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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998 Commission File No. 1-11083
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BOSTON SCIENTIFIC CORPORATION
(Exact name of Company as specified in its charter)
DELAWARE 04-2695240
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
ONE BOSTON SCIENTIFIC PLACE, NATICK, MASSACHUSETTS 01760-1537
(Address, including zip code, of principal executive offices)
(508) 650-8000
(Company's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
COMMON STOCK, $.01 PAR VALUE PER SHARE
(Title of class)
Securities registered pursuant to Section 12(g) of the Act:
NONE
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Indicate by check mark whether the Company (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Company was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Company's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to the
Form 10-K. [ ]
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The aggregate market value of Common Stock held by non-affiliates (persons other
than directors, executive officers, and related family entities) of the Company
was approximately $9.2 billion based on the closing price of the Common Stock on
March 15, 1999.
The number of shares outstanding of the Company's Common Stock as of March 15,
1999 was 394,872,509.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company's 1998 Annual Report to Shareholders which is filed with
the Securities and Exchange Commission as an exhibit hereto and the Proxy
Statement to be filed with the Securities and Exchange Commission on or prior to
April 30, 1999 are incorporated by reference into Parts I, II and III.
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PART I
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ITEM 1. BUSINESS
THE COMPANY
Boston Scientific Corporation (the "Company") is a worldwide developer,
manufacturer and marketer of minimally invasive medical devices. The Company's
products are used in a broad range of interventional medical specialties,
including cardiology, electrophysiology, gastroenterology, neuro-endovascular
therapy, pulmonary medicine, radiology, urology and vascular surgery. The
Company's products are generally inserted into the human body through natural
openings or small incisions in the skin and can be guided to most areas of the
anatomy to diagnose and treat a wide range of medical problems. These products
provide effective alternatives to traditional surgery by reducing procedural
trauma, complexity, risk to the patient, cost and recovery time.
The Company's history began in the late 1960s when the Company's co-founder,
John Abele, acquired an equity interest in Medi-tech, Inc., a development
company. Medi-tech's initial products, a family of steerable catheters, were
introduced in 1969. They were used in some of the first minimally invasive
procedures performed, and versions of these catheters are still being sold
today. In 1979, John Abele joined with Pete Nicholas to form the Company, which
indirectly acquired Medi-tech, Inc. This acquisition began a period of active,
focused marketing, new product development and organizational growth. Since
then, the Company's net sales have increased substantially, growing from $1.8
million in 1979 to $2.2 billion in 1998.
The Company's growth in the past few years has been fueled in part by strategic
acquisitions and alliances, designed to improve the ability of the Company to
take advantage of future growth opportunities in less invasive medicine. In
1998, the Company completed two acquisitions. On June 30, 1998, the Company
acquired CardioGene Therapeutics, Inc., a development stage company focused on
the application of gene therapy for treatment of cardiovascular diseases, and on
September 10, 1998, the Company acquired Schneider Worldwide, a pioneer in less
invasive medicine and formerly a member of the Medical Technology Group of
Pfizer Inc.
These acquisitions, together with the Company's earlier acquisitions and
alliances, have helped to achieve a strategic mass which allows the Company to
offer one of the broadest product lines in the world for use in minimally
invasive procedures. The Company now maintains leadership positions in each of
the markets in which it competes. The Company's strategic mass has also enabled
it to compete more effectively in, and better absorb the pressures of, the
current healthcare environment of cost containment, managed care, large buying
groups and hospital consolidations.
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The Company has substantially completed the integration of all mergers and
acquisitions consummated in 1996 and 1997. The Company expects to complete the
integration of Schneider by the end of 1999. Management believes it has
developed a sound plan for continuing and concluding the integration process,
and that it will achieve that plan. However, in view of the number of major
transactions undertaken by the Company, the dramatic change in the size of the
Company and the complexity of its organization resulting from these
transactions, management also believes that the successful implementation of its
plan presents a significant degree of difficulty. The failure to integrate these
businesses effectively could adversely affect the Company's operating results in
the near term, and could impair the Company's ability to realize the strategic
and financial objectives of these transactions.
BUSINESS STRATEGY
The Company's mission is to improve the quality of patient care and the
productivity of healthcare delivery through the development and advocacy of
minimally invasive medical devices and procedures. The Company seeks to
accomplish this mission through the continuing refinement of existing products
and procedures and the investigation and development, as well as the
acquisition, of new technologies which can reduce risk, trauma, cost, procedure
time and the need for aftercare. The Company's strategy has been, and will
continue to be, to grow by identifying those specific therapeutic and diagnostic
areas which satisfy the Company's mission and provide attractive opportunities
for long-term growth and by making the investments necessary to capitalize on
these opportunities. Key elements of this strategy are as follows:
Product Diversity. The Company offers products in numerous product categories
which are used by physicians throughout the world in a broad range of diagnostic
and therapeutic vascular and nonvascular procedures. The breadth and diversity
of the Company's product lines permit medical specialists to satisfy many of
their minimally invasive medical device requirements from a single source. The
scope of its products and markets also reduces the Company's vulnerability to
change in the competitive, regulatory and technological environments for any
single product or market.
Product Innovation. The Company maintains an aggressive product development
program designed to introduce new products and new applications for existing
technologies on a regular basis. The specifications and features of new products
are often developed from market information generated through the interaction of
the Company's product management teams and sales representatives with the
worldwide medical community. The Company seeks to expedite the design and
development of new products by leveraging its proprietary core technologies and
applications knowledge across its product lines. Technological innovations
developed for a particular application are often applied to procedures used in
other markets served by the Company.
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Focused Marketing. The Company markets its products through six principal
divisions: Scimed, EP Technologies, Boston Scientific Vascular (formerly
operating as Medi-tech, Meadox and Schneider), Target Therapeutics, Microvasive
Endoscopy and Microvasive Urology. Each of the Company's divisions focuses on
physicians who specialize in the diagnosis and treatment of different medical
conditions and offers products to satisfy their needs. The Company believes that
this focused marketing approach enables it to develop highly knowledgeable and
dedicated sales representatives and to foster close professional relationships
with physicians.
International Presence. Maintaining and expanding its international presence is
an important component of the Company's long term growth plan. In 1998,
international sales accounted for approximately 38% of the Company's net sales.
Currently, the Company operates three international manufacturing facilities in
Ireland and one in Switzerland, has direct marketing and sales subsidiaries in
more than 35 countries and has distribution arrangements in more than 45
countries. Through its international presence, the Company seeks to increase net
sales and market share, accelerate the time within which new products can be
brought to market and gain access to worldwide technological developments that
may be implemented across its product lines.
Active Participation in the Medical Community. The Company believes that it has
excellent working relationships with physicians and others in the medical
industry which enable it to gain a detailed understanding of new therapeutic and
diagnostic alternatives, and to respond quickly to the changing needs of
physicians and patients. The Company enhances its presence in the medical
community through active participation in medical meetings, by conducting
comprehensive training and educational activities and through employee-authored
articles in medical journals and textbooks. Each year, numerous scientific
papers are published and presentations are made describing clinical applications
of the Company's products. The Company believes that these activities and its
advocacy positions contribute to the medical community's understanding and
adoption of minimally invasive techniques and the expansion of these techniques
into new therapeutic and diagnostic areas.
Corporate Culture. Management believes that success and leadership evolves from
a motivating corporate culture which rewards achievement, respects and values
individual employees and customers, and has a long-term focus on quality,
technology, integrity and service. The Company believes that its success is
attributable in large part to the high caliber of its employees and the
Company's commitment to maintaining the values on which its success has been
based.
Strategic Acquisitions and Alliances. In recent years, the Company has sought
out strategic acquisitions, alliances and venture opportunities which complement
or expand its existing product lines or enhance its technological position.
Although the Company does not expect to make any significant acquisitions in
1999, the Company expects that it will continue to seek out and review
opportunities for acquisitions and strategic alliances consistent with its
corporate mission.
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PRODUCTS
The Company's products are broadly categorized as vascular or nonvascular,
depending on the anatomical system and procedure in which a product is intended
to be used. Generally, vascular products are employed in procedures affecting
the heart and systems which carry blood, and nonvascular products are employed
in procedures affecting other systems and organs. In 1998, approximately 80% of
the Company's net sales were derived from its vascular business, approximately
19% from its nonvascular business and approximately 1% from other business. The
Company's principal vascular and nonvascular products are offered in the
following medical areas:
VASCULAR
Coronary Revascularization. The Company markets a broad line of products used to
treat patients with atherosclerosis. Atherosclerosis, a coronary vessel disease
and a principal cause of heart attacks, is characterized by a thickening of the
walls of the arteries and a narrowing of arterial lumens (openings) caused by
the progressive development of deposits of plaque. Atherosclerosis results in
reduced blood flow to the muscle of the heart. The majority of the Company's
products in this market are used in percutaneous transluminal coronary
angioplasty ("PTCA") and percutaneous transluminal coronary rotational
atherectomy ("PTCRA"). The Company's products in this market include PTCA
balloon catheters, the Rotablator(R) rotational atherectomy system, guide wires,
guide catheters, diagnostic catheters and fluid management systems.
