☑
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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☐
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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Delaware
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04-2695240
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(State or other jurisdiction of incorporation or organization)
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(I.R.S. Employer Identification No.)
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Title of each class
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Trading Symbol
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Name of each exchange on which registered
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Common Stock, $0.01 par value
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BSX
|
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New York Stock Exchange
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0.625% Senior Notes due 2027
|
|
BSX27
|
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New York Stock Exchange
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Large accelerated filer
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☑
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Accelerated filer
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☐
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Non-accelerated filer
|
☐
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Smaller reporting company
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☐
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Emerging growth company
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☐
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Page No.
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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
|
|
|
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
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$
|
30,113
|
|
|
$
|
30,565
|
|
|
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|
||||
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
|
|
|
|
||||
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|
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|
||||
Stockholders’ equity
|
|
|
|
||||
Preferred stock, $0.01 par value - authorized 50,000,000 shares, none issued and outstanding
|
|
|
|
|
|
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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
|
|
|
|
|
|||||||||||||||
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
|
|
|
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
|
)
|
|
—
|
|
|
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
|
|
|
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)
|
240
|
|
|
N/A
|
|
19%
|
(in millions)
|
|
||
Balance as of December 31, 2019
|
$
|
354
|
|
Contingent consideration expense (benefit)
|
(108
|
)
|
|
Contingent consideration payments
|
(28
|
)
|
|
Balance as of March 31, 2020
|
$
|
218
|
|
(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
|
||||||
|
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.
|
(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.
|
(2)
|
For our outstanding forward currency contracts designated as net investment hedges, the net gain or loss reclassified from AOCI to earnings as a reduction of Interest expense represents the straight-line amortization of the excluded component as calculated at the date of designation. This initial value of the excluded component has been excluded from the assessment of effectiveness in accordance with FASB ASC Topic 815. In the current period, we did not recognize any gains or losses on the components included in the assessment of hedge effectiveness in earnings.
|
(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
|
)
|
|
|
Location on Unaudited Condensed Consolidated Statements of Operations
|
|
Three Months Ended March 31,
|
||||||
(in millions)
|
|
|
2020
|
|
2019
|
|||||
Net gain (loss) on currency hedge contracts
|
|
Other, net
|
|
$
|
(15
|
)
|
|
$
|
22
|
|
Net gain (loss) on currency transaction exposures
|
|
Other, net
|
|
8
|
|
|
6
|
|
||
Net currency exchange gain (loss)
|
|
|
|
$
|
(7
|
)
|
|
$
|
28
|
|
|
|
Location on Unaudited Condensed Consolidated Balance Sheets (1)
|
|
As of
|
||||||
(in millions)
|
|
|
March 31, 2020
|
|
December 31, 2019
|
|||||
Derivative and Nonderivative Assets:
|
|
|
|
|
|
|
||||
Designated Hedging Instruments
|
|
|
|
|
|
|
||||
Forward currency contracts
|
|
Other current assets
|
|
$
|
112
|
|
|
$
|
72
|
|
Forward currency contracts
|
|
Other long-term assets
|
|
292
|
|
|
216
|
|
||
|
|
|
|
404
|
|
|
288
|
|
||
Non-Designated Hedging Instruments
|
|
|
|
|
|
|
||||
Forward currency contracts
|
|
Other current assets
|
|
106
|
|
|
33
|
|
||
Total Derivative and Nonderivative Assets
|
|
|
|
$
|
509
|
|
|
$
|
321
|
|
|
|
|
|
|
|
|
||||
Derivative and Nonderivative Liabilities:
|
|
|
|
|
|
|
||||
Designated Hedging Instruments
|
|
|
|
|
|
|
||||
Forward currency contracts
|
|
Other current liabilities
|
|
$
|
2
|
|
|
$
|
3
|
|
Forward currency contracts
|
|
Other long-term liabilities
|
|
4
|
|
|
8
|
|
||
Foreign currency-denominated debt
|
|
Other long-term liabilities
|
|
975
|
|
|
998
|
|
||
|
|
|
|
982
|
|
|
1,009
|
|
||
Non-Designated Hedging Instruments
|
|
|
|
|
|
|
||||
Forward currency contracts
|
|
Other current liabilities
|
|
43
|
|
|
29
|
|
||
Total Derivative and Nonderivative Liabilities
|
|
|
|
$
|
1,025
|
|
|
$
|
1,037
|
|
(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.
