Boston Scientific (BSX) 10-Q 6 May 10 2010 Q1 Quarterly report Financial data

Document and Entity Information

Document and Entity Information (USD $)
In Billions, except Share data	3 Months Ended Mar. 31, 2010	Jun. 30, 2009
Document and Entity Information [Abstract]
Entity Registrant Name	BOSTON SCIENTIFIC CORP
Entity Central Index Key	0000885725
Document Type	10-Q
Document Period End Date	2010-03-31
Amendment Flag	false
Document Fiscal Year Focus	2,010
Document Fiscal Period Focus	Q1
Current Fiscal Year End Date	--12-31
Entity Well-known Seasoned Issuer	Yes
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Entity Filer Category	Large Accelerated Filer
Entity Public Float		14.7
Entity Common Stock, Shares Outstanding	1,516,323,967

Condensed Consolidated Statemen

Condensed Consolidated Statements of Operations (Unaudited) (USD $)
In Millions, except Per Share data	3 Months Ended Mar. 31, 2010	3 Months Ended Mar. 31, 2009
Condensed Consolidated Statements of Operations [Abstract]
Net sales	$1,960	$2,010
Cost of products sold	663	607
Gross profit	1,297	1,403
Operating expenses:
Selling, general and administrative expenses	628	651
Research and development expenses	253	257
Royalty expense	51	46
Amortization expense	128	128
Goodwill impairment charge	1,848
Intangible asset impairment charges	60
Acquisition-related milestone	(250)
Restructuring charges	65	23
Litigation-related charges		287
Total operating expenses	2,783	1,392
Operating (loss) income	(1,486)	11
Other income (expense):
Interest expense	(93)	(102)
Other, net	4	(6)
Loss before income taxes	(1,575)	(97)
Income tax expense (benefit)	14	(84)
Net loss	($1,589)	($13)
Net loss per common share - basic	-1.05	-0.01
Net loss per common share - assuming dilution	-1.05	-0.01
Weighted-average shares outstanding
Basic	1514.5	1504.8
Assuming dilution	1514.5	1504.8

Condensed Consolidated Balance

Condensed Consolidated Balance Sheets (Unaudited) (USD $)
In Millions	3 Months Ended Mar. 31, 2010	12 Months Ended Dec. 31, 2009
Current assets:
Cash and cash equivalents	$519	$864
Trade accounts receivable, net	1,301	1,375
Inventories	906	920
Deferred income taxes	520	572
Prepaid expenses and other current assets	501	330
Total current assets	3,747	4,061
Property, plant and equipment, net	1,712	1,728
Goodwill	10,555	12,404
Other intangible assets, net	6,542	6,731
Other long-term assets	297	253
Total assets	22,853	25,177
Current liabilities:
Current debt obligations	250	3
Accounts payable	232	212
Accrued expenses	2,285	2,609
Other current liabilities	146	198
Total current liabilities	2,913	3,022
Long-term debt	5,671	5,915
Deferred income taxes	1,970	1,875
Other long-term liabilities	1,518	2,064
Commitments and contingencies
Stockholders' equity
Preferred stock, $ .01 par value - authorized 50,000,000 shares, none issued and outstanding	0	0
Common stock, $ .01 par value - authorized 2,000,000,000 shares, issued 1,516,323,967 shares as of March 31, 2010 and 1,510,753,934 shares as of December 31, 2009	15	15
Additional paid-in capital	16,130	16,086
Accumulated deficit	(5,346)	(3,757)
Accumulated other comprehensive loss, net of tax	(18)	(43)
Total stockholders' equity	10,781	12,301
Total liabilities and stockholders' equity	$22,853	$25,177

1_Condensed Consolidated Balanc

Condensed Consolidated Balance Sheets (Unaudited) (Parenthetical)
	Mar. 31, 2010	Dec. 31, 2009
Stockholders' equity
Preferred stock, par value	0.01	0.01
Preferred stock, shares authorized	50,000,000	50,000,000
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	0	0
Common stock, par value	0.01	0.01
Common stock, shares authorized	2,000,000,000	2,000,000,000
Common stock, shares issued	1,516,323,967	1,510,753,934

