SEC Comment Letter for BOSTON SCIENTIFIC CORP (BSX) (CIK 0000885725) (BSX) — Nov 29, 2006
BOSTON SCIENTIFIC CORP (BSX) (CIK 0000885725)
Date: Nov. 29, 2006 · CIK: 0000885725 · Accession: 0000000000-06-058278
AI Filing Summary & Sentiment
Reasoning
File numbers found in text: 001-01043
Letter
Mail Stop 6010 November 29, 2006 VIA U.S. MAIL AND FACSIMILE (508-650-8951) Mr. Lawrence C. Best Chief Financial Officer and Executive Vice-President – Finance and Administration Boston Scientific Corporation One Boston Scientific Place Natick, Massachusetts 01760-1537
Re: Boston Scientific Corporation Form 10-Q for the Quarterly Period Ended September 30, 2006 Forms 8-K dated September 21, and October 18, 2006 File No. 001-01043
Dear Mr. Best:
We have reviewed your filings and have the following comments. We have limited our review of your filing to those i ssues we have addressed in our comments. Where indicated, we think you should revise future filings in response to these comments. If you disagree, we will consider your explanation as to why our commen t is inapplicable or a revision is unnecessary. Please be as detailed as necessa ry in your explanation. In some of our comments, we may ask you to provide us with information so we may better understand your disclosure. After reviewing this information, we may or may not raise additional comments.
Please understand that the purpose of our re view process is to assist you in your compliance with the applicable disclosure requir ements and to enhance the overall disclosure in your filings. We look forward to working with you in these respects. We welcome any questions you may have about our comments or on any other aspect of our review. Feel free to call us at the telephone numbers lis ted at the end of this letter.
Mr. Lawrence C. Best Boston Scientific Corporation November 29, 2006 Page 2 Form 10-Q for the Quarterly Period Ended September 30, 2006
Financial Information, page 3
Note B. Guidant Acquisition and Abbott Transaction, page 6
Guidant Acquisition, page 6
1. Please tell us and disclose in future filings the method and significant assumptions used to value the 577 million shares of common stock issued in connection with your acquisition of Guidant, consistent with para graph 51(d) of SFAS 141. Please tell us how your valuation considered paragraphs 20 - 24 of SFAS 141 and EITF 99-12.
Abbott Transaction, page 7
2. You disclose that Abbott purchased approxi mately 65 million shares of common stock from you for $1.4 billion, or $21.66 per share. Under your agreement, Abbott must sell all of these shares no later than 30 mont hs following April 21, 2006. Abbott must then apply a portion of the net proceeds from the sa le of the shares in excess of specified amounts, if any, to reduce the principal amount of the loan that Abbott made to you. You refer to this as the “sharing of proceeds feature.” We note that you are accounting for this feature at its fair value and recorded an asset for $102 million at the date of sale. Your are re-valuing this asset each reporting period at fair value with changes in the fair value reflected as a gain or loss within ot her non-operating income and expense and will continue to do so until all of the shares are so ld by Abbott. Please tell us and disclose in future filings the method and significant assu mptions used to determine the initial and subsequent fair value of this feature. In a ddition, tell us the accoun ting literature that you applied to this transaction and why. Include a discussion of all of the sign ificant terms of the sale as well as those of the loan. Pl ease also discuss how you account for any actual sharing of proceeds, which results in a reduction to the principal amount of your loan.
Mr. Lawrence C. Best Boston Scientific Corporation November 29, 2006 Page 3 3. We note that approximately 18 months follo wing the Abbott transaction closing, you will issue to Abbott additional shares of common stock with an aggregate value up to $60 million to “reimburse Abbott for the cost of borrowing $1.4 billion to purchase the shares” of your common stock. You recorded the full value of the $60 million of stock that may be issued as a liability assumed in connection with the sale of Guidant’s vascular intervention and endovascular solutions businesses to Abbott. Please tell us in more detail about your accounti ng and valuation for this tran saction. Cite the accounting literature upon which you relied and how you app lied that literature to your facts and circumstances. Please tell us why you include this term as part of Guidant’s sale to Abbott and not part of your sale of common stock to Abbott.
