Segment Reporting

9 Months Ended

Sep. 30, 2019

NOTE K – SEGMENT REPORTING

We have three reportable segments comprised of MedSurg, Rhythm and Neuro, and Cardiovascular, which represent an aggregation of our operating segments.

Each of our reportable segments generates revenues from the sale of medical devices. We measure and evaluate our reportable segments based on reportable segment net sales, operating income of reportable segments, excluding intersegment profits, and reportable segment operating income as a percentage of reportable segment net sales. Reportable segment operating income as a percentage of reportable segment net sales is defined as operating income of reportable segments divided by reportable segment net sales. Our presentation of reportable segment net sales and operating income of reportable segments includes the impact of foreign currency fluctuations, since our chief operating decision maker (CODM) reviews operating results both including and excluding the impact of foreign currency fluctuations, and the following presentation more closely aligns to our unaudited condensed consolidated financial statements. We exclude from operating income of reportable segments certain corporate-related expenses and certain transactions or adjustments that our CODM considers to be non-operational, such as amounts related to amortization expense, intangible asset impairment charges, acquisition-related items, restructuring and restructuring-related items, litigation-related items and medical device regulation charges. Although we exclude these amounts from operating income of reportable segments, they are included in Income (loss) before income taxes on the unaudited condensed consolidated statements of operations 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 (in millions, except percentages):



	Three Months Ended September 30,						Nine Months Ended September 30,
Net sales	2019			2018			2019			2018
MedSurg	$	845		$	746		$	2,429		$	2,207
Rhythm and Neuro	780			740			2,323			2,252
Cardiovascular	1,011			908			3,009			2,806
Reportable segment net sales	2,636			2,393			7,760			7,262
BTG Acquisition⁽¹⁾	71			n/a			71			n/a
Net sales	$	2,707		$	2,393		$	7,831		$	7,262

	Three Months Ended September 30,						Nine Months Ended September 30,
Income (loss) before income taxes	2019			2018			2019			2018
MedSurg	$	319		$	274		$	870		$	807
Rhythm and Neuro	166			168			488			481
Cardiovascular	281			268			857			858
Operating income of reportable segments	766			710			2,216			2,146
BTG Acquisition⁽¹⁾	16			n/a			16			n/a
Corporate expenses, including hedging activities	(75		)	(97		)	(215		)	(297		)
Intangible asset impairment charges, acquisition/divestiture-related, restructuring- and restructuring-related, litigation-related net (charges) credits and medical device regulation charges	(146		)	(77		)	(210		)	(225		)
Amortization expense	(178		)	(148		)	(498		)	(437		)
Operating income (loss)	383			388			1,308			1,187
Other expense, net	(292		)	68			(615		)	(61		)
Income (loss) before income taxes	$	91		$	456		$	693		$	1,126

Reportable segment operating income as a percentage of reportable segment net sales	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
MedSurg	37.8		%	36.8		%	35.8		%	36.6		%
Rhythm and Neuro	21.3		%	22.7		%	21.0		%	21.4		%
Cardiovascular	27.8		%	29.5		%	28.5		%	30.6		%

(1)

For the first nine months of 2019, there have been no changes to our internal reporting structure, and accordingly, we have not revised our segment reporting or geographic presentation. We will continue to integrate the BTG Acquisition into our operations in the fourth quarter and will reassess our operating and reportable segments as well as geographic presentation for any changes related to our internal reporting structure as well as to the information regularly reviewed by the CODM. To the extent any changes in our operating and reportable segments are identified, these will be reflected in our segment reporting information in the period in which the change occurs. Our results of operations include the results of BTG following the acquisition date of August 19, 2019. The BTG Acquisition reconciling item above excludes certain adjustments that our CODM considers to be non-operational, such as acquisition-related items.