10-QPeriod: Q2 FY2013

BOSTON SCIENTIFIC CORP Quarterly Report for Q2 Ended Jun 30, 2013

Filed August 7, 2013For Securities:BSX

Summary

Boston Scientific Corporation's (BSX) Q2 2013 filing reveals a slight decrease in net sales to $1.809 billion, down 1% from the prior year, impacted by foreign currency fluctuations and divested businesses. However, on a constant currency basis excluding divested businesses, net sales saw a 2% increase, indicating underlying operational growth. The company reported a net income of $130 million ($0.10 EPS) for the quarter, a significant recovery from a substantial net loss in the prior year's quarter, which was heavily impacted by a $3.6 billion goodwill impairment charge. Excluding certain charges and credits, adjusted net income was $247 million ($0.18 EPS). The company's liquidity remains strong with $530 million in cash and equivalents and substantial undrawn credit facilities, while also continuing its share repurchase program.

Financial Highlights

52 data points
Beta

Revenue

$1.81B

70.7% Gross Margin

Net Income

$130.00M

7.2% Net Margin

EPS (Diluted)

$0.10

Total Assets

$17.00B

Cash & Equivalents

$530.00M

Free Cash Flow

$346.00M

Financial Statements
Beta
Revenue$1.81B
Cost of Revenue$530.00M
Gross Profit$1.28B
SG&A Expenses$661.00M
Operating Expenses$1.06B
Operating Income$220.00M
Interest Expense$65.00M
Net Income$130.00M
EPS (Basic)$0.10
EPS (Diluted)$0.10
Shares Outstanding (Basic)1.34B
Shares Outstanding (Diluted)1.36B

Key Highlights

  • 1Net sales for Q2 2013 were $1.809 billion, a 1% decrease year-over-year, but showed a 2% increase on a constant currency basis excluding divested businesses.
  • 2Reported net income for the quarter was $130 million ($0.10 EPS), a significant improvement compared to a net loss in Q2 2012, largely due to the absence of major impairment charges.
  • 3Adjusted net income (excluding certain charges/credits) was $247 million ($0.18 EPS), demonstrating solid operational profitability.
  • 4The company incurred a $423 million goodwill impairment charge in Q1 2013 related to its Cardiac Rhythm Management (CRM) reporting unit, following a business reorganization.
  • 5Gross profit margin improved to 70.7% in Q2 2013 from 68.4% in Q2 2012, driven by cost reductions and a PROMUS® supply arrangement true-up.
  • 6The company continues to actively manage its balance sheet, reporting $530 million in cash and cash equivalents and maintaining compliance with its debt covenants.
  • 7A significant ongoing litigation accrual of $625 million as of June 30, 2013, highlights potential financial risks and liabilities, primarily related to product liability and intellectual property disputes.

Frequently Asked Questions

The company recorded a $423 million goodwill impairment charge in the first quarter of 2013 primarily due to a reorganization of its business structure from geographic regions to fully operationalized global business units. This change altered the composition of its reporting units, leading to the impairment of goodwill within the global Cardiac Rhythm Management (CRM) reporting unit as its carrying value exceeded its fair value.

Net sales decreased slightly by 1% to $1.809 billion in the second quarter of 2013 compared to the same period in 2012. This was influenced by a $38 million negative impact from foreign currency exchange rates and a $12 million decrease from divested businesses. Excluding these factors, net sales actually increased by 2%, indicating underlying growth in core operations.

Boston Scientific maintains a solid liquidity position. As of June 30, 2013, the company had $530 million in cash and cash equivalents. It also has significant access to financing through a $2.0 billion revolving credit facility and a $300 million receivables-backed facility, with no amounts currently borrowed under the revolving facility. The company also reported compliance with its debt covenants, indicating good financial management.

Yes, the company has a substantial accrual for legal matters totaling $625 million as of June 30, 2013. This accrual covers estimated costs of settlement, damages, and defense for various legal proceedings, including product liability claims (especially for transvaginal surgical mesh), intellectual property litigation, and governmental investigations. The company also has significant contingent consideration liabilities, with a maximum potential future payment of approximately $2.328 billion, which are subject to performance milestones.