2_Condensed Consolidated Statem

Condensed Consolidated Statements of Cash Flows (Unaudited) (USD $)
In Millions	3 Months Ended Mar. 31, 2010	3 Months Ended Mar. 31, 2009
Condensed Consolidated Statements of Cash Flows [Abstract]
Cash (used for) provided by operating activities	($284)	$261
Investing activities:
Purchases of property, plant and equipment	(70)	(60)
Proceeds from sales of publicly traded and privately held equity securities and collections of notes receivable		50
Payments for acquisitions of businesses, net of cash acquired		(4)
Payments relating to prior period acquisitions		(502)
Payments for investments in companies and acquisitions of certain technologies	(4)	(1)
Cash used for investing activities	(74)	(517)
Financing activities:
Payments on long-term borrowings		(500)
Proceeds from borrowings on revolving credit facility	200
Payments on borrowings from revolving credit facility	(200)
Proceeds from issuances of shares of common stock	14	12
Cash provided by (used for) financing activities	14	(488)
Effect of foreign exchange rates on cash	(1)
Net decrease in cash and cash equivalents	(345)	(744)
Cash and cash equivalents at beginning of period	864	1,641
Cash and cash equivalents at end of period	519	897
Non-cash financing activities:
Stock-based compensation expense	$56	$45

Basis of Presentation

Basis of Presentation
	3 Months Ended Mar. 31, 2010
Basis of Presentation [Abstract]
BASIS OF PRESENTATION	NOTE A BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements of Boston Scientific Corporation have been prepared in accordance with accounting principles generally accepted in the United States (U.S. GAAP) and with the instructions to Form 10-Q and Article10 of RegulationS-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for fair presentation have been included. Operating results for the three months ended March31, 2010 are not necessarily indicative of the results that may be expected for the year ending December31, 2010. For further information, refer to the consolidated financial statements and footnotes thereto included in our 2009 Annual Report filed on Form 10-K. We have reclassified certain prior year amounts to conform to the current years presentation. See Note L Segment Reporting for further details. Subsequent Events We evaluate events occurring after the date of our accompanying unaudited condensed consolidated balance sheets for potential recognition or disclosure in our financial statements. We did not identify any material subsequent events requiring adjustment to our accompanying unaudited condensed consolidated financial statements (recognized subsequent events). Those items requiring disclosure (unrecognized subsequent events) in the financial statements have been disclosed accordingly. Refer to Note K Commitments and Contingencies for more information.

Goodwill and Other Intangible A

Goodwill and Other Intangible Assets
	3 Months Ended Mar. 31, 2010
Goodwill and Other Intangible Assets [Abstract]
GOODWILL AND OTHER INTANGIBLE ASSETS	NOTE B GOODWILL AND OTHER INTANGIBLE ASSETS We test our April 1 goodwill balances during the second quarter of each year for impairment, or more frequently if indicators are present or changes in circumstances suggest that impairment may exist. The ship-hold and product removal actions associated with our U.S. implantable cardioverter defibrillator (ICD)and cardiac resynchronization therapy defibrillator (CRT-D) products announced on March15, 2010, described in Item2 of this Quarterly Report, and the potential corresponding financial impact on our operations created an indication of potential impairment of the goodwill balance attributable to our U.S. Cardiac Rhythm Management (CRM)reporting unit. Therefore, we performed an interim impairment test in accordance with our accounting policies and recorded a $1.848billion, on both a pre-tax and after-tax basis, goodwill impairment charge associated with our U.S. CRM reporting unit. This loss is an estimate that will be finalized in the second quarter of 2010 due to the timing of the product actions and the procedures required to complete the two step goodwill impairment test. This loss does not impact our compliance with our debt covenants or our cash flows. We used the income approach, specifically the discounted cash flow (DCF)method, to derive the fair value of the U.S. CRM reporting unit, as described in our accounting policies in our 2009 Annual Report filed on Form 10-K. We updated all aspects of the DCF model associated with the U.S. CRM business, including the amount and timing of future expected cash flows, terminal value growth rate and the appropriate discount rate to apply. As a result of the ship-hold and product removal actions, we estimate that our U.S. defibrillator market share will decrease approximately 400 basis points exiting 2010, as compared to our market share exiting 2009, and will negatively impact our 2010 U.S. CRM revenues by approximately $300 million. We are working with our physician and patient customers to recapture lost market share; however, our on-going net sales and profitability will likely continue to be adversely impacted as a result of the ship-hold and product removal actions. Therefore, as a result of these product actions, as well as lower expectations of growth in new markets and increased competitive and pricing pressures, we lowered our estimated average U.S. CRM net sales growth rates over our 15-year DCF, as well as our terminal value growth rate, by approximately a couple of hundred basis points. The reduction in our forecasted 2010 U.S. CRM net sales, the change in our expected sales growth rates thereafter and the reduction in profitability as a result of the recently enacted excise tax on medical device manufacturers were several key factors contributing to the impairment charge. Partially offsetting these factors was a 50 basis point reduction in our estimated market participant risk-adjusted weighted-average cost of capital (WACC), used in determining our discount rate. The aggregate amount of goodwill that remains associated with our U.S. CRM reporting unit is approximately $1.4billion as of March31, 2010. In additi