Purchased Research and Development, page 11
4. In future filings please disclose all of the significant assumptions underlying your valuation method for the IPR&D. For example, disclose the periods in which you expect material cash inflows to commence.
5. You disclose that IPR&D includes $369 million related to the estimated fair value of “two potential milestone payments of up to $500 million that may be received from Abbott upon receipt of certain regulatory a pprovals by the vascular intervention and endovascular solutions businesses it acquired from Guidant.” The milestone payments relate to approvals in the U.S and Japan to ma rket and sell “an everolimus-eluting stent.” You disclose that you recorded the amounts as IPR&D because “the receipt of the payments is dependent on future research and development activity and regulatory approvals, and the asset has no al ternative future use as of th e acquisition date.” You also disclose that if you receive any milestone pa yments, you will record them “as a gain” in your financial statements when received. Please discuss the basis for your accounting under U.S. GAAP and cite the accounting l iterature upon which you relied and how you applied that literature to your facts and circumstances.
Form 8-K dated September 21, 2006
6. We note your inclusion of certain non-GAAP financial measures in the press release included in Exhibit 99.1. Under Regulation G, whenever you publicly disclose material information that includes a non-GAAP financ ial measure, you must accompany that non- GAAP financial measure with a reconcil iation (by schedule or other clearly understandable method), which is quantitati ve. With regard to the quantitative reconciliation of non-GAAP fi nancial measures that are forward-looking, Regulation G requires a schedule or other presentation deta iling the differences between the forward- looking non-GAAP financial measure and the appropriate forward-looking GAAP
Mr. Lawrence C. Best Boston Scientific Corporation November 29, 2006 Page 4 financial measure. If the GAAP financial m easure is not accessibl e on a forward-looking basis, you must disclose that fact and provide reconciling in formation that is available without an unreasonable effort. Furthermor e, you must identify information that is unavailable and disclose its pr obable significance. Please revi se future filings to comply or tell us why the current disclosure complies.
Form 8-K dated October 18, 2006
7. We note that you present certain non-GAAP fi nancial measures. If you continue to present non-GAAP information, Item 2.02 of Form 8-K requires that disclosures “furnished” include information that complies with the disclosure requirements of Item 10(e)(1)(i) of Regulation S-K. Accordingl y, in addition to the r econciliation for each non-GAAP measure, you must also provide statements disclosing the reasons why management believes presentation of each of the individual non-GAAP measures provide useful information to investors regardi ng your financial condition and results of operations. Those disclosures should be specific and subs tantive to each individual measure and the items that you include or ex clude from that measure. Refer to SEC Release 33-8176 and also Question 8 of the FAQ Regarding the Use of Non-GAAP Financial Measures, dated June 13, 2003. Pleas e confirm that you will revise your Forms 8-K in future periods to provide all of the disclosures required by Item 10(e)(1)(i) for each non-GAAP measure presented. For exampl e, in your explanation of the reasons for presenting the non-GAAP measure you refer to making adjustments for items that are “highly variable and difficult to predict.” This explanation appear s overly broad and may not be appropriate for describing the reasons for some of your adjustments such as the recurring amortization of intangible assets. Your explanation should also address the reasons for all items presented as adjustments such as the litigation charge for $598 million in 2005.
8. Under Question 8 the FAQ Regarding the Use of Non-GAAP Financ ial Measures, dated June 13, 2003, “companies should never use a non-GAAP financial measure in an attempt to smooth earnings.” While you are not prohibited from re moving a recurring item from your non-GAAP financial meas ure, you must meet the burden of demonstrating the usefulness of any measure th at excludes recurring it ems, especially if the non-GAAP financial measure is used to eval uate performance. In addition, inclusion of such a measure may be misleading absent the following disclosure: ⋅ the manner in which management uses the non-GAAP measure to conduct or evaluate its business; ⋅ the economic substance behind management 's decision to use such a measure;
Mr. Lawrence C. Best Boston Scientific Corporation November 29, 2006 Page 5 ⋅ the material limitations associated with use of the non-GAAP financial measure as compared to the use of the most directly comparable GAAP financial measure; ⋅ the manner in which management compensates for these limitations when using the non-GAAP financial measure; and ⋅ the substantive reasons why manageme nt believes the non-GAAP financial measure provides useful in formation to investors.
