bsx-20240630

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


☑			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2024


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File No. 1-11083

BOSTON SCIENTIFIC CORPORATION

(Exact name of registrant as specified in its charter)


Delaware						04-2695240
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

300 Boston Scientific Way, Marlborough, Massachusetts 01752-1234

(Address of Principal Executive Offices) (Zip Code)

508 683-4000

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.01 per share

BSX

New York Stock Exchange

0.625% Senior Notes due 2027

BSX27

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☑	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑

The number of shares outstanding of Common Stock, $0.01 par value per share, as of July 30, 2024 was 1,472,626,135.

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TABLE OF CONTENTS


		Page No.

PART I	FINANCIAL INFORMATION	3

ITEM 1.	Consolidated Financial Statements	3

	Consolidated Statements of Operations (Unaudited)	3

	Consolidated Statements of Comprehensive Income (Loss) (Unaudited)	4

	Consolidated Balance Sheets (Unaudited)	5

	Consolidated Statements of Stockholders' Equity (Unaudited)	6

	Consolidated Statements of Cash Flows (Unaudited)	7

	Notes to the Consolidated Financial Statements (Unaudited)	9

ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	37

ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	56

ITEM 4.	Controls and Procedures	57

PART II	OTHER INFORMATION	58

ITEM 1.	Legal Proceedings	58

ITEM 1A.	Risk Factors	58



ITEM 5.	Other Information	58

ITEM 6.	Exhibits	58

SIGNATURE		60

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PART I

FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

BOSTON SCIENTIFIC CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)


	Three Months Ended June 30,				Six Months Ended June 30,
(in millions, except per share data)	2024		2023		2024		2023

Net sales	$	4,120	$	3,599	$	7,977	$	6,988
Cost of products sold	1,270		1,058		2,479		2,098
Gross profit	2,850		2,542		5,498		4,891

Operating expenses:
Selling, general and administrative expenses	1,446		1,354		2,810		2,570
Research and development expenses	383		359		749		695
Royalty expense	9		12		19		23
Amortization expense	213		210		427		412

Intangible asset impairment charges	276		57		276		57
Contingent consideration net expense (benefit)	2		19		18		31
Restructuring net charges (credits)	1		16		5		36


	2,330		2,028		4,303		3,825
Operating income (loss)	520		514		1,195		1,066

Other income (expense):
Interest expense	(77)		(70)		(146)		(135)
Other, net	(23)		(18)		(21)		(61)
Income (loss) before income taxes	420		426		1,028		870
Income tax expense (benefit)	98		156		213		287
Net income (loss)	322		270		815		584
Preferred stock dividends	—		(9)		—		(23)
Net income (loss) attributable to noncontrolling interests	(2)		—		(4)		—
Net income (loss) attributable to Boston Scientific common stockholders	$	324	$	261	$	819	$	561

Net income (loss) per common share — basic	$	0.22	$	0.18	$	0.56	$	0.39
Net income (loss) per common share — diluted	$	0.22	$	0.18	$	0.55	$	0.39

Weighted-average shares outstanding
Basic	1,470.6		1,446.2		1,469.5		1,441.0
Diluted	1,484.2		1,456.2		1,483.0		1,451.1

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

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BOSTON SCIENTIFIC CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)


	Three Months Ended June 30,				Six Months Ended June 30,
(in millions)	2024		2023		2024		2023
Net income (loss)	$	322	$	270	$	815	$	584
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustment	45		15		102		(28)
Net change in derivative financial instruments	(16)		15		6		(28)

Net change in defined benefit pensions and other items	0		0		0		(5)
Other comprehensive income (loss)	30		30		108		(61)
Comprehensive income (loss)	$	352	$	300	$	924	$	523
Net income (loss) attributable to noncontrolling interests	(2)		—		(4)		—
Other comprehensive income (loss) attributable to noncontrolling interests	(1)		—		(6)		—
Comprehensive income (loss) attributable to noncontrolling interests	(4)		—		(10)		—
Comprehensive income attributable to Boston Scientific common stockholders	$	356	$	300	$	933	$	523

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

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BOSTON SCIENTIFIC CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (UNAUDITED)


