i) the
Company's ability to increase its investment in research and development and to
develop, trial and launch products on a timely basis, including products
resulting from purchased research and development; (j) risks associated with
international operations; (k) the potential effect of foreign currency
fluctuations on revenues, expenses and resulting margins and the trend toward
increasing sales and expenses denominated in foreign currencies; (l) the
Company's ability to maintain its effective tax rate for 2001 and to
substantially recover its net deferred tax assets; (m) the ability of the
Company to meet its projected cash needs and obtain additional financing, if
necessary; (n) the ability of the Company to manage its relationship with
Medinol; (o) unforeseen delays, stoppages or interruptions in the supply and/or
mix of NIR(R) coronary stent inventory, difficulties in managing inventory
relating to new product introductions and the Company's cost to purchase the
NIR(R) coronary stent; (p) NIR(R) coronary stent sales as a percentage of
worldwide sales and the mix of coronary stent platforms; (q) volatility in the
coronary stent market, delays in development of new stent platforms and the
timing of submission for and receipt of regulatory approvals to market new
coronary and peripheral stent platforms; (r) the Company's ability to remain
competitive in the coronary stent and balloon markets; (s) the development of
competing or technologically advanced products by the Company's competitors; (t)
the ability of the Company to close the IVT and Quanam acquisitions; (u) the
Company's ability to develop a sound integration plan, effectively integrate
newly acquired businesses and realize their strategic and financial objectives;
(v) the effect of litigation and compliance activities on the Company's legal
provision and cash flow; (w) the impact of stockholder class action, patent,
product liability, Federal Trade Commission and other litigation, as well as the
outcome of the U.S. Department of Justice investigation and the adequacy of the
Company's product liability insurance; (x) the potential impact resulting from
the euro conversion, including adaptation of information technology systems,
competitive implications related to pricing, and foreign currency
considerations; and (y) the timing, size and nature of strategic initiatives and
research and development platforms available to the Company.
Several important factors, in addition to the specific factors discussed in
connection with such forward-looking statements individually, could affect the
future results and growth rates of the Company and could cause those results and
rates to differ materially from those expressed in the forward-looking
statements contained herein. Such additional factors include, among other
things, future economic, competitive and regulatory conditions, demographic
trends, third-party intellectual property, financial market conditions and
future business decisions of Boston Scientific and its competitors, all of which
are difficult or impossible to predict accurately and many of which are beyond
the control of Boston Scientific. Therefore, the Company wishes to caution each
reader of this report to consider carefully these factors as well as the
specific factors discussed with each forward-looking statement in this report
and as disclosed in the Company's filings with the Securities and Exchange
Commission as such factors, in some cases, have affected, and in the future
(together with other factors) could affect, the ability of the Company to
implement its business strategy and may cause actual results to differ
materially from those contemplated by the statements expressed herein.
F-12 BOSTON SCIENTIFIC AND SUBSIDIARIES
<PAGE> 13
CONSOLIDATED STATEMENTS OF OPERATIONS (IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 2000 1999 1998
- ----------------------- ------- ------- -------
<S> <C> <C> <C>
Net sales $ 2,664 $ 2,842 $ 2,234
Cost of products sold 832 986 735
------- ------- -------
Gross profit 1,832 1,856 1,499
Selling, general and administrative expenses 867 842 755
Amortization expense 91 92 53
Royalties 37 46 31
Research and development expenses 199 197 200
Purchased research and development 682
Restructuring and merger-related charges (credits) 58 (10) (15)
------- ------- -------
1,252 1,167 1,706
======= ======= =======
Operating income (loss) 580 689 (207)
Other income (expense):
Interest expense (70) (118) (68)
Other, net 17 (9)
------- ------- -------
Income (loss) before income taxes 527 562 (275)
Income taxes 154 191 (11)
------- ------- -------
Net income (loss) $ 373 $ 371 $ (264)
======= ======= =======
Net income (loss) per common share - basic $ 0.92 $ 0.92 $ (0.68)
======= ======= =======
Net income (loss) per common share - assuming dilution $ 0.91 $ 0.90 $ (0.68)
======= ======= =======
</TABLE>
(SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.)
BOSTON SCIENTIFIC AND SUBSIDIARIES F-13
<PAGE> 14
CONSOLIDATED BALANCE SHEETS (IN MILLIONS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 2000 1999
- ----------------------- ------ ------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 54 $ 64
Short-term investments 6 14
Trade accounts receivable, net 361 445
Inventories 354 376
Deferred income taxes 152 121
Prepaid expenses and other current assets 65 35
------ ------
Total current assets 992 1,055
Property, plant and equipment, net 567 604
Other assets:
Excess of cost over net assets acquired, net 821 840
Technology - core and developed, net 507 570
Patents, trademarks and other intangibles, net 343 316
Deferred income taxes 74 117
Investments 99 55
Other assets 24 15
------ ------
$3,427 $3,572
====== ======
</TABLE>
(SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.)
F-14 BOSTON SCIENTIFIC AND SUBSIDIARIES
<PAGE> 15
CONSOLIDATED BALANCE SHEETS (CONTINUED) (IN MILLIONS, EXCEPT SHARE AND PER SHARE
DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 2000 1999
- ----------------------- ------- -------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Commercial paper $ 56 $ 277
Bank obligations 204 323
Accounts payable 67 92
Accrued expenses 279 286
Accrual for restructuring and merger-related charges 73 32
Income taxes payable 137 42
Other current liabilities 3 3
------- -------
Total current liabilities 819 1,055
Long-term debt 562 678
Obligations under capital leases 12 10
Other long-term liabilities 99 105
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 600,000,000 shares,
414,922,050 shares issued at December 31, 2000 and 1999 4 4
Additional paid-in capital 1,210 1,210
Treasury stock, at cost - 15,074,381 shares at December 31, 2000
and 5,872,857 shares at December 31, 1999 (282) (126)
Deferred compensation (15)
Retained earnings 1,116 752
Accumulated other comprehensive income (loss):
Foreign currency translation adjustment (142) (123)
Unrealized gain on available-for-sale securities, net 17 7
Unrealized gain on derivative financial instruments, net 27
------- -------
Total stockholders' equity 1,935 1,724
------- -------
$ 3,427 $ 3,572
======= =======
</TABLE>
(SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.)
BOSTON SCIENTIFIC AND SUBSIDIARIES F-15
<PAGE> 16
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (IN MILLIONS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
Common Stock Contingent
-------------------------- Additional Stock
Shares Issued Par Paid-In Repurchase Treasury Deferred
(In thousands) Value Capital Obligation Stock Compensation
-------------- --------- ---------- ---------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT
DECEMBER 31, 1997 195,611 $ 2 $ 433 $ 18 $ (96)
Comprehensive loss:
Net loss
Other comprehensive income
(expense), net of tax:
Foreign currency translation
adjustment
Net change in equity
investments
Issuance of common stock 2,047 47 96
Stock split effected in the form
of a stock dividend 196,528 2
Expiration of stock repurchase
obligation 18 (18)
Tax benefit relating to incentive
stock option and employee stock
purchase plans 9
------- -------- -------- -------- -------- --------
BALANCE AT
DECEMBER 31, 1998 394,186 4 507
Comprehensive income:
Net income
Other comprehensive income
(expense), net of tax:
Foreign currency translation
adjustment
Net change in equity
investments
Issuance of common stock 20,736 654 1
Purchases of common stock for
treasury (127)
Tax benefit relating to incentive
stock option and employee stock
purchase plans 49
------- -------- -------- -------- -------- --------
BALANCE AT
DECEMBER 31, 1999 414,922 4 1,210 (126)
Comprehensive income:
Net income
Other comprehensive income
(expense), net of tax:
Foreign currency translation
adjustment
Net change in equity
investments
Net change in derivative
financial instruments
Issuance of common stock (7) 45
Issuance of restricted stock 2 24 $ (26)
Cancellation of restricted stock (3) 3
Purchases of common stock for
treasury (222)
Tax benefit relating to incentive
stock option and employee stock
purchase plans 5
Amortization of deferred
compensation 8
------- -------- -------- -------- -------- --------
BALANCE AT
DECEMBER 31, 2000 414,922 $ 4 $ 1,210 $ (282) $ (15)
======= ======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Accumulated
Other Comprehensive
Retained Comprehensive Income
Earnings Income (Loss) (Loss)
--------- ------------- -------------
<S> <C> <C> <C>
BALANCE AT
DECEMBER 31, 1997 $ 678 $ (77)
Comprehensive loss:
Net loss (264) $ (264)
Other comprehensive income
(expense), net of tax:
Foreign currency translation
adjustment 22 22
Net change in equity
investments (16) (16)
Issuance of common stock (56)
Stock split effected in the form
of a stock dividend (2)
Expiration of stock repurchase
obligation
Tax benefit relating to incentive
stock option and employee stock
purchase plans 25
-------- -------- --------
BALANCE AT
DECEMBER 31, 1998 381 (71) $ (258)
--------
Comprehensive income:
Net income 371 $ 371
Other comprehensive income
(expense), net of tax:
Foreign currency translation
adjustment (51) (51)
Net change in equity
investments 6 6
Issuance of common stock
Purchases of common stock for
treasury
Tax benefit relating to incentive
stock option and employee stock
purchase plans
-------- -------- --------
BALANCE AT
DECEMBER 31, 1999 752 (116) $ 326
--------
Comprehensive income:
Net income 373 $ 373
Other comprehensive income
(expense), net of tax:
Foreign currency translation
adjustment (19) (19)
Net change in equity
investments 10 10
Net change in derivative
financial instruments 27 27
Issuance of common stock (9)
Issuance of restricted stock
Cancellation of restricted stock
Purchases of common stock for
treasury
Tax benefit relating to incentive
stock option and employee stock
purchase plans
Amortization of deferred
compensation
-------- -------- --------
BALANCE AT
DECEMBER 31, 2000 $ 1,116 $ (98) $ 391
======== ======== ========
</TABLE>
(SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.)
F-16 BOSTON SCIENTIFIC AND SUBSIDIARIES
<PAGE> 17
CONSOLIDATED STATEMENTS OF CASH FLOWS (IN MILLIONS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 2000 1999 1998
- ----------------------- ------- ------- -------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ 373 $ 371 $ (264)
Adjustments to reconcile net income (loss)
to cash provided by operating activities:
Gain on sale of equity investments (14) (5)
Depreciation and amortization 181 178 129
Deferred income taxes 2 (29) (151)
Noncash special credits (5) (36)
Purchased research and development 682
Tax benefit relating to stock option and
employee stock purchase plans 5 49 34
Increase (decrease) in cash flows from
operating assets and liabilities:
Trade accounts receivable 78 82 (95)
Inventories 15 68 (26)
Prepaid expenses and other current assets (24) 8 7
Accounts payable and accrued expenses (27) 38 36
Accrual for restructuring and
merger-related charges 45 (45) (22)
Other liabilities 91 58 11
Other, net 14 3 (7)
------- ------- -------
Cash provided by operating activities 739 776 293
INVESTING ACTIVITIES:
Purchases of property, plant and equipment (76) (80) (175)
Proceeds from sales of property, plant and equipment 4 21 1
Sales of available-for-sale securities 15 5 11
Acquisitions of businesses, net of cash acquired (2,060)
Payments related to 1998 acquisition (128)
Payments for acquisitions of and/or investments
in certain technologies, net (50) (3) (2)
------- ------- -------
Cash used for investing activities (107) (185) (2,225)
FINANCING ACTIVITIES:
Net (decrease) increase in commercial paper (221) (1,539) 1,393
Net (payments on) proceeds from borrowings
on revolving credit facilities (234) 421
Proceeds from notes payable and long-term debt,
net of debt issuance costs 22 8 522
Payments on notes payable, capital leases and
long-term borrowings (14) (10) (33)
Proceeds from issuances of shares of common stock 29 655 66
Acquisitions of treasury stock (222) (127)
Other, net 2 (1) (5)
------- ------- -------
Cash (used for) provided by financing activities (638) (593) 1,943
Effect of foreign exchange rates on cash (4) (4) 1
------- ------- -------
Net (decrease) increase in cash and cash equivalents (10) (6) 12
Cash and cash equivalents at beginning of year 64 70 58
------- ------- -------
Cash and cash equivalents at end of year $ 54 $ 64 $ 70
======= ======= =======
</TABLE>
(SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.)
BOSTON SCIENTIFIC AND SUBSIDIARIES F-17
<PAGE> 18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include the
accounts of Boston Scientific Corporation (Boston Scientific or the Company) and
its subsidiaries, substantially all of which are wholly-owned, and include the
results of Schneider Worldwide (Schneider) beginning in September 1998.
