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 improvement in our global sales trends beginning in the third quarter of 2020 which continued through the third quarter of 2021, as procedure volumes resumed and referral rates improved. During the third quarter of 2021, as the more contagious Delta variant strain surged globally, elective procedures were unfavorably impacted in certain regions, particularly in the U.S., while they improved in many parts of the globe as COVID-19 vaccines were increasingly made available. However, COVID-19 cases persist 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 nine 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 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 affects our ability to retain and attract new talent as 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 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

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.

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 to carbon neutrality in our manufacturing and key distribution sites by 2030, and expect to fully source or generate our electricity from renewable sources by 2024.

Financial Summary

Three Months Ended September 30, 2021

Our net sales for the third quarter of 2021 were $2.932 billion, as compared to $2.659 billion for the third quarter of 2020. This increase of $274 million, or 10.3 percent, included operational net sales growth of 9.7 percent and the positive impact of 60 basis points from foreign currency fluctuations, and includes net sales from our recent acquisitions following the respective dates of acquisition.1 The increase in our net sales was primarily driven by the recovery of elective and semi-emergent procedure volumes compared to the prior year when the COVID-19 pandemic had significant 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 third quarter of 2021 was $405 million, or $0.28 per diluted share. Our reported results for the third quarter of 2021 included certain charges and/or credits totaling $176 million (after-tax), or $0.12 per diluted share. Excluding these items, adjusted net income available to common stockholders for the third quarter of 2021 was $581 million, or $0.41 per diluted share.1, 2

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

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 September 30, 2021
(in millions, except per share data)			Income (Loss) Before Income Taxes			Income Tax Expense (Benefit)			Net Income (Loss)			Preferred Stock Dividends			Net Income (Loss) Available to Common Stockholders			Impact per Share**(3)**
Reported			$	483		$	64		$	419		$	(14)		$	405		$	0.28
Non-GAAP adjustments:
Amortization expense			184			16			168			—			168			0.12
Intangible asset impairment charges			128			19			109			—			109			0.08
Acquisition/divestiture-related net charges (credits)			(232)			(2)			(230)			—			(230)			(0.16)
Restructuring and restructuring-related net charges (credits)			44			5			39			—			39			0.03
Litigation-related net charges (credits)			—			—			—			—			—			(0.00)
Investment portfolio net losses (gains)			26			8			19			—			19			0.01
European Union (EU) Medical device regulation (MDR) implementation costs			13			1			12			—			12			0.01
Deferred tax expenses (benefits)			—			(43)			43			—			43			0.03
Discrete tax items			—			(17)			17			—			17			0.01
Adjusted			$	646		$	51		$	595		$	(14)		$	581		$	0.41

(3) For the third 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 September 30, 2020
(in millions, except per share data)			Income (Loss) Before Income Taxes			Income Tax Expense (Benefit)			Net Income (Loss)			Preferred Stock Dividends			Net Income (Loss) Available to Common Stockholders			Impact per Share**(4)**
Reported			$	(227)		$	(72)		$	(155)		$	(14)		$	(169)		$	(0.12)
Non-GAAP adjustments:
Amortization expense			197			21			176			—			176			0.12
Intangible asset impairment charges			219			30			189			—			189			0.13
Acquisition/divestiture-related net charges (credits)			111			24			87			—			87			0.06
Restructuring and restructuring-related net charges (credits)			23			3			21			—			21			0.01
Litigation-related net charges (credits)			260			5			255			—			255			0.18
Investment portfolio net losses (gains)			(65)			(15)			(50)			—			(50)			(0.03)
European Union (EU) Medical device regulation (MDR) implementation costs			8			1			7			—			7			0.00
Deferred tax expenses (benefits)			—			(18)			18			—			18			0.01
Discrete tax items			—			3			(3)			—			(3)			(0.00)
Adjusted			$	525		$	(18)		$	543		$	(14)		$	530		$	0.37

(4) For the third 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 13.6 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.

