<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT
OF 1934
For the quarterly period ended: June 30, 1998
Commission file number: 1-11083
BOSTON SCIENTIFIC CORPORATION
-----------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 04-2695240
-------- ----------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
One Boston Scientific Place, Natick, Massachusetts 01760-1537
- -------------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (508) 650-8000
--------------
- --------------------------------------------------------------------------------
Former name, former address and former fiscal year, if changed since last
report.
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 [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the last practicable date.
Shares Outstanding
Class as of June 30, 1998
----- -------------------
Common Stock, $.01 Par Value 195,702,035
- --------------------------------------------------------------------------------
<PAGE>
PART I
Financial Information
ITEM 1. FINANCIAL STATEMENTS
BOSTON SCIENTIFIC CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
In thousands, except share and per share data 1998 1997
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $148,588 $57,993
Short-term investments 7,332 22,316
Trade accounts receivable, net 440,124 413,838
Inventories 459,871 386,742
Deferred income taxes 154,036 146,956
Prepaid expenses and other current assets 51,724 36,176
-----------------------------------
Total current assets 1,261,675 1,064,021
Property, plant, equipment and leaseholds 796,618 706,515
Less: accumulated depreciation and amortization 234,088 207,548
-----------------------------------
562,530 498,967
Intangibles, net 319,660 313,346
Investments and other assets 85,372 91,473
-----------------------------------
$2,229,237 $1,967,807
===================================
</TABLE>
See notes to unaudited condensed consolidated financial statements.
<PAGE>
BOSTON SCIENTIFIC CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets (continued)
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
In thousands, except share and per share data 1998 1997
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
Liabilities and Stockholders' Equity
Current liabilities:
Borrowings due within one year $27,127 $447,208
Accounts payable 67,078 98,878
Accrued expenses 194,639 161,236
Accrual for merger-related charges 29,559 68,358
Income taxes payable 42,128 26,039
Other current liabilities 4,662 6,292
-------------------------------
Total current liabilities 365,193 808,011
Long-term debt 551,192 46,325
Deferred income taxes 58,034 58,034
Other long-term liabilities 72,506 69,205
Stockholders' equity:
Preferred stock, $ .01 par value - authorized 25,000,000 shares,
none issued and outstanding
Common stock, $ .01 par value - authorized 300,000,000 shares,
195,935,721 shares issued at June 30, 1998 and 195,611,491 at
December 31, 1997 1,959 1,956
Additional paid-in capital 462,001 432,556
Contingent stock repurchase obligation 11,200 18,295
Retained earnings 816,530 706,542
Foreign currency translation adjustment (104,511) (94,279)
Unrealized gain on available-for-sale securities, net 6,759 17,422
Treasury stock, at cost - 233,686 shares at June 30, 1998
and 1,800,627 shares at December 31, 1997 (11,626) (96,260)
-------------------------------
Total stockholders' equity 1,182,312 986,232
-------------------------------
$2,229,237 $1,967,807
===============================
</TABLE>
See notes to unaudited condensed consolidated financial statements.
<PAGE>
BOSTON SCIENTIFIC CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
In thousands, except per share data 1998 1997 1998 1997
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $505,731 $473,749 $975,736 $904,280
Cost of products sold 151,230 131,455 291,189 252,512
------------------------- -------------------------
Gross profit 354,501 342,294 684,547 651,768
Selling, general and administrative expenses 181,666 157,031 353,534 308,994
Royalties 6,607 5,388 13,342 11,286
Research and development expenses 48,638 41,006 93,286 79,704
Purchased research and development 10,952 11,950 10,952 11,950
Merger-related charges (20,314) 145,891 (20,314) 145,891
------------------------- -------------------------
227,549 361,266 450,800 557,825
------------------------- -------------------------
Operating income (loss) 126,952 (18,972) 233,747 93,943
Other income (expense):
Interest and dividend income 1,249 956 1,949 1,994
Interest expense (8,198) (3,353) (14,252) (6,651)
Other, net 3,798 (1,686) 738 251
------------------------- -------------------------
Income (loss) before income taxes 123,801 (23,055) 222,182 89,537
Income taxes 45,065 3,841 76,547 40,997
------------------------- -------------------------
Net income (loss) $78,736 ($26,896) $145,635 $48,540
========================= =========================
Net income (loss) per common share - basic $0.40 ($0.14) $0.75 $0.25
========================= =========================
Net income (loss) per common share - assuming dilution $0.39 ($0.14) $0.73 $0.24
========================= =========================
</TABLE>
See notes to unaudited condensed consolidated financial statements.
<PAGE>
BOSTON SCIENTIFIC CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statement of Stockholders' Equity
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30, 1998
----------------------------------------------------------
Common Stock Additional Contingent
------------------------- Paid-In Stock Repurchase
Shares Issued Par Value Capital Obligation
----------------------------------------------------------
(In thousands, except share data)
<S> <C> <C> <C> <C>
Balance at December 31, 1997 195,611,491 $ 1,956 $ 432,556 $ 18,295
Net income
Foreign currency translation
adjustment
Issuance of common stock 324,230 3 22,350
Expiration of stock repurchase obligation 7,095 (7,095)
Tax benefit relating to incentive stock option
and employee stock purchase plans
Net change in equity investments
----------------------------------------------------------
Balance at June 30, 1998 195,935,721 $ 1,959 $ 462,001 $ 11,200
==========================================================
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended June 30, 1998
---------------------------------------------------------------------------------
Unrealized Gain
Foreign Currency on Available-
Retained Translation for-Sale Treasury
Earnings Adjustment Securities, Net Stock Total
---------------------------------------------------------------------------------
(In thousands, except share data)
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1997 $ 706,542 $ (94,279) $ 17,422 $ (96,260) $ 986,232
Net income 145,635 145,635
Foreign currency translation
adjustment (10,232) (10,232)
Issuance of common stock (51,377) 84,634 55,610
Expiration of stock repurchase obligation
Tax benefit relating to incentive stock option
and employee stock purchase plans 15,730 15,730
Net change in equity investments (10,663) (10,663)
---------------------------------------------------------------------------------
Balance at June 30, 1998 $ 816,530 $(104,511) $ 6,759 $ (11,626) $ 1,182,312
=================================================================================
</TABLE>
See notes to unaudited condensed consolidated financial statements.