Financial Instruments

Financial Instruments
	3 Months Ended Mar. 31, 2010
Financial Instruments [Abstract]
FINANCIAL INSTRUMENTS	NOTE C FINANCIAL INSTRUMENTS Derivative Instruments and Hedging Activities We develop, manufacture and sell medical devices globally and our earnings and cash flows are exposed to market risk from changes in currency exchange rates and interest rates. We address these risks through a risk management program that includes the use of derivative financial instruments, and operate the program pursuant to documented corporate risk management policies. We recognize all derivative financial instruments in our consolidated financial statements at fair value in accordance with Financial Accounting Standards Board (FASB)Accounting Standards Codification (ASC)Topic 815, Derivatives and Hedging (formerly FASB Statement No.133, Accounting for Derivative Instruments and Hedging Activities). In accordance with Topic 815, for those derivative instruments that are designated and qualify as hedging instruments, the hedging instrument must be designated, based upon the exposure being hedged, as a fair value hedge, cash flow hedge, or a hedge of a net investment in a foreign operation. The accounting for changes in the fair value (i.e. gains or losses) of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship and, further, on the type of hedging relationship. Our derivative instruments do not subject our earnings or cash flows to material risk, as gains and losses on these derivatives generally offset losses and gains on the item being hedged. We do not enter into derivative transactions for speculative purposes and we do not have any non-derivative instruments that are designated as hedging instruments pursuant to Topic 815. Currency Hedging We are exposed to currency risk consisting primarily of foreign currency denominated monetary assets and liabilities, forecasted foreign currency denominated intercompany and third party transactions and net investments in certain subsidiaries. We manage our exposure to changes in foreign currency on a consolidated basis to take advantage of offsetting transactions and balances. We use both derivative instruments (currency forward and option contracts), and non-derivatives (primarily European manufacturing operations) to reduce the risk that our earnings and cash flows associated with these foreign currency denominated balances and transactions will be adversely affected by currency exchange rate changes. Designated Foreign Currency Hedges All of our designated currency hedge contracts outstanding as of March31, 2010 and December31, 2009 were cash flow hedges under Topic 815 intended to protect the U.S. dollar value of our forecasted foreign currency denominated transactions. We record the effective portion of any change in the fair value of foreign currency cash flow hedges in other comprehensive income (OCI)until the related third-party transaction occurs. Once the related third-party transaction occurs, we reclassify the effective portion of any related gain or loss on the foreign currency cash flow hedge to earnings. In the event the hedged forecasted transaction does not occur, or it becomes probable that it will not occur, we would recl

