Susie Lisa - Investor Relations Mike Mahoney - President, Chief Executive Officer, Director Dan Brennan - Chief Financial Officer, Executive Vice President Keith Dawkins - Global Chief Medical Officer, Executive Vice President Ken Stein - Senior Vice President and Associate Chief Medical Officer of Cardiac Rhythm Management.

Bruce Nudell - Credit Suisse Rick Wise - Stifel David Lewis - Morgan Stanley Mike Weinstein - JPMorgan Bob Hopkins - Bank of America Glenn Novarro - RBC Capital Markets Kristen Stewart - Deutsche Bank Brooks West - Piper Jaffray Larry Biegelsen - Wells Fargo Josh Jennings - Cowen & Company.

Ladies and gentlemen, thank you for standing by. Welcome to the Boston Scientific Q3 2014 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Instructions will be given at that time. (Operator Instructions) As a reminder, this conference is being recorded.

I would now like to turn the conference over to our host, Susie Lisa. Please go ahead..

Thank you, Roxanne. Good morning, everyone. Thanks for joining us. With me on today's call are Mike Mahoney, President and Chief Executive Officer; and Dan Brennan, Executive Vice President and Chief Financial Officer.

We issued a press release earlier this morning announcing our Q3 2014 results, which included reconciliations of the non-GAAP measures used in the release.

We have posted a copy of that release as well as reconciliations of the non-GAAP measures used in today's call to the Investor Relations section of our website, under the heading, Financial Information. The duration of this morning's call will be one hour.

Mike will begin our prepared remarks with an update on our business progress and his perspectives on the quarter. Dan will then review our overall Q3 2014 financial results as well as guidance for full-year 2014 and the Q4 2014. During today's question-and-answer session, Mike and Dan will be joined by our chief medical officers, Dr.

Keith Dawkins and Dr. Ken Stein. Before we begin, I would like to remind everyone that this call contains forward-looking statements within the meaning of federal securities laws, which may be identified by words like anticipate, expect, believe, estimate and other similar words.

They include, among other things, statements about our growth and market share; new product approvals and launches; clinical trials; cost savings and growth opportunities; our cash flow and expected use; our financial performance, including sales, margins, earnings and other Q4 and full-year 2014 guidance; as well as our tax rates, R&D spend and other expenses.

Actual results may differ materially from those discussed in the forward-looking statements. Factors that may cause such differences include those described in the Risk Factors section of our most recent 10-K and subsequent 10-Qs and 8-Ks filed with the SEC.

These statements speak only as of today's date and we disclaim any intention or obligation to update them. At this point, I will turn it over to Mike for his comments.

Mike?.

Thank you, Susie. Good morning, everyone. Boston Scientific delivered excellent results in third quarter as the company continues to strengthen and build global momentum. Our results were driven by above market revenue growth across almost all of our seven divisions, with mid-to-upper single-digit growth in all three of our business groups.

8% in Cardiovascular, 7% in Rhythm Management and 5% in Medical Surgical. We expanded operating margins to 20.5%, representing 120-basis point improvement year-over-year and a 70-basis point improvement quarter-over-quarter and we delivered 20% year-over-year adjusted EPS growth.

Our third quarter results reflect our sharp focus on delivering meaningful innovation to our patients and physicians, while also providing clinical and economic value to our customers.

Third quarter results built on our first half momentum and through nine months, we have achieved 5% operational sales growth and 20% adjusted EPS growth, demonstrating strong execution of our strategic plan, continued momentum of our diversified product portfolio, improved position in our core markets and strong progress on our growth initiatives.

We continue to believe the Boston Scientific is uniquely positioned to drive sustainable double-digit EPS growth given our reinvigorated culture, a strong pipeline, global expansion and significant opportunities for margin improvement. I will now provide some brief highlights on third quarter and thoughts on our outlook.

Dan will review the financials and fourth quarter 2014 guidance. Then we will take your questions. Please note that in my remarks all references to growth are on a year-over-year constant currency basis. In terms of highlights for the quarter, first we delivered balanced revenue growth. All three of our business groups and regions grew above market.

Second, we delivered exceptional performance in Interventional Cardiology. Third, we continue to build up on track record of consistent revenue growth and expanding operating margins. Starting with our balanced revenue growth, our 6% reported gain in sales after normalizing for foreign exchange and acquisitions, represents 5% organic revenue growth.

I will discuss the excellent growth delivery by our IC division shortly, but I would also like to note that Cardiac Rhythm Management group delivered strong 4% growth for the second quarter in a row, led by S-ICD, our new MINI ICD and our X4 quad pulse CRT-D system in Europe and pulse generator in the U.S.

Patient and physician demand for our S-ICD, the only defibrillator that doesn't require leads in the heart has been very strong. We now have a full year goal of achieving $100 million in S-ICD revenue in 2014.

The breadth of the S-ICD clinical data set continues to grow as IDE and EFFORTLESS show low complications rates with no lead failures and no systemic infections. We continue to make progress on payer coverage with - recently announcing broader coverage for S-ICD patients.

We continue to gain share in de novo ICD implants and we believe that we now have the number two U.S. share position in de novo ICD implants non-CRT-D. We also believe that we are being rewarded for the clinical and economic value of our battery longevity.

Two very recent new independent contemporary longevity studies were presented at last month's Heart Failure Society of America and have added to a growing body of evidence that demonstrates the superiority of BSC longevity.

These de novo share gains were offsetting replacement headwinds that will likely persist for another 18 to 24 months, given our superior battery longevity. In CRT-D, we believe we have gained at least one point of the de novo shares since launching our X4 quad pulse generator in the U.S.

this spring, but still face longevity replacement headwinds in this segment. Our MedSurg division continues its consistent performance, which is led by endoscopy, accelerating to 7% growth due to the depth and breadth of its product portfolio and strong global leadership position.

