10-QPeriod: Q2 FY2014

BOSTON SCIENTIFIC CORP Quarterly Report for Q2 Ended Jun 30, 2014

Filed August 6, 2014For Securities:BSX

Summary

Boston Scientific Corporation (BSX) reported net sales of $1.873 billion for the second quarter of 2014, a 4% increase compared to the prior year. The company's reported net income was $4 million ($0.00 per diluted share) for the quarter. However, excluding significant one-time charges and credits such as intangible asset impairment, litigation costs, and restructuring expenses, adjusted net income was $285 million ($0.21 per diluted share). For the first half of 2014, net sales increased 2% to $3.647 billion, with adjusted net income reaching $553 million ($0.41 per diluted share). The company completed the acquisition of IoGyn, Inc. and is progressing with the acquisition of Bayer AG's Interventional Division. Despite revenue growth, investors should note the significant impact of various charges on reported net income, as well as ongoing risks related to litigation and intangible asset impairments.

Financial Highlights

53 data points
Beta

Revenue

$1.87B

70.1% Gross Margin

Net Income

$4.00M

0.2% Net Margin

EPS (Diluted)

$0.00

Total Assets

$16.48B

Cash & Equivalents

$357.00M

Free Cash Flow

$220.00M

Financial Statements
Beta
Revenue$1.87B
Cost of Revenue$563.00M
Gross Profit$1.31B
SG&A Expenses$743.00M
Operating Expenses$1.38B
Operating Income-$69.00M
Interest Expense$53.00M
Net Income$4.00M
Shares Outstanding (Basic)1.32B
Shares Outstanding (Diluted)1.34B

Key Highlights

  • 1Net sales increased 4% to $1.873 billion in Q2 2014 compared to $1.809 billion in Q2 2013.
  • 2Reported net income for Q2 2014 was $4 million ($0.00 EPS), significantly impacted by $281 million in after-tax charges and credits.
  • 3Adjusted net income (excluding special items) was $285 million ($0.21 EPS) for Q2 2014.
  • 4The company completed the acquisition of IoGyn, Inc. and is on track to acquire Bayer AG's Interventional Division.
  • 5Electrophysiology segment saw significant growth, driven by the acquisition of C.R. Bard Inc.'s electrophysiology business.
  • 6Significant litigation-related charges of $267 million were recorded in Q2 2014.
  • 7The company tested goodwill for impairment and identified Neuromodulation and Electrophysiology reporting units as higher risk for future impairment.

Frequently Asked Questions

Net sales increased primarily due to growth in the Cardiovascular segment (driven by Promus PREMIER™ Stent System and structural heart products), Rhythm Management segment (driven by new ICD and pacemaker system launches), and MedSurg segment (driven by growth in Endoscopy and Urology/Women's Health). The Electrophysiology segment also saw significant growth due to the acquisition of C.R. Bard Inc.'s business.

The reported net income was significantly impacted by substantial charges and credits. These include $110 million in intangible asset impairment charges, $267 million in litigation-related charges, and restructuring costs. When these items are excluded, the adjusted net income provides a clearer view of the company's operational performance.

Boston Scientific is actively pursuing strategic growth through acquisitions, such as IoGyn, Inc. and the pending acquisition of Bayer AG's Interventional Division. The company is also undergoing restructuring initiatives (2014 Restructuring plan) aimed at improving operational effectiveness and efficiency, expected to yield annual pre-tax operating expense reductions. However, these initiatives, along with acquisitions and litigation, contribute to significant one-time charges that affect reported earnings.

The report highlights risks related to ongoing litigation, particularly product liability and intellectual property disputes, which have resulted in significant charges. Additionally, the company has identified certain reporting units (Neuromodulation and Electrophysiology) at higher risk for future goodwill impairment, and a substantial portion of CRM-related amortizable intangibles are also at higher risk.