Supplemental Balance Sheet Info

Supplemental Balance Sheet Information
	3 Months Ended Mar. 31, 2010
Supplemental Balance Sheet Information [Abstract]
SUPPLEMENTAL BALANCE SHEET INFORMATION	NOTE D SUPPLEMENTAL BALANCE SHEET INFORMATION The following are the components of various balance sheet items as of March31, 2010 and December 31, 2009: Inventories March 31, December 31, (in millions) 2010 2009 Finished goods $ 658 $ 671 Work-in-process 82 69 Raw materials 166 180 $ 906 $ 920 Property, plant and equipment, net March 31, December 31, (in millions) 2010 2009 Property, plant and equipment $ 3,184 $ 3,266 Less: accumulated depreciation (1,472 ) (1,538 ) $ 1,712 $ 1,728 Depreciation expense was $74million for the first quarter of 2010 and $76million for the first quarter of 2009. Accrued expenses March 31, December 31, (in millions) 2010 2009 Legal reserves $ 1,172 $ 1,453 Payroll and related liabilities 368 472 Other 745 684 $ 2,285 $ 2,609 Other long-term liabilities March 31, December 31, (in millions) 2010 2009 Accrued income taxes $ 1,055 $ 857 Legal reserves 138 863 Retirement plan obligations 108 111 Other long-term liabilities 217 233 $ 1,518 $ 2,064 Accrued warranties Changes in our product warranty accrual during the first quarter of 2010 and 2009 consisted of the following (in millions): 2010 2009 | | Balance as of December31 - prior year $ 55 $ 62 Provision 3 5 Settlements/ reversals (8 ) (10 ) Balance as of March31 - current year $ 50 $ 57

Borrowings and Credit Arrangeme

Borrowings and Credit Arrangements
	3 Months Ended Mar. 31, 2010
Borrowings and Credit Arrangements [Abstract]
BORROWINGS AND CREDIT ARRANGEMENTS	NOTE E BORROWINGS AND CREDIT ARRANGEMENTS We had total debt of $5.921billion as of March31, 2010 and $5.918billion as of December31, 2009. The debt maturity schedule for the significant components of our debt obligations as of March31, 2010 is as follows: Payments due by Period (in millions) 2010 2011 2012 2013 2014 Thereafter Total Abbott Laboratories loan $ 900 $ 900 Senior notes 850 600 $ 3,600 5,050 $ 1,750 $ 600 $ 3,600 $ 5,950 Note: The table above does not include discounts associated with our Abbott loan and senior notes, or amounts related to certain interest rate swaps that were used to hedge the fair value of certain of our senior notes. We maintain a $1.750billion, five-year revolving credit facility, which matures in April 2011. Use of borrowings under the revolving credit facility is unrestricted and the borrowings are unsecured. There were no amounts borrowed under this facility as of March31, 2010 or December31, 2009. In connection with our patent litigation settlement with Johnson Johnson discussed in our 2009 Annual Report filed on Form 10-K, we borrowed $200million against this facility during the first quarter of 2010 to fund a portion of the settlement, and subsequently repaid these borrowings during the quarter without any premium or penalty. Further, in February2010, we posted a $745million letter of credit under the credit facility as collateral for the remaining Johnson Johnson obligation, which reduces availability under the facility by the same amount. The remaining Johnson Johnson obligation of $725million must be satisfied on or before January3, 2011. Our revolving credit facility agreement requires that we maintain certain financial covenants, as follows: Covenant Actual as of Requirement March 31, 2010 | | Maximum leverage ratio (1) 3.5 times 2.4 times Minimum interest coverage ratio (2) 3.0 times 6.1 times (1) Ratio of total debt to EBITDA, as defined by the agreement, as amended, for the preceding four consecutive fiscal quarters. (2) Ratio of EBITDA, as defined by the agreement, as amended, to interest expense for the preceding four consecutive fiscal quarters. As of March31, 2010, we were in compliance with the required covenants. Our inability to maintain these covenants could require us to seek to renegotiate the terms of our credit facilities or seek waivers from compliance with these covenants, both of which could result in additional borrowing costs. Further, there can be no assurance that our lenders would grant such waivers.

