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

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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.

Economic Trends

In March 2020, the World Health Organization declared COVID-19, including all additional variations and strains thereof, a global pandemic (COVID-19 pandemic). Economic conditions created in part by the COVID-19 pandemic, have had, and are expected to continue to have, a negative impact on our profitability. We face, and expect to 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 and inflation within the global supply chain, as well as increases in the cost and time to distribute our products. Further, other macroeconomic factors have led to a challenging labor market in which we compete, which impacts in some cases, our ability to retain and attract new talent as well as put inflationary pressure on certain operational costs due to wage increases. Uncertainty around inflationary pressures, rising interest rates and monetary policy, could potentially cause new, or exacerbate existing, economic challenges that we may face. These conditions could worsen, or others could arise, if the U.S. and global economies were to enter recessionary periods, triggered or exacerbated by monetary policy designed to curb inflation. Existing and future potential geopolitical dynamics, including matters related to Russia and Ukraine, as well as China and Taiwan, create economic, supply chain, energy, and other challenges, which impact, and may in the future negatively impact, our business. In particular, international conflicts may result in sanctions, tariffs, and other measures that restrict international trade and negatively affect our business operations and results.

COVID-19 Pandemic

The further resurgence of COVID-19 infections and the emergence of new, more contagious variant strains of COVID-19, as well as staffing 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.

While we expect the COVID-19 pandemic and related impacts will continue to negatively impact our performance to an extent, we continue to believe our long-term fundamentals remain strong and we intend to manage through these challenges with strategic focus and the winning spirit of our global team.

Corporate Responsibility

Our sustainable environmental, social and governance 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 Steering Committee, our Corporate Social Responsibility Council, our Environmental Health and Safety teams and policies, our Global Council for Inclusion, as well as our local, regional and national employee and community engagement programs. In addition, since 2021, our annual bonus plan has included performance measured against certain environmental, social and governance goals. In 2022 we were named to the Forbes 2022 list of America's Best Employers for Diversity and World's Best Employers, as well as ranked number one among Health Care Equipment companies on renewable energy use by JUST Capital. We were also ranked on the list of 100 Best Corporate Citizens of 2022 by 3BL Media and Fast Company's Best Workplace for Women Innovators. For additional information on our sustainability efforts, as well as our Diversity, Equity and Inclusion (DE&I) initiatives, refer to our most recent Annual Report on Form 10-K. For additional information on our annual bonus plan, refer to our Proxy Statement for the 2022 Annual Meeting of Shareholders.

Financial Summary

Three Months Ended September 30, 2022

Our net sales for the third quarter of 2022 were $3.170 billion, as compared to $2.932 billion for the third quarter of 2021. This increase of $238 million, or 8.1 percent, included operational1 net sales growth of 13.7 percent and the negative impact of 550 basis points from foreign currency fluctuations. The increase in our net sales was primarily driven by recent acquisitions as well as the strength and diversity of our product portfolio coupled with growth in the underlying markets in which we compete and strong commercial execution. 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 2022 was $174 million, or $0.12 per diluted share. Our reported results for the third quarter of 2022 included certain charges and/or credits totaling $446 million (after-tax), or $0.31 per diluted share. Excluding these items, adjusted net income available to common stockholders1 was $620 million, or $0.43 per diluted share.

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 stockholders1 was $581 million, or $0.41 per diluted share.

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.

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, 2022
(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(2)
Reported	$	245	$	57	$	188	$	(14)	$	174	$	0.12
Non-GAAP adjustments:
Amortization expense	202		28		174		—		174		0.12
Goodwill and other intangible asset impairment charges	125		29		96		—		96		0.07
Acquisition/divestiture-related net charges (credits)	113		1		112		—		112		0.08
Restructuring and restructuring-related net charges (credits)	18		2		16		—		16		0.01
Litigation-related net charges (credits)	—		0		0		—		0		(0.00)
Investment portfolio net losses (gains)	(3)		0		(3)		—		(3)		(0.00)
European Union (EU) Medical device regulation (MDR) implementation costs	20		3		17		—		17		0.01
Debt extinguishment charges	—		0		0		—		0		(0.00)
Deferred tax expenses (benefits)	—		(35)		35		—		35		0.02
Discrete tax items	—		—		—		—		—		0.00
Adjusted	$	719	$	85	$	634	$	(14)	$	620	$	0.43


	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(2)
Reported	$	483	$	64	$	419	$	(14)	$	405	$	0.28
Non-GAAP adjustments:
Amortization expense	184		16		168		—		168		0.12
Goodwill and other 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

(2) For the third quarter and first nine months of 2022 and 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.

