UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

ANNUAL REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

BOSTON SCIENTIFIC CORPORATION

(Exact name of registrant as specified in its charter)

DELAWARE		04-2695240
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

ONE BOSTON SCIENTIFIC PLACE, NATICK, MASSACHUSETTS 01760-1537
(Address of principal executive offices)

(508) 650-8000
(Registrant’s telephone number)

Securities registered pursuant to Section 12(b) of the Act:

COMMON STOCK, $.01 PAR VALUE PER SHARE		NEW YORK STOCK EXCHANGE
(Title of each class)		(Name of exchange on which registered)

Securities registered pursuant to Section 12(g) of the Act:
NONE

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes: þ No o

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

Yes: o No þ

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: þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorted period that the registrant was required to submit and post such files). Yes: þ No o

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 the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large Accelerated Filer þ		Accelerated Filer o		Non-Accelerated Filer o		Smaller Reporting Company o
				(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes: o No þ

The aggregate market value of the registrant’s common stock held by non-affiliates was approximately $14.7 billion based on the closing price of the registrant’s common stock on June 30, 2009, the last business day of the registrant’s most recently completed second fiscal quarter.

The number of shares outstanding of the registrant’s common stock as of January 31, 2010 was 1,511,368,790.

Documents Incorporated by Reference

Portions of the registrant’s definitive proxy statement to be filed with the Securities and Exchange Commission in connection with its Annual Meeting of Stockholders to be held on May 11, 2010 are incorporated by reference into Part III of this 10-K.

 

 

TABLE OF CONTENTS

PART I			3
ITEM 1. BUSINESS			3
ITEM 1A. RISK FACTORS			21
ITEM 1B. UNRESOLVED STAFF COMMENTS			34
ITEM 2. PROPERTIES			34
ITEM 3. LEGAL PROCEEDINGS			34
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS			34
PART II			35
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES			35
ITEM 6. SELECTED FINANCIAL DATA			37
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS			38
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK			80
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA			82
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE			151
ITEM 9A. CONTROLS AND PROCEDURES			151
ITEM 9B. OTHER INFORMATION			151
PART III			152
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE			152
ITEM 11. EXECUTIVE COMPENSATION			160
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS			160
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE			160
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES			160
PART IV			161
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES			161
SIGNATURES			169
Ex-10.41 Form of Performance Share Unit Award Agreement
Ex-10.66 Form of Plea Agreement and Sentencing Stipulations
Ex-10.67 Form of Corporate Integrity Agreement
Ex-10.68 Form of Performance Deferred Stock Unit Award Agreement
Ex-10.69 Form of Restricted Deferred Stock Unit Award Agreement
Ex-12 Statement regarding computation of ratios of earnings to fixed charges
Ex-21 List of the Company's subsidiaries as of February 19, 2010
Ex-23 Consent of Independent Registered Public Accounting Firm, Ernst & Young LLP
Ex-31.1 Section 302 Certification of Chief Executive Officer
Ex-31.2 Section 302 Certification of Chief Financial Officer
Ex-32.1 Section 906 Certification of Chief Executive Officer
Ex-32.2 Section 906 Certification of Chief Financial Officer
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT

PART I

ITEM 1. BUSINESS

The Company

Boston Scientific Corporation is a worldwide developer, manufacturer and marketer of medical devices that are used in a broad range of interventional medical specialties including cardiac rhythm management, electrophysiology, interventional cardiology, peripheral interventions, neurovascular, endoscopy, urology, women’s health and neuromodulation. Our mission is to improve the quality of patient care and the productivity of health care delivery through the development and advocacy of less-invasive medical devices and procedures. This is accomplished through the continuing refinement of existing products and procedures and the investigation and development of new technologies that can reduce risk, trauma, cost, procedure time and the need for aftercare. When used in this report, the terms “we,” “us,” “our” and “the Company” mean Boston Scientific Corporation and its divisions and subsidiaries.

Our history began in the late 1960s when our co-founder, John Abele, acquired an equity interest in Medi-tech, Inc., a research and development company focused on developing alternatives to surgery. In 1969, Medi-tech introduced a family of steerable catheters used in some of the first less-invasive procedures performed. In 1979, John Abele joined with Pete Nicholas to form Boston Scientific Corporation, which indirectly acquired Medi-tech. This acquisition began a period of active and focused marketing, new product development and organizational growth. Since then, we have advanced the practice of less-invasive medicine by helping physicians and other medical professionals treat a variety of diseases and improve patients’ quality of life by providing alternatives to surgery and other medical procedures that are typically traumatic to the body. Some of the uses of our products include: enlarging narrowed blood vessels to prevent heart attack and stroke; clearing passages blocked by plaque to restore blood flow; detecting and managing fast, slow or irregular heart rhythms; mapping electrical problems in the heart; performing biopsies and intravascular ultrasounds; placing filters to prevent blood clots from reaching the lungs, heart or brain; treating urological, gynecological, renal, pulmonary, neurovascular and gastrointestinal diseases; and modulating nerve activity to treat chronic pain.

Our net sales have increased substantially over the last thirty years, growing from $2 million in 1979 to approximately $8.2 billion in 2009. Our growth has been fueled in part by strategic acquisitions and alliances designed to improve our ability to take advantage of growth opportunities in the medical device industry. On April 21, 2006, we consummated our acquisition of Guidant Corporation. With this acquisition, we became a major provider in the worldwide cardiac rhythm management (CRM) market, enhancing our overall competitive position and long-term growth potential and further diversifying our product portfolio. This acquisition has established us as one of the world’s largest cardiovascular device companies and a global leader in microelectronic therapies. This and other strategic acquisitions have helped us to add promising new technologies to our pipeline and to offer one of the broadest product portfolios in the world for use in less-invasive procedures. We believe that the depth and breadth of our product portfolio has also enabled us to compete more effectively in, and better absorb the pressures of, the current healthcare environment of cost containment, managed care, large buying groups, government contracting and hospital consolidation and will generally assist us in navigating the current turmoil in the global economic markets and potential U.S. healthcare reform measures.

Business Strategy

Our business strategy is to lead global markets for less-invasive medical devices by developing and marketing innovative products, services and therapies that address unmet patient needs, provide superior clinical outcomes and demonstrate proven economic value. The components of our business strategy are as follows:

	•		Strengthen Leadership and Communication We believe that our success will be driven by strong leadership, robust communication and the high caliber of our employees. Our leadership team is measured against the following competencies: vision, integrity, accountability, passion, perseverance, communication, resourcefulness, team building, intellect and customer driven focus. We intend to strengthen our focus on leadership development and instill these leadership characteristics within our corporate culture.
	•		Restructure the Business Model We will implement a restructured business model that will allow us to operate in a more efficient manner and allow for enhanced execution, while providing better value to hospitals, better solutions to physicians and better outcomes to patients. In 2010, we began implementing several restructuring initiatives designed to strengthen and position us for long-term success, including the integration of our Cardiovascular and CRM groups into one stronger and more competitive organization that will improve our ability to deliver innovative products and technologies, leading clinical science and exceptional service; as well as the restructuring of certain other businesses and corporate functions.
	•		Create Higher-Payoff New Products We will centralize corporate research and development to refocus and strengthen our innovation efforts; and we will organize our clinical organization to take full advantage of the global resources available to conduct more cost effective clinical studies, accelerate the time to bring new products to market, and gain access to worldwide technological developments that we can implement across our product lines. We will direct our research and development and business development efforts to higher payoff product investments and increase our discipline and metrics to improve returns on our investments. We will continue to invest in our core franchises, and are also investigating opportunities to further expand our presence in, and diversify into, areas including atrial fibrillation, underserved defibrillator populations, acute ischemic stroke, coronary artery disease, peripheral vascular disease, structural heart disease, vascular closure, hypertension, women’s health, endoluminal surgery, diabetes/obesity, endoscopic pulmonary intervention and deep brain stimulation.
	•		Increase Global Sales Focus We will increase our global sales focus through targeted sales force expansions and through delivering new global best practice capabilities in crucial areas such as training, management, forecasting and planning, and reaching the economic customer on a global basis. Through our global presence, we seek to increase net sales and market share, and leverage our relationships with leading physicians and their clinical research programs. We plan to align our International regions to be more effective in executing our business strategy and renew our focus on selling, including significant investments into emerging markets, in order to maximize our opportunities in countries whose economies and health care sectors are growing rapidly.
	•		Refocus Business Portfolio and Expand Footprint We offer products in numerous product categories, which are used by physicians throughout the world in a broad range of diagnostic and therapeutic procedures. The breadth and diversity of our product lines permit medical specialists and purchasing organizations to satisfy many of their less-invasive medical device requirements from a single source. We plan to focus our business portfolio through the investigation of select divestitures and targeted acquisitions in order to reduce risk, optimize operational leverage and accelerate profitable, sustainable growth, while preserving our ability to meet the needs of physicians and their patients. In addition, we

We believe that the execution of this strategy will drive innovation, accelerate profitable growth and increase shareholder value.

Our investment in research and development is critical to driving our future growth. We have directed our development efforts toward regulatory compliance and innovative technologies designed to expand current markets or enter new markets. We believe that streamlining, prioritizing and coordinating our technology pipeline and new product development activities are essential to our ability to stimulate growth and maintain leadership positions in our markets. Our approach to new product design and development is through focused, cross-functional teams. We believe that our formal process for technology and product development aids in our ability to offer innovative and manufacturable products in a consistent and timely manner. Involvement of the research and development, clinical, quality, regulatory, manufacturing and marketing teams early in the process is the cornerstone of our product development cycle. This collaboration allows these teams to concentrate resources on the most viable and clinically relevant new products and technologies and bring them to market in a timely manner. In addition to internal development, we work with hundreds of leading research institutions, universities and clinicians around the world to develop, evaluate and clinically test our products.

We believe our future success will depend upon the strength of these development efforts. We expended more than $1 billion on research and development in 2009, 2008 and 2007, representing approximately 13 percent of our net sales each year. Our investment in research and development reflects:

	•		regulatory compliance, clinical science, and internal research and development programs, as well as others obtained through our strategic acquisitions and alliances; and
	•		sustaining engineering efforts which incorporate customer feedback into continuous improvement efforts for currently marketed and next generation products.

Since 1995, we have undertaken strategic acquisitions to assemble the lines of business necessary to achieve the critical mass that allows us to continue to be a leader in the medical device industry. We expect to continue to invest in our core technologies, and are also investigating opportunities to further expand our presence in, and diversify into, areas including atrial fibrillation, underserved defibrillator populations, acute ischemic stroke, coronary artery disease, peripheral vascular disease, structural heart disease, vascular closure, hypertension, women’s health, endoluminal surgery, diabetes/obesity, endoscopic pulmonary intervention and deep brain stimulation.

During 2009, our products were offered for sale by six dedicated business groups—CRM, including our Cardiac Rhythm Management and Electrophysiology businesses; Cardiovascular, including our Interventional Cardiology and Peripheral Interventions businesses; Neurovascular; Endoscopy; Urology/Women’s Health; and Neuromodulation. In 2010, we began the implementation of a restructured business model that will allow us to operate in a more effective and efficient manner, and includes the integration of our former CRM and Cardiovascular groups into a newly formed Cardiology, Rhythm and Vascular group, which will include an Endovascular unit that will encompass Peripheral Interventions, Neurovascular, Imaging and Electrophysiology.

During 2009, we derived 31 percent of our net sales from our CRM group, 43 percent from our Cardiovascular group, 12 percent from our Endoscopy business, six percent from our Urology/Women’s Health business, four percent from our Neuromodulation business, and four percent from our Neurovascular business. The following section describes certain of our product offerings:

Cardiac Rhythm Management

We develop, manufacture and market a variety of implantable devices that monitor the heart and deliver electricity to treat cardiac abnormalities, including:

	•		Implantable cardiac defibrillator (ICD) systems used to detect and treat abnormally fast heart rhythms (tachycardia) that could result in sudden cardiac death, including implantable cardiac resynchronization therapy defibrillator (CRT-D) systems used to treat heart failure; and
	•		Implantable pacemaker systems used to manage slow or irregular heart rhythms (bradycardia), including implantable cardiac resynchronization therapy pacemaker (CRT-P) systems used to treat heart failure.

A key component of many of our implantable device systems is our remote LATITUDE® Patient Management System, which enables physicians to monitor device performance remotely while patients are in their homes, allowing for more frequent monitoring in order to guide treatment decisions. Previously available only in the U.S. market, during 2009, we received CE Mark approval and launched our LATITUDE® Patient Management System in our Europe/Middle East/Africa (EMEA) region and certain Inter-Continental countries.

Throughout 2008 and 2009, we launched several new CRM products, which accounted for 74 percent of our worldwide CRM group net sales in 2009. We have experienced continued success with our next-generation COGNIS® CRT-D and TELIGEN® ICD systems, as well as our ALTRUA® family of pacemaker systems. In 2010, we will continue to execute on our product pipeline with the expected U.S. launches of a new lead delivery system and next-generation line of defibrillators, which includes new features designed to improve functionality, diagnostic capability and ease of use. Further, we expect to launch our next-generation INGENIO™ pacemaker system in 2011.

Electrophysiology

Within our Electrophysiology business, we offer medical devices for the diagnosis and treatment of cardiac arrhythmias. Included in our product offerings are RF generators, intracardiac ultrasound and steerable ablation catheters, and diagnostic catheters. Our leading brands include the Blazer™ cardiac ablation catheter, the Chilli II® cooled ablation catheter and the MAESTRO 3000® Cardiac Ablation System. During 2010, we anticipate several new product launches within our Electrophysiology business, including the launch of the next-generation Blazer Prime™ in our EMEA region and certain Inter-Continental countries.

Interventional Cardiology

Coronary Stent Systems

Our broad, innovative product offerings have enabled us to become a leader in the interventional cardiology market. This leadership is due in large part to our coronary stent product offerings. Coronary stents are tiny, mesh tubes used in the treatment of coronary artery disease, which are implanted in patients to prop open arteries and facilitate blood flow to and from the heart. Our Liberté® bare-metal coronary stent system is designed to enhance deliverability and conformability, particularly in

challenging lesions. We have further enhanced the outcomes associated with the use of coronary stents, particularly the processes that lead to restenosis¹, through dedicated internal and external product development, strategic alliances and scientific research of drug-eluting stent systems. Since the worldwide launch of our proprietary polymer-based paclitaxel-eluting stent technology, the TAXUS® Express ²® coronary stent system, in 2004, we have become the worldwide leader in the drug-eluting coronary stent market, exiting 2009 with 39 percent market share during the fourth quarter of 2009. We are now the only company in the industry to offer a two-drug platform strategy with our paclitaxel-eluting stent system, including our second-generation TAXUS® Liberté® stent system, and our everolimus product franchise. We market the PROMUS® everolimus-eluting stent system, currently supplied to us by Abbott Laboratories, as well as our next-generation internally-manufactured everolimus-eluting stent system, the PROMUS® Element™ stent system, which we launched in our EMEA region and certain Inter-Continental countries in the fourth quarter of 2009. Further, the 2009 launches of our TAXUS® Liberté® Atom™ stent system and TAXUS® Liberté® Long stent system have added to our industry leadership for the widest range of coronary stent sizes. We expect to launch our PROMUS® Element™ stent system in the U.S. and Japan in mid-2012. Our product pipeline also includes the next-generation TAXUS® Element™ stent system, which we expect to launch in our EMEA region and certain Inter-Continental countries during the second quarter of 2010, in the U.S. mid-2011 and Japan in late 2011 or early 2012.

Coronary Revascularization

We market a broad line of products used to treat patients with atherosclerosis. Atherosclerosis, a principal cause of coronary artery obstructive disease, is characterized by a thickening of the walls of the coronary arteries and a narrowing of arterial openings caused by the progressive development of deposits of plaque. The majority of our products in this market are used in percutaneous transluminal coronary angioplasty (PTCA) procedures and include bare-metal and drug-eluting stent systems; PTCA balloon catheters, such as the Maverick® balloon catheter; the Cutting Balloon® microsurgical dilatation device; rotational atherectomy systems; guide wires; guide catheters and diagnostic catheters. We continue to hold a strong leadership position in the PTCA balloon catheter market with approximately 57 percent share of the U.S. market in 2009, and are planning a number of additional new product launches during 2010, including the Apex™ platinum pre-dilatation balloon catheter for improved radiopacity, the NC Quantum ApexÔ post-dilatation balloon catheter and the KinetixÔ family of guidewires.

Intraluminal Ultrasound Imaging

We market a family of intraluminal catheter-directed ultrasound imaging catheters and systems for use in coronary arteries and heart chambers as well as certain peripheral vessels. The iLab® Ultrasound Imaging System, available in the U.S., Japan and other international markets, continues as our flagship console and is compatible with our full line of imaging catheters. This system enhances the diagnosis and treatment of blocked vessels and heart disorders.

Peripheral Interventions

We sell various products designed to treat patients with peripheral disease (disease which appears in blood vessels other than in the heart and in the biliary tree), including a broad line of medical devices used in percutaneous transluminal angioplasty and peripheral vascular stenting. Our peripheral product offerings include vascular access products, balloon catheters, stents and peripheral vascular catheters, wires and accessories, as well as products used for peripheral embolization procedures. We also sell products designed to treat patients with non-vascular disease (disease which appears outside the blood system). Our non-vascular suite of products includes biliary stents, drainage catheters and micro-puncture sets designed to treat, diagnose and ease various forms of benign and malignant tumors. We

market the PolarCath™ peripheral dilatation system used in CryoPlasty® Therapy, an innovative approach to the treatment of peripheral artery disease in the lower extremities. We believe that we are well positioned in the growing Peripheral Interventions market, due in part to the recent launches of our Carotid WALLSTENT® Monorail® Endoprosthesis for the treatment of patients with carotid artery disease who are at high risk for surgery; our Express® SD Renal Monorail® premounted stent system for use as an adjunct therapy to percutaneous transluminal renal angioplasty in certain lesions of the renal arteries; and our Sterling® Monorail® and Over-the-Wire balloon dilatation catheter for use in the renal and lower extremity arteries. In addition, during the first quarter of 2010, we expect to receive FDA approval for an iliac indication for our Express® LD stent system.

Our FilterWire EZ™ Embolic Protection System is a low profile filter designed to capture embolic material that may become dislodged during a procedure, which could otherwise travel into the microvasculature where it could cause a heart attack or stroke. It is commercially available in the U.S., our EMEA region and certain Inter-Continental countries for multiple indications, including the treatment of disease in peripheral, coronary and carotid vessels. It is also available in the U.S. for the treatment of saphenous vein grafts and carotid artery stenting procedures.

We market a broad line of coated and uncoated detachable coils, micro-delivery stents, micro-guidewires, micro-catheters, guiding catheters and embolics to neuro-interventional radiologists and neurosurgeons to treat diseases of the neurovascular system. We currently market the GDC® Coils (Guglielmi Detachable Coil) and Matrix® systems to treat brain aneurysms and plan to launch a next-generation family of detachable coils, including an enhanced delivery system designed to reduce coil detachment times, in the U.S. in 2010. We also offer the NeuroForm® stent for the treatment of wide neck aneurysms and the Wingspan® Stent System with Gateway® PTA Balloon Catheter, each under a Humanitarian Device Exemption approval granted by the FDA. The Wingspan Stent System is designed to treat atherosclerotic lesions or accumulated plaque in brain arteries. Designed for the brain’s fragile vessels, the Wingspan Stent System is a self-expanding, nitinol stent sheathed in a delivery system that enables it to reach and open narrowed arteries in the brain. The Wingspan Stent System is currently the only device available in the U.S. for the treatment of intracranial atherosclerotic disease (ICAD) and is indicated for improving cerebral artery lumen diameter in patients with ICAD who are unresponsive to medical therapy. Within our product pipeline, we are also developing next-generation technologies for the treatment of aneurysms, ICAD and acute ischemic stroke, and are involved in numerous clinical activities that are designed to expand the size of the worldwide Neurovascular market.

We market a broad range of products to diagnose, treat and ease a variety of digestive diseases, including those affecting the esophagus, stomach and colon. Common disease states include esophagitis, portal hypertension, peptic ulcers and esophageal cancer. We offer the Radial Jaw® 4 Single-Use Biopsy Forceps, which are designed to enable collection of large high-quality tissue specimens without the need to use large channel therapeutic endoscopes and, in 2009, began offering this product in a variety of sizes. Our exclusive line of RX Biliary System™ devices provides greater access and control for physicians to diagnose and treat challenging conditions of the bile ducts, such as removing gallstones, opening obstructed bile ducts and obtaining biopsies in suspected tumors. We also market the Spyglass® Direct Visualization System for direct imaging of the pancreatico-biliary system. The Spyglass® System is the first single-operator cholangioscopy device that offers clinicians a direct visualization of the pancreatico-biliary system and includes supporting devices for tissue acquisition, stone management and lithotripsy.

