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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 JuneSeptember 30, 2021
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 July 30,October 29, 2021 was 1,423,852,648.1,424,992,477.


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PART I
FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

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

Three Months Ended
June 30,
Six Months Ended
June 30,
Three Months Ended
September 30,
Nine Months Ended
September 30,
(in millions, except per share data)(in millions, except per share data)2021202020212020(in millions, except per share data)2021202020212020
Net salesNet sales$3,077 $2,003 $5,829 $4,546 Net sales$2,932 $2,659 $8,761 $7,204 
Cost of products soldCost of products sold945 791 1,839 1,596 Cost of products sold900 869 2,739 2,465 
Gross profitGross profit2,132 1,212 3,990 2,950 Gross profit2,032 1,790 6,022 4,740 
Operating expenses:Operating expenses:Operating expenses:
Selling, general and administrative expensesSelling, general and administrative expenses1,121 798 2,139 1,776 Selling, general and administrative expenses1,066 984 3,206 2,760 
Research and development expensesResearch and development expenses298 242 574 542 Research and development expenses310 315 884 857 
Royalty expenseRoyalty expense12 24 20 Royalty expense14 12 38 32 
Amortization expenseAmortization expense180 197 365 398 Amortization expense184 197 549 595 
Intangible asset impairment chargesIntangible asset impairment charges45 34 45 233 Intangible asset impairment charges128 219 173 452 
Contingent consideration net expense (benefit)Contingent consideration net expense (benefit)(85)(91)(108)Contingent consideration net expense (benefit)(26)(117)(102)
Restructuring net charges (credits)Restructuring net charges (credits)13 Restructuring net charges (credits)18 16 
Litigation-related net charges (credits)Litigation-related net charges (credits)298 302 Litigation-related net charges (credits)— 260 302 260 
Gain on disposal of business(2)(9)
Gain on disposal of businesses and assetsGain on disposal of businesses and assets(40)— (48)— 
1,870 1,283 3,358 2,875  1,645 1,995 5,003 4,870 
Operating income (loss)Operating income (loss)262 (71)632 75 Operating income (loss)387 (205)1,019 (130)
Other income (expense):Other income (expense):Other income (expense):
Interest expenseInterest expense(86)(91)(168)(179)Interest expense(86)(86)(254)(265)
Other, netOther, net(26)(18)11 (54)Other, net181 64 192 
Income (loss) before income taxesIncome (loss) before income taxes149 (181)474 (159)Income (loss) before income taxes483 (227)957 (386)
Income tax expense (benefit)Income tax expense (benefit)(37)(33)(53)(22)Income tax expense (benefit)64 (72)10 (94)
Net income (loss)Net income (loss)186 (147)527 (137)Net income (loss)419 (155)946 (292)
Preferred stock dividendsPreferred stock dividends(14)(5)(28)(5)Preferred stock dividends(14)(14)(42)(19)
Net income (loss) available to common stockholdersNet income (loss) available to common stockholders$172 $(153)$500 $(142)Net income (loss) available to common stockholders$405 $(169)$905 $(311)
Net income (loss) per common share — basicNet income (loss) per common share — basic$0.12 $(0.11)$0.35 $(0.10)Net income (loss) per common share — basic$0.28 $(0.12)$0.64 $(0.22)
Net income (loss) per common share — assuming dilutionNet income (loss) per common share — assuming dilution$0.12 $(0.11)$0.35 $(0.10)Net income (loss) per common share — assuming dilution$0.28 $(0.12)$0.63 $(0.22)
Weighted-average shares outstandingWeighted-average shares outstandingWeighted-average shares outstanding
BasicBasic1,421.3 1,410.9 1,420.0 1,404.1 Basic1,423.8 1,430.9 1,421.3 1,413.0 
Assuming dilutionAssuming dilution1,432.5 1,410.9 1,431.7 1,404.1 Assuming dilution1,435.6 1,430.9 1,433.0 1,413.0 




See notes to the unaudited consolidated financial statements. Amounts may not foot due to rounding.
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BOSTON SCIENTIFIC CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)

Three Months Ended
June 30,
Six Months Ended
June 30,
Three Months Ended
September 30,
Nine Months Ended
September 30,
(in millions)(in millions)2021202020212020(in millions)2021202020212020
Net income (loss)Net income (loss)$186 $(147)$527 $(137)Net income (loss)$419 $(155)$946 $(292)
Other comprehensive income (loss), net of tax:Other comprehensive income (loss), net of tax:Other comprehensive income (loss), net of tax:
Foreign currency translation adjustmentForeign currency translation adjustment(11)(81)(187)Foreign currency translation adjustment(49)84 (130)(104)
Net change in derivative financial instrumentsNet change in derivative financial instruments(18)(26)111 48 Net change in derivative financial instruments50 (64)161 (15)
Net change in defined benefit pensions and other itemsNet change in defined benefit pensions and other itemsNet change in defined benefit pensions and other items— — — 
Total other comprehensive income (loss)Total other comprehensive income (loss)(16)(37)30 (139)Total other comprehensive income (loss)20 31 (119)
Total comprehensive income (loss)Total comprehensive income (loss)$170 $(185)$558 $(276)Total comprehensive income (loss)$420 $(135)$978 $(411)









































See notes to the unaudited consolidated financial statements. Amounts may not foot due to rounding.
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BOSTON SCIENTIFIC CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
As of As of
(in millions, except share and per share data)(in millions, except share and per share data)June 30, 2021December 31, 2020(in millions, except share and per share data)September 30, 2021December 31, 2020
(unaudited)  (unaudited) 
ASSETSASSETS  ASSETS  
Current assets:Current assets:  Current assets:  
Cash and cash equivalentsCash and cash equivalents$2,675 $1,734 Cash and cash equivalents$1,947 $1,734 
Trade accounts receivable, netTrade accounts receivable, net1,675 1,531 Trade accounts receivable, net1,669 1,531 
InventoriesInventories1,430 1,351 Inventories1,603 1,351 
Prepaid income taxesPrepaid income taxes202 194 Prepaid income taxes217 194 
Assets held for saleAssets held for sale1,133 Assets held for sale— 1,133 
Other current assetsOther current assets777 751 Other current assets792 751 
Total current assetsTotal current assets6,758 6,694 Total current assets6,229 6,694 
Property, plant and equipment, netProperty, plant and equipment, net2,082 2,084 Property, plant and equipment, net2,109 2,084 
GoodwillGoodwill10,874 9,951 Goodwill11,820 9,951 
Other intangible assets, netOther intangible assets, net5,788 5,917 Other intangible assets, net6,227 5,917 
Deferred tax assetsDeferred tax assets4,036 4,210 Deferred tax assets4,049 4,210 
Other long-term assetsOther long-term assets1,629 1,921 Other long-term assets1,444 1,921 
TOTAL ASSETSTOTAL ASSETS$31,168 $30,777 TOTAL ASSETS$31,877 $30,777 
LIABILITIES AND STOCKHOLDERS’ EQUITYLIABILITIES AND STOCKHOLDERS’ EQUITY  LIABILITIES AND STOCKHOLDERS’ EQUITY  
Current liabilities:Current liabilities:  Current liabilities:  
Current debt obligationsCurrent debt obligations$262 $13 Current debt obligations$261 $13 
Accounts payableAccounts payable689 513 Accounts payable674 513 
Accrued expensesAccrued expenses2,442 2,197 Accrued expenses2,418 2,197 
Other current liabilitiesOther current liabilities680 958 Other current liabilities669 958 
Total current liabilitiesTotal current liabilities4,073 3,681 Total current liabilities4,022 3,681 
Long-term debtLong-term debt8,847 9,130 Long-term debt8,824 9,130 
Deferred income taxesDeferred income taxes115 330 Deferred income taxes274 330 
Other long-term liabilitiesOther long-term liabilities2,190 2,309 Other long-term liabilities2,296 2,309 
Commitments and contingenciesCommitments and contingencies00Commitments and contingencies00
Stockholders’ equityStockholders’ equity  Stockholders’ equity  
Preferred stock, $0.01 par value - authorized 50,000,000 shares - issued 10,062,500 shares as of June 30, 2021 and December 31, 2020
Common stock, $0.01 par value - authorized 2,000,000,000 shares - issued 1,685,006,608 shares as of June 30, 2021 and 1,679,911,918 shares as of December 31, 202017 17 
Treasury stock, at cost - 263,289,848 shares as of June 30, 2021 and December 31, 2020(2,251)(2,251)
Preferred stock, $0.01 par value - authorized 50,000,000 shares - issued 10,062,500 shares as of September 30, 2021 and December 31, 2020Preferred stock, $0.01 par value - authorized 50,000,000 shares - issued 10,062,500 shares as of September 30, 2021 and December 31, 2020— — 
Common stock, $0.01 par value - authorized 2,000,000,000 shares - issued 1,688,023,638 shares as of September 30, 2021 and 1,679,911,918 shares as of December 31, 2020Common stock, $0.01 par value - authorized 2,000,000,000 shares - issued 1,688,023,638 shares as of September 30, 2021 and 1,679,911,918 shares as of December 31, 202017 17 
Treasury stock, at cost - 263,289,848 shares as of September 30, 2021 and December 31, 2020Treasury stock, at cost - 263,289,848 shares as of September 30, 2021 and December 31, 2020(2,251)(2,251)
Additional paid-in capitalAdditional paid-in capital19,817 19,732 Additional paid-in capital19,930 19,732 
Accumulated deficitAccumulated deficit(1,878)(2,378)Accumulated deficit(1,473)(2,378)
Accumulated other comprehensive income (loss), net of taxAccumulated other comprehensive income (loss), net of tax237 207 Accumulated other comprehensive income (loss), net of tax238 207 
Total stockholders’ equityTotal stockholders’ equity15,942 15,326 Total stockholders’ equity16,462 15,326 
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITYTOTAL LIABILITIES AND STOCKHOLDERS' EQUITY$31,168 $30,777 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY$31,877 $30,777 



See notes to the unaudited consolidated financial statements. Amounts may not foot due to rounding.
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BOSTON SCIENTIFIC CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED)
 Preferred StockCommon StockTreasury StockAdditional Paid-In CapitalAccumulated DeficitAccumulated Other Comprehensive Income (Loss), Net of Tax
(in millions, except share data)Shares IssuedPar ValueShares IssuedPar Value
As of December 31, 20190 $0 1,642,488,911 $16 $(1,717)$17,561 $(2,253)$270 
Net income (loss)11 
Cumulative effect adjustment for adoption of ASU 2016-13(10)
Total other comprehensive income (loss)(101)
Stock-based compensation4,388,331 28 
As of March 31, 20200 $0 1,646,877,242 $16 $(1,717)$17,589 $(2,252)$168 
Net income (loss)(147)
Total other comprehensive income (loss)(37)
Preferred stock issuance10,062,500 975 
Common stock issuance29,382,500 975 
Preferred stock dividends(5)
Stock-based compensation493,824 50 
As of June 30, 202010,062,500 $0 1,676,753,566 $17 $(1,717)$19,590 $(2,405)$131 
Net income (loss)(155)
Total other comprehensive income (loss)20 
Preferred stock dividends(14)
Stock-based compensation2,674,643 97 
As of September 30, 202010,062,500 $0 1,679,428,209 $17 $(1,717)$19,687 $(2,574)$151 
Net income (loss)210 
Total other comprehensive income (loss)56 
Preferred stock dividends(14)
Repurchase of common stock(535)
Stock-based compensation483,709 45 
As of December 31, 202010,062,500 $0 1,679,911,918 $17 $(2,251)$19,732 $(2,378)$207 
Net income (loss)341 
Total other comprehensive income (loss)47 
Preferred stock dividends(14)
Stock-based compensation3,949,308 19 
As of March 31, 202110,062,500 $0 1,683,861,226 $17 $(2,251)$19,750 $(2,050)$254 
Net income (loss)186 
Total other comprehensive income (loss)(16)
Preferred stock dividends(14)
Stock-based compensation1,145,382 66 
As of June 30, 202110,062,500 0 1,685,006,608 $17 $(2,251)$19,817 $(1,878)$237 

Three Months Ended
September 30,
Nine Months Ended
September 30,
(in millions, except share data)2021202020212020
Preferred stock shares outstanding
   Beginning10,062,500 10,062,500 10,062,500  
Preferred stock issuance— — — 10,062,500 
   Ending10,062,500 10,062,500 10,062,500 10,062,500 
Common stock shares outstanding
   Beginning1,685,006,608 1,676,753,566 1,679,911,918 1,642,488,911 
Common stock issuance— — — 29,382,500 
Stock-based compensation3,017,030 2,674,643 8,111,720 7,556,798 
   Ending1,688,023,638 1,679,428,209 1,688,023,638 1,679,428,209 
Preferred stock
   Beginning$ $ $ $ 
Preferred stock issuance— — — — 
   Ending $  $ 
Common stock
   Beginning$17 $17 $17 $16 
Common stock issuance— — — — 
Stock-based compensation— — — — 
   Ending$17 $17 $17 $17 
Treasury Stock
Beginning$(2,251)$(1,717)$(2,251)$(1,717)
Repurchase of common stock— — — — 
Ending$(2,251)$(1,717)$(2,251)$(1,717)
Additional Paid-In Capital
Beginning$19,817 $19,590 $19,732 $17,561 
Preferred stock issuance— — — 975 
Common stock issuance— — — 975 
Stock-based compensation113 97 199 176 
Ending$19,930 $19,687 $19,930 $19,687 
Accumulated Deficit
Beginning$(1,878)$(2,405)$(2,378)$(2,253)
Net income (loss)419 (155)946 (292)
Cumulative effect adjustment for adoption of ASU 2016-13— — — (10)
Preferred stock dividends(14)(14)(42)(19)
Ending$(1,473)$(2,574)$(1,473)$(2,574)
Accumulated Other Comprehensive Income (Loss), Net of Tax
Beginning$237 $131 $207 $270 
Total other comprehensive income (loss)20 31 (119)
Ending$238 $151 $238 $151 
Total stockholders' equity16,462 15,564 16,462 15,564 







See notes to the unaudited consolidated financial statements. Amounts may not foot due to rounding.
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BOSTON SCIENTIFIC CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Six Months Ended June 30,Nine Months Ended September 30,
(in millions)(in millions)20212020(in millions)20212020
Net income (loss)Net income (loss)$527 $(137)Net income (loss)$946 $(292)
Adjustments to reconcile net income (loss) to cash provided by (used for) operating activitiesAdjustments to reconcile net income (loss) to cash provided by (used for) operating activitiesAdjustments to reconcile net income (loss) to cash provided by (used for) operating activities
Gain on disposal of businesses(8)
Gain on disposal of businesses and assetsGain on disposal of businesses and assets(48)— 
Depreciation and amortizationDepreciation and amortization531 552 Depreciation and amortization803 834 
Deferred and prepaid income taxesDeferred and prepaid income taxes(88)15 Deferred and prepaid income taxes(49)(13)
Stock-based compensation expenseStock-based compensation expense94 88 Stock-based compensation expense145 128 
Intangible asset impairment chargesIntangible asset impairment charges45 233 Intangible asset impairment charges173 452 
Net loss (gain) on investments and notes receivableNet loss (gain) on investments and notes receivable(22)34 Net loss (gain) on investments and notes receivable(208)(29)
Contingent consideration net expense (benefit)Contingent consideration net expense (benefit)(91)(108)Contingent consideration net expense (benefit)(117)(102)
Inventory step-up amortizationInventory step-up amortization30 Inventory step-up amortization15 42 
Foreign exchange (gain) lossForeign exchange (gain) loss12 Foreign exchange (gain) loss17 13 
Other, netOther, net26 35 Other, net32 46 
Increase (decrease) in operating assets and liabilities, excluding purchase accounting:Increase (decrease) in operating assets and liabilities, excluding purchase accounting:Increase (decrease) in operating assets and liabilities, excluding purchase accounting:
Trade accounts receivableTrade accounts receivable(145)365 Trade accounts receivable(131)242 
InventoriesInventories(100)(36)Inventories(315)(1)
Other assetsOther assets(200)(179)Other assets(145)(119)
Accounts payable and accrued expenses187 (531)
Other liabilities153 (181)
Accounts payable, accrued expenses and other liabilitiesAccounts payable, accrued expenses and other liabilities275 (364)
Cash provided by (used for) operating activitiesCash provided by (used for) operating activities927 192 Cash provided by (used for) operating activities1,392 835 
Purchases of property, plant and equipmentPurchases of property, plant and equipment(181)(168)Purchases of property, plant and equipment(288)(217)
Proceeds from sale of property, plant and equipmentProceeds from sale of property, plant and equipmentProceeds from sale of property, plant and equipment10 
Payments for acquisitions of businesses, net of cash acquiredPayments for acquisitions of businesses, net of cash acquired(706)(3)Payments for acquisitions of businesses, net of cash acquired(2,014)(3)
Proceeds from royalty rightsProceeds from royalty rights43 45 Proceeds from royalty rights62 66 
Payments for investments and acquisitions of certain technologiesPayments for investments and acquisitions of certain technologies(30)(29)Payments for investments and acquisitions of certain technologies(51)(130)
Proceeds from sale of investments122 
Proceeds from sale of investments and disposition of certain assetsProceeds from sale of investments and disposition of certain assets329 — 
Proceeds from disposal of businessesProceeds from disposal of businesses801 15 Proceeds from disposal of businesses801 15 
Proceeds from settlements of hedge contractsProceeds from settlements of hedge contracts15 Proceeds from settlements of hedge contracts15 — 
Cash provided by (used for) investing activitiesCash provided by (used for) investing activities71 (135)Cash provided by (used for) investing activities(1,136)(264)
Payment of contingent consideration previously established in purchase accountingPayment of contingent consideration previously established in purchase accounting(14)(38)Payment of contingent consideration previously established in purchase accounting(14)(35)
Payments for royalty rightsPayments for royalty rights(42)(52)Payments for royalty rights(85)(97)
Payments on short-term borrowingsPayments on short-term borrowings(2,700)Payments on short-term borrowings— (2,950)
Proceeds from short-term borrowings, net of debt issuance costsProceeds from short-term borrowings, net of debt issuance costs2,245 Proceeds from short-term borrowings, net of debt issuance costs— 2,245 
Net increase (decrease) in commercial paperNet increase (decrease) in commercial paper(714)Net increase (decrease) in commercial paper— (714)
Payments on borrowings from credit facilitiesPayments on borrowings from credit facilities(1,919)Payments on borrowings from credit facilities— (1,919)
Proceeds from borrowings on credit facilitiesProceeds from borrowings on credit facilities1,916 Proceeds from borrowings on credit facilities— 1,916 
Payments on long-term borrowings and debt extinguishment costsPayments on long-term borrowings and debt extinguishment costs(1,000)Payments on long-term borrowings and debt extinguishment costs— (1,000)
Proceeds from long-term borrowings, net of debt issuance costsProceeds from long-term borrowings, net of debt issuance costs1,683 Proceeds from long-term borrowings, net of debt issuance costs— 1,683 
Cash dividends paid on preferred stockCash dividends paid on preferred stock(28)Cash dividends paid on preferred stock(42)(14)
Net proceeds from issuance of preferred stock in connection with public offeringNet proceeds from issuance of preferred stock in connection with public offering975 Net proceeds from issuance of preferred stock in connection with public offering— 975 
Net proceeds from issuance of common stock in connection with public offeringNet proceeds from issuance of common stock in connection with public offering975 Net proceeds from issuance of common stock in connection with public offering— 975 
Cash used to net share settle employee equity awardsCash used to net share settle employee equity awards(47)(57)Cash used to net share settle employee equity awards(48)(59)
Proceeds from issuances of common stock pursuant to employee stock compensation and purchase plansProceeds from issuances of common stock pursuant to employee stock compensation and purchase plans38 48 Proceeds from issuances of common stock pursuant to employee stock compensation and purchase plans102 107 
Cash provided by (used for) financing activitiesCash provided by (used for) financing activities(93)1,361 Cash provided by (used for) financing activities(87)1,112 
Effect of foreign exchange rates on cashEffect of foreign exchange rates on cash(2)(9)Effect of foreign exchange rates on cash(5)(8)
Net increase (decrease) in cash, cash equivalents, restricted cash and restricted cash equivalentsNet increase (decrease) in cash, cash equivalents, restricted cash and restricted cash equivalents903 1,409 Net increase (decrease) in cash, cash equivalents, restricted cash and restricted cash equivalents164 1,675 
Cash, cash equivalents, restricted cash and restricted cash equivalents at beginning of periodCash, cash equivalents, restricted cash and restricted cash equivalents at beginning of period1,995 607 Cash, cash equivalents, restricted cash and restricted cash equivalents at beginning of period1,995 607 
Cash, cash equivalents, restricted cash and restricted cash equivalents at end of periodCash, cash equivalents, restricted cash and restricted cash equivalents at end of period$2,898 $2,016 Cash, cash equivalents, restricted cash and restricted cash equivalents at end of period$2,159 $2,282 
See notes to the unaudited consolidated financial statements. Amounts may not foot due to rounding.
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BOSTON SCIENTIFIC CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(SUPPLEMENTAL INFORMATION)

Six Months Ended June 30,Nine Months Ended September 30,
(in millions)(in millions)20212020(in millions)20212020
Supplemental InformationSupplemental InformationSupplemental Information
Stock-based compensation expenseStock-based compensation expense$94 $88 Stock-based compensation expense$145 $128 
Fair value of contingent consideration recorded in purchase accountingFair value of contingent consideration recorded in purchase accounting221 Fair value of contingent consideration recorded in purchase accounting384 — 
Non-cash impact of transferred royalty rightsNon-cash impact of transferred royalty rights(43)(45)Non-cash impact of transferred royalty rights(62)(66)

As of June 30,As of September 30,
Reconciliation to amounts in the unaudited consolidated balance sheets:Reconciliation to amounts in the unaudited consolidated balance sheets:20212020Reconciliation to amounts in the unaudited consolidated balance sheets:20212020
Cash and cash equivalentsCash and cash equivalents$2,675 $1,724 Cash and cash equivalents$1,947 $2,022 
Restricted cash and restricted cash equivalents included in Other current assets
Restricted cash and restricted cash equivalents included in Other current assets
167 245 
Restricted cash and restricted cash equivalents included in Other current assets
155 214 
Restricted cash equivalents included in Other long-term assets
Restricted cash equivalents included in Other long-term assets
57 46 
Restricted cash equivalents included in Other long-term assets
57 46 
Cash, cash equivalents, restricted cash and restricted cash equivalents at end of periodCash, cash equivalents, restricted cash and restricted cash equivalents at end of period$2,898 $2,016 Cash, cash equivalents, restricted cash and restricted cash equivalents at end of period$2,159 $2,282 
























See notes to the unaudited consolidated financial statements. Amounts may not foot due to rounding.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE A – BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements of Boston Scientific Corporation have been prepared in accordance with accounting principles generally accepted in the United States (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 and sixnine months ended JuneSeptember 30, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021. 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.

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 B – Acquisitions, Divestitures and Strategic Investments, 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 1 acquisition3 acquisitions and 1 divestiture in the first sixnine months of 2021 and did 0tnot complete any significant acquisitions or divestitures during the first sixnine months of 2020. We have not presented supplemental pro forma financial information for completed acquisitions or divestitures given their results are not material to our accompanying unaudited consolidated financial statements. Further, transaction costs were immaterial to our accompanying unaudited consolidated financial statements and were expensed as incurred.

On March 3,In addition, on September 21, 2021, we announced our entry into a definitive agreement to acquire the global surgical business of Lumenis LTD. (Lumenis)Devoro Medical, Inc. (Devoro Medical), a privately-held company that developswhich has developed the WOLF Thrombectomy® Platform, designed to capture and commercializes energy-based medical solutions, forextract blood clots in arterial, venous and pulmonary embolism procedures. We have been an investor in Devoro Medical since 2019 and hold an equity stake of approximately 16 percent. The transaction price consists of an upfront cash payment of $320 million, or approximately $1.070 billion subject$269 million after adjustments for our current equity ownership, debt, and other closing adjustments; and up to closing adjustments. The global surgical business$80 million upon achievement of Lumenis includes innovative laser systems, fibers,certain clinical and accessories usedregulatory milestones, or approximately $67 million after adjustments for urology and otolaryngology procedures.current equity ownership. The acquisition is expected to close duringin the second halffourth quarter of 2021, subject to customary closing conditions. Following the closing of the acquisition, we plan to integrate the LumenisDevoro Medical business into our UrologyPeripheral Interventions division.

Further, on October 6, 2021, we announced our entry into a definitive agreement to acquire Baylis Medical Company Inc. (Baylis Medical), a privately-held company which has developed the radiofrequcncy (RF) NRG and Pelvic HealthVersaCrossTransseptal 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 consists of an upfront cash payment of $1.75 billion subject to closing adjustments. The acquisition is expected to close during the first quarter of 2022, subject to customary closing conditions. Following the closing of the acquisition, we plan to integrate the Baylis Medical business into our Electrophysiology division.

2021 Acquisitions

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
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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 have 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 an additional future revenue-based payment.milestone payments. The Preventice business is being managed by our Cardiac Rhythm Management division.

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On August 6, 2021, we completed our acquisition of the remaining shares of Farapulse, Inc. (Farapulse), a privately-held company that has developed a non-thermal ablation system for the treatment of atrial fibrillation (AF) and other cardiac arrhythmias in which we previously held an equity stake of approximately 27 percent.arrhythmias. The transaction price consistsconsisted of an upfront cash payment of $450 million, upfront, or approximately $295 million after adjustments for our prior equity stake, debt and other closing adjustments; up to $125 million upon achievement of certain clinical and regulatory milestones or $92 million for the portion not previously owned; and additional revenue-based payments over the next three years. The valuation studies necessaryWe have been an investor in Farapulse since 2014 and held an equity stake of approximately 27 percent immediately prior to determine the fair value of the various purchase price components are currently in process. Once completed, we will remeasureacquisition date. We remeasured the fair value of our previously heldpreviously-held investment based on the allocation of the purchase price according to priority of equity interest and recognizeinterests which resulted in a $222 million gain of at least $150 millionrecognized within Other, income (expense)net during the third quarter of 2021. The transaction price for the remaining stake consisted of an upfront cash payment of $268 million, net of cash acquired, and up to approximately $92 million in future milestone payments. The Farapulse business will beis being integrated into our Electrophysiology division.