Acquisitions

Acquisitions
	3 Months Ended Mar. 31, 2010
Acquisitions [Abstract]
ACQUISITIONS	NOTE F ACQUISITIONS Acquisition-related Milestone In connection with Abbott Laboratories 2006 acquisition of Guidant Corporations vascular intervention and endovascular solutions businesses, Abbott agreed to pay us a milestone payment of $250million upon receipt of an approval from the Japanese Ministry of Health, Labor and Welfare (MHLW)to market the XIENCE V stent system in Japan. The MHLW approved the XIENCE V stent system in the first quarter in 2010 and we received the milestone payment from Abbott, which we have recorded as a gain in the accompanying unaudited condensed consolidated statements of operations. Payments Related to Prior Period Acquisitions Certain of our acquisitions involve the payment of contingent consideration. Payment of the additional consideration is generally contingent on the acquired company reaching certain performance milestones, including attaining specified revenue levels, achieving product development targets or obtaining regulatory approvals. We did not make any payments related to prior period acquisitions during the first quarter of 2010, and made payments of $502million in the first quarter of 2009, associated primarily with a final fixed payment of $500million related to our 2004 acquisition of Advanced Bionics Corporation. As of March31, 2010, the estimated maximum potential amount of future contingent consideration (undiscounted)that we could be required to make associated with our prior acquisitions is approximately $440million. The estimated cumulative specified revenue level associated with these maximum future contingent payments is approximately $700million.

Restructuring-Related Activitie

Restructuring-Related Activities
	3 Months Ended Mar. 31, 2010
Restructuring-Related Activities [Abstract]
RESTRUCTURING-RELATED ACTIVITIES	NOTE G RESTRUCTURING-RELATED ACTIVITIES On an on-going basis, we monitor the dynamics of the economy, the healthcare industry, and the markets in which we compete; and we continue to assess opportunities for improved operational effectiveness and efficiency, and better alignment of expenses with revenues, while preserving our ability to make the investments in quality, research and development projects, capital and our people that are essential to our long-term success. As a result of these assessments, we have undertaken various restructuring initiatives to focus our business, diversify and reprioritize our product portfolio, and redirect research and development and other spending toward higher payoff products in order to enhance our growth potential. These initiatives are described below. In October2007, our Board of Directors approved, and we committed to, an expense and head count reduction plan (the 2007 Restructuring plan), which resulted in the elimination of approximately 2,300 positions worldwide. We provided affected employees with severance packages, outplacement services and other appropriate assistance and support. The plan was intended to bring expenses in line with revenues as part of our initiatives to enhance short- and long-term shareholder value. Key activities under the plan included the restructuring of several businesses, corporate functions and product franchises in order to better utilize resources, strengthen competitive positions, and create a more simplified and efficient business model; the elimination, suspension or reduction of spending on certain research and development projects; and the transfer of certain production lines among facilities. We initiated these activities in the fourth quarter of 2007. The transfer of certain production lines contemplated under the 2007 Restructuring plan will continue throughout 2010; all other major activities under the plan were completed as of December31, 2009. We expect that the execution of this plan will result in total pre-tax expenses of approximately $425million to $435million, and that approximately $375million to $385million of these charges will result in cash outlays, of which we have made payments of $351million to date. We have recorded related costs of $419million since the inception of the plan, and are recording a portion of these expenses as restructuring charges and the remaining portion through other lines within our consolidated statements of operations. The following provides a summary of our expected total costs associated with the plan by major type of cost: Total estimated amount expected to Type of cost be incurred Restructuring charges: Termination benefits $207million to $210million Fixed asset write-offs $31million Other (1) $65million Restructuring-related expenses: Retention incentives $66million Accelerated depreciation $16million to $18million Transfer costs (2) $40million to $45million $425million to $435million (1) Consists primarily of consulting fees, contractual cancellations, relocation costs and other costs. (2) Consists p

