UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2020

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File No. 1-11083

BOSTON SCIENTIFIC CORPORATION

(Exact name of registrant as specified in its charter)

Delaware	04-2695240
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

        300 Boston Scientific Way, Marlborough, Massachusetts     01752-1234

         (Address of Principal Executive Offices)       (Zip Code)

508 683-4000

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol	Name of each exchange on which registered
Common Stock, $0.01 par value	BSX	New York Stock Exchange
0.625% Senior Notes due 2027	BSX27	New York Stock Exchange
5.50% Mandatory Convertible Preferred Stock, Series A, par value $0.01 per share	BSX PR A	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☑	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑

The number of shares outstanding of Common Stock, $0.01 par value per share, as of July 31, 2020 was 1,430,674,668.

TABLE OF CONTENTS

		Page No.
PART I	FINANCIAL INFORMATION	3
ITEM 1.	Condensed Consolidated Financial Statements	3
	Condensed Consolidated Statements of Operations (Unaudited)	3
	Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited)	4
	Condensed Consolidated Balance Sheets (Unaudited as of June 30, 2020)	5
	Condensed Consolidated Statements of Stockholders' Equity (Unaudited)	6
	Condensed Consolidated Statements of Cash Flows (Unaudited)	7
	Notes to the Condensed Consolidated Financial Statements (Unaudited)	8
ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	39
ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	59
ITEM 4.	Controls and Procedures	60
PART II	OTHER INFORMATION	61
ITEM 1.	Legal Proceedings	61
ITEM 1A.	Risk Factors	61
ITEM 6.	Exhibits	62
SIGNATURE		65

2

PART I

FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

BOSTON SCIENTIFIC CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

	Three Months Ended June 30,				Six Months Ended June 30,
(in millions, except per share data)	2020		2019		2020		2019
Net sales	$	2,003	$	2,631	$	4,546	$	5,124
Cost of products sold	791		758		1,596		1,488
Gross profit	1,212		1,873		2,950		3,636
Operating expenses:
Selling, general and administrative expenses	798		968		1,776		1,837
Research and development expenses	242		280		542		559
Royalty expense	8		17		20		32
Amortization expense	197		161		398		321
Intangible asset impairment charges	34		37		233		105
Contingent consideration expense (benefit)	—		10		(108)		(18)
Restructuring charges (credits)	3		1		13		7
Litigation-related net charges (credits)	—		15		—		(133)
	1,283		1,489		2,875		2,711
Operating income (loss)	(71)		384		75		925
Other income (expense):
Interest expense	(91)		(89)		(179)		(198)
Other, net	(18)		(150)		(54)		(125)
Income (loss) before income taxes	(181)		145		(159)		602
Income tax expense (benefit)	(33)		(9)		(22)		24
Net income (loss)	(147)		154		(137)		578
Preferred stock dividends	(5)		—		(5)		—
Net income (loss) available to common stockholders	$	(153)	$	154	$	(142)	$	578
Net income (loss) per common share — basic	$	(0.11)	$	0.11	$	(0.10)	$	0.42
Net income (loss) per common share — assuming dilution	$	(0.11)	$	0.11	$	(0.10)	$	0.41
Weighted-average shares outstanding
Basic	1,410.9		1,391.0		1,404.1		1,389.4
Assuming dilution	1,410.9		1,408.6		1,404.1		1,408.5

See notes to the unaudited condensed consolidated financial statements. Amounts may not foot due to rounding.

3

BOSTON SCIENTIFIC CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)

	Three Months Ended June 30,				Six Months Ended June 30,
(in millions)	2020		2019		2020		2019
Net income (loss)	$	(147)	$	154	$	(137)	$	578
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustment	(11)		—		(187)		7
Net change in derivative financial instruments	(26)		(9)		48		40
Net change in defined benefit pensions and other items	—		—		—		(1)
Total other comprehensive income (loss)	(37)		(9)		(139)		45
Total comprehensive income (loss)	$	(185)	$	144	$	(276)	$	623

See notes to the unaudited condensed consolidated financial statements. Amounts may not foot due to rounding.