	As of
(in millions, except share and per share data)	June 30, 2024		December 31, 2023
ASSETS
Current assets:
Cash and cash equivalents	$	2,913	$	865
Trade accounts receivable, net	2,400		2,228
Inventories	2,608		2,484
Prepaid income taxes	315		315

Other current assets	756		621
Total current assets	8,991		6,514
Property, plant and equipment, net	2,951		2,859
Goodwill	14,397		14,387
Other intangible assets, net	5,417		6,003
Deferred tax assets	3,801		3,841
Other long-term assets	1,551		1,531
TOTAL ASSETS	$	37,108	$	35,136

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current debt obligations	$	1,580	$	531
Accounts payable	906		942
Accrued expenses	2,320		2,646
Other current liabilities	770		814
Total current liabilities	5,576		4,933
Long-term debt	8,991		8,571
Deferred income taxes	132		134
Other long-term liabilities	1,800		1,967

Commitments and contingencies

Stockholders’ equity
Preferred stock, $0.01 par value - authorized 50,000,000 shares - 0 shares issued as of June 30, 2024 and December 31, 2023	—		—
Common stock, $0.01 par value - authorized 2,000,000,000 shares - issued 1,734,329,744 shares as of June 30, 2024 and 1,729,000,224 shares as of December 31, 2023	17		17
Treasury stock, at cost - 263,289,848 shares as of June 30, 2024 and December 31, 2023	(2,251)		(2,251)
Additional paid-in capital	20,803		20,647
Retained earnings	1,639		819
Accumulated other comprehensive income (loss), net of tax	164		49
Total stockholders’ equity	20,371		19,282
Noncontrolling interests	238		248
Total equity	20,609		19,530
TOTAL LIABILITIES AND EQUITY	$	37,108	$	35,136

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

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BOSTON SCIENTIFIC CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED)


	Three Months Ended June 30,				Six Months Ended June 30,
(in millions, except share data)	2024		2023		2024		2023
Preferred stock shares issued
Beginning	—		10,062,500		—		10,062,500

Conversion of mandatory convertible preferred stock to common stock	—		(10,062,500)		—		(10,062,500)
Ending	—		—		—		—
Common stock shares issued
Beginning	1,733,293,885		1,700,828,873		1,729,000,224		1,696,633,993

Impact of stock-based compensation plans	1,035,859		1,144,366		5,329,520		5,339,246
Conversion of mandatory convertible preferred stock to common stock	—		23,982,902		—		23,982,902
Ending	1,734,329,744		1,725,956,141		1,734,329,744		1,725,956,141

Preferred stock
Beginning	$	—	$	0	$	—	$	0

Conversion of mandatory convertible preferred stock to common stock	—		(0)		—		(0)
Ending	$	—	$	—	$	—	$	—
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		—		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	$	20,713	$	20,356	$	20,647	$	20,289



Impact of stock-based compensation plans	90		85		156		153
Ending	$	20,803	$	20,441	$	20,803	$	20,441
Retained earnings/(Accumulated deficit)
Beginning	$	1,314	$	(450)	$	819	$	(750)
Net income (loss)	322		270		815		584
Net (income) loss attributable to noncontrolling interests	2		—		4		—
Preferred stock dividends	—		(9)		—		(23)
Ending	$	1,639	$	(189)	$	1,639	$	(189)
Accumulated other comprehensive income (loss), net of tax
Beginning	$	132	$	178	$	49	$	269
Changes in other comprehensive income (loss)	31		30		114		(61)
Ending	$	164	$	208	$	164	$	208
Total stockholders' equity	$	20,371	$	18,226	$	20,371	$	18,226

Noncontrolling interests
Beginning	$	242	$	259	$	248	$	—
Net income (loss) attributable to noncontrolling interests	(2)		—		(4)		—
Changes in other comprehensive income (loss)	(1)		—		(6)		—
Changes to noncontrolling ownership interest	—		—		—		259
Ending	$	238	$	259	$	238	$	259

Total equity	$	20,609	$	18,485	$	20,609	$	18,485

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

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BOSTON SCIENTIFIC CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)