Comprehensive Income

Comprehensive Income
	3 Months Ended Mar. 31, 2010
Comprehensive Income [Abstract]
COMPREHENSIVE INCOME	NOTE H COMPREHENSIVE INCOME The following table provides a summary of our comprehensive (loss)income: Three Months Ended March 31, (in millions) 2010 2009 Net loss $ (1,589 ) $ (13 ) Foreign currency translation adjustment (30 ) (6 ) Net change in unrealized gains and losses on derivative financial instruments, net of tax 55 76 Comprehensive (loss)income $ (1,564 ) $ 57 Refer to Note C Financial Instruments for more information on our derivative financial instruments.

Earnings Per Share

Earnings Per Share
	3 Months Ended Mar. 31, 2010
Earnings Per Share [Abstract]
EARNINGS PER SHARE	NOTE I EARNINGS PER SHARE We generated net losses in the first quarter of 2010 and 2009. Our weighted-average shares outstanding for earnings per share calculations excludes common stock equivalents of 9.7million for the first quarter of 2010 and 3.9million for the first quarter of 2009 due to our net loss position in these periods. Weighted-average shares outstanding, assuming dilution, also excludes the impact of 58million stock options for the first quarter of 2010 and 65million for the first quarter of 2009, due to the exercise prices of these stock options being greater than the average fair market value of our common stock during the period. We issued approximately six million shares of our common stock in the first quarter of 2010 and five million shares in the first quarter of 2009 following the exercise or vesting of the underlying stock options or deferred stock units, or purchase under our employee stock purchase plan.

Income Taxes

Income Taxes
	3 Months Ended Mar. 31, 2010
Income Taxes [Abstract]
INCOME TAXES	NOTE J INCOME TAXES Tax Rate The following table provides a summary of our reported tax rate: Three Months Ended Percentage March 31 Point 2010 2009 Increase (Decrease) Reported tax rate (0.9 )% 86.6 % (87.5 )% Impact of certain receipts/charges* 22.2 % (65.6 )% 87.8 % 21.3 % 21.0 % 0.3 % * These receipts/charges are taxed at different rates than our effective tax rate. The change in our reported tax rate for the first quarter of 2010, as compared to the same period in 2009, relates primarily to the impact of certain receipts and charges that are taxed at different rates than our effective tax rate. In the first quarter of 2010, these receipts and charges included goodwill and intangible asset impairment charges, a gain associated with the receipt of an acquisition-related milestone payment, and restructuring-related charges. Our reported tax rate was also affected by discrete items, related primarily to the re-measurement of an uncertain tax position resulting from a favorable court ruling issued in a similar third party case. In the first quarter of 2009, these charges included acquisition-, divestiture-, restructuring- and litigation-related charges and a favorable tax ruling on a divestiture-related gain recognized in a prior period, resulting in a $63million tax benefit, as well as discrete tax items associated primarily with state law changes. As of March31, 2010, we had $1.024billion of gross unrecognized tax benefits, of which a net $894 million, if recognized, would affect our effective tax rate. As of December31, 2009, we had $1.038billion of gross unrecognized tax benefits, of which a net $908million, if recognized, would affect our effective tax rate. The net reduction in our unrecognized tax benefit is attributable primarily to the re-measurement of an uncertain tax position in the amount of $25 million, exclusive of interest, resulting from a favorable court ruling in a similar third party case. We recognize interest and penalties related to income taxes as a component of income tax expense. We recognized interest expense related to income taxes of $10million in the first quarter of 2010 and $11million in the first quarter of 2009. We had $304million accrued for gross interest and penalties as of March31, 2010 and $299million as of December31, 2009. We are subject to U.S. federal income tax as well as income tax of multiple state and foreign jurisdictions. We have concluded all U.S. federal income tax matters through 2000 and substantially all material state, local, and foreign income tax matters through 2001. During 2009, we received the Revenue Agents Report for our federal tax examination covering years 2004 and 2005, which contained proposed adjustments, related primarily to transfer pricing and transaction-related issues. We made payments during 2009 with respect to certain agreed-upon adjustments; however, we disagree with other positions contained in the Report and are contesting these positions through applicable IRS and judicial procedures, as appropriat

