For
the quarterly period ended March 31, 2008
|
Commission
File No. 1-11083
|
DELAWARE
|
04-2695240
|
(State
of Incorporation)
|
(I.R.S.
Employer Identification No.)
|
Large
accelerated filer
x
|
Accelerated
filer
¨
|
Non-accelerated
filer
o
(Do
not check if a smaller reporting company)
|
Smaller reporting company o |
Class
|
Shares
outstanding
as of April 30,
2008
|
Common
Stock, $.01 par value
|
1,496,257,958
|
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 Condensed Consolidated Financial Statements
|
6
|
|
Item
2.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
27
|
Item
3.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
47
|
Item
4.
|
Controls
and Procedures
|
48
|
PART
II
|
OTHER
INFORMATION
|
49
|
Item
1.
|
Legal
Proceedings
|
49
|
Item
1A.
|
Risk
Factors
|
49
|
Item
6.
|
Exhibits
|
49
|
SIGNATURE
|
50
|
Three
Months Ended
March
31,
|
||||||||
(in
millions, except per share data)
|
2008
|
2007
|
||||||
Net
sales
|
$ | 2,046 | $ | 2,086 | ||||
Cost
of products sold
|
580 | 568 | ||||||
Gross
profit
|
1,466 | 1,518 | ||||||
Selling,
general and administrative expenses
|
661 | 735 | ||||||
Research
and development expenses
|
244 | 289 | ||||||
Royalty
expense
|
46 | 52 | ||||||
Amortization
expense
|
143 | 155 | ||||||
Purchased
research and development
|
13 | 5 | ||||||
Restructuring
charges
|
29 | |||||||
Gain
on divestitures
|
(250 | ) | ||||||
Total
operating expenses
|
886 | 1,236 | ||||||
Operating
income
|
580 | 282 | ||||||
Other
income (expense):
|
||||||||
Interest
expense
|
(131 | ) | (141 | ) | ||||
Other,
net
|
13 | 18 | ||||||
Income
before income taxes
|
462 | 159 | ||||||
Income
tax expense
|
140 | 39 | ||||||
Net
income
|
$ | 322 | $ | 120 | ||||
Net
income per common share — basic
|
$ | 0.22 | $ | 0.08 | ||||
Net
income per common share — assuming dilution
|
$ | 0.21 | $ | 0.08 | ||||
Weighted-average
shares outstanding
|
||||||||
Basic
|
1,494.1 | 1,481.3 | ||||||
Assuming
dilution
|
1,500.1 | 1,497.8 |
Three
Months Ended
March
31,
|
||||||||
(in
millions)
|
2008
|
2007
|
||||||
Cash
provided by (used for) operating activities
|
$ | 266 | $ | (59 | ) | |||
Investing
activities:
|
||||||||
Purchases
of property, plant and equipment
|
(57 | ) | (96 | ) | ||||
Proceeds
from sales of publicly traded and privately held equity securities
and
collections
of notes receivable
|
37 | 14 | ||||||
Payments
for acquisitions of businesses, net of cash acquired
|
(11 | ) | ||||||
Payments
relating to prior period acquisitions
|
(654 | ) | (200 | ) | ||||
Proceeds
from business divestitures
|
1,300 | |||||||
Payments
for investments in companies and acquisitions of certain
technologies
|
(6 | ) | (7 | ) | ||||
Cash
provided by (used for) investing activities
|
620 | (300 | ) | |||||
Financing
activities:
|
||||||||
Payments
on long-term borrowings
|
(625 | ) | ||||||
Proceeds
from issuances of shares of common stock
|
26 | 31 | ||||||
Cash
(used for) provided by financing activities
|
(599 | ) | 31 | |||||
Net
increase (decrease) in cash and cash equivalents
|
287 | (328 | ) | |||||
Cash
and cash equivalents at beginning of period
|
1,452 | 1,668 | ||||||
Cash
and cash equivalents at end of period
|
$ | 1,739 | $ | 1,340 | ||||
Supplemental
Information:
|
||||||||
Stock
and stock equivalents issued for acquisitions
|
$ | $ | 90 |
·
|
Nonfinancial
assets and nonfinancial liabilities initially measured at fair value in a
business combination or other new basis event, but not measured at fair
value in subsequent reporting
periods;
|
·
|
Reporting
units and nonfinancial assets and nonfinancial liabilities measured at
fair value for our goodwill impairment test in accordance with FASB
Statement No. 142,
Goodwill and Other Intangible
Assets;
|
·
|
Indefinite-lived
intangible assets measured at fair value for impairment assessment in
accordance with Statement No. 142;
|
·
|
Nonfinancial
long-lived assets or asset groups measured at fair value for impairment
assessment or disposal under FASB Statement No. 144,
Accounting for the Impairment
or Disposal of Long-Lived Assets;
and
|
·
|
Nonfinancial
liabilities associated with exit or disposal activities initially measured
at fair value under FASB Statement No. 146,
Accounting for Costs
Associated with Exit or Disposal
Activities.