Please note that similar considerations may apply under Item 12 of Form 8-K.
9. Please tell us and disclose in future filings how you determined the constant currency basis percentages presented in the tables and whether thes e amounts were calculated in accordance with U.S. GAAP.
As appropriate, please revise future filings and respond to these comments within 10 business days or tell us when you will provide us with a response. Please furnish a letter that keys your responses to our comments and provide s any requested information. Detailed letters greatly facilitate our review. Please understand that we may ha ve additional comments after reviewing your responses to our comments.
We urge all persons who are responsible for th e accuracy and adequacy of the disclosure in the filing to be certain that the filing includes all information re quired under the Securities Exchange Act of 1934 and that they have provi ded all information investors require for an informed investment decision. Since the compa ny and its management are in possession of all facts relating to a company’s disclosure, they are responsible for the acc uracy and adequacy of the disclosures they have made.
In connection with responding to our comment s, please provide, in writing, a statement from the company acknowledging that:
the company is responsible for the adequacy and accuracy of the disclo sure in the filing;
staff comments or changes to disclosure in response to staff comments do not foreclose the Commission from taking any action with respect to the filing; and
the company may not assert staff comments as a defense in any proceeding initiated by the Commission or any person under the federa l securities laws of the United States.
Mr. Lawrence C. Best Boston Scientific Corporation November 29, 2006 Page 6 In addition, please be advise d that the Division of Enfo rcement has access to all information you provide to the sta ff of the Division of Corporati on Finance in our review of your filing or in response to our comments on your filing.
You may contact Kate Tillan, Assistant Chie f Accountant, at (202) 551-3604 or me at (202) 551-3676 if you have any questions regarding these comments.
S i n c e r e l y ,
B r i a n C a s c i o A c c o u n t i n g B r a n c h C h i e f
Show Raw Text
Mail Stop 6010
November 29, 2006
VIA U.S. MAIL AND FACSIMILE (508-650-8951)
Mr. Lawrence C. Best
Chief Financial Officer and Executive Vice-President –
Finance and Administration
Boston Scientific Corporation
One Boston Scientific Place
Natick, Massachusetts 01760-1537
Re: Boston Scientific Corporation
Form 10-Q for the Quarterly Period Ended September 30, 2006
Forms 8-K dated September 21, and October 18, 2006
File No. 001-01043
Dear Mr. Best:
We have reviewed your filings and have the following comments. We have limited our
review of your filing to those i ssues we have addressed in our comments. Where indicated, we
think you should revise future filings in response to these comments. If you disagree, we will
consider your explanation as to why our commen t is inapplicable or a revision is unnecessary.
Please be as detailed as necessa ry in your explanation. In some of our comments, we may ask
you to provide us with information so we may better understand your disclosure. After
reviewing this information, we may or may not raise additional comments.
Please understand that the purpose of our re view process is to assist you in your
compliance with the applicable disclosure requir ements and to enhance the overall disclosure in
your filings. We look forward to working with you in these respects. We welcome any
questions you may have about our comments or on any other aspect of our review. Feel free to
call us at the telephone numbers lis ted at the end of this letter.
Mr. Lawrence C. Best
Boston Scientific Corporation
November 29, 2006 Page 2
Form 10-Q for the Quarterly Period Ended September 30, 2006
Financial Information, page 3
Note B. Guidant Acquisition and Abbott Transaction, page 6
Guidant Acquisition, page 6
1. Please tell us and disclose in future filings the method and significant assumptions used
to value the 577 million shares of common stock issued in connection with your
acquisition of Guidant, consistent with para graph 51(d) of SFAS 141. Please tell us how
your valuation considered paragraphs 20 - 24 of SFAS 141 and EITF 99-12.
