-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IkFWX0Rc1Z2KXB9wzd/iyAoJ8+m33/SaB+hM7qaVN8uKagmowovPFgX0yOUQl3/K iUTxHEL7T/mRZNq00beElg== 0001072613-00-000833.txt : 20000922 0001072613-00-000833.hdr.sgml : 20000922 ACCESSION NUMBER: 0001072613-00-000833 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20000814 DATE AS OF CHANGE: 20000906 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BOSTON SCIENTIFIC CORP CENTRAL INDEX KEY: 0000885725 STANDARD INDUSTRIAL CLASSIFICATION: 3841 IRS NUMBER: 042695240 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-11083 FILM NUMBER: 701567 BUSINESS ADDRESS: STREET 1: ONE BOSTON SCIENTIFIC PL CITY: NATICK STATE: MA ZIP: 01760-1537 BUSINESS PHONE: 5086508000 10-Q 1 0001.txt BOSTON SCIENTIFIC CORP. FORM 10-Q ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q /X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT OF 1934 For the quarterly period ended: June 30, 2000 Commission file number: 1-11083 BOSTON SCIENTIFIC CORPORATION ----------------------------- (Exact name of registrant as specified in its charter) DELAWARE 04-2695240 -------- ---------- (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) One Boston Scientific Place, Natick, Massachusetts 01760-1537 - - -------------------------------------------------- ---------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (508) 650-8000 -------------- Former name, former address and former fiscal year, if changed since last report. Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the last practicable date. Shares Outstanding Class as of June 30, 2000 ----- ------------------- Common Stock, $.01 Par Value 406,411,393 ================================================================================ PART I FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS BOSTON SCIENTIFIC CORPORATION AND SUBSIDIARIES Condensed Consolidated Balance Sheets (Unaudited)
June 30, December 31, In millions, except share and per share data 2000 1999 - - ---------------------------------------------------------------------------------------------- Assets Current assets: Cash and cash equivalents $ 44 $ 64 Short-term investments 14 Trade accounts receivable, net 417 445 Inventories 334 376 Other current assets 164 156 ----------------------------------------- Total current assets 959 1,055 Property, plant and equipment 938 940 Less: accumulated depreciation 352 336 ----------------------------------------- 586 604 Excess of cost over net assets acquired, net 827 840 Technology - core and developed, net 551 570 Patents, trademarks and other intangibles, net 335 316 Investments 90 55 Other assets 135 132 ----------------------------------------- $ 3,483 $ 3,572 =========================================
See notes to unaudited condensed consolidated financial statements. BOSTON SCIENTIFIC CORPORATION AND SUBSIDIARIES Condensed Consolidated Balance Sheets (continued) (Unaudited)
June 30, December 31, In millions, except share and per share data 2000 1999 - - ------------------------------------------------------------------------------------------------------------------- Liabilities and Stockholders' Equity Current liabilities: Commercial paper $ 249 $ 277 Bank obligations 194 323 Accounts payable and accrued expenses 361 410 Income taxes payable 123 42 Other current liabilities 5 3 ----------------------------------- Total current liabilities 932 1,055 Long-term debt 567 678 Other long-term liabilities 116 115 Commitments and contingencies Stockholders' equity: Preferred stock, $ .01 par value - authorized 50,000,000 shares, none issued and outstanding Common stock, $ .01 par value - authorized 600,000,000 shares, 414,922,050 shares issued at June 30, 2000 and December 31, 1999 4 4 Additional paid-in capital 1,212 1,210 Treasury stock, at cost - 8,510,657 shares at June 30, 2000 and 5,872,857 shares at December 31, 1999 (182) (126) Deferred compensation (20) Retained earnings 976 752 Accumulated other comprehensive loss (122) (116) ----------------------------------- Total stockholders' equity 1,868 1,724 ----------------------------------- $ 3,483 $ 3,572 ===================================
See notes to unaudited condensed consolidated financial statements. BOSTON SCIENTIFIC CORPORATION AND SUBSIDIARIES Condensed Consolidated Statements of Operations (Unaudited)
Three months ended Six months ended June 30, June 30, In millions, except per share data 2000 1999 2000 1999 - - --------------------------------------------------------------------------------------------------------------------------- Net sales $ 695 $ 726 $1,374 $1,434 Cost of products sold 217 235 430 465 ----------------------------- --------------------------- Gross profit 478 491 944 969 Selling, general and administrative expenses 214 204 428 411 Amortization expense 23 23 46 46 Royalties 10 13 21 23 Research and development expenses 49 49 98 98 ----------------------------- --------------------------- 296 289 593 578 ----------------------------- --------------------------- Operating income 182 202 351 391 Other income (expense): Interest expense (19) (35) (40) (70) Other, net 7 (2) 15 (5) ----------------------------- --------------------------- Income before income taxes 170 165 326 316 Income taxes 48 56 98 107 ----------------------------- --------------------------- Net income $ 122 $ 109 $ 228 $ 209 ============================= =========================== Net income per common share - basic $ 0.30 $ 0.27 $ 0.56 $ 0.53 ============================= =========================== Net income per common share - assuming dilution $ 0.30 $ 0.27 $ 0.55 $ 0.52 ============================= ===========================
See notes to unaudited condensed consolidated financial statements. BOSTON SCIENTIFIC CORPORATION AND SUBSIDIARIES Condensed Consolidated Statements of Stockholders' Equity (Unaudited)
In millions, except share data Six Months Ended June 30, 2000 - - ------------------------------------------------------------------------------------------------------------------------------------ Common Stock --------------------- Additional Accumulated Other Shares Issued Par Paid-In Treasury Deferred Retained Comprehensive (In thousands) Value Capital Stock Compensation Earnings Income (Loss) Total ---------------------------------------------------------------------------------------- Balance at December 31, 1999 414,922 $4 $1,210 $(126) $752 $(116) $1,724 Net income 228 228 Foreign currency translation adjustment (15) (15) Issuance of common stock (3) 21 (4) 14 Issuance of restricted stock 2 24 $(26) Cancellation of restricted stock (2) 2 Purchases of common stock for treasury (99) (99) Tax benefit relating to incentive stock option and employee stock purchase plans 3 3 Amortization of deferred compensation 4 4 Unrealized gains on derivative financial instruments, net 4 4 Unrealized gains on equity investments, net 5 5 ---------------------------------------------------------------------------------------- Balance at June 30, 2000 414,922 $4 $1,212 $(182) $(20) $976 $(122) $1,868 ========================================================================================
See notes to unaudited condensed consolidated financial statements. BOSTON SCIENTIFIC CORPORATION AND SUBSIDIARIES Condensed Consolidated Statements of Cash Flows (Unaudited)
Six Months Ended June 30, In millions 2000 1999 - - -------------------------------------------------------------------------------------------------------------- Cash provided by operating activities $ 384 $ 323 Investing activities: Purchases of property, plant and equipment, net (33) (42) Payments related to 1998 acquisition (128) Sales of available-for-sale securities 15 Payments for acquisitions of and/or investments in certain technologies, net (41) Other, net (2) --------------------------- Cash used for investing activities (59) (172) Financing activities: Net decrease in commercial paper (28) (1,816) Net (payments on) proceeds from borrowings on revolving credit facilities (244) 992 Proceeds from issuances of shares of common stock, net of tax benefits 17 674 Acquisitions of treasury stock (99) Other, net 12 (1) --------------------------- Cash used for financing activities (342) (151) Effect of foreign exchange rates on cash (3) (1) --------------------------- Net decrease in cash and cash equivalents (20) (1) Cash and cash equivalents at beginning of period 64 70 --------------------------- Cash and cash equivalents at end of period $ 44 $ 69 ===========================
See notes to unaudited condensed consolidated financial statements. Notes to Condensed Consolidated Financial Statements (Unaudited) June 30, 2000 Note A - Basis of Presentation The accompanying unaudited condensed consolidated financial statements of Boston Scientific Corporation (Boston Scientific or the Company) have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three and six month periods ended June 30, 2000 are not necessarily indicative of the results that may be expected for the year ending December 31, 2000. For further information, refer to the consolidated financial statements and footnotes thereto incorporated by reference in Boston Scientific's Annual Report on Form 10-K for the year ended December 31, 1999. Certain prior years' amounts have been reclassified to conform to the current year presentation. Note B - Comprehensive Income For the three months ended June 30, 2000 and 1999, the Company's comprehensive income was $120 million and $93 million, respectively. For the six months ended June 30, 2000 and 1999, the Company's comprehensive income was $222 million and $163 million, respectively. Note C - Earnings Per Share The following table sets forth the computations of basic and diluted earnings per share:
Three Months Six Months Ended June 30, Ended June 30, (In millions, except share and per share data) 2000 1999 2000 1999 - - -------------------------------------------------------------------------- ------------- ------------- -------------- ------------- Basic: Net income $ 122 $ 109 $ 228 $ 209 ------------- ------------- -------------- ------------- Weighted average shares outstanding (in thousands) 406,573 397,684 407,376 396,228 ------------- ------------- -------------- ------------- Net income per common share $0.30 $0.27 $0.56 $0.53 ============= ============= ============== =============
Assuming dilution: Net income $122 $109 $228 $209 ------------- ------------- -------------- ------------- Weighted average shares outstanding (in thousands) 406,573 397,684 407,376 396,228 Net effect of dilutive stock-based compensation (in thousands) 3,909 9,061 3,544 8,045 ------------- ------------- -------------- ------------- Total (in thousands) 410,482 406,745 410,920 404,273 ------------- ------------- -------------- ------------- Net income per common share $0.30 $0.27 $0.55 $0.52 ============= ============= ============== =============
