UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q



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

For the quarterly period ended September 30, ~~2019~~2020



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

Commission File No. 1-11083

BOSTON SCIENTIFIC CORPORATION

(Exact name of registrant as specified in its charter)



Delaware						04-2695240
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

~~300 Boston Scientific Way~~	.	~~Marlborough~~	.	~~Massachusetts~~	~~01752-1234~~
~~(Address of Principal Executive Offices)~~					~~(Zip Code)~~

~~508~~300 Boston Scientific Way, Marlborough, Massachusetts ~~683-4000~~01752-1234

(Address of Principal Executive Offices) (Zip Code)

508 683-4000

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol

Name of each exchange on which registered

Common Stock, $0.01 par value

BSX

New York Stock Exchange

0.625% Senior Notes due 2027

BSX27

New York Stock Exchange

5.50% Mandatory Convertible Preferred Stock, Series A, par value $0.01 per share

BSX PR A

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.



Large accelerated filer	☑	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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

The number of shares outstanding of Common Stock, $0.01 par value per share,as ofOctober ~~22, 2019~~30, 2020 was ~~1,393,823,592.~~1,431,921,459.

Table of Contents

TABLE OF CONTENTS

Table of Contents

PART I

FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

BOSTON SCIENTIFIC CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)


	Three Months Ended September 30,				Nine Months Ended September 30,
(in millions, except per share data)	2020		2019		2020		2019

Net sales	$	2,659	$	2,707	$	7,204	$	7,831
Cost of products sold	869		777		2,465		2,265
Gross profit	1,790		1,930		4,740		5,566

Operating expenses:
Selling, general and administrative expenses	984		1,012		2,760		2,849
Research and development expenses	315		306		857		866
Royalty expense	12		15		32		48
Amortization expense	197		178		595		498

Intangible asset impairment charges	219		0		452		105
Contingent consideration expense (benefit)	6		8		(102)		(9)
Restructuring charges (credits)	3		3		16		10
Litigation-related net charges (credits)	260		25		260		(108)
	1,995		1,547		4,870		4,258
Operating income (loss)	(205)		383		(130)		1,308

Other income (expense):
Interest expense	(86)		(95)		(265)		(294)
Other, net	64		(197)		9		(322)
Income (loss) before income taxes	(227)		91		(386)		693
Income tax expense (benefit)	(72)		(35)		(94)		(11)
Net income (loss)	(155)		126		(292)		704
Preferred stock dividends	(14)		0		(19)		0
Net income (loss) available to common stockholders	$	(169)	$	126	$	(311)	$	704

Net income (loss) per common share — basic	$	(0.12)	$	0.09	$	(0.22)	$	0.51
Net income (loss) per common share — assuming dilution	$	(0.12)	$	0.09	$	(0.22)	$	0.50

Weighted-average shares outstanding
Basic	1,430.9		1,393.1		1,413.0		1,390.6
Assuming dilution	1,430.9		1,412.2		1,413.0		1,409.7

Three Months Ended September 30, Nine Months Ended September 30,
(in millions, except per share data) 2019 2018 2019 2018
Net sales $ 2,707
$ 2,393
$ 7,831
$ 7,262
Cost of products sold 777
672
2,265
2,084
Gross profit 1,930
1,720
5,566
5,179

Operating expenses:
Selling, general and administrative expenses 1,012
870
2,849
2,616
Research and development expenses 306
289
866
825
Royalty expense 15
17
48
52
Amortization expense 178
148
498
437
Intangible asset impairment charges —
—
105
35
Contingent consideration expense (benefit) 8
(13 ) (9 ) (12 )
Restructuring charges (credits) 3
3
10
20
Litigation-related net charges (credits) 25
18
(108 ) 18
1,547
1,333
4,258
3,992
Operating income (loss) 383
388
1,308
1,187

Other income (expense):
Interest expense (95 ) (58 ) (294 ) (177 )
Other, net (197 ) 126
(322 ) 116
Income (loss) before income taxes 91
456
693
1,126
Income tax expense (benefit) (35 ) 24
(11 ) (159 )
Net income (loss) $ 126
$ 432
$ 704
$ 1,285

Net income (loss) per common share — basic $ 0.09
$ 0.31
$ 0.51
$ 0.93
Net income (loss) per common share — assuming dilution $ 0.09
$ 0.31
$ 0.50
$ 0.92

Weighted-average shares outstanding
Basic 1,393.1
1,382.8
1,390.6
1,380.0
Assuming dilution 1,412.2
1,403.9
1,409.7
1,399.8

See notes to the unaudited condensed consolidated financial statements. Amounts may not foot due to rounding.

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BOSTON SCIENTIFIC CORPORATION AND SUBSIDIARIES

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


	Three Months Ended September 30,				Nine Months Ended September 30,
(in millions)	2020		2019		2020		2019
Net income (loss)	$	(155)	$	126	$	(292)	$	704
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustment	84		(2)		(104)		4
Net change in derivative financial instruments	(64)		62		(15)		102

Net change in defined benefit pensions and other items	0		0		0		(1)
Total other comprehensive income (loss)	20		60		(119)		105
Total comprehensive income (loss)	$	(135)	$	186	$	(411)	$	809

Three Months Ended September 30, Nine Months Ended September 30,
(in millions) 2019 2018 2019 2018
Net income (loss) $ 126
$ 432
$ 704
$ 1,285
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustment (2 ) (6 ) 4
(42 )
Net change in derivative financial instruments 62
47
102
125
Net change in defined benefit pensions and other items —
—
(1 ) —
Total other comprehensive income (loss) 60
40
105
82
Total comprehensive income (loss) $ 186
$ 472
$ 809
$ 1,367

See notes to the unaudited condensed consolidated financial statements. Amounts may not foot due to rounding.

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BOSTON SCIENTIFIC CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS


	As of
(in millions, except share and per share data)	September 30, 2020		December 31, 2019
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	2,022	$	217
Trade accounts receivable, net	1,598		1,828
Inventories	1,472		1,579
Prepaid income taxes	174		195
Other current assets	894		880
Total current assets	6,160		4,699
Property, plant and equipment, net	2,064		2,079
Goodwill	10,137		10,176
Other intangible assets, net	6,797		7,886
Deferred tax assets	4,172		4,196
Other long-term assets	1,516		1,529
TOTAL ASSETS	$	30,845	$	30,565

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current debt obligations	$	11	$	1,416
Accounts payable	452		542
Accrued expenses	2,195		2,109
Other current liabilities	644		800
Total current liabilities	3,302		4,866
Long-term debt	9,325		8,592
Deferred income taxes	522		595
Other long-term liabilities	2,132		2,635

Commitments and contingencies

Stockholders’ equity
Preferred stock, $0.01 par value - authorized 50,000,000 shares - issued 10,062,500 shares as of September 30, 2020 and none as of December 31, 2019	0		0
Common stock, $0.01 par value - authorized 2,000,000,000 shares - issued 1,679,428,209 shares as of September 30, 2020 and 1,642,488,911 shares as of December 31, 2019	17		16
Treasury stock, at cost - 247,566,270 shares as of September 30, 2020 and December 31, 2019	(1,717)		(1,717)
Additional paid-in capital	19,687		17,561
Accumulated deficit	(2,574)		(2,253)
Accumulated other comprehensive income (loss), net of tax	151		270
Total stockholders’ equity	15,564		13,877
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	30,845	$	30,565

As of
(in millions, except share and per share data) September 30, 2019 December 31, 2018
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 277
$ 146
Trade accounts receivable, net 1,796
1,608
Inventories 1,566
1,166
Prepaid income taxes 189
161
Other current assets 1,020
921
Total current assets 4,847
4,003
Property, plant and equipment, net 1,942
1,782
Goodwill 10,015
7,911
Other intangible assets, net 8,074
6,372
Other long-term assets 1,879
932
TOTAL ASSETS $ 26,756
$ 20,999

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current debt obligations $ 1,297
$ 2,253
Accounts payable 512
349
Accrued expenses 1,932
2,246
Other current liabilities 513
412
Total current liabilities 4,254
5,260
Long-term debt 9,590
4,803
Deferred income taxes 807
328
Other long-term liabilities 2,406
1,882

Commitments and contingencies

Stockholders’ equity
Preferred stock, $0.01 par value - authorized 50,000,000 shares, none issued and outstanding

Common stock, $0.01 par value - authorized 2,000,000,000 shares - issued 1,641,342,509 shares as of September 30, 2019 and 1,632,148,030 shares as of December 31, 2018 16
16
Treasury stock, at cost - 247,566,270 shares as of September 30, 2019 and December 31, 2018 (1,717 ) (1,717 )
Additional paid-in capital 17,510
17,346
Accumulated deficit (6,249 ) (6,953 )
Accumulated other comprehensive income (loss), net of tax 138
33
Total stockholders’ equity 9,699
8,726
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 26,756
$ 20,999

See notes to the unaudited condensed consolidated financial statements. Amounts may not foot due to rounding.

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BOSTON SCIENTIFIC CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED)

Common Stock Treasury Stock Additional Paid-In Capital Accumulated Deficit Accumulated Other Comprehensive Income (Loss), Net of Tax
(in millions, except share data) Shares Issued Par Value
Balance as of December 31, 2017 1,621,062,898
$ 16
$ (1,717 ) $ 17,161
$ (8,390 ) $ (59 )

Net income (loss) 298

Cumulative effect adjustments for ASC Update Adoptions⁽¹⁾
(233 )
Total other comprehensive income (loss) (69 )
Impact of stock-based compensation plans, net of tax 6,125,111
23

Balance as of March 31, 2018 1,627,188,009
$ 16
$ (1,717 ) $ 17,184
$ (8,326 ) $ (128 )
Net income (loss) 555

Total other comprehensive income (loss) 112
Impact of stock-based compensation plans, net of tax 1,688,243
47

Balance as of June 30, 2018 1,628,876,252
$ 16
$ (1,717 ) $ 17,231
$ (7,770 ) $ (16 )
Net income (loss) 432

Total other comprehensive income (loss) 40
Impact of stock-based compensation plans, net of tax 2,395,031
73

Balance as of September 30, 2018 1,631,271,283
$ 16
$ (1,717 ) $ 17,304
$ (7,339 ) $ 25
Net income (loss) 386

Total other comprehensive income (loss) 8
Impact of stock-based compensation plans, net of tax 876,747
42

Balance as of December 31, 2018 1,632,148,030
$ 16
$ (1,717 ) $ 17,346
$ (6,953 ) $ 33
Net income (loss)

424

Total other comprehensive income (loss)

54
Impact of stock-based compensation plans, net of tax 6,001,343
28

Balance as of March 31, 2019 1,638,149,373
$ 16
$ (1,717 ) $ 17,374
$ (6,528 ) $ 87
Net income (loss) 154

Total other comprehensive income (loss) (9 )
Impact of stock-based compensation plans, net of tax 949,557
48

Balance as of June 30, 2019 1,639,098,930
$ 16
$ (1,717 ) $ 17,422
$ (6,375 ) $ 78
Net income (loss)
126

Total other comprehensive income (loss) 60
Impact of stock-based compensation plans, net of tax 2,243,579
89

Balance as of September 30, 2019 1,641,342,509
$ 16
$ (1,717 ) $ 17,510
$ (6,249 ) $ 138


	Preferred Stock			Common Stock			Treasury Stock		Additional Paid-In Capital		Accumulated Deficit		Accumulated Other Comprehensive Income (Loss), Net of Tax
(in millions, except share data)	Shares Issued	Par Value		Shares Issued	Par Value


















As of December 31, 2018	0	$	0	1,632,148,030	$	16	$	(1,717)	$	17,346	$	(6,953)	$	33
Net income (loss)											424
Total other comprehensive income (loss)													54
Stock-based compensation				6,001,343					28
As of March 31, 2019	0	$	0	1,638,149,373	$	16	$	(1,717)	$	17,374	$	(6,528)	$	87
Net income (loss)											154
Total other comprehensive income (loss)													(9)
Stock-based compensation				949,557					48
As of June 30, 2019	0	$	0	1,639,098,930	$	16	$	(1,717)	$	17,422	$	(6,375)	$	78
Net income (loss)											126
Total other comprehensive income (loss)													60
Stock-based compensation				2,243,579					89
As of September 30, 2019	0	$	0	1,641,342,509	$	16	$	(1,717)	$	17,510	$	(6,249)	$	138
Net income (loss)											3,996
Total other comprehensive income (loss)													132
Stock-based compensation				1,146,402					50
As of December 31, 2019	0	$	0	1,642,488,911	$	16	$	(1,717)	$	17,561	$	(2,253)	$	270
Net income (loss)											11
Cumulative effect adjustment for adoption of ASU 2016-13											(10)
Total other comprehensive income (loss)													(101)
Stock-based compensation				4,388,331					28
As of March 31, 2020	0	$	0	1,646,877,242	$	16	$	(1,717)	$	17,589	$	(2,252)	$	168
Net income (loss)											(147)
Total other comprehensive income (loss)													(37)
Preferred stock issuance	10,062,500	0							975
Common stock issuance				29,382,500	0				975
Preferred stock dividends											(5)
Stock-based compensation				493,824					50
As of June 30, 2020	10,062,500	$	0	1,676,753,566	$	17	$	(1,717)	$	19,590	$	(2,405)	$	131
Net income (loss)											(155)
Total other comprehensive income (loss)													20
Preferred stock dividends											(14)
Stock-based compensation				2,674,643					97
As of September 30, 2020	10,062,500	$	0	1,679,428,209	$	17	$	(1,717)	$	19,687	$	(2,574)	$	151

(1) In 2018, we recorded cumulative effect adjustments to retained earnings to reflect the adoption of Accounting Standards Codification (ASC) Update No. 2014-09, Update No. 2016-16 and Update No. 2016-01. Please refer to ~~Note A – Significant Accounting Policies~~ ~~included in Item 8 of our most recent Annual Report on Form 10-K for more information.~~

See notes to the unaudited condensed consolidated financial statements. Amounts may not foot due to rounding.

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BOSTON SCIENTIFIC CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)


	Nine Months Ended September 30,
(in millions)	2020		2019

Cash provided by (used for) operating activities	$	835	$	1,144

Investing activities:
Purchases of property, plant and equipment	(217)		(275)
Proceeds from sale of property, plant and equipment	6		5
Payments for acquisitions of businesses, net of cash acquired	(3)		(4,382)
Proceeds from royalty rights	66		0
Payments for investments and acquisitions of certain technologies	(130)		(137)
Proceeds from divestiture	15		90
Payments for settlements of hedge contracts	0		(294)
Cash provided by (used for) investing activities	(264)		(4,992)

Financing activities:
Payment of contingent consideration and royalty rights established in purchase accounting	(132)		(135)
Payments on short-term borrowings	(2,950)		(1,000)
Proceeds from short-term borrowings, net of debt issuance costs	2,245		0
Net increase (decrease) in commercial paper	(714)		13
Payments on borrowings from credit facilities	(1,919)		0
Proceeds from borrowings on credit facilities	1,916		0
Payments on long-term borrowings and debt extinguishment costs	(1,000)		(1,472)
Proceeds from long-term borrowings, net of debt issuance costs	1,683		6,243
Cash dividends paid on preferred stock	(14)		0
Net proceeds from issuance of preferred stock in connection with public offering	975		0
Net proceeds from issuance of common stock in connection with public offering	975		0
Cash used to net share settle employee equity awards	(59)		(64)
Proceeds from issuances of common stock pursuant to employee stock compensation and purchase plans	107		113
Cash provided by (used for) financing activities	1,112		3,697

Effect of foreign exchange rates on cash	(8)		(2)

Net increase (decrease) in cash, cash equivalents, restricted cash and restricted cash equivalents	1,675		(153)
Cash, cash equivalents, restricted cash and restricted cash equivalents at beginning of period	607		829
Cash, cash equivalents, restricted cash and restricted cash equivalents at end of period	$	2,282	$	676

Supplemental Information
Stock-based compensation expense	$	128	$	116
Fair value of contingent consideration recorded in purchase accounting	0		127
Non-cash impact of transferred royalty rights	(66)		0

Nine Months Ended
September 30,
(in millions) 2019 2018
Cash provided by (used for) operating activities $ 1,144
$ 291

Investing activities:
Purchases of property, plant and equipment (275 ) (210 )
Proceeds from sale of property, plant and equipment 5
—
Payments for acquisitions of businesses, net of cash acquired (4,382 ) (968 )
Payments for investments and acquisitions of certain technologies (137 ) (148 )
Proceeds from divestiture of certain businesses 90
—
Payments for settlements of hedge contracts (294 ) —
Cash provided by (used for) investing activities (4,992 ) (1,326 )

Financing activities:
Payment of contingent consideration amounts and royalty rights previously established in purchase accounting (135 ) (16 )
Payments on short-term borrowings (1,000 ) —
Proceeds from short-term borrowings, net of debt issuance costs —
999
Net increase (decrease) in commercial paper 13
(403 )
Payments on borrowings from credit facilities —
(569 )
Proceeds from borrowings on credit facilities —
569
Payments on long-term borrowings and debt extinguishment costs (1,472 ) (602 )
Proceeds from long-term borrowings, net of debt issuance costs 6,243
989
Cash used to net share settle employee equity awards (64 ) (54 )
Proceeds from issuances of shares of common stock 113
94
Cash provided by (used for) financing activities 3,697
1,007

Effect of foreign exchange rates on cash (2 ) (9 )

Net increase (decrease) in cash, cash equivalents, restricted cash and restricted cash equivalents (153 ) (37 )
Cash, cash equivalents, restricted cash and restricted cash equivalents at beginning of period 829
1,017
Cash, cash equivalents, restricted cash and restricted cash equivalents at end of period $ 676
$ 980

Supplemental Information
Stock-based compensation expense $ 116
$ 104
Fair value of contingent consideration recorded in purchase accounting 127
190

As of September 30,
Reconciliation to amounts within the unaudited condensed consolidated balance sheets: 2019 2018
Cash and cash equivalents $ 277
$ 168
Restricted cash and restricted cash equivalents included in Other current assets
357
781
Restricted cash equivalents included in Other long-term assets
43
31
Cash, cash equivalents, restricted cash and restricted cash equivalents at end of period $ 676
$ 980


	As of September 30,
Reconciliation to amounts in the unaudited condensed consolidated balance sheets:	2020		2019
Cash and cash equivalents	$	2,022	$	277
Restricted cash and restricted cash equivalents included in Other current assets	214		357
Restricted cash equivalents included in Other long-term assets	46		43
Cash, cash equivalents, restricted cash and restricted cash equivalents at end of period	$	2,282	$	676

See notes to the unaudited condensed consolidated financial statements. Amounts may not foot due to rounding.

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE A – BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements of Boston Scientific Corporation have been prepared in accordance with accounting principles generally accepted in the United States (U.S. GAAP) and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. When used in this report, the terms, "we," "us," "our," and "the Company" mean Boston Scientific Corporation and its divisions and subsidiaries. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for fair presentation have been included. Operating results for the three and nine months ended September 30, ~~2019~~2020 are not necessarily indicative of the results that may be expected for the year ending December 31, ~~2019.~~2020. For further information, refer to the consolidated financial statements and footnotes thereto included in Item 8 of our most recent Annual Report on Form 10-K.

Amounts reported in millions within this quarterly report are computed based on the amounts in thousands. As a result, the sum of the components ~~reported in millions~~ may not equal the total amount reported in millions due to rounding. Certain columns and rows within tables may not add due to the use of rounded numbers. Percentages presented are calculated from the underlying ~~numbers in dollars.~~

unrounded amounts.

~~On August 19, 2019, we announced the closing of our acquisition of BTG plc (BTG Acquisition or BTG). Refer to~~
~~Note B – Acquisitions and Strategic Investments~~ ~~for more information.~~

Subsequent Events

We evaluate events occurring after the date of our most recent accompanying unaudited condensed consolidated balance sheet for potential recognition or disclosure in our financial statements. Those items requiring recognition in the financial statements have been recorded and disclosed accordingly. Those items requiring disclosure ~~(nonrecognized~~(non-recognized subsequent events) in the financial statements have been disclosed accordingly. Refer to Note EH – ~~Borrowings~~Commitments and ~~Credit Arrangements~~Contingencies and Note I – ~~Commitments and Contingencies~~Stockholders' Equity for more information.

Accounting Standards Implemented Since December 31, ~~2018~~2019

ASC Update No. ~~2016-02~~2016-13

In ~~February~~June 2016, the ~~Financial Accounting Standards Board (FASB)~~FASB issued ASC Update No. ~~2016-02,~~ ~~Leases~~2016-13, Financial Instruments - Credit Losses (FASB ASC Topic ~~842,~~ 326~~Leases~~,Financial Instruments - Credit Losses). We adopted the standard as of January 1, ~~2019,~~2020 using the modified retrospective ~~approach and the transition method provided by ASC Update No. 2018-11,~~ ~~Leases(Topic 842): Targeted Improvements~~.method. Under this method, we applied the new ~~leasing rules~~credit loss measurement guidance to financial assets measured at amortized cost on the date of adoption and recognized the cumulative effect of initially applying the standard as an adjustment to ~~our~~the opening balance ~~sheet, rather than at the earliest comparative period~~of retained earnings. Results for reporting periods beginning after January 1, 2020 are presented ~~in the financial statements. Prior periods presented are~~ in accordance with ~~the previous lease guidance under~~ FASB ASC Topic ~~840,~~ 326. Prior period amounts have not been restated and are reported in accordance with legacy GAAP requirements in FASB ASC Topic 310, ~~Leases~~Receivables.

~~In addition, we applied~~Upon the ~~package~~adoption of ~~practical expedients permitted under~~ FASB ASC Topic ~~842 transition guidance to our entire lease portfolio at January 1, 2019. As~~326, credit loss reserves are recorded when financial assets are established if credit losses are expected over the asset’s contractual life. These losses were previously expensed when it became probable that a result, we were not required to reassess (i) whether any expired or existing contracts are or contain leases, (ii) the classification of any expired or existing leases and (iii) the treatment of initial direct costs for any existing leases. Furthermore, we elected not to separate lease and non-lease components for the majority of our leases. Instead, for all applicable classes of underlying assets, we accounted for each separate lease component and the non-lease components associated with that lease component, as a single lease component.

loss would be incurred. As a result of adopting FASB ASC Topic 842 on January 1, 2019, we recognized right-of-use assets of $271 million and corresponding liabilities of $278 million for our existing operating lease portfolio on our unaudited condensed consolidated balance sheet. Operating lease right-of-use assets are presented within ~~Other long-term assets~~ ~~and corresponding liabilities are presented within~~ ~~Other current liabilities~~ ~~and~~ ~~Other long-term liabilities~~ ~~on our unaudited condensed consolidated balance sheets. Finance leases are immaterial to our unaudited condensed consolidated financial statements.Refer to~~ ~~Note E – Borrowings and Credit Arrangements~~ ~~for additional information. There was no material impact to our unaudited condensed consolidated statements of operations or unaudited condensed consolidated statements of cash flows. Please refer to~~ ~~Note G – Leases~~ ~~for information regarding our lease portfolio as of September 30, 2019 as accounted for under FASB ASC Topic 842.~~

~~To meet~~ the ~~reporting and disclosure requirements~~adoption of FASB ASC Topic ~~842,~~326, we ~~implemented~~recorded a ~~new lease administration~~net reduction to opening retained earnings on January 1, 2020 related to the establishment of credit loss reserves on Trade accounts receivable and ~~lease accounting system~~recorded a corresponding increase in the Allowance for credit losses, a contra Trade accounts receivable account. The adoption had an immaterial impact on our financial position and results of operations.

ASC Update No. 2018-15

In August 2018, the FASB issued ASC Update No. 2018-15, Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. The purpose of Update No. 2018-15 is to align the requirements for capitalizing implementation costs incurred in a hosting arrangement that ~~tracks all of our material leasing arrangements. In addition, we designed and implemented new processes and internal controls during~~is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). Update No. 2018-15 is effective for annual periods beginning after December 15, 2019, including interim periods within those annual periods. Early adoption is permitted, including adoption in any interim period. We adopted Update No. 2018-15 in the first quarter of ~~2019~~2020. The adoption had an immaterial impact on our financial position and results of operations.

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ASC Update No. 2018-18

In November 2018, the FASB issued ASC Update No. 2018-18, Collaborative Arrangements (Topic 808): Clarifying the Interaction Between Topic 808 and Topic 606. The purpose of Update No. 2018-18 is to ~~ensure~~clarify the ~~completeness and accuracy of the transition adjustment~~

~~and subsequent financial reporting under~~interaction between FASB ASC Topic ~~842.~~808 and FASB ASC Topic 606, Revenue from Contracts with Customers (FASB ASC Topic 606) as FASB ASC Topic 808 did not provide comprehensive recognition or measurement guidance for collaborative arrangements, and the accounting for those arrangements was often based on an analogy to other accounting literature or an accounting policy election. Update No. 2018-18 is effective for annual periods beginning after December 15, 2019. We ~~also established monitoring controls to ensure we have appropriate mechanisms~~adopted Update No. 2018-18 in ~~place to identify material leases in a timely manner, particularly contracts that may contain embedded lease features.~~the first quarter of 2020. The adoption had an immaterial impact on our financial position and results of operations.

NOTE B – ACQUISITIONS AND STRATEGIC INVESTMENTS

Our unaudited condensed consolidated financial statements include the operating results for acquired entities from the respective date of acquisition. ~~With~~We did not complete any material acquisitions or divestitures during the ~~exception~~first nine months of ~~the acquisition of BTG, which was completed on August 19, 2019, we~~2020. We have not presented supplemental pro forma financial information for prior acquisitions given their results are not material to our unaudited condensed consolidated financial statements. We recorded immaterial purchase price adjustments during the measurement period for the preliminary purchase price allocations of acquisitions in the first nine months of 2020. Transaction costs for ~~all~~these acquisitions ~~in 2019 and 2018~~ were immaterial to our unaudited condensed consolidated financial statements and were expensed as incurred.

Q3 2019 YTD Acquisitions

~~We recorded immaterial purchase price adjustments to the preliminary purchase price allocations of previous acquisitions during the measurement period in the first nine months of 2019.~~

BTG plc

On August 19, 2019, we announced the closing of our acquisition of BTG, a public company organized under the laws of England and Wales. BTG ~~has~~had three key portfolios, the largest of which is its interventional medicine portfolio (Interventional Medicine) that encompasses interventional oncology therapeutic technologies for patients with liver and kidney cancers, as well as a vascular portfolio for treatment of deep vein thrombosis, pulmonary embolism, deep venous obstruction and superficial venous disease. Following the closing of the acquisition, we began to integrate BTG's Interventional Medicine business into our Peripheral Interventions division.

In addition to the Interventional Medicine product lines, the BTG portfolio also ~~includes~~included a specialty pharmaceutical business (Specialty Pharmaceuticals) comprised of acute care antidotes to treat overexposure to certain medications and toxins and a licensing portfolio ~~(Licensing)~~(Licensing arrangements) that ~~generates~~generated net royalties related to BTG intellectual property and product license agreements. Refer to Note D – Hedging Activities and Fair Value Measurements for additional information.

The transaction price consisted of upfront cash in the aggregate amount of £3.312 billion (or $4.023 billion based on the exchange rate at closing on August 19, 2019) for the entire issued ordinary share capital of BTG, whereby BTG stockholders received 840 pence (or ~~$4.023 billion~~$10.20 based on the exchange rate ~~of U.S. $1.21: £1.00~~ at ~~closing on August 19, 2019), whereby BTG shareholders received 840 pence~~closing) in cash for each BTG share. The transaction price ~~of $4.023 billion~~ included $404 million of cash and cash equivalents acquired. We implemented ~~the~~our acquisition of BTG ~~Acquisition~~ by way of a court-sanctioned scheme of arrangement under Part 26 of the United Kingdom Companies Act 2006, as amended.

After closing the BTG Acquisition, we terminated the £150 million BTG revolving credit facility, which contained an option to increase the facility by £150 million and was scheduled to expire in November 2020. The termination was effective on August 27, 2019, and there were no amounts outstanding at the time of close of the BTG Acquisition.

Purchase Price Allocation

We accounted for the acquisition of BTG ~~Acquisition~~ as a business combination, and in accordance with FASB ASC Topic 805, Business Combinations (FASB ASC Topic 805), we recorded the assets acquired and liabilities assumed at their respective fair values as of the acquisition date. The ~~preliminary BTG Acquisition~~final purchase price was comprised of the ~~amounts presented below, which represent the preliminary determination~~following components:


(in millions)
Payment for acquisition, net of cash acquired	$	3,619

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The final purchase price allocation was comprised of the ~~fair value~~following components:


(in millions)
Goodwill	$	1,644

Trade accounts receivable, net	108
Inventories	232
Other current assets	252
Other intangible assets, net	1,785
Other long-term assets	537
Accrued expenses and other current liabilities	(308)
Other long-term liabilities	(274)
Deferred tax liability	(358)
	$	3,619

We allocated a portion of identifiable assets acquired and liabilities assumed from the BTG Acquisition. The final determination of the fair value of certain assets and liabilities will be completed within the measurement period as required by FASB ASC Topic 805. As of September 30, 2019, the valuation studies necessary to determine the fair market value of the assets acquired and liabilities assumed are preliminary, including the projection of the underlying cash flows used to determine the fair value of the identified tangible, intangible and financial assets and liabilities. Given the size and breadth of the BTG Acquisition, we anticipate that the purchase price ~~allocation will take longer than prior acquisitions and potentially up~~ to the ~~one year allowed under FASB ASC Topic 805 to adequately analyze all the factors used in establishing the fair value of assets acquired and liabilities assumed~~specific intangible asset categories as of the acquisition date, including, but not limited to, intangible assets, inventories, financial assets, real and personal property, leases, certain assumed liabilities, including reserves and deferred revenues, tax-related items, and the related tax and foreign currency effects of any changes made.follows:


	Amount Assigned (in millions)		Amortization Period (in years)			Risk-Adjusted Discount Rates used in Purchase Price Allocation
Amortizable intangible assets:
Technology-related	$	1,709	10	-	18	11	%	-	12%


Other intangible assets	75		2	-	11	11%


	$	1,785

~~Any potential adjustments made could be material in relation to the preliminary values presented below:~~

(in millions)
Payment for acquisition, net of cash acquired $ 3,619

~~The following summarizes the BTG Acquisition preliminary purchase price allocation as of September 30, 2019:~~

(in millions)
Goodwill $ 1,549
Trade accounts receivable, net 107
Inventories 205
Other current assets 259
Other intangible assets, net 1,869
Other long-term assets 604
Accrued expenses and other current liabilities (305 )
Other long-term liabilities (289 )
Deferred tax liability (380 )
$ 3,619

As a result of ~~the~~our acquisition of BTG, ~~Acquisition,~~ we recognized goodwill of ~~$1.549~~$1.644 billion, which is attributable to the synergies expected to arise from the ~~BTG Acquisition~~acquisition and revenue and cash flow projections associated with future technologies. The goodwill is not deductible for tax purposes. ~~As of September 30, 2019, given the preliminary nature of the purchase price allocation, we have not yet~~We allocated ~~goodwill~~$1.406 billion to our Peripheral Interventions reporting unit and $238 million to the ~~relevant~~Specialty Pharmaceuticals reporting ~~units.~~

unit.

We acquired certain intellectual property and related licensing arrangements, principally relating to Zytiga™, as part of the BTG Acquisition that provides the contractual right to receive future royalty payments. The licensing arrangements were accounted for as financial assets as part of acquisition accounting and were recognized at fair value based upon a discounted cash flow approach considering the probability-weighted expected future cash flows to be generated by the royalty stream. Additionally, as part of the intellectual property related to the licensing arrangements that we acquired we also have the contractual obligation to remit a portion of the cash flows received to the inventors associated with the intellectual property. As such, as part of acquisition accounting we have recorded a financial liability related to the future cash flows we are required to remit to the inventors when we collect the royalty payments. The amount recognized for the financial asset was $633 million in aggregate, comprised of $200 million included in ~~Other current assets~~ ~~and $432 million included in~~ ~~Other long-term assets. The amount recognized for the financial liability was $395 million, comprised of $153 million included in~~ ~~Accrued expenses and other current liabilities~~ ~~and $241 million included in~~ ~~Other long-term liabilities~~.

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

Amount Assigned
(in millions)

Amortization Period
(in years)

Risk-Adjusted Discount
Rates used in Purchase Price Allocation
Amortizable intangible assets:
Technology-related $ 1,794
10 - 17 10 % - 12%
Other intangible assets 75
2 - 11 11%
$ 1,869

As a result of the BTG Acquisition, we assumed a benefit obligation related to a defined benefit pension plan sponsored by BTG for eligible United Kingdom (U.K.) employees (U.K. Plan). The U.K. Plan was closed to new entrants as of June 1, 2004. Prior to the acquisition close date of August 19, 2019, the Trustees of the U.K. Plan executed buy-in arrangements (Buy-in Contracts), under which the benefit obligation of the pension plan is not transferred to the insurers, and we remain responsible for paying pension benefits. Effectively, the Buy-in Contracts are intended to provide payments designed to equal all future designated contractual benefit payments to covered participants. We do not anticipate any additional material contributions or payments to the U.K. Plan or the insurer.

~~The following assumptions were used to measure the fair value of the benefit obligation and associated plan assets:~~

Discount Rate Expected Return on Plan Assets Rate of Compensation Increase
U.K. Plan 0.4% 0.4% 3.4%

~~As of the measurement date of August 19, 2019, the funded status recognized in our unaudited condensed consolidated balance sheets was as follows:~~

(in millions)
Fair value of plan assets $ 213
Benefit obligation (216 )
Funded status $ (3 )

~~BTG Pro Forma Financial Information (unaudited)~~

~~BTG contributed $71 million to our~~ ~~Net sales~~ ~~and immaterial amounts to our~~ ~~Net income (loss)~~ ~~for the period from August 19, 2019 through~~ ~~September 30, 2019~~.

The unaudited estimated pro forma results presented below include the effects of the BTG Acquisition as if it was consummated on January 1, 2018. In the third quarter and first nine months of 2019, we incurred nonrecurring charges that we attributed to the BTG Acquisition, which are presented in our unaudited condensed consolidated statements of operations for these periods. These nonrecurring charges that are attributable to the BTG Acquisition include immaterial amounts of acquisition-related costs, stock-based compensation expenses as a result of the change in control and retention bonuses and severance payments, adjusted for the related tax effects. We have reflected these nonrecurring charges as adjustments to the pro forma earnings presented below for the third quarter and first nine months of 2019 and 2018.

