ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934, or |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
Title of each class | Trading Symbol | Name of each exchange on which registered | ||
☑ | Accelerated filer | ☐ | |
Non-accelerated filer | ☐ | Smaller reporting company | |
Emerging growth company |
• | our SpyGlass™ DS II Direct Visualization System, which brings digital imaging, a wider field of view and a simpler set-up (compared to our legacy SpyGlass System), thus enabling cholangioscopy to play a greater role in the diagnosis and treatment of pancreatico-biliary diseases, |
• | our Resolution 360™ Clip, a hemostatic clipping technology designed to stop and help prevent bleeding during endoscopic procedures, |
• | our Epic™ Biliary Endoscopic Stent System, indicated for the palliation of malignant strictures, is our first laser cut self-expanding metal stent and complements our braided metal stent portfolio, |
• | our Acquire™ Endoscopic Ultrasound Fine Needle Biopsy Device, which is designed to obtain larger tissue specimens for histological assessment and is useful when diagnosing diseases such as pancreatic cancer, liver cancer and stomach lesions, |
• | our AXIOS™ Stent and Electrocautery Enhanced Delivery System, the first, and currently only, stent in the U.S. indicated for endoscopic drainage of pancreatic pseudocysts, |
• | our infection prevention portfolio, which includes a customizable Compliance EndoKit™ and single-use Orca™ Valves, designed to minimize the risk of infection transmission and improve operational efficiencies by streamlining manual cleaning or eliminating the need for cleaning and tracking, and |
• | our endoluminal surgery portfolio with ORISE™ Tissue Retractor System, designed to enable tissue retraction and countertraction during en bloc colonic tissue resection procedures and ORISE™ Gel, designed to be used for submucosal lift of polyps, adenomas, early-stage cancers or other gastrointestinal mucosal lesions prior to excision with a snare or other endoscopic device. |
• | our comprehensive line of stone management products, including ureteral stents, catheters, baskets, guidewires, sheaths and balloons and stone laser devices, |
• | our LithoVue™ Single-Use Digital Flexible Ureteroscope, which delivers detailed high-resolution digital images for high-quality visualization and seamless navigation, |
• | our penile implants to treat erectile dysfunction and urinary control systems to treat male urinary incontinence, under our Prosthetic Urology portfolio, |
• | our GreenLight XPS™ Laser System, our MoXy™ Fiber and Rezūm™ System, purchased as part of the NxThera, Inc. (NxThera) acquisition in the second quarter of 2018, under our BPH therapies, |
• | our SpaceOAR™ Hydrogel System, purchased as part of the Augmenix, Inc. (Augmenix) acquisition in the fourth quarter of 2018, to help reduce side effects that men may experience after receiving radiotherapy to treat prostate cancer, and |
• | our range of devices for the treatment of Women's Health conditions such as stress urinary incontinence, heavy menstrual bleeding (menorrhagia) and uterine fibroids and polyps. |
• | our implantable cardioverter defibrillators (ICD) and implantable cardiac resynchronization therapy defibrillators (CRT-D) as well as the world's first, and currently only, commercially available subcutaneous implantable cardiac defibrillators (S-ICD), |
• | our pacemakers and implantable cardiac resynchronization therapy pacemakers (CRT-P), and |
• | our LATITUDE™ Remote Patient Management System, which allows for more frequent monitoring and better guided treatment decisions by enabling physicians in most geographies to monitor implantable system performance remotely. |
• | our Rhythmia™ Mapping System, a next-generation, catheter-based, 3-D cardiac mapping and navigation solution designed to help diagnose and guide treatment of a variety of arrhythmias, |
• | our Blazer™ Therapeutic Ablation Catheter line, |
• | our broad portfolio of diagnostic catheters including Blazer™ Dx-20, Dynamic Tip™ and Viking™ Catheters, |
• | our IntellaMap OrionTM Mapping Catheter, for use with our Rhythmia Mapping System to provide high-density, high-resolution maps of the heart, |
• | our intracardiac ultrasound catheters, delivery sheaths and other accessories, and |
• | our full offering of capital equipment used in Electrophysiology labs, such as recording systems, generators and pumps. |
• | our Precision™, Precision Spectra™, Precision Montage™, Precision Novi™ and Spectra WaveWriter™ Spinal Cord Stimulator (SCS) Systems, designed to provide improved pain relief to a wide range of patients who suffer from chronic pain, |
• | our Superion™ Indirect Decompression System, a minimally-invasive device used to improve physical function and reduce pain in patients with lumbar spinal stenosis (LSS) purchased as part of the acquisition of Vertiflex, Inc. in the second quarter of 2019, and |
• | our Vercise™, Vercise™ PC and Vercise Gevia™ Deep Brain Stimulation (DBS) Systems for the treatment of Parkinson's disease, tremor, and intractable primary and secondary dystonia, a neurological movement disorder characterized by involuntary muscle contractions. |
• | our SYNERGY™ Everolimus-Eluting Platinum Chromium Coronary Stent System, featuring an ultra-thin abluminal (outer) bioabsorbable polymer coating, |
• | our Promus ELITE™ Everolimus-Eluting Stent, and |
• | our Promus PREMIER™ Everolimus-Eluting family of stents. |
• | our OptiCross™ IVUS Imaging catheter, |
• | our COMET™ FFR Pressure Guidewire, and |
• | our iLab™ Ultrasound Imaging System with Polaris Software, designed to enhance the diagnosis and treatment of blocked vessels and other heart disorders, which is compatible with our full line of imaging catheters and coronary physiology devices and continues to be our flagship console. |
• | our WATCHMAN™ Left Atrial Appendage Closure (LAAC) Technology (WATCHMAN), and WATCHMAN FLX, designed to close the left atrial appendage in patients with non-valvular atrial fibrillation who are at risk for ischemic stroke, |
• | our ACURATE TA™, ACURATE neo™, and ACURATE TF™ Aortic Valve Systems, which are based on a self-expanding architecture, |
• | our LOTUS Edge™ Aortic Valve System, which is based on mechanical-expanding architecture, and |
• | our Sentinel™ Cerebral Embolic Protection System, purchased as part of our acquisition of Claret Medical, Inc. (Claret) in the third quarter of 2018. |
• | our Mustang™ PTA next-generation Balloon Catheter, a 0.035" balloon with superior crossing and tracking, powerful dilatation, longer lengths and smaller sheath sizes, |
• | our Coyote™ Balloon Catheter, a highly deliverable and ultra-low profile balloon dilatation catheter designed for a wide range of peripheral angioplasty procedures, |
• | our Sterling™ Balloon Catheter, a 0.018" PTA balloon catheter designed for post-stent dilatation as well as conventional balloon angioplasty to open blocked peripheral arteries, and |
• | our Ranger™ Drug-Coated Balloon, an innovative balloon built on the Sterling balloon platform, featuring a low-dose of paclitaxel. |
• | our EPIC™ Vascular Self-Expanding Stent System, a nitinol stent designed to sustain vessel patency while providing enhanced visibility and accuracy during placement, |
• | our Innova™ Self-Expanding Stent System, a laser-cut nitinol stent built for the superficial femoral artery (SFA, a large artery in the thigh) with flexibility, strength and fracture resistance, and |
• | our Eluvia™ Drug Eluting Vascular Stent System, an innovative stent built on the Innova stent platform, designed to deliver a sustained dosage of paclitaxel during the time when restenosis is most likely to occur. |
• | our AngioJet™ Thrombectomy System, used in endovascular procedures to remove blood clots from blocked arteries and veins, |
• | our AngioJet Zelante DVT™ Thrombectomy Catheter to treat deep vein thrombosis (DVT) in large-diameter upper and lower limb peripheral veins, in the U.S. and Europe, |
• | our VICI VENOUS STENT™ System to treat venous obstructive disease, purchased as part of the VENITI, Inc. acquisition in the third quarter of 2018, and |
• | our EKOS™ Ultrasound Assisted Thrombolysis system used to treat deep vein thrombosis and pulmonary embolism, purchased as part of the BTG acquisition, which closed during the third quarter of 2019. |
• | our Therasphere™ Y-90 radioactive glass microspheres used in the treatment of hepatocellular carcinoma (HCC or the most common type of liver cancer) purchased as part of the BTG acquisition, |
• | our Direxion™ Torqueable Microcatheter, and |
• | our line of interventional oncology solutions, including the Renegade™ HI-FLO™ Fathom™ Microcatheter and Guidewire System and Interlock™ - 35 Fibered IDC™ and 18 Fibered IDC™ Occlusion System for peripheral embolization. |
• | our CroFab®, the only FDA-approved product derived exclusively from U.S. snakes and approved to treat all North American pit viper envenomations in adult and pediatric patients, |
• | our DigiFab® Digoxin Immune Fab (Ovine), a treatment for patients with life-threatening or potentially life-threatening digoxin toxicity or overdose that is clinically proven to effectively clear digoxin from the body, and |
• | our Voraxaze®, a carboxypeptidase indicated to reduce toxic plasma methotrexate concentration (greater than one micromole per liter) in adult and pediatric patients with delayed methotrexate clearance (plasma methotrexate concentrations greater than two standard deviations of the mean methotrexate excretion curve specific for the dose of methotrexate administered) due to impaired renal function. |
• | internal research and development programs, regulatory design and clinical science, as well as other programs obtained through our strategic acquisitions and alliances, and |
• | engineering efforts that incorporate customer feedback into continuous improvement efforts for currently marketed and next-generation products. |
• | offer products and solutions that provide differentiated clinical and economic outcomes, |
• | create or acquire innovative, scientifically advanced technologies, |
• | apply our technology and solutions cost-effectively and with superior quality across product lines and markets, |
• | develop or acquire proprietary products and solutions, |
• | attract and retain skilled personnel, |
• | obtain patent or other protection for our products, |
• | obtain required regulatory and reimbursement approvals, |
• | compete in regional and national tenders for our products, |
• | continually enhance our quality systems, |
• | manufacture and market our products and solutions either directly or through third parties, and |
• | supply sufficient inventory to meet customer demand. |
• | 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, |
• | 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, |
• | Our ability to retain and attract key personnel, including those associated with recent acquisitions, |
• | The impact of natural disasters, public health crises, 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 |
• | 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, |
• | 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, |
• | Our ability to identify and prioritize our internal research and development project portfolio and our external investment portfolio on profitable revenue 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, |
• | 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, |
• | 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, |
• | 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 |
• | 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. |
• | Our dependency on international net sales to achieve growth, including in emerging markets, |
• | The impact of changes we may make in the future on our international structure and leadership, |
• | The timing and collectability of customer payments, |
• | Geopolitical and economic conditions (including the impact of the United Kingdom's exit from the EU, often referred to as "Brexit"), |
• | Protection of our intellectual property, |
• | 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 custom 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, |
• | 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. |
• | our ability to identify suitable opportunities for acquisition, investment or alliance, if at all, |
• | our ability to manage acquisition, investment or alliance opportunities within our capital capacity and prioritize those investments to execute on our strategy, |
• | our ability to manage our due diligence process to uncover potential issues with targets, |
• | our ability to finance any future acquisition, investment or alliance on terms acceptable to us, if at all, |
• | our ability to complete acquisitions, investments or alliances in a timely manner on terms that are satisfactory to us, if at all, |
• | our ability to successfully integrate and operate acquired businesses, |
• | our ability to successfully identify and retain key target employees, |
• | our ability to comply with applicable laws and regulations, including foreign laws and regulations, and |
• | our ability to protect intellectual property and to prevail in litigation related to newly acquired technologies. |
• | take a significant period of time, |
• | require the expenditure of substantial resources, |
• | involve rigorous pre-clinical and clinical testing, as well as increased post-market surveillance, |
• | require changes to products and |
• | result in limitations on the indicated uses of products. |
Owned (1) | Leased (2) | Total | ||||||
U.S. | 4,072,000 | 1,446,000 | 5,518,000 | |||||
International | 2,258,000 | 1,624,000 | 3,882,000 | |||||
6,330,000 | 3,070,000 | 9,400,000 |
(1) | Includes our principal manufacturing facilities in Minnesota, Ireland, Puerto Rico and one facility in Costa Rica, our manufacturing facility in Malaysia, our primary customer fulfillment centers in Massachusetts, the Netherlands and Japan, and our global headquarters location in Marlborough, Massachusetts. |
(2) | Includes our principal manufacturing facilities in California, Indiana, Brazil, Switzerland and one in Costa Rica, and our regional headquarters located in Singapore and Voisins-le-Bretonneux, France. |
Year Ended December 31, | 2019 | 2018 | 2017 | 2016 | 2015 | ||||||||||||||
Net sales | $ | 10,735 | $ | 9,823 | $ | 9,048 | $ | 8,386 | $ | 7,477 | |||||||||
Gross profit | 7,620 | 7,011 | 6,455 | 5,962 | 5,304 | ||||||||||||||
Total operating expenses | 6,102 | 5,504 | 5,170 | 5,515 | 5,587 | ||||||||||||||
Operating income (loss) | 1,518 | 1,506 | 1,285 | 447 | (283 | ) | |||||||||||||
Income (loss) before income taxes | 687 | 1,422 | 933 | 177 | (650 | ) | |||||||||||||
Net income (loss) | 4,700 | 1,671 | 104 | 347 | (239 | ) | |||||||||||||
Net income (loss) per common share: | |||||||||||||||||||
Basic | $ | 3.38 | $ | 1.21 | $ | 0.08 | $ | 0.26 | $ | (0.18 | ) | ||||||||
Assuming dilution | $ | 3.33 | $ | 1.19 | $ | 0.08 | $ | 0.25 | $ | (0.18 | ) |
As of December 31, | 2019 | 2018 | 2017 | 2016 | 2015 | ||||||||||||||
Cash, cash equivalents and marketable securities | $ | 217 | $ | 146 | $ | 188 | $ | 196 | $ | 319 | |||||||||
Working capital (deficit) | (168 | ) | (1,257 | ) | (1,832 | ) | (348 | ) | 1,041 | ||||||||||
Total assets | 30,565 | 20,999 | 19,042 | 18,096 | 18,133 | ||||||||||||||
Borrowings (short-term) | 1,416 | 2,253 | 1,801 | 64 | 3 | ||||||||||||||
Borrowings (long-term) | 8,592 | 4,803 | 3,815 | 5,420 | 5,674 | ||||||||||||||
Stockholders’ equity | 13,877 | 8,726 | 7,012 | 6,733 | 6,320 | ||||||||||||||
Book value per common share † | $ | 9.95 | $ | 6.30 | $ | 5.11 | $ | 4.94 | $ | 4.69 |
† | Book value per common share is calculated using shares outstanding as of December 31, for each year, respectively shown. |
Year Ended December 31, 2019 | |||||||
(in millions, except per share data) | Net Income (Loss) | Impact per Share | |||||
GAAP net income (loss) | $ | 4,700 | $ | 3.33 | |||
Non-GAAP adjustments: | |||||||
Amortization expense | 628 | 0.44 | |||||
Intangible asset impairment charges | 102 | 0.07 | |||||
Acquisition/divestiture-related net charges (credits) | 672 | 0.48 | |||||
Restructuring and restructuring-related net charges (credits) | 68 | 0.05 | |||||
Litigation-related net charges (credits) | 72 | 0.05 | |||||
Investment impairment charges | 3 | 0.00 | |||||
EU MDR implementation charges | 5 | 0.00 | |||||
Debt extinguishment net charges (credits) | 67 | 0.05 | |||||
Deferred tax expenses (benefits) | (4,102 | ) | (2.91 | ) | |||
Discrete tax items | 18 | 0.01 | |||||
Adjusted net income | $ | 2,234 | $ | 1.58 |
Year Ended December 31, 2018 | |||||||
(in millions, except per share data) | Net Income (Loss) | Impact per Share | |||||
GAAP net income (loss) | $ | 1,671 | $ | 1.19 | |||
Non-GAAP adjustments: | |||||||
Amortization expense | 520 | 0.37 | |||||
Intangible asset impairment charges | 31 | 0.02 | |||||
Acquisition-related net charges (credits) | 5 | 0.00 | |||||
Restructuring and restructuring-related net charges (credits) | 77 | 0.05 | |||||
Litigation-related net charges (credits) | 79 | 0.06 | |||||
Investment impairment charges | 6 | 0.00 | |||||
Discrete tax items | (328 | ) | (0.23 | ) | |||
Adjusted net income | $ | 2,060 | $ | 1.47 |
Year Ended December 31, | 2019 versus 2018 | 2018 versus 2017 | |||||||||||||
(in millions) | 2019 | 2018 | 2017 | ||||||||||||
Endoscopy | $ | 1,894 | $ | 1,762 | $ | 1,619 | 7.5% | 8.8% | |||||||
Urology and Pelvic Health | 1,413 | 1,245 | 1,124 | 13.4% | 10.8% | ||||||||||
MedSurg | 3,307 | 3,007 | 2,742 | 10.0% | 9.7% | ||||||||||
Cardiac Rhythm Management | 1,939 | 1,951 | 1,895 | (0.6)% | 2.9% | ||||||||||
Electrophysiology | 329 | 311 | 278 | 5.5% | 12.1% | ||||||||||
Neuromodulation | 873 | 779 | 635 | 12.0% | 22.7% | ||||||||||
Rhythm and Neuro | 3,140 | 3,041 | 2,808 | 3.3% | 8.3% | ||||||||||
Interventional Cardiology | 2,816 | 2,590 | 2,419 | 8.7% | 7.1% | ||||||||||
Peripheral Interventions | 1,392 | 1,187 | 1,081 | 17.3% | 9.8% | ||||||||||
Cardiovascular | 4,208 | 3,777 | 3,500 | 11.4% | 7.9% | ||||||||||
Medical Devices(1) | 10,654 | 9,823 | 9,048 | 8.5% | 8.6% | ||||||||||
Specialty Pharmaceuticals | 81 | n/a | n/a | n/a | n/a | ||||||||||
Net Sales | $ | 10,735 | $ | 9,823 | $ | 9,048 | 9.3% | 8.6% |
(1) | We have three historical reportable segments comprised of Medical Surgical (MedSurg), Rhythm and Neuro, and Cardiovascular, which represent an aggregation of our operating segments that generate revenues from the sale of medical devices (Medical Devices). As part of our acquisition of BTG on August 19, 2019, we acquired an Interventional Medicine business, which is now included in our Peripheral Interventions operating segment's 2019 revenues from the date of acquisition. |
Gross Profit Margin | |
Year Ended December 31, 2017 | 71.3% |
Manufacturing cost reductions | 0.8% |
Sales pricing and mix | (0.2)% |
Inventory step-up due to acquisition accounting | (0.1)% |
Net impact of foreign currency fluctuations | (0.8)% |
All other, including other inventory charges and other period expense | 0.4% |
Year Ended December 31, 2018 | 71.4% |
Manufacturing cost reductions | 0.8% |
Sales pricing and mix | (0.6)% |
Inventory step-up due to acquisition accounting | (0.4)% |
Net impact of foreign currency fluctuations | 0.7% |
All other, including other inventory charges and other period expense | (0.8)% |
Year Ended December 31, 2019 | 71.0% |
Year Ended December 31, | |||||||||||||||||
2019 | 2018 | 2017 | |||||||||||||||
(in millions) | $ | % of Net Sales | $ | % of Net Sales | $ | % of Net Sales | |||||||||||
Selling, general and administrative expenses | $ | 3,941 | 36.7 | % | $ | 3,569 | 36.3 | % | $ | 3,294 | 36.4 | % | |||||
Research and development expenses | 1,174 | 10.9 | % | 1,113 | 11.3 | % | 997 | 11.0 | % | ||||||||
Royalty expense | 65 | 0.6 | % | 70 | 0.7 | % | 68 | 0.8 | % |
Year Ended December 31, | |||||||||||
(in millions) | 2019 | 2018 | 2017 | ||||||||
Amortization expense | $ | 699 | $ | 599 | $ | 565 | |||||
Intangible asset impairment charges | 105 | 35 | 4 | ||||||||
Contingent consideration expense (benefit) | (35 | ) | (21 | ) | (80 | ) | |||||
Restructuring charges (credits) | 38 | 36 | 37 | ||||||||
Litigation-related net charges (credits) | 115 | 103 | 285 |
(in millions) | Year Ended December 31, | ||||||||||
2019 | 2018 | 2017 | |||||||||
Interest expense | $ | (473 | ) | $ | (241 | ) | $ | (229 | ) | ||
Weighted average borrowing rate | 4.8 | % | 3.6 | % | 3.8 | % |
Year Ended December 31, | |||||||||||
(in millions) | 2019 | 2018 | 2017 | ||||||||
Interest income | $ | 30 | $ | 3 | $ | 5 | |||||
Net foreign currency gain (loss) | (358 | ) | 11 | (15 | ) | ||||||
Net gains (losses) on investments | (30 | ) | 155 | (92 | ) | ||||||
Other income (expense), net | (1 | ) | (14 | ) | (22 | ) | |||||
$ | (358 | ) | $ | 156 | $ | (124 | ) |
Year Ended December 31, | ||||||||
2019 | 2018 | 2017 | ||||||
Reported tax rate | (584.0 | )% | (17.5 | )% | 88.8 | % | ||
Impact of certain receipts/charges (1) | 594.2 | % | 30.7 | % | (75.8 | )% | ||
10.2 | % | 13.2 | % | 13.0 | % |
(1) | These receipts/charges are taxed at different rates than our effective tax rate. |
Year Ended December 31, | |||||||||||
(in millions) | 2019 | 2018 | 2017 | ||||||||
Cash provided by (used for) operating activities | $ | 1,836 | $ | 310 | $ | 1,426 | |||||
Cash provided by (used for) investing activities | (5,041 | ) | (1,921 | ) | (1,010 | ) | |||||
Cash provided by (used for) financing activities | 2,973 | 1,432 | 110 | ||||||||
Cash provided by (used for) operating activities | $ | 1,836 | $ | 310 | $ | 1,426 | |||||
Less: Purchases of property, plant and equipment | 461 | 316 | 319 | ||||||||
Add: Proceed on disposals of property, plant and equipment | 7 | 14 | — | ||||||||
Free cash flow | 1,382 | 8 | 1,107 | ||||||||
Add: Restructuring and restructuring-related payments | 66 | 89 | 72 | ||||||||
Add: Acquisitions-related payments | 266 | 205 | 95 | ||||||||
Add: EU MDR payments | 4 | — | — | ||||||||
Add: Certain discrete tax payments (refunds/credits) | (42 | ) | 977 | (239 | ) | ||||||
Add: Litigation-related settlements | 330 | 791 | 694 | ||||||||
Adjusted free cash flow2 | $ | 2,007 | $ | 2,070 | $ | 1,729 |
As of | |||||||
(in millions) | December 31, 2019 | December 31, 2018 | |||||
Current debt obligations | $ | 1,416 | $ | 2,253 | |||
Long-term debt | 8,592 | 4,803 | |||||
Total debt | $ | 10,008 | $ | 7,056 |
As of | |||||||
(in millions) | December 31, 2019 | December 31, 2018 | |||||
Fixed-rate debt instruments | $ | 7,587 | $ | 4,797 | |||
Variable rate debt instruments | 2,421 | 2,259 | |||||
Total debt | $ | 10,008 | $ | 7,056 |
(in millions) | 2020 | 2021 | 2022 | 2023 | 2024 | Thereafter | Total | ||||||||||||||||||||
Debt obligations (1) | $ | 1,411 | $ | — | $ | 1,500 | $ | 244 | $ | 850 | $ | 6,068 | $ | 10,072 | |||||||||||||
Interest payments (2) | 343 | 326 | 308 | 280 | 252 | 2,550 | 4,059 | ||||||||||||||||||||
Lease obligations (2) | 84 | 71 | 59 | 48 | 41 | 79 | 382 | ||||||||||||||||||||
Purchase obligations (2) | 334 | 20 | 7 | 3 | 1 | 1 | 366 | ||||||||||||||||||||
Minimum royalty obligations (2) | 3 | 3 | 2 | 2 | 2 | 2 | 15 | ||||||||||||||||||||
License and software commitments (2) | 4 | 5 | 5 | 3 | 3 | — | 20 | ||||||||||||||||||||
Legal reserves | 470 | — | — | — | — | — | 470 | ||||||||||||||||||||
One-time transition tax | 40 | 40 | 40 | 75 | 100 | 125 | 420 | ||||||||||||||||||||
$ | 2,689 | $ | 465 | $ | 1,921 | $ | 655 | $ | 1,249 | $ | 8,825 | $ | 15,804 |
(1) | Debt obligations are comprised of our senior notes, term loan and commercial paper outstanding as of December 31, 2019. This does not include unamortized debt issuance discounts, deferred financing costs and gain on fair value hedges or capital lease obligations. Refer to Note E – Contractual Obligations and Commitments to our consolidated financial statements included in Item 8. Financial Statements and Supplementary Data of this Annual Report for additional information. In January 2020, we repaid $300 million of the outstanding balance of the 2020 Term Loan with proceeds from our commercial paper program. |
(2) | In accordance with U.S. GAAP, these obligations relate to expenses associated with future periods and are not reflected in our consolidated balance sheets. Interest payments included above are calculated based on rates and required fees applicable to our outstanding debt obligations as of December 31, 2019 described in Note E – Contractual Obligations and Commitments to our consolidated financial statements included in Item 8. Financial Statements and Supplementary Data of this Annual Report. Interest payments above do not include interest on variable rate debt instruments. |
• | Our long-term liability for legal matters that are probable and estimable of $227 million due to the timing of payment being uncertain. Refer to Note J – Commitments and Contingencies to our consolidated financial statements included in Item 8. Financial Statements and Supplementary Data of this Annual Report for more information, |
• | Unrecognized tax benefits, accrued interest and penalties and other related items totaling $288 million because the timing of their future cash settlement is uncertain and tax payments and interest totaling $5 million related to state obligations of recently settled IRS tax years to be remitted in 2020. Refer to Note I – Income Taxes to our consolidated financial statements included in Item 8. Financial Statements and Supplementary Data of this Annual Report for more information, and |
• | With certain of our acquisitions, we acquired IPR&D projects that require future funding to complete the projects. We estimate that the total remaining R&D cost to complete acquired IPR&D projects is between $200 million and $210 million. Net cash inflows from the projects currently in development are expected to commence in 2020 and will continue through 2037, following the respective launches of these technologies in the U.S., Europe and Japan. Certain of our acquisitions also involve the potential payment of contingent consideration, but the timing and amounts are uncertain. See Note B – Acquisitions and Strategic Investments to our consolidated financial statements included in Item 8. Financial Statements and Supplementary Data of this Annual Report for more information. |
• | decreases in estimated market sizes or market growth rates due to greater-than-expected declines in procedural volumes, pricing pressures, reductions in reimbursement levels, product actions and/or competitive technology developments, |
• | declines in our market share and penetration assumptions due to increased competition, an inability to develop or launch new and next-generation products and technology features in line with our commercialization strategies and market and/or regulatory conditions that may cause significant launch delays or product recalls, |
• | decreases in our forecasted profitability due to an inability to implement successfully and achieve timely and sustainable cost improvement measures consistent with our expectations, |
• | negative developments in intellectual property litigation that may impact our ability to market certain products or increase our costs to sell certain products, |
• | the level of success of ongoing and future research and development efforts, including those related to recent acquisitions and increases in the research and development costs necessary to obtain regulatory approvals and launch new products, |
• | the level of success in managing the growth of acquired companies, achieving sustained profitability consistent with our expectations, establishing government and third-party payer reimbursement, supplying the market and increases in the costs and time necessary to integrate acquired businesses into our operations successfully, |
• | changes in our reporting units or in the structure of our business as a result of future reorganizations, acquisitions or divestitures of assets or businesses and |
• | increases in our market-participant risk-adjusted weighted average cost of capital (WACC) and increases in our market-participant tax rate and/or changes in tax laws or macroeconomic conditions. |