|
·
|
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.
|
(in
millions)
|
Quoted
Market Prices for Identical Assets
(Level
1)
|
Significant
Other Observable Inputs
(Level
2)
|
Significant
Unobservable Inputs
(Level
3)
|
Total
|
||||||||||||
Assets
|
||||||||||||||||
Money market funds and U.S. Treasury securities | $ | 912 | $ | 912 | ||||||||||||
Available-for-sale
investments
|
11 | $ | 24 | 35 | ||||||||||||
Currency
exchange contracts
|
$ | 12 | 12 | |||||||||||||
$ | 923 | $ | 12 | $ | 24 | $ | 959 | |||||||||
Liabilities
|
||||||||||||||||
Currency
exchange contracts
|
$ | 233 | $ | 233 | ||||||||||||
Interest
rate swap contracts
|
41 | 41 | ||||||||||||||
$ | $ | 274 | $ | $ | 274 |
(in
millions)
|
Available-for-sale
investments with restrictions
|
|||
Balance
at January 1, 2008
|
$ | 30 | ||
Net
transfers in (out) of Level 3
|
40 | |||
Net
(sales) purchases
|
(25 | ) | ||
Change
in unrealized gains/losses related to market
prices
|
(17 | ) | ||
Change
in unrealized gains/losses related to liquidity
discounts
|
(4 | ) | ||
Balance
at March 31, 2008
|
$ | 24 |
Balance
at January 1, 2008
|
$ | 24 | ||
Less:
other-than-temporary impairments
|
14 | |||
Balance
at March 31, 2008
|
$ | 10 |
March
31,
|
December
31,
|
|||||||
(in
millions)
|
2008
|
2007
|
||||||
Finished
goods
|
$ | 504 | $ | 454 | ||||
Work-in-process
|
142 | 132 | ||||||
Raw
materials
|
135 | 139 | ||||||
$ | 781 | $ | 725 |
March
31,
|
December
31,
|
|||||||
(in
millions)
|
2008
|
2007
|
||||||
Property,
plant and equipment
|
$ | 3,026 | $ | 2,925 | ||||
Less:
accumulated depreciation
|
1,290 | 1,190 | ||||||
$ | 1,736 | $ | 1,735 |
March
31,
|
December
31,
|
|||||||
(in
millions)
|
2008
|
2007
|
||||||
Goodwill
|
$ | 15,094 | $ | 15,103 | ||||
Technology
- core
|
6,923 | 6,923 | ||||||
Other
intangible assets
|
2,464 | 2,481 | ||||||
24,481 | 24,507 | |||||||
Less:
accumulated amortization
|
1,576 | 1,440 | ||||||
$ | 22,905 | $ | 23,067 |
Balance
at December 31, 2007
|
$ | 66 | ||
Warranty
claims provision
|
20 | |||
Settlements
made
|
(20 | ) | ||
Balance
at March 31, 2008
|
$ | 66 |
Payments
Due by Period
|
||||||||||||||||||||||
(in
millions)
|
2008
|
2009
|
2010
|
2011
|
2012
|
Thereafter
|
Total
|
|||||||||||||||
Term
loan
|
$ | 1,375 | $ | 2,000 | $ | 3,375 | ||||||||||||||||
Abbott
Laboratories loan
|
900 | 900 | ||||||||||||||||||||
Senior
notes
|
850 | $ | 2,200 | 3,050 | ||||||||||||||||||
Credit
and security facility
|
$ | 250 | 250 | |||||||||||||||||||
$ | 250 |
$
|
$ | 1,375 | $ | 3,750 |
$
|
$ | 2,200 | $ | 7,575 |
|
Note:
|
The
table above does not include capital leases, discounts associated
with our Abbott loan and senior notes, and non-cash gains related to
interest rate swaps used to hedge the fair value of certain of our senior
notes.