Additionally, these pro forma amounts have been calculated after applying our accounting policies and adjusting the results of BTG to reflect the additional costs associated with fair value adjustments relating to inventories, property, plant, and equipment, and intangible assets as if the BTG Acquisition had occurred on January 1, 2018, with the consequential tax effects. Additionally, the pro forma amounts have been adjusted to reflect the amortization of deferred financing costs and interest expense associated with additional financing entered into as part of the BTG Acquisition. The pro forma results exclude BTG’s historical licensing revenue and related cost of sales, as these arrangements are accounted for as part of the BTG Acquisition as a financial asset and liability and are not accounted for within the scope of ~~FASB ASC Topic 606,~~ ~~Revenue from Contracts with Customers~~.

The supplemental pro forma information presented below is for informational purposes only and should be read in conjunction with our historical financial statements. The pro forma results do not include any anticipated synergies or other expected benefits of the BTG Acquisition. Accordingly, the unaudited estimated pro forma financial information below is not necessarily indicative of what the actual results of operations of the combined companies would have been had the BTG Acquisition occurred as of January 1, 2018, nor are they indicative of future results of operations. We believe that the pro forma assumptions and adjustments are reasonable and appropriate under the circumstances and are factually supported based on information currently available.

Three Months Ended September 30, Nine Months Ended September 30,
(in millions, except per share data) 2019 2018 2019 2018
Net sales $ 2,795
$ 2,561
$ 8,237
$ 7,740
Net income (loss) 152
332
599
950
Net income (loss) per common share — basic $ 0.11
$ 0.24
$ 0.43
$ 0.69
Net income (loss) per common share — assuming dilution $ 0.11
$ 0.24
$ 0.42
$ 0.68

~~Transaction with Varian Medical Systems, Inc.~~

On August 21, 2019, we completed the sale of our drug-eluting and bland embolic microsphere portfolio to Varian Medical Systems, Inc. (Varian) in connection with the BTG Acquisition. The transaction price consisted of an upfront cash payment of $90 million, a portion of which is allocated to the fair value of the services to be rendered under the Transition Services Agreement and Transition Manufacturing Agreement entered into with Varian as part of this transaction. Additionally, we transferred certain contingent consideration arrangements arising from our initial acquisition of the portfolio to Varian and agreed to indemnify Varian for any payments ultimately arising under the terms of the contingent consideration arrangement. Accordingly, as part of the disposal, we recorded a liability of $16 million to recognize the fair value of this guarantee based on our potential obligation resulting from the indemnifications. The maximum amount payable under this guarantee is $200 million in accordance with ~~FASB ASC Topic 460,~~ ~~Guarantees, which is consistent with the contingent consideration arrangement executed with our initial acquisition of the portfolio in accordance with FASB ASC Topic 805.~~

Vertiflex, Inc.

On June 11, 2019, we announced the closing of our acquisition of Vertiflex, Inc. (Vertiflex), a privately-held company which ~~has~~ developed and commercialized the Superion™ Indirect Decompression System, a minimally-invasive device used to improve physical function and reduce pain in patients with lumbar spinal stenosis (LSS). The transaction price consisted of an upfront cash payment of $465 million and contingent payments that are based on a percentage of Vertiflex sales growth in the first three years following the acquisition close. ~~We estimate~~At the time of acquisition, we estimated the sales-based contingent payments to be in a range of 0 to $100 million; however, the payments are uncapped over the three year ~~term.~~earn-out period. Following the closing of the acquisition, we integrated the Vertiflex ~~is part of~~business into our Neuromodulation ~~business.~~division.

Millipede, Inc.

On January 29, 2019, we announced the closing of our acquisition of Millipede, Inc. (Millipede), a privately-held company that has developed the IRIS Transcatheter Annuloplasty Ring System for the treatment of severe mitral regurgitation. We ~~have been~~were an investor in Millipede since the first quarter of 2018 as part of an investment and acquisition option agreement, whereby we purchased a portion of the outstanding shares of Millipede, along with newly issued shares of the company, for an upfront cash payment of $90 million. ~~We held an interest of approximately 20 percent immediately prior to the acquisition date.~~ In the fourth quarter of 2018, upon the ~~recent~~ successful completion of a first-in-human clinical study, we exercised our option to acquire the remaining shares of Millipede. We held an interest of approximately 20 percent immediately prior to the acquisition date. We remeasured the fair value of our previously-held investment based on the implied enterprise value and allocation of purchase price consideration according to priority of equity interests. The transaction price for the remaining stake consisted of an upfront cash payment of $325 million and up to an additional $125 million payment upon achievement of a commercial milestone. Following the closing of the acquisition, we integrated the Millipede ~~is part of~~business into our Interventional Cardiology ~~business.~~division.

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Purchase Price Allocation

We accounted for ~~our 2019~~the acquisitions of Vertiflex and Millipede as business combinations, and in accordance with FASB ASC Topic 805, we recorded the assets acquired and liabilities assumed at their respective fair values as of the acquisition dates. The ~~preliminary~~final purchase prices ~~of our acquisitions of Vertiflex and Millipede, presented in aggregate,~~ were comprised of the following components:


(in millions)
Payments for acquisitions, net of cash acquired	$	763
Fair value of contingent consideration	127
Fair value of prior interests	102
	$	992

(in millions)
Payments for acquisitions, net of cash acquired $ 763
Fair value of contingent consideration 127
Fair value of prior interests 102
$ 992

The ~~preliminary~~final combined purchase price ~~allocations of our acquisitions of Vertiflex and Millipede, presented in aggregate, were~~allocation was comprised of the following ~~components as of September 30, 2019:~~components:


(in millions)
Goodwill	$	577
Amortizable intangible assets	220
Indefinite-lived intangible assets	240
Other assets acquired	24
Liabilities assumed	(12)
Net deferred tax liabilities	(58)
	$	992

(in millions)
Goodwill $ 575
Amortizable intangible assets 220
Indefinite-lived intangible assets 240
Other assets acquired 24
Liabilities assumed (12 )
Net deferred tax liabilities (56 )
$ 992

We allocated a portion of the ~~preliminary~~combined purchase ~~prices of our acquisitions of Vertiflex and Millipede, presented in aggregate,~~price to the specific intangible asset categories as follows:


	Amount Assigned (in millions)		Amortization Period (in years)	Risk-Adjusted Discount Rates used in Purchase Price Allocation
Amortizable intangible assets:
Technology-related	$	210	12	15%

Other intangible assets	10		12		15%
Indefinite-lived intangible assets:
In-process research and development (IPR&D)	240		N/A	19%
	$	461

Goodwill was primarily established due to synergies expected to be gained from leveraging our existing operations, as well as revenue and cash flow projections associated with future technologies, and has been allocated to our reportable segments based on the relative expected benefit. The goodwill recorded relating to our 2019 acquisitions is not deductible for tax purposes.

Contingent Consideration

~~2018~~

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


(in millions)
Balance as of December 31, 2019	$	354


Contingent consideration net expense (benefit)	(102)
Contingent consideration payments	(40)
Balance as of September 30, 2020	$	214

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As of September 30, 2020, the maximum amount of future contingent consideration (undiscounted) that we could be required to pay associated with our prior acquisitions was $627 million. Refer to Note B – Acquisitions and Strategic Investments to our audited financial statements contained in Item 8 of our most recent Annual Report on Form 10-K for additional information.

WeThe $102 million benefit recorded ~~immaterial purchase price adjustments to the preliminary purchase price allocations of previous acquisitions during the measurement period~~ in the first nine months of ~~2019.~~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 Medical Corporation (nVision) for milestones that would not be achieved due to management's discontinuation of the R&D program.

~~Claret Medical, Inc.~~

~~On August 2, 2018, we announced the closing~~The recurring Level 3 fair value measurements of our ~~acquisition~~contingent consideration liability that we expect to be required to settle include the following significant unobservable inputs:


Contingent Consideration Liability	Fair Value as of September 30, 2020	Valuation Technique	Unobservable Input	Range				Weighted Average (1)
R&D, Regulatory and Commercialization-based Milestones	$100 million	Discounted Cash Flow	Discount Rate	2	%	-	2%	2%
			Probability of Payment	90	%	-	90%	90%
			Projected Year of Payment	2027		-	2027	2027
Revenue-based Payments	$114 million	Discounted Cash Flow	Discount Rate	11	%	-	14%	13%
			Probability of Payment	53	%	-	100%	87%
			Projected Year of Payment	2020		-	2024	2022

(1) Unobservable inputs were weighted by the relative fair value of ~~Claret Medical, Inc. (Claret)~~the contingent consideration liability. For projected year of payment, the amount represents the median of the inputs and is not a weighted average.

Projected contingent payment amounts related to some of our research and development (R&D), commercialization-based and revenue-based milestones are discounted back to the current period using a discounted cash flow model. Significant increases or decreases in projected revenues, probabilities of payment, discount rates or the time until payment is made would have resulted in a significantly lower or higher fair value measurement as of September 30, 2020.

Strategic Investments

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


	As of
(in millions)	September 30, 2020		December 31, 2019
Equity method investments	$	366	$	264
Measurement alternative investments (1)	196		171
Publicly-held equity securities (2)	0		1
Notes receivable	4		23
	$	567	$	458

(1) Measurement alternative investments are privately-held ~~company~~equity securities without readily determinable fair values that ~~has developed~~are measured at cost minus impairment, if any, adjusted to fair value for any observable price changes in orderly transactions for the identical or a similar investment of the same issuer.

(2) Publicly-held equity securities are measured at fair value with changes in fair value recognized currently in Other, net within our accompanying unaudited condensed consolidated statements of operations.

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

As of September 30, 2020, the ~~Sentinel™ Cerebral Embolic Protection System. The device is used to protect~~cost of our aggregated equity method investments exceeded our share of the ~~brain during certain interventional procedures, predominately~~underlying equity in ~~patients undergoing transcatheter aortic valve replacement (TAVR). The transaction price consisted of an upfront cash payment of $220~~net assets by $343 million, which represents amortizable intangible assets, IPR&D, goodwill and ~~an additional $50 million payment for reaching a reimbursement-based milestone that was achieved in~~deferred tax liabilities. In the third quarter of ~~2018. Claret is part of our Interventional Cardiology business.~~

~~Cryterion Medical, Inc.~~

~~On July 5, 2018,~~2020, we ~~announced the closing of our acquisition of Cryterion Medical, Inc. (Cryterion),~~recorded a ~~privately-held company developing a single-shot cryoablation platform for the treatment of atrial fibrillation. We have been an investor~~$65 million non-cash gain presented in Cryterion since 2016 and held an interest of approximately 35 percent immediately prior to the acquisition date. The transaction price to acquire the remaining stake consisted of an upfront cash payment of $202 million. Cryterion is part of our Electrophysiology business.

~~NxThera, Inc.~~

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

~~nVision Medical Corporation~~

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

In addition, we completed other individually immaterial acquisitions in the first nine months of 2018 for total consideration of $158 million in cash at closing plus aggregate contingent consideration of up to $62 million.

~~We recorded gains of $142 million in the third quarter of 2018 and $182 million in the first nine months of 2018 within~~ Other, net onwithin our unaudited condensed consolidated statements of operations ~~based on~~to state at fair value one of our portfolio investments treated under the ~~difference between the book values~~measurement alternative method of accounting.

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NOTE C – GOODWILL AND OTHER INTANGIBLE ASSETS

The gross carrying amount of goodwill and other intangible assets and the ~~fair values~~related accumulated amortization for intangible assets subject to amortization and accumulated write-offs of our previously-held investments immediately prior to the acquisition dates. The aggregate fair value of our previously-held investments immediately prior to the acquisition dates was $251 million. We remeasured the fair value of each previously-held investment based on the implied enterprise value and allocation of purchase price consideration according to priority of equity interests.

~~Purchase Price Allocation~~

We accounted for our 2018 acquisitions as business combinations, and in accordance with FASB ASC Topic 805, we recorded the assets acquired and liabilities assumed at their respective fair values as of the acquisition dates. The components of the aggregate purchase pricesgoodwill are as ~~follows for our 2018 acquisitions as of September 30, 2019:~~follows:


	As of September 30, 2020				As of December 31, 2019
(in millions)	Gross Carrying Amount		Accumulated Amortization/ Write-offs		Gross Carrying Amount		Accumulated Amortization/ Write-offs
Technology-related	$	11,834	$	(6,102)	$	12,020	$	(5,706)
Patents	514		(407)		525		(408)
Other intangible assets	1,758		(1,183)		1,754		(1,081)
Amortizable intangible assets	$	14,106	$	(7,692)	$	14,299	$	(7,195)

Goodwill	$	20,037	$	(9,900)	$	20,076	$	(9,900)

IPR&D	$	263			$	662
Technology-related	120				120
Indefinite-lived intangible assets	$	383			$	782

(in millions)
Payments for acquisitions, net of cash acquired $ 969
Fair value of contingent consideration 190
Fair value of prior interests 251
$ 1,410

~~The following summarizes the aggregate purchase price allocations for our 2018 acquisitions as of September 30, 2019:~~

(in millions)
Goodwill $ 618
Amortizable intangible assets 707
Indefinite-lived intangible assets 213
Other assets acquired 19
Liabilities assumed (14 )
Net deferred tax liabilities (134 )
$ 1,410

~~We allocated a portion of the aggregate purchase prices to specific intangible asset categories as follows for our 2018 acquisitions as of September 30, 2019:~~

Amount Assigned
(in millions)

Amortization Period
(in years)

Risk-Adjusted Discount
Rates used in Purchase Price Allocation
Amortizable intangible assets:
Technology-related $ 697
10 - 14 17 % - 23%
Other intangible assets 10
6 - 13 13 % - 15%
Indefinite-lived intangible assets:
IPR&D 213
N/A 15%
$ 920

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

Goodwill was primarily established due to synergies expected to be gained from leveraging our existing operations as well as revenue and cash flow projections associated with future technologies and has been allocated to our reportable segments based on the relative expected benefit. Based on preliminary estimates updated for applicable regulatory changes, the goodwill recorded relating to our 2019 and 2018 acquisitions is not deductible for tax purposes.

~~Contingent Consideration~~

~~Changes~~ Our IPR&D represents intangible assets that are used in ~~the fair value of our contingent consideration liability were as follows:~~

(in millions)
Balance as of December 31, 2018 $ 347
Amount recorded related to current year acquisitions 127
Contingent consideration arrangements transferred to Varian (16 )
Contingent consideration expense (benefit) (9 )
Contingent consideration payments (68 )
Balance as of September 30, 2019 $ 380

As of September 30, 2019, the maximum amount of future contingent consideration (undiscounted) that we could be required to pay was $747 million, which includes our estimate of maximum contingent payments of $100 million associated with the Vertiflex acquisition described above. The maximum decreased $126 million compared to the amount as of December 31, 2018 primarily due to the contingent consideration arrangement which is now accounted for as a guarantee in connection with our transaction with Varian as discussed in the BTG section above.

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

Contingent Consideration Liability Fair Value as of September 30, 2019 Valuation Technique Unobservable Input Range Weighted Average (1)
R&D, Regulatory and Commercialization-based Milestones $220 million Discounted Cash Flow Discount Rate 2 % - 3% 3%
Probability of Payment 50 % - 90% 84%
Projected Year of Payment 2019
- 2027 2020
Revenue-based Payments $160 million Discounted Cash Flow Discount Rate 11 % - 15% 13%
Probability of Payment 60 % - 100% 99%
Projected Year of Payment 2019
- 2026 2021


~~(1)~~	Unobservable inputs were weighted by the relative fair value of the contingent consideration liability. For projected year of payment, the amount represents the median of the inputs and is not a weighted average.

~~Projected contingent payment amounts related to some of our~~ research and development ~~(R&D), commercialization-based and revenue-based milestones are discounted back~~activities but have not yet reached technological feasibility, regardless of whether they have alternative future use. The primary basis for determining the technological feasibility or completion of these projects is obtaining regulatory approval to market the ~~current period using a discounted cash flow model. Significant increases or decreases~~underlying products in ~~projected revenues, probabilities~~an applicable geographic region. In the first quarter of ~~payment, discount rates or the time until payment is made would have resulted in a significantly lower or higher fair value measurement as~~2020, following receipt of ~~September 30, 2019.~~

~~Strategic Investments~~

~~The aggregate carrying amount~~CE Mark for certain products, we reclassified certain of our ~~strategic investments was comprised of the following:~~

As of
(in millions) September 30, 2019 December 31, 2018
Equity method investments $ 270
$ 303
Measurement alternative investments (1) 173
94
Notes receivable 23
26
$ 468
$ 424


~~(1)~~	Measurement alternative investments are privately-held equity securities without readily determinable fair values that are measured at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer.

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

~~As of September 30, 2019, the cost of our aggregated equity method investments exceeded our share of the underlying equity in net assets by $308 million, which represents amortizable~~IPR&D intangible assets ~~IPR&D, goodwill and deferred tax liabilities.~~

~~NOTE C – GOODWILL AND OTHER INTANGIBLE ASSETS~~

~~The gross carrying amount of goodwill and other intangible~~to amortizable technology-related assets and ~~the related accumulated~~began amortization ~~for intangible assets subject~~ to ~~amortization and accumulated write-offs of goodwill are as follows:~~reflect their use over their remaining lives.

As of September 30, 2019 As of December 31, 2018
(in millions) Gross Carrying Amount Accumulated Amortization/ Write-offs Gross Carrying Amount Accumulated Amortization/ Write-offs
Amortizable intangible assets
Technology-related $ 12,018
$ (5,545 ) $ 10,197
$ (5,266 )
Patents 524
(404 ) 520
(393 )
Other intangible assets 1,748
(1,047 ) 1,666
(958 )
$ 14,290
$ (6,996 ) $ 12,383
$ (6,617 )
Indefinite-lived intangible assets
Goodwill $ 19,915
$ (9,900 ) $ 17,811
$ (9,900 )
IPR&D 661
—
486
—
Technology-related 120
—
120
—
$ 20,695
$ (9,900 ) $ 18,417
$ (9,900 )

The following represents our goodwill balance ~~allocated to our~~by global reportable ~~segments~~segment and ~~unallocated amounts:~~our separately presented Specialty Pharmaceuticals operating segment:


(in millions)	MedSurg		Rhythm and Neuro		Cardiovascular		Specialty Pharmaceuticals		Total
As of December 31, 2019	$	2,061	$	2,192	$	5,676	$	247	$	10,176


Impact of foreign currency fluctuations and other changes in carrying amount	(6)		2		(29)		(7)		(39)


As of September 30, 2020	$	2,056	$	2,194	$	5,646	$	241	$	10,137

(in millions) MedSurg Rhythm and Neuro Cardiovascular
BTG Acquisition⁽¹⁾
Total
As of December 31, 2018 $ 2,063
$ 1,924
$ 3,925
$ —
$ 7,911
Impact of foreign currency fluctuations and other changes in carrying amount (3 ) —
2
1
(1 )
Goodwill acquired —
268
307
1,549
2,124
Goodwill divested —
—
(19 ) —
(19 )
As of September 30, 2019 $ 2,060
$ 2,191
$ 4,214
$ 1,550
$ 10,015

~~(1)~~

As a result of the BTG Acquisition, we recognized goodwill attributable to the synergies expected to arise from the BTG Acquisition and revenue and cash flow projections associated with future technologies. The goodwill is not deductible for tax purposes. As of September 30, 2019, given the preliminary nature of the BTG Acquisition purchase price allocation, we have not yet allocated goodwill to the relevant reporting units and/or reportable segments.

Goodwill and Indefinite-Lived Intangible Asset Impairment Testing

We did not ~~have~~record any goodwill ~~impairments~~impairment charges in the third quarter and first nine months of ~~2019~~2020 or ~~2018.~~

2019. We test our goodwill balances in the second quarter of each year as of April 1 for impairment, or more frequently if impairment indicators are present or changes in circumstances suggest an impairment may exist. In the second quarter of ~~2019,~~2020, we performed our annual goodwill impairment test for all of our reporting units and concluded that the fair value of each reporting unit exceeded its carrying value.

~~In performing~~We assess goodwill for impairment at the reporting unit level, which is defined as an operating segment or one level below an operating segment, referred to as a component. We identified the following reporting units in our 2020 annual goodwill impairment ~~assessment, we utilized both~~test: Interventional Cardiology, Peripheral Interventions, Cardiac Rhythm Management, Electrophysiology, Endoscopy, Urology and Pelvic Health, Neuromodulation and Specialty Pharmaceuticals. We aggregated the ~~optional qualitative assessment~~Cardiac Rhythm Management and Electrophysiology reporting units, components of the ~~quantitative approach~~Rhythm Management operating segment, based on the criteria prescribed ~~under~~ in FASB ASC Topic 350, Intangibles - Goodwill and Other.

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In ~~2019,~~2020, we ~~performed a~~utilized the qualitative assessment ~~for~~approach to test all of our ~~Urology~~reporting units. We assessed recent events, including the COVID-19 pandemic, as well as changes in macroeconomic factors, industry and ~~Pelvic Health, Neuromodulation~~market conditions, overall financial performance and ~~Endoscopy reporting units~~other entity-specific factors since ~~their fair values have exceeded carrying value by greater than 100 percent. The remaining reporting units were quantitatively tested for impairment. For~~ the ~~reporting units subject to a qualitative assessment, if it is~~most recently performed quantitative test. After assessing the totality of events, we determined that it is more likely than not that the fair value of ~~the~~each of our reporting ~~unit is less than~~units has sufficient excess over its carrying value, ~~the quantitative approach of the goodwill impairment test is necessary. In 2019, for all reporting units tested using the qualitative assessment, we~~and concluded that itgoodwill was ~~unnecessary to perform~~not impaired or at risk of impairment in the ~~quantitative~~second quarter of 2020. There were no impairment ~~test. For all reporting units tested using~~indicators in the ~~quantitative approach, we concluded~~third quarter of 2020 that ~~the fair value of each reporting unit exceeded its carrying value.~~necessitated an interim impairment test.

We ~~did not have any~~recorded Intangible asset impairment charges of $219 million in the third quarter of 2020, none in the third quarter of 2019, ~~or 2018. We~~$452 million in the first nine months of 2020 and $105 million in the first nine months of 2019. The impairment charges recorded ~~immaterial~~in the third quarter of 2020 were primarily associated with IPR&D acquired with Apama Medical Inc. following management’s decision to cancel the program. Intangible asset impairment charges in the first nine months of ~~2019~~2020 also included charges related to nVision and ~~2018.~~certain other intangible assets initially established following acquisition. In general, these charges were recorded as a result of management’s decision to change commercial launch plans or discontinue certain R&D programs based on cost to complete, time to market, overall economic viability or, specific to nVision, our understanding of the clinical evidence necessary to commercialize the technology.

We test our indefinite-lived intangible assets at least annually during the third quarter for impairment and reassess their classification as indefinite-lived assets. In addition, we review our indefinite-lived intangible assets for classification and impairment more frequently if impairment indicators exist. We assess qualitative factors to determine whether the existence of events and circumstances indicate that it is more likely than not that our indefinite-lived intangible assets are impaired. If we conclude that it is more likely than not that the asset is impaired, we then determine the fair value of the intangible asset and perform the quantitative impairment test by comparing the fair value with the carrying value in accordance with FASB ASC Topic 350. If the carrying value exceeds the fair value of the indefinite-lived intangible asset, we write the carrying value down to the fair value. In the third quarter of 2020, we performed our annual IPR&D impairment test and evaluated our indefinite-lived core technology assets using the optional qualitative assessment approach and concluded a quantitative test was required for certain IPR&D assets, resulting in the ultimate impairment of the Apama assets discussed above. We also verified that the classification of IPR&D projects and our indefinite-lived core technology assets recognized within our unaudited condensed consolidated balance sheets continues to be appropriate.

We review intangible assets subject to amortization quarterly to determine if any adverse conditions exist or a change in circumstances has occurred that would indicate impairment or a change in the remaining useful life. If we determine it is more likely than not that the asset is impaired based on our qualitative assessment of impairment indicators, we test the intangible asset for recoverability. If the carrying value of the intangible asset or asset group exceeds the undiscounted cash flows expected to result from the use and eventual disposition of the intangible asset or asset group, we will write the carrying value down to fair value in the period impairment is identified.

In the third quarter of ~~2019,~~2020, we ~~performed~~determined a recoverability test was required for certain amortizable intangible assets based on our ~~annual impairment test of all IPR&D projects and our indefinite-lived core technology assets using the optional~~ qualitative assessment ~~approach~~of impairment indicators, and determined that the assets were not impaired. We also verified that the classification of IPR&D projects and our indefinite-lived core technology assets we continue to recognize on our unaudited condensed consolidated balance sheetsrecorded intangible asset impairment charges as ~~indefinite-lived assets continues to be~~ appropriate.

Refer to Critical Accounting Policies and Estimates within Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations contained in our most recent Annual Report on Form 10-K for further discussion of our annual goodwill and intangible asset impairment testing.

NOTE D – HEDGING ACTIVITIES AND FAIR VALUE MEASUREMENTS

Derivative Instruments and Hedging Activities

We address market risk from changes in foreign currency exchange rates and interest rates through risk management programs which include the use of derivative and nonderivative financial instruments. We operate these programs pursuant to documented corporate risk management policies and do not enter into derivative transactions for speculative purposes. Our derivative instruments do not subject our earnings to material risk, as the gains or losses on these derivatives generally offset losses or gains recognized on the hedged item.

We manage concentration of counterparty credit risk by limiting acceptable counterparties to major financial institutions with investment grade credit ratings, limiting the amount of credit exposure to individual counterparties and by actively monitoring counterparty credit ratings and the amount of individual credit exposure. We also employ master netting arrangements that limit the risk of counterparty non-payment on a particular settlement date to the net gain that would have otherwise been received from the counterparty. Although not completely eliminated, we do not consider the risk of counterparty default to be significant as a result of these protections. Further, none of our derivative instruments are subject to collateral or other security arrangements, nor do they contain provisions that are dependent on our credit ratings from any credit rating agency.

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Currency ~~Derivative~~Hedging Instruments

Risk Management Strategy

Our risk from changes in currency exchange rates consists primarily of monetary assets and ~~liabilities, forecast~~liabilities; forecasted intercompany and third-party ~~transactions,~~transactions; net investments in certain ~~subsidiaries~~subsidiaries; and, during 2019 prior to our acquisition of BTG, the purchase price of ~~any acquisition that is~~BTG, which was denominated in a currency other than the U.S. dollar. We manage currency exchange rate risk at a consolidated level to reduce the cost of hedging by taking advantage of offsetting transactions. We employ derivative and nonderivative instruments, primarily forward currency contracts, to reduce the risk to our earnings and cash flows associated with changes in currency exchange rates.

The success of our currency risk management program depends, in part, on forecast transactions denominated primarily in ~~Euro,~~ Japanese yen, Euro, Chinese renminbi, Australian dollar and British pound sterling. We may experience unanticipated currency exchange gains or losses to the extent the actual activity is different than ~~forecast.~~forecast, particularly resulting from the impact of COVID-19 on transaction volumes. In addition, changes in currency exchange rates related to any unhedged transactions may impact our earnings and cash flows.

~~Derivative~~Hedge Designations and ~~Hedging~~ Relationships

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

We also designate certain forward currency contracts as net investment hedges to hedge a portion of our net investments in certain of our entities with functional currencies denominated in the Euro, Swiss franc, Japanese yen, British pound sterling, South Korean won and Taiwan dollar. We elected to use the spot method to assess effectiveness for our derivatives that are designated as net investment hedges. Under the spot method, the change in fair value attributable to changes in the spot rate is recorded in the Foreign currency translation adjustment (CTA) component of OCI. We have elected to exclude the spot-forward difference from the assessment of hedge effectiveness and are amortizing this amount separately, as calculated at the date of designation, on a straight-line basis over the term of the currency forward contracts. Amortization of the spot-forward difference is then reclassified from AOCI to current period earnings as a ~~reduction to~~component of Interest expense onin our unaudited condensed consolidated statements of operations.

In November 2019, we completed an offering of €900 million (approximately $1.000 billion) in aggregate principal amount of 0.625% senior notes due in 2027 (December 2027 Notes). The euro-denominated debt principal is a nonderivative instrument designated as a net investment hedge of our net investments in certain of our euro functional entities. We dedesignated a portion of the net investment hedge in the second and third quarters of 2020. The notional value of our outstanding net investment hedges was $1.885 billion as of September 30, 2020 and $1.950 billion as of December 31, 2019, which includes our derivative and nonderivative instruments designated as net investment hedges.

We also use forward currency contracts that are not part of designated hedging relationships under FASB ASC Topic 815 as a part of our strategy to manage our exposure to currency exchange rate risk related to monetary assets and liabilities and related forecast transactions. These non-designated currency forward contracts have an original time to maturity consistent with the hedged currency transaction exposures, generally less than one year, and are marked-to-market with changes in fair value recorded to earnings within ~~the~~ Other, net ~~caption of~~in our unaudited condensed consolidated statements of operations.

Certain of our non-designated forward currency contracts were entered into for the purpose of managing our exposure to currency exchange rate risk related to the British pound sterling-denominated purchase price of BTG. In the ~~BTG Acquisition. As~~first nine months of ~~September 30,~~ 2019, we settled all outstanding contracts ~~resulting in a cumulative loss on the contracts of~~for $294 million, ~~that was recognized over time~~which is presented within Payments for settlements of hedge contracts in ~~earnings as~~our unaudited condensed consolidated statements of cash flows. Upon settlement in 2019, we ~~adjusted for changes in fair value until the final fair value was determined at maturity. We~~ received £3.312 billion of cash to fund ~~the~~our acquisition of BTG, ~~Acquisition,~~ which translated into ~~$4.303~~$4.303 billion based on hedged currency exchange rates.

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We recognized a $207 million loss in the third quarter of 2019 and a $323 million loss in the first nine months of 2019 in Other, net due to changes in fair value of the contracts.

Interest Rate ~~Derivative~~Hedging Instruments

Risk Management Strategy

Our interest rate risk relates primarily to U.S. dollar borrowings partially offset by U.S. dollar cash investments. We use interest rate derivative instruments to ~~manage~~mitigate the risk to our earnings and cash ~~flow~~flows associated with exposure to changes in interest rates. Under these agreements, we and the counterparty, at specified intervals, exchange the difference between fixed and floating interest amounts calculated by reference to an agreed-upon notional principal amount. We designate these derivative instruments either as fair value or cash flow hedges in accordance with FASB ASC Topic 815.

~~Derivative~~Hedge Designations and ~~Hedging~~ Relationships

We had no interest rate derivative instruments designated as cash flow hedges outstanding as of September 30, ~~2019~~2020 and ~~$1.000 billion outstanding as of~~ December 31, ~~2018, which were intended~~2019. Prior to ~~manage our earnings and cash flow exposure to changes in the benchmark~~2020, we terminated interest rate ~~in connection with the forecasted issuance of fixed-rate debt. For outstanding~~derivative instruments that were designated as cash flow hedges ~~we record~~and are continuing to recognize the ~~changes in the fair value~~amortization of the ~~derivatives~~gains or losses originally recorded within ~~OCI~~AOCI ~~until the underlying hedged transaction occurs, at which time we recognize the gain or loss within~~to earnings as a component of Interest expense over the same period that the hedged ~~items affect~~item affects earnings, ~~so long as~~provided the hedge relationship remains effective. If we determine the ~~hedging~~hedge relationship is no longer effective, or if the occurrence of the hedged forecast transaction becomes no longer probable, we reclassify the amount of gains or losses from AOCI to earnings at that time.

~~During~~ In the ~~fourth quarter of 2018,~~event that we ~~entered into~~designate outstanding interest rate derivative ~~contracts designated~~instruments as cash flow hedges, ~~having a notional amount of $1.000 billion to hedge interest rate risk. In~~we record the ~~first quarter of 2019, we terminated these instruments in connection with our senior notes issuance~~changes in the ~~same period as discussed in~~ ~~Note E – Borrowings and Credit Arrangements. We recognized an immaterial loss~~fair value of the derivatives within OCI inuntil the ~~first nine months of 2019 and are reclassifying the amortization of the loss from~~ ~~AOCI~~ ~~into earnings as a component of~~ ~~Interest expense~~ ~~over the same period that the~~underlying hedged item affects earnings, so long as the hedge relationship remains effective. We are also continuing to reclassify in a similar manner the amortization of the gains or losses of our other previously terminated interest rate derivative instruments that were designated as cash flow hedges.transaction occurs. The balance of the deferred ~~loss~~amounts on our terminated cash flow hedges within AOCI was ~~immaterial~~a $30 million loss as of September 30, ~~2019~~2020 and a $34 million loss as of December 31, ~~2018.~~2019. We recognized immaterial gains and losses in Interest expense relating to the amortization of our terminated cash flow hedges in the current and prior periods.

We had no interest rate derivative instruments designated as fair value hedges outstanding as of September 30, ~~2019~~2020 and December 31, ~~2018.~~2019. Prior to 2018, we terminated interest rate derivative instruments that were designated as fair value hedges and are continuing to recognize the amortization of the gains or losses originally recorded within the Long-term debt caption onin our unaudited condensed consolidated balance sheets into earnings as a component of Interest expense over the same period that the discount or premium associated with the hedged items affects earnings. In the event that we designate outstanding interest rate derivative instruments as fair value hedges, we record the changes in the fair values of interest rate derivatives designated as fair value hedges and of the underlying hedged debt instruments in Interest expense, which generally offset. The balance of the deferred gains on our terminated fair value hedges within Long-term debt was immaterial as of September 30, ~~2019~~2020 and December 31, ~~2018.~~2019. We recognized immaterial gains in Interest expense relating to the amortization of the terminated fair value hedges in the current and prior periods.

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


(in millions)	FASB ASC Topic 815 Designation	As of
		September 30, 2020		December 31, 2019
Forward currency contracts	Cash flow hedge	$	4,118	$	3,891
Forward currency contracts	Net investment hedge	991		953
Foreign currency-denominated debt(1)	Net investment hedge	894		997
Forward currency contracts	Non-designated	4,283		4,377

Total Notional Outstanding		$	10,286	$	10,218

(in millions) FASB ASC Topic 815 Designation As of
September 30, 2019 December 31, 2018
Forward currency contracts Cash flow hedge $ 4,030
$ 3,962
Forward currency contracts Net investment hedge 1,935
1,483
Forward currency contracts Non-designated 3,522
5,880
Interest rate derivative contracts Cash flow hedge —
1,000
Total Notional Outstanding $ 9,487
$ 12,326
(1) The €900 million (approximately $1.000 billion) debt principal is a nonderivative instrument designated as a net investment hedge of our net investments in certain of our euro functional subsidiaries. We dedesignated a portion of the net investment hedges in the second and third quarters of 2020.

