Item 1. CONSOLIDATED FINANCIAL STATEMENTS

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Item 1. CONSOLIDATED FINANCIAL STATEMENTS

BOSTON SCIENTIFIC CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)


	Three Months Ended September 30,				Nine Months Ended September 30,
(in millions, except per share data)	2023		2022		2023		2022

Net sales	$	3,527	$	3,170	$	10,515	$	9,440
Cost of products sold	1,101		979		3,198		2,945
Gross profit	2,426		2,191		7,317		6,495

Operating expenses:
Selling, general and administrative expenses	1,242		1,132		3,811		3,357
Research and development expenses	356		339		1,051		993
Royalty expense	11		11		35		34
Amortization expense	208		202		620		604

Intangible asset impairment charges	1		125		58		132
Contingent consideration net expense (benefit)	12		20		43		68
Restructuring net charges (credits)	15		4		51		18
Litigation-related net charges (credits)	(111)		—		(111)		42

	1,733		1,833		5,558		5,248
Operating income (loss)	693		358		1,759		1,247

Other income (expense):
Interest expense	(66)		(63)		(200)		(406)
Other, net	(18)		(51)		(78)		(96)
Income (loss) before income taxes	610		245		1,480		745
Income tax expense (benefit)	105		57		392		188
Net income (loss)	504		188		1,088		558
Preferred stock dividends	—		(14)		(23)		(42)
Net income (loss) attributable to noncontrolling interests	(0)		—		(0)		—
Net income (loss) attributable to Boston Scientific common stockholders	$	505	$	174	$	1,065	$	516

Net income (loss) per common share — basic	$	0.34	$	0.12	$	0.74	$	0.36
Net income (loss) per common share — diluted	$	0.34	$	0.12	$	0.73	$	0.36

Weighted-average shares outstanding
Basic	1,464.5		1,431.6		1,448.8		1,429.7
Diluted	1,475.0		1,440.0		1,459.1		1,438.7

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

BOSTON SCIENTIFIC CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)


	Three Months Ended September 30,				Nine Months Ended September 30,
(in millions)	2023		2022		2023		2022
Net income (loss)	$	504	$	188	$	1,088	$	558
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustment	21		26		(7)		39
Net change in derivative financial instruments	3		72		(25)		229

Net change in defined benefit pensions and other items	(0)		1		(5)		1
Other comprehensive income (loss)	23		99		(37)		269
Comprehensive income (loss)	$	528	$	287	$	1,051	$	827
Comprehensive income attributable to noncontrolling interests	(16)		—		(16)		—
Comprehensive income attributable to Boston Scientific common stockholders	$	511	$	287	$	1,035	$	827

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

BOSTON SCIENTIFIC CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (UNAUDITED)


	As of
(in millions, except share and per share data)	September 30, 2023		December 31, 2022
ASSETS
Current assets:
Cash and cash equivalents	$	952	$	928
Trade accounts receivable, net	2,101		1,970
Inventories	2,404		1,867
Prepaid income taxes	307		264

Other current assets	741		731
Total current assets	6,504		5,760
Property, plant and equipment, net	2,635		2,446
Goodwill	13,608		12,920
Other intangible assets, net	5,849		5,902
Deferred tax assets	3,840		3,942
Other long-term assets	1,605		1,500
TOTAL ASSETS	$	34,043	$	32,469

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current debt obligations	$	513	$	20
Accounts payable	929		862
Accrued expenses	2,255		2,160
Other current liabilities	882		761
Total current liabilities	4,579		3,803
Long-term debt	8,386		8,915
Deferred income taxes	91		144
Other long-term liabilities	1,858		2,035

Commitments and contingencies

Stockholders’ equity
Preferred stock, $0.01 par value - authorized 50,000,000 shares - 0 shares issued as of September 30, 2023 and 10,062,500 shares as of December 31, 2022	—		—
Common stock, $0.01 par value - authorized 2,000,000,000 shares - issued 1,728,158,524 shares as of September 30, 2023 and 1,696,633,993 shares as of December 31, 2022	17		17
Treasury stock, at cost - 263,289,848 shares as of September 30, 2023 and December 31, 2022	(2,251)		(2,251)
Additional paid-in capital	20,573		20,289
Retained earnings/(Accumulated deficit)	315		(750)
Accumulated other comprehensive income (loss), net of tax	231		269
Total stockholders’ equity	18,886		17,573
Noncontrolling interests	243		—
Total equity	19,129		17,573
TOTAL LIABILITIES AND EQUITY	$	34,043	$	32,469

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

BOSTON SCIENTIFIC CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED)


	Three Months Ended September 30,				Nine Months Ended September 30,
(in millions, except share data)	2023		2022		2023		2022
Preferred stock shares issued
Beginning	—		10,062,500		10,062,500		10,062,500

Conversion of mandatory convertible preferred stock to common stock	—		—		(10,062,500)		—
Ending	—		10,062,500		—		10,062,500
Common stock shares issued
Beginning	1,725,956,141		1,693,192,785		1,696,633,993		1,688,810,052

Impact of stock-based compensation plans	2,202,383		2,204,851		7,541,629		6,587,584
Conversion of mandatory convertible preferred stock to common stock	—		—		23,982,902		—
Ending	1,728,158,524		1,695,397,636		1,728,158,524		1,695,397,636

Preferred stock
Beginning	$	—	$	0	$	0	$	0

Conversion of mandatory convertible preferred stock to common stock	—		—		(0)		—
Ending	$	—	$	0	—		$	0
Common stock
Beginning	$	17	$	17	$	17	$	17

Impact of stock-based compensation plans	0		0		0		0
Conversion of mandatory convertible preferred stock to common stock	—		—		0		—
Ending	$	17	$	17	$	17	$	17
Treasury stock
Beginning	$	(2,251)	$	(2,251)	$	(2,251)	$	(2,251)
Repurchase of common stock	—		—		—		—
Ending	$	(2,251)	$	(2,251)	$	(2,251)	$	(2,251)
Additional paid-in capital
Beginning	$	20,441	$	20,103	$	20,289	$	19,986


Impact of stock-based compensation plans	132		116		285		233
Ending	$	20,573	$	20,219	$	20,573	$	20,219
Retained earnings/(Accumulated deficit)
Beginning	$	(189)	$	(1,050)	$	(750)	$	(1,392)
Net income (loss)	504		188		1,088		558
Net income (loss) attributable to noncontrolling interests	0		—		0		—
Preferred stock dividends	—		(14)		(23)		(42)
Ending	$	315	$	(876)	$	315	$	(876)
Accumulated other comprehensive income (loss), net of tax
Beginning	$	208	$	433	$	269	$	263
Changes in other comprehensive income (loss)	23		99		(37)		269
Ending	$	231	$	532	$	231	$	532
Total stockholders' equity	$	18,886	$	17,640	18,886		17,640

Noncontrolling interests
Beginning	$	259	$	—	—		—
Net income (loss) attributable to noncontrolling interests	(0)		—		(0)		—
Changes in other comprehensive income (loss)	(16)		—		(16)		—
Changes to noncontrolling ownership interest	—		—		259		—
Ending	$	243	$	—	243		—

Total equity	$	19,129	$	17,640	19,129		17,640

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

BOSTON SCIENTIFIC CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)


	Nine Months Ended September 30,
(in millions)	2023		2022
Net income (loss)	$	1,088	$	558
Adjustments to reconcile net income (loss) to cash provided by (used for) operating activities

Depreciation and amortization	883		842
Deferred and prepaid income taxes	(74)		(70)
Stock-based compensation expense	174		165
Goodwill and other intangible asset impairment charges	58		132
Net loss (gain) on investments and notes receivable	48		46
Contingent consideration net expense (benefit)	43		68
Inventory step-up amortization	6		32
Debt extinguishment costs	—		194
Other, net	33		92
Increase (decrease) in operating assets and liabilities, excluding purchase accounting:
Trade accounts receivable	(164)		(176)
Inventories	(601)		(275)
Other assets	(43)		(298)
Accounts payable, accrued expenses and other liabilities	95		(590)
Cash provided by (used for) operating activities	1,546		719

Investing activities:
Purchases of property, plant and equipment and internal use software	(444)		(376)
Proceeds from sale of property, plant and equipment	4		10
Payments for acquisitions of businesses, net of cash acquired	(1,018)		(1,542)
Proceeds from (payments for) investments and acquisitions of certain technologies	(89)		(31)

Proceeds from royalty rights	23		54
Proceeds from (payments for) settlements of hedge contracts	2		56
Cash provided by (used for) investing activities	(1,521)		(1,828)

Financing activities:
Payment of contingent consideration previously established in purchase accounting	(39)		(335)
Payments for royalty rights	(50)		(75)
Payments on short-term borrowings	—		(250)

Net increase (decrease) in commercial paper	(4)		(1)


Payments on long-term borrowings and debt extinguishment costs	—		(3,184)
Proceeds from long-term borrowings, net of debt issuance costs	—		3,270
Cash dividends paid on preferred stock	(28)		(42)


Cash used to net share settle employee equity awards	(54)		(49)
Proceeds from issuances of common stock pursuant to employee stock compensation and purchase plans	165		117
Cash provided by (used for) financing activities	(10)		(549)

Effect of foreign exchange rates on cash	(8)		(12)

Net increase (decrease) in cash, cash equivalents, restricted cash and restricted cash equivalents	7		(1,671)
Cash, cash equivalents, restricted cash and restricted cash equivalents at beginning of period	1,126		2,168
Cash, cash equivalents, restricted cash and restricted cash equivalents at end of period	$	1,132	$	497

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

BOSTON SCIENTIFIC CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(SUPPLEMENTAL INFORMATION)


	Nine Months Ended September 30,
(in millions)	2023		2022
Supplemental Information
Stock-based compensation expense	$	174	$	165

Non-cash impact of transferred royalty rights	(23)		(54)


	As of September 30,
Reconciliation to amounts within the unaudited consolidated balance sheets:	2023		2022
Cash and cash equivalents	$	952	$	338
Restricted cash and restricted cash equivalents included in Other current assets	123		112
Restricted cash equivalents included in Other long-term assets	58		48
Cash, cash equivalents, restricted cash and restricted cash equivalents at end of period	$	1,132	$	497

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

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE A – BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements of Boston Scientific Corporation have been prepared in accordance with accounting principles generally accepted in the United States (GAAP) and with the instructions to Form 10-Q and Article 10 of Regulation S-X, and they do not include all of the information and footnotes required by GAAP for complete financial statements. When used in this report, the terms, "we," "us," "our," and "the Company" mean Boston Scientific Corporation and its divisions and subsidiaries. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for fair presentation have been included. Operating results for the three and nine months ended September 30, 2023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2023. Accordingly, our unaudited consolidated financial statements and footnotes thereto should be read in conjunction with our audited consolidated financial statements and footnotes thereto included in Item 8 of our most recent Annual Report on Form 10-K.