Coronary Stents. The Company markets both balloon-expandable and self-expanding
coronary stent systems. The Company's most important products in this category
incorporate the NIR(R) balloon-expandable coronary stent developed and
manufactured by Medinol Ltd., with which the Company has an exclusive worldwide
distribution agreement for stent products. These products were introduced in
Europe in 1996 and in the United States and Japan in 1998. The Company hopes to
introduce the NIR ON(TM) VIVA!(TM) stent using Monorail(TM) rapid exchange
technology in the United States in 1999, pending approval from the United States
Food and Drug Administration ("FDA"). The Company also hopes to reintroduce the
NIR ON(TM) Ranger(TM) with SOX(TM) stent delivery system in the United States
later in 1999, pending FDA approval. Through a strategic alliance with Angiotech
Pharmaceuticals, Inc., the Company holds a co-exclusive license for the use of
paclitaxel on intraluminal devices to inhibit restenosis.
Peripheral Vascular Intervention and Vascular Access. The Company sells various
products designed to treat patients with peripheral vascular disease (disease
which appears in blood vessels other than in the heart), including a broad line
of catheters used in percutaneous transluminal angioplasty ("PTA").
Additionally, the Company's peripheral vascular product line includes medical
devices used in thrombolysis (the catheter-based delivery of clot dissolving
agents directly to the site of a blood clot) and thrombectomy catheters. The
Company also offers stents to maintain patency of peripheral lumens, including
the WALLSTENT(R) endoprosthesis, the only stent approved by the FDA for more
than two peripheral indications.
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Caval Interruption Systems. The Company markets the Greenfield(R) vena cava
filter system for use in patients who are at risk of developing a pulmonary
embolism due to an existing medical condition or post-surgical complications.
Once the filter is implanted, circulating emboli (blood clots) can be captured
and held by the lattice design of the filter, allowing the clots to dissolve
naturally before they can reach the pulmonary system.
Surgical and Endovascular Grafts. The Company markets vascular grafts and
endovascular stent grafts for the treatment of thoracic dissection, abdominal
aortic aneurysms and peripheral vascular occlusive diseases.
Intraluminal Ultrasound Imaging. The Company markets a family of intraluminal
catheter-directed ultrasound imaging systems for diagnostic use in blood
vessels, heart chambers and coronary arteries, as well as certain nonvascular
systems.
Electrophysiology ("EP"). The Company's electrophysiology product offerings
include catheters and systems for use in minimally invasive procedures to
diagnose and treat tachyarrhythmias (abnormally fast heart rhythms). The Company
markets RF generators and steerable ablation catheters, many of which
incorporate proprietary steering, temperature monitoring and control technology,
as well as a line of diagnostic catheters and associated accessories.
Neuro-Endovascular Therapy. The Company markets a line of micro-guidewires,
micro-catheters, guiding catheters and embolics to treat diseases of the
neurovascular system. The Company also markets the Guglielmi Detachable Coil(TM)
system to treat and prevent the rupture of cerebral aneurysms that are otherwise
either considered to be inoperable or high risk for surgery.
NONVASCULAR
Esophageal, Gastric and Duodenal Intervention. The Company markets a broad range
of products to diagnose, treat and palliate a variety of esophageal, gastric and
duodenal diseases, including esophogitis, gastric esophageal reflux disease,
portal hypertension, peptic ulcers and esophageal cancer. The Company's products
in this area include disposable single and multiple biopsy forceps, balloon
dilatation catheters, banding ligation devices and enteral feeding devices. The
Company also markets a family of esophogeal stents designed to offer improved
dilatation force and greater resistance to tumor in-growth.
Colorectal Intervention. The Company markets a line of hemostatic catheters,
polypectomy snares and dilatation catheters for the diagnosis and treatment of
polyps, inflammatory bowel disease, diverticulitis and colon cancer.
Pancreatico - Biliary Intervention. The Company sells a variety of products to
diagnose, treat and palliate benign and malignant strictures of the
pancreatico-biliary system (the gall bladder, common bile duct, hepatic duct,
pancreatic duct and the pancreas) and to remove stones found in the common bile
and hepatic ducts. The Company's products include diagnostic catheters used with
contrast media, balloon dilatation catheters and sphincterotomes. The Company
also markets a temporary biliary stent for palliation and drainage of the common
bile duct.
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Pulmonary Intervention. The Company markets devices to diagnose, treat and
palliate chronic bronchitis and lung cancer, including pulmonary biopsy forceps
and balloon catheters used to dilate strictures or for tumor management.
Urinary Tract Intervention. The Company sells a variety of products designed
primarily to treat patients with urinary stone disease, either via ureteroscopy
or percutaneous nephrolithotomy. Products within this category include ureteral
dilatation balloons used to dilate strictures or openings for scope access;
stone baskets used to manipulate, crush, or remove the stone; intracorporeal
shock wave lithotripsy devices and holmium laser systems used to disintegrate
stones ureteroscopically; ureteral stents implanted temporarily in the urinary
tract to provide either short-term or long-term drainage; and a wide variety of
guidewires used to gain access to a specific site.
Prostate Intervention. For the treatment of Benign Prostatic Hypertrophy
("BPH"), the Company currently markets electro-surgical resection devices
designed to resect large diseased tissue sites and reduce the bleeding
attributable to the resection procedure (a major cause of patient morbidity in
connection with traditional surgical treatments for BPH) and an automatic
disposable needle biopsy system, designed to take rapid core prostate biopsies.
Urinary Incontinence and Bladder Disease. The Company markets a line of
minimally invasive devices and sling materials to treat stress urinary
incontinence. This affliction is commonly treated with various surgical
procedures. The Company's Vesica(R) system offers less invasive alternatives for
treating incontinence. The Company has also developed other devices to diagnose
and treat bladder cancer and bladder obstruction.
INTERNATIONAL OPERATIONS
In 1998, international sales accounted for approximately 38% of the Company's
net sales. Net sales, operating income and identifiable assets attributable to
significant geographic areas are presented in Note N to the Company's 1998
Consolidated Financial Statements, included within the Company's 1998 Annual
Report to Shareholders which is filed with the Securities and Exchange
Commission as an exhibit hereto.
As of December 31, 1998, the Company had direct marketing and sales operations
in more than 35 countries. During the past three years, the Company has expanded
its direct sales presence in Europe and Emerging Markets so as to be in a
position to take advantage of market opportunities in those regions. The Company
believes that, during 1999, it will continue to leverage its direct sales
infrastructure and will continue to use distributors in those smaller markets
where it is not economical or strategic to establish a direct presence.
The Company has three international manufacturing facilities in Ireland and one
in Switzerland. Presently, approximately 50% of the Company's products sold
internationally are manufactured at these facilities. The Company also maintains
an international research and development facility in Galway, Ireland and a
training center in Miyazaki, Japan.
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The Company's expanded international presence exposes it to certain financial
and other risks. Principal among these is the potentially negative impact of
foreign currency fluctuations on the Company's sales and expenses. Although the
Company engages in hedging transactions that may offset the effect of
fluctuations in foreign currency exchange rates on foreign currency denominated
assets and liabilities, financial exposure may nonetheless result, primarily
from the timing of transactions and the movement of exchange rates. 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. Further, any significant changes in
the political, regulatory or economic environment where the Company conducts
international operations could have a material impact on revenues and profits.
MARKETING AND SALES
The Company markets its products through six principal divisions, each focusing
upon physicians who specialize in the diagnosis and treatment of different
medical conditions.
VASCULAR
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Scimed: markets devices to cardiologists for the nonsurgical
diagnosis and treatment of coronary and peripheral
vascular disease and other cardiac disorders.
EP offers a line of electrophysiology catheters and
Technologies: systems for use by interventional
electrophysiologists in the diagnosis and treatment
of cardiac tachyarrhythmias.
Boston markets therapeutic and diagnostic devices to
Scientific physicians who perform interventional image-guided
Vascular: procedures primarily in the fields of radiology,
pulmonary medicine and vascular surgery, and markets
woven, knitted and collagen-sealed vascular and
endovascular grafts to vascular, cardiothoracic and
general surgeons for use in patients with vessels
damaged by artherosclerosis or aneurysms which need
to be bypassed or replaced.