Nine Months Ended September 30, 2021

Our net sales for the first nine months of 2021 were $8.761 billion, as compared to $7.204 billion for the first nine months of 2020. This increase of $1.557 billion, or 21.6 percent, included operational net sales growth of 19.3 percent and the positive impact of 230 basis points from foreign currency fluctuations, and includes net sales from our recent acquisitions following the date of acquisition. The increase in our net sales was primarily driven by the recovery of elective and semi-emergent procedure volumes compared to the prior year when the COVID-19 pandemic had significant 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 nine months of 2021 was $905 million, or $0.63 per diluted share. Our reported results for the first nine months of 2021 included certain charges and/or credits totaling $778 million (after-tax), or $0.54 per diluted share. Excluding these items, adjusted net income available to common stockholders for the first nine months of 2021 was $1.683 billion, or $1.17 per diluted share.

Our reported net loss available to common stockholders for the first nine months of 2020 was $311 million, or $(0.22) per diluted share. Our reported results for the first nine months of 2020 included certain charges and/or credits totaling $1.351 billion (after-tax), or $0.95 per diluted share. Excluding these items, adjusted net income available to common stockholders for the first nine months of 2020 was $1.040 billion, or $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:

			Nine Months Ended September 30, 2021
(in millions, except per share data)			Income (Loss) Before Income Taxes			Income Tax Expense (Benefit)			Net Income (Loss)			Preferred Stock Dividends			Net Income (Loss) Available to Common Stockholders			Impact per Share**(5)**
Reported			$	957		$	10		$	946		$	(42)		$	905		$	0.63
Non-GAAP adjustments:
Amortization expense			549			53			496			—			496			0.35
Intangible asset impairment charges			173			25			148			—			148			0.10
Acquisition/divestiture-related net charges (credits)			(444)			5			(449)			—			(449)			(0.31)
Restructuring and restructuring-related net charges (credits)			133			15			118			—			118			0.08
Litigation-related net charges (credits)			302			69			233			—			233			0.16
Investment portfolio net losses (gains)			178			43			136			—			136			0.09
European Union (EU) Medical device regulation (MDR) implementation costs			35			3			32			—			32			0.02
Deferred tax expenses (benefits)			—			(86)			86			—			86			0.06
Discrete tax items			—			21			(21)			—			(21)			(0.01)
Adjusted			$	1,883		$	158		$	1,725		$	(42)		$	1,683		$	1.17

(5) For the first nine 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.

			Nine Months Ended September 30, 2020
(in millions, except per share data)			Income (Loss) Before Income Taxes			Income Tax Expense (Benefit)			Net Income (Loss)			Preferred Stock Dividends			Net Income (Loss) Available to Common Stockholders			Impact per Share**(6)**
Reported			$	(386)		$	(94)		$	(292)		$	(19)		$	(311)		$	(0.22)
Non-GAAP adjustments:
Amortization expense			595			62			533			—			533			0.38
Intangible asset impairment charges			452			68			384			—			384			0.27
Acquisition/divestiture-related net charges (credits)			148			48			100			—			100			0.07
Restructuring and restructuring-related net charges (credits)			77			10			66			—			66			0.05
Litigation-related net charges (credits)			260			5			255			—			255			0.18
Investment portfolio net losses (gains)			(65)			(15)			(50)			—			(50)			(0.04)
European Union (EU) Medical device regulation (MDR) implementation costs			20			2			17			—			17			0.01
Deferred tax expenses (benefits)			—			(26)			26			—			26			0.02
Discrete tax items			—			(20)			20			—			20			0.01
Adjusted			$	1,100		$	41		$	1,059		$	(19)		$	1,040		$	0.73

(6) For the first nine 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 14.1 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 $1,392 million for the first nine months of 2021. As of September 30, 2021, we had total debt outstanding of $9.085 billion net of unamortized debt issuance discounts and deferred financing costs, Cash and cash equivalents of $1.947 billion and working capital of $2.207 billion. Refer to Liquidity and Capital Resources for further discussion.