Note D - Change in Estimated Effective Tax Rate The Company changed its estimate of its 2000 effective tax rate from approximately 32% to 30% in the second quarter of 2000. The decrease is primarily attributable to changes in the geographic mix of the Company's business. The cumulative effect of this reduction resulted in an increase in the Company's net income during the second quarter of approximately $7 million, or $0.02 per share (diluted), of which approximately $3 million, or $0.01 per share, represents the impact for the first quarter of 2000. Note E - Restructuring and Merger-Related Charges At June 30, 2000, the Company had an accrual for restructuring and merger-related charges of $21 million. The details and activity of the accrual during the six months ended June 30, 2000 is summarized in the following table:
Balance at Charges Balance at December 31, Utilized in June 30, (In millions) 1999 2000 2000 - - ------------------------------------------------------------------------------------------ 1995 AND 1996 RESTRUCTURING AND MERGER- RELATED INITIATIVES: Facilities $ 3 $ 3 Workforce reductions 4 4 Other costs 3 3 ----------------- --------------- ---------------- $10 $10 ================= =============== ================ 1998 SCHNEIDER PURCHASE PRICE ADJUSTMENTS: Workforce reductions $13 $(10) $3 Contractual commitments 6 (1) 5 ----------------- --------------- ---------------- $19 $(11) $8 ================= =============== ================
1998 RESTRUCTURING AND MERGER- RELATED INITIATIVES: Workforce reductions $2 $(1) $1 Asset write-downs 4 (3) 1 Other costs 1 1 ----------------- --------------- ---------------- $7 $(4) $3 ================= =============== ================ TOTAL : Facilities $ 3 $ 3 Workforce reductions 19 $(11) 8 Contractual commitments 6 (1) 5 Asset write-downs 4 (3) 1 Other costs 4 4 ----------------- --------------- ---------------- $36 $(15) $21 ================= =============== ================
Amounts remaining for 1996 and prior restructuring and merger-related initiatives relate primarily to costs associated with rationalized facilities and statutory benefits that are subject to litigation. Note F - Borrowings and Credit Arrangements On June 20, 2000, the Company increased the multicurrency borrowing sublimit under its $1.0 billion credit facility that expires in June 2002 from $100 million to $300 million. As a result of the increase, at June 30, 2000, the Company refinanced approximately $100 million of additional U.S. dollar credit facility borrowings to euro and Japanese yen denominated borrowings at lower interest rates. During 2000, the Company increased its borrowing capacity under its uncommitted Japanese credit facilities. These facilities provided for borrowings and promissory notes discounting of up to 15.0 billion Japanese yen (translated to approximately $141 million) and 11.5 billion Japanese yen (translated to approximately $112 million) at June 30, 2000 and December 31, 1999, respectively. The Company has the ability to refinance a portion of its short-term debt on a long-term basis through its revolving credit facilities. The Company does not expect that its short-term borrowings will remain outstanding beyond the next twelve months, and, accordingly, the Company has not reclassified any of the short-term borrowings as long-term at June 30, 2000, compared to $108 million of such reclassifications at December 31, 1999. Note G - Inventories The components of inventory consist of the following: June 30, December 31, (In millions) 2000 1999 - - ------------------------------------------------ Finished goods $ 157 $194 Work-in-process 54 60 Raw materials 123 122 -------------------------- $ 334 $376 ========================== At June 30, 2000, the Company had approximately $129 million of net NIR(R) coronary stent inventory, which is supplied by Medinol Ltd. (Medinol), and was committed to purchase approximately $53 million of NIR(R) stents from Medinol. Delays, stoppages or interruptions in the supply and/or mix of NIR(R) stent inventory could adversely affect the operating results and/or revenues of the Company. Note H - Stockholders' Equity The Company is authorized to purchase on the open market up to approximately 40 million shares of the Company's common stock. Stock repurchased under the Company's systematic plan will be used to satisfy its obligations pursuant to employee benefit and incentive plans. During the first half of 2000, the Company repurchased approximately 4.8 million shares at an aggregate cost of approximately $99 million under its systematic plan. As of June 30, 2000, approximately 31 million shares of the Company's common stock have been repurchased under the plan. Under the authorization, the Company may also repurchase shares outside of the Company's systematic plan. These additional shares would also be used to satisfy the Company's obligations pursuant to employee benefit and incentive plans. On January 3, 2000, the Company granted under its 1992 and 1995 Long-Term Incentive Plans approximately 1.1 million shares of its common stock to certain employees subject to certain forfeiture restrictions. The purpose of the program was to help retain key employees. The market value of these shares was approximately $26 million on the date of issuance and the vesting period is three years. This amount was recorded as deferred compensation and is shown as a separate component of stockholders' equity. The deferred compensation is being amortized to expense over the vesting period, and such expense amounted to approximately $2 million and $4 million for the three and six months ended June 30, 2000, respectively. During the six months ended June 30, 2000, approximately 85,000 shares of restricted stock were forfeited. Note I - Derivative Instruments and Hedging Activities In June 1998, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities". SFAS 133 is effective for all fiscal years beginning after June 15, 2000, although earlier application is permitted as of the beginning of any fiscal quarter. The Company adopted SFAS 133 as of January 1, 2000. The Company recorded an immaterial transition adjustment upon adoption of this Statement. Upon adoption of SFAS 133, the Company initiated a program to hedge a portion of its forecasted intercompany and third party transactions with forward foreign exchange contracts. These contracts are entered into to reduce the risk that the Company's cash flows resulting from certain forecasted transactions will be adversely affected by changes in foreign currency exchange rates. However, the Company may be impacted by foreign currency exchange rates related to the unhedged portion. The success of the hedging program depends, in part, on forecasts of transaction activity in various currencies (currently the Japanese yen and the euro). The Company may experience unanticipated foreign currency exchange gains or losses to the extent that there are timing differences between forecasted and actual activity during periods of currency volatility. SFAS 133 requires that all derivative instruments be recorded on the balance sheet at fair value and that changes in the fair value of the derivative instruments, designated as cash flow hedges, to be recorded in accumulated other comprehensive income/(loss) (AOCI) until the third party transaction associated with the hedged forecasted transaction occurs. Once the third party transaction associated with the hedged forecasted transaction occurs, the related gain or loss on the cash flow hedge will be reclassified from AOCI to earnings. In the event the hedged forecasted intercompany or third party transaction does not occur, or it becomes probable that it will not occur, the gain or loss on the related cash flow hedge would be reclassified from AOCI to earnings at that time. Since the critical terms of the hedging instruments are the same as the underlying forecasted transaction, the changes in the fair value of the derivatives should be highly effective in offsetting changes in the expected cash flows from the forecasted transaction. The Company did not recognize any material gains or losses resulting from either hedge ineffectiveness or changes in forecast probability during the six months ended June 30, 2000. The Company recognized a net gain of approximately $2 million and $3 million in earnings from derivative instruments designated as cash flow hedges of forecasted transactions during the three and six month periods ended June 30, 2000, respectively. All of the derivative instruments, designated as cash flow hedges, outstanding at June 30, 2000 mature within the subsequent 24-month period. As of June 30, 2000, approximately $4 million of unrealized net gains have been recorded in AOCI, net of tax, to recognize the fair value of derivative instruments that are designated as cash flow hedges. Of this amount, a gain of approximately $3 million, net of tax, is expected to be reclassified to earnings within the next twelve months. Furthermore, the Company continues to hedge its net recognized foreign currency assets and liabilities with forward foreign exchange contracts to reduce the risk that the Company's earnings and cash flows will be adversely affected by changes in foreign currency exchange rates. Since these derivative instruments hedge recorded assets and liabilities that are denominated in foreign currencies, the contracts do not qualify for hedge accounting under SFAS 133. These derivative instruments do not subject the Company to material balance sheet risk due to exchange rate movements because gains and losses on these derivatives offset losses and gains on the assets and liabilities being hedged. These forward foreign exchange contracts are entered into for periods consistent with commitments, generally one to six months. In June, 2000, the FASB issued certain interpretations of SFAS 133 that affect the accounting for cash flow hedges of forecasted intercompany transactions in a manner which is not consistent with the intended accounting under the Company's current hedging strategy. As a result, effective July 1, 2000, the Company removed the cash flow hedge designation from a portion of its derivative instruments that mature on various dates over the next five months. Additionally, the FASB issued Statement No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities - an amendment of FASB Statement No. 133", which the Company will be required to adopt in the third quarter of 2000. The Company is in the process of determining the effect of adoption of SFAS 138 on its consolidated financial statements and related disclosures. Note J - New Accounting Standard In December 1999, the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin (SAB) No. 101, "Revenue Recognition in Financial Statements", which the Company will be required to adopt in the fourth quarter of 2000. The Company is in the process of determining the effect of adoption of SAB No. 101 on its consolidated