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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 March 31, 2022
OR
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)
Delaware04-2695240
(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 classTrading Symbol(s)Name of each exchange on which registered
Common Stock, par value $0.01 per shareBSXNew York Stock Exchange
0.625% Senior Notes due 2027BSX27New York Stock Exchange
5.50% Mandatory Convertible Preferred Stock, Series A, par value $0.01 per shareBSX PR ANew 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 filerAccelerated filer
Non-accelerated filerSmaller 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 April 29, 2022 was 1,429,571,199.


TABLE OF CONTENTS
  Page No.
 
   
   
 
   
 
   
 
   
 
   
   
   
   
   
   
 
2

PART I
FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

BOSTON SCIENTIFIC CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

Three Months Ended
March 31,
(in millions, except per share data)20222021
Net sales$3,026 $2,752 
Cost of products sold955 894 
Gross profit2,071 1,858 
Operating expenses:
Selling, general and administrative expenses1,060 1,019 
Research and development expenses319 276 
Royalty expense12 12 
Amortization expense198 185 
Contingent consideration net expense (benefit)12 (6)
Restructuring net charges (credits)4 5 
Litigation-related net charges (credits) 4 
Gain on disposal of businesses and assets (6)
 1,605 1,488 
Operating income (loss)466 370 
Other income (expense):
Interest expense(279)(82)
Other, net(31)37 
Income (loss) before income taxes156 325 
Income tax expense (benefit)45 (16)
Net income (loss)110 341 
Preferred stock dividends(14)(14)
Net income (loss) available to common stockholders$97 $327 
Net income (loss) per common share — basic$0.07 $0.23 
Net income (loss) per common share — assuming dilution$0.07 $0.23 
Weighted-average shares outstanding
Basic1,427.8 1,418.7 
Assuming dilution1,438.4 1,430.8 




Refer to notes to the unaudited consolidated financial statements. Amounts may not foot due to rounding.
3

BOSTON SCIENTIFIC CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)

Three Months Ended
March 31,
(in millions)20222021
Net income (loss)$110 $341 
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustment(64)(83)
Net change in derivative financial instruments23 129 
Net change in defined benefit pensions and other items 1 
Total other comprehensive income (loss)(41)47 
Total comprehensive income (loss)$69 $388 









































Refer to notes to the unaudited consolidated financial statements. Amounts may not foot due to rounding.
4

BOSTON SCIENTIFIC CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
 As of
(in millions, except share and per share data)March 31, 2022December 31, 2021
ASSETS  
Current assets:  
Cash and cash equivalents$325 $1,925 
Trade accounts receivable, net1,866 1,778 
Inventories1,736 1,610 
Prepaid income taxes249 205 
Other current assets889 799 
Total current assets5,065 6,317 
Property, plant and equipment, net2,265 2,252 
Goodwill12,949 11,988 
Other intangible assets, net6,581 6,121 
Deferred tax assets4,102 4,142 
Other long-term assets1,375 1,410 
TOTAL ASSETS$32,337 $32,229 
LIABILITIES AND STOCKHOLDERS’ EQUITY  
Current liabilities:  
Current debt obligations$238 $261 
Accounts payable696 794 
Accrued expenses2,306 2,436 
Other current liabilities1,034 783 
Total current liabilities4,275 4,274 
Long-term debt9,067 8,804 
Deferred income taxes261 310 
Other long-term liabilities2,000 2,220 
Commitments and contingencies
Stockholders’ equity  
Preferred stock, $0.01 par value - authorized 50,000,000 shares - issued 10,062,500 shares as of March 31, 2022 and December 31, 2021
  
Common stock, $0.01 par value - authorized 2,000,000,000 shares - issued 1,692,828,987 shares as of March 31, 2022 and 1,688,810,052 shares as of December 31, 2021
17 17 
Treasury stock, at cost - 263,289,848 shares as of March 31, 2022 and December 31, 2021
(2,251)(2,251)
Additional paid-in capital20,043 19,986 
Accumulated deficit(1,296)(1,392)
Accumulated other comprehensive income (loss), net of tax222 263 
Total stockholders’ equity16,735 16,622 
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY$32,337 $32,229 



