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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, 1997 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 $8.2 billion based on the closing price of the Common
Stock as reported in the Wall Street Journal on March 12, 1998.
The number of shares outstanding of the Company's Common Stock as of March 12,
1998 was 194,148,500.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company's 1997 Annual Report to Shareholders 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,
1998 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, 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 $1.87 billion in 1997.
The Company's growth in the past three 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. During the period from 1995 to 1997, the Company acquired, or merged
with, the following significant business entities:
ACQUIRED COMPANY PRODUCT TYPE
---------------- ------------
SCIMED Life Systems, Inc. (cardiology catheters, wires and
balloons)
Cardiovascular Imaging Systems, Inc. (intraluminal ultrasound consoles and
catheters)
Vesica Medical, Inc. (incontinence devices)
Meadox Medicals, Inc. (vascular grafts)
Heart Technology, Inc. (rotational atherectomy devices)
EP Technologies, Inc. (diagnostic and therapeutic
electrophysiology devices)
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Symbiosis Corp. (formerly a (specialty urology/endoscopy forceps)
subsidiary of American Home Products
Corporation)
Endotech Ltd./MinTec Inc. (endovascular stent grafts)
Target Therapeutics, Inc. (neuro-endovascular catheters and
detachable coils)
During this same period, the Company also entered into several strategic
alliances. Principal among these are:
ALLIANCE PARTNER PRODUCT TYPE NATURE OF ALLIANCE
- ---------------- ------------ ------------------
Medinol Ltd. coronary, vascular and nonvascular Exclusive worldwide
stents, including the NIR(TM) stent distribution rights to Medinol
(NIR is a trademark of Medinol Ltd., stent products
Israel)
Nitinol Medical Technologies, vascular and nonvascular stents Exclusive license and development
Inc. agreement
Urologix, Inc. microwave thermotherapy system Exclusive worldwide distribution rights,
to treat BPH excluding Japan and the United States
Aida Engineering, Ltd. Synergo(TM) device to treat Joint venture
bladder cancer
Angiotech Pharmaceuticals, use of paclitaxel on Co-exclusive license
Inc. intraluminal devices to inhibit
restenosis
These acquisitions and alliances have helped to round-out and fill-in gaps in
the Company's product lines, allowing the Company to offer one of the broadest
product lines in the world for use in minimally invasive procedures. The Company
now maintains leading or strong market share positions in each of the principal
markets in which it competes: cardiology, electrophysiology, gastroenterology,
neuro-endovascular therapy, radiology, urology and vascular surgery. The
acquisitions have also helped the Company to reach a strategic mass which has
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.
The task of integrating these acquisitions and alliances has been significant.
The Company has substantially completed the integration of all mergers and
acquisitions consummated in 1995 and 1996. The Company expects to complete the
integration of Target by the end of 1998. 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 changes in the size of the Company and
the complexity of its organization resulting from these transactions, management
also believes that the successful
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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 applications 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.
Focused Marketing. The Company markets its products through seven principal
divisions: SCIMED (cardiology), Medi-tech (radiology), Target
(neuro-endovascular therapy) Microvasive Endoscopy (gastroenterology),
Microvasive Urology (urology), EPT (electrophysiology) and Meadox (vascular
surgery and endovascular therapy). 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 1997,
international sales accounted for approximately 43% of the Company's net sales,
up from approximately 40% in 1996 and 35% in 1995. Currently, the Company
operates two international manufacturing facilities in Ireland; direct marketing
and sales subsidiaries in more than 25 countries; and distribution arrangements
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in more than 60 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. As
the healthcare environment continues to shift towards consolidation and
managed-care, the Company expects that it will continue to make acquisitions and
enter into strategic alliances consistent with its corporate mission.
PRODUCTS
The Company's products are 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, while nonvascular products are employed in procedures
affecting other systems and organs. In 1997, approximately 79% of the Company's
net sales were derived from its vascular business and approximately 21% from its
nonvascular 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
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Company's products in this market are used in percutaneous transluminal coronary
angioplasty ("PTCA") and percutaneous transluminal coronary rotational
atherectomy ("PTCRA").