<PAGE>
BOSTON SCIENTIFIC CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
In thousands 1998 1997
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Cash provided by operating activities $49,532 $73,951
Investing activities:
Purchases of property, plant, and equipment, net (94,327) (109,583)
Net maturities of held-to-maturity short-term investments 18,232
Sales of available-for-sale securities 10,708 902
Purchases of available-for-sale securities (6,436)
Payments for investments in certain technologies (10,954) (38,593)
Other, net (3,179)
---------------------------
Cash used in investing activities (94,573) (138,657)
Financing activities:
Proceeds from the issuance of debt securities, net of debt
issuance costs 496,441
Net increase (decrease) in commmercial paper (423,250) 93,950
Net proceeds from notes payable, capital leases
and long-term borrowings 14,269 12,045
Proceeds from issuances of shares of common stock,
net of tax benefits 49,000 25,668
Acquisition of treasury stock, net of proceeds from
put options (81,458)
---------------------------
Cash provided by financing activities 136,460 50,205
Effect of foreign exchange rates on cash (824) (3,533)
---------------------------
Net increase (decrease) in cash and cash equivalents 90,595 (18,034)
Cash and cash equivalents at beginning of period 57,993 72,175
---------------------------
Cash and cash equivalents at end of period $148,588 $54,141
===========================
</TABLE>
See notes to unaudited condensed consolidated financial statements
<PAGE>
Notes to Condensed Consolidated Financial Statements
(Unaudited)
June 30, 1998
Note A - Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information 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 generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
only of normal recurring adjustments) considered necessary for a fair
presentation have been included. Operating results for the three and six month
periods ended June 30, 1998 are not necessarily indicative of the results that
may be expected for the year ending December 31, 1998. For further information,
refer to the consolidated financial statements and footnotes thereto
incorporated by reference in Boston Scientific Corporation's Annual Report on
Form 10-K for the year ended December 31, 1997.
Certain prior year's amounts have been reclassified to conform to the current
year presentation.
Note B - Acquisitions
On June 16, 1998, the Company announced the signing of a definitive agreement to
acquire Schneider Worldwide (Schneider), a member of the Medical Technology
Group of Pfizer Inc., for approximately $2.1 billion in cash. Schneider
develops, manufactures and markets a broad range of catheter-based technologies
used in less invasive medicine. The transaction is expected to be consummated
later in 1998.
On June 30, 1998, the Company acquired 100% of the outstanding stock of
CardioGene Therapeutics, Inc., a development stage company focused on the
application of gene therapy for treatment of cardiovascular diseases. The
acquisition is accounted for under the purchase method of accounting. The
purchase price is not material to the Company's financial position or results of
operations and the acquisition did not have a material pro forma impact on the
Company's operations.
<PAGE>
Note C - Comprehensive Income
During the first quarter of 1998, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income", which
requires the disclosure of comprehensive income and its components. SFAS No.
130 requires companies to report, in addition to net income, other components of
comprehensive income, which includes unrealized gains and losses on available-
for-sale securities and foreign currency translation adjustments. The Company
had comprehensive income of $69 million for the three months ended June 30, 1998
and a comprehensive loss of $35 million for the three months ended June 30,
1997. For the six months ended June 30, 1998 and 1997, the Company's
comprehensive income was $125 million and $10 million, respectively. The
Company's adoption of SFAS No. 130 had no effect on the Company's reported
results of operations or financial position.
Note D - Earnings Per Share
The following table sets forth the computations of basic and diluted earnings
per share:
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
(In thousands, except per share data) 1998 1997 1998 1997
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Basic:
Net income (loss) $ 78,736 ($26,896) $145,635 $ 48,540
-------------------------------------------------------
Weighted average shares outstanding 194,898 194,702 194,458 194,672
-------------------------------------------------------
Net income (loss) per common share $ 0.40 ( $0.14) $ 0.75 $ 0.25
=======================================================
Assuming dilution:
Net income (loss) $ 78,736 ($26,896) $145,635 $ 48,540
-------------------------------------------------------
Weighted average shares outstanding 194,898 194,702 194,458 194,672
Net effect of dilutive put options 4 2
Net effect of dilutive stock
options 4,966 4,674 5,637
-------------------------------------------------------
Total 199,864 194,702 199,136 200,311
-------------------------------------------------------
Net income (loss) per common share $ 0.39 ( $0.14) $ 0.73 $ 0.24
=======================================================
</TABLE>
<PAGE>
Note E - Merger-Related Charges and Expenses
At June 30, 1998, the Company had an accrual for merger-related and special
charges of $48 million with respect to the Company's mergers and
acquisitions. The accrual includes those remaining costs typical in merging
operations and relate to, among other things, rationalization of facilities,
workforce reductions, unwinding of various contractual commitments, asset write-
downs and other integration costs. The merger-related charges were determined
based on formal plans approved by the Company's management using the best
information available to it at the time. The workforce-related initiatives
involved substantially all of the Company's employee groups. The amounts the
Company may ultimately incur may change as the balance of the Company's
initiative to integrate the businesses related to these mergers and acquisitions
is executed.
The Company periodically reviews the amounts included in the accrual related to
these charges in comparison to their respective requirements and adjusts the
accrual as necessary. During a review in the second quarter of 1998, the
Company identified and reversed amounts no longer required which were included
in the accrual for merger-related and special charges of approximately $20
million. The amounts related primarily to the merger-related charges accrued in
the second quarter of 1997.
The activity impacting the accrual for merger-related and special charges during
the first six months of 1998 is summarized in the following table:
<TABLE>
<CAPTION>
Balance at Balance at
December 31, Charges June 30,
(in thousands) 1997 Utilized Adjustments 1998
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Facilities $ 19,989 $ 2,113 $ 2,176 $15,700
Workforce reductions 25,242 3,017 9,351 12,874
Contractual commitments 29,334 18,217 5,371 5,746
Asset write-downs 15,802 6,410 2,416 6,976
Direct transaction and other costs 11,291 3,270 1,000 7,021
-------------------------------------------------------------
$101,658 $33,027 $20,314 $48,317
=============================================================
</TABLE>
Most of the plans are expected to be completed by the end of 1998. Cash
outlays to complete the balance of the Company's initiative to integrate the
businesses related to mergers and acquisitions are estimated to be approximately
$23 million.