We also offer the WallFlex® biliary stent system and WallFlex® esophageal stent, and our Resolution® Clip Device, used to treat gastrointestinal bleeding, is the only currently-marketed mechanical clip designed to open and close, up to five times, before deployment to help enable a physician to see the effects of the clip before committing to deployment.

Interventional Bronchoscopy

We market devices to diagnose, treat and ease pulmonary disease systems within the airway and lungs. Our products are designed to help perform biopsies, retrieve foreign bodies from the airway, open narrowings of an airway, stop internal bleeding, and ease symptoms of some types of airway cancers. Our product line includes pulmonary biopsy forceps, transbronchial aspiration needles, cytology brushes and tracheobronchial stents used to dilate narrowed airway passages or for tumor management.

Urology/Women’s Health

We sell a variety of products designed to treat patients with urinary stone disease, benign prostatic hyperplasia (BPH), stress urinary incontinence, pelvic organ prolapse and excessive uterine bleeding. We offer the Prolieve Thermodilatation® System, a transurethral microwave thermotherapy system for the treatment of BPH, and distribute and market the DuoTome™ SideLite™ holmium laser treatment system for treatment of symptoms associated with BPH. We offer a full line of mid-urethral sling products, sling materials, graft materials, pelvic floor reconstruction kits, suturing devices and injectables and have exclusive U.S. distribution rights to the Coaptite® Injectable Implant, a next-generation bulking agent, for the treatment of stress urinary incontinence.

We continue to expand our focus on women’s health. We market a range of devices for the treatment of conditions such as female urinary incontinence, pelvic floor reconstruction (rebuilding of the anatomy to its original state), and menorrhagia (excessive menstrual bleeding). Our Hydro ThermAblator® System offers a less-invasive technology for the treatment of excessive uterine bleeding by ablating the endometrial lining of the uterus, the tissue responsible for menstrual bleeding.

Neuromodulation

Within our Neuromodulation business, we market the Precision® Spinal Cord Stimulation (SCS) system, used for the management of chronic intractable pain of the trunk and/or limbs. This system delivers pain management by applying an electrical signal to mask pain signals traveling from the spinal cord to the brain. The Precision System utilizes a rechargeable battery and features a programming system. We believe that we continue to have a technology advantage over our competitors with proprietary features such as Multiple Independent Current Control, which is intended to allow the physician to target specific areas of pain more precisely. As a demonstration of our commitment to strengthening clinical evidence with spinal cord stimulation, we are initiating a trial to assess the therapeutic effectiveness and cost effectiveness of spinal cord stimulation compared to reoperation in patients with failed back surgery syndrome. We believe that this trial could result in consideration of spinal cord stimulation much earlier in the continuum of care. Further, we expect to launch two new lead products during 2010, which we believe will provide us with continued growth in our Neuromodulation business.

Marketing and Sales

A dedicated sales force of approximately 5,000 individuals in over 40 countries worldwide marketed our products as of December 31, 2009. The majority of our net sales are derived from countries in which we have direct sales organizations. A network of distributors and dealers who offer our products worldwide accounts for our remaining sales. We will continue to leverage our infrastructure in markets where commercially appropriate and use third parties in those markets where it is not economical or strategic to establish or maintain a direct presence. We also have a dedicated corporate sales organization in the U.S.

focused principally on selling to major buying groups and integrated healthcare networks. We consistently strive to understand and exceed the expectations of our customers. Each of our business groups maintains dedicated sales forces and marketing teams focusing on physicians who specialize in the diagnosis and treatment of different medical conditions. We believe that this focused disease state management enables us to develop highly knowledgeable and dedicated sales representatives and to foster collaborative relationships with physicians. We believe that we have positive working relationships with physicians and others in the medical industry, which enable us to gain a detailed understanding of new therapeutic and diagnostic alternatives and to respond quickly to the changing needs of physicians and their patients.

In 2009, we sold our products to over 10,000 hospitals, clinics, outpatient facilities and medical offices. We are not dependent on any single institution and no single institution accounted for more than ten percent of our net sales in 2009, 2008, or 2007. However, large group purchasing organizations, hospital networks and other buying groups have become increasingly important to our business and represent a substantial portion of our U.S. net sales.

International net sales accounted for approximately 43 percent of our net sales in 2009. Net sales and operating income attributable to our 2009 geographic regions are presented in Note P—Segment Reporting to our consolidated financial statements included in Item 8 of this Annual Report. During the first quarter of 2009, we reorganized our international structure to provide more direct sales focus in the marketplace and operate through three international business units, in addition to our U.S. operating segment: EMEA, consisting of Europe, the Middle East and Africa; Japan; and Inter-Continental, consisting of Asia Pacific and the Americas. We have reclassified previously reported segment results to be consistent with the 2009 presentation, contained in Results of Operations and Note P. In 2010, we will further restructure our international business into the following business units, in addition to our U.S. operating segment: Europe, Japan, and Emerging Markets, in order to be more effective in executing our business strategy. Maintaining and expanding our international presence is an important component of our long-term growth plan. Through our international presence, we seek to increase net sales and market share, leverage our relationships with leading physicians and their clinical research programs, accelerate the time to bring new products to market, and gain access to worldwide technological developments that we can implement across our product lines.

We have five international manufacturing facilities in Ireland, two in Costa Rica and one in Puerto Rico. Approximately 50 percent of our products sold worldwide during 2009 were manufactured at these facilities. In early 2009, we announced our Plant Network Optimization program designed to simplify our plant network, reduce our manufacturing costs and improve gross margins. In connection with this program, we expect to rationalize two of our international manufacturing plants by the end of 2011. Additionally, we maintain international research and development capabilities in Ireland and Miyazaki, Japan, as well as physician training centers in Paris, France and Tokyo, Japan.

A discussion of the risks associated with our international operations is contained in Item 1A of this Annual Report.

We are focused on continuously improving our supply chain effectiveness, strengthening our manufacturing processes and increasing operational efficiencies within our organization. By shifting global manufacturing along product lines, we are able to leverage our existing resources and concentrate on new product development, including the enhancement of existing products, and their commercial launch. We are implementing new systems designed to provide improved quality and reliability, service, greater efficiency and lower supply chain costs. We have substantially increased our focus on process

controls and validations, supplier controls, distribution controls and providing our operations teams with the training and tools necessary to drive continuous improvement in product quality. We continue to focus on examining our operations and general business activities to identify cost-improvement opportunities in order to enhance our operational effectiveness. Our Plant Network Optimization program calls for reducing the number of our manufacturing plants from 17 to 12, and relocating approximately 15 percent of our current value of production to different facilities. We estimate that the program, combined with activities under our 2007 Restructuring plan, discussed in Item 7 of this Annual Report, will result in annual reductions of manufacturing costs of approximately $100 million to $120 million in 2012.

We design and manufacture the majority of our products in technology centers around the world. Many components used in the manufacture of our products are readily fabricated from commonly available raw materials or off-the-shelf items available from multiple supply sources. Certain items are custom made to meet our specifications. We believe that in most cases, redundant capacity exists at our suppliers and that alternative sources of supply are available or could be developed within a reasonable period of time. We also have an on-going program to identify single-source components and to develop alternative back-up supplies. However, in certain cases, we may not be able to quickly establish additional or replacement suppliers for specific materials, components or products, largely due to the regulatory approval system and the complex nature of our manufacturing processes and those of our suppliers. A reduction or interruption in supply, an inability to develop and validate alternative sources if required, or a significant increase in the price of raw materials, components or products could adversely affect our operations and financial condition, particularly materials or components related to our CRM products and drug-eluting stent systems. In addition, our products require sterilization prior to sale and we utilize a mix of internal resources and third party vendors to perform this service. To the extent our sterilizers are unable to process our products, whether due to raw material, capacity, regulatory or other constraints, we may be unable to transition to other providers in a timely manner, which could have an adverse impact on our operations.

Certain products are manufactured for us by third parties. We are currently reliant on Abbott Laboratories for our supply of everolimus-eluting stent systems in the U.S. and Japan. Our supply agreement with Abbott for everolimus-eluting stent systems in these regions extends through the end of the second quarter of 2012. At present, we believe that our supply of everolimus-eluting stent systems from Abbott and our current launch plans for our next-generation internally-manufactured everolimus-eluting stent system in these regions is sufficient to meet customer demand. However, any production or capacity issues that affect Abbott’s manufacturing capabilities or our process for forecasting, ordering and receiving shipments may impact the ability to increase or decrease our level of supply in a timely manner; therefore, our supply of everolimus-eluting stent systems supplied to us by Abbott may not align with customer demand, which could have an adverse effect on our operating results. We launched our internally developed and manufactured next-generation everolimus-eluting stent system, our PROMUS® Element™ stent system, in our EMEA region and certain Inter-Continental countries in the fourth quarter of 2009, and expect to launch this product in the U.S. and Japan in mid-2012.

In January 2006, legacy Boston Scientific received a corporate warning letter from the U.S. Food and Drug Administration (FDA) notifying us of serious regulatory problems at three of our facilities and advising us that our corporate-wide corrective action plan relating to three site-specific warning letters issued to us in 2005 was inadequate. During 2008, the FDA reinspected a number of our facilities and, in October 2008, informed us that our quality system is now in substantial compliance with its Quality System Regulations. The FDA has approved all of our requests for final approval of Class III product submissions previously on hold due to the corporate warning letter and is processing all requests for Certificates to Foreign Governments. In November of 2009 and January of 2010, the FDA reinspected two official action-indicated Boston Scientific sites to follow-up on observations from the 2008 FDA inspections. Both of these FDA inspections confirmed that all issues at the sites have been resolved and all

restrictions related to the corporate warning letter have been removed. The corporate warning letter remains in place pending FDA internal administrative procedures.

In addition, during the first quarter of 2009, we acquired a third-party sterilization facility which was subject to a warning letter from the FDA. The FDA had requested documentation and explanations regarding various corrective actions related to the facility. This information was provided to the FDA and the FDA has since re-inspected the facility, issuing no observations, and subsequently removed all restrictions related to the warning letter.

We are committed to providing high quality products to our customers. To meet this commitment, we have implemented updated quality systems and concepts throughout our organization. Our quality system starts with the initial product specification and continues through the design of the product, component specification process and the manufacturing, sales and servicing of the product. Our quality system is intended to build in quality and process control and to utilize continuous improvement concepts throughout the product life. These systems are designed to enable us to satisfy the various international quality system regulations, including those of the FDA with respect to products sold in the U.S. All of our manufacturing facilities, including our U.S. and European distribution centers, are certified under the ISO13485:2003 quality system standard for medical devices, which requires, among other items, an implemented quality system that applies to component quality, supplier control, product design and manufacturing operations. This certification can be obtained only after a complete audit of a company’s quality system by an independent outside auditor. Maintenance of the certification requires that these facilities undergo periodic re-examination.

In addition, we maintain an on-going initiative to seek ISO14001 certification at our plants around the world. ISO14001 is a globally recognized standard for Environmental Management Systems, established by the International Standards Organization, which provides a voluntary framework to identify key environmental aspects associated with our business. We engage in continuous environmental performance improvement around these aspects. At present, nine of our manufacturing and distribution facilities have attained ISO14001 certification. We are committed to achieving ISO14001 certification at all of our manufacturing and distribution centers worldwide.

Competition

We encounter significant competition across our product lines and in each market in which we sell our products from various companies, some of which may have greater financial and marketing resources than we do. Our primary competitors include Johnson & Johnson (including its subsidiary, Cordis Corporation); Medtronic, Inc.; Abbott Laboratories and St. Jude Medical, Inc.; as well as a wide range of medical device companies that sell a single or limited number of competitive products or participate in only a specific market segment. We also face competition from non-medical device companies, such as pharmaceutical companies, which may offer alternative therapies for disease states intended to be treated using our products.

We believe that our products compete primarily on their ability to safely and effectively perform diagnostic and therapeutic procedures in a less-invasive manner, including clinical outcomes, ease of use, comparative effectiveness, reliability and physician familiarity. In the current environment of managed care, economically-motivated buyers, consolidation among healthcare providers, increased competition and declining reimbursement rates, we have been increasingly required to compete on the basis of price, value, reliability and efficiency. We believe the current global economic conditions and potential U.S. healthcare reform measures could put additional competitive pressure on us, including on our average selling prices, overall procedure rates and market sizes. We recognize that our continued competitive success will depend upon our ability to offer products with differentiated clinical outcomes, create or acquire innovative, scientifically advanced technology, apply our technology cost-effectively and with superior quality across product lines and markets, develop or acquire proprietary products, attract and

retain skilled development personnel, obtain patent or other protection for our products, obtain required regulatory and reimbursement approvals, continually enhance our quality systems, manufacture and successfully market our products either directly or through outside parties and supply sufficient inventory to meet customer demand.

Regulatory Environment

The medical devices that we manufacture and market are subject to regulation by numerous regulatory bodies, including the FDA and comparable international regulatory agencies. These agencies require manufacturers of medical devices to comply with applicable laws and regulations governing the development, 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 be conducted before a device receives approval for commercial distribution.

In the U.S., permission to distribute a new device generally can be met in one of three ways. The first process requires that a pre-market notification (510(k) Submission) be made to the FDA to demonstrate that the device is as safe and effective as, or substantially equivalent to, a legally marketed device that is not subject to pre-market approval (PMA), i.e., the “predicate” device. An appropriate predicate device for a pre-market notification is one that (i) was legally marketed prior to May 28, 1976, (ii) was approved under a PMA but then subsequently reclassified from class III to class II or I, or (iii) has been found to be substantially equivalent and cleared for commercial distribution under a 510(k) Submission. Applicants must submit descriptive data and, when necessary, performance data to establish that the device is substantially equivalent to a predicate device. In some instances, data from human clinical trials must also be submitted in support of a 510(k) Submission. If so, these data must be collected in a manner that conforms to the applicable Investigational Device Exemption (IDE) regulations. The FDA must issue an order finding substantial equivalence before commercial distribution can occur. Changes to existing devices covered by a 510(k) Submission that do not raise new questions of safety or effectiveness can generally be made without additional 510(k) Submissions. More significant changes, such as new designs or materials, may require a separate 510(k) with data to support that the modified device remains substantially equivalent. The FDA has recently begun to review its clearance process in an effort to make it more rigorous, which may require additional clinical data, time and effort for product clearance.

The second process requires the submission of an application for PMA to the FDA to demonstrate that the device is safe and effective for its intended use as manufactured. This approval process applies to certain class III devices. In this case, two steps of FDA approval are generally required before marketing in the U.S. can begin. First, we must comply with the applicable IDE regulations in connection with any human clinical investigation of the device in the U.S. Second, the FDA must review our PMA application, which contains, among other things, clinical information acquired under the IDE. The FDA will approve the PMA application if it finds that there is a reasonable assurance that the device is safe and effective for its intended purpose.

The third process requires that an application for a Humanitarian Device Exemption (HDE) be made to the FDA for the use of a Humanitarian Use Device (HUD). A HUD is intended to benefit patients by treating or diagnosing a disease or condition that affects, or is manifested in, fewer than 4,000 individuals in the U.S. per year. The application submitted to the FDA for an HDE is similar in both form and content to a PMA application, but is exempt from the effectiveness requirements of a PMA. This approval process demonstrates that there is no comparable device available to treat or diagnose the condition, the device will not expose patients to unreasonable or significant risk, and the benefits to health from use outweigh the risks. The HUD provision of the regulation provides an incentive for the development of devices for use in the treatment or diagnosis of diseases affecting smaller patient populations.

The FDA can ban certain medical devices; detain or seize adulterated or misbranded medical devices; order repair, replacement or refund of these devices; and require notification of health professionals and

others with regard to medical devices that present unreasonable risks of substantial harm to the public health. The FDA may also enjoin and restrain certain violations of the Food, Drug and Cosmetic Act and the Safe Medical Devices Act pertaining to medical devices, or initiate action for criminal prosecution of such violations. International sales of medical devices manufactured in the U.S. that are not approved by the FDA for use in the U.S., or that are banned or deviate from lawful performance standards, are subject to FDA export requirements. Exported devices are subject to the regulatory requirements of each country to which the device is exported. Some countries do not have medical device regulations, but in most foreign countries, medical devices are regulated. Frequently, regulatory approval may first be obtained in a foreign country prior to application in the U.S. to take advantage of differing regulatory requirements. Most countries outside of the U.S. require that product approvals be recertified on a regular basis, generally every five years. The recertification process requires that we evaluate any device changes and any new regulations or standards relevant to the device and conduct appropriate testing to document continued compliance. Where recertification applications are required, they must be approved in order to continue selling our products in those countries.

In the European Union, we are required to comply with the Medical Devices Directive and obtain CE Mark certification in order to market medical devices. The CE Mark certification, granted following approval from an independent notified body, is an international symbol of adherence to quality assurance standards and compliance with applicable European Medical Devices Directives. We are also required to comply with other foreign regulations such as the requirement that we obtain approval from the Japanese Ministry of Health, Labor and Welfare (MHLW) before we can launch new products in Japan. The time required to obtain these foreign approvals to market our products may vary from U.S. approvals, and requirements for these approvals may differ from those required by the FDA.

We are also subject to various environmental laws, directives and regulations both in the U.S. and abroad. Our operations, like those of other medical device companies, involve the use of substances regulated under environmental laws, primarily in manufacturing and sterilization processes. We do not believe that compliance with environmental laws will have a material impact on our capital expenditures, earnings or competitive position. However, given the scope and nature of these laws, there can be no assurance that environmental laws will not have a material impact on our results of operations. We assess potential environmental contingent liabilities on a regular basis. At present, we are not aware of any such liabilities that would have a material impact on our business.

We believe that sound environmental, health and safety performance contributes to our competitive strength while benefiting our customers, shareholders and employees. We are committed to continuous improvement in these areas by reducing pollution, the depletion of natural resources, and our overall environmental footprint. Specifically, we are working to optimize energy and resource usage, ultimately reducing greenhouse gas emissions and waste. We are certified to the FTSE4 Good Corporate Social Responsibility Index, managed by The Financial Times and the London Stock Exchange, which measures the performance of companies that meet globally recognized standards of corporate responsibility. This certification recognizes our dedication to those standards, and it places us in a select group of companies with a demonstrated commitment to responsible business practices and sound environmental policies.

Government Affairs

We maintain a global Government Affairs presence in Washington D.C. to actively monitor and influence a myriad of legislative and administrative policies impacting us, both on a domestic and an international front. The Government Affairs office works closely with members of Congress, key Congressional committee staff and White House and Administration staff, which facilitates our active engagement on issues affecting our business. Our proactive approach and depth of political and policy expertise are aimed at having our positions heard by federal, state and global decision-makers, while also advancing our business objectives by educating policymakers on our positions, key priorities and the value of our

technologies. The Government Affairs office also manages our political action committee and works closely with trade groups on issues affecting our industry and healthcare in general.

Third-Party Coverage and Reimbursement

Our products are purchased principally by hospitals, physicians and other healthcare providers around the world that typically bill various third-party payors, including governmental programs (e.g., Medicare and Medicaid), private insurance plans and managed care programs, for the healthcare services provided to their patients. Third-party payors may provide or deny coverage for certain technologies and associated procedures based on independently determined assessment criteria. Reimbursement by third-party payors for these services is based on a wide range of methodologies that may reflect the services’ assessed resource costs, clinical outcomes and economic value. These reimbursement methodologies confer different, and sometimes conflicting, levels of financial risk and incentives to healthcare providers and patients, and these methodologies are subject to frequent refinements. Third-party payors are also increasingly adjusting reimbursement rates, often downwards, and challenging the prices charged for medical products and services. There can be no assurance that our products will be covered automatically by third-party payors, that reimbursement will be available or, if available, that the third-party payors’ coverage policies will not adversely affect our ability to sell our products profitably.

Initiatives to limit the growth of healthcare costs, including price regulation, are also underway in many countries in which we do business. Implementation of cost containment initiatives and healthcare reforms in significant markets such as the U.S., Japan, Europe and other international markets may limit the price of, or the level at which reimbursement is provided for, our products and may influence a physician’s selection of products used to treat patients. Spending on healthcare in some countries, including the U.S., may also be affected by the global economic slowdown.

Proprietary Rights and Patent Litigation

We rely on a combination of patents, trademarks, trade secrets and non-disclosure agreements to protect our intellectual property. We generally file patent applications in the U.S. and foreign countries where patent protection for our technology is appropriate and available. As of December 31, 2009, we held more than 15,000 patents, and had approximately 10,000 patent applications pending worldwide that cover various aspects of our technology. In addition, we hold 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 patent applications will result in the issuance of patents, that patents issued to or licensed by us will not be challenged or circumvented by competitors, or that these patents will be found to be valid or sufficiently broad to protect our technology or to provide us with a competitive advantage.

We rely on non-disclosure and non-competition agreements with 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 we will have adequate remedies for any breach, that others will not independently develop equivalent proprietary information or that third parties will not otherwise gain access to our trade secrets and proprietary knowledge.