Nine Months Ended September 30, 2022

Our net sales for the first nine months of 2022 were $9.440 billion, as compared to $8.761 billion for the first nine months of 2021. This increase of $679 million, or 7.7 percent, included operational1 net sales growth of 11.9 percent and the negative impact of 420 basis points from foreign currency fluctuations. The increase in our net sales was primarily driven by recent acquisitions as well as the strength and diversity of our product portfolio coupled with growth in the underlying markets in which we compete and strong commercial execution. 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 2022 was $516 million, or $0.36 per diluted share. Our reported results for the first nine months of 2022 included certain charges and/or credits totaling $1.300 billion (after-tax), or $0.90 per diluted share. Excluding these items, adjusted net income available to common stockholders1 for the first nine months of 2022 was $1.816 billion, or $1.26 per diluted share.

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 stockholders1 for the first nine months of 2021 was $1.683 billion, or $1.17 per diluted share.


	Nine Months Ended September 30, 2022
(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(2)
Reported	$	745	$	188	$	558	$	(42)	$	516	$	0.36
Non-GAAP adjustments:
Amortization expense	604		85		519		—		519		0.36
Goodwill and other intangible asset impairment charges	132		29		103		—		103		0.07
Acquisition/divestiture-related net charges (credits)	276		(3)		279		—		279		0.19
Restructuring and restructuring-related net charges (credits)	82		11		71		—		71		0.05
Litigation-related net charges (credits)	42		10		33		—		33		0.02
Investment portfolio net losses (gains)	8		4		4		—		4		0.00
European Union (EU) Medical device regulation (MDR) implementation costs	52		7		45		—		45		0.03
Debt extinguishment charges	194		45		149		—		149		0.10
Deferred tax expenses (benefits)	—		(98)		98		—		98		0.07
Discrete tax items	—		0		0		—		0		(0.00)
Adjusted	$	2,135	$	277	$	1,858	$	(42)	$	1,816	$	1.26


	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(2)
Reported	$	957	$	10	$	946	$	(42)	$	905	$	0.63
Non-GAAP adjustments:
Amortization expense	549		53		496		—		496		0.35
Goodwill and other 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

Quarterly Results and Business Overview

In the first quarter of 2022, we reorganized our operational structure and have aggregated our core businesses, each of which generate revenues from the sale of medical devices (Medical Devices), into two reportable segments: MedSurg and Cardiovascular. Within the Cardiovascular segment, the newly formed Cardiology division represents the combined former Rhythm Management and Interventional Cardiology divisions. We have revised prior periods to conform to the current year presentation. 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, refer to Item 1. Business of our most recent Annual Report on Form 10-K.


	Three Months Ended September 30,
(in millions)	2022		2021		Increase/(Decrease)
Endoscopy	$	559	$	533	4.9%
Urology and Pelvic Health	433		384		12.6%
Neuromodulation	221		221		(0.1)%
MedSurg	1,213		1,138		6.5%




Cardiology	1,479		1,342		10.2%
Peripheral Interventions	479		452		5.9%
Cardiovascular	1,958		1,794		9.1%


Net Sales	$	3,170	$	2,932	8.1%


	Nine Months Ended September 30,
(in millions)	2022		2021		Increase/(Decrease)
Endoscopy	$	1,649	$	1,583	4.2%
Urology and Pelvic Health	1,296		1,142		13.5%
Neuromodulation	669		666		0.5%
MedSurg	3,614		3,390		6.6%




Cardiology	4,403		4,000		10.1%
Peripheral Interventions	1,423		1,358		4.8%
Cardiovascular	5,826		5,358		8.7%
Medical Devices(3)	9,440		8,748		7.9%
Specialty Pharmaceuticals(3)	—		13		(100.0)%
Net Sales	$	9,440	$	8,761	7.7%

(3) 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. Prior to the divestiture, we presented the Specialty Pharmaceuticals business as a standalone operating segment alongside our reportable segments, which generate revenues from the sale of medical devices (Medical Devices).

