Boston Scientific Corp 10-Q for FY2020 Q1

About this 10-Q

Headline figures

Boston Scientific Corp (BSX)

10-Q 2020-05-06 For: 2020-03-31

Added on April 07, 2026

Boston Scientific Corp filed this 10-Q on May 6, 2020, covering the quarter ended March 31, 2020 (FY2020 Q1).

Amount Assigned
(in millions)

Amortization Period
(in years)

Risk-Adjusted Discount
Rates used in Purchase Price Allocation

Indefinite-lived intangible assets:

In-process research and development (IPR&D)

Quarter ended March 31, 2020, as reported in this filing, compared with the same period a year earlier where the filing states it.

Revenue: $2.54B; up 2.0% from $2.49B a year earlier
Net income: $11M; down 97.4% from net income of $424M a year earlier
Diluted EPS: $0.01; down 96.7% from $0.30 a year earlier

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



Title of each class	Trading Symbol	Name of each exchange on which registered
Common Stock, $0.01 par value	BSX	New York Stock Exchange
0.625% Senior Notes due 2027	BSX27	New York Stock Exchange



Large accelerated filer	☑	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐



		Page No.

PART I	FINANCIAL INFORMATION	3

ITEM 1.	Condensed Consolidated Financial Statements	3

	Condensed Consolidated Statements of Operations (Unaudited)	3

	Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited)	4

	Condensed Consolidated Balance Sheets (Unaudited as of March 31, 2020)	5

	Condensed Consolidated Statements of Stockholders' Equity (Unaudited)	6

	Condensed Consolidated Statements of Cash Flows (Unaudited)	7

	Notes to the Condensed Consolidated Financial Statements (Unaudited)	8

ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	34

ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	50

ITEM 4.	Controls and Procedures	51

PART II	OTHER INFORMATION	52

ITEM 1.	Legal Proceedings	52

ITEM 1A.	Risk Factors	52

ITEM 6.	Exhibits	53

SIGNATURE		55



	Three Months Ended March 31,
(in millions, except per share data)	2020			2019
Net sales	$	2,543		$	2,493
Cost of products sold	806			730
Gross profit	1,737			1,763

Operating expenses:
Selling, general and administrative expenses	978			869
Research and development expenses	300			280
Royalty expense	12			16
Amortization expense	201			160
Intangible asset impairment charges	198			67
Contingent consideration expense (benefit)	(108		)	(28		)
Restructuring charges (credits)	10			6
Litigation-related net charges (credits)	—			(148		)
	1,591			1,222
Operating income (loss)	146			541

Other income (expense):
Interest expense	(88		)	(109		)
Other, net	(36		)	25
Income (loss) before income taxes	22			457
Income tax expense (benefit)	12			33
Net income (loss)	$	11		$	424

Net income (loss) per common share — basic	$	0.01		$	0.31
Net income (loss) per common share — assuming dilution	$	0.01		$	0.30

Weighted-average shares outstanding
Basic	1,397.4			1,387.7
Assuming dilution	1,413.5			1,408.4



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



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



	Three Months Ended March 31,
(in millions)	2020			2019
Net income (loss)	$	11		$	424
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustment	(177		)	6
Net change in derivative financial instruments	75			49
Net change in defined benefit pensions and other items	—			(1		)
Total other comprehensive income (loss)	(101		)	54
Total comprehensive income (loss)	$	(91	)	$	479



	As of
(in millions, except share and per share data)	March 31, 2020			December 31, 2019
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	370		$	217
Trade accounts receivable, net	1,577			1,828
Inventories	1,628			1,579
Prepaid income taxes	205			195
Other current assets	1,043			880
Total current assets	4,823			4,699
Property, plant and equipment, net	2,098			2,079
Goodwill	10,098			10,176
Other intangible assets, net	7,393			7,886
Deferred tax assets	4,162			4,196
Other long-term assets	1,538			1,529
TOTAL ASSETS	$	30,113		$	30,565

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current debt obligations	$	1,004		$	1,416
Accounts payable	605			542
Accrued expenses	1,562			2,109
Other current liabilities	804			800
Total current liabilities	3,976			4,866
Long-term debt	9,331			8,592
Deferred income taxes	589			595
Other long-term liabilities	2,412			2,635

Commitments and contingencies

Stockholders’ equity
Preferred stock, $0.01 par value - authorized 50,000,000 shares, none issued and outstanding
Common stock, $0.01 par value - authorized 2,000,000,000 shares - issued 1,646,877,242 shares as of March 31, 2020 and 1,642,488,911 shares as of December 31, 2019	16			16
Treasury stock, at cost - 247,566,270 shares as of March 31, 2020 and December 31, 2019	(1,717		)	(1,717		)
Additional paid-in capital	17,589			17,561
Accumulated deficit	(2,252		)	(2,253		)
Accumulated other comprehensive income (loss), net of tax	168			270
Total stockholders’ equity	13,804			13,877
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	30,113		$	30,565