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 September 30,
(in millions)			2021						2020						Change
Endoscopy			$	533					$	475					12.1%
Urology and Pelvic Health			384						350						9.9%
MedSurg			917						825						11.2%
Cardiac Rhythm Management			512						465						10.1%
Electrophysiology			86						76						13.6%
Neuromodulation			221						216						2.4%
Rhythm and Neuro			819						757						8.2%
Interventional Cardiology			744						586						26.9%
Peripheral Interventions			452						416						8.8%
Cardiovascular			1,196						1,002						19.4%
Medical Devices			2,932						2,584						13.5%
Specialty Pharmaceuticals**(7)**			—						74						(100.0)%
Net Sales			$	2,932					$	2,659					10.3%

			Nine Months Ended September 30,
(in millions)			2021						2020						Change
Endoscopy			$	1,583					$	1,265					25.1%
Urology and Pelvic Health			1,142						910						25.5%
MedSurg			2,725						2,175						25.3%
Cardiac Rhythm Management			1,505						1,253						20.1%
Electrophysiology			265						202						31.4%
Neuromodulation			666						529						25.7%
Rhythm and Neuro			2,436						1,985						22.7%
Interventional Cardiology			2,230						1,714						30.1%
Peripheral Interventions			1,358						1,148						18.3%
Cardiovascular			3,588						2,862						25.4%
Medical Devices			8,748						7,021						24.6%
Specialty Pharmaceuticals**(7)**			13						183						(92.7)%
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.

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 $533 million for the third quarter of 2021 and $1.583 billion for the first nine months of 2021 and represented 18 percent of our consolidated net sales in both the third quarter and first nine months of 2021. Our Endoscopy net sales increased $57 million, or 12.1 percent, in the third quarter of 2021 and increased $318 million, or 25.1 percent, in the first nine months of 2021, compared to the prior year periods. In the third quarter of 2021, this increase included operational net sales growth of 11.4 percent and a positive impact of 60 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 22.6 percent and a positive impact of 250 basis points from foreign currency fluctuations, compared to the prior year period.

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 a 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 $384 million for the third quarter of 2021 and $1.142 billion for the first nine months of 2021, representing 13 percent of our consolidated net sales in both the third quarter and first nine months of 2021. Our Urology and Pelvic Health net sales increased $35 million, or 9.9 percent, in the third quarter of 2021 and increased $232 million, or 25.5 percent, in the first nine months of 2021, compared to the prior year periods. In the third quarter of 2021, this increase included operational net sales growth of 9.4 percent and a positive impact of 50 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 6.6 percent in the third quarter of 2021 and 23.6 percent in the first nine months of 2021, and the positive impact of 280 basis points in 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 third quarter of 2021, we 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 was driven by our stone management and prostate health franchises and, 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 a 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 $512 million for the third quarter of 2021 and $1.505 billion for the first nine months of 2021, representing 17 percent of our consolidated net sales in both the third quarter and first nine months of 2021. Our CRM net sales increased $47 million, or 10.1 percent, in the third quarter of 2021 and increased $252 million, or 20.1 percent, in the first nine months of 2021, compared to the prior year periods. In the third quarter of 2021, this increase included operational net sales growth of 9.6 percent and a positive impact of 50 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 8.8 percent for the first nine months of 2021, and the positive impact of 990 basis points in the third quarter of 2021 and 890 basis points for the first nine months of 2021 from the acquisition of Preventice Solutions, adding to our CRM business a full

portfolio of mobile cardiac health solutions and services, ranging from ambulatory cardiac monitors, to cardiac event monitors and mobile cardiac telemetry. During 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 nine months of 2021, 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 a significant negative impact on our net sales, as well as our cardiac diagnostics franchise, led by our 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 $86 million for the third quarter of 2021 and $265 million for the first nine months of 2021, representing three percent of our consolidated net sales in both the third quarter and first nine months of 2021. Our Electrophysiology net sales increased $10 million, or 13.6 percent, in the third quarter of 2021 and increased $63 million, or 31.4 percent, in the first nine months of 2021, compared to the prior year periods. In the third quarter of 2021, this increase included operational net sales growth of 13.2 percent and a positive impact of 40 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 27.8 percent and a positive impact of 350 basis points from foreign currency fluctuations, compared to the prior year period.