Investments in companies, representing 20% to 50% of their ownership, are
accounted for under the equity method, including the Company's 22% ownership in
Medinol Ltd. (Medinol). Income recorded in connection with these investments did
not have a material impact on the Company's operating results during the periods
presented. Investments in companies, representing less than 20% of their
ownership, are accounted for under the cost method.
ACCOUNTING ESTIMATES: The preparation of financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements, and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
TRANSLATION OF FOREIGN CURRENCY: All assets and liabilities of foreign
subsidiaries are translated at the rate of exchange at year end while sales and
expenses are translated at the average rates in effect during the year. The net
effect of these translation adjustments is shown in the accompanying financial
statements as a component of stockholders' equity.
CASH AND CASH EQUIVALENTS: The Company considers all highly liquid investments
purchased with a maturity of three months or less to be cash equivalents.
SHORT-TERM INVESTMENTS: Short-term investments are recorded at fair value, which
approximates cost.
CONCENTRATION OF CREDIT RISK: Financial instruments that potentially subject the
Company to concentration of credit risk consist primarily of temporary cash and
cash equivalents, marketable securities, derivative instrument contracts and
accounts receivable. The Company invests its excess cash primarily in
high-quality securities and limits the amount of credit exposure to any one
financial institution. The Company's investment policy limits exposure to
concentration of credit risk and changes in market conditions. Counterparties to
financial instruments expose the Company to credit-related losses in the event
of non-performance. The Company transacts derivative instrument contracts with
major financial institutions to limit its credit exposure.
The Company provides credit, in the normal course of business, primarily to
hospitals, private and governmental institutions and health care agencies and
doctors' offices. The Company performs ongoing credit evaluations of its
customers and maintains allowances for potential credit losses.
INVENTORIES: Inventories are stated at the lower of first-in, first-out cost or
market. Generally, write-downs of consignment inventory are charged to selling,
general and administrative expenses.
PROPERTY, PLANT AND EQUIPMENT: Property, plant, equipment and leaseholds are
stated at historical cost. Expenditures for maintenance and repairs are charged
to expense; betterments are capitalized. The Company provides for depreciation
and amortization by the straight-line method at rates which are intended to
depreciate and amortize the cost of these assets over their estimated useful
lives. Buildings and improvements are depreciated over a 15-to-40 year life;
equipment, furniture and fixtures are depreciated over a 2-to-12 year life.
Leasehold improvements are amortized on a straight-line basis over the shorter
of the useful life of the improvement or the term of the lease.
The Company receives grant money equal to a percentage of expenditures on
eligible capital equipment, which is recorded as deferred income and recognized
ratably over the life of the underlying assets. The grant money would be
repayable, in whole or in part, should the Company fail to meet certain
employment goals.
INTANGIBLE ASSETS: Intangible assets are recorded at historical cost and
amortized using the straight-line method over the following lives: Patents and
trademarks (3 - 20 years); Licenses (2 - 20 years); Core and developed
technology (3 - 25 years); Excess of cost over net assets acquired (8 - 40
years); Other intangibles (various).
The Company reviews its excess of cost over net assets acquired and other
intangible assets to determine if any adverse conditions exist that would
indicate impairment. Conditions that would trigger an impairment assessment
include, but are not limited to, a significant adverse change in legal factors
or business climate that could affect the value of an asset or an adverse action
or assessment by a regulator. If the carrying amount of an asset exceeds the sum
of its undiscounted cash flows, the carrying value is written down to fair value
F-18 BOSTON SCIENTIFIC AND SUBSIDIARIES
<PAGE> 19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
in the period identified. Fair value is calculated as the present value of
estimated future cash flows using a risk-adjusted discount rate commensurate
with the Company's weighted-average cost of capital.
INCOME TAXES: The Company utilizes the asset and liability method for accounting
for income taxes. Under this method, deferred tax assets and liabilities are
determined based on differences between financial reporting and tax bases of
assets and liabilities. Deferred tax assets and liabilities are measured using
the enacted tax rates and laws that will be in effect when the differences are
expected to reverse.
Income taxes are provided on unremitted earnings of subsidiaries outside the
United States (U.S.) where such earnings are expected to be repatriated. The
Company intends to determine annually the amount of unremitted earnings of
non-U.S. subsidiaries to invest indefinitely in its non-U.S. operations. It is
not practical to estimate the amount of taxes payable on earnings determined to
be invested indefinitely in non-U.S. operations. At December 31, 2000,
unremitted earnings of non-U.S. subsidiaries were $758 million.
REVENUE RECOGNITION: The Company recognizes revenue from the sale of its
products when the products are shipped to its customers unless a consignment
arrangement exists. Revenue from consignment customers is recognized based on
notification from the customer of usage indicating sales are complete. The
Company allows its customers to return certain products for credit. The Company
also allows customers to return defective or damaged products for credit or
replacement. Accruals are made and evaluated for adequacy for all returns.
LEGAL COSTS: The Company accrues costs of settlement, damages and, under certain
conditions, costs of defense when such costs are probable and estimable.
Otherwise, such costs are expensed as incurred.
RESEARCH AND DEVELOPMENT: Research and development costs are expensed as
incurred.
STOCK COMPENSATION ARRANGEMENTS: The Company accounts for its stock compensation
arrangements under the provisions of APB Opinion No. 25, "Accounting for Stock
Issued to Employees," and intends to continue to do so. The Company has adopted
the disclosure-only provisions of Statement of Financial Accounting Standards
(SFAS) No. 123, "Accounting for Stock-Based Compensation." Any compensation cost
on fixed awards with pro rata vesting is recognized on a straight-line basis
over the award's vesting period.
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES: As of January 1, 2000, the
Company adopted Financial Accounting Standards Board Statement No. 133,
"Accounting for Derivative Instruments and Hedging Activities," which was issued
in June, 1998 and its amendments Statements 137, "Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective Date of FASB
Statement No. 133" and 138, "Accounting for Derivative Instruments and Certain
Hedging Activities" issued in June 1999 and June 2000, respectively
(collectively referred to as Statement 133).
As a result of adoption of Statement 133, the Company recognizes all derivative
financial instruments in the consolidated financial statements at fair value
regardless of the purpose or intent for holding the instrument. Changes in the
fair value of derivative financial instruments are either recognized
periodically in earnings or in stockholders' equity as a component of
comprehensive income depending on whether the derivative financial instrument
qualifies for hedge accounting. Changes in fair values of derivatives not
qualifying for hedge accounting are reported in earnings.
The Company recorded an immaterial transition adjustment upon adoption of
Statement 133.
NEW ACCOUNTING STANDARD: In December 1999, the Securities and Exchange
Commission issued Staff Accounting Bulletin (SAB) No. 101, "Revenue Recognition
in Financial Statements," which the Company adopted in the fourth quarter of
2000. SAB 101 provides a framework for various revenue recognition issues and
more conservative interpretations of existing accounting guidance. The Company's
adoption of this bulletin had no material effect on the Company's reported
results of operations or financial position.
SHIPPING AND HANDLING COSTS: The Company does not generally recognize revenue
from shipping and handling of its products. Shipping and handling costs are
recorded as selling, general and administrative expenses.
NET INCOME PER COMMON SHARE: Net income (loss) per common share is based upon
the weighted-average number of common shares, common share equivalents and the
dilutive effect of European put options, if applicable, outstanding each year.
The Company paid a two-for-one stock split on November 30, 1998. All historical
per-share amounts have been restated to reflect the stock split.
RECLASSIFICATIONS: Certain prior years' amounts have been reclassified to
conform to the current year's presentation.
BOSTON SCIENTIFIC AND SUBSIDIARIES F-19
<PAGE> 20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE B - OTHER BALANCE SHEET INFORMATION
Components of other selected captions in the Consolidated Balance Sheets at
December 31 consisted of:
<TABLE>
<CAPTION>
(In millions) 2000 1999
- ------------- ---- ----
<S> <C> <C>
TRADE ACCOUNTS RECEIVABLE
Accounts receivable $428 $508
Less allowances 67 63
---- ----
$361 $445
==== ====
INVENTORIES
Finished goods $172 $194
Work-in-process 59 60
Raw materials 123 122
---- ----
$354 $376
==== ====
PROPERTY, PLANT AND EQUIPMENT
Land $ 56 $ 56
Buildings and improvements 365 376
Equipment, furniture and fixtures 521 508
---- ----
942 940
Less accumulated depreciation and amortization 375 336
---- ----
$567 $604
==== ====
EXCESS OF COST OVER NET ASSETS ACQUIRED
Excess of cost over net assets acquired $879 $886
Less accumulated amortization 58 46
---- ----
$821 $840
==== ====
TECHNOLOGY - CORE AND DEVELOPED
Core technology $421 $421
Developed technology 220 222
---- ----
641 643
Less accumulated amortization 134 73
---- ----
$507 $570
==== ====
PATENTS, TRADEMARKS AND OTHER
Patents and trademarks $296 $284
Licenses 102 69
Other 77 75
---- ----
475 428
Less accumulated amortization 132 112
---- ----
$343 $316
==== ====
ACCRUED EXPENSES
Payroll and related liabilities $112 $ 97
Other 167 189
---- ----
$279 $286
==== ====
</TABLE>
During 2000, the Company purchased approximately $130 million of NIR(R) coronary
stents from Medinol and had approximately $149 million of net NIR(R) inventory
on hand as of December 31, 2000. Any delays, stoppages, or interruptions in the
supply and/or mix of the NIR(R) stent could adversely affect the operating
results of the Company. Worldwide NIR(R) coronary stent sales were approximately
15% of 2000 worldwide sales.
F-20 BOSTON SCIENTIFIC AND SUBSIDIARIES
<PAGE> 21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE C - CASH, CASH EQUIVALENTS AND INVESTMENTS
Cash, cash equivalents and investments, stated at fair value, consisted of the
following:
<TABLE>
<CAPTION>
Gross Gross
Fair Unrealized Unrealized Amortized
(In millions) Value Gains Losses Cost
- ------------- ----- ---------- ---------- ---------
<S> <C> <C> <C> <C>
DECEMBER 31, 2000
AVAILABLE-FOR-SALE:
Cash and money market accounts $54 $54
Equity securities (with a readily
determinable fair value) 42 $28 $ 1 15
--- --- --- ---
$96 $28 $ 1 $69
DECEMBER 31, 1999
AVAILABLE-FOR-SALE:
Cash and money market accounts $64 $64
Equity securities (with a readily
determinable fair value) 29 $17 $ 5 17
--- --- --- ---
$93 $17 $ 5 $81
--- --- --- ---
</TABLE>
The Company has no trading securities. Unrealized gains and temporary losses for
available-for-sale securities are excluded from earnings and are reported, net
of tax, as a separate component of stockholders' equity until realized. The cost
of available-for-sale securities is based on the specific identification method.
At December 31, 2000 and 1999, the Company had investments totaling $63 million,
including its investment in Medinol, and $40 million, respectively, in which the
fair value was not readily determinable. During 2000, the Company received cash
dividends of approximately $25 million, net of tax, from Medinol.
NOTE D - BORROWINGS AND CREDIT ARRANGEMENTS
The Company's borrowings at December 31 consisted of:
<TABLE>
<CAPTION>
(In millions) 2000 1999
---- ----
<S> <C> <C>
Commercial paper $ 56 $277
Bank obligations - short-term 204 323
Long-term debt - fixed rate 562 570
Long-term debt - floating rate 108
Capital leases (see Note E) 12 10
---- ----
</TABLE>
The Company had approximately $56 million and $277 million of commercial paper
outstanding at December 31, 2000 and 1999, respectively, at weighted-average
interest rates of 8.00% and 6.70%, respectively. In addition, the Company had
approximately $187 million and $421 million in revolving credit facility
borrowings outstanding at December 31, 2000 and 1999, respectively, at
weighted-average interest rates of 4.54% and 6.66%, respectively. At December
31, 2000, the revolving credit facilities totaled $1.65 billion, consisting of a
$1.0 billion credit facility that terminates in June 2002, a $600 million
364-day credit facility that terminates in September 2001 and a $50 million
uncommitted credit facility. The revolving credit facilities also support the
Company's commercial paper borrowings. Use of the borrowings is unrestricted and
the borrowings are unsecured. The revolving credit facilities require the
Company to maintain a specific ratio of consolidated funded debt (as defined) to
consolidated net worth (as defined) plus consolidated funded debt of less than
or equal to 60%. The ratio was approximately 26% and 37% at December 31, 2000
and 1999, respectively.
