þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
DELAWARE | 04-2695240 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
Large accelerated filer þ | Accelerated filer o |
Non-Accelerated filer o (Do not check if a smaller reporting company) | Smaller reporting company o |
Emerging growth company o |
Shares outstanding | ||
Class | as of October 31, 2017 | |
Common Stock, $0.01 par value | 1,373,195,517 |
Page No. | ||
Condensed Consolidated Balance Sheets (Unaudited as of September 30, 2017) | ||
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
in millions, except per share data | 2017 | 2016 | 2017 | 2016 | |||||||||||
Net sales | $ | 2,222 | $ | 2,105 | $ | 6,640 | $ | 6,195 | |||||||
Cost of products sold | 637 | 594 | 1,919 | 1,805 | |||||||||||
Gross profit | 1,585 | 1,511 | 4,721 | 4,390 | |||||||||||
Operating expenses: | |||||||||||||||
Selling, general and administrative expenses | 800 | 772 | 2,408 | 2,268 | |||||||||||
Research and development expenses | 254 | 232 | 734 | 664 | |||||||||||
Royalty expense | 16 | 20 | 50 | 59 | |||||||||||
Amortization expense | 139 | 136 | 424 | 408 | |||||||||||
Intangible asset impairment charges | 3 | 7 | 3 | 7 | |||||||||||
Restructuring charges (credits) | 12 | 5 | 17 | 22 | |||||||||||
Contingent consideration expense (benefit) | (4 | ) | (13 | ) | (78 | ) | 23 | ||||||||
Litigation-related charges (credits) | (12 | ) | 4 | 196 | 632 | ||||||||||
1,208 | 1,163 | 3,754 | 4,083 | ||||||||||||
Operating income (loss) | 377 | 348 | 967 | 307 | |||||||||||
Other income (expense): | |||||||||||||||
Interest expense | (57 | ) | (58 | ) | (172 | ) | (175 | ) | |||||||
Other, net | (11 | ) | (33 | ) | (89 | ) | (44 | ) | |||||||
Income (loss) before income taxes | 309 | 257 | 706 | 88 | |||||||||||
Income tax expense (benefit) | 26 | 29 | (13 | ) | (135 | ) | |||||||||
Net income (loss) | $ | 283 | $ | 228 | $ | 719 | $ | 223 | |||||||
Net income (loss) per common share — basic | $ | 0.21 | $ | 0.17 | $ | 0.53 | $ | 0.16 | |||||||
Net income (loss) per common share — assuming dilution | $ | 0.20 | $ | 0.17 | $ | 0.52 | $ | 0.16 | |||||||
Weighted-average shares outstanding | |||||||||||||||
Basic | 1,372.0 | 1,360.6 | 1,369.1 | 1,356.1 | |||||||||||
Assuming dilution | 1,394.1 | 1,379.7 | 1,391.8 | 1,374.9 |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
(in millions) | 2017 | 2016 | 2017 | 2016 | |||||||||||
Net income (loss) | $ | 283 | $ | 228 | $ | 719 | $ | 223 | |||||||
Other comprehensive income (loss), net of tax: | |||||||||||||||
Foreign currency translation adjustment | 25 | 2 | 46 | (3 | ) | ||||||||||
Net change in unrealized gains and losses on derivative financial instruments | (24 | ) | (31 | ) | (100 | ) | (184 | ) | |||||||
Net change in available-for-sale securities | 1 | — | 3 | — | |||||||||||
Net change in unrealized costs associated with certain retirement plans | — | — | (1 | ) | — | ||||||||||
Total other comprehensive income (loss) | 2 | (29 | ) | (52 | ) | (187 | ) | ||||||||
Total comprehensive income (loss) | $ | 285 | $ | 199 | $ | 667 | $ | 36 |
As of | |||||||
September 30, | December 31, | ||||||
in millions, except share and per share data | 2017 | 2016 | |||||
(Unaudited) | |||||||
ASSETS | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 210 | $ | 196 | |||
Trade accounts receivable, net | 1,470 | 1,472 | |||||
Inventories | 1,077 | 955 | |||||
Deferred and prepaid income taxes | 76 | 75 | |||||
Other current assets | 645 | 541 | |||||
Total current assets | 3,478 | 3,239 | |||||
Property, plant and equipment, net | 1,678 | 1,630 | |||||
Goodwill | 6,882 | 6,678 | |||||
Other intangible assets, net | 5,783 | 5,883 | |||||
Other long-term assets | 815 | 666 | |||||
TOTAL ASSETS | $ | 18,636 | $ | 18,096 | |||
LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||
Current liabilities: | |||||||
Current debt obligations | $ | 1,266 | $ | 64 | |||
Accounts payable | 371 | 447 | |||||
Accrued expenses | 2,551 | 2,312 | |||||
Other current liabilities | 640 | 764 | |||||
Total current liabilities | 4,828 | 3,587 | |||||
Long-term debt | 4,416 | 5,420 | |||||
Deferred income taxes | 66 | 18 | |||||
Other long-term liabilities | 1,738 | 2,338 | |||||
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 1,620,302,039 shares as of September 30, 2017 and 1,609,670,817 shares as of December 31, 2016 | 16 | 16 | |||||
Treasury stock, at cost - 247,566,270 shares as of September 30, 2017 and December 31, 2016 | (1,717 | ) | (1,717 | ) | |||
Additional paid-in capital | 17,125 | 17,014 | |||||
Accumulated deficit | (7,785 | ) | (8,581 | ) | |||
Accumulated other comprehensive income (loss), net of tax | (51 | ) | 1 | ||||
Total stockholders’ equity | 7,588 | 6,733 | |||||
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ | 18,636 | $ | 18,096 |
Nine Months Ended September 30, | |||||||
(in millions) | 2017 | 2016 | |||||
Cash provided by (used for) operating activities | $ | 554 | $ | 506 | |||
Investing activities: | |||||||
Purchases of property, plant and equipment | (240 | ) | (209 | ) | |||
Proceeds on disposals of property, plant and equipment | — | 29 | |||||
Payments for acquisitions of businesses, net of cash acquired | (392 | ) | (70 | ) | |||
Net payments for investments, acquisitions of certain technologies and issuances of notes receivable | (89 | ) | (105 | ) | |||
Cash provided by (used for) investing activities | (721 | ) | (355 | ) | |||
Financing activities: | |||||||
Payments on long-term borrowings | (1,000 | ) | (250 | ) | |||
Net increase (decrease) in commercial paper | 1,253 | — | |||||
Payment of contingent consideration amounts previously established in purchase accounting | (30 | ) | (35 | ) | |||
Proceeds from borrowings on credit facilities | 2,156 | 330 | |||||
Payments on borrowings from credit facilities | (2,216 | ) | (330 | ) | |||
Cash used to net share settle employee equity awards | (64 | ) | (57 | ) | |||
Proceeds from issuances of shares of common stock | 79 | 108 | |||||
Cash provided by (used for) financing activities | 178 | (234 | ) | ||||
Effect of foreign exchange rates on cash | 3 | 1 | |||||
Net increase (decrease) in cash and cash equivalents | 14 | (82 | ) | ||||
Cash and cash equivalents at beginning of period | 196 | 319 | |||||
Cash and cash equivalents at end of period | $ | 210 | $ | 237 | |||
Supplemental Information | |||||||
Stock-based compensation expense | $ | 96 | $ | 87 | |||
Fair value of contingent consideration recorded in purchase accounting | — | 4 |
Payment for acquisition, net of cash acquired | $ | 392 |
Goodwill | $ | 191 | |
Amortizable intangible assets | 278 | ||
Other assets acquired | 26 | ||
Liabilities assumed | (103 | ) | |
$ | 392 |
Amount Assigned (in millions) | Amortization Period (in years) | Risk-Adjusted Discount Rates used in Purchase Price Allocation | |||||
Amortizable intangible assets: | |||||||
Technology-related | $ | 268 | 13 | 24% | |||
Other intangible assets | 10 | 2-13 | 24% | ||||
$ | 278 |
Balance as of December 31, 2016 | $ | 204 | |
Fair value adjustments | (78 | ) | |
Contingent payments related to prior period acquisitions | (45 | ) | |
Balance as of September 30, 2017 | $ | 81 |
Contingent Consideration Liabilities | Fair Value as of September 30, 2017 | Valuation Technique | Unobservable Input | Range |
R&D and Commercialization-based Milestones | $31 million | Discounted Cash Flow | Discount Rate | 2% |
Projected Year of Payment | 2018 - 2021 | |||
Revenue-based Payments | $50 million | Discounted Cash Flow | Discount Rate | 11% - 15% |
Projected Year of Payment | 2017 - 2026 |
As of | ||||||||
(in millions) | September 30, 2017 | December 31, 2016 | ||||||
Equity method investments | $ | 204 | $ | 265 | ||||
Cost method investments | 69 | 20 | ||||||
Available-for-sale securities | 32 | 20 | ||||||
Notes receivable | 44 | 42 | ||||||
$ | 349 | $ | 347 |
As of | |||||||||||||||
September 30, 2017 | December 31, 2016 | ||||||||||||||
Gross Carrying | Accumulated Amortization/ | Gross Carrying | Accumulated Amortization/ | ||||||||||||
(in millions) | Amount | Write-offs | Amount | Write-offs | |||||||||||
Amortizable intangible assets | |||||||||||||||
Technology-related | $ | 9,388 | $ | (4,774 | ) | $ | 9,123 | $ | (4,468 | ) | |||||
Patents | 514 | (375 | ) | 529 | (374 | ) | |||||||||
Other intangible assets | 1,625 | (807 | ) | 1,583 | (722 | ) | |||||||||
$ | 11,527 | $ | (5,956 | ) | $ | 11,235 | $ | (5,564 | ) | ||||||
Unamortizable intangible assets | |||||||||||||||
Goodwill | $ | 16,782 | $ | (9,900 | ) | $ | 16,578 | $ | (9,900 | ) | |||||
In-process research and development (IPR&D) | 92 | — | 92 | — | |||||||||||
Technology-related | 120 | — | 120 | — | |||||||||||
$ | 16,994 | $ | (9,900 | ) | $ | 16,790 | $ | (9,900 | ) |
(in millions) | Cardiovascular | Rhythm Management | MedSurg | Total | |||||||||||
Balance as of December 31, 2016 | $ | 3,513 | $ | 290 | $ | 2,875 | $ | 6,678 | |||||||
Impact of foreign currency fluctuations and other changes in carrying amount | 11 | 1 | 1 | 13 | |||||||||||
Goodwill acquired | 191 | — | — | 191 | |||||||||||
Balance as of September 30, 2017 | $ | 3,715 | $ | 291 | $ | 2,876 | $ | 6,882 |
(in millions) | Cardiovascular | Rhythm Management | MedSurg | Total | |||||||||||
Accumulated write-offs as of December 31, 2016 | $ | (1,479 | ) | $ | (6,960 | ) | $ | (1,461 | ) | $ | (9,900 | ) | |||
Goodwill written off | — | — | — | — | |||||||||||
Accumulated write-offs as of September 30, 2017 | $ | (1,479 | ) | $ | (6,960 | ) | $ | (1,461 | ) | $ | (9,900 | ) |
(in millions) | Topic 815 designation | As of | ||||||
September 30, 2017 | December 31, 2016 | |||||||
Forward currency contracts | Cash flow hedge | $ | 3,218 | $ | 2,271 | |||
Forward currency contracts | Non-designated | 2,111 | 1,830 | |||||
Total Notional Outstanding | $ | 5,329 | $ | 4,101 |
(in millions) | Location in Unaudited Condensed Consolidated Statements of Operations | Effective Amount Recognized in OCI | Effective Amount Reclassified from OCI into Earnings | |||||||||||||||||||
Pre-Tax Gain (Loss) | Tax Benefit (Expense) | Gain (Loss) Net of Tax | Pre-Tax (Gain) Loss | Tax Benefit (Expense) | (Gain) Loss Net of Tax | |||||||||||||||||
Three Months Ended September 30, 2017 | ||||||||||||||||||||||
Forward currency contracts | Cost of products sold | $ | (24 | ) | $ | 9 | $ | (15 | ) | $ | (14 | ) | $ | 5 | $ | (9 | ) | |||||
Three Months Ended September 30, 2016 | ||||||||||||||||||||||
Forward currency contracts | Cost of products sold | $ | (22 | ) | $ | 8 | $ | (14 | ) | $ | (27 | ) | $ | 10 | $ | (17 | ) | |||||
Nine Months Ended September 30, 2017 | ||||||||||||||||||||||
Forward currency contracts | Cost of products sold | $ | (88 | ) | $ | 32 | $ | (56 | ) | $ | (68 | ) | $ | 25 | $ | (43 | ) | |||||
Interest rate derivative contracts | Interest expense | — | — | — | (1 | ) | — | (1 | ) | |||||||||||||
$ | (88 | ) | $ | 32 | $ | (56 | ) | $ | (69 | ) | $ | 25 | $ | (44 | ) | |||||||
Nine Months Ended September 30, 2016 | ||||||||||||||||||||||
Forward currency contracts | Cost of products sold | $ | (180 | ) | $ | 65 | $ | (115 | ) | $ | (107 | ) | $ | 38 | $ | (69 | ) |
(in millions) | Location in Unaudited Condensed Consolidated Statements of Operations | Amount of Pre-Tax Gain (Loss) that may be Reclassified to Earnings | ||||
Fair value hedge contracts | Interest expense | $ | 12 | |||
Cash flow hedge contracts | Interest expense | 1 | ||||
Cash flow hedge contracts | Cost of products sold | (30 | ) |
(in millions) | Location in Unaudited Condensed Consolidated Statements of Operations | |||||||||||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||||
September 30, | September 30, | |||||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||||
Net gain (loss) on currency hedge contracts | Other, net | $ | (13 | ) | $ | (7 | ) | $ | (25 | ) | $ | (74 | ) | |||||
Net gain (loss) on currency transaction exposures | Other, net | 9 | 1 | 13 | 64 | |||||||||||||
Net currency exchange gain (loss) | $ | (4 | ) | $ | (6 | ) | $ | (12 | ) | $ | (10 | ) |
Location in Unaudited Condensed Consolidated Balance Sheets (1) | As of | |||||||
September 30, | December 31, | |||||||
(in millions) | 2017 | 2016 | ||||||
Derivative Assets: | ||||||||
Designated Derivative Instruments | ||||||||
Forward currency contracts | Other current assets | $ | 7 | $ | 98 | |||
Forward currency contracts | Other long-term assets | 59 | 65 | |||||
66 | 163 | |||||||
Non-Designated Derivative Instruments | ||||||||
Forward currency contracts | Other current assets | 17 | 36 | |||||
Total Derivative Assets | $ | 83 | $ | 199 | ||||
Derivative Liabilities: | ||||||||
Designated Derivative Instruments | ||||||||
Forward currency contracts | Other current liabilities | $ | 38 | $ | 3 | |||
Forward currency contracts | Other long-term liabilities | 25 | 4 | |||||
63 | 7 | |||||||
Non-Designated Derivative Instruments | ||||||||
Forward currency contracts | Other current liabilities | 29 | 19 | |||||
Total Derivative Liabilities | $ | 92 | $ | 26 |
(1) | We classify derivative assets and liabilities as current when the remaining term of the derivative 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 | |||||||||||||||||||||||||||||||
September 30, 2017 | December 31, 2016 | ||||||||||||||||||||||||||||||
(in millions) | Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 | Total | |||||||||||||||||||||||
Assets | |||||||||||||||||||||||||||||||
Money market and government funds | $ | 27 | $ | — | $ | — | $ | 27 | $ | 42 | $ | — | $ | — | $ | 42 | |||||||||||||||
Available-for-sale securities | 32 | — | — | 32 | 20 | — | — | 20 | |||||||||||||||||||||||
Forward currency contracts | — | 83 | — | 83 | — | 199 | — | 199 | |||||||||||||||||||||||
$ | 59 | $ | 83 | $ | — | $ | 142 | $ | 62 | $ | 199 | $ | — | $ | 261 | ||||||||||||||||
Liabilities | |||||||||||||||||||||||||||||||
Forward currency contracts | $ | — | $ | 92 | $ | — | $ | 92 | $ | — | $ | 26 | $ | — | $ | 26 | |||||||||||||||
Accrued contingent consideration | — | — | 81 | 81 | — | — | 204 | 204 | |||||||||||||||||||||||
$ | — | $ | 92 | $ | 81 | $ | 173 | $ | — | $ | 26 | $ | 204 | $ | 230 |
in millions, except interest rates | Maturity Date | As of | ||||||||
September 30, 2017 | December 31, 2016 | |||||||||
January 2017 5.125% Notes | January 2017 | $ | — | $ | 250 | |||||
October 2018 2.650% Notes | October 2018 | 600 | 600 | |||||||
January 2020 6.000% Notes | January 2020 | 850 | 850 | |||||||
May 2020 2.850% Notes | May 2020 | 600 | 600 | |||||||
May 2022 3.375% Notes | May 2022 | 500 | 500 | |||||||
May 2025 3.850% Notes | May 2025 | 750 | 750 | |||||||
October 2023 4.125% Notes | October 2023 | 450 | 450 | |||||||
November 2035 6.250% Notes | November 2035 | 350 | 350 | |||||||
January 2040 7.375% Notes | January 2040 | 300 | 300 | |||||||
August 2018 Term Loan | August 2018 | — | 150 | |||||||
August 2020 Term Loan | 2018 - 2020 | — | 600 | |||||||
Debt Discount | 2018 - 2040 | (7 | ) | (8 | ) | |||||
Deferred Financing Costs | 2018 - 2040 | (20 | ) | (24 | ) | |||||
Interest Rate Swaps | 2020 - 2023 | 42 | 51 | |||||||
Capital Lease Obligation | 2018 - 2020 | 1 | 1 | |||||||
Long-term debt | $ | 4,416 | $ | 5,420 |
Note: | The table above does not include unamortized amounts related to interest rate contracts designated as cash flow hedges. |
Covenant Requirement as of September 30, 2017 | Actual as of September 30, 2017 | ||
Maximum leverage ratio (1) | 3.5 times | 2.3 times |
(1) | Ratio of total debt to consolidated EBITDA, as defined by the credit agreement, for the preceding four consecutive fiscal quarters. |
Type of cost | Total Estimated Amount Expected to be Incurred |
Restructuring charges: | |
Termination benefits | $65 million to $75 million |
Other (1) | $5 million to $15 million |
Restructuring-related expenses: | |
Other (2) | $105 million to $135 million |
$175 million to $225 million |
Three Months Ended September 30, 2017 | |||||||||||||||||||
(in millions) | Termination Benefits | Accelerated Depreciation | Transfer Costs | Other | Total | ||||||||||||||
Restructuring charges | $ | 11 | $ | — | $ | — | $ | 1 | $ | 12 | |||||||||
Restructuring-related expenses: | |||||||||||||||||||
Cost of products sold | — | — | 11 | — | 11 | ||||||||||||||