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 a significant negative impact on our net sales, as well as the success of our ongoing POLARx™ Cryoablation System and Stablepoint Force-Sensing Catheter international launches.

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 $221 million for the third quarter of 2021 and $666 million for the first nine months of 2021, representing eight percent of our consolidated net sales in both the third quarter and first nine months of 2021. Our Neuromodulation net sales increased $5 million, or 2.4 percent, in the third quarter of 2021 and increased $136 million, or 25.7 percent, in the first nine months of 2021, compared to the prior year periods. In the third quarter of 2021, this increase included operational net sales growth of 2.1 percent and a positive impact of 30 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 24.1 percent and a positive impact of 160 basis points from foreign currency fluctuations, compared to the prior year period.

Operational net sales growth was primarily driven by our spinal cord stimulation (SCS) systems, led by our next generation WaveWriter Alpha™ SCS System. 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 a 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 $744 million for the third quarter of 2021 and $2.230 billion for the first nine months of 2021, representing 25 percent of our consolidated net sales in both the third quarter and first nine months of 2021. Our Interventional Cardiology net sales increased $158 million, or 26.9 percent, in the third quarter of 2021 and increased $516 million, or 30.1 percent, in the first nine months of 2021, compared to the prior year periods. In the third quarter of 2021, this increase included operational net sales growth of 26.0 percent and a positive impact of 90 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 27.4 percent and a positive impact of 270 basis points from foreign currency fluctuations, compared to the prior year period.

In the third quarter and first nine months of 2021, operational net sales growth was driven by our WATCHMAN FLX™ Left Atrial Appendage Closure Device, our percutaneous coronary intervention guidance (PCIG) franchise and our drug-eluting

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 a 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 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 $452 million for the third quarter of 2021 and $1.358 billion for the first nine months of 2021, representing 15 percent of our consolidated net sales in both the third quarter and first nine months of 2021. Our Peripheral Interventions net sales increased $36 million, or 8.8 percent, in the third quarter of 2021 and increased $210 million, or 18.3 percent, in the first nine months of 2021, compared to the prior year periods. In the third quarter of 2021, this increase included operational net sales growth of 8.1 percent and a positive impact of 70 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 16.1 percent and a positive impact of 220 basis points from foreign currency fluctuations, compared to the prior year period.

Operational net sales growth was primarily driven by the Interventional Oncology franchise, including our TheraSphere™ Y-90 Radioactive Glass Microspheres, which received U.S. Food and Drug Administration 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 a significant negative impact on our net sales, as 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 third quarter and first nine months of 2021, 11 percent in the third quarter of 2020, and 12 percent in the first nine months of 2020. In the third quarter of 2021, our Emerging Markets net sales grew 21.9 percent on a reported basis, which included operational net sales growth of 17.8 percent and a positive impact of 410 basis points from foreign currency fluctuations, compared to the prior year period. In the first nine months of 2021, our Emerging Markets net sales grew 23.8 percent on a reported basis, which included operational net sales growth of 18.9 percent and a positive impact of 490 basis points from foreign currency fluctuations, compared to the prior year period. The growth in the third quarter and first nine 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.

Gross Profit

Our Gross profit was $2.032 billion for the third quarter of 2021, $1.790 billion for the third quarter of 2020, $6.022 billion for the first nine months of 2021 and $4.740 billion for the first nine months of 2020. As a percentage of net sales, our Gross profit increased to 69.3 percent in the third quarter of 2021, as compared to 67.3 percent in the third quarter of 2020 and 68.7 percent in the first nine months of 2021, as compared to 65.8 percent in the first nine 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 Sales
			Three Months						Nine Months
Gross profit margin - period ended September 30, 2020			67.3%						65.8%
Abnormal production variances			0.5						1.4
Sales pricing, volume and mix			0.4						1.3
Inventory charges			0.9						0.4
All other, including other expenses			0.2						(0.1)
Gross profit margin - period ended September 30, 2021			69.3%						68.7%

The primary factors contributing to the increase in our gross profit margin in the third quarter and first nine 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 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.