• | Amortization expense - We record intangible assets at historical cost and amortize them over their estimated useful lives. Amortization expense is excluded from management's assessment of operating performance and is also excluded from our operating segments' measures of profit and loss used for making operating decisions and assessing performance. |
• | Intangible asset impairment charges - This amount represents write-downs of certain intangible asset balances during each period. We review intangible assets subject to amortization quarterly to determine if any adverse conditions exist or a change in circumstances has occurred that would indicate impairment and test our indefinite-lived intangible assets at least annually for impairment. If we determine the carrying value of the amortizable intangible asset is not recoverable or we conclude that it is more likely than not that the indefinite-lived asset is impaired, we will write the carrying value down to fair value in the period identified. Impairment charges are excluded from management's assessment of operating performance and from our operating segments' measures of profit and loss used for making operating decisions and assessing performance. |
• | Acquisition/divestiture-related net charges (credits) or payments - These adjustments may consist of (a) contingent consideration and Zytiga™ licensing arrangement fair value adjustments; (b) gains on previously held investments; (c) due diligence, deal fees and other fees and costs related to our acquisition and divestiture transactions; (d) inventory step-up amortization and accelerated compensation expense; (e) integration and exit costs; and (f) separation costs and gains primarily associated with the sale of a business or portion of a business. The contingent consideration and Zytiga licensing arrangement fair value adjustments represent accounting adjustments to state contingent consideration liabilities and Zytiga-related assets and liabilities at their estimated fair value. These adjustments can be highly variable depending on the assessed likelihood and amount of future contingent consideration and Zytiga royalty payments. In addition, we have sold our rights to retain any future royalties related to Zytiga. Refer to Note D - Hedging Activities and Fair Value Measurements for further information on the Zytiga licensing arrangement. Gains on previously held investments, due diligence, deal fees and other fees and costs, inventory step-up amortization, accelerated compensation expense, and other expenses and gains associated with prior and potential future acquisitions and divestitures can be highly variable and not representative of ongoing operations. Integration and exit costs, include contract cancellations, |
• | Restructuring and restructuring-related net charges (credits) or payments - These adjustments primarily represent compensation-related charges, fixed asset write-offs, contract cancellations, project management fees and other direct costs associated with our restructuring plans. These restructuring plans each consist of distinct initiatives that are fundamentally different from our ongoing, core cost reduction initiatives in terms of, among other things, the frequency with which each action is performed and the required planning, resourcing, cost and timing. Examples of such initiatives include the movement of business activities, facility consolidations and closures and the transfer of product lines between manufacturing facilities, which, due to the highly regulated nature of our industry, requires a significant investment in time and cost to create duplicate manufacturing lines, run product validations and seek regulatory approvals. Restructuring initiatives take place over a defined timeframe and have a distinct project timeline that begins subsequent to approval by our Board of Directors. In contrast to our ongoing cost reduction initiatives, restructuring initiatives typically result in duplicative cost and exit costs over this period of time, are one-time shut downs or transfers and are not considered part of our core, ongoing operations. These restructuring plans are incremental to the core activities that arise in the ordinary course of our business. Restructuring and restructuring-related net charges (credits) are excluded from management's assessment of operating performance and from our operating segments' measures of profit and loss used for making operating decisions and assessing performance. |
• | Litigation-related net charges (credits) or payments - These adjustments include certain significant product liability and other litigation-related charges and credits. We record these charges and credits, which we consider to be unusual or infrequent and significant, within the litigation-related charges line in our consolidated statements of operations; all other legal and product liability charges, credits and costs are recorded within selling general and administrative expenses. Litigation-related net charges (credits) are excluded from management's assessment of operating performance and from our operating segments' measures of profit and loss used for making operating decisions and assessing performance. |
• | EU MDR implementation charges - These adjustments represent incremental costs or payments specific to complying with the new European Union Medical Device Regulation (EU MDR) for previously registered products. EU MDR is a replacement of the existing European Medical Devices Directive (MDD) regulatory framework, and manufacturers of medical devices are required to comply with EU MDR beginning in May 2020 for new product registrations and by May 2024 for medical devices which have a valid CE Certificate to the current Directives (issued before May 2020). We expect to incur significant expenditures in connection with the adoption of the EU MDR requirements and we consider the adoption of EU MDR to be a significant change to a regulatory framework, and therefore, these expenditures are not considered to be ordinary course expenditures in connection with regulatory matters. As such, these medical device regulation charges are excluded from management's assessment of operating performance and from our operating segments' measures of profit and loss used for making operating decisions and assessing performance. |
• | Debt extinguishment net charges (credits) - These amounts relate to the early extinguishment of certain outstanding principal amounts of our senior notes in November 2019. Certain debt extinguishment net charges (credits) are excluded from management's assessment of operating performance and from our operating segments' measures of profit and loss used for making operating decisions and assessing performance. |
• | Investment impairment charges - These amounts represent write-downs relating to our investment portfolio that are considered unusual or infrequent and significant. Each reporting period, we evaluate our investments to determine if there are any events or circumstances that are likely to have a significant adverse effect on the fair value of the investment. If we identify an impairment indicator, we will estimate the fair value of the investment and compare it to its carrying |
• | Deferred tax expenses (benefits) - This adjustment relates to a $4.1 billion non-cash tax benefit arising from an intra-entity asset transfer of intellectual property completed in the fourth quarter of 2019. The effects of this transfer were excluded from management's assessment of operating performance and from our operating segments' measures of profit and loss used for making operating decisions and assessing performance. |
• | Discrete tax items - These items represent adjustments of certain tax positions including those which a) are related to the finalization of the enactment date impact of the TCJA, or b) are related to the tax consequences of a non-GAAP adjustment item booked in a prior period. These discrete tax items are excluded from management's assessment of operating performance and from our operating segments' measures of profit and loss used for making operating decisions and assessing performance. |
• | The impact of foreign currency fluctuations is highly variable and difficult to predict. Accordingly, management excludes the impact of foreign currency fluctuations for purposes of reviewing the net sales and growth rates to facilitate an evaluation of our current operating performance and a comparison to our past operating performance. |
/s/ Michael F. Mahoney | /s/ Daniel J. Brennan | |||||
Michael F. Mahoney | Daniel J. Brennan | |||||
President and Chief Executive Officer | Executive Vice President and Chief Financial Officer |
Business Combinations | |
Description of the Matter | As disclosed in Note B to the consolidated financial statements, during 2019, the Company completed three acquisitions for total aggregate consideration of $4.38 billion, net of cash acquired. The most significant of these was the acquisition of all outstanding equity of BTG, plc. for consideration of approximately $3.62 billion, net of cash acquired. The transactions were accounted for as business combinations. In certain acquisitions, the Company has recognized a liability for acquisition consideration that is contingent upon achieving either research and development and commercialization milestones, or sales-based milestones. The Company determines the fair value of these arrangements, both as part of the initial purchase price allocation, and on an ongoing basis each reporting period until the arrangements are settled. As of December 31, 2019, the amount accrued for future estimated contingent consideration is $354 million. Auditing the Company’s accounting for its acquisitions was complex due to the significant estimation required by management to determine the fair value of identified intangible assets, which totaled $2.2 billion and principally consisted of developed technology and assets related to currently marketed products, and to determine the fair value of contingent consideration arrangements. A significant emphasis is placed on the appropriateness of the estimate considerations used by management to determine the fair value of acquired intangible assets due to the sensitivity of the respective fair values to the underlying assumptions. The Company used an income approach to measure the technology-related intangible assets. The significant assumptions used to estimate the value of the intangible assets included discount rates and certain assumptions that form the basis of the forecasted results, including revenue growth rates, estimates of technological obsolescence, operating profit margin and market participant synergies. The significance of the estimations used by management to determine the fair value of contingent consideration was primarily due to the sensitivity of the respective fair values to the significant underlying assumptions. The significant assumptions include estimation of the probability and timing of payment, future sales forecasts, as well as the appropriate discount rate based on the estimated timing of payments. These significant assumptions are forward looking and could be affected by future economic and market conditions. |
How We Addressed the Matter in Our Audit | We obtained an understanding, evaluated the design and tested the operating effectiveness of the controls over the Company’s accounting for acquisitions. For example, we tested controls over the identification and valuation of intangible assets, including the valuation models and underlying assumptions used to develop such estimates. We also tested controls over the valuation of the contingent consideration liability, including the valuation models and underlying assumptions used to develop such estimates. For each of the Company's acquisitions, we read the purchase agreements, evaluated the significant assumptions and methods used in developing the fair value estimates, and tested the recognition of (1) the tangible assets acquired and liabilities assumed at fair value; (2) the identifiable intangible assets acquired at fair value; and (3) goodwill measured as a residual. To test the estimated fair value of the intangible assets, we performed audit procedures that included, among others, evaluating the Company's use of the income approach and testing the significant assumptions used in the model, as described above. In testing the valuation of contingent consideration, we assessed, among other things, the terms of the arrangements and the conditions that must be met for the arrangements to become payable. We evaluated the completeness and accuracy of the underlying data used in the analyses. For example, we compared the significant assumptions to current industry, market and economic trends, to the assumptions used to value similar assets in other acquisitions, to the historical results of the acquired business and to other guideline companies within the same industry. We involved our valuation professionals to assist with our evaluation of the methodology used by the Company and significant assumptions included in the fair value estimates. . |
Income Taxes - Intra-entity transfer of a license for intellectual property | |
Description of the Matter | As discussed in Note I - Income Taxes, the Company completed intra-entity transfers of certain intellectual property rights among various wholly-owned subsidiaries. The Company determined that some of these transactions created a step-up in the tax deductible basis in the transferred intellectual property rights in certain jurisdictions and recognized a deferred tax asset and related income tax benefit of $4.1 billion based upon the tax basis step-up to the intellectual property’s current fair value. Auditing management’s estimation of the intellectual property’s fair value was especially challenging because the estimates required significant and complex management judgments to establish assumptions about the intellectual property’s fair value, including revenue growth rates, projected profit margins, and discount rate. This also involved complex judgment to analyze, interpret and apply complex tax laws and regulations in the impacted jurisdictions. |
How We Addressed the Matter in Our Audit | We tested the effectiveness of the Company’s controls over the accounting for the intra-entity transfers, including controls over the appropriateness of the valuation approach and method selected, assumptions and data used, and application of the technical tax guidance by management. To test the estimated fair value of the intellectual property, we performed audit procedures that included, among others, evaluating the assumptions used by management related to revenue growth rates, projected profit margins, and the discount rate. We involved our valuation professionals to assist with the evaluation of the appropriateness of the valuation model used by management and the methodology used in determining the valuation of significant assumptions included in the fair value estimates. We also involved tax professionals to assess the technical merits of the Company’s tax positions related to the intra-entity transfers. To evaluate the reasonableness of management’s assumptions about revenue growth rates and projected profit margins, we compared these assumptions to historical revenue and profit margins for the business and to industry benchmarks. We also compared these assumptions to those used in the Company’s annual budget and forecasting process to determine whether they were consistent, where relevant. We recalculated the recognized deferred tax assets and assessed the adequacy of the related disclosures included in Note I - Income Taxes to the consolidated financial statements. |
Year Ended December 31, | |||||||||||
(in millions, except per share data) | 2019 | 2018 | 2017 | ||||||||
Net sales | $ | $ | $ | ||||||||
Cost of products sold | |||||||||||
Gross profit | |||||||||||
Operating expenses: | |||||||||||
Selling, general and administrative expenses | |||||||||||
Research and development expenses | |||||||||||
Royalty expense | |||||||||||
Amortization expense | |||||||||||
Intangible asset impairment charges | |||||||||||
Contingent consideration expense (benefit) | ( | ) | ( | ) | ( | ) | |||||
Restructuring charges (credits) | |||||||||||
Litigation-related charges (credits) | |||||||||||
Operating income (loss) | |||||||||||
Other income (expense): | |||||||||||
Interest expense | ( | ) | ( | ) | ( | ) | |||||
Other, net | ( | ) | ( | ) | |||||||
Income (loss) before income taxes | |||||||||||
Income tax (benefit) expense | ( | ) | ( | ) | |||||||
Net income (loss) | $ | $ | $ | ||||||||
Net income (loss) per common share — basic | $ | $ | $ | ||||||||
Net income (loss) per common share — assuming dilution | $ | $ | $ | ||||||||
Weighted-average shares outstanding | |||||||||||
Basic | |||||||||||
Assuming dilution |
Year Ended December 31, | |||||||||||
(in millions) | 2019 | 2018 | 2017 | ||||||||
Net income (loss) | $ | $ | $ | ||||||||
Other comprehensive income (loss), net of tax: | |||||||||||
Foreign currency translation adjustment | ( | ) | |||||||||
Net change in derivative financial instruments | ( | ) | |||||||||
Net change in available-for-sale securities | |||||||||||
Net change in defined benefit pensions and other items | ( | ) | ( | ) | |||||||
Total other comprehensive income (loss) | ( | ) | |||||||||
Total comprehensive income (loss) | $ | $ | $ |
As of December 31, | |||||||
(in millions, except share and per share data) | 2019 | 2018 | |||||
ASSETS | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | $ | |||||
Trade accounts receivable, net | |||||||
Inventories | |||||||
Prepaid income taxes | |||||||
Other current assets | |||||||
Total current assets | |||||||
Property, plant and equipment, net | |||||||
Goodwill | |||||||
Other intangible assets, net | |||||||
Deferred tax assets | |||||||
Other long-term assets | |||||||
TOTAL ASSETS | $ | $ | |||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||
Current liabilities: | |||||||
Current debt obligations | $ | $ | |||||
Accounts payable | |||||||
Accrued expenses | |||||||
Other current liabilities | |||||||
Total current liabilities | |||||||
Long-term debt | |||||||
Deferred tax liabilities | |||||||
Other long-term liabilities | |||||||
Commitments and contingencies | |||||||
Stockholders’ equity: | |||||||
Preferred stock, $0.01 par value - authorized 50,000,000 shares, none issued and outstanding | |||||||
Common stock, $0.01 par value - authorized 2,000,000,000 shares; issued 1,642,488,911 shares as of December 31, 2019 and 1,632,148,030 shares as of December 31, 2018 | |||||||
Treasury stock, at cost - 247,566,270 shares as of December 31, 2019 and December 31, 2018 | ( | ) | ( | ) | |||
Additional paid-in capital | |||||||
Accumulated deficit | ( | ) | ( | ) | |||
Accumulated other comprehensive income (loss), net of tax: | |||||||
Foreign currency translation adjustment | ( | ) | |||||
Unrealized gain (loss) on derivative financial instruments | |||||||
Unrealized costs associated with defined benefit pensions and other items | ( | ) | ( | ) | |||
Total stockholders’ equity | |||||||
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ | $ |
Treasury Stock | Additional Paid-In Capital | Accumulated Deficit | Accumulated Other Comprehensive Income (Loss), Net of Tax | |||||||||||||||||||
Common Stock | ||||||||||||||||||||||
(in millions, except share data) | Shares Issued | Par Value | ||||||||||||||||||||
Balance as of December 31, 2016 | $ | $ | ( | ) | $ | $ | ( | ) | $ | |||||||||||||
Net income (loss) | ||||||||||||||||||||||
Cumulative effect adjustment for ASU 2016-09 | ||||||||||||||||||||||
Changes in other comprehensive income (loss), net of tax: | ||||||||||||||||||||||
Foreign currency translation adjustment | ||||||||||||||||||||||
Derivative financial instruments | ( | ) | ||||||||||||||||||||
Available-for-sale securities | ||||||||||||||||||||||
Defined benefit pensions and other items | ( | ) | ||||||||||||||||||||
Impact of stock-based compensation plans, net of tax | ||||||||||||||||||||||
Balance as of December 31, 2017 | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | |||||||||||
Net income (loss) | ||||||||||||||||||||||
Cumulative effect adjustments for ASC Update Adoptions(1) | ( | ) | ||||||||||||||||||||
Changes in other comprehensive income (loss), net of tax: | ||||||||||||||||||||||
Foreign currency translation adjustment | ( | ) | ||||||||||||||||||||
Derivative financial instruments | ||||||||||||||||||||||
Defined benefit pensions and other items | ||||||||||||||||||||||
Impact of stock-based compensation plans, net of tax | ||||||||||||||||||||||
Balance as of December 31, 2018 | $ | $ | ( | ) | $ | $ | ( | ) | $ | |||||||||||||
Net income (loss) | ||||||||||||||||||||||
Changes in other comprehensive income (loss), net of tax: | ||||||||||||||||||||||
Foreign currency translation adjustment | ||||||||||||||||||||||
Derivative financial instruments | ||||||||||||||||||||||
Defined benefit pensions and other items | ( | ) | ||||||||||||||||||||
Impact of stock-based compensation plans, net of tax | ||||||||||||||||||||||
Balance as of December 31, 2019 | $ | $ | ( | ) | $ | $ | ( | ) | $ |
BOSTON SCIENTIFIC CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS | Year Ended December 31, | ||||||||||
(in millions) | 2019 | 2018 | 2017 | ||||||||
Net income (loss) | $ | $ | $ | ||||||||
Adjustments to reconcile net income (loss) to cash provided by operating activities | |||||||||||
Gain on sale of businesses | ( | ) | |||||||||
Depreciation and amortization | |||||||||||
Deferred and prepaid income taxes | ( | ) | ( | ) | |||||||
Stock-based compensation expense | |||||||||||
Intangible asset impairment charges | |||||||||||
Net loss (gain) on investments and notes receivable | ( | ) | |||||||||
Contingent consideration expense (benefit) | ( | ) | ( | ) | ( | ) | |||||
Payment of contingent consideration in excess of amount recognized at acquisition | ( | ) | ( | ) | ( | ) | |||||
Inventory step-up amortization | |||||||||||
Exchange (gain) loss | ( | ) | |||||||||
Other, net | |||||||||||
Increase (decrease) in operating assets and liabilities, net of acquisitions: | |||||||||||
Trade accounts receivable | ( | ) | ( | ) | ( | ) | |||||
Inventories | ( | ) | ( | ) | ( | ) | |||||
Other assets | ( | ) | ( | ) | |||||||
Accounts payable and accrued expenses | ( | ) | |||||||||
Other liabilities | ( | ) | ( | ) | |||||||
Cash provided by (used for) operating activities | |||||||||||
Purchases of property, plant and equipment | ( | ) | ( | ) | ( | ) | |||||
Proceeds on disposals of property, plant and equipment | |||||||||||
Payments for acquisitions of businesses, net of cash acquired | ( | ) | ( | ) | ( | ) | |||||
Proceeds from divestiture of certain businesses | |||||||||||
Proceeds from royalty rights | |||||||||||
Payments for settlements of hedge contracts | ( | ) | |||||||||
Payments for investments and acquisitions of certain technologies | ( | ) | ( | ) | ( | ) | |||||
Cash provided by (used for) investing activities | ( | ) | ( | ) | ( | ) | |||||
Payment of contingent consideration and royalty rights previously established in purchase accounting | ( | ) | ( | ) | ( | ) | |||||
Proceeds from royalty rights transfer | |||||||||||
Proceeds from short-term borrowings, net of debt issuance costs | |||||||||||
Net increase (decrease) in commercial paper | ( | ) | |||||||||
Proceeds from borrowings on credit facilities | |||||||||||
Payments on borrowings from credit facilities | ( | ) | ( | ) | |||||||
Payments on short-term borrowings | ( | ) | |||||||||
Payments on long-term borrowings and debt extinguishment costs | ( | ) | ( | ) | ( | ) | |||||
Proceeds from long-term borrowings, net of debt issuance costs | |||||||||||
Cash used to net share settle employee equity awards | ( | ) | ( | ) | ( | ) | |||||
Proceeds from issuances of shares of common stock | |||||||||||
Cash provided by (used for) financing activities | |||||||||||
Effect of foreign exchange rates on cash | ( | ) | |||||||||
Net increase (decrease) in cash, cash equivalents, restricted cash and restricted cash equivalents | ( | ) | ( | ) | |||||||
Cash, cash equivalents, restricted cash and restricted cash equivalents at beginning of period | |||||||||||
Cash, cash equivalents, restricted cash and restricted cash equivalents at end of period | $ | $ | $ | ||||||||
Supplemental Information | |||||||||||
Cash (received) paid for income taxes, net | $ | $ | $ | ( | ) | ||||||
Cash paid for interest | |||||||||||
Fair value of contingent consideration recorded in purchase accounting | |||||||||||
As of December 31, | |||||||||||
Reconciliation to amounts within the consolidated balance sheets: | 2019 | 2018 | 2017 | ||||||||
Cash and cash equivalents | $ | $ | $ | ||||||||
Restricted cash and restricted cash equivalents included in Other current assets | |||||||||||
Restricted cash equivalents included in Other long-term assets | |||||||||||
Cash, cash equivalents, restricted cash and restricted cash equivalents at end of period | $ | $ | $ |
• | We have a contract with a customer that creates enforceable rights and obligations, |
• | Promised products or services are identified, |
• | The transaction price, or the amount we expect to receive, is determinable and |
• | We have transferred control of the promised items to the customer. |
(in millions) | |||
Payment for acquisition, net of cash acquired | $ |
(in millions) | |||
Goodwill | $ | ||
Trade accounts receivable, net | |||
Inventories | |||
Other current assets | |||
Other intangible assets, net | |||
Other long-term assets | |||
Accrued expenses and other current liabilities | ( | ) | |
Other long-term liabilities | ( | ) | |
Deferred tax liability | ( | ) | |
$ |
Amount Assigned (in millions) | Amortization Period (in years) | Risk-Adjusted Discount Rates used in Purchase Price Allocation | ||||||||||
Amortizable intangible assets: | ||||||||||||
Technology-related | $ | - | % | - | ||||||||
Other intangible assets | - | |||||||||||
$ |
Year Ended December 31, | |||||||
(in millions, except per share data) (Unaudited) | 2019 | 2018 | |||||
Net sales | $ | $ | |||||
Net income (loss) | $ | $ | |||||
Net income (loss) per common share — basic | $ | $ | |||||
Net income (loss) per common share — assuming dilution | $ | $ |
(in millions) | |||
Payments for acquisitions, net of cash acquired | $ | ||
Fair value of contingent consideration | |||
Fair value of prior interests | |||
$ |
(in millions) | |||
Goodwill | $ | ||
Amortizable intangible assets | |||
Indefinite-lived intangible assets | |||
Other assets acquired | |||
Liabilities assumed | ( | ) | |
Net deferred tax liabilities | ( | ) | |
$ |
Amount Assigned (in millions) | Amortization Period (in years) | Risk-Adjusted Discount Rates used in Purchase Price Allocation | |||||
Amortizable intangible assets: | |||||||
Technology-related | $ | ||||||
Other intangible assets | |||||||
Indefinite-lived intangible assets: | |||||||
In-process research and development | n/a | ||||||
$ |
(in millions) | |||
Payments for acquisitions, net of cash acquired | $ | ||
Fair value of contingent consideration | |||
Fair value of prior interests | |||
$ |
(in millions) | |||
Goodwill | $ | ||
Amortizable intangible assets | |||
In-process research and development | |||
Other assets acquired | |||
Liabilities assumed | ( | ) | |
Net deferred tax liabilities | ( | ) | |
$ |
Amount Assigned (in millions) | Amortization Period (in years) | Risk-Adjusted Discount Rates used in Purchase Price Allocation | ||||||||||
Amortizable intangible assets | ||||||||||||
Technology-related | $ | - | % | - | ||||||||
Other intangible assets | - | % | - | |||||||||
Indefinite-lived intangible assets | ||||||||||||
In-process research and development | n/a | |||||||||||
$ |
(in millions) | |||
Payment for acquisitions, net of cash acquired | $ | ||
Fair value of contingent consideration | |||
$ |
(in millions) | |||
Goodwill | $ | ||
Amortizable intangible assets | |||
Indefinite-lived intangible assets | |||
Other assets acquired | |||