<PAGE>
The June 30, 1998 accrual for merger-related and special charges is classified
within the balance sheet as follows:
<TABLE>
(in thousands)
- ---------------------------------------------------------------------
<S> <C>
Accrual for merger-related charges $29,559
Property, plant, equipment and leaseholds 11,714
Other long-term liabilities 7,044
-----------
$48,317
===========
</TABLE>
Note F - Credit Arrangements
In March 1998, the Company issued $500 million of 6.625% debt securities (Debt
Securities) due March 2005 under a Public Debt Registration Statement filed with
the U.S. Securities and Exchange Commission. The Debt Securities are not
redeemable prior to maturity and are not subject to any sinking fund
requirements. A significant portion of the net proceeds from the sale of the
Debt Securities (approximately $496 million) was used for repayment of
indebtedness under the Company's commercial paper program.
During March 1998, the Company borrowed 1.2 billion yen (the equivalent of
approximately $9 million) under a financing arrangement with a Japanese bank at
a fixed interest rate of 2.1%. The term of the borrowing extends through 2012.
In addition to its existing credit facilities with several Japanese banks, the
Company entered into a new Japanese uncommitted credit facility in March 1998.
The new credit facility provides for additional borrowings and promissory notes
discounting of up to 3 billion yen, or approximately $21 million.
Note G - Inventories
The components of inventory consist of the following:
<TABLE>
<CAPTION>
June 30, December 31,
(In thousands) 1998 1997
- --------------------------------------------------------
<S> <C> <C>
Finished goods $216,635 $204,668
Work-in-process 62,705 45,683
Raw materials 180,531 136,391
----------------------------------
$459,871 $386,742
==================================
</TABLE>
<PAGE>
Note H - Stockholders' Equity
The Company is authorized to purchase on the open market up to approximately 20
million shares of the Company's common stock. Purchases will be made at
prevailing prices as market conditions and cash availability warrant. Stock
repurchased under the Company's systematic plan will be used to satisfy the
Company's obligations pursuant to its employee benefit and incentive plans. The
Company did not repurchase any shares of its common stock during the first half
of 1998. Prior to 1998, a total of 10 million shares of the Company's common
stock was repurchased under the program.
As part of the stock repurchase program, the Company has been selling European
equity put options to an independent broker-dealer. Each option, if exercised,
obligates the Company to purchase from the broker-dealer a specified number of
shares of the Company's common stock at a predetermined exercise price. The put
options are exercisable only on the first anniversary of the date the options
were sold and can be settled in cash or common stock at the Company's
discretion. During the second quarter of 1998, put options for 129,000 shares
expired. The repurchase price relating to put options outstanding is $56 per
share. The Company's contingent obligation to repurchase shares upon exercise
of the outstanding put options approximated $11 million at June 30, 1998.
Note I - New Accounting Pronouncements
In April 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-5, "Reporting on the Costs of Start-Up Activities",
which provides new guidance on the financial reporting of start-up costs and
organization costs. The Company is required to adopt this statement in 1999.
The Company is in the process of determining the effect of adoption of this
statement on its consolidated financial statements and related disclosures.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities", which establishes new accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts, (collectively referred to as derivatives) and for
hedging activities. The Company is required to adopt this statement in the year
2000. The Company is in the process of determining the effect of adoption of
this statement on its consolidated financial statements and related disclosures.
<PAGE>
Note J - Commitments and Contingencies
On May 31, 1994, SCIMED filed a suit for patent infringement against Advanced
Cardiovascular Systems, Inc. (ACS), alleging willful infringement of two of
SCIMED's U.S. patents by ACS's RX ELIPSE(TM) PTCA catheter. The suit was filed
in the U.S. District Court for the Northern District of California seeking
monetary and injunctive relief. In January 1998, the Company added the ACS RX
MULTILINK(TM) Stent Delivery System to its complaint. ACS has answered, denying
the allegations of the complaint. Trial is scheduled to begin in late 1998 or
early 1999.
SCIMED has accused ACS's COMET(TM) PTCA catheter, MULTILINK HP(TM) Stent
Delivery System and ROCKET(TM) PTCA catheter of infringing several SCIMED
patents. These claims are subject to arbitration relating to a threshold
determination under a November 27, 1991 settlement agreement. The arbitration
began on May 11, 1998. If SCIMED is successful in the arbitration, it intends
immediately to commence patent infringement litigation to enforce its rights
under the relevant patents against ACS.
On October 10, 1995, ACS filed a suit for patent infringement against SCIMED,
alleging willful infringement of four U.S. patents licensed to ACS by SCIMED'S
EXPRESS PLUS(TM) and EXPRESS PLUS II(TM) PTCA catheters. Suit was filed in the
U.S. District Court for the Northern District of California and seeks monetary
and injunctive relief. SCIMED has answered, denying the allegations of the
complaint. Trial is expected to begin in 1999.
On March 12, 1996, ACS filed two suits for patent infringement against SCIMED,
alleging in one case the willful infringement of a U.S. patent by SCIMED's
EXPRESS PLUS, EXPRESS PLUS II and LEAP(R) EXPRESS PLUS PTCA catheters, and in
the other case the willful infringement of a U.S. patent by SCIMED's BANDIT(TM)
PTCA catheter. The suits were filed in the U.S. District Court for the Northern
District of California and seek monetary and injunctive relief. SCIMED has
answered, denying the allegations of the complaint. Trial is expected to begin
in 1999.
On September 16, 1997, ACS filed a suit for patent infringement against the
Company and SCIMED, alleging that SCIMED's REBEL(TM) PTCA catheter infringes
two U.S. patents licensed to ACS and one U.S. patent owned by ACS. Suit was
filed in the U.S. District Court for the Northern District of California seeking
monetary damages, injunctive relief and that the patents be adjudged valid,
enforceable and infringed. The Company and SCIMED have answered, denying the
allegations in the complaint. A trial date has not yet been set.
On April 5, 1995, C.R. Bard, Inc. (Bard) filed a lawsuit in the U.S. District
Court for the District of Delaware alleging that certain Company products,
including the Company's MaxForce TTS(TM) catheter, infringe a patent assigned to
Bard. The lawsuit seeks a declaratory judgment that the Company has infringed
the Bard patent, preliminary and permanent injunctions enjoining
<PAGE>
the manufacture, use or sale of the MaxForce TTS catheter or any other
infringing product, monetary damages and expenses. After a jury trial in June
1997, the jury returned a verdict finding that the Company infringed the Bard
patent and awarded damages to Bard in the amount of $10.8 million. No judgment
has been entered pending trial on the Company's claim that the patent was
obtained by inequitable conduct. The Company intends to appeal any judgment
entered on the jury verdict. The Company no longer markets the accused device.