There has been substantial litigation regarding patent and other intellectual property rights in the medical device industry, particularly in the areas in which we compete. We have defended, and will continue to defend, ourselves against claims and legal actions alleging infringement of the patent rights of others. Adverse determinations in any patent litigation could subject us to significant liabilities to third parties, require us to seek licenses from third parties, and, if licenses are not available, prevent us from manufacturing, selling or using certain of our products, which could have a material adverse effect on our business. Additionally, we may find it necessary to initiate litigation to enforce our patent rights, to protect our trade secrets or know-how and to determine the scope and validity of the proprietary rights of others. Patent litigation can be costly and time-consuming, and there can be no assurance that our

litigation expenses will not be significant in the future or that the outcome of litigation will be favorable to us. Accordingly, we may seek to settle some or all of our pending litigation, particularly to manage risk over time. Settlement may include cross licensing of the patents that are the subject of the litigation as well as our other intellectual property and may involve monetary payments to or from third parties.

See Item 3. Legal Proceedings and Note L — Commitments and Contingencies to our 2009 consolidated financial statements included in Item 8 of this Annual Report for a discussion of patent and other litigation and proceedings in which we are involved. In management’s opinion, we are not currently involved in any legal proceeding other than those specifically identified in Note L, which, individually or in the aggregate, could have a material effect on our financial condition, results of operations and liquidity.

Risk Management

The testing, marketing and sale of human healthcare products entails an inherent risk of product liability claims. In the normal course of business, product liability and securities claims are asserted against us. Product liability and securities claims may be asserted against us in the future related to events unknown at the present time. We are substantially self-insured with respect to product liability and intellectual property infringement claims. We maintain insurance policies providing limited coverage against securities claims. The absence of significant third-party insurance coverage increases our potential exposure to unanticipated claims or adverse decisions. Product liability claims, product recalls, securities litigation and other litigation in the future, regardless of outcome, could have a material adverse effect on our business. We believe that our risk management practices, including limited insurance coverage, are reasonably adequate to protect against anticipated product liability and securities litigation losses. However, unanticipated catastrophic losses could have a material adverse impact on our financial position, results of operations and liquidity.

Employees

As of December 31, 2009, we had approximately 26,000 employees, including approximately 14,000 in operations; 6,000 in selling, marketing and distribution; 4,000 in clinical, regulatory and research and development; and 2,000 in administration. Of these employees, we employed approximately 10,000 outside the U.S., approximately 6,000 of whom are in the operations function. We believe that the continued success of our business will depend, in part, on our ability to attract and retain qualified personnel.

Community Outreach

We are committed to making more possible in the communities where we work and live. We bring this commitment to life by supporting health, education and research initiatives on a global, national and local basis. Through the Boston Scientific Foundation, we fund non-profit organizations in our local communities and medical education fellowships at institutions throughout the United States. Our community grants support programs aimed at improving the lives of those with unmet needs by engaging in partnerships that promote long-term, systemic change. The Foundation is committed to funding organizations focused on increasing access to quality health care and improving educational opportunities, particularly with regards to math, science, engineering and technology. A prominent example of our ongoing commitment to patients is the Close the Gap program, which addresses disparities in cardiovascular care for the underserved patient populations of women, black Americans, and Latino Americans. Close the Gap increases awareness of cardiovascular risk factors, teaches health care providers about cultural beliefs and barriers to treatment, and advocates for measures that help ensure all patients receive the cardiovascular care they need.

Seasonality

Our worldwide sales do not reflect any significant degree of seasonality; however, customer purchases have historically been lighter in the third quarter of the year, as compared to other quarters. This reflects, among other factors, lower demand during summer months, particularly in European countries.

Available Information

Copies of our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 are available free of charge on our website (www.bostonscientific.com) as soon as reasonably practicable after we electronically file the material with or furnish it to the SEC. Printed copies of these posted materials are also available free of charge to shareholders who request them in writing from Investor Relations, One Boston Scientific Place, Natick, MA 01760-1537. Information on our website or connected to our website is not incorporated by reference into this Annual Report.

Safe Harbor for Forward-Looking Statements

Certain statements that we may make from time to time, including statements contained in this report and information incorporated by reference into this report, constitute “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934. Forward-looking statements may be identified by words like “anticipate,” “expect,” “project,” “believe,” “plan,” “estimate,” “intend” and similar words and include, among other things, statements regarding our financial performance; our growth strategy; our intentions and expectations regarding our business strategy, in particular those discussed in Item 1 “Business,” under the heading “Business Strategy”; the effectiveness of our restructuring, and Plant Network Optimization initiatives and expected cost savings; timing of regulatory approvals and plant certifications; our regulatory and quality compliance; the impact of product recalls; expected research and development efforts; product development and iterations; new product launches and launches of our existing products in new geographies; our market position in the marketplace for our products and our sales and marketing strategy; the effect of new accounting pronouncements; the outcome of matters before taxing authorities; intellectual property, governmental proceedings and litigation matters; our ability to finance our capital needs and expenditures; the ability of our suppliers and sterilizers to meet our requirements; our ability to meet the financial covenants required by our revolving credit facility, or to renegotiate the terms of or obtain waivers for compliance with those covenants and our intent to refinance the majority of our 2011 debt maturities and revolving credit facility; our tax position; and our strategy regarding acquisitions, divestitures and strategic investments, as well as integration execution. Forward-looking statements are based on our beliefs, assumptions and estimates using information available to us at this time and are not intended to be guarantees of future events or performance. If our underlying assumptions turn out to be incorrect, or if certain risks or uncertainties materialize, actual results could vary materially from the expectations and projections expressed or implied by our forward-looking statements. As a result, investors are cautioned not to place undue reliance on any of our forward-looking statements.

Except as required by law, we do not intend to update any forward-looking statements even if new information becomes available or other events occur in the future. We have identified these forward-looking statements, which are based on certain risks and uncertainties, including the risk factors described in Item 1A under the heading “Risk Factors.” Factors that could cause actual results to differ materially from those expressed in forward-looking statements are contained below and in the risk factors described in Item 1A under the heading “Risk Factors.”

CRM Products

•

Our estimates for the worldwide CRM market, the increase in the size of the CRM market above existing levels and our ability to increase CRM net sales and market share;

	•		The overall performance of, and referring physician, implanting physician and patient confidence in, our and our competitors’ CRM products and technologies, including our COGNIS® CRT-D and TELIGEN® ICD systems and our LATITUDE® Patient Management System;
	•		The results of CRM clinical trials undertaken by us, our competitors or other third parties;
	•		Our ability to successfully launch next-generation products and technology features worldwide;
	•		Our ability to grow sales of both new and replacement implant units and to benefit timely from the expansion of our CRM sales force;
	•		Our ability to retain key members of our CRM sales force and other key personnel;
	•		Competitive offerings in the CRM market and the timing of receipt of regulatory approvals to market existing and anticipated CRM products and technologies; and
	•		Our ability to avoid disruption in the supply of certain components, materials or products; or to quickly secure additional or replacement components, materials or products on a timely basis.

Coronary Stent Business

	•		Volatility in the coronary stent market, our estimates for the worldwide coronary stent market, our ability to increase coronary stent system net sales, competitive offerings and the timing of receipt of regulatory approvals, both in the U.S. and internationally, to market existing and anticipated drug-eluting stent technology and other stent platforms;
	•		Our ability to successfully launch next-generation products and technology features, including our TAXUS® Element™ and PROMUS® Element™ stent systems;
	•		The results of coronary stent clinical trials undertaken by us, our competitors or other third parties;
	•		Our ability to maintain or expand our worldwide market positions through reinvestment in our two drug-eluting stent programs;
	•		Our ability to manage the mix of net sales of everolimus-eluting stent systems supplied to us by Abbott relative to our total drug-eluting stent system net sales and to launch on-schedule around the world our next-generation internally-manufactured everolimus-eluting stent system with gross profit margins more comparable to our TAXUS® stent systems;
	•		Our share of the worldwide and U.S. drug-eluting stent markets, the distribution of market share within the coronary stent market in the U.S. and around the world, the average number of stents used per procedure, average selling prices, and the penetration rate of drug-eluting stent technology in the U.S. and international markets;
	•		The overall performance of, and continued physician confidence in, our and other drug-eluting stent systems, including our ability to adequately address concerns regarding the perceived risk of late stent thrombosis and the relative benefit of our products in patient sub-segments;
	•		Our reliance on Abbott’s manufacturing capabilities and supply chain in the U.S. and Japan, and our ability to align our everolimus-eluting stent system supply from Abbott with customer demand in these regions;

	•		Enhanced requirements to obtain regulatory approval in the U.S. and around the world and the associated impact on new product launch schedules and the cost of product approval and compliance; and
	•		Our ability to retain key members of our cardiology sales force and other key personnel.

Litigation and Regulatory Compliance

	•		Any conditions imposed in resolving, or any inability to resolve, our corporate warning letter or other FDA matters, as well as risks generally associated with our regulatory compliance and quality systems in the U.S. and around the world;
	•		Our ability to minimize or avoid future FDA warning letters or field actions relating to our products and the on-going inherent risk of potential physician advisories or field actions related to medical devices;
	•		Heightened global regulatory enforcement arising from political and regulatory changes as well as economic pressures;
	•		The effect of our litigation and risk management practices, including self-insurance, and compliance activities on our loss contingencies, legal provision and cash flows;
	•		The impact of, and costs to resolve, our stockholder derivative and class action, patent, product liability, contract and other litigation, governmental investigations and legal proceedings;
	•		Costs associated with our on-going compliance and quality activities and sustaining organizations;
	•		The impact of increased pressure on the availability and rate of third-party reimbursement for our products and procedures worldwide; and
	•		Legislative or regulatory efforts to modify the product approval or reimbursement process, including a trend toward demonstrating clinical outcomes, comparative effectiveness and cost efficiency.

Innovation

	•		Our ability to complete planned clinical trials successfully, to obtain regulatory approvals and to develop and launch products on a timely basis within cost estimates, including the successful completion of in-process projects from purchased research and development;
	•		Our ability to manage research and development and other operating expenses consistent with our expected net sales growth;
	•		Our ability to develop next-generation products and technologies successfully across all of our businesses;
	•		Our ability to fund with cash or common stock any acquisitions or alliances, or to fund contingent payments associated with these alliances;
	•		Our ability to achieve benefits from our focus on internal research and development and external alliances and acquisitions as well as our ability to capitalize on opportunities across our businesses;

	•		Our failure to succeed at, or our decision to discontinue, any of our growth initiatives, as well as competitive interest in the same or similar technologies;
	•		Our ability to integrate the strategic acquisitions we have consummated or may consummate in the future;
	•		Our ability to prioritize our internal research and development project portfolio and our external investment portfolio to identify profitable growth opportunities and keep expenses in line with expected revenue levels, or our decision to sell, discontinue, write down or reduce the funding of any of these projects;
	•		The timing, size and nature of strategic initiatives, market opportunities and research and development platforms available to us and the ultimate cost and success of these initiatives; and
	•		Our ability to successfully identify, develop and market new products or the ability of others to develop products or technologies that render our products or technologies noncompetitive or obsolete.

International Markets

	•		Our dependency on international net sales to achieve growth;
	•		Changes in our international structure and leadership;
	•		Risks associated with international operations, including compliance with local legal and regulatory requirements as well as changes in reimbursement practices and policies; and
	•		The potential effect of foreign currency fluctuations and interest rate fluctuations on our net sales, expenses and resulting margins.

Liquidity

	•		Our ability to generate sufficient cash flow to fund operations, capital expenditures, litigation settlements and strategic investments and acquisitions, as well as to effectively manage our debt levels and covenant compliance;
	•		Our ability to access the public and private capital markets when desired and to issue debt or equity securities on terms reasonably acceptable to us, including our ability to refinance timely the majority of our 2011 debt maturities and revolving credit facility on favorable terms;
	•		Our ability to resolve open tax matters favorably and recover substantially all of our deferred tax assets; and
	•		The impact of examinations and assessments by domestic and international taxing authorities on our tax provision, financial condition or results of operations.

Restructuring Initiatives

•

Our ability to implement, fund, and achieve timely and sustainable cost improvement measures consistent with our expectations, including our 2010 Restructuring plan, 2007 Restructuring plan, and Plant Network Optimization program, each described in Item 7 of this Annual Report;

	•		Our ability to maintain or expand our worldwide market positions in the various markets in which we compete or seek to compete, as we diversify our product portfolio and focus on emerging markets;
	•		Risks associated with significant changes made or to be made to our organizational structure pursuant to our 2010 Restructuring plan, 2007 Restructuring plan, and Plant Network Optimization program, or to the membership and responsibilities of our executive committee or Board of Directors;
	•		Our ability to direct our research and development efforts to conduct more cost effective clinical studies, accelerate the time to bring new products to market, and develop higher payoff products;
	•		Our ability to retain our key employees and avoid business disruption and employee distraction as we execute our global compliance program, 2010 Restructuring plan, 2007 Restructuring plan and Plant Network Optimization program; and
	•		Our ability to maintain management focus on core business activities while also concentrating on implementing strategic and restructuring initiatives, including our 2010 Restructuring plan, 2007 Restructuring plan and Plant Network Optimization program.

Several important factors, in addition to the specific risk factors discussed in connection with forward-looking statements individually and the risk factors described in Item 1A under the heading “Risk Factors,” could affect our future results and growth rates and could cause those results and rates to differ materially from those expressed in the forward-looking statements and the risk factors contained in this report. These additional factors include, among other things, future economic, competitive, reimbursement and regulatory conditions; new product introductions; demographic trends; intellectual property, litigation and government investigations; financial market conditions; and future business decisions made by us and our competitors, all of which are difficult or impossible to predict accurately and many of which are beyond our control. Therefore, we wish to caution each reader of this report to consider carefully these factors as well as the specific factors discussed with each forward-looking statement and risk factor in this report and as disclosed in our filings with the SEC. These factors, in some cases, have affected and in the future (together with other factors) could affect our ability to implement our business strategy and may cause actual results to differ materially from those contemplated by the statements expressed in this report.

ITEM 1A. RISK FACTORS

In addition to the other information contained in this Annual Report and the exhibits hereto, the following risk factors should be considered carefully in evaluating our business. Our business, financial condition or results of operations could be materially adversely affected by any of these risks. This section contains forward-looking statements. You should refer to the explanation of the qualifications and limitations on forward-looking statements set forth at the end of Item 1 of this Annual Report. Additional risks not presently known to us or that we currently deem immaterial may also adversely affect our business, financial condition or results of operations.

We derive a significant portion of our net sales from the sale of drug-eluting coronary stent systems and CRM products. A decline in market size, average selling prices and procedural volumes; increased competition; market perceptions of results of clinical trials conducted by us or our competitors; interruption in supply of everolimus-eluting stent systems; changes in our sales personnel; or product launch delays may materially adversely affect our results of operations and financial position, including our goodwill balances.

Net sales from drug-eluting coronary stent systems represented approximately 23 percent of our consolidated net sales during 2009. Recent competitive launches and clinical publications have negatively

impacted our share of the worldwide drug-eluting stent market, and have resulted in competitive pricing pressure, especially in the U.S. market. We estimate that the average selling price of our drug-eluting stent systems in the U.S. decreased approximately eight percent in 2009, as compared to the prior year. Further, recently published data from a single-center, non-double blinded, underpowered study sponsored by one of our competitors have negatively affected, and may continue to have a negative impact on, physician and patient confidence in our technology and net sales of our TAXUS® paclitaxel-eluting coronary stent systems. In addition, perceptions of excessive use of drug-eluting stent systems based on evidence from a third-party clinical trial comparing drug-eluting stent systems to pharmaceuticals may have an adverse impact on our net sales of drug-eluting stent systems. We expect to launch our next-generation TAXUS® ElementÔ stent system in our EMEA region and certain Inter-Continental countries during the first half of 2010, in the U.S. mid-2011 and Japan in late 2011 or early 2012. A delay in the timing of the launch of next-generation products may result in a further decline in our market share and have an adverse impact on our results of operations.

We share, with Abbott Laboratories, rights to everolimus-eluting stent technology, and are reliant on Abbott for our supply of PROMUS® everolimus-eluting stent systems in the U.S. and Japan. Any production or capacity issues that affect Abbott’s manufacturing capabilities or our process for forecasting, ordering and receiving shipments may impact our ability to increase or decrease the level of supply to us in a timely manner; therefore, our supply of everolimus-eluting stent systems supplied to us by Abbott may not align with customer demand. We expect to launch our internally developed and manufactured next-generation everolimus-eluting stent system, the PROMUS® Element™ platinum chromium coronary stent system, in the U.S. and Japan in mid-2012. Our supply agreement for the PROMUS® stent system from Abbott extends through the end of the second quarter of 2012 in the U.S. and Japan. Our inability to obtain regulatory approval and timely launch our PROMUS® Element stent system in these regions may materially adversely affect our results of operations or financial condition.

Worldwide CRM market growth rates in recent years, including the U.S. ICD market, have been below those experienced in prior years, resulting primarily from industry field actions and from a lack of new indications for use. There can be no assurance that the size of the CRM market will increase above existing levels or that we will be able to increase CRM market share or increase net sales in a timely manner, if at all. Our U.S. ICD sales represented approximately 50 percent of our worldwide CRM net sales in 2009, and any changes in this market could have a material adverse effect on our financial condition. Additionally, average selling prices have declined in the past year due, in part, to competitive pressures and general economic conditions. Further, recent disciplinary actions we have taken against certain of our U.S. CRM sales personnel, as well as attrition beyond those subject to disciplinary actions, could result in lost U.S. CRM net sales. Net sales from our CRM group represented approximately 31 percent of our consolidated net sales in 2009. Therefore, further decreases in net sales and average selling prices of our CRM products could have a significant impact on our results of operations. In addition, our inability to increase our worldwide CRM net sales could result in future goodwill and other intangible asset impairment charges. We expect to launch our next-generation line of defibrillators in 2010 and a new wireless pacemaker in the U.S. and Europe in early 2011. Variability in the timing of the launch of next-generation products may result in excess or expired inventory positions and future inventory charges, which may adversely impact our results from operations.

The profit margin of everolimus-eluting stent systems supplied to us by Abbott, including any improvements or iterations approved for sale during the term of the applicable supply arrangements and of the type that could be approved by a supplement to an approved FDA pre-market approval, is significantly lower than that of our TAXUS® stent systems, and an increase in sales of everolimus-eluting stent systems supplied to us by Abbott relative to TAXUS® stent system net sales may continue to adversely impact our gross profit and operating profit margins. The price we pay Abbott for our supply of everolimus-eluting stent systems supplied to us by Abbott is further impacted by our arrangements with Abbott and is subject to retroactive adjustment, which may also negatively impact our profit margins.

Under the terms of our supply arrangement with Abbott, the gross profit and operating profit margin of everolimus-eluting stent systems supplied to us by Abbott, including any improvements or iterations approved for sale during the term of the applicable supply arrangements and of the type that could be approved by a supplement to an approved FDA pre-market approval, are significantly lower than that of our TAXUS® stent system. Therefore, if sales of everolimus-eluting stent systems supplied to us by Abbott continue to increase in relation to our total drug-eluting stent system sales, our profit margins will continue to decrease. Further, the price we pay for our supply of everolimus-eluting stent systems supplied to us by Abbott is determined by our contracts with them. Our cost is based, in part, on previously fixed estimates of Abbott’s manufacturing costs for everolimus-eluting stent systems and third-party reports of our average selling price of these stent systems. Amounts paid pursuant to this pricing arrangement are subject to a retroactive adjustment approximately every two years based on Abbott’s actual costs to manufacture these stent systems for us and our average selling price of everolimus-eluting stent systems supplied to us by Abbott. Pursuant to these adjustments, we may make a payment to Abbott based on the differences between their actual manufacturing costs and the contractually stipulated manufacturing costs and differences between our actual average selling price and third-party reports of our average selling price, in each case, with respect to our purchases of everolimus-eluting stent systems from Abbott. As a result, our profit margins in the years in which we record payments related to purchases of everolimus-eluting stent systems from Abbott may decrease.

We incurred substantial indebtedness in connection with our acquisition of Guidant and if we are unable to manage our debt levels, through refinancing or otherwise, it could have an adverse effect on our financial condition or results of operations.

We had total debt of $5.918 billion as of December 31, 2009, attributable in large part to our 2006 acquisition of Guidant Corporation, of which $1.750 billion, as well as our revolving credit facility, will mature in 2011. We expect to refinance the majority of our 2011 debt maturities and revolving credit facility by mid-2010. Although Standard & Poor’s Ratings Services recently upgraded our credit rating to BBB-, an investment grade rating, our current credit rating from Fitch Ratings is BB+, and from Moody’s Investor Service is Ba1, both of which are below investment grade. Our inability to regain investment grade credit ratings could impact our ability to obtain financing on terms reasonably acceptable to us, and increase the cost of borrowing funds in the future. If we are unable to refinance this indebtedness on satisfactory terms, we may be required to dedicate a more substantial portion of our operating cash flows to our indebtedness, which may limit our flexibility in planning for, or reacting to, changes in our business or investing in our growth. In addition, our revolving credit facility agreement contains financial covenants that require us to maintain specified financial ratios. If we are unable to satisfy these covenants, we may be required to obtain waivers from our lenders and no assurance can be made that our lenders would grant such waivers on favorable terms or at all, and we could be required to repay any borrowings under this facility on demand. Our revolving credit facility matures in 2011.

