UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended September 30, 2018

OR

o 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)

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 þ No o

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 þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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 þ	Accelerated filer o
Non-Accelerated filer o	Smaller reporting company o
	Emerging growth company o

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. o

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

	Shares outstanding
Class	as of October 23, 2018
Common Stock, $0.01 par value	1,383,800,781

TABLE OF CONTENTS

		Page No.
PART I	FINANCIAL INFORMATION	3
ITEM 1.	Condensed Consolidated Financial Statements	3
	Condensed Consolidated Statements of Operations (Unaudited)	3
	Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited)	4
	Condensed Consolidated Balance Sheets (Unaudited as of September 30, 2018)	5
	Condensed Consolidated Statements of Cash Flows (Unaudited)	6
	Notes to the Condensed Consolidated Financial Statements (Unaudited)	7
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 6.	Exhibits	58
SIGNATURE		59

2

PART I

FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

BOSTON SCIENTIFIC CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

	Three Months Ended September 30,						Nine Months Ended September 30,
(in millions, except per share data)	2018			2017			2018			2017
Net sales	$	2,393		$	2,222		$	7,262		$	6,640
Cost of products sold	672			637			2,084			1,919
Gross profit	1,720			1,585			5,179			4,721
Operating expenses:
Selling, general and administrative expenses	870			800			2,616			2,408
Research and development expenses	289			254			825			734
Royalty expense	17			16			52			50
Amortization expense	148			139			437			424
Intangible asset impairment charges	—			3			35			3
Contingent consideration expense (benefit)	(13		)	(4		)	(12		)	(78		)
Restructuring charges (credits)	3			12			20			17
Litigation-related net charges (credits)	18			(12		)	18			196
	1,333			1,208			3,992			3,754
Operating income (loss)	388			377			1,187			967
Other income (expense):
Interest expense	(58		)	(57		)	(177		)	(172		)
Other, net	126			(11		)	116			(89		)
Income (loss) before income taxes	456			309			1,126			706
Income tax expense (benefit)	24			26			(159		)	(13		)
Net income (loss)	$	432		$	283		$	1,285		$	719
Net income (loss) per common share — basic	$	0.31		$	0.21		$	0.93		$	0.53
Net income (loss) per common share — assuming dilution	$	0.31		$	0.20		$	0.92		$	0.52
Weighted-average shares outstanding
Basic	1,382.8			1,372.0			1,380.0			1,369.1
Assuming dilution	1,403.9			1,394.1			1,399.8			1,391.8

See notes to the unaudited condensed consolidated financial statements.

3

BOSTON SCIENTIFIC CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)

	Three Months Ended September 30,						Nine Months Ended September 30,
(in millions)	2018			2017			2018			2017
Net income (loss)	$	432		$	283		$	1,285		$	719
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustment	(6		)	25			(42		)	46
Net change in derivative financial instruments	47			(24		)	125			(100		)
Net change in available-for-sale securities	—			1			—			3
Net change in defined benefit pensions and other items	—			—			—			(1		)
Total other comprehensive income (loss)	40			2			82			(52		)
Total comprehensive income (loss)	$	472		$	285		$	1,367		$	667

See notes to the unaudited condensed consolidated financial statements.

4

BOSTON SCIENTIFIC CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

	As of
(in millions, except share and per share data)	September 30, 2018			December 31, 2017
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	168		$	188
Trade accounts receivable, net	1,580			1,548
Inventories	1,134			1,078
Prepaid income taxes	43			66
Other current assets	1,045			942
Total current assets	3,971			3,822
Property, plant and equipment, net	1,730			1,697
Goodwill	7,588			6,998
Other intangible assets, net	6,297			5,837
Other long-term assets	794			688
TOTAL ASSETS	$	20,379		$	19,042
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current debt obligations	$	1,820		$	1,801
Accounts payable	453			530
Accrued expenses	2,469			2,456
Other current liabilities	340			867
Total current liabilities	5,082			5,654
Long-term debt	4,806			3,815
Deferred income taxes	428			191
Other long-term liabilities	1,774			2,370
Commitments and contingencies
Stockholders’ equity
Preferred stock, $0.01 par value - authorized 50,000,000 shares, none issued and outstanding
Common stock, $0.01 par value - authorized 2,000,000,000 shares - issued 1,631,271,283 shares as of September 30, 2018 and 1,621,062,898 shares as of December 31, 2017	16			16
Treasury stock, at cost - 247,566,270 shares as of September 30, 2018 and December 31, 2017	(1,717		)	(1,717		)
Additional paid-in capital	17,304			17,161
Accumulated deficit	(7,339		)	(8,390		)
Accumulated other comprehensive income (loss), net of tax	25			(59		)
Total stockholders’ equity	8,289			7,012
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	20,379		$	19,042

See notes to the unaudited condensed consolidated financial statements.

5

BOSTON SCIENTIFIC CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

	Nine Months Ended September 30,
(in millions)	2018			2017
				(restated)†
Cash provided by (used for) operating activities	$	291		$	742
Investing activities:
Purchases of property, plant and equipment	(210		)	(240		)
Payments for acquisitions of businesses, net of cash acquired	(968		)	(392		)
Payments for investments and acquisitions of certain technologies	(148		)	(89		)
Cash provided by (used for) investing activities	(1,326		)	(721		)
Financing activities:
Payment of contingent consideration amounts previously established in purchase accounting	(16		)	(30		)
Proceeds from short-term borrowings, net of debt issuance costs	999			—
Net increase (decrease) in commercial paper	(403		)	1,253
Proceeds from borrowings on credit facilities	569			2,156
Payments on borrowings from credit facilities	(569		)	(2,216		)
Payments on long-term borrowings	(602		)	(1,000		)
Proceeds from long-term borrowings, net of debt issuance and extinguishment costs	989			—
Cash used to net share settle employee equity awards	(54		)	(64		)
Proceeds from issuances of shares of common stock	94			79
Cash provided by (used for) financing activities	1,007			178
Effect of foreign exchange rates on cash	(9		)	3
Net increase (decrease) in cash, cash equivalents, restricted cash and restricted cash equivalents	(37		)	202
Cash, cash equivalents, restricted cash and restricted cash equivalents at beginning of period	1,017			487
Cash, cash equivalents, restricted cash and restricted cash equivalents at end of period	$	980		$	690
Supplemental Information
Stock-based compensation expense	$	104		$	96
Fair value of contingent consideration recorded in purchase accounting	190			—

	As of September 30,
Reconciliation to amounts within the unaudited condensed consolidated balance sheets:	2018		2017
Cash and cash equivalents	$	168	$	210
Restricted cash and restricted cash equivalents included in Other current assets	781		453
Restricted cash equivalents included in Other long-term assets	31		27
Cash, cash equivalents, restricted cash and restricted cash equivalents at end of period	$	980	$	690

^†Certain prior year balances related to restricted cash have been reclassified to reflect our adoption of Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Update No. 2016-18, Statement of Cash Flows (Topic 230) - Restricted Cash in the fourth quarter of 2017. Please refer to our most recent annual report on Form 10-K for additional details.

See notes to the unaudited condensed consolidated financial statements.

6

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE A – BASIS OF PRESENTATION

The accompanying unaudited condensed 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. Accordingly, 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 and nine months ended September 30, 2018 are not necessarily indicative of the results that may be expected for the year ending December 31, 2018. For further information, refer to the consolidated financial statements and footnotes thereto included in Item 8 of our most recent Annual Report on Form 10-K.

Amounts reported in millions within this report are computed based on the amounts in thousands. As a result, the sum of the components reported in millions 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 numbers in dollars. Prior year balances were subject to rounding.

Revision of Reportable Segments

Effective January 1, 2018, following organizational changes to align our business and organization structure focused on active implantable devices, we revised our reportable segments, in accordance with FASB ASC Topic 280, Segment Reporting. The revision reflects a reclassification of our Neuromodulation business from our Medical Surgical (MedSurg) segment to our newly created Rhythm and Neuro segment. We have revised prior year amounts to conform to the current year’s presentation (as denoted with an asterisk throughout *). There was no revision to operating segments or reporting units as a result of the organizational change. See Note C – Goodwill and Other Intangible Assets and Note K – Segment Reporting for further details.