financial statements and related disclosures. Note K - Commitments and Contingencies On May 16, 2000, the Company entered into an agreement with Guidant Corporation (Guidant) to settle all outstanding litigation between the two companies and their affiliates. The Company and Guidant had pending a number of lawsuits in the U.S. and Europe in which each had accused the other of patent infringement. The litigation involves coronary stent delivery systems and dilatation catheters. As part of the settlement, the companies agreed to license certain patents to each other. In addition, the companies agreed to specified financial terms depending upon the ultimate resolution of Guidant's August 12, 1998 lawsuit against the Company filed in Indiana related to the Company's NIR(R) stent and of the Company's May 31, 1994 lawsuit against Guidant in California related to Guidant's RX ELIPSE(TM) PTCA catheter and RX MULTILINK(TM) stent delivery system (described below). All other disputes between the parties were dismissed. On May 31, 1994, SCIMED Life Systems, Inc. (SCIMED), a subsidiary of the Company, filed a suit for patent infringement against Advanced Cardiovascular Systems, Inc. (ACS), a subsidiary of Guidant, alleging willful infringement of two of SCIMED's U.S. patents by ACS's RX ELIPSE(TM) PTCA catheter. The suit was filed in the U.S. District Court for the Northern District of California seeking monetary and injunctive relief. In January 1998, the Company added the ACS RX MULTILINK(TM) stent delivery system to its complaint. On June 6, 1999, the Court granted summary judgment in favor of ACS affirming that SCIMED's patents were not infringed. SCIMED has appealed the judgment. On August 12, 1998, ACS and an affiliate of ACS filed suit for patent infringement against the Company and SCIMED alleging that the Company's NIR(R) stent infringes five patents owned by ACS. The suit was filed in the U.S. District Court for the Southern District of Indiana seeking injunctive and monetary relief. On June 28, 2000, the Court granted the Company's motion to dismiss the action. ACS has appealed the decision. On March 25, 1996, Cordis Corporation (Cordis), a subsidiary of Johnson & Johnson Company (Johnson & Johnson), filed a suit for patent infringement against SCIMED, alleging the infringement of five U.S. patents by SCIMED's LEAP balloon material used in certain SCIMED catheter products, including SCIMED's BANDIT and EXPRESS PLUS catheters. The suit was filed in the U.S. District Court for the District of Minnesota and seeks monetary and injunctive relief. SCIMED has answered, denying the allegations of the complaint. A trial date has not yet been set. On March 27, 1997, SCIMED filed suit for patent infringement against Cordis, alleging willful infringement of several SCIMED U.S. patents by Cordis' TRACKSTAR 14(TM), TRACKSTAR 18(TM), OLYMPIX(TM), POWERGRIP(TM), SLEEK(TM), SLEUTH(TM), THOR(TM), TITAN(TM) and VALOR(TM) catheters. The suit was filed in the U.S. District Court for the District of Minnesota, seeking monetary and injunctive relief. The parties have agreed to add Cordis' CHARGER(TM) and HELIX(TM) catheters to the suit. Cordis has answered, denying the allegations of the complaint. A trial date has not yet been set. On March 13, 1997, the Company (through its subsidiaries) filed suits against Johnson & Johnson (through its subsidiaries) in The Netherlands, the United Kingdom and Belgium, and on March 17, 1997 filed suit in France, seeking a declaration of noninfringement for the NIR(R) stent relative to two European patents licensed to Ethicon, Inc. (Ethicon), a Johnson & Johnson subsidiary, as well as a declaration of invalidity with respect to those patents. After a trial on the merits in the United Kingdom during March 1998, the court ruled on June 26, 1998 that neither of the patents is infringed by the NIR(R) stent, and that both patents are invalid. Ethicon appealed, and on March 20, 2000, the appellate court upheld the trial outcome. On October 28, 1998, the Company's motion for a declaration of noninfringement in France was dismissed for failure to satisfy statutory requirements; the French invalidity suits were not affected. On March 20, 21 and 22, 1997, the Company (through its subsidiaries) filed additional suits against Johnson & Johnson (through its subsidiaries) in Sweden, Italy and Spain, respectively, seeking a declaration of noninfringement for the NIR(R) stent relative to one of the European patents licensed to Ethicon in Sweden, Italy and Spain and a declaration of invalidity in Italy and Spain. In Italy, following a July 9, 1999 hearing, a technical expert was appointed by the court. Ethicon and other Johnson & Johnson subsidiaries filed a cross-border suit in The Netherlands on March 17, 1997, alleging that the NIR(R) stent infringes one of the European patents licensed to Ethicon. In this action, the Johnson & Johnson entities requested relief, including provisional relief (a preliminary injunction), covering Austria, Belgium, France, Greece, Italy, The Netherlands, Norway, Spain, Sweden, Switzerland and the United Kingdom. On April 2, 1997, the Johnson & Johnson entities filed a similar cross-border proceeding in The Netherlands with respect to a second European patent licensed to Ethicon. Johnson & Johnson subsequently withdrew its request for cross-border relief in the United Kingdom. In October, 1997, Johnson & Johnson's request for provisional cross-border relief on both patents was denied by the Dutch court, on the ground that it is "very likely" that the NIR(R) stent will be found not to infringe the patents. Johnson & Johnson appealed this decision with respect to the second patent; the appeal has been denied on the ground that there is a "ready chance" that the patent will be declared null and void. In January 1999, Johnson & Johnson amended the claims of the second patent, changed the action from a cross-border case to a Dutch national action, and indicated its intent not to pursue its action on the first patent. On June 23, 1999, the Dutch Court affirmed that there were no remaining infringement claims with respect to either patent. In late 1999, Johnson & Johnson appealed this decision and a hearing is expected in late 2000. On May 6, 1997, Ethicon Endosurgery, Inc. sued the Company in Dusseldorf, Germany, alleging that the Company's NIR(R) stent infringes one of Ethicon's patents. On June 23, 1998, the case was stayed following a decision in an unrelated nullity action in which the Ethicon patent was found to be invalid. On August 22, 1997, Johnson & Johnson filed a suit for patent infringement against the Company alleging that the sale of the NIR(R) stent infringes certain Canadian patents owned by Johnson & Johnson. Suit was filed in the federal court of Canada seeking a declaration of infringement, monetary damages and injunctive relief. The Company has answered, denying the allegations of the complaint. A trial is expected to begin in 2001. On October 22, 1997, Cordis filed a suit for patent infringement against the Company and SCIMED alleging that the importation and use of the NIR(R) stent infringes two patents owned by Cordis. The suit was filed in the U.S. District Court for the District of Delaware seeking monetary damages, injunctive relief and that the patents be adjudged valid, enforceable and infringed. The Company and SCIMED have answered the complaint, denying Cordis' allegations. A trial is scheduled to begin in November 2000. On April 13, 1998, Cordis filed a suit for patent infringement against the Company and SCIMED alleging that the Company's NIR(R) stent infringes two patents owned by Cordis. The suit was filed in the U.S. District Court for the District of Delaware seeking injunctive and monetary relief. The Company and SCIMED have answered, denying the allegations of the complaint. A trial is scheduled to begin in November 2000. On June 7, 1999, the Company, SCIMED and Medinol Ltd. (Medinol) filed suit for patent infringement against Johnson & Johnson, Johnson & Johnson Interventional Systems and Cordis, alleging two U.S. patents owned by Medinol are infringed by at least Cordis' CROWN(TM), MINI CROWN(TM) and CORINTHIAN(TM) stents. The suit was filed in the U.S. District Court for the District of Minnesota seeking injunctive and monetary relief. The case has been transferred to the U.S. District Court for the District of Delaware. A trial is scheduled to begin in May 2001. On March 24, 2000, the Company (through its subsidiaries) and Medinol filed a cross-border suit against Johnson & Johnson, Cordis and certain of their foreign subsidiaries in The Netherlands alleging Cordis' BX Velocity(TM) stent delivery system infringes one of Medinol's European patents. In this action, the Company and Medinol requested monetary and injunctive relief covering The Netherlands, Austria, Belgium, Switzerland, Germany, Denmark, Spain, France, Greece, Ireland, Italy, Liechtenstein, Luxembourg, Monaco, Portugal and Sweden. A hearing is scheduled for January 12, 2001. On March 30, 2000, the Company through its subsidiary filed suit for patent infringement against two subsidiaries of Cordis alleging that Cordis' BX Velocity stent delivery system infringes a published utility model owned by Medinol and exclusively licensed to the Company. The complaint was filed in the District Court of Dusseldorf, Germany seeking monetary and injunctive relief. A hearing is scheduled for March 15, 2001. On April 14, 2000, the Company (through its subsidiaries) and Medinol filed suit for patent infringement against Johnson & Johnson, Cordis, and a subsidiary of Cordis alleging that Cordis' BX Velocity stent delivery system infringes a patent owned by Medinol and exclusively licensed to the Company. The complaint was filed in the U.S. District Court for the District of Delaware seeking monetary and injunctive relief. The Company is seeking a preliminary injunction, and a hearing was held on August 3, 2000. On August 13, 1998, Arterial Vascular Engineering, Inc., now named Medtronic AVE Inc. (AVE), filed a suit for patent infringement against the Company and SCIMED alleging that the Company's NIR(R) stent infringes two patents owned by AVE. The suit was filed in the U.S. District Court for the District of Delaware seeking injunctive and monetary relief. On May 25, 2000, AVE amended the complaint to include a third patent. The Company and SCIMED have answered, denying the allegations of the complaint. Trial is expected to begin on January 7, 2002. On December 15, 1998, the Company and SCIMED filed a cross-border suit against AVE in The Netherlands alleging that AVE's AVE GFX(TM), AVE GFX 2(TM), AVE LTX(TM) and USCI CALYPSO(TM) rapid exchange catheters and stent delivery systems infringe one of the Company's European patents. In this action, the Company requested relief covering The Netherlands, the United Kingdom, France, Germany and Italy. A hearing on the merits was held on October 22, 1999. The Court has delayed its decision pending advice from the Dutch Patent Office. On December 18, 1998, AVE filed a suit for patent infringement against the Company and SCIMED alleging that the Company's MAXXUM(TM) and VIVA!