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Boston Scientific Announces Agreement With DOJ On Pre-Acquisition Investigation of Guidant
Company updates third quarter financial results and full-year 2009 guidance
NATICK, Mass., Nov. 6 /PRNewswire-FirstCall/ -- Boston Scientific Corporation (NYSE: BSX) today announced that it has reached an agreement in principle with the U.S. Department of Justice (DOJ) related to product advisories issued by its Guidant subsidiary in 2005. The alleged conduct and product sales occurred prior to Boston Scientific’s 2006 acquisition of Guidant. Boston Scientific had previously disclosed an investigation by the U.S. Attorney’s Office in Minneapolis into alleged violations of the Food, Drug, and Cosmetic Act by Guidant. Under the terms of the agreement, Guidant will plead to two misdemeanor charges related to failure to include information in reports to the U.S. Food and Drug Administration (FDA), and Boston Scientific will pay $296 million on behalf of Guidant. U.S. Generally Accepted Accounting Principles (GAAP) require that this agreement be recorded in the third quarter, as it occurred after the October 19 release of the Company’s third quarter financial results and before the filing of the Company’s Quarterly Report on Form 10-Q. Accordingly, the Company has updated its financial results for the third quarter and nine months ended September 30, 2009, recording a third quarter charge of $294 million, on both a pre-tax and after-tax basis. This amount represents the $296 million charge associated with the agreement net of a $2 million reversal of a related accrual. "We are pleased this investigation has been resolved," said Ray Elliott, President and Chief Executive Officer of Boston Scientific. "Guidant and its employees acted in good faith and believed they complied with applicable laws and regulations. We elected to resolve this matter so we could put it behind us and devote our full energies and resources to developing our innovative technologies." The only products involved in the investigation were the VENTAK PRIZM(®) 2, the CONTAK RENEWAL(®) and the CONTAK RENEWAL 2 devices, which were the subjects of the 2005 product advisories. The table below reconciles the Company’s updated third quarter and year-to-date 2009 financial results to those previously reported. The adjustments in the table are also reflected in the Company’s Form 10-Q, which will be filed later today.
Q3 2009 Results
------------------------------
Litigation-
Previously Related As
(in millions, except per share data) Reported Charge Updated
------------------------------------ -------- ------ -------
Income (loss) before income taxes $250 $(294) $(44)
Net income (loss) $200 $(294) $(94)
GAAP EPS $0.13 $(0.19) $(0.06)
Adjusted EPS $0.19 $0.19
Q3 2009 YTD Results
------------------------------
Litigation-
Previously Related As
(in millions, except per share data) Reported Charge Updated
------------------------------------ -------- ------ -------
Income before income taxes $333 $(294) $39
Net income $345 $(294) $51
GAAP EPS $0.23 $(0.20) $0.03
Adjusted EPS $0.58 $0.58
In addition, the Company has updated its full-year 2009 GAAP earnings per share guidance as a result of recording this charge. The Company now expects net income on a GAAP basis of $0.23 to $0.28 per share for the full year ending December 31, 2009. The Company continues to expect adjusted earnings -- excluding intangible asset impairment charges; acquisition-, divestiture-, and litigation-related net charges; restructuring and restructuring-related costs; discrete tax items; and amortization expense -- of between $0.75 and $0.79 per share. The table below reconciles the Company’s updated full-year guidance to that previously reported.
2009 Full-year Guidance
------------------------------
Litigation-
Previously Related As
Reported Charge Updated
-------- ------ -------
GAAP EPS - low $0.43 $(0.20) $0.23
GAAP EPS - high $0.48 $(0.20) $0.28
Adjusted EPS - low $0.75 $0.75
Adjusted EPS - high $0.79 $0.79
Boston Scientific is a worldwide developer, manufacturer and marketer of medical devices whose products are used in a broad range of interventional medical specialties. For more information, please visit: www.bostonscientific.com. Cautionary Statement Regarding Forward-Looking Statements This press release contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934. Forward-looking statements may be identified by words like "anticipate," "expect," "project," "believe," "plan," "estimate," "intend" and similar words. These forward-looking statements are based on our beliefs, assumptions and estimates using information available to us at the time and are not intended to be guarantees of future events or performance. These forward-looking statements include, among other things, statements regarding financial performance, resolution of government proceedings, regulatory compliance and product performance. If our underlying assumptions turn out to be incorrect, or if certain risks or uncertainties materialize, actual results could vary materially from the expectations and projections expressed or implied by our forward-looking statements. These factors, in some cases, have affected and in the future (together with other factors) could affect our ability to implement our business strategy and may cause actual results to differ materially from those contemplated by the statements expressed in this press release. As a result, readers are cautioned not to place undue reliance on any of our forward-looking statements. Factors that may cause such differences include, among other things: future economic, competitive, reimbursement and regulatory conditions; new product introductions; demographic trends; intellectual property; litigation; financial market conditions; and, future business decisions made by us and our competitors. All of these factors are difficult or impossible to predict accurately and many of them are beyond our control. For a further list and description of these and other important risks and uncertainties that may affect our future operations, see Part I, Item 1A - Risk Factors in our most recent Annual Report on Form 10-K filed with the Securities and Exchange Commission, which we may update in Part II, Item 1A - Risk Factors in Quarterly Reports on Form 10-Q we have filed or will file hereafter. We disclaim any intention or obligation to publicly update or revise any forward-looking statements to reflect any change in our expectations or in events, conditions, or circumstances on which those expectations may be based, or that may affect the likelihood that actual results will differ from those contained in the forward-looking statements. This cautionary statement is applicable to all forward-looking statements contained in this document. Use of non-GAAP Financial Information A reconciliation of the Company’s non-GAAP financial measures to the corresponding GAAP measures, and an explanation of the Company’s use of these non-GAAP measures, is included in the exhibits attached to this press release.