4

BOSTON SCIENTIFIC CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

	As of
(in millions, except share and per share data)	June 30, 2020		December 31, 2019
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	1,724	$	217
Trade accounts receivable, net	1,457		1,828
Inventories	1,516		1,579
Prepaid income taxes	181		195
Other current assets	925		880
Total current assets	5,803		4,699
Property, plant and equipment, net	2,079		2,079
Goodwill	10,101		10,176
Other intangible assets, net	7,160		7,886
Deferred tax assets	4,182		4,196
Other long-term assets	1,500		1,529
TOTAL ASSETS	$	30,823	$	30,565
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current debt obligations	$	254	$	1,416
Accounts payable	408		542
Accrued expenses	1,718		2,109
Other current liabilities	729		800
Total current liabilities	3,108		4,866
Long-term debt	9,278		8,592
Deferred income taxes	585		595
Other long-term liabilities	2,236		2,635
Commitments and contingencies
Stockholders’ equity
Preferred stock, $0.01 par value - authorized 50,000,000 shares - issued 10,062,500 shares as of June 30, 2020 and none as of December 31, 2019	—		—
Common stock, $0.01 par value - authorized 2,000,000,000 shares - issued 1,676,753,566 shares as of June 30, 2020 and 1,642,488,911 shares as of December 31, 2019	17		16
Treasury stock, at cost - 247,566,270 shares as of June 30, 2020 and December 31, 2019	(1,717)		(1,717)
Additional paid-in capital	19,590		17,561
Accumulated deficit	(2,405)		(2,253)
Accumulated other comprehensive income (loss), net of tax	131		270
Total stockholders’ equity	15,616		13,877
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	30,823	$	30,565

See notes to the unaudited condensed consolidated financial statements. Amounts may not foot due to rounding.

5

BOSTON SCIENTIFIC CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED)

	Preferred Stock			Common Stock			Treasury Stock		Additional Paid-In Capital		Accumulated Deficit		Accumulated Other Comprehensive Income (Loss), Net of Tax
(in millions, except share data)	Shares Issued	Par Value		Shares Issued	Par Value
As of December 31, 2018	—	$	—	1,632,148,030	$	16	$	(1,717)	$	17,346	$	(6,953)	$	33
Net income (loss)											424
Total other comprehensive income (loss)													54
Stock-based compensation				6,001,343					28
As of March 31, 2019	—	$	—	1,638,149,373	$	16	$	(1,717)	$	17,374	$	(6,528)	$	87
Net income (loss)											154
Total other comprehensive income (loss)													(9)
Stock-based compensation				949,557					48
As of June 30, 2019	—	$	—	1,639,098,930	$	16	$	(1,717)	$	17,422	$	(6,375)	$	78
Net income (loss)											126
Total other comprehensive income (loss)													60
Stock-based compensation				2,243,579					89
As of September 30, 2019	—	$	—	1,641,342,509	$	16	$	(1,717)	$	17,510	$	(6,249)	$	138
Net income (loss)											3,996
Total other comprehensive income (loss)													132
Stock-based compensation				1,146,402					50
As of December 31, 2019	—	$	—	1,642,488,911	$	16	$	(1,717)	$	17,561	$	(2,253)	$	270
Net income (loss)											11
Cumulative effect adjustment for adoption of ASU 2016-13											(10)
Total other comprehensive income (loss)													(101)
Stock-based compensation				4,388,331					28
As of March 31, 2020	—	$	—	1,646,877,242	$	16	$	(1,717)	$	17,589	$	(2,252)	$	168
Net income (loss)											(147)
Total other comprehensive income (loss)													(37)
Preferred stock issuance	10,062,500	—							975
Common stock issuance				29,382,500	—				975
Preferred stock dividends											(5)
Stock-based compensation				493,824					50
As of June 30, 2020	10,062,500	$	—	1,676,753,566	$	17	$	(1,717)	$	19,590	$	(2,405)	$	131

See notes to the unaudited condensed consolidated financial statements. Amounts may not foot due to rounding.