	Common Stock			Treasury Stock			Additional Paid-In Capital		Accumulated Deficit			Accumulated Other Comprehensive Income (Loss), Net of Tax
(in millions, except share data)	Shares Issued	Par Value		Treasury Stock			Additional Paid-In Capital		Accumulated Deficit			Accumulated Other Comprehensive Income (Loss), Net of Tax
Balance as of December 31, 2018	1,632,148,030	$	16	$	(1,717	)	$	17,346	$	(6,953	)	$	33
Net income (loss)									424
Total other comprehensive income (loss)												54
Impact of stock-based compensation plans, net of tax	6,001,343						28
Balance as of March 31, 2019	1,638,149,373	$	16	$	(1,717	)	$	17,374	$	(6,528	)	$	87
Net income (loss)									154
Total other comprehensive income (loss)												(9		)
Impact of stock-based compensation plans, net of tax	949,557						48
Balance as of June 30, 2019	1,639,098,930	$	16	$	(1,717	)	$	17,422	$	(6,375	)	$	78
Net income (loss)									126
Total other comprehensive income (loss)												60
Impact of stock-based compensation plans, net of tax	2,243,579						89
Balance as of September 30, 2019	1,641,342,509	$	16	$	(1,717	)	$	17,510	$	(6,249	)	$	138
Net income (loss)									3,996
Total other comprehensive income (loss)												132
Impact of stock-based compensation plans, net of tax	1,146,402						50
Balance as of December 31, 2019	1,642,488,911	$	16	$	(1,717	)	$	17,561	$	(2,253	)	$	270
Net income (loss)									11
Cumulative effect adjustment for adoption of ASU 2016-13									(10		)
Total other comprehensive income (loss)												(101		)
Impact of stock-based compensation plans, net of tax	4,388,331						28
Balance as of March 31, 2020	1,646,877,242	$	16	$	(1,717	)	$	17,589	$	(2,252	)	$	168



	As of March 31,
Reconciliation to amounts in the unaudited condensed consolidated balance sheets:	2020		2019
Cash and cash equivalents	$	370	$	139
Restricted cash and restricted cash equivalents included in Other current assets	288		2,724
Restricted cash equivalents included in Other long-term assets	42		33
Cash, cash equivalents, restricted cash and restricted cash equivalents at end of period	$	700	$	2,896



(in millions)
Payment for acquisition, net of cash acquired	$	321
Fair value of contingent consideration	83
Fair value of prior interests	102
	$	505



(in millions)
Goodwill	$	307
Amortizable intangible assets	—
Indefinite-lived intangible assets	240
Other assets acquired	2
Liabilities assumed	(1		)
Net deferred tax liabilities	(43		)
	$	505



Contingent Consideration Liability	Fair Value as of March 31, 2020	Valuation Technique	Unobservable Input	Range				Weighted Average (1)
R&D, Regulatory and Commercialization-based Milestones	$96 million	Discounted Cash Flow	Discount Rate	3	%	-	3%	3%
			Probability of Payment	90%				90%
			Projected Year of Payment	2020		-	2027	2024
Revenue-based Payments	$121 million	Discounted Cash Flow	Discount Rate	11	%	-	14%	13%
			Probability of Payment	100%				100%
			Projected Year of Payment	2020		-	2024	2021



	Three Months Ended March 31,
(in millions)	2020			2019
Cash provided by (used for) operating activities	$	(77	)	$	350

Investing activities:
Purchases of property, plant and equipment	(100		)	(63		)
Proceeds from sale of property, plant and equipment	3			2
Payments for acquisitions of businesses, net of cash acquired	—			(321		)
Proceeds from royalty rights	23			—
Payments for investments and acquisitions of certain technologies	(2		)	(28		)
Cash provided by (used for) investing activities	(76		)	(410		)

Financing activities:
Payment of contingent consideration and royalty rights previously established in purchase accounting	(76		)	(7		)
Payments on short-term borrowings	(300		)	(1,000		)
Proceeds from short-term borrowings, net of debt issuance costs	1,000			—
Net increase (decrease) in commercial paper	(714		)	370
Payments on borrowings from credit facilities	(479		)	—
Proceeds from borrowings on credit facilities	1,839			—
Payments on long-term borrowings and debt extinguishment costs	(1,000		)	(1,472		)
Proceeds from long-term borrowings, net of debt issuance costs	—			4,243
Cash used to net share settle employee equity awards	(57		)	(60		)
Proceeds from issuances of shares of common stock	42			53
Cash provided by (used for) financing activities	256			2,127