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.
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. Following the acquisitions of Meadox and
Endotech/Mintec, the Company expanded its product line to include vascular
grafts and endovascular stent grafts for the treatment of thoracic dissection,
abdominal aortic aneurysms and peripheral vascular occlusive diseases.
Stents. Through its alliance with Medinol, the Company currently markets the NIR
coronary stent internationally. A pre-market approval ("PMA") application for
this stent was filed with the FDA on January 28, 1998 and the Company hopes to
have approval to begin selling the NIR stent domestically mid-year. The Company
also hopes to introduce the Radius(TM) self-expanding nitinol coronary stent in
the U.S. later this year, pending receipt of FDA regulatory approval.
Intraluminal Ultrasound Imaging. The Company markets a family of intraluminal
catheter-directed ultrasound imaging systems for diagnostic use in blood
vessels, heart chambers, 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 (abnormal heart rhythms). The Company
markets RF generators and steerable ablation catheters, many of which
incorporate proprietary temperature monitoring and control technology, as well
as a line of diagnostic and therapeutic catheters and associated accessories.
Neuro-Endovascular Therapy. The Company markets a line of micro-guidewires and
infusion and guiding catheters to treat diseases of the neurovascular system.
Through its acquisition of Target, the Company also recently expanded its
product line in this market to include the Guglielmi Detachable Coil(TM) system
to treat and prevent the rupture of cerebral aneurysms that are otherwise either
considered to be inoperable or very high risk for surgery.
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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.
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. 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 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.
The Company also has the exclusive right to sell a microwave based thermotherapy
system to treat BPH in international markets excluding Japan.
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Urinary Incontinence and Bladder Disease. The Company markets a line of
minimally invasive devices 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. Recently,
the Company has expanded its incontinence product line to include sling
technology to treat a broader patient population. The Company has also developed
other devices to diagnose and treat bladder cancer and bladder obstruction.
INTERNATIONAL OPERATIONS
In 1997, international sales accounted for approximately 43% of the Company's
net sales, up from approximately 40% in 1996 and 35% in 1995. Net sales,
operating income and identifiable assets attributable to significant geographic
areas are presented in Note O to the Company's 1997 Consolidated Financial
Statements, included within the Company's 1997 Annual Report to Shareholders
which is filed with the Securities and Exchange Commission as an exhibit hereto.
As of December 31, 1997, the Company had direct marketing and sales operations
in more than 25 countries, including Argentina, Australia, Austria, Belgium,
Canada, Chile, Denmark, Finland, France, Germany, Hong Kong, India, Ireland,
Italy, Japan, Korea, Malaysia, Mexico, the Netherlands, Norway, New Zealand, the
Philippines, Portugal, Singapore, Spain, Sweden, Switzerland, Taiwan, Thailand
and the United Kingdom. In the future, the Company expects to further expand its
direct sales operations in Asia, Eastern Europe and Latin America, as well as
other markets where it can both generate strong net sales and capture a
significant market share. The Company will continue to use distributors in those
smaller markets where it is not economical or strategic to establish a direct
presence.
The Company has international manufacturing facilities in Galway and Cork,
Ireland. Presently, approximately 50% of the Company's products sold
internationally are manufactured at the Company's Irish manufacturing
facilities. The Company also maintains an international research and development
facility in Galway, Ireland, and is currently developing another such facility
in Miyazaki, Japan.
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. Thus, certain sales and expenses have been, and are
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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 seven principal divisions, each
focusing upon physicians who specialize in the diagnosis and treatment of
different medical conditions.
SCIMED: markets devices to cardiologists for the nonsurgical diagnosis
and treatment of coronary and peripheral vascular disease and
other cardiac disorders.
Medi-tech: markets therapeutic and diagnostic devices to physicians who
perform interventional image-guided procedures primarily in the
fields of radiology and vascular surgery.
Target: markets a line of micro-catheters and other medical devices
which aid neuroradiologists and neurosurgeons in the treatment
of neurovascular diseases.