|
|
As of
|
||||||||||||||||||||||||||||||
|
March 31, 2020
|
|
December 31, 2019
|
||||||||||||||||||||||||||||
(in millions)
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
||||||||||||||||
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Money market and government funds
|
$
|
16
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
16
|
|
|
$
|
50
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
50
|
|
Publicly-held securities
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
—
|
|
|
—
|
|
|
1
|
|
||||||||
Hedging instruments
|
—
|
|
|
509
|
|
|
—
|
|
|
509
|
|
|
—
|
|
|
321
|
|
|
—
|
|
|
321
|
|
||||||||
Licensing arrangements
|
—
|
|
|
—
|
|
|
480
|
|
|
480
|
|
|
—
|
|
|
—
|
|
|
518
|
|
|
518
|
|
||||||||
|
$
|
17
|
|
|
$
|
509
|
|
|
$
|
480
|
|
|
$
|
1,006
|
|
|
$
|
51
|
|
|
$
|
321
|
|
|
$
|
518
|
|
|
$
|
890
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
Hedging instruments
|
$
|
—
|
|
|
$
|
1,025
|
|
|
$
|
—
|
|
|
$
|
1,025
|
|
|
$
|
—
|
|
|
$
|
1,037
|
|
|
$
|
—
|
|
|
$
|
1,037
|
|
Contingent consideration liability
|
—
|
|
|
—
|
|
|
218
|
|
|
218
|
|
|
—
|
|
|
—
|
|
|
354
|
|
|
354
|
|
||||||||
Licensing arrangements
|
—
|
|
|
—
|
|
|
507
|
|
|
507
|
|
|
—
|
|
|
—
|
|
|
571
|
|
|
571
|
|
||||||||
|
$
|
—
|
|
|
$
|
1,025
|
|
|
$
|
725
|
|
|
$
|
1,750
|
|
|
$
|
—
|
|
|
$
|
1,037
|
|
|
$
|
925
|
|
|
$
|
1,963
|
|
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%
|
Projected Year of Payment
|
2020
|
|
-
|
2028
|
2024
|
|||
Financial Liability
|
$507 million
|
Discounted Cash Flow
|
Discount Rate
|
12
|
%
|
-
|
15%
|
13%
|
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)
|
||||||
|
March 31,
2020 |
|
December 31,
2019 |
|
||||||||||
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.
|
|
|
Covenant Requirement
|
|
Actual
|
|
|
as of March 31, 2020
|
|
as of March 31, 2020
|
Maximum permitted leverage ratio (1)
|
|
4.50 times
|
|
4.10 times
|
(1)
|
Ratio of total debt to consolidated EBITDA, as defined by the credit agreements, for the preceding four consecutive fiscal quarters.
|
|
As of
|
||||||
(in millions, except maturity and yield)
|
March 31, 2020
|
|
December 31, 2019
|
||||
Commercial paper outstanding (at par)
|
$
|
—
|
|
|
$
|
711
|
|
Maximum borrowing capacity
|
2,750
|
|
|
2,750
|
|
||
Borrowing capacity available
|
1,390
|
|
|
2,039
|
|
||
Weighted average maturity
|
0 days
|
|
|
55 days
|
|
||
Weighted average yield
|
—
|
%
|
|
2.21
|
%
|
Factoring Arrangements
|
As of March 31, 2020
|
|
As of December 31, 2019
|
||||||||||
Amount
De-recognized
|
|
Average
Interest Rate
|
|
Amount
De-recognized
|
|
Average
Interest Rate
|
|||||||
Euro denominated
|
$
|
147
|
|
|
1.9
|
%
|
|
$
|
171
|
|
|
1.4
|
%
|
Yen denominated
|
197
|
|
|
0.6
|
%
|
|
226
|
|
|
0.6
|
%
|
|
As of
|
||||||
(in millions)
|
March 31, 2020
|
|
December 31, 2019
|
||||
Cash and cash equivalents
|
$
|
370
|
|
|
$
|
217
|
|
Restricted cash and restricted cash equivalents in Other current assets
|
288
|
|
|
346
|
|
||
Restricted cash equivalents in Other long-term assets
|
42
|
|
|
43
|
|
||
|
$
|
700
|
|
|
$
|
607
|
|
|
As of
|
||||||
(in millions)
|
March 31, 2020
|
|
December 31, 2019
|
||||
Trade accounts receivable
|
$
|
1,664
|
|
|
$
|
1,902
|
|
Allowance for credit losses
|
(87
|
)
|
|
(74
|
)
|
||
|
$
|
1,577
|
|
|
$
|
1,828
|
|
|
Three Months Ended March 31,
|
||||||
(in millions)
|
2020
|
|
2019
|
||||
Beginning balance
|
$
|
74
|
|
|
$
|
68
|
|
Cumulative effect adjustment for adoption of ASU 2016-13
|
10
|
|
|
n/a
|
|
||
Credit loss expense
|
9
|
|
|
7
|
|
||
Write-offs
|
(6
|
)
|
|
(2
|
)
|
||
Ending balance
|
$
|
87
|
|
|
$
|
72
|
|
|
As of
|
||||||
(in millions)
|
March 31, 2020
|
|
December 31, 2019
|
||||
Finished goods
|
$
|
991
|
|
|
$
|
971
|
|
Work-in-process
|
184
|
|
|
192
|
|
||
Raw materials
|
453
|
|
|
416
|
|
||
|
$
|
1,628
|
|
|
$
|
1,579
|
|
|
As of
|
||||||
(in millions)
|
March 31, 2020
|
|
December 31, 2019
|
||||
Restricted cash and restricted cash equivalents
|
$
|
288
|
|
|
$
|
346
|
|
Derivative assets
