P7-47. Interpreting Debt Footnotes on Interest Rates and Interest Expense Boston Scientific discloses the following as part of its long-term debt footnote in its December 31, 2018 10-K. Borrowings and Credit Agreements As of December 31, Semi-annual Coupon Rate 2018 2017 In millions, except interest rates Issuance Date Maturity Date January 2020 Notes .. December 2009 January 2020 May 2020 Notes May 2015 May 2020 May 2022 Notes May 2015 May 2022 October 2023 Notes August 2013 October 2023 May 2025 Notes May 2015 May 2025 March 2028 Notes February 2018 March 2028 November 2035 Notes(1). November 2005 November 2035 January 2040 Notes December 2009 January 2040 Unamortized debt insurance discount and deferred financing cost 2020-2040 Unamortized gain on fair value hedge 2020-2025 Capital lease obligation Various Long-term debt $ 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 (29) 26 6 (24) 38 1 $4,803 $3,815 ("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 Boston Scientific discloses its required principal debt repayments due during each of the next five years and thereafter. 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 bor- rowing rate: Year Ended December 31 (in millions) 2018 2017 2016 Interest expense. Weighted average borrowing rate Cash paid for interest.. $(241) 3.6% $(262) $(229) 3.8% $(235) $(233) 4.0% $(233) The price of Boston Scientific's bonds in February 2019 follows. Maturity date Coupon Moody's Rating (02/21/2019) Current Price Current Yield 2028 2023 4.00% 4.125% 109.35 101.57 2.80% 2.41% Baa2 Baa2 Required a. What amount of Boston Scientific's long-term debt is due in 2019? b. What is the total amount of Boston Scientific's long-term debt at December 31, 2018, including the current maturities? c. The company's balance sheet reports short-term 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 company's 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 re- corded 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 company's 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 Boston Scientific also discloses the following information. Interest Expense The following table provides a summary of our Interest expense and average bor- rowing rate: Year Ended December 31 (in millions) 2018 2017 2016 Interest expense. Weighted average borrowing rate Cash paid for interest.. $(241) 3.6% $(262) $(229) 3.8% $(235) $(233) 4.0% $(233) The price of Boston Scientific's bonds in February 2019 follows. Maturity date Coupon Moody's Rating (02/21/2019) Current Price Current Yield 2028 2023 4.00% 4.125% 109.35 101.57 2.80% 2.41% Baa2 Baa2 Required a. What amount of Boston Scientific's long-term debt is due in 2019? b. What is the total amount of Boston Scientific's long-term debt at December 31, 2018, including the current maturities? c. The company's balance sheet reports short-term 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 company's 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 re- corded 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 company's 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 Required a. What amount of Boston Scientific's long-term debt is due in 2019? b. What is the total amount of Boston Scientific's long-term debt at December 31, 2018, including the current maturities? c. The company's balance sheet reports short-term 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 company's 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 re- corded 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 company's 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%)