Microvasive markets therapeutic and diagnostic devices which aid
Endoscopy: gastroenterologists and pulmonologists in performing flexible
endoscopy procedures involving the digestive tract and lungs.
Microvasive offers a line of therapeutic and diagnostic devices which aid
Urology: urologists in performing ureteroscopic and other minimally
invasive endoscopic procedures as well as devices to treat
urinary incontinence.
EPT: offers a line of electrophysiology catheters and systems for use
by interventional electrophysiologists in the diagnosis and
treatment of cardiac tachyarrhythmias.
Meadox: markets woven, knitted and collagen-sealed vascular and
endovasular 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.
A dedicated sales force of in excess of 1,600 individuals, including over 700 in
the United States, markets the Company's products worldwide. This dedicated
sales force accounted for approximately 98% of the Company's net sales during
1997. A network of over 80 dealers, sub-dealers and distributors who offer the
Company's products in more than 60 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.
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The Company's worldwide customer base includes interventional medical
specialists, including cardiologists, radiologists, neuroradiologists,
neurosurgeons, gastroenterologists, urologists, electrophysiologists,
pulmonologists, vascular surgeons and gynecologists. In 1997, 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
1997. 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 devices industry. There can be no assurance that 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 majority of the Company's customers typically place frequent, small volume
orders to replace their inventory on a regular basis as specific products are
used. Accordingly, the Company expects delivery to be made within a short period
of time, and the Company ships the vast majority of its products within 24 hours
of receiving an order. Because of this short cycle between order and shipment,
the Company does not have significant backlog. The Company's distribution
facilities in Quincy, Massachusetts; Maple Grove, Minnesota; Beek, The
Netherlands; Tokyo, Japan and Singapore currently serve substantially all of the
Company's distribution needs. By the end of 1998, the Company expects to
complete the consolidation of its domestic distribution activities into its
Quincy, Massachusetts site. See "Properties".
The Company distributes several products for third parties, including the NIR
stent and certain guidewires. None of these products represented more than 10%
of the Company's 1997 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 stent, are very important to the
Company strategically. Unforeseen delays, stoppages or interruptions in the
supply of the NIR stent or certain other distributed products could adversely
effect 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 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. In 1997, Japan experienced certain delays in approving
products and procedures for reimbursement and certain European countries
experienced erosion in reimbursement levels and selling prices. Competitive
pressures in Germany and reimbursement cuts in France forced a strong downward
movement in product pricing. The Company cannot predict what future economic,
reimbursement and pricing environments will exist in domestic and international
markets for its healthcare products. It is
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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 10
manufacturing and development facilities located in the United States and
Ireland. 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.
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), Medtronic,
Inc., Arterial Vascular Engineering, Inc. and Pfizer, Inc., as well as a wide
range of companies which sell a single or limited number of competitive
products.
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 cost. 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.
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
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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 1997, the Company expended $167 million on research and development,
representing approximately 9% of the Company's 1997 net sales. These
expenditures funded clinical research, 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's internal research and development facilities are located in Natick
and Watertown, Massachusetts; Spencer, Indiana; Maple Grove, Minnesota; Oakland,
New Jersey; Miami, Florida; Fremont and San Jose, California; Redmond,
Washington and Galway, Ireland. A new research and development facility is also
under construction in Miyazaki, Japan. In addition to internal development, the
Company works with hundreds of leading research institutions, universities and
clinicians around the world in evaluating, developing 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.
REGULATION
The medical devices manufactured and marketed by the Company are subject to
regulation by numerous regulatory bodies, including the United States Food and
Drug Administration 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.
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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.
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 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 anticipation of 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. The Company's NIR stent
is among the many devices for which the Company is seeking FDA and other
regulatory approval. The Company is hopeful that approval to commercialize the
NIR in the United States and Japan will be received mid year. There can,
however, be no assurance that such approval will be obtained. Failure to obtain
such approval to market the NIR stent could adversely impact the Company's
ability to increase revenues, sell inventory on hand or committed to be
purchased and maintain or improve its market share of the interventional
cardiology business.