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 $559 million for the third quarter and $1.649 billion for the first nine months of 2022, and represented 18 percent and 17 percent of our consolidated net sales, respectively. Our Endoscopy net sales increased $26 million, or 4.9 percent, during the third quarter and increased $67 million, or 4.2 percent, during the first nine months of 2022, compared to the prior year periods. During the third quarter of 2022, this increase included operational net sales growth of 10.4 percent and a negative impact of 560 basis points from foreign currency fluctuations, compared to the prior year period. During the first nine months of 2022, this increase included operational net sales growth of 8.3 percent and a negative impact of 410 basis points from foreign currency fluctuations, compared to the prior year period. This growth was primarily driven by our biliary franchise led by our AXIOS™ Stent and Delivery System and our single-use imaging franchise led by our EXALT™ D Single-use Duodenoscope as well as our hemostasis franchise.

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 $433 million for the third quarter and $1.296 billion for the first nine months of 2022, representing 14 percent of our consolidated net sales in both periods. Our Urology and Pelvic Health net sales increased $49 million, or 12.6 percent, during the third quarter and increased $154 million, or 13.5 percent, during the first nine months of 2022, compared to the prior year periods. During the third quarter of 2022, this increase included operational net sales growth of 16.2 percent and a negative impact of 360 basis points from foreign currency fluctuations, compared to the prior year period. During the first nine months of 2022, this increase included operational net sales growth of 16.2 percent and a negative impact of 270 basis points from foreign currency fluctuations, compared to the prior year period.

Operational net sales growth included organic net sales growth of 12.6 percent during the third quarter of 2022 and 8.9 percent during the first nine months of 2022, and the positive impact of 360 and 730 basis points, respectively, from our acquisition of the surgical business of Lumenis, LTD. (Lumenis) in the third quarter of 2021. Organic net sales growth was driven by strong performance across our stone management, prosthetic urology and prostate health franchises.

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 and $669 million for the first nine months of 2022, representing 7 percent of our consolidated net sales in both periods. Our Neuromodulation net sales remained flat during the third quarter and increased $3 million, or 0.5 percent during the first nine months of 2022, compared to the prior year periods. During the third quarter of 2022, operational net sales growth of 3.2 percent was offset by a negative impact of 320 basis points from foreign currency fluctuations, compared to the prior year period. During the first nine months of 2022, operational net sales growth of 3.0 percent was partially offset by a negative impact of 250 basis points from foreign currency fluctuations, compared to the prior year period. Operational net sales growth for the third quarter of 2022 was primarily due to strong procedural volumes of our Vercise Genus™ DBS systems, partially offset by the impact of reimbursement challenges in the U.S. related to our spinal cord stimulation (SCS) franchise and Vertiflex Superion™ Indirect Decompression System. Operational net sales growth for the first nine months of 2022 was primarily driven by the first half performance of our SCS systems.

Cardiovascular

Cardiology

Our Cardiology business develops and manufactures devices and medical technologies for diagnosing and treating a variety of diseases and abnormalities of the heart. Our net sales of Cardiology products were $1.479 billion for the third quarter and $4.403 billion for the first nine months of 2022, representing 47 percent of our consolidated net sales in both periods. Our Cardiology net sales increased $137 million, or 10.2 percent, during the third quarter and $403 million, or 10.1 percent during the first nine months of 2022, compared to the prior year periods. During the third quarter of 2022, this increase included operational net sales growth of 16.5 percent and a negative impact of 630 basis points from foreign currency fluctuations, compared to the prior year period. During the first nine months of 2022, this increase included operational net sales growth of 14.9 percent and a negative impact of 480 basis points from foreign currency fluctuations, compared to the prior year period. Operational net sales growth included organic net sales growth of 12.8 percent in the third quarter of 2022 and 10.7 percent for the first nine months of 2022, and the positive impact of 370 and 420 basis points, respectively, from our acquisitions of Preventice Solutions, Inc. (Preventice), Farapulse, Inc. (Farapulse) and Baylis Medical Company Inc. (Baylis Medical) in the first and third quarter of 2021 and the first quarter of 2022, respectively.

Organic net sales growth was primarily driven by continued market expansion of Left Atrial Appendage Closure (LAAC) procedures with our WATCHMAN™ FLX LAAC Device, as well as performance of our diagnostics, single shot ablation and percutaneous coronary intervention guidance franchises.

