BOSTON SCIENTIFIC CORP (Form: 10-Q, Received: 11/05/2010 14:15:56)

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934


For the quarterly period ended September 30, 2010		Commission File No. 1-11083

BOSTON SCIENTIFIC CORPORATION

(Exact Name of Registrant As Specified in Its Charter)


DELAWARE		04-2695240
(State of Incorporation)		(I.R.S. Employer Identification No.)

ONE BOSTON SCIENTIFIC PLACE, NATICK, MASSACHUSETTS 01760-1537
(Address of Principal Executive Offices)

(508) 650-8000
(Registrant’s Telephone Number)

Indicate by check mark whether the registrant: (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 registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files)

Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer þ		Accelerated filer o		Non-accelerated filer o (Do not check if a smaller reporting company)		Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o No þ

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.


		Shares outstanding
Class		as of October 31, 2010

Common Stock, $.01 par value		1,520,076,600

TABLE OF CONTENTS


			Page No.

PART I FINANCIAL INFORMATION				3

	Item 1.	Condensed Consolidated Financial Statements		3

		Condensed Consolidated Statements of Operations		3

		Condensed Consolidated Balance Sheets		4

		Condensed Consolidated Statements of Cash Flows		5

		Notes to the Condensed Consolidated Financial Statements		6

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		40

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk		82

	Item 4.	Controls and Procedures		82

PART II OTHER INFORMATION				84

	Item 1.	Legal Proceedings		84

	Item 1A.	Risk Factors		84

	Item 6.	Exhibits		84

SIGNATURE				86
EX-10.5
EX-10.6
EX-10.7
EX-31.1
EX-31.2
EX-32.1
EX-32.2
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT

PART I
FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

BOSTON SCIENTIFIC CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
in millions, except per share data	2010			2009			2010			2009

Net sales	$	1,916		$	2,025		$	5,804		$	6,109
Cost of products sold		623			629			1,939			1,867

Gross profit		1,293			1,396			3,865			4,242

Operating expenses:
Selling, general and administrative expenses		634			665			1,897			1,987
Research and development expenses		230			258			714			778
Royalty expense		39			51			147			149
Loss on program termination											16
Amortization expense		129			126			381			381
Goodwill impairment charge								1,817
Intangible asset impairment charges		5						65			10
Purchased research and development											17
Acquisition-related milestone								(250	)
Restructuring charges		5			9			98			44
Litigation-related net charges					236						523

		1,042			1,345			4,869			3,905

Operating income (loss)		251			51			(1,004	)		337

Other income (expense):
Interest expense		(91	)		(91	)		(286	)		(285	)
Other, net		3			(4	)		(2	)		(13	)

Income (loss) before income taxes		163			(44	)		(1,292	)		39
Income tax (benefit) expense		(27	)		50			9			(12	)

Net income (loss)	$	190		$	(94	)	$	(1,301	)	$	51


Net income (loss) per common share — basic	$	0.13		$	(0.06	)	$	(0.86	)	$	0.03
Net income (loss) per common share — assuming dilution	$	0.12		$	(0.06	)	$	(0.86	)	$	0.03

Weighted-average shares outstanding
Basic		1,519.8			1,509.3			1,517.0			1,507.0
Assuming dilution		1,529.3			1,509.3			1,517.0			1,514.4

See notes to the unaudited condensed consolidated financial statements.

BOSTON SCIENTIFIC CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS


	September 30,			December 31,
in millions, except share data	2010			2009

	(Unaudited)
ASSETS

Current assets:
Cash and cash equivalents	$	624		$	864
Trade accounts receivable, net		1,317			1,375
Inventories		923			920
Deferred income taxes		480			572
Prepaid expenses and other current assets		212			330


Total current assets		3,556			4,061

Property, plant and equipment, net		1,712			1,728
Goodwill		10,592			12,404
Other intangible assets, net		6,291			6,731

Other long-term assets		335			253

	$	22,486		$	25,177


LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current debt obligations	$	904		$	3
Accounts payable		195			212
Accrued expenses		1,604			2,609
Other current liabilities		252			198

Total current liabilities		2,955			3,022

Long-term debt		5,133			5,915
Deferred income taxes		1,924			1,875
Other long-term liabilities		1,436			2,064

Commitments and contingencies

Stockholders’ equity:

Preferred stock, $ .01 par value - authorized 50,000,000 shares, none issued and outstanding
Common stock, $ .01 par value - authorized 2,000,000,000 shares, issued 1,519,963,601 shares as of September 30, 2010 and 1,510,753,934 shares as of December 31, 2009		15			15
Additional paid-in capital		16,198			16,086
Accumulated deficit		(5,058	)		(3,757	)
Other stockholders’ deficit		(117	)		(43	)

Total stockholders’ equity		11,038			12,301

	$	22,486		$	25,177

See notes to the unaudited condensed consolidated financial statements.

BOSTON SCIENTIFIC CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)


	Nine Months Ended
	September 30,
(in millions)	2010			2009

Cash (used for) provided by operating activities	$	(124	)	$	1,164

Investing activities:
Purchases of property, plant and equipment		(209	)		(225	)
Proceeds from sales of publicly traded and privately held equity securities and collections of notes receivable		1			54
Payments for acquisitions of businesses, net of cash acquired					(4	)
Payments relating to prior period acquisitions		(4	)		(517	)
Payments for investments in companies and acquisitions of certain technologies		(5	)		(41	)


Cash used for investing activities		(217	)		(733	)

Financing activities:
Proceeds from borrowings on revolving credit facility		200
Payments on revolving credit facility borrowings		(200	)
Proceeds from long-term borrowings, net of debt issuance costs		973
Payments on long-term borrowings		(900	)		(725	)
Proceeds from issuances of shares of common stock		28			32


Cash provided by (used for) financing activities		101			(693	)

Effect of foreign exchange rates on cash					2


Net decrease in cash and cash equivalents		(240	)		(260	)
Cash and cash equivalents at beginning of period		864			1,641

Cash and cash equivalents at end of period	$	624		$	1,381


Supplemental Information

Non-cash financing activities:
Stock-based compensation expense	$	122		$	111

See notes to the unaudited condensed consolidated financial statements.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE A – BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements of Boston Scientific Corporation have been prepared in accordance with accounting principles generally accepted in the United States (U.S. GAAP) and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for fair presentation have been included. Operating results for the three and nine months ended September 30, 2010 are not necessarily indicative of the results that may be expected for the year ending December 31, 2010. For further information, refer to the consolidated financial statements and footnotes thereto included in our 2009 Annual Report filed on Form 10-K.

We have reclassified certain prior year amounts to conform to the current year’s presentation. See Note L – Segment Reporting for further details.

Subsequent Events

We evaluate events occurring after the date of our accompanying unaudited condensed consolidated balance sheets for potential recognition or disclosure in our financial statements. We did not identify any material subsequent events requiring adjustment to our accompanying unaudited condensed consolidated financial statements (recognized subsequent events). Those items requiring disclosure (unrecognized subsequent events) in the financial statements have been disclosed accordingly. Refer to Note F – Acquisitions, Note K – Commitments and Contingencies, and Note N – Subsequent Events for more information.

NOTE B – GOODWILL AND OTHER INTANGIBLE ASSETS

We test our April 1 goodwill balances during the second quarter of each year for impairment, or more frequently if indicators are present or changes in circumstances suggest that impairment may exist. The ship hold and product removal actions associated with our U.S. implantable cardioverter defibrillator (ICD) and cardiac resynchronization therapy defibrillator (CRT-D) products announced on March 15, 2010, described in Item 2 of this Quarterly Report, and the expected corresponding financial impact on our operations created an indication of potential impairment of the goodwill balance attributable to our U.S. Cardiac Rhythm Management (CRM) reporting unit in the first quarter of 2010. Therefore, we performed an interim impairment test in accordance with our accounting policies described in our 2009 Annual Report filed on Form 10-K, and recorded a $1.848 billion, on both a pre-tax and after-tax basis, goodwill impairment charge associated with our U.S. CRM reporting unit in the first quarter of 2010. Due to the timing of the product actions and the procedures required to complete the two step goodwill impairment test, the goodwill impairment charge was an estimate, which we finalized in the second quarter of 2010. During the second quarter of 2010, we recorded a $31 million reduction of the charge, resulting in a final goodwill impairment charge of $1.817 billion. This charge does not impact our compliance with our debt covenants or our cash flows.

U.S. CRM reporting unit. The reduction in our forecasted 2010 U.S. CRM net sales, the change in our expected sales growth rates thereafter and the reduction in profitability as a result of the recently enacted excise tax on medical device manufacturers, discussed in Item 2 of this Quarterly Report, were several key factors contributing to the impairment charge. Partially offsetting these factors was a 50 basis point reduction in our estimated market participant risk-adjusted weighted-average cost of capital (WACC) used in determining our discount rate.

In the second quarter of 2010, we performed our annual goodwill impairment test for all of our reporting units. We updated our U.S. CRM assumptions to reflect our market share position at that time, our most recent operational budgets and long range strategic plans. In conjunction with our annual test, the fair value of each reporting unit exceeded its carrying value, with the exception of our U.S. CRM reporting unit. Based on the remaining book value of our U.S. CRM reporting unit following the goodwill impairment charge, the carrying value of our U.S. CRM reporting unit continued to exceed its fair value, due primarily to the book value of amortizable intangible assets allocated to this reporting unit. The remaining book value of our amortizable intangible assets which have been allocated to our U.S. CRM reporting unit is approximately $3.7 billion as of September 30, 2010. We tested these amortizable intangible assets for impairment on an undiscounted cash flow basis as of March 31, 2010, and determined that these assets were not impaired, and there have been no impairment indicators related to these assets subsequent to that test. The assumptions used in our annual goodwill impairment test related to our U.S. CRM reporting unit were substantially consistent with those used in our first quarter interim impairment test; therefore, it was not deemed necessary to proceed to step two of the impairment test in the second quarter of 2010.

We have identified a total of four reporting units with a material amount of goodwill that are at higher risk of potential failure of the first step of the impairment test in future reporting periods. These reporting units include our U.S. CRM unit, which holds $1.5 billion of allocated goodwill, our U.S. Cardiovascular unit, which holds $2.2 billion of allocated goodwill, our U.S. Neuromodulation unit, which holds $1.2 billion of allocated goodwill, and our Europe/Middle East/Africa (EMEA) region, which holds $4.1 billion of allocated goodwill. The level of excess fair value over carrying value for these reporting units (with the exception of the U.S. CRM reporting unit, whose carrying value continues to exceed its fair value) identified during our annual goodwill impairment test ranged from 14 percent to 23 percent. Future events that could have a negative impact on the fair value of the reporting units include, but are not limited to:

	•		decreases in estimated market sizes or market growth rates due to pricing pressures, product actions, disruptive technology developments, and/or other economic conditions;

	•		declines in our market share and penetration assumptions due to increased competition, an inability to develop or launch new products, and market and/or regulatory conditions that may cause significant launch delays or product recalls;

	•		declines in revenue as a result of loss of key members of our sales force and other key personnel;

	•		negative developments in intellectual property litigation that may impact our ability to market certain products;

	•		adverse legal decisions resulting in significant cash outflows;

	•		increases in the research and development costs necessary to obtain regulatory approvals and launch new products, and the level of success of on-going and future research and development efforts; and

	•		increases in our risk-adjusted WACC due to further instability or deterioration of the equity and credit markets.

Negative changes in one or more of these factors could result in additional impairment charges.

The following is a summary of our other intangible asset balances as of September 30, 2010 and December 31, 2009:


	September 30,			December 31,
(in millions)	2010			2009

Core technology	$	6,854		$	6,854
Other intangible assets		2,369			2,384

		9,223			9,238
Less: accumulated amortization		(2,932	)		(2,507	)

	$	6,291		$	6,731

During the first quarter of 2010, due to lower than anticipated net sales of one of our Peripheral Interventions technology offerings, as well as changes in our expectations of future market acceptance of this technology, we lowered our sales forecasts associated with the product. In addition, during the third quarter of 2010, as part of our initiatives to reprioritize and diversify our product portfolio, we discontinued one of our internal research and development programs to focus on those with a higher likelihood of success. As a result of these factors, and in accordance with our accounting policies described in our 2009 Annual Report filed on Form 10-K, we tested the related intangible assets for impairment and recorded a $60 million intangible asset impairment charge in the first quarter of 2010 and a $5 million intangible asset impairment charge in the third quarter of 2010 to write down the balance of these intangible assets to their fair values. We have recorded these amounts in the intangible asset impairment charges caption in our accompanying unaudited condensed consolidated statements of operations.

NOTE C – FINANCIAL INSTRUMENTS

Derivative Instruments and Hedging Activities

We develop, manufacture and sell medical devices globally and our earnings and cash flows are exposed to market risk from changes in currency exchange rates and interest rates. We address these risks through a risk management program that includes the use of derivative financial instruments, and operate the program pursuant to documented corporate risk management policies. We recognize all derivative financial instruments in our consolidated financial statements at fair value in accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification™ (ASC) Topic 815, Derivatives and Hedging (formerly FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities ). In accordance with Topic 815, for those derivative instruments that are designated and qualify as hedging instruments, the hedging instrument must be designated, based upon the exposure being hedged, as a fair value hedge, cash flow hedge, or a hedge of a net investment in a foreign operation. The accounting for changes in the fair value (i.e. gains or losses) of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship and, further, on the type of hedging relationship. Our derivative instruments do not subject our earnings or cash flows to material risk, as gains and losses on these derivatives generally offset losses and gains on the item being hedged. We do not enter into derivative transactions for speculative purposes and we do not have any non-derivative instruments that are designated as hedging instruments pursuant to Topic 815.

Currency Hedging

We are exposed to currency risk consisting primarily of foreign currency denominated monetary assets and liabilities, forecasted foreign currency denominated intercompany and third-party transactions and net investments in certain subsidiaries. We manage our exposure to changes in foreign currency on a consolidated basis to take advantage of offsetting transactions. We use both derivative instruments (currency forward and option contracts), and non-derivative transactions (primarily European manufacturing and distribution operations) to reduce the risk that our earnings and cash flows associated with these foreign

currency denominated balances and transactions will be adversely affected by currency exchange rate changes.

Designated Foreign Currency Hedges

All of our designated currency hedge contracts outstanding as of September 30, 2010 and December 31, 2009 were cash flow hedges under Topic 815 intended to protect the U.S. dollar value of our forecasted foreign currency denominated transactions. We record the effective portion of any change in the fair value of foreign currency cash flow hedges in other comprehensive income (OCI) until the related third-party transaction occurs. Once the related third-party transaction occurs, we reclassify the effective portion of any related gain or loss on the foreign currency cash flow hedge to earnings. In the event the hedged forecasted transaction does not occur, or it becomes no longer probable that it will occur, we reclassify the amount of any gain or loss on the related cash flow hedge to earnings at that time. We had currency derivative instruments designated as cash flow hedges outstanding in the contract amount of $2.669 billion as of September 30, 2010 and $2.760 billion as of December 31, 2009.

We recognized net gains of $5 million in earnings on our cash flow hedges during the third quarter of 2010 and net losses of $22 million for the first nine months of 2010, as compared to net losses of less than $1 million during the third quarter of 2009 and net gains $23 million for the first nine months of 2009. All currency cash flow hedges outstanding as of September 30, 2010 mature within 36 months. As of September 30, 2010, $66 million of net losses, net of tax, were recorded in accumulated other comprehensive income (AOCI) to recognize the effective portion of the fair value of any currency derivative instruments that are, or previously were, designated as foreign currency cash flow hedges, as compared to net losses of $44 million as of December 31, 2009. As of September 30, 2010, $41 million of net losses, net of tax, may be reclassified to earnings within the next twelve months.

The success of our hedging program depends, in part, on forecasts of transaction activity in various currencies (primarily Japanese yen, Euro, British pound sterling, Australian dollar and Canadian dollar). We may experience unanticipated currency exchange gains or losses to the extent that there are differences between forecasted and actual activity during periods of currency volatility. In addition, changes in currency exchange rates related to any unhedged transactions may impact our earnings and cash flows.

Non-designated Foreign Currency Contracts

We use currency forward contracts as a part of our strategy to manage exposure related to foreign currency denominated monetary assets and liabilities. These currency forward contracts are not designated as cash flow, fair value or net investment hedges under Topic 815; are marked-to-market with changes in fair value recorded to earnings; and are entered into for periods consistent with currency transaction exposures, generally one to six months. We had currency derivative instruments not designated as hedges under Topic 815 outstanding in the contract amount of $1.928 billion as of September 30, 2010 and $1.982 billion as of December 31, 2009.

Interest Rate Hedging

Our interest rate risk relates primarily to U.S. dollar borrowings, partially offset by U.S. dollar cash investments. We use interest rate derivative instruments to manage our earnings and cash flow exposure to changes in interest rates by converting floating-rate debt into fixed-rate debt or fixed-rate debt into floating-rate debt.

We designate these derivative instruments either as fair value or cash flow hedges under Topic 815. We record changes in the value of fair value hedges in interest expense, which is generally offset by changes in the fair value of the hedged debt obligation. Interest payments made or received related to our interest rate derivative instruments are included in interest expense. We record the effective portion of any change in the fair value of derivative instruments designated as cash flow hedges as unrealized gains or losses in OCI, net

of tax, until the hedged cash flow occurs, at which point the effective portion of any gain or loss is reclassified to earnings. We record the ineffective portion of our cash flow hedges in interest expense. In the event the hedged cash flow does not occur, or it becomes no longer probable that it will occur, we reclassify the amount of any gain or loss on the related cash flow hedge to interest expense at that time. We had no interest rate derivative instruments outstanding as of September 30, 2010 or December 31, 2009.

In prior years we terminated certain interest rate derivative instruments, including fixed-to-floating interest rate contracts, designated as fair value hedges, and floating-to-fixed treasury locks, designated as cash flow hedges. In accordance with Topic 815, we are amortizing the gains and losses of these derivative instruments upon termination into earnings over the term of the hedged debt. The carrying amount of certain of our senior notes included unamortized gains of $2 million as of September 30, 2010 and $3 million as of December 31, 2009, and unamortized losses of $6 million as of September 30, 2010 and $8 million as of December 31, 2009, related to the fixed-to-floating interest rate contracts. In addition, we had pre-tax net gains within AOCI related to terminated floating-to-fixed treasury locks of $9 million as of September 30, 2010 and $11 million as of December 31, 2009.

During the third quarter and first nine months of 2010, we recognized in earnings an immaterial amount of net gains related to our previously terminated interest rate derivative contracts. As of September 30, 2010, $6 million of net gains, net of tax, are recorded in AOCI to recognize the effective portion of these instruments, as compared to $7 million of net gains as of December 31, 2009. As of September 30, 2010, an immaterial amount of net gains, net of tax, may be reclassified to earnings within the next twelve months from amortization of our previously terminated interest rate derivative instruments.

Counterparty Credit Risk

We do not have significant concentrations of credit risk arising from our derivative financial instruments, whether from an individual counterparty or related group of counterparties. We manage our concentration of counterparty credit risk on our derivative instruments by limiting acceptable counterparties to a diversified group of major financial institutions with investment grade credit ratings, limiting the amount of credit exposure to each counterparty, and by actively monitoring their credit ratings and outstanding fair values on an on-going basis. Furthermore, none of our derivative transactions are subject to collateral or other security arrangements and none contain provisions that are dependent on our credit ratings from any credit rating agency.

We also employ master netting arrangements that reduce our counterparty payment settlement risk on any given maturity date to the net amount of any receipts or payments due between us and the counterparty financial institution. Thus, the maximum loss due to credit risk by counterparty is limited to the unrealized gains in such contracts net of any unrealized losses should any of these counterparties fail to perform as contracted. Although these protections do not eliminate concentrations of credit, as a result of the above considerations, we do not consider the risk of counterparty default to be significant.

Fair Value of Derivative Instruments

The following presents the effect of our derivative instruments designated as cash flow hedges under Topic 815 on our accompanying unaudited condensed consolidated statements of operations during the third quarter and first nine months of 2010 and 2009 (in millions):


				Amount of Gain
	Amount of Gain			(Loss)
	(Loss)			Reclassified from				Amount of Gain (Loss)
	Recognized in			AOCI into				Recognized in Earnings on
	OCI			Earnings				Ineffective Portion and
	(Effective			(Effective			Location in Statement of	Amount Excluded from			Location in Statement of
Cash Flow Hedges	Portion)			Portion)			Operations	Effectiveness Testing*			Operations

Three Months Ended September 30, 2010

Interest rate contracts				$	1		Interest expense

Currency hedge contracts	$	(173	)		5		Cost of products sold

	$	(173	)	$	6


Three Months Ended September 30, 2009

Interest rate contracts	$	(10	)	$	(11	)	Interest expense	$	(1	)	Interest expense	**

Currency hedge contracts		(133	)		(1	)	Cost of products sold

	$	(143	)	$	(12	)		$	(1	)


Nine Months Ended September 30, 2010

Interest rate contracts				$	2		Interest expense

Currency hedge contracts	$	(56	)		(22	)	Cost of products sold

	$	(56	)	$	(20	)


Nine Months Ended September 30, 2009

Interest rate contracts	$	(18	)	$	(31	)	Interest expense	$	(2	)	Interest expense	**

Currency hedge contracts		(106	)		23		Cost of products sold

	$	(124	)	$	(8	)		$	(2	)


*	Other than described in **, the amount of gain (loss) recognized in earnings related to the ineffective portion of hedging relationships was de minimis during the third quarter and first nine months of 2010 and 2009.

**	We prepaid $225 million of our term loan debt in the third quarter of 2009 and $725 million in the first nine months of 2009, and recognized ineffectiveness of $1 million in the third quarter of 2009 and $2 million for the first nine months of 2009 on interest rate swaps for which there was no longer an underlying exposure.


		Amount of Gain (Loss) Recognized
	Location	in Earnings (in millions)
Derivatives Not Designated as	in Statement of	Three Months Ended September 30,						Nine Months Ended September 30,
Hedging Instruments	Operations	2010			2009			2010			2009

Currency hedge contracts	Other, net	$	(40	)	$	(41	)	$	(67	)	$	(8	)
Currency hedge contracts	Cost of products sold											(1	)

		$	(40	)	$	(41	)	$	(67	)	$	(9	)

Losses and gains on currency hedge contracts not designated as hedged instruments were substantially offset by $43 million in net gains from foreign currency transaction exposures during the third quarter of 2010, $40 million during the third quarter of 2009, $59 million for the first nine months of 2010, and $4 million for the first nine months of 2009. As a result, we recorded a net foreign currency gain of $3 million during the third quarter of 2010, a $1 million loss during the third quarter of 2009, an $8 million loss for the first nine months of 2010, and a $4 million loss for the first nine months of 2009, within other, net in our accompanying unaudited condensed consolidated financial statements.

Topic 815 requires all derivative instruments to be recognized at their fair values as either assets or liabilities on the balance sheet. We determine the fair value of our derivative instruments using the framework prescribed by ASC Topic 820, Fair Value Measurements and Disclosures (formerly FASB Statement No. 157, Fair Value Measurements ), by considering the estimated amount we would receive to sell or transfer these instruments at the reporting date and by taking into account current interest rates, currency exchange rates, the creditworthiness of the counterparty for assets, and our creditworthiness for liabilities. In certain instances, we may utilize financial models to measure fair value. Generally, we use inputs that include quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or

liabilities in markets that are not active; other observable inputs for the asset or liability; and inputs derived principally from, or corroborated by, observable market data by correlation or other means. As of September 30, 2010, we have classified all of our derivative assets and liabilities within Level 2 of the fair value hierarchy prescribed by Topic 820, as discussed below, because these observable inputs are available for substantially the full term of our derivative instruments.

The following are the balances of our derivative assets and liabilities as of September 30, 2010 and December 31, 2009:


		September 30,		December 31,
(in millions)	Location in Balance Sheet (1)	2010		2009


Derivative Assets:

Designated Hedging Instruments
Currency hedge contracts	Prepaid and other current assets	$	32	$	20
Currency hedge contracts	Other long-term assets		21		12

			53		32

Non-Designated Hedging Instruments
Currency hedge contracts	Prepaid and other current assets		16		24


Total Derivative Assets		$	69	$	56


Derivative Liabilities:

Designated Hedging Instruments
Currency hedge contracts	Other current liabilities	$	83	$	64
Currency hedge contracts	Other long-term liabilities		64		29

			147		93

Non-Designated Hedging Instruments
Currency hedge contracts	Other current liabilities		55		17


Total Derivative Liabilities		$	202	$	110

(1)

We classify derivative assets and liabilities as current when the remaining term of the derivative contract is one year or less.

Other Fair Value Measurements

On a recurring basis, we measure certain financial assets and financial liabilities at fair value based upon quoted market prices, where available. Where quoted market prices or other observable inputs are not available, we apply valuation techniques to estimate fair value. Topic 820 establishes a three-level valuation hierarchy for disclosure of fair value measurements. The categorization of financial assets and financial liabilities within the valuation hierarchy is based upon the lowest level of input that is significant to the measurement of fair value. The three levels of the hierarchy are defined as follows:

	•		Level 1 – Inputs to the valuation methodology are quoted market prices for identical assets or liabilities.

	•		Level 2 – Inputs to the valuation methodology are other observable inputs, including quoted market prices for similar assets or liabilities and market-corroborated inputs.

	•		Level 3 – Inputs to the valuation methodology are unobservable inputs based on management’s best estimate of inputs market participants would use in pricing the asset or liability at the measurement date, including assumptions about risk.

Our investments in money market funds are generally classified within Level 1 of the fair value hierarchy because they are valued using quoted market prices. Our money market funds are classified as cash and cash equivalents within our accompanying unaudited condensed consolidated balance sheets, in accordance with our accounting policies.

Financial assets and financial liabilities measured at fair value on a recurring basis consist of the following as of September 30, 2010:


(in millions)	Level 1		Level 2		Level 3	Total

Assets
Money market funds	$	310				$	310
Currency hedge contracts			$	69			69

	$	310	$	69		$	379


Liabilities
Currency hedge contracts			$	202		$	202

			$	202		$	202

In addition to $310 million invested in money market funds as of September 30, 2010, we had $220 million of cash invested in short-term time deposits, and $94 million in interest bearing and non-interest bearing bank accounts.

We hold certain assets and liabilities that are measured at fair value on a non-recurring basis in periods subsequent to initial recognition. The fair value of a cost method investment is not estimated if there are no identified events or changes in circumstances that may have a significant adverse effect on the fair value of the investment. The aggregate carrying amount of our cost method investments was $54 million as of September 30, 2010 and $58 million as of December 31, 2009. As of September 30, 2010, we had no material assets or liabilities measured at fair value on either a recurring or non-recurring basis using significant unobservable inputs (Level 3).

During the first nine months of 2010, we recorded $1.882 billion of losses to adjust our goodwill and certain intangible assets to their fair values, and $5 million of losses to write down certain cost method investments to their fair values, because we deemed the decline in the values of the investments to be other-than-temporary. We wrote down goodwill attributable to our U.S. CRM reporting unit, discussed in Note B – Goodwill and Other Intangible Assets, with a carrying amount of $3.296 billion to its implied fair value of $1.479 billion, resulting in a write-down of $1.817 billion. In addition, we recorded a loss of $60 million in the first quarter of 2010 to write down certain of our Peripheral Interventions intangible assets, discussed in Note B, to their estimated fair values of $14 million; a loss of $5 million in the third quarter of 2010, discussed in Note B, to write off the remaining value associated with certain other intangible assets; and losses of $4 million in the second quarter of 2010 and $1 million in the third quarter of 2010 to write down certain of our privately-held cost method investments to their fair values. These adjustments fall within Level 3 of the fair value hierarchy, due to the use of significant unobservable inputs to determine fair value. The fair value measurements were calculated using unobservable inputs, primarily using the income approach, specifically the discounted cash flow method. The amount and timing of future cash flows within our analysis was based on our most recent operational budgets, long range strategic plans and other estimates.

The fair value of our outstanding debt obligations was $6.353 billion as of September 30, 2010 and $6.111 billion as of December 31, 2009. Refer to Note E – Borrowings and Credit Arrangements for a discussion of our debt obligations.

NOTE D – SUPPLEMENTAL BALANCE SHEET INFORMATION

The following are the components of various balance sheet items as of September 30, 2010 and December 31, 2009:

Inventories


	September 30,		December 31,
(in millions)	2010		2009

Finished goods	$	652	$	671
Work-in-process		94		69
Raw materials		177		180

	$	923	$	920

Property, plant and equipment, net


	September 30,		December 31,
(in millions)	2010		2009

Property, plant and equipment	$	3,145	$	3,266
Less: accumulated depreciation		(1,433)		(1,538)

	$	1,712	$	1,728

Capital expenditures of $209 million during the first nine months of 2010 were offset by depreciation and the write-off of fully depreciated assets no longer in use. Depreciation expense was $221 million for the first nine months of 2010, and $237 million for the first nine months of 2009.

Accrued expenses


	September 30,		December 31,
(in millions)	2010		2009
Legal reserves	$	413	$	1,453
Payroll and related liabilities		439		472
Other		752		684

	$	1,604	$	2,609

Other long-term liabilities


	September 30,		December 31,
(in millions)	2010		2009
Accrued income taxes	$	927	$	857
Legal reserves		149		863
Retirement plan obligations		102		111
Other long-term liabilities		258		233

	$	1,436	$	2,064

Accrued warranties

We offer warranties on certain of our product offerings. Approximately 90 percent of our warranty liability as of September 30, 2010 related to implantable devices offered by our CRM business, which include defibrillator and pacemaker systems. Our CRM products come with a standard limited warranty covering the replacement of these devices. We offer a full warranty for a portion of the period post-implant, and a partial warranty over the remainder of the useful life of the product. We estimate the costs that we may incur under our warranty programs based on the number of units sold, historical and anticipated rates of warranty claims and cost per claim, and record a liability equal to these estimated costs as cost of products sold at the time the product sale occurs. We reassess the key assumptions underlying our warranty liability calculation and evaluate the adequacy of our recorded warranty liabilities on a quarterly basis and adjust the amounts as necessary. Changes in our product warranty accrual during the first nine months of 2010 and 2009 consisted of the following (in millions):


	2010			2009

Balance as of December 31 - prior year	$	55		$	62
Provision		12			21
Settlements/ reversals		(22	)		(28	)

Balance as of September 30 - current year	$	45		$	55

NOTE E – BORROWINGS AND CREDIT ARRANGEMENTS

We had total debt of $6.037 billion as of September 30, 2010 and $5.918 billion as of December 31, 2009. During the second quarter of 2010, we refinanced the majority of our 2011 debt obligations, including the establishment of a new $1.0 billion three-year, senior unsecured term loan facility, and used $900 million of the proceeds to prepay in full our loan due to Abbott Laboratories without any premium or penalty. Term loan borrowings bear interest at LIBOR plus an interest margin of between 1.75 percent and 3.25 percent, based on our corporate credit ratings (currently 2.75 percent). The term loan facility requires quarterly principal payments of $50 million commencing in the third quarter of 2011, with the remaining principal amount due at the credit facility maturity date, currently June 2013, with up to two one-year extension options subject to certain conditions. The debt maturity schedule for the significant components of our debt obligations as of September 30, 2010 is as follows:


	Payments due by Period
(in millions)	2010	2011		2012		2013		2014		Thereafter		Total

Term loan		$	100	$	200	$	700					$	1,000
Senior notes			850					$	600	$	3,600		5,050

		$	950	$	200	$	700	$	600	$	3,600	$	6,050


Note:		The table above does not include discounts associated with our senior notes, or amounts related to certain interest rate swaps that were used to hedge the fair value of certain of our senior notes.

Johnson obligation. In August 2010, we prepaid the remaining Johnson & Johnson obligation of $725 million, plus interest, using cash on hand and cancelled the related letter of credit. We now have full access to our $2.0 billion revolving credit facility to support operational needs. We also maintain a $350 million credit and security facility secured by our U.S. trade receivables. Use of any borrowed funds is unrestricted. Borrowing availability under this facility changes based upon the amount of eligible receivables, concentration of eligible receivables and other factors. In August 2010, we extended the maturity of this facility to August 2011. There were no amounts borrowed under this facility as of September 30, 2010 or December 31, 2009.

Our new revolving credit facility agreement requires that we maintain certain financial covenants, as follows:


	Current	Actual as of
	Requirement	September 30, 2010

Maximum leverage ratio (1)	3.85 times	2.6 times
Minimum interest coverage ratio (2)	3.0 times	5.7 times

	(1)		Ratio of total debt to consolidated EBITDA, as defined by the agreement, for the preceding four consecutive fiscal quarters. Requirement decreases to 3.5 times after March 31, 2011.

	(2)		Ratio of consolidated EBITDA, as defined by the agreement, to interest expense for the preceding four consecutive fiscal quarters.

The credit agreement provides for an exclusion from the calculation of consolidated EBITDA, as defined by the agreement, through the credit agreement maturity, of up to $258 million in restructuring charges and restructuring-related expenses related to our previously-announced restructuring plans, plus an additional $300 million for any future restructuring initiatives. As of September 30, 2010, we had $500 million of the restructuring charge exclusion remaining. In addition, any litigation-related charges and credits are excluded from the calculation of consolidated EBITDA until such items are paid or received; as well as up to $1.5 billion of any future cash payments for future litigation settlements or damage awards (net of any litigation payments received); and litigation-related cash payments (net of cash receipts) of up to $1.310 billion related to amounts that were recorded in the financial statements as of March 31, 2010. As of September 30, 2010, we had $2.056 billion of the legal payment exclusion remaining. As of September 30, 2010, we were in compliance with the required covenants. Our inability to maintain compliance with these covenants could require us to seek to renegotiate the terms of our credit facilities or seek waivers from compliance with these covenants, both of which could result in additional borrowing costs. Further, there can be no assurance that our lenders would grant such waivers.

NOTE F – ACQUISITIONS

On October 27, 2010, we completed the acquisition of 100 percent of the fully diluted equity of Asthmatx, Inc. Asthmatx designs, manufactures and markets a less-invasive, catheter-based bronchial thermoplasty procedure for the treatment of severe persistent asthma. We paid approximately $194 million at the closing of the transaction using cash on hand, and may be required to pay future consideration of up to $250 million that is contingent upon the achievement of certain revenue-based milestones. We will account for the acquisition of Asthmatx as a business combination and, in accordance with ASC Topic 805, Business Combinations (formerly FASB Statement No. 141(R), Business Combinations ), will record the assets acquired, liabilities assumed and estimated future consideration obligation at their respective fair values as of the acquisition date. The final purchase price and estimates and assumptions used in the allocation of the purchase price will be finalized in the fourth quarter of 2010.