Refer to notes to the unaudited consolidated financial statements. Amounts may not foot due to rounding.
5


BOSTON SCIENTIFIC CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED)

Three Months Ended March 31,
(in millions, except share data)20222021
Preferred stock shares issued
   Beginning10,062,500 10,062,500 
Preferred stock issuance— — 
   Ending10,062,500 10,062,500 
Common stock shares issued
   Beginning1,688,810,052 1,679,911,918 
Common stock issuance— — 
Impact of stock-based compensation plans4,018,935 3,949,308 
   Ending1,692,828,987 1,683,861,226 
Preferred stock
   Beginning$ $ 
Preferred stock issuance  
   Ending$ $ 
Common stock
   Beginning$17 $17 
Common stock issuance  
Impact of stock-based compensation plans  
   Ending$17 $17 
Treasury Stock
Beginning$(2,251)$(2,251)
Repurchase of common stock  
Ending$(2,251)$(2,251)
Additional Paid-In Capital
Beginning$19,986 $19,732 
Impact of stock-based compensation plans57 19 
Ending$20,043 $19,750 
Accumulated Deficit
Beginning$(1,392)$(2,378)
Net income (loss)110 341 
Preferred stock dividends(14)(14)
Ending$(1,296)$(2,050)
Accumulated Other Comprehensive Income (Loss), Net of Tax
Beginning$263 $207 
Changes in other comprehensive income (loss)(41)47 
Ending$222 $254 
Total stockholders' equity$16,735 $15,719 







Refer to notes to the unaudited consolidated financial statements. Amounts may not foot due to rounding.
6

BOSTON SCIENTIFIC CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

Three Months Ended March 31,
(in millions)20222021
Net income (loss)$110 $341 
Adjustments to reconcile net income (loss) to cash provided by (used for) operating activities
Gain on disposal of businesses and assets (6)
Depreciation and amortization274 268 
Deferred and prepaid income taxes(75)(1)
Stock-based compensation expense52 47 
Net loss (gain) on investments and notes receivable20 (37)
Contingent consideration net expense (benefit)12 (6)
Inventory step-up amortization17 8 
Foreign exchange (gain) loss9 2 
Debt extinguishment costs194  
Other, net11 22 
Increase (decrease) in operating assets and liabilities, excluding purchase accounting:
Trade accounts receivable(66)(117)
Inventories(108)(115)
Other assets(140)(128)
Accounts payable, accrued expenses and other liabilities(368)7 
Cash provided by (used for) operating activities(58)284 
Investing activities:  
Purchases of property, plant and equipment and internal use software(121)(75)
Proceeds from sale of property, plant and equipment8 4 
Payments for acquisitions of businesses, net of cash acquired(1,471)(706)
Proceeds from divestiture of certain businesses and assets5 801 
Proceeds from royalty rights19 22 
Proceeds from (payments for) investments and acquisitions of certain technologies(15)25 
Cash provided by (used for) investing activities(1,574)71 
Financing activities:  
Payment of contingent consideration previously established in purchase accounting(20)(11)
Payments for royalty rights(39)(42)
Payments on short-term borrowings(250) 
Net increase (decrease) in commercial paper223  
Payments on long-term borrowings and debt extinguishment costs(3,184) 
Proceeds from long-term borrowings, net of debt issuance costs3,271  
Cash dividends paid on preferred stock(14)(14)
Cash used to net share settle employee equity awards(46)(46)
Proceeds from issuances of common stock pursuant to employee stock compensation and purchase plans52 18 
Cash provided by (used for) financing activities(6)(95)
Effect of foreign exchange rates on cash (3)
Net increase (decrease) in cash, cash equivalents, restricted cash and restricted cash equivalents(1,639)258 
Cash, cash equivalents, restricted cash and restricted cash equivalents at beginning of period2,168 1,995 
Cash, cash equivalents, restricted cash and restricted cash equivalents at end of period$529 $2,253 

Refer to notes to the unaudited consolidated financial statements. Amounts may not foot due to rounding.
7

BOSTON SCIENTIFIC CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(SUPPLEMENTAL INFORMATION)

Three Months Ended March 31,
(in millions)20222021
Supplemental Information
Stock-based compensation expense$52 $47 
Fair value of contingent consideration recorded in purchase accounting 219 
Non-cash impact of transferred royalty rights(19)(22)