The accompanying unaudited consolidated financial statements include the accounts of the Company's wholly owned- subsidiaries and entities for which the Company has a controlling financial interest. All intercompany balances and transactions have been eliminated in consolidation. In the first quarter of 2023, we acquired a majority stake investment in Acotec Scientific Holdings Limited (Acotec) and have elected to consolidate their financial statements on a one quarter lag.

Amounts reported in millions within this Quarterly Report on Form 10-Q are computed based on the amounts in thousands. As a result, the sum of the components may not equal the total amount reported in millions due to rounding. Certain columns and rows within tables may not add due to the use of rounded numbers. Percentages presented are calculated from the underlying unrounded amounts.

Subsequent Events

We evaluate events occurring after the date of our accompanying unaudited consolidated balance sheet for potential recognition or disclosure in our financial statements. Those items requiring recognition in the financial statements have been recorded and disclosed accordingly.

Those items requiring disclosure (non-recognized subsequent events) in the financial statements have been disclosed accordingly. Refer to Note H – Commitments and Contingencies for further details.

NOTE B – ACQUISITIONS, DIVESTITURES AND STRATEGIC INVESTMENTS

Our accompanying unaudited consolidated financial statements include the operating results for acquired entities from the respective dates of acquisition. We have not presented supplemental pro forma financial information for completed acquisitions or divestitures given their results are not material to our accompanying unaudited consolidated financial statements. Further, transaction costs were immaterial to our accompanying unaudited consolidated financial statements and were expensed as incurred.

On September 19, 2023, we announced our entry into a definitive agreement to acquire 100 percent of Relievant Medsystems, Inc. (Relievant Medsystems), a privately held medical technology company that developed and commercialized the Intracept® Intraosseous Nerve Ablation System to treat vertebrogenic pain, a form of chronic low back pain. The transaction price consists of an upfront cash payment of $850 million and additional contingent payments based on sales performance over the next three years. The transaction is expected to close in the first half of 2024, subject to customary closing conditions. Following the closing of the acquisition, we plan to integrate the Relievant Medsystems business into our Neuromodulation division.

2023 Acquisitions

On April 4, 2023, we completed our acquisition of 100 percent of the outstanding equity of Apollo Endosurgery, Inc. (Apollo), a public company which offers a portfolio of devices used during endoluminal procedures to close gastrointestinal defects, manage gastrointestinal complications and aid in weight loss for patients suffering from obesity. The transaction consisted of an upfront cash payment of $636 million, net of cash acquired. The Apollo business is being integrated into our Endoscopy division.

On February 20, 2023, we completed the acquisition of a majority stake investment in Acotec, a publicly traded Chinese manufacturer of drug-coated balloons used in the treatment of vascular and other diseases. We acquired approximately 65 percent of the outstanding shares of Acotec, for an upfront cash payment of HK$20.00 per share, or $519 million at foreign currency exchange rates at closing. The Acotec portfolio complements our existing Peripheral Interventions portfolio.

Purchase Price Allocation

We accounted for these transactions as business combinations in accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 805, Business Combinations (FASB ASC Topic 805). The preliminary purchase prices were comprised of the amounts presented below:


(in millions)	Acotec(1)		Apollo
Payment for acquisition, net of cash acquired (2)	$	381	$	636
	$	381	$	636

(1) Excludes approximately $140 million of cash on hand at the closing of the transaction

(2) Represents majority stake investment in Acotec

We recorded the assets acquired, liabilities assumed and specific to Acotec, the noncontrolling interest, at their respective fair values as of the closing of the transaction. The preliminary purchase price allocations were comprised of the following components and the final determination of the fair value of certain assets and liabilities will be completed within the measurement period in accordance with FASB ASC Topic 805:


(in millions)	Acotec		Apollo
Goodwill	$	338	$	379
Amortizable intangible assets	334		248

Other assets acquired	93		50
Liabilities assumed	(48)		(33)
Net deferred tax liabilities	(77)		(7)
Fair value of noncontrolling interest	(259)		—
	$	381	$	636

The fair value of Acotec's noncontrolling interest was based on the publicly traded market value of the remaining 35 percent of the outstanding shares we did not acquire as of the transaction date and is presented within Stockholders' equity within our accompanying unaudited consolidated balance sheets. Goodwill was primarily established for Acotec due to opportunities for collaboration in research and development, manufacturing and commercial strategies and for Apollo due to synergies expected to be gained from leveraging our existing operations, as well as revenue and cash flow projections associated with future technologies, none of which is deductible for tax purposes.

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


	Amount Assigned (in millions)		Weighted Average Amortization Period (in years)	Risk-Adjusted Discount Rates used in Purchase Price Allocation

Acotec:
Amortizable intangible assets:
Technology-related	$	308	11	14%
Customer relationships	15		11	14%
Other intangible assets	11		13	14%


	$	334

Apollo:
Amortizable intangible assets:
Technology-related	$	222	11	12%
Customer relationships	26		11	12%

	$	248

2022 Acquisition

On February 14, 2022, we completed our acquisition of Baylis Medical Company Inc. (Baylis Medical), a privately-held company which developed the radiofrequency (RF) NRG™ and VersaCross™ Transseptal Platforms as well as a family of guidewires, sheaths and dilators used to support left heart access, which expanded our electrophysiology and structural heart product portfolios. The transaction consisted of an upfront cash payment of $1.463 billion, net of cash acquired, subject to closing adjustments. We are integrating the Baylis Medical business into our Cardiology division.

Purchase Price Allocation

We accounted for the acquisition of Baylis Medical as a business combination in accordance with FASB ASC Topic 805. The final purchase price was comprised of the amount presented below:


(in millions)
Payment for acquisition, net of cash acquired	$	1,463


	$	1,463

We recorded the assets acquired and liabilities assumed at their respective fair values as of the acquisition date. The final purchase price allocation was comprised of the following components:


(in millions)
Goodwill	$	988
Amortizable intangible assets	657

Other assets acquired	112

Liabilities assumed	(287)
Net deferred tax liabilities	(7)
	$	1,463

Goodwill was primarily established due to synergies expected to be gained from leveraging our existing operations, as well as revenue and cash flow projections associated with future technologies, and was deductible for tax purposes.

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


	Amount Assigned (in millions)		Weighted Average Amortization Period (in years)	Risk-Adjusted Discount Rates used in Purchase Price Allocation

Amortizable intangible assets:
Technology-related	$	622	11	11%
Other intangible assets	36		11	11%
	$	657

Contingent Consideration

None of our acquisitions that closed during 2023 or 2022 contained contingent consideration arrangements. Changes in the fair value of our contingent consideration liability during the first nine months of 2023 associated with prior period acquisitions were as follows:


(in millions)
Balance as of December 31, 2022	$	149


Contingent consideration net expense (benefit)	43
Contingent consideration payments	(73)
Balance as of September 30, 2023	$	119

The payments made during the first nine months of 2023 primarily related to our 2021 acquisition of Farapulse, Inc. As of September 30, 2023, the maximum amount of future contingent consideration (undiscounted) that we could be required to pay associated with our completed acquisitions was approximately $380 million. Refer to Note B – Acquisitions and Strategic Investments to our audited financial statements contained in Item 8. Financial Statements and Supplementary Data of our most recent Annual Report on Form 10-K for additional information.

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


Contingent Consideration Liability	Fair Value as of September 30, 2023	Valuation Technique	Unobservable Input	Range			Weighted Average(1)
R&D, Regulatory and Commercialization-based Milestones	$13 million	Discounted Cash Flow	Discount Rate	1%	-	2%	1%
Probability of Payment	10%	-	25%	22%
Projected Year of Payment	2023	-	2025	2024
Revenue-based Payments	$106 million	Discounted Cash Flow	Discount Rate	6%	-	14%	6%
Probability of Payment	100%			100%
Projected Year of Payment	2023	-	2024	2023

(1) Unobservable inputs were weighted by the relative fair value of the contingent consideration liability. For projected year of payment, the amount represents the median of the inputs and is not a weighted average.

Projected contingent payment amounts related to research and development (R&D), regulatory and commercialization-based milestones and revenue-based payments are discounted back to the current period, primarily using a discounted cash flow model. Significant increases or decreases in projected revenues, probabilities of payment, discount rates or the time until payment is made would have resulted in a significantly lower or higher fair value measurement as of September 30, 2023.

Strategic Investments

The aggregate carrying amount of our strategic investments was comprised of the following:


	As of
(in millions)	September 30, 2023		December 31, 2022
Equity method investments	$	220	$	188
Measurement alternative investments(1, 2)	207		219
	$	427	$	407

(1) Measurement alternative investments are privately-held equity securities without readily determinable fair values that are measured at cost less impairment, if any, adjusted to fair value for any observable price changes in orderly transactions for the identical or a similar investment of the same issuer, recognized in Other, net within our accompanying unaudited consolidated statements of operations.

(2) Includes publicly-held securities and convertible notes measured at fair value with changes in fair value recognized in Other, net within our accompanying unaudited consolidated statements of operations.

These investments are classified as Other long-term assets within our accompanying unaudited consolidated balance sheets, in accordance with GAAP and our accounting policies.

As of September 30, 2023, the cost of our aggregated equity method investments exceeded our share of the underlying equity in net assets by $236 million, which represents amortizable intangible assets, in-process research and development (IPR&D), goodwill and deferred tax liabilities.