The acquisition was intended to broaden and diversify our product portfolio by expanding into the area of endoscopic pulmonary intervention. We will integrate the operations of the Asthmatx business into our Endoscopy division.

Payments Related to Prior Period Acquisitions

Certain of our acquisitions involve the potential payment of contingent consideration. Payment of the additional consideration is generally contingent on the acquired company reaching certain performance milestones, including attaining specified revenue levels, achieving product development targets or obtaining regulatory approvals. We made payments related to prior period acquisitions of $4 million during the first nine months of 2010, and $517 million for the first nine months of 2009, associated primarily with a final fixed payment of $500 million related to our 2004 acquisition of Advanced Bionics Corporation. As of September 30, 2010, the estimated maximum potential amount of future contingent consideration (undiscounted) that we could be required to make associated with our prior acquisitions, excluding Asthmatx, is $263 million, some of which may be payable in shares of our common stock. The estimated cumulative specified revenue level associated with these maximum future contingent payments is approximately $600 million, and the milestones associated with the contingent consideration must be reached in certain future periods ranging from 2010 through 2027. In accordance with accounting guidance applicable at the time we consummated these acquisitions, we do not recognize a liability until the contingency is resolved and consideration is issued or becomes issuable. Included in the accompanying unaudited condensed consolidated balance sheets is accrued contingent consideration of $9 million as of September 30, 2010 and $6 million as of December 31, 2009.

As discussed above, we may be required to make additional contingent consideration payments of up to $250 million associated with our October 2010 acquisition of Asthmatx. In accordance with Topic 805, we will record the estimated fair value of the $250 million of contingent consideration, which includes the use of certain judgments and estimates regarding the probability of future payment, as a liability in the balance sheet as of the acquisition date and will re-measure this liability each reporting period, and report changes in the fair value through a separate line item within our consolidated statements of operations.

Purchased Research and Development

Our policy is to record certain costs associated with strategic alliances as purchased research and development. Our adoption of FASB Statement No. 141(R), Business Combinations ( codified within FASB ASC Topic 805, Business Combinations ) as of January 1, 2009, did not change this policy with respect to asset purchases. In accordance with this policy, we recorded purchased research and development charges of $17 million in the first nine months of 2009 associated with entering certain licensing and development arrangements. Since the technology purchases did not involve the transfer of processes or outputs as defined by Statement No. 141(R), the transaction did not qualify as a business combination. We did not consummate any material business combinations in the first nine months of 2010 or 2009. For any future business combinations that we enter, including our October 2010 acquisition of Asthmatx, we will recognize purchased research and development as an intangible asset, in accordance with ASC Topic 805.

Acquisition-related Milestone

In connection with Abbott Laboratories’ 2006 acquisition of Guidant Corporation’s vascular intervention and endovascular solutions businesses, Abbott agreed to pay us a milestone payment of $250 million upon receipt of an approval from the Japanese Ministry of Health, Labor and Welfare (MHLW) to market the XIENCE V ^® stent system in Japan. The MHLW approved the XIENCE V ^® stent system in the first quarter of 2010 and we received the milestone payment from Abbott, which is recorded as a gain in the accompanying unaudited condensed consolidated statements of operations.

NOTE G – RESTRUCTURING-RELATED ACTIVITIES

On an on-going basis, we monitor the dynamics of the economy, the healthcare industry, and the markets in which we compete; and we continue to assess opportunities for improved operational effectiveness and

efficiency, and better alignment of expenses with revenues, while preserving our ability to make the investments in research and development projects, capital and our people that are essential to our long-term success. As a result of these assessments, we have undertaken various restructuring initiatives to focus our business, diversify and reprioritize our product portfolio, reallocate research and development and other spending toward products with higher returns, as well as to redirect administrative costs, in order to enhance our growth potential. These initiatives are described below.

We expect that the execution of this plan will result in total pre-tax expenses of approximately $425 million to $435 million, and that approximately $375 million to $385 million of these charges will result in cash outlays, of which we have made payments of $362 million to date. We have recorded related costs of $424 million since the inception of the plan, and are recording a portion of these expenses as restructuring charges and the remaining portion through other lines within our consolidated statements of operations. The following provides a summary of our expected total costs associated with the plan by major type of cost:


		Total estimated amount expected to
Type of cost		be incurred

Restructuring charges:
Termination benefits		$205 million to $207 million
Fixed asset write-offs		$31 million
Other (1)		$65 million

Restructuring-related expenses:
Retention incentives		$66 million
Accelerated depreciation		$16 million to $18 million
Transfer costs (2)		$42 million to $48 million


		$425 million to $435 million

	(1)		Consists primarily of consulting fees, contractual cancellations, relocation costs and other costs.

	(2)		Consists primarily of costs to transfer product lines among facilities, including costs of transfer teams, freight and product line validations.

In addition, in January 2009, our Board of Directors approved, and we committed to, a Plant Network Optimization program, which is intended to simplify our manufacturing plant structure by transferring certain production lines among facilities and by closing certain other facilities. The program is a complement to our 2007 Restructuring plan, and is intended to improve overall gross profit margins. Activities under the Plant Network Optimization program were initiated in the first quarter of 2009 and are expected to be substantially complete by the end of 2011.

We expect that the execution of the Plant Network Optimization program will result in total pre-tax charges of approximately $135 million to $150 million, and that approximately $115 million to $125 million of these charges will result in cash outlays, of which we have made payments of $32 million to date. We have recorded related costs of $70 million since the inception of the plan, and are recording a portion of these expenses as restructuring charges and the remaining portion through other lines within our consolidated

statements of operations. The following provides a summary of our estimates of costs associated with the Plant Network Optimization program by major type of cost:


		Total estimated amount expected to
Type of cost		be incurred

Restructuring charges:
Termination benefits		$30 million to $35 million

Restructuring-related expenses:
Accelerated depreciation		$20 million to $25 million
Transfer costs (1)		$85 million to $90 million


		$135 million to $150 million

(1)

Consists primarily of costs to transfer product lines among facilities, including costs of transfer teams, freight, idle facility and product line validations.

Further, on February 6, 2010, our Board of Directors approved, and we committed to, a series of management changes and restructuring initiatives (the 2010 Restructuring plan) designed to strengthen and position us for long-term success. Key activities under the plan include the integration of our Cardiovascular and CRM businesses, as well as the restructuring of certain other businesses and corporate functions; the centralization of our research and development organization; the re-alignment of our international structure to reduce our administrative costs and invest in expansion opportunities including significant investments in emerging markets; and the reprioritization and diversification of our product portfolio, in order to drive innovation, accelerate profitable growth and increase both accountability and shareholder value. Activities under the 2010 Restructuring plan were initiated in the first quarter of 2010 and are expected to be substantially complete by the end of 2011.

We estimate that the 2010 Restructuring plan will result in total pre-tax charges of approximately $180 million to $200 million, and that approximately $170 million to $180 million of these charges will result in cash outlays, of which we have made payments of $48 million to date. We have recorded related costs of $92 million since the inception of the plan, and are recording a portion of these expenses as restructuring charges and the remaining portion through other lines within our consolidated statements of operations. We expect the execution of the plan will result in the elimination of approximately 1,000 to 1,300 positions by the end of 2011. The following provides a summary of our expected total costs associated with the plan by major type of cost:


		Total estimated amount expected
Type of Cost		to be incurred

Restructuring charges:
Termination benefits		$110 million to $115 million
Asset write-offs		$5 million to $10 million
Other (1)		$45 million to $50 million

Restructuring-related expenses:
Other (2)		$20 million to $25 million


		$180 million to $200 million

	(1)		Includes primarily consulting fees and costs associated with contractual cancellations.

	(2)		Comprised of other costs directly related to restructuring plan, including accelerated depreciation and infrastructure-related costs.

We recorded restructuring charges pursuant to these plans of $5 million in the third quarter of 2010, $9 million in the third quarter of 2009, $98 million in the first nine months of 2010, and $44 million in the first nine months of 2009. In addition, we recorded expenses within other lines of our accompanying unaudited condensed consolidated statements of operations related to our restructuring initiatives of $13 million in the third quarter of 2010, $19 million the third quarter of 2009, $41 million for the first nine months of 2010, and $50 million for the first nine months of 2009. The following presents these costs by major type and line item within our accompanying unaudited condensed consolidated statements of operations, as well as by program:

Three Months Ended September 30, 2010


	Termination			Retention		Accelerated		Transfer		Fixed Asset
(in millions)	Benefits			Incentives		Depreciation		Costs		Write-offs		Other		Total

Restructuring charges	$	2								$	1	$	2	$	5

Restructuring-related expenses:
Cost of products sold						$	2	$	10						12
Selling, general and administrative expenses													1		1
Research and development expenses

							2		10				1		13

	$	2				$	2	$	10	$	1	$	3	$	18


	Termination			Retention		Accelerated		Transfer		Fixed Asset
(in millions)	Benefits			Incentives		Depreciation		Costs		Write-offs		Other		Total


2010 Restructuring plan	$	2								$	1	$	3	$	6
Plant Network Optimization program		2				$	2	$	8						12
2007 Restructuring plan		(2	)						2						-

	$	2				$	2	$	10	$	1	$	3	$	18


Three Months Ended September 30, 2009

	Termination			Retention		Accelerated		Transfer		Fixed Asset
(in millions)	Benefits			Incentives		Depreciation		Costs		Write-offs		Other		Total

Restructuring charges	$	4								$	3	$	2	$	9

Restructuring-related expenses:
Cost of products sold				$	1	$	3	$	9						13
Selling, general and administrative expenses					3		2								5
Research and development expenses					1										1

					5		5		9						19

	$	4		$	5	$	5	$	9	$	3	$	2	$	28


	Termination			Retention		Accelerated		Transfer		Fixed Asset
(in millions)	Benefits			Incentives		Depreciation		Costs		Write-offs		Other		Total


Plant Network Optimization program	$	2				$	2	$	3					$	7
2007 Restructuring plan		2		$	5		3		6	$	3	$	2		21

	$	4		$	5	$	5	$	9	$	3	$	2	$	28

Nine Months Ended September 30, 2010


	Termination		Retention		Accelerated		Transfer		Fixed Asset
(in millions)	Benefits		Incentives		Depreciation		Costs		Write-offs		Other		Total

Restructuring charges	$	66							$	8	$	24	$	98

Restructuring-related expenses:
Cost of products sold					$	6	$	32						38
Selling, general and administrative expenses												3		3
Research and development expenses

						6		32				3		41

	$	66			$	6	$	32	$	8	$	27	$	139


	Termination		Retention		Accelerated		Transfer		Fixed Asset
(in millions)	Benefits		Incentives		Depreciation		Costs		Write-offs		Other		Total


2010 Restructuring plan	$	61							$	8	$	23	$	92
Plant Network Optimization program		4			$	6	$	20						30
2007 Restructuring plan		1						12				4		17

	$	66			$	6	$	32	$	8	$	27	$	139


Nine Months Ended September 30, 2009

	Termination		Retention		Accelerated		Transfer		Fixed Asset
(in millions)	Benefits		Incentives		Depreciation		Costs		Write-offs		Other		Total

Restructuring charges	$	25							$	6	$	13	$	44

Restructuring-related expenses:
Cost of products sold			$	4	$	7	$	25						36
Selling, general and administrative expenses				9		2								11
Research and development expenses				3										3

				16		9		25						50

	$	25	$	16	$	9	$	25	$	6	$	13	$	94


	Termination		Retention		Accelerated		Transfer		Fixed Asset
(in millions)	Benefits		Incentives		Depreciation		Costs		Write-offs		Other		Total


Plant Network Optimization program	$	19			$	5	$	8					$	32
2007 Restructuring plan		6	$	16		4		17	$	6	$	13		62

	$	25	$	16	$	9	$	25	$	6	$	13	$	94

Termination benefits represent amounts incurred pursuant to our on-going benefit arrangements and amounts for “one-time” involuntary termination benefits, and have been recorded in accordance with ASC Topic 712, Compensation – Non-retirement Postemployment Benefits (formerly FASB Statement No. 112, Employer’s Accounting for Postemployment Benefits) and ASC Topic 420, Exit or Disposal Cost Obligations (formerly FASB Statement 146, Accounting for Costs Associated with Exit or Disposal Activities). We expect to record additional termination benefits in 2010 and 2011 when we identify with more specificity the job classifications, functions and locations of the remaining head count to be eliminated. Retention incentives represent cash incentives, which were recorded over the service period during which eligible employees remained employed with us in order to retain the payment. Other restructuring costs, which represent primarily consulting fees, are being recorded as incurred in accordance

with Topic 420. Accelerated depreciation is being recorded over the adjusted remaining useful life of the related assets, and production line transfer costs are being recorded as incurred.

We have incurred cumulative restructuring charges of $416 million and restructuring-related costs of $170 million since we committed to each plan. The following presents these costs by major type and by plan:


	2010		Plant		2007
	Restructuring		Network		Restructuring
(in millions)	Plan		Optimization		Plan		Total

Termination benefits	$	61	$	26	$	205	$	292
Fixed asset write-offs		8				31		39
Other		20				65		85

Total restructuring charges		89		26		301		416

Retention incentives						66		66
Accelerated depreciation				12		16		28
Transfer costs				32		41		73
Other		3						3

Restructuring-related expenses		3		44		123		170

	$	92	$	70	$	424	$	586

We made cash payments associated with restructuring initiatives pursuant to these plans of $32 million in the third quarter of 2010, $97 million in the first nine months of 2010, and have made total cash payments of $442 million since committing to each plan. Each of these payments was made using cash generated from our operations, and are comprised of the following:


	2010		Plant		2007
	Restructuring		Network		Restructuring
(in millions)	Plan		Optimization		Plan		Total

Three Months Ended September 30, 2010
Termination benefits	$	19					$	19
Transfer costs			$	8	$	2		10
Other		3						3

	$	22	$	8	$	2	$	32


Nine Months Ended September 30, 2010
Termination benefits	$	33			$	12	$	45
Retention incentives						2		2
Transfer costs			$	20		12		32
Other		15				3		18

	$	48	$	20	$	29	$	97


Program to Date
Termination benefits	$	33			$	191	$	224
Retention incentives						66		66
Transfer costs			$	32		41		73
Other		15				64		79

	$	48	$	32	$	362	$	442

The following is a rollforward of the restructuring liability associated with each of these initiatives, since the inception of the respective plan, which is reported as a component of accrued expenses included in our accompanying unaudited condensed consolidated balance sheets:


										Plant
										Network
	2010 Restructuring Plan									Optimization		2007 Restructuring Plan
	Termination									Termination		Termination
(in millions)	Benefits			Other			Subtotal			Benefits		Benefits			Other			Subtotal			Total

Charges												$	158		$	10		$	168		$	168
Cash payments													(23	)		(8	)		(31	)		(31	)

Accrued as of December 31, 2007													135			2			137			137
Charges													34			34			68			68
Cash payments													(128	)		(35	)		(163	)		(163	)

Accrued as of December 31, 2008													41			1			42			42
Charges										$	22		12			17			29			51
Cash payments													(28	)		(18	)		(46	)		(46	)

Accrued as of December 31, 2009											22		25			-			25			47
Charges	$	61		$	20		$	81			4		4			4			8			93
Other adjustments to accruals													(3	)					(3	)		(3	)
Cash payments		(33	)		(15	)		(48	)				(12	)		(3	)		(15	)		(63	)

Accrued as of September 30, 2010	$	28		$	5		$	33		$	26	$	14		$	1		$	15		$	74

NOTE H – COMPREHENSIVE INCOME

The following table provides a summary of our comprehensive income (loss):


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(in millions)	2010		2009		2010		2009

Net income (loss)	$	190	$	(94)	$	(1,301)	$	51
Foreign currency translation adjustment		34		12		(51)		33
Net change in unrealized gains and losses on derivative financial instruments, net of tax		(114)		(82)		(23)		(73)
Net change in unrealized gains and losses on equity investments, net of tax				(1)

Comprehensive income (loss)	$	110	$	(165)	$	(1,375)	$	11

Refer to Note C – Financial Instruments for more information on our derivative financial instruments.

NOTE I – EARNINGS PER SHARE

Three Months Ended

Nine Months Ended

September 30,

(in millions)

2010

2009

2010

2009

Weighted average shares outstanding - basic

1,519.8

1,509.3

1,517.0

1,507.0

Net effect of common stock equivalents

9.5

7.4

Weighted average shares outstanding - assuming dilution

1,529.3

1,509.3

1,517.0

1,514.4

Our weighted-average shares outstanding for earnings per share calculations excludes common stock equivalents of 9.2 million for the first nine months of 2010, and 10.9 million common stock equivalents for the third quarter of 2009 due to our net loss position in those periods.

Weighted-average shares outstanding, assuming dilution, also excludes the impact of 62 million stock options for the third quarter of 2010, 46 million for the third quarter of 2009, 62 million for the first nine months of 2010, and 54 million for the first nine months of 2009, due to the exercise prices of these stock options being greater than the average fair market value of our common stock during the period.

We issued approximately three million shares of our common stock in the third quarters of 2010 and 2009, and nine million shares in the first nine months of 2010 and 2009, following the exercise or vesting of the underlying stock options or deferred stock units, or purchase under our employee stock purchase plan.

NOTE J – INCOME TAXES

Tax Rate

The following tables provide a summary of our reported tax rate:

Three Months Ended

Percentage

September 30

Point

2010

2009

Increase (Decrease)

Reported tax rate

(16.6) %

(113.6) %

97.0 %

Impact of certain receipts/charges*

33.4 %

128.9 %

(95.5) %

16.8 %

15.3 %

1.5 %

Nine Months Ended

Percentage

September 30

Point

2010

2009

Increase (Decrease)

Reported tax rate

(0.7) %

(30.8) %

30.1 %

Impact of certain receipts/charges*

20.9 %

49.1 %

(28.2) %

20.2 %

18.3 %

1.9 %

*These receipts/charges are taxed at different rates than our effective tax rate.

The change in our reported tax rate for the third quarter and first nine months of 2010, as compared to the same periods in 2009, relates primarily to the impact of certain receipts and charges that are taxed at different rates than our effective tax rate. In 2010, these receipts and charges included goodwill and intangible asset impairment charges, a gain associated with the receipt of an acquisition-related milestone payment, and restructuring-related charges. Our reported tax rate was also affected by discrete items, related primarily to the re-measurement during the second quarter of 2010 of an uncertain tax position resulting from a favorable court ruling issued in a similar third-party case and the resolution during the third quarter of 2010 of an uncertain tax position resulting from a favorable taxpayer motion issued in a similar third-party case. In 2009, these charges included intangible asset impairment charges, purchased research and development charges, restructuring and litigation-related net charges, a favorable tax ruling on a divestiture-related gain recognized in a prior period, and discrete tax items associated primarily with resolutions of uncertain tax positions related to audit settlements and changes in estimates for tax benefits claimed related to prior periods.

As of September 30, 2010, we had $1.022 billion of gross unrecognized tax benefits, of which a net $891 million, if recognized, would affect our effective tax rate. As of December 31, 2009, we had $1.038 billion of gross unrecognized tax benefits, of which a net $908 million, if recognized, would affect our effective tax rate. The net reduction in our unrecognized tax benefit is attributable primarily to the re-measurement of an uncertain tax position resulting from a favorable court ruling in a similar third-party case of $25 million, exclusive of interest, and the resolution of an uncertain tax position resulting from a favorable taxpayer motion issued in a similar third-party case of $42 million, exclusive of interest.

We recognize interest and penalties related to income taxes as a component of income tax expense. We recognized tax benefits related to interest of $3 million in the third quarters of 2010 and 2009, and tax expense related to interest of $10 million in the first nine months of

2010 and $9 million in the first nine months of 2009. We had $314 million accrued for gross interest and penalties as of September 30, 2010 and $299 million as of December 31, 2009.

We are subject to U.S. federal income tax as well as income tax of multiple state and foreign jurisdictions. We have concluded all U.S. federal income tax matters through 2000 and substantially all material state, local, and foreign income tax matters through 2001.

During 2009, we received the Revenue Agent’s Report for the legacy Boston Scientific examination covering years 2004 and 2005, which contained proposed adjustments, related primarily to transfer pricing and transaction-related issues. We agreed on certain adjustments and made associated payments of $64 million, inclusive of interest. We disagree with certain positions contained in the Report and intend to contest these positions through applicable Internal Revenue Service and judicial procedures, as appropriate.

During 2008, we received the Revenue Agent’s Report for the legacy Guidant examination covering years 2001 through 2003. We continue to disagree with and contest the significant proposed adjustment, related primarily to the allocation of income between our U.S. and foreign affiliates, contained in the Report. We do not expect to be able to resolve this issue through applicable Internal Revenue Service administrative procedures. We believe that we have meritorious defenses for our tax filings and will vigorously defend them through litigation in the courts.

Although the final resolution associated with both of these matters is uncertain, we believe that our income tax reserves are adequate and that the resolution will not have a material impact on our financial condition or results of operations. It is reasonably possible that within the next 12 months we will resolve multiple issues including transfer pricing, research and development tax credit and various transactional related issues, with foreign, federal and state taxing authorities, in which case we could record a reduction in our balance of gross unrecognized tax benefits of up to approximately $327 million. More specifically, based on available information as of the third quarter, we now expect to resolve in this timeframe certain issues related to Boston Scientific Corporation’s federal tax examination for years 2002 through 2007 and certain other issues pertaining to Guidant Corporation’s federal tax examination for years 2001 through 2006, exclusive of the proposed adjustment related primarily to the allocation of income between our U.S. and foreign affiliates included in the Revenue Agent’s Report covering years 2001 through 2003, on which we disagree.

NOTE K — COMMITMENTS AND CONTINGENCIES

The medical device market in which we primarily participate is largely technology driven. Physician customers, particularly in interventional cardiology, have historically moved quickly to new products and new technologies. As a result, intellectual property rights, particularly patents and trade secrets, play a significant role in product development and differentiation. However, intellectual property litigation is inherently complex and unpredictable. Furthermore, appellate courts can overturn lower court patent decisions.

In addition, competing parties frequently file multiple suits to leverage patent portfolios across product lines, technologies and geographies and to balance risk and exposure between the parties. In some cases, several competitors are parties in the same proceeding, or in a series of related proceedings, or litigate multiple features of a single class of devices. These forces frequently drive settlement not only for individual cases, but also for a series of pending and potentially related and unrelated cases. In addition, although monetary and injunctive relief is typically sought, remedies and restitution are generally not determined until the conclusion of the trial court proceedings and can be modified on appeal. Accordingly, the outcomes of individual cases are difficult to time, predict or quantify and are often dependent upon the outcomes of other cases in other geographies. Several third parties have asserted that certain of our current and former stent systems infringe patents owned or licensed by them. We have similarly asserted that other products sold by our competitors infringe patents owned or licensed by us. Adverse outcomes in one or more of the proceedings against us could limit our ability to sell certain products in certain jurisdictions, or reduce our

operating margin on the sale of these products and could have a material adverse effect on our financial position, results of operations or liquidity.

In particular, although our recent settlements with Johnson & Johnson resolved multiple litigation matters, described in our 2009 Annual Report filed on Form 10-K, we continue to be involved in patent litigation with Johnson & Johnson relating to drug-eluting stent systems. Adverse outcomes in one or more of these matters could have a material adverse effect on our ability to sell certain products and on our operating margins, financial position, results of operation or liquidity.

In the normal course of business, product liability, securities and commercial claims are asserted against us. Similar claims may be asserted against us in the future related to events not known to management at the present time. We are substantially self-insured with respect to product liability claims and intellectual property infringement, and maintain an insurance policy providing limited coverage against securities claims. The absence of significant third-party insurance coverage increases our potential exposure to unanticipated claims or adverse decisions. Product liability claims, product recalls, securities litigation, and other legal proceedings in the future, regardless of their outcome, could have a material adverse effect on our financial position, results of operations and liquidity. In addition, the medical device industry is the subject of numerous governmental investigations often involving regulatory, marketing and other business practices. These investigations could result in the commencement of civil and criminal proceedings, substantial fines, penalties and administrative remedies, divert the attention of our management and have an adverse effect on our financial position, results of operations and liquidity.

We generally record losses for claims in excess of the limits of purchased insurance in earnings at the time and to the extent they are probable and estimable. In accordance with ASC Topic 450, Contingencies (formerly FASB Statement No. 5, Accounting for Contingencies), we accrue anticipated costs of settlement, damages, losses for general product liability claims and, under certain conditions, costs of defense, based on historical experience or to the extent specific losses are probable and estimable. Otherwise, we expense these costs as incurred. If the estimate of a probable loss is a range and no amount within the range is more likely, we accrue the minimum amount of the range.

Our accrual for legal matters that are probable and estimable was $562 million as of September 30, 2010 and $2.316 billion as of December 31, 2009, and includes estimated costs of settlement, damages and defense. The decrease in our accrual is due primarily to the payment of $1.725 billion to Johnson & Johnson in connection with the patent litigation settlement discussed in our 2009 Annual Report filed on Form 10-K. We continue to assess certain litigation and claims to determine the amounts, if any, that management believes will be paid as a result of such claims and litigation and, therefore, additional losses may be accrued and paid in the future, which could materially adversely impact our operating results, cash flows and our ability to comply with our debt covenants.

In management’s opinion, we are not currently involved in any legal proceedings other than those disclosed in our 2009 Annual Report filed on Form 10-K, or specifically identified below, which, individually or in the aggregate, could have a material effect on our financial condition, operations and/or cash flows. Unless included in our legal accrual or otherwise indicated below, a range of loss associated with any individual material legal proceeding cannot be estimated.

Intellectual Property Litigation

On April 13, 1998, Cordis filed suit against Boston Scientific Scimed and us in the U.S. District Court for the District of Delaware, alleging that our NIR® stent infringes three claims of two patents (the Fischell patents) owned by Cordis and seeking damages and injunctive relief. On May 2, 2005, the District Court entered judgment that none of the three asserted claims was infringed, although two of the claims were not invalid. The District Court also found the two patents unenforceable for inequitable conduct. Cordis appealed the non-infringement finding of one claim in one patent and the unenforceability of that patent. We cross appealed the finding that one of the two claims was not invalid. Cordis did not appeal as to the second patent. On June 29, 2006, the Court of Appeals upheld the finding that the claim was not invalid, remanded

the case to the District Court for additional factual findings related to inequitable conduct, and did not address the finding that the claim was not infringed. On August 10, 2009, the District Court reversed its finding that both patents were unenforceable for inequitable conduct. On August 24, 2009, we asked the District Court to reconsider and on March 31, 2010, the District Court denied our request for reconsideration. On April 2, 2010, Cordis filed an appeal and on April 9, 2010, we filed a cross appeal.

On January 15, 2010, Cordis Corporation filed a complaint against Boston Scientific Scimed, Inc. alleging that the PROMUS® coronary stent system, supplied to us by Abbott, infringes three patents (the Fischell patents) owned by Cordis. The suit was filed in the U.S. District Court for the District of Delaware and seeks monetary and injunctive relief. A trial is scheduled to begin on April 9, 2012.

On February 1, 2008, Wyeth and Cordis Corporation filed an amended complaint against Abbott, adding us and Boston Scientific Scimed as additional defendants to the complaint. The suit alleges that the PROMUS® coronary stent system, supplied to us by Abbott, infringes three U.S. patents (the Morris patents) owned by Wyeth and licensed to Cordis. The suit was filed in the U.S. District Court for the District of New Jersey seeking monetary and injunctive relief. A Markman hearing was held on July 15, 2010. On November 3, 2010, the Court granted a motion to bifurcate damages from liability in the case. A liability trial is scheduled to begin September 12, 2011.

On September 22, 2009, Cordis Corporation, Cordis LLC and Wyeth Corporation filed a complaint for patent infringement against Abbott Laboratories, Abbott Cardiovascular Systems, Inc., Boston Scientific Scimed and us alleging that the PROMUS® coronary stent system, supplied to us by Abbott, infringes a patent (the Llanos patent) owned by Cordis and Wyeth that issued on September 22, 2009. The suit was filed in the U.S. District Court for the District of New Jersey seeking monetary and injunctive relief. On September 22, 2009, we filed a declaratory judgment action in the U.S. District Court for the District of Minnesota against Cordis and Wyeth seeking a declaration that the patent is invalid and not infringed by the PROMUS® coronary stent system, supplied to us by Abbott. On January 19, 2010, the District Court for the District of Minnesota transferred our suit to the U.S. District Court for the District of New Jersey and on February 17, 2010, the Minnesota case was dismissed. On July 13, 2010, Cordis filed a motion to amend the complaint to add an additional patent, which the U.S. District Court for the District of New Jersey granted on August 2, 2010. Cordis filed their amended complaint on August 9, 2010. On September 3, 2010 we filed an answer to the amended complaint along with counterclaims of invalidity and non-infringement.

On December 4, 2009, Boston Scientific Corporation and Boston Scientific Scimed, Inc. filed a complaint for patent infringement against Cordis Corporation alleging that their Cypher Mini™ stent product infringes a U.S. patent (the Jang patent) owned by us. The suit was filed in the U.S. District Court for the District of Minnesota seeking monetary and injunctive relief. On January 19, 2010, Cordis filed their answer as well as a motion to transfer the suit to Delaware. On April 16, 2010, the District Court of Minnesota granted Cordis’ motion to transfer the case to the U.S. District Court for the District of Delaware. A trial has been scheduled to begin on May 5, 2011.

On May 19, 2005, G. David Jang, M.D. filed suit against us alleging breach of contract relating to certain patent rights covering stent technology. The suit was filed in the U.S. District Court for the Central District of California seeking monetary damages and rescission of the contract. After a Markman ruling relating to the Jang patent rights, Dr. Jang stipulated to the dismissal of certain claims alleged in the complaint with a right to appeal. In February 2007, the parties agreed to settle the other claims of the case. On May 23, 2007, Jang filed an appeal with respect to the remaining patent claims. On July 11, 2008, the Court of Appeals vacated the District Court’s consent judgment and remanded the case back to the District Court for further clarification. On June 11, 2009, the District Court ordered a stay of the action pursuant to the parties’ joint stipulation. On October 5, 2009, Dr. Jang served a lien notice on us seeking a portion of any recovery from Johnson & Johnson for infringement of the Jang patent, and on May 25, 2010, Dr. Jang filed a formal suit in the U.S. District Court for the Central District of California. On June 5, 2010, we answered denying the allegations and on July 2, 2010, we filed a motion to transfer the action to the U.S. District Court for the District of Delaware. On August 9, 2010, the California Court ordered the case transferred to Delaware.

On December 11, 2007, Wall Cardiovascular Technologies LLC filed suit against us alleging that our TAXUS® Express® coronary stent system, and other products and services related to coronary, carotid and peripheral stents, infringes a patent owned by them (the Wall patent). The complaint also alleges that Cordis Corporation’s drug-eluting stent system infringes the patent. The suit was filed in the U.S. District Court for the Eastern District of Texas and seeks monetary and injunctive relief. Wall Cardiovascular Technologies later amended its complaint to add Medtronic, Inc. and Abbott Laboratories to the suit with respect to their drug-eluting stent systems. Parties have entered into settlement and court granted a motion to dismiss with prejudice on September 9, 2010.

On March 16, 2009, OrbusNeich Medical, Inc. filed suit against us in the U.S. District Court for the Eastern District of Virginia alleging that our Liberté® coronary stent system infringes two U.S. patents (the Addonizio and Pazienza patents) owned by them. The complaint also alleges breach of contract and misappropriation of trade secrets and seeks monetary and injunctive relief. On April 13, 2009, we answered denying the allegations and filed a motion to transfer the case to Minnesota as well as a motion to dismiss the state law claims. On June 8, 2009, the case was transferred to the U.S. District Court for the District of Massachusetts. On September 11, 2009, OrbusNeich filed an amended complaint against us. On October 2, 2009, we filed a motion to dismiss the non-patent claims and, on October 20, 2009, we filed an answer to the amended complaint. On March 18, 2010, the District Court dismissed OrbusNeich’s unjust enrichment and fraud claims, but denied our motion to dismiss the remaining state law claims. On April 14, 2010, OrbusNeich filed a motion to amend its complaint to add another patent (another Addonizio patent).

On November 17, 2009, Boston Scientific Scimed filed suit against OrbusNeich Medical, Inc. and certain of its subsidiaries in the Netherlands alleging that their sale of the Genous stents infringes a patent owned by us (the Keith patent). A hearing was held on June 18, 2010. A decision is expected in December 2010.

On May 17, 2010, Dr. Luigi Tellini filed suit against us and certain of our subsidiaries, Guidant Italia S.r.l. and Boston Scientific S.p.A., in Italy alleging certain of our Cardiac Rhythm Management (CRM) products infringe an Italian patent (the Tellini patent) owned by Dr. Tellini. We filed our response on October 26, 2010 and a first hearing is scheduled for November 16, 2010.

On August 24, 2010, EVM Systems, LLC filed suit against us, Cordis Corporation, Abbott Laboratories Inc. and Abbott Vascular, Inc. in the U.S. District Court for the Eastern District of Texas alleging that our vena cava filters, including the Escape Nitinol Stone Retrieval Device, infringe two patents (the Sachdeva patents).

On September 27, 2010, we filed suit in the U.S. District Court for the District of Massachusetts against Taewoong Medical, Co., Ltd., Standard Sci-Tech, Inc., EndoChoice and Sewoon Medical Co., Ltd for infringement of three patents on stents for use in the GI system (the Pulnev and Hankh patents). We also sued Cook Medical on the same three patents and an additional patent (the Thompson patent).