As of March 31,
Reconciliation to amounts within the unaudited consolidated balance sheets:20222021
Cash and cash equivalents$325 $2,016 
Restricted cash and restricted cash equivalents included in Other current assets
146 184 
Restricted cash equivalents included in Other long-term assets
59 53 
Cash, cash equivalents, restricted cash and restricted cash equivalents at end of period$529 $2,253 
























Refer to notes to the unaudited consolidated financial statements. Amounts may not foot due to rounding.
8

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 (U.S. 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 U.S. 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 months ended March 31, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022. 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.

In the first quarter of 2022, we reorganized our operational structure in order to strengthen our category leadership in the markets we serve and, in particular, benefit our Cardiology customers and patients. Following the reorganization, we have aggregated our core businesses into two reportable segments: MedSurg and Cardiovascular, each of which generates revenues from the sale of medical devices. We have revised prior periods to conform to the current year presentation.

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 and Note I – Stockholders' Equity 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 completed one acquisition in the first quarter of 2022, and one acquisition and one divestiture in the first quarter of 2021. 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.

2022 Acquisition

On February 14, 2022, we completed our acquisition of Baylis Medical Company Inc. (Baylis Medical), a privately-held company which has developed the radiofrequency (RF) NRG and VersaCrossTransseptal Platforms as well as a family of guidewires, sheaths and dilators used to support left heart access, which will expand our electrophysiology and structural heart product portfolios. The transaction consisted of an upfront cash payment of $1.471 billion, net of cash acquired, subject to closing adjustments. We are integrating the Baylis Medical business into our Cardiology division.

Purchase Price Allocation

The preliminary purchase price was comprised of the amounts presented below, which represent the preliminary determination of the fair value of identifiable assets acquired and liabilities assumed. The final determination of the fair value of certain assets and liabilities will be completed within the measurement period in accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 805, Business Combinations.
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(in millions)
Payment for acquisition, net of cash acquired$1,471 
$1,471 

The preliminary purchase price allocation was comprised of the following components:
(in millions)
Goodwill$988 
Amortizable intangible assets657 
Other assets acquired113 
Liabilities assumed(280)
Net deferred tax liabilities(8)
$1,471 

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 is not deductible for tax purposes.

We allocated a portion of the preliminary 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 1111%
Other intangible assets36 1111%
$657 
2021 Acquisition

On March 1, 2021, we completed the acquisition of Preventice Solutions, Inc. (Preventice), a privately-held company which offers a full portfolio of mobile cardiac health solutions and services, ranging from ambulatory cardiac monitors, to cardiac event monitors and mobile cardiac telemetry. The transaction consisted of an upfront cash payment of $925 million and up to an additional $300 million in a potential commercial milestone payment. We had been an investor in Preventice since 2015 and held an equity stake of approximately 22 percent immediately prior to the acquisition date. We remeasured the fair value of our previously-held investment based on the allocation of the purchase price according to priority of equity interests, which resulted in a $195 million gain recognized within Other, net in the first quarter of 2021. The transaction price for the remaining stake consisted of an upfront cash payment of $706 million, net of cash acquired, and up to approximately $230 million in a potential additional revenue-based milestone payment. The Preventice business is being managed by our Cardiology division.

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Purchase Price Allocation

We accounted for the acquisition of Preventice as a business combination, and in accordance with FASB ASC Topic 805, Business Combinations, we recorded the assets acquired and liabilities assumed at their respective fair values as of the acquisition date. The final purchase price was comprised of the following components:

(in millions)
Payment for acquisition, net of cash acquired$706 
Fair value of contingent consideration221 
Fair value of prior interest269 
$1,197 

(in millions)
Goodwill$926 
Amortizable intangible assets237 
Other assets acquired65 
Liabilities assumed(32)
$1,197 

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$215 910%
Other intangible assets22 810%
$237 
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 is not deductible for tax purposes.

2021 Divestiture

On March 1, 2021, we completed the divestiture of the Specialty Pharmaceuticals business to Stark International Lux S.A.R.L., and SERB SAS, affiliates of SERB, a European specialty pharmaceutical group, for a purchase price of approximately $800 million, subject to certain adjustments including cash on hand at the closing of the transaction. The agreement included the transfer of five facilities and approximately 280 employees globally.