|
218
|
|
|
105
|
|
||
Licensing arrangements
|
182
|
|
|
186
|
|
||
Taxes receivable
|
125
|
|
|
105
|
|
||
Other
|
231
|
|
|
138
|
|
||
|
$
|
1,043
|
|
|
$
|
880
|
|
|
As of
|
||||||
(in millions)
|
March 31, 2020
|
|
December 31, 2019
|
||||
Land
|
$
|
116
|
|
|
$
|
117
|
|
Buildings and improvements
|
1,199
|
|
|
1,198
|
|
||
Equipment, furniture and fixtures
|
3,437
|
|
|
3,411
|
|
||
Capital in progress
|
450
|
|
|
442
|
|
||
|
5,203
|
|
|
5,169
|
|
||
Less: accumulated depreciation
|
3,104
|
|
|
3,089
|
|
||
|
$
|
2,098
|
|
|
$
|
2,079
|
|
|
As of
|
||||||
(in millions)
|
March 31, 2020
|
|
December 31, 2019
|
||||
Restricted cash equivalents
|
$
|
42
|
|
|
$
|
43
|
|
Operating lease right-of-use assets
|
327
|
|
|
336
|
|
||
Derivative assets
|
292
|
|
|
216
|
|
||
Investments
|
437
|
|
|
458
|
|
||
Licensing arrangements
|
298
|
|
|
332
|
|
||
Other
|
143
|
|
|
144
|
|
||
|
$
|
1,538
|
|
|
$
|
1,529
|
|
|
As of
|
||||||
(in millions)
|
March 31, 2020
|
|
December 31, 2019
|
||||
Legal reserves
|
$
|
211
|
|
|
$
|
470
|
|
Payroll and related liabilities
|
569
|
|
|
708
|
|
||
Rebates
|
271
|
|
|
298
|
|
||
Contingent consideration
|
20
|
|
|
56
|
|
||
Other
|
490
|
|
|
576
|
|
||
|
$
|
1,562
|
|
|
$
|
2,109
|
|
|
As of
|
||||||
(in millions)
|
March 31, 2020
|
|
December 31, 2019
|
||||
Deferred revenue
|
$
|
141
|
|
|
$
|
144
|
|
Licensing arrangements
|
186
|
|
|
197
|
|
||
Taxes payable
|
246
|
|
|
265
|
|
||
Other
|
231
|
|
|
195
|
|
||
|
$
|
804
|
|
|
$
|
800
|
|
|
As of
|
||||||
(in millions)
|
March 31, 2020
|
|
December 31, 2019
|
||||
Accrued income taxes
|
$
|
662
|
|
|
$
|
667
|
|
Legal reserves
|
201
|
|
|
227
|
|
||
Accrued contingent consideration
|
197
|
|
|
299
|
|
||
Licensing arrangements
|
321
|
|
|
374
|
|
||
Operating lease liabilities
|
269
|
|
|
276
|
|
||
Deferred revenue
|
251
|
|
|
257
|
|
||
Other
|
510
|
|
|
535
|
|
||
|
$
|
2,412
|
|
|
$
|
2,635
|
|
|
Three Months Ended March 31,
|
||||
2020
|
|
2019
|
|||
Effective tax rate from continuing operations
|
52.3
|
%
|
|
7.1
|
%
|
|
Three Months Ended March 31,
|
||||
(in millions)
|
2020
|
|
2019
|
||
Weighted average shares outstanding - basic
|
1,397.4
|
|
|
1,387.7
|
|
Net effect of common stock equivalents
|
16.1
|
|
|
20.7
|
|
Weighted average shares outstanding - assuming dilution
|
1,413.5
|
|
|
1,408.4
|
|
|
Three Months Ended March 31,
|
||||||
Net sales
|
2020
|
|
2019
|
||||
MedSurg
|
$
|
774
|
|
|
$
|
766
|
|
Rhythm and Neuro
|
703
|
|
|
757
|
|
||
Cardiovascular
|
1,026
|
|
|
972
|
|
||
Total net sales of reportable segments
|
2,502
|
|
|
2,493
|
|
||
All other (Specialty Pharmaceuticals)
|
41
|
|
|
n/a
|
|
||
Consolidated net sales
|
$
|
2,543
|
|
|
$
|
2,493
|
|
|
|
|
|
||||
|
Three Months Ended March 31,
|
||||||
Income (loss) before income taxes
|
2020
|
|
2019
|
||||
MedSurg
|
$
|
259
|
|
|
$
|
256
|
|
Rhythm and Neuro
|
99
|
|
|
155
|
|
||
Cardiovascular
|
199
|
|
|
275
|
|
||
Total operating income of reportable segments
|
556
|
|
|
686
|
|
||
All other (Specialty Pharmaceuticals)
|
26
|
|
|
n/a
|
|
||
Unallocated amounts:
|
|
|
|
||||
Corporate expenses, including hedging activities
|
(33
|
)
|
|
(48
|
)
|
||
Intangible asset impairment charges, acquisition/divestiture-related net (charges) credits, restructuring- and restructuring-related net (charges) credits, EU MDR implementation costs and litigation-related net (charges) credits
|
(202
|
)
|
|
63
|
|
||
Amortization expense
|
(201
|
)
|
|
(160
|
)
|
||
Operating income (loss)
|
146
|
|
|
541
|
|
||
Other expense, net
|
(124
|
)
|
|
(84
|
)
|
||
Income (loss) before income taxes
|
$
|
22
|
|
|
$
|
457
|
|
|
|
|
|
||||
Operating income of reportable segments as a percentage of net sales of reportable segments
|
Three Months Ended March 31,
|
||||||
2020
|
|
2019
|
|||||
MedSurg
|
33.4
|
%
|
|
33.4
|
%
|
||
Rhythm and Neuro
|
14.1
|
%
|
|
20.5
|
%
|
||
Cardiovascular
|
19.4
|
%
|
|
28.3
|
%
|
|
Three Months Ended March 31,
|
||||||||||||||||||||||
|
2020
|
|
2019
|
||||||||||||||||||||
Businesses
|
U.S.