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
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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.
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 2,000
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 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, or 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
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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 and there can be no assurance that
product liability claims will not be asserted against the Company. Although the
Company maintains product liability insurance, 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. The Company is involved in various suits arising in the normal course
of business from product liability claims. The Company believes the outcome of
product liability suits and other non-patent litigation, individually and in the
aggregate, will not have a material adverse effect on the financial condition,
operations or cash flows of the Company.
EMPLOYEES
As of December 31, 1997, the Company had over 11,000 employees, including
approximately 7,000 in operations, 600 in administration, 1,100 in research and
development and 2,400 in selling, marketing, distribution and related
administrative support. Of these employees, approximately 3,100 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.
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
This report contains forward-looking statements. The Company desires to take
advantage of the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995 and is including this statement for the express purpose of
availing itself of the protections of the safe harbor with respect to all
forward-looking statements. Forward-looking statements contained in this report
include, but are not limited to, statements with respect to: (a) the potential
impacts, both in the U.S. and abroad, of continued consolidation among
healthcare providers, trends towards managed care, healthcare cost containment,
increased competition and more stringent regulatory requirements; (b) the
Company's belief that it is well positioned to take advantage of opportunities
for growth that exist in the markets it serves; (c) the Company's continued
commitment to refine existing products and procedures and to develop new
technologies that provide simpler, less traumatic, less costly and more
efficient diagnosis and treatment; (d) risks associated with maintaining and
expanding international operations; (e) the process and plan for
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the integration of businesses acquired by the Company and the successful
implementation of the plan; (f) the potential effect of foreign currency
fluctuations on revenues, expenses and resulting margins and the trend toward
increasing sales and expenses denominated in foreign currencies; (g) the
Company's plans and ability to launch the NIR stent in the U.S. and Japan; (h)
the Company's plans and ability to enter into strategic acquisitions and
alliances; (i) the Company's plans to expand its international presence in Asia,
Eastern Europe and Latin America; (j) the Company's ability to create or acquire
scientifically advanced technology, apply technology cost-effectively across
product lines and markets, develop or acquire proprietary products, attract and
retain skilled development personnel and obtain patent protection for its
products; and (k) the Company's ability to obtain competitive advantage from its
intellectual property and to defend itself against claims alleging infringement
of other parties' intellectual property. Several important factors, in addition
to the specific factors discussed in connection with such forward-looking
statements individually, could affect the future results of the Company and
could cause those results to differ materially from those expressed in the
forward-looking statements contained herein. Such additional factors include,
among other things, future economic, competitive and regulatory conditions,
demographic trends, financial market conditions and future business decisions of
Boston Scientific and its competitors, all of which are difficult or impossible
to predict accurately and many of which are beyond the control of Boston
Scientific. Therefore, the Company wishes to caution each reader of this report
to consider carefully these factors as well as the specific factors discussed
with each forward-looking statement in this report and as disclosed in the
Company's filings with the Securities and Exchange Commission as such factors,
in some cases, have affected, and in the future (together with other factors)
could affect, the ability of the Company to implement its business strategy and
may cause actual results to differ materially from those contemplated by the
statements expressed herein.
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. The Company's principal research facilities are located in
Natick and Watertown, Massachusetts; Spencer, Indiana; Maple Grove, Minnesota;
Oakland, New Jersey; Miami, Florida; Fremont and San Jose, California; Redmond,
Washington and Galway, Ireland, and its major distribution centers are located
in Quincy, Massachusetts; Beek, The Netherlands; Tokyo, Japan and Singapore. The
Company maintains ten major manufacturing facilities, eight in the United
States, and two in Ireland. Many of these manufacturing facilities produce and
manufacture products for more than one of the Company's divisions.