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 $479 million for the third quarter and $1.423 billion for the first nine months of 2022, representing 15 percent of our consolidated net sales in both periods. Our Peripheral Interventions net sales increased $27 million, or 5.9 percent, during the third quarter and increased $65 million, or 4.8 percent, during the first nine months of 2022, compared to the prior year periods. During the third quarter of 2022, this increase included operational net sales growth of 12.0 percent and a negative impact of 600 basis points from foreign currency fluctuations, compared to the prior year period. During the first nine months of 2022, this increase included operational net sales growth of 9.2 percent and a negative impact of 440 basis points from foreign currency fluctuations, compared to the prior year period. Operational net sales growth was primarily driven by our drug eluting franchise led by our Ranger™ Drug-Coated Balloon and our Eluvia Drug-Eluting Stent System, as well as our interventional oncology franchise led by our TheraSphere™ Y-90 Radioactive Glass Microspheres and our ICEfx™ Cryoablation System.

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, which currently includes 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. Our Emerging Markets net sales represented 14 percent and 13 percent of our consolidated net sales during the third quarter and first nine months of 2022, respectively, and 12 percent during the third quarter and first nine months of 2021. During the third quarter of 2022, our Emerging Markets net sales grew 28.1 percent on a reported basis, which included operational net sales growth of 40.0 percent and a negative impact of 1190 basis points from foreign currency fluctuations, compared to the prior year period. During the first nine months of 2022, our Emerging Markets net sales grew 23.3 percent on a reported basis, which included operational net sales growth of 31.7 percent and a negative impact of 840 basis points from foreign currency fluctuations, compared to the prior year period. The increase compared to the prior year periods was driven primarily by growth in China and India as we continued to focus on globalization and execute new product launches. We also experienced sequentially higher growth in China in the third quarter of 2022 as

procedural volumes recovered following an increase in COVID-19 cases and implementation of associated public health measures during the second quarter of 2022.

Gross Profit

Our Gross profit was $2.191 billion for the third quarter of 2022, $2.032 billion for the third quarter of 2021, $6.495 billion first nine months of 2022 and $6.022 billion first nine months of 2021. As a percentage of net sales, our Gross profit decreased to 69.1 percent during the third quarter of 2022, as compared to 69.3 percent during the third quarter of 2021 and increased to 68.8 percent during the first nine months of 2022, as compared to 68.7 percent during the first nine months of 2021. 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, 2021	69.3%	68.7%
Manufacturing variances	(1.4)	(1.1)



Net impact of foreign currency fluctuations	1.5	1.2

Sales pricing, volume and mix	0.1	0.1
All other, including other period expenses	(0.4)	(0.1)
Gross profit margin - period ended September 30, 2022	69.1%	68.8%

The primary factors contributing to the slight decrease in our gross profit margin during the third quarter of 2022, as compared to the same period in the prior year, were the impacts of inflation on costs of certain raw materials and components, direct labor and freight, as well as inefficiencies in our manufacturing plants due to constraints in material availability. These impacts were partially offset by increased sales of higher-margin products, favorable foreign currency hedging contracts and the realization of standard cost improvements. As expected, macro-economic factors have negatively impacted our gross profit margin, and we expect continued negative impact during the remainder of 2022 and into 2023 while these factors persist. Despite the challenging macro-economic environment, we experienced an overall slight increase in our gross profit margin in the first nine months of 2022, as compared to the same period in the prior year, with increased sales of higher-margin products and favorable foreign currency hedging contracts, offsetting the macro-economic factors that became more pronounced beginning in the second quarter of 2022.

Operating Expenses

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


	Three Months Ended September 30,								Nine Months Ended September 30,
	2022				2021				2022				2021
(in millions)	$		% of Net Sales		$		% of Net Sales		$		% of Net Sales		$		% of Net Sales
Selling, general and administrative expenses	$	1,132	35.7	%	$	1,066	36.4	%	$	3,357	35.6	%	$	3,206	36.6	%
Research and development expenses	339		10.7	%	310		10.6	%	993		10.5	%	884		10.1	%
Royalty expense	11		0.4	%	14		0.5	%	34		0.4	%	38		0.4	%

Selling, general and administrative expenses (SG&A Expenses)

During the third quarter of 2022, SG&A expenses increased $66 million, or 6 percent, as compared to the prior year period and were 70 basis points lower as a percentage of net sales. During the first nine months of 2022, SG&A expenses increased $151 million, or 5 percent, as compared to the prior year period and were 100 basis points lower as a percentage of net sales. The increases in SG&A expenses were primarily due to higher selling costs driven by higher global net sales.