The Company has the ability to refinance a portion of its short-term debt on a
long-term basis through its revolving credit facilities. The Company does not
expect that its short-term borrowings as of
BOSTON SCIENTIFIC AND SUBSIDIARIES F-21
<PAGE> 22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 2000 will remain outstanding beyond the next twelve months and,
accordingly, the Company has not reclassified any of the short-term borrowings
as long-term at December 31, 2000, compared to $108 million of such
reclassifications at December 31, 1999.
In March 1998, the Company issued $500 million of seven-year senior notes. The
senior notes bear a coupon of 6.625% payable semi-annually, and are not
redeemable prior to maturity or subject to any sinking fund requirements.
The Company had 6.0 billion Japanese yen (translated to approximately $53
million and $58 million at December 31, 2000 and 1999, respectively) of
borrowings outstanding with a syndicate of Japanese banks. The interest rate on
the borrowings is 2.37% and the borrowings are payable in 2002. In addition, the
Company had approximately 1.1 billion Japanese yen (translated to approximately
$9 million) and 1.2 billion Japanese yen (translated to approximately $12
million) of borrowings outstanding from a Japanese bank used to finance a
facility construction project at December 31, 2000 and 1999, respectively. The
interest rate on the borrowings is 2.1% and principal payments are due
semi-annually through 2012.
The Company has uncommitted Japanese credit facilities with several Japanese
banks, which provided for borrowings and promissory notes discounting of up to
15.0 billion Japanese yen (translated to approximately $131 million) and 11.5
billion Japanese yen (translated to approximately $112 million) at December 31,
2000 and 1999, respectively. There was $12 million in borrowings outstanding
under the Japanese credit facilities at an interest rate of 1.5% at December 31,
2000, compared to no borrowings at December 31, 1999. At December 31, 2000,
approximately $108 million of notes receivable were discounted at average
interest rates of approximately 1.5% compared to $112 million of discounted
notes receivable at average interest rates of approximately 1.4% at December 31,
1999.
In addition, the Company had other outstanding short-term bank obligations of $5
million and $10 million at December 31, 2000 and 1999, respectively, at
weighted-average interest rates of 6.04% and 5.04%, respectively.
Interest paid, including interest paid under capital leases and mortgage loans,
amounted to $69 million in 2000, $117 million in 1999, and $65 million in 1998.
NOTE E - LEASES
Rent expense amounted to $36 million in 2000, $37 million in 1999 and $40
million in 1998. Future minimum rental commitments as of December 31, 2000 under
noncancelable capital and operating lease agreements are as follows:
<TABLE>
<CAPTION>
Year Ended
December 31, Capital Operating
(In millions) Leases Leases
- ------------- ------- ---------
<S> <C> <C>
2001 $ 2 $ 32
2002 2 27
2003 3 14
2004 3 9
2005 2 8
Thereafter 9 51
---- ----
Total minimum lease payments 21 $141
==== ====
Amount representing interest 9
---- ----
Present value of minimum lease payments $ 12
==== ====
</TABLE>
NOTE F - FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in estimating its
fair value disclosures for financial instruments. However, considerable judgment
is required in interpreting market data to develop the estimates of fair value.
Accordingly, the estimates presented herein are not necessarily indicative of
the amounts that the Company could realize in a current market exchange.
CASH AND CASH EQUIVALENTS: The carrying amounts reported in the balance sheets
for cash and cash equivalents are valued at cost which approximates their fair
value.
INVESTMENTS: The fair values for marketable debt and equity securities are based
on quoted market prices when readily determinable.
COMMERCIAL PAPER AND BANK OBLIGATIONS: The carrying amounts of the Company's
borrowings under its commercial paper program and its financing agreements
approximate their fair value.
LONG-TERM DEBT: The fair value of the Company's fixed rate long-term debt is
estimated
F-22 BOSTON SCIENTIFIC AND SUBSIDIARIES
<PAGE> 23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
based on quoted market prices. The carrying amounts of the Company's floating
rate long-term debt approximate their fair value.
FOREIGN EXCHANGE CONTRACTS: The fair values of foreign exchange contracts are
estimated based on the amount that the Company would receive or pay to terminate
the agreements at the reporting date. The Company had foreign exchange contracts
outstanding in the notional amounts of $452 million and $128 million as of
December 31, 2000 and 1999, respectively.
The carrying amounts and fair values of the Company's financial instruments at
December 31, 2000 and 1999 are as follows:
<TABLE>
<CAPTION>
2000 1999
----------------- -----------------
Carrying Fair Carrying Fair
(In millions) Amount Value Amount Value
- ------------- -------- ----- -------- -----
<S> <C> <C> <C> <C>
ASSETS:
Cash, cash equivalents and investments $ 96 $ 96 $ 93 $ 93
Foreign exchange contracts 37 37
LIABILITIES:
Commercial paper $ 56 $ 56 $277 $277
Bank obligations - short-term 204 204 323 323
Long-term debt - fixed rate 562 518 570 530
Long-term debt - floating rate 108 108
Foreign exchange contracts 1 1
---- ---- ---- ----
</TABLE>
BOSTON SCIENTIFIC AND SUBSIDIARIES F-23
<PAGE> 24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE G - INCOME TAXES
Income (loss) before income taxes consisted of:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
(In millions) 2000 1999 1998
- ------------- ----- ----- -----
<S> <C> <C> <C>
Domestic $ 272 $ 422 $(346)
Foreign 255 140 71
----- ----- -----
$ 527 $ 562 $(275)
===== ===== =====
</TABLE>
The related provision (benefit) for income taxes consisted of:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
(In millions) 2000 1999 1998
- ------------- ----- ----- -----
<S> <C> <C> <C>
Current:
Federal $ 115 $ 164 $ 106
State 8 17 21
Foreign 29 39 13
----- ----- -----
152 220 140
===== ===== =====
Deferred:
Federal (9) (8) (112)
State (1) (1) (27)
Foreign 12 (20) (12)
----- ----- -----
2 (29) (151)
----- ----- -----
$ 154 $ 191 $ (11)
===== ===== =====
</TABLE>
The reconciliation of taxes on income at the federal statutory rate to the
actual provision (benefit) for income taxes is:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
(In millions) 2000 1999 1998
- ------------- ----- ----- -----
<S> <C> <C> <C>
Tax at statutory rate $ 184 $ 197 $ (96)
State income taxes, net of federal benefit 5 11 8
Effect of foreign taxes (36) (20) (25)
Non-deductible merger-related expenses and
purchased research and development 93
Other, net 1 3 9
----- ----- -----
$ 154 $ 191 $ (11)
===== ===== =====
</TABLE>
F-24 BOSTON SCIENTIFIC AND SUBSIDIARIES
<PAGE> 25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Significant components of the Company's deferred tax assets and liabilities at
December 31 consisted of:
<TABLE>
<CAPTION>
(In millions) 2000 1999
- ------------- ----- -----
<S> <C> <C>
Deferred tax assets:
Inventory costs, intercompany profit and related reserves $ 92 $ 89
Tax benefit of net operating loss and tax credits 33 42
Reserves and accruals 36 21
Restructuring and merger-related charges, including
purchased research and development 228 230
Other, net 28 21
----- -----
417 403
Less valuation allowance on deferred tax assets 27 38
----- -----
$ 390 $ 365
===== =====
Deferred tax liabilities:
Property, plant and equipment $ (4) $ (3)
Intangible assets (66) (45)
Unremitted earnings of subsidiaries (58) (59)
Unrealized gains and losses on available-for-sale securities (10) (5)
Unrealized gains and losses on derivative financial instruments (16)
Other (10) (15)
----- -----
(164) (127)
===== =====
$ 226 $ 238
===== =====
</TABLE>
At December 31, 2000, the Company had U.S. tax net operating loss carryforwards
and tax credits of approximately $23 million that expire periodically beginning
in the year 2007. In addition, the Company had foreign tax net operating loss
carryforwards of approximately $10 million that will expire periodically
beginning in the year 2002. The Company established a valuation allowance of $27
million for these carryforwards. The reduction from 1999 to 2000 in the
valuation allowance is primarily related to the utilization of net operating
loss carryforwards that were previously restricted by U.S. tax law.
Income taxes paid amounted to $50 million in 2000, $93 million in 1999 and $109
million in 1998. The income tax provision (benefit) of the unrealized gain or
loss component of other comprehensive income (loss) was approximately $21
million, $4 million, and $(11) million for 2000, 1999, and 1998, respectively.
BOSTON SCIENTIFIC AND SUBSIDIARIES F-25
<PAGE> 26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE H - STOCKHOLDERS' EQUITY
PREFERRED STOCK: The Company is authorized to issue 50 million shares of
preferred stock in one or more series and to fix the powers, designations,
preferences and relative participating, option or other rights thereof,
including dividend rights, conversion rights, voting rights, redemption terms,
liquidation preferences and the number of shares constituting any series,
without any further vote or action by the Company's stockholders. At December
31, 2000, the Company had no shares of preferred stock outstanding.
COMMON STOCK: The Company is authorized to issue 600 million shares of common
stock, $.01 par value per share. Holders of common stock are entitled to one
vote per share. Holders of common stock are entitled to receive dividends when
and if declared by the Board of Directors and to share ratably in the assets of
the Company legally available for distribution to its stockholders in the event
of liquidation. Holders of common stock have no preemptive, subscription,
redemption or conversion rights. The holders of common stock do not have
cumulative voting rights. The holders of a majority of the shares of common
stock can elect all of the directors and can control the management and affairs
of the Company.
The Company paid a two-for-one stock split on November 30, 1998. All historical
share and per share amounts have been restated to reflect the stock split except
for share amounts presented in the Consolidated Statements of Stockholders'
Equity which reflect the actual share amounts outstanding for each period
presented.
On June 30, 1999, the Company completed a public offering of 14.950 million
shares of its common stock at a price of $39.875 per share under a $1.2 billion
shelf registration filed with the Securities and Exchange Commission in
September 1998. The Company used the net proceeds from the public offering of
approximately $578 million to repay borrowings under the revolving credit
facilities. Approximately $604 million remain available for the issuance of
various debt or equity securities under the shelf registration.
The Company is authorized to purchase on the open market and in private
transactions up to approximately 60 million shares of the Company's common
stock. Stock repurchased under the Company's systematic plan will be used to
satisfy its obligations pursuant to its equity incentive plans. Under the
authorization, the Company may also repurchase shares outside of the Company's
systematic plan. These additional shares would principally be used to satisfy
the Company's obligations pursuant to its equity incentive plans, but may also
be used for general corporate purposes, including acquisitions. During 2000, the
Company repurchased approximately 12 million shares at an aggregate cost of $222
million. As of December 31, 2000, a total of approximately 38 million shares of
the Company's common stock have been repurchased.
NOTE I - STOCK OWNERSHIP PLANS
EMPLOYEE AND DIRECTOR STOCK INCENTIVE PLANS
Boston Scientific's 1992 and 1995 Long-Term Incentive Plans provide for the
issuance of up to 40 million shares of common stock. During 2000, the Company's
Board of Directors and stockholders approved and adopted the Boston Scientific
2000 Long-Term Incentive Plan, which reserves an additional 20 million shares of
common stock for issuance under this plan. The terms of these three plans are
similar. Together, the plans cover officers of, directors of, employees of and
consultants to the Company and provide for the grant of various incentives,
including qualified and non-qualified options, stock grants, share appreciation
rights and performance awards. Options granted to purchase shares of common
stock are either immediately exercisable or exercisable in installments as
determined by the Compensation Committee of the Board of Directors, consisting
of two or more non-employee directors (the Committee), and, expire within ten
years from date of grant. In the case of qualified options, if an employee owns
more than 10% of the voting power of all classes of stock, the option granted
will be at 110% of the fair market value of the Company's common stock on the
date of grant and will expire over a period not to exceed five years.
The Committee may also make stock grants in which shares of common stock may be
issued to directors, officers, employees and consultants at a purchase price
less than fair market value. The terms and conditions of such issuances,
including whether achievement of individual or Company performance targets is
required for the retention of such awards, are determined by the Committee. The
Committee may also issue shares of common stock and/or authorize cash awards
under the incentive plans in recognition of the
F-26 BOSTON SCIENTIFIC AND SUBSIDIARIES
<PAGE> 27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
achievement of long-term performance objectives established by the Committee.