The remaining time to maturity as of September 30, ~~2019~~2020 is within 60 months for all ~~designated~~ forward currency contracts designated as cash flow hedges and generally less than one year for all non-designated forward currency contracts. The forward currency contracts designated as net investment hedges generally mature within the next two years. The euro-denominated debt principal designated as a net investment hedge has a contractual maturity of December 1, 2027.

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The following presents the effect of our derivative and nonderivative instruments designated as cash flow and net investment hedges under FASB ASC Topic 815 onin our accompanying unaudited condensed consolidated statements of operations. Refer to Note M – Changes in Other Comprehensive Income for the total amounts relating to derivative and nonderivative instruments presented within ~~the~~our unaudited condensed consolidated statements of comprehensive income (loss).


	Effect of Hedging Relationships on Accumulated Other Comprehensive Income
	Amount Recognized in OCI on Hedges						Unaudited Condensed Consolidated Statements of Operations (1)			Amount Reclassified from AOCI into Earnings
(in millions)	Pre-Tax Gain (Loss)		Tax Benefit (Expense)		Gain (Loss) Net of Tax		Location of Amount Reclassified and Total Amount of Line Item			Pre-Tax (Gain) Loss		Tax (Benefit) Expense		(Gain) Loss Net of Tax
Three Months Ended September 30, 2020
Forward currency contracts
Cash flow hedges	$	(64)	$	14	$	(50)	Cost of products sold	$	869	$	(20)	$	4	$	(15)
Net investment hedges (2)	(21)		5		(16)		Interest expense	86		(6)		1		(5)
Foreign currency-denominated debt
Net investment hedges (3)	(46)		10		(36)		Other, net	(64)		0		0		0
Interest rate derivative contracts
Cash flow hedges	0		0		0		Interest expense	86		1		0		1
Three Months Ended September 30, 2019
Forward currency contracts
Cash flow hedges	$	101	$	(23)	$	78	Cost of products sold	$	777	$	(22)	$	5	$	(17)
Net investment hedges (2)	64		(14)		50		Interest expense	95		(12)		3		(9)
Interest rate derivative contracts
Cash flow hedges	0		0		0		Interest Expense	95		1		0		1
Nine Months Ended September 30, 2020
Forward currency contracts
Cash flow hedges	$	47	$	(11)	$	36	Cost of products sold	$	2,465	$	(70)	$	16	$	(55)
Net investment hedges (2)	(4)		(21)		(25)		Interest expense	265		(18)		4		(14)
Foreign currency-denominated debt
Net investment hedges (3)	(44)		13		(31)		Other, net	(9)		0		0		0
Interest rate derivative contracts
Cash flow hedges	0		0		0		Interest expense	265		4		(1)		3
Nine Months Ended September 30, 2019
Forward currency contracts
Cash flow hedges	$	176	$	(40)	$	136	Cost of products sold	$	2,265	$	(47)	$	10	$	(36)
Net investment hedges (2)	92		(21)		71		Interest expense	294		(33)		7		(25)
Interest rate derivative contracts
Cash flow hedges	0		0		0		Interest expense	294		3		(1)		2

Effect of Hedging Relationships on Accumulated Other Comprehensive Income
Amount Recognized in OCI on Derivative Unaudited Condensed Consolidated Statements of Operations (1) Amount Reclassified from AOCI into Earnings
(in millions) Pre-Tax Gain (Loss) Tax Benefit (Expense) Gain (Loss) Net of Tax Location of Amount Reclassified Total Amount of Line Item Presented Pre-Tax (Gain) Loss Tax (Benefit) Expense (Gain) Loss Net of Tax
Three Months Ended September 30, 2019
Forward currency contracts
Cash flow hedges $ 101
$ (23 ) $ 78
Cost of products sold $ 777
$ (22 ) $ 5
$ (17 )
Net investment hedges (2) 64
(14 ) 50
Interest expense 95
(12 ) 3
(9 )
Interest rate derivative contracts
Cash flow hedges —
—
—
Interest expense 95
1
—
1
Three Months Ended September 30, 2018
Forward currency contracts
Cash flow hedges $ 58
$ (13 ) $ 45
Cost of products sold $ 672
$ 2
$ —
$ 2
Net investment hedges (2) 4
(1 ) 3
Interest expense 58
(10 ) 2
(8 )
Nine Months Ended September 30, 2019
Forward currency contracts
Cash flow hedges $ 176
$ (40 ) $ 136
Cost of products sold $ 2,265
$ (47 ) $ 10
$ (36 )
Net investment hedges (2) 92
(21 ) 71
Interest expense 294
(33 ) 7
(25 )
Interest rate derivative contracts
Cash flow hedges —
—
—
Interest expense 294
3
(1 ) 2
Nine Months Ended September 30, 2018
Forward currency contracts
Cash flow hedges $ 135
$ (30 ) $ 105
Cost of products sold $ 2,084
$ 27
$ (6 ) $ 21
Net investment hedges (2) 25
(6 ) 19
Interest expense 177
(17 ) 4
(13 )
Interest rate derivative contracts
Cash flow hedges —
—
—
Interest expense 177
(1 ) —
(1 )
(1) In all periods presented in the table above, the pre-tax (gain) loss amounts reclassified from AOCI to earnings represent the effect of the hedging relationships on earnings. All other amounts included in earnings related to hedging relationships were immaterial.

(2) For our outstanding forward currency contracts designated as net investment hedges, the net gain or loss reclassified from AOCI to earnings as a reduction of Interest expense represents the straight-line amortization of the excluded component as calculated at the date of designation. This initial value of the excluded component has been excluded from the assessment of effectiveness in accordance with FASB ASC Topic 815. In the current period, we did not recognize any gains or losses on the components included in the assessment of hedge effectiveness in earnings.

(3) For our outstanding euro-denominated debt principal designated as a net investment hedge, the change in fair value attributable to changes in the spot rate is recorded in the Foreign currency translation adjustment (CTA) component of OCI. No amounts were reclassified from AOCI to current period earnings.


~~(1)~~	~~In all periods presented in the table above, the pre-tax (gain) loss amounts reclassified from~~ ~~AOCI~~ ~~to earnings represent the effect of the hedging relationships on earnings. All other amounts included in earnings related to hedging relationships were immaterial.~~ 17 Table of Contents

~~(2)~~

~~For our outstanding net investment hedges, the net gain or loss reclassified from~~ ~~AOCI~~ ~~to earnings as a reduction of~~ ~~Interest expense~~ represents the straight-line amortization of the excluded component as calculated at the date of designation. This initial value of the excluded component has been excluded from the assessment of effectiveness in accordance with FASB ASC Topic 815. In the current period, we did not recognize any gains or losses on the components included in the assessment of hedge effectiveness in ~~AOCI~~ ~~or earnings.~~

As of September 30, ~~2019,~~2020, pre-tax net gains or losses for our derivative instruments designated, or previously designated, as cash flow and net investment hedges under FASB ASC Topic 815 that may be reclassified from AOCI to earnings within the next twelve months are presented below (in millions):

Designated Hedging Instrument

FASB ASC Topic 815 Designation

Location on Unaudited Condensed Consolidated Statements of Operations

Amount of Pre-Tax Gain (Loss) that may be Reclassified to Earnings

Forward currency contracts

Cash flow hedge

Cost of products sold

Forward currency contracts

Net investment hedge

Interest expense

Interest rate derivative contracts

Cash flow hedge

Interest expense

(5)

Designated Derivative Instrument FASB ASC Topic 815 Designation Location on Unaudited Condensed Consolidated Statements of Operations Amount of Pre-Tax Gain (Loss) that may be Reclassified to Earnings
Forward currency contracts Cash flow hedge Cost of products sold $ 104
Forward currency contracts Net investment hedge Interest expense 48
Interest rate derivative contracts Cash flow hedge Interest expense (5 )

Net gains and losses on currency hedge contracts not designated as hedging instruments offset by net gains and losses from currency transaction exposures are presented below:


	Location on Unaudited Condensed Consolidated Statements of Operations	Three Months Ended September 30,				Nine Months Ended September 30,
(in millions)		2020		2019		2020		2019
Net gain (loss) on currency hedge contracts	Other, net	$	29	$	(202)	$	20	$	(334)
Net gain (loss) on currency transaction exposures	Other, net	(30)		(4)		(33)		0
Net currency exchange gain (loss)		$	(1)	$	(207)	$	(13)	$	(334)

Location on Unaudited Condensed Consolidated Statements of Operations Three Months Ended September 30, Nine Months Ended September 30,
(in millions) 2019 2018 2019 2018
Net gain (loss) on currency hedge contracts Other, net $ (202 ) $ 16
$ (334 ) $ 25
Net gain (loss) on currency transaction exposures Other, net (4 ) (23 ) —
(40 )
Net currency exchange gain (loss) $ (207 ) $ (6 ) $ (334 ) $ (15 )

~~Certain~~

Table of our non-designated forward currency contracts were entered into for the purpose of managing our exposure to currency exchange rate risk related to the purchase price of the BTG Acquisition. As of September 30, 2019, we settled all outstanding contracts. We recognized a $207 million loss in the third quarter of 2019 and a $323 million loss in the first nine months of 2019 in ~~Net gain (loss) on currency hedge contractsdue to changes in fair value of the contracts.~~Contents

Fair Value Measurements

FASB ASC Topic 815 requires all derivative and nonderivative instruments to be recognized at their fair values as either assets or liabilities on the balance sheet. We determine the fair value of our derivative and nonderivative instruments using the framework prescribed by FASB ASC Topic 820, Fair Value Measurements and Disclosures (FASB ASC Topic 820) and considering the estimated amount we would receive or pay to transfer these instruments at the reporting date ~~given the applicable~~with respect to current currency exchange rates, interest rates, the creditworthiness of the counterparty for unrealized gain positions and our own creditworthiness for unrealized loss positions. In certain instances, we may utilize financial models to measure fair value of our derivative and nonderivative instruments. In doing so, we use inputs that include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, other observable inputs for the asset or liability and inputs derived principally from, or corroborated by, observable market data by correlation or other means. The following are the balances of our derivative and nonderivative assets and liabilities:


	Location on Unaudited Condensed Consolidated Balance Sheets (1)	As of
(in millions)		September 30, 2020		December 31, 2019
Derivative and Nonderivative Assets:
Designated Hedging Instruments
Forward currency contracts	Other current assets	$	90	$	72
Forward currency contracts	Other long-term assets	179		216
		270		288
Non-Designated Hedging Instruments
Forward currency contracts	Other current assets	56		33

Total Derivative and Nonderivative Assets		$	325	$	321

Derivative and Nonderivative Liabilities:
Designated Hedging Instruments
Forward currency contracts	Other current liabilities	$	6	$	3
Forward currency contracts	Other long-term liabilities	9		8
Foreign currency-denominated debt	Other long-term liabilities	1,042		998

		1,058		1,009
Non-Designated Hedging Instruments
Forward currency contracts	Other current liabilities	58		29
Total Derivative and Nonderivative Liabilities		$	1,116	$	1,037

Location on Unaudited Condensed Consolidated Balance Sheets (1) As of
(in millions) September 30, 2019 December 31, 2018
Derivative Assets:
Designated Derivative Instruments
Forward currency contracts Other current assets $ 98
$ 55
Forward currency contracts Other long-term assets 358
183
456
237
Non-Designated Derivative Instruments
Forward currency contracts Other current assets 48
67
Total Derivative Assets $ 504
$ 304

Derivative Liabilities:
Designated Derivative Instruments
Forward currency contracts Other current liabilities $ 3
$ 2
Forward currency contracts Other long-term liabilities 5
3
Interest rate contracts Other current liabilities —
44
8
49
Non-Designated Derivative Instruments
Forward currency contracts Other current liabilities 40
31
Total Derivative Liabilities $ 48
$ 80
(1) We classify derivative and nonderivative assets and liabilities as current when the settlement date of the contract is one year or less.


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

Recurring Fair Value Measurements

On a recurring basis, we measure certain financial assets and financial liabilities at fair value based upon quoted market prices. Where quoted market prices or other observable inputs are not available, we apply valuation techniques to estimate fair value. FASB ASC Topic 820 establishes a three-level valuation hierarchy for disclosure of fair value measurements. The category of a financial asset or a financial liability within the valuation hierarchy is based upon the lowest level of input that is significant to the measurement of fair value. The three levels of the hierarchy are defined as follows:

•Level 1 – Inputs to the valuation methodology are quoted market prices for identical assets or liabilities.

•Level 2 – Inputs to the valuation methodology are other observable inputs, including quoted market prices for similar assets or liabilities and market-corroborated inputs.

•Level 3 – Inputs to the valuation methodology are unobservable inputs based on management’s best estimate of inputs market participants would use in pricing the asset or liability at the measurement date, including assumptions about risk.

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


	As of
	September 30, 2020								December 31, 2019
(in millions)	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Assets
Money market funds and time deposits	$	1,716	$	0	$	0	$	1,716	$	50	$	0	$	0	$	50
Publicly-held securities	0		0		0		0		1		0		0		1
Hedging instruments	0		325		0		325		0		321		0		321
Licensing arrangements	0		0		396		396		0		0		518		518
	$	1,717	$	325	$	396	$	2,438	$	51	$	321	$	518	$	890
Liabilities
Hedging instruments	$	0	$	1,116	$	0	$	1,116	$	0	$	1,037	$	0	$	1,037
Contingent consideration liability	0		0		214		214		0		0		354		354
Licensing arrangements	0		0		413		413		0		0		571		571
	$	0	$	1,116	$	627	$	1,743	$	0	$	1,037	$	925	$	1,963

As of
September 30, 2019 December 31, 2018
(in millions) Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total
Assets

Money market and government funds $ 26
$ —
$ —
$ 26
$ 13
$ —
$ —
$ 13
Derivative instruments —
504
—
504
—
304
—
304
Licensing arrangements —
—
633
633
—
—
—
—
$ 26
$ 504
$ 633
$ 1,163
$ 14
$ 304
$ —
$ 318
Liabilities
Derivative instruments $ —
$ 48
$ —
$ 48
$ —
$ 80
$ —
$ 80
Contingent consideration —
—
380
380
—
—
347
347
Licensing arrangements —
—
341
341
—
—
—
—
$ —
$ 48
$ 720
$ 768
$ —
$ 80
$ 347
$ 427

Our investments in money market funds and ~~government funds~~time deposits are classified within Level 1 of the fair value hierarchy because they are valued using quoted market prices. These investments are classified as Cash and cash equivalents within our accompanying unaudited condensed consolidated balance sheets, in accordance with U.S. GAAP and our accounting policies. In addition to ~~$26 million~~$1.716 billion invested in money market funds and ~~government funds~~time deposits as of September 30, ~~2019, we had $249~~2020 and $50 million ~~in interest bearing and non-interest-bearing bank accounts. In addition to $13 million invested in money market and government funds~~ as of December 31, ~~2018,~~2019, we ~~had $133~~held $305 million in ~~interest bearing~~interest-bearing and non-interest-bearing bank ~~accounts.~~accounts as of September 30, 2020 and $165 million as of December 31, 2019.

Our recurring fair value measurements using Level 3 inputs ~~relates~~related to our contingent consideration liability. Refer to Note B – Acquisitions and Strategic Investments for a discussion of the changes in the fair value of our contingent consideration liability.

In addition, our recurring fair value measurements using Level 3 inputs ~~relate~~related to our licensing ~~arrangements. In the third quarter of 2019, we acquired intellectual property and related licensing~~ arrangements, ~~as of the result of the BTG Acquisition that provides~~principally the contractual right to receive future royalty ~~payments. As part~~payments related to Zytiga™. This contractual right was acquired with BTG on August 19, 2019. Prior to our acquisition of BTG, BTG agreed to pay 50 percent of the ~~licensing arrangements we acquired, we also have the contractual obligation to remit a portion~~Zytiga™ royalty stream, net of ~~the cash flows received~~certain offsets, to the inventors associated with the intellectual property. In the fourth quarter of 2019, we sold the remaining 50 percent we acquired through our acquisition of BTG of the future Zytiga™ royalty stream for an upfront cash payment of $256 million to the Ontario Municipal Employees Retirement System (OMERS). In accordance with FASB ASC Topic 860, Transfers and Servicing, we are accounting for the transfer of the royalty stream to OMERS as a secured borrowing, continue to recognize the financial asset and associated liability in our unaudited condensed consolidated balance sheets and do not expect to receive any future cash benefit from Zytiga™ royalties.

We have elected the fair value option to account for ~~the~~our licensing ~~arrangements~~arrangements' financial asset and financial liability in accordance with FASB ASC Topic 825, Financial ~~Instruments~~Instruments. .

As of September 30, ~~2019,~~2020, we have recorded the ~~preliminary~~ fair values ~~of the financial asset and financial liability~~ using a discounted cash flow approach considering the probability-weighted expected future cash flows to be generated by the royalty stream. The ~~preliminary~~ fair value of the financial liability also considers the related contractual provisions that govern our payment obligations. ~~As discussed in~~

~~Note B – Acquisitions and Strategic Investments~~

~~, given the size and breadth~~Table of the BTG Acquisition, we anticipate that the purchase price allocation will take longer than prior acquisitions and potentially up to the one year allowed under FASB ASC Topic 805 to adequately analyze all the factors used in establishing the fair value of assets acquired and liabilities assumed as of the acquisition date, including the licensing arrangements financial asset and liability and the related tax and foreign currency effects of any changes made.Contents

The recurring Level 3 fair value measurements of our licensing arrangements recognized in our unaudited condensed consolidated balance sheets as of September 30, 2020 include the following significant unobservable inputs:


Licensing Arrangements	Fair Value as of September 30, 2020	Valuation Technique	Unobservable Input	Range				Weighted Average (1)
Financial Asset	$396 million	Discounted Cash Flow	Discount Rate	11	%	-	15%	15%

			Projected Year of Payment	2020		-	2028	2024
Financial Liability	$413 million	Discounted Cash Flow	Discount Rate	12	%	-	15%	13%

			Projected Year of Payment	2020		-	2027	2024

Licensing Arrangements Fair Value as of September 30, 2019 Valuation Technique Unobservable Input Range Weighted Average (1)
Financial Asset $633 million Discounted Cash Flow Discount Rate 9% 9%
Projected Year of Payment 2019 - 2027 2023
Financial Liability $341 million Discounted Cash Flow Discount Rate 9% 9%
Projected Year of Payment 2019 - 2027 2023
(1) Unobservable inputs relate to a single financial asset and liability. As such, unobservable inputs were not weighted by the relative fair value of the instruments. For projected year of payment, the amount represents the median of the inputs and is not a weighted average.


~~(1)~~	Unobservable inputs relate to a single financial asset and liability. As such, unobservable inputs were not weighted by the relative fair value of the instruments. For projected year of payment, the amount represents the median of the inputs and is not a weighted average.

Significant increases or decreases in projected cash flows of the royalty stream and the related contractual provisions that govern our payment obligations, discount rates or the time until payment is made would have resulted in a significantly lower or higher fair value measurement of the licensing ~~arrangements~~arrangements' financial ~~assets~~asset and liability as of September 30, ~~2019.~~2020. However, increases or decreases in the financial asset would be offset by increases or decreases in the financial liability, other than for timing of receipt and remittance; as such our earnings are not subject to material gains or losses from the licensing arrangement.

Changes in the fair value of our licensing arrangements' financial asset were as follows:


(in millions)
Balance as of December 31, 2019	$	518

Proceeds from royalty rights	(132)

Fair value adjustment (expense) benefit	9
Balance as of September 30, 2020	$	396

Changes in the fair value of our licensing arrangements' financial liability were as follows:


(in millions)
Balance as of December 31, 2019	$	571

Payments for royalty rights	(165)


Fair value adjustment expense (benefit)	7
Balance as of September 30, 2020	$	413

Non-Recurring Fair Value Measurements

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

~~Refer to~~investments, and Note C – Goodwill and Other Intangible Assets for a discussion of the fair ~~values.~~values of our intangible assets including goodwill.

The fair value of our outstanding debt obligations was ~~$11.990~~$10.901 billion as of September 30, ~~2019~~2020, including $1.050 billion relating to our euro-denominated December 2027 Notes, and ~~$7.239~~$11.020 billion as of December 31, ~~2018.~~2019, including $1.004 billion relating to our euro-denominated December 2027 Notes. We determined fair value by using quoted market prices for our publicly registered senior notes, classified as Level 1 within the fair value hierarchy, ~~amortized cost for commercial paper~~ and face value for commercial paper, term loans and credit facility borrowings outstanding. Refer to Note E – ~~Borrowings~~Contractual Obligations and ~~Credit Arrangements~~Commitments for a discussion of our debt obligations.

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NOTE E – ~~BORROWINGS~~CONTRACTUAL OBLIGATIONS AND ~~CREDIT ARRANGEMENTS~~COMMITMENTS

Borrowings and Credit Arrangements

We had total debt outstanding of ~~$10.888~~$9.336 billion as of September 30, ~~2019~~2020 and ~~$7.056~~$10.008 billion as of December 31, ~~2018.~~2019, presented net of unamortized debt issuance discounts and deferred financing costs. The debt maturity schedule for our long-term debt obligations is presented below:


(in millions, except interest rates)	Issuance Date	Maturity Date	As of						Semi-annual Coupon Rate	(in millions, except interest rates)	Issuance Date	Maturity Date	As of				Coupon Rate (1)
			September 30, 2019			December 31, 2018							September 30, 2020		December 31, 2019
January 2020 Notes	December 2009	January 2020	$	—		$	850		6.000%
May 2020 Notes	May 2015	May 2020	—			600			2.850%
August 2021 Term Loan	August 2019	August 2021	1,000			—

May 2022 Notes	May 2015	May 2022	500			500			3.375%	May 2022 Notes	May 2015	May 2022	$	500	$	500	3.375%
August 2022 Term Loan	August 2019	August 2022	1,000			—

October 2023 Notes	August 2013	October 2023	450			450			4.125%	October 2023 Notes	August 2013	October 2023	244		244		4.125%

March 2024 Notes	February 2019	March 2024	850			—			3.450%	March 2024 Notes	February 2019	March 2024	850		850		3.450%
May 2025 Notes	May 2015	May 2025	750			750			3.850%	May 2025 Notes	May 2015	May 2025	523		523		3.850%
June 2025 Notes										June 2025 Notes	May 2020	June 2025	500		0		1.900%
March 2026 Notes	February 2019	March 2026	850			—			3.750%	March 2026 Notes	February 2019	March 2026	850		850		3.750%
December 2027 Notes										December 2027 Notes	November 2019	December 2027	1,054		1,011		0.625%
March 2028 Notes	February 2018	March 2028	1,000			1,000			4.000%	March 2028 Notes	February 2018	March 2028	434		434		4.000%
March 2029 Notes	February 2019	March 2029	850			—			4.000%	March 2029 Notes	February 2019	March 2029	850		850		4.000%
November 2035 Notes	November 2005	November 2035	350			350			7.000%
June 2030 Notes										June 2030 Notes	May 2020	June 2030	1,200		0		2.650%
November 2035 Notes (2)										November 2035 Notes (2)	November 2005	November 2035	350		350		7.000%
March 2039 Notes	February 2019	March 2039	750			—			4.550%	March 2039 Notes	February 2019	March 2039	750		750		4.550%
January 2040 Notes	December 2009	January 2040	300			300			7.375%	January 2040 Notes	December 2009	January 2040	300		300		7.375%
March 2049 Notes	February 2019	March 2049	1,000			—			4.700%	March 2049 Notes	February 2019	March 2049	1,000		1,000		4.700%
August 2022 Term Loan										August 2022 Term Loan	August 2019	August 2022	0		1,000
Unamortized Debt Issuance Discount and Deferred Financing Costs		2020 - 2049	(79		)	(29		)		Unamortized Debt Issuance Discount and Deferred Financing Costs		2020 - 2049	(91)		(83)
Unamortized Gain on Fair Value Hedges		2020 - 2023	14			26				Unamortized Gain on Fair Value Hedges		2020 - 2023	6		7
Finance Lease Obligation (1)		Various	6			6
Finance Lease Obligation										Finance Lease Obligation		Various	6		6
Long-term debt			$	9,590		$	4,803			Long-term debt			$	9,325	$	8,592

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

~~(1)~~

Effective January 1, 2019, we adopted FASB ASC Topic 842, which requires that we recognize finance lease obligations in our unaudited condensed consolidated balance sheet. As of December 31, 2018, these leases were referred to as capital lease obligations in accordance with FASB ASC Topic 840. Please refer

(1) Coupon rates are semi-annual, except for the euro-denominated December 2027 Notes, which bear an annual coupon, and the August 2022 Term Loan, which is a variable-rate instrument based on LIBOR.

(2) Corporate credit rating improvements may result in a decrease in the adjusted interest rate on our November 2035 Notes to the extent that our lowest credit rating is above BBB- or Baa3. The interest rates on our November 2035 Notes will be permanently reinstated to the issuance rate if the lowest credit ratings assigned to these senior notes is either A- or A3 or higher.

~~Note A – Basis of Presentation~~ ~~for additional information.~~

Revolving Credit Facility

~~As of September 30, 2019 and December 31, 2018, we maintained~~We maintain a $2.750 billion revolving credit facility ~~(2018~~(Revolving Credit Facility) with a global syndicate of commercial banks that matures on December 19, 2023 with one-year extension options, subject to certain conditions. This facility provides backing for ~~the~~our commercial paper ~~program.~~program, and outstanding commercial paper directly reduces borrowing capacity under the Revolving Credit Facility. The ~~2018 Credit Agreement for the 2018 Facility~~credit agreement requires that we comply with certain covenants, including a financial ~~covenants as~~covenant described within ~~Debt Covenants~~Financial Covenant below. In the first quarter of 2020, we refinanced $1.360 billion of commercial paper using proceeds from the Revolving Credit Facility. In April 2020, we entered into the April 2021 Term Loan, described below, and used the proceeds to repay a portion of the amounts outstanding under the Revolving Credit Facility. On May 28, 2020, we entered into an amendment of the credit agreement to permit payment of regularly scheduled quarterly cash dividends and other limited cash payments on our issued 5.50% Mandatory Convertible Preferred Stock, Series A (MCPS) and other capital stock issued by us, which is or becomes mandatorily convertible into or exchangeable for shares of our common stock. In May 2020, we completed our senior notes offering described below and used a portion of the proceeds to repay $450 million outstanding under the Revolving Credit Facility. There were no amounts outstanding under ~~our revolving credit facility~~the Revolving Credit Facility as of September 30, ~~2019 and~~2020 or December 31, ~~2018.~~2019.

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Term Loans

On April 21, 2020, in a proactive step to offset the potential impact of the COVID-19 pandemic on our short-term liquidity, we entered into a $1.250 billion term loan credit agreement scheduled to mature on April 20, 2021 (April 2021 Term Loan). We used proceeds from the April 2021 Term Loan to repay a portion of the amounts outstanding under the Revolving Credit Facility and the remaining amount under the December 2020 Term Loan described below. In May 2020, as described in further detail below, we used a portion of the proceeds from the May 2020 senior notes offering to prepay $500 million of amounts outstanding under the April 2021 Term Loan, and a portion of the combined net proceeds from our MCPS and common stock offerings to repay in full the remaining $750 million outstanding under the April 2021 Term Loan and to pay related fees, expenses and premiums, after which it was terminated.

On February 27, 2020, we entered into a $1.000 billion term loan credit agreement scheduled to mature on February 25, ~~2019, upon~~2021 (February 2021 Term Loan). We used the ~~closing~~proceeds from the February 2021 Term Loan to repay the remaining amounts outstanding of the Three-Year Delayed Draw Term Loan, described below. On May 28, 2020, we entered into an amendment of the credit agreement to permit payment of regularly scheduled quarterly cash dividends and other limited cash payments on our issued MCPS and other capital stock issued by us, which is or becomes mandatorily convertible into or exchangeable for shares of our common stock. The February 2021 Term Loan bears interest at an annual rate of LIBOR plus a margin of 0.85%. The credit agreement is subject to a financial covenant described below under Financial Covenant, and also contains customary events of default, which may result in the acceleration of any outstanding commitments. We used a portion of the proceeds from our May 2020 senior notes offering, ~~in aggregate principal amount of $4.300 billion~~ described below, to prepay $750 million of amounts outstanding under the February 2021 Term Loan in the second quarter of 2020. In the third quarter of 2020, we prepaid the remaining $250 million and terminated the ~~$1.000 billion~~February 2021 Term ~~Loan Credit Agreement,~~Loan.

On December 5, 2019, we entered into ~~on August 20, 2018 and amended on December 19, 2018 (August 2019 Term Loan). The August 2019 Term Loan~~a $700 million term loan credit agreement, which was scheduled to mature on ~~August 19, 2019.~~December 3, 2020 (December 2020 Term Loan). As of December 31, ~~2018,~~2019, we had ~~$1.000 billion~~$700 million outstanding under ~~our August 2019~~the December 2020 Term Loan, ~~which was presented within~~ ~~Current debt obligations~~ onand we used the proceeds to repay a portion of the Two-Year Delayed Draw Term Loan, described below. In January 2020, we repaid $300 million of the outstanding balance of the December 2020 Term Loan with proceeds from our ~~accompanying unaudited condensed consolidated balance sheets.~~commercial paper program. In April 2020, we used the proceeds from the April 2021 Term Loan to repay the remaining amounts outstanding under the December 2020 Term Loan and terminated the December 2020 Term Loan.

On December 19, 2018, we entered into a $2.000 billion senior unsecured delayed-draw term loan facility consisting of a $1.000 billion two-year delayed draw term loan credit facility maturing in two years from the date of the closing of the acquisition of BTG ~~Acquisition~~ (Two-Year Delayed Draw Term Loan) and a $1.000 billion three-year delayed draw term loan credit facility maturing in three years from the date of the closing of the acquisition of BTG ~~Acquisition~~ (Three-Year Delayed Draw Term Loan). Borrowings are available in U.S. dollars and bear interest at LIBOR or a base rate, in each case plus an applicable margin based on our public debt ratings. We are required to pay customary ticking fees on the average daily unused commitments based on our public debt ratings. The facilities contain customary representations and covenants, as described within ~~Debt Covenants~~ below. The facilities contain customary events of default, which may result in the acceleration of any outstanding commitments, and also contain customary U.K. certain funds provisions. Any proceeds from the facilities will be available to finance the BTG Acquisition and pay related transaction costs, as defined by the facilities. On August 19, 2019, for the purpose of funding the acquisition of BTG, ~~Acquisition,~~ we borrowed $1.000 billion under the Two-Year Delayed Draw Term Loan and $1.000 billion under the Three-Year Delayed Draw Term Loan. ~~As of September 30,~~In 2019, ~~our average interest rates~~we repaid all amounts outstanding on ~~the borrowings were 3.37 percent for~~ the Two-Year Delayed Draw Term Loan with proceeds from the sale of the Zytiga-related royalty interests, December 2020 Term Loan and ~~3.47 percent for~~commercial paper and terminated the facility. As of December 31, 2019, we had $1.000 billion outstanding under the Three-Year Delayed Draw Term ~~Loan.~~Loan (also referred to as the "August 2022 Term Loan" in the debt maturity schedule above). In the first quarter of 2020, we repaid all amounts outstanding on the Three-Year Delayed Draw Term Loan with proceeds from the February 2021 Term Loan and terminated the facility. As of September 30, 2020, we had no amounts outstanding under the Two and Three-Year Delayed Draw Term Loans and the facilities were terminated.

~~Debt Covenants~~

Financial Covenant

As of and through September 30, ~~2019,~~2020, we were in compliance with ~~all~~ the financial covenant required ~~covenants related to our debt obligations. For additional information regarding the terms of our debt agreements, refer to~~ ~~Note E – Borrowings and Credit Arrangements~~ ~~to our consolidated financial statements in our most recent Annual Report on Form 10-K.~~

~~All~~by all existing credit ~~arrangements~~facilities described ~~above require that we maintain certain financial covenants, as follows:~~

above:

Covenant Requirement

Actual

as of September 30, 2020

Maximum permitted leverage ratio (1)

4.75 times

3.40 times

~~Covenant Requirement~~

~~Actual~~

~~as of September 30, 2019~~

~~Maximum leverage ratio (1)~~

~~4.75 times~~

~~4.27 times~~


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

~~Our covenants require that~~(1)Ratio of total debt to deemed consolidated EBITDA, as defined by the credit agreements, as amended.

On April 21, 2020, we entered into an agreement with our banking syndicates to amend the financial covenant requirement for all of our outstanding credit arrangements as follows: (i) establish a deemed Consolidated EBITDA of $671 million for the second, third and fourth quarters of 2020, reflecting average quarterly Consolidated EBITDA, as defined in the credit agreements, for 2018 and 2019; and (ii) maintain athe maximum permitted leverage ratio of 3.75 times, provided, however, that for the two consecutive fiscal quarters ended immediately following the consummation of a Qualified Acquisition, as defined by each agreement, the maximum leverage ratio shall be 4.75 times ~~and then subject to~~through the remainder of

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2020, with a step-down for each succeeding fiscal quarter end to 4.50 times, 4.25 times, 4.00 times and ~~then back to~~ultimately 3.75 times for ~~each fiscal~~the fourth quarter ~~end thereafter. On August 19, 2019, we announced~~of 2021 and through the ~~closing~~remaining term of ~~our acquisition~~the facility. In addition, pursuant to the April 21, 2020 Revolving Credit Facility and February 2021 Term Loan amendments, the definition of ~~BTG,~~“Material Adverse Effect” has been amended to remove the direct and indirect effects of the COVID-19 pandemic from what constitutes a ~~Qualified Acquisition, and our maximum leverage ratio was 4.75 times as~~material adverse effect through the remainder of ~~September 30, 2019. Refer to~~ 2020.

~~Note B – Acquisitions and Strategic Investments~~ ~~for more information.~~

~~Our covenants provide~~The financial covenant requirement provides for an exclusion from the calculation of consolidated EBITDA, as defined by the agreements, 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, ~~2019,~~2020, we had ~~$314~~$194 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 $2.624 billion in the aggregate. As of September 30, ~~2019,~~2020, we had ~~$1.262 billion~~$946 million of the litigation exclusion remaining.