Subsequent Events

We evaluate events occurring after the date of our most recent accompanying unaudited condensed consolidated balance sheet for potential recognition or disclosure in our financial statements. We did not identify any material subsequent events requiring adjustment to our accompanying unaudited condensed consolidated financial statements (recognized subsequent events) for the three and nine months ended September 30, 2018. Those items requiring disclosure (unrecognized subsequent events) in the financial statements have been disclosed accordingly. Refer to Note B – Acquisitions and Strategic Investments and Note I – Commitments and Contingencies for more information.

Accounting Standards Implemented Since December 31, 2017

ASC Update No. 2014-09

In May 2014, the FASB issued FASB ASC Topic 606, Revenue from Contracts with Customers(Topic 606), which was subsequently updated. We adopted the standard as of January 1, 2018, using the modified retrospective method. Under this method, we applied FASB ASC Topic 606 to contracts that were not complete as of January 1, 2018 and recognized the cumulative effect of initially applying the standard as an adjustment to the opening balance of retained earnings. Results for reporting periods beginning after January 1, 2018 are presented in accordance with FASB ASC Topic 606. Prior period amounts are not adjusted and are reported in accordance with legacy GAAP requirements in FASB ASC Topic 605, Revenue Recognition.

Due to the adoption of FASB ASC Topic 606, we recorded a net reduction to retained earnings of $177 million on January 1, 2018, primarily related to the cost of providing non-contractual post-implant support to certain customers, which we historically deemed immaterial in the context of the arrangement. Upon the adoption of FASB ASC Topic 606, when we sell a device with an implied non-contractual post-implant support obligation, we forward accrue the cost of the service within Selling, general and administrative expenses and recognize it at the point in time the associated revenue is earned. We release the accrual over the related service period. These costs were previously expensed as incurred due to such service obligation being non-contractual.

The impact of adopting FASB ASC Topic 606 on our unaudited condensed consolidated balance sheets resulted in an increase in Other current liabilities of $59 million and an increase in Other long-term liabilities of $205 million as of September 30, 2018, as a result of accruing for our post-implant support obligation. We also recorded deferred tax assets primarily related to post-implant support, resulting in an increase in Other long-term assets of $12 million and a reduction in Deferred income taxes of $41

7

million as of September 30, 2018. The remaining impact of adopting FASB ASC Topic 606 was not material to our financial position or results of operations.

Refer to Note L – Revenue for additional details.

ASC Update No. 2016-01

In January 2016, the FASB issued ASC Update No. 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. The purpose of Update No. 2016-01 is to improve financial reporting for financial instruments by reducing the number of items recorded to other comprehensive income. We adopted Update No. 2016-01 in the first quarter of 2018, using both the modified retrospective and prospective methods. For publicly-held securities, we used the modified retrospective approach. Unrealized gains and losses previously recorded to Other comprehensive income (loss) were reclassified to retained earnings,and all future fair value changes will be recorded to Net income (loss). For privately-held securities, we elected the measurement alternative approach for our existing investments, which is applied prospectively upon adoption. This approach requires entities to measure their investments at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. The adoption of the standard did not have a material impact on our financial position or results of operations. The actual impact to future periods resulting from fair value changes of our equity investments is difficult to predict as it will depend on their future performance.

ASC Update No. 2016-16

In October 2016, the FASB issued ASC Update No. 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory. The purpose of Update No. 2016-16 is to allow an entity to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs, as opposed to waiting until the asset is sold to a third party, or impaired. Update No. 2016-16 was effective for annual periods beginning after December 15, 2017, including interim periods within those annual periods. We adopted Update No. 2016-16 prospectively in the first quarter of 2018 and recognized a net reduction to opening retained earnings of $55 million for income tax consequences not previously recognized for intra-entity transfers of assets other than inventories. All future income tax consequences of intra-entity transfers of assets other than inventories will be recognized through Income tax expense (benefit).

ASC Update No. 2017-12

In August 2017, the FASB issued ASC Update No. 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. The purpose of Update No. 2017-12 is to simplify the application of hedge accounting and better align financial reporting of hedging relationships with risk management objectives. Update No. 2017-12 was effective for annual periods beginning after December 15, 2018, including interim periods within those annual periods. We early adopted Update No. 2017-12 in the first quarter of 2018. The adoption of the standard had no impact on our financial position or results of operations.

NOTE B – ACQUISITIONS AND STRATEGIC INVESTMENTS

2018 Acquisitions

Augmenix, Inc.

On October 16, 2018, we announced the closing of our acquisition of Augmenix, Inc. (Augmenix), a privately-held company which has developed and commercialized the SpaceOAR™ Hydrogel System to help reduce common and debilitating side effects that men may experience after receiving radiotherapy to treat prostate cancer. The transaction price consists of an upfront cash payment of $500 million and up to $100 million in payments contingent upon revenue-based milestones. We are in the process of integrating Augmenix into our Urology and Pelvic Health business.

VENITI, Inc.

On August 8, 2018, we announced the signing of an agreement to acquire VENITI, Inc. (VENITI), a privately-held company that has developed and commercialized the VICI VENOUS STENT™ System (VICI stent system) for treating venous obstructive disease. We have been an investor in VENITI since 2016 and held an interest of approximately 25 percent immediately prior to the acquisition date. The transaction price to acquire the remaining stake consists of an upfront cash payment of $108 million and up to $52 million in payments contingent upon a regulatory-based milestone. The acquisition closed in the third quarter of 2018. We are in the process of integrating VENITI into our Peripheral Interventions business.

8

Claret Medical, Inc.

On August 2, 2018, we announced the closing of our acquisition of Claret Medical, Inc. (Claret), a privately-held company that has developed and commercialized the Sentinel™ Cerebral Embolic Protection System. The device is used to protect the brain during certain interventional procedures, predominately in patients undergoing transcatheter aortic valve replacement (TAVR). The transaction price consists of an upfront cash payment of $220 million and an additional $50 million payment for reaching a reimbursement-based milestone that was achieved in the third quarter. We are in the process of integrating Claret into our Interventional Cardiology business.

Cryterion Medical, Inc.

On July 5, 2018, we announced the closing of our acquisition of Cryterion Medical, Inc. (Cryterion), a privately-held company developing a single-shot cryoablation platform for the treatment of atrial fibrillation. We have been an investor in Cryterion since 2016 and held an interest of approximately 35 percent immediately prior to the acquisition date. The transaction price to acquire the remaining stake consists of an upfront cash payment of $202 million. We are in the process of integrating Cryterion into our Electrophysiology business.

NxThera, Inc.

On April 30, 2018, we announced the closing of our acquisition of NxThera, Inc. (NxThera), a privately-held company that developed the Rezûm™ System, a minimally invasive therapy in a growing category of treatment options for patients with benign prostatic hyperplasia (BPH). We held a minority interest immediately prior to the acquisition date. The transaction price to acquire the remaining stake consists of an upfront cash payment of approximately $240 million and up to approximately $85 million in payments contingent upon commercial milestones over the next four years. We are in the process of integrating NxThera into our Urology and Pelvic Health business.

nVision Medical Corporation

On April 16, 2018, we announced the closing of our acquisition of nVision Medical Corporation (nVision), a privately-held company focused on women’s health. nVision developed the first and only device cleared by the U.S. Food and Drug Administration (FDA) to collect cells from the fallopian tubes, offering a potential platform for earlier diagnosis of ovarian cancer. The transaction price consists of an upfront cash payment of $150 million and up to an additional $125 million in payments contingent upon clinical and commercial milestones over the next four years. We are in the process of integrating nVision into our Urology and Pelvic Health business.

In addition, we completed other individually immaterial acquisitions in the first nine months of2018 for total consideration of $50 million in cash at closing plus aggregate contingent consideration of up to $10 million.

We recorded gains of $142 million in the third quarter of 2018 and $182 million in the first nine months of 2018 within Other, net on our unaudited condensed consolidated statements of operations based on the difference between the book values and the fair values of our previously-held investments immediately prior to the acquisition dates, which aggregate to $250 million. We remeasured the fair value of each previously-held investment based on the implied enterprise value and allocation of purchase price consideration according to priority of equity interests.