We test our April 1 goodwill balances during the second quarter of each year for impairment, or more frequently if indicators are present or changes in circumstances suggest that impairment may exist. We assess goodwill for impairment at the reporting unit level and, in evaluating the potential for impairment of goodwill, we make assumptions regarding the amount and timing of future expected cash flows, terminal value growth rates and appropriate discount rates. While we do not believe there are indicators of impairment as of December 31, 2009 to necessitate the performance of an interim impairment test, we have considered current and future expected economic conditions as of year end and, as a result, we have identified two reporting units with a material amount of goodwill that are at higher risk of potential failure of the first step of the impairment test in future reporting periods.

Although we use consistent methodologies in developing the assumptions and estimates underlying the fair value calculations used in our impairment tests, these estimates are uncertain by nature and can vary from actual results. We have allocated a significant portion of the goodwill associated with our 2006 acquisition of Guidant Corporation to our U.S. CRM and EMEA reporting units. Changes in the fair value of these reporting units could make it reasonably likely that an impairment may occur over the next twelve months in these reporting units. Future goodwill impairment charges could materially adversely impact our results of operations.

We may not realize the expected benefits from our restructuring and Plant Network Optimization initiatives; our long-term expense reduction programs may result in an increase in short-term expense; and our efforts may lead to additional unintended consequences.

In February 2010, we announced our 2010 Restructuring plan designed to strengthen and position us for long-term success. Key activities under the plan include the integration of our Cardiovascular and CRM businesses, as well as the restructuring of certain other businesses and corporate functions; the centralization of our research and development organization; the realignment of our international structure; and the reprioritization and diversification of our product portfolio. In connection with this plan and our strategy to reduce risk, increase operational leverage and accelerate profitable growth, we may explore opportunities to divest one or more select businesses. However, our ability to complete business divestitures may be limited by the inability to locate a buyer or to agree to terms that are favorable to us. Additionally, in early 2009, we announced our Plant Network Optimization program,

aimed at simplifying our plant network, reducing our manufacturing costs and improving gross margins. Cost reduction initiatives under both plans include cost improvement measures, resource reallocations, head count reductions, the sale of certain non-strategic assets and efforts to streamline our business, among other actions. These measures could yield unintended consequences, such as distraction of our management and employees, business disruption, attrition beyond our planned reduction in workforce and reduced employee productivity. We may be unable to attract or retain key personnel. Attrition beyond our planned reduction in workforce or a material decrease in employee morale or productivity could negatively affect our business, sales, financial condition and results of operations. In addition, head count reductions may subject us to the risk of litigation, which could result in substantial cost. Moreover, our expense reduction programs will result in charges and expenses that will impact our operating results. We cannot guarantee that these measures, or other expense reduction measures we take in the future, will result in the expected cost savings.

Healthcare policy changes, including pending proposals to reform the U.S. healthcare system, may have a material adverse effect on us.

Political, economic and regulatory influences are subjecting the healthcare industry to potential fundamental changes that could substantially affect our results of operations. Government and private sector initiatives to limit the growth of healthcare costs, including price regulation, competitive pricing, coverage and payment policies, comparative effectiveness of therapies, technology assessments and managed-care arrangements, are continuing in many countries where we do business, including the U.S. These changes are causing the marketplace to put increased emphasis on the delivery of more cost-effective treatments. We are undertaking certain restructuring initiatives in order to address this trend; however, the execution of these initiatives may not achieve the desired effect. Further, uncertainty remains regarding proposed significant reforms to the U.S. healthcare system, including the potential excise tax on medical device companies. We cannot predict to what extent the increased focus on healthcare systems and costs in the U.S. and abroad may negatively impact our average selling prices, our net sales and profit margins, procedural volumes and reimbursement rates from third party payors.

Our products, including those of our cardiovascular businesses, are continually subject to clinical trials conducted by us, our competitors or other third parties, the results of which may be unfavorable, or perceived as unfavorable by the market, and could have a material adverse effect on our business, financial condition or results of operations.

As a part of the regulatory process of obtaining marketing clearance for new products, we conduct and participate in numerous clinical trials with a variety of study designs, patient populations and trial endpoints. Unfavorable or inconsistent clinical data from existing or future clinical trials conducted by us, by our competitors or by third parties, or the market’s perception of this clinical data, may adversely impact our ability to obtain product approvals, our position in, and share of, the markets in which we participate and our business, financial condition, results of operations or future prospects.

Our future growth is dependent upon the development of new products, which requires significant research and development, clinical trials and regulatory approvals, all of which are very expensive and time-consuming and may not result in a commercially viable product.

In order to develop new products and improve current product offerings, we focus our research and development programs largely on the development of next-generation and novel technology offerings across multiple programs and divisions, particularly in our core franchises, including our drug-eluting stent and CRM programs. We expect to launch our internally-manufactured next-generation everolimus-eluting stent system, the PROMUS® Element™ platinum chromium coronary stent in the U.S. and Japan in mid-2012, subject to regulatory approval. In addition, we expect to continue to invest in our CRM technologies, including our LATITUDE® Patient Management System and our next-generation products and technologies. If we are unable to develop and launch these and other products as anticipated, our ability to maintain or expand

our market position in the drug-eluting stent and CRM markets may be materially adversely impacted. Further, we are investigating opportunities to further expand our presence in, and diversify into, areas including atrial fibrillation, underserved defibrillator populations, acute ischemic stroke, coronary artery disease, peripheral vascular disease, structural heart disease, vascular closure, hypertension, women’s health, endoluminal surgery, diabetes/obesity, endoscopic pulmonary intervention and deep brain stimulation. Expanding our focus beyond our current businesses is expensive and time-consuming. Further, there can be no assurance that we will be able to access these technologies on terms favorable to us, or that these technologies will achieve commercial feasibility, obtain regulatory approval or gain market acceptance. A delay in the development or approval of these technologies or our decision to reduce our investments may adversely impact the contribution of these technologies to our future growth.

We may not be successful in our strategic acquisitions of, investments in, or alliances with, other companies and businesses, which have been a significant source of historical growth for us, and will be key to our diversification into new markets and technologies.

Our strategic acquisitions, investments and alliances are intended to further expand our ability to offer customers effective, high quality medical devices that satisfy their interventional needs. If we are unsuccessful in our acquisitions, investments and alliances, we may be unable to continue to grow our business significantly or may record asset impairment charges in the future. These acquisitions, investments and alliances have been a significant source of our growth. The success of any acquisition, investment or alliance that we may undertake in the future will depend on a number of factors, including:

	•		our ability to identify suitable opportunities for acquisition, investment or alliance, if at all;
	•		our ability to finance any future acquisition, investment or alliance on terms acceptable to us, if at all;
	•		whether we are able to establish an acquisition, investment or alliance on terms that are satisfactory to us, if at all;
	•		the strength of the other companies’ underlying technology and ability to execute;
	•		regulatory approvals and reimbursement levels of the acquired products and related procedures;
	•		intellectual property and litigation related to these technologies; and
	•		our ability to successfully integrate the acquired company or business with our existing business, including the ability to adequately fund acquired in-process research and development projects.

Any potential future acquisitions we consummate may be dilutive to our earnings and may require additional debt or equity financing, depending on their size or nature.

The medical device industry is experiencing greater scrutiny and regulation by governmental authorities and is the subject of numerous investigations, often involving marketing and other business practices. These investigations could result in the commencement of civil and criminal proceedings; substantial fines, penalties and administrative remedies; divert the attention of our management; impose administrative costs and have an adverse effect on our financial condition, results of operations and liquidity; and may lead to greater governmental regulation in the future.

The medical devices we design, develop, manufacture and market are subject to rigorous regulation by the FDA and numerous other federal, state and foreign governmental authorities. These authorities have been increasing their scrutiny of our industry. We have received subpoenas and other requests for information from Congress and other state and federal governmental agencies, including, among others, the U.S. Department of Justice (DOJ), the Office of Inspector General of the Department of Health and Human Services (HHS), and the Department of Defense. These investigations relate primarily to financial arrangements with health care providers, regulatory compliance and product promotional practices. We are cooperating with these investigations and are responding to these requests.

In addition, we recently entered into a civil settlement with the DOJ regarding the Department’s investigation relating to certain post-market surveys conducted by Guidant Corporation before we acquired Guidant in 2006. As part of the settlement, we entered into a Corporate Integrity Agreement (CIA) with the Office of Inspector General for HHS. The CIA requires enhancements to certain compliance procedures related to financial arrangements with health care providers. The obligations imposed upon us by the CIA and cooperation with ongoing investigations will involve human resources costs and diversion of management and employee focus. Cooperation typically also involves document production costs. We cannot predict when the investigations will be resolved, the outcome of these investigations or their impact on us. An adverse outcome in one or more of these investigations could include the commencement of civil and criminal proceedings; substantial fines, penalties and administrative remedies, including exclusion from government reimbursement programs and entry into additional CIAs or an amendment to the existing CIA. In addition, resolution of any of these matters could involve the imposition of additional and costly compliance obligations, including entering into additional CIAs. We may incur greater future costs to fulfill the obligations imposed upon us by the CIA. Furthermore, the CIA, and if any of the ongoing investigations continue over a long period of time, could further divert the attention of management from the day-to-day operations of our business and impose significant additional administrative burdens on us. These potential consequences, as well as any adverse outcome from these investigations, could have a material adverse effect on our financial condition, results of operations and liquidity.

In addition, certain states, including Massachusetts, where we are headquartered, have passed or are considering legislation restricting our interactions with health care providers and requiring disclosure of payments to them, compliance with which will require significant human resource and financial costs as well as complex information technology systems. The Federal government has introduced similar legislation, which may or may not preempt state laws. We are devoting substantial time and financial resources in order to develop and implement enhanced structure, policies, systems and processes in order to comply with enhanced legal and regulatory requirements. Recent Supreme Court case law has clarified that the FDA’s authority over medical devices preempts state tort laws, but legislation has been introduced at the Federal level to allow state intervention, which could lead to increased and inconsistent regulation at the state level. We anticipate that the government will continue to scrutinize our industry closely and that we will be subject to more rigorous regulation by governmental authorities in the future.

Should we be unable to resolve our FDA corporate warning letter, our business, financial condition and results of operations, our relationship with the FDA, and physician perception of our products could be materially adversely affected.

In January 2006, legacy Boston Scientific received a corporate warning letter from the FDA notifying us of serious regulatory problems at three of our facilities and advising us that our corrective action plan relating to three site-specific warning letters issued to us in 2005 was inadequate. During 2008, the FDA reinspected a number of our facilities and, in October 2008, informed us that our quality system is now in substantial compliance with its Quality System Regulations. The FDA has approved all of our requests for final approval of Class III product submissions previously on hold due to the corporate warning letter, and is processing all requests for Certificates to Foreign Governments. In November 2009

and January 2010, the FDA reinspected two official action-indicated sites to follow up on observations from the 2008 FDA inspections. Both of these FDA inspections confirmed that all issues at the sites have been resolved and all restrictions related to the corporate warning letter have been removed. The corporate warning letter remains in place pending FDA internal administrative proceedings.

We may not meet regulatory quality standards applicable to our manufacturing and quality processes, which could have an adverse effect on our business, financial condition and results of operations.

As a medical device manufacturer, we are required to register with the FDA and are subject to periodic inspection by the FDA for compliance with its Quality System Regulation requirements, which require manufacturers of medical devices to adhere to certain regulations, including testing, quality control and documentation procedures. In addition, the Federal Medical Device Reporting regulations require us to provide information to the FDA whenever there is evidence that reasonably suggests that a device may have caused or contributed to a death or serious injury or, if a malfunction were to occur, could cause or contribute to a death or serious injury. Compliance with applicable regulatory requirements is subject to continual review and is monitored rigorously through periodic inspections by the FDA. In the European Community, we are required to maintain certain International Standards Organization (ISO) certifications in order to sell our products and must undergo periodic inspections by notified bodies to obtain and maintain these certifications. If we, or our manufacturers, fail to adhere to quality system regulations or ISO requirements, this could delay production of our products and lead to fines, difficulties in obtaining regulatory clearances, recalls, enforcement actions, including injunctive relief or consent decrees, or other consequences, which could, in turn, have a material adverse effect on our financial condition or results of operations.

We are subject to extensive and dynamic medical device regulation, which may impede or hinder the approval or sale of our products and, in some cases, may ultimately result in an inability to obtain approval of certain products or may result in the recall or seizure of previously approved products.

Our products, development activities and manufacturing processes are subject to extensive and rigorous regulation by the FDA pursuant to the Federal Food, Drug, and Cosmetic Act (FDC Act), by comparable agencies in foreign countries, and by other regulatory agencies and governing bodies. Under the FDC Act, medical devices must receive FDA clearance or approval before they can be commercially marketed in the U.S. The FDA is reviewing its clearance process in an effort to make it more rigorous, which may require additional clinical data, time and effort for product clearance. In addition, most major markets for medical devices outside the U.S. require clearance, approval or compliance with certain standards before a product can be commercially marketed. The process of obtaining marketing approval or clearance from the FDA for new products, or with respect to enhancements or modifications to existing products, could:

	•		Take a significant period of time;
	•		Require the expenditure of substantial resources;
	•		Involve rigorous pre-clinical and clinical testing, as well as increased post-market surveillance;
	•		Require changes to products; and
	•		Result in limitations on the indicated uses of products.

Countries around the world have adopted more stringent regulatory requirements that have added or are expected to add to the delays and uncertainties associated with new product releases, as well as the clinical and regulatory costs of supporting those releases. Even after products have received marketing approval or clearance, product approvals and clearances by the FDA can be withdrawn due to failure to

comply with regulatory standards or the occurrence of unforeseen problems following initial approval. There can be no assurance that we will receive the required clearances for new products or modifications to existing products on a timely basis or that any approval will not be subsequently withdrawn or conditioned upon extensive post-market study requirements.

In addition, regulations regarding the development, manufacture and sale of medical devices are subject to future change. We cannot predict what impact, if any, those changes might have on our business. Failure to comply with regulatory requirements could have a material adverse effect on our business, financial condition and results of operations. Later discovery of previously unknown problems with a product or manufacturer could result in fines, delays or suspensions of regulatory clearances, seizures or recalls of products, physician advisories or other field actions, operating restrictions and/or criminal prosecution. We may also initiate field actions as a result of a failure to strictly comply with our internal quality policies. The failure to receive product approval clearance on a timely basis, suspensions of regulatory clearances, seizures or recalls of products, physician advisories or other field actions, or the withdrawal of product approval by the FDA could have a material adverse effect on our business, financial condition or results of operations.

Current economic conditions could adversely affect our results of operations.

The global financial crisis has caused extreme disruption in the financial markets, including severely diminished liquidity and credit availability. There can be no assurance that there will not be further deterioration in the global economy, and these conditions may adversely affect our ability to borrow money in the credit markets. Our customers may experience financial difficulties or be unable to borrow money to fund their operations which may adversely impact their ability or decision to purchase our products, particularly capital equipment, or to pay for our products they do purchase on a timely basis, if at all. The strength and timing of any economic recovery remains uncertain, and we cannot predict to what extent the global economic slowdown may negatively impact our average selling prices, our net sales and profit margins, procedural volumes and reimbursement rates from third party payors. In addition, the current economic conditions may adversely affect our suppliers leading them to experience financial difficulties or to be unable to borrow money to fund their operations, which could cause disruptions in our ability to produce our products.

We may not effectively be able to protect our intellectual property rights, which could have a material adverse effect on our business, financial condition or results of operations.

The medical device market in which we primarily participate is largely technology driven. Physician customers, particularly in interventional cardiology, have historically moved quickly to new products and new technologies. As a result, intellectual property rights, particularly patents and trade secrets, play a significant role in product development and differentiation. However, intellectual property litigation is inherently complex and unpredictable. Furthermore, appellate courts can overturn lower court patent decisions.

In addition, competing parties frequently file multiple suits to leverage patent portfolios across product lines, technologies and geographies and to balance risk and exposure between the parties. In some cases, several competitors are parties in the same proceeding, or in a series of related proceedings, or litigate multiple features of a single class of devices. These forces frequently drive settlement not only of individual cases, but also of a series of pending and potentially related and unrelated cases. In addition, although monetary and injunctive relief is typically sought, remedies and restitution are generally not determined until the conclusion of the trial court proceedings and can be modified on appeal. Accordingly, the outcomes of individual cases are difficult to time, predict or quantify and are often dependent upon the outcomes of other cases in other geographies.

Several third parties have asserted that our current and former stent systems infringe patents owned or licensed by them. We have similarly asserted that stent systems or other products sold by our competitors infringe patents owned or licensed by us. Adverse outcomes in one or more of the proceedings against us could limit our ability to sell certain stent products in certain jurisdictions, or reduce our operating margin on the sale of these products and could have a material adverse effect on our financial position, results of operations or liquidity.

Patents and other proprietary rights are and will continue to be essential to our business, and our ability to compete effectively with other companies will be dependent upon the proprietary nature of our technologies. We rely upon trade secrets, know-how, continuing technological innovations, strategic alliances and licensing opportunities to develop, maintain and strengthen our competitive position. We pursue a policy of generally obtaining patent protection in both the U.S. and abroad for patentable subject matter in our proprietary devices and attempt to review third-party patents and patent applications to the extent publicly available in order to develop an effective patent strategy, avoid infringement of third-party patents, identify licensing opportunities and monitor the patent claims of others. We currently own numerous U.S. and foreign patents and have numerous patent applications pending. We also are party to various license agreements pursuant to which patent rights have been obtained or granted in consideration for cash, cross-licensing rights or royalty payments. No assurance can be made that any pending or future patent applications will result in the issuance of patents, that any current or future patents issued to, or licensed by, us will not be challenged or circumvented by our competitors, or that our patents will not be found invalid. In addition, we may have to take legal action in the future to protect our patents, trade secrets or know-how or to assert them against claimed infringement by others. Any legal action of that type could be costly and time consuming and no assurances can be made that any lawsuit will be successful. We are generally involved as both a plaintiff and a defendant in a number of patent infringement and other intellectual property-related actions.

The invalidation of key patents or proprietary rights that we own, or an unsuccessful outcome in lawsuits to protect our intellectual property, could have a material adverse effect on our business, financial position or results of operations.

Pending and future intellectual property litigation could be costly and disruptive to us.

We operate in an industry that is susceptible to significant intellectual property litigation and, in recent years, it has been common for companies in the medical device field to aggressively challenge the patent rights of other companies in order to prevent the marketing of new devices. We are currently the subject of various patent litigation proceedings and other proceedings described in more detail under Item 3. Legal Proceedings. Intellectual property litigation is expensive, complex and lengthy and its outcome is difficult to predict. Adverse outcomes in one or more of these matters could have a material adverse effect on our ability to sell certain products and on our operating margins, financial position, results of operation or liquidity. Pending or future patent litigation may result in significant royalty or other payments or injunctions that can prevent the sale of products and may significantly divert the attention of our technical and management personnel. In the event that our right to market any of our products is successfully challenged, we may be required to obtain a license on terms which may not be favorable to us, if at all. If we fail to obtain a required license or are unable to design around a patent, our business, financial condition or results of operations could be materially adversely affected.

Pending and future product liability claims and other litigation, including private securities litigation, shareholder derivative suits and contract litigation, may adversely affect our business, reputation and ability to attract and retain customers.

The design, manufacture and marketing of medical devices of the types that we produce entail an inherent risk of product liability claims. Many of the medical devices that we manufacture and sell are designed to be implanted in the human body for long periods of time or indefinitely. A number of factors

could result in an unsafe condition or injury to, or death of, a patient with respect to these or other products that we manufacture or sell, including component failures, manufacturing flaws, design defects or inadequate disclosure of product-related risks or product-related information. These factors could result in product liability claims, a recall of one or more of our products or a safety alert relating to one or more of our products. Product liability claims may be brought by individuals or by groups seeking to represent a class.

The outcome of litigation, particularly class action lawsuits, is difficult to assess or quantify. Plaintiffs in these types of lawsuits often seek recovery of very large or indeterminate amounts, including not only actual damages, but also punitive damages. The magnitude of the potential losses relating to these lawsuits may remain unknown for substantial periods of time. In addition, the cost to defend against any future litigation may be significant. Further, we are substantially self-insured with respect to product liability and intellectual property infringement claims. We maintain insurance policies providing limited coverage against securities claims. The absence of significant third-party insurance coverage increases our potential exposure to unanticipated claims and adverse decisions. Product liability claims, product recalls, securities litigation and other litigation in the future, regardless of the outcome, could have a material adverse effect on our financial position, results of operations or liquidity.