Research and development expenses (R&D Expenses)

We remain committed to advancing medical technologies and investing in meaningful R&D projects across our businesses. During the third quarter of 2022, R&D expenses increased $29 million, or 9 percent, as compared to the prior year period and were 10 basis points higher as a percentage of net sales. During the first nine months of 2022, our R&D expenses increased $109 million, or 12 percent, as compared to the prior year period, and were 40 basis points higher as a percentage of net sales. R&D expenses increased in both periods 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.

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)	2022		2021		2022		2021
Amortization expense	$	202	$	184	$	604	$	549
Intangible asset impairment charges	125		128		132		173
Contingent consideration net expense (benefit)	20		(26)		68		(117)
Restructuring net charges (credits)	4		9		18		18
Litigation-related net charges (credits)	—		—		42		302
Gain on disposal of businesses and assets	—		(40)		—		(48)

Amortization Expense

During the third quarter of 2022, Amortization expense increased $18 million, or 10 percent, compared to the prior year period. During the first nine months of 2022, Amortization expense increased $55 million, or 10 percent, as compared to first nine months of 2021. The increase in Amortization expense during both periods was driven by the addition of amortizable intangible assets associated with our recent acquisitions.

Intangible Asset Impairment Charges

We recorded Intangible asset impairment charges of $125 million during the third quarter of 2022, $132 million during the first nine months of 2022, $128 million during the third quarter of 2021 and $173 million during the first nine months of 2021. The impairment charges recorded in the third quarter and first nine months of 2022 were primarily associated with amortizable technology-related intangible assets that were initially established following our acquisition of Vertiflex, Inc. resulting from lower revenue projections due to reimbursement challenges. The impairment charges recorded in the third quarter and first nine months of 2021 were primarily associated with amortizable technology-related intangible assets that were initially established following our acquisition of VENITI, Inc. These charges resulted from management’s decision to discontinue commercialization of the VICI VENOUS STENT™ System following a voluntary recall, due to cost to remediate and time to return to market. In addition, during the third quarter of 2021, we determined it was more likely than not that the IPR&D assets established in connection with our acquisition of Millipede, Inc. were impaired based on our qualitative assessment of impairment indicators. We tested the asset for recoverability and recorded an impairment charge associated with the incremental time and cost required to complete the mitral valve IPR&D program. We subsequently cancelled the program and recorded an impairment for the remaining value during the fourth quarter of 2021. 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 charges of $20 million during the third quarter of 2022, net charges of $68 million during the first nine months of 2022, net benefits of $26 million during the third quarter of 2021 and net benefits of $117 million during the first nine months of 2021. The net charges recorded during the

third quarter and first nine months of 2022 related to an increase in expected revenue-based payments as a result of over-achievement of net sales performance, primarily related to our 2021 acquisition of Farapulse. In addition, we made payments of $371 million associated with prior acquisitions during the first nine months of 2022 and $14 million during the first nine months of 2021, following the achievement of clinical and/or regulatory milestones as well as revenue-based payments. The net benefits recorded during the third quarter and first nine months of 2021 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 for milestones that would not be achieved due to management's discontinuation of the related R&D program. 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). In addition, on February 22, 2022, our Board of Directors approved increased cost estimates to complete additional activities identified under the 2019 Restructuring Plan, which are expected to result in total pre-tax charges of approximately $450 million to $475 million, and approximately $400 million to $425 million of these charges are expected to result in cash outlays. We expect the majority of activity associated with our 2019 Restructuring Plan to be substantially complete by the end of 2022. A substantial portion of the savings is being reinvested in strategic growth initiatives. Pursuant to this program, restructuring charges were $4 million in the third quarter of 2022, $9 million in the third quarter of 2021, $18 million in the first nine months of 2022 and $15 million in the first nine months of 2021. Restructuring-related charges were $14 million in the third quarter of 2022, $34 million in the third quarter of 2021, $64 million in the first nine months of 2022 and $98 million in the first nine months of 2021, 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 $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 restructuring activities were completed in 2021 and resulted in total pre-tax restructuring and restructuring-related net charges of approximately $80 million.

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 (credits) during the third quarter of 2022 or 2021. We recorded Litigation-related net charges of $42 million during first nine months of 2022 and $302 million during the first nine months of 2021, primarily related to transvaginal surgical mesh products. We increased the accrual associated with this matter to account for increased, post-COVID-19 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 is based on recent settlement and litigation activity and changes to our expectations regarding the rate of incoming cases and claims. 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) within 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.