|
|
OUS
|
|
Total
|
|
U.S.
|
|
OUS
|
|
Total
|
||||||||||||
Endoscopy
|
$
|
256
|
|
|
$
|
186
|
|
|
$
|
442
|
|
|
$
|
253
|
|
|
$
|
187
|
|
|
$
|
440
|
|
Urology and Pelvic Health
|
237
|
|
|
95
|
|
|
332
|
|
|
231
|
|
|
94
|
|
|
326
|
|
||||||
Cardiac Rhythm Management
|
255
|
|
|
182
|
|
|
437
|
|
|
288
|
|
|
203
|
|
|
491
|
|
||||||
Electrophysiology
|
32
|
|
|
43
|
|
|
74
|
|
|
36
|
|
|
43
|
|
|
79
|
|
||||||
Neuromodulation
|
151
|
|
|
40
|
|
|
191
|
|
|
144
|
|
|
42
|
|
|
186
|
|
||||||
Interventional Cardiology
|
297
|
|
|
336
|
|
|
633
|
|
|
296
|
|
|
365
|
|
|
661
|
|
||||||
Peripheral Interventions
|
224
|
|
|
168
|
|
|
392
|
|
|
156
|
|
|
155
|
|
|
311
|
|
||||||
Specialty Pharmaceuticals
|
37
|
|
|
4
|
|
|
41
|
|
|
n/a
|
|
|
n/a
|
|
|
n/a
|
|
||||||
Net Sales
|
$
|
1,489
|
|
|
$
|
1,054
|
|
|
$
|
2,543
|
|
|
$
|
1,403
|
|
|
$
|
1,090
|
|
|
$
|
2,493
|
|
|
Three Months Ended March 31,
|
||||||
Geographic Regions
|
2020
|
|
2019
|
||||
U.S.
|
$
|
1,452
|
|
|
$
|
1,403
|
|
EMEA (Europe, Middle East and Africa)
|
552
|
|
|
561
|
|
||
APAC (Asia-Pacific)
|
409
|
|
|
437
|
|
||
LACA (Latin America and Canada)
|
89
|
|
|
92
|
|
||
Medical Devices
|
2,502
|
|
|
2,493
|
|
||
U.S.
|
37
|
|
|
n/a
|
|
||
OUS
|
4
|
|
|
n/a
|
|
||
Specialty Pharmaceuticals
|
41
|
|
|
n/a
|
|
||
Net Sales
|
$
|
2,543
|
|
|
$
|
2,493
|
|
|
|
|
|
||||
Emerging Markets (1)
|
$
|
267
|
|
|
$
|
297
|
|
(1)
|
We define Emerging Markets as the 20 countries that we believe have strong growth potential based on their economic conditions, healthcare sectors and our global capabilities. Periodically, we assess our list of Emerging Markets, which is currently comprised of the following countries: Argentina, Brazil, Chile, China, Colombia, Czech Republic, India, Indonesia, Malaysia, Mexico, Philippines, Poland, Russia, Saudi Arabia, Slovakia, South Africa, South Korea, Thailand, Turkey and Vietnam.
|
(in millions)
|
Foreign Currency Translation Adjustments
|
|
Net Change in Derivative Financial Instruments
|
|
Net Change in Defined Benefit Pensions and Other Items
|
|
Total
|
||||||||
Balance as of December 31, 2019
|
$
|
142
|
|
|
$
|
173
|
|
|
$
|
(45
|
)
|
|
$
|
270
|
|
Other comprehensive income (loss) before reclassifications
|
(172
|
)
|
|
92
|
|
|
—
|
|
|
(80
|
)
|
||||
(Income) loss amounts reclassified from accumulated other comprehensive income
|
(5
|
)
|
|
(17
|
)
|
|
—
|
|
|
(21
|
)
|
||||
Total other comprehensive income (loss)
|
(177
|
)
|
|
75
|
|
|
—
|
|
|
(101
|
)
|
||||
Balance as of March 31, 2020
|
$
|
(35
|
)
|
|
$
|
248
|
|
|
$
|
(45
|
)
|
|
$
|
168
|
|
(in millions)
|
Foreign Currency Translation Adjustments
|
|
Net Change in Derivative Financial Instruments
|
|
Net Change in Defined Benefit Pensions and Other Items
|
|
Total
|
||||||||
Balance as of December 31, 2018
|
$
|
(53
|
)
|
|
$
|
111
|
|
|
$
|
(25
|
)
|
|
$
|
33
|
|
Other comprehensive income (loss) before reclassifications
|
14
|
|
|
56
|
|
|
(1
|
)
|
|
69
|
|
||||
(Income) loss amounts reclassified from accumulated other comprehensive income
|
(8
|
)
|
|
(7
|
)
|
|
—
|
|
|
(15
|
)
|
||||
Total other comprehensive income (loss)
|
6
|
|
|
49
|
|
|
(1
|
)
|
|
54
|
|
||||
Balance as of March 31, 2019
|
$
|
(46
|
)
|
|
$
|
160
|
|
|
$
|
(26
|
)
|
|
$
|
87
|
|
ITEM 2.