|
Type
of cost
|
Total
amount expected to be incurred
|
Termination
benefits
|
$250 million to $260 million
|
Retention
incentives
|
$60
million to $65 million
|
Asset
write-offs and accelerated depreciation
|
$50
million to $55 million
|
Other
*
|
$65
million to $70 million
|
Termination
|
Retention
|
Accelerated
|
||||||||||||||||||
(in
millions)
|
Benefits
|
Incentives
|
Depreciation
|
Other
|
Total
|
|||||||||||||||
Cost
of goods sold
|
$ | 3 | $ | 1 | $ | 4 | ||||||||||||||
Selling,
general and administrative expenses
|
6 | 3 | 9 | |||||||||||||||||
Research
and development expenses
|
2 | 2 | ||||||||||||||||||
Restructuring
charges
|
$ | 20 | $ | 9 | 29 | |||||||||||||||
$ | 20 | $ | 11 | $ | 4 | $ | 9 | $ | 44 |
Termination
benefits
|
$ | 178 | ||
Retention
incentives
|
16 | |||
Intangible
asset write-offs
|
21 | |||
Fixed
asset write-offs
|
8 | |||
Accelerated
depreciation
|
7 | |||
Other
|
19 | |||
$ | 249 |
(in
millions)
|
Termination
Benefits
|
Other
|
Total
|
|||||||||
Charges
|
$ | 158 | $ | 10 | $ | 168 | ||||||
Cash
payments
|
(23 | ) | (8 | ) | (31 | ) | ||||||
Balance
at December 31, 2007
|
135 | 2 | 137 | |||||||||
Charges
|
20 | 9 | 29 | |||||||||
Cash
payments
|
(74 | ) | (9 | ) | (83 | ) | ||||||
Balance
at March 31, 2008
|
$ | 81 | $ | 2 | $ | 83 |
Three
Months Ended
March
31,
|
||||||||
(in
millions)
|
2008
|
2007
|
||||||
Net
income
|
$ | 322 | $ | 120 | ||||
Currency
translation adjustment
|
10 | (1 | ) | |||||
Net
change in derivative financial instruments
|
(93 | ) | (1 | ) | ||||
Net
change in equity investments
|
(7 | ) | (5 | ) | ||||
Other
|
(2 | ) | ||||||
Comprehensive
income
|
$ | 230 | $ | 113 |
Three
Months Ended
March
31,
|
||||||||
(in
millions)
|
2008
|
2007
|
||||||
Weighted
average shares outstanding - basic
|
1,494.1 | 1,481.3 | ||||||
Net
effect of common stock equivalents
|
6.0 | 16.5 | ||||||
Weighted
average shares outstanding - assuming dilution
|
1,500.1 | 1,497.8 |
Three
Months Ended
March
31,
|
||||||||
(in
millions)
|
2008
|
2007
|
||||||
Cost
of products sold
|
$ | 6 | $ | 4 | ||||
Selling,
general and administrative expenses
|
28 | 23 | ||||||
Research
and development expenses
|
7 | 7 | ||||||
41 | 34 | |||||||
Less:
income tax benefit
|
12 | 10 | ||||||
$ | 29 | $ | 24 |
Three
Months Ended
March
31,
|
Percentage
Point
Increase
|
|||||||||||
2008
|
2007
|
(Decrease)
|
||||||||||
Reported
tax rate
|
30.3 | % | 24.5 | % | 5.8 | % | ||||||
Impact
of certain charges*
|
(6.7 | ) % | (3.5 | ) % | (3.2 | ) % |
Three
Months Ended
March
31,
|
||||||||
(in
millions)
|
2008
|
2007
|
||||||
Net
sales
|
||||||||
United
States
|
$ | 1,117 | $ | 1,169 | ||||
EMEA
|
457 | 474 | ||||||
Inter-Continental
|
367 | 332 | ||||||
Net
sales allocated to reportable segments
|
$ | 1,941 | $ | 1,975 | ||||
Sales
generated from divested businesses
|
31 | $ | 136 | |||||
Currency
exchange
|
74 | (25 | ) | |||||
$ | 2,046 | $ | 2,086 | |||||
Income
before income taxes
|
||||||||
United
States
|
$ | 280 | $ | 318 | ||||
EMEA
|
217 | 261 | ||||||
Inter-Continental
|
202 | 166 | ||||||
Operating
income allocated to reportable segments
|
$ | 699 | $ | 745 | ||||
Manufacturing
operations
|
(101 | ) | (154 | ) | ||||
Corporate
expenses and currency exchange
|
(68 | ) | (137 | ) | ||||
Acquisition-,
divestiture-, and restructuring-related credits (charges)
|
193 | (17 | ) | |||||
Amortization
expense
|
(143 | ) | (155 | ) | ||||
580 | 282 | |||||||
Other
expense
|
(118 | ) | (123 | ) | ||||
$ | 462 | $ | 159 |
1
|
Late stent thrombosis is the
formation of a clot, or thrombus, within the stented area one year or more
after implantation of the
stent.