Gain on disposal of businesses and assets

We did not record any Gains (losses) on disposal of businesses and assets during the third quarter or first nine months of 2022. During the third quarter and first nine months of 2021, we recorded gains of $40 million and $48 million primarily related to the sale of certain intellectual property.

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,
2022				2021				2022				2021
Interest expense (in millions)	$	(63)			$	(86)			$	(406)			$	(254)
Average borrowing rate	2.7		%		3.6		%		5.7		%		3.6		%

Interest expense and our average borrowing rate decreased during the third quarter of 2022 compared to the prior year period, due to the issuance of euro-denominated bonds during the first quarter of 2022, which carry lower interest rates than our prior period debt portfolio. Interest expense and our average borrowing rate increased during the first nine months of 2022 compared to the prior year period primarily due to $194 million of charges associated with the early extinguishment of $3.275 billion of certain of our senior notes, including payment of tender premiums and the acceleration of unamortized debt issuance costs. 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)	2022		2021		2022		2021
Interest income	$	1	$	1	$	6	$	3
Net foreign currency gain (loss)	(38)		(8)		(45)		(17)
Net gains (losses) on investments	(9)		186		(46)		208

Other income (expense), net	(5)		3		(12)		(3)
	$	(51)	$	181	$	(96)	$	192

In connection with the acquisitions of Farapulse and Preventice, we remeasured the fair value of our previously-held interests, which resulted in gains of $222 million and $195 million, respectively, recognized within Other, net during the third quarter and first nine months of 2021. During the third quarter and first nine months of 2021, we also recorded losses of $24 million and $178 million, respectively, on our investment in Pulmonx Corporation (Pulmonx) 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 Rate

Our effective tax rate from continuing operations is presented below:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Effective tax rate from continuing operations	23.3	%	13.2	%	25.2	%	1.1	%

The changes in our reported tax rates for the third quarter and first nine months of 2022, as compared to the same periods in 2021, relate primarily to the impact of certain receipts and charges that are taxed at different rates than our effective tax rate. These include intangible asset impairment charges, acquisition/divestiture-related charges and receipts, litigation-related net charges, investment portfolio net losses (gains), as well as certain discrete tax items primarily related to foreign return-to-provision adjustments, changes in valuation allowance and changes in tax laws.

Critical Accounting Policies and Estimates

Our financial results are affected by the selection and application of accounting policies and methods. During the third quarter and first nine months of 2022, there were no material changes to the application of critical accounting policies previously disclosed in our most recent Annual Report on Form 10-K.

Liquidity and Capital Resources

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 the next 12 months and for the foreseeable future.

As of September 30, 2022, we had $338 million of unrestricted Cash and cash equivalents on hand, comprised of $95 million invested in money market funds and time deposits and $242 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.

During 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. As of September 30, 2022, we had no commercial paper debt outstanding, resulting in the full $2.750 billion of available liquidity under the 2021 Revolving Credit Facility.

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)	2022		2021
Cash provided by (used for) operating activities	$	719	$	1,392
Cash provided by (used for) investing activities	(1,828)		(1,136)
Cash provided by (used for) financing activities	(549)		(87)

Operating Activities

During the first nine months of 2022, cash provided by operating activities decreased $673 million as compared to the prior year period primarily due to changes in working capital partially offset by comparatively higher net sales and operating income.

Investing Activities

During the first nine months of 2022, cash used for investing activities included net cash payments of $1.542 billion for the acquisitions of Baylis Medical and Obsidio, Inc, as well as purchases of property, plant and equipment and internal use software of $376 million. During the first nine months of 2021, cash used for investing activities included net cash payments of $2.014 billion for the acquisitions of Preventice, Lumenis and Farapulse, partially offset by proceeds of $801 million from the divestiture of the Specialty Pharmaceuticals business and $235 million of net proceeds from the disposition of our shares in Pulmonx. 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 and internal use software of $288 million during the first nine months of 2021.