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
|
Three Months Ended March 31, 2020
|
||||||
(in millions, except per share data)
|
Net Income (Loss)
|
|
Impact per Share
|
||||
GAAP net income (loss)
|
$
|
11
|
|
|
$
|
0.01
|
|
Non-GAAP adjustments:
|
|
|
|
||||
Amortization expense
|
180
|
|
|
0.13
|
|
||
Intangible asset impairment charges
|
168
|
|
|
0.12
|
|
||
Acquisition/divestiture-related net charges (credits)
|
(36
|
)
|
|
(0.03
|
)
|
||
Restructuring and restructuring-related net charges (credits)
|
25
|
|
|
0.02
|
|
||
EU Medical device regulation (MDR) implementation costs
|
5
|
|
|
0.00
|
|
||
Deferred tax expenses (benefits)
|
26
|
|
|
0.02
|
|
||
Discrete tax items
|
13
|
|
|
0.01
|
|
||
Adjusted net income
|
$
|
391
|
|
|
$
|
0.28
|
|
|
Three Months Ended March 31, 2019
|
||||||
(in millions, except per share data)
|
Net Income (Loss)
|
|
Impact per Share
|
||||
GAAP net income (loss)
|
$
|
424
|
|
|
$
|
0.30
|
|
Non-GAAP adjustments:
|
|
|
|
||||
Amortization expense
|
143
|
|
|
0.10
|
|
||
Intangible asset impairment charges
|
62
|
|
|
0.04
|
|
||
Acquisition-related net charges (credits)
|
(22
|
)
|
|
(0.02
|
)
|
||
Restructuring and restructuring-related net charges (credits)
|
10
|
|
|
0.01
|
|
||
Litigation-related net charges (credits)
|
(127
|
)
|
|
(0.09
|
)
|
||
Investment impairment charges
|
1
|
|
|
0.00
|
|
||
Adjusted net income
|
$
|
490
|
|
|
$
|
0.35
|
|
|
Three Months Ended March 31,
|
|
|
||||||
(in millions)
|
2020
|
|
2019
|
|
Change
|
||||
Endoscopy
|
$
|
442
|
|
|
$
|
440
|
|
|
0.5%
|
Urology and Pelvic Health
|
332
|
|
|
326
|
|
|
1.9%
|
||
MedSurg
|
774
|
|
|
766
|
|
|
1.1%
|
||
Cardiac Rhythm Management
|
437
|
|
|
491
|
|
|
(11.0)%
|
||
Electrophysiology
|
74
|
|
|
79
|
|
|
(6.2)%
|
||
Neuromodulation
|
191
|
|
|
186
|
|
|
2.4%
|
||
Rhythm and Neuro
|
703
|
|
|
757
|
|
|
(7.2)%
|
||
Interventional Cardiology
|
633
|
|
|
661
|
|
|
(4.2)%
|
||
Peripheral Interventions
|
392
|
|
|
311
|
|
|
26.3%
|
||
Cardiovascular
|
1,026
|
|
|
972
|
|
|
5.5%
|
||
Medical Devices
|
2,502
|
|
|
2,493
|
|
|
0.4%
|
||
Specialty Pharmaceuticals
|
41
|
|
|
—
|
|
|
n/a
|
||
Net Sales
|
$
|
2,543
|
|
|
$
|
2,493
|
|
|
2.0%
|
|
Percentage of Net Sales
|
Gross profit margin - period ended March 31, 2019
|
70.7%
|
Manufacturing cost reductions
|
0.9
|
Sales pricing and mix
|
(0.7)
|
Net impact of foreign currency fluctuations
|
0.6
|
All other, including inventory charges and other period expense
|
(3.2)
|
Gross profit margin - period ended March 31, 2020
|
68.3%
|
|
Three Months Ended March 31,
|
||||||||||
|
2020
|
|
2019
|
||||||||
(in millions)
|
$
|
% of Net Sales
|
|
$
|
% of Net Sales
|
||||||
Selling, general and administrative (SG&A) expenses
|
$
|
978
|
|
38.5
|
%
|
|
$
|
869
|
|
34.9
|
%
|
Research and development (R&D) expenses
|
300
|
|
11.8
|
%
|
|
280
|
|
11.2
|
%
|
||
Royalty expense
|
12
|
|
0.5
|
%
|
|
16
|
|
0.6
|
%
|
|
Three Months Ended March 31,
|
||||||
(in millions)
|
2020
|
|
2019
|
||||
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
|
)
|
|
Three Months Ended March 31,
|
||||||
2020
|
|
2019
|
|||||
Interest expense (in millions)
|
$
|
(88
|
)
|
|
$
|
(109
|
)
|
Average borrowing rate
|
3.4
|
%
|
|
5.3
|
%
|
|
Three Months Ended March 31,
|
||||||
(in millions)
|
2020
|
|
2019
|
||||
Interest income
|
$
|
1
|
|
|
$
|
7
|
|
Net foreign currency gain (loss)
|
(7
|
)
|
|
28
|
|
||
Net gains (losses) on investments
|
(22
|
)
|
|
(7
|
)
|
||
Other income (expense), net
|
(8
|
)
|
|
(3
|
)
|
||
|
$
|
(36
|
)
|
|
$
|
25
|
|
|
Three Months Ended March 31,
|
||||
|
2020
|
|
2019
|
||
Effective tax rate from continuing operations
|
52.3
|
%
|
|
7.1
|
%
|
•
|
Our ability to increase net sales, expand the market, capture market share and adapt to market volatility,
|
•
|
The ongoing impact on our business of physician alignment to hospitals, governmental investigations and audits of hospitals and other market and economic conditions on the overall number of procedures performed,
|
•
|
The timing of when semi-emergent procedures will be permitted in various markets we serve, following measures to limit such procedures as a result of the COVID-19 pandemic,
|
•
|
Competitive offerings and related declines in average selling prices for our products,
|
•
|
The performance of, and physician and patient confidence in, our products and technologies or those of our competitors,
|
•
|
The impact and outcome of ongoing and future clinical trials and market studies undertaken by us, our competitors or other third parties or perceived product performance of our or our competitors' products,
|
•
|
Variations in clinical results, reliability or product performance of our and our competitors' products,
|
•
|
Our ability to acquire or develop, launch and supply new or next-generation products and technologies worldwide and in line with our commercialization strategies in a timely and successful manner and with respect to our recent acquisitions,
|
•
|
The effect of consolidation and competition in the markets in which we do business or plan to do business,
|
•
|
Disruption in the manufacture or supply of certain components, materials or products, or the failure to secure in a timely manner alternative manufacturing or additional or replacement components, materials or products,
|
•
|