On March 7, 1996, Cook Inc. filed suit in the Regional Court, Munich Division
for Patent Disputes, in Munich, Germany against MinTec, Inc. Minimally Invasive
Technologies alleging that the Cragg EndoPro(TM) System I and Stentor(TM)
endovascular device infringe a certain Cook patent. Since the purchase of the
assets of the Endotech/MinTec companies by the Company, the Company has assumed
control of the litigation. The defendant answered, denying the allegations.
A court-appointed technical expert has provided the court with technical advice
and additional filings are due in August 1998.
On June 30, 1998 Cook, Inc. filed suit in the Region Court, Dusseldorf Division
for Patent Disputes, in Dusseldorf, Germany against the Company alleging that
the Company's PASSAGER peripheral vascular stent graft and VANGUARD(TM)
endovascular aortic graft products infringe the same Cook patent. The Company is
reviewing the allegations.
On March 25, 1996, Cordis Corporation, a subsidiary of Johnson & Johnson Company
(Cordis), filed a suit for patent infringement against SCIMED, alleging the
infringement of five U.S. patents by SCIMED's LEAP(TM) balloon material, used in
certain SCIMED catheter products, including SCIMED's BANDIT and EXPRESS PLUS
catheters. The suit was filed in the U.S. District Court for the District of
Minnesota and seeks monetary and injunctive relief. SCIMED has answered,
denying the allegations of the complaint. Trial is expected to begin in late
1998.
On March 17, 1997, the Company, through its subsidiaries, filed suit in France
seeking a declaration of noninfringement for the Company's LEAP balloon in
relation to a European patent owned by Cordis. No hearing date has been set.
On July 18, 1997, Cordis filed a cross border suit in The Netherlands against
various subsidiaries of the Company, alleging that the LEAP balloon infringes
one of Cordis' European patents. In this action, Cordis requested expedited
relief, including an injunction, covering The Netherlands, Germany, France, the
United Kingdom and Italy. The court posed certain questions to the European
Patent Office (EPO). The Company appealed the court's decision to present
questions to the EPO. A hearing on the appeal was held June 16, 1998. A
decision is expected on October 1, 1998.
On March 27, 1997, SCIMED filed suit for patent infringement against Cordis
alleging willful infringement of several SCIMED U.S. patents by Cordis'
TRACKSTAR 14(TM), TRACKSTAR 18(TM), OLYMPIX(TM), POWERGRIP(TM), SLEEK(TM),
SLEUTH(TM), THOR(TM), TITAN(TM) and VALOR(TM) catheters. The suit was filed in
the U.S. District Court for the District of Minnesota, Fourth District, seeking
monetary and injunctive relief. The parties have agreed to add Cordis'
CHARGER(TM) and HELIX(TM) catheter to the suit. Cordis has answered, denying
the allegations of the complaint. Trial is scheduled for January 1999.
<PAGE>
On December 13, 1996, the Superior Court of the State of Arizona granted the
motion of Impra, Inc., to add the Company as an additional defendant in Impra's
case against Endomed, Inc. Impra (now a subsidiary of C.R. Bard, Inc.) alleged
that Endomed, Inc. misappropriated certain Impra trade secrets and that the
Company acted in concert with Endomed to utilize the technology. On the same
date, Endomed and the Company were preliminarily enjoined, among other things,
from any further use or disclosure of the technology. The Company has answered,
denying the allegations of the complaint. The suit has been dismissed pursuant
to a Settlement Agreement dated April 28, 1998.
On March 13, 1997, the Company (through its subsidiaries) filed suits against
Johnson & Johnson (through its subsidiaries) in The Netherlands, the United
Kingdom and Belgium, and on March 17, 1997 filed suit in France, seeking a
declaration of noninfringement for the NIR(TM) stent relative to two European
patents licensed to Ethicon, Inc., a Johnson & Johnson subsidiary, as well as a
declaration of invalidity with respect to those patents. After a trial on the
merits in the United Kingdom during March, 1998, the Court ruled on June 26,
1998 that neither of the patents is infringed by the NIR stent, and that both
patents are invalid. Ethicon has appealed. A jurisdictional hearing in France is
scheduled for September 1998. On March 20, 21 and 22, 1997, the Company (through
its subsidiaries) filed additional suits against Johnson & Johnson (through its
subsidiaries) in Sweden, Italy and Spain, respectively, seeking a declaration of
noninfringement for the NIR stent relative to one of the European patents
licensed to Ethicon and a declaration of invalidity in relation to that patent
(in Italy and Spain only). Ethicon and other Johnson & Johnson subsidiaries
filed a cross-border suit in The Netherlands on March 17, 1997, alleging that
the NIR stent infringes one of the European patents licensed to Ethicon. In this
action, the Johnson & Johnson entities requested relief, including provisional
relief (a preliminary injunction), covering Austria, Belgium, France, Greece,
Italy, The Netherlands, Norway, Spain, Sweden, Switzerland and the United
Kingdom. The Johnson & Johnson entities thereafter filed a similar cross-border
proceeding in The Netherlands with respect to the second European patent
licensed to Ethicon. Johnson & Johnson subsequently withdrew its request for
cross-border relief in the United Kingdom. In October, 1997, Johnson & Johnson's
request for provisional cross-border relief on both patents was denied by the
Dutch court, on the ground that it is "very likely" that the NIR stent will be
found not to infringe the patents. Johnson & Johnson appealed this decision with
respect to one of the patents; the appeal has been denied on the ground that
there is a "ready chance" that the patent will be declared null and void. A
hearing on the merits is scheduled in The Netherlands for January 15, 1999.
On May 6, 1997, Ethicon Endosurgery, Inc. sued the Company in Dusseldorf,
Germany, alleging that the Company's NIR stent infringes one of Ethicon's
patents. On June 23, 1998, the case was stayed following a decision in an
unrelated nullity action in which the Ethicon patent was found to be invalid.
<PAGE>
On June 16, 1997, the Company and SCIMED filed a suit against Johnson & Johnson,
Ethicon, Inc. and Johnson & Johnson International Systems Co. (Johnson &
Johnson) in the U.S. District Court for the District of Massachusetts seeking a
declaratory judgment of noninfringement for the NIR stent relative to two
patents licensed to Johnson & Johnson and that the two patents are invalid and
unenforceable. The Company subsequently amended its complaint to add a third
patent. In October, 1997, Johnson & Johnson's motion to dismiss the suit was
denied. Johnson & Johnson answered, denying the allegations of the complaint,
and counterclaiming for patent infringement. This action has been consolidated
with the Delaware action described below.