|
(in
millions)
|
Three
Months Ended
March
31, 2008
|
Three
Months Ended
March
31, 2007
|
||||||||||||||||||||||
U.S.
|
International
|
Total
|
U.S.
|
International
|
Total
|
|||||||||||||||||||
Drug-eluting
|
$ | 218 | $ | 210 | $ | 428 | $ | 293 | $ | 175 | $ | 468 | ||||||||||||
Bare-metal
|
26 | 36 | 62 | 24 | 35 | 59 | ||||||||||||||||||
$ | 244 | $ | 246 | $ | 490 | $ | 317 | $ | 210 | $ | 527 |
·
|
the
broad and consistent long-term results of our TAXUS® clinical trials,
including up to five years of clinical follow
up;
|
·
|
the
performance benefits of our current and future
technology;
|
·
|
the
strength of our pipeline of drug-eluting stent products, including
opportunities to expand indications for use through FDA review of existing
and additional randomized trial data in extended use
subsets;
|
·
|
our
overall position in the worldwide interventional medicine market and our
experienced interventional cardiology sales
force;
|
·
|
our
sales, clinical, marketing and manufacturing capabilities;
and
|
·
|
our
two drug-eluting stent platform strategy, including our TAXUS
®
paclitaxel-eluting and PROMUS™ everolimus-eluting coronary stent
systems.
|
·
|
the
entry and timing of additional competitors into the market, including the
recent approval of a competitive product in the U.S. and Abbott’s
anticipated launch of the XIENCE™ V drug-eluting coronary stent system in
mid-2008;
|
·
|
physician
and patient confidence in our technology and attitudes toward drug-eluting
stents, including expected abatement of prior concerns regarding the risk
of late stent thrombosis;
|
·
|
drug-eluting
stent penetration rates, the overall number of PCI procedures performed,
average number of stents used per procedure, and average selling prices of
drug-eluting stent systems;
|
·
|
variations
in clinical results or perceived product performance of our or our
competitors’ products;
|
·
|
delayed
or limited regulatory approvals and unfavorable reimbursement
policies;
|
·
|
the
outcomes of intellectual property
litigation;
|
·
|
our
ability to launch next-generation products and technology features,
including our TAXUS® Liberté®
paclitaxel-eluting
and PROMUS
™
stent
systems, in the U.S. market;
|
·
|
our
ability to retain key members of our sales force and other key personnel;
and
|
·
|
changes
in FDA clinical trial data and post-market surveillance requirements and
the associated impact on new product launch schedules and the cost of
product approvals and compliance.
|
(in
millions)
|
Three
Months Ended
March
31, 2008
|
Three
Months Ended
March
31, 2007
|
||||||||||||||||||||||
U.S.
|
International
|
Total
|
U.S.