	Six Months Ended June 30,
(in millions)	2024		2023
Net income (loss)	$	815	$	584
Adjustments to reconcile net income (loss) to cash provided by (used for) operating activities

Depreciation and amortization	615		583
Deferred and prepaid income taxes	21		(45)
Stock-based compensation expense	129		115
Goodwill and other intangible asset impairment charges	276		57
Net loss (gain) on investments and notes receivable	46		35
Contingent consideration net expense (benefit)	18		31
Inventory step-up amortization	—		3

Other, net	8		23
Increase (decrease) in operating assets and liabilities, excluding purchase accounting:
Trade accounts receivable	(228)		(161)
Inventories	(219)		(399)
Other assets	(126)		(55)
Accounts payable, accrued expenses and other liabilities	(379)		78
Cash provided by (used for) operating activities	977		848

Investing activities:
Purchases of property, plant and equipment and internal use software	(334)		(254)
Proceeds from sale of property, plant and equipment	1		3
Payments for acquisitions of businesses, net of cash acquired	(95)		(1,018)
Payments for investments and acquisitions of certain technologies, net of investment proceeds	(139)		(73)

Proceeds from royalty rights	11		16
Proceeds from settlements of hedge contracts	—		2
Cash provided by (used for) investing activities	(556)		(1,324)

Financing activities:
Payment of contingent consideration previously established in purchase accounting	(34)		(39)
Payments for royalty rights	(15)		(34)
Payments for finance leases	(25)		—
Payments on short-term borrowings	(504)		—

Net increase (decrease) in commercial paper	—		37



Proceeds from long-term borrowings, net of debt issuance costs	2,145		—
Cash dividends paid on preferred stock	—		(28)


Cash used to net share settle employee equity awards	(80)		(52)
Proceeds from issuances of common stock pursuant to employee stock compensation and purchase plans	106		90
Cash provided by (used for) financing activities	1,593		(26)

Effect of foreign exchange rates on cash	(8)		(3)

Net increase (decrease) in cash, cash equivalents, restricted cash and restricted cash equivalents	2,006		(506)
Cash, cash equivalents, restricted cash and restricted cash equivalents at beginning of period	1,055		1,126
Cash, cash equivalents, restricted cash and restricted cash equivalents at end of period	$	3,062	$	620

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

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BOSTON SCIENTIFIC CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(SUPPLEMENTAL INFORMATION)


	Six Months Ended June 30,
(in millions)	2024		2023
Supplemental Information
Stock-based compensation expense	$	129	$	115

Non-cash impact of transferred royalty rights	(11)		(16)


	As of June 30,
Reconciliation to amounts within the unaudited consolidated balance sheets:	2024		2023
Cash and cash equivalents	$	2,913	$	426
Restricted cash and restricted cash equivalents included in Other current assets	75		135
Restricted cash equivalents included in Other long-term assets	74		60
Cash, cash equivalents, restricted cash and restricted cash equivalents at end of period	$	3,062	$	620

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

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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 six months ended June 30, 2024 are not necessarily indicative of the results that may be expected for the year ending December 31, 2024. 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.

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 within 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 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 June 18, 2024, we announced our entry into a definitive agreement to acquire 100 percent of Silk Road Medical, Inc. (Silk Road Medical), a publicly traded medical device company that has developed an innovative platform of products to prevent stroke in patients with carotid artery disease through a minimally invasive procedure called transcarotid artery revascularization (TCAR). The purchase price is $27.50 in cash per share, or approximately $1.260 billion for 100% of the fully diluted equity. The transaction is expected to be completed in the second half of 2024, subject to customary closing conditions. The Silk Road Medical business will be integrated into our Peripheral Interventions division.

On January 8, 2024, we announced our entry into a definitive agreement to acquire 100 percent of Axonics, Inc. (Axonics), a publicly traded medical technology company primarily focused on the development and commercialization of devices to treat urinary and bowel dysfunction. The purchase price is $71.00 in cash per share, or approximately $3.670 billion for 100% of the fully diluted equity. On April 3, 2024, we and Axonics each received a request for additional information (Second Request) from the United States Federal Trade Commission (FTC) in connection with the FTC's review of the transaction. The issuance of the Second Request extends the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (HSR Act), until 30 days after both we and Axonics have substantially complied with the Second Request, unless the waiting period is extended voluntarily by the parties or terminated earlier by the FTC. We and Axonics are responding to the Second Request and continue to work cooperatively with the FTC in its review. The transaction is expected to be completed in the second half of 2024, subject to the expiration or termination of the waiting period under the HSR Act and the satisfaction (or waiver) of other customary closing conditions. The Axonics business will be integrated into our Urology division.