Target: markets a line of micro-guidewires, micro-catheters,
coils, embolics and other medical devices which aid
neuroradiologists and neurosurgeons in the treatment
of neurovascular diseases.
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NONVASCULAR
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Microvasive markets therapeutic and diagnostic devices which aid
Endoscopy: gastroenterologists and pulmonologists in performing
flexible endoscopic procedures involving the
digestive tract and lungs.
Microvasive offers a line of therapeutic and diagnostic devices
Urology: which aid urologists in performing ureteroscopic and
other minimally invasive endoscopic procedures as
well as devices to treat urinary incontinence.
A dedicated sales force of in excess of 1900 individuals, including over 800 in
the United States, markets the Company's products worldwide. This dedicated
sales force accounted for approximately 99% of the Company's net sales during
1998. A network of over 70 dealers who offer the Company's products in more than
45 countries worldwide accounts for the remaining sales. The Company has also
established a dedicated U.S. corporate sales organization focused principally on
selling to major buying groups and large integrated healthcare networks.
The Company's worldwide customer base includes interventional medical
specialists, including cardiologists, radiologists, neuroradiologists,
neurosurgeons, gastroenterologists, urologists, electrophysiologists,
pulmonologists, vascular surgeons and gynecologists. In 1998, the Company sold
its products to over 10,000 hospitals, clinics, out-patient facilities and
medical offices. The Company is not dependent on any single institution and no
single institution accounted for more than 10% of the Company's net sales in
1998. Large group purchasing organizations, hospital networks and other buying
groups are, however, becoming increasingly important to the Company's business.
These organizations have exerted increased pressure on selling prices throughout
the medical device industry. There can be no assurance that the impact of doing
business with such organizations will not adversely impact future Company sales
margins, or that such organizations will continue to do business with the
Company.
The Company markets the NIR ON(TM) Ranger(TM) and NIR(R) Primo(TM) coronary
stent systems which, together with other NIR(R) stent systems, represented
approximately 13% of the Company's 1998 worldwide sales. These stent systems
include the NIR(R) coronary stent which is developed and manufactured by Medinol
Ltd. and a balloon delivery system which is developed and manufactured by the
Company. The Company also distributes several other products for third parties,
including RF generators, an introducer sheath and certain guidewires. None of
these other products represented more than 10% of the Company's 1998 net sales.
Leveraging its sales and marketing strength, the Company expects to continue to
seek out new opportunities for distributing complementary products as well as
new technologies. Certain of the products distributed by the Company, such as
the NIR(R) stent, are very important to the Company strategically. Unforeseen
delays, stoppages or interruptions in the supply and/or mix of the NIR(R) stent
or certain other distributed products could adversely affect the Company's
operating results.
Uncertainty remains with regard to future changes within the healthcare
industry. The trend towards managed care and economically motivated buyers in
the United States may result in continued pressure on selling prices of certain
products and resulting compression on gross
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margins. The United States marketplace is also increasingly characterized by
consolidation among healthcare providers and purchasers of medical devices who
prefer to limit the number of suppliers from whom they purchase medical
products. There can be no assurance that these entities will continue to
purchase products from the Company. In addition, international markets are also
being affected by economic pressure to contain healthcare costs. Throughout the
world, delays in product approval processes, changes in reimbursement policies
and competitive pricing pressures remain unpredictable. The Company cannot
predict what future economic, reimbursement and pricing environments will exist
in domestic and international markets for its healthcare products. It is
possible that such environments could adversely affect the Company's product
pricing and ability to sell products. The Company believes that such factors
will continue to impact the rate at which the Company can grow, but management
believes that it is well positioned to take advantage of opportunities for
growth that exist in the markets it serves.
MANUFACTURING; RAW MATERIALS
The Company designs and manufactures the majority of its products in 16
manufacturing sites around the world. The majority of the raw materials used in
the manufacture of the Company's products are off-the-shelf items readily
available from several supply sources. Several items are, however, custom made
for the Company to meet its specifications. The Company believes that, in most
of these cases, redundant capacity exists at the supplier and that alternative
sources of supply are available or could be developed within a reasonable period
of time. The Company has generally been able to obtain adequate supplies of all
materials, parts and components in a timely manner from existing sources.
However, the inability to develop alternative sources, if required, or a
reduction or interruption in supply or a significant increase in the price of
materials, parts or components could adversely affect the Company's operations
and financial condition.
During 1998, the Company initiated a full time global program to focus on supply
chain optimization. The program is designed to lower inventory levels and the
cost of manufacturing, improve absorption, enhance customer service levels and
minimize inventory write-downs. By addressing the entire supply chain, including
application of lean manufacturing techniques, the Company seeks to return gross
margins to more acceptable levels and to improve working capital. The program
should be implemented by the end of 1999.
COMPETITION
The Company encounters significant competition from various entities across its
product lines and in each market in which its products are sold. The Company's
primary competitors include C.R. Bard, Inc., Cook, Inc., Guidant Corporation,
Johnson & Johnson (including its subsidiary, Cordis Corporation), and Medtronic,
Inc. (including its subsidiary, Medtronic AVE, Inc., formerly known as Arterial
Vascular Engineering Inc.), as well as a wide range of companies which sell a
single or limited number of competitive products.
In addition, the Company faces competition from non-medical device companies,
such as pharmaceutical companies, which may offer non-surgical alternative
therapies for disease states which are currently treated using the Company's
products.
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The Company believes that its products compete primarily on the basis of their
ability to perform safely and effectively diagnostic and therapeutic procedures
in a minimally invasive manner, ease of product use, product reliability and
physician familiarity. In the current environment of managed care, economically
motivated buyers, consolidation among health care providers, increased
competition and declining reimbursement rates, the Company has also been
increasingly required to compete on the basis of price. The Company believes
that its continued competitive success will depend upon its ability to create or
acquire scientifically advanced technology, apply its technology
cost-effectively across product lines and markets, develop or acquire
proprietary products, attract and retain skilled development personnel, obtain
patent or other protection for its products, obtain required regulatory
approvals, and manufacture and successfully market its products either directly
or through outside parties. There can be no assurance that the Company will be
able to accomplish these objectives or that it will be able to compete
successfully in the future against existing or new competitors. There can also
be no assurance that the Company's operating results will not be adversely
affected by increased price competition or competition from purveyors of
alternative therapies.
RESEARCH AND DEVELOPMENT
The Company maintains an active program of new product and technology research
and development. By leveraging the technical and applications knowledge gained
in one medical specialty to other specialties, the Company believes that its
product development process is accelerated and made more cost effective.
Enhancements of existing products or expansions of existing product lines, which
are typically developed within the Company's manufacturing and marketing
operations, account for a significant portion of each year's sales growth.
In 1998, the Company expended $200 million on research and development,
representing approximately 9% of the Company's 1998 net sales. These
expenditures funded clinical research, licensed technology, regulatory
activities and various product development programs, including, without
limitation, carotid stenting, molecular intervention technology (using
paclitaxel, radiation, angiogenesis technology and gene therapy) and stent
grafting.
The Company maintains several research and development facilities around the
globe. See "Properties". In addition to internal development, the Company works
with hundreds of leading research institutions, universities and clinicians
around the world in developing, evaluating and clinically testing its products.
The Company believes its future success will depend upon the strength of its
development efforts. There can be no assurance that the Company will realize
financial benefit from its development programs, will continue to be successful
in identifying, developing and marketing new products or enhancing its existing
products, or that products or technologies developed by others will not render
the Company's products or technologies non-competitive or obsolete.
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REGULATION
The medical devices manufactured and marketed by the Company are subject to
regulation by numerous regulatory bodies, including the FDA and comparable
international regulatory agencies. These agencies require manufacturers of
medical devices to comply with applicable laws and regulations governing the
testing, manufacturing, labeling, marketing and distribution of medical devices.
Devices are generally subject to varying levels of regulatory control, the most
comprehensive of which requires that a clinical evaluation program be conducted
before a device receives approval for commercial distribution.
In the United States, permission to distribute a new device generally can be met
in one of two ways. The first, less rigorous, process applies to any new device
that is substantially equivalent to a device first marketed prior to May 1976
and does not require pre-market approval ("PMA"). In this case, FDA permission
to distribute the device can be accomplished by submission of a pre-market
notification submission (a "510(k) Submission"), and issuance by the FDA of an
order permitting commercial distribution. A 510(k) Submission must provide
information supporting its claim of substantial equivalence. If clinical data
from human experience is required to support a 510(k) Submission, this data must
be gathered in compliance with investigational device exemption ("IDE")
regulations for investigations performed in the United States. The FDA must
issue an order finding substantial equivalence before commercial distribution
can occur. Changes to existing devices which do not significantly affect safety
or effectiveness can generally be made by the Company without additional 510(k)
Submissions.