6

BOSTON SCIENTIFIC CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

	Six Months Ended June 30,
(in millions)	2020		2019
Cash provided by (used for) operating activities	$	192	$	642
Investing activities:
Purchases of property, plant and equipment	(168)		(154)
Proceeds from sale of property, plant and equipment	4		2
Payments for acquisitions of businesses, net of cash acquired	(3)		(763)
Proceeds from royalty rights	45		—
Payments for investments and acquisitions of certain technologies	(29)		(115)
Proceeds from divestiture	15		—
Cash provided by (used for) investing activities	(135)		(1,030)
Financing activities:
Payment of contingent consideration and royalty rights established in purchase accounting	(90)		(64)
Payments on short-term borrowings	(2,700)		(1,000)
Proceeds from short-term borrowings, net of debt issuance costs	2,245		—
Net increase (decrease) in commercial paper	(714)		675
Payments on borrowings from credit facilities	(1,919)		—
Proceeds from borrowings on credit facilities	1,916		—
Payments on long-term borrowings and debt extinguishment costs	(1,000)		(1,472)
Proceeds from long-term borrowings, net of debt issuance costs	1,683		4,243
Net proceeds from issuance of preferred stock in connection with public offering	975		—
Net proceeds from issuance of common stock in connection with public offering	975		—
Cash used to net share settle employee equity awards	(57)		(61)
Proceeds from issuances of common stock pursuant to employee stock compensation and purchase plans	48		63
Cash provided by (used for) financing activities	1,361		2,383
Effect of foreign exchange rates on cash	(9)		—
Net increase (decrease) in cash, cash equivalents, restricted cash and restricted cash equivalents	1,409		1,994
Cash, cash equivalents, restricted cash and restricted cash equivalents at beginning of period	607		829
Cash, cash equivalents, restricted cash and restricted cash equivalents at end of period	$	2,016	$	2,823
Supplemental Information
Stock-based compensation expense	$	88	$	74
Fair value of contingent consideration recorded in purchase accounting	—		131
Non-cash impact of transferred royalty rights	(45)		—

	As of June 30,
Reconciliation to amounts in the unaudited condensed consolidated balance sheets:	2020		2019
Cash and cash equivalents	$	1,724	$	123
Restricted cash and restricted cash equivalents included in Other current assets	245		2,657
Restricted cash equivalents included in Other long-term assets	46		42
Cash, cash equivalents, restricted cash and restricted cash equivalents at end of period	$	2,016	$	2,823

See notes to the unaudited condensed consolidated financial statements. Amounts may not foot due to rounding.

7

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE A – BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements of Boston Scientific Corporation have been prepared in accordance with accounting principles generally accepted in the United States (U.S. GAAP) and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. When used in this report, the terms, "we," "us," "our," and "the Company" mean Boston Scientific Corporation and its divisions and subsidiaries. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for fair presentation have been included. Operating results for the three and six months ended June 30, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020. For further information, refer to the consolidated financial statements and footnotes thereto included in Item 8 of our most recent Annual Report on Form 10-K.

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.

Subsequent Events

We evaluate events occurring after the date of our most recent accompanying unaudited condensed consolidated balance sheet for potential recognition or disclosure in our financial statements. Those items requiring recognition in the financial statements have been recorded and disclosed accordingly. Refer to Note I – Stockholders' Equity for more information. Those items requiring disclosure (non-recognized subsequent events) in the financial statements have been disclosed accordingly. Refer to Note H – Commitments and Contingencies and Note I – Stockholders' Equity for more information.

Accounting Standards Implemented Since December 31, 2019

ASC Update No. 2016-13

In June 2016, the FASB issued ASC Update No. 2016-13, Financial Instruments - Credit Losses (FASB ASC Topic 326, Financial Instruments - Credit Losses). We adopted the standard as of January 1, 2020 using the modified retrospective method. Under this method, we applied the new credit loss measurement guidance to financial assets measured at amortized cost on the date of adoption 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, 2020 are presented in accordance with FASB ASC Topic 326. Prior period amounts have not been restated and are reported in accordance with legacy GAAP requirements in FASB ASC Topic 310, Receivables.