Product Liability Litigation

Two product liability class action lawsuits and more than 54 individual lawsuits involving approximately 54 individual plaintiffs remain pending in various state and federal jurisdictions against Guidant alleging personal injuries associated with defibrillators or pacemakers involved in certain 2005 and 2006 product communications. The majority of the cases in the United States are pending in federal court but approximately five cases are currently pending in state courts. On November 7, 2005, the Judicial Panel on Multi-District Litigation established MDL-1708 (MDL) in the U.S. District Court for the District of Minnesota and appointed a single judge to preside over all the cases in the MDL. In April 2006, the personal injury plaintiffs and certain third-party payors served a Master Complaint in the MDL asserting claims for class action certification, alleging claims of strict liability, negligence, fraud, breach of warranty and other common law and/or statutory claims and seeking punitive damages. The majority of claimants allege no physical injury, but sue for medical monitoring and anxiety. On July 12, 2007, we reached an agreement to settle certain claims, including those associated with the 2005 and 2006 product communications, which was amended on November 19, 2007. Under the terms of the amended agreement, subject to certain conditions,

we would pay a total of up to $240 million covering up to 8,550 patient claims, including almost all of the claims that have been consolidated in the MDL as well as other filed and unfiled claims throughout the United States. On June 13, 2006, the Minnesota Supreme Court appointed a single judge to preside over all Minnesota state court lawsuits involving cases arising from the product communications. Through the end of the third quarter of 2010, 8,193 claims had been approved for participation in the MDL settlement. As a result, we have made all required payments of approximately $234 million related to the MDL settlement and no other payments are due under the settlement agreement. On April 6, 2009, September 24, 2009, April 16, 2010 and August 30, 2010, the MDL Court dismissed with prejudice most of the plaintiffs’ claims which have been resolved through the settlement agreement. On April 26, 2010, the MDL Court certified an order remanding the remaining cases to the trial courts.

We are aware of more than 33 Guidant product liability lawsuits pending internationally associated with defibrillators or pacemakers, including devices involved in the 2005 and 2006 product communications. Six of those suits pending in Canada are putative class actions, four of which are stayed pending the outcome of two lead class actions. On April 10, 2008, the Justice of Ontario Court certified a class of persons in whom defibrillators were implanted in Canada and a class of family members with derivative claims. On May 8, 2009, the Court certified a class of persons in whom pacemakers were implanted in Canada and a class of family members with derivative claims.

Guidant or its affiliates have been defendants in five separate actions brought by private third-party providers of health benefits or health insurance (TPPs). In these cases, plaintiffs allege various theories of recovery, including derivative tort claims, subrogation, violation of consumer protection statutes and unjust enrichment, for the cost of healthcare benefits they allegedly paid for in connection with the devices that have been the subject of Guidant’s product communications. Two of the TPP actions were previously dismissed without prejudice, but have now been revived as a result of the MDL Court’s January 15, 2010 order, and are pending in the U.S. District Court for the District of Minnesota, although they are proceeding separately from the MDL. A third action was recently remanded by the MDL court to the Southern District of Florida. Two other TPP actions were pending in state court in Minnesota, but were settled and dismissed with prejudice by court order dated June 3, 2010. The settled cases were brought by Blue Cross & Blue Shield plans and United Healthcare and its affiliates.

As of June 2003, Guidant had outstanding 14 suits alleging product liability-related causes of action relating to the ANCURE Endograft System for the treatment of abdominal aortic aneurysms. Subsequently, Guidant was notified of additional claims and served with additional complaints relating to the ANCURE System. From time to time, Guidant has settled certain of the individual claims and suits for amounts that were not material to Guidant. Presently, Guidant has one ANCURE lawsuit pending in the U.S. District Court for the District of Minnesota. Guidant had four cases pending in State Court in California. These cases had been dismissed on summary judgment. On February 9, 2010, the California Court of Appeals upheld the dismissal of two of the cases. On June 9, 2010, the Supreme Court declined to review the dismissal action. The appeal is pending on the remaining cases. Additionally, Guidant has been notified of over 130 potential unfiled claims alleging product liability relating to the ANCURE System. The claimants generally allege that they or their relatives suffered injuries, and in certain cases died, as a result of purported defects in the device or the accompanying warnings and labeling. It is uncertain how many of these claims will ultimately be pursued against Guidant.

Securities Related Litigation

On September 23, 2005, Srinivasan Shankar, on behalf of himself and all others similarly situated, filed a purported securities class action suit in the U.S. District Court for the District of Massachusetts on behalf of those who purchased or otherwise acquired our securities during the period March 31, 2003 through August 23, 2005, alleging that we and certain of our officers violated certain sections of the Securities Exchange Act of 1934. Four other plaintiffs, on behalf of themselves and all others similarly situated, each filed additional purported securities class action suits in the same Court on behalf of the same purported class. On February 15, 2006, the Court ordered that the five class actions be consolidated and appointed the

Mississippi Public Employee Retirement System Group as lead plaintiff. A consolidated amended complaint was filed on April 17, 2006. The consolidated amended complaint alleges that we made material misstatements and omissions by failing to disclose the supposed merit of the Medinol litigation and U.S. Department of Justice (DOJ) investigation relating to the 1998 NIR ON® Ranger with Sox stent recall, problems with the TAXUS® drug-eluting coronary stent systems that led to product recalls, and our ability to satisfy U.S. Food and Drug Administration (FDA) regulations concerning medical device quality. The consolidated amended complaint seeks unspecified damages, interest, and attorneys’ fees. The defendants filed a motion to dismiss the consolidated amended complaint on June 8, 2006, which was granted by the Court on March 30, 2007. On April 16, 2008, the U.S. Court of Appeals for the First Circuit reversed the dismissal of only plaintiff’s TAXUS® stent recall-related claims and remanded the matter for further proceedings. On February 25, 2009, the Court certified a class of investors who acquired our securities during the period November 30, 2003 through July 15, 2004. The defendants filed a motion for summary judgment and a hearing on the motion was held on April 21, 2010. On April 27, 2010, the Court issued an opinion granting defendants’ motion and on April 28, 2010, the Court entered judgment in defendants’ favor and dismissed the case. Plaintiff filed a notice of appeal on May 27, 2010.

On January 19, 2006, George Larson filed a purported class action complaint in the U.S. District Court for the District of Massachusetts on behalf of participants and beneficiaries of our 401(k) Retirement Savings Plan and Global Employee Stock Ownership Plan (GESOP) alleging that we and certain of our officers and employees violated certain provisions under the Employee Retirement Income Security Act of 1974, as amended (ERISA), and Department of Labor Regulations. Other similar actions were filed in early 2006. On April 3, 2006, the Court issued an order consolidating the actions. On August 23, 2006, plaintiffs filed a consolidated purported class action complaint on behalf of all participants and beneficiaries of our 401(k) Plan during the period May 7, 2004 through January 26, 2006 alleging that we, our 401(k) Administrative and Investment Committee (the Committee), members of the Committee, and certain directors violated certain provisions of ERISA (the Consolidated ERISA Complaint). The Consolidated ERISA Complaint alleges, among other things, that the defendants breached their fiduciary duties to the 401(k) Plan’s participants because they knew or should have known that the value of our common stock was artificially inflated and was not a prudent investment for the 401(k) Plan (the First ERISA Action). The Consolidated ERISA Complaint seeks equitable and monetary relief. On June 30, 2008, Robert Hochstadt (who previously had withdrawn as an interim lead plaintiff) filed a motion to intervene to serve as a proposed class representative. On November 3, 2008, the Court denied Plaintiffs’ motion to certify a class, denied Hochstadt’s motion to intervene, and dismissed the action. On December 2, 2008, plaintiffs filed a notice of appeal.

On December 24, 2008, Robert Hochstadt and Edward Hazelrig, Jr. filed a purported class action complaint in the U.S. District Court for the District of Massachusetts on behalf of all participants and beneficiaries of our 401(k) Plan during the period May 7, 2004 through January 26, 2006 (the Second ERISA Action). This new complaint repeats the allegations of the August 23, 2006, Consolidated ERISA Complaint. On September 30, 2009, we and certain of the proposed class representatives in the First and Second ERISA Actions entered into a memorandum of understanding reflecting an agreement-in-principle to settle the First and Second ERISA Actions in their entirety. The proposed settlement has received preliminary approval from the District Court. On August 5, 2010, the District Court held a fairness hearing. On August 11, 2010, the District Court entered an Order and Final Judgment approving the settlement of the Second ERISA Action and dismissing that action. On October 12, 2010, the First Circuit Court of Appeals entered judgment dismissing the appeal in the First ERISA Action.

In July 2005, a purported class action complaint was filed on behalf of participants in Guidant’s employee pension benefit plans. This action was filed in the U.S. District Court for the Southern District of Indiana against Guidant and its directors. The complaint alleges breaches of fiduciary duty under ERISA. Specifically, the complaint alleges that Guidant fiduciaries concealed adverse information about Guidant’s defibrillators and imprudently made contributions to Guidant’s 401(k) plan and employee stock ownership plan in the form of Guidant stock. The complaint seeks class certification, declaratory and injunctive relief, monetary damages, the imposition of a constructive trust, and costs and attorneys’ fees. In September 2007, we filed a motion to dismiss the complaint for failure to state a claim. In June 2008, the District Court dismissed the

complaint in part, but ruled that certain of the plaintiffs’ claims may go forward to discovery. On October 29, 2008, the Magistrate Judge ruled that discovery should be limited, in the first instance, to alleged damages-related issues. On October 8, 2009, we reached a resolution with the plaintiffs in this matter. On May 19, 2010, the District Court granted preliminary approval of the proposed settlement. On September 9, 2010, the District Court held a settlement fairness hearing and on September 10, 2010, the District Court entered the Final Order and Judgment approving the settlement.

On April 9, 2010, the City of Roseville Employees’ Retirement System individually and on behalf of purchasers of our securities during the period from April 20, 2009 to March 12, 2010, filed a purported class action suit in the U.S. District Court for the District of Massachusetts. The suit alleges that we and certain of our current and former officers violated certain sections of the Securities Exchange Act of 1934. The suit claims that our stock price was artificially inflated because we failed to disclose certain matters with respect to our CRM business. An order was issued on July 12, 2010 appointing KBC Asset Management NV and Steelworkers Pension Trust as co-lead plaintiffs and the selection of lead class counsel. The plaintiffs filed an amended class action complaint on September 14, 2010. In the amended complaint, the plaintiffs narrowed the alleged class period from October 20, 2009 to February 10, 2010.

On April 14, 2010, we received a letter from the United Union of Roofers, Waterproofers and Allied Workers Local Union No. 8 (Local 8) demanding that our Board of Directors seek to remedy any legal violations committed by current and former officers and directors during the period beginning April 20, 2009 and continuing through March 12, 2010. The letter alleges that our officers and directors caused us to issue false and misleading statements and failed to disclose material adverse information regarding serious issues with our CRM business. The matter was referred to a special committee of the Board to investigate and then make a recommendation to the full Board.

On June 21, 2010, we received a shareholder derivative complaint filed by Rick Barrington individually and on behalf of all others similarly situated against all of our current directors, certain former directors and certain current and former officers seeking to remedy their alleged breaches of fiduciary duties that allegedly caused losses to us during the purported relevant period of April 20, 2009 to March 12, 2010. The allegations in this matter are largely the same as those asserted in the City of Roseville case. The case was filed in the U.S. District Court for the District of Massachusetts on behalf of purchasers of our securities during the period from April 20, 2009 through March 12, 2010. On October 7, 2010, Mr. Barrington filed an amended complaint.

On August 19, 2010, the Iron Workers District Council Southern Ohio and Vicinity Pension Trust filed a putative shareholder derivative class action lawsuit against us and our Board of Directors in the United States District Court for the District of Delaware. The allegations in the complaint are largely the same as those in the original complaint filed by the City of Roseville Employees’ Retirement System on April 9, 2010.

On October 22, 2010, Sanjay Israni filed a shareholder derivative complaint against us and against certain directors and officers purportedly seeking to remedy alleged breaches of fiduciary duties that allegedly caused losses to us. The relevant period defined in the complaint is from April 20, 2009 to March 30, 2010. The allegations in the complaint are largely the same as those contained in the shareholder derivative action filed by Rick Barrington.

Governmental Investigations and Regulatory Proceedings

In December 2007, we were informed by the U.S. Attorney’s Office for the Northern District of Texas that it was conducting an investigation of allegations related to improper promotion of biliary stents for off-label uses. The allegations were set forth in a qui tam whistle-blower complaint, which named us and other competitors. The complaint remained under confidential seal until January 11, 2010 when, following the Federal government’s decision not to intervene in the case, the U.S. District Court for the Northern District of Texas unsealed the complaint.

On June 26, 2008, the United States Attorney for the District of Massachusetts issued to us a separate subpoena under the Health Insurance Portability & Accountability Act of 1996 (HIPAA) pursuant to which the DOJ requested the production of certain documents and information related to our biliary stent business. The HIPAA subpoena was served by the U.S. Attorney’s Office in the District of Massachusetts. We continue to cooperate with the subpoena request and related investigation.

On June 27, 2008, the Republic of Iraq filed a complaint against our wholly-owned subsidiary, BSSA France, and 92 other defendants in the U.S. District Court of the Southern District of New York. The complaint alleges that the defendants acted improperly in connection with the sale of products under the United Nations Oil for Food Program. The complaint alleges Racketeer Influenced and Corrupt Organizations Act (RICO) violations, conspiracy to commit fraud and the making of false statements and improper payments, and seeks monetary and punitive damages. On July 31, 2009, the plaintiff filed an amended complaint, which has been opposed by the defendants. On August 10, 2010, defendants filed additional procedural motions regarding its notice of supplemental authority, initially filed by the defendants on July 6, 2010.

On March 12, 2010, we received a Civil Investigative Demand (CID) from the Civil Division of the U.S. DOJ. The CID requests documents and information relating to reimbursement advice offered by us relating to certain CRM devices. We are cooperating with the request.

On March 22, 2010, we received a subpoena from the U.S. Attorney’s Office for the District of Massachusetts seeking documents relating to our March 15, 2010 announcement regarding the ship hold and product removal actions associated with our implantable cardioverter defibrillator (ICD) and cardiac resynchronization therapy defibrillator (CRT-D) systems, and relating to earlier recalls of our ICD and CRT-D devices. We are cooperating with the request.

On March 22, 2010, we received a subpoena from the U.S. Attorney’s Office for the District of Massachusetts seeking documents relating to the former Market Development Sales Organization that operated within our CRM business. We are cooperating with the request.

On November 2, 2005, the Attorney General of the State of New York filed a civil complaint against Guidant pursuant to the consumer protection provisions of New York’s Executive Law. In the complaint, the Attorney General alleges that Guidant concealed from physicians and patients a design flaw in its VENTAK PRIZM® 2 1861 defibrillator from approximately February 2002 until May 23, 2005. The complaint further alleges that due to Guidant’s concealment of this information, Guidant has engaged in repeated and persistent fraudulent conduct in violation of the law. The Attorney General is seeking permanent injunctive relief, restitution for patients in whom a VENTAK PRIZM® 2 1861 defibrillator manufactured before April 2002 was implanted, disgorgement of profits, and all other proper relief. The case was removed from New York State Court in 2005 and transferred to the MDL in the U.S. District Court for the District of Minnesota in 2006. On April 26, 2010, the MDL Court certified an order remanding the remaining cases to the trial courts. On or about May 7, 2010, the New York Attorney General’s lawsuit was remanded to the U.S. District Court for the Southern District of New York.

In October 2005, Guidant received an administrative subpoena from the DOJ U.S. Attorney’s office in Minneapolis, issued under HIPAA. The subpoena requests documents relating to alleged violations of the Food, Drug, and Cosmetic Act occurring prior to our acquisition of Guidant involving Guidant’s VENTAK PRIZM® 2, CONTAK RENEWAL® and CONTAK RENEWAL 2 devices. Guidant is cooperating with the request, including producing a significant volume of documents and providing witnesses for grand jury proceedings. On November 3, 2009, Guidant and the DOJ reached an agreement in principle to resolve the matters raised in the Minneapolis subpoena. Under the terms of the agreement, Guidant will plead to two misdemeanor charges related to failure to include information in reports to the FDA and we will pay approximately $296 million in fines and forfeitures on behalf of Guidant. We recorded a charge of $294 million in the third quarter of 2009 as a result of the agreement in principle, which represents the $296 million charge associated with the agreement, net of a $2 million reversal of a related accrual. On February 24, 2010, Guidant entered into a plea agreement and sentencing stipulations with the U.S. Attorney for the District of Minnesota and the Office of Consumer Litigation of the DOJ documenting the agreement in principle. On April 5, 2010, Guidant formally pled guilty to the two misdemeanor charges. On April 27, 2010, the District Court declined to accept the plea agreement between Guidant and the DOJ. Instead, the Court invited the parties to consider a modified agreement fashioned to further serve the public interest, including community service, public education and charitable activities, and suggested the DOJ allocate a portion of the

settlement funds to Medicare. The DOJ has also notified us that it has opened an investigation into whether there were civil violations under the False Claims Act related to these products.

In January 2006, Guidant was served with a civil False Claims Act qui tam lawsuit filed in the U.S. District Court for the Middle District of Tennessee in September 2003 by Robert Fry, a former employee alleged to have worked for Guidant from 1981 to 1997. The lawsuit claims that Guidant violated federal law and the laws of the States of Tennessee, Florida and California, by allegedly concealing limited warranty and other credits for upgraded or replacement medical devices, thereby allegedly causing hospitals to file reimbursement claims with federal and state healthcare programs for amounts that did not reflect the providers’ true costs for the devices. On October 16, 2006, the United States filed a motion to intervene in this action, which was approved by the Court on November 2, 2006. Discovery and mediation are ongoing.

On October 17, 2008, we received a subpoena from the U.S. Department of Health and Human Services, Office of the Inspector General, requesting information related to the alleged use of a skin adhesive in certain of our CRM products. On July 23, 2010, we were served with a qui tam complaint filed by a device recipient. In the complaint, the defendant claims that Guidant violated the False Claims Act by selling certain PRIZM 2 devices allegedly manufactured with certain medical adhesives. In September 2010, we filed a motion to dismiss the complaint.

On October 24, 2008, we received a letter from the DOJ informing us of an investigation relating to alleged off-label promotion of surgical cardiac ablation system devices to treat atrial fibrillation. We have divested the surgical cardiac ablation business and the devices at issue are no longer sold by us. On July 13, 2009, we became aware that a judge in Texas partially unsealed a qui tam whistleblower complaint which is the basis for the DOJ investigation. In August 2009, the government, which has the right to intervene and take over the conduct of the qui tam case, filed a notice indicating that it has elected not to intervene in this matter at this time.

Following the unsealing of the whistleblower complaint, we received in August 2009 shareholder letters demanding that our Board of Directors take action against certain directors and executive officers as a result of the alleged off-label promotion of surgical cardiac ablation system devices to treat atrial fibrillation. On March 19, 2010, the same shareholders filed purported derivative lawsuits in the Superior Court of Middlesex County against the same directors and executive officers named in the demand letters, alleging breach of fiduciary duty in connection with the alleged off-label promotion of surgical cardiac ablation system devices and seeking unspecified damages, costs, and equitable relief. The parties have agreed to defer action on these suits until after a Board of Directors determination whether to pursue the matter. On July 26, 2010, the Board determined to reject the shareholders’ demand.

Other Proceedings

On July 28, 2000, Dr. Tassilo Bonzel filed a complaint naming certain of our Schneider Worldwide subsidiaries and Pfizer Inc. 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® balloon catheter technology. This and similar suits were dismissed in state and federal courts in Minnesota. On April 24, 2007, we received a letter from Dr. Bonzel’s counsel alleging that the 1995 license agreement with Dr. Bonzel may have been invalid under German law. On October 5, 2007, Dr. Bonzel filed a complaint against us and Pfizer in Kassel, Germany, alleging the 1995 license agreement is invalid under German law and seeking monetary damages. On June 12, 2009, the Court dismissed all but one of Dr. Bonzel’s claims. On October 16, 2009, Dr. Bonzel made an additional filing in support of his remaining claim and added new claims. On December 23, 2009, we filed our response opposing the addition of the new claims. A hearing was held September 24, 2010.

In March 2005, we acquired Advanced Stent Technologies, Inc. (AST), a stent development company. On November 25, 2008, representatives of the former stockholders of AST filed two arbitration demands against us with the American Arbitration Association. AST claimed that we failed to exercise commercially

reasonable efforts to develop products using AST’s technology in violation of the acquisition agreement. The demands seek monetary and equitable relief. We answered denying any liability. The parties have selected arbitrators and preliminary matters have been presented to the panel. On May 13, 2010, the Arbitration panel ruled that AST is not entitled to monetary relief at this time. Arbitration is scheduled for November 2010.

On December 12, 2008, we submitted a request for arbitration against Medinol with the American Arbitration Association in New York. We are asking the Arbitration panel to enforce a contract between Medinol and us to have Medinol contribute to any final damage award owed to Johnson & Johnson for damages related to the sales of the NIR® stent supplied to us by Medinol. A panel of three arbitrators has been constituted to hear the arbitration. On February 9, 2010, the arbitration panel found the contract enforceable against Medinol. On February 17, 2010, Medinol filed a motion for reconsideration, and on April 28, 2010, the Arbitration panel reaffirmed its February 9, 2010 ruling. A hearing on the merits was held in September 2010.

Matters Concluded Since January 1, 2010

On November 3, 2005, a securities class action complaint was filed on behalf of purchasers of Guidant stock between December 1, 2004 and October 18, 2005 in the U.S. District Court for the Southern District of Indiana, against Guidant and several of its officers and directors. The complaint alleges that the defendants concealed adverse information about Guidant’s defibrillators and pacemakers and sold stock in violation of federal securities laws. The complaint seeks a declaration that the lawsuit can be maintained as a class action, monetary damages, and injunctive relief. Several additional, related securities class actions were filed in November 2005 and January 2006. The Court issued an order consolidating the complaints and appointed the Iron Workers of Western Pennsylvania Pension Plan and David Fannon as lead plaintiffs. In August 2006, the defendants moved to dismiss the complaint. On February 27, 2008, the District Court granted the motion to dismiss and entered final judgment in favor of all defendants. On March 13, 2008, the plaintiffs filed a motion seeking to amend the final judgment to permit the filing of a further amended complaint. On May 21, 2008, the District Court denied plaintiffs motion to amend the judgment. On June 6, 2008, plaintiffs appealed the judgment to the U.S. Court of Appeals for the Seventh Circuit. On October 21, 2009, the Court of Appeals affirmed the decision of the District Court granting our motion to dismiss the case with prejudice. Plaintiffs filed a motion to reconsider, and on November 20, 2009, the Court of Appeals denied the motion. The plaintiffs did not seek review by the U.S. Supreme Court within the time allotted.

On January 13, 2003, Cordis filed suit for patent infringement against Boston Scientific Scimed and us alleging that our Express 2 ^{^®} coronary stent infringes a U.S. patent (the Palmaz patent) owned by Cordis. The suit was filed in the U.S. District Court for the District of Delaware seeking monetary and injunctive relief. We filed a counterclaim alleging that certain Cordis products infringe a patent owned by us (the Jang patent). On August 4, 2004, the Court granted a Cordis motion to add our Liberté ^{^®} coronary stent and two additional patents to the complaint (the Gray patents). On June 21, 2005, a jury found that our TAXUS ^{^®} Express 2 ^{^®} , Express 2 ^{^®} , Express ^{^®} Biliary, and Liberté ^{^®} stents infringe the Palmaz patent and that the Liberté ^{^®} stent infringes a Gray patent. With respect to our counterclaim, a jury found on July 1, 2005, that Johnson & Johnson’s Cypher ^{^®} , Bx Velocity ^{^®} , Bx Sonic ^{^®} and Genesis™ stents infringe our Jang patent. On March 31, 2009, the Court of Appeals upheld the District Court’s decision that Johnson & Johnson’s Cypher ^{^®} , Bx Velocity ^{^®} , Bx Sonic ^{^®} and Genesis™ stent systems infringe our Jang patent and that the patent is valid. The Court of Appeals also instructed the District Court to dismiss with prejudice any infringement claims against our TAXUS Liberté ^{^®} stent. The Court of Appeals affirmed the District Court’s ruling that our TAXUS ^{^®} Express 2 ^{^®} , Express 2 ^{^®} , Express ^{^®} Biliary, and Liberté ^{^®} stents infringe the Palmaz patent and that the patent is valid. The Court of Appeals also affirmed that our Liberté ^{^®} stent infringes a Gray patent and that the patent is valid. Both parties filed a request for a rehearing and a rehearing en banc with the Court of Appeals, and on June 26, 2009, the Court of Appeals denied both petitions. On September 24, 2009, both parties filed Petitions for Writ of Certiorari before the U.S. Supreme Court which were denied on November 30, 2009. On January 29, 2010, the parties entered into a settlement agreement which resolved these matters. As a result of the settlement, we agreed to pay Johnson & Johnson $1.725 billion, plus interest. We paid $1.0 billion of this obligation during the first quarter of 2010 and paid the remaining obligation in August 2010.

On October 17, 2008, Cordis filed a complaint for patent infringement against us alleging that our TAXUS ^® Liberté ^{^®} stent product, when launched in the United States, would infringe a U.S. patent (the Gray patent) owned by them. The suit was filed in the U.S. District Court for the District of Delaware seeking monetary and injunctive relief. On November 10, 2008, Cordis filed a motion for summary judgment and on May 1, 2009, we filed a motion to dismiss the case. On May 26, 2009, Cordis dismissed its request for injunctive relief. On July 21, 2009, the District Court denied both parties’ motions. This matter was resolved as part of the January 29, 2010 settlement agreement described in the prior paragraph.

Guidant Sales Corp., Cardiac Pacemakers, Inc. and Mirowski Family Ventures L.L.C. (Mirowski) are plaintiffs in a suit originally filed against St. Jude Medical, Inc. and its affiliates in November 1996 in the U.S. District Court for the Southern District of Indiana alleging infringement of certain ICD systems marketed by St. Jude infringe a patent (the Mirowski patent) licensed to us. On March 1, 2006, the District Court issued a ruling related to damages which granted St. Jude’s motion to limit damages to a subset of the accused products but which denied their motion to limit damages to only U.S. sales. On March 26, 2007, the District Court issued a ruling which found the patent infringed but invalid. On December 18, 2008, the Court of Appeals upheld the District Court’s ruling of infringement and overturned the invalidity ruling. On January 21, 2009, St. Jude and we filed requests for rehearing and rehearing en banc with the Court of Appeals. On March 6, 2009, the Court of Appeals granted St. Jude’s request for a rehearing en banc on a damages issue and denied our requests. On August 19, 2009, the en banc Court of Appeals held that damages are limited to U.S. sales only. On November 16, 2009, Mirowski and we filed a Petition for Writ of Certiorari and on January 11, 2010 the Supreme Court denied the petition. The case has been remanded back to the District Court for a trial on damages. On April 13, 2010, Mirowski and St. Jude reached a settlement in principle. On May 6, 2010, Mirowski and St. Jude reached a settlement and the District Court dismissed the case with prejudice.

In October 2005, Guidant received an administrative subpoena from the DOJ U.S. Attorney’s office in Boston, issued under HIPAA. The subpoena requests documents concerning certain marketing practices for pacemakers, implantable cardioverter defibrillators, leads and related products arising prior to our acquisition of Guidant in 2006. In December 2009, Guidant settled this matter for $22 million and entered into a Corporate Integrity Agreement on December 23, 2009.

During the first quarter of 2009, we acquired a third-party sterilization facility that was subject to a warning letter from the FDA. The FDA requested documentation and explanations regarding various corrective actions related to the facility. This information was provided to the FDA and the FDA has since re-inspected the facility, issuing no observations, and subsequently removed all restrictions related to the warning letter.

In January 2006, we received a corporate warning letter from the FDA notifying us of serious regulatory problems at three of our facilities and advising us that our corporate-wide corrective action plan relating to three site-specific warning letters issued to us in 2005 was inadequate. We identified solutions to the quality system issues cited by the FDA and implemented those solutions throughout our organization. During 2008, the FDA reinspected a number of our facilities and, in October 2008, informed us that our quality system was in substantial compliance with its Quality System Regulations. In November of 2009 and January of 2010, the FDA reinspected two of our sites to follow-up on observations from the 2008 FDA inspections. Both of these FDA inspections confirmed that all issues at the sites have been resolved and all restrictions related to the corporate warning letter were removed. On August 11, 2010, we were notified by the FDA that the corporate warning letter had been lifted.

Litigation-related Charges

We record certain significant litigation-related activity as a separate line item in our consolidated statements of operations. In November 2009, we reached an agreement in principle with the U.S. Department of Justice to pay $296 million in order resolve the U.S. Government investigation of Guidant Corporation related to product advisories issued in 2005, and recorded a net charge of $294 million in the third quarter of 2009, representing $296 million associated with the agreement, net of a $2 million reversal of a related accrual. In addition, in the third quarter of 2009, we reduced previously recorded reserves associated with certain

litigation-related matters following certain favorable court rulings, resulting in a credit of $58 million. Further, in the first quarter of 2009, we recorded a pre-tax charge of $237 million associated with certain patent litigation with Johnson & Johnson. This amount represented an estimate of the low end of the range of potential outcomes related to this matter, and was subsequently settled with Johnson & Johnson for $1.725 billion. We recorded the incremental charges associated with this matter during the fourth quarter of 2009. During the first quarter of 2009, we also recorded a pre-tax charge of $50 million associated with the settlement of all outstanding litigation with Bruce Saffran, M.D., Ph.D. Each of these matters are described in our 2009 Annual Report filed on Form 10-K.

NOTE L – SEGMENT REPORTING

Each of our reportable segments generates revenues from the sale of medical devices. As of September 30, 2010 and December 31, 2009, we had four reportable segments based on geographic regions: the United States; EMEA, consisting of Europe, the Middle East and Africa; Japan; and Inter-Continental, consisting of Asia Pacific and the Americas. The reportable segments represent an aggregate of all operating divisions within each segment. We measure and evaluate our reportable segments based on segment net sales and operating income. We exclude from segment operating income certain corporate and manufacturing-related expenses, as our corporate and manufacturing functions do not meet the definition of a segment, as defined by ASC Topic 280, Segment Reporting (formerly FASB Statement No. 131, Disclosures about Segments of an Enterprise and Related Information). In addition, certain transactions or adjustments that our Chief Operating Decision Maker considers to be non-operational and/or of a non-cash nature, such as amounts related to goodwill and intangible asset impairment charges; acquisition-, divestiture-, litigation- and restructuring-related activities; as well as amortization expense, are excluded from segment operating income. Although we exclude these amounts from segment operating income, they are included in reported consolidated operating income and are included in the reconciliation below.

We manage our international operating segments on a constant currency basis. Sales generated from reportable segments, as well as operating results of reportable segments and expenses from manufacturing operations, are based on internally derived standard currency exchange rates, which may differ from year to year, and do not include intersegment profits. We have restated the segment information for 2009 based on our standard currency exchange rates used for 2010 in order to remove the impact of foreign currency fluctuations. 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. A reconciliation of the totals reported for the reportable segments to the applicable line items in our accompanying unaudited condensed consolidated statements of operations is as follows:


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
(in millions)	2010			2009			2010			2009


Net sales

United States	$	1,102		$	1,167		$	3,244		$	3,530
EMEA		431			441			1,410			1,431
Japan		223			252			707			766
Inter-Continental		182			181			536			533

Net sales allocated to reportable segments		1,938			2,041			5,897			6,260
Sales generated from divested businesses					2			5			10
Impact of foreign currency fluctuations		(22	)		(18	)		(98	)		(161	)

	$	1,916		$	2,025		$	5,804		$	6,109


Income (loss) before income taxes

United States	$	213		$	248		$	574		$	790
EMEA		184			198			628			671
Japan		97			143			326			447
Inter-Continental		71			81			216			244

Operating income allocated to reportable segments		565			670			1,744			2,152
Manufacturing operations		(59	)		(89	)		(238	)		(293	)
Corporate expenses and currency exchange		(103	)		(140	)		(358	)		(497	)
Goodwill and intangible asset impairment charges; and acquisition-, divestiture-, litigation-, and restructuring- related net charges		(23	)		(264	)		(1,771	)		(644	)
Amortization expense		(129	)		(126	)		(381	)		(381	)

		251			51			(1,004	)		337
Other expense, net		(88	)		(95	)		(288	)		(298	)

	$	163		$	(44	)	$	(1,292	)	$	39

NOTE M – NEW ACCOUNTING PRONOUNCEMENTS

Standards Implemented

ASC Update No. 2010-06

In January 2010, the FASB issued ASC Update No. 2010-06, Fair Value Measurements and Disclosures (Topic 820) – Improving Disclosures about Fair Value Measurements . Update No. 2010-06 requires additional disclosure within the roll forward of activity for assets and liabilities measured at fair value on a recurring basis, including transfers of assets and liabilities between Level 1 and Level 2 of the fair value hierarchy and the separate presentation of purchases, sales, issuances and settlements of assets and liabilities within Level 3 of the fair value hierarchy. In addition, Update No. 2010-06 requires enhanced disclosures of the valuation techniques and inputs used in the fair value measurements within Level 2 and Level 3. We adopted Update No. 2010-06 for our first quarter ended March 31, 2010, except for the disclosure of purchases, sales, issuances and settlements of Level 3 measurements, for which disclosures will be required for our first quarter ending March 31, 2011. During the third quarter and first nine months of 2010, we did not have any transfers of assets or liabilities between Level 1 and Level 2 of the fair value hierarchy. Refer to Note C – Financial Instruments for disclosures surrounding our fair value measurements, including information regarding the valuation techniques and inputs used in fair value measurements for assets and liabilities within Level 2 and Level 3 of the fair value hierarchy.

ASC Update No. 2009-17

In December 2009, the FASB issued ASC Update No. 2009-17, Consolidations (Topic 810) – Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities, which formally codifies FASB Statement No. 167, Amendments to FASB Interpretation No. 46(R). Update No. 2009-17 and Statement No. 167 amend Interpretation No. 46(R), Consolidation of Variable Interest Entities, to require that an enterprise perform an analysis to determine whether the enterprise’s variable interests give it a controlling financial interest in a variable interest entity (VIE). The analysis identifies the primary beneficiary of a VIE as the enterprise that has both 1) the power to direct activities of a VIE that most significantly impact the entity’s economic performance and 2) the obligation to absorb losses of the entity or the right to receive benefits from the entity. Update No. 2009-17 eliminated the quantitative approach previously required for determining the primary beneficiary of a VIE and requires ongoing reassessments of whether an enterprise is the primary beneficiary. We adopted Update No. 2009-17 for our first quarter ended March 31, 2010. The adoption of Update No. 2009-17 did not have any impact on our results of operations or financial position.

Standards to be Implemented

ASC Update No. 2009-13

In October 2009, the FASB issued ASC Update No. 2009-13, Revenue Recognition (Topic 605)- Multiple-Deliverable Revenue Arrangements. The consensus in Update No. 2009-13 supersedes certain guidance in Topic 605 (formerly EITF Issue No. 00-21, Multiple-Element Arrangements ). Update No. 2009-13 provides principles and application guidance to determine whether multiple deliverables exist, how the individual deliverables should be separated and how to allocate the revenue in the arrangement among those separate deliverables. Update No. 2009-13 also expands the disclosure requirements for multiple deliverable revenue arrangements. We are required to adopt Update No. 2009-13 as of January 1, 2011 and are in the process of determining the impact that the adoption of Update No. 2009-13 will have on our future results of operations or financial position.