In the first quarter of 2021, we recognized a $6 million Gain on disposal of businesses and assets associated with the transaction within our accompanying unaudited consolidated statements of operations. Refer to Note C – Assets and Liabilities Held for Sale to our audited financial statements contained in Item 8 of our most recent Annual Report on Form 10-K for additional information.

Contingent Consideration

Changes in the fair value of our contingent consideration liability during the first quarter of 2022 were as follows:

(in millions)
Balance as of December 31, 2021$486 
Contingent consideration net expense (benefit)12 
Contingent consideration payments(41)
Balance as of March 31, 2022$456 

11

As of March 31, 2022, the maximum amount of future contingent consideration (undiscounted) that we could be required to pay associated with our completed acquisitions was $964 million.

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 LiabilityFair Value as of March 31, 2022Valuation TechniqueUnobservable InputRange
Weighted Average(1)
R&D, Regulatory and Commercialization-based Milestones$147 millionDiscounted Cash FlowDiscount Rate1%-2%1%
Probability of Payment80%-100%92%
Projected Year of Payment2022-20242023
Revenue-based Payments$308 millionDiscounted Cash FlowDiscount Rate4%-14%6%
Probability of Payment100%100%
Projected Year of Payment2022-20242022
(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 and revenue-based 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 March 31, 2022.

Strategic Investments

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

As of
(in millions)March 31, 2022December 31, 2021
Equity method investments$226 $259 
Measurement alternative investments(1)
165 142 
Publicly-held securities(2)
8 10 
Notes receivable7  
$406 $412 
(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)    Publicly-held securities are 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 U.S. GAAP and our accounting policies.

As of March 31, 2022, the cost of our aggregated equity method investments exceeded our share of the underlying equity in net assets by $237 million, which represents amortizable intangible assets, in-process research and development (IPR&D), goodwill and deferred tax liabilities.

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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 March 31, 2022As of December 31, 2021
(in millions)Gross Carrying AmountAccumulated Amortization/ Write-offsGross Carrying AmountAccumulated Amortization/ Write-offs
Technology-related$12,559 $(6,918)$11,957 $(6,754)
Patents489 (393)494 (398)
Other intangible assets1,946 (1,347)1,900 (1,325)
Amortizable intangible assets$14,994 $(8,659)$14,351 $(8,476)
    
Goodwill$22,849 $(9,900)$21,888 $(9,900)
IPR&D$126 $126 
Technology-related120 120 
Indefinite-lived intangible assets$246 $246 
The increase in our balance of goodwill and intangible assets is primarily related to our acquisition of Baylis Medical completed in the first quarter of 2022.

The following represents our goodwill balance by global reportable segment:
(in millions)MedSurgCardiovascularTotal
As of December 31, 2021$4,246 $7,741 $11,988 
Impact of foreign currency fluctuations and other changes in carrying value(2)(24)(27)
Goodwill acquired 988 988 
As of March 31, 2022$4,244 $8,705 $12,949 

In the first quarter of 2022, we reorganized our operational structure in order to strengthen our category leadership in the markets we serve and, in particular, benefit our Cardiology customers and patients. Following the reorganization, we have aggregated our core businesses into two reportable segments: MedSurg and Cardiovascular, each of which generates revenues from the sale of medical devices. We have revised prior periods to conform to the current year presentation.

We did not record any goodwill or intangible asset impairment charges in the first quarter of 2022 or 2021. Refer to Note A – Basis of Presentation to our audited financial statements contained in Item 8 of our most recent Annual Report on Form 10-K for further discussion of our annual goodwill and intangible asset impairment testing.

13

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. 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, 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.

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 March 31, 2022 and December 31, 2021, we designated as a net investment hedge a portion of 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 CTA component of OCI. 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 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.
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We had no interest rate derivative instruments designated as cash flow hedges outstanding as of March 31, 2022 or December 31, 2021. Prior to 2020, we terminated interest rate derivative instruments that were designated as cash flow hedges and are continuing to recognize the amortization of the gains or losses originally recorded within AOCI to earnings as a component of Interest expense over the same period that the hedged item affects earnings, provided the hedge relationship remains effective. If we determine the hedge relationship is no longer effective, or if the occurrence of the hedged forecast transaction becomes no longer probable, we reclassify the amount of gains or losses from AOCI to earnings at that time.