Urology and Women's Health also grew above market as our strategy to invest in key international geographies fueled double-digit growth in all international regions for the fifth consecutive quarter. Key to this growth has been our new product registrations with more than 130 year-to-date globally and a strong focus on physician training.

Once again, Europe delivered impressive results with the sales growth of 11%, which we view as a confirmation of our reinvigorated portfolio and strategic approach. Within Europe, IC, Urology, Women's Health and Neuromod, all grew double digits, but CRM and Endo sales were up mid-to-single digits.

We will continue to diversify for our portfolio in key segments such as the recently closed acquisition of Interventional division of Bayer AG, while we expand geographically. Emerging markets grew 19% and now represent 10% of our total sales.

Now, turning to IC, we delivered sales growth of IC of 8% in interventional cardiology, driven by continued strong performance of our Promus PREMIER DES, but we believe we have maintained U.S. market leadership and gained a meaningful share in Japan.

Other drivers included our next-generation Synergy stent platform, our newly launched REBEL bare-metal stent, the unparalleled breadth of our complex PCI portfolio and strong growth off of a small base from our structural heart franchise, which now includes the LOTUS percutaneous valve and WATCHMAN left atrial appendage closure.

Looking forward, we are bullish on our rejuvenated IC pipeline, including SYNERGY, LOTUS and WATCHMAN to name a few, as well as our improved global sales execution. Our clinical programs are also progressing, so we recently enrolled our first patients in REPRISE III, a 1,000-patient clinical trial, designed to support U.S.

regulatory approval of the LOTUS valve system. REPRISE III is a head-to-head randomized TAVR trial in the U.S. that is powered to show a possible benefit with LOTUS and the reduction of moderate or severe aortic regurgitation. At the American Heart Association Meeting, EVOLVE II, our pivotal trial designed to support SYNERGY U.S.

approval will be a late-breaking clinical trial presentations in November 19th. We are also in active discussions with the FDA and WATCHMAN following a favorable vote at the October 8th advisory panel and we continue to target the first half '15 FDA approval.

Finally, our continuing track record of consistent revenue growth and expanding operating margins now sets the sixth straight quarters of operational revenue growth. We are delivering on our financial commitments and we are well ahead of the total revenue growth and EPS commitments provided at our February 2013 Investor Day.

For the first nine months of 2014, operational sales growth was 5%, and we have with expanded adjusted operating margin over 100 basis points from our full year 2013 rate. For the first half of '14, BSC grew adjusted EPS 19% year-over-year, which is well above our peer group suggested EPS growth.

We remain committed to double-digit adjusted EPS growth and we believe this represents attractive scarcity value, given our revenue growth and margin expansion opportunities relative to peers'. We continue to manage our litigation risk and we are confident in our legal strategies.

We believe we are appropriately reserved and have strong liquidity and a very manageable cadence of events should our legal strategies have unfavorable outcomes. In summary, strengthened execution, improved results in our core business are more than offsetting some of the promising, yet delayed adjacencies.

Our European results are evidence of our promising pipeline and we continue to diversify our portfolio of key segments and expand geographically. We have delivered consistent revenue growth for six straight records while driving adjusted operating margin expansion.

A key driver of our consistent track record is the cultural transformation we fostered over the past three years which was [found] in our core values. I would like to thank our employees for their winning spirit and the commitment to Boston Scientific, and also extend a warm welcome to our new members from Bayer Interventional.

Now, let me turn the call over to Dan..

Thanks Mike. I will start with some overall perspective on the quarter before diving into the details. We generated adjusted EPS of $0.20 compared to $0.17 in Q3 of 2013, representing 20% year-over-year growth and achieving the high-end of our guidance range of $0.18 to $0.20.

The improved performance in Q3 was driven primarily by operational revenue growth and gross margin expansion. These improvements were partially offset by SG&A spending related to our acquisition Bayer Interventional, core product launches and variable employee-related benefits.

We posted an adjusted operating margin of 20.5%, which represents improvement of 120 basis points over Q3 of last year. We believe we are on track to meet or exceed our profitability goal of roughly 100+ basis points of annual operating margin improvement, which would result in an adjusted operating margin of 20% for the full-year 2014.

In addition, we generated adjusted free cash flow of $330 million and operating cash flow $346 million in the quarter. We continue to execute against our goal of consistent revenue growth and operating margin expansion and believe we are uniquely positioned to drive double-digit adjusted earnings per share growth.

Now, I will provide a detailed review of our Q3 business performance and operating results. Unless stated otherwise, references to quarterly results increasing or decreasing are in comparison to the third quarter of 2013 and all year-over-year revenue growth rates are given on a constant currency basis.

For the third quarter of 2014, consolidated revenue of $1,846 billion exceeded the high end of our guidance range and represented operational revenue growth of 7%, which excludes the impact of foreign exchange and the divested Neurovascular business.

On an as reported basis, revenue grew 6% year-over-year, excluding an approximate 150-basis point contribution from the Bard EP and Bayer Interventional acquisitions, organic revenue growth was 5% in the quarter.

The foreign exchange impact on sales was a $10 million headwinds compared to the prior year period, about $19 million worse than we had assumed in our guidance range. I will now provide more details on the revenue results for our seven divisions, which roll up into the three business groups.

I will start with Medical Surgical, where total group sales of $588 million grew 5% and group adjusted operating income increased 120 basis points to 32.4%. Endoscopy sales grew 7% worldwide, with strong new product contribution driving growth in all franchises, most notably biliary, tissue acquisition and metal stents.

All regions posted growth as well and Latin America was particularly strong growing 21% for the second quarter in a row. Urology and Women's Health worldwide sales continued to outperform the market and grew 5% with particular strength internationally and an impressive 57% emerging markets sales growth.

To close out the MedSurg results, our worldwide Neuromodulation business was flat in the quarter, which we believe is better than the overall SCS market performance.

As we previously discussed, changes to Medicare reimbursement for physician office trialing of spinal cord stimulation systems went into effect on January 1 and is negatively impacting market growth in 2014.