The Company owns or has long-term leases on all of its major facilities. The
facilities leased from third parties are subject to leases whose terms expire,
subject to renewal options, between 1998 and 2018 and whose current monthly base
rental payments range from approximately $1,000 to approximately $225,000. One
property in Mansfield, Massachusetts is leased from a realty trust for the
benefit of the Company's Chief Executive Officer and his wife pursuant to a
lease whose term expires, subject to renewal options, in 2001 and whose monthly
base rental payment is approximately $39,000. The mortgage debt on this
property, in the principal amount of approximately $240,000 as of December 31,
1997, is guaranteed by the Company. Some of these leases contain escalation
provisions and require that the Company pay for utilities, taxes,
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insurance and maintenance expenses. In addition, some of these leases contain
provisions which give the Company an option to purchase the property under
certain conditions.
Although the Company's facilities are adequate to meet its current needs, the
Company is currently engaged in several facilities expansion and centralization
efforts to accommodate its recent growth. Internationally, the Company
completed in 1997 construction of 143,000 square feet of additional workspace
at its Galway, Ireland facility, and acquired a 20,000 square foot new
manufacturing facility in Cork, Ireland. In addition, the Company commenced
construction of an additional 150,000 square feet of workspace at its Cork
facility. The Company also commenced construction of an approximately 70,000
square foot new research and development facility in Miyazaki, Japan.
Domestically, the Company continued construction of a 248,000 square foot
multi-purpose building in Maple Grove, Minnesota to help consolidate and
centralize many of the Company's Minnesota operations. The Company is in the
process of consolidating some of its Oakland, New Jersey operations into a new
280,000 square foot site recently purchased by the Company. The Company also
expanded its Miami, Florida operations by leasing an additional 140,000 square
feet of workspace adjacent to its exiting facilities. Most recently, the
Company indicated its intent to exercise its option to purchase its 1.3 million
square foot centralized distribution facility in Quincy, Massachusetts.
ITEM 3. LEGAL PROCEEDINGS
Note L to the Company's 1997 Consolidated Financial Statements, appearing on
pages F-21 and F-24 thereto (contained in the Company's 1997 Annual Report to
Shareholders and included in Exhibit 13.1 hereto), is incorporated herein by
reference.
RECENT PATENT PROCEEDINGS
On March 6, 1998, the Company filed suit in the U.S. District Court for the
District of Massachusetts alleging that Circon Corporation's ("Circon") Spiked
and Fluted VaporTrode(TM) electrodes and Grooved VaporTome(TM) resection
electrode infringe two patents owned by the Company, and requesting a
declaratory judgement for invalidity and noninfringement of three Circon
patents. On March 19, 1998 the Company was served by Circon with a suit alleging
that the Company's PERCUFLEX(R), CONTOUR(R) and BEAMER(TM) ureteral stents
infringe two patents owned by Circon, including two patents that are the subject
of the Company's declaratory judgement action against Circon. The suit was filed
in the U.S. District Court for the Eastern District of Wisconsin seeking a
declaration of infringement and monetary damages. The Company is currently
evaluating Circon's complaint and is preparing an answer.
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 L to the Company's 1997
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.
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The Company believes that it has meritorious defenses against claims that it has
infringed patents of others. However, there can be no assurance that the Company
will prevail in any particular case. An adverse outcome in one or more case in
which the Company's products are accused of patent infringement could have a
material adverse effect on the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The Directors and executive officers of the Company as of December 31, 1997 are
as follows:
NAME AGE POSITION
- ---- --- --------
John E. Abele 61 Director, Founder Chairman
Charles J. Aschauer, Jr. 69 Director, Retired Executive Vice President
and Director of Abbott Laboratories
Randall F. Bellows 69 Director, Retired Executive Vice President
of Cobe Laboratories, Inc.
Michael Berman 40 Senior Vice President and Group
President--Cardiology Businesses, and
President--SCIMED Life Systems, Inc.