Operating Expenses

The following table provides a summary of certain of our operating expenses:

			Three Months Ended September 30,																		Nine Months Ended September 30,
			2021									2020									2021									2020
(in millions)			$			% of Net Sales						$			% of Net Sales						$			% of Net Sales						$			% of Net Sales
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) expenses			310			10.6		%				315			11.9		%				884			10.1		%				857			11.9		%
Royalty expense			14			0.5		%				12			0.4		%				38			0.4		%				32			0.4		%

SG&A Expenses

In the third quarter of 2021, our SG&A expenses increased $83 million, or 8 percent, as compared to the third quarter of 2020 and were 60 basis points lower as a percentage of net sales. In the first nine months of 2021, our SG&A expenses increased $445 million, or 16 percent, as compared to the first nine months of 2020 and were 170 basis points lower as a percentage of net sales. The increase in SG&A expenses for the third quarter and first nine 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 during the first nine months of 2020 in response to the escalating COVID-19 pandemic. In addition, SG&A expenses in the first nine months of 2021 were further impacted by higher restructuring-related 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 third quarter of 2021, our R&D expenses decreased $5 million, or 2 percent, as compared to the third quarter of 2020 and were 130 basis points lower as a percentage of net sales due to higher one-time charges in the prior year. In the first nine months of 2021, our R&D expenses increased $27 million, or 3 percent, as compared to the first nine months of 2020, and were

180 basis points lower as a percentage of net sales. R&D expenses increased in the first nine 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 third quarter of 2021, our Royalty expense increased $2 million, or 17 percent as compared to the third quarter of 2020 and remained relatively flat as a percentage of net sales. In the first nine months of 2021, our Royalty expense increased $6 million, or 19 percent, as compared to the first nine months of 2020, and remained flat as a percentage of net sales, primarily due to global net sales growth in the third quarter and first nine months of 2021 as compared to the third quarter and first nine 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 September 30,												Nine Months Ended September 30,
(in millions)			2021						2020						2021						2020
Amortization expense			$	184					$	197					$	549					$	595
Intangible asset impairment charges			128						219						173						452
Contingent consideration net expense (benefit)			(26)						6						(117)						(102)
Restructuring charges (credits)			9						3						18						16
Litigation-related net charges (credits)			—						260						302						260
Gain on disposal of businesses and assets			(40)						—						(48)						—

Amortization Expense

In the third quarter of 2021, our Amortization expense decreased $13 million, or 7 percent, as compared to third quarter of 2020. In the first nine months of 2021, our Amortization expense decreased $47 million, or 8 percent, as compared to first nine months of 2020. The decrease in Amortization expense in the third quarter and first nine months of 2021, as compared to the same period in the prior year, was driven by the divestiture of the Specialty Pharmaceuticals 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 $128 million in the third quarter of 2021, $219 million in the third quarter of 2020, $173 million in the first nine months of 2021 and $452 million in the first nine months of 2020. The impairment charges recorded in the third quarter of 2021 were primarily associated with amortizable technology-related intangible assets that were initially established following our acquisition of VENITI, 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 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.

Contingent Consideration Net Expense (Benefit)

To recognize changes in the fair value of our contingent consideration liability, we recorded net benefits of $26 million and $117 million in the third quarter and first nine months of 2021, respectively, a net expense of $6 million in the third quarter of 2020 and a net benefit of $102 million in the first nine months of 2020. The net benefits recorded in the first nine 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 nine 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 third quarter of 2020, $15 million in the first nine months of 2021 and $16 million in the first nine months of 2020. Restructuring-related charges were $34 million in the third quarter of 2021, $20 million in the third quarter of 2020, $98 million in the first nine months of 2021 and $61 million in the first nine 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 third quarter of 2021 and recorded $2 million of restructuring charges and $17 million of restructuring-related charges associated with the product discontinuation in the first nine 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. 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 did not record any litigation-related net charges during the third quarter of 2021 and recorded $302 million during the first nine months of 2021, related primarily to transvaginal surgical mesh products. During 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 recorded litigation-related net charges of $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. 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.