The second, more comprehensive, approval process applies to a new device that is
not substantially equivalent to an existing product. In this case, two steps of
FDA approval are generally required before marketing in the United States can
begin. First, the Company must comply with IDE regulations in connection with
any clinical investigation of the device in the United States. Second, the FDA
must review the Company's PMA application which contains, among other things,
clinical information acquired under the IDE. The FDA will approve the PMA
application if it finds that there is a reasonable assurance that the device is
safe and effective for its intended purpose.
The FDA can ban certain medical devices, detain or seize adulterated or
misbranded medical devices, order repair, replacement or refund of these
devices, and require notification of health professionals and others with regard
to medical devices that present unreasonable risks of substantial harm to the
public health. The FDA may also enjoin and restrain certain violations of the
Food, Drug and Cosmetic Act and the Safe Medical Devices Act pertaining to
medical devices, or initiate action for criminal prosecution of such violations.
International sales of medical devices manufactured in the United States that
are not approved by the FDA for use in the United States, or are banned or
deviate from lawful performance standards, are subject to FDA export
requirements. The Export Reform Act of 1996 has simplified the process of
exporting devices which have not been approved for sale in the United States.
Exported devices are subject to the regulatory requirements of each country to
which the device is exported. In many foreign countries, all regulated medical
products are treated as drugs and the majority of
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the Company's products are expected to be so regulated in these countries.
Frequently, regulatory approval may first be obtained in a foreign country prior
to application in the United States to take advantage of differing regulatory
requirements. The Company has achieved International Standards Organization or
European Union certification for its Irish and most of its United States
manufacturing facilities. In addition, the Company has completed CE Mark
registrations for most of its products in accordance with the implementation of
various medical device directives in the European Union.
The process of obtaining clearance to market products is costly and
time-consuming in virtually all of the major markets in which the Company sells
products and can delay the marketing and sale of new products. Countries around
the world have recently adopted more stringent regulatory requirements which are
expected to add to the delays and uncertainties associated with new product
releases, as well as the clinical and regulatory costs of supporting such
releases. No assurance can be given that any of the Company's new medical
devices will be approved on a timely basis, if at all.
In addition, regulations regarding the manufacture and sale of medical devices
are subject to future change. The Company cannot predict what impact, if any,
such changes might have on its business. Failure to comply with regulatory
requirements could have a material adverse effect on the Company's business,
financial condition and results of operations.
The Company is also subject to environmental laws and regulations both in the
United States and abroad. The operations of the Company, like those of other
medical device companies, involve the use of substances regulated under
environmental laws, primarily in manufacturing and sterilization processes. The
Company believes that compliance with such laws will not have a material impact
on its financial position, results of operations, or liquidity. Given the scope
and nature of such laws, there can, however, be no assurance that such laws will
not have a material impact on the Company.
THIRD-PARTY REIMBURSEMENT
The Company's products are purchased by hospitals, doctors and other health care
providers, who are reimbursed for the health care services provided to their
patients by third-party payors, such as governmental programs (e.g., Medicare
and Medicaid), private insurance plans and managed care programs. These
third-party payors may deny reimbursement if they should determine that a device
used in a procedure was not used in accordance with cost-effective treatment
methods, as determined by such third-party payor, or was used for an unapproved
indication. Also, third-party payors are increasingly challenging the prices
charged for medical products and services. There can be no assurance that the
Company's products will be considered cost-effective by third-party payors, that
reimbursement will be available or, if available, that the third-party payors'
reimbursement policies will not adversely affect the Company's ability to sell
its products profitably.
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PATENTS AND PROPRIETARY RIGHTS
The Company relies on a combination of patents, trade secrets and non-disclosure
agreements to protect its intellectual property. The Company holds in excess of
1,000 patents in the United States and abroad and has pending in excess of 2,500
patent applications that cover various aspects of its technology. In addition,
the Company holds exclusive and non-exclusive licenses to a variety of third
party technologies covered by patents and patent applications. There can be no
assurance that pending patents will result in issued patents, that patents
issued to or licensed by the Company will not be challenged or circumvented by
competitors, or that such patents will be found to be valid or sufficiently
broad to protect the Company's technology or to provide the Company with a
competitive advantage. The Company relies on non-disclosure and non-competition
agreements with certain employees, consultants and other parties to protect, in
part, trade secrets and other proprietary technology. There can be no assurance
that these agreements will not be breached, that the Company will have adequate
remedies for any breach, that others will not independently develop equivalent
proprietary information or that third-parties will not otherwise gain access to
the Company's trade secrets and proprietary knowledge.
There has been substantial litigation regarding patent and other intellectual
property rights in the medical device industry generally, particularly in the
areas in which the Company competes. The Company has defended, and will likely
continue to defend, itself against claims and legal actions alleging
infringement of the patent rights of others. Adverse determinations in any such
litigation could subject the Company to significant liabilities to third
parties, could require the Company to seek licenses from third parties and
could, if such licenses are not available, prevent the Company from
manufacturing, selling or using certain of its products, any of which could have
a material adverse effect on the Company. Additionally, the Company may find it
necessary to initiate litigation to enforce its patent rights, to protect its
trade secrets or know-how and to determine the scope and validity of the
proprietary rights of others. Patent litigation can be costly and
time-consuming, and there can be no assurance that the Company's litigation
expenses will not be significant in the future or that the outcome of such
litigation will be favorable to the Company.
PRODUCT LIABILITY
The testing, marketing and sale of human health care products entails an
inherent risk of product liability claims. The Company is involved in various
lawsuits arising in the normal course of business from product liability claims,
and product liability claims may be asserted in the future relative to events
not known to management at the present time. The Company has insurance coverage
which management believes is adequate to protect against product liability
losses as could otherwise materially affect the Company's financial position.
However, there can be no assurance that product liability claims will not exceed
such insurance coverage limits or that such insurance will be available in the
future on commercially reasonable terms, if at all.
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EMPLOYEES
As of December 31, 1998, the Company had nearly 14,000 employees, including
approximately 8,800 in operations, 900 in administration, 1,400 in research and
development and 2,600 in selling, marketing, distribution and related
administrative support. Of these employees, approximately 4,000 were employed in
the Company's international operations. The Company believes that the continued
success of its business will depend, in part, on its ability to attract and
retain qualified personnel. Competition for qualified, skilled personnel is
intense in the medical device industry. There can be no assurance that the
Company will be able in the future to attract and retain such personnel.
The Company is in the process of implementing a rationalization plan established
after acquiring Schneider. The rationalization plan takes into consideration
duplicate capacity and opportunities for further leveraging of cost and
technology platforms. The Company's actions approved and committed to in the
fourth quarter of 1998 will result in the displacement in 1999 of approximately
2,000 current positions, over half of which are manufacturing positions. The
Company expects that approximately 1,000 positions will be added in 1999 as a
result of the transition plan.
SEASONALITY
The Company's business, taken as a whole, is not materially affected by seasonal
factors.
CAUTIONARY STATEMENT FOR PURPOSES OF THE SAFE HARBOR PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995
The Cautionary Statement for Purposes of the Safe Harbor Provisions of the
Private Securities Litigation Reform Act of 1993 appearing on pages F-9 and F-10
of the Company's 1998 Annual Report to Shareholders (included as Exhibit 13.1
hereto) is incorporated herein by reference.
ITEM 2. PROPERTIES
The Company's world headquarters are in Natick, Massachusetts. It maintains
regional headquarters in Tokyo, Japan; Paris, France; Singapore and Buenos
Aires, Argentina. As of December 31, 1998, the Company's worldwide facilities
(including administration, research, manufacturing, distribution and sales and
marketing space) totaled approximately 5.2 million square feet, of which
approximately 85% was owned by the Company and the balance was leased. As of
December 31, 1998, the Company's principal research facilities were located in
Massachusetts, Indiana, Minnesota, New Jersey, Florida, California, Washington,
New York, Ireland and Switzerland, and its major distribution centers were
located in Massachusetts, The Netherlands, Japan and Singapore. As of December
31, 1998, the Company maintained 16 manufacturing facilities, 11 in the United
States, three in Ireland, one in Switzerland and one in Puerto Rico. Many of
these manufacturing facilities produce and manufacture products for more than
one of the Company's divisions.