Effect of foreign exchange rates on cash	(9		)	—

Net increase (decrease) in cash, cash equivalents, restricted cash and restricted cash equivalents	93			2,067
Cash, cash equivalents, restricted cash and restricted cash equivalents at beginning of period	607			829
Cash, cash equivalents, restricted cash and restricted cash equivalents at end of period	$	700		$	2,896

Supplemental Information
Stock-based compensation expense	$	42		$	36
Fair value of contingent consideration recorded in purchase accounting	—			87
Non-cash impact of transferred royalty rights	(23		)	—


(1)	Unobservable inputs were weighted by the relative fair value of the contingent consideration liability. For projected year of payment, the amount represents the median of the inputs and is not a weighted average.



	As of
(in millions)	March 31, 2020		December 31, 2019
Equity method investments	$	253	$	264
Measurement alternative investments (1)	181		171
Publicly-held equity securities (2)	—		1
Notes receivable	2		23
	$	437	$	458


(1)	Measurement alternative investments are privately-held equity securities without readily determinable fair values that are measured at cost minus impairment, if any, adjusted to fair value for any observable price changes in orderly transactions for the identical or a similar investment of the same issuer.


(2)	Publicly-held equity securities are measured at fair value with changes in fair value recognized currently in Other, net on our accompanying unaudited condensed consolidated statements of operations.



	As of March 31, 2020					As of December 31, 2019
(in millions)	Gross Carrying Amount		Accumulated Amortization/ Write-offs			Gross Carrying Amount		Accumulated Amortization/ Write-offs
Amortizable intangible assets
Technology-related	$	11,906	$	(5,806	)	$	12,020	$	(5,706	)
Patents	525		(409		)	525		(408		)
Other intangible assets	1,748		(1,113		)	1,754		(1,081		)
	$	14,178	$	(7,328	)	$	14,299	$	(7,195	)
Indefinite-lived intangible assets
Goodwill	$	19,998	$	(9,900	)	$	20,076	$	(9,900	)
IPR&D	423		—			662		—
Technology-related	120		—			120		—
	$	20,541	$	(9,900	)	$	20,858	$	(9,900	)



(in millions)	MedSurg			Rhythm and Neuro		Cardiovascular			Specialty Pharmaceuticals			Total
As of December 31, 2019	$	2,061		$	2,192	$	5,676		$	247		$	10,176
Impact of foreign currency fluctuations and other changes in carrying amount	(13		)	—		(55		)	(9		)	(78		)
As of March 31, 2020	$	2,049		$	2,191	$	5,621		$	238		$	10,098



(in millions)	FASB ASC Topic 815 Designation	As of
(in millions)	FASB ASC Topic 815 Designation	March 31, 2020		December 31, 2019
Forward currency contracts	Cash flow hedge	$	3,916	$	3,891
Forward currency contracts	Net investment hedge	957		953
Foreign currency-denominated debt (1)	Net investment hedge	997		997
Forward currency contracts	Non-designated	4,209		4,377
Total Notional Outstanding		$	10,078	$	10,218


(1)	The €900 million (approximately $1.000 billion) debt principal is a nonderivative instrument designated as a net investment hedge of our net investments in certain of our Euro functional subsidiaries.



	Effect of Hedging Relationships on Accumulated Other Comprehensive Income
	Amount Recognized in OCI on Hedges								Unaudited Condensed Consolidated Statements of Operations (1)			Amount Reclassified from AOCI into Earnings
(in millions)	Pre-Tax Gain (Loss)		Tax Benefit (Expense)			Gain (Loss) Net of Tax			Location of Amount Reclassified	Total Amount of Line Item Presented		Pre-Tax (Gain) Loss			Tax (Benefit) Expense		(Gain) Loss Net of Tax
Three Months Ended March 31, 2020
Forward currency contracts
Cash flow hedges	$	119	$	(27	)	$	92		Cost of products sold	$	806	$	(23	)	$	5	$	(18	)
Net investment hedges (2)	22		(26		)	(4		)	Interest expense	88		(6		)	1		(5		)
Foreign currency-denominated debt
Net investment hedges (3)	24		(2		)	22			Other, net	36		—			—		—
Interest rate derivative contracts
Cash flow hedges	—		—			—			Interest expense	88		1			—		1
Three Months Ended March 31, 2019
Forward currency contracts
Cash flow hedges	$	72	$	(16	)	$	56		Cost of products sold	$	730	$	(9	)	$	2	$	(7	)
Net investment hedges (2)	33		(7		)	26			Interest expense	109		(10		)	2		(8		)


(1)	In all periods presented in the table above, the pre-tax (gain) loss amounts reclassified from AOCI to earnings represent the effect of the hedging relationships on earnings. All other amounts included in earnings related to hedging relationships were immaterial.