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

Commercial Paper

As of
(in millions, except maturity and yield) September 30, 2019 December 31, 2018
Commercial paper outstanding (at par) $ 1,293
$ 1,248
Maximum borrowing capacity 2,750
2,750
Borrowing capacity available 1,457
1,502
Weighted average maturity 40 days
27 days
Weighted average yield 2.43 % 3.04 %

Our commercial paper program is backed by the Revolving Credit Facility, as discussed above. Outstanding commercial paper directly reduces borrowing capacity under the Revolving Credit Facility. In the first quarter of 2020, we refinanced $1.360 billion of commercial paper using proceeds from the Revolving Credit Facility and did not have any commercial paper outstanding as of September 30, 2020.


	As of
(in millions, except maturity and yield)	September 30, 2020			December 31, 2019
Commercial paper outstanding (at par)	$	0		$	711
Maximum borrowing capacity	2,750			2,750
Borrowing capacity available	2,750			2,039
Weighted average maturity	0 days			55 days
Weighted average yield	0		%	2.21		%

Senior Notes

We had senior notes outstanding of ~~$7.650~~$9.404 billion as of September 30, ~~2019~~2020 and ~~$4.800~~$7.661 billion as of December 31, ~~2018.~~2019. In May 2020, we completed an offering of $1.700 billion in aggregate principal amount of senior notes comprised of $500 million of 1.900% senior notes due June 2025 and $1.200 billion of 2.650% senior notes due June 2030. We used the net proceeds from the offering to refinance $450 million of amounts outstanding under the Revolving Credit Facility, prepay $750 million of amounts outstanding under the $1.000 billion February 2021 Term Loan, prepay $500 million of amounts outstanding under the $1.250 billion April 2021 Term Loan and pay related fees, expenses and premiums.

In November 2019, we completed an offering of €900 million (approximately $1.000 billion) in aggregate principal amount of 0.625% senior notes due in 2027 (December 2027 Notes). The euro-denominated debt principal is a nonderivative instrument designated as a net investment hedge of our net investments in certain of our euro functional entities. Refer to Note D – Hedging Activities and Fair Value Measurements for additional information. We used a portion of the net proceeds from our November 2019 senior notes offering to repay certain outstanding principal amounts of our senior notes including $206 million of our $450 million 4.125% senior notes due 2023, $566 million of our $1.000 billion 4.000% senior notes due 2028 and $227 million of our $750 million 3.850% senior notes due 2025 and pay accrued and unpaid interest, premiums, fees and expenses in connection with the transaction.

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In February 2019, we completed an offering of $4.300 billion in aggregate principal amount of senior notes comprised of $850 million of 3.450% senior notes due March 2024, $850 million of 3.750% senior notes due March 2026, $850 million of 4.000% senior notes due March 2029, $750 million of 4.550% senior notes due March 2039 and $1.000 billion of 4.700% senior notes due March 2049. We used a portion of the net proceeds from the offering to repay the $850 million plus accrued interest and premium of our 6.000% senior notes due in January 2020, the $600 million plus accrued interest and premium of our 2.850% senior notes due in May 2020 and the $1.000 billion plus accrued interest of our August 2019 Term Loan. In the third quarter of 2019, the remaining proceeds were used to finance a portion of the ~~BTG Acquisition.~~acquisition of BTG.

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

On October 22, 2019, we announced the commencement of a cash tender offer (Tender Offer) for up to $1.000 billion combined aggregate principal amount (Aggregate Maximum Principal Amount) of our outstanding 4.125% senior notes due October 2023, 4.000% senior notes due March 2028, 3.850% senior notes due May 2025 and 3.375% senior notes due May 2022 (collectively, Tender Offer Notes). The Tender Offer is being made exclusively pursuant to an offer to purchase dated October 22, 2019, which sets forth the terms and conditions of the Tender Offer. Consummation of the Tender Offer is subject to satisfaction or waiver of the conditions described in the offer to purchase, including the financing condition that we shall have closed one or more debt financings resulting in net proceeds in an amount, together with cash on hand, not less than the amount required, upon the terms and subject to the conditions of the Tender Offer, to purchase all the securities validly tendered and accepted for purchase in the Tender Offer and to pay accrued interest thereon and fees and expenses associated therewith.

The Tender Offer will expire at midnight, Eastern Standard Time, on November 19, 2019, unless extended or terminated by us. However, because the aggregate principal amount of Tender Offer Notes validly tendered and not validly withdrawn as of the early tender date at 5:00 p.m. Eastern Standard Time, on November 4, 2019, would cause the Aggregate Maximum Principal Amount to be exceeded and we do not expect to increase the Aggregate Maximum Principal Amount, we do not expect to accept any further tenders of Tender Offer Notes.

~~Bridge Facility~~

On February 25, 2019, upon the closing of our senior notes offering in aggregate principal amount of $4.300 billion described above, we terminated the Bridge Facility entered into on November 20, 2018. The termination was pursuant to the terms of the Bridge Facility, which required full termination upon the refinancing of the January 2020 Notes and May 2020 Notes discussed above. There were no amounts borrowed under the Bridge Facility as of December 31, 2018.

Other Arrangements

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


Factoring Arrangements	As of September 30, 2020				As of December 31, 2019
	Amount De-recognized		Average Interest Rate		Amount De-recognized		Average Interest Rate
Euro denominated	$	150	1.8	%	$	171	1.4	%
Yen denominated	191		0.6	%	226		0.6	%
Renminbi denominated	1		3.5	%	n/a		n/a

Factoring Arrangements As of September 30, 2019 As of December 31, 2018
Amount
De-recognized

Average
Interest Rate

Amount
De-recognized

Average
Interest Rate
Euro denominated $ 146
1.7 % $ 165
2.7 %
Yen denominated 210
0.6 % 195
0.9 %
Other Contractual Obligations and Commitments

We had outstanding letters of credit of $125 million as of September 30, 2020 and $105 million as of December 31, 2019, which consisted primarily of bank guarantees and collateral for workers' compensation insurance arrangements. As of September 30, 2020 and December 31, 2019, none of the beneficiaries had drawn upon the letters of credit or guarantees, accordingly, we have not recognized a related liability for our outstanding letters of credit in our unaudited condensed consolidated balance sheets as of September 30, 2020 and December 31, 2019.

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

NOTE F – SUPPLEMENTAL BALANCE SHEET INFORMATION

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

Cash, cash equivalents, restricted cash and restricted cash equivalents


	As of
(in millions)	September 30, 2020		December 31, 2019
Cash and cash equivalents	$	2,022	$	217
Restricted cash and restricted cash equivalents in Other current assets	214		346
Restricted cash equivalents in Other long-term assets	46		43
	$	2,282	$	607

As of
(in millions) September 30, 2019 December 31, 2018
Cash and cash equivalents $ 277
$ 146
Restricted cash and restricted cash equivalents included in Other current assets
357
655
Restricted cash equivalents in Other long-term assets
43
27
$ 676
$ 829

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Trade accounts receivable, net


	As of
(in millions)	September 30, 2020		December 31, 2019
Trade accounts receivable	$	1,701	$	1,902
Allowance for credit losses	(103)		(74)
	$	1,598	$	1,828

As of
(in millions) September 30, 2019 December 31, 2018
Accounts receivable $ 1,871
$ 1,676
Allowance for doubtful accounts (75 ) (68 )
$ 1,796
$ 1,608

The following is a rollforward of our ~~allowance~~Allowance for ~~doubtful accounts:~~credit losses:


	Three Months Ended September 30,				Nine Months Ended September 30,
(in millions)	2020		2019		2020		2019
Beginning balance	$	94	$	73	$	74	$	68
Cumulative effect adjustment for adoption of ASU 2016-13	n/a		n/a		10		n/a
Credit loss expense	16		8		39		19
Write-offs	(7)		(5)		(19)		(11)
Ending balance	$	103	$	75	$	103	$	75

Three Months Ended September 30, Nine Months Ended September 30,
(in millions) 2019 2018 2019 2018
Beginning balance $ 73
$ 63
$ 68
$ 68
Net charges to expenses 8
6
19
15
Utilization of allowances (5 ) (4 ) (11 ) (17 )
Ending balance $ 75
$ 66
$ 75
$ 66
Note: Effective January 1, 2020, we adopted FASB ASC Topic 326 using the modified retrospective method, which requires that we recognize credit loss reserves when financial assets are established if credit losses are expected over the asset’s contractual life. Prior period amounts have not been restated and are presented in accordance with FASB ASC Topic 310. Please refer to Note A – Basis of Presentation for additional information.

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

Inventories


	As of
(in millions)	September 30, 2020		December 31, 2019
Finished goods	$	871	$	971
Work-in-process	179		192
Raw materials	421		416
	$	1,472	$	1,579

As of
(in millions) September 30, 2019 December 31, 2018
Finished goods $ 940
$ 760
Work-in-process 206
100
Raw materials 420
306
$ 1,566
$ 1,166

Other current assets


	As of
(in millions)	September 30, 2020		December 31, 2019
Restricted cash and restricted cash equivalents	$	214	$	346
Derivative assets	146		105
Licensing arrangements	149		186
Other	385		243
	$	894	$	880

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Property, plant and equipment, net


	As of
(in millions)	September 30, 2020		December 31, 2019
Land	$	120	$	117
Buildings and improvements	1,243		1,198
Equipment, furniture and fixtures	3,411		3,411
Capital in progress	402		442
	5,176		5,169
Less: accumulated depreciation	3,112		3,089
	$	2,064	$	2,079

As of
(in millions) September 30, 2019 December 31, 2018
Land $ 112
$ 97
Buildings and improvements 1,160
1,100
Equipment, furniture and fixtures 3,368
3,224
Capital in progress 357
319
4,996
4,740
Less: accumulated depreciation 3,055
2,958
$ 1,942
$ 1,782

Depreciation expense was $84 million for the third quarter of 2020, $79 million for the third quarter of 2019, ~~$74 million for the third quarter of 2018, $220 million for the~~

~~first nine months of 2019 and $212~~$238 million for the first nine months of ~~2018.~~

~~Accrued expenses~~

As of
(in millions) September 30, 2019 December 31, 2018
Legal reserves $ 328
$ 712
Payroll and related liabilities 693
630
Rebates 280
229
Contingent consideration 112
138
Other 518
538
$ 1,932
$ 2,246

~~Other long-term liabilities~~

As of
(in millions) September 30, 2019 December 31, 2018
Income taxes $ 671
$ 739
Legal reserves 240
217
Contingent consideration 268
209
Other 1,227
717
$ 2,406
$ 1,882

~~NOTE G – LEASES~~

~~We have operating~~2020 and finance leases for real estate including corporate offices, land, warehouse space, and vehicles and certain equipment. Leases with an initial term of 12 months or less are generally not recorded on the balance sheet, unless the arrangement includes an option to purchase the underlying asset, or an option to renew the arrangement, that we are reasonably certain to exercise (short-term leases). We recognize lease expense on a straight-line basis over the lease term for short-term leases that we do not record on our balance sheet. If there is a change in our assessment of the lease term, and as a result, the remaining lease

term extends more than 12 months from the end of the previously determined lease term, or we subsequently become reasonably certain that we will exercise an option to purchase the underlying asset, the lease no longer meets the definition of a short-term lease and is accounted for as either an operating or finance lease and recognized on the balance sheet. For leases executed in 2019 and later, we account for the lease components and the non-lease components as a single lease component, with the exception of our warehouse leases. Our leases have remaining lease terms of less than 1 year to approximately 60 years, some of which may include options to extend the leases for up to 10 years. If we are reasonably certain we will exercise an option to extend the lease, the time period covered by the extension option is included in the lease term.

We determine whether an arrangement is or contains a lease based on the unique facts and circumstances present at the inception of the arrangement. Operating lease liabilities and their corresponding right-of-use assets are recorded based on the present value of lease payments over the expected lease term. The interest rate implicit in lease contracts is typically not readily determinable. As such, we utilize the appropriate incremental borrowing rate, which is the rate incurred to borrow on a collateralized basis over a similar term at an amount equal to the lease payments in a similar economic environment. Certain adjustments to the right-of-use asset may be required for items such as initial direct costs paid or incentives received.

~~The following table presents supplemental balance sheet information related to our operating leases:~~

(in millions) As of September 30, 2019
Assets
Operating lease right-of-use assets in Other long-term assets
$ 306
Liabilities
Operating lease liabilities in Other current liabilities
62
Operating lease liabilities in Other long-term liabilities
251

~~The following table presents the weighted average remaining lease term and discount rate information related to our operating leases:~~



	~~As of September 30, 2019~~
~~Weighted average remaining lease term~~	~~5.6 years~~
~~Weighted average discount rate~~	~~3.7%~~

~~Our operating lease cost was $21 million in the third quarter of 2019 and $57~~$220 million for the first nine months of 2019.

~~The following table presents supplemental cash flow information related to our operating leases:~~

(in millions) Nine Months Ended September 30, 2019
Cash paid for amounts included in the measurement of operating lease liabilities
Operating cash flows from operating leases $ 55

Other long-term assets

~~Right-of-use assets obtained in exchange for operating lease obligations totaled $84 million for the first nine months of 2019.~~


	As of
(in millions)	September 30, 2020		December 31, 2019
Restricted cash equivalents	$	46	$	43
Operating lease right-of-use assets	311		336
Derivative assets	179		216
Investments	567		458
Licensing arrangements	246		332
Other	165		144
	$	1,516	$	1,529

~~The following table presents the maturities of our operating lease liabilities as of September 30, 2019:~~

Fiscal year
Operating Leases
(in millions)
2019 (excluding the first nine months of 2019) $ 22
2020 76
2021 65
2022 52
2023 41
Thereafter 95
Total future minimum operating lease payments 350
Less: imputed interest 37
Present value of operating lease liabilities $ 314

Accrued expenses


	As of
(in millions)	September 30, 2020		December 31, 2019
Legal reserves	$	552	$	470
Payroll and related liabilities	728		708
Rebates	324		298
Contingent consideration	47		56
Other	544		576
	$	2,195	$	2,109

Other current liabilities


	As of
(in millions)	September 30, 2020		December 31, 2019
Deferred revenue	$	147	$	144
Licensing arrangements	151		197
Taxes payable	37		265
Other	310		195
	$	644	$	800

Table of September 30, 2019, we have additional leases for office space and R&D space, that have not yet commenced, of $68 million. These leases will commence during the fourth quarter of 2019 and 2020, with lease terms of 1 month to 15 years.Contents

Other long-term liabilities


	As of
(in millions)	September 30, 2020		December 31, 2019
Accrued income taxes	$	571	$	667
Legal reserves	48		227
Accrued contingent consideration	167		299
Licensing arrangements	262		374
Operating lease liabilities	256		276
Deferred revenue	258		257
Other	569		535
	$	2,132	$	2,635

NOTE HG – INCOME TAXES

Our effective tax rate from continuing operations is presented below:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Effective tax rate from continuing operations	31.7	%	(38.7)	%	24.3	%	(1.6)	%

Three Months Ended September 30, Nine Months Ended September 30,
2019 2018 2019 2018
Effective tax rate from continuing operations (38.7 )% 5.3 % (1.6 )% (14.1 )%

The change in our reported tax rates for the third quarter and first nine months of ~~2019,~~2020, as compared to the same periods in ~~2018,~~2019, relates primarily to a shift in geographical mix of earnings to higher-tax jurisdictions, partially offset by the impact of certain receipts and charges that are taxed at different rates than our effective tax rate. These receipts and charges include intangible asset impairment charges, ~~acquisition-related items,~~acquisition/divestiture-related net charges, restructuring ~~items,~~and restructuring-related net charges, litigation-related ~~items~~net charges as well as certain discrete tax items primarily related to ~~share-based payments and~~ the ~~2018 settlement~~resolution of ~~our transfer pricing dispute with the~~an Internal Revenue Service (IRS) ~~for~~audit, as explained below, tax windfall benefits associated with share-based payments, and impacts of the ~~2001~~Coronavirus Aid, Relief and Economic Security (CARES) Act, enacted on March 27, 2020.

In the third quarter of 2020, we received notification from the IRS regarding the examination of our 2014 through ~~2010~~2016 tax years. The Joint Committee on Taxation completed its review on July 21, 2020, and the IRS examination was resolved. Due to the resolution of these tax years, we recorded a net tax benefit of $91 million in the third quarter of 2020 to release the reserves related to these years. We anticipate receiving a refund of $62 million from the IRS in the fourth quarter of 2020 reflecting the net balance of amounts owed to us by the IRS after consideration of tax and interest due for these years.

As of September 30, ~~2019,~~2020, we had ~~$405~~$279 million of gross unrecognized tax benefits, of which a net ~~$320~~$185 million, if recognized, would affect our effective tax rate. As of December 31, ~~2018,~~2019, we had ~~$427~~$455 million of gross unrecognized tax benefits, of which a net ~~$332~~$355 million, if recognized, would affect our effective tax rate. The change in our gross unrecognized tax benefit is primarily related to reaching settlements with tax authorities.

It is reasonably possible that within the next 12 months we will resolve multiple issues with foreign, federal and state taxing authorities, resulting in a reduction in our balance of unrecognized tax benefits of up to ~~$99~~$23 million.

Economic stimulus legislation has been enacted in many countries in response to COVID-19. In the U.S., the CARES Act was signed into law on March 27, 2020 and 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 through the end of 2020. This allows us to preserve cash generated from operations to service our debt obligations and other near-term commitments.

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NOTE IH – COMMITMENTS AND CONTINGENCIES

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

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

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

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

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

Our accrual for legal matters that are probable and estimable was ~~$568~~$600 million as of September 30, ~~2019~~2020 and ~~$929~~$697 million as of December 31, ~~2018~~2019 and includes certain estimated costs of settlement, damages and defense. The decrease in our legal accrual was mainly due to settlement payments related to litigation with Channel Medsystems, Inc. (Channel) and those associated with product liability cases or claims related to transvaginal surgical mesh ~~products.~~products, partially offset by incremental reserves recorded in the third quarter of 2020 described below. A portion of our legal accrual is already funded through our qualified settlement fund (QSF), which is included in ~~other~~ restricted cash and restricted cash equivalents ~~balance~~in Other current assets of ~~$357~~$214 million as of September 30, ~~2019~~2020 and ~~$655~~$346 million as of December 31, ~~2018.~~2019. Refer to Note F – Supplemental Balance Sheet Information for additional information.

We recorded litigation-related ~~net~~ charges of ~~$25~~$260 million induring the third quarter and first nine months of ~~2019 and litigation-related net credits~~2020, primarily related to transvaginal mesh products, inclusive of ~~$108 million in~~a reserve related to claims made by a coalition of state attorneys general. In the first nine months of ~~2019. In the first quarter~~2019, our litigation-related net credits included a gain of ~~2019, we recorded~~ $148 million, which represents a portion of the total $180 million one-time settlement payment received from Edwards Lifesciences Corporation (Edwards) in January ~~2019 to~~ ~~Litigation-related net charges (credits)~~ ~~on our~~ ~~unaudited condensed consolidated financial statements.~~ 2019. 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 unaudited condensed consolidated financial statements. All other legal and product liability charges, credits and costs are recorded within Selling, general and administrative expenses. As such, a portion of the related gain from this settlement was recorded in Selling, general and administrative expenses onin our unaudited condensed consolidated statements of operations. We continue to assess certain litigation and claims to determine the amounts, if any, that management believes will be paid as a result of such claims and litigation and, therefore, additional losses

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may be accrued and paid in the future, which could materially adversely impact our operating results, cash flows and/or our ability to comply with our ~~debt covenants.~~financial covenant.

In management's opinion, we are not currently involved in any legal proceedings other than those disclosed in our most recent Annual Report on Form 10-K, our Quarterly Reports on Form 10-Q for the periods ended March 31, ~~2019~~2020 and June 30, ~~2019~~2020 and those specifically identified below, which, individually or in the aggregate, could have a material adverse effect on our financial condition, operations and/or cash flows. Unless included in our legal accrual or otherwise indicated below, a range of loss associated with any individual material legal proceeding cannot be reasonably estimated.

~~Patent Litigation~~

On November 20, 2017, The Board of Regents, University of Texas System (UT) and TissueGen.Inc., served a lawsuit against us in the Western District of Texas. The complaint against us alleges patent infringement of two U.S. patents owned by UT, relating to “Drug Releasing Biodegradable Fiber Implant” and “Drug Releasing Biodegradable Fiber for Delivery of Therapeutics,” and affects the manufacture, use and sale of our Synergy™ Stent System. On March 12, 2018, the District Court for the Western District of Texas dismissed the action and transferred it to the United States District Court for the District of Delaware. On September 5, 2019, the Court of Appeals for the Federal Circuit affirmed the dismissal of the District Court for the Western District of Texas.

Product Liability Litigation

As of October ~~16, 2019,~~21, 2020, approximately ~~53,000~~54,000 product liability cases or claims related to transvaginal surgical mesh products designed to treat stress urinary incontinence and pelvic organ prolapse have been asserted against us. As of October ~~16, 2019,~~21, 2020, we have entered into master settlement agreements in principle or are in the final stages of entering one with certain plaintiffs' counsel

to resolve an aggregate of approximately 52,000 cases and claims, adjusted to reflect the Company’s analysis of expected non-participation and duplicate claims. These master settlement agreements provide that the settlement and distribution of settlement funds to participating claimants are conditional upon, among other things, achieving minimum required claimant participation thresholds. Of the approximately 52,000 cases and claims, approximately ~~43,500~~47,500 have met the conditions of the settlement and are final. All settlement agreements were entered into solely by way of compromise and without any admission or concession by us of any liability or wrongdoing. On April 16, 2019, the U.S. Food and Drug Administration (FDA) ordered that all manufacturers of surgical mesh products indicated for the transvaginal repair of pelvic organ prolapse stop selling and distributing their products in the United States immediately, stemming from the FDA’s 2016 reclassification of these devices to class III (high risk) devices, and as a result, the Company ceased global sales and distribution of surgical mesh products indicated for transvaginal pelvic organ prolapse. The pending cases are in various federal and state courts in the U.S. ~~and include eight putative class actions.~~ Generally, the plaintiffs allege personal injury associated with use of our transvaginal surgical mesh products. The plaintiffs assert design and manufacturing claims, failure to warn, breach of warranty, fraud, violations of state consumer protection laws and loss of consortium claims. Over 3,100 of the cases ~~have been~~were specially assigned to one judge in state court in Massachusetts. On February 7, 2012, the Judicial Panel on Multi-District Litigation (MDL) established MDL-2326 in the U.S. District Court for the Southern District of West Virginia and transferred the federal court transvaginal surgical mesh cases to MDL-2326 for coordinated pretrial proceedings. During the fourth quarter of 2013, we received written discovery requests from certain state attorneys general offices regarding our transvaginal surgical mesh products. We have responded to those requests. On December 12, 2019 the Mississippi Attorney General filed suit against BSC in State Court alleging violations of the Mississippi Consumer Protection Act which the Company plans to vigorously defend. There ~~were also fewer than 25 cases in Canada, inclusive of 1 certified and 3 putative class actions and~~are fewer than 25 claims in the United Kingdom. ~~We have reached~~There are also fewer than 15 cases in Canada, inclusive of 1 certified class action, which has settled and received Court approval. On April 16, 2019, the U.S. Food and Drug Administration (FDA) ordered that all manufacturers of surgical mesh products indicated for the transvaginal repair of pelvic organ prolapse stop selling and distributing their products in the United States immediately, stemming from the FDA’s 2016 reclassification of these devices to class III (high risk) devices, and as a ~~tentative agreement to settle~~result, the ~~Canadian class actions.~~Company ceased global sales and distribution of surgical mesh products indicated for transvaginal pelvic organ prolapse.

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

We are currently named a defendant in 92 filed product liability cases involving our Greenfield Vena Cava Filter, alleging various injuries, including perforation of the vena cava, post-implant deep vein thrombosis, fracture, and other injuries. Most of the filed cases are part of a consolidated matter in Middlesex County, Massachusetts. We have received notice of an additional 624 claims, none of which have been filed.

Other Proceedings

On November 1, 2017 we entered into a definitive agreement with Channel Medsystems, Inc. (Channel) pursuant to which we could have been obligated to pay $145 million in cash up-front and a maximum of $130 million in contingent payments to acquire Channel. The agreement contained a provision allowing Channel to sell the remaining equity interests of the company to us upon achievement of a regulatory milestone and an option allowing us to acquire the remaining equity interests. We sent a notice of termination of that agreement to Channel in the second quarter of 2018. On September 12, 2018, Channel filed a complaint in Delaware Chancery Court against us for alleged breach of the agreement. Channel alleges that we breached the agreement by terminating it. We have answered the complaint, denied the claims by Channel and have counterclaimed to recover part of our investment in Channel, alleging fraud in the inducement. On April 2, 2019, Channel announced its receipt of FDA approval of the Cerene™ Cryotherapy Device. Trial testimony was taken in April 2019, and the post-trial briefing and hearing have been completed. During the third quarter of 2019, Channel notified us that they were exercising their option to sell the remaining equity interests in Channel to us. We responded to the notification that we did not intend to purchase Channel since the previous agreement had been terminated.

On September 6, 2019, Boston Scientific Corporation, Boston Scientific Scimed, Inc., and Fortis Advisors, LLC, as a Securityholder Representative for the former Securityholders of nVision Medical Corp. filed a declaratory judgment action against BioCardia, Inc. in the United States District Court for the Northern District of California to address threats and allegations by BioCardia challenging inventorship and ownership of various patents that Boston Scientific Corporation acquired through an April 13, 2018 merger with nVision as well as related threats and allegations by BioCardia of trade secret misappropriation and unjust enrichment. On December 11, 2019, BioCardia filed an amended answer and counterclaims. On

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April 23, 2020, BioCardia filed a complaint against nVision, which had not been named as a defendant in the original case. On May 22, 2020, BioCardia amended its complaint against nVision to add twenty former nVision shareholders as defendants. On August 20, 2020, BioCardia again amended its complaint against Boston Scientific Corporation/Boston Scientific Scimed, Inc./Fortis Advisors, LLC and its complaint against nVision/nVision shareholders.

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

Matters Concluded Since December 31, 2019

On April ~~18,~~30, 2019, ~~Blue Cross & Blue Shield of Louisiana and HMO Louisiana, Inc.~~Tissue Anchor Innovations filed a ~~class action~~ complaint ~~against Janssen Biotech, Inc, Janssen Oncology, Inc, Janssen Research & Development, LLC and BTG International Limited~~for patent infringement in the United States District Court for the Eastern District of Virginia. The complaint alleges that the defendants violated the Sherman Act and the antitrust and consumer protections laws of several states by pursuing patent litigation relating to ZYTIGA™ in order to delay generic entry. On June 21, 2019, the case was transferred to the United States District Court for the District of New Jersey and has been consolidated with similar complaints.

~~On December 21, 2017, Janssen Biotech, Inc., Janssen Oncology, Inc, Janssen Research & Development, LLC, and Johnson & Johnson (collectively, Janssen) were served with a~~ ~~qui tam~~ ~~complaint filed on behalf of the United States, 28 states, and the District~~

~~of Columbia. The complaint, which was filed in the United States District Court for the Northern~~Central District of California ~~alleges~~against Fountain Valley Regional Hospital and Medical Center, Los Alamitos Medical Center and us. The complaint alleged that ~~Janssen violated~~ the ~~federal False Claims Act and state law when providing pricing information for ZYTIGA~~Solyx™ Sling System infringes US Patent 6,506,190. We reached a confidential settlement in this matter in July 2020, pursuant to which the government in connection with direct government sales and government-funded drug reimbursement programs. The case has been transferred to United States District Court for the District of New Jersey. On June 20, 2019, the complaintaction was ~~amended to include BTG International Limited as a defendant.~~dismissed.

~~Matters Concluded Since December 31, 2018~~

On January 15, 2019, we announced that we reached an agreement with Edwards Lifesciences Corporation (Edwards) to settle all outstanding patent disputes between us and Edwards in all venues around the world. All pending cases or appeals in courts and patent offices between the two companies have been or will be dismissed, and the parties will not litigate patent disputes related to current portfolios of transcatheter aortic valves, certain mitral valve repair devices, and left atrial appendage closure devices. Any injunctions currently in place will be lifted. Under the terms of the agreement, Edwards made a one-time payment to us of $180 million. No further royalties will be owed by either party under the agreement. All other terms remain confidential. The previously disclosed matters that have been resolved as a result of this settlement include:

On October 30, 2015, a subsidiary of Boston Scientific filed suit against Edwards Lifesciences Corporation and Edwards Lifesciences Services GmbH in Düsseldorf District Court in Germany for patent infringement. We allege that Edwards’ SAPIEN 3™ Heart Valve infringes our patent related to adaptive sealing technology. On February 25, 2016, we extended the action to allege infringement of a second patent related to adaptive sealing technology. The trial began on February 7, 2017. On March 9,10, 2017, ~~the court found that Edwards infringed both patents and Edwards appealed.~~

On November 9, 2015, Edwards Lifesciences, LLC filed an invalidity claim against one of our subsidiaries, Sadra Medical, Inc. (Sadra), in the High Court of Justice, Chancery Division Patents Court in the United Kingdom, alleging that a European patent owned by Sadra relating to a repositionable heart valve is invalid. On January 15, 2016, we filed our defense and counterclaim for a declaration that our European patent is valid and infringed by Edwards. On February 25, 2016, we amended our counterclaim to allege infringement of a second patent related to adaptive sealing technology. A trial was held from January 18 to January 27, 2017. On March 3, 2017, the court found one of our patents valid and infringed and some claims of the second patent invalid and the remaining claims not infringed. Both parties have filed an appeal. On March 28, 2018, the Court of Appeals affirmed the decision of the High Court.

~~On November 23, 2015, Edwards Lifesciences PVT, Inc.~~Imran Niazi filed a patent infringement action against us and one of our subsidiaries, Boston Scientific Medizintechnik GmbH, in the District Court of Düsseldorf, Germany alleging a European patent (Spenser '672) owned by Edwards is infringed by our Lotus™ Valve System. The trial began on February 7, 2017. On March 9, 2017, the court found that we did not infringe the Spenser '672 patent. Edwards filed an appeal.

On November 23, 2015, Edwards Lifesciences Corporation filed a patent infringement action against us and Boston Scientific Medizintechnik GmbH in the District Court of Düsseldorf, Germany alleging an European patent (Bourang) owned by Edwards is infringed by our Lotus Valve System. The trial began on February 7, 2017. On March 28, 2017, the European Patent Office revoked the Bourang patent and on April 3, 2017, the court suspended the infringement action pending Edwards' appeal of the revocation of the patent at the European Patent Office.

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

On April 19, 2016, a subsidiary of Boston Scientific filed suit against Edwards Lifesciences Corporation in the U.S. District Court for the Central District of California for patent infringement. We allege that Edwards’ aortic valve delivery systems infringe eight of our catheter related patents. On October 13, 2016, Edwards filed a petition for inter partes review of one asserted patent with the USPTO, Patent Trial and Appeal Board. On April 21, 2017, the USPTO denied the petition. On April 19 and 20, 2017, Edwards filed multiple inter partes review petitions against the patents in suit. On September 8, 2017, the court granted a stay of the action pending an inter partes review of the patents in suit.

On April 26, 2016, Edwards Lifesciences PVT, Inc. filed a patent infringement action against us and one of our subsidiaries, Boston Scientific Medizintechnik GmbH, in the District Court of Düsseldorf, Germany alleging a European patent (Spenser '550) owned by Edwardshim is infringed by our Lotus™ Transcatheter Heart Valve System. The trial began on February 7, 2017. On March 9, 2017, the court found that we infringed the Spenser '550 patent. The Company filed an appeal. On April 13, 2018, the ‘550 patent was revoked by the European Patent Office.

On October 27, 2016, Edwards Lifesciences PVT, Inc. filed a patent infringement action against us and one of our subsidiaries, Boston Scientific, LTD, in the Federal Court of Canada alleging that three Canadian patents (Spenser) owned by Edwards are infringed by our Lotus Transcatheter Heart Valve System.

On December 22, 2016, Edwards Lifesciences PVT, Inc. and Edwards Lifesciences SA (AG) filed a plenary summons against Boston Scientific Limited and Boston Scientific Group Public Company in the High Court of Ireland alleging that a European patent (Spenser) owned by Edwards is infringed by our Lotus ValveAcuity™ Lead Delivery System. On ~~April 13, 2018, the ‘550 patent was revoked by the European Patent Office.~~

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

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

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

On December 14, 2016, we learned that the Associacao Brasileira de Medicina de Grupo d/b/a ABRAMGE filed a complaint against us, Arthrex and Zimmer Biomet Holdings, in the U.S. District Court for the District of Delaware. This complaint, which ABRAMGE never served against us, alleges that the defendants or their agents paid kickbacks to health care providers in order to increase sales and prices and are liable under a variety of common law theories. On February 6, 2017, ABRAMGE filed and served an amended complaint on us and the other defendants. The amended complaint does not contain any material changes in the allegations against us. Subsequently, on March 2, 2017, ABRAMGE filed a motion to consolidate this lawsuit with two other similar suits that it had brought against Stryker and Abbott Laboratories, in a multidistrict litigation proceeding. On April 13,June 30, 2017, we filed a motion to dismiss ~~the amended complaint, as well as a separate opposition to the multidistrict litigation motion~~for improper venue and on ~~May 31,~~November 7, 2017 the Joint Panel on Multi-District Litigation denied ABRAMGE’s motion for the multidistrict litigation. On September 1, 2017, ABRAMGE filed a motion for leave to file a Second Amended Complaint, while our motion to dismiss the Amended Complaint remained pending. On September 15, 2017, we filed an opposition to the motion seeking leave to amend. On November 8, 2018, theWisconsin Court granted ~~ABRAMGE’s motion for leave to file a Second Amended Complaint, while also granting us leave to renew our~~the motion to dismiss. ~~We filed our motion to dismiss~~On November 13, 2017 Niazi refiled the ~~Second Amended Complaint on January 18, 2019. On February 28, 2019, ABRAMGE dismissed its Second Amended Complaint, concluding the lawsuit.~~

On or about January 12, 2016, Teresa L. Stevens filed a claim against us and three other defendants asserting, for herself and on behalf of a putative class of similarly situated women, that she was harmed by a vaginal mesh implant that she alleges contained a counterfeit or adulterated resin product that we imported from China. The complaint was filedsame action in the U.S. District ~~Court for the Southern District~~ of West Virginia, before the same Court that is hearing the mesh MDL. The complaint, which alleges Racketeer Influenced and Corrupt Organizations Act (RICO) violations, fraud, misrepresentation, deceptive trade practices and unjust enrichment, seeks both equitable relief and damages under state and federal law. On January 26, 2016, the Court issued an order staying the case and directing the plaintiff to submit information to allow the FDA to issue a determination with respect to her allegations. In addition, we were in contact with the U.S. Attorney’s Office for the Southern District of West Virginia and responded voluntarily to their requests in connection with that office’s review of the allegations concerning the use of mesh resin in the complaint.Minnesota. We reached a confidential settlement on this matter ~~and this case~~on February 3, 2020 pursuant to which the action was ~~dismissed on May 13, 2019.~~dismissed.