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As part of the rationalization plan established after acquiring Schneider, the
Company has decided to close five Schneider facilities, as well as transition
the manufacturing of selected Boston Scientific product lines to different
sites. The Company believes that its facilities are adequate to meet its current
needs.
ITEM 3. LEGAL PROCEEDINGS
Note K to the Company's 1998 Consolidated Financial Statements, appearing on
pages F-25 through F-28 thereto (contained in the Company's 1998 Annual Report
to Shareholders included as Exhibit 13.1 hereto), is incorporated herein by
reference.
RECENT PATENT PROCEEDINGS
On March 2, 1999, Medtronic AVE Inc., formerly known as Arterial Vascular
Engineering Inc. (AVE), filed a cross-border suit in The Netherlands against the
Company and various subsidiaries of the Company including SCIMED, alleging that
the Company's MAXXUM(TM), MAXXUM(TM) ENERGY, MAXXUM(TM) 29 MM, NIR(R) Primo(TM),
VIVA!(TM), EXPRESS PLUS and EXPRESS PLUS II balloon dilation catheters infringe
one of AVE's European patents. In this action, AVE requested relief covering The
Netherlands, Germany, the United Kingdom, France and Spain. The Company has not
yet filed its answer, but intends to deny the allegations of the complaint.
On March 18, 1999, Cook, Inc. filed suit against the Company and SCIMED,
alleging that SCIMED's Radius(TM) coronary stent infringes a certain U.S. patent
owned by Cook. The suit was filed in the U.S. District Court for the Southern
District of Indiana seeking monetary damages and injunctive relief. The Company
has not yet been served.
The Company is involved in various lawsuits from time to time. In management's
opinion, the Company is not currently involved in any legal proceedings other
than those specifically identified above or in Note K to the Company's 1998
Consolidated Financial Statements which, individually or in the aggregate, could
have a material effect on the financial condition, operations or cash flows of
the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
A Special Meeting of Stockholders of the Company was held on November 4, 1998 to
consider and vote upon a proposal to amend the Second Restated Certificate of
Incorporation, as amended, of the Company to increase the authorized number of
shares of Common Stock from 300,000,000 to 600,000,000 and the authorized number
of shares of Preferred Stock from 25,000,000 to 50,000,000. The amendment
allowed the Company's November 30, 1998 2-for-1 common stock split, effected in
the form of a 100% stock dividend, to occur. On September 15, 1998, the record
date for the Special Meeting, there were 196,367,418 shares of Common Stock
outstanding on a pre-stock split basis. The amendment was approved by a vote of
137,891,227 for, 9,618,374 against, 303,358 abstaining and 0 broker non-votes.
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DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The Directors and executive officers of the Company as of December 31, 1998 are
as follows:
NAME AGE POSITION
- ---- --- --------
John E. Abele 61 Director, Founder Chairman
Charles J. Aschauer, Jr. 70 Director, Retired Executive Vice President and Director of
Abbott Laboratories
Randall F. Bellows 70 Director, Retired Executive Vice President of
Cobe Laboratories, Inc.
Michael Berman 41 Senior Vice President and Group President--Cardiology
Businesses, and President--SCIMED Life Systems, Inc.
Lawrence C. Best 48 Senior Vice President--Finance & Administration
and Chief Financial Officer
Joseph A. Ciffolillo 60 Director, Private Investor
Joel L. Fleishman 64 Director, President of The Atlantic Philanthropic Service
Company, Inc. and Professor of Law and Public Policy,
Duke University
Lawrence L. Horsch 64 Director, Chairman of Eagle Management & Financial Corp.
Paul A. LaViolette 41 Senior Vice President and President, Boston Scientific
International
Philip P. LeGoff 48 Senior Vice President and Group President--Vascular and
Nonvascular Businesses
C. Michael Mabrey 56 Senior Vice President--Operations
Robert G. MacLean 55 Senior Vice President--Human Resources
N.J. Nicholas, Jr. 59 Director, Private Investor
Pete M. Nicholas 57 Director, Founder, Chief Executive Officer and
Chairman of the Board
Arthur L. Rosenthal 52 Senior Vice President and Chief Development Officer
Paul W. Sandman 51 Senior Vice President, Secretary and General Counsel
Dale A. Spencer 53 Director, Former Executive Vice President of Boston Scientific
Corporation
On March 18, 1999, the Company announced the appointment of James R. Tobin as
President and Chief Executive Officer. In addition to serving as President and
Chief Executive Officer, Mr. Tobin will serve on the Board of Directors. Pete M.
Nicholas will continue as Chairman of the Board.
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COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors of the Company has standing Audit, Executive Compensation
and Human Resources, and Governance Committees. Mr. Aschauer , Mr. Fleishman,
and Mr. Horsch currently serve on the Audit Committee. Mr. Aschauer, Mr. Bellows
and Mr. Fleishman currently serve on the Executive Compensation and Human
Resources Committee. Mr. Aschauer, Mr. Bellows, Mr. Fleishman, Mr. Horsch and
Mr. Nicholas currently serve on the Governance Committee. A description of the
committees of the Board of Directors of the Company is set forth in the
Company's definitive Proxy Statement to be filed with the Commission on or
before April 30, 1999 and is incorporated herein by reference.
BIOGRAPHICAL SUMMARIES
John E. Abele, a co-founder of the Company, has been a Director of the Company
since 1979, Founder Chairman since 1995 and was Co-Chairman from 1979 to 1995.
As of February 1995, Mr. Abele held the position of Vice Chairman and Founder,
Office of the Chairman from February 1995 to March 1996 and Treasurer from 1979
to 1992. He was President of Medi-tech, Inc. from 1970 to 1983, and prior to
that served in sales, technical and general management positions for Advanced
Instruments, Inc. Mr. Abele received a B.A. degree from Amherst College.
Charles J. Aschauer, Jr. joined the Company in May 1992, as a Director. Mr.
Aschauer has been retired since April 1989. From 1971 to 1989, Mr. Aschauer was
responsible for Abbott Laboratories' Hospital Products business and retired as
an Executive Vice President and director of Abbott Laboratories. Mr. Aschauer
also serves as a director of Linc Capital, Inc. Mr. Aschauer received a B.B.A.
degree from Northwestern University, and a certificate in International Business
Administration from Centre d'Etudes Industrielles in Geneva, Switzerland.
Randall F. Bellows joined the Company as a Director in February 1995. Mr.
Bellows is a retired Founder and Executive Vice President of Cobe Laboratories,
Inc., a medical device manufacturer, a post he held from 1964 to 1990, and
served as a director of Cobe from 1964 to 1996. He was also a director of SCIMED
from 1992 to February 1995, and of Ultimate Electronics Inc. since January 1995.
Mr. Bellows received a B.A. degree from the University of Minnesota.
Michael Berman joined the Company as Vice President of Sales and Marketing of
SCIMED in February 1995, and in May 1997 became Senior Vice President and Group
President - Cardiology Businesses. In June 1995, Mr. Berman became President of
SCIMED and in December 1996, he was elected to the position of Group
President--Cardiology Businesses. Mr. Berman served as SCIMED's Vice President
of Sales and Marketing, from January 1995 to June 1995, Vice President and
Business Manager of New Modalities, from July 1993 to January 1995, and Vice
President of Marketing, from July 1989 to June 1993. Mr. Berman received B.S.
and M.B.A. degrees from Cornell University.
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Lawrence C. Best joined the Company in August 1992 as Senior Vice
President--Finance & Administration and Chief Financial Officer. Previously, Mr.
Best had been a partner at Ernst & Young, certified public accountants, since
1981. From 1979 to 1981, Mr. Best served a two year term as a Professional
Accounting Fellow in the Office of Chief Accountant at the Securities and
Exchange Commission in Washington, D.C. Mr. Best received a B.B.A. degree from
Kent State University.
Joseph A. Ciffolillo joined the Company in 1983 as President of Medi-tech, Inc..
In 1988, he was also named President of Microvasive, Inc. (a former subsidiary
merged into the Company), and in 1989 he became Executive Vice President and
Chief Operating Officer of the Company. In 1992, Mr. Ciffolillo became a
Director of the Company. In April 1996, he retired from his position as an
executive officer of the Company, but continues to serve as a Director. Mr.
Ciffolillo also serves as a director of CompDent Corporation, CardioThoracic
Systems, Inc. and Innovasive Devices, Inc. Mr. Ciffolillo received a B.A. degree
from Bucknell University. He is also a trustee for Bucknell University.
Joel L. Fleishman joined the Company in October 1992 as a Director. Mr.