Interest Expense

The following table provides a summary of our Interest expense and average borrowing rate:

			Three Months Ended September 30,												Nine Months Ended September 30,
2021						2020						2021						2020
Interest expense (in millions)			$	(86)					$	(86)					$	(254)					$	(265)
Average borrowing rate			3.6		%				3.4		%				3.6		%				3.4		%

Interest expense and our average borrowing rate remained relatively flat in the third quarter and first nine months of 2021, as compared to the same periods in the prior year. During the first nine months of 2020, we took 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 September 30,												Nine Months Ended September 30,
(in millions)			2021						2020						2021						2020
Interest income			$	1					$	1					$	3					$	3
Net foreign currency gain (loss)			(8)						(1)						(17)						(13)
Net gains (losses) on investments			186						48						208						14
Other income (expense), net			3						16						(3)						6
			$	181					$	64					$	192					$	9

In the third quarter and first nine months of 2021, in connection with the acquisitions of Farapulse and Preventice, we remeasured the fair value of our previously-held interests in the acquired companies, which resulted in a $222 million and $195 million gain, respectively, recognized within Other, net. In addition, in the third quarter and first nine months of 2021, we recorded losses of $24 million and $178 million, respectively, on our investment in Pulmonx Corporation presented in Other, net associated with the remeasurement of our investment during the period to fair value based on observable market prices, as well as the disposition of our remaining ownership. The Preventice and Farapulse gains are included within Acquisition/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.

Tax Rates

Our effective tax rate from continuing operations is presented below:

			Three Months Ended September 30,												Nine Months Ended September 30,
			2021						2020						2021						2020
Effective tax rate from continuing operations			13.2		%				31.7		%				1.1		%				24.3		%

The change in our reported tax rates for the third quarter and first nine 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 litigation-related net charges (credits), intangible asset impairment charges, acquisition/

divestiture-related net charges as well as certain discrete tax items primarily related to an IRS audit settlement in the third 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 nine 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, 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.

As of September 30, 2021, we had $1.947 billion of unrestricted Cash and cash equivalents on hand, comprised of $1.537 billion invested in money market funds and time deposits and $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 September 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):

			Nine Months Ended September 30,
(in millions)			2021						2020
Cash provided by (used for) operating activities			$	1,392					$	835
Cash provided by (used for) investing activities			(1,136)						(264)
Cash provided by (used for) financing activities			(87)						1,112

Operating Activities

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

Investing Activities

In the first nine months of 2021, cash provided by investing activities included proceeds of $801 million from the divestiture of the Specialty Pharmaceuticals business and $329 million from the sale of investments and disposition of certain assets, partially offset by a net cash payment of $2.014 billion for the acquisitions of 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 $288 million in the first nine months of 2021 and $217 million in the first nine months of 2020.

Financing Activities

In the first nine 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 nine 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 nine months of 2020.

Financial Covenant

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

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 4.00 times for the third quarter of 2021, with a step-down to 3.75 times for the fourth quarter of 2021 and through the remaining 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. The maximum permitted ratio steps down for the fifth, sixth and seventh succeeding quarters to 4.50 times, 4.25 times and 4.00 times, respectively. Thereafter, a maximum leverage ratio of 3.75 times is required through the remaining term of the 2021 Revolving Credit Facility. We have not elected to increase the maximum permitted leverage ratio for 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 agreement, through maturity, of any non-cash charges and up to $500 million in restructuring charges and restructuring-related expenses related to our current or future restructuring plans. As of September 30, 2021, we had $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 September 30, 2021, we had $1.243 billion of the litigation exclusion remaining.

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 $102 million in the first nine months of 2021 and $107 million in the first nine 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 nine 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 September 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.

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.

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.

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.

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; future U.S. and global economic, political, competitive, reimbursement and regulatory 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; markets for our products; expected pricing environment; expected procedural volumes; the closing and integration of acquisitions; clinical trial results; demographic trends; intellectual property rights; litigation; financial market conditions; the execution and effect of our restructuring program; the execution and effect of our business strategy, including our cost-savings and growth initiatives; 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.

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,

• 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 due 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,

• 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,

• 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,

• 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.

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,

• 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.

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.