On ~~February 27,~~November 1, 2017, ~~Carolyn Turner~~we entered into a definitive agreement with Channel pursuant to which we could have been obligated to pay $145 million in cash up-front and a maximum of $130 million in contingent payments to acquire Channel. The agreement contained a provision allowing Channel to sell the remaining equity interests of Channel to us upon achievement of a regulatory milestone and an option allowing us to acquire the remaining equity interests. We sent a notice of termination of that agreement to Channel in the second quarter of 2018. On September 12, 2018, Channel filed a complaint in Delaware Chancery Court against us for alleged breach of the agreement. Channel alleged that we breached the agreement by terminating it. We answered the complaint, denied the claims by Channel and ~~five~~counterclaimed to recover part of our investment in Channel, alleging fraud in the inducement. On April 2, 2019, Channel announced its receipt of FDA approval of the Cerene™ Cryotherapy Device. Trial testimony was taken in April 2019, and the post-trial briefing and hearing were completed. During the third quarter of 2019, Channel notified us that they were exercising their option to sell the remaining equity interests in Channel to us. We responded to the notification that we did not intend to purchase Channel since the previous agreement had been terminated. On December 18, 2019, the Chancery Court ruled that Boston Scientific was in breach of the agreement and granted Channel's request for specific performance to require the Company to complete the purchase. On January 10, 2020, we filed a Notice of Appeal of the Chancery Court’s decision to the Delaware Supreme Court. On February 4, 2020, the Company settled the dispute with Channel resulting in termination of the agreement, payment by the Company of an undisclosed sum and surrender of the Company's equity interest in Channel.

NOTE I – STOCKHOLDERS' EQUITY

Preferred Stock

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

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

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

Subject to certain exceptions, no dividend or distribution will be declared or paid on shares of our common stock, and no common stock will be purchased, redeemed or otherwise acquired for consideration by us or any of our subsidiaries unless, in

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

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

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

On September 1, 2020, we paid to holders of our MCPS as of August 15, 2020 a cash dividend of $1.4361 per MCPS share (or $14 million in aggregate cash dividends), representing a dividend period beginning on the May 27, 2020 issuance date through August 31, 2020.

On October 27, 2020, the Audit Committee of our Board of Directors, pursuant to authority delegated to such committee by our Board of Directors, declared a cash dividend of $1.375 per MCPS share (or $14 million in aggregate cash dividends) to be paid on December 1, 2020 to holders of our MCPS as of November 15, 2020, representing a dividend period beginning on September 1, 2020 through November 30, 2020. We have presented cumulative, unpaid dividends covering the period from September 1, 2020 through September 30, 2020 totaling $5 million within Accrued expenses within our unaudited condensed consolidated balance sheet as of September 30, 2020.

Common Stock

We are authorized to issue 2.000 billion shares of common stock, $0.01 par value per share. Holders of common stock are entitled to one vote per share. Holders of common stock are entitled to receive dividends, if and when declared by our Board of Directors, and to share ratably in our assets legally available for distribution to our stockholders in the event of liquidation. Holders of common stock have no preemptive, subscription, redemption, or conversion rights. The holders of common stock do not have cumulative voting rights. The holders of a putative class of similarly situated women, that she was harmed by a vaginal mesh implant that she alleges contained a counterfeit or adulterated resin product that we imported from China. The complaint was filed in the U.S. District Court for the Middle District of Florida, Orlando Division and alleges violationsmajority of the ~~RICO, negligence, strict liability, breach~~shares of ~~an express or implied warranty, intentional and negligent misrepresentation, fraud and unjust enrichment. Ms. Turner served this complaint~~

~~against us on April 7, 2017. As of April 27, 2017, this case was stayed, pending resolution~~common stock can elect all of the ~~transfer petition~~directors and can control our management and affairs. Holders of common stock are junior to ~~the mesh multidistrict litigation. We reached a settlement on this matter and this case was dismissed on February 25, 2019.~~holders of MCPS in terms of liquidation preference.

On ~~April 24, 2019,~~May 27, 2020, we completed an offering of 29,382,500 shares of common stock at a ~~class action complaint was filed in~~public offering price of $34.25 per share. The net proceeds from the ~~U.S. District Court for the Southern District of New York against Boston Scientific Corporation, Michael F. Mahoney, our Chief Executive Officer,~~common stock offering were approximately $975 million after deducting underwriting discounts and ~~Daniel J. Brennan, our Chief Financial Officer. The complaint alleges violations of federal securities laws based on false and/or misleading statements~~commissions and ~~failure to disclose facts related to the Company’s transvaginal surgical mesh products. On September 20, 2019, the case was dismissed with prejudice.~~

offering expenses.

We used a portion of the net proceeds from the May 27, 2020 MCPS and common stock offerings to repay remaining amounts outstanding under the April 2021 Term Loan and to pay related fees, expenses and premiums as discussed in Note E – Contractual Obligations and Commitments. The remaining proceeds will be used for general corporate purposes, which may include refinancing or repayment of other outstanding indebtedness and funding potential future acquisitions and investments.

NOTE J – WEIGHTED AVERAGE SHARES OUTSTANDING


	Three Months Ended September 30,		Nine Months Ended September 30,
(in millions)	2020	2019	2020	2019
Weighted average shares outstanding - basic	1,430.9	1,393.1	1,413.0	1,390.6
Net effect of common stock equivalents	0	19.0	0	19.1
Weighted average shares outstanding - assuming dilution	1,430.9	1,412.2	1,413.0	1,409.7

Three Months Ended September 30, Nine Months Ended September 30,
(in millions) 2019
2018 2019 2018
Weighted average shares outstanding - basic 1,393.1
1,382.8
1,390.6
1,380.0
Net effect of common stock equivalents 19.0
21.0
19.1
19.9
Weighted average shares outstanding - assuming dilution 1,412.2
1,403.9
1,409.7
1,399.8

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The ~~impact~~following securities were excluded from the calculation of weighted average shares outstanding - assuming dilution because their effect in the periods presented below would have been antidilutive:


	Three Months Ended September 30,		Nine Months Ended September 30,
(in millions)	2020	2019	2020	2019
Common stock equivalents (1)	14	0	14	0
Stock options outstanding (2)	6	0	6	0
MCPS (3)	24	0	11	0

(1) Represents common stock equivalents pursuant to our employee stock-based compensation plans, which are anti-dilutive in the third quarter and first nine months of 2020 due to our Net loss positions in those periods.

(2) Represents stock options outstanding pursuant to our employee stock-based compensation plans with exercise prices that were greater than the average fair market value of our common stock for the related periods.

(3) Represents common stock issuable upon the conversion of MCPS. Refer to Note I – Stockholders' Equity for additional information.

We base Net income (loss) per common share - assuming dilution upon the weighted-average number of common shares and common stock equivalents outstanding during each year. Potential common stock equivalents are determined using the treasury stock method. We exclude stock options, stock awards and MCPS from the calculation if the effect would be anti-dilutive. The dilutive effect of MCPS is calculated using the if-converted method. The if-converted method assumes that these securities were converted to shares of common stock at the later of the May 27, 2020 issuance date or the beginning of the reporting period to the extent that the effect is dilutive.

For the third quarter and first nine months of 2020, the effect of assuming the conversion of MCPS into shares of common stock was ~~immaterial~~anti-dilutive, and therefore excluded from the calculation of earnings per share (EPS). Accordingly, Net loss was reduced by cumulative Preferred stock dividends, as presented in our unaudited condensed consolidated statements of operations, for ~~all periods presented.~~purposes of calculating EPS.

We issued approximately ~~2000000~~3 million shares of our common stock in the third quarter of ~~2019, approximately 2000000~~2020, 2 million shares ~~of our common stock~~ in the third quarter of ~~2018, approximately 9000000~~2019, 8 million shares ~~of our common stock~~ in the first nine months of ~~2019~~2020, and ~~approximately 10~~9 million shares ~~of our common stock~~ in the first nine months of ~~2018,~~2019, following the exercise of stock options, vesting of deferred stock units or purchases under our employee stock purchase plan. We did not repurchase any shares of our common stock in the first nine months of ~~2019~~2020 or ~~2018.~~

2019.

NOTE K – SEGMENT REPORTING

~~We have~~Our seven core businesses are organized into 3 reportable ~~segments comprised of~~segments: MedSurg, Rhythm and Neuro, and Cardiovascular, which represent an aggregation of our operating ~~segments.~~

~~Each of our reportable~~ segments ~~generates~~that generate revenues from the sale of medical devices. We measure and evaluate our reportable segments based on ~~reportable segment~~ net sales of reportable segments, operating income of reportable segments, excluding intersegment profits, and ~~reportable segment~~ operating income of reportable segments as a percentage of net sales of reportable ~~segment net sales. Reportable segment operating~~segments. Operating income of reportable segments as a percentage of ~~reportable segment~~ net sales of reportable segments is defined as operating income of reportable segments divided by ~~reportable segment~~ net ~~sales. Our presentation~~sales of reportable segment net sales and operating income of reportable segments includes the impact of foreign currency fluctuations, since our chief operating decision maker (CODM) reviews operating results both including and excluding the impact of foreign currency fluctuations, and the following presentation more closely aligns to our unaudited condensed consolidated financial statements.segments. We exclude from operating income of reportable segments certain corporate-related expenses and certain transactions or adjustments that our ~~CODM~~chief operating decision maker (CODM) considers to be non-operational, such as amounts related to amortization expense, intangible asset impairment charges, ~~acquisition-related items,~~acquisition/divestitures-related net charges/(credits), restructuring and restructuring-related ~~items,~~net charges/(credits), certain EU Medical Device Regulation (MDR) implementation costs and litigation-related ~~items and medical device regulation charges.~~charges/(credits). Although we exclude these amounts from operating income of reportable segments, they are included in reported Income (loss) before income taxes ~~on the~~in our unaudited condensed consolidated statements of operations and are included in the reconciliation below.

Following our integration of BTG, the acquisition of which closed during the third quarter of 2019, we have included BTG’s Interventional Medicine business within our Peripheral Interventions operating segment, within the Cardiovascular reportable segment. We present BTG’s Specialty Pharmaceuticals business as a standalone operating segment alongside our reportable segments. In our Quarterly Report on Form 10-Q for the period ended September 30, 2019, we presented Interventional Medicine and Specialty Pharmaceuticals together as "BTG Acquisition" and outside of our operating and reportable segments for sales of reportable segments, operating income of reportable segments, excluding intersegment profits, and operating income of reportable segments as a percentage of net sales of reportable segments. We have revised amounts for the third quarter and first nine months of 2019 to conform to the current year presentation.

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A reconciliation of the totals reported for the reportable segments to the applicable line items inwithin our accompanying unaudited condensed consolidated statements of operations is as follows (in millions, except percentages):


	Three Months Ended September 30,						Nine Months Ended September 30,
Net sales	2020			2019			2020			2019
MedSurg	$	825		$	845		$	2,175		$	2,429
Rhythm and Neuro	757			780			1,985			2,323
Cardiovascular	1,002			1,058			2,862			3,057
Total net sales of reportable segments	2,584			2,684			7,021			7,807
All other (Specialty Pharmaceuticals)	74			23			183			23
Consolidated net sales	$	2,659		$	2,707		$	7,204		$	7,831

	Three Months Ended September 30,						Nine Months Ended September 30,
Income (loss) before income taxes	2020			2019			2020			2019
MedSurg	$	307		$	319		$	738		$	870
Rhythm and Neuro	165			166			296			488
Cardiovascular	208			283			593			860
Total operating income of reportable segments	680			768			1,628			2,218
All other (Specialty Pharmaceuticals)	49			13			124			13
Unallocated amounts:
Corporate expenses, including hedging activities	(108)			(75)			(330)			(215)
Intangible asset impairment charges, acquisition/divestiture-related net (charges) credits, restructuring- and restructuring-related net (charges) credits, EU MDR implementation costs and litigation-related net (charges) credits	(629)			(146)			(957)			(210)
Amortization expense	(197)			(178)			(595)			(498)
Operating income (loss)	(205)			383			(130)			1,308
Other expense, net	(22)			(292)			(256)			(615)
Income (loss) before income taxes	$	(227)		$	91		$	(386)		$	693

Operating income of reportable segments as a percentage of net sales of reportable segments	Three Months Ended September 30,						Nine Months Ended September 30,
	2020			2019			2020			2019
MedSurg	37.2		%	37.8		%	33.9		%	35.8		%
Rhythm and Neuro	21.9		%	21.3		%	14.9		%	21.0		%
Cardiovascular	20.8		%	26.7		%	20.7		%	28.1		%

Three Months Ended September 30, Nine Months Ended September 30,
Net sales 2019 2018 2019 2018
MedSurg $ 845
$ 746
$ 2,429
$ 2,207
Rhythm and Neuro 780
740
2,323
2,252
Cardiovascular 1,011
908
3,009
2,806
Reportable segment net sales 2,636
2,393
7,760
7,262
BTG Acquisition⁽¹⁾
71
n/a
71
n/a
Net sales $ 2,707
$ 2,393
$ 7,831
$ 7,262

Three Months Ended September 30, Nine Months Ended September 30,
Income (loss) before income taxes 2019 2018 2019 2018
MedSurg $ 319
$ 274
$ 870
$ 807
Rhythm and Neuro 166
168
488
481
Cardiovascular 281
268
857
858
Operating income of reportable segments 766
710
2,216
2,146
BTG Acquisition⁽¹⁾
16
n/a
16
n/a
Corporate expenses, including hedging activities (75 ) (97 ) (215 ) (297 )
Intangible asset impairment charges, acquisition/divestiture-related, restructuring- and restructuring-related, litigation-related net (charges) credits and medical device regulation charges (146 ) (77 ) (210 ) (225 )
Amortization expense (178 ) (148 ) (498 ) (437 )
Operating income (loss) 383
388
1,308
1,187
Other expense, net (292 ) 68
(615 ) (61 )
Income (loss) before income taxes $ 91
$ 456
$ 693
$ 1,126

Reportable segment operating income as a percentage of reportable segment net sales Three Months Ended September 30, Nine Months Ended September 30,
2019 2018 2019 2018
MedSurg 37.8 % 36.8 % 35.8 % 36.6 %
Rhythm and Neuro 21.3 % 22.7 % 21.0 % 21.4 %
Cardiovascular 27.8 % 29.5 % 28.5 % 30.6 %

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~~(1)~~

~~For the first nine months of2019, there have been no changes to our internal reporting structure, and accordingly, we have not revised our segment reporting or geographic presentation. We will continue to integrate the~~ ~~BTG Acquisition~~ into our operations in the fourth quarter and will reassess our operating and reportable segments as well as geographic presentation for any changes related to our internal reporting structure as well as to the information regularly reviewed by the CODM. To the extent any changes in our operating and reportable segments are identified, these will be reflected in our segment reporting information in the period in which the change occurs. Our results of operations include the results of BTG following the acquisition date of August 19, 2019. ~~The BTG Acquisition reconciling item above excludes certain adjustments that our CODM considers to be non-operational, such as acquisition-related items.~~

NOTE L – REVENUE

We generate revenue primarily from the sale of single-use medical devices and present revenue net of sales taxes in our unaudited condensed consolidated statements of operations. The following tables disaggregate our revenue from contracts with customers by business and geographic region (in millions):


	Three Months Ended September 30,
	2020						2019
Businesses	U.S.		OUS		Total		U.S.		OUS		Total
Endoscopy	$	270	$	205	$	475	$	277	$	209	$	486
Urology and Pelvic Health	251		99		350		257		102		359
Cardiac Rhythm Management	275		190		465		284		194		478
Electrophysiology	33		43		76		38		43		81
Neuromodulation	176		41		216		183		39		222
Interventional Cardiology	255		331		586		327		373		700
Peripheral Interventions	236		179		416		195		163		358
Specialty Pharmaceuticals	65		10		74		19		4		23
Net Sales	$	1,560	$	1,098	$	2,659	$	1,580	$	1,126	$	2,707

Three Months Ended September 30, Nine Months Ended September 30,
Businesses 2019 2018 2019 2018
Endoscopy
U.S. $ 277
$ 247
$ 800
$ 724
International 209
196
596
580
Worldwide 486
443
1,396
1,304

Urology and Pelvic Health
U.S. 257
214
737
623
International 102
89
297
280
Worldwide 359
303
1,033
904

Cardiac Rhythm Management
U.S. 284
289
860
869
International 194
186
607
594
Worldwide 478
475
1,467
1,462

Electrophysiology
U.S. 38
37
113
111
International 43
39
132
119
Worldwide 81
76
245
230

Neuromodulation
U.S. 183
155
487
446
International 39
34
125
113
Worldwide 222
189
612
559

Interventional Cardiology
U.S. 327
283
942
859
International 373
332
1,126
1,062
Worldwide 700
615
2,067
1,922

Peripheral Interventions
U.S. 155
152
466
449
International 156
142
475
436
Worldwide 311
293
942
885

BTG Acquisition⁽¹⁾

Interventional Medicine 48
n/a
48
n/a
Specialty Pharmaceuticals 23
n/a
23
n/a
Worldwide 71
n/a
71
n/a

Net Sales $ 2,707
$ 2,393
$ 7,831
$ 7,262

~~(1)~~

Three Months Ended September 30, Nine Months Ended September 30,
Geographic Regions (Excluding BTG Acquisition) 2019 2018 2019 2018
U.S. $ 1,521
$ 1,375
$ 4,402
$ 4,078
EMEA (Europe, Middle East and Africa) 530
498
1,662
1,619
APAC (Asia-Pacific) 484
425
1,402
1,282
Latin America and Canada 101
94
293
282
BTG Acquisition⁽¹⁾(Worldwide)
71
n/a
71
n/a
Net Sales $ 2,707
$ 2,393
$ 7,831
$ 7,262

Emerging Markets⁽²⁾ (Excluding BTG Acquisition)
$ 310
$ 267
$ 925
$ 812

~~(1)~~

~~Our results of operations include the results of BTG following the acquisition date of August 19, 2019.~~ ~~BTG net sales are substantially U.S. based.~~


	Nine Months Ended September 30,
	2020						2019
Businesses	U.S.		OUS		Total		U.S.		OUS		Total
Endoscopy	$	715	$	550	$	1,265	$	800	$	596	$	1,396
Urology and Pelvic Health	650		260		910		737		297		1,033
Cardiac Rhythm Management	738		515		1,253		860		607		1,467
Electrophysiology	86		116		202		113		132		245
Neuromodulation	426		103		529		487		125		612
Interventional Cardiology	741		973		1,714		942		1,126		2,067
Peripheral Interventions	649		499		1,148		507		482		989
Specialty Pharmaceuticals	162		21		183		19		4		23
Net Sales	$	4,167	$	3,037	$	7,204	$	4,462	$	3,369	$	7,831


	Three Months Ended September 30,				Nine Months Ended September 30,
Geographic Regions	2020		2019		2020		2019
U.S.	$	1,496	$	1,561	$	4,005	$	4,443
EMEA (Europe, Middle East and Africa)	540		535		1,507		1,667
APAC (Asia-Pacific)	472		485		1,292		1,403
LACA (Latin America and Canada)	77		102		217		294
Medical Devices	2,584		2,684		7,021		7,807
U.S.	65		19		162		19
OUS	10		4		21		4
Specialty Pharmaceuticals	74		23		183		23
Net Sales	$	2,659	$	2,707	$	7,204	$	7,831

Emerging Markets (1)	$	278	$	310	$	800	$	925

(1) We define Emerging Markets as the 20 countries that we believe have strong growth potential based on their economic conditions, healthcare sectors and our global capabilities. Periodically, we assess our list of Emerging Markets, which is currently comprised of the following countries: Argentina, Brazil, Chile, China, Colombia, Czech Republic, India, Indonesia, Malaysia, Mexico, Philippines, Poland, Russia, Saudi Arabia, Slovakia, South Africa, South Korea, Thailand, Turkey and Vietnam.

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~~(2)~~

~~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; effective January 1, 2019, we updated our list of Emerging Market countries.~~Our current list is comprised of the following countries: Argentina, Brazil, Chile, China, Colombia, Czech Republic, India, Indonesia, Malaysia, Mexico, Philippines, Poland, Russia, Saudi Arabia, Slovakia, South Africa, South Korea, Thailand, Turkey and Vietnam. ~~We have revised prior year amounts to the current year’s presentation.~~ ~~The revision had an immaterial impact on prior year Emerging Markets sales.~~

Deferred Revenue

Contract liabilities are classified within Other current liabilities and Other long-term liabilities onin our accompanying unaudited condensed consolidated balance sheets. Our deferred revenue balance was ~~$398~~$405 million as of September 30, ~~2019~~2020 and ~~$373~~$400 million as of December 31, ~~2018.~~2019. Our contractual liabilities are primarily composed of deferred revenue related to the LATITUDE™ Patient Management System. Revenue is recognized over the average service period which is based on device and patient longevity. We recognized revenue of ~~$35~~$28 million in the third quarter ~~of 2019~~ and ~~$107~~$84 million in the first nine months of ~~2019~~2020 that was included in the above contract liability balance as of December 31, ~~2018 contract liability balance.~~2019. We have elected not to disclose the transaction price allocated to unsatisfied performance obligations when the original expected contract duration is one year or less. In addition, we have not identified material unfulfilled performance obligations for which revenue is not currently deferred.

Variable Consideration

We generally allow our customers to return defective, damaged and, in certain cases, expired products for credit and record the amount for estimated sales returns as a reduction to revenue when we sell the initial product. In addition, we may allow customers to return previously purchased products for next-generation product offerings. For these transactions, we defer recognition of revenue on the sale of the earlier generation product based upon an estimate of the amount of product to be returned when the next-generation products are shipped to the customer. We recently received FDA approval and began the U.S. launch of our next generation WATCHMAN FLX™ Left Atrial Appendage Closure (LAAC) Device within our Interventional Cardiology business. The next generation WATCHMAN FLX™ Device is indicated to reduce the risk of stroke in patients with non-valvular atrial fibrillation (NVAF) who need an alternative to oral anticoagulation therapy by permanently closing off the left atrial appendage. In the third quarter of 2020, we incurred $63 million in revenue charges primarily related to our conversion to a consignment inventory model for our LAAC franchise with the launch of our next-generation WATCHMAN FLX™ Device in the U.S.

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

NOTE M – CHANGES IN OTHER COMPREHENSIVE INCOME

The following tables provide the reclassifications out of Other comprehensive income (loss), net of tax:


(in millions)	Foreign Currency Translation Adjustments		Net Change in Derivative Financial Instruments		Net Change in Defined Benefit Pensions and Other Items		Total
Balance as of June 30, 2020	$	(46)	$	222	$	(45)	$	131
Other comprehensive income (loss) before reclassifications	88		(50)		0		38
(Income) loss amounts reclassified from accumulated other comprehensive income	(5)		(14)		0		(19)
Total other comprehensive income (loss)	84		(64)		0		20
Balance as of September 30, 2020	$	38	$	158	$	(45)	$	151

(in millions) Foreign Currency Translation Adjustments Net Change in Derivative Financial Instruments Net Change in Available-for-Sale Securities Net Change in Defined Benefit Pensions and Other Items Total
Balance as of June 30, 2019 $ (46 ) $ 150
$ —
$ (26 ) $ 78
Other comprehensive income (loss) before reclassifications 7
78
—
—
86
(Income) loss amounts reclassified from accumulated other comprehensive income (9 ) (16 ) —
—
(26 )
Total other comprehensive income (loss) (2 ) 62
—
—
60
Balance as of September 30, 2019 $ (48 ) $ 213
$ —
$ (26 ) $ 138

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(in millions)	Foreign Currency Translation Adjustments		Net Change in Derivative Financial Instruments		Net Change in Defined Benefit Pensions and Other Items		Total
Balance as of June 30, 2019	$	(46)	$	150	$	(26)	$	78
Other comprehensive income (loss) before reclassifications	7		78		0		86
(Income) loss amounts reclassified from accumulated other comprehensive income	(9)		(16)		0		(26)
Total other comprehensive income (loss)	(2)		62		0		60
Balance as of September 30, 2019	$	(48)	$	213	$	(26)	$	138

(in millions) Foreign Currency Translation Adjustments Net Change in Derivative Financial Instruments Net Change in Available-for-Sale Securities Net Change in Defined Benefit Pensions and Other Items Total
Balance as of June 30, 2018 $ (68 ) $ 79
$ —
$ (27 ) $ (16 )
Other comprehensive income (loss) before reclassifications 2
45
—
—
47
(Income) loss amounts reclassified from accumulated other comprehensive income (8 ) 1
—
—
(7 )
Total other comprehensive income (loss) (6 ) 47
—
—
40
Balance as of September 30, 2018 $ (74 ) $ 126
$ —
$ (27 ) $ 25

(in millions) Foreign Currency Translation Adjustments Net Change in Derivative Financial Instruments Net Change in Available-for-Sale Securities Net Change in Defined Benefit Pensions and Other Items Total
Balance as of December 31, 2018 $ (53 ) $ 111
$ —
$ (25 ) $ 33
Other comprehensive income (loss) before reclassifications 30
136
—
(1 ) 165
(Income) loss amounts reclassified from accumulated other comprehensive income (25 ) (34 ) —
—
(59 )
Total other comprehensive income (loss) 4
102
—
(1 ) 105
Balance as of September 30, 2019 $ (48 ) $ 213
$ —
$ (26 ) $ 138

(in millions) Foreign Currency Translation Adjustments Net Change in Derivative Financial Instruments Net Change in Available-for-Sale Securities Net Change in Defined Benefit Pensions and Other Items Total
Balance as of December 31, 2017 $ (32 ) $ 1
$ (1 ) $ (27 ) $ (59 )
Other comprehensive income (loss) before reclassifications (29 ) 105
—
—
76
(Income) loss amounts reclassified from accumulated other comprehensive income (13 ) 20
1
—
8
Total other comprehensive income (loss) (42 ) 125
—
—
82
Balance as of September 30, 2018 $ (74 ) $ 126
$ —
$ (27 ) $ 25


(in millions)	Foreign Currency Translation Adjustments		Net Change in Derivative Financial Instruments		Net Change in Defined Benefit Pensions and Other Items		Total
Balance as of December 31, 2019	$	142	$	173	$	(45)	$	270
Other comprehensive income (loss) before reclassifications	(90)		36		0		(54)
(Income) loss amounts reclassified from accumulated other comprehensive income	(14)		(52)		0		(65)
Total other comprehensive income (loss)	(104)		(15)		0		(119)
Balance as of September 30, 2020	$	38	$	158	$	(45)	$	151


(in millions)	Foreign Currency Translation Adjustments		Net Change in Derivative Financial Instruments		Net Change in Defined Benefit Pensions and Other Items		Total
Balance as of December 31, 2018	$	(53)	$	111	$	(25)	$	33
Other comprehensive income (loss) before reclassifications	30		136		(1)		165
(Income) loss amounts reclassified from accumulated other comprehensive income	(25)		(34)		0		(59)
Total other comprehensive income (loss)	4		102		(1)		105
Balance as of September 30, 2019	$	(48)	$	213	$	(26)	$	138

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

~~As a result of adopting ASC Update No. 2016-01 in the first quarter of 2018, we recorded a cumulative effect adjustment to retained earnings to reclassify unrealized~~The gains and losses ~~from our equity investments previously recorded to~~ ~~Accumulated other comprehensive income (loss), net of tax~~. These equity investments were classified as available-for-sale securities under the former accounting guidance, and we now refer to these investments as publicly-held equity securities. Please refer to ~~Note A – Significant Accounting Policies~~ ~~included in Item 8 of our most recent Annual Report~~ on ~~Form 10-K for more information.~~

~~The~~ ~~Net change in~~ defined benefit ~~pensions~~ and ~~other~~pension items before reclassifications and gains and losses on defined benefit and pension items reclassified from Accumulated other comprehensive income (loss), net of tax were reduced by immaterial income tax impacts in the third quarter and first nine months of ~~2019~~2020 and ~~2018.~~2019.

NOTE N – NEW ACCOUNTING PRONOUNCEMENTS

Periodically, new accounting pronouncements are issued by the FASB or other standard setting bodies. Recently issued standards typically do not require adoption until a future effective date. Prior to their effective date, we evaluate the pronouncements to determine the potential effects of adoption on our unaudited condensed consolidated financial statements.

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Standards to be Implemented

ASC Update No. ~~2016-13~~2020-10

In ~~June 2016,~~October 2020, the FASB issued ASC Update No. ~~2016-13,~~2020-10, ~~Financial Instruments – Credit Losses~~ Codification Improvements~~(Topic 326): Measurement of Credit Losses on Financial Instruments~~ ~~(Update No. 2016-13)~~. ~~The purpose of~~ Update No. ~~2016-13 is~~2020-10 amends a wide variety of Topics in the Codification in order to ~~replace~~improve the ~~current incurred loss impairment methodology for financial assets measured at amortized cost with a methodology that reflects expected credit losses~~consistency of the Codification and ~~requires consideration of a broader range of reasonable and supportable information, including forecasted information, to develop credit loss estimates.~~the application thereof, while leaving Generally Accepted Accounting Principles unchanged. Update No. ~~2016-13~~2020-10 is effective for annual periods beginning after December 15, ~~2019,~~2020, for public business entities. Early application of the amendments is permitted for any annual or interim period for which financial statements have not been issued. We are currently in the process of determining the effect that the amendments will have on our financial position and results of operations.

ASC Update No. 2020-06

In August 2020, the FASB issued ASC Update No. 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. The amendments in Update No. 2020-06 simplify the complexity associated with applying U.S. GAAP for certain financial instruments with characteristics of liabilities and equity. More specifically, the amendments focus on the guidance for convertible instruments and derivative scope exception for contracts in an entity’s own equity. Update No. 2020-06 is effective for fiscal years beginning after December 15, 2021, including interim periods within those ~~annual periods.~~fiscal years. Early adoption is permitted, ~~for annual periods~~but no earlier than fiscal years beginning after December 15, ~~2018.~~2020, including interim periods within those fiscal years. We ~~plan to adopt Update No. 2016-13 in the first quarter of 2020, and we~~ are currently in the process of determining the effect that the adoption will have on our financial position and results of operations.

ASC Update No. ~~2018-15~~2019-12

In ~~August 2018,~~December 2019, the FASB issued ASC Update No. ~~2018-15,~~2019-12, ~~Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40)~~:Income Taxes ~~Customer’s~~(Topic 740): Simplifying the Accounting for ~~Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract~~Income Taxes ~~(Update No. 2018-15)~~. The purpose of Update No. ~~2018-15~~2019-12 is to ~~align~~continue the ~~requirements for capitalizing implementation costs incurred~~FASB’s Simplification Initiative to reduce complexity in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license).accounting standards. The amendments in Update No. ~~2018-15~~2019-12 simplify the accounting for income taxes by removing certain exceptions related to the incremental approach for intraperiod tax allocation, the requirement to recognize or derecognize deferred tax liabilities related to equity method investments that are also foreign subsidiaries, and the methodology for calculating income taxes in an interim period. In addition to removing these exceptions, Update No. 2019-12 also clarifies and simplifies other aspects of the accounting for income taxes. Update No. 2019-12 is effective for annual periods beginning after December 15, ~~2019,~~2020, including interim periods within those annual periods. Early adoption is permitted, including adoption in ~~any~~an interim period. We ~~plan to adopt Update No. 2018-15 in the first quarter of 2020, and we~~ are currently in the process of assessing in which quarter to adopt, as well as determining the effect that the adoption will have on our financial position and results of operations.

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

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

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. Our products and technologies are used to diagnose or treat a wide range of medical conditions, including cardiovascular, digestive, respiratory, urological, pelvic health and neurological conditions. We continue to innovate in these areas and are ~~intent on~~committed to the goal of extending our innovations into new geographies and high-growth, ~~adjacency~~adjacent markets. When used in this report, the terms, "we," "us," "our," and "the Company" mean Boston Scientific Corporation and its divisions and subsidiaries.

~~On August 19,~~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). Our business trends through the first two months of the year were in line with internal expectations; however, as COVID-19 reached a global pandemic level, procedural volumes significantly declined, negatively impacting revenue and operating income. While the majority of procedures using our products are deferrable, most of the conditions that we ~~announced~~treat are generally fairly acute and cannot be deferred for extended periods. As the ~~closing~~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. Some jurisdictions mandated elective procedure bans that included financial penalties for non-compliance in the second quarter. Certain of these bans continued to be in effect in the third quarter or evolved to reduce capacity available for elective procedures. In other jurisdictions, the timing of the pandemic and public health measures have resulted in lower levels of COVID-19 cases, while hospitals have also developed protocols such that elective procedures may be conducted safely and are approaching pre-COVID-19 pandemic levels.

While much of the global economy reopened in the third quarter, the COVID-19 pandemic is ongoing, and renewed restrictions are being contemplated or implemented in areas that had previously reopened, including in parts of Europe and the U.S where COVID-19 cases are rising. The ongoing pandemic and accompanying restrictions continue to negatively impact our net sales, gross profit margin, operating income and net income. Our net sales declined 1.8 percent in the third quarter and 8.0 percent in the first nine months of 2020, with the most significant decline occurring in the second quarter, particularly in April 2020, and relatively smaller declines during the third quarter. Global sales trends consistently improved as physicians resumed performing elective and semi-emergent procedures previously deferred and referral rates of new patients improved.