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 goodwill impairment charges are as follows:


	As of September 30, 2023				As of December 31, 2022
(in millions)	Gross Carrying Amount		Accumulated Amortization/ Write-offs		Gross Carrying Amount		Accumulated Amortization/ Write-offs
Technology-related	$	12,935	$	(7,916)	$	12,397	$	(7,378)
Patents	477		(384)		486		(394)
Other intangible assets	2,036		(1,472)		1,960		(1,400)
Amortizable intangible assets	$	15,447	$	(9,772)	$	14,843	$	(9,173)

Goodwill	$	23,508	$	(9,900)	$	22,820	$	(9,900)

IPR&D	$	54			$	112
Technology-related	120				120
Indefinite-lived intangible assets	$	174			$	232

The increase in our balance of goodwill and amortizable intangible assets is related primarily to our majority stake investment in Acotec completed in the first quarter of 2023 and our acquisition of Apollo completed in the second quarter of 2023.

The following represents a roll-forward of our goodwill balance by global reportable segment:


(in millions)	MedSurg		Cardiovascular		Total
As of December 31, 2022	$	4,237	$	8,684	$	12,920


Goodwill acquired	379		338		717
Impact of foreign currency fluctuations and purchase price adjustments	(4)		(25)		(29)
As of September 30, 2023	$	4,611	$	8,997	$	13,608

Goodwill and Intangible Asset Impairments

We did not record any goodwill impairment charges in the first nine months of 2023 or 2022. We test our goodwill balances in the second quarter of each year as of April 1 for impairment, or more frequently if impairment indicators are present or changes in circumstances suggest an impairment may exist.

We assess goodwill for impairment at the reporting unit level, which is defined as an operating segment or one level below an operating segment, referred to as a component. We identified the following reporting units for purposes of our annual goodwill impairment test: Interventional Cardiology, Rhythm Management, Peripheral Interventions, Endoscopy, Urology and Neuromodulation. Based on the criteria prescribed in FASB ASC Topic 350, we aggregated the Interventional Cardiology Therapies and Watchman components of our Cardiology operating segment into a single Interventional Cardiology reporting unit and aggregated the Cardiac Rhythm Management and Electrophysiology components of our Cardiology operating segment into a single Rhythm Management reporting unit.

In the second quarter of 2023, we performed our annual goodwill impairment test utilizing both the qualitative and quantitative approach described in FASB ASC Topic 350, Intangibles - Goodwill and Other (FASB ASC Topic 350). The qualitative approach was used for testing reporting units where fair value has historically exceeded carrying value by greater than 100 percent, and all other reporting units were tested using the quantitative approach. For the reporting units tested using the qualitative approach, after assessing the totality of events, it was determined that it was not more likely than not that the fair value of the reporting units was less than their carrying value, and it was not deemed necessary to proceed to the quantitative test. For the reporting unit tested using the quantitative approach, we determined that the fair value of the reporting unit exceeded the carrying value and concluded that goodwill was not impaired or at risk of impairment. There were no impairment indicators in the third quarter of 2023 that necessitated an interim impairment test.

In 2023, we recorded Intangible asset impairment charges of less than $1 million in the third quarter and recorded $58 million in the first nine months. In 2022, we recorded Intangible asset impairment charges of $125 million in the third quarter and $132 million in the first nine months. The impairment charges recorded in the first nine months of 2023 were primarily associated with the cancellation of an IPR&D program due to the incremental time and cost to complete the program and bring the technology to market. The impairment charges recorded in the third quarter and first nine months of 2022 were primarily associated with amortizable technology-related intangible assets that were initially established following our acquisition of Vertiflex, Inc., which was integrated into our Neuromodulation business, resulting from lower revenue projections due to reimbursement challenges.

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 or a change in the remaining useful life. We test our indefinite-lived intangible assets at least annually during the third quarter for impairment and reassess their classification as indefinite-lived assets. In addition, we review our indefinite-lived intangible assets for classification and impairment more frequently if impairment indicators exist. During the third quarter of 2023, we performed our annual IPR&D impairment test and evaluated our indefinite-lived core technology assets for impairment and concluded the assets were not impaired. We also verified that the classification of IPR&D projects and our indefinite-lived core technology assets recognized within our unaudited consolidated balance sheets continues to be appropriate.

Refer to Note A – Significant Accounting Policies to our audited financial statements contained in Item 8. Financial Statements and Supplementary Data of our most recent Annual Report on Form 10-K for further discussion of our annual goodwill and intangible asset impairment testing.

NOTE D – HEDGING ACTIVITIES AND FAIR VALUE MEASUREMENTS

Derivative Instruments and Hedging Activities

We address market risk from changes in foreign currency exchange rates and interest rates through risk management programs which include the use of derivative and nonderivative financial instruments. We manage 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 actively monitoring counterparty credit ratings. 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.

Currency Hedging Instruments

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 and nonderivative instruments, primarily forward currency contracts, to reduce the risk to our earnings and cash flows associated with changes in currency exchange rates.

The success of our currency risk management program depends, in part, on forecast transactions denominated primarily in euro, British pound sterling, Swiss franc, Japanese yen, Chinese renminbi and Australian dollar. We may experience unanticipated currency exchange gains or losses to the extent the actual activity is different than forecast. In addition, changes in currency exchange rates related to any unhedged transactions may impact our earnings and cash flows.

Certain of our currency derivative instruments are designated as cash flow hedges under FASB ASC Topic 815*, Derivatives and Hedging* (FASB ASC Topic 815), and are intended to protect the U.S. dollar value of forecasted transactions. The gain or loss on a derivative instrument designated as a cash flow hedge is recorded in the Net change in derivative financial instruments component of Other comprehensive income (loss), net of tax (OCI) within our unaudited consolidated statements of comprehensive income (loss) until the underlying third-party transaction occurs. When the underlying third-party transaction occurs, we recognize the gain or loss in earnings within Cost of products sold in our unaudited consolidated statements of operations. In the event the hedging relationship is no longer effective, or if the occurrence of the hedged forecast transaction becomes no longer probable, we reclassify the gains or losses within Accumulated other comprehensive income (loss), net of tax (AOCI) to earnings at that time. The cash flows related to the derivative instruments designated as cash flow hedges are reported as operating activities in our consolidated statements of cash flows.

We designate certain euro-denominated debt as net investment hedges to hedge a portion of our net investments in certain of our entities with functional currencies denominated in the euro. As of September 30, 2023 and December 31, 2022, we designated as a net investment hedge our €900 million in aggregate principal amount of 0.625% euro-denominated senior notes issued in November 2019 and due in 2027 (2027 Notes). For these nonderivative instruments, we defer recognition of the foreign currency remeasurement gains and losses within the Foreign currency translation adjustment (CTA) component of Other comprehensive income (loss), net of tax. We reclassify these gains and losses to current period earnings within Other, net in our accompanying unaudited consolidated statements of operations only when the hedged item affects earnings, which would occur upon disposal or substantial liquidation of the underlying foreign subsidiary.

We also use forward currency contracts that are not part of designated hedging relationships as a part of our strategy to manage our exposure to currency exchange rate risk related to monetary assets and liabilities and related forecast transactions. These non-designated 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 within Other, net within our accompanying unaudited consolidated statements of operations.

Interest Rate Hedging Instruments

Our interest rate risk relates primarily to U.S. dollar and euro-denominated borrowings partially offset by U.S. dollar cash investments. We use interest rate derivative instruments to mitigate the risk to our earnings and cash flows associated with 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 in accordance with FASB ASC Topic 815.

We had no interest rate derivative instruments designated as cash flow hedges outstanding as of September 30, 2023 or December 31, 2022. In the event that we designate outstanding interest rate derivative instruments as cash flow hedges, we record the changes in the fair value of the derivatives within OCI until the underlying hedged transaction occurs.

The following table presents the contractual amounts of our hedging instruments outstanding:


(in millions)		FASB ASC Topic 815 Designation		As of
	September 30, 2023		December 31, 2022
Forward currency contracts		Cash flow hedge		$	2,343	$	2,725
Forward currency contracts		Net investment hedge		333		365
Foreign currency-denominated debt(1)		Net investment hedge		997		997
Forward currency contracts		Non-designated		3,328		4,235

Total Notional Outstanding				$	7,002	$	8,321

(1) Foreign currency-denominated debt is the €900 million debt principal associated with our 2027 Notes designated as a net investment hedge.

As of September 30, 2023, the remaining time to maturity is within 36 months for all forward currency contracts designated as cash flow hedges and generally less than one year for all non-designated forward currency contracts. The forward currency contracts designated as net investment hedges generally mature between one and three years. The euro-denominated debt principal designated as a net investment hedge has a contractual maturity of December 1, 2027.

The following presents the effect of our derivative and nonderivative instruments designated as cash flow and net investment hedges under FASB ASC Topic 815 in our accompanying unaudited consolidated statements of operations. Refer to Note M – Changes in Other Comprehensive Income for the total amounts relating to derivative and nonderivative instruments presented within our accompanying unaudited consolidated statements of comprehensive income (loss).