Fleishman became President of The Atlantic Philanthropic Service Company, Inc.
in September 1993. He is also Professor of Law and Public Policy and has served
in various administrative positions, including First Senior Vice President, at
Duke University, since 1971. Mr. Fleishman is a founding member of the governing
board of the Duke Center for Health Policy Research and Education and was the
founding director of Duke University's Terry Sanford Institute of Public Policy.
He is the director of the Samuel and Ronnie Heyman Center for Ethics, Public
Policy and the Professions. Mr. Fleishman also serves as Vice-Chairman of the
Board of Trustees of the Urban Institute. Mr. Fleishman also serves as a
director of Polo Ralph Lauren Corporation. Mr. Fleishman received A.B., M.A. and
J.D. degrees from the University of North Carolina at Chapel Hill, and an L.L.M.
degree from Yale University.
Lawrence L. Horsch joined the Company as a Director in February 1995.
Previously, he had been Chairman of the Board of SCIMED Life Systems, Inc. from
1977 to June 1994 and a Director through February 1995. Since 1990, Mr. Horsch
has served as Chairman of Eagle Management & Financial Corp. He was Chairman and
Chief Executive Officer of Munsingwear, Inc., from 1987 to 1990. Mr. Horsch
received a B.A. degree from the University of St. Thomas and an M.B.A. degree
from Northwestern University.
Paul A. LaViolette joined the Company in January 1994 as President, Boston
Scientific International, and Vice President--International. In February 1995,
Mr. LaViolette was elected to the position of Senior Vice President and Group
President--Nonvascular Businesses. In October, 1998, Mr. LaViolette was
appointed President, Boston Scientific International. Prior to joining the
Company, he was employed by C.R. Bard, Inc. in various capacities, including
President, U.S.C.I. Division, from July 1993 to November 1993, President,
U.S.C.I. Angioplasty Division, from January 1993 to July 1993, Vice President
and General Manager, U.S.C.I. Angioplasty Division, from August 1991 to January
1993, and Vice President U.S.C.I. Division, from January 1990 to August 1991.
Mr. LaViolette received his B.A. degree from Fairfield University and an M.B.A.
degree from Boston College.
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Philip P. LeGoff joined the Company in November 1997 as Senior Vice President
and Group President -- Vascular Businesses. In October, 1998, Mr. LeGoff assumed
the additional responsibilities of Group President--Nonvascular Businesses.
Prior to joining Boston Scientific, he was Head of Strategy and External Affairs
and Member of the Global Executive Committee at Novartis Phaarma AG of Basel,
Switzerland since 1996. Between 1981 and 1993 he held various executive
management positions at Sanofi Inc. of Paris, including Director Research and
Development Planning, Director Corporate Planning and Chief Executive Officer of
the Bio-Industries Division. In 1994 he became President and Chief Executive
Officer of Sanofi, North America. Before joining Sanofi, Dr. LeGoff held a
variety of management and executive positions with Ciba-Geigy Corporation. Dr.
LeGoff received a Masters Degree in Organic Chemistry and Pharmacy from the
University of Rennes; a Ph.D. in Healthcare Law from the University of Paris;
and a Masters Degree in Business Administration from Stanford University, Palo
Alto. Dr. LeGoff has served on a number of for-profit and non-profit boards,
including the Council of the International Federation of Pharmaceutical
Manufacturers Associations (IFPMA, Geneva) and the Policy Board of the Center
for Medicines Research (London).
C. Michael Mabrey joined the Company in 1987 as Vice President--Operations of
the Medi-tech division. From March 1988 to February 1989, he was the Vice
President, Operations of the Medical Device Group of the Company. Mr. Mabrey is
currently Senior Vice President--Operations of the Company, a position he has
held since February 1989. Prior to joining the Company, Mr. Mabrey was Vice
President, Operations of the Medical Products Group of Baxter Healthcare
Corporation. Mr. Mabrey received a B.S. degree from Southwest Missouri State
University.
Robert G. MacLean joined the Company in April 1996 as Senior Vice
President--Human Resources. Prior to joining the Company, he was Vice
President--Worldwide Human Resources for National Semiconductor Corporation in
Santa Clara, California from October 1992 to March 1996. Mr. MacLean has held
various human resources management positions in the U.S. and Europe during his
career. Prior to his business endeavors, he was Economics Professor at the
University of the Pacific. Mr. MacLean received his bachelor and master degrees
and completed his doctoral studies in economics from Stanford University.
N.J. Nicholas, Jr. joined the Company as a Director in October 1994. Mr.
Nicholas served as President of Time, Inc. from September 1986 to May 1990 and
Co-Chief Executive Officer of Time Warner, Inc. from May 1990 until February
1992. N.J. Nicholas, Jr. is a director of Xerox Corporation and of Bankers Trust
Corporation. Mr. Nicholas received an A.B. degree from Princeton University and
an M.B.A. degree from Harvard Business School. He is also the brother of Pete
Nicholas, Chairman of the Board and Chief Executive Officer of the Company.
Pete M. Nicholas, a co-founder of the Company, has been the Chairman of the
Board of the Company since 1995. He has been a Director since 1979 and served as
the Chief Executive Officer from 1979 to March 1998 and Co-Chairman of the Board
from 1979 to 1995. Prior to joining the Company, he was corporate director of
marketing and general manager of the Medical Products Division at Millipore
Corporation, a medical device company, and served in various sales, marketing
and general management positions at Eli Lilly and Company. He is also a trustee
of Duke University. Mr. Nicholas received a B.A. degree from Duke University,
and an M.B.A.
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degree from The Wharton School of the University of Pennsylvania. He is also the
brother of N.J. Nicholas, Jr., a Director of the Company.
Dr. Arthur L. Rosenthal joined the Company in January 1994 as Senior Vice
President and Chief Development Officer. Prior to joining the Company, he was
Vice President--Research & Development, at Johnson & Johnson Medical, Inc., in
Arlington, Texas, where he was responsible for new products, research, clinical,
regulatory and quality assurance from April 1990 to January 1994. From August
1982 through April 1990, Dr. Rosenthal worked at Davol, Inc., a division of C.R.
Bard, first as Vice President--Research & Development until June 1989, and then
as Vice President--Specialty Access Products from June 1989 through April 1990.
Dr. Rosenthal received his B.A. in bacteriology from the University of
Connecticut, and his Ph.D. in biochemistry from the University of Massachusetts.
Paul W. Sandman joined the Company in May 1993 as Senior Vice President,
Secretary and General Counsel. From March 1992 through April 1993, he was Senior
Vice President, General Counsel and Secretary of Wang Laboratories, Inc. where
he was responsible for legal affairs. Prior to March 1992, Mr. Sandman was Vice
President and Corporate Counsel of Wang Laboratories, Inc., where he was
responsible for corporate and international legal affairs. Mr. Sandman received
his A.B. from Boston College, and his J.D. from Harvard Law School.
Dale A. Spencer joined the Company as a Director and Executive Vice President in
February 1995. Previously, he had been Chairman of the Board since 1994, Chief
Executive Officer since 1986, and President since 1982, of SCIMED Life Systems,
Inc. Mr. Spencer retired from his position as an executive officer of the
Company, but continues to serve as a Director and a part-time employee of the
Company. Mr. Spencer received a B.S.E. degree from the University of Maine and
an M.B.A. degree from Southern Illinois University.
James R. Tobin joined the Company on March 17, 1999 as Director, President and
Chief Executive Officer. Prior to joining Boston Scientific, Mr. Tobin served as
President and Chief Executive Officer of Biogen, Inc. from 1997 to 1998 and
Chief Operating Officer of Biogen from 1994 to 1997. From 1972 to 1994, Mr.
Tobin was a career executive with Baxter International, rising from financial
analyst to President and Chief Operating Officer in 1992. Before becoming
Baxter's President and Chief Operating Officer, he served as Managing Director
in Japan, Managing Director in Spain, President of Baxter's I.V. Systems Group
and Executive Vice President, responsible for running Baxter's worldwide
business groups and then its U.S. manufacturing and distribution operations. Mr.
Tobin currently serves on the Board of Directors of Creative Biomolecules, Inc.
and PathoGenesis Corporation. Mr. Tobin holds an A.B. from Harvard College and
an M.B.A. from Harvard Business School. Mr. Tobin also served as a lieutenant in
the U.S. Navy from 1968 to 1972.
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PART II
- --------------------------------------------------------------------------------
ITEM 5. MARKET FOR COMPANY'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The information set forth under the caption "Market for the Company's Common
Stock and Related Matters" included in the Company's 1998 Annual Report to
Shareholders (Exhibit 13.1 filed herewith) is incorporated herein by reference.