(TM) catheters infringe a patent owned by AVE. The suit was filed in the U.S. District Court for the District of Delaware seeking injunctive and monetary relief. The Company and SCIMED have answered, denying the allegations of the complaint. A trial is scheduled for June 4, 2001. On March 2, 1999, AVE filed a cross-border suit in The Netherlands against the Company and various subsidiaries of the Company including SCIMED, alleging that the Company's MAXXUM(TM), MAXXUM(TM) ENERGY, MAXXUM(TM) 29 MM, NIR(R) Primo(TM), VIVA!(TM), EXPRESS PLUS and EXPRESS PLUS II balloon dilatation catheters infringe one of AVE's European patents. In this action, AVE requested preliminary relief covering The Netherlands, Germany, the United Kingdom, France and Spain. The Company answered, denying the allegations of the complaint. On February 16, 2000, the court denied AVE's request for preliminary relief. On May 30, 2000, the case was dismissed following the revocation of AVE's European patent by the European Patent Office. On March 10, 1999, the Company through its subsidiary Schneider (Europe) AG filed suit against AVE alleging that AVE's AVE GFX, AVE GFX2, AVE LTX, CALYPSO RELY(TM), PRONTO SAMBA(TM) and SAMBA RELY(TM) rapid-exchange catheters and stent delivery systems infringe one of the Company's German patents. The suit was filed in the District Court of Dusseldorf, Germany seeking injunctive and monetary relief. A hearing was held on January 27, 2000. The Court has delayed its decision pending expert advice and on May 15, 2000, the Court appointed a technical expert. On April 6, 1999, AVE filed suit against the Company and SCIMED alleging that the Company's NIR(R) stent infringes one of AVE's European patents. The suit was filed in the District Court of Dusseldorf, Germany seeking injunctive and monetary relief. A hearing was held in Germany on September 23, 1999, and on November 4, 1999, the court dismissed the complaint. On December 21, 1999, AVE appealed the dismissal and a hearing is scheduled for October 5, 2000. On May 14, 1999, Medtronic, Inc. (Medtronic) filed suit against the Company and SCIMED alleging that a variety of the Company's NIR(R) stent products infringe a Medtronic patent. The suit was filed in the U.S. District Court for the District of Minnesota seeking injunctive and monetary relief. In February 2000, the court found that the NIR(R) stent products do not infringe Medtronic's patent and the suit was dismissed. Medtronic has appealed the decision. On July 7, 1999, Medtronic filed suit against the Company and SCIMED, alleging that SCIMED's RADIUS(TM) stent infringes two patents owned by Medtronic. The suit was filed in the U.S. District Court for the District Court of Minnesota seeking injunctive and monetary relief. The Company has answered, denying allegations of the complaint. A trial is scheduled for June 2001. On March 28, 2000, the Company and certain subsidiaries filed suit for patent infringement against AVE alleging that AVE's S670 rapid exchange coronary stent system infringes a patent licensed to the Company. The suit was filed in the U.S. District Court for the Northern District of California seeking monetary and injunctive relief. The Company is seeking a preliminary injunction. AVE has filed a motion to compel arbitration of the dispute and on July 19, 2000, the motion was granted. On April 5, 1995, C.R. Bard, Inc. (Bard) filed a lawsuit in the U.S. District Court for the District of Delaware alleging that certain Company products, including the Company's MaxForce TTS(TM) catheter, infringe a patent assigned to Bard. Following a trial and jury verdict, on February 3, 1999 the court entered a judgment that the Company infringed the Bard patent and awarded damages to Bard in the principal amount of $10.8 million. The Company was also enjoined from selling the product found to be infringing. The Company had appealed the judgment to the Court of Appeals for the Federal Circuit. On July 7, 2000, the Court of Appeals for the Federal Circuit affirmed the lower Court's decision. The Company has filed a petition for a rehearing. The Company no longer markets the accused device. On March 7, 1996, Cook Inc. (Cook) filed suit in the Regional Court, Munich Division for Patent Disputes, in Munich, Germany against MinTec, Inc. Minimally Invasive Technologies alleging that the Cragg EndoPro(TM) System I and Stentor(TM) endovascular device infringe a certain Cook patent. Following the purchase of the assets of the Endotech/MinTec companies by the Company, the Company assumed control of the litigation. A final hearing was held on May 12, 1999, and the court held no infringement of the Cook patents. The case was dismissed in June 1999. Cook has appealed the decision. A hearing is was held on May 4, 2000. On July 27, 2000, the Court stayed the action pending the outcome of a nullity action filed by the Company against the patent. On June 30, 1998, Cook filed suit in the Regional Court, Dusseldorf Division for Patent Disputes, in Dusseldorf, Germany against the Company alleging that the Company's PASSAGER(TM) peripheral vascular stent graft and VANGUARD(TM) endovascular aortic graft products infringe the same Cook patent. A hearing was held on July 22, 1999 and a decision was received in September 1999 finding the Company's products infringe the Cook patent. The Company appealed the decision. A hearing is scheduled for April 26, 2001. On March 18, 1999, Cook filed suit against the Company and SCIMED, alleging that SCIMED's RADIUS(TM) coronary stent infringes a certain U.S. patent owned by Cook. The suit was filed in the U.S. District Court for the Southern District of Indiana seeking monetary damages and injunctive relief. On July 14, 1999, Cook filed an amended complaint adding Meadox Medicals, Inc. (Meadox), a wholly owned subsidiary of the Company, as a party to the suit, and adding a breach of contract claim. The Company, SCIMED and Meadox have answered, denying the allegations of the complaint. A trial date is scheduled for May 14, 2001. On May 19, 2000, the Company and SCIMED filed suit against a subsidiary of Cook alleging that Cook's MBL-4(TM), MBL-6(TM), MBL-4-XL(TM) and MBL-6-OV(TM) ligating devices infringe three of the Company's patents. The suit was filed in the U.S. District Court for the District of Massachusetts seeking monetary damages and injunctive relief. Cook counterclaimed seeking declaratory judgment that the Company's patents are invalid and unenforceable and Cook's products do not infringe the Company's patents. A hearing on the Company's request for a preliminary injunction is expected in September 2000. On February 3, 1999, the Company filed suit against Influence, Inc. (Influence) alleging that Influence infringes certain of the Company's patents covering the treatment of female urinary incontinence. The suit was filed in the Northern District of California. Influence counterclaimed, alleging that the Company infringes certain Influence patents, also relating to the treatment of female urinary incontinence. Both parties are seeking monetary damages and injunctive relief. On July 7, 2000, the Court ruled that Influence was not the proper owner of one of the patents. A trial date is scheduled for January 12, 2001. On March 27, 2000, American Medical Systems, Inc. (AMS) filed suit against the Company alleging that the Company induces infringement of an AMS patent covering a certain treatment for female urinary incontinence. The complaint also alleges misappropriation of trade secrets and breach of contract. The suit was filed in the U.S. District Court for the District of Minnesota seeking monetary and injunctive relief. The Company has answered, denying the allegations of the complaint. The U.S. Federal Trade Commission (FTC) is investigating the Company's compliance with a Consent Order dated May 5, 1995, pursuant to which the Company licensed certain intravascular ultrasound technology to Hewlett-Packard Company (HP). The Company has been advised that the FTC staff has recommended to the FTC that suit be brought against the Company for alleged violations of the Consent Order. The Company does not believe any violation of the Consent Order has occurred, and has met with the Commission of the FTC to advise them of its position. On February 1, 1999, HP filed a suit in the U.S. District Court for the District of Massachusetts against the Company alleging violation of the Sherman Antitrust Act and Massachusetts General Laws Chapter 93A and breach of the License Agreement entered into pursuant to the FTC Consent Order. The Company has answered, denying the allegations of the complaint. A trial date has not yet been set. Beginning November 4, 1998, a number of shareholders of the Company, on behalf of themselves and all others similarly situated, filed purported stockholders' class action suits in the U.S. District Court for the District of Massachusetts alleging that the Company and certain of its officers violated certain sections of the Securities Exchange Act of 1934. The complaints principally alleged that as a result of certain accounting irregularities involving the improper recognition of revenue by the Company's subsidiary in Japan, the Company's previously issued financial statements were materially false and misleading. In August 1999, lead plaintiffs and lead counsel filed a purported consolidated class action complaint adding allegations that the Company issued false and misleading statements with respect to the launch of its NIR ON(R) Ranger(TM) with Sox(TM) coronary stent delivery system and the system's subsequent recall. The Company and its officers have filed a motion to dismiss the consolidated complaint. The Plaintiffs have opposed the Company's motion to dismiss the consolidated complaint. On July 28, 2000, Dr. Tassilo Bonzel filed a complaint naming certain of the Company's Schneider Worldwide subsidiaries and Pfizer Inc. and certain of its affiliates as defendants, alleging that Pfizer failed to pay Dr. Bonzel amounts owed under a license agreement involving Dr. Bonzel's patented Monorail (TM) technology. The suit was filed in the District Court for the State of Minnesota seeking monetary relief. Dr. Bonzel has also provided a notice of breach of the agreement which could lead to its termination. The Company has not yet answered, but intends to vigorously defend the complaint. The Company is aware that the U.S. Department of Justice is conducting an investigation of matters that include the Company's NIR ON(R) Ranger(TM) with Sox(TM) coronary stent delivery system which was voluntarily recalled by the Company in October 1998 following reports of balloon leaks. The Company is