In January 2000, the Company granted under its 1992 and 1995 Long-Term Incentive
Plans approximately 1.1 million shares of its common stock to a limited group of
employees subject to certain forfeiture restrictions. The purpose of the program
was to help retain key employees. The market value of these shares was
approximately $26 million on the date of issuance and the vesting period is
three years. This amount was recorded as deferred compensation and is shown as a
separate component of stockholders' equity. The deferred compensation is being
amortized to expense over the vesting period and amounted to approximately $8
million for the year ended December 31, 2000. During the year ended December 31,
2000, approximately 143,000 shares of restricted stock were forfeited. No stock
grants were issued in 1999 and 5,000 shares were issued during 1998.
Boston Scientific's 1992 Non-Employee Directors' Stock Option Plan provides for
the issuance of up to 200,000 shares of common stock and authorizes the
automatic grant to outside directors of options to acquire a specified number of
shares of common stock generally on the date of each annual meeting of the
stockholders of the Company. Options under this plan are exercisable ratably
over a three-year period and expire ten years from the date of grant.
Shares reserved for future issuance under all of the Company's incentive plans
totaled approximately 52 million at December 31, 2000.
If the Company had elected to recognize compensation expense for the granting of
options under stock option plans based on the fair values at the grant dates
consistent with the methodology prescribed by SFAS No. 123, "Accounting for
Stock-Based Compensation," net income (loss) and earnings (loss) per share would
have been reported as the following pro forma amounts:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
(In millions, except per share data) 2000 1999 1998
- ------------------------------------ -------- -------- --------
<S> <C> <C> <C>
Net income (loss)
As reported $ 373 $ 371 $ (264)
Pro forma 333 329 (302)
-------- -------- --------
Earnings (loss) per common share - assuming dilution
As reported $ 0.91 $ 0.90 $ (0.68)
Pro forma 0.83 0.80 (0.77)
======== ======== ========
</TABLE>
The weighted-average grant-date fair value per share of options granted during
2000, 1999 and 1998, calculated using the Black-Scholes options pricing model,
is $8.67, $13.81 and $13.13, respectively.
The fair value of the stock options used to calculate the pro forma net income
(loss) and earnings (loss) per share amounts above is estimated using the
Black-Scholes options pricing model with the following weighted-average
assumptions:
<TABLE>
<CAPTION>
2000 1999 1998
--------- --------- ---------
<S> <C> <C> <C>
Dividend yield 0% 0% 0%
Expected volatility 47.20% 48.60% 37.80%
Risk-free interest rate 6.01% 5.37% 5.64%
Actual forfeitures 2,737,000 1,272,000 1,127,000
Expected life 4.6 4.2 3.7
========= ========= =========
</TABLE>
BOSTON SCIENTIFIC AND SUBSIDIARIES F-27
<PAGE> 28
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Information related to stock options at December 31 under stock incentive plans
is as follows:
<TABLE>
<CAPTION>
(Option amounts in thousands) 2000 1999 1998
- ----------------------------- -------------------- -------------------- --------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
------- -------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at January 1 31,511 $23.63 32,048 $20.45 33,206 $15.76
Granted 18,441 18.22 6,634 31.57 6,621 35.91
Exercised (1,348) 11.23 (5,195) 12.39 (5,557) 10.19
Canceled (4,031) 28.18 (1,976) 28.29 (2,222) 22.02
------ ------ ------ ------ ------ ------
Outstanding at December 31 44,573 21.36 31,511 23.63 32,048 20.45
====== ====== ====== ====== ====== ======
Exercisable at December 31 16,921 $19.56 13,346 $16.22 13,053 $11.58
====== ====== ====== ====== ====== ======
</TABLE>
Below is additional information related to stock options outstanding and
exercisable at December 31, 2000:
<TABLE>
<CAPTION>
Stock Options
(Option amounts in thousands) Stock Options Outstanding Exercisable
- ----------------------------- ----------------------------------- -----------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Contractual Exercise Exercise
Range of Exercise Prices Options Life Price Options Price
- ------------------------ ------- ----------- -------- ------- --------
<S> <C> <C> <C> <C> <C>
$0.00 - 8.00 3,669 2.61 $ 5.71 3,669 $ 5.71
8.01-16.00 11,655 8.10 12.82 3,765 13.65
16.01-24.00 9,586 8.25 18.68 3,004 20.53
24.01-32.00 11,332 7.65 26.42 3,480 25.07
32.01-40.00 8,105 7.77 36.14 2,945 36.37
40.01-48.00 226 8.53 44.96 58 44.85
------ ---- ------ ------ ------
44,573 7.51 $21.36 16,921 $19.56
====== ==== ====== ====== ======
</TABLE>
STOCK PURCHASE PLAN
Boston Scientific's Global Employee Stock Ownership Plan (Stock Purchase Plan)
provides for the granting of options to purchase up to 3 million shares of the
Company's common stock to all eligible employees. Under the Stock Purchase Plan,
each eligible employee is granted, at the beginning of each period designated by
the Committee as an offering period, an option to purchase shares of the
Company's common stock equal to not more than 10% of the employee's eligible
compensation. Such options may be exercised generally only to the extent of
accumulated payroll deductions at the end of the offering period, at a purchase
price equal to 85% of the fair market value of the Company's common stock at the
beginning or end of each offering period, whichever is less.
During 2000, approximately 754,000 shares were issued at prices ranging from
$18.59 to $18.65 per share. During 1999, approximately 603,000 shares were
issued at prices ranging from $22.47 to $22.79 per share, and during 1998,
approximately 380,000 shares were issued at $23.35 per share. At December 31,
2000, there were approximately 219,000 shares available for future issuance.
F-28 BOSTON SCIENTIFIC AND SUBSIDIARIES
<PAGE> 29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE J - EARNINGS PER SHARE
The following table sets forth the computations of basic and diluted earnings
per share:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
(In millions, except share and per share data) 2000 1999 1998
- ---------------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
BASIC:
Net income (loss) $ 373 $ 371 $ (264)
========= ========= =========
Weighted average shares
outstanding (in thousands) 405,271 404,783 390,836
========= ========= =========
Net income (loss) per
common share $ 0.92 $ 0.92 $ (0.68)
========= ========= =========
ASSUMING DILUTION:
Net income (loss) $ 373 $ 371 $ (264)
========= ========= =========
Weighted average shares
outstanding (in thousands) 405,271 404,783 390,836
Net effect of dilutive stock-based
compensation (in thousands) 3,051 6,568
--------- ---------
Total 408,322 411,351 390,836
========= ========= =========
Net income (loss) per
common share $ 0.91 $ 0.90 $ (0.68)
========= ========= =========
</TABLE>
During 2000, 1999 and 1998, approximately 24 million, 7 million and 7 million
potential common shares, respectively, were not included in the computation of
earnings per share, assuming dilution, because exercise prices were greater than
the average market price of the common shares. In addition, during 1998,
approximately 9 million stock options were not included in the computation of
earnings per share, assuming dilution, because they would have been
antidilutive.
NOTE K - DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
Upon adoption of Statement 133, the Company initiated a program to hedge a
portion of its forecasted intercompany and third-party transactions with foreign
exchange forward and option contracts. These contracts are entered into to
reduce the risk that the Company's earnings and cash flows resulting from
certain forecasted transactions will be adversely affected by changes in foreign
currency exchange rates. However, the Company may be impacted by changes in
foreign currency exchange rates related to the unhedged portion. The success of
the hedging program depends, in part, on forecasts of transaction activity in
various currencies (currently the Japanese yen and the euro). The Company may
experience unanticipated foreign currency exchange gains or losses to the extent
that there are timing differences between forecasted and actual activity during
periods of currency volatility. However, since the critical terms of forward
contracts designated as cash flow hedging instruments are the same as the
underlying forecasted transaction, changes in the fair value of forward
contracts should be highly effective in offsetting the present value of changes
in the expected cash flows from the forecasted transaction. The ineffective
portion of any changes in the fair value of option contracts designated as cash
flow hedging instruments is recognized immediately in earnings. The Company did
not recognize material gains or losses resulting from either hedge
ineffectiveness or changes in forecast probability during 2000.
The effective portion of any changes in the fair value of the derivative
instruments, designated as cash flow hedges, is recorded in accumulated other
comprehensive income/(loss) (AOCI) until the third-party
BOSTON SCIENTIFIC AND SUBSIDIARIES F-29
<PAGE> 30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
transaction associated with the hedged forecasted transaction occurs. Once the
third-party transaction associated with the hedged forecasted transaction
occurs, the effective portion of any related gain or loss on the cash flow hedge
is reclassified from AOCI to earnings. In the event the hedged forecasted
intercompany or third-party transaction does not occur, or it becomes probable
that it will not occur, the effective portion of any gain or loss on the related
cash flow hedge would be reclassified from AOCI to earnings at that time.
The Company recognized a net gain of approximately $8 million in earnings from
derivative instruments designated as cash flow hedges of forecasted transactions
during 2000. All of the derivative instruments, designated as cash flow hedges,
outstanding at December 31, 2000, mature within the subsequent 24-month period.
As of December 31, 2000, approximately $27 million of unrealized net gains have
been recorded in AOCI, net of tax, to recognize the effective portion of any
fair value of derivative instruments that are, or previously were, designated as
cash flow hedges. Of this amount, a gain of approximately $14 million, net of
tax, is expected to be reclassified to earnings within the next twelve months to
mitigate foreign exchange risk.
Furthermore, the Company continues to hedge predominantly all of its net
recognized foreign currency transactional exposures with forward foreign
exchange contracts to reduce the risk that the Company's earnings and cash flows
will be adversely affected by changes in foreign currency exchange rates. These
foreign exchange contracts are not designated as cash flow, fair value or net
investment hedges under Statement 133. These derivative instruments do not
subject the Company's earnings or cash flows to material risk due to exchange
rate movements because gains and losses on these derivatives offset losses and
gains on the assets and liabilities being hedged. These forward foreign exchange
contracts are entered into for periods consistent with commitments, generally
one to six months.
In June 2000, the FASB approved certain interpretations of Statement 133 that
affected the accounting for cash flow hedges of forecasted intercompany
transactions in a manner that was not consistent with the intended accounting
under the Company's hedging strategy. As a result, effective July 1, 2000, the
Company removed the cash flow hedge designation from a portion of its derivative
instruments that matured on various dates prior to December 31, 2000.
Accordingly, changes in the fair value of derivative instruments that hedged
forecasted transactions but were not designated as cash flow hedges were
recorded in earnings each period. The Company recognized a net gain of
approximately $6 million in earnings from these dedesignated hedges during 2000.
NOTE L - COMMITMENTS AND CONTINGENCIES
On May 16, 2000, the Company entered into an agreement with Guidant Corporation
(Guidant) to settle all outstanding litigation between the two companies and
their affiliates. The Company and Guidant had pending a number of lawsuits in
the U.S. and Europe in which each had accused the other of patent infringement.
The litigation involved coronary stent delivery systems and dilatation
catheters. As part of the settlement, the companies agreed to license certain
patents to each other. In addition, the companies agreed to specified financial
terms depending upon the ultimate resolution of Guidant's August 12, 1998,
lawsuit against the Company filed in Indiana related to the Company's NIR(R)
stent and of the Company's May 31, 1994, lawsuit against Guidant in California
related to Guidant's RX ELIPSE(TM) PTCA catheter and RX MULTILINK(TM) stent
delivery system (described below). All other disputes between the parties were
dismissed.
On May 31, 1994, SCIMED Life Systems, Inc. (SCIMED), a subsidiary of the
Company, filed a suit for patent infringement against Advanced Cardiovascular
Systems, Inc. (ACS), a subsidiary of Guidant, alleging willful infringement of
two of SCIMED's U.S. patents by ACS's RX ELIPSE(TM) PTCA catheter. The suit was
filed in the U.S. District Court for the Northern District of California seeking
monetary and injunctive relief. In January 1998, the Company added the ACS RX
MULTILINK(TM) stent delivery system to its complaint. On June 6, 1999, the Court
granted summary judgment in favor of ACS affirming that SCIMED's patents were
not infringed. SCIMED has appealed the judgment. A hearing was held October 2,
2000, and the Company is awaiting the decision.
On August 12, 1998, ACS and an affiliate of ACS filed suit for patent
infringement against the Company and SCIMED alleging that the Company's NIR(R)
stent infringes five patents owned by ACS. The suit was filed
F-30 BOSTON SCIENTIFIC AND SUBSIDIARIES
<PAGE> 31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
in the U.S. District Court for the Southern District of Indiana seeking
injunctive and monetary relief. On June 28, 2000, the Court granted the
Company's motion to dismiss the action. ACS has appealed the decision.