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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 Scientific Holdings Limited (Acotec), a publicly traded Chinese manufacturer of drug-coated balloons and other products used in the treatment of vascular and other diseases. We consolidated this majority stake investment in Acotec based on the conclusion we control the entity, and recorded a noncontrolling interest for the portion we do not own. 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 final 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) Related to Acotec, represents our majority stake investment

We recorded the assets acquired, liabilities assumed and specific to Acotec, the noncontrolling interest, at their respective fair values as of the closing date of the transaction. The final purchase price allocations were comprised of the components presented below, with the excess of the purchase price over the fair value of net assets acquired recorded to goodwill:


(in millions)	Acotec		Apollo
Goodwill	$	337	$	378
Amortizable intangible assets	334		248

Other assets acquired	93		50
Liabilities assumed	(48)		(33)
Net deferred tax liabilities	(76)		(5)
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 in 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.

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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

Contingent Consideration

Changes in the fair value of our contingent consideration liability during the first six months of 2024 associated with prior period acquisitions were as follows:


(in millions)
Balance as of December 31, 2023	$	404
Amount recorded related to current year acquisitions	29
Contingent consideration net expense (benefit)	18
Contingent consideration payments and other adjustments	(158)
Balance as of June 30, 2024	$	293

The payments made during the first six months of 2024 primarily related to our acquisition of Farapulse, Inc. (Farapulse) following the achievement of revenue-based earnouts as a result of over-performance. The maximum amount we could be required to pay for certain contingent consideration is not determinable as it is uncapped and based on a percent of certain sales. As of June 30, 2024, the fair value of such uncapped contingent consideration is estimated at $163 million. As of June 30, 2024, the maximum amount that we could be required to pay under our other contingent consideration arrangements (undiscounted) is approximately $320 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 June 30, 2024	Valuation Technique	Unobservable Input	Range			Weighted Average(1)
Revenue-based Payments and Milestones	$293 million	Discounted Cash Flow	Discount Rate	6%	-	15%	7%
			Probability of Payment	90%	-	100%	99%
			Projected Year of Payment	2024	-	2029	2027

(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.

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Projected contingent payment amounts related to our revenue-based payments and milestones 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 June 30, 2024.

Strategic Investments

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


	As of
(in millions)	June 30, 2024		December 31, 2023
Equity method investments	$	207	$	219
Measurement alternative investments(1, 2)	243		194
	$	450	$	413

(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 June 30, 2024, the cost of our aggregated equity method investments exceeded our share of the underlying equity in net assets by $233 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 June 30, 2024				As of December 31, 2023
(in millions)	Gross Carrying Amount		Accumulated Amortization/ Write-offs		Gross Carrying Amount		Accumulated Amortization/ Write-offs
Technology-related	$	12,846	$	(8,372)	$	13,207	$	(8,101)
Patents	476		(380)		480		(387)
Other intangible assets	2,188		(1,555)		2,130		(1,500)
Amortizable intangible assets	$	15,510	$	(10,307)	$	15,817	$	(9,988)

Goodwill	$	24,297	$	(9,900)	$	24,287	$	(9,900)

IPR&D	$	94			$	54
Technology-related	120				120
Indefinite-lived intangible assets	$	214			$	174

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


(in millions)	MedSurg		Cardiovascular		Total
As of December 31, 2023	$	5,347	$	9,041	$	14,387


Goodwill acquired	24		46		71
Impact of foreign currency fluctuations and purchase price and other adjustments	(30)		(30)		(61)
As of June 30, 2024	$	5,341	$	9,057	$	14,397

Goodwill and Other Intangible Asset Impairments

We did not record any goodwill impairment charges in the first six months of 2024 or 2023. 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, Intangibles - Goodwill and Other (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 2024, we performed our annual goodwill impairment test utilizing both the qualitative and quantitative approach described in FASB ASC Topic 350. The qualitative approach was used for testing certain 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 units tested using the quantitative approach, we determined that the fair value of the reporting units exceeded the carrying value and concluded that goodwill was not impaired or at risk of impairment.