The closing price of the Company's Common Stock on March 15, 1999 was $33.75.
ITEM 6. SELECTED FINANCIAL DATA
The information set forth under the caption "Five-Year Selected Financial Data"
included in the Company's 1998 Annual Report to Shareholders (Exhibit 13.1 filed
herewith) is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The statements and information set forth under the caption "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included in the Company's 1998 Annual Report to Shareholders (Exhibit 13.1 filed
herewith) are incorporated herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information set forth under the subcaption "Market Risk Disclosures"
contained under the caption "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included in the Company's 1998 Annual
Report to Shareholders (Exhibit 13.1 filed herewith) is incorporated herein by
reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements of the Company and its subsidiaries
included in the Company's 1998 Annual Report to Shareholders (Exhibit 13.1 filed
herewith) are incorporated herein by reference.
The statements and information set forth under the caption "Quarterly Results of
Operations" included in the Company's 1998 Annual Report to Shareholders
(Exhibit 13.1 filed herewith) are incorporated herein by reference.
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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
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PART III
- --------------------------------------------------------------------------------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The required information concerning directors and executive officers set forth
in the Company's definitive Proxy Statement to be filed with the Commission on
or before April 30, 1999 is incorporated herein by reference. See also
"Directors and Executive Officers of the Company" following Item 4 herein.
ITEM 11. EXECUTIVE COMPENSATION
The required information concerning executive compensation set forth in the
Company's definitive Proxy Statement to be filed with the Commission on or
before April 30, 1999 is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The required statements concerning security ownership of certain beneficial
owners and management set forth in the Company's definitive Proxy Statement to
be filed with the Commission on or before April 30, 1999 are incorporated herein
by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The required statements concerning certain relationships and related
transactions set forth in the Company's definitive Proxy Statement to be filed
with the Commission on or before April 30, 1999 are incorporated herein by
reference.
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PART IV
- --------------------------------------------------------------------------------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
(a)(1) Financial Statements.
The response to this portion of Item 14 is set forth under Item 8.
(a)(2) Financial Schedules.
The response to this portion of Item 14 is filed herewith as a
separate attachment to this report.
(a)(3) Exhibits (* documents filed herewith).
EXHIBIT
NO. TITLE
------- -----
3.1 Second Restated Certificate of Incorporation of the Company
(Exhibit 3.1, Annual Report on Form 10-K for the year ended
December 31, 1993, File No. 1-11083).
3.2 Certificate of Amendment of the Second Restated Certificate
of Incorporation of the Registrant (Exhibit 3.2, Annual
Report on Form 10-K for the year ended December 31, 1994,
File No. 1-11083).
*3.3 Certificate of Second Amendment of the Second Restated
Certificate of Incorporation of the Registrant.
3.4 Restated By-laws of the Company (Exhibit 3.2, Registration
No. 33- 46980).
4.1 Specimen Certificate for shares of the Company's Common
Stock (Exhibit 4.1, Registration No. 33-46980).
4.2 Description of Capital Stock contained in Exhibits 3.1,
3.2, 3.3 and 3.4.
4.3 Form of Debt Securities Indenture (Exhibit 4.4,
Registration Statement on Form S-3 of the Company, BSC
Capital Trust, BSC Capital Trust II and BSC Capital Trust
III, File No. 333-64887)
10.1 Boston Scientific Corporation 1992 Long-Term Incentive
Plan, as amended (Exhibit 10.1, Annual Report on Form 10-K
for the year ended December 31, 1996, File No. 1-11083).
10.2 Boston Scientific Corporation 1992 Non-Employee Directors'
Stock Option Plan, as amended (Exhibit 10.2, Annual Report
on Form 10-K for the year ended December 31, 1996, File No.
1-11083).
10.3 Boston Scientific Corporation 1995 Long-Term Incentive
Plan, as amended (Exhibit 10.3, Annual Report on Form 10-K
for the year ended December 31, 1996, File No. 1-11083).
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EXHIBIT
NO. TITLE
------- -----
10.4 SCIMED Life Systems, Inc. 1987 Non-Qualified Stock Option
Plan, amended and restated (Exhibit 4.3, Registration No.
33-89772 which was incorporated by reference to Exhibit A
to SCIMED's Proxy Statement dated May 23, 1991 for its 1991
Annual Meeting of Shareholders, Commission File No.
0-9301).
10.5 SCIMED Life Systems, Inc. 1991 Directors Stock Option Plan,
as amended (Exhibit 4.2, Registration No. 33-89772 which
was incorporated by reference to Exhibit A to SCIMED's
Proxy Statement dated June 8, 1994 for its 1994 Annual
Meeting of Shareholders, Commission File No. 0- 9301).
10.6 SCIMED Life Systems, Inc. 1992 Stock Option Plan (Exhibit
4.1, Registration No. 33-89772 which was incorporated by
reference to Exhibit A to SCIMED's Proxy Statement dated
May 26, 1992 for its 1992 Annual Meeting of Shareholders,
Commission File No. 0-9301).
10.7 Heart Technology, Inc. Restated 1989 Stock Option Plan
(Exhibit 4.5, Registration No. 33-99766 which was
incorporated by reference to Exhibit 10.4 to the
Registration Statement on Form S-1 of Heart Technology,
Registration No. 33-45203).
10.8 Heart Technology, Inc. 1992 Stock Option Plan for
Non-Employee Directors (Exhibit 4.6, Registration No.
33-99766 which was incorporated by reference to Exhibit
10.5 to the Registration Statement on Form S-1 of Heart
Technology, Registration No. 33-45203).
10.9 Heart Technology, Inc. 1995 Stock and Incentive Plan
(Exhibit 4.7, Registration No. 33-99766 which was
incorporated by reference to Exhibit 10.4 to the Quarterly
Report on 10-Q/A of Heart Technology for its fiscal quarter
ended June 30, 1995, filed on August 30, 1995, File No.
0-19812).
10.10 Cardiovascular Imaging Systems, Inc. 1987 Incentive Stock
Option Plan, as amended (Exhibit 4.2, Registration No.
33-93790 which was incorporated by reference to CVIS's
Registration Statement on Form S-1 filed on March 11, 1992,
Registration No. 33-46330).
10.11 EP Technologies, Inc. 1988 Stock Plan (Exhibit 4.7,
Registration No. 33- 80265 which was incorporated by
reference to EPT's Registration Statement on Form S-8, File
No. 33-67020).
10.12 EP Technologies, Inc. 1991 Stock Option/Stock Issuance Plan
(Exhibit 4.6, Registration No. 33-80265 which was
incorporated by reference to EPT's Registration Statement
on Form S-8, File No. 33-82140).
10.13 EP Technologies, Inc. 1992 Stock Option Grant to Dr. Terry
E. Spraker, (Exhibit 4.8, Registration No. 33-80265 which
was incorporated by reference to Exhibit 10.15 to the
Annual Report on Form 10-K of EPT for the 1994 Fiscal Year,
File No. 0-22060).
10.14 EP Technologies, Inc. 1993 Stock Option/Stock Issuance
Plan, (Exhibit 4.5, Registration No. 33-80265 which was
incorporated by reference to EPT's Registration Statement
on Form S-8, File No. 33-93196).
27
28
EXHIBIT
NO. TITLE
------- -----
10.15 Target Therapeutics, Inc. 1988 Stock Option Plan,
incorporated by reference to Exhibit 10.2 to Target
Therapeutics, Inc.'s Quarterly Report on Form 10-Q for the
quarter ended September 30, 1996 (File No. 0-19801).
10.16 Target Therapeutics, Inc. 1988 Stock Option Plan,
incorporated by reference to Exhibit 10.3 to Target
Therapeutics, Inc.'s Quarterly Report on Form 10-Q for the
quarter ended September 30, 1996 (File No. 0-19801).
10.17 Boston Scientific Corporation 401(k) Savings Plan, Amended
and Restated, Effective January 1, 1997 (Exhibit 10.17,
Annual Report on Form 10-K for the year ended December 31,
1997, File No. 1-11083).
10.18 Boston Scientific Corporation Global Employee Stock
Ownership Plan, as Amended and Restated (Exhibit 10.18,
Annual Report on Form 10-K for the year ended December 31,
1997, File No. 1-11083).
10.19 Boston Scientific Corporation Deferred Compensation Plan,
Effective January 1, 1996 (Exhibit 10.17, Annual Report on
Form 10-K for the year ended December 31, 1996, File No.
1-11083).