|
International
|
Total
|
|||||||||||||||||||
ICD
systems
|
$ | 274 | $ | 137 | $ | 411 | $ | 273 | $ | 125 | $ | 398 | ||||||||||||
Pacemaker
systems
|
82 | 72 | 154 | 76 | 65 | 141 | ||||||||||||||||||
$ | 356 | $ | 209 | $ | 565 | $ | 349 | $ | 190 | $ | 539 |
·
|
our
ability to launch next-generation products and technology features in a
timely manner;
|
·
|
our
ability to increase the trust and confidence of the implanting physician
community, the referring physician community and prospective patients in
our technology;
|
·
|
future
product field actions or new physician advisories by us or our
competitors;
|
·
|
successful
conclusion and positive outcomes of on-going clinical trials that may
provide opportunities to expand indications for
use;
|
·
|
variations
in clinical results, reliability or product performance of our and our
competitors’ products;
|
·
|
delayed
or limited regulatory approvals and unfavorable reimbursement
policies;
|
·
|
our
ability to retain key members of our sales force and other key
personnel;
|
·
|
new
competitive launches;
|
·
|
average
selling prices and the overall number of procedures performed;
and
|
·
|
the
outcome of legal proceedings related to our CRM
business.
|
Change
|
||||||||||||||||
Three
Months Ended
March
31,
|
As
Reported
Currency
|
Constant
Currency
|
||||||||||||||
(in
millions)
|
2008
|
2007
|
Basis
|
Basis
|
||||||||||||
United
States
|
$ | 1,117 | $ | 1,169 | (4%) | (4%) | ||||||||||
EMEA
|
507 | 469 | 8% | (4%) | ||||||||||||
Inter-Continental
|
390 | 313 | 25% | 11% | ||||||||||||
International
|
897 | 782 | 15% | 2% | ||||||||||||
Divested
Businesses
|
32 | 135 | N/A | N/A | ||||||||||||
Worldwide
|
$ | 2,046 | $ | 2,086 | (2%) | (7%) |
Change
|
||||||||||||||||
Three
Months Ended
March
31,
|
As
Reported
Currency
|
Constant
Currency
|
||||||||||||||
(in
millions)
|
2008
|
2007
|
Basis
|
Basis
|
||||||||||||
Interventional
Cardiology
|
$ | 756 | $ | 777 | (3%) | (8%) | ||||||||||
Peripheral
Interventions
|
155 | 146 | 6% | 0% | ||||||||||||
Cardiovascular
|
911 | 923 | (1%) | (6%) | ||||||||||||
Neurovascular
|
92 | 90 | 2% | (6%) | ||||||||||||
Peripheral
Embolization
|
22 | 22 | 3% | (4%) | ||||||||||||
Neurovascular
|
114 | 112 | 2% | (6%) | ||||||||||||
Cardiac
Rhythm Management
|
565 | 539 | 5% | 0% | ||||||||||||
Electrophysiology
|
38 | 36 | 5% | 2% | ||||||||||||
Cardiac
Rhythm Management
|
603 | 575 | 5% | 0% | ||||||||||||
Endoscopy
|
229 | 206 | 11% | 5% | ||||||||||||
Urology
|
100 | 95 | 5% | 2% | ||||||||||||
Endosurgery
|
329 | 301 | 9% | 4% | ||||||||||||
Neuromodulation
|
57 | 40 | 40% | 40% | ||||||||||||
Divested
Businesses
|
32 | 135 | N/A | N/A | ||||||||||||
Worldwide
|
$ | 2,046 | $ | 2,086 | (2%) | (7%) |
Gross
profit - three months ended March 31, 2007
|
72.8 | % | ||
Shifts
in product sales mix
|
(1.2 | ) % | ||
Reduced
Project Horizon spending
|
1.0 | % | ||
Currency
exchange and hedging
|
(0.5 | ) % | ||
All
other
|
(0.4 | ) % | ||
Gross
profit - three months ended March 31, 2008
|
71.7 | % |
Three
Months Ended March 31,
|
||||||||||||||||
2008
|
2007
|
|||||||||||||||
(in
millions)
|
$
|
%
of Net
Sales
|
$
|
%
of Net
Sales
|
||||||||||||
Selling,
general and administrative expenses
|
661 | 32.3 | 735 | 35.2 | ||||||||||||
Research
and development expenses
|
244 | 11.9 | 289 | 13.9 | ||||||||||||
Royalty
expense
|
46 | 2.2 | 52 | 2.5 | ||||||||||||
Amortization
expense
|
143 | 7.0 | 155 | 7.4 |
Type
of cost
|
Total
amount expected to be incurred
|
Termination
benefits
|
$250 million to $260 million
|
Retention
incentives
|
$60
million to $65 million
|
Asset
write-offs and accelerated depreciation
|
$50
million to $55 million
|
Other
*
|
$65
million to $70 million
|
*
|
Other
costs consist primarily of consultant fees and costs to transfer product
lines
from
one facility to another.