On September 1, 2021, we completed our acquisition of the global surgical business of Lumenis LTD. (Lumenis), a privately-held company that develops and commercializes energy-based medical solutions, including innovative laser systems, fibers and accessories used for urology and otolaryngology procedures. The transaction consisted of an upfront cash payment of $1.039 billion, net of cash acquired. The Lumenis business is being integrated into our Urology and Pelvic Health division.

Purchase Price Allocation

The preliminary purchase price for the acquisitions completed during the first sixnine months of 2021 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, in particular those associated with our acquisition of Lumenis, will be completed within the measurement period in accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 805, Business Combinations. Due to the timing of the Lumenis acquisition, efforts to obtain information and complete the valuation studies necessary to determine the fair value of the various purchase price components are still ongoing.

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

(in millions)PreventiceLumenisFarapulseTotal
Payment for acquisition, net of cash acquired$706 $1,039 $268 $2,014 
Fair value of contingent consideration221 — 162 384 
Fair value of prior interest269 — 222 491 
$1,197 $1,039 $653 $2,889 

The preliminary purchase price allocation for these acquisitions completed during the first six months of 2021 was comprised of the following components:
(in millions)
Goodwill$926 
Amortizable intangible assets237 
Other assets acquired65 
Liabilities assumed(32)
$1,197
(in millions)PreventiceLumenisFarapulseTotal
Goodwill$926 $582 $386 $1,894 
Amortizable intangible assets237 459 267 964 
Indefinite-lived intangible assets— — 43 43 
Other assets acquired65 115 190 
Liabilities assumed(32)(86)(10)(127)
Net deferred tax liabilities— (32)(43)(74)
$1,197 $1,039 $653 $2,889 

We allocated a portion of the preliminary purchase price for acquisitions completed during the first six months of 2021 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.
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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
Preventice:
Amortizable intangible assets:
Technology-related$215 910%
Other intangible assets22 810%
$237 
Lumenis:
Amortizable intangible assets:
Technology-related$417 1411%
Other intangible assets42 1311%
$459 
Farapulse:
Amortizable intangible assets:
Technology-related$267 1216%
Indefinite-lived intangible assets:
In-process research and development (IPR&D)43 N/A17%
$310 

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
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million, which was subject to certain adjustments including cash on hand at the closing of the transaction. The agreement included the transfer of 5 facilities and approximately 280 employees globally.

We classified the assets and liabilities of the Specialty Pharmaceuticals business (disposal group) as held for sale within our consolidated balance sheet as of December 31, 2020 at their respective carrying values, which approximated fair value, less costs to sell. Assets within the disposal group are presented within Assets held for sale and liabilities are presented within Other current liabilities within our consolidated balance sheet as of December 31, 2020. 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. In the second quarter and first sixnine months of 2021, we recognized a Gain on disposal of businessbusinesses and assets associated with the transaction of $2 million and $9 million respectively, within our accompanying unaudited consolidated statements of operations.

Contingent Consideration

Changes in the fair value of our contingent consideration liability during the first sixnine months of 2021 were as follows:

(in millions)
Balance as of December 31, 2020$196 
Amount recorded related to current year acquisitions221384 
Contingent consideration net expense (benefit)(91)(117)
Contingent consideration payments(14)
Balance as of JuneSeptember 30, 2021$312448 

As of JuneSeptember 30, 2021, the maximum amount of future contingent consideration (undiscounted) that we could be required to pay associated with our completed acquisitions was $751$919 million, which includes amounts related to our recent acquisitionacquisitions of Preventice.
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Preventice and Farapulse. Refer to Note B – Acquisitions and Strategic Investments to our audited financial statements contained in Item 8 of our most recent Annual Report on Form 10-K for additional information. In the second quarter of 2021 we recorded a contingent consideration net benefit of $85 million. The benefit related to certain prior acquisitions for which we reduced the probability of achievement of associated revenue and/or regulatory milestones upon which payment is conditioned.

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 LiabilityContingent Consideration LiabilityFair Value as of June 30, 2021Valuation TechniqueUnobservable InputRange
Weighted Average(1)
Contingent Consideration LiabilityFair Value as of September 30, 2021Valuation TechniqueUnobservable InputRange
Weighted Average(1)
R&D, Regulatory and Commercialization-based MilestonesR&D, Regulatory and Commercialization-based Milestonestd2 millionDiscounted Cash FlowDiscount Rate2%2%R&D, Regulatory and Commercialization-based Milestonestd09 millionDiscounted Cash FlowDiscount Rate1%-2%1%
Probability of Payment20%20%Probability of Payment20%-95%79%
Projected Year of Payment20272027Projected Year of Payment2023-20272023
Revenue-based PaymentsRevenue-based Paymentstd90 millionDiscounted Cash FlowDiscount Rate%-14%6%Revenue-based Payments$340 millionDiscounted Cash FlowDiscount Rate4%-14%6%
Probability of Payment80 %-100%100%Probability of Payment100%100%
Projected Year of Payment2021-20242022Projected Year of Payment2021-20242022
(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 JuneSeptember 30, 2021.

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Strategic Investments

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


As of

As of
(in millions)(in millions)June 30, 2021December 31, 2020(in millions)September 30, 2021December 31, 2020
Equity method investmentsEquity method investments$264 $319 Equity method investments$266 $319 
Measurement alternative investments(1)
Measurement alternative investments(1)
175 183 
Measurement alternative investments(1)
164 183 
Publicly-held equity securities(2)
Publicly-held equity securities(2)
176 414 
Publicly-held equity securities(2)
414 
Notes receivableNotes receivableNotes receivable— 
$616 $918 $434 $918 
(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 equity 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.

In the secondthird quarter and first sixnine months of 2021, we recorded losses of $8$24 million and $154$178 million, respectively, on our investment in Pulmonx Corporation presented in Other, net associated with the partial disposition of our ownership and remeasurement of our remaining investment during the period to fair value based on observable market prices.prices, as well as the disposition of our remaining ownership. On March 1, 2021, we completed our acquisition of Preventice, in which we previously held an equity interest of approximately 22 percent. In addition,percent and on August 6, 2021, we completed the acquisition of the remaining shares of Farapulse, in which we previously held an equity stake of approximately 27 percent. As of JuneSeptember 30, 2021, the cost of our aggregated equity method investments exceeded our share of the underlying equity in net assets by $314$289 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 write-offs of goodwill are as follows:
As of June 30, 2021As of December 31, 2020As of September 30, 2021As of December 31, 2020
(in millions)(in millions)Gross Carrying Amount
Accumulated Amortization/ Write-offs(1)
Gross Carrying AmountAccumulated Amortization/ Write-offs(in millions)Gross Carrying Amount
Accumulated Amortization/ Write-offs(1)
Gross Carrying AmountAccumulated Amortization/ Write-offs
Technology-relatedTechnology-related$11,284 $(6,475)$11,059 $(6,179)Technology-related$11,787 $(6,590)$11,059 $(6,179)
PatentsPatents497 (397)511 (407)Patents497 (399)511 (407)
Other intangible assetsOther intangible assets1,826 (1,278)1,775 (1,220)Other intangible assets1,859 (1,301)1,775 (1,220)
Amortizable intangible assetsAmortizable intangible assets$13,607 $(8,150)$13,345 $(7,806)Amortizable intangible assets$14,143 $(8,290)$13,345 $(7,806)
        
GoodwillGoodwill$20,774 $(9,900)$19,924 $(9,973)Goodwill$21,720 $(9,900)$19,924 $(9,973)
IPR&DIPR&D$210 $257 IPR&D$254 $257 
Technology-relatedTechnology-related120 120 Technology-related120 120 
Indefinite-lived intangible assetsIndefinite-lived intangible assets$330 $377 Indefinite-lived intangible assets$374 $377 
(1)    In the fourth quarter of 2020, we recorded goodwill impairment charges of $73 million related to the Specialty Pharmaceuticals business and classified the remaining assets and liabilities as held for sale as of December 31, 2020. On March 1, 2021, we completed the divestiture of the Specialty Pharmaceuticals business. The goodwill impairment charges of $73 million related to the Specialty Pharmaceuticals business are no longer presented within accumulated write-offs above as of JuneSeptember 30, 2021.

The increase in our balance of goodwill and intangible assets is primarily related to our acquisition of Preventiceacquisitions completed in the first quarternine months of 2021.
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Our technology-related intangible assets consist of technical processes, intellectual property and institutional understanding with respect to products and processes that we intend to 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. Our IPR&Din-process research and development (IPR&D) represents intangible assets that are used in research and development activities but have not yet reached technological feasibility, regardless of whether they have alternative future use. The primary basis for determining the technological feasibility or completion of these projects is obtaining regulatory approval to market the underlying products in an applicable geographic region.

The following represents our goodwill balance by global reportable segment:
(in millions)(in millions)MedSurgRhythm and NeuroCardiovascularTotal(in millions)MedSurgRhythm and NeuroCardiovascularTotal
As of December 31, 2020As of December 31, 2020$2,059 $2,194 $5,697 $9,951 As of December 31, 2020$2,059 $2,194 $5,697 $9,951 
Impact of foreign currency fluctuations and other changes in carrying amountImpact of foreign currency fluctuations and other changes in carrying amount(2)(2)Impact of foreign currency fluctuations and other changes in carrying amount(4)(1)(15)(20)
Goodwill acquiredGoodwill acquired926 926 Goodwill acquired578 1,312 — 1,890 
As of June 30, 2021$2,057 $3,120 $5,698 $10,874 
As of September 30, 2021As of September 30, 2021$2,633 $3,506 $5,682 $11,820 

Prior to the divestiture on March 1, 2021, we presented the Specialty Pharmaceuticals business as a standalone operating segment alongside our reportable segments.

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Goodwill and Intangible Asset Impairments

We did not record any goodwill impairment charges in the secondthird quarter or first sixnine months of 2021 or 2020. We test our goodwill balances in the second quarter of each year as of April 1 for impairment, or more frequently if impairment indicators are present or changes in circumstances suggest an impairment may exist. In the second quarter of 2021, we performed our annual goodwill impairment test for all of our reporting units and concluded that the fair value of each reporting unit exceeded its carrying value. There were no impairment indicators in the third quarter of 2021 that necessitated an interim impairment test.

We assess goodwill for impairment at the reporting unit level, which is defined as an operating segment or one level below an operating segment, referred to as a component.

In the second quarter of 2021, we performed our annual goodwill impairment test for all of our reporting units using the quantitative approach described in FASB ASC Topic 350, Intangibles - Goodwill and Other (FASB ASC Topic 350). We identified the following reporting units in our 2021 annual goodwill impairment test: Interventional Cardiology, Peripheral Interventions, Cardiac Rhythm Management, Electrophysiology, Endoscopy, Urology and Pelvic Health and Neuromodulation. We aggregated the Cardiac Rhythm Management and Electrophysiology reporting units, components of the Rhythm Management operating segment, based on the criteria prescribed in FASB ASC Topic 350. We determined that the fair value of each reporting unit exceeded its carrying value350, Intangibles - Goodwill and concluded that goodwill was not impaired or at risk of impairment.Other.

We recorded Intangible asset impairment charges of $45$128 million in the secondthird quarter and first six months of 2021, $34$219 million in the secondthird quarter of 2020, and $233$173 million in the first sixnine months of 2021 and $452 million in the first nine months of 2020. We review intangible assets subject to amortization quarterly to determine if any adverse conditions exist or a change in circumstances has occurred that would indicate impairment or a change in the remaining useful life. We test our indefinite-lived intangible assets at least annually during the third quarter for impairment and reassess their classification as indefinite-lived assets. In addition, we review our indefinite-lived intangible assets for classification and impairment more frequently if impairment indicators exist. DuringIn the secondthird quarter of 2021, we determined it was more likely than not that one ofperformed our annual IPR&D impairment test and evaluated our indefinite-lived intangiblecore technology assets was impaired based on ourusing the optional qualitative assessment approach and concluded that the assets were not impaired. We also verified that the classification of impairment indicators. We tested the intangible asset for recoverabilityIPR&D projects and recorded an impairment charge associated with incremental time and costour indefinite-lived core technology assets recognized within our unaudited consolidated balance sheets continues to complete the associated in-process research and development (IPR&D) project.be appropriate.

The impairment charges recorded in the first six monthsthird quarter of 20202021 were primarily associated with amortizable technology-related intangible assets that were initially established following our acquisition of nVision. TheseVENITI, Inc., and in the first nine months of 2021 also included the partial impairment of one of our acquired IPR&D assets. In the third quarter of 2020, impairment charges were primarily associated with IPR&D acquired with Apama Medical, Inc. and in the first nine months of 2020 also included charges primarily associated with amortizable technology-related intangible assets that were initially established following our acquisition of nVision Medical Corporation. Each of these charges were recorded as a result of management’s decision to change commercial launch plans or discontinue certain commercial or R&D programs based on cost to complete or remediate, time to market, overall economic viability or, specific to nVision, our understanding of the clinical evidence necessary to commercialize the technology.

Refer to Note A – Significant Accounting Policies 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.

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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 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.

Currency Hedging Instruments

Risk Management Strategy

Our risk from changes in currency exchange rates consists primarily of monetary assets and liabilities, forecasted intercompany and third-party transactions, and net investments in certain subsidiaries. We manage currency exchange rate risk at a consolidated level to reduce the cost of hedging by taking advantage of offsetting transactions. We employ derivative and nonderivative instruments, primarily forward currency contracts, to reduce the risk to our earnings and cash flows associated with changes in currency exchange rates.

The success of our currency risk management program depends, in part, on 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.

Hedge Designations and Relationships

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

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

We designate certain euro-denominated debt as net investment hedges to hedge a portion of our net investments in certain of our entities with functional currencies denominated in the Euro. As of JuneSeptember 30, 2021 and December 31, 2020, we designated as a net investment hedge a portion of our €900 million in aggregate principal amount of 0.625% senior notes issued in November 2019 and due in 2027. For these nonderivative instruments, we defer recognition of the foreign currency remeasurement gains
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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 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 within Other, net in our accompanying unaudited consolidated statements of operations.

Interest Rate Hedging Instruments
Risk Management Strategy

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.

Hedge Designations and Relationships

We had 0no interest rate derivative instruments designated as cash flow hedges outstanding as of JuneSeptember 30, 2021 andor December 31, 2020. 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 $27$25 million loss as of JuneSeptember 30, 2021 and a $29 million loss as of December 31, 2020. We recognized immaterial gains and losses in Interest expense relating to the amortization of our terminated cash flow hedges in the current and prior periods.

We had 0no interest rate derivative instruments designated as fair value hedges outstanding as of JuneSeptember 30, 2021 andor December 31, 2020. Prior to 2018, we terminated interest rate derivative instruments that were designated as fair value hedges and are continuing to recognize the amortization of the gains or losses originally recorded within Long-term debt in our accompanying unaudited consolidated balance sheets into earnings as a component of Interest expense over the same period that the discount or premium associated with the hedged items affects earnings. In the event that we designate outstanding interest rate derivative instruments as fair value hedges, we record the changes in the fair values of interest rate derivatives designated as fair value hedges and of the underlying hedged debt instruments in Interest expense, which generally offset. The balance of the deferred gains on our terminated fair value hedges within Long-term debt was immaterial as of JuneSeptember 30, 2021 and December 31, 2020. We recognized immaterial gains in Interest expense relating to the amortization of the terminated fair value hedges in the current and prior periods.

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The following table presents the contractual amounts of our hedging instruments outstanding:
(in millions)(in millions)FASB ASC Topic 815 DesignationAs of(in millions)FASB ASC Topic 815 DesignationAs of
June 30, 2021December 31, 2020September 30, 2021December 31, 2020
Forward currency contractsForward currency contractsCash flow hedge$4,725 $4,531 Forward currency contractsCash flow hedge$4,344 $4,531 
Forward currency contractsForward currency contractsNet investment hedge493 1,004 Forward currency contractsNet investment hedge493 1,004 
Foreign currency-denominated debt(1)
Foreign currency-denominated debt(1)
Net investment hedge997 868 
Foreign currency-denominated debt(1)
Net investment hedge997 868 
Forward currency contractsForward currency contractsNon-designated5,125 4,946 Forward currency contractsNon-designated4,838 4,946 
Total Notional OutstandingTotal Notional Outstanding$11,340 $11,349 Total Notional Outstanding$10,672 $11,349 
(1)    Foreign currency-denominated debt is the portion of the €900 million debt principal designated as a net investment hedge.

The remaining time to maturity as of JuneSeptember 30, 2021 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.

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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 June 30, 2021
Forward currency contracts
Cash flow hedges$(15)$$(12)Cost of products sold$945 $(10)$$(7)
Net investment hedges(2)
(8)(7)Interest expense86 (3)(3)
Foreign currency-denominated debt
Net investment hedges(3)
(12)(10)Other, net26 
Interest rate derivative contracts
Cash flow hedgesInterest expense86 
Three Months Ended June 30, 2020
Forward currency contracts
Cash flow hedges$(8)$$(6)Cost of products sold$791 $(28)$$(21)
Net investment hedges(2)
(5)(4)Interest expense91 (6)(5)
Foreign currency-denominated debt
Net investment hedges(3)
(22)(17)Other, net18 
Interest rate derivative contracts
Cash flow hedgesInterest Expense91 
Six Months Ended June 30, 2021
Forward currency contracts
Cash flow hedges$156 $(35)$121 Cost of products sold$1,839 $(16)$$(12)
Net investment hedges (2)43 (10)33 Interest expense168 (9)(7)
Foreign currency-denominated debt
Net investment hedges (3)35 (8)27 Other, net(11)
Interest rate derivative contracts
Cash flow hedgesInterest expense168 (1)
Six Months Ended June 30, 2020
Forward currency contracts
Cash flow hedges$111 $(25)$86 Cost of products sold$1,596 $(51)$11 $(39)
Net investment hedges (2)17 (25)(8)Interest expense179 (12)(9)
Foreign currency-denominated debt
Net investment hedges (3)Other, net54 
Interest rate derivative contracts
Cash flow hedgesInterest expense179 (1)

Effect of Hedging Relationships on Accumulated Other Comprehensive Income
Amount Recognized in OCI on Hedges
Unaudited Consolidated Statements of Operations(1)
Amount Reclassified from AOCI into Earnings
(in millions)Pre-Tax Gain (Loss)Tax Benefit (Expense)Gain (Loss) Net of TaxLocation of Amount Reclassified and Total Amount of Line ItemPre-Tax (Gain) LossTax (Benefit) Expense(Gain) Loss Net of Tax
Three Months Ended September 30, 2021
Forward currency contracts
Cash flow hedges$79 $(18)$61 Cost of products sold$900 $(16)$$(12)
Net investment hedges(2)
(2)Interest expense86 (2)— (2)
Foreign currency-denominated debt
Net investment hedges(3)
25 (6)20 Other, net(181)— — — 
Interest rate derivative contracts
Cash flow hedges— — — Interest expense86 — 
Effect of Hedging Relationships on Accumulated Other Comprehensive Income
Amount Recognized in OCI on Hedges
Unaudited Consolidated Statements of Operations(1)
Amount Reclassified from AOCI into Earnings
(in millions)Pre-Tax Gain (Loss)Tax Benefit (Expense)Gain (Loss) Net of TaxLocation of Amount Reclassified and Total Amount of Line ItemPre-Tax (Gain) LossTax (Benefit) Expense(Gain) Loss Net of Tax
Three Months Ended September 30, 2020
Forward currency contracts
Cash flow hedges$(64)$14 $(50)Cost of products sold$869 $(20)$$(15)
Net investment hedges(2)
(21)(16)Interest expense86 (6)(5)
Foreign currency-denominated debt
Net investment hedges(3)
(46)10 (36)Other, net(64)— — — 
Interest rate derivative contracts
Cash flow hedges— — — Interest Expense86 — 
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
Nine Months Ended September 30, 2021
Forward currency contracts
Cash flow hedges$234 $(53)$182 Cost of products sold$2,739 $(31)$$(24)
Net investment hedges (2)50 (11)39 Interest expense254 (11)(9)
Foreign currency-denominated debt
Net investment hedges (3)60 (14)47 Other, net(192)— — — 
Interest rate derivative contracts
Cash flow hedges— — — Interest expense254 (1)
Effect of Hedging Relationships on Accumulated Other Comprehensive Income
Amount Recognized in OCI on Hedges
Unaudited Consolidated Statements of Operations(1)
Amount Reclassified from AOCI into Earnings
(in millions)Pre-Tax Gain (Loss)Tax Benefit (Expense)Gain (Loss) Net of TaxLocation of Amount Reclassified and Total Amount of Line ItemPre-Tax (Gain) LossTax (Benefit) Expense(Gain) Loss Net of Tax
Nine Months Ended September 30, 2020
Forward currency contracts
Cash flow hedges$47 $(11)$36 Cost of products sold$2,465 $(70)$16 $(55)
Net investment hedges (2)(4)(21)(25)Interest expense265 (18)(14)
Foreign currency-denominated debt
Net investment hedges (3)(44)13 (31)Other, net(9)— — — 
Interest rate derivative contracts
Cash flow hedges— — — Interest expense265 (1)
(1)    In all periods presented in the table above, the pre-tax (gain) loss amounts reclassified from AOCI to earnings represent the effect of the hedging relationships on earnings. All other amounts included in earnings related to hedging relationships were immaterial.
(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. NaNNo amounts were reclassified from AOCI to current period earnings.
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As of JuneSeptember 30, 2021, 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$75108 
Forward currency contractsNet investment hedgeInterest expense75 
Interest rate derivative contractsCash flow hedgeInterest expense(5)

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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 June 30,Six Months Ended June 30,Location on Unaudited Consolidated Statements of OperationsThree Months Ended September 30,Nine Months Ended September 30,
(in millions)(in millions)2021202020212020(in millions)2021202020212020
Net gain (loss) on currency hedge contractsNet gain (loss) on currency hedge contractsOther, net$(1)$$(2)$(9)Net gain (loss) on currency hedge contractsOther, net$(15)$29 $(17)$20 
Net gain (loss) on currency transaction exposuresNet gain (loss) on currency transaction exposuresOther, net(5)(11)(6)(3)Net gain (loss) on currency transaction exposuresOther, net(30)(33)
Net currency exchange gain (loss)Net currency exchange gain (loss)$(7)$(5)$(9)$(12)Net currency exchange gain (loss)$(8)$(1)$(17)$(13)

Fair Value Measurements

FASB ASC Topic 815 requires all derivative and nonderivative instruments to be recognized at their fair values as either assets or liabilities on the balance sheet. We determine the fair value of our derivative and nonderivative instruments using the framework prescribed by FASB ASC Topic 820, Fair Value Measurements and Disclosures (FASB ASC Topic 820) and considering the estimated amount we would receive or pay to transfer these instruments at the reporting date with respect to current currency exchange rates, interest rates, the creditworthiness of the counterparty for unrealized gain positions and our own creditworthiness for unrealized loss positions. In certain instances, we may utilize financial models to measure fair value of our derivative and nonderivative instruments. In doing so, we use inputs that include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, other
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observable inputs for the asset or liability and inputs derived principally from, or corroborated by, observable market data by correlation or other means. The following are the balances of our derivative and nonderivative assets and liabilities:
Location on Unaudited Consolidated Balance Sheets(1)
As of
Location on Unaudited Consolidated Balance Sheets(1)
As of
(in millions)(in millions)June 30, 2021December 31, 2020(in millions)September 30, 2021December 31, 2020
Derivative and Nonderivative Assets:Derivative and Nonderivative Assets:   Derivative and Nonderivative Assets:   
Designated Hedging InstrumentsDesignated Hedging Instruments  Designated Hedging Instruments  
Forward currency contractsForward currency contractsOther current assets$128 $53 Forward currency contractsOther current assets$152 $53 
Forward currency contractsForward currency contractsOther long-term assets156 109 Forward currency contractsOther long-term assets176 109 
 284 162   328 162 
Non-Designated Hedging InstrumentsNon-Designated Hedging Instruments   Non-Designated Hedging Instruments   
Forward currency contractsForward currency contractsOther current assets38 79 Forward currency contractsOther current assets41 79 
Total Derivative and Nonderivative AssetsTotal Derivative and Nonderivative Assets $322 $242 Total Derivative and Nonderivative Assets $369 $242 
Derivative and Nonderivative Liabilities:Derivative and Nonderivative Liabilities:   Derivative and Nonderivative Liabilities:   
Designated Hedging InstrumentsDesignated Hedging Instruments  Designated Hedging Instruments  
Forward currency contractsForward currency contractsOther current liabilities$37 $44 Forward currency contractsOther current liabilities$24 $44 
Forward currency contractsForward currency contractsOther long-term liabilities16 54 Forward currency contractsOther long-term liabilities54 
Foreign currency-denominated debt(2)
Foreign currency-denominated debt(2)
Other long-term liabilities1,058 1,094 
Foreign currency-denominated debt(2)
Other long-term liabilities1,033 1,094 
 1,111 1,191   1,063 1,191 
Non-Designated Hedging InstrumentsNon-Designated Hedging Instruments   Non-Designated Hedging Instruments   
Forward currency contractsForward currency contractsOther current liabilities51 71 Forward currency contractsOther current liabilities57 71 
Total Derivative and Nonderivative LiabilitiesTotal Derivative and Nonderivative Liabilities $1,163 $1,262 Total Derivative and Nonderivative Liabilities $1,120 $1,262 
(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 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.