10.20 Form of Second Amended and Restated Credit Agreement, dated
September 4, 1998 among the Company, The Several Lenders
and certain other parties (Exhibit 10.1 to the Company's
Current Report on Form 8-K dated September 25, 1998, File
No. 1-11083).
*10.21 Form of Amendment dated February 23, 1999 to Second Amended
and Restated Credit Agreement dated September 4, 1998 among
the Company, The Several Lenders and certain other parties.
10.22 Form of Credit Agreement dated September 4, 1998 among
Boston Scientific Corporation, The Several Lenders and
certain other parties (Exhibit 10.2 to the Company's
Current Report on Form 8-K dated September 25, 1998, File
No. 1-11083).
*10.23 Form of Amendment dated February 23, 1999 to the Credit
Agreement dated September 4, 1998 among the Company, The
Several Lenders and certain other parties.
10.24 Form of Credit Agreement dated September 9, 1998 among the
Company, The Several Lenders and Merrill Lynch Capital
Corporation (Exhibit 10.3 to the Company's Current Report
on Form 8-K dated September 25, 1998, File No. 1-11083).
*10.25 Form of Amendment No. 1 dated October 22, 1998 to the
Credit Agreement dated September 9, 1998 among the Company,
The Several Lenders and Merrill Lynch Capital Corporation.
*10.26 Form of Amendment No. 2 dated February 23, 1999 to the
Credit Agreement dated September 9, 1998 among the Company,
The Several Lenders and Merrill Lynch Capital Corporation.
10.27 Form of Indemnification Agreement between the Company and
certain Directors and Officers (Exhibit 10.16, Registration
No. 33-46980).
28
29
10.28 Letter Agreement, dated June 22, 1992, between the Company
and Lawrence C. Best (Exhibit 10.11, Annual Report on Form
10-K for the year ended December 31, 1993, File No.
1-11083).
10.29 Employment Agreement, dated as of November 8, 1995, among
the Company, SCIMED and Dale A. Spencer (Exhibit 10,
Registration No. 33- 88648), as amended by Amendment No. 1,
dated as of November 22, 1995, to that certain Employment
Agreement (Exhibit 10.19, Annual Report Form 10-K for the
year ended December 31, 1995, File No. 1-11083).
10.30 Amendment No. 2 to Employment Agreement, dated October 21,
1997, to the Employment Agreement, dated as of November 8,
1995, as amended, among the Company, SCIMED and Dale A.
Spencer to the Company's Current Report on Form 8-K dated
September 25, 1998.
10.31 Form of Retention Agreement between the Company and certain
Executive Officers (Exhibit 10.23, Annual Report on Form
10-K for the year ended December 31, 1996, File No.
1-11083).
*10.32 Agreement and General Release of All Claims dated as of
December 30, 1998 by and between James M. Corbett and the
Company.
*10.33 Agreement and General Release of All Claims dated as of
January 4, 1999 by and between Charles M. Mabrey and the
Company.
*10.34 Letter Agreement dated March 17, 1999, between the Company
and James R. Tobin.
10.35 Agreement Containing Consent Decree, dated as of February
23, 1995, between the Company and the Federal Trade
Commission (Exhibit 10.16, Annual Report on Form 10-K for
the year ended December 31, 1994, File No. 1-11083).
10.36 6.625% Promissory Notes due March 15, 2005 issued by the
Company in the aggregate principal amount of $500 million,
each dated as of March 10, 1998 (Exhibit Nos. 4.1, 4.2 and
4.3 to the Company's Current Report on Form 8-K dated March
10, 1998, File No. 1-11083).
11. Statement regarding computation of per share earnings
(included in Exhibit 13.1, Note J to the Company's Annual
Report to Shareholders for the year ended December 31,
1998).
*12.1 Statement regarding computation of ratios of earnings to
fixed charges.
*13.1 The Company's 1998 Annual Report to Shareholders for the
year ended December 31, 1998.
13.2 Report of Independent Auditors, Ernst & Young LLP (included
in the Company's Annual Report to Shareholders for the year
ended December 31, 1998, filed as Exhibit 13.1 hereto).
*21. List of the Company's subsidiaries as of March 15, 1999.
Each subsidiary does business under the corporate name
indicated.
*23.1 Consent of Independent Auditors, Ernst & Young LLP.
*27.1 Financial Data Schedule, fiscal year ended December 31,
1998.
29
30
(b) Reports on Form 8-K.
Current Reports on Form 8-K/A and Form 8-K/A2, amending and supplementing the
Company's Current Report on Form 8-K filed on September 25, 1998 with respect to
the Item described below, were filed during the period covering the quarter
ended December 31, 1998 and the quarter ended March 31, 1999:
ITEM EVENT DATE DESCRIPTION
- ---- ---------- -----------
7 September 10, 1998 Schneider Worldwide Combined Financial
Statements for the Years Ended December 31,
1997, 1996 and 1995 and Independent
Auditor's Report; Schneider Worldwide
Unaudited Combined Financial Statements for
the Nine Months Ended September 10, 1998 and
September 14, 1997; Unaudited Pro Forma
Combined Condensed Statements of Operations
of the Company and Schneider Worldwide for
the year ended December 31, 1997 and the
nine months ended September 30, 1998.
30
31
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Company has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
Dated: March 30, 1999
BOSTON SCIENTIFIC CORPORATION
By: /s/ LAWRENCE C. BEST
------------------------------------------------
Lawrence C. Best
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Company and in
the capacities and on the dates indicated.
Dated: March 30, 1999 /s/ JOHN E. ABELE
----------------------------------------------------
John E. Abele
Director, Founder
Dated: March 30, 1999 /s/ CHARLES J. ASCHAUER, JR.
----------------------------------------------------
Charles J. Aschauer, Jr.
Director
Dated: March 30, 1999 /s/ RANDALL F. BELLOWS
----------------------------------------------------
Randall F. Bellows
Director
Dated: March 30, 1999 /s/ LAWRENCE C. BEST
----------------------------------------------------
Lawrence C. Best
Senior Vice President--Finance and
Administration and Chief Financial Officer
(Principal Financial and Accounting Officer)
Dated: March 30, 1999 /s/ JOSEPH A. CIFFOLILLO
----------------------------------------------------
Joseph A. Ciffolillo
Director
Dated: March 30, 1999 /s/ JOEL L. FLEISHMAN
----------------------------------------------------
Joel L. Fleishman
Director
31
32
Dated: March 30, 1999 /s/ LAWRENCE L. HORSCH
----------------------------------------------------
Lawrence L. Horsch
Director
Dated: March 30, 1999 /s/ N.J. NICHOLAS, JR.
----------------------------------------------------
N.J. Nicholas, Jr.
Director
Dated: March 30, 1999 /s/ PETER M. NICHOLAS
----------------------------------------------------
Peter M. Nicholas
Director, Founder, Chairman of the Board
(Principal Executive Officer)
Dated: March 30, 1999 /s/ DALE A. SPENCER
----------------------------------------------------
Dale A. Spencer
Director
Dated: March 30, 1999
----------------------------------------------------
James R. Tobin
Director, President and
Chief Executive Officer
32
33
FINANCIAL STATEMENT SCHEDULE
The following additional consolidated financial statement schedule should be
considered in conjunction with the Company's 1998 Consolidated Financial
Statements (contained in the Company's 1998 Annual Report to Shareholders and
included in Exhibit 13.1 filed herewith):
Schedule II - Valuation and Qualifying Accounts
All other schedules have been omitted since the required information is not
present or not sufficiently material to require submission of the schedule, or
because the information required is included in the consolidated financial
statements or the notes thereto.
33
34
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
ADDITIONS
-------------------------------------------
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING COSTS AND OTHER END OF
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
-----------------------------------------------------------------------------
(in thousands)
YEAR ENDED DECEMBER 31, 1998
Reserves and allowances deducted from
asset accounts:
Allowances for uncollectible
amounts and sales returns.................... $30,479 15,024 15,774 (1) 12,126 (2) $49,151
YEAR ENDED DECEMBER 31, 1997
Reserves and allowances deducted from
asset accounts:
Allowances for uncollectible
amounts and sales returns.................... $14,850 10,718 7,356 (1) 2,445 (2) $30,479
YEAR ENDED DECEMBER 31, 1996
Reserves and allowances deducted from
asset accounts:
Allowances for uncollectible
amounts and sales returns.................... $7,870 4,881 2,214 (1) 115 (2) $14,850
(1) Charges for sales return allowances, net of actual sales returns
(2) Uncollectible accounts written off.
Certain prior years' amounts have been reclassified to conform to the
current years' presentation.