|
(in
millions)
|
Termination
Benefits
|
Retention
Incentives
|
Accelerated
Depreciation
|
Other
|
Total
|
|||||||||||||||
Cost
of goods sold
|
$ | 3 | $ | 1 | $ | 4 | ||||||||||||||
Selling,
general and administrative expenses
|
6 | 3 | 9 | |||||||||||||||||
Research
and development expenses
|
2 | 2 | ||||||||||||||||||
Restructuring
charges
|
$ | 20 | $ | 9 | 29 | |||||||||||||||
$ | 20 | $ | 11 | $ | 4 | $ | 9 | $ | 44 | |||||||||||
Termination
benefits
|
$ | 178 | ||
Retention
incentives
|
16 | |||
Intangible
asset write-offs
|
21 | |||
Fixed
asset write-offs
|
8 | |||
Accelerated
depreciation
|
7 | |||
Other
|
19 | |||
$ | 249 |
Three
Months Ended
March
31,
|
Percentage
Point
Increase
|
|||||||||||
2008
|
2007
|
(Decrease)
|
||||||||||
Reported
tax rate
|
30.3 | % | 24.5 | % | 5.8 | % | ||||||
Impact
of certain charges*
|
(6.7 | ) % | (3.5 | ) % | (3.2 | ) % |
*
|
These
charges are taxed at different rates than our effective tax
rate.
|
March
31,
|
December
31,
|
|||||||
(in
millions)
|
2008
|
2007
|
||||||
Short-term
debt
|
$ | 257 | $ | 256 | ||||
Long-term
debt
|
7,311 | 7,933 | ||||||
Total
debt
|
7,568 | 8,189 | ||||||
Less:
cash and cash equivalents
|
1,739 | 1,452 | ||||||
Net
debt
|
$ | 5,829 | $ | 6,737 | ||||
2
|
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. Users of our financial
statements should consider this non-GAAP financial information in addition
to, not as a substitute for, nor as superior to, financial information
prepared in accordance with
GAAP.
|
Three
Months Ended
March
31,
|
||||||||
(in
millions)
|
2008
|
2007
|
||||||
Net
income
|
$ | 322 | $ | 120 | ||||
Interest
income
|
(17 | ) | (22 | ) | ||||
Interest
expense
|
131 | 141 | ||||||
Income
tax expense
|
140 | 39 | ||||||
Depreciation
and amortization
|
223 | 224 | ||||||
EBITDA
|
$ | 799 | $ | 502 |
Three
Months Ended
March
31,
|
||||||||
(in
millions)
|
2008
|
2007
|
||||||
Cash
provided by (used for) operating activities
|
$ | 266 | $ | (59 | ) | |||
Cash
provided by (used for) investing activities
|
620 | (300 | ) | |||||
Cash
(used for) provided by financing activities
|
(599 | ) | 31 |
3
|
Management uses EBITDA to assess
operating performance and believes that it may assist users of our
financial statements in analyzing the underlying trends in our business
over time. In addition, management considers adjusted EBITDA as a
component of the financial covenants included in our credit agreements.
Users of our financial statements should consider this non-GAAP financial
information in addition to, not as a substitute for, nor as superior to,
financial information prepared in accordance with GAAP. Our EBITDA
included acquisition-, divestiture- and restructuring-related net credits
(pre-tax) of $193 million for the first quarter of 2008 and charges
(pre-tax) of $25 million for the first quarter of 2007. See
Financial
Summary
for a
description of these
charges/credits.
|
Payments
Due by Period
|
||||||||||||||||||||||||||||
(in
millions)
|
2008
|
2009
|
2010
|
2011
|
2012
|
Thereafter
|
Total
|
|||||||||||||||||||||
Term
loan
|
$ | 1,375 | $ | 2,000 | $ | 3,375 | ||||||||||||||||||||||
Abbott
Laboratories loan
|
900 | 900 | ||||||||||||||||||||||||||
Senior
notes
|
850 | $ | 2,200 | 3,050 | ||||||||||||||||||||||||
Credit
and security facility
|
$ | 250 | 250 | |||||||||||||||||||||||||
$ | 250 | $ | $ | 1,375 | $ | 3,750 | $ | $ | 2,200 | $ | 7,575 |
|
Note:
|
The
table above does not include capital leases, discounts associated
with our Abbott loan and senior notes, and non-cash gains related to
interest rate swaps used to hedge the fair value of certain of our senior
notes.