We face intense competition and may not be able to keep pace with the rapid technological changes in the medical devices industry, which could have an adverse effect on our business, financial condition or results of operations.

The medical device market in which we primarily participate is highly competitive. We encounter significant competition across our product lines and in each market in which our products are sold from various medical device companies, some of which may have greater financial and marketing resources than we do. Our primary competitors include Johnson & Johnson (including its subsidiary, Cordis Corporation); Medtronic, Inc.; Abbott Laboratories; and St. Jude Medical, Inc. In addition, we face competition from a wide range of companies that sell a single or a limited number of competitive products or which participate in only a specific market segment, as well as from non-medical device companies, including pharmaceutical companies, which may offer alternative therapies for disease states intended to be treated using our products.

Additionally, the medical device market is characterized by extensive research and development, and rapid technological change. Developments by other companies of new or improved products, processes or technologies may make our products or proposed products obsolete or less competitive and may negatively impact our net sales. We are required to devote continued efforts and financial resources to develop or acquire scientifically advanced technologies and products, apply our technologies cost-effectively across product lines and markets, attract and retain skilled development personnel, obtain patent and other protection for our technologies and products, obtain required regulatory and reimbursement approvals and successfully manufacture and market our products consistent with our quality standards. If we fail to develop new products or enhance existing products, it could have a material adverse effect on our business, financial condition or results of operations.

Because we derive a significant amount of our net sales from international operations and a significant percentage of our future growth is expected to come from international operations, changes in international economic or regulatory conditions could have a material impact on our business, financial condition or results of operations.

Sales outside the U.S. accounted for approximately 43 percent of our net sales in 2009. Additionally, a significant percentage of our future growth is expected to come from international operations. As a result, our sales growth and profitability from our international operations may be limited by risks and uncertainties related to economic conditions in these regions, foreign currency fluctuations, interest rate fluctuations, regulatory and reimbursement approvals, competitive offerings, infrastructure

development, rights to intellectual property and our ability to implement our overall business strategy. Further, international markets are also being affected by economic pressure to contain reimbursement levels and healthcare costs; and international markets may also be impacted by foreign government efforts to understand healthcare practices and pricing in other countries, which could result in increased pricing transparency across geographies and pressure to harmonize reimbursement and ultimately reduce the selling prices of our products. The trend in countries around the world, including Japan, toward more stringent regulatory requirements for product clearance, changing reimbursement models and more rigorous inspection and enforcement activities has generally caused or may cause medical device manufacturers to experience more uncertainty, delay, risk and expense. In addition, most international jurisdictions have adopted regulatory approval and periodic renewal requirements for medical devices, and we must comply with these requirements in order to market our products in these jurisdictions. Any significant changes in the competitive, political, legal, regulatory, reimbursement or economic environment where we conduct international operations may have a material impact on our business, financial condition or results of operations. In 2010, we intend to realign our international structure and will devote resources to focus on increasing net sales in emerging markets. Sales practices in certain international markets may be inconsistent with our desired business practices and U.S. legal requirements, which may impact our ability to expand as planned.

Healthcare cost containment pressures and legislative or administrative reforms resulting in restrictive reimbursement practices of third-party payors or preferences for alternate therapies could decrease the demand for our products, the prices which customers are willing to pay for those products and the number of procedures performed using our devices, which could have an adverse effect on our business, financial condition or results of operations.

Our products are purchased principally by hospitals, physicians and other healthcare providers around the world that typically bill various third-party payors, including governmental programs (e.g., Medicare and Medicaid), private insurance plans and managed care programs, for the healthcare services provided to their patients. The ability of customers to obtain appropriate reimbursement for their products and services from private and governmental third-party payors is critical to the success of medical technology companies. The availability of reimbursement affects which products customers purchase and the prices they are willing to pay. Reimbursement varies from country to country and can significantly impact the acceptance of new products and services. After we develop a promising new product, we may find limited demand for the product unless reimbursement approval is obtained from private and governmental third-party payors. Further legislative or administrative reforms to the reimbursement systems in the U.S., Japan, or other international countries in a manner that significantly reduces reimbursement for procedures using our medical devices or denies coverage for those procedures, including price regulation, competitive pricing, coverage and payment policies, comparative effectiveness of therapies, technology assessments and managed-care arrangements, could have a material adverse effect on our business, financial condition or results of operations.

Major third-party payors for hospital services in the U.S. and abroad continue to work to contain healthcare costs. The introduction of cost containment incentives, combined with closer scrutiny of healthcare expenditures by both private health insurers and employers, has resulted in increased discounts and contractual adjustments to hospital charges for services performed and has shifted services between inpatient and outpatient settings. Initiatives to limit the increase of healthcare costs, including price regulation, are also underway in several countries in which we do business. Hospitals or physicians may respond to these cost-containment pressures by substituting lower cost products or other therapies for our products. In connection with Guidant’s product recalls, certain third-party payors have sought, and others may seek, recourse against us for amounts previously reimbursed.

Consolidation in the healthcare industry could lead to demands for price concessions or the exclusion of some suppliers from certain of our significant market segments, which could have an adverse effect on our business, financial condition or results of operations.

The cost of healthcare has risen significantly over the past decade and numerous initiatives and reforms by legislators, regulators and third-party payors to curb these costs have resulted in a consolidation trend in the healthcare industry, including hospitals. This in turn has resulted in greater pricing pressures and the exclusion of certain suppliers from important market segments as group purchasing organizations, independent delivery networks and large single accounts continue to consolidate purchasing decisions for some of our hospital customers. We expect that market demand, government regulation, third-party reimbursement policies, government contracting requirements, and societal pressures will continue to change the worldwide healthcare industry, resulting in further business consolidations and alliances among our customers and competitors, which may reduce competition, exert further downward pressure on the prices of our products and adversely impact our business, financial condition or results of operations.

We are subject to income taxes as well as non-income based taxes, in both the United States and various foreign jurisdictions. We are subject to ongoing tax audits in various jurisdictions. Tax authorities may disagree with certain positions we have taken and assess additional taxes. We regularly assess the likely outcomes of these audits in order to determine the appropriateness of our tax provision. However, there can be no assurance that we will accurately predict the outcomes of these audits, and the actual outcomes of these audits could have a material impact on our net income or financial condition. Additionally, changes in tax laws or tax rulings could materially impact our effective tax rate. For example, proposals for fundamental U.S. international tax reform, such as the recent proposal by the Obama administration, if enacted, could have a significant adverse impact on our future results of operations. In particular, Congressional leadership has proposed an annual fee on medical device manufacturers. This proposal would require medical device companies to pay additional taxes of up to $2 billion each year, beginning in 2011. President Obama’s recent proposal includes an excise tax in the same amount, starting in 2013, which would be administrated by the IRS. A fee or excise tax, if passed, could result in a significant increase in the tax burden on the medical device industry, which could have a material, negative impact on our results of operations and our cash flows.

We vertically integrate operations where integration provides significant cost, supply or quality benefits. However, we purchase many of the materials and components used in manufacturing our products, some of which are custom made. Certain supplies are purchased from single-sources due to quality considerations, expertise, costs or constraints resulting from regulatory requirements. We may not be able to establish additional or replacement suppliers for certain components, materials or products in a timely manner largely due to the complex nature of our and many of our suppliers’ manufacturing processes. Production issues, including capacity constraint; quality issues affecting us or our suppliers; an inability to develop and validate alternative sources if required; or a significant increase in the price of materials or components could adversely affect our operations and financial condition.

In addition, our products require sterilization prior to sale and we rely on a mix of internal resources and third party vendors to perform this service. To the extent our sterilizers are unable to process our products, whether due to raw material, capacity, regulatory or other constraints, we may be unable to transition to other providers in a timely manner, which could have an adverse impact on our operations.

Our share price will fluctuate, and accordingly, the value of an investment in our common stock may also fluctuate.

Stock markets in general, and our common stock in particular, have experienced significant price and volume volatility over recent years. The market price and trading volume of our common stock may continue to be subject to significant fluctuations due not only to general stock market conditions, but also to variability in the prevailing sentiment regarding our operations or business prospects, as well as, among other things, changing investment priorities of our shareholders.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2. PROPERTIES

Our world headquarters are located in Natick, Massachusetts, with additional support provided from regional headquarters located in Tokyo, Japan and Paris, France. As of December 31, 2009, our principal manufacturing and technology centers were located in Minnesota, California, Florida, Indiana, Utah, Ireland, Costa Rica and Puerto Rico. Our products are distributed internationally from customer fulfillment centers in Massachusetts, The Netherlands and Japan. As of December 31, 2009, we maintained 17 manufacturing facilities, including nine in the U.S.; one in Puerto Rico; five in Ireland; and two in Costa Rica; as well as various distribution and technology centers. Many of these facilities produce and manufacture products for more than one of our divisions and include research facilities. The following is a summary of our facilities as of December 31, 2009 (in square feet):

		Owned				Leased				Total
U.S.			5,486,831				1,771,186				7,258,017
International			1,727,599				1,068,577				2,796,176
			7,214,430				2,839,763				10,054,193

In connection with our 2007 Restructuring plan and Plant Network Optimization program, described in Items 1 and 8 of this Annual Report, we intend to close two of our manufacturing plants in Ireland and three manufacturing plants in the U.S. by the end of 2012, representing a total of approximately 500,000 square feet.

ITEM 3. LEGAL PROCEEDINGS

See Note L — Commitments and Contingencies to our 2009 consolidated financial statements included in Item 8 of this Annual Report.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

PART II

ITEM 5.		MARKET FOR THE COMPANY’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Our common stock is traded on the New York Stock Exchange (NYSE) under the symbol “BSX.” The following table provides the market range for our common stock for each of the last eight quarters based on reported sales prices on the NYSE.

		High				Low
2009
First Quarter		$	9.41			$	6.14
Second Quarter			10.42				8.05
Third Quarter			11.75				9.63
Fourth Quarter			10.29				7.99
2008
First Quarter		$	13.21			$	10.98
Second Quarter			14.11				12.23
Third Quarter			13.89				11.75
Fourth Quarter			11.47				5.48

The closing price of our common stock on February 19, 2010 was $7.69.

We did not pay a cash dividend in 2009, 2008 or 2007. We currently do not intend to pay dividends, and intend to retain all of our earnings to repay indebtedness and invest in the continued growth of our business. We may consider declaring and paying a dividend in the future; however, there can be no assurance that we will do so.

We did not repurchase any of our common stock in 2009, 2008 or 2007. There are approximately 37 million remaining shares authorized for purchase under our share repurchase program. We currently do not anticipate material repurchases in 2010.

As of February 19, 2010, there were 17,414 record holders of our common stock.

Stock Performance Graph

The graph below compares the five-year total return to stockholders on our common stock with the return of the Standard & Poor’s (S&P) 500 Stock Index and the S&P Healthcare Equipment Index. The graph assumes $100 was invested in our common stock and in each of the named indices on January 1, 2005, and that all dividends were reinvested.

COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN
Among Boston Scientific Corporation, The S&P
500 Index And The S&P Health Care Equipment Index

Copyright© 2010 S&P, a division of The McGraw-Hill Companies Inc. All rights reserved.

ITEM 6. SELECTED FINANCIAL DATA

FIVE-YEAR SELECTED FINANCIAL DATA
(in millions, except per share data)

Operating Data

Year Ended December 31,		2009				2008				2007				2006				2005
Net sales		$	8,188			$	8,050			$	8,357			$	7,821			$	6,283
Gross profit			5,612				5,581				6,015				5,614				4,897
Selling, general and administrative expenses			2,635				2,589				2,909				2,675				1,814
Research and development expenses			1,035				1,006				1,091				1,008				680
Royalty expense			191				203				202				231				227
Loss on program termination			16
Amortization expense			511				543				620				474				142
Goodwill impairment charges							2,613
Other intangible asset impairment charges			12				177				21				56				10
Acquisition-related milestone							(250	)
Purchased research and development			21				43				85				4,119				276
Gain on divestitures							(250	)
Loss on assets held for sale											560
Restructuring charges			63				78				176
Litigation-related net charges			2,022				334				365								780
Total operating expenses			6,506				7,086				6,029				8,563				3,929
Operating (loss) income			(894	)			(1,505	)			(14	)			(2,949	)			968
(Loss) income before income taxes			(1,308	)			(2,031	)			(569	)			(3,535	)			891
Net (loss) income			(1,025	)			(2,036	)			(495	)			(3,577	)			628
Net (loss) income per common share:
Basic		$	(0.68	)		$	(1.36	)		$	(0.33	)		$	(2.81	)		$	0.76
Assuming dilution		$	(0.68	)		$	(1.36	)		$	(0.33	)		$	(2.81	)		$	0.75
Weighted-average shares outstanding — basic			1,507.9				1,498.5				1,486.9				1,273.7				825.8
Weighted-average shares outstanding — assuming dilution			1,507.9				1,498.5				1,486.9				1,273.7				837.6

Balance Sheet Data

As of December 31,		2009				2008				2007				2006				2005
Cash, cash equivalents and marketable securities		$	864			$	1,641			$	1,452			$	1,668			$	848
Working capital			1,039				2,219				2,691				3,399				1,152
Total assets			25,177				27,139				31,197				30,882				8,196
Borrowings (long-term and short-term)			5,918				6,745				8,189				8,902				2,020
Stockholders’ equity			12,301				13,174				15,097				15,298				4,282
Book value per common share		$	8.14			$	8.77			$	10.12			$	10.37			$	5.22

     See also the notes to our consolidated financial statements included in Item 8 of this Annual Report.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with the consolidated financial statements and accompanying notes contained in Item 8 of this Annual Report.

Introduction

Boston Scientific Corporation is a worldwide developer, manufacturer and marketer of medical devices that are used in a broad range of interventional medical specialties. Our business strategy is to lead global markets for less-invasive medical devices by developing and marketing innovative products, services and therapies that address unmet patient needs, provide superior clinical outcomes and demonstrate compelling value.

In the first quarter of 2008, we completed the divestiture of certain non-strategic businesses. Our operating results for the year ended December 31, 2007 include a full year of results of these businesses. Our operating results for the year ended December 31, 2008 include the results of these businesses through the date of separation. We are involved in several post-closing separation activities through transition service agreements, some from which we continued to generate net sales during 2009. Many of these transition service agreements expired throughout 2009 and the remainder will be completed during the first half of 2010. Refer to the Restructuring Initiatives section and Note F — Divestitures to our consolidated financial statements contained in Item 8 of this Annual Report for a description of these business divestitures.

Executive Summary

Financial Highlights and Trends

Our net sales in 2009 were $8.188 billion, which included net sales from divested businesses of $11 million, as compared to net sales of $8.050 billion in 2008, which included net sales from divested business of $69 million, an increase of $138 million, or two percent. Foreign currency fluctuations decreased our net sales by $92 million in 2009, as compared to 2008. Excluding the impact of foreign currency and net sales from divested businesses, our net sales increased $288 million, or four percent, as compared to the prior year.

Worldwide net sales in our cardiac rhythm management (CRM) group increased $123 million, or five percent in 2009, as compared to 2008. Excluding the negative impact of foreign currency, our worldwide CRM group net sales increased seven percent. This increase was driven by the continued success of our next-generation COGNIS® cardiac resynchronization therapy defibrillator (CRT-D) and our TELIGEN® implantable cardioverter defibrillator (ICD) systems, launched in the U.S., our Europe/Middle East/Africa (EMEA) region and certain Inter-Continental countries in 2008 and in Japan in 2009, as well as growing adoption of our ALTRUA® family of pacemaker systems, launched worldwide during 2008. In addition, worldwide net sales of our coronary stent systems increased $28 million, or two percent, on the success of our two-drug platform strategy and industry leadership for the widest range of coronary stent sizes. We are the only company in the industry to offer a two-drug platform strategy, which we believe has enabled us to maintain our leadership position in the worldwide drug-eluting stent market. Worldwide net sales from our Endoscopy business grew $63 million, or seven percent, achieving net sales of $1.006 billion in 2009, on the continued success of our biliary and hemostasis franchises. Worldwide net sales from our Urology/Women’s Health business grew $25 million, or six percent, due primarily to several successful product launches within our Women’s Health franchise during the year. Our Neuromodulation division increased worldwide net sales $40 million, or 17 percent, in 2009, as compared to 2008, as a result of the continued adoption of our Precision® Spinal Cord Stimulation system. Net sales from our Neurovascular business decreased $12 million, or three percent, in 2009, as compared to 2008,

but are expected to benefit from upcoming product launches in 2010. Refer to the Business and Market Overview and Results of Operations sections for discussion of our net sales by division and region.

Our reported net loss in 2009 was $(1.025) billion, or $(0.68) per share, on approximately 1.5 billion weighted-average shares outstanding, as compared to a net loss in 2008 of $(2.036) billion, or $(1.36) per share, also on 1.5 billion weighted-average shares outstanding. Our reported results for 2009 included intangible asset impairment charges; acquisition-, divestiture-, litigation- and restructuring-related net charges; and discrete tax items of $1.785 billion (after-tax), or $1.18 per share, consisting of:

	•		$10 million ($12 million pre-tax) of intangible asset impairment charges;
	•		$20 million ($21 million pre-tax), of purchased research and development charges associated with the acquisition of certain technology rights;
	•		$7 million ($8 million pre-tax) of gains on the sale of non-strategic investments and other credits associated with prior period divestitures of non-strategic businesses;
	•		$97 million ($130 million pre-tax) of costs associated with our 2007 Restructuring plan and Plant Network Optimization program;
	•		$1.771 billion ($2.022 billion pre-tax) of net charges associated with various litigation matters; and
	•		$106 million of discrete tax benefits related to certain tax positions associated with prior period acquisition-, divestiture-, litigation- and restructuring-related charges.

On February 1, 2010, we announced the settlement of three patent litigation matters with Johnson & Johnson for $1.725 billion, plus interest. We have accounted for this settlement as of December 31, 2009 in our consolidated financial statements included in Item 8 of this Annual Report. Refer to the Results of Operations section and Note L — Commitments and Contingencies to our consolidated financial statements for further information.

Our reported results for 2008 included goodwill and intangible asset impairment charges; acquisition-, divestiture-, litigation- and restructuring-related net charges; and discrete tax items of $2.796 billion (after-tax), or $1.87 per share, consisting of:

	•		$2.613 billion, on both a pre-tax and after-tax basis, of goodwill impairment charges, associated with our 2006 acquisition of Guidant Corporation;
	•		$143 million ($177 million pre-tax) of other intangible asset impairment charges;
	•		a $184 million gain ($250 million pre-tax) related to the receipt of an acquisition-related milestone from Abbott Laboratories;
	•		$44 million ($43 million pre-tax) of net purchased research and development charges, associated primarily with our acquisitions of Labcoat, Ltd. and CryoCor, Inc.;
	•		$100 million of costs ($133 million pre-tax) associated with our 2007 Restructuring plan and Plant Network Optimization program;
	•		a $131 million net gain ($170 million pre-tax), associated with the sale of certain non-strategic businesses and investments;
	•		$238 million of litigation-related charges ($334 million pre-tax) resulting primarily from a ruling by a federal judge in a patent infringement case brought against us by Johnson & Johnson; and
	•		$27 million of discrete tax benefits related to certain tax positions associated with prior period acquisition-, divestiture-, litigation-, and restructuring-related charges.

During the fourth quarter of 2008, the decline in our stock price and our market capitalization created an indication of potential impairment of our goodwill balance. Therefore, we performed an interim impairment test and recorded a $2.613 billion goodwill impairment charge associated with our acquisition of Guidant Corporation. The impact of economic conditions, and the related increase in volatility in the equity and credit markets, on our risk-adjusted weighted-average cost of capital, along with reductions in market demand for products in our U.S. CRM reporting unit relative to our assumptions at the time of our acquisition of Guidant, were the key factors contributing to the

impairment charge. Refer to Note E — Goodwill and Other Intangible Assets to our consolidated financial statements contained in Item 8 of this Annual Report for more information.

Cash generated by operating activities was $835 million in 2009 and $1.216 billion in 2008, and continues to be a major source of funds for servicing our outstanding debt obligations and investing in our growth. Our cash flows from operations in 2009 includes a $716 million payment to Johnson & Johnson related to certain patent disputes, discussed in Note L — Commitments and Contingencies to our consolidated financial statements contained in Item 8 of this Annual Report. As of December 31, 2009, we had total debt of $5.918 billion, cash and cash equivalents of $864 million and working capital of $1.039 billion. On February 1, 2010, we made a $1.000 billion litigation-related payment to Johnson & Johnson, using $800 million of cash on hand, and $200 million of borrowings under our revolving credit facility, and will pay an additional $725 million on or before January 3, 2011. During 2009, we issued $2.0 billion of senior notes and prepaid all $2.825 billion remaining under our term loan. In addition, Standard & Poor’s upgraded our credit rating to investment grade with a stable outlook. This rating improvement reflects the strength of our product portfolio, our commitment to debt reduction, our improving financial fundamentals, and the progress we are making in driving profitable sales growth. We expect to refinance the majority of our 2011 debt maturities and revolving credit facility by mid-2010.