Selling, general and administrative expenses | — | 2 | — | 1 | 3 | ||||||||||||||
— | 2 | 11 | 1 | 14 | |||||||||||||||
$ | 11 | $ | 2 | $ | 11 | $ | 2 | $ | 26 |
Three Months Ended September 30, 2016 | |||||||||||||||||||
(in millions) | Termination Benefits | Transfer Costs | Fixed Asset Write-offs | Other | Total | ||||||||||||||
Restructuring charges | $ | 1 | $ | — | $ | 2 | $ | 2 | $ | 5 | |||||||||
Restructuring-related expenses: | |||||||||||||||||||
Cost of products sold | — | 8 | — | — | 8 | ||||||||||||||
Selling, general and administrative expenses | — | — | — | 4 | 4 | ||||||||||||||
— | 8 | — | 4 | 12 | |||||||||||||||
$ | 1 | $ | 8 | $ | 2 | $ | 6 | $ | 17 | ||||||||||
(in millions) | Termination Benefits | Transfer Costs | Fixed Asset Write-offs | Other | Total | ||||||||||||||
2016 Restructuring Plan | $ | 1 | $ | 3 | $ | — | $ | 3 | $ | 7 | |||||||||
2014 Restructuring Plan | — | 5 | 2 | 3 | 10 | ||||||||||||||
$ | 1 | $ | 8 | $ | 2 | $ | 6 | $ | 17 |
Nine Months Ended September 30, 2017 | |||||||||||||||||||
(in millions) | Termination Benefits | Accelerated Depreciation | Transfer Costs | Other | Total | ||||||||||||||
Restructuring charges | $ | 14 | $ | — | $ | — | $ | 3 | $ | 17 | |||||||||
Restructuring-related expenses: | |||||||||||||||||||
Cost of products sold | — | — | 35 | — | 35 | ||||||||||||||
Selling, general and administrative expenses | — | 5 | — | 4 | 9 | ||||||||||||||
— | 5 | 35 | 4 | 44 | |||||||||||||||
$ | 14 | $ | 5 | $ | 35 | $ | 7 | $ | 61 |
Nine Months Ended September 30, 2016 | |||||||||||||||||||||||
(in millions) | Termination Benefits | Accelerated Depreciation | Transfer Costs | Fixed Asset Write-offs | Other | Total | |||||||||||||||||
Restructuring charges | $ | 16 | $ | — | $ | — | $ | 2 | $ | 4 | $ | 22 | |||||||||||
Restructuring-related expenses: | |||||||||||||||||||||||
Cost of products sold | — | — | 20 | — | — | 20 | |||||||||||||||||
Selling, general and administrative expenses | — | 4 | — | — | 9 | 13 | |||||||||||||||||
— | 4 | 20 | — | 9 | 33 | ||||||||||||||||||
$ | 16 | $ | 4 | $ | 20 | $ | 2 | $ | 13 | $ | 55 | ||||||||||||
(in millions) | Termination Benefits | Accelerated Depreciation | Transfer Costs | Fixed Asset Write-offs | Other | Total | |||||||||||||||||
2016 Restructuring Plan | $ | 19 | $ | — | $ | 4 | $ | — | $ | 2 | $ | 25 | |||||||||||
2014 Restructuring Plan | (3 | ) | 4 | 16 | 2 | 11 | 30 | ||||||||||||||||
$ | 16 | $ | 4 | $ | 20 | $ | 2 | $ | 13 | $ | 55 |
(in millions) | 2016 Restructuring Plan | ||
Termination benefits | $ | 38 | |
Other | 7 | ||
Total restructuring charges | 45 | ||
Accelerated depreciation | 7 | ||
Transfer costs | 50 | ||
Other | 6 | ||
Restructuring-related expenses | 63 | ||
$ | 108 |
(in millions) | 2016 Restructuring Plan | ||
Nine Months Ended September 30, 2017 | |||
Termination benefits | $ | 12 | |
Transfer costs | 35 | ||
Other | 4 | ||
$ | 51 | ||
Program to Date | |||
Termination benefits | $ | 20 | |
Transfer costs | 50 | ||
Other | 8 | ||
$ | 78 |
(in millions) | 2016 Restructuring Plan | ||
Accrued as of December 31, 2016 | $ | 16 | |
Charges (credits) | 14 | ||
Cash payments | (12 | ) | |
Accrued as of September 30, 2017 | $ | 18 |
As of | ||||||||
(in millions) | September 30, 2017 | December 31, 2016 | ||||||
Accounts receivable | $ | 1,580 | $ | 1,579 | ||||
Less: allowance for doubtful accounts | (81 | ) | (73 | ) | ||||
Less: allowance for sales returns | (29 | ) | (34 | ) | ||||
$ | 1,470 | $ | 1,472 |
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
(in millions) | 2017 | 2016 | 2017 | 2016 | ||||||||||||
Beginning balance | $ | 74 | $ | 80 | $ | 73 | $ | 75 | ||||||||
Net charges to expenses | 9 | (1 | ) | 14 | 5 | |||||||||||
Utilization of allowances | (2 | ) | (4 | ) | (6 | ) | (5 | ) | ||||||||
Ending balance | $ | 81 | $ | 75 | $ | 81 | $ | 75 |
As of | ||||||||
(in millions) | September 30, 2017 | December 31, 2016 | ||||||
Finished goods | $ | 674 | $ | 625 | ||||
Work-in-process | 108 | 94 | ||||||
Raw materials | 295 | 236 | ||||||
$ | 1,077 | $ | 955 |
As of | ||||||||
(in millions) | September 30, 2017 | December 31, 2016 | ||||||
Prepaid expenses | $ | 72 | $ | 58 | ||||
Restricted cash | 449 | 243 | ||||||
Other | 124 | 240 | ||||||
$ | 645 | $ | 541 |
As of | ||||||||
(in millions) | September 30, 2017 | December 31, 2016 | ||||||
Land | $ | 93 | $ | 91 | ||||
Buildings and improvements | 1,056 | 981 | ||||||
Equipment, furniture and fixtures | 3,139 | 2,955 | ||||||
Capital in progress | 297 | 338 | ||||||
4,585 | 4,365 | |||||||
Less: accumulated depreciation | 2,907 | 2,735 | ||||||
$ | 1,678 | $ | 1,630 |
As of | ||||||||
(in millions) | September 30, 2017 | December 31, 2016 | ||||||
Legal reserves | $ | 1,355 | $ | 1,062 | ||||
Payroll and related liabilities | 560 | 572 | ||||||
Accrued contingent consideration | 28 | 63 | ||||||
Other | 608 | 615 | ||||||
$ | 2,551 | $ | 2,312 |
As of | ||||||||
(in millions) | September 30, 2017 | December 31, 2016 | ||||||
Accrued income taxes | $ | 842 | $ | 781 | ||||
Legal reserves | 335 | 961 | ||||||
Accrued contingent consideration | 53 | 141 | ||||||
Other | 508 | 455 | ||||||
$ | 1,738 | $ | 2,338 |
Nine Months Ended September 30, | ||||||||
(in millions) | 2017 | 2016 | ||||||
Beginning Balance | $ | 22 | $ | 23 | ||||
Provision | 20 | 16 | ||||||
Settlements/reversals | (18 | ) | (19 | ) | ||||
Ending Balance | $ | 24 | $ | 20 |
Three Months Ended | Nine Months Ended | |||||||||||
September 30, | September 30, | |||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||
Effective tax rate from continuing operations | 8.5 | % | 11.2 | % | (2.0 | )% | (152.4 | )% |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||
(in millions) | 2017 | 2016 | 2017 | 2016 | |||||||||
Weighted average shares outstanding - basic | 1,372.0 | 1,360.6 | 1,369.1 | 1,356.1 | |||||||||
Net effect of common stock equivalents | 22.1 | 19.1 | 22.7 | 18.8 | |||||||||
Weighted average shares outstanding - assuming dilution | 1,394.1 | 1,379.7 | 1,391.8 | 1,374.9 |
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
(in millions) | 2017 | 2016 | 2017 | 2016 | ||||||||||||
(restated) | (restated) | |||||||||||||||
Net sales | ||||||||||||||||
Interventional Cardiology | $ | 589 | $ | 565 | $ | 1,806 | $ | 1,705 | ||||||||
Peripheral Interventions | 268 | 256 | 812 | 764 | ||||||||||||
Cardiovascular | 857 | 821 | 2,618 | 2,469 | ||||||||||||
Cardiac Rhythm Management | 461 | 465 | 1,417 | 1,380 | ||||||||||||
Electrophysiology | 71 | 60 | 203 | 180 | ||||||||||||
Rhythm Management | 532 | 525 | 1,620 | 1,560 | ||||||||||||
Endoscopy | 402 | 365 | 1,194 | 1,065 | ||||||||||||
Urology and Pelvic Health | 272 | 247 | 819 | 732 | ||||||||||||
Neuromodulation | 153 | 138 | 449 | 395 | ||||||||||||
MedSurg | 827 | 750 | 2,462 | 2,192 | ||||||||||||
Net sales allocated to reportable segments | 2,216 | 2,096 | 6,700 | 6,221 | ||||||||||||
Impact of foreign currency fluctuations | 6 | 9 | (60 | ) | (26 | ) | ||||||||||
$ | 2,222 | $ | 2,105 | $ | 6,640 | $ | 6,195 | |||||||||
Income (loss) before income taxes | ||||||||||||||||
Cardiovascular | $ | 243 | $ | 247 | $ | 756 | $ | 751 | ||||||||
Rhythm Management | 103 | 90 | 319 | 231 | ||||||||||||
MedSurg | 272 | 234 | 781 | 682 | ||||||||||||
Operating income allocated to reportable segments | 618 | 571 | 1,856 | 1,664 | ||||||||||||
Corporate expenses and currency exchange | (60 | ) | (60 | ) | (215 | ) | (162 | ) | ||||||||
Intangible asset impairment charges, acquisition-related, restructuring- and restructuring-related, and litigation-related net credits (charges) | (42 | ) | (27 | ) | (250 | ) | (787 | ) | ||||||||
Amortization expense | (139 | ) | (136 | ) | (424 | ) | (408 | ) | ||||||||
Operating income (loss) | 377 | 348 | 967 | 307 | ||||||||||||
Other expense, net | (68 | ) | (91 | ) | (261 | ) | (219 | ) | ||||||||
Income (loss) before income taxes | $ | 309 | $ | 257 | $ | 706 | $ | 88 |
Three Months Ended September 30, 2017 | ||||||||||||||||||||
(in millions) | Foreign Currency Translation Adjustments | Unrealized Gains/Losses on Derivative Financial Instruments | Unrealized Gains/Losses on Available-for-Sale Securities | Defined Benefit Pension Items/Other | Total | |||||||||||||||
Balance as of June 30, 2017 | $ | (58 | ) | $ | 31 | $ | (4 | ) | $ | (22 | ) | $ | (53 | ) | ||||||
Other comprehensive income (loss) before reclassifications | 25 | (15 | ) | — | — | 10 | ||||||||||||||
Amounts reclassified from accumulated other comprehensive income | — | (9 | ) | 1 | — | (8 | ) | |||||||||||||
Net current-period other comprehensive income | 25 | (24 | ) | 1 | — | 2 | ||||||||||||||
Balance as of September 30, 2017 | $ | (33 | ) | $ | 7 | $ | (3 | ) | $ | (22 | ) | $ | (51 | ) |
Three Months Ended September 30, 2016 | ||||||||||||||||
(in millions) | Foreign Currency Translation Adjustments | Unrealized Gains/Losses on Derivative Financial Instruments | Defined Benefit Pension Items/Other | Total | ||||||||||||
Balance as of June 30, 2016 | $ | (59 | ) | $ | (1 | ) | $ | (10 | ) | $ | (70 | ) | ||||
Other comprehensive income (loss) before reclassifications | 2 | (14 | ) | (1 | ) | (13 | ) | |||||||||
Amounts reclassified from accumulated other comprehensive income | — | (17 | ) | 1 | (16 | ) | ||||||||||
Net current-period other comprehensive income | 2 | (31 | ) | — | (29 | ) | ||||||||||
Balance as of September 30, 2016 | $ | (57 | ) | $ | (32 | ) | $ | (10 | ) | $ | (99 | ) |
Nine Months Ended September 30, 2017 | ||||||||||||||||||||
(in millions) | Foreign Currency Translation Adjustments | Unrealized Gains/Losses on Derivative Financial Instruments | Unrealized Gains/Losses on Available-for-Sale Securities | Defined Benefit Pension Items/Other | Total | |||||||||||||||
Balance as of December 31, 2016 | $ | (79 | ) | $ | 107 | $ | (6 | ) | $ | (21 | ) | $ | 1 | |||||||
Other comprehensive income (loss) before reclassifications | 46 | (56 | ) | — | (2 | ) | (12 | ) | ||||||||||||
Amounts reclassified from accumulated other comprehensive income | — | (44 | ) | 3 | 1 | (40 | ) | |||||||||||||
Net current-period other comprehensive income | 46 | (100 | ) | 3 | (1 | ) | (52 | ) | ||||||||||||
Balance as of September 30, 2017 | $ | (33 | ) | $ | 7 | $ | (3 | ) | $ | (22 | ) | $ | (51 | ) |
Nine Months Ended September 30, 2016 | ||||||||||||||||
(in millions) | Foreign Currency Translation Adjustments | Unrealized Gains/Losses on Derivative Financial Instruments | Defined Benefit Pension Items/Other | Total | ||||||||||||
Balance as of December 31, 2015 | $ | (54 | ) | $ | 152 | $ | (10 | ) | $ | 88 | ||||||
Other comprehensive income (loss) before reclassifications | (3 | ) | (115 | ) | (4 | ) | (122 | ) | ||||||||
Amounts reclassified from accumulated other comprehensive income | — | (69 | ) | 4 | (65 | ) | ||||||||||
Net current-period other comprehensive income | (3 | ) | (184 | ) | — | (187 | ) | |||||||||
Balance as of September 30, 2016 | $ | (57 | ) | $ | (32 | ) | $ | (10 | ) | $ | (99 | ) |
ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
Three Months Ended September 30, 2017 | |||||||||||||||||
in millions, except per share data | Pre-Tax | Tax Impact | After-Tax | Impact per share | |||||||||||||
GAAP net income (loss) | $ | 309 | $ | (26 | ) | $ | 283 | $ | 0.20 | ||||||||
Non-GAAP adjustments: | |||||||||||||||||
Intangible asset impairment charges | 3 | 0 | 3 | 0.00 | |||||||||||||
Acquisition-related net charges (credits) | 25 | (11 | ) | 14 | 0.01 | ||||||||||||
Restructuring and restructuring-related net charges (credits) | 26 | (6 | ) | 20 | 0.02 | ||||||||||||
Litigation-related net charges (credits) | (12 | ) | 2 | (10 | ) | (0.01 | ) | ||||||||||
Amortization expense | 139 | (17 | ) | 122 | 0.09 | ||||||||||||
Adjusted net income | $ | 490 | $ | (58 | ) | $ | 432 | $ | 0.31 | ||||||||
Three Months Ended September 30, 2016 | |||||||||||||||||
in millions, except per share data | Pre-Tax | Tax Impact | After-Tax | Impact per share | |||||||||||||
GAAP net income (loss) | $ | 257 | $ | (29 | ) | $ | 228 | $ | 0.17 | ||||||||
Non-GAAP adjustments: | |||||||||||||||||
Intangible asset impairment charges | 7 | (1 | ) | 6 | 0.00 | ||||||||||||
Acquisition-related net charges (credits) | (1 | ) | (1 | ) | (2 | ) | (0.00 | ) | |||||||||
Restructuring and restructuring-related net charges (credits) | 17 | (4 | ) | 13 | 0.01 | ||||||||||||
Litigation-related net charges (credits) | 4 | (1 | ) | 3 | 0.00 | ||||||||||||
Amortization expense | 136 | (16 | ) | 120 | 0.09 | ||||||||||||
Adjusted net income | $ | 420 | $ | (52 | ) | $ | 368 | $ | 0.27 | ||||||||
Nine Months Ended September 30, 2017 | |||||||||||||||||
Tax | Impact per | ||||||||||||||||
in millions, except per share data | Pre-Tax | Impact | After-Tax | share | |||||||||||||
GAAP net income (loss) | $ | 706 | $ | 13 | $ | 719 | $ | 0.52 | |||||||||
Non-GAAP adjustments: | |||||||||||||||||
Intangible asset impairment charges | 3 | 0 | 3 | 0.00 | |||||||||||||
Acquisition-related net charges (credits) | (1 | ) | (19 | ) | (20 | ) | (0.01 | ) | |||||||||
Restructuring and restructuring-related net charges (credits) | 61 | (13 | ) | 48 | 0.03 | ||||||||||||
Litigation-related net charges (credits) | 196 | (73 | ) | 123 | 0.09 | ||||||||||||
Investment impairment charges | 53 | (19 | ) | 34 | 0.02 | ||||||||||||
Amortization expense | 424 | (59 | ) | 365 | 0.26 | ||||||||||||
Adjusted net income | $ | 1,442 | $ | (170 | ) | $ | 1,272 | $ | 0.91 | ||||||||
Nine Months Ended September 30, 2016 | |||||||||||||||||
Tax | Impact per | ||||||||||||||||
in millions, except per share data | Pre-Tax | Impact | After-Tax | share | |||||||||||||
GAAP net income (loss) | $ | 88 | $ | 135 | $ | 223 | $ | 0.16 | |||||||||
Non-GAAP adjustments: | |||||||||||||||||
Intangible asset impairment charges | 7 | (1 | ) | 6 | 0.00 | ||||||||||||
Acquisition-related net charges (credits) | 93 | (3 | ) | 90 | 0.07 | ||||||||||||
Restructuring and restructuring-related net charges (credits) | 55 | (13 | ) | 42 | 0.03 | ||||||||||||
Litigation-related net charges (credits) | 632 | (228 | ) | 404 | 0.29 | ||||||||||||
Amortization expense | 408 | (54 | ) | 354 | 0.26 | ||||||||||||
Adjusted net income | $ | 1,283 | $ | (164 | ) | $ | 1,119 | $ | 0.81 | ||||||||
Change | ||||||||||||||||||
Three Months Ended September 30, | As Reported Basis | Less: Impact of Foreign Currency | Operational Basis | |||||||||||||||
(in millions) | 2017 | 2016 | ||||||||||||||||
Interventional Cardiology | $ | 589 | $ | 568 | 3.8 | % | (0.4 | ) | % | 4.2 | % | |||||||
Peripheral Interventions | 268 | 257 | 4.7 | % | (0.4 | ) | % | 5.1 | % | |||||||||
Cardiovascular | 857 | 825 | 4.1 | % | (0.4 | ) | % | 4.5 | % | |||||||||
Cardiac Rhythm Management | 463 | 467 | (0.6 | ) | % | 0.3 | % | (0.9 | ) | % | ||||||||
Electrophysiology | 71 | 60 | 17.8 | % | 0.2 | % | 17.6 | % | ||||||||||
Rhythm Management | 534 | 527 | 1.5 | % | 0.3 | % | 1.2 | % | ||||||||||
Endoscopy | 403 | 367 | 9.8 | % | (0.2 | ) | % | 10.0 | % | |||||||||
Urology and Pelvic Health | 274 | 248 | 10.3 | % | 0.1 | % | 10.2 | % | ||||||||||
Neuromodulation | 154 | 138 | 11.0 | % | 0.0 | % | 11.0 | % | ||||||||||
MedSurg | 831 | 753 | 10.2 | % | (0.1 | ) | % | 10.3 | % | |||||||||
Net Sales | $ | 2,222 | $ | 2,105 | 5.6 | % | (0.1 | ) | % | 5.7 | % |
Change | ||||||||||||||||
Nine Months Ended September 30, | As Reported Basis | Less: Impact of Foreign Currency | Operational Basis | |||||||||||||
(in millions) | 2017 | 2016 | ||||||||||||||
Interventional Cardiology | $ | 1,784 | $ | 1,695 | 5.3 | % | (0.6 | ) | % | 5.9 | % | |||||
Peripheral Interventions | 802 | 757 | 5.9 | % | (0.7 | ) | % | 6.6 | % | |||||||
Cardiovascular | 2,586 | 2,452 | 5.4 | % | (0.7 | ) | % | 6.1 | % | |||||||
Cardiac Rhythm Management | 1,407 | 1,378 | 2.2 | % | (0.5 | ) | % | 2.7 | % | |||||||
Electrophysiology | 201 | 179 | 12.4 | % | (0.8 | ) | % | 13.2 | % | |||||||
Rhythm Management | 1,608 | 1,557 | 3.3 | % | (0.6 | ) | % | 3.9 | % | |||||||
Endoscopy | 1,182 | 1,060 | 11.5 | % | (0.6 | ) | % | 12.1 | % | |||||||
Urology and Pelvic Health | 815 | 731 | 11.5 | % | (0.3 | ) | % | 11.8 | % | |||||||
Neuromodulation | 449 | 395 | 13.7 | % | (0.3 | ) | % | 14.0 | % | |||||||
MedSurg | 2,446 | 2,186 | 11.9 | % | (0.4 | ) | % | 12.3 | % | |||||||