Lawrence C. Best 47 Senior Vice President--Finance &
Administration and Chief Financial Officer
Joseph A. Ciffolillo 59 Director, Retired Executive Vice President
and Chief Operating Officer of Boston
Scientific Corporation
James M. Corbett 39 Senior Vice President--International and
President--Boston Scientific International
Joel L. Fleishman 63 Director, President of The Atlantic
Philanthropic Service Company, Inc. and
Professor of Law and Public Policy,
Duke University
Lawrence L. Horsch 63 Director, Chairman of Eagle Management &
Financial Corp.
Paul A. LaViolette 40 Senior Vice President and Group
President--Nonvascular Businesses
Philip P. LeGoff 47 Senior Vice President and Group
President--Vascular Businesses
C. Michael Mabrey 56 Senior Vice President--Operations
Robert G. MacLean 54 Senior Vice President--Human Resources
N.J. Nicholas, Jr. 58 Director, Private Investor
Pete M. Nicholas 56 Director, Founder, Chief Executive Officer
and Chairman of the Board
Arthur L. Rosenthal 51 Senior Vice President and Chief
Development Officer
Paul W. Sandman 50 Senior Vice President, Secretary and
General Counsel
Dale A. Spencer 52 Director, Former Executive Vice President
of Boston Scientific Corporation
Mr. Aschauer, Mr. Fleishman, Mr. Horsch and Mr. N.J. Nicholas, Jr. serve on
the Audit Committee of the Company. Mr. Aschauer, Mr. Bellows and Mr.
Fleishman serve on the Compensation Committee of the Company.
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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. and Trustmark
Insurance Company. 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.
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.
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Joseph A. Ciffolillo joined the Company in 1983 as President of Medi-tech. In
1988, he was also named President of Microvasive, 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.
James M. Corbett joined the Company as Vice President--International, President
of Boston Scientific International in February 1995, and in May 1997 became
Senior Vice President - International. Previously, he was the Vice President and
Business Manager of SCIMED International for SCIMED Life Systems, Inc. from
October 1992 to February 1995. Prior to joining SCIMED, Mr. Corbett served as
General Manager for Baxter Japan, based in Tokyo, responsible for Baxter's
Cardiovascular Business from December 1989 to October 1992, and held a series of
sales and marketing positions with the Baxter/American Hospital Supply
Organization since 1982. Mr. Corbett received his B.S. degree in Business from
the University of Kansas.
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 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., a
management consulting firm. 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.
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23
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. 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.
Philip P. LeGoff joined the Company in November 1997 as Senior Vice President
and Group President -- Vascular 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.
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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 New York 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 Chief Executive
Officer and a Director of the Company since 1979 and was Co-Chairman of the
Board from 1979 to 1995. In February 1995, Mr. Nicholas was elected to the
position of Chairman of the Board. 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. 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. Prior to joining the Company, he was Senior
Vice President, General Counsel and Secretary of Wang Laboratories, Inc. (a
computer company that filed a petition for reorganization under Chapter 11 of
the Federal Bankruptcy Code in August 1992 and emerged from bankruptcy in
December 1993), from March 1992 through April 1993, 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.
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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 1997 Annual Report to
Shareholders (Exhibit 13.1 filed herewith) is incorporated herein by reference.
The closing price of the Company's Common Stock as reported by The Wall Street
Journal on March 12, 1998 was $65.375.
ITEM 6. SELECTED FINANCIAL DATA
The information set forth under the caption "Five-Year Selected Financial Data"
included in the Company's 1997 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 1997 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 1997 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 1997 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 1997 Annual Report to Shareholders
(Exhibit 13.1 filed herewith) are incorporated herein by reference.
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, 1998 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, 1998 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, 1998 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, 1998 are incorporated herein by
reference.
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PART IV
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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 -- 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
and 3.3.
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).
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).
27
28
EXHIBIT
NO. TITLE
------- -----
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).
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).
28
29
EXHIBIT
NO. TITLE
------- -----
*10.17 -- Boston Scientific Corporation 401(k) Savings Plan, Amended
and Restated, Effective January 1, 1997.
*10.18 -- Boston Scientific Corporation Global Employee Stock Ownership
Plan, as Amended and Restated.