Entering the second quarter of 2020, we implemented cost reduction initiatives, including decreases in travel, meetings and customer events, hiring, clinical programs and certain research and development projects which largely remained in effect during the third quarter of 2020. We also implemented a temporary four-day work week for many employees globally and reduced employee compensation, including temporary significant cuts in the salaries of our ~~acquisition~~executive officers and the cash retainer paid to our Board of ~~BTG plc (BTG Acquisition~~ Directors. In addition, we temporarily closed and/or ~~BTG),~~reduced production levels at certain of our manufacturing sites in an effort to align our build plans to the current and expected demand environment. During the second quarter of 2020, as COVID-19 cases began to decrease in certain geographies, we implemented a ~~public company organized under~~careful and tiered approach for employees to return to our sites following state and local ordinances. Employees with the ~~laws~~greatest need to access onsite resources to perform their roles have returned first, while those who can effectively work remotely will continue to do so in order to facilitate maximum social distancing in our sites and within our communities. All of ~~England~~our plants have now resumed manufacturing and ~~Wales. BTG has three key portfolios,~~are increasing their utilization levels, but many remained below full capacity in the ~~largest~~third quarter of 2020. For non-executive officer employees, in those jurisdictions where temporary four-day work weeks and reductions in employee compensation were in effect, those measures concluded at the beginning of the third quarter. We also announced during the third quarter the end of the aforementioned reductions in executive officer pay, except for the salary reduction for our Chief Executive Officer, which iscontinued through October 2020. We further announced that a portion of the annual cash retainer for our Board of Directors would be restored, beginning with a payment made during the fourth quarter of 2020. While we have implemented measures to reduce costs, our operating expenses as a percentage of net sales increased during the third quarter of 2020, as compared to the prior year, as approximately 70 percent of our operating expenses are fixed in nature. Our gross profit margin was also unfavorably impacted particularly in the second quarter of 2020, as compared to prior year, due primarily to manufacturing costs associated with abnormally low production levels in our plants, and improved sequentially in the third quarter as production levels increased. Because the severity, magnitude, and duration of the COVID-19 pandemic and its ~~interventional medicine portfolio (Interventional Medicine) that encompasses interventional oncology therapeutic technologies for patients with liver~~

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economic consequences are uncertain and ~~kidney cancers,~~rapidly changing, 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 may negatively impact demand for our products, net sales, gross profit margin and operating expenses as a ~~vascular portfolio for treatment~~percentage of ~~deep vein thrombosis, pulmonary embolism, deep venous obstruction and superficial venous disease. In addition to~~net sales in the ~~Interventional Medicine product lines, the BTG Acquisition also includes a specialty pharmaceutical business (Specialty Pharmaceuticals) comprised~~fourth quarter of acute care antidotes to treat overexposure to certain medications and toxins and a licensing portfolio (Licensing) that generates net royalties related to BTG intellectual property and product license agreements.

2020.

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 COVID-19, 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, limiting sales visits to critical cases and accelerating capabilities to provide remote physician support. While we expect the COVID-19 pandemic will continue to negatively impact our 2020 performance, 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.

We have evaluated the recoverability of the assets in our unaudited condensed consolidated balance sheet as of September 30, 2020 in accordance with relevant authoritative accounting literature. We considered the disruptions caused by COVID-19, including revised forecasted sales and customer demand, a decline in the price of our common stock and macroeconomic factors potentially impacting accounts receivable, inventory, investments, intangible assets, goodwill and other assets and liabilities. Where forward-looking estimates are required, we made a good-faith estimate based on information available as of the balance sheet date. We have continued to monitor for indicators of impairment through the date of this Quarterly Report filed on Form 10-Q, and reflected accordingly in the accompanying condensed consolidated financial statements.

Corporate Social Responsibility

Enabling a culture of diversity, equity and inclusion is essential to enhance employee engagement and our performance. Within our workplace, our Employee Resource Groups are at the heart of this culture. They provide forums for us to learn from one another, celebrate our diversity and develop inclusive leadership skills. Within many of the communities in which we operate, we have launched and funded a multi-year program to combat racism, inequity and injustice focused on five pillars: community, economic empowerment, education, healthcare disparities and government/legislative change. We also continue our long-term sponsorship of our Close the Gap initiative, which focuses on raising awareness and empowering healthcare providers to reach more patients of color, fight longstanding inequities, and address barriers to care. Through Close the Gap, hospitals and health systems are provided with zip code level data that highlight the disparities in treatment between white and non-white patients in their communities. The information allows health care administrators and providers to focus on improving care to underserved populations within their communities. As evidence of our progress, in the third quarter of 2020, we were named among the Top 50 of America’s Most Just Companies by Forbes/Just Capital, ranking #38 overall and also tied for #1 for diversity, equity and inclusion.

We also recognize the need to minimize the impact of the manufacturing of our products on the environment and have committed to carbon neutrality in our manufacturing and key distribution sites by 2030.

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Financial Summary

Three Months Ended September 30, ~~2019~~2020

Our net sales for the third quarter of ~~2019~~2020 were ~~$2.707~~$2.659 billion, as compared to ~~$2.393~~$2.707 billion for the third quarter of ~~2018.~~2019. This ~~increase~~decrease of ~~$314~~$48 million, or ~~13.1~~1.8 percent, included operational net sales ~~growth~~declines of ~~14.2~~2.5 percent and the ~~negative~~positive impact of ~~110~~70 basis points from foreign currency fluctuations.¹ Operational net sales included ~~$122~~$99 million in the third quarter of ~~2019 due~~2020 associated with our acquisition of BTG plc (BTG) for the period prior to the acquisitions of Claret Medical, Inc. (Claret) in the third quarter of 2018, Augmenix, Inc. (Augmenix) in the fourth quarter of 2018, Vertiflex, Inc. (Vertiflex) in the second quarter of 2019 and BTG in the third quarter of 2019, each withmid-August 2020, for which there were no prior period ~~related~~ net sales. Refer to Quarterly Results and Business Overview for a discussion of our net sales by global business.

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.1,2

Our reported net income for the third quarter of 2019 was $126 million, or $0.09 per diluted share. Our reported results for the third quarter of 2019 included certain charges and/or credits totaling $424 million (after-tax), or $0.30 per diluted share. Excluding these items, adjusted net income for the third quarter of 2019 was $550 million, or $0.39 per diluted share.¹1

Our reported net income for the third quarter of 2018 was $432 million, or $0.31 per diluted share. Our reported results for the third quarter of 2018 included certain charges and/or credits totaling $53 million (after-tax), or $0.04 per diluted share. Excluding these items, adjusted net income for the third quarter of 2018 was $485 million, or $0.35 ~~per diluted share.~~¹

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

2In May 2020, we completed an offering of 10,062,500 shares of 5.50% Mandatory Convertible Preferred Stock, Series A (MCPS) at a price to the public and liquidation preference of $100 per share. Refer to the reconciliations below for the impact of the MCPS cumulative preferred stock dividends on our calculations of earnings per share (EPS).

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The following is a reconciliation of our results of operations prepared in accordance with U.S. GAAP to those adjusted results considered by management. Refer to Quarterly Results and Business Overview and Additional Information for a discussion of these reconciling items:


	Three Months Ended September 30, 2020
(in millions, except per share data)	Earnings		Impact per Share(3)
Reported Net income (loss)	$	(155)
Reported Preferred stock dividends	(14)
Reported Net income (loss) available to common stockholders	$	(169)	$	(0.12)
Non-GAAP adjustments:
Amortization expense	176		0.12
Intangible asset impairment charges	189		0.13
Acquisition/divestiture-related net charges (credits)	87		0.06
Restructuring and restructuring-related net charges (credits)	21		0.01
Litigation-related net charges (credits)	255		0.18
Investment impairment charges (credits)	(50)		(0.03)
EU Medical device regulation (MDR) implementation costs	7		0.00
Deferred tax expenses (benefits)	18		0.01
Discrete tax items	(3)		(0.00)
Adjusted net income (loss) available to common stockholders	$	530	$	0.37

(3) 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 income were reduced by cumulative Preferred stock dividends, as presented in our unaudited condensed 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.


	Three Months Ended September 30, 2019
(in millions, except per share data)	Earnings		Impact per Share
Reported Net income (loss)	$	126	$	0.09


Non-GAAP adjustments:
Amortization expense	157		0.11

Acquisition-related net charges (credits)	236		0.17
Restructuring and restructuring-related net charges (credits)	12		0.01
Litigation-related net charges (credits)	19		0.01
Investment impairment charges (credits)	1		0.00
EU MDR implementation costs	2		0.00
Discrete tax items	(2)		(0.00)
Adjusted net income (loss)	$	550	$	0.39

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Three Months Ended September 30, 2019
(in millions, except per share data) Net Income (Loss) Impact per Share
GAAP net income (loss) $ 126
$ 0.09
Non-GAAP adjustments:
Medical device regulation charges 2
0.00
Amortization expense 157
0.11
Acquisition/divestiture-related net charges (credits) 236
0.17
Restructuring and restructuring-related net charges (credits) 12
0.01
Litigation-related net charges (credits) 19
0.01
Investment impairment charges 1
0.00
Discrete tax items (2 ) (0.00 )
Adjusted net income $ 550
$ 0.39

Three Months Ended September 30, 2018
(in millions, except per share data) Net Income (Loss) Impact per Share
GAAP net income (loss) $ 432
$ 0.31
Non-GAAP adjustments:
Amortization expense 132
0.09
Acquisition-related net charges (credits) (107 ) (0.08 )
Restructuring and restructuring-related net charges (credits) 12
0.01
Litigation-related net charges (credits) 14
0.01
Investment impairment charges 3
0.00
Adjusted net income $ 485
$ 0.35

Nine Months Ended September 30, ~~2019~~2020

Our net sales for the first nine months of ~~2019~~2020 were ~~$7.831~~$7.204 billion, as compared to ~~$7.262~~$7.831 billion for the first nine months of ~~2018.~~2019. This ~~increase~~decrease of ~~$569~~$626 million, or ~~7.8~~8.0 percent, included operational net sales ~~growth~~declines of ~~10.0~~7.6 percent and the negative impact of ~~220~~40 basis points from foreign currency fluctuations. Operational net sales included ~~$198~~$413 million in the first nine months of ~~2019 due~~2020 associated with our acquisition of Vertiflex, Inc. (Vertiflex) for the period prior to June 2020 and our acquisition of BTG plc (BTG) for the ~~acquisitions~~period prior to mid-August 2020, for both of NxThera, Inc. (NxThera) in the second quarter of 2018, Claret in the third quarter of 2018, Augmenix in the fourth quarter of 2018, Vertiflex in the second quarter of 2019 and BTG in the third quarter of 2019, each withwhich there were no prior period ~~related~~ net sales. Refer to Quarterly Results and Business Overview for a discussion of our net sales by global business.

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.

Our reported net income for the first nine months of 2019 was $704 million, or $0.50 per diluted share. Our reported results for the first nine months of 2019 included certain charges and/or credits totaling $887 million (after-tax), or $0.63 per diluted share. Excluding these items, adjusted net income for the first nine months of 2019 was $1.590 billion, or $1.13 per diluted share.

~~Our reported net income for the first nine months~~

Table of 2018 was $1.285 billion, or $0.92 per diluted share. Our reported results for the first nine months of 2018 included certain charges and/or credits totaling $223 million (after-tax), or $0.16 per diluted share. Excluding these items, adjusted net income for the first nine months of 2018 was $1.508 billion, or $1.08 ~~per diluted share.~~Contents


	Nine Months Ended September 30, 2020
(in millions, except per share data)	Earnings		Impact per Share(4)
Reported Net income (loss)	$	(292)
Reported Preferred stock dividends	(19)
Reported Net income (loss) available to common stockholders	$	(311)	$	(0.22)
Non-GAAP adjustments:
Amortization expense	533		0.38
Intangible asset impairment charges	384		0.27
Acquisition/divestitures-related net charges (credits)	100		0.07
Restructuring and restructuring-related net charges (credits)	66		0.05
Litigation-related net charges (credits)	255		0.18

Investment impairment charges (credits)	(50)		(0.04)
EU MDR implementation costs	17		0.01
Deferred tax expenses (benefits)	26		0.02
Discrete tax items	20		0.01
Adjusted net income (loss) available to common stockholders	$	1,040	$	0.73

Nine Months Ended September 30, 2019
(in millions, except per share data) Net income (loss) Impact per share
GAAP net income (loss) $ 704
$ 0.50
Non-GAAP adjustments:
Medical device regulation charges 2
0.00
Amortization expense 444
0.31
Intangible asset impairment charges 97
0.07
Acquisition/divestitures-related net charges (credits) 391
0.28
Restructuring and restructuring-related net charges (credits) 31
0.02
Litigation-related net charges (credits) (96 ) (0.07 )
Investment impairment charges 3
0.00
Discrete tax items 16
0.01
Adjusted net income $ 1,590
$ 1.13
(4) 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 condensed 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.


	Nine Months Ended September 30, 2018							Nine Months Ended September 30, 2019
(in millions, except per share data)	Net income (loss)			Impact per share			(in millions, except per share data)	Earnings		Impact per Share
GAAP net income (loss)	$	1,285		$	0.92
Reported Net income (loss)							Reported Net income (loss)	$	704	$	0.50

Non-GAAP adjustments:							Non-GAAP adjustments:
Amortization expense	380			0.27			Amortization expense	444		0.31
Intangible asset impairment charges	31			0.02			Intangible asset impairment charges	97		0.07
Acquisition-related net charges (credits)	(79		)	(0.06		)	Acquisition-related net charges (credits)	391		0.28
Restructuring and restructuring-related net charges (credits)	47			0.03			Restructuring and restructuring-related net charges (credits)	31		0.02
Litigation-related net charges (credits)	14			0.01			Litigation-related net charges (credits)	(96)		(0.07)
Investment impairment charges	7			0.01

Investment impairment charges (credits)							Investment impairment charges (credits)	3		0.00
EU MDR implementation costs							EU MDR implementation costs	2		0.00
Discrete tax items	(177		)	(0.13		)	Discrete tax items	16		0.01
Adjusted net income	$	1,508		$	1.08
Adjusted net income (loss)							Adjusted net income (loss)	$	1,590	$	1.13

Cash provided by operating activities was ~~$1.144 billion~~$835 million for the first nine months of ~~2019.~~2020. As of September 30, ~~2019,~~2020, we had total debt outstanding of ~~$10.888~~$9.336 billion net of unamortized debt issuance discounts and deferred financing costs, , Cash and cash equivalents of ~~$277 million~~$2.022 billion and working capital of ~~$593 million~~.$2.858 billion. Refer to Liquidity and Capital Resources for further discussion.

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Quarterly Results and Business Overview

The following section describes an overview of our product offerings and results of operations by business unit. For additional information on our businesses and their product offerings, see Item 1. Business of our most recent Annual Report on Form 10-K.

Our seven core businesses are organized into three reportable segments: MedSurg, Rhythm and Neuro, and Cardiovascular. Following our integration of BTG, the acquisition of which closed during the third quarter of 2019, we have included BTG’s Interventional Medicine business within our Peripheral Interventions operating segment, within the Cardiovascular reportable segment. We present BTG’s Specialty Pharmaceuticals business as a standalone operating segment alongside our reportable segments. In our Quarterly Report on Form 10-Q for the period ended September 30, 2019, we presented Interventional Medicine and Specialty Pharmaceuticals together as "BTG Acquisition" and outside of our operating and reportable segments for net sales. We have revised amounts for the third quarter and first nine months of 2019 to conform to the current year presentation.

Net Sales

The following table provides our net sales by business and the relative change in growth on a reported ~~basis:~~basis.


	Three Months Ended September 30,
(in millions)	2020		2019		Change
Endoscopy	$	475	$	486	(2.1)%
Urology and Pelvic Health	350		359		(2.6)%
MedSurg	825		845		(2.3)%
Cardiac Rhythm Management	465		478		(2.7)%
Electrophysiology	76		81		(6.0)%
Neuromodulation	216		222		(2.5)%
Rhythm and Neuro	757		780		(3.0)%
Interventional Cardiology	586		700		(16.3)%
Peripheral Interventions	416		358		16.1%
Cardiovascular	1,002		1,058		(5.3)%
Medical Devices	2,584		2,684		(3.7)%
Specialty Pharmaceuticals	74		23		n/a
Net Sales	$	2,659	$	2,707	(1.8)%

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Three Months Ended September 30,
(in millions) 2019 2018 Change
Endoscopy $ 486
$ 443
9.6%
Urology and Pelvic Health 359
303
18.6%
MedSurg 845
746
13.2%
Cardiac Rhythm Management 478
475
0.6%
Electrophysiology 81
76
5.8%
Neuromodulation 222
189
17.5%
Rhythm and Neuro 780
740
5.4%
Interventional Cardiology 700
615
13.9%
Peripheral Interventions 311
293
5.9%
Cardiovascular 1,011
908
11.3%
Interventional Medicine 48
n/a
n/a
Specialty Pharmaceuticals 23
n/a
n/a
BTG Acquisition⁽¹⁾
71
n/a
n/a
Net Sales $ 2,707
$ 2,393
13.1%

Nine Months Ended September 30,
(in millions) 2019 2018 Change
Endoscopy $ 1,396
$ 1,304
7.1%
Urology and Pelvic Health 1,033
904
14.3%
MedSurg 2,429
2,207
10.0%
Cardiac Rhythm Management 1,467
1,462
0.3%
Electrophysiology 245
230
6.4%
Neuromodulation 612
559
9.4%
Rhythm and Neuro 2,323
2,252
3.2%
Interventional Cardiology 2,067
1,922
7.6%
Peripheral Interventions 942
885
6.5%
Cardiovascular 3,009
2,806
7.2%
Interventional Medicine 48
n/a
n/a
Specialty Pharmaceuticals 23
n/a
n/a
BTG Acquisition⁽¹⁾
71
n/a
n/a
Net Sales $ 7,831
$ 7,262
7.8%

~~(1)~~

~~For the first nine months of2019, there have been no changes to our internal reporting structure, and accordingly, we have not revised our segment reporting or geographic presentation. We will continue to integrate the~~ ~~BTG Acquisition~~ into our operations in the fourth quarter and will reassess our operating and reportable segments as well as geographic presentation for any changes related to our internal reporting structure as well as to the information regularly reviewed by the ~~chief operating decision maker (CODM~~). To the extent any changes in our operating and reportable segments are identified, these will be reflected in our segment reporting information in the period in which the change occurs. Our results of operations include the results of BTG following the acquisition date of August 19, 2019. BTG net sales are substantially U.S. based.


	Nine Months Ended September 30,
(in millions)	2020		2019		Change
Endoscopy	$	1,265	$	1,396	(9.4)%
Urology and Pelvic Health	910		1,033		(11.9)%
MedSurg	2,175		2,429		(10.5)%
Cardiac Rhythm Management	1,253		1,467		(14.5)%
Electrophysiology	202		245		(17.5)%
Neuromodulation	529		612		(13.5)%
Rhythm and Neuro	1,985		2,323		(14.6)%
Interventional Cardiology	1,714		2,067		(17.1)%
Peripheral Interventions	1,148		989		16.0%
Cardiovascular	2,862		3,057		(6.4)%
Medical Devices	7,021		7,807		(10.1)%
Specialty Pharmaceuticals	183		23		n/a
Net Sales	$	7,204	$	7,831	(8.0)%

~~MedSurg~~

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 for the third quarter of ~~$486~~2020 were $475 million ~~represented~~or 18 percent of our consolidated net sales and for the ~~third quarter~~first nine months of ~~2019.~~2020 were $1.265 billion or 18 percent of our consolidated net sales. Our Endoscopy net sales ~~increased $42~~decreased $10 million, or ~~9.6~~2.1 percent, in the third quarter of ~~2019,~~2020 and decreased $131 million, or 9.4 percent, in the first nine months of 2020, compared to the prior year ~~period. This increase~~periods. In the third quarter of 2020, this decrease included operational net sales ~~growth~~declines of ~~10.4~~3.0 percent and a ~~negative~~positive impact of 8090 basis points from foreign currency fluctuations, compared to the prior year period. ~~This~~In the first nine months of 2020, this decrease included operational net sales declines of 9.1 percent and a negative impact of 30 basis points from foreign currency fluctuations, compared to the prior year period. These year-over-year ~~increase was~~changes were primarily driven by declines in elective or semi-emergent upper endoscopy and colonoscopy procedures due to the COVID-19 pandemic environment, partially offset by growth inof our ~~biliary franchise with both our SpyGlass™ DS Direct Visualization System, AXIOS™ Stent~~pancreaticobiliary and ~~Electrocautery Enhanced Delivery System, our hemostasis franchise featuring our Resolution 360™ Clip and our~~ infection prevention products.

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 for the third quarter of ~~$359~~2020 were $350 million ~~represented~~or 13 percent of our consolidated net sales and for the ~~third quarter~~first nine months of ~~2019.~~2020 were $910 million or 13 percent of our consolidated net sales. Our Urology and Pelvic Health net sales ~~increased $56~~decreased $9 million, or ~~18.6~~2.6 percent, in the third quarter of ~~2019,~~2020 and decreased $123 million, or 11.9 percent, in the first nine months of 2020, compared to the prior year ~~period. This increase~~periods. In the third quarter of 2020, this decrease included operational net sales ~~growth~~declines of ~~19.4~~3.0 percent and a ~~negative~~positive impact of 8040 basis points from foreign currency fluctuations, compared to the prior year period. ~~This year-over-year increase~~In the first nine months of 2020, this decrease included operational net sales declines of 11.6 percent and a negative impact of 30 basis points from foreign currency fluctuations, compared to the prior year period. The decline in sales for the first nine months of 2020 compared to the prior year was due primarily ~~attributable~~ to ~~growth~~a reduction in sales of our prosthetic urology and pelvic floor franchises, which were negatively impacted by COVID -19 given their elective or semi-emergent nature. During the third quarter of 2020, our stone and prostate health ~~product family, including~~franchises returned to growth, which was offset by the ~~SpaceOAR™ Hydrogel System purchased as part~~reduction in sales due to the divestiture of our ~~Augmenix acquisition in the fourth quarter of 2018 and the Rezūm™ System purchased as part of our NxThera acquisition~~Intrauterine Health business in the second quarter of ~~2018, and our stone franchise, including our LithoVue™ Digital Flexible Ureteroscope.~~

2020.

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 ~~Cardiac Rhythm Management~~CRM products for the third quarter of ~~$478~~2020 were

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$465 million ~~represented 18~~or 17 percent of our consolidated net sales and for the ~~third quarter~~first nine months of ~~2019.~~2020 were $1.253 billion or 17 percent of our consolidated net sales. Our ~~Cardiac Rhythm Management~~CRM net sales ~~increased $3~~decreased $13 million, or ~~0.6~~2.7 percent, in the third quarter of ~~2019,~~2020 and decreased $213 million, or 14.5 percent, in the first nine months of 2020, compared to the prior year ~~period. This increase~~periods. In the third quarter of 2020, this decrease included operational net sales ~~growth~~declines of ~~1.8~~3.7 percent and a ~~negative~~positive impact of ~~120~~100 basis points from foreign currency fluctuations, compared to the prior year period. ~~The~~In the first nine months of 2020, this decrease included operational net sales declines of 14.3 percent and a negative impact of 20 basis points from foreign currency fluctuations, compared to the prior year period. These year-over-year ~~increase was~~changes were primarily due to a decline in both defibrillator and pacemaker procedures due to the ~~global strength~~deferral of ~~our cardiac resynchronization therapy defibrillator (CRT-D)~~semi-emergent and emergent procedures in the COVID-19 pandemic environment. In June 2020, we announced U.S. 510(k) clearance for the LUX-Dx™ Insertable Cardiac Monitor (ICM) system, a new, long-term diagnostic device implanted in patients to detect arrhythmias associated with conditions such as atrial fibrillation (AF), ~~implantable cardioverter defibrillator (ICD)~~cryptogenic stroke, and ~~subcutaneous implantable cardiac defibrillator (S-ICD) products. Our CRT-D and ICD growth was driven by the ongoing global~~syncope. We started U.S. commercialization of ~~our RESONATE™ family~~this device in the third quarter of ICD and CRT-D devices which includes our HeartLogic™ Heart Failure (HF) Diagnostic and our CRT-D product replacement cycle driving market share growth. Our defibrillator growth was partially offset by declines in our pacemaker portfolio due to share loss in certain markets as a result of competitive products.2020.

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 for the third quarter of ~~$81~~2020 were $76 million ~~represented~~or 3 percent of our consolidated net sales and for the ~~third quarter~~first nine months of ~~2019.~~2020 were $202 million or 3 percent of our consolidated net sales. Our Electrophysiology net sales ~~increased $4~~decreased $5 million, or ~~5.8~~6.0 percent, in the third quarter of ~~2019,~~2020 and decreased $43 million, or 17.5 percent, in the first nine months of 2020, compared to the prior year ~~period. This increase~~periods. In the third quarter of 2020, this decrease included operational net sales ~~growth~~declines of ~~7.0~~7.5 percent and a ~~negative~~positive impact of ~~120~~150 basis points from foreign currency fluctuations, compared to the prior year period. ~~This year-over-year increase was primarily driven by global expansion~~In the first nine months of 2020, this decrease included operational net sales declines of 17.6 percent and a positive impact of 10 basis points from foreign currency fluctuations, compared to the prior year period. Sales of our ~~Rhythmia™ Mapping System~~mapping and navigation products and ~~capital equipment offerings, expanded portfolio of navigation enabled open-irrigated catheters, including~~ our Blazer IntellaNav MiFi™ Open-Irrigated catheter, and advanced diagnostic catheters, including the IntellaMap Orion™ Mapping Catheter. Our growth was partially offset by softer performance across our portfolio of core diagnostic and therapeutic ~~devices.~~

devices declined year over year due to the impact of COVID-19 and deferral of elective Electrophysiology procedures. In June 2020, we announced the U.S. launch of the DIRECTSENSE™ Technology, a tool for monitoring radiofrequency (RF) energy delivery during cardiac ablation procedures available on the Rhythmia™ Mapping System. Additionally, in the second quarter of 2020 we received CE mark approval for the INTELLANAV STABLEPOINT™ Ablation Catheter enabled with DIRECTSENSE Technology and contact force assessment. This technology, along with our early 2020 CE mark approval for the POLARx™ Cryoablation System, began European commercialization in the third quarter of 2020.

~~Neuromodulation~~

Neuromodulation

Our Neuromodulation business develops and manufactures devices to treat various neurological movement disorders and manage chronic pain.

Our net sales of Neuromodulation products for the third quarter of ~~$222~~2020 were $216 million ~~represented~~or 8 percent of our consolidated net sales and for the ~~third quarter~~first nine months of ~~2019.~~2020 were $529 million or 7 percent of our consolidated net sales. Our Neuromodulation net sales ~~increased $33~~decreased $5 million, or ~~17.5~~2.5 percent, in the third quarter of ~~2019,~~2020 and decreased $83 million, or 13.5 percent, in the first nine months of 2020, compared to the prior year ~~period. This increase~~periods. In the third quarter of 2020, this decrease included operational net sales ~~growth~~declines of ~~18.3~~3.0 percent and a ~~negative~~positive impact of 8050 basis points from foreign currency fluctuations, compared to the prior year period. ~~This~~In the first nine months of 2020, this decrease included operational net sales declines of 13.4 percent and a negative impact of 10 basis points from foreign currency fluctuations, compared to the prior year period. These year-over-year ~~increase was~~changes were primarily due to sales ~~performance~~declines in our spinal cord stimulation (SCS) systems due to deferral of ~~our deep brain stimulation (DBS) systems, international markets and~~elective procedures in the COVID-19 pandemic environment. The unfavorable impact was partially offset by higher Superion™ Indirect Decompression System sales, which was purchased as part of our Vertiflex acquisition in the second quarter of ~~2019.~~

2019, and deep brain stimulation (DBS) system sales. In the third quarter of 2020, we received CE Mark and initiated a limited market release of the fourth generation Vercise Genus™ DBS System in Europe and we announced the European launch of the WaveWriter Alpha™ Spinal Cord Stimulator (SCS) Systems.

~~Cardiovascular~~

Cardiovascular

Interventional Cardiology

Our Interventional Cardiology business develops and manufactures technologies for diagnosing and treating coronary artery disease and ~~other cardiovascular disorders, including~~ structural heart conditions.

Our net sales of Interventional Cardiology products for the third quarter of ~~$700~~2020 were $586 million ~~represented 26~~or 22 percent of our consolidated net sales and for the ~~third quarter~~first nine months of ~~2019.~~2020 were $1.714 billion or 24 percent of our consolidated net sales. Our Interventional Cardiology net sales ~~increased $85~~decreased $114 million, or ~~13.9~~16.3 percent, in the third quarter of ~~2019,~~2020 and decreased $353 million, or 17.1 percent, in the first nine months of 2020, compared to the prior year ~~period. This increase~~periods. In the third quarter of 2020, this decrease included operational net sales ~~growth~~declines of ~~15.3~~16.8 percent and a ~~negative~~positive impact of ~~140~~50 basis points from foreign currency fluctuations, compared to the prior year period. ~~This~~In the first nine months of 2020, this decrease included operational net sales declines of 16.4 percent and a negative impact of 70 basis points from foreign currency

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fluctuations, compared to the prior year period. These year-over-year ~~increase was~~changes were primarily driven by ~~strong sales growth~~our coronary stent and other complex percutaneous coronary intervention (PCI) franchises, with a significant slowdown in procedural volumes in the COVID-19 pandemic environment. Within our structural heart therapies, including our ACURATE™ Transcatheter Aortic Valve Replacement (TAVR), our LOTUS Edge™ Aortic Valve System as well as our Sentinel™ Cerebral Embolic Protection System purchased as part of our Claret acquisitionbusiness, in the ~~third quarter~~first half of ~~2018. In addition,~~2020, sales of our WATCHMAN™ Left Atrial Appendage Closure (LAAC) Device ~~continued to contribute~~were also negatively impacted by COVID-19. In the third quarter of 2020, they were further negatively impacted by $63 million in revenue charges primarily related to our ~~strong growth, along~~conversion to a consignment inventory model for our LAAC franchise with ~~our complex percutaneous coronary interventions (PCI) product offerings. Our growth was partially offset by declines in sales~~the launch of our ~~coronary stent product offerings.~~

next-generation WATCHMAN FLX™ Device in the U.S. Based on the progress of our U.S. limited market release, we have moved into full launch ahead of schedule and are targeting a complete conversion to WATCHMAN FLX™ Device by mid-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.

In the third quarter of 2019, we completed the acquisition of BTG. We are integrating BTG's Interventional Medicine (IM) portfolio into the Peripheral Interventions division, adding complementary technologies in the areas of venous disease and interventional oncology. Our net sales of Peripheral Interventions products for the third quarter of ~~$311~~2020 were $416 million ~~represented 11~~or 16 percent of our consolidated net sales and for the ~~third quarter~~first nine months of ~~2019.~~2020 were $1.148 billion or 16 percent of our consolidated net sales. Our Peripheral Interventions net sales increased ~~$17~~$58 million, or ~~5.9~~16.1 percent, in the third quarter of ~~2019,~~2020 and increased $159 million, or 16.0 percent, in the first nine months of 2020, compared to the prior year ~~period. This~~periods. In the third quarter of 2020, this increase included operational net sales growth of ~~6.9~~15.4 percent and a ~~negative~~positive impact of ~~100~~70 basis points from foreign currency fluctuations, compared to the prior year period. ~~This~~In the first nine months of 2020, this increase included operational net sales growth of 16.5 percent and a negative impact of 50 basis points from foreign currency fluctuations, compared to the prior year period. These year-over-year ~~increase~~ ~~was~~changes were primarily driven by the Interventional Oncology franchise, including our TheraSphere™ Y-90 radioactive glass microspheres acquired with BTG, as well as growth in our drug-eluting portfolio, including the Eluvia™ ~~Drug Eluting Vascular Stent System,~~drug-eluting stent and Ranger ™ drug-coated balloon. Excluding BTG for the period prior to mid-August 2020 for which there were no prior year net sales and the related divestiture of our drug-eluting and bland embolic microsphere portfolio, our Peripheral Interventions net sales increased $7 million, or 2.0 percent, in the third quarter of 2020 and decreased $54 million, or 5.5 percent, in the first nine months of 2020, compared to the prior year periods, primarily due to the deferral of semi-emergent and elective procedures in the COVID-19 pandemic environment, notably impacting core peripheral ~~angioplasty balloon technologies, atherectomy~~ technologies and stents.

Specialty Pharmaceuticals

Following the closing of the BTG acquisition in the third quarter of 2019, we present BTG’s Specialty Pharmaceuticals business as a standalone operating segment alongside our reportable segments. Our Specialty Pharmaceuticals business develops and manufactures acute care antidotes to treat overexposure to certain medications and toxins. These products are sold primarily in the U.S. through small, specialist sales ~~growth in China~~.teams and through commercial partners elsewhere, where approved or permitted. Our net sales of Specialty Pharmaceuticals products for the third quarter of 2020 were $74 million or 3 percent of our consolidated net sales and for the first nine months of 2020 were $183 million or 3 percent of our consolidated net sales, and have not been significantly impacted by the COVID-19 pandemic. Our net sales prior to the mid-August 2019 closing date of the BTG acquisition do not include Specialty Pharmaceuticals.

Emerging Markets ~~(Excluding~~ ~~BTG Acquisition~~)

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; effective January 1, 2019, we updated our list of Emerging Market countries.The revision had an immaterial impact on prior year Emerging~~ Markets, ~~sales.Our current list~~which is currently comprised of the following countries: Argentina, Brazil, Chile, China, Colombia, Czech Republic, India, Indonesia, Malaysia, Mexico, Philippines, Poland, Russia, Saudi Arabia, Slovakia, South Africa, South Korea, Thailand, Turkey and Vietnam. Our Emerging Markets net sales represented 10 percent of our consolidated net sales in the third quarter of 2020 and 11 percent in the third quarter of 2019. Our Emerging Markets net sales represented 11 percent of our consolidated net sales in the ~~third quarter~~first nine months of ~~2019~~2020 and 1112 percent in the ~~third quarter~~first nine months of ~~2018.~~2019. In the third quarter of ~~2019,~~2020, our Emerging Markets net sales ~~grew 16.1~~declined 10.3 percent on a reported basis including operational net sales ~~growth~~declines of ~~19.3~~7.1 percent and a negative impact of 320 basis points from foreign currency fluctuations, compared to the prior year period. In the first nine months of 2020, our Emerging Markets net sales declined 13.5 percent on a reported basis including operational net sales declines of 9.1 percent and a negative impact of 440 basis points from foreign currency fluctuations, compared to the prior year period. The decline in the third quarter and first nine months of 2020 was largely driven by the impact of COVID-19 on our sales in Brazil in the second and third quarters of 2020, as the situation

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deteriorated in Latin America, and our sales in China in the first quarter of 2020, where COVID-19 first emerged and was the most prevalent for the duration of the quarter.