We are facing particularly difficult comparisons in the second half of 2014, given the anniversary of our Precision Spectra launch, coupled with the acceleration of physician office trial into Q4 of last year in anticipation of the reimbursement change.

Our goal remains to grow faster than this market given the strength of our technology and we are encouraged by early physician feedback on our newly launched CoverEdge 32 contact paddle.

Turning now to the Cardiovascular Group, which consists of the Interventional Cardiology and Peripheral Interventions divisions, global sales for the group totaled $723 million and grew 8%. Cardiovascular Group adjusted operating margins for the quarter of 27.5%, represented a 150-basis point improvement year-over-year.

Within cardiovascular, worldwide Interventional Cardiology sales of $508 million grew 8%. Globally, DES sales grew 10% with U.S. DES sales up 13% and OUS DES sales increasing 8%, led by an impressive 12% growth in Europe.

We continued to execute our market segmentation strategy and increased our mix of synergy in select markets to 20% of total Europe DES sales. Despite the reimbursement cut headwind in Japan, Asia's DES results were up 6% and we believe we gained share sequentially in Japan.

Worldwide complex PCI solutions or other IC grew 2% and includes all legacy Interventional Cardiology product lines outside DES, including bare-metal stents, core IC products which include guidewires, balloons and other accessories and imaging products such as Intravascular Ultrasound.

The 2% growth in complex PCI solutions was led by Imaging with 6% growth and core IC with 3% growth.

Overall, we are very pleased with our IC performance in the quarter and believe it validates our strategy to drive above market growth by providing interventional cardiologist with the broadest portfolio technology and differentiated products to treat the most complex coronary cases.

In Structural Heart, our LOTUS percutaneous valve posted solid sequential growth on a constant currency basis of a small base and WATCHMAN continued its strong growth with revenue up 40%. Peripheral Interventions delivered worldwide revenue growth of 9%, which includes roughly one month of revenue from the acquired Bayer Interventional business.

Excluding the contribution from Bayer Interventional, worldwide PI grew 5%. U.S. growth of 16% was led by strength in the interventional oncology franchise as well as the addition of the Bayer Interventional products and revenue synergies within the legacy BSC PI business. Excluding the contribution from Bayer Interventional U.S.

PI grew 8%; partially offsetting this weakness was weakness in Asia where we saw some procedural softness particularly in Japan. Finally, I will discuss our Rhythm Management group, which consists of our Electrophysiology and Cardiac Rhythm Management divisions. Worldwide Rhythm Management sales in Q3 of $534 million grew 7%.

Rhythm Management's adjusted operating margin for Q3 of 14.1% represents a 160-basis point improvement year-over-year, the third consecutive quarter, where Rhythm Management margins have improved at least 100 basis points over the prior year. Worldwide Electrophysiology revenue was up 57%, with legacy BSE EP sales roughly flat.

We entered into limited market release for our Rhythmia mapping and navigation system with six sites now up and running in the U.S. and Europe and strong physician feedback given the systems' higher fidelity images acquired in a fraction of the time required by the competitors' systems.

For the Cardiac Rhythm Management division, Q3 worldwide sales increased 4%. Growth in CRM was led by Europe, which grew 6%. On a worldwide basis, defib sales of $348 million grew 5%. U.S.

defib revenue posted solid growth of 4%, driven by continued S-ICD momentum in the first full quarter of contribution from our MINI ICD and X4 quad pulse generator as we continue to gain de novo ICD share. Worldwide pacer sales were flat totaling $132 million. International growth was strong at 8%, led by adoption of our INGENIO family of pacemakers.

We believe we continued to gain share in the OUS pacer market. I would like to reiterate that our belief is that CRM trends are best analyzed over multiple quarters.

This is the second consecutive quarter of 4% worldwide CRM growth and CRM sales are up 2% on a rolling 12-month basis, which we estimate to be faster than the underlying combined pacemaker and defibrillator markets. We continue to believe, we will be a net share gainer in worldwide CRM in 2014.

Turning now to the P&L, adjusted gross profit margin for the third quarter was 71.1%, up 40 basis points year-over-year and 80 basis points, sequentially. The increase was largely attributable to benefits from our value improvement programs, partially offset by price erosion.

We continue to believe our full year adjusted gross margin will be in the range of 70% to 71%. Once again, the impact of foreign exchange upon gross margin was immaterial as a result of our hedging program. Adjusted SG&A expenses were $701 million or 38.0% of sales in Q3 of this year.

Note that this excludes acquisition and divestiture related charges of $34 million that are included in our GAAP results.

Our Q3 2014 adjusted SG&A rate represents an 80-basis point increase in SG&A spending as a percentage of revenue compared to Q3 of last year, due to higher spend to support product launches and one-time items related to variable employee related benefits and our acquisition of Bayer Interventional.

We expect SG&A to decrease in Q4 of this year as a percent of sales, and we now believe, our full-year SG&A spend will be in the range of 37% to 38% of revenue. Adjusted research and development expenses were $212 million in the third quarter or 11.5% of sales.

As a percent of sales, this represents a 100-basis point decline in year-over-year spending, due to efficiency gains and the timing of projects. We now believe our full-year R&D spend will be in the range of 11% to 11.5% of revenue.

Royalty expense was $21 million in the quarter or 1.1% of sales, down 50 basis points year-over-year due to a more favorable than expected royalty structure and we expect our royalty rate in Q4 of this year to be roughly flat to Q4 of last year.

On an adjusted basis, pre-tax operating income was $379 million in the quarter or 20.5% of sales, up 120 basis points year-over-year and 70 basis points, sequentially. Adjusted pre-tax operating income grew 13% with all three of our reportable segments contributing to the improvement.

GAAP operating income, which includes GAAP to adjusted items of $315 million in the quarter, was $64 million. The GAAP to adjusted items for the quarter included litigation charges of $139 million, acquisition and divestiture related charges of $38 million, restructuring and other charges of $29 million and amortization expense of $109 million.