NOTE N – SUBSEQUENT EVENTS

In October 2010, we announced the execution of a definitive agreement under which we will sell our Neurovascular business to Stryker Corporation for a purchase price of $1.5 billion, payable in cash. We will receive $1.4 billion at closing and $100 million contingent upon the achievement of certain performance-based milestones, which we expect will be completed over a period of approximately 24 months. The transaction is expected to close in the fourth quarter of 2010 or first quarter of 2011, subject to receipt of regulatory clearances and satisfaction of other customary conditions, at which time we expect to record a gain on the sale. We will provide transitional services through a transition services agreement, and will also supply products to Stryker. These transition services and supply agreements are expected to be effective for a period of approximately 24 months following the closing of the transaction, subject to extension. Due to our continuing involvement in the operations of the Neurovascular business, the planned divestiture does not meet the criteria for presentation as a discontinued operation.

The estimated carrying amount of assets to be included in the Neurovascular disposal group at closing, which have now met the criteria for assets held for sale, include:


	September 30,		December 31,
(in millions)	2010		2009

Inventories	$	30	$	29
Property, plant and equipment, net		3		4
Goodwill		480		480
Other intangible assets, net		61		64

	$	574	$	577

Pursuant to the agreement, Stryker will not assume any recorded liabilities in existence as of the closing date associated with the Neurovascular business. The assets above, excluding goodwill and intangible assets, which we do not allocate to our reportable segments, are primarily located in the U.S. and Ireland, and are included in our U.S. and EMEA reportable segments. The assets above are included in our accompanying unaudited condensed consolidated balance sheets and were not classified as held for sale as of September 30, 2010 or December 31, 2009.

The 2009 revenues generated by the Neurovascular business were $348 million, or approximately four percent of our consolidated net sales. We acquired the Neurovascular business in 1997 with our acquisition of Target Therapeutics.

In addition, on October 27, 2010, we completed the acquisition of 100 percent of the fully diluted equity of Asthmatx, Inc. Asthmatx designs, manufactures and markets a less-invasive, catheter-based bronchial thermoplasty procedure for the treatment of severe persistent asthma. We paid approximately $194 million at the closing of the transaction using cash on hand, and may be required to pay future consideration of up to $250 million that is contingent upon the achievement of certain revenue-based milestones. Refer to Note F – Acquisitions for more information.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Introduction

Boston Scientific Corporation is a worldwide developer, manufacturer and marketer of medical devices that are used in a broad range of interventional medical specialties. Our 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. This is accomplished 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. Our business strategy is to lead global markets for less-invasive medical devices by developing and delivering products, services and therapies that address unmet patient needs, provide superior clinical outcomes and demonstrate proven economic value.

Recent Events

Business Divestiture

In October 2010, we announced the execution of a definitive agreement under which we will sell our Neurovascular business to Stryker Corporation for a purchase price of $1.5 billion, payable in cash. We will receive $1.4 billion at closing and $100 million contingent upon the achievement of certain performance-based milestones, which we expect will be completed over a period of approximately 24 months. The transaction is expected to close in the fourth quarter of 2010 or first quarter of 2011, subject to receipt of regulatory clearances and satisfaction of other customary conditions, at which time we expect to record a gain on the sale. We will provide transitional services through a transition services agreement, and will also supply products to Stryker. These transition services and supply agreements are expected to be effective for a period of approximately 24 months following the closing of the transaction, subject to extension. Refer to Note N – Subsequent Events to our unaudited condensed consolidated financial statements contained in Item 1 of this Quarterly Report for more information.

CRM Ship Hold

On March 15, 2010, we announced the ship hold and removal of field inventory of all implantable cardioverter defibrillator (ICD) systems and cardiac resynchronization therapy defibrillator (CRT-D) systems offered by our Cardiac Rhythm Management (CRM) division in the United States, after determining that certain instances of changes in the manufacturing process related to these products were not submitted for approval to the U.S. Food and Drug Administration (FDA). We have since submitted the required documentation and, on April 15, 2010, we received clearance from the FDA for certain of the manufacturing changes and immediately resumed distribution of our COGNIS® CRT-D systems and TELIGEN® ICD systems, which represent virtually all of our defibrillator implant volume in the United States. We returned earlier generations of these products to the U.S. market on May 21, 2010, following required FDA clearance. The U.S. CRM ship hold and product removal actions have had an adverse impact on our net sales during 2010. We are working with our physician and patient customers to recapture market share lost as a result of the ship hold and have experienced better-than-expected recovery to date. While we have recovered a portion of our lost market share, our on-going net sales and profitability will likely continue to be negatively impacted.

The ship hold and product removal actions and the expected corresponding financial impact on our operations created an indication of potential impairment of the goodwill balance attributable to our U.S. CRM reporting unit. Therefore, we performed an interim impairment test in accordance with our accounting policies described in our 2009 Annual Report filed on Form 10-K, and recorded a $1.817 billion goodwill impairment charge. Refer to Quarterly Results for further information.

Financial Summary

Three Months Ended September 30, 2010

Our net sales for the third quarter of 2010 were $1.916 billion, as compared to net sales of $2.025 billion for the third quarter of 2009, a decrease of $109 million or five percent. This decrease was due to the ship hold and product removal actions related to our U.S. CRM business described above, which we estimate negatively impacted our net sales by $28 million in the third quarter of 2010, as compared to the same period in the prior year, as well as a decline in worldwide sales of our coronary stent systems of $56 million and a decrease in our Interventional Cardiology (excluding coronary stent systems) net sales of $12 million. Refer to Business and Market Overview for a discussion of our net sales by business.

Our reported net income for the third quarter of 2010 was $190 million, or $0.12 per diluted share. Our reported results for the third quarter of 2010 included intangible asset impairment charges, restructuring and restructuring-related costs, discrete tax items and amortization expense (after-tax) of $106 million, or $0.07 per share. Excluding these items, net income for the third quarter of 2010 was $296 million, or $0.19 per share. In the third quarter of 2009 we recorded a net loss of $94 million, or $0.06 per share. Our reported results for the third quarter of 2009 included litigation-related net charges, restructuring and restructuring-related costs, and amortization expense (after-tax) of $385 million, or $0.25 per share. Excluding these items, net income for the third quarter of 2009 was $291 million, or $0.19 per share. Management excludes certain significant items that are considered to be non-operational and/or of a non-cash nature, such as goodwill and intangible asset impairment charges; acquisition-, divestiture-, and litigation-related charges and credits; restructuring and restructuring-related costs; certain discrete tax items and amortization expense to facilitate an evaluation of current operating performance and a comparison to past operating performance, as well as to assess liquidity. Users of our financial statements should consider this financial information in addition to, not as a substitute for, nor as superior to, financial information prepared in accordance with generally accepted accounting principles in the United States (U.S. GAAP). Refer to Additional Information for a discussion of management’s use of these non-GAAP measures. The following is a reconciliation of results of operations prepared in accordance with U.S. GAAP to those considered by management. Refer to Quarterly Results for a discussion of each reconciling item:


	Three Months Ended September 30,
in millions	2010			2009
GAAP net income (loss)	$	190		$	(94	)
Non-GAAP adjustments:
Intangible asset impairment charges		5
Restructuring-related charges		18			28
Litigation-related net charges					236
Amortization expense		129			126

		152			390
Tax impact of reconciling items		(25	)		(5	)
Discrete tax items		(21	)


Non-GAAP net income	$	296		$	291

Nine Months Ended September 30, 2010

Our net sales for the first nine months of 2010 were $5.804 billion, as compared to net sales of $6.109 billion for the first nine months of 2009, a decrease of $305 million or five percent. This decrease was due primarily to the ship hold and product removal actions related to our U.S. CRM business described above, which we estimate negatively impacted our net sales by $162 million in the first nine months of 2010, as compared to the same period in the prior year, as well as a decline in worldwide sales of our coronary stent systems of $164 million. These decreases were partially offset by increases in net sales generated by our Endoscopy,

Urology/Women’s Health and Neuromodulation businesses. Refer to Business and Market Overview for a discussion of our net sales by business.

In the first nine months of 2010, we reported a net loss of $1.301 billion, or $0.86 per share. Our reported results for the first nine months of 2010 included goodwill and intangible asset impairment charges, acquisition-related credits, restructuring and restructuring-related costs, discrete tax items and amortization expense (after-tax) of $2.038 billion, or $1.34 per share. Excluding these items, net income for the first nine months of 2010 was $737 million, or $0.48 per share. Our reported net income for the first nine months of 2009 was $51 million, or $0.03 per share. Our reported results for the first nine months of 2009 included intangible asset impairment charges; acquisition-, divestiture- and litigation-related net charges; restructuring and restructuring-related costs; discrete tax items and amortization expense (after-tax) of $827 million, or $0.55 per share. Excluding these items, net income for the first nine months of 2009 was $878 million, or $0.58 per share.

The following is a reconciliation of results of operations prepared in accordance with U.S. GAAP to those considered by management. Refer to Quarterly Results for a discussion of each reconciling item:


	Nine Months Ended September 30,
in millions	2010			2009
GAAP net (loss) income	$	(1,301	)	$	51
Non-GAAP adjustments:
Goodwill impairment charge		1,817
Intangible asset impairment charges		65			10
Acquisition-related (credits) charges		(250	)		17
Divestiture-related gains					(3	)
Restructuring-related charges		139			94
Litigation-related net charges					523
Amortization expense		381			381

		2,152			1,022
Tax impact of reconciling items		(93	)		(121	)
Discrete tax items		(21	)		(74	)


Non-GAAP net income	$	737		$	878

Business and Market Overview

Cardiac Rhythm Management (CRM)

Our CRM division develops, manufactures and markets a variety of implantable devices that monitor the heart and deliver electricity to treat cardiac abnormalities. Worldwide net sales of these products represented approximately 29 percent of our consolidated net sales for the third quarter of 2010. Our worldwide CRM net sales decreased $58 million, or ten percent, in the third quarter of 2010, as compared to the third quarter of 2009. Excluding the impact of foreign currency exchange rates, which contributed a negative $11 million to our third quarter 2010 CRM net sales, as compared to the same period in the prior year, our CRM net sales decreased $47 million or eight percent. This decrease was driven primarily by the negative impact of the ship hold and product removal actions associated with our ICD and CRT-D systems earlier in the year. We experienced market share loss in the U.S. as a result of these actions; however, we believe that our products, including our COGNIS® CRT-D and TELIGEN® ICD systems, among the world’s smallest and thinnest high-energy devices, will continue to be successful in the U.S. market. While we have recaptured a portion of our lost market share, the extent and timing of our recovery is difficult to predict. We estimate that our U.S. defibrillator market share exiting 2010 will decrease approximately 300 basis points, due primarily to these product actions, combined with the impact of disciplinary actions taken against certain of our U.S. CRM sales personnel, as compared to our market share exiting 2009. Further, overall expectations of future CRM market growth have declined, driven primarily by competitive pricing pressures. We estimate that the worldwide

CRM market will approximate $11.3 billion in 2010, representing a slight increase over the 2009 market size of $11.1 billion. However, in September 2010, we received FDA approval for an exclusive expanded indication for our CRT-D systems to include certain patients in earlier stages of heart failure. We believe this indication will potentially create an opportunity to expand the worldwide CRM market by approximately $250 million to $350 million over the next few years, and further enhance our position within that market.

The following are the components of our worldwide CRM net sales:


	Three Months Ended						Three Months Ended
(in millions)	September 30, 2010						September 30, 2009
	U.S.		International		Total		U.S.		International		Total
Defibrillator systems	$	280	$	126	$	406	$	314	$	131	$	445
Pacemaker systems		82		62		144		90		73		163

CRM products	$	362	$	188	$	550	$	404	$	204	$	608

Our U.S. CRM net sales decreased $42 million, or ten percent, in the third quarter of 2010 as compared to the third quarter of 2009, driven primarily by the ship hold and product removal actions involving our ICD and CRT-D systems, discussed above. We are committed to advancing our technologies to strengthen our CRM franchise. In 2010, we have continued to execute on our product pipeline and expect to launch our next-generation line of defibrillators in the U.S., our Europe/Middle East/Africa (EMEA) region and certain Inter-Continental countries in the first half of 2011, which include new features designed to improve functionality, diagnostic capability and ease of use. Due primarily to anticipated changes to current FDA regulatory requirements industry-wide, which would increase the size and length of time needed for certain clinical studies, we now expect to launch our next-generation INGENIO™ pacemaker system, which leverages the strength of our high-voltage platform and will be compatible with our LATITUDE® Patient Management System, in the U.S. in late 2011 or early 2012, depending on final FDA requirements. Refer to Regulatory Environment for more information.

Our international CRM net sales decreased $16 million, or eight percent, in the third quarter of 2010, as compared to the third quarter of 2009. Net sales of our CRM products in our EMEA region decreased $17 million in the third quarter of 2010, as compared to the same period in the prior year and decreased $2 million in Japan in the third quarter of 2010, as compared to the third quarter of 2009. Our net sales of these products in our Inter-Continental region increased $3 million in the third quarter of 2010, as compared to the same period in the prior year. In July 2009, we received CE Mark approval for our LATITUDE® Patient Management System and have since launched this technology in the majority of our European markets. The LATITUDE® technology, which enables physicians to monitor device performance remotely while patients are in their homes, is a key component of many of our CRM systems. We also plan to launch our next-generation INGENIO™ pacemaker system in EMEA and certain Inter-Continental countries in the second half of 2011 and believe that these launches position us well within the worldwide CRM market.

Net sales from our CRM products represent a significant source of our overall net sales. Therefore, increases or decreases in our CRM net sales could have a significant impact on our results of operations. The variables that may impact the size of the CRM market and/or our share of that market include, but are not limited to:

	•		our ability to retain and attract key members of our CRM sales force and other key CRM personnel;

	•		our ability to recapture lost market share following the ship hold and product removal of our ICD and CRT-D systems in the U.S.;

	•		the ability of CRM manufacturers to maintain the trust and confidence of the implanting physician community, the referring physician community and prospective patients in CRM technologies;

	•		future product field actions or new physician advisories by us or our competitors;

	•		our ability to successfully develop and launch next-generation products and technology;

	•		the impact of market and economic conditions on average selling prices and the overall number of procedures performed;

	•		the successful conclusion and variations in outcomes of on-going and future clinical trials that may provide opportunities to expand indications for use, particularly in light of anticipated changes to current FDA regulatory requirements industry-wide;

	•		variations in clinical results, reliability or product performance of our and our competitors’ products;

	•		delayed or limited regulatory approvals and unfavorable reimbursement policies; and

	•		new competitive launches.

Coronary Stent Systems

Our coronary stent system offerings include the Liberté® bare-metal coronary stent system, designed to enhance deliverability and conformability, particularly in challenging lesions, as well as drug-eluting coronary stent systems. We are the only company in the industry to offer a two-drug platform strategy, which has enabled us to maintain our leadership position in the drug-eluting stent market. We currently market our TAXUS® paclitaxel-eluting stent franchise, including our third-generation TAXUS® Element™ stent system, launched in EMEA and certain Inter-Continental countries during the second quarter of 2010. The CE Mark approval for our TAXUS® Element™ stent system includes a specific indication for treatment in diabetic patients. We also offer our everolimus product franchise, consisting of the PROMUS® stent system, currently supplied to us by Abbott Laboratories, and our next-generation internally developed and manufactured everolimus-eluting stent system, the PROMUS® Element™ stent system, which we launched in our EMEA region and certain Inter-Continental countries in the fourth quarter of 2009. In September 2010, we received CE Mark approval for expanded indications for the use of our PROMUS® Element™ stent system in diabetic and heart attack patients. Our Element™ stent platform incorporates a unique platinum chromium alloy offering greater radial strength and flexibility than older alloys, and provides enhanced visibility and reduced recoil. The innovative stent design improves deliverability and allows for more consistent lesion coverage and drug distribution. These product offerings demonstrate our commitment to drug-eluting stent market leadership and continued innovation. We expect to launch our TAXUS® Element™ stent system in the U.S. in mid-2011 and Japan in late 2011 or early 2012. We expect to launch our PROMUS® Element™ stent system in the U.S. and Japan in mid-2012.

Net sales of our coronary stent systems represented approximately 21 percent of our consolidated net sales in the third quarter of 2010. Worldwide sales of these products decreased $56 million or 12 percent in the third quarter of 2010, as compared to the same period in the prior year. Foreign currency exchange rates did not materially impact our third quarter 2010 coronary stent system net sales, as compared to the third quarter of 2009. Despite continued competition and pricing pressures resulting in a decline in sales of these products, we maintained our leadership position during the third quarter of 2010 with an estimated 37 percent share of the worldwide drug-eluting stent market, as compared to 41 percent during the third quarter of 2009. We estimate that the worldwide coronary stent market will approximate $5.0 billion in 2010, consistent with the 2009 market size. The size of the coronary stent market is driven primarily by the number of percutaneous coronary intervention (PCI) procedures performed, as well as the percentage of those in which stents are implanted; the number of devices used per procedure; average selling prices; and the drug-eluting stent penetration rate ¹ .


¹	A measure of the mix between bare-metal and drug-eluting stents used across procedures

The following are the components of our worldwide coronary stent system sales:


	Three Months Ended						Three Months Ended
(in millions)	September 30, 2010						September 30, 2009
	U.S.		International		Total		U.S.		International		Total
TAXUS®	$	68	$	43	$	111	$	106	$	139	$	245
PROMUS®		131		64		195		116		50		166
PROMUS® Element™				59		59

Drug-eluting stent systems		199		166		365		222		189		411
Bare-metal stent systems		11		20		31		14		27		41

	$	210	$	186	$	396	$	236	$	216	$	452

Our U.S. net sales of drug-eluting stent systems decreased $23 million, or ten percent, in the third quarter of 2010, as compared to the third quarter of 2009. This decrease relates primarily to a decline in our share of the U.S. drug-eluting stent market, as well as an overall decrease in the size of this market, resulting principally from lower average selling prices driven by competitive pricing pressures. We estimate that the average selling price of drug-eluting stent systems in the U.S. decreased approximately seven percent in the third quarter of 2010, as compared to the third quarter of 2009. We estimate that average drug-eluting stent penetration rates in the U.S. were 78 percent during the third quarter of 2010, as compared to 75 percent for the third quarter of 2009, which partially offset the impact of lower average selling prices on the size of the U.S. drug-eluting stent market. We estimate our share of the U.S. drug-eluting stent market approximated 45 percent for the third quarter of 2010, as compared to 49 percent for the third quarter of 2009. This decline was due primarily to lower sales of our TAXUS® drug-eluting stent systems due to customer perceptions of data from a single-center, non-double-blinded, underpowered study sponsored by one of our competitors. We believe we have maintained our leadership position in this market due to the success of our two-drug platform strategy, including our TAXUS® Liberté® stent system and the PROMUS® stent system; and the breadth of our product offerings, including the industry’s widest range of coronary stent sizes.

Our international drug-eluting stent system net sales decreased $23 million, or 12 percent, in the third quarter of 2010, as compared to the third quarter of 2009. Net sales of our drug-eluting stent systems in Japan decreased $13 million, or 22 percent, in the third quarter of 2010, as compared to the prior year. In the first quarter of 2010, we received approval from the Japanese Ministry of Health, Labor and Welfare (MHLW) and launched the PROMUS® stent system in Japan, enabling us to execute on our two-drug platform strategy in this region. However, our share of the drug-eluting stent market in Japan declined to 35 percent in the third quarter of 2010, as compared to 47 percent in the third quarter of 2009, as a result of additional competitors entering the market. Through the end of the first quarter of 2009, our TAXUS® drug-eluting stent system was one of only two drug-eluting stent products on the market in Japan; however, during the second quarter of 2009, a third competitor entered this market and, during the first quarter of 2010, a fourth competitor began offering its competitive drug-eluting stent system in Japan. We believe that aggressive pricing offered by market entrants and clinical trial enrollment limiting our access to certain customers contributed to the decline in our market share in Japan in the third quarter of 2010, as compared to the same period in the prior year. Our net sales of drug-eluting stent systems in our EMEA region decreased $12 million, or 15 percent in the third quarter of 2010, as compared to the third quarter of 2009, due primarily to declines in average selling prices and reductions in market share. However, in the second quarter of 2010, we launched our third-generation TAXUS® Element™ stent system in EMEA and certain Inter-Continental countries. We believe that this launch, coupled with the November 2009 launch of our PROMUS® Element™ stent system, which has quickly gained market share, exiting with 20 percent share of the drug-eluting stent market in EMEA, position us well in this market going forward. Net sales of drug-eluting stent systems in our Inter-Continental region increased $2 million, or two percent, driven by an increase in penetration rates.

We market the PROMUS® everolimus-eluting coronary stent system, a private-labeled XIENCE V® stent system supplied to us by Abbott Laboratories. As of the closing of Abbott’s 2006 acquisition of Guidant Corporation’s vascular intervention and endovascular solutions businesses, we obtained a perpetual license

to the intellectual property used in Guidant’s drug-eluting stent system program purchased by Abbott. We believe that being the only company to offer two distinct drug-eluting stent platforms provides us a considerable advantage in the drug-eluting stent market and has enabled us to sustain our worldwide leadership position, with an estimated 37 percent market share in the third quarter of 2010. However, under the terms of our supply arrangement with Abbott, the gross profit and operating profit margin of everolimus-eluting stent systems supplied to us by Abbott, including any improvements or iterations approved for sale during the term of the applicable supply arrangements and of the type that could be approved by a supplement to an approved FDA pre-market approval, is significantly lower than that of our TAXUS® and PROMUS® Element™ stent systems. Specifically, the PROMUS® stent system has operating profit margins that approximate half of our TAXUS® stent system operating profit margin. Therefore, if sales of everolimus-eluting stent systems supplied to us by Abbott increase in relation to our total drug-eluting stent system sales, our profit margins will decrease. Refer to our Gross Profit discussion for more information on the impact this sales mix has had on our gross profit margins. Our internally developed and manufactured PROMUS® Element™ everolimus-eluting stent system, launched in our EMEA region and certain Inter-Continental countries in the fourth quarter of 2009, generates gross profit margins more favorable than the PROMUS® stent system and we expect will continue to positively affect our overall gross profit and operating profit margins in these regions. This positive impact on our gross profit margin will help to offset the gross profit margin impact of the recent launch in Japan of the PROMUS® stent system.

Further, the price we pay for our supply of everolimus-eluting stent systems from Abbott is determined by contracts with Abbott and is based, in part, on previously fixed estimates of Abbott’s manufacturing costs for everolimus-eluting stent systems and third-party reports of our average selling price of these stent systems. Amounts paid pursuant to this pricing arrangement are subject to a retroactive adjustment approximately every two years based on Abbott’s actual costs to manufacture these stent systems for us and our average selling price of everolimus-eluting stent systems supplied to us by Abbott. Our gross profit margin may be positively or negatively impacted in the future as a result of this adjustment process.

We are currently reliant on Abbott for our supply of everolimus-eluting stent systems in the U.S., Japan and certain Inter-Continental countries. Our supply agreement with Abbott for everolimus-eluting stent systems in the U.S. and Japan extends through the end of the second quarter of 2012. At present, we believe that our supply of everolimus-eluting stent systems from Abbott and our current launch plans for our internally developed and manufactured PROMUS® Element™ everolimus-eluting stent system is sufficient to meet customer demand. However, any production or capacity issues that affect Abbott’s manufacturing capabilities or our process for forecasting, ordering and receiving shipments may impact the ability to increase or decrease our level of supply in a timely manner; therefore, our supply of everolimus-eluting stent systems supplied to us by Abbott may not align with customer demand, which could have an adverse effect on our operating results. We expect to launch our PROMUS® Element™ stent system in the U.S. and Japan in mid-2012.

Historically, the worldwide coronary stent market has been dynamic and highly competitive with significant market share volatility. In addition, in the ordinary course of our business, we conduct and participate in numerous clinical trials with a variety of study designs, patient populations and trial end points. Unfavorable or inconsistent clinical data from existing or future clinical trials conducted by us, by our competitors or by third parties, or the market’s perception of these clinical data, may adversely impact our position in, and share of, the drug-eluting stent market and may contribute to increased volatility in the market.

We believe that we can sustain our leadership position within the worldwide drug-eluting stent market in the foreseeable future for a variety of reasons, including:

	•		our two-drug platform strategy, including specialty stent sizes;

	•		the broad and consistent long-term results of our TAXUS® clinical trials, and the favorable results of the XIENCE V®/PROMUS® and PROMUS® Element™ stent system clinical trials to date;

	•		the performance benefits of our current and future technology;

	•		the strength of our pipeline of drug-eluting stent products, including our PROMUS® Element™ and TAXUS® Element™ stent systems in additional geographies;

	•		our overall position in the worldwide interventional medicine market and our experienced interventional cardiology sales force; and

	•		the strength of our clinical, selling, marketing and manufacturing capabilities.

However, a decline in net sales from our drug-eluting stent systems could have a significant adverse impact on our operating results and operating cash flows. The most significant variables that may impact the size of the drug-eluting stent market and our position within this market include, but are not limited to:

	•		the impact of competitive pricing pressure on average selling prices of drug-eluting stent systems available in the market;

	•		the impact and outcomes of on-going and future clinical results involving our or our competitors’ products, including those trials sponsored by our competitors, or perceived product performance of our or our competitors’ products;

	•		physician and patient confidence in our current and next-generation technology;

	•		our ability to successfully launch next-generation products and technology features, including the PROMUS® Element™ and TAXUS® Element™ stent systems in additional geographies;

	•		changes in drug-eluting stent penetration rates, the overall number of PCI procedures performed and the average number of stents used per procedure;

	•		delayed or limited regulatory approvals and unfavorable reimbursement policies;

	•		new competitive product launches; and

	•		the outcome of intellectual property litigation.

During 2009, we successfully negotiated closure of several long-standing legal matters, including multiple matters with Johnson & Johnson; all outstanding litigation between us and Medtronic, Inc. with respect to interventional cardiology and endovascular repair cases; and all outstanding litigation between us and Bruce Saffran, M.D., Ph.D. However, there continues to be significant intellectual property litigation particularly in the coronary stent market. In particular, although our recent settlements with Johnson & Johnson resolved multiple litigation matters, described in our 2009 Annual Report filed on Form 10-K, we continue to be involved in patent litigation with Johnson & Johnson, particularly relating to drug-eluting stent systems. Adverse outcomes in one or more of these matters could have a material adverse effect on our ability to sell certain products and on our operating margins, financial position, results of operation or liquidity. See Note K- Commitments and Contingencies to our unaudited condensed consolidated financial statements contained in Item 1 of this Quarterly Report for a description of these legal proceedings.

Interventional Cardiology (excluding coronary stent systems)

In addition to coronary stent systems, our Interventional Cardiology business markets balloon catheters, rotational atherectomy systems, guide wires, guide catheters, embolic protection devices, and diagnostic

catheters used in percutaneous transluminal coronary angioplasty (PTCA) procedures, as well as ultrasound imaging systems. Our worldwide net sales of these products decreased to $218 million in the third quarter of 2010, as compared to $230 million in the third quarter of 2009, a decrease of $12 million or five percent. Excluding the impact of foreign currency exchange rates, which contributed $2 million to our third quarter 2010 Interventional Cardiology (excluding coronary stent systems) net sales, as compared to the same period in the prior year, net sales of these products decreased $14 million or six percent. Our U.S. net sales represented $96 million in the third quarters of 2010 and 2009 and our international net sales of these products decreased to $122 million in the third quarter of 2010, as compared to $134 million in the third quarter of 2009. This decrease was the result of a delay in new product introductions, pricing pressures and competitive product launches. We continue to hold a strong leadership position in the PTCA balloon catheter market, maintaining 57 percent share of the U.S. market and 35 percent worldwide for the third quarter of 2010, and have executed or are planning a number of additional new product launches during 2010, including the full launch of our Apex™ pre-dilatation balloon catheter with platinum marker bands for improved radiopacity, launched in limited markets during the second quarter of 2010. In June 2010, we launched the NC Quantum Apex™ post-dilatation balloon catheter, developed specifically to address physicians’ needs in optimizing coronary stent deployment, which has been received very positively in the market. In addition, we look forward to the full launch of our Kinetix™ family of guidewires, for which we began a phased launch in the U.S., our EMEA region and certain Inter-Continental countries in April 2010.

Peripheral Interventions

Our Peripheral Interventions business product offerings include stents, balloon catheters, sheaths, wires and vena cava filters, which are used to diagnose and treat peripheral vascular disease. Our worldwide net sales of these products increased to $167 million in the third quarter of 2010, as compared to $164 million in the third quarter of 2009, an increase of $3 million or two percent. Foreign currency exchange rates did not materially impact our third quarter of 2010 Peripheral Interventions net sales, as compared to the same period in the prior year. Our U.S. net sales of these products were $79 million, as compared to $80 million for the same period in the prior year. Our international net sales were $88 million in the third quarter of 2010, as compared to $84 million for the third quarter of 2009, driven by several international product launches, including the second quarter 2010 launch in Japan of our Carotid WALLSTENT® Monorail® Endoprosthesis. We look forward to the future launches of certain of these products in the U.S. and believe that these launches, coupled with the strength of our Express® SD Renal Monorail® premounted stent system; our Express LD Stent System, which received FDA approval in the first quarter of 2010 for an iliac indication; our Sterling® Monorail® and Over-the-Wire balloon dilatation catheter and our extensive line of Interventional Oncology product solutions, will continue to position us well in the growing Peripheral Interventions market.

Electrophysiology

We develop less-invasive medical technologies used in the diagnosis and treatment of rate and rhythm disorders of the heart. Our leading products include the Blazer™ line of ablation catheters, including our next-generation Blazer™ Prime ablation catheter, designed to deliver enhanced performance, responsiveness and durability, which we launched in the U.S. in the fourth quarter of 2009. Worldwide net sales of our electrophysiology products decreased to $36 million in the third quarter of 2010, as compared to $38 million in the third quarter of 2009, a decrease of $2 million or six percent, due principally to product availability constraints with our Chilli II™ catheter line. Foreign currency exchange rates did not materially impact our third quarter 2010 Electrophysiology net sales, as compared to the same period in the prior year. Our U.S. net sales of these products were $27 million, as compared to $30 million for the same period in the prior year, and our international net sales were $9 million in the third quarter of 2010, as compared to $8 million for the third quarter of 2009. We have begun a limited launch of our Blazer™ Prime ablation catheter in our EMEA region and certain Inter-Continental countries and believe that with this and other upcoming product launches, we are well-positioned within the Electrophysiology market.

Neurovascular

In October 2010, we announced the execution of a definitive agreement under which we will sell our Neurovascular business to Stryker Corporation for a purchase price of $1.5 billion. This business markets a broad line of products used in treating diseases of the neurovascular system and we hold leading market positions in several product markets. We will provide transitional services through a transition services agreement, and will also supply products to Stryker. These transition services and supply agreements are expected to be effective for a period of approximately 24 months following the closing of the transaction, subject to extension.

Our worldwide net sales of Neurovascular products decreased to $79 million for the third quarter of 2010, as compared to $85 million in the third quarter of 2009, a decrease of $6 million or seven percent. Excluding the impact of foreign currency exchange rates, which contributed $1 million to our third quarter 2010 Neurovascular net sales as compared to the same period in the prior year, net sales of these products decreased $7 million, or eight percent, in the third quarter of 2010, as compared to the third quarter of 2009. Our U.S. net sales of these products were $26 million, as compared to $31 million for the same period in the prior year, and our international net sales were $53 million in the third quarter of 2010, as compared to $54 million for the third quarter of 2009. This decrease resulted primarily from new competitive launches and a delay in the launch of our next-generation family of detachable coils, as well the impact of a field action initiated at the end of the quarter with respect to selective lots of our Matrix® Detachable Coil. However, in October 2010, we received FDA approval for our next-generation family of detachable coils, which includes an enhanced delivery system designed to reduce coil detachment times. We expect to begin first human use of the Target™ Detachable Coil in November 2010, followed by a phased launch. In July 2010, we launched the Neuroform EZ™ stent system, our fourth-generation intracranial aneurysm stent system designed for use in conjunction with endovascular coiling to treat wide-necked aneurysms, in the U.S. and our EMEA region. Within our product pipeline, we are also developing next-generation technologies for the treatment of aneurysms, intracranial atherosclerotic disease and acute ischemic stroke, and are involved in numerous clinical activities that are designed to expand the size of the worldwide Neurovascular market.

Endoscopy

Our Endoscopy division develops and manufactures devices to treat a variety of medical conditions including diseases of the digestive and pulmonary systems. Our worldwide net sales of these products increased to $269 million in the third quarter of 2010, as compared to $260 million in the third quarter of 2009, an increase of $9 million, or four percent. Foreign currency exchange rates did not materially impact our third quarter of 2010 Endoscopy net sales, as compared to the same period in the prior year. Our U.S. net sales of these products were $136 million, as compared to $134 million for the same period in the prior year, and our international net sales were $133 million in the third quarter of 2010, as compared to $126 million for the third quarter of 2009. This increase was due primarily to higher net sales within our stent franchise, driven by the continued commercialization and adoption of our WallFlex® family of stents, in particular, the WallFlex Biliary line and WallFlex Esophageal line. In addition, our hemostasis franchise net sales benefited from increased utilization of our Resolution® Clip Device, an endoscopic mechanical clip to treat gastrointestinal bleeding, and our biliary franchise drove solid growth on the strength of our rapid exchange biliary devices. During 2010, we have introduced expanded sizes of our Radial® Jaw 4 biopsy forceps, and have launched a number of new products targeting the biliary interventional market. As part of our strategic plan, we are investigating opportunities to further expand our presence in, and diversify into, other areas and disease states, including endoscopic pulmonary intervention. On October 27, 2010, we completed our acquisition of Asthmatx, Inc. Asthmatx designs, manufactures and markets a less-invasive, catheter-based bronchial thermoplasty procedure for the treatment of severe persistent asthma. The Alair ^® Bronchial Thermoplasty System, which has both CE Mark and FDA approval, is the first device-based asthma treatment approved by the FDA. This technology will strengthen our existing offering of pulmonary devices and we believe will contribute to the mid- to long-term growth and diversification of the Endoscopy business.