	Effect of Hedging Relationships on Accumulated Other Comprehensive Income
	Amount Recognized in OCI on Hedges						Unaudited Consolidated Statements of Operations(1)			Amount Reclassified from AOCI into Earnings
(in millions)	Pre-Tax Gain (Loss)		Tax Benefit (Expense)		Gain (Loss) Net of Tax		Location of Amount Reclassified and Total Amount of Line Item			Pre-Tax (Gain) Loss		Tax (Benefit) Expense		(Gain) Loss Net of Tax
Three Months Ended September 30, 2023
Forward currency contracts
Cash flow hedges	$	54	$	(12)	$	42	Cost of products sold	$	1,101	$	(51)	$	11	$	(39)
Net investment hedges(2)	12		(3)		9		Interest expense	66		(2)		1		(2)
Foreign currency-denominated debt
Net investment hedges(3)	26		(6)		20		Other, net	18		—		—		—
Interest rate derivative contracts
Cash flow hedges	—		—		—		Interest expense	66		1		(0)		1


	Effect of Hedging Relationships on Accumulated Other Comprehensive Income
	Amount Recognized in OCI on Hedges						Unaudited Consolidated Statements of Operations(1)			Amount Reclassified from AOCI into Earnings
(in millions)	Pre-Tax Gain (Loss)		Tax Benefit (Expense)		Gain (Loss) Net of Tax		Location of Amount Reclassified and Total Amount of Line Item			Pre-Tax (Gain) Loss		Tax (Benefit) Expense		(Gain) Loss Net of Tax
Three Months Ended September 30, 2022
Forward currency contracts
Cash flow hedges	$	153	$	(34)	$	119	Cost of products sold	$	979	$	(61)	$	14	$	(47)
Net investment hedges(2)	14		(16)		(2)		Interest expense	63		(3)		1		(2)
Foreign currency-denominated debt
Net investment hedges(3)	56		(13)		43		Other, net	51		—		—		—
Interest rate derivative contracts
Cash flow hedges	—		—		—		Interest Expense	63		1		—		1


	Effect of Hedging Relationships on Accumulated Other Comprehensive Income
	Amount Recognized in OCI on Hedges						Unaudited Consolidated Statements of Operations(1)			Amount Reclassified from AOCI into Earnings
(in millions)	Pre-Tax Gain (Loss)		Tax Benefit (Expense)		Gain (Loss) Net of Tax		Location of Amount Reclassified and Total Amount of Line Item			Pre-Tax (Gain) Loss		Tax (Benefit) Expense		(Gain) Loss Net of Tax
Nine Months Ended September 30, 2023
Forward currency contracts
Cash flow hedges	$	141	$	(32)	$	109	Cost of products sold	$	3,198	$	(176)	$	40	$	(136)
Net investment hedges (2)	40		(9)		31		Interest expense	200		(7)		2		(6)
Foreign currency-denominated debt
Net investment hedges (3)	8		(2)		6		Other, net	78		—		—		—
Interest rate derivative contracts
Cash flow hedges					—		Interest expense	200		2		(0)		2


	Effect of Hedging Relationships on Accumulated Other Comprehensive Income
	Amount Recognized in OCI on Hedges						Unaudited Consolidated Statements of Operations(1)			Amount Reclassified from AOCI into Earnings
(in millions)	Pre-Tax Gain (Loss)		Tax Benefit (Expense)		Gain (Loss) Net of Tax		Location of Amount Reclassified and Total Amount of Line Item			Pre-Tax (Gain) Loss		Tax (Benefit) Expense		(Gain) Loss Net of Tax
Nine Months Ended September 30, 2022
Forward currency contracts
Cash flow hedges	$	412	$	(93)	$	319	Cost of products sold	$	2,945	$	(132)	$	30	$	(102)
Net investment hedges (2)	63		(14)		48		Interest expense	406		(7)		2		(6)
Foreign currency-denominated debt
Net investment hedges (3)	142		(32)		110		Other, net	96		—		—		—
Interest rate derivative contracts
Cash flow hedges	—		—		—		Interest expense	406		15		(3)		12

(1) In all periods presented in the table above, the pre-tax (gain) loss amounts reclassified from AOCI to earnings represent the effect of the hedging relationships on earnings.

(2) For our outstanding forward currency contracts designated as net investment hedges, the net gain or loss reclassified from AOCI to earnings as a reduction of Interest expense represents the straight-line amortization of the excluded component as calculated at the date of designation. This initial value of the excluded component has been excluded from the assessment of effectiveness in accordance with FASB ASC Topic 815. In the current and prior period, we did not recognize any gains or losses on the components included in the assessment of hedge effectiveness in earnings.

(3) For our outstanding euro-denominated debt principal designated as a net investment hedge, the change in fair value attributable to changes in the spot rate is recorded in the CTA component of OCI. No amounts were reclassified from AOCI to current period earnings.

As of September 30, 2023, pre-tax net gains or losses for our derivative instruments designated, or previously designated, as cash flow and net investment hedges under FASB ASC Topic 815 that may be reclassified from AOCI to earnings within the next twelve months are presented below:


(in millions)	FASB ASC Topic 815 Designation	Location on Unaudited Consolidated Statements of Operations	Amount of Pre-Tax Gain (Loss) that may be Reclassified to Earnings
Designated Hedging Instrument
Forward currency contracts	Cash flow hedge	Cost of products sold	$	221
Forward currency contracts	Net investment hedge	Interest expense	9
Interest rate derivative contracts	Cash flow hedge	Interest expense	(2)

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:


	Location on Unaudited Consolidated Statements of Operations		Three Months Ended September 30,						Nine Months Ended September 30,
(in millions)		2023			2022			2023			2022
Net gain (loss) on currency hedge contracts	Other, net		$	10		$	(29)		$	13		$	(93)
Net gain (loss) on currency transaction exposures	Other, net		(16)			(8)			(42)			48
Net currency exchange gain (loss)			$	(6)		$	(38)		$	(30)		$	(45)

Fair Value Measurements

FASB ASC Topic 815 requires all derivative and nonderivative 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 and nonderivative instruments using the framework prescribed by FASB ASC Topic 820, Fair Value Measurements and Disclosures (FASB ASC Topic 820) and considering the estimated amount we would receive or pay to transfer these instruments at the reporting date with respect to current currency exchange rates, 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 and nonderivative 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 and nonderivative assets and liabilities:


	Location on Unaudited Consolidated Balance Sheets(1)		As of
(in millions)		September 30, 2023			December 31, 2022
Derivative and Nonderivative Assets:
Designated Hedging Instruments
Forward currency contracts	Other current assets		$	198		$	196
Forward currency contracts	Other long-term assets		155			149
			353			345
Non-Designated Hedging Instruments
Forward currency contracts	Other current assets		43			36

Total Derivative and Nonderivative Assets			$	396		$	381

Derivative and Nonderivative Liabilities:
Designated Hedging Instruments
Forward currency contracts	Other current liabilities		$	1		$	—
Forward currency contracts	Other long-term liabilities		1			1
Foreign currency-denominated debt(2)	Long-term debt		946			952

			947			953
Non-Designated Hedging Instruments
Forward currency contracts	Other current liabilities		30			52
Total Derivative and Nonderivative Liabilities			$	977		$	1,005

(1) We classify derivative and nonderivative assets and liabilities as current when the settlement date of the contract is one year or less.

(2) Foreign currency-denominated debt is the €900 million debt principal associated with our 2027 Notes designated as a net investment hedge. A portion of this notional is subject to de-designation and re-designation based on changes in the underlying hedged item.

Recurring Fair Value Measurements

On a recurring basis, we measure certain financial assets and financial liabilities at fair value based upon quoted market prices. 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 category of a financial asset or a financial liability 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:

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.

Assets and liabilities measured at fair value on a recurring basis consist of the following:


	As of
	September 30, 2023								December 31, 2022
(in millions)	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Assets
Money market funds and time deposits	$	569	$	—	$	—	$	569	$	673	$	—	$	—	$	673
Publicly-held equity securities	23		—		—		23		2		—		—		2
Hedging instruments	—		396		—		396		—		381		—		381
Licensing arrangements	—		—		89		89		—		—		127		127
	$	592	$	396	$	89	$	1,078	$	674	$	381	$	127	$	1,182
Liabilities
Hedging instruments	$	—	$	977	$	—	$	977	$	—	$	1,005	$	—	$	1,005
Contingent consideration liability	—		—		119		119		—		—		149		149
Licensing arrangements	—		—		95		95		—		—		159		159
	$	—	$	977	$	214	$	1,191	$	—	$	1,005	$	308	$	1,313

Our investments in money market funds and time deposits 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 consolidated balance sheets, in accordance with GAAP and our accounting policies. In addition to $569 million invested in money market funds and time deposits as of September 30, 2023 and $673 million as of December 31, 2022, we held $382 million in interest-bearing and non-interest-bearing bank accounts as of September 30, 2023 and $256 million as of December 31, 2022.

Our recurring fair value measurements using Level 3 inputs include those related to our contingent consideration liability. Refer to Note B – Acquisitions, Divestitures and Strategic Investments for a discussion of the changes in the fair value of our contingent consideration liability. In addition, our recurring fair value measurements using Level 3 inputs related to our licensing arrangements, including the contractual right to receive future royalty payments related to the Zytiga™ Drug. We maintain a financial asset and associated liability for our licensing arrangements measured at fair value in our accompanying unaudited consolidated balance sheets in accordance with FASB ASC Topic 825, Financial Instruments. We elected the fair value option to measure the financial asset and associated liability as it provides for consistency and comparability of these financial instruments with others. Refer to Note D – Hedging Activities and Fair Value Measurements to our audited financial statements contained in Item 8. Financial Statements and Supplementary Data of our most recent Annual Report on Form 10-K for additional information.

The recurring Level 3 fair value measurements of our licensing arrangements recognized in our accompanying unaudited consolidated balance sheets as of September 30, 2023 include the following significant unobservable inputs:


Licensing Arrangements	Fair Value as of September 30, 2023	Valuation Technique	Unobservable Input	Range				Weighted Average (1)
Financial Asset	$89 million	Discounted Cash Flow	Discount Rate	15%				15%

Projected Year of Payment	2023	-	2025	2024
Financial Liability	$95 million	Discounted Cash Flow	Discount Rate	12	%	-	15%	13%

Projected Year of Payment	2023	-	2026	2024

(1) Unobservable inputs relate to a single financial asset and liability. As such, unobservable inputs were not weighted by the relative fair value of the instruments. For projected year of payment, the amount represents the median of the inputs and is not a weighted average.

Changes in the fair value of our licensing arrangements' financial asset were as follows:


(in millions)
Balance as of December 31, 2022	$	127
Proceeds from royalty rights	(47)
Fair value adjustment (expense) benefit	9
Balance as of September 30, 2023	$	89

Changes in the fair value of our licensing arrangements' financial liability were as follows:


(in millions)
Balance as of December 31, 2022	$	159
Payments for royalty rights	(73)
Fair value adjustment expense (benefit)	9
Balance as of September 30, 2023	$	95

Non-Recurring Fair Value Measurements

We hold certain assets and liabilities that are measured at fair value on a non-recurring basis in periods after initial recognition. The fair value of a measurement alternative 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, Divestitures and Strategic Investments for a discussion of our strategic investments and Note C – Goodwill and Other Intangible Assets for a discussion of the fair values of our intangible assets including goodwill.

The fair value of our outstanding debt obligations excluding finance leases was $8.067 billion as of September 30, 2023 and $8.203 billion as of December 31, 2022. We determined fair value by using quoted market prices for our publicly registered senior notes, classified as Level 1 within the fair value hierarchy, and face value for commercial paper, term loans and credit facility borrowings outstanding. Refer to Note E – Contractual Obligations and Commitments for a discussion of our debt obligations.