Our total accrual for all legal matters was $945 million as of September 30, 2014. Now, I will move on to other income and expense, which primarily consisted of interest expense.

Interest expense for the quarter was $54 million, which is $83 million lower than Q3 of last year and this is primarily due to the refinancing of our public debt in Q3 of 2013, which included a pre-tax one-time charge of approximately $70 million.

Our tax rate for the third quarter was negative on a reported basis, due primarily to the litigation related charges that negatively impacted reported pre-tax income.

Our effective tax rate was 14.4% on an adjusted basis and we expect our Q4 2014 adjusted tax rate to be in the range of 12% to 14% and our full-year 2014 adjusted tax rate to be in the range of 12% to 13%. Finally, Q3 2014 adjusted EPS of $0.20 per share, represents 20% year-over-year growth.

Included in the adjusted EPS calculation is an approximately $7 million lower royalty expense, almost equally offset by a higher tax rate resulting from a different geographic mix of earnings. On a reported GAAP basis, Q3 2014 EPS was $0.03 and includes net charges and amortization expense totaling $230 million after-tax.

The $0.03 of GAAP EPS in Q3 of this year compares to breakeven in the prior year period. Moving onto the balance sheet, DSO of 61 days decreased 5 days compared to September of 2013, due primarily to strong collections in Europe.

Days inventory on hand of 165 days was up 4 days compared to September of last year and up 17 days compared to December of 2013, due to higher inventory in advance of launches and lower cost of goods sold, driven primarily by standard cost improvements and a favorable product mix.

Adjusted free cash flow for the quarter was $330 million compared to $291 million in Q3 of last year and we continue to expect our full-year 2014 adjusted free cash flow to be approximately $1.2 billion. Capital expenditures were $57 million in Q3 of this year compared to $56 million in Q3 of 2013.

There were no sharing purchases in the quarter as we issued a net cash payment of $414 million to acquire the Interventional division of Bayer AG, we value returning cash to shareholders, share repurchase and M&A remain our top two capital allocation priorities.

Any continuation of our share repurchase program in 2014 would be subject to business development opportunities, market conditions, our stock performance, regulatory trading windows and other factors. I would like to conclude with our guidance for Q4 and full year 2014.

For the full-year 2014, we expect consolidated revenue to be in the range of $7,370 billion to $7,420 billion, which represents year-over-year growth of 5% operationally and 3% to 4% on a reported basis.

We now expect foreign exchange to be a $55 million headwind for the full-year 2014 and we expect adjusted EPS for the full-year 2014 to be in the range of $0.81 to $0.83. On a GAAP basis, we expect EPS to be in a range of $0.22 to $0.24.

Now turning to the fourth quarter, we expect consolidated revenues to be a range of $1,875 billion to 1,925 billion. If current foreign exchange rates hold constant, the headwinds from FX should be approximately $27 million or 150 basis points relative to Q4 last year.

On operational basis, we expect consolidated Q4 sales to grow year-over-year in a range of 4% to 6%. For the fourth quarter, adjusted EPS is expected to be in a range of $0.20 to $0.22 per share and reported EPS is expected to be in a range of $0.09 to $0.11 per share.

I encourage you to check our investor relations website for Q3 2014 financial and operational highlights, which outline Q3 results and 2014 guidance. With that, I will turn it back to Suzie, who will the moderate the Q&A..

Thanks, Dan. Roxanne, let's open it up to questions for the next 30 minutes to 35 minutes or so. In order to enable us to take as many questions as possible, please limit yourselves to one question and one related follow-up. Roxanne, please go ahead..

(Operator Instructions) Our first question is from Bruce Nudell with Credit Suisse. Please go ahead..

Good morning. It is very clean impressive quarter.

Just in terms of this [stent] number which is very impressive and well above the market, is it possible to continue that sort of momentum with the contribution of SYNERGY, perhaps offset by lapping of the German issue et cetera?.

Thanks, Bruce. It's Mike. Good morning. We are certainly pleased with our total DES performance, [online] order quarter, but also for the year-to-date. Year-to-date, our performance DES as a percent in the quarter, it was 10%, big share gains in the U.S. Promus PREMIER and also Japan.

Also, we continue to see strong growth in Europe, so really it's balanced across the globe.

As we look forward to, not to provide guidance, but as we look forward at 2015, we continue to see positive momentum there in the portfolio, we anticipate large vessel product to be approved in Japan, we expect to expand the reimbursement for SYNERGY in Europe beyond the countries that we are currently selling it in and we continue to maintain a kind of disciplined tiered pricing strategy that offers innovation to physicians and patients.

We also expect to further strengthen that business based on the adjacencies and hopefully WATCHMAN approval on the first half of 2015 and the ongoing progress of LOTUS, all of which provide a hail over to our poor Interventional Cardiology business..

Just speaking of WATCHMAN, congratulations. Third time to [charm], it looks like in my view, approval is going to happen. It just seems that given the messiness around the panel et cetera, reimbursement may be more of an issue.

How should we be thinking about that? Should we be thinking about national coverage determination, new technology add-on payment? How should we be thinking the pace of adoption, because it is clearly needed in certain populations?.

Yes. We are very encouraged by the progress. I think, whenever you bring a unique - and you are the first one to do it, innovation to market it takes a while. We are pleased with the panel and hopeful for the approval. A lot of the questions you asked there, our views really haven't changed.

We still believe this is a large un-served market, we are still confident in the $500 million market opportunity that we have talked about and we laid that out in our Investor Day.

Even at that $500 million represents just 3% to 5% penetration of the [patients] with elevated stroke risk, who are eligible for warfarin, so we feel like we have been quite conservative candidly in terms of sizing the market.

Also, we have appropriately built the WATCHMAN approval timeframes as we look at our as a guidance for fourth quarter and we will provide guidance in '15. I think, as you look at BSC beyond WATCHMAN, I think, I would stress the strong performance in our core businesses.