Net Sales | $ | 6,640 | $ | 6,195 | 7.2 | % | (0.5 | ) | % | 7.7 | % |
Three Months Ended September 30, | ||||||||
(in millions) | 2017 | 2016 | ||||||
Defibrillator systems | $ | 314 | $ | 311 | ||||
Pacemaker systems | 149 | 156 | ||||||
CRM products | $ | 463 | $ | 467 |
Three Months | Nine Months | ||||
Gross profit margin - period ended September 30, 2016 | 71.8 | % | 70.9 | % | |
Manufacturing cost reductions | 1.7 | 1.9 | |||
Sales pricing and mix | (0.1 | ) | 0.2 | ||
Inventory step-up due to acquisition accounting | (0.3 | ) | (0.1 | ) | |
Net impact of foreign currency | (1.2 | ) | (1.0 | ) | |
All other, including other period expense | (0.6 | ) | (0.8 | ) | |
Gross profit margin - period ended September 30, 2017 | 71.3 | % | 71.1 | % |
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||||||
% of Net | % of Net | % of Net | % of Net | |||||||||||||||||
(in millions) | $ | Sales | $ | Sales | $ | Sales | $ | Sales | ||||||||||||
Selling, general and administrative expenses | 800 | 36.0 | % | 772 | 36.7 | % | 2,408 | 36.3 | % | 2,268 | 36.6 | % | ||||||||
Research and development expenses | 254 | 11.4 | % | 232 | 11.1 | % | 734 | 11.0 | % | 664 | 10.7 | % | ||||||||
Royalty expense | 16 | 0.7 | % | 20 | 0.9 | % | 50 | 0.8 | % | 59 | 1.0 | % |
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
(in millions) | 2017 | 2016 | 2017 | 2016 | ||||||||||||
Interest income | $ | 3 | $ | — | $ | 4 | $ | 5 | ||||||||
Net foreign currency gain (loss) | (4 | ) | (6 | ) | (12 | ) | (10 | ) | ||||||||
Net gains (losses) on investments | (6 | ) | (25 | ) | (64 | ) | (35 | ) | ||||||||
Other income (expense), net | (4 | ) | (2 | ) | (17 | ) | (4 | ) | ||||||||
$ | (11 | ) | $ | (33 | ) | $ | (89 | ) | $ | (44 | ) |
Three Months Ended | Nine Months Ended | |||||||||||
September 30, | September 30, | |||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||
Effective tax rate from continuing operations | 8.5 | % | 11.2 | % | (2.0 | )% | (152.4 | )% |
Nine Months Ended September 30, | ||||||||
(in millions) | 2017 | 2016 | ||||||
Cash provided by (used for) operating activities | $ | 554 | $ | 506 | ||||
Cash provided by (used for) investing activities | (721 | ) | (355 | ) | ||||
Cash provided by (used for) financing activities | 178 | (234 | ) |
in millions, except interest rates | Maturity Date | As of | ||||||||
September 30, 2017 | December 31, 2016 | |||||||||
January 2017 5.125% Notes | January 2017 | $ | — | $ | 250 | |||||
October 2018 2.650% Notes | October 2018 | 600 | 600 | |||||||
January 2020 6.000% Notes | January 2020 | 850 | 850 | |||||||
May 2020 2.850% Notes | May 2020 | 600 | 600 | |||||||
May 2022 3.375% Notes | May 2022 | 500 | 500 | |||||||
May 2025 3.850% Notes | May 2025 | 750 | 750 | |||||||
October 2023 4.125% Notes | October 2023 | 450 | 450 | |||||||
November 2035 6.250% Notes | November 2035 | 350 | 350 | |||||||
January 2040 7.375% Notes | January 2040 | 300 | 300 | |||||||
August 2018 Term Loan | August 2018 | — | 150 | |||||||
August 2020 Term Loan | 2018 - 2020 | — | 600 | |||||||
Debt Discount | 2018 - 2040 | (7 | ) | (8 | ) | |||||
Deferred Financing Costs | 2018 - 2040 | (20 | ) | (24 | ) | |||||
Interest Rate Swaps | 2020 - 2023 | 42 | 51 | |||||||
Capital Lease Obligation | 2018 - 2020 | 1 | 1 | |||||||
Long-term debt | $ | 4,416 | $ | 5,420 |
Note: | The table above does not include unamortized amounts related to interest rate contracts designated as cash flow hedges. |
Covenant Requirement as of September 30, 2017 | Actual as of September 30, 2017 | ||
Maximum leverage ratio (1) | 3.5 times | 2.3 times |
(1) | Ratio of total debt to consolidated EBITDA, as defined by the credit agreement, for the preceding four consecutive fiscal quarters. |
• | Intangible asset impairment charges - This amount represents write-downs of certain intangible asset balances in the first nine months of 2017 and 2016. 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-live asset is impaired, we will write the carrying value down to fair value in the period identified. We exclude the impact of impairment charges 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. Accordingly, management has excluded intangible asset impairment charges for purposes of calculating these non-GAAP financial measures to facilitate an evaluation of our current operating performance and a comparison to our past operating performance. |
• | Acquisition-related net charges (credits) - These adjustments may consist of (a) contingent consideration fair value adjustments, (b) gains on previously held investments, (c) purchased and/or funded in-process research and development expenses incurred outside of a business combination and (d) due diligence, other fees, inventory step-up amortization and integration and exit costs. The contingent consideration adjustments represent accounting adjustments to state contingent consideration liabilities at their estimated fair value. These adjustments can be highly variable depending on the assessed likelihood and amount of future contingent consideration payments. Due diligence, other fees, inventory step-up amortization and integration and exit costs include legal, tax, severance and other expenses associated with prior and potential future acquisitions that can be highly variable and not representative of ongoing operations. Accordingly, management excluded these amounts for purposes of calculating these non-GAAP financial measures to facilitate an evaluation of our current operating performance and a comparison to our past operating performance. |
• | Restructuring and restructuring-related net charges (credits) - These adjustments represent severance 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 generally take approximately two years to complete 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. Because these restructuring plans are incremental to the core activities that arise in the ordinary course of our business, management excluded these costs for purposes of calculating these non-GAAP financial measures to facilitate an evaluation of our current operating performance and a comparison to our past operating performance. |
• | Litigation-related net charges (credits) - 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. These amounts are excluded by management in assessing our operating performance, as well as from our operating segments' measures of profit and loss used for making operating decisions and assessing performance. Accordingly, management excluded these amounts for purposes of calculating these non-GAAP financial measures to facilitate an evaluation of our current operating performance and a comparison to our past operating 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 value and determine if the impairment is other-than-temporary. For other-than-temporary impairments, we recognize an impairment loss equal to the difference between an investment’s carrying value and its fair value. Management excludes the impact of certain impairment charges when assessing operating performance, as well as from our operating segments’ measures of profit and loss used for making operating decisions and assessing performance. Accordingly, management excluded these investment impairment charges for purposes of calculating its non-GAAP financial measures to facilitate an evaluation of our current operating performance and a comparison to our past operating performance. |
• | 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. Accordingly, management has excluded amortization expense for purposes of calculating these non-GAAP financial measures to facilitate an evaluation of our current operating performance and a comparison to our past operating performance. |
• | The impact of changes in foreign currency exchange rates is highly variable and difficult to predict. Accordingly, management excludes the impact of changes in foreign currency exchange rates 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. |
• | Our ability to increase net sales, expand the market and capture market share; |
• | The volatility of the market and our ability to increase our net sales and capture market share; |
• | 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, particularly our drug-eluting coronary stent systems and our CRM 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 across our businesses 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; |
• | The impact of enhanced requirements to obtain regulatory approval in the U.S. and around the world, including the associated timing and cost of product approval; |
• | 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; and |
• | Risk associated with counterparty default on our derivative financial instruments. |
• | The impact of healthcare policy changes and legislative or regulatory efforts in the U.S. 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. 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 medical devices; |
• | 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/or similar laws in other jurisdictions and U.S. and foreign export control, trade embargo and customs laws; |
• | Costs and risks associated with 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; |
• | Risks associated with a failure to protect our intellectual property rights and the outcome of patent litigation; and |
• | Our ability to properly operate our information systems that support our business operations and protect our data integrity 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 in-process 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; |
• | The impact of our failure to succeed at or our decision to discontinue, write-down or reduce the funding of any of our research and development projects, including in-process projects from in-process research and development, in our growth adjacencies or otherwise; |
• | 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 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 in our international structure and leadership; |
• | Risks associated with international operations and investments, including the timing and collectibility of customer payments, political 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, compliance with established and developing U.S. and foreign legal and regulatory requirements, including FCPA and similar laws in other jurisdictions and U.S. and foreign export control, trade embargo and customs laws, as well as 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 impact of goodwill and other 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 significant changes made or expected to be made to our organizational and operational structure, pursuant to our 2016 Restructuring Plan, 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. |
ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
ITEM 4. | CONTROLS AND PROCEDURES |
10.1 | ||
31.1* | ||
31.2* | ||
32.1* | ||
32.2* | ||
101* | Interactive Data Files Pursuant to Rule 405 of Regulation S-T: (i) the Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2017 and 2016, (ii) the Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2017 and 2016, (iii) the Condensed Consolidated Balance Sheets as of September 30, 2017 and December 31, 2016, (iv) the Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2017 and 2016 and (v) the notes to the Condensed Consolidated Financial Statements. |
BOSTON SCIENTIFIC CORPORATION | |||
By: | /s/ Daniel J. Brennan | ||
Name: | Daniel J. Brennan | ||
Title: | Executive Vice President and Chief Financial Officer |
1 | I have reviewed this Quarterly Report on Form 10-Q 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: | November 2, 2017 | /s/ Michael F. Mahoney | ||
Michael F. Mahoney | ||||
President and Chief Executive Officer |
1 | I have reviewed this Quarterly Report on Form 10-Q 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: | November 2, 2017 | /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 | ||
President and Chief Executive Officer | ||
November 2, 2017 |
(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 | ||
November 2, 2017 |
Document and Entity Information - shares |
9 Months Ended | |
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Sep. 30, 2017 |
Oct. 31, 2017 |
|
Document and Entity Information [Abstract] | ||
Entity Registrant Name | BOSTON SCIENTIFIC CORPORATION | |
Entity Central Index Key | 0000885725 | |
Document Type | 10-Q | |
Document Period End Date | Sep. 30, 2017 | |
Amendment Flag | false | |
Document Fiscal Year Focus | 2017 | |
Document Fiscal Period Focus | Q3 | |
Current Fiscal Year End Date | --12-31 | |
Entity Filer Category | Large Accelerated Filer | |
Entity Common Stock, Shares Outstanding | 1,373,195,517 |
Condensed Consolidated Statements of Operations (Unaudited) - USD ($) shares in Millions, $ in Millions |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2017 |
Sep. 30, 2016 |
Sep. 30, 2017 |
Sep. 30, 2016 |
|
Net sales | $ 2,222 | $ 2,105 | $ 6,640 | $ 6,195 |
Cost of products sold | 637 | 594 | 1,919 | 1,805 |
Gross profit | 1,585 | 1,511 | 4,721 | 4,390 |
Operating expenses: | ||||
Selling, general and administrative expenses | 800 | 772 | 2,408 | 2,268 |
Research and development expenses | 254 | 232 | 734 | 664 |
Royalty expense | 16 | 20 | 50 | 59 |
Amortization expense | 139 | 136 | 424 | 408 |
Intangible asset impairment charges | 3 | 7 | 3 | 7 |
Restructuring charges (credits) | 12 | 5 | 17 | 22 |
Contingent consideration expense (benefit) | (4) | (13) | (78) | 23 |
Litigation-related charges (credits) | (12) | 4 | 196 | 632 |
Operating expenses | 1,208 | 1,163 | 3,754 | 4,083 |
Operating income (loss) | 377 | 348 | 967 | 307 |
Other income (expense): | ||||
Interest expense | (57) | (58) | (172) | (175) |
Other, net | (11) | (33) | (89) | (44) |
Income (loss) before income taxes | 309 | 257 | 706 | 88 |
Income tax expense (benefit) | 26 | 29 | (13) | (135) |
Net income (loss) | $ 283 | $ 228 | $ 719 | $ 223 |
Net income (loss) per common share — basic | $ 0.21 | $ 0.17 | $ 0.53 | $ 0.16 |
Net income (loss) per common share — assuming dilution | $ 0.20 | $ 0.17 | $ 0.52 | $ 0.16 |
Weighted-average shares outstanding | ||||
Basic | 1,372.0 | 1,360.6 | 1,369.1 | 1,356.1 |
Assuming dilution | 1,394.1 | 1,379.7 | 1,391.8 | 1,374.9 |
Condensed Consolidated Statements of Comprehensive Income (Loss) - USD ($) $ in Millions |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2017 |
Sep. 30, 2016 |
Sep. 30, 2017 |
Sep. 30, 2016 |
|
Net income (loss) | $ 283 | $ 228 | $ 719 | $ 223 |
Other comprehensive income (loss), net of tax: | ||||
Foreign currency translation adjustment | 25 | 2 | 46 | (3) |
Net change in unrealized gains and losses on derivative financial instruments | (24) | (31) | (100) | (184) |
Net change in available-for-sale securities | 1 | 0 | 3 | 0 |
Net change in unrealized costs associated with certain retirement plans | 0 | 0 | (1) | 0 |
Total other comprehensive income (loss) | 2 | (29) | (52) | (187) |
Total comprehensive income (loss) | $ 285 | $ 199 | $ 667 | $ 36 |
Condensed Consolidated Balance Sheets (Parenthetical) - $ / shares |
Sep. 30, 2017 |
Dec. 31, 2016 |
---|---|---|
Condensed Consolidated Balance Sheet (Parenthetical) [Abstract] | ||
Common Stock, Par or Stated Value Per Share | $ 0.01 | $ 0.01 |
Common Stock, Shares Authorized | 2,000,000,000 | 2,000,000,000 |
Common Stock, Shares, Issued | 1,620,302,039 | 1,609,670,817 |
Common Stock, Shares, Outstanding | 1,372,735,769 | 1,362,104,547 |
Preferred Stock, Par or Stated Value Per Share | $ 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 Stock, Shares | 247,566,270 | 247,566,270 |
Basis of Presentation |
9 Months Ended |
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Sep. 30, 2017 | |
Basis of Presentation [Abstract] | |
BASIS OF PRESENTATION | 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. 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 nine months ended September 30, 2017 are not necessarily indicative of the results that may be expected for the year ending December 31, 2017. 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. Subsequent Events We evaluate events occurring after the date of our most recent accompanying unaudited condensed consolidated balance sheets for potential recognition or disclosure in our financial statements. We did not identify any material subsequent events requiring adjustment to our accompanying unaudited condensed consolidated financial statements (recognized subsequent events) for the three and nine months ended September 30, 2017. Those items requiring disclosure (unrecognized subsequent events) in the financial statements have been disclosed accordingly. Refer to Note B – Acquisitions and Strategic Investments and Note I – Commitments and Contingencies for more information. |