Liabilities assumed | ( | ) | |
Deferred tax liabilities | ( | ) | |
$ |
Amount Assigned (in millions) | Amortization Period (in years) | Risk-Adjusted Discount Rates used in Purchase Price Allocation | |||||||
Amortizable intangible assets | |||||||||
Technology-related | $ | ||||||||
Other intangible assets | - | ||||||||
Indefinite-lived intangible assets | |||||||||
In-process research and development | $ | n/a | |||||||
$ |
(in millions) | |||
Balance as of December 31, 2017 | $ | ||
Amounts recorded related to current year acquisitions | |||
Purchase price adjustments related to prior year acquisitions | ( | ) | |
Contingent consideration expense (benefit) | ( | ) | |
Contingent consideration payments | ( | ) | |
Balance as of December 31, 2018 | $ | ||
Amounts recorded related to current year acquisitions | |||
Contingent consideration arrangements transferred to Varian | ( | ) | |
Contingent consideration expense (benefit) | ( | ) | |
Contingent consideration payments | ( | ) | |
Balance as of December 31, 2019 | $ |
Contingent Consideration Liability | Fair Value as of December 31, 2019 | Valuation Technique | Unobservable Input | Range | Weighted Average (1) | |||
R&D, Regulatory and Commercialization-based Milestones | $ | Discounted Cash Flow | Discount Rate | % | - | |||
Probability of Payment | % | - | ||||||
Projected Year of Payment | 2020 | - | 2027 | 2021 | ||||
Revenue-based Payments | $ | Discounted Cash Flow | Discount Rate | % | - | |||
Probability of Payment | % | - | ||||||
Projected Year of Payment | 2020 | - | 2026 | 2021 |
(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 December 31, | |||||||
(in millions) | 2019 | 2018 | |||||
Equity method investments | $ | $ | |||||
Measurement alternative investments(1) | |||||||
Publicly-held securities(2) | |||||||
Notes receivable | |||||||
$ | $ |
(1) | Measurement alternative investments are privately-held equity securities without readily determinable fair values that are measured at cost less impairment, if any, plus or minus changes resulting from 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 consolidated statements of operations. |
As of December 31, 2019 | As of December 31, 2018 | ||||||||||||||
(in millions) | Gross Carrying Amount | Accumulated Amortization/Write-offs | Gross Carrying Amount | Accumulated Amortization/Write-offs | |||||||||||
Amortizable intangible assets | |||||||||||||||
Technology-related | $ | $ | ( | ) | $ | $ | ( | ) | |||||||
Patents | ( | ) | ( | ) | |||||||||||
Other intangible assets | ( | ) | ( | ) | |||||||||||
$ | $ | ( | ) | $ | $ | ( | ) | ||||||||
Indefinite-lived intangible assets | |||||||||||||||
Goodwill | $ | $ | ( | ) | $ | $ | ( | ) | |||||||
In-process research and development (IPR&D) | — | — | |||||||||||||
Technology-related | |||||||||||||||
$ | $ | ( | ) | $ | $ | ( | ) |
(in millions) | MedSurg | Rhythm and Neuro | Cardiovascular | Specialty Pharmaceuticals | Total | ||||||||||||||
Balance as of December 31, 2017 | $ | $ | $ | $ | $ | ||||||||||||||
Reportable segment revisions | ( | ) | — | — | — | ||||||||||||||
Foreign currency fluctuations and other changes | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||
Goodwill acquired | |||||||||||||||||||
Balance as of December 31, 2018 | $ | $ | $ | $ | $ | ||||||||||||||
Foreign currency fluctuations and other changes | ( | ) | |||||||||||||||||
Goodwill acquired | |||||||||||||||||||
Goodwill divested | — | — | ( | ) | ( | ) | |||||||||||||
Balance as of December 31, 2019 | $ | $ | $ | $ | $ |
Fiscal Year | |||
2020 | $ | ||
2021 | |||
2022 | |||
2023 | |||
2024 |
(in millions) | FASB ASC Topic 815 Designation | As of December 31, | ||||||||
2019 | 2018 | |||||||||
Forward currency contracts | Cash flow hedge | $ | $ | |||||||
Forward currency contracts | Net investment hedge | |||||||||
Foreign currency-denominated debt(1) | Net investment hedge | |||||||||
Forward currency contracts | Non-designated | |||||||||
Interest rate derivative contracts | Cash flow hedge | |||||||||
Total Notional Outstanding | $ | $ |
(1) | The € |
Effect of Hedging Relationships on Accumulated Other Comprehensive Income | ||||||||||||||||||||||||
Amount Recognized in OCI on Hedges | Consolidated Statements of Operations (1) | Amount Reclassified from AOCI into Earnings | ||||||||||||||||||||||
Pre-Tax Gain (Loss) | Tax Benefit (Expense) | Gain (Loss) Net of Tax | Location of Amount Reclassified | Total Amount of Line Item Presented | Pre-Tax (Gain) Loss | Tax (Benefit) Expense | (Gain) Loss Net of Tax | |||||||||||||||||
Year Ended December 31, 2019 | ||||||||||||||||||||||||
Forward currency contracts | ||||||||||||||||||||||||
Cash flow hedges | $ | $ | ( | ) | $ | Cost of products sold | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||||
Net investment hedges (2) | ( | ) | Interest expense | ( | ) | ( | ) | |||||||||||||||||
Foreign currency-denominated debt | ||||||||||||||||||||||||
Net investment hedges | ( | ) | ( | ) | Interest expense | — | — | — | ||||||||||||||||
Interest rate derivative contracts | ||||||||||||||||||||||||
Cash flow hedges | Interest expense | ( | ) | |||||||||||||||||||||
Year Ended December 31, 2018 | ||||||||||||||||||||||||
Forward currency contracts | ||||||||||||||||||||||||
Cash flow hedges | $ | $ | ( | ) | $ | Cost of products sold | $ | $ | $ | ( | ) | $ | ||||||||||||
Net investment hedges (2) | ( | ) | Interest expense | ( | ) | ( | ) | |||||||||||||||||
Interest rate derivative contracts | ||||||||||||||||||||||||
Cash flow hedges | ( | ) | ( | ) | Interest expense | ( | ) | ( | ) | |||||||||||||||
Year Ended December 31, 2017 | ||||||||||||||||||||||||
Forward currency contracts | ||||||||||||||||||||||||
Cash flow hedges | $ | ( | ) | $ | $ | ( | ) | Cost of products sold | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
Interest rate derivative contracts | ||||||||||||||||||||||||
Cash flow hedges | Interest expense | ( | ) | ( | ) |
(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. |
Designated Hedging Instrument | FASB ASC Topic 815 Designation | Location on 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 | $ | |||||
Forward currency contracts | Net investment hedge | Interest expense | ||||||
Interest rate derivative contracts | Cash flow hedge | Interest expense | ( | ) |
(in millions) | Location on Consolidated Statements of Operations | Year Ended December 31, | ||||||||||||
2019 | 2018 | 2017 | ||||||||||||
Net gain (loss) on currency hedge contracts | Other, net | $ | ( | ) | $ | $ | ( | ) | ||||||
Net gain (loss) on currency transaction exposures | Other, net | ( | ) | ( | ) | |||||||||
Net currency exchange gain (loss) | $ | ( | ) | $ | $ | ( | ) |
(in millions) | Location on Consolidated Balance Sheets (1) | As of December 31, | ||||||||
2019 | 2018 | |||||||||
Derivative and Nonderivative Assets: | ||||||||||
Designated Hedging Instruments | ||||||||||
Forward currency contracts | Other current assets | $ | $ | |||||||
Forward currency contracts | Other long-term assets | |||||||||
Non-Designated Hedging Instruments | ||||||||||
Forward currency contracts | Other current assets | |||||||||
Total Derivative and Nonderivative Assets | $ | $ | ||||||||
Derivative and Nonderivative Liabilities: | ||||||||||
Designated Hedging Instruments | ||||||||||
Forward currency contracts | Other current liabilities | $ | $ | |||||||
Forward currency contracts | Other long-term liabilities | |||||||||
Foreign currency-denominated debt | Other long-term liabilities | |||||||||
Interest rate contracts | Other current liabilities | |||||||||
Non-Designated Hedging Instruments | ||||||||||
Forward currency contracts | Other current liabilities | |||||||||
Total Derivative and Nonderivative Liabilities | $ | $ |
(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 | |||||||||||||||||||||||||||||||
December 31, 2019 | December 31, 2018 | ||||||||||||||||||||||||||||||
(in millions) | Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 | Total | |||||||||||||||||||||||
Assets | |||||||||||||||||||||||||||||||
Money market and government funds | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||
Publicly-held securities | |||||||||||||||||||||||||||||||
Hedging instruments | |||||||||||||||||||||||||||||||
Licensing arrangements | — | — | — | — | — | — | |||||||||||||||||||||||||
$ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
Liabilities | |||||||||||||||||||||||||||||||
Hedging instruments | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||
Contingent consideration liability | |||||||||||||||||||||||||||||||
Licensing arrangements | — | — | — | — | — | — | |||||||||||||||||||||||||
$ | $ | $ | $ | $ | $ | $ | $ |
Licensing Arrangements | Fair Value as of December 31, 2019 | Valuation Technique | Unobservable Input | Range | Weighted Average (1) | |||
Financial Asset | $ | Discounted Cash Flow | Discount Rate | % | - | |||
Projected Year of Payment | 2020 | - | 2028 | 2024 | ||||
Financial Liability | $ | Discounted Cash Flow | Discount Rate | |||||
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, 2018 | $ | ||
Amounts recorded related to current year acquisition | |||
Proceeds from royalty rights | ( | ) | |
Fair value adjustment (expense) benefit | |||
Balance as of December 31, 2019 | $ |
(in millions) | |||
Balance as of December 31, 2018 | $ | ||
Amounts recorded related to current year acquisition | |||
Proceeds from secured borrowings relating to royalty arrangements | |||
Balance as of December 31, 2019 | $ |
Issuance Date | Maturity Date | As of December 31, | Stated Interest Rate | |||||||||||
(in millions, except interest rates) | 2019 | 2018 | ||||||||||||
January 2020 Notes | December 2009 | January 2020 | $ | $ | ||||||||||
May 2020 Notes | May 2015 | May 2020 | ||||||||||||
May 2022 Notes | May 2015 | May 2022 | ||||||||||||
August 2022 Term Loan | August 2019 | August 2022 | ||||||||||||
October 2023 Notes | August 2013 | October 2023 | ||||||||||||
March 2024 Notes | February 2019 | March 2024 | ||||||||||||
May 2025 Notes | May 2015 | May 2025 | ||||||||||||
March 2026 Notes | February 2019 | March 2026 | ||||||||||||
December 2027 Notes | November 2019 | December 2027 | ||||||||||||
March 2028 Notes | February 2018 | March 2028 | ||||||||||||
March 2029 Notes | February 2019 | March 2029 | ||||||||||||
November 2035 Notes (1) | November 2005 | November 2035 | ||||||||||||
March 2039 Notes | February 2019 | March 2039 | ||||||||||||
January 2040 Notes | December 2009 | January 2040 | ||||||||||||
March 2049 Notes | February 2019 | March 2049 | ||||||||||||
Unamortized Debt Issuance Discount and Deferred Financing Costs | 2020 - 2049 | ( | ) | ( | ) | |||||||||
Unamortized Gain on Fair Value Hedges | 2020-2023 | |||||||||||||
Finance Lease Obligation (2) | Various | |||||||||||||
Long-term debt | $ | $ |
(1) | 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. |
(2) | Effective January 1, 2019, we adopted FASB ASC Topic 842, which requires that we recognize finance lease obligations in our consolidated balance sheets. As of December 31, 2018, these leases were referred to as capital lease obligations in accordance with FASB ASC Topic 840. Please refer to Note A – Significant Accounting Policies for additional information. |
Covenant Requirement as of December 31, 2019 | Actual as of December 31, 2019 | ||
Maximum leverage ratio (1) |
As of December 31, | |||||||
(in millions, except maturity and yield) | 2019 | 2018 | |||||
Commercial paper outstanding | $ | $ | |||||
Maximum borrowing capacity | |||||||
Borrowing capacity available | |||||||
Weighted average maturity | |||||||
Weighted average yield | % | % |
As of December 31, 2019 | As of December 31, 2018 | ||||||||||||
Factoring Arrangements | Amount De-recognized | Weighted Average Interest Rate | Amount De-recognized | Weighted Average Interest Rate | |||||||||
Euro denominated | $ | % | $ | % | |||||||||
Yen denominated | % | % |
Fiscal Year | Unrecorded Purchase Obligations | ||
2020 | $ | ||
2021 | |||
2022 | |||
2023 | |||
2024 | |||
Thereafter | |||
$ |
(in millions) | As of December 31, 2019 | ||
Assets | |||
Operating lease right-of-use assets in Other long-term assets | $ | ||
Liabilities | |||
Operating lease liabilities in Other current liabilities | |||
Operating lease liabilities in Other long-term liabilities |
As of December 31, 2019 | |
Weighted average remaining lease term | |
Weighted average discount rate |
Year Ended | |||
(in millions) | December 31, 2019 | ||
Cash paid for amounts included in the measurement of operating lease liabilities | |||
Operating cash flows from operating leases | $ |
Fiscal year | Operating Leases | ||
2020 | $ | ||
2021 | |||
2022 | |||
2023 | |||
2024 | |||
Thereafter | |||
Total future minimum operating lease payments | |||
Less: imputed interest | |||
Present value of operating lease liabilities | $ |
Fiscal year | Future Minimum Rental Commitments | ||
2019 | $ | ||
2020 | |||
2021 | |||
2022 | |||
2023 | |||
Thereafter | |||
$ |
Type of Cost | Total Estimated Amount Expected to be Incurred | ||||
Restructuring charges: | |||||
Termination benefits | $ | million | to | $ | |
Other (1) | $ | million | to | $ | |
Restructuring-related expenses: | |||||
Other (2) | $ | million | to | $ | |
$ | million | to | $ |
(1) | Consists primarily of consulting fees and costs associated with contractual cancellations. |
(2) | Comprised of other costs directly related to the restructuring program, including program management, accelerated depreciation, fixed asset write-offs, and costs to transfer product lines among facilities. |
Type of cost | Total Amount Incurred | ||
Restructuring charges: | |||
Termination benefits | $ | million | |
Other (1) | million | ||
Restructuring-related expenses: | |||
Other (2) | million | ||
$ | million |
(1) | Consists primarily of consulting fees and costs associated with contract cancellations. |
(2) | Comprised of other costs directly related to the 2016 Restructuring Plan, including program management, accelerated depreciation, fixed asset write-offs and costs to transfer product lines among facilities. |
Year Ended December 31, 2019 | Termination Benefits | Transfer Costs | Other | Total | |||||||||||
Restructuring charges | $ | $ | $ | $ | |||||||||||
Restructuring-related expenses: | |||||||||||||||
Cost of products sold | |||||||||||||||
Selling, general and administrative expenses | |||||||||||||||
$ | $ | $ | $ |
Year Ended December 31, 2018 | Termination Benefits | Transfer Costs | Other | Total | |||||||||||
Restructuring charges | $ | $ | $ | $ | |||||||||||
Restructuring-related expenses: | |||||||||||||||
Cost of products sold | |||||||||||||||
Selling, general and administrative expenses | |||||||||||||||
$ | $ | $ | $ |
Year Ended December 31, 2017 | Termination Benefits | Transfer Costs | Other | Total | |||||||||||
Restructuring charges | $ | $ | $ | $ | |||||||||||
Restructuring-related expenses: | |||||||||||||||
Cost of products sold | |||||||||||||||
Selling, general and administrative expenses | |||||||||||||||
$ | $ | $ | $ |
(in millions) | 2016 Restructuring Plan | 2019 Restructuring Plan | Total | ||||||||
Termination benefits | $ | $ | $ | ||||||||
Other (1) | |||||||||||
Total restructuring charges | |||||||||||
Transfer costs | |||||||||||
Other (2) | |||||||||||
Restructuring-related charges | |||||||||||
$ | $ | $ |
(1) | Consists primarily of consulting fees and costs associated with contract cancellations. |
(2) | Comprised of other costs directly related to our Restructuring Plans, including program management, accelerated depreciation, and fixed asset write-offs. |
(in millions) | 2016 Restructuring Plan | 2019 Restructuring Plan | Total | ||||||||
Year Ended December 31, 2019 | |||||||||||
Termination benefits | $ | $ | $ | ||||||||
Transfer costs | |||||||||||
Other | |||||||||||
$ | $ | $ |
As of December 31, | |||||||
(in millions) | 2019 | 2018 | |||||
Accounts receivable | $ | $ | |||||
Allowance for doubtful accounts | ( | ) | ( | ) | |||
$ | $ |
Year Ended December 31, | |||||||||||
(in millions) | 2019 | 2018 | 2017 | ||||||||
Beginning balance | $ | $ | $ | ||||||||
Net charges to expenses | |||||||||||
Utilization of allowances | ( | ) | ( | ) | ( | ) | |||||
Ending balance | $ | $ | $ |
As of December 31, | |||||||
(in millions) | 2019 | 2018 | |||||
Finished goods | $ | $ | |||||
Work-in-process | |||||||
Raw materials | |||||||
$ | $ |
As of December 31, | |||||||
(in millions) | 2019 | 2018 | |||||
Restricted cash and restricted cash equivalents | $ | $ | |||||
Derivative assets | |||||||
Licensing arrangements | |||||||
Taxes receivable | |||||||
Other | |||||||
$ | $ |
As of December 31, | |||||||
(in millions) | 2019 | 2018 | |||||
Land | $ | $ | |||||
Buildings and improvements | |||||||
Equipment, furniture and fixtures | |||||||
Capital in progress | |||||||
Less: accumulated depreciation | |||||||
$ | $ |
As of December 31, | |||||||
(in millions) | 2019 | 2018 | |||||
Restricted cash equivalents | $ | $ | |||||
Operating lease right-of-use assets | |||||||
Derivative assets | |||||||
Investments | |||||||
Licensing arrangements | |||||||
Other | |||||||
$ | $ |
As of December 31, | |||||||
(in millions) | 2019 | 2018 | |||||
Legal reserves | $ | $ | |||||
Payroll and related liabilities | |||||||
Accrued contingent consideration | |||||||
Rebates | |||||||
Other | |||||||
$ | $ |
As of December 31, | |||||||
(in millions) | 2019 | 2018 | |||||
Deferred revenue | $ | $ | |||||
Licensing arrangements | |||||||
Taxes payable | |||||||
Other | |||||||
$ | $ |
As of December 31, | |||||||
(in millions) | 2019 | 2018 | |||||
Accrued income taxes | $ | $ | |||||
Legal reserves | |||||||
Accrued contingent consideration | |||||||
Licensing arrangements | |||||||
Operating lease liabilities | |||||||
Other | |||||||
$ | $ |
Year Ended December 31, | |||||||||||
(in millions) | 2019 | 2018 | 2017 | ||||||||
Domestic | $ | ( | ) | $ | $ | ( | ) | ||||
Foreign | |||||||||||
$ | $ | $ |
Year Ended December 31, | |||||||||||
(in millions) | 2019 | 2018 | 2017 | ||||||||
Current | |||||||||||
Federal | $ | $ | ( | ) | $ | ||||||
State | ( | ) | |||||||||
Foreign | |||||||||||
( | ) | ||||||||||
Deferred | |||||||||||
Federal | ( | ) | ( | ) | |||||||
State | ( | ) | |||||||||
Foreign | ( | ) | ( | ) | ( | ) | |||||
( | ) | ( | ) | ||||||||
$ | ( | ) | $ | ( | ) | $ |
Year Ended December 31, | ||||||||
2019 | 2018 | 2017 | ||||||
(reclassified)(1) | ||||||||
U.S. federal statutory income tax rate | % | % | % | |||||
State income taxes, net of federal benefit | % | % | ( | )% | ||||
Domestic taxes on foreign earnings | % | % | % | |||||
Effect of foreign taxes | ( | )% | ( | )% | ( | )% | ||
Acquisition-related | % | % | ( | )% | ||||
Research credit | ( | )% | ( | )% | ( | )% | ||
Valuation allowance | % | ( | )% | ( | )% | |||
Compensation-related | ( | )% | ( | )% | ( | )% | ||
Non-deductible expenses | % | % | % | |||||
Uncertain tax positions | % | ( | )% | % | ||||
TCJA net impact | % | ( | )% | % | ||||
Intra-entity intangible asset transfers | ( | )% | % | % | ||||
Other, net | ( | )% | % | ( | )% | |||
( | )% | ( | )% | % |
(1) | Due to the inclusion of new tax provisions in 2018 created by the TJCA, we have reclassified select items in prior years to align with the new categories established in 2018, domestic taxes on foreign earnings and uncertain tax positions. |
As of December 31, | |||||||
(in millions) | 2019 | 2018 | |||||
Deferred Tax Assets: | |||||||
Inventory costs and related reserves | $ | $ | |||||
Tax benefit of net operating loss and credits | |||||||
Reserves and accruals | |||||||
Restructuring-related charges | |||||||
Litigation and product liability reserves | |||||||
Investment write-down | |||||||
Compensation related | |||||||
Federal benefit of uncertain tax positions | |||||||
Intangible assets | |||||||
Other | |||||||
Less: valuation allowance | ( | ) | ( | ) | |||
Deferred Tax Liabilities: | |||||||
Property, plant and equipment | |||||||
Unrealized gains and losses on derivative financial instruments | |||||||
Intangible assets | |||||||
Inventory costs and related services | |||||||
Other | |||||||
Net Deferred Tax Assets / (Liabilities) | ( | ) | |||||
Prepaid on intercompany profit | |||||||
Net Deferred Tax Assets / (Liabilities) and Prepaid on Intercompany Profit | $ | $ | ( | ) |
Location on Consolidated Balance Sheets | As of December 31, | |||||||
Component | 2019 | 2018 | ||||||
Prepaid on intercompany profit | Prepaid income taxes | $ | $ | |||||
Non-current deferred tax asset | Deferred tax assets | |||||||
Deferred Tax Assets and Prepaid on Intercompany Profit | ||||||||
Non-current deferred tax liability | Deferred income taxes | |||||||
Deferred Tax Liabilities | ||||||||
Net Deferred Tax Assets (Liabilities) and Prepaid on Intercompany Profit | $ | $ | ( | ) |
Year Ended December 31, | |||||||||||
(in millions) | 2019 | 2018 | 2017 | ||||||||
Beginning Balance | $ | $ | $ | ||||||||
Additions based on positions related to the current year | |||||||||||
Additions based on positions related to prior years | |||||||||||
Reductions for tax positions of prior years | ( | ) | ( | ) | ( | ) | |||||
Settlements with taxing authorities | ( | ) | ( | ) | ( | ) | |||||
Statute of limitation expirations | ( | ) | ( | ) | ( | ) | |||||
Ending Balance | $ | $ | $ |
• | On October 30, 2015, a subsidiary of Boston Scientific filed suit against Edwards Lifesciences Corporation and Edwards Lifesciences Services GmbH in Düsseldorf District Court in Germany for patent infringement. We allege that Edwards’ |
• | On November 9, 2015, Edwards Lifesciences, LLC filed an invalidity claim against one of our subsidiaries, Sadra Medical, Inc. (Sadra), in the High Court of Justice, Chancery Division Patents Court in the United Kingdom, alleging that a European patent owned by Sadra relating to a repositionable heart valve is invalid. On January 15, 2016, we filed our defense and counterclaim for a declaration that our European patent is valid and infringed by Edwards. On February 25, 2016, we amended our counterclaim to allege infringement of a second patent related to adaptive sealing technology. A trial was held from January 18 to January 27, 2017. On March 3, 2017, the court found one of our patents valid and infringed and some claims of the second patent invalid and the remaining claims not infringed. Both parties have filed an appeal. On March 28, 2018, the Court of Appeals affirmed the decision of the High Court. |
• | On November 23, 2015, Edwards Lifesciences PVT, Inc. filed a patent infringement action against us and one of our subsidiaries, Boston Scientific Medizintechnik GmbH, in the District Court of Düsseldorf, Germany alleging a European patent (Spenser '672) owned by Edwards is infringed by our Lotus™ Valve System. The trial began on February 7, 2017. On March 9, 2017, the court found that we did not infringe the Spenser '672 patent. Edwards filed an appeal. |
• | On November 23, 2015, Edwards Lifesciences Corporation filed a patent infringement action against us and Boston Scientific Medizintechnik GmbH in the District Court of Düsseldorf, Germany alleging an European patent (Bourang) owned by Edwards is infringed by our Lotus Valve System. The trial began on February 7, 2017. On March 28, 2017, the European Patent Office revoked the Bourang patent and on April 3, 2017, the court suspended the infringement action pending Edwards' appeal of the revocation of the patent at the European Patent Office. |
• | On April 19, 2016, a subsidiary of Boston Scientific filed suit against Edwards Lifesciences Corporation (Edwards) in the U.S. District Court for the District of Delaware for patent infringement. We allege that Edwards’ SAPIEN 3™ Valve infringes a patent related to adaptive sealing technology. On June 9, 2016, Edwards filed a counterclaim alleging that our Lotus™ Valve System infringes three patents owned by Edwards. On October 12, 2016, Edwards filed a petition for inter partes review of our patent with the U.S. Patent and Trademark Office (USPTO), Patent Trial and Appeal Board. On March 29, 2017, the USPTO granted the inter partes review request. On April 18, 2017, Edwards filed a second petition for inter partes review of our patent with the USPTO. On March 23, 2018, the USPTO found our patent invalid. The Company filed an appeal before the United States Court of Appeals for the Federal Circuit on May 24, 2018. |
• | On April 19, 2016, a subsidiary of Boston Scientific filed suit against Edwards Lifesciences Corporation in the U.S. District Court for the Central District of California for patent infringement. We allege that Edwards’ aortic valve delivery systems infringe eight of our catheter related patents. On October 13, 2016, Edwards filed a petition for inter partes review of one asserted patent with the USPTO, Patent Trial and Appeal Board. On April 21, 2017, the USPTO denied the petition. On April 19 and 20, 2017, Edwards filed multiple inter partes review petitions against the patents in suit. On September 8, 2017, the court granted a stay of the action pending an inter partes review of the patents in suit. |
• | On April 26, 2016, Edwards Lifesciences PVT, Inc. filed a patent infringement action against us and one of our subsidiaries, Boston Scientific Medizintechnik GmbH, in the District Court of Düsseldorf, Germany alleging a European patent (Spenser '550) owned by Edwards is infringed by our Lotus™ Transcatheter Heart Valve System. The trial began on February 7, 2017. On March 9, 2017, the court found that we infringed the Spenser '550 patent. The Company filed an appeal. On April 13, 2018, the ‘550 patent was revoked by the European Patent Office. |
• | On October 27, 2016, Edwards Lifesciences PVT, Inc. filed a patent infringement action against us and one of our subsidiaries, Boston Scientific, LTD, in the Federal Court of Canada alleging that three Canadian patents (Spenser) owned by Edwards are infringed by our Lotus Transcatheter Heart Valve System. |
• | On December 22, 2016, Edwards Lifesciences PVT, Inc. and Edwards Lifesciences SA (AG) filed a plenary summons against Boston Scientific Limited and Boston Scientific Group Public Company in the High Court of Ireland alleging that a European patent (Spenser) owned by Edwards is infringed by our Lotus Valve System. On April 13, 2018, the ‘550 patent was revoked by the European Patent Office. |
• | On August 1, 2018, the Company filed a patent infringement action on the merits in Dusseldorf, Germany against Edwards Lifesciences Corporation and Edwards Lifesciences GmbH (collectively Edwards) alleging that the Sapien 3™ Device and Sapien 3 Ultra Device infringed a patent owned by the Company. |
• | On August 3, 2018, the Company filed a preliminary injunction request in Dusseldorf, Germany against Edwards Lifesciences Corporation and Edwards Lifesciences GmbH (collectively Edwards) alleging that the Sapien 3 Ultra Device infringed a patent owned by the Company. On October 23, 2018, the court found that the Sapien 3 Ultra Device infringed the patent. Edwards had the right to appeal. |
• | On August 22, 2018, Edwards Lifesciences LLC filed a patent infringement action against Boston Scientific Corporation, in the U. S. District Court of Delaware, alleging that two U.S. patents (Schweich) owned by them are infringed by our Watchman™ Left Atrial Appendage Closure Device, Watchman Delivery System and Watchman Access System. |
Year Ended December 31, | |||||||||||
(in millions, except per share data) | 2019 | 2018 | 2017 | ||||||||
Cost of products sold | $ | $ | $ | ||||||||
Selling, general and administrative expenses | |||||||||||
Research and development expenses | |||||||||||
Income tax (benefit) expense | ( | ) | ( | ) | ( | ) | |||||
$ | $ | $ | |||||||||
Net impact per common share - basic | $ | $ | $ | ||||||||
Net impact per common share - assuming dilution | $ | $ | $ |
Year Ended December 31, | ||||||||||||||||||||
2019 | 2018 | 2017 | ||||||||||||||||||
Options granted (in thousands) | ||||||||||||||||||||
Weighted-average exercise price | $ | $ | $ | |||||||||||||||||
Weighted-average grant-date fair value | $ | $ | $ | |||||||||||||||||
Black-Scholes Assumptions | ||||||||||||||||||||