Some of these adjacencies like WATCHMAN, which are unique and innovative have been a bit slower to market, but they are still in play and we look forward to their positive growth in the future..

Thanks so much..

Our next question comes from the line of Rick Wise with Stifel. Please go ahead..

Good morning, everybody. Thanks to the excellent quarter. CRM, Mike, operating margins at 14.2% obviously are excellent. Can you give us a little more color? Is this a new sustainable operating margin level? Maybe talk in more detail about what drove that performance.

Was it volume, was it cost-cutting and help us understand maybe looking ahead should we expect continued sequential expansion in CRM operating margins?.

Rick, this is Dan. I will take that one for you. I think that the key is, the last part of your question which is that is our goal, is the continued sequential improvement in that. For that group, operating margin expansion is their top strategic imperative and it informs all of their strategies.

In terms of the Q3 specifics, 160-basis point improvement to 14.1%, the good news is, it's not one specific thing that did it.

It is all up and down the P&L throughout cost of goods and SG&A and R&D and our goal is to continue to do that in a very thoughtful and measured fashion over time as part of our goal as the total company to getting to 25% by 2017..

Just sort of follow-up on S-ICD, I mean, clearly you sort of raised your goal to $100 million target now. Can you talk about the rollout? Again, any more details on how many accounts you are seeing? Maybe talk at as well about reimbursement? We had some pushback from physicians who have been concerned about reimbursement.

Mike, you highlighted, maybe talk about the Medicare and commercial reimbursement progress. What is needed to see another dramatic step forward in S-ICDs in '15 and beyond, frankly..

Thanks. We look at this as a long-term platform that's uniquely differentiated and we continue to build on, so we have not changed our market opportunity forecast, which we call the $750 million. We will continue to provide guidance on that in the future. I would say overall, we are encouraged by the uptick of S-ICD in the U.S. and Europe.

The adoption of therapies being driven by growing clinical experience for the system and continued flow of positive data and we are really supporting that, Rick, with a lot of ongoing clinical work and we think that clinical work will build a strong unique platform for long time and we are supporting that with the [data set].

In the terms of the guidelines, the European Society of Cardiology is added to S-ICD in a recommendation for treating patients with cardiomyopathy. As you mentioned on the reimbursement side, we expect positive reimbursement changes the U.S. and we are encouraged by the recent coverage expansion of (Inaudible).

We think all of those things, the ongoing building of evidence, the training that we are providing, the training that our sales reps receive, the experience that physicians have and backed by robust clinical data that we continue to build on will continue to extend the lead that we have in this category..

Thanks..

Our next question then comes from the line of David Lewis with Morgan Stanley. Please go ahead..

Good morning. Mike, just one question for you and one question for Dan. You have been saying all year that the second half is going to accelerator. There obviously have been concerns about that, but certainly that is the quays.

You basically said the global business is going to start looking a lot more like Europe as you get this is product pipeline you are being enhanced.

I guess, I wonder if could you talk about this quarter as it relates to the relative inflection and then the sustainability of these results as you head into '15, would you consider SYNERGY, WATCHMAN, and obviously what you commented on as it relates to S-ICD, and then I had a quick follow-up..

Yes. We want to build a higher performance company.

That the company that does it consistently and we measure ourselves by growing faster than the market, expanding operating income margins and driving double-digit EPS growth and building a winning culture in a global mindset that is unique, so that core culture is a big part of what we do and I think the international growth is a strong leading indicator.

The company has had six quarters of consecutive growth and we were very comfortable with our outlook for fourth quarter to extend that to seven quarters. As you mentioned, our international performance in the third quarter was 9%.

More specifically, our European results were 11% growth, where we have mostly all of these adjacencies that have been further matured in terms of the rollout. We won't give '15 guidance, but we have a lot of exciting opportunities in 2015. We will continue to expand our Interventional Cardiology platform like I mentioned it before.

We will continue to broaden our CRM platform in terms of S-ICD utilization and clinical work. We are hopeful for the WATCHMAN approval, we continue to make strong progress with our LOTUS, which we just recently started our trial in U.S. and we are driving momentum there in Europe.

Our MedSurg businesses, time-to-time we have some fluctuations in the quarter. Overall, if you look at a group of businesses, they continue to drive mid single-digit growth, excellent margin improvement and really continue to provide great balance of our portfolio. We are encouraged about the future, but we are certainly not satisfied..

Okay. Then Dan, just your GMs were very strong in the quarter.

You obviously reiterated that you are on pace for 100 basis points of op market margin expansion this year, but the one thing we see consistent this year is you are still investing a fair amount in SG&A and I wonder as the pipeline expands and you head into '15 and that growth rate is 5%, perhaps even higher than 5%.

Talk to us about that SG&A investments that's necessary in '15 and '16. Does it stay at the levels that we are seeing here in '14 or do you begin to get some leverage on that SG&A investments as you cycle into next two years? Thank you..

Thanks, David. I think, as opposed to giving specific guidance within the P&L, I think we can be clear that the SG&A rate will go down as part of us achieving our overall operating income margin targets.

As we have said in the past, there are certain times we need to make investment and be opportunistic and obviously there is pieces of that that have driven the growth that we have been able to put on the board. Overall, if you think of us getting to 25%, you should see SG&A be a lower percentage of sales on the way to 25%..

Great. Thanks, Dan..

We have a question from the line of Mike Weinstein with JPMorgan. Please go ahead..

Thank you. First off congratulation on a really nice quarter. Mike, I want to get your thoughts on the quarter sector landscape with the consolidation we have seen this year and wanted to get your thoughts on how that impacts Boston Scientific and how you see your role playing out it..

Yes. Great question. Thank you. We are very comfortable with the business units that we plan today. We are playing three big sectors interventional cardiology, Rhythm Management and our MedSurg. We continue to provide acquisitions and tuck-in acquisitions that strengthen our unique profile in those businesses.