NOTE E – CONTRACTUAL OBLIGATIONS AND COMMITMENTS

Borrowings and Credit Arrangements

We had total debt outstanding of $8.900 billion as of September 30, 2023 and $8.935 billion as of December 31, 2022, with current obligations of $513 million as of September 30, 2023 and $20 million as of December 31, 2022. The debt maturity schedule for our long-term debt obligations is presented below:


(in millions, except interest rates)		Issuance Date		Maturity Date	As of				Coupon Rate(1)
	September 30, 2023		December 31, 2022
March 2024 Senior Notes		February 2019		March 2024	—		504		3.450%
March 2025 Senior Notes(3)		March 2022		March 2025	1,058		1,067		0.750%

June 2025 Senior Notes		May 2020		June 2025	500		500		1.900%
March 2026 Senior Notes		February 2019		March 2026	255		255		3.750%
December 2027 Senior Notes(3)		November 2019		December 2027	953		960		0.625%
March 2028 Senior Notes(3)		March 2022		March 2028	794		800		1.375%
March 2028 Senior Notes		February 2018		March 2028	344		344		4.000%
March 2029 Senior Notes		February 2019		March 2029	272		272		4.000%
June 2030 Senior Notes		May 2020		June 2030	1,200		1,200		2.650%
March 2031 Senior Notes(3)		March 2022		March 2031	794		800		1.625%
March 2034 Senior Notes(3)		March 2022		March 2034	529		534		1.875%
November 2035 Senior Notes(2)		November 2005		November 2035	350		350		6.500%
March 2039 Senior Notes		February 2019		March 2039	450		450		4.550%
January 2040 Senior Notes		December 2009		January 2040	300		300		7.375%
March 2049 Senior Notes		February 2019		March 2049	650		650		4.700%
Unamortized Debt Issuance Discount and Deferred Financing Costs				2023 - 2049	(67)		(76)

Finance Lease Obligation				Various	4		5
Long-term debt					$	8,386	$	8,915

(1) Coupon rates are semi-annual, except for the euro-denominated senior notes, which bear an annual coupon.

(2) 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.

(3) These notes are euro-denominated and presented in U.S. dollars based on the exchange rate in effect as of September 30, 2023 and December 31, 2022, respectively.

Revolving Credit Facility

On May 10, 2021, we entered into our $2.750 billion revolving credit facility (2021 Revolving Credit Facility) with a global syndicate of commercial banks scheduled to mature on May 10, 2026, with one-year extension options, subject to certain conditions. On March 1, 2023, we entered into an amendment of the 2021 Revolving Credit Facility credit agreement, which provided for an extension of the scheduled maturity date to May 10, 2027 and replaced the London Interbank Offered Rate (LIBOR) with the Secured Overnight Financing Rate (SOFR) as the Eurocurrency Rate for Dollars, including applicable credit spread adjustments and relevant SOFR benchmark provisions, among other things described under Financial Covenant below. This facility provides backing for our commercial paper program, and outstanding commercial paper directly reduces borrowing capacity under the 2021 Revolving Credit Facility. There were no amounts outstanding under the 2021 Revolving Credit Facility as of September 30, 2023 or December 31, 2022.

Financial Covenant

As of September 30, 2023, we were in compliance with the financial covenant required by the 2021 Revolving Credit Facility, as amended.


	Covenant Requirement	Actual
	as of September 30, 2023	as of September 30, 2023
Maximum permitted leverage ratio(1)	3.75 times	2.34 times

(1)Ratio of total debt to consolidated EBITDA, as defined by the credit agreements, as amended.

The 2021 Revolving Credit Facility includes the financial covenant requirement for all of our credit arrangements that we maintain the maximum permitted leverage ratio of 3.75 times through the remaining term. The agreement provides for higher leverage ratios, at our election, for the period following a qualified acquisition for which consideration exceeds $1.000 billion. In the event of such an acquisition, for the four succeeding quarters immediately following, including the quarter in which the acquisition occurs, the maximum permitted leverage ratio is 4.75 times. The maximum permitted ratio steps down for the fifth, sixth and seventh succeeding quarters to 4.50 times, 4.25 times and 4.00 times, respectively. Thereafter, a maximum leverage ratio of 3.75 times is required through the remaining term of the 2021 Revolving Credit Facility. We have not elected to increase the maximum permitted leverage ratio for any qualified acquisitions due to our funding of these acquisitions using cash on hand or commercial paper.

The financial covenant requirement, as amended on March 1, 2023, provides for an exclusion from the calculation of consolidated EBITDA, as defined by the credit agreement, through maturity, of certain charges and expenses. The credit agreement amendment reset the starting date for purposes of calculating such permitted exclusions in each case from March 31, 2021 to December 31, 2022. Permitted exclusions include any non-cash charges and up to $500 million in restructuring charges and restructuring-related expenses associated with our current or future restructuring plans. As of September 30, 2023, we had $369 million of the restructuring charge exclusion remaining. In addition, any cash litigation payments (net of any cash litigation receipts), as defined by the agreement, are excluded from the calculation of consolidated EBITDA, as defined by the agreement, provided that the sum of any excluded net cash litigation payments do not exceed $1.000 billion plus all accrued legal liabilities as of December 31, 2022, for a total of $1.443 billion. As of September 30, 2023, we had $1.494 billion of the litigation exclusion remaining.

Any inability to maintain compliance with this covenant could require us to seek to renegotiate the terms of our credit arrangements or seek waivers from compliance with this covenant, 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 on terms acceptable to us. In this case, all 2021 Revolving Credit Facility commitments would terminate, and any amounts borrowed under the facility would become immediately due and payable. Furthermore, any termination of our 2021 Revolving Credit Facility may negatively impact the credit ratings assigned to our commercial paper program, which may impact our ability to refinance any then outstanding commercial paper as it becomes due and payable.

Commercial Paper

Our commercial paper program is backed by the 2021 Revolving Credit Facility. We did not have any commercial paper outstanding as of September 30, 2023 and December 31, 2022.

Senior Notes

We had senior notes outstanding of $8.953 billion as of September 30, 2023 and $8.986 billion as of December 31, 2022. Our senior notes were issued in public offerings, are redeemable prior to maturity and are not subject to sinking fund requirements. Our senior notes are unsecured, unsubordinated obligations and rank on parity with each other. These notes are effectively junior to liabilities of our subsidiaries (refer to Other Arrangements below).

In March 2022, American Medical Systems Europe B.V. (AMS Europe), an indirect, wholly owned subsidiary of Boston Scientific, completed a registered public offering (the Offering) of €3.000 billion in aggregate principal amount of euro-dominated senior notes comprised of €1.000 billion of 0.750% Senior Notes due 2025, €750 million of 1.375% Senior Notes due 2028, €750 million of 1.625% Senior Notes due 2031 and €500 million of 1.875% Senior Notes due 2034 (collectively, the Eurobonds). Boston Scientific has fully and unconditionally guaranteed all of AMS Europe's obligations under the Eurobonds, and no other subsidiary of Boston Scientific will guarantee these obligations. AMS Europe is a “finance subsidiary” as defined in Rule 13-01(a)(4)(vi) of Regulation S-X. The financial condition, results of operations and cash flows of AMS Europe are

consolidated in the financial statements of Boston Scientific. The Offering resulted in cash proceeds of $3.270 billion, net of investor discounts and issuance costs.

We used the net proceeds from the Offering to fund the tender offer and early redemption of combined aggregate principal amount of $3.275 billion of certain of our outstanding senior notes, as well as to pay accrued interest, tender premiums, fees and expenses. We recorded associated debt extinguishment charges of $194 million during the first quarter of 2022 presented in Interest expense within our accompanying unaudited consolidated statements of operations.

Other Arrangements

We have accounts receivable factoring programs in certain European countries and with commercial banks in China and Japan which include promissory notes discounting programs. We account for our factoring programs as sales under FASB ASC Topic 860, Transfers and Servicing. We have no retained interest in the transferred receivables, other than collection and administration, and once sold, the accounts receivable are no longer available to satisfy creditors in the event of bankruptcy. Amounts de-recognized for accounts and notes receivable, which are excluded from Trade accounts receivable, net within our accompanying unaudited consolidated balance sheets, are aggregated by contract denominated currency below (in millions):


Factoring Arrangements	As of September 30, 2023						As of December 31, 2022
Amount De-recognized			Weighted Average Interest Rate			Amount De-recognized			Weighted Average Interest Rate
Euro denominated	$	218		4.9	%		$	161		2.4	%
Yen denominated	188			0.7	%		194			0.6	%
Renminbi denominated	22			2.9	%		13			3.1	%

Other Contractual Obligations and Commitments

We had outstanding letters of credit of $151 million as of September 30, 2023 and $135 million as of December 31, 2022, which consisted primarily of bank guarantees and collateral for workers' compensation insurance arrangements. As of September 30, 2023 and December 31, 2022 we had not recognized a related liability for any outstanding letters of credit within our accompanying unaudited consolidated balance sheets.

We have a supplier financing program offered primarily in the U.S. where our suppliers can opt to receive early payment at a nominal discount, while allowing us to lengthen our payment terms and optimize working capital. Our standard payment term in the U.S. is 90 days. All outstanding payables related to the supplier finance program are classified within Accounts Payable within our unaudited consolidated balance sheets and were $148 million as of September 30, 2023 and $129 million as of December 31, 2022.

Refer to Note E – Contractual Obligations and Commitments to our audited financial statements contained in Item 8. Financial Statements and Supplementary Data of our most recent Annual Report on Form 10-K for additional information on our borrowings and credit agreements.