Purchase Price Allocation

We accounted for these acquisitions as business combinations, 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 dates. The components of the aggregate preliminary purchase prices are as follows:

(in millions)
Payments for acquisitions, net of cash acquired	$	969
Fair value of contingent consideration	190
Fair value of prior interests	250
	$	1,409

9

The following summarizes the preliminary purchase price allocations for the acquisitions as of September 30, 2018:

(in millions)
Goodwill	$	619
Amortizable intangible assets	707
Indefinite-lived intangible assets	213
Other assets acquired	99
Liabilities assumed	(14		)
Deferred tax liabilities	(215		)
	$	1,409

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

	Amount Assigned (in millions)		Amortization Period (in years)	Risk-Adjusted Discount Rates used in Purchase Price Allocation
Amortizable intangible assets:
Technology-related	$	697	10 - 14	17% - 23%
Other intangible assets	10		6 - 13	13% - 15%
Indefinite-lived intangible assets:
In-process research and development (IPR&D)	213		N/A	15%
	$	920

2017 Acquisitions

Symetis SA

On May 16, 2017, we announced the closing of our acquisition of Symetis SA (Symetis), a privately-held Swiss structural heart company focused on minimally-invasive transcatheter aortic valve replacement devices. The transaction price consists of an upfront cash payment of approximately $430 million. We are in the process of integrating Symetis into our Interventional Cardiology business.

Purchase Price Allocation

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

(in millions)
Payment for acquisition, net of cash acquired	$	391

The following summarizes the purchase price allocation for the Symetis acquisition as of September 30, 2018:

(in millions)
Goodwill	$	183
Amortizable intangible assets	278
Other assets acquired	25
Liabilities assumed	(95		)
	$	391

10

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

	Amount Assigned (in millions)		Amortization Period (in years)	Risk-Adjusted Discount Rates used in Purchase Price Allocation
Amortizable intangible assets:
Technology-related	$	268	13	24%
Other intangible assets	10		2 - 13	24%
	$	278

Our technology-related intangible assets consist of technical processes, intellectual property and institutional understanding with respect to products and processes that we will leverage in future products or processes and will carry forward from one product generation to the next. We used the multi-period excess earnings method, a form of the income approach, to derive the fair value of the technology-related intangible assets and are amortizing them on a straight-line basis over their assigned estimated useful lives.

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 has been allocated to our reportable segments based on the relative expected benefit. Based on preliminary estimates updated for applicable regulatory changes, the goodwill recorded relating to our 2018 and 2017 acquisitions is not deductible for tax purposes.

Our IPR&D intangible assets that are not subject to amortization (indefinite-lived intangible assets) represent technical processes, intellectual property and/or institutional understanding acquired through business combinations that are fundamental to the ongoing operations of our business and have no limit to their useful life.

Contingent Consideration

Changes in the fair value of our contingent consideration liability were as follows:

(in millions)
Balance as of December 31, 2017	$	169
Amounts recorded related to current year acquisitions	190
Purchase price adjustments related to prior year acquisitions	(22		)
Contingent consideration expense (benefit)	(12		)
Contingent consideration payments	(21		)
Balance as of September 30, 2018	$	305

As of September 30, 2018, the maximum amount of future contingent consideration (undiscounted) that we could be required to pay was approximately $780 million. The maximum amount of future contingent consideration (undiscounted) decreased approximately $540 million compared to the amount as of December 31, 2017 due primarily to the expiration of certain contingent consideration arrangements in the third quarter of 2018.

The recurring Level 3 fair value measurements of our contingent consideration liability include the following significant unobservable inputs:

Contingent Consideration Liability	Fair Value as of September 30, 2018	Valuation Technique	Unobservable Input	Range
R&D, Regulatory and Commercialization-based Milestones	$201 million	Discounted Cash Flow	Discount Rate	3	%	-	4%
			Probability of Payment	17	%	-	99%
			Projected Year of Payment	2018		-	2022
Revenue-based Payments	$104 million	Discounted Cash Flow	Discount Rate	11	%	-	15%
			Projected Year of Payment	2018		-	2026

11

Projected contingent payment amounts related to some of our research and development (R&D), commercialization-based and revenue-based milestones are discounted back to the current period using a discounted cash flow model. Projected revenues are based on our most recent internal operational budgets and strategic plans. Increases or decreases in projected revenues, probabilities of payment, discount rates or the time until payment is made may result in significantly lower or higher fair value measurements.

Strategic Investments

On January 24, 2018, we closed an investment and entered into an acquisition option agreement with Millipede, Inc. (Millipede), a privately-held company that has developed the IRIS Transcatheter Annuloplasty Ring System for the treatment of severe mitral regurgitation. Under the terms of the agreements, we have purchased a portion of the outstanding shares of Millipede along with newly issued shares of the company for a total consideration of $90 million. We also have the option to acquire the remaining shares of the company at any time prior to the completion of a first-in-human clinical study that meets certain parameters. Upon the completion of the clinical study, Millipede has the option to compel us to acquire the remaining shares of the company. Each company’s option period expires by the end of 2019. Completion of this acquisition would result in an additional $325 million payment by us at closing with an additional $125 million becoming payable upon achievement of a commercial milestone.

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

	As of
(in millions)	September 30, 2018		December 31, 2017
Equity method investments	$	291	$	209
Measurement alternative investments	73		81
Publicly-held securities	1		15
Notes receivable	19		47
	$	384	$	353

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

As of September 30, 2018, the carrying amount of our aggregated equity method investments exceeded our share of the underlying equity in net assets by approximately $321 million, which represents amortizable intangible assets, IPR&D, deferred tax liabilities and goodwill.

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 write-offs of goodwill are as follows:

	As of September 30, 2018					As of December 31, 2017
(in millions)	Gross Carrying Amount		Accumulated Amortization/ Write-offs			Gross Carrying Amount		Accumulated Amortization/ Write-offs
Amortizable intangible assets
Technology-related	$	9,989	$	(5,145	)	$	9,386	$	(4,880	)
Patents	517		(388		)	517		(379		)
Other intangible assets	1,645		(927		)	1,633		(838		)
	$	12,151	$	(6,460	)	$	11,536	$	(6,097	)
Indefinite-lived intangible assets
Goodwill	$	17,488	$	(9,900	)	$	16,898	$	(9,900	)
IPR&D	486		—			278		—
Technology-related	120		—			120		—
	$	18,094	$	(9,900	)	$	17,295	$	(9,900	)

12

Effective January 1, 2018, we reclassified our Neuromodulation operating segment and associated goodwill balance from our MedSurg reportable segment to our Rhythm and Neuro reportable segment as discussed in Note A – Basis of Presentation. This change did not trigger a goodwill impairment assessment or impact our total goodwill carrying value. The following represents our goodwill balance by global reportable segment:

(in millions)	MedSurg			Rhythm and Neuro			Cardiovascular			Total
Balance as of December 31, 2017	$	2,877		$	417		$	3,704		$	6,998
Impact of reportable segment revisions	(1,379		)	1,379			—			—
Impact of foreign currency fluctuations and other changes in carrying amount	(3		)	(22		)	(4		)	(29		)
Goodwill acquired	246			149			224			619
Balance as of September 30, 2018	$	1,742		$	1,922		$	3,923		$	7,588

Goodwill and Indefinite-Lived Intangible Asset Impairment Testing

We test our goodwill balances in the second quarter of each year for impairment, or more frequently if impairment indicators are present or changes in circumstances suggest an impairment may exist. In the second quarter of 2018, we performed our annual goodwill impairment test for all of our reporting units and concluded the fair value of each reporting unit exceeded its carrying value.

In performing the goodwill impairment assessment, we utilized both the optional qualitative assessment and the quantitative approach prescribed under FASB ASC Topic 350, Intangibles - Goodwill and Other. In 2018, we performed a qualitative assessment for our Urology and Pelvic Health and Neuromodulation reporting units since their fair values have historically exceeded carrying value by greater than 100 percent. The remaining reporting units were quantitatively tested for impairment. For the reporting units subject to a qualitative assessment, if it is determined that it is more likely than not that the fair value of the reporting unit is less than its carrying value, the quantitative approach of the goodwill impairment test is necessary. In 2018, for all reporting units tested using the qualitative assessment, we concluded that it was unnecessary to perform the quantitative impairment test. For all reporting units tested using the quantitative approach, we concluded that the fair value of each reporting unit exceeded its carrying value.

In the third quarter of 2018, we performed our annual impairment test of all IPR&D projects and our indefinite-lived core technology assets using the optional qualitative assessment approach and determined that there were no impairment indicators. In addition, we verified that their classification as indefinite-lived assets continues to be appropriate.

Refer to Critical Accounting Policies and Estimates within Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations contained in our most recent Annual Report on Form 10-K for further discussion of our annual goodwill and indefinite-lived 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 financial instruments. We operate these programs pursuant to documented corporate risk management policies and do not enter into derivative transactions for speculative purposes. Our derivative instruments do not subject our earnings to material risk, as the gains or losses on these derivatives generally offset losses or gains recognized on the hedged item.