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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 ofAs of
June 30, 2021December 31, 2020 September 30, 2021December 31, 2020
(in millions)(in millions)Level 1Level 2Level 3TotalLevel 1Level 2Level 3Total(in millions)Level 1Level 2Level 3TotalLevel 1Level 2Level 3Total
AssetsAssets        Assets        
Money market funds and time depositsMoney market funds and time deposits$2,379 $$$2,379 $1,584 $$$1,584 Money market funds and time deposits$1,537 $— $— $1,537 $1,584 $— $— $1,584 
Publicly-held equity securitiesPublicly-held equity securities176 176 414 414 Publicly-held equity securities— — 414 — — 414 
Hedging instrumentsHedging instruments322 322 242 242 Hedging instruments— 369 — 369 — 242 — 242 
Licensing arrangementsLicensing arrangements311 311 365 365 Licensing arrangements— — 280 280 — — 365 365 
$2,556 $322 $311 $3,189 $1,998 $242 $365 $2,605  $1,541 $369 $280 $2,190 $1,998 $242 $365 $2,605 
LiabilitiesLiabilities        Liabilities        
Hedging instrumentsHedging instruments$$1,163 $$1,163 $$1,262 $$1,262 Hedging instruments$— $1,120 $— $1,120 $— $1,262 $— $1,262 
Contingent consideration liabilityContingent consideration liability312 312 196 196 Contingent consideration liability— — 448 448 — — 196 196 
Licensing arrangementsLicensing arrangements350 350 407 407 Licensing arrangements— — 297 297 — — 407 407 
$0 $1,163 $662 $1,825 $0 $1,262 $603 $1,865  $ $1,120 $745 $1,865 $ $1,262 $603 $1,865 

Our investments in money market funds and time deposits are classified within Level 1 of the fair value hierarchy because they are valued using quoted market prices. These investments are classified as Cash and cash equivalents within our accompanying unaudited consolidated balance sheets, in accordance with U.S. GAAP and our accounting policies. In addition to $2.379$1.537 billion invested in money market funds and time deposits as of JuneSeptember 30, 2021 and $1.584 billion as of December 31, 2020, we held $296$410 million in interest-bearing and non-interest-bearing bank accounts as of JuneSeptember 30, 2021 and $150 million as of December 31, 2020.

Our recurring fair value measurements using Level 3 inputs include those related to our contingent consideration liability. Refer to Note B – Acquisitions, Divestitures and Strategic Investments for a discussion of the changes in the fair value of our contingent consideration liability. In addition, our recurring fair value measurements using Level 3 inputs related to our licensing arrangements, including the contractual right to receive future royalty payments related to the Zytiga™ Drug. We recognized a financial asset and associated liability for our licensing arrangements at fair value in our accompanying unaudited consolidated balance sheets using the fair value option in accordance with FASB ASC Topic 825, Financial Instruments.

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We own the contractual right to receive 50 percent of the future royalty payments from the licensee and remit such payments to the inventors associated with the intellectual property. Royalty payments we receive reduce the fair value of the financial asset and are presented within Proceeds from royalty rights, and payments we remit to inventors reduce the fair value of the financial liability and are presented within Payments for royalty rights within our unaudited consolidated statements of cash flows. We sold our right to receive and retain the other 50 percent of the future royalty payments in 2019 for an upfront cash payment, which we accounted for as a secured borrowing in accordance with FASB ASC Topic 860, Transfers and Servicing. Although we sold these rights, we continue to recognize at fair value the future royalty payments as a financial asset and associated liability. Royalty payments associated with the rights we sold no longer impact our cash flows, and we present this activity as Non-cash impact of transferred royalty rights in the supplemental information to our unaudited consolidated statements of cash flows. We reduce the fair value of the financial asset and associated liability when such non-cash activity occurs.

We have recorded the fair value of the financial asset and associated liability using a discounted cash flow approach considering the probability-weighted expected future cash flows to be generated by the royalty stream. The fair value of the financial liability also considers the related contractual provisions that govern our payment obligations. Significant increases or decreases in projected cash flows of the royalty stream and the related contractual provisions that govern our payment obligations, discount rates or the time until payment is made would have resulted in a significantly lower or higher fair value measurement of the licensing arrangements' financial asset and liability as of JuneSeptember 30, 2021. However, increases or decreases in the financial asset would be offset by increases or decreases in the financial liability, other than for timing of receipt and remittance; as such our earnings are not subject to material gains and losses from the licensing arrangement.

The recurring Level 3 fair value measurements of our licensing arrangements recognized in our accompanying unaudited consolidated balance sheets as of JuneSeptember 30, 2021 include the following significant unobservable inputs:
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Licensing ArrangementsLicensing ArrangementsFair Value as of June 30, 2021Valuation TechniqueUnobservable InputRangeWeighted Average (1)Licensing ArrangementsFair Value as of September 30, 2021Valuation TechniqueUnobservable InputRangeWeighted Average (1)
Financial AssetFinancial Asset$311 millionDiscounted Cash FlowDiscount Rate15%15%Financial Assettd80 millionDiscounted Cash FlowDiscount Rate15%15%
Projected Year of Payment2021-20252023Projected Year of Payment2021-20252023
Financial LiabilityFinancial Liability$350 millionDiscounted Cash FlowDiscount Rate12 %-15%13%Financial Liabilitytd97 millionDiscounted Cash FlowDiscount Rate12 %-15%13%
Projected Year of Payment2021-20262023Projected Year of Payment2021-20262023
(1)    Unobservable inputs relate to a single financial asset and liability. As such, unobservable inputs were not weighted by the relative fair value of the instruments. For projected year of payment, the amount represents the median of the inputs and is not a weighted average.

Changes in the fair value of our licensing arrangements' financial asset were as follows:
(in millions)
Balance as of December 31, 2020$365 
Proceeds from royalty rights(43)(62)
Non-cash impact of transferred royalty rights(43)(62)
Fair value adjustment (expense) benefit3140 
Balance as of JuneSeptember 30, 2021$311280 

Changes in the fair value of our licensing arrangements' financial liability were as follows:
(in millions)
Balance as of December 31, 2020$407 
Payments for royalty rights(42)(85)
Non-cash impact of transferred royalty rights(43)(62)
Fair value adjustment expense (benefit)2837 
Balance as of JuneSeptember 30, 2021$350297 





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Non-Recurring Fair Value Measurements

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

The fair value of our outstanding debt obligations was $10.431$10.372 billion as of JuneSeptember 30, 2021, including $1.085$1.056 billion relating to our euro-denominated December 2027 Notes, and $10.774 billion as of December 31, 2020, including $1.118 billion relating to our euro-denominated December 2027 Notes. We determined fair value by using quoted market prices for our publicly registered senior notes, classified as Level 1 within the fair value hierarchy, and face value for commercial paper, term loans and credit facility borrowings outstanding. Refer to Note E – Contractual Obligations and Commitments for a discussion of our debt obligations.

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NOTE E – CONTRACTUAL OBLIGATIONS AND COMMITMENTS

Borrowings and Credit Arrangements

We had total debt outstanding of $9.109$9.085 billion as of JuneSeptember 30, 2021 and $9.143 billion as of December 31, 2020, with current maturities of $262$261 million as of JuneSeptember 30, 2021 and $13 million as of December 31, 2020. The debt maturity schedule for our long-term debt obligations is presented below:
(in millions, except interest rates)(in millions, except interest rates)Issuance DateMaturity DateAs of
Coupon Rate(1)
(in millions, except interest rates)Issuance DateMaturity DateAs of
Coupon Rate(1)
June 30,
2021
December 31,
2020
September 30,
2021
December 31,
2020
May 2022 Notes(3)
May 2022 Notes(3)
May 2015May 2022$$250 3.375%
May 2022 Notes(3)
May 2015May 2022$— $250 3.375%
October 2023 NotesOctober 2023 NotesAugust 2013October 2023244 244 4.125%October 2023 NotesAugust 2013October 2023244 244 4.125%
March 2024 NotesMarch 2024 NotesFebruary 2019March 2024850 850 3.450%March 2024 NotesFebruary 2019March 2024850 850 3.450%
May 2025 NotesMay 2025 NotesMay 2015May 2025523 523 3.850%May 2025 NotesMay 2015May 2025523 523 3.850%
June 2025 NotesJune 2025 NotesMay 2020June 2025500 500 1.900%June 2025 NotesMay 2020June 2025500 500 1.900%
March 2026 NotesMarch 2026 NotesFebruary 2019March 2026850 850 3.750%March 2026 NotesFebruary 2019March 2026850 850 3.750%
December 2027 NotesDecember 2027 NotesNovember 2019December 20271,068 1,105 0.625%December 2027 NotesNovember 2019December 20271,043 1,105 0.625%
March 2028 NotesMarch 2028 NotesFebruary 2018March 2028434 434 4.000%March 2028 NotesFebruary 2018March 2028434 434 4.000%
March 2029 NotesMarch 2029 NotesFebruary 2019March 2029850 850 4.000%March 2029 NotesFebruary 2019March 2029850 850 4.000%
June 2030 NotesJune 2030 NotesMay 2020June 20301,200 1,200 2.650%June 2030 NotesMay 2020June 20301,200 1,200 2.650%
November 2035 Notes(2)
November 2035 Notes(2)
November 2005November 2035350 350 7.000%
November 2035 Notes(2)
November 2005November 2035350 350 7.000%
March 2039 NotesMarch 2039 NotesFebruary 2019March 2039750 750 4.550%March 2039 NotesFebruary 2019March 2039750 750 4.550%
January 2040 NotesJanuary 2040 NotesDecember 2009January 2040300 300 7.375%January 2040 NotesDecember 2009January 2040300 300 7.375%
March 2049 NotesMarch 2049 NotesFebruary 2019March 20491,000 1,000 4.700%March 2049 NotesFebruary 2019March 20491,000 1,000 4.700%
Unamortized Debt Issuance Discount
and Deferred Financing Costs
Unamortized Debt Issuance Discount
and Deferred Financing Costs
2022 - 2049(82)(88)
Unamortized Debt Issuance Discount
and Deferred Financing Costs
2022 - 2049(79)(88)
Unamortized Gain on Fair Value HedgesUnamortized Gain on Fair Value Hedges2023Unamortized Gain on Fair Value Hedges2023
Finance Lease ObligationFinance Lease ObligationVariousFinance Lease ObligationVarious
Long-term debtLong-term debt$8,847 $9,130 Long-term debt$8,824 $9,130 
Note: The table above does not include unamortized amounts related to interest rate contracts designated as cash flow hedges.
(1)    Coupon rates are semi-annual, except for the euro-denominated December 2027 Notes, which bear an annual coupon.
(2)    Corporate credit rating improvements may result in a decrease in the adjusted interest rate on our November 2035 Notes to the extent that our lowest credit rating is above BBB- or Baa3. The interest rates on our November 2035 Notes will be permanently reinstated to the issuance rate if the lowest credit ratings assigned to these senior notes is either A- or A3 or higher. Effective November 15, 2021, the interest rate payable will decrease by 0.25 percent and begin accruing at a rate of 6.75 percent following recent upgrades to our credit ratings.
(3) As of JuneSeptember 30, 2021 the outstanding balance is presented within Current Debt Obligations within our unaudited consolidated balance sheet.
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Revolving Credit Facility

On May 10, 2021 we entered into a new $2.750 billion revolving credit facility (2021 Revolving Credit Facility) with a global syndicate of commercial banks and terminated our previous facility (2018 Revolving Credit Facility). The 2021 Revolving Credit Facility will mature on May 10, 2026, with one-year extension options, subject to certain conditions. This facility provides backing for our commercial paper program, and outstanding commercial paper directly reduces borrowing capacity under the 2021 Revolving Credit Facility. There were 0no amounts outstanding under the 2021 Revolving Credit Facility as of JuneSeptember 30, 2021 or under the 2018 Revolving Credit Facility as of December 31, 2020.

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Financial Covenant

As of and through JuneSeptember 30, 2021, we were in compliance with the financial covenant required by the credit facilities described above:
Covenant RequirementActual
 as of JuneSeptember 30, 2021as of JuneSeptember 30, 2021
Maximum permitted leverage ratio(1)
4.254.00 times3.062.89 times
(1)Ratio of total debt to consolidated EBITDA, as defined by the credit agreements, as amended.

The 2021 Revolving Credit Facility includes the following financial covenant requirement for all of our credit arrangements (i) maintain the maximum permitted leverage ratio of 4.254.00 times for the secondthird quarter of 2021, with a step-down for each succeeding fiscal quarter end, beginning with the third quarter of 2021, to 4.00 times and 3.75 times for the fourth quarter of 2021 and through the remaining term of the 2021 Revolving Credit Facility.term. The agreement provides for higher leverage ratios for the period following a qualified acquisition, at our election, for which consideration exceeds $1.000 billion. In the event of such an acquisition, for the four succeeding quarters immediately following, including the quarter in which the acquisition occurs, the maximum permitted leverage ratio is 4.75 times. ItThe maximum permitted ratio steps down for the fifth, sixth and seventh succeeding quarters to 4.50 times, 4.25 times and 4.00 times, respectively. Thereafter, a maximum leverage ratio of 3.75 times is required through the remaining term of the 2021 Revolving Credit Facility. We have not elected to increase the maximum permitted leverage ratio for the recently completed acquisition of Lumenis due to the funding of the acquisition using cash on hand.

The financial covenant requirement provides for an exclusion from the calculation of consolidated EBITDA, as defined by the agreements,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 JuneSeptember 30, 2021, we had $467$428 million of the restructuring charge exclusion remaining. In addition, any cash litigation payments (net of any cash litigation receipts), as defined by the agreements, are excluded from the calculation of consolidated EBITDA, as defined by the agreements, provided that the sum of any excluded net cash litigation payments do not exceed $1.455 billion in the aggregate. As of JuneSeptember 30, 2021, we had $1.303$1.243 billion of the litigation exclusion remaining.

Any inability to maintain compliance with this covenant could require us to seek to further renegotiate the terms of our credit arrangements or seek waivers from compliance with this covenant, both of which could result in additional borrowing costs. Further, there can be no assurance that our lenders would agree to such new terms or grant such waivers on terms acceptable to us. In this case, all 2021 Revolving Credit Facility commitments would terminate, and any amounts borrowed under the facility would become immediately due and payable. Furthermore, any termination of our 2021 Revolving Credit Facility may negatively impact the credit ratings assigned to our commercial paper program, which may impact our ability to refinance any then outstanding commercial paper as it becomes due and payable.

Commercial Paper

Our commercial paper program is backed by the 2021 Revolving Credit Facility, as discussed above, and outstanding commercial paper directly reduces borrowing capacity under the 2021 Revolving Credit Facility. We did not have any commercial paper outstanding as of JuneSeptember 30, 2021 or December 31, 2020.

Senior Notes

We had senior notes outstanding of $9.168$9.143 billion as of JuneSeptember 30, 2021 and $9.205 billion as of December 31, 2020. Our senior notes were issued in public offerings, are redeemable prior to maturity and are not subject to sinking fund requirements. Our senior notes are unsecured, unsubordinated obligations and rank on parity with each other. These notes are effectively junior to liabilities of our subsidiaries (see Other Arrangements below).
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Other Arrangements

We have accounts receivable factoring programs in certain European countries and with commercial banks in China and Japan which include promissory notes discounting programs. We account for our factoring programs as sales under FASB ASC Topic 860, Transfers and Servicing. We have no retained interest in the transferred receivables, other than collection and administration, and once sold, the accounts receivable are no longer available to satisfy creditors in the event of bankruptcy.
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Amounts de-recognized for accounts and notes receivable, which are excluded from Trade accounts receivable, net in our accompanying unaudited consolidated balance sheets, are aggregated by contract denominated currency below (in millions):
Factoring ArrangementsFactoring ArrangementsAs of June 30, 2021As of December 31, 2020Factoring ArrangementsAs of September 30, 2021As of December 31, 2020
Amount
De-recognized
Weighted Average
Interest Rate
Amount
De-recognized
Weighted Average
Interest Rate
Amount
De-recognized
Weighted Average
Interest Rate
Amount
De-recognized
Weighted Average
Interest Rate
Euro denominatedEuro denominated$160 2.2 %$148 1.9 %Euro denominated$152 2.1 %$148 1.9 %
Yen denominatedYen denominated213 0.6 %240 0.6 %Yen denominated203 0.5 %240 0.6 %
Renminbi denominatedRenminbi denominated3.1 %3.5 %Renminbi denominated— 3.1 %— 3.5 %

Other Contractual Obligations and Commitments

We had outstanding letters of credit of $135 million as of JuneSeptember 30, 2021 and $124 million as of December 31, 2020, which consisted primarily of bank guarantees and collateral for workers' compensation insurance arrangements. As of JuneSeptember 30, 2021 and December 31, 2020, none of the beneficiaries had drawn upon the letters of credit or guarantees, and accordingly, we have not recognized a related liability for our outstanding letters of credit in our accompanying unaudited consolidated balance sheets as of JuneSeptember 30, 2021 and December 31, 2020.

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

NOTE F – SUPPLEMENTAL BALANCE SHEET INFORMATION

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

Trade accounts receivable, net
As of As of
(in millions)(in millions)June 30, 2021December 31, 2020(in millions)September 30, 2021December 31, 2020
Trade accounts receivableTrade accounts receivable$1,781 $1,637 Trade accounts receivable$1,778 $1,637 
Allowance for credit lossesAllowance for credit losses(107)(105)Allowance for credit losses(108)(105)
$1,675 $1,531  $1,669 $1,531 

The following is a rollforward of our Allowance for credit losses:
Three Months Ended June 30,Six Months Ended
June 30,
Three Months Ended September 30,Nine Months Ended
September 30,
(in millions)(in millions)2021202020212020(in millions)2021202020212020
Beginning balanceBeginning balance$101 $87 $105 $74 Beginning balance$107 $94 $105 $74 
Cumulative effect adjustment(1)
Cumulative effect adjustment(1)
n/an/an/a10 
Cumulative effect adjustment(1)
n/an/an/a10 
Credit loss expenseCredit loss expense14 11 22 Credit loss expense16 20 39 
Write-offsWrite-offs(4)(7)(10)(13)Write-offs(7)(7)(17)(19)
Ending balanceEnding balance$107 $94 $107 $94 Ending balance$108 $103 $108 $103 
(1)    Effective January 1, 2020, we adopted FASB ASC Topic 326, Financial Instruments - Credit Losses using the modified retrospective method, which requires that we recognize credit loss reserves when financial assets are established if credit losses are expected over the asset’s contractual life. Refer to Note R – New Accounting Pronouncements to our audited financial statements contained in Item 8 of our most recent Annual Report on Form 10-K for additional information.

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

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

Inventories
As of As of
(in millions)(in millions)June 30, 2021December 31, 2020(in millions)September 30, 2021December 31, 2020
Finished goodsFinished goods$933 $893 Finished goods$1,039 $893 
Work-in-processWork-in-process121 109 Work-in-process127 109 
Raw materialsRaw materials376 349 Raw materials436 349 
$1,430 $1,351  $1,603 $1,351 

Other current assets
As of As of
(in millions)(in millions)June 30, 2021December 31, 2020(in millions)September 30, 2021December 31, 2020
Restricted cash and restricted cash equivalentsRestricted cash and restricted cash equivalents$167 $208 Restricted cash and restricted cash equivalents$155 $208 
Derivative assetsDerivative assets167 133 Derivative assets192 133 
Licensing arrangementsLicensing arrangements145 148 Licensing arrangements142 148 
OtherOther299 263 Other302 263 
$777 $751  $792 $751 

Property, plant and equipment, net
As of As of
(in millions)(in millions)June 30, 2021December 31, 2020(in millions)September 30, 2021December 31, 2020
LandLand$104 $104 Land$103 $104 
Buildings and improvementsBuildings and improvements1,342 1,292 Buildings and improvements1,340 1,292 
Equipment, furniture and fixturesEquipment, furniture and fixtures3,517 3,465 Equipment, furniture and fixtures3,515 3,465 
Capital in progressCapital in progress432 446 Capital in progress465 446 
5,395 5,308  5,423 5,308 
Less: accumulated depreciationLess: accumulated depreciation3,313 3,224 Less: accumulated depreciation3,314 3,224 
$2,082 $2,084  $2,109 $2,084 

Depreciation expense was $83$88 million for the secondthird quarter of 2021, $78$84 million for the secondthird quarter of 2020, $166$254 million for the first sixnine months of 2021 and $154$238 million for the first sixnine months of 2020.

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Other long-term assets
As of As of
(in millions)(in millions)June 30, 2021December 31, 2020(in millions)September 30, 2021December 31, 2020
Restricted cash equivalentsRestricted cash equivalents$57 $52 Restricted cash equivalents$57 $52 
Operating lease right-of-use assetsOperating lease right-of-use assets411 458 Operating lease right-of-use assets415 458 
Derivative assetsDerivative assets156 109 Derivative assets176 109 
InvestmentsInvestments616 918 Investments434 918 
Licensing arrangementsLicensing arrangements166 218 Licensing arrangements138 218 
OtherOther224 166 Other223 166 
$1,629 $1,921  $1,444 $1,921 

Accrued expenses
As of As of
(in millions)(in millions)June 30, 2021December 31, 2020(in millions)September 30, 2021December 31, 2020
Legal reservesLegal reserves$417 $505 Legal reserves$357 $505 
Payroll and related liabilitiesPayroll and related liabilities801 681 Payroll and related liabilities884 681 
RebatesRebates354 331 Rebates351 331 
Contingent consideration liabilityContingent consideration liability258 26 Contingent consideration liability253 26 
OtherOther612 656 Other574 656 
$2,442 $2,197  $2,418 $2,197 

Other current liabilities
As of As of
(in millions)(in millions)June 30, 2021December 31, 2020(in millions)September 30, 2021December 31, 2020
Deferred revenueDeferred revenue$141 $138 Deferred revenue$160 $138 
Licensing arrangementsLicensing arrangements151 153 Licensing arrangements142 153 
Taxes payableTaxes payable121 158 Taxes payable113 158 
Liabilities held for saleLiabilities held for sale200 Liabilities held for sale— 200 
OtherOther268 307 Other255 307 
$680 $958  $669 $958 

Other long-term liabilities
As of As of
(in millions)(in millions)June 30, 2021December 31, 2020(in millions)September 30, 2021December 31, 2020
Accrued income taxesAccrued income taxes$535 $547 Accrued income taxes$541 $547 
Legal reservesLegal reserves200 64 Legal reserves191 64 
Contingent consideration liabilityContingent consideration liability54 171 Contingent consideration liability195 171 
Licensing arrangementsLicensing arrangements199 253 Licensing arrangements155 253 
Operating lease liabilitiesOperating lease liabilities359 401 Operating lease liabilities377 401 
Deferred revenueDeferred revenue283 257 Deferred revenue296 257 
OtherOther560 615 Other542 615 
$2,190 $2,309  $2,296 $2,309 

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NOTE G – INCOME TAXES

Our effective tax rate from continuing operations is presented below:
Three Months Ended June 30,Six Months Ended June 30,Three Months Ended September 30,Nine Months Ended September 30,
20212020202120202021202020212020
Effective tax rate from continuing operationsEffective tax rate from continuing operations(24.9)%18.4 %(11.2)%13.7 %Effective tax rate from continuing operations13.2 %31.7 %1.1 %24.3 %

The change in our reported tax rates for the secondthird quarter and first sixnine months of 2021, as compared to the same periods in 2020, 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 acquisition/divestiture-relatedlitigation-related net charges (credits), restructuring and restructuring-relatedintangible asset impairment charges, acquisition/divestiture-related net charges (credit), litigation charges, investment portfolio net losses (gains), as well as certain discrete tax items primarily related to changes in foreign tax rates, and changes in tax laws adoptedan IRS audit settlement in the second quarter of 2021, as well as the impacts of the Coronavirus Aid, Relief and Economic Security (CARES) Act in the secondthird quarter of 2020.

As of JuneSeptember 30, 2021, we had $280$277 million of gross unrecognized tax benefits, of which a net $195 million, if recognized, would affect our effective tax rate. As of December 31, 2020, we had $261 million of gross unrecognized tax benefits, of which a net $183 million, if recognized, would affect our effective tax rate. The change in our gross unrecognized tax benefit is primarily related to positions on new entities we acquired through recent acquisitions and restructuring activities.

It is reasonably possible that within the next 12 months, we will resolve multiple issues with foreign, federal and state taxing authorities, resulting in a reduction in our balance of unrecognized tax benefits of up to $24$23 million.

Economic stimulus legislation has been enacted in many countries in response to the COVID-19 pandemic. In the U.S., the CARES Act, enacted on March 27, 2020, provided an estimated $2.2 trillion in COVID-19 pandemic-related relief, and included tax relief and government loans, subsidies and other relief for entities in affected industries. While we have not applied for government loans, we have taken advantage of the benefits offered in multiple jurisdictions, including the U.S. provision allowing taxpayers to defer payment of the employer portion of certain payroll taxes incurred in 2020. This allowed us to preserve cash generated from operations to service our debt obligations and other near-term commitments and is expected to be paid in full by the end of 2022 as permitted by the legislation.

NOTE H – COMMITMENTS AND CONTINGENCIES

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

During recent years, we successfully negotiated closure of several long-standing legal matters and have received favorable rulings in several other matters; however, there continues to be outstanding 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
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adverse effect on our ability to sell certain products and on our operating margins, financial position, results of operations and/or liquidity.
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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 $617$548 million as of JuneSeptember 30, 2021 and $569 million as of December 31, 2020 and includes certain estimated costs of settlement, damages and defense. The increase in our legal accrual was mainly duedefense primarily related to product liability cases or claims related to our transvaginal surgical mesh products. A portion of our legalthis accrual is already funded through our qualified settlement fund (QSF), which is included in restricted cash and restricted cash equivalents in Other current assets of $167$155 million as of JuneSeptember 30, 2021 and $208 million as of December 31, 2020. Refer to Note F – Supplemental Balance Sheet Information for additional information.

We recorded litigation-related net charges of $298 million during the second quarter of 2021 and $302 million during the first six months of 2021, related primarily to transvaginal surgical mesh products. We did not record any litigation-related net charges during the third quarter of 2021 and recorded $302 million during the first sixnine months of 2020.2021, and $260 million during the third quarter and first nine months of 2020, primarily related to transvaginal mesh products, inclusive of a reserve related to claims made by a coalition of state attorneys general. These settlements were finalized in March of 2021 as described further below.