We recorded Intangible asset impairment charges of $276 million in the second quarter and first six months of 2024 and $57 million in the second quarter and first six months of 2023. The impairment charges recorded in 2024 were associated with amortizable intangible assets established in connection with our acquisitions of Cryterion Medical, Inc. (Cryterion) and Devoro Medical, Inc. (Devoro), which were integrated into our Electrophysiology and Peripheral Interventions business units, respectively. Intangible assets acquired from Cryterion were impaired due to strong commercial adoption of our Farapulse™ Pulsed Field Ablation System and the resulting lower revenue projections and cannibalization of our cryoablation business in major markets like the U.S. Intangible assets acquired from Devoro were impaired following management's decision to cancel the related program in the second quarter of 2024. We calculated the fair value of our Cryterion and Devoro intangible assets as the present value of estimated future cash flows we expect to generate from the assets based on estimates and assumptions about future revenue contributions, cost structures and the remaining useful lives of the assets.

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. Conditions that may indicate impairment include, but are not limited to, a significant adverse change in legal factors or business climate that could affect the value of an asset, a product recall or an adverse action or assessment by a regulator. If we determine it is more likely than not that the asset is impaired based on our qualitative assessment of impairment indicators, we test the intangible asset for recoverability. If the carrying value of the intangible asset or asset group exceeds the undiscounted cash flows expected to result from the use and eventual disposition of the intangible asset or asset group, we will write the carrying value down to fair value in the period impairment is identified. 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.

Refer to Note A – Significant Accounting Policies to our audited financial statements contained in Item 8. Financial Statements

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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 by actively monitoring counterparty credit ratings and the amount of individual credit exposure. We also employ master netting arrangements that limit the risk of counterparty non-payment on a particular settlement date to the net gain that would have otherwise been received from the counterparty. Although not completely eliminated, we do not consider the risk of counterparty default to be significant as a result of these protections. Further, none of our derivative instruments are subject to collateral or other security arrangements, nor do they contain provisions that are dependent on our credit ratings from any credit rating agency.

Currency Hedging Instruments

Risk Management Strategy

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

Hedge Designations and Relationships

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 within 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 within our unaudited consolidated statements of cash flows.

We also designate certain forward currency contracts as net investment hedges to hedge a portion of our net investments in certain of our entities with functional currencies denominated in the Chinese renminbi and Japanese yen. For these derivative instruments, we elected to use the spot method to assess hedge effectiveness. We also elected to exclude the spot-forward difference, referred to as the excluded component, from the assessment of hedge effectiveness and are amortizing this amount separately, as calculated at the date of designation, on a straight-line basis over the term of the currency forward contracts. As such, we defer recognition of foreign currency gains and losses within the Foreign currency translation adjustment (CTA) component of OCI, and we reclassify amortization of the excluded component from AOCI to current period earnings within Interest expense within our unaudited consolidated statements of operations.

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 June 30, 2024 and December 31, 2023, we designated as a net investment hedge our €900 million in aggregate principal amount of 0.625% 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 CTA component of OCI. We reclassify these gains and losses to current period earnings within

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Other, net within 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

Risk Management Strategy

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.

Hedge Designations and Relationships

We had no interest rate derivative instruments designated as cash flow hedges outstanding as of June 30, 2024 or December 31, 2023. 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.

We had no interest rate derivative instruments designated as fair value hedges outstanding as of June 30, 2024 or December 31, 2023. In the event that we designate outstanding interest rate derivative instruments as fair value hedges, we record the changes in the fair values of interest-rate derivatives designated as fair value hedges and of the underlying hedged debt instruments in Interest expense, which generally offset.