The impact of COVID-19 on our global manufacturing and distribution system,
|
•
|
Our ability to retain and attract key personnel, including those associated with recent acquisitions,
|
•
|
The inability of certain of our employees to return to work full time following reduced work schedules,
|
•
|
The impact of natural disasters, public health crises, including the COVID-19 pandemic, and other catastrophic events,
|
•
|
The impact of enhanced requirements to obtain regulatory approval in the U.S. and around the world, including EU MDR and the associated timing and cost of product approval, and
|
•
|
The impact of increased pressure on the availability and rate of third-party reimbursement for our products and procedures in the U.S. and around the world, including with respect to the timing and costs of creating and expanding markets for new products and technologies.
|
•
|
The impact of healthcare policy changes and legislative or regulatory efforts in the U.S., the EU and around the world to modify product approval or reimbursement processes, including a trend toward demonstrating clinical outcomes, comparative effectiveness and cost efficiency, as well as the impact of other healthcare reform legislation,
|
•
|
Risks associated with our regulatory compliance and quality systems and activities in the U.S., the EU and around the world, including meeting regulatory standards applicable to manufacturing and quality processes,
|
•
|
Our ability to minimize or avoid future field actions or FDA warning letters relating to our products and processes and the ongoing inherent risk of potential physician advisories related to our or our competitors' products,
|
•
|
The impact of increased scrutiny of and heightened global regulatory enforcement facing the medical device industry arising from political and regulatory changes, economic pressures or otherwise, including under U.S. Anti-Kickback Statute, U.S. False Claims Act and similar laws in other jurisdictions, U.S. Foreign Corrupt Practices Act (FCPA) and similar laws in other jurisdictions, and U.S. and foreign export control, trade embargo and customs laws,
|
•
|
Costs and risks associated with current and future asserted litigation,
|
•
|
The effect of our litigation and risk management practices, including self-insurance and compliance activities on our loss contingencies, legal provision and cash flows,
|
•
|
The impact of, diversion of management attention as a result of, and costs to cooperate with, litigate and/or resolve governmental investigations and our class action, product liability, contract and other legal proceedings,
|
•
|
The possibility of failure to protect our intellectual property rights and the outcome of patent litigation, and
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•
|
Our ability to operate properly our information systems that support our business operations and protect our data integrity and products from a cyber-attack or other breach that has a material adverse effect on our business, reputation or results of operations.
|
•
|
The timing, size and nature of our strategic growth initiatives and market opportunities, including with respect to our internal research and development platforms and externally available research and development platforms and technologies and the ultimate cost and success of those initiatives and opportunities,
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•
|
Our ability to complete planned clinical trials successfully, obtain regulatory approvals and launch new and next generation products in a timely manner consistent with cost estimates, including the successful completion of projects from in-process research and development,
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•
|
Our ability to identify and prioritize our internal research and development project portfolio and our external investment portfolio on profitable net sales growth opportunities as well as to keep them in line with the estimated timing and costs of such projects and expected revenue levels for the resulting products and technologies,
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•
|
Our ability to successfully develop, manufacture and market new products and technologies in a timely manner and the ability of our competitors and other third parties to develop products or technologies that render our products or technologies noncompetitive or obsolete,
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•
|
Our ability to execute appropriate decisions to discontinue, write-down or reduce the funding of any of our research and development projects, including projects from in-process research and development from our acquisitions, in our growth adjacencies or otherwise,
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•
|
Our dependence on acquisitions, alliances or investments to introduce new products or technologies and to enter new or adjacent growth markets and our ability to fund them or to fund contingent payments with respect to those acquisitions, alliances and investments, and
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•
|
The potential failure to successfully integrate and realize the expected benefits from the strategic acquisitions, alliances and investments we have consummated or may consummate in the future.