Urology/Women’s Health

Our Urology/Women’s Health division develops and manufactures devices to treat various urological and gynecological disorders. Our worldwide net sales of these products increased to $122 million in the third quarter of 2010 from $114 million in the third quarter of 2009, an increase of $8 million, or seven percent. Excluding the impact of foreign currency exchange rates, which contributed $1 million to our third quarter 2010 Urology/Women’s Health net sales as compared to the same period in the prior year, net sales of these products increased $7 million, or six percent, in the third quarter of 2010, as compared to the third quarter of 2009. This increase includes a benefit of approximately 100 basis points due to the negative impact on third quarter 2009 net sales driven by a July 2009 recall related to catheters used in our Prolieve Thermodilatation™ System for the treatment of benign prostatic hyperplasia, as well as the removal of our biopsy products from our product portfolio. Our U.S. net sales were $92 million for the third quarter of 2010, as compared to $87 million in the third quarter of 2009, and our international net sales were $30 million for the third quarter of 2010, as compared to $27 million for same period in the prior year. These increases were driven by continued expansion of our leadership position within the Urology market. Net sales of our Urology products increased approximately eight percent in the third quarter of 2010, as compared to the third quarter of 2009. Our Women’s Health net sales decreased approximately one percent during the third quarter of 2010, as compared to the same period in the prior year, and have been adversely impacted in the U.S. by reductions in elective procedures due to unemployment levels and other economic factors, as well as competitive product launches. We plan to expand the launch of our recently approved Genesys Hydro ThermAblator® (HTA) system in the U.S. in the fourth quarter of 2010 and believe that the significantly enhanced user interface and ease of use of the Genesys HTA system will enable us to increase our share of this market. Our international Women’s Health net sales increased approximately 24 percent in the third quarter of 2010, as compared to the third quarter of 2009, driven by new product introductions, incremental sales investments and increased penetration into new markets.

Neuromodulation

Within our Neuromodulation business, we market the Precision® Spinal Cord Stimulation (SCS) system, used for the management of chronic pain. Our worldwide net sales of Neuromodulation products increased to $79 million in the third quarter of 2010, as compared to $72 million in the third quarter of 2009, an increase of $7 million, or nine percent. Foreign currency exchange rates did not materially impact our third quarter of 2010 Neuromodulation net sales, as compared to the same period in the prior year. Our U.S. net sales of these products were $75 million for the third quarter of 2010 as compared to $69 million for the same period in the prior year, and our international net sales of these products were $4 million in the third quarter of 2010, as compared to $3 million in the third quarter of 2009, driven by an increase in procedural volume. Further, in June 2010, we received FDA approval and launched two lead splitters for use with our SCS systems, offering a broader range of lead configurations and designed to provide physicians more treatment options for their chronic pain patients. In addition, in July 2010, we received FDA approval and launched the Linear™ 3-4 and Linear 3-6 Percutaneous Leads for use with our SCS systems. These leads, combined with our recently launched lead splitters, provide the broadest range of percutaneous lead configurations in the industry. In addition, to strengthen clinical evidence supporting spinal cord stimulation, we have initiated a trial to assess the therapeutic effectiveness and cost effectiveness of spinal cord stimulation compared to reoperation in patients with failed back surgery syndrome. We believe that this trial could result in consideration of spinal cord stimulation much earlier in the continuum of care. We continue to believe that we have a technology advantage over our competitors with proprietary features such as Multiple Independent Current Control, which is intended to allow the physician to target specific areas of pain more precisely, and are involved in various studies designed to evaluate the use of spinal cord stimulation in the treatment of additional sources of pain. In addition, we are initiating a European trial evaluating the potential benefits of the use of our SCS system in deep-brain stimulation for the treatment of Parkinson’s disease.

Restructuring Initiatives

We are a diversified worldwide medical device leader and hold number one or two positions in the majority of the markets in which we compete. Over the past thirty years, we have generated significant revenue growth driven by product innovation, strategic acquisitions and robust investments in research and development. We generate strong cash flow, which has enabled us to reduce our debt obligations and further invest in our growth. On an on-going basis, we monitor the dynamics of the economy, the healthcare industry, and the markets in which we compete; and we continue to assess opportunities for improved operational effectiveness and efficiency, and better alignment of expenses with revenues, while preserving our ability to make the investments in research and development projects, capital and our people that are essential to our long-term success. As a result of these assessments, we have undertaken various restructuring initiatives to focus our business, diversify and reprioritize our product portfolio, reallocate research and development and other spending towards products with higher returns, as well as to redirect administrative costs, in order to enhance our growth potential. These initiatives are described below.

2010 Restructuring plan

On February 6, 2010, our Board of Directors approved, and we committed to, a series of management changes and restructuring initiatives (the 2010 Restructuring plan) designed to strengthen and position us for long-term success. Key activities under the plan include the integration of our Cardiovascular and CRM businesses, as well as the restructuring of certain other businesses and corporate functions; the centralization of our research and development organization; the re-alignment of our international structure to reduce our administrative costs and invest in expansion opportunities including significant investments in emerging markets; and the reprioritization and diversification of our product portfolio, in order to drive innovation, accelerate profitable growth and increase both accountability and shareholder value. We estimate that the execution of this plan will result in gross reductions in pre-tax operating expenses of approximately $200 million to $250 million, once completed in 2011. We will reinvest a portion of the savings into customer facing and other activities to help drive future sales growth and support the business. Activities under the 2010 Restructuring plan were initiated in the first quarter of 2010 and are expected to be substantially complete by the end of 2011. We expect the execution of the 2010 Restructuring plan will result in the elimination of approximately 1,000 to 1,300 positions worldwide by the end of 2011. Refer to Quarterly Results and Note G – Restructuring-related Activities to our unaudited condensed consolidated financial statements contained in Item 1 of this Quarterly Report for information on our restructuring-related activities and estimated costs.

Plant Network Optimization

In January 2009, our Board of Directors approved, and we committed to, a Plant Network Optimization program, which is intended to simplify our manufacturing plant structure by transferring certain production lines among facilities and by closing certain other facilities. The program is a complement to our 2007 Restructuring plan, and is intended to improve overall gross profit margins. We estimate that the program will result in annualized run-rate reductions of manufacturing costs of approximately $65 million exiting 2012. These savings are in addition to the estimated $35 million of annual reductions of manufacturing costs from activities under our 2007 Restructuring plan, discussed below. Activities under the Plant Network Optimization program were initiated in the first quarter of 2009 and are expected to be substantially complete by the end of 2011. Refer to Quarterly Results and Note G – Restructuring-related Activities to our unaudited condensed consolidated financial statements contained in Item 1 of this Quarterly Report for information on our restructuring-related activities and estimated costs.

2007 Restructuring plan

In October 2007, our Board of Directors approved, and we committed to, an expense and head count reduction plan (the 2007 Restructuring plan). The plan was intended to bring expenses in line with revenues as part of our initiatives to enhance short- and long-term shareholder value. Key activities under the plan included the restructuring of several businesses, corporate functions and product franchises in order to better utilize resources, strengthen competitive positions, and create a more simplified and efficient business model; the elimination, suspension or reduction of spending on certain research and development projects; and the transfer of certain production lines among facilities. The execution of this plan enabled us to reduce research and development and selling, general and administrative expenses by an annualized run rate of approximately $500 million exiting 2008. We have partially reinvested our savings from these initiatives into targeted head count increases, primarily in customer-facing positions. In addition, we expect annualized run-rate reductions of manufacturing costs of approximately $35 million as a result of our transfers of production lines. Due to the longer-term nature of these initiatives, we do not expect to achieve the full benefit of these reductions in manufacturing costs until 2012. We initiated activities under the plan in the fourth quarter of 2007. The transfer of certain production lines contemplated under the 2007 Restructuring plan will continue through the end of 2010; all other major activities under the plan were completed as of December 31, 2009. Refer to Quarterly Results and Note G – Restructuring-related Activities to our unaudited condensed consolidated financial statements contained in Item 1 of this Quarterly Report for information on our restructuring-related activities and estimated costs.

Medical Device Tax

In March 2010, President Obama signed into law the Patient Protection and Affordable Care Act and the Health Care and Education Affordability Reconciliation Act of 2010, which impose on medical device manufacturers a 2.3 percent excise tax on U.S. sales of Class I, II, and III medical devices beginning in 2013. U.S. net sales represented 57 percent of our worldwide net sales in 2009.

Regulatory Environment

The medical devices that we manufacture and market 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 be conducted before a device receives approval for commercial distribution.

In the U.S., certain Class II medical devices require that a pre-market notification (510(k) submission) be made to the FDA to demonstrate that the device is as safe and effective as, or substantially equivalent to, a legally marketed device that is not subject to pre-market approval (PMA), i.e., the “predicate” device. Applicants must submit descriptive data and, when necessary, performance data to establish that the device is substantially equivalent to a predicate device and, in some instances, data from human clinical trials must also be submitted in support of a 510(k) submission. Commercial distribution cannot occur until the FDA issues an order finding substantial equivalence. The FDA has recently been reviewing its clearance process in an effort to make it more rigorous, and there have been a number of recommendations made by various task forces and working groups to change the 510(k) program. Some of these proposals, if enacted, could increase the level and complexity of premarket data requirements for certain higher-risk Class II products. Others could increase the cost of maintaining the legal status of Class II devices entered into the market via 510(k) submissions. We have a portfolio of products that includes numerous Class II medical devices. If implemented as currently proposed, the changes to the 510(k) program could substantially increase the cost, complexity and time to market for certain higher-risk Class II medical devices.

Quarterly Results

Net Sales

We manage our international operating segments on a constant currency basis, and we manage market risk from currency exchange rate changes at the corporate level. Management excludes the impact of foreign exchange for purposes of reviewing regional and divisional revenue growth rates to facilitate an evaluation of current operating performance and comparison to past operating performance. To calculate revenue growth rates that exclude the impact of currency exchange, we convert current period and prior period net sales from local currency to U.S. dollars using current period currency exchange rates. The regional constant currency growth rates in the tables below can be recalculated from our net sales by reportable segment as presented in Note L – Segment Reporting to our unaudited condensed consolidated financial statements contained in Item 1 of this Quarterly Report. As of September 30, 2010 and December 31, 2009, we had four reportable segments based on geographic regions: the United States; EMEA, consisting of Europe, the Middle East and Africa; Japan; and Inter-Continental, consisting of Asia Pacific and the Americas. The reportable segments represent an aggregate of all operating divisions within each segment.

The following tables provide our worldwide net sales by region and the relative change on an as reported and constant currency basis:


					Change
	Three Months Ended				As Reported			Constant
	September 30,				Currency			Currency
in millions	2010		2009		Basis			Basis


United States	$	1,102	$	1,167		(6)	%		(6)	%

EMEA		395		438		(10)	%		(3)	%
Japan		234		243		(4)	%		(12)	%
Inter-Continental		185		175		6	%		1	%

International		814		856		(5)	%		(5)	%


Subtotal		1,916		2,023		(5)	%		(5)	%

Divested Businesses		0		2		N/A			N/A


Worldwide	$	1,916	$	2,025		(5)	%		(5)	%


					Change
	Nine Months Ended				As Reported			Constant
	September 30,				Currency			Currency
in millions	2010		2009		Basis			Basis


United States	$	3,244	$	3,530		(8)	%		(8)	%

EMEA		1,305		1,353		(4)	%		(2)	%
Japan		707		726		(3)	%		(8)	%
Inter-Continental		544		491		11	%		1	%

International		2,556		2,570		(1)	%		(3)	%


Subtotal		5,800		6,100		(5)	%		(6)	%

Divested Businesses		4		9		N/A			N/A


Worldwide	$	5,804	$	6,109		(5)	%		(6)	%

The following tables provide our worldwide net sales by division and the relative change on an as reported and constant currency basis.


					Change
	Three Months Ended				As Reported			Constant
	September 30,				Currency			Currency
in millions	2010		2009		Basis			Basis


Cardiac Rhythm Management	$	550	$	608		(10)	%		(8)	%

Interventional Cardiology		614		682		(10)	%		(11)	%
Peripheral Interventions		167		164		2	%		2	%

Cardiovascular Group		781		846		(8)	%		(8)	%

Electrophysiology		36		38		(6)	%		(6)	%

Neurovascular		79		85		(7)	%		(8)	%

Endoscopy		269		260		4	%		4	%
Urology/ Women’s Health		122		114		7	%		6	%

Endosurgery Group		391		374		5	%		5	%

Neuromodulation		79		72		9	%		9	%


Subtotal		1,916		2,023		(5)	%		(5)	%

Divested Businesses		0		2		N/A			N/A


Worldwide	$	1,916	$	2,025		(5)	%		(5)	%


					Change
	Nine Months Ended				As Reported			Constant
	September 30,				Currency			Currency
in millions	2010		2009		Basis			Basis


Cardiac Rhythm Management	$	1,615	$	1,806		(11)	%		(11)	%

Interventional Cardiology		1,961		2,155		(9)	%		(11)	%
Peripheral Interventions		498		493		1	%		0	%

Cardiovascular Group		2,459		2,648		(7)	%		(9)	%

Electrophysiology		111		112		(1)	%		(2)	%

Neurovascular		248		259		(4)	%		(7)	%

Endoscopy		794		737		8	%		7	%
Urology/ Women’s Health		354		333		6	%		5	%

Endosurgery Group		1,148		1,070		7	%		6	%

Neuromodulation		219		205		6	%		6	%


Subtotal		5,800		6,100		(5)	%		(6)	%

Divested Businesses		4		9		N/A			N/A


Worldwide	$	5,804	$	6,109		(5)	%		(6)	%

The divisional constant currency growth rates in the tables above can be recalculated from the reconciliations provided below. Growth rates are based on actual, non-rounded amounts and may not recalculate precisely.


	Q3 2010 Net Sales as compared to Q3 2009
	Change						Estimated
	As Reported			Constant			Impact of
	Currency			Currency			Foreign
in millions	Basis			Basis			Currency


Cardiac Rhythm Management	$	(58	)	$	(47	)	$	(11	)

Interventional Cardiology		(68	)		(73	)		5
Peripheral Interventions		3			3			0

Cardiovascular Group		(65	)		(70	)		5

Electrophysiology		(2	)		(2	)		0

Neurovascular		(6	)		(7	)		1

Endoscopy		9			9			0
Urology/ Women’s Health		8			7			1

Endosurgery Group		17			16			1

Neuromodulation		7			7			0


Subtotal		(107	)		(103	)		(4	)

Divested Businesses		(2	)		(2	)		0


Worldwide	$	(109	)	$	(105	)	$	(4	)


	Q3 2010 YTD Net Sales as compared to Q3 2009
	Change						Estimated
	As Reported			Constant			Impact of
	Currency			Currency			Foreign
in millions	Basis			Basis			Currency


Cardiac Rhythm Management	$	(191	)	$	(192	)	$	1

Interventional Cardiology		(194	)		(230	)		36
Peripheral Interventions		5			(2	)		7

Cardiovascular Group		(189	)		(232	)		43

Electrophysiology		(1	)		(2	)		1

Neurovascular		(11	)		(17	)		6

Endoscopy		57			50			7
Urology/ Women’s Health		21			17			4

Endosurgery Group		78			67			11

Neuromodulation		14			13			1


Subtotal		(300	)		(363	)		63

Divested Businesses		(5	)		(5	)		0


Worldwide	$	(305	)	$	(368	)	$	63

U.S. Net Sales

During the third quarter of 2010, our U.S. net sales decreased $65 million, or six percent, as compared to the third quarter of 2009. The decrease was driven primarily by lower U.S. CRM sales of $42 million, due primarily to the ship hold and product removal actions impacting our ICD and CRT-D systems, discussed in Business and Market Overview , as well as a decline in U.S. drug-eluting stent system sales of $23 million, due primarily to a decline in our share of the U.S. drug-eluting stent market, as well as lower average selling

prices. On April 15, 2010, following FDA clearance, we resumed distribution of our COGNIS ^® CRT-D systems and TELIGEN ^® ICD systems, which represent virtually all of our U.S. defibrillator implant volume and, on May 21, 2010, we secured the required clearance from the FDA allowing us to return earlier generations of these products to market. Refer to the Business and Market Overview section for further discussion of our net sales.

During the first nine months of 2010, our U.S. net sales decreased $286 million, or eight percent, as compared to the first nine months of 2009. The decrease was driven primarily by lower CRM sales of $195 million, due primarily to the ship hold and product removal actions impacting our ICD and CRT-D systems, discussed in Business and Market Overview , as well as a decline in U.S. coronary stent system sales of $98 million.

International Net Sales

During the third quarter of 2010, our international net sales decreased $42 million, or five percent, as compared to the third quarter of 2009. Foreign currency exchange rates contributed a negative $4 million to our international net sales as compared to the same period in the prior year. Excluding the impact of foreign currency exchange rates, our international net sales decreased $38 million or five percent. This included a decrease in net sales in our EMEA region of $10 million, or three percent, in the third quarter of 2010, as compared the same period in the prior year. Our net sales in Japan decreased $29 million, or 12 percent, excluding the impact of foreign currency exchange rates, in the third quarter of 2010, as compared to the third quarter of 2009, due primarily to competitive launches of drug-eluting stent system technology and clinical trial enrollment limiting our access to certain customers. Net sales in our Inter-Continental region, excluding the impact of foreign currency exchange rates, increased $1 million, or one percent, in the third quarter of 2010, as compared to the same period in the prior year. Refer to the Business and Market Overview section for further discussion of our International net sales.

During the first nine months of 2010, our international net sales decreased $14 million, or one percent, as compared to the first nine months of 2009. Foreign currency exchange rates contributed $63 million to our international net sales as compared to the same period in the prior year. Excluding the impact of foreign currency exchange rates, our international net sales decreased $77 million or three percent. This included a decrease in net sales in our EMEA region of $21 million, or two percent, in the first nine months of 2010, as compared to the same period in the prior year. Our net sales in Japan decreased $59 million, or eight percent, excluding the impact of foreign currency exchange rates, in the first nine months of 2010, as compared to the first nine months of 2009, due primarily to competitive launches of drug-eluting stent system technology. Net sales in our Inter-Continental region, excluding the impact of foreign currency exchange rates, increased $3 million, or one percent, in the first nine months of 2010, as compared to the same period in the prior year.

Gross Profit

Our gross profit was $1.293 billion for the third quarter of 2010, $1.396 billion for the third quarter of 2009, $3.865 billion for the first nine months of 2010, and $4.242 billion for the first nine months of 2009. As a percentage of net sales, our gross profit decreased to 67.5 percent in the third quarter of 2010, as compared to 68.9 percent in the third quarter of 2009, and decreased to 66.6 percent in the first nine months of 2010, as compared to 69.4 percent in the first nine months of 2009. The following is a reconciliation of our gross profit margins and a description of the drivers of the change from period to period:


	Three			Nine
	Months			Months
Gross profit - period ended September 30, 2009		68.9	%		69.4	%
Drug-eluting stent system sales mix and pricing		(1.6	) %		(1.9	) %
Impact of CRM ship hold		(0.3	) %		(0.4	) %
Net impact of foreign currency		0.5	%		(0.3	) %
All other					(0.2	) %

Gross profit - period ended September 30, 2010		67.5	%		66.6	%

The primary factor contributing to the reduction in our gross profit margin during the third quarter and first nine months of 2010, as compared to the same periods in 2009, was a decrease in sales of our higher-margin TAXUS® drug-eluting stent systems and a shift towards the PROMUS® stent system, as well as declines in the average selling prices of drug-eluting stent systems. Sales of the PROMUS® stent system represented approximately 53 percent of our worldwide drug-eluting stent system sales in the third quarter of 2010, 40 percent in the third quarter of 2009, 53 percent in the first nine months of 2010, and 38 percent in the first nine months of 2009. Under the terms of our supply arrangement with Abbott, the gross profit margin of a PROMUS® stent system, supplied to us by Abbott, is significantly lower than that of our TAXUS® stent system. In the fourth quarter of 2009, we launched our next-generation internally developed and manufactured PROMUS® Element™ everolimus-eluting stent system in our EMEA region and certain Inter-Continental countries. We expect to launch our PROMUS® Element™ stent system in the U.S. and Japan in mid-2012, and expect this product will have gross profit margins more favorable than the PROMUS® stent system, which will positively affect our overall gross profit and operating profit margins. In addition, the average selling prices of drug-eluting stent systems in the U.S., EMEA and Japan regions decreased, including an estimated eight percent decline in the U.S., in the first nine months of 2010, as compared to the first nine months of 2009. Our gross profit margin was also negatively impacted by the CRM ship hold and product removal actions in both the third quarter and first nine months of 2010, as well as the impact of foreign currency fluctuations and the settlement of foreign currency hedge contracts during the first nine months of 2010.

Operating Expenses

The following table provides a summary of certain of our operating expenses:


	Three Months Ended September 30,								Nine Months Ended September 30,
	2010				2009				2010				2009
			% of Net				% of Net				% of Net				% of Net
(in millions)	$		Sales		$		Sales		$		Sales		$		Sales

Selling, general and administrative expenses		634		33.1		665		32.8		1,897		32.7		1,987		32.5
Research and development expenses		230		12.0		258		12.7		714		12.3		778		12.7
Royalty expense		39		2.0		51		2.5		147		2.5		149		2.4

Selling, General and Administrative (SG&A) Expenses

In the third quarter of 2010, our SG&A expenses decreased $31 million, or five percent, as compared to the third quarter of 2009. This decrease was related primarily to savings from our restructuring initiatives driven by lower headcount and lower consulting and travel spending, as compared to the same period in the prior year. As a percentage of net sales, our SG&A expenses were slightly higher than the third quarter of 2009.

In the first nine months of 2010, our SG&A expenses decreased $90 million, or five percent, as compared to the first nine months of 2009. This decrease was related primarily to savings from our restructuring initiatives driven by lower headcount and lower consulting and travel spending, as well as lower employee bonus expenses attributable to lower sales and operating performance as compared to the same period in the prior year. These decreases were partially offset by the negative impact of foreign currency exchange rates of approximately $12 million, as well as the impact of maintaining compensation levels for our U.S. CRM sales force, despite the reduction in our net sales. As a result, our SG&A expenses increased slightly as a percentage of net sales, as compared to the first nine months of 2009.

Research and Development (R&D) Expenses

Our investment in R&D reflects spending on new product development programs, as well as regulatory compliance and clinical research. In the third quarter of 2010, our R&D expenses decreased $28 million, or 11 percent, as compared to the third quarter of 2009, and were slightly lower as a percentage of net sales as

compared to same period in the prior year. This decrease was due to the on-going re-prioritization of R&D projects and the re-allocation of spend as part of our restructuring efforts to focus on products with higher returns, as well as the delay of certain of our clinical trials,. We remain committed to advancing medical technologies and investing in meaningful research and development projects across our businesses in order to maintain a healthy pipeline of new products that we believe will contribute to profitable sales growth. As we continue to execute on our R&D portfolio re-alignment, we expect our future R&D spending to increase.

In the first nine months of 2010, our R&D expenses decreased $64 million, or eight percent, as compared to the first nine months of 2009, and decreased slightly as a percentage of net sales, as compared to the same period in the prior year. This decrease is a result of the on-going re-prioritization of R&D projects and the re-allocation of spend as part of our restructuring efforts to focus on products with higher returns, as well as the delay of certain of our clinical trials.

Royalty Expense

In the third quarter of 2010, our royalty expense decreased $12 million, or 24 percent, as compared to the third quarter of 2009. This decrease was due primarily to lower sales of our TAXUS® coronary stent systems, as well as a decrease in the royalty rate applied to sales of PROMUS® and PROMUS® Element™ stent systems during the third quarter of 2010 and for the remainder of the year.

In the first nine months of 2010, our royalty expense increased $2 million, or one percent, as compared to the first nine months of 2009. This increase was due primarily to a shift in the mix of our drug-eluting stent system net sales towards the PROMUS® and PROMUS® Element™ stent systems. Royalty expense attributable to our sales of PROMUS® and PROMUS® Element™ stent systems increased $22 million for the first nine months of 2010, as compared to the same period in the prior year, but was largely offset by a decrease of $20 million in royalty expense attributable to our TAXUS® stent system. The royalty rate applied to sales of PROMUS® and PROMUS® Element™ stent systems has been, on average, higher than that associated with sales of our TAXUS® stent system.

Loss on Program Termination

In the second quarter of 2009, we discontinued one of our internal R&D programs in order to focus on those with a higher likelihood of success. As a result, we recorded a pre-tax loss of $16 million, in accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 420, Exit or Disposal Cost Obligations (formerly FASB Statement No. 146, Accounting for Costs Associated with Exit or Disposal Activities ) , associated with future payments that we believe we remain contractually obligated to make. We continue to focus on developing new technologies that will contribute to profitable sales growth in the future and do not believe that the cancellation of this program will have a material adverse impact on our future results of operations or cash flows.

Amortization Expense

Our amortization expense was $129 million in the third quarter of 2010, $126 million in the third quarter of 2009, and $381 million in the first nine months of 2010 and 2009. This non-cash charge is excluded by management for purposes of evaluating operating performance and assessing liquidity.

Goodwill Impairment Charge

described in our 2009 Annual Report filed on Form 10-K and recorded a goodwill impairment charge of $1.817 billion, on both a pre-tax and after-tax basis, associated with our U.S. CRM reporting unit. This charge does not impact our compliance with our debt covenants or our cash flows, and is excluded by management for purposes of evaluating operating performance and assessing liquidity.

At the time we performed our interim goodwill impairment test, we estimated that our U.S. defibrillator market share would decrease approximately 400 basis points exiting 2010 as a result of the ship hold and product removal actions, as compared to our market share exiting 2009, and that these actions would negatively impact our 2010 U.S. CRM revenues by approximately $300 million. We are working with our physician and patient customers to recapture lost market share; however, our on-going U.S. CRM net sales and profitability will likely continue to be adversely impacted as a result of the ship hold and product removal actions. Therefore, as a result of these product actions, as well as lower expectations of market growth in new areas and increased competitive and pricing pressures, we lowered our estimated average U.S. CRM net sales growth rates within our 15-year discounted cash flow (DCF) model, as well as our terminal value growth rate, by approximately a couple of hundred basis points to derive the fair value of the U.S. CRM reporting unit. The reduction in our forecasted 2010 U.S. CRM net sales, the change in our expected sales growth rates thereafter and the reduction in profitability as a result of the recently enacted excise tax on medical device manufacturers were several key factors contributing to the impairment charge. Partially offsetting these factors was a 50 basis point reduction in our estimated market participant risk-adjusted weighted-average cost of capital (WACC) used in determining our discount rate.

In the second quarter of 2010, we performed our annual goodwill impairment test for all of our reporting units. We updated our U.S. CRM assumptions to reflect our market share position at that time, our most recent operational budgets and long range strategic plans. In conjunction with our annual test, the fair value of each reporting unit exceeded its carrying value, with the exception of our U.S. CRM reporting unit. Based on the remaining book value of our U.S. CRM reporting unit following the goodwill impairment charge, the carrying value of our U.S. CRM business unit continues to exceed its fair value, due primarily to the book value of amortizable intangible assets allocated to this reporting unit. The remaining book value of our amortizable intangible assets which have been allocated to our U.S. CRM reporting unit is approximately $3.7 billion as of September 30, 2010. We tested these amortizable intangible assets for impairment on an undiscounted cash flow basis as of March 31, 2010, and determined that these assets were not impaired, and there have been no impairment indicators related to these assets subsequent to that test. The assumptions used in our annual goodwill impairment test related to our U.S. CRM reporting unit were substantially consistent with those used in our first quarter interim impairment test; therefore, it was not deemed necessary to proceed to step two of the impairment test in the second quarter of 2010.

We have identified a total of four reporting units with a material amount of goodwill that are at higher risk of potential failure of the first step of the impairment test in future reporting periods. These reporting units include our U.S. CRM unit, which holds $1.5 billion of allocated goodwill, our U.S. Cardiovascular unit, which holds $2.2 billion of allocated goodwill, our U.S. Neuromodulation unit, which holds $1.2 billion of allocated goodwill, and our EMEA region, which holds $4.1 billion of allocated goodwill. The level of excess fair value over carrying value for these reporting units (with the exception of the U.S. CRM reporting unit, whose carrying value continues to exceed its fair value) ranged from 14 percent to 23 percent. Future events that could have a negative impact on the fair value of the reporting units include, but are not limited to:

	•		decreases in estimated market sizes or market growth rates due to pricing pressures, product actions, disruptive technology developments, and/or other economic conditions;

	•		declines in our market share and penetration assumptions due to increased competition, an inability to launch new products, and market and/or regulatory conditions that may cause significant launch delays or product recalls;

	•		declines in revenue as a result of loss of key members of our sales force and other key personnel;

	•		negative developments in intellectual property litigation that may impact our ability to market certain products;

	•		adverse legal decisions resulting in significant cash outflows;

	•		increases in the research and development costs necessary to obtain regulatory approvals and launch new products, and the level of success of on-going and future research and development efforts; and

	•		increases in our risk-adjusted WACC due to further instability or deterioration of the equity and credit markets

Negative changes in one or more of these factors could result in additional impairment charges.

Intangible Asset Impairment Charges

During the first quarter of 2010, due to lower than anticipated net sales of one of our Peripheral Interventions technology offerings, as well as changes in our expectations of future market acceptance of this technology, we lowered our sales forecasts associated with the product. In addition, during the third quarter of 2010, as part of our initiatives to reprioritize and diversify our product portfolio, we discontinued one of our internal research and development programs to focus on those with a higher likelihood of success. As a result of these factors, and in accordance with our accounting policies described in our 2009 Annual Report filed on Form 10-K, we tested the related intangible assets for impairment and recorded a $60 million intangible asset impairment charge in the first quarter of 2010 and a $5 million intangible asset impairment charge in the third quarter of 2010 to write down the balance of these intangible assets to their fair value. We have recorded these amounts in the intangible asset impairment charges caption in our accompanying unaudited condensed consolidated statements of operations. We do not believe that these impairments, or the factors causing these impairments, will have a material impact on our future operations or cash flows. These non-cash charges are excluded by management for purposes of evaluating operating performance and assessing liquidity.

Purchased Research and Development

Since the technology purchases discussed above did not involve the transfer of processes or outputs as defined by Statement No. 141(R), the transaction did not qualify as a business combination. We did not consummate any material business combinations in the first nine months of 2010 or 2009. For any future business combinations that we enter, including our October 2010 acquisition of Asthmatx, we will recognize purchased research and development as an intangible asset, in accordance with ASC Topic 805.

Acquisition-related Milestone

In connection with Abbott Laboratories’ 2006 acquisition of Guidant’s vascular intervention and endovascular solutions businesses, Abbott agreed to pay us a milestone payment of $250 million upon receipt of an approval from the Japanese MHLW to market the XIENCE V ^® stent system in Japan. The MHLW approved the XIENCE V ^® stent system in the first quarter of 2010 and we received the milestone payment

from Abbott, which we have recorded as a gain in our accompanying unaudited condensed consolidated financial statements. This non-recurring acquisition-related gain is excluded by management for purposes of evaluating operating performance and assessing liquidity.

Restructuring Charges and Restructuring-related Activities


		Total estimated amount expected to
Type of cost		be incurred

Restructuring charges:
Termination benefits		$205 million to $207 million
Fixed asset write-offs		$31 million
Other (1)		$65 million

Restructuring-related expenses:
Retention incentives		$66 million
Accelerated depreciation		$16 million to $18 million
Transfer costs (2)		$42 million to $48 million


		$425 million to $435 million

	(1)		Consists primarily of consulting fees, contractual cancellations, relocation costs and other costs.
	(2)		Consists primarily of costs to transfer product lines among facilities, including costs of transfer teams, freight and product line validations.

Plant Network Optimization program were initiated in the first quarter of 2009 and are expected to be substantially complete by the end of 2011.


		Total estimated amount expected to
Type of cost		be incurred

Restructuring charges:
Termination benefits		$30 million to $35 million

Restructuring-related expenses:
Accelerated depreciation		$20 million to $25 million
Transfer costs (1)		$85 million to $90 million


		$135 million to $150 million

(1)

Consists primarily of costs to transfer product lines among facilities, including costs of transfer teams, freight, idle facility and product line validations.


		Total estimated amount expected
Type of Cost		to be incurred

Restructuring charges:
Termination benefits		$110 million to $115 million
Asset write-offs		$5 million to $10 million
Other (1)		$45 million to $50 million

Restructuring-related expenses:
Other (2)		$20 million to $25 million


		$180 million to $200 million

	(1)		Includes primarily consulting fees and costs associated with contractual cancellations.
	(2)		Comprised of other costs directly related to restructuring plan, including accelerated depreciation and infrastructure-related costs.