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.

13

Our risk from changes in currency exchange rates consists primarily of monetary assets and liabilities, forecast 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 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 British pound sterling, Euro and Japanese yen. 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 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 Other comprehensive income (loss), net of tax (OCI) and is included in the Accumulated other comprehensive income (loss), net of tax (AOCI) caption of our unaudited condensed consolidated balance sheets until the underlying third-party transaction occurs. When the related third-party transaction occurs, we recognize the gain or loss in earnings within the Cost of products sold caption of our unaudited condensed consolidated statements of operations. In the event the hedging relationship is no longer effective, or if the hedged forecast transaction becomes no longer probable of occurring, we reclassify the amount of gains or losses on the derivative instrument designated as a cash flow hedge to earnings at that time.

We also use forward currency contracts that are not part of designated hedging relationships under FASB ASC Topic 815 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 and reflected within the Other, net caption of our unaudited condensed consolidated statements of operations.

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 manage our earnings and cash flow 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 under FASB ASC Topic 815.

The changes in the fair value of interest rate derivatives designated as fair value hedges and the changes in the fair value of the underlying hedged debt instrument generally offset and are recorded within the Interest expense caption of our unaudited condensed consolidated statements of operations. We record the changes in the fair value of interest rate derivatives designated as cash flow hedges within OCI, which is included within the AOCI caption of our unaudited condensed consolidated balance sheets until the underlying hedged transaction occurs, at which time we recognize the gain or loss within Interest expense. In the event the hedging relationship is no longer effective, or if the hedged forecast transaction becomes no longer probable of occurring, we reclassify the amount of gains or losses on the interest rate derivative designated as a cash flow hedge to earnings at that time.

We are amortizing the realized gains or losses from interest rate derivative instruments previously designated as fair value or cash flow hedges into earnings as a component of Interest expense over the remaining term of the hedged item in accordance with FASB ASC Topic 815, so long as the hedge relationship remains effective. Prior to the adoption of ASC Update No. 2017-12, Derivatives and Hedging (Topic 815), the ineffective portion, if any, of our interest rate derivatives designated as either fair value or cash flow hedges was recognized in earnings in the period in which the hedging relationship exhibited ineffectiveness.

Certain of our currency forward contracts are designated as net investment hedges under FASB ASC Topic 815 and are intended to hedge a portion of our net investments in certain of our entities with functional currencies denominated in Euro, Swiss franc, and Japanese yen functional operating entities. We have elected to use the spot method to assess effectiveness for our derivatives that are designated as net investment hedges. Under the spot method, the change in fair value attributable to changes in the spot rate is recorded in the Foreign currency translation adjustment (CTA), which is included within the AOCI caption of our unaudited condensed consolidated balance sheets. Therefore, the spot-forward difference is excluded from the assessment of effectiveness and accounted for separately.

Consistent with FASB ASC Topic 815, we have elected to amortize the excluded spot-forward difference associated with the currency forward contracts as calculated at the date of designation. Amortization will be recognized on a straight-line basis over the term of the currency forward contracts from the AOCI caption of our unaudited condensed consolidated balance sheets to reported earnings as a reduction of Interest expense.

14

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

(in millions)	FASB ASC Topic 815 Designation	As of
		September 30, 2018		December 31, 2017
Forward currency contracts	Cash flow hedge	$	4,115	$	3,252
Forward currency contracts	Net investment hedge	1,455		—
Forward currency contracts	Non-designated	2,804		2,671
Total Notional Outstanding		$	8,374	$	5,923

The remaining time to maturity as of September 30, 2018 is within 60 months for all designated forward currency contracts and generally less than one year for all non-designated forward currency contracts.

We had no interest rate derivative instruments outstanding as of September 30, 2018 and December 31, 2017.

15

The following table presents the effect of our derivative instruments designated as cash flow hedges and net investment hedges under FASB ASC Topic 815 on our accompanying unaudited condensed consolidated statements of operations:

(in millions)	Unaudited Condensed Consolidated Statements of Operations			Effective Amount Recognized in OCI									Effective Amount Reclassified from AOCI into Earnings
	Location	Total		Pre-Tax Gain (Loss)			Tax Benefit (Expense)			Gain (Loss) Net of Tax			Pre-Tax (Gain) Loss			Tax (Benefit) Expense			(Gain) Loss Net of Tax
Three Months Ended September 30, 2018
Forward currency contracts	Cost of products sold	$	672	$	58		$	(13	)	$	45		$	2		$	—		$	2
Forward currency contracts	Interest expense	58		4			(1		)	3			(10		)	2			(8		)
				$	63		$	(14	)	$	49		$	(8	)	$	2		$	(6	)
Three Months Ended September 30, 2017
Forward currency contracts	Cost of products sold	$	637	$	(24	)	$	9		$	(15	)	$	(14	)	$	5		$	(9	)
				$	(24	)	$	9		$	(15	)	$	(14	)	$	5		$	(9	)
Nine Months Ended September 30, 2018
Forward currency contracts	Cost of products sold	$	2,084	$	135		$	(30	)	$	105		$	27		$	(6	)	$	21
Interest rate derivative contracts	Interest expense	177		—			—			—			(1		)	—			(1		)
Forward currency contracts	Interest expense	177		25			(6		)	19			(17		)	4			(13		)
				$	160		$	(36	)	$	124		$	9		$	(2	)	$	7
Nine Months Ended September 30, 2017
Forward currency contracts	Cost of products sold	$	1,919	$	(88	)	$	32		$	(56	)	$	(68	)	$	25		$	(43	)
Interest rate derivative contracts	Interest expense	172		—			—			—			(1		)	—			(1		)
				$	(88	)	$	32		$	(56	)	$	(69	)	$	25		$	(44	)

Refer to Note M – Changes in Other Comprehensive Income for the total amounts relating to derivative instruments presented within the unaudited condensed consolidated statements of comprehensive income (loss). For our outstanding 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 has been excluded from the assessment of effectiveness in accordance with FASB ASC Topic 815.

16

As of September 30, 2018, pre-tax net gains or losses for our derivative instruments designated, or previously designated, as fair value and cash flow hedges under FASB ASC Topic 815 that may be reclassified to earnings within the next twelve months are presented below (in millions):

Designated Derivative Instrument	FASB ASC Topic 815 Designation	Location in Unaudited Condensed Consolidated Statements of Operations	Amount of Pre-Tax Gain (Loss) that may be Reclassified to Earnings
Interest rate derivative contracts	Fair value hedge	Interest expense	$	12
Interest rate derivative contracts	Cash flow hedge	Interest expense	1
Forward currency contracts	Cash flow hedge	Cost of products sold	43
Forward currency contracts	Net investment hedge	Interest expense	41

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 in Unaudited Condensed Consolidated Statements of Operations	Three Months Ended September 30,						Nine Months Ended September 30,
(in millions)		2018			2017			2018			2017
Net gain (loss) on currency hedge contracts	Other, net	$	16		$	(13	)	$	25		$	(25	)
Net gain (loss) on currency transaction exposures	Other, net	(23		)	9			(40		)	13
Net currency exchange gain (loss)		$	(6	)	$	(4	)	$	(15	)	$	(12	)

17

Fair Value Measurements

FASB ASC Topic 815 requires all derivative 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 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 when taking into account 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 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 assets and liabilities:

	Location in Unaudited Condensed Consolidated Balance Sheets (1)	As of
(in millions)		September 30, 2018		December 31, 2017
Derivative Assets:
Designated Derivative Instruments
Forward currency contracts	Other current assets	$	48	$	7
Forward currency contracts	Other long-term assets	147		57
		195		64
Non-Designated Derivative Instruments
Forward currency contracts	Other current assets	61		18
Total Derivative Assets		$	256	$	82
Derivative Liabilities:
Designated Derivative Instruments
Forward currency contracts	Other current liabilities	$	5	$	37
Forward currency contracts	Other long-term liabilities	10		33
		14		69
Non-Designated Derivative Instruments
Forward currency contracts	Other current liabilities	29		21
Total Derivative Liabilities		$	44	$	90

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

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.