Financing Activities

During the second quarter of 2022, we completed a public offering (the Offering) of €3.000 billion in aggregate principal amount of euro-dominated senior notes. The Offering resulted in cash proceeds of $3.270 billion, net of investor discounts and issuance costs. We used the net proceeds from the Offering to fund the tender offer and early redemption of combined aggregate principal amount of $3.275 billion of certain of our outstanding senior notes, as well as to pay accrued interest, tender premiums, fees and expenses. For more information, 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. Cash used for financing activities in the first nine months of 2022 also included payment of contingent consideration previously established in purchase accounting of $335 million and during the first nine months of 2022 and 2021, further included cash payments associated with the settlement of employee equity awards and payments for royalty rights associated with the Zytiga™ Drug.

Financial Covenant

As of September 30, 2022, we were in compliance with the financial covenant required by the 2021 Revolving Credit Facility described below.

The 2021 Revolving Credit Facility includes the financial covenant requirement for all of our credit arrangements that we maintain the maximum permitted leverage ratio of 3.75 times through the remaining term. The agreement provides for higher leverage ratios, at our election, for the period following a qualified acquisition 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 qualified acquisitions due to the funding of these acquisitions 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, 2022, we had $294 million of the restructuring charge exclusion remaining. In addition, any cash litigation payments (net of any cash litigation receipts), as defined by the agreement, are excluded from the calculation of consolidated EBITDA, as defined by the agreement, provided that the sum of any excluded net cash litigation payments do not exceed $1.455 billion in the aggregate. As of September 30, 2022, we had $891 million of the litigation exclusion remaining.

Contractual Obligations and Commitments

Certain of our acquisitions involve the payment of contingent consideration. 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 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 of September 30, 2022.

Equity

We received $117 million during the first nine months of 2022 and $102 million during the first nine months of 2021 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 during the third quarter or first nine months of 2022 or 2021. 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, 2022, we had the full amount remaining available under the authorization.

Legal Matters

For a discussion of our material legal proceedings 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 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, 2021 and relevant accounting pronouncements to be implemented in the future are 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 or updated, as appropriate.

The conflict between Russia and Ukraine has heightened cybersecurity risks on a global basis. While there is significant uncertainty around implications of cybersecurity attacks resulting from the conflict, we have taken steps to better understand our readiness, including the resilience of our critical business functions, with the goal of reducing the impact if such an event were to occur.

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 and Chief Executive Officer, 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 charges (credits); 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), which include amortization expense, goodwill and intangible asset impairment charges, acquisition/divestiture-related net charges (credits), investment portfolio gains and losses, restructuring and restructuring-related net charges (credits); and certain litigation-related net charges (credits), EU MDR implementation costs, debt extinguishment charges, deferred tax expenses (benefits) and discrete tax items. Amounts are presented after-tax at our effective tax rate, unless the amount is a significant unusual or infrequently occurring item in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 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 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,” “may,”, “estimate,” “intend,” “aim,” "goal," "target," "continue," "hope" 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 on Form 10-Q. 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 foreign currency fluctuations; future U.S. and global economic, political, competitive, reimbursement and regulatory conditions, including as a result of the ongoing conflict between Russia and Ukraine; manufacturing, distribution and supply chain disruptions and cost increases; disruptions caused by cybersecurity events; disruptions caused by extreme weather or other climate change-related events; 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, including global inflation; the execution and effect of our restructuring program; the execution and effect of our business strategy, including our cost-savings and growth initiatives; our ability to achieve environmental, social and governance goals and commitments; 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, refer to 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. 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, refer to Part I, Item 1A. Risk Factors in our most recent Annual Report on Form 10-K.

Our Businesses

The impact of the COVID-19 pandemic on the worldwide economy and financial markets, and developments related to the disease,
The impact of COVID-19 and economic conditions created in part by the pandemic on our global manufacturing and distribution system, including 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,
Labor shortages and the impact of inflation on the cost of raw materials and direct labor,
The impact of the COVID-19 pandemic and associated labor shortages upon the scheduling of elective and semi-emergent procedures,
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,
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 talent, including key personnel associated with recent acquisitions, and to maintain our robust corporate culture,
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,
The impact of enhanced requirements to obtain and maintain 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 global legal, regulatory or market responses to climate change, including increased compliance burdens and costs to meet regulatory obligations,
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 provisions 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 including increased risks as an indirect result of the ongoing conflict between Russia and Ukraine, 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, or to enter new factoring arrangements with favorable terms,
The impact on pricing due to national and regional 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 Russia/Ukraine conflict, and related, downstream effects thereof, including the impact of sanctions on U.S. manufacturers doing business in these regions,
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. government following 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,
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 provisions, 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.

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