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


(in millions)	FASB ASC Topic 815 Designation	As of
		June 30, 2024		December 31, 2023
Forward currency contracts	Cash flow hedge	$	1,969	$	2,284
Forward currency contracts	Net investment hedge	645		333
Foreign currency-denominated debt(1)	Net investment hedge	997		997
Forward currency contracts	Non-designated	3,284		3,282

Total Notional Outstanding		$	6,895	$	6,896

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

The remaining time to maturity as of June 30, 2024 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 two 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 within 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).

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	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 June 30, 2024
Forward currency contracts
Cash flow hedges	$	31	$	(7)	$	24	Cost of products sold	$	1,270	$	(52)	$	12	$	(41)
Net investment hedges(2)	20		(5)		16		Interest expense	77		(4)		1		(3)
Foreign currency-denominated debt
Net investment hedges(3)	9		(2)		7		Other, net	23		—		—		—
Interest rate derivative contracts
Cash flow hedges	—		—		—		Interest expense	77		0		(0)		0


	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 June 30, 2023
Forward currency contracts
Cash flow hedges	$	74	$	(17)	$	58	Cost of products sold	$	1,058	$	(55)	$	12	$	(43)
Net investment hedges(2)	22		(5)		17		Interest expense	70		(2)		1		(2)
Foreign currency-denominated debt
Net investment hedges(3)	1		—		1		Other, net	18		—		—		—
Interest rate derivative contracts
Cash flow hedges	—		—		—		Interest Expense	70		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
Six Months Ended June 30, 2024
Forward currency contracts
Cash flow hedges	$	108	$	(24)	$	84	Cost of products sold	$	2,479	$	(101)	$	23	$	(79)
Net investment hedges(2)	48		(11)		37		Interest expense	146		(8)		2		(6)
Foreign currency-denominated debt
Net investment hedges(3)	32		(7)		25		Other, net	21		—		—		—
Interest rate derivative contracts
Cash flow hedges	—		—		—		Interest expense	146		1		(0)		1

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	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
Six Months Ended June 30, 2023
Forward currency contracts
Cash flow hedges	$	87	$	(20)	$	67	Cost of products sold	$	2,098	$	(125)	$	28	$	(97)
Net investment hedges(2)	28		(6)		22		Interest expense	135		(5)		1		(4)
Foreign currency-denominated debt
Net investment hedges(3)	(18)		4		(14)		Other, net	61		—		—		—
Interest rate derivative contracts
Cash flow hedges	—		—		—		Interest expense	135		1		(0)		1

(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 periods, 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 June 30, 2024, 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

163

Forward currency contracts

Net investment hedge

Interest expense

Interest rate derivative contracts

Cash flow hedge

Interest expense

(1)

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 June 30,				Six Months Ended June 30,
(in millions)		2024		2023		2024		2023
Net gain (loss) on currency hedge contracts	Other, net	$	30	$	11	$	45	$	2
Net gain (loss) on currency transaction exposures	Other, net	(31)		(20)		(51)		(26)
Net currency exchange gain (loss)		$	(1)	$	(9)	$	(6)	$	(24)

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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)		June 30, 2024		December 31, 2023
Derivative and Nonderivative Assets:
Designated Hedging Instruments
Forward currency contracts	Other current assets	$	236	$	140
Forward currency contracts	Other long-term assets	46		107
		282		246
Non-Designated Hedging Instruments
Forward currency contracts	Other current assets	31		20

Total Derivative and Nonderivative Assets		$	313	$	266

Derivative and Nonderivative Liabilities:
Designated Hedging Instruments
Forward currency contracts	Other current liabilities	$	3	$	15
Forward currency contracts	Other long-term liabilities	0		9
Foreign currency-denominated debt(2)	Long-term debt	957		988

		960		1,012
Non-Designated Hedging Instruments
Forward currency contracts	Other current liabilities	14		38
Total Derivative and Nonderivative Liabilities		$	974	$	1,050

(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.

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


	As of
	June 30, 2024								December 31, 2023
(in millions)	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Assets
Money market funds and time deposits	$	2,153	$	—	$	—	$	2,153	$	454	$	—	$	—	$	454
Publicly-held equity securities	19		—		—		19		18		—		—		18
Hedging instruments	—		313		—		313		—		266		—		266
Licensing arrangements	—		—		51		51		—		—		77		77
	$	2,173	$	313