18

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

	As of
	September 30, 2018								December 31, 2017
(in millions)	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Assets
Money market and government funds	$	30	$	—	$	—	$	30	$	21	$	—	$	—	$	21
Publicly-held securities	1		—		—		1		15		—		—		15
Forward currency contracts	—		256		—		256		—		82		—		82
	$	31	$	256	$	—	$	287	$	36	$	82	$	—	$	118
Liabilities
Forward currency contracts	$	—	$	44	$	—	$	44	$	—	$	90	$	—	$	90
Contingent consideration liability	—		—		305		305		—		—		169		169
	$	—	$	44	$	305	$	349	$	—	$	90	$	169	$	259

Our investments in money market and government funds are classified within Level 1 of the fair value hierarchy because they are valued using quoted market prices. These investments are classified as Cash and cash equivalents within our accompanying unaudited condensed consolidated balance sheets, in accordance with U.S. GAAP and our accounting policies. In addition to $30 million invested in money market and government funds as of September 30, 2018, we had $138 million in interest bearing and non-interest-bearing bank accounts. In addition to $21 million invested in money market and government funds as of December 31, 2017, we had $167 million in interest bearing and non-interest-bearing bank accounts.

Our recurring fair value measurements using Level 3 inputs relate solely to our contingent consideration liability. Refer to Note B – Acquisitions and Strategic Investmentsfor a discussion of the changes in the fair value of our contingent consideration liability.

Non-Recurring Fair Value Measurements

We hold certain assets and liabilities that are measured at fair value on a non-recurring basis in periods subsequent to initial recognition. The fair value of a measurement alternative investment is not estimated if there are no identified events or changes in circumstances that may have a significant adverse effect on the fair value of the investment. Refer to Note B – Acquisitions and Strategic Investments for a discussion of our strategic investments.

Refer to Note C – Goodwill and Other Intangible Assets for a discussion of the fair values.

The fair value of our outstanding debt obligations was $6.821 billion as of September 30, 2018 and $5.945 billion as of December 31, 2017. We determined fair value by using quoted market prices for our publicly registered senior notes, classified as Level 1 within the fair value hierarchy, amortized cost for commercial paper and face value for term loans and credit facility borrowings outstanding. Refer to Note E – Borrowings and Credit Arrangements for a discussion of our debt obligations.

19

NOTE E – BORROWINGS AND CREDIT ARRANGEMENTS

We had total debt of$6.626 billionas of September 30, 2018and $5.616 billion as of December 31, 2017. The debt maturity schedule for the significant components of our long-term debt obligations is presented below:

(in millions, except interest rates)	Issuance Date	Maturity Date	As of						Semi-annual Coupon Rate
			September 30, 2018			December 31, 2017
October 2018 Notes	August 2013	October 2018	$	—		††			2.650%
January 2020 Notes	December 2009	January 2020	850			$	850		6.000%
May 2020 Notes	May 2015	May 2020	600			600			2.850%
May 2022 Notes	May 2015	May 2022	500			500			3.375%
October 2023 Notes	August 2013	October 2023	450			450			4.125%
May 2025 Notes	May 2015	May 2025	750			750			3.850%
March 2028 Notes	February 2018	March 2028	1,000			—			4.000%
November 2035 Notes	November 2005	November 2035	350			350			7.000%
January 2040 Notes	December 2009	January 2040	300			300			7.375%
Unamortized Debt Issuance Discount and Deferred Financing Costs		2020 - 2040	(30		)	(24		)
Unamortized Gain on Fair Value Hedges		2020 - 2023	29			38
Capital Lease Obligation		Various	8			1
Long-term debt			$	4,806		$	3,815

^††As of December 31, 2017, $600 millionunder the October 2018 Notes was outstanding and classified as short-term debt.

Note: The table above does not include unamortized amounts related to interest rate contracts designated as cash flow hedges.

Revolving Credit Facility

As of September 30, 2018 and December 31, 2017, we maintained a $2.250 billion revolving credit facility (the 2017 Facility) with a global syndicate of commercial banks that matures on August 4, 2022. This facility provides backing for the commercial paper program described below. There were no amounts outstanding under our revolving credit facility as of September 30, 2018 andDecember 31, 2017.

The 2017 Facility requires that we maintain certain financial covenants, as follows:

	Covenant Requirement	Actual
	as of September 30, 2018	as of September 30, 2018
Maximum leverage ratio (1)	3.5 times	2.4 times

(1) Ratio of total debt to consolidated EBITDA, as defined by the 2017 Facility, for the preceding four consecutive fiscal quarters.

The 2017 Facility provides for an exclusion from the calculation of consolidated EBITDA, as defined by the agreement, through maturity, of any non-cash charges and up to$500 million in restructuring charges and restructuring-related expenses related to our current or future restructuring plans. As of September 30, 2018, we had $386 millionof the restructuring charge exclusion remaining. In addition, any cash litigation payments (net of any cash litigation receipts), as defined by the 2017 Facility, are excluded from the calculation of consolidated EBITDA, as defined in the 2017 Facility, provided that the sum of any excluded net cash litigation payments does not exceed$2.624 billion in the aggregate. As of September 30, 2018, we had $1.384 billionof the legal exclusion remaining.

Any inability to maintain compliance with these covenants could require us to seek to renegotiate the terms of our credit facility or seek waivers from compliance with these covenants, both of which could result in additional borrowing costs. Further, there can be no assurance that our lenders would agree to such new terms or grant such waivers on terms acceptable to us. In this case, all credit facility commitments would terminate and any amounts borrowed under the facility would become immediately due and payable. Furthermore, any termination of our credit facility may negatively impact the credit ratings assigned to our commercial paper program which may impact our ability to refinance any then outstanding commercial paper as it becomes due and payable.

20

Commercial Paper

As of September 30, 2018, we had $816 million of commercial paper outstanding and$1.197 billion outstanding as of December 31, 2017. Our commercial paper program is backed by the 2017 Facility, which allows us to have a maximum of $2.250 billion in commercial paper outstanding. Outstanding commercial paper directly reduces borrowing capacity available under the 2017 Facility. As of September 30, 2018, the commercial paper issued and outstanding had a weighted average maturity of 29days and a weighted average yield of2.58 percent. As of December 31, 2017, the commercial paper issued and outstanding had a weighted average maturity of 38days and a weighted average yield of1.85 percent.

Senior Notes

We had senior notes outstanding of $4.800 billion as ofSeptember 30, 2018 and$4.400 billionas ofDecember 31, 2017.

In February 2018, we completed an offering of$1.000 billion in aggregate principal amount of4.000%senior notes, due March 2028. We used a portion of the net proceeds from the offering to repay the $600 million plus accrued interest of our2.650%senior notes due in October 2018. The remaining proceeds were used to repay a portionof our outstanding commercial paper.

Our senior notes were issued in public offerings, are redeemable prior to maturity and are not subject to sinking fund requirements. Our senior notes are unsecured, unsubordinated obligations and rank on parity with each other. These notes are effectively junior to borrowings under our credit and security facility, and to the extent borrowed by our subsidiaries, to liabilities of our subsidiaries (see Other Arrangements below).

Term Loan

On August 20, 2018, we entered into a $1.000 billion Term Loan Credit Agreement (August 2019 Term Loan), maturing on August 19, 2019, which is presented within Current debt obligations in the accompanying unaudited condensed consolidated balance sheets. Borrowings under the August 2019 Term Loan bear interest at an annual rate of LIBOR plus 0.65%. The August 2019 Term Loan requires that we comply with certain covenants, including financial covenants with respect to maximum leverage consistent with the 2017 Facility. As of September 30, 2018, we had $1.000 billion outstanding under our August 2019 Term Loan. We used the proceeds from the August 2019 Term Loan to repay a portion of our outstanding commercial paper.

Other Arrangements

As of September 30, 2018 and December 31, 2017, we maintained a $400 millioncredit and security facility secured by our U.S. trade receivables maturing in February 2019.We had no outstanding borrowings as of September 30, 2018and December 31, 2017 under our credit and security facility.

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

	As of September 30, 2018						As of December 31, 2017
Factoring Arrangements	Capacity (1)		Amount De-recognized		Average Interest Rate		Capacity (1)		Amount De-recognized		Average Interest Rate
Euro denominated	$	451	$	158	1.7	%	$	456	$	171	1.8	%
Yen denominated (2)	458		194		0.5	%	195		157		1.3	%

(1) The capacities are translated from local currency to U.S. dollar using the spot rates on the last business day of each period.

(2) The factoring arrangements denominated in Japanese yen consist of two arrangements, one with a maximum capacity of 22.000 billionyen, which has been discontinued in 2018, and a new arrangement with a maximum capacity of 30.000 billion yen entered into in March 2018.