BOSTON SCIENTIFIC CORPORATION
NON-GAAP NET INCOME AND NET INCOME PER COMMON SHARE RECONCILIATIONS
(Unaudited)
Three Months Ended September 30, 2009
-------------------------------------
Previously
Reported As Updated
----------- ----------
Impact Impact
per Net per
In millions, except per share Net diluted (loss) diluted
data income share income share
----------------------------- ------ ----- ------ -----
GAAP results $200 $0.13 $(94) $(0.06)
Non-GAAP adjustments:
Restructuring-related
charges 21 0.01 21 0.01
Litigation-related net
(credits) charges (37) (0.02) 257 0.17*
Amortization expense 107 0.07 107 0.07*
--- ---- --- ----
Adjusted results $291 $0.19 $291 $0.19
==== ===== ==== =====
* Assumes dilution of 10.9 million shares for all or a portion of these
amounts.
Nine Months Ended September 30, 2009
------------------------------------
Previously
Reported As Updated
----------- ----------
Impact Impact
per per
In millions, except per share Net diluted Net diluted
data income share income share
----------------------------- ------ ----- ------ -----
GAAP results $345 $0.23 $51 $0.03
Non-GAAP adjustments:
Intangible asset impairment
charges 8 0.01 8 0.01
Acquisition-related charges 17 0.01 17 0.01
Divestiture-related gains (2) (0.00) (2) (0.00)
Restructuring-related
charges 69 0.05 69 0.05
Litigation-related net
charges 203 0.13 497 0.33
Discrete tax items (74) (0.05) (74) (0.05)
Amortization expense 312 0.20 312 0.20
--- ---- --- ----
Adjusted results $878 $0.58 $878 $0.58
==== ===== ==== =====
An explanation of the Company’s use of these non-GAAP measures is provided at the end of this document.
BOSTON SCIENTIFIC CORPORATION
NON-GAAP NET INCOME AND NET INCOME PER COMMON SHARE RECONCILIATIONS
(CONT.)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, 2009 September 30, 2009
------------------ ------------------
Previously As Previously As
Reported Updated Reported Updated
----------- ------- ----------- -------
Intangible asset impairment
charges:
Intangible asset impairment
charges $10 $10
Less: Income tax
benefit (a) (2) (2)
-- --
Intangible asset impairment
charges, net of tax $8 $8
== ==
Acquisition-related charges:
Purchased research and
development $17 $17
Less: Income tax
benefit (a)
--- ---
Acquisition-related charges,
net of tax $17 $17
=== ===
Divestiture-related gains:
Net gain on sale of
investments (b) $(3) $(3)
Less: Income tax
expense (a) 1 1
-- --
Divestiture-related gains,
net of tax $(2) $(2)
=== ===
Restructuring-related charges:
Restructuring charges $9 $9 $44 $44
Restructuring-related
charges (c) 19 19 50 50
-- -- -- --
28 28 94 94
Less: Income tax
benefit (a) (7) (7) (25) (25)
-- -- --- ---
Restructuring-related
charges, net of tax $21 $21 $69 $69
=== === === ===
Litigation-related net
(credits) charges:
Litigation-related credits $(58) $(58) $(58) $(58)
Litigation-related charges 294 287 581
--- --- --- ---
(58) 236 229 523
Less: Income tax
expense (benefit) (a) 21 21 (26) (26)
-- -- --- ---
Litigation-related net
(credits) charges, net of
tax $(37) $257 $203 $497
==== ==== ==== ====
Discrete tax items:
---- ----
Discrete tax items $(74) $(74)
==== ====
Amortization expense:
Amortization expense $126 $126 $381 $381
Less: Income tax
benefit (a) (19) (19) (69) (69)
--- --- --- ---
Amortization expense, net of
tax $107 $107 $312 $312
==== ==== ==== ====
(a) Amounts are tax effected at the Company’s effective tax rate, unless
the amount is a significant unusual or infrequently occurring item in
accordance with FASB Accounting Standards Codification section
740-270-30, "General Methodology and Use of Estimated Annual
Effective Tax Rate."
(b) Recorded to other, net.