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•
|
Our dependency on international net sales to achieve growth, including in emerging markets,
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•
|
The timing and collectability of customer payments, as well as our ability to continue factoring customer receivables where we have factoring arrangements,
|
•
|
Geopolitical and economic conditions,
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•
|
Protection of our intellectual property,
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•
|
Our ability to comply with established and developing U.S. and foreign legal and regulatory requirements, including FCPA and similar laws in other jurisdictions,
|
•
|
Our ability to comply with U.S. and foreign export control, trade embargo and customs laws,
|
•
|
The impact of changes in reimbursement practices and policies,
|
•
|
Our ability to maintain or expand our worldwide market positions in the various markets in which we compete or seek to compete, including through investments in product diversification and emerging markets such as Brazil, Russia, India and China,
|
•
|
Our ability to execute and realize anticipated benefits from our investments in emerging markets, and
|
•
|
The potential effect of foreign currency fluctuations and interest rate fluctuations on our net sales, expenses and resulting margins.
|
•
|
Our ability to generate sufficient cash flow to fund operations, capital expenditures, global expansion initiatives, any litigation settlements and judgments, share repurchases and strategic investments and acquisitions as well as maintaining our investment grade ratings and managing our debt levels and covenant compliance, particularly in light of the COVID-19 pandemic and lower demand for our products,
|
•
|
Our ability to access the public and private capital markets when desired and to issue debt or equity securities on terms reasonably acceptable to us,
|
•
|
The unfavorable resolution of open tax matters, exposure to additional tax liabilities and the impact of changes in U.S. and international tax laws,
|
•
|
The impact of examinations and assessments by domestic and international taxing authorities on our tax provision, financial condition or results of operations,
|
•
|
The possibility of counterparty default on our derivative financial instruments,
|
•
|
The impact of potential intangible asset impairment charges, including on our results of operations, and
|
•
|
Our ability to collect outstanding and future receivables and/or sell receivables under our factoring programs.
|
•
|
Risks associated with changes made or expected to be made to our organizational and operational structure, pursuant to our restructuring plans as well as any further restructuring or optimization plans we may undertake in the future and our ability to recognize benefits and cost reductions from such programs and
|
•
|
Business disruption and employee distraction as we execute our global compliance program, restructuring and optimization plans and divestitures of assets or businesses and implement our other strategic and cost reduction initiatives.
|
ITEM 3.
|
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
ITEM 4.
|
CONTROLS AND PROCEDURES
|
•
|
Operations-related risks: Across all of our businesses, we are facing increased operational challenges from the need to protect employee health and safety. Some of these challenges include site shutdowns, workplace disruptions and restrictions on the movement of people, raw materials and goods, both at our own facilities and at customers and suppliers. We are also experiencing, and expect to continue experiencing, lower demand and volume for products and services, customer requests for potential payment deferrals or other contract modifications, delays of deliveries and other factors related directly and indirectly to the COVID-19 pandemic that adversely impact our businesses. We expect that the longer the period of economic and global supply chain and disruption continues, the more material the adverse impact will be on our business operations, financial performance and results of operations.
|
•
|
Customer-related risks: In particular, as a result of impacts associated with preventive and precautionary measures that we, other businesses and governments are taking to quell the spread of COVID-19 and protect our customers, employees, and the patients receiving our products, we may experience significant and unpredictable reductions in demand for certain of our products as health care customers re-prioritize the treatment of patients. For example, in the United States in mid-March, governmental authorities began recommending, and in certain cases required, that elective procedures be suspended or canceled to avoid non-essential patient exposure to medical environments and potential infection with COVID-19 and to focus limited resources and personnel capacity toward the treatment of COVID-19. These measures and challenges will significantly reduce our net sales while the pandemic continues and until widespread guidelines for resuming elective procedures are established. Further, once the pandemic subsides, we anticipate there may be some continued reluctance upon the part of some patients to seek medical attention in a hospital setting. In addition, for the majority of patients who do seek appointments with physicians and surgeries to be performed at hospitals and ambulatory surgery centers relating to a variety of medical conditions, we anticipate there may be a substantial backlog. As a result, patients seeking to schedule or reschedule elective or deferrable procedures utilizing our products will have to navigate
|
•
|
Employee-related risks: In an attempt to proactively address the changed business environment caused by COVID-19, in order to preserve employees’ jobs and ensure we are able to quickly respond to increased customer demand, when deferrable procedures resume after the conclusion of the pandemic, we have made temporary work hour reductions, and corresponding salary reductions, where appropriate, for many of our employees. However, because the severity, magnitude, and duration of the COVID-19 pandemic and its economic consequences are uncertain, rapidly changing, and difficult to predict, we may, in the future, have to consider taking additional actions including further reductions to salary and work hours, furloughs, restructuring, layoffs or extensions of remote work arrangements, which may negatively impact our workforce and our business. These negative impacts could include inhibiting our ability to quickly respond to increased customer demand and to take advantage of more favorable economic and market conditions after the pandemic subsides as well as lower productivity and higher employee attrition.