cooperating fully in the investigation. The Company is involved in various other lawsuits from time to time. In management's opinion, the Company is not currently involved in any legal proceedings other than those specifically identified above which, individually or in the aggregate, could have a material effect on the financial condition, operations or cash flows of the Company. As of June 30, 2000, the potential exposure for litigation-related accruable costs is estimated to range from $35 million to $50 million. The Company's total accrual as of June 30, 2000 for litigation-related reserves was approximately $35 million. As of June 30, 2000, the range of loss for reasonably possible contingencies that can be estimated is $0 to $20 million. The Company believes that it has meritorious defenses against claims that it has infringed patents of others. However, there can be no assurance that the Company will prevail in any particular case. An adverse outcome in one or more cases in which the Company's products are accused of patent infringement could have a material adverse effect on the Company. Further, product liability claims may be asserted in the future relative to events not known to management at the present time. The Company has insurance coverage which management believes is adequate to protect against product liability losses as could otherwise materially affect the Company's financial position Note L - Segment Reporting Boston Scientific is a worldwide developer, manufacturer and marketer of medical devices for less invasive procedures. The Company has four reportable operating segments based on geographic regions: the United States, Europe, Japan and Inter-Continental. Each of the Company's reportable segments generates revenues from the sale of minimally invasive medical devices. The reportable segments represent an aggregate of operating divisions. Sales and operating results of reportable segments are based on internally used standard foreign exchange rates, which may differ from year to year and do not include inter-segment profits. The segment information presented for 1999 has been restated based on the Company's standard foreign exchange rates used for 2000. 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.
United Inter- (In millions) States Europe Japan Continental Total - - -------------------------------------------------- --------- ---------- -------- -------------- --------- Three months ended June 30, 2000 Net sales $414 $104 $138 $44 $ 700 Operating income 166 35 89 3 293 Three months ended June 30, 1999 Net sales $455 $110 $129 $42 $ 736 Operating income 183 34 75 7 299 Six months ended June 30, 2000 Net sales $805 $211 $276 $87 $1,379 Operating income 318 73 181 6 578 Six months ended June 30, 1999 Net sales $896 $216 $254 $78 $1,444 Operating income 350 64 152 12 578
A reconciliation of the totals reported for the reportable segments to the applicable line items in the consolidated financial statements is as follows:
Three months ended Six months ended June 30, June 30, - - ------------------------------------------------------------------------------------------------------------- ( In millions) 2000 1999 2000 1999 - - ------------------------------------------------------------------------------------------------------------- Net sales: Total net sales for reportable segments $700 $736 $1,379 $1,444 Foreign exchange (5) (10) (5) (10) ----------------------------------------------------- $695 $726 $1,374 $1,434 Income before income taxes: Total operating income for reportable segments $293 $299 $ 578 $ 578 Corporate expenses and foreign exchange (111) (97) (227) (187) ----------------------------------------------------- 182 202 351 391 Other expense, net (12) (37) (25) (75) ----------------------------------------------------- $170 $165 $ 326 $ 316 =====================================================
Note M - Subsequent Event In July 2000, the Company announced a global operations plan, which encompasses a series of strategic initiatives to increase productivity and enhance innovation. The plan includes manufacturing process and supply chain programs and a plant optimization initiative. The intent of the plant optimization initiative is to better allocate the Company's resources by creating a more effective network of manufacturing and research and development facilities. Based upon preliminary estimates, the plant optimization initiative is expected to result in pre-tax charges of approximately $70 million ($45 million after-tax) in 2000. As the Company has now announced the plan, a more detailed assessment of costs and savings is being performed. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Net sales for the second quarter were $695 million as compared to $726 million in the second quarter of 1999, a decline of 4%. Net income for the second quarter increased 12% to $122 million as compared to $109 million reported in the second quarter of 1999. Earnings per share for the second quarter were $0.30 per share (diluted) compared to $0.27 per share in the second quarter of 1999. Net sales for the six months ended June 30, 2000 were $1,374 million as compared to $1,434 million in the first half of 1999, a decline of 4%. Net income for the six months ended June 30, 2000 increased 9% to $228 million, or $0.55 per share (diluted). This compares to net income of $209 million, or $0.52 per share, reported in the first half of 1999. The increase in net income is due primarily to an improvement in gross margins, a decrease in interest expense as the Company continues to pay down its debt obligations, and a reduction in the Company's effective tax rate. During the second quarter of 2000, United States (U.S.) revenues decreased approximately 9% to $414 million, while international revenues increased approximately 4% to $281 million compared to the same period in the prior year. Worldwide vascular sales decreased 6% and worldwide nonvascular sales increased 11% compared to the same period in the prior year. The decreases in worldwide and vascular sales were primarily attributable to the decrease of the Company's sales of coronary stents in the U.S. during the second quarter of 2000. U.S. coronary stent revenues and worldwide coronary stent revenues, primarily sales of the NIR(R) stent, were approximately $78 million and $123 million, respectively, during the second quarter of 2000, compared to $106 million and $155 million, respectively, during the second quarter of 1999. Worldwide NIR(R) coronary stent sales as a percentage of worldwide sales were approximately 17% and 20% during the second quarters of 2000 and 1999, respectively. U.S. revenues decreased approximately 10% to $805 million during the six months ended June 30, 2000, while international revenues increased approximately 6% to $569 million compared to the same period in the prior year. Worldwide vascular sales decreased 6% and worldwide nonvascular sales increased 12% compared to the same period in the prior year. The decreases in worldwide and vascular sales were primarily attributable to the decrease of the Company's sales of coronary stents in the U.S. during the first half of 2000. U.S. coronary stent revenues and worldwide coronary stent revenues, primarily sales of the NIR(R) stent, were approximately $141 million and $236 million, respectively, during the six months ended June 30, 2000, compared to $210 million and $305 million, respectively, during the same period in the prior year. Worldwide NIR(R) coronary stent sales as a percentage of worldwide sales were approximately 16% and 20% during the first half of 2000 and 1999, respectively. The worldwide coronary stent market is dynamic and highly competitive, with significant market share volatility. In addition, technology and competitive offerings in the market are constantly changing. The Company's reduction in coronary stent revenues in the U.S. throughout the first half of 2000 reflects this volatility. Stent revenues for 2000 and beyond will be impacted by the timing of receipt of regulatory approvals to market several new coronary and peripheral stent platforms in the U.S. and international markets. The Company expects that net sales during the second half of 2000 will be relatively flat as compared to those of 1999. Gross profit as a percentage of net sales increased from 67.6% in the second quarter of 1999 to 68.8% in the second quarter of 2000, and increased from 67.6% in the first half of 1999 to 68.7% in the first half of 2000. The increase in the Company's gross margin percentage is primarily due to benefits that the Company realized through its ability to better manage inventory and lower product costs, and from favorable foreign exchange rate movements. These benefits were partially offset by a shift in the Company's product sales mix. Medinol Ltd. (Medinol) supplies the NIR(R) coronary stent, and unforeseen delays, stoppages or interruptions in the supply and/or mix of NIR(R) stent inventory, could adversely affect the operating results and/or revenues of the Company. Generally, the Company has less control over inventory manufactured by third parties as compared to inventory manufactured internally. In addition, the volatility of the worldwide coronary stent market and the impact of the timing of receipt of regulatory approvals to market new coronary stent platforms could negatively impact the Company's ability to effectively transition to new products. Specifically, the Company's ability to effectively manage its mix and levels of inventory including consignment inventory resulting from product transitions will be critical in minimizing excess inventories. Furthermore, the purchase price of NIR(R) coronary stents, the amount of NIR(R) coronary stent sales as a percentage of worldwide sales and the mix of coronary stent platforms could significantly impact gross margins. As average selling prices for the NIR(R) stents fluctuate, the Company's cost to purchase the stents will change, because cost is based on a constant percentage of average selling prices. Therefore, if higher-costing NIR(R) stents are being sold as average selling prices are declining, gross margins could be negatively impacted. Additionally, the Company expects that its gross margin percentages will be negatively impacted as the Company launches more expensive gold-coated stents and stents with higher costing delivery systems. At June 30, 2000, the Company had approximately $129 million of net NIR(R) coronary stent inventory and was committed to purchase approximately $53 million of NIR(R) stents from Medinol. The Company's ability to manage its relationship with Medinol could impact the future operating results of the Company. In July 2000, the Company announced a global operations plan, which encompasses a series of strategic initiatives to increase productivity and enhance innovation. The plan includes manufacturing process and supply