10-QPeriod: Q3 FY2015

BOSTON SCIENTIFIC CORP Quarterly Report for Q3 Ended Sep 30, 2015

Filed November 4, 2015For Securities:BSX

Summary

Boston Scientific Corporation's (BSX) Q3 2015 10-Q filing reveals a challenging quarter marked by a net loss of $198 million, a significant shift from the prior year's net income of $43 million. This decline was heavily influenced by substantial litigation-related charges totaling $457 million in the quarter, alongside other significant expenses including intangible asset impairment, acquisition-related costs, and pension termination charges. Despite these headwinds, the company reported a modest increase in net sales, up 2% to $1.888 billion, driven by organic growth in several segments when adjusted for foreign currency impacts. The company's strategic acquisitions, particularly the AMS Portfolio Acquisition completed in August 2015, are expected to bolster future growth, especially in the Urology and Pelvic Health segment, which saw a significant 44% increase in net sales. However, the substantial litigation charges and other one-time expenses overshadowed this top-line growth, impacting profitability. Investors should pay close attention to the company's ongoing legal battles, particularly the significant product liability accrual related to transvaginal surgical mesh, and the ongoing tax litigation with the IRS, which collectively represent substantial contingent liabilities and uncertainties.

Financial Highlights

53 data points
Beta

Revenue

$1.89B

71.5% Gross Margin

Net Income

-$198.00M

-10.5% Net Margin

EPS (Diluted)

$-0.15

Total Assets

$18.21B

Cash & Equivalents

$350.00M

Free Cash Flow

$338.00M

Financial Statements
Beta
Revenue$1.89B
Cost of Revenue$539.00M
Gross Profit$1.35B
SG&A Expenses$729.00M
Operating Expenses$1.65B
Operating Income-$299.00M
Interest Expense$58.00M
Net Income-$198.00M
EPS (Basic)$-0.15
EPS (Diluted)$-0.15
Shares Outstanding (Basic)1.34B
Shares Outstanding (Diluted)1.34B

Key Highlights

  • 1Reported a net loss of $198 million ($0.15 per share) for the third quarter of 2015, compared to a net income of $43 million ($0.03 per share) in the prior year's quarter.
  • 2Net sales increased by 2% to $1.888 billion, with a constant currency growth of 9% excluding divested businesses, indicating underlying operational strength.
  • 3Significant litigation-related charges of $457 million heavily impacted the quarter's profitability.
  • 4The Urology and Pelvic Health segment showed strong performance with a 44% increase in net sales, largely driven by the recent AMS Portfolio Acquisition.
  • 5The company completed a new $2.000 billion revolving credit facility and strengthened its long-term debt position through senior note offerings and term loans, primarily to fund acquisitions.
  • 6Intangible asset impairment charges and other significant non-recurring expenses totaling $524 million (after-tax) impacted reported results.

Frequently Asked Questions

The net loss of $198 million in Q3 2015 was primarily driven by substantial litigation-related charges of $457 million. These charges, along with other significant expenses such as intangible asset impairment charges, acquisition-related costs, and pension termination charges, totaling $524 million after-tax, significantly impacted the company's profitability for the quarter.

Net sales increased by 2% to $1.888 billion in Q3 2015 compared to the prior year. Excluding the negative impact of foreign currency fluctuations, net sales increased by 9%. Key growth drivers included strong performance in the Urology and Pelvic Health segment due to the AMS Portfolio Acquisition, and positive contributions from products like the WATCHMAN® device and the Lotus™ Valve System. The Peripheral Interventions and Electrophysiology segments also showed growth.

As of September 30, 2015, Boston Scientific had $350 million in cash and cash equivalents. The company reported total debt of $5.859 billion. Significant financing activities occurred, including entering into a new $2.000 billion revolving credit facility and issuing $1.850 billion in senior notes, partially to fund the AMS Portfolio Acquisition. The company was in compliance with its debt covenants.

The company faces significant contingent liabilities primarily related to ongoing litigation. This includes a substantial product liability accrual for transvaginal surgical mesh claims, and ongoing tax litigation with the IRS concerning transfer pricing, which could have a material impact on the company's financial condition. The company also has substantial goodwill and intangible assets, which are subject to impairment testing.