Expected volatility | % | % | % | |||||||||||||||||
Expected term (in years, weighted) | ||||||||||||||||||||
Risk-free interest rate | % | - | % | - | % | - |
Stock Options (in thousands) | Weighted Average Exercise Price | Weighted Average Remaining Contractual Life (in years) | Aggregate Intrinsic Value (in millions) | |||||||||
Outstanding as of December 31, 2016 | $ | |||||||||||
Granted | ||||||||||||
Exercised | ( | ) | ||||||||||
Cancelled/forfeited | ( | ) | ||||||||||
Outstanding as of December 31, 2017 | $ | |||||||||||
Granted | ||||||||||||
Exercised | ( | ) | ||||||||||
Cancelled/forfeited | ( | ) | ||||||||||
Outstanding as of December 31, 2018 | $ | |||||||||||
Granted | ||||||||||||
Exercised | ( | ) | ||||||||||
Cancelled/forfeited | ( | ) | ||||||||||
Outstanding as of December 31, 2019 | $ | $ | ||||||||||
Exercisable as of December 31, 2019 | $ | $ | ||||||||||
Expected to vest as of December 31, 2019 | ||||||||||||
Total vested and expected to vest as of December 31, 2019 | $ | $ |
Non-Vested Stock Award Units (in thousands) | Weighted Average Grant-Date Fair Value | |||||
Balance as of December 31, 2016 | $ | |||||
Granted | ||||||
Vested (1) | ( | ) | ||||
Forfeited | ( | ) | ||||
Balance as of December 31, 2017 | $ | |||||
Granted | ||||||
Vested (1) | ( | ) | ||||
Forfeited | ( | ) | ||||
Balance as of December 31, 2018 | $ | |||||
Granted | ||||||
Vested (1) | ( | ) | ||||
Forfeited | ( | ) | ||||
Balance as of December 31, 2019 | $ |
(1) | The number of restricted stock units vested includes shares withheld on behalf of employees to satisfy statutory tax withholding requirements. |
2019 | 2018 | 2017 | |||||||||
Awards | Awards | Awards | |||||||||
Stock price on date of grant | $ | $ | $ | ||||||||
Measurement period (in years) | |||||||||||
Risk-free rate | % | % | % |
2019 AFCF | 2018 AFCF | 2017 AFCF | |||||||||
Fair value, net of forfeitures to date (in millions) | $ | $ | $ | ||||||||
Achievement of target payout | % | % | % | ||||||||
Year-end stock price used in determining fair value | $ | $ | $ |
Unrecognized Compensation Cost (in millions) (1) | Weighted Average Remaining Vesting Period (in years) | ||||
Stock options | $ | ||||
Non-vested stock awards | |||||
$ |
(1) | Amounts presented represent compensation cost, net of estimated forfeitures. |
Year Ended December 31, | ||||||||||||||||||||
2019 | 2018 | 2017 | ||||||||||||||||||
Shares issued or to be issued (in thousands) | ||||||||||||||||||||
Range of purchase prices | $ | - | $ | $ | - | $ | $ | - | $ | |||||||||||
Expense recognized (in millions) | $ | $ | $ |
Year Ended December 31, | ||||||||
(in millions) | 2019 | 2018 | 2017 | |||||
Weighted average shares outstanding - basic | ||||||||
Net effect of common stock equivalents | ||||||||
Weighted average shares outstanding - assuming dilution |
Year Ended December 31, | |||||||||||
Net sales | 2019 | 2018 | 2017 | ||||||||
MedSurg | $ | $ | $ | ||||||||
Rhythm and Neuro | |||||||||||
Cardiovascular | |||||||||||
Total net sales of reportable segments | 9,823 | ||||||||||
All other (Specialty Pharmaceuticals) | n/a | n/a | |||||||||
Consolidated net sales | $ | $ | $ |
Year Ended December 31, | |||||||||||
Depreciation expense | 2019 | 2018 | 2017 | ||||||||
MedSurg | $ | $ | $ | ||||||||
Rhythm and Neuro | |||||||||||
Cardiovascular | |||||||||||
Total depreciation expense of reportable segments | |||||||||||
All other (Specialty Pharmaceuticals) | n/a | n/a | |||||||||
Consolidated depreciation expense | $ | $ | $ |
Year Ended December 31, | |||||||||||
Income (loss) before income taxes | 2019 | 2018 | 2017 | ||||||||
MedSurg | $ | $ | $ | ||||||||
Rhythm and Neuro | |||||||||||
Cardiovascular | |||||||||||
Total operating income of reportable segments | |||||||||||
All other (Specialty Pharmaceuticals) | n/a | n/a | |||||||||
Unallocated amounts: | |||||||||||
Corporate expenses, including hedging activities | ( | ) | ( | ) | ( | ) | |||||
Intangible asset impairment charges, acquisition/divestiture-related, restructuring- and restructuring-related, litigation-related net (charges) credits and EU MDR implementation costs | ( | ) | ( | ) | ( | ) | |||||
Amortization expense | ( | ) | ( | ) | ( | ) | |||||
Operating income (loss) | |||||||||||
Other expense, net | ( | ) | ( | ) | ( | ) | |||||
Income (loss) before income taxes | $ | $ | $ |
Operating income of reportable segments as a percentage of net sales of reportable segments | Year Ended December 31, | |||||||
2019 | 2018 | 2017 | ||||||
MedSurg | % | % | % | |||||
Rhythm and Neuro | % | % | % | |||||
Cardiovascular | % | % | % |
As of December 31, | |||||||
Total assets | 2019 | 2018 | |||||
MedSurg | $ | $ | |||||
Rhythm and Neuro | |||||||
Cardiovascular | |||||||
Total assets of reportable segments | |||||||
All other (Specialty Pharmaceuticals) | |||||||
Goodwill | |||||||
Other intangible assets, net | |||||||
All other corporate assets | |||||||
$ | $ |
As of December 31, | |||||||||||
Long-lived assets | 2019 | 2018 | 2017 | ||||||||
U.S. | $ | $ | $ | ||||||||
Ireland | |||||||||||
Other countries | |||||||||||
Property, plant and equipment, net | |||||||||||
Goodwill | |||||||||||
Other intangible assets, net | |||||||||||
Operating lease right-of-use assets in Other long-term assets | |||||||||||
$ | $ | $ |
Year Ended December 31, | |||||||||||||||||||||||||||||||||||
2019 | 2018 | 2017 | |||||||||||||||||||||||||||||||||
Businesses | U.S. | OUS | Total | U.S. | OUS | Total | U.S. | OUS | Total | ||||||||||||||||||||||||||
Endoscopy | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||
Urology and Pelvic Health | |||||||||||||||||||||||||||||||||||
Cardiac Rhythm Management | |||||||||||||||||||||||||||||||||||
Electrophysiology | |||||||||||||||||||||||||||||||||||
Neuromodulation | |||||||||||||||||||||||||||||||||||
Interventional Cardiology | |||||||||||||||||||||||||||||||||||
Peripheral Interventions | |||||||||||||||||||||||||||||||||||
Specialty Pharmaceuticals | n/a | n/a | n/a | n/a | n/a | n/a | |||||||||||||||||||||||||||||
Net Sales | $ | $ | $ | $ | $ | $ | $ | $ | $ |
Year Ended December 31, | |||||||||||
Geographic Regions | 2019 | 2018 | 2017 | ||||||||
U.S. | $ | $ | $ | ||||||||
EMEA (Europe, Middle East and Africa) | |||||||||||
APAC (Asia-Pacific) | |||||||||||
LACA (Latin America and Canada) | |||||||||||
Medical Devices | |||||||||||
U.S. | n/a | n/a | |||||||||
OUS | n/a | n/a | |||||||||
Specialty Pharmaceuticals | n/a | n/a | |||||||||
Net Sales | $ | $ | $ | ||||||||
Emerging Markets (1) | $ | $ | $ |
(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; effective January 1, 2019, we updated our list of Emerging Market countries. Our current list is 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. We have revised prior year amounts to the current year’s presentation. |
(in millions) | Foreign Currency Translation Adjustments | Net Change in Derivative Financial Instruments | Net Change in Available-for-Sale Securities | Net Change in Defined Benefit Pensions and Other Items | Total | ||||||||||||||
Balance as of December 31, 2018 | $ | ( | ) | $ | $ | $ | ( | ) | $ | ||||||||||
Other comprehensive income (loss) before reclassifications | ( | ) | |||||||||||||||||
(Income) loss amounts reclassified from accumulated other comprehensive income | ( | ) | ( | ) | ( | ) | |||||||||||||
Total other comprehensive income (loss) | ( | ) | |||||||||||||||||
Balance as of December 31, 2019 | $ | $ | $ | $ | ( | ) | $ |
(in millions) | Foreign Currency Translation Adjustments | Net Change in Derivative Financial Instruments | Net Change in Available-for-Sale Securities | Net Change in Defined Benefit Pensions and Other Items | Total | ||||||||||||||
Balance as of December 31, 2017 | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
Other comprehensive income (loss) before reclassifications | ( | ) | |||||||||||||||||
(Income) loss amounts reclassified from accumulated other comprehensive income | ( | ) | ( | ) | |||||||||||||||
Total other comprehensive income (loss) | ( | ) | |||||||||||||||||
Balance as of December 31, 2018 | $ | ( | ) | $ | $ | $ | ( | ) | $ |
Discount Rate | Expected Return on Plan Assets | Rate of Compensation Increase | |||
U.K. Plan |
(in millions) | |||
Fair value of plan assets | $ | ||
Benefit obligation | ( | ) | |
Funded status | $ | ( | ) |
As of December 31, 2019 | |||||||||||||||
(in millions) | Accumulated Benefit Obligation (ABO) | Projected Benefit Obligation (PBO) | Fair value of Plan Assets | Unfunded/Underfunded PBO Recognized | |||||||||||
Domestic Retirement Plans | $ | $ | $ | $ | |||||||||||
U.K. Plan | |||||||||||||||
Other International Retirement Plans | |||||||||||||||
$ | $ | $ | $ |
As of December 31, 2018 | |||||||||||||||
(in millions) | Accumulated Benefit Obligation (ABO) | Projected Benefit Obligation (PBO) | Fair value of Plan Assets | Unfunded/Underfunded PBO Recognized | |||||||||||
Domestic Retirement Plans | $ | $ | $ | $ | |||||||||||
International Retirement Plans | |||||||||||||||
$ | $ | $ | $ |
Year Ended December 31, | |||||||
(in millions) | 2019 | 2018 | |||||
Beginning obligations | $ | $ | |||||
Acquired and established plans(1) | |||||||
Service costs | |||||||
Interest costs | |||||||
Actuarial (gain) loss | ( | ) | |||||
Plan amendments and assumption changes | ( | ) | |||||
Benefits paid | ( | ) | ( | ) | |||
Impact of foreign currency fluctuations | ( | ) | |||||
Ending obligation | $ | $ |
(1) | Plans obtained through acquisition and other increases in connection with our international operations. Refer to Note B – Acquisitions and Strategic Investments for additional information regarding the U.K. Plan we acquired with BTG on August 19, 2019. |
Weighted Average Discount Rate | Weighted Average Expected Return on Plan | Weighted Average Rate of Compensation Increase(1) | |||
Domestic Retirement Plans | n/a | ||||
U.K. Plan | |||||
Other International Retirement Plans |
(1) | Rates of compensation increase were not weighted by the relative fair value of the instruments. As such, the amount represents the median of the inputs and is not a weighted average. |
Discount Rate | Expected Return on Plan Assets | Rate of Compensation Increase | ||||||||||||
Domestic Retirement Plans | % | - | n/a | |||||||||||
International Retirement Plans | % | - | % | - | % | - |
Year Ended December 31, | |||||||
(in millions) | 2019 | 2018 | |||||
Beginning fair value | $ | $ | |||||
Acquired and established plans(1) | |||||||
Actual return on plan assets | ( | ) | |||||
Employer contributions | |||||||
Participant contributions | |||||||
Actuarial gain (loss) | ( | ) | |||||
Benefits paid | ( | ) | ( | ) | |||
Impact of foreign currency fluctuations | |||||||
Ending fair value | $ | $ |
(1) | Plans obtained through acquisition and other increases in connection with our international operations. Refer to Note B – Acquisitions and Strategic Investments for additional information regarding the U.K. Plan we acquired with BTG on August 19, 2019. |
As of | |||||||||||||||
December 31, 2019 | |||||||||||||||
(in millions) | Level 1 | Level 2 | Level 3 | Total | |||||||||||
Buy-in contracts | $ | $ | $ | $ | |||||||||||
Cash | |||||||||||||||
Total assets | $ | $ | $ | $ |
(in millions) | Buy-in Contracts | ||
Balance as of December 31, 2018 | $ | ||
Acquired plans(1) | |||
Actuarial gain (loss) | ( | ) | |
Benefits paid | ( | ) | |
Impact of foreign currency fluctuations | |||
Balance as of December 31, 2019 | $ |
(1) | Refer to Note B – Acquisitions and Strategic Investments for additional information regarding the U.K. Plan we acquired with BTG on August 19, 2019. |
Three Months Ended | |||||||||||||||
Mar 31, | June 30, | Sept 30, | Dec 31, | ||||||||||||
2019 | |||||||||||||||
Net sales | $ | 2,493 | $ | 2,631 | $ | 2,707 | $ | 2,905 | |||||||
Gross profit | 1,763 | 1,873 | 1,930 | 2,054 | |||||||||||
Operating income (loss) | 541 | 384 | 383 | 210 | |||||||||||
Net income (loss) | 424 | 154 | 126 | 3,996 | |||||||||||
Net income (loss) per common share - basic | $ | 0.31 | $ | 0.11 | $ | 0.09 | $ | 2.87 | |||||||
Net income (loss) per common share - assuming dilution | $ | 0.30 | $ | 0.11 | $ | 0.09 | $ | 2.83 | |||||||
2018 | |||||||||||||||
Net sales | $ | 2,379 | $ | 2,490 | $ | 2,393 | $ | 2,561 | |||||||
Gross profit | 1,707 | 1,751 | 1,720 | 1,832 | |||||||||||
Operating income (loss) | 407 | 392 | 388 | 319 | |||||||||||
Net income (loss) | 298 | 555 | 432 | 386 | |||||||||||
Net income (loss) per common share - basic | $ | 0.22 | $ | 0.40 | $ | 0.31 | $ | 0.28 | |||||||
Net income (loss) per common share - assuming dilution | $ | 0.21 | $ | 0.40 | $ | 0.31 | $ | 0.27 |
EXHIBIT NO. | TITLE | |
2.1 | ||
3.1 | ||
3.2 | ||
4.1 | Specimen Certificate for shares of the Company's Common Stock (incorporated herein by reference to Exhibit 4.1, Registration No. 33-46980). | |
4.2* | ||
4.3 | ||
4.4 | ||
4.5 | ||
4.6 | ||
4.7 |
4.8 | ||
4.9 | ||
4.10 | ||
4.11 | ||
4.12 | ||
4.13 | ||
4.14 | ||
4.15 | ||
4.16 | ||
4.17 | ||
4.18 | ||
4.19 | ||
4.20 | ||
4.21 | ||
4.22 | ||
4.23 | ||
4.24 | ||
10.1 | ||
10.2 | ||
10.3 | ||
10.4 | ||
10.5 | ||
10.6 | ||
10.7 | ||
10.8 | Transaction Agreement, dated as of January 8, 2006, as amended, between the Company and Abbott Laboratories (incorporated herein by reference to Exhibit 10.47, Exhibit 10.48, Exhibit 10.49 and Exhibit 10.50, Annual Report on Form 10-K for year ended December 31, 2005 and Exhibit 10.1, Current Report on Form 8-K dated April 7, 2006, File No. 1-11083). | |
10.9 | ||
10.10 | ||
10.11 | ||
10.12 | ||
10.13 | Form of Boston Scientific Corporation Excess Benefit Plan, as amended (incorporated herein by reference to Exhibit 10.1, Current Report on Form 8-K dated June 29, 2005 and Exhibit 10.4, Current Report on Form 8-K dated December 16, 2008, File No. 1-11083).# | |
10.14 | ||
10.15 | ||
10.16 | ||
10.17 | ||
10.18 | ||
10.19 | ||
10.20 | Boston Scientific Corporation 2000 Long-Term Incentive Plan, as amended (incorporated herein by reference to Exhibit 10.20, Annual Report on Form 10-K for the year ended December 31, 1999, Exhibit 10.18, Annual Report on Form 10-K for the year ended December 31, 2001, Exhibit 10.1, Current Report on Form 8-K dated December 22, 2004, Exhibit 10.3, Current Report on Form 8-K dated May 9, 2005, and Exhibit 10.3, Current Report on Form 8-K dated December 16, 2008, File No. 1-11083).# | |
10.21 | ||
10.22 | ||
10.23 | ||
10.24 | ||
10.25 | ||
10.26 | ||
10.27 |
10.28 | ||
10.29 | ||
10.30 | ||
10.31 | ||
10.32 | ||
10.33 | ||
10.34 | ||
10.35 | ||
10.36 | ||
10.37 | ||
10.38 | ||
10.39 | ||
10.40 | ||
10.41 | ||
10.42 | ||
10.43 | ||
10.44 | ||
10.45 | ||
10.46 | ||
10.47 | ||
10.48 | ||
10.49 | ||
10.50 | ||
10.51 | ||
10.52 | ||
10.53 | ||
10.54 | ||
10.55 | ||
10.56 | ||
10.57 | ||
10.58 | ||
10.59 | ||
10.60 | ||
10.61 | ||
10.62 | ||
10.63 | ||
10.64 | ||
10.65 | ||
10.66 | ||
10.67 | ||
10.68 | ||
10.69 | ||
10.70 | ||
10.71 | ||
10.72 | ||
10.73 | ||
10.74 | ||
10.75 | ||
10.76 | ||
10.77 | ||
10.78 | ||
10.79 | ||
10.80 | ||
10.81 | ||
10.82 | ||
10.83 | ||
10.84 | ||
10.85 | ||
10.86 | ||
10.87 | ||
10.88 | ||
10.89 | ||
10.90 | ||
10.91 | ||
10.92 | ||
10.93 | ||
10.94 | ||
10.95 | ||
10.96 | ||
10.97 | ||
10.98 | ||
10.99 | ||
10.100 | ||
10.101 | ||
10.102 | ||
10.103 | ||
10.104 | ||
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10.120 | ||
10.121 | ||
21* | ||
23* | ||
31.1* | ||
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) | |
Dated: February 25, 2020 | Boston Scientific Corporation | |||
By: | /s/ Daniel J. Brennan | |||
Daniel J. Brennan | ||||
Executive Vice President and Chief Financial Officer | ||||
(duly authorized officer and principal financial officer) |
Dated: February 25, 2020 | By: | /s/ Daniel J. Brennan | ||
Daniel J. Brennan | ||||
Executive Vice President and Chief Financial Officer | ||||
(Principal Financial Officer) |
Dated: February 25, 2020 | By: | /s/ Michael F. Mahoney | ||
Michael F. Mahoney | ||||
Director, Chairman of the Board, President and Chief Executive Officer | ||||
(Principal Executive Officer) |
Dated: February 25, 2020 | By: | /s/ Jonathan R. Monson | ||
Jonathan R. Monson | ||||
Vice President, Global Controller and Chief Accounting Officer | ||||
(Principal Accounting Officer) |
Dated: February 25, 2020 | By: | /s/ Nelda J. Connors | ||
Nelda J. Connors | ||||
Director | ||||
Dated: February 25, 2020 | By: | /s/ Charles J. Dockendorff | ||
Charles J. Dockendorff | ||||
Director | ||||
Dated: February 25, 2020 | By: | /s/ Yoshiaki Fujimori | ||
Yoshiaki Fujimori | ||||
Director | ||||
Dated: February 25, 2020 | By: | /s/ Donna A. James | ||
Donna A. James | ||||
Director | ||||
Dated: February 25, 2020 | By: | /s/ Edward J. Ludwig | ||
Edward J. Ludwig | ||||
Director | ||||
Dated: February 25, 2020 | By: | /s/ Stephen P. MacMillan | ||
Stephen P. MacMillan | ||||
Director | ||||
Dated: February 25, 2020 | By: | /s/ David J. Roux | ||
David J. Roux | ||||
Director | ||||
Dated: February 25, 2020 | By: | /s/ John E. Sununu | ||
John E. Sununu | ||||
Director | ||||
Dated: February 25, 2020 | By: | /s/ Ellen M. Zane | ||
Ellen M. Zane | ||||
Director | ||||
Description | Balance at Beginning of Year | Charges to Costs and Expenses (a) | Deductions to Allowances for Uncollectible Accounts (b) | Charges to (Deductions from) Other Accounts (c) | Balance at End of Year | ||||||||||||
Year Ended December 31, 2019: | |||||||||||||||||
Allowances for uncollectible accounts (d) | $ | ( | ) | $ | |||||||||||||
Year Ended December 31, 2018: | |||||||||||||||||
Allowances for uncollectible accounts (d) | $ | ( | ) | ( | ) | $ | |||||||||||
Year Ended December 31, 2017: | |||||||||||||||||
Allowances for uncollectible accounts and sales returns and allowances | $ | ( | ) | ( | ) | $ |
• | 100% of the principal amount of the notes being redeemed, or |
• | as determined by a Quotation Agent (as defined below), the sum of the present values of the remaining scheduled payments of principal and interest thereon to the applicable Par Call Date (not including any portion of such payments of interest accrued to the date of redemption) discounted to the redemption date on an annual basis (ACTUAL/ACTUAL(ICMA)) at the Comparable Government Bond Rate (defined below), plus 20 basis points for the notes, |
(1) | Registration Statement (Form S-3 Nos. 333-223095, 333-76346, 333-61994, and 333-64991) of Boston Scientific Corporation, |
(2) | Registration Statement (Form S-4 Nos. 333-22581 and 333-131608) of Boston Scientific Corporation, and |
(3) | Registration Statement (Form S-8 Nos. 333-25033, 333-25037, 333-36636, 333-61056, 333-61060, 333-76380, 333-98755, 333-111047, 333-131608, 333-133569, 333-134932, 333-151280, 333-174620, 333-174622, 333-188905, and 333-196672) pertaining to the Employees' Savings Plan of Boston Scientific Corporation; |
1 | I have reviewed this Annual Report on Form 10-K 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: February 25, 2020 | /s/ Michael F. Mahoney | ||||
Michael F. Mahoney | |||||
Chief Executive Officer |
1 | I have reviewed this Annual Report on Form 10-K 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: February 25, 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 | ||
Chief Executive Officer | ||
February 25, 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 | ||
February 25, 2020 |
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Significant Accounting Policies Significant Accounting Policies (Policies) |
12 Months Ended | ||||||||||||||||
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Dec. 31, 2019 | |||||||||||||||||
Significant Accounting Policies [Abstract] | |||||||||||||||||
Organization, Consolidation and Presentation of Financial Statements Disclosure [Text Block] | Principles of Consolidation Our consolidated financial statements include the accounts of Boston Scientific Corporation and our wholly-owned subsidiaries, after the elimination of intercompany transactions. When used in this report, the terms "we," "us," "our" and "the Company" mean Boston Scientific Corporation and its divisions and subsidiaries. We assess the terms of our investment interests to determine if any of our investees meet the definition of a variable interest entity (VIE). For any VIEs, we perform an analysis to determine whether our variable interests give us a controlling financial interest in a VIE. The analysis identifies the primary beneficiary of a VIE as the enterprise that has both 1) the power to direct activities of a VIE that most significantly impact the entity’s economic performance and 2) the obligation to absorb losses of the entity or the right to receive benefits from the entity. Based on our assessments under the applicable guidance, we did not have controlling financial interests in any VIEs and, therefore, did not consolidate any VIEs for 2019, 2018 and 2017. Basis of Presentation The accompanying consolidated financial statements and notes thereto have been prepared in accordance with accounting principles generally accepted in the United States (U.S. GAAP) and with the instructions to Form 10-K and Regulation S-X. Amounts reported in millions within this report are computed based on the amounts in thousands. As a result, the sum of the components reported in millions may not equal the total amount reported in millions due to rounding. Certain columns and rows within tables may not add due to the use of rounded numbers. Percentages presented are calculated from the underlying numbers in dollars. Reportable Segments Our seven core businesses are organized into three reportable segments: MedSurg, Rhythm and Neuro, and Cardiovascular. Following our acquisition of BTG plc (BTG), which closed during the third quarter of 2019, we have included BTG’s Interventional Medicine business within our Peripheral Interventions operating segment, within the Cardiovascular reportable segment. We present BTG’s Specialty Pharmaceuticals business as a standalone operating segment alongside our reportable segments. |
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Subsequent Events, Policy [Policy Text Block] | Subsequent Events We evaluate events occurring after the date of our accompanying consolidated balance sheets for potential recognition or disclosure in our consolidated financial statements. We did not identify any material subsequent events requiring adjustment to our accompanying consolidated financial statements (recognized subsequent events). Those items requiring disclosure (unrecognized subsequent events) in the consolidated financial statements have been disclosed accordingly. Refer to Note E – Contractual Obligations and Commitments and Note J – Commitments and Contingencies for further details.
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Use of Estimates, Policy [Policy Text Block] | Accounting Estimates To prepare our consolidated financial statements in accordance with U.S. GAAP, management makes estimates and assumptions that may affect the reported amounts of our assets and liabilities, the disclosure of contingent liabilities as of the date of our consolidated financial statements and the reported amounts of our revenues and expenses during the reporting period. Our actual results may differ from these estimates. Refer to Critical Accounting Estimates included in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations of this Annual Report for further discussion.
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Cash and Cash Equivalents, Policy [Policy Text Block] | Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents Cash and Cash Equivalents We record Cash and cash equivalents in our consolidated balance sheets at cost, which approximates fair value. Our policy is to invest excess cash in short-term marketable securities earning a market rate of interest without assuming undue risk of loss of principal amounts invested and we limit our direct exposure to securities in any one industry or issuer. We consider to be cash equivalents all short-term marketable securities with remaining days to maturity of 90 days or less from the purchase date that can be readily converted to cash. Restricted Cash Amounts included in restricted cash represent cash on hand required to be set aside by a contractual agreement related to receivable factoring arrangements and deferred compensation plans and are included in the Other current assets caption on our consolidated balance sheets. Generally, the restrictions related to the factoring arrangements lapse at the time we remit the customer payments collected by us as servicer of previously sold customer receivables to the purchaser. Restrictions for deferred compensation lapse when amounts are paid to the employee. Restricted Cash Equivalents Restricted cash equivalents primarily represent amounts paid into various qualified settlement funds related to our ongoing transvaginal surgical mesh litigation and current amounts related to our non-qualified pension plan and are included in the Other current assets caption on our consolidated balance sheets. The restrictions related to the various qualified settlement funds will lapse as we approve amounts payable to claimants, at which time we no longer have rights to a return of the amounts paid into the various qualified settlement funds. Restricted cash equivalents included in the Other long-term assets caption on our consolidated balance sheets are related to deferred compensation plans.
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Concentration Risk Disclosure [Text Block] | Concentrations of Credit Risk Financial instruments that potentially subject us to concentrations of credit risk consist primarily of cash and cash equivalents, derivative financial instruments and accounts and notes receivable. Our investment policy limits exposure to concentrations of credit risk and changes in market conditions. Counterparties to financial instruments expose us to credit-related losses in the event of nonperformance. We transact our financial instruments with a diversified group of major financial institutions with investment grade credit ratings and actively monitor their credit ratings and our outstanding positions to limit our credit exposure. In the normal course, our payment terms with customers, including hospitals, healthcare agencies, clinics, doctors' offices and other private and governmental institutions, are typically 30 days in the U.S. but may be longer in international markets and generally do not require collateral. We record our accounts receivable in our consolidated balance sheets at net realizable value. We perform ongoing credit evaluations of our customers and maintain allowances for potential credit losses, based on historical information and management's best estimates. We write-off amounts determined to be uncollectible against this reserve. Write-offs of uncollectible accounts receivable were immaterial in 2019, 2018 and 2017. We are not dependent on any single institution, and no single customer accounted for more than ten percent of our net sales in 2019, 2018 and 2017; however, large group purchasing organizations, hospital networks, international distributors and dealers and other buying groups have become increasingly important to our business and represent a substantial portion of our net sales. We closely monitor outstanding receivables for potential collection risks, including those that may arise from economic conditions, in both the U.S. and international economies. Our European sales to government-owned or supported customers in Southern Europe are subject to an increased number of days outstanding prior to payment relative to other countries. Historically, receivable balances with certain publicly-owned hospitals in these countries accumulated over a period of time and are then subsequently settled as large lump sum payments, sometimes at large discounts. While we believe our allowance for doubtful accounts in these countries is adequate as of December 31, 2019 and 2018, if significant changes were to occur in the payment practices of these European governments or if government funding becomes unavailable, we may not be able to collect on receivables due to us from these customers, and our write-offs of uncollectible accounts receivable may increase.