Gross Profit

Our Gross profit was $1.790 billion for the third quarter of 2020, $1.930 billion for the third quarter of 2019, ~~$1.720~~$4.740 billion for the ~~third quarter~~first nine months of ~~2018,~~2020 and $5.566 billion for the first nine months of ~~2019 and $5.179 billion for the first nine months of 2018.~~2019. As a percentage of net sales, our Gross profit decreased to 67.3 percent in the third quarter of 2020, as compared to 71.3 percent in the third quarter of ~~2019, as compared to 71.9 percent in the third quarter of 2018.~~2019. As a percentage of net sales, our Gross profit decreased to 65.8 percent in the first nine months of 2020, as compared to 71.1 percent in the first nine months of ~~2019, as compared to 71.3 percent in the first nine months of 2018.~~2019. The following is a reconciliation of our gross profit margins 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, 2019	71.3%	71.1%
Abnormal production variances	(0.7)	(2.0)
Inventory charges	(1.0)	(1.0)
Sales pricing and mix	(0.7)	(1.6)
Manufacturing cost reductions	0.6	0.9



Net impact of foreign currency fluctuations	—	0.5
WATCHMAN FLX™ transition	(0.7)	(0.3)
All other, including other period expense	(1.5)	(1.8)
Gross profit margin - period ended September 30, 2020	67.3%	65.8%

Three Months Nine Months
Gross profit margin - period ended September 30, 2018 71.9% 71.3%
Manufacturing cost reductions 0.9 0.8
Sales pricing and mix (0.6) (0.7)
Inventory step-up due to acquisition accounting (0.5) (0.2)
Net impact of foreign currency fluctuations 0.6 0.8
All other, including inventory charges and other period expense (1.0) (0.9)
Gross profit margin - period ended September 30, 2019 71.3% 71.1%

The primary factors contributing to the decrease in our gross profit margin in the ~~third quarter and~~ first nine months of ~~2019,~~2020, as compared to the same periods in ~~2018,~~2019, were manufacturing costs of $19 million in the third quarter and $145 million in the first nine months of 2020 associated with abnormally low production levels resulting from plant shutdowns and reduced operations. During the third quarter of 2020, our gross margin was further negatively impacted by $63 million in revenue charges primarily related to our conversion to a consignment inventory model for our LAAC franchise with the launch of our next-generation WATCHMAN FLX™ Device. In addition, the decrease in gross margin in each period was attributable to unfavorable product mix due to the deferral of procedures using higher-margin products, price declines related primarily to sales of our coronary drug-eluting stent products, excess and ~~period expenses,~~obsolete inventory charges due to lower forecasted demand for certain of our products as well as the amortization of the inventory fair value step up recorded in connection with our acquisition of BTG. These decreases were partially offset by ~~the positive impacts of~~manufacturing cost reductions ~~resulting from~~driven by our process improvement programs ~~and restructuring programs. In addition,~~in each period as well as favorable foreign currency fluctuations ~~positively impacted~~in the first nine months of 2020. In the fourth quarter of 2020, we anticipate a negative impact to total gross profit margin ~~in 2019. In connection~~associated with the ~~BTG Acquisition, we recorded~~ongoing conversion of LAAC customers to a ~~step-up in value from~~consignment inventory model. Refer to COVID-19 Pandemic above for additional information on the ~~manufacturing cost~~fourth quarter of ~~the inventory acquired to fair value as of the acquisition date. The step-up in value is amortized through~~ ~~Cost of products sold~~ ~~over the average estimated inventory turnover period.~~2020.

Operating Expenses

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


	Three Months Ended September 30,								Nine Months Ended September 30,
	2020				2019				2020				2019
(in millions)	$		% of Net Sales		$		% of Net Sales		$		% of Net Sales		$		% of Net Sales
Selling, general and administrative (SG&A) expenses	$	984	37.0	%	$	1,012	37.4	%	$	2,760	38.3	%	$	2,849	36.4	%
Research and development (R&D) expenses	315		11.9	%	306		11.3	%	857		11.9	%	866		11.1	%
Royalty expense	12		0.4	%	15		0.6	%	32		0.4	%	48		0.6	%

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Three Months Ended September 30, Nine Months Ended September 30,
2019 2018 2019 2018
(in millions) $ % of Net Sales $ % of Net Sales $ % of Net Sales $ % of Net Sales
Selling, general and administrative (SG&A) expenses $ 1,012
37.4 % $ 870
36.4 % $ 2,849
36.4 % $ 2,616
36.0 %
Research and development (R&D) expenses 306
11.3 % 289
12.1 % 866
11.1 % 825
11.4 %
Royalty expense 15
0.6 % 17
0.7 % 48
0.6 % 52
0.7 %

SG&A Expenses

In the third quarter of ~~2019,~~2020, our SG&A expenses ~~increased $142~~decreased $28 million, or 163 percent, as compared to the third quarter of ~~2018~~2019 and were ~~100~~40 basis points ~~higher~~lower as a percentage of net sales. In the first nine months of ~~2019,~~2020, our SG&A expenses ~~increased $233~~decreased $89 million, or ~~nine~~3 percent, as compared to the first nine months of ~~2018~~2019 and were 40190 basis points higher as a percentage of net sales. The ~~increase~~decrease in SG&A expenses ~~as a percentage of net sales~~ for the third quarter and first nine months of ~~2019,~~2020, as compared to the same periods in the prior year, was due primarily to ~~increased acquisition-related charges primarily associated with~~our efforts to reduce expenditures to minimize the ~~BTG Acquisition partially offset by ongoing optimization initiatives. For~~impact of the ~~first nine months of 2019, these increased~~ ~~SG&A expenses~~ ~~were~~COVID-19 pandemic. We implemented several cost reduction initiatives, including decreases in travel, meetings and customer events, hiring and other variable spending. During the second quarter, we also ~~partially offset by~~implemented a ~~$25 million net gain recorded~~temporary four-day work week for many employees globally and reduced employee compensation, including temporary significant cuts in the ~~first~~salaries of our executive officers and the cash retainer paid to our Board of Directors. For non-executive officer employees, in those jurisdictions where temporary four-day work weeks and reductions in employee compensation were in effect, those measures concluded at the beginning of the third quarter. We also announced during the third quarter ~~primarily associated with~~the end of the aforementioned reductions in executive officer pay, except for the salary reduction for our Chief Executive Officer, which continued through October 2020. We further announced that a portion of the ~~Edwards litigation settlement. For further details regarding~~annual cash retainer for our Board of Directors would be restored, beginning with a payment made during the ~~presentation~~fourth quarter of ~~the Edwards litigation settlement see~~ ~~Litigation-related net charges (credits)~~ ~~below.~~2020.

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 ~~2019,~~2020, our R&D expenses increased ~~$17~~$9 million, or ~~six~~3 percent, as compared to the third quarter of ~~2018~~2019 and were 60 basis points higher as a percentage of net sales. In the first nine months of 2020, our R&D expenses decreased $9 million, or 1 percent, as compared to the first nine months of 2019, and were 80 basis points higher as a percentage of net sales. As we seek to recover from the COVID-19 pandemic, we expect to continue to make 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 2020, our Royalty expense decreased $4 million, or 25 percent, as compared to the third quarter of 2019, and was 20 basis points lower as a percentage of net sales. In the first nine months of ~~2019,~~2020, our ~~R&D expenses~~Royalty expense ~~increased $41~~decreased $16 million, or ~~five~~34 percent, as compared to the first nine months of ~~2018, and were 30 basis points lower as a percentage of net sales.~~ ~~R&D expenses~~ ~~increased in the third quarter and first nine months of~~ 2019, as compared to the same periods in the prior year, as a result of investments across our businesses and in recent acquisitions in order to maintain a pipeline of new products that we believe will enhance the lives of patients worldwide and contribute to profitable sales growth. The decrease in ~~R&D expenses~~ ~~as a percentage of net sales in both periods of 2019 was attributable to leverage from increased sales.~~

~~Royalty Expense~~

~~In the third quarter of 2019, our~~ ~~Royalty expense~~ ~~decreased $1 million, or eight percent, as compared to the third quarter of 2018,~~ and was ~~10 basis points lower as a percentage of net sales. In the first nine months of 2019, our~~ ~~Royalty expense~~ ~~decreased $4 million, or eight percent, as compared to the first nine months of 2018, and was 10~~20 basis points lower as a percentage of net sales. The decrease in Royalty expense in the third quarter and first nine months of ~~2019,~~2020, as compared to the same periods in the prior year, relates primarily to ~~expired royalties in~~the expiration of certain ~~countries.~~royalty agreements.

The following table provides a summary of certain of our other operating expenses, which are excluded by management for purposes of evaluating operating ~~performance:~~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)	2020		2019		2020		2019
Amortization expense	$	197	$	178	$	595	$	498
Intangible asset impairment charges	219		—		452		105
Contingent consideration expense (benefit)	6		8		(102)		(9)
Restructuring charges (credits)	3		3		16		10
Litigation-related net charges (credits)	260		25		260		(108)

Three Months Ended September 30, Nine Months Ended September 30,
(in millions) 2019 2018 2019 2018
Amortization expense $ 178
$ 148
$ 498
$ 437
Intangible asset impairment charges —
—
105
35
Contingent consideration expense (benefit) 8
(13 ) (9 ) (12 )
Restructuring charges (credits) 3
3
10
20
Restructuring-related charges (credits) 11
12
28
38
Litigation-related net charges (credits) 25
18
(108 ) 18

Amortization Expense

In the third quarter of ~~2019,~~2020, our Amortization expense increased ~~$29~~$19 million, or 2011 percent, as compared to third quarter of ~~2018.~~2019. In the first nine months of ~~2019,~~2020, our Amortization expense increased ~~$62~~$97 million, or 1419 percent, as compared to first nine months of ~~2018.~~2019. The increase in Amortization expense in the third quarter and first nine months of ~~2019,~~2020, as compared to the same periods in the prior year, was ~~primarily due to~~driven by an increase in the balance of amortizable intangible assets ~~acquired as part~~due to recent acquisitions, including BTG.

Table of ~~our recent acquisitions.~~Contents

Intangible Asset Impairment Charges

~~In the first nine months of 2019 and 2018, our~~Our Intangible asset impairment charges were $219 million in the third quarter of 2020, none in the third quarter of 2019, $452 million in the first nine months of 2020 and $105 million in the first nine months of 2019. The impairment charges recorded in the third quarter of 2020 were primarily associated with ~~technology-related amortizable~~IPR&D acquired with Apama Medical Inc. following management’s decision to cancel the program. Intangible asset impairment charges in the first nine months of 2020 also included charges related to nVision Medical Corporation (nVision) and certain other intangible assets initially established following acquisition. In general, these charges were recorded as a result of management’s decision to change commercial launch plans or discontinue certain R&D programs based on cost to complete, 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 condensed 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 for 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 Expense (Benefit)

To recognize changes in the fair value of our contingent consideration liability, we recorded a net ~~expense~~expenses in the third quarter of ~~2019, a net benefit in the~~2020 and third quarter of ~~2018, a~~2019. We recorded net ~~benefit~~benefits in the first nine months of ~~2019~~2020 and ~~a net~~first nine months of 2019. The $102 million benefit recorded in the first nine months of ~~2018.~~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. Refer to Note B – Acquisitions and Strategic Investments to our unaudited condensed 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 ~~and Restructuring-related Activities~~Charges (Credits)

In June 2016, our Board of Directors approved, and we committed to, a restructuring initiative (the 2016 Restructuring Plan), which was initiated in the second quarter of 2016 and substantially completed in 2019. The 2016 Restructuring Plan resulted in total pre-tax charges of $271 million and approximately $255 million in cash outlays.

In addition, 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 is expected to result in total pre-tax charges of approximately $200 million to $300 million and approximately $180 million to $280 million of these charges are expected to result in cash outlays. A substantial portion of the savings are being reinvested in strategic growth initiatives.

Restructuring charges, net of credits, pursuant to these programs were $3 million in the third quarter ~~and~~of 2020, $3 million in the third quarter of 2019, $16 million in the first nine months of ~~2019~~2020 and ~~2018, our restructuring and restructuring-related charges were immaterial.~~

$10 million in first nine months of 2019. Refer to Note G – Restructuring-related Activities to our audited financial statements contained in Item 8 of our most recent Annual Report on Form 10-K for additional details related to our restructuring plans.

Litigation-related net charges (credits)

~~Litigation-related net~~We recorded litigation-related charges ~~(credits)~~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. ~~included for the~~In first nine months of 2019, our litigation-related net credits included a gain of $148 million, ~~recorded in the first quarter of 2019,~~ which represents a portion of the total $180 million one-time settlement payment received from Edwards ~~Lifesciences Corporation~~ in January 2019. 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 unaudited condensed consolidated financial statements. All other legal and product liability charges, credits and costs are recorded within SG&A expenses. As such, a portion of the related gain from ~~this~~the Edwards settlement was recorded in SG&A expenses onin our unaudited condensed consolidated ~~statements of operations.~~financial statements.

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 ~~debt covenants.~~credit arrangements. Refer to Note IH – Commitments and Contingencies to our unaudited condensed consolidated financial statements contained in Item 1 of this Quarterly Report on Form 10-Q for discussion of our material legal proceedings.

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Interest Expense

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

Three Months Ended September 30, Nine Months Ended September 30,
2019 2018 2019 2018
Interest expense (in millions)
$ (95 ) $ (58 ) $ (294 ) $ (177 )
Average borrowing rate 3.5 % 3.2 % 4.1 % 3.6 %


	Three Months Ended September 30,						Nine Months Ended September 30,
	2020			2019			2020			2019
Interest expense (in millions)	$	(86)		$	(95)		$	(265)		$	(294)
Average borrowing rate	3.4		%	3.5		%	3.4		%	4.1		%

Interest expense ~~increased~~and our average borrowing rate decreased in the third quarter of ~~2019,~~2020 and first nine months of 2020, both as compared to the same ~~period~~periods in the prior year, primarily due to ~~the increase in~~ our ~~average debt balance following the February 2019~~euro-denominated senior notes ~~offering. A portion of~~offering in November 2019, which carries lower interest rates than the senior notes we partially repaid with proceeds from the ~~February 2019 senior notes offering were used to finance the BTG Acquisition. In addition,~~ offering.

~~Interest expense~~

in the first nine months of 2019 included debt extinguishment charges and accelerated debt issuance costs incurred following our February 2019 senior notes offering and subsequent repayment of $1.450 billion in existing senior notes and termination of the Bridge Facility. Refer to Liquidity and Capital Resources and Note ~~D – Hedging Activities and Fair Value Measurements~~ ~~and~~ ~~Note~~ E – ~~Borrowings~~Contractual Obligations and ~~Credit Arrangements~~Commitments to our unaudited condensed consolidated financial statements contained in Item 1 of this Quarterly Report on Form 10-Q for information regarding our debt ~~obligations and related derivative instruments and hedging activities.~~obligations.

Other, net

The following are the components of Other, net:

Three Months Ended September 30, Nine Months Ended September 30,
(in millions) 2019 2018 2019 2018
Interest income $ 8
$ —
$ 29
$ 2
Net foreign currency gain (loss) (207 ) (6 ) (334 ) (15 )
Net gains (losses) on investments (5 ) 137
(17 ) 135
Other income (expense), net 7
(4 ) —
(6 )
$ (197 ) $ 126
$ (322 ) $ 116


	Three Months Ended September 30,				Nine Months Ended September 30,
(in millions)	2020		2019		2020		2019
Interest income	$	1	$	8	$	3	$	29
Net foreign currency gain (loss)	(1)		(207)		(13)		(334)
Net gains (losses) on investments	48		(5)		14		(17)
Other income (expense), net	16		7		6		—
	$	64	$	(197)	$	9	$	(322)

~~Certain~~

As of ~~our~~September 30, 2019, we settled all outstanding non-designated forward currency contracts ~~were~~that we entered into for the purpose of managing our exposure to currency exchange rate risk related to the British pound sterling-denominated purchase price of ~~the BTG Acquisition. As of September 30, 2019, we settled all outstanding contracts.~~BTG. We recognized a $207 million loss in the third quarter of 2019 and a $323 million loss in the first nine months of 2019 in Other, net due to changes in fair value of the contracts. These amounts are included in Acquisition/divestiture-related net charges (credits) presented in the reconciliation of our results of operations prepared in accordance with U.S. GAAP to those adjusted results considered by management. Refer to Financial Summary for the reconciliation and Additional Information for a discussion of management's use of non-GAAP financial measures.

~~We recorded gains of $142 million in~~In the third quarter of ~~2018 and $182~~2020, we recorded a $65 million non-cash gain presented in Other, net within our unaudited condensed consolidated statements of operations to state at fair value one of our portfolio investments treated under the measurement alternative method of accounting. This gain is included in Investment impairment charges (credits) presented in the ~~first nine months of 2018 based on the difference between the book values and the fair values~~reconciliation of our ~~previously-held investments immediately prior~~results of operations prepared in accordance with U.S. GAAP to those adjusted results considered by management. Refer to Financial Summary for the ~~acquisition dates. The aggregate fair value~~reconciliation and Additional Information for a discussion of ~~our previously-held investments immediately prior to the acquisition dates was $251 million. We remeasured the fair value~~management's use of each previously-held investment based on the implied enterprise value and allocation of purchase price consideration according to priority of equity interests. Gains and losses recorded on previously-held investments are excluded by management for purposes of evaluating operating performance and are presented within ~~Acquisition/divestiture-related net charges (credits)~~.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,
	2020		2019		2020		2019
Effective tax rate from continuing operations	31.7	%	(38.7)	%	24.3	%	(1.6)	%

Three Months Ended September 30, Nine Months Ended September 30,
2019 2018 2019 2018
Effective tax rate from continuing operations (38.7 )% 5.3 % (1.6 )% (14.1 )%

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charges, litigation-related ~~items~~net charges as well as certain discrete tax items primarily related to ~~share-based payments and~~ the ~~2018 settlement~~resolution of ~~our transfer pricing dispute with the~~an Internal Revenue Service (IRS) ~~for~~audit, as explained below, tax windfall benefits associated with share-based payments, and impacts of the ~~2001~~Coronavirus Aid, Relief and Economic Security (CARES) Act, enacted on March 27, 2020.

Critical Accounting Policies and Estimates

Our financial results are affected by the selection and application of accounting policies and methods. In the nine months ended September 30, ~~2019,~~2020, there were no changes to the application of critical accounting policies previously disclosed in our most recent Annual Report on Form 10-K. We have included below information relating to our annual goodwill impairment test performed in the second quarter of 2020.

Goodwill Valuation

We did not record any goodwill impairment charges in the third quarter and first nine months of 2020 or 2019. We test our goodwill balances in the second quarter of each year as of April 1 for impairment, or more frequently if impairment indicators are present or changes in circumstances suggest an impairment may exist. In the second quarter of 2020, we performed our annual goodwill impairment test for all of our reporting units and concluded that the fair value of each reporting unit exceeded its carrying value.

We assess goodwill for impairment at the reporting unit level, which is defined as an operating segment or one level below an operating segment, referred to as a component. We identified the following reporting units in our 2020 annual goodwill impairment test: Interventional Cardiology, Peripheral Interventions, Cardiac Rhythm Management, Electrophysiology, Endoscopy, Urology and Pelvic Health, Neuromodulation and Specialty Pharmaceuticals. We aggregated the Cardiac Rhythm Management and Electrophysiology reporting units, components of the Rhythm Management operating segment, based on the criteria prescribed in FASB ASC Topic 350, Intangibles - Goodwill and Other.

In 2020, we utilized the qualitative assessment approach to test all of our reporting units. We assessed recent events, including the COVID-19 pandemic, as well as changes in macroeconomic factors, industry and market conditions, overall financial performance and other entity-specific factors since the most recently performed quantitative test. After assessing the totality of events, we determined that it is more likely than not that the fair value of each of our reporting units has sufficient excess over its carrying value, and concluded that goodwill was not impaired or at risk of impairment in the second quarter of 2020.

Liquidity and Capital Resources

We are currently in a strong financial position with solid liquidity, a prudent debt maturity profile, and have credit arrangements with a broad, global, and robust commercial banking syndicate. We believe our long-term fundamentals remain strong given our innovative product portfolio and pipeline, our category leadership strategy and talented global team. As a result of the impact of the COVID-19 pandemic on our business, we took proactive steps in the second quarter of 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 increasing available liquidity and preemptively amending our financial covenant requirement for our outstanding credit arrangements, implementing significant cost reductions as described above in COVID-19 Pandemic and slowing planned capital expenditures.

We have a cross-functional strategic cash management team to take appropriate actions to ensure we continue to optimize funds in the near and long-term to execute our core mission. To address the temporary adverse impacts of COVID-19 on our business, we have taken steps to manage outstanding borrowings and increase available liquidity. In May 2020, we completed an offering

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of $1.700 billion in aggregate principal amount of senior notes and used the net proceeds to prepay $1.250 billion of amounts outstanding under our February 2021 and April 2021 Term Loan and pay related fees, expenses and premiums, as well as to refinance $450 million of amounts outstanding under our Revolving Credit Facility. We now have full access to the $2.750 billion of available liquidity under our Revolving Credit Facility. In May 2020, we also completed public equity offerings of preferred stock and common stock, as discussed below, and used a portion of the combined net proceeds to repay in full the remaining amounts outstanding under the April 2021 Term Loan. During the third quarter of 2020, we made a further prepayment of the remaining $250 million outstanding under our February 2021 Term Loan and terminated the 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 condensed consolidated financial statements contained in Item 1 of this Quarterly Report on Form 10-Q, which is incorporated herein by reference.

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 ~~fund possible mergers and/or acquisitions~~ and service and repay our existing debt for the next ~~twelve~~12 months.

Financial Covenant

As of and through September 30, ~~2019,~~2020, we ~~had $277 million of unrestricted~~ ~~Cash and cash equivalents~~ ~~on hand, comprised of $26 million invested~~were in ~~money market and government funds and $249 million in interest bearing and non-interest-bearing bank accounts. We invest excess cash on hand in short-term~~compliance with the financial instruments that earn 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. We also have access to our $2.750 billion commercial paper program, which is backedcovenant required by ~~our 2018 revolving~~all existing credit ~~facility. As of September 30, 2019, we had $1.293 billion in commercial paper debt outstanding resulting in an additional $1.457 billion of available liquidity.~~facilities.

On ~~August 19, 2019,~~April 21, 2020, we entered into an agreement with our banking syndicates to amend the financial covenant requirement for all of our outstanding credit arrangements as follows: (i) establish a deemed Consolidated EBITDA of $671 million for the ~~purpose~~second, third and fourth quarters of ~~funding~~2020, reflecting average quarterly Consolidated EBITDA, as defined in the ~~BTG Acquisition, as described in~~credit agreements, for 2018 and 2019; and (ii) maintain the maximum permitted leverage ratio of 4.75 times through the remainder of 2020, with a step-down for each succeeding fiscal quarter end to 4.50 times, 4.25 times, 4.00 times and ultimately 3.75 times for the fourth quarter of 2021 and through the remaining term of the facility. In addition, pursuant to the April 21, 2020 Revolving Credit Facility and February 2021 Term Loan amendments, the definition of “Material Adverse Effect” has been amended to remove the direct and indirect effects of the COVID-19 pandemic from what constitutes a material adverse effect through the remainder of 2020. We believe that we have the ability to comply with the amended covenant requirement for the next 12 months.

Contractual Obligations and Commitments

Certain of our acquisitions involve the payment of contingent consideration. See Note B – Acquisitions and Strategic Investments to our unaudited condensed consolidated financial statements contained in Item 1 of this Quarterly Report on Form 10-Q, we borrowed $1.000 billion under the Two-Year Delayed Draw Term Loan, which matures on August 19, 2021, and $1.000 billion under the Three-Year Delayed Draw Term Loan, which matures on August 19, 2022. As of September 30, 2019, we had $1.000 billion outstanding under our Two-Year Delayed Draw Term Loan and $1.000 billion outstanding under our Three-Year Delayed Draw Term Loan presented within ~~Long-term debt~~ on our accompanying unaudited condensed consolidated balance sheets. As of December 31, 2018, we had no amounts borrowed under the Two-Year Delayed Draw Term Loan and Three-Year Delayed Draw Term Loan.

In February 2019, we completed an offering of $4.300 billion in aggregate principal amount of senior notes. We used a portion of the net proceeds from the offering to repay the $850 million plus accrued interest and premium of our 6.000% senior notes due in January 2020 (January 2020 Notes), the $600 million plus accrued interest and premium of our 2.850% senior notes due in May 2020 (May 2020 Notes) and the $1.000 billion plus accrued interest of our August 2019 Term Loan. In the third quarter of 2019, the remaining proceeds were used to finance a portion of the BTG Acquisition.

Upon the closing of our senior notes offering in February 2019, we terminated the Bridge Facility entered into on November 20, 2018. The termination was pursuant to the terms of the Bridge Facility, which required full termination upon the refinancing of the January 2020 Notes and May 2020 Notes.

~~For additional information on our credit facilities, term loans and senior notes, refer to~~ ~~Note E – Borrowings and Credit Arrangements~~ ~~to our unaudited condensed consolidated financial statements contained in Item 1 of this Quarterly Report on Form 10-Q and~~ ~~Note E – Borrowing and Credit Arrangements~~ ~~to our audited financial statements contained in Item 8 of our most recent Annual Report on Form 10-K.~~

~~In addition, we are initiating a process to explore the divestiture of the royalty stream associated with the Zytiga™ licensing arrangements obtained as part of the BTG Acquisition.~~

~~The following provides a summary and description of our net cash inflows (outflows):~~

Nine Months Ended September 30,
(in millions) 2019 2018
Cash provided by (used for) operating activities $ 1,144
$ 291
Cash provided by (used for) investing activities (4,992 ) (1,326 )
Cash provided by (used for) financing activities 3,697
1,007

~~Operating Activities~~

In the first nine months of 2019, cash provided by operating activities increased $853 million as compared to the first nine months of 2018. The increase was primarily due to the one-time settlement payment of $180 million that we received from Edwards Lifesciences Corporation in January 2019 and the IRS final net tax settlement payment of $303 million plus $307 million of estimated interest that we remitted in the second quarter of 2018.

~~Investing Activities~~

~~In the first nine months of 2019, cash used for investing activities primarily included~~ ~~Payments for acquisitions of businesses, net of cash acquired~~ ~~of $4.382 billion relating to our acquisitions of BTG, Vertiflex and Millipede, Inc. (Millipede),~~ ~~Purchases of property, plant and equipment~~ ~~of $275 million,~~ ~~Payments for investments and acquisitions of certain technologies~~ ~~of $137 million and~~ ~~Proceeds from divestiture of certain businesses~~ of $90 million relating to the sale of our drug-eluting and bland embolic microsphere portfolio to Varian Medical Systems, Inc. (Varian) in connection with the BTG Acquisition. Cash used for investing activities also included ~~Payments for settlements of hedge contracts~~ of $294 million relating to certain of our non-designated forward currency contracts entered into for the purpose of managing our exposure to currency exchange rate risk related to the purchase price of the BTG Acquisition. As of September 30, 2019, we settled all outstanding contracts, resulting in a cumulative loss and cash payment of $294 million. Refer to ~~Note D – Hedging Activities and Fair Value Measurements~~to our unaudited condensed consolidated financial statements contained in Item 1 of this Quarterly Report on Form 10-Q for further ~~information.~~details regarding the estimated potential amount of future contingent consideration we could be required to pay associated with our acquisitions.

In response to the ~~first nine months of 2018, cash used for investing activities primarily included~~ ~~Payments for acquisitions of businesses, net of cash acquired~~ ~~of $968 million relating~~COVID-19 pandemic, we are optimizing operational output and continuing to work with suppliers to renegotiate open purchase obligations. As we execute these plans, there may be reductions to our ~~acquisitions including NxThera, Claret, Cryterion Medical, Inc. (Cryterion)~~future minimum purchase obligations and ~~nVision Medical Corporation (nVision),~~ ~~Purchases of property, plant~~commitments as reported in our most recent Annual Report filed on Form 10-K. These purchase obligations relate primarily to non-cancellable raw material supply commitments and ~~equipment~~ ~~of $210 million and~~ ~~Payments for investments and acquisitions of certain technologies~~ ~~of $148 million, including our $90 million investment in Millipede.~~

~~Financing Activities~~

~~Our cash flows provided by financing activities primarily related to issuances and repayments of debt~~capital expenditures entered in the ~~first nine months~~normal course of ~~2019 and 2018.~~business. In ~~the first nine months of 2019,~~addition, recent transactions within our ~~cash flows provided by financing activities primarily included~~ ~~Proceeds from long-term borrowings, net of~~ debt ~~issuance costs~~ ~~of $6.243 billion,~~ ~~Payments on long-term borrowings and debt extinguishment costs~~ ~~of $1.472 billion and~~ ~~Payments on short-term borrowings~~ ~~of $1.000 billion.~~

~~In the first nine months of 2018, our cash flows provided by financing activities primarily included~~ ~~Proceeds from short-term borrowings, net of debt issuance costs~~ ~~of $999 million,~~ ~~Proceeds from long-term borrowings, net of debt issuance costs~~ ~~of $989 million,~~ ~~Payments on long-term borrowings and debt extinguishment costs~~ ~~of $602 million and net decrease~~portfolio may result in ~~commercial paper of $403 million.~~

~~Debt~~

~~The following table presents the current and long-term portions of our total debt:~~

As of
(in millions) September 30, 2019 December 31, 2018
Current debt obligations $ 1,297
$ 2,253
Long-term debt 9,590
4,803
Total debt $ 10,888
$ 7,056

~~The following table presents the portions of our total debt that are comprised of fixed and variable rate debt instruments, which are presented on an amortized cost basis:~~

As of
(in millions) September 30, 2019 December 31, 2018
Fixed-rate debt instruments $ 7,586
$ 4,797
Variable rate debt instruments 3,301
2,259
Total debt $ 10,888
$ 7,056

~~As of and through September 30, 2019, we were in compliance with all the required covenants related~~changes to our ~~debt obligations.~~interest payment schedule and amounts within.

~~On October 22, 2019, we announced~~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, with the ~~commencement~~exception of a cash tender offer (Tender Offer) for up to $1.000 billion combined aggregate principal amount (Aggregate Maximum Principal Amount) of our outstanding 4.125% senior notes due October 2023, 4.000% senior notes due March 2028, 3.850% senior notes due May 2025 and 3.375% senior notes due May 2022 (collectively, Tender Offer Notes). The Tender Offer is being made exclusively pursuant to an offer to purchase dated October 22, 2019, which sets forth the terms and conditions of the Tender Offer. Consummation of the Tender Offer is subject to satisfaction or waiver of the conditions described in the offer to purchase, including the financing condition that we shall have closed one or more debt financings resulting in net proceeds in an amount, together with cash on hand, not less than the amount required, upon the terms and subject to the conditions of the Tender Offer, to purchase all the securities validly tendered and accepted for purchase in the Tender Offer and to pay accrued interest thereon and fees and expenses associated therewith.

We expect these proposed transactions to be effectively leverage neutral. We do not expect the Tender Offer or any financing to fund the Tender Offer to materially impact our compliance with existing debt covenants.

~~For additional details related to~~ our debt obligations ~~including our debt covenant requirements, refer to~~discussed in Liquidity and Capital Resources and Note E – ~~Borrowings~~Contractual Obligations and ~~Credit Arrangements~~Commitments to our unaudited condensed consolidated financial statements contained in Item 1 of this Quarterly Report on Form ~~10-Q~~10-Q.

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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 used a portion of the net proceeds to repay remaining amounts outstanding under the April 2021 Term Loan and to pay related fees, expenses and premiums as discussed in Note E – ~~Borrowing~~Contractual Obligations and ~~Credit Arrangements~~Commitments to our ~~audited~~unaudited condensed consolidated financial statements contained in Item 81 of ~~our most recent Annual~~this Quarterly Report on Form ~~10-K.~~10-Q. The remaining proceeds will be used for general corporate purposes, which may include refinancing or repayment of other outstanding indebtedness and funding potential future acquisitions and investments.

~~Equity~~

We received $107 million in the first nine months of 2020 and $113 million in the first nine months of 2019 ~~and $94 million in the first nine months of 2018~~ 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 ~~2019~~2020 or ~~2018.~~2019. As of September 30, ~~2019,~~2020, the remaining authorization to repurchase shares under our 2013 share repurchase program was $535 million.

~~Contractual Obligations and Commitments~~

~~Certain of our acquisitions involve the payment of contingent consideration. See~~ ~~Note B – Acquisitions and Strategic Investments~~to our unaudited condensed 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.

On August 21, 2019, we completed the sale of our drug-eluting and bland embolic microsphere portfolio to Varian in connection with the BTG Acquisition. The transaction price consists of an upfront cash payment of $90 million, a portion of which is allocated to the fair value of the services to be rendered under the Transition Services Agreement and Transition Manufacturing Agreement entered into with Varian as part of this transaction. Additionally, we transferred certain contingent consideration arrangements arising from our initial acquisition of the portfolio to Varian and agreed to indemnify Varian for any payments ultimately arising under the terms of the contingent consideration arrangement. Accordingly, as part of the disposal, we recorded a liability of $16 million related to this guarantee to recognize the fair value of the obligation resulting from the indemnifications. The maximum amount payable under this guarantee is $200 million. Refer to ~~Note B – Acquisitions and Strategic Investmentsto our unaudited condensed consolidated financial statements contained in Item 1 of this Quarterly Report on Form 10-Q for additional information.~~

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, with the exception of our debt obligations discussed in ~~Liquidity and Capital Resources~~ ~~and~~ ~~Note E – Borrowings and Credit Arrangements~~ ~~to our unaudited condensed consolidated financial statements contained in Item 1 of this Quarterly Report on Form 10-Q.~~

Legal Matters

For a discussion of our material legal proceedings see Note IH – Commitments and Contingencies to our unaudited condensed consolidated financial statements contained in Item 1 of this Quarterly Report on Form 10-Q and Note J – 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, ~~2018~~2019 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 condensed 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.

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Stock Trading Policy

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

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

Use of Non-GAAP Financial Measures

To supplement our unaudited condensed consolidated financial statements presented on a GAAP basis, we disclose certain non-GAAP financial measures, including adjusted net income ~~(earnings)~~(loss), adjusted net income (loss) available to common stockholders and adjusted net income ~~(earnings)~~(loss) per share (EPS) that exclude certain amounts and operational net sales growth that exclude the impact of foreign currency fluctuations. 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 ~~(earnings)~~(loss), adjusted net income (loss) available to common stockholders and adjusted net income ~~(earnings)~~(loss) per share we exclude certain charges (credits) from GAAP net ~~income.~~income and GAAP net income 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 FASB 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 following is an explanation of each incremental or revised adjustment type that management excluded as part of these non-GAAP financial measures, since our most recent Annual Report on Form 10-K, as well as the reason for excluding each item:

Acquisition / divestiture-related net charges (credits) or payments- These adjustments may consist of (a) contingent consideration fair value adjustments; (b) gains on previously held investments; (c) due diligence, deal fees and costs, inventory step-up amortization, integration and exit costs, other fees, and accelerated compensation expense; and (d) separation costs and gains primarily associated with the sale of a business or portion of a business. The contingent consideration adjustments represent accounting adjustments to state contingent consideration liabilities at their estimated fair value. These adjustments can be highly variable depending on the assessed likelihood and amount of future contingent consideration payments. Due diligence, deal fees, inventory step-up amortization, integration and exit costs include legal, tax, severance and other expenses and gains associated with prior and potential future acquisitions and divestitures can be highly variable and not representative of ongoing operations. Deal fees and costs in 2019 included expenses for instruments entered into solely for the purpose of financing or hedging the BTG Acquisition, including net interest expense and hedging expenses. Subsequent to September 30, 2019, we did not incur and will not incur any hedging gains or losses related to the BTG Acquisition, and we are not classifying interest expense as an acquisition / divestiture-related item. Acquisition / divestiture-related net charges (credits) are excluded from management's assessment of operating performance and from our operating segments' measures of profit and loss used for making operating decisions and assessing performance.