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 balance of the deferred amounts on our terminated cash flow hedges within AOCI was a $10 million loss as of March 31, 2022 and a $24 million loss as of December 31, 2021.



15


The following table presents the contractual amounts of our hedging instruments outstanding:
(in millions)FASB ASC Topic 815 DesignationAs of
March 31, 2022December 31, 2021
Forward currency contractsCash flow hedge$3,897 $3,996 
Forward currency contractsNet investment hedge493 493 
Foreign currency-denominated debt(1)
Net investment hedge997 997 
Forward currency contractsNon-designated4,022 3,892 
Total Notional Outstanding$9,409 $9,378 
(1)    Foreign currency-denominated debt is the portion of the €900 million debt principal associated with our 2027 Notes designated as a net investment hedge.

The remaining time to maturity as of March 31, 2022 is within 60 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 within the next year. 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 TaxLocation of Amount Reclassified and Total Amount of Line ItemPre-Tax (Gain) LossTax (Benefit) Expense(Gain) Loss Net of Tax
Three Months Ended March 31, 2022
Forward currency contracts
Cash flow hedges$45 $(10)$35 Cost of products sold$955 $(30)$7 $(23)
Net investment hedges(2)
15 (3)11 Interest expense279 (2) (2)
Foreign currency-denominated debt
Net investment hedges(3)
24 (5)18 Other, net31    
Interest rate derivative contracts
Cash flow hedges   Interest expense279 14 (3)11 
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 TaxLocation of Amount Reclassified and Total Amount of Line ItemPre-Tax (Gain) LossTax (Benefit) Expense(Gain) Loss Net of Tax
Three Months Ended March 31, 2021
Forward currency contracts
Cash flow hedges$171 $(39)$133 Cost of products sold$894 $(6)$1 $(5)
Net investment hedges(2)
52 (12)40 Interest expense82 (6)1 (5)
Foreign currency-denominated debt
Net investment hedges(3)
48 (11)37 Other, net(37)   
Interest rate derivative contracts
Cash flow hedges   Interest Expense82 1  1 
16

(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 March 31, 2022, 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):
Designated Hedging InstrumentFASB ASC Topic 815 DesignationLocation on Unaudited Consolidated Statements of OperationsAmount of Pre-Tax Gain (Loss) that may be Reclassified to Earnings
Forward currency contractsCash flow hedgeCost of products sold$159 
Forward currency contractsNet investment hedgeInterest expense1 
Interest rate derivative contractsCash flow hedgeInterest expense(3)

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 OperationsThree Months Ended March 31,
(in millions)20222021
Net gain (loss) on currency hedge contractsOther, net$(29)$(1)
Net gain (loss) on currency transaction exposuresOther, net21 (1)
Net currency exchange gain (loss)$(9)$(2)

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 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
17

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)March 31, 2022December 31, 2021
Derivative and Nonderivative Assets:   
Designated Hedging Instruments  
Forward currency contractsOther current assets$228 $183 
Forward currency contractsOther long-term assets155 169 
  384 352 
Non-Designated Hedging Instruments   
Forward currency contractsOther current assets38 42 
Total Derivative and Nonderivative Assets $422 $394 
Derivative and Nonderivative Liabilities:   
Designated Hedging Instruments  
Forward currency contractsOther current liabilities$31 $32 
Forward currency contractsOther long-term liabilities9 6 
Foreign currency-denominated debt(2)
Long-term debt988 1,011 
  1,028 1,049 
Non-Designated Hedging Instruments   
Forward currency contractsOther current liabilities40 22 
Total Derivative and Nonderivative Liabilities $1,067 $1,071 
(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 portion of 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
 March 31, 2022December 31, 2021
(in millions)Level 1Level 2Level 3TotalLevel 1Level 2Level 3Total
Assets        
Money market funds and time deposits$25 $ $ $25 $1,632 $ $ $1,632 
Publicly-held equity securities8   8