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Revenue Recognition, Policy [Policy Text Block] | Revenue Recognition In May 2014, the FASB issued FASB ASC Topic 606, Revenue from Contracts with Customers (Topic 606), which was subsequently updated. We adopted the standard as of January 1, 2018, using the modified retrospective method. Under this method, we applied FASB ASC Topic 606 to contracts that were not complete as of January 1, 2018 and recognized the cumulative effect of initially applying the standard as an adjustment to the opening balance of retained earnings. Results for reporting periods beginning after January 1, 2018 are presented in accordance with FASB ASC Topic 606. Prior period amounts are not adjusted and are reported in accordance with legacy GAAP requirements in FASB ASC Topic 605, Revenue Recognition. Due to the adoption of FASB ASC Topic 606, we recorded a net reduction to retained earnings of $177 million on January 1, 2018, primarily related to the cost of providing non-contractual post-implant support to certain customers, which we historically deemed immaterial in the context of the arrangement. Upon the adoption of FASB ASC Topic 606, when we sell a device with an implied non-contractual post-implant support obligation, we forward accrue the cost of the service within Selling, general and administrative expenses and recognize it at the point in time the associated revenue is earned. We release the accrual over the related service period. These costs were previously expensed as incurred due to such service obligation being non-contractual. The impact of adopting FASB ASC Topic 606 on our consolidated balance sheets resulted in an increase in Other current liabilities of $59 million and an increase in Other long-term liabilities of $205 million as of December 31, 2018, as a result of accruing for our post-implant support obligation. We also recorded deferred tax assets primarily related to post-implant support, resulting in an increase in Other long-term assets of $12 million and a reduction in Deferred income taxes of $41 million as of December 31, 2018. The remaining impact of adopting FASB ASC Topic 606 was not material to our financial position or results of operations. We sell our products primarily through a direct sales force. In certain international markets, we sell our products through independent distributors or dealers. We consider revenue to be earned when all of the following criteria are met:
Transfer of control is evidenced upon passage of title and risk of loss to the customer unless we are required to provide additional services. We treat shipping and handling costs performed after a customer obtains control of the good as a fulfillment cost and record these costs as a selling expense when incurred. We recognize revenue from consignment arrangements based on product usage, or implant, which indicates that the sale is complete. We recognize a receivable at the point in time we have an unconditional right to payment. Payment terms are typically 30 days in the U.S. but may be longer in international markets. Deferred Revenue We record a contract liability, or deferred revenue, when we have an obligation to provide a product or service to the customer and payment is received or due in advance of our performance. When we sell a device with a future service obligation, we defer revenue on the unfulfilled performance obligation and recognize this revenue over the related service period. Many of our Cardiac Rhythm Management product offerings combine the sale of a device with our LATITUDE™ Patient Management System, which represents a future service obligation. Generally, we do not have observable evidence of the standalone selling price related to our future service obligations; therefore, we estimate the selling price using an expected cost plus a margin approach. We allocate the transaction price using the relative standalone selling price method. The use of alternative estimates could result in a different amount of revenue deferral. Contract liabilities are classified within Other current liabilities and Other long-term liabilities on our accompanying consolidated balance sheets. Our contractual liabilities are primarily composed of deferred revenue related to the LATITUDE Patient Management System. Revenue is recognized over the average service period which is based on device and patient longevity. We have elected not to disclose the transaction price allocated to unsatisfied performance obligations when the original expected contract duration is one year or less. In addition, we have not identified material unfulfilled performance obligations for which revenue is not currently deferred. Variable Consideration We generally allow our customers to return defective, damaged and, in certain cases, expired products for credit. We base our estimate for sales returns upon historical trends and record the amount as a reduction to revenue when we sell the initial product. In addition, we may allow customers to return previously purchased products for next-generation product offerings. For these transactions, we defer recognition of revenue on the sale of the earlier generation product based upon an estimate of the amount of product to be returned when the next-generation products are shipped to the customer. Uncertain timing of next-generation product approvals, variability in product launch strategies, product recalls and variation in product utilization all affect our estimates related to sales returns and could cause actual returns to differ from these estimates. We also offer sales rebates and discounts to certain customers. We treat sales rebates and discounts as a reduction of revenue and classify the corresponding liability as current. We estimate rebates for products where there is sufficient historical information available to predict the volume of expected future rebates. If we are unable to reasonably estimate the expected rebates, we record a liability for the maximum rebate percentage offered. We have entered certain agreements with group purchasing organizations to sell our products to participating hospitals at negotiated prices. We recognize revenue from these agreements following the same revenue recognition criteria discussed above. Capitalized Contract Costs We capitalize commission fees related to contracts with customers when the associated revenue is expected to be earned over a period that exceeds one year. Deferred commissions are primarily related to the sale of devices enabled with our LATITUDE™ Patient Management System. We have elected to expense commission costs when incurred for contracts with an expected duration of one year or less. Capitalized commission fees are amortized over the period the associated products or services are transferred. Similarly, we capitalize certain recoverable costs related to the delivery of the LATITUDE Remote Monitoring Service. These fulfillment costs are amortized over the average service period. Our total capitalized contract costs are immaterial to our consolidated financial statements. Post-Implant Services We provide non-contractual services to customers to ensure the safe and effective use of certain implanted devices. Following our modified retrospective adoption of FASB ASC Topic 606 on January 1, 2018, because the revenue related to the immaterial services is recognized before they are delivered, we forward accrue the costs to provide these services at the time the devices are sold. We record these costs to Selling, general and administrative expenses. We estimate the amount of time spent by our representatives performing these services and their compensation throughout the device life to determine the service cost. Changes to our business practice or the use of alternative estimates could result in a different amount of accrued cost. |
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Product Warranty Disclosure [Text Block] | Warranty Obligations We offer warranties on certain of our product offerings. The majority of our warranty liability relates to implantable devices offered by our Cardiac Rhythm Management business, which include implantable defibrillator and pacemaker systems. Our Cardiac Rhythm Management products come with a standard limited warranty covering the replacement of these devices. We offer a full warranty for a portion of the period post-implant and a partial warranty for a period of time thereafter. We estimate the costs that we may incur under our warranty programs based on the number of units sold, historical and anticipated rates of warranty claims and cost per claim and record a liability equal to these estimated costs as cost of products sold at the time the product sale occurs. We assess the adequacy of our recorded warranty liabilities on a quarterly basis and adjust these amounts as necessary. |
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Inventory, Policy [Policy Text Block] | Inventories We state inventories at the lower of first-in, first-out cost or net realizable value. We base our provisions for excess, expired and obsolete inventory primarily on our estimates of forecasted net sales. A significant change in the timing or level of demand for our products as compared to forecasted amounts may result in recording additional provisions for excess, expired and obsolete inventory in the future. Further, the industry in which we participate is characterized by rapid product development and frequent new product introductions. Uncertain timing of next-generation product approvals, variability in product launch strategies, product recalls and variation in product utilization all affect our estimates related to excess, expired and obsolete inventory. Approximately 32 percent of our finished goods inventory as of December 31, 2019 and approximately 40 percent as of December 31, 2018 was at customer locations pursuant to consignment arrangements or held by sales representatives.
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Property, Plant and Equipment, Policy [Policy Text Block] | Property, Plant and Equipment We state property, plant, equipment and leasehold improvements at historical cost. We charge expenditures for maintenance and repairs to expense and capitalize additions and improvements that extend the life of the underlying asset. We provide for depreciation using the straight-line method at rates that approximate the estimated useful lives of the assets. We depreciate buildings over a maximum life of 40 years; building improvements over the remaining useful life of the building structure; equipment, furniture and fixtures over a three to seven year life; and leasehold improvements over the shorter of the useful life of the improvement or the term of the related lease.
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Business Combinations Policy [Policy Text Block] | Valuation of Business Combinations We allocate the amounts we pay for each acquisition to the assets we acquire and liabilities we assume based on their fair values at the date of acquisition, including identifiable intangible assets and in-process research and development (IPR&D), which either arise from a contractual or legal right or are separable from goodwill. We base the fair value of identifiable intangible assets acquired in a business combination, including IPR&D, on detailed valuations that use information and assumptions provided by management, which consider management’s best estimates of inputs and assumptions that a market participant would use. We allocate to goodwill any excess purchase price over the fair value of the net tangible and identifiable intangible assets acquired. Transaction costs associated with these acquisitions are expensed as incurred through Selling, general and administrative expenses. In those circumstances where an acquisition involves a contingent consideration arrangement, we recognize a liability equal to the fair value of the contingent payments we expect to make as of the acquisition date. We re-measure this liability each reporting period and record changes in the fair value through Contingent consideration expense (benefit) on our consolidated statements of operations. Increases or decreases in the fair value of the contingent consideration liability can result from changes in discount rates, periods, timing and amount of projected revenue or timing or likelihood of achieving regulatory, revenue or commercialization-based milestones. Payment of additional consideration is generally contingent on the acquired company reaching certain performance milestones after the acquisition date, including attaining specified revenue levels, achieving product development targets and/or obtaining regulatory approvals for products in development at the date of the acquisition.
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In Process Research and Development, Policy [Policy Text Block] | Indefinite-lived Intangibles, including IPR&D Our indefinite-lived intangible assets, which are not subject to amortization, include acquired balloon and other technology, which is foundational to our ongoing operations within the Cardiovascular market and other markets within interventional medicine and IPR&D intangible assets acquired in a business combination. Our IPR&D represents intangible assets that are used in research and development activities but have not yet reached technological feasibility, regardless of whether they have alternative future use. The primary basis for determining the technological feasibility or completion of these projects is obtaining regulatory approval to market the underlying products in an applicable geographic region. We classify IPR&D as an indefinite-lived intangible asset until the completion or abandonment of the associated research and development efforts. Upon completion of the associated research and development efforts, we will determine the useful life of the technology and begin amortizing the assets to reflect their use over their remaining lives. Upon permanent abandonment, we write-off the remaining carrying amount of the associated IPR&D intangible asset. We test our indefinite-lived intangible assets at least annually during the third quarter for impairment and reassess their classification as indefinite-lived assets. In addition, we review our indefinite-lived intangible assets for classification and impairment more frequently if impairment indicators exist. We assess qualitative factors to determine whether the existence of events and circumstances indicate that it is more likely than not that our indefinite-lived intangible assets are impaired. If we conclude that it is more likely than not that the asset is impaired, we then determine the fair value of the intangible asset and perform the quantitative impairment test by comparing the fair value with the carrying value in accordance with FASB ASC Topic 350, Intangibles - Goodwill and Other. If the carrying value exceeds the fair value of the indefinite-lived intangible asset, we write the carrying value down to the fair value. We use the income approach to determine the fair values of our IPR&D. We base our revenue assumptions on estimates of relevant market sizes, expected market growth rates, expected trends in technology and expected levels of market share. In arriving at the value of the in-process projects, we consider, among other factors, the in-process projects’ stage of completion, the complexity of the work completed as of the acquisition date, the costs already incurred, the projected costs to complete, the contribution of other acquired assets, the expected regulatory path and introduction dates by region and the estimated useful life of the technology. See Note C – Goodwill and Other Intangible Assets for more information related to indefinite-lived intangibles, including IPR&D. For asset purchases outside of business combinations, we expense any purchased research and development assets as of the acquisition date.
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Goodwill and Intangible Assets, Intangible Assets, Policy [Policy Text Block] | Amortization and Impairment of Intangible Assets We record definite-lived intangible assets at historical cost and amortize them over their estimated useful lives. We use a straight-line method of amortization, unless a method that better reflects the pattern in which the economic benefits of the intangible asset are consumed or otherwise used up can be reliably determined. The approximate useful lives for amortization of our intangible assets are as follows: patents and licenses, two to 20 years; amortizable technology-related and customer relationships, five to 25 years; other intangible assets, various. We review intangible assets subject to amortization quarterly to determine if any adverse conditions exist or a change in circumstances has occurred that would indicate impairment or a change in the remaining useful life. Conditions that may indicate impairment include, but are not limited to, a significant adverse change in legal factors or business climate that could affect the value of an asset, a product recall or an adverse action or assessment by a regulator. If we determine it is more likely than not that the asset is impaired based on our qualitative assessment of impairment indicators, we test the intangible asset for recoverability. For purposes of the recoverability test, we group our amortizable intangible assets with other assets and liabilities at the lowest level of identifiable cash flows if the intangible asset does not generate cash flows independent of other assets and liabilities. If the carrying value of the intangible asset or asset group exceeds the undiscounted cash flows expected to result from the use and eventual disposition of the intangible asset or asset group, we will write the carrying value down to fair value in the period impairment is identified. We calculate fair value of our intangible assets as the present value of estimated future cash flows we expect to generate from the asset. In determining our estimated future cash flows associated with our intangible assets, we use estimates and assumptions about future revenue contributions, cost structures and remaining useful lives of the asset or asset group. See Note C – Goodwill and Other Intangible Assets for more information related to impairments of intangible assets. For patents developed internally, we capitalize costs incurred to obtain patents, including attorney fees, registration fees, consulting fees and other expenditures directly related to securing the patent.
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Goodwill and Intangible Assets, Goodwill, Policy [Policy Text Block] | Goodwill Valuation We allocate any excess purchase price over the fair value of the net tangible and identifiable intangible assets acquired in a business combination to goodwill. We test our goodwill balances during the second quarter of each year for impairment or more frequently if indicators are present or changes in circumstances suggest that impairment may exist. We assess goodwill for impairment at the reporting unit level, which is defined as an operating segment or one level below an operating segment, referred to as a component. For our 2019, 2018 and 2017 annual impairment assessment, we identified the following reporting units: Interventional Cardiology, Peripheral Interventions (including the Interventional Medicine business acquired with BTG), Cardiac Rhythm Management, Electrophysiology, Endoscopy, Urology and Pelvic Health and Neuromodulation. In addition, following the BTG acquisition in the third quarter of 2019, we added Specialty Pharmaceuticals as an additional reporting unit. We aggregated the Cardiac Rhythm Management and Electrophysiology reporting units, components of the Rhythm Management operating segment, based on the criteria prescribed in FASB ASC Topic 350. In performing the goodwill impairment assessments for 2019, 2018 and 2017, we utilized both the optional qualitative assessment and the quantitative approach prescribed under FASB ASC Topic 350. The qualitative assessment was used for testing certain reporting units where fair value has historically exceeded carrying value by greater than 100 percent. All other reporting units were tested using the quantitative approach described below. The qualitative assessment requires an evaluation of whether it is more likely than not that the fair value of the reporting unit is less than its carrying amount based on an assessment of relevant events including macroeconomic factors, industry and market conditions, cost factors, overall financial performance and other entity-specific factors. After assessing the totality of events, if it is determined that it is more likely than not that the fair value of the reporting unit exceeds its carrying value, no further steps are required. If it is determined that impairment is more likely than not, then we perform the quantitative impairment test. When allocating goodwill from business combinations to our reporting units, we assign goodwill to the reporting units that we expect to benefit from the respective business combination at the time of acquisition. In addition, for purposes of performing our goodwill impairment tests, assets and liabilities, including corporate assets, which relate to a reporting unit’s operations, and would be considered in determining its fair value, are allocated to the individual reporting units. We allocate assets and liabilities not directly related to a specific reporting unit, but from which the reporting unit benefits, based primarily on the respective revenue contribution of each reporting unit. For our 2019, 2018 and 2017 annual impairment assessments, for those reporting units for which a quantitative test was performed, we used only the income approach, specifically the Discounted Cash Flow method, to derive the fair value of each of our reporting units in preparing our goodwill impairment assessments. We selected this method as being the most meaningful in preparing our goodwill assessments because we believe the income approach most appropriately measures our income producing assets. We have considered using the market approach and cost approach but concluded they are not appropriate in valuing our reporting units given the lack of relevant market comparisons available for application of the market approach and the inability to replicate the value of the specific technology-based assets within our reporting units for application of the cost approach. Therefore, we believe that the income approach represents the most appropriate valuation technique for which sufficient data are available to determine the fair value of our reporting units. In applying the income approach to our accounting for goodwill, we make assumptions about the amount and timing of future expected cash flows, terminal value growth rates and appropriate discount rates. The amount and timing of future cash flows within our Discounted Cash Flow analysis is based on our most recent operational budgets, long range strategic plans and other estimates. The terminal value growth rate reflects our best estimates for stable, perpetual growth of our reporting units. We use estimates of market-participant risk-adjusted weighted average cost of capital as a basis for determining the discount rates to apply to our reporting units’ future expected cash flows. Refer to Note C – Goodwill and Other Intangible Assets to our consolidated financial statements for additional details related to our goodwill balances.
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Equity and Cost Method Investments, Policy [Policy Text Block] | Investments in Publicly Traded and Privately Held Entities In January 2016, the FASB issued ASC Update No. 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. The purpose of Update No. 2016-01 is to improve financial reporting for financial instruments by reducing the number of items recorded to Other Comprehensive Income. We adopted Update No. 2016-01 in the first quarter of 2018, using both the modified retrospective and prospective methods. For publicly-held securities, we used the modified retrospective approach. Unrealized gains and losses previously recorded to Other comprehensive income (loss) were reclassified to retained earnings, and all future fair value changes will be recorded to Net income (loss). For privately-held securities of investee companies over which we do not have the ability to exercise significant influence, we elected the measurement alternative approach for our existing investments, which is applied prospectively upon adoption. This approach requires entities to measure their investments at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. The adoption of the standard did not have a material impact on our financial position or results of operations. In 2017, we accounted for our publicly traded investments as available-for-sale securities based on the quoted market price at the end of the reporting period. Unrealized holding gains or losses during the period, net of tax, were recorded to Accumulated other comprehensive income (loss), net of tax. We computed realized gains and losses on sales of available-for-sale securities at fair value, adjusted for any other-than-temporary declines in fair value. We accounted for investments in privately-held entities in which we had less than a 20 percent ownership interest under the cost method of accounting if we did not have the ability to exercise significant influence over the investee in accordance with FASB ASC Topic 325, Investments - Other. We account for investments in entities over which we have the ability to exercise significant influence under the equity method if we hold 50 percent or less of the voting stock and the entity is not a VIE in which we are the primary beneficiary in accordance with FASB ASC Topic 323, Investments - Equity Method and Joint Ventures. We record these investments initially at cost and adjust the carrying amount to reflect our share of the earnings or losses of the investee, including all adjustments similar to those made in preparing consolidated financial statements. Lastly, we have notes receivable from certain companies that we account for in accordance with FASB ASC Topic 320, Investments - Debt and Equity Securities. Refer to Note B – Acquisitions and Strategic Investments for additional details on our investment balances. Each reporting period, we evaluate our investments to determine if there are any events or circumstances that are likely to have a significant adverse effect on the fair value of the investment. Examples of such impairment indicators include, but are not limited to, a significant deterioration in earnings performance, recent financing rounds at reduced valuations, a significant adverse change in the regulatory, economic or technological environment of an investee or a significant doubt about an investee’s ability to continue as a going concern. If we identify an impairment indicator, we will estimate the fair value of the investment and compare it to its carrying value. Our estimation of fair value considers financial information related to the investee available to us, including valuations based on recent third-party equity investments in the investee. If the fair value of the investment is less than its carrying value, the investment is impaired and we recognize an impairment loss equal to the difference between an investment’s carrying value and its fair value if accounted for under measurement alternative. For our equity method investments, an impairment loss is recorded if we determine the impairment is other-than-temporary. We deem an impairment to be other-than-temporary unless available evidence indicates that the valuation is more likely than not to recover up to the carrying value of the investment in a reasonable period of time, and we have both the ability and intent to hold the investment for at least the period of time needed to recover the value. For other-than-temporary impairments, we recognize an impairment loss equal to the difference between an investment’s carrying value and its fair value. Impairment losses on our investments are included in Other, net in our consolidated statements of operations.
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Income Tax, Policy [Policy Text Block] | Income Taxes In February 2018, the FASB issued ASC Update No. 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. The purpose of Update No. 2018-02 is to allow an entity to reclassify the income tax effects of the Tax Cut and Jobs Act of 2017 (TCJA) on items within Accumulated other comprehensive income (loss), net of tax (AOCI) to retained earnings. Update No. 2018-02 is effective for all entities for annual periods beginning after December 15, 2018, including interim periods within those annual periods. We adopted Update No. 2018-02 in the first quarter of 2019 and have not elected to reclassify the income tax effects of the TCJA from AOCI to retained earnings. In October 2016, the FASB issued ASC Update No. 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory. The purpose of Update No. 2016-16 is to allow an entity to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs, as opposed to waiting until the asset is sold to a third party, or impaired. Update No. 2016-16 was effective for annual periods beginning after December 15, 2017, including interim periods within those annual periods. We adopted Update No. 2016-16 prospectively in the first quarter of 2018 and recognized a net reduction to retained earnings of $55 million for income tax consequences not previously recognized for intra-entity transfers of assets other than inventories. All future income tax consequences of intra-entity transfers of assets other than inventories will be recognized through Income tax expense (benefit). |
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Legal Costs, Policy [Policy Text Block] | Legal and Product Liability Costs In the normal course of business, we are involved in various legal and regulatory proceedings, including intellectual property, breach of contract, securities litigation and product liability suits. In some cases, the claimants seek damages, as well as other relief, which, if granted, could require significant expenditures or impact our ability to sell our products. We are also the subject of certain governmental investigations, which could result in substantial fines, penalties and administrative remedies. We maintain an insurance policy providing limited coverage against securities claims, and we are substantially self-insured with respect to product liability claims and fully self-insured with respect to intellectual property infringement claims. We accrue anticipated costs of settlement, damages, losses for product liability claims and, under certain conditions, costs of defense, based on historical experience or to the extent specific losses are probable and estimable. Otherwise, we expense these costs as incurred. If the estimate of a probable loss is a range and no amount within the range is more likely, we accrue our best estimate of the minimum amount of the range. We analyze litigation settlements to identify each element of the arrangement. We allocate arrangement consideration to patent licenses received based on estimates of fair value and capitalize these amounts as assets if the license will provide an ongoing future benefit. We record certain legal and product liability charges, credits and costs of defense, which we consider to be unusual or infrequent and significant as Litigation-related charges (credits) in our consolidated statements of operations; all other legal and product liability charges, credits and costs are recorded within Selling, general and administrative expenses. See Note J – Commitments and Contingencies for discussion of our individual material legal proceedings. In accordance with FASB ASC Topic 450, Contingencies, we accrue anticipated costs of settlement, damages, losses for product liability claims and, under certain conditions, costs of defense, based on historical experience or to the extent specific losses are probable and estimable. Otherwise, we expense these costs as incurred. If the estimate of a probable loss is a range and no amount within the range is more likely, we accrue the minimum amount of the range.
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Costs Associated with Exit or Disposal Activity or Restructuring [Policy Text Block] | Costs Associated with Exit Activities We record employee termination costs in accordance with FASB ASC Topic 712, Compensation - Nonretirement and Postemployment Benefits, if we pay the benefits as part of an ongoing benefit arrangement, which includes benefits provided as part of our established severance policies or that we provide in accordance with international statutory requirements. We accrue employee termination costs associated with an ongoing benefit arrangement if the obligation is attributable to prior services rendered, the rights to the benefits have vested, the payment is probable and we can reasonably estimate the liability. We account for involuntary employee termination benefits that represent a one-time benefit in accordance with FASB ASC Topic 420, Exit or Disposal Cost Obligations. We record such costs into expense over the employee’s future service period, if any. Other costs associated with exit activities may include contract termination costs and consulting fees, which are expensed in accordance with FASB ASC Topic 420 and are included in Restructuring charges (credits) in our consolidated statements of operations. Additionally, costs directly related to our active restructuring initiatives, including program management costs, accelerated depreciation, fixed asset write-offs and costs to transfer product lines among facilities and are included within Costs of products sold and Selling, general and administrative expenses in our consolidated statements of operations. Impairment of right of use lease assets and lease terminations directly related to our active restructuring initiatives are expensed in accordance with FASB ASC Topic 842 and included within Costs of products sold and Selling, general and administrative expenses in our consolidated statements of operations. See Note G – Restructuring-related Activities for further information and discussion of our restructuring plans.
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Foreign Currency Transactions and Translations Policy [Policy Text Block] | Translation of Foreign Currency We translate all assets and liabilities of foreign subsidiaries from the functional currency, which is generally the local currency, into U.S. dollars using the year-end exchange rate and translate revenues and expenses at the average exchange rates in effect during the year. We show the net effect of these translation adjustments in our consolidated financial statements as a component of Accumulated other comprehensive income (loss), net of tax. For any significant foreign subsidiaries located in highly inflationary economies, we would re-measure their financial statements as if the functional currency were the U.S. dollar. Foreign currency transaction gains and losses are included in Other, net in our consolidated statements of operations, net of losses and gains from any related derivative financial instruments. |
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Derivatives, Policy [Policy Text Block] | Financial Instruments We recognize all derivative financial instruments in our consolidated financial statements at fair value in accordance with FASB ASC Topic 815, Derivatives and Hedging, and we present assets and liabilities associated with our derivative financial instruments on a gross basis in our financial statements. In accordance with FASB ASC Topic 815, for those derivative instruments that are designated and qualify as hedging instruments, the hedging instrument must be designated, based upon the exposure being hedged, as a fair value hedge, cash flow hedge, or a hedge of a net investment in a foreign operation. The accounting for changes in the fair value of a derivative instrument depends on whether it qualifies for, and has been designated as part of a hedging relationship, as well as on the type of hedging relationship. Our derivative instruments do not subject our earnings to material risk, as gains and losses on these derivatives generally offset gains and losses on the item being hedged, and we do not enter into derivative transactions for speculative purposes. Refer to Note D – Hedging Activities and Fair Value Measurements for more information on our hedging instruments.
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Shipping and Handling Cost, Policy [Policy Text Block] | Shipping and Handling Costs |
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Research and Development Expense, Policy [Policy Text Block] | Research and Development We expense research and development costs, including new product development programs, regulatory compliance and clinical research as incurred. Refer to Indefinite-lived Intangibles, including In-Process Research and Development above for our policy regarding IPR&D acquired in connection with our business combinations and asset purchases.
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Earnings Per Share, Policy [Policy Text Block] | Net Income (Loss) per Common Share We base Net income (loss) per common share upon the weighted-average number of common shares and common stock equivalents outstanding during each year. Potential common stock equivalents are determined using the treasury stock method. We exclude stock options and stock awards whose effect would be anti-dilutive from the calculation.
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Lessee, Leases [Policy Text Block] | Leases In February 2016, the FASB issued ASC Update No. 2016-02, Leases (FASB ASC Topic 842, Leases). We adopted the standard as of January 1, 2019, using the modified retrospective approach and the transition method provided by ASC Update No. 2018-11, Leases (Topic 842): Targeted Improvements. Under this method, we applied the new leasing rules on the date of adoption and recognized the cumulative effect of initially applying the standard as an adjustment to our January 1, 2019 opening balance sheet, rather than at the earliest comparative period presented in the financial statements. Prior periods presented are in accordance with the previous lease guidance under FASB ASC Topic 840, Leases (FASB ASC Topic 840). In addition, we applied the package of practical expedients permitted under FASB ASC Topic 842 transition guidance to our entire lease portfolio at January 1, 2019. As a result, we were not required to reassess (i) whether any expired or existing contracts are or contain leases, (ii) the classification of any expired or existing leases and (iii) the treatment of initial direct costs for any existing leases. Furthermore, we elected not to separate lease and non-lease components for the majority of our leases. Instead, for all applicable classes of underlying assets, we accounted for each separate lease component and the non-lease components associated with that lease component, as a single lease component. As a result of adopting FASB ASC Topic 842 on January 1, 2019, we recognized right-of-use assets of $271 million and corresponding liabilities of $278 million for our existing operating lease portfolio on our consolidated balance sheet. Operating lease right-of-use assets are presented within Other long-term assets and corresponding liabilities are presented within Other current liabilities and Other long-term liabilities on our consolidated balance sheets. Finance leases are immaterial to our consolidated financial statements. Refer to Note E – Contractual Obligations and Commitments for additional information. There was no material impact to our consolidated statements of operations or consolidated statements of cash flows as a result of adopting FASB ASC Topic 842. Please refer to Note F – Leases for information regarding our lease portfolio as of December 31, 2019 as accounted for under FASB ASC Topic 842. To meet the reporting and disclosure requirements of FASB ASC Topic 842, we implemented a new lease administration and lease accounting system in 2018 that tracks all of our material leasing arrangements. In addition, we designed and implemented new processes and internal controls during the first quarter of 2019 to ensure the completeness and accuracy of the transition adjustment and subsequent financial reporting under FASB ASC Topic 842. We have also established monitoring controls to ensure we have appropriate mechanisms in place to identify material leases in a timely manner, particularly contracts that may contain embedded lease features. |
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New Accounting Pronouncements [Abstract] | |
Description of New Accounting Pronouncements Not yet Adopted [Text Block] | NOTE Q – NEW ACCOUNTING PRONOUNCEMENTS Periodically, new accounting pronouncements are issued by the FASB or other standard setting bodies. Recently issued standards typically do not require adoption until a future effective date. Prior to their effective date, we evaluate the pronouncements to determine the potential effects of adoption on our consolidated financial statements. Standards to be Implemented ASC Update No. 2016-13 In June 2016, the FASB issued ASC Update No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The purpose of Update No. 2016-13 is to replace the current incurred loss impairment methodology for financial assets measured at amortized cost with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information, including forecasted information, to develop credit loss estimates. Update No. 2016-13 is effective for annual periods beginning after December 15, 2019, including interim periods within those annual periods. We expect the adoption will have an immaterial impact on our financial position and results of operations. ASC Update No. 2018-15 In August 2018, the FASB issued ASC Update No. 2018-15, Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. The purpose of Update No. 2018-15 is to align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). Update No. 2018-15 is effective for annual periods beginning after December 15, 2019, including interim periods within those annual periods. Early adoption is permitted, including adoption in any interim period. We plan to adopt Update No. 2018-15 in the first quarter of 2020. We expect the adoption will have an immaterial impact on our financial position and results of operations. ASC Update No. 2018-18 In November 2018, the FASB issued ASC Update No. 2018-18, Collaborative Arrangements (Topic 808): Clarifying The Interaction Between Topic 808 and Topic 606. The purpose of Update No. 2018-18 is to clarify the interaction between FASB ASC Topic 808 and FASB ASC Topic 606 as FASB ASC Topic 808 did not provide comprehensive recognition or measurement guidance for collaborative arrangements, and the accounting for those arrangements was often based on an analogy to other accounting literature or an accounting policy election. Update No. 2018-18 is effective for annual periods beginning after December 15, 2019. We plan to adopt Update No. 2018-18 in the first quarter of 2020. We expect the adoption will have an immaterial impact on our financial position and results of operations. No other new accounting pronouncements, issued or effective, during the period had, or is expected to have, a material impact on our consolidated financial statements.