•

Medical device regulation charges or payments- These adjustments represent incremental costs or payments specific to complying with the new European Union Medical Device Regulation (EU MDR) for previously registered products. EU MDR is a replacement of the existing European Medical Devices Directive (MDD) regulatory framework, and manufacturers of currently marketed medical devices are required to comply with EU MDR beginning in May 2020. We expect to incur expenditures in connection with the new registration of medical devices that previously had been registered under MDD. We consider the adoption of EU MDR to be a significant change to a regulatory framework, and therefore, these expenditures are not considered to be ordinary course expenditures in connection with regulatory matters. As such, these medical device regulation charges are excluded from management's assessment of operating performance and from our operating segments' measures of profit and loss used for making operating decisions and assessing performance.

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 ~~share.~~

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 period. The

GAAP financial measure most directly comparable to operational growth rate percentages is growth rate percentages using net sales on a GAAP basis.

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

Management uses these supplemental non-GAAP financial measures to evaluate performance period over period, to analyze the underlying trends in our business, to assess our performance relative to our competitors and to establish operational goals and forecasts that are used in allocating resources. In addition, management uses these non-GAAP financial measures to further its understanding of the performance of our operating segments. The adjustments excluded from our non-GAAP financial measures are consistent with those excluded from our operating segments’ measures of net sales and profit or loss. These adjustments are excluded from the segment measures reported to our chief operating decision maker that are used to make operating decisions and assess performance.

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We believe that presenting adjusted net income (loss), adjusted net income (loss) available to common stockholders, adjusted net income (loss) per share that exclude certain amounts and operational net sales growth that exclude the impact of changes in foreign currency exchange 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, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements may be identified by words like “anticipate,” “expect,” “project,” “believe,” “plan,” “estimate,” “intend,” “aiming” 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 COVID-19 pandemic on our operations and financial results, future U.S. and global economic, political, competitive, reimbursement and regulatory conditions, 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.~~predict, including those that have emerged or have increased in significance or likelihood as a result of COVID-19. 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 U.S. and global economies and financial markets,

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

•The impact of natural disasters, public health crises, including the COVID-19 pandemic, and other catastrophic events,

•The impact of COVID-19 on our global manufacturing and distribution system including the quality of our products,

•Our ability to recover and increase net sales, expand the market, capture market share and adapt to market volatility,

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

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•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,

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

•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 retain and attract key personnel, including those associated with recent acquisitions,

•The inability of certain of our employees to return to work full time following reduced work schedules, or our inability to recruit personnel into direct labor roles,

•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, and

•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.

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,

•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 ~~medical devices,~~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,

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•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, ~~and~~

•Our ability to operate properly ~~operate~~ 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.~~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 ~~revenue~~net sales growth opportunities as well as to ~~keep them in line with~~maintain the estimated timing and costs of such projects and expected revenue levels for the resulting products and technologies,

•Our ability to ~~successfully~~ 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 impact of changes in our international structure and leadership,~~

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

•The ~~political~~impact on pricing due to national tenders,

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

•The United ~~Kingdom's exit~~Kingdom’s departure from the ~~EU, often referred to as "Brexit"),~~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, MDR, and similar laws in other jurisdictions,

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•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, ~~in both~~

•The impact of significant developments or uncertainties stemming from the U.S. administration and ~~abroad,~~the November 3, 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 impact of examinations and assessments by domestic and international taxing authorities on our tax provision, financial condition or results of operations,

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

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

•The impact of potential intangible asset impairment charges, including on our results of operations, 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 ~~significant~~ changes made or expected to be made to our organizational and operational structure, pursuant to our restructuring plans as well as any further restructuring or optimization plans we may undertake in the future and our ability to recognize benefits and cost reductions from such programs and

•Business disruption and employee distraction as we execute our global compliance program, restructuring and optimization plans and divestitures of assets or businesses and implement our other strategic and cost reduction initiatives.

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~~ITEM 3.~~	~~QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK~~

ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We develop, manufacture and sell medical devices globally and our earnings and cash flows are exposed to market risk from changes in currency exchange rates and interest rates. We address these risks through a risk management program that includes the use of derivative financial instruments. We operate the program pursuant to documented corporate risk management policies. We do not enter derivative transactions for speculative purposes. Gains and losses on derivative financial instruments substantially offset losses and gains on underlying hedged exposures. Furthermore, we manage our exposure to counterparty risk on derivative instruments by entering into contracts with a diversified group of major financial institutions and by actively monitoring outstanding positions.

Our currency risk consists primarily of foreign currency denominated firm commitments, forecasted foreign currency denominated intercompany and third-party transactions and net investments in certain subsidiaries. We use both nonderivative (primarily European manufacturing operations) and derivative instruments to manage our earnings and cash flow exposure to changes in currency exchange rates. We had currency derivative instruments outstanding in the contract amount of ~~$9.487~~$9.392 billion as of September 30, ~~2019~~2020 and ~~$11.326~~$9.221 billion as of December 31, ~~2018.~~2019. A ten percent appreciation in the U.S. dollar’s value relative to the hedged currencies would increase the derivative instruments’ fair value by ~~$456~~$338 million as of September 30, ~~2019~~2020 as compared to ~~$181~~$337 million as of December 31, ~~2018.~~2019. A ten percent depreciation in the U.S. dollar’s value relative to the hedged currencies would decrease the derivative instruments’ fair value by ~~$558~~$414 million as of September 30, ~~2019~~2020 as compared to ~~$222~~$412 million as of December 31, ~~2018.~~2019. Any increase or decrease in the fair value of our currency exchange rate sensitive derivative instruments would be substantially offset by a corresponding decrease or increase in the fair value of the hedged underlying asset, liability or forecasted transaction, resulting in minimal ~~impact~~impacts on our unaudited condensed consolidated statements of operations.

Our interest rate risk relates primarily to U.S. dollar borrowings partially offset by U.S. dollar cash investments. We have historically used interest rate derivative instruments to manage our earnings and cash flow exposure to changes in interest rates. We had no interest rate derivative instruments outstanding as of September 30, ~~2019~~2020 and ~~$1.000 billion outstanding in the contract amount as of~~ December 31, ~~2018.~~2019. As of September 30, ~~2019, $7.650~~2020, $9.404 billion in aggregate principal amount of our outstanding debt obligations were at fixed interest rates, representing approximately 70100 percent of our total ~~debt.~~debt, on an amortized cost basis. As of September 30, ~~2019,~~2020, our outstanding debt obligations at fixed interest rates were comprised of senior notes.

Certain of our non-designated forward currency contracts were entered into for the purpose of managing our exposure to currency exchange rate risk related to the purchase price of the BTG Acquisition. As of September 30, 2019, we settled all outstanding contracts, resulting in a cumulative loss on the contracts of $294 million that was recognized over time in earnings as we adjusted for changes in fair value until the final fair value was determined at maturity. We recognized a $207 million loss in the third quarter of 2019 and a $323 million loss in the first nine months of 2019 in ~~Other, net~~ ~~due to changes in fair value of the contracts.~~

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

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~~ITEM 4.~~	~~CONTROLS AND PROCEDURES~~

ITEM 4.CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer (CEO) and our Chief Financial Officer (CFO), evaluated the effectiveness of our disclosure controls and procedures as of September 30, ~~2019~~2020 pursuant to Rule 13a-15(b) of the Securities Exchange Act of 1934, as amended (the Exchange Act). Disclosure controls and procedures are designed to ensure that material information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such material information is accumulated and communicated to our management, including our CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure. Based on their evaluation, our CEO and CFO concluded that, as of September 30, ~~2019,~~2020, our disclosure controls and procedures were effective.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting in the ~~three month~~three-month period ended September 30, ~~2019~~2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

While there are a number of business risks that have emerged associated with COVID-19 (Refer to Risk Factors contained in Part I. Item 1A of this Quarterly Report), we are continuing to monitor these risks and have implemented business continuity measures as described within Management’s Discussion and Analysis. Additionally, the Company has provided regular updates to the Board of Directors on risk mitigation strategies to ensure transparent decision making and appropriate Board oversight.

~~On August 19, 2019, we announced the closing~~

Further, while many of our ~~acquisition~~employees worked remotely to adhere to COVID-19 social distancing requirements, this did not affect our ability to maintain financial reporting systems, internal controls over financial reporting or disclosure controls and procedures. Prior to the COVID-19 pandemic, we were leveraging electronic tools to facilitate our global close process and to connect our physically dispersed team of ~~BTG plc (BTG). In accordance with~~finance professionals in offices around the ~~SEC Staff interpretive guidance for newly acquired businesses,~~world. While the quarterly close cycles were performed remotely, fundamentally, the work performed, and the processes and controls executed did not change. As we approach year-end, we are ~~permitted~~evaluating the potential impact, if any, to ~~omit an assessment of an acquired business's~~ internal control over financial reporting ~~from~~relating to potential restrictions to access to consigned inventory at customer locations for our ~~assessment~~inventory count procedures.

Table of internal control for up to one year from the acquisition date. As such, we intend to exclude BTG from our annual assessment of internal controls over financial reporting as of December 31, 2019, as the acquisition was completed on~~August 19, 2019. BTG represents 17 percent of our total assets as of September 30, 2019 and 1 percent of our total revenues for the first nine months of 2019.~~Contents

PART II

OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

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

ITEM 1A. RISK FACTORS

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

The ongoing global COVID-19 pandemic and related impacts are subject to a number of market, business, financial, legal and regulatory risks and uncertainties with respect to our international operations that could have a material impact on our business, financial condition or results of operations.

International net sales, excluding sales from the BTG Acquisition, accounted for 42 percent in the third quarter and 43 percent in the first nine months of 2019 of our global net sales. An important part of our strategy is to continue pursuing growth opportunities in net sales and market share outside of the U.S. by expanding global presence, including in Emerging Markets. Our international operations are subject to a number of market, business and financial risks and uncertainties, including those related to geopolitical and economic instability, foreign currency exchange and interest rate fluctuations, competitive product offerings, local changes in health care financing and payment systems and health care delivery systems, local product preferences and requirements, including preferences for local manufacturers, workforce instability, less intellectual property protection in certain countries than exists in the U.S. and, in certain foreign countries, longer accounts receivable cycles. Such risks and uncertainties may adversely impact our ability to implement our growth strategy in these markets and, as a result, our sales growth, market share and operating profits from our international operations may be adversely affected.

Our international operations are subject to established and developing legal and regulatory requirements for medical devices in each country in which our products are marketed and sold. Most foreign countries have medical device regulations. Further, most countries outside of the U.S. require product approvals be renewed or recertified on a regular basis in order to continue to be marketed and sold there. In addition, several countries that previously did not have regulatory requirements for medical devices have established such requirements in recent years and other countries have expanded, or plan to expand, existing regulations, including requiring local clinical data in addition to global clinical data. These factors have caused or may cause us to experience more uncertainty, risk, expense and delay in commercializing products in certain foreign jurisdictions, which could affect our ability to obtain approvals for our products in those jurisdictions and adversely impact our net sales, market share and operating profits from our international operations.

Further, international markets are affected by economic pressure to contain healthcare costs, which can lead to more rigorous evidence requirements and lower reimbursement rates for either our products directly or procedures in which our products are used. Governments and payers may also institute changes in health care delivery systems that may reduce funding for services or encourage greater scrutiny of health care costs. In addition, certain international markets may also be affected by foreign government efforts to reference reimbursement rates in other countries. All of these types of changes may ultimately reduce selling prices of our products and/or reduce the number of procedures in which our products are used, which may adversely impact our net sales, market share and operating profits from our international operations.

In addition, our international operations are subject to other established and developing U.S. and foreign legal and regulatory requirements, including FCPA and/or similar laws in other countries and U.S. and foreign import and export controls and licensing requirements, trade protection and embargo measures and customs laws. Global businesses, including those in the medical device industry, are facing increasing scrutiny of, and heightened enforcement efforts with respect to, their international operations. Any alleged or actual failure to comply with legal and regulatory requirements may subject us to government scrutiny, civil and/or criminal proceedings, sanctions and other liabilities, which may havehaving a material adverse effect on our ~~international~~ operations, financial ~~condition,~~performance and cash flows. We are unable to predict the extent to which the pandemic and related impacts will continue to adversely impact our business operations, financial performance, results of operations, ~~and/or liquidity.~~financial position and the achievement of our strategic objectives.

InOur operations, financial performance and cash flows have been negatively impacted by the ongoing COVID-19 pandemic that has caused, and is expected to continue to cause, the global slowdown of economic activity (including the decrease in demand for a ~~referendum on June 23, 2016, voters approved~~broad variety of goods and services), disruptions in global supply chains and significant volatility, disruption of financial markets, a U.S. economic recession and, potentially, a global economic recession. Because the ~~exit~~severity, magnitude, and duration of the ~~United Kingdom (UK) from~~COVID-19 pandemic and its economic consequences are uncertain, rapidly changing, and difficult to predict, the ~~European Union (EU). Following a formal notification by~~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. Further, the UK to the EU that it intends to leave the EU, and after several extensions to the deadline for doing so agreed between the UK and the EU, the current date on which the UK will legally withdraw from the EU is January 31, 2020. However, there will be a general election in the UK on December 12, 2019 in which all seatsultimate impact of the ~~House of Commons will be contested,~~COVID-19 pandemic on our operations and ~~the composition of the House of Commons after the election will determine the identity of the Prime Minister and~~

the government. This will affect the terms of its withdrawal and the nature of its future relationship with the EU, which are still being decided, with the various major parties offering significantly different visions for whether and how the UK will withdraw from the EU and the subsequent relationship with the EU. Future exit of the UK from the EU will have numerous consequences in all areas of our business, including, economic, regulatory and operational, and the actual impactfinancial performance depends on ~~the ultimate outcome,~~many factors that are not within our control, including, but not limited, to: governmental, business and is very difficult to assess at this time. Changes in industry regulations could have an effect on existing CE certificates being renewed and new certificates being issued which would impact the ability to trade; however, it is impossible to assess the full impact at this stage.

At this stage, the materiality to us of the Brexit risk factor remains unknown and unquantifiable. However, we have implemented a Brexit Response Team and have put in place mitigation procedures to reduce any significant operational risksindividuals’ actions that have been ~~identified~~and continue to ~~date.~~

~~Any significant changes~~be taken in response to the ~~political~~pandemic (including restrictions on travel, transport and workforce pressures, and voluntary or mandated deferrals or postponements of elective procedures); the impact of the pandemic and actions taken in response on global and regional economies, travel, and economic activity; the availability of federal, state, local or non-U.S. funding programs; general economic uncertainty in key global markets and financial ~~competitive, legal~~market volatility; global economic conditions and ~~regulatory or reimbursement conditions where we conduct, or plan~~levels of economic growth; and the timing and pace of recovery when the COVID-19 pandemic subsides, which could be impacted by a number of factors, including limited provider capacity to ~~expand, our international operations may have a material impact on our business, financial condition or results of operations.~~

~~Disruptions in the supply of the materials and components used in manufacturing~~perform procedures using our products ~~or the sterilization of our products by third-party vendors could adversely affect our results of operations and financial condition.~~

We purchase the majority of the materials and components used in manufacturing our products from third-party vendors. Certain of these materials and components are purchased from single sources due to quality considerations, expertise, costs or constraints resulting from regulatory requirements. In certain cases, we may not be able to establish additional or replacement vendors for such materials or components in a timely or cost effective manner, largelythat were deferred as a result of ~~FDA regulations that require validation~~the pandemic.

The COVID-19 pandemic has subjected, and is expected to continue to subject, our operations, financial performance and financial condition to a number of risks, including, but not limited to those discussed below:

•Operations-related risks: Across all of our businesses, we are facing increased operational challenges from the need to protect employee health and safety. Some of these challenges include site shutdowns, workplace disruptions and restrictions on the movement of people, raw materials and ~~components prior~~goods, both at our own facilities and at customers and suppliers. We are also experiencing, and expect to ~~their use in~~continue experiencing, lower demand and volume for certain products and services, customer requests for potential payment deferrals or other contract modifications, delays of deliveries and other factors related directly and indirectly to the COVID-19 pandemic that adversely impact our businesses. We expect that the longer the period of economic and global supply chain and disruption continues, the more material the cumulative adverse impact will be on our business operations, financial performance and results of operations. Our ability to manufacture our products is highly dependent on our ability to maintain the safety and ~~the complex nature~~health of our ~~and many~~employees. The ability of our ~~vendors' manufacturing processes. A reduction~~employees to work may be significantly impacted by one or ~~interruption~~more employee contracting or being exposed to COVID-19. Additionally, when the economic recovery following the COVID-19 pandemic occurs, we may experience unpredictable increases in the supply of materials and components used in manufacturing our products, an inability to timely develop and validate alternative sources if required or a significant increase in the price of such materials or components could adversely affect our results of operations and financial condition.

~~In addition, many~~demand for certain of our products, ~~require sterilization prior~~which could exceed our capacity to sale and we utilize a mix of internal resources and contract sterilizers to perform this service. To the extent we or our contract sterilizers are unable to sterilize our products, whether due to capacity, availability of materials for sterilization, regulatory or other constraints, including federal and state regulationsmeet such demand on ~~the use of ethylene oxide, we may be unable to transition to other contract sterilizers, sterilizer locations or sterilization methods in~~ a timely ~~or cost effective manner~~basis or at all, which could have a material adverse impact on our business operations, financial performance and results of ~~operations~~operations.

•Customer-related risks: In particular, as a result of impacts associated with preventive and ~~financial condition.~~

~~As previously disclosed, one~~precautionary measures that we, other businesses and governments are taking to quell the spread of COVID-19 and protect our customers, employees, and the patients receiving our products, we have experienced significant and unpredictable reductions in demand for certain of our ~~contract sterilizers, Sterigenics U.S. LLC (Sterigenics), uses ethylene oxide~~products as health care customers re-prioritize the treatment of patients. For example, in the United States in mid-March, governmental authorities began recommending, and in certain cases required, that elective procedures be suspended or canceled to ~~provide sterilization services for~~avoid non-essential patient exposure to medical environments and potential

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infection with COVID-19 and to focus limited resources and personnel capacity toward the treatment of COVID-19. These measures and challenges significantly reduced our net sales in the second and third quarters and the situation remains challenging. In certain ~~men’s~~jurisdictions, however, the timing of the pandemic and public health ~~products within our Urology~~measures have resulted in lower levels of COVID-19 cases and ~~Pelvic Health business. In October 2018,~~some hospitals have developed protocols such that elective procedures may be conducted safely and are approaching pre-COVID-19 pandemic levels. Further, once the ~~DuPage County State's Attorney and Illinois Attorney General filed~~pandemic subsides, we anticipate there may be some continued reluctance upon the part of some patients to seek medical attention in a lawsuit against Sterigenics over the emissions in connection with the use of ethylene oxide during sterilization at Sterigenics’ Willowbrook, Illinois plant. On February 15, 2019, the Illinois Environmental Protection Agency (EPA) took action to suspend operations at the Willowbrook facility. Effective March 28, 2019, the FDA granted Boston Scientific approval to sterilize men’s health products affected by the Sterigenics closure at an existing sterilization facility in our supply chain network.hospital setting. In addition, ~~throughout~~for the ~~second quarter~~majority of ~~2019,~~patients who do seek appointments with physicians and surgeries to be performed at hospitals and ambulatory surgery centers relating to a variety of medical conditions, we ~~received~~anticipate there may be a substantial backlog. As a result, patients seeking to schedule or reschedule elective or deferrable procedures utilizing our products may have to navigate potentially limited healthcare provider capacity. We believe this likely patient reluctance and potential healthcare provider capacity could have an adverse effect on our sales following the ~~requisite approvals from regulatory agencies outside~~end of the ~~U.S.~~pandemic.

•Employee-related risks: In an attempt to ~~sterilize~~proactively address the changed business environment caused by COVID-19, in order to preserve employees’ jobs and ensure we are able to quickly respond to increased customer demand, when deferrable procedures resume as permitted by development or conclusion of the pandemic, we made temporary work hour reductions, and corresponding salary reductions, where appropriate, for many of our ~~men’s health products at~~employees. However, because the severity, magnitude, and duration of the COVID-19 pandemic and its economic consequences are uncertain, rapidly changing, and difficult to predict, we may, in the future, have to consider taking additional actions including further reductions to salary and work hours, furloughs, restructuring, layoffs or extensions of remote work arrangements, which may negatively impact our ~~existing sterilization facility.~~workforce and our business. These negative impacts could include inhibiting our ability to quickly respond to increased customer demand and to take advantage of more favorable economic and market conditions after the pandemic subsides as well as lower productivity and higher employee attrition.

•Accounting-related risks: Generally accepted accounting principles and the related authoritative guidance are complex and involve subjective judgments. In particular, the accounting for revenue, inventory, goodwill, intangible assets, income taxes and other assets and liabilities requires reliance on forward looking estimates of sales and/or earnings. Due to the uncertainty surrounding the COVID-19 pandemic, estimating the future performance of our business is extremely challenging and the range of deviation from internal estimates could be more significant in this environment. Changes in ~~tax laws, unfavorable resolution of tax contingencies,~~the underlying estimates, assumptions or ~~exposure to additional income tax liabilities~~judgments could have a material ~~impact on our financial condition, results of operations and/or liquidity.~~

We are subject to income taxes as well as non-income based taxes and tariffs, in both the U.S. and various foreign jurisdictions. We are subject to ongoing tax audits in various jurisdictions. Tax authorities may disagree with certain positions we have taken and assess additional taxes. We regularly assess the likely outcomes of these audits to determine the appropriateness of our tax provision, and we have established contingency reserves for material, known tax exposures. However, the calculation of such tax exposures involves the application of complex tax laws and regulations in many jurisdictions, as well as interpretations as to the legality under European Union state aid rules of tax advantages granted in certain jurisdictions. Therefore, there can be no assurance that we will accurately predict the outcomes of these disputes or other tax audits or that issues raised by tax authorities will be resolved at a financial cost that does not exceed our related reserves and the actual outcomes of these disputes and other tax audits could have a material impact on our results of operations or financial condition.

Changes in tax laws and regulations, or their interpretation and application, in the jurisdictions where we are subject to tax could materially impact our effective tax rate. The U.S. enacted the Tax Cuts and Jobs Act (TCJA) on December 22, 2017 and we expect the U.S. Treasury to issue future notices and regulations under the TCJA. Certain provisions of the TCJA and the regulations issued

~~thereunder could have a significant~~adverse impact on our future results of operations, financial position and cash flows.

•Leverage- and market-related risks: The current financial market dynamics and volatility pose heightened risks to our previously announced timelines for decreasing our leverage, which we expect to be delayed as we seek to maintain appropriate liquidity to compensate for lower cash flows from operations or as variables impacting our leverage ratios fluctuate with extreme market volatility.

•Liquidity- and funding-related risks: While we have significant sources of cash and liquidity and access to committed credit lines, a prolonged period of generating lower cash from operations could ~~interpretations made by~~adversely affect our financial condition and the ~~Company~~achievement of our strategic objectives. Additionally, there can also be no assurance that we will not face credit rating downgrades as a result of weaker than anticipated performance of our businesses, slower progress in decreasing our leverage or other factors. Future downgrades could further adversely affect our cost of funds and related margins, liquidity, competitive position and access to capital markets, and a significant downgrade could have an adverse commercial impact on our business. Conditions in the ~~absence~~financial and credit markets may also limit the availability of ~~regulatory~~funding or increase the cost of funding (including for receivables monetization or supply chain finance programs, as well as increased borrowing costs and higher interest rates), which could adversely affect our business, financial position and results of operations. Although the U.S. federal and other governments have instituted and/or announced a number of funding programs to support businesses, our ability or willingness to access funding under such programs may be limited by regulations or other guidance, ~~and judicial interpretations.~~

Additionally, the Organization for Economic Co-operation and Development (OECD), the European Commission (EC) and individual taxing jurisdictions where we and our affiliates do business have recently focused on issuesor by further change or uncertainty related to the ~~taxation~~terms of ~~multinational corporations. The OECD has released its comprehensive plan~~these programs.

As the COVID-19 pandemic continues to create an agreed set of international rules for fighting base erosion and profit shifting. In addition, the OECD, the EC and individual counties are examining changes to how taxing rights should be allocated among countries considering the digital economy. As a result, the tax laws in the U.S. and other countries in which we and our affiliates do business could change on a prospective or retroactive basis and any such changes could materially adversely affect our ~~business.~~

~~Our operations in Puerto Rico~~operating and Costa Rica presently benefit from various tax incentives and grants. Unless these incentives and grants are extended, they will expire between 2023 and 2028. If we are unable to renew, extend, or obtain new incentive and grants,financial results, it may also have the ~~expiration~~effect of heightening many of the ~~existing incentives~~other risks described in the risk factors in our Annual Report on Form 10-K for the year ended December 31, 2019. Further, the COVID-19 pandemic may also affect our operating and ~~grants could have a material impact on our~~ financial results in ~~future periods.~~

~~Furthermore, changes in customs laws and regulations in the U.S. and various foreign jurisdictions could have~~ a ~~material impact on~~manner that is not presently known to us or that we currently do not expect to present significant risks to our ~~results of~~ operations or financial ~~condition.~~results, particularly if the COVID-19 pandemic and its associated impacts reoccur in successive waves in the coming months.

ITEM 6. EXHIBITS (* documents filed or furnished with this report, # compensatory plans or arrangements)



31.1*

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31.1*						Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2*						Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1*						Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2*						Certification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.SCH*						XBRL Taxonomy Extension Schema Document.

101.CAL*						XBRL Taxonomy Extension Calculation Linkbase Document.

101.DEF*						XBRL Taxonomy Extension Definition Linkbase Document.

101.LAB*						XBRL Taxonomy Extension Label Linkbase Document.

101.PRE*						XBRL Taxonomy Extension Presentation Linkbase Document.

104						Cover Page Interactive Data File (embedded within the Inline XBRL document and contained in Exhibit 101)

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized on November 5, ~~2019.~~2020.



BOSTON SCIENTIFIC CORPORATION
By:	/s/ Daniel J. Brennan

	Name:	Daniel J. Brennan
	Title:	Executive Vice President and Chief Financial Officer

6466



		Page No.

PART I	FINANCIAL INFORMATION	3

ITEM 1.	Condensed Consolidated Financial Statements	3

	Condensed Consolidated Statements of Operations (Unaudited)	3

	Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited)	4

	Condensed Consolidated Balance Sheets (Unaudited as of September 30, ~~2019)~~2020)	5

	Condensed Consolidated Statements of Stockholders' Equity (Unaudited)	6

	Condensed Consolidated Statements of Cash Flows (Unaudited)	7

	Notes to the Condensed Consolidated Financial Statements (Unaudited)	8

ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	4039

ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	5961

ITEM 4.	Controls and Procedures	6062

PART II	OTHER INFORMATION	6163

ITEM 1.	Legal Proceedings	6163

ITEM 1A.	Risk Factors	6163



ITEM 6.	Exhibits	6364

SIGNATURE		6466



	As of
(in millions, except share and per share data)	September 30, 2019			December 31, 2018
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	277		$	146
Trade accounts receivable, net	1,796			1,608
Inventories	1,566			1,166
Prepaid income taxes	189			161
Other current assets	1,020			921
Total current assets	4,847			4,003
Property, plant and equipment, net	1,942			1,782
Goodwill	10,015			7,911
Other intangible assets, net	8,074			6,372
Other long-term assets	1,879			932
TOTAL ASSETS	$	26,756		$	20,999

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current debt obligations	$	1,297		$	2,253
Accounts payable	512			349
Accrued expenses	1,932			2,246
Other current liabilities	513			412
Total current liabilities	4,254			5,260
Long-term debt	9,590			4,803
Deferred income taxes	807			328
Other long-term liabilities	2,406			1,882

Commitments and contingencies

Stockholders’ equity
Preferred stock, $0.01 par value - authorized 50,000,000 shares, none issued and outstanding
Common stock, $0.01 par value - authorized 2,000,000,000 shares - issued 1,641,342,509 shares as of September 30, 2019 and 1,632,148,030 shares as of December 31, 2018	16			16
Treasury stock, at cost - 247,566,270 shares as of September 30, 2019 and December 31, 2018	(1,717		)	(1,717		)
Additional paid-in capital	17,510			17,346
Accumulated deficit	(6,249		)	(6,953		)
Accumulated other comprehensive income (loss), net of tax	138			33
Total stockholders’ equity	9,699			8,726
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	26,756		$	20,999



	As of September 30,
Reconciliation to amounts within the unaudited condensed consolidated balance sheets:	2019		2018
Cash and cash equivalents	$	277	$	168
Restricted cash and restricted cash equivalents included in Other current assets	357		781
Restricted cash equivalents included in Other long-term assets	43		31
Cash, cash equivalents, restricted cash and restricted cash equivalents at end of period	$	676	$	980



(in millions)
Goodwill	$	1,549
Trade accounts receivable, net	107
Inventories	205
Other current assets	259
Other intangible assets, net	1,869
Other long-term assets	604
Accrued expenses and other current liabilities	(305		)
Other long-term liabilities	(289		)
Deferred tax liability	(380		)
	$	3,619



	Discount Rate	Expected Return on Plan Assets	Rate of Compensation Increase
U.K. Plan	0.4%	0.4%	3.4%



(in millions)
Fair value of plan assets	$	213
Benefit obligation	(216		)
Funded status	$	(3	)



(in millions)
Balance as of December 31, 2018	$	347
Amount recorded related to current year acquisitions	127
Contingent consideration arrangements transferred to Varian	(16		)
Contingent consideration expense (benefit)	(9		)
Contingent consideration payments	(68		)
Balance as of September 30, 2019	$	380



Contingent Consideration Liability	Fair Value as of September 30, 2019	Valuation Technique	Unobservable Input	Range				Weighted Average (1)
R&D, Regulatory and Commercialization-based Milestones	$220 million	Discounted Cash Flow	Discount Rate	2	%	-	3%	3%
			Probability of Payment	50	%	-	90%	84%
			Projected Year of Payment	2019		-	2027	2020
Revenue-based Payments	$160 million	Discounted Cash Flow	Discount Rate	11	%	-	15%	13%
			Probability of Payment	60	%	-	100%	99%
			Projected Year of Payment	2019		-	2026	2021



	Effect of Hedging Relationships on Accumulated Other Comprehensive Income
	Amount Recognized in OCI on Derivative							Unaudited Condensed Consolidated Statements of Operations (1)			Amount Reclassified from AOCI into Earnings
(in millions)	Pre-Tax Gain (Loss)		Tax Benefit (Expense)			Gain (Loss) Net of Tax		Location of Amount Reclassified	Total Amount of Line Item Presented		Pre-Tax (Gain) Loss			Tax (Benefit) Expense			(Gain) Loss Net of Tax
Three Months Ended September 30, 2019
Forward currency contracts
Cash flow hedges	$	101	$	(23	)	$	78	Cost of products sold	$	777	$	(22	)	$	5		$	(17	)
Net investment hedges (2)	64		(14		)	50		Interest expense	95		(12		)	3			(9		)
Interest rate derivative contracts
Cash flow hedges	—		—			—		Interest expense	95		1			—			1
Three Months Ended September 30, 2018
Forward currency contracts
Cash flow hedges	$	58	$	(13	)	$	45	Cost of products sold	$	672	$	2		$	—		$	2
Net investment hedges (2)	4		(1		)	3		Interest expense	58		(10		)	2			(8		)
Nine Months Ended September 30, 2019
Forward currency contracts
Cash flow hedges	$	176	$	(40	)	$	136	Cost of products sold	$	2,265	$	(47	)	$	10		$	(36	)
Net investment hedges (2)	92		(21		)	71		Interest expense	294		(33		)	7			(25		)
Interest rate derivative contracts
Cash flow hedges	—		—			—		Interest expense	294		3			(1		)	2
Nine Months Ended September 30, 2018
Forward currency contracts
Cash flow hedges	$	135	$	(30	)	$	105	Cost of products sold	$	2,084	$	27		$	(6	)	$	21
Net investment hedges (2)	25		(6		)	19		Interest expense	177		(17		)	4			(13		)
Interest rate derivative contracts
Cash flow hedges	—		—			—		Interest expense	177		(1		)	—			(1		)



Designated Derivative Instrument	FASB ASC Topic 815 Designation	Location on Unaudited Condensed Consolidated Statements of Operations	Amount of Pre-Tax Gain (Loss) that may be Reclassified to Earnings
Forward currency contracts	Cash flow hedge	Cost of products sold	$	104
Forward currency contracts	Net investment hedge	Interest expense	48
Interest rate derivative contracts	Cash flow hedge	Interest expense	(5		)



(in millions)	Nine Months Ended September 30, 2019
Cash paid for amounts included in the measurement of operating lease liabilities
Operating cash flows from operating leases	$	55



Fiscal year	Operating Leases (in millions)
2019 (excluding the first nine months of 2019)	$	22
2020	76
2021	65
2022	52
2023	41
Thereafter	95
Total future minimum operating lease payments	350
Less: imputed interest	37
Present value of operating lease liabilities	$	314



	Three Months Ended September 30,				Nine Months Ended September 30,
Geographic Regions (Excluding BTG Acquisition)	2019		2018		2019		2018
U.S.	$	1,521	$	1,375	$	4,402	$	4,078
EMEA (Europe, Middle East and Africa)	530		498		1,662		1,619
APAC (Asia-Pacific)	484		425		1,402		1,282
Latin America and Canada	101		94		293		282
BTG Acquisition⁽¹⁾(Worldwide)	71		n/a		71		n/a
Net Sales	$	2,707	$	2,393	$	7,831	$	7,262

Emerging Markets⁽²⁾ (Excluding BTG Acquisition)	$	310	$	267	$	925	$	812