On August 22, 1997, Johnson & Johnson filed a suit for patent infringement
against the Company alleging that the sale of the NIR stent infringes certain
Canadian patents owned by Johnson & Johnson. Suit was filed in the federal
court of Canada seeking a declaration of infringement, monetary damages and
injunctive relief. The Company has answered the complaint denying Johnson &
Johnson's allegations.
On October 22, 1997, Cordis filed a suit for patent infringement against the
Company and SCIMED alleging that the importation and use of the NIR stent
infringes two patents owned by Cordis. The suit was filed in the U.S. District
Court for the District of Delaware seeking monetary damages, injunctive relief
and that the patents be adjudged valid, enforceable and infringed. The Company
and SCIMED have answered the complaint, denying Cordis' allegations. The
Massachusetts case described above has been consolidated with this action. On
April 13, 1998, Cordis filed a motion requesting a preliminary injunction
against the NIR stent. Following the court's decision not to grant a
preliminary injunction against co-defendant ACS, Cordis has withdrawn its
request for preliminary injunction against the Company. A trial date has not
yet been set.
On April 13, 1998, Cordis filed a suit for patent infringement against the
Company and SCIMED alleging that the Company's NIR stent infringes a third
patent owned by Cordis. The suit was filed in the U.S. District Court for the
District of Delaware seeking injunctive and monetary relief. The Company and
SCIMED have answered, denying the allegations of the complaint. A trial date
has not yet been set.
On August 13, 1998, Applied Vascular Engineering, Inc. (AVE) filed a suit for
patent infringement against the Company and SCIMED alleging that the Company's
NIR stent infringes two patents owned by AVE. The suit was filed in the U.S.
District Court for the District of Delaware seeking injunctive and monetary
relief. The Company and SCIMED have not yet answered, but intend to deny the
allegations of the complaint.
On April 9, 1998, Schneider (U.S.A.) Inc. filed a suit in the U.S. District
Court for the District of Delaware seeking a declaratory judgment of invalidity
of a patent owned by the Company and the noninfringement of the patent by
Schneider's Wallstent(R) products. The Company has answered, denying certain
allegations and has filed a counterclaim alleging infringement of the patent by
the Wallstent products. The parties intend to dismiss their suits upon
consummation of the proposed acquisition of the Schneider business by the
Company.
On March 6, 1998, the Company filed suit in the U.S. District Court for the
District of Massachusetts alleging that Circon Corporation's (Circon) Spiked and
Fluted VaporTrode(TM)
<PAGE>
electrodes and Grooved VaporTome(TM) resection electrode infringe two patents
owned by the Company, and requesting a declaratory judgement for invalidity and
noninfringement of three Circon patents. A trial has been set for November 1998.
On March 19, 1998, the Company was served by Circon with a suit alleging that
the Company's PERCUFLEX(R), CONTOUR(R) and BEAMER(TM) ureteral stents infringe
two patents owned by Circon, including two patents that are the subject of the
Company's declaratory judgement action against Circon. The suit was filed in the
U.S. District Court for the Eastern District of Wisconsin seeking a declaration
of infringement and monetary damages. The Company has filed a motion to dismiss
the Wisconsin action in light of the pending action in Massachusetts. A hearing
date on the Wisconsin motion has not yet been set. Trial in the Massachusetts
case is scheduled to begin in November, 1998.
On June 22, 1998, the Company filed suit in the U.S. District Court for the
Central District of California against Mentor Medical, Inc., sometimes d/b/a
Mentor Urology, Inc. (Mentor) alleging that Mentor's Cinch(TM) Bladder Neck
Suspension Anchor System and Suspend(TM) Tutoplast(R) Processed Fascia Lata
infringe a patent owned by the Company and that Mentor's bone anchor infringe a
second patent licensed by the Company. The Company is requesting a preliminary
injunction on the first patent. A hearing is scheduled for September 11, 1998.
On May 12, 1998 C.R. Bard, Inc. (Bard) filed a crossborder suit in The
Netherlands against various subsidiaries of the Company, alleging that the
Company's VIVA!(TM) and MAXXUM(TM) rapid-exchange catheters infringe one of
Bard's European patents. In this action, Bard requested relief covering The
Netherlands, Germany, France, Spain and the United Kingdom. A hearing on the
merits is scheduled for February, 1999.
The Company is involved in various other lawsuits from time to time. In
management's opinion, the Company is not currently involved in any legal
proceedings other than those specifically identified above which, individually
or in the aggregate, could have a material effect on the financial condition,
operations or cash flows of the Company.
The Company believes that it has meritorious defenses against claims that it has
infringed patents of others. However, there can be no assurance that the
Company will prevail in any particular case. An adverse outcome in one or more
cases in which the Company's products are accused of patent infringement could
have a material adverse effect on the Company.
<PAGE>
Further, product liability claims may be asserted in the future relative to
events not known to management at the present time. The Company has insurance
coverage which management believes is adequate to protect against product
liability losses as could otherwise materially affect the Company's financial
position.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
Net sales for the second quarter of 1998 increased 7% to $506 million as
compared to $474 million in the second quarter of 1997. International revenues
for the quarter were impacted by changes in foreign currency exchange rates.
Without the impact of changes in exchange rates, net sales for the second
quarter increased approximately 11%. Net income for the second quarter of 1998
was approximately $78 million, or $0.39 per share (diluted), exclusive of net
reversals of merger-related and special charges of $9 million ($1 million, net-
of-tax). This compares to net income of $90 million, or $0.45 per share,
exclusive of merger-related and special charges of $158 million ($117 million,
net-of-tax), in the second quarter of 1997. The Company reported net income in
the second quarter of 1998 of $79 million, or $0.39 per share, inclusive of net
reversals of merger-related and special charges. This compares to a net loss of
$27 million, or $0.14 per share, inclusive of merger-related and special
charges, reported in the second quarter of 1997.