chain programs and a plant optimization initiative. The manufacturing process and supply chain programs are designed to lower inventory levels and the cost of manufacturing, improve absorption and minimize inventory write-downs. The infrastructure related to the supply chain program is substantially in place. However, gross margin benefits will not be fully realized until manufacturing processes are addressed and have time to develop, and until historical inventories are sold. The intent of the plant optimization initiative is to better allocate the Company's resources by creating a more effective network of manufacturing and research and development facilities. It will consolidate manufacturing operations along product lines, shifting significant amounts of production to company facilities in Miami and Ireland and to contract manufacturing. It will also concentrate research and development activities in a smaller number of specialized facilities. Based upon preliminary estimates, the plant optimization initiative is expected to result in pre-tax charges of approximately $70 million ($45 million after-tax) in 2000. The estimated charges are expected to be recorded as $50 million in special charges and $20 million as cost of sales. The Company expects that it will make cash outlays related to the initiative of approximately $15 million during the second half of 2000, which the Company anticipates will be funded from cash flows from operating activities. The Company's objective is to complete all significant actions related to the plant optimization initiative within 18 months. The success of the initiative may be dependent on the Company's ability to retain employees during the transition period. The global operations plan is estimated to achieve pre-tax operating savings of $110 million ($70 million after-tax) in 2001, $220 million ($145 million after-tax) in 2002 and $250 million ($180 million after-tax) in annualized savings thereafter. These savings will be realized, primarily, as reduced cost of sales. The Company intends to use a portion of these savings that are generated to increase its investment in research and development. The amounts discussed above relating to the Company's global operations plan, including those relating to the plant optimization initiative, are estimates. As the Company has now announced the plan, a more detailed assessment of costs and savings is being performed. The Company anticipates that this assessment will be completed and approved by the appropriate levels of management by the end of the third quarter. Selling, general and administrative expenses increased as a percentage of net sales from 28% in the second quarter of 1999 to 31% in the second quarter of 2000 and increased approximately $10 million from the second quarter of 1999 to $214 million. Selling, general and administrative expenses increased as a percentage of net sales from 29% in the first half of 1999 to 31% in the first half of 2000 and increased approximately $17 million from the first half of 1999 to $428 million. The increase as a percent of net sales is primarily attributable to the reduction in sales combined with an increase in selling expenses. The increase in expense dollars is primarily attributable to increased costs to strengthen the Company's domestic field sales force and to expand its direct sales presence in international regions. Additionally, in light of the Company's flat sales forecasted for the second half of 2000 and the current competitive economic environment, the Company's ability to retain its established sales force, particularly in the U.S., and control operating expenses may impact the operating results of the Company. Amortization expense was approximately $23 million and 3% of net sales during the second quarter of 2000 and 1999. Amortization expense was approximately $46 million and 3% of net sales during the six months ended June 30, 2000 and 1999. Amortization expense is primarily comprised of the amortization of intangibles related to the purchase of Schneider Worldwide (Schneider). Royalty expenses decreased approximately 23% from $13 million in the second quarter of 1999 to $10 million in 2000. Royalty expenses decreased approximately 9% from $23 million in the six months ended June 30, 1999 to $21 million in the six months ended June 30, 2000. The decrease in royalty expenses is primarily due to non-recurring payments of approximately $3 million, which the Company made in the second quarter of 1999. The Company continues to enter into strategic technological alliances, some of which include royalty commitments. Research and development expenses were approximately $49 million and 7% of net sales during the second quarter of 2000 and 1999. Research and development expenses were approximately $98 million and 7% of net sales and during the first half of 2000 and 1999. In the second quarter of 2000, the brachytherapy project acquired in connection with the Schneider acquisition was discontinued due to system performance issues. The Company's next generation aortic aneurysmal disease research and development project is generally progressing in line with cost estimates previously reported in the Company's Annual Report filed on Form 10-K with the SEC for the year ended December 31, 1999. The investment in research and development dollars reflects spending on new product development programs as well as regulatory compliance and clinical research, and reflects 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. The trend in countries around the world toward more stringent regulatory requirements for product clearance and more vigorous enforcement activities has generally caused or may cause medical device manufacturers to experience more uncertainty, greater risk and higher expenses. Interest expense decreased from $35 million in the second quarter of 1999 to $19 million in the second quarter of 2000. Interest expense decreased from $70 million during the six months ended June 30, 1999 to $40 million during the six months ended June 30, 2000. The overall decrease in interest expense is primarily attributable to a lower average debt balance as the Company continues to repay outstanding debt. Other income (expense), net, changed from expense of $2 million in the second quarter of 1999 to income of $7 million in the first quarter of 2000. Other income (expense), net, changed from expense of $5 million in the first half of 1999 to income of $15 million in the first half of 2000. The change is primarily attributable to net gains recognized on sales of available-for-sale equity securities. During the second quarter of 2000, and during the first half of 2000, the Company recognized gains on available-for-sale securities of approximately $7 million and $14 million, respectively. The Company's effective tax rate decreased from approximately 34% in the first half of 1999 to 30% in the first half of 2000. The decrease is primarily attributable to changes in the geographic mix of the Company's business. Uncertainty remains with regard to future changes within the healthcare industry. The trend toward managed care and economically motivated and more sophisticated buyers in the U.S. may result in continued pressure on selling prices of certain products and resulting compression on gross margins. In addition to impacting selling prices, the trend to managed care in the U.S. has also resulted in more complex billing and collection procedures. The Company's ability to react effectively to the changing environment may impact its bad debt and sales allowances in the future. Further, the U.S. marketplace is increasingly characterized by consolidation among healthcare providers and purchasers of medical devices that prefer to limit the number of suppliers from which they purchase medical products. There can be no assurance that these entities will continue to purchase products from the Company. International markets are also being affected by economic pressure to contain reimbursement levels and healthcare costs. The Company's ability to benefit from its international expansion may be limited by risks and uncertainties related to economic conditions in these regions, competitive offerings, infrastructure development, rights to intellectual property, and the ability of the Company to implement its overall business strategy. Any significant changes in the political, regulatory or economic environment where the Company conducts international operations may have a material impact on revenues and profits. Deterioration in the Japan and/or emerging markets economies may impact the Company's ability to collect its outstanding receivables. Although these factors may impact the rate at which Boston Scientific can grow, the Company believes that it is well positioned to take advantage of opportunities that exist in the markets it serves. LIQUIDITY AND CAPITAL RESOURCES Cash and short-term investments totaled $44 million at June 30, 2000 compared to $78 million at December 31, 1999. Working capital increased from current assets equaling current liabilities at December 31, 1999 to working capital of $27 million at June 30, 2000. Cash proceeds during the first half of 2000 were generated primarily from operating activities. Cash proceeds during the period were offset by the net repayment of approximately $265 million of outstanding debt obligations, purchases of the Company's common stock under its systematic plan of approximately $99 million, payments for acquisitions of and investments in certain technologies of approximately $41 million and capital expenditures of approximately $35 million. On June 20, 2000, the Company increased the multicurrency borrowing sublimit under its $1.0 billion credit facility that expires in June 2002 from $100 million to $300 million. As a result of the increase, at June 30, 2000, the Company refinanced approximately $100 million of additional U.S. dollar credit facility borrowings to euro and Japanese yen denominated borrowings at lower interest rates. During 2000, the Company increased its borrowing capacity under its uncommitted Japanese credit facilities. These facilities provided for borrowings and promissory notes discounting of up to 15.0 billion Japanese yen (translated to approximately $141 million) and 11.5 billion Japanese yen (translated to approximately $112 million) at June 30, 2000 and December 31, 1999, respectively. The Company has a $600 million 364-day credit facility that expires in September 2000. The Company is in the process of seeking an extension of this facility for another 364 days. The Company believes that it will be successful in obtaining the extension in the near term. The Company has the ability to refinance a portion of its short-term debt on a long-term basis through its revolving credit facilities. The Company does not expect that its short-term borrowings will remain outstanding beyond the next twelve