On March 25, 1996, Cordis Corporation (Cordis), a subsidiary of Johnson &
Johnson Company (Johnson & Johnson), filed a suit for patent infringement
against SCIMED, alleging the infringement of five U.S. patents by SCIMED's
LEAP(R) balloon material used in certain SCIMED catheter products, including
SCIMED's BANDIT(TM) and EXPRESS PLUS(TM) catheters. The suit was filed in the
U.S. District Court for the District of Minnesota and seeks monetary and
injunctive relief. SCIMED has answered, denying the allegations of the
complaint. A trial date has not yet been set.
On March 27, 1997, SCIMED filed suit for patent infringement against Cordis,
alleging willful infringement of several SCIMED U.S. patents by Cordis'
TRACKSTAR 14(TM), TRACKSTAR 18(TM), OLYMPIX(TM), POWERGRIP(TM), SLEEK(TM),
SLEUTH(TM), THOR(TM), TITAN(TM) and VALOR(TM) catheters. The suit was filed in
the U.S. District Court for the District of Minnesota, seeking monetary and
injunctive relief. The parties have agreed to add Cordis' CHARGER(TM) and
HELIX(TM) catheters to the suit. Cordis has answered, denying the allegations of
the complaint. A trial date has not yet been set.
On March 13, 1997, the Company (through its subsidiaries) filed suits against
Johnson & Johnson (through its subsidiaries) in The Netherlands, the United
Kingdom and Belgium, and on March 17, 1997, filed suit in France, seeking a
declaration of noninfringement for the NIR(R) stent relative to two European
patents licensed to Ethicon, Inc. (Ethicon), a Johnson & Johnson subsidiary, as
well as a declaration of invalidity with respect to those patents. After a trial
on the merits in the United Kingdom during March 1998, the court ruled on June
26, 1998, that neither of the patents is infringed by the NIR(R) stent, and that
both patents are invalid. Ethicon appealed, and on March 20, 2000, the appellate
court upheld the trial outcome. On October 28, 1998, the Company's motion for a
declaration of noninfringement in France was dismissed for failure to satisfy
statutory requirements; the French invalidity suits were not affected.
On March 20, 21 and 22, 1997, the Company (through its subsidiaries) filed
additional suits against Johnson & Johnson (through its subsidiaries) in Sweden,
Italy and Spain, respectively, seeking a declaration of noninfringement for the
NIR(R) stent relative to one of the European patents licensed to Ethicon in
Sweden, Italy and Spain and a declaration of invalidity in Italy and Spain. In
Italy, following a July 9, 1999, hearing, a technical expert was appointed by
the court. Ethicon and other Johnson & Johnson subsidiaries filed a cross-border
suit in The Netherlands on March 17, 1997, alleging that the NIR(R) stent
infringes one of the European patents licensed to Ethicon. In this action, the
Johnson & Johnson entities requested relief, including provisional relief (a
preliminary injunction), covering Austria, Belgium, France, Greece, Italy, The
Netherlands, Norway, Spain, Sweden, Switzerland and the United Kingdom. On April
2, 1997, the Johnson & Johnson entities filed a similar cross-border proceeding
in The Netherlands with respect to a second European patent licensed to Ethicon.
Johnson & Johnson subsequently withdrew its request for cross-border relief in
the United Kingdom. In October, 1997, Johnson & Johnson's request for
provisional cross-border relief on both patents was denied by the Dutch court,
on the ground that it is "very likely" that the NIR(R) stent will be found not
to infringe the patents. Johnson & Johnson appealed this decision with respect
to the second patent; the appeal has been denied on the ground that there is a
"ready chance" that the patent will be declared null and void. In January 1999,
Johnson & Johnson amended the claims of the second patent, changed the action
from a cross-border case to a Dutch national action, and indicated its intent
not to pursue its action on the first patent. On June 23, 1999, the Dutch Court
affirmed that there were no remaining infringement claims with respect to either
patent. In late 1999, Johnson & Johnson appealed this decision. A hearing on the
appeal has not yet been scheduled.
On May 6, 1997, Ethicon Endosurgery, Inc., sued the Company in Dusseldorf,
Germany, alleging that the Company's NIR(R) stent infringes one of Ethicon's
patents. On June 23, 1998, the case was stayed following a decision in an
unrelated nullity action in which the Ethicon patent was found to be invalid.
On August 22, 1997, Johnson & Johnson filed a suit for patent infringement
against the Company alleging that the sale of the NIR(R) stent infringes certain
BOSTON SCIENTIFIC AND SUBSIDIARIES F-31
<PAGE> 32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Canadian patents owned by Johnson & Johnson. Suit was filed in the federal court
of Canada seeking a declaration of infringement, monetary damages and injunctive
relief. The Company has answered, denying the allegations of the complaint. A
trial is expected to begin in fall 2002.
On October 22, 1997, Cordis filed a suit for patent infringement against the
Company and SCIMED alleging that the importation and use of the NIR(R) stent
infringes two patents owned by Cordis. On April 13, 1998, Cordis filed a suit
for patent infringement against the Company and SCIMED alleging that the
Company's NIR(R) stent infringes two patents owned by Cordis. The suits were
filed in the U.S. District Court for the District of Delaware seeking monetary
damages, injunctive relief and that the patents be adjudged valid, enforceable
and infringed. A trial on both actions was held in November and December 2000. A
jury found that the NIR(R) stent does not infringe three Cordis patents, but
does infringe one Cordis patent and awarded damages of approximately $324
million to Cordis. A final decision has not yet been entered by the Court
pending post trial motions scheduled through June 2001.
On June 7, 1999, the Company, SCIMED and Medinol filed suit for patent
infringement against Johnson & Johnson, Johnson & Johnson Interventional Systems
and Cordis, alleging two U.S. patents owned by Medinol are infringed by at least
Cordis' CROWN(TM), MINI CROWN(TM) and CORINTHIAN(TM) stents. The suit was filed
in the U.S. District Court for the District of Minnesota seeking injunctive and
monetary relief. The case has been transferred to the U.S. District Court for
the District of Delaware. A trial is scheduled to begin in August 2001.
On March 24, 2000, the Company (through its subsidiaries) and Medinol filed a
cross-border suit against Johnson & Johnson, Cordis and certain of their foreign
subsidiaries in The Netherlands alleging Cordis' BX Velocity(TM) stent delivery
system infringes one of Medinol's European patents. In this action, the Company
and Medinol requested monetary and injunctive relief covering The Netherlands,
Austria, Belgium, Switzerland, Germany, Denmark, Spain, France, Greece, Ireland,
Italy, Liechtenstein, Luxembourg, Monaco, Portugal and Sweden. A hearing was
held January 12, 2001. A decision is expected in March 2001.
On March 30, 2000, the Company (through its subsidiary) filed suit for patent
infringement against two subsidiaries of Cordis alleging that Cordis' BX
Velocity stent delivery system infringes a published utility model owned by
Medinol and exclusively licensed to the Company. The complaint was filed in the
District Court of Dusseldorf, Germany, seeking monetary and injunctive relief. A
hearing is scheduled for March 15, 2001.
On April 14, 2000, the Company (through its subsidiaries) and Medinol filed suit
for patent infringement against Johnson & Johnson, Cordis, and a subsidiary of
Cordis alleging that Cordis' BX Velocity stent delivery system infringes a
patent owned by Medinol. The complaint was filed in the U.S. District Court for
the District of Delaware seeking monetary and injunctive relief. The Company
filed a motion seeking a preliminary injunction, and a hearing on the motion was
held on August 3, 2000. Trial is expected to begin in August 2001.
On August 13, 1998, Arterial Vascular Engineering, Inc., now named Medtronic AVE
Inc. (AVE), filed a suit for patent infringement against the Company and SCIMED
alleging that the Company's NIR(R) stent infringes two patents owned by AVE. The
suit was filed in the U.S. District Court for the District of Delaware seeking
injunctive and monetary relief. On May 25, 2000, AVE amended the complaint to
include a third patent. The Company and SCIMED have answered, denying the
allegations of the complaint. Trial is expected to begin in January 2002.
On December 15, 1998, the Company and SCIMED filed a cross-border suit against
AVE in The Netherlands alleging that AVE's AVE GFX(TM), AVE GFX 2(TM), AVE
LTX(TM) and USCI CALYPSO(TM) rapid exchange catheters and stent delivery systems
infringe one of the Company's European patents. In this action, the Company
requested relief covering The Netherlands, the United Kingdom, France, Germany
and Italy. A hearing on the merits was held on October 22, 1999. The Court
delayed its decision pending advice from the Dutch Patent Office, which was
recently received. A final hearing has not yet been scheduled.
On December 18, 1998, AVE filed a suit for patent infringement against the
Company and SCIMED alleging that the Company's MAXXUM(TM) and VIVA!(TM)
catheters infringe a patent owned by AVE. The suit was
F-32 BOSTON SCIENTIFIC AND SUBSIDIARIES
<PAGE> 33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
filed in the U.S. District Court for the District of Delaware seeking injunctive
and monetary relief. The Company and SCIMED have answered, denying the
allegations of the complaint. A trial is scheduled for June 4, 2001.
On March 10, 1999, the Company (through its subsidiary Schneider (Europe) AG)
filed suit against AVE alleging that AVE's AVE GFX, AVE GFX2, AVE LTX, CALYPSO
RELY(TM), PRONTO SAMBA(TM) and SAMBA RELY(TM) rapid-exchange catheters and stent
delivery systems infringe one of the Company's German patents. The suit was
filed in the District Court of Dusseldorf, Germany, seeking injunctive and
monetary relief. A hearing was held on January 27, 2000. The Court has delayed
its decision pending expert advice and on May 15, 2000, the Court appointed a
technical expert.
On April 6, 1999, AVE filed suit against SCIMED and another subsidiary of the
Company alleging that the Company's NIR(R) stent infringes one of AVE's European
patents. The suit was filed in the District Court of Dusseldorf, Germany,
seeking injunctive and monetary relief. A hearing was held in Germany on
September 23, 1999, and on November 4, 1999, the court dismissed the complaint.
On December 21, 1999, AVE appealed the dismissal and a hearing is scheduled for
May 2001.
On May 14, 1999, Medtronic, Inc. (Medtronic), filed suit against the Company and
SCIMED alleging that a variety of the Company's NIR(R) stent products infringe a
Medtronic patent. The suit was filed in the U.S. District Court for the District
of Minnesota seeking injunctive and monetary relief. In February 2000, the court
found that the NIR(R) stent products do not infringe Medtronic's patent and the
suit was dismissed. Medtronic appealed the decision. A hearing on the appeal was
held on January 9, 2001, and the Company is awaiting the decision.
On July 7, 1999, Medtronic filed suit against the Company and SCIMED, alleging
that SCIMED's RADIUS(TM) stent infringes two patents owned by Medtronic. The
suit was filed in the U.S. District Court for the District Court of Minnesota
seeking injunctive and monetary relief. The Company has answered, denying
allegations of the complaint. A trial is scheduled for July 2001.
On March 28, 2000, the Company and certain subsidiaries filed suit for patent
infringement against AVE alleging that AVE's S670 rapid exchange coronary stent
system infringes a patent licensed to the Company. The suit was filed in the
U.S. District Court for the Northern District of California seeking monetary and
injunctive relief. In July 2000, this matter was sent to arbitration. An
arbitration hearing is currently scheduled for April 2001 to determine whether
AVE's S670 and S660 rapid exchange coronary stent delivery systems and the R1
rapid exchange catheter are licensed pursuant to the terms of a preexisting
settlement agreement.
On December 6, 2000, the Company and SCIMED filed suit for patent infringement
against AVE alleging that AVE's S660 and S670 coronary stent delivery systems
and R1 rapid exchange catheter infringe a patent owned by the Company. The suit
was filed in the United States District Court for the District of Delaware
seeking monetary and injunctive relief.
On March 7, 1996, Cook Inc. (Cook), filed suit in the Regional Court, Munich
Division for Patent Disputes, in Munich, Germany, against MinTec, Inc. Minimally
Invasive Technologies alleging that the Cragg EndoPro(TM) System I and
Stentor(TM) endovascular device infringe a certain Cook patent. Following the
purchase of the assets of the Endotech/MinTec companies by the Company, the
Company assumed control of the litigation. A final hearing was held on May 12,
1999, and the court held no infringement of the Cook patents. The case was
dismissed in June 1999. Cook has appealed the decision. On July 27, 2000, the
Court stayed the action pending the outcome of a nullity action filed by the
Company against the patent.