21

Debt Covenants Compliance

As of and through September 30, 2018, we were in compliance with all the required covenants related to our debt obligations. For additional information regarding the terms of our debt agreements, refer to Note E - Borrowings and Credit Arrangements of the consolidated financial statements in our most recent Annual Report on Form 10-K.

NOTE F – RESTRUCTURING-RELATED ACTIVITIES

2016 Restructuring Plan

On June 6, 2016, our Board of Directors approved and we committed to a restructuring initiative (the 2016 Restructuring Plan). The 2016 Restructuring Plan is intended to develop global commercialization, technology and manufacturing capabilities in key growth markets and build on our Plant Network Optimization (PNO) strategy, which is intended to simplify our manufacturing plant structure by transferring certain production lines among facilities and expanding operational efficiencies in support of our operating income margin goals. Key activities under the 2016 Restructuring Plan include strengthening global infrastructure through evolving global real estate assets and workplaces, developing global commercial and technical competencies, enhancing manufacturing and distribution expertise in certain regions and continuing implementation of our PNO strategy. These activities were initiated in the second quarter of 2016. The majority of the costs associated with this Plan are expected to be incurred by the end of 2018. We revised the original estimate for the costs and savings associated with the program in the first quarter of 2018, as approved by the Board of Directors.

The following table provides a summary of our estimates of costs associated with the 2016 Restructuring Plan by major type of cost:

Type of cost	Total Estimated Amount Expected to be Incurred
Restructuring charges:
Termination benefits	$80 million to $90 million
Other (1)	$25 million to $50 million
Restructuring-related expenses:
Other (2)	$170 million to $185 million
	$275 million to $325 million

(1) Consists primarily of consulting fees and costs associated with contract cancellations.

(2) Comprised of other costs directly related to the 2016 Restructuring Plan, including program management, accelerated depreciation, fixed asset write-offs and costs to transfer product lines among facilities.

Approximately $250 million to $300 million of these charges are estimated to result in cash outlays.

The following presents these costs (credits) by major type and line item within our accompanying unaudited condensed consolidated statements of operations (in millions):

Three Months Ended September 30, 2018	Termination Benefits		Transfer Costs		Other			Total
Restructuring charges (credits)	$	6	$	—	$	(3	)	$	3
Restructuring-related expenses:
Cost of products sold	—		10		—			10
Selling, general and administrative expenses	—		—		2			2
	—		10		2			12
	$	6	$	10	$	(1	)	$	15

22

Three Months Ended September 30, 2017	Termination Benefits		Transfer Costs		Other		Total
Restructuring charges (credits)	$	11	$	—	$	1	$	12
Restructuring-related expenses:
Cost of products sold	—		11		—		11
Selling, general and administrative expenses	—		—		3		3
	—		11		3		14
	$	11	$	11	$	4	$	26

Nine Months Ended September 30, 2018	Termination Benefits		Transfer Costs		Other		Total
Restructuring charges (credits)	$	21	$	—	$	—	$	20
Restructuring-related expenses:
Cost of products sold	—		33		—		33
Selling, general and administrative expenses	—		—		5		5
	—		33		5		38
	$	21	$	33	$	5	$	58

Nine Months Ended September 30, 2017	Termination Benefits		Transfer Costs		Other		Total
Restructuring charges (credits)	$	14	$	—	$	3	$	17
Restructuring-related expenses:
Cost of products sold	—		35		—		35
Selling, general and administrative expenses	—		—		9		9
	—		35		9		44
	$	14	$	35	$	12	$	61

The following table presents cumulative restructuring and restructuring-related charges as of September 30, 2018, by major type:

(in millions)
Termination benefits	$	69
Other (1)	15
Total restructuring charges	84
Transfer costs	93
Other (2)	21
Restructuring-related expenses	114
	$	199

(1) Consists primarily of consulting fees and costs associated with contract cancellations.

(2) Comprised of other costs directly related to our Restructuring Plan, including program management, accelerated depreciation, fixed asset write-offs and costs to transfer product lines among facilities.

23

Cash payments were made using cash generated from operations and are comprised of the following:

(in millions)
Nine Months Ended September 30, 2018
Termination benefits	$	26
Transfer costs	33
Other	16
	$	76
Program to Date
Termination benefits	$	53
Transfer costs	92
Other	26
	$	172

Our restructuring liability is primarily comprised of accruals for termination benefits. The following is a rollforward of the termination benefit liability, which is reported as a component of Accrued expenses included in our accompanying unaudited condensed consolidated balance sheets:

(in millions)
Accrued as of December 31, 2017	$	22
Charges (credits)	21
Cash payments	(26		)
Accrued as of September 30, 2018	$	17

NOTE G – SUPPLEMENTAL BALANCE SHEET INFORMATION

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

Cash, cash equivalents, restricted cash and restricted cash equivalents

	As of
(in millions)	September 30, 2018		December 31, 2017
Cash and cash equivalents	$	168	$	188
Restricted cash and restricted cash equivalents included in Other current assets	781		803
Restricted cash equivalents included in Other long-term assets	31		26
	$	980	$	1,017

Trade accounts receivable, net

	As of
(in millions)	September 30, 2018			December 31, 2017
Accounts receivable	$	1,646		$	1,645
Allowance for doubtful accounts	(66		)	(68		)
Allowance for sales returns (1)	—			(30		)
	$	1,580		$	1,548

(1) Due to the adoption of FASB ASC Topic 606 effective January 1, 2018, the allowance for sales returns has been prospectively reclassified from Trade accounts receivable, net to Other current liabilities within the unaudited condensed consolidated balance sheets. Prior period balances remain unchanged.

24

The following is a rollforward of our allowance for doubtful accounts:

	Three Months Ended September 30,						Nine Months Ended September 30,
(in millions)	2018			2017			2018			2017
Beginning balance	$	63		$	74		$	68		$	73
Net charges to expenses	6			9			15			14
Utilization of allowances	(4		)	(2		)	(17		)	(6		)
Ending balance	$	66		$	81		$	66		$	81

Inventories

	As of
(in millions)	September 30, 2018		December 31, 2017
Finished goods	$	733	$	685
Work-in-process	103		110
Raw materials	298		284
	$	1,134	$	1,078

Property, plant and equipment, net

	As of
(in millions)	September 30, 2018			December 31, 2017
Land	$	101		$	102
Buildings and improvements	1,108			1,120
Equipment, furniture and fixtures	3,257			3,183
Capital in progress	261			219
	4,726			4,625
Accumulated depreciation	(2,996		)	(2,928		)
	$	1,730		$	1,697

Depreciation expense was $74 million for the third quarter of 2018, $71 million for the third quarter of 2017, $212 million for the first nine months of2018 and $198 million for the first nine months of2017.

Accrued expenses

	As of
(in millions)	September 30, 2018		December 31, 2017
Legal reserves	$	1,050	$	1,176
Payroll and related liabilities	590		591
Contingent consideration liability	144		36
Other	685		653
	$	2,469	$	2,456

Other long-term liabilities

	As of
(in millions)	September 30, 2018		December 31, 2017
Accrued income taxes	$	789	$	1,275
Legal reserves	112		436
Contingent consideration liability	161		133
Other	712		525
	$	1,774	$	2,370

25

NOTE H – INCOME TAXES

Our effective tax rate from continuing operations is presented below:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2018		2017		2018		2017
Effective tax rate from continuing operations	5.3	%	8.5	%	(14.1	)%	(2.0	)%

The change in our reported tax rates for the third quarter and the first nine months of 2018, as compared to the same periods in 2017, relates primarily to the impact of certain receipts and charges that are taxed at different rates than our effective tax rate. These receipts and charges include intangible asset impairment charges, acquisition-related items, restructuring items, litigation-related items, as well as certain discrete tax items including the effective settlement of our transfer pricing dispute with the Internal Revenue Service (IRS) for the 2001 through 2010 tax years and the impacts of the Tax Cuts and Jobs Act (TCJA), enacted on December 22, 2017.

In the second quarter of 2018, a decision was entered by the United States Tax Court resolving all disputes related to the transfer pricing issues for Guidant Corporation's 2001 through 2006 tax years and our 2006 and 2007 tax years as well as the tax issues related to our 2006 transaction with Abbott Laboratories. Additionally, we resolved all issues with the IRS Office of Appeals for our 2008 through 2010 tax years, including the transfer pricing issue and other unrelated issues. The final settlement calculation included certain elections made in these relevant years and resulted in a final net tax payment of $303 million plus $307 million of estimated interest, which was remitted in the second quarter of 2018. Due to the final settlement of these disputes, we recorded a net tax benefit of $250 million in the first nine months of2018.