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 Amended and Restated Credit Agreement, dated as of
June 10, 1997, among the Company, The Several Lenders and
certain other parties (Exhibit 10.1, Quarterly Report on Form
10-Q for the quarter ended June 30, 1997, File No.
1-11083).
10.21 -- Form of Indemnification Agreement between the Company and
certain Directors and Officers (Exhibit 10.16, Registration
No. 33-46980).
10.22 -- 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).
10.23 -- 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).
*10.24 -- 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.
10.25 -- 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).
10.26 -- 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).
10.27 -- 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 K to the Company's Annual
Report to Shareholders for the year ended December 31, 1997).
*12.1 -- Statement regarding computation of ratios of earnings to fixed
charges.
*13.1 -- The Company's 1997 Annual Report to Shareholders for the
year ended December 31, 1997.
13.2 -- Report of Independent Auditors, Ernst & Young LLP (included in
the Company's Annual Report to Shareholders for the year ended
December 31, 1997, filed as Exhibit 13.1 hereto).
29
30
EXHIBIT
NO. TITLE
------- -----
*21 -- List of the Company's subsidiaries as of March 12, 1998.
Each subsidiary does business under the corporate name
indicated.
*23.1 -- Consent of Independent Auditors, Ernst & Young LLP.
*27.1 -- Restated Financial Data Schedule, three months ended
March 31, 1996.
*27.2 -- Restated Financial Data Schedule, six months ended
June 30, 1996.
*27.3 -- Restated Financial Data Schedule, nine months ended
September 30, 1996.
*27.4 -- Restated Financial Data Schedule, fiscal year ended
December 31, 1996.
*27.5 -- Restated Financial Data Schedule, three months ended
March 31, 1997.
*27.6 -- Restated Financial Data Schedule, six months ended
June 30, 1997.
*27.7 -- Restated Financial Data Schedule, nine months ended
September 30, 1997.
*27.8 -- Financial Data Schedule, fiscal year ended
December 31, 1997.
(b) Reports on Form 8-K.
The following Report on Form 8-K was filed during the quarter ended December
31, 1997 and the quarter ended March 31, 1998:
Item Description Event Date
---- ----------- ----------
Item 5 Other Events $500 million March 10, 1998
Public Debt
Offering
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, 1998
BOSTON SCIENTIFIC CORPORATION
By: 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, 1998 /s/ JOHN E. ABELE
---------------------------------
John E. Abele
Director, Founder
Dated: March 30, 1998 /s/ CHARLES J. ASCHAUER, JR.
---------------------------------
Charles J. Aschauer, Jr.
Director
Dated: March 30, 1998 /s/ RANDALL F. BELLOWS
---------------------------------
Randall F. Bellows
Director
Dated: March 30, 1998 /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, 1998 /s/ JOSEPH A. CIFFOLILLO
---------------------------------
Joseph A. Ciffolillo
Director
Dated: March 30, 1998 /s/ JOEL L. FLEISHMAN
---------------------------------
Joel L. Fleishman
Director
31
32
Dated: March 30, 1998 /s/ LAWRENCE L. HORSCH
---------------------------------
Lawrence L. Horsch
Director
Dated: March 30, 1998 /s/ N.J. NICHOLAS, JR.
---------------------------------
N.J. Nicholas, Jr.
Director
Dated: March 30, 1998 /s/ PETER M. NICHOLAS
---------------------------------
Peter M. Nicholas
Director, Founder, Chairman, President and
Chief Executive Officer
(Principal Executive Officer)
Dated: March 30, 1998 /s/ DALE A. SPENCER
---------------------------------
Dale A. Spencer
Director
32
33
FINANCIAL STATEMENT SCHEDULE
The following additional consolidated financial statement schedule should be
considered in conjunction with the Company's 1997 Consolidated Financial
Statements (contained in the Company's 1997 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, 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
YEAR ENDED DECEMBER 31, 1995
Reserves and allowances deducted from
asset accounts:
Allowances for uncollectible
amounts and sales returns.............. $ 4,425 2,849 957 (1) 361 (2) $7,870
(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.