On June 30, 1998, Cook filed suit in the Regional Court, Dusseldorf Division for
Patent Disputes, in Dusseldorf, Germany, against the Company alleging that the
Company's PASSAGER(TM) peripheral vascular stent graft and VANGUARD(TM)
endovascular aortic graft products infringe the same Cook patent. A hearing was
held on July 22, 1999, and a decision was received in September 1999 finding the
Company's products infringe the Cook patent. The Company appealed the decision.
A hearing is scheduled for June 21, 2001.
BOSTON SCIENTIFIC AND SUBSIDIARIES F-33
<PAGE> 34
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
On March 18, 1999, Cook filed suit against the Company and SCIMED, alleging that
SCIMED's RADIUS(TM) coronary stent infringes a certain U.S. patent owned by
Cook. The suit was filed in the U.S. District Court for the Southern District of
Indiana seeking monetary damages and injunctive relief. On July 14, 1999, Cook
filed an amended complaint adding Meadox Medicals, Inc. (Meadox), a wholly owned
subsidiary of the Company, as a party to the suit, and adding a breach of
contract claim. The Company, SCIMED and Meadox have answered, denying the
allegations of the complaint. A trial date is scheduled for April 2002.
On May 19, 2000, the Company and SCIMED filed suit against a subsidiary of Cook
alleging that Cook's MBL-4(TM), MBL-6(TM), MBL-4-XL(TM) and MBL-6-OV(TM)
ligating devices infringe three of the Company's patents. The suit was filed in
the U.S. District Court for the District of Massachusetts seeking monetary
damages and injunctive relief. Cook counterclaimed seeking declaratory judgment
that the Company's patents are invalid and unenforceable and Cook's products do
not infringe the Company's patents. The Company filed a motion requesting a
preliminary injunction which was denied in September 2000. The Company has
appealed the court's decision and a hearing on the appeal has not yet been
scheduled.
On February 3, 1999, the Company filed suit against Influence, Inc. (Influence),
alleging that Influence infringes certain of the Company's patents covering the
treatment of female urinary incontinence. The suit was filed in the Northern
District of California. Influence counterclaimed, alleging that the Company
infringes certain Influence patents, also relating to the treatment of female
urinary incontinence. On January 31, 2001, the Company and Influence entered
into an agreement to settle the litigation. Pursuant to the terms of the
agreement, both parties will cross-license patents relating to certain treatment
for female urinary incontinence.
On March 27, 2000, American Medical Systems, Inc. (AMS), filed suit against the
Company alleging that the Company induces infringement of an AMS patent covering
a certain treatment for female urinary incontinence. The complaint also alleges
misappropriation of trade secrets and breach of contract. The suit was filed in
the U.S. District Court for the District of Minnesota seeking monetary and
injunctive relief. On January 31, 2001, the Company and AMS entered into an
agreement to settle the litigation. Pursuant to the terms of the agreement, both
parties will cross-license patents relating to certain treatment for female
urinary incontinence.
On October 31, 2000, the Federal Trade Commission (FTC) filed suit against the
Company for alleged violations of a Consent Order dated May 5, 1995, pursuant to
which the Company had licensed certain intravascular ultrasound technology to
Hewlett-Packard Company (HP). The suit was filed in the U.S. District Court for
the District of Massachusetts seeking civil penalties and injunctive relief. The
Company has filed a motion to dismiss the complaint, and the FTC has filed a
motion for summary judgment. The motions are scheduled to be heard on May 3,
2001.
Beginning November 4, 1998, a number of shareholders of the Company, on behalf
of themselves and all others similarly situated, filed purported stockholders'
class action suits in the U.S. District Court for the District of Massachusetts
alleging that the Company and certain of its officers violated certain sections
of the Securities Exchange Act of 1934. The complaints principally alleged that
as a result of certain accounting irregularities involving the improper
recognition of revenue by the Company's subsidiary in Japan, the Company's
previously issued financial statements were materially false and misleading. In
August 1999, lead plaintiffs and lead counsel filed a purported consolidated
class action complaint adding allegations that the Company issued false and
misleading statements with respect to the launch of its NIR ON(R) Ranger(TM)
with Sox(TM) coronary stent delivery system and the system's subsequent recall.
The Company and its officers have filed a motion to dismiss the consolidated
complaint. The Plaintiffs have opposed the Company's motion to dismiss the
consolidated complaint.
On July 28, 2000, Dr. Tassilo Bonzel filed a complaint naming certain of the
Company's Schneider Worldwide subsidiaries and Pfizer Inc. (Pfizer), and certain
of its affiliates as defendants, alleging that Pfizer failed to pay Dr. Bonzel
amounts owed under a license agreement involving Dr. Bonzel's patented
Monorail(TM) technology. The suit was filed in the District Court for the State
of Minnesota seeking monetary relief. Dr. Bonzel has also provided a notice of
breach of the agreement which could lead to its termination. On September 5,
2000, the Company and Boston Scientific Scimed, Inc. (formerly known as
Schneider (USA), Inc.), filed suit against
F-34 BOSTON SCIENTIFIC AND SUBSIDIARIES
<PAGE> 35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Dr. Bonzel in the U.S. District Court for the District of Massachusetts seeking
a declaratory judgment of non-infringement, because the Company has not breached
the terms of the license agreement and that Dr. Bonzel is estopped from
asserting infringement. Dr. Bonzel filed a motion to dismiss or stay the
Massachusetts action, and a hearing was held on October 25, 2000. A decision on
this motion is pending.
The Company is aware that the U.S. Department of Justice is conducting an
investigation of matters that include the Company's NIR ON(R) Ranger(TM) with
Sox(TM) coronary stent delivery system which was voluntarily recalled by the
Company in October 1998 following reports of balloon leaks. The Company is
cooperating fully in the investigation.
The Company is involved in various other lawsuits from time to time. In
management's opinion, the Company is not currently involved in any legal
proceedings other than those specifically identified above which, individually
or in the aggregate, could have a material effect on the financial condition,
operations or cash flows of the Company. As of December 31, 2000, the potential
exposure for litigation-related accruable costs is estimated to range from $16
million to $27 million. The Company's total accrual as of December 31, 2000, and
1999 for litigation-related reserves was approximately $16 million and $46
million, respectively. As of December 31, 2000, the range of loss for reasonably
possible contingencies that can be estimated is $0 to $344 million, plus
interest, and additional damages for sales occurring after the jury verdict
related to the Cordis suit for patent infringement filed on October 22, 1997.
The Company believes that it has meritorious defenses against claims that it has
infringed patents of others. However, there can be no assurance that the Company
will prevail in any particular case. An adverse outcome in one or more cases in
which the Company's products are accused of patent infringement could have a
material adverse effect on the Company. Further, product liability claims may be
asserted in the future relative to events not known to management at the present
time. The Company has insurance coverage which management believes is adequate
to protect against product liability losses as could otherwise materially affect
the Company's financial position.
NOTE M - BUSINESS COMBINATIONS
On September 10, 1998, the Company consummated its acquisition of Schneider
Worldwide, formerly a member of the Medical Technology Group of Pfizer Inc., for
$2.2 billion, net of assets acquired and liabilities assumed. The acquisition
was accounted for using the purchase method of accounting. The consolidated
financial statements include Schneider's operating results from the date of
acquisition. The aggregate purchase price has been allocated to the assets
acquired and liabilities assumed based on their estimated fair values at date of
acquisition. The excess of purchase price over the fair value of net tangible
assets acquired was allocated to specific intangible asset categories. These
categories include core technology, developed technology, assembled workforce,
customer lists, trademarks and patents, which are being amortized on a
straight-line basis over periods ranging from 9 to 25 years and the excess of
cost over net assets acquired, which is being amortized on a straight-line basis
over 40 years.
In connection with the acquisition of Schneider, the Company recorded a charge
to account for purchased research and development. The valuation of purchased
research and development, for which management is primarily responsible,
represents the estimated fair value at the date of acquisition related to
in-process projects. As of the date of acquisition, the in-process projects had
not yet reached technological feasibility and had no alternative future uses.
Accordingly, the value attributable to these projects was immediately expensed
at acquisition. If the projects are not successful or completed in a timely
manner, the Company may not realize the financial benefits expected for these
projects.
The income approach was used to establish the fair values of the purchased
research and development. This approach established the fair value of an asset
by estimating the after-tax cash flows attributable to the in-process project
over its useful life and then discounting these after-tax cash flows back to a
present value. Revenue estimates were based on estimates of relevant market
sizes, expected market growth rates, expected trends in technology and expected
product introductions by competitors. In arriving at the value of the in-process
research and development projects, the Company considered, among other factors,
the
BOSTON SCIENTIFIC AND SUBSIDIARIES F-35
<PAGE> 36
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
in-process project's stage of completion, the complexity of the work completed
as of the acquisition date, the costs already incurred, the projected costs to
complete, the contribution of core technologies and other acquired assets, the
expected introduction date, and the estimated useful life of the technology. The
discount rate used to arrive at a present value as of the date of acquisition
was based on the time value of money and medical technology investment risk
factors. For the Schneider purchased research and development programs, a
risk-adjusted discount rate of 28% was utilized to discount the projected cash
flows. The Company believes that the estimated purchased research and
development amounts so determined represent the fair value at the date of
acquisition and do not exceed the amount a third party would pay for the
projects.
The most significant Schneider purchased research and development projects that
were in-process at the date of acquisition were brachytherapy, devices for
aneurysmal disease and coronary stents, which represented approximately 26%, 20%
and 16% of the in-process value, respectively. Set forth below are descriptions
of these in-process projects, including their status at the end of 2000.
The brachytherapy system is an intravascular radiation system designed to reduce
clinical restenosis after a balloon angioplasty and/or a stent procedure. The
system consists of a computer-controlled afterloader, beta radiation source,
centering catheter, source delivery wire and dummy wire. As of the date of
acquisition, the project was expected to be completed and the products
commercially available in the U.S. within two to three years, with an estimated
cost to complete of approximately $5 million to $10 million.
The aneurysmal disease projects are endoluminal graft devices for the treatment
of late stage vascular aneurysms and occlusions. The most significant of the
projects in this category at the date of acquisition was the endoluminal graft
for the treatment of abdominal aortic aneurysms. As of the date of acquisition,
the projects were expected to be completed and the products commercially
available in the U.S. within two to three years, with an estimated cost to
complete of approximately $10 million to $15 million.
Coronary stent systems underway at the date of acquisition were stent systems
for native coronary artery disease, saphenous vein graft disease, and versions
with novel delivery systems. The Company believes that the stent systems will be
especially helpful in the treatment of saphenous vein graft disease. As of the
date of acquisition, the projects were expected to be completed and the products
commercially available for sale in the U.S. within one year with an estimated
cost to complete of approximately $1 million to $3 million.
In the second quarter of 2000, the brachytherapy project was discontinued due to
system performance issues. However, the Company recently outsourced this project
to a third party in which it holds a minority interest. As part of a subsequent
project consolidation program, the Schneider abdominal aortic aneurysm project
has been integrated with another internal project. As a result, the Company will
pursue the development of next generation products for aortic aneurysmal disease
with an integrated platform while minimizing duplicative research and
development. The cost of the development is still estimated to be in the range
of approximately $10 million to $15 million. The coronary stent projects have
been completed.
The following unaudited pro forma information presents a summary of consolidated
results of operations of the Company and Schneider as if the acquisition had
occurred at the beginning of 1998, with pro forma adjustments to give effect to
amortization of intangibles, purchased research and development, an increase in
interest expense on acquisition financing and certain other adjustments together
with related tax effects:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
(In millions, except per share data) 1998
- ------------------------------------ -------
<S> <C>
Net sales $ 2,483
Net loss (303)
Net loss per share - assuming dilution (0.77)
-------
</TABLE>
F-36 BOSTON SCIENTIFIC AND SUBSIDIARIES
<PAGE> 37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE N - RESTRUCTURING AND MERGER-RELATED CHARGES
At December 31, 2000, the Company had an accrual for restructuring and
merger-related charges of $73 million, which is comprised of $58 million of
accrued severance and related costs associated with the Company's 2000 plant
optimization initiative, $8 million for costs accrued in connection with the
Schneider acquisition (primarily costs for canceling contractual commitments and
for severance and related costs) and $7 million of accruals remaining for 1998
and prior restructuring and merger-related initiatives (primarily costs
associated with rationalized facilities and statutory benefits that are subject
to litigation).