|
•
|
Accounting-related risks: Generally accepted accounting principles and the related authoritative guidance are complex and involve subjective judgments. In particular, the accounting for revenue, inventory, goodwill, intangible assets, income taxes and other assets and liabilities requires reliance on forward looking estimates of sales and/or earnings. Due to the uncertainty surrounding the COVID-19 pandemic, estimating the future performance of our business is extremely challenging and the range of deviation from internal estimates could be more significant in this environment. Changes in the underlying estimates, assumptions or judgments could have a material adverse impact on our future results of operations, financial position and cash flows.
|
•
|
Leverage- and market-related risks: The current financial market dynamics and volatility pose heightened risks to our previously announced timelines for decreasing our leverage, which we expect to be delayed as we seek to maintain appropriate liquidity to compensate for lower cash flows from operations or as variables impacting our leverage ratios fluctuate with extreme market volatility.
|
•
|
Liquidity- and funding-related risks: While we have significant sources of cash and liquidity and access to committed credit lines, a prolonged period of generating lower cash from operations could adversely affect our financial condition and the achievement of our strategic objectives. Additionally, there can also be no assurance that we will not face credit rating downgrades as a result of weaker than anticipated performance of our businesses, slower progress in decreasing our leverage or other factors. Future downgrades could further adversely affect our cost of funds and related margins, liquidity, competitive position and access to capital markets, and a significant downgrade could have an adverse commercial impact on our business. Conditions in the financial and credit markets may also limit the availability of funding or increase the cost of funding (including for receivables monetization or supply chain finance programs), which could adversely affect our business, financial position and results of operations. Although the U.S. federal and other governments have announced a number of funding programs to support businesses, our ability or willingness to access funding under such programs may be limited by regulations or other guidance, or by further change or uncertainty related to the terms of these programs.
|
10.1
|
|
|
|
|
|
10.2
|
|
|
|
|
|
10.3
|
|
|
|
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31.1*
|
|
|
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|
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31.2*
|
|
|
|
|
|
32.1*
|
|
|
|
|
|
32.2*
|
|
|
|
|
|
101.SCH*
|
|
XBRL Taxonomy Extension Schema Document.
|
|
|
|
101.CAL*
|
|
XBRL Taxonomy Extension Calculation Linkbase Document.
|
|
|
|
101.DEF*
|
|
XBRL Taxonomy Extension Definition Linkbase Document.
|
|
|
|
101.LAB*
|
|
XBRL Taxonomy Extension Label Linkbase Document.
|
|
|
|
101.PRE*
|
|
XBRL Taxonomy Extension Presentation Linkbase Document.
|
|
|
|
104
|
|
Cover Page Interactive Data File (embedded within the Inline XBRL document and contained in Exhibit 101)
|
|
BOSTON SCIENTIFIC CORPORATION
|
||
|
By:
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/s/ Daniel J. Brennan
|
|
|
|
|
|
|
|
Name:
|
Daniel J. Brennan
|
|
|
Title:
|
Executive Vice President and
Chief Financial Officer
|
1
|
I have reviewed this Quarterly Report on Form 10-Q of Boston Scientific Corporation;
|
|
|
|
|
2
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
|
|
|
|
3
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
|
|
|
|
4
|
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
|
|
|
|
|
a)
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
|
|
|
|
b)
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
|
|
|
|
c)
|
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
|
|
|
|
d)
|
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
|
|
|
|
5
|
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
|
|
|
|
|
|
a)
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
|
|
|
|
|
b)
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
|
Date:
|
May 6, 2020
|
|
/s/ Michael F. Mahoney
|
|
|
|
Michael F. Mahoney
|
||
|
|
President and Chief Executive Officer
|
1
|
I have reviewed this Quarterly Report on Form 10-Q of Boston Scientific Corporation;
|
|
|
|
|
2
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
|
|
|
|
3
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
|
|
|
|
4
|
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
|
|
|
|
|
a)
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
|
|
|
|
b)
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
|
|
|
|
c)
|
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
|
|
|
|
d)
|
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
|
|
|
|
5
|
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
|
|
|
|
|
|
a)
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
|
|
|
|
|
b)
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
|
Date:
|
May 6, 2020
|
|
/s/ Daniel J. Brennan
|
|
|
|
Daniel J. Brennan
|
||
|
|
Executive Vice President and Chief Financial Officer
|
|
(1)
|
the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
|
|
(2)
|
the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Boston Scientific Corporation.
|
|
|
|
By:
|
/s/ Michael F. Mahoney
|
|
|
Michael F. Mahoney
|
|
|
President and Chief Executive Officer
|
|
|
|
|
|
May 6, 2020
|
|
|
(1)
|
the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
|
|
(2)
|
the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Boston Scientific Corporation.
|
|
|
|
By:
|
/s/ Daniel J. Brennan
|
|
|
Daniel J. Brennan
|
|
|
Executive Vice President and Chief Financial Officer
|
|
|
|
|
|
May 6, 2020
|
|