Abbott Transaction, page 7
2. You disclose that Abbott purchased approxi mately 65 million shares of common stock
from you for $1.4 billion, or $21.66 per share. Under your agreement, Abbott must sell
all of these shares no later than 30 mont hs following April 21, 2006. Abbott must then
apply a portion of the net proceeds from the sa le of the shares in excess of specified
amounts, if any, to reduce the principal amount of the loan that Abbott made to you. You
refer to this as the “sharing of proceeds feature.” We note that you are accounting for this
feature at its fair value and recorded an asset for $102 million at the date of sale. Your
are re-valuing this asset each reporting period at fair value with changes in the fair value reflected as a gain or loss within ot her non-operating income and expense and will
continue to do so until all of the shares are so ld by Abbott. Please tell us and disclose in
future filings the method and significant assu mptions used to determine the initial and
subsequent fair value of this feature. In a ddition, tell us the accoun ting literature that you
applied to this transaction and why. Include a discussion of all of the sign ificant terms of
the sale as well as those of the loan. Pl ease also discuss how you account for any actual
sharing of proceeds, which results in a reduction to the principal amount of your loan.
Mr. Lawrence C. Best
Boston Scientific Corporation
November 29, 2006 Page 3
3. We note that approximately 18 months follo wing the Abbott transaction closing, you will
issue to Abbott additional shares of common stock with an aggregate value up to $60 million to “reimburse Abbott for the cost of borrowing $1.4 billion to purchase the
shares” of your common stock. You recorded the full value of the $60 million of stock that may be issued as a liability assumed in connection with the sale of Guidant’s
vascular intervention and endovascular solutions businesses to Abbott. Please tell us in
more detail about your accounti ng and valuation for this tran saction. Cite the accounting
literature upon which you relied and how you app lied that literature to your facts and
circumstances. Please tell us why you include this term as part of Guidant’s sale to
Abbott and not part of your sale of common stock to Abbott.
Purchased Research and Development, page 11
4. In future filings please disclose all of the significant assumptions underlying your valuation method for the IPR&D. For example, disclose the periods in which you expect
material cash inflows to commence.
5. You disclose that IPR&D includes $369 million related to the estimated fair value of
“two potential milestone payments of up to $500 million that may be received from Abbott upon receipt of certain regulatory a pprovals by the vascular intervention and
endovascular solutions businesses it acquired from Guidant.” The milestone payments
relate to approvals in the U.S and Japan to ma rket and sell “an everolimus-eluting stent.”
You disclose that you recorded the amounts as IPR&D because “the receipt of the
payments is dependent on future research and development activity and regulatory approvals, and the asset has no al ternative future use as of th e acquisition date.” You also
disclose that if you receive any milestone pa yments, you will record them “as a gain” in
your financial statements when received. Please discuss the basis for your accounting
under U.S. GAAP and cite the accounting l iterature upon which you relied and how you
applied that literature to your facts and circumstances.
Form 8-K dated September 21, 2006
6. We note your inclusion of certain non-GAAP financial measures in the press release
included in Exhibit 99.1. Under Regulation G, whenever you publicly disclose material information that includes a non-GAAP financ ial measure, you must accompany that non-
GAAP financial measure with a reconcil iation (by schedule or other clearly
understandable method), which is quantitati ve. With regard to the quantitative
reconciliation of non-GAAP fi nancial measures that are forward-looking, Regulation G
requires a schedule or other presentation deta iling the differences between the forward-
looking non-GAAP financial measure and the appropriate forward-looking GAAP
Mr. Lawrence C. Best
Boston Scientific Corporation
November 29, 2006 Page 4
financial measure. If the GAAP financial m easure is not accessibl e on a forward-looking
basis, you must disclose that fact and provide reconciling in formation that is available
without an unreasonable effort. Furthermor e, you must identify information that is
unavailable and disclose its pr obable significance. Please revi se future filings to comply
or tell us why the current disclosure complies.