(3)	For our outstanding Euro-denominated debt principal designated as a net investment hedge, the change in fair value attributable to changes in the spot rate is recorded in the Foreign currency translation adjustment (CTA) component of OCI. No amounts were reclassified from AOCI to current period earnings.



Designated Hedging Instrument	FASB ASC Topic 815 Designation	Location on Unaudited Condensed Consolidated Statements of Operations	Amount of Pre-Tax Gain (Loss) that may be Reclassified to Earnings
Forward currency contracts	Cash flow hedge	Cost of products sold	$	116
Forward currency contracts	Net investment hedge	Interest expense	24
Interest rate derivative contracts	Cash flow hedge	Interest expense	(5		)


(1)	We classify derivative and nonderivative assets and liabilities as current when the settlement date of the contract is one year or less.


•	Level 1 – Inputs to the valuation methodology are quoted market prices for identical assets or liabilities.


•	Level 2 – Inputs to the valuation methodology are other observable inputs, including quoted market prices for similar assets or liabilities and market-corroborated inputs.


•	Level 3 – Inputs to the valuation methodology are unobservable inputs based on management’s best estimate of inputs market participants would use in pricing the asset or liability at the measurement date, including assumptions about risk.



Licensing Arrangements	Fair Value as of March 31, 2020	Valuation Technique	Unobservable Input	Range				Weighted Average (1)
Financial Asset	$480 million	Discounted Cash Flow	Discount Rate	11	%	-	15%	15%
Financial Asset	$480 million	Discounted Cash Flow	Projected Year of Payment	2020		-	2028	2024
Financial Liability	$507 million	Discounted Cash Flow	Discount Rate	12	%	-	15%	13%
Financial Liability	$507 million	Discounted Cash Flow	Projected Year of Payment	2020		-	2027	2023


(1)	Unobservable inputs relate to a single financial asset and liability. As such, unobservable inputs were not weighted by the relative fair value of the instruments. For projected year of payment, the amount represents the median of the inputs and is not a weighted average.



(in millions)
Balance as of December 31, 2019	$	571
Payments for royalty rights	(77		)
Fair value adjustment expense (benefit)	13
Balance as of March 31, 2020	$	507



(in millions, except interest rates)	Issuance Date	Maturity Date	As of						Coupon Rate (1)
(in millions, except interest rates)	Issuance Date	Maturity Date	March 31, 2020			December 31, 2019			Coupon Rate (1)
December 2020 Term Loan (3)	December 2019	December 2020	400			—
May 2022 Notes	May 2015	May 2022	500			500			3.375%
August 2022 Term Loan	August 2019	August 2022	—			1,000
October 2023 Notes	August 2013	October 2023	244			244			4.125%
Revolving Credit Facility	n/a	December 2023	1,360			—
March 2024 Notes	February 2019	March 2024	850			850			3.450%
May 2025 Notes	May 2015	May 2025	523			523			3.850%
March 2026 Notes	February 2019	March 2026	850			850			3.750%
December 2027 Notes	November 2019	December 2027	988			1,011			0.625%
March 2028 Notes	February 2018	March 2028	434			434			4.000%
March 2029 Notes	February 2019	March 2029	850			850			4.000%
November 2035 Notes (2)	November 2005	November 2035	350			350			7.000%
March 2039 Notes	February 2019	March 2039	750			750			4.550%
January 2040 Notes	December 2009	January 2040	300			300			7.375%
March 2049 Notes	February 2019	March 2049	1,000			1,000			4.700%
Unamortized Debt Issuance Discount and Deferred Financing Costs		2020 - 2049	(79		)	(83		)
Unamortized Gain on Fair Value Hedges		2020 - 2023	7			7
Finance Lease Obligation		Various	7			6
Long-term debt			$	9,331		$	8,592


(1)	Coupon rates are semi-annual, except for the December 2027 Notes, which bears an annual coupon, and the August 2022 Term Loan and Revolving Credit Facility, which are variable-rate instruments based on LIBOR.


(2)	Corporate credit rating improvements may result in a decrease in the adjusted interest rate on our November 2035 Notes to the extent that our lowest credit rating is above BBB- or Baa3. The interest rates on our November 2035 Notes will be permanently reinstated to the issuance rate if the lowest credit ratings assigned to these senior notes is either A- or A3 or higher.


(3)	We have classified the $400 million of term loan borrowings due in December 2020 as non-current, due to the repayment prior to the issuance of our unaudited condensed consolidated financial statements for the period ending March 31, 2020 using proceeds from our April 2021 Term Loan that does not require repayment within one year from the balance sheet date.