Acquisitions and Strategic Investments |
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Business Combinations [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
ACQUISITIONS AND STRATEGIC INVESTMENTS | NOTE B – ACQUISITIONS AND STRATEGIC INVESTMENTS 2017 Acquisitions Apama Medical Inc. On October 10, 2017, we completed the 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. Total consideration was comprised of $175 million cash up-front and a maximum of $125 million in contingent payments based on the achievement of clinical and regulatory milestones. Apama will be integrated into our Rhythm Management segment. Symetis SA On May 16, 2017, we completed the acquisition of Symetis SA (Symetis), a privately-held Swiss structural heart company focused on minimally-invasive transcatheter aortic valve replacement devices, for approximately $430 million in cash. We are in the process of integrating Symetis into our Interventional Cardiology business and expect the integration to be substantially complete by the end of 2018. Purchase Price Allocation We accounted for the acquisition of Symetis as a business combination and, in accordance with FASB ASC Topic 805, Business Combinations, we recorded the assets acquired and liabilities assumed at their respective fair values as of the acquisition date. The components of the aggregate preliminary purchase price are as follows (in millions):
The following summarizes the preliminary purchase price allocation for the Symetis acquisition as of September 30, 2017 (in millions):
We allocated a portion of the purchase price 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 will 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. Contingent Consideration Certain of our acquisitions involve contingent consideration arrangements. Payment of additional consideration is generally contingent on the acquired company reaching certain performance milestones, including attaining specified revenue levels, achieving product development targets and/or obtaining regulatory approvals for products in development at the date of the acquisition. In accordance with U.S. GAAP, 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 a separate line item within our unaudited condensed consolidated statements of operations. We paid contingent consideration of $45 million during the first nine months of 2017 and $77 million during the first nine months of 2016. Changes in the fair value of our contingent consideration liabilities were as follows (in millions):
As of September 30, 2017, the maximum amount of future contingent consideration (undiscounted) that we could be required to pay was approximately $1.261 billion. Contingent consideration liabilities are remeasured to fair value each reporting period using projected revenues, discount rates, probabilities of payment and projected payment dates. The recurring Level 3 fair value measurements of our contingent consideration liabilities include the following significant unobservable inputs:
Increases or decreases in the fair value of our contingent consideration liabilities can result from changes in discount periods and rates, as well as changes in the timing and amount of revenue estimates or in the timing or likelihood of achieving R&D, commercialization-based, and revenue-based milestones. 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. Projected revenues are based on our most recent internal operational budgets and long-range strategic plans. Increases in projected revenues and probabilities of payment may result in higher fair value measurements. Increases in discount rates and the time to payment may result in lower fair value measurements. Increases or decreases in any of those inputs together, or in isolation, may result in a significantly lower or higher fair value measurement. Strategic Investments On November 1, 2017, we entered into a definitive agreement with an investee company where we may be obligated to pay $145 million in cash up-front and a maximum of $130 million in contingent payments to acquire the investee. The agreement contains a provision, expiring October 31, 2019, allowing the investee company to sell the remaining equity interests of the investee company to us upon achievement of a regulatory milestone, and an option allowing us to acquire the remaining equity interests. We account for certain of our strategic investments as equity method investments, in accordance with FASB ASC Topic 323, Investments - Equity Method and Joint Ventures. The aggregate carrying amount of our strategic investments were comprised of the following categories:
These investments are classified as other long-term assets within our accompanying unaudited condensed consolidated balance sheets, in accordance with U.S. GAAP and our accounting policies. During the second quarter of 2017, we recorded a charge of $53 million for an other-than-temporary impairment loss equal to the difference between the carrying value of one of our investments and its fair value. The charge was recorded within the Other, net caption of our unaudited condensed consolidated statements of operations. |
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:
Our technology-related intangible assets that are not subject to amortization represent technical processes, intellectual property and/or institutional understanding acquired through business combinations that are fundamental to the on-going operations of our business and have no limit to their useful life. Our technology-related intangible assets that are not subject to amortization are comprised primarily of certain acquired balloon and other technology, which is foundational to our continuing operations within the Cardiovascular market and other markets within interventional medicine. We assess our indefinite-lived intangible assets at least annually for impairment and reassess their classification as indefinite-lived assets. 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. In the third quarter of 2017, 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. The following represents our goodwill balance by global reportable segment:
Goodwill Impairment Testing 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 an impairment may exist. In the second quarter of 2017, we performed our annual goodwill impairment test for all of our reporting units and concluded the fair value of each reporting unit exceeded its carrying value. The following is a rollforward of accumulated goodwill write-offs by global reportable segment:
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Fair Value Measurements |
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Fair Value Disclosures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
FAIR VALUE MEASUREMENTS | NOTE D – FAIR VALUE MEASUREMENTS Derivative Instruments and Hedging Activities We address market risk from changes in foreign currency exchange rates and interest rates through a risk management program which includes the use of derivative financial instruments. We operate this program 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 or cash flows to material risk as the gains or losses on these derivatives generally offset losses or gains recognized on the hedged item. We manage our 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. The success of our risk management program depends, in part, on forecasted transactions denominated primarily in British pound sterling, Euro and Japanese yen. We may experience unanticipated currency exchange gains or losses to the extent the actual activity is different than forecasted. In addition, changes in currency exchange rates related to any unhedged transactions may impact our earnings and cash flows. Our risk from changes in currency exchange rates consists primarily of monetary assets and liabilities, forecasted intercompany and third-party transactions, and net investments in certain subsidiaries. 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 instruments, primarily forward currency contracts, to reduce the risk to our earnings and cash flows associated with changes in currency exchange rates. Certain of our currency derivative instruments designated as cash flow hedges under FASB ASC Topic 815, Derivatives and Hedging are intended to protect the U.S. dollar value of forecasted transactions. The effective portion of gains or losses on a derivative instrument designated as a cash flow hedge is recorded in other comprehensive income (OCI), net of tax, until the underlying third-party transaction occurs. When the related third-party transaction occurs we recognize the gain or loss to earnings within the Cost of products sold caption of our unaudited condensed consolidated statements of operations. In the event the hedging relationship is no longer effective, or if the hedged forecasted transaction becomes no longer probable, we reclassify the amount of gains or losses on the derivative instrument designated as a cash flow hedge to earnings at that time. We also use currency forward 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 risk related to monetary assets and liabilities and related forecasted transactions. These 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 and reflected within the Other, net caption of our unaudited condensed consolidated statements of operations. 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 manage our earnings and cash flow 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 under FASB ASC Topic 815. The changes in the fair value of interest rate derivatives designated as fair value hedges and the changes in the fair value of the underlying hedged debt instrument generally offset and are recorded within the Interest expense caption of our unaudited condensed consolidated statements of operations. To the extent the hedge relationship is effective, we record the changes in the fair value of interest rate derivatives designated as cash flow hedges within the Accumulated other comprehensive income, net of tax, caption of our unaudited condensed consolidated balance sheets until the underlying hedged item occurs, at which time we recognize the gain or loss within interest expense. We record the ineffective portion, if any, of our interest rate derivatives designated as cash flow hedges directly to earnings within interest expense and in the event the hedged cash flow does not occur, or it becomes no longer probable that it will occur we reclassify the amount of gains or losses to earnings at that time. We are amortizing the realized gains or losses from interest rate derivative instruments previously designated as fair value hedges and the effective portion of gains or losses from interest rate derivative contracts previously designated as cash flow hedges into earnings as a component of interest expense over the remaining term of the hedged item, in accordance with FASB ASC Topic 815. The following table presents the contractual amounts of our derivative instruments outstanding:
The remaining time to maturity as of September 30, 2017 is within 60 months for all designated forward currency contracts and generally less than one year for all non-designated forward currency contracts. We had no interest rate derivative instruments outstanding as of September 30, 2017 and December 31, 2016. The following presents the effect of our derivative instruments designated as cash flow hedges under FASB ASC Topic 815 on our accompanying unaudited condensed consolidated statements of operations:
As of September 30, 2017, pre-tax net gains or losses for our derivative instruments designated, or previously designated, as currency hedge contracts under FASB ASC Topic 815 that may be reclassified to earnings within the next twelve months are presented below:
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:
Fair Value Measurements FASB ASC Topic 815 requires all derivative 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 instruments using the framework prescribed by FASB ASC Topic 820, Fair Value Measurements and Disclosures, by considering the estimated amount we would receive or pay to transfer these instruments at the reporting date when taking into account current currency exchange rates and 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 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 assets and liabilities:
On a recurring basis, we measure certain financial assets and financial liabilities at fair value based upon quoted market prices, where available. 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 categorization of financial assets and financial liabilities 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 unaudited condensed consolidated balance sheets, in accordance with U.S. GAAP and our accounting policies. In addition to $27 million invested in money market and government funds as of September 30, 2017, we had $183 million in interest bearing and non-interest bearing bank accounts. In addition to $42 million invested in money market and government funds as of December 31, 2016, we had $19 million in short-term deposits and $135 million in interest bearing and non-interest bearing bank accounts. Our recurring fair value measurements using significant unobservable inputs (Level 3) relate solely 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. We hold certain assets and liabilities that are measured at fair value on a non-recurring basis in periods subsequent to initial recognition. The fair value of a cost method 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. The fair value of our outstanding debt obligations was $6.032 billion as of September 30, 2017 and $5.739 billion as of December 31, 2016, which was determined by using quoted market prices for our publicly registered senior notes, classified as Level 1 within the fair value hierarchy. Refer to Note E – Borrowings and Credit Arrangements for a discussion of our debt obligations. |
Borrowings and Credit Arrangements |
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BORROWINGS AND CREDIT ARRANGEMENTS | NOTE E – BORROWINGS AND CREDIT ARRANGEMENTS We had total debt of $5.682 billion as of September 30, 2017 and $5.484 billion as of December 31, 2016. The debt maturity schedule for the significant components of our long-term debt obligations is presented below:
Revolving Credit Facility On August 4, 2017, we entered into a $2.250 billion revolving credit facility (the 2017 Facility) with a global syndicate of commercial banks and terminated our previous $2.000 billion revolving credit facility (the 2015 Facility), which was scheduled to mature April 2020. The 2017 Facility matures on August 4, 2022. Eurodollar and multicurrency loans under the 2017 Facility bear interest at LIBOR plus an interest margin of between 0.90 percent and 1.50 percent, based on our corporate credit ratings and consolidated leverage ratio (1.10 percent as of September 30, 2017). Under the credit agreement for the 2017 Facility (the 2017 Credit Agreement), we are required to pay a facility fee (0.15 percent as of September 30, 2017) based on our credit ratings and the total amount of revolving credit commitment, regardless of usage of the 2017 Facility. This facility provides backing for the commercial paper program described below. There were no borrowings outstanding under the 2017 Facility as of September 30, 2017 and no borrowings outstanding under the 2015 Facility as of December 31, 2016. The 2017 Facility agreement in place requires that we maintain certain financial covenants, as follows:
The 2017 Credit Agreement provides for an exclusion from the calculation of consolidated EBITDA, as defined by such agreement, through the agreed maturity, of any non-cash charges and up to $500 million in restructuring charges and restructuring-related expenses related to our current or future restructuring plans. As of September 30, 2017, we had $476 million of the restructuring charge exclusion remaining. In addition, any cash litigation payments (net of any cash litigation receipts), as defined by the 2017 Credit Agreement, are excluded from the calculation of consolidated EBITDA and any new debt issued to fund any tax deficiency payments is excluded from consolidated total debt, as defined in the 2017 Credit Agreement, provided that the sum of any excluded net cash litigation payments and any new debt issued to fund any tax deficiency payments does not exceed $2.624 billion in the aggregate. As of September 30, 2017, we had $2.358 billion of the combined legal and debt exclusion remaining. As of and through September 30, 2017, we were in compliance with the required covenants. Any inability to maintain compliance with these covenants could require us to seek to renegotiate the terms of our credit facility or seek waivers from compliance with these covenants, both of which could result in additional borrowing costs. Further, there can be no assurance that our lenders would agree to such new terms or grant such waivers. Commercial Paper In June 2017, we launched a commercial paper program that allowed the Company to have a maximum of $2.000 billion in commercial paper outstanding. In August 2017, we increased our commercial paper program’s maximum to $2.250 billion, in line with the increased size of the 2017 Facility. As of September 30, 2017 there was $1.260 billion of commercial paper outstanding. The commercial paper program is backed by the 2017 Facility. Commercial paper issued as of September 30, 2017 had a weighted average maturity of 29 days and a weighted average yield of 1.65 percent. Term Loans As of September 30, 2017, we had no amounts outstanding under our unsecured term loan facilities and $750 million outstanding as of December 31, 2016. These facilities include an unsecured term loan facility maturing August 2018 (August 2018 Term Loan) and an unsecured term loan facility maturing August 2020 (August 2020 Term Loan). The August 2018 Term Loan had $150 million outstanding as of December 31, 2016 and was fully repaid as of June 30, 2017. The August 2020 Term Loan had $600 million outstanding as of December 31, 2016 and was fully repaid as of September 30, 2017. Senior Notes We had senior notes outstanding of $4.400 billion as of September 30, 2017 and $4.650 billion as of December 31, 2016. On January 12, 2017, we used our existing credit facilities to repay the $250 million plus interest of our senior notes due in January 2017. Our senior notes were issued in public offerings, are redeemable prior to maturity and are not subject to any sinking fund requirements. Our senior notes are unsecured, unsubordinated obligations and rank on parity with each other. These notes are effectively junior to borrowings under our credit and security facility and to the extent borrowed by our subsidiaries, to liabilities of our subsidiaries (see Other Arrangements below). Other Arrangements As of December 31, 2016, we maintained a $300 million credit and security facility secured by our U.S. trade receivables maturing on June 9, 2017. On February 7, 2017, we amended the terms of this credit and security facility, including increasing the facility size to $400 million and extending the facility maturity date to February 2019. We had no borrowings outstanding under this facility as of September 30, 2017 and $60 million as of December 31, 2016. We have accounts receivable factoring programs in certain European countries that we account for as sales under FASB ASC Topic 860, Transfers and Servicing. These agreements provide for the sale of accounts receivable to third parties, without recourse, of up to $449 million as of September 30, 2017. We have no retained interests in the transferred receivables, other than collection and administrative responsibilities and, once sold, the accounts receivable are no longer available to satisfy creditors in the event of bankruptcy. We de-recognized $167 million of receivables as of September 30, 2017 at an average interest rate of 1.6 percent and $152 million as of December 31, 2016 at an average interest rate of 1.8 percent. In addition, we have uncommitted credit facilities with a commercial Japanese bank that provide for borrowings, promissory notes discounting and receivables factoring of up to 22.0 billion Japanese yen (approximately $196 million as of September 30, 2017). We de-recognized $162 million of notes receivable and factored receivables as of September 30, 2017 at an average interest rate of 1.3 percent and $149 million of notes receivable as of December 31, 2016 at an average interest rate of 1.6 percent. De-recognized accounts and notes receivable are excluded from trade accounts receivable, net in the accompanying unaudited condensed consolidated balance sheets. We had outstanding letters of credit of $37 million as of September 30, 2017 and $44 million as of December 31, 2016, which consisted primarily of bank guarantees and collateral for workers' compensation insurance arrangements. As of September 30, 2017 and December 31, 2016, none of the beneficiaries had drawn upon the letters of credit or guarantees; accordingly, we did not recognize a related liability for our outstanding letters of credit in our consolidated balance sheets as of September 30, 2017 or December 31, 2016. We believe we will generate sufficient cash from operations to fund these arrangements and intend to fund these arrangements without drawing on the letters of credit. As of and through September 30, 2017, we were in compliance with all the required covenants related to our debt obligations. For additional information regarding the terms of our debt agreements, refer to Note F - Borrowings and Credit Arrangements of the consolidated financial statements in our most recent Annual Report on Form 10-K. |
Restructuring Related Activities |
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Restructuring and Related Activities [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
RESTRUCTURING-RELATED ACTIVITIES | NOTE F – RESTRUCTURING-RELATED ACTIVITIES 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 is 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 expanding operational efficiencies in support of our operating income margin goals. Key activities under the 2016 Restructuring Plan include 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 ongoing PNO strategy. These activities were initiated in the second quarter of 2016 and are expected to be substantially completed by the end of 2018. The 2016 Restructuring Plan is expected to result in total pre-tax charges of approximately $175 million to $225 million and approximately $160 million to $210 million of these charges are estimated to result in cash outlays. We have recorded related costs of $108 million since the inception of the plan through September 30, 2017 and recorded a portion of these expenses as restructuring charges and the remaining portion through other lines within our consolidated statements of operations. The following table provides a summary of our estimates of costs associated with the 2016 Restructuring Plan through the end of 2018 by major type of cost:
(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 and costs to transfer product lines among facilities. We recorded restructuring charges pursuant to our restructuring plans of $12 million in the third quarter of 2017, $5 million in the third quarter of 2016, $17 million in the first nine months of 2017 and $22 million in the first nine months of 2016. In addition, we recorded expenses within other lines of our accompanying unaudited condensed consolidated statements of operations related to our restructuring initiatives of $14 million in the third quarter of 2017, $12 million in the third quarter of 2016, $44 million in the first nine months of 2017 and $33 million in the first nine months of 2016. The following presents these costs (credits) by major type and line item within our accompanying unaudited condensed consolidated statements of operations:
All charges incurred in the third quarter of 2017 were related to the 2016 Restructuring Plan.
All charges incurred in the first nine months of 2017 were related to the 2016 Restructuring Plan.
Termination benefits represent amounts incurred pursuant to our ongoing benefit arrangements and amounts for “one-time” involuntary termination benefits and have been recorded in accordance with FASB ASC Topic 712, Compensation - Nonretirement Postemployment Benefits and FASB ASC Topic 420, Exit or Disposal Cost Obligations. Other restructuring costs, which represent primarily consulting fees and costs related to contract cancellations, are being recorded as incurred in accordance with FASB ASC Topic 420. Accelerated depreciation is being recorded over the adjusted remaining useful life of the related assets and program management and production line transfer costs are being recorded as incurred. As of September 30, 2017, we incurred cumulative restructuring charges related to our 2016 Restructuring Plan of $45 million and restructuring-related charges of $63 million since we committed to the plan. The following presents these costs by major type:
We made cash payments of $51 million in the first nine months of 2017 associated with our 2016 Restructuring Plan, and as of September 30, 2017, we had made total cash payments of $78 million related to our 2016 Restructuring Plan since committing to the plan. These payments were made using cash generated from operations and are comprised of the following:
Our restructuring liability is primarily comprised of accruals for termination benefits. The following is a rollforward of the termination benefit liability associated with our 2016 Restructuring Plan, which is reported as a component of accrued expenses included in our accompanying unaudited condensed consolidated balance sheets:
In addition to our accrual for termination benefits, we had an $8 million liability as of September 30, 2017 and $6 million as of December 31, 2016 for other restructuring-related items. |
Supplemental Balance Sheet Information |
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Supplemental Balance Sheet Information [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Supplemental Balance Sheet Disclosures | NOTE G – SUPPLEMENTAL BALANCE SHEET INFORMATION Components of selected captions in our accompanying unaudited condensed 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 $71 million for the third quarter of 2017, $67 million for the third quarter of 2016, $198 million for the first nine months of 2017 and $193 million for the first nine months of 2016. Accrued expenses
Other long-term liabilities
Accrued warranties 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 (CRM) business, which include defibrillator and pacemaker systems. Our CRM 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 reassess the adequacy of our recorded warranty liabilities on a quarterly basis and adjust these amounts as necessary. The current portion of our warranty accrual is included in other accrued expenses in the table above and the non-current portion of our warranty accrual is included in other long-term liabilities in the table above. Changes in our product warranty accrual consisted of the following:
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Income Taxes |
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Income Tax Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
INCOME TAXES | NOTE H – INCOME TAXES Our effective tax rate from continuing operations is presented below:
The change in our reported tax rates for the third quarter and first nine months of 2017, as compared to the same periods in 2016, relates primarily to the impact of certain receipts and charges that are taxed at different rates than our effective tax rate, including intangible asset impairment charges, acquisition-related items, restructuring and restructuring-related items, investment impairment-related items, litigation-related items and amortization expense, as well as the impact of certain discrete tax items. As of September 30, 2017, we had $1.128 billion of gross unrecognized tax benefits, of which a net $1.039 billion, if recognized, would affect our effective tax rate. As of December 31, 2016, we had $1.095 billion of gross unrecognized tax benefits, of which a net $1.006 billion, if recognized, would affect our effective tax rate. We have received Notices of Deficiency from the Internal Revenue Service (IRS) reflecting proposed audit adjustments for Guidant Corporation for its 2001 through 2006 tax years and for Boston Scientific Corporation for its 2006 and 2007 tax years. The total incremental tax liability asserted by the IRS for the applicable periods is $1.162 billion plus interest. The primary issue in dispute for all years is the transfer pricing associated with the technology license agreements between domestic and foreign subsidiaries of Guidant. In addition, the IRS has proposed adjustments in connection with the financial terms of our Transaction Agreement with Abbott Laboratories pertaining to the sale of Guidant's vascular intervention business to Abbott in April 2006. During 2014, we received a Revenue Agent Report from the IRS reflecting significant proposed audit adjustments to our 2008, 2009 and 2010 tax years based upon the same transfer pricing methodologies that the IRS applied to our 2001 through 2007 tax years. We do not agree with the transfer pricing methodologies applied by the IRS or its resulting assessment. We have filed petitions with the U.S. Tax Court (Tax Court) contesting the Notices of Deficiency for the 2001 through 2007 tax years in challenge and submitted a letter to the IRS Office of Appeals (IRS Appeals) protesting the Revenue Agent Report for the 2008 through 2010 tax years and requesting an administrative appeal hearing. The issues in dispute were scheduled to be heard in Tax Court in late July 2016. On July 19, 2016, we entered into a Stipulation of Settled Issues with the IRS intended to resolve all of the aforementioned transfer pricing issues, as well as the issues related to our transaction with Abbott, for the 2001 through 2007 tax years. The Stipulation of Settled Issues is contingent upon IRS Office of Appeals applying the same basis of settlement to all transfer pricing issues for the Company’s 2008, 2009 and 2010 tax years as well as review by the United States Congress Joint Committee on Taxation. In October 2016, we reached an agreement in principle with the IRS Appeals as to the resolution of transfer pricing issues in 2008, 2009 and 2010 tax years, subject to additional calculations of tax as well as documentation to memorialize our agreement. In the event that the conditions in the Stipulation of Settled Items are satisfied, we expect to make net tax payments of approximately $275 million, plus interest, through the date of payment. If finalized, payments related to the resolution are expected in the next nine months. We believe that our income tax reserves associated with these matters are adequate as of September 30, 2017 and we do not expect to recognize any additional charges related to the resolution of this controversy. However, the final resolution of these issues is contingent and if the Stipulation of Settled Issues is not finalized, it could have a material impact on our financial condition, results of operations, or cash flows. We recognize interest and penalties related to income taxes as a component of income tax expense. We had $633 million accrued for gross interest and penalties as of September 30, 2017 and $572 million as of December 31, 2016. We recognized net tax expense related to interest and penalties of $14 million during the third quarter of 2017 and $13 million in the third quarter of 2016, $40 million during the first nine months of 2017 and $35 million during the first nine months of 2016. It is reasonably possible that within the next 12 months we will resolve multiple issues including transfer pricing and transactional-related issues with foreign, federal and state taxing authorities, in which case we could record a reduction in our balance of unrecognized tax benefits of up to approximately $757 million. |