NOTE F – SUPPLEMENTAL BALANCE SHEET INFORMATION

Components of selected captions within our accompanying unaudited consolidated balance sheets are as follows:

Trade accounts receivable, net


	As of
(in millions)	September 30, 2023		December 31, 2022
Trade accounts receivable	$	2,226	$	2,079
Allowance for credit losses	(126)		(109)
	$	2,101	$	1,970

The following is a roll forward of our Allowance for credit losses:


	Three Months Ended September 30,				Nine Months Ended September 30,
(in millions)	2023		2022		2023		2022
Beginning balance	$	127	$	117	$	109	$	108
Credit loss expense	10		7		44		26
Write-offs	(11)		(9)		(27)		(20)
Ending balance	$	126	$	114	$	126	$	114

In accordance with FASB ASC Topic 326*,* Financial Instruments - Credit Losses (FASB ASC Topic 326), we record credit loss reserves to Allowance for credit losses when we establish Trade accounts receivable if credit losses are expected over the asset's contractual life. We base our estimates of credit loss reserves on historical experience and adjust, as necessary, to reflect current conditions using reasonable and supportable forecasts not already reflected in the historical loss information. We utilize an accounts receivable aging approach, applying country or region-specific factors, to determine the reserve to record at accounts receivable commencement for certain customers. In performing the assessment of outstanding accounts receivable, regardless of country or region, we may consider significant factors relevant to collectability, including those specific to a customer such as bankruptcy, lengthy average payment cycles and type of account.

We closely monitor outstanding receivables for potential collection risks, including those that may arise from economic and geopolitical conditions. Our sales to government-owned or supported customers, particularly in southern Europe, are subject to an increased number of days outstanding prior to payment relative to other entities, and, in southern Europe, relative to those in other countries. In addition, we have seen an increase in the volume of our U.S. business conducted in ambulatory surgery centers and office-based laboratories. Many of these customers are smaller than those we have historically done business with and may have more limited liquidity. We have adjusted our estimates of credit loss reserves for these customers, regions and conditions based on collection trends.

Inventories


	As of
(in millions)	September 30, 2023		December 31, 2022
Finished goods	$	1,466	$	1,171
Work-in-process	187		147
Raw materials	752		548
	$	2,404	$	1,867

Other current assets


	As of
(in millions)	September 30, 2023		December 31, 2022
Restricted cash and restricted cash equivalents	$	123	$	149
Derivative assets	241		232
Licensing arrangements	49		60
Other	328		290
	$	741	$	731

Property, plant and equipment, net


	As of
(in millions)	September 30, 2023		December 31, 2022
Land	$	139	$	137
Buildings and improvements	1,801		1,695
Equipment, furniture and fixtures	3,451		3,297
Capital in progress	691		598
	6,082		5,728
Less: accumulated depreciation	3,446		3,282
	$	2,635	$	2,446

Depreciation expense was $93 million for the third quarter of 2023, $82 million for the third quarter of 2022, $263 million for the first nine months of 2023 and $238 million for the first nine months of 2022.

Other long-term assets


	As of
(in millions)	September 30, 2023		December 31, 2022
Restricted cash equivalents	$	58	$	48
Operating lease right-of-use assets	446		386
Derivative assets	155		149
Investments	427		407
Licensing arrangements	40		67
Indemnification asset	165		172
Other	314		271
	$	1,605	$	1,500

Accrued expenses


	As of
(in millions)	September 30, 2023		December 31, 2022
Legal reserves	$	246	$	231
Payroll and related liabilities	912		830
Rebates	369		352
Contingent consideration	109		74
Other	619		674
	$	2,255	$	2,160

Other current liabilities


	As of
(in millions)	September 30, 2023		December 31, 2022
Deferred revenue	$	246	$	220
Licensing arrangements	50		79
Taxes payable	352		232

Other	234		230
	$	882	$	761

Other long-term liabilities


	As of
(in millions)	September 30, 2023		December 31, 2022
Accrued income taxes	$	487	$	597
Legal reserves	161		212
Contingent consideration	10		75
Licensing arrangements	45		80
Operating lease liabilities	400		347
Deferred revenue	301		289
Other	454		434
	$	1,858	$	2,035

NOTE G – INCOME TAXES

Our effective tax rate from continuing operations is presented below:


	Three Months Ended September 30,						Nine Months Ended September 30,
2023			2022			2023			2022
Effective tax rate from continuing operations	17.3	%		23.3	%		26.5	%		25.2	%

The changes in our reported tax rates for the third quarter and first nine months of 2023, compared to the same periods in 2022, relate primarily to the impact of certain receipts and charges that are taxed at different rates than our effective tax rate. These include litigation-related net credits, acquisition-related charges, debt extinguishment charges, as well as certain discrete tax items primarily related to unrecognized tax benefits and provision-to-return adjustments recorded in the third quarter of 2023.

As of September 30, 2023, we had $475 million of gross unrecognized tax benefits, of which a net $419 million, if recognized, would affect our effective tax rate. As of December 31, 2022, we had $492 million of gross unrecognized tax benefits, of which a net $410 million, if recognized, would affect our effective tax rate. The change in our gross unrecognized tax benefit is primarily related to remeasurement of historic positions after tax law changes and audit activities.

It is reasonably possible that within the next 12 months, we will resolve multiple issues with foreign, federal and state taxing authorities, resulting in a reduction in our balance of unrecognized tax benefits of up to $64 million.

NOTE H – COMMITMENTS AND CONTINGENCIES

The medical device market in which we 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 dynamics 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 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 addition, product liability, securities and commercial claims have been asserted against us and 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 ability to sell certain products and on our operating margins, 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 U.S. 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. For additional information, refer to Note I – Commitments and Contingencies to our audited financial statements contained in Item 8 of our most recent Annual Report on Form 10-K.

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. We record certain legal and product liability charges, credits and costs of defense, which we consider to be unusual or infrequent and significant as Litigation-related net charges (credits) within our accompanying unaudited consolidated financial statements. All other legal and product liability charges, credits and costs are recorded within Selling, general and administrative expenses within our accompanying unaudited consolidated statements of operations.

Our accrual for legal matters that are probable and estimable was $407 million as of September 30, 2023 and $443 million as of December 31, 2022 and includes certain estimated costs of settlement, damages and defense primarily related to product liability cases or claims related to our transvaginal surgical mesh products. A portion of this accrual is already funded through our qualified settlement fund, which is included in restricted cash and restricted cash equivalents in Other current assets of $123 million as of September 30, 2023 and $149 million as of December 31, 2022. Refer to Note F – Supplemental Balance Sheet Information for additional information. In 2023, we recorded litigation-related net credits of $111 million during the third quarter and first nine months related to the settlement of offensive patent litigation. In 2022, we did not record litigation-related net charges (credits) in the third quarter and recorded net charges of $42 million during the first nine months.

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 financial covenant.

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 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 reasonably estimated.

Patent Litigation

On October 28, 2015, the Company filed suit against Cook Group Limited and Cook Medical LLC (collectively, Cook) in the United States District Court for the District of Delaware (1:15-cv-00980) alleging infringement of certain Company patents regarding Cook’s Instinct™ Endoscopic Hemoclip. The Company seeks lost profits, a reasonable royalty and a permanent injunction. The case was transferred to the District Court for the Southern District of Indiana. Cook filed Inter Partes Review (IPR) requests with the U.S. Patent and Trademark Office (USPTO) against four then-asserted patents, which resulted in the court staying the case until 2020. All IPRs concluded and confirmed the validity of certain claims of each challenged patent. In February 2023, the District Court issued summary judgment rulings dismissing certain claims and defenses. Trial on the remaining two asserted patents took place in May and June 2023 and the jury found that the Company’s patents are both valid

and infringed and awarded the Company $158 million as lost profits. On August 4, 2023, the parties entered into a settlement to resolve all claims, and the case was dismissed on August 22, 2023.

On November 20, 2017, The Board of Regents, University of Texas System and TissueGen. Inc. (collectively, UT), served a lawsuit against us in the Western District of Texas. The complaint against the Company alleges patent infringement of two U.S. patents owned by UT, relating to “Drug Releasing Biodegradable Fiber Implant” and “Drug Releasing Biodegradable Fiber for Delivery of Therapeutics,” and affects the manufacture, use and sale of our Synergy™ Stent System. UT primarily seeks a reasonable royalty. On March 12, 2018, the District Court for the Western District of Texas dismissed the action and transferred it to the United States District Court for the District of Delaware. On September 5, 2019, the Court of Appeals for the Federal Circuit affirmed the dismissal of the District Court for the Western District of Texas. In April 2020, the United States Supreme Court denied the UT’s Petition for Certiorari. UT proceeded with its case against us in Delaware. In January 2023, a jury trial was held on the issue of whether the one UT patent still asserted in the case was valid and whether it was infringed by the Company. On January 31, 2023, a jury concluded that UT’s patent was valid and willfully infringed by the Company, and awarded UT $42 million in damages. Following the trial, UT has filed a motion seeking prejudgment interest and enhanced damages. The Company has filed a motion seeking judgment as a matter of law in its favor or alternatively a new trial.

Product Liability Litigation

Multiple 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, predominantly in the United States, Canada, the United Kingdom, Scotland, Ireland, and Australia. Plaintiffs generally seek monetary damages based on allegations of personal injury associated with the use of our transvaginal surgical mesh products, including design and manufacturing claims, failure to warn, breach of warranty, fraud, violations of state consumer protection laws and loss of consortium claims. We have entered into individual and master settlement agreements in principle or are in the final stages of entering agreements with certain plaintiffs' counsel, to resolve the majority of these cases and claims. All settlement agreements were entered into solely by way of compromise and without any admission or concession by us of any liability or wrongdoing. In addition, in April 2021 the Company's Board of Directors received a shareholder demand under section 220 of the Delaware General Corporation Law, for inspection of books and records related to mesh settlements. The Company has notified our insurer and retained counsel to respond to the demand.

We have established a product liability accrual for remaining claims asserted against us associated with our transvaginal surgical mesh products and the costs of defense thereof. We continue to engage in discussions with plaintiffs’ counsel regarding potential resolution of pending cases and claims. We continue to vigorously contest these cases and claims. 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. 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 December 1, 2015, the Brazilian governmental entity known as CADE (the Administrative Council of Economic Defense), served a search warrant on the offices of our Brazilian subsidiary, as well as on the Brazilian offices of several other major medical device makers who do business in Brazil, in furtherance of an investigation into alleged anti-competitive activity with respect to certain tender offers for government contracts. On June 20, 2017, CADE, through the publication of a “technical note,” announced that it was launching a formal administrative proceeding against Boston Scientific’s Brazilian subsidiary, Boston Scientific do Brasil Ltda. (BSB), as well as against the Brazilian operations of Medtronic, Biotronik and St. Jude Medical, two Brazilian associations, ABIMED and AMBIMO and 29 individuals for alleged anti-competitive behavior. Under applicable guidance, BSB could be fined a percentage of BSB’s 2016 gross revenues. In August 2021, the investigating commissioner issued a preliminary recommendation of liability against all of the involved companies, and also recommended that CADE impose fines and penalties. However, on October 25, 2021, the CADE Attorney General's office recommended dismissal of the charges and allegations against BSB and the individual BSB employees who were still individual defendants. Subsequently, on March 30, 2022, the Federal Prosecutor’s office issued a non-binding recommendation that is contrary to the Attorney General’s recommendation. The full Commission is considering both of these recommendations but has not yet issued its decision. We continue to deny the allegations, intend to defend ourselves vigorously and will appeal any decision of liability by the full Commission to the Brazilian courts. During such an appeal, the decision would have no force and effect, and the Court would consider the case without being bound by CADE’s decision.