|
|
•
|
Volatility
in the coronary stent market, competitive offerings and the timing of
receipt of regulatory approvals to market existing and anticipated
drug-eluting stent technology and other stent
platforms;
|
|
•
|
Our
ability to launch our next-generation drug-eluting stent system, the
TAXUS® Liberté® coronary stent system, in the U.S., subject to regulatory
approval, and to maintain or expand our worldwide market positions through
reinvestment in our two drug-eluting stent
programs;
|
|
•
|
Our
share of the worldwide drug-eluting stent market, the impact of concerns
relating to late stent thrombosis on the size of the coronary stent
market, the distribution of share within the coronary stent market in the
U.S. and around the world, the average number of stents used per procedure
and average selling prices;
|
|
•
|
The
overall performance of, and continued physician confidence in, our and
other drug-eluting stent systems, our ability to adequately address
concerns regarding the perceived risk of late stent thrombosis, and the
results of drug-eluting stent clinical trials undertaken by us, our
competitors or other third parties;
|
|
•
|
The
penetration rate of drug-eluting stent technology in the U.S. and
international markets;
|
|
•
|
Our
ability to leverage our position as an early entrant in the U.S.
drug-eluting stent market, to anticipate competitor products as they enter
the market and to respond to the challenges presented as additional
competitors enter the U.S. drug-eluting stent market in
2008;
|
|
•
|
Our
ability to manage inventory levels, accounts receivable, gross margins and
operating expenses and to react effectively to worldwide economic and
political conditions;
|
|
•
|
Our
ability to retain key members of our cardiology sales force and other key
personnel; and
|
|
•
|
Our
ability to manage the mix of our PROMUS
™
stent system revenue relative to our total drug-eluting stent revenue and
to launch a next-generation everolimus-eluting stent system with profit
margins more comparable to our TAXUS® stent system, and to maintain our
overall profitability as a percentage of
revenue.
|
|
•
|
Our
estimates for the worldwide CRM market, the recovery of the CRM market to
historical growth rates and our ability to increase CRM net
sales;
|
|
•
|
The
overall performance of, and referring physician, implanting physician and
patient confidence in, our and our competitors’ CRM products and
technologies, including our LATITUDE® Patient Management System and
next-generation pulse generator
platform;
|
|
•
|
The
results of CRM clinical trials undertaken by us, our competitors or other
third parties;
|
|
•
|
Our
ability to launch various products utilizing our next-generation CRM pulse
generator platform in the U.S. and to expand our CRM market position
through reinvestment in our CRM products and
technologies;
|
|
•
|
Our
ability to retain key members of our CRM sales force and other key
personnel;
|
|
•
|
Competitive
offerings in the CRM market and the timing of receipt of regulatory
approvals to market existing and anticipated CRM products and
technologies;
|
|
•
|
Our
ability to continue to implement a direct sales model for our CRM products
in Japan; and
|
|
•
|
Our
ability to avoid disruption in the supply of certain components or
materials or to quickly secure additional or replacement components or
materials on a timely basis.
|
|
•
|
Any
conditions imposed in resolving, or any inability to resolve, our
corporate warning letter or other FDA matters, as well as risks generally
associated with our regulatory compliance and quality
systems;
|
|
•
|
Our
ability to minimize or avoid future FDA warning letters or field actions
relating to our products;
|
|
•
|
Changes
in FDA clinical trial and post-market surveillance requirements and the
associated impact on new product launch schedules and the cost of product
approval and compliance;
|
|
•
|
The
effect of our litigation; risk management practices, including
self-insurance; and compliance activities on our loss contingencies, legal
provision and cash flows;
|
|
•
|
The
impact of our stockholder derivative and class action, patent, product
liability, contract and other litigation, governmental investigations and
legal proceedings and our ability to effectively respond to inquiries
resulting from increased governmental and regulatory scrutiny on the
medical device industry;
|
|
•
|
The
on-going, inherent risk of potential physician advisories or field actions
related to medical devices;
|
|
•
|
Costs
associated with our on-going compliance and quality
activities; and
|
|
•
|
The
impact of increased pressure on the availability and rate of third-party
reimbursement for our products and procedures
worldwide.