We currently expect to resolve the IRS examination of our 2011 through 2013 tax years in the next six months. We expect that the exam will be concluded utilizing the same transfer pricing methodologies employed in the 2001 through 2010 tax years. We believe we have recorded sufficient reserves with respect to these periods and therefore do not expect to recognize any additional charges related to the resolution of the 2011 through 2013 tax years.

As of September 30, 2018, we had $511 million of gross unrecognized tax benefits, of which a net $438 million, if recognized, would affect our effective tax rate. As of December 31, 2017, we had $1.238 billion of gross unrecognized tax benefits, of which a net $1.150 billion, if recognized, would affect our effective tax rate. The change in our gross unrecognized tax benefit is primarily related to reaching settlements with tax authorities.

We recognize interest and penalties related to income taxes as a component of income tax expense. We had $81 million accrued for gross interest and penalties as of September 30, 2018 and $655 million as of December 31, 2017. The change in our accrued interest and penalties is primarily related to reaching settlements with tax authorities. We recognized net tax expense related to interest and penalties of $3 million in the third quarter of 2018, $14 million in the third quarter of 2017, $22 million in the first nine months of2018 and $40 million in the first nine months of2017.

It is reasonably possible that within the next 12 months we will resolve multiple issues with foreign, federal and state taxing authorities, in which case we could record a reduction in our balance of unrecognized tax benefits of up to approximately $226 million.

There are a number of key provisions under the TCJA that impact us and we continue to monitor and analyze the ramifications of the new law as the implementation is executed. The final impact of the TCJA may differ from the estimates reported due to, among other things, changes in interpretations and assumptions made by us, additional guidance that may be issued by the U.S. Department of the Treasury and actions that we may take as a result. The TCJA reduces the U.S. Federal corporate income tax rate from 35 percent to 21 percent, requires companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred, and creates new taxes on certain foreign sourced earnings. Due to insufficient guidance, as well as the availability of information to accurately analyze the impact of the TCJA, we have made a reasonable estimate of the effects, as described below, and in other cases we have not been able to make a reasonable estimate and continue to account for those items based on our existing accounting under FASB ASC Topic 740, Income Taxes and the provisions of the tax laws that were in effect immediately prior to enactment. We have not recognized any additional tax in the third quarter of 2018, but we will continue to analyze the TCJA impact in the fourth quarter. In the first nine months of2018, we recognized an additional tax benefit of $37 million related to settling our transfer pricing dispute with the IRS, resulting in a total provisional estimate of $824 million related to the TCJA.

26

We are required to record deferred tax assets and liabilities based on the enacted tax rates at which they are expected to reverse in the future. Therefore, any U.S. related deferred taxes were re-measured from 35 percent down to 21 percent based on the recorded balances as of December 31, 2017. The analysis included a preliminary assessment on the deductibility of certain amounts for which deferred tax assets may have been recorded. However, we are still analyzing certain aspects of the TCJA and refining our calculations based on the available information, which could potentially affect the measurement of these balances or give rise to new deferred tax amounts. As of September 30, 2018, we have not adjusted our provisional estimate related to re-measurement of our deferred tax balances. As of December 31, 2017, we recorded an estimated tax benefit of approximately $99 million.

We are required to calculate a one-time transition tax based on our total post-1986 foreign subsidiaries' earnings and profits (E&P) that we previously deferred from U.S. income taxes. As a result of settling our various tax audits, the revised provisional amount of transition tax is approximately $866 million. We anticipate offsetting this liability against existing tax attributes reducing the required payment to approximately $506 million, which will be remitted over an eight-year period. We remitted the first estimated installment payment in the second quarter of 2018. We have not yet completed our calculation of the total post-1986 E&P, and we continue to refine the analysis. We expect that our undistributed foreign earnings as of December 31, 2017 will remain indefinitely reinvested in our foreign operations. Accordingly, no income taxes beyond the federal and state impact of the transition tax have been provided for these undistributed foreign earnings or any additional outside basis difference inherent in these entities. Determining the amount of unrecognized deferred tax liability related to any remaining undistributed foreign earnings and additional outside basis difference in these entities is not practicable.

We are subject to a territorial tax system under the TCJA, in which we are required to provide for tax on Global Intangible Low Taxed Income (GILTI) earned by certain foreign subsidiaries. Additionally, we are required to make an accounting policy election to either recognize deferred taxes for temporary basis differences expected to reverse as GILTI in future years or provide for the tax expense related to GILTI in the year the tax is incurred as a period expense. As of September 30, 2018, we are still evaluating the effects of the GILTI provisions as guidance and interpretations continue to emerge. Therefore, we have not determined our accounting policy on the GILTI provisions. However, Securities and Exchange Commission (SEC) Staff Accounting Bulletin (SAB) No. 118 requires that we reflect the impact of the GILTI provisions as a period expense until the accounting policy is finalized. Therefore, we have included the provisional estimate of GILTI related to current-year operations in our estimated annual effective tax rate only and will be updating the impact and accounting policy as the analysis related to the GILTI provisions is completed.

NOTE I – COMMITMENTS AND CONTINGENCIES

The medical device market in which we primarily participate is largely technology driven. As a result, intellectual property rights, particularly patents and trade secrets, play a significant role in product development and differentiation. Over the years, there has been litigation initiated against us by others, including our competitors, claiming that our current or former product offerings infringe patents owned or licensed by them. Intellectual property litigation is inherently complex and unpredictable. In addition, competing parties frequently file multiple suits to leverage patent portfolios across product lines, technologies and geographies and to balance risk and exposure between the parties. In some cases, several competitors are parties in the same proceeding, or in a series of related proceedings, or litigate multiple features of a single class of devices. These forces frequently drive settlement not only for individual cases, but also for a series of pending and potentially related and unrelated cases. Although monetary and injunctive relief is typically sought, remedies and restitution are generally not determined until the conclusion of the trial court proceedings and can be modified on appeal. Accordingly, the outcomes of individual cases are difficult to time, predict or quantify and are often dependent upon the outcomes of other cases in other geographies.

During recent years, we successfully negotiated closure of several long-standing legal matters and have received favorable rulings in several other matters; however, there continues to be outstanding intellectual property litigation. Adverse outcomes in one or more of these matters could have a material adverse effect on our ability to sell certain products and on our operating margins, financial position, results of operations and/or liquidity.

In the normal course of business, product liability, securities and commercial claims are asserted against us. Similar claims may be asserted against us in the future related to events not known to management at the present time. We maintain an insurance policy providing limited coverage against securities claims and we are substantially self-insured with respect to product liability claims and fully self-insured with respect to intellectual property infringement claims. The absence of significant third-party insurance coverage increases our potential exposure to unanticipated claims or adverse decisions. Product liability claims, securities and commercial litigation and other legal proceedings in the future, regardless of their outcome, could have a material adverse effect on our financial position, results of operations and/or liquidity.

27

In addition, like other companies in the medical device industry, we are subject to extensive regulation by national, state and local government agencies in the U.S. and other countries in which we operate. From time to time we are the subject of qui tam actions and governmental investigations often involving regulatory, marketing and other business practices. These qui tam actions and governmental investigations could result in the commencement of civil and criminal proceedings, substantial fines, penalties and administrative remedies and have a material adverse effect on our financial position, results of operations and/or liquidity.

In accordance with FASB ASC Topic 450, Contingencies, we accrue anticipated costs of settlement, damages, losses for product liability claims and, under certain conditions, costs of defense, based on historical experience or to the extent specific losses are probable and estimable. Otherwise, we expense these costs as incurred. If the estimate of a probable loss is a range and no amount within the range is more likely, we accrue the minimum amount of the range.

Our accrual for legal matters that are probable and estimable was $1.162 billion as of September 30, 2018 and $1.612 billion as of December 31, 2017 and includes certain estimated costs of settlement, damages and defense. The decrease in our legal accrual was primarily due to settlement payments, authorized in 2018, associated with product liability cases or claims related to transvaginal surgical mesh products. A portion of our legal accrual is funded and included in our restricted cash and restricted cash equivalent balances of $812 million as of September 30, 2018 and $829 million as of December 31, 2017, as disclosed in Note G – Supplemental Balance Sheet Information. We recorded litigation-related net charges of $18 million in the third quarter and first nine months of2018. We recorded a litigation-related net credit of $12 million in the third quarter of 2017 and a litigation-related net charge of $196 million in the first nine months of2017. We continue to assess certain litigation and claims to determine the amounts, if any, that management believes will be paid as a result of such claims and litigation and, therefore, additional losses may be accrued and paid in the future, which could materially adversely impact our operating results, cash flows and/or our ability to comply with our debt covenants.