In March 2022, the Company received a whistleblower letter alleging Foreign Corrupt Practices Act violations in Vietnam. The Company has received related subpoenas for documents from the Office of the U.S. Attorney for the District of Massachusetts

and the Securities and Exchange Commission. The Company is cooperating with government agencies while investigating these allegations.

On April 5, 2023, the Company received a subpoena from the U.S. Department of Justice (DOJ) that seeks documents and information relating to its ambulatory electrocardiography monitoring (AECG) business. The Company is cooperating with the DOJ in responding to this subpoena.

Other Proceedings

On December 4, 2020, Enrique Jevons, individually and on behalf of all others similarly situated, filed a class action complaint against the Company, Michael F. Mahoney and Daniel J. Brennan, stemming from the recall and retirement of the LOTUS Edge™ Aortic Valve System (LOTUS System) in United States District Court for the Eastern District of New York. On December 14, 2020, the parties agreed to transfer the case to the United States District Court for the District of Massachusetts. On December 16, 2020, Mariano Errichiello, individually and on behalf of all others similarly situated, filed a second, materially similar class action complaint against the Company, Michael F. Mahoney, Joseph M. Fitzgerald, and Daniel J. Brennan in the United States District Court for the District of Massachusetts. Subsequently, on March 30, 2021, the Court consolidated the two actions, and appointed Mariano Errichiello as the lead plaintiff. The plaintiffs filed an Amended Complaint in June 2021 that seeks unspecified compensatory damages in favor of the alleged class as well as unspecified equitable relief. The Company filed a Motion to Dismiss in July 2021, which, in December 2022, the Court granted in part and denied in part. The Company intends to vigorously defend itself against the surviving allegations. On October 23, 2023, the Company reached an agreement in principle with the lead plaintiff to settle the case. The settlement in principle is subject to execution of definitive settlement documents and is subject to approval of the Court. On December 15, 2020, the Securities and Exchange Commission’s Boston Regional Office (Boston SEC) notified the Company that it was conducting an investigation related to the Company’s decision to retire the LOTUS System and issued a voluntary request for documents and information related to that decision. On February 10, 2021, the Boston SEC issued a second voluntary request for additional documents and information. The Company cooperated fully with the requests, and on January 3, 2022, the SEC informed us that it was concluding its investigation and that it did not intend to recommend an enforcement action. On February 8, 2021, the Company received a letter from The Vladimir Gusinsky Revocable Trust, a shareholder, demanding that the Company’s Board of Directors conduct an investigation into actions by the Company’s directors and executive officers regarding statements made about the effectiveness and commercial viability of the LOTUS System. The Trust subsequently agreed to stay its demand, pending the outcome of any dispositive motion against the Amended Complaint in the class action complaint described above. The Company received letters on behalf of the Union Excavators Local 731 Pension Fund, Diane Nachbaur, and Frank Tripson, three stockholders of the Company, on July 26, 2021, July 29, 2021, and February 13, 2023, respectively, each demanding access to certain books and records of the Company, pursuant to Section 220 of the Delaware General Corporation Law, regarding the business, operations, effectiveness and commercial viability of the LOTUS system, and related items. On April 7, 2023, Diane Nachbaur filed a shareholder derivative complaint in the United States District Court for the District of Massachusetts against the Company, Michael F. Mahoney, Nelda J. Connors, Charles J. Dockendorff, Yoshiaki Fujimori, Donna A. James, Edward J. Ludwig, David Roux, John E. Sununu, Ellen M. Zane, Joseph M. Fitzgerald, Daniel J. Brennan, Shawn McCarthy, Ian Meredith, Kevin Ballinger, and Susan Vissers Lisa. On May 8, 2023, the Court stayed the case until the conclusion of the consolidated class action case. On October 18, 2023, Frank Tripson filed a shareholder derivative complaint in the Court of Chancery of the State of Delaware against the Company, Michael F. Mahoney, Daniel J. Brennan, Joseph M. Fitzgerald, Shawn McCarthy, Kevin Ballinger, Ian Meredith, Susan Vissers Lisa, Nelda J. Connors, Charles J. Dockendorff, Yoshiaki Fujimori, Donna A. James, Edward J. Ludwig, Stephen P. MacMillan, David Roux, John E. Sununu, and Ellen M. Zane.

NOTE I – STOCKHOLDERS' EQUITY

Preferred Stock

We are authorized to issue 50 million shares of preferred stock in one or more series and to fix the powers, designations, preferences and relative participating, option or other rights thereof, including dividend rights, conversion rights, voting rights, redemption terms, liquidation preferences and the number of shares constituting any series, without any further vote or action by our stockholders.

On May 27, 2020, we completed an offering of 10,062,500 shares of 5.50% Mandatory Convertible Preferred Stock, Series A (MCPS) at a price to the public and liquidation preference of $100 per share. The net proceeds from the MCPS offering were approximately $975 million after deducting underwriting discounts and commissions and offering expenses.

On June 1, 2023, (the Mandatory Conversion Date), all outstanding shares of MCPS automatically converted into shares of common stock. The conversion rate for each share of MCPS was 2.3834 shares of common stock. No action by the holders of the MCPS was required in connection with the mandatory conversion. Cash was paid in lieu of fractional shares in accordance with the terms of the MCPS. An aggregate of approximately 24 million shares of common stock, including shares of common stock issued to holders of MCPS that elected to convert prior to the Mandatory Conversion Date, were issued upon conversion of the MCPS. Following the mandatory conversion of the MCPS, there were no outstanding shares of MCPS.

Refer to Note J – Stockholders' Equity to our audited financial statements contained in Item 8. Financial Statements and Supplementary Data of our most recent Annual Report on Form 10-K for information on the pertinent rights and privileges of our outstanding common stock.

NOTE J – WEIGHTED AVERAGE SHARES OUTSTANDING


	Three Months Ended September 30,		Nine Months Ended September 30,
(in millions)	2023	2022	2023	2022
Weighted average shares outstanding — basic	1,464.5	1,431.6	1,448.8	1,429.7
Net effect of common stock equivalents	10.5	8.4	10.2	9.0
Weighted average shares outstanding - diluted	1,475.0	1,440.0	1,459.1	1,438.7

The following securities were excluded from the calculation of diluted weighted average shares outstanding because their effect in the periods presented below would have been anti-dilutive:


	Three Months Ended September 30,		Nine Months Ended September 30,
(in millions)	2023	2022	2023	2022
Stock options outstanding(1)	0	9	0	6
MCPS(2)	—	24	13	24

(1) Represents stock options outstanding pursuant to our employee stock-based compensation plans with exercise prices that were greater than the average fair market value of our common stock for the related periods.

(2) Represents common stock issuable upon the conversion of MCPS. Refer to Note I – Stockholders' Equity for additional information.

We base Net income (loss) per common share - diluted upon the weighted-average number of common shares and common stock equivalents outstanding during each year. Potential common stock equivalents are determined using the treasury stock method. We exclude stock options, stock awards and, prior to the Mandatory Conversion Date, our MCPS, from the calculation if the effect would be anti-dilutive. The dilutive effect of MCPS is calculated using the if-converted method. The if-converted method assumes that these securities were converted to shares of common stock at the beginning of the reporting period to the extent that the effect is dilutive.

For the first nine months of 2023 and 2022, the effect of assuming the conversion of MCPS into shares of common stock was anti-dilutive, and therefore excluded from the calculation of earnings per share (EPS). Accordingly, Net income was reduced by cumulative Preferred stock dividends, as presented within our accompanying unaudited consolidated statements of operations, for purposes of calculating Net income attributable to Boston Scientific common stockholders. On June 1, 2023, all outstanding shares of MCPS automatically converted into shares of common stock.

We issued approximately two million shares of our common stock in the third quarter of 2023, approximately 32 million shares in the first nine months of 2023, approximately two million shares in the third quarter of 2022, and approximately seven million shares in the first nine months of 2022. Shares were issued following the automatic conversion of the MCPS, the exercise of stock options, vesting of restricted stock units or purchases under our employee stock purchase plan. We did not repurchase any shares of our common stock in the first nine months of 2023 or 2022. On December 14, 2020, our Board of Directors approved a stock repurchase program authorizing the repurchase of up to $1.000 billion of our common stock. As of September 30, 2023, we had the full amount remaining available under the authorization.

NOTE K – SEGMENT REPORTING

We aggregate our core businesses into two reportable segments: MedSurg and Cardiovascular, each of which generates revenues from the sale of medical devices. In accordance with FASB ASC Topic 280, Segment Reporting, we identified our reportable segments based on the nature of our products, production processes, type of customer, selling and distribution methods and regulatory environment, as well as the economic characteristics of each of our operating segments.

We measure and evaluate our reportable segments based on their respective net sales, operating income, excluding intersegment profits, and operating income as a percentage of net sales, all based on internally-derived standard currency exchange rates to exclude the impact of foreign currency, which may be updated from year to year. We exclude from operating income of reportable segments certain corporate-related expenses and certain transactions or adjustments that our chief operating decision maker (CODM) considers to be non-operational, such as amounts related to amortization expense, goodwill and other intangible asset impairment charges, acquisition/divestiture-related net charges (credits), restructuring and restructuring-related net charges (credits); and certain litigation-related net charges (credits) and European Union (EU) Medical Device Regulation (MDR) implementation costs. Although we exclude these amounts from operating income of reportable segments, they are included in reported Income (loss) before income taxes within our accompanying unaudited consolidated statements of operations and are included in the reconciliation below. Refer to Note L – Revenue for net sales by reportable segment presented in accordance with GAAP.