Healthcare Reform and Current Economic Climate

Political, economic and regulatory influences are subjecting the healthcare industry to potential fundamental changes that could substantially affect our results of operations. Government and private sector initiatives to limit the growth of healthcare costs, including price regulation, competitive pricing, coverage and payment policies, comparative effectiveness of therapies, technology assessments and managed-care arrangements, are continuing in many countries where we do business, including the U.S. These changes are causing the marketplace to put increased emphasis on the delivery of more cost-effective treatments. Although we believe our less-invasive products and technologies generate favorable clinical outcomes, value and cost efficiency, the resources necessary to demonstrate comparative effectiveness may be significant. In addition, uncertainty remains regarding proposed significant reforms to the U.S. healthcare system, including the potential innovation tax on medical device companies.

Additionally, our results of operations could be substantially affected by global economic factors and local operating and economic conditions. Our customers may experience financial difficulties or be unable to borrow money to fund their operations which may adversely impact their ability or decision to purchase our products, particularly capital equipment, or to pay for our products they do purchase on a timely basis, if at all. We cannot predict to what extent global economic conditions and the increased focus on healthcare systems and costs in the U.S. and abroad may negatively impact our average selling prices, our net sales and profit margins, procedural volumes and reimbursement rates from third party payors.

Restructuring Initiatives

We are a diversified worldwide medical device leader and hold number one or two positions in the majority of the markets in which we compete. Over the past thirty years, we have generated impressive revenue growth driven by product innovation, strategic acquisitions and robust investments in research and development. We generate strong cash flow, which has enabled us to reduce our debt obligations and further invest in our growth. On an on-going basis, we monitor the dynamics of the economy, the healthcare industry, and the markets in which we compete; and we continue to assess opportunities for improved operational effectiveness and efficiency, and better alignment of expenses with revenues, while preserving our ability to make the investments in quality, research and development projects, capital and our people that are essential to our long-term success. As a result of these assessments, we have undertaken various restructuring initiatives to focus our business, diversify and reprioritize our product

portfolio and redirect research and development and other spending toward higher payoff products in order to enhance our growth potential. These initiatives are described below.

2010 Restructuring Plan

On February 6, 2010, our Board of Directors approved, and we committed to, a series of management changes and restructuring initiatives (the 2010 Restructuring plan) designed to strengthen and position us for long-term success. Key activities under the plan include the integration of our Cardiovascular and CRM businesses, as well as the restructuring of certain other businesses and corporate functions; the centralization of our research and development organization; the re-alignment of our international structure, and the reprioritization and diversification of our product portfolio, in order to drive innovation, accelerate profitable growth and increase both accountability and shareholder value. Activities under the 2010 Restructuring Plan will be initiated in the first quarter of 2010 and are expected to be substantially completed by the end of 2011. We expect the execution of the 2010 Restructuring plan will result in the elimination of approximately 1,000 to 1,300 positions worldwide by the end of 2011. Refer to Results of Operations and Note H — Restructuring-related Activities to our consolidated financial statements contained in Item 8 of this Annual Report for information on our restructuring-related activities and estimated costs.

Plant Network Optimization

In January 2009, our Board of Directors approved, and we committed to, a Plant Network Optimization program, which is intended to simplify our manufacturing plant structure by transferring certain production lines among facilities and by closing certain other facilities. The program is a complement to our 2007 Restructuring plan, and is intended to improve overall gross profit margins. Activities under the Plant Network Optimization program were initiated in the first quarter of 2009 and are expected to be substantially complete by the end of 2011. Refer to Results of Operations and Note H — Restructuring-related Activities to our consolidated financial statements contained in Item 8 of this Annual Report for information on our restructuring-related activities and estimated costs.

2007 Restructuring Plan

In October 2007, our Board of Directors approved, and we committed to, an expense and head count reduction plan (the 2007 Restructuring plan), These initiatives were designed to enhance short- and long-term shareholder value, including the restructuring of several of our businesses and product franchises; the sale of non-strategic businesses and investments; and significant expense and head count reductions. Our goal was, and continues to be, to better align expenses with revenues, while preserving our ability to make the investments in quality, research and development, capital improvements and our people that are essential to our long-term success. These initiatives have helped to provide better focus on our core businesses and priorities, which we believe will strengthen Boston Scientific for the future and position us for increased, sustainable and profitable sales growth. The execution of this plan enabled us to reduce research and development and selling, general and administrative expenses by an annualized run rate of approximately $500 million exiting 2008, and resulted in the elimination of approximately 2,300 positions worldwide. We initiated activities under the plan in the fourth quarter of 2007 and substantially completed the major activities under the plan as of December 31, 2009. Refer to Results of Operations and Note H — Restructuring-related Activities to our consolidated financial statements contained in Item 8 of this Annual Report for information on our restructuring-related activities and estimated costs.

Divestitures

During 2007, we determined that our Auditory, Vascular Surgery, Cardiac Surgery, Venous Access and Fluid Management businesses, as well as our TriVascular Endovascular Aortic Repair (EVAR) program were no longer strategic to our on-going operations. We completed the sale of these businesses in the first

quarter of 2008, receiving pre-tax proceeds of approximately $1.3 billion, and eliminated 2,000 positions in connection with these divestitures. Refer to Results of Operations for more information.

During 2007, we announced our intent to monetize those investments in our portfolio determined to be non-strategic. During 2008, we entered transactions to sell the majority of our investments in, and notes receivable from, certain publicly traded and privately held entities, and received pre-tax proceeds for investments sold of $149 million. During 2009, we completed the sale of our non-strategic investments, and received additional proceeds of $45 million.

In connection with our 2010 Restructuring plan and strategy to reduce risk, increase operational leverage and accelerate profitable growth, we may explore opportunities to divest one or more select businesses.

Business and Market Overview

Cardiac Rhythm Management

We estimate that the worldwide CRM market, including Electrophysiology, approximated $12.6 billion in 2009, as compared to $12.2 billion in 2008. During the third quarter of 2009, results were published in the New England Journal of Medicine from the Boston Scientific sponsored MADIT-CRT clinical trial, which provide evidence that Boston Scientific’s CRT-D therapy significantly reduces the relative risk of all-cause mortality or first heart failure intervention when compared to traditional ICD therapy. These results demonstrated that early intervention with Boston Scientific’s CRT-D therapy in certain patients can slow the progression of heart failure. In addition, during the second quarter of 2009, we announced eight-year follow-up data from our MADIT II clinical study, which demonstrated that the life-saving benefits of ICD therapy improved over time. We have completed a pre-market approval filing with the U.S. Food and Drug Administration (FDA) for an expanded CRT-D indication, and believe that we can reasonably expect FDA approval by mid-2010. We believe an expanded indication would create an opportunity to strengthen the CRM market and further enhance our position within that market.

Our CRM group net sales represented approximately 31 percent of our consolidated net sales in 2009 and 2008. Our worldwide CRM group net sales increased $123 million, or five percent, in 2009, as compared to 2008. The following are the components of our worldwide CRM group net sales:

		Year Ended												Year Ended
		December 31, 2009												December 31, 2008
(in millions)		U.S.				International				Total				U.S.				International				Total
ICD systems		$	1,248			$	544			$	1,792			$	1,140			$	541			$	1,681
Pacemaker systems			346				275				621				340				265				605
CRM products			1,594				819				2,413				1,480				806				2,286
Electrophysiology			116				33				149				116				37				153
Total CRM group		$	1,710			$	852			$	2,562			$	1,596			$	843			$	2,439

Our U.S. CRM group net sales increased $114 million, or seven percent, in 2009, as compared to 2008. Our U.S. net sales benefited from the continued success of our next-generation COGNIS® CRT-D and TELIGEN® ICD systems, and our ALTRUA® family of pacemaker systems, as well as marginal growth in the size of the U.S. CRM market. In 2010, we will continue to execute on our product pipeline and expect to launch our next-generation line of defibrillators in the U.S. by the end of the year, which includes new features designed to improve functionality, diagnostic capability and ease of use, and anticipate launching our next-generation INGENIO™ pacemaker system in the U.S. in the first quarter of 2011.

Our international CRM group net sales increased $9 million, or one percent, in 2009, as compared to 2008. Excluding the impact of foreign currency exchange rates, which contributed a negative $42 million to

2009 CRM group net sales as compared to the prior year, international sales of our ICD systems (including CRT-D systems) grew $31 million, or six percent, driven by the continued adoption of our COGNIS® CRT-D and TELIGEN® ICD systems. Further, our international pacemaker system net sales increased $18 million, or seven percent, excluding the impact of foreign currency exchange rates, in 2009, as compared to 2008, driven primarily by growing adoption of our ALTRUA® family of pacemakers. In the fourth quarter of 2009, we launched our COGNIS® CRT-D, TELIGEN® ICD and ALTRUA® pacemaker systems in Japan. We are targeting the completion of our international launch of these systems in early 2010. In addition, in July 2009, we received CE Mark approval for our LATITUDE® Patient Management System and have begun a phased launch in certain European countries. The LATITUDE® technology, which enables physicians to monitor device performance remotely while patients are in their homes, is a key component of many of our implantable device systems. We also plan to launch our next-generation INGENIO™ pacemaker system in our EMEA region and certain Inter-Continental countries in the first quarter of 2011, and in Japan in the fourth quarter of 2011, and believe that these launches position us well within the worldwide CRM market.

Net sales from our CRM group represent a significant source of our overall net sales. Therefore, increases or decreases in our CRM group net sales could have a significant impact on our results of operations. Recent disciplinary actions we have taken against certain of our U.S. CRM sales personnel could result in lost U.S. CRM net sales in the short term. We believe that with sustained targeted investments we can continue to grow our worldwide CRM business. However, the following variables may impact the size of the CRM market and/or our share of that market:

	•		future product field actions or new physician advisories by us or our competitors;
	•		the impact of market and economic conditions on average selling prices and the overall number of procedures performed;
	•		our ability to successfully launch next-generation products and technology worldwide, and to effectively compete with new products available in the market;
	•		the ability of CRM manufacturers to maintain the trust and confidence of the implanting physician community, the referring physician community and prospective patients in CRM technologies
	•		the successful conclusion and variations in outcomes of on-going and future clinical trials that may provide opportunities to expand indications for use and timely receipt of regulatory approvals to expand indications for use;
	•		variations in clinical results, reliability or product performance of our and our competitors’ products;
	•		delayed or limited regulatory approvals and unfavorable reimbursement policies;
	•		our ability to retain key members of our sales team and other key personnel, particularly following disciplinary actions taken during the year; and
	•		new competitive launches.

Coronary Stents

Net sales of our coronary stent systems represented approximately 23 percent of our consolidated net sales in 2009 and 2008. We estimate that the worldwide coronary stent market approximated $5.0 billion in 2009 and 2008. The size of the coronary stent market is driven primarily by the number of

percutaneous coronary intervention (PCI) procedures performed, as well as the percentage of those in which stents are implanted; the number of devices used per procedure; average selling prices; and the drug-eluting stent penetration rate². Historically, uncertainty regarding the efficacy of drug-eluting stent systems, as well as the perceived risk of late stent thrombosis³ following the use of drug-eluting stent systems, contributed to a decline in the worldwide drug-eluting stent market size. However, data addressing this risk and supporting the safety of drug-eluting stent systems positively affected trends in the growth of the drug-eluting stent market throughout 2008 and 2009, as referring cardiologists regained and maintain confidence in this technology.

We are the only company in the industry to offer a two-drug platform strategy with our TAXUS® paclitaxel-eluting stent system and our everolimus product franchise, consisting of the PROMUS® stent system, currently supplied to us by Abbott Laboratories, and our next-generation internally-manufactured everolimus-eluting stent system, the PROMUS® Element™ stent system, which we launched in our EMEA region and certain Inter-Continental countries in the fourth quarter of 2009. We expect to launch our PROMUS® Element™ stent system in the U.S. and Japan in mid-2012. Our product pipeline also includes the next-generation TAXUS® Element™ stent system, which we expect to launch in EMEA and certain Inter-Continental countries during the second quarter of 2010, in the U.S. in mid-2011 and Japan in late 2011 or early 2012. Recently published data from a single-center, non-double blinded, underpowered study sponsored by one of our competitors are inconsistent with the overall body of evidence supporting our TAXUS® paclitaxel-eluting coronary stent system. However, perceptions of these data have negatively affected, and may continue to have a negative impact on, physician and patient confidence in our technology and net sales of our TAXUS® stent systems. The following are the components of our worldwide coronary stent system sales:

		Year Ended												Year Ended
		December 31, 2009												December 31, 2008
(in millions)		U.S.				International				Total				U.S.				International				Total
TAXUS®		$	431			$	596			$	1,027			$	621			$	697			$	1,318
PROMUS®			480				201				681				212				104				316
Drug-eluting			911				797				1,708				833				801				1,634
Bare-metal			57				114				171				88				129				217
		$	968			$	911			$	1,879			$	921			$	930			$	1,851

Our U.S. net sales of drug-eluting stent systems increased $78 million, or nine percent, in 2009, as compared to the prior year. Despite an increase in competition following two new market entrants during 2008, we maintained our leadership position during 2009 with an estimated 49 percent share of the U.S. drug-eluting stent market, exiting the year with an estimated 46 percent share during the fourth quarter of 2009. We believe we have maintained our position in this market due to the success of our two-drug platform strategy. The strength of our TAXUS® Liberté® stent system and the PROMUS® stent system, as well as our TAXUS® Express²® Atom™ stent system, launched in the U.S. during the fourth quarter of 2008, have combined to enable us to sustain our leadership in the U.S. drug-eluting stent market. In the second quarter of 2009, we received FDA approval for the TAXUS® Liberté® Atom™ stent system and, in July 2009, we received approval for the TAXUS® Liberté® Long stent system, further adding to our industry leadership for the widest range of coronary stent sizes. In addition, increasing penetration rates have had a positive effect on the size of the U.S. drug-eluting stent market and our net sales. Average drug-eluting stent penetration rates in the U.S. were 75 percent during 2009, exiting at 77 percent for the fourth quarter of 2009, as compared to 68 percent for 2008, with an exit rate of 73 percent. Penetration rates in the U.S. consistently increased throughout 2008 and have remained steady throughout 2009,

indicating a recovery and stabilization of the U.S. drug-eluting stent market. Partially offsetting the impact of increased penetration rates on the size of the market were reductions in average selling prices in 2009, as compared to 2008, as a result of competitive pricing pressures. We estimate that the average selling price of our drug-eluting stent systems in the U.S. decreased approximately eight percent in 2009, as compared to the prior year.

Our international drug-eluting stent system net sales decreased $4 million, or less than one percent, in 2009 as compared to 2008, but were negatively impacted by $22 million, as compared to the same period in the prior year, as a result of foreign currency exchange rates. Within our international business, net sales of our drug-eluting stent systems in Japan increased $45 million, or 20 percent, in 2009, as compared to the prior year, driven primarily by the favorable impact of foreign currency exchange rates in that region, as well as the February launch of our second-generation TAXUS® Liberté® stent system. We estimate that our share of the drug-eluting stent market in Japan was 49 percent in 2009, exiting at 44 percent, as compared to a 2008 average market share of 45 percent. Previously, our TAXUS® drug-eluting stent system was one of only two drug-eluting stent products on the market in Japan. In May 2009, however, an additional competitor entered this market, which negatively impacted our share throughout the second half of the year. In the first quarter of 2010, we received approval from the Japanese Ministry of Health, Labor and Welfare (MHLW) for the PROMUS® stent, and subsequently launched this product in Japan. Our net sales of drug-eluting stent systems in our EMEA region decreased $42 million, or eleven percent, and net sales of these systems in our Inter-Continental region decreased $7 million, or three percent, both due primarily to the negative impact of foreign currency exchange rates and reductions in our average selling prices. In November 2009, we announced receipt of CE Mark approval to market our next-generation internally-manufactured everolimus-eluting stent system, the PROMUS® Element™ stent system, and simultaneously launched this stent system in our EMEA region and certain Inter-Continental countries. Our PROMUS® Element™ stent system incorporates a unique platinum chromium alloy offering greater radial strength and flexibility than older alloys, and provides enhanced visibility and reduced recoil. The innovative stent design improves deliverability and allows for more consistent lesion coverage and drug distribution. This latest product offering demonstrates our commitment to drug-eluting stent market leadership and continued innovation. Our product pipeline also includes the next-generation TAXUS® Element™ stent system, which we expect to launch in EMEA and certain Inter-Continental countries during the first half of 2010, in the U.S. in mid-2011 and Japan in late 2011 or early 2012.

We market the PROMUS® everolimus-eluting coronary stent system, a private-labeled XIENCE V® stent system supplied to us by Abbott Laboratories. As of the closing of Abbott’s 2006 acquisition of Guidant Corporation’s vascular intervention and endovascular solutions businesses, we obtained a perpetual license to the intellectual property used in Guidant’s drug-eluting stent system program purchased by Abbott. We believe that being the only company to offer two distinct drug-eluting stent platforms provides us a considerable advantage in the drug-eluting stent market and has enabled us to sustain our worldwide leadership position, with an estimated 39 percent market share exiting 2009. However, under the terms of our supply arrangement with Abbott, the gross profit and operating profit margin of everolimus-eluting stent systems supplied to us by Abbott, including any improvements or iterations approved for sale during the term of the applicable supply arrangements and of the type that could be approved by a supplement to an approved FDA pre-market approval, is significantly lower than that of our TAXUS® stent system. Specifically, the PROMUS® stent system has operating profit margins that approximate half of our TAXUS® stent system operating profit margin. Therefore, if sales of everolimus-eluting stent systems supplied to us by Abbott increase in relation to our total drug-eluting stent system sales, our profit margins will decrease. Refer to our Gross Profit discussion for more information on the impact this sales mix has had on our gross profit margins. We expect that our PROMUS® Element^TM stent system, launched in our EMEA region and certain Inter-Continental countries in November 2009, will have gross profit margins more comparable to our TAXUS® stent system and will positively affect our overall gross profit and operating profit margins in these regions. However, this positive impact on our

gross profit margin will be offset by the impact of recent approval and launch of the PROMUS® stent system, supplied to us by Abbott, in Japan.

Further, the price we pay for our supply of everolimus-eluting stent systems from Abbott is determined by contracts with Abbott and is based, in part, on previously fixed estimates of Abbott’s manufacturing costs for everolimus-eluting stent systems and third-party reports of our average selling price of these stent systems. Amounts paid pursuant to this pricing arrangement are subject to a retroactive adjustment approximately every two years based on Abbott’s actual costs to manufacture these stent systems for us and our average selling price of everolimus-eluting stent systems supplied to us by Abbott. Our gross profit margin may be positively or negatively impacted in the future as a result of this adjustment process.

We are currently reliant on Abbott for our supply of everolimus-eluting stent systems in the U.S. and Japan. Our supply agreement with Abbott for everolimus-eluting stent systems in these regions extends through the end of the second quarter of 2012. At present, we believe that our supply of everolimus-eluting stent systems from Abbott and our current launch plans for our next-generation internally-manufactured everolimus-eluting stent system is sufficient to meet customer demand. However, any production or capacity issues that affect Abbott’s manufacturing capabilities or our process for forecasting, ordering and receiving shipments may impact the ability to increase or decrease our level of supply in a timely manner; therefore, our supply of everolimus-eluting stent systems supplied to us by Abbott may not align with customer demand, which could have an adverse effect on our operating results. We expect to launch an internally developed and manufactured next-generation everolimus-eluting stent system, our PROMUS® Element™ stent system, in the U.S. and Japan in mid-2012.

Historically, the worldwide coronary stent market has been dynamic and highly competitive with significant market share volatility. In addition, in the ordinary course of our business, we conduct and participate in numerous clinical trials with a variety of study designs, patient populations and trial end points. Unfavorable or inconsistent clinical data from existing or future clinical trials conducted by us, by our competitors or by third parties, or the market’s perception of these clinical data, may adversely impact our position in, and share of the drug-eluting stent market and may contribute to increased volatility in the market.

We believe that we can sustain our leadership position within the worldwide drug-eluting stent market for a variety of reasons, including:

	•		our two drug-eluting stent platform strategy, including specialty stent sizes;
	•		the broad and consistent long-term results of our TAXUS® clinical trials, and the favorable results of the XIENCE V®/PROMUS® stent system clinical trials to date;
	•		the performance benefits of our current and future technology;
	•		the strength of our pipeline of drug-eluting stent products, including our PROMUS® ElementÔ and TAXUS® ElementÔ stent systems;
	•		our overall position in the worldwide interventional medicine market and our experienced interventional cardiology sales force; and
	•		the strength of our clinical, selling, marketing and manufacturing capabilities.