During 2000, the Company approved and committed to a global operations plan
which encompasses a series of strategic initiatives to increase productivity and
enhance innovation. The plan includes manufacturing process and supply chain
programs and a plant optimization initiative. The intent of the plant
optimization initiative is to better allocate the Company's resources by
creating a more effective network of manufacturing and research and development
facilities. The Company's plan includes the discontinuation of manufacturing
activities at two facilities in the U.S. and the closure of a third facility.
The Company expects that the plan will be substantially completed over the next
twelve months. During 2000, the Company recorded a pre-tax special charge of
approximately $58 million associated with the plant optimization initiative. The
charge relates to severance and outplacement costs for the approximately 1,950
manufacturing, manufacturing support and management employees who are expected
to be affected by the plan over the next twelve months. Less than $1 million had
been charged against the related accrual for the approximately 10 employees
terminated pursuant to the plan as of December 31, 2000.
The Company expects that it will make total cash outlays, net of proceeds from
building and fixed asset sales, of approximately $115 million for the plant
optimization initiative, $85 million of which the Company expects to make during
2001 with the remainder being primarily severance costs for employees terminated
during 2001 but paid out in 2001 and 2002.
During 1998, the Company established a rationalization plan in conjunction with
the consummation of the Schneider acquisition, taking into consideration
duplicate capacity as well as opportunities for further leveraging of cost and
technology platforms. The Company's actions, approved and committed to in the
fourth quarter of 1998, included the planned displacement of approximately 2,000
positions, over half of which were manufacturing positions. During the fourth
quarter of 1998, the Company estimated the costs associated with these
activities, excluding transition costs, to be approximately $62 million, most of
which represented severance and related costs. Approximately $36 million of the
total was capitalized as part of the purchase price of Schneider. The remaining
$26 million was charged to operations during 1998. In addition, as part of the
Schneider acquisition, the Company capitalized estimated costs of approximately
$16 million to cancel Schneider's contractual obligations, primarily with its
distributors.
The Company substantially completed its rationalization plan in 1999, including
the closure of five Schneider facilities as well as the transition of
manufacturing for selected Boston Scientific product lines to different sites.
Approximately 1,800 positions were eliminated (resulting in the termination of
approximately 1,500 employees) in connection with the rationalization plan. In
1999, the Company identified and reversed restructuring and merger-related
charges of $10 million no longer deemed necessary. These amounts relate
primarily to the rationalization plan recorded in the fourth quarter of 1998 and
reflect the reclassification of assets from held-for-disposal to held-for-use
resulting from management's decision to resume a development program previously
planned to be eliminated. In addition, estimated severance costs for 1998
initiatives were reduced as a result of attrition. The Company also recorded
additional costs of $6 million as part of the purchase price of Schneider in
1999, representing revised estimates to recorded liabilities. During 2000 and
1999, the costs related to the transition of manufacturing operations were not
significant and were recognized in operations as incurred.
The 1998 rationalization plan also resulted in the decision to expand, not
close, the Target facilities originally provided for in a 1997 merger-related
charge and to relocate other product lines to those Target facilities. In the
fourth quarter of 1998, the Company reversed $21 million of previously recorded
merger-related charges of which $4 million related to facility costs and which
also included reductions for revisions of estimates relating to contractual
commitment payments, associated legal costs and other asset
BOSTON SCIENTIFIC AND SUBSIDIARIES F-37
<PAGE> 38
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
write-downs originally provided for as a 1997 merger charge. In the second
quarter of 1998, the Company realigned its operating units and decided to
operate Target independently instead of as a part of its vascular division as
was planned at the date of the Target acquisition. As a result, in the second
quarter of 1998, the Company reversed $20 million of 1997 merger-related charges
primarily related to revised estimates for costs of workforce reductions and
costs of canceling contractual commitments.
The activity impacting the accrual for restructuring and merger-related charges
during 2000, 1999 and 1998, net of reclassifications made by management based on
available information, is summarized in the table below:
<TABLE>
<CAPTION>
Purchase Charges Purchase
Balance at Price (Credits) to Charges Balance at Price
December 31, Adjustments Operations Utilized December 31, Adjustment
(In millions) 1997 in 1998 in 1998 in 1998 1998 in 1999
- ------------- ------------ ----------- ------------ -------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
1998 AND PRIOR
RESTRUCTURING AND
MERGER-RELATED
INITIATIVES AND
ADJUSTMENTS
Facilities $ 20 $ (4) $ (5) $11
Workforce reductions 25 $36 (2) (15) 44 $ 3
Contractual commitments 30 16 (7) (21) 18 3
Asset write-downs 16 1 (6) 11
Direct transaction and
other costs 11 (3) (3) 5
---- --- ---- ---- --- ---
$102 $52 $(15) $(50) $89 $ 6
==== === ==== ==== === ===
2000 RESTRUCTURING
INITIATIVE:
Workforce reductions
- ----------------------- ---- --- ---- ---- --- ---
TOTAL:
Facilities $20 $ (4) $(5) $11
Workforce reductions 25 $36 (2) (15) 44 $ 3
Contractual commitments 30 16 (7) (21) 18 3
Asset write-downs 16 1 (6) 11
Direct transaction and
other costs 11 (3) (3) 5
---- --- ---- ---- --- ---
$102 $52 $(15) $(50) $89 $ 6
==== === ==== ==== === ===
</TABLE>
F-38 BOSTON SCIENTIFIC AND SUBSIDIARIES
<PAGE> 39
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
Credits to Charges Balance at Charges to Charges Balance at
Operations Utilized December 31, Operations Utilized December 31,
(In millions) in 1999 in 1999 1999 in 2000 in 2000 2000
- ------------- ---------- -------- ------------ ---------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
1998 AND PRIOR
RESTRUCTURING AND
MERGER-RELATED
INITIATIVES AND
ADJUSTMENTS
Facilities $ (1) $ (7) $ 3 $ (1) $ 2
Workforce reductions (4) (24) 19 (14) 5
Contractual commitments (14) 7 (1) 6
Asset write-downs (4) (3) 4 (4)
Direct transaction and
other costs (1) (1) 3 (1) 2
---- ---- --- ---- ---
$(10) $(49) $36 $(21) $15
==== ==== === ==== ===
2000 RESTRUCTURING
INITIATIVE:
Workforce reductions $58 $58
- -------------------------- ---- ---- --- === ---- ===
TOTAL:
Facilities $ (1) $ (7) $ 3 $ (1) $ 2
Workforce reductions (4) (24) 19 $58 (14) 63
Contractual commitments (14) 7 (1) 6
Asset write-downs (4) (3) 4 (4)
Direct transaction and
other costs (1) (1) 3 (1) 2
---- ---- --- --- ---- ---
$(10) $(49) $36 $58 $(21) $73
==== ==== === === ==== ===
</TABLE>
The 1998 and prior restructuring and merger-related charges were recognized
under the provisions of EITF 94-3, "Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (including Certain
Costs Incurred in a Restructuring)." The purchase price adjustments were
recognized under the provisions of APB 16, "Business Combinations" and EITF
95-3, "Recognition of Liabilities in Connection with a Purchase Business
Combination." The 2000 restructuring charge was recognized in accordance with
EITF 94-3 and SAB 100, "Topic 5p. Restructuring Charges."
Total facilities write-downs under the Company's restructuring and
merger-related charges provided for during 1996, 1997 and 1998 for owned assets
were measured as the difference between carrying value and fair value less cost
to sell (approximately $8 million, net of reversals). The charge for leased
facilities during the same periods was measured using the lease commitments
remaining after the facility was removed from service (approximately $3 million,
net of reversals). Write-downs of machinery and equipment, intangibles and other
assets were measured by the difference between the carrying value and fair
market value of the assets (approximately $28 million, net of reversals).
Reversals in 1998 and 1999 of previously recorded charges were primarily based
on the initial amount charged. To the extent that any of the above assets
continued to be used in operations before being sold, scrapped or abandoned,
depreciation and lease payments continued to be charged to operations.
Depreciation not charged to operations related to assets held for disposal was
less than $1 million during 2000 and 1999 and was approximately $2 million in
1998.
BOSTON SCIENTIFIC AND SUBSIDIARIES F-39
<PAGE> 40
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE O - SEGMENT REPORTING
Boston Scientific is a worldwide developer, manufacturer and marketer of medical
devices for less invasive procedures. The Company has four reportable operating
segments based on geographic regions: the United States, Europe, Japan and
Inter-Continental. Each of the Company's reportable segments generates revenues
from the sale of minimally invasive medical devices. The reportable segments
represent an aggregate of operating divisions.
Sales and operating results of reportable segments are based on internally used
standard foreign exchange rates, which may differ from year to year and do not
include inter-segment profits. The segment information for 1999 and 1998 sales
and operating results has been restated based on the Company's standard foreign
exchange rates used for 2000. Because of the interdependence of the reportable
segments, the operating profit as presented may not be representative of the
geographic distribution that would occur if the segments were not
interdependent. Total assets and purchases of property, plant and equipment are
based on foreign exchange rates used in the Company's consolidated financial
statements.
<TABLE>
<CAPTION>
United Inter-
(In millions) States Europe Japan Continental Total
- ------------- ------ ------ ------ ----------- ------
<S> <C> <C> <C> <C> <C>
2000:
Net sales $1,577 $ 406 $ 544 $ 170 $2,697
Depreciation and amortization 63 20 4 3 90
Operating income excluding
special charges 592 131 342 9 1,074
Total assets 1,251 391 201 101 1,944
Purchases of property, plant
and equipment 51 16 5 4 76
------ ------ ------ ------ ------
1999:
Net sales $1,741 $ 422 $ 517 $ 165 $2,845
Depreciation and amortization 60 17 3 3 83
Operating income excluding
special charges 662 129 315 23 1,129
Total assets 1,257 458 215 101 2,031
Purchases of property, plant
and equipment 50 21 6 3 80
------ ------ ------ ------ ------
1998:
Net sales $1,394 $ 370 $ 404 $ 115 $2,283
Depreciation and amortization 64 16 3 1 84
Operating income excluding
special charges 463 73 230 9 775
Total assets 1,395 552 204 75 2,226
Purchases of property, plant
and equipment 97 51 19 8 175
------ ------ ------ ------ ------
</TABLE>
F-40 BOSTON SCIENTIFIC AND SUBSIDIARIES
<PAGE> 41
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
A reconciliation of the totals reported for the reportable segments to the
applicable line items in the consolidated financial statements is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
(In millions) 2000 1999 1998
- ------------- ------- ------- -------
<S> <C> <C> <C>
NET SALES:
Total net sales for reportable segments $ 2,697 $ 2,845 $ 2,283
Foreign exchange (33) (3) (49)
------- ------- -------
$ 2,664 $ 2,842 $ 2,234
======= ======= =======
DEPRECIATION AND AMORTIZATION:
Total depreciation and amortization
allocated to reportable segments $ 90 $ 83 $ 84
Corporate expenses and foreign exchange 91 95 45
------- ------- -------
$ 181 $ 178 $ 129
======= ======= =======
INCOME (LOSS) BEFORE INCOME TAXES:
Total operating income excluding special charges
for reportable segments $ 1,074 $ 1,129 $ 775
Corporate expenses and foreign exchange (436) (450) (315)
Purchased research and development (682)
Restructuring and merger-related (charges) credits (58) 10 15
------- ------- -------
580 689 (207)
Other income (expense) (53) (127) (68)
------- ------- -------
$ 527 $ 562 $ (275)
======= ======= =======
TOTAL ASSETS:
Total assets for reportable segments $ 1,944 $ 2,031 $ 2,226
Corporate assets 1,483 1,541 1,667
------- ------- -------
$ 3,427 $ 3,572 $ 3,893
======= ======= =======
</TABLE>
Enterprise-wide Information
<TABLE>
<CAPTION>
(In millions) 2000 1999 1998
- ------------- ------- ------- -------
<S> <C> <C> <C>
NET SALES:
Vascular $ 2,097 $ 2,309 $ 1,777
Nonvascular 567 516 426
Other 17 31
------- ------- -------
$ 2,664 $ 2,842 $ 2,234
======= ======= =======
LONG-LIVED ASSETS:
United States $ 422 $ 446 $ 484
Ireland 103 110 119
Other foreign countries 42 48 77
------- ------- -------
$ 567 $ 604 $ 680
======= ======= =======
</TABLE>
BOSTON SCIENTIFIC AND SUBSIDIARIES F-41
<PAGE> 42
REPORT OF INDEPENDENT AUDITORS
BOARD OF DIRECTORS
BOSTON SCIENTIFIC CORPORATION
We have audited the accompanying consolidated balance sheets of Boston
Scientific Corporation and subsidiaries as of December 31, 2000 and 1999, and
the related consolidated statements of operations, stockholders' equity, and
cash flows for each of the three years in the period ended December 31, 2000.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Boston Scientific
Corporation and subsidiaries at December 31, 2000 and 1999, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 2000 in conformity with accounting principles
generally accepted in the United States.