We planned a lot of R&D to strengthen those, so we are very comfortable with the business that we sell in today.

Also, we believe that, when you cut across these different business units, it is very rare in the hospital system that a hospital will contract for our Neuromodulation products and our cardiology products and our, say, our EP products, so that happens very rarely.

For customers who want to do that, we certainly can enable that, but we don't see that type of bundling across multiple sectors occur very frequently, so we don't think that portfolio in terms of bundling really is an added value, so we don't see much benefit in that.

The benefit that we see in delivering unique innovation to physicians in certain categories, and I think our six quarters of growth and the performance we have in the third quarter would point to that strategy is working and I would also point to the unique margin improvement opportunity that we have. I think our portfolio is positioned well.

We have a lot of opportunities to improve it, but we don't see some of the consolidation that is taking place. Maybe other than the cost benefits and some cost synergies, we don't see a growth benefit with bundling across as multiple sectors that are very despaired from each other..

Let me ask - the performance that we are seeing here it's really been driven as you outlined by the business that you are taking sharing and obviously in drug-eluting stents and ICD and defibrillator business is going well, but these are challenging core markets underneath that.

Do you feel the need to add more pipeline? Obviously, this is a very good quarter, but you are betting on markets that are growing and I know you preferred better market that are growing, so given the kind of questions on a layer WATCHMAN and similar pipeline stuff.

Do you want to add more pipelines to portfolio today?.

I think we always looking for new capabilities. We just acquired the Bayer technology, but just take a step back, I think in med device most of the markets are fairly challenging, so it's a very competitive business. We feel comfortable and we strive to outperform our peers and to growth faster than market and you are seeing that.

In terms of our thirst for innovation, we clearly want to drive down the SG&A that Dan commented on and we are committed to doing that. At the same time, we are very aggressive in looking at portfolio alternatives that will continue to strengthen our business units..

Okay. Thank you, Mike..

Our next question is from Bob Hopkins with Bank of America. Please go ahead..

Thanks very much.

Can you hear me okay?.

Yes..

Great. Good morning, so two quick things.

First on SYNERGY in Europe, can you give us a sense as to market share right now for your stent franchise overall in Europe, relative to the last couple quarters? What I am particularly curious about is are you gaining share while holding the price premium or have you come off the price premium that I think you initially launched with?.

Good question, so we are very selective.

Our strategy hasn't changed we are very selective in the countries that we sell SYNERGY in and we are also very selective in terms of the price point, because we think to establish a long-term market that is strong and healthy, that type of discipline is needed, so we haven't come off that strategy, so we are very careful about it.

We talked about potential reimbursement improvements, potentially in France next year, which may make SYNERGY more attractive in that country, so we are disciplined about what countries we could move to and we do have a pricing premium for SYNERGY, so I would not articulate the sheer gains as a result of dropping price in SYNERGY.

It's something we could do, but it is not something that we feel a long-term the best for BSC or for the market..

In terms of the market share specifically, where you are in Europe today and where you think you've been?.

Yes. We haven't broken out the specific share of SYNERGY of our overall marketplace..

Okay.

Then just one question on litigation, Mike, just can you give us any update on timing on when you think we will hear something from the J&J bench trial? If there is anything you can say generally it would be helpful to folks on this topic, I am sure people would be interested if there's anything to say, but just mostly looking for a timing update..

Sure. Bob, this is Dan. I think as many folks might know, it's a bench trial. It starts November 25th, November 20th, runs through the 25th. If there is more time needed, there's some time set aside the [week] of 15th to wrap it up. We feel confident in our position heading into that.

I feel like it's a high bar that needs to be proven in that and it's intended to bench trial post the completion of the trial then the judge will issue his decision at some point post the trial..

Great. Thanks very much..

Our next question is from the line of Glenn Novarro with RBC Capital Markets. Please go ahead..

Hi. Good morning. Two questions, first, for you, Mike. In the U.S., a very strong ICD quarter, you raised your guidance on the S-ICD, so that was a contributor. You also called out the quad can in that performance.

In the fourth quarter here, Medtronic will be in the market with their quad can and quad pole, so I wondering if you can discuss how we see the market dynamics playing out for Boston Scientific in the fourth quarter and going forward with Medtronic on the market with both, a quad X and quad [pole]? Thanks..

When we look at CRM, we are really pleased with our performance globally, particularly in Europe. Again, we have more of our most recent portfolio. In terms of market overall, we think the market has stabilized a bit, so it is probably flat to maybe down slightly in 2014.

As Dan mentioned, when you look at the kind of 12-month rolling average, we are up 2%, so we are growing faster than the underlying market. We are still having quite a bit of portfolio to bring to the U.S. In terms of just our performance, I think when you look at our position in it, we will continue to accelerate S-ICD development.

I think that we will continue to get more clinical traction and more comfort level with physicians, so we are positive about that. We will also going into 2015, have our full year of our MINI platform as well as our quad generator, so in CRT-D, kind of pointing your question there, we feel like we have gained share in de novo implants.

We continue to lose a little bit of share on replacement headwinds. I think despite Medtronic coming to market there, I think, physicians really value the battery longevity capabilities that we offer in our products, so we are very comfortable with the momentum that the CRM business has as we look forward to 2015..

Okay. Dan, can you give us an update on the Mesh litigation, how much is reserved and did you add to any of those reserves in the third quarter? Thanks..

Sure, Glenn. As you know, we don't disclose specific components of our reserve. We obviously review our reserve every quarter and believe it reflects what's probable and [estimateable] at that time.

Our accrual for all legal matters of which Mesh is a portion is $945 million as of the end of September, but as you can appreciate I am not going to break that out specifically by individual litigation matter..

Can you tell us if that $945 million at the end of September, was that an increase from 2Q or 1Q?.

It was an increase. Yes. We had $139 million increase in litigation from Q2 to Q3, $139 million charge..