We record certain legal and product liability charges, credits and costs of defense, which we consider to be unusual or infrequent and significant as Litigation-related net charges (credits) in our accompanying unaudited consolidated financial statements. All other legal and product liability charges, credits and costs are recorded within Selling, general and administrative expenses in our accompanying unaudited consolidated statements of operations. We continue to assess certain litigation and claims to determine the amounts, if any, that management believes will be paid as a result of such claims and litigation and, therefore, additional losses may be accrued and paid in the future, which could materially adversely impact our operating results, cash flows and/or our ability to comply with our financial covenant.

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

Patent Litigation

On October 28, 2015, the Company filed suit against Cook Group Limited and Cook Medical LLC (collectively, “Cook”) in the United States District Court for the District of Delaware (1:15-cv-00980) alleging infringement of certain Company patents regarding Cook’s Instinct™ Endoscopic Hemoclip. The case was transferred to the District Court for the Southern District of Indiana. Cook filed seven Inter Partes Review (“IPR”) requests with the U.S. Patent and Trademark Office (USPTO) against the four asserted patents. All IPRs have concluded and Cook and the Company both appealed the Patent Office’s IPR decisions to the Federal Circuit Court of Appeals. On April 30, 2020, the U.S. Court of Appeals ruled that claims from two of the Company's patents remain valid, remanding two of the patents for further review by the USPTO’s Patent Trial and Appeal Board. In November 2020, the Patent Office issued remand rulings invalidating several additional claims. The district court stayed the case pending the appeals court decision on the IPRs, which is now complete. The case is proceeding before the United States District Court for the Southern District of Indiana, with the Company asserting three patents against Cook. Trial is anticipated in October 2022.February 2023.

On February 23, 2021, Nevro Corp. (“Nevro”) filedNovember 20, 2017, The Board of Regents, University of Texas System (UT) and TissueGen. Inc., served a lawsuit against us in the Western District of Texas. The complaint against us alleges patent infringement of two U.S. patents owned by UT, relating to “Drug Releasing Biodegradable Fiber Implant” and “Drug Releasing Biodegradable Fiber for Delivery of Therapeutics,” and affects the Company inmanufacture, use and sale of our Synergy™ Stent System. On March 12, 2018, the District Court for the Western District of Texas dismissed the action and transferred it to the United States District Court for the District of Delaware (21-cv-258). The complaint alleges infringementDelaware. On September 5, 2019, the Court of five Nevro patents by certainAppeals for the Federal Circuit affirmed the dismissal of the Company’s spinal cord stimulation systems.

District Court for
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the Western District of Texas. In April 2020, the United States Supreme Court denied the University’s Petition for Certiorari. UT is proceeding with its case against BSC in Delaware. Trial is scheduled for November 14, 2022.

On December 9, 2016, the Company and Boston Scientific Neuromodulation Corporation filed a patent infringement action against Nevro in United States District Court for the District of Delaware (16-cv-1163) alleging that ten U.S. patents owned by Boston Scientific Neuromodulation Corporation are infringed by Nevro's Senza™ Spinal Cord Stimulation (SCS) System. At a trial held in October and November 2021 regarding six of Boston Scientific's originally asserted patent claims, a jury granted Boston Scientific a monetary award, finding that each asserted claim is valid, that four of the six claims are infringed by Nevro, and that two of the claims are willfully infringed by Nevro.

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 in United States District Court for the District of Delaware (18-cv-664), 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 SCS Systems. On December 9, 2019, Nevro filed an answer and counterclaims, in which it alleged that our SCS systems infringe five Nevro patents. No trial date has been set for the theft of trade secrets and patent counterclaims. The patent infringement claims from case 18-cv-664 were stayed pending IPRs. On January 6, 2021, the court stayed one of the patent infringement claims from case 16-cv-1163, such that it will proceed with the stayed patent infringement claims from case 18-cv-664.

Product Liability Litigation

As of JulyOctober 20, 2021, approximately 54,500 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. As of JulyOctober 20, 2021, 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 52,500 cases and claims, adjusted to reflect the Company’s analysis of expected non-participation and duplicate 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 52,500 cases and claims, approximately 49,00050,500 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. The pending cases are in various federal and state courts in the U.S. 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 were 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. The Court issued an Order closing the MDL on February 11, 2021, as all cases that had been pending were dismissed or remanded to courts of primary jurisdiction. Outside the United States, there are fewer than 7580 claims in the United Kingdom and Ireland. In the first quarter of 2021, 2 class actions were filed against the Company in Australia. In the second quarter of 2021, one of these class actionsaction was permanently stayed, while the other is proceeding. At this time,The registration process for the Companyclass action closed on October 29, 2021. Complete registration information is aware ofnot yet available but preliminary information indicates that fewer than 125 claims in Australia.300 women have completed registration forms alleging they had Boston Scientific implants. There are also fewer than 10 cases in Canada, inclusive of 1 certified class action, which has settled and received Court approval. On April 16, 2019, the U.S. Food and Drug Administration (FDA) ordered that all manufacturers of surgical mesh products indicated for the transvaginal repair of pelvic organ prolapse stop selling and distributing their products in the United States immediately, stemming from the FDA’s 2016 reclassification of these devices to class III (high risk) devices, and as a result, the Company ceased global sales and distribution of surgical mesh products indicated for transvaginal pelvic organ prolapse. In April 2021 the Company's Board of Directors received a shareholder demand under section 220 of the Delaware General Corporation Law, for inspection of books and records. The Company has notified our insurer and retained counsel to respond to the demand.

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. In the second quarter of 2021, we increased the accrual associated with this matter by $298 million to account for increased, post-COVID-19 pandemic settlement and litigation activity related to the remaining cases and claims the Company faces, our revision of the per-case settlement amount for these cases based on recent settlement and litigation activity and changes to our expectations regarding the rate of incoming cases and claims. We continue to engage in discussions with plaintiffs’ counsel regarding potential resolution of pending cases and claims. We continue to vigorously contest the cases and claims asserted against us that do not settle, and expect that more cases will go to trial through 2023. The final resolution of the cases and claims is uncertain and could have a further material impact on our results of operations, financial
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condition and/or liquidity. Trials involving our transvaginal surgical mesh products have resulted in both favorable and unfavorable judgments for us. We do not believe that the judgment in any one trial is representative of potential outcomes of all cases or claims related to our transvaginal surgical mesh products.

We are currently named as a defendant in 14767 filed product liability cases involving our Greenfield Vena Cava Filter, which we discontinued marketing and active selling in the fourth quarter of 2018, alleging various injuries, including perforation of the vena cava, post-implant deep vein thrombosis, fracture, and other injuries. Most of the filed cases are part of a consolidated matter in Middlesex County, Massachusetts. We have received notice of an additional 521377 claims, none of which have been filed. As of June 24,October 20, 2021, we have entered into master settlement agreements in principle or are in the final stages of entering with certain plaintiffs’ counsel to resolve approximately 200 cases.

Governmental Investigations and Qui Tam Matters

On May 5, 2014, weDecember 1, 2015, the Brazilian governmental entity known as CADE (the Administrative Council of Economic Defense), served a search warrant on the offices of our Brazilian subsidiary, as well as on the Brazilian offices of several other major medical device makers who do business in Brazil, in furtherance of an investigation into alleged anti-competitive activity with respect to certain tender offers for government contracts. On June 20, 2017, CADE, through the publication of a “technical note,” announced that it was launching a formal administrative proceeding against Boston Scientific’s Brazilian subsidiary, Boston Scientific do Brasil Ltda. (BSB), as well as against the Brazilian operations of Medtronic, Biotronik and St. Jude Medical, two Brazilian associations, ABIMED and AMBIMO and 29 individuals for alleged anti-competitive behavior. In August 2021, the investigating commissioner issued a preliminary recommendation of liability against all of the involved companies, and also recommended that CADE impose fines and penalties. However, on October 25, 2021, the CADE Attorney General's office recommended dismissal of the charges and allegations against BSB and the individual BSB employees who were still individual defendants. The full Commission is considering this recommendation but has not yet issued its decision. We continue to deny the allegations, intend to defend ourselves vigorously and will appeal any decision of liability by the full Commission to the Brazilian courts. During such an appeal the decision would have no force and effect, and the Court would consider the case without being bound by CADE’s decision.

On December 21, 2017, Janssen Biotech, Inc., Janssen Oncology, Inc, Janssen Research & Development, LLC, and Johnson & Johnson (collectively, Janssen) were served with a subpoena from the U.S. Department of Health and Human Services, Officequi tam complaint filed on behalf of the Inspector General. The subpoena seeks information relating to the launch of the Cognis™ CRT-D and Teligen™ ICD line of devices in 2008, the performance of those devices from 2007 to 2009United States, 29 states, and the operationDistrict of our Physician Guided Learning Program. We are cooperating with this request. On May 6, 2016, a qui tam lawsuit in this matterColumbia. The complaint, which was unsealedfiled in the United States District Court for the Northern District of Minnesota. AtCalifornia, alleges that Janssen violated the same time, we learned thatfederal False Claims Act and state law when providing pricing information for ZYTIGA to the U.S. federal government in connection with direct government sales and the State of California had earlier declinedgovernment-funded drug reimbursement programs. The case has been transferred to intervene in that lawsuit on April 15, 2016. The complaint was served on us on July 21, 2016. On October 7, 2016, the plaintiff/relator served an amended complaint that dropped the allegations relating to our Physician Guided Learning Program. We filed a motion to dismiss the amended complaint on December 7, 2016 and the court
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heard our motion to dismiss on April 5, 2017. On August 29, 2017, the Court granted the motion to dismiss, without prejudice and on September 19, 2017, the relator filed a Second Amended Complaint.We filed a motion to dismiss the Second Amended Complaint on October 10, 2017 and the Court denied that motion on December 13, 2017. On July 31, 2018, the relator filed a motion seeking leave to file a Third Amended Complaint. The Court denied the motion on October 30, 2018. In February 2021, we filed a motion for summary judgment, which the relator opposed, and on April 29, 2021, the Court held a hearing on that motion. The motion remains pending.

Other Proceedings

On December 4, 2020 Enrique Jevons, individually and on behalf of all others similarly situated, filed a class action complaint against the Company, Michael F. Mahoney and Daniel J. Brennan, stemming from the recall and retirement of the LOTUS Edge™ Aortic Valve System (LOTUS System) in United States District Court for the Eastern District of New York. On December 14, 2020, the parties agreed to transfer the case to the United States District Court for the District of Massachusetts.New Jersey. On December 16,June 20, 2019, the complaint was amended to include BTG International Limited as a defendant. In May 2020, Mariano Errichiello, individuallya class action complaint was filed in New Jersey federal court against Janssen and BTG by a direct purchaser of Zytiga on behalf of all other similarly situated filed a second, materially similar class actionentities. The complaint was amended in February 2021 and alleges that BTG and Janssen violated antitrust laws by attempting to enforce certain patents against potential generic competitors. On October 12, 2021, the Company, Michael F. Mahoney, Joseph M. Fitzgerald,court granted BTG and Daniel J. BrennanJanssen’s motion to compel arbitration in the United States District Court for the District of Massachusetts. Subsequently, on March 30,direct purchaser action and stayed all direct purchaser proceedings. On October 27, 2021, the Court consolidated the two actions,court granted BTG and appointed Mariano Errichiello as the lead plaintiff. Under the terms of the Court-approved Scheduling Order, Counsel for Mr. Errichiello was requiredJanssen's motion to file an Amended Complaint on or before June 4, 2021, which it did, and, in response the Company brought a Motion to Dismiss the Amended Complaint by July 19, 2021. On December 15, 2020, the Securities and Exchange Commission’s Boston Regional Office (Boston SEC) notified the Company that it was conducting an investigation related to the Company’s decision to retire the LOTUS System, and issued a voluntary request for documents and information related to that decision. On February 10, 2021, the Boston SEC issued a second voluntary request for additional documents and information. The Company is cooperating fully with the investigation. On February 8, 2021, the Company received a letter from The Vladimir Gusinsky Revocable Trust, a shareholder, demanding that the Company’s Board of Directors conduct an investigation into actions by the Company’s directors and executive officers regarding statements made about the effectiveness and commercial viability of the LOTUS System. The Trust subsequently agreed to stay its demand, pending the outcome of any dispositive motion against the Amended Complaintdismiss all claims in the class action complaint described above. The Company received letters on behalf ofindirect purchaser action. A motion to dismiss the Union Excavators Local 731 Pension Fundindirect purchaser and Diane Nachbaur, two stockholders of the Company, on July 26, 2021 and July 29, 2021, respectively, each demanding accessqui tam actions are pending.

Refer to certain books and records of the Company, pursuant to 8 Delaware Section 220,Note G – Income Taxes for information regarding the business, operations, effectiveness and commercial viability of the LOTUS system, and related items.our tax litigation.

Matters Concluded Since December 31, 2020

On February 23, 2015, a judge for the Court of Modena (Italy) ordered a trial for the CompanyBoston Scientific and three of its employees, as well as numerous other defendants charged in criminal proceedings. The charges arosearise from allegations that the defendants made improper donations to certain healthcare providers and other employees of the Hospital of Modena in order to induce them to conduct unauthorized clinical trials, as well as related government fraud in relation to the financing of such clinical trials. A trial began on February 24, 2016. On November 10, 2017, the Court issued a ruling that convicted one CompanyBoston Scientific employee but acquitted two others and levied a fine of €245 thousand against us and imposed joint and several civil damages of €620 thousand on all defendants. We continue to deny these allegations, and timely appealed the decision on May 10, 2018. On November 9, 2020, the Court of Appeal in Bologna reversed the judgements against the CompanyBoston Scientific and its employee and acquitted them of all charges. This judgment of acquittal became final as to the Company and its employee on April 15, 2021 when the prosecution chose not to appeal.

During the fourth quarter of 2013, we received written discovery requests from certain state attorneys general regarding our transvaginal surgical mesh products and related alleged violations of states’ consumer protection statutes. On December 12,
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2019, the Mississippi Attorney General filed suit against us in a Mississippi state court alleging violations of the Mississippi Consumer Protection Act. In the fourth quarter of 2020 and the first quarter of 2021, we reached settlements with 48 states, including Mississippi, and the District of Columbia. These settlements were finalized in March of 2021.

On September 6, 2019, Boston Scientific Corporation, Boston Scientific Scimed, Inc., and Fortis Advisors, LLC, as a Securityholder Representative for the former Securityholders of nVision Medical Corp. filed a declaratory judgment action against BioCardia, Inc. in the United States District Court for the Northern District of California to address threats and allegations by BioCardia challenging inventorship and ownership of various patents that Boston Scientific Corporation acquired through an April 13, 2018 merger with nVision as well as related threats and allegations by BioCardia of trade secret misappropriation and unjust enrichment. On December 11, 2019, BioCardia filed an amended answer and counterclaims. On April 23, 2020, BioCardia filed a complaint against nVision, which had not been named as a defendant in the original case. On
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May 22, 2020, BioCardia amended its complaint against nVision to add twenty former nVision shareholders as defendants. On August 20, 2020, BioCardia again amended its complaint against Boston Scientific Corporation/Boston Scientific Scimed, Inc./Fortis Advisors, LLC and its complaint against nVision/nVision shareholders. On April 8, 2021, the parties settled the dispute, and, on April 12, 2021, the parties filed stipulations with the court to dismiss the remaining legal proceedings. TheWe expect the settlement didwill not result in any material benefit or liability to the Company.

On May 5, 2014, we were served with a subpoena from the U.S. Department of Health and Human Services, Office of the Inspector General. The subpoena seeks information relating to the launch of the Cognis™ CRT-D and Teligen™ ICD line of devices in 2008, the performance of those devices from 2007 to 2009 and the operation of our Physician Guided Learning Program. We are cooperating with this request. On May 6, 2016, a qui tam lawsuit in this matter was unsealed in the United States District Court for the District of Minnesota. At the same time, we learned that the U.S. federal government and the State of California had earlier declined to intervene in that lawsuit on April 15, 2016. The complaint was served on us on July 21, 2016. On October 7, 2016, the plaintiff/relator served an amended complaint that dropped the allegations relating to our Physician Guided Learning Program. We filed a motion to dismiss the amended complaint on December 7, 2016 and the court heard our motion to dismiss on April 5, 2017. On August 29, 2017, the Court granted the motion to dismiss, without prejudice and on September 19, 2017, the relator filed a Second Amended Complaint. We filed a motion to dismiss the Second Amended Complaint on October 10, 2017 and the Court denied that motion on December 13, 2017. On July 31, 2018, the relator filed a motion seeking leave to file a Third Amended Complaint. The Court denied the motion on October 30, 2018. In February 2021, we filed a motion for summary judgment, which the relator opposed, and on August 13, 2021, the Court granted the motion in its entirety. Subsequently, the parties resolved the matter, effective October 4, 2021, and the matter is now concluded. The resolution did not result in any material liability to the Company.

On November 2, 2020, Koninklijke Philips N.V. and IP2IPO Innovations, Ltd. (“Philips”) served a complaint against the Company in the United States District Court for the District of Delaware. The complaint alleges that certain BSC cardiovascular diagnostic devices infringe six Philips patents. The parties have settled the dispute through a confidential settlement agreement.


NOTE I – STOCKHOLDERS' EQUITY

Preferred Stock

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

On May 27, 2020, we completed an offering of 10,062,500 shares of 5.50% Mandatory Convertible Preferred Stock (MCPS), Series A at a price to the public and liquidation preference of $100 per share. The net proceeds from the MCPS offering were approximately $975 million after deducting underwriting discounts and commissions and offering expenses. As of JuneSeptember 30, 2021, our MCPS had an aggregate liquidation preference of $1.006 billion.

Holders of MCPS will be entitled to receive, when, as and if declared by our Board of Directors, or an authorized committee thereof, out of funds legally available for payment, cumulative dividends at the annual rate of 5.50% of the liquidation preference of $100 per share, payable in cash or, subject to certain limitations, by delivery of shares of common stock or any combination of cash and shares of common stock, at our election; provided, however, that any unpaid dividends on the MCPS will continue to accumulate as described in the Certificate of Designations.

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Subject to certain exceptions, no dividend or distribution will be declared or paid on shares of our common stock, and no common stock will be purchased, redeemed or otherwise acquired for consideration by us or any of our subsidiaries unless, in each case, all accumulated and unpaid dividends for all preceding dividend periods have been declared and paid, or a sufficient amount of cash or number of shares of common stock has been set apart for the payment of such dividends, on all outstanding shares of MCPS. In the event of our voluntary or involuntary liquidation, winding-up or dissolution, no distribution of our assets may be made to holders of our common stock until we have paid holders of our MCPS, each of which will be entitled to receive a liquidation preference in the amount of $100 per share plus accumulated and unpaid dividends.

Unless earlier converted, each share of MCPS will automatically convert on June 1, 2023, subject to postponement for certain market disruption events, into between 2.3834 and 2.9197 shares of common stock, subject to customary anti-dilution adjustments. The number of shares of common stock issuable upon conversion will be determined based on the average volume-weighted average price per share of common stock over the 20 consecutive trading day period beginning on, and including, the 21st scheduled trading day immediately preceding June 1, 2023.

The MCPS is not subject to any redemption, sinking fund or other similar provisions. However, at our option, we may purchase or exchange the MCPS from time to time in the open market, by tender or exchange offer or otherwise, without the consent of, or notice to, holders of MCPS. The holders of the MCPS will not have any voting rights, with limited exceptions.

In the secondthird quarter of 2021, the Audit Committee of our Board of Directors (the Committee), pursuant to authority delegated to such committee by our Board of Directors, declared and we paid a cash dividend of $1.375 per MCPS share to holders of our MCPS as of MayAugust 15, 2021, representing a dividend period from MarchJune through MayAugust 2021. On July 23,October 26, 2021, the Committee declared a cash dividend of $1.375 per MCPS share to holders of our MCPS as of AugustNovember 15, 2021, representing a dividend period from JuneSeptember through AugustNovember 2021. We have presented cumulative, unpaid dividends within Accrued expenses within our unaudited consolidated balance sheet as of JuneSeptember 30, 2021.

Refer to Note L – Stockholders' Equity to our audited financial statements contained in Item 8 of our most recent Annual Report on Form 10-K for information on the pertinent rights and privileges of our outstanding common stock.
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NOTE J – WEIGHTED AVERAGE SHARES OUTSTANDING

Three Months Ended June 30,Six Months Ended June 30,Three Months Ended September 30,Nine Months Ended September 30,
(in millions)(in millions)2021202020212020(in millions)2021202020212020
Weighted average shares outstanding - basic1,421.3 1,410.9 1,420.0 1,404.1 
Weighted average shares outstanding — basicWeighted average shares outstanding — basic1,423.8 1,430.9 1,421.3 1,413.0 
Net effect of common stock equivalentsNet effect of common stock equivalents11.2 11.7 Net effect of common stock equivalents11.8 — 11.7 — 
Weighted average shares outstanding - assuming dilutionWeighted average shares outstanding - assuming dilution1,432.5 1,410.9 1,431.7 1,404.1 Weighted average shares outstanding - assuming dilution1,435.6 1,430.9 1,433.0 1,413.0 

The following securities were excluded from the calculation of weighted average shares outstanding - assuming dilution because their effect in the periods presented below would have been anti-dilutive:
Three Months Ended June 30,Six Months Ended June 30,Three Months Ended September 30,Nine Months Ended September 30,
(in millions)(in millions)2021202020212020(in millions)2021202020212020
Common stock equivalents(1)
Common stock equivalents(1)
013014
Common stock equivalents(1)
014014
Stock options outstanding(2)
Stock options outstanding(2)
3666
Stock options outstanding(2)
0636
MCPS(3)
MCPS(3)
249245
MCPS(3)
24242411
(1)    Represents common stock equivalents pursuant to our employee stock-based compensation plans, which are anti-dilutive in the secondthird quarter and first sixnine months of 2020 due to our Net loss position in those periods.    
(2)    Represents stock options outstanding pursuant to our employee stock-based compensation plans with exercise prices that were greater than the average fair market value of our common stock for the related periods.
(3)    Represents common stock issuable upon the conversion of MCPS. Refer to Note I – Stockholders' Equity for additional information.

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

For the secondthird quarter and first sixnine months of 2021, the effect of assuming the conversion of MCPS into shares of common stock was anti-dilutive, and therefore excluded from the calculation of earnings per share (EPS). Accordingly, Net income was reduced by cumulative Preferred stock dividends, as presented in our accompanying unaudited consolidated statements of operations, for purposes of calculating Net income available to common stockholders.

We issued approximately 1 million3000000 shares of our common stock in the second quarterthird quarters of 2021 and 2020 and 5 million8000000 shares in the first sixnine months of 2021 and 2020 following the exercise of stock options, vesting of deferred stock units or purchases under our employee stock purchase plan. We did not repurchase any shares of our common stock in the first sixnine months of 2021 or 2020. On December 14, 2020, our Board of Directors approved a new stock repurchase program authorizing the repurchase of up to $1.000 billion of our common stock. As of JuneSeptember 30, 2021, we had the full amount remaining available under the authorization.

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NOTE K – SEGMENT REPORTING

Our 7 core businesses are organized into 3 reportable segments: MedSurg, Rhythm and Neuro, and Cardiovascular, which represent an aggregation of our operating segments that generate revenues from the sale of medical devices. We measure and evaluate our reportable segments based on net sales of reportable segments, operating income of reportable segments, excluding intersegment profits, and operating income of reportable segments as a percentage of net sales of reportable segments. Operating income of reportable segments as a percentage of net sales of reportable segments is defined as operating income of reportable segments divided by net sales of reportable segments. We exclude from operating income of reportable segments certain corporate-related expenses and certain transactions or adjustments that our chief operating decision maker (CODM) considers to be non-operational, such as amounts related to amortization expense, goodwill and other intangible asset impairment charges, acquisition/divestiture-related net charges (credits), restructuring and restructuring-related net charges (credits); and certain litigation-related net charges (credits) and European Union (EU) Medical Device Regulation (MDR) implementation costs. Although we exclude these amounts from operating income of reportable segments, they are included in reported Income (loss) before income taxes in our accompanying unaudited consolidated statements of operations and are included in the reconciliation below.