We recorded restructuring charges pursuant to these plans of $5 million in the third quarter of 2010, $9 million in the third quarter of 2009, $98 million in the first nine months of 2010, and $44 million in the first nine months of 2009. In addition, we recorded expenses within other lines of our accompanying unaudited condensed consolidated statements of operations related to our restructuring initiatives of $13 million in the third quarter of 2010, $19 million the third quarter of 2009, $41 million for the first nine months of 2010, and $50 million for the first nine months of 2009. These charges are excluded by management for purposes of evaluating operating performance. The following presents these costs by major type and line item within our accompanying unaudited condensed consolidated statements of operations, as well as by program:

Three Months Ended September 30, 2010


	Termination			Retention	Accelerated		Transfer		Fixed Asset
(in millions)	Benefits			Incentives	Depreciation		Costs		Write-offs		Other		Total

Restructuring charges	$	2							$	1	$	2	$	5

Restructuring-related expenses:
Cost of products sold					$	2	$	10						12
Selling, general and administrative expenses												1		1
Research and development expenses

						2		10				1		13

	$	2			$	2	$	10	$	1	$	3	$	18


	Termination			Retention	Accelerated		Transfer		Fixed Asset
(in millions)	Benefits			Incentives	Depreciation		Costs		Write-offs		Other		Total


2010 Restructuring plan	$	2							$	1	$	3	$	6
Plant Network Optimization program		2			$	2	$	8						12
2007 Restructuring plan		(2	)					2						-

	$	2			$	2	$	10	$	1	$	3	$	18

Three Months Ended September 30, 2009


	Termination		Retention		Accelerated		Transfer		Fixed Asset
(in millions)	Benefits		Incentives		Depreciation		Costs		Write-offs		Other		Total

Restructuring charges	$	4							$	3	$	2	$	9

Restructuring-related expenses:
Cost of products sold			$	1	$	3	$	9						13
Selling, general and administrative expenses				3		2								5
Research and development expenses				1										1

				5		5		9						19

	$	4	$	5	$	5	$	9	$	3	$	2	$	28


	Termination		Retention		Accelerated		Transfer		Fixed Asset
(in millions)	Benefits		Incentives		Depreciation		Costs		Write-offs		Other		Total


Plant Network Optimization program	$	2			$	2	$	3					$	7
2007 Restructuring plan		2	$	5		3		6	$	3	$	2		21

	$	4	$	5	$	5	$	9	$	3	$	2	$	28

Nine Months Ended September 30, 2010
	Termination		Retention		Accelerated		Transfer		Fixed Asset
(in millions)	Benefits		Incentives		Depreciation		Costs		Write-offs		Other		Total

Restructuring charges	$	66							$	8	$	24	$	98

Restructuring-related expenses:
Cost of products sold					$	6	$	32						38
Selling, general and administrative expenses												3		3
Research and development expenses

						6		32				3		41

	$	66			$	6	$	32	$	8	$	27	$	139


	Termination		Retention		Accelerated		Transfer		Fixed Asset
(in millions)	Benefits		Incentives		Depreciation		Costs		Write-offs		Other		Total


2010 Restructuring plan	$	61							$	8	$	23	$	92
Plant Network Optimization program		4			$	6	$	20						30
2007 Restructuring plan		1						12				4		17

	$	66			$	6	$	32	$	8	$	27	$	139

Nine Months Ended September 30, 2009
	Termination		Retention		Accelerated		Transfer		Fixed Asset
(in millions)	Benefits		Incentives		Depreciation		Costs		Write-offs		Other		Total

Restructuring charges	$	25							$	6	$	13	$	44

Restructuring-related expenses:
Cost of products sold			$	4	$	7	$	25						36
Selling, general and administrative expenses				9		2								11
Research and development expenses				3										3

				16		9		25						50

	$	25	$	16	$	9	$	25	$	6	$	13	$	94


	Termination		Retention		Accelerated		Transfer		Fixed Asset
(in millions)	Benefits		Incentives		Depreciation		Costs		Write-offs		Other		Total


Plant Network Optimization program	$	19			$	5	$	8					$	32
2007 Restructuring plan		6	$	16		4		17	$	6	$	13		62

	$	25	$	16	$	9	$	25	$	6	$	13	$	94


	2010		Plant		2007
	Restructuring		Network		Restructuring
(in millions)	Plan		Optimization		Plan		Total

Termination benefits	$	61	$	26	$	205	$	292
Fixed asset write-offs		8				31		39
Other		20				65		85

Total restructuring charges		89		26		301		416

Retention incentives						66		66
Accelerated depreciation				12		16		28
Transfer costs				32		41		73
Other		3						3

Restructuring-related expenses		3		44		123		170

	$	92	$	70	$	424	$	586


	2010		Plant		2007
	Restructuring		Network		Restructuring
(in millions)	Plan		Optimization		Plan		Total

Three Months Ended September 30, 2010
Termination benefits	$	19					$	19
Transfer costs			$	8	$	2		10
Other		3						3

	$	22	$	8	$	2	$	32


Nine Months Ended September 30, 2010
Termination benefits	$	33			$	12	$	45
Retention incentives						2		2
Transfer costs			$	20		12		32
Other		15				3		18

	$	48	$	20	$	29	$	97


Program to Date
Termination benefits	$	33			$	191	$	224
Retention incentives						66		66
Transfer costs			$	32		41		73
Other		15				64		79

	$	48	$	32	$	362	$	442

Litigation-related Charges

We record certain significant litigation-related activity as a separate line item in our consolidated statements of operations, and these charges are excluded by management for purposes of evaluating operating performance. In November 2009, we reached an agreement in principle with the U.S. Department of Justice to pay $296 million in order resolve the U.S. Government investigation of Guidant Corporation related to product advisories issued in 2005, discussed in our 2009 Annual Report filed on Form 10-K, and recorded a net charge of $294 million in the third quarter of 2009, representing $296 million associated with the agreement, net of a $2 million reversal of a related accrual. In addition, in the third quarter of 2009, we reduced previously recorded reserves associated with certain litigation-related matters following certain favorable court rulings, resulting in a credit of $58 million. Further, in the first quarter of 2009, we recorded a pre-tax charge of $237 million associated with certain patent litigation with Johnson & Johnson. This amount represented an estimate of the low end of the range of potential outcomes related to this matter, and was subsequently settled with Johnson & Johnson for $1.725 billion. We recorded the incremental charges associated with this matter during the fourth quarter of 2009. During the first quarter of 2009, we also recorded a pre-tax charge of $50 million associated with the settlement of all outstanding litigation with Bruce Saffran, M.D., Ph.D. See further discussion of our material legal proceedings in our 2009 Annual Report filed on Form 10-K, and Note K – Commitments and Contingencies to our unaudited condensed consolidated financial statements included in Item 1 of this Quarterly Report.

Interest Expense

Our interest expense was $91 million in the third quarters of 2010 and 2009. Our average borrowing rate was 5.5 percent in the third quarters of 2010 and 2009. Refer to the Liquidity and Capital Resources section and Note E – Borrowings and Credit Arrangements to our unaudited condensed consolidated financial statements contained in Item 1 of this Quarterly Report for information regarding our debt obligations.

Our interest expense increased to $286 million in the first nine months of 2010, as compared to $285 million in the first nine months of 2009, an increase of $1 million or less than one percent. This increase reflects the second quarter 2010 write off of the remaining $10 million discount attributable to our loan from Abbott Laboratories, prepaid in full in June 2010, as well as an increase in our average borrowing rate, offset by a

decrease in our average debt obligations as a result of prepayments. Our average borrowing rate was 5.8 percent in the first nine months of 2010, as compared to 5.6 percent for the first nine months of 2009.

Other, net

Our other, net reflected income of $3 million in the third quarter of 2010, as compared to expense of $4 million in the third quarter of 2009, $2 million in the first nine months of 2010, and $13 million in the first nine months of 2009.

The following are the components of other, net:


	Three Months Ended						Nine Months Ended
	Sept 30,						September 30,
(in millions)	2010			2009			2010			2009

Interest income	$	3		$	1		$	12		$	6
Foreign currency gains (losses)		3			(1	)		(8	)		(4	)
Other expense, net		(3	)		(4	)		(6	)		(15	)

	$	3		$	(4	)	$	(2	)	$	(13	)

Tax Rate


	Three Months Ended						Percentage
	September 30,						Point
	2010			2009			Increase (Decrease)

Reported tax rate		(16.6	) %		(113.6	) %		97.0	%
Impact of certain receipts/charges*		33.4	%		128.9	%		(95.5	) %

		16.8	%		15.3	%		1.5	%


	Nine Months Ended						Percentage
	September 30,						Point
	2010			2009			Increase (Decrease)

Reported tax rate		(0.7	) %		(30.8	) %		30.1	%
Impact of certain receipts/charges*		20.9	%		49.1	%		(28.2	) %

		20.2	%		18.3	%		1.9	%

These charges are taxed at different rates than our effective tax rate.

inclusive of interest. We disagree with certain positions contained in the Report and intend to contest these positions through applicable Internal Revenue Service and judicial procedures, as appropriate.

In March 2010, President Obama signed into law the Patient Protection and Affordable Care Act and the Health Care and Education Affordability Reconciliation Act of 2010. Our current financial position and results of operations are not impacted by these Acts. However, for the years ending after December 31, 2012, our results of operations are expected to be adversely impacted as the Acts impose on medical device manufacturers a 2.3 percent excise tax on U.S. sales of Class I, II, and III medical devices beginning in 2013. Further, the Obama Administration has announced several international tax legislative proposals to reform the United States tax rules, including provisions that may limit the deferral of United States income tax on our unremitted foreign earnings, substantially reduce our ability to claim foreign tax credits, and defer various tax deductions until foreign earnings are repatriated to the U.S. If any of these proposals are enacted into law, they could have a material adverse impact on our financial position and results of operations. However, if the extension of the look thru rule and the U.S. Research and Development (R&D) credit are later enacted, they will have a favorable impact on our results of operations and financial position.

Critical Accounting Policies and Estimates

Our financial results are affected by the selection and application of accounting policies and methods. For our first quarter ended March 31, 2010, we adopted ASC Update No. 2009-17, Consolidations (Topic 810) – Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities, which formally codifies FASB Statement No. 167, Amendments to FASB Interpretation No. 46(R). Refer to Recent Accounting Pronouncements for a discussion of our adoption of this standard. There were no other material changes in the nine months ended September 30, 2010 to the application of critical accounting policies as described in our Annual Report filed on Form 10-K for the year ended December 31, 2009.

Liquidity and Capital Resources

As of September 30, 2010, we had $624 million of cash and cash equivalents on hand, comprised of $310 million invested in money market funds, $220 million invested in short-term time deposits, and $94 million in interest bearing and non-interest bearing bank accounts. Our policy is to invest excess cash in short-term marketable securities earning a market rate of interest without assuming undue risk to principal, and we limit our direct exposure to securities in any one industry or issuer. We also have full access to our $2.0 billion revolving credit facility and $350 million of available borrowings under our credit and security facility secured by our U.S. trade receivables, both described below. As of September 30, 2010, we had outstanding letters of credit of $126 million, as compared to $123 million as of December 31, 2009, which consisted primarily of bank guarantees and collateral for workers’ compensation insurance arrangements.

The following provides a summary and description of our cash inflows (outflows) for the nine months ended September 30, 2010 and 2009:


	Nine Months Ended
	September 30,
(in millions)	2010		2009
Cash (used for) provided by operating activities	$	(124)	$	1,164
Cash used for investing activities		(217)		(733)
Cash provided by (used for) financing activities		101		(693)

Operating Activities

During the first nine months of 2010, we used $124 million for operating activities, as compared to $1.164 billion provided by operating activities during the first nine months of 2009, a decrease of $1.288 billion. This decrease was driven primarily by the payment of $1.725 billion to Johnson & Johnson related to a patent litigation settlement described in our 2009 Annual Report filed on Form 10-K, as compared to approximately $100 million of legal settlements paid in the first nine months of 2009. This cash outflow was partially offset by the receipt of a $250 million milestone payment from Abbott Laboratories, described in Quarterly Results . The negative cash flow impact of reduced earnings as a result of lower net sales during 2010 has been largely offset by improved working capital management. During the fourth quarter of 2010, we may make a litigation payment of approximately $300 million related to the U.S. Department of Justice matter discussed in Quarterly Results .

Investing Activities

During the first nine months of 2010, our investing activities were comprised primarily of capital expenditures of $209 million. We expect to incur total capital expenditures of approximately $300 million during 2010, which include investments to further upgrade our quality systems and information systems infrastructure, and to enhance our manufacturing capabilities to support continued growth in our business units. In addition, in October 2010, we paid $194 million to acquire Asthmatx, described in Note F – Acquisitions to our unaudited condensed consolidated financial statements contained in Item 1 of this Quarterly Report. We expect to receive pre-tax proceeds of $1.4 billion in the fourth quarter of 2010 or first quarter of 2011, upon the closing of the sale of our Neurovascular business to Stryker, described in Note N – Subsequent Events . We intend to allocate approximately half of the net proceeds to future acquisitions and the remainder to the prepayment of debt.

During the first nine months of 2009, our investing activities included a final fixed payment of approximately $500 million related to our 2004 acquisition of Advanced Bionics Corporation, as well as capital expenditures of $225 million.

Financing Activities

Our cash flows from financing activities reflect issuances and repayments of debt and proceeds from stock issuances related to our equity incentive programs. During the first nine months of 2010, we generated $101 million from financing activities, as compared to $693 million used for financing activities in the first nine months of 2009, an increase of $794 million. This was due primarily to net debt borrowings of approximately $75 million during the first nine months of 2010, as compared to debt prepayments of $725 million during the first nine months of 2009.

Debt

options subject to certain conditions. The debt maturity schedule for the significant components of our debt obligations as of September 30, 2010 is as follows:


	Payments due by Period
(in millions)	2010	2011		2012		2013		2014		Thereafter		Total

Term loan		$	100	$	200	$	700					$	1,000
Senior notes			850					$	600	$	3,600		5,050

		$	950	$	200	$	700	$	600	$	3,600	$	6,050


		Note:		The table above does not include discounts associated with our senior notes, or amounts related to certain interest rate swaps that were used to hedge the fair value of certain of our senior notes.

In addition, during the second quarter of 2010, we syndicated a new $2.0 billion revolving credit facility, maturing in June 2013, with up to two one-year extension options subject to certain conditions, to replace our existing $1.75 billion revolving credit facility maturing in April 2011. Any revolving credit facility borrowings bear interest at LIBOR plus an interest margin of between 1.55 percent and 2.625 percent, based on our corporate credit ratings (currently 2.25 percent). In addition, we are required to pay a facility fee based on our credit ratings and the total amount of revolving credit commitments, regardless of usage, under the agreement (currently 0.50 percent per year). Any borrowings under the revolving credit facility are unrestricted and unsecured. There were no amounts borrowed under our revolving credit facility as of September 30, 2010 or December 31, 2009. In connection with our patent litigation settlement with Johnson & Johnson discussed in our 2009 Annual Report filed on Form 10-K, we borrowed $200 million against our revolving credit facility during the first quarter of 2010 to fund a portion of the settlement, and subsequently repaid these borrowings during the quarter without any premium or penalty. Further, in February 2010, we posted a $745 million letter of credit under our credit facility as collateral for the remaining Johnson & Johnson obligation. In August 2010, we prepaid the remaining obligation of $725 million, plus interest, using cash on hand and cancelled the related letter of credit. We now have full access to our $2.0 billion revolving credit facility to support operational needs. We also maintain a $350 million credit and security facility secured by our U.S. trade receivables. Use of any borrowed funds is unrestricted. Borrowing availability under this facility changes based upon the amount of eligible receivables, concentration of eligible receivables and other factors. In August 2010, we extended the maturity of this facility to August 2011. There were no amounts borrowed under this facility as of September 30, 2010 or December 31, 2009. We expect to fund the remainder of our 2011 debt maturities with available cash on hand, cash flow and credit facility borrowings.

Our new revolving credit facility agreement requires that we maintain certain financial covenants, as follows:


	Current	Actual as of
	Requirement	September 30, 2010

Maximum leverage ratio (1)	3.85 times	2.6 times
Minimum interest coverage ratio (2)	3.0 times	5.7 times

(1)			Ratio of total debt to consolidated EBITDA, as defined by the agreement, for the preceding four consecutive fiscal quarters. Requirement decreases to 3.5 times after March 31, 2011.
(2)			Ratio of consolidated EBITDA, as defined by the agreement, to interest expense for the preceding four consecutive fiscal quarters.

$1.310 billion related to amounts that were recorded in the financial statements as of March 31, 2010. As of September 30, 2010, we had $2.056 billion of the legal payment exclusion remaining. The new exclusions related to potential future restructuring and litigation charges and payments reflect the uncertainty in these areas, as described in Risk Factors , contained in Part II, Item 1A of this Quarterly Report. We plan on further reducing debt levels to reduce financial risk related to potential future events in these areas.

As of September 30, 2010, we were in compliance with the required covenants. Our inability to maintain compliance with these covenants could require us to seek to renegotiate the terms of our credit facilities or seek waivers from compliance with these covenants, both of which could result in additional borrowing costs. Further, there can be no assurance that our lenders would grant such waivers.

Management uses a ‘net debt’ measurement to monitor and evaluate cash and debt levels and believes it is a measure that provides valuable information regarding our net financial position and interest rate exposure. Users of our financial statements should consider this financial information in addition to, not as a substitute for, nor as superior to, U.S. GAAP. Refer to Additional Information for a discussion of management’s use of this non-GAAP measure. The following is a summary of our net debt position as of September 30, 2010 and December 31, 2009:


	September 30,		December 31,
(in millions)	2010		2009
Current debt obligations	$	904	$	3
Long-term debt		5,133		5,915

Total debt		6,037		5,918
Less: cash and cash equivalents		624		864

Net debt	$	5,413	$	5,054

Equity

During the first nine months of 2010, we received $28 million in proceeds from stock issuances related to our stock option and employee stock purchase plans, as compared to $32 million in the first nine months of 2009. Proceeds from the exercise of employee stock options and employee stock purchases vary from period to period based upon, among other factors, fluctuations in the trading price of our common stock and in the exercise and stock purchase patterns of employees. Stock-based compensation expense related to our stock ownership plans was $122 million for the first nine months of 2010, and $111 million for the first nine months of 2009.

Contractual Obligations and Commitments

During the first nine months of 2010, we made $1.725 billion of litigation-related payments to Johnson & Johnson and prepaid in full our $900 million Abbott loan due in April 2011. We expect to pay the remainder of our 2010 contractual obligations using cash on hand and cash generated from operating activities. There have been no material changes to our contractual obligations and commitments as reported in our 2009 Annual Report filed on Form 10-K.

Certain of our acquisitions involve the potential payment of contingent consideration, including our recent acquisition of Asthmatx, Inc. See Note F – Acquisitions to our unaudited condensed consolidated financial statements contained in Item 1 of this Quarterly Report for the estimated maximum potential amount of future contingent consideration we could be required to pay associated with our prior acquisitions.

Legal Matters

In particular, although our recent settlements with Johnson & Johnson resolved multiple litigation matters, described in our 2009 Annual Report filed on Form 10-K, we continue to be involved in patent litigation with Johnson & Johnson, particularly relating to drug-eluting stent systems. Adverse outcomes in one or more of these matters could have a material adverse effect on our ability to sell certain products and on our operating margins, financial position, results of operation or liquidity.

We generally record losses for claims in excess of the limits of purchased insurance in earnings at the time and to the extent they are probable and estimable. In accordance with ASC Topic 450, Contingencies (formerly FASB Statement No. 5, Accounting for Contingencies), we accrue anticipated costs of settlement, damages losses for general product liability claims and, under certain conditions, costs of defense, based on historical experience or to the extent specific losses are probable and estimable. Otherwise, we expense these costs as incurred. If the estimate of a probable loss is a range and no amount within the range is more likely, we accrue the minimum amount of the range.

with the patent litigation settlement discussed in our 2009 Annual Report filed on Form 10-K. We continue to assess certain litigation and claims to determine the amounts, if any, that management believes will be paid as a result of such claims and litigation and, therefore, additional losses may be accrued and paid in the future, which could materially adversely impact our operating results, cash flows and our ability to comply with our debt covenants. See further discussion of our material legal proceedings in Note K – Commitments and Contingencies to our unaudited condensed consolidated financial statements contained in Item 1 of this Quarterly Report , including material developments with regard to the litigation disclosed in our 2009 Annual Report filed on Form 10-K.

Recent Accounting Pronouncements

Standards Implemented

ASC Update No. 2010-06

In January 2010, the FASB issued ASC Update No. 2010-06, Fair Value Measurements and Disclosures (Topic 820) – Improving Disclosures about Fair Value Measurements . Update No. 2010-06 requires additional disclosure within the roll forward of activity for assets and liabilities measured at fair value on a recurring basis, including transfers of assets and liabilities between Level 1 and Level 2 of the fair value hierarchy and the separate presentation of purchases, sales, issuances and settlements of assets and liabilities within Level 3 of the fair value hierarchy. In addition, Update No. 2010-06 requires enhanced disclosures of the valuation techniques and inputs used in the fair value measurements within Level 2 and Level 3. We adopted Update No. 2010-06 for our first quarter ended March 31, 2010, except for the disclosure of purchases, sales, issuances and settlements of Level 3 measurements, for which disclosures will be required for our first quarter ending March 31, 2011. During the third quarter and first nine months of 2010, we did not have any transfers of assets or liabilities between Level 1 and Level 2 of the fair value hierarchy. Refer to Note C – Financial Instruments to our unaudited condensed consolidated financial statements contained in Item 1 of this Quarterly Report for disclosures surrounding our fair value measurements, including information regarding the valuation techniques and inputs used in fair value measurements for assets and liabilities within Level 2 and Level 3 of the fair value hierarchy.

ASC Update No. 2009-17

Standards to be Implemented

ASC Update No. 2009-13

Update No. 2009-13 also expands the disclosure requirements for multiple deliverable revenue arrangements. We are required to adopt Update No. 2009-13 as of January 1, 2011 and are in the process of determining the impact that the adoption of Update No. 2009-13 will have on our future results of operations or financial position.

Additional Information

Non-GAAP Financial Measures

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

The GAAP measure most comparable to non-GAAP net income is GAAP net income; the GAAP measure most comparable to non-GAAP net income per share is GAAP net income per share; and the GAAP measure most comparable to net debt is gross debt. To calculate regional and divisional revenue growth rates that exclude the impact of foreign exchange, we convert actual current-period net sales from local currency to U.S. dollars using constant foreign exchange rates. The GAAP measure most comparable to this non-GAAP measure is growth rate percentages based on GAAP revenue. Reconciliations of each of these non-GAAP financial measures to the corresponding GAAP measure are included elsewhere in this Quarterly Report.

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

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

The following is an explanation of each of the adjustments that management excluded as part of its non-GAAP measures for the three and nine months ended September 30, 2010 and 2009, as well as reasons for excluding each of these individual items:

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

	•		Acquisition-related milestone - This adjustment represents a gain resulting from a receipt related to Guidant Corporation’s sale of its vascular intervention and endovascular solutions businesses to Abbott Laboratories and is not indicative of future operating results. Management removes the

			impact of this credit from operating results to facilitate an evaluation of current operating performance and a comparison to past operating performance.

	•		Purchased research and development - Purchased research and development is a highly variable charge based on the extent and nature of external technology acquisitions during the period and is not indicative of future operating results. Therefore, management removes the impact of these charges from operating results to facilitate and evaluation of current operating performance and a comparison to past operating performance.

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

	•		Litigation-related charges - These charges are attributable to certain patent litigation and other legal matters. The credit in the third quarter of 2009 represents the reduction of previously recorded reserves associated with certain litigation matters, and the charges during the first and third quarters of 2009 represent significant charges which do not reflect expected on-going operating expenses. Accordingly, management excluded these charges for purposes of calculating these non-GAAP measures to facilitate an evaluation of current operating performance and for comparison to past operating performance.

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

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

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

In addition, management uses net debt to monitor and evaluate cash and debt levels and believes it is a measure that provides valuable information regarding our net financial position and interest rate exposure.

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

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

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

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

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

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

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

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

We compensate for the limitations on non-GAAP financial measures by relying upon GAAP results to gain a complete picture of performance. The non-GAAP measures focus instead upon the core business, which is only a subset, albeit a critical one, of overall performance.

We provide detailed reconciliations of each non-GAAP financial measure to its most directly comparable GAAP measure elsewhere in this Quarterly Report, and encourage investors to review these reconciliations.

Usefulness of Non-GAAP Financial Measures to Investors

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

Rule 10b5-1 Trading Plans

Periodically, certain of our executive officers adopt written stock trading plans in accordance with Rule 10b5-1 under the Securities Exchange Act of 1934 and our own Stock Trading Policy. A Rule 10b5-1 Trading Plan is a written document that pre-establishes the amounts, prices and dates (or formula(s) for determining the amounts, prices and dates) of future purchases or sales of our stock, including the exercise and sale of stock

options, and is entered into at a time when the person is not in possession of material non-public information about the company.

On February 16, 2010, Kenneth J. Pucel, our Executive Vice President, Global Operations, entered into a Rule 10b5-1 Trading Plan. Mr. Pucel’s plan covered the sale of 5,000 shares of our stock to be acquired upon the exercise of 5,000 stock options and expired on July 25, 2010. Transactions under Mr. Pucel’s plan were based upon pre-established dates and stock price thresholds and were disclosed publicly through appropriate filings with the Securities and Exchange Commission (SEC).

On March 1, 2010, Joseph M. Fitzgerald, our Senior Vice President and President, Endovascular, entered into a Rule 10b5-1 Trading Plan. Mr. Fitzgerald’s plan covers the sale of up to 19,500 shares of our stock to be acquired upon the exercise of 4,000 stock options expiring on May 9, 2010; 4,000 stock options expiring on July 25, 2010; 4,000 stock options expiring on October 31, 2010 and 7,500 stock options expiring on February 27, 2011. Transactions under Mr. Fitzgerald’s plan are based upon pre-established dates and stock price thresholds and will expire once all of the shares have been sold or February 25, 2011, whichever is earlier. Any transaction under Mr. Fitzgerald’s plan will be disclosed publicly through appropriate filings with the SEC.

On March 1, 2010, Jean F. Lance, our Senior Vice President and Chief Compliance Officer, entered into a Rule 10b5-1 Trading Plan. Ms. Lance’s plan covers the sale of 80,868 shares of our stock to be acquired upon the exercise of 24,200 stock options expiring on May 9, 2010; 30,000 stock options expiring on July 25, 2010; and 26,668 stock options expiring on December 6, 2010. Transactions under Ms. Lance’s plan are based upon pre-established dates and stock price thresholds and will expire once all of the shares have been sold or December 6, 2010, whichever is earlier. Any transaction under Ms. Lance’s plan will be disclosed publicly through appropriate filings with the SEC.

Safe Harbor for Forward-Looking Statements

Certain statements that we may make from time to time, including statements contained in this report and information incorporated by reference into this report, constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements may be identified by words like “anticipate,” “expect,” “project,” “believe,” “plan,” “may,” “estimate,” “intend” and similar words. These forward-looking statements are based on our beliefs, assumptions and estimates using information available to us at the time and are not intended to be guarantees of future events or performance. These forward-looking statements include, among other things, statements regarding our financial performance; our growth strategy; our intentions and expectations regarding our business strategy, in particular those discussed in Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” under the heading “Business and Market Overview;” the timing and impact of our restructuring and Plant Network Optimization initiatives and expected costs and cost savings; timing of regulatory approvals and plant certifications; our regulatory and quality compliance; the impact of our ship hold and product removal actions associated with our ICD and CRT-D systems in the United States; expected research and development efforts and the reallocation of research and development expenditures; product development and iterations; new and existing product launches in new geographies and their impact on our market share and financial position; reimbursement practices; our market position in the marketplace for our products and our sales and marketing strategy; the effect of new accounting pronouncements; the effect of proposed tax laws; the outcome of matters before taxing authorities; our tax position; intellectual property, governmental proceedings and litigation matters; anticipated expenses and capital expenditures and our ability to finance them; the ability of our suppliers to meet our requirements; our ability to meet customer demand for our products; our ability to meet the financial covenants required by our revolving credit facility, or to renegotiate the terms of or obtain waivers for compliance with those covenants; the impact of increased sales taxes on our overall financial position; and our strategy regarding acquisitions, divestitures and strategic investments, as well as integration execution. If our underlying assumptions turn out to be incorrect, or if certain risks or uncertainties materialize, actual results could vary materially from the expectations and projections expressed or implied by our forward-

looking statements. As a result, readers are cautioned not to place undue reliance on any of our forward-looking statements.

Except as required by law, we do not intend to update any forward-looking statements even if new information becomes available or other events occur in the future. We have identified significant forward-looking statements below and elsewhere in this Quarterly Report, which are based on certain risks and uncertainties, in order to take advantage of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Factors that could cause actual results to differ materially from those expressed in forward-looking statements are contained below and elsewhere in this Quarterly Report.

CRM Business

	•		Our ability to minimize loss of and recapture market share following the ship hold and product removal of our ICD and CRT-D systems in the U.S.;

	•		Our ability to retain and attract key members of our CRM sales force and other key CRM personnel, particularly following the ship hold and product removal of our ICD and CRT-D systems in the U.S. and sales force disciplinary actions;

	•		Our estimates for the worldwide CRM market, the increase in the size of the CRM market above existing levels and our current and expected market share, as well as our ability to increase CRM net sales and recapture market share;

	•		The overall performance of, and referring physician, implanting physician and patient confidence in, our and our competitors’ CRM products and technologies, including our COGNIS ^® CRT-D and TELIGEN ^® ICD systems and our LATITUDE ^® Patient Management System;

	•		The results of CRM clinical trials undertaken by us, our competitors or other third parties;

	•		Our ability to successfully launch next-generation products and technology features worldwide;

	•		Our ability to grow sales of both new and replacement implant units;

	•		Competitive offerings in the CRM market and the timing of receipt of regulatory approvals to market existing and anticipated CRM products and technologies; and

	•		Our ability to avoid disruption in the supply of certain components, materials or products; or to quickly secure additional or replacement components, materials or products on a timely basis.

Coronary Stent Business

	•		Volatility in the coronary stent market, our estimates for the worldwide coronary stent market, our ability to increase coronary stent system net sales, competitive offerings and the timing of receipt of regulatory approvals, both in the U.S. and internationally, to market existing and anticipated drug-eluting stent technology and other stent platforms;

	•		Our ability to successfully launch next-generation products and technology features, including our TAXUS ^® Element™ and PROMUS ^® Element™ stent systems in additional geographies;

	•		The results of coronary stent clinical trials undertaken by us, our competitors or other third parties;

	•		Our ability to maintain or expand our worldwide market positions through reinvestment in our two drug-eluting stent programs;

	•		Our ability to manage the mix of net sales of everolimus-eluting stent systems supplied to us by Abbott relative to our total drug-eluting stent system net sales and to launch on-schedule around the world our next-generation internally developed and manufactured everolimus-eluting stent system with gross profit margins more comparable to our TAXUS ^® stent systems;

	•		Our share of the worldwide and U.S. drug-eluting stent markets, the distribution of market share within the coronary stent market in the U.S. and around the world, the average number of stents used per procedure, average selling prices, and the penetration rate of drug-eluting stent technology in the U.S. and international markets;

	•		The overall performance of, and continued physician confidence in, our and other drug-eluting stent systems, including our ability to adequately address concerns regarding the perceived risk of late stent thrombosis and the relative benefit of our products in patient sub-segments;

	•		Our reliance on Abbott’s manufacturing capabilities and supply chain in the U.S. and Japan, and our ability to align our everolimus-eluting stent system supply from Abbott with customer demand in these regions;

	•		Enhanced requirements to obtain regulatory approval in the U.S. and around the world and the associated impact on new product launch schedules and the cost of product approval and compliance; and

	•		Our ability to retain and attract key members of our cardiology sales force and other key personnel.

Other Businesses

	•		The overall performance of, and continued physician confidence in, our products and technologies;

	•		Our ability to successfully launch next-generation products and technology features in timely manner;

	•		The results of clinical trials undertaken by us, our competitors or other third parties; and

	•		Our ability to maintain or expand our worldwide market positions through investments in next-generation technologies.

Litigation and Regulatory Compliance

	•		Risks generally associated with our regulatory compliance and quality systems in the U.S. and around the world;

	•		Our ability to minimize or avoid future FDA warning letters or field actions relating to our products and the on-going inherent risk of potential physician advisories or field actions related to medical devices;

	•		Heightened global regulatory enforcement arising from political and regulatory changes as well as economic pressures;

	•		The effect of our litigation and risk management practices, including self-insurance, and compliance activities on our loss contingencies, legal provision and cash flows;

	•		The impact of, diversion of management attention, and costs to resolve, our stockholder derivative and class action, patent, product liability, contract and other litigation, governmental investigations and legal proceedings;

	•		Costs associated with our on-going compliance and quality activities and sustaining organizations;

	•		The impact of increased pressure on the availability and rate of third-party reimbursement for our products and procedures worldwide; and

	•		Legislative or regulatory efforts to modify the product approval or reimbursement process, including a trend toward demonstrating clinical outcomes, comparative effectiveness and cost efficiency.

Innovation

	•		Our ability to complete planned clinical trials successfully, to obtain regulatory approvals and to develop and launch products on a timely basis within cost estimates, including the successful completion of in-process projects from purchased research and development;

	•		Our ability to manage research and development and other operating expenses consistent with our expected net sales growth;

	•		Our ability to develop and launch next-generation products and technologies successfully across all of our businesses;

	•		Our ability to fund with cash or common stock any acquisitions or alliances, or to fund contingent payments associated with these acquisitions or alliances;

	•		Our ability to achieve benefits from our focus on internal research and development and external alliances and acquisitions as well as our ability to capitalize on opportunities across our businesses;

	•		Our failure to succeed at, or our decision to discontinue, any of our growth initiatives, as well as competitive interest in the same or similar technologies;

	•		Our ability to integrate the strategic acquisitions we have consummated or may consummate in the future;

	•		Our ability to prioritize our internal research and development project portfolio and our external investment portfolio to identify profitable growth opportunities and keep expenses in line with expected revenue levels, or our decision to sell, discontinue, write down or reduce the funding of any of these projects;

	•		The timing, size and nature of strategic initiatives, market opportunities and research and development platforms available to us and the ultimate cost and success of these initiatives; and

	•		Our ability to successfully identify, develop and market new products or the ability of others to develop products or technologies that render our products or technologies noncompetitive or obsolete.

International Markets

	•		Our dependency on international net sales to achieve growth;

	•		Changes in our international structure and leadership;

	•		Risks associated with international operations, including compliance with local legal and regulatory requirements as well as changes in reimbursement practices and policies;

	•		Our ability to maintain or expand our worldwide market positions through investments in emerging markets;

	•		The potential effect of foreign currency fluctuations and interest rate fluctuations on our net sales, expenses and resulting margins; and

	•		Uncertainties related to economic conditions.

Liquidity

	•		Our ability to generate sufficient cash flow to fund operations, capital expenditures, litigation settlements and strategic investments and acquisitions, as well as to effectively manage our debt levels and covenant compliance;

	•		Our ability to access the public and private capital markets when desired and to issue debt or equity securities on terms reasonably acceptable to us;

	•		Our ability to resolve open tax matters favorably and recover substantially all of our deferred tax assets and the impact of changes in tax laws; and

	•		The impact of examinations and assessments by domestic and international taxing authorities on our tax provision, financial condition or results of operations.

Restructuring Initiatives

	•		Our ability to implement, fund, and achieve timely and sustainable cost improvement measures consistent with our expectations, including our 2010 Restructuring plan, 2007 Restructuring plan, and Plant Network Optimization program, each described in Item 2 of this Quarterly Report;

	•		Our ability to maintain or expand our worldwide market positions in the various markets in which we compete or seek to compete, as we diversify our product portfolio and focus on emerging markets;

	•		Risks associated with significant changes made or to be made to our organizational structure pursuant to our 2010 Restructuring plan, 2007 Restructuring plan, and Plant Network Optimization program, or to the membership and responsibilities of our executive committee or Board of Directors;

	•		Our ability to direct our research and development efforts to conduct more cost effective clinical studies, accelerate the time to bring new products to market, and develop products with higher returns;

	•		The completion of planned business divestitures, including the performance of related transition services;

	•		Our ability to retain and attract key employees and avoid business disruption and employee distraction as we execute our global compliance program, restructuring plans and business divestitures; and

	•		Our ability to maintain management focus on core business activities while also concentrating on implementing strategic and restructuring initiatives.