However, a decline in net sales from our drug-eluting stent systems could have a significant adverse impact on our operating results and operating cash flows. The most significant variables that may impact the size of the drug-eluting stent market and our position within this market include:

	•		our ability to successfully launch next-generation products and technology features, including the PROMUS® ElementÔ and TAXUS® ElementÔ stent systems;
	•		the impact of competitive pricing pressure on average selling prices of drug-eluting stent systems available in the market;
	•		the outcomes of on-going and future clinical results involving our products, including those sponsored by our competitors, or perceived product performance of our or our competitors’ products;
	•		delayed or limited regulatory approvals and unfavorable reimbursement policies;
	•		the outcome of intellectual property litigation;

	•		changes in FDA clinical trial data and post-market surveillance requirements, as well as international regulatory requirements, and the associated impact on new product launch schedules and the cost of product approvals and compliance; and
	•		physician and patient confidence in our current and next-generation technology, including drug-eluting stent technology; and
	•		changes in drug-eluting stent penetration rates, the overall number of PCI procedures performed and average number of stents used per procedure.

During 2009, we successfully negotiated closure of several long-standing legal matters, including multiple matters with Johnson & Johnson; all outstanding litigation between us and Medtronic, Inc. with respect to interventional cardiology and endovascular repair cases; and all outstanding litigation between us and Bruce Saffran, M.D., Ph.D. However, there continues to be significant intellectual property litigation in the coronary stent market. In particular, although our recent settlements with Johnson & Johnson resolved 17 litigation matters, we continue to be involved in patent litigation with Johnson & Johnson relating to drug eluting stent delivery systems. We have each asserted that products of the other infringe patents owned or exclusively licensed by each of us. Adverse outcomes in one or more of these matters could have a material adverse effect on our ability to sell certain products and on our operating margins, financial position, results of operation or liquidity. See Note L- Commitments and Contingencies to our consolidated financial statements contained in Item 8 of this Annual Report for a description of these legal proceedings.

Interventional Cardiology (excluding coronary stent systems)

In addition to coronary stent systems, our Interventional Cardiology business markets balloon catheters, rotational atherectomy systems, guide wires, guide catheters, embolic protection devices, and diagnostic catheters used in percutaneous transluminal coronary angioplasty (PTCA) procedures; as well as ultrasound imaging systems. Our worldwide net sales of these products decreased to $980 million in 2009, as compared to $1.028 billion in 2008, a decrease of $48 million or five percent. Our U.S. net sales represented $409 million in 2009, as compared to $461 million in the prior year, a decrease of $52 million or 11 percent. This decrease was the result of a delay in new product introductions, and competitive product launches, as well as the impact of product recalls associated with a third-party provider. Our international net sales of these products increased to $571 million in 2009, as compared to $567 million in 2008. Despite an overall decrease in our Interventional Cardiology net sales, we continue to hold a strong leadership position in the PTCA balloon catheter market with more than 50 percent share of the U.S. market, and are planning a number of additional new product launches during 2010, including the

Apex™ platinum pre-dilatation balloon catheter for improved radiopacity, the NC Quantum ApexÔ post-dilatation balloon catheter and the KinetixÔ family of guidewires.

Peripheral Interventions

Our Peripheral Interventions business product offerings include stents, balloon catheters, sheaths, wires and vena cava filters, which are used to diagnose and treat peripheral vascular disease. Our worldwide net sales of these products decreased to $661 million in 2009, as compared to $684 million in 2008, a decrease of $23 million or three percent. Foreign currency exchange rates contributed a negative $10 million to our 2009 Peripheral Interventions net sales, as compared to the same period in the prior year. We believe that we are well positioned in the growing Peripheral Interventions market, due in part to the recent launches of our Carotid WALLSTENT® Monorail® Endoprosthesis for the treatment of patients with carotid artery disease who are at high risk for surgery; our Express® SD Renal Monorail® premounted stent system for use as an adjunct therapy to percutaneous transluminal renal angioplasty in certain lesions of the renal arteries; and our Sterling® Monorail® and Over-the-Wire balloon dilatation catheter for use in the renal and lower extremity arteries. In addition, during the first quarter of 2010, we expect to receive FDA approval for an iliac indication for our Express® LD stent system. We believe that these product offerings will continue to provide positive momentum for our Peripheral Interventions business.

Endoscopy

Our Endoscopy division develops and manufactures devices to treat a variety of medical conditions including diseases of the digestive and pulmonary systems. Our worldwide net sales of these products increased $63 million, or seven percent, to $1.006 billion in 2009, as compared to $943 million in 2008. Our U.S. net sales of these products increased $40 million to $517 million, as compared to the same period in the prior year, and our international net sales increased $23 million, despite an $11 million negative impact from foreign currency exchange rates, to $489 million. Excluding the impact of foreign currency exchange rates, our worldwide Endoscopy net sales increased eight percent in 2009, as compared to 2008. This increase was due primarily to higher net sales within our stent franchise, due largely to the U.S. launch of the WallFlex® biliary stent system and continued commercialization of the WallFlex® esophageal stent. In addition, our hemostasis franchise net sales benefited from increased utilization of our Resolution® Clip Device, an endoscopic mechanical clip to treat gastrointestinal bleeding, and our biliary franchise drove solid growth on the strength of our rapid exchange biliary devices. During 2010, we will continue the commercialization of our market-leading WallFlex® stent line; our DreamwireÔ high performance guidewire and DreamtomeÔ RX cannulating sphincterotome; as well as expanded sizes of our Radial® Jaw 4 biopsy forceps.

Urology/Women’s Health

Our Urology/Women’s Health division develops and manufactures devices to treat various urological and gynecological disorders. Our worldwide net sales of these products increased $25 million, or six percent, to $456 million in 2009. Our U.S. net sales increased $18 million during 2009, as compared to the prior year, to $353 million, and our international net sales increased $7 million, as compared to 2008, to $103 million. Excluding the impact of foreign currency exchange rates, net sales of our Urology/Women’s Health products increased $27 million, or six percent, in 2009, as compared to 2008, and were negatively impacted by a July 2009 recall related to catheters used in our Prolieve Thermodilatation® System for the treatment of benign prostatic hyperplasia. This recall had a negative impact of approximately $8 million resulting from estimated lost sales. The product issue that resulted in this recall has been corrected, and we re-launched the new catheter in November 2009. We do not expect that this recall will have a material future impact on our Urology/Women’s Health net sales. Our Women’s Health business grew approximately 19 percent in 2009, as compared to the prior year, on the strength of several new product launches, including our SolyxÔ single incision sling system and our UpholdÔ vaginal support system. In

addition, we executed two new Women’s Health product launches during 2009 with our second-generation ProCerva® Hydro ThermAblator® (HTA) procedure set, used in the treatment of excessive uterine bleeding, as well as our new Pinnacle® posterior pelvic floor repair kit. We expect these launches to continue to drive growth in our Women’s Health business.

Neuromodulation

Within our Neuromodulation business, we market the Precision® Spinal Cord Stimulation (SCS) system, used for the management of chronic pain. Our worldwide net sales of Neuromodulation products increased to $285 million for 2009, as compared to $245 million for 2008, an increase of $40 million or approximately 17 percent. Our U.S. net sales of Neuromodulation products were $271 million for 2009, as compared to $234 million in the prior year. We believe that we continue to have a technology advantage over our competitors with proprietary features such as Multiple Independent Current Control, which is intended to allow the physician to target specific areas of pain more precisely. As a demonstration of our commitment to strengthening clinical evidence with spinal cord stimulation, we are initiating a trial to assess the therapeutic effectiveness and cost effectiveness of spinal cord stimulation compared to reoperation in patients with failed back surgery syndrome. We believe that this trial could result in consideration of spinal cord stimulation much earlier in the continuum of care. In addition, we anticipate the launch of two new lead products during 2010. These factors, coupled with the move of our Neuromodulation business to a new state-of-the-art facility, position us well for continued growth in this market.

Neurovascular

We market a broad line of products used in treating diseases of the neurovascular system and hold leading market positions in several product markets. Our worldwide net sales of Neurovascular products decreased to $348 million in 2009, as compared to $360 million for 2008, a decrease of $12 million, or three percent, resulting primarily from new competitive launches and a delay in the launch of our next-generation products. The unfavorable impact of foreign currency exchange rates contributed a negative $4 million to our worldwide Neurovascular sales in 2009, as compared to 2008. We plan to launch a next-generation family of detachable coils, including an enhanced delivery system designed to reduce coil detachment times, in the U.S. in 2010. Within our product pipeline, we are also developing next-generation technologies for the treatment of aneurysms, ICAD and acute ischemic stroke, and are involved in numerous clinical activities that are designed to expand the size of the worldwide Neurovascular market.

Innovation

Our approach to innovation combines internally developed products and technologies with those we may obtain externally through strategic acquisitions and alliances. Our research and development efforts are focused largely on the development of next-generation and novel technology offerings across multiple programs and divisions. We expect to continue to invest in our core franchises and are also investigating opportunities to further expand our presence in, and diversify into, areas including atrial fibrillation, underserved defibrillator populations, acute ischemic stroke, coronary artery disease, peripheral vascular disease, structural heart disease, vascular closure, hypertension, women’s health, endoluminal surgery, diabetes/obesity, endoscopic pulmonary intervention and deep brain stimulation. There can be no assurance that these technologies will achieve technological feasibility, obtain regulatory approvals or gain market acceptance. A delay in the development or approval of these technologies may adversely impact our future growth.

We have historically entered strategic alliances with both publicly traded and privately held companies. We enter these alliances to broaden our product technology portfolio and to strengthen and expand our reach into existing and new markets. During 2008, we monetized certain investments and alliances no longer determined to be strategic (see the Restructuring Initiatives section for more information). While we

believe our remaining strategic investments are within attractive markets with an outlook for sustained growth, the full benefit of these alliances is highly dependent on the strength of the other companies’ underlying technology and ability to execute. An inability to achieve regulatory approvals and launch competitive product offerings, or litigation related to these technologies, among other factors, may prevent us from realizing the benefit of these strategic alliances. Certain of our equity investments give us the option to acquire the company in the future. Any potential future acquisitions we consummate may be dilutive to our earnings and may require additional debt or equity financing, depending on their size and nature.

Regulatory Compliance

In January 2006, legacy Boston Scientific received a corporate warning letter from the FDA notifying us of serious regulatory problems at three of our facilities and advising us that our corporate-wide corrective action plan relating to three site-specific warning letters issued to us in 2005 was inadequate. We have identified solutions to the quality system issues cited by the FDA and have made significant progress in transitioning our organization to implement those solutions. During 2008, the FDA reinspected a number of our facilities and, in October 2008, informed us that our quality system is now in substantial compliance with its Quality System Regulations. The FDA has approved all of our requests for final approval of Class III product submissions previously on hold due to the corporate warning letter and is processing all requests for Certificates to Foreign Governments (CFGs). In November of 2009 and January of 2010, the FDA reinspected two official action-indicated Boston Scientific sites to follow up on observations from the 2008 FDA inspections. Both of these FDA inspections confirmed that all issues at the sites have been resolved and all restrictions related to the corporate warning letter have been removed. The corporate warning letter remains in place pending FDA internal administrative procedures.

During the first quarter of 2009, we acquired a third-party sterilization facility which was subject to a warning letter from the FDA. The FDA had requested documentation and explanations regarding various corrective actions related to the facility. This information was provided to the FDA and the FDA has since re-inspected the facility, issuing no observations, and subsequently removed all restrictions related to the warning letter.

Other Governmental Matters

Certain state governments have recently enacted, and the federal government has proposed, legislation aimed at increasing transparency in relationships between industry and health care professionals (HCPs). As a result, we are required by law to report many types of direct and indirect payments and other transfers of value to HCPs licensed by certain states and expect that we will have to make similar reports at the federal level in the near future. We are devoting substantial time and financial resources in order to develop and implement enhanced structure, policies, systems and processes in order to comply with these legal and regulatory requirements. Our new systems are designed to provide enhanced visibility and consistency across our businesses with respect to our interactions with health care professionals. Implementation of these policies, systems and processes, or failure to comply with these policies could have a negative impact our results of operations.

Reimbursement and Funding

Our products are purchased principally by hospitals, physicians and other healthcare providers worldwide that typically bill various third-party payors, such as governmental programs (e.g., Medicare and Medicaid), private insurance plans and managed-care programs for the healthcare services provided to their patients. Third-party payors may provide or deny coverage for certain technologies and associated procedures based on independently determined assessment criteria. Reimbursement by third-party payors for these services is based on a wide range of methodologies that may reflect the services’

assessed resource costs, clinical outcomes and economic value. These reimbursement methodologies confer different, and sometimes conflicting, levels of financial risk and incentives to HCPs and patients, and these methodologies are subject to frequent refinements. Third-party payors are also increasingly adjusting reimbursement rates and challenging the prices charged for medical products and services. There can be no assurance that our products will be automatically covered by third-party payors, that reimbursement will be available or, if available, that the third-party payors’ coverage policies will not adversely affect our ability to sell our products profitably. Accordingly, the outcome of these reimbursement decisions could have an adverse impact on our business. In addition, the current economic climate may impose further pressure on funds available for reimbursement of healthcare and on reimbursement levels.

Manufacturing and Raw Materials

We design and manufacture the majority of our products in technology centers around the world. Many components used in the manufacture of our products are readily fabricated from commonly available raw materials or off-the-shelf items available from multiple supply sources. Certain items are custom made to meet our specifications. We believe that in most cases, redundant capacity exists at our suppliers and that alternative sources of supply are available or could be developed within a reasonable period of time. We also have an on-going program to identify single-source components and to develop alternative back-up supplies. However, in certain cases, we may not be able to quickly establish additional or replacement suppliers for specific components, materials or products, largely due to the regulatory approval system and the complex nature of our manufacturing processes and those of our suppliers. A reduction or interruption in supply, an inability to develop and validate alternative sources if required, or a significant increase in the price of raw materials, components or products could adversely affect our operations and financial condition, particularly materials or components related to our CRM products and drug-eluting stent systems. In addition, our products require sterilization prior to sale and we utilize a mix of internal resources and third party vendors to perform this service. To the extent our sterilizers are unable to process our products, whether due to raw material, capacity, regulatory or other constraints, we may be unable to transition to other providers in a timely manner, which could have an adverse impact on our operations.

International Markets

Our profitability from our international operations may be limited by risks and uncertainties related to economic conditions in these regions, currency fluctuations, regulatory and reimbursement approvals, competitive offerings, infrastructure development, rights to intellectual property and our ability to implement our overall business strategy. Any significant changes in the competitive, political, regulatory, reimbursement or economic environment where we conduct international operations may have a material impact on our business, financial condition or results of operations. International markets, including Japan, are affected by economic pressure to contain reimbursement levels and healthcare costs. Initiatives to limit the growth of healthcare costs, including price regulation, are under way in many countries in which we do business. Implementation of cost containment initiatives and healthcare reforms in significant markets such as Japan, Europe and other international markets may limit the price of, or the level at which reimbursement is provided for, our products and may influence a physician’s selection of products used to treat patients. We expect these practices to put increased pressure on reimbursement rates in these markets.

In addition, most international jurisdictions have adopted regulatory approval and periodic renewal requirements for medical devices, and we must comply with these requirements in order to market our products in these jurisdictions. Further, some emerging markets rely on the FDA’s CFGs in lieu of their own regulatory approval requirements. Although the corporate warning letter has not been formally resolved, the FDA has approved all currently eligible requests for CFGs. However, any limits on our

ability to market our full line of existing products and to launch new products within these jurisdictions could have an adverse impact on our business.

Results of Operations

Net Sales

We manage our international operating segments on a constant currency basis, and we manage market risk from currency exchange rate changes at the corporate level. To calculate revenue growth rates that exclude the impact of currency exchange, we convert current period and prior period net sales from local currency to U.S. dollars using current period currency exchange rates. The regional constant currency growth rates in the tables below can be recalculated from our net sales by reportable segment as presented in Note P — Segment Reporting to our consolidated financial statements contained in Item 8 of this Annual Report. We exclude net sales related to divested businesses from the net sales of our reportable segments. During the first quarter of 2009, we reorganized our international structure to provide more direct sales focus in the marketplace. Accordingly, we have revised our reportable segments to reflect the way we currently manage and view our business. As of December 31, 2009, we had four reportable segments based on geographic regions: the United States; EMEA, consisting of Europe, the Middle East and Africa; Japan; and Inter-Continental, consisting of Asia Pacific and the Americas. The reportable segments represent an aggregate of all operating divisions within each segment. We have reclassified previously reported segment results to be consistent with the 2009 presentation.

The following table provides our worldwide net sales by region and the relative change on an as reported and constant currency basis:

														2009 versus 2008								2008 versus 2007
														As Reported				Constant				As Reported				Constant
		Year Ended December 31,												Currency				Currency				Currency				Currency
(in millions)		2009				2008				2007				Basis				Basis				Basis				Basis
United States		$	4,675			$	4,487			$	4,522				4	%			4	%			(1	)%			(1	)%
EMEA			1,837				1,960				1,833				(6	)%			1	%			7	%			2	%
Japan			988				861				797				15	%			4	%			8	%			(2	)%
Inter-Continental			677				673				652				1	%			8	%			3	%			(1	)%
International			3,502				3,494				3,282				0	%			3	%			6	%			0	%
Subtotal			8,177				7,981				7,804				2	%			4	%			2	%			0	%
Divested businesses			11				69				553				N/A				N/A				N/A				N/A
Worldwide		$	8,188			$	8,050			$	8,357				2	%			3	%			(4	)%			(6	)%

The following table provides our worldwide net sales by division and the relative change on an as reported and constant currency basis. During the first quarter of 2009, we combined our Peripheral Embolization business, previously a component of our Neurovascular division, with our Peripheral Interventions business. We have reclassified previously reported 2008 and 2007 results to be consistent with the 2009 presentation.

														2009 versus 2008								2008 versus 2007
														As Reported				Constant				As Reported				Constant
														Currency				Currency				Currency				Currency
(in millions)		2009				2008				2007				Basis				Basis				Basis				Basis
Cardiac Rhythm Management		$	2,413			$	2,286			$	2,124				6	%			7	%			8	%			5	%
Electrophysiology			149				153				147				(2	)%			(1	)%			4	%			2	%
Cardiac Rhythm Management Group			2,562				2,439				2,271				5	%			7	%			7	%			5	%
Interventional Cardiology			2,859				2,879				3,016				(1	)%			0	%			(5	)%			(7	)%
Peripheral Interventions			661				684				692				(3	)%			(2	)%			(1	)%			(5	)%
Cardiovascular Group			3,520				3,563				3,708				(1	)%			0	%			(4	)%			(7	)%
Neurovascular			348				360				352				(3	)%			(2	)%			2	%			(3	)%
Endoscopy			1,006				943				866				7	%			8	%			9	%			6	%
Urology/Women’s Health			456				431				403				6	%			6	%			7	%			6	%
Endosurgery Group			1,462				1,374				1,269				6				7	%			8	%			6	%
Neuromodulation			285				245				204				17	%			17	%			20	%			20	%
Subtotal			8,177				7,981				7,804				2	%			4	%			2	%			—	%
Divested businesses			11				69				553				N/A				N/A				N/A				N/A
Worldwide		$	8,188			$	8,050			$	8,357				2	%			3	%			(4	)%			(6	)%

The divisional constant currency growth rates in the tables above can be recalculated from the reconciliations provided below. Growth rates are based on actual, non-rounded amounts and may not recalculate precisely.

		2009 Net Sales as compared to 2008
		Change								Estimated
		As Reported				Constant				Impact of
		Currency				Currency				Foreign
in millions		Basis				Basis				Currency
Cardiac Rhythm Management		$	127			$	168			$	(41	)
Electrophysiology			(4	)			(3	)			(1	)
Cardiac Rhythm Management Group			123				165				(42	)
Interventional Cardiology			(20	)			2				(22	)
Peripheral Interventions			(23	)			(13	)			(10	)
Cardiovascular Group			(43	)			(11	)			(32	)
Neurovascular			(12	)			(8	)			(4	)
Endoscopy			63				74				(11	)
Urology/Women’s Health			25				27				(2	)
Endosurgery Group			88				101				(13	)
Neuromodulation			40				41				(1	)
Subtotal			196				288				(92	)
Divested Businesses			(58	)			(58	)			0
Worldwide		$	138			$	230			$	(92	)

		2008 Net Sales as compared to 2007
		Change								Estimated
		As Reported				Constant				Impact of
		Currency				Currency				Foreign
in millions		Basis				Basis				Currency
Cardiac Rhythm Management		$	162			$	114			$	48
Electrophysiology			6				3				3
Cardiac Rhythm Management Group			168				117				51
Interventional Cardiology			(137	)			(219	)			82
Peripheral Interventions			(8	)			(33	)			25
Cardiovascular Group			(145	)			(252	)			107
Neurovascular			8				(8	)			16
Endoscopy			77				49				28
Urology/Women’s Health			28				23				5
Endosurgery Group			105				72				33
Neuromodulation			41				40				1
Subtotal			177				(31	)			208
Divested Businesses			(484	)			(489	)			5
Worldwide		$	(307	)		$	(520	)		$	213

U.S. Net Sales

During 2009, our U.S. net sales, excluding net sales from divested businesses, increased $188 million, or four percent, as compared to 2008. The increase was driven primarily by an increase in U.S. CRM group sales of $114 million and an increase of $47 million in U.S. sales of our coronary stent systems. In addition, U.S. sales in our Endosurgery group grew $58 million in 2009, as compared to the prior year, and our Neuromodulation division increased U.S. net sales $37 million. These increases were partially offset by declines in U.S. net sales from our Interventional Cardiology (excluding coronary stent systems) business of $52 million and a decrease of $16 million in Peripheral Interventions U.S. net sales in 2009, as compared to the prior year. Refer to the Business and Market Overview section for a more detailed discussion of our net sales by U.S. division.