Net sales for the six month period ended June 30, 1998 increased 8% to $976
million as compared to $904 million in the first half of 1997. International
revenues for the six month period ended June 30, 1998 were impacted by changes
in foreign currency exchange rates. Without the impact of changes in exchange
rates, net sales for the first half of 1998 increased approximately 12%. Net
income for the six month period ended June 30, 1998 was approximately $145
million, or $0.73 per share (diluted), exclusive of net reversals of merger-
related and special charges of $9 million ($1 million, net-of-tax). This
compares to net income of $166 million, or $0.83 per share, exclusive of merger-
related and special charges of $158 million ($117 million, net-of-tax), in the
first half of 1997. The Company reported net income in the six month period
ended June 30, 1998 of $146 million, or $0.73 per share, inclusive of net
reversals of merger-related and special charges. This compares to net income of
$49 million, or $0.24 per share, inclusive of merger-related and special
charges, reported in the six month period ended June 30, 1997.
During the second quarter, United States (U.S.) revenues increased approximately
6%, while international revenues increased approximately 7% compared to the same
period of the prior year. International revenues during the second quarter of
1998 were negatively impacted compared to the second quarter of 1997 by
unfavorable exchange rate movements caused primarily by the strengthening of the
U.S. dollar versus the Japanese yen. Excluding the impact of foreign exchange,
international revenues increased approximately 17% compared to the same period
of the prior year. International sales as a percentage of worldwide sales was
approximately 43% in both the second quarter of 1997 and 1998. Revenues in the
United States increased approximately 7% during the first six months of 1998
compared to the same period of
<PAGE>
the prior year. International revenues increased approximately 10% during the
first six months of 1998 compared to the same period of the prior year.
Excluding the impact of foreign exchange, international revenues increased
approximately 19% compared to the same period of the prior year.
Gross profit as a percentage of net sales decreased from 72.3% in the second
quarter of 1997 to 70.1% in the second quarter of 1998, and decreased from 72.1%
in the six months ended June 30, 1997 to 70.2% in the six months ended June 30,
1998. The decrease in the Company's gross margin percentage is primarily due to
write-downs for excess and obsolete inventory, a decline in average selling
prices due to continuing pressure on healthcare costs and increased competition,
higher manufacturing costs and unfavorable foreign exchange rate movements
discussed above. However, the negative impact of the above conditions was
partially offset by a shift in the Company's product sales mix and the
introduction of new products. Future gross margins may be impacted by the
Company's ability to effectively manage its inventory levels and mix.
Selling, general and administrative expenses as a percentage of net sales
increased from 33.1% in the second quarter of 1997 to 35.9% in the second
quarter of 1998, and increased approximately $25 million from the same period of
the prior year to $182 million. Selling, general and administrative expenses as
a percentage of net sales increased from 34.2% in the first six months of 1997
to 36.2% in the first six months of 1998, and increased approximately $45
million from the same period of the prior year to $354 million. The increase as
a percent of sales reflect costs to operate the Company's new global information
system, continued expansion of the Company's direct sales operations in certain
emerging markets, and increased costs in domestic distribution. The Company
continues to expand its direct sales presence in Asia Pacific and Latin America
so as to be in a position to take advantage of expanded market opportunities.
The Company believes that it will be able to realize improved long-term returns
on its investments with a direct selling presence in these regions.
Royalty expenses remained approximately 1% of net sales while increasing 22.6%
from $5.4 million in the second quarter of 1997 to $6.6 million in the second
quarter of 1998, and 18.2% from $11.3 million in the first six months of 1997 to
$13.3 million in the first six months of 1998. The Company continues to enter
into strategic technological alliances, some of which include royalty
commitments. The Company believes the additional investments will enhance its
competitive position in the future.
Research and development expenses as a percentage of net sales increased from
8.7% in the second quarter of 1997 to 9.6% in the second quarter of 1998, and
increased $8 million to $49 million. Research and development expenses increased
from 8.8% of net sales in the first six months of 1997 to 9.6% of net sales in
the first six months of 1998, and increased $14 million to $93 million. The
increase in research and development reflects increased spending on new product
development programs, and regulatory and clinical research, and reflects the
Company's continued commitment to refine existing
<PAGE>
products and procedures and to develop new technologies that provide simpler,
less traumatic, less costly and more efficient diagnosis and treatment. The
trend in countries around the world toward more stringent regulatory
requirements for product clearance and more vigorous enforcement activities has
generally caused or may cause medical device manufacturers to experience more
uncertainty, greater risk and higher expenses.
During the first six months of 1998, operating expenses increased from the same
period in the prior year at a faster percentage than net sales. The rate at
which operating expenses increased as compared to net sales is due primarily to
costs incurred in preparation of launching a coronary stent in the U.S. market
and the Company's continued expansion of its direct sales operations in certain
emerging markets. The Company expects that the launch of a coronary stent in
the U.S. and Japanese markets and the additional investments in infrastructure
will enhance its future competitive position.
During the second quarter of 1998, the Company identified and reversed amounts
no longer required which were included in the accrual for merger-related and
special charges of approximately $20 million. The amounts related primarily to
the merger-related charges accrued in the second quarter of 1997. The Company
also recorded purchased research and development of approximately $11 million in
connection with the Company's other strategic acquisitions which were
consummated during the period. The net after-tax impact of these special charges
was less than $1 million on the condensed consolidated statements of operations.
During the second quarter of 1997, the Company recorded merger-related charges
of $146 million in connection with its acquisition of Target Therapeutics, Inc.
and recorded purchased research and development of $12 million in conjunction
with accounting for its additional investment in Medinol, Ltd.
Interest expense increased from $3 million in the second quarter of 1997 to $8
million in the second quarter of 1998, and increased from $7 million in the
first six months of 1997 to $14 million in the first six months of 1998. The
overall increase in interest expense is primarily attributable to a higher
outstanding debt balance, including the Company's issuance of $500 million in
fixed rate debt securities during the first quarter of 1998 (see discussion
following). Other income (expense), net, increased from expense of $2 million in
the second quarter of 1997 to income of $4 million in the second quarter of
1998. The change is primarily attributable to net gains on sales of equity
investments of approximately $4 million in the second quarter of 1998 compared
to $1 million in the second quarter of 1997. Other income (expense), net,
remained constant for the first six months of 1998 compared to the first six
months of 1997.
The Company's effective tax rate, excluding the impact of merger-related and
special charges, improved from approximately 33% in the second quarter 1997 to
32% in the second quarter of 1998. The Company's effective tax rate, excluding
the impact of merger-related and special charges, also improved from
approximately 33% in the first six months of 1997 to 32% in the first six months
of 1998. The reduction in the Company's effective tax rate in the first half of
<PAGE>
1998 compared to the same period in 1997 is primarily due to certain tax
planning initiatives. The effective tax rate in the second half of 1998 could
increase modestly.