Upon the adoption of FASB ASC Topic 326, credit loss reserves are recorded when financial assets are established if credit losses are expected over the asset’s contractual life. These losses were previously expensed when it became probable that a loss would be incurred. As a result of the adoption of FASB ASC Topic 326, we recorded a net reduction to opening retained earnings on January 1, 2020 related to the establishment of credit loss reserves on Trade accounts receivable and recorded a corresponding increase in the Allowance for credit losses, a contra Trade accounts receivable account. The adoption impact was not material to our unaudited condensed consolidated financial statements.

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 adopted Update No. 2018-15 in the first quarter of 2020. The adoption had an immaterial impact on our financial position and results of operations.

8

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, Revenue from Contracts with Customers (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 adopted Update No. 2018-18 in the first quarter of 2020. The adoption had an immaterial impact on our financial position and results of operations.

NOTE B – ACQUISITIONS AND STRATEGIC INVESTMENTS

Our unaudited condensed consolidated financial statements include the operating results for acquired entities from the respective date of acquisition. We did not complete any material acquisitions or divestitures during the first six months of 2020. We have not presented supplemental pro forma financial information for prior acquisitions given their results are not material to our unaudited condensed consolidated financial statements. We recorded immaterial purchase price adjustments during the measurement period for the preliminary purchase price allocations of acquisitions made in prior periods in the first six months of 2020. Transaction costs for all acquisitions completed in the second quarter and first six months of 2020 and 2019 were immaterial to our unaudited condensed consolidated financial statements and were expensed as incurred.

Q2 2019 YTD Acquisitions

Vertiflex, Inc.

On June 11, 2019, we announced the closing of our acquisition of Vertiflex, Inc. (Vertiflex), a privately-held company which 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. At the time of acquisition, we estimated 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 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 were 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 payment upon achievement of a commercial milestone. Following the closing of the acquisition, we integrated the Millipede business into our Interventional Cardiology division.

9

Purchase Price Allocation

We accounted for the 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 final purchase prices were comprised of the following components:

(in millions)
Payments for acquisitions, net of cash acquired	$	763
Fair value of contingent consideration	127
Fair value of prior interests	102
	$	992

The final combined purchase price allocation was comprised of the following components:

(in millions)
Goodwill	$	577
Amortizable intangible assets	220
Indefinite-lived intangible assets	240
Other assets acquired	24
Liabilities assumed	(12)
Net deferred tax liabilities	(58)
	$	992

We allocated a portion of the combined purchase price to the specific intangible asset categories as follows:

	Amount Assigned (in millions)		Amortization Period (in years)	Risk-Adjusted Discount Rates used in Purchase Price Allocation
Amortizable intangible assets:
Technology-related	$	210	12	15%
Other intangible assets	10		12	15%
Indefinite-lived intangible assets:
In-process research and development (IPR&D)	240		N/A	19%
	$	461

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. The goodwill recorded relating to our 2019 acquisitions is not deductible for tax purposes.

Contingent Consideration

Changes in the fair value of our contingent consideration liability were as follows:

(in millions)
Balance as of December 31, 2019	$	354
Contingent consideration net expense (benefit)	(108)
Contingent consideration payments	(38)
Balance as of June 30, 2020	$	208

10

As of June 30, 2020, the maximum amount of future contingent consideration (undiscounted) that we could be required to pay associated with our prior acquisitions was $627 million. Refer to Note B – Acquisitions and Strategic Investments to our audited financial statements contained in Item 8 of our most recent Annual Report on Form 10-K for additional information.

The $108 million benefit recorded in the first six months of 2020 related to a reduction in the contingent consideration liability for certain prior acquisitions for which we reduced the probability of achievement of associated revenue and/or regulatory milestones upon which payment is conditioned, or in the case of nVision Medical Corporation (nVision) for milestones that would not be achieved due to management's discontinuation of the R&D program.

The recurring Level 3 fair value measurements of our contingent consideration liability that we expect to be required to settle include the following significant unobservable inputs:

Contingent Consideration Liability	Fair Value as of June 30, 2020	Valuation Technique	Unobservable Input	Range				Weighted Average (1)
R&D, Regulatory and Commercialization-based Milestones	$97 million	Discounted Cash Flow	Discount Rate	3	%	-	3%	3%
			Probability of Payment	90	%	-	90%	90%
			Projected Year of Payment	2027		-	2027	2027
Revenue-based Payments