Commitments and Contingencies

Commitments and Contingencies
	3 Months Ended Mar. 31, 2010
Commitments and Contingencies [Abstract]
COMMITMENTS AND CONTINGENCIES	NOTE K COMMITMENTS AND CONTINGENCIES The medical device market in which we primarily participate is largely technology driven. Physician customers, particularly in interventional cardiology, have historically moved quickly to new products and new technologies. As a result, intellectual property rights, particularly patents and trade secrets, play a significant role in product development and differentiation. However, intellectual property litigation is inherently complex and unpredictable. Furthermore, appellate courts can overturn lower court patent decisions. In addition, competing parties frequently file multiple suits to leverage patent portfolios across product lines, technologies and geographies and to balance risk and exposure between the parties. In some cases, several competitors are parties in the same proceeding, or in a series of related proceedings, or litigate multiple features of a single class of devices. These forces frequently drive settlement not only for individual cases, but also for a series of pending and potentially related and unrelated cases. In addition, although monetary and injunctive relief is typically sought, remedies and restitution are generally not determined until the conclusion of the trial court proceedings and can be modified on appeal. Accordingly, the outcomes of individual cases are difficult to time, predict or quantify and are often dependent upon the outcomes of other cases in other geographies. Several third parties have asserted that our current and former stent systems infringe patents owned or licensed by them. We have similarly asserted that stent systems or other products sold by our competitors infringe patents owned or licensed by us. Adverse outcomes in one or more of the proceedings against us could limit our ability to sell certain stent products in certain jurisdictions, or reduce our operating margin on the sale of these products and could have a material adverse effect on our financial position, results of operations or liquidity. In particular, although our recent settlements with Johnson Johnson resolved 17 litigation matters, described in our 2009 Annual Report filed on Form 10-K, we continue to be involved in patent litigation with Johnson Johnson relating to drug-eluting stent delivery systems. We have each asserted that products of the other infringe patents owned or exclusively licensed by each of us. Adverse outcomes in one or more of these matters could have a material adverse effect on our ability to sell certain products and on our operating margins, financial position, results of operation or liquidity. In the normal course of business, product liability, securities and commercial claims are asserted against us. Similar claims may be asserted against us in the future related to events not known to management at the present time. We are substantially self-insured with respect to product liability claims and intellectual property infringement, and maintain an insurance policy providing limited coverage against securities claims. The absence of significant third-party insurance coverage increases our potential exposure to unanticipated claims or adverse de

Segment Reporting

Segment Reporting
	3 Months Ended Mar. 31, 2010
Segment Reporting [Abstract]
SEGMENT REPORTING	NOTE L SEGMENT REPORTING Each of our reportable segments generates revenues from the sale of medical devices. As of March 31, 2010, and December31, 2009, we had four reportable segments based on geographic regions: the United States; EMEA, consisting of Europe, the Middle East and Africa; Japan; and Inter-Continental, consisting of Asia Pacific and the Americas. The reportable segments represent an aggregate of all operating divisions within each segment. We measure and evaluate our reportable segments based on segment net sales and operating income. We exclude from segment operating income certain corporate and manufacturing-related expenses, as our corporate and manufacturing functions do not meet the definition of a segment, as defined by ASC Topic 280, Segment Reporting (formerly FASB Statement No.131, Disclosures about Segments of an Enterprise and Related Information). In addition, certain transactions or adjustments that our Chief Operating Decision Maker considers to be non-operational and/or of a non-cash nature, such as amounts related to goodwill and intangible asset impairment charges; acquisition-, divestiture-, litigation- and restructuring-related activities; as well as amortization expense, are excluded from segment operating income. Although we exclude these amounts from segment operating income, they are included in reported consolidated operating income and are included in the reconciliation below. We manage our international operating segments on a constant currency basis. Sales generated from reportable segments, as well as operating results of reportable segments and expenses from manufacturing operations, are based on internally derived standard currency exchange rates, which may differ from year to year, and do not include intersegment profits. Because of the interdependence of the reportable segments, the operating profit as presented may not be representative of the geographic distribution that would occur if the segments were not interdependent. A reconciliation of the totals reported for the reportable segments to the applicable line items in our accompanying unaudited condensed consolidated statements of operations is as follows: Three Months Ended March 31, (in millions) 2010 2009 Net sales United States $ 1,066 $ 1,170 EMEA 487 492 Japan 248 253 Inter-Continental 174 171 Net sales allocated to reportable segments 1,975 2,086 Sales generated from divested businesses 2 4 Impact of foreign currency fluctuations (17 ) (80 ) $ 1,960 $ 2,010 Loss before income taxes United States $ 173 $ 272 EMEA 228 241 Japan 124 149 Inter-Continental 73 79 Operating income allocated to reportable segments 598 741 Manufacturing operations (100 ) (107 ) Corporate expenses and currency exchange (118 ) (171 ) Goodwill and intangible asset impairment charges; and acquisition-, divestiture-,