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Reconciliation of Revenue from Segments to Consolidated [Table Text Block] | A reconciliation of the totals reported for the reportable segments to the applicable line items in our accompanying consolidated statements of operations is as follows (in millions, except percentages):
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Reconciliation of Operating Profit (Loss) from Segments to Consolidated [Table Text Block] |
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Reconciliation of Assets from Segment to Consolidated [Table Text Block] |
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Schedule of Disclosure on Geographic Areas, Long-Lived Assets in Individual Foreign Countries by Country [Table Text Block] |
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SEC Schedule, 12-09, Valuation Allowances and Reserves, Amount | $ 74 | $ 68 | $ 98 | $ 119 |
Net (credits) charges to expenses | 23 | 19 | 14 | |
SEC Schedule, 12-09, Valuation Allowances and Reserves, Deduction | (17) | (19) | (18) | |
SEC Schedule, 12-09, Valuation Allowances and Reserves, Increase (Decrease) Adjustment | $ 0 | $ (30) | $ (17) |
Consolidated Balance Sheet Paranthetical - $ / shares |
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Common stock, par value | $ 0.01 | $ 0.01 |
Common stock, shares authorized | 2,000,000,000.000 | 2,000,000,000 |
Common stock, shares issued | 1,642,488,911 | 1,632,148,030 |
Common stock, shares outstanding | 1,394,922,641 | 1,384,581,760 |
Preferred stock, par value | $ 0.01 | $ 0.01 |
Preferred stock, shares authorized | 50,000,000 | 50,000,000 |
Preferred stock, shares issued | 0 | 0 |
Preferred stock, shares outstanding | 0 | 0 |
Treasury shares | 247,566,270 | 247,566,270 |
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Supplemental Balance Sheet Information [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
SUPPLEMENTAL BALANCE SHEET INFORMATION | NOTE H – SUPPLEMENTAL BALANCE SHEET INFORMATION Components of selected captions in our accompanying consolidated balance sheets are as follows: Trade accounts receivable, net
The following is a rollforward of our allowance for doubtful accounts:
Inventories
Other current assets
Property, plant and equipment, net
Depreciation expense was $311 million in 2019, $296 million in 2018 and $279 million in 2017. Other long-term assets
Accrued expenses
Other current liabilities
Other long-term liabilities
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Fair Value Measurements |
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Fair Value Measurements [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
FAIR VALUE MEASUREMENTS | We address market risk from changes in foreign currency exchange rates and interest rates through risk management programs which include the use of derivative and nonderivative financial instruments. We operate these programs pursuant to documented corporate risk management policies and do not enter into derivative transactions for speculative purposes. Our derivative instruments do not subject our earnings to material risk, as the gains or losses on these derivatives generally offset losses or gains recognized on the hedged item. We manage concentration of counterparty credit risk by limiting acceptable counterparties to major financial institutions with investment grade credit ratings, limiting the amount of credit exposure to individual counterparties and by actively monitoring counterparty credit ratings and the amount of individual credit exposure. We also employ master netting arrangements that limit the risk of counterparty non-payment on a particular settlement date to the net gain that would have otherwise been received from the counterparty. Although not completely eliminated, we do not consider the risk of counterparty default to be significant as a result of these protections. Further, none of our derivative instruments are subject to collateral or other security arrangements, nor do they contain provisions that are dependent on our credit ratings from any credit rating agency. Currency Hedging Instruments Risk Management Strategy Our risk from changes in currency exchange rates consists primarily of monetary assets and liabilities, forecast intercompany and third-party transactions, net investments in certain subsidiaries and the purchase price of any acquisition that is denominated in a currency other than the U.S. dollar. We manage currency exchange rate risk at a consolidated level to reduce the cost of hedging by taking advantage of offsetting transactions. We employ derivative and nonderivative instruments, primarily forward currency contracts, to reduce the risk to our earnings and cash flows associated with changes in currency exchange rates. The success of our currency risk management program depends, in part, on forecast transactions denominated primarily in Euro, Japanese yen, Chinese renminbi and British pound sterling. We may experience unanticipated currency exchange gains or losses to the extent the actual activity is different than forecast. In addition, changes in currency exchange rates related to any unhedged transactions may impact our earnings and cash flows. Hedge Designations and Relationships Certain of our currency derivative instruments are designated as cash flow hedges under FASB ASC Topic 815, Derivatives and Hedging (FASB ASC Topic 815), and are intended to protect the U.S. dollar value of forecasted transactions. The gain or loss on a derivative instrument designated as a cash flow hedge is recorded in the Net change in derivative financial instruments component of Other comprehensive income (loss), net of tax (OCI) on our consolidated statements of comprehensive income (loss) until the underlying third-party transaction occurs. When the underlying third-party transaction occurs, we recognize the gain or loss in earnings within the Cost of products sold caption of our consolidated statements of operations. In the event the hedging relationship is no longer effective, or if the occurrence of the hedged forecast transaction becomes no longer probable, we reclassify the gains or losses within AOCI to earnings at that time. We also designate certain forward currency contracts as net investment hedges to hedge a portion of our net investments in certain of our entities with functional currencies denominated in the Euro, Swiss franc, Japanese yen, British pound sterling, South Korean won and Taiwan dollar. We elected to use the spot method to assess effectiveness for our derivatives that are designated as net investment hedges. Under the spot method, the change in fair value attributable to changes in the spot rate is recorded in the Foreign currency translation adjustment (CTA) component of OCI. We have elected to exclude the spot-forward difference from the assessment of hedge effectiveness and are amortizing this amount separately, as calculated at the date of designation, on a straight-line basis over the term of the currency forward contracts. Amortization of the spot-forward difference is then reclassified from AOCI to current period earnings as a component of Interest expense on our consolidated statements of operations. In November 2019, we terminated and settled all of our outstanding forward currency contracts designated as net investment hedges in our entities with Euro-denominated functional currencies and recognized a gain of $95 million presented in the CTA component of OCI on our consolidated statements of comprehensive income (loss). We also completed an offering of €900 million (approximately $1.000 billion) in aggregate principal amount of 0.625% senior notes due in 2027. The Euro-denominated debt principal is a nonderivative instrument designated as a net investment hedge of our net investments in certain of our Euro functional entities. As of December 31, 2019, the notional value of our outstanding net investment hedges was $1.950 billion, which includes our derivative and nonderivative instruments designated as net investment hedges. We also use forward currency contracts that are not part of designated hedging relationships under FASB ASC Topic 815 as a part of our strategy to manage our exposure to currency exchange rate risk related to monetary assets and liabilities and related forecast transactions. These non-designated currency forward contracts have an original time to maturity consistent with the hedged currency transaction exposures, generally less than one year, and are marked-to-market with changes in fair value recorded to earnings within the Other, net caption of our consolidated statements of operations. Certain of our non-designated forward currency contracts were entered into for the purpose of managing our exposure to currency exchange rate risk related to the GBP-denominated purchase price of BTG. In 2019, we settled all outstanding contracts, resulting in a cumulative loss on the contracts of $294 million that was recognized over time in earnings as we adjusted for changes in fair value until the final fair value was determined at maturity. As of December 31, 2018, the notional value of the contracts was $2.550 billion, and we entered into additional contracts in 2019. Upon settlement in 2019, we received £3.312 billion of cash to fund our acquisition of BTG, which translated into $4.303 billion based on hedged currency exchange rates. We recognized a $323 million loss in 2019 and a $29 million gain in 2018 within Other, net due to changes in fair value of the contracts. Interest Rate Hedging Instruments Risk Management Strategy Our interest rate risk relates primarily to U.S. dollar borrowings partially offset by U.S. dollar cash investments. We use interest rate derivative instruments to mitigate the risk to our earnings and cash flows associated with exposure to changes in interest rates. Under these agreements we and the counterparty, at specified intervals, exchange the difference between fixed and floating interest amounts calculated by reference to an agreed-upon notional principal amount. We designate these derivative instruments either as fair value or cash flow hedges in accordance with FASB ASC Topic 815. Hedge Designations and Relationships We had no interest rate derivative instruments designated as cash flow hedges outstanding as of December 31, 2019 and $1.000 billion outstanding as of December 31, 2018, which were intended to manage our earnings and cash flow exposure to changes in the benchmark interest rate in connection with the forecasted issuance of fixed-rate debt. For outstanding designated cash flow hedges, we record the changes in the fair value of the derivatives within OCI until the underlying hedged transaction occurs, at which time we recognize the gain or loss within Interest expense over the same period that the hedged items affect earnings, so long as the hedge relationship remains effective. If we determine the hedging relationship is no longer effective, or if the occurrence of the hedged forecast transaction becomes no longer probable, we reclassify the amount of gains or losses from AOCI to earnings at that time. During the fourth quarter of 2018, we entered into interest rate derivative contracts designated as cash flow hedges having a notional amount of $1.000 billion to hedge interest rate risk. In the first quarter of 2019, we terminated these instruments in connection with our senior notes issuance in the same period as discussed in Note E – Contractual Obligations and Commitments. We recognized an immaterial loss within OCI in 2019 and are reclassifying the amortization of the loss from AOCI into earnings as a component of Interest expense over the same period that the hedged item affects earnings, so long as the hedge relationship remains effective. We are also continuing to reclassify in a similar manner the amortization of the gains or losses of our other previously terminated interest rate derivative instruments that were designated as cash flow hedges. The balance of the deferred amounts on our terminated cash flow hedges within AOCI was a $34 million loss as of December 31, 2019 and a $7 million gain December 31, 2018. We recognized immaterial gains and losses in Interest expense relating to the amortization of our terminated cash flow hedges in the current and prior periods. We had no interest rate derivative instruments designated as fair value hedges outstanding as of December 31, 2019 and December 31, 2018. Prior to 2018, we terminated interest rate derivative instruments that were designated as fair value hedges and are continuing to recognize the amortization of the gains or losses originally recorded within the Long-term debt caption on our consolidated balance sheets into earnings as a component of Interest expense over the same period that the discount or premium associated with the hedged items affects earnings. In the event that we designate outstanding interest rate derivative instruments as fair value hedges, we record the changes in the fair values of interest rate derivatives designated as fair value hedges and of the underlying hedged debt instruments in Interest expense, which generally offset. The balance of the deferred gains on our terminated fair value hedges within Long-term debt was immaterial as of December 31, 2019 and December 31, 2018. We recognized immaterial gains in Interest expense relating to the amortization of the terminated fair value hedges in the current and prior periods. The following table presents the contractual amounts of our hedging instruments outstanding:
The remaining time to maturity as of December 31, 2019 is within 60 months for all designated forward currency contracts and generally less than one year for all non-designated forward currency contracts. The Euro-denominated debt principal designated as a net investment hedge has a contractual maturity of December 1, 2027. The following presents the effect of our derivative and nonderivative instruments designated as cash flow and net investment hedges under FASB ASC Topic 815 on our accompanying consolidated statements of operations. Refer to Note P – Changes in Other Comprehensive Income for the total amounts relating to derivative and nonderivative instruments presented within the consolidated statements of comprehensive income (loss).
As of December 31, 2019, pre-tax net gains or losses for our derivative instruments designated, or previously designated, as cash flow and net investment hedges under FASB ASC Topic 815 that may be reclassified from AOCI to earnings within the next twelve months are presented below (in millions):
Net gains and losses on currency hedge contracts not designated as hedging instruments offset by net gains and losses from currency transaction exposures are presented below:
Certain of our non-designated forward currency contracts were entered into for the purpose of managing our exposure to currency exchange rate risk related to the GBP-denominated purchase price of BTG. In 2019, we settled all outstanding contracts. We recognized a $323 million loss in 2019 and a $29 million gain in 2018 within Net gain (loss) on currency hedge contracts due to changes in fair value of the contracts. Fair Value Measurements FASB ASC Topic 815 requires all derivative and nonderivative instruments to be recognized at their fair values as either assets or liabilities on the balance sheet. We determine the fair value of our derivative and nonderivative instruments using the framework prescribed by FASB ASC Topic 820, Fair Value Measurements and Disclosures, and considering the estimated amount we would receive or pay to transfer these instruments at the reporting date with respect to current currency exchange rates, interest rates, the creditworthiness of the counterparty for unrealized gain positions and our own creditworthiness for unrealized loss positions. In certain instances, we may utilize financial models to measure fair value of our derivative and nonderivative instruments. In doing so, we use inputs that include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, other observable inputs for the asset or liability and inputs derived principally from, or corroborated by, observable market data by correlation or other means. The following are the balances of our derivative and nonderivative assets and liabilities:
Recurring Fair Value Measurements On a recurring basis, we measure certain financial assets and financial liabilities at fair value based upon quoted market prices. Where quoted market prices or other observable inputs are not available, we apply valuation techniques to estimate fair value. FASB ASC Topic 820 establishes a three-level valuation hierarchy for disclosure of fair value measurements. The category of a financial asset or a financial liability within the valuation hierarchy is based upon the lowest level of input that is significant to the measurement of fair value. The three levels of the hierarchy are defined as follows:
Assets and liabilities measured at fair value on a recurring basis consist of the following:
Our investments in money market and government funds are classified within Level 1 of the fair value hierarchy because they are valued using quoted market prices. These investments are classified as Cash and cash equivalents within our accompanying consolidated balance sheets, in accordance with U.S. GAAP and our accounting policies. In addition to $50 million invested in money market and government funds as of December 31, 2019, we had $165 million in interest bearing and non-interest-bearing bank accounts. In addition to $13 million invested in money market and government funds as of December 31, 2018, we had $133 million in interest bearing and non-interest bearing bank accounts. Our recurring fair value measurements using Level 3 inputs relates to our contingent consideration liability. Refer to Note B – Acquisitions and Strategic Investments for a discussion of the changes in the fair value of our contingent consideration liability. In addition, our recurring fair value measurements using Level 3 inputs relate to our licensing arrangements. In connection with our acquisition of BTG, we acquired intellectual property and related licensing arrangements, principally relating to Zytiga™, as a result of our acquisition of BTG that provides the contractual right to receive future royalty payments. In the fourth quarter of 2019, we entered into a royalty purchase agreement with the Ontario Municipal Employees Retirement System (OMERS), whereby we sold to OMERS our remaining 50 percent of the future Zytiga™ royalty stream. The purchase price for these royalty interests consisted of an upfront cash payment of $256 million. Prior to our acquisition of BTG, BTG agreed to pay 50 percent of the Zytiga™ royalty stream, net of certain offsets, to the inventors associated with the intellectual property. As such, we do not expect to receive any future cash benefit from Zytiga™ royalties subsequent to our transaction with OMERS. In accordance with FASB ASC Topic 860, Transfers and Servicing, we are accounting for the transfer as a secured borrowing and continue to recognize the financial asset and financial liability in our consolidated balance sheets. We have elected the fair value option to account for the licensing arrangements' financial asset and financial liability in accordance with FASB ASC Topic 825, Financial Instruments. As of December 31, 2019, we have recorded the fair values of the financial asset and financial liability using a discounted cash flow approach considering the probability-weighted expected future cash flows to be generated by the royalty stream. The fair value of the financial liability also considers the related contractual provisions that govern our payment obligations. In connection with our preliminary purchase price allocation of BTG as of the acquisition date, the amount recognized for the financial asset was $567 million in aggregate, comprised of $195 million included in Other current assets and $373 million included in Other long-term assets. The amount recognized for the financial liability was $370 million, comprised of $54 million included in Accounts payable, $104 million included in Other current liabilities and $212 million included in Other long-term liabilities. The amounts above were valued using the fair value option with the exception of the Accounts payable, which was settled in the third quarter. During the fourth quarter, we also recorded the $256 million proceeds received from the sale of the Zytiga royalty stream as an increase in the fair value of the financial liability now accounted for as a secured borrowing, as discussed above. Refer to Note B – Acquisitions and Strategic Investments for further information on the preliminary purchase price allocation of BTG. The recurring Level 3 fair value measurements of our licensing arrangements recognized in our consolidated balance sheets as of December 31, 2019 include the following significant unobservable inputs:
Significant increases or decreases in projected cash flows of the royalty stream and the related contractual provisions that govern our payment obligations, discount rates or the time until payment is made would have resulted in a significantly lower or higher fair value measurement of the licensing arrangements' financial asset and liability as of December 31, 2019. However, increases or decreases in the financial asset would be substantially offset by increases or decreases in the financial liability, as such our earnings are not subject to material gains or losses from the licensing arrangement. Changes in the fair value of our licensing arrangements' financial asset was as follows:
Changes in the fair value of our licensing arrangements' financial liability was as follows:
Non-Recurring Fair Value Measurements We hold certain assets and liabilities that are measured at fair value on a non-recurring basis in periods after initial recognition. The fair value of a measurement alternative investment is not estimated if there are no identified events or changes in circumstances that may have a significant adverse effect on the fair value of the investment. Refer to Note B – Acquisitions and Strategic Investments for a discussion of our strategic investments. Refer to Note C – Goodwill and Other Intangible Assets for a discussion of the fair values. The fair value of our outstanding debt obligations as of December 31, 2019 was $11.020 billion, of which $1.004 billion relates to the Euro-denominated December 2027 Notes, and as of December 31, 2018 was $7.239 billion. We determined fair value by using quoted market prices for our publicly registered senior notes, classified as Level 1 within the fair value hierarchy, and face value for commercial paper, term loans and credit facility borrowings outstanding. Refer to Note E – Contractual Obligations and Commitments for a discussion of our debt obligations.
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Acquisitions and Strategic Investments |
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ACQUISITIONS | NOTE B – ACQUISITIONS AND STRATEGIC INVESTMENTS Our consolidated financial statements include the operating results for acquired entities from the respective dates of acquisition. With the exception of the acquisition of BTG, which was completed on August 19, 2019, we have not presented supplemental pro forma financial information for acquisitions given their results are not material to our consolidated financial statements. Transaction costs for all acquisitions in 2019, 2018 and 2017 were immaterial to our consolidated financial statements and were expensed as incurred. In 2019, we recorded approximately $125 million of purchase price adjustments, of which $95 million related to BTG. 2019 Acquisitions BTG plc On August 19, 2019, we announced the closing of our acquisition of BTG, a public company organized under the laws of England and Wales. BTG had three key portfolios, the largest of which is its interventional medicine portfolio (Interventional Medicine) that encompasses interventional oncology therapeutic technologies for patients with liver and kidney cancers, as well as a vascular portfolio for treatment of deep vein thrombosis, pulmonary embolism, deep venous obstruction and superficial venous disease. Following the closing of the acquisition, we began to integrate BTG's Interventional Medicine business into our Peripheral Interventions division. In addition to the Interventional Medicine product lines, the BTG portfolio also included a specialty pharmaceutical business (Specialty Pharmaceuticals) comprised of acute care antidotes to treat overexposure to certain medications and toxins and a licensing portfolio (Licensing arrangements) that generates net royalties related to BTG intellectual property and product license agreements. In connection with the acquisition, we acquired rights to future royalties associated with the Zytiga™ drug used to treat certain forms of prostate cancer. In the fourth quarter of 2019, we sold our rights to these royalties for $256 million in cash, included in Proceeds from royalty rights transfer. Refer to Note D – Hedging Activities and Fair Value Measurements for additional information. The transaction price consisted of upfront cash in the aggregate amount of £3.312 billion (or $4.023 billion based on the exchange rate at closing on August 19, 2019) for the entire issued ordinary share capital of BTG, whereby BTG stockholders received 840 pence (or $10.20 based on the exchange rate at closing) in cash for each BTG share. The transaction price included $404 million of cash and cash equivalents acquired. We implemented our acquisition of BTG by way of a court-sanctioned scheme of arrangement under Part 26 of the United Kingdom Companies Act 2006, as amended. Purchase Price Allocation We accounted for our acquisition of BTG as a business combination, and in accordance with FASB ASC Topic 805, Business Combinations (FASB ASC Topic 805), we recorded the assets acquired and liabilities assumed at their respective fair values as of the acquisition date. The preliminary purchase price was comprised of the amounts presented below, which represent the preliminary determination of the fair value of identifiable assets acquired and liabilities assumed from the acquisition. The final determination of the fair value of certain assets and liabilities will be completed within the measurement period as required by FASB ASC Topic 805. As of December 31, 2019, the valuation studies necessary to determine the fair market value of the assets acquired and liabilities assumed are preliminary, including the projection of the underlying cash flows used to determine the fair value of the identified tangible, intangible and financial assets and liabilities. We accounted for BTG as a business combination, and in accordance with FASB ASC Topic 805, we recorded the assets acquired and liabilities assumed at their respective fair values as of the acquisition date. The preliminary purchase price of BTG, was comprised of the following components as of December 31, 2019:
The following summarizes the preliminary purchase price allocation for our acquisition of BTG as of December 31, 2019:
As a result of our acquisition of BTG, we recognized goodwill of $1.644 billion, which is attributable to the synergies expected to arise from the acquisition and revenue and cash flow projections associated with future technologies. The goodwill is not deductible for tax purposes. As of December 31, 2019, we have allocated $1.406 billion to our Peripheral Interventions reporting unit and $238 million to the Specialty Pharmaceuticals reporting unit. We allocated a portion of the preliminary purchase price for our acquisition of BTG to specific intangible asset categories as follows:
Pro Forma Financial Information (unaudited) BTG contributed $226 million to our Net sales and had an immaterial impact to our Net income (loss) for the period post acquisition through December 31, 2019. The unaudited estimated pro forma results presented below include the effects of our acquisition of BTG as if it was consummated on January 1, 2018. In 2019, we incurred nonrecurring charges that we attributed to our acquisition of BTG, which are presented in our consolidated statements of operations for this period. These charges include acquisition-related costs, stock-based compensation expenses as a result of the change in control and retention bonuses and severance payments, adjusted for the related tax effects. We have reflected these nonrecurring charges as adjustments to the pro forma earnings presented below for 2019 and 2018. Additionally, these pro forma amounts have been calculated after applying our accounting policies and adjusting the results of BTG to reflect the additional costs associated with fair value adjustments relating to inventories, property, plant, and equipment, and intangible assets as if the acquisition had occurred on January 1, 2018, with the consequential tax effects. Additionally, the pro forma amounts have been adjusted to reflect the amortization of deferred financing costs and interest expense associated with additional financing entered into as part of the acquisition. The pro forma results exclude BTG’s historical licensing revenue and related cost of sales, as these arrangements are accounted for as part of the acquisition as a financial asset and liability and are not accounted for within the scope of FASB ASC Topic 606. The supplemental pro forma information presented below is for informational purposes only and should be read in conjunction with our historical financial statements. The pro forma results do not include any anticipated synergies or other expected benefits of the acquisition. Accordingly, the unaudited estimated pro forma financial information below is not necessarily indicative of what the actual results of operations of the combined companies would have been had the acquisition of BTG occurred as of January 1, 2018, nor are they indicative of future results of operations. We believe that the pro forma assumptions and adjustments are reasonable and appropriate under the circumstances and are factually supported based on information currently available.