A reconciliation of the totals reported for the reportable segments to the applicable line items within our accompanying unaudited consolidated statements of operations is as follows (in millions, except percentages):
Three Months Ended
September 30,
Nine Months Ended
September 30,
2021202020212020
MedSurg$917 $825$2,725 $2,175
Rhythm and Neuro819 7572,436 1,985
Cardiovascular1,196 1,0023,588 2,862
Total net sales of reportable segments2,932 2,5848,748 7,021
All other (Specialty Pharmaceuticals)(1)
— 7413 183
Net sales$2,932 $2,659$8,761 $7,204
Three Months Ended
June 30,
Six Months Ended
June 30,
2021202020212020
MedSurg$948 $576$1,808 $1,350
Rhythm and Neuro866 5251,617 1,228
Cardiovascular1,263 8342,392 1,860
Total net sales of reportable segments3,077 1,9355,816 4,437
All other (Specialty Pharmaceuticals)(1)
6813 109
Net sales$3,077 $2,003$5,829 $4,546
MedSurg$363 $173$695 $432
Rhythm and Neuro168 32316 131
Cardiovascular418 186756 385
Total operating income of reportable segments949 3911,767 947
All other (Specialty Pharmaceuticals)(1)
4975
Unallocated amounts:
Corporate expenses, including hedging activities(176)(189)(329)(222)
Intangible asset impairment charges, acquisition/divestiture-related net charges (credits), restructuring and restructuring-related net charges (credits), and certain litigation-related net charges (credits) and EU MDR implementation costs(331)(125)(445)(327)
Amortization expense(180)(197)(365)(398)
Operating income (loss)262 (71)632 75
Other expense, net(113)(110)(157)(234)
Income (loss) before income taxes$149 $(181)$474 $(159)
(1) On March 1, 2021, we completed the divestiture of the Specialty Pharmaceuticals business. Our consolidated net sales and income (loss) before income taxes for the first six months of 2021 include Specialty Pharmaceuticals up to the date of the closing of the transaction.
Operating income margin of reportable segmentsThree Months Ended
June 30,
Six Months Ended
June 30,
2021202020212020
MedSurg38.3 %30.1 %38.5 %32.0 %
Rhythm and Neuro19.3 %6.1 %19.5 %10.7 %
Cardiovascular33.1 %22.3 %31.6 %20.7 %

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Three Months Ended
September 30,
Nine Months Ended
September 30,
2021202020212020
MedSurg$338 $307$1,033 $738
Rhythm and Neuro160 165476 296
Cardiovascular361 2081,117 593
Total operating income of reportable segments859 6802,626 1,628
All other (Specialty Pharmaceuticals)(1)
— 49124
Unallocated amounts:
Corporate expenses, including hedging activities(109)(108)(438)(330)
Intangible asset impairment charges, acquisition/divestiture-related net charges (credits), restructuring and restructuring-related net charges (credits), and certain litigation-related net charges (credits) and EU MDR implementation costs(178)(629)(624)(957)
Amortization expense(184)(197)(549)(595)
Operating income (loss)387 (205)1,019 (130)
Other expense, net95 (22)(62)(256)
Income (loss) before income taxes$483 $(227)$957 $(386)
(1) On March 1, 2021, we completed the divestiture of the Specialty Pharmaceuticals business. Our consolidated net sales and income (loss) before income taxes for the first nine months of 2021 include Specialty Pharmaceuticals up to the date of the closing of the transaction.
Operating income margin of reportable segmentsThree Months Ended
September 30,
Nine Months Ended
September 30,
2021202020212020
MedSurg36.8 %37.2 %37.9 %33.9 %
Rhythm and Neuro19.5 %21.9 %19.5 %14.9 %
Cardiovascular30.2 %20.8 %31.1 %20.7 %



NOTE L – REVENUE

We generate revenue primarily from the sale of single-use medical devices and present revenue net of sales taxes in our accompanying unaudited consolidated statements of operations. The following tables disaggregate our revenue from contracts with customers by business and geographic region (in millions):
Three Months Ended June 30,Three Months Ended September 30,
2021202020212020
BusinessesBusinessesU.S.Int'lTotalU.S.Int'lTotalBusinessesU.S.Int'lTotalU.S.Int'lTotal
EndoscopyEndoscopy$316 $235 $551 $190 $158 $348 Endoscopy$306 $227 $533 $270 $205 $475 
Urology and Pelvic HealthUrology and Pelvic Health285 112 397 162 66 228 Urology and Pelvic Health275 109 384 251 99 350 
Cardiac Rhythm ManagementCardiac Rhythm Management314 210 524 208 143 351 Cardiac Rhythm Management312 199 512 275 190 465 
ElectrophysiologyElectrophysiology34 62 95 22 30 51 Electrophysiology32 55 86 33 43 76 
NeuromodulationNeuromodulation194 53 247 100 23 122 Neuromodulation175 46 221 176 41 216 
Interventional CardiologyInterventional Cardiology398 392 790 189 306 495 Interventional Cardiology376 368 744 255 331 586 
Peripheral InterventionsPeripheral Interventions260 213 473 189 151 340 Peripheral Interventions250 202 452 236 179 416 
Specialty PharmaceuticalsSpecialty Pharmaceuticals60 68 Specialty Pharmaceuticals— — — 65 10 74 
Net SalesNet Sales$1,800 $1,277 $3,077 $1,118 $885 $2,003 Net Sales$1,726 $1,206 $2,932 $1,560 $1,098 $2,659 

On March 1, 2021, we completed the divestiture of the Specialty Pharmaceuticals business. Our consolidated net sales for the first sixnine months of 2021 include Specialty Pharmaceuticals up to the date of the closing of the transaction.

Six Months Ended June 30,
20212020
BusinessesU.S.Int'lTotalU.S.Int'lTotal
Endoscopy$596 $454 $1,050 $445 $345 $790 
Urology and Pelvic Health542 216 758 400 161 560 
Cardiac Rhythm Management590 403 993 463 325 788 
Electrophysiology64 115 179 53 72 126 
Neuromodulation345 99 444 250 63 313 
Interventional Cardiology741 745 1,486 486 642 1,128 
Peripheral Interventions498 407 906 413 319 732 
Specialty Pharmaceuticals10 13 97 12 109 
Net Sales$3,386 $2,443 $5,829 $2,607 $1,939 $4,546 

Three Months Ended June 30,Six Months Ended June 30,
Geographic Regions2021202020212020
U.S.$1,800 $1,058 $3,376 $2,510 
EMEA (Europe, Middle East and Africa)662 416 1,266 968 
APAC (Asia-Pacific)520 410 994 819 
LACA (Latin America and Canada)95 51 180 140 
Medical Devices3,077 1,935 5,816 4,437 
U.S.60 10 97 
International12 
Specialty Pharmaceuticals68 13 109 
Net Sales$3,077 $2,003 $5,829 $4,546 
Emerging Markets(1)
$359 $268 $676 $542 
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Nine Months Ended September 30,
20212020
BusinessesU.S.Int'lTotalU.S.Int'lTotal
Endoscopy$902 $681 $1,583 $715 $550 $1,265 
Urology and Pelvic Health817 325 1,142 650 260 910 
Cardiac Rhythm Management903 603 1,505 738 515 1,253 
Electrophysiology96 169 265 86 116 202 
Neuromodulation520 145 666 426 103 529 
Interventional Cardiology1,117 1,113 2,230 741 973 1,714 
Peripheral Interventions748 609 1,358 649 499 1,148 
Specialty Pharmaceuticals10 13 162 21 183 
Net Sales$5,112 $3,649 $8,761 $4,167 $3,037 $7,204 

Three Months Ended September 30,Nine Months Ended September 30,
Geographic Regions2021202020212020
U.S.$1,726 $1,496 $5,103 $4,005 
EMEA (Europe, Middle East and Africa)590 540 1,855 1,507 
APAC (Asia-Pacific)517 472 1,511 1,292 
LACA (Latin America and Canada)99 77 279 217 
Medical Devices2,932 2,584 8,748 7,021 
U.S.— 65 10 162 
International— 10 21 
Specialty Pharmaceuticals— 74 13 183 
Net Sales$2,932 $2,659 $8,761 $7,204 
Emerging Markets(1)
$354 $291 $1,030 $832 
(1)    We define Emerging Markets as the 20 countries that we believe have strong growth potential based on their economic conditions, healthcare sectors and our global capabilities. Periodically, we assess our list of Emerging Markets countries, and effective January 1, 2021, modified our list to include the following countries: Brazil, Chile, China, Colombia, Czech Republic, India, Indonesia, Malaysia, Mexico, Philippines, Poland, Russia, Saudi Arabia, Slovakia, South Africa, South Korea, Taiwan, Thailand, Turkey and Vietnam. We have revised prior period amounts to conform to the current year's presentation which had an immaterial impact on previously reported Emerging Markets net sales.

Deferred Revenue

Contract liabilities are classified within Other current liabilities and Other long-term liabilities in our accompanying unaudited consolidated balance sheets. Our deferred revenue balance was $424$455 million as of JuneSeptember 30, 2021 and $395 million as of December 31, 2020. Our contractual liabilities are primarily composed of deferred revenue related to the LATITUDE™ Patient Management System within our Cardiac Rhythm Management (CRM) business, for which revenue is recognized over the average service period based on device and patient longevity. Our contractual liabilities also include deferred revenue related to the LUX-Dx™ Insertable Cardiac Monitor (ICM) system, also within our CRM business, for which revenue is recognized over the average service period based on device longevity and usage. We recognized revenue of $38$39 million in the secondthird quarter and $74$113 million in the first sixnine months of 2021 that was included in the above contract liability balance as of December 31, 2020. We have elected not to disclose the transaction price allocated to unsatisfied performance obligations when the original expected contract duration is one year or less. In addition, we have not identified material unfulfilled performance obligations for which revenue is not currently deferred.

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Variable Consideration

We generally allow our customers to return defective, damaged and, in certain cases, expired products for credit. We base our estimate for sales returns upon historical trends and record the amount as a reduction to revenue when we sell the initial product. In addition, we may allow customers to return previously purchased products for next-generation product offerings. For these transactions, we defer recognition of revenue on the sale of the earlier generation product based upon an estimate of the amount of product to be returned when the next-generation products are shipped to the customer. Uncertain timing of next-generation product approvals, variability in product launch strategies, product recalls and variation in product utilization all affect our estimates related to sales returns and could cause actual returns to differ from these estimates.

We also offer sales rebates and discounts to certain customers. We treat sales rebates and discounts as a reduction of revenue and classify the corresponding liability as current. We estimate rebates for products where there is sufficient historical information available to predict the volume of expected future rebates. If we are unable to reasonably estimate the expected rebates, we record a liability for the maximum rebate percentage offered. We have entered certain agreements with group purchasing organizations to sell our products to participating hospitals at negotiated prices. We recognize revenue from these agreements following the same revenue recognition criteria discussed above.

NOTE M – CHANGES IN OTHER COMPREHENSIVE INCOME

The following tables provide the reclassifications out of Other comprehensive income (loss), net of tax:
(in millions)Foreign Currency Translation AdjustmentsNet Change in Derivative Financial InstrumentsNet Change in Defined Benefit Pensions and Other ItemsTotal
Balance as of March 31, 2021$134 $165 $(45)$254 
Other comprehensive income (loss) before reclassifications(12)(0)(8)
(Income) loss amounts reclassified from accumulated other comprehensive income(3)(6)(9)
Total other comprehensive income (loss)(18)(16)
Balance as of June 30, 2021$136 $146 $(46)$237 

Three Months Ended September 30
(in millions)Foreign Currency Translation AdjustmentsNet Change in Derivative Financial InstrumentsNet Change in Defined Benefit Pensions and Other ItemsTotal
Balance as of June 30, 2021$136 $146 $(46)$237 
Other comprehensive income (loss) before reclassifications(47)61 — 14 
(Income) loss amounts reclassified from accumulated other comprehensive income(2)(11)— (13)
Total other comprehensive income (loss)(49)50 — 
Balance as of September 30, 2021$88 $196 $(46)$238 

(in millions)Foreign Currency Translation AdjustmentsNet Change in Derivative Financial InstrumentsNet Change in Defined Benefit Pensions and Other ItemsTotal
Balance as of June 30, 2020$(46)$222 $(45)$131 
Other comprehensive income (loss) before reclassifications88 (50)— 38 
(Income) loss amounts reclassified from accumulated other comprehensive income(5)(14)— (19)
Total other comprehensive income (loss)84 (64)— 20 
Balance as of September 30, 2020$38 $158 $(45)$151 











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(in millions)Foreign Currency Translation AdjustmentsNet Change in Derivative Financial InstrumentsNet Change in Defined Benefit Pensions and Other ItemsTotal
Balance as of March 31, 2020$(35)$248 $(45)$168 
Other comprehensive income (loss) before reclassifications(6)(6)(12)
(Income) loss amounts reclassified from accumulated other comprehensive income(5)(20)(25)
Total other comprehensive income (loss)(11)(26)(37)
Balance as of June 30, 2020$(46)$222 $(45)$131 
Nine Months Ended September 30

(in millions)(in millions)Foreign Currency Translation AdjustmentsNet Change in Derivative Financial InstrumentsNet Change in Defined Benefit Pensions and Other ItemsTotal(in millions)Foreign Currency Translation AdjustmentsNet Change in Derivative Financial InstrumentsNet Change in Defined Benefit Pensions and Other ItemsTotal
Balance as of December 31, 2020Balance as of December 31, 2020$218 $36 $(47)$207 Balance as of December 31, 2020$218 $36 $(47)$207 
Other comprehensive income (loss) before reclassificationsOther comprehensive income (loss) before reclassifications53 121 174 Other comprehensive income (loss) before reclassifications182 188 
(Income) loss amounts reclassified from accumulated other comprehensive income(1)
(Income) loss amounts reclassified from accumulated other comprehensive income(1)
(134)(10)(144)
(Income) loss amounts reclassified from accumulated other comprehensive income(1)
(135)(21)— (157)
Total other comprehensive income (loss)Total other comprehensive income (loss)(81)111 30 Total other comprehensive income (loss)(130)161 31 
Balance as of June 30, 2021$136 $146 $(46)$237 
Balance as of September 30, 2021Balance as of September 30, 2021$88 $196 $(46)$238 
(1)    In connection with the completion of the divestiture of the Specialty Pharmaceuticals business in the first quarter of 2021, we released $127 million of cumulative translation adjustments associated with the disposed business from Accumulated other comprehensive income (loss), net of tax.

(in millions)(in millions)Foreign Currency Translation AdjustmentsNet Change in Derivative Financial InstrumentsNet Change in Defined Benefit Pensions and Other ItemsTotal(in millions)Foreign Currency Translation AdjustmentsNet Change in Derivative Financial InstrumentsNet Change in Defined Benefit Pensions and Other ItemsTotal
Balance as of December 31, 2019Balance as of December 31, 2019$142 $173 $(45)$270 Balance as of December 31, 2019$142 $173 $(45)$270 
Other comprehensive income (loss) before reclassificationsOther comprehensive income (loss) before reclassifications(178)86 (92)Other comprehensive income (loss) before reclassifications(90)36 — (54)
(Income) loss amounts reclassified from accumulated other comprehensive income(Income) loss amounts reclassified from accumulated other comprehensive income(9)(37)(47)(Income) loss amounts reclassified from accumulated other comprehensive income(14)(52)— (65)
Total other comprehensive income (loss)Total other comprehensive income (loss)(187)48 (139)Total other comprehensive income (loss)(104)(15)— (119)
Balance as of June 30, 2020$(46)$222 $(45)$131 
Balance as of September 30, 2020Balance as of September 30, 2020$38 $158 $(45)$151 


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

The gains and losses on defined benefit and pension items before reclassifications and gains and losses on defined benefit and pension items reclassified from Accumulated other comprehensive income (loss), net of tax were reduced by immaterial income tax impacts in the secondthird quarter and first sixnine months of 2021 and 2020.

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NOTE N – NEW ACCOUNTING PRONOUNCEMENTS

Periodically, new accounting pronouncements are issued by the FASB or other standard setting bodies. Recently issued standards typically do not require adoption until a future effective date. Prior to their effective date, we evaluate the pronouncements to determine the potential effects of adoption on our accompanying unaudited consolidated financial statements. During the first quarter of 2021, we implemented the following standards, which did not have a material impact on our financial position and results of operations.

ASC Update No. 2020-10

In October 2020, the FASB issued ASC Update No. 2020-10, Codification Improvements. Update No. 2020-10 amends a wide variety of Topics in the Codification in order to improve the consistency of the Codification and the application thereof, while leaving Generally Accepted Accounting Principles unchanged.

ASC Update No. 2020-06

In August 2020, the FASB issued ASC Update No. 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. The amendments in Update No. 2020-06 simplify the complexity associated with applying U.S. GAAP for certain financial instruments with characteristics of liabilities and equity. More specifically, the amendments focus on the guidance for convertible instruments and derivative scope exception for contracts in an entity’s own equity.

ASC Update No. 2019-12

In December 2019, the FASB issued ASC Update No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The purpose of Update No. 2019-12 is to continue the FASB’s Simplification Initiative to reduce complexity in accounting standards. The amendments in Update No. 2019-12 simplify the accounting for income taxes by removing certain exceptions related to the incremental approach for intraperiod tax allocation, the requirement to recognize or derecognize deferred tax liabilities related to equity method investments that are also foreign subsidiaries, and the methodology for calculating income taxes in an interim period. In addition to removing these exceptions, Update No. 2019-12 also clarifies and simplifies other aspects of the accounting for income taxes.

Standards to be Implemented

ASC Update No. 2021-08

In October 2021, the FASB issued ASC Update No. 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. The amendments in Update No. 2021-08 improve the accounting for acquired revenue contracts with customers in a business combination by addressing diversity in practice and inconsistency related to recognition of an acquired contract liability and payment terms and their effect on subsequent revenue recognized by the acquirer. Update No. 2021-08 is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption is permitted, and we plan to adopt Update No. 2021-08 during the fourth quarter of 2021. We have the option to apply the amendments retrospectively to all business combinations for which the acquisition date occurs on or after the beginning of the fiscal year that includes the interim period of early adoption, or prospectively. We do not expect the adoption to have a material effect on our financial position or results of operations.

ASC Update No. 2021-05

In July 2021, the FASB issued ASC Update No. 2021-05, Leases (Topic 842): Lessors—Certain Leases with Variable Lease Payments. The amendments in Update No. 2021-05 revise lessor lease classification guidance and require accounting for certain leases with variable lease payments that do not depend on a reference index or rate as operating leases. Such classification is required if the lease would have been classified as a sales-type or direct financing lease in accordance with guidance in FASB ASC Topic 842 and the lessor would have otherwise recognized a day-one loss. Update No. 2021-05 is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. We have the option to apply the amendments retrospectively to leases that commenced or were modified on or after the adoption of FASB ASC Topic 842, or prospectively. We are currently in the process of determining the effect thatdo not expect the adoption willto have a material impact on our financial position andor results of operations.

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

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ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Introduction

Boston Scientific Corporation is a global developer, manufacturer and marketer of medical devices that are used in a broad range of interventional medical specialties. Our mission is to transform lives through innovative medical solutions that improve the health of patients around the world. As a medical technology leader for more than 40 years, we have advanced the practice of less-invasive medicine by helping physicians and other medical professionals diagnose and treat a wide range of diseases and medical conditions and improve patients’ quality of life by providing alternatives to surgery and other medical procedures that are typically traumatic to the body. Our net sales have increased substantially since our formation, fueled in part by strategic acquisitions designed to improve our ability to take advantage of growth opportunities in the medical device industry and to build diversified portfolios within our core businesses. We advance science for life by providing a broad range of high performance solutions to address unmet patient needs and reduce the cost of healthcare. When used in this report, the terms, "we," "us," "our," and "the Company" mean Boston Scientific Corporation and its divisions and subsidiaries.

COVID-19 Pandemic

In December 2019, the novel strain of coronavirus (SARS-Cov-2), and its disease commonly known as COVID-19 (COVID-19), was reported in China and has since widely impacted the global public health and economic environment. In March 2020, the World Health Organization (WHO) declared COVID-19, including all additional variations and strains thereof, a global pandemic (COVID-19 pandemic). While the majority of procedures using our products are deferrable, most of the conditions that we treat are generally fairly acute and cannot be deferred for extended periods. As the pandemic spread worldwide and with COVID-19 cases confirmed in all major geographies, many elective and semi-emergent procedures were postponed, enabling hospital staff to focus critical resources on caring for COVID-19 patients.

The ongoing COVID-19 pandemic and accompanying restrictions negatively impacted our net sales and our results of operations beginning in March 2020. We experienced sequential improvement in our global sales trends beginning in the third quarter of 2020 which continued through the secondthird quarter of 2021, as procedure volumes resumed and referral rates improved. During the secondthird quarter of 2021, as the resumption ofmore contagious Delta variant strain surged globally, elective procedures strengthenedwere unfavorably impacted in certain regions, particularly in the U.S. and, while they improved in many parts of the globe as COVID-19 vaccines were increasingly made available. However, COVID-19 cases continue to risepersist in many locations around the world where vaccination rates remain low and new, more contagious variant strains of COVID-19 have emerged, resulting in continued restrictions. In particular, certain countries within our Asia Pacific region, including India and Japan, as well as Latin America have been significantly impacted. These restrictions continued to negatively impact our net sales in the first sixnine months of 2021. The timing and success of efforts to distribute and administer COVID-19 vaccines to these locations and to broad portions of the worldwide population, enabling widespread immunity to COVID-19, will continue to have an impact on the duration and extent of the pandemic and its effect on demand for our products.

Because the severity, magnitude, and duration of the COVID-19 pandemic and its economic consequences continue to be uncertain, the pandemic’s impact on our operations and financial performance, as well as its impact on our ability to execute our business strategies and initiatives successfully, remains uncertain and difficult to predict. Procedural delays from the further resurgence of COVID-19 infections and the emergence of new, more contagious variant strains of COVID-19, as well as labor shortages within healthcare facilities, have and may continue to negatively impact demand for our products, net sales, gross profit margin and operating expenses as a percentage of net sales in 2021.sales. In addition, conditions created by the COVID-19 pandemic, the economic recovery that has followed in many areas and other macroeconomic factors have led to a challenging labor market in which we compete, which may affectaffects our ability to retain and attract new talent andas well as put inflationary pressure on certain operational costs due to wage increases. Further, we face and may continue to face, increases in the cost and limited availability of raw materials, components and other inputs necessary to manufacture and distribute our products due to constraints within the global supply constraints.chain, as well as increases in the cost and time to distribute our products.

We continue to focus our efforts on the health and safety of patients, healthcare providers and employees, while executing our mission of transforming lives through innovative medical solutions to improve the health of patients around the world. Since the onset of the COVID-19 pandemic, our global crisis management team has focused on protecting our employees and customers, optimizing our operations and securing our supply chain. We have successfully implemented business continuity plans including establishing a medical advisory group for employees, leveraging work from home infrastructure to facilitate social distancing and accelerating capabilities to provide remote physician support. In certain locations where the COVID-19 transmission rates are low or moderate, as defined by public health experts, employees are returning to the office. We will continue to be guided by our values and mission and monitor our return-to-office strategy based on science and data for the
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health and safety of our employees. While we expect the COVID-19 pandemic will continue to negatively impact our 2021 performance to an extent, we continue to believe our long-term fundamentals remain strong and we will manage through these challenges with strategic focus and the winning spirit of our global team.




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Corporate Sustainability

Our sustainable economic, environmental and social practices underpin all aspects of our global business. Our approach is aligned with the United Nations Sustainable Development Goals and our material topics and practices are informed by a broad range of internal and external stakeholders – locally, nationally and globally. Our employees around the world work with suppliers and other organizations that share our commitment to these practices that help address issues related to health inequity, economic disparity, climate change and environmental protection. These efforts are supported by our cross-functional Corporate Social Responsibility Council, our Environmental Health and Safety teams and policies, our Global Council for Inclusion, as well as local, regional and national employee and community programs. Key examples of our programs include setting measurable, transparent diversity, equity and inclusion (DE&I) goals. Our “3UP by 2023” initiative furthers our focus on increasing the representation of women and multicultural talent at the supervisor and manager level by three percentage points or more by December 31, 2022. Our DE&I progress has been recognized in 2021 when we were ranked in the Top 10 America's Best Employers for Diversity by Forbes, named on the JUST Capital Top 100 list of Companies Supporting Healthy Families and Communities and recognized as a "Best Place to Work for Disability Inclusion", achieving top marks on Disability:IN’s 2021 Disability Equality Index (DEI). We are also proactively addressing ways to minimize energy consumption, carbon emissions, waste management and water use. We are focused on a “C3” strategy: Cutting energy use, Converting to renewable energy sources and Compensating with carbon offset projects where needed. We are on track with our commitment to carbon neutrality in our manufacturing and key distribution sites by 2030, and expect to fully source or generate 100 percent ofour electricity from renewable sources by 2024, and have already achieved our interim goal of 50 percent.

2024.

Financial Summary

Three Months Ended JuneSeptember 30, 2021

Our net sales for the secondthird quarter of 2021 were $3.077$2.932 billion, as compared to $2.003$2.659 billion for the secondthird quarter of 2020. This increase of $1.074 billion,$274 million, or 53.610.3 percent, included operational net sales growth of 49.69.7 percent and the positive impact of 40060 basis points from foreign currency fluctuations, and includes net sales from Preventice Solutions, Inc. (Preventice)our recent acquisitions following the completionrespective dates of the acquisition on March 1, 2021.acquisition.1 The increase in our net sales was significantlyprimarily driven by the recovery of elective and semi-emergent procedure volumes compared to the prior year when the COVID-19 pandemic had peaksignificant impact on our net sales. Refer to Quarterly Results and Business Overview for a discussion of our net sales by global business.

Our reported net income available to common stockholders for the secondthird quarter of 2021 was $172$405 million, or $0.12$0.28 per diluted share. Our reported results for the secondthird quarter of 2021 included certain charges and/or credits totaling $405$176 million (after-tax), or $0.28$0.12 per diluted share. Excluding these items, adjusted net income available to common stockholders for the secondthird quarter of 2021 was $577$581 million, or $0.40$0.41 per diluted share.1, 2

Our reported net loss available to common stockholders for the secondthird quarter of 2020 was $153$169 million, or $(0.11)$(0.12) per diluted share. Our reported results for the secondthird quarter of 2020 included certain charges and/or credits totaling $273$698 million (after-tax), or $0.19$0.48 per diluted share. Excluding these items, adjusted net income available to common stockholders for the secondthird quarter of 2020 was $120$530 million, or $0.08$0.37 per diluted share.1









1Operational net sales growth rates, which exclude the impact of foreign currency fluctuations, and other adjusted measures, which exclude certain items required by generally accepted accounting principles in the United States (U.S. GAAP) are not prepared in accordance with U.S. GAAP and should not be considered in isolation from, or as a replacement for, the most directly comparable GAAP measure. Refer to Additional Information for a discussion of management’s use of these non-GAAP financial measures.