Uncertainty remains with regard to future changes within the healthcare
industry. The trend towards managed care and economically motivated buyers in
the U.S. may result in continued pressure on selling prices of certain products
and resulting compression on gross margins. The U.S. marketplace is increasingly
characterized by consolidation among healthcare providers and purchasers of
medical devices that prefer to limit the number of suppliers from which they
purchase medical products. There can be no assurance that these entities will
continue to purchase products from the Company. In addition, international
markets are also being affected by economic pressure to contain reimbursement
levels and healthcare costs. The Company's ability to benefit from its
international expansion may be limited by risks and uncertainties related to
economic conditions in these regions, competitive offerings, infrastructure
development, rights to intellectual property, and the ability of the Company to
implement its overall business strategy. Any significant changes in the
political, regulatory or economic environment where the Company conducts
international operations may have a material impact on revenues and profits.
Although these factors may impact the rate at which Boston Scientific can grow,
the Company believes that it is well positioned to take advantage of
opportunities for growth that exist in the markets it serves.
LIQUIDITY AND CAPITAL RESOURCES
In March 1998, the Company issued $500 million of 6.625% debt securities (Debt
Securities) due March 2005 under a Public Debt Registration Statement filed with
the U.S Securities and Exchange Commission. The Debt Securities are not
redeemable prior to maturity and are not subject to any sinking fund
requirements. A significant portion of the net proceeds from the sale of the
Debt Securities (approximately $496 million) was used for repayment of
indebtedness under the Company's commercial paper program. Approximately $17
million of interest on the Debt Securities is payable during the third quarter
of 1998.
Cash and short-term investments totaled $156 million at June 30, 1998 compared
to $80 million at December 31, 1997. The increase in cash and short-term
investments is primarily attributable to cash provided in connection with the
Company's issuance of debt securities and proceeds from operating activities.
The cash proceeds were partially offset by the repayment of the outstanding
commercial paper balance, capital expenditures incurred to expand the Company's
manufacturing and distribution facilities, tax payments, and payments of merger-
related costs. Working capital increased from $256 million at December 31, 1997
to $896 million at June 30, 1998. The significant improvement in working
capital is primarily attributable to the refinancing of commercial paper with
the Debt Securities.
<PAGE>
The increase in accounts receivable, net, from December 31, 1997 to June 30,
1998 is primarily due to an increase in days sales outstanding from 77 to 79.
In addition to impacting selling prices, the trend to managed care in the U.S.
has also resulted in more complex billing and collection procedures. The
Company's ability to effectively react to the changing environment may impact
its bad debt and sales return provisions in the future. In addition, the
Company is in the process of reducing the number of dealers it works with in
Japan and the ability to effectively transition the dealers may impact the
timing of the collectibility of dealer receivables. The increase in inventory
is primarily a result of continued stocking of the NIR/TM/ stent in preparation
for the Company's planned launch in the U.S. and Japan, and an increase in U.S.
finished goods. The Company is committed to purchase approximately $43 million
of NIR stents for the remainder of 1998. The Company expects inventory levels to
peak in 1998 and then begin to decline as the Company's new global supply chain
management system becomes fully operational. Successful implementation of the
Company's supply chain initiatives is necessary to reduce the Company's
inventory to an acceptable level.
Since early 1995, the Company has entered into several transactions involving
acquisitions and alliances, certain of which have involved equity investments.
As the healthcare environment continues to undergo rapid change, management
expects that it will continue focusing on strategic initiatives and/or make
additional investments in existing relationships. Estimated cash payments for
integration costs related to prior acquisitions are approximately $13 million
for the remainder of 1998.
On June 16, 1998, the Company announced the signing of a definitive agreement to
acquire Schneider Worldwide (Schneider), a member of the Medical Technology
Group of Pfizer Inc., for approximately $2.1 billion in cash. The transaction
is expected to be consummated later in 1998. The Company has secured a
commitment from a bank to finance this transaction. The Company expects to
raise more permanent financing through a combination of issuance of commercial
paper, convertible securities, and additional equity securities.
The Company expects to incur additional capital expenditures of approximately
$80 million to $90 million during the remainder of 1998, including construction
of additional manufacturing space and completion of a global information system.
The Company's new global information system is Year 2000 compliant. The Company
is assessing other programs to determine if they are Year 2000 compliant and the
Company does not anticipate that additional compliance costs will have a
material impact on its business, operations or its financial condition.
The Company expects that its cash and cash equivalents, marketable securities,
cash flows from operating activities and borrowing capacity will be sufficient
to fund working capital needs and discretionary operating spending requirements,
at least through the end of 1998.
<PAGE>
MARKET RISK DISCLOSURES
The Company's floating and fixed rate debt obligations and short-term
investments are subject to interest rate risk. If interest rates increase 100
basis points in 1998 the increase would not result in a material change in the
Company's interest expense or the fair value of the Company's debt obligations.
A 100 basis point increase would not result in a material increase in interest
income or the fair value of the Company's short-term investments.
The Company has a $2.1 billion commitment for financing the Schneider
acquisition at the date of closing through December 31, 1998. If the commitment
is utilized, a 100 basis point increase in interest rates incurred related to
the acquisition financing would result in an increase in the Company's then
current interest expense incurred from the closing date through December 31,
1998 of approximately $7 million. The Company is in the process of obtaining
more permanent financing through a combination of issuance of commercial paper,
convertible securities, and additional equity securities, which are subject to
market risk.
The Company enters into forward foreign exchange contracts to hedge foreign
currency transactions on a continuing basis for periods consistent with
commitments, generally one to six months. The Company does not engage in
speculation. The Company's foreign exchange contracts, which amounted to
approximately $161 million at June 30, 1998, should not subject the Company to
material risk due to exchange rate movements because gains and losses on these
contracts should offset losses and gains on the assets and liabilities being
hedged. Although the Company engages in hedging transactions that may offset
the effect of fluctuations in foreign currency exchange rates on foreign
currency denominated assets and liabilities, financial exposure may nonetheless
result, primarily from the timing of transactions and the movement of exchange
rates. The short-term nature of these contracts has resulted in these
instruments having insignificant fair values at June 30, 1998. In addition,
unhedged foreign currency balance sheet exposures as of June 30, 1998 are not
expected to result in a significant loss of earnings or cash flows. As the
Company has expanded its international operations, its sales and expenses
denominated in foreign currencies have expanded and that trend is expected to
continue. Therefore, most international sales and expenses have been, and are
expected to be, subject to the effect of foreign currency fluctuations and these
fluctuations may have an impact on margins. The Company's sensitivity analysis
of the effects of changes in foreign currency exchange rates does not factor in
a potential change in sales levels or local currency selling prices.