months, and, accordingly, the Company has not reclassified any of the short-term borrowings as long-term at June 30, 2000, compared to $108 million of such reclassifications at December 31, 1999. The Company has recognized net deferred tax assets aggregating $234 million at June 30, 2000, and $238 million at December 31, 1999. The assets relate principally to the establishment of inventory and product related reserves and purchased research and development. In light of the Company's historical financial performance, the Company believes that these assets will be substantially recovered. The Company is authorized to purchase on the open market up to approximately 40 million shares of the Company's common stock. Stock repurchased under the Company's systematic plan will be used to satisfy its obligations pursuant to employee benefit and incentive plans. During the first half of 2000, the Company repurchased approximately 4.8 million shares at an aggregate cost of approximately $99 million under its systematic plan. As of June 30, 2000, approximately 31 million shares of the Company's common stock have been repurchased under the plan. Under the authorization, the Company may also repurchase shares outside of the Company's systematic plan. These additional shares would also be used to satisfy the Company's obligations pursuant to employee benefit and incentive plans. The Company has entered into several transactions involving acquisitions and alliances, certain of which have involved equity investments. As the healthcare environment continues to undergo rapid change, management expects that it will continue to focus on strategic initiatives and/or make additional investments in existing relationships. In connection with these acquisitions, the Company has acquired numerous in-process research and development projects. As the Company continues to build its research base in future years, it is reasonable to assume that it will acquire additional research and development platforms. The Company expects to incur capital expenditures of approximately $55 million during the remainder of 2000 and to make estimated tax payments in the second half of 2000 of approximately $50 million. The Company expects that its cash and cash equivalents, marketable securities, cash flows from operating activities and borrowing capacity will be sufficient to meet its projected operating cash needs, including restructuring and merger-related initiatives, through the end of 2000. EURO CONVERSION On January 1, 1999, eleven of the fifteen member countries of the European Union established fixed conversion rates among existing sovereign currencies and the euro. The participating countries agreed to adopt the euro as their common legal currency on that date. Fixed conversion rates among participating countries' existing currencies (the legacy currencies) and the euro were established as of that date. The legacy currencies are scheduled to remain legal tender as denominations of the euro until at least January 1, 2002 (but not later than July 1, 2002). During this transition period, parties may settle transactions using either the euro or a participating country's legacy currency. The Company has addressed and continues to address the potential impact resulting from the euro conversion, including adaptation of information technology systems, competitive implications related to pricing and foreign currency considerations. Management currently believes that the euro will not have a material impact related to its overall business in Europe or elsewhere. The increased price transparency resulting from the use of a single currency in the eleven participating countries may affect the ability of the Company to price its products differently in the various European markets. A possible result of this is price harmonization at lower average prices for products sold in some markets. However, uncertainty exists as to the effects the euro will have on the marketplace. LITIGATION The Company is involved in various lawsuits, including patent infringement and product liability suits, from time to time in the normal course of business. In management's opinion, the Company is not currently involved in any legal proceeding other than those specifically identified in the notes to the condensed consolidated financial statements which, individually or in the aggregate, could have a material effect on the financial condition, operations and cash flows of the Company. Additionally, legal costs associated with asserting the Company's patent portfolio and defending against claims that the Company's products infringe the intellectual property of others are increasing. Similarly, legal costs associated with non-patent litigation and compliance activities are also rising. Depending upon the prevalence, significance and complexity of these matters, the Company's legal provision could be adversely affected in the future. Further, product liability claims may be asserted in the future relative to events not known to management at the present time. The Company has insurance coverage which management believes is adequate to protect against such product liability losses as could otherwise materially affect the Company's financial position. The Company is aware that the U.S. Department of Justice is conducting an investigation of matters that include the Company's decision to voluntarily recall the NIR ON(R) Ranger(TM) with Sox(TM) coronary stent in the U.S. The Company is cooperating fully in the investigation. 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 discussed in this report include, but are not limited to, statements with respect to, and the Company's performance may be affected by: (a) the Company's ability to timely implement the global operations plan within its cost estimates, to retain employees as it implements its plant optimization initiative and to achieve estimated operating savings; (b) the Company's ability to achieve manufacturing cost declines, gross margin benefits and inventory reductions; (c) the ability of the Company to manage accounts receivable, manufacturing costs and inventory levels and mix and to react effectively to changing managed care environment, reimbursement levels and worldwide economic conditions; (d) the potential impacts of continued consolidation among healthcare providers, trends towards managed care, disease state management and economically motivated buyers, healthcare cost containment, more stringent regulatory requirements and more vigorous enforcement activities; (e) the Company's belief that it is well positioned to take advantage of opportunities that exist in the markets it serves, although the Company expects that net sales during the second half of 2000 will be relatively flat as compared to those of 1999; (f) the Company's ability to retain its established sales force and control operating expenses; (g) 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; (h) the Company's ability to fund development of purchased technology at currently estimated costs and to realize value assigned to in-process research and development and other intangible assets; (i) the Company's ability to increase its investment in research and development and to develop and launch products on a timely basis, including products resulting from purchased research and development; (j) risks associated with international operations; (k) 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; (l) the Company's ability to maintain its effective tax rate at 30% for 2000 and to substantially recover its net deferred tax assets; (m) the ability of the Company to meet its projected cash needs through the end of 2000; (n) the Company's ability to leverage its infrastructure; (o) the ability of the Company to manage its relationship with Medinol; (p) unforeseen delays, stoppages or interruptions in the supply and/or mix of NIR(R) coronary stent inventory, difficulties in managing inventory relating to new product introductions and the Company's cost to purchase the NIR(R) coronary stent; (q) NIR(R) coronary stent sales as a percentage of worldwide sales in 2000 and the mix of coronary stent platforms; (r) volatility in the coronary stent market and the timing of regulatory approvals to market new coronary and peripheral stent platforms; (s) the development of competing or technologically advanced products by our competitors; (t) the effect of litigation and compliance activities on the Company's legal provision; (u) the impact of stockholder class action, patent, product liability and other litigation, the outcome of the U.S. Department of Justice and Federal Trade Commission investigations, and the adequacy of the Company's product liability insurance; (v) the potential impact resulting from the euro conversion, including adaptation of information technology systems, competitive implications related to pricing and foreign currency considerations; (w) the Company's expectation that it will renew its $600 million revolving credit facility; and (x) the timing, size and nature of strategic initiatives and research and development platforms available to the Company. Several important factors, in addition to the specific factors discussed in connection with such forward-looking statements individually, could affect the future results and growth rates of the Company and could cause those results and rates 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, third-party intellectual property, 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 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK In the normal course of business, the Company is exposed to market risk from changes in interest rates and foreign currency exchange rates. The Company addresses these risks through a risk management program that includes the use of derivative financial instruments. The program is operated pursuant to documented corporate risk management policies. The Company does not enter into any derivative transactions for speculative purposes. The Company's floating and fixed rate debt obligations are subject to interest rate risk. As of June 30, 2000, a 100 basis point increase in interest rates related to the Company's floating rate borrowings, assuming the amount borrowed remains constant, would result in an annual increase in the Company's then current interest expense of approximately $5 million. A 100 basis point increase in interest rates related to the Company's fixed long-term debt would not result in a material change in its fair value. The Company enters into forward foreign exchange contracts to hedge its net recognized foreign currency assets and liabilities for periods consistent with commitments, generally one to six months. In addition, upon adoption of the Financial Accounting Standards Board Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities", on January 1, 2000, the Company initiated a program to hedge a portion of its