New Accounting Pronouncements

New Accounting Pronouncements
	3 Months Ended Mar. 31, 2010
New Accounting Pronouncements [Abstract]
NEW ACCOUNTING PRONOUNCEMENTS	NOTE M NEW ACCOUNTING PRONOUNCEMENTS Standards Implemented ASC Update No.2010-06 In January2010, the FASB issued ASC Update No.2010-06, Fair Value Measurements and Disclosures (Topic 820) Improving Disclosures about Fair Value Measurements. Update No.2010-06 requires additional disclosure within the roll forward of activity for assets and liabilities measured at fair value on a recurring basis, including transfers of assets and liabilities between Level 1 and Level 2 of the fair value hierarchy and the separate presentation of purchases, sales, issuances and settlements of assets and liabilities within Level 3 of the fair value hierarchy. In addition, Update No.2010-06 requires enhanced disclosures of the valuation techniques and inputs used in the fair value measurements within Level 2 and Level 3. We adopted Update No.2010-06 for our first quarter ended March31, 2010, except for the disclosure of purchases, sales, issuances and settlements of Level 3 measurements, for which disclosures will be required for our first quarter ending March31, 2011. During the first quarter of 2010, we did not have any transfers of assets or liabilities between Level 1 and Level 2 of the fair value hierarchy. Refer to Note C Financial Instruments for disclosures surrounding our fair value measurements, including information regarding the valuation techniques and inputs used in fair value measurements for assets and liabilities within Level 2 and Level 3 of the fair value hierarchy. ASC Update No.2009-17 In December2009, the FASB issued ASC Update No.2009-17, Consolidations (Topic 810) Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities, which formally codifies FASB Statement No.167, Amendments to FASB Interpretation No.46(R). Update No.2009-17 and Statement No.167 amend Interpretation No.46(R), Consolidation of Variable Interest Entities, to require that an enterprise perform an analysis to determine whether the enterprises variable interests give it a controlling financial interest in a variable interest entity (VIE). The analysis identifies the primary beneficiary of a VIE as the enterprise that has both 1) the power to direct activities of a VIE that most significantly impact the entitys economic performance and 2) the obligation to absorb losses of the entity or the right to receive benefits from the entity. Update No.2009-17 eliminated the quantitative approach previously required for determining the primary beneficiary of a VIE and requires ongoing reassessments of whether an enterprise is the primary beneficiary. We adopted Update No.2009-17 for our first quarter ended March31, 2010. The adoption of Update No.2009-17 did not have any impact on our results of operations or financial position. Standards to be Implemented ASC Update No.2009-13 In October2009, the FASB issued ASC Update No.2009-13, Revenue Recognition (Topic 605)- Multiple-Deliverable Revenue Arrangements. The consensus in Update No.2009-13 supersedes certain guidance in Topic 605 (formerly EITF Issue No.00-21, Multiple-Element Arrangements). Update No. 2009-13 provides principles and application guidance to determ