On January 1, 1999, eleven of the fifteen member countries of the European Union
are scheduled to establish fixed conversion rates between their existing
sovereign currencies and the euro. The participating countries have agreed to
adopt the euro as their common legal currency on that date. The Company has
formed a task force and has begun to assess the potential impact to the Company
that may result from the euro conversion. At this early stage of its assessment,
the Company can not yet predict the anticipated impact of the euro conversion on
the Company.
<PAGE>
LITIGATION
The Company is involved in various lawsuits, including patent infringement and
product liability suits, from time to time in the normal course of business. In
management's opinion, the Company is not currently involved in any legal
proceeding other than those specifically identified in the notes to the
unaudited condensed consolidated financial statements which, individually or in
the aggregate, could have a material effect on the financial condition,
operations and cash flows of the Company. The Company believes that it has
meritorious defenses against claims that it has infringed patents of others.
However, there can be no assurance that the Company will prevail in any
particular case. An adverse outcome in one or more cases in which the Company's
products are accused of patent infringement could have a material adverse effect
on the Company.
Further, product liability claims may be asserted in the future relative to
events not known to management at the present time. The Company has insurance
coverage which management believes is adequate to protect against such product
liability losses as could otherwise materially affect the Company's financial
position.
CAUTIONARY STATEMENT FOR PURPOSES OF THE SAFE HARBOR PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995
This report contains forward-looking statements. The Company desires to take
advantage of the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995 and is including this statement for the express purpose of
availing itself of the protections of the safe harbor with respect to all
forward-looking statements. Forward-looking statements contained in this report
include, but are not limited to, statements with respect to: (a) the Company's
ability to consummate and obtain benefits from the Schneider acquisition; (b)
the process, outlays and plan for the integration of businesses acquired by the
Company, and the successful and timely implementation of the plan; (c) the
impact of successful implementation of the Company's supply chain initiatives on
timely reduction in inventory levels; (d) the potential impacts of continued
consolidation among healthcare providers, trends towards managed care and
economically motivated buyers, healthcare cost containment, more stringent
regulatory requirements and more vigorous enforcement activities; (e) the
Company's belief that it is well positioned to take advantage of opportunities
for growth that exist in the markets it serves; (f) the Company's continued
commitment to refine existing products and procedures and to develop new
technologies that provide simpler, less traumatic, less costly and more
efficient diagnosis and treatment; (g) risks associated with international
operations; (h) the potential effect of foreign currency fluctuations on
revenues, expenses and resulting margins and the trend toward increasing sales
and expenses denominated in foreign currencies; (i) the Company's belief that
its effective tax rate in the second half of 1998 could increase modestly; (j)
the ability of the Company to manage accounts receivable
<PAGE>
and inventory levels and mix and to react effectively to the changing managed
care environment; (k) the ability of the Company to meet its projected cash
needs through the end of 1998; (l) the ability of the global information systems
to improve supply chain management; (m) costs and risks associated with
implementing Year 2000 compliance and business process reengineering; (n) the
Company's expectation that the launch of a coronary stent in the U.S. and
Japanese markets and the additional investments in infrastructure will enhance
its future competitive position; (o) the ability of additional investments in
technological alliances to enhance the Company's competitive position in the
future; (p) the ability to realize improved long-term returns on the Company's
investments with a direct selling presence in emerging markets; (q) the ability
of the Company to obtain more permanent financing to finance the Schneider
acquisition by the end of 1998; and (r) the impact of patent, product liability
and other litigation, and the adequacy of the Company's product liability
insurance. Several important factors, in addition to the specific factors
discussed in connection with such forward-looking statements individually, could
affect the future results of the Company and could cause those results to differ
materially from those expressed in the forward-looking statements contained
herein. Such additional factors include, among other things, future economic,
competitive and regulatory conditions, demographic trends, financial market
conditions and future business decisions of Boston Scientific and its
competitors, all of which are difficult or impossible to predict accurately and
many of which are beyond the control of Boston Scientific. Therefore, the
Company wishes to caution each reader of this report to consider carefully these
factors as well as the specific factors discussed with each forward-looking
statement in this report and as disclosed in the Company's filings with the
Securities and Exchange Commission as such factors, in some cases, have
affected, and in the future (together with other factors) could affect, the
ability of the Company to implement its business strategy and may cause actual
results to differ materially from those contemplated by the statements expressed
herein.
<PAGE>
OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS
Note J - Commitments and Contingencies to the Company's unaudited condensed
consolidated financial statements contained elsewhere in this Quarterly
Report is incorporated herein by reference.
ITEM 4: SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Stockholders of the Company was held on May 5, 1998, to
consider and vote upon proposals to (i) elect three Class III Directors of the
Company to hold office until the 2001 Annual Meeting of Stockholders of the
Company, and until their respective successors are chosen and qualified or until
their earlier resignation, death or removal and (ii) to approve the amendment
and restatement of the Boston Scientific Corporation 1992 Employee Stock
Purchase Plan. Joseph A. Ciffolillo, N.J. Nicholas, Jr. and Dale A. Spencer
were elected as Class III Directors of the Company by a vote of 171,163,712,
171,158,367, and 171,164,664 for, respectively, and 2,457,782, 2,457,127, and
2,450,830 withheld, respectively. The second proposal was approved by a vote of
146,899,364 for, 865,945 against, 232,511 abstaining and 25,617,674 broker non-
votes.
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None
(b) The following reports were filed during the quarter ended
June 30, 1998:
Form 8-K Date of Event Description
-------- ------------- -----------
Item 5 June 15, 1998 Execution of Purchase Agreement to
acquire Schneider Worldwide, a
member of the Medical Technology
Group of Pfizer, Inc.
<PAGE>
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 August 13, 1998.
BOSTON SCIENTIFIC CORPORATION
By: /s/ Lawrence C. Best
------------------------------------------
Name: Lawrence C. Best
Title: Chief Financial Officer and Senior Vice
President - Finance and Administration
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