Okay. Thank you..

Our next question comes from Kristen Stewart with Deutsche Bank. Please go ahead..

Good job on the quarter. Dan, I couldn't help, but ask a tax question, because I know you love how I ask tax questions. Can you just kind of walk us through. I know you gave some helpful comments at Morgan Stanley in September just on the tax outlook.

Maybe just kind of go over the tax position again and comment on to what extent you guys have an exposure or utilize the double-IRS situation? Then also I have a second follow-up after that..

Sure. I will start with the double-IRS, so we don't anticipate that the double-IRS would have any impact on our structure. Then relative to overall broader tax commentary, in our prepared remarks, I had mentioned that we think Q4 tax rate will be between 12% and 14%.

Overall this year 12% to 13%, sticking next year with 13% to 15%, overall, again, all that assumes that the R&D tax credit is not reenacted that's worth up to 200 basis points on our overall rate.

Then beyond 2015, as we look to balance all of the elements of our structure, you would see movements in that 100-basis point range increase from 16 outward..

100 basis points each year going out..

Correct..

Then can you review with us too just the IRS litigation and dispute that you have with the total amount that they are asserting that you owe them and just kind of the context of, I guess, the broader liability picture with the 945.

What kind of the total cash potential outflows could be over the next three years or so?.

Sure. Just in summary on the guiding transfer pricing matter what the IRS has asserted for the period that's in the question now is $1,162 billion, which is in our SEC filings plus interest.

What we have in total for all of our tax controversies is $1.5 billion of which [guide] TPV as a portion that and we obviously don't disclose the specifics of that reserve. From a timing perspective, it has moved more slowly than we would have anticipated and the next event will be scheduling a trial date which could be in '16 or later.

With ultimate resolution in '17 or beyond, so it has moved at a pretty slow pace overall relative to the expected timing..

Okay. Thanks so much..

Our next question comes from the line of Brooks West with Piper Jaffray. Please go ahead..

Good morning. Thanks for taking the questions. Question for Keith on LOTUS, just trying to get any anecdotal feedback on the clinical performance with the expanded offering, I know you had data at London Valves. Just any update on the program in Europe would be helpful. Then I have got one follow-up..

Sure, Brooks. As you know at London Valves, we presented the 250 patients out of REPRISE II extension, which confirms excellent key performance and importantly and adjudicated moderate power valve leak rate is 0.6%, which I think is best-in-class of 30 days and no severe leak.

We are continuing the investigation of LOTUS in Europe with the Respond trial which a 1,000-patient post market study. That's on track in terms of recruitment.

Also, in that trial, unlike a REPRISE II extension is the addition of the third valve size 25 millimeter valves, so there is 23 millimeter, 25 millimeter and 27 millimeter and that we knew from the REPRISE II CE Mark trial that there are a number of patients that fell within that 25 millimeter range, who didn't get the valve because we didn't have a 27 millimeter and that that negatively affect the pacemaker rate, so it's too early to say yet whether the pacemaker rate is full and with the additional 25 millimeter valve.

We will know that from the RESPONSE study. Also, we had had three strong live cases at PCT and another three strong live cases at London Valves, and one of those three at London Valves was a direct aortic implant in terms of hospital with an excellent result. That's [access]. We are continuing to pursue with the LOTUS valve.

Then just finally, of course, our pivotal REPRISE III trial has already started in this country, which is a head-to-head comparison with core valve, just over 1,000 patients. That, plus our pipeline, which is in development makes us very comforted about our offerings..

Thanks for that. Maybe just a quick follow-up there, when would we see the registry data in Europe and get a read on the pacemaker rate. Then just on the Bayer acquisition, maybe not as much of a focus for investors, but that is a piece of business that really has not been invested in for the last couple years.

Just wondering, now that you have got a month or so under your belt there, if you could give a little more clarity on the opportunity set and kind of how we could see the peripheral business grow at Boston Scientific looking forward?.

I will just answer the first part of that question. We will have an early count of the RESPOND data before 1,000 patients are recruited. We have not made public the time point of that as yet..

Thank you..

Yes. Just a quick comment on our peripheral business, year-to-date, through third quarter it is up about that 6%. Then there is 9% in the quarter with Bayer and probably about 5% or so ex-Bayer. Overall, our views on it Brooks, haven't changed. We have a nice addition there, where we have an excellent sales force.

It's already calling on those customers and there are two segments that we didn't plan and they are clear leader in thrombectomy, so that's a nice addition for us and also in the atherectomy market, you have a market that is growing and it is a market that will put additional investment in terms of the portfolio in both, in the cardiovascular side and also the peripheral side.

It is a nice addition for us. It leverages our current sales force and capabilities as well as operations and we continue to invest in that peripheral vascular market and that should be a nice piece for us..

Great. Thanks, guys..

Our next question is from the line of Larry Biegelsen with Wells Fargo. Please go ahead..

Thanks for taking the question. I had one housekeeping question and two real questions.

Dan, on the 4% to 6% organic growth guidance for Q4 is that with or without acquisitions?.

That's with..

Is that adjusted for acquisitions or not? In other words, if you adjust for acquisitions, would it be more like 2% to 4% or not?.

That's correct. Yes. The Bayer and Bard are a little north of 150 basis points, so you back that off of the 4% to 6%. Yes..

Underlying, you are calling for basically about 2% to 4%.

Is that correct? Is there any reason why you would expect it to decelerate a little bit from Q3?.

Yes. 2.5% to 4.5% is probably the way we would characterize it. There is a couple things that would drive that, some that are Q3 this year-related and some that are Q4 last year-related. On Q4 last year simple one, we grew 5% last year in Q4, so that was our strongest quarter to-date, so it's a little bit tougher comp overall.

Specifically in that comp, is a really tough neuromod comp of 33% growth that they had last year in the fourth quarter. Then when you think of Q3, we had some businesses that significantly outperformed their underlying market growth rates.