|
|
•
|
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 revenue
growth;
|
|
•
|
Our
ability to develop next-generation products and technologies within our
drug-eluting stent and CRM businesses, as well as our ability to develop
products and technologies successfully in addition to these
technologies;
|
|
•
|
Our
ability to fund and achieve benefits from our focus on internal research
and development and external alliances as well as our ability to
capitalize on opportunities across our
businesses;
|
|
•
|
Our
ability to integrate the acquisitions and other alliances we have
consummated, including Guidant;
|
|
•
|
Our
decision to exercise, or not to exercise, options to purchase certain
companies with which we have alliances and our ability to fund with cash
or common stock these and other acquisitions, or to fund contingent
payments associated with these
alliances;
|
|
•
|
Our
ability to prioritize our internal research and development project
portfolio and our external investment portfolio to keep expenses in line
with expected revenue levels, or our decision to sell, discontinue, write
down or reduce the funding of certain 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.
|
|
•
|
Dependency
on international net sales to achieve
growth;
|
|
•
|
Risks
associated with international operations, including compliance with local
legal and regulatory requirements as well as changes in reimbursement
practices and policies; and
|
|
•
|
The
potential effect of foreign currency fluctuations and interest rate
fluctuations on our net sales, expenses and resulting
margins.
|
|
•
|
Our
ability to implement, fund, and achieve sustainable cost improvement
measures, including our expense and head count reduction initiatives and
restructuring program, intended to better align operating expenses with
expected revenue levels and reallocate resources to better support growth
initiatives;
|
|
•
|
Our
ability to generate sufficient cash flow to fund operations, capital
expenditures, and strategic investments, as well as debt reduction over
the next twelve months and
beyond;
|
|
•
|
Our
ability to maintain positive operating cash flow in 2008 and to generate
sufficient cash flow to effectively manage our debt levels and minimize
the impact of interest rate fluctuations on our earnings and cash
flows;
|
|
•
|
Our
ability to recover substantially all of our deferred tax
assets;
|
|
•
|
Our
ability to access the public and private capital markets and to issue debt
or equity securities on terms reasonably acceptable to us;
and
|
|
•
|
Our
ability to regain investment-grade credit ratings and to remain in
compliance with our financial
covenants.
|
|
•
|
Risks
associated with significant changes made or to be made to our
organizational structure, or to the membership of our executive
committee;
|
|
•
|
Risks
associated with our acquisition of Guidant, including, among other things,
the indebtedness we have incurred and the integration costs and challenges
we will continue to face;
|
|
•
|
Our
ability to retain our key employees and avoid business disruption and
employee distraction as we continue to execute our expense and head count
reduction initiatives; and
|
|
•
|
Our
ability to maintain management focus on core business activities while
also concentrating on resolving the corporate warning letter and executing
strategic initiatives, including expense and head count reductions and our
restructuring program, in order to streamline our operations and reduce
our debt obligations.
|
10.1
|
Boston
Scientific Corporation 2003 Long-Term Incentive Plan (as Amended and
Restated Effective June 1, 2008)
|
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
|
BOSTON
SCIENTIFIC CORPORATION
|
|||
|
|
|
|
By:
|
/s/ Sam R. Leno | ||
Name:
Sam R. Leno
|
|||
Title:
Chief Financial Officer and Executive Vice President - Finance and
Information Systems
|
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
|
5.
|
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: May
8, 2008
|
By:
|
/s/ James R. Tobin |
James
R. Tobin
|
||
President
and Chief Executive Officer
|
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
|
5.
|
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: May
8, 2008
|
By:
|
/s/ Sam R. Leno |
Sam
R. Leno
|
||
Chief
Financial Officer and Executive Vice President - Finance and
Information Systems
|
(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.
|
|
|
|
Date:
May 8, 2008
|
By:
|
/s/ James R. Tobin |
James
R. Tobin
|
||
President
and Chief Executive Officer
|
(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.
|
|
|
|
Date:
May 8, 2008
|
By:
|
/s/ Sam R. Leno |
Sam
R. Leno
|
||
Chief
Financial Officer and Executive Vice President - Finance and
Information Systems
|