A reconciliation of the totals reported for the reportable segments to the applicable line items within our accompanying unaudited consolidated statements of operations is as follows (in millions, except percentages). Prior period amounts have been restated at constant currency to conform to current year presentation.


	Three Months Ended September 30,				Nine Months Ended September 30,
Net Sales	2023		2022		2023		2022
MedSurg	$	1,318	$	1,199	$	3,900	$	3,521
Cardiovascular	2,149		1,925		6,378		5,620
Total net sales of reportable segments	3,468		3,124		10,277		9,141


Impact of foreign currency fluctuations	59		46		238		300
	$	3,527	$	3,170	$	10,515	$	9,440



Income (loss) before income taxes
MedSurg	$	446	$	359	$	1,293	$	1,048
Cardiovascular	570		451		1,677		1,294
Total operating income of reportable segments	1,016		810		2,970		2,342
Unallocated amounts:
Corporate expenses, including hedging activities and impact of foreign currency fluctuations on operating income of reportable segments	(97)		(1)		(221)		67
Goodwill and intangible asset impairment charges, acquisition/divestiture-related net charges (credits), restructuring and restructuring-related net charges (credits), certain litigation-related net charges (credits) and EU MDR implementation costs	(19)		(249)		(370)		(558)
Amortization expense	(208)		(202)		(620)		(604)

Operating income (loss)	693		358		1,759		1,247
Other expense, net	(83)		(114)		(279)		(502)
Income (loss) before income taxes	$	610	$	245	$	1,480	$	745


	Three Months Ended September 30,				Nine Months Ended September 30,
Operating income margin of reportable segments	2023		2022		2023		2022
MedSurg	33.8	%	30.0	%	33.2	%	29.8	%
Cardiovascular	26.5	%	23.4	%	26.3	%	23.0	%

NOTE L – REVENUE

We generate revenue primarily from the sale of single-use medical devices and present revenue net of sales taxes within our accompanying unaudited consolidated statements of operations. Our business structure is organized into five operating segments. The following tables disaggregate our revenue from contracts with customers by component and geographic region (in millions). We allocate revenue from contracts with customers to geographic regions based on the location where the sale originated.


	Three Months Ended September 30,
	2023						2022
Businesses	U.S.		Int'l		Total		U.S.		Int'l		Total
Endoscopy	$	382	$	247	$	629	$	342	$	217	$	559
Urology	341		142		483		315		118		433
Neuromodulation	175		55		229		173		48		221
MedSurg	898		443		1,341		830		383		1,213
Interventional Cardiology Therapies	182		401		583		190		359		549
Watchman	291		31		323		234		28		262
Cardiac Rhythm Management	355		197		552		338		181		519
Electrophysiology	89		101		190		73		75		148
Cardiology	918		730		1,647		836		643		1,479
Peripheral Interventions	283		255		538		269		210		479
Cardiovascular	1,201		984		2,185		1,104		853		1,958

Total Net Sales	$	2,099	$	1,427	$	3,527	$	1,934	$	1,236	$	3,170


	Nine Months Ended September 30,
	2023						2022
Businesses	U.S.		Int'l		Total		U.S.		Int'l		Total
Endoscopy	$	1,118	$	719	$	1,836	$	992	$	657	$	1,649
Urology	1,007		430		1,437		921		375		1,296
Neuromodulation	530		177		708		519		150		669
MedSurg	2,655		1,326		3,981		2,432		1,182		3,614
Interventional Cardiology Therapies	554		1,248		1,803		568		1,099		1,667
Watchman	843		87		930		662		76		738
Cardiac Rhythm Management	1,057		609		1,665		1,005		575		1,580
Electrophysiology	259		300		560		196		222		418
Cardiology	2,714		2,244		4,958		2,431		1,972		4,403
Peripheral Interventions	844		733		1,577		782		641		1,423
Cardiovascular	3,557		2,977		6,534		3,213		2,613		5,826

Total Net Sales	$	6,212	$	4,303	$	10,515	$	5,645	$	3,795	$	9,440

Refer to Note K- Segment Reporting for information on our reportable segments.


	Three Months Ended September 30,				Nine Months Ended September 30,
Geographic Regions	2023		2022		2023		2022
U.S.	$	2,099	$	1,934	$	6,212	$	5,645
Europe, Middle East and Africa	671		585		2,107		1,869
Asia-Pacific	611		532		1,784		1,579
Latin America and Canada	146		119		412		347

Total Net Sales	$	3,527	$	3,170	$	10,515	$	9,440

Emerging Markets(1)	$	594	$	519	$	1,715	$	1,457

(1)Periodically, we assess our list of Emerging Markets countries, and effective January 1, 2023, modified our list to include all countries except the United States, Western and Central Europe, Japan, Australia, New Zealand and Canada. We have revised prior year amounts to conform to the current year's presentation.

Deferred Revenue

Contract liabilities are classified within Other current liabilities and Other long-term liabilities within our accompanying unaudited consolidated balance sheets. Our deferred revenue balance was $547 million as of September 30, 2023 and $509 million as of December 31, 2022. Our contractual liabilities are primarily composed of deferred revenue related to the LATITUDE™ Patient Management System within our Cardiology business, for which revenue is recognized over the average service period based on device and patient longevity. Our contractual liabilities also include deferred revenue related to the LUX-Dx™ Insertable Cardiac Monitor system, also within our Cardiology business, for which revenue is recognized over the average service period based on device longevity and usage. We recognized revenue of $52 million in the third quarter and $164 million in the first nine months of 2023 that was included in the above contract liability balance as of December 31, 2022. We have elected not to disclose the transaction price allocated to unsatisfied performance obligations when the original expected contract duration is one year or less. In addition, we have not identified material unfulfilled performance obligations for which revenue is not currently deferred.

Variable Consideration

For additional information on variable consideration, refer to Note A – Significant Accounting Policies to our audited financial statements contained in Item 8. Financial Statements and Supplementary Data of our most recent Annual Report on Form 10-K.

NOTE M – CHANGES IN OTHER COMPREHENSIVE INCOME

The following tables provide the reclassifications out of Other comprehensive income (loss), net of tax:


(in millions)	Foreign Currency Translation Adjustments		Net Change in Derivative Financial Instruments		Net Change in Defined Benefit Pensions and Other Items		Total
Balance as of June 30, 2023	$	(28)	$	241	$	(4)	$	208
Other comprehensive income (loss) before reclassifications	23		42		—		64
(Income) loss amounts reclassified from accumulated other comprehensive income	(2)		(39)		(0)		(41)
Total other comprehensive income (loss)	21		3		(0)		23
Balance as of September 30, 2023	$	(8)	$	243	$	(4)	$	231


(in millions)	Foreign Currency Translation Adjustments		Net Change in Derivative Financial Instruments		Net Change in Defined Benefit Pensions and Other Items		Total
Balance as of June 30, 2022	$	106	$	363	$	(36)	$	433
Other comprehensive income (loss) before reclassifications	28		119		1		148
(Income) loss amounts reclassified from accumulated other comprehensive income	(2)		(47)		0		(49)
Total other comprehensive income (loss)	26		72		1		99
Balance as of September 30, 2022	$	133	$	434	$	(35)	$	532


(in millions)	Foreign Currency Translation Adjustments		Net Change in Derivative Financial Instruments		Net Change in Defined Benefit Pensions and Other Items		Total
Balance as of December 31, 2022	$	(1)	$	269	$	1	$	269
Other comprehensive income (loss) before reclassifications	(1)		109		(5)		103
(Income) loss amounts reclassified from accumulated other comprehensive income	(6)		(134)		(1)		(141)
Total other comprehensive income (loss)	(7)		(25)		(5)		(37)
Balance as of September 30, 2023	$	(8)	$	243	$	(4)	$	231


(in millions)	Foreign Currency Translation Adjustments		Net Change in Derivative Financial Instruments		Net Change in Defined Benefit Pensions and Other Items		Total
Balance as of December 31, 2021	$	93	$	206	$	(36)	$	263
Other comprehensive income (loss) before reclassifications	45		319		2		366
(Income) loss amounts reclassified from accumulated other comprehensive income	(6)		(90)		0		(96)
Total other comprehensive income (loss)	39		229		1		269
Balance as of September 30, 2022	$	133	$	434	$	(35)	$	532

Refer to Note D – Hedging Activities and Fair Value Measurements for further detail on our net investment hedges recorded in Foreign currency translation adjustment and our cash flow hedges recorded in Net change in derivative financial instruments.

NOTE N – NEW ACCOUNTING PRONOUNCEMENTS

Periodically, 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 accompanying unaudited consolidated financial statements. During the first nine months of 2023, we implemented the following standards on a prospective basis, none of which had a material impact on our financial position or results of operations.

ASC Update No. 2022-01

ASC Update No. 2022-01, Derivatives and Hedging (Topic 815): Fair Value Hedging - Portfolio Layer Method. Update No. 2022-01 expands the current single-layer method to allow multiple hedged layers of a single closed portfolio under the method, among other updates to these methods.

ASC Update No. 2022-02

ASC Update No. 2022-02, Financial Instruments- Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures makes amendments related to troubled debt restructurings for entities that have adopted Update No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, as well as amendments related to vintage disclosures for entities with investments in financing receivables that have adopted Update No. 2016-13.

ASC Update No. 2022-04

ASC Update No. 2022-04, Liabilities— Supplier Finance Programs (Subtopic 405-50) enhances the transparency of supplier finance programs by requiring that a buyer in a supplier finance program disclose sufficient qualitative and quantitative information about the program to allow a user of financial statements to understand the program's nature, activity during the period, changes from period to period, and potential magnitude.

Standards to be Implemented

In June 2022, the FASB issued ASC Update No. 2022-03, Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions. Update No. 2022-03 clarifies the guidance in Topic 820 related to measuring the fair value of an equity security subject to contractual restrictions that prohibit the sale of an equity security, as well as introduces new disclosure requirements for these types of equity securities. Update No. 2022-03 is effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. We do not expect the adoption to have a material impact on our financial position or results of operations.

No other new accounting pronouncements issued or effective in the period had or are expected to have a material impact on our accompanying unaudited consolidated financial statements.

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