If you think IC, endo and CRM at 8, 7 and 4, so a more normalized growth rate they and that puts you into the range that we have put out for the fourth quarter..

Okay. That's helpful. I wanted to ask one on SYNERGY and one on the J&J litigation.

For Keith, prior bioabsorbable polymer drug-eluting stent trials have not shown a clinical difference from durable polymer DES, at one year, how important do you think the clinical difference is at one year for the market acceptance of SYNERGY in the U.S.? Then on J&J, Mike, I appreciate your comments earlier.

Dan, maybe if you could - it's been obviously an overhang for the stock, if you could kind of lay out what you think the key issues are, the facts on your side of the argument, and your ability to manage an unfavorable outcome should that happen. Thanks..

Thanks, Larry. I think it's important to understand that all bioabsorbable polymer stents are not similar, so the data for some of the competitor products available in Europe have really related to a thick stent with a thick layer of polymer that laid to resolve.

As you know, we will be interested to see the results of the EVOLVE II pivotal trial which, which is a late break around the 19th of November at AHA, and this will be the first bioabsorbable polymer pivotal trial in the U.S. and we are anticipating FDA approval is in July 2015.

I think, the fact that the polymer and the drug synchronously disappears at about three months time point makes SYNERGY interesting. Obviously, we will give us the opportunity to firm exploring short dual antiplatelet therapy. Couple that with your key performance, which is I think well-recognized, we are very competent.

This is a product and we will be excited to bring it to the U.S. Incidentally, as a note, that we will be holding an investor event in Chicago after the presentation on November 19th. The event will be at 1 pm. Central Time and we can obviously discuss the details of the trial at that time..

Then Larry, on the J&J case, this Dan. Two parts to your question, I don't think it would serve us well to get into all of specifics of why we feel like confident relative to our position there. As you can certainly appreciate, the last piece in terms of our ability to deal with any unfavorable outcome, we are confident that we can deal with that..

Thanks for taking the questions..

Our next question is from the line of Josh Jennings with Cowen & Company. Please go ahead..

Hi. Thanks for getting me involved. I appreciate it. I just wanted to first start with maybe some commentary if you would on the health of the U.S. and international ICD markets from a pricing and volume perspective and your outlook for these markets going forward.

Just on the subcutaneous ICD, increasing your guidance it is nice to see, but maybe you could talk about where you are having the most success on the implant side? Is it cannibalizing or gaining share in the single market segment or is the subcutaneous ICD actually expanding the market and you are having success implants in patients that were previously contraindicated for an [vascular] device?.

Yes. Just some comments in the market, just to reinforce what I mentioned a little bit earlier, there are still a challenging market, but we think it's improved slightly, so we are calling the overall CRM market kind of flattish to slightly down negative.

There may be kind of zero to negative-2 in terms of the full-year when you roll together both, CRM, including pacemaker and defibrillators. As we indicated before, we are going a little bit faster than market, quite a bit faster in Europe, where we have all of our new products and slightly faster than market died in the U.S.

Overall, we are pleased with our performance. On S-ICD, I am probably not going to give can give you all the information wanted there. I think as we talked about, we are being very thoughtful with the rollout of S-ICD in terms of our training, the clinical build that we have with it. We have given guidance earlier in the year of $75 million.

We are taking that up to comfortable of delivering against 100. We will likely provide additional insights in terms of our clinical strategy and growth prospects as we point towards our January '15.call. In terms of the marketplace itself, we do think on occasion, it clearly expands the market in some ways.

Some patients typically could have an ICD, but there would be young patients, patients with the venous access issues, so in some cases it will expand their market.

Overall, I think if you look at BSE in our portfolio, you have a market that's we think more stable than it has in the past and we the unique innovative platform that's multi-years ahead of the competition that we are committed to building clinical evidence from.

Having a product is helpful and strengthens our full Rhythm Management business when you take into account our EP business and more traditional ICDs. Ken Stein, I am not sure if you have any additional comments you would like to make. Dr.

Stein?.

Yes. Thanks, Mike. Thanks, Josh. I just want to reiterate what is Mike saying, it's very hard to break down how many of these patients are going to be S-ICD or patients who would otherwise have gotten it transvenous system and certainly we are very happy with our transvenous system as well.

I think if you look at who are the really strong candidates, one of the obvious candidates for the S-ICD today, these are the patient who don't have vascular access or patient who have had recurrent or prior infected transvenous systems, patients with renal failure.

Even though I don't think we have any way to breakdown how many of those would not have gotten that transvenous ICD, certainly there's large number of them who are just completely new to the market..

If I could ask one follow-up for Dr Stein? Mike, I heard your comments about you are still comfortable with the $500 million market opportunity for the WATCHMAN, I think there has been some consternation after the panel with a lot of panel members, recommending a label of it being "Second-line therapy." I am just wondering if I could some prospects from Dr Stein about, what has changed in terms of that guidance by the panel as a second-line therapy and does that impact the overall market opportunity? Thanks a lot.

Yes. I will take that. Thanks, Josh. I am just glad. I think what you recognize is you what's important on the panel and beyond the vote, so the commentary and the explanations of the panel members made for the vote. We really are very pleased with the overall outcome of the panel.

I think if you looked at what the comments are and what they said is that they really wanted us just to be more clear in our labeling about who are the appropriate patients for and if you look at we said, I think we are in full agreement with them.

We have never ever thought that this device will have to be a broad replacement for oral anticoagulant therapy. This is a device for patients who are eligible to take warfarin but who for one reason or another have valid clinical reasons to prefer long-term alternative.

What we can't get into details of any our discussions with FDA at this point, from our standpoint really what the panel was asking us to do was to clarify what we have always said we believe to be the appropriate patient population..

Okay. Great. With that, we would like to conclude the call. Thanks for joining us today. We appreciate your interest in Boston Scientific. Before you disconnect, Roxanne will give you all the pertinent details for the replay. Thanks very much..

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