Commitments and Contingencies |
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Commitments and Contingencies Disclosure [Abstract] | |
COMMITMENTS AND CONTINGENCIES | NOTE I – COMMITMENTS AND CONTINGENCIES The medical device market in which we primarily participate is largely technology driven. As a result, intellectual property rights, particularly patents and trade secrets, play a significant role in product development and differentiation. Over the years, there has been litigation initiated against us by others, including our competitors, claiming that our current or former product offerings infringe patents owned or licensed by them. Intellectual property litigation is inherently complex and unpredictable. In addition, competing parties frequently file multiple suits to leverage patent portfolios across product lines, technologies and geographies and to balance risk and exposure between the parties. In some cases, several competitors are parties in the same proceeding or in a series of related proceedings or litigate multiple features of a single class of devices. These forces frequently drive settlement not only for individual cases, but also for a series of pending and potentially related and unrelated cases. Although monetary and injunctive relief is typically sought, remedies and restitution are generally not determined until the conclusion of the trial court proceedings and can be modified on appeal. Accordingly, the outcomes of individual cases are difficult to time, predict or quantify and are often dependent upon the outcomes of other cases in other geographies. During recent years, we successfully negotiated closure of several long-standing legal matters and have received favorable rulings in several other matters, however, there continues to be outstanding intellectual property litigation. Adverse outcomes in one or more of these matters could have a material adverse effect on our ability to sell certain products and on our operating margins, financial position, results of operations and/or liquidity. In the normal course of business, product liability, securities and commercial claims are asserted against us. Similar claims may be asserted against us in the future related to events not known to management at the present time. 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. The absence of significant third-party insurance coverage increases our potential exposure to unanticipated claims or adverse decisions. Product liability claims, securities and commercial litigation and other legal proceedings in the future, regardless of their outcome, could have a material adverse effect on our financial position, results of operations and/or liquidity. In addition, like other companies in the medical device industry, we are subject to extensive regulation by national, state and local government agencies in the United States and other countries in which we operate. From time to time we are the subject of qui tam actions and governmental investigations often involving regulatory, marketing and other business practices. These qui tam actions and governmental investigations could result in the commencement of civil and criminal proceedings, substantial fines, penalties and administrative remedies and have a material adverse effect on our financial position, results of operations and/or liquidity. 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. Our accrual for legal matters that are probable and estimable was $1.690 billion as of September 30, 2017 and $2.023 billion as of December 31, 2016 and includes certain estimated costs of settlement, damages and defense. The net litigation-related charges recorded in the first nine months of 2017 and 2016 primarily include amounts related to transvaginal surgical mesh product liability cases and claims. We continue to assess certain litigation and claims to determine the amounts, if any, that management believes will be paid as a result of such claims and litigation and, therefore, additional losses may be accrued and paid in the future, which could materially adversely impact our operating results, cash flows and/or our ability to comply with our debt covenants. In management's opinion, we are not currently involved in any legal proceedings other than those disclosed in our most recent Annual Report on Form 10-K, our Quarterly Reports on Form 10-Q for the Quarters ended March 31, 2017 and June 30, 2017, and those specifically identified below, which, individually or in the aggregate, could have a material adverse effect on our financial condition, operations and/or cash flows. Unless included in our legal accrual or otherwise indicated below, a range of loss associated with any individual material legal proceeding cannot be estimated. Patent Litigation On May 19, 2005, G. David Jang, M.D. filed suit against us alleging breach of contract relating to certain patent rights covering stent technology. The suit was filed in the U.S. District Court for the Central District of California seeking monetary damages and rescission of contract. After a Markman ruling relating to the Jang patent rights, Dr. Jang stipulated to the dismissal of certain claims alleged in the complaint with a right to appeal and the parties subsequently agreed to settle the other claims. In May 2007, Dr. Jang filed an appeal with respect to the remaining patent claims and in July 2008, the Court of Appeals vacated the District Court's consent judgment and remanded the case back to the District Court for further clarification. In August 2011, the District Court entered a stipulated judgment that we did not infringe the Jang patent. Dr. Jang filed an appeal on September 21, 2011 and on August 22, 2012, the Court of Appeals vacated the District Court's judgment and remanded the case to the District Court for further proceedings. On July 8, 2015, a jury found that our Express™ Stent family did not literally infringe a Jang patent, but that the stents infringed under the doctrine of equivalents. The court reserved judgment until the conclusion of further proceedings related to the doctrine of equivalents finding. On September 29, 2015, the court ruled that our Express™ Stent family did not infringe under the doctrine of equivalents and, on October 30, 2015, the court entered judgment in our favor. On November 25, 2015, Dr. Jang filed a motion for judgment as a matter of law on literal infringement and/or for a new trial. On February 3, 2016, the court denied Dr. Jang’s motion for a new trial and judgment as a matter of law. Dr. Jang filed a notice of appeal. On September 29, 2017, the United States Court of Appeals for the Federal Circuit affirmed the judgment that our Express Stent did not infringe the Jang patents and the Company did not owe Dr. Jang any payments. On April 19, 2016, a subsidiary of Boston Scientific filed suit against Edwards Lifesciences Corporation in the United States 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. Product Liability Litigation As of October 25, 2017, approximately 48,500 product liability cases or claims related to transvaginal surgical mesh products designed to treat stress urinary incontinence and pelvic organ prolapse have been asserted against us. The pending cases are in various federal and state courts in the United States and include eight putative class actions. There were also approximately 20 cases in Canada, inclusive of one certified and three putative class actions, and fewer than 25 claims in the United Kingdom. Generally, the plaintiffs allege personal injury associated with use of our transvaginal surgical mesh products. The plaintiffs assert design and manufacturing claims, failure to warn, breach of warranty, fraud, violations of state consumer protection laws and loss of consortium claims. Over 3,100 of the cases have been specially assigned to one judge in state court in Massachusetts. On February 7, 2012, the Judicial Panel on Multi-District Litigation (MDL) established MDL-2326 in the United States District Court for the Southern District of West Virginia and transferred the federal court transvaginal surgical mesh cases to MDL-2326 for coordinated pretrial proceedings. During the fourth quarter of 2013, we received written discovery requests from certain state attorneys general offices regarding our transvaginal surgical mesh products. We have responded to those requests. As of October 25, 2017, we have entered into master settlement agreements in principle or are in final stages of entering one with certain plaintiffs' counsel to resolve an aggregate of approximately 44,000 cases and claims. These master settlement agreements provide that the settlement and distribution of settlement funds to participating claimants are conditional upon, among other things, achieving minimum required claimant participation thresholds. Of the approximately 44,000 cases and claims, approximately 15,500 have met the conditions of the settlement and are final. All settlement agreements were entered into solely by way of compromise and without any admission or concession by us of any liability or wrongdoing. We have established a product liability accrual for known and estimated future cases and claims asserted against us as well as with respect to the actions that have resulted in verdicts against us and the costs of defense thereof associated with our transvaginal surgical mesh products. While we believe that our accrual associated with this matter is adequate, changes to this accrual may be required in the future as additional information becomes available. While we continue to engage in discussions with plaintiffs’ counsel regarding potential resolution of pending cases and claims and intend to vigorously contest the cases and claims asserted against us that do not settle, the final resolution of the cases and claims is uncertain and could have a material impact on our results of operations, financial condition and/or liquidity. Initial trials involving our transvaginal surgical mesh products have resulted in both favorable and unfavorable judgments for us. We do not believe that the judgment in any one trial is representative of potential outcomes of all cases or claims related to our transvaginal surgical mesh products. Governmental Investigations and Qui Tam Matters On May 5, 2014, we were served with a subpoena from the United States Department of Health and Human Services, Office of the Inspector General. The subpoena seeks information relating to the launch of the Cognis™ and Teligen™ line of devices in 2008, the performance of those devices from 2007 to 2009 and the operation of the Physician Guided Learning Program. We are cooperating with this request. On May 6, 2016, a qui tam lawsuit in this matter was unsealed in the United States District Court for the District of Minnesota. At the same time, we learned that the U.S. government and the State of California had earlier declined to intervene in that lawsuit on April 15, 2016. The complaint was served on us on July 21, 2016. On October 7, 2016, the plaintiff/relator served an amended complaint that dropped the allegations relating to the Physician Guided Learning Program. We filed a motion to dismiss the amended complaint on December 7, 2016 and the court heard our motion to dismiss on April 5, 2017. On August 29, 2017, the Court granted the motion to dismiss, without prejudice, and on September 19, 2017, the relator filed a Second Amended Complaint. Other Proceedings In June of 2016, Guidant asserted three arbitrations claims, two of which remain pending, related to three insurance policies for indemnity arising out of previously incurred and satisfied liabilities tied to allegedly defective cardiac rhythm management devices, which Guidant had manufactured. Guidant has claimed indemnities against such liabilities under insurance policies which it purchased for the 2004 policy year. One of these claims was resolved in September 2017. Matters Concluded Since December 31, 2016 On September 27, 2010, Boston Scientific Scimed, Inc., Boston Scientific Ltd., Endovascular Technologies, Inc. and we filed suit against Taewoong Medical, Co., Ltd., Standard Sci-Tech, Inc., EndoChoice, Inc. and Sewoon Medical Co., Ltd for infringement of three patents on stents for use in the GI system (the Pulnev and Hankh patents) and against Cook Medical Inc. (and related entities) for infringement of the same three patents and an additional patent (the Thompson patent). The suit was filed in the United States District Court for the District of Massachusetts seeking monetary damages and injunctive relief. In December 2010, we amended our complaint to add infringement of six additional Pulnev patents. In January 2011, the defendants filed a counterclaim of invalidity and unenforceability. In September 2011, we amended the complaint to add Chek-Med Systems d/b/a GI Supply as a defendant. On December 22, 2016 the following defendants were dismissed: Taewoong Medical Co., Ltd., GI Supply, Inc., Standard Sci-Tech, Inc., EndoChoice, Inc. and Sewoon Medical Co. The remaining parties reached a settlement and on March 21, 2017, the case was dismissed. |
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Weighted Average Number Of Shares Outstanding [Text Block] | NOTE J – WEIGHTED AVERAGE SHARES OUTSTANDING
The impact of stock options outstanding with exercise prices greater than the average fair market value of our common stock was immaterial for all periods presented. We issued approximately two million shares of our common stock in the third quarter of 2017, three million shares of our common stock in the third quarter of 2016, 11 million shares of our common stock in the first nine months of 2017 and 15 million shares of our common stock in the first nine months of 2016, following the exercise of underlying stock options, vesting of deferred stock units or purchases under our employee stock purchase plan. We did not repurchase any shares of our common stock during the first nine months of 2017 or 2016. |
Segment Reporting |
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SEGMENT REPORTING | NOTE K – SEGMENT REPORTING We have three reportable segments comprised of Cardiovascular, Rhythm Management and MedSurg, which represent an aggregation of our operating segments. Each of our reportable segments generates revenue from the sale of medical devices. We measure and evaluate our reportable segments based on segment net sales and operating income, excluding the impact of changes in foreign currency. Sales generated from reportable segments, as well as operating results of reportable segments and corporate expenses, are calculated based on internally-derived standard currency exchange rates, which may differ from year to year and do not include intersegment profits. We restated segment information for the prior period based on our internally-derived standard currency exchange rates as of January 1, 2017, used for the current period in order to remove the impact of foreign currency exchange fluctuation. We exclude from segment operating income certain corporate-related expenses and certain transactions or adjustments that our chief operating decision maker considers to be non-operational, such as intangible asset impairment charges, acquisition-related items, restructuring and restructuring-related items, litigation-related items and amortization expense. Although we exclude these amounts from segment operating income, they are included in reported consolidated operating income (loss) and are included in the reconciliation below. A reconciliation of the totals reported for the reportable segments to the applicable line items in our accompanying unaudited condensed consolidated statements of operations is as follows:
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Changes in Other Comprehensive Income |
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Comprehensive Income (Loss) Note [Text Block] | NOTE L – CHANGES IN OTHER COMPREHENSIVE INCOME The following table provides the reclassifications out of other comprehensive income. Amounts in the chart below are presented net of tax.