Several important factors, in addition to the specific factors discussed in connection with each forward-looking statement individually could affect our future results and growth rates and could cause those results and rates to differ materially from those expressed in the forward-looking statements and the risk factors contained in this report. These additional factors include, among other things, future economic, competitive, reimbursement and regulatory conditions, new product introductions, demographic trends, intellectual

property, litigation and government investigations, financial market conditions and future business decisions made by us and our competitors, all of which are difficult or impossible to predict accurately and many of which are beyond our control. We discuss those and other important risks and uncertainties that may affect our future operations in Part I, Item IA- Risk Factors in our most recent Annual Report filed on Form 10-K and may update that discussion in Part II, Item 1A – Risk Factors in this or another Quarterly Report on Form 10-Q. Therefore, we wish to caution each reader of this report to consider carefully these factors as well as the specific factors discussed with each forward-looking statement and risk factor in this report and as disclosed in our filings with the SEC. These factors, in some cases, have affected and in the future (together with other factors) could affect our ability to implement our business strategy and may cause actual results to differ materially from those contemplated by the statements expressed in this report.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our currency risk consists primarily of foreign currency denominated firm commitments, forecasted foreign currency denominated intercompany and third-party transactions and net investments in certain subsidiaries. We use both nonderivative (primarily European manufacturing operations) and derivative instruments to manage our earnings and cash flow exposure to changes in currency exchange rates. We had currency derivative instruments outstanding in the contract amount of $4.597 billion as of September 30, 2010 and $4.742 billion as of December 31, 2009. We recorded $69 million of other assets and $202 million of other liabilities to recognize the fair value of these derivative instruments as of September 30, 2010, as compared to $56 million of other assets and $110 million of other liabilities as of December 31, 2009. A ten percent appreciation in the U.S. dollar’s value relative to the hedged currencies would increase the derivative instruments’ fair value by $308 million as of September 30, 2010 and $271 million as of December 31, 2009. A ten percent depreciation in the U.S. dollar’s value relative to the hedged currencies would decrease the derivative instruments’ fair value by $377 million as of September 30, 2010 and by $331 million as of December 31, 2009. Any increase or decrease in the fair value of our currency exchange rate sensitive derivative instruments would be substantially offset by a corresponding decrease or increase in the fair value of the hedged underlying asset, liability or forecasted transaction.

Our interest rate risk relates primarily to U.S. dollar borrowings, partially offset by U.S. dollar cash investments. As of September 30, 2010, $5.033 billion of our outstanding debt obligations, or approximately 93 percent of our net debt, was at fixed interest rates. We did not have any interest rate derivative instruments outstanding as of September 30, 2010 or December 31, 2009.

See Note C – Financial Instruments to our unaudited condensed consolidated financial statements contained in Item 1 of this Quarterly Report for further information regarding our derivative financial instruments.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our President and Chief Executive Officer (CEO), and our Executive Vice President and Chief Financial Officer (CFO), evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2010 pursuant to Rule 13a-15(b) of the Securities Exchange Act.

Disclosure controls and procedures are designed to ensure that material information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such material information is accumulated and communicated to our management, including our CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure. Based on their evaluation, our CEO and CFO concluded that as of September 30, 2010, our disclosure controls and procedures were effective.

Changes in Internal Control Over Financial Reporting

During the quarter ended September 30, 2010, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II
OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

See Note K – Commitments and Contingencies to our unaudited condensed consolidated financial statements contained in Item 1 of this Quarterly Report, which is incorporated herein by reference.

ITEM 1A. RISK FACTORS

In addition to information contained in this report, you should carefully consider the factors discussed in “Part I, Item 1A. Risk Factors” in our 2009 Annual Report filed on Form 10-K, and “Part II, Item IA. Risk Factors” in our Quarterly Report filed on Form 10-Q for the quarterly period ended June 30, 2010, which could materially affect our business, financial condition or future results.

ITEM 6. EXHIBITS (* documents filed with this report, # compensatory plans or arrangements)


10.1		Form of Agreement and General Release of All Claims between Fredericus A. Colen and Boston Scientific Corporation dated April 23, 2010 (Exhibit 10.1, Current Report on Form 8-K dated April 23, 2010, File no. 1-11083)#

10.2		Boston Scientific Corporation Deferred Bonus Plan (Exhibit 10.1, Current Report on Form 8-K dated May 11, 2010, File no. 1-11083)#

10.3		Credit Agreement dated as of June 23, 2010 by and among Boston Scientific Corporation, BSC International Holding Limited, the several Lenders parties thereto, and JPMorgan Chase Bank, N.A., as Syndication Agent, and Bank of America, N.A., as Administrative Agent (Exhibit 10.1, Current Report on Form 8-K dated June 23, 2010, File no. 1-11083)

10.4		Form of Amendment No. 3 to Amended and Restated Credit and Security Agreement and Restatement of Amended Fee Letters dated as of August 4, 2010 by and among Boston Scientific Corporation, Boston Scientific Funding LLC, Old Line Funding, LLC, Victory Receivables Corporation, The Bank of Tokyo-Mitsubishi UFJ, Ltd., New York Branch and Royal Bank of Canada (Exhibit 10.4, Quarterly Report on Form 10-Q dated August 5, 2010, File no. 1-11083)

10.5*		Form of Deferred Stock Unit Award Agreement (with one year service requirement for vesting upon Retirement)#

10.6*		Form of Stock Option Agreement (with one year service requirement for vesting upon Retirement)#

10.7*		Form of Amendment No. 4 to Amended and Restated Credit and Security Agreement and Restatement of Amended Fee Letters dated as of October 29, 2010 by and among Boston Scientific Corporation, Boston Scientific Funding LLC, Old Line Funding, LLC, Victory Receivables Corporation, The Bank of Tokyo-Mitsubishi UFJ, Ltd., New York Branch and Royal Bank of Canada

31.1*		Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2*		Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1*		Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, President and Chief Executive Officer



32.2*		Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, Executive Vice President and Chief Financial Officer

101*		Interactive Data Files Pursuant to Rule 405 of Regulation S-T: (i) the Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2010 and 2009, (ii) the Condensed Consolidated Balance Sheets as of September 30, 2010 and December 31, 2009, (iii) the Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2010 and 2009 and (iv) the notes to the Condensed Consolidated Financial Statements

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized on November 5, 2010.


BOSTON SCIENTIFIC CORPORATION


By:		/s/ Jeffrey D. Capello


	Name:	Jeffrey D. Capello
	Title:	Executive Vice President and
		Chief Financial Officer

Exhibit 10.5

Boston Scientific Corporation 2003 Long-Term Incentive Plan
(As Amended and Restated June 1, 2008)

Deferred Stock Unit Award Agreement

Month dd, yyyy

[Employee’s Name]
(“Participant”)

EMPLOYEE COPY

PLEASE RETAIN FOR YOUR RECORDS

Boston Scientific Corporation 2003 Long-Term Incentive Plan
(As Amended and Restated June 1, 2008)
Deferred Stock Unit Award Agreement

This Deferred Stock Unit Award Agreement (the “Agreement”), dated dd ^th day of Month, yyyy (the “Grant Date”), is between you and Boston Scientific Corporation, a Delaware corporation, (the “Company”) in connection with the Award of Deferred Stock Units by the Committee under the Boston Scientific Corporation 2003 Long-Term Incentive Plan (the “Plan”). Capitalized terms used but not defined in this Agreement shall have the same meaning as assigned to them in the Plan. The applicable terms and conditions of the Plan are incorporated into and made a part of this Agreement.

1. Grant of Units . The Committee hereby grants you that number of Deferred Stock Units as set forth in this Agreement (the “Units”). Each Unit represents the Company’s commitment to issue to you one share of Stock subject to the conditions set forth in this Agreement. This Award is granted pursuant to and is subject to the provisions of the Plan and the terms and conditions of this Agreement and any applicable Addendum.

2. Vesting . The Units shall vest and shares of Stock will be issued to you according to the vesting schedule set forth in this Agreement. Except as otherwise provided in Sections 4, 5, and 7 below, the Units will vest, subject to the conditions described in Section 6 below, in approximately equal annual installments on each of the five (5) consecutive anniversaries of the Grant Date, beginning on the first anniversary of the Grant Date. If, however, you have entered into a Change in Control Agreement with the Company, the Units will vest according to the provisions of the Change in Control Agreement. No shares of Stock shall otherwise be issued to you prior to the date on which the Units vest. Notwithstanding anything in the Agreement to the contrary, the Company may, in its sole discretion, settle the Units in the form of a cash payment to the extent that settlement in shares of Stock is prohibited under local law or would require the Company to obtain the approval of any governmental and/or regulatory body in your country of residence (or country of employment, if different). Alternatively, the Company may, in its sole discretion, settle the Units in the form of shares of Stock but require you to immediately sell such Stock.

3. Participant’s Rights in Stock . The shares of Stock, if and when issued to you pursuant to this Agreement, shall be registered in your name and evidenced in a manner as determined by the Company, in its sole discretion. Under no circumstance will you be deemed, by virtue of the granting of the Units, to be a holder of any shares of Stock underlying the Units or be entitled to the rights or privileges of a holder of such shares of Stock (including the right to receive dividends or vote the shares of Stock), unless and until the Units have vested with respect to such shares of Stock and the shares of Stock have been issued to you.

4. Death . In the event of your death while employed by the Company or an Affiliate, any Units that have not vested prior to the date of your death shall immediately vest and shares of Stock shall be issued in accordance with your will or the laws of descent and distribution; provided that you have remained in continuous service with the Company or an Affiliate through the first anniversary of the Grant Date. In the event that your death occurs prior to the first anniversary of the Grant Date, a portion of the Units equal to the percentage of the year completed prior to death shall immediately vest and shares of Stock shall be issued in accordance with your will or the laws of descent and distribution and all remaining unvested Units shall immediately terminate and be forfeited.

5. Retirement . In the event of your Retirement (as the term is defined below or determined under local law), any Units that have not vested prior to the date of your Retirement shall immediately vest and shares of Stock shall be issued to you, provided you have remained in continuous service with the Company or an Affiliate through the first anniversary of the Grant Date. In the event that your Retirement occurs prior to the first anniversary of the Grant Date, all Units shall immediately terminate and be forfeited.

6. Disability . In the event of your Disability (as the term is defined below or determined under local law), any Units that have not vested prior to the date of your Disability shall immediately vest and shares of Stock shall be issued to you; provided you have remained in continuous service with the Company or an Affiliate through the first anniversary of the Grant Date. In the event that your Disability occurs prior to the first anniversary of the Grant Date, all Units shall immediately terminate and be forfeited.

7. Other Termination of Employment — Vesting Conditions . If your employment with the Company or an Affiliate terminates for any reason other than death, Retirement or Disability, any Units that have not vested shall terminate and be forfeited on the effective date of such termination. The issuance of shares of Stock is conditioned on your continuous employment with the Company or an Affiliate through and on the applicable anniversary of the Grant Date as set forth in Section 2 above. Your termination date shall be the last day of your active service with the Company or an Affiliate (if applicable), except if your employment is terminated for Cause, in which case unvested Units shall be forfeited upon notice of your termination for Cause.

8. Change in Control of the Company . In the event of a Change in Control of the Company, any Units that have not vested prior to the Change in Control shall immediately vest and shares of Stock will be issued to you; provided, however, that if you have entered into a Change in Control Agreement with the Company, the Units will vest according to the provisions of the Change in Control Agreement.

9. Consideration for Stock . The shares of Stock subject to the Units are intended to be issued for no cash consideration.

10. Delivery of Stock . The Company shall not be obligated to deliver any shares of Stock to be awarded hereunder until (a) all federal, state and local laws and regulations, as the Company may deem applicable, have been complied with; (b) the shares have been listed or authorized for listing upon official notice to the New York Stock Exchange, Inc. or have otherwise been accorded trading privileges; and (c) all other legal matters in connection with the issuance and delivery of the shares have been approved by the Company’s legal department.

In this regard, if you are a local national of and employed in a country that is a member of the European Union, the grant of the Units and the terms and conditions governing the Units are intended to comply with the age discrimination provisions of the EU Equal Treatment Framework Directive, as implemented into local law (the “Age Discrimination Rules”). To the extent that a court or tribunal of competent jurisdiction determines that any provision of the Units is invalid or unenforceable, in whole or in part, under the Age Discrimination Rules, the Company, in its sole discretion, shall have the power and authority to revise or strike such provision to the minimum extent necessary to make it valid and enforceable to the full extent permitted under local law.

11. Transferability . Until the vesting conditions of this Award have been satisfied and shares of Stock have been issued in accordance with the terms of this Agreement and any applicable Addendum or by action of the Committee, the Units awarded under this Agreement are not transferable and you shall not sell, transfer, assign, pledge, gift, hypothecate or otherwise dispose of or encumber the Units awarded under this Agreement. Transfers of shares of Stock by you are subject to the Company’s Stock Trading Policy.

12. Satisfaction of Tax Obligations . Regardless of any action the Company takes with respect to any or all income tax (including U.S. federal, state and local taxes and/or non-U.S. taxes), social insurance, payroll tax, payment on account or other tax-related withholding (“Tax-Related Items”), you acknowledge that the ultimate liability for all Tax-Related Items legally due by you is and remains your responsibility and that the Company or the Affiliate that employs you (if applicable) (a) make no representations or undertakings regarding the treatment of any Tax-Related Items in connection with any aspect of the Units or the shares of Stock issued upon vesting of the Units, and (b) do not commit to structure the terms of the Award (or any aspect of the Units) to reduce or eliminate your liability for Tax-Related Items.

Upon the issuance of shares of Stock or the satisfaction of any vesting condition with respect to the shares of Stock to be issued hereunder, if your country of residence (and/or the country of employment, if different) requires withholding of Tax-Related Items, the Company may hold back from the total number of shares of Stock to be delivered to you, and shall cause to be transferred to the Company, whole shares of Stock that have an aggregate Fair Market Value sufficient to pay the minimum Tax-Related Items required to be withheld with respect to the shares of Stock. The cash equivalent of the shares of Stock withheld will be used to settle the obligation to withhold the Tax-Related Items. By

accepting the grant of Units, you expressly consent to the withholding of shares of Stock and/or cash as provided for hereunder. All other Tax-Related Items related to the grant of Units and any shares of Stock delivered in settlement thereof are your sole responsibility. In no event shall whole shares be withheld by or delivered to the Company in satisfaction of any Tax-Related Items in excess of the maximum statutory tax withholding required by law. You agree to indemnify the Company against any and all liabilities, damages, costs and expenses that the Company may hereafter incur, suffer or be required to pay with respect to the payment or withholding of any Tax-Related Items.

The Units are intended to be exempt from the requirements of U.S. Code Section 409A. The Plan and this Agreement shall be administered and interpreted in a manner consistent with this intent. If the Company determines that the Agreement is subject to U.S. Code Section 409A and that it has failed to comply with the requirements of that Section, the Company may, in its sole discretion, and without your consent, amend this Agreement to cause it to comply with U.S. Code Section 409A or be exempt from U.S. Code Section 409A.

13. Repatriation and Legal/Tax Compliance Requirements . If you are resident or employed outside of the United States, you agree, as a condition of the grant of Units, to repatriate all payments attributable to the shares of Stock and/or cash acquired under the Plan (including, but not limited to, dividends and any proceeds derived from the sale of the shares of Stock acquired pursuant to the Units) in accordance with local foreign exchange rules and regulations in your country of residence (and country of employment, if different). In addition, you agree to take any and all actions, and consent to any and all actions taken by the Company, as may be required to allow the Company to comply with local laws, rules and regulations in your country of residence (and country of employment, if different). Finally, you agree to take any and all actions as may be required to comply with your personal legal and tax obligations under local laws, rules and regulations in your country of residence (and country of employment, if different).

14. Data Privacy . The collection, processing and transfer of your personal data as it relates to the Units is necessary for the Company’s administration of the Plan and your participation in the Plan, and your denial and/or objection to the collection, processing and transfer of personal data may affect your ability to participate in the Plan. As such, you voluntarily acknowledge, consent and agree (where required under applicable law) to the collection, use, processing and transfer of personal data as described in this Section 13.

parties, and the Company or the Affiliate that employs you will process the Data for the exclusive purpose of implementing, administering and managing your participation in the Plan. The data processing will take place through electronic and non-electronic means according to logics and procedures strictly correlated to the purposes for which the Data is collected and with confidentiality and security provisions as set forth by applicable laws and regulations in your country of residence.

You hereby explicitly consent to the transfer of Data by the Company or the Affiliate that employs you (if applicable) as necessary for the purpose of implementation, administration and management of your participation in the Plan, and the Company or the Affiliate that employs you (if applicable) may each further transfer Data to any third parties assisting the Company in the implementation, administration and management of the Plan, including but not limited to the Bank of New York Mellon (“BNY Mellon”) or any other third party that the Company or BNY Mellon may engage to assist with the administration of the Plan from time to time. You also consent to the transfer of Data outside your country of residence or employment (if applicable), including to the United States. You hereby authorize (where required under applicable law) the recipients to receive, possess, use, retain and transfer the Data, in electronic or other form, for purposes of implementing, administering and managing your participation in the Plan, including any requisite transfer of such Data as may be required for the administration of the Plan and/or the subsequent holding of shares of Stock on your behalf to a broker or other third party with whom you may elect to deposit any shares of Stock acquired pursuant to the Plan.

You may, at any time, exercise your rights provided under applicable personal data protection laws, which may include the right to (a) obtain confirmation as to the existence of the Data, (b) verify the content, origin and accuracy of the Data, (c) request the integration, update, amendment, deletion or blockage (for breach of applicable laws) of the Data, and (d) to oppose, for legal reasons, the collection, processing or transfer of the Data which is not necessary or required for the implementation, administration and/or operation of the Plan and your participation in the Plan. You may seek to exercise these rights by contacting your local Human Resources manager.

15. No Rights to Continued Employment . The Units granted under the Plan and this Agreement (and any applicable Addendum to this Agreement) shall not confer upon you any right to continue in the employ of the Company, and this Agreement (and any applicable Addendum to this Agreement) shall not be construed in any way to limit the Company’s right to terminate or change the terms of your employment.

16. Discretionary Nature of Plan . You acknowledge and agree that the Plan is discretionary in nature and may be amended, cancelled or terminated by the Administrator, in its sole discretion, at any time. The grant of the Units under the Plan is a one-time benefit and does not create any contractual or other right to receive Units or benefits in lieu of Units in the future. Future Awards under the Plan, if any, will be at the sole discretion of the Administrator, including, but not limited to, the form and timing of any Award, the number of shares of Stock subject to such Units and the vesting

provisions. Any amendment, modification or termination of the Plan shall not constitute a change or impairment of the terms and conditions of your employment with the Company or its Affiliates.

17. Voluntary Participation in the Plan . You acknowledge that your participation in the Plan is voluntary.

18. Extraordinary Item of Compensation . The grant of Units under the Plan is an extraordinary item of compensation outside the scope of your employment (and your employment contract, if any). Any grant of Units under the Plan is not part of normal or expected compensation or salary for any purpose, including, but not limited to, the calculation of any severance, resignation, termination, redundancy, end of service payments, bonuses, long-service awards, pension or retirement benefits or similar payments, and, in no event, should be considered as compensation for, or relating in any way to, past services for the Company or an Affiliate.

19. Waiver of Entitlement to Compensation or Damages . In consideration of the grant of the Units under this Agreement, no claim or entitlement to compensation or damages shall arise from termination of the Units or diminution in value of the Units or shares acquired upon vesting of the Units resulting from termination of your employment by the Company or an Affiliate (for any reason whatsoever and whether or not in breach of local labor laws) and you irrevocably release the Company and the Affiliate from any such claim that may arise. Notwithstanding the foregoing, if any such claim is found by a court of competent jurisdiction to have arisen, then, by accepting this Agreement, you will be deemed to have irrevocably waived your entitlement to pursue such claim.

20. Not a Public Offering . The grant of the Units under the Plan is not intended to be a public offering of securities in your country of residence (and country of employment, if different). The Company has not submitted any registration statement, prospectus or other filings to the local securities authorities unless otherwise required under local law.

21. No Advice Regarding Grant . No Employee of the Company is permitted to advise you regarding your participation in the Plan or your acquisition or sale of the shares of Stock subject to the Units. Investment in shares of Stock involves a degree of risk. Before deciding whether to participate in the Plan, you should carefully consider all risk factors relevant to the acquisition of shares of Stock under the Plan, and you should carefully review all of the materials related to the Stock Option and the Plan. You are hereby advised to consult with your own personal tax, legal and financial advisors before taking any action related to the Plan.

22. Investment Intent . You acknowledge that the acquisition of the shares of Stock to be issued hereunder is for investment purposes without a view to distribution thereof.

23. Award Subject to the Plan . The Award to be made pursuant to this Agreement is made subject to the Plan. The terms and provisions of the Plan, as it may be amended from time to time, are hereby incorporated herein by reference. In the event of a conflict between any term or provision contained in this Agreement and a term or provision of the Plan, the applicable terms and conditions of the Plan will govern and prevail. However, no amendment of the Plan after the date hereof may adversely alter or impair the issuance of the shares of Stock to be made pursuant to this Agreement. You hereby accept the Units subject to all the terms and provisions of the Plan and this Agreement and agree that all decisions under, and interpretations of, the Plan and this Agreement by the Administrator, Committee or the Board shall be final, binding and conclusive upon you and your heirs and legal representatives.

24. Electronic Delivery of Documents . The Company may, in its sole discretion, deliver any documents related to the Units and participation in the Plan or future grants of Units that may be granted under the Plan, by electronic means unless otherwise prohibited by local law. You hereby consent to receive such documents by electronic delivery.

25. Language . If you are resident outside of the United States, you hereby acknowledge and agree that it is your express intent that this Agreement and any applicable Addendum, the Plan and all other documents, notices and legal proceedings entered into, given or instituted pursuant to the Units, be drawn up in English. If you have received this Agreement and any applicable Addendum, the Plan or any other documents related to the Units translated into a language other than English, and if the meaning of the translated version is different than the English version, the English version will control.

26. Addendum . Notwithstanding any provision of this Agreement to the contrary, the Units shall be subject to any special terms and conditions for your country of residence (and country of employment, if different) as are forth in the applicable addendum to the Agreement (the “Addendum”). Further, if you transfer your residence and/or employment to another country reflected in the Addenda to these Agreements, the special terms and conditions for such country will apply to you to the extent the Company determines, in its sole discretion, that the application of such terms and conditions is necessary or advisable in order to comply with local law or to facilitate the administration of the Plan. Any applicable Addendum shall constitute part of this Agreement.

27. Additional Requirements . The Administrator reserves the right to impose other requirements on the Units, any shares of Stock acquired pursuant to the Units and your participation in the Plan to the extent the Administrator determines, in its sole discretion, that such other requirements are necessary or advisable in order to comply with local laws or to facilitate the administration of the Plan. Such requirements may include (but are not limited to) requiring you to sign any agreements or undertakings that may be necessary to accomplish the foregoing.

28. Legal Notices . Any legal notice necessary under this Agreement shall be addressed to the Company in care of its General Counsel at the principle executive offices of the Company and to you at the address appearing in the personnel records of the Company for you or to either party at such other address as either party may designate in writing to the other. Any such notice shall be deemed effective upon receipt thereof by the addressee.

29. Conflicts . The Units granted pursuant to this Agreement and any applicable Addendum is subject to the Plan. The terms and provisions of the Plan as it may be amended from time to time are hereby incorporated herein by reference. This Agreement contains terms and provisions established by the Committee specifically for the grant described herein. Unless the Committee has exercised its authority under the Plan to establish specific terms of an Award, the terms of the Plan shall govern. Subject to the limitations set forth in the Plan, the Committee retains the right to alter or modify the Stock Units granted pursuant to this Agreement as the Committee may determine are in the best interests of the Company.

30. Governing Law . The interpretation, performance and enforcement of this Agreement shall be governed by the laws of The Commonwealth of Massachusetts (without regard to the conflict of laws principles thereof) and applicable federal laws.

31. Headings . The headings contained in this Agreement are for convenience only and shall not affect the meaning or interpretation of this Agreement.

32. Counterparts . This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original and all of which together shall be deemed to the one and the same instrument.

33. Defined Terms : The following terms, when used in this Agreement, shall have the meanings and be subject to the provisions set forth below:

“ Disability ”: Permanent and total disability as determined under the Company’s long-term disability program for employees then in effect.

“ Retirement ”: Unless the Administrator expressly provides otherwise, cessation of employment or other service relationship with the Company and its Affiliates if, as of the date of such cessation, (i) the Participant has attained the age 50, (ii) the Participant has accrued at least five years of service with the Company and its Affiliates, and (iii) the sum of the Participant’s age and years of service as of such date equals or exceeds 62.

“ Cause ”: Felony conviction of a Participant or the failure of a Participant to contest prosecution for a felony, or a Participant’s misconduct or dishonesty which is harmful to the business or reputation of the Company.

SIGNATURE PAGE

IN WITNESS WHEREOF, the Company, by its duly authorized officer, and the Participant have executed and delivered this Agreement as a sealed instrument as of the date and year first above written.

Number of Deferred Stock Units: ####

Vesting Schedule

20%      Month dd, yyyy
20%      Month dd, yyyy
20%      Month dd, yyyy
20%      Month dd, yyyy
20%      Month dd, yyyy


		PARTICIPANT:

		Signature
				<<Employee Name>>

		BOSTON SCIENTIFIC CORPORATION


		J. Raymond Elliott
		President and Chief Executive Officer

BOSTON SCIENTIFIC CORPORATION

ADDENDA TO THE AWARD AGREEMENT
RELATING TO DEFERRED STOCK UNITS GRANTED
PURSUANT TO THE 2003 LONG-TERM INCENTIVE PLAN

In addition to the terms of the Plan and the Agreement, the Units are subject to the following additional terms and conditions. All defined terms contained in this Addendum shall have the same meaning as set forth in the Plan and the Agreement. Pursuant to Section 24 of the Agreement, if you transfer your residence and/or employment to another country reflected in an Addenda, the additional terms and conditions for such country (if any) will apply to you to the extent the Company determines, in its sole discretion, that the application of such terms and conditions is necessary or advisable in order to comply with local law or to facilitate the administration of the Plan.

DENMARK

Treatment of Restricted Stock Units upon Termination of Service . Notwithstanding any provisions in the Agreement to the contrary, the treatment of the Units upon the Participant’s termination of Service shall be governed by the Act on Stock Options in Employment Relations.

FRANCE

Use of English Language . You acknowledge and agree that it is your express wish that this Agreement, as well as all documents, notices and legal proceedings entered into, given or instituted pursuant hereto or relating directly or indirectly hereto, be drawn up in English. Vous reconnaissez et consentez que c’est votre souhait exprès qui cet accord, de meme que tous documents, toutes notifications et tous procédés légaux est entré dans, donné ou instituté conformément ci-annexé ou relatant directement ou indirectement ci-annexé, est formulé dans l’anglais.

HONG KONG

IMPORTANT NOTICE/WARNING. The Agreement, the Addendum thereto for Hong Kong, and all other materials pertaining to the Award have not been reviewed by any regulatory authority in Hong Kong. You are hereby advised to exercise caution in relation to the offer. If the you have any doubts about any of the contents of the materials pertaining to the Award, you should obtain independent professional advice.

NETHERLANDS

Waiver of Termination Rights . As a condition to the grant of the Units, you hereby waive any and all rights to compensation or damages as a result of the termination of employment with the Company and the Subsidiary that employs you in the Netherlands for any reason whatsoever, insofar as those rights result or may result from (a) the loss or diminution in value of such rights

or entitlements under the Plan, or (b) your ceasing to have rights under, or ceasing to be entitled to any awards under the Plan as a result of such termination.

UNITED KINGDOM

1. Income Tax and Social Insurance Contribution Withholding . The following provision shall replace Section 10 of the Agreement:

Regardless of any action the Company or the Affiliate that employs you (the “Employer”) takes with respect to any or all income tax, primary and secondary Class 1 National Insurance contributions, payroll tax or other tax-related withholding attributable to or payable in connection with or pursuant to the grant or vesting of the Award and the acquisition of Stock, or the release or assignment of the Award for consideration, or the receipt of any other benefit in connection with the Award (“Tax-Related Items”), you acknowledge that the ultimate liability for all Tax-Related Items legally due by you is and remains your responsibility. Furthermore, the Company and/or your Employer (a) make no representations or undertakings regarding the treatment of any Tax-Related Items in connection with any aspect of the Award, including the grant of the Award, the vesting of the Award, and the issuance of Stock in settlement, the subsequent sale of any Stock acquired and the receipt of any dividends; and (b) do not commit to structure the terms of the grant or any aspect of the Award to reduce or eliminate your liability for Tax-Related Items.

As a condition of the issuance of Stock upon vesting of the Award, the Company and/or your Employer shall be entitled to withhold and you agree to pay, or make adequate arrangements satisfactory to the Company and/or your Employer to satisfy, all obligations of the Company and/or your Employer to account to HM Revenue & Customs (“HMRC”) for any Tax-Related Items. In this regard, you authorize the Company and/or your Employer to withhold all applicable Tax-Related Items legally payable by you by withholding a sufficient number of whole shares of Stock having a fair market value (determined in the Company’s reasonable discretion) on the applicable withholding date equal to the minimum amount of Tax-Related Items required to be withheld. Alternatively, or in addition, if permissible under local law, you authorize the Company and/or your Employer, at its discretion and pursuant to such procedures as it may specify from time to time, to satisfy the obligations with regard to all Tax-Related Items legally payable by you by one or a combination of the following: (a) withholding from any wages or other cash compensation paid to you by the Company and/or your Employer; (b) arranging for the sale of shares of Stock otherwise deliverable to you (on your behalf and at your direction pursuant to this authorization); or (c) withholding from the proceeds of the sale of shares of Stock acquired upon vesting of the Award. If the obligation for Tax-Related Items is satisfied by withholding a whole number of shares of Stock as described herein, you will be deemed to have been issued the full number of shares subject to the Award, notwithstanding that a number of the shares of stock are held back solely for the purpose of paying the Tax-Related Items due as a result of any aspect of the Award.

If, by the date on which the event giving rise to the Tax-Related Items occurs (the “Chargeable Event”), you have relocated to another country, you acknowledge that the Company and/or your Employer may be required to withhold or account for Tax-Related Items in more than one country.

You also agree that the Company and your Employer may determine the amount of Tax-Related Items to be withheld and accounted for by reference to the maximum applicable rates, without prejudice to any right which you may have to recover any overpayment from the relevant tax

authorities. You shall pay to the Company or your Employer any amount of Tax-Related Items that the Company or your Employer may be required to account to HMRC with respect to the Chargeable Event that cannot be satisfied by the means previously described. If payment or withholding is not made within 90 days of the Chargeable Event or such other period as required under U.K. law (the “Due Date”), you agree that the amount of any uncollected Tax-Related Items shall (assuming you are not a director or executive officer of the Company (within the meaning of Section 13(k) of the U.S. Securities and Exchange Act of 1934, as amended), constitute a loan owed by you to your Employer, effective on the Due Date. You agree that the loan will bear interest at the then-current HMRC Official Rate and it will be immediately due and repayable, and the Company and/or your Employer may recover it at any time thereafter by any of the means referred to above. If any of the foregoing methods of collection are not allowed under applicable laws or if you fail to comply with your obligations in connection with the Tax-Related Items as described in this section, the Company may refuse to deliver the Stock acquired under the Plan.

2. Exclusion of Claim . You acknowledge and agree that you will have no entitlement to compensation or damages in consequence of the termination of your employment with your Employer for any reason whatsoever and whether or not in breach of contract, insofar as such entitlement arises or may arise from your ceasing to have rights under or to be entitled to the Award as a result of such termination, or from the loss or diminution in value of the Award. Upon the grant of your Award, you shall be deemed irrevocably to have waived any such entitlement.

Exhibit 10.6

Boston Scientific Corporation 2003 Long-Term Incentive Plan
(As Amended and Restated June 1, 2008)

Non-Qualified Stock Option Agreement

Month dd, yyyy

[Employee’s Name]
(“Optionee”)

EMPLOYEE COPY
PLEASE RETAIN FOR YOUR RECORDS

Boston Scientific Corporation 2003 Long-Term Incentive Plan
(As Amended and Restated June 1, 2008)
Non-Qualified Stock Option Agreement

This Non-Qualified Stock Option Agreement (the “Agreement”), dated dd ^th day of Month , 2010 (the “Grant Date”), is between you and Boston Scientific Corporation, a Delaware corporation, (the “Company”) in connection with the Non-Qualified Stock Option Award granted to you by the Company. This Agreement sets forth the terms and conditions relating to your Stock Option pursuant to the Boston Scientific Corporation 2003 Long-Term Incentive Plan (the “Plan”). Capitalized terms used but not defined in this Agreement shall have the same meaning as assigned to them in the Plan. The applicable terms and conditions of the Plan are incorporated into and made a part of this Agreement.

1. Grant of Stock Option . The Committee hereby grants you a Stock Option to purchase that number of shares of Stock set forth on herein (the “Option Shares”) at the price set forth herein (the “Grant Price”). The Grant Price is equal to the Fair Market Value of the Company’s Stock on the Grant Date.

2. Term and Vesting of Stock Option . Except as otherwise provided in Section 4 below, your Stock Option shall have a term of ten (10) years from Month dd, 2010 until Month dd, 2020 (the “Expiration Date”) and shall vest in accordance with the vesting schedule. If the Expiration Date falls on a date on which the New York Stock Exchange is closed for trading, the Expiration Date shall be the trading day immediately prior to the Expiration Date.

