01—Abstract
Summary
Summary of the 10-K filed February 26, 2010. Cited figures are marked; the original filing is the authoritative source.
Boston Scientific's 2009 10-K shows a company in transition: net sales rose 2% to $8.188 billiona (up 4% excluding currency and divested businesses), but the reported net loss of $1.025 billion ($0.68 per share) was driven by large litigation charges, chiefly the $2.022 billion of litigation-related net charges in 2009, including the $1.725 billion settlement with Johnson & Johnson.
Gross margin fell to 68.5% from 69.3%, largely because lower-margin Abbott-supplied PROMUS everolimus stents displaced higher-margin TAXUS sales, and drug-eluting stent pricing pressure and a 2008 $2.613 billionb goodwill impairment weigh on the balance sheet, which shows $12.4 billion of goodwill and $6.7 billion of other intangibles against $12.3 billion of equity. The balance sheet and liquidity picture is the central investor concern. Total debt was $5.918 billion against $864 million of cash, and roughly $1.75 billion of debt plus the revolver matures in 2011, with management targeting a refinancing by mid-2010.
Operating cash flow fell to $835 millionc from $1.216 billion, reflecting litigation payments. Standard & Poor's upgraded the company to BBB- (investment grade), while Moody's (Ba1) and Fitch (BB+) remain below investment grade. Remaining J&J payments of about $725 million are due by January 2011.
Management is responding with a February 2010 restructuring plan (integrating the CRM and Cardiovascular groups, centralizing R&D, and cutting roughly 1,000 to 1,300 positions, with $200 to $250 milliond of targeted annual savings by 2011) and a Plant Network Optimization program. Key risks include declining U.S. ICD market growth, competitive pressure on drug-eluting stents, an Abbott supply dependence through mid-2012, FDA warning-letter status, extensive ongoing litigation and government investigations, and proposed medical device taxes.
02—Key points
Key Highlights
- Net sales of $8.188 billion, up 2% as reported and 4% excluding currency effects and divested businesses; CRM group grew 5% to $2.562 billion.
- Net loss of $1.025 billion ($0.68 per share), compared with a $2.036 billion loss in 2008, mainly due to $2.022 billion of litigation-related charges.
- Gross margin declined to 68.5% from 69.3%, driven by a shift from higher-margin TAXUS stents to lower-margin Abbott-supplied PROMUS stents.
- Total debt of $5.918 billion versus $864 million of cash; about $1.75 billion of notes plus the revolver mature in 2011, with refinancing targeted by mid-2010.
- Operating cash flow fell to $835 million from $1.216 billion, impacted by $823 million of litigation payments, including the J&J settlement.
- Launched a 2010 Restructuring plan targeting $200-250 million of annual pre-tax savings by 2011 and 1,000-1,300 position eliminations.
- S&P upgraded the credit rating to investment grade (BBB-), while Moody's (Ba1) and Fitch (BB+) remain below investment grade.
03—One dollar
Follow one dollar
For each $1.00 of revenue in FY2009, Boston Scientific Corp lost $0.13.
- Revenue$8.19B100.0%
- Cost of revenue−$2.58B31.5%
- Gross profit$5.61B68.5%
- Operating costs−$6.51B79.5%
- Operating income−$894.0M10.9%
- Interest, other & tax−$131.0M1.6%
- Net income−$1.02B12.5%
04—Financials
Financial Highlights
Figures from 10-KFY2009filed February 26, 2010Financial Statements
FY2009 against FY2008
| Line item | FY2009FY2008 | Change |
|---|---|---|
| Revenue | $8.19B$8.05B | +1.7% |
| Cost of Revenue | $2.58B$2.47B | +4.3% |
| Gross Profit | $5.61B$5.58B | +0.6% |
| SG&A Expenses | $2.63B$2.59B | +1.8% |
| Operating Expenses | $6.51B$7.09B | −8.2% |
| Operating Income | -$894.00M-$1.50B | +40.6% |
| Interest Expense | $407.00M$468.00M | −13.0% |
| Net Income | -$1.02B-$2.04B | +49.7% |
| EPS (Basic) | $-0.68$-1.36 | +50.0% |
| EPS (Diluted) | $-0.68$-1.36 | +50.0% |
| Shares Outstanding (Basic) | 1.51B1.50B | +0.6% |
| Shares Outstanding (Diluted) | 1.51B1.50B | +0.6% |
05—Questions
Frequently Asked Questions
Why did Boston Scientific report a large net loss in 2009 despite growing sales?
The 2009 net loss of $1.025 billion was driven mainly by $2.022 billion of pre-tax litigation-related net charges, including the $1.725 billion settlement with Johnson & Johnson over three patent disputes, plus intangible impairments, restructuring costs, and purchased R&D. Excluding these items, the underlying business was profitable.
How much debt does Boston Scientific have, and when does it come due?
Total debt was $5.918 billion at December 31, 2009. Roughly $1.75 billion of senior notes plus the $1.75 billion revolving credit facility mature in the first half of 2011, and management expects to refinance the majority of these by mid-2010. The Abbott loan of $900 million is subordinated and matures later.
What is the outlook for the drug-eluting stent and CRM businesses?
Drug-eluting stent U.S. average selling prices fell about 8% in 2009 and the company's share fell to 46% by Q4 2009 from 49% for the year, with pressure from competitors and clinical publications. CRM growth in the U.S. ICD market has slowed, and U.S. ICDs are about 50% of worldwide CRM sales. Next-generation products such as the TAXUS Element, PROMUS Element and new defibrillators are expected to support future share.
What are the main legal and regulatory risks?
The company faces extensive patent litigation (including ongoing disputes with Johnson & Johnson), product liability and MDL claims related to Guidant defibrillators and pacemakers, securities and ERISA class actions, and multiple DOJ and HHS investigations, including a Corporate Integrity Agreement. A corporate FDA warning letter remains in place, and proposed medical device taxes of up to $2 billion annually could materially affect results.
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