During 2008, our U.S. net sales, excluding net sales from divested businesses, decreased $35 million, or one percent, as compared to 2007. The decrease was due primarily to a decrease in Cardiovascular division sales of $222 million, driven primarily by declines in sales of our drug-eluting stent systems as a result of increased competition. Partially offsetting this decrease was an increase in CRM product sales of $109 million, as a result of numerous successful product launches during 2008. In addition, U.S. sales in our Endosurgery division grew $43 million in 2008, as compared to 2007, driven by strength in our biliary and hemostasis franchises, and our Neuromodulation division increased sales by $36 million, due to market growth and continued physician adoption of our Precision Plus™ spinal cord stimulation technology.

International Net Sales

During 2009, our international net sales, excluding net sales from divested businesses, increased $8 million, or less than one percent, as compared to 2008. Foreign currency exchange rates contributed a negative $92 million to our international net sales, excluding divested businesses, as compared to the prior year. Excluding the impact of foreign currency exchange rates and net sales from divested businesses, net sales in our EMEA region increased $11 million, or one percent, in 2009, as compared the prior year. Our net sales in Japan increased $37 million, or four percent, excluding the impact of foreign

currency exchange rates and net sales from divested businesses, in 2009, as compared to 2008, due primarily to an increase in coronary stent system sales following the launch of our second-generation TAXUS^® Liberté^® stent system in that region. Net sales in our Inter-Continental region, excluding the impact of foreign currency exchange rates and net sales from divested businesses, increased $52 million, or eight percent, in 2009, as compared to the prior year, with the majority of our divisions and franchises contributing to the year over year growth. Refer to the Business and Market Overview section for a more detailed discussion of our net sales by division.

During 2008, our international net sales, excluding net sales from divested businesses, increased $212 million, or six percent, as compared to 2007. The increase was attributable primarily to the favorable impact of currency exchange rates, which contributed $208 million to our international net sales, excluding sales from divested businesses. Within our international business, sales in our Cardiovascular division increased $77 million and CRM product sales increased $53 million. In addition, sales in our Endosurgery franchises increased $63 million in 2008, as compared to 2007.

Gross Profit

Our gross profit was $5.612 billion in 2009, $5.581 billion in 2008, and $6.015 billion in 2007. As a percentage of net sales, our gross profit decreased to 68.5 percent in 2009, as compared to 69.3 percent in 2008 and 72.0 percent in 2007. The following is a reconciliation of our gross profit margins and a description of the drivers of the change from period to period:

		Year Ended
		December 31,
		2009				2008
Gross profit — prior year			69.3	%			72.0	%
Impact of shift in TAXUS®/ PROMUS® sales mix			(1.4	)%			(2.3	)%
All other shifts in product sales mix							(0.2	)%
Net impact of foreign currency			0.9	%			(0.5	)%
Impact of higher inventory charges							(0.4	)%
Impact of lower Project Horizon spend							0.7	%
All other			(0.3	)%
Gross profit — current year			68.5	%			69.3	%

The primary factor contributing to a shift in product sales mix toward lower margin products in 2009, as compared to 2008, and 2008, as compared to 2007, was a decrease in sales of our higher margin TAXUS^® drug-eluting stent systems. The shift in sales away from TAXUS^® stent systems was due primarily to increased sales of the PROMUS^® stent system in the U.S., following its July 2008 approval and launch. Sales of the PROMUS^® stent system represented approximately 40 percent of our worldwide drug-eluting stent system sales in 2009, 19 percent in 2008, and two percent in 2007. Under the terms of our supply arrangement with Abbott, the gross profit margin of a PROMUS^® stent system, supplied to us by Abbott, is significantly lower than that of our TAXUS^® stent system. Our gross profit margin for 2009, as compared to the prior year, was also positively impacted by 0.9 percentage points attributable to the settlement of foreign currency hedge contracts on intercompany and third party transactions. The settlement of these contracts had a negative impact on our gross profit margin of 0.5 percentage points in 2008, as compared to 2007.

In addition, our gross profit margins decreased by 0.4 percentage points in 2008, as compared to 2007, due to increases in period expenses associated with inventory charges. Inventory and manufacturing equipment obsolescence charges in 2009 were relatively flat to 2008, and included approximately $40 million of inventory write-downs and manufacturing equipment obsolescence write-offs within our CRM division, related primarily to the resolution of a product advisory that resulted in the transition to a new version of our COGNIS^® CRT-D and TELIGEN^® ICD system product offerings. Further, our gross profit margin in 2008 benefited from lower spending associated with Project Horizon, our corporate-wide

initiative to improve and harmonize our overall quality processes and systems, which ended as a formal program as of December 31, 2007.

Operating Expenses

The following table provides a summary of certain of our operating expenses:

		2009								2008								2007
						% of Net								% of Net								% of Net
(in millions)		$				Sales				$				Sales				$				Sales
Selling, general and administrative expenses			2,635				32.2				2,589				32.2				2,909				34.8
Research and development expenses			1,035				12.6				1,006				12.5				1,091				13.1
Royalty expense			191				2.3				203				2.5				202				2.4

Selling, General and Administrative (SG&A) Expenses

In 2009, our SG&A expenses increased by $46 million, or two percent, as compared to 2008. This increase was related primarily to the addition of direct selling expenses and head count, including expanding our global sales force and an increase in costs associated with various litigation-related matters. These increases were partially offset by a benefit from foreign currency exchange rates of approximately $22 million. As a percentage of net sales, our SG&A expenses were flat with 2008.

In 2008, our SG&A expenses decreased by $320 million, or 11 percent, as compared to 2007. The decrease in our SG&A expenses related primarily to lower head count and spending resulting from our 2007 Restructuring plan, as well as a reduction of $160 million attributable to our first quarter 2008 divestiture of certain non-strategic businesses. Refer to the Restructuring Initiatives section for more discussion of these initiatives.

Research and Development (R&D) Expenses

Our investment in R&D reflects spending on new product development programs, as well as regulatory compliance and clinical research. In 2009, our R&D expenses increased $29 million, or three percent, as compared to 2008. As a percentage of net sales, our R&D expenses in 2009 were relatively flat with 2008. We remain committed to advancing medical technologies and investing in meaningful research and development projects across our businesses in order to maintain a healthy pipeline of new products that will contribute to our short- and long-term profitable sales growth.

In 2008, our R&D expenses decreased by $85 million, or eight percent, as compared to 2007. As a percentage of our net sales, R&D expenses decreased to 12.5 percent in 2008 from 13.1 percent in 2007. The decrease related primarily to lower head count and spending of $75 million resulting from our first quarter 2008 divestiture of certain non-strategic businesses.

Royalty Expense

In 2009, our royalty expense decreased $12 million, or six percent, as compared to 2008. The decrease was primarily the result of a reduction in royalty expense of $29 million attributable to the expiration of a CRM royalty agreement during the first quarter of 2009. Partially offsetting this decrease was an increase in royalty expense of $20 million as a result of an increase in sales of our drug-eluting stent systems, as well as the shift in the mix of our drug-eluting stent system sales towards the PROMUS^® stent system, following its launch in the U.S. in mid-2008. The royalty rate applied to sales of the PROMUS^® stent system is, on average, higher than that associated with sales of our TAXUS^® stent system.

In 2008, our royalty expense increased by $1 million, or less than one percent, as compared to 2007. As a percentage of our net sales, royalty expense increased slightly to 2.5 percent from 2.4 percent for 2007.

Royalty expense attributable to sales of our drug-eluting stent systems increased $8 million as compared to 2007, despite an overall decrease in drug-eluting stent system sales. This was due to a shift in the mix of our drug-eluting stent system sales towards the PROMUS^® stent system. Offsetting this increase was a decrease in royalty expense of $6 million attributable to our first quarter 2008 divestiture of certain non-strategic businesses.

Loss on Program Termination

In the second quarter of 2009, we cancelled one of our internal R&D programs in order to focus on those with a higher likelihood of success. As a result, we recorded a pre-tax loss of $16 million, in accordance with Financial Accounting Standards Board (FASB) Accounting Standards CodificationÔ (ASC) Topic 420, Exit or Disposal Cost Obligations (formerly FASB Statement No. 146, Accounting for Costs Associated with Exit or Disposal Activities), associated with future payments that we believe we remain contractually obligated to make. We continue to focus on developing new technologies that will contribute to profitable sales growth in the future and do not believe that the cancellation of this program will have a material adverse impact on our future results of operations or cash flows.

Amortization Expense

Our amortization expense was $511 million in 2009, as compared to $543 million in 2008, a decrease of $32 million or six percent. This decrease was due primarily to the impact of certain Interventional Cardiology-related intangible assets reaching the end of their accounting useful life during 2008, as well as the write-down of certain intangible assets to their fair values in 2009 and 2008, described in Other Intangible Asset Impairment Charges below.

Our amortization expense was $543 million in 2008, as compared to $620 million in 2007, a decrease of $77 million, or 12 percent. The decrease in our amortization expense related primarily to the disposal of $581 million of amortizable intangible assets in connection with our first quarter 2008 business divestitures, and to certain Interventional Cardiology-related intangible assets reaching the end of their accounting useful life.

Goodwill Impairment Charges

In 2008, we recorded goodwill impairment charges of $2.613 billion associated with our acquisition of Guidant Corporation. Refer to Critical Accounting Policies and Estimates and Note E -Goodwill and Other Intangible Assets to our consolidated financial statements included in Item 8 of this Annual Report for more information.

Other Intangible Asset Impairment Charges

In 2009, we recorded intangible asset impairment charges of $12 million, associated primarily with lower than anticipated market penetration of one of our Urology technology offerings. We do not believe that these impairments will have a material impact on our future operations or cash flows. Refer to Critical Accounting Policies and Estimates and Note E -Goodwill and Other Intangible Assets to our consolidated financial statements included in Item 8 of this Annual Report for more information.

In 2008, we recorded intangible asset impairment charges of $177 million, including a $131 million write-down of certain of our Peripheral Interventions-related intangible assets, and a $46 million write-down of certain Urology-related intangible assets. We do not believe that the write-down of these assets will have a material impact on future operations or cash flows. Refer to Critical Accounting Policies and Estimates and Note E -Goodwill and Other Intangible Assets to our consolidated financial statements included in Item 8 of this Annual Report for more information.

In 2007, we recorded intangible asset impairment charges of $21 million associated with our acquisition of Advanced Stent Technologies (AST), due to our decision to suspend further significant funding with respect to the Petal™ bifurcation stent. We do not expect this decision to materially impact our future operations or cash flows. Refer to Critical Accounting Policies and Estimates and Note E -Goodwill and Other Intangible Assets to our consolidated financial statements included in Item 8 of this Annual Report for more information.

Acquisition-related Milestone

In connection with Abbott’s 2006 acquisition of Guidant’s vascular intervention and endovascular solutions businesses, Abbott agreed to pay us a milestone payment of $250 million upon receipt of FDA approval to sell an everolimus-eluting stent in the U.S. In July 2008, Abbott received FDA approval and launched its XIENCE V^® everolimus-eluting coronary stent system in the U.S., and paid us $250 million, which we recorded as a gain in the accompanying consolidated statements of operations. Under the terms of the agreement, we were also entitled to receive a second milestone payment of $250 million from Abbott upon receipt of an approval from the Japanese MHLW to market the XIENCE V^® stent system in Japan. The MHLW approved the XIENCE V^® stent system in the first quarter in 2010 and we subsequently received the milestone payment from Abbott, which we will record as a gain in our financial statements for the quarter ending March 31, 2010.

Purchased Research and Development

As of January 1, 2009, we adopted FASB Statement No. 141(R), Business Combinations (codified within ASC Topic 805, Business Combinations), a replacement for Statement No. 141. Additionally, Statement No. 141(R) superseded FASB Interpretation No. 4, Applicability of FASB Statement No. 2 to Business Combinations Accounted for by the Purchase Method, which required research and development assets acquired in a business combination that had no alternative future use to be measured at their fair values and expensed at the acquisition date. Statement No. 141(R) (Topic 805) requires that purchased research and development acquired in a business combination be recognized as an indefinite-lived intangible asset until the completion or abandonment of the associated research and development efforts. During 2009, we did not consummate any material business combinations. For any future business combinations that we enter, we will recognize purchased research and development as an intangible asset.

Our policy is to record certain costs associated with strategic alliances as purchased research and development. Our adoption of Statement No. 141(R) (Topic 805) did not change this policy with respect to asset purchases. In accordance with this policy, during 2009, we recorded purchased research and development charges of $21 million in conjunction with entering certain licensing and development arrangements. Since the 2009 technology purchases did not involve the transfer of processes or outputs as defined by Statement No. 141(R) (Topic 805), the transactions did not qualify as business combinations.

In 2008, we recorded $43 million of purchased research and development charges, including $17 million associated with our acquisition of Labcoat, Ltd., $8 million attributable to our acquisition of CryoCor, Inc., and $18 million associated with entering certain licensing and development arrangements. The in-process research and development associated with our acquisition of Labcoat, Ltd. related to a novel technology Labcoat is developing for coating drug-eluting stents. The in-process research and development associated with CryoCor represents cryogenic technology for use in the treatment of atrial fibrillation, the most common and difficult to treat cardiac arrhythmia (abnormal heartbeat). We intend to use this technology in order to further pursue therapeutic solutions for atrial fibrillation and advance our existing CRM and Electrophysiology product lines.

In 2007, we recorded $85 million of purchased research and development, including $75 million associated with our acquisition of Remon Medical Technologies, Inc., $13 million resulting from the application of equity method accounting for one of our strategic investments, and $12 million associated

with payments made for certain early-stage CRM technologies. Additionally, in June 2007, we terminated our product development agreement with Aspect Medical Systems relating to brain monitoring technology that Aspect was developing to aid the diagnosis and treatment of depression, Alzheimer’s disease and other neurological conditions. As a result, we recognized a credit to purchased research and development of approximately $15 million during 2007, representing future payments that we would have been obligated to make prior to the termination of the agreement. We do not expect the termination of the agreement to impact our future operations or cash flows materially. The in-process research and development acquired with Remon consists of a pressure-sensing system development project, which we intend to combine with our existing CRM devices. As of December 31, 2009, we estimate that the total cost to complete the development project is between $75 million and $80 million. We expect to launch devices using pressure-sensing technology in 2013 in our EMEA region and certain Inter-Continental countries, in the U.S. in 2016, and Japan in 2017, subject to regulatory approvals. We expect material net cash inflows from such products to commence in 2016, following the launch of this technology in the U.S.

Gain on Divestitures

During 2008, we recorded a $250 million gain in connection with the sale of our Fluid Management and Venous Access businesses and our TriVascular EVAR program. Refer to the Restructuring Initiatives section and Note F — Divestitures to our consolidated financial statements included in Item 8 of this Annual Report for more information on these transactions.

Loss on Assets Held for Sale

During 2007, we recorded a $560 million loss attributable primarily to the write-down of goodwill in connection with the sale of certain of our non-strategic businesses. Refer to the Restructuring Initiatives section and Note F — Divestitures to our consolidated financial statements included in Item 8 of this Annual Report for more information on these transactions.

Restructuring

In October 2007, our Board of Directors approved, and we committed to, an expense and head count reduction plan (the 2007 Restructuring plan), which resulted in the elimination of approximately 2,300 positions worldwide. We are providing affected employees with severance packages, outplacement services and other appropriate assistance and support. The plan is intended to bring expenses in line with revenues as part of our initiatives to enhance short- and long-term shareholder value. Key activities under the plan include the restructuring of several businesses, corporate functions and product franchises in order to better utilize resources, strengthen competitive positions, and create a more simplified and efficient business model; the elimination, suspension or reduction of spending on certain research and development projects; and the transfer of certain production lines among facilities. We initiated these activities in the fourth quarter of 2007. The transfer of production lines contemplated under the 2007 Restructuring plan will continue throughout 2010; all other major activities under the plan were completed as of December 31, 2009.

We expect that the execution of this plan will result in total pre-tax expenses of approximately $425 million to $435 million. We have recorded related costs of $407 million since the inception of the plan, and are recording a portion of these expenses as restructuring charges and the remaining portion through other lines within our consolidated statements of operations. We expect the plan to result in cash payments of approximately $375 million to $385 million, of which we have made payments of $330 million to date. The following provides a summary of our expected total costs associated with the plan by major type of cost:

		Total estimated amount expected to
Type of cost		be incurred
Restructuring charges:
Termination benefits		$205 million to $210 million
Fixed asset write-offs		$31 million
Other (1)		$65 million
Restructuring-related expenses:
Retention incentives		$66 million
Accelerated depreciation		$18 million
Transfer costs (2)		$40 million to $45 million
		$425 million to $435 million

As a result of the execution of our 2007 Restructuring plan and our divestiture-related initiatives, we reduced research and development and SG&A expenses by an annualized run rate of approximately $500 million exiting 2008. In addition, we expect annualized run-rate reductions of manufacturing costs of approximately $35 million to $40 million as a result of our transfers of production lines. Due to the longer-term nature of these initiatives, we do not expect to achieve the full benefit of these reductions in manufacturing costs until 2012. We have partially reinvested our savings from these initiatives into targeted head count increases, primarily in customer-facing positions, to drive future sales growth.

In addition, in January 2009, our Board of Directors approved, and we committed to, a Plant Network Optimization program, which is intended to simplify our manufacturing plant structure by transferring certain production lines among facilities and by closing certain other facilities. The program is a complement to our 2007 Restructuring plan, and is intended to improve overall gross profit margins. Activities under the Plant Network Optimization program were initiated in the first quarter of 2009 and are expected to be substantially complete by the end of 2011. We estimate that the program will result in annual reductions of manufacturing costs of approximately $65 million to $80 million in 2012. These savings are in addition to the estimated $35 million to $40 million of annual reductions of manufacturing costs in 2012 from activities under our 2007 Restructuring plan.

We expect that the execution of the Plant Network Optimization program will result in total pre-tax charges of approximately $135 million to $150 million, and that approximately $115 million to $125 million of these charges will result in future cash outlays. The following provides a summary of our estimates of costs associated with the Plant Network Optimization program by major type of cost:

		Total estimated amount expected to
Type of cost		be incurred
Restructuring charges:
Termination benefits		$40 million to $45 million
Restructuring-related expenses:
Accelerated depreciation		$20 million to $25 million
Transfer costs (1)		$75 million to $80 million
		$135 million to $150 million

We recorded restructuring charges of $63 million in 2009, $78 million in 2008 and $176 million in 2007. In addition, we recorded expenses within other lines of our accompanying consolidated statements of operations related to our restructuring initiatives of $67 million in 2009, $55 million in 2008, and $8 million in 2007. The following presents these costs by major type and line item within our accompanying consolidated statements of operations:

Year Ended December 31, 2009

		Termination				Retention				Accelerated				Transfer				Fixed Asset
(in millions)		Benefits				Incentives				Depreciation				Costs				Write-offs				Other				Total
Restructuring charges		$	34															$	13			$	16			$	63
Restructuring-related expenses:
Cost of products sold						$	5			$	8			$	37												50
Selling, general and administrative expenses							10				3												1				14
Research and development expenses							3																				3
							18				11				37								1				67
		$	34			$	18			$	11			$	37			$	13			$	17			$	130

Year Ended December 31, 2008

		Termination				Retention				Accelerated				Transfer				Fixed Asset
(in millions)		Benefits				Incentives				Depreciation				Costs				Write-offs				Other				Total
Restructuring charges		$	34															$	10			$	34			$	78
Restructuring-related expenses:
Cost of products sold						$	9			$	4			$	4											$	17
Selling, general and administrative expenses							27				4																31
Research and development expenses							7																				7
						$	43			$	8			$	4											$	55
		$	34			$	43			$	8			$	4			$	10			$	34			$	133

Year Ended December 31, 2007

		Termination				Retention				Accelerated				Transfer				Fixed Asset
(in millions)		Benefits				Incentives				Depreciation				Costs				Write-offs				Other				Total
Restructuring charges		$	158															$	8			$	10			$	176
Restructuring-related expenses:
Cost of products sold						$	1			$	1															$	2
Selling, general and administrative expenses							2				2																4
Research and development expenses							2																				2
						$	5			$	3															$	8
		$	158			$	5			$	3							$	8			$	10			$	184