P7-47
a. What amount of Boston Scientifics longterm debt is due in 2019?
b. What is the total amount of Boston Scientifics longterm debt at December 31, 2018, including the current maturities?
c. The companys balance sheet reports shortterm debt including current maturities of $2,253 million and $1,801 million in 2018 and 2017, respectively. Compute the average effective interest rate on the companys total debt for fiscal 2018. Compare this to the average interest rate the company reports.
d. Explain how the amount of cash paid for interest can differ from the amount of interest expense recorded in the income statement.
e. The $1,000 million 4.00% note due in 2028 is priced at 109.35 (109.35% of face value, or $1,093.50 million) as of early 2019, resulting in a current yield of 2.8%. Assuming that the companys credit rating has not changed since the bond was issued, what does the pricing of this 4.00% bond imply about interest rate changes since Boston Scientific issued the bond?
f. Compare the bonds that mature in 2023 and 2028. Explain why the bond with the higher coupon rate (4.125%) has the lower yield (2.41%).
Borrowings and Credit Agreements As of December 31, Semi- annual Coupon Rate 2018 2017 In millions, except interest rates Issuance Date January 2020 Notes December 2009 May 2020 Notes May 2015 May 2022 Notes May 2015 October 2023 Notes August 2013 May 2025 Notes May 2015 March 2028 Notes February 2018 November 2035 Notes'). November 2005 January 2040 Notes December 2009 Unamortized debt insurance discount and deferred financing cost Unamortized gain on fair value hedge. Capital lease obligation Long-term debt Maturity Date January 2020 May 2020 May 2022 October 2023 May 2025 March 2028 November 2035 January 2040 $ 850 600 500 450 750 1,000 350 300 $ 850 600 500 450 750 6.000% 2.850% 3.375% 4.125% 3.850% 4.000% 7.000% 7.375% 350 300 2020-2040 2020-2025 Various (29) 26 6 (24) 38 1 S4.803 $3,815 m Corporate credit rating improvements may result in a decrease in the adjusted interest rate on our November 2035 Notes to the extent that our lowest credit rating is above BBB-or Baa3. The interest rates on our November 2035 notes will be permanently reinstated to the issuance rate if the lowest credit ratings assigned to these senior notes is either A-or A3 or higher ) * Auto Zoom In millions 2019 2020 2021 2022 2023 Thereafter $2,248 1,540 0 500 450 2,400 Boston Scientific also discloses the following information. Interest Expense The following table provides a summary of our interest expense and average borrowing rate : 2018 2017 2016 Year Ended December 31 (in millions) Interest expense. Weighted average borrowing rate Cash paid for interest. S(241) 3.6% $(262) $(229) 3.8% S(235) $(233) 4.0% S(233) The price of the Boston Scientific's bonds in February 2019 follows. Moody's Rating (02/21/2019) Maturity date Coupon Current Price Current Yield Baa2 2028 2023 4.00% 4.125 109.35 101.57 2.80% 2.4196 Baa2 Borrowings and Credit Agreements As of December 31, Semi- annual Coupon Rate 2018 2017 In millions, except interest rates Issuance Date January 2020 Notes December 2009 May 2020 Notes May 2015 May 2022 Notes May 2015 October 2023 Notes August 2013 May 2025 Notes May 2015 March 2028 Notes February 2018 November 2035 Notes'). November 2005 January 2040 Notes December 2009 Unamortized debt insurance discount and deferred financing cost Unamortized gain on fair value hedge. Capital lease obligation Long-term debt Maturity Date January 2020 May 2020 May 2022 October 2023 May 2025 March 2028 November 2035 January 2040 $ 850 600 500 450 750 1,000 350 300 $ 850 600 500 450 750 6.000% 2.850% 3.375% 4.125% 3.850% 4.000% 7.000% 7.375% 350 300 2020-2040 2020-2025 Various (29) 26 6 (24) 38 1 S4.803 $3,815 m Corporate credit rating improvements may result in a decrease in the adjusted interest rate on our November 2035 Notes to the extent that our lowest credit rating is above BBB-or Baa3. The interest rates on our November 2035 notes will be permanently reinstated to the issuance rate if the lowest credit ratings assigned to these senior notes is either A-or A3 or higher ) * Auto Zoom In millions 2019 2020 2021 2022 2023 Thereafter $2,248 1,540 0 500 450 2,400 Boston Scientific also discloses the following information. Interest Expense The following table provides a summary of our interest expense and average borrowing rate : 2018 2017 2016 Year Ended December 31 (in millions) Interest expense. Weighted average borrowing rate Cash paid for interest. S(241) 3.6% $(262) $(229) 3.8% S(235) $(233) 4.0% S(233) The price of the Boston Scientific's bonds in February 2019 follows. Moody's Rating (02/21/2019) Maturity date Coupon Current Price Current Yield Baa2 2028 2023 4.00% 4.125 109.35 101.57 2.80% 2.4196 Baa2