2In May 2020, we completed an offering of 10,062,500 shares of 5.50% Mandatory Convertible Preferred Stock, Series A (MCPS) at a price to the public and liquidation preference of $100 per share. Refer to the reconciliations below for the impact of the MCPS cumulative preferred stock dividends on our calculations of earnings per share (EPS).
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The following is a reconciliation of our results of operations prepared in accordance with U.S. GAAP to those adjusted results considered by management. Refer to Quarterly Results and Business Overview and Additional Information for a discussion of these reconciling items:
Three Months Ended June 30, 2021 Three Months Ended September 30, 2021
(in millions, except per share data)(in millions, except per share data)Earnings
Impact per Share(3)
(in millions, except per share data)Income (Loss) Before Income TaxesIncome Tax Expense (Benefit)Net Income (Loss)Preferred Stock DividendsNet Income (Loss) Available to Common Stockholders
Impact per Share(3)
Reported Net income (loss)$186 
Reported Preferred stock dividends(14)
Reported Net income (loss) available to common stockholders$172 $0.12 
ReportedReported$483 $64 $419 $(14)$405 $0.28 
Non-GAAP adjustments:Non-GAAP adjustments:Non-GAAP adjustments:
Amortization expenseAmortization expense161 0.11 Amortization expense184 16 168 — 168 0.12 
Intangible asset impairment chargesIntangible asset impairment charges39 0.03 Intangible asset impairment charges128 19 109 — 109 0.08 
Acquisition/divestiture-related net charges (credits)Acquisition/divestiture-related net charges (credits)(65)(0.05)Acquisition/divestiture-related net charges (credits)(232)(2)(230)— (230)(0.16)
Restructuring and restructuring-related net charges (credits)Restructuring and restructuring-related net charges (credits)35 0.02 Restructuring and restructuring-related net charges (credits)44 39 — 39 0.03 
Litigation-related net charges (credits)Litigation-related net charges (credits)229 0.16 Litigation-related net charges (credits)— — — — — (0.00)
Investment portfolio net losses (gains)Investment portfolio net losses (gains)0.00 Investment portfolio net losses (gains)26 19 — 19 0.01 
European Union (EU) Medical device regulation (MDR) implementation costsEuropean Union (EU) Medical device regulation (MDR) implementation costs11 0.01 European Union (EU) Medical device regulation (MDR) implementation costs13 12 — 12 0.01 
Deferred tax expenses (benefits)Deferred tax expenses (benefits)25 0.02 Deferred tax expenses (benefits)— (43)43 — 43 0.03 
Discrete tax itemsDiscrete tax items(35)(0.02)Discrete tax items— (17)17 — 17 0.01 
Adjusted net income (loss) available to common stockholders$577 $0.40 
AdjustedAdjusted$646 $51 $595 $(14)$581 $0.41 
(3) For the secondthird quarter of 2021, the effect of assuming the conversion of MCPS into shares of common stock was anti-dilutive, and therefore excluded from the calculation of EPS. Accordingly, GAAP Net income and Adjusted net income were reduced by cumulative Preferred stock dividends, as presented in our unaudited consolidated statements of operations, for purposes of calculating GAAP Net income available to common stockholders.


Three Months Ended June 30, 2020 Three Months Ended September 30, 2020
(in millions, except per share data)(in millions, except per share data)Earnings
Impact per Share(4)
(in millions, except per share data)Income (Loss) Before Income TaxesIncome Tax Expense (Benefit)Net Income (Loss)Preferred Stock DividendsNet Income (Loss) Available to Common Stockholders
Impact per Share(4)
Reported Net income (loss)$(147)
Reported Preferred stock dividends(5)
Reported Net income (loss) available to common stockholders$(153)$(0.11)
ReportedReported$(227)$(72)$(155)$(14)$(169)$(0.12)
Non-GAAP adjustments:Non-GAAP adjustments:Non-GAAP adjustments:
Amortization expenseAmortization expense177 0.12 Amortization expense197 21 176 — 176 0.12 
Intangible asset impairment chargesIntangible asset impairment charges27 0.02 Intangible asset impairment charges219 30 189 — 189 0.13 
Acquisition/divestiture-related net charges (credits)Acquisition/divestiture-related net charges (credits)50 0.04 Acquisition/divestiture-related net charges (credits)111 24 87 — 87 0.06 
Restructuring and restructuring-related net charges (credits)Restructuring and restructuring-related net charges (credits)20 0.01 Restructuring and restructuring-related net charges (credits)23 21 — 21 0.01 
Litigation-related net charges (credits)Litigation-related net charges (credits)260 255 — 255 0.18 
Investment portfolio net losses (gains)Investment portfolio net losses (gains)(65)(15)(50)— (50)(0.03)
European Union (EU) Medical device regulation (MDR) implementation costsEuropean Union (EU) Medical device regulation (MDR) implementation costs0.00 European Union (EU) Medical device regulation (MDR) implementation costs— 0.00 
Deferred tax expenses (benefits)Deferred tax expenses (benefits)(18)(0.01)Deferred tax expenses (benefits)— (18)18 — 18 0.01 
Discrete tax itemsDiscrete tax items11 0.01 Discrete tax items— (3)— (3)(0.00)
Adjusted net income (loss) available to common stockholders$120 $0.08 
AdjustedAdjusted$525 $(18)$543 $(14)$530 $0.37 
(4) For the secondthird quarter of 2020, the effect of assuming the conversion of MCPS into shares of common stock was anti-dilutive, and therefore excluded from the calculation of EPS. Accordingly, GAAP Net loss and Adjusted net loss were reduced by cumulative Preferred stock dividends, as presented in our unaudited consolidated statements of operations, for purposes of calculating EPS. We have assumed dilution of 12.613.6 million common stock equivalents related to employee stock options for all or a portion of the non-GAAP adjustments, which were anti-dilutive for GAAP purposes due to our Net loss position.







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SixNine Months Ended JuneSeptember 30, 2021

Our net sales for the first sixnine months of 2021 were $5.829$8.761 billion, as compared to $4.546$7.204 billion for the first sixnine months of 2020. This increase of $1.283$1.557 billion, or 28.221.6 percent, included operational net sales growth of 25.019.3 percent and the positive impact of 320230 basis points from foreign currency fluctuations, and includes net sales from Preventiceour recent acquisitions following the completiondate of the acquisition on March 1, 2021.acquisition. The increase in our net sales was significantlyprimarily driven by the recovery of elective and semi-emergent procedure volumes compared to the prior year when the COVID-19 pandemic had peaksignificant impact on our net sales. Refer to Quarterly Results and Business Overview for a discussion of our net sales by global business.

Our reported net income available to common stockholders for the first sixnine months of 2021 was $500$905 million, or $0.35$0.63 per diluted share. Our reported results for the first sixnine months of 2021 included certain charges and/or credits totaling $602$778 million (after-tax), or $0.42$0.54 per diluted share. Excluding these items, adjusted net income available to common stockholders for the first sixnine months of 2021 was $1.102$1.683 billion, or $0.77$1.17 per diluted share.

Our reported net loss available to common stockholders for the first sixnine months of 2020 was $142$311 million, or $(0.10)$(0.22) per diluted share. Our reported results for the first sixnine months of 2020 included certain charges and/or credits totaling $653 million$1.351 billion (after-tax), or $0.46$0.95 per diluted share. Excluding these items, adjusted net income available to common stockholders for the first sixnine months of 2020 was $511 million,$1.040 billion, or $0.36$0.73 per diluted share.
The following is a reconciliation of our results of operations prepared in accordance with U.S. GAAP to those adjusted results considered by management. Refer to Quarterly Results and Business Overview and Additional Information for a discussion of these reconciling items:
Six Months Ended June 30, 2021Nine Months Ended September 30, 2021
(in millions, except per share data)(in millions, except per share data)Earnings
Impact per Share(5)
(in millions, except per share data)Income (Loss) Before Income TaxesIncome Tax Expense (Benefit)Net Income (Loss)Preferred Stock DividendsNet Income (Loss) Available to Common Stockholders
Impact per Share(5)
Reported Net income (loss)$527 
Reported Preferred stock dividends(28)
Reported Net income (loss) available to common stockholders$500 $0.35 
ReportedReported$957 $10 $946 $(42)$905 $0.63 
Non-GAAP adjustments:Non-GAAP adjustments:Non-GAAP adjustments:
Amortization expenseAmortization expense328 0.23 Amortization expense549 53 496 — 496 0.35 
Intangible asset impairment chargesIntangible asset impairment charges39 0.03 Intangible asset impairment charges173 25 148 — 148 0.10 
Acquisition/divestitures-related net charges (credits)(219)(0.15)
Acquisition/divestiture-related net charges (credits)Acquisition/divestiture-related net charges (credits)(444)(449)— (449)(0.31)
Restructuring and restructuring-related net charges (credits)Restructuring and restructuring-related net charges (credits)79 0.05 Restructuring and restructuring-related net charges (credits)133 15 118 — 118 0.08 
Litigation-related net charges (credits)Litigation-related net charges (credits)233 0.16 Litigation-related net charges (credits)302 69 233 — 233 0.16 
Investment portfolio net losses (gains)Investment portfolio net losses (gains)117 0.08 Investment portfolio net losses (gains)178 43 136 — 136 0.09 
European Union (EU) Medical device regulation (MDR) implementation costsEuropean Union (EU) Medical device regulation (MDR) implementation costs20 0.01 European Union (EU) Medical device regulation (MDR) implementation costs35 32 — 32 0.02 
Deferred tax expenses (benefits)Deferred tax expenses (benefits)43 0.03 Deferred tax expenses (benefits)— (86)86 — 86 0.06 
Discrete tax itemsDiscrete tax items(38)(0.03)Discrete tax items— 21 (21)— (21)(0.01)
Adjusted net income (loss) available to common stockholders$1,102 $0.77 
AdjustedAdjusted$1,883 $158 $1,725 $(42)$1,683 $1.17 
(5) For the first sixnine months of 2021, the effect of assuming the conversion of MCPS into shares of common stock was anti-dilutive, and therefore excluded from the calculation of EPS. Accordingly, GAAP Net loss and Adjusted net income were reduced by cumulative Preferred stock dividends, as presented in our unaudited consolidated statements of operations, for purposes of calculating GAAP Net income available to common stockholders.


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Six Months Ended June 30, 2020Nine Months Ended September 30, 2020
(in millions, except per share data)(in millions, except per share data)Earnings
Impact per Share(6)
(in millions, except per share data)Income (Loss) Before Income TaxesIncome Tax Expense (Benefit)Net Income (Loss)Preferred Stock DividendsNet Income (Loss) Available to Common Stockholders
Impact per Share(6)
Reported Net income (loss)$(137)
Reported Preferred stock dividends(5)
Reported Net income (loss) available to common stockholders$(142)$(0.10)
ReportedReported$(386)$(94)$(292)$(19)$(311)$(0.22)
Non-GAAP adjustments:Non-GAAP adjustments:Non-GAAP adjustments:
Amortization expenseAmortization expense356 0.25 Amortization expense595 62 533 — 533 0.38 
Intangible asset impairment chargesIntangible asset impairment charges195 0.14 Intangible asset impairment charges452 68 384 — 384 0.27 
Acquisition-related net charges (credits)13 0.01 
Acquisition/divestiture-related net charges (credits)Acquisition/divestiture-related net charges (credits)148 48 100 — 100 0.07 
Restructuring and restructuring-related net charges (credits)Restructuring and restructuring-related net charges (credits)45 0.03 Restructuring and restructuring-related net charges (credits)77 10 66 — 66 0.05 
Litigation-related net charges (credits)Litigation-related net charges (credits)260 255 — 255 0.18 
Investment portfolio net losses (gains)Investment portfolio net losses (gains)(65)(15)(50)— (50)(0.04)
European Union (EU) Medical device regulation (MDR) implementation costsEuropean Union (EU) Medical device regulation (MDR) implementation costs11 0.01 European Union (EU) Medical device regulation (MDR) implementation costs20 17 — 17 0.01 
Deferred tax expenses (benefits)Deferred tax expenses (benefits)0.01 Deferred tax expenses (benefits)— (26)26 — 26 0.02 
Discrete tax itemsDiscrete tax items24 0.02 Discrete tax items— (20)20 — 20 0.01 
Adjusted net income (loss) available to common stockholders$511 $0.36 
AdjustedAdjusted$1,100 $41 $1,059 $(19)$1,040 $0.73 
(6) For the first sixnine months of 2020, the effect of assuming the conversion of MCPS into shares of common stock was anti-dilutive, and therefore excluded from the calculation of EPS. Accordingly, GAAP Net loss and Adjusted net income were reduced by cumulative Preferred stock dividends, as presented in our unaudited consolidated statements of operations, for purposes of calculating EPS. We have assumed dilution of 14.414.1 million common stock equivalents related to employee stock options for all or a portion of the non-GAAP adjustments, which were anti-dilutive for GAAP purposes due to our Net loss position.
Cash provided by operating activities was $927$1,392 million for the first sixnine months of 2021. As of JuneSeptember 30, 2021, we had total debt outstanding of $9.109$9.085 billion net of unamortized debt issuance discounts and deferred financing costs, Cash and cash equivalents of $2.675$1.947 billion and working capital of $2.685$2.207 billion. Refer to Liquidity and Capital Resources for further discussion.


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Quarterly Results and Business Overview

The following section describes our net sales and results of operations by reportable segment and business unit. For additional information on our businesses and product offerings, see Item 1. Business of our most recent Annual Report on Form 10-K.
Three Months Ended June 30, Three Months Ended September 30,
(in millions)(in millions)20212020Change(in millions)20212020Change
EndoscopyEndoscopy$551 $348 58.5%Endoscopy$533 $475 12.1%
Urology and Pelvic HealthUrology and Pelvic Health397 228 73.9%Urology and Pelvic Health384 350 9.9%
MedSurgMedSurg948 576 64.6%MedSurg917 825 11.2%
Cardiac Rhythm ManagementCardiac Rhythm Management524 351 49.2%Cardiac Rhythm Management512 465 10.1%
ElectrophysiologyElectrophysiology95 51 85.8%Electrophysiology86 76 13.6%
NeuromodulationNeuromodulation247 122 101.5%Neuromodulation221 216 2.4%
Rhythm and NeuroRhythm and Neuro866 525 65.0%Rhythm and Neuro819 757 8.2%
Interventional CardiologyInterventional Cardiology790 495 59.8%Interventional Cardiology744 586 26.9%
Peripheral InterventionsPeripheral Interventions473 340 39.1%Peripheral Interventions452 416 8.8%
CardiovascularCardiovascular1,263 834 51.4%Cardiovascular1,196 1,002 19.4%
Medical DevicesMedical Devices3,077 1,935 59.0%Medical Devices2,932 2,584 13.5%
Specialty Pharmaceuticals(7)
Specialty Pharmaceuticals(7)
 68 (100.0)%
Specialty Pharmaceuticals(7)
 74 (100.0)%
Net SalesNet Sales$3,077 $2,003 53.6%Net Sales$2,932 $2,659 10.3%

Six Months Ended June 30,Nine Months Ended September 30,
(in millions)(in millions)20212020Change(in millions)20212020Change
EndoscopyEndoscopy$1,050 $790 33.0%Endoscopy$1,583 $1,265 25.1%
Urology and Pelvic HealthUrology and Pelvic Health758 560 35.2%Urology and Pelvic Health1,142 910 25.5%
MedSurgMedSurg1,808 1,350 33.9%MedSurg2,725 2,175 25.3%
Cardiac Rhythm ManagementCardiac Rhythm Management993 788 26.0%Cardiac Rhythm Management1,505 1,253 20.1%
ElectrophysiologyElectrophysiology179 126 42.0%Electrophysiology265 202 31.4%
NeuromodulationNeuromodulation444 313 41.8%Neuromodulation666 529 25.7%
Rhythm and NeuroRhythm and Neuro1,617 1,228 31.7%Rhythm and Neuro2,436 1,985 22.7%
Interventional CardiologyInterventional Cardiology1,486 1,128 31.7%Interventional Cardiology2,230 1,714 30.1%
Peripheral InterventionsPeripheral Interventions906 732 23.7%Peripheral Interventions1,358 1,148 18.3%
CardiovascularCardiovascular2,392 1,860 28.6%Cardiovascular3,588 2,862 25.4%
Medical DevicesMedical Devices5,816 4,437 31.1%Medical Devices8,748 7,021 24.6%
Specialty Pharmaceuticals(7)
Specialty Pharmaceuticals(7)
13 109 (87.8)%
Specialty Pharmaceuticals(7)
13 183 (92.7)%
Net SalesNet Sales$5,829 $4,546 28.2%Net Sales$8,761 $7,204 21.6%
(7) On March 1, 2021, we completed the divestiture of the Specialty Pharmaceuticals business. Our consolidated net sales include Specialty Pharmaceuticals up to the date of the closing of the transaction.

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MedSurg

Endoscopy

Our Endoscopy business develops and manufactures devices to diagnose and treat a broad range of gastrointestinal (GI) and pulmonary conditions with innovative, less-invasive technologies. Our net sales of Endoscopy products were $551$533 million for the secondthird quarter of 2021 and $1.050$1.583 billion for the first sixnine months of 2021 and represented 18 percent of our consolidated net sales in both the secondthird quarter and first sixnine months of 2021. Our Endoscopy net sales increased $203$57 million, or 58.512.1 percent, in the secondthird quarter of 2021 and increased $260$318 million, or 33.025.1 percent, in the first sixnine months of 2021, compared to the prior year periods. In the secondthird quarter of 2021, this increase included operational net sales growth of 54.111.4 percent and a positive impact of 44060 basis points from foreign currency fluctuations, compared to the prior year period. In the first sixnine months of 2021, this increase included operational net sales growth of 29.422.6 percent and a positive impact of 360250 basis points from foreign currency fluctuations, compared to the prior year period. This

Operational net sales growth in the third quarter and first nine months of 2021 was primarily driven by our biliary, single-use imaging, hemostasis and infection prevention franchises due to the recovery of elective and semi-emergent procedure volumes compared to the prior year, particularly in the first half, when the COVID-19 pandemic had peaka significant negative impact on our net sales.

Urology and Pelvic Health

Our Urology and Pelvic Health business develops and manufactures devices to treat various urological and pelvic conditions for both male and female anatomies. Our net sales of Urology and Pelvic Health products were $397$384 million for the secondthird quarter of 2021 and $758 million$1.142 billion for the first sixnine months of 2021, representing 13 percent of our consolidated net sales in both the secondthird quarter and first sixnine months of 2021. Our Urology and Pelvic Health net sales increased $169$35 million, or 73.99.9 percent, in the secondthird quarter of 2021 and increased $197$232 million, or 35.225.5 percent, in the first sixnine months of 2021, compared to the prior year periods. In the secondthird quarter of 2021, this increase included operational net sales growth of 70.49.4 percent and a positive impact of 35050 basis points from foreign currency fluctuations, compared to the prior year period. In the first nine months of 2021, this increase included operational net sales growth of 23.7 percent and a positive impact of 180 basis points from foreign currency fluctuations, compared to the prior year period.

Operational net sales growth included organic net sales growth of 70.86.6 percent in the third quarter of 2021 and 23.6 percent in the first nine months of 2021, and the unfavorablepositive impact of 40280 basis points fromin the third quarter of 2021 and 20 basis points in the first nine months of 2021 due to our Lumenis, LTD. (Lumenis) acquisition and the divestiture of the Intrauterine Health business in the second quarter of 2020. In the first six monthsthird quarter of 2021, this increase included operationalwe completed the acquisition of the global surgical business of Lumenis, a privately held company that develops and commercializes energy-based medical solutions, including innovative laser systems, fibers and accessories used for urology and otolaryngology procedures. Organic net sales growth of 32.7 percent and a positive impact of 250 basis points from foreign currency fluctuations, compared to the prior year period. Operational net sales growth included organic net sales growth of 34.3 percent and the negative impact of 160 basis points from the divestiture of the Intrauterine Health business in the second quarter of 2020. Organic growth was driven by our stone management prosthetic urology and prostate health franchises in additionand, during the first nine months of 2021, our prosthetic urology franchise due to the recovery of elective and semi-emergent procedure volumes compared to the prior year when the COVID-19 pandemic had peaka significant negative impact on our net sales.

Rhythm and Neuro

Cardiac Rhythm Management

Our Cardiac Rhythm Management (CRM) business develops and manufactures a variety of implantable devices that monitor the heart and deliver electricity to treat cardiac abnormalities. Our net sales of CRM products were $524$512 million for the secondthird quarter of 2021 and $993 million$1.505 billion for the first sixnine months of 2021, representing 17 percent of our consolidated net sales in both the secondthird quarter and first sixnine months of 2021. Our CRM net sales increased $173$47 million, or 49.210.1 percent, in the secondthird quarter of 2021 and increased $205$252 million, or 26.020.1 percent, in the first sixnine months of 2021, compared to the prior year periods. In the secondthird quarter of 2021, this increase included operational net sales growth of 44.99.6 percent and a positive impact of 43050 basis points from foreign currency fluctuations, compared to the prior year period. In the first nine months of 2021, this increase included operational net sales growth of 17.7 percent and a positive impact of 240 basis points from foreign currency fluctuations, compared to the prior year period.

Operational net sales growth included organic net sales declines of (0.3) percent in the third quarter of 2021 and growth of 31.28.8 percent for the first nine months of 2021, and the favorablepositive impact of 1380990 basis points in the third quarter of 2021 and 890 basis points for the first nine months of 2021 from the acquisition of Preventice in the first quarter of 2021,Solutions, adding to our CRM business a full
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portfolio of mobile cardiac health solutions and services, ranging from ambulatory cardiac monitors, to cardiac event monitors and mobile cardiac telemetry. InDuring the third quarter of 2021, organic sales performance was driven by a decline in net sales from our defibrillator franchise partially offset by growth in our pacemaker franchise and cardiac diagnostics franchise, led by our LUX-Dx™ Insertable Cardiac Monitor (ICM) system. For the first sixnine months of 2021, this increase included operational net sales growth of 22.5 percent and a positive impact of 350 basis points from foreign currency fluctuations, compared to the prior year period. Operational net sales growth included organic net sales growth of 14.2 percent and the positive impact of 830 basis points from the Preventice acquisition. Organic net sales growth was attributable to our defibrillator and pacemaker franchises, due to the recovery of semi-emergent and emergent procedure volumes compared to the prior year, particularly in the first half, when the COVID-19 pandemic had peaka significant negative impact on our net sales, as well as our cardiac diagnostics franchise, led by our LUX-Dx™ Insertable Cardiac Monitor (ICM)ICM system.

Electrophysiology

Our Electrophysiology business develops and manufactures less-invasive medical technologies used in the diagnosis and treatment of rate and rhythm disorders of the heart. Our net sales of Electrophysiology products were $95$86 million for the second
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third quarter of 2021 and $179$265 million for the first sixnine months of 2021, representing three percent of our consolidated net sales in both the secondthird quarter and first sixnine months of 2021. Our Electrophysiology net sales increased $44$10 million, or 85.813.6 percent, in the secondthird quarter of 2021 and increased $53$63 million, or 42.031.4 percent, in the first sixnine months of 2021, compared to the prior year periods. In the secondthird quarter of 2021, this increase included operational net sales growth of 78.713.2 percent and a positive impact of 71040 basis points from foreign currency fluctuations, compared to the prior year period. In the first sixnine months of 2021, this increase included operational net sales growth of 36.727.8 percent and a positive impact of 530350 basis points from foreign currency fluctuations, compared to the prior year period. This

Operational net sales growth was driven primarily by the recovery of elective procedure volumes compared to the prior year, particularly in the first half, when the COVID-19 pandemic had peaka significant negative impact on our net sales, andas well as the success of our ongoing POLARx™ Cryoablation System and Stablepoint Force-Sensing catheterCatheter international launches. On August 6, 2021, we completed our acquisition of the remaining shares of Farapulse, Inc., a privately-held company that develops and commercializes a pulsed field ablation system, a non-thermal ablation treatment of atrial fibrillation and the only company with a commercially approved pulsed field ablation product in Europe, which will complement our existing electrophysiology portfolio.

Neuromodulation

Our Neuromodulation business develops and manufactures devices to treat various neurological movement disorders and manage chronic pain. Our net sales of Neuromodulation products were $247$221 million for the secondthird quarter of 2021 and $444$666 million for the first sixnine months of 2021, representing eight percent of our consolidated net sales in both the secondthird quarter and first sixnine months of 2021. Our Neuromodulation net sales increased $124$5 million, or 101.52.4 percent, in the secondthird quarter of 2021 and increased $131$136 million, or 41.825.7 percent, in the first sixnine months of 2021, compared to the prior year periods. In the secondthird quarter of 2021, this increase included operational net sales growth of 98.02.1 percent and a positive impact of 36030 basis points from foreign currency fluctuations, compared to the prior year period. In the first sixnine months of 2021, this increase included operational net sales growth of 39.324.1 percent and a positive impact of 250160 basis points from foreign currency fluctuations, compared to the prior year period. This

Operational net sales growth was primarily driven by our spinal cord stimulation (SCS) systems, led by our next generation WaveWriter Alpha™ SCS SystemSystem. During the first nine months of 2021, growth was driven by sales of both our SCS systems and our deep brain stimulation (DBS) systems, including our Vercise Genus™ DBS System, due to the recovery of elective procedure volumes in the first half of 2021 compared to the prior year when the COVID-19 pandemic had peaka more significant negative impact on our net sales. During the third quarter of 2021, procedure volumes continued to be negatively impacted by the COVID-19 pandemic due to their elective nature.

Cardiovascular

Interventional Cardiology

Our Interventional Cardiology business develops and manufactures technologies for diagnosing and treating coronary artery disease and structural heart conditions. Our net sales of Interventional Cardiology products were $790$744 million or 26 percent of our consolidated net sales for the secondthird quarter of 2021 and $1.486$2.230 billion orfor the first nine months of 2021, representing 25 percent of our consolidated net sales forin both the third quarter and first sixnine months of 2021. Our Interventional Cardiology net sales increased $296$158 million, or 59.826.9 percent, in the secondthird quarter of 2021 and increased $358$516 million, or 31.730.1 percent, in the first sixnine months of 2021, compared to the prior year periods. In the secondthird quarter of 2021, this increase included operational net sales growth of 55.226.0 percent and a positive impact of 46090 basis points from foreign currency fluctuations, compared to the prior year period. In the first sixnine months of 2021, this increase included operational net sales growth of 28.227.4 percent and a positive impact of 350270 basis points from foreign currency fluctuations, compared to the prior year period. This

In the third quarter and first nine months of 2021, operational net sales growth was driven by our WATCHMAN™ FLXWATCHMAN FLX™ Left Atrial Appendage Closure Device, our percutaneous coronary intervention guidance (PCIG) franchise and our drug-eluting
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stent (DES) systems due to the recovery of procedure volumes compared to the prior year, particularly in the first half, when the COVID-19 pandemic had peaka significant negative impact on our net sales. In addition, growth was positively impacted by reserves recorded in the third quarter of 2020 primarily related to our conversion to a consignment inventory model for our LAAC franchise with the launch of our WATCHMAN FLX™ Device in the U.S. These increases were partially offset by the discontinuation of our LOTUS Edge™ Aortic Valve System in the fourth quarter of 2020, general price declines associated with our DES systems and the unfavorable impact of China tender pricing on both DES systems and balloon catheter net sales.sales following a reduction in prices in the first quarter of 2021.