Form 8-K dated October 18, 2006
7. We note that you present certain non-GAAP fi nancial measures. If you continue to
present non-GAAP information, Item 2.02 of Form 8-K requires that disclosures “furnished” include information that complies with the disclosure requirements of Item
10(e)(1)(i) of Regulation S-K. Accordingl y, in addition to the r econciliation for each
non-GAAP measure, you must also provide statements disclosing the reasons why
management believes presentation of each of the individual non-GAAP measures provide
useful information to investors regardi ng your financial condition and results of
operations. Those disclosures should be specific and subs tantive to each individual
measure and the items that you include or ex clude from that measure. Refer to SEC
Release 33-8176 and also Question 8 of the FAQ Regarding the Use of Non-GAAP
Financial Measures, dated June 13, 2003. Pleas e confirm that you will revise your Forms
8-K in future periods to provide all of the disclosures required by Item 10(e)(1)(i) for
each non-GAAP measure presented. For exampl e, in your explanation of the reasons for
presenting the non-GAAP measure you refer to making adjustments for items that are
“highly variable and difficult to predict.” This explanation appear s overly broad and may
not be appropriate for describing the reasons for some of your adjustments such as the
recurring amortization of intangible assets. Your explanation should also address the
reasons for all items presented as adjustments such as the litigation charge for $598 million in 2005.
8. Under Question 8 the FAQ Regarding the Use of Non-GAAP Financ ial Measures, dated
June 13, 2003, “companies should never use a non-GAAP financial measure in an
attempt to smooth earnings.” While you are not prohibited from re moving a recurring
item from your non-GAAP financial meas ure, you must meet the burden of
demonstrating the usefulness of any measure th at excludes recurring it ems, especially if
the non-GAAP financial measure is used to eval uate performance. In addition, inclusion
of such a measure may be misleading absent the following disclosure:
⋅ the manner in which management uses the non-GAAP measure to conduct or
evaluate its business;
⋅ the economic substance behind management 's decision to use such a measure;
Mr. Lawrence C. Best
Boston Scientific Corporation
November 29, 2006 Page 5
⋅ the material limitations associated with use of the non-GAAP financial measure
as compared to the use of the most directly comparable GAAP financial measure;
⋅ the manner in which management compensates for these limitations when using the non-GAAP financial measure; and
⋅ the substantive reasons why manageme nt believes the non-GAAP financial
measure provides useful in formation to investors.
Please note that similar considerations may apply under Item 12 of Form 8-K.
9. Please tell us and disclose in future filings how you determined the constant currency
basis percentages presented in the tables and whether thes e amounts were calculated in
accordance with U.S. GAAP.
As appropriate, please revise future filings and respond to these comments within 10
business days or tell us when you will provide us with a response. Please furnish a letter that
keys your responses to our comments and provide s any requested information. Detailed letters
greatly facilitate our review. Please understand that we may ha ve additional comments after
reviewing your responses to our comments.
We urge all persons who are responsible for th e accuracy and adequacy of the disclosure
in the filing to be certain that the filing includes all information re quired under the Securities
Exchange Act of 1934 and that they have provi ded all information investors require for an
informed investment decision. Since the compa ny and its management are in possession of all
facts relating to a company’s disclosure, they are responsible for the acc uracy and adequacy of
the disclosures they have made.
In connection with responding to our comment s, please provide, in writing, a statement
from the company acknowledging that:
the company is responsible for the adequacy and accuracy of the disclo sure in the filing;
staff comments or changes to disclosure in response to staff comments do not foreclose
the Commission from taking any action with respect to the filing; and
the company may not assert staff comments as a defense in any proceeding initiated by the Commission or any person under the federa l securities laws of the United States.
Mr. Lawrence C. Best
Boston Scientific Corporation
November 29, 2006 Page 6
In addition, please be advise d that the Division of Enfo rcement has access to all
information you provide to the sta ff of the Division of Corporati on Finance in our review of your
filing or in response to our comments on your filing.
You may contact Kate Tillan, Assistant Chie f Accountant, at (202) 551-3604 or me at
(202) 551-3676 if you have any questions regarding these comments.
S i n c e r e l y ,
B r i a n C a s c i o
A c c o u n t i n g B r a n c h C h i e f