Transaction with Varian Medical Systems, Inc. On August 21, 2019, we completed the sale of our drug-eluting and bland embolic microsphere portfolio to Varian Medical Systems, Inc. (Varian) in connection with our acquisition of BTG. The transaction price consisted of an upfront cash payment of $90 million, a portion of which is allocated to the fair value of the services to be rendered under the Transition Services Agreement and Transition Manufacturing Agreement entered into with Varian as part of this transaction. Additionally, we transferred certain contingent consideration arrangements arising from our initial acquisition of the portfolio to Varian and agreed to indemnify Varian for any payments ultimately arising under the terms of the contingent consideration arrangement. Accordingly, as part of the disposal, we recorded a liability of $16 million to recognize the fair value of this guarantee based on our potential obligation resulting from the indemnifications. The maximum amount payable under this guarantee is $200 million in accordance with FASB ASC Topic 460, Guarantees, which is consistent with the contingent consideration arrangement executed with our initial acquisition of the portfolio in accordance with FASB ASC Topic 805. Vertiflex, Inc. On June 11, 2019, we announced the closing of our acquisition of Vertiflex, Inc. (Vertiflex), a privately-held company which has developed and commercialized the Superion™ Indirect Decompression System, a minimally-invasive device used to improve physical function and reduce pain in patients with lumbar spinal stenosis (LSS). The transaction price consisted of an upfront cash payment of $465 million and contingent payments that are based on a percentage of Vertiflex sales growth in the first three years following the acquisition close. We estimate the sales-based contingent payments to be in a range of zero to $100 million; however, the payments are uncapped over the three year earn-out period. Following the closing of the acquisition, we have integrated the Vertiflex business into our Neuromodulation division. Millipede, Inc. On January 29, 2019, we announced the closing of our acquisition of Millipede, Inc. (Millipede), a privately-held company that has developed the IRIS Transcatheter Annuloplasty Ring System for the treatment of severe mitral regurgitation. We had previously been an investor in Millipede since the first quarter of 2018 as part of an investment and acquisition option agreement, whereby we purchased a portion of the outstanding shares of Millipede, along with newly issued shares of the company, for an upfront cash payment of $90 million. In the fourth quarter of 2018, upon the successful completion of a first-in-human clinical study, we exercised our option to acquire the remaining shares of Millipede. We held an interest of approximately 20 percent immediately prior to the acquisition date. We remeasured the fair value of our previously-held investment based on the implied enterprise value and allocation of purchase price consideration according to priority of equity interests. The transaction price for the remaining stake consisted of an upfront cash payment of $325 million and up to an additional $125 million of future payments upon achievement of a commercial milestone. Following the closing of the acquisition, we have integrated the Millipede business into our Interventional Cardiology division. Purchase Price Allocation We accounted for our 2019 acquisitions of Vertiflex and Millipede as business combinations, and in accordance with FASB ASC Topic 805, we recorded the assets acquired and liabilities assumed at their respective fair values as of the acquisition dates. The preliminary purchase prices of our acquisitions of Vertiflex and Millipede, presented in aggregate, were comprised of the following components as of December 31, 2019:
The preliminary purchase price allocations of our acquisitions of Vertiflex and Millipede, presented in aggregate, were comprised of the following components as of December 31, 2019:
We allocated a portion of the preliminary purchase prices of our acquisitions of Vertiflex and Millipede, presented in aggregate, to the specific intangible asset categories as follows:
2018 Acquisitions Augmenix, Inc. On October 16, 2018, we announced the closing of our acquisition of Augmenix, Inc. (Augmenix), a privately-held company that developed and commercialized the SpaceOAR™ Hydrogel System to help reduce common and debilitating side effects that men may experience after receiving radiotherapy to treat prostate cancer. The transaction price consisted of an upfront cash payment of $500 million and up to $100 million in payments contingent upon achieving certain revenue-based milestones. Following the closing of the acquisition, we have integrated the Augmenix business into our Urology and Pelvic Health division. Claret Medical, Inc. On August 2, 2018, we announced the closing of our acquisition of Claret Medical, Inc. (Claret), a privately-held company that has developed and commercialized the Sentinel™ Cerebral Embolic Protection System. The device is used to protect the brain during certain interventional procedures, predominately in patients undergoing transcatheter aortic valve replacement (TAVR). The transaction price consisted of an upfront cash payment of $220 million and an additional $50 million payment for achieving a reimbursement-based milestone that was achieved in the third quarter of 2018. Following the closing of the acquisition, we have integrated the Claret business into our Interventional Cardiology division. Cryterion Medical, Inc. On July 5, 2018, we announced the closing of our acquisition of Cryterion Medical, Inc. (Cryterion), a privately-held company developing a single-shot cryoablation platform for the treatment of atrial fibrillation. We had been an investor in Cryterion since 2016 and held an interest of approximately 35 percent immediately prior to the acquisition date. The transaction price to acquire the remaining stake consisted of an upfront cash payment of $202 million. Following the closing of the acquisition, we have integrated the Cryterion business into our Electrophysiology division. NxThera, Inc. On April 30, 2018, we announced the closing of our acquisition of NxThera, Inc. (NxThera), a privately-held company that developed the Rezūm™ System, a minimally invasive therapy in a growing category of treatment options for patients with benign prostatic hyperplasia (BPH). We held a minority interest immediately prior to the acquisition date. The transaction price to acquire the remaining stake consisted of an upfront cash payment of approximately $240 million and up to approximately $85 million in future potential payments contingent upon achieving commercial milestones over the four years following the date of acquisition. Following the closing of the acquisition, we have integrated the NxThera business into our Urology and Pelvic Health division. nVision Medical Corporation On April 16, 2018, we announced the closing of our acquisition of nVision Medical Corporation (nVision), a privately-held company focused on women’s health. nVision developed the first and only device cleared by the U.S. Food and Drug Administration (FDA) to collect cells from the fallopian tubes, offering a potential platform for earlier diagnosis of ovarian cancer. The transaction price consisted of an upfront cash payment of $150 million and up to an additional $125 million in future potential payments contingent upon achieving certain clinical and commercial milestones over the four years following the date of acquisition. Following the closing of the acquisition, we have integrated the nVision business into our Urology and Pelvic Health division. Other Acquisitions In addition, we completed other individually immaterial acquisitions in 2018 for total consideration of $158 million in cash at closing plus aggregate future potential contingent consideration of up to $62 million. We recorded gains of $184 million in 2018 within Other, net on our consolidated statements of operations based on the difference between the book values and the fair values of our previously-held investments immediately prior to the acquisition dates. The aggregate fair value of our previously-held investments immediately prior to the acquisition dates was $251 million. We remeasured the fair value of each previously-held investment based on the implied enterprise value and allocation of purchase price consideration according to priority of equity interests. Purchase Price Allocation We accounted for these acquisitions as business combinations, and in accordance with FASB ASC Topic 805, we recorded the assets acquired and liabilities assumed at their respective fair values as of the acquisition dates. The components of the aggregate purchase prices are as follows for our 2018 acquisitions as of December 31, 2019:
The following summarizes the purchase price allocations for our 2018 acquisitions as of December 31, 2019:
We allocated a portion of the purchase prices to specific intangible asset categories as follows:
2017 Acquisitions Apama Medical Inc. On October 11, 2017, we announced the closing of our acquisition of Apama Medical Inc. (Apama), a privately-held company developing the Apama™ Radiofrequency single-shot Balloon Catheter System for the treatment of atrial fibrillation. The transaction price consisted of an upfront cash payment of approximately $175 million and up to approximately $125 million in future potential payments contingent upon achieving certain clinical and regulatory milestones. Following the closing of the acquisition, we have integrated the Apama business into our Electrophysiology division. Symetis SA On May 16, 2017, we announced the closing of our acquisition of Symetis SA (Symetis), a privately-held Swiss structural heart company focused on minimally-invasive TAVR devices, having developed the ACURATE neo™ Aortic Valve. The transaction price consisted of an upfront cash payment of approximately $430 million. Following the closing of the acquisition, we have integrated the Symetis business into our Interventional Cardiology division. Purchase Price Allocation We accounted for these acquisitions as business combinations and, in accordance with FASB ASC Topic 805, we recorded the assets acquired and liabilities assumed at their respective fair values as of the acquisition dates. The components of the aggregate purchase prices were as follows for our 2017 acquisitions:
The following summarizes the aggregate purchase price allocations for our 2017 acquisitions:
We allocated a portion of the purchase prices to specific intangible asset categories as follows:
Our technology-related intangible assets consist of technical processes, intellectual property and institutional understanding with respect to products and processes that we intend to leverage in future products or processes and will carry forward from one product generation to the next. We used the multi-period excess earnings method, a form of the income approach, to derive the fair value of the technology-related intangible assets and are amortizing them on a straight-line basis over their assigned estimated useful lives. Goodwill was primarily established due to synergies expected to be gained from leveraging our existing operations as well as revenue and cash flow projections associated with future technologies and has been allocated to our reportable segments based on the relative expected benefit. Based on preliminary estimates updated for applicable regulatory changes, the goodwill recorded relating to our 2019, 2018 and 2017 acquisitions is not deductible for tax purposes. Contingent Consideration Changes in the fair value of our contingent consideration liability were as follows:
As of December 31, 2019, the maximum amount of future contingent consideration (undiscounted) that we could be required to pay was $697 million, which includes our estimate of maximum contingent payments of $100 million associated with the Vertiflex acquisition described above. The maximum decreased $176 million compared to the amount as of December 31, 2018 due to the contingent consideration arrangement which is now accounted for as a guarantee in connection with our transaction with Varian as discussed in the BTG section above. In addition, the aggregated maximum decreased as a result of the expiration or full payment of certain contingent consideration arrangements in 2019, partially offset by the Millipede and Vertiflex arrangements entered into in 2019. The recurring Level 3 fair value measurements of our contingent consideration liability include the following significant unobservable inputs:
Projected contingent payment amounts related to some of our R&D, commercialization-based and revenue-based milestones are discounted back to the current period using a discounted cash flow model. Significant increases or decreases in projected revenues, probabilities of payment, discount rates or the time until payment is made would have resulted in a significantly lower or higher fair value measurement as of December 31, 2019. Strategic Investments The aggregate carrying amount of our strategic investments was comprised of the following:
These investments are classified as Other long-term assets within our accompanying consolidated balance sheets, in accordance with U.S. GAAP and our accounting policies. As of December 31, 2019, the cost of our aggregated equity method investments exceeded our share of the underlying equity in net assets by $314 million, which represents amortizable intangible assets, IPR&D, goodwill and deferred tax liabilities.
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Stock Incentive and Ownership Plans [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Disclosure of Compensation Related Costs, Share-based Payments [Text Block] | NOTE L – STOCK INCENTIVE AND OWNERSHIP PLANS Employee and Director Stock Incentive Plans In 2011, our Board of Directors and stockholders approved our 2011 Long-Term Incentive Plan (the 2011 LTIP), authorizing for issuance up to 146 million shares of our common stock. The 2011 LTIP covers officers, directors, employees and consultants and provides for the grant of restricted or unrestricted common stock, deferred stock units (DSU), options to acquire our common stock, stock appreciation rights, performance awards (market-based and performance-based DSUs) and other stock and non-stock awards. Shares reserved under our current and former stock incentive plans totaled approximately 124 million as of December 31, 2019. The Executive Compensation and Human Resources Committee (the Committee) of the Board of Directors, consisting of independent, non-employee directors may authorize the issuance of common stock and cash awards under the 2011 LTIP in recognition of the achievement of long-term performance objectives established by the Committee. Non-qualified options issued to employees are generally granted with an exercise price equal to the market price of our stock on the grant date, vest over a four-year service period and have a ten-year contractual life. In the case of qualified options, if the recipient owns more than ten percent of the voting power of all classes of stock, the option granted will be at an exercise price of 110 percent of the fair market value of our common stock on the date of grant and will expire over a period not to exceed five years. Non-vested stock awards, including restricted stock awards and DSUs, issued to employees are generally granted with an exercise price of zero and typically vest in four or five equal annual installments. These awards represent our commitment to issue shares to recipients after the vesting period. Upon each vesting date, such awards are no longer subject to risk of forfeiture and we issue shares of our common stock to the recipient. The following presents the impact of stock-based compensation on our consolidated statements of operations:
Stock Options We use the Black-Scholes option-pricing model to calculate the grant-date fair value of stock options granted to employees under our stock incentive plans. We calculated the fair value for options granted using the following estimated weighted-average assumptions:
Expected Volatility We use our historical volatility and implied volatility as a basis to estimate expected volatility in our valuation of stock options. Expected Term We estimate the expected term of options using historical exercise and forfeiture data. We believe that this historical data provides the best estimate of the expected term of new option grants. Risk-Free Interest Rate We use yield rates on U.S. Treasury securities for a period approximating the expected term of the award to estimate the risk-free interest rate in our grant-date fair value assessment. Expected Dividend Yield We have not historically paid cash dividends to our stockholders and currently do not intend to pay cash dividends. Therefore, we have assumed an expected dividend yield of zero in our grant-date fair value assessment. Information related to stock options under stock incentive plans are as follows:
The total intrinsic value of stock options exercised was $140 million in 2019, $90 million in 2018 and $64 million in 2017. Non-Vested Stock We value restricted stock awards and DSUs based on the closing trading value of our shares on the date of grant. Information related to non-vested stock awards is as follows:
The total vesting date fair value of stock award units that vested was approximately $193 million in 2019, $170 million in 2018 and $190 million in 2017. Market-based DSU Awards During 2019, 2018 and 2017, we granted market-based DSU awards to certain members of our senior management team. The number of shares ultimately issued to the recipient is based on the total stockholder return (TSR) of our common stock as compared to the TSR of the common stock of the other companies in the S&P 500 Healthcare Index over a three-year performance period. The number of DSUs ultimately granted under this program range from 0 percent to 200 percent of the target number of performance-based DSUs awarded to the participant as determined by achievement of the performance criteria of the program. In addition, award recipients must remain employed by us throughout the three-year performance period to attain the full amount of the market-based DSUs that satisfied the market performance criteria. We determined the fair value of the market-based DSU awards to be approximately $10 million for 2019, $7 million for 2018 and $8 million for 2017. We determined these fair values based on Monte Carlo simulations as of the date of grant, utilizing the following assumptions:
We recognize the expense on these awards in our consolidated statements of operations on a straight-line basis over the three-year measurement period. Free Cash Flow Performance-based DSU Awards During 2019, 2018 and 2017, we granted free cash flow performance-based DSU awards to certain members of our senior management team. The attainment of these performance-based DSUs is based on our adjusted free cash flow (AFCF) measured against our internal annual financial plan performance for AFCF. AFCF is measured over a one-year performance period beginning January 1st of each year and ending December 31st. The number of DSUs ultimately granted under this program range from 0 percent to 150 percent of the target number of performance-based DSUs awarded to the participant as determined by achievement of the performance criteria of the program. In addition, award recipients must remain employed by us throughout a three-year service period (inclusive of the one-year performance period) to attain the full amount of the performance-based DSUs that satisfied the performance criteria. The following table presents our assumptions used in determining the fair value of our AFCF awards currently expected to vest as of December 31, 2019:
We recognize the expense on these awards in our consolidated statements of operations over the vesting period which is three years after the date of grant. Expense Attribution We recognize compensation expense for our stock incentive plan using a straight-line method over the substantive vesting period. Most of our stock awards provide for immediate vesting upon death or disability of the participant. In addition, our stock grants to employees provide for accelerated vesting of our stock-based awards, other than performance-based and market-based awards, upon retirement, if the stock award has been held for at least one year by the recipient. In accordance with the terms of our stock grants, for employees who will become retirement eligible prior to the vest date we expense stock-based awards, other than performance-based and market-based awards, over the greater of one year or the period between grant date and retirement-eligibility. The performance-based and market-based awards discussed above do not contain provisions that would accelerate the full vesting of the awards upon retirement-eligibility. We recognize stock-based compensation expense for the value of the portion of awards that are ultimately expected to vest. FASB ASC Topic 718, Compensation – Stock Compensation allows forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The term “forfeitures” is distinct from “cancellations” or “expirations” and represents only the unvested portion of the surrendered stock-based award. We have applied, based on an analysis of our historical forfeitures, a weighted-average annual forfeiture rate of approximately six percent to all unvested stock-based awards as of December 31, 2019, which represents the portion that we expect will be forfeited each year over the vesting period. We re-evaluate this analysis annually or more frequently if there are significant changes in circumstances and adjust the forfeiture rate as necessary. Ultimately, we will only recognize expense for those shares that vest. Unrecognized Compensation Cost We expect to recognize the following future expense for awards outstanding as of December 31, 2019:
Employee Stock Purchase Plans Our global employee stock purchase plan provides for the granting of options to purchase up to 50 million shares of our common stock to all eligible employees. Under the global employee stock purchase plan, we grant each eligible employee, at the beginning of each six-month offering period, an option to purchase shares of our common stock equal to not more than ten percent of the employee’s eligible compensation or the statutory limit under the U.S. Internal Revenue Code. Such options may be exercised only to the extent of accumulated payroll deductions at the end of the offering period, at a purchase price equal to 85 percent of the fair market value of our common stock at the beginning or end of each offering period, whichever is less. As of December 31, 2019, there were approximately 8 million shares available for future issuance under the employee stock purchase plan. Information related to shares issued or to be issued in connection with the employee stock purchase plan based on employee contributions and the range of purchase prices is as follows:
We use the Black-Scholes option-pricing model to calculate the grant-date fair value of shares issued under the employee stock purchase plan. We recognize expense related to shares purchased through the employee stock purchase plan ratably over the offering period.
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Goodwill and Other Intangible Assets Goodwill and Other Intangible Assets (Tables) |
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Schedule of Intangible Assets and Goodwill [Table Text Block] |
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Schedule of Goodwill [Table Text Block] | The following represents our goodwill balance by global reportable segment and our separately reported Specialty Pharmaceuticals operating segment:
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Schedule of Expected Amortization Expense [Table Text Block] | Estimated Amortization expense for each of the five succeeding fiscal years based upon our amortizable intangible asset portfolio as of December 31, 2019 is as follows (in millions):
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Restructuring Related Activities (Tables) |
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Impact of restructuring costs on the accompanying financial statements | The following presents the restructuring and restructuring-related charges (credits) by major type and line item within our accompanying consolidated statements of operations (in millions):
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Cumulative Restructuring Charges [Text Block] | The following table presents cumulative restructuring and restructuring-related charges incurred as of December 31, 2019, related to our Restructuring Plans by major type:
(2) Comprised of other costs directly related to our Restructuring Plans, including program management, accelerated depreciation, and fixed asset write-offs.
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Amount Of Cash Paid In Period To Fully Or Partially Settle Specified Type Of Restructuring Cost [Text Block] | Cash payments associated with our Restructuring Plans were made using cash generated from operations and are comprised of the following:
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Impact of restructuring costs on the accompanying financial statements | The following table provides a summary of our estimates of total pre-tax charges associated with the 2019 Restructuring Plan by major type of cost:
(2) Comprised of other costs directly related to the restructuring program, including program management, accelerated depreciation, fixed asset write-offs, and costs to transfer product lines among facilities.
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Restructuring and Related Cost [Line Items] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Impact of restructuring costs on the accompanying financial statements | The following table provides a summary of total pre-tax charges associated with the 2016 Restructuring Plan by major type of cost:
(2) Comprised of other costs directly related to the 2016 Restructuring Plan, including program management, accelerated depreciation, fixed asset write-offs and costs to transfer product lines among facilities.
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Stockholders' Equity |
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Dec. 31, 2019 | |
Stockholders' Equity Attributable to Parent [Abstract] | |
Stockholders' Equity Note Disclosure [Text Block] | NOTE K – STOCKHOLDERS' EQUITY Preferred Stock We are authorized to issue 50 million shares of preferred stock in one or more series and to fix the powers, designations, preferences and relative participating, option or other rights thereof, including dividend rights, conversion rights, voting rights, redemption terms, liquidation preferences and the number of shares constituting any series, without any further vote or action by our stockholders. As of December 31, 2019 and 2018, we had no shares of preferred stock issued or outstanding. Common Stock We are authorized to issue 2.000 billion shares of common stock, $0.01 par value per share. Holders of common stock are entitled to one vote per share. Holders of common stock are entitled to receive dividends, if and when declared by our Board of Directors and to share ratably in our assets legally available for distribution to our stockholders in the event of liquidation. Holders of common stock have no preemptive, subscription, redemption, or conversion rights. The holders of common stock do not have cumulative voting rights. The holders of a majority of the shares of common stock can elect all of the directors and can control our management and affairs. On January 25, 2013, our Board of Directors approved a stock repurchase program authorizing the repurchase of up to $1.000 billion of our common stock. Repurchased shares are available for reissuance under our equity incentive plans and for general corporate purposes, including acquisitions. We did not repurchase any shares of our common stock during 2019, 2018 or 2017. As of December 31, 2019, we had remaining $535 million authorized under our 2013 share repurchase program. There were approximately 248 million shares in treasury as of December 31, 2019 and December 31, 2018.
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Significant Accounting Policies |
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Accounting Policies [Abstract] | |||||||||||||||||
Significant Accounting Policies [Text Block] | NOTE A – SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation Our consolidated financial statements include the accounts of Boston Scientific Corporation and our wholly-owned subsidiaries, after the elimination of intercompany transactions. When used in this report, the terms "we," "us," "our" and "the Company" mean Boston Scientific Corporation and its divisions and subsidiaries. We assess the terms of our investment interests to determine if any of our investees meet the definition of a variable interest entity (VIE). For any VIEs, we perform an analysis to determine whether our variable interests give us a controlling financial interest in a VIE. The analysis identifies the primary beneficiary of a VIE as the enterprise that has both 1) the power to direct activities of a VIE that most significantly impact the entity’s economic performance and 2) the obligation to absorb losses of the entity or the right to receive benefits from the entity. Based on our assessments under the applicable guidance, we did not have controlling financial interests in any VIEs and, therefore, did not consolidate any VIEs for 2019, 2018 and 2017. Basis of Presentation The accompanying consolidated financial statements and notes thereto have been prepared in accordance with accounting principles generally accepted in the United States (U.S. GAAP) and with the instructions to Form 10-K and Regulation S-X. Amounts reported in millions within this report are computed based on the amounts in thousands. As a result, the sum of the components reported in millions may not equal the total amount reported in millions due to rounding. Certain columns and rows within tables may not add due to the use of rounded numbers. Percentages presented are calculated from the underlying numbers in dollars. Reportable Segments Our seven core businesses are organized into three reportable segments: MedSurg, Rhythm and Neuro, and Cardiovascular. Following our acquisition of BTG plc (BTG), which closed during the third quarter of 2019, we have included BTG’s Interventional Medicine business within our Peripheral Interventions operating segment, within the Cardiovascular reportable segment. We present BTG’s Specialty Pharmaceuticals business as a standalone operating segment alongside our reportable segments. Subsequent Events We evaluate events occurring after the date of our accompanying consolidated balance sheets for potential recognition or disclosure in our consolidated financial statements. We did not identify any material subsequent events requiring adjustment to our accompanying consolidated financial statements (recognized subsequent events). Those items requiring disclosure (unrecognized subsequent events) in the consolidated financial statements have been disclosed accordingly. Refer to Note E – Contractual Obligations and Commitments and Note J – Commitments and Contingencies for further details. Accounting Estimates To prepare our consolidated financial statements in accordance with U.S. GAAP, management makes estimates and assumptions that may affect the reported amounts of our assets and liabilities, the disclosure of contingent liabilities as of the date of our consolidated financial statements and the reported amounts of our revenues and expenses during the reporting period. Our actual results may differ from these estimates. Refer to Critical Accounting Estimates included in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations of this Annual Report for further discussion. Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents Cash and Cash Equivalents We record Cash and cash equivalents in our consolidated balance sheets at cost, which approximates fair value. Our policy is to invest excess cash in short-term marketable securities earning a market rate of interest without assuming undue risk of loss of principal amounts invested and we limit our direct exposure to securities in any one industry or issuer. We consider to be cash equivalents all short-term marketable securities with remaining days to maturity of 90 days or less from the purchase date that can be readily converted to cash. Restricted Cash Amounts included in restricted cash represent cash on hand required to be set aside by a contractual agreement related to receivable factoring arrangements and deferred compensation plans and are included in the Other current assets caption on our consolidated balance sheets. Generally, the restrictions related to the factoring arrangements lapse at the time we remit the customer payments collected by us as servicer of previously sold customer receivables to the purchaser. Restrictions for deferred compensation lapse when amounts are paid to the employee. Restricted Cash Equivalents Restricted cash equivalents primarily represent amounts paid into various qualified settlement funds related to our ongoing transvaginal surgical mesh litigation and current amounts related to our non-qualified pension plan and are included in the Other current assets caption on our consolidated balance sheets. The restrictions related to the various qualified settlement funds will lapse as we approve amounts payable to claimants, at which time we no longer have rights to a return of the amounts paid into the various qualified settlement funds. Restricted cash equivalents included in the Other long-term assets caption on our consolidated balance sheets are related to deferred compensation plans. Concentrations of Credit Risk Financial instruments that potentially subject us to concentrations of credit risk consist primarily of cash and cash equivalents, derivative financial instruments and accounts and notes receivable. Our investment policy limits exposure to concentrations of credit risk and changes in market conditions. Counterparties to financial instruments expose us to credit-related losses in the event of nonperformance. We transact our financial instruments with a diversified group of major financial institutions with investment grade credit ratings and actively monitor their credit ratings and our outstanding positions to limit our credit exposure. In the normal course, our payment terms with customers, including hospitals, healthcare agencies, clinics, doctors' offices and other private and governmental institutions, are typically 30 days in the U.S. but may be longer in international markets and generally do not require collateral. We record our accounts receivable in our consolidated balance sheets at net realizable value. We perform ongoing credit evaluations of our customers and maintain allowances for potential credit losses, based on historical information and management's best estimates. We write-off amounts determined to be uncollectible against this reserve. Write-offs of uncollectible accounts receivable were immaterial in 2019, 2018 and 2017. We are not dependent on any single institution, and no single customer accounted for more than ten percent of our net sales in 2019, 2018 and 2017; however, large group purchasing organizations, hospital networks, international distributors and dealers and other buying groups have become increasingly important to our business and represent a substantial portion of our net sales. We closely monitor outstanding receivables for potential collection risks, including those that may arise from economic conditions, in both the U.S. and international economies. Our European sales to government-owned or supported customers in Southern Europe are subject to an increased number of days outstanding prior to payment relative to other countries. Historically, receivable balances with certain publicly-owned hospitals in these countries accumulated over a period of time and are then subsequently settled as large lump sum payments, sometimes at large discounts. While we believe our allowance for doubtful accounts in these countries is adequate as of December 31, 2019 and 2018, if significant changes were to occur in the payment practices of these European governments or if government funding becomes unavailable, we may not be able to collect on receivables due to us from these customers, and our write-offs of uncollectible accounts receivable may increase. Revenue Recognition In May 2014, the FASB issued FASB ASC Topic 606, Revenue from Contracts with Customers (Topic 606), which was subsequently updated. We adopted the standard as of January 1, 2018, using the modified retrospective method. Under this method, we applied FASB ASC Topic 606 to contracts that were not complete as of January 1, 2018 and recognized the cumulative effect of initially applying the standard as an adjustment to the opening balance of retained earnings. Results for reporting periods beginning after January 1, 2018 are presented in accordance with FASB ASC Topic 606. Prior period amounts are not adjusted and are reported in accordance with legacy GAAP requirements in FASB ASC Topic 605, Revenue Recognition. Due to the adoption of FASB ASC Topic 606, we recorded a net reduction to retained earnings of $177 million on January 1, 2018, primarily related to the cost of providing non-contractual post-implant support to certain customers, which we historically deemed immaterial in the context of the arrangement. Upon the adoption of FASB ASC Topic 606, when we sell a device with an implied non-contractual post-implant support obligation, we forward accrue the cost of the service within Selling, general and administrative expenses and recognize it at the point in time the associated revenue is earned. We release the accrual over the related service period. These costs were previously expensed as incurred due to such service obligation being non-contractual. The impact of adopting FASB ASC Topic 606 on our consolidated balance sheets resulted in an increase in Other current liabilities of $59 million and an increase in Other long-term liabilities of $205 million as of December 31, 2018, as a result of accruing for our post-implant support obligation. We also recorded deferred tax assets primarily related to post-implant support, resulting in an increase in Other long-term assets of $12 million and a reduction in Deferred income taxes of $41 million as of December 31, 2018. The remaining impact of adopting FASB ASC Topic 606 was not material to our financial position or results of operations. We sell our products primarily through a direct sales force. In certain international markets, we sell our products through independent distributors or dealers. We consider revenue to be earned when all of the following criteria are met:
Transfer of control is evidenced upon passage of title and risk of loss to the customer unless we are required to provide additional services. We treat shipping and handling costs performed after a customer obtains control of the good as a fulfillment cost and record these costs as a selling expense when incurred. We recognize revenue from consignment arrangements based on product usage, or implant, which indicates that the sale is complete. We recognize a receivable at the point in time we have an unconditional right to payment. Payment terms are typically 30 days in the U.S. but may be longer in international markets. Deferred Revenue We record a contract liability, or deferred revenue, when we have an obligation to provide a product or service to the customer and payment is received or due in advance of our performance. When we sell a device with a future service obligation, we defer revenue on the unfulfilled performance obligation and recognize this revenue over the related service period. Many of our Cardiac Rhythm Management product offerings combine the sale of a device with our LATITUDE™ Patient Management System, which represents a future service obligation. Generally, we do not have observable evidence of the standalone selling price related to our future service obligations; therefore, we estimate the selling price using an expected cost plus a margin approach. We allocate the transaction price using the relative standalone selling price method. The use of alternative estimates could result in a different amount of revenue deferral. Contract liabilities are classified within Other current liabilities and Other long-term liabilities on our accompanying consolidated balance sheets. Our contractual liabilities are primarily composed of deferred revenue related to the LATITUDE Patient Management System. Revenue is recognized over the average service period which is based on device and patient longevity. We have elected not to disclose the transaction price allocated to unsatisfied performance obligations when the original expected contract duration is one year or less. In addition, we have not identified material unfulfilled performance obligations for which revenue is not currently deferred. Variable Consideration We generally allow our customers to return defective, damaged and, in certain cases, expired products for credit. We base our estimate for sales returns upon historical trends and record the amount as a reduction to revenue when we sell the initial product. In addition, we may allow customers to return previously purchased products for next-generation product offerings. For these transactions, we defer recognition of revenue on the sale of the earlier generation product based upon an estimate of the amount of product to be returned when the next-generation products are shipped to the customer. Uncertain timing of next-generation product approvals, variability in product launch strategies, product recalls and variation in product utilization all affect our estimates related to sales returns and could cause actual returns to differ from these estimates. We also offer sales rebates and discounts to certain customers. We treat sales rebates and discounts as a reduction of revenue and classify the corresponding liability as current. We estimate rebates for products where there is sufficient historical information available to predict the volume of expected future rebates. If we are unable to reasonably estimate the expected rebates, we record a liability for the maximum rebate percentage offered. We have entered certain agreements with group purchasing organizations to sell our products to participating hospitals at negotiated prices. We recognize revenue from these agreements following the same revenue recognition criteria discussed above. Capitalized Contract Costs We capitalize commission fees related to contracts with customers when the associated revenue is expected to be earned over a period that exceeds one year. Deferred commissions are primarily related to the sale of devices enabled with our LATITUDE™ Patient Management System. We have elected to expense commission costs when incurred for contracts with an expected duration of one year or less. Capitalized commission fees are amortized over the period the associated products or services are transferred. Similarly, we capitalize certain recoverable costs related to the delivery of the LATITUDE Remote Monitoring Service. These fulfillment costs are amortized over the average service period. Our total capitalized contract costs are immaterial to our consolidated financial statements. Post-Implant Services We provide non-contractual services to customers to ensure the safe and effective use of certain implanted devices. Following our modified retrospective adoption of FASB ASC Topic 606 on January 1, 2018, because the revenue related to the immaterial services is recognized before they are delivered, we forward accrue the costs to provide these services at the time the devices are sold. We record these costs to Selling, general and administrative expenses. We estimate the amount of time spent by our representatives performing these services and their compensation throughout the device life to determine the service cost. Changes to our business practice or the use of alternative estimates could result in a different amount of accrued cost. Warranty Obligations We offer warranties on certain of our product offerings. The majority of our warranty liability relates to implantable devices offered by our Cardiac Rhythm Management business, which include implantable defibrillator and pacemaker systems. Our Cardiac Rhythm Management products come with a standard limited warranty covering the replacement of these devices. We offer a full warranty for a portion of the period post-implant and a partial warranty for a period of time thereafter. We estimate the costs that we may incur under our warranty programs based on the number of units sold, historical and anticipated rates of warranty claims and cost per claim and record a liability equal to these estimated costs as cost of products sold at the time the product sale occurs. We assess the adequacy of our recorded warranty liabilities on a quarterly basis and adjust these amounts as necessary. Inventories We state inventories at the lower of first-in, first-out cost or net realizable value. We base our provisions for excess, expired and obsolete inventory primarily on our estimates of forecasted net sales. A significant change in the timing or level of demand for our products as compared to forecasted amounts may result in recording additional provisions for excess, expired and obsolete inventory in the future. Further, the industry in which we participate is characterized by rapid product development and frequent new product introductions. Uncertain timing of next-generation product approvals, variability in product launch strategies, product recalls and variation in product utilization all affect our estimates related to excess, expired and obsolete inventory. Approximately 32 percent of our finished goods inventory as of December 31, 2019 and approximately 40 percent as of December 31, 2018 was at customer locations pursuant to consignment arrangements or held by sales representatives. Property, Plant and Equipment We state property, plant, equipment and leasehold improvements at historical cost. We charge expenditures for maintenance and repairs to expense and capitalize additions and improvements that extend the life of the underlying asset. We provide for depreciation using the straight-line method at rates that approximate the estimated useful lives of the assets. We depreciate buildings over a maximum life of 40 years; building improvements over the remaining useful life of the building structure; equipment, furniture and fixtures over a three to seven year life; and leasehold improvements over the shorter of the useful life of the improvement or the term of the related lease. Leases In February 2016, the FASB issued ASC Update No. 2016-02, Leases (FASB ASC Topic 842, Leases). We adopted the standard as of January 1, 2019, using the modified retrospective approach and the transition method provided by ASC Update No. 2018-11, Leases (Topic 842): Targeted Improvements. Under this method, we applied the new leasing rules on the date of adoption and recognized the cumulative effect of initially applying the standard as an adjustment to our January 1, 2019 opening balance sheet, rather than at the earliest comparative period presented in the financial statements. Prior periods presented are in accordance with the previous lease guidance under FASB ASC Topic 840, Leases (FASB ASC Topic 840). In addition, we applied the package of practical expedients permitted under FASB ASC Topic 842 transition guidance to our entire lease portfolio at January 1, 2019. As a result, we were not required to reassess (i) whether any expired or existing contracts are or contain leases, (ii) the classification of any expired or existing leases and (iii) the treatment of initial direct costs for any existing leases. Furthermore, we elected not to separate lease and non-lease components for the majority of our leases. Instead, for all applicable classes of underlying assets, we accounted for each separate lease component and the non-lease components associated with that lease component, as a single lease component. As a result of adopting FASB ASC Topic 842 on January 1, 2019, we recognized right-of-use assets of $271 million and corresponding liabilities of $278 million for our existing operating lease portfolio on our consolidated balance sheet. Operating lease right-of-use assets are presented within Other long-term assets and corresponding liabilities are presented within Other current liabilities and Other long-term liabilities on our consolidated balance sheets. Finance leases are immaterial to our consolidated financial statements. Refer to Note E – Contractual Obligations and Commitments for additional information. There was no material impact to our consolidated statements of operations or consolidated statements of cash flows as a result of adopting FASB ASC Topic 842. Please refer to Note F – Leases for information regarding our lease portfolio as of December 31, 2019 as accounted for under FASB ASC Topic 842. To meet the reporting and disclosure requirements of FASB ASC Topic 842, we implemented a new lease administration and lease accounting system in 2018 that tracks all of our material leasing arrangements. In addition, we designed and implemented new processes and internal controls during the first quarter of 2019 to ensure the completeness and accuracy of the transition adjustment and subsequent financial reporting under FASB ASC Topic 842. We have also established monitoring controls to ensure we have appropriate mechanisms in place to identify material leases in a timely manner, particularly contracts that may contain embedded lease features. Valuation of Business Combinations We allocate the amounts we pay for each acquisition to the assets we acquire and liabilities we assume based on their fair values at the date of acquisition, including identifiable intangible assets and in-process research and development (IPR&D), which either arise from a contractual or legal right or are separable from goodwill. We base the fair value of identifiable intangible assets acquired in a business combination, including IPR&D, on detailed valuations that use information and assumptions provided by management, which consider management’s best estimates of inputs and assumptions that a market participant would use. We allocate to goodwill any excess purchase price over the fair value of the net tangible and identifiable intangible assets acquired. Transaction costs associated with these acquisitions are expensed as incurred through Selling, general and administrative expenses. In those circumstances where an acquisition involves a contingent consideration arrangement, we recognize a liability equal to the fair value of the contingent payments we expect to make as of the acquisition date. We re-measure this liability each reporting period and record changes in the fair value through Contingent consideration expense (benefit) on our consolidated statements of operations. Increases or decreases in the fair value of the contingent consideration liability can result from changes in discount rates, periods, timing and amount of projected revenue or timing or likelihood of achieving regulatory, revenue or commercialization-based milestones. Payment of additional consideration is generally contingent on the acquired company reaching certain performance milestones after the acquisition date, including attaining specified revenue levels, achieving product development targets and/or obtaining regulatory approvals for products in development at the date of the acquisition. Indefinite-lived Intangibles, including IPR&D Our indefinite-lived intangible assets, which are not subject to amortization, include acquired balloon and other technology, which is foundational to our ongoing operations within the Cardiovascular market and other markets within interventional medicine and IPR&D intangible assets acquired in a business combination. Our IPR&D represents intangible assets that are used in research and development activities but have not yet reached technological feasibility, regardless of whether they have alternative future use. The primary basis for determining the technological feasibility or completion of these projects is obtaining regulatory approval to market the underlying products in an applicable geographic region. We classify IPR&D as an indefinite-lived intangible asset until the completion or abandonment of the associated research and development efforts. Upon completion of the associated research and development efforts, we will determine the useful life of the technology and begin amortizing the assets to reflect their use over their remaining lives. Upon permanent abandonment, we write-off the remaining carrying amount of the associated IPR&D intangible asset. We test our indefinite-lived intangible assets at least annually during the third quarter for impairment and reassess their classification as indefinite-lived assets. In addition, we review our indefinite-lived intangible assets for classification and impairment more frequently if impairment indicators exist. We assess qualitative factors to determine whether the existence of events and circumstances indicate that it is more likely than not that our indefinite-lived intangible assets are impaired. If we conclude that it is more likely than not that the asset is impaired, we then determine the fair value of the intangible asset and perform the quantitative impairment test by comparing the fair value with the carrying value in accordance with FASB ASC Topic 350, Intangibles - Goodwill and Other. If the carrying value exceeds the fair value of the indefinite-lived intangible asset, we write the carrying value down to the fair value. We use the income approach to determine the fair values of our IPR&D. We base our revenue assumptions on estimates of relevant market sizes, expected market growth rates, expected trends in technology and expected levels of market share. In arriving at the value of the in-process projects, we consider, among other factors, the in-process projects’ stage of completion, the complexity of the work completed as of the acquisition date, the costs already incurred, the projected costs to complete, the contribution of other acquired assets, the expected regulatory path and introduction dates by region and the estimated useful life of the technology. See Note C – Goodwill and Other Intangible Assets for more information related to indefinite-lived intangibles, including IPR&D. For asset purchases outside of business combinations, we expense any purchased research and development assets as of the acquisition date. Amortization and Impairment of Intangible Assets We record definite-lived intangible assets at historical cost and amortize them over their estimated useful lives. We use a straight-line method of amortization, unless a method that better reflects the pattern in which the economic benefits of the intangible asset are consumed or otherwise used up can be reliably determined. The approximate useful lives for amortization of our intangible assets are as follows: patents and licenses, two to 20 years; amortizable technology-related and customer relationships, five to 25 years; other intangible assets, various. We review intangible assets subject to amortization quarterly to determine if any adverse conditions exist or a change in circumstances has occurred that would indicate impairment or a change in the remaining useful life. Conditions that may indicate impairment include, but are not limited to, a significant adverse change in legal factors or business climate that could affect the value of an asset, a product recall or an adverse action or assessment by a regulator. If we determine it is more likely than not that the asset is impaired based on our qualitative assessment of impairment indicators, we test the intangible asset for recoverability. For purposes of the recoverability test, we group our amortizable intangible assets with other assets and liabilities at the lowest level of identifiable cash flows if the intangible asset does not generate cash flows independent of other assets and liabilities. If the carrying value of the intangible asset or asset group exceeds the undiscounted cash flows expected to result from the use and eventual disposition of the intangible asset or asset group, we will write the carrying value down to fair value in the period impairment is identified. We calculate fair value of our intangible assets as the present value of estimated future cash flows we expect to generate from the asset. In determining our estimated future cash flows associated with our intangible assets, we use estimates and assumptions about future revenue contributions, cost structures and remaining useful lives of the asset or asset group. See Note C – Goodwill and Other Intangible Assets for more information related to impairments of intangible assets. For patents developed internally, we capitalize costs incurred to obtain patents, including attorney fees, registration fees, consulting fees and other expenditures directly related to securing the patent. Goodwill Valuation We allocate any excess purchase price over the fair value of the net tangible and identifiable intangible assets acquired in a business combination to goodwill. We test our goodwill balances during the second quarter of each year for impairment or more frequently if indicators are present or changes in circumstances suggest that impairment may exist. We assess goodwill for impairment at the reporting unit level, which is defined as an operating segment or one level below an operating segment, referred to as a component. For our 2019, 2018 and 2017 annual impairment assessment, we identified the following reporting units: Interventional Cardiology, Peripheral Interventions (including the Interventional Medicine business acquired with BTG), Cardiac Rhythm Management, Electrophysiology, Endoscopy, Urology and Pelvic Health and Neuromodulation. In addition, following the BTG acquisition in the third quarter of 2019, we added Specialty Pharmaceuticals as an additional reporting unit. We aggregated the Cardiac Rhythm Management and Electrophysiology reporting units, components of the Rhythm Management operating segment, based on the criteria prescribed in FASB ASC Topic 350. In performing the goodwill impairment assessments for 2019, 2018 and 2017, we utilized both the optional qualitative assessment and the quantitative approach prescribed under FASB ASC Topic 350. The qualitative assessment was used for testing certain reporting units where fair value has historically exceeded carrying value by greater than 100 percent. All other reporting units were tested using the quantitative approach described below. The qualitative assessment requires an evaluation of whether it is more likely than not that the fair value of the reporting unit is less than its carrying amount based on an assessment of relevant events including macroeconomic factors, industry and market conditions, cost factors, overall financial performance and other entity-specific factors. After assessing the totality of events, if it is determined that it is more likely than not that the fair value of the reporting unit exceeds its carrying value, no further steps are required. If it is determined that impairment is more likely than not, then we perform the quantitative impairment test. When allocating goodwill from business combinations to our reporting units, we assign goodwill to the reporting units that we expect to benefit from the respective business combination at the time of acquisition. In addition, for purposes of performing our goodwill impairment tests, assets and liabilities, including corporate assets, which relate to a reporting unit’s operations, and would be considered in determining its fair value, are allocated to the individual reporting units. We allocate assets and liabilities not directly related to a specific reporting unit, but from which the reporting unit benefits, based primarily on the respective revenue contribution of each reporting unit. For our 2019, 2018 and 2017 annual impairment assessments, for those reporting units for which a quantitative test was performed, we used only the income approach, specifically the Discounted Cash Flow method, to derive the fair value of each of our reporting units in preparing our goodwill impairment assessments. We selected this method as being the most meaningful in preparing our goodwill assessments because we believe the income approach most appropriately measures our income producing assets. We have considered using the market approach and cost approach but concluded they are not appropriate in valuing our reporting units given the lack of relevant market comparisons available for application of the market approach and the inability to replicate the value of the specific technology-based assets within our reporting units for application of the cost approach. Therefore, we believe that the income approach represents the most appropriate valuation technique for which sufficient data are available to determine the fair value of our reporting units. In applying the income approach to our accounting for goodwill, we make assumptions about the amount and timing of future expected cash flows, terminal value growth rates and appropriate discount rates. The amount and timing of future cash flows within our Discounted Cash Flow analysis is based on our most recent operational budgets, long range strategic plans and other estimates. The terminal value growth rate reflects our best estimates for stable, perpetual growth of our reporting units. We use estimates of market-participant risk-adjusted weighted average cost of capital as a basis for determining the discount rates to apply to our reporting units’ future expected cash flows. Refer to Note C – Goodwill and Other Intangible Assets to our consolidated financial statements for additional details related to our goodwill balances. Investments in Publicly Traded and Privately Held Entities In January 2016, the FASB issued ASC Update No. 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. The purpose of Update No. 2016-01 is to improve financial reporting for financial instruments by reducing the number of items recorded to Other Comprehensive Income. We adopted Update No. 2016-01 in the first quarter of 2018, using both the modified retrospective and prospective methods. For publicly-held securities, we used the modified retrospective approach. Unrealized gains and losses previously recorded to Other comprehensive income (loss) were reclassified to retained earnings, and all future fair value changes will be recorded to Net income (loss). For privately-held securities of investee companies over which we do not have the ability to exercise significant influence, we elected the measurement alternative approach for our existing investments, which is applied prospectively upon adoption. This approach requires entities to measure their investments at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. The adoption of the standard did not have a material impact on our financial position or results of operations. In 2017, we accounted for our publicly traded investments as available-for-sale securities based on the quoted market price at the end of the reporting period. Unrealized holding gains or losses during the period, net of tax, were recorded to Accumulated other comprehensive income (loss), net of tax. We computed realized gains and losses on sales of available-for-sale securities at fair value, adjusted for any other-than-temporary declines in fair value. We accounted for investments in privately-held entities in which we had less than a 20 percent ownership interest under the cost method of accounting if we did not have the ability to exercise significant influence over the investee in accordance with FASB ASC Topic 325, Investments - Other. We account for investments in entities over which we have the ability to exercise significant influence under the equity method if we hold 50 percent or less of the voting stock and the entity is not a VIE in which we are the primary beneficiary in accordance with FASB ASC Topic 323, Investments - Equity Method and Joint Ventures. We record these investments initially at cost and adjust the carrying amount to reflect our share of the earnings or losses of the investee, including all adjustments similar to those made in preparing consolidated financial statements. Lastly, we have notes receivable from certain companies that we account for in accordance with FASB ASC Topic 320, Investments - Debt and Equity Securities. Refer to Note B – Acquisitions and Strategic Investments for additional details on our investment balances. Each reporting period, we evaluate our investments to determine if there are any events or circumstances that are likely to have a significant adverse effect on the fair value of the investment. Examples of such impairment indicators include, but are not limited to, a significant deterioration in earnings performance, recent financing rounds at reduced valuations, a significant adverse change in the regulatory, economic or technological environment of an investee or a significant doubt about an investee’s ability to continue as a going concern. If we identify an impairment indicator, we will estimate the fair value of the investment and compare it to its carrying value. Our estimation of fair value considers financial information related to the investee available to us, including valuations based on recent third-party equity investments in the investee. If the fair value of the investment is less than its carrying value, the investment is impaired and we recognize an impairment loss equal to the difference between an investment’s carrying value and its fair value if accounted for under measurement alternative. For our equity method investments, an impairment loss is recorded if we determine the impairment is other-than-temporary. We deem an impairment to be other-than-temporary unless available evidence indicates that the valuation is more likely than not to recover up to the carrying value of the investment in a reasonable period of time, and we have both the ability and intent to hold the investment for at least the period of time needed to recover the value. For other-than-temporary impairments, we recognize an impairment loss equal to the difference between an investment’s carrying value and its fair value. Impairment losses on our investments are included in Other, net in our consolidated statements of operations. Income Taxes In February 2018, the FASB issued ASC Update No. 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. The purpose of Update No. 2018-02 is to allow an entity to reclassify the income tax effects of the Tax Cut and Jobs Act of 2017 (TCJA) on items within Accumulated other comprehensive income (loss), net of tax (AOCI) to retained earnings. Update No. 2018-02 is effective for all entities for annual periods beginning after December 15, 2018, including interim periods within those annual periods. We adopted Update No. 2018-02 in the first quarter of 2019 and have not elected to reclassify the income tax effects of the TCJA from AOCI to retained earnings. In October 2016, the FASB issued ASC Update No. 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory. The purpose of Update No. 2016-16 is to allow an entity to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs, as opposed to waiting until the asset is sold to a third party, or impaired. Update No. 2016-16 was effective for annual periods beginning after December 15, 2017, including interim periods within those annual periods. We adopted Update No. 2016-16 prospectively in the first quarter of 2018 and recognized a net reduction to retained earnings of $55 million for income tax consequences not previously recognized for intra-entity transfers of assets other than inventories. All future income tax consequences of intra-entity transfers of assets other than inventories will be recognized through Income tax expense (benefit). We utilize the asset and liability method of accounting for income taxes. Under this method, we determine deferred tax assets and liabilities based on differences between the financial reporting and tax bases of our assets and liabilities. We measure deferred tax assets and liabilities using the enacted tax rates and laws that will be in effect when we expect the differences to reverse. We reduce our deferred tax assets by a valuation allowance if, based upon the weight of available evidence, it is more likely than not that we will not realize some portion or all of the deferred tax assets. We consider relevant evidence, both positive and negative, to determine the need for a valuation allowance. Information evaluated includes our financial position and results of operations for the current and preceding years, the availability of deferred tax liabilities and tax carrybacks, as well as estimates of the impact of future taxable income and available prudent and feasible tax-planning strategies. We recognize interest and penalties related to income taxes as a component of income tax expense. As part of the TCJA, we are subject to a territorial tax system in which we are required to establish an accounting policy in providing for tax on Global Intangible Low Taxed Income (GILTI) earned by certain foreign subsidiaries. We have elected to treat the impact of GILTI as a period cost and will be reported as a part of continuing operations. See Note I – Income Taxes for further information and discussion of our income tax provision and balances including a discussion of the impacts of the TCJA. Legal and Product Liability Costs In the normal course of business, we are involved in various legal and regulatory proceedings, including intellectual property, breach of contract, securities litigation and product liability suits. In some cases, the claimants seek damages, as well as other relief, which, if granted, could require significant expenditures or impact our ability to sell our products. We are also the subject of certain governmental investigations, which could result in substantial fines, penalties and administrative remedies. We maintain an insurance policy providing limited coverage against securities claims, and we are substantially self-insured with respect to product liability claims and fully self-insured with respect to intellectual property infringement claims. We accrue anticipated costs of settlement, damages, losses for product liability claims and, under certain conditions, costs of defense, based on historical experience or to the extent specific losses are probable and estimable. Otherwise, we expense these costs as incurred. If the estimate of a probable loss is a range and no amount within the range is more likely, we accrue our best estimate of the minimum amount of the range. We analyze litigation settlements to identify each element of the arrangement. We allocate arrangement consideration to patent licenses received based on estimates of fair value and capitalize these amounts as assets if the license will provide an ongoing future benefit. We record certain legal and product liability charges, credits and costs of defense, which we consider to be unusual or infrequent and significant as Litigation-related charges (credits) in our consolidated statements of operations; all other legal and product liability charges, credits and costs are recorded within Selling, general and administrative expenses. See Note J – Commitments and Contingencies for discussion of our individual material legal proceedings. Costs Associated with Exit Activities We record employee termination costs in accordance with FASB ASC Topic 712, Compensation - Nonretirement and Postemployment Benefits, if we pay the benefits as part of an ongoing benefit arrangement, which includes benefits provided as part of our established severance policies or that we provide in accordance with international statutory requirements. We accrue employee termination costs associated with an ongoing benefit arrangement if the obligation is attributable to prior services rendered, the rights to the benefits have vested, the payment is probable and we can reasonably estimate the liability. We account for involuntary employee termination benefits that represent a one-time benefit in accordance with FASB ASC Topic 420, Exit or Disposal Cost Obligations. We record such costs into expense over the employee’s future service period, if any. Other costs associated with exit activities may include contract termination costs and consulting fees, which are expensed in accordance with FASB ASC Topic 420 and are included in Restructuring charges (credits) in our consolidated statements of operations. Additionally, costs directly related to our active restructuring initiatives, including program management costs, accelerated depreciation, fixed asset write-offs and costs to transfer product lines among facilities and are included within Costs of products sold and Selling, general and administrative expenses in our consolidated statements of operations. Impairment of right of use lease assets and lease terminations directly related to our active restructuring initiatives are expensed in accordance with FASB ASC Topic 842 and included within Costs of products sold and Selling, general and administrative expenses in our consolidated statements of operations. See Note G – Restructuring-related Activities for further information and discussion of our restructuring plans. Translation of Foreign Currency We translate all assets and liabilities of foreign subsidiaries from the functional currency, which is generally the local currency, into U.S. dollars using the year-end exchange rate and translate revenues and expenses at the average exchange rates in effect during the year. We show the net effect of these translation adjustments in our consolidated financial statements as a component of Accumulated other comprehensive income (loss), net of tax. For any significant foreign subsidiaries located in highly inflationary economies, we would re-measure their financial statements as if the functional currency were the U.S. dollar. Foreign currency transaction gains and losses are included in Other, net in our consolidated statements of operations, net of losses and gains from any related derivative financial instruments. Financial Instruments We recognize all derivative financial instruments in our consolidated financial statements at fair value in accordance with FASB ASC Topic 815, Derivatives and Hedging, and we present assets and liabilities associated with our derivative financial instruments on a gross basis in our financial statements. In accordance with FASB ASC Topic 815, for those derivative instruments that are designated and qualify as hedging instruments, the hedging instrument must be designated, based upon the exposure being hedged, as a fair value hedge, cash flow hedge, or a hedge of a net investment in a foreign operation. The accounting for changes in the fair value of a derivative instrument depends on whether it qualifies for, and has been designated as part of a hedging relationship, as well as on the type of hedging relationship. Our derivative instruments do not subject our earnings to material risk, as gains and losses on these derivatives generally offset gains and losses on the item being hedged, and we do not enter into derivative transactions for speculative purposes. Refer to Note D – Hedging Activities and Fair Value Measurements for more information on our hedging instruments. Shipping and Handling Costs We generally do not bill customers for shipping and handling of our products. We treat shipping and handling costs incurred after a customer obtains control of the good as a fulfillment cost and record in Selling, general and administrative expenses in our consolidated statements of operations. Shipping and handling costs were $144 million in 2019, $124 million in 2018 and $110 million in 2017. Research and Development We expense research and development costs, including new product development programs, regulatory compliance and clinical research as incurred. Refer to Indefinite-lived Intangibles, including In-Process Research and Development above for our policy regarding IPR&D acquired in connection with our business combinations and asset purchases. Net Income (Loss) per Common Share We base Net income (loss) per common share upon the weighted-average number of common shares and common stock equivalents outstanding during each year. Potential common stock equivalents are determined using the treasury stock method. We exclude stock options and stock awards whose effect would be anti-dilutive from the calculation.
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Restructuring Related Activities |
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Restructuring and Related Activities [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Restructuring and Related Activities Disclosure [Text Block] | NOTE G – RESTRUCTURING-RELATED ACTIVITIES 2019 Restructuring Plan On November 15, 2018, the Board of Directors approved, and we committed to a new global restructuring program (the 2019 Restructuring Plan). The 2019 Restructuring Plan is intended to support our effort to improve operating performance and meet anticipated market demands by ensuring that we are appropriately structured and resourced to deliver sustainable value to patients and customers. Key activities under the 2019 Restructuring Plan include supply chain network optimization intended to maximize our global manufacturing and distribution network capacity and building functional capabilities that support business growth. These activities were initiated in 2019, with the majority of activity expected to be complete by the end of 2021. The following table provides a summary of our estimates of total pre-tax charges associated with the 2019 Restructuring Plan by major type of cost:
Approximately $180 million to $280 million of these charges are expected to result in cash outlays. 2016 Restructuring Plan On June 6, 2016, our Board of Directors approved, and we committed to a restructuring initiative (the 2016 Restructuring Plan). The 2016 Restructuring Plan was intended to develop global commercialization, technology and manufacturing capabilities in key growth markets, build on our Plant Network Optimization (PNO) strategy which is intended to simplify our manufacturing plant structure by transferring certain production lines among facilities and expand operational efficiencies in support of our operating income margin goals. Key activities under the 2016 Restructuring Plan included strengthening global infrastructure through evolving global real estate assets and workplaces, developing global commercial and technical competencies, enhancing manufacturing and distribution expertise in certain regions and continuing implementation of our PNO strategy. These activities were initiated in the second quarter of 2016 and substantially completed in 2019. The following table provides a summary of total pre-tax charges associated with the 2016 Restructuring Plan by major type of cost:
Approximately $255 million of these charges are expected to result in cash outlays; the majority of which were completed as of December 31, 2019. The following presents the restructuring and restructuring-related charges (credits) by major type and line item within our accompanying consolidated statements of operations (in millions):
The following table presents cumulative restructuring and restructuring-related charges incurred as of December 31, 2019, related to our Restructuring Plans by major type:
Cash payments associated with our Restructuring Plans were made using cash generated from operations and are comprised of the following:
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Goodwill and Other Intangible Assets |
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Goodwill and Intangible Assets Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
GOODWILL AND OTHER INTANGIBLE ASSETS | NOTE C – GOODWILL AND OTHER INTANGIBLE ASSETS The gross carrying amount of goodwill and other intangible assets and the related accumulated amortization for intangible assets subject to amortization and accumulated write-offs of goodwill are as follows:
In the third quarter of 2019, we performed our annual impairment test of all IPR&D projects and our indefinite-lived core technology assets and determined that the assets were not impaired. In addition, we verified the classification as indefinite-lived assets continues to be appropriate. Intangible asset impairment charges were $105 million in 2019, $35 million in 2018 and $4 million in 2017. Refer to Note A - Significant Accounting Policies for a discussion of key assumptions used in our goodwill and intangible asset impairment testing. Effective January 1, 2018, we reclassified our Neuromodulation operating segment and associated goodwill balance from our MedSurg reportable segment to our Rhythm and Neuro reportable segment. This change did not impact our total goodwill carrying value. Our seven core businesses are organized into three reportable segments: MedSurg, Rhythm and Neuro, and Cardiovascular. Following our acquisition of BTG, which closed during the third quarter of 2019, we have included BTG’s Interventional Medicine business within our Peripheral Interventions operating segment, within the Cardiovascular reportable segment. We present BTG’s Specialty Pharmaceuticals business as a standalone operating segment alongside our reportable segments. The following represents our goodwill balance by global reportable segment and our separately reported Specialty Pharmaceuticals operating segment:
We did not have any goodwill impairments in 2019, 2018 or 2017. Estimated Amortization expense for each of the five succeeding fiscal years based upon our amortizable intangible asset portfolio as of December 31, 2019 is as follows (in millions):
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Fair Value Measurements (Tables) |
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Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Assets and liabilities measured at fair value on a recurring basis | Changes in the fair value of our licensing arrangements' financial asset was as follows:
Changes in the fair value of our licensing arrangements' financial liability was as follows:
The recurring Level 3 fair value measurements of our licensing arrangements recognized in our consolidated balance sheets as of December 31, 2019 include the following significant unobservable inputs:
(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. Assets and liabilities measured at fair value on a recurring basis consist of the following:
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Classification of derivative assets and liabilities within level 2 | The following are the balances of our derivative and nonderivative assets and liabilities:
(1) We classify derivative and nonderivative assets and liabilities as current when the settlement date of the contract is one year or less.
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Derivative Instruments, Gain (Loss) that may be Reclassified from AOCI to Earnings within Twelve Months [Table Text Block] | As of December 31, 2019, pre-tax net gains or losses for our derivative instruments designated, or previously designated, as cash flow and net investment hedges under FASB ASC Topic 815 that may be reclassified from AOCI to earnings within the next twelve months are presented below (in millions):
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Gains (losses) recognized in earnings for derivatives designed as hedging instruments | The following presents the effect of our derivative and nonderivative instruments designated as cash flow and net investment hedges under FASB ASC Topic 815 on our accompanying consolidated statements of operations. Refer to Note P – Changes in Other Comprehensive Income for the total amounts relating to derivative and nonderivative instruments presented within the consolidated statements of comprehensive income (loss).
(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.
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Schedule of Derivative Instruments [Table Text Block] | The following table presents the contractual amounts of our hedging instruments outstanding:
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Net foreign currency gain (loss) [Table Text Block] | Net gains and losses on currency hedge contracts not designated as hedging instruments offset by net gains and losses from currency transaction exposures are presented below:
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