Refer to Note D – Fair Value Measurements in this Quarterly Report on Form 10-Q for further detail on the reclassifications related to derivatives. The income tax impact of the amounts in other comprehensive income for defined benefit and pension items before reclassification were immaterial for the third quarter and first nine months of 2017 and 2016. The gains and losses on defined benefit and pension related items reclassified from accumulated other comprehensive income were reduced by immaterial income tax impacts for the third quarter and first nine months of 2017 and 2016. The gains and losses on available-for-sale securities were reduced by immaterial income tax impacts for the third quarter and first nine months of 2017. |
New Accounting Pronouncements |
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Accounting Policies [Abstract] | |
New Accounting Pronouncements and Changes in Accounting Principles [Text Block] | NOTE M – NEW ACCOUNTING PRONOUNCEMENTS From time to time, 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 unaudited condensed consolidated financial statements. Standards Implemented since December 31, 2016 ASC Update No. 2016-09 In March 2016, the FASB issued ASC Update No. 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. The purpose of Update No. 2016-09 is to simplify accounting for share-based payment transactions, such as, the accounting for income taxes, statutory tax withholding requirements, forfeitures and statements of cash flows presentation. Update No. 2016-09 was effective for annual periods beginning after December 15, 2016, including interim periods within those annual periods. We adopted Update No. 2016-09 prospectively in the first quarter of 2017 and, as such, no prior periods were adjusted. We previously recorded income tax benefits or deficiencies to additional paid-in capital; however, Update No. 2016-09 requires that all tax benefits or deficiencies be recorded to the provision for income taxes. In the first nine months of 2017, we recorded an income tax benefit of $37 million. The actual impact to future periods will depend on the price of our stock, number of stock options exercised and other factors that are difficult to predict. In the first quarter of 2017, a cumulative effect adjustment of $76 million was recorded to retained earnings upon adoption for windfall tax benefits not previously recognized. ASC Update No. 2016-17 In October 2016, the FASB issued ASC Update No. 2016-17, Consolidation (Topic 810): Interests Held through Related Parties That Are under Common Control. The purpose of Update No. 2016-17 is to amend the consolidation guidance from Update No. 2015-02 on how a reporting entity that is the single decision maker of a variable interest entity (VIE) should treat indirect interests in the entity held through related parties that are under common control with the reporting entity when determining whether it is the primary beneficiary of that VIE. The amendment requires that a single decision maker include those indirect interests held through related parties that are under common control with the single decision maker on a proportionate basis consistent with indirect interests held through other related parties. Update No. 2016-17 was effective for annual periods beginning after December 15, 2016, including interim periods within those annual periods. We adopted Update No. 2016-17 in the first quarter of 2017. The adoption of Update No. 2016-17 did not have a material impact on our financial position or results of operations. ASC Update No. 2016-19 In December 2016, the FASB issued ASC Update No. 2016-19, Technical Corrections and Improvements. The purpose of Update No. 2016-19 is to clarify or correct unintended applications of guidance that affect a wide variety of topics in the ASC. Most of the amendments in this Update did not require transition guidance and were effective immediately. Six amendments in this update clarified guidance or corrected references in the ASC and were effective for annual periods beginning after December 15, 2016, including interim periods within these annual periods. We adopted these amendments in the first quarter of 2017. The adoption of Update No. 2016-19 did not have a material impact on our financial position or results of operations. ASC Update No. 2017-04 In January 2017, the FASB issued ASC Update No. 2017-04, Intangibles - Goodwill and Other Topics (Topic 350): Simplifying the Test for Goodwill Impairment. The purpose of Update No. 2017-04 is to reduce the cost and complexity of evaluating goodwill for impairment. It eliminates the need for entities to calculate the impaired fair value of goodwill by assigning the fair value of a reporting unit to all of its assets and liabilities as if that reporting unit had been acquired in a business combination. Under this amendment, an entity will perform its goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An impairment charge is recognized for the amount by which the carrying value exceeds the reporting unit's fair value. We elected to early adopt Update No. 2017-04 prospectively in the first quarter of 2017. The adoption of Update No. 2017-04 did not have a material impact on our financial position or results of operations. Standards to be Implemented ASC Update No. 2014-09 In May 2014, the FASB issued ASC Update No. 2014-09, Revenue from Contracts with Customers (Topic 606), which has been subsequently updated. The purpose of Update No. 2014-09 is to provide enhancements to the quality and consistency of how revenue is reported while also improving comparability in the financial statements of companies using U.S. GAAP and International Financial Reporting Standards. The core principle requires entities to recognize revenue in a manner that depicts the transfer of goods or services to customers in amounts that reflect the consideration an entity expects to be entitled to in exchange for those goods or services. Topic 606, as amended, becomes effective for annual periods beginning after December 15, 2017, at which point we plan to adopt the standard. We currently plan to adopt the standard using the “modified retrospective method.” Under that method, we will apply the rules to contracts that are not completed as of January 1, 2018, and recognize the cumulative effect of initially applying the standard as an adjustment to the opening balance of retained earnings. We have reached conclusions on our key accounting assessments related to the standard and are finalizing our accounting policies. Based on our initial assessment, we believe the timing of revenue recognition for our primary revenue stream, single-use medical device sales, will not materially change. We are still finalizing our accounting policies related to variable consideration and assessing disclosure requirements. Upon adopting Topic 606, we will provide additional disclosures in the notes to the consolidated financial statements, specifically related to disaggregated revenue, contract balances and performance obligations. In 2017, we are implementing new internal controls as part of our efforts to adopt the new revenue recognition standard. In the third quarter of 2017, we provided global training to our finance team on Topic 606. In the fourth quarter of 2017, we will perform a simulation of our new accounting processes and procedures to prepare our team for the month-end close process upon adoption of Topic 606. We will require new internal controls to address risks associated with applying the five-step model, specifically related to judgments made in connection to variable consideration and applying the constraint. Additionally, we will establish monitoring controls to identify new sales arrangements and changes in our business environment that could impact our current accounting assessment. During the fourth quarter of 2017, we expect to finalize our impact assessment and redesign impacted processes, policies and controls. ASC Update No. 2016-01 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. It requires entities to measure equity investments that do not result in consolidation and are not accounted for under the equity method at fair value with changes recognized in net income. However, an entity may choose to measure equity investments that do not have readily determinable fair values 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. It simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment. It also requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset and liability. Update No. 2016-01 is effective for annual periods beginning after December 15, 2017, including interim periods within those annual periods. Early adoption of certain provisions is permitted. We are unable to determine the effect that the adoption will have on our financial position and results of operations, as it will depend on our equity investments at the adoption date and their future performance. ASC Update No. 2016-02 In February 2016, the FASB issued ASC Update No. 2016-02, Leases (Topic 842). The purpose of Update No. 2016-02 is to increase the transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet, including those previously classified as operating leases under current U.S. GAAP and disclosing key information about leasing arrangements. Update No. 2016-02 is effective for annual periods beginning after December 15, 2018, including interim periods within those annual periods. Early adoption is permitted, and a modified retrospective approach is required for adoption. While we are still in the process of determining the effect that the new standard will have on our financial position and results of operations, we expect to recognize additional assets and corresponding liabilities on our consolidated balance sheets, as a result of our operating lease portfolio as disclosed in Note G - Lease and Other Purchase Obligations in our most recent Annual Report on Form 10-K. 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. Early adoption is permitted for annual periods beginning after December 15, 2018. We are in the process of determining the effect that the adoption will have on our financial position and results of operations. ASC Update No. 2016-15 In August 2016, the FASB issued ASC Update No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. The purpose of Update No. 2016-15 is to reduce the diversity in practice in presentation and classification of the following items within the statement of cash flows: debt prepayments or debt extinguishment costs, settlement of zero coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing, contingent consideration payments made after a business combination, proceeds from the settlement of insurance claims, proceeds from the settlement of corporate-owned life insurance policies, distributions received from equity method investments and beneficial interests in securitization transactions. It also addresses classification of transactions that have characteristics of more than one class of cash flows. Update No. 2016-15 is effective for annual periods beginning after December 15, 2017, and a retrospective transition method is required. We intend to early adopt the standard in the fourth quarter of 2017. Upon adoption, we expect our 2015 cash provided by operating activities to increase by approximately $45 million with a corresponding decrease in our cash provided by financing activities related to classification of debt repayment costs incurred in connection with our 2015 debt financing activities. We do not expect the adoption to have a material impact on our consolidated statements of cash flows for 2016 or 2017. ASC Update No. 2016-16 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 is effective for annual periods beginning after December 15, 2017, including interim periods within those annual periods. Early adoption is permitted as of the beginning of an annual period for which financial statements have not been issued or made available for issuance. We are in the process of determining the effect that adoption will have on our financial position and results of operations. ASC Update No. 2016-18 In November 2016, the FASB issued ASC Update No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash. The purpose of Update No. 2016-18 is to clarify guidance and presentation related to restricted cash in the statements of cash flows as well as increased disclosure requirements. It requires beginning-of-period and end-of-period total amounts shown on the statements of cash flows to include cash and cash equivalents as well as restricted cash and restricted cash equivalents. Update No. 2016-18 is effective for annual periods beginning after December 15, 2017, including interim reporting periods within those annual periods. Early adoption is permitted. We are in the process of determining the effect the adoption will have on our consolidated statements of cash flows. ASC Update No. 2017-01 In January 2017, the FASB issued ASC Update No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business. The purpose of Update No. 2017-01 is to change the definition of a business to assist entities with evaluating when a set of transferred assets and activities is a business. Update No. 2017-01 is effective for annual periods beginning after December 15, 2017, including interim periods within those annual periods. Early adoption is permitted as of the beginning of an annual or interim period for which financial statements have not been issued or made available for issuance. The adoption of Update No. 2017-01 is not expected to have a material impact on our financial position or results of operations. ASC Update No. 2017-09 In May 2017, the FASB issued ASC Update No. 2017-09, Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting. The purpose of Update No. 2017-09 is to provide guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting. Update No. 2017-09 is effective for annual periods beginning after December 15, 2017, including interim periods within those annual periods. Early adoption is permitted as of the beginning of an annual or interim period for which financial statements have not been issued or made available for issuance. The adoption of Update No. 2017-09 is not expected to have a material impact on our financial position or results of operations. ASC Update No. 2017-10 In May 2017, the FASB issued ASC Update No. 2017-10, Service Concession Arrangements (Topic 853): Determining the Customer of the Operation Services (a consensus of the FASB Emerging Issues Task Force). The purpose of Update No. 2017-10 is to address the diversity in practice as to how an operating entity determines the customer of the operation services in a service concession agreement. Update No. 2017-10 is effective the same time as FASB ASC Topic 606 and requires the same transition method elected for FASB ASC Topic 606. The adoption of Update No. 2017-10 is not expected to have a material impact on our financial position or results of operations. ASC Update No. 2017-12 In August 2017, the FASB issued ASC Update No. 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. The purpose of Update No. 2017-12 is to simplify the application of hedge accounting and better align financial reporting of hedging relationships with risk management objectives. Update No. 2017-12 is effective for annual periods beginning after December 15, 2018, including interim periods within those annual periods. Early adoption is permitted, including adoption in an interim period. The adoption of Update No. 2017-12 is not expected to have a material impact on our financial position or results of operations. No other new accounting pronouncements, issued or effective, during the period had, or are expected to have, a material impact on our condensed consolidated financial statements. |
Goodwill and Other Intangible Assets Goodwill (Policies) |
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Goodwill and Intangible Assets Disclosure [Abstract] | |
Goodwill and Intangible Assets, Goodwill, Policy [Policy Text Block] | Our technology-related intangible assets that are not subject to amortization represent technical processes, intellectual property and/or institutional understanding acquired through business combinations that are fundamental to the on-going operations of our business and have no limit to their useful life. Our technology-related intangible assets that are not subject to amortization are comprised primarily of certain acquired balloon and other technology, which is foundational to our continuing operations within the Cardiovascular market and other markets within interventional medicine. We assess our indefinite-lived intangible assets at least annually for impairment and reassess their classification as indefinite-lived assets. 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. |
Fair Value Measurements Fair Value Measurements (Policies) |
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Fair Value Disclosures [Abstract] | |
Fair Value Measurement, Policy [Policy Text Block] | FASB ASC Topic 815 requires all derivative 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 instruments using the framework prescribed by FASB ASC Topic 820, Fair Value Measurements and Disclosures, by considering the estimated amount we would receive or pay to transfer these instruments at the reporting date when taking into account current currency exchange rates and 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 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. |
Derivatives, Policy [Policy Text Block] | Our derivative instruments do not subject our earnings or cash flows to material risk as the gains or losses on these derivatives generally offset losses or gains recognized on the hedged item. We manage our 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. |
Restructuring Related Activities Restructuring Related Activities (Policies) |
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Restructuring and Related Activities [Abstract] | |
Costs Associated with Exit or Disposal Activities or Restructurings, Policy [Policy Text Block] | Termination benefits represent amounts incurred pursuant to our ongoing benefit arrangements and amounts for “one-time” involuntary termination benefits and have been recorded in accordance with FASB ASC Topic 712, Compensation - Nonretirement Postemployment Benefits and FASB ASC Topic 420, Exit or Disposal Cost Obligations. Other restructuring costs, which represent primarily consulting fees and costs related to contract cancellations, are being recorded as incurred in accordance with FASB ASC Topic 420. Accelerated depreciation is being recorded over the adjusted remaining useful life of the related assets and program management and production line transfer costs are being recorded as incurred. |
Commitments and Contingencies Commitments and Contingencies (Policies) |
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Sep. 30, 2017 | |
Commitments and Contingencies Disclosure [Abstract] | |
Legal Costs, Policy [Policy Text Block] | 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. |
New Accounting Pronouncements (Policies) |
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Sep. 30, 2017 | |
Accounting Policies [Abstract] | |
ASC Update No. 2017-09, Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting [Policy Text Block] | ASC Update No. 2017-09 In May 2017, the FASB issued ASC Update No. 2017-09, Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting. The purpose of Update No. 2017-09 is to provide guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting. Update No. 2017-09 is effective for annual periods beginning after December 15, 2017, including interim periods within those annual periods. Early adoption is permitted as of the beginning of an annual or interim period for which financial statements have not been issued or made available for issuance. The adoption of Update No. 2017-09 is not expected to have a material impact on our financial position or results of operations. |
ASC Update No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business [Policy Text Block] | ASC Update No. 2017-01 In January 2017, the FASB issued ASC Update No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business. The purpose of Update No. 2017-01 is to change the definition of a business to assist entities with evaluating when a set of transferred assets and activities is a business. Update No. 2017-01 is effective for annual periods beginning after December 15, 2017, including interim periods within those annual periods. Early adoption is permitted as of the beginning of an annual or interim period for which financial statements have not been issued or made available for issuance. The adoption of Update No. 2017-01 is not expected to have a material impact on our financial position or results of operations. |
ASC Update No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash [Policy Text Block] | ASC Update No. 2016-18 In November 2016, the FASB issued ASC Update No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash. The purpose of Update No. 2016-18 is to clarify guidance and presentation related to restricted cash in the statements of cash flows as well as increased disclosure requirements. It requires beginning-of-period and end-of-period total amounts shown on the statements of cash flows to include cash and cash equivalents as well as restricted cash and restricted cash equivalents. Update No. 2016-18 is effective for annual periods beginning after December 15, 2017, including interim reporting periods within those annual periods. Early adoption is permitted. We are in the process of determining the effect the adoption will have on our consolidated statements of cash flows. |
Subsequent Events, Policy [Policy Text Block] | Subsequent Events We evaluate events occurring after the date of our most recent accompanying unaudited condensed consolidated balance sheets for potential recognition or disclosure in our financial statements. We did not identify any material subsequent events requiring adjustment to our accompanying unaudited condensed consolidated financial statements (recognized subsequent events) for the three and nine months ended September 30, 2017. Those items requiring disclosure (unrecognized subsequent events) in the financial statements have been disclosed accordingly. Refer to Note B – Acquisitions and Strategic Investments and Note I – Commitments and Contingencies for more information. |
ASC Topic 820, Fair Value Measurements and Disclosures | FASB ASC Topic 815 requires all derivative 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 instruments using the framework prescribed by FASB ASC Topic 820, Fair Value Measurements and Disclosures, by considering the estimated amount we would receive or pay to transfer these instruments at the reporting date when taking into account current currency exchange rates and 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 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. |
ASC Topic 815, Derivatives and Hedging | Our derivative instruments do not subject our earnings or cash flows to material risk as the gains or losses on these derivatives generally offset losses or gains recognized on the hedged item. We manage our 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. |
ASC Topic 712, Compensation - Non-retirement Postemployment Benefits and ASC Topic 420, Exit or Disposal Cost Obligations | Termination benefits represent amounts incurred pursuant to our ongoing benefit arrangements and amounts for “one-time” involuntary termination benefits and have been recorded in accordance with FASB ASC Topic 712, Compensation - Nonretirement Postemployment Benefits and FASB ASC Topic 420, Exit or Disposal Cost Obligations. Other restructuring costs, which represent primarily consulting fees and costs related to contract cancellations, are being recorded as incurred in accordance with FASB ASC Topic 420. Accelerated depreciation is being recorded over the adjusted remaining useful life of the related assets and program management and production line transfer costs are being recorded as incurred. |