In management's opinion, we are not currently involved in any legal proceedings other than those disclosed in our most recent Annual Report on Form 10-K, our Quarterly Report on Form 10-Q for the periods ended March 31, 2018 and June 30, 2018 and those specifically identified below, which, individually or in the aggregate, could have a material adverse effect on our financial condition, operations and/or cash flows. Unless included in our legal accrual or otherwise indicated below, a range of loss associated with any individual material legal proceeding cannot be estimated.

Patent Litigation

On April 19, 2016, a subsidiary of Boston Scientific filed suit against Edwards Lifesciences Corporation (Edwards) in the U.S. District Court for the District of Delaware for patent infringement. We allege that Edwards’ SAPIEN™ 3 Valve infringes a patent related to adaptive sealing technology. On June 9, 2016, Edwards filed a counterclaim alleging that our Lotus™ Valve System infringes three patents owned by Edwards. On October 12, 2016, Edwards filed a petition for inter partes review of our patent with the U.S. Patent and Trademark Office (USPTO), Patent Trial and Appeal Board. On March 29, 2017, the USPTO granted the inter partes review request. On April 18, 2017, Edwards filed a second petition for inter partes review of our patent with the USPTO. On March 23, 2018, the USPTO found our patent invalid. The Company filed an appeal before the United States Court of Appeals for the Federal Circuit on May 24, 2018.

On November 29, 2016, Nevro Corp. (Nevro) filed a patent infringement action against us and one of our subsidiaries, Boston Scientific Neuromodulation Corporation, in the U.S. District Court for the Northern District of California alleging that six U.S. patents (Alataris) owned by Nevro are infringed by our spinal cord stimulation systems. On June 29, 2017, Nevro amended the complaint to add an additional patent (Fang). We deny the plaintiff's allegations and intend to defend ourselves vigorously. On July 24, 2018, summary judgment was entered in favor of the Company and on July 31, 2018, we received final judgment and dismissal of the action. On July 31, 2018, Nevro filed an appeal.

On August 1, 2018, the Company filed a patent infringement action on the merits in Dusseldorf, Germany against Edwards Lifesciences Corporation and Edwards Lifesciences GmbH (collectively Edwards) alleging that the Sapien 3^™ device and Sapien 3 Ultra™ device infringed a patent owned by the Company.

On August 3, 2018, the Company filed a preliminary injunction request in Dusseldorf, Germany against Edwards Lifesciences Corporation and Edwards Lifesciences GmbH (collectively Edwards) alleging that the Sapien 3 Ultra infringed a patent owned by the Company. On October 23, 2018, the court found that the Sapien 3 Ultra infringed the patent. Edwards has the right to appeal.

On April 21, 2018, the Company and Boston Scientific Neuromodulation Corporation filed a patent infringement, theft of trade secrets and tortious interference with a contract action against Nevro Corp. in U.S. District Court for the District of Delaware, and amended the complaint on July 18, 2018, alleging that nine U.S. patents owned by Boston Scientific Neuromodulation Corporation are infringed by Nevro’s Senza™ I and Senza™ II Spinal Cord Stimulation Systems.

28

On August 22, 2018, Edwards Lifesciences LLC filed a patent infringement action against Boston Scientific Corporation, in the U. S. District Court of Delaware, alleging that two U.S. patents (Schweich) owned by them are infringed by our Watchman™ Left Atrial Appendage Closure Device, Watchman Delivery System and Watchman Access System.

Product Liability Litigation

No individual lawsuits remain pending in state court jurisdictions against Guidant, alleging personal injuries associated with defibrillators or pacemakers involved in certain 2005 and 2006 product communications. Further, we are aware of approximately six Guidant product liability lawsuits pending in international jurisdictions associated with defibrillators or pacemakers, including devices involved in the 2005 and 2006 product communications. Four of these suits are pending in Canada involving certain models of Guidant pacemakers, three of which are stayed pending the outcome of one lead class action. On May 8, 2009, the Justice of Ontario Court certified a class of persons in whom pacemakers were implanted in Canada and a class of family members with derivative claims. In each case, these matters generally seek monetary damages from us. This class action has been inactive since 2011. On March 24, 2014, the Ontario Superior Court approved a $3 million settlement of a class action involving certain models of Guidant defibrillators. We believe Guidant has satisfied its obligations pursuant to the settlement agreement.

As of October 23, 2018, approximately 51,000 product liability cases or claims related to transvaginal surgical mesh products designed to treat stress urinary incontinence and pelvic organ prolapse have been asserted against us. The pending cases are in various federal and state courts in the U.S. and include eight putative class actions. There were also fewer than 25 cases in Canada, inclusive of one certified and three putative class actions and fewer than 25 claims in the United Kingdom. Generally, the plaintiffs allege personal injury associated with use of our transvaginal surgical mesh products. The plaintiffs assert design and manufacturing claims, failure to warn, breach of warranty, fraud, violations of state consumer protection laws and loss of consortium claims. Over 3,100 of the cases have been specially assigned to one judge in state court in Massachusetts. On February 7, 2012, the Judicial Panel on Multi-District Litigation (MDL) established MDL-2326 in the U.S. District Court for the Southern District of West Virginia and transferred the federal court transvaginal surgical mesh cases to MDL-2326 for coordinated pretrial proceedings. During the fourth quarter of 2013, we received written discovery requests from certain state attorneys general offices regarding our transvaginal surgical mesh products. We have responded to those requests. As of October 23, 2018, we have entered into master settlement agreements in principle or are in the final stages of entering one with certain plaintiffs' counsel to resolve an aggregate of approximately 49,500 cases and claims. These master settlement agreements provide that the settlement and distribution of settlement funds to participating claimants are conditional upon, among other things, achieving minimum required claimant participation thresholds. Of the approximately 49,500 cases and claims, approximately 30,000 have met the conditions of the settlement and are final. All settlement agreements were entered into solely by way of compromise and without any admission or concession by us of any liability or wrongdoing.

We have established a product liability accrual for known and estimated future cases and claims asserted against us as well as with respect to the actions that have resulted in verdicts against us and the costs of defense thereof associated with our transvaginal surgical mesh products. While we believe that our accrual associated with this matter is adequate, changes to this accrual may be required in the future as additional information becomes available. While we continue to engage in discussions with plaintiffs’ counsel regarding potential resolution of pending cases and claims and intend to vigorously contest the cases and claims asserted against us, that do not settle, the final resolution of the cases and claims is uncertain and could have a material impact on our results of operations, financial condition and/or liquidity. Initial trials involving our transvaginal surgical mesh products have resulted in both favorable and unfavorable judgments for us. We do not believe that the judgment in any one trial is representative of potential outcomes of all cases or claims related to our transvaginal surgical mesh products.

Other Proceedings

On September 12, 2018, Channel Medsystems, Inc. (Channel) filed a complaint in Delaware Chancery Court against us for alleged breach of a $275 million purchase agreement. Channel alleges that we breached the agreement by terminating it. We have answered the complaint, deny the claims by Channel and have counterclaimed to recover part of our investment in Channel, alleging fraud in the inducement. The court has set a trial date of April 15, 2019.

Refer to Note H – Income Taxes for information regarding our tax litigation.

Matters Concluded Since December 31, 2017

On October 28, 2016, the Regents of the University of California filed a patent infringement action against us in the U.S. District Court for the Northern District of California alleging that two U.S. patents (Lesh) owned by the Regents of the University of

29

California are infringed by certain of our catheters and other devices used to treat atrial fibrillation. The Company and the Regents settled the matter, and the case was dismissed on June 20, 2018.

On May 19, 2005, G. David Jang, M.D. filed suit against us alleging breach of contract relating to certain patent rights covering stent technology. The suit was filed in the U.S. District Court for the Central District of California seeking monetary damages and rescission of contract. After a Markman ruling relating to the Jang patent rights, Dr. Jang stipulated to the dismissal of certain claims alleged in the complaint with a right to appeal and the parties subsequently agreed to settle the other claims. In May 2007, Dr. Jang filed an appeal with respect to the remaining patent claims and in July 2008, the Court of Appeals vacated the District Court's consent judgment and remanded the case back to the District