/s/ Ernst & Young LLP
Boston, Massachusetts
February 1, 2001
F-42 BOSTON SCIENTIFIC AND SUBSIDIARIES
<PAGE> 43
FIVE-YEAR SELECTED FINANCIAL DATA (UNAUDITED) (IN MILLIONS, EXCEPT SHARE AND PER
SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 2000 1999 1998 1997 1996
- ----------------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Net sales $ 2,664 $ 2,842 $ 2,234 $ 1,831 $ 1,551
Gross profit 1,832 1,856 1,499 1,285 1,123
Selling, general and administrative
expenses 867 842 755 663 492
Amortization expense 91 92 53 33 24
Royalties 37 46 31 22 17
Research and development expenses 199 197 200 167 135
Purchased research and development 682 29 110
Restructuring and merger-related
charges (credits) 58 (10) (15) 146 32
Total operating expenses 1,252 1,167 1,706 1,060 810
Operating income (loss) 580 689 (207) 225 313
Income (loss) before cumulative effect
of change in accounting 373 371 (264) 131 167
Cumulative effect of change in
accounting (net of tax) (21)
--------- --------- --------- --------- ---------
Net income (loss) $ 373 $ 371 $ (264) $ 110 $ 167
========= ========= ========= ========= =========
Income (loss) per common share before
cumulative effect of change in accounting:
Basic $ 0.92 $ 0.92 $ (0.68) $ 0.34 $ 0.43
Assuming dilution $ 0.91 $ 0.90 $ (0.68) $ 0.33 $ 0.42
Net income (loss) per common share:
Basic $ 0.92 $ 0.92 $ (0.68) $ 0.28 $ 0.43
Assuming dilution $ 0.91 $ 0.90 $ (0.68) $ 0.28 $ 0.42
Weighted-average shares outstanding -
assuming dilution (in thousands) 408,322 411,351 390,836 399,776 398,706
--------- --------- --------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 2000 1999 1998 1997 1996
- ----------------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital $ 173 $ (353) $ 227 $ 335
Total assets 3,427 $ 3,572 3,893 1,924 1,585
Commercial paper 56 277 1,016 423 213
Bank obligations - short-term 204 323 11 24 28
Long-term debt, net of current portion 562 678 1,364 46
Stockholders' equity 1,935 1,724 821 957 995
Book value per common share $ 4.84 $ 4.21 $ 2.08 $ 2.47 $ 2.50
--------- --------- --------- --------- ---------
</TABLE>
The Company paid a two-for-one stock split on November 30, 1998.
All historical amounts have been restated to reflect the stock split.
(SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.)
BOSTON SCIENTIFIC AND SUBSIDIARIES F-43
<PAGE> 44
QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) (IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED March 31, June 30, Sept. 30, Dec. 31,
- ------------------ --------- -------- --------- --------
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 2000
Net sales $ 679 $ 695 $ 652 $ 638
Gross profit 466 478 452 436
Operating income 169 182 132 97
Net income 106 122 85 60
Net income per common share - basic $0.26 $0.30 $0.21 $0.15
Net income per common share - assuming dilution $0.26 $0.30 $0.21 $0.15
----- ----- ----- -----
YEAR ENDED DECEMBER 31, 1999
Net sales $ 708 $ 726 $ 691 $ 717
Gross profit 478 491 408 479
Operating income 189 202 115 183
Net income 100 109 55 107
Net income per common share - basic $0.25 $0.27 $0.13 $0.26
Net income per common share - assuming dilution $0.25 $0.27 $0.13 $0.26
----- ----- ----- -----
</TABLE>
During the third and fourth quarters of 2000, the Company recorded pre-tax
charges of $23 million and $35 million, respectively, representing estimated
severance and other related costs associated with the global operations plan.
(See Note N)
During the third quarter of 1999, the Company recorded a provision of $62
million for excess NIR(R) stent inventories and purchase commitments. The excess
position was driven primarily by a shortfall in planned third quarter NIR(R)
stent revenues, a reduction in NIR(R) stent sales forecasted for 1999 and 2000,
and strategic decisions regarding versions of the NIR(R) stent system to be
launched. Additionally, the 1999 third quarter results include a provision for
increased legal costs of $22 million to cover certain costs of defense. These
expenses relate primarily to defense costs associated with stent-related
litigation. Further, during the third quarter of 1999, the Company identified
and reversed restructuring and merger-related charges of $10 million no longer
deemed necessary. These amounts relate primarily to the restructuring charges
accrued in the fourth quarter of 1998 and reflect the reclassification of assets
from held-for-disposal to held-for-use following management's decision to resume
a development program previously planned to be eliminated. In addition,
estimated severance costs for 1998 initiatives were reduced as a result of
attrition.
(SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.)
F-44 BOSTON SCIENTIFIC AND SUBSIDIARIES
<PAGE> 45
MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED MATTERS (UNAUDITED)
The following table shows the market range for the Company's common stock based
on reported sales prices on the New York Stock Exchange.
<TABLE>
<CAPTION>
2000 High Low
---- ---- ---
<S> <C> <C>
First Quarter $25.875 $17.625
Second Quarter 29.188 19.375
Third Quarter 26.813 15.500
Fourth Quarter 16.875 12.188
------ ------
</TABLE>
<TABLE>
<CAPTION>
1999 High Low
---- ---- ---
<S> <C> <C>
First Quarter $43.000 $23.000
Second Quarter 44.875 33.625
Third Quarter 47.063 21.563
Fourth Quarter 26.000 17.563
------ ------
</TABLE>
The Company has not paid a cash dividend during the past five years. The Company
currently intends to retain all of its earnings to finance the continued growth
of its business. Boston Scientific may consider declaring and paying a dividend
in the future; however, there can be no assurance that it will do so.
At December 31, 2000, there were approximately 10,082 record holders of the
Company's common stock.
(SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.)
BOSTON SCIENTIFIC AND SUBSIDIARIES F-45
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-21
<SEQUENCE>8
<FILENAME>b38188ssex21.txt
<DESCRIPTION>SUBSIDIARIES OF BOSTON SCIENTIFIC CORPORATION
<TEXT>
<PAGE> 1
EXHIBIT 21
Boston Scientific Corporation and Subsidiaries
Dated March 9, 2001
<TABLE>
<CAPTION>
NAME OF COMPANY JURISDICTION OR INCORPORATION
- --------------- -----------------------------
<S> <C>
AMS Medinvent S.A. Switzerland
BSC FSC, Inc. Barbados
BSC Finance Corporation Indiana
BSC Finance Trust Massachusetts
BSC International Corporation Massachusetts
BSC International Holding Limited Ireland
BSC International Medical Trading (Shanghai) Co., Ltd. People's Republic of China
BSC Medical (Shanghai) Consulting Co. Ltd. People's Republic of China
BSC Securities Corporation Massachusetts
Boston Scientific (Malaysia) Sdn. Bhd. Malaysia
Boston Scientific (South Africa) (Proprietary) Limited South Africa
Boston Scientific (Thailand) Ltd. Thailand
Boston Scientific (Zurich) GmbH Switzerland
Boston Scientific AG Switzerland
Boston Scientific Argentina S.A. Argentina
Boston Scientific Asia Pacific Pte. Ltd. Singapore
Boston Scientific B.V. The Netherlands
Boston Scientific Benelux B.V. The Netherlands
Boston Scientific Benelux SA Belgium
Boston Scientific Ceska Repulika, s.r.o. Czech Republic
Boston Scientific Columbia Limitada Columbia
Boston Scientific Cork Limited Ireland
Boston Scientific Corporation Northwest Technology Washington
Center, Inc.
Boston Scientific Eastern Europe B.V. The Netherlands
Boston Scientific Europe S.P.R.L. Belgium
Boston Scientific FSC Corporation Barbados
Boston Scientific Far East B.V. The Netherlands
Boston Scientific Ges.m.b.H. Austria
Boston Scientific Holland B.V. The Netherlands
Boston Scientific Hong Kong Limited Hong Kong
Boston Scientific Hungary Trading Limited Liability Hungary
Company
Boston Scientific Iberica, S.A. Spain
Boston Scientific International B.V. The Netherlands
Boston Scientific International Corporation Virgin Islands
Boston Scientific International Distribution Limited Ireland
Boston Scientific International Holding B.V. The Netherlands
Boston Scientific International S.A. France
Boston Scientific Ireland Limited Ireland
Boston Scientific Israel Limited Israel
Boston Scientific Japan K.K. Japan
Boston Scientific Korea Co., Ltd. Korea
Boston Scientific Latin America B.V. The Netherlands
Boston Scientific Latin America B.V. (Chile) Limitada Chile
Boston Scientific Limited England
Boston Scientific Limited Ireland
Boston Scientific Ltd. Canada
Boston Scientific Medizintechnik GmbH Germany
Boston Scientific New Zealand Limited New Zealand
Boston Scientific Nordic AB Sweden
Boston Scientific Puerto Rico, Inc. Puerto Rico
Boston Scientific Philippines, Inc. Philippines
Boston Scientific Polska Sp. z.o.o. Poland
Boston Scientific Pty. Ltd. Australia
</TABLE>
<PAGE> 2
Boston Scientific S.p.a. Italy
Boston Scientific S.a.r.l. Luxembourg
Boston Scientific Scimed, Inc. Minnesota
Boston Scientific Switzerland S.a.r.l. Switzerland
Boston Scientific TIP Gerecleri Limited Sirketi Turkey
Boston Scientific Uruguay S.A. Uruguay
Boston Scientific de Mexico, S.A. de C.V. Mexico
Boston Scientific de Venezuela Venezuela
Boston Scientific de Brasil Brazil
Boston Scientific, S.A. France
Catheter Innovations, Inc. Delaware
Corvita Corporation Florida
Corvita Europe S.A. Belgium
Embolic Protection, Inc. Delaware
EP Technologies, Inc. California
Forwich Limited Ireland
Heart Technology FSC, Inc. Barbados
Interventional Therapeutics Corporation California
Interventional Therapeutics International California
Laboratories Corvita S.A.R.L. France
MM Foreign Sales Corporation Virgin Islands
Meadox (U.K.) Limited England
Meadox Medicals, Inc. New Jersey
NAMIC International Inc. Virgin Islands
Neopharm (2001) Less Invasive Medical Instruments Ltd. Israel
Nilo Holding SA Switzerland
Norse Ventures B.V. The Netherlands
SCHNEIDER/NAMIC Delaware
SCIMED Life Systems Limited England
SCIMED Medizentechnik Gmbh i.L. Germany
Schneider (Europe) GmbH Switzerland
Schneider Belgium N.V. Belgium
Schneider Ireland B.V. The Netherlands
Schneider Puerto Rico Delaware
Scimed Life Systems, Inc. Minnesota
Symbiosis Corporation Florida
Target Therapeutics International Sales Corporation Barbados
Target Therapeutics International, Inc. California
Target Therapeutics, Inc. Delaware
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23.1
<SEQUENCE>9
<FILENAME>b38188ssex23-1.txt
<DESCRIPTION>CONSENT OF ERNST & YOUNG LLP
<TEXT>
<PAGE> 1
Exhibit 23.1
Consent of Independent Auditors
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of Boston Scientific Corporation of our report dated February 1, 2001, included
in the 2000 Annual Report to Shareholders of Boston Scientific Corporation.
Our audits also included the financial statement schedule of Boston Scientific
Corporation listed in Item 14(a). This schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion based on our
audits. In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
We also consent to the incorporation by reference in the Registration Statements
(Forms S-8 Nos. 33-57242, 33-89772, 33-93790, 33-99766, 33-80265, 333-02256,
333-25033, 333-25037, and 333-36636) and in the Registration Statements (Forms
S-3 Nos. 333-37255, 333-64887, and 333-64991) of our report dated February 1,
2001, with respect to the consolidated financial statements incorporated herein
by reference, and our report included in the preceding paragraph with respect to
the financial statement schedule included in this Annual Report (Form 10-K) of
Boston Scientific Corporation.
ERNST & YOUNG LLP
Boston, Massachusetts
March 27, 2001
</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
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