3. Exercise of Stock Option . While this Stock Option remains exercisable, you may exercise any vested portion of the Option Shares by delivering to the Company or its designee, in the form and at the location specified by the Company, notice stating your intent to exercise a specified number of Option Shares and payment of the full Grant Price for the specified number of Option Shares. Payment in full for the Option Shares being exercised may be paid in such manner as the Committee may specify from time to time, in its sole discretion, including, but not limited to the following: (a) in cash, (b) by certified check or bank draft payable in U.S. dollars ($US) to the order of the Company, (c) in whole or in part in shares of Stock owned by you, valued at Fair Market Value, or (d) if available to you, via cashless exercise, by which you deliver to your securities broker instructions to sell a sufficient number of shares of Stock to cover the Grant Price for the Option Shares, any applicable tax obligations and the brokerage fees and expenses associated therewith. Notwithstanding the foregoing, if you reside in a country where the local foreign exchange rules and regulations either preclude the remittance of currency out of the country for purposes of paying the Grant Price for the Option Shares being exercised, or require the Company and/or you to secure any legal or regulatory approvals, complete any legal or regulatory filings, or undertake any additional steps for remitting currency out of the country, the Company may restrict the method of exercise to a form of cashless exercise (as it determines in its sole discretion).

The exercise date applicable to your exercise of the specified number of Option Shares pursuant to this Section 3 will be deemed to be the date on which the Company receives your

irrevocable commitment to exercise the Option Shares in writing, subject to your payment in full of the Option Shares to be exercised within 10 (ten) days of the notice of exercise of the Option Shares to be exercised. The notice and payment in full of the Option Shares being exercised, must be received by the Company or its designee on or prior to the last day of the Stock Option term, as set forth in Section 2 above, except as provided in Section 4 below.

Upon the Company’s determination that there has been a valid exercise of the Option Shares, the Company shall issue certificates in accordance with the terms of this Agreement or cause the Company’s transfer agent to make the necessary book entries for the shares of Stock subject to the exercised Option Shares. However, the Company shall not be liable to you, your personal representative or your successor(s)-in-interest for damages relating to any delays in issuing the certificates or in making book entries, any loss of the certificates, or any mistakes or errors in the issuance of the certificates or in making book entries, or in the certificates themselves.

4. Termination of Employment .

a. Provided that you have remained in continuous service with the Company through the first anniversary of the Grant Date, upon termination of your employment due to death, Disability or Retirement (as such terms are defined below or determined under local law, as applicable), all remaining unexercised portion(s) of your Stock Option shall immediately vest and become exercisable by you or your appointed representative, as the case may be, until the expiration of the term of the Stock Option or such other term as the Committee may determine at or after grant, provided that such exercise period does not extend beyond the original term of the Stock Option.

b. In the event that your employment terminates due to death prior to the first anniversary of the Grant Date, a portion of the Option Shares equal to that percentage of year completed prior to death shall immediately vest and become exercisable until the expiration of the term of the Stock Option or such other term as the Committee may determine at or after grant, provided that such exercise period does not extend beyond the original term of the Stock Option. All remaining unvested Option Shares shall immediately lapse and be forfeited.

c. In the event that your employment terminates due to Disability or Retirement prior to the first anniversary of the Grant Date, the Option Shares shall immediately lapse and be forfeited.

d. Upon termination of your employment for reasons other than for Cause, death, Disability or Retirement, you shall have the shorter of (i) twelve (12) months from the date of termination and (ii) the remaining term of the Stock Option to exercise all vested Option Shares. Upon termination of your employment for reasons other than for Cause, death, Disability or Retirement, all unvested Option Shares shall lapse; provided, however, that the Committee, in its sole discretion, may extend the exercise period and/or accelerate vesting of any unvested Option Shares (provided that such exercise period does not extend beyond the original term of the Stock Option). Your termination date shall be the last day of your active service with the Company or an Affiliate (if applicable).

e. Immediately upon notice of termination of your employment for Cause, all unexercised Option Shares, whether vested or unvested, shall lapse and be forfeited.

f. The Option Shares, to the extent unexercised on the date following the end of any period described above or the term of the Stock Option set forth above in Section 2, shall thereupon lapse and be forfeited.

g. Any one of your permitted transferee(s) (pursuant to Section 7 below) shall receive the rights herein granted subject to the terms and conditions of this Agreement and any applicable Addendum. No transfer of this Stock Option shall be approved and effected by the Administrator unless (i) the Administrator shall have been timely furnished with written notice of such transfer and any copies of such notice as the Committee may deem, in its sole discretion, necessary to establish the validity of the transfer; (ii) the transferee or transferees shall have agreed in writing to be bound by the terms and conditions of this Agreement and any applicable Addendum; and (iii) such transfer complies with applicable laws and regulations.

h. If you are a resident or employed in a country that is a member of the European Union, the grant of the Stock Option and this Agreement are intended to comply with the age discrimination provisions of the EU Equal Treatment Framework Directive, as implemented into local law (the “Age Discrimination Rules”). To the extent that a court or tribunal of competent jurisdiction determines that any provision of the Stock Option is invalid or unenforceable, in whole or in part, under the Age Discrimination Rules, the Company, in its sole discretion, shall have the power and authority to revise or strike such provision to the minimum extent necessary to make it valid and enforceable to the full extent permitted under local law.

5. Change in Control . To the extent that you have not entered into a Change in Control Agreement with the Company, all unvested Option Shares shall vest in the event of a Change in Control (as defined in the Plan) immediately prior to the effective date of the Change in Control and, in the case of a Covered Transaction (as defined in the Plan), at least ten (10) days prior to the effective date of a Covered Transaction. This Stock Option shall terminate immediately prior to the Covered Transaction unless the Committee provides, in its sole discretion, for the substitution or assumption of the Stock Option, by conversion into an option to acquire securities of equivalent kind and value of the surviving entity as of the effective date of the Covered Transaction. If you have entered into a Change in Control Agreement with the Company, the Stock Option will vest according to the provisions of the Change in Control Agreement.

6. Restrictions on Shares; Legend on Certificate . The underlying shares of Stock issued to you in certificate form or to your book entry account upon exercise of the Option Shares may be restricted from transfer or sale by the Company and evidenced by stop-transfer instructions upon your book entry account or restricted legend(s) affixed to certificates in the form as the Company or its counsel may require with respect to any applicable restrictions on sale or transfer.

7. Transferability . Except as required by law, you shall not sell, transfer, assign, pledge, gift, hypothecate or otherwise dispose of the Stock Option granted under this Agreement other than by will or the laws of descent and distribution or without payment of consideration to

your Family Members or to trusts or other entities for the benefit of your Family Members. During your lifetime, the Stock Option is exercisable only by you, subject to Section 4 above.

8. Satisfaction of Tax Obligations . Regardless of any action the Company takes with respect to any or all income tax (including U.S. federal, state and local taxes and/or non-U.S. taxes), social insurance, payroll tax, payment on account or other tax-related withholding (“Tax-Related Items”), you acknowledge that the ultimate liability for all Tax-Related Items legally due by you is and remains your responsibility and that the Company or the Affiliate that employs you (if applicable) (a) makes no representations or undertakings regarding the treatment of any Tax-Related Items in connection with any aspect of the Stock Option, including the grant of the Stock Option, the vesting of the Stock Option, the exercise of the Stock Option, the subsequent sale of any shares of Stock acquired upon exercise of the Stock Option and the receipt of any dividends, and (b) do not commit to structure the terms of the grant or any aspect of the Stock Option to reduce or eliminate your liability for Tax-Related Items.

Prior to the delivery of shares of Stock upon exercise of the Stock Option, if your country of residence (and/or the country of employment, if different) requires withholding of Tax-Related Items, the Company may withhold a sufficient whole number of shares of Stock otherwise issuable upon exercise of the Stock Option that has an aggregate Fair Market Value sufficient to pay the minimum Tax-Related Items required to be withheld with respect to the shares of Stock. The cash equivalent of the shares of Stock withheld will be used to settle the obligation to withhold the Tax-Related Items. By accepting the Stock Option, you expressly consent to the withholding of shares of Stock as provided for hereunder. All other Tax-Related Items related to the Stock Option and any shares of Stock delivered in payment thereof are your sole responsibility. In no event, shall whole shares be withheld by or delivered to the Company in satisfaction of any Tax-Related Items in excess of the maximum statutory tax withholding required by law. You agree to indemnify the Company against any and all liabilities, damages, costs and expenses that the Company may hereafter incur, suffer or be required to pay with respect to the payment or withholding of any Tax-Related Items.

The Stock Option is intended to be exempt from the requirements of U.S. Code Section 409A. The Plan and this Agreement shall be administered and interpreted in a manner consistent with this intent. If the Company determines that the Agreement is subject to U.S. Code Section 409A and that it has failed to comply with the requirements of that Section, the Company may, in its sole discretion, and without your consent, amend this Agreement to cause it to comply with U.S. Code Section 409A or be exempt from U.S. Code Section 409A.

9. Repatriation and Legal/Tax Compliance Requirements . If you are a resident or employed outside of the United States, you agree, as a condition of the Stock Option grant, to repatriate all payments attributable to the shares of Stock and/or cash acquired under the Plan (including, but not limited to, dividends and any proceeds derived from the sale of the shares of Stock acquired pursuant to the Stock Option) in accordance with local foreign exchange rules and regulations in your country of residence (and country of employment, if different). In addition, you agree to take any and all actions, and consent to any and all actions taken by the Company, as may be required to allow the Company to comply with local laws, rules and regulations in your country of residence (and country of employment, if different). Finally, you agree to take any and all actions as may be required to comply with your personal legal and tax obligations under local laws, rules and regulations in your country of residence (and country of employment, if different).

10. Data Privacy . The collection, processing and transfer of your personal data as it relates to the Stock Option is necessary for the Company’s administration of the Plan and your participation in the Plan, and your denial and/or objection to the collection, processing and transfer of personal data may affect your ability to participate in the Plan. As such, you voluntarily acknowledge, consent and agree (where required under applicable law) to the collection, use, processing and transfer of personal data as described in this Section 10.

You understand that the Company or the Affiliate that employs you (if applicable) holds certain personal information about you, including (but not limited to) your name, home address and telephone number, date of birth, social security number or other employee identification number, salary, nationality, job title, any shares of Stock held in the Company, and details of all Stock Options and Deferred Stock Units awarded to you (vested and unvested) for the purpose of managing and administering the Plan (“Data”). The Data may be provided by you or collected, where lawful, from the Company, its Affiliates or third parties, and the Company or the Affiliate that employs you will process the Data for the exclusive purpose of implementing, administering and managing your participation in the Plan. The data processing will take place through electronic and non-electronic means according to logics and procedures strictly correlated to the purposes for which the Data is collected and with confidentiality and security provisions as set forth by applicable laws and regulations in your country of residence.

11. No Rights to Continued Employment . The Stock Option granted under the Plan and this Agreement (and any applicable Addendum to this Agreement) shall not confer upon you any right to continue in the employ of the Company, and this Agreement (and any applicable Addendum to this Agreement) shall not be construed in any way to limit the Company’s (or any Affiliate’s, as the case may be) right to terminate or change the terms of your employment.

12. Discretionary Nature of Plan . You acknowledge and agree that the Plan is discretionary in nature and may be amended, cancelled or terminated by the Administrator, in its sole discretion, at any time. The Stock Option granted under the Plan is a one-time benefit and does not create any contractual or other right to receive Stock Options or benefits in lieu of Stock Options in the future. Future Awards under the Plan, if any, will be at the sole discretion of the Administrator, including, but not limited to, the form and timing of the Award, the number of shares of Stock subject to such Award, the vesting provisions and the grant price (if any). Any amendment, modification or termination of the Plan shall not constitute a change or impairment of the terms and conditions of your employment with the Company or its Affiliates.

13. Voluntary Participation in Plan . You acknowledge that your participation in the Plan is voluntary.

14. Extraordinary Item of Compensation . The value of the Stock Option granted under the Plan is an extraordinary item of compensation outside the scope of your employment (and your employment contract, if any). Any Award granted under the Plan, including this Stock Option, is not part of normal or expected compensation for purposes of calculating any severance, resignation, redundancy, end of service payments, bonuses, long-service awards, pension or retirement benefits or similar payments, and, in no event, should be considered as compensation for, or relating in any way to, past services for the Company or an Affiliate.

15. Waiver of Entitlement to Compensation or Damages . In consideration of the grant of the Stock Option under this Agreement, no claim or entitlement to compensation or damages shall arise from termination of the Stock Option or diminution in value of the shares of Stock acquired upon vesting of the Stock Option resulting from termination of your employment by the Company or an Affiliate (for any reason whatsoever and whether or not in breach of local labor laws) and you irrevocably releases the Company and any Affiliate from any such claim that may arise. Notwithstanding the foregoing, if any such claim is found by a court of competent jurisdiction to have arisen, then, by accepting this Agreement, you will be deemed to have irrevocably waived your entitlement to pursue such claim.

16. Securities Laws . Upon the acquisition of any shares of Stock pursuant to the exercise of the Stock Option, you will make or enter into such written representations, warranties and agreements as the Company may reasonably request in order to comply with applicable securities laws or with the Plan.

17. Not a Public Offering . Neither the grant of the Stock Option under the Plan nor the issuance of the underlying shares of Stock upon exercise of the Option Shares is intended to be a public offering of securities in your country of residence (and country of employment, if different). The Company has not submitted any registration statement, prospectus or other filings to the local securities authorities unless otherwise required under local law.

18. No Advice Regarding Grant . No Employee of the Company is permitted to advise you regarding whether you should purchase shares of Stock under the Plan. Investment in shares of Stock involves a degree of risk. Before deciding to purchase shares of Stock pursuant to the Stock Option, you should carefully consider all risk factors relevant to the acquisition of shares of Stock under the Plan, and you should carefully review all of the materials related to the Stock Option and the Plan. You are hereby advised to consult with your own personal tax, legal and financial advisors before taking any action related to the Plan.

19. Award Subject to the Plan . The Award to be made pursuant to this Agreement is made subject to the Plan. The terms and provisions of the Plan, as it may be amended from time to time, are hereby incorporated herein by reference. In the event of a conflict between any term or provision contained in this Agreement and a term or provision of the Plan, the applicable terms and conditions of the Plan will govern and prevail. However, no amendment of the Plan after the date hereof may adversely alter or impair the issuance of the shares of Stock to be made pursuant to this Agreement. You hereby accept the Stock Option subject to all the terms and provisions of the Plan and this Agreement and agree that all decisions under, and interpretations of, the Plan and this Agreement by the Administrator, Committee or the Board shall be final, binding and conclusive upon you and your heirs and legal representatives.

20. Electronic Delivery of Documents . The Company may, in its sole discretion, deliver any documents related to the Stock Option and participation in the Plan, or future grants of Stock Options that may be granted under the Plan, by electronic means unless otherwise prohibited by local law. You hereby consent to receive such documents by electronic delivery.

21. Language . If you are resident outside of the United States, you hereby acknowledge and agree that it is your express intent that this Agreement and any applicable Addendum, the Plan and all other documents, notices and legal proceedings entered into, given or instituted pursuant to the Stock Option, be drawn up in English. If you have received this Agreement and any applicable Addendum, the Plan or any other documents related to the Stock Option translated into a language other than English, and if the meaning of the translated version is different than the English version, the English version will control.

22. Addendum . Notwithstanding any provision of this Agreement to the contrary, the Stock Option shall be subject to any special terms and conditions for your country of residence (and country of employment, if different) as are forth in the applicable addendum to the Agreement (the “Addendum”). Further, if you transfer your residence and/or employment to another country reflected in the Addenda to these Agreements, the special terms and conditions for such country will apply to you to the extent the Company determines, in its sole discretion, that the application of such terms and conditions is necessary or advisable in order to comply with local law or to facilitate the administration of the Plan. Any applicable Addendum shall constitute part of this Agreement.

23. Additional Requirements . The Administrator reserves the right to impose other requirements on the Stock Option, any shares of Stock acquired pursuant to the Stock Option and your participation in the Plan to the extent the Administrator determines, in its sole discretion, that such other requirements are necessary or advisable in order to comply with local laws or to facilitate the administration of the Plan. Such requirements may include (but are not limited to) requiring you to sign any agreements or undertakings that may be necessary to accomplish the foregoing.

24. Legal Notices . Any legal notice necessary under this Agreement shall be addressed to the Company in care of its Secretary at the principal executive office of the Company and to the you at the address appearing in the personnel records of the Company for you or to either party at such other address as either party may designate in writing to the other. Any such notice shall be deemed effective upon receipt thereof by the addressee.

25. Choice of Law . The interpretation, performance and enforcement of this Agreement shall be governed by the laws of The Commonwealth of Massachusetts (without regard to the conflicts of laws principles) and applicable federal laws.

26. Conflicts . The Stock Option granted by this Agreement and any applicable Addendum is subject to the Plan. The terms and provisions of the Plan as it may be amended from time to time are hereby incorporated herein by reference. This Agreement contains terms and provisions established by the Committee specifically for the grant described herein. Unless the Committee has exercised its authority under the Plan to establish specific terms of an Award, the terms of the Plan shall govern. Subject to the limitations set forth in the Plan, the Committee retains the right to alter or modify the Stock Option granted under this Agreement as the Committee may determine are in the best interests of the Company.

27. Headings . The headings contained in this Agreement are for convenience only and shall not affect the meaning or interpretation of this Agreement.

28. Counterparts . This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original and all of which together shall be deemed to be one and the same instrument.

29. Defined Terms : The following terms, when used in this Agreement, shall have the meanings and be subject to the provisions set forth below:

“ Disability ”: Permanent and total disability as determined under the Company’s long-term disability program for employees then in effect.

IN WITNESS WHEREOF, the Company, by its duly authorized officer, and the Optionee have executed and delivered this Agreement effective as of the date and year first above written.

Option Shares of Stock: <<XXXX>>

Grant Price: $
Vesting Schedule:


Percent of
Stock Option		Date Vested
25%		Month dd, yyyy
25%		Month dd, yyyy
25%		Month dd, yyyy
25%		Month dd, yyyy


		PARTICIPANT:

		Signature
				<<Employee Name>>

		BOSTON SCIENTIFIC CORPORATION

		J. Raymond Elliott
		President and Chief Executive Officer

BOSTON SCIENTIFIC CORPORATION

ADDENDUM TO THE AWARD AGREEMENT
RELATING TO NON-QUALIFIED STOCK OPTIONS GRANTED
PURSUANT TO THE 2003 LONG-TERM INCENTIVE PLAN

In addition to the terms of the Plan and the Agreement, the Stock Option is subject to the following additional terms and conditions. All defined terms contained in this Addendum shall have the same meaning as set forth in the Plan and the Agreement. Pursuant to Section 22 of the Agreement, if you transfer your residence and/or employment to another country reflected in an Addendum, the additional terms and conditions for such country (if any) will apply to you to the extent the Company determines, in its sole discretion, that the application of such terms and conditions is necessary or advisable in order to comply with local law or to facilitate the administration of the Plan.

DENMARK

Treatment of Stock Option Upon Termination of Employment . Notwithstanding any provisions in the Agreement to the contrary, the treatment of the Stock Option upon your termination of employment shall be governed by the Act on Stock Option in Employment Relations.

FRANCE

HONG KONG

IMPORTANT NOTICE/WARNING. The Agreement, the Addendum thereto for Hong Kong, and all other materials pertaining to the Stock Option have not been reviewed by any regulatory authority in Hong Kong. You are hereby advised to exercise caution in relation to the offer. If the you have any doubts about any of the contents of the materials pertaining to the Stock Option, you should obtain independent professional advice.

NETHERLANDS

Waiver of Termination Rights . As a condition to the grant of the Stock Options, you hereby waive any and all rights to compensation or damages as a result of the termination of employment with the Company and the Employer for any reason whatsoever, insofar as those rights result or may result from (i) the loss or diminution in value of such rights or entitlements under the Plan, or (ii) the Participant ceasing to have rights under, or ceasing to be entitled to any awards under the Plan as a result of such termination.

UNITED KINGDOM

1. Tax and Social Insurance Contribution Withholding . The following provision shall replace Section 8 of the Agreement:

Regardless of any action the Company or the Affiliate that employs you (the “Employer”) takes with respect to any or all income tax, primary and secondary Class 1 National Insurance contributions, payroll tax or other tax-related withholding attributable to or payable in connection with or pursuant to the grant or exercise of any Stock Option and the acquisition of shares of Stock, or the release or assignment of any Stock Option for consideration, or the receipt of any other benefit in connection with the Stock Option (“Tax-Related Items”), you acknowledge that the ultimate liability for all Tax-Related Items legally due by you is and remains your responsibility. Furthermore, the Company and/or the Employer (a) make no representations or undertakings regarding the treatment of any Tax-Related Items in connection with any aspect of the Stock Option, including the grant or exercise of the Stock Option and the acquisition of shares of Stock, the subsequent sale of any shares of Stock acquired upon exercise and the receipt of any dividends; and (b) do not commit to structure the terms of the grant or any aspect of the Stock Option to reduce or eliminate your liability for Tax-Related Items.

As a condition of the issuance of shares of Stock upon exercise of the Stock Option, the Company and/or the Employer shall be entitled to withhold and you agree to pay, or make adequate arrangements satisfactory to the Company and/or the Employer to satisfy, all obligations of the Company and/or the Employer to account to HM Revenue & Customs (“HMRC”) for any Tax-Related Items. In this regard, you authorize the Company and/or the Employer to withhold all applicable Tax-Related Items legally payable by you from any wages or other cash compensation paid to you by the Company and/or the Employer. Alternatively, or in addition, if permissible under local law, you authorize the Company and/or the Employer, at its discretion and pursuant to such procedures as it may specify from time to time, to satisfy the obligations with regard to all Tax-Related Items legally payable by you by one or a combination of the following: (a) withholding otherwise deliverable shares of Stock; (b) arranging for the sale of shares of Stock otherwise deliverable to you (on your behalf and at your direction pursuant to this authorization); or (c) withholding from the proceeds of the sale of shares of Stock acquired upon exercise of the Stock Option. If the obligation for Tax-Related Items is satisfied by withholding a number of shares of Stock as described herein, you are deemed to have been issued the full number of shares of Stock subject to the Stock Option, notwithstanding that a number of the shares of Stock are held back solely for the purpose of paying the Tax-Related Items due as a result of any aspect of the Stock Option.

You also agree that the Company and its Affiliates may determine the amount of Tax-Related Items to be withheld and accounted for by reference to the maximum applicable rates, without

prejudice to any right which you may have to recover any overpayment from the relevant tax authorities. You shall pay to the Company or the Employer any amount of Tax-Related Items that the Company or the Employer may be required to account to HMRC with respect to the Chargeable Event that cannot be satisfied by the means previously described. If payment or withholding is not made within 90 days of the Chargeable Event or such other period as required under U.K. law (the “Due Date”), you agree that the amount of any uncollected Tax-Related Items shall (assuming you are not a director or executive officer of the Company (within the meaning of Section 13(k) of the U.S. Securities and Exchange Act of 1934, as amended), constitute a loan owed by you to the Employer, effective on the Due Date. You agree that the loan will bear interest at the then-current HMRC Official Rate and it will be immediately due and repayable, and the Company and/or the Employer may recover it at any time thereafter by any of the means referred to above. If any of the foregoing methods of collection are not allowed under applicable laws or if you fail to comply with your obligations in connection with the Tax-Related Items as described in this section, the Company may refuse to deliver the shares of Stock acquired under the Plan.

Exhibit 10.7

EXECUTION COPY

AMENDMENT #4 TO AMENDED AND RESTATED
CREDIT AND SECURITY AGREEMENT

THIS AMENDMENT #4 TO AMENDED AND RESTATED CREDIT AND SECURITY AGREEMENT (this “ Amendment ”) is entered into by the undersigned parties as of October 29, 2010 with respect to the Amended and Restated Credit and Security Agreement dated as of November 7, 2007 by and among Boston Scientific Funding LLC, a Delaware limited liability company (“ Borrower ”), Boston Scientific Corporation (“ BSC ”), a Delaware corporation, as initial Servicer, Old Line Funding, LLC, a Delaware limited liability company (“ Old Line ”), Victory Receivables Corporation, a Delaware corporation (“ Victory ”), Liberty Street Funding LLC, a Delaware limited liability company (“ Liberty Street ” ), The Bank of Tokyo-Mitsubishi UFJ, Ltd., New York Branch, individually as a Liquidity Bank for Victory and as Victory Agent, The Bank of Nova Scotia, individually and as a Liquidity Bank for Liberty Street and as Liberty Street Agent (in such capacity, “ Liberty Street Agent ”), and Royal Bank of Canada, a Canadian chartered bank acting through a New York branch, in its capacity as Liquidity Bank for Old Line, as Old Line Agent and as Administrative Agent, as heretofore amended (the “ Credit and Security Agreement ”); and

Unless defined elsewhere herein, capitalized terms used in this Amendment shall have the meanings assigned to such terms in the Credit and Security Agreement.

RECITALS

WHEREAS, the Borrower, the initial Servicer, Victory, Old Line, Liberty Street, The Bank of Tokyo-Mitsubishi UFJ, Ltd., New York Branch, individually as a Liquidity Bank and as Victory Agent, The Bank of Nova Scotia, individually as a Liquidity Bank and as Liberty Street Agent, and Royal Bank of Canada, individually, as a Liquidity Bank, as Old Line Agent and as Administrative Agent entered into the Credit and Security Agreement; and

WHEREAS, the Borrower has requested that the Credit and Security Agreement be amended as hereinafter set forth; and

NOW THEREFORE, in consideration of the mutual execution hereof and other good and valuable consideration, the parties hereto agree as follows:

1. Amendments to Credit and Security Agreement .

(a) Clause (ii) of Section 9.1(h) of the Credit and Security Agreement is hereby amended to read as follows:

(ii) the three-month rolling average Dilution Ratio shall exceed 7.25% for any other three-month period,

(b) The definition of “ Transaction Documents ” in Exhibit I to the Credit and Security Agreement is hereby amended to include an expanded description of the agreements pursuant to which Acquired Receivables are purchased or acquired and now reads as follows:

“ Transaction Documents ” means, collectively, this Agreement (including any Assignment and Acceptance Agreements), each Borrowing Request, the Receivables Sale Agreement, each Joinder Agreement, each Collection Account Agreement, the Amended Fee Letters, each of the Subordinated Notes (as defined in the Receivables Sale Agreement), the Liquidity Agreements, each asset purchase or other agreement pursuant to which Acquired Receivables are purchased or acquired by a Seller (as defined in the Receivables Sale Agreement), and all other instruments, documents and agreements executed and delivered in connection herewith.

(c) Exhibit XII to the Credit and Security Agreement referred to in the definition of “Acquired Receivables” is hereby amended to include Receivables generated by Guidant Sales LLC (formerly Guidant Sales Corporation), a Subsidiary of BSX and now reads as attached hereto.

2. Conditions Precedent to Effectiveness . The effectiveness of this Amendment is subject to the conditions precedent that the Agents shall have received:

(a) counterparts hereof duly executed by each of the parties hereto,

(b) (x) copies of the proper financing statements (Form UCC-1) to be filed in (i) the office of the Secretary of State of the State of Indiana naming Guidant Delaware Holding Corporation (“ Guidant Holding ”) as assignee/secured party and Guidant Sales LLC (“ Guidant Sales ”) as assignor/debtor (and Cardiac Pacemakers, Inc. (“ CPI ”), as assignor/secured party), (ii) the office of the Secretary of State of the State of Minnesota naming BSX as assignee/secured party and CPI as assignor/debtor (and Guidant Holding, as assignor/secured party), and (iii) the office of the Secretary of State of the State of Delaware naming BSX as assignee/secured party and Guidant Holding as assignor/debtor, in each case, describing in reasonable detail the Acquired Receivables acquired by BSX pursuant to the Assignment and Assumption Agreement effective as of July 31, 2010 (together with the Assignment and Assumption Agreement effective as of July 31, 2010 between Guidant Sales and CPI and the Assignment and Assumption Agreement effective as of July 31, 2010 between CPI and Guidant Holding, the “ Guidant Assignment Agreement ”), between BSX and Guidant Holding and (y) a copy of a proper financing statement (Form UCC-3) to be filed in the office of the Secretary of State of the State of Indiana naming BSX as assignee/secured party and Guidant Holding as assignor/secured party assigning to BSX as a mater of record the UCC-1 financing statement described in preceding clause (x)(i);

(c) written search reports listing all effective UCC financing statements that name Guidant Sales, CPI and Guidant Holding as debtor, seller or assignor and that are filed in the States of Indiana, Minnesota and Delaware, respectively, together with copies of such financing statements (none of which, except for those that have been terminated or described in the foregoing subsection (b), shall cover any Receivable or any Related Asset related to any Receivable which is to be sold or contributed by BSX to the Borrower under the Receivables Sale Agreement); and

(d) evidence of the execution and delivery by each of the parties thereto of the Guidant Assignment Agreement.

3. Representations and Warranties . In order to induce the Conduits, the Liquidity Banks, the Agents and the Administrative Agent to execute, deliver and perform this Amendment, the Loan Parties hereby represent and warrant that (i)(1) each party thereto has the corporate power and authority, and has been duly authorized, to execute the Guidant Assignment Agreement and to carry out the transactions contemplated thereby and (2) the Guidant Assignment Agreement is a legal, valid and binding obligation of each party thereto, enforceable against such party in accordance with its terms, subject to appropriate bankruptcy and public policy exceptions, (ii) Guidant Sales has instructed (i) the Obligors of the Acquired Receivables acquired by BSX under the Guidant Assignment Agreement to pay all future Collections to a Lockbox or Collection Account listed on Exhibit IV to the Credit and Security Agreement and (ii) the bank holding the lockbox or account into which Collections on such Acquired Receivables are paid to automatically transfer any such Collections to a Lockbox or Collection Account listed on Exhibit IV to the Credit and Security Agreement and (iii) after giving effect to this Amendment, each of the representations and warranties set forth in Section 6.1 of the Credit and Security Agreement (other than Sections 6.1(b) and 6.1(g) thereof) and in Section 2.1 of the Receivables Sale Agreement (other than Sections 2.1(b) and 2.1(g) thereof) is true and correct in all material respects on and as of the date hereof (except for representations and warranties stated to refer to a specified earlier date, in which case such representations and warranties are true and correct as of such earlier date); provided that the preceding materiality standard shall not apply to those representations and warranties which themselves contain materiality standards.

4. Scope of Amendment . Except as expressly amended hereby, the Credit and Security Agreement remains in full force and effect in accordance with its terms and this Amendment shall not by implication or otherwise alter, modify, amend or in any way affect any of the other terms, conditions, obligations, covenants or agreements contained in the Credit and Security Agreement, all of which are ratified and affirmed in all respects and shall continue in full force and effect.

5. Governing Law . This Amendment shall be governed by and construed in accordance with the laws of the State of New York.

6. Counterparts . This Amendment may be executed in any number of counterparts (including by way of facsimile or electronic transmission) and each of such counterparts shall for all purposes be deemed an original, and all such counterparts shall together constitute but one and the same instrument.

<Signature pages follow>

IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed and delivered by their duly authorized officers as of the date hereof.


BOSTON SCIENTIFIC FUNDING LLC
By:
	Name:	Milan Kofol
	Title:	Treasurer

BOSTON SCIENTIFIC CORPORATION, as Servicer and Seller
By:
	Name:	Milan Kofol
	Title:	Vice President, Treasurer

[Signature page to Amendment No. 4 to Amended and Restated Credit and Security Agreement]


	OLD LINE FUNDING, LLC BY: ROYAL BANK OF CANADA, ITS ATTORNEY-IN-FACT
	By:
		Name:
		Title:
	ROYAL BANK OF CANADA, individually as a Liquidity Bank, as Old Line Agent and as Administrative Agent
	By:
		Name:
		Title:

	By:
		Name:
		Title:

[Signature page to Amendment No. 4 to Amended and Restated Credit and Security Agreement]


	VICTORY RECEIVABLES CORPORATION
	By:
		Name:
		Title:
	THE BANK OF TOKYO-MITSUBISHI UFJ, LTD., NEW YORK BRANCH, as a Liquidity Bank
	By:
		Name:
		Title:

	THE BANK OF TOKYO-MITSUBISHI UFJ, LTD., NEW YORK BRANCH, as Victory Agent
	By:
		Name:
		Title:

[Signature page to Amendment No. 4 to Amended and Restated Credit and Security Agreement]


	LIBERTY STREET FUNDING LLC
	By:
		Name:
		Title:

	THE BANK OF NOVA SCOTIA, as a Liquidity Bank
	By:
		Name:
		Title:
	THE BANK OF NOVA SCOTIA, as Liberty Street Agent
	By:
		Name:
		Title:

[Signature page to Amendment No. 4 to Amended and Restated Credit and Security Agreement]

EXHIBIT XII
SUBSIDIARIES/SELLERS OF ACQUIRED RECEIVABLES

Boston Scientific Neuromodulation Corporation

Guidant Sales LLC (formerly Guidant Sales Corporation)

EXHIBIT 31.1

CERTIFICATIONS

I, J. Raymond Elliott, certify that:

I have reviewed this Quarterly Report on Form 10-Q of Boston Scientific Corporation;

2.		Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.		Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.		The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

	a)		Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

	b)		Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

	c)		Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

	d)		Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

	a)		All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

	b)		Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.



Date: November 5, 2010		/s/ J. Raymond Elliott
		J. Raymond Elliott
		President and Chief Executive Officer

EXHIBIT 31.2

CERTIFICATIONS

I, Jeffrey D. Capello, certify that:

1.		I have reviewed this Quarterly Report on Form 10-Q of Boston Scientific Corporation;

2.		Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.		Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.		The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

	a)		Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

	b)		Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

	c)		Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

	d)		Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

	a)		All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

	b)		Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.



Date: November 5, 2010		/s/ Jeffrey D. Capello
		Jeffrey D. Capello
		Executive Vice President and Chief Financial Officer

EXHIBIT 32.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO 18 U.S.C.
SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of Boston Scientific Corporation (the “Company”) for the period ending September 30, 2010 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned Chief Executive Officer of the Company hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that based on his knowledge:

	(1)		the Report fully complies with the requirements of Section 13 (a) or 15 (d) of the Securities Exchange Act of 1934; and

	(2)		the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Boston Scientific Corporation.


	By:	/s/ J. Raymond Elliott
		J. Raymond Elliott
		President and Chief Executive Officer

November 5, 2010

EXHIBIT 32.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO 18 U.S.C.
SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of Boston Scientific Corporation (the “Company”) for the period ending September 30, 2010 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned Chief Financial Officer of the Company hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that based on his knowledge:

	(1)		the Report fully complies with the requirements of Section 13 (a) or 15 (d) of the Securities Exchange Act of 1934; and

	(2)		the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Boston Scientific Corporation.


	By:	/s/ Jeffrey D. Capello
		Jeffrey D. Capello
		Executive Vice President and Chief Financial Officer

November 5, 2010