Peripheral Interventions

Our Peripheral Interventions business develops and manufactures products to diagnose and treat peripheral arterial and venous diseases, as well as products to diagnose, treat and ease various forms of cancer. Our net sales of Peripheral Interventions products were $473$452 million orfor the third quarter of 2021 and $1.358 billion for the first nine months of 2021, representing 15 percent of our consolidated net sales forin both the secondthird quarter of 2021 and $906 million or 16 percent of our consolidated net sales for the first sixnine months of 2021. Our Peripheral Interventions net sales increased $133$36 million, or 39.18.8 percent, in the secondthird quarter of 2021 and increased $174$210 million, or 23.718.3 percent, in the first sixnine months of 2021, compared to the prior year periods. In the secondthird quarter of 2021, this increase included operational net sales growth of 35.68.1 percent and a positive impact of 35070 basis points from foreign currency fluctuations, compared to the prior year period. In the first sixnine months of 2021, this increase included operational net sales growth of 20.616.1 percent and a positive impact of 310220 basis points from foreign currency fluctuations, compared to the prior year period. This

Operational net sales growth was primarily driven by the
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Interventional Oncology franchise, including our TheraSphere™ Y-90 Radioactive Glass Microspheres, which received U.S. Food and Drug Administration (FDA) approval in the first quarter of 2021 after 20 years as a humanitarian device exemption (HDE). In addition, growth was driven by our drug-eluting portfolio, including the Eluvia™ Drug-Eluting Stent and Ranger™ Drug-Coated Balloon due to the recovery of procedure volumes compared to the prior year, particularly in the first half, when the COVID-19 pandemic had peaka significant negative impact on our net sales, andas well as continued worldwide commercial execution and adoption in recently approved countries. In the first quarter of 2021, we received approval from Japan’s Ministry of Health, Labor and Welfare (MHLW) for our Ranger Drug-Coated Balloon and initiated a full launch.

Specialty Pharmaceuticals

On March 1, 2021, we completed the divestiture of the Specialty Pharmaceuticals business for a purchase price of approximately $800 million. Our consolidated net sales include Specialty Pharmaceuticals up to the date of the closing of the transaction.

Emerging Markets

As part of our strategic imperative to drive global expansion, we are seeking to grow net sales and market share by expanding our global presence, including in Emerging Markets. We define Emerging Markets as the 20 countries that we believe have strong growth potential based on their economic conditions, healthcare sectors and our global capabilities. Periodically, we assess our list of Emerging Markets countries, and effective January 1, 2021, modified our list to include the following countries: Brazil, Chile, China, Colombia, Czech Republic, India, Indonesia, Malaysia, Mexico, Philippines, Poland, Russia, Saudi Arabia, Slovakia, South Africa, South Korea, Taiwan, Thailand, Turkey and Vietnam. We have revised prior period amounts to conform to the current year's presentation which had an immaterial impact on previously reported Emerging Markets net sales. Our Emerging Markets net sales represented 12 percent of our consolidated net sales in both the secondthird quarter and first sixnine months of 2021, 1311 percent in the secondthird quarter of 2020, and 12 percent in the first sixnine months of 2020. In the secondthird quarter of 2021, our Emerging Markets net sales grew 33.821.9 percent on a reported basis, which included operational net sales growth of 25.817.8 percent and a positive impact of 800410 basis points from foreign currency fluctuations, compared to the prior year period. In the first sixnine months of 2021, our Emerging Markets net sales grew 24.823.8 percent on a reported basis, which included operational net sales growth of 19.518.9 percent and a positive impact of 530490 basis points from foreign currency fluctuations, compared to the prior year period. The growth in the secondthird quarter and first sixnine months of 2021 compared to the prior year periods was driven primarily by our net sales in China, which have largely recovered from the impact of the COVID-19 pandemic on procedural volumes.

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Gross Profit

Our Gross profit was $2.132$2.032 billion for the secondthird quarter of 2021, $1.212$1.790 billion for the secondthird quarter of 2020, $3.990$6.022 billion for the first sixnine months of 2021 and $2.950$4.740 billion for the first sixnine months of 2020. As a percentage of net sales, our Gross profit increased to 69.3 percent in the secondthird quarter of 2021, as compared to 60.567.3 percent in the secondthird quarter of 2020 and 68.468.7 percent in the first sixnine months of 2021, as compared to 64.965.8 percent in the first sixnine months of 2020. The following is a reconciliation of our gross profit margin and a description of the drivers of the changes from period to period:
Percentage of Net SalesPercentage of Net Sales
Three MonthsSix MonthsThree MonthsNine Months
Gross profit margin - period ended June 30, 202060.5%64.9%
Gross profit margin - period ended September 30, 2020Gross profit margin - period ended September 30, 202067.3%65.8%
Abnormal production variancesAbnormal production variances3.91.9Abnormal production variances0.51.4
Sales pricing, volume and mixSales pricing, volume and mix5.01.7Sales pricing, volume and mix0.41.3
Inventory chargesInventory charges0.90.4
Net impact of foreign currency fluctuations(1.0)(0.8)
All other, including other expensesAll other, including other expenses0.90.8All other, including other expenses0.2(0.1)
Gross profit margin - period ended June 30, 202169.3%68.4%
Gross profit margin - period ended September 30, 2021Gross profit margin - period ended September 30, 202169.3%68.7%

The primary factors contributing to the increase in our gross profit margin in the secondthird quarter and first sixnine months of 2021, as compared to the same periods in 2020, were higher sales volumes and favorable product mix associated with the resumption of procedures using higher-margin products, as well as the impact in the prior year impact of abnormal production variances attributable to manufacturing plant shut-downs and excess and obsolete inventory charges due to lower forecasted demand for certain of our products driven by the COVID-19 pandemic in the prior year. These improvements were partially offset by price declines related primarily to sales of our coronary drug-eluting stent systems and foreign currency fluctuations. In addition, inflation has put pressure on our gross profit margin, particularly with increases in costs of certain raw materials, direct labor and freight.
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Operating Expenses

The following table provides a summary of certain of our operating expenses:
Three Months Ended June 30,Six Months Ended June 30, Three Months Ended September 30,Nine Months Ended September 30,
2021202020212020 2021202020212020
(in millions)(in millions)$% of Net Sales$% of Net Sales$% of Net Sales$% of Net Sales(in millions)$% of Net Sales$% of Net Sales$% of Net Sales$% of Net Sales
Selling, general and administrative (SG&A) expensesSelling, general and administrative (SG&A) expenses$1,121 36.4 %$798 39.9 %$2,139 36.7 %$1,776 39.1 %Selling, general and administrative (SG&A) expenses$1,066 36.4 %$984 37.0 %$3,206 36.6 %$2,760 38.3 %
Research and development (R&D) expensesResearch and development (R&D) expenses298 9.7 %242 12.1 %574 9.9 %542 11.9 %Research and development (R&D) expenses310 10.6 %315 11.9 %884 10.1 %857 11.9 %
Royalty expenseRoyalty expense12 0.4 %0.4 %24 0.4 %20 0.4 %Royalty expense14 0.5 %12 0.4 %38 0.4 %32 0.4 %

SG&A Expenses

In the secondthird quarter of 2021, our SG&A expenses increased $322$83 million, or 408 percent, as compared to the secondthird quarter of 2020 and were 35060 basis points lower as a percentage of net sales. In the first sixnine months of 2021, our SG&A expenses increased $363$445 million, or 2016 percent, as compared to the first sixnine months of 2020 and were 240170 basis points lower as a percentage of net sales. The increase in SG&A expenses for the secondthird quarter and first sixnine months of 2021, as compared to the same period in the prior year, was primarily due to higher selling costs driven by higher global net sales and the targeted lifting of spending controls implemented induring the first halfnine months of 2020 in response to the escalating COVID-19 pandemic. In addition, SG&A expenses in the first halfnine months of 2021 were further impacted by higher restructuring-related spend.spend and acquisition-related charges.

R&D Expenses

We remain committed to advancing medical technologies and investing in meaningful R&D projects across our businesses. In the secondthird quarter of 2021, our R&D expenses increased $57decreased $5 million, or 232 percent, as compared to the secondthird quarter of 2020 and were 240130 basis points lower as a percentage of net sales.sales due to higher one-time charges in the prior year. In the first sixnine months of 2021, our R&D expenses increased $32$27 million, or 63 percent, as compared to the first sixnine months of 2020, and were 200
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180 basis points lower as a percentage of net sales. R&D expenses increased in the second quarter and the first sixnine months of 2021, as compared to the same period in the prior year, as a result of investments across our businesses in order to maintain a pipeline of new products that we believe will contribute to profitable sales growth.

Royalty Expense

In the secondthird quarter of 2021, our Royalty expense increased $4$2 million, or 4817 percent as compared to the secondthird quarter of 2020 and remained relatively flat as a percentage of net sales. In the first sixnine months of 2021, our Royalty expense increased $4$6 million, or 2119 percent, as compared to the first sixnine months of 2020, and remained flat as a percentage of net sales, primarily due to global net sales growth in the secondthird quarter and first sixnine months of 2021 as compared to the secondthird quarter and first sixnine months of 2020.

Other Operating Expenses

The following table provides a summary of certain of our other operating expenses, which are excluded by management for purposes of evaluating operating performance, refer to Additional Information for a further description of certain operating expenses:
Three Months Ended June 30,Six Months Ended June 30,
(in millions)2021202020212020
Amortization expense$180 $197 $365 $398 
Intangible asset impairment charges45 34 45 233 
Contingent consideration net expense (benefit)(85)— (91)(108)
Restructuring charges (credits)13 
Litigation-related net charges (credits)298 — 302 — 
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Three Months Ended
September 30,
Nine Months Ended
September 30,
(in millions)2021202020212020
Amortization expense$184 $197 $549 $595 
Intangible asset impairment charges128 219 173 452 
Contingent consideration net expense (benefit)(26)(117)(102)
Restructuring charges (credits)18 16 
Litigation-related net charges (credits)— 260 302 260 
Gain on disposal of businesses and assets(40)— (48)— 

Amortization Expense

In the secondthird quarter of 2021, our Amortization expense decreased $17$13 million, or 97 percent, as compared to secondthird quarter of 2020. In the first sixnine months of 2021, our Amortization expense decreased $33$47 million, or 8 percent, as compared to first sixnine months of 2020. The decrease in Amortization expense in the secondthird quarter and first nine months of 2021, as compared to the same period in the prior year, was driven by a decrease in the balance of amortizable intangible assets due to the divestiture of the Specialty Pharmaceuticals business.business partially offset by the addition of amortizable intangible assets associated with our recent acquisitions.

Intangible Asset Impairment Charges

We recorded Intangible asset impairment charges of $45$128 million in the secondthird quarter of 2021, $34$219 million in the secondthird quarter of 2020, $45$173 million in the first sixnine months of 2021 and $233$452 million in the first sixnine months of 2020. The impairment charges recorded in the secondthird quarter and first six months of 2021 were primarily attributable to incremental timeassociated with amortizable technology-related intangible assets that were initially established following our acquisition of VENITI, Inc., and cost to complete an acquired in-process research and development (IPR&D) project. The impairment charges recorded in the first sixnine months of 2021 also included the partial impairment of one of our acquired IPR&D assets. In the third quarter of 2020, impairment charges were primarily associated with IPR&D acquired with Apama Medical, Inc. and in the first nine months of 2020 werealso included charges primarily associated with amortizable technology-related intangible assets that were initially established following our acquisition of nVision Medical Corporation (nVision). TheseCorporation. Each of these charges were recorded as a result of management’s decision to change commercial launch plans or discontinue certain commercial or R&D programs based on cost to complete or remediate, time to market, overall economic viability or, specific to nVision, our understanding of the clinical evidence necessary to commercialize the technology. Refer to Note C – Goodwill and Other Intangible Assets to our unaudited consolidated financial statements contained in Item 1 of this Quarterly Report on Form 10-Q and Critical Accounting Estimates in Item 7 of our most recent Annual Report on Form 10-K for additional details and a discussion of key assumptions used in our goodwill and intangible asset impairment testing and future events that could have a negative impact on the recoverability of our goodwill and intangible assets.
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Contingent Consideration Net Expense (Benefit)

To recognize changes in the fair value of our contingent consideration liability, we recorded net benefits of $85$26 million and $91$117 million in the secondthird quarter and first sixnine months of 2021, respectively, a net expense of less than one$6 million in the secondthird quarter of 2020 and a net benefit of $108$102 million in the first sixnine months of 2020. The net benefits recorded in the first sixnine months of 2021 and 2020 related to a reduction in the contingent consideration liability for certain prior acquisitions for which we reduced the probability of achievement of associated revenue and/or regulatory milestones upon which payment is conditioned, or, in the case of nVision, for milestones that would not be achieved due to management's discontinuation of the R&D program. In addition, we made payments of $14 million associated with prior acquisitions during the first sixnine months of 2021, following the achievement of a revenue-based milestone. Refer to Note B – Acquisitions, Divestitures and Strategic Investments to our unaudited consolidated financial statements contained in Item 1 of this Quarterly Report on Form 10-Q for additional details related to our contingent consideration arrangements.

Restructuring Charges (Credits)

In November 2018, our Board of Directors approved, and we committed to, a new global restructuring program (the 2019 Restructuring Plan). The 2019 Restructuring Plan, for which our Board of Directors approved an extension and expansion in February 2021, is expected to result in total pre-tax charges of approximately $375 million to $475 million and approximately $340 million to $440 million of these charges are expected to result in cash outlays. We expect the majority of activity associated with our 2019 Restructuring Plan, including the extension, to be substantially complete by the end of 2022. A substantial portion of the savings are being reinvested in strategic growth initiatives. Pursuant to this program, restructuring charges were $9 million in the third quarter of 2021, $3 million in the secondthird quarter of 2021 and 2020, $6$15 million in the first sixnine months of 2021 and $13$16 million in the first sixnine months of 2020. Restructuring-related charges were $35$34 million in the secondthird quarter of 2021, $20 million in the secondthird quarter of 2020, $64$98 million in the first sixnine months of 2021 and $40$61 million in the first sixnine months of 2020 and were recorded primarily in Cost of products sold and SG&A expenses.

In addition, on November 17, 2020, we announced a global, voluntary recall of all unused inventory of our LOTUS Edge™ Aortic Valve System, and our decision to retire the entire LOTUS™ Valve platform. We recorded immaterial restructuring and restructuring-related charges associated with the product discontinuation in the secondthird quarter of 2021 and recorded $2 million of restructuring charges and $16$17 million of restructuring-related charges associated with the product discontinuation in the first sixnine months of 2021. The product discontinuation resulted in total pre-tax restructuring and restructuring-related net charges of approximately $80 million. We substantially completed the restructuring activities in the first quarter of 2021.

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Refer to Note H – Restructuring-related Activities to our audited financial statements contained in Item 8 of our most recent Annual Report on Form 10-K for additional information.

Litigation-related net charges (credits)

We recordeddid not record any litigation-related net charges of $298 million during the secondthird quarter of 2021 and recorded $302 million during the first sixnine months of 2021, related primarily to transvaginal surgical mesh products. WeDuring the first nine months of 2021 we increased the accrual associated with this matter to account for increased, post-COVID-19 pandemic settlement and litigation activity related to the remaining cases and claims the Company faces, our revision of the per-case settlement amount for these cases based on recent settlement and litigation activity and changes to our expectations regarding the rate of incoming cases and claims. We did not record anyrecorded litigation-related net charges of $260 million during the third quarter and first sixnine months of 2020.2020, primarily related to transvaginal mesh products, inclusive of a reserve related to claims made by a coalition of state attorneys general. We record certain legal and product liability charges, credits and costs of defense, which we consider to be unusual or infrequent and significant as Litigation-related net charges (credits) in our accompanying unaudited consolidated financial statements. All other legal and product liability charges, credits and costs are recorded within SG&A expenses.

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 the financial covenant required by our credit arrangements. Refer to Note H – Commitments and Contingencies to our unaudited consolidated financial statements contained in Item 1 of this Quarterly Report on Form 10-Q for discussion of our material legal proceedings.

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Interest Expense
The following table provides a summary of our Interest expense and average borrowing rate:
Three Months Ended June 30,Six Months Ended June 30,Three Months Ended September 30,Nine Months Ended September 30,
20212020202120202021202020212020
Interest expense (in millions)
Interest expense (in millions)
$(86)$(91)$(168)$(179)
Interest expense (in millions)
$(86)$(86)$(254)$(265)
Average borrowing rateAverage borrowing rate3.6 %3.5 %3.6 %3.5 %Average borrowing rate3.6 %3.4 %3.6 %3.4 %

Interest expense and our average borrowing rate remained relatively flat in the secondthird quarter and first sixnine months of 2021, as compared to the same periods in the prior year. During the first sixnine months of 2020, we began to taketook proactive steps to manage the potential impact of the COVID-19 pandemic on our short-term liquidity and refinanced existing term loans and outstanding commercial paper with proceeds from new term loans and our 2018 Revolving Credit Facility. We refinanced this short-term, variable-rate debt in May 2020 with our issuances of $500 million 1.900% senior notes due June 2025 and $1.200 billion 2.650% senior notes due June 2030. During the third quarter of 2020, we prepaid the remaining $250 million outstanding under our February 2021 Term Loan and terminated the facility. Refer to Liquidity and Capital Resources and Note E – Contractual Obligations and Commitments to our unaudited consolidated financial statements contained in Item 1 of this Quarterly Report on Form 10-Q for information regarding our debt obligations.

Other, net

The following are the components of Other, net:
Three Months Ended June 30,Six Months Ended June 30, Three Months Ended September 30,Nine Months Ended September 30,
(in millions)(in millions)2021202020212020(in millions)2021202020212020
Interest incomeInterest income$$— $$Interest income$$$$
Net foreign currency gain (loss)Net foreign currency gain (loss)(7)(5)(9)(12)Net foreign currency gain (loss)(8)(1)(17)(13)
Net gains (losses) on investmentsNet gains (losses) on investments(14)(12)22 (34)Net gains (losses) on investments186 48 208 14 
Other income (expense), netOther income (expense), net(7)(2)(5)(10)Other income (expense), net16 (3)
$(26)$(18)$11 $(54) $181 $64 $192 $9 

In the third quarter and first nine months of 2021, in connection with the acquisitionacquisitions of Farapulse and Preventice, in the first quarter of 2021, we remeasured the fair value of our previously-held equity interest,interests in the acquired companies, which resulted in a $222 million and $195 million gain, respectively, recognized within Other, net. In addition, in the first six months of 2021. In the secondthird quarter and first sixnine months of 2021, we recorded losses of $8$24 million and $154$178 million, respectively, on our investment in Pulmonx Corporation presented in Other, net associated with the partial disposition of our ownership and remeasurement of our remaining investment during the period to fair value based on observable market prices.prices, as well as the disposition of our remaining ownership. The Preventice gain isand Farapulse gains are included within Acquisition/
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divestiture-related net charges (credits) and the Pulmonx loss is included in Investment portfolio net losses (gains) presented in the reconciliation of our results of operations prepared in accordance with U.S. GAAP to those adjusted results considered by management. Refer to Financial Summary for the reconciliation and Additional Information for a discussion of management's use of non-GAAP financial measures.

On August 6, 2021, we completed our acquisition of the remaining shares of Farapulse. The transaction price consists of $450 million upfront, or approximately $295 million after adjustments for our prior equity stake, debt and other closing adjustments; up to $125 million upon achievement of certain clinical and regulatory milestones, or $92 million for the portion not previously owned; and additional revenue-based payments over the next three years. The valuation studies necessary to determine the fair value of the various purchase price components are currently in process. Once completed, we will remeasure the fair value of our previously held equity interest and recognize a gain of at least $150 million within Other income (expense) in the accompanying unaudited consolidated statements of operations during the third quarter of 2021. The gain will be included within Acquisition/divestiture related net charges (credits) presented in the reconciliation of our results of operations prepared in accordance with U.S. GAAP to those adjusted results considered by management.

Tax Rates

Our effective tax rate from continuing operations is presented below:
Three Months Ended June 30,Six Months Ended June 30,
2021202020212020
Effective tax rate from continuing operations(24.9)%18.4 %(11.2)%13.7 %
Three Months Ended September 30,Nine Months Ended September 30,
2021202020212020
Effective tax rate from continuing operations13.2 %31.7 %1.1 %24.3 %

The change in our reported tax rates for the secondthird quarter and first sixnine months of 2021, as compared to the same periods in 2020, 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 acquisition/divestiture-relatedlitigation-related net charges (credits), restructuring and restructuring-relatedintangible asset impairment charges, acquisition/
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divestiture-related net charges (credit), litigation charges, investment portfolio net losses (gains), as well as certain discrete tax items primarily related to changes in foreign tax rates, and changes in tax laws adoptedan IRS audit settlement in the second quarter of 2021, as well as the impacts of the Coronavirus Aid, Relief and Economic Security (CARES) Act in the secondthird quarter of 2020.

Economic stimulus legislation has been enacted in many countries in response to the COVID-19 pandemic. In the U.S., the CARES Act, enacted on March 27, 2020, provided an estimated $2.2 trillion in COVID-19 pandemic-related relief, and included tax relief and government loans, subsidies and other relief for entities in affected industries. While we have not applied for government loans, we have taken advantage of the benefits offered in multiple jurisdictions, including the U.S. provision allowing taxpayers to defer payment of the employer portion of certain payroll taxes incurred in 2020. This allowed us to preserve cash generated from operations to service our debt obligations and other near-term commitments and is expected to be paid in full by the end of 2022 as permitted by the legislation.

Critical Accounting Policies and Estimates
Our financial results are affected by the selection and application of accounting policies and methods. In the first sixnine months of 2021, there were no changes to the application of critical accounting policies previously disclosed in our most recent Annual Report on Form 10-K.


Liquidity and Capital Resources

Due to the uncertainty of the impact of the COVID-19 pandemic on our business, we took proactive steps in 2020 to reduce costs and ensure we are in a strong position to support customers and patients as healthcare systems recover and elective and semi-emergent procedures resume. These actions included taking steps to manage outstanding borrowings and increase available liquidity, and preemptively amending our financial covenant requirement for our outstanding credit arrangements.

Based on our current business plan, we believe our existing balance of Cash and cash equivalents, future cash generated from operations, access to capital markets and existing credit facilities will be sufficient to fund our operations, invest in our infrastructure, pay our legal-related liabilities, pay taxes due, and service and repay our existing debt and fund possible acquisitions for at least the next 12 months. We expect to fund the previously announced definitive agreements to acquire Devoro Medical, Inc. and Baylis Medical Company, Inc. using cash on hand on the closing date of the transactions, expected in the fourth quarter of 2021 and the first quarter of 2022, respectively. Please refer to Contractual Obligations and Commitments below for additional details on our future payment obligations and commitments.

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As of JuneSeptember 30, 2021, we had $2.675$1.947 billion of unrestricted Cash and cash equivalents on hand, comprised of $2.379$1.537 billion invested in money market funds and time deposits and $296$410 million in interest bearing and non-interest-bearing bank accounts. We invest excess cash on hand in short-term financial instruments that earn at market interest rates while mitigating principal risk through instrument and counterparty diversification, as well as what we believe to be prudent instrument selection. We limit our direct exposure to securities in any one industry or issuer. As of JuneSeptember 30, 2021, we had no commercial paper debt outstanding, resulting in an additional $2.750 billion of available liquidity.

For additional details related to our debt obligations, including our financial covenant requirement, refer to Note E – Contractual Obligations and Commitments to our unaudited consolidated financial statements contained in Item 1 of this Quarterly Report on Form 10-Q.

The following provides a summary and description of our net cash inflows (outflows):
Six Months Ended June 30,Nine Months Ended September 30,
(in millions)(in millions)20212020(in millions)20212020
Cash provided by (used for) operating activitiesCash provided by (used for) operating activities$927 $192 Cash provided by (used for) operating activities$1,392 $835 
Cash provided by (used for) investing activitiesCash provided by (used for) investing activities71 (135)Cash provided by (used for) investing activities(1,136)(264)
Cash provided by (used for) financing activitiesCash provided by (used for) financing activities(93)1,361 Cash provided by (used for) financing activities(87)1,112 

Operating Activities

In the first sixnine months of 2021, cash provided by operating activities increased $735$557 million as compared to the first sixnine months of 2020, primarily due to comparatively higher net sales and operating income compared to the same period in the prior year.
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Investing Activities

In the first sixnine months of 2021, cash provided by investing activities included proceeds of $801 million from the divestiture of the Specialty Pharmaceuticals business and $122$329 million from the sale of investments and disposition of certain assets, partially offset by a net cash payment of $706 million$2.014 billion for the acquisitionacquisitions of Preventice.Preventice, Lumenis and Farapulse. For more information, refer to Note B – Acquisitions, Divestitures and Strategic Investments to our unaudited consolidated financial statements contained in Item 1 of this Quarterly Report on Form 10-Q. In addition, we made purchases of property, plant and equipment of $181$288 million in the first sixnine months of 2021 and $168$217 million in the first sixnine months of 2020.

Financing Activities

In the first sixnine months of 2021, cash used for financing activities primarily included cash payments associated with the settlement of employee equity awards, dividends paid to shareholders of our mandatory convertible preferred stock and payments for royalty rights associated with the Zytiga™ Drug. On May 10, 2021 we entered into a new $2.750 billion revolving credit facility (2021 Revolving Credit Facility) with a global syndicate of commercial banks and terminated our previous facility (2018 Revolving Credit Facility). The 2021 Revolving Credit Facility will mature on May 10, 2026, with one-year extension options, subject to certain conditions. We have not made any borrowings against the 2021 Revolving Credit Facility.