forecasted intercompany and third party transactions with forward foreign exchange contracts. Hedging activity is intended to offset the impact of currency fluctuations on hedged assets, liabilities and forecasted cash flows denominated in foreign currencies. However, the Company may be impacted by foreign currency exchange rates related to the unhedged portion. The success of the hedging program depends, in part, on forecasts of transaction activity in various currencies (currently the Japanese yen and the euro). The Company may experience unanticipated foreign currency exchange gains or losses to the extent that there are timing differences between forecasted and actual activity during periods of currency volatility. The Company had spot and forward foreign exchange contracts outstanding in the total notional amount of $634 million at June 30, 2000. As of June 30, 2000, the Company had recorded approximately $7 million of assets and $2 million of liabilities to recognize the fair value of its contracts outstanding on June 30, 2000. Foreign exchange contracts that hedge net recognized foreign currency assets and liabilities should not subject the Company to material risk due to exchange rate movements because gains and losses on these contracts should offset losses and gains on the assets and liabilities being hedged. Hedges of anticipated transactions may subject the income statement to volatility. Derivative instruments whose cash flow hedge designation were removed effective July 1, 2000 may subject the Company to risk from exchange rate movements as these contracts mature over the next five months. A sensitivity analysis of changes in the fair value of foreign currency exchange contracts outstanding at June 30, 2000 indicates that, if the U.S. dollar uniformly weakened by 10% against all currencies, the fair value of these contracts would decrease by $56 million. While these hedging instruments are subject to fluctuations in value, such fluctuations are generally offset by changes in the value of the underlying exposures being hedged. As the Company has expanded its international operations, its sales and expenses denominated in foreign currencies have expanded and that trend is expected to continue. Therefore, most international sales and expenses have been, and are expected to be, subject to the effect of foreign currency fluctuations, and these fluctuations may have an impact on margins. The Company's sensitivity analysis of the effects of changes in foreign currency exchange rates does not factor in a potential change in sales levels or local currency selling prices. Although the Company engages in hedging transactions that may offset the effect of fluctuations in foreign currency exchange rates on foreign currency denominated assets, liabilities and cash flows, financial exposure may nonetheless result, primarily from the timing of transactions, forecast volatility and the movement of exchange rates. PART II OTHER INFORMATION ITEM 1: LEGAL PROCEEDINGS Note K Commitments and Contingencies to the Company's unaudited condensed consolidated financial statements contained elsewhere in this Quarterly Report are incorporated herein by reference. ITEM 4: SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS The Annual Meeting of Stockholders of the Company was held on May 9, 2000, to consider and vote upon proposals to (i) elect three Class II Directors of the Company to hold office until the 2003 Annual Meeting of Stockholders of the Company, and until their respective successors are chosen and qualified or until their earlier resignation, death or removal, and (ii) to approve and adopt the Company's 2000 Long-Term Incentive Plan. John E. Abele, Joel L. Fleishman and Lawrence L. Horsch were elected as Class II Directors of the Company by a vote of 342,131,178, 342,084,788, and 342,143,683 for, respectively, and 4,846,464, 4,892,854 and 4,833,959 withheld, respectively. The Company's 2000 Long-Term Incentive Plan was approved and adopted by a vote of 277,991,690 for, 67,453,937 against and 1,532,015 abstained. ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 10.1 Form of Second Amendment to the Second Amended and Restated Credit Agreement among Boston Scientific Corporation, The Several Lenders and The Chase Manhattan Bank dated as of June 20, 2000. (b) The following reports were filed during the quarter ended June 30, 2000: None. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized on August 14, 2000. BOSTON SCIENTIFIC CORPORATION By: /s/ Lawrence C. Best ------------------------------------------- Name: Lawrence C. Best Title: Chief Financial Officer and Senior Vice President - Finance and Administration EX-10.1 2 0002.txt FORM OF SECOND AMENDMENT EXHIBIT 10.1 ------------ SECOND AMENDMENT SECOND AMENDMENT, dated as of June 20, 2000 (this "Amendment"), to the Second Amended and Restated Credit Agreement, dated as of September 4, 1998 (as amended by the Amendment dated as of February 23, 1999, the "Credit Agreement"), among (i) BOSTON SCIENTIFIC CORPORATION, a Delaware corporation (the "Borrower"), (ii) the several banks and other financial institutions from time to time parties thereto (the "Lenders"), (iii) ABN AMRO BANK N.V., a Dutch banking corporation, BANK OF AMERICA, N.A. (f/k/a Bank of America National Trust and Savings Association), a national banking association, and BARCLAYS BANK PLC, a banking corporation organized under the laws of England, as Syndication Agents (each in such capacity, a "Syndication Agent", and collectively, the "Syndication Agents"), (iv) CHASE SECURITIES INC., as Arranger (in such capacity, the "Arranger") and as Book Manager (in such capacity, the "Book Manager") and (v) THE CHASE MANHATTAN BANK, a New York banking corporation, as administrative agent for the Lenders hereunder (in such capacity, the "Administrative Agent"). W I T N E S S E T H: ------------------- WHEREAS, pursuant to the Credit Agreement, the Lenders have agreed to make certain extensions of credit to the Borrower; WHEREAS, the Borrower and Lenders have agreed to increase the aggregate Multicurrency Commitments under the Credit Agreement in the manner provided for in this Amendment; and WHEREAS, the Majority Lenders have consented to this Amendment and have authorized the Administrative Agent to execute this Amendment; NOW, THEREFORE, the parties hereto hereby agree as follows: I. Defined Terms. Terms defined in the Credit Agreement and used herein shall have the meanings given to them in the Credit Agreement. II. Amendments to Credit Agreement. 1. Section 2.10. Clause (b) of Section 2.10 is hereby amended by replacing "$100,000,000" with "$300,000,000." 2. Schedule I. Schedule I of the Credit Agreement is hereby amended by deleting it in its entirety and inserting in lieu thereof the amended Schedule I as set forth in Annex A attached hereto. III. Conditions to Effectiveness. This Amendment shall become effective as of the date hereof on the date (the "Amendment Effective Date") on which the Borrower and the Administrative Agent shall have executed and delivered to the Administrative Agent this Amendment. IV. General. 1. Representation and Warranties. To induce the Administrative Agent to enter into this Amendment, the Borrower hereby represents and warrants to the Administrative Agent and all of the Lenders as of the Amendment Effective Date that: (a) Corporate Power; Authorization; Enforceable Obligations. (1) The Borrower has the corporate power and authority, and the legal right, to make, deliver this Amendment and to perform the Loan Documents, as amended by this Amendment, and has taken all necessary corporate action to authorize the execution, delivery and performance of this Amendment and the performance of the Loan Documents, as so amended. (2) No consent or authorization of, approval by, notice to, filing with or other act by or in respect of, any Governmental Authority or any other Person is required in connection with the execution and delivery of this Amendment or with the performance, validity or enforceability of the Loan Documents, as amended by this Amendment. (3) This Amendment has been duly executed and delivered on behalf of the Borrower. (4) This Amendment and each Loan Document, as amended by this Amendment, constitutes a legal, valid and binding obligation of the Borrower enforceable against the Borrower in accordance with its terms, except as affected by bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws relating to or affecting the enforcement of creditors' rights generally, general equitable principles (whether considered in a proceeding in equity or at law) and an implied covenant of good faith and fair dealing. (b) Representations and Warranties. The representations and warranties made by the Borrower in the Loan Documents (other than in Section 5.2 and 5.6 of the Credit Agreement) are true and correct in all material respects on and as of the Amendment Effective Date, after giving effect to the effectiveness of this Amendment, as if made on and as of the Amendment Effective Date, except as otherwise disclosed in the most recent filings by the Borrower with the Securities and Exchange Commission. 2. Payment of Expenses. The Borrower agrees to pay or reimburse the Administrative Agent for all of its out-of-pocket costs and reasonable expenses incurred in connection with this Amendment, any other documents prepared in connection herewith and the transactions contemplated hereby, including, without limitation, the reasonable fees and disbursements of counsel to the Agent. 3. No Other Amendments; Confirmation. Except as expressly amended, modified and supplemented hereby, the provisions of the Credit Agreement and the other Loan Documents are and shall remain in full force and effect. 4. Governing Law; Counterparts. (a) This Amendment and the rights and obligations of the parties hereto shall be governed by, and construed and interpreted in accordance with, the laws of the State of New York. (b) This Amendment may be executed by one or more of the parties to this Agreement on any number of separate counterparts, and all of said counterparts taken together shall be deemed to constitute one and the same instrument. A set of the copies of this Amendment signed by all the parties shall be lodged with the Borrower and the Administrative Agent. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered by their respective proper and duly authorized officers as of the day and year first above written. BOSTON SCIENTIFIC CORPORATION By: ------------------------------ Name: Title: THE CHASE MANHATTAN BANK, as Administrative Agent By: ----------------------------- Name: Title: EX-27 3 0003.txt FINANCIAL DATA SCHEDULE
5 1,000,000 6-MOS DEC-31-2000 JAN-01-2000 JUN-30-2000 44 0 417 0 334 959 938 352 3,483 932 567 0 0 4 1,864 3,483 1,374 1,374 430 430 593 0 40 326 98 228 0 0 0 228 .56 .55
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