Legal Costs, Policy [Policy Text Block] | 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. |
ASC Update No. 2014-09, Revenue from Contracts with Customers (Topic 606) [Policy Text Block] | ASC Update No. 2014-09 In May 2014, the FASB issued ASC Update No. 2014-09, Revenue from Contracts with Customers (Topic 606), which has been subsequently updated. The purpose of Update No. 2014-09 is to provide enhancements to the quality and consistency of how revenue is reported while also improving comparability in the financial statements of companies using U.S. GAAP and International Financial Reporting Standards. The core principle requires entities to recognize revenue in a manner that depicts the transfer of goods or services to customers in amounts that reflect the consideration an entity expects to be entitled to in exchange for those goods or services. Topic 606, as amended, becomes effective for annual periods beginning after December 15, 2017, at which point we plan to adopt the standard. We currently plan to adopt the standard using the “modified retrospective method.” Under that method, we will apply the rules to contracts that are not completed as of January 1, 2018, and recognize the cumulative effect of initially applying the standard as an adjustment to the opening balance of retained earnings. We have reached conclusions on our key accounting assessments related to the standard and are finalizing our accounting policies. Based on our initial assessment, we believe the timing of revenue recognition for our primary revenue stream, single-use medical device sales, will not materially change. We are still finalizing our accounting policies related to variable consideration and assessing disclosure requirements. Upon adopting Topic 606, we will provide additional disclosures in the notes to the consolidated financial statements, specifically related to disaggregated revenue, contract balances and performance obligations. In 2017, we are implementing new internal controls as part of our efforts to adopt the new revenue recognition standard. In the third quarter of 2017, we provided global training to our finance team on Topic 606. In the fourth quarter of 2017, we will perform a simulation of our new accounting processes and procedures to prepare our team for the month-end close process upon adoption of Topic 606. We will require new internal controls to address risks associated with applying the five-step model, specifically related to judgments made in connection to variable consideration and applying the constraint. Additionally, we will establish monitoring controls to identify new sales arrangements and changes in our business environment that could impact our current accounting assessment. During the fourth quarter of 2017, we expect to finalize our impact assessment and redesign impacted processes, policies and controls. |
ASC Update No. 2016-01, Financial Instruments [Policy Text Block] | ASC Update No. 2016-01 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. It requires entities to measure equity investments that do not result in consolidation and are not accounted for under the equity method at fair value with changes recognized in net income. However, an entity may choose to measure equity investments that do not have readily determinable fair values 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. It simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment. It also requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset and liability. Update No. 2016-01 is effective for annual periods beginning after December 15, 2017, including interim periods within those annual periods. Early adoption of certain provisions is permitted. We are unable to determine the effect that the adoption will have on our financial position and results of operations, as it will depend on our equity investments at the adoption date and their future performance. |
ASC Update No. 2016-02, Leases (Topic 842) [Policy Text Block] | ASC Update No. 2016-02 In February 2016, the FASB issued ASC Update No. 2016-02, Leases (Topic 842). |
ASC Update No. 2016-09, Compensation- Stock Compensation (Topic 718) [Policy Text Block] | ASC Update No. 2016-09 In March 2016, the FASB issued ASC Update No. 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. The purpose of Update No. 2016-09 is to simplify accounting for share-based payment transactions, such as, the accounting for income taxes, statutory tax withholding requirements, forfeitures and statements of cash flows presentation. Update No. 2016-09 was effective for annual periods beginning after December 15, 2016, including interim periods within those annual periods. We adopted Update No. 2016-09 prospectively in the first quarter of 2017 and, as such, no prior periods were adjusted. We previously recorded income tax benefits or deficiencies to additional paid-in capital; however, Update No. 2016-09 requires that all tax benefits or deficiencies be recorded to the provision for income taxes. In the first nine months of 2017, we recorded an income tax benefit of $37 million. The actual impact to future periods will depend on the price of our stock, number of stock options exercised and other factors that are difficult to predict. In the first quarter of 2017, a cumulative effect adjustment of $76 million was recorded to retained earnings upon adoption for windfall tax benefits not previously recognized. |
ASC Update No. 2017-10, Service Concession Arrangements (Topic 853): Determining the Customer of the Operation Services (a consensus of the FASB Emerging Issues Task Force) [Policy Text Block] | ASC Update No. 2017-10 In May 2017, the FASB issued ASC Update No. 2017-10, Service Concession Arrangements (Topic 853): Determining the Customer of the Operation Services (a consensus of the FASB Emerging Issues Task Force). The purpose of Update No. 2017-10 is to address the diversity in practice as to how an operating entity determines the customer of the operation services in a service concession agreement. Update No. 2017-10 is effective the same time as FASB ASC Topic 606 and requires the same transition method elected for FASB ASC Topic 606. The adoption of Update No. 2017-10 is not expected to have a material impact on our financial position or results of operations. |
ASC Update No. 2016-13 [Policy Text Block] | 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. Early adoption is permitted for annual periods beginning after December 15, 2018. We are in the process of determining the effect that the adoption will have on our financial position and results of operations. |
ASC Update No. 2016-15, Statement of Cash Flows [Policy Text Block] | ASC Update No. 2016-15 In August 2016, the FASB issued ASC Update No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. The purpose of Update No. 2016-15 is to reduce the diversity in practice in presentation and classification of the following items within the statement of cash flows: debt prepayments or debt extinguishment costs, settlement of zero coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing, contingent consideration payments made after a business combination, proceeds from the settlement of insurance claims, proceeds from the settlement of corporate-owned life insurance policies, distributions received from equity method investments and beneficial interests in securitization transactions. It also addresses classification of transactions that have characteristics of more than one class of cash flows. Update No. 2016-15 is effective for annual periods beginning after December 15, 2017, and a retrospective transition method is required. We intend to early adopt the standard in the fourth quarter of 2017. Upon adoption, we expect our 2015 cash provided by operating activities to increase by approximately $45 million with a corresponding decrease in our cash provided by financing activities related to classification of debt repayment costs incurred in connection with our 2015 debt financing activities. We do not expect the adoption to have a material impact on our consolidated statements of cash flows for 2016 or 2017. |
ASU Update No. 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory [Policy Text Block] | ASC Update No. 2016-16 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 is effective for annual periods beginning after December 15, 2017, including interim periods within those annual periods. |
ASU Update No. 2016-17, Consolidation (Topic 810): Interests Held through Related Parties That Are under Common Control [Policy Text Block] | ASC Update No. 2016-17 In October 2016, the FASB issued ASC Update No. 2016-17, Consolidation (Topic 810): Interests Held through Related Parties That Are under Common Control. The purpose of Update No. 2016-17 is to amend the consolidation guidance from Update No. 2015-02 on how a reporting entity that is the single decision maker of a variable interest entity (VIE) should treat indirect interests in the entity held through related parties that are under common control with the reporting entity when determining whether it is the primary beneficiary of that VIE. The amendment requires that a single decision maker include those indirect interests held through related parties that are under common control with the single decision maker on a proportionate basis consistent with indirect interests held through other related parties. Update No. 2016-17 was effective for annual periods beginning after December 15, 2016, including interim periods within those annual periods. We adopted Update No. 2016-17 in the first quarter of 2017. The adoption of Update No. 2016-17 did not have a material impact on our financial position or results of operations. |
ASC Update No. 2016-19, Technical Corrections and Improvements [Policy Text Block] | ASC Update No. 2016-19 In December 2016, the FASB issued ASC Update No. 2016-19, Technical Corrections and Improvements. The purpose of Update No. 2016-19 is to clarify or correct unintended applications of guidance that affect a wide variety of topics in the ASC. Most of the amendments in this Update did not require transition guidance and were effective immediately. Six amendments in this update clarified guidance or corrected references in the ASC and were effective for annual periods beginning after December 15, 2016, including interim periods within these annual periods. We adopted these amendments in the first quarter of 2017. The adoption of Update No. 2016-19 did not have a material impact on our financial position or results of operations. |
ASC Update No. 2017-04, Intangibles - Goodwill and Other Topics (Topic 350): Simplifying the Test for Goodwill Impairment [Policy Text Block] | ASC Update No. 2017-04 In January 2017, the FASB issued ASC Update No. 2017-04, Intangibles - Goodwill and Other Topics (Topic 350): Simplifying the Test for Goodwill Impairment. The purpose of Update No. 2017-04 is to reduce the cost and complexity of evaluating goodwill for impairment. It eliminates the need for entities to calculate the impaired fair value of goodwill by assigning the fair value of a reporting unit to all of its assets and liabilities as if that reporting unit had been acquired in a business combination. Under this amendment, an entity will perform its goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An impairment charge is recognized for the amount by which the carrying value exceeds the reporting unit's fair value. We elected to early adopt Update No. 2017-04 prospectively in the first quarter of 2017. The adoption of Update No. 2017-04 did not have a material impact on our financial position or results of operations. |
Acquisitions and Strategic Investments (Tables) |
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Business Combination, Components of Purchase Price [Table Text Block] | The components of the aggregate preliminary purchase price are as follows (in millions):
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Investment [Table Text Block] | The aggregate carrying amount of our strategic investments were comprised of the following categories:
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Business Combination, Purchase Price Allocation Schedule [Table Text Block] | The following summarizes the preliminary purchase price allocation for the Symetis acquisition as of September 30, 2017 (in millions):
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Business Acquisition, Purchase Price Allocation, Intangible Assets, Description [Table Text Block] | We allocated a portion of the purchase price to specific intangible asset categories as follows:
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Rollforward of Fair Value of Contingent Consideration [Table Text Block] | Changes in the fair value of our contingent consideration liabilities were as follows (in millions):
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Description of unobservable inputs used in Level 3 fair value measurements [Table Text Block] | The recurring Level 3 fair value measurements of our contingent consideration liabilities include the following significant unobservable inputs:
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Goodwill and Other Intangible Assets Goodwill (Tables) |
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Goodwill and Intangible Assets Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Description of unobservable inputs used in Level 3 fair value measurements [Table Text Block] | The recurring Level 3 fair value measurements of our contingent consideration liabilities include the following significant unobservable inputs:
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Schedule of Goodwill [Table Text Block] | The following represents our goodwill balance by global reportable segment:
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:
The following is a rollforward of accumulated goodwill write-offs by global reportable segment:
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Fair Value Measurements (Tables) |
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Derivative [Line Items] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Derivative Instruments [Table Text Block] | The following table presents the contractual amounts of our derivative instruments outstanding:
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Gains (losses) recognized in earnings for derivatives designed as hedging instruments | As of September 30, 2017, pre-tax net gains or losses for our derivative instruments designated, or previously designated, as currency hedge contracts under FASB ASC Topic 815 that may be reclassified to earnings within the next twelve months are presented below:
The following presents the effect of our derivative instruments designated as cash flow hedges under FASB ASC Topic 815 on our accompanying unaudited condensed consolidated statements of operations:
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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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Classification of derivative assets and liabilities within level 2 | The following are the balances of our derivative assets and liabilities:
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Assets and liabilities measured at fair value on a recurring basis | Assets and liabilities measured at fair value on a recurring basis consist of the following:
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Borrowings and Credit Arrangements (Tables) |
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Debt Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary Of Term Loan And Revolving Credit Facility Agreement Compliance With Debt Covenants [Table Text Block] | The 2017 Facility agreement in place requires that we maintain certain financial covenants, as follows:
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Schedule of debt maturities | The debt maturity schedule for the significant components of our long-term debt obligations is presented below:
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Restructuring Related Activities (Tables) |
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Restructuring and related costs | The following presents these costs (credits) by major type and line item within our accompanying unaudited condensed consolidated statements of operations:
All charges incurred in the third quarter of 2017 were related to the 2016 Restructuring Plan.
All charges incurred in the first nine months of 2017 were related to the 2016 Restructuring Plan.
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Cumulative restructuring charges |
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Cash payments associated with restructuring initiatives | These payments were made using cash generated from operations and are comprised of the following:
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Summary of accrued expenses within accompanying unaudited condensed consolidated balance sheets | The following is a rollforward of the termination benefit liability associated with our 2016 Restructuring Plan, which is reported as a component of accrued expenses included in our accompanying unaudited condensed consolidated balance sheets:
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2016 Restructuring Plan [Member] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Restructuring and Related Cost [Line Items] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Restructuring and related costs | The following table provides a summary of our estimates of costs associated with the 2016 Restructuring Plan through the end of 2018 by major type of cost:
(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 and costs to transfer product lines among facilities. |
Supplemental Balance Sheet Information (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2017 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Supplemental Balance Sheet Information [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Trade accounts receivable, net |
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Rollforward of allowances for doubtful accounts |
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Inventory Disclosure [Text Block] |
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Other Current Assets [Text Block] |
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Property, plant and equipment, net |
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Schedule of Accrued Liabilities |
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Other long-term liabilities |
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Accrued warranties |
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Income Taxes (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2017 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Income Tax Rate Reconciliation [Line Items] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Effective Income Tax Rate Reconciliation [Table Text Block] |
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Weighted Average Shares Outstanding (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2017 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Earnings Per Share [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Weighted Average Number of Shares [Table Text Block] |
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Segment Reporting (Tables) |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Segment Reporting [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Segment Reporting Information By Segment | A reconciliation of the totals reported for the reportable segments to the applicable line items in our accompanying unaudited condensed consolidated statements of operations is as follows:
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Changes in Other Comprehensive Income (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Changes in Other Comprehensive Income [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Changes in Other Comprehensive Income [Table Text Block] | The following table provides the reclassifications out of other comprehensive income. Amounts in the chart below are presented net of tax.
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Strategic Investments (Details) - USD ($) $ in Millions |
3 Months Ended | 9 Months Ended | |||||
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Sep. 30, 2017 |
Jun. 30, 2017 |
Sep. 30, 2016 |
Sep. 30, 2017 |
Sep. 30, 2016 |
Nov. 01, 2017 |
Dec. 31, 2016 |
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Schedule of Investments [Line Items] | |||||||
Other Nonoperating Income (Expense) | $ (11) | $ (33) | $ (89) | $ (44) | |||
Equity Method Investments | 204 | 204 | $ 265 | ||||
Cost Method Investments | 69 | 69 | 20 | ||||
Available-for-sale Securities | 32 | 32 | 20 | ||||
Notes Receivable From Portfolio Companies | 44 | 44 | 42 | ||||
Investments | $ 349 | $ 349 | $ 347 | ||||
investment impairment [Member] | |||||||
Schedule of Investments [Line Items] | |||||||
Other Nonoperating Income (Expense) | $ (53) | ||||||
Subsequent Event [Member] | |||||||
Schedule of Investments [Line Items] | |||||||
potential up-front cash payment | $ 145 | ||||||
potential contingent payments to acquire investee | $ 130 |
Income Taxes (Details) - USD ($) $ in Millions |
3 Months Ended | 9 Months Ended | 12 Months Ended | ||||
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Sep. 30, 2017 |
Sep. 30, 2016 |
Jun. 30, 2018 |
Sep. 30, 2017 |
Sep. 30, 2016 |
Sep. 30, 2018 |
Dec. 31, 2016 |
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Effective Income Tax Rate Reconciliation, Percent [Abstract] | |||||||
Unrecognized Tax Benefits | $ 1,128 | $ 1,128 | $ 1,095 | ||||
Unrecognized Tax Benefits that Would Impact Effective Tax Rate | 1,039 | 1,039 | 1,006 | ||||
Incremental tax liability asserted by IRS | $ 1,162 | $ 1,162 | |||||
Reported tax rate | 8.50% | 11.20% | (2.00%) | (152.40%) | |||
Net tax expense/benefits related to interest and penalties | $ 14 | $ 13 | $ 40 | $ 35 | |||
Unrecognized Tax Benefits, Income Tax Penalties and Interest Accrued, Total | $ 633 | $ 633 | $ 572 | ||||
Subsequent Event [Member] | |||||||
Effective Income Tax Rate Reconciliation, Percent [Abstract] | |||||||
Litigation Settlement, Amount | $ 275 | ||||||
Potential Reduction In Unrecognized Tax Benefits Over Next Twelve Months As Result Of Concluding Certain Matters | $ 757 |
Weighted Average Shares Outstanding (Details) - shares shares in Millions |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2017 |
Sep. 30, 2016 |
Sep. 30, 2017 |
Sep. 30, 2016 |
|
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | ||||
Weighted average shares outstanding - basic | 1,372.0 | 1,360.6 | 1,369.1 | 1,356.1 |
Weighted Average Number Diluted Shares Outstanding Adjustment | 22.1 | 19.1 | 22.7 | 18.8 |
Weighted average shares outstanding - assuming dilution | 1,394.1 | 1,379.7 | 1,391.8 | 1,374.9 |
Stock Issued During Period, Shares, New Issues | 2.0 | 3.0 | 11.0 | 15.0 |
New Accounting Pronouncements New ASU impacts (Details) - USD ($) $ in Millions |
9 Months Ended | |
---|---|---|
Sep. 30, 2017 |
Mar. 31, 2017 |
|
New ASU impacts [Abstract] | ||
Proceeds and Excess Tax Benefit from Share-based Compensation | $ 37 | |
Cumulative Effect of New Accounting Principle in Period of Adoption | $ 76 |
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