In the first sixnine months of 2020, we took proactive steps to manage the potential impact of the emerging COVID-19 pandemic on our short-term liquidity and refinanced our existing term loans and outstanding commercial paper with proceeds from new term loans, borrowings against our 2018 Revolving Credit Facility, a senior notes offering and public equity offerings of preferred and common stock.

Please refer to Note F – Contractual Obligations and Commitments to our audited financial statements contained in Item 8 of our most recent Annual Report on Form 10-K for additional information regarding financing activities for the year ended December 31, 2020, including the full repayment of amounts borrowed against our credit facility and partial repayment of amounts borrowed under term loans in the first sixnine months of 2020.

Financial Covenant

As of and through JuneSeptember 30, 2021, we were in compliance with the financial covenant required by the credit facilities.

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The 2021 Revolving Credit Facility includes the following financial covenant requirement for all of our credit arrangements (i) maintain the maximum permitted leverage ratio of 4.254.00 times for the secondthird quarter of 2021, with a step-down for each succeeding fiscal quarter end, beginning with the third quarter of 2021, to 4.00 times and 3.75 times for the fourth quarter of 2021 and through the remaining term of the 2021 Revolving Credit Facility.term. The agreement provides for higher leverage ratios for the period following a qualified acquisition, at our election, for which consideration exceeds $1.000 billion. In the event of such an acquisition, for the four succeeding quarters immediately following, including the quarter in which the acquisition occurs, the maximum permitted leverage ratio is 4.75 times. ItThe maximum permitted ratio steps down for the fifth, sixth and seventh succeeding quarters to 4.50 times, 4.25 times and 4.00 times, respectively. Thereafter, a maximum leverage ratio of 3.75 times is required through the remaining term of the 2021 Revolving Credit Facility. We have not elected to increase the maximum permitted leverage ratio for the recently completed acquisition of Lumenis due to the funding of the acquisition using cash on hand. We believe that we have the ability to comply with the financial covenant for the next 12 months.

The financial covenant requirement provides for an exclusion from the calculation of consolidated EBITDA, as defined by the agreements,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 JuneSeptember 30, 2021, we had $467$428 million of the restructuring charge exclusion remaining. In addition, any cash litigation payments (net of any cash litigation receipts), as defined by the agreements, are excluded from the calculation of consolidated EBITDA, as defined by the agreements, provided that the sum of any excluded net cash litigation payments do not exceed $1.455 billion in the aggregate. As of JuneSeptember 30, 2021, we had $1.303$1.243 billion of the litigation exclusion remaining.
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Contractual Obligations and Commitments

Certain of our acquisitions involve the payment of contingent consideration. See Note B – Acquisitions, Divestitures and Strategic Investments to our unaudited consolidated financial statements contained in Item 1 of this Quarterly Report on Form 10-Q for further details regarding the estimated potential amount of future contingent consideration we could be required to pay associated with our acquisitions. There have been no other material changes to our contractual obligations and commitments as reported in our most recent Annual Report filed on Form 10-K.

Equity

On May 27, 2020, we completed an offering of 10,062,500 shares of 5.50% Mandatory Convertible Preferred Stock, Series A (MCPS) at a price to the public and liquidation preference of $100 per share. The net proceeds from the MCPS offering were approximately $975 million after deducting underwriting discounts and commissions and offering expenses. On May 27, 2020, we also completed an offering of 29,382,500 shares of common stock at a public offering price of $34.25 per share. The net proceeds from the common stock offering were approximately $975 million after deducting underwriting discounts and commissions and offering expenses.

We received $38$102 million in the first sixnine months of 2021 and $48$107 million in the first sixnine months of 2020 in proceeds from stock issuances related to our stock option and employee stock purchase plans. Proceeds from the exercise of employee stock options and employee stock purchases vary from period to period based upon, among other factors, fluctuations in the trading price of our common stock and in the exercise and stock purchase patterns of our employees.

We did not repurchase any shares of our common stock in the first sixnine months of 2021 or 2020. On December 14, 2020, our Board of Directors approved a new stock repurchase program authorizing the repurchase of up to $1.000 billion of our common stock. As of JuneSeptember 30, 2021, we had the full amount remaining available under the authorization.

Legal Matters

For a discussion of our material legal proceedings see Note H – Commitments and Contingencies to our unaudited consolidated financial statements contained in Item 1 of this Quarterly Report on Form 10-Q and Note K – Commitments and Contingencies to our audited financial statements contained in Item 8 of our most recent Annual Report on Form 10-K.
Recent Accounting Pronouncements
Information regarding new accounting pronouncements implemented since December 31, 2020 is included in Note A – Basis of Presentation and information regarding new accounting pronouncements to be implemented is included in Note N – New Accounting Pronouncements to our unaudited consolidated financial statements contained in Item 1 of this Quarterly Report on Form 10-Q.
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Additional Information

Cybersecurity

We have established controls and procedures to escalate enterprise level issues, including cybersecurity matters, to the appropriate management levels within our organization and our Board of Directors, or members or committees thereof, as appropriate. Under our framework, cybersecurity issues are analyzed by subject matter experts and a crisis committee for potential financial, operational, and reputational risks, based on, among other factors, the nature of the matter and breadth of impact. Matters determined to present potential material impacts to the Company’s financial results, operations, and/or reputation are immediately reported by management to the Board of Directors, or individual members or committees thereof, as appropriate, in accordance with our escalation framework. In addition, we have established procedures to ensure that management responsible for overseeing the effectiveness of disclosure controls is informed in a timely manner of known cybersecurity risks and incidents that may materially impact our operations and that timely public disclosure is made as appropriate. 
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Stock Trading Policy

Our directors and executive officers are subject to our Stock Trading Policy, which is designed to facilitate compliance with insider trading laws and governs transactions in our common stock and related derivative securities. Our policy designates certain regular periods, dictated by release of financial results, in which trading is restricted for individuals in information-sensitive positions, including directors and executive officers. In addition, additional periods of trading restriction may be imposed as determined by the President, General Counsel, or Chief Financial Officer in light of material pending developments. Further, during permitted windows, individuals in information-sensitive positions are required to seek pre-clearance for trades from the General Counsel, who assesses whether there are any important pending developments, including cybersecurity matters, which need to be made public before the individual may participate in the market.

Periodically, certain of our executive officers adopt written stock trading plans in accordance with Rule 10b5-1 under the Exchange Act and our own Stock Trading Policy. A Rule 10b5-1 Trading Plan is a written document that pre-establishes the amount, prices and dates (or formulas for determining the amounts, prices and dates) of future purchases or sales of our stock, including shares issued upon exercise of stock options or vesting of deferred stock units. These plans are entered into at a time when the person is not in possession of material non-public information about the Company. We disclose details regarding individual Rule 10b5-1 Trading Plans on the Investor Relations section of our website.

Use of Non-GAAP Financial Measures

To supplement our unaudited consolidated financial statements presented on a GAAP basis, we disclose certain non-GAAP financial measures, including adjusted net income (loss), adjusted net income (loss) available to common stockholders and adjusted net income (loss) per share (EPS) that exclude certain amounts; operational net sales, which exclude the impact of foreign currency fluctuations; and organic net sales, which exclude the impact of foreign currency fluctuations as well as the impact of certain acquisitions and divestitures with less than a full period of comparable net sales. These non-GAAP financial measures are not in accordance with generally accepted accounting principles in the United States and should not be considered in isolation from or as a replacement for the most directly comparable GAAP financial measures. Further, other companies may calculate these non-GAAP financial measures differently than we do, which may limit the usefulness of those measures for comparative purposes.

To calculate adjusted net income (loss), adjusted net income (loss) available to common stockholders and adjusted net income (loss) per share we exclude certain charges (credits) from GAAP net income (loss) and GAAP net income (loss) available to common stockholders. Amounts are presented after-tax using our effective tax rate, unless the amount is a significant unusual or infrequently occurring item in accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) section 740-270-30, "General Methodology and Use of Estimated Annual Effective Tax Rate." Please refer to Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations in our most recent Annual Report filed on Form 10-K filed with the Securities and Exchange Commission (SEC) for an explanation of each of these adjustments and the reasons for excluding each item.

The GAAP financial measures most directly comparable to adjusted net income (loss), adjusted net income (loss) available to common stockholders and adjusted net income (loss) per share are GAAP net income (loss), GAAP net income (loss) available to common stockholders and GAAP net income (loss) per common share - assuming dilution, respectively.

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To calculate operational net sales growth rates, which exclude the impact of foreign currency fluctuations, we convert actual net sales from local currency to U.S. dollars using constant foreign currency exchange rates in the current and prior periods. To calculate organic net sales growth rates, we also remove the impact of acquisitions and divestitures with less than a full period of comparable net sales. The GAAP financial measure most directly comparable to operational net sales and organic net sales is net sales on a GAAP basis.

Reconciliations of each of these non-GAAP financial measures to the corresponding GAAP financial measure are included in the relevant sections of this Quarterly Report.

Management uses these supplemental non-GAAP financial measures to evaluate performance period over period, to analyze the underlying trends in our business, to assess our performance relative to our competitors and to establish operational goals and forecasts that are used in allocating resources. In addition, management uses these non-GAAP financial measures to further its understanding of the performance of our operating segments. The adjustments excluded from our non-GAAP financial measures are consistent with those excluded from our operating segments’ measures of net sales and profit or loss. These adjustments are excluded from the segment measures reported to our chief operating decision maker that are used to make operating decisions and assess performance.
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We believe that presenting adjusted net income (loss), adjusted net income (loss) available to common stockholders, adjusted net income (loss) per share, operational net sales and organic net sales growth rates, in addition to the corresponding GAAP financial measures, provides investors greater transparency to the information used by management for its operational decision-making and allows investors to see our results “through the eyes” of management. We further believe that providing this information assists our investors in understanding our operating performance and the methodology used by management to evaluate and measure such performance.

Safe Harbor for Forward-Looking Statements

Certain statements that we may make from time to time, including statements contained in this Quarterly Report on Form 10-Q and information incorporated by reference herein, constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements may be identified by words like “anticipate,” “expect,” “project,” “believe,” “plan,” “estimate,” “intend,” “aim” and similar words. These forward-looking statements are based on our beliefs, assumptions and estimates using information available to us at the time and are not intended to be guarantees of future events or performance. If our underlying assumptions turn out to be incorrect, or if certain risks or uncertainties materialize, actual results could vary materially from the expectations and projections expressed or implied by our forward-looking statements.

The forward-looking statements in this Quarterly Report on Form 10-Q are based on certain risks and uncertainties, including the risk factors described in Part I, Item 1A. Risk Factors in our most recent Annual Report on Form 10-K and the specific risk factors discussed herein and in connection with forward-looking statements throughout this Quarterly Report on Form 10-Q, which could cause actual results to vary materially from the expectations and projections expressed or implied by our forward-looking statements. These risks and uncertainties, in some cases, have affected and in the future could affect our ability to implement our business strategy and may cause actual results to differ materially from those contemplated by the statements expressed in this Quarterly Report. As a result, readers are cautioned not to place undue reliance on any of our forward-looking statements. Risks and uncertainties that may cause such differences include, among other things: the impact of the ongoing COVID-19 pandemic on our operations and financial results,results; future U.S. and global economic, political, competitive, reimbursement and regulatory conditions,conditions; manufacturing, distribution and supply chain disruptions and cost increases; labor shortages and increases in labor costs; new product introductions and the market acceptance of those products,products; markets for our products,products; expected pricing environment,environment; expected procedural volumes,volumes; the closing and integration of acquisitions,acquisitions; clinical trial results,results; demographic trends,trends; intellectual property rights, litigation,rights; litigation; financial market conditions,conditions; the execution and effect of our restructuring program,program; the execution and effect of our business strategy, including our cost-savings and growth initiativesinitiatives; and future business decisions made by us and our competitors. New risks and uncertainties may arise from time to time and are difficult to predict, including those that have emerged or have increased in significance or likelihood as a result of the COVID-19 pandemic. All of these factors are difficult or impossible to predict accurately and many of them are beyond our control. For a further list and description of these and other important risks and uncertainties that may affect our future operations, see Part I, Item 1A. Risk Factors in our most recent Annual Report on Form 10-K filed with the SEC, which we may update in Part II, Item 1A. Risk Factors in subsequent Quarterly Reports on Form 10-Q that we will file hereafter, and Part II, Item 1A. Risk Factors in this Quarterly Report on Form 10-Q. We disclaim any intention or obligation to publicly update or revise any forward-looking statement to reflect any change in our expectations or in events, conditions, or circumstances on which those expectations may be based, or that may affect the likelihood that actual results will differ from those contained in the forward-looking statements. This cautionary statement is applicable to all forward-looking statements contained in this Quarterly Report.
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The following are some of the important risk factors that could cause our actual results to differ materially from our expectations in any forward-looking statements. For further discussion of these and other risk factors, see Part I, Item 1A. Risk Factors in our most recent Annual Report on Form 10-K and Part II, Item 1A. Risk Factors in this Quarterly Report on Form 10-Q.

Our Businesses
The impact of the COVID-19 pandemic on the worldwide economy and financial markets, and developments related to the disease, including the time it will take for vaccines to be broadly produced, distributed and administered worldwide, and the effectiveness of such vaccines in slowing or stopping the spread of COVID-19 and variants thereof and mitigating the economic effects of the pandemic,

The impact of the COVID-19 pandemic upon the scheduling of elective and semi-emergent procedures,

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The impact of the COVID-19 pandemic on our global manufacturing and distribution system, including the quality of our products, availability and cost of raw materials and direct labor,

Our ability to recover from the impact of the COVID-19 pandemic on our business and increase net sales, expand the markets in which we participate, capture market share and adapt to market volatility,

The impact of natural disasters, climate change, additional future public health crises and other catastrophic events on our ability to manufacture, distribute and sell our products,

Competitive offerings and related declines in average selling prices for our products,

The ongoing impact on our business of physician alignment to hospitals, governmental investigations and audits of hospitals and other market and economic conditions on the overall number of procedures performed,

The performance of, and physician and patient confidence in, our products and technologies or those of our competitors,

The impact and outcome of ongoing and future clinical trials and market studies undertaken by us, our competitors or other third parties or perceived product performance of our or our competitors' products,
 
Variations in clinical results, reliability or product performance of our and our competitors' products,

Our ability to acquire or develop, launch and supply new or next-generation products and technologies worldwide and in line with our commercialization strategies in a timely and successful manner and with respect to our recent acquisitions,

The effect of consolidation and competition in the markets in which we do business or plan to do business,

Disruption in the manufacture or supply of certain components, materials or products, or the failure to secure in a timely manner alternative manufacturing or additional or replacement components, materials or products,

Our ability to achieve our projected level or mix of product sales, as some of our products are more profitable than others,

Our ability to attract and retain key personnel, including those associated with recent acquisitions, and maintain our robust corporate culture, especially in light of the remote working conditions imposed by the COVID-19 pandemic, and execute plans to return employees to offices in jurisdictions where safe and feasible,

The inability of certain of our employees to return to work full time following reduced work schedules associated withdue to impacts of the COVID-19 pandemic, or our inability to recruit personnel into direct labor roles for the duration of the pandemic,

The impact of enhanced requirements to obtain regulatory approval in the U.S. and around the world, including EU MDR and the associated timing and cost of product approval,
 
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The impact of increased pressure on the availability and rate of third-party reimbursement for our products and procedures in the U.S. and around the world, including with respect to the timing and costs of creating and expanding markets for new products and technologies,

The issuance of new or revised accounting standards by the Financial Accounting Standards Board or the Securities and Exchange Commission, and

The impact of potential goodwill and intangible asset impairment charges on our results of operations.

Regulatory Compliance, Litigation and Data Protection

The impact of healthcare policy changes and legislative or regulatory efforts in the U.S., the EU and around the world to modify product approval or reimbursement processes, including a trend toward demonstrating clinical outcomes, comparative effectiveness and cost efficiency, as well as the impact of other healthcare reform legislation,
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Risks associated with our regulatory compliance and quality systems and activities in the U.S., the EU and around the world, including meeting regulatory standards applicable to manufacturing and quality processes,

The effect of legal, regulatory or market responses to global climate change,

Our ability to minimize or avoid future field actions or FDA warning letters relating to our products and processes and the ongoing inherent risk of potential physician advisories related to our or our competitors' products,

The impact of increased scrutiny of and heightened global regulatory enforcement facing the medical device industry arising from political and regulatory changes, economic pressures or otherwise, including under U.S. Anti-Kickback Statute, U.S. False Claims Act and similar laws in other jurisdictions, U.S. Foreign Corrupt Practices Act (FCPA) and similar laws in other jurisdictions, and U.S. and foreign export control, trade embargo and customs laws,

Costs and risks associated with current and future asserted litigation,

The effect of our litigation and risk management practices, including self-insurance and compliance activities on our loss contingencies, legal provision and cash flows,
 
The impact of, diversion of management attention as a result of, and costs to cooperate with, litigate and/or resolve governmental investigations and our class action, product liability, contract and other legal proceedings,

The possibility of failure to protect our intellectual property rights and the outcome of patent litigation,

Our ability to operate properly our information systems that support our business operations and protect our data integrity and products from a cyber-attack or other breach that has a material adverse effect on our business, reputation or results of operations, and

The potential impact to internal control over financial reporting relating to potential restrictions to access to consigned inventory at customer locations for our inventory count procedures.

Innovation and Certain Growth Initiatives

The timing, size and nature of our strategic growth initiatives and market opportunities, including with respect to our internal research and development platforms and externally available research and development platforms and technologies and the ultimate cost and success of those initiatives and opportunities,

Our ability to complete planned clinical trials successfully, obtain regulatory approvals and launch new and next generation products in a timely manner consistent with cost estimates, including the successful completion of projects from in-process research and development,

Our ability to identify and prioritize our internal research and development project portfolio and our external investment portfolio on profitable net sales growth opportunities as well as to maintain the estimated timing and costs of such projects and expected revenue levels for the resulting products and technologies,

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Our ability to develop, manufacture and market new products and technologies successfully and in a timely manner and the ability of our competitors and other third parties to develop products or technologies that render our products or technologies noncompetitive or obsolete,

Our ability to execute appropriate decisions to discontinue, write-down or reduce the funding of any of our research and development projects, including projects from in-process research and development from our acquisitions, in our growth adjacencies or otherwise,

Our dependence on acquisitions, alliances or investments to introduce new products or technologies and to enter new or adjacent growth markets and our ability to fund them or to fund contingent payments with respect to those acquisitions, alliances and investments, and

The potential failure to successfully integrate and realize the expected benefits, including cost synergies, from the strategic acquisitions, alliances and investments we have consummated or may consummate in the future.
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International Markets

Our dependency on international net sales to achieve growth, including in emerging markets,

The timing and collectability of customer payments, as well as our ability to continue factoring customer receivables where we have factoring arrangements,

The impact on pricing due to national tenders,

Geopolitical and economic conditions, including civil unrest, terrorist activity, governmental changes, restrictions on the ability to transfer capital across borders, tariffs and other protectionist measures,

The impact of the United Kingdom’s departure from the European Union,

Protection of our intellectual property,

Our ability to comply with established and developing U.S. and foreign legal and regulatory requirements, including FCPA, EU MDR and similar laws in other jurisdictions,

Our ability to comply with U.S. and foreign export control, trade embargo and customs laws,

The impact of changes in reimbursement practices and policies,

The impact of significant developments or uncertainties stemming from changes in the U.S. administration following the 2020 presidential and congressional elections, including changes in U.S. trade policies, tariffs and the reaction of other countries thereto, particularly China,

Our ability to maintain or expand our worldwide market positions in the various markets in which we compete or seek to compete, including through investments in product diversification and emerging markets such as Brazil, Russia, India and China,

Our ability to execute and realize anticipated benefits from our investments in emerging markets, and

The potential effect of foreign currency fluctuations and interest rate fluctuations on our net sales, expenses and resulting margins.

Liquidity

Our ability to generate sufficient cash flow to fund operations, capital expenditures, global expansion initiatives, any litigation settlements and judgments, share repurchases and strategic investments and acquisitions as well as maintaining our investment grade ratings and managing our debt levels and financial covenant compliance, particularly in light of the COVID-19 pandemic and lower demand for our products,

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Our ability to access the public and private capital markets when desired and to issue debt or equity securities on terms reasonably acceptable to us,

The unfavorable resolution of open tax matters, exposure to additional tax liabilities and the impact of changes in U.S. and international tax laws,

The unfavorable resolution of open litigation matters, exposure to additional loss contingencies and legal provisions,

The impact of examinations and assessments by domestic and international taxing authorities on our tax provision, financial condition or results of operations,

The possibility of counterparty default on our derivative financial instruments, and

Our ability to collect outstanding and future receivables and/or sell receivables under our factoring programs.

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Cost Reduction and Optimization Initiatives

Risks associated with changes made or expected to be made to our organizational and operational structure, pursuant to our restructuring plans as well as any further restructuring or optimization plans we may undertake in the future and our ability to recognize benefits and cost reductions from such programs and

Business disruption and employee distraction as we execute our global compliance program, restructuring and optimization plans and divestitures of assets or businesses and implement our other strategic and cost reduction initiatives.
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ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We develop, manufacture and sell medical devices globally and our earnings and cash flows are exposed to market risk from changes in currency exchange rates and interest rates. We address these risks through a risk management program that includes the use of derivative financial instruments. We operate the program pursuant to documented corporate risk management policies. We do not enter derivative transactions for speculative purposes. Gains and losses on derivative financial instruments substantially offset losses and gains on underlying hedged exposures. Furthermore, we manage our exposure to counterparty risk on derivative instruments by entering into contracts with a diversified group of major financial institutions and by actively monitoring outstanding positions.
Our currency risk consists primarily of foreign currency denominated firm commitments, forecasted foreign currency denominated intercompany and third-party transactions and net investments in certain subsidiaries. We use both nonderivative (primarily European manufacturing operations) and derivative instruments to manage our earnings and cash flow exposure to changes in currency exchange rates. We had currency derivative instruments outstanding in the contract amount of $10.343$9.675 billion as of JuneSeptember 30, 2021 and $10.481 billion as of December 31, 2020. A ten percent appreciation in the U.S. dollar’s value relative to the hedged currencies would increase the derivative instruments’ fair value by $380$333 million as of JuneSeptember 30, 2021 as compared to $333 million as of December 31, 2020. A ten percent depreciation in the U.S. dollar’s value relative to the hedged currencies would decrease the derivative instruments’ fair value by $465$408 million as of JuneSeptember 30, 2021 as compared to $407 million as of December 31, 2020. Any increase or decrease in the fair value of our currency exchange rate sensitive derivative instruments would be substantially offset by a corresponding decrease or increase in the fair value of the hedged underlying asset, liability or forecasted transaction, resulting in minimal impacts on our unaudited consolidated statements of operations.
Our interest rate risk relates primarily to U.S. dollar borrowings partially offset by U.S. dollar cash investments. We have historically used interest rate derivative instruments to manage our earnings and cash flow exposure to changes in interest rates. We had no interest rate derivative instruments outstanding as of JuneSeptember 30, 2021 and December 31, 2020. As of JuneSeptember 30, 2021, $9.168$9.143 billion in aggregate principal amount of our outstanding debt obligations were at fixed interest rates, representing approximately 100 percent of our total debt, on an amortized cost basis. As of JuneSeptember 30, 2021, our outstanding debt obligations at fixed interest rates were comprised of senior notes.

Refer to Note D – Hedging Activities and Fair Value Measurements to our unaudited consolidated financial statements contained in Item 1 of this Quarterly Report on Form 10-Q for further information regarding our derivative financial instruments.

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ITEM 4.CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer (CEO) and our Chief Financial Officer (CFO), evaluated the effectiveness of our disclosure controls and procedures as of JuneSeptember 30, 2021 pursuant to Rule 13a-15(b) of the Securities Exchange Act of 1934, as amended (the Exchange Act). Disclosure controls and procedures are designed to ensure that material information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such material information is accumulated and communicated to our management, including our CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure. Based on their evaluation, our CEO and CFO concluded that, as of JuneSeptember 30, 2021, our disclosure controls and procedures were effective.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting in the secondthird quarter of 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Further, while many of our employees continued to work remotely to adhere to COVID-19 social distancing requirements, this did not affect our ability to maintain financial reporting systems, internal controls over financial reporting or disclosure controls and procedures. Prior to the COVID-19 pandemic, we were leveraging electronic tools to facilitate our global close process and to connect our physically dispersed team of finance professionals in offices around the world. While the quarterly close cycle was performed remotely, fundamentally, the work performed, and the processes and controls executed did not change.

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PART II
OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

See Note G – Income Taxes and Note H – Commitments and Contingencies to our unaudited consolidated financial statements contained in Item 1 of this Quarterly Report on Form 10-Q, which is incorporated herein by reference.

ITEM 1A. RISK FACTORS

In addition to other information contained elsewhere in this report, you should carefully consider the factors discussed in Part I, Item 1A. Risk Factors in our most recent Annual Report filed on Form 10-K, which could materially affect our business, financial condition or future results.

ITEM 6. EXHIBITS (* documents filed or furnished with this report,)
4.1
10.1
31.1* 
 
31.2* 
 
32.1* 
 
32.2* 
 
101.SCH*XBRL Taxonomy Extension Schema Document.
101.CAL*XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF*XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB*XBRL Taxonomy Extension Label Linkbase Document.
101.PRE*XBRL Taxonomy Extension Presentation Linkbase Document.
104Cover Page Interactive Data File (embedded within the Inline XBRL document and contained in Exhibit 101).
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized on August 6,November 4, 2021.

 
BOSTON SCIENTIFIC CORPORATION
 
 By:/s/ Daniel J. Brennan
   
  Name:Daniel J. Brennan
  Title:Executive Vice President and
Chief Financial Officer 
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