(c) In the third quarter of 2009, recorded $13 million to cost of
products sold; $5 million to selling, general and administrative
expenses; and $1 million to research and development expenses. In the
third quarter of 2008, recorded $4 million to cost of products sold;
$9 million to selling, general and administrative expenses; and $1
million to research and development expenses. In the first nine
months of 2009, recorded $36 million to cost of products sold; $11
million to selling, general and administrative expenses; and $3
million to research and development expenses. In the first nine
months of 2008, recorded $11 million to cost of products sold; $24
million to selling, general and administrative expenses; and $5
million to research and development expenses.
An explanation of the Company’s use of these non-GAAP measures is provided at the end of this document
BOSTON SCIENTIFIC CORPORATION
ESTIMATED NON-GAAP NET INCOME PER COMMON SHARE RECONCILIATIONS
(Unaudited)
2009 Estimate 2009 Estimate
(Low) (High)
GAAP results $0.23 $0.28
Estimated intangible asset impairment
charges 0.01 0.01
Estimated acquisition-related net
credits (0.11) (0.11)
Estimated restructuring-related charges 0.07 0.06
Estimated litigation-related net charges 0.33 0.33
Estimated discrete tax items (0.05) (0.05)
Estimated amortization expense 0.27 0.27
Adjusted results $0.75 $0.79
An explanation of the Company’s use of these non-GAAP measures is provided at the end of this document. Use of Non-GAAP Financial Measures To supplement Boston Scientific’s condensed consolidated financial statements presented on a GAAP basis; the Company discloses certain non-GAAP measures that exclude certain amounts, including non-GAAP net income, non-GAAP net income per share, and regional and divisional revenue growth rates that exclude the impact of foreign exchange. These non-GAAP measures are not in accordance with, or an alternative for, generally accepted accounting principles in the United States. The GAAP measure most comparable to non-GAAP net income is GAAP net income and the GAAP measure most comparable to non-GAAP net income per share is GAAP net income per share. Reconciliations of each of these non-GAAP financial measures to the corresponding GAAP measure are included in the accompanying schedules. To calculate regional and divisional revenue growth rates that exclude the impact of foreign exchange, the Company converts actual current-period net sales from local currency to U.S. dollars using constant foreign exchange rates. The GAAP measure most comparable to this non-GAAP measure is growth rate percentages based on GAAP revenue. A reconciliation of this non-GAAP financial measure to the corresponding GAAP measure is included in the accompanying schedules. Use and Economic Substance of Non-GAAP Financial Measures Used by Boston Scientific Management uses these supplemental non-GAAP measures to evaluate performance period over period, to analyze the underlying trends in the Company’s business, to assess its performance relative to its competitors, and to establish operational goals and forecasts that are used in allocating resources. In addition, management uses these non-GAAP measures to further its understanding of the performance of the Company’s operating segments. The adjustments excluded from the Company’s non-GAAP measures are consistent with those excluded from its reportable segments’ measure of profit or loss. These adjustments are excluded from the segment measures that are reported to the Company’s chief operating decision maker and are used to make operating decisions and assess performance. The following is an explanation of each of the adjustments that management excluded as part of its non-GAAP measures for the nine months ended September 30, 2009 and 2008 and for the forecasted three month period and full year ending December 31, 2009, as well as reasons for excluding each of these individual items:
Material Limitations Associated with the Use of Non-GAAP Financial Measures Non-GAAP net income, non-GAAP net income per diluted share, and regional and divisional revenue growth rates that exclude the impact of foreign exchange may have limitations as analytical tools, and these non-GAAP measures should not be considered in isolation from or as a replacement for GAAP financial measures. Some of the limitations associated with the use of these non-GAAP financial measures are:
Compensation for Limitations Associated with Use of Non-GAAP Financial Measures Boston Scientific compensates for the limitations on its non-GAAP financial measures by relying upon its GAAP results to gain a complete picture of the Company’s performance. The non-GAAP numbers focus instead upon the core business of the Company, which is only a subset, albeit a critical one, of the Company’s performance. The Company provides detailed reconciliations of each non-GAAP financial measure to its most directly comparable GAAP measure in the accompanying schedules, and Boston Scientific encourages investors to review these reconciliations. Usefulness of Non-GAAP Financial Measures to Investors The Company believes that presenting non-GAAP net income, non-GAAP net income per share, and regional and divisional revenue growth rates that exclude the impact of foreign exchange in addition to the related GAAP measures provides investors greater transparency to the information used by Boston Scientific management for its financial and operational decision-making and allows investors to see Boston Scientific’s results "through the eyes" of management. The Company further believes that providing this information better enables Boston Scientific’s investors to understand the Company’s operating performance and to evaluate the methodology used by management to evaluate and measure such performance.
CONTACT: Paul Donovan
508-650-8541 (office)
508-667-5165 (mobile)
Media Relations
Boston Scientific Corporation
Larry Neumann
508-650-8696 (office)
Investor Relations
Boston Scientific Corporation
SOURCE Boston Scientific Corporation  |
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